<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 9, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________________
CALIBER LEARNING NETWORK, INC.
(Exact name of registrant as specified in its charter)
MARYLAND 8200 52-2001020
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification No.)
1000 Lancaster Street
Baltimore, Maryland 21202
(410) 843-8000
(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.
1000 Lancaster Street
Baltimore, Maryland 21202
410-843-8000
(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
<TABLE>
<CAPTION>
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TITLE OF SHARES TO BE REGISTERED PROPOSED MAXIMUM AGGREGATE OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
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<S> <C> <C>
COMMON STOCK, $.01 PAR VALUE $60,000,000 $17,700
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</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o). Includes amount to be sold pursuant to an over-allotment
option to be granted to the Underwriters.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These securities may not be sold nor may +
+offers to buy be accepted prior to the time the registration statement becomes+
+effective. This prospectus shall not constitute an offer to sell or the +
+solicitation of an offer to buy nor shall there be any sale of these +
+securities in any jurisdiction in which such offer, solicitation or sale would+
+be unlawful prior to registration or qualification under the securities laws +
+of any such jurisdiction. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION
, 1998
SHARES
CALIBER LEARNING NETWORK, INC.
COMMON STOCK
__________________
Of the shares of Common Stock offered hereby, are being sold by
Caliber Learning Network, Inc. ("Caliber" or the "Company") and by a
stockholder of the Company (the "Selling Stockholder"). The Company will not
receive any proceeds from the sale of shares by the Selling Stockholder. See
"Principal and Selling Stockholders." 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 $ and $ 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 8 HEREOF.
__________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
==============================================================================================
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO DISCOUNTS AND TO SELLING
PUBLIC COMMISSIONS COMPANY(1) STOCKHOLDER
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<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total(2)................... $ $ $ $
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</TABLE>
(1) Before deducting expenses payable by the Company estimated at $ .
(2) The Company has granted the Underwriters a 30-day option to purchase up to
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 and Proceeds to Company 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>
[INSIDE FRONT COVER]
CALIBER LEARNING NETWORK, INC.
[Map of the United States showing the Caliber Campus sites]
[Photograph of interior of Caliber Campus]
Trademarks or service marks appearing in this Prospectus are trademarks or
registered 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."
-2-
<PAGE>
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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 and (iii) 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") to begin a program for working
adults in 1998. In addition, the Company has signed joint development agreements
with the University of California at Berkeley Extension School 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 February 28, 1998,
the Company had 29 Caliber Campuses open in 29 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 $210
billion in 1996, compared to approximately $170 billion in 1990. Of the $210
billion spent on post-secondary education in 1996, approximately $93 billion was
spent on lifelong learning programs provided to working adults by universities,
colleges and conventional distance learning providers. 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.
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<PAGE>
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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.
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 1000 Lancaster Street, Baltimore, Maryland
21202, and its telephone number is 410-843-8000.
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-4-
<PAGE>
- --------------------------------------------------------------------------------
THE OFFERING
Common Stock offered by the Company................ shares
Common Stock offered by the Selling Stockholder.... shares
Common Stock to be outstanding after the offering.. 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.
Proposed Nasdaq National Market Symbol............. CLBR
__________________
(1) After giving effect to the automatic conversion of all of the 1.99 million
currently outstanding shares of the 8% Series A Redeemable Convertible
Preferred Stock (all of which are held by MCI) and the 1 million currently
outstanding shares of the Series B Redeemable Junior Convertible Preferred
Stock (all of which are held by Sylvan) into 2.99 million shares of Common
Stock at the closing of this offering. Excludes (i) 4.21 million shares of
Common Stock issuable upon future conversion of the 4.21 million shares of
Non-Voting Convertible Preferred Stock (all of which will be held by
Sylvan) to be outstanding upon closing of this offering, (ii) 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)
932,100 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 $1.42 per share. See "Capitalization,"
"Management--Employee Benefit Plans" and "Certain Relationships and Related
Transactions."
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-5-
<PAGE>
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INITIAL CAPITALIZATION AND RECAPITALIZATION OF THE COMPANY
Upon completion of this offering, shares of Common Stock and 4.21 million
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
1.99 million shares of 8% Series A Convertible Preferred Stock for $10.0 million
in cash; Sylvan purchased 1.0 million 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 1.4 million shares of
Class A Common Stock for $350,000 each in cash; and John P. Hill, an independent
investor, purchased 4.21 million 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 fully-
diluted 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 1.99 million shares of 8% Series A
Convertible Preferred Stock and Sylvan's 1.0 million shares of Series B Junior
Convertible Preferred Stock will be converted into an aggregate of 2.99 million
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 4.21 million 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 be exercisable for 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."
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<PAGE>
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SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
NOVEMBER 22,
1996
(INCEPTION) TO YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
STATEMENT OF OPERATIONS DATA: --------------------- --------------------
<S> <C> <C> <C>
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........................... $(0.26) $(1.98)
=================== =================
DECEMBER 31, 1997
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PRO FORMA
BALANCE SHEET DATA: ACTUAL PRO FORMA(1) AS ADJUSTED(2)
------------------- ----------------- ------------------
Cash and cash equivalents.......................... $ 3,850,440 $ 8,219,798 $
Working capital.................................... (1,290,891) 4,073,440
Total assets....................................... 14,510,389 18,879,747
Total debt......................................... 7,033,076 7,033,076
Redeemable preferred stock......................... 11,300,000 ---
Stockholders' equity (deficit)..................... (11,500,356) 5,164,002
</TABLE>
__________________________
(1) Pro forma to reflect the (i) Preferred Stock Conversion, (ii)
Recapitalization and (iii) Sylvan's payment of the balance due on the
Sylvan Subscription.
(2) Pro forma as adjusted for the sale of the shares of Common Stock offered
hereby (at an assumed initial public offering price of $ per share),
after deduction of underwriting discounts and commissions and offering
expenses, and application of a portion of the net proceeds therefrom to
reduce debt and pay accrued dividends on the Series A Convertible
Preferred Stock, as described in "Use of Proceeds."
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<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. Certain
statements contained in "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," including
statements regarding development of the Company's business, expected growth,
demand for the Company's services and other statements herein regarding matters
that are not historical facts, are forward-looking statements (as defined in the
Private Securities Litigation Reform Act of 1995). Such forward-looking
statements include risks and uncertainties. Therefore, actual results may
differ materially from those expressed or implied by such statements.
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 $ 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 net proceeds, $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 $ million of net proceeds, $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
-8-
<PAGE>
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 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 29 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 its growth will materially
adversely affect the Company's 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, Compaq, Macmillan and MCI Systemhouse have
agreed to provide programs through the Caliber network, with Johns Hopkins
agreeing to deliver only a single program. 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 a number of 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."
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
-9-
<PAGE>
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."
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
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<PAGE>
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, 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. See
"Management."
Control by Existing Stockholders. Upon completion of this offering, MCI,
Sylvan, Mr. Hoehn-Saric and Mr. Becker will beneficially own million, 1.0
million, 1.4 million and 1.4 million shares of Common Stock, respectively, and
Sylvan will own 4.21 million 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
% of the Common Stock (or % if Sylvan were to convert all of its
shares of 6% Non-Voting Preferred Stock to Common Stock). 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 and $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 of 1933 (the "Securities Act") at various times
over the next four years and may decide to sell their shares in the public
market at any time. Directors of the Company who are also directors or
employees of Sylvan or MCI may have conflicts of interest with respect to
matters affecting the Company, such as financing, acquisitions and other
corporate opportunities. There can be no assurance that these or any other
conflicts of interest will be resolved in favor of the Company. See "Certain
Relationships and Related Transactions."
Shares Eligible for Future Sale. Upon completion of this offering, the
Company will have outstanding shares of Common Stock, plus 932,100 shares
issuable upon exercise of currently outstanding options, million shares
issuable upon exercise of the MCI Warrant and 4.21 million shares issuable upon
conversion by Sylvan of the Non-Voting Convertible Preferred Stock. The shares
offered hereby will be freely transferable unless acquired by affiliates of the
Company. All of the remaining 6,110,425 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 932,100
shares reserved for issuance upon exercise of outstanding options and the
850,000 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 5.79 million shares of Common Stock and 4.21 million shares of
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."
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<PAGE>
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, 5.79 million shares of Common Stock and 4.21 million 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. 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 life long 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 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
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."
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<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered by it hereby are estimated to be $ million ($
million if the Underwriters' over-allotment option is exercised in full),
assuming an initial public offering price of $ 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 approximately $1.2 million
of accrued dividends on the 8% Series A Convertible Preferred Stock. The
Company intends to use the $ million balance of the net proceeds as working
capital 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
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.
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<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
shares of Common Stock offered by it hereby and application of the net proceeds
therefrom (other than payment of accrued dividends), after deducting
underwriting discounts and commissions and estimated offering expenses. This
table should be read in conjunction with the Company's Financial Statements and
related Notes thereto and other financial information appearing elsewhere in
this Prospectus. See "Use of Proceeds," "Dividend Policy" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
<TABLE>
<CAPTION>
December 31, 1997
--------------------------------------------------------
Pro forma
Actual Pro forma as adjusted
---------------- ---------------- ----------------
<S> <C> <C> <C>
8% Series A Redeemable Convertible Preferred Stock, $.01 par value;
1,990,000 shares authorized, issued and outstanding actual; and no
shares outstanding pro forma and pro forma as adjusted.................... $ 10,000,000 $ --- $ ---
Series B Redeemable Junior Convertible Preferred Stock, $.01 par value;
1,000,000 shares authorized, issued and outstanding actual; and no
shares outstanding pro forma and pro forma as adjusted.................... 1,300,000 --- ---
Stockholders' equity (deficit):
6% Non-Voting Convertible Preferred Stock, $0.01 par value, no shares
authorized, issued and outstanding actual; 4,210,000 shares authorized,
issued and outstanding pro forma and pro forma as adjusted ............. --- 42,100 42,100
Class A Common Stock, $0.01 par value; 42,800,000 shares authorized;
3,120,425 shares issued and outstanding actual; no shares authorized,
issued and outstanding pro forma and pro forma as adjusted.............. 31,204 --- ---
Class B Common Stock, $0.01 par value; 4,210,000 shares authorized,
4,210,000 shares issued and outstanding actual; no shares authorized,
issued and outstanding pro forma and pro forma as adjusted.............. 42,100 --- ---
Common Stock, $0.01 par value, 50,000,000 shares authorized; no shares
issued and outstanding actual; 6,110,425 shares issued and outstanding
pro forma; shares issued and outstanding pro forma as adjusted(1) --- 61,104
Additional paid-in capital................................................ 9,992,004 21,262,104
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
---------------- -------------- ---------------
Total capitalization.................................................. $ (200,356) $ 5,164,002 $
================ ============== ===============
</TABLE>
___________________
(1) Excludes (1) 4.21 million shares of Common Stock issuable upon conversion of
the 4.21 million 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) shares of Common Stock issuable upon exercise of the
MCI Warrant at an aggregate exercise price of $3.78 million; and (iii)
871,800 shares of Common Stock issuable upon exercise of management stock
options outstanding as of December 31, 1997 at a weighted average exercise
price of $1.32 per share. See "Management--Employee Benefit Plans" and
"Certain Relationships and Related Transactions."
(2) Represents the balance due on the Sylvan Subscription.
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<PAGE>
DILUTION
At December 31, 1997, the pro forma net tangible book value of the Company
was $ , or $ per share of Common Stock after giving effect to
(i) the Preferred Stock Conversion (including payment of accrued dividends),
(ii) the Recapitalization, 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 number of outstanding shares of Common
Stock as of that date. After (i) giving effect to the sale by the Company of
the shares of Common Stock offered hereby, assuming an initial public
offering price of $ 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 $ , or $
per share. This represents an immediate increase in pro forma net tangible book
value to existing stockholders of $ per share and an immediate dilution to
new investors of $ per share. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price................................................................ $
Pro forma tangible book value per share at December 31, 1997............................... $
Increase per share attributable to new investors...........................................
--------
Pro forma net tangible book value after the offering................................................. ----------
Net tangible book value dilution per share to new investors.......................................... $
==========
</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 $
per share but before deducting underwriting discounts and commissions and
estimated offering expenses:
<TABLE>
<CAPTION>
Average Price
Shares Purchased Total Consideration Per Share
-------------------------------- ------------------------------------- -------------------
Number Percent Amount Percent
-------------- ------------ ----------------- -------------
<S> <C> <C> <C> <C> <C>
Existing
stockholders(1).......... 10,320,425 % $ 21,250,308 % $2.06
New investors............
--------------- ------------- ----------------- -------------
Total................... 100.0% $ 100.0%
=============== ============= ================= =============
</TABLE>
______________
(1) Includes 6,110,425 shares of Common Stock and 4.21 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 871,800 shares of Common Stock at a weighted average exercise price
of $1.32 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."
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<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 expenses..................... -- 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........................ $ (0.26) $ (1.98) $ (2.24)
====================== =================== ====================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
---------------------- ---------------------
<S> <C> <C>
BALANCE SHEET DATA (AT END OF PERIOD):
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>
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<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 losses of
$15.2 million.
Revenue. It is expected that future revenues 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. Revenues 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 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 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
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<PAGE>
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
In November 1996, the Company was initially capitalized with $13.0 million
of equity from Sylvan, MCI and the other initial stockholders. To date, the
Company has financed its operating and investing activities primarily with this
initial capitalization, the Sylvan Loan, a portion of the Sylvan Subscription, a
portion of the MCI Lease and Guarantee Commitment, deferral of payments due to
Sylvan under the Management Agreement and deferral of interest due on the Sylvan
Loan. As of December 31, 1997, the Company had cash and cash equivalents of
$3.9 million, $5.4 million due under the $8.0 million Sylvan Subscription and
$16.0 million available under the $20 million MCI Lease and Guarantee
Commitment. The Company believes that these resources, together with the $
million of 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 2000. 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 the capital expenditures through 2000. 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.
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 to begin a program for working adults in 1998. In addition, the
Company has signed joint development agreements with the University of
California at Berkeley Extension School and Georgetown University. The Company
has entered into contracts with Compaq, Macmillan and MCI Systemhouse to begin
programs in 1998. As of February 28, 1998, the Company had 29 Campuses open in
29 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 $210
billion in 1996, compared to approximately $170 billion in 1990. Of the $210
billion spent on post-secondary education in 1996, approximately $93 billion was
spent on lifelong learning programs provided to working adults by universities,
colleges and conventional distance learning providers. Corporations budgeted
approximately $46 billion in 1997 to provide training for their employees,
compared to $45 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. 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 universities want to serve working adults, but the capacity of
their campuses and faculty limits their ability to teach more students. These
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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 learning by maintaining high quality course
content, advanced technology, a professional learning environment and a national
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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. 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.
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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, computer
resource center and a 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.
[Graphic depicting the configuration of a Caliber Campus.]
LIFELONG LEARNING PRODUCTS AND SERVICES
Caliber intends to distribute lifelong learning programs to working adults
through alliances with prominent universities. Caliber will focus initially on
establishing alliances with universities having national reputations in the
fields of health care, management development, information
technology/engineering or education. Caliber offers these universities the
facilities and marketing expertise to distribute their course content to a large
number of working adults without lowering educational or admissions standards.
Caliber will assist faculty members in adapting their course content into
effective presentations which take full advantage of Caliber's interactive
delivery capabilities. Caliber has a five-year agreement with Johns Hopkins to
begin a graduate certificate program in April 1998. The University of
California at Berkeley Extension School, 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 $7,500. Caliber and Johns Hopkins will
share profits once they have recovered their direct costs of developing,
marketing and delivering the Program.
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Caliber has begun marketing the Hopkins Business of Medicine program to
individual doctors, physicians' groups and other health care providers under the
Johns Hopkins name. Doctors can respond by return mail, toll-free telephone or
the Internet. Caliber also holds open houses at its Campuses.
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 maintaining their certifications or
licenses. To date, these discussions have led to joint development agreements
with the University of California at Berkeley Extension School, 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.
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 testing 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. Intel Corporation ("Intel") and Life Underwriters Training
Council ("LUTC") have each agreed to distribute pilot programs through the
Caliber network. 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 of Maryland System to train students at the University's
downtown Baltimore campus. The University of Maryland System will market the
availability of Year 2000 programmers to local businesses. Caliber anticipates
that approximately 15 University of Maryland students will enroll in the first
Year 2000 class, scheduled to begin in March 1998. 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.
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
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test delivered above a specified number of tests and 50% of 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.
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
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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.
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 currently has 21 people dedicated
to sales and marketing and expects to have approximately 35 people by the end of
1998. Caliber expects to establish a telemarketing operation by April
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1998. Telemarketing representatives will be responsible for outbound
telemarketing and for the enrollment of individuals who respond to Caliber's
direct marketing campaigns.
EMPLOYEES
The Company 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.
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 in 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 the prominent
universities with which Caliber will establish alliances typically have campuses
in only one state, they may not 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.
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<PAGE>
Some universities with which the Company intends to contract may have
campuses in only one state and may not have determined whether delivering
courses to other states through distance learning will subject them to the
additional licensing requirements of their home states or of the receiving
states.
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.
Businesses usually are not required to obtain state licenses to deliver
training and professional development courses to their employees. Delivery of
courses through the Caliber network to non-employees is likely to subject the
business corporations to licensing requirements in some states.
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, 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. 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
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<PAGE>
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 20,000 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. In the second quarter of 1998, the Company expects to move its
offices to another similarly sized location in Baltimore. This space will also
be leased by Sylvan for the Company's behalf.
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 February 28, 1998. Caliber Campuses under
construction or planned are expected to be open by September 1998.
<TABLE>
<CAPTION>
Opened Under Construction or Planned
---------------------------------------- -------------------------------
<S> <C>
Atlanta, GA Nashville, TN Chicago, IL
Austin, TX New Orleans, LA Indianapolis, IN
Baltimore, MD Oklahoma City, OK Long Island, NY
Boston, MA Orlando, FL Los Angeles, CA
Charlotte, NC Paramus, NJ Memphis, TN
Cincinnati, OH Philadelphia, PA Miami, FL
Cleveland, OH Portland, OR New York, NY
Dallas, TX Raleigh, NC Phoenix, AZ
Denver, CO Rochester, NY Pittsburgh, PA
Detroit, MI Salt Lake City, UT San Francisco, CA
Houston, TX San Diego, CA San Jose, CA
Jacksonville, FL Seattle, WA St. Louis, MO
Kansas City, KS Tampa, FL
Milwaukee, WI Washington, DC
Minneapolis, MN
</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
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<PAGE>
site for offering Caliber programs. Corporations can use an affiliate center
located on their campus exclusively for their training programs. As of February
28, 1998, the Company had opened four affiliate 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 February 28, 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
other 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 intends to file 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.
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<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
B. Lee McGee............................ 42 Vice President; Treasurer
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.
Ms. Mayer and Ms. Armstrong will serve in the class whose term will expire at
the 1999 annual meeting of stockholders; Mr. Hill and the new director will
serve in the class whose term will expire at the 2000 annual meeting of
stockholders; and Messrs. Becker and Hoehn-Saric 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, Testing Center Operations for Sylvan and Vice President of Operations
of Sylvan
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<PAGE>
Prometric, Sylvan's computer-based testing division, from 1993 to November 1996,
when he joined Caliber. He joined Sylvan's predecessor in 1987.
B. Lee McGee. Mr. McGee has served as Caliber's Vice President and
Treasurer since November 1996. Mr. McGee has served as Chief Financial Officer
of Sylvan since April 1993, its Senior Vice President since December 1995 and
was the chief financial and accounting officer of Sylvan's predecessor from 1987
until 1993.
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 1998. Mr. Durden served as President of the
Sylvan Academy from May 1997 until 1998, and prior thereto, 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 who are not employees of MCI, Sylvan or Caliber will receive
for their service on the Board of Directors.
BOARD COMMITTEES
The Board of Directors has established an Audit Committee and a
Compensation Committee, effective following completion of this offering. At
least two directors not affiliated with Sylvan or MCI will serve as the members
of the Audit Committee and the Compensation 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 will be to
establish the compensation of officers of the Company and to establish and
administer the
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<PAGE>
Company's compensation programs, including the Company's 1998 Stock Option Plan.
The Board of Directors may from time to time establish other committees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Prior to this offering, the Company had no separate Compensation Committee
or other committee performing equivalent functions. 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 expected to serve on
the Compensation Committee will be 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 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 $6,600 250,000 --
Chief Operating Officer
David R. Dobkin(5)................. 124,846 41,500 4,675 40,050 $58,935
Senior Vice President, Corporate
Services
G. Bryan Polivka................... 140,000 13,745 6,600 40,050 47,206
Senior Vice President,
Programming and Production
R. Brady Locher, Jr................ 74,462 25,000 3,025 40,050 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.
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<PAGE>
(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.
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>
INDIVIDUAL GRANTS
--------------------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF POTENTIAL REALIZED VALUE AT
UNDERLYING TOTAL OPTIONS EXERCISE ASSUMED ANNUAL RATES OF
OPTIONS GRANTED TO PRICE PER EXPIRATION STOCK PRICE APPRECIATION
NAME GRANTED EMPLOYEES SHARE(1) DATE(2) FOR OPTION TERM(3)
- ----------------------------- ----------- ------------- ---------- -------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
5% 10%
-------- --------
R. Christopher Hoehn-Saric... -- -- -- -- -- --
Douglas L. Becker............ -- -- -- -- -- --
Chris L. Nguyen.............. 80,100 9.2% $1.25 4/30/03
169,900 19.5 1.25 11/20/03
David Dobkin................. 40,050 4.6 1.25 4/29/03
G. Bryan Polivka............. 40,050 4.6 1.25 6/19/03
R. Brady Locher, Jr.......... 40,050 4.6 1.25 4/29/03
</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 $ and $ , respectively,
from an assumed initial public offering price of $ 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
Exercisable/Unexercisable Value of Unexercised In-the-
Name Options at Year-End (1) Money Options at 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)
250,000(U) $ (U)
David Dobkin.................... --(E) --(E)
40,050(U) (U)
G. Bryan Polivka................ --(E) --(E)
40,050(U) (U)
R. Brady Locher, Jr............. --(E) --(E)
40,050(U) (U)
</TABLE>
- --------------------------------
(1) (E) = Exercisable; (U) = Unexercisable.
(2) Value equals an assumed initial public offering price of $ 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 1,000,000 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 793,800 and 78,000 shares of Common Stock at exercise
prices of $1.25 and $2.00 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 March , 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
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to select the persons to whom 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 850,000 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. No options or other awards have
been granted under the 1998 Plan to date.
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.
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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 1.99
million shares of 8% Series A Convertible Preferred Stock for $10.0 million in
cash; Sylvan purchased 1.0 million 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 1.4 million shares of Class A
Common Stock for $350,000 each in cash; and John P. Hill, an independent
investor, purchased 4.21 million 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.
MCI Warrant. The Company issued the MCI Warrant to MCI in connection with
MCI's purchase of 1.99 million shares of 8% Series A Convertible Preferred
Stock. The MCI Warrant has been generally exercisable for that
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number of shares of Common Stock that would equal 7% of the total number of
shares outstanding (on a fully diluted basis) after exercise of the MCI Warrant.
As a result of this offering, the MCI Warrant will be exercisable for [_]
million shares but no longer subject to adjustment (except 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 4.21
million shares of Class B Common Stock. Immediately prior to closing of this
offering, Mr. Hill's shares will automatically be exchanged for 4.21 million
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 $1.25 per share as follows: B. Lee McGee - 80,100 shares;
Chris L. Nguyen - 40,050 shares; David Dobkin - 60,075 shares; Brian Polivka -
40,050 shares; and Brady Locher - 60,100. All of Mr. Polivka's shares as well as
40,050 of the shares issued to each of Messrs. Dobkin and Locher were in
exchange for services rendered or as an employment bonus.
Sylvan Management Agreement. Since Caliber's formation in 1996, Caliber
has occupied a portion of Sylvan's facilities, 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, 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.
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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 Shares Beneficially
Owned Prior to Offering Offered Owned After Offering
------------------------------ ------------------------------
Name of Beneficial Owner(1) Number Percent Number Percent
- --------------------------------------------------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Sylvan Learning Systems, Inc.(2)................... 1,000,000 16.4% -- 1,000,000 %
MCI Communications Corporation(3)..................
R. Christopher Hoehn-Saric(4)(5)................... 1,400,000 22.9 -- 1,400,000
Douglas L. Becker(4)(5)............................ 1,400,000 22.9 -- 1,400,000
Chris L. Nguyen(6)(7)(8)........................... 56,075 * -- 56,075 *
David R. Dobkin(7)(8).............................. 68,085 * -- 68,085 *
G. Bryan Polivka(7)(8)............................. 48,060 * -- 48,060 *
R. Brady Locher, Jr.(7)(8)......................... 60,100 * -- 60,100 *
Janeen M. Armstrong................................ -- -- -- -- --
John P. Hill....................................... -- -- -- -- --
Susan Mayer(9)..................................... -- -- -- -- --
All directors and executive officers as a group
(7 persons)........................................ 3,112,415 3,112,415
</TABLE>
_____________
* Less than 1%.
(1) The address of each stockholder listed in the table is c/o Caliber Learning
Network, Inc., 1000 Lancaster Street, Baltimore, Maryland 21202, except MCI
Communications Corporation and Ms. Mayer, whose addresses are 1801
Pennsylvania Avenue, NW, Washington, DC 20006.
(2) Excludes 4.21 million 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 million shares of Common Stock issuable upon exercise of the
MCI Warrant.
(4) In November 1996, Messrs. Hoehn-Saric and Becker each transferred 1.4
million 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 million shares of Common Stock and 4.21 million shares of
6% Non-Voting Convertible Preferred Stock owned by Sylvan.
(6) Includes 40,000 shares held in two irrevocable educational trusts for the
benefit of Mr. Nguyen's children and 16,020 shares underlying options which
will be exercisable within 60 days of the date of this Prospectus.
(7) Includes 8,010 shares underlying options which will be exercisable within 60
days of the date of this Prospectus.
(8) Excludes outstanding options to purchase 233,980, 32,490, 32,490 and 80,100
shares of Common Stock held by Messrs. Nguyen, Dobkin, Polivka and Locher,
respectively, none of which is exercisable within 60 days of the date of
this Prospectus.
(9) Excludes the million shares of Common Stock owned beneficially by
MCI.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company is authorized to issue up to 55 million shares of Common Stock,
par value $.01 per share, and up to 4.21 million shares of preferred stock, par
value $0.01 per share. Upon completion of this offering, shares of
Common Stock (including the shares offered hereby) and 4.21 million
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 closing thereof but only to the extent of shares of
Common
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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 $0.238
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.
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
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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 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.
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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.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
shares of Common Stock, plus 932,100 shares issuable upon exercise of currently
outstanding options, million shares issuable upon exercise of the MCI
Warrant and 4.21 million 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
6,110,425 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 932,100 shares reserved for issuance
upon exercise of outstanding options and the 850,000 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 5.79 million shares of Common Stock and
4.21 million 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 will hold, in the aggregate,
5.79 million shares of Common Stock and 4.21 million 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 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.
-44-
<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..................................................................
===============
</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 has granted the Underwriters an option, exercisable not later
than 30 days after the date of this Prospectus, to purchase up to
additional 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. 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 , and the Company 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 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.
-45-
<PAGE>
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-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, 5.79 million shares of Common Stock and 4.21 million 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. 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 Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any contract or any other document referred to
-46-
<PAGE>
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. 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.
-47-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors............................... F-2
Balance Sheets............................................... F-3
Statements of Operations..................................... F-5
Statements of Stockholders' Equity (Deficit)................. F-6
Statements of Cash Flows..................................... F-7
Notes to Financial Statements................................ F-8
</TABLE>
<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
F-2
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, 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
=================== =================== ==================
</TABLE>
F-3
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 31,
-------------------------------
1996 1997 1997
------------- ------------ ----------------
(UNAUDITED -
NOTE 15)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable and accrued expenses................................. $ - $ 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 obligations 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;
1,990,000 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;
1,000,000 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; 4,210,000
shares authorized, issued and outstanding in pro forma............... - - 42,100
Class A Common Stock, $.01 par value:
Authorized shares -- 42,800,000; issued and outstanding shares of
2,800,000 in 1996, 3,120,425 in 1997 and 0 in pro forma............ 28,000 31,204 -
Convertible Class B Common Stock, $.01 par value:
Authorized, issued and outstanding shares -- 4,210,000 in 1996 and 1997,
0 in pro forma...................................................... 42,100 42,100 -
Common Stock, $.01 par value:
Authorized shares - 50,000,000; pro forma issued and outstanding shares
of 6,110,425........................................................ - - 61,104
Additional paid-in capital............................................ 9,629,900 9,992,004 21,262,104
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-4
<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 Sylvan $ - $ 1,199,293 $ 1,199,293
Costs and expenses:
Campus operating expenses - 7,133,744 7,133,744
Management fees to Sylvan 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 redeemable 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
$ (0.26) $ (1.98) $ (2.24)
=================== ================== ===================
Pro forma basic and diluted loss per common
share attributable to common stockholders
$ (1.33) $ (1.49)
================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<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 2,800,000
shares of Class A Common
Stock and 4,210,000 shares
of Convertible Class B
Common Stock.................... $28,000 $ 42,100 $9,629,900 $ (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..... 28,000 42,100 9,629,900 (8,000,000) (1,834,171) (134,171)
Issuance of 200,275 shares of
Class A Common Stock for cash... 2,002 - 248,306 - - 250,308
Issuance of 120,150 shares of
Class A Common Stock to
employees as compensation....... 1,202 - 98,798 - - 100,000
Stock options to purchase
30,000 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..... $31,204 $ 42,100 $9,992,004 $ (5,364,358) $ (16,201,306) $ (11,500,356)
========== =========== =========== =============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<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 (9,149,570) 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-7
<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, 2,800,000 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.
F-8
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
F-9
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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
Shares of common stock issued for a 7,010,000 7,126,690 7,115,426
nominal value 120,150 120,150 120,150
---------------------- ------------------- -------------------
7,130,150 7,246,840 7,235,576
====================== ==================== ===================
Basic and diluted loss per common share $(0.26) $(1.98) $(2.24)
====================== ==================== ===================
</TABLE>
Base 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, 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.
F-10
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
2. LOSS PER SHARE (CONTINUED)
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>
For the period
November 22, 1996
Year ended (inception) to
December 31, 1997 December 31, 1997
----------------- -----------------
<S> <C> <C>
Numerator:
Net loss................................................. $ (13,571,135) $ (15,206,306)
================= =================
Denominator:
Shares used in historical calculation.................... 7,246,840 7,235,576
Add:
Pro forma conversion of Series A
Preferred Stock....................................... 1,990,000 1,990,000
Pro forma conversion of Series B
Preferred Stock....................................... 1,000,000 1,000,000
----------------- -----------------
Denominator for pro forma loss per
share................................................... 10,236,840 10,225,576
================= =================
Pro forma basic and diluted loss per
common share.............................................. $ (1.33) $ (1.49)
================== =================
</TABLE>
F-11
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
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 $10.05.
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.
F-12
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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 1,990,000 shares of 8% Series A
Redeemable Convertible Preferred Stock ("Series A Preferred Stock") and
1,000,000 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.
F-13
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. PREFERRED STOCKS AND WARRANT (CONTINUED)
In connection with the issuance of 1,990,000 shares of Series A Preferred
Stock to MCI for $10.0 million, the Company issued to MCI a warrant to purchase
752,689 shares of Class A Common Stock at an exercise price of $5.025 per share
("the Warrant").
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 $10.05. 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
$10.05 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.
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 $10.05
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.
F-14
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. PREFERRED STOCKS AND WARRANT (CONTINUED)
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 $0.40 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 $10.05 by May 15, 2001. At
December 31, 1997, cumulative unpaid dividends were $995,000, or $0.50 per
share.
Each share of Series A Preferred Stock has a preference on liquidation
equal to the greater of $5.025 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 4.21 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.
F-15
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. COMMON STOCK (CONTINUED)
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.
9. SHARES RESERVED FOR FUTURE ISSUANCE
The Company as of December 31, 1997 had reserved 4,638,607 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 1,000,000 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
of Weighted-Average
Options Exercise Price
----------------- -------------------
<S> <C> <C>
Outstanding, beginning of year.................................... -- $ --
Granted........................................................... 918,800 1.31
Exercised......................................................... -- --
Forfeited......................................................... (47,000) 1.25
----------------- -------------------
Outstanding, end of year.......................................... 871,800 $ 1.32
================= ===================
Exercisable at end of year........................................ --
=================
Weighted-average grant-date fair value of options granted
during the year.................................................. $ 0.32
=================
</TABLE>
Exercise prices for options outstanding as of December 31, 1997 ranged from
$1.25 to $2.00. The weighted-average remaining contractual life of those options
is 4.5 years. Options granted through December 31, 1997 generally vest over a
five year period.
F-16
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. STOCK COMPENSATION PLAN (CONTINUED)
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 $0.32. 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 $(1.99), respectively,
for the year ended December 31, 1997.
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.
F-17
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
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>
F-18
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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.
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.
F-19
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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-20
<PAGE>
CALIBER LEARNING NETWORK, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. PRO FORMA BALANCE SHEET AND RECAPITALIZATION (CONTINUED)
The following table summarizes the components of the pro forma balance
sheet to reflect the automatic conversion of the preferred stocks and the
recapitalization (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........................... -- 42 42
Class A Common Stock................................ 31 (31) --
Class B Common Stock................................. 42 (42) --
Common stock......................................... -- 61 61
Additional paid-in capital........................... 9,992 11,270 21,262
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>
F-21
<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
PROSPECTUS 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.
NEITHER 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....................................................... 8
Use of Proceeds.................................................... 13
Dividend Policy.................................................... 13
Capitalization..................................................... 14
Dilution........................................................... 15
Selected Financial and Operating Data.............................. 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations..................................................... 17
Business........................................................... 19
Management......................................................... 31
Certain Relationships and Related Transactions..................... 37
Principal and Selling Stockholders................................. 39
Description of Capital Stock....................................... 40
Shares Eligible for Future Sale.................................... 44
Underwriting....................................................... 45
Legal Matters...................................................... 46
Experts............................................................ 46
Additional Information............................................. 46
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.
SHARES
CALIBER LEARNING
NETWORK, INC.
COMMON STOCK
____________________
PROSPECTUS
____________________
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>
<CAPTION>
<S> <C>
Securities and Exchange Commission Filing Fee.............................. $ 17,700
NASD Filing Fee............................................................ 6,500
Nasdaq Listing Fee......................................................... *
Printing Fees and Expenses................................................. *
Legal Fees and Expenses.................................................... *
Accounting Fees and Expenses............................................... *
Miscellaneous.............................................................. *
--------------
TOTAL.................................................. $ *
==============
</TABLE>
___________
* To be completed by amendment.
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.
S-1
<PAGE>
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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During 1997 and 1998, the Company granted options to purchase a total of
868,800 shares of Common Stock in three tranches. The first tranche consisted
of 793,800 options issued at an exercise price of $1.25. The second tranche
consisted of 78,000 options issued at an exercise price of $2.00. The third
tranche consisted of 60,300 options issued at an exercise price of $3.00. 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 be virtue of the exemption provided by Rule 701 under said Act.
On November 11, 1996, the Company issued (i) 1.99 million 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. 1.0 million shares of
Series B Junior Preferred Stock for $1.3 million in cash; (iii) Douglas L.
Becker 1.4 million shares of Class A Common Stock for $350,000 in cash; (iv) R.
Christopher Hoehn-Saric 1.4 million shares of Class A Common Stock for $350,000
in cash; and (v) John P. Hill 4.21 million 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 40,050 shares of
Class A Common Stock for $50,062.50 in cash.
On April 30, 1997, the Company issued B. Lee McGee 80,100 shares of Class A
Common Stock for $100,125 in cash.
On April 30, 1997, the Company issued David Dobkin 40,050 shares of Class A
Common Stock in connection with services rendered and 20,025 shares of Class A
Common Stock for $25,031.25 in cash.
On July 24, 1997, the Company issued Bryan Polivka 40,050 shares of Class A
Common Stock in connection with services rendered.
On April 30, 1997, the Company issued J.M. Schapiro 40,050 shares of Class
A Common Stock for $50,062.50 in cash.
On June 19, 1997, the Company issued Brady Locher 40,050 shares of Class A
Common Stock in connection with services rendered and 20,050 shares of Class A
Common Stock for $25,062.50.
ITEM 16. EXHIBITS.
(a) Exhibit No. Description
----------- -----------
1.01* Form of Underwriting Agreement
3.01* Articles of Amendment and Restatement of the Charter
3.02* Amended and Restated Bylaws
4.01* Specimen Common Stock Certificate
5.01* Opinion of Piper & Marbury L.L.P.
S-2
<PAGE>
10.01(a) 1997 Stock Option Plan
10.01(b) 1998 Stock Option Plan
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
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)
______________
* To be filed by amendment.
+ Filed under confidential treatment request.
S-3
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described in this Registration Statement
or otherwise, the Registrant has been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling persons of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(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.
S-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 6th day of March, 1998.
CALIBER LEARNING NETWORK, INC.
By /s/ Chris L. Nguyen
-----------------------------
Chris L. Nguyen, President and Chief
Executive Officer
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Chris L. Nguyen and Matthew C. Brenneman (with
full power to each of them to act alone) as his or her true and lawful attorney-
in-fact and agent, with full power of substitution, for him and in his name,
place and stead in any and all capacities to sign any or all amendments or post-
effective amendments to this Registration Statement, including amendments made
pursuant to Rule 462 under the Securities Act of 1933, as amended, and to file
the same with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, to sign any and all applications,
registration statements, notices or other document necessary or advisable to
comply with the applicable state securities laws, and to file the same, together
with all other documents in connection therewith, with the appropriate state
securities authorities, granting unto said attorneys-in-fact and agents or any
of them, or their or his substitute or substitutes, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, thereby ratifying and confirming all that said attorneys-in-
fact and agents or any of them, or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement or Amendment has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ R. Christopher Hoehn-Saric
- -------------------------- Chairman of the Board of Directors March 6, 1998
R. Christopher Hoehn-Saric
/s/ Douglas L. Becker
- -------------------------- Vice Chairman of the Board of Directors March 6, 1998
Douglas L. Becker
/s/ Chris L. Nguyen
- -------------------------- President and Chief Executive Officer March 6, 1998
Chris L. Nguyen (Principal Executive Officer)
/s/ B. Lee McGee Treasurer
- -------------------------- (Principal Financial and Accounting March 6, 1998
B. Lee McGee Officer)
/s/ Susan Mayer
- -------------------------- Director March 6, 1998
Susan Mayer
/s/ John P. Hill
- -------------------------- Director March 6, 1998
John P. Hill
/s/ Janeen M. Armstrong
- -------------------------- Director March 6, 1998
Janeen M. Armstrong
</TABLE>
S-5
<PAGE>
EXHIBIT INDEX
(a)
<TABLE>
<CAPTION>
Sequentially
Exhibit No Description Numbered Page
- --------------- ------------------------------------------------------------- --------------------
<S> <C> <C>
1.01* Form of Underwriting Agreement
3.01* Articles of Amendment and Restatement of the Charter
3.02* Amended and Restated 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 Option 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
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 (included on signature pages hereto)
</TABLE>
___________________
* To be filed by amendment.
+ Filed under confidential treatment request.
<PAGE>
EXHIBIT 10.01
CALIBER LEARNING NETWORK, INC.
1997 STOCK OPTION PLAN
----------------------
ARTICLE I
PURPOSE OF PLAN
1.1 PURPOSE OF PLAN. The purpose of the Caliber Learning Network, Inc.
---------------
1997 Stock Option Plan is to serve as a performance incentive and to encourage
the ownership of Caliber Learning Network, Inc. stock by employees of the
Company, and other persons providing valuable services to or for the Company, so
that the person to whom the option is granted may acquire a proprietary interest
in the success of the Company, and to encourage such person to remain in the
employ of the Company. This Plan shall consist of grants of Non-Qualified Stock
Options and Incentive Stock Options. This Plan is not intended to affect any
options or benefits granted by the Company that are outstanding on the date of
adoption of this Plan.
ARTICLE II
DEFINITIONS
2.1 AWARD means any Option or Stock Appreciation Right granted hereunder.
-----
2.2 BOARD means the Board of Directors of the Company; provided, however,
-----
that no member of the Board shall participate in any decision of the Board which
directly or indirectly relates to the director's participation in this Plan.
2.3 CODE means the Internal Revenue Code of 1986, as amended. Reference in
----
this Plan to any section of the Code shall be deemed to include any amendments
of successor provisions to such section and any regulations promulgated
thereunder.
2.4 COMMITTEE means the Committee of the Board, which shall consist of not
---------
less than two (2) members of the Board, elected and designated, from time to
time, by the Board, but none of whom, during the one (1) year period prior to
membership on the Committee, or during such membership, have been or are (i)
granted Awards under this Plan or (ii) granted awards under any other plan of
the Company, participation in which by such person would cause such
<PAGE>
person not to be a "disinterested person" within the meaning of Rule 16b-3 under
the Exchange Act at such time as the Company shall become subject to Section 16
of the Exchange Act.
2.5 COMPANY means Caliber Learning Network, Inc. and any present or future
-------
subsidiary corporation (as defined in Section 425 of the Code) or any successors
as described in Article XII.
2.6 DATE OF DISABILITY means the date on which a Participant is classified
------------------
as Disabled.
2.7 DATE OF GRANT means the date on which the grant of an Award is
-------------
authorized by the Committee or such later date as may be specified by the
Committee in such authorization.
2.8 DISABILITY or DISABLED means the classification of a Participant as
----------------------
"disabled" pursuant to a disability plan of Sylvan Learning Systems, Inc., if
any, or successor to such plan (or, if there is no such plan, as determined by
the Board of Directors or the Committee), if the Participant meets the
requirements of sections 22(e)(3) and 105(d)(4) of the Code.
2.9 ELIGIBLE INDIVIDUAL means any person employed by the Company on a
-------------------
full-time, salaried basis, and any non-employee providing bona fide services to
or for the Company, who satisfies the requirements of Article VI.
2.10 EXCHANGE ACT means the Securities Exchange Act of 1934, as amended.
------------
2.11 FAIR MARKET VALUE means the fair market value of the Stock, as
-----------------
determined by the Board or the Committee, as required under Maryland law;
provided, however, that (i) if the Stock is admitted to quotation on the
National Association of Securities Dealers Automated Quotation System ("NASDAQ")
on the Date of Grant or the date of determination, as the case may be, Fair
Market Value shall be the average of the highest bid and lowest asked prices of
the Stock on such system on such date, or (ii) if the Stock is admitted to
trading on a national securities exchange or the NASDAQ/National Market System
("NASDAQ/NMS") on the Date of Grant or the date of determination, as the case
may be, Fair Market Value shall be the last sale price reported for the Stock on
such exchange or NASDAQ/NMS on such date or on the last date preceding such date
on which a sale was reported.
2.12 INCENTIVE STOCK OPTION means an Option which is an incentive stock
----------------------
option within the meaning of section 422 of the Code and which is granted under
Article VII.
2.13 INSIDER means an "officer" or "director" of the Company within the
-------
meaning of Section 16 of the Exchange Act.
2.14 NON-QUALIFIED STOCK OPTION means an Option which is not qualified with
--------------------------
respect to section 422 of the Code and which is granted under Article VII.
<PAGE>
2.15 OPTION means either a Non-Qualified Stock Option or an Incentive Stock
------
Option granted under Article VII.
2.16 PARTICIPANT means an Eligible Individual who has been granted an Award
-----------
under this Plan.
2.17 PLAN means this Caliber Learning Network, Inc. 1997 Stock Option Plan.
----
2.18 RETIREMENT means retirement by an employee from the Company on or
----------
after the employee's attainment of age sixty-five (65).
2.19 RETIREMENT DATE is the employee's date of retirement from the Company
---------------
on or after the employee's attainment of age sixty-five (65).
2.20 STOCK means the Class A Common Stock, par value $0.01 per share, of
-----
the Company.
2.21 STOCK APPRECIATION RIGHT means an Award granted under Article VIII,
------------------------
such term being defined more particularly in Section 8.1.
2.22 STOCK OPTION AGREEMENT means an agreement with respect to Awards as
----------------------
described in Article IX.
2.23 TERMINATION means resignation or discharge from employment with the
-----------
Company, except in the event of death, Disability or Retirement.
2.24 VESTED OPTION or VESTED STOCK APPRECIATION RIGHT means, at any date,
------------- -------------------------------
an Option or Stock Appreciation Right, respectively, which a Participant is then
entitled to exercise pursuant to the terms of a Stock Option Agreement.
2.25 CAUSE means, with respect to the discharge by the Company of any
-----
Participant, (i) refusal to perform duties assigned in accordance with the
Participant's employment agreement with the Company, if any, or assigned by an
officer of the Company, or overt and willful disobedience of orders or
directives issued to the Participant by the Company and within the scope of the
Participant's duties to the Company, (ii) commission of illegal acts in
connection with the performance of duties on behalf of the Company, or (iii)
material violation of the Company's policies and procedures; provided, however,
that if a Participant has entered into an employment agreement with the Company
which contains a definition of "Cause," then "Cause" shall have the meaning set
forth therein with respect to such Participant.
ARTICLE III
EFFECTIVE DATE AND DURATION
3.1 EFFECTIVE DATE. Except as provided to the contrary herein, this Plan
--------------
shall be effective as of April 30, 1997.
<PAGE>
3.2 PERIOD FOR GRANTS OF AWARDS. Awards may be made as provided herein for
---------------------------
a period of ten (10) years after the initial effective date of the Plan, i.e.
until 5:00 p.m., Baltimore time, on April 30, 2007.
3.3 TERMINATION. This Plan shall be terminated as provided in Article
-----------
XIII, but shall continue in effect until all matters relating to the payment of
Awards and the administration of the Plan have been settled.
ARTICLE IV
ADMINISTRATION
4.1 ADMINISTRATION. This Plan shall be administered by a Committee, none
--------------
of whom, during the one year prior to membership on the Committee, or during
such membership, have been or are granted or awarded Awards under this Plan or
pursuant to any other Plan of the Company. Except as otherwise specifically
reserved to the Board under Maryland law, such Committee shall have all powers
respecting this Plan. Except as otherwise specifically reserved to the Board
under Maryland Law, all questions of interpretation and application of this
Plan, or of the terms and conditions pursuant to which Awards are granted,
exercised or forfeited under the provisions hereof, shall be subject to the
determination of the Committee. Such determination shall be final and binding
upon all parties affected thereby. A majority vote of the members of the
Committee shall be required for all of its actions.
It is contemplated that Awards granted hereunder will be recommended
by the management of the Company to the Committee, and that the Committee will
determine whether to accept the recommendations of the management of the
Company. The Committee has authority in its discretion to determine the persons
to whom, and the time or times at which, Options may be granted, the nature of
each Option, the number of shares of stock subject to each option, the form of
payment (cash, Stock, or a combination thereof) payable upon the event or
events giving rise to payment under an Option and such other terms and
conditions applicable to each Option as the Committee shall determine.
ARTICLE V
GRANT OF AWARDS AND LIMITATION OF
NUMBER OF SHARES OF STOCK AWARDED
5.1 GRANTS OF AWARDS; NUMBER OF SHARES. The Committee may, from time to
----------------------------------
time, grant Awards to one or more Eligible Individuals; provided that:
<PAGE>
(i) subject to any adjustment pursuant to Article XI or Article XII,
the aggregate number of shares of Stock subject to Awards under this Plan may
not exceed One Million (1,000,000) shares;
(ii) except with respect to shares of Stock which are the subject of
Awards surrendered pursuant to Section 7.4, to the extent that an Award lapses
or the rights of the Participant to whom it was granted terminate, or to the
extent that the Award is canceled by mutual agreement of the Committee and the
Participant (which cancellation opportunities may be offered by the Committee to
Participants from time to time), any shares of Stock subject to such Award shall
again be available for the grant of an Award hereunder;
(iii) shares of Stock ceasing to be subject to an Award because of
the exercise of an Option and/or Stock Appreciation Right shall no longer be
available for the grant of an Award hereunder; and
(iv) shares of stock which are the subject of grants of Awards under
this Plan shall be set aside out of authorized but unissued shares of Stock not
reserved for other purposes.
In determining the size of Awards, the Committee may take into account
a Participant's responsibility level, performance, potential, cash compensation
level, the Fair Market Value of the Stock at the Date of Grant and such other
considerations as it deems appropriate.
ARTICLE VI
ELIGIBILITY
6.1 ELIGIBLE INDIVIDUALS. Full-time, salaried employees of the Company and
--------------------
non-employees providing bona fide services to or for the Company, who, in the
opinion of the Committee, contribute to the continued growth, development and
financial success of the Company shall be eligible to be granted Awards under
this Plan. Subject to the provisions of this Plan, the Committee shall from time
to time select from such eligible persons those to whom Awards shall be granted
and determine the size of the Awards. A Participant may hold more than one Award
at any one time. No employee of the Company shall have any right to be granted
an Award under this Plan, as all Awards granted hereunder are granted in the
sole and absolute discretion of the Committee, as provided herein.
<PAGE>
ARTICLE VII
OPTIONS
7.1 GRANTS OF OPTIONS. Awards shall be granted to Participants in the form
-----------------
of Options to purchase Stock pursuant to this Article VII and, in the discretion
of the Committee, Stock Appreciation Rights pursuant to Article VIII herein.
7.2 TYPE OF OPTIONS. The Committee may choose to grant a Participant who
---------------
is an Eligible Individual either Incentive Stock Options or Non-Qualified Stock
Options or both, subject to the limitations contained herein.
7.3 INCENTIVE STOCK OPTION DOLLAR LIMITATION. If the Committee grants
----------------------------------------
Incentive Stock Options, the aggregate Fair Market Value (determined at the time
the Option is granted) of any such Options plus any incentive stock options
granted under any other plans of the Company which shall be first exercisable
(i.e. vest) by any one Participant during any one calendar year shall not exceed
$100,000, or such other dollar limitation as may be provided in the Code.
7.4 LIMITATIONS; COMPANY REPURCHASE OF OPTIONS. Grants of Options
------------------------------------------
hereunder shall be subject to guidelines adopted by the Committee with respect
to the timing and size of such Options. In addition, the Committee may, in its
discretion, provide that an Option may not be exercised in whole or in part for
any period or periods specified by the Committee. In the sole discretion of the
Committee, the Company may agree to repurchase Options for cash, provided that
no Non-Qualified Stock Option shall be repurchased by the Company from an
executive officer, director or 10% or greater stockholder of the Company within
six-months of any grant of an Award to such persons hereunder.
ARTICLE VIII
STOCK APPRECIATION RIGHTS
8.1 GRANTS OF STOCK APPRECIATION RIGHTS. A Stock Appreciation Right
-----------------------------------
pursuant to this Article VIII may only be granted to a Participant who has been
granted an Option pursuant to Article VII. Each such Stock Appreciation Right
shall relate to a specific Option granted and may be granted concurrently with
the Option to which it relates or at any time prior to the exercise, termination
or expiration of an Option.
For purposes of this Plan, the term "Stock Appreciation Right" means
the right to receive from the Company, upon surrender of the Option or a portion
thereof without payment to the Company, an amount equal to the Fair Market Value
on the exercise date of the total number
<PAGE>
of shares of Stock for which the Stock Appreciation Right is exercised, less the
exercise price which the Participant would have otherwise been required to pay
upon purchase of the Stock upon exercise of the related Option.
A Stock Appreciation Right shall be payable by the Company upon
exercise of such right in cash or Stock, or in any combination thereof, as the
Committee in its sole discretion may determine.
8.2 LIMITATIONS IN STOCK APPRECIATION RIGHTS. In no event shall the total
----------------------------------------
number of shares of Stock which may be paid to the participant pursuant to the
exercise of a Stock Appreciation Right exceed the total number of shares subject
to the related Option. The Committee may fix, with respect to Stock Appreciation
Rights granted under this Plan, such waiting periods, exercise dates or other
limitations as it shall deem appropriate, except that a Stock Appreciation Right
shall only be exercisable during such time as the related Option shall be
exercisable. In addition, the Committee may impose a total prohibition on the
exercise of Stock Appreciation Rights for such period or periods as it, in its
sole discretion, deems to be in the best interest of the Company.
ARTICLE IX
TERMS AND CONDITIONS OF STOCK OPTION AGREEMENTS
9.1 STOCK OPTION AGREEMENTS. Awards of Options shall be evidenced by Stock
-----------------------
Option Agreements in such form as the Committee shall, from time to time,
approve. A Stock Appreciation Right shall be evidenced by an agreement
incorporated in or amending the Stock Option Agreement to which the right
relates. Such Stock Option Agreements, which need not be identical, shall comply
with and be subject to the following terms and conditions:
(a) Medium of Payment. Upon exercise of the Option, the Option price
-----------------
shall be payable either (i) in United States dollars in cash or by certified
check, bank draft or postal or express money order payable to the order of the
Company for an amount in United States dollars equal to the Option price for the
number of shares of Stock subject to the Option (the "Total Option Price"), or
(ii) in the discretion of the Committee, through the delivery of shares of Stock
with a Fair Market Value equal to the Total Option Price, or (iii) by a
combination of the methods described in (i) and (ii); provided, however, that in
the case of a Total Option Price which is paid by an Insider in whole or in part
by delivery of shares of Stock, if the Company shall then be subject to Section
16 of the Exchange Act, the Stock acquired upon the exercise of such Option
shall not be disposed of by such Insider for a six (6) month period commencing
on the date on which such Insider last purchased Stock of the Company.
<PAGE>
(b) Number of Shares. The Stock Option Agreement shall state the
----------------
total number of shares of Stock to which it pertains.
(c) Option Price. With respect to Incentive Stock Options, the Option
------------
price shall be not less than the Fair Market Value of such shares of Stock on
the Date of Grant (or one hundred ten percent (110%) of such amount if the
Option is granted to an individual owning stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company). With respect to Non-Qualified Stock Options, the Option price shall be
not less than the Fair Market Value of such shares of Stock on the Date of
Grant.
(d) Term of Options and Stock Appreciation Rights. Each Non-
---------------------------------------------
Qualified and Incentive Stock Option and related Stock Appreciation Right
granted under this Plan shall expire as of the date determined by the Committee,
but in no event more than ten (10) years from the Date of Grant, except that
each Incentive Stock Option and related Stock Appreciation Right granted under
the Plan to an individual owning stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the Company shall
expire not more than six (6) years from the Date of Grant.
(e) Date of Exercise. Except for such limitations as may be provided
----------------
by the Committee in its sole discretion pursuant to Articles VII and VIII, any
Vested Option or Vested Stock Appreciation Right may be exercised in whole at
any time during its term or in part from time to time during its term.
(f) Forfeiture or Exercise of Option and Stock Appreciation Right.
-------------------------------------------------------------
Except as otherwise provided in any employment agreement or other agreement
between the Company and the Participant, if a Participant ceases employment
with the Company, prior to exercise of the Participant's Options and Stock
Appreciation Rights, such Options and Stock Appreciation Rights shall be
forfeited (i.e. terminate) or be exercised, as follows:
(i) Termination. Except as otherwise provided in any employment
-----------
agreement or other agreement between the Company and the Participant, in the
event of a Participant's Termination, the Participant's Options and Stock
Appreciation Rights shall be forfeited immediately, unless Termination is
initiated by the Company for reasons other than for Cause, in which case the
Participant's Options and Stock Appreciation Rights shall be forfeited as of the
thirtieth (30) day following the date of Termination.
(ii) Retirement. In the event of a Participant's Retirement, the
----------
Participant shall have the right to exercise his or her Options and Stock
Appreciation Rights (to the extent such Options and Stock Appreciation Rights
are Vested as of the Participant's Retirement Date) within three (3) months (or
such shorter period as the Code or the terms of the particular Option or Stock
Appreciation Right may require) of the Participant's Retirement Date.
<PAGE>
(iii) Disability. Upon the Disability of a Participant, the
----------
Participant's Options and Stock Appreciation Rights (to the extent such Options
and Stock Appreciation Rights are Vested as of the Participant's Date of
Disability) shall be exercisable by the Participant within twelve (12) months
(or such shorter period as the Code or the terms of the particular Option or
Stock Appreciation Right may require) of the Participant's Date of Disability.
(iv) Death. If the Participant dies while in the employment of
-----
the Company or within the period of time after Retirement during which the
Participant would have been entitled to exercise his or her Options and Stock
Appreciation Rights, the Participant's estate, personal representative or
beneficiary (as applicable) shall have the right to exercise such Options and
Stock Appreciation Rights within twelve (12) months from the date of the
Participant's death (or such shorter period as the Code or the terms of the
particular Option or Stock Appreciation Right may require); provided, however,
that such Options and Rights shall be exercisable only to the extent they are
Vested as of the date of death unless the Committee, in its discretion, elects
to accelerate the vesting of all or any portion of the unvested shares subject
to the Option or Stock Appreciation Right as of the date of death or unless
otherwise provided in the Participant's employment agreement with the Company,
if any.
(g) Agreement as to Sale of Securities. If, at the time of the
----------------------------------
exercise of any Option or Stock Appreciation Right for shares of stock, in the
opinion of counsel for the Company, it is necessary or desirable, in order to
comply with any applicable laws or regulations relating to the sale of
securities, that the Participant exercising the Option or Stock Appreciation
Right shall agree to purchase the shares that are subject to the Option or Stock
Appreciation Right for investment only and not with any present intention to
resell the same and that the Participant will dispose of such shares only in
compliance with such laws and regulations, the Participant will, upon the
request of the Company, execute and deliver to the Company an agreement to such
effect. The Participant agrees to also become a party to any stockholders'
agreement then in effect among the Company and its stockholders.
(h) Election to Recognize Income. In the case of Non-Qualified Stock
----------------------------
Options granted to Participants subject to liability under Section 16(b) of the
Exchange Act, if a Participant makes an election in a timely manner pursuant to
Section 83(b) of the Code to recognize income for tax purposes when such Non-
Qualified Stock Option is first exercised, the Participant shall notify the
Company within ten (10) days of the making of such election.
(i) Minimum Number of Shares of Stock. The minimum number of shares
---------------------------------
of Stock with respect to which an Option may be exercised at any one time shall
be one hundred (100) shares, unless the number is the total number at the time
available for exercise under the Awards.
<PAGE>
(j) Required Amendments. Each Award shall be subject to any provision
-------------------
necessary to assure compliance with federal and state securities laws.
(k) Limitation of Participant Rights. A Participant shall not be
--------------------------------
deemed to be the holder of, or to have any of the rights of a holder with
respect to, any shares of Stock subject to Options unless and until the Options
shall have been exercised pursuant to the terms thereof, the Company shall have
issued and delivered the shares of Stock to the Participant, and the
Participant's name shall have been entered as a stockholder of record on the
books of the Company. Thereafter, the Participant shall have full voting,
dividend and other ownership rights with respect to such shares of Stock.
(l) Other Provisions. Stock Option Agreements authorized under this
----------------
Plan may contain such other provisions not inconsistent herewith as the
Committee shall deem advisable, including covenants not to compete with the
Company.
ARTICLE X
GRANTS IN SUBSTITUTION FOR OPTIONS
AND STOCK APPRECIATION RIGHTS
GRANTED BY OTHER CORPORATIONS
10.1 SUBSTITUTE AWARDS. Awards may be granted under this Plan from time to
-----------------
time in substitution for similar awards held by employees of corporations who
become or are about to become employees of the Company as the result of a merger
or consolidation of the employing corporation with the Company, or the
acquisition by the Company of the assets of the employing corporation, or the
acquisition by the Company of fifty percent (50%) or more of the stock of the
employing corporation causing it to become a subsidiary. Subject to the
procurement of the approval of the stockholders of the Company, as may be
required for the Plan to satisfy the requirements of Rule 16b-3 under the
Exchange Act (if the Company shall be subject to Section 16 of the Exchange
Act), the terms and conditions of the substitute awards so granted may vary from
the terms and conditions set forth in this Plan to such extent as the Committee
at the time of the grant may deem appropriate to conform, in whole or in part,
to the provisions of the options and stock appreciation rights in substitution
for which they are granted.
<PAGE>
ARTICLE XI
CHANGES IN CAPITAL STRUCTURE
11.1 CAPITAL STRUCTURE CHANGES.
-------------------------
(a) Other than pursuant to any conversion rights set forth in the
charter of the Company, if the outstanding shares of Stock as a class are
increased, decreased or changed into, or exchanged for, a different number or
kind of shares of stock or securities of the Company, through merger,
consolidation, reorganization, recapitalization, reclassification, stock
dividend, stock split, combination of shares, exchange of shares, change in
corporate structure or the like, an appropriate and proportionate adjustment
shall be made in the number and kinds of securities subject to the Plan, and in
the number, kinds, and per share exercise price of shares of Stock subject to
unexercised Options and Stock Appreciation Rights or portions thereof granted
prior to any such change. Any such adjustment in an outstanding Award,
however, shall be made without a change in the total price applicable to the
unexercised portion of the Award but with a corresponding adjustment in the
price for each share of Stock covered by the Award. No fractional shares shall
be issued as a result of any such adjustment.
(b) Upon dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation in which the Company is not the
surviving corporation, or upon the sale of substantially all of the assets of
the Company to another corporation, the Plan and the Awards granted thereunder
shall terminate, unless provision is made in connection with such transaction
for the assumption of Awards theretofore granted, or the substitution for such
Awards of new options and stock appreciation rights of the successor employer
corporation or a parent or subsidiary thereof, with appropriate adjustment as to
the number and kinds of securities and the per share exercise prices. In the
event of such termination, all outstanding Awards shall be exercisable in full
for at least thirty (30) days prior to the effective date of such termination,
whether or not otherwise exercisable during such period, but not later than the
date the Options and Stock Appreciation Rights would otherwise expire.
(c) Adjustments under this Article shall be made by the Committee,
whose determination as to what adjustment shall be made, and the extent thereof,
shall be conclusive. The Committee shall have the discretion and power in any
such event to determine and to make effective provision for the acceleration of
the time during which an Award may be exercised, notwithstanding the provisions
of the Award setting forth the date or dates on which all or any part of it may
be exercised. No fractional shares of Stock shall be issued under the Plan on
account of any adjustment specified above.
<PAGE>
ARTICLE XII
COMPANY SUCCESSORS
12.1 IN GENERAL.
----------
(a) Subject to Article XI hereof, if the Company shall be the
surviving or resulting corporation in any merger, sale of assets or sale of
stock, consolidation or corporate reorganization (including a reorganization in
which the holders of stock receive securities of another corporation), any Award
granted hereunder shall pertain to and apply to the securities to which a holder
of stock would have been entitled. The Committee shall make such appropriate
determinations and adjustments as it deems necessary so as to substantially
preserve the rights and benefits, both as to number of shares of Stock or
securities and otherwise, of Participants under this Plan.
(b) If the Company shall not be the surviving corporation in any
merger, sale of assets or sale of stock, consolidation or reorganization
(including a reorganization in which the holders of Stock receive securities of
another corporation) involving the Company, the successor corporation may, but
shall not be required to, issue substitute options so as to preserve
substantially the rights and benefits of the Participants under this Plan.
ARTICLE XIII
AMENDMENT OR TERMINATION OF PLAN
13.1 AMENDMENTS AND TERMINATION. The plan shall terminate on the tenth
--------------------------
(10th) anniversary of the initial effective date of the Plan (i.e., at 5:00
p.m., Baltimore time, on April 30, 2007) and, in addition, the Board may at any
time and from time to time alter, amend, suspend or terminate this Plan in whole
or in part except (i) without such stockholder approval as may be required by
law and the Company's charter, no such action may be taken which changes the
minimum Option price, increases the maximum term of Awards, materially increases
the benefits accruing to Participants hereunder, materially increases the number
of securities which may be issued pursuant to this Plan (except as provided in
Article XI), extends the period for granting Awards hereunder or materially
modifies the requirements as to eligibility for participation hereunder, and
(ii) without the consent of the Participant to whom any Award shall theretofore
have been granted, no such action may be taken which adversely affects the
rights of such Participant concerning such Awards, except as such termination or
amendment of this Plan is required by statute, or rules and regulations
promulgated thereunder, or as otherwise permitted hereunder. Further, the
Committee may, with the consent of a Participant, amend the terms of
<PAGE>
any existing Option previously granted to include any provisions or amendments
that properly may be incorporated at the time of such amendment. Solely to
illustrate the foregoing power, but without limiting its scope, such amendments
may accelerate the period of exercise or the vesting period of any Option, or
installments thereof, either absolutely or conditionally for whatever reasons
the Committee deems appropriate, including without limitation compensatory
considerations, events which would result in any change in the listing or cause
delisting of the Company's Stock, significant changes in the management or
control of the Company, or the occurrence of any attempt to effect such a
change.
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 NON-TRANSFERABILITY. Except by the laws of descent and distribution,
-------------------
no benefit provided hereunder shall be subject to alienation, assignment or
transfer by a Participant (or by any person entitled to such benefit pursuant to
the terms of this Plan), or to attachment or other legal process of whatever
nature, and any attempted alienation, assignment, attachment or transfer shall
be void and of no effect whatsoever and upon any such attempt, the benefit shall
terminate and be of no force or effect. During a Participant's lifetime, Awards
granted to the Participant shall be exercisable only by the Participant. Shares
of Stock shall be delivered only into the hands of the Participant entitled to
receive the same or into the hands of the Participant's authorized legal
representative. Deposit of any sum in any financial institution to the credit of
any Participant (or of a person entitled to such sum pursuant to the terms of
this Plan) shall constitute payment into the hands of that Participant (or such
person).
14.2 NO EMPLOYMENT RIGHT. Neither this Plan nor any action taken hereunder
-------------------
shall be construed as giving any right to any individual to be retained as an
officer or employee of the Company.
14.3 TAX WITHHOLDING. The Company shall have the right to deduct from all
----------------
Awards paid, or to require the Participant to satisfy, any federal, state, local
or employment taxes which it deems are required by law to be withheld with
respect to the exercise of an Option, or portion thereof. In the case of Awards
paid in Stock, the Participant receiving such Stock may be required to pay to
the Company an amount required to be withheld with respect to such Stock. At the
request of a Participant, or as required by law, such sums as may be required
for the payment of any estimated or accrued income tax liability may be withheld
and paid over to the governmental entity entitled to receive the same.
<PAGE>
14.4 ACCELERATION. Except as otherwise provided hereunder, the Committee
------------
may in its sole discretion accelerate the time at which an Award granted
hereunder may be exercised.
14.5 FRACTIONAL SHARES. Any fractional shares concerning Awards shall be
-----------------
eliminated at the time of payment or pay-out by rounding down for fractions of
less than one-half (1/2) and rounding up for fractions of equal to or more than
one-half (1/2). No cash settlements shall be made with respect to fractional
shares eliminated by rounding.
14.5 GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company to
--------------------------------
make payment of Awards in Stock or otherwise shall be subject to all applicable
laws, rules and regulations, and to such approvals by any government agencies as
may be deemed necessary or appropriate by the Committee. If Stock awarded
hereunder may in certain circumstances be exempt from registration under the
Securities Act of 1933, as amended, the Company may restrict its transfer in
such manner as it deems advisable to ensure such exempt status. This Plan is
intended to comply with Rule 16b-5 under the Exchange Act at such time as the
Company shall become subject to Section 16 of the Exchange Act. Any provision
inconsistent with Rule 16b-5 shall be inoperative and shall not affect the
validity of the Plan. The Plan shall be subject to any provision necessary to
assure compliance with federal and state securities laws.
14.7 INDEMNIFICATION. Each person who is or at any time serves as a member
---------------
of the Board or the Committee shall be indemnified and held harmless by the
Company against and from (i) any loss, cost, liability or expense that may be
imposed upon or reasonably incurred by such person in connection with or
resulting from any claim, action, suit or proceeding to which such person may be
a party or in which such person may be involved by reason of any action or
failure to act under this Plan; and (ii) any and all amounts paid by such person
in satisfaction of judgement in any such action, suit or proceeding relating to
this Plan. Each person covered by this indemnification shall give the Company an
opportunity, at its own expense, to handle and defend the same before such
person undertakes to handle and defend the same on such person's own behalf. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the charter or by-
laws of the Company, as a matter of law, or otherwise, or any power that the
Company may have to indemnify such person or hold such person harmless.
14.8 RELIANCE ON REPORTS. Each member of the Board or the Committee
-------------------
shall be fully justified in relying or acting in good faith upon any report made
by the independent public accountants of the Company, and upon any other
information furnished in connection with this Plan. In no event shall any
person who is or shall have been a member of the Board or the Committee be
liable for any determination made or other action taken or any omission to act
<PAGE>
in reliance upon any such report or information, or for any action taken,
including the furnishing of information or failure to act, if in good faith.
14.9 GOVERNING LAW. All matters relating to this Plan or to Awards granted
-------------
hereunder shall be governed by the laws of the State of Maryland, without regard
to the principles of conflict of laws, except to the extent preempted by the
laws of the United States.
14.10 RELATIONSHIP TO OTHER BENEFITS. No payment under this Plan shall be
------------------------------
taken into account in determining any benefits under any pension, retirement,
profit sharing or group insurance plan of the Company.
14.11 EXPENSES. The expenses of implementing and administering this Plan
--------
shall be borne by the Company.
14.12 TITLES AND HEADINGS. The titles and headings of the Articles and
-------------------
Sections in this Plan are for convenience of reference only, and in the event of
any conflict, the text of this Plan, rather than such titles or headings, shall
control.
14.13 USE OF PROCEEDS. Proceeds from the sale of Stock pursuant to Awards
---------------
granted under the Plan shall constitute general funds of the Company.
14.14 NONEXCLUSIVITY OF PLAN. Neither the adoption of the Plan by the Board
----------------------
nor the submission of the Plan to the stockholders of the Company for approval
shall be construed as creating any limitations on the power of the Board to
adopt such other incentive arrangements as it may deem desirable, including,
without limitation, the granting of stock options otherwise than under the Plan,
and such arrangements may be either applicable generally or only in specific
cases.
<PAGE>
EXHIBIT 10.02
REGISTRATION RIGHTS AGREEMENT
AGREEMENT made as of November 22, 1996, among Caliber Learning Network,
Inc., a Maryland corporation (the "Company"), Sylvan Learning Systems, Inc., a
Maryland corporation ("Sylvan"), MCI Telecommunications Corporation, a Delaware
corporation ("MCI"), Douglas L. Becker ("Becker") and R. Christopher Hoehn-Saric
("Hoehn-Saric" and, together with Becker, the "Individual Stockholders). Each
of MCI, Sylvan, Becker and Hoehn-Saric hereinafter sometimes referred to
individually as a "Stockholder" and, collectively, as the "Stockholders."
Sylvan, Becker and Hoehn-Saric are hereinafter sometimes referred to
collectively as the "Sylvan Stockholders."
WHEREAS, the Company, the Stockholders and John P. Hill (together with the
Stockholders, the "Caliber Stockholders") have executed (i) a Purchase Agreement
dated as of October 23, 1996 (the "Purchase Agreement") pursuant to which the
Caliber Stockholders have agreed to purchase and the Company has agreed to issue
to the Caliber Stockholders shares of the Company's capital stock for an
aggregate purchase price of $13,000,000 (together, with all other capital stock
originally issued to the Caliber Stockholders during the term hereof, the
"Registrable Stock") and (ii) a Stockholders' Agreement dated as of the date of
this Agreement pursuant to which certain agreements of Caliber and the Caliber
Stockholders relating to the capital stock and governance of Caliber are set
forth (the "Stockholders' Agreement"); and
WHEREAS, the execution and delivery of this Agreement by the Company is a
condition precedent to consummation of the transactions contemplated by the
Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the adequacy of
which is hereby acknowledged, the parties hereto agree as follows:
1. Request for Registration of Registrable Stock.
(a) Long-Form Registration. Subject to the provisions of
----------------------
paragraphs (c), (d), (e) and (f) below, for a period of three years after the
consummation of an Initial Public Offering (as defined in the Stockholders'
Agreement, as in effect from time to time), MCI may at any time, but only twice,
and the Sylvan Stockholders (or any of them) may at any time, but only twice, in
the aggregate, request registration under the Securities Act of all or part of
the Registrable Stock issued and delivered to such Stockholders (or Stockholder)
on a Registration Statement on Form S-1 or any similar long-form registration
("Long Form Registration"). The request for registration pursuant to this
paragraph 1 must specify the number of shares of Registrable Stock requested to
be registered and the minimum desired price per share in such offering;
provided, that the Fair Market Value of the Registrable Stock requested to be
registered by one or more Stockholders must be no less than $3,000,000 in the
aggregate. "Fair Market Value" of the Registrable Stock shall be calculated by
multiplying the number of shares of shares
<PAGE>
of Registrable Stock requested to be registered by the average of the per share
closing price on the Nasdaq Stock Market or such national stock exchange as the
Caliber Stock is then traded for the ten business days preceding the date of the
registration request. Within ten days after receipt of any such request, the
Company will give written notice (the "Notification of a Demand") of such
request to the non-requesting Stockholders (if any) and will include in such
registration all shares of Registrable Stock with respect to which the Company
has received a written request from the non-requesting Stockholder for inclusion
therein within 15 days after the receipt of the Company's notice (it being
understood that an election to participate in such registration process by the
non-requesting Stockholder shall also constitute a "request" of the non-
requesting Stockholder for purposes of the first sentence of this paragraph
1(a)).
(b) Short-Form Registration. Subject to the provisions of
-----------------------
paragraphs (c), (d), (e) and (f) below, for a period of three years beginning on
the first anniversary of the consummation of an Initial Public Offering, MCI may
at any time, but only twice, and Sylvan and the Individual Stockholders may at
any time, but only four times, request registration under the Securities Act of
all or part of the Registrable Stock issued and delivered to such Stockholders
(or Stockholder) on a Registration Statement on Form S-3 or any similar long-
form registration ("Short-Form Registration"). The request for registration
pursuant to this paragraph 1 must specify the number of shares of Registrable
Stock requested to be registered and the minimum desired price per share in such
offering; and the shares so requested to be registered must have a Fair Market
Value of at least $1,000,000. Within ten days after receipt of any such request,
the Company will give Notification of a Demand to the non-requesting
Stockholders (if any) and will include in such registration all shares of
Registrable Stock with respect to which the Company has received a written
request from the non-requesting Stockholder for inclusion therein within 15 days
after the receipt of the Company's notice (it being understood that an election
to participate in such registration process by the non-requesting Stockholder
shall also constitute a "request" of the non-requesting Stockholder for purposes
of the first sentence of this paragraph 1(b)).
All registrations requested pursuant to this paragraph 1 are referred to
herein as "Demand Registrations."
(c) Underwritten Demand Registrations. In connection with any
---------------------------------
Demand Registration covering Registrable Stock having a then Fair Market Value
of at least $3,000,000, the Company shall have the right to require that all
shares subject to such Demand Registration be underwritten by one or more
investment banking firms of national reputation selected by the Company, subject
to the approval of the Stockholders participating in such Demand Registration,
which approval will not be unreasonably withheld, and which approval shall be
deemed given if the Stockholders owning the majority of the shares of
Registrable Stock requested to be registered have given such approval. Each of
the Stockholders participating in such Demand Registration agrees to enter into
such customary agreements (including underwriting agreements in customary form)
and take such other action as the Company or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of its
Registrable Stock included therein.
<PAGE>
(d) Timing of the Filing of Demand Registrations. Subject to
--------------------------------------------
receipt from the Stockholders participating in a Demand Registration of all
information relating to such Stockholders the Company reasonably believes is
required to file such Demand Registration, the Company will file with the SEC
each Demand Registration requested pursuant to this paragraph 1 within 30 days
of the applicable Demand Registration request; provided, however, (i) if, in the
Company's reasonable judgment, the Company determines that, because of business
developments or pending transactions, it would not be in the best interests of
the Company to then file such Demand Registration, the Company may delay the
filing of the Demand Registration for a period of up to 60 days from the Demand
Registration request; and (ii) the Company will not be obligated to effect any
Demand Registration (A) within (x) 180 days after the Initial Public Offering or
(y) 90 days after the effective date of a previous Demand Registration or a
previously filed underwritten registration of shares of the Company's Common
Stock which includes shares sold for the Company's account ("Company
Registration") or (B) if effecting a Demand Registration would require the
Company to obtain an audit of its financial statements for any period other than
a fiscal year.
(e) Number of Demand Registrations; Withdrawn Demand
------------------------------------------------
Registrations.
- --------------
(i) The Company shall have the obligation to file with the
SEC and cause to become effective no more than four Demand Registrations
pursuant to paragraph (a) and six Demand Registrations pursuant to
paragraph (b); provided, however, that notwithstanding anything in this
Section 1 to the contrary, in the event the total number of shares
requested to be registered in any of the periods set forth in paragraph (a)
or (b) have not been registered due to underwriters' cutbacks as described
in paragraph 1(f) ("Cutback Shares"), the Company agrees to file with the
SEC and cause to become effective a Demand Registration for such Cutback
Shares.
(ii) The Company's obligation to register Registrable Stock
shall not be deemed satisfied if the related registration statement does
not become effective, unless such registration statement does not become
effective for reasons beyond the reasonable control of the Company. No
occasion to require registration pursuant to this Section 1 shall be deemed
forfeited if all of the Stockholders who have elected to participate in the
Demand Registration withdraw their request for registration prior to the
registration statement becoming effective and (A) the withdrawal is due to
lack of Company information being available to such withdrawing
Stockholders, or (B) the withdrawing Stockholders promptly reimburse the
Company in full for any and all out-of-pocket expenses incurred by the
Company in connection with the withdrawn registration.
(iii) In the event that all or a portion of the Registrable
Stock subject to this Agreement is transferred by any of the Stockholders
to an Affiliate of such Stockholder in a manner permitted by Article III of
the Stockholders' Agreement (other than to another Stockholder), (A) the
term "Stockholder" shall be deemed to include the
<PAGE>
Stockholder together with all of its permitted transferees for purposes of
the registration obligations of the Company, and (B) a request for a Demand
Registration pursuant to this paragraph 1 shall be deemed to have been
made, or withdrawn, by the Stockholder only in the event that written
notice of such election, executed by the then holders of a majority in
interest of the Stockholder's Registrable Stock subject to this Agreement,
has been received by the Company.
(f) Priority on Demand Registrations. Except for shares of the
---------------------------------
Company's Common Stock to be sold for the Company's account and included in a
Company Registration pursuant to paragraph 1(d) above, the Company will not
include in any Demand Registration any securities which are not Registrable
Stock without the prior written consent of the Stockholders participating in
such Demand Registration. If a Demand Registration is an underwritten offering
and the managing underwriters advise the Company in writing that in their
opinion the number of Registrable Stock and other securities to be sold by other
selling stockholders requested to be included therein exceeds the number of
shares of Sylvan Stock which can be sold in such offering without adversely
affecting the marketability of the offering, the Company will include in such
registration, prior to the inclusion of any securities for selling stockholders
other than the Stockholders, that number of shares of Registrable Stock
requested to be included which in the opinion of such underwriters can be sold
without adversely affecting the marketability of the offering, pro rata among
the respective Stockholders on the basis of the number of Registrable Stock
requested by each Stockholder to be included therein.
2. Holdback Agreements.
-------------------
(a) Each Stockholder agrees not to offer for public sale or
effect any public sale or distribution (including sales pursuant to Rule 144 or
Rule 144A under the Securities Act) of equity securities of the Company, or any
securities convertible into or exchangeable or exercisable for such securities
during the seven days prior to and the 90-day period beginning on the effective
date of any underwritten registration of the Company's equity securities (except
as part of such underwritten registration), unless the underwriters managing the
registered public offering otherwise agree.
(b) The Company agrees not to offer for public sale or effect any
public sale or distribution of its equity securities, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to and during the 90-day period beginning on the effective date
of any underwritten Demand Registration initially requested pursuant to
paragraph 1(a), (b) or (c), (other than registrations on Form S-8 or any
successor form or registrations on Form S-4 or any successor form), unless the
underwriters managing such Demand Registration otherwise agree.
4. Registration Procedures. Whenever any Stockholder has requested
-----------------------
that any Registrable Stock be registered pursuant to this Agreement, the Company
will use its best efforts to effect the registration and the sale of such
Registrable Stock in accordance with the
<PAGE>
intended method of disposition therefor, and pursuant thereto the Company will
as expeditiously as possible:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Stock (subject to the provisions of paragraph 1(e)
above); and use its best efforts to cause such registration statement to become
effective;
(b) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a period
of not less than three months and comply with the provisions of the Securities
Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(c) furnish to each Stockholder owning Registrable Stock covered
by such registration statement, such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including each preliminary prospectus) and such
other documents as such Stockholder may reasonably request in order to
facilitate the disposition of such Registrable Stock;
(d) use its best efforts to register or qualify the Registrable
Stock covered by such registration statement under such other securities or blue
sky laws of such United States jurisdictions as any Stockholder owning any such
Registrable Stock reasonably requests and do any and all other acts and things
which may be reasonably necessary or advisable to enable such Stockholder to
consummate the disposition in such jurisdictions of the Registrable Stock owned
by such Stockholder (provided that the Company will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to so qualify but for the requirements of this
subparagraph, (ii) subject itself to taxation in any jurisdiction where it is
not otherwise subject to taxation or (iii) consent to general service of process
in any jurisdiction where it would not otherwise be required to so consent but
for the requirements of this paragraph);
(e) notify each Stockholder owning any Registrable Stock covered
by such registration statement, at any time when such registration statement is
effective under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact required to be stated therein or
necessary to make the statements therein not misleading, and, at the request of
any such Stockholder, the Company will prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Stock, such prospectus will not contain an untrue statement of a
material fact or omit to state any fact required to be stated therein or
necessary to make the statements therein not misleading;
<PAGE>
(f) cause all Registrable Stock covered by such registration
statement to be listed on the Nasdaq National Market or the principal national
securities exchange on which the Company's Common Stock is then listed;
(g) provide a transfer agent and registrar for all such
Registrable Stock not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the
Stockholders owning Registrable Stock being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Stock;
(i) make available for inspection by any Stockholder owning
Registrable Stock covered by such registration statement, any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by any such Stockholder or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors,
employees and independent accountants to supply all information reasonably
requested by any such Stockholder, underwriter, attorney, accountant or agent in
connection with such registration statement;
(j) obtain a cold comfort letter from the Company's independent
public accountants in customary form and covering matters of the type
customarily covered by cold comfort letters addressed to the Stockholders owning
Registrable Stock covered by such registration statement; and
(k) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC.
5. Registration Expenses.
---------------------
All expenses incident to the Company's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and reasonable fees and disbursement of
one counsel for the Stockholders requesting registration and all independent
certified public accountants, underwriters and other persons retained by the
Company, but excluding underwriting discounts, selling commissions and transfer
taxes applicable to the Registrable Stock being sold (all such expenses being
herein called "Registration Expenses"), will be borne by the Company.
6. Indemnification and Contribution.
---------------------------------
(a) The Company agrees to indemnify, to the extent permitted by
law, each of the Stockholders (and their respective directors, officers and each
such person who
<PAGE>
controls each of them (within the meaning of the Securities Act)) against all
losses, claims, damages, liabilities and expenses caused by or resulting from
any untrue or alleged untrue statement of material fact contained in any
registration statement covering Registrable Stock owned by any Stockholder, or
any prospectus or preliminary prospectus contained therein, or any amendment
thereof or supplement thereto, or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except insofar as the same are caused by or result from (i) any
such untrue or alleged untrue statement of material fact or omission or alleged
omission made in reliance upon and in conformity with information furnished in
writing to the Company or any underwriter by such Stockholder expressly for
inclusion therein or (ii) such Stockholder's failure to deliver a copy of such
registration statement or prospectus, or any amendment thereof or supplement
thereto, after the Company has furnished such Stockholder with a sufficient
number of copies of the same. In connection with an underwritten offering, the
Company will indemnify such underwriters, their officers and directors and each
person who controls such underwriters (within the meaning of the Securities Act)
to the same extent as provided above with respect to the indemnification of the
Stockholders.
(b) In connection with any registration statement in which a
Stockholder is participating, such Stockholder will furnish to the Company
and/or underwriter(s) in writing such information and affidavits relating to
disclosure concerning such Stockholder required to be included in such
registration statement as the Company and/or underwriter(s) reasonably request
for use in connection with such registration statement or any prospectus or
preliminary prospectus contained therein and, to the extent permitted by law,
will indemnify the Company and the underwriter(s), and their respective
directors and officers and each person who controls the Company and the
underwriter(s), as applicable, (within the meaning of the Securities Act)
against any losses, claims, damages, liabilities and expenses caused by or
resulting from any untrue or alleged untrue statement of material fact contained
in such registration statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto, or any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that the same are
caused by or result from any such untrue or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with any such
information furnished in writing to the Company or any underwriter by such
Stockholder expressly for inclusion therein; provided that the obligation to
indemnify will be several, not joint and several, among the Stockholders and the
liability of each Stockholder will be in proportion to and limited to the net
amount received by such Stockholder from the sale of Registrable Stock pursuant
to such registration statement.
(c) Any person entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim with respect
to which it seeks indemnification and (ii) unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. If such defense is assumed, the
indemnifying party will not
<PAGE>
(x) be subject to any liability for any settlement made by the indemnified party
without its consent (but such consent will not be unreasonably withheld) or (y)
settle a claim without the prior written consent of the indemnified party (which
consent will not be unreasonably withheld). An indemnifying party who is not
entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest may exist
between such indemnified party and any other of such indemnified parties with
respect to such claim.
(d) In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
Stockholder exercising rights under this Agreement makes a claim for
indemnification pursuant to this Section 6 but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 6 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such
Stockholder in circumstances for which indemnification is provided under this
Section 6; then, and in each such case, the Company and such Stockholder will
contribute to the aggregate losses, claims, damages, liabilities and expenses to
which they may be subject (after contribution from others) in such proportion so
that such Stockholder is responsible for the portion represented by the
percentage that the public offering price of its Registrable Stock covered by
the applicable registration statement bears to the public offering price of all
securities covered by such registration statement, and the Company is
responsible for the remaining portion; provided, however, that, in any such
------------------
case, (A) no such Stockholder will be required to contribute any amount in
excess of the public offering price of all Registrable Stock owned by it that
are covered by such registration statement; and (B) no person or entity guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) will be entitled to contribution from any person or entity who
was not guilty of such fraudulent misrepresentation.
(e) The indemnification and contribution provided for under this
Agreement will remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director,
Affiliate or controlling person of such indemnified party and will survive the
transfer of securities. The Company also agrees to make such provisions, as are
reasonably requested by any indemnified party, for contribution to such party in
the event the Company's indemnification is unavailable for any reason.
7. Rule 144.
So long as any securities of the Company shall be registered pursuant
to the requirements of Section 12 of the Exchange Act or pursuant to a
registration statement under the Securities Act, the Company will file the
reports required to be filed by it under the Exchange Act and the Securities Act
(or, if the Company is not then required to file such reports, will, upon the
request of any Stockholder, make publicly available other information) and will
take such
<PAGE>
further action as any Stockholder may reasonably request, all to the extent
required from time to time to enable such Stockholder to sell Registrable Stock
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 (or any successor rule). Upon the request of any
Stockholder, the Company will deliver to such Stockholder a written statement as
to whether it has complied with the requirements of this Section 7.
8. Miscellaneous.
(a) All covenants and agreements contained in this Agreement by
or on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and permitted assigns of the parties hereto (including
without limitation transferees of any Registrable Stock), whether so expressed
or not, provided, however, that registration rights conferred herein on the
------------------
Stockholders shall only inure to the benefit of a transferee of a Stockholder if
such transfer is made to an Affiliate and in accordance with the provisions of
the Stockholders' Agreement. The Company may not assign this Agreement or any
part hereof other than to an Affiliate without the prior written consent of the
Stockholders.
(b) In the event a Stockholder has transferred in a manner
permitted by Article III of the Stockholders' Agreement all or a portion of its
Registrable Stock still subject to this Agreement to an Affiliate (in any such
case, a "Transferring Stockholder"), then, for purposes of this Agreement any
request, notice or approval required from or given by the Transferring
Stockholder shall be deemed properly given if given in writing by those persons
(other than the other Stockholders) holding a majority in interest of the
Registrable Stock of the Transferring Stockholder which are then subject to this
Agreement. In the event that a Transferring Stockholder has transferred in a
manner permitted by Article III of the Stockholders' Agreement all or any
portion of its Registrable Stock still subject to this Agreement, then from and
after the date of such transfer, such Transferring Stockholder shall have no
further rights or duties under this Agreement in respect of such transferred
shares.
(c) All notices, requests, consents and other communications to
any party hereunder shall be in writing (including facsimile) and shall be sent
by a nationally recognized overnight courier or delivered by hand against
written receipt, or sent by facsimile, addressed as follows:
(i) if the Company or any other party hereto, at the
address (or facsimile number) of such party set forth in the
Stockholders' Agreement; or
(ii) if to any permitted subsequent holder of the
Registrable Stock still subject to this Agreement, to it at such
address (or facsimile number) as may have been furnished to the
Company in writing by such holder;
or to such other address (or facsimile number) as shall have been furnished in
writing to the Company (in the case of a holder of Registrable Stock) or to
Stockholders and any other holders
<PAGE>
of the Registrable Stock still subject to this Agreement (in the case of the
Company) in accordance with the provisions of this paragraph.
(d) This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland.
(e) This Agreement may not be amended or modified, and no
provision hereof may be waived, without the written consent of (i) in the case
of an amendment, all of the parties hereto, or (ii) in the case of a waiver, the
party against whom the waiver is to be effective.
(f) 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.
(g) The obligations of the Company to register Registrable Stock
hereunder shall terminate as to any Stockholder and permitted transferees of
such Stockholder if such Stockholder (together with such Stockholder's permitted
transferees and assignees) (i) holds one percent (1%) or less of the outstanding
shares of the Caliber Common Stock and (b) would be permitted to sell all of the
shares of Caliber Common Stock held by it within one three month period pursuant
to Rule 144 (or any successor rule) under the Securities Act.
(h) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, 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.
(i) Capitalized terms used but not defined in this Agreement
shall have the respective meanings ascribed to them in the Stockholders'
Agreement.
(j) In the event that any stock dividend, reclassification,
readjustment, or other changes are declared or made in the capital structure of
the Company, all new, substituted or additional shares, or other securities,
issued by reason of any such change with respect to the Registrable Stock shall
be governed by this Agreement and shall be deemed to be part of the Registrable
Stock for purposes hereof.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be executed as of the date first above written.
ATTEST: CALIBER LEARNING NETWORK, INC.
____________________ By: ____________________________
Name:
Title:
STOCKHOLDERS:
ATTEST: SYLVAN LEARNING SYSTEMS, INC.
____________________ By: ____________________________
Name:
Title:
ATTEST: MCI TELECOMMUNICATIONS CORPORATION
____________________ By: ____________________________
Name:
Title:
WITNESS:
____________________ _____________________________
Douglas L. Becker
WITNESS:
____________________ _____________________________
R. Christopher Hoehn-Saric
<PAGE>
EXHIBIT 10.03
THESE SECURITIES HAVE BEEN ISSUED PURSUANT TO EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, THESE SECURITIES MAY NOT BE
RESOLD OR OTHERWISE DISPOSED OF UNLESS, IN THE OPINION OF COUNSEL FOR OR
SATISFACTORY TO THE ISSUER, REGISTRATION UNDER THE APPLICABLE FEDERAL OR STATE
SECURITIES LAWS IS NOT REQUIRED OR COMPLIANCE IS MADE WITH SUCH REGISTRATION
REQUIREMENTS. COPIES OF THE AGREEMENTS COVERING THE PURCHASE OF THESE
SECURITIES AND RESTRICTING THEIR SALE OR TRANSFER MAY BE OBTAINED AT NO COST BY
WRITTEN REQUEST MADE BY THE HOLDER OF RECORD HEREOF TO THE SECRETARY OF CALIBER
AT THE PRINCIPAL EXECUTIVE OFFICES OF CALIBER. THIS LEGEND SHALL BE ENDORSED
UPON ANY WARRANT ISSUED IN EXCHANGE FOR THIS WARRANT.
Void after 5:00 p.m. Baltimore Time, on November 22, 2006
or earlier pursuant to the terms hereof.
WARRANT TO PURCHASE
752,689 SHARES OF
CLASS A COMMON STOCK
OF
CALIBER LEARNING NETWORK, INC.
This is to certify that, FOR VALUE RECEIVED, MCI TELECOMMUNICATIONS
CORPORATION or its permitted transferees and assigns pursuant to Section (d)
hereof ("Holder"), is entitled to purchase, subject to the provisions of this
Warrant, from Caliber Learning Network, Inc., a corporation organized under the
laws of the State of Maryland ("Caliber"), 752,689 shares of Class A Common
Stock, par value $.01 per share of Caliber ("Warrant Shares") at a price of
$5.025 per share (the "Exercise Price") until the Expiration Date. The number of
Warrant Shares to be received upon the exercise of this Warrant and the Exercise
Price to be paid for each such Warrant Share shall be adjusted from time to time
as hereinafter set forth.
(a) EXERCISE OF WARRANT; EXPIRATION DATE OF WARRANT. This Warrant may be
-----------------------------------------------
exercised as to all but not less than all of the Warrant Shares at any time,
until 5:00 p.m., Baltimore, Maryland time on November 22, 2006 (the "Expiration
Date"), provided, however, that if such day is a day on which banking
institutions in the State of Maryland are authorized by law to close, then the
Expiration Date shall be the next succeeding day which shall not be such a day.
This Warrant shall be exercised by presentation and surrender hereof to Caliber
at its principal office, or at the office of its transfer agent, if any, with
the Exercise Form annexed hereto duly executed (with signature guaranteed if
required by Caliber or its transfer
<PAGE>
agent) and accompanied by payment of the aggregate Exercise Price for all
Warrant Shares being purchase and any applicable taxes. As soon as practicable
after exercise of this Warrant but not later than seven (7) business days from
the date of such exercise, Caliber shall issue and deliver to the Holder a
certificate or certificates for the Warrant Shares, registered in the name of
the Holder or the Holder's permitted designee. Upon receipt by Caliber of this
Warrant at its office, or by the transfer agent of Caliber at its office, in
proper form for exercise, together with the aggregate Exercise Price thereof and
taxes as aforesaid in cash or certified or bank check and the investment letter
described below, the Holder shall be deemed to be the holder of record of the
shares of Class A Common Stock issuable upon such exercise, notwithstanding that
the transfer books of Caliber shall then be closed or that certificates
representing such shares of Common Stock shall not then be physically delivered
to the Holder. It shall be a condition of the exercise of this Warrant that the
Holder shall deliver to Caliber an investment letter in the form as customarily
used by Caliber from time to time in connection with the exercise of non-
registered options and warrants which are issued by Caliber. It is further
understood that certificates for this Warrant Shares to be issued upon exercise
of this Warrant shall contain a restrictive legend in accordance with Section
(i) hereof.
(b) ISSUANCE OF SHARES; ADJUSTMENT IN NUMBER OF WARRANT SHARES. All
----------------------------------------------------------
Warrant Shares issuable upon exercise of this Warrant shall, upon issuance
thereof in accordance with the terms of this Warrant, be duly authorized,
validly issued, fully-paid and non-assessable and, without limiting the
generality of the foregoing, Caliber covenants and agrees that it will from time
to time take all such actions as may be required to assure that the par value
per share of the Class A Common Stock is at all times equal to or less than the
effective Exercise Price.
(c) FRACTIONAL SHARES. No fractional shares or scrip representing
-----------------
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, Caliber
shall pay to the Holder an amount in cash equal to such fraction multiplied by
the Fair Market Value a share of Class A Common Stock, which value shall be an
amount, calculated as follows: If the Class A Common Stock is then trading on
the Nasdaq Stock Market or other national securities exchange or listed on an
over-the-counter market, the Fair Market Value per share shall be the average of
the reported per share last sale price or last bid price, as the case may be,
for the ten business days preceding exercise of this Warrant; or, if not so
traded or listed, then as negotiated in good faith between Caliber and the
Holder; provided, that, if agreement between the Holder and Caliber cannot be
reached, then the Fair Market Value shall be determined by independent appraisal
using the process set forth in Section 3.2 of the Stockholders' Agreement, as in
effect from time to time.
(d) TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant may not be
---------------------------------------
transferred or assigned in part at any time by the Holder. This Warrant may not
be transferred or assigned in whole except to an Affiliate only together with
all shares of Series A Convertible Preferred Stock and Class A Common Stock then
owned by the Holder and, then only as expressly permitted by Section (i) hereof.
Notwithstanding the preceding sentence, no transfer of this Warrant shall be
made to any Affiliate of the Holder that is then engaged in any business
<PAGE>
competitive with Caliber's then business. If the terms of this Section (d) and
Section (i) hereof permit, upon surrender of this Warrant to Caliber at its
principal office or at the office of its transfer agent, if any, with the
Assignment Form annexed hereto duly executed (with signature guaranteed, if
required by Caliber or its transfer agent) and funds sufficient to pay any
transfer tax, Caliber shall, without charge, execute and deliver a new Warrant
in the name of the assignee Affiliate of Holder named in such instrument of
assignment and this Warrant shall promptly be canceled. The term "Warrant" as
used herein includes any Warrant for which this Warrant has been so transferred.
Upon receipt by Caliber of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in the case of loss, theft or
destruction, of reasonable satisfactory indemnification, and upon surrender and
cancellation of this Warrant, if mutilated, Caliber will execute and deliver a
new Warrant of like tenor, date and amount. Any such new Warrant executed and
delivered shall constitute an additional contractual obligation on the part of
Caliber, whether or not the original Warrant shall be at any time enforceable by
anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
--------------------
entitled to any rights of a holder of shares of Capital Stock of Caliber, either
at law or equity, and the rights of the Holder are limited to those expressed in
this Warrant and are not enforceable against Caliber except to the extent set
forth herein.
(f) ANTI-DILUTION PROVISIONS. So long as this Warrant shall be
------------------------
outstanding, the following shall apply:
(1) The number of Warrant Shares for which this Warrant is
exercisable shall be adjusted from time to time as necessary so that the
Warrant Shares shall thereafter continue to equal seven percent (7%) of the
total number of shares of Capital Stock of Caliber that would be
outstanding after giving effect to exercise of this Warrant; provided,
however, that no such adjustment shall be made on account of (a) any shares
of Capital Stock issued by Caliber in any transaction as to which the
Holder was given the preemptive right to subscribe for and purchase its pro
rata share thereof on a Fully Diluted Basis and declined or failed to so
subscribe and purchase other than shares in connection with an Initial
Public Offering; or (b) that number of shares of Capital Stock issued by
Caliber in its Initial Public Offering in excess of twenty percent (20%) of
the total number of shares of Capital Stock outstanding immediately
following consummation of the Initial Public Offering. For purposes of any
adjustment pursuant to Section (b) above, shares issued by Caliber as a
result of exercise of the underwriters' over-allotment option in the
Initial Public Offering shall be deemed to be outstanding only to the
extent that the shares as to which the underwriters had a firm commitment
to purchase from Caliber represented 20% or less of the total number of
shares of Capital Stock outstanding following consummation of the Initial
Public Offering but before exercise of such underwriters' over-allotment
option. Any adjustment pursuant to this subsection (1) shall be made
successively whenever any event listed above shall occur.
<PAGE>
(2) if Caliber shall (a) pay a dividend in, or make a distribution
on, its outstanding shares of Common Stock in shares of Common Stock, (b)
subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares, or (c) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price
in effect at the time of the record date for such dividend or distribution,
or the effective date of such subdivision, combination or reclassification
shall be proportionately adjusted as of the effective date of such event by
multiplying such Exercise Price by a fraction, the denominator of which
shall be the number of shares of Common Stock outstanding immediately
following such event and the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior thereto. For example,
if Caliber declares a 2-for-1 share split and the Exercise Price
immediately prior to such event was $5.025 per share, the adjusted Exercise
Price immediately after such event shall be adjusted to $2.513 per share.
Any such adjustment shall be made successively whenever any event listed
above shall occur.
(3) in case of (a) any capital reorganization of Caliber, or (b) the
consolidation or merger of Caliber with or into another corporation or
other entity, (c) a statutory share exchange whereby Caliber's Common Stock
is converted into property other than cash, or (d) the sale, transfer or
other disposition of all or substantially all of the property, assets or
business of Caliber as a result of which property other than cash or
securities shall be payable or distributable to the holders of the Common
Stock, then, in each such case, this Warrant shall thereafter be
exercisable for the number and class of shares or other securities or
property of the corporation or other entity resulting from such
consolidation or merger or with or to which such statutory share exchange,
sale, transfer or other disposition shall have been made, to which the
shares of Class A Common Stock otherwise issuable upon exercise of this
Warrant would have been entitled upon such reorganization, consolidation,
merger, statutory share exchange, or sale, transfer or other disposition
had they been outstanding at the time thereof. In any such case,
appropriate adjustment, as determined by the Board of Directors, shall be
made in the application of the provisions set forth in this subsection (3)
with respect to the exercise of this Warrant thereafter, to the end that
such provisions shall thereafter be applicable, as nearly as reasonably may
be, in relation to any shares or securities or other property thereafter
issuable or deliverable upon exercise of this Warrant. Proper provision
shall be made as a part of the terms of any such reorganization,
consolidation, merger, statutory share exchange or sale, transfer or other
disposition whereby the exercisability of this Warrant shall be protected
and preserved in accordance with the provisions of this subsection (3). The
provisions of this subsection (3) shall similarly apply to successive
capital reorganizations, consolidations, mergers, statutory share
exchanges, sales, transfers or other dispositions of property as aforesaid.
(4) Subject to any adjustment provided for in Section (f)(1), if,
after issuing to the Stockholders the Initial Equity Capital, Caliber shall
issue to any person or entity (other than the Holder) any shares of Common
Stock, or rights, options (other than
<PAGE>
Management Options) or warrants entitling them to subscribe for or purchase
a share of Common Stock at a price per share which is less than the
Exercise Price per Warrant Share, the number of Warrant Shares thereafter
issuable upon exercise of this Warrant shall be adjusted by multiplying the
number of Warrant Shares heretofore issuable upon exercise of this Warrant
by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding on the date of issuance of such right or warrants
plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the denominator shall be the number
of shares of Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
offered would purchase at such current aggregate Exercise Price for the
Warrant Shares. Such adjustment shall be made whenever such rights, options
(other than Management Options) or warrants are issued, and shall become
effective immediately after the record date for the determination of the
holders of the Corporation's shares entitled to receive such rights or
warrants.
(5) Whenever the Exercise Price payable upon exercise of this Warrant
is adjusted pursuant to any of the above subsections, the number of Warrant
Shares purchasable upon exercise of this Warrant shall simultaneously be
adjusted by multiplying the number of Warrant Shares issuable upon exercise
of this Warrant by the Exercise Price in effect on the date hereof (the
"Aggregate Exercise Price") and dividing the product so obtained by the
Exercise Price, as adjusted. Whenever the number of Warrant Shares
issuable upon exercise of this Warrant is adjusted pursuant to any of the
subsections above, the Exercise Price payable upon exercise of this Warrant
shall simultaneously be adjusted by dividing the Aggregate Exercise Price
by the number of Warrant Shares, as adjusted.
(6) All calculations under this Section (f) shall be made to the
nearest cent or to the nearest whole Warrant Share, as the case may be.
(7) In the event that at any time, as a result of an adjustment made
pursuant to this Section (f), the Holder of this Warrant thereafter shall
become entitled to exercise this Warrant for any shares of Capital Stock of
Caliber, other than shares of Class A Common Stock, thereafter the number
of such other shares receivable upon exercise of this Warrant shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the shares of
Class A Common Stock contained in this Section (f).
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price or the number of
---------------------
Warrant Shares shall be adjusted as required by Section (f) hereof, Caliber
shall promptly file in the custody of its Secretary or an Assistant Secretary at
its principal office and with its transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price and/or adjusted number of
Warrant Shares, determined as herein provided, setting forth in reasonable
detail the facts requiring such adjustment, including a statement of the number
of additional Warrant Shares, if
<PAGE>
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Caliber shall, promptly after each such
adjustment, mail, by certified mail, a copy of such certificate to the Holder at
its address as shown on Caliber's records.
(h) NOTICES TO HOLDER. So long as this Warrant shall be outstanding, (i)
-----------------
if Caliber shall pay any dividend or make any distribution upon the Common
Stock, or (ii) if Caliber shall offer to the holders of Common Stock for
subscription or purchase by them any shares of any class or any other rights, to
subscribe for or purchase shares, or (iii) if any capital reorganization of
Caliber, reclassification of the shares, consolidation or merger of Caliber with
or into another corporation or other entity, statutory share exchange or sale,
lease or transfer of all or substantially all of the property and assets of
Caliber to another corporation or other entity, or voluntary or involuntary
dissolution, liquidation or winding up of Caliber shall be effected, then in any
such case, Caliber shall cause to be mailed by certified mail to the Holder, at
least 15 days prior to the date specified in (x) or (y) below, as the case may
be, a notice containing a brief description of the proposed action and stating
the date on which (x) a record is to be taken for the purpose of such dividend,
distribution or rights, or (y) such reclassification, reorganization,
consolidation, merger, conveyance, lease, dissolution, liquidation or winding up
is to take place and the date, if any is to be fixed, as of which the holders of
shares of Common Stock or other securities shall receive cash or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
statutory share exchange, conveyance, dissolution, liquidation or winding up.
(i) SECURITIES LAW COMPLIANCE
-------------------------
(1) The Holder of this Warrant, by acceptance hereof, acknowledges
that this Warrant and the Warrant Shares to be issued upon exercise hereof
are being acquired solely for the Holder's own account and not as a nominee
for any other party, and for investment, and that the Holder will not
offer, sell, transfer, assign or otherwise dispose of this Warrant or any
shares of Class A Common Stock to be issued upon exercise hereof except
under circumstances that will not result in a violation of the Act or any
state securities laws. Upon exercise of this Warrant, the Holder shall, if
requested by Caliber, confirm in writing, in a form satisfactory to
Caliber, that the shares of Class A Common Stock so purchased are being
acquired solely for the Holder's own account and not as a nominee for any
other party, for investment, and not with a view toward distribution or
resale.
(2) This Warrant and all shares of Class A Common Stock issued upon
exercise hereof shall be stamped or imprinted with a legend in
substantially the following form (in addition to any legend required by
state securities laws):
THESE SECURITIES HAVE BEEN ISSUED PURSUANT TO EXEMPTIONS
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF
1933, AS AMENDED, AND APPLICABLE
<PAGE>
STATE SECURITIES LAWS, AND, ACCORDINGLY, THESE SECURITIES MAY NOT
BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS, IN THE
OPINION OF COUNSEL FOR OR SATISFACTORY TO THE ISSUER,
REGISTRATION UNDER THE APPLICABLE FEDERAL OR STATE SECURITIES
LAWS IS NOT REQUIRED OR COMPLIANCE IS MADE WITH SUCH REGISTRATION
REQUIREMENTS. COPIES OF THE AGREEMENTS COVERING THE PURCHASE OF
THESE SECURITIES AND RESTRICTING THEIR SALE OR TRANSFER MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF
RECORD HEREOF TO THE SECRETARY OF CALIBER AT THE PRINCIPAL
EXECUTIVE OFFICES OF CALIBER.
(j) AMENDMENTS. Neither this Warrant nor any term hereof may be changed,
----------
waived, discharged or terminated without the prior written consent of the Holder
and Caliber.
(k) DEFINITIONS. All capitalized terms used herein which are not
-----------
otherwise defined herein shall have the meanings ascribed to them in the
Stockholders' Agreement, dated as of the date of this Warrant, by and among
Caliber, the Holder and certain other Stockholders of Caliber, as the same may
be amended from time to time, a copy of which is available for inspection at the
principal executive offices of Caliber.
(l) NO IMPAIRMENT. Caliber will not avoid or seek to avoid the observance
-------------
or performance of any of the terms to be observed or performed hereunder by
Caliber, but will at all times in good faith assist in the carrying out of all
the provisions of this Warrant and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder.
(m) GOVERNING LAW. This Agreement shall be governed by and construed
-------------
under the laws of the State of Maryland.
(n) NOTICES. All notices and other communications required or permitted
-------
hereunder shall be in writing and shall be mailed by first class mail, postage
prepaid, addressed (a) if to the Holder, to MCI Telecommunications Corporation,
1801 Pennsylvania Avenue, N.W., Washington, D.C. 20006 Attention: Ms. Susan
Mayer, Senior Vice President of Corporate Development, with a copy to MCI's
General Counsel or (b) if to Caliber, to Caliber Learning Network, Inc., c/o
Sylvan Learning Systems, Inc., 9135 Guilford Road, Columbia, Maryland 21046
Attention: Douglas L. Becker, or at such other address as the Holder or Caliber
shall have furnished to the other party in writing.
<PAGE>
IN WITNESS WHEREOF, Caliber Learning Network, Inc. has caused this Warrant
to be executed by its officer thereunto duly authorized, on the 22nd day of
November, 1996.
CALIBER LEARNING NETWORK, INC.
By:____________________________________
Name:__________________________________
Title:_________________________________
<PAGE>
EXERCISE FORM
-------------
Dated ____________________, ____
The undersigned hereby irrevocably elects to exercise its rights pursuant
to this Warrant by purchasing * shares of Class A Common Stock of
---------
Caliber Learning Network, Inc., and hereby makes payment of $_________ in
payment of the exercise price thereof.
HOLDER:
Name: ____________________________
By: ____________________________
Title: ____________________________
______________
* Must represent all Warrant Shares for which this Warrant is exercisable.
<PAGE>
ASSIGNMENT FORM
---------------
FOR VALUE RECEIVED, ________________________________________ hereby sells,
assigns and transfers unto
Name____________________________________________________________________________
(Please typewrite or print in block letters)
Address_________________________________________________________________________
the right to purchase all shares of Class A Common Stock of Caliber Learning
Network, Inc., represented by this Warrant and does hereby irrevocably
constitute and appoint ____________________________ as Attorney, to transfer
the same on the books of Caliber with full power of substitution in the
premises.
Date ___________________, ______ HOLDER
Name: _________________________
By: _________________________
Title: _________________________
<PAGE>
EXHIBIT 10.05
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
<PAGE>
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
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.
<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:
<TABLE>
<S> <C>
"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
</TABLE>
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
<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 Rental
Days, as the case may be; and, to the extent Caliber is successful in
doing so, the
------------------------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<PAGE>
cancellation/rescheduling fee otherwise paid or payable by MCIS under
Section 3.3. shall * .
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 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 * .
-------------------------
* Text omitted pursuant to a request for confidential treatment and
filed separately with the Securities and Exchange Commission.
<PAGE>
Notwithstanding the foregoing, if a Transmission Failure occurs in
twenty percent * 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. * .
7.1.2. * .
7.1.3. * .
- -----------------------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<PAGE>
7.1.4. * .
7.1.5. * .
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 * (the "PROGRAM MANAGEMENT
FEE"). Except as expressly noted in this Section, Caliber shall be
responsible for the costs of * . 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:
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 * and
- -----------------------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<PAGE>
7.3.2. The Course Delivery Fee otherwise payable under Section 7.1.3
or 7.1.4 shall be increased by * .
8. MINIMUM VOLUME COMMITMENT
In consideration of the preferential pricing set forth in the preceding section,
MCIS hereby agrees that it shall pay Caliber * (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 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
- ----------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<PAGE>
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
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, * .
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
- ---------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<PAGE>
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 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.
<PAGE>
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 Agreement, be for
MCIS's benefit and MCIS shall be responsible for the administration,
including invoicing, collection, and audit, of such MCIS revenue.
- ----------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<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 * and shall
have * and Caliber shall have * . Subject to Section 12.2, MCIS
shall have * . 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 * . MCIS
understands and agrees that Caliber is * . "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.
- ----------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<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:
<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.
<PAGE>
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 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 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
<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 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. * .
- ----------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<PAGE>
* . With respect to incurable breachesdescribed 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. * .
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. * .
16.2.2. * .
16.2.3. * .
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.
- ----------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<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).
<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 * .
23.2. * .
24. INDEMNIFICATION
24.1. * .
24.2. * .
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
- ---------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<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
* .
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:__________________________
- ---------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<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
- -----------------
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)
<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
-------------------------------------------
NO. LOCATION
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
<PAGE>
50 Palo Alto - Cybersmith
51 Memphis
<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 Agreement, Caliber will consider MCP a Preferred
Partner and shall not *
- ---------------------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
-1-
<PAGE>
EXHIBIT 10.07
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 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
-----------------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<PAGE>
exclusive remedy. Compaq retains the right to exit the Agreement at the end
of Year Two based on * . 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 - *
-----------------------
5-Hour Program Fee/ *
----------------------
B. 1998-2000
2-Hour Program Fee - *
-----------------------
5-Hour Program Fee - *
-----------------------
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 *
----------------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<PAGE>
In addition to the charges specified for the Facilities and Services for
each program, User shall pay * .
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 * .
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 *
-------------
(collectively, "Property") until the terms of this Agreement have been
fulfilled with respect to each Program. Notwithstanding the foregoing, the
Property shall * .
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, *
The parties to this Agreement intend that * .
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
----------------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<PAGE>
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.
<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 * .
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.
----------------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<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
CORPORATION
By:______________________________ By:______________________________
Title:___________________________ Title:___________________________
<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
. 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
----------------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<PAGE>
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
. Initiation and monthly fees for Compaq requested additional
web sites
Cost - *TBD
*TBD - To Be Determined pricing. For each item, after verbal agreement on a
price, Caliber and Compaq will mutually confirm all prices in writing.
----------------
* Text omitted pursuant to a request for confidential treatment and filed
separately with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 10.10
INTERCOMPANY MANAGEMENT AND FACILITY USE AGREEMENT
THIS INTERCOMPANY MANAGEMENT AND FACILITY USE AGREEMENT (this "AGREEMENT") is
made and entered into effective as of the 1st day of January, 1998 (the
"EFFECTIVE DATE"), by and between SYLVAN LEARNING SYSTEMS, INC. ("SYLVAN"), and
CALIBER LEARNING NETWORK, INC. ("CALIBER"), each a Maryland corporation with its
principal place of business at 1000 Lancaster Street, Baltimore, Maryland 21202
(the "SYLVAN FACILITY").
RECITALS
A. Caliber is a development stage company organized in 1996 to develop, own,
and operate a state-of-the-art distance learning network integrating
professional classroom facilities, satellite transmission, two-way video
conferencing, wide-area network computing and Internet technologies.
B. Sylvan is a principal stockholder and promoter of Caliber and the owner of
the Sylvan Facility. Since Caliber's initial organization, Sylvan has
permitted Caliber to occupy and use the Sylvan Facility. Sylvan has also
provided certain executive management and administrative services to
Caliber.
C. The Sylvan Facility has become inadequate to serve the needs of both
Caliber and Sylvan. Accordingly, Sylvan is currently negotiating with the
owner (the "LANDLORD") of the property generally known as Meadow Mill at
Woodbury in Baltimore, Maryland (the "MEADOW MILL FACILITY"), for the lease
(the "MEADOW MILL LEASE") by Sylvan and use by Caliber of 17,800 square
feet of office space (the "LEASED PREMISES") at the Meadow Mill Facility.
D. The parties wish to clarify and formalize their understanding concerning
Caliber's use and occupancy of the Sylvan Facility and the Meadow Mill
Facility and the management services Sylvan has hitherto provided and, upon
the terms and conditions of this Agreement, will continue to provide to
Caliber.
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, the parties agree as follows:
1. TERM
The term of this Agreement shall be two (2) years commencing on Effective Date.
Upon the expiration of the initial two-year term, this Agreement may be
renewed by the parties upon such terms conditions as the parties may agree
in writing. The period of effectiveness of this Agreement is hereinafter
referred to as the "TERM."
<PAGE>
2. SYVLAN MANAGEMENT SERVICES
During the Term, Sylvan shall provide the following services to Caliber as
requested or required by Caliber in connection with the management and
conduct of Caliber's corporate and business affairs ("MANAGEMENT
SERVICES"):
2.1. Executive management services, including consultation and assistance
in the development and implementation of Caliber's business objectives
and strategies.
2.2. Financial management, tax, and accounting services, including
consultation and assistance in the preparation and maintenance of
internal financial records and controls; tax planning, management and
compliance; invoicing, billing, collection, and payment of accounts;
and payroll processing.
2.3. Legal services.
2.4. Management information services.
2.5. Human resources administration, including recruiting and personnel
management.
2.6. Such other management or administrative services as Caliber may
request or require from time to time and as Sylvan may agree to
provide.
3. USE OF FACILITIES
3.1. Sylvan Facility. Subject to Section 3.2, Caliber shall have the
---------------
continuing right during the Term to occupy up and use the Sylvan
Facility in accordance with the past practice.
3.2. Meadow Mill Facility. Subject to Sylvan's execution of the Lease
--------------------
and any required consents of the Landlord, Caliber agrees to vacate
the Sylvan Facility and relocate its operations to the Leased Premises
at the Meadow Mill Facility not later than four (4) weeks following
the commencement date of the Meadow Mill Lease (the "LEASE
COMMENCEMENT DATE"). Caliber thereafter shall have the right for the
remainder of the Term to use and occupy the Leased Premises for the
conduct of its business. Notwithstanding the foregoing, Caliber may
continue to occupy and use the Caliber demonstration classrooms
currently located on the first floor of the Sylvan Facility.
4. FEE AND PAYMENT
In consideration of the Management Services to be provided by Sylvan to Caliber
hereunder and Caliber's use and occupancy of the Sylvan Facility and the
Meadow Mill Facility on and after the Effective Date, Caliber shall pay to
Sylvan in each year of the Term an annual management and use fee of Two
Million Dollars ($2,000,000), which fee shall be payable by Caliber
quarterly in arrears within thirty (30) days of Caliber's receipt of
appropriate invoices from Sylvan.
<PAGE>
5. DEFERRED INTERCOMPANY CHARGES
5.1. Reconciliation of Accounts To Effective Date. In consideration of
--------------------------------------------
Caliber's use of the Sylvan Facility and the management and
administrative services provided by Sylvan to Caliber prior to the
Effective Date, the parties acknowledge, agree, and confirm that
Caliber is indebted to Sylvan as of December 31, 1997, in the amount
of Two Million Eight Hundred Eighty Thousand Five Hundred Dollars
($2,880,500) (the "DEFERRED INTERCOMPANY CHARGES") broken down by
period as follows:
<TABLE>
<S> <C>
For the period 7/1/96 - 12/31/96 $ 480,000
For the period 1/1/97 -12/31/97 2,400,500
----------
TOTAL 2,880,500
</TABLE>
5.2. Payment of Deferred Charges.
---------------------------
5.2.1. In General. The Deferred Intercompany Charges shall be
----------
payable by Caliber to Sylvan in forty-eight (48) equal
consecutive monthly installments of principal together with
accrued interest commencing on the first anniversary of the
Effective Date. The unpaid principal balance of the Deferred
Intercompany Charges shall bear interest commencing on the
Effective Date at 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. All payments made on
account of the Deferred Intercompany Charges shall be applied
first to accrued and unpaid interest, and then to the unpaid
principal balance of such Charges. The Deferred Intercompany
Charges may be prepaid by Caliber, in whole or in part, at any
time without penalty. The Deferred Intercompany Charges,
together with accrued and unpaid interest at the rate set
forth above, shall be due and payable in any event on the
third anniversary of the Effective Date.
5.2.2. Acceleration on IPO. Notwithstanding the foregoing, the
-------------------
Deferred Intercompany Charges, together with accrued and
unpaid interest at the rate set forth in Section 5.2.1, shall
be due and payable on demand by Sylvan 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 dated November 22, 1996, by and among
Caliber, Sylvan, MCI Communications Corp., Douglas L. Becker,
R. Christopher Hoehn-Saric, and John P. Hill.
6. COVENANTS REGARDING MEADOW MILL LEASE
6.1. Compliance with Lease. On and after the Lease Commencement Date:
---------------------
6.1.1. Sylvan's Obligations. Sylvan shall pay any and all rent,
--------------------
utility charges, common area maintenance fees, taxes, and
any and all other charges, expenses, and monetary
obligations associated with the Leased Premises payable or
assumed by Sylvan as tenant under the Lease.
<PAGE>
6.1.2. Caliber's Obligations. Except as provided in Section
---------------------
6.1.1, Caliber assumes and agrees to perform and comply with
all of the agreements, covenants and obligations of Sylvan
as tenant under the Lease; provided, however, that nothing
in this Section 6.1.2 shall be deemed to constitute Landlord
a third party beneficiary of Caliber's covenants hereunder
and Landlord shall have no right to enforce against Caliber
any obligations of the tenant under the Lease.
6.2. Indemnification.
---------------
6.2.1. By Sylvan. Sylvan covenants and agrees to indemnify, defend,
---------
and hold harmless Caliber from and against any losses,
liabilities, damages, claims, costs and expenses (including
but not limited to reasonable attorneys' fees and court
costs) incurred by or asserted against Caliber which arise
out of or result from any failure by Sylvan to perform,
carry out, comply with, discharge, or abide by its
obligations under this Section 6.
6.2.2. By Caliber. Caliber covenants and agrees to indemnify and
----------
hold harmless Sylvan from and against any losses,
liabilities, damages, claims, costs and expenses (including
but not limited to reasonable attorneys' fees and court
costs) incurred by or asserted against Sylvan which arise
out of or result from any failure by Caliber to perform,
carry out, comply with, discharge, or abide by its
obligations under this Section 6.
7. 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.
8. 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.
9. 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.
<PAGE>
10. 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as at the
day and year first above written.
ATTEST: SYLVAN LEARNING SYSTEMS, INC.
________________________________ By________________________________
O. Steven Jones, Asst. Secretary Douglas L. Becker, President
ATTEST: CALIBER LEARNING NETWORK, INC.
________________________________ By________________________________
O. Steven Jones, Asst. Secretary Chris L. Nguyen, President
<PAGE>
EXHIBIT 23.1
------------
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------------------------------------
We consent to the reference to our firm under the caption "Selected Financial
Data" and "Experts" and to the use of our report dated March 5, 1998 in the
Registration Statement (Form S-1 No. 333-_______) and related Prospectus of
Caliber Learning Network, Inc.
ERNST & YOUNG LLP
Baltimore, MD
March 5, 1998
