UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: August 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ____________ to _____________
Commission file number : 0-25232
APOLLO GROUP, INC.
(Exact name of registrant as specified in its charter)
ARIZONA 86-0419443
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4615 EAST ELWOOD STREET, PHOENIX, ARIZONA 85040
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (602) 966-5394
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE NONE
(Title of each class) (Name of each exchange on which registered)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS A COMMON STOCK, NO PAR
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports); and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
No shares of the Company's Class B Common Stock, its voting stock, is held by
non-affiliates. The holders of the Company's Class A Common stock are not
entitled to any voting rights. The number of shares outstanding for each of
the registrant's classes of common stock, as of October 10, 1996, is as
follows:
Class A Common Stock, no par 49,489,219 Shares
Class B Common Stock, no par 575,769 Shares
DOCUMENTS INCORPORATED BY REFERENCE
NONE
1<PAGE>
APOLLO GROUP, INC. AND SUBSIDIARIES
FORM 10-K
INDEX
PAGE
PART I ----
Item 1. Business 3
Item 2. Properties 27
Item 3. Legal Proceedings 28
Item 4. Submission of Matters to a Vote of Security Holders 28
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 29
Item 6. Selected Consolidated Financial Data 30
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 32
Item 8. Financial Statements and Supplementary Data 40
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 62
PART III
Item 10. Directors and Executive Officers of the Registrant 63
Item 11. Executive Compensation 67
Item 12. Security Ownership of Certain Beneficial
Owners and Management 75
Item 13. Certain Relationships and Related Transactions 76
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 77
SIGNATURES 80
2<PAGE>
PART I
Item 1 -- Business
OVERVIEW
Apollo Group, Inc. ("Apollo" or the "Company"), through its
subsidiaries, the University of Phoenix, Inc. ("UOP"), the Institute for
Professional Development ("IPD") and Western International University, Inc.
("WIU"), is a leading provider of higher education programs for working
adults based on the number of working adults enrolled in its programs. The
consolidated enrollment in the Company's educational programs would make it
the largest private institution of higher education in the United States.
The Company currently offers its programs and services at 85 campuses and
learning centers in 29 states, Puerto Rico and London, England. The
Company's enrollment has increased to 46,935 at August 31, 1996 from 21,163
at August 31, 1992.
Based on its enrollment of over 33,000 adult students, UOP is currently
the second largest regionally accredited private university in the United
States and has one of the nation's largest private business schools. UOP has
been accredited by the Commission on Institutions of Higher Education of the
North Central Association of Colleges and Schools ("NCA") since 1978 and has
successfully replicated its teaching/learning model while maintaining
educational quality at its 47 campuses and learning centers in Arizona,
California, Colorado, Florida, Hawaii, Louisiana, Michigan, Nevada, New
Mexico, Utah and Puerto Rico. UOP has developed specialized systems for
student tracking, marketing, faculty recruitment and training, financial aid,
accounting and academic quality management. These systems enhance UOP's
ability to expand into new markets while still maintaining academic quality.
Currently, approximately 75% of UOP's students receive some level of tuition
reimbursement from their employers, many of which are Fortune 500 companies.
The Online (TM) campus was established by UOP in 1989 to provide
group-based, faculty-led instruction through computer-mediated communications.
The Online (TM) campus currently serves approximately 2,200 degree-seeking
students. Students can access their Online (TM) classes with a computer and
modem from anywhere in the world, on schedules that meet their individual
needs. Online's (TM) degree programs can be accessed though direct-dial,
local Internet providers or CompuServe(R). The Online (TM) faculty receive
specialized training to enable them to teach effectively in the electronic
learning environment. The same academic quality management standards applied
to campus-based programs, including the assessment of student learning
outcomes, are applied to programs delivered through Online (TM).
IPD provides program development and management services under long-term
contracts that meet the guidelines of the client institutions' respective
regional accrediting associations. IPD provides these services to 18
regionally accredited private colleges and universities at 34 campuses and
learning centers in 20 states and shares in the tuition revenues generated
from these programs. IPD is able to assist these colleges and universities
in expanding and diversifying their programs for working adults. IPD places
a priority on institutions that: (1) are interested in developing or
expanding off-campus degree programs for working adults; (2) recognize that
working adults require a different teaching/learning model than the 18 to 24
year old student; (3) desire to increase enrollments with a limited
3<PAGE>
investment in institutional capital and (4) recognize the unmet
educational needs of the working adult students in their market.
Approximately 12,600 students are currently enrolled in IPD-assisted
programs.
WIU currently offers graduate, undergraduate and certificate degree
programs to approximately 1,200 students and has a total of four campuses and
learning centers in Phoenix, Fort Huachuca and Douglas, Arizona and London,
England.
The Company was incorporated in Arizona in 1981 and maintains its
principal executive offices at 4615 East Elwood Street, Phoenix, Arizona
85040. The Company's telephone number is (602) 966-5394. The Company's
Internet Web Site addresses are as follows:
- Apollo and IPD -- http://www.apollogrp.com
- UOP -- http://www.uophx.edu
- WIU -- http://www.wintu.edu
The Company's fiscal year is from September 1 to August 31. Unless
otherwise stated, references to the years 1996, 1995 and 1994 relate to the
fiscal years ended August 31, 1996, 1995 and 1994, respectively.
This Annual Report on Form 10-K contains "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements relating to future plans, expectations, events or
performances involve risks and uncertainties and a number of factors could
affect the validity of such forward-looking statements, including those set
forth under "Risk Factors" in the Company's Prospectus dated January 18,
1996.
MARKET
The United States education market may be divided into three distinct
segments: kindergarten through twelfth grade schools ("K-12"), vocational and
technical training schools and degree-granting colleges and universities
("higher education"). The Company currently operates in the higher education
segment. The U.S. Department of Education National Center for Education
Statistics ("NCES") estimated that for 1994 (the most recent historical year
reported), adults over 24 years of age comprised approximately 6.3 million,
or 45%, of the 14.1 million students enrolled in higher education programs.
Currently, the U.S. Bureau of Census estimates that 70-75% of students over
the age of 24 work while attending school. The NCES estimates that by the
year 2001 the number of adult students over the age of 24 will increase to
6.6 million, or 42%, of the 15.7 million students projected to be enrolled in
higher education programs. The increase in demand for higher education from
working adults results from the increasing skills required by employers and
from a recognition by working adults of the value of an earned degree for
career advancement and change.
The Company believes that the unique needs of working adults include the
following:
- Convenient access to a learning environment (including both location
and delivery system)
4<PAGE>
- Degree programs offered by regionally accredited institutions that
can be completed in a reasonable amount of time
- Programs that provide knowledge and skills with immediate practical
value in the workplace
- Education provided by academically qualified faculty with current
practical experience in fields related to the subjects they instruct
- Administrative services designed to accommodate the full-time
working adult's schedule
- Recognition of adult students as critical consumers of educational
programs and services
- A learning environment characterized by a low student-to-faculty
ratio
- Learning resources available electronically to all students
regardless of geographical location
The Company also believes that the increasing demand from and the unique
requirements of the adult working population represent a significant market
opportunity to regionally accredited higher education institutions that can
offer programs that meet these unique needs.
Most regionally accredited colleges and universities are focused on
serving the 18 to 24 year old student market. This focus has resulted in a
capital-intensive teaching/learning model that may be characterized by: (1) a
high percentage of full-time tenured faculty with doctoral degrees;
(2) fully-configured library facilities and related full-time staff;
(3) dormitories, student unions and other significant plant assets to support
the needs of younger students and (4) an emphasis on research and the related
staff and facilities. In addition, the majority of accredited colleges and
universities continue to provide the bulk of their educational programming
from September to mid-December and from mid-January to May. As a result,
most full-time faculty members only teach during that limited period of time.
While this structure serves the needs of the full-time 18 to 24 year old
student, it limits the educational opportunity for working adults who must
delay their education for up to five months during these spring, summer and
winter breaks. In addition, this structure generally requires working adults
to attend one course three times a week, commute to a central site, take work
time to complete administrative requirements and, in undergraduate programs,
participate passively in an almost exclusively lecture-based learning format
primarily focused on a theoretical presentation of the subject matter. For
the majority of working adults, earning an undergraduate degree in this
manner would take seven to ten years.
BUSINESS STRATEGY
The Company's strategic goal is to become the preferred provider of
higher education programs for working adult students. The Company is managed
as a for-profit corporation in an industry served principally by
not-for-profit providers. By design, the Company treats both its adult
students and their employers as its primary customers. Key elements of the
Company's business strategy include the following:
5<PAGE>
Establish New UOP Campuses and Learning Centers -----------------------------
UOP plans to add campuses and learning centers throughout the United
States. New locations are selected based on an analysis of various factors,
including the population of working adults in the area, the number of local
employers and their educational reimbursement policies and the availability
of similar programs offered by other institutions. Campuses consist of
classroom and administrative facilities with full student and administrative
services. Learning centers differ from campuses in that they consist
primarily of classroom facilities with limited on-site administrative staff.
Establish New IPD Relationships ---------------------------------------------
IPD plans to enter into additional long-term contracts with private
colleges and universities in proximity to metropolitan areas throughout the
United States. In general, IPD seeks to establish relationships with
colleges and universities located in states where it is difficult for out-of-
state accredited institutions to obtain state authorizations. In this way,
the Company is able to optimize its campus-based penetration of potential new
markets.
Expand Educational Programs -------------------------------------------------
The Company expects to continue to respond to the changing educational
needs of working adults through the introduction of new undergraduate and
graduate degree programs and business and information technology ("IT")
training programs. The Company has also applied with NCA for approval of a
professional doctoral degree program. The Company currently has a full-time
staff of approximately 30 persons involved in its centralized curriculum
development process.
The Company is also exploring other educational areas, such as K-12 and
adult remedial education, where it can leverage its educational expertise
and/or delivery systems in a cost-effective manner.
Expand Access to Programs ---------------------------------------------------
The Company plans to expand its distance education programs and
services. Enrollments in distance education programs, including Online (TM),
have increased from 1,252 in 1991 to 3,691 in 1996. The Company also plans
to enhance its distance education delivery systems as new technologies become
cost-effective.
International Expansion -----------------------------------------------------
The Company is conducting ongoing market research in various foreign
countries. The Company will continue to monitor and assess the feasibility
of expanding its educational programs internationally.
The timing related to the establishment of new locations and the
expansion of programs may vary depending on regulatory requirements and
market conditions.
6<PAGE>
TEACHING/LEARNING MODEL
The Company's teaching/learning model used by UOP and IPD client
institutions was designed for working adults. This model is structured to
enable students who are employed full-time to earn their degrees and still
meet their personal and professional responsibilities. Students attend
weekly classes, averaging 15 students in size, and also meet weekly as part
of a three to five person study group. The study group meetings are used for
review, work on assigned group projects and preparation for in-class
presentations. Courses are designed to facilitate the application of
knowledge and skills to the workplace and are taught by faculty members who
possess advanced degrees and have an average of 15 years of professional
experience in business, industry, government and the professions. In this
way, faculty members are able to share their professional knowledge and
skills with the students.
The Company's teaching/learning model has the following major
characteristics:
Curriculum The curriculum provides for the achievement of
specific educational outcomes that are based on the
input from faculty, students and student employers.
The curriculum is designed to integrate academic
theory and professional practice and the application
to the workplace. The standardized curriculum for
each degree program is also designed to provide
students with specified levels of knowledge and
skills regardless of delivery method or location.
Faculty Faculty applicants must possess an earned master's
or doctoral degree, and have a minimum of five years
recent professional experience in a field related to
the subject matter in which they seek to instruct.
To help promote quality delivery of the curriculum,
UOP faculty members are required to: (1) complete an
initial assessment conducted by staff and faculty;
(2) receive training in grading, facilitation of the
teaching/learning model and oversight of study group
activities; (3) serve an internship with an
experienced faculty mentor and (4) receive ongoing
performance evaluations by students, peer faculty
and staff. The results of these evaluations are
used to establish developmental plans to improve
individual faculty performance and to determine
continued eligibility of faculty members to provide
instruction.
Interactive Learning Courses are designed to combine individual and group
activity with interaction between and among students
and the instructor. The curriculum requires a high
level of student participation for purposes of
increasing the student's ability to work as part of
a team.
Learning Resources Students and faculty members are provided with
electronic and other learning resources for their
information needs. During 1996, the Company
substantially expanded these services including the
7<PAGE>
addition of research tools available on the
Internet. These extensive electronic resources
minimize the Company's need for capital-intensive
library facilities and holdings.
Sequential Enrollment Students enroll in and complete courses
sequentially, rather than concurrently, thereby
allowing full-time working adults to focus their
attention and resources on one subject at a time,
thus balancing learning with ongoing personal and
professional responsibilities.
Academic Quality The Company has developed and operationalized an
Academic Quality Management System ("AQMS") that is
designed to maintain and improve the quality of
programs and academic and student services
regardless of the delivery method or location.
Included in the AQMS is the Adult Learning Outcomes
Assessment which seeks to measure student growth in
both the cognitive (subject matter) and affective
(educational, personal and professional values)
domains.
STRUCTURAL COMPONENTS OF TEACHING/LEARNING MODEL
Although adults over 24 currently comprise approximately 45% of all
higher education enrollments in the United States, the mission of most
accredited colleges and universities is to serve 18 to 24 year old students
and conduct research. UOP and IPD client institutions acknowledge the
differences in educational needs between older and younger students and
provide programs and services that allow working adult students to earn their
degrees while integrating the process with both their personal and
professional lives.
The Company believes that working adults require a different
teaching/learning model than that designed for the 18 to 24 year old student.
The Company has found that working adults seek accessibility, curriculum
consistency, time and cost effectiveness and learning that has an immediate
application to the workplace. The Company's teaching/learning model differs
from the models used by most regionally accredited colleges and universities
because it is designed to enable adults to complete an undergraduate degree
in four years and a graduate degree in two years while working full-time.
The structural components of the Company's teaching/learning model
include:
Accessibility Centrally developed standardized curricula that can
be accessed through a variety of delivery methods
(e.g., campus-based or electronically delivered),
that make the educational programs accessible
regardless of where the students work and live.
Instructional Costs While the faculty at most accredited colleges and
universities are employed full-time, UOP's and IPD
client institutions' part-time faculty are
academically qualified, professionally employed and
are contracted for instructional services on a
8<PAGE>
course-by-course basis. This policy keeps a portion
of the cost of instruction variable.
Facility Costs The Company leases its campus and learning center
facilities and rents additional classroom space on a
short-term basis to accommodate growth in
enrollments, thus keeping a portion of its
instructional costs variable.
Employed Students UOP's students are employed full-time and
approximately 72% have been employed for nine years
or more. This minimizes the need for
capital-intensive facilities and services (e.g.,
dormitories, student unions, food services, personal
and employment counseling, health care, sports and
entertainment).
Employer Support Approximately 75% of UOP's students currently
receive some level of tuition reimbursement from
their employers, many of which are Fortune 500
companies. The Company develops relationships with
key employers for purposes of recruiting students
and responding to specific employer needs. This
allows the Company to remain sensitive to the needs
and perceptions of employers, while helping both to
generate and sustain diverse sources of revenues.
WIU's teaching/learning model has similar characteristics to the
teaching/learning model used by UOP and IPD client institutions, including
the use of part-time practitioner faculty, standardized curriculum,
computerized learning resources and leased facilities. However, WIU provides
educational programs in a semester-based format and does not focus
exclusively on working adult students.
PROGRAMS AND SERVICES
UOP Programs ----------------------------------------------------------------
UOP currently offers the following degree programs and related areas of
specialization at one or more campuses and learning centers or through its
distance education delivery systems:
DEGREE PROGRAMS
- ---------------
Associate of Arts in Business
Bachelor of Arts in Management
Bachelor of Science in Business
Bachelor of Science in Nursing
Master of Arts in Education
Master of Arts in Organizational Management
Master of Business Administration
Master of Counseling
Master of Nursing
Master of Science in Computer Information Systems
9<PAGE>
AREAS OF SPECIALIZATION AVAILABLE IN CERTAIN DEGREE PROGRAMS
- ------------------------------------------------------------
Undergraduate BUSINESS
Accounting
Administration
Environmental Management
Finance
Industrial Relations
Marketing
Operations Management
COMPUTER INFORMATION SYSTEMS
Information Systems
Technical Management
Graduate BUSINESS
Finance
Global Management
Marketing
Organizational Management
COMPUTER INFORMATION SYSTEMS
Technology Management
EDUCATION
Administration and Supervision
Bilingual-Bicultural
Curriculum
Diverse Learner
Educational Counseling
Elementary Education
English as a Second Language
Professional Development for Educators
Secondary Methodology
Special Education
NURSING
Education
Management
Women's Health Nurse Practitioner
COUNSELING
Community Counseling
Marriage and Family Therapy
Mental Health
UOP also offers over 28 certificate programs in the areas of business,
technology, nursing, continuing education for teachers, custom training and
the environment.
10<PAGE>
Graduate level courses are also offered for students' continuing
professional education requirements, including state teacher certification
and state teacher renewal. Undergraduate students may demonstrate and
document college level learning gained from experience through an assessment
by faculty members (according to the guidelines of the Council for Adult and
Experiential Learning ("CAEL")) for the potential award of credit. The
average number of credits awarded to UOP undergraduate students who utilized
the process between 1993 and 1996 was approximately 10 credits of the 120
required to graduate. CAEL reports that over 1,300 regionally accredited
colleges and universities currently provide for the assessment mechanism of
college level learning gained through experience for the award of credit.
IPD Services ----------------------------------------------------------------
IPD offers services to its client institutions including: (1) assisting
with curriculum development; (2) conducting market research; (3) developing
and executing marketing strategies; (4) training faculty; (5) establishing
administrative infrastructures; (6) developing and implementing financial
accounting and academic quality management systems; (7) assessing the future
needs of adult students and (8) helping develop additional degree programs
suitable for the adult higher education market. In consideration for its
services, IPD receives a contractual share of tuition revenues from students
enrolled in IPD-assisted programs.
IPD also assists its client institutions in identifying and developing
new degree programs and in seeking the required approvals from their
respective regional accrediting associations. In order to facilitate the
sharing of information related to the operations of their respective
programs, the IPD client institutions and UOP formed the Consortium for the
Advancement of Adult Higher Education ("CAAHE"). CAAHE meets semiannually to
address issues such as the recruitment and training of part-time,
professionally employed faculty, employer input in the curriculum development
process, assessment of the learning outcomes of adult students and regulatory
issues affecting the operation of programs for working adult students.
IPD client institutions offer the following programs with IPD
assistance:
No. of IPD
Degree Programs Client Institutions
- -------------------------------------------------- --------------------
Associate of Arts in General Studies 1
Associate of Arts 1
Associate of Science in Business 4
Bachelor of Arts in Business Administration 2
Bachelor of Business Administration 7
Bachelor of Science in Business Administration 4
Bachelor of Science in Human Resources Management 1
Bachelor of Science in Management 7
Bachelor of Science in Nursing 1
Bachelor of Science in Organizational Leadership 1
Master of Business Administration 9
Master of Science in Management 5
Master of Science in Health Services Administration 1
11<PAGE>
The IPD-assisted programs also include a limited number of general
education courses, certificate programs and areas of specialization.
WIU Programs ----------------------------------------------------------------
WIU currently offers the following degree and certificate programs:
DEGREE PROGRAMS WITH RELATED MAJORS
- ---------------------------------------------
ASSOCIATE OF ARTS IN GENERAL STUDIES
BACHELOR OF SCIENCE
- - Accounting
- - Aviation Management
- - Finance
- - General Business
- - Information Systems
- - International Business
- - Management
- - Marketing
BACHELOR OF ARTS
- - Behavioral Science
- - General Studies
- - International Studies
MASTER OF BUSINESS ADMINISTRATION
- - Finance
- - Healthcare Management
- - International Business
- - Management
- - Management Information Services
- - Marketing
MASTER OF PUBLIC ADMINISTRATION
MASTER OF SCIENCE
- - Accounting
- - Information Services
- - Information Systems Engineering
WIU also offers a limited number of business-related certificate
programs.
12<PAGE>
Faculty ---------------------------------------------------------------------
UOP's faculty is comprised of approximately 3,400 working professionals
with earned master's or doctoral degrees and an average of 15 years of
experience in business, industry, government or the professions. To help
promote quality delivery of the curriculum, UOP faculty members are required
to: (1) complete an initial assessment conducted by staff and faculty;
(2) receive training in grading, facilitation of the teaching/learning model
and oversight of study group activities and (3) receive ongoing performance
evaluations by students, peer faculty and staff. The results of these
evaluations are used to establish developmental plans to improve individual
faculty performance and to determine continued eligibility of faculty members
to provide instruction. Most faculty members are recruited as the result of
referrals from faculty, students and corporate contacts. All faculty are
contracted on a course-by-course basis (generally a five to ten week period).
The faculty teaching in IPD-assisted programs are comprised of full-time
faculty from the client institution as well as qualified part-time faculty
who instruct only in these adult programs. The part-time faculty must be
approved by each client institution. IPD makes the AQMS available to its
client institutions to evaluate faculty and academic and administrative
quality. Both UOP and IPD have been successful in recruiting faculty members
who meet these academic and professional requirements.
WIU's faculty consists of approximately 120 working professionals.
WIU's practitioner faculty possess earned master's or doctoral degrees and
participate in a selection and training process that is similar to that at
UOP.
Academic Accountability -----------------------------------------------------
UOP is one of the first regionally accredited universities in the nation
to create and utilize an institution-wide system for the assessment of the
educational outcomes of its students. The information generated is employed
by UOP to improve the quality of the curriculum, instruction and the
Company's teaching/learning model. UOP's undergraduate and graduate students
complete a comprehensive cognitive (core degree subject matter) and affective
(educational, personal and professional values) assessment prior to and upon
the completion of their core degree requirements.
Students at UOP and IPD client institutions evaluate both academic and
administrative quality. This evaluation begins with a registration survey
and continues with the evaluation of the curriculum, faculty, delivery
method, instruction and administrative services upon the conclusion of each
course. The evaluation also includes a survey of a random selection of
graduates 2-3 years following their graduation. The results provide an
ongoing basis for improving the teaching/learning model, selection of
educational programs and instructional quality. The Company plans to
implement similar quality control systems at WIU on an ongoing basis.
Admissions Standards --------------------------------------------------------
To gain admission to the undergraduate programs of UOP, WIU and the IPD
client institutions, students generally must have a high school diploma or
General Equivalency Diploma ("G.E.D.") and satisfy certain minimum grade
point average, employment and age requirements. Additional requirements may
13<PAGE>
apply to individual programs. Students in undergraduate programs may
petition to be admitted on provisional status if they do not meet certain
admission requirements.
To gain admission to the graduate programs of UOP, WIU and the IPD
client institutions, students generally must have an undergraduate degree
from a regionally accredited college or university and satisfy minimum grade
point average, work experience and employment requirements. Additional
requirements may apply to individual programs. Students in graduate programs
may petition to be admitted on provisional status if they do not meet certain
admission requirements.
DISTANCE EDUCATION COMPONENTS
At August 31, 1996, there were approximately 3,700 students utilizing
the Company's distance education delivery systems, approximately 60% of whom
are enrolled in Online (TM). The Company's distance education components
consist primarily of the following:
Online Computer Conferencing ------------------------------------------------
The Online (TM) campus was established by UOP in 1989 to provide group-
based, faculty-led instruction through computer-mediated communications.
Students can access their online classes with a computer and modem from
anywhere in the world, on schedules that meet their individual needs. Online
(TM) students work together in small groups of 8 to 13, to engage in class
discussion and study group activities that are focused on the same learning
outcomes and objectives required in UOP's classroom degree programs. This
enables the Online (TM) students to enjoy the benefits of a study group,
where they can share their regional and cultural differences with each other
in the context of their coursework. Since all communication is asynchronous,
students are not required to participate at the same time. Online's (TM)
degree programs can be accessed though direct-dial, local Internet providers
or CompuServe(R).
Two-Way Voice and Data ------------------------------------------------------
UOP established its audiographic delivery system in 1989 in response to
requests from employers with operations in remote areas of the United States.
Students completing their degree requirements utilizing this system meet
weekly in a remote classroom and interact simultaneously with an instructor
in a centralized instructional studio through a two-way voice and data
communications system. These students can complete all their coursework in
this manner. They are required to achieve the same course outcomes, attend
weekly study groups and participate in the AQMS.
Directed Study --------------------------------------------------------------
Working adult students may also complete individual courses under the
direct weekly instructional supervision of a member of the faculty. These
directed study programs utilize the same courses, faculty and resources
available at UOP campuses. Course assignments are completed in a structured
environment that allows flexibility of schedules. Communication with the
faculty member is by telephone, e-mail, fax or mail.
14<PAGE>
Distance education is currently subject to certain regulatory
constraints. See "Business -- Federal Financial Aid Programs -- Restrictions
on Distance Education Programs" and "Business -- State Authorization."
ACQUISITION STRATEGY
The Company periodically evaluates opportunities to acquire businesses
and facilities. In evaluating such opportunities, management considers,
among other factors, location, demographics, price, the availability of
financing on acceptable terms, competitive factors and the opportunity to
improve operating performance through the implementation of the Company's
operating strategies. The Company has no current commitments with regard to
potential acquisitions.
CUSTOMERS
The Company's customers consist of working adult students, colleges and
universities, governmental agencies and employers. Following is a breakdown
of the Company's students by the level of program they are seeking, at August
31:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Master's 30.6% 30.5%
Bachelor's 61.1% 60.2%
Associate 4.2% 4.0%
Certificate, corporate training and
continuing professional education 4.1% 5.3%
------ ------
100.0% 100.0%
====== ======
</TABLE>
Based on recent student surveys, the average age of UOP students is in
the mid-thirties, approximately 52% are women and 48% are men, and the
average annual household income is $53,000. Approximately 72% of UOP
students have been employed on a full-time basis for nine years or more. The
Company believes that the demographics of students enrolled in IPD-assisted
programs are similar to that of UOP. The approximate age distribution of
current UOP students is as follows:
<TABLE>
<CAPTION>
Age Percentage of Students
------------------------ -----------------------
<S> <C>
25 and under 12%
26 to 33 35%
34 to 45 42%
46 and over 11%
-------
100%
=======
</TABLE>
15<PAGE>
IPD client institutions have historically consisted of small private
colleges; however, IPD also targets larger institutions of higher education
that are in need of marketing and curriculum consulting. The Company
believes that to develop and manage educational programs for working adult
students effectively, these potential client institutions require both
capital and operational expertise. In response to these requirements, IPD
provides the start-up capital, the curriculum development expertise and the
ongoing management in support of the client institutions' provision of
quality programs for working adult students.
The Company also considers the employers of its students as customers.
Many of these employers provide tuition reimbursement programs in order to
educate and provide degree opportunities to their employees. Currently,
approximately 75% of UOP's students receive some level of tuition
reimbursement from their employers, many of which are Fortune 500 companies.
Of these students receiving reimbursement, approximately 62% receive at least
one-half tuition reimbursement and approximately 28% receive full tuition
reimbursement.
CORPORATE PARTNERSHIPS
The Company cooperates and interacts with businesses and governmental
agencies in offering programs designed to meet their specific needs either by
modifying existing programs or, in some cases, by developing customized
programs. These programs are often held at the employers' offices or on-site
at military bases. UOP has also formed educational partnerships with various
companies, including AT&T and Ingram Micro, to provide programs specifically
designed for their employees.
MARKETING
To generate interest among potential UOP, WIU and IPD client institution
students, the Company engages in a broad range of activities to inform
potential students about the Company's teaching/learning model and the
programs offered. These activities include print and broadcast advertising,
advertising on services such as CompuServe (R), Prodigy (R) and the Microsoft
Network (R), direct mail and information meetings at targeted organizations
(CompuServe (R) is a registered trademark of CompuServe Incorporated,
Columbus, Ohio, Prodigy (R) is a registered trademark of Trintex, White
Plains, New York, and Microsoft Network (R) is a registered servicemark of
Microsoft Corporation, Redmond, Washington). The Company also attempts to
locate its campuses and learning centers near major highways to provide high
visibility and easy access. A substantial portion of new UOP and IPD client
institution students are referred by alumni, employers and currently enrolled
students. The Company recently implemented its proprietary marketing systems
at WIU to help it identify and manage lead sources and referral data.
The Company also has a Web Site on the Internet World Wide Web
(http://www.apollogrp.com) that allows electronic access to Company
information, product information, research, etc. The Company's Web Site is
accessible from major online networks such as Prodigy (R), CompuServe (R),
America OnLine (R) (America OnLine (R) is a registered trademark of America
Online, Inc., Vienna, Virginia) and the Microsoft Network (R).
16<PAGE>
UOP and WIU advertising is centrally monitored and is directed primarily
at local markets in which a campus is located. IPD client institutions
approve and monitor all advertising provided by IPD on their behalf. Direct
responses to advertising and direct mail are received, tracked and forwarded
promptly to the appropriate representatives. In addition, all responses are
analyzed to provide data for future marketing efforts.
The Company employs over 300 enrollment representatives in its marketing
system who make visits and presentations at various organizations and who
follow up on leads generated from the Company's advertising efforts and
referrals. These individuals also pursue direct responses to interest from
potential individual students by arranging for interviews either at a UOP,
WIU or IPD location or at a prospective student's place of employment.
Interviews are designed to establish a prospective student's qualifications,
academic background, course interests and professional goals. Student
recruiting policies and standards and procedures for hiring and training
university representatives are established centrally, but are implemented at
the local level through a director of enrollment or marketing at each
location.
COMPETITION
The higher education market is highly fragmented and competitive with no
private or public institution enjoying a significant market share. The
Company competes primarily with four-year and two-year degree-granting public
and private regionally accredited colleges and universities. Many of these
colleges and universities enroll working adults in addition to the
traditional 18 to 24 year old students and some have greater financial and
personnel resources than the Company. The Company expects that these
colleges and universities will continue to modify their existing programs to
serve working adults more effectively. In addition, many colleges and
universities have announced various distance-education initiatives.
The Company competes primarily at a local and regional level with other
regionally accredited colleges and universities based on the quality of
academic programs, the accessibility of programs and learning resources
available to working adults, the cost of the program, the quality of
instruction and the time necessary to earn a degree.
IPD faces competition from other entities offering higher education
curriculum development and management services for adult education programs.
The majority of IPD's current competitors provide pre-packaged curricula or
turn-key programs. IPD client institutions, however, face competition from
both private and public institutions offering degree and non-degree programs
to working adults.
17<PAGE>
EMPLOYEES
At September 30, 1996, the Company had the following numbers of
employees:
<TABLE>
<CAPTION>
Full-Time Part-Time Faculty Total
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Apollo 223 4 -- 227<F1>
UOP 1,185 89 3,418<F2> 4,692
IPD 200 15 --<F3> 215
WIU 38 25 122<F2> 185
------ ------ ------ ------
Total 1,646 133 3,540 5,319
====== ====== ====== ======
______________
<FN>
<F1> Consists primarily of employees in information systems, corporate
accounting, financial aid, human resources and Apollo Press.
<F2> Consists primarily of part-time professional faculty contracted on a
course-by-course basis.
<F3> Faculty teaching IPD-assisted programs are employed by IPD client
institutions.
</FN>
</TABLE>
The Company considers its relations with its employees to be good.
REGULATORY ENVIRONMENT
The Higher Education Act of 1965, as amended (the "HEA") and the
regulations promulgated thereunder (the "Regulations") subject all higher
education institutions eligible to participate in Federal Financial Aid
programs under Title IV of the HEA ("Title IV Programs") to increased
regulatory scrutiny. The HEA mandates specific additional regulatory
responsibilities for each of the following components of the higher education
regulatory triad: (1) the accrediting agencies recognized by the United
States Department of Education (the "DOE"); (2) the federal government
through the DOE and (3) state higher education regulatory bodies, including,
if applicable, a State Postsecondary Review Entity ("SPRE"). All higher
education institutions participating in Title IV Programs must first be
accredited by an association recognized by the DOE. The DOE reviews all such
participating institutions for compliance with all applicable HEA standards
and regulations. Under the HEA, accrediting associations are required to
include the monitoring of certain aspects of Title IV Program compliance as
part of their accreditation evaluations.
New or revised interpretations of regulatory requirements could have a
material adverse effect on the Company. In addition, changes in or new
interpretations of other applicable laws, rules or regulations could have a
material adverse effect on the accreditation, authorization to operate in
various states, permissible activities and costs of doing business of UOP,
18<PAGE>
WIU and one or more of the IPD client institutions. The failure to maintain
or renew any required regulatory approvals, accreditation or state
authorizations by UOP or certain of the IPD client institutions could have a
material adverse effect on the Company.
ACCREDITATION
UOP, WIU and the IPD client institutions are accredited by regional
accrediting associations recognized by the DOE. Accreditation provides the
basis for: (1) the recognition and acceptance by employers, other higher
education institutions and governmental entities of the degrees and credits
earned by students; (2) the qualification to participate in Title IV Programs
and (3) the qualification for authorization in certain states.
UOP was granted accreditation by NCA in 1978. UOP's accreditation was
reaffirmed in 1982, 1987 and 1992. The next NCA reaffirmation visit is
scheduled to begin in October 1996. IPD-assisted programs offered by the IPD
client institutions are evaluated by the client institutions' respective
regional accrediting associations either as part of a reaffirmation or
focused evaluation visits. Current IPD client institutions are accredited by
NCA, Middle States, New England or Southern regional accrediting
associations. UOP is required to receive approval from NCA for the addition
of new degree programs and the addition of any campuses or learning centers
in new states or countries. Most IPD client institutions are subject to
similar policies. In addition, all IPD contracts must meet the guidelines of
the client institutions' respective regional accrediting associations. The
withdrawal of accreditation from UOP or certain IPD client institutions would
have a material adverse effect on the Company.
WIU is accredited by NCA and is scheduled to have its next reaffirmation
visit in the spring of 1998.
All accrediting agencies recognized by the DOE are required to include
certain aspects of Title IV Program compliance in their evaluations of
accredited institutions. As a result, all regionally accredited
institutions, including UOP, WIU and IPD client institutions, will be subject
to a Title IV Program compliance review as part of accreditation visits.
Regional accreditation is accepted nationally as the basis for the
recognition of earned credit and degrees for academic purposes, employment,
professional licensure and, in some states, for authorization to operate as a
degree-granting institution. Under the terms of a reciprocity agreement
among the six regional accrediting associations, representatives of each
region in which a regionally accredited institution operates participate in
the evaluations for reaffirmation of accreditation. The achievement of UOP's
and WIU's missions require them to employ academically qualified practitioner
faculty that are able to integrate academic theory with current workplace
practice. Because of UOP's and WIU's choice to utilize all practitioner
faculty, they have not sought business school program accreditation of the
type found at many institutions whose primary missions are to serve the 18 to
24 year old student and to conduct research.
UOP's Bachelor of Science in Nursing ("BSN") program received program
accreditation from the National League for Nursing ("NLN") in 1989. The
accreditation was reaffirmed in October 1995 and the next NLN reaffirmation
is scheduled for 2003. The Company believes that the BSN program
accreditation is in good standing.
19<PAGE>
UOP's Community Counseling program (Master of Counseling degree)
received initial accreditation from the Council for Accreditation of
Counseling and Related Educational Programs in 1995, effective through 2002.
The address and phone number for the accrediting bodies referred to
herein are as follows:
North Central Association of Colleges and Schools
Commission on Institutions of Higher Education
30 North LaSalle Street, Suite 2400
Chicago, Illinois 60602-2504
(312) 263-0456
National League for Nursing
350 Hudson Street
New York, New York 10014
(212) 989-9393
American Counseling Association
Council for Accreditation of Counseling and
Related Educational Programs
5999 Stevenson Avenue
Alexandria, VA 22304
(703) 823-9800
FEDERAL FINANCIAL AID PROGRAMS
Most UOP, WIU and IPD client institution students participate in
Title IV Programs. UOP and WIU derive approximately 44% and 8% of their net
revenues from students who participate in Title IV Programs, respectively.
The IPD percentages are estimated to be similar to those at UOP. The
respective IPD client institutions administer their own Title IV programs.
The Company's students are eligible for Title IV financial aid because:
(1) UOP, WIU and IPD client institutions are accredited by an accrediting
association recognized by the DOE; (2) the DOE has certified UOP's, WIU's and
IPD client institutions' Title IV Program eligibility and (3) UOP, WIU and
IPD client institutions have applicable state authorization to operate and
their operating sites have been approved by the DOE.
The DOE has promulgated Regulations, the most recent of which became
effective on July 1, 1995, that amend certain provisions of the Title IV
Programs and the Regulations promulgated thereunder. Some of the more
important provisions of these Regulations include the following:
Limits on Title IV Program Funds --------------------------------------------
The Regulations define the types of educational programs offered by an
institution that qualify for Title IV Program funds. For students enrolled
in qualified programs, the Regulations also place limits on the amount of
Title IV Program funds that they are eligible to receive in any one academic
year.
For undergraduate programs, an academic year must consist of at least 30
weeks of instruction or a minimum of 24 credit hours. Because the
Regulations define a week of instruction as the equivalent of 12 hours of
regularly scheduled instruction, examinations or preparation for
examinations, an academic year would require a minimum of 360 hours (30 weeks
20<PAGE>
times 12 hours per week). Most of the Company's programs meet this 360 hour
minimum and, therefore, qualify for Title IV Program funds. The programs
that do not qualify for Title IV Program funds consist primarily of
certificate, corporate training and continuing professional education
programs. These programs are paid for directly by the students or their
employers.
Restricted Cash -------------------------------------------------------------
The DOE places certain restrictions on Title IV Program funds collected
for unbilled tuition and funds transferred to the Company through electronic
funds transfer. Effective July 1, 1995, an institution is required to submit
an irrevocable letter of credit to the DOE in an amount equal to at least 25%
of the total dollar amount of refunds paid by the institution in its most
recent fiscal year. However, the letter of credit requirement is waived if
an institution meets the DOE's standards related to timeliness of refunds,
financial responsibility and other criteria. The Company believes that it
meets these applicable DOE standards and will not need to supply the letter
of credit.
Standards of Financial Responsibility ---------------------------------------
Pursuant to the Regulations, all eligible higher education institutions
must meet several factors of financial responsibility including an acid test
ratio (defined as the ratio of cash, cash equivalents, restricted cash and
current accounts receivable to total current liabilities) of at least 1 to 1
at the end of the institution's fiscal year. At August 31, 1996, UOP's acid
test ratio was 1.19 to 1 and WIU's acid test ratio was 1.50 to 1.
The DOE announced in September 1996 that it intends to issue new
regulations by December 1996 with respect to institutional oversight. The
rules, if adopted, will be effective July 1, 1997. The DOE is proposing a
new system of evaluating each institution's audited financial statements for
determining financial stability. Rather than using the current limited ratio
analysis, including the acid test ratio, the DOE is proposing five separate
elements covering liquidity, viability, profitability, ability to borrow and
capital resources. Although it is uncertain whether the new system will be
adopted in its present form, it does not appear at this time that the Company
will be significantly impacted by the proposal.
Additionally, the proposed Regulations contemplate special rules for an
institution that undergoes a change in ownership. The proposal would require
a personal financial guarantee or a letter of credit to be submitted by the
new owners until a financial audit is completed that demonstrates the
institution's compliance with the DOE's financial responsibility
requirements. The DOE is also considering requiring owners to post personal
financial guarantees when institutions add additional locations. These
guarantees would remain in place until the annual audits are submitted
showing that the institution demonstrates financial responsibility under its
expanded operations. It is uncertain at this time what effect these rules,
if adopted in any form, will have on the Company's operations.
Branching and Classroom Locations -------------------------------------------
The Regulations contain specific requirements governing the
establishment of new main campuses, branch campuses and classroom locations
at which any student receives more than 50% of his or her instruction. In
addition to classrooms at campuses and learning centers, locations affected
21<PAGE>
by these requirements include the business facilities of client companies,
military bases and conference facilities used by UOP and WIU. The Company
believes that it has obtained approval for all UOP and WIU locations required
to be approved by the Regulations. Should the DOE change its Regulations
with respect to this approval process or delay approvals of new locations
beyond the current approval time rate, the Company's business strategy may be
impacted negatively.
The "85/15 Rule" ------------------------------------------------------------
A requirement of the HEA, commonly referred to as the "85/15 Rule,"
applies only to for-profit institutions of higher education, which includes
UOP and WIU but not IPD client institutions. Under this rule, for-profit
institutions will be ineligible to participate in Title IV Programs if the
amount of Title IV Program funds used by the students or institution to
satisfy tuition, fees and other costs incurred by the students exceed 85% of
the institution's cash-basis revenues from eligible programs. UOP's and
WIU's percentage was 51% and 8%, respectively, at August 31, 1996. WIU's
rate was low in 1996 due to the loss of Title IV eligibility from September
1995 to February 1996 resulting from the change in ownership. UOP and WIU
are required to calculate this percentage at the end of each fiscal year.
Student Loan Defaults -------------------------------------------------------
Eligible institutions must maintain a student loan cohort default rate
of less than 35% for each of the federal fiscal years 1991 and 1992, 30% for
fiscal year 1993 and 25% for fiscal year 1994 and all subsequent fiscal
years. In 1993, the most recent DOE cohort default rate reporting period,
the national cohort default rate average for all higher education
institutions was 11.6%. UOP and WIU students' cohort default rates for the
Federal Family Education Loans for fiscal 1993 as reported by the DOE were
5.0% and 4.2%, respectively, and IPD client institution students' cohort
default rates averaged 5.9% over that same period.
State Postsecondary Review Entities ("SPREs") -------------------------------
The Regulations mandate that each state establish a SPRE to review
institutions referred by the DOE and eligible institutions the SPRE believes
are engaged in Title IV Program fraud and abuse. Each institution will be
reviewed against standards developed by the applicable SPRE to determine
whether it is eligible to continue to participate in Title IV Programs. The
states are required to implement the SPRE portion of the HEA only to the
extent to which their costs are covered through Congressional appropriation.
On July 27, 1995, President Clinton signed into law a package of spending
cuts that rescinded the funding of the SPREs for fiscal year 1995 and 1996.
The HEA specifies that the states are not required to operate the SPREs
without Federal funding.
Compensation of Representatives ---------------------------------------------
The Regulations prohibit an institution from providing any commission,
bonus, or other incentive payment based directly or indirectly on success in
securing enrollments or financial aid to any person or entity engaged in any
student recruitment, admission or financial aid awarding activity. The
Company believes that its current method of compensating representatives
complies with the Regulations.
22<PAGE>
Administrative Capability ---------------------------------------------------
The HEA directs the DOE to assess the administrative capability of each
institution to participate in Title IV Programs. The failure of an
institution to satisfy any of the criteria used to assess administrative
capability may allow the DOE to determine that the institution lacks
administrative capability and, therefore, may be subject to additional
scrutiny or denied eligibility for Title IV Programs.
Eligibility and Certification Procedures ------------------------------------
The HEA specifies the manner in which the DOE reviews institutions for
eligibility and certification to participate in Title IV Programs and the
Regulations include detailed new standards. UOP's and WIU's eligibility to
participate in Title IV Programs expires in 1999 and 1998, respectively. If
the DOE does not renew UOP's eligibility, it would have a material adverse
effect on the Company.
Restrictions on Distance Education Programs ---------------------------------
The Regulations specify that an institution is not eligible to
participate in Title IV Programs funding if 50% or more of its courses are
correspondence courses, or if 50% or more of its regular students are
enrolled in the institution's correspondence courses. Although the Company
does not offer correspondence courses, the Regulations currently consider
most distance education courses to be correspondence courses if the number of
distance education courses exceeds 50% of the sum of courses offered in
campus-based delivery systems and courses offered through distance education.
The Company does not plan to exceed this 50% level and believes that this
restriction will have no significant impact on its business strategy.
Direct Lending Programs -----------------------------------------------------
The DOE instituted a new direct lending program several years ago and
various institutions are participating in the program. The direct lending
program eliminates third-party lending institutions and guarantee agencies
from the loan disbursement process. The goal of the DOE is to streamline the
financial aid lending process through this program, but there is uncertainty
as to when this goal will be fully attained. Recently, certain members of
Congress have proposed to limit the expansion of the direct lending program.
The Company has not yet been required to implement the new direct lending
process and it is uncertain as to what effect this new process, if
implemented, will have on its cash flow.
Change of Ownership or Control ----------------------------------------------
A change of ownership or control of the Company, depending on the type
of change, may have significant regulatory consequences for UOP and WIU.
Such a change of ownership or control could trigger recertification by the
DOE, reauthorization by certain state licensing agencies or the evaluation of
the accreditation by NCA.
For institutions owned by publicly-held corporations, the DOE has
adopted the change of ownership and control standards used by the federal
securities laws. Upon a change of ownership and control sufficient to
require the Company to file a Form 8-K with the Securities and Exchange
Commission, UOP and WIU would cease to be eligible to participate in Title IV
Programs until recertified by the DOE. This recertification would not be
23<PAGE>
required, however, if the transfer of ownership and control was made upon a
person's retirement or death and was made either to a member of the person's
immediate family or to a person with an ownership interest in the Company who
had been involved in its management for at least two years preceding the
transfer.
In addition, certain states where the Company is presently licensed have
requirements governing change of ownership or control. Currently, Arizona
and California would require UOP and WIU, as applicable, to be reauthorized
upon a 20% and 25% change of ownership or control of the Company,
respectively. These states require a new application to be filed for state
licensing if such a change of ownership or control occurs. Moreover, the
Company is required to report any change in stock ownership of UOP, WIU or
Apollo. At that time, NCA may seek to evaluate the effect of such a change
of stock ownership on the continuing operations of UOP and WIU.
If UOP is not recertified by the DOE, or does not obtain reauthorization
from the necessary state agencies or has its accreditation withdrawn as a
consequence of any change in ownership or control, there would be a material
adverse effect on the Company.
STATE AUTHORIZATION
UOP currently is authorized to operate in 12 states and Puerto Rico.
UOP has held these authorizations for periods ranging from one month to
eighteen years. UOP's NCA accreditation is accepted as evidence of
compliance with applicable state regulations in Arizona, Colorado, Louisiana,
Michigan, New Mexico, Nevada and Utah. Hawaii does not have authorization
provisions for regionally accredited degree-granting institutions.
California law, enacted in 1985, requires an on-site visit to all
out-of-state accredited institutions of higher education every five years to
determine if the institution is in compliance with the State of California
regulations. All institutions, including UOP, that operate in California and
are accredited by a regional accrediting association other than the Western
Association of Schools and Colleges are required to be evaluated separately
for authorization to operate. UOP was granted its most recent California
authorization in 1989 and expects to renew its license by the second quarter
of 1997. All regionally accredited institutions, including UOP, are required
to be evaluated separately for authorization to operate in Puerto Rico. UOP
was granted its most recent authorization in Puerto Rico in December 1995 for
a period of five years. UOP received a provisional license to operate in
Florida in October 1995 and expects to file an application for full licensure
in the second quarter of 1997 following the Florida State Board of
Independent Colleges and Universities' site inspection. There is no
assurance that UOP will receive full licensure in the State of Florida. UOP
is authorized to operate in Washington and Oregon and is seeking approval
from NCA to open campuses in these states. IPD client institutions possess
authorization to operate in all states in which they offer educational
programs, which are subject to renewal. WIU is currently authorized to
operate in Arizona and London, England.
Certain states assert authority to regulate all degree-granting
institutions if their educational programs are available to their residents,
whether or not the institutions maintain a physical presence within those
states. If a state were to establish grounds for asserting authority over
telecommunicated learning, UOP may be required to obtain authorization for,
or restrict access to, its programs available through Online (TM) in those
states.
24<PAGE>
EMPLOYER TUITION REIMBURSEMENT
Many of the Company's students receive some form of tuition
reimbursement from their employers. In certain situations, as defined by the
Internal Revenue Code (the "Code"), this tuition assistance qualifies as a
deductible business expense when adequately documented by the employer and
employee. The Code also provides a safe-harbor provision for an exclusion
from wages of up to $5,250 of tuition reimbursement per year per student
under the Educational Assistance Program ("EAP") provision. Although the EAP
provision of the Code expired in December 1994, in August 1996 it was
extended retroactively from January 1, 1995 through May 31, 1997. The
"safe-harbor" provision does not apply to graduate classes beginning after
June 30, 1996. During 1996, the percentage of students with access to
employer tuition reimbursement declined to 75% from 80% in the prior year,
part of which is attributable to the delay in extending the EAP provision.
The Company is unable to determine what effect, if any, the exemption for
graduate classes under the "safe harbor" will have in the future. Employers
or employees may still continue to deduct such tuition assistance where it
qualifies as a deductible business expense and is adequately documented.
LOCATIONS
UOP currently has campuses and learning centers located throughout 10
states and Puerto Rico. Following is a current list of UOP main campuses and
learning centers, the year the campus was first opened and enrollments as of
August 31, 1996:
<TABLE>
<CAPTION>
Fiscal Enroll-
Year ment at
UOP Main Campuses and Respective Learning Centers Opened 8/31/96
- -----------------------------------------------------------------------------
<S> <C> <C>
ARIZONA: Phoenix Campus 1978 5,151
Mesa
Northwest Phoenix
Scottsdale
Tucson Campus 1983 1,947
Fort Huachuca
CALIFORNIA: Orange County (Fountain Valley Campus) 1981 5,749
Diamond Bar
Edwards Air Force Base
Lawndale/South Bay
Van Nuys
Pasadena
Ontario
Gardena*
Ventura*
La Mirada*
Woodland Hills*
San Jose Campus 1980 3,771
San Francisco
Pleasanton/San Ramon
Fresno
Walnut Creek*
San Diego Campus 1989 1,902
Vista
25<PAGE>
Fiscal Enroll-
Year ment at
UOP Main Campuses and Respective Learning Centers Opened 8/31/96
- -----------------------------------------------------------------------------
Chula Vista*
Sacramento Campus 1993 1,044
Fairfield*
COLORADO: Denver Campus 1982 3,309
Aurora
Colorado Springs
Northglenn
FLORIDA: Maitland Campus* 1996 48
HAWAII: Honolulu Campus 1993 574
LOUISIANA: New Orleans* 1996 214
MICHIGAN: Detroit* 1996 610
NEVADA: Las Vegas Campus 1994 646
Nellis Air Force Base
NEW MEXICO: Albuquerque Campus 1985 1,693
Kirtland Air Force Base
Santa Fe
Santa Teresa/Las Cruces
UTAH: Salt Lake City Campus 1984 1,745
Ogden
Provo*/Orem
PUERTO RICO: Guaynabo Campus 1980 1,002
DISTANCE EDUCATION: Online (TM), San Francisco, CA<F1> 1989 2,179
Center for Distance Education, 1989 1,512
Phoenix, AZ<F2>
------
TOTAL UOP ENROLLMENT AT AUGUST 31, 1996: 33,096
======
______________
<FN>
<F1> Programs are offered throughout the United States and internationally.
<F2> Programs are offered in various states throughout the United States.
</FN>
* Opened in 1996.
</TABLE>
During 1996, IPD increased the number of institutional contracts to 18
at August 31, 1996 from 15 at August 31, 1995. IPD-assisted programs are
currently offered at 34 campuses and learning centers (29 at August 31, 1995)
in Connecticut, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky,
Massachusetts, Michigan, Minnesota, Mississippi, Missouri, New York, North
Carolina, Ohio, South Carolina, Tennessee, Texas, Virginia and Wisconsin.
WIU currently has four campuses and learning centers located in Phoenix,
Fort Huachuca and Douglas, Arizona and London, England.
26<PAGE>
Item 2 -- Properties
The Company leases all of its administrative and educational facilities.
In some cases, classes are held in the facilities of the students' employers
at no charge to the Company. Leases generally range from five to seven
years; however, the Company attempts to secure longer leases if it is
advantageous to do so. The Company also leases space from time-to-time on a
short-term basis in order to provide specific courses or programs. The table
below sets forth certain information as of August 31, 1996, with respect to
properties leased by the Company in excess of 10,000 square feet:
<TABLE>
<CAPTION>
LOCATION (CITY/STATE) SQUARE FEET
---------------------- -------------
<S> <C>
Phoenix, AZ 137,259
Tucson, AZ 49,469
Phoenix, AZ 38,086
San Jose, CA 37,876
Fountain Valley, CA 34,545
San Diego, CA 33,097
Englewood, CO 32,000
Marietta, GA 31,274
San Francisco, CA 31,146
Murray, UT 30,000
Mesa, AZ 23,914
Albuquerque, NM 23,400
Gardena, CA 23,077
Overland Park, KS 21,210
Sacramento, CA 20,813
San Francisco, CA 20,324
Colorado Springs, CO 20,138
Pleasanton, CA 18,560
Van Nuys, CA 18,467
Costa Mesa, CA 18,397
Woodland Hills, CA 17,038
Aurora, CO 16,807
Guaynabo, Puerto Rico 16,000
Walnut Creek, CA 15,445
Diamond Bar, CA 15,280
Ontario, CA 14,899
Lawndale, CA 14,041
Southfield, MI 13,467
Lawrenceville, GA 13,320
Northglenn, CO 13,109
Diamond Bar, CA 12,979
Quincy, MA 12,863
Charlotte, NC 11,502
Ogden, UT 11,265
Santa Teresa, NM 10,910
Crestview Hills, KY 10,303
Phoenix, AZ 10,066
</TABLE>
27<PAGE>
The lease on the Company's corporate headquarters, which includes the
UOP Phoenix Main Campus, expires on August 31, 2001. The Company acquired
13 acres of land in December 1995 in the Phoenix area for possible relocation
of its corporate headquarters and/or the UOP Phoenix Main Campus at the
expiration of the lease term.
Item 3 -- Legal Proceedings
The Company is not a party to any legal proceedings, the adverse
outcome of which, in management's opinion, would have a material averse
effect on the Company's operating results.
Item 4 -- Submission of Matters to a Vote of Security Holders
None.
28<PAGE>
PART II
Item 5 -- Market for Registrant's Common Equity and Related Stockholder
Matters
There is no established public trading market for the Company's
Class B Common Stock, and all shares of the Company's Class B Common Stock
are beneficially owned by the Company's executive officers. The Company's
Class A Common Stock began trading on the Nasdaq National Market ("Nasdaq")
under the symbol "APOL" during the second quarter of 1995 on December 6,
1994. Prior to that time, the Company's Class A Common Stock was not listed
or traded on any organized market system. The table below sets forth the
high and low bid prices, adjusted for stock splits effected in the form of
stock dividends, for the Company's Class A Common Stock as reported by
Nasdaq.
<TABLE>
<CAPTION>
High Low
------ ------
Fiscal 1995
---------------------
<S> <C> <C>
Second quarter $ 5.03 $ 2.45
Third quarter 8.48 4.28
Fourth quarter 10.22 7.19
Fiscal 1996
---------------------
First quarter 13.67 8.89
Second quarter 19.67 13.33
Third quarter 32.33 16.92
Fourth quarter 33.38 23.13
</TABLE>
The holders of the Company's Class A Common Stock are not entitled to
any voting rights.
These over-the-counter market quotations may reflect inter-dealer prices
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
At September 30, 1996, there were approximately 139 and 7 holders of
record of shares of Class A and Class B Common Stock, respectively. The
Company estimates that, when you include shareholders whose shares are held
in nominee accounts by brokers, there were approximately 11,000 total holders
of its Class A Common Stock.
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying cash dividends in the near future. It is the current
policy of the Company's Board of Directors to retain earnings to finance the
operations and expansion of the Company's business. Holders of Class A
Common Stock and Class B Common Stock are entitled to equal per share cash
dividends to the extent declared by the Board.
29<PAGE>
Item 6 -- Selected Consolidated Financial Data
The following selected financial and operating data is qualified by
reference to and should be read in conjunction with the financial statements
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in Items 7 and 8 of this Form
10-K. The Consolidated Statement of Operations for each of the three years
in the period ended August 31, 1996 and the Consolidated Balance Sheet as of
August 31, 1996 and 1995, and the independent auditors' report thereon are
included in Item 8 of this Form 10-K.
<TABLE>
<CAPTION>
Year Ended August 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenues $214,275 $163,429 $124,720 $ 97,545 $ 81,865
-------- -------- -------- -------- --------
Costs and expenses:
Instruction costs and services 130,039 102,122 81,313 65,319 54,296
Selling and promotional 27,896 21,016 17,918 15,812 14,442
General and administrative 21,343 18,462 17,194 14,402 12,630
-------- -------- -------- -------- --------
Total costs and expenses 179,278 141,600 116,425 95,533 81,368
-------- -------- -------- -------- --------
Income before income taxes<F1> 34,997 21,829 8,295 2,012 497
Less provision for income taxes 13,605 9,229 3,383 869 240
-------- -------- -------- -------- --------
Income before cumulative effect
of change in accounting principle 21,392 12,600 4,912 1,143 257
Change in accounting principle<F2> 389
-------- -------- -------- -------- --------
Net income $ 21,392 $ 12,600 $ 4,912 $ 1,143 $ 646
======== ======== ======== ======== ========
Net income per share $ .42 $ .27 $ .14 $ .03 $ .02
Weighted average shares outstanding 51,194 46,090 34,383 34,056 33,402
_______________
<FN>
<F1> In March 1992, the Company discontinued the operations of Apollo
Education Corporation ("AEC"), its technical training school
subsidiary, which was phased out over the period from March 1992 until
October 1992. All assets related to this subsidiary were disposed of
by August 1993. Pretax losses related to the operations of the
technical training schools were $265,000 and $837,000 in 1993 and 1992,
respectively.
<F2> The Company adopted Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes," effective September 1, 1991.
</FN>
</TABLE>
30<PAGE>
<TABLE>
<CAPTION>
August 31,
---------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash, cash equivalents and
restricted cash $ 63,267 $ 62,601 $ 12,816 $ 4,839 $ 1,391
Short-term investments 13,273
-------- -------- -------- -------- --------
Total cash and investments $ 76,540 $ 62,601 $ 12,816 $ 4,839 $ 1,391
======== ======== ======== ======== ========
Total assets $137,850 $102,132 $ 43,638 $ 28,909 $ 22,369
======== ======== ======== ======== ========
Current liabilities $ 54,804 $ 45,065 $ 34,890 $ 27,086 $ 20,819
Long-term liabilities 2,432 1,715 1,347 1,203 2,154
Shareholders' equity (deficit) 80,614 55,352 7,401 620 (604)
-------- -------- -------- -------- --------
Total liabilities and
shareholders' equity $137,850 $102,132 $ 43,638 $ 28,909 $ 22,369
======== ======== ======== ======== ========
Operating Statistics:
Enrollments at end of period<F1> 46,935 36,848 30,236 24,987 21,163
Number of locations at end
of period<F2> 85 68 60 51 42
_______________
<FN>
<F1> Enrollments are defined as full-time equivalent students in attendance
in a program at the end of a period. Average enrollments represent the
average of the ending enrollments for each month in the period.
Average enrollments were 42,377, 34,021, 27,469, 23,663 and 20,174 for
the years ended 1996, 1995, 1994, 1993 and 1992, respectively. Average
enrollments for 1992 include approximately 200 AEC students.
<F2> Includes UOP and WIU campuses and learning centers and IPD contract
sites.
</FN>
</TABLE>
The Company did not pay any cash dividends on its Common Stock during
any of the periods set forth in the table above.
31<PAGE>
Item 7 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements
relating to future plans, expectations, events or performances that involve
risks and uncertainties. The Company's actual results of operations could
differ materially from those anticipated in these forward-looking statements
as a result of certain factors, including those set forth under "Risk
Factors" in the Company's Prospectus dated January 18, 1996. The following
discussion should be read in conjunction with the consolidated financial
statements and notes thereto included in this Annual Report on Form 10-K.
BACKGROUND AND OVERVIEW
The Company's revenues, net of student discounts, have increased to
$214.3 million in 1996 from $81.9 million in 1992. Average annual student
enrollments have increased to 42,377 students in 1996 from 20,174 in 1992.
Net income has increased to $21.4 million in 1996 from $646,000 in 1992. At
August 31, 1996, 46,935 students were enrolled in UOP, WIU and IPD-assisted
programs at IPD client institutions.
From September 1991 through August 1996, UOP opened 26 campuses and
learning centers and IPD established operations at 13 campuses and learning
centers with its client institutions. Historically, start-up costs for new
UOP campuses in new markets have averaged $200,000 to $400,000 per site over
a 15-18 month period, at which time the enrollments at these new campuses
averaged 200 to 300 students. However, due to increased demand in Florida,
Michigan and Louisiana, the Company has stepped-up its marketing effort in
these new markets. As a result, the start-up costs for these three campuses
(opened in 1996) are expected to average approximately $900,000 per site over
an 18 month period at which time enrollments are expected to average over 600
students per campus. Start-up costs for campuses in new markets are expected
to range from $400,000 to $1.5 million depending on the individual market's
demand. Costs for establishing a learning center in an existing market are
minimal. Start-up costs for IPD contract sites have averaged from $400,000
to $500,000 per site over a 18-24 month period, and consist primarily of
administrative salaries, marketing and advertising. Start-up
costs are expensed as incurred.
Approximately 90.9% of the Company's net revenues in 1996 consist of
tuition revenues from UOP and WIU students and IPD's contractual share of
tuition revenues from students enrolled in IPD-assisted programs at IPD
client institutions. UOP tuition revenues currently represent approximately
84.8% of consolidated tuition revenues. The Company's net revenues also
include sales of textbooks, computers and other education-related products,
application fees, other student fees, interest and other income. The
Company's net revenues vary from period to period based on several factors
that include: (1) the aggregate number of students attending classes; (2) the
number of classes held during the period and (3) the weighted average tuition
price per credit hour (weighted by program and location). IPD's contracts
with its respective client institutions generally have terms of five to ten
years with provisions for renewal.
32<PAGE>
Instruction costs and services at UOP and WIU consist primarily of costs
related to the delivery and administration of the Company's educational
programs that include faculty compensation, administrative salaries for
departments that provide service directly to the students, the costs of
educational materials sold, facility leases and other occupancy costs,
amortization of educational program production costs, bad debt expense and
depreciation and amortization of property and equipment. UOP and WIU faculty
members are contracted with and paid for one course offering at a time. All
classroom facilities are leased or, in some cases, are provided by the
students' employers at no charge to the Company. Instruction costs and
services at IPD consist primarily of program administration, student services
and classroom lease expense. Most of the other instruction costs for
IPD-assisted programs, including faculty, financial aid processing and other
administrative salaries, are the responsibility of the IPD client
institutions.
Selling and promotional costs consist primarily of advertising,
marketing salaries and other costs related to the selling and promotional
functions. These costs are expensed as incurred. General and administrative
costs consist primarily of administrative salaries, occupancy costs,
depreciation and amortization and other related costs for departments such as
executive management, information systems, corporate accounting, human
resources and other departments that do not provide direct services to the
Company's students. To the extent possible, the Company centralizes these
services to avoid duplication of effort.
In September 1995, the Company, through WIU, acquired certain assets of
Western International University ("Western"), a private non-profit
educational institution. The original acquisition price of $2.1 million,
including $237,000 paid in cash at or prior to closing, was adjusted to $3.0
million due to an increase in the estimated liability to the DOE related to
Western's processing of Title IV financial aid and other liabilities assumed
in the acquisition whose values were subject to adjustment subsequent to the
date of acquisition. The excess of cost over the value of tangible assets
acquired of $2.6 million is being amortized over 15 years.
In 1992, the Company adopted a plan to discontinue the operations of its
technical training schools. These operations were phased out over the period
from 1992 to 1993 and all related assets were disposed of by August 1993.
Pretax losses related to the operations of the technical training schools
were $265,000 and $837,000 in 1993 and 1992, respectively.
In 1992, the Company recorded a $389,000 gain representing the
cumulative effect of the adoption of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
33<PAGE>
RESULTS OF OPERATIONS
The following table sets forth consolidated income statement data of the
Company expressed as a percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0%
------- ------- -------
Costs and expenses:
Instruction costs and services 60.7 62.5 65.2
Selling and promotional 13.0 12.9 14.4
General and administrative 10.0 11.3 13.8
------- ------- -------
Total costs and expenses 83.7 86.7 93.4
------- ------- -------
Income before income taxes 16.3 13.3 6.6
Less provision for income taxes 6.3 5.6 2.7
------- ------- -------
Net income 10.0% 7.7% 3.9%
======= ======= =======
</TABLE>
Year Ended August 31, 1996 Compared with the Year Ended August 31, 1995 -----
Net revenues increased by 31.1% to $214.3 million in 1996 from $163.4
million in 1995 due primarily to a 24.6% increase in average student
enrollments from 1995 to 1996 and tuition price increases averaging four to
six percent, depending on the geographic area and program. All UOP campuses,
which include their respective learning centers, and most of the IPD contract
sites had increases in net revenues and average student enrollments from 1995
to 1996. Average student enrollments increased to 42,377 in 1996 from 34,021
in 1995. Interest income, which is included in net revenues, increased to
$3.0 million in 1996 from $2.4 million in 1995.
Instruction costs and services increased by 27.3% to $130.0 million in
1996 from $102.1 million in 1995 due primarily to the direct costs necessary
to support the increase in average student enrollments, consisting primarily
of faculty compensation, classroom lease expenses and related staff salaries
at each respective location. These costs as a percentage of net revenues
decreased to 60.7% in 1996 from 62.5% in 1995 due to greater net revenues
being spread over the fixed costs related to centralized student services.
As the Company expands into new markets, it may not be able to leverage its
instruction costs and services to the same extent.
Selling and promotional expenses increased by 32.7% to $27.9 million in
1996 from $21.0 million in 1995 due primarily to increased marketing and
advertising at UOP and IPD campuses and learning centers, including $2.2
million related to locations opened in new markets during the past two years.
These expenses as a percentage of net revenues remained relatively the same
at 13.0% in 1996 and 12.9% in 1995.
34<PAGE>
General and administrative expenses increased by 15.6% to $21.3 million
in 1996 from $18.5 million in 1995 due primarily to costs required to support
the increased number of UOP and IPD campuses and learning centers and
increases in general and administrative salaries. General and administrative
expenses as a percentage of net revenues decreased to 10.0% in 1996 from
11.3% in 1995 due primarily to higher net revenues being spread over the
fixed costs related to various centralized functions such as information
services, corporate accounting and human resources.
Costs related to the start-up of new UOP and IPD campuses and learning
centers are expensed as incurred and totaled approximately $3.6 million and
$1.1 million in 1996 and 1995, respectively. Interest expense, which is
allocated among all categories of costs and expenses, was $77,000 and $96,000
in 1996 and 1995, respectively.
The Company's effective tax rate decreased to 38.9% in 1996 from 42.3%
in 1995 due primarily to an increase in tax-exempt interest income.
Net income increased to $21.4 million in 1996 from $12.6 million in 1995
due to increased enrollments, increased tuition rates and improved
utilization of general and administrative costs and fixed instruction costs
and services.
Year Ended August 31, 1995 Compared with the Year Ended August 31, 1994 -----
Net revenues increased by 31.0% to $163.4 million in 1995 from $124.7
million in 1994 due primarily to a 23.9% increase in average student
enrollments from 1994 to 1995 and tuition price increases averaging four to
six percent, depending on the geographic area and program. All UOP campuses,
which include their respective learning centers, and most of the IPD contract
sites had increases in net revenues and average student enrollments from 1994
to 1995. Average student enrollments increased to 34,021 in 1995 from 27,469
in 1994. Interest income, which is included in net revenues, increased to
$2.4 million in 1995 from $280,000 in 1994 due primarily to increased cash
generated from the Company's initial public offering of its Class A Common
Stock and from $22.3 million in cash generated from operations in 1995.
Instruction costs and services increased by 25.6% to $102.1 million in
1995 from $81.3 million in 1994 due primarily to the direct costs necessary
to support the increase in average student enrollments, consisting primarily
of faculty compensation, classroom lease expenses and related staff salaries
at each respective location. These costs as a percentage of net revenues
decreased to 62.5% in 1995 from 65.2% in 1994 due to greater net revenues
being spread over the fixed costs related to centralized student services.
Selling and promotional expenses increased by 17.3% to $21.0 million in
1995 from $17.9 million in 1994 due primarily to increased marketing and
advertising at UOP and IPD campuses and learning centers, including $1.2
million related to locations opened in new markets during the past two years.
These expenses as a percentage of net revenues decreased to 12.9% in 1995
from 14.4% in 1994 due to the Company's ability to increase enrollments and
open new learning centers in existing markets with a proportionately lower
increase in selling and promotional expenses.
General and administrative expenses increased by 7.4% to $18.5 million
in 1995 from $17.2 million in 1994 due primarily to costs required to support
the increased number of UOP and IPD campuses and learning centers and
increases in general and administrative salaries. This increase was offset
in part by $1.9 million in nonrecurring compensation expense in 1994 related
35<PAGE>
to the issuance of stock options and a $750,000 accrual of compensation
expense in 1994 related to a deferred compensation agreement with the
Company's President. See "Executive Compensation." General and
administrative expenses as a percentage of net revenues decreased to 11.3% in
1995 from 13.8% in 1994 due primarily to the nonrecurring compensation
expense recorded in 1994 and higher net revenues being spread over the fixed
costs related to various centralized functions such as information services,
corporate accounting and human resources.
Costs related to the start-up of new UOP and IPD campuses and learning
centers are expensed as incurred and totaled approximately $1.1 million and
$1.0 million in 1995 and 1994, respectively. Interest expense, which is
allocated among all categories of costs and expenses, was $96,000 and
$153,000 in 1995 and 1994, respectively.
The Company's effective tax rate increased to 42.3% in 1995 from 40.8%
in 1994 due primarily to an increase in the federal tax rate from 34% to 35%
as a result of the improved earnings and an increase in the relative impact
of expenses that are nondeductible for tax purposes.
Net income increased to $12.6 million in 1995 from $4.9 million in 1994
due to increased enrollments, increased tuition rates, improved utilization
of fixed instructional and administrative costs, $2.7 million (pretax) of
nonrecurring compensation expense in 1994, improved utilization of selling
and promotional expenses in existing markets and increased interest income
resulting from higher cash levels.
36<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth selected unaudited quarterly financial
information for each of the Company's last eight quarters. The Company
believes that this information includes all normal recurring adjustments
necessary for a fair presentation of such quarterly information when read in
conjunction with the consolidated financial statements included in Item 8 of
this Form 10-K. The operating results for any quarter are not necessarily
indicative of the results for any future period.
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------------------------------------
FY 1996 FY 1995
------------------------------------- ------------------------------------
Aug. 31, May 31, Feb. 29, Nov. 30, Aug. 31, May 31, Feb. 28, Nov. 30,
1996 1996 1996 1995 1995 1995 1995 1994
------- ------- ------- ------- ------- ------- ------- -------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues $59,199 $58,991 $46,358 $49,727 $45,433 $45,502 $36,029 $36,465
------- ------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Instruction costs and services 36,808 33,978 29,294 29,959 28,292 26,188 24,224 23,418
Selling and promotional 7,497 7,431 6,640 6,328 5,406 5,518 5,105 4,987
General and administrative 5,402 4,641 5,705 5,595 4,797 4,856 4,954 3,855
------- ------- ------- ------- ------- ------- ------- -------
Total costs and expenses 49,707 46,050 41,639 41,882 38,495 36,562 34,283 32,260
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 9,492 12,941 4,719 7,845 6,938 8,940 1,746 4,205
Provision for income taxes 3,275 5,241 1,833 3,256 2,780 3,892 896 1,661
------- ------- ------- ------- ------- ------- ------- -------
Net income $6,217 $7,700 $2,886 $4,589 $4,158 $5,048 $850 $2,544
======= ======= ======= ======= ======= ======= ======= =======
Net income per share $.12 $.15 $.06 $.09 $.08 $.10 $.02 $.07
======= ======= ======= ======= ======= ======= ======= =======
Weighted average shares
outstanding 51,614 51,457 51,071 50,633 50,557 50,457 48,963 34,383
======= ======= ======= ======= ======= ======= ======= =======
As a percentage of net revenues:
Net revenues 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
------- ------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Instruction costs and services 62.2 57.6 63.2 60.2 62.3 57.6 67.2 64.2
Selling and promotional 12.7 12.6 14.3 12.7 12.0 12.1 14.1 13.7
General and administrative 9.1 7.9 12.3 11.3 10.4 10.7 13.8 10.6
------- ------- ------- ------- ------- ------- ------- -------
Total costs and expenses 84.0 78.1 89.8 84.2 84.7 80.4 95.1 88.5
------- ------- ------- ------- ------- ------- ------- -------
Income before income taxes 16.0 21.9 10.2 15.8 15.3 19.6 4.9 11.5
Provision for income taxes 5.5 8.9 4.0 6.5 6.1 8.6 2.5 4.6
------- ------- ------- ------- ------- ------- ------- -------
Net income 10.5% 13.0% 6.2% 9.3% 9.2% 11.0% 2.4% 6.9%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
SEASONALITY AND OTHER FACTORS AFFECTING QUARTERLY RESULTS
The Company experiences seasonality in its results of operations
primarily as a result of changes in the level of student enrollments. While
the Company enrolls students throughout the year, second quarter (December to
February) average enrollments and related revenues generally are lower than
other quarters due to the holiday breaks in December and January. Second
quarter costs and expenses historically increase as a percentage of net
revenues as a result of certain fixed costs not significantly affected by the
seasonal second quarter declines in net revenues.
The Company experiences a seasonal increase in new enrollments in August
of each year when most other colleges and universities begin their fall
semesters. Because this buildup in enrollments occurs at the end of the
37<PAGE>
quarter, revenues in the fourth quarter during the past two years were not
significantly impacted. However, instructional costs and services and
selling and promotional expenses generally increase as a percentage of net
revenues in the fourth quarter due to increased costs in preparation for the
August peak enrollments.
The Company anticipates that these seasonal trends in the second and
fourth quarters will continue in the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $54.3 million of working capital at August 31, 1996 as
compared to $39.0 million at August 31, 1995. The increase in working
capital is due primarily to $25.8 million in cash generated from operations
during the year, offset in part by capital expenditures during the year. At
August 31, 1996, the Company had no outstanding borrowings on its $4.0
million unsecured line of credit, which bears interest at prime. The line of
credit is renewable annually and any amounts borrowed under the line are
payable upon its termination in December 1997.
Net cash received from operating activities increased to $25.8 million
in 1996 from $22.3 million in 1995 due primarily to the $8.8 million increase
in net income from 1995 to 1996, offset in part by the timing of receipts
from customers and payments to suppliers. Capital expenditures, including
additions to educational program production costs, increased to $14.7 million
in 1996 from $11.5 million in 1995 primarily due to the purchase of $2.9
million of land to be used if and when the corporate headquarters is
relocated (see discussion below). Total purchases of property, equipment and
land for the year ended August 31, 1997 are expected to total approximately
$12 million. Additions to educational program production costs are not
expected to exceed $2 million for the year ended August 31, 1997. Start-up
costs are expected to increase from $3.6 million in 1996 to $5.5 million in
1997 due to recent and planned expansion into new geographic markets.
The lease on the Company's corporate headquarters, which includes the
UOP Phoenix Main Campus, was renewed in December 1995 for a five year term.
During 1996, the Company acquired land for a purchase price of $2.9 million
which it may use in the future for the possible relocation of its corporate
headquarters. Such a facility is estimated to cost between $20 to $25
million. The Company currently has approximately $2.8 million in commitments
for capital expenditures in 1997. The Company currently leases all of its
educational and administrative facilities.
The Company's net receivables as a percent of net revenues increased to
12.1% in 1996 from 9.7% in 1995 due primarily to a $5.8 million increase in
receivables from students who were awaiting financial aid loans. Financial
aid applications in process were backlogged in the fourth quarter of 1996 due
primarily to the substantial growth in new enrollments during that period. A
significant portion of the backlog was eliminated in September and it is
anticipated to be at normal levels by the end of October 1996. Bad debt
expense as a percent of net revenues decreased to .8% in 1996 from 1.1% in
1995 due primarily to improved collection rates on delinquent accounts.
The DOE requires that Title IV Program funds collected by an institution
for unbilled tuition be kept in a separate cash or cash equivalent account
until the students are billed for the portion of their program related to
these Title IV Program funds. In addition, all funds transferred to the
38<PAGE>
Company through electronic funds transfer programs are held in a separate
cash account until certain conditions are satisfied. As of August 31, 1996,
the Company had approximately $11.3 million in these separate accounts, which
are reflected as restricted cash, to comply with these requirements. These
funds generally remain in these separate accounts for an average of 60-75
days from the date of collection. These restrictions on cash have not
significantly affected the Company's ability to fund daily operations.
The Regulations require all higher education institutions to meet an
acid test ratio (defined as the ratio of cash, cash equivalents, restricted
cash and current accounts receivable to total current liabilities) of at
least 1 to 1, which is calculated at the end of the institution's fiscal
year. If an institution, including UOP or WIU, fails to meet the acid test
ratio, it may be deemed not financially responsible by the DOE, which could
result in a loss of its eligibility to participate in Title IV Programs.
UOP's acid test ratio was 1.19 to 1 at August 31, 1996 and 1.31 to 1 at
August 31, 1995. WIU's acid test ratio was 1.50 to 1 at August 31, 1996 and
2.73 to 1 on September 1, 1995. These requirements apply to the separate
financial statements of UOP, WIU and each of the respective IPD client
institutions, but not to the Company's consolidated financial statements.
IMPACT OF INFLATION
Inflation has not had a significant impact on the Company's historical
operations.
39<PAGE>
Item 8 -- Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . . . . .41
Consolidated Statement of Operations . . . . . . . . . . . . . . . . . . . . .42
Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . .43
Consolidated Statement of Changes in Shareholders' Equity. . . . . . . . . . .44
Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . .45
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . .46
40<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Apollo Group, Inc.:
In our opinion, the accompanying consolidated balance sheet and the
related consolidated statements of operations, of changes in shareholders'
equity and of cash flows present fairly, in all material respects, the
financial position of Apollo Group, Inc. and its subsidiaries at August 31,
1996 and 1995, and the results of their operations and their cash flows for
each of the three years in the period ended August 31, 1996, in conformity
with generally accepted accounting principles. These financial statements
are the responsibility of Apollo Group, Inc.'s management; our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Phoenix, Arizona
October 14, 1996
41<PAGE>
APOLLO GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended August 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Net revenues $214,275 $163,429 $124,720
--------- --------- ---------
Costs and expenses:
Instruction costs and services 130,039 102,122 81,313
Selling and promotional 27,896 21,016 17,918
General and administrative 21,343 18,462 17,194
--------- --------- ---------
179,278 141,600 116,425
--------- --------- ---------
Income before income taxes 34,997 21,829 8,295
Less provision for income taxes 13,605 9,229 3,383
--------- --------- ---------
Net income $ 21,392 $ 12,600 $ 4,912
========= ========= =========
Net income per share $ .42 $ .27 $ .14
========= ========= =========
Weighted average shares outstanding 51,194 46,090 34,383
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
42<PAGE>
APOLLO GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(Dollars in thousands)
<TABLE>
<CAPTION>
August 31,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Assets:
Current assets-
Cash and cash equivalents $ 51,982 $ 50,726
Restricted cash 11,285 11,875
Short-term investments 13,273
Receivables, net 25,985 15,883
Inventory 3,112 2,723
Deferred tax assets, net 2,972 2,352
Prepaids and other current assets 532 485
-------- --------
Total current assets 109,141 84,044
Property and equipment, net 18,925 13,390
Educational program production costs, net 1,446 1,963
Non-operating property 4,321 1,310
Cost in excess of fair value of assets purchased 2,459
Deposits and other assets 1,558 1,425
-------- --------
Total assets $137,850 $102,132
======== ========
Liabilities and Shareholders' Equity:
Current liabilities-
Current portion of long-term liabilities $ 140 $ 118
Accounts payable 7,742 6,261
Other accrued liabilities 10,925 9,962
Income taxes payable 261 96
Student deposits and deferred tuition 35,736 28,628
-------- --------
Total current liabilities 54,804 45,065
-------- --------
Long-term liabilities, less current portion 1,773 1,201
-------- --------
Deferred tax liabilities, net 659 514
-------- --------
Commitments and contingencies -- --
Shareholders' equity-
Preferred stock, no par value, 1,000,000 shares authorized,
none issued -- --
Class A nonvoting common stock, no par value, 65,000,000
shares authorized; 49,476,000 and 14,136,000 issued and
outstanding at August 31, 1996 and 1995, respectively 65 18
Class B voting common stock, no par value, 3,000,000
shares authorized; 576,000 issued and outstanding 1 1
Additional paid-in capital 41,201 37,378
Retained earnings 39,347 17,955
-------- --------
Total shareholders' equity 80,614 55,352
-------- --------
Total liabilities and shareholders' equity $137,850 $102,132
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
43<PAGE>
APOLLO GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Shareholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------------
Class A Class B
Common Nonvoting Voting
------------------ ------------------ ------------------ Additional
Stated Stated Stated Paid-In Retained
Shares Value Shares Value Shares Value Capital Earnings
-------- -------- -------- -------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1993 1,152 $ 10 -- $ -- -- $ -- $ 113 $ 497
Recapitalization:
6,909,000 shares of Class
A Common Stock and 576,000
shares of Class B Common
Stock issued in exchange for
1,152,000 shares of common
stock (1,152) (10) 6,909 9 576 1
Grant of stock options 1,869
Net income 4,912
-------- -------- -------- -------- -------- -------- ---------- ---------
Balance at August 31, 1994 -- -- 6,909 9 576 1 1,982 5,409
Stock issued in public offering 3,516 4 34,854
Stock issued under stock
purchase plans 29 388
Stock issued under stock
option plans 12 97
Stock canceled under stock
option plans (3) (22) (54)
4-for-3 stock split, April 95 3,673 5 (5)
Tax benefit related to
exercise of options 84
Net income 12,600
-------- -------- -------- -------- -------- -------- ---------- ---------
Balance at August 31, 1995 -- -- 14,136 18 576 1 37,378 17,955
Stock issued under stock
purchase plans 84 912
Stock issued under stock
option plans 315 373
3-for-2 stock split, Sep 95 7,356 10 (10)
3-for-2 stock split, Feb 96 11,034 15 (15)
3-for-2 stock split, May 96 16,551 22 (22)
Tax benefits related to
disqualifying dispositions
and exercise of options 2,585
Net income 21,392
-------- -------- -------- -------- -------- -------- ---------- ---------
Balance at August 31, 1996 -- $ -- 49,476 $ 65 576 $ 1 $41,201 $39,347
======== ======== ======== ======== ======== ======== ========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
44<PAGE>
APOLLO GROUP, INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended August 31,
------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net cash received from (used for)
operating activities:
Cash received from customers $206,268 $159,349 $117,187
Cash paid to employees and suppliers (169,072) (129,442) (105,858)
Interest received 2,934 2,207 280
Interest paid (77) (96) (153)
Net income taxes paid (14,230) (9,692) (4,962)
-------- -------- --------
Net cash received from operating activities 25,823 22,326 6,494
-------- -------- --------
Net cash received from (used for)
investing activities:
Purchase of short-term investments (18,636)
Proceeds from sale of short-term
investments 5,363
Purchase of property and equipment (10,350) (9,944) (4,724)
Purchase of non-operating property (3,207)
Additions to educational program
production costs (1,096) (1,548) (1,380)
Cash paid at acquisition of Western,
net of cash acquired (585)
Proceeds from sale of assets 75
-------- -------- --------
Net cash used for investing activities (28,436) (11,492) (6,104)
-------- -------- --------
Net cash received from (used for)
financing activities:
Tax benefits related to disqualifying
dispositions and exercise of options 2,585 84
Issuance of stock 1,284 35,321
Principal payments on long-term debt (181) (912)
Retirement of stock (54)
Borrowings on line of credit 11,190
Repayments of borrowings on line of credit (11,190)
Proceeds from sale-leaseback of assets 2,401
-------- -------- --------
Net cash received from financing activities 3,869 35,170 1,489
-------- -------- --------
Net increase in cash and cash equivalents 1,256 46,004 1,879
Cash and cash equivalents, beginning
of period 50,726 4,722 2,843
-------- -------- --------
Cash and cash equivalents, end of period $ 51,982 $ 50,726 $ 4,722
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
45<PAGE>
APOLLO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF OPERATIONS
Apollo Group, Inc. ("Apollo" or the "Company"), through its wholly-owned
subsidiaries The University of Phoenix, Inc. ("UOP"), the Institute for
Professional Development ("IPD") and Western International University, Inc.
("WIU"), is a leading provider of higher education programs for working
adults.
UOP is a regionally accredited, private institution of higher education
offering bachelor's and master's degree programs in business, management,
computer information systems, education and health care. UOP currently has
47 campuses and learning centers located in Arizona, California, Colorado,
Florida, Hawaii, Louisiana, Michigan, Nevada, New Mexico, Utah and Puerto
Rico. UOP also offers its educational programs worldwide through Online
(TM), its computerized educational delivery system. UOP is accredited by the
Commission on Institutions of Higher Education of the North Central
Association of Colleges and Schools ("NCA").
IPD provides program development and management services under long-term
contracts to 18 regionally accredited private colleges and universities. IPD
is currently operating at 34 campuses and learning centers in 20 states.
WIU currently offers undergraduate and graduate degree programs at four
campuses and learning centers in Phoenix, Fort Huachuca and Douglas, Arizona
and London, England. WIU was acquired on September 1, 1995. See Note 3.
The Company's fiscal year is from September 1 to August 31. Unless
otherwise stated, references to the years 1996, 1995 and 1994 relate to the
fiscal years ended August 31, 1996, 1995 and 1994, respectively.
NOTE 2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation -------------------------------------------------
The consolidated financial statements include the accounts of Apollo and
its subsidiaries. All significant intercompany transactions and balances
have been eliminated.
Use of Estimates ------------------------------------------------------------
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities at the
date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Actual results could differ from these
estimates.
New Accounting Pronouncement ------------------------------------------------
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS No. 123") was issued in October 1995 and is
effective for the Company's 1997 fiscal year. SFAS No. 123 encourages, but
46<PAGE>
does not require, a fair value based method of accounting for employee stock
options or similar equity instruments. It also allows an entity to elect to
continue to measure compensation cost under Accounting Principals Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25"),
but requires pro forma disclosures of net income and earnings per share as if
the fair value based method of accounting had been applied. While the
Company is still evaluating SFAS No. 123, it currently expects to elect to
continue to measure compensation cost under APB No. 25 and comply with the
pro forma disclosure requirements in 1997. Such an election, if made, would
not change the Company's current accounting treatment for stock-based
compensation.
Cash and Cash Equivalents ---------------------------------------------------
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The
carrying value of cash, cash equivalents and restricted cash approximates
fair value due to the short-term maturities of these instruments.
Restricted Cash -------------------------------------------------------------
The U.S. Department of Education (the "DOE") requires that Title IV
Program funds collected for unbilled tuition be kept in a separate cash or
cash equivalent account until the students are billed for that portion of
their program. In addition, all Title IV Program funds transferred to the
Company through electronic funds transfer are subject to certain holding
period restrictions. These funds generally remain in these separate accounts
for an average of 60-75 days from date of collection. Restricted cash is
excluded from cash received from operating activities in the Consolidated
Statement of Cash Flows until the cash is transferred from these restricted
accounts to the Company's operating accounts. The Company's restricted cash
is invested primarily in municipal and U.S. Treasury backed securities with
maturities of ninety days or less.
Short-Term Investments ------------------------------------------------------
Short-term investments consist of $10.3 million of municipal securities
and $3.0 million of U.S. Treasury securities with original maturities greater
than three months but less than one year. Short-term investments are stated
at amortized cost which approximates market value. It is the Company's
intention to hold these investments until maturity. During 1996, the Company
liquidated its entire available-for-sale portfolio and received $571,000 of
proceeds that approximated its carrying value.
Revenues, Receivables and Related Liabilities -------------------------------
The Company's educational programs range in length from one-day seminars
to degree programs lasting up to four years. Long-term programs are billed
in blocks of time ranging in length from five weeks to three months.
Seminars and other shorter term programs are usually billed in one
installment. Billings occur when the student first attends a session
resulting in the recording of a receivable and a deferred tuition revenue
liability for the amount billed. The deferred tuition revenue liability is
recognized into income pro rata over the period of instruction. If a student
withdraws from a course or program, the unearned portion of the program that
the student has paid for is refunded, generally on a pro rata basis. Because
most of the Company's educational programs are billed in short blocks of time
ranging from five to six weeks, most of the deferred tuition revenue
47<PAGE>
liability at the end of each period will be recognized into income within
five to six weeks following the end of that period.
Student deposits consist of payments made in advance of billings. As
the student is billed, the student deposit is applied against the resulting
student receivable.
The Company does not record the unbilled portion of educational programs
for existing students because the students are not usually financially
obligated for the unbilled portion. A majority of these students do,
however, remain in their programs until completion.
Receivables consist of the following, in thousands:
<TABLE>
<CAPTION>
August 31,
--------------------
1996 1995
------- -------
<S> <C> <C>
Trade receivables $28,925 $17,991
Interest receivable 302 208
Income taxes receivable 452 137
------- -------
29,679 18,336
Less allowance for doubtful accounts (3,694) (2,453)
------- -------
Total receivables, net $25,985 $15,883
======= =======
</TABLE>
Bad debt expense was $1.7 million, $1.8 million and $1.8 million for
1996, 1995 and 1994, respectively.
Student deposits and deferred tuition consist of the following, in
thousands:
<TABLE>
<CAPTION>
August 31,
--------------------
1996 1995
------- -------
<S> <C> <C>
Student deposits $21,437 $17,756
Deferred tuition revenue 14,299 10,872
------- -------
Total student deposits and deferred tuition $35,736 $28,628
======= =======
</TABLE>
The carrying value of the student deposit liabilities approximates fair
value due to the short-term nature of these instruments.
Inventory -------------------------------------------------------------------
Inventory consists primarily of curriculum materials. Inventories are
stated at the lower of cost, determined using the FIFO (first-in, first-out)
method, or market.
48<PAGE>
Property and Equipment ------------------------------------------------------
Property and equipment is recorded at cost less accumulated
depreciation. The Company capitalizes the cost of software used for internal
operations once technological feasibility of the software has been
demonstrated. Such costs consist primarily of custom-developed and packaged
software and the direct labor costs of internally developed software.
Depreciation is provided on all buildings, furniture, equipment and related
software using the straight-line method over the estimated useful lives of
the related assets which range from three to seven years, except software
which is depreciated over three to five years and buildings which are
depreciated over 30 years. Leasehold improvements and capital lease assets
are amortized using the straight-line method over the shorter of the lease
term or the estimated useful lives of the related assets. Depreciation and
amortization expense was $4.5 million, $2.8 million and $2.0 million for
1996, 1995 and 1994, respectively. Maintenance and repairs are expensed as
incurred.
Educational Program Production Costs ----------------------------------------
Direct costs incurred in the original production of, and improvements
to, educational courses are capitalized, then amortized as expense using the
150% declining balance method over a three year period beginning in the month
the courses are placed in service. Courses are generally placed in service
within four to ten months after the program production commences. These
direct costs primarily include contract-based curriculum development and
salaries and wages for staff directly engaged in the development process.
Any unamortized cost is charged to expense whenever a course or program is
discontinued. From 1994 through 1996, less than 6% of these courses were
discontinued within three years of being placed in service. Indirect costs
related to the curriculum development process, such as space rent and
supplies, are expensed as incurred. Amortization expense was $1.4 million
per year in 1996, 1995 and 1994.
Deferred Rental Payments and Deposits ---------------------------------------
The Company records rent expense using the straight-line method over the
term of the lease agreement. Accordingly, deferred rental payment
liabilities are provided for lease agreements that specify scheduled rent
increases over the lease term. Rental deposits are provided for lease
agreements that specify payments in advance or scheduled rent decreases over
the lease term.
Cost in Excess of Fair Value of Assets Purchased ----------------------------
The Company amortizes costs in excess of fair value of assets purchased
on a straightline method over the estimated useful life. At August 31, 1996,
the Company's cost in excess of fair value of assets purchased relates solely
to the acquisition of certain assets of Western International University,
which is being amortized over a 15-year period. Total amortization in 1996
was $107,000. Recoverability is reviewed to determine if there have been any
events or changes in circumstances that indicate that the carrying value may
exceed fair value.
49<PAGE>
Deferred Compensation Agreements --------------------------------------------
The Company has various deferred compensation agreements with
individuals that are accounted for individually on an accrual basis in
accordance with the terms of the underlying contract. The expected future
benefits are accrued over the period of service required to be rendered in
exchange for the benefits. All individuals covered by deferred compensation
agreements were fully eligible to receive the benefits at the contract date
and as a result, the deferred compensation liability reflects the present
value of all future benefits expected to be paid, as determined at the
contract date.
Selling and Promotional Costs -----------------------------------------------
The Company expenses selling and promotional costs as incurred. Selling
and promotional costs include marketing salaries, direct-response and other
advertising, promotional materials and related marketing costs.
Direct-response advertising is not presently capitalized because all the
criteria of Statement of Position 93-7, "Reporting on Advertising Costs,"
were not satisfied.
Start-up Costs --------------------------------------------------------------
Costs related to the start-up of new campuses and learning centers are
expensed as incurred and totaled $3.6 million in 1996, $1.1 million in 1995
and $1.0 million in 1994.
Non-Operating Income and Expense --------------------------------------------
Interest income is included in net revenues and totaled $3.0 million,
$2.4 million and $280,000 for 1996, 1995 and 1994, respectively. Interest
expense, including the imputed interest on deferred compensation agreements,
is expensed as incurred.
Income Taxes ----------------------------------------------------------------
Deferred income taxes have been provided for all significant temporary
differences. These temporary differences arise principally from compensation
not yet deductible for tax purposes, limitations on bad debt deductions for
tax purposes and the use of accelerated depreciation methods.
When options granted under the Company's stock option plans are
exercised, the Company receives a tax deduction related to the difference
between the market value of its Class A Common Stock at the date of exercise
and the sum of the exercise price and any compensation expense recognized for
financial reporting purposes. The Company receives a similar tax benefit for
disqualifying dispositions of stock acquired by employees under the 1994
Employee Stock Purchase Plan. The tax benefits resulting from these tax
deductions, totaling $2.6 million in 1996 and $84,000 in 1995, are reflected
as a decrease in the Company's income tax liabilities and an increase to
additional paid-in capital.
Stock Splits and Common Stock -----------------------------------------------
In September 1994, the Company's Class A and Class B Common Stock
underwent a 1.118 to 1 stock split. From March 1995 to May 1996, the
Company's Board of Directors authorized four separate stock splits effected
in the form of stock dividends as follows:
50<PAGE>
For Shareholders
Date Authorized Type of Record on Date Distributed
- ----------------- ------- ----------------- ------------------
March 24, 1995 4-for-3 April 7, 1995 April 29, 1995
August 25, 1995 3-for-2 September 8, 1995 September 22, 1995
February 2, 1996 3-for-2 February 16, 1996 February 29, 1996
May 8, 1996 3-for-2 May 21, 1996 May 31, 1996
All Common Stock amounts, Common Stock prices and earnings per share
figures for periods prior to the stock splits effected in the form of stock
dividends have been restated to reflect the effect of all previous stock
splits effected in the form of stock dividends except for the number of
shares outstanding and the related impact on the stated value of Class A
Common Stock and additional paid-in capital on the Consolidated Balance Sheet
and the Consolidated Statement of Changes in Shareholders' Equity.
On January 24, 1996, the Company completed a secondary public offering
of 9,281,000 shares of Class A Common Stock, sold by certain management
shareholders of the Company. On January 26, 1996, the underwriters exercised
their option to purchase an additional 1,393,000 shares from the selling
shareholders. The sale made pursuant to the underwriters' over-allotment
option was completed on January 30, 1996. The Company did not receive any of
the proceeds of the offering.
On October 15, 1996, the Company's shareholders approved an amendment to
the Company's articles of incorporation increasing the number of authorized
shares of Class A Common Stock from 65.0 million to 400.0 million. This
amendment did not effect the number of shares then outstanding.
Earnings Per Share ----------------------------------------------------------
Net income per share is computed using the weighted average number of
Class A and Class B common and common equivalent shares outstanding during
the period after giving retroactive effect to the stock splits effected in
the form of stock dividends described above. Shares subject to stock options
issued during the 12-month period prior to the initial public offering are
considered common equivalent shares for all periods prior to the initial
public offering, pursuant to the requirements of the Securities and Exchange
Commission (the "SEC"). The amount of any tax benefit to be credited to
capital related to the exercise of options and disqualifying dispositions
under the Company's Employee Stock Purchase Plan is included when applying
the treasury stock method to stock options in the computation of earnings per
share. The exercise of outstanding stock options would not result in a
material dilution of earnings per share.
Reclassifications -----------------------------------------------------------
Certain amounts reported for the year ended August 31, 1995 have been
reclassified to conform to the 1996 presentation, having no effect on net
income.
NOTE 3. FINANCIAL AID PROGRAMS
Approximately 40%-50% of the Company's net revenues was received from
students who participated in government sponsored financial aid programs
under Title IV of the Higher Education Act of 1965, as amended. These
51<PAGE>
financial aid programs consist generally of: (1) guaranteed student loans
that are issued directly to the students and are non-recourse to the Company
and (2) direct grants to students. Annually, the DOE publishes the default
rates of students participating in the Federal Family Education Loan ("FFEL")
programs.
The latest student default rates as reported by the DOE for these FFEL
student loans are as follows:
<TABLE>
<CAPTION>
For Loans Entering
Repayment During the
DOE Fiscal Year Ended
September 30,
--------------------------
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Students attending:
UOP campuses 5.0% 5.0% 3.5%
IPD client institutions 5.9% 5.1% 4.6%
Western campuses 4.2% 4.7% 7.5%
National average 11.6% 15.0% 17.8%
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following, in thousands:
<TABLE>
<CAPTION>
August 31,
--------------------
1996 1995
------- -------
<S> <C> <C>
Furniture and equipment $24,041 $16,494
Software 3,467 3,196
Leasehold improvements 1,042 1,032
Land and buildings 350 350
------- -------
28,900 21,072
Less accumulated depreciation (9,975) (7,682)
------- -------
Property and equipment, net $18,925 $13,390
======= =======
</TABLE>
52<PAGE>
NOTE 5. EDUCATIONAL PROGRAM PRODUCTION COSTS
Educational program production costs consist of the following, in
thousands:
<TABLE>
<CAPTION>
August 31,
--------------------
1996 1995
------- -------
<S> <C> <C>
Educational program production costs $ 8,012 $ 7,722
Less accumulated amortization (6,566) (5,759)
------- -------
Educational program production costs, net $ 1,446 $ 1,963
======= =======
</TABLE>
The net effect on pre-tax income of the capitalization and amortization
of educational program production costs amounted to a decrease of $516,000 in
1996, an increase of $49,000 in 1995 and a decrease of $36,000 in 1994.
NOTE 6. NON-OPERATING PROPERTY
Non-operating property consists of approximately 13 acres of land
purchased in December 1995 for the possible relocation of the Company's
corporate headquarters and 105 acres of undeveloped land located in Santa
Cruz County, California, a substantial portion of which was acquired from a
related party in 1991. As a result of poor market conditions in Northern
California, the Company recorded a $196,000 writedown related to the Santa
Cruz land in 1996 ($117,000 after related tax benefit), a $104,000 writedown
in 1995 ($60,000 after related tax benefit) and a $135,000 writedown in 1994
($80,000 after related tax benefit). These writedowns were based on
independent appraisals dated June 1996, May 1995 and August 1994,
respectively.
NOTE 7. COSTS IN EXCESS OF FAIR VALUE OF ASSETS PURCHASED
Effective September 1, 1995, the Company completed the acquisition of
certain assets of Western International University ("Western"). Western was
a private non-profit educational institution incorporated in 1978 that was
accredited by NCA. The Company formed a new wholly-owned subsidiary called
Western International University, Inc. ("WIU") as the holding company for the
net assets acquired from Western. WIU acquired accounts receivable, notes
receivable, furniture, fixtures, equipment, certain contracts and student
agreements, copyrights, trademarks, securities, cash, goodwill and certain
other assets of Western. The original acquisition price of $2.1 million,
including $237,000 paid in cash at or prior to closing, was adjusted to $3.0
million due to an increase in the estimated liability to the DOE related to
Western's processing of Title IV financial aid and other related liabilities.
The acquisition was accounted for under the purchase method and,
accordingly, the results of operations related to this new subsidiary has
been included with those of the Company for periods subsequent to the date of
acquisition. Results of operations for Western prior to the acquisition were
not material in relation to the Company's operation as a whole.
53<PAGE>
NOTE 8. SHORT-TERM BORROWINGS
At August 31, 1996, the Company had no amounts borrowed against its $4.0
million unsecured line of credit. The line of credit bears interest at prime
(8.25% at August 31, 1996). The line of credit is renewable annually and any
amounts borrowed under the line are payable upon its termination in December
1997. The Company is in compliance with the restrictive covenants contained
in its line of credit agreement. The Company's line of credit agreement
prohibits the Company from paying cash dividends or making other cash
distributions without the lender's consent.
NOTE 9. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following, in thousands:
<TABLE>
<CAPTION>
August 31,
--------------------
1996 1995
------- -------
<S> <C> <C>
Salaries and wages $ 4,713 $ 4,252
Employee benefits and payroll withholdings 2,201 1,856
Other accruals 4,011 3,854
------- -------
Total other accrued liabilities $10,925 $ 9,962
======= =======
</TABLE>
NOTE 10. EMPLOYEE AND DIRECTOR BENEFIT PLANS
The Company provides various health, welfare and disability benefits to
its full-time salaried employees which are funded primarily by Company
contributions. The Company does not provide postemployment or postretirement
health care and life insurance benefits to its employees.
The Company sponsors a 401(k) plan which is available to all employees
of the Company who have completed one year and at least 1,000 hours of
continuous service. The Company matches 100% of the contributions from the
first $10,000 of a participant's annual pre-tax earnings. Contributions from
the participant's earnings in excess of $10,000 are matched by the Company at
18.5%. Participant contributions are subject to certain restrictions as set
forth in the Internal Revenue Code. The Company's matching contributions
totaled $1.1 million, $848,000 and $745,000 for 1996, 1995 and 1994,
respectively.
In addition, the Company has three stock-based compensation plans that
were adopted in 1994: the Apollo Group, Inc. Director Stock Plan ("Director
Stock Plan"), the Apollo Group, Inc. Long-Term Incentive Plan ("LTIP") and
the Apollo Group, Inc. 1994 Employee Stock Purchase Plan ("Purchase Plan").
The Director Stock Plan currently provides for an annual grant of options to
the Company's nonemployee directors to purchase 13,500 shares, adjusted for
stock splits, of the Company's Class A Common Stock on September 1 of each
year. Under the LTIP, the Company may grant options, incentive stock
options, stock appreciation rights and other stock-based awards to certain
officers or key employees of the Company. At August 31, 1996, there were
54<PAGE>
274,000 and 1.3 million shares available for issuance under the Director
Stock Plan and LTIP, respectively, and, to date, only non-qualified stock
options have been granted. A summary of the activity related to the stock
options granted under the Director Stock Plan and LTIP follows, in thousands
of shares:
<TABLE>
<CAPTION>
<S> <C>
Outstanding at August 31, 1993 --
June 2, 1994 grant @ $.42 per share 830
------
Outstanding at August 31, 1994 830
December 6, 1994 grant at $2.45 per share 904
Exercised at $2.45 per share (40)
Canceled at $2.45 per share (9)
------
Outstanding at August 31, 1995 1,685
Granted at $8.96 to $11.30 per share 2,120
Exercised at $.42 to $2.46 per share (315)
Canceled at $2.45 to $11.30 per share (48)
------
Outstanding at August 31, 1996 3,442
======
Exercisable at August 31, 1996 1,411
======
Available for issuance at August 31, 1996 1,603
======
</TABLE>
The June 2, 1994 grant to certain key employees was based on the fair
value of such options at the date of grant as determined by an independent
valuation. Pursuant to SEC requirements, the Company recorded $1.9 million
in compensation expense and additional paid-in capital in 1994 related to
these options, representing the difference between the exercise price per
share and the assumed initial public offering price multiplied by the total
number of shares granted.
In September 1995, the Company increased the number of shares of Class A
Common Stock available for issuance under the LTIP from 1.4 million to 3.7
million. At the same time, the Company granted an additional 2.1 million
options to purchase shares of Class A Common Stock, at $11.2978 per share, to
officers and certain key employees under the LTIP. The options vest 25% at
the end of seven years from the date of grant and ratably thereafter over the
eighth to approximate tenth year. This vesting period may be accelerated for
individual employees if the stock price reaches defined goals for at least
three trading days and if certain profit goals, defined for groups of
individuals, are also achieved.
The Purchase Plan allows employees of the Company to purchase up to 2.3
million shares of the Company's Class A Common Stock at quarterly intervals
through periodic payroll deductions. The purchase price per share, in
general, is 85% of the lower of: (1) the fair market value (as defined in
the Purchase Plan) of a share of Class A Common Stock on the participant's
enrollment date into the respective quarterly offering period or (2) the fair
55<PAGE>
market value of a share of Class A Common Stock on the purchase date. During
the year ended August 31, 1996, 84,297 shares were purchased by eligible
employees at prices ranging from $6.71 to $21.71 per share. At August 31,
1996, there are 2.0 million shares available for purchase under the Purchase
Plan.
NOTE 11. LONG-TERM LIABILITIES
Long-term liabilities consist of the following, in thousands:
<TABLE>
<CAPTION>
August 31,
--------------------
1996 1995
------- -------
<S> <C> <C>
Deferred compensation and note agreements
discounted at 7.5% to 12% $ 1,515 $ 1,004
Deferred rental payments 398 315
------- -------
Total long-term liabilities 1,913 1,319
Less current portion (140) (118)
------- -------
Total long-term liabilities, net $ 1,773 $ 1,201
======= =======
</TABLE>
The aggregate maturities of all long-term liabilities for each of the
five fiscal years subsequent to August 31, 1996 are: 1997--$140,000; 1998--
$350,000; 1999--$192,000; 2000--$177,000; 2001--$130,000.
The undiscounted deferred compensation liability was $1.7 million and
$1.8 million at August 31, 1996 and 1995, respectively. The undiscounted
note payable in connection with the WIU acquisition was $700,000 at August
31, 1996. The discount rates for these agreements were determined at the
date of each respective agreement based on the estimated long-term rate of
return on high-quality fixed income investments with cash flows similar to
the respective agreements.
56<PAGE>
NOTE 12. LEASES
The Company is obligated under facility and equipment leases that are
classified as operating leases. Following is a schedule of future minimum
lease commitments as of August 31, 1996, in thousands:
<TABLE>
<CAPTION>
Operating Leases
---------------------------
Equipment
Buildings & Other
--------- ---------
<S> <C> <C>
1997 $15,089 $ 897
1998 14,605 368
1999 13,755 141
2000 12,378 1
2001 10,162
Thereafter 14,489
--------- ---------
$80,478 $1,407
========= =========
</TABLE>
Facility and equipment rent expense totaled $19.9 million, $16.5 million
and $13.8 million for 1996, 1995 and 1994, respectively.
NOTE 13. INCOME TAXES
Pre-tax earnings and the related components of the income tax provision
are as follows, in thousands:
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Pre-tax earnings:
United States $34,322 $21,401 $8,104
Puerto Rico 675 428 191
------- ------- -------
Total pre-tax earnings $34,997 $21,829 $8,295
======= ======= =======
Income tax provision (benefit):
Current -- state and other $ 2,841 $ 2,550 $1,072
Current -- federal 11,239 7,103 3,399
Deferred (475) (424) (1,088)
------- ------- -------
Total provision for income taxes $13,605 $9,229 $3,383
======= ======= =======
</TABLE>
57<PAGE>
The income tax provision differs from the tax that would result from
application of the statutory federal corporate tax rate. The reasons for the
differences are as follows, in thousands:
<TABLE>
<CAPTION>
Year Ended August 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income tax provision at expected rate
of 35% for 1996 and 1995 and
34% for 1994 $12,249 $7,640 $2,820
State taxes, net of federal benefit 1,777 1,518 536
Nondeductible business meals 383 172 46
Non-taxable interest income (534) (193)
Other, net (270) 92 (19)
------- ------- -------
Total provision for income taxes $13,605 $9,229 $3,383
======= ======= =======
</TABLE>
The current and non-current deferred tax assets and liabilities consist
of the following, in thousands:
<TABLE>
<CAPTION>
August 31,
--------------------
1996 1995
------- -------
<S> <C> <C>
Gross deferred tax assets:
Compensation not yet deductible for tax purposes $1,376 $1,455
Difference in bad debt deductions for
financial reporting purposes 1,438 981
Loss reserves not deductible for tax purposes 591 554
Difference in lease expense deductions 319 272
Other 85 66
------- -------
Total gross deferred tax assets 3,809 3,328
------- -------
Gross deferred tax liabilities:
Depreciation and amortization of property
and equipment 1,062 547
Deduction of educational program production
costs for tax purposes 391 785
State taxes 43 158
------- -------
Total gross deferred tax liabilities 1,496 1,490
------- -------
Net deferred tax assets $2,313 $1,838
======= =======
</TABLE>
58<PAGE>
The net tax assets are reflected in the accompanying balance sheet as
follows, in thousands:
<TABLE>
<CAPTION>
<S> <C> <C>
Current deferred tax assets, net $2,972 $2,352
Noncurrent deferred tax liabilities, net (659) (514)
------- -------
Net deferred tax assets $2,313 $1,838
======= =======
</TABLE>
In light of the Company's history of profitable operations, management
has concluded that it is more likely than not that the Company will
ultimately realize the full benefit of its deferred tax assets related to
future deductible items. Accordingly, the Company believes that no valuation
allowance is required for deferred tax assets in excess of deferred tax
liabilities.
59<PAGE>
NOTE 14. CASH RECEIVED FROM OPERATING ACTIVITIES
Following is a reconciliation of net income to net cash received from
operating activities, as shown on the consolidated statement of cash flows,
in thousands:
<TABLE>
<CAPTION>
August 31,
---------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net income $21,392 $12,600 $ 4,912
Net loss (gain) on disposal of assets 402 602 (141)
Write-down of non-operating assets 196 104 135
Depreciation and amortization of:
Property and equipment 4,545 2,751 1,997
Educational program production costs 1,441 1,375 1,365
Cost in excess of fair value of
assets purchased 107
Writeoff of unamortized cost of
discontinued educational courses 172 124 51
Bad debt expense 1,704 1,849 1,822
Compensation expense related to
grant of options 1,869
Change in assets and liabilities:
Decrease (increase) in restricted cash 590 (3,781) (6,098)
Increase in receivables, net of write-offs (11,621) (3,496) (5,894)
Increase in deferred tax assets (620) (725) (757)
Decrease (increase) in other current assets (413) 312 (940)
Increase in other assets (133) (113) (687)
Increase (decrease) in deferred rent 83 (36) 10
Increase in deferred compensation contracts 8 6 753
Increase in accounts payable and accrued
liabilities 1,206 4,058 2,727
Increase in student deposits and deferred
tuition 6,454 6,396 6,192
Increase (decrease) in deferred tax
liabilities 145 514 (331)
Increase (decrease) in income taxes
payable 165 (214) (491)
------- ------- -------
Net cash received from operating
activities $25,823 $22,326 $ 6,494
======= ======= =======
</TABLE>
60<PAGE>
Supplemental Schedule of Noncash Investing and Financing Activities ---------
The Company purchased certain assets of Western for a total purchase
price of $3.0 million. In conjunction with the acquisition, liabilities were
assumed as follows:
<TABLE>
<CAPTION>
<S> <C>
Fair value of assets acquired $3,028
Less cash paid to Western ($237,000) and on behalf of
Western ($393,000) for the assets acquired (630)
------
Net liabilities assumed $2,398
======
</TABLE>
61<PAGE>
Item 9 -- Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
62<PAGE>
PART III
Item 10 -- Directors and Executive Officers of the Registrant
The Company's directors serve one year terms and are elected each year
by the holders of the Company's Class B Common Stock. The following sets
forth information as of August 31, 1996 concerning the Company's directors
and executive officers:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------------- --- -----------------------------------------
<S> <C> <C>
John G. Sperling, Ph.D. 75 Chairman of the Board and President
William H. Gibbs 46 Senior Vice President and Director
Jerry F. Noble 54 Senior Vice President and Director
John D. Murphy 50 Senior Vice President-Institutional
Affairs and Director
Peter V. Sperling 36 Vice President of Administration,
Secretary, Treasurer and Director
James W. Hoggatt 39 Vice President of Finance and Chief
Financial Officer
Todd S. Nelson 37 Vice President
J. Jorge Klor de Alva, J.D., Ph.D. 48 Vice President of Business Development
and Director
Dino D. DeConcini 62 Director
Thomas C. Weir 62 Director
</TABLE>
JOHN G. SPERLING, Ph.D., is the founder, President and Chairman of the
Board of Directors of the Company. Prior to his involvement with the
Company, from 1961 to 1973, Dr. Sperling was a professor of Humanities at
San Jose State University where he was the Director of the Right to Read
Project and the Director of the NSF Cooperative College-School Science
Program in Economics. At various times from 1955 to 1961, Dr. Sperling was
a member of the faculty at the University of Maryland, Ohio State University
and Northern Illinois University. Dr. Sperling received his Ph.D. from
Cambridge University, an M.A. from the University of California at Berkeley
and a B.A. from Reed College. Dr. Sperling is the father of Peter
V. Sperling.
WILLIAM H. GIBBS has been with the Company since 1980. Mr. Gibbs has
been the President of UOP and a Senior Vice President of the Company since
1987. From 1985 to 1987, Mr. Gibbs was the President of Apollo Education
Corporation ("AEC"). From 1980 to 1985, Mr. Gibbs held various positions
with the Company, including Chief Financial Officer and faculty member. From
1975 to 1984, Mr. Gibbs was with the accounting firm of Price Waterhouse and,
from 1982 to 1984, served as a management advisory manager. Mr. Gibbs
currently serves as a director of the Arizona State Board of Private
Post-Secondary Education and the Arizona Commission for Post-Secondary
Education. Mr. Gibbs received his M.B.A. from the University of Illinois
and his B.A. from Arizona State University. Mr. Gibbs is a Certified Public
Accountant in the State of Arizona.
JERRY F. NOBLE has been with the Company since 1981. Mr. Noble has been
a Senior Vice President of the Company since 1987 and the President of IPD
since 1984. From 1981 to 1987, Mr. Noble also was the controller of the
63<PAGE>
Company. From 1977 to 1981, Mr. Noble was the corporate accounting manager
for Southwest Forest Industries, a forest products company. Mr. Noble
received his M.B.A. from UOP and his B.A. from the University of Montana.
Mr. Noble is a Certified Public Accountant in the Commonwealth of Virginia.
JOHN D. MURPHY has been with the Company since 1976. Mr. Murphy has
been the Senior Vice President-Institutional Affairs since 1987. From 1981
to 1987, Mr. Murphy was the Vice President of Public Affairs of the Company.
From 1991 to 1994 Mr. Murphy also served as Vice President-Academic Affairs
of UOP. From 1972 to 1976, Mr. Murphy was an instructor at San Jose State
University. Mr. Murphy received an M.A. from the University of San Francisco
and a B.A. from San Jose State University.
PETER V. SPERLING has been with the Company since 1983. Mr. Sperling
has been the Vice President of Administration since 1992 and the Secretary
and Treasurer of the Company since 1988. From 1987 to 1992, Mr. Sperling was
the Director of Operations at AEC. From 1983 to 1987, Mr. Sperling was
Director of Management Information Services of the Company. Mr. Sperling
received his M.B.A from UOP and his B.A. from the University of California at
Santa Barbara. Mr. Sperling is the son of John G. Sperling.
JAMES W. HOGGATT has been with the Company since 1986. Mr. Hoggatt has
been the Vice President of Finance and Chief Financial Officer of the Company
since 1990. From 1987 to 1990, Mr. Hoggatt was the Vice President-Controller
of the Company. From 1986 to 1987, Mr. Hoggatt was the Director of Financial
Reporting of the Company. From 1979 to 1986, Mr. Hoggatt was with the
accounting firm of Price Waterhouse and, from 1984 to 1986, served as an
audit manager. Mr. Hoggatt received a B.S. from Abilene Christian
University. Mr. Hoggatt is a Certified Public Accountant in the State of
Arizona.
TODD S. NELSON has been with the Company since 1987. Mr. Nelson has
been a Vice President of the Company since 1994 and the Executive Vice
President of UOP since 1989. From 1987 to 1989, Mr. Nelson was the Director
of UOP's Utah campus. From 1985 to 1987, Mr. Nelson was the General Manager
at Amembal and Isom, a management training company. From 1984 to 1985,
Mr. Nelson was a General Manager for Vickers & Company, a diversified holding
company. From 1983 to 1984, Mr. Nelson was a Marketing Director at Summa
Corporation, a recreational properties company. Mr. Nelson received an
M.B.A. from the University of Nevada at Las Vegas and a B.S. from Brigham
Young University. Mr. Nelson was a member of the faculty at University of
Nevada at Las Vegas from 1983 to 1984.
J. JORGE KLOR DE ALVA, J.D., Ph.D., has been a Vice President of Business
Development of the Company since July 1996, has been a director of the
Company since 1991 and is currently a member of the Audit Committee of the
Board of Directors of the Company. Dr. Klor de Alva was a Professor of
Comparative Ethnic Studies and Anthropology at the University of California
at Berkeley from July 1994 until July 1996. From 1989 to 1994, Dr. Klor
de Alva was a Professor of Anthropology at Princeton University. From 1984
to 1989, Dr. Klor de Alva was the Director of the Institute for Mesoamerican
Studies from 1982 to 1989 and was an Associate Professor of Anthropology and
Latin American Studies at the State University of New York at Albany. From
1971 to 1982, Dr. Klor de Alva served at various times as associate
professor, assistant professor or lecturer at San Jose State University and
the University of California at Santa Cruz. Dr. Klor de Alva received a B.A.
and J.D. from the University of California at Berkeley and a Ph.D. from the
University of California at Santa Cruz.
64<PAGE>
DINO J. DECONCINI has been a director of the Company since 1981 and is
currently a member of the Audit and Compensation Committees of the Board of
Directors of the Company. Mr. DeConcini is currently Executive Director,
Savings Bonds Marketing Office, U.S. Department of the Treasury. From 1979
to 1995, Mr. DeConcini was a shareholder in DeConcini, McDonald, Brammer,
Yetwin and Lacy, P.C., Attorneys at Law. From 1993 to 1995, Mr. DeConcini
was a Vice President and Senior Associate of Project International
Associates, Inc., an international business consulting firm. From 1991 to
1993 and 1980 to 1990, Mr. DeConcini was a Vice President and partner of Paul
R. Gibson & Associates, an international business consulting firm.
THOMAS C. WEIR has been a director of the Company since 1983 and is a
member of the Audit and Compensation Committees of the Board of Directors of
the Company. During 1994, Mr. Weir became the President of Dependable
Nurses, Inc., a provider of temporary nursing services, W.D. Enterprises,
Inc., a financial services company and Dependable Personnel, Inc., a provider
of temporary clerical personnel. In addition, Mr. Weir has been an
independent financial consultant since 1990. From 1989 to 1990, Mr. Weir was
President of Tucson Electric Power Company. From 1979 to 1987, Mr. Weir was
Chairman and Chief Executive Officer of Home Federal Savings & Loan
Association, Tucson, Arizona.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of a registered class of the Company's equity securities, to
file with the Securities and Exchange Commission ("SEC") initial reports of
ownership and reports of changes in ownership. Officers, directors and
greater than 10% shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16(a) forms they file. Based solely upon
a review of the copies of such forms furnished to the Company, or written
representations that no Forms 5 were required, the Company believes that
during the fiscal year ended August 31, 1996, its officers and directors
complied with all Section 16(a) filing requirements with the following
exception: John D. Murphy filed a late Form 3 relating to a transaction
involving a transfer of Class A Common Stock into a revocable trust on
November 15, 1995.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has two principal committees: (1) an Audit
Committee comprised of Thomas C. Weir (Chairperson), Dino J. DeConcini and
J. Jorge Klor de Alva and (2) a Compensation Committee comprised of Thomas
C. Weir (Chairperson) and Dino J. DeConcini.
MEETINGS OF THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the year ended August 31, 1996, the Board of Directors of the
Company met or acted by written consent on 11 occasions. Each of the
Company's directors attended more than 75% of the meetings of the Board of
Directors and of meetings held by committees of the Board on which such
director served.
65<PAGE>
Compensation Committee ------------------------------------------------------
The Compensation Committee of the Board of Directors, which met or acted
by written consent once during 1996, reviews all aspects of compensation of
executive officers of the Company and determines or makes recommendations on
such matters to the full Board of Directors. The report of the Compensation
Committee for 1996 is set forth below. (See Item 11.)
Audit Committee -------------------------------------------------------------
The Audit Committee, which met or acted by written consent three times
in 1996, represents the Board of Directors in evaluating the quality of the
Company's financial reporting process and internal financial controls through
consultations with the independent auditors, internal management and the
Board of Directors.
Other Committees ------------------------------------------------------------
The Company does not maintain a standing nominating committee or other
committee performing similar functions.
66<PAGE>
Item 11 -- Executive Compensation
DIRECTOR COMPENSATION
Fees ------------------------------------------------------------------------
Nonemployee directors of the Company received in 1996 a $12,000 annual
retainer, $1,000 for each board meeting attended and $500 for each committee
meeting attended. In 1997, these fees have been increased to $15,000, $1,250
and $625, respectively. In addition, such nonemployee directors are
reimbursed for out-of-pocket expenses.
Apollo Group, Inc. Director Stock Plan --------------------------------------
In August 1994, the Board of Directors of the Company adopted the Apollo
Group, Inc. Director Stock Plan (the "Director Plan") to attract and retain
independent directors for the Company. The Director Plan is administered by
a committee appointed by the Board. The aggregate number of shares of
Class A Common Stock subject to the Director Plan may not exceed 450,000,
subject to adjustment. Options granted under the Director Plan are fully
vested six months and one day after the date of grant and are exercisable in
full thereafter until the date that is ten years after the date of grant.
The exercise price per share under the Director Plan is equal to the fair
market value of such shares upon the date of grant. On December 6, 1994, an
option to purchase 45,000 shares of the Company's Class A Common Stock at an
exercise price of $2.445 per share was granted to each Nonemployee Director
(as defined in the Director Plan). In addition, on September 1 of each year,
Nonemployee Directors receive an annual grant of options to purchase 13,500
shares, adjusted by stock splits, of the Company's Class A Common Stock.
EXECUTIVE COMPENSATION
The following table discloses the annual and long-term compensation
earned for services rendered in all capacities by the Company's Chairman of
the Board and President together with the Company's four other most highly
compensated executive officers for the fiscal years ended August 31, 1996,
1995, and 1994:
67<PAGE>
-- SUMMARY COMPENSATION TABLE --
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
--------------------------------- ---------------------
Other Restric- Securities All Other
Annual ted Stock Underlying LTIP Compen-
Name and Principal Salary<F1> Bonus Compensation Awards Options Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
- ------------------------ ------- --------- -------- ------------ --------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John G. Sperling
Chairman of the Board
and President 1996 $310,000 $232,500 -- -- 137,250 -- $ --
1995 310,000 186,000 -- -- 50,000 -- --
1994 268,750 120,837 -- -- 71,552<F2> -- 750,000<F3>
William H. Gibbs
Senior Vice President
and President of UOP 1996 180,000 135,000 -- -- 137,250 -- 2,409<F4>
1995 180,000 108,000 -- -- 30,000 -- 2,361<F4>
1994 161,250 125,954 -- -- 42,484<F2> -- 2,496<F4>
Jerry F. Noble
Senior Vice President
and President of IPD 1996 180,000 135,000 -- -- 137,250 -- 2,980<F4>
1995 180,000 108,000 -- -- 30,000 -- 2,932<F4>
1994 161,250 60,469 -- -- 49,192<F2> -- 2,932<F4>
John D. Murphy
Senior Vice President-
Institutional Affairs 1996 180,000 135,000 -- -- 137,250 -- 2,980<F4>
1995 180,000 108,000 -- -- 30,000 -- 2,932<F4>
1994 161,250 60,469 -- -- 55,900<F2> -- 2,932<F4>
Peter V. Sperling
Vice President Adminis-
tration, Secretary and
Treasurer 1996 170,000 127,000 -- -- 137,250 -- 52,046<F4>
1995 170,000 102,000 -- -- 20,000 -- 45,982<F4>
1994 148,840 121,381 -- -- 53,664<F2> -- 45,982<F4>
_______________
<FN>
<F1> Messrs. John Sperling, Gibbs, Noble, Murphy and Peter Sperling also
received certain perquisites, the value of which did not exceed the
lesser of $50,000 for each person or 10% of their cash compensation.
<F2> These options were issued on June 2, 1994, have a current exercise
price of $.416 per share and expire on June 1, 2004. Pursuant to SEC
requirements, the Company recorded $1.9 million in compensation expense
in 1994 related to these and other options, representing the
difference between the current exercise price and an assumed initial
public offering price of $2.67 per share multiplied by the 830,115
total shares granted to certain key employees.
<F3> In 1994, the Company accrued $750,000 in compensation expense pursuant
to a deferred compensation agreement with Dr. Sperling that represents
the present value of all benefits expected to be paid in the future by
the Company pursuant to such plan. See "Executive Compensation--
Employment and Deferred Compensation Agreements."
<F4> Amounts shown consist of: (1) contributions made by the Company to the
Company's Savings and Investment Plan (as described herein) paid in
fiscal years 1996, 1995 and 1994, respectively as follows: $2,409,
$2,361 and $2,496 on behalf of Mr. Gibbs; and $2,980, $2,932 and $2,932
on behalf of Messrs. Noble, Murphy and Peter Sperling and (2) premiums
of $49,066 paid in 1996 and $43,050 paid in 1995 and 1994 attributable
to collateral split dollar life insurance premiums for Mr. Peter
Sperling, $10 million face value, the beneficiaries of which are
designated by Mr. Peter Sperling. Under this policy the Company is
68<PAGE>
entitled to receive, upon the occurrence of certain events, any
premiums the Company paid for the policy. Mr. Peter Sperling is
entitled to the excess of the cash value over the amount of the
premiums paid by the Company.
</FN>
</TABLE>
The following table discloses options granted by the Company to the
Chairman of the Board and President and the four other most highly
compensated executive officers of the Company for the fiscal year ended
August 31, 1996:
-- OPTION GRANTS IN THE LAST FISCAL YEAR --
<TABLE>
<CAPTION>
Option Grants in Fiscal Year 1996 Potential Realizable
---------------------------------------------- Value at Assumed
% of Total Annual Rates of
Number of Options/SARs Stock Price
Securities Granted to Exercise Appreciation for
Underlying Employees or Base Option Term
Options/SARs in Fiscal Price Expiration ----------------------
Name Granted<F1> Year ($/Share) Date 5% 10%
- ------------------ ---------- ----------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
John G. Sperling 137,250 6.6 $11.30 9/21/05 $975,179 $2,471,294
William H. Gibbs 137,250 6.6 11.30 9/21/05 975,179 2,471,294
Jerry F. Noble 137,250 6.6 11.30 9/21/05 975,179 2,471,294
John D. Murphy 137,250 6.6 11.30 9/21/05 975,179 2,471,294
Peter V. Sperling 137,250 6.6 11.30 9/21/05 975,179 2,471,294
_______________
<FN>
<F1> Options granted in 1996 are pursuant to the Apollo Group, Inc.
Long-Term Incentive Plan and vest 25% at the end of seven years and
ratably thereafter over the eighth to approximate tenth year. The
vesting period may be accelerated for individual employees if the stock
price reaches defined goals for at least three trading days and if
certain profit goals are also achieved. Such options are exercisable
for a period not to exceed ten years from the date of grant.
</FN>
</TABLE>
The following table discloses the number of shares received from the
exercise of Company options, the value received therefrom and the number and
value of in-the-money and out-of-the-money options held by the Company's
Chairman of the Board and President and the four other most highly
compensated officers of the Company for the fiscal year ended August 31,
1996:
-- AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996 --
AND OPTION VALUES AT AUGUST 31, 1996
<TABLE>
<CAPTION>
Value of Unexercised
Shares Number of Unexercised Money Options at Fiscal
Acquired Value Options at Fiscal Year-End Year-End
on Exercise Realized --------------------------- ---------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ----------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
John G. Sperling -- -- 273,492 137,250 $6,632,148 1,949,252
William H. Gibbs -- -- 163,089 137,250 3,954,049 1,949,252
Jerry F. Noble -- -- 178,182 137,250 4,332,649 1,949,252
John D. Murphy -- -- 193,275 137,250 4,711,249 1,949,252
Peter V. Sperling -- -- 165,744 137,250 4,066,300 1,949,252
</TABLE>
69<PAGE>
Employment and Deferred Compensation Agreements ----------------------------
In December 1993, the Company entered into an employment agreement (the
"Employment Agreement") and deferred compensation agreement (the "Deferred
Compensation Agreement") with Dr. John G. Sperling, the Chairman of the Board
and President of the Company. The term of the Employment Agreement is for a
four-year term, and expires in December 31, 1997. Thereafter, it is
automatically renewable for additional one-year periods. Effective September
1, 1994, under the Employment Agreement to Dr. Sperling receives an annual
base salary of $310,000. This salary may be adjusted annually by the
Compensation Committee of the Board of Directors. Effective for 1997 and
1998, Dr. Sperling's salary was increased to $387,500. The Company may
terminate the Employment Agreement only for cause and Dr. Sperling may
terminate the Employment Agreement at any time upon 30 days written notice.
The Deferred Compensation Agreement provides that upon his termination
of employment with the Company and until his death, Dr. Sperling shall
receive monthly payments equal to one-twelfth of his highest annual base
salary paid by the Company during any one of the three calendar years
preceding the calendar year in which Dr. Sperling's employment is terminated.
In addition, upon Dr. Sperling's death, his designated beneficiary shall be
paid an amount equal to three times his highest annual base salary in 36
equal monthly installments with the first such installment due on the first
day of the month following the month of Dr. Sperling's death.
The Company does not have employment agreements with any of its other
executive officers.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's Compensation Committee (the "Committee") is composed
entirely of independent outside members of the Company's Board of Directors.
The Committee reviews and approves each of the elements of the executive
compensation program of the Company and periodically assesses the
effectiveness and competitiveness of the program in total. In addition, the
Committee administers the key provisions of the executive compensation
program and reviews with the Board of Directors in detail all aspects of
compensation for the Company's executives. During 1996, Jorge Klor de Alva
resigned from the Compensation Committee as a result of his employment with
the Company, and was replaced by Dino DeConcini. The Committee has furnished
the following report on executive compensation:
Overview and Philosophy -----------------------------------------------------
The Company's compensation program for executive officers is primarily
comprised of base salary, annual bonus and long-term incentives in the form
of stock option grants. Executives also participate in various other benefit
plans, including medical and retirement plans, generally available to all
employees of the Company.
The Company's philosophy is to pay base salaries to executives that
enable the Company to attract, motivate and retain highly qualified
executives. The annual bonus program is designed to reward for performance
based on financial results. Stock option grants are intended to result in no
reward if the stock price does not appreciate, but may provide substantial
rewards to executives as shareholders benefit from stock price appreciation.
70<PAGE>
Base Salary -----------------------------------------------------------------
Each of the Company's executives receives a base salary, which when
aggregated with their maximum bonus amount, is intended to be competitive
with similarly situated executives in comparable industries. The base
salaries in 1996 were effective for the period from September 1994 and
through August 1996. In setting the base salaries, the Committee reviewed
and considered compensation information provided by an independent
compensation consulting firm. The Company targets base pay at the level
required to attract and retain highly qualified executives. In determining
salaries, the Committee also takes into account individual experience and
performance and specific needs particular to the Company.
Recently, the Committee decided to increase the base salary of each of
the Company's executive officers by approximately 25%. This increase was
effective beginning September 1996. The Committee determined that such an
increase was appropriate in light of the fact that there had been no increase
in the base salaries since 1994.
Annual Bonus Program --------------------------------------------------------
In addition to a base salary, in fiscal year 1995 executives were
eligible to receive a bonus of up to sixty percent (60%) of their respective
base salaries, and in fiscal year 1996 are eligible to receive a bonus of up
to seventy-five percent (75%) of their respective base salaries. All annual
bonuses are tied to the Company's financial performance.
At the beginning of each fiscal year, the Committee establishes an
after-tax net income goal for the Company and operating profit goals for the
Company's subsidiaries. The annual bonuses are calculated differently for
(i) executives who also serve as executive officers of either The University
of Phoenix, Inc. ("UOP") or the Institute for Professional Development
("IPD") (collectively, the "Division Executives") and (ii) executives who do
not serve as executive officers of either UOP or IPD (collectively, the
"Company Executives").
The annual bonuses for Division Executives are tied to both the after-
tax net income goal for the Company and the operating profit goal for either
UOP or IPD, as applicable. If the applicable operating profit goal is
achieved, the Division Executives earn fifty percent (50%) of their
respective annual bonuses. The remaining fifty percent (50%) is earned only
if the after-tax net income goal for the Company is achieved or exceeded. If
the after-tax net income goal for the Company is achieved, the Division
Executives are entitled to an additional twenty-five percent (25%) of their
respective annual bonuses. The remaining twenty-five percent (25%) of the
annual bonuses can be earned by the Division Executives only if the after-tax
net income goal for the Company is exceeded. In particular, the Division
Executives are entitled to receive an additional one-and-one-quarter percent
(1.25%) for each $100,000 by which the after-tax net income goal is exceeded.
The annual bonuses for the Company Executives are tied solely to the
after-tax net income goal for the Company. If the after-tax net income goal
for the Company is achieved, the Company Executives earn fifty percent (50%)
of their respective annual bonuses. If the after-tax net income goal is
exceeded, the Company Executives earn a larger percentage of their annual
bonus depending on the amount by which the after-tax net income goal is
exceeded. The remaining fifty percent (50%) of the annual bonuses can be
earned by the Company Executives only if the after-tax net income goal for
71<PAGE>
the Company is exceeded. In particular, the Company Executives are entitled
to receive an additional two-and-one-half percent (2.5%) for each $100,000 by
which the after-tax net income goal is exceeded.
Options ---------------------------------------------------------------------
The Company believes that it is important for executives to have an
equity stake in the Company and, toward this end, makes option grants to key
executives from time to time. In making option awards, the Committee reviews
the level of awards granted to executives at other comparably-sized
companies, the Company's financial performance during the past fiscal year,
the awards granted to other executives within the Company and the individual
officer's specific role at the Company.
In September 1995, the Committee approved a substantial number of stock
option grants to the executive officers as part of the Company's 1995
Performance Incentive Grants. These options were granted at fair market
value, begin to vest seven years after the grant date and expire 10 years
after the grant date. The vesting of the options can be accelerated if
certain profit and stock price goals are achieved. The 1995 Performance
Incentive Grants are intended to be one-time grants under the Company's Long-
Term Incentive Plan. Except for promotions or new hires, the Committee does
not currently anticipate granting any additional stock options to the
Company's executive officers until 1998.
Other Benefits --------------------------------------------------------------
Executive officers are eligible to participate in benefit programs
designed for all full-time employees of the Company. These programs include
medical, disability and life insurance and a qualified retirement program
allowed under Section 401(k) of the Internal Revenue Code, as amended (the
"Code").
Chief Executive Officer Compensation ----------------------------------------
Dr. John G. Sperling is the founder, President and Chairman of the Board
of Directors of the Company. In December 1993, the Company entered into an
employment agreement (the "Employment Agreement") and deferred compensation
agreement (the "Deferred Compensation Agreement") with Dr. Sperling. The
Employment Agreement terminates on December 31, 1997, but is automatically
renewable for additional one-year terms. The Deferred Compensation Agreement
provides that upon Dr. Sperling's termination of employment with the Company
and until his death, Dr. Sperling shall receive monthly payments equal to
1/12 of his highest annual base salary paid by the Company during any one of
the three calendar years preceding the calendar year in which Dr. Sperling's
employment is terminated. In addition, upon Dr. Sperling's death, his
designated beneficiary shall be paid an amount equal to three times his
highest annual base salary in 36 equal monthly installments with the first
installment due on the first day of the month following the month of Dr.
Sperling's death.
During fiscal year 1996, Dr. Sperling received an annual base salary of
$310,000. In addition, because the after-tax net income goal for the Company
was exceeded, Dr. Sperling was paid a bonus of $232,500 for 1996. Dr.
Sperling also was granted options in September 1995 to purchase a total of
72<PAGE>
137,250 shares of Class A Common Stock in connection with the 1995
Performance Incentive Grants. All options were granted at fair market value
and expire ten years after the grant date. These options have an exercise
price of $11.30 per share with various vesting periods.
Under Dr. Sperling's leadership, the Company's net revenues increased
31.1%, to $214.3 million in 1996 from $163.4 million in 1995. In addition,
earnings per share increased to $.42 in 1996 from $.27 in 1995. Shareholder
value also has increased over this same period. For example, the closing
price at August 31, 1995 was $8.89 per share whereas the closing price for
the Company's Class A Common Stock on August 31, 1996, as reported on the
Nasdaq National Market, was $25.50 per share.
All share numbers and prices contained in this report have been adjusted
for the stock splits effected in the form of stock dividends that were
approved by the Company's Board of Directors.
-- COMPENSATION COMMITTEE --
Thomas C. Weir
Dino J. DeConcini
J. Jorge Klor de Alva, Ph.D.
73<PAGE>
STOCK PERFORMANCE GRAPH
The line graph below compares the cumulative total shareholder return on
the Company's Class A Common Stock with the cumulative total return for the
Standard & Poor's 400 Index and an index of Company-selected peer group
companies for the period from December 6, 1994 (the effective date of the
Company's initial public offering) through August 31, 1996. The graph
assumes that the value of the investment in the Company's Class A Common
Stock and each index was $100 at December 6, 1994, and that all dividends
paid by those companies included in the indexes were reinvested.
<TABLE>
<CAPTION>
Dec. 6 Aug. 31 Aug. 31
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Apollo Group, Inc. Class A Common Stock $100.00 $336.80 $966.30
S&P 400 100.00 123.40 143.23
Education Peer Group 100.00 130.82 140.96
</TABLE>
The education peer group is composed of the publicly-traded common stock
of 16 education-related companies that include Berlitz International, Inc.,
California Culinary Academy, Inc., Canterbury Corporate Services Inc.,
Children's Discovery Centers of America, Inc., DeVry Inc., Education
Alternatives, Inc., Flightsafety International, Industrial Training Corp.,
ITT Educational Services, Inc., KinderCare Learning Centers, Inc., National
Education Corporation, Nobel Education Dynamics, Inc., Sylvan Learning
Systems, Inc., TRO Learning, Inc., Wave Technologies International, Inc. and
Whitman Medical Corp. Two of the companies included in prior year's
education peer group are not included above as their stock was not
publicly-traded at August 31, 1996.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee reviews and acts on matters
relating to compensation levels and benefit plans for the Company's executive
officers. The Compensation Committee currently consists of Thomas C. Weir
and Dino J. DeConcini.
74<PAGE>
Item 12 -- Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock of the Company as of October 10,
1996. Except as otherwise indicated, to the knowledge of the Company, all
persons listed below have sole voting and investment power with respect to
their shares, except to the extent that authority is shared by spouses under
applicable law or as otherwise noted below.
<TABLE>
<CAPTION>
Class A Class B
Shares Shares
of Common of Common
Name and Address of Beneficial Owner<F1> Stock % Owned Stock % Owned
- --------------------------------------- ---------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
John G. Sperling 11,118,364<F2><F3> 22.4% 243,081<F12> 42.2%
Peter V. Sperling 11,642,594<F2><F4> 23.5 232,068<F13> 40.3
William H. Gibbs 749,113<F5> 1.5 27,950<F14> 4.9
Jerry F. Noble 885,797<F6> 1.8 27,950 4.9
John D. Murphy 930,467<F7> 1.9 27,950<F15> 4.9
J. Jorge Klor de Alva 58,500<F8> .1 -- --
Dino J. DeConcini 45,825<F9> .1 -- --
Thomas C. Weir 45,000<F10> .1 -- --
Total for All Directors and Executive
Officers as a Group (10 persons) 24,493,537<F11> 48.3 575,769 100.0
_______________
<FN>
<F1> The address of each of the listed shareholders, unless noted
otherwise, is in care of Apollo Group, Inc., 4615 East Elwood Street,
Phoenix, Arizona 85040.
<F2> Includes 1,498,360 shares held by the John Sperling 1994 Irrevocable
Trust dated April 27, 1994 for which Messrs. John and Peter Sperling
are the co-trustees.
<F3> Includes 273,492 shares that Mr. John Sperling has the right to
acquire within 60 days of the date of the table set forth above.
<F4> Includes 165,744 shares that Mr. Peter Sperling has the right to
acquire within 60 days of the date of the table set forth above.
<F5> Includes 163,089 shares that Mr. Gibbs has the right to acquire within
60 days of the date of the table set forth above.
<F6> Includes 178,182 shares that Mr. Noble has the right to acquire within
60 days of the date of the table set forth above.
<F7> Includes 193,275 shares that Mr. Murphy has the right to acquire
within 60 days of the date of the table set forth above.
<F8> These are shares that Mr. Klor de Alva has the right to acquire within
60 days of the date of the table set forth above.
<F9> Includes 45,375 shares that Mr. DeConcini has the right to acquire
within 60 days of the date of the table set forth above.
<F10> Includes 43,500 shares that Mr. Weir has the right to acquire within
60 days of the date of the table set forth above.
75<PAGE>
<F11> Includes 1,232,440 shares that all Directors and Executive Officers as
a group have the right to acquire within 60 days of the date of the
table set forth.
<F12> Includes 243,080 shares held by the John G. Sperling Revocable Trust
dated January 31, 1995.
<F13> Includes 232,067 shares held by the Peter V. Sperling Revocable Trust
dated January 31, 1995.
<F14> Includes 27,949 shares held by the William H. Gibbs Revocable Trust
dated March 8, 1995.
<F15> Includes 27,949 shares held by the John D. Murphy Revocable Trust
dated February 26, 1993.
</FN>
</TABLE>
Item 13 -- Certain Relationships and Related Transactions
The Company believes that all transactions it has entered into with
affiliates were at arm's length and on terms as favorable as could have been
obtained from unaffiliated parties.
76<PAGE>
PART IV
Item 14 -- Exhibits, Financial Statement Schedules, and Reports on Form 8-K
Sequentially
Numbered
Page or Method
of Filing
----------------
A. Financial Statements
(1) Report of Price Waterhouse LLP Page 41
(2) Consolidated Financial Statements
(a) Statement of Operations for the Years
Ended August 31, 1996, 1995 and 1994 Page 42
(b) Balance Sheet as of August 31, 1996
and 1995 Page 43
(c) Statement of Changes in Shareholders'
Equity for the Years Ended August 31,
1996, 1995 and 1994 Page 44
(d) Statement of Cash Flows for the Years
Ended August 31, 1996, 1995 and 1994 Page 45
(e) Notes to Consolidated Financial Statements Page 46
B. Financial Statement Schedule:
None.
C. Exhibits
Sequentially
Numbered
Exhibit Page or Method
Number Description of Exhibit of Filing
------- --------------------------------------- ----------------
3.1 Restated and Amended Articles of Page 82
Incorporation of the Registrant
(As Amended Through October 15, 1996)
3.2 Amended Bylaws of the Registrant Page 86
(As Amended Through June 1996)
4 Restated and Amended Articles of Page 82
Incorporation of the Registrant
filed as Exhibit 3.1
10.1 Business Loan Agreement between Page 100
Apollo Group, Inc. and First
Interstate Bank
77<PAGE>
Sequentially
Numbered
Exhibit Page or Method
Number Description of Exhibit of Filing
------- --------------------------------------- ----------------
10.2 Apollo Group, Inc. Director Stock Incorporated by
Plan reference to
Exhibit 10.2 of
the August 31,
1995 Form 10-K
10.3 Apollo Group, Inc. Long-Term Incorporated by
Incentive Plan reference to
Exhibit 10.3 of
Form S-1 No.
33-83804
10.4 Apollo Group, Inc. Savings and Page 136
Investment Plan
10.5 Apollo Group, Inc. 1994 Employee Page 194
Stock Purchase Plan (As Amended
Through August 1996)
10.6 Employment Agreement between Apollo Incorporated by
Group, Inc. and John G. Sperling reference to
Exhibit 10.6 of
Form S-1 No.
33-83804
10.7 Deferred Compensation Agreement between Incorporated by
John G. Sperling and Apollo Group, Inc. reference to
Exhibit 10.7 of
Form S-1 No.
33-83804
10.8 Deferred Compensation Agreement between Incorporated by
Apollo Group, Inc. and Carole A. reference to
Crawford Exhibit 10.8 of
Form S-1 No.
33-83804
10.9 Lease Agreement between Apollo Group, Incorporated by
Inc. and Kaiser Center Partners reference to
Exhibit 10.9 of
Form S-1 No.
33-83804
10.10 Shareholder Agreement Dated September Incorporated by
7, 1994 . reference to
Exhibit 10.10 of
Form S-1 No.
33-83804
78<PAGE>
Sequentially
Numbered
Exhibit Page or Method
Number Description of Exhibit of Filing
------- --------------------------------------- ----------------
10.11 Agreement of Purchase and Sale of Incorporated by
Assets of Western International reference to
University Dated June 30, 1995 Exhibit 10.11 of
(without schedules and exhibits) Form 10-K for
Year Ended
August 31, 1995
10.12 Purchase and Sale Agreement Dated Page 204
October 10, 1995
21 List of Subsidiaries Incorporated by
reference to
Exhibit 21 of
Form S-1 No.
33-83804
23.1 Consent of Price Waterhouse LLP Page 230
24 Power of Attorney See Signature
Page
27 Financial Data Schedule Page 231
99.1 Form of Agreement of Institute for Incorporated by
Professional Development reference to
Exhibit 99.1 of
Form S-1 No.
33-83804
D. Reports on Form 8-K
During the last quarter of the 1996 fiscal year, the Company filed no
reports on Form 8-K.
79<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Phoenix, State of Arizona, on October 25, 1996.
APOLLO GROUP, INC.
An Arizona Corporation
By: /s/ John G. Sperling
--------------------------------
John G. Sperling
President, Chief Executive
Officer and Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints John G. Sperling and James W. Hoggatt, and
each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this Form
10-K Annual Report, and to file the same, with all exhibits thereto, and
other documents in connection therewith with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person hereby ratifying
and confirming all that said attorneys-in-fact and agents, or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report on Form 10-K has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date
- -----------------------------------------------------------------------------
/s/ John G. Sperling Chairman of the Board October 25, 1996
- ------------------------- of Directors and President
John G. Sperling (Principal Executive Officer)
/s/ William H. Gibbs Senior Vice President and October 25, 1996
- ------------------------- Director
William H. Gibbs
/s/ Jerry F. Noble Senior Vice President and October 25, 1996
- ------------------------- Director
Jerry F. Noble
80<PAGE>
Signature Title Date
- -----------------------------------------------------------------------------
/s/ Peter V. Sperling Vice President of October 25, 1996
- ------------------------- Administration, Secretary,
Peter V. Sperling Treasurer and Director
/s/ J. Jorge Klor de Alva Vice President of Business October 25, 1996
- ------------------------- Development and Director
J. Jorge Klor de Alva
/s/ James W. Hoggatt Vice President of Finance October 25, 1996
- ------------------------- and Chief Financial Officer
James W. Hoggatt (Principal Financial and
Accounting Officer)
/s/ Dino J. DeConcini Director October 25, 1996
- -------------------------
Dino J. DeConcini
/s/ Thomas C. Weir Director October 25, 1996
- -------------------------
Thomas C. Weir
81<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
APOLLO GROUP, INC.
FIRST: The name of the corporation is APOLLO GROUP, INC.
SECOND: The purposes for which the corporation is organized include the
transaction of any or all lawful business for which corporations may be
incorporated under Chapter 1 of Title 10, Arizona Revised Statutes, at any
time. The character of business which the corporation conducts in the State
of Arizona is that of a holding company of stock of corporations which are
engaged in the business of the operation and management of institutions of
higher education.
THIRD: The total number of shares of capital stock which the
corporation shall have the authority to issue is 404 million shares,
consisting of three classes of capital stock:
(a) 400 million shares of Class A Common Stock, no par value per share
(the "Class A Common Stock");
(b) 3 million shares of Class B Common Stock, no par value per share
(the "Class B Common Stock") (the Class A Common Stock and the
Class B Common Stock collectively are sometimes referred to as the
"Common Stock"); and
(c) 1 million shares of Preferred Stock, no par value per share (the
"Preferred Stock").
COMMON STOCK
IDENTICAL RIGHTS. Except as otherwise set forth in this Article THIRD,
the rights and privileges of the Common Stock shall be identical, including
(without limitation) the right to participate ratably in dividends and
liquidation distributions.
VOTING RIGHTS. Except as otherwise provided herein, the shares of Class
A Common Stock shall not be entitled to vote on any matter. Each share of
Class B Common Stock shall be entitled to one vote.
DIVIDENDS. Holders of Common Stock shall be entitled to share ratably
and simultaneously as a single class in all dividends and other distributions
of cash, shares of capital stock of the corporation, other securities of the
corporation or any other company, or any other right or property as may be
declared thereon by the board of directors from time to time out of assets or
funds of the corporation legally available therefor. Any dividends payable
in common stock of the corporation will be payable solely in Class A Common
Stock.
PREEMPTION AND SUBSCRIPTION RIGHTS. Holders of Common Stock are not
entitled to any preemption or subscription rights with respect to their
shares of Common Stock.
<PAGE>
CONVERSION RIGHTS. No Class A Common Stock may ever be converted into
Class B Common Stock. Each share of Class B Common Stock is convertible into
Class A Common Stock at any time at the option of the holder thereof. Such
conversion shall be on a share-for-share basis, one fully paid and
non-assessable share of Class A Common Stock for each share of Class B Common
Stock so converted.
At the time of a conversion, the record holders of Class B Common Stock
shall deliver to the office of the corporation or any transfer agent for the
Class A Common Stock (i) the certificate or certificates representing the
Class B Common Stock to be converted, duly endorsed in blank or accompanied
by proper instruments of transfer and (ii) written notice to the corporation
stating that such record holder elects to convert such share or shares.
Conversion shall be deemed to have been effected at the close of business on
the date when such delivery is made to the corporation of the shares to be
converted, and the person exercising such voluntary conversion shall be
deemed to be the holder of record of the number of shares of Class A Common
Stock issuable upon such conversion at such time. The corporation shall
promptly deliver certificates evidencing the appropriate number of shares of
Class A Common Stock to such person.
In the event of the conversion of less than all of the shares of Class B
Common Stock evidenced by a certificate surrendered to the corporation in
accordance with the procedures of this Article THIRD, the corporation shall
execute and deliver to the holder of such certificate, without charge to such
holder, a new certificate evidencing the number of shares of Class B Common
Stock not converted. Shares of Class B Common Stock that are converted into
Class A Common Stock as provided herein shall be retired and canceled and
shall not be reissued.
RESERVATION. The corporation hereby reserves and shall at all times
reserve and keep available, out of its authorized and unissued shares of
Class A Common Stock, for the purposes of effecting conversions, such number
of duly authorized shares of Class A Common Stock as shall from time to time
be sufficient to effect the conversion of all outstanding shares of Class B
Common Stock. All the shares of Class A Common Stock so issuable shall, when
so issued, be duly and validly issued, fully paid and non-assessable.
CONSIDERATION ON MERGER, CONSOLIDATION, ETC. In any merger,
consolidation, or business combination, the consideration to be received per
share by the holders of Class A Common Stock and Class B Common Stock must be
identical for each class of stock, except that in any such transaction in
which shares of Common Stock are to be distributed, such shares may differ as
to voting rights to the extent that voting rights now differ among the Class
A Common Stock and the Class B Common Stock.
LIQUIDATION. In the event the corporation shall be liquidated (either
partially or completely), dissolved, or wound up, whether voluntarily or
involuntarily, the holders of Common Stock shall be entitled to share ratably
as a single class in the net assets of the corporation available to holders
of Common Stock; that is, an equal amount of net assets shall be distributed
in respect of each share of Class A Common Stock and Class B Common Stock.
CLASS B COMMON STOCK. There are 575,769 shares of Class B Common Stock
issued and outstanding. No additional shares of Class B Common Stock shall
be issued, except pursuant to any recapitalization or stock split where such
recapitalization or stock split results in a proportionate change in the
shares of Class A Common Stock.
<PAGE>
AUTOMATIC CONVERSION OF CLASS B COMMON STOCK. If at any time the total
number of shares of Class B Common Stock outstanding is less than 115,154
(20% of the total number of shares of Class B Common Stock issued and
outstanding) (subject to adjustment for any recapitalization or stock split),
then each share of Class B Common Stock shall be automatically converted into
one fully paid and non-assessable share of Class A Common Stock at such time
(the "Conversion Date"). Thereafter, each share of Class A Common Stock
shall be entitled to one vote.
At the time of a conversion, the record holders of Class B Common Stock
shall deliver to the office of the corporation or any transfer agent for the
Class A Common Stock the certificate or certificates representing the Class B
Common Stock, duly endorsed in blank or accompanied by proper instruments of
transfer. Conversion shall be deemed to have been effected at the close of
business on the Conversion Date. The corporation shall promptly deliver
certificates evidencing the appropriate number of shares of Class A Common
Stock to each record holder of Class B Common Stock.
NO AMENDMENT OR MODIFICATION. The two immediately preceding sections
entitled "CLASS B COMMON STOCK" and "AUTOMATIC CONVERSION OF CLASS B COMMON
STOCK" shall be amended or modified only upon: (1) a separate majority vote
of the holders of the Class A Common Stock voting as a class; (2) a separate
majority vote of the holders of the Class B Common Stock voting as a class;
and (3) a separate majority vote of the holders of the Class A Common Stock
who do not possess beneficial ownership of any shares of Class B Common
Stock.
PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time in one or more
series as may be determined by the board of directors. Subject to the
provisions of this Article THIRD, the board of directors is authorized to
determine the designations, preferences, privileges, and voting powers of the
shares of each series of Preferred Stock, and the restrictions and
qualifications thereof, by resolution duly adopted prior to the issuance of
any shares of Preferred Stock, PROVIDED that no series of Preferred Stock
shall be entitled to vote on any matter unless also authorized by the holders
of at least 80% of the issued and outstanding Class B Common Stock. All
shares of Preferred Stock shall rank senior to the Common Stock in respect of
the right to receive dividends and the right to receive payment out of the
assets of the corporation upon voluntary or involuntary liquidation,
dissolution, or winding up of the corporation.
FOURTH: The name and address of the statutory agent of the corporation
is CT CORPORATION SYSTEM, 3225 North Central Avenue, Phoenix, Arizona 85012.
The address of the place of business of the corporation is 4615 East Elwood
Street Phoenix, Arizona 85040.
FIFTH: The number of directors constituting the board of directors of
the corporation is eight. The names and addresses of the persons who are to
serve as directors until the next annual meeting of shareholders, or until
their successors are elected and qualified, are:
<PAGE>
Name Address
- ------------------------- -------------------------------------
John G. Sperling 4615 East Elwood Street
Phoenix, Arizona 85040
William H. Gibbs 4615 East Elwood Street
Phoenix, Arizona 85040
Jerry F. Noble 4615 East Elwood Street
Phoenix, Arizona 85040
John D. Murphy 4615 East Elwood Street
Phoenix, Arizona 85040
Peter V. Sperling 4615 East Elwood Street
Phoenix, Arizona 85040
Thomas C. Weir 4615 East Elwood Street
Phoenix, Arizona 85040
J. Jorge Klor de Alva 4615 East Elwood Street
Phoenix, Arizona 85040
Dino J. DeConcini 4615 East Elwood Street
Phoenix, Arizona 85040
SIXTH: A quorum for the transaction of business at any meeting or
adjourned meeting of the Board of Directors shall consist of one-third (1/3)
of those then in office.
SEVENTH: A director of the corporation shall not be personally liable
to the corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director, except for liability for any of the following:
(a) any breach of the director's duty of loyalty to the corporation or
its shareholders,
(b) acts or omissions which are not in good faith or which involve
intentional misconduct or a knowing violation of law,
(c) authorizing the unlawful payment of a dividend or other
distribution on the corporation's capital stock or the unlawful
purchase of its capital stock,
(d) any transaction from which the director derived an improper
personal benefit, or
(e) a violation of Arizona Revised Statutes Section 10-041.
Any repeal or modification of the foregoing paragraph shall not
adversely affect any right or protection of a director of the corporation
existing hereunder with respect to any act or omission occurring prior to or
at the time of such repeal or modification.
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
APOLLO GROUP, INC.
(As amended through June 1996)
I. REFERENCES TO CERTAIN TERMS AND CONSTRUCTION
1.01. Certain References. Any reference herein made to law will be deemed
to refer to the law of the State of Arizona, including any applicable
provision of Chapters 1 through 17 of Title 10 of the Arizona Revised
Statutes, or any successor statute, as from time to time amended and
in effect (sometimes referred to herein as the "Arizona Business
Corporation Act"). Any reference herein made to the corporation's
Articles will be deemed to refer to its Articles of Incorporation and
all amendments thereto as at any given time on file with the Arizona
Corporation Commission. Except as otherwise required by law and
subject to any procedures established by the corporation pursuant to
Arizona Revised Statutes Section 723, the term "shareholder" as used
herein shall mean one who is a holder of record of shares of the
corporation. References to specific sections of law herein made shall
be deemed to refer to such sections, or any comparable successor
provisions, as from time to time amended and in effect.
1.02. Seniority. The law and the Articles (in that order of precedence)
will in all respects be considered senior and superior to these
Bylaws, with any inconsistency to be resolved in favor of the law and
such Articles (in that order of precedence), and with these Bylaws to
be deemed automatically amended from time to time to eliminate any
such inconsistency which may then exist.
1.03. Computation of Time. The time during which an act is required to be
done, including the time for the giving of any required notice herein,
shall be computed by excluding the first day or hour, as the case may
be, and including the last day or hour.
II. OFFICES
2.01. Principal Office. The principal office of the corporation shall be
located at any place either within or outside the State of Arizona as
designated in the corporation's most current Annual Report filed with
the Arizona Corporation Commission or in any other document executed
and delivered to the Arizona Corporation Commission for filing. If a
principal office is not so designated, the principal office of the
corporation shall mean the known place of business of the corporation.
The corporation may have such other offices, either within or without
the State of Arizona, as the Board of Directors may designate or as
the business of the corporation may require from time to time.
2.02. Known Place of Business. A known place of business of the corporation
shall be located within the State of Arizona and may be, but need not
be, the address of the statutory agent of the corporation. The
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corporation may change its known place of business from time to time
in accordance with the relevant provisions of the Arizona Business
Corporation Act.
III. SHAREHOLDERS
3.01. Annual Meetings of Class A Shareholders. Each annual meeting of the
Class A shareholders is to be held on the third Wednesday in the month
of January of each year (unless that day be a legal holiday, in which
event the annual meeting will be held on the next succeeding business
day) at a time and place as determined by the Board of Directors or,
in the absence of action by the Board, as set forth in the notice
given, or waiver signed, with respect to such meeting pursuant to
Section 3.03 below. At the annual meeting, the Board of Directors
shall report on the corporation's financial results for the past year
and other matters. If any annual meeting is for any reason not held
on the date determined as aforesaid, a deferred annual meeting may
thereafter be called and held in lieu thereof, at which the same
proceedings may be conducted.
3.02. Annual Meetings of Class B Shareholders. Each annual meeting of the
Class B shareholders is to be held on the first Wednesday in the month
of December of each year (unless that day be a legal holiday, in which
event the annual meeting will be held on the next succeeding business
day) at a time and place as determined by the Board of Directors or,
in the absence of action by the Board, as set forth in the notice
given, or waiver signed, with respect to such meeting pursuant to
Section 3.03 below. At the annual meeting, the Class B shareholders
shall elect a Board of Directors and transact such other business as
may be properly brought before the meeting. If any annual meeting is
for any reason not held on the date determined as aforesaid, a
deferred annual meeting may thereafter be called and held in lieu
thereof, at which the same proceedings may be conducted. Any Director
elected at any annual meeting, deferred annual meeting, or special
meeting will continue in office until the election of his or her
successor, subject to his or her earlier resignation pursuant to
Section 7.01 below.
3.03. Special Shareholder Meetings. Special meetings of the shareholders
may be held whenever and wherever, either within or without the State
of Arizona, called for by or at the direction of the Chairman of the
Board, the President, or the Board of Directors. A special meeting of
shareholders shall also be called by the President or the Secretary at
the written request of the holder or holders of not less than 50% of
all outstanding votes entitled to be cast on any matter to be voted on
at the meeting. Any such written request by shareholders shall state
the purpose or purposes of the proposed meeting, and business to be
transacted at any such meeting shall be confined to the purposes
stated in the notice thereof and to such additional matters as the
chairman of the meeting may rule to be germane to such purposes.
3.04. Notice of Shareholders Meetings.
(a) Required Notice. Notice stating the place, day and hour of any
annual or special shareholders meeting shall be given not less
than ten (10) nor more than sixty (60) days before the date of
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the meeting by or at the direction of the person or persons
calling the meeting, to each shareholder entitled to vote at such
meeting and to any other shareholder entitled to receive notice
of the meeting by law or the Articles. Notices to shareholders
shall be given in accordance with, and shall be deemed to be
effective at the time and in the manner described in, Arizona
Revised Statutes Section 10-141. If no designation is made of
the place at which an annual or special meeting will be held in
the notice for such meeting, the place of the meeting will be at
the principal place of business of the corporation.
(b) Adjourned Meeting. If any shareholders meeting is adjourned to a
different date, time, or place, notice need not be given of the
new date, time, and place, if the new date, time, and place are
announced at the meeting before adjournment. But if a new record
date for the adjourned meeting is fixed or must be fixed in
accordance with law or these Bylaws, then notice of the adjourned
meeting shall be given to those persons who are shareholders as
of the new record date and who are entitled to such notice
pursuant to Section 3.03(a) above.
(c) Waiver of Notice. Any shareholder may waive notice of a meeting
(or any notice of any other action required to be given by the
Arizona Business Corporation Act, the corporation's Articles, or
these Bylaws), at any time before, during, or after the meeting
or other action, by a writing signed by the shareholder entitled
to the notice. Each such waiver shall be delivered to the
corporation for inclusion in the minutes or filing with the
corporate records. Under certain circumstances, a shareholder's
attendance at a meeting may constitute a waiver of notice, unless
the shareholder takes certain actions to preserve his/her
objections as described in the Arizona Business Corporation Act.
(d) Contents of Notice. The notice of each special shareholders
meeting shall include a description of the purpose or purposes
for which the meeting is called. Except as required by law or
the corporation's Articles, the notice of an annual shareholders
meeting need not include a description of the purpose or purposes
for which the meeting is called.
3.05. Fixing of Record Date. For the purpose of determining shareholders of
any voting group entitled to notice of or to vote at any meeting of
shareholders, or shareholders entitled to receive any distribution or
dividend, or in order to make a determination of shareholders for any
other proper purpose, the Board of Directors may fix in advance a date
as the record date. Such record date shall not be more than seventy
(70) days prior to the date on which the particular action requiring
such determination of shareholders is to be taken. If no record date
is so fixed by the Board of Directors, the record date for the
determination of shareholders shall be as provided in the Arizona
Business Corporation Act.
When a determination of shareholders entitled to notice of or to vote
at any meeting of shareholders has been made as provided in this
Section, such determination shall apply to any adjournment thereof,
unless the Board of Directors fixes a new record date, which it must
do if the meeting is adjourned to a date more than one hundred twenty
(120) days after the date fixed for the original meeting.
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3.06. Shareholder List. The corporation shall make a complete record of the
shareholders entitled to notice of each meeting of shareholders
thereof, arranged in alphabetical order, listing the address and the
number of shares held by each. The list shall be arranged by voting
group and within each voting group by class or series of shares. The
shareholder list shall be available for inspection by any shareholder,
beginning two (2) business days after notice of the meeting is given
for which the list was prepared and continuing through the meeting.
The list shall be available at the corporation's principal office or
at another place identified in the meeting notice in the city where
the meeting is to be held. Failure to comply with this section shall
not affect the validity of any action taken at the meeting.
3.07. Shareholder Quorum and Voting Requirements.
(a) If the Articles or the Arizona Business Corporation Act provide
for voting by a single voting group on a matter, action on that
matter is taken when voted upon by that voting group.
(b) If the Articles or the Arizona Business Corporation Act provide
for voting by two (2) or more voting groups on a matter, action
on that matter is taken only when voted upon by each of those
voting groups counted separately.
(c) Shares entitled to vote as a separate voting group may take
action on a matter at a meeting only if a quorum of those shares
exists with respect to that matter. Unless the Articles or the
Arizona Business Corporation Act provide otherwise, a majority of
the votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group for action on that
matter.
(d) Once a share is represented for any purpose at a meeting, it is
deemed present for quorum purposes for the remainder of the
meeting and for any adjournment of that meeting, unless a new
record date is or must be set for that adjourned meeting.
(e) If a quorum exists, action on a matter (other than the election
of directors) by a voting group is approved if the votes cast
within the voting group favoring the action exceed the votes cast
opposing the action, unless the Articles or the Arizona Business
Corporation Act require a greater number of affirmative votes.
(f) Voting will be by ballot on any question as to which a ballot
vote is demanded prior to the time the voting begins by any
person entitled to vote on such question; otherwise, a voice vote
will suffice. No ballot or change of vote will be accepted after
the polls have been declared closed following the ending of the
announced time for voting.
3.08. Proxies. At all meetings of shareholders, a shareholder may vote in
person or by proxy duly executed in writing by the shareholder or the
shareholder's duly authorized attorney-in-fact. Such proxy shall
comply with law and shall be filed with the Secretary of the
corporation or other person authorized to tabulate votes before or at
the time of the meeting. No proxy shall be valid after eleven (11)
months from the date of its execution unless otherwise provided in the
proxy. The burden of proving the validity of any undated,
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irrevocable, or otherwise contested proxy at a meeting of the
shareholders will rest with the person seeking to exercise the same.
A facsimile appearing to have been transmitted by a shareholder or by
such shareholder's duly authorized attorney-in-fact may be accepted as
a sufficiently written and executed proxy.
3.09. Voting of Shares. Unless otherwise provided in the Articles or the
Arizona Business Corporation Act, each outstanding share entitled to
vote shall be entitled to one (1) vote upon each matter submitted to a
vote at a meeting of shareholders.
3.10. Voting for Directors. Unless otherwise provided in the Articles,
directors are elected by a plurality of the votes cast by the shares
entitled to vote in the election at a meeting at which a quorum is
present at the time of such vote. As provided by law, shareholders
shall be entitled to cumulative voting in the election of directors.
3.11. Election Inspectors. The Board of Directors, in advance of any
meeting of the shareholders, may appoint an election inspector or
inspectors to act at such meeting (and at any adjournment thereof).
If an election inspector or inspectors are not so appointed, the
chairman of the meeting may, or upon request of any person entitled to
vote at the meeting will, make such appointment. If any person
appointed as an inspector fails to appear or to act, a substitute may
be appointed by the chairman of the meeting. If appointed, the
election inspector or inspectors (acting through a majority of them if
there be more than one) will determine the number of shares
outstanding, the authenticity, validity, and effect of proxies, the
credentials of persons purporting to be shareholders or persons named
or referred to in proxies, and the number of shares represented at the
meeting in person and by proxy; will receive and count votes, ballots,
and consents and announce the results thereof; will hear and determine
all challenges and questions pertaining to proxies and voting; and, in
general, will perform such acts as may be proper to conduct elections
and voting with complete fairness to all shareholders. No such
election inspector need be a shareholder of the corporation.
3.12. Organization and Conduct of Meetings. Each meeting of the
shareholders will be called to order and thereafter chaired by the
Chairman of the Board of Directors if there is one, or, if not, or if
the Chairman of the Board is absent or so requests, then by the
President, or if both the Chairman of the Board and the President are
unavailable, then by such other officer of the corporation or such
shareholder as may be appointed by the Board of Directors. The
corporation's Secretary or in his or her absence, an Assistant
Secretary will act as secretary of each meeting of the shareholders.
If neither the Secretary nor an Assistant Secretary is in attendance,
the chairman of the meeting may appoint any person (whether a
shareholder or not) to act as secretary for the meeting. After
calling a meeting to order, the chairman thereof may require the
registration of all shareholders intending to vote in person and the
filing of all proxies with the election inspector or inspectors, if
one or more have been appointed (or, if not, with the secretary of the
meeting). After the announced time for such filing of proxies has
ended, no further proxies or changes, substitutions, or revocations of
proxies will be accepted. If directors are to be elected, a
tabulation of the proxies so filed will, if any person entitled to
vote in such election so requests, be announced at the meeting (or
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adjournment thereof) prior to the closing of the election polls.
Absent a showing of bad faith on his or her part, the chairman of a
meeting will, among other things, have absolute authority to fix the
period of time allowed for the registration of shareholders and the
filing of proxies, to determine the order of business to be conducted
at such meeting, and to establish reasonable rules for expediting the
business of the meeting and preserving the orderly conduct thereof
(including any informal, or question and answer portions thereof).
3.13. Shareholder Approval or Ratification. The Board of Directors may
submit any contract or act for approval or ratification of the
shareholders at a duly constituted meeting of the shareholders.
Except as otherwise required by law, if any contract or act so
submitted is approved or ratified by a majority of the votes cast
thereon at such meeting, the same will be valid and as binding upon
the corporation and all of its shareholders as it would be if it were
the act of its shareholders.
3.14. Informalities and Irregularities. All informalities or irregularities
in any call or notice of a meeting of the shareholders or in the areas
of credentials, proxies, quorums, voting, and similar matters, will be
deemed waived if no objection is made at the meeting.
3.15. Shareholder Action by Written Consent. Any action required or
permitted to be taken at a meeting of the shareholders may be taken
without a meeting if one (1) or more consents in writing, setting
forth the action so taken, shall be signed by all of the shareholders
entitled to vote with respect to the subject matter thereof. The
consents shall be delivered to the corporation for inclusion in the
minutes or filing with the corporate record. Action taken by consent
is effective when the last shareholder signs the consent, unless the
consent specifies a different effective date, except that if, by law,
the action to be taken requires that notice be given to shareholders
who are not entitled to vote on the matter, the effective date shall
not be prior to ten (10) days after the corporation shall give such
shareholders written notice of the proposed action, which notice shall
contain or be accompanied by the same material that would have been
required if a formal meeting had been called to consider the action.
A consent signed under this section has the effect of a meeting vote
and may be described as such in any document.
IV. BOARD OF DIRECTORS
4.01. General Powers. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the corporation
shall be managed under the direction of, the Board of Directors.
4.02. Number, Tenure, and Qualification of Directors. Unless otherwise
provided in the Articles of Incorporation, the authorized number of
directors shall be not less than one nor more than fifteen. The
number of directors in office from time to time shall be within the
limits specified above, as prescribed from time to time by resolution
adopted by either the shareholders or the Board of Directors. The
directors will regularly be elected at each annual meeting of the
Class B shareholders, but directors may be elected at any other
meeting of the shareholders. Each director shall hold office until
the annual meeting of Class B shareholders following his/her election,
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subject to his/her earlier resignation or removal. However, if a
director's term expires, he/she shall continue to serve until his/her
successor shall have been elected and qualified, until his/her
resignation or removal, or until there is a decrease in the number of
directors. Unless required by the Articles, directors do not need to
be residents of the State of Arizona or shareholders of the
corporation.
4.03. Regular Meetings of the Board of Directors. A regular annual meeting
of the Board of Directors is to be held as soon as practicable after
the adjournment of each annual meeting of the Class B shareholders,
either at the place of the Class B shareholders meeting or at such
other place as the directors elected at the shareholders meeting may
have been informed of at or prior to the time of their election.
Additional regular meetings may be held at regular intervals at such
places and at such times as the Board of Directors may determine.
4.04. Special Meetings of the Board of Directors. Special meetings of the
Board of Directors may be held whenever and wherever called for by the
Chairman of the Board, the President, or the number of directors that
would be required to constitute a quorum.
4.05. Notice of, and Waiver of Notice for, Directors Meetings. No notice
need be given of regular meetings of the Board of Directors. Notice
of the time and place of any special directors meeting shall be given
at least 48 hours prior thereto. Notice shall be given in accordance
with and shall be deemed to be effective at the time and in the manner
described in Arizona Revised Statutes Section 10-141. Any director
may waive notice of any meeting and any adjournment thereof at any
time before, during, or after it is held. Except as provided in the
next sentence below, the waiver must be in writing, signed by the
director entitled to the notice, and filed with the minutes or
corporate records. The attendance of a director at or participation
of a director in a meeting shall constitute a waiver of notice of such
meeting, unless the director at the beginning of the meeting (or
promptly upon his/her arrival) objects to holding the meeting or
transacting business at the meeting, and does not thereafter vote for
or assent to action taken at the meeting.
4.06. Director Quorum. A majority of the number of directors prescribed
according to Section 4.02 above, or if no number is so prescribed, the
number in office immediately before the meeting begins, shall
constitute a quorum for the transaction of business at any meeting of
the Board of Directors, unless the Articles require a greater number.
4.07. Directors, Manner of Acting.
(a) If a quorum is present when a vote is taken, the affirmative vote
of a majority of the directors present shall be the act of the
Board of Directors unless the Articles require a greater
percentage.
(b) Unless the Articles provide otherwise, any or all directors may
participate in a regular or special meeting by, or conduct the
meeting through the use of, any means of communication by which
all directors participating may simultaneously hear each other
during the meeting, in which case, any required notice of the
meeting may generally describe the arrangements (rather than or
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in addition to the place) for the holding thereof. A director
participating in a meeting by this means is deemed to be present
in person at the meeting.
(c) A director who is present at a meeting of the Board of Directors
or a committee of the Board of Directors when corporate action is
taken is deemed to have assented to the action taken unless: (1)
the director objects at the beginning of the meeting (or promptly
upon his/her arrival) to holding it or transacting business at
the meeting; or (2) his/her dissent or abstention from the action
taken is entered in the minutes of the meeting; or (3) he/she
delivers written notice of his/her dissent or abstention to the
presiding officer of the meeting before its adjournment or to the
corporation before 5:00 p.m. on the next business day after the
meeting. The right of dissent or abstention is not available to
a director who votes in favor of the action taken.
4.08. Director Action Without a Meeting. Unless the Articles provide
otherwise, any action required or permitted to be taken by the Board
of Directors at a meeting may be taken without a meeting if the action
is taken by unanimous written consent of the Board of Directors as
evidenced by one (1) or more written consents describing the action
taken, signed by each director and filed with the minutes or corporate
records. Action taken by consent is effective when the last director
signs the consent, unless the consent specifies a different effective
date. A signed consent has the effect of a meeting vote and may be
described as such in any document.
4.09. Removal of Directors by Class B Shareholders. The Class B
shareholders may remove one (1) or more directors at a meeting called
for that purpose if notice has been given that a purpose of the
meeting is such removal. The removal may be with or without cause
unless the Articles provide that directors may only be removed with
cause. If a director is elected by a voting group of shareholders,
only the shareholders of that voting group may participate in a
shareholder vote to remove him. If less than the entire Board of
Directors is to be removed, a director may not be removed if the
number of votes sufficient to elect the director under cumulative
voting is voted against the director's removal.
4.10. Board of Director Vacancies.
(a) Unless the Articles provide otherwise, if a vacancy occurs on the
Board of Directors, including a vacancy resulting from an
increase in the number of directors, either the shareholders or
the Board of Directors may fill the vacancy.
(b) If the vacant office was held by a director elected by a voting
group of shareholders, only the holders of shares of that voting
group are entitled to vote to fill the vacancy if it is filled by
the shareholders.
(c) A vacancy that will occur at a specific later date (by reason of
resignation effective at a later date) may be filled before the
vacancy occurs, but the new director may not take office until
the vacancy occurs.
(d) The term of a director elected to fill a vacancy expires at the
next shareholders meeting at which directors are elected.
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4.11. Director Compensation. Unless otherwise provided in the Articles by
resolution of the Board of Directors, each director may be paid
his/her expenses, if any, of attendance at each meeting of the Board
of Directors or any committee thereof, and may be paid a stated salary
as director or a fixed sum for attendance at each meeting of the Board
of Directors or any committee thereof, or both. No such payment shall
preclude any director from serving the corporation in any capacity and
receiving compensation therefor.
4.12. Director Committees.
(a) Creation of Committees. Unless the Articles provide otherwise,
the Board of Directors may create one (1) or more committees and
appoint members of the Board of Directors to serve on them. Each
committee shall have one (1) or more members, who serve at the
pleasure of the Board of Directors.
(b) Selection of Members. The creation of a committee and
appointment of members to it shall be approved by the greater of
(1) a majority of all the directors in office when the action is
taken or (2) the number of directors required by the Articles to
take such action.
(c) Required Procedures. Sections 4.03 through 4.08 of this Article
IV, which govern meetings, action without meetings, notice and
waiver of notice, and quorum and voting requirements of the Board
of Directors, apply to committees and their members.
(d) Authority. Unless limited by the Articles, each committee may
exercise those aspects of the authority of the Board of Directors
which the Board of Directors confers upon such committee in the
resolution creating the committee, provided, however, that a
committee may not: (1) authorize distributions; (2) approve or
propose to shareholders action that requires shareholder approval
under the Arizona Business Corporation Act; (3) fill vacancies on
the Board of Directors or on any of its committees; (4) amend the
Articles of Incorporation without shareholder action as provided
by law; (5) adopt, amend or repeal these Bylaws; (6) approve a
plan of merger not requiring shareholder approval; (7) authorize
or approve reacquisition of shares, except according to a formula
or method prescribed by the Board of Directors; (8) authorize or
approve the issuance or sale or contract for sale of shares or
determine the designation and relative rights, preferences, and
limitations of a class or series of shares, except within limits
specifically prescribed by the Board of Directors; or (9) fix the
compensation of directors for serving on the Board of Directors
or any committee of the Board of Directors.
4.13. Director Resignations. Any director or committee member may resign
from his or her office at any time by written notice delivered to the
Board of Directors, the Chairman of the Board, or the corporation at
its known place of business. Any such resignation will be effective
upon its receipt unless some later time is therein fixed, and then
from that time. The acceptance of a resignation will not be required
to make it effective.
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V. OFFICERS
5.01. Number of Officers. The officers of the corporation shall be a
President, a Secretary, and a Treasurer, each of whom shall be
appointed by the Board of Directors. Such other officers and
assistant officers as may be deemed necessary, including any Vice
Presidents, may be appointed by the Board of Directors. If
specifically authorized by the Board of Directors, an officer may
appoint one (1) or more other officers or assistant officers. The
same individual may simultaneously hold more than one (1) office in
the corporation.
5.02. Appointment and Term of Office. The officers of the corporation shall
be appointed by the Board of Directors for a term as determined by the
Board of Directors. The designation of a specified term grants to the
officer no contract rights, and the Board of Directors can remove the
officer at any time prior to the termination of such term. If no term
is specified, an officer of the corporation shall hold office until he
or she resigns, dies, or until he or she is removed in the manner
provided by law or in Section 5.03 of this Article V. The regular
election or appointment of officers will take place at each annual
meeting of the Board of Directors, but elections of officers may be
held at any other meeting of the Board.
5.03. Resignation and Removal of Officers. An officer may resign at any
time by delivering written notice to the corporation at its known
place of business. A resignation is effective when the notice is
delivered unless the notice specifies a later effective date or event.
Any officer may be removed by the Board of Directors at any time, with
or without cause. Such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Appointment of an
officer shall not of itself create contract rights.
5.04. Duties of Officers. Officers of the corporation shall have authority
to perform such duties as may be prescribed from time to time by law,
in these Bylaws, or by the Board of Directors, the President, or the
superior officer of any such officer. Each officer of the corporation
(in the order designated herein or by the Board) will be vested with
all of the powers and charged with all of the duties of his or her
superior officer in the event of such superior officer's absence,
death, or disability.
5.05. Bonds and Other Requirements. The Board of Directors may require any
officer to give bond to the corporation (with sufficient surety and
conditioned for the faithful performance of the duties of his or her
office) and to comply with such other conditions as may from time to
time be required of him or her by the Board of Directors.
5.06. President. Unless otherwise specified by resolution of the Board of
Directors, the President shall be the principal executive officer of
the corporation and, subject to the control of the Board of Directors,
shall supervise and control all of the business and affairs of the
corporation and the performance by all of its other officers of their
respective duties and in general shall perform all duties incident to
the office of President and such other duties as may be prescribed by
the Board of Directors from time to time. The President shall, when
present, and in the absence of a Chairman of the Board, preside at all
meetings of the shareholders and of the Board of Directors. The
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President will be a proper officer to sign on behalf of the
corporation any deed, bill of sale, assignment, option, mortgage,
pledge, note, bond, evidence of indebtedness, application, consent (to
service of process or otherwise), agreement, indenture, contract, or
other instrument, except in each such case where the signing and
execution thereof shall be expressly delegated by the Board of
Directors or by these Bylaws to some other officer or agent of the
corporation, or shall be required by law to be otherwise signed or
executed. The President may represent the corporation at any meeting
of the shareholders or members of any other corporation, association,
partnership, joint venture, or other entity in which the corporation
then holds shares of capital stock or has an interest, and may vote
such shares of capital stock or other interest in person or by proxy
appointed by him or her, provided that the Board of Directors may from
time to time confer the foregoing authority upon any other person or
persons.
5.07. The Vice-President. If appointed, in the absence of the President or
in the event of his/her death or disability, the Vice-President (or in
the event there be more than one Vice-President, the Vice-Presidents
in the order designated at the time of their election, or in the
absence of any such designation, then in the order of their
appointment) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the
restrictions upon the President. If there is no Vice-President or in
the event of the death or disability of all Vice-Presidents, then the
Treasurer shall perform such duties of the President in the event of
his or her absence, death, or disability. Each Vice-President will be
a proper officer to sign on behalf of the corporation any deed, bill
of sale, assignment, option, mortgage, pledge, note, bond, evidence of
indebtedness, application, consent (to service of process or
otherwise), agreement, indenture, contract, or other instrument,
except in each such case where the signing and execution thereof shall
be expressly delegated by the Board of Directors or by these Bylaws to
some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed. Any Vice-President may
represent the corporation at any meeting of the shareholders or
members of any other corporation, association, partnership, joint
venture, or other entity in which the corporation then holds shares of
capital stock or has an interest, and may vote such shares of capital
stock or other interest in person or by proxy appointed by him or her,
provided that the Board of Directors may from time to time confer the
foregoing authority upon any other person or persons. A Vice-
President shall perform such other duties as from time to time may be
assigned to him/her by the President or by the Board of Directors.
5.08. The Secretary. The Secretary shall: (a) keep the minutes of the
proceedings of the shareholders and of the Board of Directors and any
committee of the Board of Directors and all unanimous written consents
of the shareholders, Board of Directors, and any committee of the
Board of Directors in one (1) or more books provided for that purpose;
(b) see that all notices are duly given in accordance with the
provisions of these Bylaws or as required by law; (c) be custodian of
the corporate records and of any seal of the corporation; (d) when
requested or required, authenticate any records of the corporation;
(e) keep a register of the address of each shareholder which shall be
furnished to the Secretary by such shareholder; and (f) in general
perform all duties incident to the office of Secretary and such other
<PAGE>
duties as from time to time may be assigned to him/her by the
President or by the Board of Directors. Except as may otherwise be
specifically provided in a resolution of the Board of Directors, the
Secretary will be a proper officer to take charge of the corporation's
stock transfer books and to compile the voting record pursuant to
Section 3.05 above, and to impress the corporation's seal, if any, on
any instrument signed by the President, any Vice President, or any
other duly authorized person, and to attest to the same. In the
absence of the Secretary, a secretary pro tempore may be chosen by the
directors or shareholders as appropriate to perform the duties of the
Secretary.
5.09. The Treasurer. The Treasurer shall: (a) have charge and custody of
and be responsible for all funds and securities of the corporation;
(b) receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, and deposit all such moneys in
the name of the corporation in such bank, trust companies, or other
depositories as shall be selected by the Board of Directors or any
proper officer; (c) keep full and accurate accounts of receipts and
disbursements in books and records of the corporation; and (d) in
general perform all of the duties incident to the office of Treasurer
and such other duties as from time to time may be assigned to him/her
by the President or by the Board of Directors. The Treasurer will
render to the President, the directors, and the shareholders at proper
times an account of all his or her transactions as Treasurer and of
the financial condition of the corporation. The Treasurer shall be
responsible for preparing and filing such financial reports, financial
statements, and returns as may be required by law.
5.10. Assistant Secretaries and Assistant Treasurers. The Assistant
Secretaries and the Assistant Treasurers, when authorized by the Board
of Directors, may sign with the President or a Vice-President
certificates for shares of the corporation, the issuance of which
shall have been authorized by a resolution of the Board of Directors.
The Assistant Secretaries and Assistant Treasurers, in general, shall
perform such duties as shall be assigned to them by the Secretary or
the Treasurer, respectively, or by the President or the Board of
Directors.
5.11. Chairman of the Board. The Board of Directors may elect a Chairman to
serve as a general executive officer of the corporation, and, if
specifically designated as such by the Board of Directors, as the
chief executive officer of the corporation. If elected, the Chairman
will preside at all meetings of the Board of Directors and be vested
with such other powers and duties as the Board of Directors may from
time to time delegate to him or her.
5.12. Salaries. The salaries of the officers of the corporation may be
fixed from time to time by the Board of Directors or (except as to the
President's own) left to the discretion of the President. No officer
will be prevented from receiving a salary by reason of the fact that
he or she is also a director of the corporation.
5.13. Additional Appointments. In addition to the officers contemplated in
this Article V, the Board of Directors may appoint other agents of the
corporation with such authority to perform such duties as may be
prescribed from time to time by the Board of Directors.
<PAGE>
VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.01. Certificates for Shares.
(a) Content. Certificates representing shares of the corporation
shall, at a minimum, state on their face the name of the issuing
corporation and that it is formed under the laws of the State of
Arizona, the name of the person to whom issued, and the number
and class of shares and the designation of the series, if any,
the certificate represents. Such certificates shall be signed
(either manually or by facsimile to the extent allowable by law)
by one or more officers of the corporation, as determined by the
Board of Directors, or, if no such determination is made, by any
of the Chairman of the Board (if any), the President, any Vice-
President, the Secretary, or the Treasurer of the corporation,
and may be sealed with a corporate seal or a facsimile thereof.
Each certificate for shares shall be consecutively numbered or
otherwise identified and will exhibit such information as may be
required by law. If a supply of unissued certificates bearing
the facsimile signature of a person remains when that person
ceases to hold the office of the corporation indicated on such
certificates or ceases to be the transfer agent or registrar of
the corporation, they may still be issued by the corporation and
countersigned, registered, issued, and delivered by the
corporation's transfer agent and/or registrar thereafter, as
though such person had continued to hold the office indicated on
such certificate.
(b) Legend as to Class or Series. If the corporation is authorized
to issue different classes of shares or different series within a
class, the designations, relative rights, preferences, and
limitations applicable to each class and the variations in
rights, preferences, and limitations determined for each series
(and the authority of the Board of Directors to determine
variations for future series) shall be summarized on the front or
back of each certificate. Alternatively, each certificate may
state conspicuously on its front or back that the corporation
will furnish a shareholder this information on request in writing
and without charge.
(c) Shareholder List. The name and address of the person to whom
shares are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation.
(d) Lost Certificates. In the event of the loss, theft, or
destruction of any certificate representing shares of the
corporation or of any predecessor corporation, the corporation
may issue (or, in the case of any such shares as to which a
transfer agent and/or registrar have been appointed, may direct
such transfer agent and/or registrar to countersign, register,
and issue) a new certificate, and cause the same to be delivered
to the registered owner of the shares represented thereby;
provided that such owner shall have submitted such evidence
showing the circumstances of the alleged loss, theft, or
destruction, and his, her, or its ownership of the certificate,
as the corporation considers satisfactory, together with any
other facts that the corporation considers pertinent; and further
provided that, if so required by the corporation, the owner shall
<PAGE>
provide a bond or other indemnity in form and amount satisfactory
to the corporation (and to its transfer agent and/or registrar,
if applicable).
6.02. Registration of the Transfer of Shares. Registration of the transfer
of shares of the corporation shall be made only on the stock transfer
books of the corporation. In order to register a transfer, the record
owner shall surrender the shares to the corporation for cancellation,
properly endorsed by the appropriate person or persons with reasonable
assurances that the endorsements are genuine and effective. Unless
the corporation has established a procedure by which a beneficial
owner of shares held by a nominee is to be recognized by the
corporation as the owner, the corporation will be entitled to treat
the registered owner of any share of the capital stock of the
corporation as the absolute owner thereof and, accordingly, will not
be bound to recognize any beneficial, equitable, or other claim to, or
interest in, such share on the part of any other person, whether or
not it has notice thereof, except as may expressly be provided by
applicable law.
6.03. Shares Without Certificates. The Board of Directors may authorize the
issuance of uncertificated shares by the corporation and may prescribe
procedures for the issuance and registration of transfer thereof and
with respect to such other matters as the Board of Directors shall
deem necessary or appropriate.
VII. DISTRIBUTIONS
7.01. Distributions. Subject to such restrictions or requirements as may be
imposed by applicable law or the corporation's Articles or as may
otherwise be binding upon the corporation, the Board of Directors may
from time to time declare, and the corporation may pay or make,
dividends or other distributions to its shareholders.
VIII. CORPORATE SEAL
8.01. Corporate Seal. The Board of Directors may provide for a corporate
seal of the corporation that will have inscribed thereon any
designation including the name of the corporation, Arizona as the
state of incorporation, the year of incorporation, and the words
"Corporate Seal."
IX. AMENDMENTS
9.01. Amendments. The corporation's Board of Directors may amend or repeal
the corporation's Bylaws unless:
(1) the Articles or the Arizona Business Corporation Act reserve this
power exclusively to the shareholders in whole or part; or
(2) the shareholders in adopting, amending, or repealing a particular
Bylaw provide expressly that the Board of Directors may not amend
or repeal that Bylaw.
The corporation's shareholders may amend or repeal the corporation's
Bylaws even though the Bylaws may also be amended or repealed by its
Board of Directors.
EXHIBIT 10.1
LOAN AGREEMENT
by and between
FIRST INTERSTATE BANK OF ARIZONA, N.A.
--------------------------------------
as Lender
and
APOLLO GROUP, INC.
and
ITS OPERATING SUBSIDIARIES
(as hereinafter defined)
-----------------------------
as Borrower
Dated as of March 22, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 RECITALS 1
ARTICLE 2 DEFINITIONS 1
Section 2.1 Definitions 1
Section 2.2 Terms Generally 8
Section 2.3 Accounting Terms 8
ARTICLE 3 RLC 8
Section 3.1 RLC Commitment Amount 8
Section 3.2 RLC Note 8
Section 3.3 RLC Advances 8
Section 3.4 Conversion and Renewal of RLC Advances 9
Section 3.5 RLC Commitment Fee 9
Section 3.6 RLC Payments 9
Section 3.7 Additional Provisions for LIBOR Advances 10
Section 3.8 Mandatory Prepayment 11
Section 3.9 Requirement that Conditions be Satisfied 11
ARTICLE 4 LETTERS OF CREDIT 11
Section 4.1 Issuance 11
Section 4.2 Conditions Precedent 12
Section 4.3 Drawing 12
ARTICLE 5 CONDITIONS PRECEDENT 12
Section 5.1 Conditions Precedent 12
Section 5.2 Conditions Precedent to All Future Advances 13
ARTICLE 6 GENERAL REPRESENTATIONS AND WARRANTIES 13
Section 6.1 Recitals 13
Section 6.2 Organization 13
Section 6.3 Power 14
Section 6.4 Enforceable 14
Section 6.5 No Conflict 14
Section 6.6 No Actions 14
Section 6.7 Financial Statements 14
Section 6.8 Tax Payments 14
Section 6.9 Margin Stock 14
Section 6.10 Affirmation 14
Section 6.11 Obligations of Affiliation 15
Section 6.12 Operating Subsidiaries 15
Section 6.13 Subsidiaries 15
ARTICLE 7 AFFIRMATIVE COVENANTS 15
Section 7.1 Existence 15
Section 7.2 Maintain Property 15
Section 7.3 Insurance 15
Section 7.4 Payments 16
Section 7.5 Financial Reports 16
<PAGE>
Section 7.6 Records 17
Section 7.7 Current Obligations 17
Section 7.8 Delivery of Correspondence By And Between
Borrower And The NCA 17
Section 7.9 New Operating Subsidiaries 17
Section 7.10 Other Documents 17
ARTICLE 8 NEGATIVE COVENANTS 18
Section 8.1 No Mergers, Acquisitions and Consolidations 18
Section 8.2 Fiscal Year 18
Section 8.3 Margin Stock 18
Section 8.4 Liens; Negative Pledge 18
Section 8.5 Indebtedness 19
Section 8.6 Debt/Tangible Net Worth Ratio 19
Section 8.7 Adjusted Current Ratio 19
Section 8.8 Payment of Dividends 19
Section 8.9 Change in Control 19
Section 8.10 Loss of Accreditation 19
ARTICLE 9 DEFAULT AND REMEDIES 19
Section 9.1 Event of Default 19
Section 9.2 Remedies 20
Section 9.3 Notice and Cure Provision 21
ARTICLE 10 ACTION UPON AGREEMENT 21
Section 10.1 Third Party 21
Section 10.2 Entire Agreement 21
Section 10.3 Writing Required 22
Section 10.4 No Partnership 22
ARTICLE 11 GENERAL 22
Section 11.1 Survival 22
Section 11.2 Context 22
Section 11.3 Time 22
Section 11.4 Notices 22
Section 11.5 Costs 22
Section 11.6 Law 23
Section 11.7 Successors 23
Section 11.8 Headings 23
Section 11.9 Arbitration 23
EXHIBITS
"A" Borrowing Base Certificate
"B" Assumption Agreement
SCHEDULES
6.12 Operating Subsidiaries
6.13 Subsidiaries
<PAGE>
LOAN AGREEMENT
BY THIS LOAN AGREEMENT (the "Agreement"), made and entered into as of this
22nd day of March, 1996, FIRST INTERSTATE BANK OF ARIZONA, N.A., whose
address is 100 West Washington, Post Office Box 53456, Phoenix, Arizona
85072-3456 (hereinafter, together with any successors and assigns, called
"Lender"), and APOLLO GROUP, INC., an Arizona corporation (the "Company") and
the Operating Subsidiaries (as hereinafter defined) (with the Company, the
"Borrower," and each a "Borrower"), whose address is 4615 East Elwood Street,
Suite 400, Phoenix, Arizona 85040, in consideration of the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, hereby confirm and agree as
follows:
ARTICLE 1
RECITALS
SECTION 1.1
Borrower has requested that Lender establish a revolving line of credit (the
"RLC") with Borrower in the amount of $4,000,000.00, under which revolving
line of credit advances (each an "RLC Advance") shall be made to Borrower for
general corporate purposes.
SECTION 1.2
Lender has agreed to do so upon the terms, conditions and provisions set
forth herein. Effective as of the delivery of this Agreement, the Business
Loan Agreement dated December 20, 1994 between Company and Lender (the "1994
Agreement") will be terminated and replaced by this Agreement. Lender hereby
agrees to release any security interest and liens granted to and for the
benefit of Lender with respect to the 1994 Agreement upon satisfaction of
those conditions set forth in Section 5.1.
ARTICLE 2
DEFINITIONS
SECTION 2.1 DEFINITIONS.
Although terms may be defined in other sections of this Agreement, as used
herein the following terms shall have the meanings defined below:
"Adjusted Current Ratio" means, as to the Company, the ratio of (a) its total
current assets minus its deferred tax assets to (b) its total current
liabilities minus its student deposits and deferred tuition, all as shown on
the Company's consolidated financial statements.
"Adjusted LIBOR Rate" means, for each LIBOR Advance, the rate per annum
(rounded upward, if necessary, to the nearest .01 of 1%) determined by Lender
to be equal to the sum of (1) the quotient of (a) the Interbank Offered Rate
for such LIBOR Advance for the relevant Interest Period divided by (b) the
remainder of 1.00 minus the Eurodollar Reserve Requirement for such Interest
Period, plus (2) 150 basis points.
<PAGE>
"Advance" means a RLC Advance and includes a Prime Advance or a LIBOR Advance
(each of which shall be a "Type" of Advance).
"Agreement" means this Loan Agreement, as amended, modified, supplemented
and/or restated from time to time.
"Assumption Agreement" means an assumption agreement substantially in the
form of Exhibit "B", executed by any new Operating Subsidiary.
"Authorized Officer" means the chief executive officer or chief financial
officer of a Borrower, or such other individual who is from time to time
designated to Lender in writing by said officer as authorized to act for a
Borrower with respect to the Loan.
"Borrower": See the Preamble.
"Borrowing Base" means an amount equal to seventy percent (70%) of the
outstanding amount of all "eligible" accounts of Borrower.
An account shall be an "eligible" account for the purposes of this Agreement
so long as, at the time of any Advance: (i) the original invoices or other
statements or agreements comprising the account(s) require payment in full
within ninety (90) days of the date of delivery of the respective goods or
services; (ii) no invoice or other statement or agreement comprising that
account remains unpaid for more than ninety (90) days after the original
invoice date for payment specified therein; and (iii) it consists of a
"student receivable," i.e. an account relating to a student's tuition
obligation with respect to one or more courses to be held by an Operating
Subsidiary other than IPD.
"Business Day" means a day of the year on which commercial banks are not
required or authorized to close in Phoenix, Arizona and, if the applicable
Business Day relates to any LIBOR Advance, a day on which dealings are
carried on in the London interbank eurodollar market.
"Change in Control" shall be deemed to have occurred if, after the date
hereof, any person or group (within the meaning of Rule 13d-3, as in effect
on the date hereof, promulgated by the SEC under the 1934 Act) shall acquire,
directly or indirectly, beneficially or of record, shares representing more
than 20% of the aggregate ordinary voting power represented by the issued and
outstanding capital stock of the Company.
"Company": See the Preamble.
"Consequential Loss" with respect to Borrower's payment of all or any portion
of the then outstanding principal amount of any Advance bearing interest at
the Adjusted LIBOR Rate on a day other than the last day of the related
Interest Period, means any loss, cost or expense incurred by Lender as a
result of the timing of such payment or in redepositing such principal
amount, including the sum of (i) if a positive amount, the aggregate present
value of the interest which, but for such payment, Lender would have earned
in respect of such principal amount so paid, for the remainder of the
Interest Period applicable to such sum, reduced if Lender is able to
redeposit or reinvest such principal amount so paid for the balance of such
Interest Period by the aggregate present value of the interest earned by
Lender as a result of so redepositing or reinvesting such principal amount,
with such present values determined using a discount rate per anum equal to
the Liquidation Rate, plus (ii) any expense or penalty incurred by Lender in
redepositing or reinvesting such amount.
<PAGE>
"Convert," "Conversion," and "Converted" each refers to a conversion of
Advances of one Type into Advances of another Type pursuant to Section 3.4.
"Debt/Tangible Net Worth Ratio" means the ratio of the Company's total
liabilities to tangible net worth, where "total liabilities" is defined as
the aggregate of all liabilities of Company as recognized and valued for
financial reporting purposes, and where "tangible net worth" is defined as
stockholder's equity less the net book value of all intangible assets, all as
determined in accordance with GAAP. In the determination of tangible net
worth, educational program production costs shall be considered tangible
assets.
"Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D by the Board of Governors of the Federal Reserve System, 12
C.F.R. Part 204 as in effect from time to time.
"Eurodollar Reserve Requirement" means, for any LIBOR Advance for any
Interest Period thereof, the daily average of the stated maximum rate
(expressed as a decimal) at which reserves (including without limitation,
basic, supplemental, marginal and emergency reserves) are required to be
maintained during such Interest Period under Regulation D by Lender against
Eurocurrency Liabilities but without benefit of credit or proration,
exemptions or offsets that might otherwise be available to Lender from time
to time under Regulation D. Without limiting the effect of the foregoing,
the Eurodollar Reserve Requirement shall reflect any other reserves required
to be maintained by Lender against (1) any category of liabilities that
included deposits by reference to which the Adjusted LIBOR Rate for LIBOR
Advances is determined, or (2) any category of extension of credit or other
assets that include LIBOR Advances.
"Event of Default": See Section 9.1.
"Generally Accepted Accounting Principles" or "GAAP" means those generally
accepted accounting principles and practices which are recognized as such by
the American Institute of Certified Public Accountants acting through its
Accounting Principles Board or by the Financial Accounting Standards Board or
through other appropriate boards or committees thereof and which are
consistently applied for all periods after the date hereof so as to properly
reflect the financial condition, and the results of operations and changes in
cash flows, of the Company and its Operating Subsidiaries, except that any
accounting principles or practices required to be changed by the said
Accounting Principles Board or Financial Accounting Standards Board (or other
appropriate board or committee of the said Boards) in order to continue as a
generally accepted accounting principle or practice may so be changed.
"Guaranty" of any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing any Indebtedness or other
obligation of any other Person (other than a Subsidiary) or in any manner
providing for the payment, purchase, or acquisition of any Indebtedness or
other obligation of any other Person (other than a Subsidiary) or otherwise
protecting the holder of Indebtedness of any other Person (other than a
Subsidiary) against loss (whether by virtue of endorsements, assumptions,
partnership arrangements, agreements to keep well, to supply funds, to
purchase assets, goods, securities, or services, or to take-or-pay or
otherwise), provided that the term "Guaranty" shall not include endorsements
for collection or deposits in the ordinary course of business.
<PAGE>
"Indebtedness" means, with respect to any Person, the following (without
duplication): (i) obligations for borrowed money, including the current
portion thereof; (ii) monetary obligations representing the deferred purchase
price of real and/or personal property, other than trade accounts payable
arising in, and on terms customary in, the ordinary course of that Person's
business; (iii) monetary obligations under conditional sale agreements; (iv)
the present value of all obligations of such Person in respect of any capital
lease, discounted in accordance with GAAP; and (v) matured obligations with
respect to any Guaranty.
"Interbank Offered Rate" with respect to any LIBOR Advance, means the
prevailing rate of interest per annum (rounded upward, if necessary, to the
nearest .01 of 1%) at which deposits in immediately available funds in U.S.
Dollars are offered two Business Days prior to the first day of such Interest
Period by major financial institutions active in the London interbank
eurodollar market to first class banks for delivery on the first day of the
Interest Period, such deposits being for a period of time equal or comparable
to the Interest Period and in an amount comparable to the principal amount of
the LIBOR Advance, as reasonably determined by Lender.
"Interest Period" means, with respect to any LIBOR Advance, the Interest
Period Option for such Advance duly selected by Borrower, provided, however,
that if the Interest Period would otherwise end after the Maturity Date, the
Interest Period shall end on the Maturity Date.
"Interest Period Option" means, with respect to any LIBOR Advance, 30, 60, 90
or 180 day time periods.
"Interest Rate Option" means either (i) the Adjusted LIBOR Rate for the
chosen Interest Period, or (ii) the Prime Rate.
"IPD" means Institute for Professional Development, Inc., a California
corporation.
"Lender": See the Preamble.
"Letter of Credit" means any letter of credit issued at the request of the
Company or an Operating Subsidiary.
"LIBOR Advance" means an Advance that bears interest at the Adjusted LIBOR
Rate.
"Lien" means any lien, mortgage, security interest, tax lien, pledge,
encumbrance, conditional sale or title retention arrangement, or any other
interest in property designed to secure the repayment of Indebtedness or
performance under any Guaranty, whether arising by agreement or under any
statute or law, or otherwise.
"Liquidation Rate" means the rate of interest per annum equal to the yields
to maturity of eurodollar deposits in U.S. Dollars in the London interbank
eurodollar market, maturing on, or within one month of, the last day of the
relevant Interest Period, as reasonably determined by Lender.
"Loan" means the RLC.
"Maturity Date" means December 31, 1997.
"Maximum Letter of Credit Balance" means $250,000.00.
<PAGE>
"NCA" means the North Central Association of Colleges and Schools.
"1934 Act" means the United States Securities Exchange Act of 1934, as
amended.
"Note" means the RLC Note.
"Operating Subsidiaries" means any Subsidiary of the Company that meets one
or more of the following criteria: (i) accounted for ten percent (10%) or
more of the total consolidated revenue of the Company in its most recent
fiscal year; (ii) accounted for ten percent (10%) or more of the total
consolidated assets of the Company as of the end of its most recent fiscal
quarter; or (iii) accounted for ten percent (10%) or more of the total
consolidated current assets of the Company as of the end of its most recent
fiscal quarter. The Subsidiaries of the Company that are from time to time
"Operating Subsidiaries" shall be listed on Schedule 6.12.
"Outstanding RLC Balance" means the aggregate amount of RLC Advances and the
face amount of Letters of Credit, outstanding from time to time in either
case.
"Permitted Liens" means:
(a) Liens incurred to secure Permitted Non-Bank Indebtedness, the aggregate
amount of which shall not exceed $3,000,000.00;
(b) Pledges or deposits made to secure payment of workers' compensation (or
to participate in any fund in connection with workers' compensation
insurance), unemployment insurance, pensions or social security
programs;
(c) Liens imposed by mandatory provisions of law such as for materialmen's,
mechanics', warehousemen's and other like Liens arising in the ordinary
course of business, securing Indebtedness or other liabilities whose
payment is not yet due;
(d) Liens for taxes, assessments and governmental charges or levies
imposed upon a Person or upon such Person's income or profits or
property, if the obligation secured by such Lien is not in violation of
Section 7.7;
(e) Liens arising from the good faith deposits in connection with tenders,
leases, real estate bids or contracts (other than contracts involving
the borrowing of money), pledges or deposits to secure public or
statutory obligations, deposits to secure (or in lieu of) surety, stay,
appeal or customs bonds and deposits to secure the payment of taxes,
assessments, custom duties or other similar charges; or
(f) Encumbrances consisting of zoning restrictions, easements, or other
restrictions on the use of real property, provided that such do not
impair the use of such property for the uses intended, and none of which
is violated by existing or proposed structures or land use.
"Permitted Non-Bank Indebtedness" means Indebtedness, whether direct,
indirect or contingent, with respect to any of the following:
(a) Purchase money obligations in connection with the acquisition of real
and personal property;
<PAGE>
(b) Seller carryback financing; and
(c) Mergers and acquisitions permitted pursuant to Section 8.1.
"Person" means any natural person, corporation, business trust, joint
venture, association, company, partnership or government, or any agency or
political subdivision thereof.
"Prime Advance" means an Advance that bears interest at the Prime Rate.
"Prime Rate" means the interest rate per annum equal to the fluctuating rate
of interest announced publicly by Lender from time to time as its "prime
rate".
"Request for Borrowing": See Section 3.3(b).
"RLC": See Section 1.1.
"RLC Advance" means an Advance by Lender to the Borrower under the RLC
pursuant to Article 3.
"RLC Commitment Amount" means the Lender's total commitment to make RLC
Advances under the RLC not to exceed $4,000,000.00, reduced by the aggregate
of (1) all issued and undrawn Letters of Credit issued for the account of the
Company or its Operating Subsidiaries and (2) all drawn Letters of Credit
which have not been repaid.
"RLC Note" means that Revolving Promissory Note of even date herewith in the
face amount equal to the RLC Commitment Amount from Borrower, evidencing the
RLC.
"SEC" means the United States Securities and Exchange Commission.
"Student Deposits" means any and all funds prepaid to the Company or its
Operating Subsidiaries by an individual, or any other entity, for the purpose
of satisfying tuition obligations in advance of the start date of a course or
courses, as determined in accordance with GAAP.
"Subsidiaries" means all business associations directly or indirectly
controlled by the Company.
"Termination Date" means the earliest to occur of (1) the Maturity Date, or
(2) the date Lender exercises any option to declare the Loan fully due and
payable after the occurrence of an Event of Default, or (3) such other date
as may be agreed upon in writing by Lender and Borrower.
"Type": See the definition of Advance.
"UOP" means The University of Phoenix, Inc., an Arizona corporation.
SECTION 2.2 TERMS GENERALLY.
The definitions in Section 2.1 shall apply equally to both the singular and
plural forms of the terms defined. Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter forms.
All references herein to Articles, Sections, Exhibits and Schedules shall be
deemed references to Articles and Sections of, and Exhibits and Schedules to,
this Agreement unless the context shall otherwise require.
<PAGE>
SECTION 2.3 ACCOUNTING TERMS.
Except as otherwise expressly provided herein, all terms of an accounting or
financial nature shall be construed in accordance with GAAP; provided,
however, that, for purposes of determining compliance with any covenant set
forth herein, such terms shall be construed in accordance with GAAP as in
effect on the date of this Agreement applied on a consolidated basis
consistent with the application used in preparing the Borrower's consolidated
audited financial statements referred to herein.
ARTICLE 3
RLC
SECTION 3.1 RLC COMMITMENT AMOUNT.
Subject to the conditions set forth herein, Lender, from time to time, shall
make such RLC Advances as Borrower may request and shall issue such Letters
of Credit as Borrower shall request, provided that (a) the Outstanding RLC
Balance shall not exceed the lesser of (i) the Borrowing Base, or (ii) the
RLC Commitment Amount, and (b) the aggregate amount of the face amount of
Letters of Credit outstanding at any one time shall not exceed the Maximum
Letter of Credit Balance. The RLC shall be a revolving credit, against which
RLC Advances may be made to Borrower, repaid by Borrower, and readvances made
to Borrower and Letters of Credit issued, terminated or repaid by Borrower
and reissued, provided that (i) no Event of Default shall exist, (ii) no RLC
Advance shall be made or Letter of Credit issued that would cause the
outstanding principal balance of the RLC to exceed the lesser of the
Borrowing Base or the RLC Commitment Amount, (iii) no Letter of Credit shall
be issued that would cause the aggregate amount of the face amount of Letters
of Credit outstanding at any one time to exceed the Maximum Letter of Credit
Balance, and (iv) no RLC Advance shall be made on or after the Maturity Date.
SECTION 3.2 RLC NOTE.
The RLC shall be evidenced by the RLC Note in the form approved by Lender,
payable to the order of Lender upon the terms and conditions therein
contained, and executed and delivered simultaneously with the execution of
this Agreement.
SECTION 3.3 RLC ADVANCES.
(a) Lender may from time to time make RLC Advances in such sums as Borrower
shall request.
(b) Borrower shall give Lender written notice, or telephonic notice
confirmed immediately in writing, of the request for any RLC Advances
under this Agreement, which request (the "Request for Borrowing") shall
be received by Lender not later than 12:00 noon (Phoenix, Arizona local
time) on the same Business Day as the date of the proposed RLC Advance.
If no Interest Rate Option is selected by Borrower, interest shall
accrue at the Prime Rate.
<PAGE>
SECTION 3.4 CONVERSION AND RENEWAL OF RLC ADVANCES.
(a) The Borrower may, upon written notice to, and received by, the Lender
not later than 12:00 noon (Phoenix, Arizona local time) on the Business
Day before the requested Conversion or renewal, Convert any RLC Advances
of one Type into Advances of another Type; provided, however, that any
Conversion of a LIBOR Advance may only be made upon the last day of
said Advance's Interest Period. Each such notice of a Conversion shall
be irrevocable and binding on the Borrower. Each such notice of a
Conversion shall, within the restrictions specified above, specify (w)
the date of such Conversion, (x) the amount of the Advance to be
Converted, (y) the Type of Advance into which the Advance is to be
Converted, and (z) if such Conversion is into a LIBOR Advance, the
duration of the Interest Period.
(b) If the Borrower should fail to give the Lender any notice of Conversion
upon the termination of the Interest Period for a LIBOR Advance, such
RLC Advance, upon the termination of the Interest Period, shall
automatically become a Prime Advance.
SECTION 3.5 RLC COMMITMENT FEE.
Borrower agrees to pay to Lender a non-refundable fee equal to 17.5 basis
points times the face amount of the Note.
SECTION 3.6 RLC PAYMENTS.
(a) Interest on the RLC shall accrue daily on the full principal balance of
the RLC at the Interest Rate Option selected by Borrower, on the basis
of the actual number of days elapsed over a year of 360 days.
(b) All accrued interest on each RLC Advance shall be due and payable as
billed by Lender each month. In addition, the principal amount of each
LIBOR Advance, together with all accrued interest, shall be due and
payable each month, and the balance, if any, at the end of each
respective Interest Period.
(c) The entire outstanding principal balance of the RLC Note, all accrued
and unpaid interest and all other sums which may have become payable
thereunder shall be due and payable in full on the Termination Date.
(d) Default interest shall be due and payable as set forth in the RLC Note.
SECTION 3.7 ADDITIONAL PROVISIONS FOR LIBOR ADVANCES.
(a) Unavailability of Deposits or Inability to Ascertain the Rates.
Notwithstanding any other provision of this Agreement, if prior to the
commencement of any Interest Period, Lender shall determine (i) that
United States dollar deposits in the amount of any LIBOR Advance to be
outstanding during such Interest Period are not readily available to
Lender in the London interbank market, or (ii) by reason of
circumstances affecting the London interbank market, adequate and
reasonable means do not exist for ascertaining the Adjusted LIBOR Rate,
then Lender shall promptly give notice thereof to the Borrower and the
obligation of Lender to create, or effect by Conversion any LIBOR
Advance in such amount and for such Interest Period shall terminate
until United States dollar deposits in such amount and for the Interest
<PAGE>
Period selected by the Borrower shall again be readily available in the
market and adequate and reasonable means exist for ascertaining the
Adjusted LIBOR Rate.
(b) Increased Costs. Borrower shall pay to Lender from time to time such
amounts as Lender may determine to be necessary to compensate Lender for
any costs incurred by Lender which Lender determines are attributable to
its making any LIBOR Advances hereunder or its obligation to make such
Advances hereunder, or any reduction in any amount receivable by Lender
under this Agreement or the Note in respect of any such Advances or
such obligation (such increases in costs and reductions in amounts
receivable being herein called "Additional Costs"), resulting from any
change after the date of this Agreement in U.S. federal, state,
municipal, or foreign laws or regulations (including Regulation D)
imposed specifically on financial institutions such as Lender. Lender
will promptly notify Borrower of an event of which it has knowledge
occurring after the date hereof, that will entitle Lender to
compensation pursuant to this paragraph (b).
(c) Illegality. Notwithstanding any other provision of this Agreement, if
Lender determines that an applicable law, rule or regulation, or any
change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or
compliance by the Lender (or its lending office) with any request or
directive (whether or not having the force of law) or any such
authority, central bank or comparable agency shall make it unlawful or
impossible for Lender (or its lending office) to maintain or fund its
LIBOR Advances, Lender shall forthwith give notice thereof to Borrower.
Borrower shall not be liable for Consequential Loss upon repayment under
this paragraph (c).
(d) Discretion of Lender as to Manner of Funding. Notwithstanding any
provision of this Agreement to the contrary, Lender shall be entitled to
fund and maintain its funding of all or any part of any Advance in any
manner it sees fit.
(e) Consequential Loss Indemnification. Borrower shall pay to Lender such
amount or amounts as shall be sufficient to compensate for any
Consequential Losses which Lender may incur as a result of payment or
Conversion of any LIBOR Advance other than on the last Business Day of
the Interest Period for such Advance, whether due to prepayment,
Conversion, acceleration of the Maturity Date or for any other reason,
except with respect to illegality (pursuant to Section 3.7(c) above).
SECTION 3.8 MANDATORY PREPAYMENT.
There shall be due and payable from Borrower to Lender, and Borrower shall
immediately repay to Lender, without notice or demand, from time to time, any
amount by which the Outstanding RLC Balance exceeds the Borrowing Base.
SECTION 3.9 REQUIREMENT THAT CONDITIONS BE SATISFIED.
Lender shall have no obligation to make any RLC Advances unless and until all
of the conditions and requirements of this Agreement are fully satisfied.
However, Lender, at its sole and absolute discretion, may elect to make one
<PAGE>
or more RLC Advances prior to full satisfaction of one or more such
conditions and/or requirements. Notwithstanding that such an RLC Advance or
RLC Advances are made, such unsatisfied conditions and/or requirements shall
not be waived or released thereby. Borrower shall be and continue to be
obligated to fully satisfy such conditions and requirements.
ARTICLE 4
LETTERS OF CREDIT
SECTION 4.1 ISSUANCE.
Provided that Borrower has satisfied the conditions precedent contained in
Section 4.2 hereof, Lender agrees, from time to time, to issue and/or renew
Letters of Credit on behalf of Borrower so long as upon such issuance or
renewal (i) a fee is paid by Borrower to Lender in an amount equal to
Lender's current stated rate for the issuance of all other types of Letters
of Credit and for other Letter of Credit services, (ii) in accordance with
the terms and conditions of Section 3.1 hereof, the Outstanding RLC Balance
would not exceed the lesser of (i) the Borrowing Base, or (ii) the RLC
Commitment Amount, and (iii) the aggregate amount of the face amount of
Letters of Credit outstanding at such time would not exceed the Maximum
Letter of Credit Balance.
SECTION 4.2 CONDITIONS PRECEDENT.
The obligation of the Lender to issue and/or renew any Letters of Credit on
behalf of the Borrower shall be subject to the following conditions precedent
on the date of issuance or renewal of each such Letter of Credit:
(a) Borrower shall execute and deliver to Lender an application for letter
of credit, specifying the amount of the requested letter of credit, the
requested term thereof, which term may not exceed the Maturity Date, and
the beneficiary thereof; and
(b) No Event of Default shall exist and no event or condition shall exist
that after notice or lapse of time, or both would constitute an Event of
Default.
SECTION 4.3 DRAWING.
Should any Letter of Credit be drawn upon by the beneficiary thereof, such
draw shall be deemed to be a Prime Advance.
ARTICLE 5
CONDITIONS PRECEDENT
SECTION 5.1 CONDITIONS PRECEDENT.
The obligation of Lender to make the initial Advance hereunder is subject to
the fulfillment of the following conditions:
(a) Each Borrower shall have executed (or obtained the execution or issuing
of) and delivered to Lender the following documents or information, all
in form satisfactory to Lender:
<PAGE>
(i) The Note;
(ii) A corporate resolution of each Borrower authorizing (i) the Loan,
and (ii) the execution and delivery by said Borrower of all
documents to be executed by said Borrower, and the performance by
said Borrower of all acts and things to be performed by said
Borrower, pursuant to this Agreement; and
(iii) A copy of its current Articles of Incorporation and Bylaws, so
certified by the Secretary of the corporation, together with a
copy of a current Certificate of Good Standing in the state of
incorporation for said Borrower and evidence of qualification to
do business and good business in all states in which said Borrower
conducts business; and such other documents as Lender may require
relating to the existence and good standing of said Borrower and
the authority of any person acting or executing documents on
behalf of said Borrower.
(b) All representations and warranties by each Borrower contained in this
Agreement shall remain true and correct and each Borrower has performed
or complied with all agreements of said Borrower made in this Agreement
that said Borrower is to have performed or complied with by the date of
the first Advance.
(c) No Event of Default shall exist and no event or condition shall exist
that after notice or lapse of time, or both would constitute an Event of
Default.
(d) Lender shall have received evidence to its satisfaction that there are
no Liens, other than those permitted pursuant to Section 8.4, on the
property or assets of the Borrower.
SECTION 5.2 CONDITIONS PRECEDENT TO ALL FUTURE ADVANCES.
The obligation of the Lender to make any Advances to the Borrower following
the initial Advance under Section 5.1 hereof shall be subject to the
condition precedent that on the date of each such Advance no Event of Default
shall exist and no event or condition shall exist that, after notice or lapse
of time or both, would constitute an Event of Default.
ARTICLE 6
GENERAL REPRESENTATIONS AND WARRANTIES
Each Borrower hereby represents and warrants to Lender as follows:
SECTION 6.1 RECITALS.
The recitals and statements of intent appearing in this Agreement are true
and correct.
SECTION 6.2 ORGANIZATION.
Borrower is duly organized, validly existing and in good standing under the
laws of the state of its organization. Borrower is qualified to do business
and is in good standing in the State of Arizona and in each state in which it
is required by law to do so.
<PAGE>
SECTION 6.3 POWER.
Borrower has full power and authority to own its properties and assets and to
carry on its business as presently being conducted.
SECTION 6.4 ENFORCEABLE.
Borrower is fully authorized and permitted to enter into this Agreement, to
execute any and all documentation required herein, to borrow the amounts
contemplated herein upon the terms set forth herein and to perform the terms
of this Agreement, none of which conflicts with any provision of law or
regulation applicable to Borrower. This Agreement and the Note are valid and
binding legal obligations of Borrower, and each is enforceable in accordance
with its terms.
SECTION 6.5 NO CONFLICT.
The execution, delivery and performance by Borrower of this Agreement, the
Note and all other documents and instruments relating to the Loan are not in
material conflict with any provision of law applicable to Borrower or with
the Articles of Incorporation and Bylaws of Borrower and will not result in
any breach of the terms or conditions or constitute a default under any
agreement or instrument under which Borrower is a party or is obligated.
Borrower is not in default in the performance or observance of any
obligations, covenants or conditions of any such agreement or instrument.
SECTION 6.6 NO ACTIONS.
There are no actions, suits or proceedings pending or threatened against
Borrower which materially and adversely affect the repayment of the Loan, the
performance by Borrower under this Agreement or the financial condition,
business or operations of Borrower.
SECTION 6.7 FINANCIAL STATEMENTS.
All financial statements and profit and loss statements, all statements as to
ownership and all other statements or reports previously or hereafter given
to Lender by Borrower are and shall be true and correct as of the date
thereof. There has been no material adverse change in the business,
properties or condition (financial or otherwise) of Borrower since the date
of the latest financial statements given to Lender.
SECTION 6.8 TAX PAYMENTS.
Borrower has filed all federal, state and local tax returns by the due date
as extended and has paid all federal, state and local taxes shown due thereon
by such extended due date and all other payments required under federal,
state or local law.
SECTION 6.9 MARGIN STOCK.
No part of the proceeds of any financial accommodation made by Lender in
connection with this Agreement will be used to purchase or carry "margin
stock," as that term is defined in Regulation U of the Board of Governors of
the Federal Reserve System, or to extend credit to others for the purpose of
purchasing or carrying such margin stock.
<PAGE>
SECTION 6.10 AFFIRMATION.
Each request by Borrower for an Advance hereunder shall constitute an
affirmation on the part of the Borrower that the representations and
warranties of Section 6.7 are true and correct with respect to any financial
statements submitted by Borrower to Lender between the date of this Agreement
and the date of such request, that the representations and warranties of all
other sections of this Article 6 hereof are true and correct as of the time
of such request and that the condition precedents set forth in Article 5
hereof are fully satisfied. All representations and warranties made herein
shall survive the execution of this Agreement, any and all Advances or
proceeds of the Loan and the execution and delivery of all other documents
and instruments in connection with the Loan, so long as Lender has any
commitment to lend to Borrower hereunder and until the Loan and all
indebtedness hereunder have been paid in full and all of Borrower's
obligations hereunder have been fully discharged.
SECTION 6.11 OBLIGATIONS OF AFFILIATION.
Borrower is not currently under any probationary action instituted by the
NCA, and to the best of its knowledge, Borrower has fully and completely
complied with all "Obligations of Affiliation" as prescribed by the NCA.
SECTION 6.12 OPERATING SUBSIDIARIES.
All Operating Subsidiaries of the Company are correctly identified on
Schedule 6.12.
SECTION 6.13 SUBSIDIARIES.
All Subsidiaries of the Company are correctly identified on Schedule 6.13.
ARTICLE 7
AFFIRMATIVE COVENANTS
Each Borrower to the extent applicable hereby covenants and agrees that so
long as Lender has any commitment to lend to Borrower hereunder and until the
Loan and all other indebtedness hereunder have been paid in full and all of
Borrower's obligations hereunder have been fully discharged:
SECTION 7.1 EXISTENCE.
Except as otherwise permitted by Section 8.1, Borrower shall maintain its
existence with no amendments or changes in its Articles of Incorporation
without the prior written consent of the Lender, which consent shall not be
unreasonably withheld.
SECTION 7.2 MAINTAIN PROPERTY.
Borrower shall maintain in full force and effect all agreements, rights,
trademarks, patents and licenses necessary to carry out its business, shall
keep all of its properties in good condition and repair, and shall make all
needed and proper repairs and improvements to its properties in order to
properly conduct its business.
<PAGE>
SECTION 7.3 INSURANCE.
To the extent Borrower is not self-insured, Borrower shall at all times
maintain insurance coverages in scope and amount not less than, and not less
extensive than, the scope and amount of insurance coverages customary for
companies of comparable size and financial strength in the trades or
businesses in which Borrower is from time to time engaged. Upon Lender's
request, Borrower shall provide evidence satisfactory to Lender that required
coverage in required amounts is in effect.
SECTION 7.4 PAYMENTS.
Borrower shall make all payments of interest and principal on the Loan as and
when the same become due and payable and shall keep and comply with all
covenants, terms and provisions of the Note.
SECTION 7.5 FINANCIAL REPORTS.
Borrower shall maintain a standard system of accounting in accordance with
good business practices, that reflects the application of GAAP and the
Company shall furnish to Lender the following:
(a) CPA Fully Audited Financial Statements. Annual consolidated financial
statements within one hundred twenty (120) days, of the Company's fiscal
year end together with a copy of the Form 10-K as filed with the SEC and
an opinion on said financial statements (which shall not be limited by
reason of any limitation imposed by the Company) of independent
certified public accountants acceptable to Lender, to the effect that
such financial statements have been prepared in accordance with
generally accepted accounting principles consistently maintained and
applied (except for changes in which such accountants concur) and that
their examination of such accounts in connection with such financial
statements has been made in accordance with generally accepted auditing
standards).
(b) Quarterly Financial Statements. Fully consolidated company prepared
balance sheets and profit and loss statements as of the end of each of
its first three fiscal quarters, within forty-five (45) days after the
end of each fiscal quarter, together with a copy of the Form 10-Q as
filed with the SEC.
(c) Borrowing Base Certificate. A borrowing base certificate in the form of
Exhibit "A" attached hereto as of the end of each month, within thirty
(30) days after the end of each month; provided however that such
borrowing base certificate shall not be required should the Outstanding
RLC Balance as of the last day of the month be zero.
(d) Aging and Listing of Accounts Receivable. A summary aging of the
Company's and the Operating Subsidiaries accounts and contracts
receivable as of the last day of that month, together with an
explanation of any adjustments made at the end of that month, all in a
form acceptable to Lender within thirty (30) days after the end of each
month; provided however that such aging report shall not be required
should the Outstanding RLC Balance as of the last day of the month be
zero.
<PAGE>
(e) Compliance Certificate. With each statement submitted by the Company
under subparagraphs (a) and (b) above, a certificate signed by an
Authorized Officer of the Company, (i) stating that no Event of Default
exists and no event has occurred and no condition exists that, after
notice or passage of time, or both, would constitute an Event of
Default, and (ii) either stating that there is no new Operating
Subsidiary or, if there is, identifying such new Operating Subsidiary
and enclosing an Assumption Agreement executed by such new Operating
Subsidiary.
SECTION 7.6 RECORDS.
Borrower shall maintain, in a safe place, proper and accurate books, ledgers,
correspondence and other records relating to its operations and business
affairs. Lender shall have the right from time to time to examine and audit
and to make abstracts from and photocopies of Borrower's books, ledgers,
correspondence and other records.
SECTION 7.7 CURRENT OBLIGATIONS.
Except for tax protests made in good faith and, the posting, if required, of
any and all bonds therewith, Borrower shall pay all of its current
obligations before they become delinquent, including all federal, state and
local taxes, assessments, levies and governmental charges and all other
payments required under any federal, state or local law.
SECTION 7.8 DELIVERY OF CORRESPONDENCE BY AND BETWEEN BORROWER AND THE NCA.
Borrower shall comply at all times with all "Obligations of Affiliation" as
prescribed by the NCA with respect to UOP, and to the extent applicable any
other Operating Subsidiary that is accredited by the NCA and promptly deliver
to Lender a certified copy of all correspondence regarding: (i) potential or
actual probationary actions taken by the NCA, or any other accreditation
commission; and (ii) written notification from the NCA that Borrower has not
fulfilled one more of its "Obligations of Affiliation" as prescribed by the
NCA. Borrower shall also promptly deliver any other accreditation related
information as reasonably requested by Lender from time to time, including
but not limited to the NCA's final team report prepared after any evaluation
visit.
SECTION 7.9 NEW OPERATING SUBSIDIARIES.
Within thirty (30) days of any Subsidiary qualifying as an Operating
Subsidiary, the Company shall (i) so notify the Lender, (ii) cause Schedule
6.12 to be amended and (iii) cause such new Operating Subsidiary to deliver
to Lender an executed Assumption Agreement, whereby such new Operating
Subsidiary shall become a "Borrower" for all purposes of this Agreement.
SECTION 7.10 OTHER DOCUMENTS.
Borrower shall execute and deliver to Lender such other instruments and
documents and do such other acts as Lender may reasonably require in
connection with the Loan.
<PAGE>
ARTICLE 8
NEGATIVE COVENANTS
Each Borrower hereby covenants and agrees that so long as Lender has any
commitment to lend to Borrower hereunder and until the Loan and all other
indebtedness hereunder have been paid in full and all of the Borrower's
obligations hereunder have been fully discharged, it shall not without
receiving the prior written consent of Lender:
SECTION 8.1 NO MERGERS, ACQUISITIONS AND CONSOLIDATIONS.
Dissolve or liquidate, or become a party to any merger or consolidation, or
sell, transfer, lease or otherwise dispose of all or substantially all of its
property or assets, except that (i) any Subsidiary of any Borrower may merge
into or transfer assets to any Borrower, and (ii) any Borrower may purchase
or acquire the assets or capital stock of an unrelated Person, provided that:
(a) the total consideration paid by such Borrower is not more than
$3,000,000.00 and (b) the Company or any of its Operating Subsidiaries is the
surviving entity of any such merger or acquisition; for this purpose,
consideration shall include anything of value paid by such Borrower,
including without limitation money, personal services and any form of
property.
SECTION 8.2 FISCAL YEAR.
Change the times of commencement or termination of its fiscal year or other
accounting periods; or change its method of accounting other than to conform
to GAAP.
SECTION 8.3 MARGIN STOCK.
Use any proceeds of the Loan, or any proceeds of any other or future
financial accommodation from Lender to Borrower, directly or indirectly, for
the purpose, whether immediate, incidental or ultimate, of purchasing or
carrying any "margin stock" as that term is defined in Regulation U of the
Board of Governors of the Federal Reserve System, and will not use such
proceeds in a manner that would involve Borrower in a violation of Regulation
T, U or X of such Board, nor use such proceeds for any purpose not permitted
by Section 7 of the 1934 Act or any of the rules or regulations respecting
the extensions of credit promulgated thereunder.
SECTION 8.4 LIENS; NEGATIVE PLEDGE.
Create or suffer to exist Liens upon its property or assets or the property
or assets of any of its Operating Subsidiaries, real or personal, now owned
or hereafter acquired, except (i) Liens in favor of Lender, (ii) purchase
money security interests in, or purchase money mortgages on, real or personal
property to secure purchase money Indebtedness incurred by Borrower, (iii)
Liens incurred in connection with permitted seller carryback financing of
property, plant and equipment acquired by Borrower or any Operating
Subsidiary, and Liens then existing and relating to indebtedness assumed by
Borrower or any of its Subsidiaries in connection with any such acquisition,
provided that: (a) any property subject to any of the foregoing is acquired
by the Borrower or any Subsidiary in the ordinary course of its respective
business and the Lien on any such property attaches to such assets
concurrently or within thirty (30) days after the acquisition thereof; and
<PAGE>
(b) each such Lien shall attach only to the property so acquired and fixed
improvements thereon; (iv) Permitted Liens; and (v) Liens otherwise permitted
hereunder which were granted by any Person which has been merged into,
consolidated with or acquired by Borrower in a transaction permitted by the
terms of this Agreement.
SECTION 8.5 INDEBTEDNESS.
Incur or permit any Subsidiary to incur, Indebtedness from any Person, except
(i) trade payables incurred in the ordinary course of business; (ii)
Indebtedness with the Lender; and (iii) Permitted Non-Bank Indebtedness not
to exceed $3,000,000.00 in the aggregate.
SECTION 8.6 DEBT/TANGIBLE NET WORTH RATIO.
Permit the Debt/Tangible Net Worth Ratio at the end of any fiscal quarter of
the Company to exceed 1.5 to 1.0.
SECTION 8.7 ADJUSTED CURRENT RATIO.
Permit the Adjusted Current Ratio at the end of any fiscal quarter of the
Company to be less than 3.0 to 1.0.
SECTION 8.8 PAYMENT OF DIVIDENDS.
Permit the payment of cash dividends on its capital stock. Notwithstanding
the foregoing, Borrower shall be permitted to pay (i) intercompany dividends,
provided said dividend(s) has(have) no effect whatsoever on the Company's
consolidated stockholder's equity, and (ii) non-cash dividends including but
not limited to intercompany non-cash dividends and non-cash dividends to
facilitate stock splits.
SECTION 8.9 CHANGE IN CONTROL.
Permit a Change in Control to occur with respect to the Company.
SECTION 8.10 LOSS OF ACCREDITATION.
Permit any action that would cause accreditation to be denied by the NCA with
respect to UOP, and to the extent applicable any other Operating Subsidiary
that is accredited by the NCA.
ARTICLE 9
DEFAULT AND REMEDIES
SECTION 9.1 EVENT OF DEFAULT.
The occurrence of any of the following events or conditions shall constitute
an "Event of Default" under this Agreement:
(a) Failure to pay any installment of principal or interest under the Note
as and when the same become due and payable, or the failure to pay any
other sum due under the Note or this Agreement when the same shall
become due and payable;
<PAGE>
(b) Any failure or neglect to perform or observe any of the terms,
provisions, or covenants of this Agreement (other than a failure or
neglect described in one or more of the other provisions of this
Section 9.1);
(c) Any warranty, representation or statement contained in this Agreement,
or made or furnished to the Lender by or on behalf of the Borrower,
that shall be or shall prove to have been materially false when made or
furnished;
(d) The filing by any Borrower (or against any Borrower in which said
Borrower acquiesces or which is not dismissed within ninety (90) days of
the filing thereof) of any proceeding under the federal bankruptcy laws
now or hereafter existing or any other similar statute now or hereafter
in effect; the entry of an order for relief under such laws with
respect to said Borrower; or the appointment of a receiver, trustee,
custodian or conservator of all or any part of the assets of any
Borrower;
(e) The insolvency of any Borrower; or the execution by any Borrower of an
assignment for the benefit of creditors; or the convening by any
Borrower of a meeting of its creditors, or any class thereof, for
purposes of effecting a moratorium upon or extension or composition of
its debts; or the failure of any Borrower to pay its debts as they
mature; or if any Borrower is generally not paying its debts as they
mature;
(f) The admission in writing by any Borrower that it is unable to pay its
debts as they mature or that it is generally not paying its debts as
they mature;
(g) The liquidation, termination or dissolution of any Borrower except as
otherwise permitted in this Agreement; or
(h) The occurrence of any default under the Note or any document or
instrument given by Borrower in connection with any other indebtedness
of Borrower to Lender and the expiration of any grace period provided
therein.
SECTION 9.2 REMEDIES.
Upon the occurrence of any Event of Default and at any time thereafter while
such Event of Default is continuing, subject to the provisions of
subparagraphs (b) and (c) hereof, Lender may do one or more of the following:
(a) Cease making Advances or extensions of financial accommodations in any
form to or for the benefit of Borrower and declare the entire Loan
immediately due and payable, without notice or demand;
(b) Proceed to protect and enforce its rights and remedies under this
Agreement and the Note; and
(c) Avail itself of any other relief to which Lender may be legally or
equitably entitled.
<PAGE>
SECTION 9.3 NOTICE AND CURE PROVISION.
Prior to exercising any right of acceleration of the Indebtedness or other
right or remedy by Lender, unless a different grace period is provided in
this Agreement, Lender shall give written notice of any default upon which
such right or remedy is dependent and, if such default is of a nature that
can be corrected by the Borrower, allow the following time period for such
correction:
(a) If the default relates to the nonpayment of money: ten (10) days;
(b) If the default relates to the non-performance of any covenant herein
made by the Borrower, or to the existence of any condition or state of
affairs that may be corrected by the Borrower other than the nonpayment
of money: sixty (60) days.
No notice need be given or period for correction allowed by Lender in the
event of insolvency, or in the event of administration of property in any
legal or equitable proceeding of any kind, including, without limitation, any
proceeding under federal bankruptcy law or any other similar statute now or
hereafter in effect, or in the event of any other default that Lender
reasonably determines to be of a nature beyond the Borrower's reasonable
power to correct.
ARTICLE 10
ACTION UPON AGREEMENT
SECTION 10.1 THIRD PARTY.
This Agreement is made for the sole protection and benefit of the parties
hereto, their successors and assigns, and no other person or organization
shall have any right of action hereon. No representation of any kind is made
to third parties by the execution hereof, by the existence or form of the
indebtedness treated herein, or by any performance, or failure or waiver
thereof, by any party of the terms hereof. Specifically, without limitation
of the foregoing, the Lender makes no representation to any third party as to
the solvency of the Borrower or of the commercial practicability of any
business enterprise to which or for which the Loan is made.
SECTION 10.2 ENTIRE AGREEMENT.
This Agreement embodies the entire Agreement of the parties with regard to
the subject matter hereof. There are no representations, promises,
warranties, understandings or agreements express or implied, oral or
otherwise, in relation thereto, except those expressly referred to or set
forth herein. Borrower acknowledges that the execution and the delivery of
this Agreement is its free and voluntary act and deed, and that said
execution and delivery have not been induced by, nor done in reliance upon,
any representations, promises, warranties, understandings or agreements made
by Lender, its agents, officers, employees or representatives.
<PAGE>
SECTION 10.3 WRITING REQUIRED.
No promise, representation, warranty or agreement made subsequent to the
execution and delivery hereof by either party hereto, and no revocation,
partial or otherwise, or change, amendment, addition, alteration or
modification of this Agreement shall be valid unless the same shall be in
writing signed by all parties hereto.
SECTION 10.4 NO PARTNERSHIP.
Lender and Borrower each have separate and independent rights and obligations
under this Agreement. Nothing contained herein shall be construed as
creating, forming or constituting any partnership, joint venture, merger or
consolidation of Borrower and Lender for any purpose or in any respect.
ARTICLE 11
GENERAL
SECTION 11.1 SURVIVAL.
This Agreement shall survive the making of the Loan and shall continue so
long as any part of the Loan, or any extension or renewal thereof, or any
Letter of Credit remains outstanding.
SECTION 11.2 CONTEXT.
This Agreement shall apply to the parties hereto according to the context
hereof, and without regard to the number or gender of words or expressions
used herein.
SECTION 11.3 TIME.
Time is expressly made of the essence of this Agreement.
SECTION 11.4 NOTICES.
All notices required or permitted to be given hereunder shall be in writing,
and shall become effective immediately if personally delivered or effective
twenty-four (24) hours after such are deposited in the United States mail,
certified or registered, postage prepaid, addressed as shown above, or to
such other address as such party may from time to time designate in writing.
Any notice sent to Borrower shall be sent to the attention of its chief
financial officer.
SECTION 11.5 COSTS.
Borrower shall pay all reasonable costs and expenses arising from the
preparation of this Agreement, the Note, the closing of the Loan, the making
of Advances thereunder, and the enforcement of Lender's rights hereunder,
including but not limited to, accounting fees, appraisal fees, attorneys'
fees and any charges that may be imposed on Lender as a result of this
transaction. At the option of Lender and upon written notice to Borrower,
RLC Advances may be made and disbursed from time to time by Lender directly
in payment of such costs and expenses.
<PAGE>
SECTION 11.6 LAW.
This Agreement shall be construed according to the laws of the State of
Arizona.
SECTION 11.7 SUCCESSORS.
This Agreement shall, except as herein otherwise provided, be binding upon
and inure to the benefit of the successors and assigns of the parties,
hereto.
SECTION 11.8 HEADINGS.
The headings or captions of sections in this Agreement are for convenience
and reference only, and in no way define, limit or describe the scope or
intent of this Agreement or the provisions of such sections.
SECTION 11.9 ARBITRATION.
(a) Binding Arbitration. Upon the demand of Borrower or Lender
(collectively, the "parties"), whether made before the institution of
any judicial proceeding or not more than 60 days after service of a
complaint, third party complaint, cross-claim or counterclaim or any
answer thereto or any amendment to any of the above, any Dispute (as
defined below) shall be resolved by binding arbitration in accordance
with the terms of this arbitration clause. A "Dispute" shall include
any action, dispute, claim, or controversy of any kind, whether founded
in contract, tort, statutory or common law, equity, or otherwise, now
existing or hereafter occurring between the parties arising out of,
pertaining to or in connection with this Agreement or any related
agreements, documents, or instruments (the "Documents"). The parties
understand that by this Agreement they have decided that the Disputes
may be submitted to arbitration rather than being decided through
litigation in court before a judge or jury and that once decided by an
arbitrator the claims involved cannot be brought, filed or pursued in
court.
(b) Governing Rules. Arbitrations conducted pursuant to this Agreement,
including selection of arbitrators, shall be administered by the
American Arbitration Association ("Administrator") pursuant to the
Commercial Arbitration rules of the Administrator. Arbitrations
conducted pursuant to the terms hereof shall be governed by the
provisions of the Federal Arbitration Act (Title 9 of the United States
Code), and to the extent the foregoing are inapplicable, unenforceable
or invalid, the laws of the State of Arizona. Judgment upon any award
rendered hereunder may be entered in any court having jurisdiction;
provided, however, that nothing contained herein shall be deemed to be
a waiver by any party that is a Lender of the protections afforded to it
under 12 U.S.C. section 91 or similar governing state law. Any party who
fails to submit to binding arbitration following a lawful demand by the
opposing party shall bear all costs and expenses, including reasonable
attorney's fees, incurred by the opposing party in compelling
arbitration of any Dispute.
(c) No Waiver, Preservation of Remedies, Multiple Parties. No provision of,
nor the exercise of any rights under, this arbitration clause shall
limit the right of any party to (1) foreclose against any real or
<PAGE>
personal property collateral or other security, (2) exercise self-help
remedies (including repossession and setoff rights) or (3) obtain
provisional or ancillary remedies such as injunctive relief,
sequestration, attachment, replevin, garnishment, or the appointment of
a receiver from a court having jurisdiction. Such rights can be
exercised at any time except to the extent such action is contrary to a
final award or decision in any arbitration proceeding. The institution
and maintenance of an action as described above shall not constitute a
waiver of the right of any party, including the plaintiff, to submit
the Dispute to arbitration, nor render inapplicable the compulsory
arbitration provisions hereof. Any claim or Dispute related to exercise
of any self-help, auxiliary or other exercise of rights under this
section (c) shall be a Dispute hereunder.
(d) Arbitrator Powers and Qualifications; Awards. Arbitrator(s) shall
resolve all Disputes in accordance with the applicable substantive law.
Arbitrator(s) may make an award of attorneys' fees and expenses if
permitted by law or the agreement of the parties. All statutes of
limitation applicable to any Dispute shall apply to any proceeding in
accordance with this arbitration clause. Any arbitrator selected to act
as the only arbitrator in a Dispute shall be required to be a
practicing attorney with not less than 10 years practice in commercial
law in the State of Arizona. With respect to a Dispute in which the
claims or amounts in controversy do not exceed five hundred thousand
dollars ($500,000), a single arbitrator shall be chosen and shall
resolve the Dispute. In such case the arbitrator shall have authority
to render an award up to but not to exceed five hundred thousand
dollars ($500,000) including all damages of any kind whatsoever, costs,
fees and expenses. Submission to a single arbitrator shall be a waiver
of all parties' claims to recover more than five hundred thousand
dollars ($500,000). A dispute involving claims or amounts in
controversy exceeding five hundred thousand dollars ($500,000) shall be
decided by a majority vote of a panel of three arbitrators
("Arbitration Panel"). An Arbitration Panel shall be composed of one
arbitrator who would be qualified to sit as a single arbitrator in a
Dispute decided by one arbitrator, one who has at least ten years
experience in commercial lending and one who has at least ten years
experience in the Borrower's industry. Arbitrator(s) may, in the
exercise of their discretion, at the written request of a party in any
Dispute, (1) consolidate in a single proceeding any multiple party
claims that are substantially identical and all claims arising out of a
single loan or series of loans including claims by or against
borrower(s) guarantors, sureties and or owners of collateral if
different from the Borrower, and (2) administer multiple arbitration
claims as class actions in accordance with Rule 23 of the Federal Rules
of Civil Procedure. The arbitrator(s) shall be empowered to resolve any
dispute regarding the terms of this Agreement or the arbitrability of
any Dispute or any claim that all or any part (including this
provision) is void or voidable but shall have no power to change or
alter the terms of this Agreement. The award of the arbitrator(s)
shall be in writing and shall specify the factual and legal basis for
the award.
(e) Miscellaneous. To the maximum extent practicable, the Administrator,
the Arbitrator(s) and the parties shall take any action necessary to
require that an arbitration proceeding hereunder be concluded within 180
days of the filing of the Dispute with the Administrator. The
<PAGE>
Arbitrator(s) shall be empowered to impose sanctions for any party's
failure to proceed within the times established herein. Arbitration
proceedings hereunder shall be conducted in Arizona at a location
determined by the Administrator. In any such proceeding a party shall
state as a counterclaim any claim which arises out of the transaction or
occurrence or is in any way related to the Documents which does not
require the presence of a third party which could not be joined as a
party in the proceeding. The provisions of this arbitration clause
shall survive any termination, amendment, or expiration of the
Documents and repayment in full of sums owed to Lender by Borrower
unless the parties otherwise expressly agree in writing. Each party
agrees to keep all Disputes and arbitration proceedings strictly
confidential, except for disclosures of information required in the
ordinary course of business of the parties or as required by applicable
law or regulation.
<PAGE>
IN WITNESS WHEREOF, these presents have been executed as of the day and year
first set forth above and each party hereby acknowledges that it has read the
Arbitration provisions contained in Section 11.9 of this Agreement.
FIRST INTERSTATE BANK OF ARIZONA, N.A.
By: /s/ Edward T. Williams
-------------------------------
Name: Edward T. Williams
-------------------------------
Title: Vice President
-------------------------------
LENDER
APOLLO GROUP, INC., an Arizona corporation
By: /s/ John G. Sperling
-------------------------------
Name: John G. Sperling
-------------------------------
Title: Chairman
-------------------------------
THE UNIVERSITY OF PHOENIX, INC., an
Arizona corporation
By: /s/ John G. Sperling
-------------------------------
Name: John G. Sperling
-------------------------------
Title: Chairman
-------------------------------
INSTITUTE FOR PROFESSIONAL
DEVELOPMENT, INC., a California corporation
By: /s/ John G. Sperling
-------------------------------
Name: John G. Sperling
-------------------------------
Title: Chairman
-------------------------------
BORROWER
<PAGE>
EXHIBIT "A"
Borrowing Base Certificate
Month Ended _______________
1. Student Receivables Of The Operating
Subsidiaries (Except IPD) $_______________
2. Less: Student Receivables Of The
Operating Subsidiaries (Except IPD)
Over 90 Days From Invoice $_______________
3. Eligible Accounts $_______________
4. Times: 70% Advance Rate X .70
5. Subtotal $_______________
6. Less: Outstanding Letters of Credit $_______________
7. Borrowing Base $_______________
8. Loan Balance (Not To Exceed Line 7) $_______________
APOLLO GROUP, INC.
By: ______________________________________
Its: ______________________________________
Date: ______________________________________
<PAGE>
EXHIBIT "B"
ASSUMPTION AGREEMENT
BY THIS ASSUMPTION AGREEMENT (the "Agreement") made and entered into as of
the date indicated below by the undersigned (hereinafter called "Added
Borrower") whose chief executive address is located as indicated below, in
favor of FIRST INTERSTATE BANK OF ARIZONA, N.A., whose address is 100 West
Washington Street, Post Office Box 53456, Phoenix, Arizona 85072-3456
(hereinafter, together with any successors and assigns, called "Lender"), in
consideration of the recitals herein contained and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Added Borrower confirms and agrees as follows:
SECTION 1. RECITALS.
1.1 Added Borrower is an Operating Subsidiary (as that term is defined in
the Loan Agreement hereinafter defined) of Apollo Group, Inc., an
Arizona corporation (the "Company").
1.2 As such, Added Borrower is benefitted by the financial accommodations
(the "Loan") advanced by Lender to Company and its then existing
Operating Subsidiaries (collectively with Company, the "Borrower")
pursuant to that Loan Agreement dated March 22, 1996 between
Lender and Borrower (as amended from time to time, the "Loan
Agreement").
1.3 A condition for the continuation of the Loan specified in the Loan
Agreement is that any subsequently acquired or created Operating
Subsidiary of the Company assume as a "Borrower" within the meaning of
Section 7.11 of the Loan Agreement the obligations of the Borrower under
the Loan Agreement, and agree to be bound by all of the terms,
conditions and provisions thereof, and agree to be jointly liable with
the Borrower for the full payment and satisfaction of the Loan and all
other obligations of the Borrower under the Loan Agreement.
1.4 Because of the benefits derived by the Added Borrower from said
financial accommodations, which consideration is acknowledged by Added
Borrower as sufficient for its agreements herein, Added Borrower desires
to so agree.
SECTION 2. ASSUMPTION.
2.1 Added Borrower hereby assumes as a "Borrower" and agrees to perform as a
"Borrower" all of the duties, obligations and promises of Borrower as
set forth in or arising under the Loan Agreement, to be bound as a
Borrower by all of the terms, conditions and provisions of the Loan
Agreement and to do as a Borrower any and all acts and things required
under the Loan Agreement to be done by Borrower.
SECTION 3. MISCELLANEOUS.
3.1 Added Borrower shall execute such additional documents and do such other
acts as may be reasonably necessary to fully implement the intent of
this Agreement including without limitation the delivery to Lender of
such other documents as Lender may reasonably request.
<PAGE>
3.2 This Agreement shall be governed by and construed according to the laws
of the State of Arizona.
3.3 This Agreement shall be binding upon, and shall inure to the benefit of,
the parties hereto and their heirs, personal representatives, successors
and assigns.
IN WITNESS WHEREOF, these presents are executed as of March 22, 1996.
By: /s/ John G. Sperling
-------------------------------
Its: Chairman
-------------------------------
Chief Executive Office:
4615 East Elwood Street
Phoenix, Arizona 85040
ADDED BORROWER
<PAGE>
SCHEDULE 6.12
Operating Subsidiaries
1. The University of Phoenix, Inc., an Arizona corporation.
2. Institute for Professional Development, Inc., a California corporation.
<PAGE>
SCHEDULE 6.13
Subsidiaries
Apollo Development Corp.
Apollo Press, Inc.
Apollo Online, Inc.
Alta Business and Technical Schools, Inc.
Apollo Business and Technical Schools, Inc.
Apollo Education Corporation
Institute for Professional Development, Inc.
Computer Aided Learning Corporation, Inc.
The University of Phoenix, Inc.
Western International University, Inc.
UOP-Michigan
<PAGE>
REVOLVING PROMISSORY NOTE
$4,000,000.00
Phoenix, Arizona
March 22, 1996
FOR VALUE RECEIVED, each of the undersigned (collectively, "Maker"), promises
to pay to the order of FIRST INTERSTATE BANK OF ARIZONA, N.A. (the "Payee";
Payee and each subsequent successor, transferee and/or owner of this Note,
whether taking by endorsement or otherwise, are herein successively called
"Holder"), at 100 West Washington, Post Office Box 53456, Phoenix, Arizona
85072-3456, or at such other place as Holder may from time to time designate
in writing, the principal sum of FOUR MILLION AND NO/100 DOLLARS
($4,000,000.00) or so much thereof as Holder may advance to or for the
benefit of Maker plus interest calculated on a daily basis (based on a 360-day
year) from the date hereof on the principal balance from time to time
outstanding as hereinafter provided, principal, interest and all other sums
payable hereunder to be paid in lawful money of the United States of America
as follows:
(a) INTEREST. Interest shall accrue on the unpaid principal of each RLC
Advance:
(i) At the Prime Rate if it is a Prime Advance.
(ii) At the Adjusted LIBOR Rate if it is a LIBOR Advance.
(b) PAYMENTS. All accrued interest on each RLC Advance shall be due and
payable as billed by Holder each month. In addition, the principal
amount of each LIBOR Advance together with all accrued interest, shall
be due and payable each month, and the balance, if any, at the end of
each respective Interest Period.
(c) FINAL PAYMENT. The entire outstanding principal balance outstanding
hereunder, all accrued and unpaid interest and all other sums which may
have become payable hereunder shall be due and payable in full on the
Termination Date.
(d) DEFINITIONS. The capitalized terms used and not otherwise defined
herein shall have the same meanings as defined in the Loan Agreement
(defined below).
The principal balance of this Note represents a revolving credit all or any
part of which may be advanced to Maker, repaid by Maker, and readvanced to
Maker from time to time, subject to the other terms hereof and the
conditions, if any, contained in the Loan Agreement and provided that the
principal balance outstanding at any one time shall not exceed the face
amount hereof.
Maker's indebtedness under this Note shall be further evidenced by the
balance of Maker's loan account with Holder to which charges and credits
shall be entered in accordance with Holder's standard accounting practices in
effect from time to time. Holder, at its discretion, from time to time, may
render statements of account to Maker setting forth the outstanding principal
amount of the Loan and amounts of interest, costs and fees due and payable
<PAGE>
with respect thereto. Each such statement, if and as so rendered, shall be
deemed correct and accepted by Maker, and shall be conclusively binding upon
Maker, unless Maker notifies Holder of any discrepancy within thirty (30)
days after the date of the statement. If such statements are rendered
periodically by Holder and provide that accrued interest and other amounts
shown thereon are due and payable on receipt, all such interest and amounts
shall be so due and payable.
Maker agrees to an effective rate of interest that is the rate stated above
plus any additional rate of interest resulting from any other charges in the
nature of interest paid or to be paid by or on behalf of Maker, or any
benefit received or to be received by Holder, or any benefit received or to
be received by Holder, in connection with this Note.
All payments on this Note shall be applied to the payment of any costs, fees
or other charges incurred in connection with the indebtedness evidenced
hereby, the payment of accrued interest and the reduction of the principal
balance, in the order and manner Holder, in its sole and absolute discretion,
shall determine from time to time.
This Note is issued pursuant to that Loan Agreement dated of even date
herewith between Maker and Payee (the "Loan Agreement").
Time is of the essence of this Note. At the option of Holder, the entire
unpaid principal balance, all accrued and unpaid interest and all other
amounts payable hereunder shall become immediately due and payable without
notice upon the failure to pay any sum due and owing hereunder as provided
herein or upon the occurrence of any event of default under the Loan
Agreement.
After maturity, including maturity upon acceleration, the unpaid principal
balance, all accrued and unpaid interest and all other amounts payable
hereunder shall bear interest at that rate that is five percent (5%) above
the rate that would otherwise be payable under the terms hereof. Maker shall
pay all costs and expenses, including reasonable attorneys' fees and court
costs, incurred in the collection or enforcement of all or any part of this
Note. Such court costs and attorney's fees shall be set by the court and not
by jury, shall be included in any judgment obtained by Holder.
Maker shall have the option to prepay this Note, in full or in part, at any
time. Maker shall pay to Holder such amount or amounts as shall be
sufficient to compensate for any Consequential Loss which Holder may
reasonably incur as a result of payment or Conversion of any LIBOR Advance
other than on the last Business Day in the Interest Period for such LIBOR
Advance.
Failure of Holder to exercise any option hereunder shall not constitute a
waiver of the right to exercise the same in the event of any subsequent
default or in the event of continuance of any existing default after demand
for strict performance hereof.
Maker (a) waives any and all formalities in connection with this Note to the
maximum extent allowed by law, including (but not limited to) demand,
diligence, presentment for payment, protest and demand, and notice of
extension, dishonor, protest, demand and nonpayment of this Note; and (b)
consents that Holder may extend the time of payment or otherwise modify the
terms of payment of any part or the whole of the debt evidenced by this Note,
at the request of any other person liable hereon, and such consent shall not
alter nor diminish the liability of any person hereon.
<PAGE>
In addition, Maker waives and agrees not to asset: (a) any right to require
Holder to proceed against Maker to proceed against or exhaust any security
for the Note, to pursue any other remedy available to Holder, or to pursue
any remedy in any particular order or manner; (b) the benefit of any statute
of limitations affecting its liability hereunder or the enforcement hereof;
(c) the benefits of any legal or equitable doctrine or principle of
marshaling; (d) notice of the existence, creation or incurring of new or
additional indebtedness of Maker to Holder; (e) the benefits of any statutory
provision limiting the liability of a surety, including without limitation
the provisions of Sections 12-1641, et seq., of the Arizona Revised Statutes;
and (f) any defense arising by reason of any disability or other defense of
Maker or by reason of the cessation from any cause whatsoever (other than
payment in full) of the liability of Maker for payment of the Note.
Maker agrees that to the extent Maker makes any payment to Holder in
connection with the indebtedness evidenced by this Note, and all or any part
of such payment is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid by Holder or paid over to a
trustee, receiver or any other entity, whether under any bankruptcy act or
otherwise (any such payment is hereinafter referred to as a "Preferential
Payment"), then the indebtedness of Maker under this Note shall continue or
shall be reinstated, as the case may be, and, to the extent of such payment
or repayment by Holder, the indebtedness evidenced by this Note or part
thereof intended to be satisfied by such Preferential payment shall be
revived and continued in full force and effect as if said Preferential
Payment had not been made.
Without limiting the right of Holder to bring any action or proceeding
against Maker or against any property of Maker (an "Action") arising out of
or relating to this Note or any indebtedness evidenced hereby in the courts
of other jurisdictions, Maker hereby irrevocable submits to the jurisdiction,
process and venue of any Arizona State or Federal court sitting in Phoenix,
Arizona, and hereby irrevocably agrees that any Action may be heard and
determined in such Arizona State court or in such Federal court. Maker
hereby irrevocably waives, to the fullest extent it may effectively do so,
the defenses of lack of jurisdiction over any person, inconvenient forum or
improper venue, to the maintenance of any Action in any jurisdiction.
This Note shall be binding upon Maker and its successors and assigns and
shall inure to the benefit of Payee, and any subsequent holders of this Note,
and their successors and assigns.
All notices required or permitted in connection with this Note shall be given
at the place and in the manner provided in the Loan Agreement for the giving
of notices.
This Note shall be construed according the laws of the State of Arizona.
<PAGE>
IN WITNESS WHEREOF, this Revolving Promissory Note has been executed as of
the date first written above.
APOLLO GROUP, INC.
an Arizona corporation
By: /s/ John G. Sperling
---------------------------
Its: President
---------------------------
THE UNIVERSITY OF PHOENIX, INC.
an Arizona corporation
By: /s/ William H. Gibbs
---------------------------
Its: President
---------------------------
INSTITUTE FOR PROFESSIONAL DEVELOPMENT, INC.
a California corporation
By: /s/ Jerry F. Noble
---------------------------
Its: President
---------------------------
<PAGE>
EXHIBIT 10.4
APOLLO GROUP, INC.
SAVINGS AND INVESTMENT PLAN
<PAGE>
TABLE OF CONTENTS
Page
PREAMBLE 1
ARTICLE ONE - EFFECTIVE DATE 1
1.1 EFFECTIVE DATE 1
ARTICLE TWO - DEFINITIONS AND CONSTRUCTION 1
2.1. DEFINITIONS 1
2.2. TOP HEAVY PLAN PROVISIONS 11
2.3. HIGHLY COMPENSATED EMPLOYEE 13
2.4. CONSTRUCTION 16
ARTICLE THREE - ELIGIBILITY AND PARTICIPATION 16
3.1. ELIGIBILITY AND PARTICIPATION 16
3.2. APPLICATION TO PARTICIPATE 17
3.3. CREDITING OF SERVICE 17
3.4. EFFECT OF REHIRING 17
3.5. AUTHORIZED LEAVES OF ABSENCE 18
3.6. AFFILIATED EMPLOYERS 18
3.7. TERMINATION OF PARTICIPATION 18
3.8. TRANSFERS TO AND FROM AN ELIGIBLE CLASS OF EMPLOYEES 18
3.9. LEASED EMPLOYEES 19
3.10. WAIVER OF PARTICIPATION 19
ARTICLE FOUR - EMPLOYEE CONTRIBUTIONS 20
4.1. PRE-TAX CONTRIBUTIONS 20
4.2. PRE-TAX CONTRIBUTIONS--$7,000 LIMITATION 20
4.3. LIMITATION ON CONTRIBUTIONS OF HIGHLY COMPENSATED EMPLOYEES 21
4.4. DESIGNATION AND CHANGE OF DESIGNATION OF PRE-TAX CONTRIBUTIONS 24
4.5. SUSPENSION OF PRE-TAX CONTRIBUTIONS 24
4.6. AFTER-TAX CONTRIBUTIONS 24
4.7. ROLLOVER CONTRIBUTION 26
ARTICLE FIVE - EMPLOYER CONTRIBUTIONS 27
5.1. EMPLOYER CONTRIBUTIONS 27
5.2. CONDITIONAL NATURE OF CONTRIBUTIONS 28
5.3. LIMITATION ON MATCHING CONTRIBUTIONS 28
ARTICLE SIX - ACCOUNTING 31
6.1. SEPARATE ACCOUNTS 31
6.2. ALLOCATION OF CONTRIBUTIONS AND FORFEITURES 31
6.3. VALUATION AND ACCOUNT ADJUSTMENTS 32
6.4. LIMITATIONS ON ANNUAL ADDITIONS 33
ARTICLE SEVEN - VESTING 36
7.1. FULL VESTING 36
7.2. AMENDMENTS TO VESTING SCHEDULE 37
ARTICLE EIGHT - DISTRIBUTION OF BENEFITS 37
8.1. NORMAL, EARLY AND LATE RETIREMENT 37
8.2. DISABILITY RETIREMENT 37
8.3. DEATH 38
8.4. OTHER SEPARATIONS FROM EMPLOYMENT 39
8.5. HARDSHIP DISTRIBUTIONS 39
8.6. IN-SERVICE DISTRIBUTIONS 41
8.7. TIME OF DISTRIBUTION OF BENEFITS 42
<PAGE>
8.8. METHOD OF DISTRIBUTION 45
8.9. DESIGNATION OF BENEFICIARY 47
8.10. PAYMENTS TO DISABLED 48
8.11. UNCLAIMED ACCOUNTS; NOTICE 48
8.12. UNDERPAYMENT OR OVERPAYMENT OF BENEFITS 49
8.13. TRANSFERS FROM THE PLAN 49
8.14. ELIGIBLE ROLLOVER DISTRIBUTIONS 50
ARTICLE NINE - INALIENABILITY OF BENEFITS 51
9.1. NO ASSIGNMENT PERMITTED 51
9.2. QUALIFIED DOMESTIC RELATIONS ORDERS 51
9.3. PROCESSING QUALIFIED DOMESTIC RELATIONS ORDERS 52
ARTICLE TEN - ADMINISTRATION 53
10.1. PLAN ADMINISTRATOR 53
10.2. ALLOCATION OF FIDUCIARY RESPONSIBILITY 53
10.3. POWERS OF THE PLAN ADMINISTRATOR 53
10.4. CLAIMS 54
10.5. CREATION OF COMMITTEE 55
10.6. CHAIRMAN AND SECRETARY 55
10.7. APPOINTMENT OF AGENTS 55
10.8. MAJORITY VOTE AND EXECUTION OF INSTRUMENTS 56
10.9. ALLOCATION OF RESPONSIBILITIES AMONG COMMITTEE MEMBERS 56
10.10. CONFLICT OF INTEREST 56
10.11. OTHER FIDUCIARY CAPACITIES 56
ARTICLE ELEVEN - SCOPE OF RESPONSIBILITY 56
11.1. SCOPE OF RESPONSIBILITY 56
11.2. BONDING 58
11.3. PROHIBITION AGAINST CERTAIN PERSONS HOLDING POSITIONS 58
ARTICLE TWELVE - AMENDMENT, MERGER AND TERMINATION 58
12.1. AMENDMENT 58
12.2. PLAN MERGER OR CONSOLIDATION 58
12.3. MERGER OR CONSOLIDATION OF EMPLOYER 59
12.4. TERMINATION OF PLAN OR DISCONTINUANCE OF CONTRIBUTIONS 59
12.5. LIMITATION OF EMPLOYER LIABILITY 60
ARTICLE THIRTEEN - LOANS 60
13.1. GENERAL RULE 60
13.2. SPOUSAL CONSENT REQUIRED 61
13.3. AMOUNT OF LOAN; SECURITY 61
13.4. TERMS OF LOAN 62
13.5. DEFAULT 62
ARTICLE FOURTEEN - PARTICIPANT DIRECTED INDIVIDUAL ACCOUNTS 63
14.1. PARTICIPANT DIRECTED INDIVIDUAL ACCOUNTS 63
14.2. EMPLOYEE SELECTED INVESTMENT FUNDS 63
14.3. EXERCISE OF CONTROL 63
14.4. ADJUSTMENT OF ACCOUNTS 66
14.5. LIMITATION OF LIABILITY AND RESPONSIBILITY 66
14.6. FORMER PARTICIPANTS AND BENEFICIARIES 66
14.7. VOTING, TENDER OR SIMILAR RIGHTS 66
ARTICLE FIFTEEN - GENERAL PROVISIONS 66
15.1. LIMITATION ON PARTICIPANTS' RIGHTS 66
15.2. EXCLUSIVE BENEFIT 67
15.3. UNIFORM ADMINISTRATION 67
<PAGE>
15.4. HEIRS AND SUCCESSORS 67
15.5. ASSUMPTION OF QUALIFICATION 67
15.6. EFFECT OF AMENDMENT 67
15.7. INSURANCE PROHIBITED 67
<PAGE>
PREAMBLE
Effective September 1, 1984, Apollo Group, Inc. (the "Employer") established
the "Apollo Group, Inc. Savings and Investment Plan" (the "Plan"). By the
execution of this document, the Employer hereby amends and restates the Plan
in its entirety, effective as of the date set forth in Section 1.1.
ARTICLE ONE
EFFECTIVE DATE
1.1. EFFECTIVE DATE.
Except as otherwise specifically provided with respect to particular
provisions of the Plan, the provisions of this Plan shall be effective as of
January 1, 1995 (the "Effective Date").
ARTICLE TWO
DEFINITIONS AND CONSTRUCTION
2.1. DEFINITIONS.
When a word or phrase shall appear in this Plan with the initial letter
capitalized, and the word or phrase does not commence a sentence, the word or
phrase shall generally be a term defined in this Section 2.1. The following
words and phrases utilized in the Plan with the initial letter capitalized
shall have the meanings set forth in this Section 2.1, unless a clearly
different meaning is required by the context in which the word or phrase is
used:
(a) "ACT" - The Employee Retirement Income Security Act of 1974, as it
may be amended from time to time.
(b) "AFFILIATE" - Any member of a "controlled group of corporations"
(within the meaning of Section 414(b) of the Code as modified by Section
415(h) of the Code) that includes the Employer as a member of the group; any
member of an "affiliated service group" (within the meaning of Section
414(m)(2) of the Code) that includes the Employer as a member of the group;
any member of a group of trades or businesses under common control (within
the meaning of Section 414(c) of the Code as modified by Section 415(h) of
the Code) that includes the Employer as a member of the group; and any other
entity required to be aggregated with the Employer pursuant to regulations
issued by the United States Treasury Department pursuant to Section 414(o) of
the Code.
(c) "AFTER-TAX CONTRIBUTIONS" - The amounts previously contributed to
the Trust Fund by a Participant on an after-tax basis.
(d) "AFTER-TAX CONTRIBUTIONS ACCOUNT" - A separate account established
pursuant to Section 6.1 to which are credited the After-Tax Contributions
previously made by a Participant.
(e) "ANNUAL ADDITION" - The sum of the following amounts allocable for
a Plan Year to a Participant under this Plan or under any defined
contribution plan or defined benefit plan maintained by the Employer or any
Affiliate:
<PAGE>
(1) The Employer contributions allocable for a Plan Year to the
accounts of the Participant, including any amount allocable from a suspense
account maintained pursuant to such plan on account of a prior Plan Year;
amounts deemed to be Employer contributions pursuant to a cash-or-deferred
arrangement qualified under Section 401(k) of the Code (including the
Pre-Tax Contributions allocable to a Participant pursuant to this Plan);
and amounts allocated to a medical account which must be treated as annual
additions pursuant to Section 415(l)(1) or Section 419A(d)(2) of the Code;
(2) All nondeductible Employee contributions allocable during a
Plan Year to the accounts of the Participant; and
(3) Forfeitures allocable for a Plan Year to the accounts of the
Participant.
Any rollover contributions or transfers from other qualified plans,
restorations of forfeitures, or other items similarly enumerated in Treasury
Regulation Section 1.415-6(b)(3) shall not be considered in calculating a
Participant's Annual Additions for any Plan Year.
(f) "AUTHORIZED LEAVE OF ABSENCE" - A leave of absence granted by the
Employer in writing in accordance with the Employer's uniformly applied rules
regarding leaves of absence or a leave of absence for service as a member of
the armed forces of the United States, provided that the Employee left the
Employer directly to enter the armed services and returns to the employ of
the Employer within the period during which his employment rights are
protected by law.
(g) "BENEFICIARY" - The person or persons designated to receive
benefits under this Plan in the event of death of the participant.
(h) "BENEFIT COMMENCEMENT DATE" - The first day on which all events
(including the passing of the day on which benefit payments are scheduled to
commence) have occurred which entitle the Participant to receive his first
benefit payment from the Plan.
(i) "BOARD" - The Board of Directors of the Employer.
(j) "BREAK IN SERVICE" - A twelve (12) consecutive month period during
which an Employee does not complete more than five hundred (500) Hours of
Service. The applicable twelve (12) consecutive month period shall be the
same twelve (12) consecutive month period that is used for purposes of
calculating the Participant's Years of Service.
(k) "CODE" - The Internal Revenue Code of 1986, as amended.
(l) "COMPENSATION" - All wages, salaries, and fees for professional
services and other amounts received for personal services actually rendered
in the course of employment with the Employer including, but not limited to,
commissions paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips and bonuses),
and excluding the following:
(1) Employer contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for the taxable year
in which contributed, or Employer contributions under a simplified employee
pension plan to the extent such contributions are deductible by the Employee,
or any distributions from a plan of deferred compensation;
<PAGE>
(2) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the Employee either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture;
(3) Amounts realized from the sale, exchange or other disposition
of stock acquired under a stock option; and
(4) Other amounts which receive special tax benefits, or
contributions made by the Employer (whether or not under a salary reduction
agreement) towards the purchase of an annuity described in Section 403(b) of
the Internal Revenue Code (whether or not the amounts are actually excludible
from the gross income of the Employee).
For purposes of this paragraph, Compensation for a Plan Year is the
Compensation actually paid or includible in gross income during such year.
Notwithstanding the foregoing, compensation of each Employee taken into
account under the Plan shall not exceed the "OBRA '93 annual compensation
limit". The "OBRA '93 annual compensation limit" is One Hundred Fifty
Thousand Dollars ($150,000.00) as adjusted by the Commissioner for increases
in the cost-of-living in accordance with Section 401(a)(17)(B) of the Code.
The cost-of-living adjustment in effect for a calendar year applies to any
period, not exceeding twelve (12) months, over which Compensation is
determined (determination period) beginning in such calendar year. If a
determination period consists of fewer than twelve (12) months, the OBRA '93
annual compensation limit will be multiplied by a fraction, the numerator of
which is the number of months in the determination period, and the
denominator of which is twelve (12). For Plan Years beginning on or after
January 1, 1994, any reference in this Plan to the limitation under Section
401(a)(17) of the Code shall mean the OBRA '93 annual compensation limit set
forth in this provision. If Compensation for any prior determination period
is taken into account in determining an Employee's benefits accruing in the
current Plan Year, the Compensation for that prior determination period is
subject to the OBRA '93 annual compensation limit in effect for that prior
determination period. For this purpose, for determination periods beginning
before the first day of the first Plan Year compensation limit is One Hundred
Fifty Thousand Dollars($150,000.00). Notwithstanding the foregoing, for
purposes of applying the foregoing limitation to an Employee who is a
"5-percent owner" as defined in Section 414(q)(3) of the Code, or a Highly
Compensated Employee who is among the ten (10) most highly compensated
employees during the Plan Year, Compensation paid to any member of the family
of that Employee shall be deemed to have been paid directly to the Employee.
For purposes of this Section, the term "family" shall mean the Employee's
spouse and any lineal descendants of the Employee who have not attained the
age of nineteen (19) years prior to the end of the Plan Year. If the
foregoing limitation (as adjusted for cost-of-living increases) is exceeded
as a result of the application of the foregoing rules, the Compensation of
the Employee and any affected family members taken into account for purposes
of this Plan shall be reduced by each individual's proportionate share of
Compensation in excess of such limitation. Each individual's proportionate
share of such excess amount shall be an amount which bears the same ratio to
the excess amount as the individual's Compensation (determined without regard
to the limitation (as adjusted for cost-of-living increases)) bears to the
aggregated Compensation of the Employee and any affected family members
(determined without regard to the foregoing limitation (as adjusted for
cost-of-living increases)). If an Employee receives any payments from an
Affiliate which would be treated as Compensation if paid by the Employer,
such amounts shall be included in calculating the Employee's Compensation for
<PAGE>
purposes of Section 415 of the Code and the corresponding provisions of this
Plan. Any amounts paid to an Employee by an Affiliate shall be disregarded
for all other purposes under this Plan unless the Affiliate making the
payment has elected to provide benefits to its employees pursuant to this
Plan.
(m) "DISABILITY" - The inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment that can be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less than twelve (12)
months. The permanence and degree of such impairment shall be supported by
medical evidence.
(n) "DISCRETIONARY CONTRIBUTIONS" - The amounts contributed to the
Trust Fund by the Employer pursuant to Section 5.1(b).
(o) "DISCRETIONARY CONTRIBUTIONS ACCOUNT" - The account established
pursuant to Section 6.1 to which Discretionary Contributions are credited.
(p) "EARNINGS" - All salary, hourly wages, bonuses, incentive
payments, commissions, pay in lieu of vacation, overtime and all other
amounts subject to tax under Section 3401(a) of the Code paid by the Employer
to the Employee during a Plan Year, but excluding insurance premium payments,
moving and relocation reimbursements and all other deferred or fringe
benefits (including contributions or benefits under any employee benefit plan
of the Employer). Notwithstanding any other provision of the Plan to the
contrary, the annual Earnings of each Employee taken into account under the
Plan shall not exceed the "OBRA '93 annual compensation limit". The "OBRA '93
annual compensation limit" is One Hundred Fifty Thousand Dollars
($150,000.00) as adjusted by the Commissioner for increases in the
cost-of-living in accordance with Section 401(a)(17)(B) of the Code.
The cost-of-living adjustment in effect for a calendar year applies to any
period, not exceeding twelve (12) months, over which Earnings is determined
(determination period) beginning in such calendar year. If a determination
period consists of fewer than twelve (12) months, the OBRA '93 annual
compensation limit will be multiplied by a fraction, the numerator of which
is the number of months in the determination period, and the denominator of
which is twelve (12). For Plan Years beginning on or after January 1, 1994,
any reference in this Plan to the limitation under Section 401(a)(17) of the
Code shall mean the OBRA '93 annual compensation limit set forth in this
provision. If Earnings for any prior determination period is taken into
account in determining an Employee's benefits accruing in the current Plan
Year, the Earnings for that prior determination period is subject to the OBRA
'93 annual compensation limit in effect for that prior determination period.
For this purpose, for determination periods beginning before the first day of
the first Plan Year beginning on or after January 1, 1994, the OBRA '93
annual compensation limit is One Hundred Fifty Thousand Dollars
($150,000.00). Notwithstanding the foregoing, for purposes of applying the
foregoing limitation to an Employee who is a "5-percent owner" as defined in
Section 414(q)(3) of the Code, or a Highly Compensated Employee who is among
the ten (10) most highly compensated employees during the Plan Year, Earnings
paid to any member of the family of that Employee shall be deemed to have
been paid directly to the Employee. For purposes of this Section, the term
"family" shall mean the Employee's spouse and any lineal descendants of the
Employee who have not attained the age of nineteen (19) years prior to the
end of the Plan Year. If the foregoing limitation (as adjusted for
cost-of-living (increases) is exceeded as a result of the application of the
foregoing rules, the Earnings of the Employee and any affected family members
<PAGE>
taken into account for purposes of this Plan shall be reduced by each
individual's proportionate share of Earnings in excess of such limitation.
Each individual's proportionate share of such excess amount shall be an
amount which bears the same ratio to the excess amount as the individual's
Earnings (determined without regard to the limitation (as adjusted for
cost-of-living increases)) bears to the aggregated Earnings of the Employee
and any affected family members (determined without regard to the foregoing
limitation (as adjusted for cost-of-living increases)). The term "Earnings"
shall also include amounts attributable to the performance of services for
the Employer or an Affiliate which are not includible in the Participant's
gross taxable income by reason of Sections 125, 402(e)(3), 402(h), and 403(b)
of the Code.
(q) "EFFECTIVE DATE" - January 1, 1995, except as otherwise
specifically provided with respect to particular provisions of this Plan.
(r) "EMPLOYEE" - Each person receiving remuneration, or who is entitled
to remuneration, for services rendered to the Employer in the legal
relationship of employer and employee and not in the relationship of a
private contractor (or who would be receiving or be entitled to remuneration
were such person not on an Authorized Leave of Absence).
(s) "EMPLOYER" - Apollo Group, Inc., and each successor in interest to
the Employer resulting from merger, consolidation, or transfer of
substantially all of its assets that elects to continue this Plan.
(t) "EMPLOYER CONTRIBUTIONS" - The amount of Matching Contributions and
Discretionary Contributions contributed to the Trust Fund by the Employer for
the benefit of Participants in accordance with Section 5.1.
(u) "EMPLOYER CONTRIBUTIONS ACCOUNT" - The Matching Contributions
Account and/or Discretionary Contributions Account established pursuant to
Section 6.1.
(v) "HIGHLY COMPENSATED EMPLOYEE" - Each individual who is treated as a
"Highly Compensated Employee" pursuant to Section 2.3 of this Plan and
Section 414(q) of the Code.
(w) "HOUR OF SERVICE" -
(1) An hour for which an Employee is directly or indirectly
compensated, or is entitled to compensation, by the Employer or an Affiliate
for the performance of duties. Such Hours of Service shall be credited to
the respective computation period in which the duties were performed.
(2) An hour for which an Employee is directly or indirectly
compensated, or is entitled to compensation, by the Employer or an Affiliate
on account of a period of time during which no duties are performed
(irrespective of whether the employment relationship has terminated) due to
vacation, holiday, illness, incapacity (including disability), layoff, jury
duty, military duty or leave of absence. No more than five hundred one (501)
Hours of Service shall be credited under this paragraph (2) for any single
continuous period (whether or not such period occurs in a single service
computation period). Hours of Service under this paragraph (2) shall be
calculated and credited pursuant to Section 2530.200b-2 of the Department of
Labor regulations governing the computation of Hours of Service, which are
incorporated herein by this reference.
<PAGE>
(3) An hour for which back pay (irrespective of mitigation of
damages) is either awarded or agreed to by the Employer or an Affiliate. The
same Hours of Service shall not be credited both under paragraph (1) or
paragraph (2) above, as the case may be, and under this paragraph (3). Hours
of Service attributable to back pay credits will be credited to the
respective service computation period or periods to which the back pay
pertains, rather than to the service computation period or periods in which
the award, agreement, or payment is made.
(4) Employees shall also be credited with any additional Hours of
Service required to be credited pursuant to any Federal law other than the
Act or the Code.
(5) Solely for purposes of determining whether an Employee has
incurred a Break in Service, an Employee shall be credited with Hours of
Service in accordance with the provisions of this paragraph (5) for periods
of absence (with or without pay) by reason of the pregnancy of the Employee,
the birth of a child of the Employee, the placement of a child with the
Employee in connection with the adoption of such child by the Employee, or
for purposes of caring for a child of the Employee for a period beginning
immediately following the child's birth or placement. An Employee who is on
an Authorized Leave of Absence for any of the foregoing reasons shall receive
credit for the Hours of Service which the Employee would normally have been
credited with but for such absence. If the Plan Administrator and the
Employer are unable to determine the Hours which would have otherwise been
credited to the Employee, the Employee shall receive credit for eight (8)
Hours of Service for each day of such absence. The maximum number of Hours
of Service credited to an Employee pursuant to this paragraph for any one
absence or any series of related absences shall not exceed five hundred one
(501). The hours credited pursuant to this paragraph will be treated as
Hours of Service for the service computation period during which the absence
begins if the Employee would be prevented from incurring a Break in Service
during such twelve (12) consecutive month period solely because of the Hours
of Service credited pursuant to this paragraph. In all other cases, the
Hours of Service shall be credited to the Employee for the service
computation period which begins immediately following the day on which the
absence commences. This paragraph (5) shall not be construed as entitling
any Employee to an Authorized Leave of Absence for any of the reasons
enumerated above. An Employee's entitlement to an Authorized Leave of
Absence will be determined in accordance with the standard policies of the
Employer. No credit will be given pursuant to this paragraph (5) unless the
Employee furnishes to the Plan Administrator such timely information as the
Plan Administrator may reasonably require to establish the number of days for
which there was such an absence and that the absence was for one of the
reasons enumerated above.
(X) "INVESTMENT FUND" - The investment funds, if any, established
pursuant to Section 14.2.
(Y) "KEY EMPLOYEE" - An Employee or former Employee who, at any time
during the Plan Year in which the "determination date" (as defined in Section
2.2) falls or any of the four (4) preceding Plan Years, is or was:
(1) An officer of the Employer or an Affiliate whose
Compensation from the Employer and the Affiliate exceeds fifty percent (50%)
of the applicable dollar limitation of Section 415(b)(1)(A) of the Code (as
such sum shall be adjusted for each Plan Year commencing on or after
January 1, 1988, to take into account any cost-of-living increase adjustment
<PAGE>
for that Plan Year pursuant to the applicable lawful regulations or rulings
of the United States Treasury Department under Section 415 of the Code).
No more than the greater of three (3) Employees or ten percent (10%) of the
aggregate number of employees of the Employer and its Affiliates shall be
considered as officers for purposes of this paragraph. The number of
officers considered to be Key Employees shall be further limited in
accordance with Section 416 of the Code. In addition, whether a particular
Employee is an "officer" for purposes of this paragraph (1) shall be
determined in accordance with Section 416 of the Code and regulations
issued thereunder.
(2) An Employee (i) whose ownership interest in the Employer or
any Affiliate is or was among the ten (10) largest ownership interests of
persons who are employed by the Employer or an Affiliate, and (ii) whose
Compensation from the Employer and any Affiliates exceeds the applicable
dollar limitation of Section 415(c)(1)(A) of the Code for the calendar year
in which the Plan Year ends (as such sum shall be adjusted for each Plan
Year commencing on or after January 1, 1988, to take into account any
cost-of-living increase adjustment for that Plan Year pursuant to the
applicable lawful regulations or rulings of the United States Treasury
Department under Section 415 and Section 416(i)(1) of the Code). For
purposes of this paragraph (2), if two (2) Employees have equal ownership
interests, the Employee receiving the highest Compensation shall be treated
as owning the larger interest.
(3) An Employee owning more than five percent (5%) of the issued
and outstanding shares of stock of the Employer or stock possessing more than
five percent (5%) of the total combined voting power of all stock of the
Employer.
(4) An Employee owning more than one percent (1%) of the issued
and outstanding shares of stock of the Employer or stock possessing more than
one percent (1%) of the total combined voting power of all stock of the
Employer and whose Compensation from the Employer and any Affiliate is more
than One Hundred Fifty Thousand Dollars ($150,000.00).
Ownership shall be determined under Section 318 of the Code, as modified by
Sections 416(i)(1)(B)(iii) and 416(i)(1)(C) of the Code. In addition, for
any Plan Year the term Key Employee shall include the spouse or Beneficiary
of any deceased individual who would have been considered a Key Employee if
he had terminated his employment on the date of his death.
(z) "MATCHING CONTRIBUTIONS" - The amounts contributed to the Trust
Fund by the Employer pursuant to Section 5.1 in order to match a portion of
the Pre-Tax Contributions of the Participants.
(aa) "MATCHING CONTRIBUTIONS ACCOUNT" - The account established
pursuant to Section 6.1 to which the Matching Contributions of the Employer
are credited.
(bb) "NORMAL RETIREMENT AGE" or "NORMAL RETIREMENT DATE" -
(i) Normal Retirement Age - The date on which a Participant
attains the age of sixty-five (65) years.
(ii) Normal Retirement Date - The first day of the month
following the month in which the Participant attains his Normal Retirement
Age.
(cc) "PARTICIPANT" - An Employee who has satisfied the eligibility
requirements specified in Section 3.1, who has elected to participate
pursuant to Section 3.2 and whose participation in the Plan has not been
terminated. An Employee who is otherwise eligible to participate who does
not elect to make any Pre-Tax Contributions will be treated as a Participant
for purposes of the application of the actual deferral percentage tests of
Sections 4.4 and 5.3 and for purposes of the allocation of Discretionary
Contributions. If so indicated by the context, the term Participant shall
also include former Participants whose active participation in the Plan has
terminated but who have not received all amounts to which they are entitled
pursuant to the terms and provisions of this Plan. Whether former
Participants are allowed to exercise an option or election extended to
"Participants" will be determined by the Plan Administrator in the exercise
of its discretion, but in making such determinations the Plan Administrator
shall act in a uniform, nondiscriminatory manner.
(dd) "PLAN" - The Apollo Group, Inc. Savings and Investment Plan, as
set forth in this instrument, and as it may hereafter be amended.
(ee) "PLAN ADMINISTRATOR" - The individual, entity or committee
appointed to act as such pursuant to Section 10.1.
(ff) "PLAN ENTRY DATE" - The first day of each calendar quarter within
each Plan Year.
(gg) "PLAN YEAR" - A twelve (12) month period, commencing on each
January 1 and ending on each following December 31. For purposes of Section
415 of the Code, the Plan Year shall be the "limitation year."
(hh) "PRE-TAX CONTRIBUTIONS" - The amount of Pre-Tax Contributions
directed by each Participant.
(ii) "PRE-TAX CONTRIBUTIONS ACCOUNT" - An account established pursuant
to Section 6.1 to which is credited the Pre-Tax Contributions directed by a
Participant and any net gains and losses on such contributions.
(jj) "QUALIFIED DOMESTIC RELATIONS ORDER" - A domestic relations order
meeting the requirements specified in Section 9.2.
(kk) "ROLLOVER CONTRIBUTION ACCOUNT" - A separate account established
pursuant to Section 6.1 to which are credited the Rollover Contributions of
an Employee.
(ll) "ROLLOVER CONTRIBUTION" - The amounts transferred to the Trust
Fund by Employees in accordance with Section 4.7.
(mm) "SUPER TOP HEAVY PLAN" - A Super Top Heavy Plan, as defined in
Section 2.2.
(nn) "TOP HEAVY PLAN" - A "Top Heavy Plan," as defined in Section 2.2.
(oo) "TRUST AGREEMENT" - The agreement entered into between the
Employer and the Trustee.
(pp) "TRUST FUND" - The fund established by the Employer pursuant to
the terms of the Trust Agreement to provide for the investment of
contributions made pursuant to this Plan. The Trust Fund will be held,
administered and distributed for the exclusive benefit of the Participants
and their Beneficiaries.
<PAGE>
(qq) "TRUSTEE" - The individual, individuals or entity selected by the
Employer to act as such. The Trustee shall acknowledge acceptance of its
appointment by the execution of the Trust Agreement or, in the case of a
successor Trustee, by the execution of an appropriate written instrument. If
the Employer appoints two or more individuals or entities to act jointly as
the Trustee, the term "Trustee" shall refer collectively to all of said
individuals or entities.
(rr) "VALUATION DATE" - The date for valuing the assets of the Trust
Fund, which shall be the last business day of the Plan Year and such other
dates as the Plan Administrator may designate.
(ss) "YEAR OF SERVICE" - A twelve (12) consecutive month period during
which an Employee completes at least one thousand (1,000) Hours of Service
for the Employer, regardless of whether the Employee is employed on the last
day of said twelve (12) consecutive month period. In calculating Years of
Service and Breaks in Service for purposes of determining an Employee's
eligibility to participate in the Plan, the initial twelve (12) consecutive
month period shall commence on the date the Employee first performs an Hour
of Service for the Employer, and the second and subsequent twelve (12) month
periods shall commence on the anniversaries of such date. If an individual's
prior service is disregarded pursuant to the rules set forth in Section 3.4
and the individual is later reemployed, or if an individual terminates
employment with the Employer prior to completing one thousand (1,000) Hours
of Service in any of such twelve (12) consecutive month periods and returns
to the Employer after the close of the twelve (12) consecutive month period
during which his employment was terminated, in the future the relevant twelve
(12) consecutive month periods shall commence on the date the individual
first performs an Hour of Service for the Employer following his reemployment
and the anniversaries thereof.
2.2. TOP HEAVY PLAN PROVISIONS.
The provisions of this Section 2.2 shall be observed in determining the
Plan's status as a Top Heavy Plan or a Super Top Heavy Plan:
(a) GENERAL RULES. The Plan will be a Top Heavy Plan for a Plan Year
if, on the last day of the prior Plan Year (hereinafter referred to as the
"determination date"), more than sixty percent (60%) of the cumulative
balances credited to all accounts of all Participants are credited to or
allocable to the accounts of Key Employees. The Plan will be a Super Top
Heavy Plan if, on the determination date, more than ninety percent (90%) of
the cumulative balances credited to the accounts of all Participants are
credited or allocable to the accounts of Key Employees. For purposes of
making these determinations, the following rules will apply:
(1) The balance credited to or allocable to a Participant's
accounts for purposes of this Section 2.2 shall include contributions made on
or before the applicable determination date, together with withdrawals and
distributions made during the five (5) year period ending on the
determination date.
(2) The accounts of any Participant who was formerly (but no
longer is) a Key Employee shall be disregarded. In addition, the accounts of
any Participant who has not performed any services for the Employer or an
Affiliate during the five (5) year period ending on the determination date
shall be disregarded.
<PAGE>
(3) Rollover Contributions made pursuant to Section 4.8
subsequent to December 31, 1983, which contributions are both initiated by
the Employee and are not derived from a plan maintained by the Employer or
any Affiliate, shall be disregarded unless otherwise provided in lawful
regulations issued by the United States Treasury Department. Other amounts
rolled over to or from this Plan to or from another qualified plan will be
considered in calculating the Plan's status as a Top Heavy Plan or Super Top
Heavy Plan if and to the extent required by said regulations.
(b) AGGREGATION OF PLANS. Notwithstanding anything in this Section
2.2 to the contrary, in the event that the Plan shall be determined by the
Plan Administrator (in its sole and absolute discretion, but pursuant to the
provisions of Section 416 of the Code) to be a constituent in an "aggregation
group", this Plan shall be considered a Top Heavy Plan or a Super Top Heavy
Plan only if the "aggregation group" is a "top heavy group" or a "super top
heavy group". For purposes of this Section 2.2, an "aggregation group" shall
include the following:
(1) Each plan intended to qualify under Section 401(a) of the
Code sponsored by the Employer or an Affiliate in which one (1) or more Key
Employees participate;
(2) Each other plan of the Employer or an Affiliate that is
considered in conjunction with a plan referred to in clause (1) in
determining whether or not the nondiscrimination and coverage requirements of
Section 401(a)(4) or Section 410 of the Code are met; and
(3) If the Plan Administrator, in the exercise of its discretion,
so chooses, any other such plan of the Employer or an Affiliate which, if
considered as a unit with the plans referred to in clauses (1) and (2),
satisfies the requirements of Code Section 401(a) and Code Section 410.
A "top heavy group" for purposes of this Section 2.2 is an "aggregation
group" in which the sum of the present value of the cumulative accrued
benefits for Key Employees under all "defined benefit plans" (as defined in
Section 414(j) of the Code) included in such group plus the aggregate of the
amounts credited to accounts of Key Employees under all "defined contribution
plans" (as defined in Section 414(i) of the Code) included in such group
exceeds sixty percent (60%) of the total of such similar sum determined for
all employees and beneficiaries covered by all such plans (where such present
values and account balances are those present values applicable to those
determination dates of each plan which fall in the same calendar year). A
"super top heavy" group is an "aggregation group" for which the sum so
determined for Key Employees exceeds ninety percent (90%) of the sum so
determined for all employees and beneficiaries. The Plan Administrator will
calculate the present value of the cumulative annual benefits under a defined
benefit plan in accordance with the rules set forth in the defined benefit
plan. All determinations will be made in accordance with applicable
regulations under Section 416 of the Code.
2.3. HIGHLY COMPENSATED EMPLOYEE.
(a) GENERAL. The term "Highly Compensated Employee" shall include all
"highly compensated active employees" and all "highly compensated former
employees."
(b) HIGHLY COMPENSATED ACTIVE EMPLOYEES. For purposes of this Section
2.3, a "highly compensated active employee" is an Employee who performs
<PAGE>
services for the Employer or its Affiliates during the current Plan Year (the
"determination year") and who:
(1) During the determination year, or during the preceding Plan
Year, is or was a "five percent owner" as described in Section 416(i)(l) of
the Code and applicable regulations thereunder; or
(2) Either (i) satisfies one or more of the requirements in (A)
through (C) below for both the current and preceding Plan Year, or (ii)
satisfies one or more of such requirements for the determination year and is
one of the one hundred (100) most highly compensated Employees of the
Employer and its Affiliates during the determination year. An Employee meets
the requirements below if the Employee:
(A) Receives Compensation in excess of Seventy-Five Thousand
Dollars ($75,000.00) from the Employer or one or more of its Affiliates; or
(B) Is a corporate officer (within the meaning of Code
Section 414(q)(5)) of the Employer or an Affiliate whose level of
Compensation exceeds fifty percent (50%) of the applicable dollar limitation
under Section 415(b)(1)(A) of the Code (for purposes of this rule, no more
than fifty (50) employees (or if lesser, the greater of three (3) employees
or ten percent (10%) of the employees) shall be treated as officers;
provided, however, that if for any Plan Year no officer of the Employer or an
Affiliate satisfies the compensation limitation, then highest paid officer of
the Employer or an Affiliate shall be treated as if he satisfied the
compensation limitation); or
(C) Receives Compensation from the Employer or its
Affiliates in excess of Fifty Thousand Dollars ($50,000.00) and is ranked
within the highest-paid twenty percent (20%) of Employees of the Employer and
Affiliates, ranked in terms of Compensation (the "top paid group").
(c) HIGHLY COMPENSATED FORMER EMPLOYEES. For purposes of this Section
2.3, the term "highly compensated former employee" shall mean any individual
formerly employed by the Employer or its Affiliates who satisfied the
definition of "highly compensated active employee" set forth in paragraph (b)
above, (i) at the time he separated from employment or (ii) at any time after
he attained fifty-five (55) years of age. No highly compensated former
employee shall be considered a member of (i) the 100 most highly compensated
Employees of the Employer, (ii) the group of includible officers or (iii) the
top-paid group (as defined in paragraph (b) above). If, at any time prior to
the termination of employment and prior to attaining fifty-five (55) years of
age, a highly compensated active employee receives Compensation which is less
than fifty percent (50%) of the Employee's annual average compensation for
the three (3) consecutive years preceding the determination year, and if,
under all the facts and circumstances, such Employee's future services for
and Compensation from the Employer will not rise above that amount, then such
Employee shall be deemed to be a highly compensated former employee upon his
actual separation from employment with the Employer.
(d) FAMILY MEMBERS. For purposes of this Section 2.3, the
compensation of a "5-percent owner" or of an Employee who is among the ten
(10) most highly paid Employees of the Employer or its Affiliates (determined
without regard to the provisions of this paragraph) shall include
Compensation paid by the Employer or its Affiliates to the members of the
"family" of such 5-percent owner or of such Employee. For this purpose, the
term family shall mean the 5-percent owner's or Employee's spouse and lineal
<PAGE>
ascendants or descendants and the spouses of such lineal ascendants or
descendants. For this purpose, such family members shall not be treated as
separate Employees of the Employer and its Affiliates. The Compensation of
such family members shall include all amounts actually paid by the Employer
to such family members for services performed and shall include all elective
contributions made by or on behalf of such persons to any of the following
plans maintained by the Employer:
(1) A cash or deferred arrangement pursuant to Code Section
402(e)(3);
(2) A simplified employee pension plan pursuant to Code Section
402(h)(1)(B);
(3) A cafeteria plan within the meaning of Code Section 125; or
(4) A tax-sheltered annuity as defined in Code Section 403 where
contributions are made pursuant to a salary reduction agreement.
(e) EXCLUDED INDIVIDUALS. Anything in the foregoing to the contrary
notwithstanding, for purposes of determining which Employees shall be
included in the top-paid group, the following shall be excluded from the
definition of Employee:
(1) Employees who have not completed six (6) months of service
during the current and prior calendar years;
(2) Employees who work for the Employer less than seventeen and
one-half (17-1/2) hours per week during fifty percent (50%) or more of the
weeks worked by such Employees;
(3) Employees who normally work for the Employer during not more
than six (6) months in any year;
(4) Employees who have not attained twenty-one (21) years of age;
(5) Employees who are nonresident aliens and who have not earned
U.S. source income from the Employer; and
(6) Employees covered under the terms of a "collective bargaining
agreement" (within the meaning of Code Section 7701(a)(46) and the
regulations hereunder) if (i) ninety percent (90%) of the Employees of the
Employer are covered by one or more such agreements, and (ii) the Plan covers
only Employees who are not so covered.
(f) COST-OF-LIVING ADJUSTMENTS. The dollar limitations of
sub-paragraphs (b)(2)(A) and (C) above shall be adjusted each year to take
into account any cost of living increase adjustment allowable pursuant to
applicable rulings or regulations of the United States Treasury Department
under Code Section 415(d).
2.4. CONSTRUCTION.
The masculine gender, where appearing in the Plan, shall include the
feminine gender (and vice versa), and the singular shall include the plural,
unless the context clearly indicates to the contrary. The term "delivered to
the Plan Administrator," as used in the Plan, shall include delivery to a
person or persons designated by the Plan Administrator for the disbursement
<PAGE>
and receipt of administrative forms. Headings and subheadings are for the
purpose of reference only and are not to be considered in the construction of
this Plan. If any provision of this Plan is determined to be for any reason
invalid or unenforceable, the remaining provisions shall continue in full
force and effect. All of the provisions of this Plan shall be construed and
enforced according to the laws of the State of Arizona and shall be
administered according to the laws of such state, except as otherwise
required by the Act, the Code or other Federal law. It is the intention of
the Employer that the Plan as adopted by the Employer shall constitute a
qualified plan under the provisions of Section 401(a) of the Code and that
the Trust Fund maintained pursuant to the Trust Agreement shall be exempt
from taxation pursuant to Section 501(a) of the Code. It is also the
Employer's intention that this Plan qualify as an accident and health plan
pursuant to Section 105(c) of the Code and that any benefits paid to any
Participant due to the Participant's Disability be eligible for the favorable
income tax treatment afforded by Section 105(c) of the Code. This Plan shall
be construed in a manner consistent with the Employer's intentions.
ARTICLE THREE
ELIGIBILITY AND PARTICIPATION
3.1. ELIGIBILITY AND PARTICIPATION.
Each Employee who was a Participant in the Plan immediately prior to
the Effective Date of this amendment and restatement of the Plan shall
continue as such, subject to the provisions hereof. Each other Employee
shall become a Participant on the first Plan Entry Date coincident with or
next following the later of the day on which he completes one (1) Year of
Service, unless he shall leave employment with the Employer prior to such
date. If an Employee is included within a unit of employees covered by a
collective bargaining agreement for which retirement benefits were the
subject of good faith bargaining, he shall not be eligible to participate in
this Plan, unless the collective bargaining agreement specifically provides
to the contrary. Additionally, any Employee who is hired by the Employer
solely in the capacity as a faculty member shall not be eligible to
participate in the Plan.
3.2. APPLICATION TO PARTICIPATE.
Each Employee who is eligible to become a Participant may become a
Participant by completing and signing an enrollment form provided by the Plan
Administrator and delivering the form to the Plan Administrator. The
Employee shall designate on the form the amount of his Pre-Tax Contributions,
if any, and shall authorize the reduction of his Earnings in an amount equal
to his directed Pre-Tax Contributions. An Employee need not elect to make
any contributions in order to share in the allocation of Discretionary
Contributions. All forms to be delivered to the Plan Administrator pursuant
to this Section 3.2 must be received by the Plan Administrator within such
reasonable and uniformly-applied time periods as the Plan Administrator may
prescribe for the receipt of forms as a condition of giving effect to or
implementing such instructions. If a written instruction cannot be given
effect or implemented for a particular period, it shall be effective for the
next succeeding period.
3.3. CREDITING OF SERVICE.
All Years of Service shall be taken into account under this Plan.
Service performed prior to a Break in Service, however, may be disregarded
pursuant to Section 3.4.
3.4. EFFECT OF REHIRING.
(a) DISREGARDING SERVICE PRIOR TO A BREAK IN SERVICE. The Years of
Service performed by a non-vested Employee prior to a Break in Service will
be disregarded and the former Employee will be treated as a new Employee for
purposes of this Plan upon reemployment if the number of the Employee's
consecutive one (1) year Breaks in Service is equal to or more than the
greater of (1) five (5) or (2) the aggregate number of Years of Service
credited to the Employee prior to the Break. In determining an Employee's
aggregate number of Years of Service before the Break in Service, Years of
Service disregarded in accordance with this Section as the result of a prior
Break in Service shall not be considered.
(b) REINSTATEMENT OF SERVICE. Except as otherwise provided in the
preceding paragraph or in this paragraph, if an Employee separates from
employment with the Employer and is later rehired, he shall remain credited
with all Years of Service credited to him during his prior period of
employment. If a rehired Employee (other than a non-vested Employee whose
service is disregarded pursuant to the preceding paragraph) was a Participant
or had satisfied the eligibility requirements of Section 3.1 during his prior
period of employment and following his return he is otherwise eligible to
participate in the Plan, the Employee shall commence participation in the
Plan upon the later of his date of rehire or the date on which he would have
commenced participation if his employment had not terminated. If a rehired
Employee was not a Participant or had not satisfied the eligibility
requirements of Section 3.1 during his prior period of employment and,
following his return he is otherwise eligible to participate in the Plan, the
Employee shall commence participation in the Plan as of the date he satisfies
the eligibility requirements of Section 3.1 upon his recommencement of
employment.
3.5. AUTHORIZED LEAVES OF ABSENCE.
An Authorized Leave of Absence granted by the Employer for which an
Employee is not compensated shall be disregarded in determining whether the
Employee has satisfied the eligibility requirements specified in Section 3.1,
and the Employee shall not be credited with Hours of Service for any purpose
for such period unless such credit is required to be given by law. An
Employee shall not be charged with a Break in Service, however, during an
Authorized Leave of Absence if the Employee's failure to complete more than
five hundred (500) Hours of Service is attributable to the Authorized Leave
of Absence, and a Participant's participation in the Plan shall not be
terminated while the Participant is on an Authorized Leave of Absence.
3.6. AFFILIATED EMPLOYERS.
For the purpose of computing an Employee's Years of Service, employees
of Affiliates of the Employer shall be given credit for their Hours of
Service with such Affiliates in the event that they become Employees of the
Employer as though during such periods they were Employees. Persons employed
by a business organization that is acquired by the Employer or by an
Affiliate of the Employer shall be credited with service for their Hours of
Service with such predecessor employer hereunder in the event that they
<PAGE>
become Employees of the Employer only to the extent required under lawful
regulations of the United States Treasury Department under Section 414(a)(2)
of the Code.
3.7. TERMINATION OF PARTICIPATION.
A Participant's participation in the Plan, but not his right, if any,
to payment of benefits, shall be terminated upon the Participant's separation
from employment with the Employer or upon his transfer from an eligible class
of Employees as provided in Section 3.8. A Participant's participation in
the Plan shall not be terminated while he is on an Authorized Leave of
Absence.
3.8. TRANSFERS TO AND FROM AN ELIGIBLE CLASS OF EMPLOYEES.
(a) TRANSFERS OUT OF PLAN. A Participant will automatically become
ineligible to participate in the Plan as of the effective date of a change in
his employment classification if as a result of the change he is no longer
eligible to participate in the Plan. All sums credited to the former
Participant's accounts will continue to be held pursuant to the terms of this
Plan and will be distributed to the former Participant only upon his
subsequent termination of employment or the occurrence of some event
permitting a distribution pursuant to the provisions of this Plan.
(b) TRANSFERS TO PLAN. If an Employee of the Employer is not
eligible to participate in the Plan due to his employment classification, he
shall participate immediately upon becoming a member of an eligible class of
Employees if he has satisfied the other requirements set forth in Section 3.1
and would have become a Participant previously had he been in an eligible
class.
(c) SERVICE CREDIT. In any event, an Employee's service in an
ineligible employment classification shall be considered in calculating the
Employee's Years of Service for purposes of this Plan.
(d) TRANSFERS TO AFFILIATES. If a Participant ceases to participate
in the Plan as a result of his transfer to an Affiliate that has not adopted
this Plan, amounts credited to his accounts as of the date of his transfer
shall not be forfeited or distributed. Rather, such amounts shall be payable
in accordance with the terms of this Plan upon his subsequent termination of
employment with all Affiliates and the Employer or upon the occurrence of
some other event permitting a distribution pursuant to the provisions of this
Plan.
3.9. LEASED EMPLOYEES.
A "leased employee" (within the meaning of Section 414(n)(2) of the
Code) shall be treated as an Employee of the Employer for purposes of the
pension requirements of Section 414(n)(3) of the Code, unless leased
employees constitute less than twenty percent (20%) of the Employer's
non-highly compensated work force (within the meaning of Section
414(n)(5)(C)(ii) of the Code) and the leased employee is covered by a "safe
harbor plan" that satisfies the requirements of Section 414(n)(5)(B) of the
Code. In any event, a leased employee who is deemed to be an Employee of the
Employer pursuant to the preceding sentence shall be treated as if he is
employed in an employment classification that has not been designated for
participation in the Plan.
<PAGE>
3.10. WAIVER OF PARTICIPATION.
Any Highly Compensated Employee shall have the right at the time that
Employee first becomes an Employee or first becomes eligible to participate
to irrevocably waive participation in the Plan, except that no married
Employee may waive participation without the written irrevocable consent of
his spouse. Any waiver under this Section 3.10 shall be made in writing and
shall be deemed effective when received by the Plan Administrator. For
purposes of the preceding sentence, an Employee's failure to direct Pre-Tax
Contributions shall not be deemed to be a waiver of participation in the
Plan.
ARTICLE FOUR
EMPLOYEE CONTRIBUTIONS
4.1. PRE-TAX CONTRIBUTIONS.
(a) ELECTION. Each Participant may direct the Employer to make
Pre-Tax Contributions to the Trust Fund on the Participant's behalf during
each Plan Year while he is a Participant. The amount payable to the
Participant as his current salary or wages shall then be reduced by an amount
equal to the Pre-Tax Contributions directed by the Participant. Pre-Tax
Contributions shall either be directed in a specified dollar amount per
payroll period or in whole percentage increments of Earnings, from one
percent (1%) to fifteen percent (15%) of Earnings, as the Participant shall
elect on a form provided by and delivered to the Plan Administrator.
(b) TRANSFER TO TRUSTEE. All Pre-Tax Contributions shall be
forwarded to the Trustee as soon as practicable following the end of the
calendar month for which the contribution is made, and in any event such
contributions shall be transferred to the Trustee within ninety (90) days
following the end of the payroll period for which they were made.
(c) LIMITATIONS. A Participant's Pre-Tax Contributions may not
exceed fifteen percent (15%) of the Participant's Earnings for the applicable
payroll period. The direction of Pre-Tax Contributions also shall be subject
to such other reasonable and nondiscriminatory restrictions regarding minimum
and maximum amounts that may be directed and the frequency of changes of
direction rates as the Employer and Plan Administrator shall determine and
announce to Plan Participants.
4.2. PRE-TAX CONTRIBUTIONS--$7,000 LIMITATION.
A Participant's Pre-Tax Contributions for any calendar year may not
exceed Seven Thousand Dollars ($7,000.00), adjusted in order to reflect
increases in the cost-of-living as announced from time to time by the United
States Treasury Department. This limitation applies in the aggregate to the
Participant's "elective contributions" under all plans. For this purpose,
the term "elective contributions" includes the Participant's Pre-Tax
Contributions to this Plan, the Participant's pre-tax contributions to any
other qualified cash or deferred arrangement (as defined in Section 401(k) of
the Code), any elective employer contributions to a simplified employee
pension plan that are not included in the Participant's gross income due to
Section 402(h)(1)(B) of the Code and any employer contribution used to
purchase an annuity contract under Section 403(b) of the Code pursuant to a
salary reduction arrangement (within the meaning of Section 3121(a)(5)(D) of
<PAGE>
the Code). In the event that the Participant's elective contributions to all
such programs during any calendar year exceed the limitation for that
calendar year, the Participant may, by March 1 of the calendar year following
the calendar year for which the excess contributions were made, so advise the
Plan Administrator and request the return of all or a portion of the excess
contributions to this Plan. The excess contributions, along with any income
thereon (as determined by the Plan Administrator in accordance with rules of
uniform and nondiscriminatory application) may then be returned to the
Participant by the next following April 15. The Plan Administrator is not
under any obligation, however, to honor a request for a return.
4.3. LIMITATION ON CONTRIBUTIONS OF HIGHLY COMPENSATED EMPLOYEES.
(a) ACTUAL DEFERRAL PERCENTAGE LIMITATIONS. The contributions made by
Participants who are Highly Compensated Employees shall be limited to the
extent necessary to satisfy one of the following two paragraphs:
(1) The "actual deferral percentage" for Participants who are
Highly Compensated Employees for the Plan Year shall not exceed the "actual
deferral percentage" for Participants who are not Highly Compensated
Employees for the Plan Year multiplied by one and one-quarter (1.25); or
(2) The actual deferral percentage for Participants who are
Highly Compensated Employees for the Plan Year shall not exceed the actual
deferral percentage for Participants who are not Highly Compensated Employees
for the Plan Year multiplied by two (2), provided that the actual deferral
percentage for Participants who are Highly Compensated Employees does not
exceed the actual deferral percentage for Participants who are not Highly
Compensated Employees by more than two percentage points (2%) or such lesser
amount as the Secretary of the Treasury shall prescribe to prevent the
multiple use of this alternative limitation with respect to any Highly
Compensated Employee.
(b) SPECIAL DEFINITIONS. For purposes of this Section alone, the
following definitions shall apply:
(1) "Actual deferral percentage" - The average (expressed as a
percentage) of the deferral percentages of the Participants in a group. The
actual deferral percentage for a group shall be determined by adding the
deferral percentage of all Participants in the group and dividing that sum by
the number of Participants in the group.
(2) "Deferral percentage" - The ratio (expressed as a percentage)
of the Pre-Tax Contributions under the Plan on behalf of the Participant for
the Plan Year to the Participant's compensation for the Plan.
(3) "Compensation" - Compensation shall be defined in accordance
with Section 414(s) of the Code.
(c) SPECIAL RULES. For purposes of this Section, the following rules
shall apply:
(1) If an individual is a participant in two (2) or more cash or
deferred arrangements sponsored by the Employer, all cash or deferred
arrangements shall be treated as one arrangement for purposes of calculating
such individual's deferral percentage.
(2) At the election of the Employer, but in accordance with such
rules as may be prescribed in applicable regulations, any matching
contributions (within the meaning of Section 401(m)(4)(A) of the Code) or
qualified nonelective contributions (within the meaning of Section
401(m)(4)(C) of the Code) allocated to a Participant under this or any other
plan described in Section 401(a) of the Code maintained by the Employer or an
Affiliate shall be aggregated with the Participant's Pre-Tax Contributions
under this Plan for purposes of determining the Participant's deferral
percentage.
(3) If this Plan satisfies the requirements of Section 401(a)(4)
or Section 410 of the Code only if aggregated with one or more other plans,
or if one or more other plans satisfy the requirements of Section 410(b) of
the Code only if aggregated with this Plan, then the limitations of this
Section shall be applied by determining the deferral percentages of
Participants as if all such plans were a single plan.
(4) If a Highly Compensated Employee is subject to the family
aggregation rules of Section 414(q)(6) of the Code because that Participant
is either a five percent (5.0%) owner or one of the ten (10) most highly
compensated Employees, the combined deferral percentage for the family
group (which is treated as one Highly Compensated Employee) must be
determined by combining the Pre-Tax Contributions, compensation, and other
amounts treated as elective contributions of all the eligible family members.
Except to the extent taken into account in the preceding sentence, the
Pre-Tax Contributions, compensation, and other amounts treated as elective
contributions of all family members are disregarded in determining the actual
deferral percentage for the groups of Highly Compensated Employees and those
who are not Highly Compensated Employees.
(5) The determination and treatment of the contribution
percentage of any Participant shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
(d) DISTRIBUTION OF EXCESS CONTRIBUTIONS. No later than the last day
of each Plan Year, any "excess Pre-Tax Contributions" and the income
allocable thereto will be distributed to Participants who made the excess
Pre-Tax Contributions during the preceding Plan Year. For purposes of this
paragraph, the term "excess Pre-Tax Contributions" means, with respect to any
Plan Year, the aggregate amount of Pre-Tax Contributions paid to the Plan by
the Highly Compensated Employees for the Plan Year over the maximum amount of
Pre-Tax Contributions permitted pursuant to Section 4.3(a) and Section
401(k)(3)(A)(ii) of the Code. In order to determine the excess Pre-Tax
Contributions attributable to a particular Participant, the Plan
Administrator shall reduce the Pre-Tax Contributions made on behalf of Highly
Compensated Employees by fractions of a percentage in order of the actual
deferral percentages, beginning with the highest actual deferral percentage,
until the Pre-Tax Contributions of the Highly Compensated Employees do not
exceed the limitations mentioned in the preceding sentence. The distribution
of excess Pre-Tax Contributions for any Plan Year shall be made to Highly
Compensated Employees on the basis of the respective portions of the excess
Pre-Tax Contributions attributable to each such Highly Compensated Employee.
The income allocable to excess Pre-Tax Contributions shall be determined by
multiplying the income allocable for the Plan Year to the Participant's
Pre-Tax Contributions Account from which the excess contributions are to be
distributed by a fraction, the numerator of which is the excess Pre-Tax
Contribution on behalf of the Participant for the preceding Plan Year and the
denominator of which is the sum of the Participant's Pre-Tax Contributions
Account balance on the last business day of the preceding Plan Year plus the
Pre-Tax Contributions (other than excess Pre-Tax Contributions) allocated to
that account during the Plan Year. If there is a loss, the total excess
<PAGE>
Pre-Tax Contributions shall nonetheless be distributed to the Participant,
but the amount distributed shall not exceed the balance of the Pre-Tax
Contributions Account from which the distribution is made. The determination
and correction of excess Pre-Tax Contributions of a Highly Compensated
Employee whose deferral percentage is determined under the family aggregation
rules is accomplished by reducing the deferral percentage as otherwise
provided in this Section and allocating the excess contribution for the
family group among the family members in proportion to the Pre-Tax
Contribution of each family member that is combined to determine the deferral
percentage.
(e) REDUCTION OF FUTURE CONTRIBUTIONS. If prior to the end of a Plan
Year the Plan Administrator concludes that the average rate of Pre-Tax
Contributions made on behalf of Highly Compensated Employees would violate
the rules set forth in paragraph (a) and Section 401(k) of the Code, the Plan
Administrator may prospectively reduce the Pre-Tax Contributions directed by
the Highly Compensated Employees. The reduction shall be implemented by
reducing first the highest rates of Pre-Tax Contributions within such group,
with such rates to be reduced in one percent (1%) increments or fractions
thereof, as determined by the Plan Administrator. Any reduction pursuant to
this Section shall be limited to the extent necessary to assure compliance
with the requirements set forth in paragraph (a) and Section 401(k) of the
Code.
4.4. DESIGNATION AND CHANGE OF DESIGNATION OF PRE-TAX CONTRIBUTIONS.
All designations or changes of designation of the amount of Pre-Tax
Contributions to be elected by salary reduction shall be made on forms
supplied by the Plan Administrator, signed by the Participant and delivered
to the Plan Administrator. A designation shall be effective as of the first
payroll period in which the form is to be given effect after it is received
by the Plan Administrator in accordance with uniform rules prescribed by the
Plan Administrator. A payroll deduction designation form shall be effective
until it is succeeded by another valid payroll deduction designation form or
until the Participant's right to make Pre-Tax Contributions is otherwise
suspended or terminated.
4.5. SUSPENSION OF PRE-TAX CONTRIBUTIONS.
A Participant may suspend his Pre-Tax Contributions as of the first day
of any payroll period, in accordance with uniform rules promulgated by the
Plan Administrator. Suspension of contributions shall be made on a form
supplied by the Plan Administrator, signed by the Participant and delivered
to the Plan Administrator prior to expiration of the uniform period
prescribed by the Plan Administrator for such notice to be given effect for
such period. If notice is not timely received, such notice shall be
effective commencing with the next succeeding payroll period. Recommencement
of Pre-Tax Contributions shall be made only when the Participant subsequently
directs payroll withholding or salary reduction pursuant to Section 3.2.
While a Participant is on an Authorized Leave of Absence, he shall be deemed
to have suspended Pre-Tax Contributions and may recommence such contributions
following his return to active employment in accordance with Section 3.2. A
Participant shall not be entitled to "make-up" suspended contributions.
4.6. AFTER-TAX CONTRIBUTIONS.
Participants were previously allowed to make After-Tax Contributions to
this Plan. However, After-Tax Contributions have been eliminated. Any
After-Tax Contributions made to this Plan in the past shall remain in the
Plan until they are withdrawn or distributed pursuant to the provisions
hereof. Until withdrawn or distributed, the After-Tax Contributions Accounts
shall continue to share in the earnings or losses of the Trust Fund as
provided in Section 6.3.
(a) WITHDRAWAL OF AFTER-TAX CONTRIBUTIONS; GENERAL RULE. A
Participant may withdraw all or a portion of the amounts credited to his
After-Tax Contributions Account by so designating in writing to the Plan
Administrator not later than ten (10) days prior to the first day of the
month in which such withdrawal is to be made. Withdrawn sums shall be paid
within the month following the date on which the Plan Administrator receives
notice of withdrawal. The Plan Administrator, in the exercise of its
discretion but pursuant to nondiscriminatory rules of uniform application,
may limit the frequency or timing of withdrawals, as long as each Participant
is allowed to withdraw his After-Tax Contributions at least once in each Plan
Year. Any expense incurred in making a withdrawal distribution shall be
charged to the Participant's After-Tax Contributions Account and shall be
deducted prior to distribution to the Participant.
(b) LIMITATION ON AMOUNT WITHDRAWN. No Participant shall be entitled
to withdraw in excess of the amount credited to his After-Tax Contributions
Account as of the most recent Valuation Date.
(C) SPOUSAL CONSENT TO WITHDRAWALS. No married Participant shall be
allowed to make a withdrawal if at the time of the withdrawal his vested
interest in all of his accounts, plus any amounts previously withdrawn,
exceeds Three Thousand Five Hundred Dollars ($3,500.00) unless the
Participant's spouse consents to the withdrawal. Such consent must be in
writing, must consent to a single lump sum payment of the amount to be
withdrawn, must acknowledge the effect of the withdrawal on the benefits
ultimately payable from the Plan, must acknowledge the effect of the spouse's
consent to the withdrawal, and must be witnessed by a notary public or a
designated representative of the Plan Administrator. No spousal consent
shall be required if the Plan Administrator determines, in its sole and
absolute discretion, that the spouse cannot be located or other circumstances
exist that preclude the Participant from obtaining such consent (as permitted
under applicable regulations issued by the United States Treasury
Department). Any spousal consent given or dispensed with pursuant to this
Section will be valid with respect to the spouse who signs the consent or
with respect to whom the consent requirement is waived by the Plan
Administrator and any subsequent spouse. If the Participant's spouse fails
to consent to the withdrawal of amounts allocated to the Participant's
After-Tax Contributions Account, the amounts in the Participant's account
will be held for distribution in accordance with the other provisions of this
Plan unless the spouse later consents to a withdrawal pursuant to the
provisions of this Section.
(d) ORDER OF WITHDRAWALS. Amounts withdrawn from a Participant's
After-Tax Contributions Account shall be charged against the subaccounts
within that account in the following order:
(1) Withdrawals will first be charged against the subaccount
established to record the After-Tax Contributions made by the Participant on
or before December 31, 1986, and the earnings or losses thereon (the
"pre-1987 subaccount") until an amount equal to the lesser of the After-Tax
Contributions made by the Participant on or before December 31, 1986, or the
value of such subaccount has been charged against such subaccount.
<PAGE>
(2) Withdrawals will then be charged against the subaccount
established to record the After-Tax Contributions made by the Participant on
or after January 1, 1987, and the earnings or losses thereon (the "post-1986
subaccount") unless and until such subaccount is depleted.
(3) Any remaining withdrawals will be charged against the
earnings remaining in the pre-1987 subaccount.
4.7. ROLLOVER CONTRIBUTION.
(a) CONTRIBUTION. Any Employee (whether or not a Participant) who has
received a distribution from a profit sharing plan, stock bonus plan or
pension plan intended to "qualify" under Section 401 of the Code may transfer
such distribution to the Trust Fund if such contribution to the Trust Fund
would constitute, in the sole and absolute discretion of the Plan
Administrator, a "rollover contribution" within the meaning of the applicable
provisions of the Code. Additionally, an Employee may request, with the
approval of the Plan Administrator, that the Trustee accept a transfer from
the trustee of another qualified plan. Upon such approval, the Trustee shall
accept such transfer. The Plan Administrator may, in its sole discretion,
decline to accept such transfer. For purposes of this Plan, both a "rollover
contribution" within the meaning of the applicable provisions of the Code and
a transfer initiated by the Employee from another plan shall be referred to
as a "Rollover Contribution." If the Plan Administrator decides to grant an
Employee's request to make a Rollover Contribution, the Employee may
contribute to the Trust Fund cash or other property acceptable to the Trustee
to the extent of such distribution.
(b) ACCOUNTING AND DISTRIBUTIONS. The Plan Administrator shall credit
the Rollover Contribution to a separate account (the Rollover Contribution
Account) for the Employee's sole benefit. The separate Rollover Contribution
Account shall be adjusted, valued and credited pursuant to Section 6.3. If a
Rollover Contribution is made on any day other than the first day of the Plan
Year, however, the Plan Administrator may, but need not, direct the Trustee
to invest the Rollover Contribution separately for the sole benefit of the
Participant making the Rollover Contribution until the first day of the next
Plan Year, at which point the Rollover Contribution, adjusted for any
earnings or losses thereon, will be added to and invested along with the
Trust Fund. The Rollover Contribution Account shall be nonforfeitable and
shall be paid to the Employee or his Beneficiary in the same manner as
benefits would be paid to a Participant or Beneficiary under ARTICLE EIGHT.
(c) NO GUARANTY. The Plan Administrator, the Employer and the Trustee
do not guarantee the Rollover Contribution Accounts of Participants in any
way from loss or depreciation. The Employer, the Plan Administrator and the
Trustee do not guarantee the payment of any money which may be or become due
to any person from a Rollover Contribution Account, and the liability of the
Employer, the Plan Administrator or the Trustee to make any payment therefrom
shall at any and all times be limited to the then value of the Rollover
Contribution Account.
(d) WITHDRAWALS. An Employee may not make withdrawals from his
Rollover Contribution Account.
<PAGE>
ARTICLE FIVE
EMPLOYER CONTRIBUTIONS
5.1. EMPLOYER CONTRIBUTIONS.
(a) MATCHING CONTRIBUTIONS. Subject to its right to amend or
terminate this Plan, the Employer may make a Matching Contribution on behalf
of each eligible Participant for the Plan Year in an amount determined from
time to time in the sole and absolute discretion of the Employer. Matching
Contributions may be due and payable regardless of whether the Employer has
current or accumulated net profits. Notwithstanding the above, no Matching
Contribution shall be made with respect to the portion of any Pre-Tax
Contribution that is returned to the Participant pursuant to Sections 4.2,
4.3(d), and 6.4(c); provided, however, that if a Matching Contribution is
nevertheless made with respect to such returned Pre-Tax Contributions, such
Matching Contributions shall become a forfeiture as of the end of the Plan
Year for which it was contributed and shall be allocated as if it were a
Discretionary Contribution.
(b) DISCRETIONARY CONTRIBUTIONS. In addition to any Matching
Contributions, the Employer may make Discretionary Contributions to the Plan
on behalf of its eligible Participants in such amounts, if any, as shall be
determined from time to time by the Employer. The Discretionary Contribution
for a Plan Year, when added to the Pre-Tax Contributions of the Participants
and the Employer's Matching Contributions shall in no event be more than
shall be allowable as a deduction for Federal income tax purposes. The
Discretionary Contributions need not be made from the Employer's current or
accumulated net profits.
(c) ELIGIBLE PARTICIPANTS. A Participant will be entitled to receive
a Matching Contribution for a Plan Year if the Participant made any Pre-Tax
Contributions during a Plan Year, regardless of whether the Participant is
employed on the last day of the Plan Year and regardless of whether the
Participant is credited with a Year of Service for such Plan Year. A
Participant will be entitled to share in the allocation of Discretionary
Contributions for a Plan Year only if the Participant is credited with a Year
of Service for such Plan Year. Notwithstanding the foregoing, a Participant
who dies, retires on or after his Normal Retirement Date, or terminates
employment during a Plan Year shall be entitled to share in the allocation of
Discretionary Contributions for the Plan Year, regardless of whether the
Participant completes a Year of Service.
(d) TIME OF PAYMENT. The Employer Contribution for a Plan Year shall
be paid to the Trustee by the time (including extensions) for filing the
Employer's Federal income tax return for the relevant fiscal year of the
Employer.
(e) "TOP HEAVY" CONTRIBUTIONS. Notwithstanding any provisions to the
contrary in this Section 5.1, the Employer may, in its sole and absolute
discretion, make additional Employer contributions for any Plan Year in which
the Plan is Top Heavy in such amounts as may be necessary to fund the
Employer contribution allocation required by Section 6.2(c).
5.2. CONDITIONAL NATURE OF CONTRIBUTIONS.
(a) MISTAKE OF FACT. Any contribution made to this Plan by the
Employer because of a mistake of fact shall be returned to the Employer upon
its request within one (1) year of the date of the contribution.
<PAGE>
(b) DEDUCTIBILITY. Every contribution made by the Employer is
conditional on its deductibility. If the Internal Revenue Service determines
that all or part of a contribution is not deductible, the contribution (to
the extent that it is not deductible) shall be refunded to the Employer upon
its request within one (1) year after the date of the disallowance.
5.3. LIMITATION ON MATCHING CONTRIBUTIONS.
(a) LIMITATION ON CONTRIBUTIONS OF HIGHLY COMPENSATED EMPLOYEES. The
Matching Contributions made by Participants who are Highly Compensated
Employees shall be limited to the extent necessary to satisfy one of the
following two paragraphs:
(1) The "average contribution percentage" for Participants who
are Highly Compensated Employees for the Plan Year shall not exceed the
"average contribution percentage" for Participants who are not Highly
Compensated Employees for the Plan Year multiplied by one and one-quarter
(1.25); or
(2) The average contribution percentage for Participants who are
Highly Compensated Employees for the Plan Year shall not exceed the average
contribution percentage for Participants who are not Highly Compensated
Employees for the Plan Year multiplied by two (2), provided that the average
contribution percentage for Participants who are Highly Compensated Employees
does not exceed the average contribution percentage for Participants who are
not Highly Compensated Employees by more than two percentage points (2%) or
such lesser amount as the Secretary of the Treasury shall prescribe to
prevent the multiple use of this alternative limitation with respect to any
Highly Compensated Employee.
(b) DEFINITIONS. For purposes of this Section alone, the following
definitions shall apply:
(1) "Average contribution percentage" - The average (expressed as
a percentage) of the contribution percentages of the Participants in a group.
(2) "Contribution percentage" - The ratio (expressed as a
percentage) of the Matching Contributions under the Plan on behalf of the
Participant for the Plan Year to the Participant's compensation for the Plan
Year.
(3) "Compensation" - Compensation shall be determined in
accordance with Section 414(s) of the Code.
(c) SPECIAL RULES. For purposes of this Section, the following rules
shall apply:
(1) The contribution percentage for any Participant who is a
Highly Compensated Employee for the Plan Year and who is eligible to make
Matching Contributions (or to have employee contributions within the meaning
of Section 401(m)(3)(A) of the Code, qualified nonelective contributions
within the meaning of Section 401(m)(4)(C) of the Code or elective deferrals
within the meaning of Section 402(g)(3)(A) of the Code allocated to his
account under this Plan and one or more other plans described in Section
401(a) or arrangements described in Section 401(k) of the Code that are
maintained by the Employer or an Affiliate) shall be determined as if all
such contributions (and all such matching contributions, qualified
nonelective contributions or elective deferrals) were made under a single
plan.
<PAGE>
(2) In the event that this Plan satisfies the requirements of
Section 410(b) of the Code only if aggregated with one or more other plans,
or if one or more other plans satisfy the requirements of Section 410(b) of
the Code only if aggregated with this Plan, then the limitations of this
Section shall be applied by determining the contribution percentages of
Participants as if all such plans were a single plan.
(3) If a Highly Compensated Employee is subject to the family
aggregation rules of Section 414(q)(6) of the Code because that Participant
is either a five percent (5.0%) owner or one of the ten (10) most Highly
Compensated Employees, the combined contribution percentage for the family
group (which is treated as one Highly Compensated Employee) must be
determined by combining the Matching Contributions, compensation, and
other amounts treated as matching contributions of all the eligible family
members. Except to the extent taken into account in the preceding sentence,
the Matching Contributions, compensation, and other amounts treated as
matching contributions of all family members are disregarded in determining
the actual contribution percentage for the groups of Highly Compensated
Employees and those who are not Highly Compensated Employees.
(4) The determination and treatment of the contribution
percentage of any Participant shall satisfy such other requirements as may be
prescribed by the Secretary of the Treasury.
(d) DISTRIBUTION OF EXCESS CONTRIBUTIONS. No later than the last day
of each Plan Year, any "excess aggregate contributions" and the income
allocable thereto will be distributed to Participants who made excess
aggregate contributions during the preceding Plan Year. For purposes of this
paragraph, an "excess aggregate contribution" is the amount described in
Section 401(m)(6)(B) of the Code. The income allocable to excess aggregate
contributions shall be determined by multiplying the income allocable to the
Participant's Matching Contributions Account for the Plan Year by a fraction,
the numerator of which is the excess aggregate contributions on behalf of the
Participant for the preceding Plan Year and the denominator of which is the
Participant's Matching Contribution Account balance on the last business day
of the preceding Plan Year. The excess aggregate contributions to be
distributed to the Participant shall be adjusted for income and losses. If
there is a loss, the total excess aggregate contributions shall nonetheless
be distributed to the Participant, but the amount distributed shall not
exceed the Participant's Matching Contributions Account balance. The
determination and correction of excess aggregate contributions of a Highly
Compensated Employee whose contribution percentage is determined under the
family aggregation rules is accomplished by reducing the contribution
percentage as otherwise provided in this Section and allocating the excess
contribution for the family group among the family members in proportion to
the Matching Contribution of each family member that is combined to determine
the contribution percentage.
ARTICLE SIX
ACCOUNTING
6.1. SEPARATE ACCOUNTS.
A separate account will be maintained for each Participant for each
type of contribution made to the Plan by or on behalf of the Participant.
Each such account shall be adjusted as hereinafter provided to reflect any
<PAGE>
appreciation or depreciation in the value of the assets of the Trust Fund and
any distributions. The establishment and maintenance of a separate account
for each Participant shall not be construed as giving any person any interest
in any specific asset of the Trust Fund, which, for investment purposes,
shall be administered as a single fund unless and until otherwise directed by
the Plan Administrator or otherwise provided herein.
6.2. ALLOCATION OF CONTRIBUTIONS.
(a) MATCHING CONTRIBUTIONS. The Matching Contributions made on behalf
of each eligible Participant with respect to the Participant's Pre-Tax
Contributions shall be allocated to the Participant's Matching Contributions
Account as of the last day of each payroll period, or such other period as
determined by the Employer; provided, however, that such allocation shall
occur no later than the last day of each Plan Year. The Matching
Contributions will be allocated to the Matching Contributions Accounts after
valuation and adjustment of accounts as provided in Section 6.3.
(b) DISCRETIONARY CONTRIBUTIONS. The Discretionary Contributions for
a Plan Year shall be allocated as of the year-end Valuation Date among the
Discretionary Contributions Accounts of all Participants who are eligible to
share in the allocation in the ratio that each such Participant's Earnings
for the Plan Year bears to the Earnings of all such Participants. In making
these allocations, only Earnings earned while the Participant is eligible to
participate in the Plan will be considered. The Discretionary Contributions
will be allocated to the Discretionary Contributions Accounts after valuation
and the adjustment of accounts as provided in Section 6.3.
(c) TOP HEAVY ALLOCATIONS. Notwithstanding anything to the contrary
in this Section or any other provision of this Plan, in any Plan Year in
which the Plan is Top Heavy or Super Top Heavy, the Employer shall make a
special contribution on behalf of each Participant who is not a Key Employee
for the Plan Year in such amount as may be necessary to assure that the sum
of the Matching Contributions, Discretionary Contributions, if any, allocated
to the Participant's accounts equals at least the "minimum required
contribution." The "minimum required contribution" is the lesser of (a)
three percent (3%) of the Participant's Compensation for the Plan Year or (b)
if the Employer does not have a defined benefit plan which is enabled to
satisfy Section 401 of the Code by this Plan, the Participant's Compensation
for the Plan Year multiplied by the "Employer Contribution percentage" for
such Plan Year for the Key Employee for whom the "Employer Contribution
percentage" is the highest. For this purpose, the "Employer Contribution
percentage" shall equal the Employer Contributions and forfeitures allocated
to a Participant divided by the Compensation of the Participant. The minimum
required contribution called for by this paragraph will be determined without
regard to the Employer Contributions to the Social Security System. The
special Employer Contribution called for by this paragraph shall be allocated
on behalf of all Employees who are not Key Employees for the Plan Year and
who are employed by the Employer on the last day of the Plan Year. This
special Employer Contribution shall be made regardless of any provision in
this Plan requiring (as a condition of allocation of the Employer
Contribution for the Plan Year) payment of Pre-Tax Contributions. In
determining whether the minimum required contribution provisions of this
Section have been satisfied, all Employer Contribution and forfeiture
allocations for the Plan Year under all "defined contribution plans," as
defined in Section 414(i) of the code, maintained by the Employer or an
Affiliate shall be considered as allocable under this Plan. If a non-Key
Employee who is participating in this Plan is covered under a "defined
benefit plan," as defined in Section 414(j) of the Code, sponsored by the
Employer or an Affiliate, no minimum required contribution allocation shall
be required pursuant to this paragraph if such Employee is provided with a
top heavy minimum defined benefit pursuant to the defined benefit plan. All
special Employer Contributions made pursuant to this paragraph on behalf of a
Participant shall be allocated to that Participant's Discretionary
Contributions Account. In determining the amount of the minimum required
contribution, the Pre-Tax Contributions made by Highly Compensated Employees
shall be treated as Employer Contributions. The Pre-Tax Contributions made
by non-Highly Compensated Employees shall be disregarded.
(d) PRE-TAX CONTRIBUTIONS. The Pre-Tax Contributions of a Participant
shall be credited to his Pre-Tax Contributions Account as of the Valuation
Date coinciding with or next following the end of the payroll period with
respect to which such contributions were made.
(e) ROLLOVER CONTRIBUTIONS. The Rollover Contributions of a
Participant shall be credited to his Rollover Contributions Account.
6.3. VALUATION AND ACCOUNT ADJUSTMENTS.
(a) GENERAL ALLOCATION RULE. Within a reasonable time after each
Valuation Date, the Plan Administrator shall apportion changes in the net
fair market value of the Trust Fund, or in the particular Investment Fund or
Funds in which the account is invested, for the period ending on the most
recent Valuation Date among the accounts of Participants in the ratio that
the balance credited to each of the accounts of each Participant on the
preceding Valuation Date bears to the balances credited to all accounts of
all Participants on such Valuation Date, after deducting withdrawals,
distributions, and any other amounts chargeable to the accounts pursuant to
any other provisions of this Plan since such Valuation Date.
(b) TREATMENT OF CONTRIBUTIONS. In making the allocations called for
by this Section, all contributions made between the preceding Valuation Date
and the current Valuation Date (other than Employer Contributions that are
made after but are allocated as of the preceding Valuation Date) shall be
disregarded. For purposes of this paragraph, and paragraph (a),
contributions made by means of payroll deduction shall be considered to be
"made" to the Plan as of the last day of the payroll period.
(c) TREATMENT OF PARTICIPANT LOANS. The portion of any Participant's
account or subaccount that is loaned to the Participant shall be disregarded
for purposes of this Section. The loan shall be treated as a segregated
investment of the appropriate account or subaccount and all principal and
interest payments made on the loan, and all losses suffered on the loan,
shall be allocated to the appropriate account or subaccount.
(d) FORMER PARTICIPANTS. For purposes of this Section, any individual
who has an account balance in the Plan (including current Plan Participants,
former Participants who have not yet received all amounts to which they are
entitled, surviving spouses of deceased Participants and Beneficiaries) shall
be considered to be a "Participant."
6.4. LIMITATIONS ON ANNUAL ADDITIONS.
(a) GENERAL RULE. Notwithstanding anything in this Plan to the
contrary, the Annual Addition to be allocated to the accounts of a
Participant for any Plan Year shall not exceed an amount equal to the lesser
of (1) Thirty Thousand Dollars ($30,000.00) (or, if greater, 1/4 of the dollar
limitation in effect under Code Section 415(b)(1)(A)) (the "dollar
<PAGE>
limitation") or (2) twenty-five percent (25%) of the Compensation of the
Participant for the Plan Year (the "compensation limitation").
(b) MULTIPLE DEFINED CONTRIBUTION PLANS. The limitations of this
Section with respect to any Participant who is at any time participating in
any other "defined contribution plan," as defined in Section 414(i) of the
Code, maintained by the Employer or an Affiliate shall apply as if the total
Annual Addition under all defined contribution plans in which the Participant
is participating were allocated under this Plan.
(c) ADJUSTING ANNUAL ADDITIONS. In the event it is necessary to limit
the Annual Additions to the accounts of a Participant under this Plan, the
Plan Administrator shall reallocate Discretionary Contributions and, if
necessary, Matching Contributions in excess of the permitted Annual Addition
to those Participants who were otherwise entitled to share in the allocation
of Discretionary and Matching Contributions for the relevant Plan Year. If
further limitation is required under this 6.4(c), the Plan Administrator
shall limit the allocation of Pre-Tax Contributions to the Participant's
Pre-Tax Contributions Account and/or return any such excess Pre-Tax
Contributions plus earnings allocable to any such excess Pre-Tax
Contributions to the Participant. The earnings allocable to any excess
Pre-Tax Contributions shall be determined in a manner consistent with
Section 4.3(d). Further reductions or adjustments to the method described
above for adjusting the Annual Additions of Participants may be made pursuant
to the directions of the Plan Administrator.
(d) DEFINED BENEFIT PLAN PARTICIPANTS. In any case where a
Participant under this Plan is also a participant in one or more "defined
benefit plans," as defined in Section 414(j) of the Code, maintained by the
Employer or by an Affiliate of the Employer, the sum of the "defined benefit
plan fraction" under such plan or plans and the "defined contribution plan
fraction" under this Plan and all other defined contribution plans shall not
exceed one (1.0).
(e) DEFINED BENEFIT PLAN FRACTION. The "defined benefit plan
fraction" for any Plan Year is a fraction, the numerator of which is the
projected annual benefit payable to the Participant as of the close of the
current Plan Year under all defined benefit plans (whether or not terminated)
maintained by the Employer and the denominator of which is the lesser of one
hundred twenty-five percent (125%) of the defined benefit plan dollar
limitation in effect for the Plan Year under Section 415(b)(1)(A) of the
Code, as adjusted pursuant to Section 415(d) of the Code, or one hundred
forty percent (140%) of the Participant's average Compensation for the three
(3) Plan Years during which such Compensation is the highest. For any Plan
Year for which the Plan is Top Heavy, the denominator of the defined benefit
plan fraction will be the lesser of one hundred percent (100%) (rather than
one hundred twenty-five percent (125%)) of the defined benefit plan dollar
limitation referred to in the preceding sentence, as in effect for the Plan
Year under Section 415(b)(1)(A) of the Code, or one hundred forty percent
(140%) of the Participant's average Compensation for the three (3) Plan Years
during which Compensation is highest, unless both of the following conditions
are satisfied, in which case the defined benefit plan fraction shall be
calculated as set forth in the preceding sentence:
(1) The Plan is not a Super Top Heavy Plan; and
(2) The contributions or benefits on behalf of all Participants
other than Key Employees meet the requirements of Section 416(h) of the Code.
Notwithstanding the above, if a Participant was a participant in one or more
defined benefit plans maintained by the Employer or an Affiliate which were
in existence on May 6, 1986, the denominator of the defined benefit plan
fraction will not be less than one hundred twenty-five percent (125%) of the
sum of the annual benefits under such plans which the Participant had accrued
as of the close of the last Plan Year beginning on or before December 31,
1986, calculated as if the Participant had terminated employment on the last
day of said Plan Year. In calculating a Participant's benefits, the Plan
Administrator shall disregard changes in the terms and conditions of such
plans occurring on or after May 6, 1986, and cost-of-living adjustments
occurring on or after May 6, 1986. The preceding two sentences shall only
apply if the defined benefit plans individually and in the aggregate satisfy
the requirements of Section 415 of the Code as in effect at the end of the
1986 Plan Year.
(f) DEFINED CONTRIBUTION PLAN FRACTION. The "defined contribution
plan fraction" for any Plan Year is a fraction, the numerator of which is the
sum of the Annual Additions to the Participant's accounts under all the
defined contribution plans (whether or not terminated) maintained by the
Employer for the current and all prior Plan Years (including the Annual
Additions attributable to the Participant's nondeductible employee
contributions to any defined benefit plan, whether or not terminated,
maintained by the Employer) and the denominator of which is the sum of the
"maximum aggregate amounts" for the current and all prior Plan Years of
service with the Employer, regardless of whether a plan was maintained by the
Employer during such years. The "maximum aggregate amount" in any Plan Year
is the lesser of one hundred twenty-five percent (125%) of the dollar
limitation in effect under Section 415(c)(1)(A) of the Code or thirty-five
percent (35%) of the Participant's Compensation for such year. For any Plan
Year for which the Plan is a Top Heavy Plan, the "maximum aggregate amount"
is the lesser of one hundred percent (100%) (rather than one hundred
twenty-five percent (125%)) of the dollar limitation in effect under Section
415(c)(1)(A) of the Code or thirty-five percent (35%) of the Participant's
Compensation for such year, unless both of the following conditions are
satisfied:
(1) The Plan is not a Super Top Heavy Plan; and
(2) The contributions or benefits on behalf of all Participants
other than Key Employees meet the requirements of Section 416(h) of the Code.
If a Participant was a participant in one or more defined contribution plans
and one or more defined benefit plans maintained by the Employer which were
in existence on May 6, 1986, and which satisfied all of the requirements of
Section 415 of the Code for all limitation years beginning before January 1,
1987, the numerator of this fraction will be adjusted if the sum of this
fraction and the defined benefit plan fraction would otherwise exceed one
(1.0) under the terms of this Plan. The adjustment shall be made by
permanently subtracting from the numerator of the defined contribution
fraction an amount equal to the product of (1) the excess of the sum of the
fractions over one (1.0) and (2) the denominator of the defined contribution
fraction as of the "determination date." For this purpose, the
"determination date" is the last day of the last Plan Year commencing on or
before December 31, 1986. Changes in the terms and conditions of any plan
after May 5, 1986, must be disregarded in adjusting the defined contribution
plan fraction. The adjustment will be made only after eliminating any
accruals under this or any other Plan which are in excess of the accruals
permitted pursuant to Section 415 of the Code.
<PAGE>
(g) ADJUSTMENTS. If the sum of the defined benefit plan fraction and
the defined contribution plan fraction is in excess of one (1.0), then the
Annual Addition of the Participant shall be reduced as provided in paragraph
(c) but only if the terms and provisions of the defined benefit plan do not
call for the reduction of the benefits payable thereunder in such
circumstances. The reduction shall be of sufficient amount to eliminate the
excess over one (1.0).
(h) TREATMENT OF AFFILIATES. For purposes of this Section 6.4, the
Employer and all of its Affiliates shall be treated as a single entity and
any plans maintained by an Affiliate shall be deemed to be maintained by the
Employer.
ARTICLE SEVEN
VESTING
7.1. FULL VESTING.
(a) VESTING IN THE PRE-TAX CONTRIBUTIONS ACCOUNTS. Each Participant
shall at all times be fully vested in all amounts credited to or allocable to
his Pre-Tax Contributions Account, and his rights and interest therein shall
not be forfeitable for any reason.
(b) VESTING IN THE AFTER-TAX CONTRIBUTIONS ACCOUNT. Each Participant
shall at all times be fully vested in all amounts credited to or allocable to
his After-Tax Contributions Account, and his rights and interest therein
shall not be forfeitable for any reason.
(c) ROLLOVER CONTRIBUTION ACCOUNT. Each Participant shall at all
times be fully vested in all amounts credited to or allocable to his Rollover
Contribution Account, and his rights and interest therein shall not be
forfeitable for any reason.
(d) VESTING IN THE EMPLOYER CONTRIBUTIONS ACCOUNT. Each Participant
shall be fully vested in all amounts credited to or allocable to his Employer
Contributions Account, and his rights and interest therein shall not be
forfeitable for any reason.
7.2. AMENDMENTS TO VESTING SCHEDULE.
No amendments to or other changes in a vesting schedule set forth in
Section 7.1 shall deprive an Employee who is a Participant on the later of
(a) the date the amendment is adopted or (b) the date the amendment is
effective of any nonforfeitable benefit to which he is entitled under the
Plan (determined as of such date) without regard to such amendment. If a
vesting schedule designated in Section 7.1 is amended, each Participant who
has completed three (3) Years of Service and whose benefits would be
determined under such schedule shall have the right to elect, during the
period computed pursuant to this Section, to have his nonforfeitable benefit
determined without regard to such amendment; provided, however, that no
election shall be provided to any Participant whose nonforfeitable vested
benefit under the Plan, as amended, would be less than the benefit computed
without regard to such amendment. The election period shall commence on the
date the amendment is adopted and end on the latest of (a) sixty (60) days
after adoption of the amendment, (b) sixty (60) days after the effective date
of the amendment, or (c) sixty (60) days after the Participant is notified of
<PAGE>
the amendment in writing by the Employer or Plan Administrator. Such
election, if exercised, shall be irrevocable and shall be available only to
an Employee who is a Participant and who has completed at least three (3)
Years of Service when the election is made.
ARTICLE EIGHT
DISTRIBUTION OF BENEFITS
8.1. NORMAL AND LATE RETIREMENT.
A Participant shall be entitled to full distribution of his accounts,
as provided in Sections 8.7 and 8.8, upon actual retirement as of or after
his Normal Retirement Date. A Participant may remain in the employment of
the Employer after his Normal Retirement Date, if he desires, and shall
retire at such later time as he may desire, unless the Employer lawfully
directs earlier retirement.
8.2. DISABILITY RETIREMENT.
A Participant who shall separate from employment due to Disability
shall be entitled to full distribution of his accounts, as provided in
Sections 8.7 and 8.8. Subject to the provisions of Section 8.7, the payments
may commence as of his date of separation from employment due to Disability.
This Plan is intended to qualify as an accident and health plan within the
meaning of Section 105 of the Code and any and all payments made pursuant to
this Section are intended to qualify for the exclusion from income tax
provided by Section 105(c) of the Code.
8.3. DEATH.
(a) BENEFIT. In the event that a Participant (which term for purposes
of this Section includes former Participants) shall die prior to his Benefit
Commencement Date, the Participant's surviving spouse (or his other
designated Beneficiary, if the Participant is unmarried or his spouse has
consented in writing to designation of another Beneficiary) shall be entitled
to full distribution of the Participant's accounts at the time and in the
manner provided in Sections 8.7 and 8.8.
(b) SPOUSE AS BENEFICIARY. Notwithstanding any Beneficiary
designation made by the Participant to the contrary, except as otherwise
noted below, a married Participant's spouse shall be deemed to be his
Beneficiary for purposes of this Plan unless the Participant's spouse
consents to the designation of a different Beneficiary. Once given, the
spouse's consent will be irrevocable. The consent of the Participant's
spouse to his election shall be in writing, acknowledge the effect of such an
election, be witnessed by a notary public, or a designated representative of
the Plan Administrator and be provided to the Plan Administrator. The spouse
may not consent to the designation of another Beneficiary generally, but
rather must consent to the designation of a particular Beneficiary. If the
Participant elects to change the Beneficiary, the spouse's prior consent will
be null and void and a new consent will be required, unless the spouse's
consent expressly permits a change of designation without the further consent
of the spouse. No spousal consent will be required if the Plan Administrator
determines, in its sole discretion, that such consent cannot be obtained
because the spouse cannot be located or other circumstances exist that
preclude the Participant from obtaining such consent (to the degree permitted
under applicable regulations issued by the United States Treasury
Department). Any spousal consent given pursuant to this Section or dispensed
with pursuant to the preceding sentence will be valid only with respect to
the spouse who signs the consent or with respect to whom the consent
requirement is waived by the Plan Administrator.
(c) DEATH AFTER COMMENCEMENT OF BENEFIT. In the event that a former
Participant shall die after his Benefit Commencement Date but prior to the
complete distribution of all amounts to which such Participant is entitled
under the provisions of this ARTICLE EIGHT, the Participant's spouse or other
designated Beneficiary shall be entitled to receive any remaining amounts to
which the Participant would have been entitled had the Participant survived.
The Plan Administrator may require and rely upon such proofs of death and the
right of any spouse or Beneficiary to receive benefits pursuant to this
Section 8.3 as the Plan Administrator may reasonably determine, and its
determination of death and the right of such spouse or Beneficiary to receive
payment shall be binding and conclusive upon all persons whomsoever.
8.4. OTHER SEPARATIONS FROM EMPLOYMENT.
A Participant who separates from employment for any reason other than
retirement, death or Disability shall be entitled to distribution of his
vested interest in his accounts at the time and in the manner provided in
Sections 8.7 and 8.8.
8.5. HARDSHIP DISTRIBUTIONS.
(a) GENERAL RULE. A Participant or former Participant may request
that a distribution of amounts credited to his Employer Contributions
Accounts be made on the basis of hardship. If the Participant is married at
the time of his request for a distribution under this Section, the
Participant's spouse must consent to the distribution in accordance with
paragraph (g). A distribution pursuant to this Section shall not result in
the forfeiture of any amounts from the Participant's accounts.
(b) LIMITATION ON DISTRIBUTIONS. In no event shall a hardship
distribution exceed the balance of the Participant's or former Participant's
Employer Contributions Account, determined as of the Valuation Date
immediately preceding the date of the distribution, less any amounts
distributed from or charged to the Employer Contributions Account since such
Valuation Date. The distribution may not exceed the lesser of the amount
determined pursuant to the preceding sentence or the total Employer
Contributions made on behalf of the Participant prior to the date of the
withdrawal less any Employer Contributions previously withdrawn. The Plan
Administrator may promulgate uniform rules regarding the effective date of
any distribution, minimum amounts to be distributed and the frequency of
distributions.
(c) HARDSHIP DEFINED. A distribution may be made pursuant to this
Section due to a "hardship" only if the Participant satisfies the Plan
Administrator that the Participant has an immediate and heavy financial need
and that the distribution is necessary in order to satisfy that need.
(d) IMMEDIATE AND HEAVY FINANCIAL NEED. The following are the only
expenses or circumstances that will be deemed to give rise to an immediate
and heavy financial need for purposes of this Section:
(1) Medical expenses described in Section 213(d) of the Code
incurred by the Participant, the Participant's spouse, or any of the
Participant's dependents (as defined in Section 152 of the Code);
<PAGE>
(2) The purchase (excluding mortgage payments) of a principal
residence for the Participant; or
(3) Payment of tuition and related educational expenses
(including room and board) for the next twelve (12) months of post-secondary
education for the Participant or the Participant's spouse, children or
dependents; or
(4) The need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage on the Participant's
principal residence; or
(5) Any other circumstance or expense designated by the
Commissioner of Internal Revenue as a deemed immediate and heavy financial
need in any published revenue ruling, notice or other document of general
applicability.
(e) NECESSITY. A distribution will be deemed to be necessary to
satisfy an immediate and heavy financial need of a Participant only if all of
the following requirements are satisfied:
(1) The distribution is not in excess of the amount of the
immediate and heavy financial need of the Participant;
(2) The Participant has obtained all distributions, other than
hardship distributions, and all nontaxable loans currently available under
all plans maintained by the Employer;
(3) All plans sponsored by the Employer provide that the
Participant's contributions (whether made on a pre-tax or after-tax basis)
will be suspended for at least twelve (12) months after receipt of the
distribution; and
(4) All plans sponsored by the Employer provide that the
Participant may not make elective pre-tax contributions for the calendar year
immediately following the calendar year in which the hardship distribution is
made in excess of the applicable limit in effect for such year under Section
402(g) of the Code less the amount of the Participant's pre-tax elective
contributions for the calendar year in which the hardship distribution is
made.
(f) RESTRICTIONS ON FUTURE CONTRIBUTIONS. If a Participant receives a
hardship distribution pursuant to this Section, the Participant's right to
make Pre-Tax Contributions to this Plan pursuant to Section 4.1 shall be
suspended for a period of twelve (12) months following the month in which the
hardship distribution is made. The Participant may resume his Pre-Tax
Contributions as of the Plan Entry Date next following the completion of said
twelve (12) month period. In addition, the Participant's Pre-Tax
Contributions to this Plan, plus his elective contributions to any other plan
sponsored by the Employer, for the calendar year following the calendar year
in which the hardship distribution is made may not exceed the difference
between Seven Thousand Dollars ($7,000.00) (as adjusted for cost-of-living
increases pursuant to Section 402(g) of the Code) for the calendar year
following the distribution and the Participant's Pre-Tax contributions to
this Plan, plus his elective contributions to any other plan sponsored by the
Employer for the calendar year in which the distribution is made.
<PAGE>
(g) SPOUSAL CONSENT REQUIREMENTS. No married Participant shall be
allowed to receive a distribution pursuant to this Section 8.5 if at the time
of the distribution the sum of his total vested account balances plus any
amounts previously withdrawn exceeds Three Thousand Five Hundred Dollars
($3,500.00) unless the Participant's spouse consents to the withdrawal. Such
consent must be in writing and must be witnessed by a notary public or a
designated representative of the Plan Administrator. In the consent, the
spouse must consent to a single lump sum payment of the amount to be
distributed, must acknowledge the effect of the distribution on the benefits
ultimately payable from the Plan and must acknowledge the effect of the
spouse's consent to the distribution. No spousal consent shall be required
if the Plan Administrator determines, in its sole and absolute discretion,
that the spouse cannot be located or other circumstances exist that preclude
the Plan Administrator from obtaining such consent (as permitted under
applicable regulations issued by the United States Treasury Department). Any
spousal consent given or dispensed with pursuant to this Section will be
valid with respect to the spouse who signs the consent or with respect to
who, the consent requirement is waived by the Plan Administrator and any
subsequent spouse. If the Participant's spouse fails to consent to the
distribution, the amounts in the Participant's accounts will be held for
distribution in accordance with the remaining provisions of this ARTICLE
EIGHT unless the Participant's spouse later consents to a distribution
pursuant to the provisions of this Section.
8.6. IN-SERVICE DISTRIBUTIONS.
(a) GENERAL RULE. A Participant age fifty-nine and one-half (59
and 1/2) or older may elect to receive a distribution of the entire balance of
his Plan accounts. If the Participant is married at the time of his request
for a distribution under this Section, the Participant's spouse must consent to
the distribution in accordance with paragraph (d). Amounts distributed to the
Participant pursuant to this Section may not be repaid to the Plan. The Plan
Administrator may promulgate uniform rules regarding the effective date of
any distribution pursuant to this Section and the procedures to be followed
in requesting a distribution pursuant to this Section.
(b) LIMITATIONS ON AMOUNT OF DISTRIBUTION. In no event shall a
distribution exceed the entire balance of the Participant's Plan accounts,
determined as of the Valuation Date immediately preceding the date of the
distribution, less any amounts distributed from or charged to the
Participant's accounts since such Valuation Date.
(c) EFFECT OF ELECTION. A Participant who elects to receive a
distribution pursuant to this Section 8.6 shall continue to participate in
the Plan subsequent to his receipt of such distribution. Once a Participant
has received a distribution under this Section, he shall not be eligible to
receive any subsequent in-service distributions of his Plan accounts.
Instead, amounts credited to the Participant's accounts subsequent to his
receipt of a distribution pursuant to this Section shall be distributed in
accordance with the remaining provisions of this ARTICLE EIGHT.
(d) SPOUSAL CONSENT REQUIREMENTS. No married Participant shall be
allowed to receive a distribution pursuant to this Section 8.6 if at the time
of the distribution the sum of his total vested account balances plus any
amounts previously withdrawn exceed Three Thousand Five Hundred Dollars
($3,500.00) unless the Participant's spouse consents to the distribution.
Such consent must be in writing and must be witnessed by a notary public or a
designated representative of the Plan Administrator. In the consent, the
<PAGE>
spouse must consent to a single lump sum payment of the amount to be
distributed, must acknowledge the effect of the distribution on the benefits
ultimately payable from the Plan, and must acknowledge the effect of the
spouse's consent to the distribution. No spousal consent shall be required
if the Plan Administrator determines, in its sole and absolute discretion,
that the spouse cannot be located or other circumstances exist that preclude
the Plan Administrator from obtaining such consent (as permitted under
applicable regulations issued by the United States Treasury Department). Any
spousal consent given or dispensed with pursuant to this Section will be
valid with respect to the spouse who signs the consent or with respect to
whom the consent requirement is waived by the Plan Administrator and any
subsequent spouse. If the Participant's spouse fails to consent to the
distribution of amounts allocated to the participant's Plan accounts, the
amounts in the Participant's accounts will be held for distribution in
accordance with the remaining provisions of this ARTICLE EIGHT unless the
Participant's spouse later consents to a distribution pursuant to the
provision of this Section.
8.7. TIME OF DISTRIBUTION OF BENEFITS.
(a) RETIREMENT. Subject to the requirements of paragraph (g) of this
Section concerning the early commencement of distributions, payment to a
Participant who is entitled to benefits under Section 8.1 normally shall
commence within a reasonable time following the Participant's termination of
employment; except that, at the election of the Participant, payment of
benefits may be postponed until the next Valuation Date, at which time losses
or earnings on the Trust Fund will be allocated to the Participant's
accounts.
(b) TERMINATION AND DISABILITY. Payment to a Participant who is
entitled to benefits under Section 8.2 or Section 8.4 normally shall commence
not later than the date on which the Participant shall attain his Normal
Retirement Date. As a general rule, the Plan Administrator will begin
distributions pursuant to Section 8.2 or Section 8.4 as soon as possible
after the year-end Valuation Date next following the Participant's
termination of employment. If the total amount distributable to the
Participant from all of his accounts exceeds Three Thousand Five Hundred
Dollars ($3,500.00), however, no distribution may be made prior to the
Participant's Normal Retirement Date unless the Participant requests said
distribution in writing.
(c) DEATH AFTER COMMENCEMENT OF PAYMENTS. In the event of the death
of a Participant after his Benefit Commencement Date but prior to the
complete distribution to such Participant of the benefits payable to him
under the Plan, any remaining benefits shall be distributed over a period
that does not exceed the period over which distribution was to be made prior
to the date of death of the Participant. Payments to the Beneficiaries
entitled to payments pursuant to Section 8.3 shall commence as soon as
possible following the death of the Participant.
(d) DEATH PRIOR TO COMMENCEMENT OF BENEFITS. In the event of the
death of the Participant prior to his Benefit Commencement Date, payments to
the Participant's Beneficiaries shall commence as soon as possible following
the Participant's death and must be paid in full by December 31 of the
calendar year which includes the fifth (5th) anniversary of the date of the
Participant's death, unless the surviving spouse or other designated
beneficiary irrevocably elects to apply one of the following exceptions in a
timely manner (as determined in accordance with regulations issued by the
United States Treasury Department pursuant to Section 401(a)(9) of the Code):
(1) PAYMENTS TO DESIGNATED BENEFICIARIES OTHER THAN SPOUSES. If
the death benefit is payable to a "designated Beneficiary," the designated
Beneficiary may elect that the death benefit be distributed in the form of an
annuity over the life of the designated beneficiary, or in substantially
equal monthly, quarterly or annual installments over a period not to exceed
the Beneficiary's life expectancy (determined in accordance with Section
8.8(f)) as long as the distributions commence by December 31 of the calendar
year following the year of the Participant's death or by such other date as
may be specified in regulations issued by the United States Treasury
Department. For purposes of this Section, a "designated Beneficiary" is any
individual who has the right to receive a death benefit from this Plan
regardless of whether the individual was specifically designated by the
Participant. The term "designated Beneficiary" may also include the
beneficiaries of any Trust that satisfies the requirements of regulations
issued by the United States Treasury Department pursuant to Section 401(a)(9)
of the Code.
(2) PAYMENTS TO SPOUSES. If the Participant's surviving spouse
is his sole Beneficiary, the surviving spouse may elect to postpone
distributions until any date not later than the later of December 31 of the
calendar year following the calendar year in which the Participant died or
December 31 of the calendar year in which the Participant would have attained
age seventy and one-half (70-1/2). Distributions to the surviving spouse
shall then be made in the form of an annuity over the life of the surviving
spouse, or in substantially equal monthly, quarterly or annual installments
over a period not to exceed the surviving spouse's life expectancy
(determined in accordance with Section 8.8(f)). If the surviving spouse dies
before the distributions begin, this paragraph (d) shall be applied as if the
surviving spouse was the Participant.
Any elections made by a designated Beneficiary pursuant to this paragraph (d)
and any distributions made pursuant to this paragraph (d) shall comply with
regulations issued by the United States Treasury Department under Section
401(a)(9) of the Code, as they may be amended from time to time. In case of
conflict, the provisions of the regulations shall control over the provisions
of this Plan.
(e) REQUIRED COMMENCEMENT OF PAYMENTS. In no event shall payment to a
former Participant commence later than sixty (60) days after the last to
occur of (1) the last day of the Plan Year in which the Participant attains
the age of sixty-five (65) years, (2) the last day of the Plan Year in which
the Participant separates from employment with the Employer, or (3) the tenth
(10th) anniversary of the last day of the Plan Year in which the Participant
commenced participation in the Plan. In addition, payments must commence by
April 1 of the calendar year following the calendar year in which the
Participant attains the age of seventy and one-half (70-1/2) years,
regardless of whether the Participant has retired, unless the Participant
filed a written election with the Employer or the Plan Administrator on or
before December 31, 1983, electing to postpone the receipt of his payments.
A written election by a Participant to postpone the receipt of payments will
be given effect only if the election satisfies all of the applicable
requirements specified by the Internal Revenue Service for elections made
pursuant to Section 242(b) of the Tax Equity and Fiscal Responsibility Act of
1982. A Participant who attains the age of seventy and one-half (70-1/2)
years prior to January 1, 1988, and who was not a "5-percent owner" within
the meaning of Section 416(i)(1)(B)(i) of the Code during any Plan Year
ending with or within the calendar year in which he reaches age sixty-six and
one-half (66-1/2) or any subsequent year may elect to postpone the
<PAGE>
commencement of his benefits until his actual retirement. The election must
be made in accordance with any procedures established for that purpose by the
Plan Administrator and any applicable regulations, rulings, or procedures
announced by the United States Treasury Department.
(f) ELECTION TO POSTPONE PAYMENTS. Notwithstanding any provision
hereof to the contrary, a former Participant may elect to postpone the
commencement of his benefits to any date not later than the date specified in
paragraph (e). In addition, a Beneficiary may elect to postpone the receipt
of his benefits, subject to the requirements of paragraphs (c) and (d).
(g) CONSENT TO EARLY DISTRIBUTIONS. Except as otherwise provided in
Section 8.8 concerning the payment of small amounts, no benefit payments may
commence pursuant to the preceding provisions of this Section prior to the
Participant's Normal Retirement Date unless the Participant requests the
earlier commencement of payments in writing in a form acceptable to the Plan
Administrator.
8.8. METHOD OF DISTRIBUTION
(a) STANDARD FORM OF PAYMENT. Subject to the Plan Administrator's
right to direct payment of benefits in the form of a single lump-sum payment
pursuant to paragraph (d) of this Section but despite any other provisions of
this Plan to the contrary, a Participant who is married on his Benefit
Commencement Date shall receive payment in the form of a lump-sum
distribution, unless, not later than the Benefit Commencement Date, the
Participant elects, in the manner described hereinafter, to receive payment
in another form permitted by this Section.
(b) OPTIONAL METHODS OF PAYMENT. Subject to the requirements of
paragraph (a), distribution of benefits may be made by means of any one (1)
or more of the following methods:
(1) LUMP SUM PAYMENT. A single lump-sum payment.
(2) INSTALLMENTS. By distribution in substantially equal
monthly, quarterly, semiannual or annual installments over a fixed period
selected by the Participant or Beneficiary that does not extend beyond the
period determined pursuant to paragraph (c) below; the amount to be paid in
installments shall be determined by dividing the value of the Participant's
accounts as of the date the determination is being made by the number of
payments to be made, and pending complete distribution of the Participant's
accounts the Plan Administrator shall direct the Trustee to segregate and
invest the sums attributable to his accounts in a segregated, fixed-income
investment or investments not regularly susceptible to decline in market
value, such as interest-bearing deposits with any Federally-insured
institution, in which event the Plan Administrator and the Trustee shall have
no other investment responsibility with regard to such sums during such
period.
(3) IN KIND DISTRIBUTIONS. Subject to all of the other
requirements of this Section, including but not limited to paragraph (a), by
assigning to the Participant or Beneficiary any insurance policies held on
the Participant's life as an asset of the Trust Fund or any other asset held
in the Trust Fund. If distributions are made "in kind," or partly in cash
and partly "in kind," the fair market value of the assets distributed in
kind, plus any accompanying cash distribution, shall be equivalent to the
value of such distribution had it been made entirely in cash.
(c) MINIMUM DISTRIBUTION AND INCIDENTAL BENEFIT REQUIREMENTS. The
distribution of a Participant's interest must commence by the date determined
pursuant to Section 8.7(c) (the "required beginning date"). Unless the
Participant's entire interest is distributed to him by the required beginning
date, the distributions must be made over the life of the Participant, over
the life of the Participant and the Participant's designated Beneficiary,
over a period certain not extending beyond the life expectancy of the
Participant, or over a period certain not extending beyond the joint life and
last survivor life expectancy of the Participant and the Participant's
designated Beneficiary. In addition, all benefit payment options shall be
structured so as to comply with the incidental benefit requirements of
Section 401(a)(9)(G) of the Code and any regulations issued pursuant thereto,
which require, generally, that certain minimum amounts be distributed to a
Participant during each calendar year, commencing with the calendar year in
which the Participant's required beginning date falls, in order to assure
that only "incidental" benefits are provided to a Participant's
beneficiaries. The provision of this paragraph (c) shall control over any
conflicting provisions of this Plan. In addition, all distributions made
pursuant to the Plan shall comply with any regulations issued by the United
States Treasury Department under Section 401(a)(9) of the Code, including any
regulations issued pursuant to Section 401(a)(9)(G), and such regulations
shall override and supersede any conflicting provisions of this Section or
any other Section of this Plan.
(d) DISTRIBUTION OF SMALL AMOUNTS. Notwithstanding any provision of
this Plan to the contrary, the Plan Administrator, in its sole discretion,
may direct payment of benefits in a single lump sum if the total amount
distributable to the Participant from all of his accounts does not exceed
Three Thousand Five Hundred Dollars ($3,500.00). No distribution may be made
pursuant to the preceding sentence after the Benefit Commencement Date unless
the Participant and the Participant's spouse, if any, (or where the
Participant has died, his spouse alone) consent in writing to the
distribution. All distributions pursuant to this paragraph must be made not
later than the close of the second Plan Year following the Plan Year in which
the Participant's employment is terminated.
(e) AMOUNT OF DISTRIBUTION. For the purpose of determining the amount
to be distributed to Participants and Beneficiaries, the Participant's
accounts will be valued as of the Valuation Date preceding the date upon
which distribution is to commence, and the accounts shall then be adjusted to
reflect any contributions made by or on behalf of the Participant after such
Valuation Date.
(f) LIFE EXPECTANCIES. For purposes of this Plan, life expectancies
shall be calculated by use of the expected return multiples specified in
Tables V and VI of section 1.72-9 of the regulations issued by the United
States Treasury Department, and in accordance with the rules and procedures
specified in regulations issued under Section 401(a)(9) of the Code, as such
Tables and regulations may be amended from time to time, or any Tables or
regulations subsequently issued in replacement of said Tables or regulations.
The life expectancy of a Participant and his spouse may be recalculated
annually. The life expectancy of any other individual shall be calculated
using the individual's attained age on his birthday in the relevant calendar
year (as determined in accordance with the regulations issued pursuant to
Section 401(a)(9) of the Code) and such individual's life expectancy during
any later calendar year shall be the life expectancy as originally determined
less the number of calendar years that have elapsed since the calendar year
of the initial determination.
<PAGE>
(g) ADDITIONAL BENEFIT OPTIONS. The Plan Administrator may from time
to time expand the available benefit options by the adoption of written
administration procedures, which written procedures shall describe the
additional optional methods of payment and any limitations on their
availability. Once said procedures are adopted, the elimination or
modification of the additional methods of payment described therein will be
subject to the same rules and constraints that apply to the elimination or
modification of the optional methods of payment specifically described in
paragraph (b) above.
(h) LIMITATION ON LUMP SUM PAYMENTS. The Plan Administrator may, in
the exercise of its discretion, adopt rules and procedures pursuant to which
any lump sum payments to which any Participant, spouse, or other Beneficiary
may be entitled will be payable in up to five (5) equal annual installments
pursuant to paragraph (b)(2). Such rules and procedures may not apply to
lump sum payments of Three Thousand Five Hundred Dollars ($3,500.00) or less
and may apply only to lump sum payments that exceed ten percent (10%) (or
such greater percentage specified by the Plan Administrator) of the value of
the Trust Fund as of the last day of the prior Plan Year. Any such rules or
procedures adopted by the Plan Administrator shall be reduced to writing and
shall be communicated to a Participant, spouse, or other Beneficiary at the
time benefits become payable to the Participant or Beneficiary. The rules
and procedures shall be mandatory and shall preclude the exercise of any
discretion by the Plan Administrator, the Employer or the Trustee.
8.9. DESIGNATION OF BENEFICIARY.
Subject to Section 8.3, each Participant shall have the right to
designate, on forms supplied by and delivered to the Plan Administrator, a
Beneficiary or Beneficiaries to receive his benefits hereunder in the event
of the Participant's death. As provided in Section 8.3, if the Participant
is married when the Beneficiary designation is filed, the designation will be
ineffective unless the Participant's spouse consents to the election.
Subject to the spousal consent requirements, each Participant may change his
Beneficiary designation from time to time in the manner described above.
Upon receipt of such designation by the Plan Administrator, such designation
or change of designation shall become effective as of the date of the notice,
whether or not the Participant is living at the time the notice is received.
There shall be no liability on the part of the Employer, the Plan
Administrator or the Trustee with respect to any payment authorized by the
Plan Administrator in accordance with the most recent valid Beneficiary
designation of the Participant in its possession before receipt of a more
recent and valid Beneficiary designation. If no designated Beneficiary is
living when benefits become payable, or if there is no designated
Beneficiary, the Beneficiary shall be the Participant's spouse; or if no
spouse is then living, such Participant's issue, including any legally
adopted child or children, in equal shares by right of representation; or if
no such designated Beneficiary and no such spouse or issue, including any
legally adopted child or children, is living upon the death of a Participant,
or if all such persons die prior to the full distribution of such
Participant's benefits, then the Beneficiary shall be the estate of the
Participant.
8.10. PAYMENTS TO DISABLED.
If a person entitled to any payment hereunder shall be under a legal
disability, or in the sole judgment of the Plan Administrator shall otherwise
be unable to apply such payment to his own interest and advantage, the Plan
<PAGE>
Administrator in the exercise of its discretion may direct the Trustee to
make any such payment in any one (1) or more of the following ways: (a)
directly to such person, (b) to his legal guardian or conservator, or (c) to
his spouse or to any person charged with the legal duty of his support, to be
expended for his benefit. The decision of the Plan Administrator shall in
each case be final and binding upon all persons in interest.
8.11. UNCLAIMED ACCOUNTS; NOTICE.
Neither the Employer, the Plan Administrator nor the Trustee shall be
obliged to search for, or ascertain the whereabouts of, any Participant or
Beneficiary. The Plan Administrator, by certified or registered mail
addressed to the Participant's or Beneficiary's last known address of record
with the Plan Administrator or the Employer, shall notify any Participant or
Beneficiary that he is entitled to a distribution under this Plan. In the
event that the Participant or Beneficiary shall make no claim for benefits or
shall fail to make his correct address known, the Plan Administrator may
direct the Trustee to segregate the Participant's benefits in
interest-bearing deposits with any Federally-insured institution, and the
Plan Administrator and the Trustee shall have no other investment
responsibility with regard to such benefits. After so segregating such
benefits, the Plan Administrator shall notify the Social Security
Administration of the Participant's (or Beneficiary's) failure to claim the
distribution to which he is entitled. The Plan Administrator shall request
the Social Security Administration to notify the Participant (or Beneficiary)
in accordance with any procedures it has established for this purpose. The
segregated deposits shall be entitled to all income they earn and shall bear
all expense or loss they incur, and such deposits shall not be subject to
adjustment pursuant to Section 6.3. Alternatively, in the event that the
Participant or Beneficiary shall make no claim for benefits or shall fail to
make his correct address known, after two (2) years the Plan Administrator
may, in its sole discretion, cancel the Participant's Employer Contributions
Account and reallocate amounts credited to the Employer Contributions Account
as forfeitures. In the event that the former Participant (or Beneficiary)
shall subsequently make a valid claim for benefits under the Plan, the Plan
Administrator shall restore the Employer Contributions Account of the
Participant, and the Employer shall make a special contribution in an amount
equal to the Participant's account balance at the time of the cancellation of
his account.
8.12. UNDERPAYMENT OR OVERPAYMENT OF BENEFITS.
In the event that, through misstatement or computation error, benefits
are underpaid or overpaid, there shall be no liability for any more than the
correct benefit sums under the Plan. Overpayments may be deducted from
future payments under the Plan, and underpayments may be added to future
payments under the Plan. In lieu of receiving reduced benefits under the
Plan, a Participant or beneficiary may elect to make a lump sum repayment of
any overpayment.
8.13. TRANSFERS FROM THE PLAN.
Upon receipt by the Plan Administrator of a written request from a
Participant who has separated or is separating from the Employer and has not
yet received distribution of his benefits under the Plan, the Plan
Administrator may, in its sole discretion, direct the Trustee to transfer
such Participant's vested interest in his accounts to the trustee or other
administrative agent of another plan or trust or individual retirement
account meeting the requirements for qualified plans or trusts or individual
retirement accounts under the Code, which plan or trust or individual
retirement account expressly provides for the receipt of such transferred
amounts. The Trustee shall make such transfer within a reasonable time
following receipt of such written direction by the Plan Administrator. The
Employer, the Plan Administrator and the Trustee shall not be responsible for
ascertaining whether the transferee plan, trust, or individual retirement
account is qualified under the Code, and the written request of the
Participant shall constitute a certification on the part of such Participant
that the plan, trust, or individual retirement account is qualified and
provides for such transfer.
8.14. ELIGIBLE ROLLOVER DISTRIBUTIONS.
(a) GENERAL. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under this
Section, a distributee may elect, at the time and in the manner prescribed by
the Plan Administrator, to have any portion of an "eligible rollover dis-
tribution" paid directly to an "eligible retirement plan" specified by the
"distributee" in a "direct rollover."
(b) DEFINITIONS.
(1) "Eligible rollover distribution" -- An eligible rollover
distribution is any distribution of all or any portion of the balance to the
credit of the distributee, except that an eligible rollover distribution does
not include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or
life expectancy) of the distributee or the joint lives (or joint life
expectancies) of the distributee and the distributee's designated
beneficiary, or for a specified period of ten years or more; any distribution
to the extent such distribution is required under Section 401(a)(9) of the
Code; and the portion of any distribution that is not includible in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(2) "Eligible retirement plan" -- An eligible retirement plan is
an individual retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of the Code, an
annuity plan described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the distributee's
eligible rollover distribution. However, in the case of an eligible rollover
distribution to the Surviving Spouse, an eligible retirement plan is an
individual retirement account or individual retirement annuity.
(3) "Distributee" -- A distributee includes an employee or former
employee. In addition, the employee's or former employee's Surviving Spouse
and the employee's or former employee's Spouse or former Spouse who is the
alternate payee under a qualified domestic relations order, as defined in
Section 414(p) of the Code, are distributees with regard to the interest of
the Spouse or former Spouse.
(4) "Direct rollover" -- A direct rollover is a payment by the
Plan to the eligible retirement plan specified by the distributee.
<PAGE>
ARTICLE NINE
INALIENABILITY OF BENEFITS
9.1. NO ASSIGNMENT PERMITTED.
(a) GENERAL PROHIBITION. No Participant or Beneficiary, and no
creditor of a Participant or Beneficiary, shall have any right to assign,
pledge, hypothecate, anticipate or in any way create a lien upon the Trust
Fund. All payments to be made to Participants or their Beneficiaries shall
be made only upon their personal receipt or endorsement, except as provided
in Section 8.9, and no interest in the Trust Fund shall be subject to
assignment or transfer or otherwise be alienable, either by voluntary or
involuntary act or by operation of law or equity, or subject to attachment,
execution, garnishment, sequestration, levy or other seizure under any legal,
equitable or other process, or be liable in any way for the debts or defaults
of Participants and Beneficiaries.
(b) PERMITTED ARRANGEMENTS. This Section shall not preclude
arrangements for the withholding of taxes from benefit payments, arrangements
for the recovery of benefit overpayments, arrangements for the transfer of
benefit rights to another plan, or arrangements for direct deposit of benefit
payments to an account in a bank, savings and loan association or credit
union (provided that such arrangement is not part of an arrangement
constituting an assignment or alienation). A Participant may also grant the
Trustee a security interest in his accounts as collateral for the repayment
of a loan to the Participant pursuant to and in accordance with Section 13.1.
Additionally, this Section shall not preclude arrangements for the
distribution of the benefits of a Participant or Beneficiary pursuant to the
terms and provisions of a Qualified Domestic Relations Order in accordance
with the following provisions of this ARTICLE NINE.
9.2. QUALIFIED DOMESTIC RELATIONS ORDERS.
A Qualified Domestic Relations Order is an order described in Section
401(a)(13) and Section 414(p) of the Code and Section 206(d)(3) of the Act
that permits distribution of benefits in a distribution mode provided under
the Plan, does not require payment of increased benefits and does not require
payment of benefits allocated to a different alternate payee under a prior
Qualified Domestic Relations Order.
9.3. PROCESSING QUALIFIED DOMESTIC RELATIONS ORDERS.
(a) NOTICE. All decisions and determinations with respect to a
domestic relations order, including whether such order is a Qualified
Domestic Relations Order within the meaning of Section 401(a)(13) and Section
414(p) of the Code and Section 206(d)(3) of the Act, shall be made by the
Plan Administrator within a reasonable time following its receipt of such
order and in accordance with such uniform and nondiscriminatory rules and
procedures as may be adopted by the Plan Administrator. Upon receipt of a
domestic relations order, the Plan Administrator shall notify the Participant
or Beneficiary whose benefits may be affected by such order of its receipt of
such order. The Plan Administrator shall also advise the Participant or
Beneficiary and the alternate payee named in the order of its rules and
procedures relating to the determination of the qualified status of such
order.
<PAGE>
(b) RETENTION OF PAYMENTS. If payment of benefits to the Participant
or Beneficiary has commenced at the time a domestic relations order is
received by the Plan Administrator or benefits become payable after receipt
of such order, the Plan Administrator shall direct the Trustee to segregate
and hold the amounts which would be payable to the alternate payee under the
order if such order is ultimately determined to be a Qualified Domestic
Relations Order. If the Plan Administrator determines that the order is a
Qualified Domestic Relations Order within eighteen (18) months of the
segregation of benefits payable to the alternate payee under such order, the
Plan Administrator shall direct the Trustee to pay the segregated amounts
(plus any earnings thereon) as well as such future amounts as may be
specified in such order to the alternate payee. If the Plan Administrator
determines that the order is not a Qualified Domestic Relations Order or is
unable to determine whether such order is a Qualified Domestic Relations
Order within the eighteen (18) month period following the segregation of
benefits, the Plan Administrator shall direct the Trustee to pay the
segregated amounts (plus any earnings thereon) to the Participant or
Beneficiary. A determination by the Plan Administrator after the close of
such eighteen (18) month period that the order is a Qualified Domestic
Relations Order shall be applied prospectively. All determinations of the
Plan Administrator hereunder with respect to the status of an order as a
Qualified Domestic Relations Order shall be binding and conclusive on all
interested parties, subject to the provisions of Section 10.4.
ARTICLE TEN
ADMINISTRATION
10.1. PLAN ADMINISTRATOR.
The Employer shall be the Plan Administrator, but it may delegate its
duties as such to a committee appointed in accordance with Section 10.5.
10.2. ALLOCATION OF FIDUCIARY RESPONSIBILITY.
The Plan Administrator is the named fiduciary with respect to the
administration of the Plan. It shall not be responsible for any fiduciary
functions or other duties assigned to the Trustee pursuant to this Plan or
the Trust Agreement.
10.3. POWERS OF THE PLAN ADMINISTRATOR.
(a) GENERAL POWERS. The Plan Administrator shall have the power and
discretion to perform the administrative duties described in this Plan or
required for proper administration of the Plan and shall have all powers
necessary to enable it to properly carry out such duties. Without limiting
the generality of the foregoing, the Plan Administrator shall have the power
and discretion to construe and interpret this Plan, to hear and resolve
claims relating to this Plan, and to decide all questions and disputes
arising under this Plan. The Plan Administrator shall determine, in its
discretion, the eligibility of employees to participate in the Plan, to
determine the service credited to the Employees, the status and rights of a
Participant, and the identity of the Beneficiary or Beneficiaries entitled to
receive any benefits payable hereunder on account of the death of a
Participant.
<PAGE>
(b) BENEFIT PAYMENTS. Except as is otherwise provided hereunder, the
Plan Administrator shall determine the manner and time of payment of benefits
under this Plan. All benefit disbursements by the Trustee shall be made upon
the instructions of the Plan Administrator.
(c) DECISIONS FINAL. The decision of the Plan Administrator upon all
matters within the scope of its authority shall be binding and conclusive
upon all persons.
(d) REPORTING AND DISCLOSURE. The Plan Administrator shall file all
reports and forms lawfully required to be filed by the Plan Administrator
with any governmental agency or department, federal or state, and shall
distribute any forms, reports, statements or plan descriptions lawfully
required to be distributed to Participants and others by any governmental
agency or department, federal or state.
(e) INVESTMENT. The Plan Administrator shall keep itself advised with
respect to the investment of the Trust Fund and shall report to the Employer
regarding the investment and reinvestment of the Trust Fund not less
frequently than annually. The Plan Administrator shall have power to direct
specific investments of the Trust Fund only where such power is expressly
conferred by this Plan and only to the extent described in this Plan. All
other investment duties shall be the responsibility of the Trustee.
10.4. CLAIMS.
(a) FILING OF CLAIM. A Participant or Beneficiary entitled to
benefits need not file a written claim to receive benefits. If an Employee,
Participant, Beneficiary or any other person is dissatisfied with the
determination of his benefits, eligibility, participation or any other right
or interest under this Plan, such person may file a written statement setting
forth the basis of the claim with the Plan Administrator in a manner
prescribed by the Plan Administrator. In connection with the determination
of a claim, or in connection with review of a denied claim, the claimant may
examine this Plan and any other pertinent documents generally available to
Participants relating to the claim and may submit comments in writing.
(b) NOTICE OF DECISION. A written notice of the disposition of any
such claim shall be furnished to the claimant within thirty (30) days after
the claim is filed with the Plan Administrator, provided that the Plan
Administrator may have an additional period to decide the claim if it advises
the claimant in writing of the need for an extension and the date on which it
expects to decide the claim. The notice of disposition of a claim shall
refer, if appropriate, to pertinent provisions of this Plan, shall set forth
in writing the reasons for denial of the claim if the claim is denied
(including references to any pertinent provisions of this Plan), and where
appropriate shall explain how the claimant can perfect the claim.
(c) REVIEW. If the claim is denied, in whole or in part, the claimant
shall also be notified in writing that a review procedure is available.
Thereafter, within ninety (90) days after receiving the written notice of the
Plan Administrator's disposition of the claim, the claimant may request in
writing, and shall be entitled to, a review meeting with the Plan
Administrator to present reasons why the claim should be allowed. The
claimant shall be entitled to be represented by counsel at the review
meeting. The claimant also may submit a written statement of his claim and
the reasons for granting the claim. Such statement may be submitted in
addition to, or in lieu of, the review meeting with the Plan Administrator.
<PAGE>
The Plan Administrator shall have the right to request of and receive from a
claimant such additional information, documents or other evidence as the Plan
Administrator may reasonably require. If the claimant does not request a
review meeting within ninety (90) days after receiving written notice of the
Plan Administrator's disposition of the claim, the claimant shall be deemed
to have accepted the Plan Administrator's written disposition, unless the
claimant shall have been physically or mentally incapacitated so as to be
unable to request review within the ninety (90) day period.
(d) DECISION FOLLOWING REVIEW. A decision on review shall be rendered
in writing by the Plan Administrator ordinarily not later than sixty (60)
days after review, and a written copy of such decision shall be delivered to
the claimant. If special circumstances require an extension of the ordinary
period, the Plan Administrator shall so notify the claimant. In any event,
if a claim is not determined within one hundred twenty (120) days after
submission for review, it shall be deemed to be denied.
(e) DECISIONS FINAL; PROCEDURES MANDATORY. To the extent permitted by
law, a decision on review by the Plan Administrator shall be binding and
conclusive upon all persons whomsoever. To the extent permitted by law,
completion of the claims procedures described in this Section shall be a
mandatory precondition that must be complied with prior to commencement of a
legal or equitable action in connection with the Plan by a person claiming
rights under the Plan or by another person claiming rights through such a
person. The Plan Administrator may, in its sole discretion, waive these
procedures as a mandatory precondition to such an action.
10.5. CREATION OF COMMITTEE.
The Employer may appoint a committee to perform its duties as Plan
Administrator by the adoption of appropriate Board resolutions. The
committee shall consist of at least two (2) members, and they shall hold
office during the pleasure of the Board. The committee members shall serve
without compensation but shall be reimbursed for all expenses by the
Employer. The committee shall conduct itself in accordance with the
provisions of this ARTICLE TEN. The members of the committee may resign with
thirty (30) days notice in writing to the Employer and may be removed
immediately at any time by written notice from the Employer.
10.6. CHAIRMAN AND SECRETARY.
The committee shall elect a chairman from among its members and shall
select a secretary who is not required to be a member of the committee and
who may be authorized to execute any document or documents on behalf of the
committee. The secretary of the committee or his designee shall record all
acts and determinations of the committee and shall preserve and retain
custody of all such records, together with such other documents as may be
necessary for the administration of this Plan or as may be required by law.
10.7. APPOINTMENT OF AGENTS.
The committee may appoint such other agents, who need not be members
of the committee, as it may deem necessary for the effective performance of
its duties, whether ministerial or discretionary, as the committee may deem
expedient or appropriate. The compensation of any agents who are not
Employees of the Employer shall be fixed by the committee within any
limitations set by the Board.
10.8. MAJORITY VOTE AND EXECUTION OF INSTRUMENTS.
In all matters, questions and decisions, the action of the committee
shall be determined by a majority vote of its members. They may meet
informally or take any ordinary action without the necessity of meeting as a
group. All instruments executed by the committee shall be executed by a
majority of its members or by any member of the committee designated to act
on its behalf.
10.9. ALLOCATION OF RESPONSIBILITIES AMONG COMMITTEE MEMBERS.
The committee may allocate responsibilities among its members or
designate other persons to act on its behalf. Any allocation or designation,
however, must be set forth in writing and must be retained in the permanent
records of the committee.
10.10. CONFLICT OF INTEREST.
No member of the committee who is a Participant shall take any part in
any action in connection with his participation as an individual. Such
action shall be voted or decided by the remaining members of the committee.
10.11. OTHER FIDUCIARY CAPACITIES.
The members of the committee may also serve in any other fiduciary
capacity, and, specifically, all or some members of the committee may serve
as Trustee. Notwithstanding any other provision of this Plan, if and so long
as any two (2) members of the committee also serve as Trustee, any provision
of this Plan or the Trust Agreement which requires a direction,
certification, notification, or other communication from the Plan
Administrator to the Trustee shall be inapplicable. If and so long as any
two (2) members of the committee also serve as Trustee, any action taken by
either the committee or the Trustee shall be deemed to be taken by the
appropriate party.
ARTICLE ELEVEN
SCOPE OF RESPONSIBILITY
11.1. SCOPE OF RESPONSIBILITY.
(a) GENERAL. The Employer, the Plan Administrator, the investment
manager and the Trustee shall perform the duties respectively assigned to
them under this Plan and the Trust Agreement and shall not be responsible for
performing duties assigned to others under the terms and provisions of this
Plan or the Trust Agreement. No inference of approval or disapproval is to
be made from the inaction of any party described above or the employee or
agent of any of them with regard to the action of any other such party.
Persons, organizations or corporations acting in a position of any fiduciary
responsibility with respect to the Plan or the Trust Fund may serve in more
than one fiduciary capacity.
(b) ADVISORS. The Employer, the Plan Administrator and the Trustee
shall have authority to employ advisors, legal counsel, accountants and
investment managers in connection with the administration of the Trust Fund,
as set forth in the Trust Agreement. To the extent permitted by applicable
law, the Employer, the Plan Administrator and the Trustee shall not be liable
for complying with the directions of any advisors, legal counsel, accountants
or investment managers appointed pursuant to this Plan or the Trust
Agreement.
<PAGE>
(c) INDEMNIFICATION. To the extent permitted by law, the Employer
shall and does hereby jointly and severally indemnify and agree to hold
harmless its employees, officers and directors who serve in fiduciary
capacities with respect to the Plan and the Trust Agreement from all loss,
damage, or liability, joint or several, including payment of expenses in
connection with defense against any such claim, for their acts, omissions and
conduct, and for the acts, omissions and conduct of their duly appointed
agents, which acts, omissions, or conduct constitute or are alleged to
constitute a breach of such individual's fiduciary or other responsibilities
under the Act or any other law, except for those acts, omissions, or conduct
resulting from his own willful misconduct, willful failure to act, or gross
negligence; provided, however, that if any party would otherwise be entitled
to indemnification hereunder in respect of any liability and such party shall
be insured against loss as a result of such liability by any insurance
contract or contracts, such party shall be entitled to indemnification
hereunder only to the extent by which the amount of such liability shall
exceed the amount thereof payable under such insurance contract or contracts.
(d) INSURANCE. The Employer may obtain insurance covering itself and
others for breaches of fiduciary obligations under this Plan or the Trust
Agreement to the extent permitted by law, and nothing in the Plan or the
Trust Agreement shall restrict the right of any person to obtain such
insurance for himself in connection with the performance of his duties under
this Plan or the Trust Agreement. No bond shall be required of the Trustee
unless required by law notwithstanding this provision. The Trustee, the Plan
Administrator and the Employer do not in any way guarantee the Trust Fund
from loss or depreciation. The Employer does not guarantee the payment of
any money which may be or become due to any person from the Trust Fund, and
the liability of the Plan Administrator and the Trustee to make any payment
hereunder at any and all times will be limited to the then available assets
of the Trust Fund.
11.2. BONDING.
The Employer shall procure bonds for every "bondable fiduciary" in an
amount not less than ten percent (10%) of the amount of funds handled and in
no event less than One Thousand Dollars ($1,000.00), except the Employer
shall not be required to procure such bonds if the person is exempted from
the bonding requirement by law or regulation or if the Secretary of Labor
exempts the Trust from the bonding requirements. The bonds shall conform to
the requirements of the Act and regulations thereunder. For purposes of this
Section, the term "bondable fiduciary" shall mean any person who handles
funds or other property of the Trust Fund.
11.3. PROHIBITION AGAINST CERTAIN PERSONS HOLDING POSITIONS.
No person who has been convicted of a felony shall be permitted to
serve as a fiduciary, officer, trustee, custodian, counsel, agent, or
employee of this Plan, or as a consultant to this Plan unless permitted under
the Act and regulations thereunder. The Plan Administrator shall ascertain
to the extent practical that no violation of this Section occurs. In any
event, no person knowingly shall permit any other person to serve in any
capacity which would violate this Section.
<PAGE>
ARTICLE TWELVE
AMENDMENT, MERGER AND TERMINATION
12.1. AMENDMENT.
The Employer (through its Board of Directors) shall have the right at
any time, by an instrument in writing duly executed, acknowledged and
delivered to the Plan Administrator and the Trustee, to modify, alter or
amend this Plan, in whole or in part, prospectively or retroactively;
provided, however, that the duties and liabilities of the Plan Administrator
and the Trustee hereunder shall not be substantially increased without their
written consent; and provided further that the amendment shall not reduce any
Participant's interest in the Plan, calculated as of the date on which the
amendment is adopted. If the Plan is amended by the Board after it is
adopted by an Affiliate, unless otherwise expressly provided, it shall be
treated as so amended by such Affiliate without the necessity of any action
on the part of the Affiliate.
12.2. PLAN MERGER OR CONSOLIDATION.
Subject to the restrictions noted in this Section, the Employer
reserves the right to merge or consolidate this Plan with any other plan or
to direct the Trustee to transfer the assets held in the Trust Fund and/or
the liabilities of this Plan to any other plan or to accept a transfer of
assets and liabilities from any other plan. In the event of the merger or
consolidation of this Plan and the Trust Fund with any other plan, or a
transfer of assets or liabilities to or from the Trust Fund to or from any
other such plan, then each Participant shall be entitled to a benefit
immediately after such merger, consolidation or transfer (determined as if
the plan was then terminated) that is equal to or greater than the benefit he
would have been entitled to receive immediately before such merger,
consolidation or transfer (if this Plan had then terminated).
12.3. MERGER OR CONSOLIDATION OF EMPLOYER.
The Plan shall not be automatically terminated by the Employer's
acquisition by or merger into any other employer, but the Plan shall be
continued after such acquisition or merger if the successor employer elects
and agrees to continue the Plan and to become a party to the Trust Agreement.
All rights to amend, modify, suspend, or terminate the Plan shall be
transferred to the successor employer, effective as of the date of the
merger.
12.4. TERMINATION OF PLAN OR DISCONTINUANCE OF CONTRIBUTIONS.
(a) COMPLETE TERMINATION OR DISCONTINUANCE. It is the expectation of
the Employer that this Plan and the payment of contributions hereunder will
be continued indefinitely. However, continuance of the Plan is not assumed
as a contractual obligation of the Employer, and the right is reserved at any
time to terminate this Plan or to reduce, temporarily suspend or discontinue
contributions hereunder. In the event the Board decides that it is
impossible or inadvisable for the Employer to make its contributions as
herein provided, the Board shall have the power to terminate this Plan or its
contributions by appropriate resolution. A certified copy of such resolution
or resolutions shall be delivered to the Trustee. In such event or in the
event the Employer shall discontinue contributions without the delivery to
<PAGE>
the Trustee of such a resolution, then after the date specified in such
resolution, or after the date of such discontinuance of contributions, the
balance credited to the Employer Contributions Account of each Participant
shall be fully vested and nonforfeitable.
(b) LIQUIDATION OF TRUST FUND. In the event of termination of the
Plan or discontinuance of contributions, the Plan Administrator shall either
promptly direct the Trustee to liquidate and distribute all assets remaining
in the Trust Fund to Participants in accordance with Section 8.7 as though
their employment with the Employer had terminated or shall direct the Trustee
to continue the Plan, in which event benefits shall be distributed at the
times and in the manner specified in ARTICLE EIGHT. Upon the liquidation of
all assets of the Trust Fund, the Plan Administrator, after deducting all
costs and expenses of liquidation and distribution, shall make the
allocations required under Section 6.3 where applicable, with the same effect
as though the date of completion of liquidation were a Valuation Date. No
distributions shall be made after termination of the Plan or discontinuance
of Employer Contributions until a reasonable time after the Employer has
received from the United States Treasury Department a determination under the
provisions of the Code as to the effect of such termination or discontinuance
upon the qualification of the Plan. In the event such determination is
unfavorable, then prior to making any distributions hereunder, the Trustee
shall pay any Federal or state income taxes due because of the income of the
Trust Fund and shall then distribute the balance in the manner above
provided. The Employer may, by written notice delivered to the Trustee,
waive the Employer's right hereunder to apply for such a determination, and
if no application for determination shall have been made within sixty (60)
days after the date specified in the terminating resolution or after the date
of discontinuance of contributions, the Employer shall be deemed to have
waived such right.
(c) PARTIAL TERMINATION. If the Plan is terminated or contributions
are discontinued with respect to a group or class of Participants, then after
the date of partial termination or partial discontinuance of contributions,
the balances credited to the Employer Contributions Accounts of all
Participants affected by such partial termination or partial discontinuance
of contributions shall become fully vested and nonforfeitable and the
accounts of such Participants either shall be distributed or held pending the
subsequent termination of employment of such Participants, as provided in
paragraph (b) above.
12.5. LIMITATION OF EMPLOYER LIABILITY.
The adoption of this Plan is strictly a voluntary undertaking on the
part of the Employer and shall not be deemed to constitute a contract between
the Employer and any Employee or Participant or to be consideration for, an
inducement to, or a condition of the employment of any Employee. A
Participant, Employee, or Beneficiary shall not have any right to retirement
or other benefits except to the extent provided herein.
ARTICLE THIRTEEN
LOANS
13.1. GENERAL RULE.
The Plan Administrator is authorized but is not required to direct the
Trustee to make a loan or loans to a Participant as a segregated investment
of the Participant's accounts. Such loans shall be available to all
Participants on a nondiscriminatory basis, except that the Trustee may
discriminate on the basis of credit worthiness; provided, however, that loans
may be granted only for purposes specified in Section 8.5(d). The Plan
Administrator shall not direct the Trustee to make loans to Highly
Compensated Employees in amounts which, when expressed as a percentage of the
Participant's vested interest in his accounts, are greater than those
available to other Participants; provided, however, that the Plan
Administrator may adopt a rule precluding loans of less than One Thousand
Dollars ($1,000.00). A Participant shall not be entitled to receive more
than one (1) loan during any Plan Year, and only one loan may be outstanding
for a Participant at any time.
13.2. SPOUSAL CONSENT REQUIRED.
No loan will be made to any married Participant unless the
Participant's spouse consents to the loan. The spouse's consent must be in
writing, must acknowledge the effect of the loan on the benefits ultimately
payable from the Plan and the effect of the spouse's consent to the loan, and
must be witnessed by a notary public or a designated representative of the
Plan Administrator. The consent must be filed with the Plan Administrator
within the ninety (90) day period ending on the date on which the loan is
made. A spouse may not consent to Participant loans generally but rather may
consent only to loans of specific amounts to be made at specified times and
on specified terms and conditions. If the amount of the loan or the terms
and conditions under which the loan will be made are later changed, a new
consent will be required. A new consent will be required each time a
Participant borrows money from the Plan. No spousal consent shall be
required if the Plan Administrator determines, in its sole and absolute
discretion, that the spouse cannot be located or other circumstances exist
that preclude the Participant from obtaining such consent (as permitted under
applicable regulations issued by the United States Treasury Department). For
purposes of this Section, the renewal of a loan shall be treated as a new
loan and spousal consent shall be required.
13.3. AMOUNT OF LOAN; SECURITY.
(a) AMOUNT. The total outstanding loans from the Trust Fund to any
Participant at any time shall not exceed the Participant's vested interest in
his accounts, determined as of the most recent Valuation Date for the Plan.
Any loan which is made pursuant to Section 13.1 shall be treated as a taxable
distribution to the extent that it causes the outstanding balance at any time
of all loans from all "employee pension benefit plans" (as defined in the
Act) of the Employer and its Affiliates that are intended to "qualify" under
Section 401(a) of the Act to exceed fifty percent (50%) of the present value
of the Participant's nonforfeitable accrued benefit under all such plans;
provided that such maximum shall not be less than Ten Thousand Dollars
($10,000.00), nor more than Fifty Thousand Dollars ($50,000.00) with such
Fifty Thousand Dollar ($50,000.00) limitation to be reduced by the highest
outstanding loan balance during the twelve (12) month period preceding the
date on which a loan is made. The Plan Administrator may, in the exercise of
its discretion, prohibit the making of any loan that would be treated as a
taxable distribution.
(b) SECURITY. The loan shall be evidenced by the Participant's
promissory note and shall be secured by an assignment of the Participant's
vested interest in all of his accounts (other than his Pre-Tax Contributions
Account) and such additional collateral as the Trustee shall deem necessary,
provided that in no event shall the loan be secured by an assignment of more
<PAGE>
than fifty percent (50%) of the Participant's vested (non-forfeitable)
interest in his accounts. In determining whether a pledge of additional
collateral is necessary, the Trustee shall consider the Participant's credit
worthiness and the impact on the Plan in the event of a default under the
loan prior to the Participant's Benefit Commencement Date.
13.4. TERMS OF LOAN.
(a) INTEREST RATE. All loans shall bear interest at a rate determined
by the Trustee which shall provide the Plan with a return commensurate with
the interest rates charged by persons in the business of lending money for
similar loans. Subject to the foregoing, the terms of any loan shall be
arrived at by mutual agreement between the Trustee and the Participant
pursuant to a uniform, nondiscriminatory policy.
(b) REPAYMENT PERIOD. All loans shall be repayable in monthly or
quarterly installments over a period not exceeding five (5) years, except
that the term may exceed five (5) years (but shall not exceed fifteen (15)
years or such shorter period set by the Plan Administrator) if the
Participant establishes to the satisfaction of the Plan Administrator, in its
sole discretion, that the proceeds of the loan will be used, within a
reasonable time after the funds are disbursed, to acquire or construct the
Participant's principal residence. The repayment period may not extend
beyond the Participant's Normal Retirement Date.
(c) COSTS. Any costs incurred by the Trustee to establish, process or
collect the loan shall be charged directly and solely to the Participant and
will be subtracted from the loan proceeds unless other mutually agreeable
arrangements are made by the Trustee and the Participant.
13.5. DEFAULT.
In the event that the Participant does not repay such loan or loans and
the interest thereon in a timely fashion, the Trustee may exercise every
creditor's right at law or equity available to the Trustee. The Trustee may
not, however, deduct or offset the payments in default or the unpaid
outstanding balance of the loan from or against the Participant's Employer
Contributions Account until such time as the account becomes payable pursuant
to the other provisions of this Plan. When payments become due hereunder,
the Trustee may deduct the total amount of the loan then outstanding,
together with any interest then due and owing, from any payment or
distribution (including any payment due to the Participant's surviving spouse
pursuant to Section 8.3) to which such Participant or his Beneficiary or
Beneficiaries may become entitled. Loan instruments may provide for
acceleration of payment of any unpaid balance in the event of a Participant's
termination of employment prior to repayment of the loan.
ARTICLE FOURTEEN
PARTICIPANT DIRECTED INDIVIDUAL ACCOUNTS
14.1. PARTICIPANT DIRECTED INDIVIDUAL ACCOUNTS.
This Plan is intended to constitute a Participant directed individual
account plan under Section 404(c) of the Act. As such, Participants shall be
provided the opportunity to exercise control over all of the assets in their
accounts under the Plan and to choose from a broad range of investment
alternatives.
14.2. EMPLOYEE SELECTED INVESTMENT FUNDS.
(a) ESTABLISHMENT OF INVESTMENT FUNDS. The Plan Administrator,
pursuant to uniform and nondiscriminatory rules, shall establish three (3) or
more Investment Funds in accordance with the terms and provisions of this
ARTICLE FOURTEEN. In establishing Investment Funds, the Committee shall
select investment alternatives which provide each Participant with a broad
range of investment alternatives in accordance with Department of Labor
Regulation Section 2550.404c-1(b)(3). The available Investment Funds may be
changed or supplemented from time to time by action of the Plan
Administrator.
(b) PARTICIPANT SELECTION. Each Participant shall designate, on a
form supplied by the Plan Administrator, signed by the Participant and
delivered to the Plan Administrator, the Investment Funds established
pursuant to paragraph (a), above, in which amounts held in his Pre-Tax
Contributions Account, Employer Contributions Account, After-Tax
Contributions Account, and Rollover Account, if any, are to be invested. The
Trustee, in its discretion, shall administer the portion of the Participant's
accounts for which the Participant has not issued any investment directions
in accordance with this Plan and the Trust Agreement. The written investment
directive of a Participant shall be effective until another directive is
received by the Trustee.
14.3. EXERCISE OF CONTROL.
(a) INVESTMENT DIRECTION. Each Participant may direct that all of
the amounts attributable to his accounts or to an account shall be invested
in a single Investment Fund or may direct fractional (percentage) increments
of his accounts to be invested in such Investment Fund or Funds as he shall
desire in accordance with uniform procedures promulgated by the Plan
Administrator. Each Participant, in accordance with such rules, may change
his investment directions to provide for the investment of existing account
balances or future contributions among the various Investment Funds in such
increments, or all to any one (1) of them, as the Participant shall elect on
a form provided by the Plan Administrator, signed by the Participant and
delivered to the Plan Administrator. The Plan Administrator shall provide
Participants the opportunity to receive written confirmation of any such
investment direction. The Trustee and Plan Administrator shall be obligated
to comply with such instruction except as provided in paragraph (d) below.
The Plan Administrator shall promulgate uniform and nondiscriminatory rules
constituting the investment direction policy under the Plan which shall be
communicated to Participants regarding:
(1) The frequency of change of investment direction of current
account balances among Investment Funds;
(2) The frequency of change of investment direction of future
contributions among Investment Funds;
(3) The effective dates of instructions regarding investment
directions and changes of investment directions;
(4) The fractional (percentage) limitations, if any, in which
current account balances may be invested and/or transferred between
Investment Funds;
(5) The fractional (percentage) limitations, if any, in which
future contributions are to be invested between Investment Funds; and
<PAGE>
(6) The periods within which direction must be given if it is to
be effective for a particular period.
Procedures with regard to any one (1) or more Investment Funds may vary to
reflect the variable or contrasting characteristics of a particular
investment alternative, provided that Participants are given the opportunity
to give investment instructions with respect to each investment alternative
available under the Plan with a frequency which is appropriate in light of
the market volatility to which the investment alternative may reasonably be
expected to be subject and that any restrictions on the frequency of
investment instructions are in accordance with Department of Labor Regulation
Section 2550.404c-1(b)(2)(ii)(C).
(b) REQUIRED INFORMATION. The Plan Administrator shall provide each
Participant with the opportunity to obtain sufficient information to make
informed decisions with regard to investment alternatives available under the
Plan, and incidents of ownership appurtenant to such investments. The Plan
Administrator shall promulgate and distribute to Participants an explanation
that the Plan is intended to comply with Section 404(c) of the Act and any
relief from fiduciary liability resulting therefrom, a description of
investment alternatives available under the Plan, an explanation of the
circumstances under which Participants may give investment instructions and
any limitations thereon, along with all other information and explanations
required under Department of Labor Regulation Section
2550.404c-1(b)(2)(B)(1). In addition, the Plan Administrator shall provide
information to Participants upon request as required by Department of Labor
Regulation Section 2550.404c-1(b)(2)(B)(2). Neither the Employer, the
Committee, the Plan Administrator, the Trustee, nor any other individual
associated with the Plan or the Employer shall give investment advice to
Participants with respect to Plan investments. The providing of information
pursuant to this ARTICLE FOURTEEN shall not in any way be deemed to be the
providing of investment advice, and shall in no way obligate the Employer,
the Plan Administrator, the Trustee or any other individual associated with
the Plan or the Employer to provide any investment advice.
(c) TRANSACTION COSTS. The Plan Administrator, pursuant to uniform
and nondiscriminatory rules, may charge each Participant's accounts for the
reasonable expenses of carrying out investment instructions directly related
to such account, provided that each Participant is periodically (not less
than quarterly) informed of such actual expenses incurred with respect to his
or her respective accounts.
(d) IMPERMISSIBLE INVESTMENT INSTRUCTION. The Plan Administrator
shall decline to implement any Participant instructions if: (1) the
instruction is inconsistent with any provisions of the Plan or Trust
Agreement; (2) the instruction is inconsistent with any investment direction
policies adopted by the Plan Administrator from time to time; (3)
implementing the instruction would not afford a Plan fiduciary protection
under Section 404(c) of the Act; (4) implementing the instruction would
result in a prohibited transaction under Section 406 of the Act or Section
4975 of the Code; (5) implementing the instruction would result in taxable
income to the Plan; (6) implementing the instruction would jeopardize the
Plan's tax qualified status; or (7) implementing the instruction could result
in a loss in excess of a Participant's account balance. The Plan
Administrator, pursuant to uniform and nondiscriminatory rules, may
promulgate additional limitations on investment instruction consistent with
Section 404(c) of the Act from time to time.
<PAGE>
(e) INDEPENDENT EXERCISE. A Participant shall be given the
opportunity to make independent investment directions. No Plan fiduciary
shall subject any Participant to improper influence with respect to any
investment decisions, and nor shall any Plan fiduciary conceal any non-public
facts regarding a Participant's Plan investment unless disclosure is
prohibited by law. Plan fiduciaries shall remain completely neutral in all
regards with respect to Participant investment direction. A Plan fiduciary
may not accept investment instructions from a Participant known to be legally
incompetent, and any transactions with a fiduciary, otherwise permitted under
this ARTICLE FOURTEEN and the uniform and nondiscriminatory rules regarding
investment direction promulgated by the Plan Administrator, shall be fair and
reasonable to the Participant in accordance with Department of Labor
Regulation Section 404c-1(c)(3).
14.4. ADJUSTMENT OF ACCOUNTS.
Adjustments pursuant to Section 6.3 shall be made on a separate Fund
basis. Gains and income or losses attributable to each Investment Fund shall
be allocable strictly to the Investment Fund and accounts invested therein
and shall be invested without distinction between principal and income. Each
Investment Fund shall be invested in accordance with the provisions of the
Plan and the Trust Agreement.
14.5. LIMITATION OF LIABILITY AND RESPONSIBILITY.
The Trustee, the Plan Administrator and the Employer shall not be
liable for acting in accordance with the directions of a Participant pursuant
to this ARTICLE FOURTEEN or for failing to act in the absence of any such
direction. The Trustee, the Plan Administrator and the Employer shall not be
responsible for any loss resulting from any direction made by a Participant
and shall have no duty to review any direction made by a Participant. The
Trustee shall have no obligation to consult with any Participant regarding
the propriety or advisability of any selection made by the Participant.
14.6. FORMER PARTICIPANTS AND BENEFICIARIES.
For purposes of this ARTICLE FOURTEEN, the term "Participant" shall be
deemed to include former Participants and the Beneficiaries of any deceased
Participants.
14.7. VOTING, TENDER OR SIMILAR RIGHTS.
The Trustee, in its discretion, shall vote all proxies relating to the
exercise of voting, tender or similar rights which are incidental to the
ownership of any asset which is held in any Investment Fund.
ARTICLE FIFTEEN
GENERAL PROVISIONS
15.1. LIMITATION ON PARTICIPANTS' RIGHTS.
Participation in the Plan shall not give any Employee the right to be
retained in the Employer's employ or any right or interest in the Trust Fund
other than as herein provided. The Employer reserves the right to dismiss
any Employee without any liability for any claim either against the Trust
Fund, except to the extent herein provided, or against the Employer.
<PAGE>
15.2. EXCLUSIVE BENEFIT.
Except as otherwise provided herein or in the Trust Agreement, it shall
be impossible for any part of the Trust Fund to be used for or diverted to
purposes other than for the exclusive benefit of Participants and their
Beneficiaries, except that payment of taxes and administration expenses may
be made from the Trust Fund as provided in the Trust Agreement.
15.3. UNIFORM ADMINISTRATION.
Whenever in the administration of the Plan any action is required by
the Plan Administrator, such action shall be uniform in nature as applied to
all persons similarly situated and no such action shall be taken which will
discriminate in favor of Highly Compensated Employees.
15.4. HEIRS AND SUCCESSORS.
All of the provisions of this Plan shall be binding upon all persons
who shall be entitled to any benefits hereunder, and their heirs and legal
representatives.
15.5. ASSUMPTION OF QUALIFICATION.
Unless and until advised to the contrary, the Trustee may assume that
the Plan is a qualified plan under the provisions of the Code relating to
such plans, and that the Trust Fund is entitled to exemption from income tax
under such provisions.
15.6. EFFECT OF AMENDMENT.
This Plan is not a new plan succeeding the Plan as constituted prior to
the Effective Date, but is an amendment and restatement of the Plan as so
constituted. The amount, right to and form of any benefits under this Plan,
if any, of each person who is an Employee after the Effective Date, or the
persons who are claiming through such an Employee, shall be determined under
this Plan. The amount, right to and form of benefits, if any, of each person
who separated from employment with the Employer prior to the Effective Date,
or of persons who are claiming benefits through such a former Employee, shall
be determined in accordance with the provisions of the Plan in effect on the
date of termination of his employment, except as may be otherwise expressly
provided under this Plan, unless he shall again become an Employee after the
Effective Date.
15.7. INSURANCE PROHIBITED.
The Trustee may not purchase insurance on the life of any Plan
Participant.
IN WITNESS WHEREOF, the Employer has caused this Plan to be executed by
its duly authorized representative on this day of , 1995.
APOLLO GROUP, INC.
By
"Employer"
EXHIBIT 10.5
APOLLO GROUP, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
(As amended through August, 1996)
1. Purpose. The purpose of this 1994 Employee Stock Purchase Plan (the
"Plan") of Apollo Group, Inc. (the "Company") is to encourage stock
ownership by employees of the Company and its Subsidiaries and thereby
provide employees with an incentive to contribute to the profitability
and success of the Company. The Plan, which is intended to qualify as an
"employee stock purchase plan" meeting the requirements of Section 423 of
the Code, is for the exclusive benefit of eligible employees of the
Company and its Subsidiaries.
2. Definitions. For purposes of the Plan, in addition to the terms defined
in Section 1, terms are defined as set forth below:
(a) "Board" means the Board of Directors of the Company.
(b) "Cash Account" means the account maintained on behalf of the
Participant by the Custodian for the purpose of holding cash
contributions pending investment in Stock.
(c) "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to any provision of the Code will be deemed to
include successor provisions thereto and regulations thereunder.
(d) "Custodian" means Alex. Brown & Sons, Incorporated or Smith Barney
Inc., or such successor thereto as may be appointed by the Board.
(e) "Earnings" means that portion of a Participant's salary or wages
which is designated as "regular pay" under the payroll system of the
Company and its Subsidiaries and received by a Participant for
services rendered during a specified pay period during which time
the Participant participated in the Plan.
(f) "Enrollment Date" means the first business day of each Offering
Period.
(g) "Fair Market Value" means the closing sale price of Stock reported
in the table entitled "NASDAQ National Market Issues" or any
successor table in the Wall Street Journal (or, if Stock is then
principally traded on a national securities exchange, in the table
reporting composite transactions for such exchange) for such date
or, if no shares of Stock were traded on that date, on the next
preceding day on which there was such a trade.
(h) "Offering Period" means the three-month period beginning on
January 1, April 1, July 1, or October 1 of each year, with the
first Offering Period to begin on the first such date after the
Company's Stock is publicly traded on the Nasdaq National Market or
a national securities exchange.
(i) "Participant" means an employee of the Company or a Subsidiary who
is participating in the Plan.
<PAGE>
(j) "Purchase Date" means the fifth business day after the end of each
Offering Period.
(k) "Purchase Right" means a Participant's option to purchase shares
which is deemed to be outstanding during an Offering Period. A
Purchase Right represents an "option" as such term is used under
Section 423 of the Code.
(l) "Stock" means the Class A Common Stock, no par value per share, of
the Company, and such other securities as may be substituted or
resubstituted for Stock under Section 4.
(m) "Stock Account" means the account maintained on behalf of the
Participant by the Custodian for the purpose of holding Stock
acquired upon investment under the Plan.
(n) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of
the corporations (other than the last corporation in the unbroken
chain) owns stock possessing 50% or more of the total combined
voting power of all classes of stock in one of the other
corporations in the chain.
3. Administration.
(a) Board Administration. The Plan will be administered by the Board;
provided, however, that the Board may delegate any administrative
duties and authority (other than authority to amend the Plan) to any
Board committee or to any officers or employees or committee thereof
as the Board may designate (in which case references herein to the
Board will be deemed to mean the administrator to which such duties
and authority have been delegated). The Board will have full
authority to adopt, amend, suspend, waive, and rescind such rules
and regulations and appoint such agents as it may deem necessary or
advisable to administer the Plan, to correct any defect or supply
any omission or reconcile any inconsistency in the Plan and to
construe and interpret the Plan and rules and regulations
thereunder, to furnish to the Custodian such information as the
Custodian may require, and to make all other decisions and
determinations under the Plan (including determinations relating to
eligibility). No person acting in connection with the
administration of the Plan will, in that capacity, participate in
deciding any matter relating to his or her participation in the
Plan.
(b) The Custodian. The Custodian will act as custodian under the Plan,
and will perform such duties as are set forth in the Plan and in any
agreement between the Company and the Custodian. The Custodian will
establish and maintain, as agent for Participants, Cash and Stock
accounts and any other subaccounts as may be necessary or desirable
for the administration of the Plan.
(c) Waivers. The Board may waive or modify any requirement that a
notice or election be made or filed under the Plan a specified
period in advance in an individual case or by adoption of a rule or
regulation under the Plan, without the necessity of an amendment to
the Plan.
<PAGE>
(d) Other Administrative Provisions. The Company will furnish
information from its records as directed by the Board, and such
records, including as to a Participant's Earnings, will be
conclusive on all persons unless determined by the Board to be
incorrect. Each Participant and other person claiming benefits
under the Plan must furnish to the Company in writing an up-to-date
mailing address and any other information as the Board or Custodian
may reasonably request. Any communication, statement, or notice
mailed with postage prepaid to any such Participant or other person
at the last mailing address filed with the Company will be deemed
sufficiently given when mailed and will be binding upon the named
recipient. The Plan will be administered on a reasonable and
nondiscriminatory basis and will apply uniform rules to all persons
similarly situated. All Participants will have equal rights and
privileges (subject to the terms of the Plan) with respect to
Purchase Right outstanding during any given Offering Period.
4. Stock Subject to Plan. Subject to adjustment as hereinafter provided,
the total number of shares of Stock reserved and available for issuance
or which may be otherwise acquired upon exercise of Purchase Rights under
the Plan will be 500,000. Any shares of Stock delivered by the Company
under the Plan may consist, in whole or in part, of authorized and
unissued shares or treasury shares. The number and kind of such shares
of Stock subject to the Plan will be proportionately adjusted, as
determined by the Board, in the event of any extraordinary dividend or
other distribution, recapitalization, forward or reverse split,
reorganization, merger, consolidation, spin-off, combination, repurchase,
or share exchange, or other similar corporate transaction or event
affecting the Stock.
5. Enrollment and Contributions.
(a) Eligibility. An employee of the Company or a Subsidiary may be
enrolled in the Plan for any Offering Period if such employee was
continuously so employed during the 90 days preceding the Enrollment
Date, unless one of the following applies to the employee:
(i) Such person has been employed for less than one year with the
Company or a Subsidiary;
(ii) Such person is a "highly compensated employee" of the Company
within the meaning of Section 414(q) of the Code and was a
participant in the Apollo Group, Inc. Long-Term Incentive
Plan on September 1, 1994;
(iii) Such person would, immediately upon enrollment, be deemed to
own, for purposes of Section 423(b)(3) of the Code, an
aggregate of five percent or more of the total combined
voting power or value of all outstanding shares of all
classes of the Company or any Subsidiary; or
(iv) Such person is no longer employed by the Company or a
Subsidiary.
The Company will notify an employee of the date as of which he
or she is eligible to enroll in the Plan, and will make
available to each eligible employee the necessary enrollment
forms.
<PAGE>
(b) Initial Enrollment. An employee who is eligible under Section 5(a)
(or who will become eligible on or before a given Enrollment Date)
may, after receiving current information about the Plan, initially
enroll in the Plan by executing and filing with the Company's Human
Resources Office a properly completed enrollment form, including
thereon the employee's election as to the rate of payroll
contributions for the Offering Period. To be effective for any
Offering Period, such enrollment form must be filed at least 15 days
before the Enrollment Date for the Offering Period.
(c) Automatic Re-enrollment for Subsequent Offering Periods. A
Participant whose enrollment in and payroll contributions under the
Plan continues throughout an Offering Period will automatically be
re-enrolled in the Plan for the next Offering Period unless (i) the
Participant terminates enrollment before the Enrollment Date for the
next Offering Period in accordance with Section 7(a) or (ii) on such
Enrollment Date he or she is ineligible to participate under Section
5(a). The initial rate of payroll contributions for a Participant
who is automatically re-enrolled for an Offering Period will be the
same as the rate of payroll contribution in effect at the end of the
preceding Offering Period, unless the Participant files a new
enrollment format least 15 days before the Enrollment Date for the
Offering Period designating a different rate of payroll
contributions.
(d) Payroll Contributions. A Participant will make contributions under
the Plan by means of payroll deductions from each payroll period
which ends during the Offering Period, at the rate elected by the
Participant in his or her enrollment form filed nearest to, but not
later than, 15 days before the Enrollment Date for the Offering
Period (except that such rate may be changed during the Offering
Period to the extent permitted below). The rate of payroll
contributions elected by a Participant may not be less than one
percent of the Participant's Earnings for each payroll period ending
during an Offering Period, nor more than the greater of (A) 10
percent of the Participant's year-to-date Earnings, or (B) $3,000
during any full or partial calendar year during which an individual
is eligible to participate in the Plan, and only whole percentages
may be elected; provided, however, that the Board may specify a
lower minimum rate and higher maximum rate or dollar amount. The
foregoing and any election of a Participant notwithstanding, a
Participant's rate payroll contributions will be adjusted downward
by the Company at any time or from time to time as necessary to
ensure that the limit on the amount of Stock purchased with respect
to an Offering Period set forth in Section 6(a)(iii) is not
exceeded. A Participant may elect to increase, decrease, or
discontinue payroll contributions for future Offering Periods by
filing a new enrollment form at least 15 days before the Enrollment
Date for the Offering Period designating a different rate of payroll
contributions. In addition, a Participant may elect to decrease or
discontinue payroll contributions during an Offering Period by
filing a new enrollment form, such change to be effective for any
payroll period beginning at least 15 days after such filing.
(e) Crediting Payroll Contributions to Cash Accounts. All payroll
contributions by a Participant under the Plan will be credited to a
Cash Account maintained by the Custodian on behalf of the
Participant. The Custodian will credit payroll contributions upon
<PAGE>
receipt by the Custodian from the Company of information, in such
form as may be specified by the Custodian, identifying the amount of
payroll contribution to be deposited for each Participant. The
Company will deposit with the Custodian an amount equal to the
aggregate payroll contributions for the Offering Period (not
otherwise repaid to Participant under Section 7(b)) on or before the
Purchase Date for such Offering Period.
(f) No Interest on Cash Accounts. No amounts of interest will be
credited or payable by the Company on payroll contributions or by
the Custodian on cash balances in Participant's Cash Accounts
pending investment in Stock except to the extent, if any, that the
Company or the Custodian, as applicable to its respective role,
determines in its sole discretion to pay interest on such payroll
contributions or cash balances.
(g) Effect of Rehiring. If an individual terminates employment with, or
ceases to perform services for, the Company and is later rehired by,
or again commences performing services for, the Company, the
individual will eligible to participate in the Plan as of the
Offering Period next following the date the individual is rehired
by, or again commences providing services for, the Company if the
period that the individual was separated from employment with, or
ceased providing services for, the Company is less than one full
calendar year. If the period that the individual was separated from
employment with, or ceased providing services for, the Company is
equal to or greater than one full calendar year, the individual will
be eligible to participate in the Plan only after the individual has
again satisfied the eligibility requirements set forth in Section
5(a).
6. Purchases of Stock
(a) Purchase Rights. Enrollment in the Plan for any Offering Period by
a Participant will constitute a grant by the Company of a Purchase
Right to such Participant for such Offering Period. Each Purchase
Right will be subject to the following terms:
(i) The Purchase prices at which Stock will be purchased under a
Purchase Right will be as specified in Section 6(c).
(ii) Except as limited in (iii) below, the number of shares of
Stock that may be purchased upon exercise of the Purchase
Right for an Offering Period will equal the number of shares
(including fractional shares) that can be purchased at the
purchase price specified in Section 6(c) with the aggregate
amount credited to the Participant's Cash Account as of the
Purchase Date.
(iii) The number of shares of Stock subject to a Participant's
Purchase Right for any Offering Period will not exceed the
number derived by dividing $6,250 by 100% of the Fair Market
Value of one share of Stock on the Enrollment Date for the
Offering Period.
(iv) The Purchase Right will be automatically exercised on the
Purchase Date for the Offering Period.
<PAGE>
(v) Payments by a Participant for Stock purchased under a
Purchase Right will be made only through payroll deduction in
accordance with Section 5(d) and (e).
(vi) The Purchase Right will expire on the earlier of the
Purchase Date for the Offering Period or the date on which the
Participant's enrollment in the Plan terminates.
(b) Purchase of Stock. At or as promptly as practicable after the
Purchase Date for an Offering Period, amounts credited to each
Participant's Cash Account as of such Purchase Date will be applied
by the Custodian to the purchase of shares of Stock, in accordance
with the terms of the Plan. Shares of Stock will be purchased by
the Custodian from the Company. Shares sold by the Company may be
authorized but unissued shares or treasury shares, as permitted
under Section 4 hereof. The Custodian will aggregate the amounts in
all Cash Accounts when purchasing Stock, and shares so purchased
will be allocated to each Participant's Stock Account in proportion
to the cash amounts withdrawn from such Participant's Cash Account.
Upon completion of purchases in respect of a Purchase Date (which
will be completed in not more than 30 days after the Purchase Date),
all shares of Stock so purchased for a Participant will be credited
to the Participant's Stock Account.
(c) Purchase Price. The purchase price of each share of Stock purchased
in respect of a Purchase Date will equal 85% of the lesser of (i)
the Fair Market Value of a share of Stock on the Enrollment Date or
(ii) the Fair Market Value of a share of Stock on the Purchase Date.
(d) Dividend Reinvestment; Other Distributions. Cash dividends on any
Stock credited to a Participant's Stock Account will be
automatically reinvested in additional shares of Stock; such amounts
will not be available in the form of cash to Participants. All cash
dividends paid on Stock credited to Participants' Stock Accounts
will be paid over by the Company to the Custodian at the dividend
payment date. The Custodian will aggregate all purchase of Stock in
connection with dividend reinvestment for a given dividend payment
date. Purchases of Stock for purposes of dividend reinvestment will
be made as promptly as practicable (but not more than 30 days) after
a dividend payment date. The Custodian will make such purchases, as
directed by the Board, either (i) in transactions on the NASDAQ
National Market System, any securities exchange upon which Stock is
traded, otherwise in the over-the-counter market, or in negotiated
transactions, or (ii) directly from the Company at 100% of the Fair
Market Value of a share of Stock on the dividend payment date. Any
shares of Stock distributed as a dividend or distribution in respect
of shares of Stock or in connection with a split of the Stock
credited to a Participant's Stock Account will be credited to such
Account. In the event of any other non-cash dividend or
distribution in respect of Stock credited to a Participant's Stock
Account, the Custodian will, if reasonably practicable and at the
direction of the Board, sell any property received in such dividend
or distribution as promptly as practicable and use the proceeds to
purchase additional shares of Common Stock in the same manner as
cash paid over to the Custodian for purposes of dividend
reinvestment.
<PAGE>
(e) Withdrawals and Transfers. Shares of Stock may be withdrawn from a
Participant's Stock Account, in which case one or more certificates
for whole shares may be issued in the name of, and delivered to, the
Participant, with such Participant receiving cash in lieu of
fractional shares based on the Fair Market Value of a share of Stock
on the date of withdrawal. Alternatively, whole shares of Stock may
be withdrawn from a Participant's Stock Account by means of a
transfer to a broker-dealer or financial institution that maintains
an account for the Participant, together with the transfer of cash
in lieu of fractional shares based on the Fair Market Value of a
share of Stock on the date of withdrawal. Participants may not
designate any other person to receive shares of Stock withdrawn or
transferred under the Plan. A Participant seeking to withdraw or
transfer shares of Stock must give instructions to the Custodian in
such manner and form as may be prescribed by the Custodian, which
instructions will be acted upon as promptly as practicable.
Withdrawals and transfers will be subject to any fees imposed in
accordance with Section 8(a) hereof.
(f) Excess Account Balances. If any amounts remain in a Cash Account
following a Purchase Date as a result of the limitation set forth in
Section 6(a)(iii), such amounts which resulted from payroll
contributions will be returned to the Participant by the Custodian
as promptly as practicable.
7. Termination and Distributions.
(a) Termination of Enrollment. A Participant's enrollment in the Plan
will terminate upon (i) the beginning of any payroll period or
Offering Period that begins after he or she files a written notice
of termination of enrollment with the Company, provided that such
Participant will continue to be deemed to be enrolled with respect
to any completed Offering Period for which purchases have not been
completed, (ii) such time as the Participant becomes ineligible to
participate under Section 5(a)(i) of the Plan, or (iii) the
termination of the Participant's employment by the Company and its
Subsidiaries. An employee whose enrollment in the plan terminates
may again enroll in the Plan as of any subsequent Enrollment Date
that is at least 90 days after such termination of enrollment if he
or she satisfies the eligibility requirements of Section 5(a) as of
such Enrollment Date. A Participant's election to discontinue
enrollment.
(b) Distribution. As soon as practicable after a Participant's
enrollment in the Plan terminates, amounts in the Participant's Cash
Account which resulted from payroll contributions will be repaid to
the Participant. If amounts credited to the Participant's Cash
Account have not yet been deposited by the Company with the
Custodian, the Company rather than the Custodian will make the
repayment to the Participant. The Custodian will continue to
maintain the Participant's Stock Account for the Participant until
the earlier of such time as the Participant directs the sale of all
Stock in the Account, withdraws, or transfers all Stock in the
Account, or one year after the Participant ceases to be employed by
the Company and its Subsidiaries. If a Participant's termination of
enrollment results from his or her death, all amounts payable will
be paid to his or her estate.
<PAGE>
8. General.
(a) Costs. Costs and expenses incurred in the administration of the
Plan and maintenance of Accounts will be paid by the Company, to the
extent provided in this Section 8(a). Any brokerage fees and
commissions for the purchase of Stock under the Plan (including
Stock purchased upon reinvestment of dividends and distributions)
will be paid by the Company, but any brokerage fees and commissions
for the sale of Stock under the Plan by a Participant will be borne
by such Participant. The rate at which such fees and commissions
will be charged to Participants will be determined by the Custodian
or any broker-dealer used by the Custodian (including an affiliate
of the Custodian), and communicated from time to time to
a reasonable fee for the withdrawal of Stock in the form of stock
certificates (as permitted under Section 6(f)), and reasonable fees
for other services unrelated to the purchase of Stock under the
Plan, to the extent approved in writing by the Company and
communicated to Participants.
(b) Statements to Participants. The Custodian will reflect payroll
contributions, matching allocations (if any), purchases, sales, and
withdrawals and transfers of shares of Common Stock and other Plan
transactions by appropriate adjustments to the Participant's
Accounts. The Custodian will, not less frequently than quarterly,
provide or cause to be provided a written statement to the
Participant showing the transactions in his or her Accounts and the
date thereof, the number of shares of Stock purchased or sold, the
aggregate purchase price paid or sales price received, the purchase
or sales price per share, the brokerage fees and commissions paid
(if any), the total shares held for the Participant's Stock Account
(computed to at least three decimal places), and other information.
(c) Compliance with Section 423. It is the intent of the Company that
this Plan comply in all respects with applicable requirements of
Section 423 of the Code and regulations thereunder. Accordingly, if
any provision of this Plan does not comply with such requirements,
such provision will be construed or deemed amended to the extent
necessary to conform to such requirements.
9. General Provisions.
(a) Compliance With Legal and Other Requirements. The Plan, the
granting and exercising of Purchase Rights hereunder, and the other
obligations of the Company and the Custodian under the Plan will be
subject to all applicable federal and state laws, rules, and
regulations, and to such approvals by any regulatory or governmental
agency as may be required. The Company may, in its discretion,
postpone the issuance or delivery of Stock upon exercise of Purchase
Rights until completion of such registration or qualification of
such Stock or other required action under any federal or state law,
rule, or regulation, listing or other required action with respect
to any automated quotation system or stock exchange upon which the
Stock or other Company securities are designated or listed, or
compliance with any other contractual obligation of the Company, as
the Company may consider appropriate, and may require any
Participant to make such representations and furnish such
information as it may consider appropriate in connection with the
issuance or delivery of Stock in compliance with applicable laws,
<PAGE>
rules, and regulations, designation or listing requirements, or
other contractual obligations.
(b) Limits on Encumbering Rights. No right or interest of a Participant
under the Plan, including any Purchase Right, may be pledged,
encumbered, or hypothecated to or in favor of any party, subject to
any lien, obligation, or liability of such Participant, or otherwise
assigned, transferred, or disposed of except pursuant to the laws of
descent or distribution, and any right of a Participant under the
Plan will be exercisable during the Participant's lifetime only by
the Participant.
(c) No Right to Continued Employment. Neither the Plan nor any action
taken hereunder, including the grant of a Purchase Right, will be
construed as giving any employee the right to be retained in the
employ of the Company or any of its Subsidiaries, nor will it
interfere in any way with the right of the Company or any of its
Subsidiaries to terminate any employee's employment at any time.
(d) Taxes. The Company or any Subsidiary is authorized to withhold from
any payment to be made to a Participant, including any payroll and
other payments not related to the Plan, amounts of withholding and
other taxes due in connection with any transaction under the Plan,
and a Participant's enrollment in the Plan will be deemed to
constitute his or her consent to such withholding. In addition,
Participants may be required to advise the Company of sales and
other dispositions of Stock acquired under the plan in order to
permit the Company to comply with tax laws and to claim any tax
deductions to which the Company may be entitled with respect to the
Plan. (This provision and other Plan provisions do not set forth an
explanation of the tax consequences to Participants under the Plan.
A brief summary of the tax consequences will be included in
disclosure documents to be separately furnished to Participants.)
(e) Changes to the Plan. The Board may amend, alter, suspend,
discontinue, or terminate the Plan without the consent of
shareholders or Participants, except that any such action will be
subject to the approval of the Company's shareholders within one
year after such Board action if such shareholder approval is
required by any federal or state law or regulation or the rules of
any automated quotation system or stock exchange on which the Stock
may then be quoted or listed, or if such shareholder approval is
necessary in order for the Plan to continue to meet the requirements
of Section 423 of the Code, and the Board may otherwise, in its
discretion, determine to submit other such actions to shareholders
for approval; provided, however, that, without the consent of an
affected Participant, no amendment, alteration, suspension,
discontinuation, or termination of the Plan may materially and
adversely affect the rights of such Participant with respect to
outstanding Purchase Rights relating to any Offering Period that has
been completed prior to such Board action. The foregoing
notwithstanding, upon termination of the Plan the Board may elect to
terminate all outstanding Purchase Rights at such time as the Board
may designate; in the event of such termination of any Purchase
Right prior to its exercise, all amounts contributed to the Plan
which remain in a Participant's Cash Account will be returned to the
Participant (without interest) as promptly as practicable.
(f) No Rights to Participate; No Shareholder Rights. No Participant or
employee will have any claim to participate in the Plan with respect
to Offering Periods that have not commenced, and the Company will
have no obligation to continue the Plan. No Purchase Right will
confer on any Participant any of the rights of a shareholder of the
Company unless and until Stock is duly issued or transferred and
delivered to the Participant (or credited to the Participant's Stock
Account).
(g) Fractional Shares. Unless otherwise determined by the Board,
purchases of Stock under the Plan executed by the Custodian may
result in the crediting of fractional shares of Stock to the
Participant's Stock Account. Such fractional shares will be
computed to at least three decimal places. Fractional shares will
not, however, be issued by the Company, and certificates
representing fractional shares will not be delivered to Participants
under any circumstances.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor its submission to the shareholders of the Company for
approval will be construed as creating any limitations on the power
of the Board to adopt such other compensatory arrangements as it may
deem desirable, including, without limitation, the granting of stock
options otherwise than under the plan, and such arrangements may be
either applicable generally or only in specific cases.
(i) Plan Year. The Plan will operate on a plan year which ends
December 31 in each year.
(j) Governing Law. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan will be
determined in accordance with the laws of the State of Arizona,
without giving effect to principles of conflicts of laws, and
applicable federal law.
(k) Effective Date. The Plan will become effective at such time as the
Plan has been approved by shareholders of the Company, at a meeting
thereof, by a vote sufficient to meet the requirements of Section
423(b)(2) of the Code.
EXHIBIT 10.12
PURCHASE AND SALE AGREEMENT
This Purchase and Sale Agreement (this "Agreement") is made effective as
of the 10th day of October, 1995, by and between NORTHLAND LAND COMPANY OF
ARIZONA, INC., a Minnesota corporation ("Seller"), and APOLLO GROUP, INC.,
an Arizona corporation ("Buyer").
RECITALS
A. Seller is the owner of certain real property located in Maricopa County,
Arizona, commonly referred to as Lots 4, 5 and a portion of Lot 6 of
Southbank, as more particularly described on Exhibit "A" attached hereto
(the "Property").
B. Seller desires to sell to Buyer, and Buyer desires to acquire from
Seller, the Property, subject to and in accordance with the terms,
covenants and conditions of this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing Recitals, the terms,
covenants and conditions contained herein, and for other good and valuable
considerations, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto agree as follows:
1. Agreement of Purchase and Sale. At the Closing (as defined in Paragraph
5.(c)) Seller shall sell to Buyer and Buyer shall buy from Seller, all of
Seller's right, title and interest in and to the Property, subject to the
terms, covenants and conditions of this Agreement.
2. Sales Price. The sales price (the "Sales Price") to be paid to Seller
for the Property shall be Two Million Nine Hundred Sixty-Three Thousand
Nine Hundred and Eight and 50/100 Dollars ($2,963,908.50) payable as
follows:
(a) Earnest Money. Contemporaneously with the execution of this
Agreement, Buyer shall deliver directly to Escrow Agent (as defined
in Paragraph 5.(a)) the sum of One Hundred Thousand Dollars
($100,000) in cash, cashier's check, or other immediately available
funds (the "First Deposit"). If Buyer has not canceled this
Agreement pursuant to its terms by such time, on or before the
Feasibility Expiration Date (as defined in Paragraph 4.(d)), Buyer
shall deliver directly to Escrow Agent the sum of One Hundred Fifty
Thousand Dollars ($150,000) in cash, cashier's check or other
immediately available funds (the "Additional Deposit"). If the
Escrow closes, the First Deposit and the Additional Deposit
(collectively, the "Earnest Money") shall be credited against the
Sales Price due from Buyer at the Closing. Except as otherwise
provided herein, the Earnest Money shall be non-refundable to Buyer.
(b) Credit in Lieu of Commission. In lieu of the payment by Seller of
a real estate broker's commission on behalf of Buyer, Buyer shall be
entitled to a credit against the sales price due from Buyer at the
Closing in the amount of three percent (3%) of the Sales Price.
<PAGE>
(c) Cash at Closing. At or before the Closing, Buyer shall deposit
with Escrow Agent the balance of the Sales Price in cash, cashier's
check or by wire transfer of funds into the account of Escrow Agent.
(d) Interest on Deposits. The Earnest Money deposited by Buyer shall
be placed by Escrow Agent in a federally insured interest bearing
account or certificate of deposit, subject to immediate withdrawal
without penalty, with a bank acceptable to Buyer and Seller. If the
Escrow closes, all of the Earnest Money and all interest accrued
thereon, shall be credited against the Sales Price and shall be paid
to Seller. If the Escrow does not close, the party entitled to the
Earnest Money upon termination shall also be entitled to all
interest accrued thereon.
3. [INTENTIONALLY OMITTED]
4. Contingencies. The obligation of Buyer to buy the Property pursuant to
this Agreement, unless otherwise waived in writing by Buyer, shall be
conditioned upon the satisfaction of each of the following contingencies
(collectively, the "Contingencies"):
(a) Title Review. As soon as possible following the Escrow Opening
Date, Seller, at its sole cost, shall cause Escrow Agent to provide
Buyer with a current preliminary title report of the Property (the
"Title Report") leading to the issuance of an extended coverage
policy of title insurance in the amount of the Sales Price insuring
Buyer's interest in the Property, together with legible (if
available) copies of all instruments of record referred to on
Schedule B thereof. Buyer shall have until 5:00 p.m., Phoenix time,
on the twentieth (20th) day after the Escrow Opening Date to review
and approve the Title Report. If Buyer fails to disapprove in
writing the status of title by giving notice (specifically
identifying its objections) to Seller and Escrow Agent on or before
such date, Buyer shall be deemed to have approved the status of
title to the Property, and this Contingency shall be deemed to have
been satisfied. If Buyer timely objects to any matter disclosed by
the Title Report by giving written notice to Seller and Escrow Agent
on or before such date, Seller, without obligation or liability, may
attempt to remove or secure endorsements against the matters
objected to by Buyer. If Seller does not cure or agree in writing to
cure Buyer's objections by the Feasibility Expiration Date, Buyer
may cancel this Agreement and Escrow by giving written notice
thereof to Seller and Escrow Agent prior to the end of the
Feasibility Expiration Date, in which case this Agreement and the
Escrow shall terminate, the Earnest Money (and all interest earned
thereon) shall be returned to Buyer, and thereafter neither Buyer
nor Seller shall have any further obligation or liability under this
Agreement. If, subsequent to the Feasibility Expiration Date,
Escrow Agent issues any amendment to the Title Report disclosing any
additional title matters or material modifications to the previously
disclosed title matters, then Buyer shall be entitled to object to
any such matter disclosed on the amended Title Report by delivering
written notice of such objection to Seller and Escrow Agent on or
before five (5) business days after Escrow Agent has delivered to
Buyer the amendment to the Title Report together with legible (if
available) copies of all recorded documents disclosed for the first
time in such amendment. If Buyer fails to give notice of objection
to any matter set forth in any amendment to the Title Report within
<PAGE>
the relevant time period described above, Buyer shall be
conclusively deemed to have approved such matter(s). If Buyer
timely delivers a notice of objection specifying in reasonable
detail its objection to any new matter(s) contained in the amendment
to the Title Report, Seller may, but shall not be obligated to,
attempt to cure the matter(s) objected to by Buyer. If Seller
elects to attempt to cure Buyer's objections, Seller shall notify
Buyer within five (5) business days following Seller's receipt of
Buyer's objection. If Seller fails to so notify Buyer within such
five (5) business day period, Seller shall be deemed to have elected
not to attempt to cure Buyer's objections. If Seller notifies Buyer
and Escrow Agent of its unwillingness, or inability, to cure such
objections, or fails to elect to cure such objections, then Buyer
shall, within five (5) business days following receipt of such
notice, or within five (5) business days after Seller's deemed
election not to cure, as applicable, elect to either (i) waive the
matters previously objected to by delivering written notice to
Seller and Escrow Agent and thereafter close the transaction
contemplated hereby in accordance with the terms hereof taking title
subject to all such matters waived by Buyer, or (ii) terminate this
Agreement by written notice to Seller and Escrow Agent, and upon
timely receipt of such notice, the Earnest Money shall be returned
to Buyer, this Agreement shall terminate, and thereafter neither
party shall have any further obligations or liabilities hereunder.
If Seller attempts to cure the matters objected to by Buyer, but
Seller is unable to cure such matters to Buyer's reasonable
satisfaction prior to the date which is five (5) days after Seller
notifies Buyer of its election to attempt to cure the objectionable
matters, Buyer may then elect to either (i) waive the matters
previously objected to by delivering written notice to Seller and
Escrow Agent and thereafter close the transaction taking title
subject to all such matters waived by Buyer, or (ii) terminate this
Agreement and the Escrow by written notice to Seller and Escrow
Agent delivered by 5:00 p.m., Phoenix time, on the date which is
five (5) business days after the date by which Seller was to have
cured the objectionable matters, and upon timely receipt of such
notice, the Earnest Money shall be returned to Buyer, this Agreement
and the Escrow shall terminate and thereafter neither party shall
have any further obligation or liability hereunder. In both
instances described above, if Buyer fails to timely notify Seller of
Buyer's election to either waive its objections and close this
transaction or terminate this Agreement, Buyer shall be deemed to
have elected to waive its objections and close this transaction. If
the operation of the various notice and cure periods described above
conflict with the then scheduled Closing Date, the Closing Date
shall be extended to the date that is two (2) business days after
the expiration of any applicable notice and cure periods. The
matters affecting title which are approved or deemed approved by
Buyer pursuant to this Paragraph 4.(a) shall be hereafter referred
to as the "Permitted Title Exceptions". Notwithstanding the above,
it is understood and agreed that the Property shall be conveyed to
Buyer free and clear of all monetary liens and encumbrances. Seller
shall cause, at Seller's expense, all monetary liens and
encumbrances to the released from the Property on or before Closing.
In addition, prior to the Closing, except as otherwise provided
below, Seller shall not, by its action or failure to take action,
allow the creation of any lien, encumbrance, easement, or
restriction on the Property or other matter that would affect title
<PAGE>
to the Property. Notwithstanding the foregoing, Buyer understands
and acknowledges that, during the pendency of the Escrow, Buyer
intends to create a sign easement for the Project in the vicinity of
the southwest corner of Lot 4. Within twenty (20) days after the
Escrow Opening Date, Seller shall provide to Buyer a survey of the
Property identifying the location of the proposed sign easement. If
Buyer fails to terminate this Agreement on or before the Feasibility
Expiration Date, Buyer shall be deemed to have approved the location
of the sign easement, and such sign easement shall be deemed a
Permitted Title Exception.
(b) Environmental and Soil Condition Assessment. Seller hereby
authorizes Buyer and Buyer's engineers and/or other experts, at
Buyer's sole cost and expense, to go upon the Property at any
reasonable times for the purpose of conducting an environmental and
soil condition site assessment and appropriate tests thereof. Buyer
shall fill all holes produced by it and substantially restore the
Property to its condition prior to such tests. Furthermore, Buyer
agrees to indemnify, defend and hold harmless Seller for, from and
against all claims and liabilities for personal injury, physical
damage to property or mechanics' or materialmen's liens which may be
asserted against Seller or the Property as a result of any such
entry by Buyer, its agents or designees, except for claims and
liabilities resulting from Seller's negligence or intentional
misconduct. To assist Buyer with its assessment, as soon as
possible following the Escrow Opening Date Seller will provide to
Buyer a spiral-bound Information Booklet labeled Environmental
Conditions at Southbank which includes, among other things, a letter
dated July 1, 1991 from the law offices of Snell & Wilmer to Mr.
Joel Broder and a copy of the environmental site assessment
pertaining to the Property prepared by Basin & Range (collectively,
the "Environmental Information Booklet"). Seller will also provide
Buyer reasonable access to soils reports, studies or written
information that Seller has in its possession or to which Seller has
reasonable access concerning the nature and origin of the fill
material placed on the Property, the method of compaction, or soil
conditions generally on the Property. Notwithstanding anything to
the contrary contained in this Agreement, the covenants contained in
this paragraph shall be continuing and shall survive the Closing or
termination of this Agreement. Buyer shall have until 5:00 p.m.,
Phoenix time, on the twentieth (20th) day after the Escrow Opening
Date, to review and approve the environmental condition of the
Property. If Buyer fails to disapprove in writing the environmental
condition of the Property by giving notice (specifically identifying
its objections) to Seller and Escrow Agent on or before such date,
Buyer shall be deemed to have approved the environmental condition
of the Property and this Contingency shall be deemed to have been
satisfied. If Buyer timely objects to any matter disclosed by its
environmental or soil condition site assessment by giving written
notice to Seller and Escrow Agent on or before the twentieth day
after the Escrow Opening Date, Seller, without obligation or
liability, may attempt to cure the matters objected to by Buyer. If
Seller does not cure or agree in writing to cure Buyer's objections
by the Feasibility Expiration Date, Buyer may cancel this Agreement
and Escrow by giving written notice thereof to Seller and Escrow
Agent prior to the end of the Feasibility Expiration Date, this
Contingency shall be deemed to have failed, and this Agreement and
the Escrow shall terminate, the Earnest Money (and all interest
<PAGE>
earned thereon) shall be returned to Buyer, and thereafter neither
Buyer nor Seller shall have any further obligation or liability
under this Agreement.
(c) General Feasibility Study. Until the Feasibility Expiration Date,
Buyer may conduct feasibility studies with respect to the Property
including without limitation, physical site inspections and
drainage, environmental, soils, marketability and economic
feasibility studies. Seller hereby authorizes Buyer and Buyer's
engineers and/or other experts, at Buyer's sole cost and expense, to
go upon the Property at any reasonable times for the purpose of
making appropriate inspections tests thereof. Buyer agrees to
indemnify, defend and hold harmless Seller for, from and against all
claims and liabilities for personal injury, physical damage to
property or mechanics' or materialmen's liens which may be asserted
against, or suffered by, Seller or the Property as a result of any
such entry by Buyer, its agents or designees, except for the claims
and liabilities arising from Seller's negligence or intentional
misconduct. Notwithstanding anything to the contrary contained in
this Agreement, the covenants contained herein shall be continuing
and shall survive the termination of this Agreement. If Buyer
believes, in its sole and absolute discretion, that, on the basis of
any matters disclosed by its feasibility study, the Property is not
completely suitable for Buyer's purposes, or if for any other reason
Buyer believes in Buyer's sole and absolute judgment that the
Property is unacceptable, Buyer shall be entitled to terminate this
Agreement by written notice to Seller and Escrow Agent delivered
before the Feasibility Expiration Date, whereupon the Earnest Money
(and all interest earnest thereon) shall be returned to Buyer, the
Agreement shall terminate, and thereafter neither party shall have
any further obligation or liability hereunder. Upon the written
request of Buyer received prior to the Feasibility Expiration Date,
Seller agrees to provide to Buyer within forty-eight (48) hours
following request, to the extent available, of any additional
documents, materials or information requested by Buyer in connection
with its feasibility studies of the Property.
(d) Feasibility Expiration Date. For purposes of this Agreement, the
"Feasibility Expiration Date" shall be the first business day that
is thirty (30) days after the Escrow Opening Date.
(e) Lot Membership Agreement. Buyer understands and acknowledges that,
because it is acquiring a portion of Lot 6, it is necessary to
allocate the total votes in the Association allocated to Lot 6 to
that portion of Lot 6 being acquired by Buyer and the remaining
portion of Lot 6. Buyer understands that the allocation will be
based on a pro rata allocation based on the total square footage
contained in the portion of Lot 6 being acquired as compared to the
total square footage contained in Lot 6. At least twenty (20) days
prior to the Feasibility Expiration Date, Seller shall provide to
Buyer, for its review and approval, a modified form of Lot
Membership Agreement in substantially the form attached hereto as
Exhibit "D". If Buyer fails to terminate this Agreement on or
before the Feasibility Expiration Date, Buyer shall be deemed to
have approved the form of Lot Membership delivered to it by Seller.
<PAGE>
5. The Escrow.
(a) Escrow Instructions. Buyer and Seller shall establish an escrow
(the "Escrow") with Transamerica Title Insurance Company, 234 North
Central Avenue, Suite 302, Phoenix, Arizona 85004, Attention: Jane
Hoppe (the "Escrow Agent") to facilitate the consummation of the
transaction contemplated by this Agreement. The standard form
escrow instructions of Escrow Agent (the "Instructions"), modified
and attached hereto as Exhibit "B", together with the provisions of
this Agreement applicable to Escrow Agent, shall together constitute
Escrow Instructions between Seller, Buyer and Escrow Agent. If any
conflict or inconsistency exists between the provisions of the
Instructions and this Agreement or any deed, instrument or document
executed or delivered in connection with the transaction
contemplated hereby, the provisions of this Agreement, or such deed,
instrument or document shall control in resolving such conflict or
inconsistency.
(b) Escrow Opening Date. The parties agree that the date Escrow Agent
acknowledges receipt of a fully signed copy (or signed counterparts)
of this Agreement and the Earnest Money shall constitute the opening
of escrow (the "Escrow Opening Date"). Escrow Agent shall inform
Buyer and Seller in writing of the Escrow Opening Date.
(c) Closing. The consummation of the transaction contemplated hereby
(the "Closing") shall occur at the office of Escrow Agent at 10:00
a.m. on the date that is 15 days after the Feasibility Expiration
Date. Escrow Agent shall inform Buyer and Seller in writing of the
date set for the Closing.
(d) Action at the Closing by Seller. On or before the Closing, and as
a condition to Buyer's obligations hereunder, Seller shall deliver
or cause to be delivered to the Escrow Agent all of the following
instruments dated as of the Closing Date, fully executed and
acknowledged by Seller as appropriate:
(i) The Special Warranty Deed to the Property in the form
attached hereto as Exhibit "C";
(ii) An Affidavit of Property Value as required by law;
(iii) An appropriate Affidavit of Non-Foreign Person;
(iv) The Lot Membership Agreement in the form agreed upon on or
before the Feasibility Expiration Date; and
(v) Such other instruments, or documents as may be reasonably
necessary to fulfill the covenants and obligations to be
performed by Seller pursuant to this Agreement.
(e) Action at the Closing by Buyer. On or before the Closing, and as a
condition to Seller's obligations hereunder, Buyer shall deliver or
cause to be delivered to Escrow Agent all of the following, and with
respect to any instruments or documents referred to below, all such
items shall be dated as of the Closing Date, fully executed and
acknowledged by Buyer as appropriate:
<PAGE>
(i) All funds referred to in Paragraph 2 necessary to pay the
Sales Price together with all other sums to be paid by Buyer
as required by the provisions of this Agreement;
(ii) An Affidavit of Property Value as required by law;
(iii) The Lot Membership Agreement in the form agreed upon on or
before the Feasibility Expiration Date; and
(iv) Such other funds, instruments, or documents as may be
reasonably necessary to fulfill the covenants and obligations
to be performed by Buyer pursuant to this Agreement.
(f) Closing Costs. The Escrow fee payable to Escrow Agent in respect
of the conveyance of the Property shall be shared equally by the
parties. Unless otherwise provided in this Agreement, all other
fees, recording costs, charges or expenses incidental to the sale of
the Property shall be paid according to the standard custom and
practice of Escrow Agent.
(g) Real Estate Taxes and Assessments; Southbank Owners' Association.
Buyer shall receive a credit for all accrued real estate taxes
which, as of the Closing Date, remain unpaid. Real estate taxes
which are due but not yet delinquent shall be prorated through
Escrow between Seller and Buyer as of the Closing Date based upon
the latest available information and on the basis of a thirty (30)
day month. If as of the Closing Date the actual amount of real
estate taxes for the year in which the Closing Date occurs has not
been fixed, then Escrow Agent shall prorate based on the prior
year's assessment and as soon as the actual tax amount becomes
known, the parties shall, outside of Escrow, adjust the estimated
proration of real estate taxes based upon actual information. As of
the Closing Date, the obligation to pay any taxes which are not yet
due and payable shall be assumed and, following the Closing Date,
paid by Buyer. Seller shall pay all general and special assessments
which are a lien against the Property as of the Closing Date.
Because the property tax statement for the Property likely will
include other adjoining real property owned by Seller (the remaining
portion of Lot 6), real estate taxes in respect of Lot 6 shall be
prorated based on an allocation of the parties' respective
percentage ownership ratio (determined on a gross acreage basis) of
the applicable tax parcel(s) within which all or any portion of Lot
6 is included. All assessments levied by the Southbank Property
Owners' Association, an Arizona nonprofit corporation (the
"Association") shall be prorated through Escrow between Seller and
Buyer as of the Closing Date on the basis of a thirty (30) day
month. Buyer acknowledges that, as the owner of the Property, it
shall be responsible for all assessments assessed against the
Property after the Closing. Buyer understands that Lot 6 is
currently allocated six (6) memberships in the Association; however,
at the Closing, Buyer and Seller shall cause the Lot Membership
Agreement in the form attached hereto as Exhibit "D" to be recorded
against the Property for the purpose of reflecting that one and one-
tenth (1.1) of the votes attributable to a membership in the
Association is attributable to the portion of Lot 6 to be acquired
by Buyer pursuant to this Agreement, and the other four and nine-
tenths (4.9) votes attributable to the membership are attributable
to the remaining portion of Lot 6. The Property shall be assessed a
<PAGE>
proportionate amount of all assessments based upon a fraction, the
numerator of which is the number of votes in the Association
attributable to the Property, and the denominator of which is the
total number of votes available to all members of the Association.
(h) Owner's Insurance Policy. At the Closing, Seller shall cause
Escrow Agent to deliver to Buyer an extended coverage policy of
title insurance issued by Escrow Agent or its principal, or the
unconditional commitment of the title insurer to issue such policy,
insuring title to the Property in Buyer in the amount of the Sales
Price, the policy to be subject to the usual printed exclusions,
exceptions, conditions and stipulations set forth in the printed
form policy, the Permitted Title Exceptions and such other matters
approved in writing by Buyer or resulting from Buyer's actions.
Seller shall only be responsible for paying the portion of the title
insurance premium relating to standard owner's coverage; Buyer shall
pay the additional portion of the premium and any other costs
relating to extended coverage, and the cost of any endorsements
request by Buyer. Notwithstanding anything to the contrary
contained in this Agreement, Seller shall have no obligation to
satisfy any title company requirements associated solely with the
issuance of an extended coverage policy, except as relates to
parties in possession or mechanic's liens not caused by Buyer.
Additionally, concurrently with the issuance of the owner's policy
of title insurance to Buyer, Escrow Agent shall issue to Seller, at
Buyer's expense (not to exceed $200), an extended coverage owners
policy of title insurance in the amount of the Sales Prices insuring
Seller that, immediately prior to the recordation of the Special
Warranty Deed to Buyer, title to the Property is vested in Seller
subject only to the specific items described on Exhibit "B" attached
to the Special Warranty Deed and any such other matters described in
the subject to clause of the Special Warranty Deed.
6. Representations and Warranties of Buyer. Buyer acknowledges, represents
and warrants to Seller that the following are true as of the date of this
Agreement and will be true as of the Closing Date, and in entering into
this Agreement Seller is relying upon, the following:
(a) Due Organization, Etc. Buyer is a corporation duly incorporated
and validly existing and in good standing under the laws of the
state of its incorporation. Buyer has taken all necessary action to
duly authorize the transaction contemplated by this Agreement and
Buyer's execution and delivery of all documents required herein, and
its performance hereunder. Buyer's execution and delivery of this
Agreement, and the consummation of the transaction contemplated and
required hereby, will not result in any violation of, or default
under the Articles of Incorporation or Bylaws of Buyer or any term
or provision of any agreement, instrument, mortgage, loan agreement
or similar document to which Buyer is a party or by which Buyer is
bound. Buyer further represents that it is not a partner or joint
venturer with Seller in connection with the transactions
contemplated by this Agreement, and that it is entering into this
Agreement and any other contract, instrument and document
contemplated hereby, voluntarily and solely for its own profit and
benefit.
<PAGE>
(b) No Litigation. There is no litigation, investigation or proceeding
pending or, to the best of Buyer's knowledge, contemplated or
threatened against Buyer which would impair or adversely affect
Buyer's ability to perform its obligations under this Agreement or
any other instrument or document related hereto.
(c) No Warranties. Except as expressly provided in this Agreement,
Seller, its employees, agents, representatives and attorneys have
not made, nor has Buyer relied on, any representations, warranties,
guarantees, or promises, oral or written, regarding the condition of
the Property, or the suitability of the Property for Buyer's
intended use or any other use. Buyer further acknowledges that any
information provided it with respect to the Property was obtained
from a variety of sources and that, except as expressly provided in
this Agreement, Seller (i) has not made any independent
investigation or verification of such information; and (ii) does not
make any representations as to the accuracy or completeness of such
information.
(d) Interstate Land Sales Full Disclosure Act. To qualify for
exemption from the Interstate Land Sales Full Disclosure Act (the
"Act"), Buyer represents and warrants that: (i) Buyer is a validly
existing corporation; (ii) Buyer is purchasing the Property for its
own use and development and is acquiring the Property for commercial
purposes; (iii) Buyer has been represented in the negotiations
regarding the subject purchase by a representative of its own
choosing; and (iv) to Buyer's knowledge, without any duty of
inquiry, Buyer believes and intends that this transaction is exempt
from the Act.
(e) Planning. Buyer hereby acknowledges that the Property is a part of
a larger parcel which has been planned for development by Seller and
is known as Southbank. Seller has not made, and Buyer is not
relying on, any representations or warranties pertaining to the
larger parcel and/or the planned development thereof, except as may
otherwise be agreed upon in a written Amendment of this Agreement.
(f) Southbank Property Owner's Association. Buyer hereby acknowledges
that the governing body for the Southbank development is the
Association. Buyer understands and acknowledges that, prior to
commencing the construction of any improvements on the Property,
Buyer must first submit plans to, and obtain the approval of the
Architectural Development Control Committee of the Association. On
or before the date of this Agreement, Buyer has received a copy of
the Southbank Development Guidelines.
7. Representations and Warranties of Seller. Seller acknowledges,
represents and warrants to Buyer that the following are true as of the
Agreement Date and will be true as of the Closing Date, and in entering
into this Agreement Buyer is relying upon, the following:
(a) Due Organization, Etc. Seller is a duly organized and validly
existing corporation, and is qualified to do business in the State
of Arizona. The transactions contemplated by this Agreement and the
execution and delivery of all documents required herein, and its
performance hereunder have been duly authorized by Seller's Board of
Directors. The execution and delivery of this Agreement and any
other document required herein and the consummation of the
<PAGE>
transactions contemplated hereby and thereby will not result in any
violation of, or default under, the Articles of Incorporation by
Bylaws of Seller or any term or provision of any agreement,
instrument, mortgage, loan agreement or similar document to which
Seller is a party of or by which Seller is bound.
(b) No Litigation. There is no litigation, investigation or proceeding
pending or, to the knowledge of Seller, contemplated or threatened
against Seller or the Property which would impair or adversely
affect Seller's ability to perform its obligations under this
Agreement or under any contract, instrument or document related
hereto or, to Seller's knowledge, would materially and adversely
affect the developments of the Property for commercial office use.
(c) Foreign Person. Seller is not a Foreign Person as such term is
defined under section 1445 of the Internal Revenue Code of 1986, as
amended (the "Code").
(d) Environmental and Soil Condition. Seller has no actual knowledge
(without having made any investigation or inquiry) based only on its
limited investigation described in Paragraph 4.(b)) of the
existence of any hazardous substances or adverse environmental or
soil conditions affecting the Property which are not disclosed in
the documentation provided to Buyer or to which Buyer has been
allowed access. Seller has not, during its ownership of the
Property, released or discharged any hazardous substances on the
Property in violation of any applicable laws or regulations, but if
any such release or discharge of hazardous substances occurred
during such time period, Seller has caused the release or discharge
to be fully remediated in accordance with all applicable laws, rules
or regulations. For purposes of this Agreement, "hazardous
substances" shall mean (a) petroleum, asbestos, flammable
explosives, radioactive materials, hazardous wastes, toxic wastes,
and related materials identified as such in any applicable
provisions of Arizona state law; (b) the substances defined as
"hazardous substances", "hazardous materials", or "toxic substances"
in (i) the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Article 9601, et seq.;
(ii) the Hazardous Material Transportation Act, 49 U.S.C. Article
1801, et seq.; (iii) the Reserve and Conservation Recovery Act, 42
U.S.C. Article 6901, et seq.; and the regulations adopted in
publications promulgated pursuant to said laws.
(e) No Violation. Seller has not received any written notice from any
governmental agency or authority having jurisdiction over the
Property advising Seller of the existence of, any violation of, or
any non-compliance with, any applicable environmental law statute,
regulation or ordinance in effect as of the date hereof, and Seller
has no actual knowledge, without having made any investigation or
inquiry, that the Property is not in compliance with any other
applicable laws and regulations or that any violations of such other
laws or regulations exist.
(f) No Condemnation. To Seller's knowledge, there are no existing or
threatened eminent domain, condemnation or similar proceedings
against or involving the Property.
<PAGE>
(g) Governmental Agreements. Seller has no knowledge of any commitments
to or agreements with any governmental authority or agency (federal,
state or local) affecting the Property which have not been disclosed
by Seller to Buyer in writing.
(h) Contracts. There are no contracts, options, rights of refusal,
leases, licenses, or other arrangements or agreements affecting the
Property that are not recorded or which Seller has not disclosed to
Buyer in writing, and no person or entity has any right of
possession or occupancy in part of the Property.
8. Broker's Commission. Seller shall pay, pursuant to a separate
agreement, a real estate broker's commission to CB Commercial Real Estate
Group, Inc. ("Broker") in the amount of 3% of the Sales Price, but only
if, as and when Escrow closes. If for any reason the Closing does not
occur, Broker shall not be entitled to any compensation whatsoever.
Escrow Agent is hereby instructed and authorized to disburse the above-
referenced sums from Seller's proceeds directly out of Escrow upon the
occurrence of the Closing. Each party represents and warrants to the
other that it has not engaged or dealt with any other broker, agent,
finder or any other person who would be entitled to any brokerage,
advisory or finder's fees or commissions concerning the purchase of the
Property. Each party hereby agrees to indemnify and hold the other
entirely free and harmless on demand for, from and against any liability
or expense, including, without limitation, attorneys' fees, arising from
any claim by any broker, agent, finder or any other person for brokerage,
advisory or finder's fees or commissions, or any similar charges, because
of any act of such party or its representatives that results in a claim
by such person. Each party hereto further agrees to defend the other at
its sole cost and expense from any such claims.
9. Assignment. Buyer may assign or otherwise transfer all or any of its
rights under this Agreement or the Escrow to Buyer's assignee provided
that Buyer first delivers to Seller written notice of such assignment,
together with an executed copy of all documents pursuant to which such
assignee assumes all of Buyer's covenants and obligations under this
Agreement, and wherein such assignee agrees to be bound by all the terms,
conditions and provisions hereof and of any other documents executed by
Buyer in connection herewith. Any purported assignment of Buyer's rights
hereunder that does not comport with the foregoing shall be strictly
prohibited and shall be deemed void.
10. Seller's Remedies. If Buyer shall breach any of the terms or provisions
of this Agreement or otherwise defaults at or prior to the Closing,
Seller may, as its exclusive remedy, terminate this Agreement and retain
the Earnest Money (and all interest earned thereon) as liquidated
damages and as consideration for the acceptance of this agreement and for
taking the Property off the market, and not as a penalty. Buyer and
Seller acknowledge that it would be extremely difficult and impractical,
if not impossible, to ascertain with any degree of certainty the amount
of damages which would be suffered by Seller if Buyer fails to purchase
the Property in accordance with the terms or provisions of this
Agreement; accordingly, Buyer and Seller agree that the Earnest Money
(and all interest earned thereon) is a reasonable estimate of the damages
which Seller may suffer under the circumstances. Notwithstanding any
other terms or conditions of this Agreement, Buyer shall not be deemed to
be in default hereunder unless the breach or default complained of by
Seller has not been cured within five (5) days after written notice
<PAGE>
thereof has been given to Buyer. Nothing contained in this Paragraph 10
shall limit or prevent Seller from enforcing Buyer's obligations and
liabilities which survive the Closing or a termination of this Agreement.
11. Buyer's Remedies. If Seller breaches any of the terms or provisions of
this Agreement or otherwise defaults hereunder, Buyer may either (i)
terminate this Agreement and the Escrow by written notice to Seller and
Escrow Agent, whereupon the Earnest Money (and all interest earned
thereon) shall be immediately returned to Buyer, this Agreement and the
Escrow shall terminate and thereafter neither party shall have any
further obligation or liability to the other hereunder; (ii) waive such
default and consummate the transaction contemplated hereby in accordance
with the terms or provisions hereof; or (iii) institute all proceedings
necessary to specifically enforce the terms or provisions of this
Agreement and cause title to the Property to be conveyed to Buyer; Buyer
hereby specifically waiving its right to seek monetary damages of any
kind for any default of Seller; provided however, that if Seller by its
intentional acts (such as sale of the Property) has rendered specific
performance impossible to enforce, Buyer shall have the right to an
action for damages against Seller. Notwithstanding any other terms or
conditions of this Agreement, Seller shall not be deemed to be in default
hereunder unless the breach or default complained of by Buyer has not
been cured within thirty (30) days after written notice thereof has been
given to Seller; however, if the breach or default cannot be reasonably
cured within thirty (30) days, then Seller shall have a reasonable period
of time to effectuate such cure so long as Seller has commenced such cure
with such thirty (30) day period and Seller thereafter diligently pursues
such cure to completion.
12. Waiver of Claims. Prior to the Closing Date, Buyer shall have made its
own examination, inspection and investigation of the condition of the
Property (including, without limitation, the subsurface thereof, all
soil, engineering and all other conditions which may affect construction
thereon) and all matters affecting the development thereof as it deems
necessary or appropriate. Except as expressly provided in this
Agreement, Buyer agrees that Seller shall not be responsible or liable to
Buyer for any conditions affecting the Property, as Buyer is purchasing
the Property AS-IS, WHERE-IS and WITH ALL FAULTS. Other than with
respect to claims arising from the breach of Seller's representations,
warranties and covenants contained in this Agreement, Buyer or anyone
claiming, by, through or under Buyer, hereby fully releases Seller, its
partners, its employees, officers, directors, representatives and agents
from any and all claims that it may now have or hereafter acquire against
Seller, its partners, its employees, officers, directors, representatives
and agents for any cost, loss, liability, damage, expense, demand, action
or cause of action arising from or related to the condition of the
Property except for claims arising as a result of the acts of Seller or
its partners, employees, representatives and agents after the Closing
which affects the condition of the Property. Buyer further acknowledges
and agrees that this release shall be given full force and effect
according to each of its expressed terms and provisions, including, but
not limited to, those relating to unknown and unsuspected claims, damages
and causes of action. This waiver and release of claims shall survive
the Closing.
13. Attorneys' Fees. If any action is brought by either party in respect of
its rights under this Agreement, the prevailing party shall be entitled
to reasonable attorneys' fees and court costs as determined by the court.
<PAGE>
14. Successors and Assigns. Subject to Paragraph 9, this Agreement shall be
binding on and shall inure to the benefit of the parties hereto and their
respective heirs, executors, permitted assigns, successors and
representatives.
15. Entire Agreement; Amendment; Waiver. This Agreement, together with all
exhibits attached hereto, constitutes the entire Agreement between the
parties pertaining to the subject matter hereof and all prior and
contemporaneous agreements, representations and understandings of the
parties hereto, whether oral or written, are hereby superseded and merged
herein. The exhibits attached hereto are fully incorporated into this
Agreement, and any reference to "Agreement" shall also include all
exhibits. No supplement, modification or amendment of this Agreement
shall be binding unless in writing and executed by the parties hereto.
No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions, whether or not
similar, nor shall any waiver be a continuing waiver. No waiver shall be
binding unless executed in writing by the party making the waiver.
16. Governing Law. This Agreement and all documents, instruments and
agreements executed in furtherance hereof, shall be construed in
accordance with, and governed by, the laws of the State of Arizona.
17. Notices. All notices, requests, demands and other communications under
this Agreement to a party hereto or to Escrow Agent shall be in writing
and shall be sent and delivered (i) by the United States Postal Service,
postage pre-paid, certified, return receipt requested, or (ii) by any
nationally recognized overnight delivery service, or (iii) by courier or
in person, or (iv) by telephone facsimile transmission ("Fax"). All
notices shall be deemed to have been duly delivered and received on the
date of receipt if served personally or delivered by courier or overnight
mail, or sent by Fax, or two (2) business days following the date of
deposit of such notice in the United States mail. All notices shall be
properly addressed as follows:
To Seller: Northland Land Company of Arizona, Inc.
c/o Denro, Ltd.
5343 North 16th Street, Suite 460
Phoenix, Arizona 85016
Attention: Steven M. Pritulsky
Fax No.: 602-265-3577
With a copy to: Neil D. Biskind, Esq.
O'Connor, Cavanagh, Anderson,
Westover, Killingsworth & Beshears
One East Camelback Road
Suite 1100
Phoenix, Arizona 85012-1656
602-263-2900
To Buyer: Apollo Group, Inc.
4615 East Elwood Street
P.O. Box 52069
Phoenix, Arizona 85072-2069
Attention: Robert M. McNichols
Fax No.: 602-929-7386
<PAGE>
With a copy to: Peter G. Santin
Snell & Wilmer
One Arizona Center
400 East Van Buren
Phoenix, Arizona 85004-0001
Fax No.: 602-382-6070
To Escrow Agent: Transamerica Title Insurance Company
234 North Central Avenue
Suite 302
Phoenix, Arizona 85004
Attention: Jane Hoppe, Escrow Officer
Fax No.: 602-257-2714
18. Headings and Counterparts. The headings of this Agreement are for
purposes of reference only and shall not limit or define the meaning of
the provisions of this Agreement. This Agreement may be executed in any
number of counterparts, each of which shall be an original but all of
which shall constitute one and the same instrument.
19. Calculations of Time Periods. In calculating any time period in this
Agreement which commences upon the receipt of any notice, request, demand
or document, or on the happening of a certain event, such as the opening
of escrow, the date on which such receipt is had or on which such event
occurs shall not be included within such time period, but such time
period shall commence to run on the date immediately following such date,
and any such time period shall include the full amount of days specified
by the applicable provision hereof and end at 5:00 p.m. (Phoenix time) on
the applicable day. If the time for performance of any obligation
hereunder expires on a Saturday, Sunday or legal holiday, the time for
performance shall be extended to the next day which is not a Saturday,
Sunday or legal holiday.
20. Construction. The parties agree that each party and its counsel have
reviewed and revised this Agreement and that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party
shall not apply in the interpretation of this Agreement or any amendments
or exhibits hereto.
21. Time of the Essence. Time is of the essence in the performance of the
covenants and obligations contained in this Agreement. The parties
hereby waive any so-called "thirteen day notice requirement" contained in
the Instructions.
22. Further Assurances. Each party, promptly upon the request of the other
or upon the request of Escrow Agent, shall execute and have acknowledged
and delivered to the other or to Escrow Agent, as may be appropriate, any
and all further instruments reasonably requested or appropriate to
evidence or give effect to the provisions of this Agreement and which are
consistent with the provisions hereof.
23. IRS Real Estate Sales Reporting. Buyer and Seller hereby appoint Escrow
Agent as, and Escrow Agent agrees to act as, "the person responsible for
closing" the transaction which is the subject of this Agreement pursuant
to section 6045(e) of the Code. Escrow Agent shall prepare and file all
informational returns, including, without limitation, IRS Form 1099-S and
shall otherwise comply with the provisions of section 6045(e) of the Code.
Escrow Agent shall indemnify, protect, hold harmless and defend Seller,
<PAGE>
Buyer and their respective attorneys for, from and against any and all
claims, actions, costs, loss, liability or expense arising out of or in
connection with the failure of Escrow Agent to comply with the provisions
of this Paragraph 23.
24. Survival of Warranties. All of the representations, warranties,
covenants and other terms and provisions of this Agreement shall be
continuing and shall survive the Closing and the delivery by Seller to
Buyer of the Special Warranty Deed to the Property.
25. Possession. Possession of the Property shall be transferred to Buyer at
the Closing.
26. Recordation. This Agreement shall not be recorded.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on the day and year first above written.
SELLER:
NORTHLAND LAND COMPANY OF ARIZONA, INC.,
a Minnesota corporation
By: /s/ Frank Dutke
----------------------------------
Its: Vice President
----------------------------------
BUYER:
APOLLO GROUP, INC., an Arizona corporation
By: /s/ John G. Sperling
----------------------------------
Its: Chairman and President
----------------------------------
ESCROW AGENT ACCEPTANCE:
By its execution hereof, Transamerica Title Insurance Company hereby
accepts this Agreement as its escrow instructions and agrees to perform the
acts applicable to Escrow Agent in accordance with the terms of this
Agreement. Specifically, Escrow Agent understands, acknowledges and agrees
to the provisions of Paragraph 23 above. Escrow Agent acknowledges its
receipt of a fully executed original of this Agreement and the Earnest Money
as of the date set forth below.
ESCROW AGENT:
TRANSAMERICA TITLE INSURANCE COMPANY
By: /s/ Jane Hoppe
----------------------------------
DATED: October 13, 1995
(Escrow Opening Date) Its: Escrow Officer
----------------------------------
<PAGE>
LIST OF EXHIBITS
A - Legal Description
B - Form Escrow Instructions
C - Form of Special Warranty Deed
D - Form of Lot Membership Agreement
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
PARCEL DESCRIPTION
LOTS 4, 5 AND PART OF 6 OF SOUTHBANK
A parcel of land lying within Sections 23 and 24, Township 1 North,
Range 3 East, of the Gila and Salt River Meridian, Maricopa County, Arizona,
more particularly described as follows:
Commencing at the easternmost northeast corner of Lot 4 of Southbank as
recorded in Book 306, page 44 M.C.R., said point being the POINT OF BEGINNING
of the herein described parcel;
THENCE along the east line of said Lot 4, South 41 degrees 50 feet 38
inches West, a distance of 723.30 feet, to the southeast corner of said Lot 4
and the beginning of a non-tangent curve;
THENCE along the southwesterly line of Lots 4, 5 and 6 of said
Southbank, northwesterly along said curve, having a radius of 1305.06 feet,
concave northeasterly, whose radius bears North 50 degrees 35 feet 42 inches
East, through a central angle of 7 degrees 53 feet 56 inches, a distance of
179.92 feet, to a point of intersection with a non-tangent line;
THENCE North 31 degrees 30 feet 30 inches West, a distance of 473.70
feet, to the beginning of a non-tangent curve;
THENCE northwesterly along said curve, having a radius of 5718.58 feet,
concave northeasterly, whose radius bears North 58 degrees 29 feet 25 inches
East, through a central angle of 2 degrees 39 feet 36 inches, a distance of
265.49 feet, to a point of intersection with a non-tangent line;
THENCE North 28 degrees 50 feet 54 inches West, a distance of 6.42 feet,
to the beginning of a curve;
THENCE northwesterly along said curve, having a radius of 3830.72 feet,
concave southwesterly through a central angle of 1 degree 42 feet 51 inches,
a distance of 114.61 feet, to a point that is 62.01 feet southeasterly of the
southernmost corner of Lot 1 of Ryan-Southbank Unit 1, as recorded in Book
390, page 21, M.C.R., as measured along the southwesterly line of said Lot 6
and a point of intersection with a non-radial line;
THENCE leaving said southwesterly line, parallel with the southeasterly
line of said Lot 1, North 57 degrees 58 feet 52 inches East, a distance of
353.45 feet;
THENCE North 41 degrees 50 feet 38 inches East, a distance of 100.22
feet, to the said southeasterly line;
THENCE along said southeasterly line, South 48 degrees 9 feet 22 inches
East, a distance of 99.51 feet, to the southerly right-of-way line of Elwood
Street and the beginning of a non-tangent curve;
THENCE leaving said southeasterly line along said right-of-way line,
southerly along said curve, having a radius of 60.00 feet, concave
northeasterly, whose radius bears South 78 degrees 9 feet 22 inches East,
through a central angle of 101 degrees 24 feet 35 inches, a distance of
106.20 feet, to a point of reverse curvature;
<PAGE>
THENCE easterly along said curve, having a radius of 60.00 feet, concave
southerly through a central angle of 41 degrees 24 feet 35 inches, a distance
of 43,36 feet, to the curve's end;
THENCE South 48 degrees 9 feet 22 inches East, a distance of 521.73
feet;
THENCE South 34 degrees 39 feet 37 inches East, a distance of 51.42
feet;
THENCE South 48 degrees 9 fee 22 inches East, a distance of 95.68 feet,
to the POINT OF BEGINNING.
Containing 12.9604 acres or 564554 square feet of land, more or less.
Subject to existing rights-of-way and easements.
<PAGE>
EXHIBIT B
FORM ESCROW INSTRUCTIONS
BUYER AND SELLER AGREE THAT:
1. They will deposit with Escrow Agent the necessary documents to complete
the sale as established by the terms of these instructions; authorize
Escrow Agent to deliver or record said documents at the appropriate time;
all money payable shall be paid to Escrow Agent unless otherwise
specified; authorize Escrow Agent to pay from funds held for said purpose
amounts necessary to procure the documents and to pay charges and
obligations necessary to consummate this transaction.
2. The indemnify and save harmless Escrow Agent against all costs, damages,
attorneys' fees, expenses and liabilities which it may incur or sustain
in connection with these instructions, including any interpleader action
brought by Escrow Agent, but excluding any such matters caused or created
by the negligence or intentional misconduct of Escrow Agent.
3. When the Agreement has been complied with by all parties, Escrow Agent
shall deliver by recording in the appropriate public office all necessary
documents, disburse all funds, and issue the title insurance policy.
4. The Agreement shall be of no effect unless and until signed by all
parties. No amendments to the Agreement shall be of any effect until
made in writing, signed by all parties and delivered to Escrow Agent.
The Agreement and any amendments hereto, as provided above, shall
constitute the sole and entire agreement between Escrow Agent and the
parties hereto.
5. They authorize Escrow Agent in the event of any conflicting demands made
upon it concerning these instructions or this escrow, at its election, to
hold any money and documents deposited hereunder until it receives mutual
instructions by all parties or until a civil action shall have been
finally concluded in a court of competent jurisdiction, determining the
rights of all parties. Deposit with the court by Escrow Agent of all
documents and funds (after deducting therefrom its charges and expenses
and attorneys' fees incurred in connection with any such court action)
liability and responsibility.
6. They hereby grant to Escrow Agent the right to execute on behalf of the
Seller and Buyer herein, the Affidavit of Value, using the total
consideration for the established value, unless instructed by Seller and
Buyer to the contrary.
7. Should Escrow Agent be closed on any day of compliance with the
Agreement, the requirements may be met on the next succeeding day Escrow
Agent is open for business.
<PAGE>
EXHIBIT C
FORM OF SPECIAL WARRANTY DEED
WHEN RECORDED MAIL TO:
Apollo Group, Inc.
4615 East Elwood Street
P.O. Box 52069
Phoenix, Arizona 85072-2069
Attention:
SPECIAL WARRANTY DEED
FOR THE CONSIDERATION of Ten Dollars ($10.00) and other valuable
consideration, NORTHLAND LAND COMPANY OF ARIZONA, INC., a Minnesota
corporation (hereinafter referred to as "Grantor"), does hereby convey to
APOLLO GROUP, INC., an Arizona corporation, its successors and assigns
(hereinafter referred to as "Grantee") the following real property situated
in Maricopa County, Arizona, the exact legal description of which is
contained on Exhibit "A" attached hereto and made a part hereof (hereinafter
referred to as the "Property").
SUBJECT TO: All taxes and other assessments, reservations in patents,
water rights, claims or title to water and all matters described on Exhibit
"B" or which an accurate ALTA survey, or physical inspection, of the Property
would disclose.
Subject to the foregoing, Grantor hereby binds itself and its successors
to warrant and defend title as against all acts of Grantor and no other.
DATED this 8th day of December, 1995.
NORTHLAND LAND COMPANY OF ARIZONA, INC.,
a Minnesota corporation
By: /s/Frank Dutke
Its: VP
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 8th day of
December, 1995, by Frank Dutke, the Vice-President of NORTHLAND LAND COMPANY OF
ARIZONA, INC., a Minnesota corporation, for and on behalf thereof.
Notary Public
My Commission Expires:
<PAGE>
EXHIBIT C
FORM OF LOT MEMBERSHIP AGREEMENT
WHEN RECORDED MAIL TO:
Southbank Property Owners' Association
c/o 5343 N. 16th Street
Suite 460
Phoenix, Arizona 85016
Attn: Steven Pritulsky
LOT MEMBERSHIP AGREEMENT
This Lot Membership Agreement (this "Agreement") is made as of this 13th
day of December, 1995, by and between NORTHLAND LAND COMPANY OF
ARIZONA, INC., a Minnesota corporation ("Northland"), and APOLLO GROUP, INC.,
an Arizona corporation ("Buyer").
Recitals
A. Buyer is the owner of certain real property (the "Buyer Property")
located in Maricopa County, Arizona, more particularly described on
Exhibit "A" hereto.
B. Northland is the owner of certain real property (the "Northland
Property") located in Maricopa County, Arizona, more particularly
described on Exhibit "B" hereto.
C. The Buyer Property and the Northland Property together constitute all of
Lot 6, SOUTHBANK, according to Book 306 of Maps, Page 44, Official
Records of Maricopa County, Arizona.
D. Lot 6, SOUTHBANK, is subject to that certain Declaration of Covenants,
Conditions and Restrictions - SOUTHBANK, dated January 27, 1987, and
recorded as Instrument No. 87-050970, Official Records of Maricopa
County, Arizona, as amended (the "Declaration").
E. Buyer and Northland desire to confirm their mutual agreement regarding
the apportionment of votes and the obligation for payment of assessments
between the Buyer Property and the Northland Property, which are
otherwise allocated to Lot 6 pursuant to the Declaration.
Agreement
In consideration of the foregoing recitals, the accuracy of which each
party hereby warrants to the other, and the covenants and agreements
contained in this Agreement, the receipt and sufficiency of which are hereby
mutually acknowledged, Buyer and Northland, intending to be legally bound,
hereby agree as follows:
1. Pursuant to Article II, Section 3 of the Declaration, Buyer and the Buyer
Property shall hereinafter be entitled to two (2) votes.
Northland and the Northland Property shall be entitled to nine-tenths
(0.9) votes. Ryan and the Ryan Property shall be entitled to thirteen and
three-tenths (13.3) votes.
<PAGE>
2. Pursuant to Article III, Section 8 of the Declaration, the Buyer Property
and the Northland Property shall each be charged with "Regular
Assessments" and "Capital Assessments" (as both terms are defined in the
Declaration) based upon the number of votes attributable to each Lot as
compared to the total number of votes available to all members of the
Association.
3. Except as set forth in this Agreement, Buyer and the Buyer Property and
Northland and the Northland Property shall be and remain subject to all
of the terms, provisions and conditions of the Declaration, as may be
amended from time to time.
4. For all other purposes, the Buyer Property and the Northland Property
each shall be deemed to be a "Lot" pursuant to the Declaration.
5. Northland and Buyer hereby agree and declare that the agreements and
restrictions contained in this Agreement shall respectively run with
title to, create a benefit for, and constitute a burden upon both the
Buyer Property and the Northland Property, and shall be binding upon all
parties having or acquiring any right, title or interest in or to the
Buyer Property or the Northland Property or any portion thereof.
Buyer and Northland have executed this Agreement as of the date and year
first written above.
NORTHLAND:
NORTHLAND LAND COMPANY OF ARIZONA, INC.,
a Minnesota corporation
By: /s/ Frank Dutke
Its: VP
BUYER:
APOLLO GROUP, INC., an Arizona Corporation
By: /s/ John G. Sperling
Its: Chairman and President
<PAGE>
By its execution of this Agreement, the Southbank Property Owners'
Association (the "Association") hereby acknowledges the existence of this
Agreement regarding the Buyer Property and the Northland Property and hereby
agrees to abide by and reflect in the records of the Association the effect
of the agreements contained in this Agreement.
SOUTHBANK PROPERTY OWNERS' ASSOCIATION,
an Arizona non-profit corporation
By: John Strittmatter
Its: VP
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 8th day of
Decmeber, 1995, by Frank Dutke, the Vice President of NORTHLAND LAND COMPANY OF
ARIZONA, INC., a Minnesota corporation, for and on behalf thereof.
Neil Biskind
Notary Public
My Commission Expires:
March 17, 1997
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 13th day of
December, 1995, by John G. Sperling, the Chairman and President of
Apollo Group, Inc., an Arizona corporation, for and on behalf thereof.
Barbara Bausch
Notary Public
My Commission Expires:
August 17, 1996
<PAGE>
STATE OF ARIZONA )
) ss.
County of Maricopa )
The foregoing instrument was acknowledged before me this 13th day of
December, 1995, by John S. Strittmatter, the Vice President of Ryan Properties,
Inc., a Minnesota Corporation, the __________________ of RYAN SOUTHBANK ONE,
L.L.C., a Minnesota Limited Liability Company, for and on behalf thereof.
Neil Biskind
Notary Public
My Commission Expires:
March 17, 1997
STATE OF ARIZONA )
)ss
County of Maricopa )
The foregoing instrument was acknowledged before me this 8th day of
December, 1995 by Frank Dutke, the Vice President of SOUTHBANK PROPERTY
OWNERS' ASSOCIATION, an Arizona non-profit corporation, for and on behalf
thereof.
Neil Biskind
Notary Public
My Commission Expires: March 17, 1997
26<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Registration No. 33-87844, Registration No. 33-88982,
Registration No. 33-88984 and Registration No. 33-63429) of Apollo Group,
Inc. of our report dated October 14, 1996 appearing in this Form 10-K.
PRICE WATERHOUSE LLP
Phoenix, Arizona
October 23, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Operations and the Consolidated Balance Sheet and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000929887
<NAME> APOLLO GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-END> AUG-31-1996
<CASH> 63,267
<SECURITIES> 13,273
<RECEIVABLES> 29,679
<ALLOWANCES> 3,694
<INVENTORY> 3,112
<CURRENT-ASSETS> 109,141
<PP&E> 28,900
<DEPRECIATION> 9,975
<TOTAL-ASSETS> 137,850
<CURRENT-LIABILITIES> 54,804
<BONDS> 0
0
0
<COMMON> 66
<OTHER-SE> 80,548
<TOTAL-LIABILITY-AND-EQUITY> 137,850
<SALES> 9,339
<TOTAL-REVENUES> 214,275
<CGS> 9,600
<TOTAL-COSTS> 157,935
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,704
<INTEREST-EXPENSE> 77
<INCOME-PRETAX> 34,997
<INCOME-TAX> 13,605
<INCOME-CONTINUING> 21,392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,392
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
