SYLVAN LEARNING SYSTEMS INC, PRE 14A, 1998-04-29

SYLVAN LEARNING SYSTEMS INC
PRE 14A, 1998-04-29
EDUCATIONAL SERVICES

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<PAGE>

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[X] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED
BY RULE 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12

SYLVAN LEARNING SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

------------------------------------------------------------------------

(2) Aggregate number of securities to which transaction applies:

------------------------------------------------------------------------

(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

------------------------------------------------------------------------

(4) Proposed maximum aggregate value of transaction:

------------------------------------------------------------------------

(5) Total fee paid:

------------------------------------------------------------------------

[_] Fee paid previously with preliminary materials.

[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

-----------------------------------------------------------------------

(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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Notes:

<PAGE>

YOUR VOTE IS IMPORTANT. Please execute and return the enclosed proxy card
promptly, whether or not you plan to attend the Sylvan Learning Systems, Inc.
Annual Meeting.

SYLVAN LEARNING SYSTEMS, INC.

[LOGO OF SYLVAN LEARNING SYSTEMS, INC. APPEARS HERE]

SYLVAN LEARNING SYSTEMS, INC.
1000 Lancaster Street
Baltimore, Maryland 21202

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 21, 1998

To the Stockholders of Sylvan Learning Systems, Inc.:

Notice is hereby given that the Annual Meeting of Stockholders of Sylvan
Learning Systems, Inc. ("Sylvan" or the "Company") will be held at the Harbor
Court Hotel, 550 S. Light Street, Baltimore, Maryland 21202, on May 21, 1998
at 10:00 a.m. for the following purposes:

I. To elect three (3) directors of the Company.

II. To approve and ratify amendments to Sylvan's Charter to increase the
number of authorized shares of Sylvan Common Stock from 40,000,000
shares to 90,000,000 shares and to increase from 250,000 shares to
900,000 shares the number of shares of Preferred Stock which are
designated as Series A Junior Participating Preferred Stock.

III. To approve and ratify amendments to the 1993 Employee Stock Option
Plan which increase the number of shares authorized for issuance upon
exercise of options granted thereunder from 3,200,000 to 3,800,000
shares.

IV. To approve and ratify the adoption of the 1998 Stock Incentive Plan.

V. To approve and ratify an amendment to the Employee Stock Purchase Plan
which increases the number of shares authorized for purchase thereunder
from 50,000 to 200,000 shares.

VI. To ratify the selection of Ernst & Young LLP as the independent
auditors of Sylvan for the fiscal year ending December 31, 1998.

VII. To transact such other business as may properly come before the
meeting.

Accompanying this notice is a Proxy Card and Proxy Statement and a copy of
Sylvan's Annual Report for the year ended December 31, 1997. WHETHER OR NOT
YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, PLEASE SIGN AND DATE THE PROXY
CARD AND RETURN IT IN THE ENCLOSED ENVELOPE PROVIDED FOR THAT PURPOSE PRIOR TO
THE DATE OF THE ANNUAL MEETING. The Proxy may be revoked at any time prior to
the time that it is voted at the Annual Meeting. April 8, 1998 was fixed by
the Board of Directors as the record date for determination of stockholders
entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof. Only stockholders of record at the close of business on April 8, 1998
will be entitled to vote at the Annual Meeting.

You are cordially invited to attend the Annual Meeting, and you may vote in
person even though you have returned your Proxy Card.

BY ORDER OF THE BOARD OF DIRECTORS

Douglas L. Becker
Secretary

Baltimore, Maryland
April 21, 1998
<PAGE>

SYLVAN LEARNING SYSTEMS, INC.
1000 LANCASTER STREET
BALTIMORE, MARYLAND 21202
(410) 843-8000

PROXY STATEMENT

INTRODUCTION

This Proxy Statement and the accompanying proxy are furnished to
stockholders of Sylvan Learning Systems, Inc. ("Sylvan") in connection with
the solicitation of proxies by Sylvan's Board of Directors to be used at the
Annual Meeting of Stockholders described in the accompanying notice and at any
adjournments thereof (the "Annual Meeting"). The purpose of the Annual Meeting
is to: 1) elect three directors of the Company, 2) approve and ratify
amendments to Sylvan's Charter to increase the number of authorized shares of
Sylvan Common Stock from 40,000,000 shares to 90,000,000 shares and to
increase from 250,000 shares to 900,000 shares the number of shares of
Preferred Stock which are designated as Series A Junior Participating
Preferred Stock (the "Charter Amendments"), 3) approve and ratify amendments
to the 1993 Employee Stock Option Plan which increase the number of shares
authorized for issuance upon exercise of options granted thereunder from
3,200,000 to 3,800,000 shares (the "1993 Plan Amendments"), 4) approve and
ratify the adoption of the 1998 Stock Incentive Plan, 5) approve and ratify an
amendment to the Employee Stock Purchase Plan which increases the number of
shares authorized for purchase thereunder from 50,000 to 200,000 shares (the
"Stock Purchase Plan Amendment"), 6) ratify the selection of Ernst & Young LLP
as independent auditors of the Company for the fiscal year ending December 31,
1998 and 7) transact such other business as may properly come before the
Annual Meeting. This Proxy Statement and the accompanying proxy are first
being sent to stockholders on or about April 21, 1998.

The record of stockholders entitled to notice of and to vote at the Annual
Meeting was taken as of the close of business on April 8, 1998 (the "Record
Date"). On the Record Date, there were outstanding and entitled to vote
31,195,090 shares of Common Stock, par value $.01 per share (the "Sylvan
Common Stock").

The presence, in person or by proxy, of the holders of a majority of the
shares of Sylvan Common Stock issued and outstanding and entitled to vote at
the Annual Meeting is necessary to constitute a quorum at the meeting. In the
election of directors, each share of Sylvan Common Stock may be voted for as
many individuals as there are directors to be elected. Votes may only be cast
"FOR" the election of a director; cumulative voting is not permitted. Those
individuals receiving the three highest number of votes "for" election to the
Board of Directors shall be considered duly elected. For all matters except
the election of directors, each share is entitled to one vote. The affirmative
vote of a majority of the shares of Sylvan Common Stock outstanding as of the
Record Date is required for approval of the Charter Amendments. The
affirmative vote of a majority of the shares of Sylvan Common Stock present in
person or represented by proxy at the Annual Meeting is required for approval
and/or ratification of all matters (other than the election of directors and
the Charter Amendments) being submitted to the stockholders for their
consideration. An automated system administered by Sylvan's transfer agent
will be used to tabulate the votes. Abstentions, votes against or withholding
approval and broker non-votes will be counted to determine wether a quorum is
present. Abstentions and votes against or withholding approval will be counted
as votes against any given proposal, whereas broker non-votes will not be
counted in determining whether a particular proposal has been approved by the
stockholders.

The cost of soliciting proxies and preparing the proxy materials will be
borne by Sylvan. In order to ensure that sufficient shares of Sylvan Common
Stock are represented at the meeting to permit approval of the proposals
outlined in the Proxy Statement, Sylvan has retained the services of Corporate
Investor Communications to assist in soliciting proxies for a fee of
approximately $1,500.00 plus reimbursement for out-of-pocket expenses. In
addition, Sylvan will require securities brokers, custodians, nominees and
fiduciaries to forward solicitation material to the beneficial owners of stock
held of record and will reimburse them for their reasonable out-of-pocket
expenses in forwarding such solicitation material. In addition to solicitation
of proxies by Corporate
<PAGE>

Investor Communications, proxies may be solicited personally or by telephone
or telegram by directors, officers and employees of Sylvan or its subsidiaries
without additional compensation to them.

VOTING BY PROXY

The Board of Directors has selected R. Christopher Hoehn-Saric and Douglas
L. Becker, and each of them, to act as proxies with full power of
substitution. Any stockholder executing a proxy has the power to revoke the
proxy at any time before it is voted at the Annual Meeting. This right of
revocation is not limited or subject to compliance with any formal procedure.
Any stockholder may attend the meeting and vote in person, whether or not he
has previously given a proxy.

With respect to the proposal regarding election of directors, stockholders
may (a) vote in favor of all nominees, (b) withhold their votes as to all
nominees or (c) withhold their votes as to specific nominees by so indicating
in the appropriate space on the enclosed proxy card. With respect to the
proposals to approve and ratify the adoption of the Charter Amendments, the
1993 Plan Amendments, the 1998 Stock Incentive Plan, the Stock Purchase Plan
Amendment and the appointment of Ernst & Young LLP as Sylvan's independent
auditors for the fiscal year ending December 31, 1998, stockholders may (i)
vote "for", (ii) vote "against" or (iii) abstain from voting as to each such
matter. All properly executed proxy cards delivered by stockholders and not
revoked will be voted at the Annual Meeting in accordance with the directions
given. IF NO SPECIFIC INSTRUCTIONS ARE GIVEN WITH REGARD TO THE MATTERS TO BE
VOTED UPON, THE SHARES REPRESENTED BY A PROPERLY EXECUTED PROXY CARD WILL BE
VOTED "FOR" THE ELECTION OF ALL DIRECTORS AND TO APPROVE AND RATIFY THE
CHARTER AMENDMENTS, THE 1993 PLAN AMENDMENTS, THE 1998 STOCK INCENTIVE PLAN,
THE STOCK PURCHASE PLAN AMENDMENT AND THE APPOINTMENT OF ERNST & YOUNG LLP AS
SYLVAN'S INDEPENDENT AUDITORS. Management knows of no other matters that may
come before the Annual Meeting for consideration by the stockholders. However,
if any other matter properly comes before the Annual Meeting, the persons
named in the enclosed proxy card as proxies will vote upon such matters in
accordance with their judgment.

Stockholders who do not expect to attend the Annual Meeting in person are
urged to execute and return the enclosed proxy card promptly. Any stockholder
delivering a proxy has the power to revoke it at any time before it is voted
by giving written notice of revocation to the Secretary of the Company, by
executing and delivering to the Secretary a proxy card bearing a later date,
or by voting in person at the Annual Meeting. Any stockholder also may be
represented by another person at the Annual Meeting by executing a form of
proxy designating such person to act on the stockholder's behalf at the Annual
Meeting.

2
<PAGE>

I. ELECTION OF SYLVAN DIRECTORS

The Board of Directors is comprised of nine (9) persons separated into three
(3) classes, with each class serving a three year term. Three (3) directors
serve in Class II and are subject to re-election for a three year term
beginning at the 1998 Annual Meeting. Three (3) directors serve in Class III
and are subject to re-election for a three year term beginning at the 1999
Annual Meeting. Three (3) directors serve in Class I and are subject to re-
election for a three year term beginning at the 2000 Annual Meeting. As of the
issuance of the proxy statement for the 1997 Annual Meeting, there was a
single vacancy in each of Classes I and II. The vacancy in Class II was filled
by the election of Rick Inatome by the directors on June 24, 1997. Mr. Inatome
was elected to serve until the Annual Meeting.

Three (3) Class II directors are to be elected at the Annual Meeting to
serve until the 2001 Annual Meeting or until their successors are duly elected
and qualified. The Board of Directors intends to fill the vacancy in Class I
with a suitable candidate prior to the 1999 Annual Meeting, at which time the
stockholders will be asked to vote on the election of such individual. The
Board of Directors has nominated the three persons named below to serve as
Class II directors for the term indicated. All nominees are currently members
of the Board. All current directors were elected to the Board by the
stockholders, except for Mr. Inatome, as noted above. Each of the nominees has
consented to serve on the Board of Directors through the 2001 Annual Meeting
or until his successor is duly elected and qualified. If any one of the
nominees should be unable to serve for any reason (which Management has no
reason to anticipate at this time), the Board of Directors may designate a
substitute nominee or nominee (in which case the persons named as proxies in
the enclosed proxy card will vote all valid proxy cards for the election of
such substitute nominee or nominees), allow the vacancy or vacancies to remain
open until a suitable candidate or candidates are located or by resolution
amending the By-laws of the Company, provide for a lesser number of directors.

THE INDIVIDUALS RECEIVING THE THREE HIGHEST NUMBER OF VOTES "FOR" ELECTION
TO THE BOARD OF DIRECTORS SHALL BE CONSIDERED DULY ELECTED.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR ITS
NOMINEES FOR DIRECTORS.

INFORMATION CONCERNING NOMINEES

The following table presents information concerning persons nominated by the
Board of Directors for election at the Annual Meeting as Class II directors of
the Company. Data with respect to the number of shares of the Sylvan Common
Stock beneficially owned by each of the nominees, directly or indirectly, as
of April 8, 1998, appear on page 12 of this Proxy Statement.

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, DIRECTORSHIPS
NOMINATED FOR WITH
NAME AND AGE DIRECTOR SINCE TERM EXPIRING PUBLIC COMPANIES AND OTHER INFORMATION
- ------------ -------------- ------------- --------------------------------------
<S> <C> <C> <C>
Douglas L. Becker (32) December 2001 Mr. Becker has been President of
1986 Annual Sylvan since April 1993. From February
Meeting 1991 until April 1993, Mr. Becker was
the Chief Executive Officer of the
Sylvan Learning Center Division of
Sylvan. Mr. Becker was a co-founder of
Health Management Corporation and is a
co-founder of Sterling Capital, Ltd.
("Sterling"), the investment
partnership that led the acquisition
of KEE Incorporated (the Predecessor
of Sylvan) in December 1986. From
January 1987 to February 1991, Mr.
Becker directed KEE's marketing and
sales. Mr. Becker also serves as a
director and Vice Chairman of Caliber
Learning Network, Inc.
</TABLE>

3
<PAGE>

Rick Inatome (44) June 2001 Mr. Inatome has been a Director of the
1997 Annual Company since June 1997. Mr. Inatome
Meeting is the Chairman of the Board of Inacom
Corp. Mr. Inatome also serves as a
director of Atlantic Premium Brands,
AAA Michigan/Wisconsin, Henry Ford
Health Systems, R. L. Polk & Co. and
Saturn Electronics and Engineering.

INFORMATION CONCERNING REMAINING DIRECTORS

<CAPTION>
PRINCIPAL OCCUPATION, DIRECTORSHIPS
WITH
NAME AND AGE DIRECTOR SINCE TERM EXPIRES PUBLIC COMPANIES AND OTHER INFORMATION
- ------------ -------------- ------------- --------------------------------------
<S> <C> <C> <C>
R. Christopher Hoehn- December 1999 Mr. Hoehn-Saric has served as Chief
Saric (35) 1986 Annual Executive Officer since April 1993 and
Meeting was President of Sylvan from 1988
until 1993. He is a principal in
Sterling and was a co-founder of
Health Management Corporation, a
health services company. Before
becoming Sylvan's President, Mr.
Hoehn-Saric was involved in Sterling's
acquisition of several distribution,
broadcasting and photography
businesses. Mr. Hoehn-Saric also
serves as a director and Chairman of
Caliber Learning Network, Inc.

Nancy A. Cole (55) May 1999 Ms. Cole has been employed by
1996 Annual Educational Testing Service ("ETS")
Meeting since 1989, serving as President since
1994 and previously as Executive Vice
President overseeing the program
administration process for ETS. Ms.
Cole currently is on the ETS Board of
Trustees. Prior to joining ETS, Ms.
Cole served for four years as Dean of
Education and Professor at the
University of Illinois at Urbana-
Champaign. Ms. Cole's background
includes previously serving as a
member of the Graduate Record
Examination Board and as a member of
the College Board's SAT committee.

Donald V. Berlanti (60) February 1999 Since 1975, Mr. Berlanti has been
1987 Annual involved in the ownership and
Meeting management of several businesses,
including radio stations, a chain of
convenience and greeting card stores
and real estate development companies.
Mr. Berlanti is the sole general
partner of Quince Associates Limited
Partnership, a stockholder of Sylvan.
</TABLE>

4
<PAGE>

<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION, DIRECTORSHIPS
TERM WITH
NAME AND AGE DIRECTOR SINCE EXPIRES PUBLIC COMPANIES AND OTHER INFORMATION
- ------------ -------------- ------- --------------------------------------
<S> <C> <C> <C>
R. William Pollock (69) December 2000 Mr. Pollock serves as the Chairman of
1995 Annual the Board of Drake Holdings Limited, a
Meeting company which owns interests in
various businesses throughout the
world.

J. Phillip Samper (63) March 2000 Mr. Samper currently serves as Chief
1993 Annual Executive Officer and President of
Meeting Avistar Systems Corp. From 1996 to
1997, Mr. Samper was President and CEO
of Quadlux, Inc. and from 1995 to 1996
Mr. Samper was Chairman and CEO of
Cray Research, Inc. Mr. Samper served
as President of Sun Microsystems, Inc.
from 1994 to 1995, as President and
Chief Executive Officer of Kinder-Care
Learning Centers, Inc. during 1990 and
as Vice Chairman of Eastman Kodak
Company from 1986 to 1989. Mr. Samper
is also a director of the Interpublic
Group of Companies and Ingram Micro
Corp.
</TABLE>

INFORMATION REGARDING THE SYLVAN BOARD, COMMITTEES AND REMUNERATION

During calendar year 1997, there were five meetings of the Board of
Directors of Sylvan. Each director attended at least 80% of the combined total
number of meetings of the Board and Board Committees of which he was a member
except for J. Phillip Samper and Nancy Cole, who each attended three of the
five meetings. The Sylvan Board has an Audit Committee and a Compensation
Committee.

The Audit Committee meets with Sylvan's independent accountants to review
whether satisfactory accounting procedures are being followed by Sylvan and
whether its internal accounting controls are adequate to monitor non-audit
services performed by the independent accountants and review fees charged by
the independent accountants. The Audit Committee also recommends to the Board
of Directors the selection of independent accountants. During 1997, non-
employee directors James H. McGuire, Donald V. Berlanti and J. Phillip Samper
were the members of the Audit Committee. There were two meetings of the Audit
Committee during fiscal year 1997.

The Compensation Committee establishes the compensation for executive
officers of Sylvan and generally reviews benefits and compensation for all
officers and employees. It also administers Sylvan's stock option plans.
During 1997, non-employee directors Donald V. Berlanti, James H. McGuire and
J. Phillip Samper were the members of the Compensation Committee, which met on
two occasions. The report of the Compensation Committee required by the rules
of the Securities and Exchange Commission (the "SEC") is included in this
Proxy Statement.

Directors who are not employees of Sylvan receive compensation of $15,000
per year for service on the Sylvan Board or any committee thereof, and are
reimbursed for their out-of-pocket expenses in connection with attending
meetings. Under the 1998 Stock Incentive Plan, if same is approved by the
stockholders at the Annual Meeting, each non-employee director, upon
appointment, election or re-election to the Sylvan Board, and who continues to
serve on the Sylvan Board as of the anniversary of election or appointment
will upon election/appointment and on each anniversary thereof be granted an
option to purchase 5,000 shares of Sylvan Common Stock at an exercise price
equal to the fair market value of the stock on the date of the grant.

5
<PAGE>

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

All officers have made timely filings of all change in beneficial ownership
declarations required by the SEC during the year ended December 31, 1997.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS

None of the directors serving on the Compensation Committee are or have been
officers or employees of Sylvan, and neither the Chief Executive Officer nor
any of the named Executive Officers have served on the Compensation Committee.
No director or executive officer of Sylvan is a director, executive officer or
member of the compensation or similar board committee of any other corporation
that has a director or executive officer who is also a director or
Compensation Committee member of Sylvan.

COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS

Compensation of Executive Officers. The following table shows for the years
ended December 31, 1997, 1996 and 1995, compensation paid by Sylvan, including
salary, bonuses, stock options, and certain other compensation, to its Co-
Chief Executive Officers and each of its four other most highly compensated
executive officers at December 31, 1997 (the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ------------
SECURITIES
NAME AND YEAR SALARY BONUS OTHER ANNUAL $ UNDERLYING ALL OTHER $
PRINCIPAL POSITION $ $ $ COMPENSATION(1) OPTIONS(#) COMPENSATION(4)
------------------ ---- ------- ------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
R. Christopher HoehnSaric,................. 1997 254,167 125,000 6,600 -- --
Chairman of the Board and 1996 225,000 112,500 6,600 -- --
Co-Chief Executive Officer 1995 200,000 112,500 6,600 465,000(3) --

Douglas L. Becker,......................... 1997 254,167 125,000 6,600 -- --
President, Co-Chief Executive 1996 225,000 112,500 6,600 -- --
Officer and Director 1995 200,000 112,500 6,600 465,000(3) --

B. Lee McGee,............................. 1997 154,167 75,000 6,600 -- --
Senior Vice President and 1996 150,000 75,000 6,600 -- --
Chief Financial Officer 1995 120,000 75,000 6,600 105,000(3) --

Steven Hoffman,........................... 1997 219,738 58,000 6,600 -- $132,193
President-- 1996 57,211 58,000 15,058 112,500 --
Sylvan Prometric Division(2) 1995 -- -- -- -- --

Peter Cohen,.............................. 1997 210,000 28,000 6,600 -- $ 55,515
President-- 1996 64,211 28,000 6,540 112,500 --
Learning Services Division(2) 1995 -- -- -- -- --

Paula Singer,............................. 1997 140,000 -- 6,600 37,500 --
President--Contract 1996 115,209 40,350 6,600 18,750 --
Educational Services Division 1995 96,875 5,704 6,600 -- --

</TABLE>
- --------
(1) The amounts in this column represent automobile allowances and moving
expense reimbursement for Messrs. Hoffman and Cohen.
(2) Mr. Hoffman was hired on September 16, 1996. Mr. Cohen was hired on August
22, 1996.
(3) These options were granted in early 1996 as part of the Named Executive
Officer's 1995 compensation package.
(4) The amounts in this column represent relocation compensation for Messrs.
Hoffman and Cohen and interest on a $231,000 loan to Mr. Hoffman.

6
<PAGE>

Option Grants in Last Fiscal Year. The following table sets forth certain
information relating to options granted to the Named Executive Officers to
purchase shares of Sylvan Common Stock during 1997.

INDIVIDUAL GRANTS

<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK
NUMBER OF PERCENT OF PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR PER SHARE DATE 5% 10%
---- ---------- ------------- ----------- ------------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
R. Christopher
Hoehn-Saric............ -- -- -- -- -- --
Douglas L. Becker....... -- -- -- -- -- --
B. Lee McGee............ -- -- -- -- -- --
Steven Hoffman.......... -- -- -- -- -- --
Peter Cohen............. -- -- -- -- -- --
Paula Singer............ 37,500 4% $41.06 September 19, 2003 $523,662(1) $1,188,011(1)
</TABLE>
- --------
(1) The assumed annual rates of appreciation of five and ten percent would
result in the price of Sylvan's Common Stock increasing to $55.02 and
$72.74, respectively. The options expire six years from date of grant.

Over the last two years, the market price of Sylvan's Common Stock has
increased at a compounded annual rate of 40.23%.

The 5% and 10% assumed annual rates of stock price appreciation used to
calculate potential gains to optionees are mandated by the rules of the SEC.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values. The following table sets forth certain information concerning the
exercise of stock options, the number of unexercised options and the value of
unexercised options at the end of 1997 for the Named Executive Officers. Value
is considered to be, in the case of exercised options, the difference between
exercise price and market price on the date of exercise and, in the case of
unexercised options, the difference between exercise price and market price at
December 31, 1997.

<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
SHARES UNDERLYING IN-THE-
ACQUIRED UNEXERCISED MONEY
UPON VALUE OPTIONS AT OPTIONS AT
NAME EXERCISE REALIZED YEAR-END(1) YEAR-END(1)
---- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
R. Christopher Hoehn-Saric..... 223,597 $6,958,618 527,500(E) $13,916,485(E)
323,000(U) $ 6,887,390(U)
Douglas L. Becker.............. 223,594 $6,958,509 527,500(E) $13,916,485(E)
323,000(U) $ 6,887,390(U)
B. Lee McGee................... 34,600 $1,008,284 82,850(E) $ 1,999,028(E)
64,500(U) $ 1,272,210(U)
Steven Hoffman................. -- -- 22,500(E) $ 318,825(E)
90,000(U) $ 1,275,300(U)
Peter Cohen.................... -- -- 22,500(E) $ 337,500(E)
90,000(U) $ 1,350,000(U)
Paula Singer................... 14,000 $ 454,740 33,350(E) $ 1,051,901(E)
59,900(U) $ 380,772(U)
</TABLE>
- --------
(1) ) (E) = Exercisable; (U) = Unexercisable.

7
<PAGE>

COMPENSATION COMMITTEE REPORT

Introduction. The Compensation Committee consists of three outside
directors, none of whom has ever been an officer or employee of the Company.
The function of the Compensation Committee is to recommend to the Board of
Directors policies regarding the Company's compensation of, and to recommend
specific compensation for, the Company's executive officers. The Compensation
Committee's responsibilities also include administering the Company's stock
option plans and making decisions regarding option grants to officers and
other key employees. The Compensation Committee also periodically reviews the
Company's employee benefit plans that are intended to qualify under Section
401 of the Internal Revenue Code to determine whether any changes to those
plans may be appropriate. The Compensation Committee meets at least once a
year to review management performance and compensation and to recommend to the
Board bonuses and option grants for current personnel. The Compensation
Committee also meets on an as-needed basis to recommend compensation for newly
created or expanded executive positions.

Compensation Philosophy and Approach. The principal elements of the
Company's Executive Compensation Program consist of both annual and long-term
compensation, including base salary and annual incentive cash bonuses and, at
appropriate times, long-term incentive compensation in the form of stock
options. The Committee has put primary emphasis on long-term incentive stock
options based upon their belief that Messrs. Hoehn-Saric and Becker, the Co-
Chief Executive Officers, should have a significant portion of their
compensation contingent upon increases in the market price of Sylvan Common
Stock. Aided by the review by a management consulting firm, the Compensation
Committee continues to believe that this approach and philosophy is
appropriate.

Base Salaries. The Company's executive officer base salary levels are
submitted for approval by the Board based on the Compensation Committee
recommendations. In establishing compensation for the Company's executive
officers, the Compensation Committee utilized recommendations of a management
consulting firm. Based on the management consulting firm's analysis of
executive compensation, the 1997 salary of each Co-CEO was set at $254,167,
compared to $225,000 paid in 1996.

Annual Incentive Cash Bonus. In addition to base salaries, executive
officers of the Company are eligible to receive annual cash bonuses, at the
discretion of the Board of Directors. Cash bonuses are determined on the basis
of (a) the overall financial performance of the Company and (b) annual
personal performance objectives for each officer, established by the
Compensation Committee at the beginning of the year.

Long-term Incentive Stock Options. Options are granted to executive officers
and other key employees whom the Compensation Committee determines to be
essential to the future growth and profitability of the Company. Based upon
performance criteria similar to those applicable to the cash bonus payment,
the Compensation Committee determines the employees to whom options will be
granted, the number of shares covered by each grant and the exercise price and
vesting period for each grant. The Compensation Committee typically grants
stock options with relatively long vesting periods, creating strong incentives
for recipients of stock option grants to remain in the employ of the Company.

Messrs. Hoehn-Saric and Becker, the Co-Chief Executive Officers and Mr.
McGee, the Chief Financial Officer, had been entitled to annual stock option
grants under the Company's 1993 Management Stock Option Plan based on the
Company's performance as compared to profitability targets established by the
Compensation Committee. In 1996, the 1993 Management Stock Option Plan was
discontinued, and in 1996 Messrs. Hoehn-Saric, Becker and McGee received
grants from the stockholder-approved 1996 Senior Management Stock Option Plan.
No additional options have been granted from this plan to date.

Equity Position in Caliber Learning Network, Inc. In July of 1996 the Board
of Directors approved the formation of an entity to pursue an opportunity
identified by the executive officers for establishing an international
distribution network of adult professional education services. The Board
considered many options for how to best structure the entity needed to pursue
this opportunity. Aided by the review of an independent

8
<PAGE>

management consulting firm of the Co-CEOs' compensation, it was concluded that
the Co-CEOs should be entitled to purchase an equity ownership of 35% (17.5%
each) of the entity as part of their overall compensation package.
Subsequently, the Board and Co-CEOs concluded that securing a strategic
partner for pursuing this opportunity was critical. In October 1996, Caliber
Learning Network, Inc. ("Caliber") was established with MCI as the strategic
partner and investor. The Co-CEOs' equity ownership was diluted based on MCI's
investment to 28% (14% each) in October 1996. Messrs. Becker and Hoehn-Saric
receive no additional compensation as members of Caliber's board of directors
or as a result of their executive positions in Caliber.

Co-CEOs' and President's Compensation. Mr. Hoehn-Saric has served as Chief
Executive Officer and Chairman of the Board since April 1993, and served as
President from 1988 to 1993. Mr. Becker has served as President of the Company
since April 1993, and served as CEO of the Sylvan Learning Center division of
the Company from February 1991 to April 1993. In December 1995, Mr. Becker was
named Co-Chief Executive Officer of the Company and continues to serve as
President of the Company.

Messrs. Becker and Hoehn-Saric have employment agreements with the Company
which have terms ending December 31, 2000.

Messrs. Hoehn-Saric and Becker, the Co-CEOs, may earn incentive cash bonuses
based on the Company's actual annual financial performance as compared to the
annual operating budget and the accomplishment of specific objectives
established at the beginning of the year by the Compensation Committee.
Financial performance accounts for 80% of the potential bonus and the
remaining 20% is based on the subjective determination by the Compensation
Committee as to accomplishment of the specific objectives. A financial
performance bonus may be paid if at least 80% of the financial performance
objectives are achieved but is reduced from the target bonus amount by a
formula based on the percentage of the financial performance objectives that
are actually achieved. A bonus of up to 150% of the target bonus amount can be
earned if actual financial performance results were 200% of the objectives.

In February 1998, the Compensation Committee recommended, and the Board of
Directors approved, cash bonuses for Messrs. Hoehn-Saric and Becker of
$125,000 each. These bonuses were based on financial performance and
accomplishment of specific objectives in 1997 as described above.

In October 1997, the Committee engaged an independent management consulting
firm to review the compensation of the Company's Co-CEOs and to advise the
Compensation Committee as to the appropriate level of base salary, and short
term and long term incentive compensation, based on comparable public
companies' plans and the consultants' experience in assisting public companies
to establish management compensation plans. As a result, changes were made to
the Co-CEOs' compensation for 1998, which included the issuance of additional
long term incentive stock options.

Mr. Donald V. Berlanti--Chairman
Mr. James H. McGuire
Mr. J. Phillip Samper

9
<PAGE>

STOCK PERFORMANCE GRAPH

Sylvan is required to provide a five-year comparison of the cumulative total
stockholder return on the Sylvan Common Stock, with that of a broad equity
market index and either a published industry index, or a Sylvan-constructed
peer group index.

The following graph compares the cumulative total stockholder return on the
Sylvan Common Stock during the period beginning December 9, 1993 (the date of
Sylvan's initial public offering) and ending December 31, 1997, with the
cumulative total return on the CRSP Total Return Index for the NASDAQ Stock
Market (US Companies), and a Sylvan constructed peer group index. The issuers
included in this peer group index are Strayer Education, Inc. (STRA), Apollo
Group, Inc. (APOL), Berlitz International (BTZ) and Devry, Inc. (DV). The
comparison assumes $100 was invested on December 9, 1993 in the Sylvan Common
Stock and in each of the foregoing indices.

In previous proxy statements, the Sylvan constructed peer group index
included National Education Corporation and Education Alternatives, Inc. These
two companies no longer trade as public companies and have been replaced with
Strayer Education and Apollo Group.

Sylvan does not make, nor does it endorse, any predictions as to future
stock performance.

COMPARISON OF 49-MONTH CUMULATIVE TOTAL RETURN*
AMONG SYLVAN LEARNING SYSTEMS, INC.,
THE NASDAQ STOCK MARKET (U.S.) INDEX,
A NEW PEER GROUP AND OLD PEER GROUP

PERFORMANCE GRAPH APPEARS HERE

THE NASDAQ
STOCK
Measurement Period SYLVAN LEARNING MARKET A NEW PEER OLD PEER
(Fiscal Year Covered) SYSTEMS, INC. (U.S.) INDEX GROUP GROUP
- --------------------- --------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Measurement Pt-12/09/1993 $100 $100 $100 $100
FYE 12/31/1993 $117 $100 $102 $100
FYE 12/31/1994 $168 $100 $104 $104
FYE 12/31/1995 $253 $141 $256 $165
FYE 12/31/1996 $364 $173 $457 $264
FYE 12/31/1997 $498 $213 $661 $354
</TABLE>

* $100 INVESTED ON 12/09/93 IN STOCK OR INDEX-INCLUDING REINVESTMENT OF
DIVIDENDS. FISCAL YEAR ENDING DECEMBER 31.

10
<PAGE>

SYLVAN MANAGEMENT

Executive Officers and Directors. The executive officers and directors of
Sylvan are:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
R. Christopher Hoehn-Saric.......... 35 Co-Chief Executive Officer and Chairman of the Sylvan Board
Douglas L. Becker................... 32 Co-Chief Executive Officer, President; Secretary; Director
B. Lee McGee........................ 42 Executive Vice President and Chief Financial Officer; Treasurer
Steve Hoffman....................... 45 President--Sylvan Prometric Division
Peter Cohen......................... 43 President--Learning Services Division
Paula Singer........................ 43 President--Contract Educational Services Division
Donald V. Berlanti(1)(2)............ 60 Director
Nancy A. Cole....................... 55 Director
J. Phillip Samper(1)(2)............. 63 Director
James H. McGuire(1)(2).............. 54 Director
R. William Pollock.................. 69 Director
Rick Inatome........................ 44 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee

Information relating to Sylvan's executive officers (other than Messrs.
Hoehn-Saric and Becker) is set forth below. See "Information Concerning
Nominees" and "Information Concerning Remaining Directors" above for
information relating to Messrs. Hoehn-Saric and Becker and the other Sylvan
directors.

B. Lee McGee. Mr. McGee has been Chief Financial Officer of Sylvan or its
predecessor entities since 1987. Prior to that time, he held various positions
with Kinder-Care Learning Centers, Inc. In December 1997, Mr. McGee was also
named Executive Vice President of the Company.

Paula Singer. Ms. Singer has been the President of the Contract Educational
Services Division since November 1996. Previously she served as Vice President
of the Division since 1993. Prior to joining Sylvan, Ms. Singer held positions
as General Manager of American Learning, Inc. and Vice President of American
Learning Corporation.

Steven Hoffman. Mr. Hoffman has been the President of Sylvan Prometric since
September 1996. Prior to joining Sylvan, Mr. Hoffman was the Vice President of
Operations for the Computer Task Group, a consulting and outsourcing firm
serving the IT industry. Prior to that time, he held various positions for
International Business Machines, Corp.

Peter Cohen. Mr. Cohen has been the President of the Learning Services
Division since September 1996. Prior to joining Sylvan, he was the Chief
Executive Officer of The Pet Practice, an 85 hospital veterinary business. He
also served as Vice President of Sales for National Media Corporation and
Senior Vice President of Corporate Operations for Nutri System Weight Loss
Centers.

There are no family relationships among any of the executive officers or
directors of Sylvan. Executive officers of Sylvan are elected by the Sylvan
Board on an annual basis and serve at the discretion of the Sylvan Board.

11
<PAGE>

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND MANAGEMENT

The following table sets forth information regarding the beneficial
ownership of Sylvan Common Stock as of April 8, 1998 by (i) each person who
owns beneficially more than 5% of Sylvan Common Stock, (ii) each of the
director nominees and directors of Sylvan, (iii) the Co-Chief Executive
Officers and each of the Named Executive Officers and (iv) all directors and
executive officers as a group. Unless otherwise indicated, the named persons
exercise sole voting and investment power over the shares that are shown as
beneficially owned by them.

<TABLE>
<CAPTION>
BENEFICIALLY
OWNED
-----------------
NAME NUMBER PERCENT
- ---- --------- -------
<S> <C> <C>
Donald V. Berlanti(1)....................................... 1,208,704 3.9%
Douglas L. Becker(2)(3)..................................... 1,516,436 4.9%
R. Christopher Hoehn-Saric(2)(3)............................ 1,527,385 4.9%
R. William Pollock.......................................... 1,910,715 6.1%
J. Phillip Samper........................................... 41,536 *
Nancy A. Cole(4)............................................ -- *
James H. McGuire............................................ -- *
Rick Inatome................................................ -- *
B. Lee McGee(2)............................................. 354,850 1.1%
Steven Hoffman(2)........................................... 120,675 *
Paula Singer(2)............................................. 95,000 *
Peter Cohen(2).............................................. 112,500 *
Nevis Capital Management, Inc.(5)........................... 1,706,947 5.5%
All directors and executive officers as a group (12 per-
sons)...................................................... 6,887,801 22.1%
</TABLE>
- --------
* Represents beneficial ownership of not more than one percent of the
outstanding Sylvan Common Stock.
(1) The address of this holder is 4535 E. Quartz Mountain Rd., Paradise
Valley, Arizona 85253. Includes shares held by Quince Associates Limited
Partnership, of which Mr. Berlanti is sole general partner, and by
Evensong LLC, in which Mr. Berlanti holds a 35% interest. Includes options
to purchase 33,750 shares held directly by Mr. Berlanti.
(2) The address of Ms. Singer and Messrs. Becker, Hoehn-Saric, McGee, Hoffman
and Cohen is 1000 Lancaster Street, Baltimore, Maryland 21202.
(3) Includes options to purchase 1,270,500 shares of Sylvan Common Stock, of
which 527,500 are immediately exercisable within the next 60 days.
(4) Ms. Cole is the President of ETS and serves on its Board of Trustees. ETS
owns 425,810 shares of Sylvan Common Stock, as to which Ms. Cole disclaims
beneficial ownership.
(5) Nevis Capital Management, Inc. exercises sole voting and investment power
over all of the 1,706,947 shares held. The address of this holder is 1119
St. Paul Street, Baltimore, MD 21202.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Ms. Nancy Cole, director, is the President of Educational Testing Service
("ETS") and serves on its Board of Trustees. ETS owns 425,810 shares of Sylvan
Common Stock. In the ordinary course of its business, Sylvan entered into both
a domestic and international contract with ETS for the delivery of testing
domestically and delivery and development of a testing network
internationally. Sylvan generated $33.2 million, $19.6 million and $17.3
million revenues in calendar year 1997, 1996, and 1995 respectively, from
these ETS contracts.

II. CHARTER AMENDMENTS

On February 23, 1998, the Sylvan Board unanimously approved a resolution to
amend Sylvan's Charter to increase the number of authorized shares of Sylvan
Common Stock from 40,000,000 shares to 90,000,000 shares (the "Common Shares
Amendment") and to increase from 250,000 to 900,000 the number of shares of
Preferred Stock designated as Series A Junior Participating Preferred Stock
(the "Preferred Shares Amendment"). Sylvan's Charter currently authorizes
50,000,000 shares of capital stock, of which 40,000,000 are classified as

12
<PAGE>

Common Stock and 10,000,000 are classified as Preferred Stock. If the Common
Shares Amendment is approved, Sylvan would be authorized to issue up to
90,000,000 shares of Common Stock.

At the same meeting, the Sylvan Board declared a stock dividend of three
shares of Sylvan Common Stock for every two shares of Sylvan Common Stock
outstanding as of April 1, 1998 (the "Stock Dividend"). Holders of record of
the Sylvan Common Stock on April 1, 1998 will receive the Stock Dividend on
May 22, 1998. Stockholders will not be entitled to receive any resulting
fractional shares, but will receive the value of any such fractional shares in
cash. Payment of the Stock Dividend is contingent upon the approval by the
stockholders of the Charter Amendments.

COMMON SHARES AMENDMENT

The Common Shares Amendment would Revise Article Fifth of Sylvan's Charter
to read, in its entirety, as follows:

"The total number of shares of stock of all classes which the Corporation
has authority to issue is 100,000,000 shares, having an aggregate par value
of $1,000,000, of which 90,000,000 shares, par value of $.01 per share,
amounting in aggregate par value to $900,000, shall be Common Stock, and
10,000,000 shares, par value of $.01 per share, amounting in aggregate par
value to $100,000,shall be Preferred Stock."

The increase in the number of authorized shares of Sylvan Common Stock will
enable Sylvan to pay the Stock Dividend and will provide additional shares for
issuance by the Board of Directors, without the delay and expense of further
stockholder approval at such time or times and for such proper corporate
purposes as the Board may in the future deem advisable. Shares may be issued
if and when the Sylvan Board determines it to be in the best interest of
Sylvan to do so, which may include, issuances (i) as part of an acquisition
transaction; (ii) to obtain funds through the sale of Sylvan Common Stock;
(iii) to declare a stock split or stock dividend (as in the case of the Stock
Dividend); (iv) in respect of the 1993 Plan, the Management Plan, the 1998
Stock Incentive Plan, if such plan is approved by the stockholders at the
Annual Meeting, or other employee benefit or stock plans; or (v) for other
appropriate corporate purposes. Unless required by applicable law, the rules
of Nasdaq, the Charter or the By-Laws, it is not anticipated that the future
vote of stockholders will be required prior to the issuance of Sylvan Common
Stock for any of the purposes described above.

PREFERRED SHARES AMENDMENT

The Preferred Shares Amendment would revise Article Second of the Articles
Supplementary of Sylvan's Charter to read, in its entirety, as follows:

"1. Designation and Amount. The shares of such series shall be designated
as "Series A Junior Participating Preferred Stock" (the "Series A Preferred
Stock") and the number of shares constituting such series shall be 900,000,
subject to increase or decrease by action of the Board of Directors
effectuated by further Articles Supplementary."

On September 27, 1996, the Sylvan Board adopted a shareholder rights plan
(the "Rights Plan"). The Rights Plan is designed to protect the long-term
interests of Sylvan and its stockholders in the event of an unsolicited
takeover attempt by, among other things, encouraging potential acquirers of
Sylvan to negotiate with the Board of Directors so as to enhance the Sylvan
Board's ability to achieve the best possible value for all Sylvan
stockholders. Under the Rights Plan, each holder of Sylvan Common Stock
received one right for each share of Sylvan Common Stock held, and each share
of Sylvan Common Stock issued thereafter automatically included one such
right. Once exercisable, each right entitles the holder, other than the
acquiring person, to purchase from Sylvan one hundredth of one share of Series
A Junior Participating Preferred Stock for $104.67 ($157.00 after adjustment
for the Stock Dividend) or, in lieu thereof, to purchase for the same price,
Sylvan Common Stock having a value of twice such price. Therefore, as part of
the Common Shares Amendment, the shareholders are also asked to vote upon the
Preferred Shares Amendment to increase the number of shares of Series A Junior
Participating Preferred Stock that Sylvan is authorized to issue to 900,000
shares.

13
<PAGE>

Sylvan may redeem the rights at a price of $.05 per right at any time prior
to a specified period of time after a person has become the beneficial owner
of 15% or more of its Common Stock. The rights will expire on November 7,
2006, unless earlier exchanged or redeemed.

THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF SYLVAN COMMON STOCK
OUTSTANDING AS OF THE RECORD DATE IS REQUIRED FOR APPROVAL AND RATIFICATION OF
THE CHARTER AMENDMENTS.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR THE APPROVAL AND RATIFICATION OF THE CHARTER AMENDMENTS

III. 1993 PLAN AMENDMENTS

After the 1997 Annual Meeting, the Sylvan Board of Directors, pursuant to
the recommendation of its Compensation Committee, amended the 1993 Employee
Stock Option Plan (the "1993 Plan") on June 24, 1997 and on September 19, 1997
to increase the number of shares of Common Stock available for award
thereunder by 300,000 shares and 300,000 shares, respectively (collectively,
the "1993 Plan Amendments"). Before these two amendments, the total number of
shares authorized for award under the 1993 Plan was 3,200,000 shares and, upon
approval of the 1993 Plan Amendments, will be 3,800,000 shares. As of the
Record Date, options to purchase 3,145,092 shares were outstanding under the
1993 Plan at a weighted average exercise price $21.65 per share. The
Compensation Committee recommended the increases for the primary purpose of
rewarding key employees for past performance and giving key employees,
including those joining Sylvan as new hires as a result of acquisitions, or
otherwise, incentive to perform at a high standard in the future.

All full-time employees, including executive officers, of Sylvan are
eligible to participate in the 1993 Plan. The Compensation Committee
determines which of the eligible employees should receive options and, in the
Compensation Committee's discretion, associated stock appreciation rights
under the 1993 Plan based on certain performance criteria determined by the
Compensation Committee. In addition, the Compensation Committee determines the
type of option (incentive or non-qualified, or both) to be granted, the number
of shares subject to each option, the rate of option exercisability and,
subject to certain provisions, the option price and duration of the option.
The per share exercise price for options granted under the 1993 Plan must be
equal to at least 100% of the per share fair market value of the Sylvan Common
Stock underlying the options on the date of grant. The options granted under
the 1993 Plan can be exercised through payment of cash, or by a cashless
exercise or a combination of both. On the Record Date, the aggregate market
value of the 3,145,092 shares of Sylvan Common Stock underlying outstanding
options on that date under the 1993 Plan was $149,014,459.

On the Record Date, employees who were not executive officers of Sylvan held
2,005,242 of the 3,145,092 options outstanding at that date under the 1993
Plan, with executive officers holding the remaining outstanding on that date.

THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF SYLVAN COMMON STOCK
PRESENT IN PERSON OR REPRESENTED BY PROXY AT THE ANNUAL MEETING IS REQUIRED
FOR APPROVAL AND RATIFICATION OF THE 1993 PLAN AMENDMENTS.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS
VOTE FOR THE APPROVAL AND RATIFICATION OF THE 1993 PLAN AMENDMENTS

IV. ADOPTION OF THE 1998 STOCK INCENTIVE PLAN

The Board of Directors proposes that the stockholders of the Company approve
the 1998 Stock Incentive Plan (the "Plan"). The following is a fair and
complete summary of the Plan as proposed to be adopted; it is qualified in its
entirety by reference to the full text of the Plan, which appears as Exhibit A
to this Proxy Statement.

14
<PAGE>

GENERAL

Purpose: The purpose of the Plan as proposed is to promote the long-term
growth and profitability of the Company by providing key people with
incentives to improve stockholder value and 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 Plan is not intended to
affect any stock options or other equity-based compensation or benefits
granted by the Company that are outstanding on the date of adoption of this
Plan.

Shares Available under the Plan: The number of shares of Sylvan Common Stock
that may be issued with respect to awards granted under the proposed Plan
shall not exceed an aggregate of 2,500,000 shares of Sylvan Common Stock;
provided that no more than five hundred thousand (500,000) of such shares may
be issued with respect to awards granted to non-employee directors of the
Company. The maximum number of shares of Sylvan Common Stock subject to awards
of any combination that may be granted during any one fiscal year of the
Company to any one individual shall be limited to 500,000 shares. These limits
are subject to adjustment to reflect any stock dividends, split-ups,
recapitalizations, mergers, consolidations, business combinations or exchanges
of shares and the like. If any award, or portion of an award, under the Plan
expires or terminates unexercised, becomes unexercisable or is forfeited or
otherwise terminated, surrendered or canceled as to any shares, or if any
shares of Sylvan Common Stock are surrendered to the Company in connection
with any award (whether or not such surrendered shares were acquired pursuant
to any award), the shares subject to such award and the surrendered shares
shall thereafter be available for further awards under the Plan. As of April
8, 1998, the fair market value of a share of the Sylvan Common Stock,
determined by the last reported sale price per share of Sylvan Common Stock on
such date as quoted on the Nasdaq National Market, was $47.38.

Administration: The proposed Plan will be administered by the Board of
Directors or by such committee or committees as may be appointed by the Board
of Directors from time to time (the Board of Directors, committee or
committees hereinafter referred to as the "Administrator"). The Administrator
shall have full power and authority to take all actions necessary to carry out
the purpose and intent of the Plan, including, but not limited to, the
authority to: (i) determine the eligible persons to whom, and the time or
times at which awards shall be granted; (ii) determine the types of awards to
be granted; (iii) determine the number of shares to be covered by or used for
reference purposes for each award; (iv) impose such terms, limitations,
restrictions and conditions upon any such award as the Administrator shall
deem appropriate; (v) modify, amend, extend or renew outstanding awards, or
accept the surrender of outstanding awards and substitute new awards (provided
however, that, except as noted below or as provided in an applicable grant
agreement, any modification that would materially adversely affect any
outstanding award shall not be made without the consent of the holder); (vi)
accelerate or otherwise change the time in which an award may be exercised or
becomes payable and to waive or accelerate the lapse, in whole or in part, of
any restriction or condition with respect to such award, including, but not
limited to, any restriction or condition with respect to the vesting or
exercisability of an award following termination of any grantee's employment;
and (vii) establish objectives and conditions, if any, for earning awards and
determining whether awards will be paid after the end of a performance period.

In the event of changes in the Sylvan Common Stock by reason of any stock
dividend, split-up, recapitalization, merger, consolidation, business
combination or exchange of shares and the like, the Administrator shall, in
its discretion, make appropriate adjustments to the maximum number and kind of
shares reserved for issuance or with respect to which awards may be granted
under the Plan and to the number, kind and price of shares covered by
outstanding awards, and shall, in its discretion and without the consent of
holders of awards, make any other adjustments in outstanding awards, including
but not limited to reducing the number of shares subject to awards or
providing or mandating alternative settlement methods such as settlement of
the awards in cash or in shares of Sylvan Common Stock or other securities of
the Company or of any other entity, or in any other matters which relate to
awards as the Administrator shall, in its sole discretion, determine to be
necessary or appropriate.

Without the consent of holders of awards, the Administrator, in its sole
discretion, may make any modifications to any awards, including but not
limited to cancellation, forfeiture, surrender or other termination

15
<PAGE>

of the awards in whole or in part regardless of the vested status of the
award, in order to facilitate any business combination that is authorized by
the Board of Directors of the Company to comply with requirements for
treatment as a pooling of interests transaction for accounting purposes under
generally accepted accounting principles.

Without the consent of holders of awards, the Administrator in its
discretion 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, or of changes in applicable laws, regulations, or accounting
principles, whenever the Administrator determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan.

Participation: Participation in the Plan will be open to all employees,
officers, and directors of the Company or any of its affiliates, as may be
selected by the Administrator from time to time. As of April 8, 1998, all six
(6) non-employee directors, and approximately 500 employees would be eligible
to participate in the Plan.

TYPE OF AWARDS

The Plan as proposed would allow stock options, stock appreciation rights,
stock awards, phantom stock awards, convertible securities, and performance
awards to be granted. These awards may be granted separately or in tandem with
other awards. The Administrator will determine the prices, expiration dates
and other material conditions upon which such awards may be exercised. The
Company may make or guarantee loans to award recipients to assist them in
exercising awards and satisfying any withholding tax obligations.

Stock Options: The proposed Plan allows the Administrator to grant either
awards of incentive stock options as that term is defined in section 422 of
the Internal Revenue Code of 1986, as amended (the "Code") or nonqualified
stock options; provided, however, that awards of incentive stock options shall
be limited to employees of the Company or of any subsidiary of the Company.
Options intended to qualify as incentive stock options under Code section 422
must have an exercise price at least equal to fair market value on the date of
grant, but nonqualified stock options may be granted with an exercise price
less than fair market value. The option exercise price may be paid in cash, by
tender of shares of Sylvan Common Stock, by a combination of cash and shares,
or by any other means the Administrator approves.

Stock Appreciation Rights: The proposed Plan allows the Administrator to
grant awards of Stock Appreciation Rights ("SAR"). An SAR entitles the holder
to receive a payment in cash, in shares of Common Stock, or in a combination
of both, having an aggregate value equal to the product of (i) the excess of
(A) the fair market value on the exercise date of one share of Common Stock
over (B) the base price per share specified in the grant agreement, times (ii)
the number of shares specified by the SAR, or portion thereof, which is
exercised.

Stock and Phantom Stock Awards, and Convertible Securities: The proposed
Plan allows the Administrator to grant restricted or unrestricted stock
awards, or awards denominated in stock-equivalent units ("phantom stock"), or
debentures or other securities convertible into Sylvan Common Stock to
eligible participants with or without payment of consideration by the grantee.
Stock awards and phantom stock awards may be paid in cash, in shares of Sylvan
Common Stock, or in a combination of both.

Performance Awards: The proposed Plan allows the Administrator to grant
performance awards which become payable in cash, in shares of Sylvan Common
Stock, or in a combination of both, on account of attainment of one or more
performance goals established by the Administrator. Performance goals
established by the Administrator may be based on the Company's or an
affiliate's operating income or one or more other business criteria selected
by the Administrator that apply to an individual or group of individuals, a
business unit, or the Company or an affiliate as a whole, over such
performance period as the Administrator may designate.

16
<PAGE>

Option Awards to Non-Employee Directors: Upon approval of the Plan by the
stockholders, each non-employee director of the Company will be awarded a
nonqualified stock option for 5,000 shares of Sylvan Common Stock. Thereafter,
upon his or her initial appointment or election to the Sylvan Board, each non-
employee director will be awarded a nonqualified stock option for 5,000 shares
of Sylvan Common Stock. Each non-employee director will be awarded a non-
qualified stock option for 5,000 shares on each anniversary of the director's
appointment or election to the Sylvan Board during the period that the
individual serves as a non-employee director of the Company. All such
nonqualified options granted to non-employee directors shall have a ten-year
term, shall be immediately exercisable, and shall have an exercise price equal
to the fair market value of the shares on the date of grant.

AWARDS UNDER THE PLAN

Because participation and the types of awards granted under the Plan as
proposed are subject to the discretion of the Administrator, the benefits or
amounts that will be received by any participant or groups of participants if
the Plan is approved are not currently determinable.

AMENDMENT AND TERMINATION

The Board of Directors of the Company may terminate, amend or modify the
Plan or any portion thereof at any time.

FEDERAL INCOME TAX CONSEQUENCES

The following is a general summary of the current federal income tax
treatment of stock options, which would be authorized to be granted under the
Plan as proposed, based upon the current provisions of the Code and
regulations promulgated thereunder. The discussion set forth below, insofar as
it relates to the deductibility of any compensation payable under the Plan, is
subject to the paragraph captioned "Disallowance of Deductions" relating to
compensation in excess of $1,000,000 payable to certain executive officers.

Incentive Stock Options: Incentive stock options under the Plan are intended
to meet the requirements of Code section 422. No tax consequences result from
the grant of the option. If an option holder acquires stock upon the exercise,
no income will be recognized by the option holder for ordinary income tax
purposes (although the difference between the option exercise price and the
fair market value of the stock subject to the option may result in alternative
minimum tax liability to the option holder) and the Company will be allowed no
deduction as a result of such exercise, provided that the following conditions
are met: (a) at all times during the period beginning with the date of the
granting of the option and ending on the day three months before the date of
such exercise, the option holder is an employee of the Company or of a
subsidiary; and (b) the option holder makes no disposition of the stock within
two years from the date the option is granted nor within one year after the
stock is transferred to the option holder. The three-month period is extended
to one year in the event of disability and is waived in the event of death of
the employee. In the event of a sale of such stock by the option holder after
compliance with these conditions, any gain realized over the price paid for
the stock ordinarily will be treated as capital gain, and any loss will be
treated as capital loss, in the year of the sale.

If the option holder fails to comply with the employment requirement
discussed above, the tax consequences will be the same as for a nonqualified
option, discussed below. If the option holder fails to comply with the holding
period requirements discussed above, the option holder will recognize ordinary
income in an amount equal to the lesser of (i) the excess of the fair market
value of the stock on the date the option was exercised over the exercise
price or (ii) the excess of the amount realized upon such disposition over the
exercise price. Any additional gain ordinarily will be recognized by the
option holder as capital gain, either long-term or short-term, depending on
the holding period of the shares. If the option holder is treated as having
received ordinary income because of his or her failure to comply with either
condition above, an equivalent deduction will be allowed to the Company in the
same year.

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Nonqualified Stock Options: No tax consequences result from the grant of the
option. An option holder who exercises a nonqualified stock option with cash
generally will realize compensation taxable as ordinary income in an amount
equal to the difference between the exercise price and the fair market value
of the shares on the date of exercise, and the Company will be entitled to a
deduction from income in the same amount in the fiscal year in which the
exercise occurred. The option holder's basis in such shares will be the fair
market value on the date income is realized, and when the holder disposes of
the shares he or she will recognize capital gain or loss, either long-term or
short-term, depending on the holding period of the shares.

Disallowance of Deductions: The Code disallows deductions for publicly held
corporations with respect to compensation in excess of $1,000,000 paid to the
corporation's chief executive officer and its four other most highly
compensated officers. However, compensation payable solely on account of
attainment of one or more performance goals is not subject to this deduction
limitation if the performance goals are objective, pre-established and
determined by a compensation committee comprised solely of two or more outside
directors, the material terms under which the compensation is to be paid are
disclosed to the stockholders and approved by a majority vote, and the
compensation committee certifies that the performance goals and other material
terms were in fact satisfied before the compensation is paid. Under this
exception, the deduction limitation does not apply with respect to
compensation otherwise deductible on account of stock options and stock
appreciation rights granted at fair market value under a plan which limits the
number of shares that may be issued to any individual and which is approved by
the corporation's stockholders.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE APPROVAL AND RATIFICATION OF THE ADOPTION OF THE 1998 STOCK INCENTIVE
PLAN.

V. THE EMPLOYEE STOCK PURCHASE PLAN AMENDMENT

The Sylvan Board of Directors, pursuant to the recommendation of its
Compensation Committee, amended the Employee Stock Purchase Plan (the "Stock
Purchase Plan") on March 31, 1998 to increase the number of shares of Sylvan
Common Stock available for purchase thereunder by 150,000 shares (the "Stock
Purchase Plan Amendment"). Before this amendment, the total shares available
for purchase under the Stock Purchase Plan was 50,000 shares, and upon
approval of the Plan Amendment will be 200,000 shares. The Employee Stock
Purchase Plan was established by the Board of Directors on March 31, 1997, and
approved and adopted by the stockholders at the 1997 Annual Meeting. Pursuant
to the Stock Purchase Plan, employees purchased 16,049 shares of Sylvan Common
Stock based on calendar year 1997 employee participation.

THE BOARD OF DIRECTOR UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE APPROVAL AND RATIFICATION OF THE STOCK PURCHASE PLAN AMENDMENT.

VI. AUDITOR CONFIRMATION

The Sylvan Board of Directors, pursuant to the recommendation of its Audit
Committee, has selected Ernst & Young LLP, independent auditors, to examine
and audit the financial statements of Sylvan for the fiscal year ending
December 31, 1998. Ernst & Young LLP has served as independent auditors of
Sylvan since 1991. A partner of the firm will be present at the Annual Meeting
and available to respond to appropriate questions, and will have an
opportunity to make a statement if he desires to do so.

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In 1997, Ernst & Young LLP performed various professional services for
Sylvan. They included completion of the examination of 1996 financial
statements for Sylvan, other review work of required filings with the SEC,
preliminary work on the examination of fiscal year 1997 financial statements,
preparation of corporate tax returns and other consultation with Sylvan
personnel on accounting and related matters.

THE AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES OF SYLVAN COMMON STOCK
PRESENT IN PERSON OR REPRESENTED BY PROXY AT THE ANNUAL MEETING IS REQUIRED
FOR RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS SYLVAN'S INDEPENDENT
AUDITORS.

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR
THE RATIFICATION OF THE SELECTION OF ERNST & YOUNG LLP AS SYLVAN'S INDEPENDENT
AUDITORS.

VII. OTHER MATTERS

The Board of Directors knows of no other matters to be presented for action
at the meeting other than those mentioned above; however, if any other matters
properly come before the meeting, it is intended that the persons named in the
accompanying proxy will vote on such matters in accordance with their judgment
as to the best interests of Sylvan.

STOCKHOLDER PROPOSALS

Any stockholder proposals intended to be presented at Sylvan's 1999 Annual
Meeting must have been received by Sylvan's Secretary for inclusion in the
proxy statement and form of proxy relating to the 1999 Annual Meeting not
later than December 21, 1998.

MISCELLANEOUS

A copy of the Sylvan's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997, as filed with the Securities and Exchange Commission,
excluding certain exhibits thereto, may be obtained without charge, by writing
Investor Relations, Sylvan Learning Systems, Inc., 1000 Lancaster Street,
Baltimore, Maryland 21202 or by telephoning (410) 843-8000.

BY ORDER OF THE BOARD OF DIRECTORS

Douglas L. Becker
Secretary

Baltimore, Maryland
April 21, 1998

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EXHIBIT A

SYLVAN LEARNING SYSTEMS, INC.
1998 STOCK INCENTIVE PLAN

EFFECTIVE: MARCH 31, 1998

1. ESTABLISHMENT, PURPOSE AND TYPES OF AWARDS

Sylvan Learning Systems, Inc. hereby establishes the SYLVAN LEARNING
SYSTEMS, INC. 1998 STOCK INCENTIVE PLAN (the "Plan"). The purpose of the Plan
is to promote the long-term growth and profitability of Sylvan Learning
Systems, Inc. (the "Corporation") by (i) providing key people with incentives
to improve stockholder value and to contribute to the growth and financial
success of the Corporation, and (ii) enabling the Corporation to attract,
retain and reward the best-available persons.

The Plan permits the granting of stock options (including incentive stock
options qualifying under Code section 422 and nonqualified stock options),
stock appreciation rights, restricted or unrestricted stock awards, phantom
stock, performance awards, convertible securities or any combination of the
foregoing. The Plan is not intended to affect any stock options or other
equity-based compensation or benefits granted by the Corporation that are
outstanding on the date of adoption of this Plan.

2. DEFINITIONS

Under this Plan, except where the context otherwise indicates, the following
definitions apply:

(a) "Affiliate" shall mean any entity, whether now or hereafter existing,
which controls, is controlled by, or is under common control with, the
Corporation (including, but not limited to, joint ventures, limited liability
companies, and partnerships). For this purpose, "control" shall mean ownership
of 50% or more of the total combined voting power or value of all classes of
stock or interests of the entity.

(b) "Award" shall mean any stock option, stock appreciation right, stock
award, phantom stock award, or performance award.

(d) "Code" shall mean the Internal Revenue Code of 1986, as amended, and any
regulations promulgated thereunder.

(e) "Common Stock" shall mean shares of common stock of the Corporation, par
value of one cent ($0.01) per share.

(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.

(g) "Fair Market Value" of a share of the Corporation's Common Stock for any
purpose on a particular date shall mean the last reported sale price per share
of Common Stock, regular way, on such date or, in case no such sale takes
place on such date, the average of the closing bid and asked prices, regular
way, in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading on a
national securities exchange or included for quotation on the Nasdaq-National
Market, or if the Common Stock is not so listed or admitted to trading or
included for quotation, the last quoted price, or if the Common Stock is not
so quoted, the average of the high bid and low asked prices, regular way, in
the over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System or, if such system is no
longer in use, the principal other automated quotations system that may then
be in use or, if the Common Stock is not quoted by any such organization, the
average of the closing bid and asked prices, regular way, as furnished by a
professional market maker making a market in the Common Stock as selected in
good faith by the Administrator or by such other source or sources as shall be
selected in good faith by the

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Administrator. If, as the case may be, the relevant date is not a trading day,
the determination shall be made as of the next preceding trading day. As used
herein, the term "trading day" shall mean a day on which public trading of
securities occurs and is reported in the principal consolidated reporting
system referred to above, or if the Common Stock is not listed or admitted to
trading on a national securities exchange or included for quotation on the
Nasdaq-National Market, any business day.

(h) "Grant Agreement" shall mean a written document memorializing the terms
and conditions of an Award granted pursuant to the Plan and shall incorporate
the terms of the Plan.

(i) "Parent" shall mean a corporation, whether now or hereafter existing,
within the meaning of the definition of "parent corporation" provided in Code
section 424(e), or any successor thereto.

(j) "Subsidiary" and "subsidiaries" shall mean only a corporation or
corporations, whether now or hereafter existing, within the meaning of the
definition of "subsidiary corporation" provided in Section 424(f) of the Code,
or any successor thereto.

3. ADMINISTRATION

(a) Administration of the Plan. The Plan shall be administered by the Board
or by such committee or committees as may be appointed by the Board from time
to time (the Board, committee or committees hereinafter referred to as the
"Administrator").

(b) Powers of the Administrator. The Administrator shall have all the powers
vested in it by the terms of the Plan, such powers to include authority, in
its sole and absolute discretion, to grant Awards under the Plan, prescribe
Grant Agreements evidencing such Awards and establish programs for granting
Awards.

The Administrator shall have full power and authority to take all other
actions necessary to carry out the purpose and intent of the Plan, including,
but not limited to, the authority to: (i) determine the eligible persons to
whom, and the time or times at which Awards shall be granted; (ii) determine
the types of Awards to be granted; (iii) determine the number of shares to be
covered by or used for reference purposes for each Award; (iv) impose such
terms, limitations, restrictions and conditions upon any such Award as the
Administrator shall deem appropriate; (v) modify, amend, extend or renew
outstanding Awards, or accept the surrender of outstanding Awards and
substitute new Awards (provided however, that, except as provided in Section
7(d) of the Plan or the applicable Grant Agreement, any modification that
would materially adversely affect any outstanding Award shall not be made
without the consent of the holder); (vi) accelerate or otherwise change the
time in which an Award may be exercised or becomes payable and to waive or
accelerate the lapse, in whole or in part, of any restriction or condition
with respect to such Award, including, but not limited to, any restriction or
condition with respect to the vesting or exercisability of an Award following
termination of any grantee's employment; and (vii) establish objectives and
conditions, if any, for earning Awards and determining whether Awards will be
paid after the end of a performance period.

The Administrator shall have full power and authority, in its sole and
absolute discretion, to administer and interpret the Plan and to adopt and
interpret such rules, regulations, agreements, guidelines and instruments for
the administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.

(c) Non-Uniform Determinations. The Administrator's determinations under the
Plan (including without limitation, determinations of the persons to receive
Awards, the form, amount and timing of such Awards, the terms and provisions
of such Awards and the Grant Agreements evidencing such Awards) need not be
uniform and may be made by the Administrator selectively among persons who
receive, or are eligible to receive, Awards under the Plan, whether or not
such persons are similarly situated.

(d) Limited Liability. To the maximum extent permitted by law, no member of
the Administrator shall be liable for any action taken or decision made in
good faith relating to the Plan or any Award thereunder.

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(e) Indemnification. To the maximum extent permitted by law and by the
Corporation's charter and by-laws, the members of the Administrator shall be
indemnified by the Corporation in respect of all their activities under the
Plan.

(f) Effect of Administrator's Decision. All actions taken and decisions and
determinations made by the Administrator on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Administrator's
sole and absolute discretion and shall be conclusive and binding on all
parties concerned, including the Corporation, its stockholders, any
participants in the Plan and any other employee of the Corporation, and their
respective successors in interest.

4. SHARES AVAILABLE FOR THE PLAN; MAXIMUM AWARDS

Subject to adjustments as provided in Section 7(d) of the Plan, the shares
of Common Stock that may be issued with respect to Awards granted under the
Plan shall not exceed an aggregate of two million five hundred thousand
(2,500,000) shares of Common Stock; provided that no more than five hundred
thousand (500,000) of such shares may be issued with respect to Awards granted
to non-employee directors of the Corporation. The Corporation shall reserve
such number of shares for Awards under the Plan, subject to adjustments as
provided in Section 7(d) of the Plan. If any Award, or portion of an Award,
under the Plan expires or terminates unexercised, becomes unexercisable or is
forfeited or otherwise terminated, surrendered or canceled as to any shares,
or if any shares of Common Stock are surrendered to the Corporation in
connection with any Award (whether or not such surrendered shares were
acquired pursuant to any Award), the shares subject to such Award and the
surrendered shares shall thereafter be available for further Awards under the
Plan; provided, however, that any such shares that are surrendered to the
Corporation in connection with any Award or that are otherwise forfeited after
issuance shall not be available for purchase pursuant to incentive stock
options intended to qualify under Code section 422.

Subject to adjustments as provided in Section 7(d) of the Plan, the maximum
number of shares of Common Stock subject to Awards of any combination that may
be granted during any one fiscal year of the Corporation to any one individual
shall be limited to seven hundred fifty thousand (750,000) shares. Such per-
individual limit shall not be adjusted to effect a restoration of shares of
Common Stock with respect to which the related Award is terminated,
surrendered or canceled.

5. PARTICIPATION

Participation in the Plan shall be open to all employees, officers, and
directors of the Corporation, or of any Affiliate of the Corporation, as may
be selected by the Administrator from time to time.

6. AWARDS

The Administrator, in its sole discretion, establishes the terms of all
Awards granted under the Plan. Awards may be granted individually or in tandem
with other types of Awards. All Awards are subject to the terms and conditions
provided in the Grant Agreement.

(a) Stock Options. The Administrator may from time to time grant to eligible
participants Awards of incentive stock options as that term is defined in Code
section 422 or nonqualified stock options; provided, however, that Awards of
incentive stock options shall be limited to employees of the Corporation or of
any Parent or Subsidiary of the Corporation. Options intended to qualify as
incentive stock options under Code section 422 must have an exercise price at
least equal to Fair Market Value on the date of grant, but nonqualified stock
options may be granted with an exercise price less than Fair Market Value. No
stock option shall be an incentive stock option unless so designated by the
Administrator at the time of grant or in the Grant Agreement evidencing such
stock option.

(b) Stock Appreciation Rights. The Administrator may from time to time grant
to eligible participants Awards of Stock Appreciation Rights ("SAR"). An SAR
entitles the grantee to receive, subject to the provisions

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<PAGE>

of the Plan and the Grant Agreement, a payment having an aggregate value equal
to the product of (i) the excess of (A) the Fair Market Value on the exercise
date of one share of Common Stock over (B) the base price per share specified
in the Grant Agreement, times (ii) the number of shares specified by the SAR,
or portion thereof, which is exercised. Payment by the Corporation of the
amount receivable upon any exercise of an SAR may be made by the delivery of
Common Stock or cash, or any combination of Common Stock and cash, as
determined in the sole discretion of the Administrator. If upon settlement of
the exercise of an SAR a grantee is to receive a portion of such payment in
shares of Common Stock, the number of shares shall be determined by dividing
such portion by the Fair Market Value of a share of Common Stock on the
exercise date. No fractional shares shall be used for such payment and the
Administrator shall determine whether cash shall be given in lieu of such
fractional shares or whether such fractional shares shall be eliminated.

(c) Stock Awards and Convertible Securities. The Administrator may from time
to time grant restricted or unrestricted stock Awards or debentures or other
securities convertible into Common Stock to eligible participants in such
amounts, on such terms and conditions, and for such consideration, including
no consideration or such minimum consideration as may be required by law, as
it shall determine. A stock Award may be paid in Common Stock, in cash, or in
a combination of Common Stock and cash, as determined in the sole discretion
of the Administrator.

(d) Phantom Stock. The Administrator may from time to time grant Awards to
eligible participants denominated in stock-equivalent units ("phantom stock")
in such amounts and on such terms and conditions as it shall determine.
Phantom stock units granted to a participant shall be credited to a
bookkeeping reserve account solely for accounting purposes and shall not
require a segregation of any of the Corporation's assets. An Award of phantom
stock may be settled in Common Stock, in cash, or in a combination of Common
Stock and cash, as determined in the sole discretion of the Administrator.
Except as otherwise provided in the applicable Grant Agreement, the grantee
shall not have the rights of a stockholder with respect to any shares of
Common Stock represented by a phantom stock unit solely as a result of the
grant of a phantom stock unit to the grantee.

(e) Performance Awards. The Administrator may, in its discretion, grant
performance awards which become payable on account of attainment of one or
more performance goals established by the Administrator. Performance awards
may be paid by the delivery of Common Stock or cash, or any combination of
Common Stock and cash, as determined in the sole discretion of the
Administrator. Performance goals established by the Administrator may be based
on the Corporation's or an Affiliate's operating income or one or more other
business criteria selected by the Administrator that apply to an individual or
group of individuals, a business unit, or the Corporation or an Affiliate as a
whole, over such performance period as the Administrator may designate.

(f) Option Awards to Non-Employee Directors. (i) Each director of the
Corporation who is not an employee of the Corporation or any Subsidiary of the
Corporation ( a "Non-Employee Director") is automatically granted a
nonqualified stock option to purchase 5,000 shares of Common Stock on the date
this Plan is approved by the shareholders of the Corporation ("Approval
Date"). Each person who is not an employee of the Corporation or any
Subsidiary of the Corporation and who is (A) first appointed as a director by
the Board of Directors to fill any vacancy on the Board or (B) first elected
as a director of the Corporation at any annual or special meeting of
shareholders of the Corporation, after the Approval Date shall be
automatically granted a nonqualified stock option to purchase 5,000 shares of
Common Stock on the date of such appointment ("Appointment Date") or election
("Election Date"). Upon each anniversary of a Non-Employee Director's
appointment or election to the Board during the Non-Employee Director's term
of service as a director, provided that he or she has not ceased to be a
director prior to the applicable anniversary date, the Non-Employee Director
shall be automatically granted a nonqualified stock option to purchase 5,000
shares of Common Stock. The occurrence of the Approval Date, the Appointment
Date, the Election Date, or the anniversary of the Appointment Date or
Election Date, as the case may be, shall be sufficient to cause the automatic
grant of the option and shall constitute the date of the grant of such option
to each such director.

(ii) Terms of Director Options. Each option granted to a Non-Employee
Director pursuant to this Section 6(f) of the Plan shall have an exercise
price per share equal to the Fair Market Value per share of Common

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Stock on the date of grant of the option. Each option granted to a Non-
Employee Director pursuant to this Section 6(f) of the Plan shall be
immediately exercisable on the date of grant and shall terminate on the tenth
anniversary of the date of grant ("Expiration Date") if not sooner terminated
as provided herein. In the event the Non-Employee Director shall cease to be a
director of the Corporation, or its successor, for any reason other than death
or disability, such options shall terminate ninety (90) days after the Non-
Employee Director ceases to be a director, but in no event later than the
Expiration Date. In the event the Non-Employee Director shall cease to be a
director of the Corporation, or its successor, due to death or disability,
such options shall terminate one (1) year after the Non-Employee Director
ceases to be a director, but in no event later than the Expiration Date.

(iii) Payment of Exercise Price. Except as provided below, full payment for
shares acquired pursuant to options granted to a Non-Employee Director
pursuant to this Section 6(f) of the Plan shall be made in cash or by
certified check at or prior to the time that an option, or any part thereof,
is exercised (or in the discretion of the Administrator at such later time as
the certificates for such shares are delivered). In the discretion of the
Administrator, shares of Common Stock with a Fair Market Value on the date of
exercise equal to the sum of (i) the exercise price and (ii) the amount, if
any, of federal and state income and employment taxes that the Corporation is
required to withhold as a result of the exercise (or a combination of cash and
Common Stock with a Fair Market Value on the date of exercise equal to the
foregoing sum) may be surrendered or withheld as payment of the exercise price
for shares acquired or in satisfaction of the tax withholding obligations
arising from the exercise.

7. MISCELLANEOUS

(a) Withholding of Taxes. Grantees and holders of Awards shall pay to the
Corporation, or make provision satisfactory to the Administrator for payment
of, any taxes required to be withheld in respect of Awards under the Plan no
later than the date of the event creating the tax liability. The Corporation
may, to the extent permitted by law, deduct any such tax obligations from any
payment of any kind otherwise due to the grantee or holder of an Award. In the
event that payment to the Corporation of such tax obligations is made in
shares of Common Stock, such shares shall be valued at Fair Market Value on
the applicable date for such purposes.

(b) Loans. The Corporation may make or guarantee loans to grantees to assist
grantees in exercising Awards and satisfying any withholding tax obligations.

(c) Transferability. Except as otherwise determined by the Administrator,
and in any event in the case of an incentive stock option or a stock
appreciation right granted with respect to an incentive stock option, no Award
granted under the Plan shall be transferable by a grantee otherwise than by
will or the laws of descent and distribution. Unless otherwise determined by
the Administrator in accord with the provisions of the immediately preceding
sentence, an Award may be exercised during the lifetime of the grantee, only
by the grantee or, during the period the grantee is under a legal disability,
by the grantee's guardian or legal representative.

(d) Adjustments; Business Combinations. In the event of changes in the
Common Stock of the Corporation by reason of any stock dividend, split-up,
recapitalization, merger, consolidation, business combination or exchange of
shares and the like, the Administrator shall, in its discretion, make
appropriate adjustments to the maximum number and kind of shares reserved for
issuance or with respect to which Awards may be granted under the Plan as
provided in Section 4 of the Plan and to the number, kind and price of shares
covered by outstanding Awards, and shall, in its discretion and without the
consent of holders of Awards, make any other adjustments in outstanding
Awards, including but not limited to reducing the number of shares subject to
Awards or providing or mandating alternative settlement methods such as
settlement of the Awards in cash or in shares of Common Stock or other
securities of the Corporation or of any other entity, or in any other matters
which relate to Awards as the Administrator shall, in its sole discretion,
determine to be necessary or appropriate.

Notwithstanding anything in the Plan to the contrary and without the consent
of holders of Awards, the Administrator, in its sole discretion, may make any
modifications to any Awards, including but not limited to cancellation,
forfeiture, surrender or other termination of the Awards in whole or in part
regardless of the vested

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<PAGE>

status of the Award, in order to facilitate any business combination that is
authorized by the Board to comply with requirements for treatment as a pooling
of interests transaction for accounting purposes under generally accepted
accounting principles.

The Administrator is authorized to make, in its discretion and without the
consent of holders of Awards, adjustments in the terms and conditions of, and
the criteria included in, Awards in recognition of unusual or nonrecurring
events affecting the Corporation, or the financial statements of the
Corporation or any Affiliate, or of changes in applicable laws, regulations,
or accounting principles, whenever the Administrator determines that such
adjustments are appropriate in order to prevent dilution or enlargement of the
benefits or potential benefits intended to be made available under the Plan.

(e) Substitution of Awards in Mergers and Acquisitions. Awards may be
granted under the Plan from time to time in substitution for Awards held by
employees or directors of entities who become or are about to become employees
or directors of the Corporation or an Affiliate as the result of a merger or
consolidation of the employing entity with the Corporation or an Affiliate, or
the acquisition by the Corporation or an Affiliate of the assets or stock of
the employing entity. The terms and conditions of any substitute Awards so
granted may vary from the terms and conditions set forth herein to the extent
that the Administrator deems appropriate at the time of grant to conform the
substitute Awards to the provisions of the awards for which they are
substituted.

(f) Termination, Amendment and Modification of the Plan. The Board may
terminate, amend or modify the Plan or any portion thereof at any time.

(g) Non-Guarantee of Employment or Service. Nothing in the Plan or in any
Grant Agreement thereunder shall confer any right on an individual to continue
in the service of the Corporation or shall interfere in any way with the right
of the Corporation to terminate such service at any time.

(h) No Trust or Fund Created. Neither the Plan nor any Award shall create or
be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Corporation and a grantee or any other person. To the
extent that any grantee or other person acquires a right to receive payments
from the Corporation pursuant to an Award, such right shall be no greater than
the right of any unsecured general creditor of the Corporation.

(i) Governing Law. The validity, construction and effect of the Plan, of
Grant Agreements entered into pursuant to the Plan, and of any rules,
regulations, determinations or decisions made by the Administrator relating to
the Plan or such Grant Agreements, and the rights of any and all persons
having or claiming to have any interest therein or thereunder, shall be
determined exclusively in accordance with applicable federal laws and the laws
of the State of Maryland, without regard to its conflict of laws principles.

(j) Effective Date; Termination Date. The Plan is effective as of the date
on which the Plan was adopted by the Board, subject to approval of the
stockholders within twelve months before or after such date. No Award shall be
granted under the Plan after the close of business on the day immediately
preceding the tenth anniversary of the effective date of the Plan. Subject to
other applicable provisions of the Plan, all Awards made under the Plan prior
to such termination of the Plan shall remain in effect until such Awards have
been satisfied or terminated in accordance with the Plan and the terms of such
Awards.

Date Approved by the Board: March 31, 1998
Date Approved by the Stockholders:

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SYLVAN LEARNING SYSTEMS, INC.
1000 LANCASTER STREET, BALTIMORE, MARYLAND 21202

PROXY FOR ANNUAL MEETING OF STOCKHOLDERS - MAY 21, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby constitutes and appoints R. Christopher Hoehn-Saric and
Douglas L. Becker, and each of them, as Proxies of the undersigned, with full
power to appoint their substitutes, and authorizes each of them to represent and
to vote all shares of Common Stock of Sylvan Learning Systems, Inc. (the
"Company") held by the undersigned as of the close of business on April 8, 1998,
at the Annual Meeting of Stockholders to be held at the Harbor Court Hotel at
550 S. Light Street, Baltimore, Maryland 21202, on Monday, May 21, 1998 at 10:00
a.m., local time, and at any adjournment or postponements thereof.

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PLEASE VOTE, DATE AND SIGN ON REVERSE
AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
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Please sign exactly as your name(s) appear(s) on the books of the Company.
Joint owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
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HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?

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<PAGE>

[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE

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SYLVAN LEARNING SYSTEMS, INC.
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The undersigned hereby acknowledges receipt of a copy of the accompanying Notice
of Annual Meeting of Stockholders, the Proxy Statement with respect thereto and
the Company's 1997 Annual Report, and hereby revokes any proxy or proxies
heretofore given. This proxy may be revoked at any time before it is exercised.

RECORD DATE SHARES:

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Please be sure to sign and date this Proxy. Date
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Stockholder sign here Co-owner sign here

1. Proposal to elect the following persons FOR ALL FOR ALL
as directors for the class indicated, NOMINEES WITHHOLD EXCEPT
and until their successors are duly [_] [_] [_]
elected and qualified:

CLASS II-2 YEARS

DOUGLAS L. BECKER JAMES H. MCGUIRE RICK INATOME

If you wish to withhold your shares for
any individual nominee, mark the "For All
Except" box and strike a line through the
nominee's name.

2. Proposal to approve and ratify amendments to FOR AGAINST ABSTAIN
Sylvan's Charter to increase the number of [_] [_] [_]
authorized shares of Sylvan Common Stock from
40,000,000 shares to 90,000,000 shares and to
increase from 250,000 shares to 900,000 shares
the number of shares of Preferred Stock which
are designated as Series A Junior Participating
Preferred Stock.

3. Proposal to approve and ratify amendments to FOR AGAINST ABSTAIN
the 1993 Employee Stock Option Plan which [_] [_] [_]
increase the number of shares authorized for
issuance upon exercise of options granted
thereunder from 3,200,000 to 3,800,000 shares.

4. Proposal to approve and ratify the adoption FOR AGAINST ABSTAIN
of the Sylvan Learning Systems, Inc. 1998 [_] [_] [_]
Stock Incentive Plan.

5. Proposal to approve and ratify an amendment FOR AGAINST ABSTAIN
to the Employee Stock Purchase Plan which [_] [_] [_]
increases the number of shares authorized
for purchase thereunder from 50,000 shares
to 200,000 shares.

6. Proposal to ratify the selection of Ernst FOR AGAINST ABSTAIN
& Young as the independent auditors of the [_] [_] [_]
Company for the fiscal year ending
December 31, 1998.

Mark box at right if an address change or comment has been noted [_]
on the reverse side of this card.

DETACH CARD DETACH CARD

SYLVAN LEARNING SYSTEMS, INC.

Dear Stockholder,

Please take note of the important information enclosed with this Proxy Ballot.
There are a number of issues related to the management and operation of your
Company that require your immediate attention and approval. They are discussed
in detail in the enclosed proxy materials.

Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.

Please mark the boxes on this proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy vote in the enclosed
postage paid envelope.

Your vote must be received prior to the Annual Meeting of Stockholders, May 21,
1998.

Thank you in advance for your prompt consideration of these matters.

Sincerely,

Douglas L. Becker
Secretary