Download 1 AS FILED WITH THE SECURITIES AND EXCHANGE

1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 21, 1995.
REGISTRATION NO.
- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------------------APOLLO GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ARIZONA
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
86-0419443
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
-----------------------4615 EAST ELWOOD STREET
PHOENIX, ARIZONA 85040
(602) 966-5394
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
-----------------------JAMES W. HOGGATT
VICE PRESIDENT OF FINANCE
AND CHIEF FINANCIAL OFFICER
APOLLO GROUP, INC.
4615 EAST ELWOOD STREET
PHOENIX, ARIZONA 85040
(602) 966-5394
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-----------------------COPIES TO:
JON S. COHEN, ESQ.
CHRISTOPHER J. LITTLEFIELD, ESQ.
SNELL & WILMER L.L.P.
ONE ARIZONA CENTER
PHOENIX, ARIZONA 85004-0001
(602) 382-6247
GARY J. SINGER, ESQ.
MARK D. PETERSON, ESQ.
O'MELVENY & MYERS
610 NEWPORT DRIVE, SUITE 1700
NEWPORT BEACH, CALIFORNIA 92660-6429
-----------------------APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), other than securities offered only in connection
with dividend or interest reinvestment plans, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same filing: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
-----------------------CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------PROPOSED MAXIMUM
PROPOSED MAXIMUM
AGGREGATE
TITLE OF EACH CLASS OF
AMOUNT TO BE
OFFERING PRICE
OFFERING
AMOUNT OF
SECURITIES TO BE REGISTERED
REGISTERED
PER SHARE(2)
PRICE(2)
REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------Class A Common Stock, no par value
per share..........................
3,162,500(1)
$33.375
$105,548,438
$36,397
- --------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------(1) Includes 412,500 shares of Class A Common Stock subject to the Underwriters'
over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c), based on the last reported sales price of the Class A Common
Stock on December 15, 1995, as reported by the Nasdaq National Market.
-----------------------THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 21, 1995
P R O S P E C T U S
2,750,000 SHARES
APOLLO GROUP, INC.
[APOLLO GROUP LOGO]
CLASS A COMMON STOCK
-----------------All of the shares of Class A Common Stock offered hereby (the "Offering")
are being sold by certain shareholders (the "Selling Shareholders") of Apollo
Group, Inc. ("Apollo" or the "Company"). See "Principal and Selling
Shareholders." The Company will not receive any of the proceeds from the sale of
shares by the Selling Shareholders. The Class A Common Stock is traded on the
Nasdaq National Market ("Nasdaq") under the symbol "APOL." On December 20, 1995,
the last reported sales price of the Class A Common Stock, as reported by
Nasdaq, was $34.625 per share. See "Price Range of Common Stock."
-----------------SEE "RISK FACTORS" ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE CLASS A COMMON
STOCK OFFERED HEREBY. THE HOLDERS OF CLASS A COMMON STOCK ARE NOT ENTITLED TO
ANY VOTING RIGHTS.
-----------------THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------UNDERWRITING
PROCEEDS TO
PRICE TO
DISCOUNTS AND
THE SELLING
PUBLIC
COMMISSIONS(1)
SHAREHOLDERS(2)
- ----------------------------------------------------------------------------------------------------Per Share...........................
$
$
$
- ----------------------------------------------------------------------------------------------------Total(3)............................
$
$
$
- ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses estimated at $357,000, payable by the Selling
Shareholders.
(3) The Selling Shareholders have granted the Underwriters a 30-day option to
purchase up to 412,500 shares of Class A Common Stock on the same terms as
set forth above solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to the Selling Shareholders will be $
,
$
and $
, respectively. See "Underwriting."
-----------------The shares of Class A Common Stock are offered by the Underwriters, subject
to prior sale, when, as and if delivered to and accepted by, the Underwriters
and subject to the right of the Underwriters to reject any order in whole or in
part and certain other conditions. It is expected that certificates for the
shares of Class A Common Stock offered hereby will be available for delivery on
or about January
, 1996, at the office of Smith Barney Inc., 14 Wall Street,
New York, New York 10005.
------------------
SMITH BARNEY INC.
ALEX. BROWN & SONS
INCORPORATED
MONTGOMERY SECURITIES
JANUARY
, 1996
3
[DESCRIPTION OF INSIDE FRONT COVER GRAPHICS]
Graphic indicates the various UOP, IPD and WIU locations throughout the
United States, Puerto Rico and London, England, as well as the location of the
corporate headquarters.
The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements audited by independent auditors and
quarterly reports for the first three fiscal quarters of each year containing
unaudited summary financial information.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN AN
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON NASDAQ OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN
PASSIVE MARKET MAKING TRANSACTIONS IN THE CLASS A COMMON STOCK ON NASDAQ IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. SEE "UNDERWRITING."
2
4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and consolidated financial statements appearing elsewhere
in this Prospectus or incorporated herein by reference. Unless otherwise
indicated, all information in this Prospectus assumes that the Underwriters'
over-allotment option will not be exercised and reflects a 4-for-3 stock split
distributed April 28, 1995 and a 3-for-2 stock split distributed September 22,
1995. Investors should consider carefully the information set forth under the
heading "Risk Factors."
THE COMPANY
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 Company believes that its
teaching/learning model differentiates its programs from those offered by the
majority of other accredited colleges and universities by providing full-time
working adults with a quality educational experience while enabling them to earn
a degree and still meet their personal and professional responsibilities. The
Company's teaching/learning model enables full-time working adult students to
earn an undergraduate degree within four years, as compared to a national
average of seven to ten years for working adults, or a graduate degree within
two years. The Company offers its programs and services at 78 campuses and
learning centers in 25 states, Puerto Rico and London, England.
The Company has added 46 locations since August 31, 1990 and has
experienced significant growth in both revenues and enrollments. Enrollments in
the Company's programs have increased from 17,571 at August 31, 1991 to 36,848
at August 31, 1995, while annual net revenues have increased from $69 million to
$163 million during the same period. The Company's consolidated enrollments
increased from 31,802 at November 30, 1994 to 40,158 at November 30, 1995.
Enrollments in UOP's distance education programs increased from 1,627 to 2,561
during the same period. The consolidated enrollments in the Company's
educational programs would make it the largest private institution of higher
education in the United States. Since November 30, 1994, the Company has added
17 new campuses and learning centers and established one new IPD contract.
UOP is a regionally accredited, private institution of higher education
offering bachelor's and master's degree programs such as business, management,
computer information systems, education and health care. With approximately
27,100 working adult students, UOP is currently the 6th largest regionally
accredited private university in the United States and has one of the nation's
largest private business schools. UOP has successfully replicated its
teaching/learning model while maintaining educational quality at its 45 campuses
and learning centers located in Arizona, California, Colorado, Hawaii,
Louisiana, Michigan, Nevada, New Mexico, Utah and Puerto Rico. UOP also offers
its educational programs worldwide through OnlineTM, its computer distance
education system. OnlineTM provides campus-based courses that have been modified
for computer delivery and are available wherever there is adequate telephone
service or access to CompuServe(R) or the Internet.
IPD provides program development and management services under long-term
contracts (five to ten years) to 15 regionally accredited private colleges and
universities. These contracts meet the guidelines of the client institutions'
respective regional accrediting associations. IPD assists these colleges and
universities in expanding and diversifying their programs for working adults and
shares in the tuition revenues generated from these programs. A majority of
these contracts have been extended beyond the year 2000. At November 30, 1995,
there were approximately 12,000 students enrolled in IPD-assisted programs at 29
campuses and learning centers.
WIU acquired the assets of Western International University ("Western") in
September 1995 for $2.1 million. WIU is a regionally accredited, private
institution of higher education with enrollments of approximately 1,000 at four
campuses and learning centers located in Phoenix, Fort Huachuca and Douglas,
Arizona and through Thames Lea College in London, England.
The average age of students enrolled in UOP and in IPD-assisted programs is
in the mid-thirties with an average annual household income of $53,000.
Approximately 74% of UOP students have been employed full-time for nine or more
years. Approximately 80% of UOP students also receive some level of tuition
reimbursement from their employers, many of which are Fortune 500 companies. Of
these students receiving reimbursement, approximately 83% receive at least onehalf tuition reimbursement and approximately 42% receive full tuition
reimbursement. This demographic profile results in a number of benefits to the
Company, including diversified sources of tuition revenues, low student loan
default rates, high student completion rates and a limited need for
capital-intensive services.
3
5
To meet the increasing demand for higher education by working adults, the
Company plans to establish new UOP campuses and learning centers, negotiate new
IPD contracts, expand the number of degree offerings, improve access to the
Company's programs through new distance education technologies, establish
strategic relationships with major corporations and explore international
opportunities. The U.S. Department of Education National Center for Educational
Statistics ("NCES") estimates that by 2000 approximately 44% of the 15.5 million
students projected to be enrolled in institutions of higher education will be
adults over the age of 24. Currently, the U.S. Bureau of the Census estimates
that 70-75% of students over the age of 24 are working adults. The Company
believes that the demand for higher education by working adult students will
continue to grow, thereby creating a significant market opportunity to those who
can offer programs that meet the unique needs of working adult students.
THE OFFERING
Class A Common Stock offered by the Selling Shareholders....... 2,750,000 shares
Common Stock to be outstanding immediately after the Offering:
Class A Common Stock(1)...................................... 21,527,299 shares
Class B Common Stock......................................... 575,769 shares
Use of Proceeds................................................ The Company will not receive any of
the proceeds from the sale of Class A
Common Stock offered hereby.
Nasdaq National Market Symbol.................................. APOL
Relative rights of Class A and Class B Common Stock:
The Class A and Class B Common Stock (collectively, the "Common Stock") have
identical rights with respect to cash dividends and in the distribution of
proceeds in any sale or liquidation, but have different voting rights. The
Class A Common Stock is not entitled to any voting rights, while the Class B
Common Stock is entitled to one vote per share on all matters on which
shareholders are entitled to vote. See "Risk Factors" and "Description of
Capital Stock."
- --------------(1) Excludes 1,656,941 shares of Class A Common Stock issuable upon exercise
of stock options granted to certain directors, officers and key
employees of the Company.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
THREE MONTHS
ENDED
YEAR ENDED AUGUST 31,
NOVEMBER 30,
----------------------------------------------------------------1991
1992
1993
1994
1995
1994
1995
--------------------------------------------(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA:
Net revenues............................
Total costs and expenses................
Income before income taxes..............
Net income..............................
Net income per share....................
OPERATING STATISTICS:
Enrollments at end of period............
Locations at end of period..............
AUGUST 31,
1995
-------------(IN THOUSANDS)
$68,782
67,881
901
862
.06
$81,865
81,368
497
646
.04
$97,545
95,533
2,012
1,143
.08
$124,720
116,425
8,295
4,912
.32
$163,429
141,600
21,829
12,600
.62
$36,465
32,260
4,205
2,544
.17
$49,727
41,882
7,845
4,589
.20
17,571
35
21,163
42
24,987
51
30,236
60
36,848
68
31,802
61
40,158
78
NOVEMBER 30,
1995
------------
BALANCE SHEET DATA:
Total assets...............................................................
Current assets.............................................................
Current liabilities........................................................
Long-term liabilities......................................................
Shareholders' equity.......................................................
4
$102,132
84,044
45,065
1,715
55,352
$108,476
87,544
46,137
2,026
60,313
6
RISK FACTORS
THE PURCHASE OF SHARES OF CLASS A COMMON STOCK OFFERED HEREBY INVOLVES
SUBSTANTIAL RISK. THE FOLLOWING MATTERS, INCLUDING THOSE MENTIONED ELSEWHERE,
SHOULD BE CONSIDERED CAREFULLY BY A PROSPECTIVE INVESTOR IN EVALUATING A
PURCHASE OF CLASS A COMMON STOCK.
UNCERTAIN AND CHANGING REGULATORY ENVIRONMENT
UOP, WIU and IPD client institutions are subject to extensive state and
federal regulations, some of which have been effective only since July 1, 1995.
The Higher Education Act of 1965, as amended (the "HEA"), and the regulations
promulgated thereunder (the "Regulations"), subject UOP, WIU and IPD client
institutions and all other 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
regulatory responsibilities for each of the following components of the higher
education regulatory triad: (1) the accrediting associations 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 each
applicable State Postsecondary Review Entity ("SPRE").
UOP derives approximately 68% of its net revenues from students who
participate in Title IV Programs. The Company believes that IPD derives a
similar percentage of its net revenues from students who participate in Title IV
Programs administered by the respective IPD client institution. Because the
Regulations impose new regulatory requirements on UOP, WIU and IPD client
institutions and because the DOE has not fully developed administrative
interpretations of the Regulations, there exists some uncertainty concerning the
application and interpretation of the new regulatory requirements imposed by the
Regulations. New or revised interpretations of such 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, 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. See "Business -- Regulatory Environment,"
"Business -- Accreditation," "Business -- Federal Financial Aid Programs" and
"Business -- State Authorization."
LIMITS ON TITLE IV PROGRAM FUNDING
Currently, the Regulations place limits on the amount of Title IV Program
funds that a student is eligible to receive in any one academic year (as defined
by the DOE). The Regulations also specify that, for undergraduate programs, an
academic year must consist of at least an equivalent 30 weeks of instruction and
a minimum of 24 credit hours. The new Regulations define an equivalent "week of
instruction" as 12 hours of regularly scheduled instruction, examinations or
preparation for examinations (the "12-Hour Rule"). For programs that consist of
eight hours per week of instruction, such as those offered by UOP and IPD client
institutions, the academic year must be a minimum of 45 calendar weeks to meet
the DOE's equivalent 30 weeks of instruction to qualify for Title IV funding. If
UOP were required by the DOE to increase the length of its undergraduate
academic year to more than the current 45 calendar weeks, it would reduce the
maximum amount of Title IV funding available to UOP's students, which could have
a material adverse effect on the Company.
FAILURE TO OBTAIN AUTHORIZATION IN NEW STATES
UOP, WIU and IPD client institutions are required to have authorization to
operate as degree-granting institutions in each state where they physically
provide educational programs. Certain states accept accreditation as evidence of
meeting minimum state standards for authorization. Other states, including
California, require separate evaluations for authorization. Depending on the
state, the addition of a degree program not offered previously or the addition
of a new location must be included in the institution's accreditation and be
approved by the appropriate state authorization agency. UOP, WIU and IPD client
institutions are
5
7
currently authorized to operate in all states in which they have physical
locations. If UOP is unable to obtain authorization to operate in certain new
states, it may have a material adverse effect on the Company's ability to expand
UOP's business. See "Business -- Business and Growth Strategy" and
"Business -- State Authorization."
RELIANCE ON CURRENT MANAGEMENT
Dr. John Sperling, the founder of the Company, has been instrumental in the
development of the Company. The Company's development and operations to date
have been, and its continuing operations will be, substantially dependent on the
efforts of Dr. Sperling and the other members of current management. Dr.
Sperling's employment agreement allows him to terminate his employment at any
time upon 30 days notice. The loss of the services of any one or more members of
current management could have a material adverse effect on the Company's
business and results of operations.
REGULATORY CONSEQUENCES OF A CHANGE OF OWNERSHIP OR CONTROL
A change of ownership or control of the Company, depending on the type of
transaction that gives rise to a 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 UOP's and WIU's accreditation by the Commission on
Institutions of Higher Education of the North Central Association of Colleges
and Schools ("NCA"). The DOE has adopted the change of ownership or control
standards used by the federal securities laws. Upon a change of ownership or
control sufficient to require the Company to file a Form 8-K with the
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
required, however, if the transfer of ownership or 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 UOP is presently authorized 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 authorization if such a
change of ownership or control occurs. Moreover, the Company is required to
report to NCA 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, does
not obtain reauthorization from the necessary state agencies or has its
accreditation withdrawn as a consequence of any change in ownership or control,
it would have a material adverse effect on the Company. See "Business -- Federal
Financial Aid Programs -- Change of Ownership or Control."
VOTING CONTROL BY CURRENT MANAGEMENT
The holders of Class A Common Stock are not entitled to any voting rights,
while the holders of Class B Common Stock are entitled to one vote per share on
all matters on which the shareholders of the Company are entitled to vote. As a
result, the holders of the Company's Class B Common Stock, who currently consist
of the management of the Company, control the election of all directors to the
Company's Board of Directors and thereby control the policies and operations of
the Company without the vote of the holders of Class A Common Stock. This
concentration of voting control may have the effect of delaying, deferring or
preventing a change of control of the Company, including any business
combination with an unaffiliated party, or of impeding the ability of the
shareholders to replace management even if factors warrant such a change. This
concentration of voting control may also affect the price that investors might
be willing to pay in the future for shares of the Company's Class A Common
Stock. See "Management," "Principal and Selling Shareholders" and "Description
of Capital Stock."
SEASONALITY IN RESULTS OF OPERATIONS
The Company has experienced seasonality in the results of its operations
primarily as a result of changes in student enrollments. Historically, the
Company has experienced lower revenues and net income in the second quarter
(December to February) of its fiscal year due to the holiday breaks in December
and January.
6
8
The Company expects that these seasonal trends will continue. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality."
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of Class A
Common Stock offered hereby.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying 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. If cash dividends were declared, however,
holders of Class A Common Stock and Class B Common Stock would be entitled to
equal per share cash dividends.
7
9
CAPITALIZATION
The following table sets forth the capitalization of the Company as
of November 30, 1995:
NOVEMBER 30, 1995
---------------------(DOLLARS IN THOUSANDS)
Long-term debt............................................................
------Shareholders' equity:
Preferred Stock, no par value; 1,000,000 shares authorized; none issued
or outstanding.......................................................
Class A Common Stock, no par value; 65,000,000 shares authorized;
21,527,000 shares issued and outstanding(1)..........................
Class B Common Stock, no par value; 3,000,000 shares authorized; 576,000
shares issued and outstanding........................................
Additional paid-in capital..............................................
Retained earnings.......................................................
------Total shareholders' equity..............................................
------Total capitalization......................................................
=======
- --------------(1) Excludes 1,657,000 shares of Class A Common Stock issuable upon exercise of
stock options granted to certain directors, officers and key employees of
the Company.
8
$
503
-28
1
37,740
22,544
60,313
$ 60,816
10
PRICE RANGE OF COMMON STOCK
The Company's Class A Common Stock began trading on Nasdaq under the symbol
"APOL"during the second quarter of 1995 on December 6, 1994. Prior to that date
the Company's Class A Common Stock was not listed or traded on any organized
market system. The table below sets forth for the Company's fiscal quarters the
high and low sales prices, adjusted for stock splits, for the Company's Class A
Common Stock as reported by Nasdaq.
1995
HIGH
LOW
- --------------------------------------------------------------------------Second Quarter.............................................................
Third Quarter..............................................................
Fourth Quarter.............................................................
------
$11.31
19.08
23.00
-----$ 5.50
9.63
16.17
1996
- --------------------------------------------------------------------------First Quarter..............................................................
Second Quarter (through December 20, 1995).................................
On December 20, 1995, the last reported sales price of the Class A Common
Stock was $34.625 per share. At that date, the approximate number of holders of
record of the Company's Class A Common Stock and Class B Common Stock were 93
and 10, respectively. The Company believes that there are a number of other
holders of Class A Common Stock whose shares are held in nominee accounts by
brokers.
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.
9
$30.75
36.50
$20.00
30.00
11
SELECTED CONSOLIDATED FINANCIAL DATA
The data set forth below are 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 elsewhere in this Prospectus. The following selected Balance Sheet Data
of the Company as of August 31, 1991, 1992, 1993, 1994 and 1995 and the Income
Statement Data for the five years ended August 31, 1995 are derived from the
consolidated financial statements of the Company audited by Price Waterhouse
LLP, independent accountants. Selected Income Statement and Balance Sheet data
as of November 30, 1994 and 1995 and for the three-month periods then ended have
been derived from unaudited interim financial statements on which Price
Waterhouse LLP has applied limited procedures in accordance with professional
standards for a review of such information. In the opinion of management of the
Company, such unaudited interim financial statements reflect all normal
recurring adjustments necessary for a fair presentation of the results for such
periods. The results for the three months ended November 30, 1995 are not
necessarily indicative of the results for the fiscal year ending August 31,
1996.
THREE MONTHS ENDED
YEAR ENDED AUGUST 31,
NOVEMBER 30,
--------------------------------------------------------1991
1992
1993
1994
1995
--------------------------------(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA:
Net revenues................ $68,782
$81,865
$97,545
--------------------------------Costs and expenses:
Instruction costs and
services................
44,398
54,296
65,319
Selling and promotional...
13,251
14,442
15,812
General and
administrative..........
10,232
12,630
14,402
--------------------------------Total costs and
expenses................
67,881
81,368
95,533
--------------------------------Income before income
taxes(1)..................
901
497
2,012
Less provision for income
taxes.....................
390
240
869
--------------------------------Income before extraordinary
item and cumulative effect
of change in accounting
principle.................
511
257
1,143
Extraordinary item(2).......
351
Change in accounting
principle(3)..............
389
--------------------------------Net income.................. $
862
$
646
$ 1,143
=======
=======
=======
========
========
Net income per share........ $
.06
$
.04
$
.08
Weighted average shares
outstanding...............
14,845
14,845
15,136
------------------1994
1995
-------------
$124,720
$163,429
------------81,313
17,918
102,122
21,016
$36,465
23,418
4,987
29,959
6,328
17,194
-------
18,462
-------
3,855
5,595
116,425
-------
141,600
-------
32,260
41,882
8,295
21,829
4,205
7,845
3,383
-------
9,229
-------
1,661
3,256
4,912
12,600
2,544
4,589
$ 2,544
$ 4,589
$
$
------------$ 4,912
$ 12,600
=======
=======
$
.32
$
.62
15,281
20,485
- --------------(1) 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 $1.3
million, $837,000 and $265,000 in 1991, 1992 and 1993, respectively.
(2) Realization of prior years' U.S. operating losses related to the operations
of the technical training schools.
(3) The Company adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes," effective September 1, 1991.
10
$49,727
.17
15,281
.20
22,504
12
AUGUST 31,
NOVEMBER 30,
-----------------------------------------------1991
1992
1993
1994
1995
-------------------------------(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Total assets.................. $18,215
Current assets................
8,763
Current liabilities...........
17,804
Long-term liabilities.........
1,661
Shareholders' equity
(deficit)...................
(1,250)
OPERATING STATISTICS:
Enrollments at end of
period(1)...................
17,571
Locations at end of
period(2)...................
35
-----------------1994
1995
--------------
$22,369
12,231
20,819
2,154
$28,909
18,453
27,086
1,203
$43,638
31,893
34,890
1,347
$102,132
84,044
45,065
1,715
$47,262
34,107
35,670
1,646
$108,476
87,544
46,137
2,026
(604)
620
7,401
55,352
9,946
60,313
21,163
24,987
30,236
36,848
31,802
40,158
42
51
60
68
61
78
- --------------(1) 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 17,071, 20,087, 23,663, 27,469 and 34,021 for the years ended 1991,
1992, 1993, 1994 and 1995, respectively, and were 31,800 and 39,617 for the
three months ended November 30, 1994 and 1995, respectively. Ending and
average enrollments for 1991 include approximately 400 students enrolled at
AEC's technical training schools that were closed in 1992. Average
enrollments for 1992 include approximately 200 AEC students.
(2) Includes UOP and WIU campuses and learning centers and IPD contract sites.
Also includes two AEC sites in 1991.
The Company did not pay any cash dividends on its Common Stock during any
of the periods set forth in the table above.
11
13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BACKGROUND AND OVERVIEW
The Company's revenues, net of student discounts, have increased from $68.8
million in 1991 to $163.4 million in 1995. Average annual student enrollments
have increased from 17,071 in 1991 to 34,021 in 1995. Net income has increased
from $862,000 in 1991 to $12.6 million in 1995. At November 30, 1995, 40,158
students were enrolled at UOP and WIU and in IPD-assisted programs at IPD client
institutions. Average annual student enrollments increased from 31,800 during
the three months ended November 30, 1994 to 39,617 for the three months ended
November 30, 1995. Net income for the same period increased from $2.5 million to
$4.6 million.
From September 1990 to November 1995, the Company added 46 campuses and
learning centers. Startup costs in new markets for UOP campuses have averaged
from $200,000 to $400,000 per site over a 15-18 month period. Startup costs in
existing markets have been minimal on a per site basis. Historically, UOP has
been able to establish an enrollment base prior to opening new campuses and
learning centers in existing markets by holding classes in employers' offices
and conference facilities, or through its distance education delivery systems.
Startup costs for IPD contract sites have averaged from $400,000 to $500,000 per
site over a 15-24 month period, and consist primarily of administrative
salaries, marketing and advertising. Startup costs are expensed as incurred.
Approximately 90% of the Company's net revenues in 1995 consisted of
tuition revenues from UOP 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% 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 income 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.
Instruction costs and services at UOP 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 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 for UOP and IPD 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.
WIU acquired the assets of Western in September 1995. WIU is a regionally
accredited, private institution of higher education with enrollments of
approximately 1,000 at four campuses and learning centers located in Phoenix,
Fort Huachuca and Douglas, Arizona and through Thames Lea College in London,
England.
12
14
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:
THREE MONTHS
ENDED
YEAR ENDED AUGUST 31,
---------------------------1993
1994
1995
----------------
NOVEMBER 30,
----------------1994
1995
-----------
Net revenues..................................
100.0%
--------------------Costs and expenses:
Instruction costs and services..............
67.0
Selling and promotional.....................
16.2
General and administrative..................
14.7
--------------------Total costs and expenses....................
97.9
--------------------Income before income taxes....................
2.1
Less provision for income taxes...............
.9
--------------------Net income....................................
1.2%
=====
=====
=====
=====
=====
100.0%
100.0%
100.0%
65.2
14.4
13.8
62.5
12.9
11.3
64.2
13.7
10.6
60.2
12.7
11.3
93.4
86.7
88.5
84.2
6.6
2.7
3.9%
13.3
5.6
7.7%
THREE MONTHS ENDED NOVEMBER 30, 1994 COMPARED WITH THREE MONTHS ENDED
NOVEMBER 30, 1995
Net revenues increased by 36.4% from $36.5 million for the three months
ended November 30, 1994 to $49.7 million for the three months ended November 30,
1995 due primarily to a 24.6% increase in average student enrollments from 1994
to 1995, tuition price increases averaging five to six percent, a higher
concentration of enrollments at locations that charge a higher rate per credit
hour and the acquisition of WIU. 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 from 31,800 for the three months ended November 30, 1994
to 39,617 for the three months ended November 30, 1995. Ending student
enrollments at November 30, 1994 and 1995 were 31,802 and 40,158, respectively.
WIU had average student enrollments of 1,005 and revenues of $1.1 million for
the three months ended November 30, 1995. Interest income, which is included in
net revenues, increased from $141,000 for the three months ended November 30,
1994 to $745,000 for the three months ended November 30, 1995 due primarily to
increased cash generated from the Company's initial public offering of its Class
A Common Stock and from cash generated from operations.
Instruction costs and services increased by 27.9% from $23.4 million for
the three months ended November 30, 1994 to $30.0 million for the three months
ended November 30, 1995 due primarily to the direct costs necessary to support
the increase in average student enrollments. These costs consisted primarily of
faculty compensation, classroom lease expenses and related staff salaries. These
costs as a percentage of net revenues decreased from 64.2% for the three months
ended November 30, 1994 to 60.2% for the three months ended November 30, 1995
due to greater net revenues being spread over the fixed costs related to
centralized student services.
Selling and promotional expenses increased by 26.9% from $5.0 million for
the three months ended November 30, 1994 to $6.3 million for the three months
ended November 30, 1995 due primarily to increased marketing and advertising at
campuses and learning centers. These expenses as a percentage of net revenues
decreased from 13.7% for the three months ended November 30, 1994 to 12.7% for
the three months ended November 30, 1995 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. As the
Company expands into new markets, it may not be able to leverage its existing
selling and promotional expenses to the same extent.
General and administrative expenses increased by 45.1% from $3.9 million
for the three months ended November 30, 1994 to $5.6 million for the three
months ended November 30, 1995 due primarily to increased costs required to
support the increased number of campuses and learning centers and increases in
administrative compensation. These expenses as a percentage of net revenues
increased from 10.6% for the three months ended November 30, 1994 to 11.3% for
the three months ended November 30, 1995 due primarily to the
13
100.0%
11.5
4.6
6.9%
15.8
6.5
9.3%
15
overall growth of the Company in 1995. These expenses as a percentage of net
revenues were 11.3% for the fiscal year ended August 31, 1995.
Costs related to the startup of new UOP and IPD campuses and learning
centers are expensed as incurred and totaled approximately $300,000 for the
three months ended November 30, 1994 and $680,000 for the three months ended
November 30, 1995. Interest expense, which is allocated among all categories of
costs and expenses, was less than $20,000 for the three months ended November
30, 1994 and 1995.
The Company's effective tax rate increased from 39.5% for the three months
ended November 30, 1994 to 41.5% for the three months ended November 30, 1995.
The increase is due primarily to an increase in the federal tax rate from 34% to
35% as a result of the improved earnings and to the relative impact of expenses
that are nondeductible for tax purposes.
Net income increased by 80.4% from $2.5 million for the three months ended
November 30, 1994 to $4.6 million for the three months ended November 30, 1995
due primarily to increased enrollments, increased tuition rates (weighted by
location) and improved utilization of fixed instruction costs and selling and
promotional expenses in existing markets.
YEAR ENDED AUGUST 31, 1994 COMPARED WITH YEAR ENDED AUGUST 31, 1995
Net revenues increased by 31.0% from $124.7 million in 1994 to $163.4
million in 1995 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 from 27,469 in 1994 to 34,021 in 1995.
Interest income, which is included in net revenues, increased from $280,000 in
1994 to $2.4 million in 1995 due primarily to increased cash generated from the
Company's initial public offering of its Class A Common Stock and to $22.3
million in cash generated from operations in 1995.
Instruction costs and services increased by 25.6% from $81.3 million in
1994 to $102.1 million in 1995 due primarily to the direct costs necessary to
support the increase in average student enrollments. These costs as a percentage
of net revenues decreased from 65.2% in 1994 to 62.5% in 1995 due to greater net
revenues being spread over the fixed costs related to centralized student
services.
Selling and promotional expenses increased by 17.3% from $17.9 million in
1994 to $21.0 million in 1995 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 from 14.4% in 1994 to 12.9%
in 1995 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. As the Company expands into new markets, it
may not be able to leverage its existing selling and promotional expenses to the
same extent.
General and administrative expenses increased by 7.4% from $17.2 million in
1994 to $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. This increase was offset in part by $1.9
million in nonrecurring compensation expense in 1994 related 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. General and
administrative expenses include a $135,000 and $104,000 writedown of land held
for sale in 1994 and 1995, respectively. General and administrative expenses as
a percentage of net revenues decreased from 13.8% in 1994 to 11.3% in 1995 due
primarily to the nonrecurring compensation expense recorded in 1994 and larger
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 $1.0 million and $1.1
million in 1994 and 1995, respectively. Interest expense, which is allocated
among all categories of costs and expenses, was $153,000 and $96,000 in 1994 and
1995, respectively.
14
16
The Company's effective tax rate increased from 40.8% in 1994 to 42.3% in
1995 due primarily to an increase in the federal tax rate from 34% to 35% as a
result of the improved earnings and to the relative impact of expenses that are
nondeductible for tax purposes.
Net income increased from $4.9 million in 1994 to $12.6 million in 1995 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.
YEAR ENDED AUGUST 31, 1993 COMPARED WITH YEAR ENDED AUGUST 31, 1994
Net revenues increased by 27.9% from $97.5 million in 1993 to $124.7
million in 1994 due primarily to a 16.1% increase in average student enrollments
from 1993 to 1994, a higher concentration of enrollments at locations that
charge a higher rate per credit hour 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 substantially all of the
IPD contract sites had increases in net revenues and average student enrollments
from 1993 to 1994. Average student enrollments increased from 23,663 in 1993 to
27,469 in 1994.
Instruction costs and services increased by 24.5% from $65.3 million in
1993 to $81.3 million in 1994 due primarily to the direct costs necessary to
support the increase in average student enrollments. These costs as a percentage
of net revenues decreased from 67.0% in 1993 to 65.2% in 1994 due to greater net
revenues being spread over the fixed costs related to centralized student
services and, to a lesser degree, due to efficiencies resulting from
improvements to the Company's information systems.
Selling and promotional expenses increased by 13.3% from $15.8 million in
1993 to $17.9 million in 1994 due primarily to increased marketing and
advertising at UOP and IPD campuses and learning centers, including $678,000
related to locations opened in new markets during the past two years. These
expenses as a percentage of net revenues decreased from 16.2% in 1993 to 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 19.4% from $14.4 million
in 1993 to $17.2 million in 1994 due primarily to increases in general and
administrative salaries, including $1.9 million in compensation expense related
to the grant of stock options and a $750,000 accrual of compensation expense
related to the deferred compensation agreement with the Company's President.
These expenses as a percentage of net revenues decreased from 14.7% in 1993 to
13.8% in 1994 due to larger net revenues being spread over the fixed costs
related to various centralized functions such as information services, corporate
accounting and human resources. In 1993, the Company recorded a $638,000
writedown related to land held for sale. As a result of further declines in
Northern California real estate values, the Company recorded an additional
$135,000 writedown in 1994.
Costs related to the start up of new UOP and IPD campuses and learning
centers totaled approximately $742,000 and $1.0 million in 1993 and 1994,
respectively. Interest expense, which is allocated among all categories of costs
and expenses, decreased from $255,000 in 1993 to $153,000 in 1994 primarily as a
result of improved cash flow resulting in a reduction of long-term debt and
lower seasonal borrowings on the Company's line of credit.
The Company's effective tax rate decreased from 43.2% in 1993 to 40.8% in
1994 due primarily to the relative impact of expenses that are nondeductible for
tax purposes.
Net income increased from $1.1 million in 1993 to $4.9 million in 1994 due
to increased enrollments, increased tuition rates (weighted by location),
improved utilization of fixed instructional and administrative costs and
improved utilization of selling and promotional expenses in existing markets.
15
17
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth selected unaudited quarterly financial
information for each of the Company's last nine 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 herein. The operating results for
any quarter are not necessarily indicative of the results for any future period.
QUARTER ENDED
----------------------------------------------------------------------------------------------FY 1994
FY 1995
FY 1996
---------------------------------------------------------------------------------- ------NOV. 30,
FEB. 28,
MAY 31,
AUG. 31,
NOV. 30,
FEB. 28,
MAY 31,
AUG. 31, NOV. 30,
1993
1994
1994
1994
1994
1995
1995
1995
1995
------------------------------------------------------- ------(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
IN DOLLARS:
Net revenues.................... $27,816
$26,953
$34,278
$35,673
$36,465
$36,029
$45,502
$45,433
$49,727
------------------------------------------------------Costs and expenses:
Instruction costs and
services....................
18,073
18,502
21,163
23,575
23,418
24,224
26,188
28,292
29,959
Selling and promotional.......
4,112
4,468
4,311
5,027
4,987
5,105
5,518
5,406
6,328
General and administrative....
3,184
4,910 (1) 4,921 (2)
4,179
3,855
4,954
4,856
4,797
5,595
------------------------------------------------------Total costs and expenses......
25,369
27,880
30,395
32,781
32,260
34,283
36,562
38,495
41,882
------------------------------------------------------Income (loss) before income
taxes.........................
2,447
(927 )
3,883
2,892
4,205
1,746
8,940
6,938
7,845
Provision (credit) for income
taxes.........................
1,002
(381 )
1,572
1,190
1,661
896
3,892
2,780
3,256
------------------------------------------------------Net income (loss)............... $ 1,445
$ (546 )
$2,311
$ 1,702
$ 2,544
$
850
$5,048
$ 4,158
$4,589
=======
=======
=======
=======
=======
=======
=======
=======
=======
Net income (loss) per share..... $
.10
$ (.04 )
$ .15
$
.11
$
.17
$
.04
$ .22
$
.19
$ .20
=======
=======
=======
=======
=======
=======
=======
=======
=======
AS A PERCENTAGE OF NET REVENUES:
Net revenues....................
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
100.0%
------------------------------------------------------Costs and expenses:
Instruction costs and
services....................
65.0
68.6
61.7 (3)
66.1
64.2
67.2
57.6 (3)
62.3
60.2
Selling and promotional.......
14.8
16.6
12.6
14.1
13.7
14.1
12.1
12.0
12.7
General and administrative....
11.4
18.2 (1)
14.4 (2)
11.7
10.6
13.8
10.7
10.4
11.3
------------------------------------------------------Total costs and expenses......
91.2
103.4
88.7
91.9
88.5
95.1
80.4
84.7
84.2
------------------------------------------------------Income (loss) before income
taxes.........................
8.8
(3.4 )
11.3
8.1
11.5
4.9
19.6
15.3
15.8
Provision (credit) for income
taxes.........................
3.6
(1.4 )
4.6
3.3
4.6
2.5
8.6
6.1
6.5
------------------------------------------------------Net income (loss)...............
5.2%
(2.0 )%
6.7%
4.8%
6.9%
2.4%
11.0%
9.2%
9.3%
=======
=======
=======
=======
=======
=======
=======
=======
=======
- --------------(1) Includes a $750,000 accrual of compensation expense related to the December
1993 deferred compensation agreement with the Company's President.
(2) Includes $1.9 million in compensation expense related to the grant of stock
options.
(3) The favorable margin realized in the third quarters of 1994 and 1995 is due
primarily to a significant increase in revenues with no significant increase
in the fixed costs related to centralized student services. The favorable
margin did not continue to the same extent in the fourth quarters of 1994
and 1995 because of the normal increase in instructional costs and services
in preparation for the August peak enrollments. See "Management's Discussion
and Analysis of Financial Condition and Results of
Operations -- Seasonality."
16
18
SEASONALITY
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. As a result, instruction costs and services and
selling and promotional expenses historically increase as a percentage of net
revenues in the fourth quarter due to increased costs in preparation for the
August peak enrollments. The increased costs result in accounts payable levels
being higher in August than any other month in the year. The Company anticipates
that these seasonal trends in the second and fourth quarters will continue in
the future.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital increased from $39.0 million at August 31,
1995 to $41.4 million at November 30, 1995 due primarily to the $4.8 million in
cash generated from operations during the three months ended November 30, 1995,
offset in part by capital expenditures and the acquisition of the assets of
Western. In conjunction with the acquisition, WIU paid Western $237,000 in cash
and assumed $1.8 million in liabilities. The liability consisted of $1.3 million
of current liabilities, $393,000 of which was paid on the acquisition date, and
$503,000 of long-term debt. At November 30, 1995, the Company had no outstanding
borrowings on its $4.0 million line of credit, which bears interest at prime.
The line of credit is renewable annually and is payable upon its termination in
February 1996. The Company expects to renew this line of credit.
Net cash flow received from operating activities increased by $15.8 million
from fiscal 1994 to fiscal 1995 due primarily to the $7.7 million increase in
net income during the same period, improved collections of accounts receivable
and the timing of various tax payments and payments to suppliers. Net cash flow
received from operating activities increased by $3.0 million from the three
months ended November 30, 1994 to the three months ended November 30, 1995 due
primarily to a $2.0 million increase in net income. Capital expenditures,
including additions to educational program production costs, increased from $6.1
million for fiscal 1994 to $11.5 million for fiscal 1995 primarily to support
the increase in student enrollments and number of locations. Total purchases of
property and equipment for the year ended August 31, 1996 are expected to total
approximately $12.0 million. Additions to educational program production costs
are not expected to exceed $2.0 million for the year ended August 31, 1996.
Start up costs are expected to increase from $1.1 million in fiscal 1995 to
approximately $3.5 million for fiscal 1996 due to 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 another five year term. In
December 1995, 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. The Company does not currently have any material commitments for
any capital expenditures in 1996. The Company currently leases all of its
educational and administrative facilities.
The Company's net receivables as a percent of net revenues decreased from
11.4% in fiscal 1994 to 9.7% in fiscal 1995 and bad debt expense as a percent of
net revenues decreased from 1.5% in fiscal 1994 to 1.1% in fiscal 1995. These
decreases are due primarily to an increased focus on accounts receivable
collections in 1995.
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 Company through
electronic funds transfer programs are held in a separate cash account until
certain conditions are satisfied. As of November 30, 1995, the Company had
approximately $10.8 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.
17
19
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
1.16 to 1 at August 31, 1994 and 1.31 to 1 at August 31, 1995. WIU's acid test
ratio was 2.73 to 1 on September 1, 1995. These requirements apply to the
separate financial statements of UOP, WIU and to 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.
18
20
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 78 campuses and learning centers in 25
states, Puerto Rico and London, England. The Company's enrollment has increased
from 17,571 at August 31, 1991 to 36,848 at August 31, 1995. At November 30,
1995, the Company's enrollment was 40,158.
Based on its enrollment of over 27,100 adult students at November 30, 1995,
UOP is currently the sixth 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 45 campuses and learning centers in Arizona,
California, Colorado, Hawaii, Louisiana, Michigan, Nevada, New Mexico, Utah and
Puerto Rico. To enhance its ability to expand into new markets, UOP has
developed specialized information systems for student tracking, marketing,
faculty recruitment and training, financial aid, accounting and academic quality
management. Currently, approximately 80% of UOP's students receive some level of
tuition reimbursement from their employers, many of which are Fortune 500
companies.
In 1989, UOP established Online(TM), a computerized educational delivery
system, which currently serves approximately 1,400 degree-seeking students.
Online(TM) provides campus-based courses that have been modified for computer
delivery. Online(TM) enables the Company to deliver educational programs and
services internationally wherever there is access to adequate telephone service,
CompuServe(R) or the Internet. 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 campusbased 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 (five to ten years) that meet the guidelines of the client
institutions' respective regional accrediting associations. IPD provides these
services to 15 regionally accredited private colleges and universities at 29
campuses and learning centers in 16 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 investment
in institutional capital and (4) recognize the unmet educational needs of the
working adult students in their market. Approximately 12,000 students are
currently enrolled in IPD-assisted programs.
WIU acquired the assets of Western in September 1995. WIU is a regionally
accredited, private institution of higher education with enrollments of
approximately 1,000 at four campuses and learning centers located in Phoenix,
Fort Huachuca and Douglas, Arizona and through Thames Lea College in 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
address is "http://www.apollogrp.com."
19
21
MARKET
The United States education market may be divided into three distinct
segments: kindergarten through twelfth grade schools, 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 1993 (the most recent historical year reported), adults over
24 years of age comprised approximately 6.5 million, or 44%, of the 14.8 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 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)
- 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 an 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 demand from and the unique requirements
of the working adult 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 AND GROWTH 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
20
22
by not-for-profit providers. By design, the Company treats both its adult
students and their employers as customers. Key elements of the Company's
business and growth strategy include the following:
ESTABLISH NEW UOP CAMPUSES AND LEARNING CENTERS. UOP plans to add campuses
and learning centers throughout the United States. During the past three years,
the Company has opened an average of nine campuses and learning centers each
year. New locations are selected based on an analysis of various factors,
including the general 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 DEGREE 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. The Company also is investigating
the market potential for professional doctoral degree programs and
specializations. The Company currently has a full-time staff of over 20 persons
involved in its centralized curriculum development process.
EXPAND DISTANCE EDUCATION PROGRAMS. The Company plans to expand its
distance education programs and services. In 1994, the Company successfully
completed its connection to the Internet, thereby making the Company's programs
more readily available throughout the United States and worldwide. The Company
also plans to enhance its distance education delivery systems as new
technologies become cost-effective.
ESTABLISH CORPORATE PARTNERSHIPS. The Company seeks to establish
educational partnerships with major corporations to provide training and degree
programs to their employees both on site and at the Company's campuses and
learning centers. To meet the unique learning needs of its different partners,
the Company modifies its existing programs or, in some cases, develops
customized programs. The Company believes that the establishment of corporate
partnerships is an effective way to enhance the products and services offered to
its customers. The Company recently entered into educational partnerships with
AT&T and Ingram Micro, Inc.
INTERNATIONAL EXPANSION. The Company monitors and assesses the feasibility
of providing its educational programs internationally and has conducted market
research in various foreign countries, including Hungary, Japan, Costa Rica and
Mexico. The Company currently offers its programs to international students
through Online(TM) and WIU.
The timing related to the establishment of new locations and the expansion
of programs may vary depending on regulatory requirements and market conditions.
HISTORICAL ENROLLMENTS IN THE COMPANY'S FIVE LARGEST MARKETS
In addition to opening campuses in new markets, the Company's growth also
has resulted from increased enrollments in its existing markets. The table below
sets forth a summary of enrollments in the Company's five largest markets over
the last five years.
AT AUGUST 31,
-------------------------------------MARKET
1991
1992
1993
1994
1995
- ----------------------------------------------------------- ------ -----Southern California........................................
Arizona....................................................
Northern California........................................
Colorado...................................................
Distance Education.........................................
21
2,284
3,207
709
1,386
1,252
2,895
4,059
1,001
1,608
1,655
-----3,988
4,632
1,477
1,697
1,114
-----5,218
5,023
2,429
2,005
1,618
-----6,466
5,559
3,586
2,661
2,366
23
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 16 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 their
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 masters 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 1995,
the Company expanded these services and provided additional access
through a connection to the Internet. This minimizes the 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.
22
24
STRUCTURAL COMPONENTS OF TEACHING/LEARNING MODEL
Although adults over 24 currently comprise approximately 44% of all higher
education enrollments in the United States, the mission of many 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 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 74% 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 80% 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.
23
25
PROGRAMS AND SERVICES
UOP PROGRAMS. UOP currently offers the following degree programs, areas of
specialization and certificate programs at one or more campuses and learning
centers or through its distance education delivery systems:
DEGREE PROGRAMS WITH RELATED MAJORS
- -----------------------------------------------------ASSOCIATE OF ARTS IN BUSINESS
BACHELOR OF ARTS IN MANAGEMENT
BACHELOR OF SCIENCE IN BUSINESS
Accounting
Administration
Information Systems
Management
BACHELOR OF SCIENCE IN NURSING
MASTER OF ARTS IN EDUCATION
MASTER OF ARTS IN ORGANIZATIONAL MANAGEMENT
MASTER OF BUSINESS ADMINISTRATION
Technology Management
MASTER OF COUNSELING
Marriage, Family and Child Therapy
Community Counseling
Mental Health Counseling
MASTER OF NURSING
MASTER OF SCIENCE IN COMPUTER INFORMATION SYSTEMS
AREAS OF SPECIALIZATION AVAILABLE
IN CERTAIN DEGREE PROGRAMS
- -----------------------------------------------------BUSINESS
Environmental Management
Finance
Industrial Relations
Marketing
Operations Management
Technical Management
EDUCATION
Administration and Supervision
Diverse Learner
Educational Counseling
NURSING
Management
Education
Women's Health Nurse Practitioner
CERTIFICATE PROGRAMS, CUSTOM TRAINING AND CONTINUING EDUCATION
- -----------------------------------------------------Alternative Dispute Resolution
Art of Negotiation
Authorized Certified Novell Administrator (CNA)
Authorized Certified Novell Engineer (CNE)
Bilingual -- Bicultural
Business and the Environment
Configuration Management
Conflict Resolution
Curriculum
Elementary Certification
English as a Second Language
Export Management
Foreign Languages
Global Management
Government Contract Management
Human Resource Management
Human Resources Professional Development
International Management
Introduction to the Internet
Management and Leadership
Marketing Management
Materials Management
Multidisciplinary Studies
OB/GYN Nurse Practitioner
OSHA Regulatory Compliance
Post Baccalaureate Teacher Education
Professional Development for Educators
Professional Sales Skills
Purchasing
Risk Management
Sales Management
School Guidance Counselor
School Nurse
Secondary Methodology
Special Education
TQM for Manufacturing
TQM for Service
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 the assessment by faculty
members (according to the guidelines of the Council for Adult and Experiential
Education ("CAEL")) for the potential award of credit. The average number of
credits awarded to UOP undergraduate students who utilized the process between
1991 and 1995 was six credits of the 120 required to graduate. Approximately 70%
of these credits were attributable to professional and nonregionally accredited
course work. 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.
24
26
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, UOP and the
IPD client institutions 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:
NUMBER OF IPD
DEGREE PROGRAMS
CLIENT INSTITUTIONS
--------------------------------------------------------------------------Associate of Arts in General Studies....................
Associate of Arts in Liberal Arts.......................
Associate of Science in Business........................
Bachelor of Business Administration.....................
Bachelor of Science in Business Administration..........
Bachelor of Science in Nursing..........................
Bachelor of Science in Management.......................
Bachelor of Science in Human Resources Management.......
Bachelor of Science in Organizational Leadership........
Bachelor of Science in Supervision and Leadership.......
Master of Business Administration.......................
Master of Science in Management.........................
Master of Science in Health.............................
Master of Arts in Education.............................
The IPD-assisted programs also include a limited number of general
education courses, certificate programs and areas of specialization.
25
1
1
5
8
4
1
7
1
1
1
7
4
1
2
27
WIU PROGRAMS.
programs:
WIU currently offers the following degree and certificate
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
Health Care Management
International Business
Management
Management Information Services
Marketing
MASTER OF PUBLIC ADMINISTRATION
MASTER OF SCIENCE
Accounting
Health Care Information Resources Management
Information Services
Information Systems Engineering
ADVANCED CERTIFICATE PROGRAMS
- -----------------------------------------------------Corporate Management
Finance
International Business
Management Information Systems
Marketing
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. WIU provides educational programs in a
semester-based format and does not focus exclusively on working adult students.
FACULTY. UOP's faculty is comprised of approximately 3,000 working
professionals with earned masters or doctoral degrees and an average of 16 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; (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. 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 80 working professionals. WIU's
practitioner faculty possess earned masters or doctoral degrees and participate
in a selection and training process that is similar to that at UOP.
26
28
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 both a graduation survey and a survey of a random
selection of graduates two years after 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 over the next year.
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 Degree ("G.E.D.") and satisfy certain
minimum grade point average, employment and age requirements. Additional
requirements may 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
ONLINE(TM) COMPUTER CONFERENCING. UOP established Online(TM), its
computer-based educational delivery system, in 1989 by modifying its classroom
courses for delivery at the same level of quality through the use of computers.
Online(TM) is currently accessible both nationally and internationally wherever
there is adequate phone service or access to CompuServe(R) or the Internet.
Online(TM) utilizes a computer conferencing system that enables students and
faculty to participate in a learning group of 10 to 12 students. Online(TM)
students can complete their course requirements at any time of the day, from
locations where they have access to a computer and a modem. Students and faculty
interact daily in an electronic classroom without having to be online at the
same time. As required in campus-based courses, Online(TM) students also
participate in weekly study groups.
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.
At November 30, 1995, there were approximately 2,600 students utilizing the
Company's distance education delivery systems, approximately half of whom are
enrolled in Online(TM). Distance education is currently subject to certain
regulatory constraints. See "Business -- Federal Financial Aid Programs -Restrictions on Distance Education Programs" and "Business -- State
Authorization."
27
29
CUSTOMERS
The Company's customers consist of working adult students, colleges and
universities, governmental agencies and employers. Based on recent student
surveys, the average age of UOP students is in the mid-thirties, approximately
54% are women and 46% are men, and the average annual household income is
$53,000. Approximately 74% of UOP students have been employed on a full-time
basis for nine years or more. Currently, 67% of UOP students are seeking
undergraduate degrees. 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:
AGE
PERCENTAGE OF STUDENTS
- -------------------------------Under 25
26 to 33
34 to 45
46 and over
--100%
================
12%
35%
42%
11%
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 startup 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
80% 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 83% receive at least one-half tuition reimbursement
and approximately 42% receive full tuition reimbursement.
CORPORATE PARTNERSHIPS
The Company seeks to establish strategic relationships 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.
In the fourth quarter of 1995, UOP formed an educational partnership with
AT&T to provide graduate and undergraduate degree and certificated learning
programs to AT&T's 200,000 employees worldwide. A significant aspect of the
alliance is an articulation agreement between UOP and the AT&T School of
Business that enables UOP to award undergraduate and graduate program credit for
certain course work completed through the AT&T School of Business. The
partnership will provide AT&T managers with a variety of ways to participate in
UOP's programs, depending on their individual schedules and availability,
including course work delivered on campus, at AT&T sites or through one or more
of UOP's distance education delivery systems.
In the fourth quarter of 1995, UOP also formed an educational partnership
with Ingram Micro, Inc., a leading distributor of computer and software
products, to provide training and certification for Novell and Microsoft
software. These programs began in June 1995 at UOP's Northern and Southern
California campuses. UOP computer labs, equipped and maintained by Ingram Micro,
Inc., will serve as training sites for technical professionals who wish to
obtain or enhance skills as network administrators.
28
30
MARKETING
To generate interest among potential UOP, WIU and IPD client institution
students, UOP, WIU and IPD engage 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. 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 is currently implementing its proprietary
marketing systems at WIU to help it identify and manage lead sources and
referral data.
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 200 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.
The Company also has a "Web Site" on the Internet World Wide Web
(http://www.apollogrp.com) that allows electronic access to Company and product
information and research. The Company's Web Site is accessible from major online
networks such as Prodigy(R)*, CompuServe(R) and America OnLine(R). The Company
recently completed an agreement to provide direct access to the Company's Web
Site from the Microsoft Network(R).
ACQUISITION STRATEGY
The Company periodically evaluates opportunities to acquire businesses and
facilities that complement the Company's business strategy. 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.
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, the Company competes to a lesser extent with other
for-profit degree granting institutions on a regional basis.
- --------------*CompuServe(R) is a registered trademark of CompuServe Incorporated,
Columbus, Ohio, Prodigy(R) is a registered trademark of Trintex, White Plains,
New York, Microsoft Network(R) is a registered servicemark of Microsoft
Corporation, Redmond, Washington and America OnLine(R) is a registered trademark
of America Online, Inc., Vienna, Virginia.
29
31
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. Although adult students currently comprise
approximately 44% of all college and university enrollments, few of these
institutions have modified their educational delivery systems to meet the unique
needs of working adult students. Institutions providing programs designed for
working adults typically target executives or other subsets of the working adult
population and tend to provide those programs at only a few sites.
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.
LEGAL PROCEEDINGS
As of the date of this Prospectus, the Company is not a party to any legal
proceedings, the adverse outcome of which, in management's opinion, would have a
material adverse effect on the Company's operating results.
EMPLOYEES
At November 30, 1995, the Company had the following numbers of employees:
FULL-TIME
---------
PART-TIME
---------
FACULTY
-------
TOTAL
-------
Apollo......................................
UOP.........................................
IPD.........................................
WIU.........................................
----------------------------Total.............................
1,368
=======
=======
=====
=======
189
977
178
24
5
97
10
24
136
-2,967(2)
--(3)
85(2)
3,052
4,556
- -----------------------(1) Consists primarily of employees in corporate accounting, payroll and human
resources, information systems, financial aid and Apollo Press.
(2) Consists primarily of part-time professional faculty contracted on a
course-by-course basis.
(3) Faculty teaching IPD-assisted programs are employed by IPD client
institutions.
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
30
194(1)
4,041
188
133
32
activities and costs of doing business of UOP, 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 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
for 1996-97. 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, 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 received approval of the transfer of NCA accreditation from Western in
October 1995. Western originally received its accreditation from NCA in 1984.
See "Business -- Federal Financial Aid Programs -- Western International
University, Inc.".
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. If the NLN accreditation is not reaffirmed, UOP's BSN
program could be adversely affected.
UOP's Master of Counseling ("MC") degree received program accreditation
from the Council for Accreditation of Counseling and Related Educational
Programs ("CACREP") in May 1995. The next CACREP reaffirmation is scheduled for
1997.
FEDERAL FINANCIAL AID PROGRAMS
UOP and IPD client institution students participate in Title IV Programs.
UOP derives approximately 68% of its net revenues from students who participate
in Title IV Programs. The Company believes that IPD derives a similar percentage
of its net revenues from students who participate in Title IV Programs
administered by the respective IPD client institutions. These students are
eligible for Title IV financial aid because: (1) UOP and IPD client institutions
are accredited by an accrediting association recognized by the
31
33
DOE; (2) the DOE has certified UOP's and IPD client institutions' Title IV
Program eligibility and (3) UOP and IPD client institutions have applicable
state authorization to operate and their operating sites have been approved by
the DOE. As a result of the Company's acquisition of certain assets of Western,
WIU currently is not eligible to participate in Title IV Programs. WIU has
applied for DOE approval to resume participation in Title IV Programs. See
"Business -- Federal Financial Aid Programs -- Western International University,
Inc."
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:
THE "12-HOUR RULE". Currently, the Regulations place limits on the amount
of Title IV Program funds that a student is eligible to receive in any one
academic year (as defined by the DOE). The Regulations also specify that, for
undergraduate programs, an academic year must consist of at least an equivalent
30 weeks of instruction and a minimum of 24 credit hours. The new Regulations
define an equivalent "week of instruction" as 12 hours of regularly scheduled
instruction, examinations or preparation for examinations (the "12-Hour Rule").
For programs that consist of eight hours per week of instruction, such as those
offered by UOP and IPD client institutions, the academic year must be a minimum
of 45 calendar weeks to meet the DOE's equivalent 30 weeks of instruction to
qualify for Title IV funding. If UOP were required by the DOE to increase the
length of its undergraduate academic year to more than the current 45 calendar
weeks, it would reduce the maximum amount of Title IV funding available to UOP's
students, which could have a material adverse effect on the Company.
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. Prior to July 1, 1995, higher education
institutions were also required to maintain a minimum cash reserve 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. Effective July 1, 1995, an
institution is required to submit an irrevocable letter of credit to the DOE,
rather than maintain the cash reserve. 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 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, 1995, UOP's acid test ratio was 1.31 to
1. On September 1, 1995, WIU's acid test ratio was 2.73 to 1.
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 by these requirements include the business facilities of
client companies, military bases and conference facilities used by UOP and WIU.
The Company has obtained approval for all UOP locations required to be approved
by the Regulations and is seeking reaffirmation of approval for WIU's locations.
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 new 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 Western's
percentage was 72% and 66% at August 31, 1995, respectively). UOP and WIU are
required to calculate this percentage at the end of each fiscal year.
32
34
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 1992, the most recent DOE cohort default rate
reporting period, the national cohort default rate average for all higher
education institutions was 15%. UOP and WIU students' cohort default rates as
reported by the DOE were 5% and 4.7%, respectively, and IPD client institution
students' cohort default rates averaged 5% 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. The HEA specifies that the states are not required to operate the
SPREs without Federal funding, and the Company believes that without such
funding the SPREs will not operate.
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.
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. Under the HEA and the Regulations, the eligibility to participate in
Title IV Programs of each currently participating institution will expire in
1997 or earlier and each institution will be required to reapply for continued
eligibility every four years thereafter. The DOE will assess each institution's
compliance with the HEA and the Regulations. UOP's eligibility to participate in
Title IV Programs expires in 1997. If the DOE does not renew UOP's eligibility,
it will 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 impact on its business strategy.
DIRECT LENDING PROGRAMS. The DOE has instituted a new direct lending
program and various institutions have been invited to participate in the initial
phases of the program. The direct lending program, as currently defined by the
DOE, would have the effect of eliminating 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, but there is uncertainty as to
when this goal will be fully attained. Recently, certain members of Congress
have proposed to limit and/or eliminate 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
33
35
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 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 to NCA. 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, it would have a material
adverse effect on the Company.
WESTERN INTERNATIONAL UNIVERSITY, INC. Prior to its acquisition by the
Company, Western participated in Title IV Programs. However, the acquisition of
Western by the Company is considered a change in ownership and control which
results in the termination of Western's participation in the Title IV Programs.
Under the HEA, and the Regulations, WIU can resume participation in the Title IV
Programs if the DOE certifies its eligibility to participate. WIU has received
approval to operate under new ownership by the Arizona State Board for
Post-Secondary Education and has received approval from NCA for the transfer of
accreditation to WIU. WIU has applied with the DOE to resume participation in
Title IV programs. Prior to obtaining approval from the DOE, WIU will not be
able to disburse funds awarded by Western or process new Title IV financial aid.
The Company has arranged for a temporary alternative lender to provide
non-recourse financing to credit-qualifying students during this interim period.
If the DOE does not certify that WIU is eligible to participate in Title IV
Programs, it would have a material adverse effect on WIU. In conjunction with
the acquisition, WIU assumed the Title IV liabilities of Western in the
estimated amount of $210,000. This amount and the goodwill recorded related to
the acquisition is subject to change based on the DOE's audit of Western's Title
IV Programs to commence in January 1996.
STATE AUTHORIZATION
UOP currently is authorized to operate in nine states and Puerto Rico. UOP
has held these authorizations for periods ranging from three months to eighteen
years. UOP's NCA accreditation is accepted as evidence of compliance with
applicable state regulations in Arizona, Colorado, 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 February
1996. 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 1990 and expects to
renew its authorization in early 1996. 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.
34
36
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.
LOCATIONS
UOP currently has campuses and learning centers located throughout nine
states and Puerto Rico. The following is a current list of UOP main campuses,
divisions and learning centers and the respective opening dates and enrollments
as of November 30, 1995:
MAIN CAMPUSES, DIVISIONS
AND
FISCAL
RESPECTIVE LEARNING
YEAR
ENROLLMENT
CENTERS
OPENED
AT 11/30/95
- -------------------------- ---------------ARIZONA
Phoenix Campus............
1978
Mesa....................
1986
Northwest Phoenix.......
1990
Scottsdale..............
1994
Tucson Campus.............
1983
East Tucson.............
1993
Fort Huachuca...........
1993
CALIFORNIA
Orange County
(Fountain Valley)
Campus...............
1981
Diamond Bar.............
1992
Edwards Air Force
Base.................
1992
Lawndale................
1992
Van Nuys................
1990
Pasadena................
1995
Ontario.................
1995
Gardena.................
1996
Ventura.................
1996
San Jose Campus...........
1980
San Ramon...............
1985
San Francisco...........
1994
Pleasanton..............
1995
Fresno Campus.............
1995
San Diego Campus..........
1989
Vista...................
1994
Chula Vista.............
1996
Sacramento Campus.........
1993
Fairfield...............
1996
COLORADO
Denver Campus.............
1982
Aurora..................
1988
Colorado Springs........
1993
Northglenn..............
1995
HAWAII
Honolulu Campus...........
1993
LOUISIANA
New Orleans Campus........
1996
MICHIGAN
Detroit (Southfield)
Campus..................
1996
NEVADA
Las Vegas Campus..........
1994
Nellis Air Force Base...
1993
NEW MEXICO
Albuquerque Campus........
1985
Kirkland Air Force
Base.................
1993
Santa Fe................
1994
Santa Teresa -- Las
Cruces...............
1995
UTAH
Salt Lake City Campus.....
1984
Ogden...................
1992
Orem....................
1988
PUERTO RICO
Guaynabo Campus...........
1980
DISTANCE EDUCATION
4,265
1,655
5,638
2,853
54
1,439
689
3,196
395
13
43
425
1,257
1,627
1,029
Online(TM), San Francisco,
CA(1)...................
1989
Center for Distance
Education, Phoenix,
AZ(2)...................
1989
-----Total UOP enrollment at
November 30, 1995.......
======
1,360
1,201
27,139
- --------------(1) Programs are offered throughout the United States and internationally.
(2) Programs are offered in various states throughout the United States.
35
37
IPD currently has contracts with 15 institutions that offer programs at 29
campuses and learning centers in Connecticut, Georgia, Illinois, Indiana,
Kansas, Kentucky, Massachusetts, Minnesota, Mississippi, Missouri, North
Carolina, Ohio, South Carolina, Texas, Virginia and Wisconsin.
WIU currently offers its programs at four campuses and learning centers
located in Phoenix, Fort Huachuca and Douglas, Arizona and through Thames Lea
College in London, England.
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 November 30, 1995, with respect to properties leased by the
Company in excess of 5,000 square feet:
LOCATION
SQUARE
(CITY/STATE)
FEET
- ----------------------------------Phoenix, AZ........................
Phoenix, AZ........................
San Jose, CA.......................
Fountain Valley, CA................
San Diego, CA......................
Englewood, CO......................
Tucson, AZ.........................
Murray, UT.........................
Albuquerque, NM....................
Gardena, CA........................
Mesa, AZ...........................
Marietta, GA.......................
Overland Park, KS..................
San Francisco, CA..................
San Francisco, CA..................
Colorado Springs, CO...............
Pleasanton, CA.....................
Van Nuys, CA ......................
Sacramento, CA.....................
Costa Mesa, CA.....................
Aurora, CO.........................
Diamond Bar, CA....................
Ontario, CA........................
Lawndale, CA.......................
Quincy, MA.........................
Northglenn, CO.....................
Ogden, UT..........................
Crestview Hills, KY................
Phoenix, AZ........................
Charlotte, NC......................
Scottsdale, AZ.....................
Pasadena, CA.......................
Richmond, VA.......................
Vista, CA..........................
New Haven, CT......................
Guaynabo, PR.......................
Tucson, AZ.........................
Phoenix, AZ........................
Phoenix, AZ........................
Fresno, CA.........................
Las Vegas, NV......................
Overland Park, KS..................
San Ramon, CA......................
Vienna, VA.........................
Murray, UT.........................
-------
124,552
38,086
37,876
34,545
33,097
32,000
30,000
30,000
23,400
23,077
22,450
21,634
21,210
20,649
20,324
20,138
18,560
18,467
18,419
18,397
16,807
15,280
14,899
14,041
12,863
11,971
11,265
10,303
10,066
9,898
9,588
9,376
9,229
9,224
9,131
9,000
7,708
7,617
6,120
5,944
5,647
5,625
5,526
5,508
5,340
The lease on the Company's corporate headquarters, which includes the UOP
Phoenix Main Campus, was renewed in December 1995 for another five year term. In
December 1995, 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. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
36
38
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
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 November 30, 1995 concerning the Company's directors and
executive officers:
NAME
AGE
----------------------------
---
John G. Sperling, Ph.D...... 74
William H. Gibbs............ 45
Jerry F. Noble.............. 53
John D. Murphy.............. 49
Peter V. Sperling........... 35
and Director
James W. Hoggatt............ 38
Todd S. Nelson.............. 36
Dino D. DeConcini........... 61
J. Jorge Klor de Alva, J.D.,
Ph.D. .................... 47
Thomas C. Weir.............. 62
POSITION
---------------------------------------------------------Chairman of the Board and President
Senior Vice President and Director
Senior Vice President and Director
Senior Vice President-Institutional Affairs and Director
Vice President of Administration, Secretary and Treasurer
Vice President of Finance and Chief Financial Officer
Executive Vice President of UOP
Director
Director
Director
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 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
is the founder and current Vice President of the Independent Colleges and
Universities of Arizona and the founder and current Chairman of the Accredited
Out-of-State Colleges and Universities of California. Mr. Murphy is a member of
the Council for Private Post-Secondary and Vocational Education in California.
Mr. Murphy received an M.A. from the University of San Francisco and a B.A. from
San Jose State University.
37
39
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.
DINO J. DECONCINI has been a director of the Company since 1981. 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.
J. JORGE KLOR DE ALVA, J.D., PH.D., has been a director of the Company
since 1991 and is a member of the Audit and Compensation Committees of the Board
of Directors of the Company and is a director of UOP. Dr. Klor de Alva has been
the Class of 1940 Professor of Comparative Ethnic Studies and Anthropology at
the University of California at Berkeley since July 1994. 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 at the State University of New York at Albany. From 1982 to 1989, Dr.
Klor de Alva was also 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, the University of California at Santa
Cruz, Instituto de Investigaciones Historicas, Universidad Nacional Autonoma de
Mexico and the University of California at Berkeley.
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.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has two principal committees: (1) an Audit Committee
comprised of J. Jorge Klor de Alva (Chairperson) and Thomas C. Weir and (2) a
Compensation Committee comprised of Thomas C. Weir (Chairperson) and J. Jorge
Klor de Alva.
38
40
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of December 19, 1995, and as
adjusted to reflect the sale of 2,750,000 shares of Class A Common Stock offered
hereby, assuming that the Underwriters' over-allotment option is not exercised
by: (i) each of the Company's directors; (ii) all directors and officers as a
group and (iii) the Selling Shareholders. 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.
CLASS B SHARES
CLASS A SHARES
CLASS A SHARES
BENEFICIALLY OWNED
CLASS A SHARES BENEFICIALLY
TO BE SOLD
BENEFICIALLY OWNED
BEFORE AND AFTER
OWNED PRIOR TO THE OFFERING
IN THE OFFERING
AFTER THE OFFERING
THE OFFERING
NAME AND ADDRESS OF
------------------------------------------------------------------------------------BENEFICIAL OWNER(1)
NUMBER
PERCENT
NUMBER
NUMBER
PERCENT
NUMBER
PERCENT
- --------------------- ------------------------------------------------------------John G. Sperling.....
5,993,096(2)(3)
Peter V. Sperling....
6,447,081(2)(4)
William H. Gibbs.....
661,857(5)
Jerry F. Noble.......
705,189(6)
John D. Murphy.......
732,147(7)
Dino J. DeConcini....
18,700(8)
J. Jorge Klor de
Alva...............
20,000(9)
Thomas C. Weir.......
20,000(9)
Todd S. Nelson.......
243,288(10)
Total for All
Directors and
Executive Officers
as a Group (10
persons)........... 14,159,916(11)
27.7%
29.8
3.1
3.3
3.4
*
*
*
1.1
64.0%
1,000,000(3)
1,000,000(4)
225,000(5)
225,000(6)
225,000(7)
---75,000(10)
2,750,000
4,993,096(3)
5,447,081(4)
436,857(5)
480,189(6)
507,147(7)
18,700(8)
20,000(9)
20,000(9)
168,288(10)
11,409,916(11)
23.2%
25.2%
2.0%
2.2%
2.3%
*
243,081(12)
232,068(13)
27,950(14)
27,950
27,950
--
*
*
0.8%
51.5%
--8,385
575,769
- --------------* Less than 1%.
(1) 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.
(2) Includes 828,438 shares held by the John Sperling 1994 Irrevocable Trust
dated April 27, 1994 ("1994 Irrevocable Trust") for which Messrs. John and
Peter Sperling are the co-trustees.
(3) Includes 121,551 shares that Mr. John Sperling has the right to acquire
within 60 days of the date of the table set forth above. If the
Underwriters' over-allotment option is exercised, an additional 162,500
shares will be sold by the 1994 Irrevocable Trust for which Messrs. John
and Peter Sperling serve as co-trustees and thereafter Mr. John Sperling
will beneficially own 4,830,596 shares representing 22.3% of the total
shares outstanding after the Offering.
(4) Includes 73,664 shares that Mr. Peter Sperling has the right to acquire
within 60 days of the date of the table set forth above. If the
Underwriters' over-allotment option is exercised, an additional 162,500
shares will be sold by the 1994 Irrevocable Trust for which Messrs. John
and Peter Sperling serve as co-trustees, and thereafter Mr. Peter Sperling
will beneficially own 5,284,581 shares representing 24.5% of the total
shares outstanding after the Offering.
(5) Includes 72,484 shares that Mr. Gibbs has the right to acquire within 60
days of the date of the table set forth above. If the Underwriters'
over-allotment option is exercised, an additional 75,000 shares will be
sold by the Gibbs Family Trust dated July 14, 1994 for which Mr. Gibbs
serves as trustee, and thereafter Mr. Gibbs will beneficially own 361,857
shares representing 1.7% of the total shares outstanding after the
Offering.
(6) Includes 79,192 shares that Mr. Noble has the right to acquire within 60
days of the date of the table set forth above. If the Underwriters'
over-allotment option is exercised, an additional 75,000 shares will be
sold by Jerry Noble, and thereafter Mr. Noble will beneficially own 405,189
shares representing 1.9% of the total shares outstanding after the
Offering.
(7) Includes 85,900 shares that Mr. Murphy has the right to acquire within 60
days of the date of the table set forth above. If the Underwriters'
over-allotment option is exercised, an additional 75,000 shares will be
sold by the Murphy 1993 Revocable Trust dated February 26, 1993 for which
Mr. Murphy serves as
42.2%
40.3
4.9
4.9
4.9
---1.5
100.0%
39
41
trustee, and thereafter Mr. Murphy will beneficially own 432,147 shares
representing 2.0% of the total shares outstanding after the Offering.
(8) Includes 18,500 shares that Mr. DeConcini has the right to acquire within
60 days of the date of the table set forth above.
(9) Includes 20,000 shares that Mr. Klor de Alva and Mr. Weir have the right to
acquire within 60 days of the date of the table set forth above.
(10) Includes 73,664 shares that Mr. Nelson has the right to acquire within 60
days of the date of the table set forth above. If the Underwriters'
over-allotment option is exercised, an additional 25,000 shares will be
sold by Todd Nelson and thereafter Mr. Nelson will beneficially own 143,288
shares representing 0.7% of the total shares outstanding after the
Offering.
(11) Includes 609,639 shares that the Directors and Executive Officers as a
group have the right to acquire within 60 days of the date of the table set
forth. If the Underwriters' over-allotment option is exercised, an
additional 412,500 shares will be sold by the Directors and Officers as a
group, and thereafter the Directors and Executive Officers as a group will
beneficially own 10,997,416 shares representing 49.7% of the total shares
outstanding after the Offering.
(12) Includes 243,080 shares held by the John G. Sperling Revocable Trust dated
January 31, 1995.
(13) Includes 232,067 shares held by the Peter V. Sperling Revocable Trust dated
January 31, 1995.
(14) Includes 27,949 shares held by the William H. Gibbs Revocable Trust dated
March 8, 1995.
40
42
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 65,000,000 shares
of Class A Common Stock, no par value ("Class A Common Stock"); 3,000,000 shares
of Class B Common Stock, no par value ("Class B Common Stock"); and 1,000,000
shares of preferred stock, no par value ("Preferred Stock").
CLASS A COMMON STOCK
As of the date of this Prospectus there are outstanding 21,527,299 shares
of the Class A Common Stock. The holders of Class A Common Stock do not have any
voting rights with respect to shares of the Class A Common Stock. The holders of
the Class A Common Stock have no preemptive, subscription or additional
conversion rights. Upon a liquidation or dissolution of the Company, holders of
Class A Common Stock are entitled to share ratably with the holders of Class B
Common Stock in any corporate assets remaining after the payment of all debts,
subject to any preferential rights of any outstanding Preferred Stock. The Class
A Common Stock is not subject to assessment or further calls, has no redemption
provisions and is entitled only to such dividends as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Dividend Policy."
CLASS B COMMON STOCK
As of the date of this Prospectus, there are outstanding 575,769 shares of
the Class B Common Stock. The holders of Class B Common Stock are entitled to
one vote for each share held of record on all matters on which shareholders are
entitled to vote. The holders of the Class B Common Stock have no preemptive,
subscription or additional conversion rights. Upon a liquidation or dissolution
of the Company holders of Class B Common Stock are entitled to share ratably
with the holders of Class A Common Stock in any corporate assets remaining after
the payment of all debts, subject to any preferential rights of any outstanding
Preferred Stock. The Class B Common Stock is not subject to assessment or
further calls, has no redemption provisions and is entitled only to such
dividends as may be declared from time to time by the Board of Directors out of
funds legally available therefor. See "Dividend Policy." Each share of Class B
Common Stock is freely convertible into one share of Class A Common Stock at the
option of the Class B shareholder. All shares of Class B Common Stock will
automatically convert to shares of Class A Common Stock (on a share-for-share
basis) at such time as the number of shares of Class B Common Stock outstanding
is less than 115,154, in which case holders of Class A Common Stock will be
entitled to one vote per share (including the Class A Common Stock issued upon
the conversion of the Class B Common Stock). No additional shares of Class B
Common Stock may be issued by the Company except pursuant to a recapitalization
or stock split. All of the Class B Common Stock is currently held by the
Company's management and is subject to a Shareholders' Agreement, dated as of
September 7, 1994 (the "Shareholders' Agreement"). Subject to the Shareholders'
Agreement, shares of the Class B Common Stock must first be offered to the
Company and then to the other holders of the Class B Common Stock before such
shares may be transferred, except in the case of transfers to existing holders
of Class B Common Stock, executive officers of the Company or to a trust created
by a shareholder of Class B Common Stock. Upon transfer to any party, other than
an existing holder of Class B Common Stock or a an executive officer of the
Company, shares of Class B Common Stock must be converted to shares of Class A
Common Stock (on a share-for-share basis). Upon the death of any holder of Class
B Common Stock, that person's shares must be offered first to the Company and
then to the other Class B shareholders at the then fair market value. In
addition, parties to the Shareholders' Agreement agreed not to amend such
agreement before December 5, 1999 without the prior consent of Smith Barney Inc.
PREFERRED STOCK
The Board of Directors has the authority, without further action by the
shareholders, to issue from time to time up to 1,000,000 shares of Preferred
Stock in one or more series and to fix the number of shares, designations,
voting powers, preferences, optional and other special rights and the
restrictions or qualifications thereof. The rights, preferences, privileges and
restrictions or qualifications of different series of Preferred Stock may differ
with respect to dividend rates, amounts payable on liquidation, voting rights,
conversion rights, redemption provisions, sinking fund provisions and other
matters. The issuance of Preferred Stock
41
43
could decrease the amount of earnings and assets available for distribution to
holders of Class A Common Stock or Class B Common Stock or could adversely
affect the rights and powers, including voting rights, if applicable, of holders
of Class A Common Stock or Class B Common Stock and could have the effect of
delaying, deferring or preventing a change in control of the Company. As of the
date of this Prospectus there are no shares of Preferred Stock outstanding. The
Company has no present intention to issue any shares of Preferred Stock.
CERTAIN CHARTER PROVISIONS
The Company's Articles of Incorporation limit personal liability of
directors, to the Corporation or its shareholders, for monetary damages for
breach of their fiduciary duty as a director except to the extent such
limitation of liability is not permitted under Arizona law. Arizona law provides
that the liability of a director may not be eliminated or limited for: (1)
transactions in which a director receives a financial benefit to which the
director is not entitled; (2) an intentional infliction of harm on the
corporation or the shareholders; (3) liability for unlawful distributions in
violation of Arizona law or the Articles of Incorporation or (4) an intentional
violation of criminal law. In addition, the Company's Bylaws provide that the
Company may indemnify any and all of its directors and officers, or former
directors and officers, to the fullest extent permitted by law or by the
Articles of Incorporation against claims and liabilities to which such persons
may become subject. Arizona law generally provides that indemnification is
permissible only when the director or officer acted in good faith and in a
manner reasonably believed to be in the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe the conduct was unlawful. Subject to that standard of care,
indemnification is mandatory under Arizona law for "outside directors" as
defined under Arizona law. The Company's outside directors are Messrs.
DeConcini, Klor de Alva and Weir. Indemnification of directors is precluded in
connection with a proceeding by or in the right of the corporation in which the
director was adjudged liable to the corporation or in connection with any other
proceeding charging improper personal benefit to the director, whether or not
involving action in the director's official capacity, in which the director was
adjudged liable on the basis that personal benefit was improperly received by
the director.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock is First
Interstate Bank of California.
42
44
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have 21,527,299 shares
of Class A Common Stock outstanding, all of which will be freely tradeable
except: (1) 10,387,777 shares which are held by persons who are "affiliates" of
the Company for purposes of Rule 144 and (2) all or any portion of the 412,500
shares held by the Selling Shareholders which are not sold to the Underwriters
pursuant to their over-allotment option, which will continue to be "restricted
securities" for purposes of Rule 144.
In general, as Rule 144 currently provides, a person (or persons whose
shares are aggregated) who has beneficially owned "restricted" shares for at
least two years, including persons who may be deemed "affiliates" of the
Company, as that term is defined under Rule 144, would be entitled to sell (in
accordance with the provisions specified in the rule) within any three month
period a number of shares that does not exceed the greater of 1% of the then
outstanding shares of the Class A Common Stock (approximately 215,270 shares
immediately following the Offering) or the average weekly trading volume of each
class of such shares in the over-the-counter market during the four calendar
weeks preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission (the "Commission"). An "affiliate" of the
Company may sell securities that are not "restricted" without regard to the
period of beneficial ownership but subject to the volume limitations described
above and other conditions of Rule 144, subject to restrictions on affiliates. A
person who is not deemed an "affiliate" of the Company (and has not been for at
least 90 days) and who has beneficially owned his or her shares for at least
three years, would be entitled to sell such shares under Rule 144 without regard
to the volume limitations described above, manner of sale provisions, notice
requirements or availability of public information.
All of the Company's officers and directors and the Selling Shareholders
have agreed that they will not, without the prior written consent of Smith
Barney Inc., sell, offer, contract to sell, or otherwise dispose of, any shares
of Class A Common Stock or any other securities convertible into or exercisable
or exchangeable for Class A Common Stock for a period of 180 days after the date
of this Prospectus. See "Underwriting" and "Principal and Selling Shareholders."
No prediction can be made of the effect, if any, that sales of share or the
availability of such shares for sale will have on the market price prevailing
from time to time. Nevertheless, sales by the existing shareholders of
substantial amounts of the Class A Common Stock in the public market could
adversely affect prevailing market conditions.
43
45
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below (the
"Underwriters") has severally agreed to purchase, and the Selling Shareholders
have agreed to sell to such Underwriter, the number of shares of Class A Common
Stock set forth opposite the name of such Underwriter.
NUMBER
UNDERWRITER
OF SHARES
- ----------------------------------
---------
Smith Barney Inc..................
Alex. Brown & Sons Incorporated...
NUMBER
UNDERWRITER
OF SHARES
- ----------------------------------
---------
Montgomery Securities.............
--------TOTAL........................... 2,750,000
========
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Class A Common
Stock offered hereby (other than those covered by the over-allotment option
described below) if any such shares are taken.
The Underwriters, for whom Smith Barney Inc., Alex. Brown & Sons
Incorporated and Montgomery Securities are acting as the Representatives,
propose to offer part of the shares directly to the public at the public
offering price set forth on the cover page of this Prospectus and part of the
shares to certain dealers at a price which represents a concession not in excess
of $
per share under the public offering price. The Underwriters may allow,
and such dealers may reallow, a concession not in excess of $
per share to
certain other dealers.
The Selling Shareholders have granted to the Underwriters an option,
exercisable for thirty days from the date of this Prospectus, to purchase up to
412,500 additional shares of Class A Common Stock at the price to public set
forth on the cover page of this Prospectus minus the underwriting discounts and
commissions. The Underwriters may exercise such option solely for the purpose of
covering over-allotments, if any, in connection with the offering of the shares
offered hereby. To the extent such option is exercised, each Underwriter will be
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional shares as the number of shares set forth opposite
each Underwriter's name in the preceding table bears to the total number of
shares listed in such table.
The Company, its officers and directors and the Selling Shareholders have
agreed that, for a period of 180 days from the date of this Prospectus, they
will not, without the prior written consent of Smith Barney Inc., offer, sell,
contract to sell, or otherwise dispose of, any shares of Class A Common Stock of
the Company or any securities convertible into, or exercisable or exchangeable
for, Class A Common Stock of the Company.
The Company, the Selling Shareholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
The rules of the Securities and Exchange Commission ("Commission")
generally prohibit the Underwriters from making a market in the Class A Common
Stock during the two business days prior to commencement of sales in this
Offering (the "Cooling Off Period"). The Commission has, however, adopted Rule
10b-6A of the Exchange Act ("Rule 10b-6A"), which provides an exemption from
such prohibition for certain passive market making transactions. Such passive
market making transactions must comply with applicable price and volume limits
and must be identified as passive market making transactions. In general,
pursuant to Rule 10b-6A, a passive market maker must display its bid for a
security at a price not in excess of the highest independent bid for the
security. If all independent bids are lowered below the passive market maker's
bid, however, such bid must then be lowered when certain purchase limits are
exceeded. Further, net purchases by a passive market maker on each day are
generally limited to a specified percentage of the passive market maker's
average daily trading volume in a security during a specified prior period and
must be discontinued when such limit is reached. Pursuant to the exemption
provided by Rule 10b-6A, certain of the Underwriters and selling group members
may engage in passive market making in the Class A Common Stock during the
Cooling Off Period. Passive market making may stabilize the market price of the
Class A Common Stock at a level above that which might otherwise prevail, and if
commenced, may be discontinued at any time.
44
46
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Selling Shareholders by Snell & Wilmer L.L.P. Certain legal matters relating to
the Offering will be passed upon for the Underwriters by O'Melveny & Myers. As
to matters of Arizona law, O'Melveny & Myers will rely on the opinion of Snell &
Wilmer L.L.P.
EXPERTS
The consolidated financial statements as of August 31, 1995 and 1994 and
for each of the three years in the period ended August 31, 1995 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
45
47
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, information statements and other
information with the Commission. The reports, information statements and other
information filed by the Company with the Commission can be inspected and copied
at the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at its regional offices located at 7 World Trade Center, 13th Floor, New
York, New York 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such information can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Company's Class A Common Stock
is listed on Nasdaq and similar information can be inspected and copied at the
offices of the National Association of Securities Dealers, Inc. at 1735 K
Street, N.W., Washington, D.C. 20006.
This Prospectus constitutes a part of a registration statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Company with the Commission under the Securities Act.
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain of the information contained in the Registration Statement and
reference is hereby made to the Registration Statement and related exhibits for
further information with respect to the Company and the securities offered
hereby. Statements contained herein concerning the provisions of any documents
filed as an exhibit to the Registration Statement or otherwise filed with the
Commission are not necessarily complete, and in each instance reference is made
to the copy of such document so filed. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the Commission
and are hereby incorporated by reference into this Prospectus: (1) Annual Report
on Form 10-K for the fiscal year ended August 31, 1995; (2) the Quarterly Report
on Form 10-Q for the quarter ended November 30, 1995 and (3) the description of
the Class A Common Stock contained in the Company's Registration Statement on
Form 8-A/A1 filed with the Commission pursuant to Section 12(g) of the Exchange
Act. All other documents and reports filed pursuant to Sections 13, 14 or 15(d)
of the Exchange Act (except information included in any such document in
response to Items 402(i), 402(k) or 402(l) of Regulation S-K under the
Securities Act) from the date of this Prospectus and prior to the termination of
this offering of the securities shall be deemed to be incorporated by reference
herein and shall be deemed to be a part hereof from the date of the filing of
such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all documents which are incorporated herein by reference (not
including the exhibits to such documents, unless such exhibits are specifically
incorporated by reference in the document which this Prospectus incorporates).
Requests should be directed to Mr. James W. Hoggatt, Vice President of Finance
and Chief Financial Officer, Apollo Group, Inc., 4615 East Elwood Street,
Phoenix, Arizona 85040, telephone number (602) 966-5394.
46
48
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----Report of Independent Accountants.....................................................
Consolidated Statement of Operations..................................................
Consolidated Balance Sheet............................................................
Consolidated Statement of Changes in Shareholders' Equity.............................
Consolidated Statement of Cash Flows..................................................
Notes to Consolidated Financial Statements............................................
F-1
F-2
F-3
F-4
F-5
F-6
F-7
49
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, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended August 31, 1995, 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 12, 1995
F-2
50
APOLLO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
THREE MONTHS ENDED
YEAR ENDED AUGUST 31,
--------------------------------1993
1994
1995
---------------------
NOVEMBER 30,
------------------1994
1995
-------------
(UNAUDITED)
NET REVENUES..........................
--------------------COSTS AND EXPENSES:
Instruction costs and services......
Selling and promotional.............
General and administrative..........
--------------------95,533
116,425
141,600
--------------------Income before income taxes............
Less provision for income taxes.......
--------------------NET INCOME............................
=======
========
========
NET INCOME PER SHARE..................
=======
========
========
WEIGHTED AVERAGE SHARES OUTSTANDING...
$97,545
-------
$124,720
-------
65,319
15,812
14,402
------32,260
------2,012
869
------$ 1,143
=======
$
.08
=======
15,136
81,313
17,918
17,194
------41,882
------8,295
3,383
------$ 4,912
=======
$
.32
=======
15,281
$163,429
102,122
21,016
18,462
23,418
4,987
3,855
$49,727
29,959
6,328
5,595
21,829
9,229
4,205
1,661
7,845
3,256
$ 12,600
$ 2,544
$ 4,589
$
$
$
.62
20,485
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
$36,465
.17
15,281
.20
22,504
51
APOLLO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
AUGUST 31,
-------------------1994
1995
-------------(UNAUDITED)
NOVEMBER 30,
1995
------------
ASSETS:
CURRENT ASSETS -Cash and cash equivalents............................... $ 4,722
Restricted cash.........................................
8,094
Receivables, net........................................
14,236
Inventory...............................................
2,656
Deferred tax asset, net.................................
1,321
Prepaids and other current assets.......................
864
--------------------TOTAL CURRENT ASSETS......................................
31,893
Property and equipment, net...............................
6,799
Educational program production costs, net.................
1,914
Deferred tax asset, net...................................
306
Other assets..............................................
2,726
--------------------TOTAL ASSETS.............................................. $43,638
=======
========
========
LIABILITIES AND SHAREHOLDERS' EQUITY:
CURRENT LIABILITIES -Current portion of long-term liabilities................ $
183
Accounts payable........................................
5,325
Other accrued liabilities...............................
6,840
Income taxes payable....................................
310
Student deposits and deferred tuition...................
22,232
--------------------TOTAL CURRENT LIABILITIES.................................
34,890
--------------------Long-term liabilities, less current portion...............
1,347
--------------------Deferred tax liability, net...............................
--------------------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; 14,394,000 and 21,492,000 issued
and outstanding at August 31, 1994 and 1995,
respectively, and 21,527,000 issued and outstanding
at November 30, 1995.................................
9
Class B voting common stock, no par value, 3,000,000
shares authorized; 576,000 issued and outstanding....
1
Additional paid-in capital..............................
1,982
Retained earnings.......................................
5,409
--------------------TOTAL SHAREHOLDERS' EQUITY................................
7,401
--------------------TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $43,638
=======
========
========
$ 50,726
11,875
15,883
2,723
2,352
485
$
84,044
13,390
1,963
87,544
14,843
1,945
2,735
4,144
$102,132
$108,476
118
6,261
9,962
96
28,628
$
118
3,569
10,424
3,617
28,409
45,065
46,137
1,201
1,723
514
303
--
--
--
--
18
28
1
37,378
17,955
1
37,740
22,544
55,352
60,313
$102,132
$108,476
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
$ 52,609
10,797
17,386
2,813
3,088
851
52
APOLLO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands)
COMMON STOCK
--------------------------------------------------CLASS A
COMMON
NONVOTING
CLASS B VOTING
------------------------------------------ADDITIONAL
RETAINED
STATED
STATED
STATED
PAID-IN
EARNINGS
SHARES
VALUE
SHARES
VALUE
SHARES
VALUE
CAPITAL
(DEFICIT)
----------------------------------------------BALANCE AT AUGUST 31, 1992.................
1,118
$ 10
-$ -New issue..................................
34
Net income.................................
-------------------------------BALANCE AT AUGUST 31, 1993.................
1,152
10
--Recapitalization:
6,909 shares of Class A Common Stock
and 576 shares of Class B Common
Stock issued in exchange for
1,152 shares of common stock.......... (1,152)
(10)
6,909
9
576
Grant of stock options.....................
Net income.................................
-------------------------------BALANCE AT AUGUST 31, 1994.................
--6,909
9
Stock issued by public offering............
3,516
4
Stock issued under stock purchase plans....
29
Stock issued under stock option plans......
12
Stock canceled under stock option plans....
(3)
4-for-3 stock split........................
3,673
5
Tax benefit related to stock options
exercised................................
Net income.................................
-------------------------------BALANCE AT AUGUST 31, 1995.................
--14,136
18
3-for-2 stock split........................
7,356
10
Stock issued under stock purchase plans....
13
Stock issued under stock option plans......
22
Tax benefit related to stock options
exercised................................
Net income.................................
-------------------------------BALANCE AT NOVEMBER 30, 1995 (UNAUDITED)...
-$ -21,527
$ 28
======
===
======
===
===
====
=======
=======
--
$ --
--
--
32
81
$
(646)
1,143
113
497
1
1,869
4,912
576
1
1,982
34,854
388
97
(22)
(5)
5,409
(54)
84
12,600
576
1
37,378
(10)
201
39
17,955
132
4,589
576
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
$
$
1
$ 37,740
$ 22,544
53
APOLLO GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
THREE MONTHS ENDED
YEAR ENDED AUGUST 31,
-----------------------------------1993
1994
1995
-----------------------(UNAUDITED)
NOVEMBER 30,
--------------------1994
1995
---------------
NET CASH RECEIVED FROM (USED FOR) OPERATING
ACTIVITIES:
Cash received from customers.............. $ 96,787
$ 117,187
Cash paid to employees and suppliers......
(90,460)
(105,858)
Interest received.........................
95
280
Interest paid.............................
(279)
(153)
Net income taxes received (paid)..........
78
(4,962)
---------------------------------------Net cash received from operating
activities.............................
6,221
6,494
---------------------------------------NET CASH RECEIVED FROM (USED FOR) INVESTING
ACTIVITIES:
Purchase of property and equipment........
(2,547)
(4,724)
Additions to educational program
production costs.......................
(1,527)
(1,380)
Decrease in notes receivable..............
145
Cash paid at acquisition of Western, net
of cash acquired.......................
---------------------------------------Net cash used for investing activities....
(3,929)
(6,104)
---------------------------------------NET CASH RECEIVED FROM (USED FOR) FINANCING
ACTIVITIES:
Borrowings on line of credit..............
12,875
11,190
Repayments of borrowings on line of
credit.................................
(13,075)
(11,190)
Proceeds from sale-leaseback of assets....
2,401
Principal payments on long-term debt......
(632)
(912)
Issuance of stock.........................
81
Retirement of stock.......................
Tax benefits related to exercise of
options................................
---------------------------------------Net cash received from (used for)
financing activities...................
(751)
1,489
---------------------------------------Net increase (decrease) in cash and cash
equivalents...............................
1,541
1,879
Cash and cash equivalents, beginning of
period....................................
1,302
2,843
---------------------------------------CASH AND CASH EQUIVALENTS, END OF PERIOD.... $ 2,843
$
4,722
========
=========
=========
=========
=========
$ 159,349
(129,442)
2,207
(96)
(9,692)
$ 34,578
(32,239)
132
(16)
(689)
$ 46,155
(41,522)
692
(20)
(546)
22,326
1,766
4,759
(9,944)
(1,548)
(261)
(2,357)
(307)
(584)
(11,492)
(2,313)
(181)
35,321
(54)
(10)
35,170
132
(10)
46,004
4,722
$
50,726
(3,248)
240
84
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
(2,052)
(557)
4,722
$
4,165
372
1,883
50,726
$ 52,609
54
APOLLO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INFORMATION AS OF AND FOR THE PERIODS ENDED
NOVEMBER 30, 1994 AND 1995 IS UNAUDITED
NOTE 1.
NATURE OF OPERATIONS
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. The Company's
fiscal year is from September 1 to August 31. Unless otherwise stated,
references to the years 1993, 1994 and 1995 relate to the fiscal years ended
August 31, 1993, 1994 and 1995, respectively.
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 45
campuses and learning centers located in Arizona, California, Colorado, Hawaii,
Louisiana, Michigan, Nevada, New Mexico, Utah and Puerto Rico. UOP also offers
its educational programs nationally and internationally through OnlineTM, its
computerized educational delivery system wherever there is adequate phone
service or access to CompuServe(R) or the Internet. 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 15 regionally accredited private colleges and universities. IPD is
currently operating in 16 states.
WIU was acquired on September 1, 1995. See Note 3.
NOTE 2.
SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Apollo and its wholly-owned 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.
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 in U.S.
Treasury backed securities with maturities of ninety days or less.
REVENUES, RECEIVABLES AND RELATED LIABILITIES. The Company's educational
programs range in length from one-day seminars to degree programs lasting up to
46 months. 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
F-7
55
APOLLO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE PERIODS ENDED
NOVEMBER 30, 1994 AND 1995 IS UNAUDITED
five to six weeks, most of the deferred tuition revenue 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:
AUGUST 31,
------------------1994
1995
-------------
NOVEMBER 30,
1995
------------
Trade receivables..................................
Interest receivable................................
Income tax receivable..............................
------------------15,693
18,336
20,822
Less allowance for doubtful accounts...............
------------------Total receivables, net................... $14,236
=======
=======
=======
$15,678
15
$17,991
208
137
(1,457)
(2,453)
$15,883
$ 20,561
261
(3,436)
$ 17,386
Bad debt expense was $1.1 million, $1.8 million and $1.8 million for 1993,
1994 and 1995, respectively.
Student deposits and deferred tuition consist of the following, in
thousands:
AUGUST 31,
------------------1994
1995
-------------
NOVEMBER 30,
1995
------------
Student deposits...................................
Deferred tuition revenue...........................
------------------Total student deposits and deferred
tuition................................ $22,232
=======
=======
=======
$12,689
9,543
$28,628
$17,756
10,872
$ 28,409
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.
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 $1.8
million, $2.0 million and $2.8 million for 1993, 1994 and 1995, respectively.
Maintenance and repairs are expensed as incurred.
$ 17,616
10,793
EDUCATIONAL PROGRAM PRODUCTION COSTS. Direct costs incurred in the
original production of, and improvements to, educational courses are
capitalized, then recognized 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
F-8
56
APOLLO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE PERIODS ENDED
NOVEMBER 30, 1994 AND 1995 IS UNAUDITED
generally placed in service within four to six months after the program
production commences. These direct costs primarily include contract-based
curriculum development, salaries and wages for staff directly engaged in the
development process and the costs of royalties and reprint permissions. Any
unamortized cost is charged to expense whenever a course or program is
discontinued. From 1993 through 1995, less than 4% 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 $1.1 million, $1.4 million
and $1.4 million for 1993, 1994 and 1995, respectively.
GOODWILL AND OTHER INTANGIBLE ASSETS. Goodwill and other intangible assets
consist primarily of the excess of costs over the fair value of the assets
acquired from Western. These assets are being amortized on a straight-line basis
over the estimated life of 15 years.
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 and rental
deposits are provided for lease agreements that specify payments in advance or
scheduled rent decreases over the lease term.
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.
STARTUP COSTS. Costs related to the startup of new campuses and learning
centers are expensed as incurred.
NON-OPERATING INCOME AND EXPENSE. Interest income is included in net
revenues and totaled $84,000, $280,000 and $2.4 million for 1993, 1994 and 1995,
respectively. For the three-month period ended November 30, 1994 and 1995,
interest income totaled $141,000 and $745,000, respectively. Interest expense,
including the imputed interest on deferred compensation agreements, is expensed
as incurred. Interest expense totaled $255,000, $153,000 and $96,000 for 1993,
1994 and 1995, respectively.
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, capitalization of educational program production
costs for financial reporting purposes, loss reserves not deductible 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 tax benefit resulting from this tax deduction is
reflected as a decrease in the Company's income tax liability and an increase to
additional paid-in capital.
RECAPITALIZATION AND STOCK SPLITS. In June 1994, the Company issued six
shares of Class A Common Stock and .5 shares of Class B Common Stock in exchange
for each share of common stock outstanding at
F-9
57
APOLLO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE PERIODS ENDED
NOVEMBER 30, 1994 AND 1995 IS UNAUDITED
that date. In September 1994, the Company's Class A and Class B Common Stock
underwent a 1.118 to 1 stock split. On March 24, 1995, the Board of Directors
authorized a 4-for-3 stock split, effected in the form of a stock dividend of
1/3 additional shares of Class A Common Stock for each share of Class A or
Class B Common Stock owned by shareholders of record on April 7, 1995, to be
distributed on April 28, 1995. On August 25, 1995, the Board of Directors
authorized a 3-for-2 stock split, effected in the form of a stock dividend of
1/2 additional shares of Class A Common Stock for each share of Class A or
Class B Common Stock owned by shareholders of record on September 8, 1995, to be
distributed on September 22, 1995.
The June 1994 recapitalization and the three subsequent stock splits have
been given retroactive recognition in each period presented in the accompanying
consolidated financial statements.
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
recapitalization and stock splits 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 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,
1994 and 1995 have been reclassified to conform to the current presentation,
having no effect on net income.
NOTE 3.
ACQUISITION OF CERTAIN ASSETS OF WESTERN INTERNATIONAL UNIVERSITY
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. In exchange, WIU paid Western $237,000 in cash, including
amounts advanced to Western prior to the closing, and assumed an additional $1.8
million in liabilities. The liabilities consisted of $1.3 million of current
liabilities, $393,000 of which was paid on the acquisition date, and $503,000 of
long-term debt. WIU assumed the Title IV liabilities of Western in the estimated
amount of $210,000. This amount and the goodwill recorded related to the
acquisition is subject to change based on the DOE's audit of Western's Title IV
Programs to commence in January 1996. The excess of costs over the fair value of
the assets acquired was $1.6 million and will be amortized on a straight-line
basis over fifteen years.
WIU has received approval to operate under new ownership by the Arizona
State Board for Post-Secondary Education and has received approval from NCA for
the transfer of accreditation to WIU. WIU has applied with the DOE to resume
participation in Title IV programs. Prior to obtaining approval from the DOE,
WIU will not be able to disburse funds awarded by Western or process new Title
IV financial aid.
The acquisition was accounted for under the purchase method and,
accordingly, the results of operations related to this new subsidiary are
included with those of the Company for periods subsequent to the date of
acquisition. Results of operations for periods prior to the acquisition were
immaterial. Western had consolidated net revenues of $4.3 million and pretax
income of $216,000 for the year ended August 31, 1995.
F-10
58
APOLLO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE PERIODS ENDED
NOVEMBER 30, 1994 AND 1995 IS UNAUDITED
NOTE 4.
DISCONTINUED TECHNICAL TRAINING SCHOOLS
In March 1992, the Company adopted a plan to discontinue the operations of
its technical training schools. The operations of these schools were phased out
over the period from March 1992 through October 1992. Pretax losses related to
the operations of the technical training schools were $265,000 in 1993.
NOTE 5.
FINANCIAL AID PROGRAMS
Approximately 50%-60% 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 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 FFEL programs.
The latest student default rates as reported by the DOE for these
guaranteed student loans are as follows:
FOR LOANS ENTERING
REPAYMENT DURING THE
DOE FISCAL YEAR ENDED
SEPTEMBER 30,
---------------------1990
1991
1992
---------Students attending:
UOP campuses.................................................
2.6%
IPD client institutions......................................
4.1%
Western campuses.............................................
7.0%
National average............................................... 22.4%
NOTE 6.
3.5%
5.6%
7.4%
17.8%
5.0%
5.3%
4.7%
15.0%
PROPERTY AND EQUIPMENT
Property and equipment consist of the following, in thousands:
AUGUST 31,
------------------1994
1995
-------------
NOVEMBER 30,
1995
------------
Land...............................................
Buildings..........................................
Furniture and equipment............................
Software...........................................
Capitalized equipment leases.......................
Leasehold improvements.............................
------------------14,087
21,072
23,243
Less accumulated depreciation......................
Less accumulated amortization of capitalized
equipment leases.................................
------------------Property and equipment, net.............. $ 6,799
=======
=======
=======
$
125
225
9,088
3,084
377
1,188
(7,059)
$
125
225
16,494
3,196
1,132
(7,682)
(8,400)
$ 14,843
During 1994, the Company sold furniture and equipment under a
sale-leaseback arrangement. The assets were sold for $2.4 million in cash,
resulting in a $351,000 gain that is being recognized pro rata over the term of
the related operating lease. In 1994 and 1995, the Company recognized a gain of
$88,000 and $117,000, respectively. In addition, the Company sold a house
located on leased land to the Company's Secretary and Treasurer for $140,000 in
1994. The book value of the building and related improvements, net of
accumulated
F-11
125
225
18,369
3,392
1,032
(229)
$13,390
$
59
APOLLO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE PERIODS ENDED
NOVEMBER 30, 1994 AND 1995 IS UNAUDITED
depreciation, was $148,000. The Company believes that the terms of this sale
were as favorable as could have been obtained from an unaffiliated party.
NOTE 7.
EDUCATIONAL PROGRAM PRODUCTION COSTS
Educational program production costs consist of the following, in
thousands:
AUGUST 31,
------------------1994
1995
-------------
NOVEMBER 30,
1995
------------
Educational program production costs...............
Less accumulated amortization......................
------------------Educational program production costs,
net.................................... $ 1,914
=======
=======
=======
$ 6,823
(4,909)
$ 7,722
(5,759)
$ 1,963
$
$
8,004
(6,059)
1,945
The net effect on pre-tax income of the capitalization and amortization of
educational program production costs amounts to an increase of $429,000 in 1993,
a decrease of $36,000 in 1994 and an increase of $49,000 in 1995.
NOTE 8.
DEPOSITS AND OTHER ASSETS
Deposits and other assets consist of the following, in thousands:
AUGUST 31,
----------------1994
1995
-----------
NOVEMBER 30,
1995
------------
Goodwill and other intangible assets, net............
Land held for sale...................................
Rental deposits......................................
Other deposits.......................................
------------------Total other assets......................... $2,726
=======
=======
=======
$
257
1,414
540
515
$
494
1,310
493
438
$2,735
$4,144
Goodwill and other intangible assets consist primarily of the excess of
costs over the fair value of the assets acquired from Western. Land held for
sale consists of approximately 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 $638,000 writedown in 1993 ($359,000 after
related tax benefit), a $135,000 writedown in 1994 ($80,000 after related tax
benefit) and a $104,000 writedown in 1995 ($60,000 after related tax benefit),
based on independent appraisals dated June 1993, August 1994 and May 1995,
respectively.
NOTE 9.
SHORT-TERM BORROWINGS
At August 31, 1995, the Company had no amounts borrowed against its $4.0
million line of credit. The line of credit is secured by receivables, inventory,
land held for sale and property and equipment and bears interest at prime (7.87%
at August 31, 1995). The line of credit is renewable annually and is payable
upon its termination in February 1996. The Company expects to renew this credit
line. 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.
F-12
$2,062
1,183
693
206
60
APOLLO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE PERIODS ENDED
NOVEMBER 30, 1994 AND 1995 IS UNAUDITED
NOTE 10.
OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following, in thousands:
AUGUST 31,
----------------1994
1995
-----------
NOVEMBER 30,
-----------1995
------------
Salaries and wages...................................
Employee benefits and payroll withholdings...........
Other accruals.......................................
----------------Total other accrued liabilities............ $6,840
======
======
=======
NOTE 11.
$3,186
1,166
2,488
$9,962
$4,252
1,856
3,854
$ 10,424
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 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 $668,000, $745,000
and $848,000 for 1993, 1994 and 1995, 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 provides for an annual grant of options to the Company's nonemployee
directors to purchase 6,000 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
November 30, 1995, there were 122,000 and 581,000 shares available for issuance
under the Director Stock Plan and LTIP, respectively, and, to date, only
non-qualified stock options have been granted. A
F-13
$
4,251
1,537
4,636
61
APOLLO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE PERIODS ENDED
NOVEMBER 30, 1994 AND 1995 IS UNAUDITED
summary of the activity related to the stock options granted under the Director
Stock Plan and LTIP follows, in thousands:
OPTIONS OUTSTANDING -Balance at August 31, 1993.................................................
-June 2, 1994 grant at $.935 per share...................................
369
----Balance at August 31, 1994.................................................
369
December 6, 1994 grant at $5.50 per share...............................
402
Exercised at $5.50 per share............................................
(18)
Canceled at $5.50 per share.............................................
(4)
----Balance at August 31, 1995.................................................
749
September 1995 grants at $20.17 to 25.42 per share......................
942
Exercised at $.935 to $5.50 per share...................................
(22)
Canceled at $25.42 per share............................................
(12)
----Balance at November 30, 1995............................................... 1,657
=====
OPTIONS EXERCISABLE -Balance at August 31, 1993 and 1994........................................
-=====
Balance at August 31, 1995.................................................
749
=====
Balance at November 30, 1995...............................................
727
=====
OPTIONS AVAILABLE FOR ISSUANCE -Balance at August 31, 1994................................................. 1,400
Less options granted....................................................
(771)
Plus options canceled...................................................
4
----Balance at August 31, 1995.................................................
633
Increase in available shares............................................ 1,000
Less options granted....................................................
(942)
Plus options canceled...................................................
12
----Balance at November 30, 1995...............................................
703
=====
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 493,000 to 1.5 million.
At the same time, the Company granted an additional 924,000 options to purchase
shares of Class A Common Stock, at $25.42 per share, to officers and certain key
employees under the LTIP. The options vest 25% at the end of seven years 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.
F-14
62
APOLLO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE PERIODS ENDED
NOVEMBER 30, 1994 AND 1995 IS UNAUDITED
The Purchase Plan allows employees of the Company to purchase up to 1.0
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 market value of a
share of Class A Common Stock on the purchase date. During the year ended August
31, 1995, 53,000 shares were purchased by eligible employees at prices ranging
from $5.58 to $11.32 per share. At August 31, 1995, there are 947,000 shares
available for purchase under the Purchase Plan.
NOTE 12.
LONG-TERM LIABILITIES
Long-term liabilities consist of the following, in thousands:
AUGUST 31,
----------------1994
1995
-----------
NOVEMBER 30,
1995
------------
Deferred compensation agreements, discounted at 7.5% to
12%........................................................ $
Deferred rental payments.....................................
Note payable related to acquisition of WIU, discounted at
9%.........................................................
Mortgage notes and capital lease obligations paid in full in
1995.......................................................
---------------Total long-term liabilities........................
1,530
Less current portion.........................................
---------------Total long-term liabilities, net................... $1,347
======
======
======
998
351
$1,004
315
$1,007
331
503
181
1,319
(183)
1,841
(118)
$1,201
$1,723
(118)
The aggregate maturities of all long-term liabilities for each of the five
fiscal years subsequent to August 31, 1995 are: 1996 -- $118,000;
1997 -- $126,000; 1998 -- $95,000; 1999 -- $49,000; 2000 -- $50,000.
The undiscounted deferred compensation liability was $1.8 million at both
August 31, 1994 and 1995. The discount rate for deferred compensation agreements
was determined at the date of each respective agreement based on the estimated
long-term rate of return on high-quality fixed income investments with cash
flows similar to the respective agreements.
NOTE 13.
LEASES
The Company is obligated under facility and equipment leases that are
classified as operating leases. Following is a schedule of future minimum lease
commitments as of August 31, 1995, in thousands:
OPERATING LEASES
----------------------EQUIPMENT
BUILDINGS
AND OTHER
----------------1996............................................................
1997............................................................
1998............................................................
1999............................................................
2000............................................................
Thereafter......................................................
-----------$ 51,422
$ 2,405
=======
======
F-15
$ 11,704
9,770
8,667
7,260
6,115
7,906
$ 1,611
670
119
4
1
63
APOLLO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE PERIODS ENDED
NOVEMBER 30, 1994 AND 1995 IS UNAUDITED
Facility and equipment rent expense totaled $11.5 million, $13.8 million
and $16.5 million for 1993, 1994 and 1995, respectively.
NOTE 14.
INCOME TAXES
Pre-tax earnings (loss) and the related components of the income tax
provision are as follows, in thousands:
THREE MONTHS ENDED
YEAR ENDED AUGUST 31,
------------------------------1993
1994
1995
------------------PRE-TAX EARNINGS (LOSS):
United States....................
Puerto Rico......................
----------------Total pre-tax
earnings............. $ 2,012
======
======
=======
INCOME TAX PROVISION (CREDIT):
Current -- state.................
Current -- federal...............
Deferred.........................
----------------Total provision for
income taxes......... $
869
======
======
=======
NOVEMBER 30,
------------------1994
1995
------------$ 2,091
(79)
------
$ 8,104
191
------
$21,401
428
$ 4,127
78
$ 8,295
======
$21,829
======
$ 4,205
$ 7,845
$
$ 1,072
3,399
(1,088)
------
$ 2,550
7,103
(424)
$
$ 9,229
======
$ 1,661
$ 3,256
244
559
66
------
$ 3,383
======
336
1,635
(310)
$ 7,563
282
$ 1,057
2,787
(588)
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:
THREE MONTHS ENDED
YEAR ENDED AUGUST 31,
------------------------------1993
1994
1995
-------------------
NOVEMBER 30,
------------------1994
1995
-------------
Income tax provision at expected
rate of 34% for 1993 and 1994
and 35% for 1995............... $
684
Nondeductible business meals.....
37
Non-taxable interest income......
State taxes, net of federal
benefit........................
141
Other, net.......................
7
------------------Total provision for
income taxes......... $
869
$ 3,383
====
======
======
======
F-16
$ 2,820
46
$ 7,640
172
(193)
$ 1,472
45
536
(19)
------
1,518
92
133
11
$ 9,229
======
$ 1,661
$ 3,256
$ 2,746
38
(71)
531
12
64
APOLLO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE PERIODS ENDED
NOVEMBER 30, 1994 AND 1995 IS UNAUDITED
The current and non-current deferred tax assets and liabilities consist of
the following, in thousands:
AUGUST 31,
----------------1994
1995
-----------
NOVEMBER 30,
-----------1995
------------
GROSS DEFERRED TAX ASSETS:
Compensation not yet deductible for tax purposes... $1,353
Difference in bad debt deductions for financial
reporting purposes..............................
583
Loss reserves not deductible for tax purposes......
567
Difference in lease expense deductions.............
318
Other..............................................
---------------Total gross deferred tax assets....................
2,821
---------------GROSS DEFERRED TAX LIABILITIES:
Deduction of educational program production costs
for tax purposes................................
786
Depreciation and amortization of property and
equipment.......................................
349
State taxes........................................
Other..............................................
59
---------------Total gross deferred tax liabilities...............
1,194
---------------NET DEFERRED TAX ASSET............................... $1,627
======
======
======
The net tax asset is reflected in the accompanying
balance sheet as follows:
Current deferred tax asset, net...................... $1,321
Noncurrent deferred tax asset (liability), net.......
306
---------------NET DEFERRED TAX ASSET............................... $1,627
======
======
======
$1,455
$1,568
981
554
272
66
1,426
311
630
262
3,328
4,197
785
546
547
633
158
233
1,490
1,412
$1,838
$2,785
$2,352
(514)
$3,088
(303)
$1,838
$2,785
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.
F-17
65
APOLLO GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INFORMATION AS OF AND FOR THE PERIODS ENDED
NOVEMBER 30, 1994 AND 1995 IS UNAUDITED
NOTE 15.
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:
AUGUST 31,
NOVEMBER 30,
------------------------------------------------1993
1994
1995
1994
1995
------------------------------Net income............................... $ 1,143
$ 4,912
$12,600
$ 2,544
$ 4,589
Asset write down.........................
638
135
104
133
Depreciation and amortization of:
Property and equipment.................
1,819
1,997
2,751
569
1,058
Educational program production costs...
1,098
1,365
1,375
337
322
Goodwill and other intangible assets...
35
Writeoff of unamortized cost of
discontinued educational courses.......
51
124
3
Bad debt expense.........................
1,116
1,822
1,849
1,004
761
Compensation expense related to grant of
options................................
1,869
Net loss (gain) on disposal of assets....
(30)
(141)
602
6
52
Change in assets and liabilities, net of
effect from purchase of Western:
Decrease (increase) in restricted
cash................................
(1,907)
(6,098)
(3,781)
(1,727)
1,078
Increase in receivables, net of
write-offs..........................
(4,128)
(5,894)
(3,496)
(1,019)
(2,079)
Decrease (increase) in deferred tax
asset...............................
157
(757)
(725)
(702)
(736)
Decrease (increase) in other current
assets..............................
26
(940)
312
(21)
(433)
Decrease (increase) in other assets....
186
(687)
(113)
(314)
26
Increase (decrease) in deferred rent...
(269)
10
(36)
(32)
17
Increase (decrease) in deferred
compensation contracts..............
(46)
753
6
5
3
Increase (decrease) in accounts payable
and accrued liabilities.............
468
2,727
4,058
(2,107)
(2,507)
Increase (decrease) in student deposits
and deferred tuition................
5,329
6,192
6,396
1,554
(872)
Increase (decrease) in deferred
taxes...............................
(170)
(331)
514
336
(211)
Increase (decrease) in taxes payable...
791
(491)
(214)
1,333
3,520
------------------------------Net cash received from
operating activities......... $ 6,221
$ 6,494
$22,326
$ 1,766
$ 4,759
=======
=======
=======
=======
=======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
The Company purchased certain assets of Western for a total purchase price
of $2.1 million. In conjunction with the acquisition, liabilities were assumed
as follows:
Fair value of assets acquired...............................................
Less cash paid to Western and on behalf of Western for the assets
acquired..................................................................
-----Net liabilities assumed........................................... $1,435
======
F-18
$2,065
(630)
66
[DESCRIPTION OF INSIDE BACK COVER GRAPHICS]
Top left
photo:
A picture showing campus activity with caption reading: "In 2000, 6.8 million
of the nation's 15.5 million college students are projected to be adults over
the age of 24."
Top right
photo:
A picture of the University of Phoenix building located in Phoenix, Arizona
with caption reading: "The University of Phoenix is the 6th largest
regionally accredited private university in the United States."
Bottom left
photo:
A picture showing classroom activity with caption reading: "The
professionally-employed faculty help integrate academic theory and current
practice."
Bottom right
photo:
A picture showing graduation activity with caption reading: "A college degree
is necessary for career advancement and change."
67
- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THOSE
TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES
NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
-----------------TABLE OF CONTENTS
PAGE
---Prospectus Summary....................
3
Risk Factors..........................
5
Use of Proceeds.......................
7
Dividend Policy.......................
7
Capitalization........................
8
Price Range of Common Stock...........
9
Selected Consolidated Financial
Data................................
10
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.......................
12
Business..............................
19
Management............................
37
Principal and Selling Shareholders....
39
Description of Capital Stock..........
41
Shares Eligible for Future Sale.......
43
Underwriting..........................
44
Legal Matters.........................
45
Experts...............................
45
Available Information.................
46
Incorporation of Certain Documents by
Reference...........................
46
Index to Consolidated Financial
Statements.......................... F-1
Report of Independent Accountants..... F-2
Consolidated Financial Statements..... F-3
- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------2,750,000 Shares
APOLLO GROUP, INC.
CLASS A COMMON STOCK
-----------PROSPECTUS
JANUARY
, 1996
-----------SMITH BARNEY INC.
ALEX. BROWN & SONS
INCORPORATED
MONTGOMERY SECURITIES
- -------------------------------------------------------------------------------- --------------------------------------------------------------------------------
68
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the securities being registered are as follows:
SEC Registration Fee......................................................
NASD Fee..................................................................
Legal Fees................................................................
Accounting Fees...........................................................
Blue Sky Fees and Disbursements...........................................
Miscellaneous (includes printing).........................................
------Total........................................................... $357,000
=======
ITEM 15.
INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation limit personal liability of
directors, to the Corporation or its shareholders, for monetary damages for
breach of their fiduciary duty as a director except to the extent such
limitation of liability is not permitted under Arizona law. Arizona law provides
that the liability of a director may not be eliminated or limited for: (1)
transactions in which a director receives a financial benefit to which the
director is not entitled; (2) an intentional infliction of harm on the
corporation or the shareholders; (3) liability for unlawful distributions in
violation of Arizona law or the Articles of Incorporation or (4) an intentional
violation of criminal law. In addition, the Company's Bylaws provide that the
Company may indemnify any and all of its directors and officers, or former
directors and officers, to the fullest extent permitted by law or by the
Articles of Incorporation against claims and liabilities to which such persons
may become subject. Arizona law generally provides that indemnification is
permissible only when the director or officer acted in good faith and in a
manner reasonably believed to be in the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe the conduct was unlawful. Subject to that standard of care
indemnification is mandatory under Arizona law for "outside directors" as
defined under Arizona law. The Company's outside directors are Messrs.
DeConcini, Klor de Alva, and Weir. Indemnification of directors is precluded in
connection with a proceeding by or in the right of the corporation in which the
director was adjudged liable to the corporation or in connection with any other
proceeding charging improper personal benefit to the director, whether or not
involving action in the director's official capacity, in which the director was
adjudged liable on the basis that personal benefit was improperly received by
the director.
The Registrant, the Selling Shareholders and the Underwriters have agreed
to indemnify each other against certain liabilities, including liabilities under
the Securities Act. Reference is made to the Underwriting Agreement filed as
part of Exhibit 1 hereto.
For information regarding the Registrant's undertaking to submit to
adjudication the issue of indemnification for violation of the securities laws,
see Item 17 hereof.
In addition the Company is paying a Directors' and Officers' liability
insurance for claims up to $5,000,000.
II-1
$ 36,000
11,000
100,000
100,000
10,000
100,000
69
ITEM 16.
EXHIBIT
NUMBER
- ------
EXHIBITS.
DESCRIPTION
-------------------------------
PAGE OR
METHOD OF FILING
-------------------------------
1
Form of Underwriting Agreement
Page
4
Articles of Incorporation of
Incorporated by reference to
the Company
Exhibit 3.1 of the Company's
Form S-1 Registration Statement
No. 33-83804 ("Form S-1
#33-83804")
5
Opinion of Snell & Wilmer
Page
L.L.P.
23.1
Consent of Independent
Page
Accountants
24
Power of Attorney
See Signature Page
27
Financial Data Schedule
Page
ITEM 17.
UNDERTAKINGS.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any
of 1933, each post-effective amendment
prospectus shall be deemed to be a new
to the securities offered therein, and
at that time shall be deemed to be the
thereof.
liability under the Securities Act
that contains a form of
registration statement relating
the offering of such securities
initial bona fide offering
The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or 14c-3 under the Securities Exchange Act of 1934;
and where interim financial information required to be presented by Article 3 of
Regulation S-X are not set forth in the prospectus, to deliver or cause to be
delivered to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person
II-2
70
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Apollo Group,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing on Form S-3 and has duly caused this Registration
Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Phoenix and State of Arizona on December 21,
1995.
APOLLO GROUP, INC. an Arizona
corporation
By /s/ JOHN G. SPERLING
-----------------------------------John G. Sperling
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Peter V. 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 S-3
Registration Statement and to sign any registration statement for the same
offering that is to be effective upon filing pursuant to Rule 462(b) of the
Securities Act of 1933, 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 Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
SIGNATURE
TITLE
DATE
- ---------------------------------------- ---------------------------------
------------------
/s/ JOHN G. SPERLING
- ---------------------------------------John G. Sperling
(Principal Executive Officer)
Chairman of the Board,
President and
Chief Executive Officer
December 21, 1995
/s/ WILLIAM H. GIBBS
- ---------------------------------------William H. Gibbs
Senior Vice President
and Director
December 21, 1995
/s/ JERRY F. NOBLE
- ---------------------------------------Jerry F. Noble
Senior Vice President
and Director
December 21, 1995
/s/ JOHN D. MURPHY
- ---------------------------------------John D. Murphy
Senior Vice President
of International Affairs
and Director
December 21, 1995
/s/ PETER V. SPERLING
- ---------------------------------------Peter V. Sperling
Vice President of
Administration, Secretary
and Director
December 21, 1995
/s/ JAMES W. HOGGATT
- ---------------------------------------James W. Hoggatt
Accounting Officer)
Vice President of Finance and
Chief Financial Officer
(Principal Financial and
December 21, 1995
II-4
72
SIGNATURE
TITLE
DATE
- ---------------------------------------- ---------------------------------
------------------
/s/ J. JORGE KLOR DE ALVA
- ---------------------------------------J. Jorge Klor de Alva
Director
December 21, 1995
/s/ THOMAS C. WEIR
- ---------------------------------------Thomas C. Weir
Director
December 21, 1995
II-5
73
EXHIBIT INDEX
EXHIBIT
NUMBER
- ------
DESCRIPTION
-------------------------------
PAGE OR
METHOD OF FILING
-------------------------------
1
Form of Underwriting Agreement
Page
4
Articles of Incorporation of
Incorporated by reference to
the Company
Exhibit 3.1 of the Company's
Form S-1 Registration Statement
No. 33-83804 ("Form S-1
#33-83804")
5
L.L.P.
Opinion of Snell & Wilmer
Page
23.1
Accountants
Consent of Independent
Page
24
Power of Attorney
See Signature Page
27
Financial Data Schedule
Page
1
EXHIBIT 1
2,750,000 Shares
Apollo Group, Inc.
Class A Common Stock
UNDERWRITING AGREEMENT
January ___, 1996
SMITH BARNEY INC.
ALEX. BROWN & SONS INCORPORATED
MONTGOMERY SECURITIES
As Representatives of the Several Underwriters
c/o SMITH BARNEY INC.
388 Greenwich Street
New York, New York 10013
Dear Sirs:
The shareholders of Apollo Group, Inc., an Arizona corporation (the
"Company"), listed on Part A of Schedule I hereto (the "Selling Shareholders")
propose to sell an aggregate of 2,750,000 shares of the Company's Class A Common
Stock, no par value, to the several Underwriters named in Schedule II hereto
(the "Underwriters"). The Company's Class A Common Stock, no par value, is
hereinafter referred to as the "Class A Common Stock" and the 2,750,000 shares
of Class A Common Stock to be sold to the Underwriters by the Selling
Shareholders are hereinafter referred to as the "Firm Shares". The Selling
Shareholders listed on Part B of Schedule I also propose to sell to the
Underwriters, upon the terms and conditions set forth in Section 2 hereof, up to
an additional 412,500 shares (the "Additional Shares") of Class A Common Stock.
The Firm Shares and the Additional Shares are hereinafter collectively referred
to as the "Shares".
The Company and the Selling Shareholders desire to confirm as follows
their respective agreements with you (the "Representatives") and the other
several Underwriters on whose behalf you are acting, in connection with the
several purchases of the Shares by the Underwriters.
1.
Registration Statement and Prospectus. The Company has prepared
and filed with the Securities and Exchange Commission (the "Commission") in
accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"Act"), a registration statement on Form S-3 under the Act (the "registration
statement"), including a prospectus subject to completion relating to the
Shares. The term "Registration Statement" as used in this Agreement means the
registration statement (including all financial schedules and exhibits), as
amended at the
2
time it becomes effective, or, if the registration statement became effective
prior to the execution of this Agreement, as supplemented or amended prior to
the execution of this Agreement. If it is contemplated, at the time this
Agreement is executed, that a post-effective amendment to the registration
statement will be filed and must be declared effective before the offering of
the Shares may commence, the term "Registration Statement" as used in this
Agreement means the registration statement as amended by said post-effective
amendment. The term "Prospectus" as used in this Agreement means the prospectus
in the form included in the Registration Statement, or, if the prospectus
included in the Registration Statement omits information in reliance on Rule
430A under the Act and such information is included in a prospectus filed with
the Commission pursuant to Rule 424(b) under the Act, the term "Prospectus" as
used in this Agreement means the prospectus in the form included in the
Registration Statement as supplemented by the addition of the Rule 430A
information contained in the prospectus filed with the Commission pursuant to
Rule 424(b). The term "Prepricing Prospectus" as used in this Agreement means
the prospectus subject to completion in the form included in the registration
statement at the time of the initial filing of the registration statement with
the Commission, and as such prospectus shall have been amended from time to time
prior to the date of the Prospectus. Any reference in this Agreement to the
registration statement, the Registration Statement, any Prepricing Prospectus or
the Prospectus shall be deemed to refer to and include the documents
incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act,
as of the date of the registration statement, the Registration Statement, such
Prepricing Prospectus or the Prospectus, as the case may be, and any reference
to any amendment or supplement to the registration statement, the Registration
Statement, any Prepricing Prospectus or the Prospectus shall be deemed to refer
to and include any documents filed after such date under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), which upon filing, are
incorporated by reference therein, as required by paragraph (b) of Item 12 of
Form S-3. As used herein, the term "Incorporated Documents" means the documents
which at the time are incorporated by reference in the registration statement,
the Registration Statement, any Prepricing Prospectus, the Prospectus, or any
amendment or supplement thereto.
2.
Agreements to Sell and Purchase. Subject to such adjustments as
you may determine in order to avoid fractional shares, each Selling Shareholder
hereby agrees, subject to all the terms and conditions set forth herein, to sell
to each Underwriter and, upon the basis of the representations, warranties and
agreements of the Company and the Selling Shareholders herein contained and
subject to all the terms and conditions set forth herein, each Underwriter
agrees, severally and not jointly, to purchase from each Selling Shareholder, at
a purchase price of $_______ per Share (the "purchase price per share"), that
number of Firm Shares which bears the same proportion to the number of Firm
Shares set forth opposite the name of such Selling Shareholder in Schedule I
hereto as the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule II hereto (or such number of Firm Shares increased as
set forth in Section 12 hereof) bears to the aggregate number of Firm Shares to
be sold by the Selling Shareholders.
2
3
The Selling Shareholders listed on Part B of Schedule I hereto also
agree, subject to all the terms and conditions set forth herein, to sell to the
Underwriters, and, upon the basis of the representations, warranties and
agreements of the Company and the Selling Shareholders herein contained and
subject to all the terms and conditions set forth herein, the Underwriters shall
have the right to purchase from the Selling Shareholders listed on Part B of
Schedule I hereto, at the purchase price per share, pursuant to an option (the
"over-allotment option") which may be exercised at any time and from time to
time prior to 9:00 P.M., New York City time, on the 30th day after the date of
the Prospectus (or, if such 30th day shall be a Saturday or Sunday or a holiday,
on the next business day thereafter when the New York Stock Exchange is open for
trading), up to an aggregate of 412,500 Additional Shares from the Selling
Shareholders listed on Part B of Schedule I hereto (the maximum number of
Additional Shares which each of them agrees to sell upon the exercise by the
Underwriters of the over-allotment option is set forth opposite their respective
names in Part B of Schedule I). Additional Shares may be purchased only for the
purpose of covering over-allotments made in connection with the offering of the
Firm Shares. The number of Additional Shares which the Underwriters elect to
purchase upon any exercise of the over-allotment option shall be provided by
each Selling Shareholder who has agreed to sell Additional Shares in proportion
to the respective maximum numbers of Additional Shares which each such Selling
Shareholder has agreed to sell. Upon any exercise of the over-allotment option,
each Underwriter, severally and not jointly, agrees to purchase from the Company
the number of Additional Shares (subject to such adjustments as you may
determine in order to avoid fractional shares) which bears the same proportion
to the number of Additional Shares to be sold by each Selling Shareholder who
has agreed to sell Additional Shares as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule II hereto (or such number of
Firm Shares increased as set forth in Section 12 hereof) bears to the aggregate
number of Firm Shares to be sold by the Selling Shareholders.
Certificates in transferable form for the Shares (including any
Additional Shares) which each of the Selling Shareholders agrees to sell
pursuant to this Agreement have been placed in custody with First Interstate
Bank of Arizona (the "Custodian") for delivery under this Agreement pursuant
to a Custody Agreement and Power of Attorney (the "Custody Agreement") executed
by each of the Selling Shareholders appointing William H. Gibbs and Peter V.
Sperling, and each of them, as agents and attorneys-in-fact (the
"Attorneys-in-Fact"). Each Selling Shareholder agrees that (i) the Shares
represented by the certificates held in custody pursuant to the Custody
Agreement are subject to the interests of the Underwriters, the Company and each
other Selling Shareholder, (ii) the arrangements made by the Selling
Shareholders for such custody are, except as specifically provided in the
Custody Agreement, irrevocable, and (iii) the obligations of the Selling
Shareholders hereunder and under the Custody Agreement shall not be terminated
by any act of such Selling Shareholder or by operation of law, whether by the
death or incapacity of any Selling Shareholder or the occurrence of any other
event. If any Selling Shareholder shall die or be incapacitated or if any other
event shall occur before the delivery of the Shares hereunder, certificates for
the Shares of such Selling Shareholder shall be delivered to the Underwriters by
the Attorneys-in-Fact in accordance with the terms and conditions of this
3
4
Agreement and the Custody Agreement as if such death or incapacity or other
event had not occurred, regardless of whether or not the Attorneys-in-Fact or
any Underwriter shall have received notice of such death, incapacity or other
event. Each Attorney-in-Fact is authorized, on behalf of each of the Selling
Shareholders, to execute this Agreement and any other documents necessary or
desirable in connection with the sale of the Shares to be sold hereunder by such
Selling Shareholder, to make delivery of the certificates for such Shares, to
receive the proceeds of the sale of such Shares, to give receipts for such
proceeds, to pay therefrom any expenses to be borne by such Selling Shareholder
in connection with the sale and public offering of such Shares, to distribute
the balance thereof to such Selling Shareholder, and to take such other action
as may be necessary or desirable in connection with the transactions
contemplated by this Agreement. Each Attorney-in-Fact agrees to perform his
duties under the Custody Agreement.
3.
Terms of Public Offering. Each of the Selling Shareholders has
been advised by you that the Underwriters propose to make a public offering of
their Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable and to offer the Shares upon
the terms set forth in the Prospectus.
4.
Delivery of the Shares and Payment Therefor. Delivery to the
Underwriters of and payment for the Firm Shares shall be made at the office of
O'Melveny & Myers, 610 Newport Center Drive, Suite 1700, Newport Beach, CA
92660, at 7:00 A.M., local time, on January ___, 1996 (the "Closing Date"). The
place of closing for the Firm Shares and the Closing Date may be varied by
agreement among you, and the Company and the Attorneys-in-Fact.
Delivery to the Underwriters of and payment for any Additional Shares
to be purchased by the Underwriters shall be made at the aforementioned office
of O'Melveny & Myers at such time on such date (the "Option Closing Date"),
which may be the same as the Closing Date but shall in no event be earlier than
the Closing Date nor earlier than three nor later than ten business days after
the giving of the notice hereinafter referred to, as shall be specified in a
written notice from you on behalf of the Underwriters to the Attorneys-in- Fact
(with a copy to the Company) of the Underwriters' determination to purchase a
number, specified in such notice, of Additional Shares. The place of closing for
any Additional Shares and the Option Closing Date for such Shares may be varied
by agreement among you, the Company and the Attorneys-in-Fact.
Certificates for the Firm Shares and for any Additional Shares to be
purchased hereunder shall be registered in such names and in such denominations
as you shall request prior to 1:00 P.M., New York City time, on the third
business day preceding the Closing Date or any Option Closing Date, as the case
may be. Such certificates shall be made available to you in New York City for
inspection and packaging not later than 9:30 A.M., New York City time, on the
business day next preceding the Closing Date or the Option Closing Date, as the
case may be. The certificates evidencing the Firm Shares and any Additional
Shares to be purchased hereunder shall be delivered to you on the Closing Date
or the Option Closing Date, as the case may be, against payment of the purchase
price
4
5
therefor by certified or official bank check or checks payable in Los Angeles
Clearing House (next day) funds to the order of the Attorneys-in-Fact.
5.
Agreements of the Company. The Company agrees with the several
Underwriters as follows:
(a) If, at the time this Agreement is executed and delivered, it
is necessary for the Registration Statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may commence,
the Company will endeavor to cause the Registration Statement or such
post-effective amendment to become effective as soon as possible and will advise
you promptly and, if requested by you, will confirm such advice in writing, when
the Registration Statement or such post-effective amendment has become
effective.
(b) The Company will advise you promptly and, if requested by
you, will confirm such advice in writing: (i) of any request by the Commission
for amendment of or a supplement to the Registration Statement, any Prepricing
Prospectus or the Prospectus or for additional information; (ii) of the issuance
by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the suspension of qualification of the Shares for
offering or sale in any jurisdiction or the initiation of any proceeding for
such purpose; and (iii) within the period of time referred to in paragraph (f)
below, of any change in the Company's or any Subsidiary's (as hereinafter
defined) condition (financial or other), business, prospects, properties, net
worth or results of operations, or of the happening of any event, which makes
any statement of a material fact made in the Registration Statement or the
Prospectus (as then amended or supplemented) untrue or which requires the making
of any additions to or changes in the Registration Statement or the Prospectus
(as then amended or supplemented) in order to state a material fact required by
the Act or the regulations thereunder to be stated therein or necessary in order
to make the statements therein not misleading, or of the necessity to amend or
supplement the Prospectus (as then amended or supplemented) to comply with the
Act or any other law. If at any time the Commission shall issue any stop order
suspending the effectiveness of the Registration Statement, the Company will
make every reasonable effort to obtain the withdrawal of such order at the
earliest possible time.
(c) The Company will furnish to you, without charge, (i) four
signed copies of the registration statement as originally filed with the
Commission and of each amendment thereto, including financial statements and all
exhibits to the registration statement, (ii) such number of conformed copies of
the registration statement as originally filed and of each amendment thereto,
but without exhibits, as you may request, (iii) such number of copies of the
Incorporated Documents, without exhibits, as you may request, and (iv) four
copies of the exhibits to the Incorporated Documents.
(d) The Company will not file any amendment to the Registration
Statement or make any amendment or supplement to the Prospectus or, prior to the
end of the period of time referred to in the first sentence in subsection (f)
below, file any
5
6
document which, upon filing becomes an Incorporated Document, of which you shall
not previously have been advised or to which, after you shall have received a
copy of the document proposed to be filed, you shall reasonably object.
(e) Prior to the execution and delivery of this Agreement, the
Company has delivered to you, without charge, in such quantities as you have
requested, copies of each form of the Prepricing Prospectus. The Company
consents to the use, in accordance with the provisions of the Act and with the
securities or Blue Sky laws of the jurisdictions in which the Shares are offered
by the several Underwriters and by dealers, prior to the date of the Prospectus,
of each Prepricing Prospectus so furnished by the Company.
(f) As soon after the execution and delivery of this Agreement
as possible and thereafter from time to time for such period as in the opinion
of counsel for the Underwriters a prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer, the Company
will expeditiously deliver to each Underwriter and each dealer, without charge,
as many copies of the Prospectus (and of any amendment or supplement thereto) as
you may request. The Company consents to the use of the Prospectus (and of any
amendment or supplement thereto) in accordance with the provisions of the Act
and with the securities or Blue Sky laws of the jurisdictions in which the
Shares are offered by the several Underwriters and by all dealers to whom Shares
may be sold, both in connection with the offering and sale of the Shares and for
such period of time thereafter as the Prospectus is required by the Act to be
delivered in connection with sales by any Underwriter or dealer. If during such
period of time any event shall occur that in the judgment of the Company or in
the opinion of counsel for the Underwriters is required to be set forth in the
Prospectus (as then amended or supplemented) or should be set forth therein in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, or if it is necessary to supplement or
amend the Prospectus (or to file under the Exchange Act any document which, upon
filing, becomes and Incorporated Document) in order to comply with the Act or
any other law, the Company will forthwith prepare and, subject to the provisions
of paragraph (d) above, file with the Commission an appropriate supplement or
amendment thereto (or to such document), and will expeditiously furnish to the
Underwriters and dealers a reasonable number of copies thereof. In the event
that the Company and you, as Representatives of the several Underwriters, agree
that the Prospectus should be amended or supplemented, the Company, if requested
by you, will promptly issue a press release announcing or disclosing the matters
to be covered by the proposed amendment or supplement.
(g) The Company will cooperate with you and with counsel for the
Underwriters in connection with the registration or qualification of the Shares
for offering and sale by the several Underwriters and by dealers under the
securities or Blue Sky laws of such jurisdictions as you may designate and will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification; provided that
in no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which
6
7
would subject it to service of process in suits, other than those arising out of
the offering or sale of the Shares, in any jurisdiction where it is not now so
subject.
(h) The Company will make generally available to its security
holders a consolidated earnings statement, which need not be audited, covering a
twelve-month period commencing after the effective date of the Registration
Statement and ending not later than 15 months thereafter, as soon as practicable
after the end of such period, which consolidated earnings statement shall
satisfy the provisions of Section 11(a) of the Act.
(i) During the period of five years hereafter, the Company will
furnish to you and your counsel, O'Melveny & Myers (i) as soon as available, a
copy of each report of the Company mailed to holders of the Company's Class A
Common Stock or filed with the Commission, and (ii) from time to time such other
information concerning the Company as you may reasonably request.
(j) If this Agreement shall terminate or shall be terminated
after execution pursuant to any provisions hereof (otherwise than pursuant to
the second paragraph of Section 12 hereof or by notice given by you terminating
this Agreement pursuant to Section 12 or Section 13 hereof) or if this Agreement
shall be terminated by the Underwriters because of any failure or refusal on the
part of the Company or the Selling Shareholders to comply with the terms or
fulfill any of the conditions of this Agreement, the Company and the Selling
Shareholders agree to reimburse the Representatives for all out-of-pocket
expenses (including fees and expenses of counsel for the Underwriters) incurred
by you in connection herewith.
(k)
[Reserved].
(l) If Rule 430A of the Act is employed, the Company will timely
file the Prospectus pursuant to Rule 424(b) under the Act and will advise you of
the time and manner of such filing.
(m) Except as provided in this Agreement and except pursuant to
the Company's Long-Term Incentive Plan, Employee Stock Purchase Plan and
Director Stock Plan, the Company will not sell, contract to sell or otherwise
dispose of any Class A Common Stock or any securities convertible into or
exercisable or exchangeable for Class A Common Stock, or grant any options or
warrants to purchase Class A Common Stock, for a period of 180 days after the
date of the Prospectus, without the prior written consent of Smith Barney Inc.
(n) The Company has furnished or will furnish to you "lock-up"
letters, in form and substance satisfactory to you, signed by each of its
current officers and directors.
(o) Except as stated in this Agreement and in the Prepricing
Prospectus and Prospectus, the Company has not taken, nor will it take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or
7
8
manipulation of the price of the Class A Common Stock to facilitate the sale or
resale of the Shares.
6.
Agreements of the Selling Shareholders. Each of the Selling
Shareholders agrees with the several Underwriters as follows:
(a) Such Selling Shareholder will cooperate to the extent
necessary to cause the registration statement or any post-effective amendment
thereto to become effective at the earliest possible time.
(b) Such Selling Shareholder will pay all federal and other
taxes, if any, on the transfer or sale of the Shares being sold by the Selling
Shareholder to the Underwriters.
(c) Such Selling Shareholder will do or perform all things
required to be done or performed by the Selling Shareholder prior to the Closing
Date or any Option Closing Date, as the case may be, to satisfy all conditions
precedent to the delivery of the Shares pursuant to this Agreement.
(d) Such Selling Shareholder will not sell, contract to sell or
otherwise dispose of any Common Stock, except for the sale of Shares to the
Underwriters pursuant to this Agreement, prior to the expiration of 180 days
after the date of the Prospectus, without the prior written consent of Smith
Barney Inc.
(e) Except as stated in this Agreement and in the Prepricing
Prospectus and the Prospectus, such Selling Shareholder will not take, directly
or indirectly, any action designed to or that might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Common
Stock to facilitate the sale or resale of the Shares.
(f) Such Selling Shareholder will advise you promptly, and if
requested by you, will confirm such advice in writing, within the period of time
referred to in Section 5(f) hereof, of any change in the Company's condition
(financial or other), business, prospects, properties, net worth or results of
operations or of any change in information relating to such Selling Shareholder
or the Company or any new information relating to the Company or relating to any
matter stated in the Prospectus or any amendment or supplement thereto which
comes to the attention of such Selling Shareholder that suggests that any
statement made in the Registration Statement or the Prospectus (as then amended
or supplemented, if amended or supplemented) is or may be untrue in any material
respect or that the Registration Statement or Prospectus (as then amended or
supplemented, if amended or supplemented) omits or may omit to state a material
fact or a fact necessary to
8
9
be stated therein in order to make the statements therein not misleading in any
material respect, or of the necessity to amend or supplement the Prospectus (as
then amended or supplemented, if amended or supplemented) in order to comply
with the Act or any other law.
7.
Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) Each Prepricing Prospectus included as part of the
registration statement as originally filed or as part of any amendment or
supplement thereto, or filed pursuant to Rule 424 under the Act, complied when
so filed in all material respects with the provisions of the Act. The Commission
has not issued any order preventing or suspending the use of any Prepricing
Prospectus.
(b) The Company and the transactions contemplated by this
Agreement meet the requirements for using Form S-3 under the Act. The
registration statement in the form in which it became or becomes effective and
also in such form as it may be when any post-effective amendment thereto shall
become effective and the prospectus and any supplement or amendment thereto when
filed with the Commission under Rule 424(b) under the Act, or any registration
statement filed with the Commission under Rule 462 (b) under the Act, complied
or will comply in all material respects with the provisions of the Act and did
not or will not at any such times contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, except that this representation and
warranty does not apply to statements in or omissions from the registration
statement or the prospectus made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in writing by
or on behalf of any Underwriter through you expressly for use therein.
(c) The Incorporated Documents heretofore filed, when they were
filed (or, if any amendment with respect to any such document was filed, when
such amendment was filed), conformed in all material respects with the
requirements of the Exchange Act and the rules and regulations thereunder, and
any further Incorporated Documents so filed will, when they are filed, conform
in all material respects with the requirements of the Exchange Act and the rules
and regulations thereunder; no such document when it was filed (or, if an
amendment with respect to any such document was filed, when such amendment was
filed), contained an untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading; and no such further document, when it is
filed, will contain an untrue statement of a material fact or will omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein not misleading.
(d) All the outstanding shares of Class A Common Stock of the
Company have been duly authorized and validly issued, are fully paid and
nonassessable and are free
9
10
of any preemptive or similar rights, and the capital stock of the Company
conforms to the description thereof in the registration statement and the
prospectus.
(e) The Company is a corporation duly organized and validly
existing in good standing under the laws of the State of Arizona with full
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus, and is duly registered and qualified to conduct its business and is
in good standing in each jurisdiction or place where the nature of its
properties or the conduct of its business requires such registration or
qualification, except where the failure so to register or qualify does not have
a material adverse effect on the condition (financial or other), business,
properties, net worth or results of operations of the Company and the
Subsidiaries (as hereinafter defined) taken as a whole.
(f) All the Company's significant subsidiaries (collectively,
the "Subsidiaries") are listed on Exhibit A attached hereto. Each Subsidiary is
a corporation duly organized, validly existing and in good standing in the
jurisdiction of its incorporation, with full corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Registration Statement and the Prospectus, and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure so to
register or qualify does not have a material adverse effect on the condition
(financial or other), business, properties, net worth or results of operations
of such Subsidiary; all the outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are fully paid and
nonassessable, and are owned by the Company directly, or indirectly through one
of the other Subsidiaries, free and clear of any lien, adverse claim, security
interest, equity or other encumbrance.
(g) There are no legal or governmental proceedings pending or,
to the knowledge of the Company, threatened, against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries, or to which
any of their respective properties is subject, that are required to be described
in the Registration Statement or the Prospectus but are not described as
required, and there are no agreements, contracts, indentures, leases or other
instruments that are required to be described in the Registration Statement or
any Incorporated Document that are not described or filed as required by the Act
or the Exchange Act.
(h) Neither the Company nor any of the Subsidiaries is in
material violation of its certificate or articles of incorporation or by-laws,
or other organizational documents, or of any law, ordinance, administrative
decree of any court or governmental rule or regulation applicable to the Company
or any of the Subsidiaries, or of any decree of any court or governmental agency
or body having jurisdiction over the Company or any of the Subsidiaries, or in
default in any material respect in the performance of any material obligation,
agreement or condition contained in any bond, debenture, note or any other
evidence of indebtedness or in any material agreement, indenture, lease or other
instrument
10
11
to which the Company or any of the Subsidiaries is a party or by which any of
them or any of their respective properties may be bound.
(i) Neither the sale of the Shares, the execution, delivery or
performance of this Agreement by the Company nor the consummation by the Company
of the transactions contemplated hereby (i) requires any consent, approval,
authorization or other order of or registration or filing with, any court,
regulatory body, administrative agency or other governmental body, agency, or
official (except such as may be required for the registration of the Shares
under the Act and the Exchange Act and compliance with the securities or Blue
Sky laws of various jurisdictions, all of which have been or will be effected in
accordance with this Agreement and except for those consents, approvals and
authorizations that have been obtained by the Company), or conflicts or will
conflict with or constitutes or will constitute a breach of, or a default under,
the certificate or articles of incorporation or bylaws, or other organizational
documents, of the Company or any of the Subsidiaries or (ii) conflicts or will
conflict with or constitutes or will constitute a material breach of, or a
material default under, any agreement, indenture, lease or other instrument to
which the Company or any of the Subsidiaries is a party or by which any of them
or any of their respective properties may be bound (except for those agreements,
leases or other instruments for which the Company has obtained consents), or
materially violates or will materially violate any statute, law, regulation,
filing or judgment, injunction, order or decree applicable to the Company or any
of the Subsidiaries or any of their respective properties, or will result in the
creation or imposition of any lien, charge or encumbrance upon any property or
assets of the Company or any of the Subsidiaries pursuant to the terms of any
agreement or instrument to which any of them is a party or by which any of them
may be bound or to which any of the property or assets of any of them is
subject.
(j) The accountants, Price Waterhouse LLP, who have certified or
shall certify the financial statements included or incorporated by reference in
the Registration Statement and the Prospectus (or any amendment or supplement
thereto) are independent public accountants with respect to the Company within
the meaning of the Act and the applicable published rules and regulations
thereunder.
(k) The financial statements, together with related schedules
and notes, included or incorporated by reference in the Registration Statement
and the Prospectus (and any amendment or supplement thereto), present fairly the
consolidated financial position, results of operations and changes in financial
position of the Company and the Subsidiaries on the basis stated in the
Registration Statement at the respective dates or for the respective periods to
which they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and data included
or incorporated by reference in the Registration Statement and the Prospectus
(and any amendment or supplement thereto) are accurately presented and prepared
on a basis consistent with such financial statements and the books and records
of the Company and the Subsidiaries.
11
12
(l) The execution and delivery of, and the performance by the
Company of its obligations under, this Agreement have been duly and validly
authorized by the Company, and this Agreement has been duly executed and
delivered by the Company and constitutes the valid and legally binding agreement
of the Company, enforceable against the Company in accordance with its terms,
except as rights to indemnity and contribution hereunder may be limited by
federal or state securities laws.
(m) Except as disclosed in the Registration Statement and the
Prospectus (or any amendment or supplement thereto) or in the Incorporated
Documents, subsequent to the respective dates as of which such information is
given in the Registration Statement and the Prospectus (or any amendment or
supplement thereto) or in the Incorporated Documents, neither the Company nor
any of the Subsidiaries has incurred any liability or obligation, direct or
contingent, or entered into any transaction, not in the ordinary course of
business, that is material to the Company and the Subsidiaries taken as a whole,
and there has not been any change in the capital stock, or material increase in
the short-term debt or long-term debt, of the Company or any of the
Subsidiaries, or any material adverse change, or any development involving or
which may reasonably be expected to involve, a prospective material adverse
change, in the condition (financial or other), business, net worth, or results
of operations of the Company and the Subsidiaries taken as a whole.
(n) Each of the Company and the Subsidiaries has good and
marketable title to all property (real and personal) described in the Prospectus
as being owned by it, free and clear of all material liens, claims, security
interests or other encumbrances except such as are described in the Registration
Statement and the Prospectus or in a document filed as an exhibit to the
Registration Statement or in the Incorporated Documents and all the property
described in the Prospectus as being held under lease by each of the Company and
the Subsidiaries is held by it under valid, subsisting and enforceable leases.
(o) The Company has not distributed and, prior to the later to
occur of (i) the Closing Date and (ii) completion of the distribution of the
Shares, will not distribute any offering material in connection with the
offering and sale of the Shares other than the Registration Statement, the
Prepricing Prospectus, the Prospectus or other materials, if any, permitted by
the Act.
(p) The Company and each of the Subsidiaries have all necessary
accreditation approvals, governmental authorizations, orders, licenses,
certificates, franchises and permits of and from all accreditation agencies and
governmental or regulatory authorities, including without limitation, all
authorizations required for participation in federal financial aid programs
under Title IV ("Title IV Programs") of the Higher Education Act of 1965, as
amended (collectively, "permits"), as are necessary to own its respective
properties and to conduct its business in the manner described in the
Prospectus, subject to such qualifications as may be set forth in the
Prospectus; the Company and each of the Subsidiaries has fulfilled and performed
all its material obligations with respect to such permits and no event has
occurred or condition exists which allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in any other material
12
13
impairment of the rights of the holder of any such permit, subject in each case
to such qualification as may be set forth in the Prospectus; and, except as
described in the Prospectus, none of such permits contains any restriction that
is materially burdensome to the Company or any of the Subsidiaries.
(q) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(r) To the Company's knowledge, neither the Company nor any of
its Subsidiaries nor any employee or agent of the Company or any Subsidiary has
made any payment of funds of the Company or any Subsidiary or received or
retained any funds in violation of any law, rule or regulation, which payment,
receipt or retention of funds is of a character required to be disclosed in the
Prospectus.
(s) The Company and each of the Subsidiaries have filed all tax
returns required to be filed, which returns are complete and correct, and
neither the Company nor any Subsidiary is in default in the payment of any taxes
which were payable pursuant to said returns or any assessments with respect
thereto.
(t) No holder of any security of the Company has any right to
require registration of shares of Class A Common Stock or any other security of
the Company because of the filing of the registration statement or consummation
of the transactions contemplated by this Agreement.
(u) The Company and the Subsidiaries own or possess all patents,
trademarks, trademark registrations, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectus as being owned by them or any of them or necessary
for the conduct of their respective businesses, and the Company is not aware of
any claim to the contrary or any challenge by any other person to the rights of
the Company and the Subsidiaries with respect to the foregoing.
(v) The Company is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(w) The Company has complied with all provisions of Florida
Statutes, SS 517.075, relating to doing business with Cuba.
8.
Representations and Warranties of the Selling Shareholders. Each
Selling Shareholder represents and warrants to each Underwriter that:
13
14
(a) Such Selling Shareholder now has, and on the Closing Date
and any Option Closing Date will have, valid and marketable title to the Shares
to be sold by such Selling Shareholder, free and clear of any lien, claim,
security interest or other encumbrance, including, without limitation, any
restriction on transfer.
(b) Such Selling Shareholder now has, and on the Closing Date
and any Option Closing Date will have, full legal right, power and
authorization, and any approval required by law, to sell, assign transfer and
deliver such Shares in the manner provided in this Agreement, and upon delivery
of and payment for such Shares hereunder, the several Underwriters will acquire
valid and marketable title to such Shares, free and clear of any lien, claim,
security interest, or other encumbrance.
(c) This Agreement and the Custody Agreement have been duly
authorized, executed and delivered by or on behalf of such Selling Shareholder
and are the valid and binding agreements of such Selling Shareholder enforceable
against such Selling Shareholder in accordance with their respective terms.
(d) Neither the execution and delivery of this Agreement or the
Custody Agreement by or on behalf of such Selling Shareholder nor the
consummation of the transactions herein or therein contemplated by or on behalf
of such Selling Shareholder requires any consent, approval, authorization or
order of, or filing or registration with, any court, regulatory body,
administrative agency or other governmental body, agency or official (except
such as may be required under the Act or such as may be required under state
securities or Blue Sky laws governing the purchase and distribution of the
Shares) or conflicts or will conflict with or constitutes or will constitute a
breach of, or default under, or violates or will violate, any agreement,
indenture or other instrument to which such Selling Shareholder is a party or by
which such Selling Shareholder is or may be bound or to which any of such
Selling Shareholder's property or assets is subject, or any statute, law, rule,
regulation, ruling, judgment, injunction, order or decree applicable to such
Selling Shareholder or to any property or assets of such Selling Shareholder.
(e) The Registration Statement and the Prospectus, insofar as
they relate to such Selling Shareholder, do not and will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading.
(f) Such Selling Shareholder does not have any knowledge or any
reason to believe that the Registration Statement or the Prospectus (or any
amendment or supplement thereto) contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading.
(g) The representations and warranties of such Selling
Shareholder in the Custody Agreement are, and on the Closing Date and any Option
Closing Date will be, true
14
15
and correct and the Underwriters are entitled to rely on such representations
and warranties as if they were made directly to them.
(h) Such Selling Shareholder has not taken, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Class A Common
Stock to facilitate the sale or resale of the Shares, except for the lock-up
arrangements described in the Prospectus.
9.
Indemnification and Contribution.
(a) The Company and each Selling Shareholder, jointly and
severally, agrees to indemnify and hold harmless each of you and each other
Underwriter and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act from and
against any and all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) arising out of or based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Prepricing Prospectus or in the Registration Statement or the Prospectus or in
any amendment or supplement thereto, or arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or expenses arise
out of or are based upon any untrue statement or omission or alleged untrue
statement or omission which has been made therein or omitted therefrom in
reliance upon and in conformity with the information relating to such
Underwriter furnished in writing to the Company by or on behalf of any
Underwriter through you expressly for use in connection therewith; provided,
however, that the indemnification contained in this paragraph (a) with respect
to any Prepricing Prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) on account of any
such loss, claim, damage, liability or expense arising from the sale of the
Shares by such Underwriter to any person if a copy of the Prospectus shall not
have been delivered or sent to such person within the time required by the Act
and the regulations thereunder, and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained in such
Prepricing Prospectus was corrected in the Prospectus, provided that the Company
has delivered the Prospectus to the several Underwriters in requisite quantity
on a timely basis to permit such delivery or sending. The foregoing indemnity
agreement shall be in addition to any liability which the Company or any Selling
Shareholder may otherwise have.
(b) If any action, suit or proceeding shall be brought against
any Underwriter or any person controlling any Underwriter in respect of which
indemnity may be sought against the Company or any Selling Shareholder, such
Underwriter or such controlling person shall promptly notify the parties against
whom indemnification is being sought (the "indemnifying parties"), and such
indemnifying parties shall assume the defense thereof, including the employment
of counsel and payment of all fees and expenses. Such Underwriter or any such
controlling person shall have the right to employ separate counsel in any such
action, suit or proceeding and to participate in the defense thereof, but the
fees
15
16
and expenses of such counsel shall be at the expense of such Underwriter or such
controlling person unless (i) the indemnifying parties have agreed in writing to
pay such fees and expenses, (ii) the indemnifying parties have failed to assume
the defense and employ counsel, or (iii) the named parties to any such action,
suit or proceeding (including any impleaded parties) include both such
Underwriter or such controlling person and the indemnifying parties and such
Underwriter or such controlling person shall have been advised by its counsel
that representation of such indemnified party and any indemnifying party by the
same counsel would be inappropriate under applicable standards of professional
conduct (whether or not such representation by the same counsel has been
proposed) due to actual or potential differing interests between them (in which
case the indemnifying party shall not have the right to assume the defense of
such action, suit or proceeding on behalf of such Underwriter or such
controlling person). It is understood, however, that the indemnifying parties
shall, in connection with any one such action, suit or proceeding or separate
but substantially similar or related actions, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate firm of
attorneys (in addition to any local counsel) at any time for all such
Underwriters and controlling persons not having actual or potential differing
interests with you or among themselves, which firm shall be designated in
writing by Smith Barney Inc., and that all such fees and expenses shall be
reimbursed as they are incurred. The indemnifying parties shall not be liable
for any settlement of any such action, suit or proceeding effected without their
written consent, but if settled with such written consent, or if there be a
final judgment for the plaintiff in any such action, suit or proceeding, the
indemnifying parties agree to indemnify and hold harmless any Underwriter, to
the extent provided in the preceding paragraph, and any such controlling person
from and against any loss, claim, damage, liability or expense by reason of such
settlement or judgment.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers who sign
the Registration Statement, each Selling Shareholder, and any person who
controls the Company within the meaning of Section 15 of the Act or Section
20(a) of the Exchange Act, to the same extent as the foregoing indemnity from
the Company and the Selling Shareholders to each Underwriter, but only with
respect to information relating to such Underwriter furnished in writing by or
on behalf of such Underwriter through you expressly for use in the Registration
Statement, the Prospectus or any Prepricing Prospectus, or any amendment or
supplement thereto. If any action, suit or proceeding shall be brought against
the Company, any of its directors, any such officer, any Selling Shareholder, or
any such controlling person based on the Registration Statement, the Prospectus
or any Prepricing Prospectus, or any amendment or supplement thereto, and in
respect of which indemnity may be sought against any Underwriter pursuant to
this paragraph (c), such Underwriter shall have the rights and duties given to
the Company by paragraph (b) above (except that if the Company shall have
assumed the defense thereof such Underwriter shall not be required to do so, but
may employ separate counsel therein and participate in the defense thereof, but
the fees and expenses of such counsel shall be at such Underwriter's expense),
and the Company, its directors, any such officer, Selling Shareholder, and any
such controlling person shall have
16
17
the rights and duties given to the Underwriters by paragraph (b) above. The
foregoing indemnity agreement shall be in addition to any liability which any
Underwriter may otherwise have.
(d) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under paragraph (a) hereof in respect of any
losses, claims, damages, liabilities or expenses referred to therein, then an
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or expenses (i) in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Selling Shareholders on the one hand and the Underwriters on the other hand
from the offering of the Shares, or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Selling Shareholders on
the one hand and the Underwriters on the other in connection with the statements
or omissions that resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The relative
benefits received by the Company and the Selling Shareholders on the one hand
and the Underwriters on the other shall be deemed to be in the same proportion
as the total net proceeds from the offering (before deducting expenses) received
by the Company and the Selling Shareholders bear to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus; provided that, in the
event that the Underwriters shall have purchased any Additional Shares
hereunder, any determination of the relative benefits received by the Company,
the Selling Shareholders or the Underwriters from the offering of the Shares
shall include the net proceeds (before deducting expenses) received by the
Company and the Selling Shareholders, and the underwriting discounts and
commissions received by the Underwriters, from the sale of such Additional
Shares, in each case computed on the basis of the respective amounts set forth
in the notes to the table on the cover page of the Prospectus. The relative
fault of the Company and the Selling Shareholders on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Shareholders on the one hand or by the
Underwriters on the other hand and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
(e) The Company, the Selling Shareholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by a pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations referred
to in paragraph (c) above. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages, liabilities and expenses referred to in
paragraph (c) above shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such indemnified
party in
17
18
connection with investigating any claim or defending any such action, suit or
proceeding. Notwithstanding the provisions of this Section 9, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price of the Shares underwritten by it and distributed to the public
exceeds the amount of any damages which such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to this Section 9 are several
in proportion to the respective numbers of Firm Shares set forth opposite their
names in Schedule II hereto (or such numbers of Firm Shares increased as set
forth in Section 12 hereof) and not joint.
(f) No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending or
threatened action, suit or proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been sought hereunder by
such indemnified party, unless such settlement includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
(g) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution under
this Section 9 shall be paid by the indemnifying party to the indemnified party
as such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 9 and the
representations and warranties of the Company and the Selling Shareholders set
forth in this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter or
any person controlling any Underwriter, the Company, its directors or officers
or the Selling Shareholders or any person controlling the Company, (ii)
acceptance of any Shares and payment therefor hereunder, and (iii) any
termination of this Agreement. A successor to any Underwriter or any person
controlling any Underwriter, or to the Company, its directors or officers, or
any person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this Section
9.
10.
Conditions of Underwriters' Obligations. The several obligations
of the Underwriters to purchase the Firm Shares hereunder are subject to the
following conditions:
(a) If, at the time this Agreement is executed and delivered, it
is necessary for the registration statement or a post-effective amendment
thereto to be declared effective before the offering of the Shares may commence,
the registration statement or such post-- effective amendment shall have become
effective not later than 5:30 P.M., New York City time, on the date hereof, or
at such later date and time as shall be consented to in writing by you, and all
filings, if any, required by Rules 424 and 430A under the Act shall have been
timely made; no stop order suspending the effectiveness of the registration
statement shall have been issued and no proceeding for that purpose shall have
been instituted or, to
18
19
the knowledge of the Company or any Underwriter, threatened by the Commission,
and any request of the Commission for additional information (to be included in
the registration statement or the prospectus or otherwise) shall have been
complied with to your satisfaction.
(b) Subsequent to the effective date of this Agreement, there
shall not have occurred (i) any change, or any development involving a
prospective change, in or affecting the condition (financial or other),
business, properties, net worth, or results of operations of the Company or the
Subsidiaries not contemplated by the Prospectus, which in your opinion, as
Representatives of the several Underwriters, would materially, adversely affect
the market for the Shares, or (ii) any event or development relating to or
involving the Company or any officer or director of the Company or any Selling
Shareholder which makes any statement made in the Prospectus untrue or which, in
the opinion of the Company and its counsel or the Underwriters and their
counsel, requires the making of any addition to or change in the Prospectus in
order to state a material fact required by the Act or any other law to be stated
therein or necessary in order to make the statements therein not misleading, if
amending or supplementing the Prospectus to reflect such event or development
would, in your opinion, as Representatives of the several Underwriters,
materially adversely affect the market for the Shares.
(c) You shall have received on the Closing Date, an opinion of
Snell & Wilmer L.L.P., counsel for the Company and the Selling Shareholders,
dated the Closing Date and addressed to you, as Representatives of the several
Underwriters, to the effect that:
(i)
The Company is a corporation duly incorporated and
validly existing in good standing under the laws of the State of Arizona and has
full corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Prospectus (and any amendment or supplement thereto), and is duly registered and
qualified to conduct its business and is in good standing in each jurisdiction
or place where the nature of its properties or the conduct of its business
requires such registration or qualification, except where the failure so to
register or qualify does not have a material adverse effect on the condition
(financial or other), business, properties, net worth or results of operations
of the Company and the Subsidiaries taken as a whole;
(ii)
Each of the Subsidiaries is a corporation duly
organized and validly existing in good standing under the laws of the
jurisdiction of its organization, with full corporate power and authority to
own, lease and operate its properties and to conduct its business as described
in the Registration Statement and the Prospectus (and any amendment or
supplement thereto); and all the outstanding shares of capital stock of each of
the Subsidiaries have been duly authorized and validly issued, are fully paid
and nonassessable, and are owned of record by the Company directly, or
indirectly through one of the other Subsidiaries, free and clear of any
perfected security interest, or, to the best knowledge of such counsel after
reasonable inquiry, any other security interest, lien, adverse claim, equity or
other encumbrance;
19
20
(iii)
The authorized and outstanding capital stock of
the Company is as set forth under the caption "Capitalization" in the
Prospectus; and the authorized capital stock of the Company conforms in all
material respects as to legal matters to the description thereof contained in
the Prospectus under the caption "Description of Capital Stock; "
(iv)
All the shares of capital stock of the Company
outstanding as of the date hereof have been duly authorized and validly issued,
are fully paid and nonassessable, and have not been issued in violation of any
preemptive, or to the best knowledge of such counsel after reasonable inquiry,
similar rights that entitle persons to acquire any such shares;
(v)
The form of certificates for the Shares conforms
to the requirements of the Arizona General Corporation Law;
(vi)
The Registration Statement and all post-effective
amendments, if any, have become effective under the Act and, to the best
knowledge of such counsel after reasonable inquiry, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose are pending before or contemplated by the Commission; and any
required filing of the Prospectus pursuant to Rule 424(b) has been made in
accordance with Rule 424(b);
(vii)
The Company has corporate power and authority to
enter into this Agreement, and this Agreement has been duly authorized, executed
and delivered by the Company and, if governed by Arizona law, the Agreement
would be a valid, legal and binding agreement of the Company, enforceable
against the Company in accordance with its terms, except as enforcement of
rights to indemnity and contribution hereunder may be limited by Federal or
state securities laws or principles of public policy and subject to the
qualification that the enforceability of the Company's obligations hereunder may
be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium, and other laws relating to or affecting creditors' rights generally
and by general equitable principles;
(viii)
Neither the Company nor any of the Subsidiaries is
in violation of its respective certificate or articles of incorporation or
bylaws, or other organizational documents, or to the best knowledge of such
counsel after reasonable inquiry, is in default in the performance of any
material obligation, agreement or condition contained in any bond, debenture,
note or other evidence of indebtedness described in the Registration Statement
or the Prospectus (or any amendment, supplement or exhibit thereto), except as
may be disclosed in the Registration Statement or Prospectus (or any amendment,
supplement or exhibit thereto);
(ix)
Neither the execution, delivery or performance of
this Agreement, compliance by the Company with the provisions hereof, nor
consummation by the Company of the transactions contemplated hereby conflicts or
will conflict with or constitutes or will constitute a breach of, or a default
under, the certificate or articles of incorporation or bylaws, or other
organizational documents, of the Company or any of the
20
21
Subsidiaries or any agreement, indenture, lease or other instrument to which the
Company or any of the Subsidiaries is a party or by which any of them or any of
their respective Properties is bound that is an exhibit to the Registration
Statement or to any Incorporated Document, or is known to such counsel after
reasonable inquiry, or will result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any of the
Subsidiaries, nor will any such action result in any violation of any existing
law, regulation, ruling, judgment, injunction, order or decree known to such
counsel after reasonable inquiry, applicable to the Company, the Subsidiaries or
any of their respective properties;
(x)
No consent, approval, authorization or other order
of, or registration of filing with, any court, regulatory body, administrative
agency or other governmental body, agency, or official is required on the part
of the Company or the Selling Shareholders (except as have been obtained under
the Act, the Exchange Act or otherwise obtained by the Company or the Selling
Shareholders or such as may be required under state securities or Blue Sky laws
governing the purchase and distribution of the Shares) for the valid sale of the
Shares to the Underwriters by the Selling Shareholders as contemplated by this
Agreement;
(xi)
The Registration Statement and the Prospectus and
any supplements or amendments thereto (except for the financial statements and
the notes thereto and the schedules and other financial and statistical data
included therein, as to which such counsel need not express any opinion) comply
as to form in all material respects with the requirements of the Act; and each
of the Incorporated Documents (except for the financial statements and the notes
thereto and the schedules and other financial and statistical data contained
therein, as to which counsel need not express any opinion) complies as to form
in all material respects with the Exchange Act and the rules and regulations of
the Commission thereunder;
(xii)
To the best knowledge of such counsel after
reasonable inquiry, (A) other than as described or contemplated in the
Prospectus (or any supplement thereto), there are no legal or governmental
proceedings pending or threatened against the Company or any of the
Subsidiaries, or to which the Company or any of the Subsidiaries, or any of
their property, is subject, which are required to be described in the
Registration Statement or Prospectus (or any amendment or supplement thereto)
and (B) there are no agreements, contracts, indentures, leases or other
instruments, that are required to be described in the Registration Statement or
the Prospectus (or any amendment or supplement thereto) or to be filed as an
exhibit to the Registration Statement or any Incorporated Document that are not
described or filed as required, as the case may be;
(xiii)
In the actual knowledge of the Snell & Wilmer
L.L.P. lawyers actively involved in the preparation of the Registration
Statement, neither the Company nor any of the Subsidiaries is in violation of
any law, ordinance, administrative or governmental rule or regulation applicable
to the Company or any of the Subsidiaries or of any decree of any court or
governmental agency or body having jurisdiction over the Company or any of
21
22
the Subsidiaries that would have a material adverse effect on the Company and
the Subsidiaries taken as a whole;
(xiv)
The statements in the Registration Statement and
Prospectus, insofar as they are descriptions of contracts, agreements or other
legal documents, or refer to statements of law or legal conclusions, are
accurate and present fairly the information required to be shown;
(xv)
This Agreement and the Custody Agreement have each
been duly executed and delivered by or on behalf of each of the Selling
Shareholders and, if governed by Arizona law, would each be a valid, legal and
binding agreement of each such Selling Shareholder, enforceable against such
Selling Shareholder in accordance with its terms, except as may limited by
bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, and
other laws relating to or affecting creditors' rights generally and by general
equitable principles;
(xvi)
To the knowledge of such counsel, each Selling
Shareholder has full legal right, power and authorization, and any approval
required by law, to sell, assign, transfer and deliver good and marketable title
to the Shares which such Selling Shareholder has agreed to sell pursuant to this
Agreement;
(xvii)
The execution and delivery of this Agreement and
the Custody Agreement by the Selling Shareholders and the consummation of the
transactions contemplated hereby and thereby will not conflict with, violate,
result in a breach of or constitute a default under the terms or provisions of
any agreement, indenture, mortgage or other instrument known to such counsel to
which any Selling Shareholder is a party or by which any of them or any of their
assets or property is bound, or any court order or decree or any law, rule, or
regulation applicable to any Selling Shareholder or to any of the property or
assets of any Selling Shareholder;
(xviii)
Upon delivery of the Shares pursuant to this
Agreement and payment therefor as contemplated herein the Underwriters will
acquire good and marketable title to the Shares free and clear of any lien,
claim, security interest, or other encumbrance, restriction on transfer or other
defect in title;
(xix)
The Company and each of the Subsidiaries have all
necessary governmental and accreditation agency authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
accreditation agencies and governmental or regulatory authorities, including
without limitation, all authorizations required for participation in Title IV
Programs (except where the failure so to have any such authorizations,
approvals, orders, licenses, certificates, franchises or permits, individually
or in the aggregate, would not have a material adverse effect on the business,
properties, operations or financial condition of the Company and the
Subsidiaries taken as a whole), to own their respective properties and to
conduct their respective businesses as now being conducted, subject to such
qualifications as may be set forth in the Prospectus;
22
23
(xx)
The Company and the Subsidiaries own all patents,
trademarks, trademark registrations, service marks, service mark registrations,
trade names, copyrights, licenses, inventions, trade secrets and rights
described in the Prospectus as being owned by them or any of them or necessary,
for the conduct of their respective businesses, and counsel is not aware of any
claim to the contrary or any challenge by any other person to the rights of the
Company and the subsidiaries with respect to the foregoing;
(xxi)
Except as described in the Prospectus, there are
no outstanding options, warrants or other rights calling for the issuance of,
and counsel does not know of any commitment, plan or arrangement to issue, any
shares of capital stock of the Company or any security convertible into or
exchangeable or exercisable for capital stock of the Company;
(xxii)
Except as described in the Prospectus, there is no
holder of any security of the Company or any other person who has the right,
contractual or otherwise, to cause the Company to sell or otherwise issue to
them, or to permit them to underwrite the sale of, the Shares or the right to
have any Class A Common Stock or other securities of the Company included in the
Registration Statement or the right, as a result of the filing of the
registration statement, to require registration under the Act of any shares of
Class A Common Stock or other securities of the Company; and
(xxiii)
Although counsel has not undertaken, except as
otherwise indicated in their opinion, to determine independently, and does not
assume any responsibility for, the accuracy or completeness of the statements in
the Registration Statement, such counsel has participated in the preparation of
the Registration Statement and the Prospectus, including review and discussion
of the contents thereof (including review and discussion of contents of all
Incorporated Documents), and nothing has come to the attention of such counsel
that has caused it to believe that the Registration Statement (including the
Incorporated Documents) at the time the Registration Statement became effective,
or the Prospectus, as of its date and as of the Closing Date or the Option
Closing Date, as the case may be, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that any amendment or
supplement to the Prospectus, as of its respective date, and as of the Closing
Date or the Option Closing Date, as the case may be, contained any untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading (it being understood that such counsel need
express no opinion with respect to the financial statements and the notes
thereto and the schedules and other financial and statistical data included in
the Registration Statement or the Prospectus or any Incorporated Document).
(d) You shall have received on the Closing Date an opinion of
O'Melveny & Myers, counsel for the Underwriters, dated the Closing Date and
addressed to you, as Representatives of the several Underwriters, with respect
to the matters referred to in clauses (vi), (vii), (xi) and (xxiii) of the
foregoing paragraph (c) and such other related
23
24
matters as you may request. In rendering such opinion, such counsel may rely, as
to matters involving the application of Arizona law, to the extent such counsel
deems proper, on the opinion of Snell & Wilmer L.L.P., counsel for the Company.
(e) You shall have received letters addressed to you, as
Representatives of the several Underwriters, and dated the date hereof and the
Closing Date from Price Waterhouse LLP, independent certified public
accountants, substantially in the forms heretofore approved by you.
(f) (i) No stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission at or prior to the Closing Date; (ii) there shall
not have been any material change in the capital stock of the Company nor any
material increase in the short-term or long-term debt of the Company (other than
in the ordinary course of business) from that set forth or contemplated in the
Registration Statement or the Prospectus (or any amendment or Supplement
thereto); (iii) there shall not have been, since the respective dates as of
which information is given in the Registration Statement and the Prospectus (or
any amendment or supplement thereto), except as may otherwise be stated in the
Registration Statement and Prospectus (or any amendment or supplement thereto),
any material adverse change in the condition (financial or other), business,
prospects, properties, net worth or results of operations of the Company and the
Subsidiaries taken as a whole; (iv) the Company and the Subsidiaries shall not
have any liabilities or obligations, direct or contingent (whether or not in the
ordinary course of business), that are material to the Company and the
Subsidiaries, taken as a whole, other than those reflected in the Registration
Statement or the Prospectus (or any amendment or supplement thereto); and (v)
all the representations and warranties of the Company contained in this
Agreement shall be true and correct on and as of the date hereof and on and as
of the Closing Date as if made on and as of the Closing Date, and you shall have
received a certificate, dated the Closing Date and signed by the chief executive
officer and the chief financial officer of the Company (or such other officers
as are acceptable to you), to the effect set forth in this Section 10(f) and in
Section 10(g) hereof.
(g) The Company shall not have failed at or prior to the Closing
Date to have performed or complied with any of its agreements herein contained
and required to be performed or complied with by it hereunder at or prior to the
Closing Date.
(h) All the representations and warranties of the Selling
Shareholders contained in this Agreement shall be true and correct on and as of
the date hereof and on and as of the Closing Date as if made on and as of the
Closing Date, and you shall have received a certificate, dated the Closing Date
and signed by or on behalf of the Selling Shareholders to the effect set forth
in this Section 10(h) and in Section 10(i) hereof.
(i) The Selling Shareholders shall not have failed at or prior
to the Closing Date to have performed or complied with any of their agreements
herein contained
24
25
and required to be performed or complied with by them hereunder at or prior to
the Closing Date.
(j) Prior to the Closing Date, the Shares shall have been listed
or approved for listing on the Nasdaq National Market.
(k) The Selling Shareholders shall have furnished or caused to
be furnished to you such further certificates and documents as you shall have
requested.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you and your counsel.
Any certificate or document signed by any officer of the Company or any
Attorney-in-Fact or any Selling Shareholder and delivered to you, as
Representatives of the Underwriters, or to counsel for the Underwriters, shall
be deemed a representation and warranty by the Company the Selling Shareholders
or the particular Selling Shareholder, as the case may be, to each Underwriter
as to the statements made therein.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the satisfaction on and as of any Option Closing
Date of the conditions set forth in this Section 10, except that, if any Option
Closing Date is other than the Closing Date, the certificates, opinions and
letters referred to in paragraphs (c) through (i) shall be dated the Option
Closing Date in question and the opinions or letters called for by paragraphs
(c), (d) and (e) shall be revised to reflect the sale of Additional Shares.
11.
Expenses. The Selling Shareholders (in proportion to the number
of Shares being offered by each of them, including any Additional Shares which
the Underwriters shall have elected to purchase) agree to pay the following
costs and expenses and all other costs and expenses incident to the performance
by them of their obligations hereunder: (i) the preparation, printing or
reproduction, and filing with the Commission of the registration statement
(including financial statements and exhibits thereto), each Prepricing
Prospectus, the Prospectus, and each amendment or supplement to any of them;
(ii) the printing (or reproduction) and delivery (including postage, air freight
charges and charges for counting and packaging) of such copies of the
registration statement, each Prepricing Prospectus, the Prospectus, the
Incorporated Documents, and all amendments or supplements to any of them as may
be reasonably requested for use in connection with the offering and sale of the
Shares; (iii) the preparation, printing, authentication, issuance and delivery
of certificates for the Shares, including any stamp taxes in connection with the
original issuance and sale of the Shares; (iv) the printing (or reproduction)
and delivery of this Agreement, the preliminary and supplemental Blue Sky
Memoranda and all other agreements or documents printed (or reproduced) and
delivered in connection with the offering of the Shares; (v) the listing of the
Shares on the Nasdaq National Market; (vi) the registration or qualification of
the Shares for offer and sale under the securities or Blue Sky laws of the
several states as provided in Section 5(g) hereof (including the reasonable
fees, expenses and disbursements
25
26
of counsel for the Underwriters relating to the preparation, printing or
reproduction, and delivery of the preliminary and supplemental Blue Sky
Memoranda and such registration and qualification); (vii) the filing fees and
the fees and expenses of counsel for the Underwriters in connection with any
filings required to be made with the National Association of Securities Dealers,
Inc.; (viii) the transportation and other expenses incurred by or on behalf of
Company representatives in connection with presentations to prospective
purchasers of the Shares; and (ix) the fees and expenses of the Company's
accountants and the fees and expenses of counsel (including local and special
counsel) for the Company and the Selling Shareholders.
12.
Effective Date of Agreement. This Agreement shall become
effective: (i) upon the execution and delivery hereof by the parties hereto; or
(ii) if, at the time this Agreement is executed and delivered, it is necessary
for the registration statement or a post-effective amendment thereto to be
declared effective before the offering of the Shares may commence, when
notification of the effectiveness of the registration statement or such
post-effective amendment has been released by the Commission. Until such time as
this Agreement shall have become effective, it may be terminated by the Company,
by notifying you, or by you, as Representatives of the several Underwriters, by
notifying the Company and the Selling Shareholders.
If any one or more of the Underwriters shall fail or refuse to purchase
Shares which it or they are obligated to purchase hereunder on the Closing Date,
and the aggregate number of Shares which such defaulting Underwriter or
Underwriters are obligated but fail or refuse to purchase is not more than
one-tenth of the aggregate number of Shares which the Underwriters are obligated
to purchase on the Closing Date, each non-defaulting Underwriter shall be
obligated, severally, in the proportion which the number of Firm Shares set
forth opposite its name in Schedule II hereto bears to the aggregate number of
Firm Shares set forth opposite the names of all non-defaulting Underwriters or
in such other proportion as you may specify in accordance with Section 20 of the
Master Agreement Among Underwriters of Smith Barney Inc., to purchase the Shares
which such defaulting Underwriter or Underwriters are obligated, but fail or
refuse, to purchase. If any one or more of the Underwriters shall fail or refuse
to purchase Shares which it or they are obligated to purchase on the Closing
Date and the aggregate number of Shares with respect to which such default
occurs is more than one-tenth of the aggregate number of Shares which the
Underwriters are obligated to purchase on the Closing Date and arrangements
satisfactory to you and the Company for the purchase of such Shares by one or
more non-defaulting Underwriters or other party or parties approved by you and
the Company are not made within 36 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company. In any such case which does not result in termination of this
Agreement, either you or the Company shall have the right to postpone the
Closing Date, but in no event for longer than seven days, in order that the
required changes, if any, in the Registration Statement and the Prospectus or
any other documents or arrangements may be effected. Any action taken under this
paragraph shall not relieve any defaulting Underwriter from liability in respect
of any such default of any such Underwriter under this Agreement. The term
"Underwriter" as used in this Agreement
26
27
includes, for all purposes of this Agreement, any party not listed in Schedule
II hereto who, with your approval and the approval of the Company, purchases
Shares which a defaulting Underwriter is obligated, but fails or refuses, to
purchase.
Any notice under this Section 12 may be given by telegram, telecopy or
telephone but shall be subsequently confirmed by letter.
13.
Termination of Agreement. This Agreement shall be subject to
termination in your absolute discretion, without liability on the part of any
Underwriter to the Company or any Selling Shareholder, by notice to the Company,
if prior to the Closing Date or any Option Closing Date (if different from the
Closing Date and then only as to the Additional Shares), as the case may be, (i)
trading in securities generally on the New York Stock Exchange, American Stock
Exchange or the Nasdaq National Market System shall have been suspended or
materially limited, (ii) a general moratorium on commercial banking activities
in New York or Arizona shall have been declared by either federal or state
authorities, or (iii) there shall have occurred any outbreak or escalation of
hostilities or other international or domestic calamity, crisis or change in
political, financial or economic conditions, the effect of which on the
financial markets of the United States is such as to make it, in your judgment,
impracticable or inadvisable to commence or continue the offering of the Shares
at the offering price to the public set forth on the cover page of the
Prospectus or to enforce contracts for the resale of the Shares by the
Underwriters. Notice of such termination may be given to the Company by
telegram, telecopy or telephone and shall be subsequently confirmed by letter.
14.
Information Furnished by the Underwriters. The statements set
forth in the last paragraph on the cover page, the stabilization legend on the
inside cover page, and the statements in the first and third paragraphs under
the caption "Underwriting" in any Prepricing Prospectus and in the Prospectus,
constitute the only information furnished by or on behalf of the Underwriters
through you as such information is referred to in Sections 7(b) and 9 hereof.
15.
Miscellaneous. Except as otherwise provided in Sections 5, 12 and
13 hereof, notice given pursuant to any provision of this Agreement shall be in
writing and shall be delivered (i) if to the Company, at the office of the
Company at Apollo Group, Inc., 4615 E. Elwood Street, P.O. Box 52069, Phoenix,
Arizona 85072-2069, Attention: James W. Hoggatt, Vice President-Finance and
Chief Financial Officer, or (ii) if to the Selling Shareholders, at
___________________________, Attention: _________________, or (iii) if to you,
as Representatives of the several Underwriters, in care of Smith Barney Inc.,
388 Greenwich Street, New York, New York 10013, Attention: Manager, Investment
Banking Division.
This Agreement has been and is made solely for the benefit of the
several Underwriters, the Company, its directors and officers, and the other
controlling persons referred to in Section 9 hereof and their respective
successors and assigns, to the extent provided herein, and no other person shall
acquire or have any right under or by virtue of
27
28
this Agreement. Neither the term "successor" nor the term "successors and
assigns" as used in this Agreement shall include a purchaser from any
Underwriter of any of the Shares in his status as such purchaser.
16.
Applicable Law; Counterparts. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed within the State of New York.
This Agreement may be signed in various counterparts which together
constitute one and the same instrument. If signed in counterparts, this
Agreement shall not become effective unless at least one counterpart hereof
shall have been executed and delivered on behalf of each party hereto.
28
29
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Selling Shareholders and the several Underwriters.
Very truly yours,
APOLLO GROUP, INC.
By
-------------------------------------John G. Sperling
President and Chairman of the Board
Each of the Selling Shareholders named in
Schedule I hereto
By
-------------------------------------William H. Gibbs
Attorney-in-Fact
By
-------------------------------------Peter V. Sperling
Attorney-in-Fact
Confirmed as of the date first above mentioned
on behalf of themselves and the other several
Underwriters named in Schedule II hereto.
SMITH BARNEY INC.
ALEX, BROWN & SONS INCORPORATED
MONTGOMERY SECURITIES
As Representatives of the Several Underwriters
By SMITH BARNEY INC.
By
------------------------------------------Basil E. Horner
Director
29
30
SCHEDULE I
APOLLO GROUP, INC.
Part A - Firm Shares
Selling Shareholders
Number of Firm Shares
Total
Part B - Additional Shares
Selling Shareholders
Total
Schedule I-1
Number of Firm Shares
31
SCHEDULE II
APOLLO GROUP, INC.
Underwriter
- -------------------------Total
================
Schedule II-1
Number of Firm Shares
---------------------
32
EXHIBIT A
APOLLO GROUP, INC. SIGNIFICANT SUBSIDIARIES
1.
The University of Phoenix
2.
Institute for Professional Development
3.
Apollo Press, Inc.
4.
Western International University, Inc.
Exhibit A-1
1
EXHIBIT 5
December 21, 1995
Apollo Group, Inc.
4615 East Elwood Street
Phoenix, Arizona 85040
RE:
REGISTRATION STATEMENT ON FORM S-3
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-3, including
amendments and exhibits thereto (the "Registration Statement"), for the proposed
offer and sale of up to 3,162,500 shares of Class A Common Stock of Apollo
Group, Inc. (the "Company"), which includes 412,500 of such shares which may be
sold pursuant to an underwriters' over-allotment option (the "Shares"), by
certain of the Company's shareholders, we are of the opinion that the Shares are
legally issued, fully paid, and nonassessable.
In rendering this opinion, we have reviewed and relied upon such
documents and records of the Company as we have deemed necessary and have
assumed the following:
(i) the genuineness of all signatures and the authenticity
of documents submitted to us as originals, and the conformity to originals of
all documents submitted to us as copies;
(ii) the accuracy, completeness, and genuineness of all
representations and certifications, with respect to factual matters, made to us
by officers of the Company and public officials; and
(iii)
the accuracy and completeness of Company records.
The opinions expressed herein are limited solely to the laws of the
State of Arizona. We express no opinion on the laws of any other jurisdiction or
principles of conflicts of law and can assume no responsibility for the
applicability or effect of any such laws or principles.
2
Apollo Group, Inc.
December 21, 1995
Page 2
The opinions expressed herein are based upon the law and other matters
in effect on the date hereof, and we assume no obligation to revise or
supplement this opinion should such law be changed by legislative action,
judicial decision, or otherwise, or should any facts or other matters upon which
we have relied be changed.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name in the Registration Statement.
Very truly yours,
SNELL & WILMER L.L.P.
1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-3 of our report dated October 12, 1995
relating to the financial statements of Apollo Group, Inc., which appears in
such Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Consolidated Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Consolidated Financial Data."
PRICE WATERHOUSE LLP
Phoenix, Arizona
December 20, 1995
<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
<PERIOD-TYPE>
<FISCAL-YEAR-END>
<PERIOD-END>
<CASH>
<SECURITIES>
<RECEIVABLES>
<ALLOWANCES>
<INVENTORY>
<CURRENT-ASSETS>
<PP
<DEPRECIATION>
<TOTAL-ASSETS>
<CURRENT-LIABILITIES>
<BONDS>
<COMMON>
<PREFERRED-MANDATORY>
<PREFERRED>
<OTHER-SE>
<TOTAL-LIABILITY-AND-EQUITY>
<SALES>
<TOTAL-REVENUES>
<CGS>
<TOTAL-COSTS>
<OTHER-EXPENSES>
<LOSS-PROVISION>
<INTEREST-EXPENSE>
<INCOME-PRETAX>
<INCOME-TAX>
<INCOME-CONTINUING>
<DISCONTINUED>
<EXTRAORDINARY>
<CHANGES>
<NET-INCOME>
<EPS-PRIMARY>
<EPS-DILUTED>
3-MOS
AUG-31-1996
NOV-30-1995
63406
0
20822
3436
2813
87544
23243
8400
108476
46137
0
29
0
0
60284
108476
0
49727
1997
29959
0
761
20
7845
3256
4589
0
0
0
4589
.20
.20