-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AKIbK0grffO5cDhKv35D5xwZVJl3MRszoXno+/33ExJupBlG1R350KB61KmZcvSe 8xw0jSGkI9ZSkeSrAU1HRA== 0000950124-97-001226.txt : 19970228 0000950124-97-001226.hdr.sgml : 19970228 ACCESSION NUMBER: 0000950124-97-001226 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 8 FILED AS OF DATE: 19970227 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DEVRY INC CENTRAL INDEX KEY: 0000730464 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EDUCATIONAL SERVICES [8200] IRS NUMBER: 363150143 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-22457 FILM NUMBER: 97545548 BUSINESS ADDRESS: STREET 1: ONE TOWER LN STREET 2: SUITE 1000 CITY: OAKBROOK TERRACE STATE: IL ZIP: 60181 BUSINESS PHONE: 7085717700 MAIL ADDRESS: STREET 1: ONE TOWER LANE CITY: OAKBROOK STATE: IL ZIP: 60181 S-3 1 FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 27, 1997 REGISTRATION NO. 333- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 DEVRY INC. ------------------------ (Exact name of registrant as specified in its charter) Delaware 36-3150143 (State of incorporation) (I.R.S. Employer Identification Number)
ONE TOWER LANE OAKBROOK TERRACE, ILLINOIS 60181 (630) 571-7700 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF PRINCIPAL EXECUTIVE OFFICES) MARILYNN J. CASON SENIOR VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY ONE TOWER LANE OAKBROOK TERRACE, ILLINOIS 60181 (630) 571-7700 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ Copies to: PHILIP J. NIEHOFF LAWRENCE D. LEVIN MAYER, BROWN & PLATT MARK D. WOOD 190 SOUTH LASALLE STREET KATTEN MUCHIN & ZAVIS CHICAGO, ILLINOIS 60603 525 WEST MONROE STREET CHICAGO, ILLINOIS 60661
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. 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, 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, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If 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 AMOUNT TITLE OF EACH CLASS OF AMOUNT OFFERING PRICE AGGREGATE REGISTRATION SECURITIES TO BE REGISTERED TO BE REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE - --------------------------------------------------------------------------------------------------------------------------------- Common Stock ($.01 par value)....... 2,300,000 shares $24.75 $56,925,000 $17,250 =================================================================================================================================
(1) Includes 300,000 shares to be offered upon exercise of the Underwriters' over-allotment option. (2) Estimated solely for purposes of determining the registration fee, based on the average of the high and low sales prices on the New York Stock Exchange Composite Tape on February 25, 1997. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE 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 FEBRUARY 27, 1997 PROSPECTUS 2,000,000 SHARES DEVRY LOGO COMMON STOCK ------------------ Of the 2,000,000 shares of common stock (the "Common Stock") offered hereby, 1,000,000 shares are being sold by DeVRY INC. (the "Company") and 1,000,000 shares are being sold by certain stockholders of the Company (the "Selling Stockholders"). The Company will not receive any of the proceeds from the sale of shares by the Selling Stockholders. See "Principal and Selling Stockholders." The Common Stock is listed on the New York Stock Exchange (the "NYSE") under the trading symbol "DV." The last sale price of the Common Stock as reported on the NYSE on February 26, 1997 was $23.38 per share. See "Price Range of Common Stock and Dividend Policy." SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY. ------------------ 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 PROCEEDS TO SELLING PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS - ----------------------------------------------------------------------------------------------------------------------- Per Share............................. $ $ $ $ - ----------------------------------------------------------------------------------------------------------------------- Total(3).............................. $ $ $ $ =======================================================================================================================
(1) The Company and the Selling Stockholders have agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. For information regarding indemnification of the Underwriters, see "Underwriting." (2) Before deducting expenses payable by the Company estimated at $250,000. (3) The Company and a Selling Stockholder have granted the Underwriters a 30-day option to purchase up to 200,000 and 100,000 additional shares of Common Stock, respectively, solely to cover over-allotments, if any. See "Underwriting." If such option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions, Proceeds to Company and Proceeds to Selling Stockholders will be $ , $ , $ and $ , respectively. ------------------ The shares of Common Stock are being offered by the several Underwriters named herein, subject to prior sale, when, as and if accepted by them and subject to certain conditions. It is expected that certificates for the shares of Common Stock offered hereby will be available for delivery on or about March , 1997 at the offices of Smith Barney Inc., 333 West 34th Street, New York, New York 10001. ------------------ Smith Barney Inc. ABN AMRO Chicago Corporation Alex. Brown & Sons Incorporated Credit Suisse First Boston March , 1997 3 IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, THE CHICAGO STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE COMMON STOCK IN ACCORDANCE WITH REGULATION M UNDER THE SECURITIES EXCHANGE ACT OF 1934. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information concerning the Company may be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at Seven World Trade Center, New York, New York 10048 and at Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661. Copies of such material can also be obtained upon written request addressed to the Commission, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates, or from the Commission's worldwide web site at http://www.sec.gov. Such reports and other information concerning the Company can also be inspected at the offices of the New York Stock Exchange, Inc. ("NYSE"), 20 Broad Street, New York, New York 10005 and the Chicago Stock Exchange, 440 South LaSalle Street, Chicago, Illinois 60605. The Company has filed with the Commission a registration statement on Form S-3 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act of 1933 (the "Securities Act"), with respect to the shares of Common Stock offered hereby. This Prospectus, which constitutes part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and schedules thereto, certain items of which are contained in exhibits to the Registration Statement as permitted by the rules and regulations of the Commission. Statements made in this Prospectus as to the content of any contract, agreement or other document referred to are not necessarily complete. With respect to each such contract, agreement or other document filed as an exhibit to the Registration Statement, reference is made to the Registration Statement, which may be inspected and copied in the manner and at the sources described above. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed by the Company with the Commission pursuant to the Exchange Act are incorporated herein by reference: (1) The Company's Annual Report on Form 10-K for the year ended June 30, 1996; (2) The Company's Quarterly Reports on Form 10-Q for the quarters ended September 30, 1996 and December 31, 1996; and (3) The Company's Current Reports on Form 8-K filed July 3, 1996, as amended by Form 8-K/A filed August 30, 1996, and on August 23, 1996. All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the Offering shall be deemed to be incorporated by reference in this Prospectus and to be a part hereof from the date of filing of such documents. Any statement contained herein or in a document incorporated or deemed to be incorporated herein by reference shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained in any subsequently filed document which 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, on the written or oral request of such person, a copy of any or all of the documents incorporated herein by reference (other than exhibits thereto, unless such exhibits are specifically incorporated by reference into the information that this Prospectus incorporates). Written or telephone requests for such copies should be directed to the Company's principal office: DeVRY INC., One Tower Lane, Oakbrook Terrace, Illinois 60181, Attention: Secretary (telephone: (630) 571-7700). 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and consolidated financial statements, including notes thereto, appearing elsewhere in this Prospectus. Unless indicated or the context requires otherwise, references to years refer to the Company's fiscal years then ended, and references to share and per share amounts have been restated to reflect the Company's two-for-one stock splits, each in the form of a 100% stock dividend, effective June 21, 1995 and December 18, 1996. Unless otherwise indicated, all information in this Prospectus is based on the assumption that the Underwriters' over-allotment option is not exercised. THE COMPANY The Company, through its wholly-owned subsidiaries, owns and operates the DeVRY Institutes of Technology (the "DeVRY Institutes") and the Keller Graduate School of Management ("KGSM"), which collectively form one of the largest private degree-granting higher education systems in North America. The Company also owns and operates Becker CPA Review ("Becker"), which prepares candidates for the Certified Public Accountant ("CPA") and Certified Management Accountant ("CMA") professional certification examinations, and Corporate Educational Services ("CES"), which provides customized, on-site technical education and training services to corporations and government agencies. The Company's operations serve both full and part-time students, providing a full range of educational alternatives to address all stages of an adult's postsecondary professional life. The DeVRY Institutes' operations accounted for approximately 93% of the Company's revenues in fiscal 1996. In the first half of fiscal 1997, which period for the first time includes the operations of Becker, the DeVRY Institutes' operations accounted for approximately 88% of the Company's revenues. The DeVRY Institutes were founded in 1931 and for more than 65 years have provided career-oriented technical education to high school graduates in the United States and Canada. KGSM, founded in 1973, employs a faculty of practicing business professionals to teach master of business administration ("MBA"), master of project management ("MPM"), master of human resource management ("MHRM") and master of telecommunications management ("MTM") degree programs to working adults in the United States. The DeVRY Institutes and KGSM are each accredited by the Commission on Institutions of Higher Education of the North Central Association of Colleges and Schools, the same agency that accredits other four-year publicly supported and independent colleges in the North Central region. Becker, which was acquired by the Company in June 1996, was founded in 1957 and has become a leading CPA review course, which is administered nationally and internationally. The DeVRY Institutes are located on ten campuses in the United States and four campuses in Canada. At the beginning of the fall 1996 semester, 30,585 full and part-time students were enrolled in the DeVRY Institutes' diploma, associate and bachelor's degree day and evening programs in electronics, electronics engineering technology, computer information systems, accounting, business operations, technical management and telecommunications management. KGSM classes are offered at 19 locations nationwide, with a total enrollment of 4,011 students as of the beginning of the November 1996 term. More than 20,000 students annually attend Becker CPA review courses at approximately 140 locations in the United States and 10 locations internationally. COMPANY STRATEGY The Company's objective is to further strengthen its position as a leading provider of high quality, career-oriented postsecondary education. The Company seeks to achieve continued revenue and earnings growth by (i) pursuing enrollment growth at both the DeVRY Institutes and KGSM, (ii) capitalizing on opportunities to cross-sell and expand product offerings in the adult education market through KGSM, Becker and CES, (iii) pursuing external growth through the acquisition of complementary businesses, such as the Company's recent acquisition of Becker, and (iv) further developing and implementing CES on-site management and technical training programs for large employers. The Company intends to achieve enrollment growth through (i) the expansion of existing curricula to additional sites, (ii) the development of new curricula, (iii) the 3 5 development of new programs and delivery formats for part-time and evening students and (iv) the expansion of recruiting efforts in selected regions. In order to increase market penetration and operating leverage and to capitalize more extensively on economies of scale realized through local marketing and national advertising efforts, the Company plans to continue to upgrade and expand certain existing school facilities and open new schools. The Company believes that it is strongly positioned to capitalize on projected demographic and market trends, including the projected increase in the number of U.S. high school graduates, the expected increased demand for technical curricula and the projected increase in the number of adult students entering the postsecondary education system. DeVRY Inc. was incorporated under the laws of the State of Delaware in 1973. Its principal executive offices are located at One Tower Lane, Oakbrook Terrace, Illinois 60181, and its telephone number is (630) 571-7700. The Company's worldwide web location is http://www.devry.com. THE OFFERING Common Stock offered by the Company.......... 1,000,000 shares Common Stock offered by the Selling Stockholders............................... 1,000,000 shares Total................................... 2,000,000 shares Common Stock to be outstanding after the Offering(1)................................ 34,292,194 shares Use of proceeds by the Company............... The net proceeds to the Company from the Offering will be used to repay indebtedness. The Company will not receive any proceeds from the sale of shares of Common Stock by the Selling Stockholders. See "Use of Proceeds." NYSE symbol.................................. "DV"
- ------------------------- (1) Excludes an aggregate of 1,516,790 shares of Common Stock reserved for issuance under the Restated Stock Incentive Plan, 1991 Stock Incentive Plan and 1994 Stock Incentive Plan. 4 6 SUMMARY CONSOLIDATED FINANCIAL INFORMATION (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) The following table sets forth certain summary consolidated financial information and other data for the Company. This information should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this Prospectus. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
SIX MONTHS ENDED DECEMBER 31, FISCAL YEARS ENDED JUNE 30, -------------------- -------------------------------- 1996 1995 1996 1995 1994 -------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: Total revenues............................ $150,511 $126,779 $260,007 $228,593 $211,437 Cost of educational services.............. 89,656 76,699 155,254 136,721 127,673 Student services and administrative expense................................ 39,866 33,362 70,992 63,043 58,146 Interest expense.......................... 1,691 567 1,063 3,070 4,615 Net income................................ 11,741 9,416 19,245 14,896 12,225 Earnings per common share................. $0.35 $0.28 $0.57 $0.45 $0.37 Weighted average shares used in calculating per share amounts (in thousands)............................. 33,773 33,596 33,661 33,454 33,388 PRO FORMA DATA:(1) Pro forma earnings per common share....... $0.35 $0.58 Pro forma weighted average shares used in calculating per share amounts (in thousands)............................. 34,773 34,437 OTHER DATA: Earnings before interest and taxes (EBIT)(2).............................. $ 20,989 $ 16,718 $ 33,761 $ 28,829 $ 25,618 DeVRY Institutes and KGSM fall term enrollment............................. 34,596 32,612 32,612 29,884 28,815 Number of DeVRY Institutes................ 14 13 13 11 11 Number of KGSM Centers.................... 19 17 18 17 15
DECEMBER 31, 1996 ----------------------- AS ACTUAL ADJUSTED(3) ------ ----------- BALANCE SHEET DATA: Cash and cash equivalents............... $ 27,543 $ 27,543 Total assets............................ 208,145 208,145 Long-term debt.......................... 44,000 20,500 Total shareholders' equity.............. 69,085 92,585
- ------------------------- (1) Pro forma earnings per common share and weighted average shares outstanding for the year ended June 30, 1996 and the six months ended December 31, 1996 are adjusted to reflect, as if occurring on July 1, 1995, (i) receipt by the Company of the net proceeds from the sale of the 1,000,000 shares of Common Stock offered hereby by the Company at an assumed public offering price of $25.00 per share and (ii) the application of the net proceeds of the Offering to repay indebtedness. (2) EBIT is presented because the Company believes that it allows for a more complete analysis of the Company's results of operations. This information should not be considered as an alternative to, nor is there any implication that this information is more meaningful than any measure of performance or liquidity as promulgated under generally accepted accounting principles. (3) Adjusted to reflect (i) receipt by the Company of the net proceeds from the sale of the 1,000,000 shares of Common Stock offered hereby by the Company at an assumed public offering price of $25.00 per share and (ii) the application of the net proceeds of the Offering to repay indebtedness. 5 7 RISK FACTORS Prospective purchasers should carefully consider the following risk factors, together with other information in this Prospectus, in evaluating an investment in the shares of Common Stock. DEPENDENCE ON STUDENT FINANCIAL AID; PRIOR NON-COMPLIANCE WITH FINANCIAL AID REGULATIONS Students attending the DeVRY Institutes finance their education through a combination of family contributions, individual resources (including earnings from full or part-time employment), financial aid (including Company-provided financial aid) and tuition reimbursement from their employers. The Company estimates that approximately 79% of the U.S. and Canadian DeVRY Institutes' students receive some government-sponsored financial aid. Government-sponsored financial aid is of great importance to the Company because approximately 68% of the DeVRY Institutes' U.S. tuition, book and fee revenues collected in fiscal 1996 were dependent on some form of such financial aid received by its students. In fiscal 1995, approximately 69% of revenues collected were dependent on financial aid. The government-provided financial aid and assistance programs in which many of the Company's students participate are subject to political and budgetary considerations. There is no assurance that government funding for the financial aid programs in which the Company's students participate will be maintained at current levels. A reduction in funding levels to financial aid programs could result in lower enrollments and/or an increased amount of Company-provided financial aid to its students. Extensive and complex regulations in the United States and Canada govern all of the government grant, loan and work programs in which the Company and its students participate. These regulations and their application and interpretation may change from time to time. Regulations and standards that an institution must satisfy in order for its students to participate in federal financial assistance programs include, among others, maximum student loan default rates; limits on the proportion of an institution's revenue that can be derived from federal aid programs; financial responsibility and administrative capability requirements; and prohibition of certain types of incentive payments to student recruiters. Failure to achieve these standards or otherwise demonstrate, in conformity to the regulations, its ability to continue to provide the educational services it offers could result in the Company being required to post a surety bond to permit its students to continue to participate in federal financial assistance programs. In addition, because U.S. financial assistance programs are required to be administered in accordance with the standard of care and diligence of a fiduciary, any regulatory violation could be the basis for the initiation of suspension, limitation or termination proceedings against the Company. Changes in or new interpretations of applicable laws, rules or regulations could have a material adverse effect on the Company in the future. Although the Company has no reason to believe that any proceeding against the Company is presently contemplated, if such a proceeding were initiated against the Company and resulted in a substantial curtailment of the Company's participation in government grant or loan programs, the Company could be materially adversely affected. See "Business--Financial Aid and Financing Student Education." DeVRY Institutes' Toronto-area campuses were notified at the end of August 1995 that the Ontario Ministry of Education and Training had temporarily suspended the processing of new financial aid applications from DeVRY students pending review of inaccuracies found in applications filed by some students. The Ministry believed that some of DeVRY's Toronto-area students applied for and collected what might be excessive government-sponsored financial aid by inappropriately reporting that they had "zero income." A Ministry audit of the administration of financial aid at DeVRY Institutes' Toronto-area campuses, with the Company's full cooperation, began in September 1995 and is still in process. In order to restore financial aid eligibility, the Company refunded to the Ministry approximately $1.7 million (CDN), for the 1995-1996 academic year, which the Company believes is substantially all of the financial aid previously inappropriately disbursed to such "zero income" students for this time period, and posted a letter of credit for $2.0 million (CDN) against any possible additional amounts that may have been inappropriately disbursed, as determined by the Ministry audit. Effective with the spring 1996 term which began in March 1996, the Ministry conditionally reinstated approval for the processing of financial aid applications. As a consequence, results of operations for the Company's Canadian operations were materially adversely affected. See "Business - -- 6 8 Financial Aid and Financing Student Education" and Note 9 to the Consolidated Financial Statements. Full unconditional reinstatement is subject to the Ministry's appointed auditor's completion of its audit and verification of the Company's compliance with financial aid processing regulations. There is no assurance that unconditional reinstatement will be granted, and any failure to receive such unconditional reinstatement could reduce future enrollments and have a material adverse effect on the Company. STUDENT LOAN DEFAULTS The Company is substantially dependent on continued participation by its students in that portion of government financial aid assistance represented by student loan programs. The Company believes that in 1996 federal student loans represented more than 80% of the federal aid received by students at the U.S. DeVRY Institutes and 100% of the federal aid received by students at KGSM. A substantial majority of these student loans is provided under the Federal Family Education Loan Program ("FFELP") and William D. Ford Federal Direct Student Loan Program ("FDSL"). For a variety of reasons, high student loan default rates on federal student loans are most often found in proprietary institutions, institutions having large minority populations and community colleges, all of which tend to have a higher percentage of low income students enrolled than do four-year publicly supported and independent colleges and universities. In 1989, the U.S. Department of Education instituted strict regulations that penalize educational institutions with high student loan default rates. These regulations were further tightened by the 1992 Higher Education Reauthorization Act ("HEA"). Any individual institution with a FFELP or FDSL default rate ("cohort default rate") exceeding 20% for the year is required to develop a default management plan meeting specified federal standards in order to reduce defaults, although the institution's operations and its students' ability to utilize student loans are not restricted. Due to the recent introduction of the FDSL program, no default rates for this program have yet been reported. Any individual institution with a cohort default rate of 25% or more for three consecutive years is ineligible for participation in these loan programs and cannot offer student loans administered by the U.S. Department of Education for the fiscal year in which the ineligibility determination is made and for the two succeeding fiscal years. In addition, students attending an institution whose cohort default rate has exceeded 25% for three consecutive years will be ineligible for Federal Pell Grants ("Pell"). Any institution with a cohort default rate of 40% or more in any year is subject to immediate limitation, suspension or termination proceedings from all federal aid programs. The Company carefully monitors its students' loan default rate. According to reports by the U.S. Department of Education, the Company's schools had cohort default rates for 1994 (the latest year for which statistics are available) ranging from 1.5% to 25.1%. The Company's systemwide cohort default rate was approximately 17.6%. The reported rates for 1994 reflect the proportion of former students who were due to begin repaying their loans during that year but who were in default by the end of 1995. For 1993, the Company's weighted average cohort default rate was 18.6%. Cohort default rates are subject to revision by the Department of Education as new data becomes available and are subject to appeal by schools contesting the accuracy of the data. Upon review of the calculations of the cohort default rates for the DeVRY Institutes, the Company discovered errors and exceptions. The Company has requested that the Department of Education recalculate the cohort default rates for 1994. The loss of eligibility to participate in the FFELP or FDSL programs at one or more of the Company's schools could have a material adverse effect on the Company. Only one of the DeVRY Institutes had a reported cohort loan default rate greater than 20% for 1994. That Institute, whose cohort default rate was reported at 25.1%, has initiated a default management plan and has requested that the Department of Education recalculate its cohort default rate based upon its belief that erroneous data was included and resulted in an overstatement of the reported cohort default rate. This same Institute had a cohort default rate of 26.6% for 1993 and a cohort default rate of 22.5% for 1992. If this Institute were to have a cohort default rate above 25.0% for fiscal 1995 (preliminary results for which are expected to be available in spring 1997), this Institute would lose its eligibility to participate in student loan programs and the Pell grant program. No DeVRY Institute is currently subject to any restrictions or termination under these student loan programs. 7 9 There can be no assurance that federal funding for the FFELP or FDSL programs will be continued at current levels, or at all. Discontinuance or significant reductions in any of these programs could have a material adverse effect on the Company. STATE APPROVAL AND LICENSING Authorizations from state or provincial licensing agencies or ministries are required to recruit students, operate the Company's schools and grant degrees. Many states and provinces require for-profit postsecondary education institutions to post surety bonds for licensure. The Company has posted approximately $1.0 million of surety bonds with state and local regulatory authorities and approximately $1 million (CDN) of surety bonds with regulatory agencies in Canada. Certain states have set standards of financial responsibility beyond those prescribed by federal regulation. For example, fiscal tests adopted by the California legislature (as discussed more fully below) and similar regulations adopted or proposed by other state regulators may place the Company in future non-compliance under certain state regulations. If the Company were unable to meet these tests and could not otherwise demonstrate that it was financially responsible, it could be required to cease operations in a particular state, which could have a material adverse effect on the Company. To date, the Company has successfully demonstrated its financial responsibility where required. In January 1991, the State of California adopted legislation that requires private, postsecondary educational institutions to meet certain fiscal tests in order to continue operating in the state. These fiscal tests include three requirements: (i) not having an operating loss in each of an institution's two most recent fiscal years; (ii) having positive net worth in its latest fiscal year; and (iii) maintaining a ratio of current assets to current liabilities of 1.25:1 or greater. The Company has achieved two of the required fiscal tests but has not maintained a ratio of current assets to current liabilities of 1.25:1, because the Company believes that maintaining such a ratio would be an inefficient use of its assets. At June 30, 1996, the Company had a ratio of current assets to current liabilities of 1.17:1. The California Council for Private Postsecondary and Vocational Education (the "California Council") also has discretion under this statute to allow an educational institution to continue operating, even if it does not satisfy the fiscal tests, if the institution can demonstrate that it has maintained sufficient financial resources to sustain all of its promised educational services. The Company believes that at June 30, 1996 it had satisfactorily demonstrated to the California Council its financial strength and ability to continue to operate. If the Company were unable to meet the California Council's fiscal tests or otherwise demonstrate its financial strength to the California Council, it would have to cease operating its DeVRY Institutes in Pomona and Long Beach but could continue to recruit students in California. If the Company were required to cease operating in Pomona and Long Beach, the Company's operating results could be materially adversely affected. In connection with granting authority for continued operations, California law also requires an on-site visit to all postsecondary institutions having accreditation from a regional accrediting association other than the Western Association of Colleges and Schools. The California Council conducted a visit to the California campuses in August 1996 and recently issued its report granting approval for continued degree-granting operation for the maximum five-year period. RISKS ASSOCIATED WITH EXPANSION There can be no assurance that suitable expansion or acquisition opportunities will be identified or that any new or acquired institutions can be operated profitably or successfully integrated into the Company's operations. Growth through expansion or acquisition also could involve other risks, including the diversion of management's attention from normal operating activities, the inability to find appropriate personnel to manage the Company's expanding operations and the possibility that new or acquired schools will be subject to unanticipated business or regulatory uncertainties or liabilities. The failure of the Company to manage its expansion and acquisition program effectively could have a material adverse effect on the Company. EFFECT OF CHANGES IN CPA EXAMINATION REQUIREMENTS Several states have either adopted or introduced legislation that requires 150 semester units (the equivalent of five years of college) before a candidate can sit for the CPA exam. Forty-seven of the 50 states have introduced bills to implement the law. The status of these bills is as follows: rejected in 13 states; passed 8 10 but modified to a four-year track in three states; pending in five states; passed but not yet implemented in 25 states; and passed and implemented in four states (Florida, Alabama, Tennessee and Utah). Most states that have passed such laws did so before there was any organized opposition to it. In Florida, where the law has been implemented for over 10 years, Becker experienced a material reduction in students in the two- to three-year period following implementation, followed by a return to normal enrollment levels. However, the impact of the law in other states is presently unknown, as Alabama, Tennessee and Utah have implemented the law only within the last two years. Additionally, some states, such as California, have passed or may pass laws requiring completion of all educational requirements before taking the CPA examination. This change has the effect of delaying, for six months or more, enrollment in Becker's review class by certain students in those states. If this 150 semester unit legislation is broadly implemented, it could have a material adverse effect on the Company. 9 11 USE OF PROCEEDS The net proceeds to the Company from the Offering, at an assumed public offering price of $25.00 per share (after deduction of estimated underwriting discounts and commissions and Offering expenses) are expected to be approximately $23.5 million (approximately $28.3 million if the Underwriters' over-allotment option is exercised in full). The Company will not receive any proceeds from the sale of shares of Common Stock by the Selling Stockholders. The Company intends to use the net proceeds to repay indebtedness. The indebtedness to be repaid bears interest at the London Inter-Bank Offered Rate ("LIBOR") plus 0.625% and matures in August 1999. Such indebtedness has been incurred in connection with the acquisition of Becker and for general corporate purposes. Upon repayment of such indebtedness, the Company will have approximately $66.0 million available under its revolving line of credit. The Company may use funds available under this facility for capital expenditures, the purchase of properties for new DeVRY Institutes and possible future acquisitions of complementary businesses. See "Business--Properties." From time to time, the Company is involved in the evaluation of, and discussions with, possible acquisition candidates, although the Company currently has no agreements, commitments or understandings with respect to any such acquisitions. PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY The Common Stock is listed on the NYSE under the trading symbol "DV." Prior to November 14, 1995, the Common Stock was quoted on the Nasdaq National Market. The table below sets forth the high and low sales prices of the Common Stock during the periods shown. All sales price information has been restated to reflect the Company's two-for-one stock splits effective June 21, 1995 and December 18, 1996.
FISCAL HIGH LOW ------ ------ ------ 1995 First Quarter............................................. $ 7.25 $ 6.27 Second Quarter............................................ 7.75 6.44 Third Quarter............................................. 9.66 7.63 Fourth Quarter............................................ 10.75 9.13 1996 First Quarter............................................. $12.88 $10.00 Second Quarter............................................ 14.06 11.00 Third Quarter............................................. 17.75 12.88 Fourth Quarter............................................ 22.94 16.50 1997 First Quarter............................................. $23.44 $19.00 Second Quarter............................................ 25.38 18.38 Third Quarter (through February 26, 1997)................. 28.00 22.63
The last reported sales price of the Common Stock on February 26, 1997 as reported on the NYSE was $23.38. The Company is a holding company and, as such, is dependent on the earnings of its subsidiaries for funds to pay cash dividends. Cash flow from the Company's subsidiaries may be restricted by law and is restricted by covenants in the subsidiaries' debt agreements. The Company's subsidiaries are currently limited by the terms of the Company's revolving line of credit agreement in their ability to distribute any cash to the Company including dividends, except for Directors' fees and loans to fund the expenses associated with compliance with securities laws and regulations payable by the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." The Company has not paid any dividends on its Common Stock and expects for the foreseeable future to retain all of its earnings from operations for use in the Company's business. From time to time, the Board of Directors reviews the Company's dividend policy. Any payment of dividends will be at the discretion of the Board of Directors and will be dependent on the earnings and financial requirements of the Company and other factors, including the foregoing restrictions on the Company's subsidiaries' cash flow, legal restrictions on the payment of dividends by the Company and such other factors as the Board of Directors deems relevant. 10 12 CAPITALIZATION The following table sets forth the capitalization of the Company as of December 31, 1996 and as adjusted to reflect the Offering and the application of the estimated net proceeds to the Company of $23.5 million (based upon an assumed public offering price of $25.00 per share) for repayment of indebtedness.
DECEMBER 31, 1996 ----------------------- (DOLLARS IN THOUSANDS) ACTUAL AS ADJUSTED -------- ----------- Long-term debt(1)........................................... $ 44,000 $ 20,500 -------- -------- Shareholders' equity: Common Stock (75,000,000 shares authorized, 33,265,244 shares issued and outstanding (actual) and 34,265,244 shares issued and outstanding (as adjusted))(2)........ 333 343 Additional paid-in capital................................ 36,744 60,234 Retained earnings......................................... 31,561 31,561 Cumulative translation adjustment......................... 447 447 -------- -------- Total shareholders' equity............................. 69,085 92,585 -------- -------- Total capitalization.............................. $113,085 $113,085 ======== ========
- ------------------------- (1) Subsequent to December 31, 1996, the Company repaid $3.0 million of long-term debt. (2) Excludes an aggregate of 1,543,740 shares of Common Stock reserved for issuance as of December 31, 1996 under the Restated Stock Incentive Plan, the 1991 Stock Incentive Plan and the 1994 Stock Incentive Plan. 11 13 SELECTED CONSOLIDATED FINANCIAL DATA (DOLLARS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS) The following table sets forth, for the periods and at the dates indicated, selected consolidated financial data for the Company. The consolidated financial information for the fiscal years ended June 30, 1996, 1995, 1994, 1993 and 1992 included below have been derived from the Company's consolidated financial statements, which statements have been audited by Price Waterhouse LLP independent accountants. Their report on the financial statements for the fiscal years ended June 30, 1996, 1995 and 1994 is included at page F-2. The information at December 31, 1996 and 1995 and for the six-month periods then ended has been derived from the Company's consolidated financial statements included elsewhere in this Prospectus. Such financial statements are unaudited, but in the opinion of the Company reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of the results of operations for such periods. The results of operations for the six-month period ended December 31, 1996 are not necessarily indicative of the results that may be expected for the entire fiscal year ending June 30, 1997. The selected financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes thereto appearing elsewhere in this Prospectus.
SIX MONTHS ENDED DECEMBER 31, FISCAL YEARS ENDED JUNE 30, ------------------- ---------------------------------------------------- 1996 1995 1996 1995 1994 1993 1992 -------- -------- -------- -------- -------- -------- -------- STATEMENT OF OPERATIONS DATA: Total revenues...................... $150,511 $126,779 $260,007 $228,593 $211,437 $191,915 $179,196 Cost of educational services........ 89,656 76,699 155,254 136,721 127,673 117,596 109,172 Student services and administrative expense........................... 39,866 33,362 70,992 63,043 58,146 51,881 50,490 Interest expense.................... 1,691 567 1,063 3,070 4,615 6,849 9,661 -------- -------- -------- -------- -------- -------- -------- Income before income taxes and cumulative effect of change in accounting principle.............. 19,298 16,151 32,698 25,759 21,003 15,589 9,873 Income tax provision................ 7,557 6,735 13,453 10,863 8,778 6,158 3,984 Cumulative effect of change in accounting principle.............. -- -- -- -- -- -- 15,798 -------- -------- -------- -------- -------- -------- -------- Net income.......................... $ 11,741 $ 9,416 $ 19,245 $ 14,896 $ 12,225 $ 9,431 $ 21,687 ======== ======== ======== ======== ======== ======== ======== PER SHARE DATA: Earnings per common share........... $0.35 $0.28 $0.57 $0.45 $0.37 $0.28 $0.65(1) ======== ======== ======== ======== ======== ======== ======== Weighted average shares used in calculating per share amounts (in thousands)........................ 33,773 33,596 33,661 33,454 33,388 33,263 33,335 CASH FLOW DATA: Cash provided by operating activities........................ $ 22,384 $ 23,151 $ 28,368 $ 28,200 $ 28,405 $ 24,058 $ 15,282 Capital expenditures................ 7,346 10,666 18,352 14,551 6,288 5,147 3,892 BALANCE SHEET DATA: Cash and cash equivalents........... $ 27,543 $ 22,760 $ 29,948 $ 26,252 $ 22,704 $ 13,344 $ 16,015 Total assets........................ 208,145 153,814 178,089 126,671 106,798 99,210 110,769 Total funded debt................... 44,000 17,209 61,500 33,029 43,224 55,712 77,563 Total shareholders' equity.......... 69,085 47,407 57,287 37,968 22,978 11,022 1,322 OTHER DATA: Earnings before interest and taxes (EBIT)(2)......................... $ 20,989 $ 16,718 $ 33,761 $ 28,829 $ 25,618 $ 22,438 $ 19,534 DeVRY Institutes and KGSM fall term enrollment........................ 34,596 32,612 32,612 29,884 28,815 27,336 26,941 Number of DeVRY Institutes.......... 14 13 13 11 11 11 11 Number of KGSM Centers.............. 19 17 18 17 15 12 10
- ------------------------- (1) Results for the year ended June 30, 1992 include a $0.47 per share cumulative effect of a change in accounting for income taxes to conform with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." (2) EBIT is presented because the Company believes that it allows for a more complete analysis of the Company's results of operations. This information should not be considered as an alternative to, nor is there any implication that this information is more meaningful than, any measure of performance or liquidity as promulgated under generally accepted accounting principles. 12 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the Company's results of operations and financial condition should be read in conjunction with the consolidated financial statements of the Company and the notes thereto appearing elsewhere in this Prospectus. Because of the somewhat seasonal pattern of the Company's enrollments and its term starting dates, which affect the results of operations and the timing of cash inflows, the Company believes that comparisons of its results of operations and financial position should be made to both the end of the previous fiscal year and to the corresponding period in the preceding year. Typically, due to the seasonality of student enrollments, the Company's second and third quarters have the highest revenues and net income within a fiscal year. See Note 10 to the Consolidated Financial Statements. RESULTS OF OPERATIONS General The following table sets forth for the periods indicated (i) the percentage relationship of certain income statement items to total revenues and (ii) the percentage change in each line item from the prior period:
SIX MONTHS ENDED FISCAL YEARS ENDED PERIOD-TO-PERIOD DECEMBER 31, JUNE 30, PERCENTAGE CHANGES ------------- --------------------- --------------------------------------- SIX MONTHS ENDED 1996 1995 DECEMBER 31, 1996 COMPARED COMPARED 1996 1995 1996 1995 1994 COMPARED TO 1995 TO 1995 TO 1994 ----- ----- ----- ----- ----- ----------------- -------- -------- Revenues: Tuition......................... 90.0% 89.8% 91.0% 90.8% 90.4% 19.1% 14.0% 8.5% Other........................... 10.0 10.2 9.0 9.2 9.6 15.5 11.1 4.1 ----- ----- ----- ----- ----- Total revenues................ 100.0 100.0 100.0 100.0 100.0 18.7 13.7 8.1 Costs and expenses: Cost of educational services.... 59.6 60.5 59.7 59.8 60.4 16.9 13.6 7.1 Student services and administrative expense........ 26.5 26.3 27.3 27.6 27.5 19.5 12.6 8.4 Interest expense................ 1.1 0.5 0.4 1.3 2.2 198.2 (65.4) (33.5) ----- ----- ----- ----- ----- Total costs and expenses...... 87.2 87.3 87.4 88.7 90.1 18.6 12.1 6.5 ----- ----- ----- ----- ----- Income before income taxes........ 12.8 12.7 12.6 11.3 9.9 19.5 26.9 22.6 Income tax provision.............. 5.0 5.3 5.2 4.8 4.1 12.2 23.8 23.8 ----- ----- ----- ----- ----- Net income........................ 7.8% 7.4% 7.4% 6.5% 5.8% 24.7% 29.2% 21.9% ===== ===== ===== ===== =====
Six Months Ended December 31, 1996 vs. Six Months Ended December 31, 1995 Tuition revenues increased by $21.7 million or 19.1% in the first half of fiscal 1997 compared to the same period in fiscal 1996. The increase in tuition revenues was produced by several positive factors, including enrollment increases at the DeVRY Institutes where total student enrollment for the summer and fall semesters in fiscal 1997 increased by 4.6% and 4.3%, respectively, from fiscal 1996. These are the seventeenth and eighteenth consecutive terms of increased total student enrollment as compared to the prior year period at the DeVRY Institutes. At KGSM, total enrollment for the term which began in November 1996 increased more than 22% from November 1995. Tuition revenues also increased because of tuition rate increases which became effective at the DeVRY Institutes in March 1996 and at KGSM in September 1996. In June 1996, the Company acquired Becker which also contributed to the Company's revenue increase in the first half of fiscal 1997. Other educational revenues, comprised primarily of sales of books and supplies, increased by $2.2 million or 18.1% because of sales to the increased number of students attending the Company's educational programs. Interest income on the Company's short-term investments decreased by $222,000 or 35.7% from the prior year period because of lower cash balances available for investment throughout the period. 13 15 Cost of educational services for the first half of fiscal 1997 increased by $13.0 million or 16.9% from the comparable period in fiscal 1996. Cost of educational services includes the cost of faculty and related staff, which consistently comprises approximately 60% of this expense category. Also included in this expense category are the costs of facilities, supplies, bookstore sales, other student education-related support activities and the cost of tuition refunds and uncollectible accounts. The increase in cost of educational services in the first half of fiscal 1997 reflects the additional facility, faculty and staff costs associated with Becker's operations and the higher wage, benefit, supply and service expenses associated with growing student enrollments at the DeVRY Institutes and at KGSM. Depreciation expense increased by more than $1.0 million or 32.3% in the first six months of fiscal 1997 over the comparable period in fiscal 1996, as a result of extensive capital improvements and additions in fiscal 1996, particularly those related to the opening of the new DeVRY Institute in North Brunswick, New Jersey, and the upgrading of school laboratories and teaching equipment throughout the system. Student services and administrative expense increased by $6.5 million or 19.5% for the first six months of fiscal 1997 over the comparable period in fiscal 1996. Student services and administrative expense includes the costs of new student recruiting, curriculum development and general and administrative costs. The increase in student services and administrative expense reflects the marketing costs associated with Becker's operations and the marketing costs associated with generating the higher student enrollments at the DeVRY Institutes and at KGSM for the terms which have already begun in fiscal 1997 and for the terms which will begin in the coming months. This increase also includes nearly $788,000 in amortization of intangibles and goodwill, primarily associated with the Becker acquisition. The Company's earnings from operations, before interest expense and taxes, were a record $21.0 million for the first six months of fiscal 1997. Operating margins, which have been increasing consistently year over year, increased again in the first half of fiscal 1997, climbing to 13.9% from 13.2% for the prior year. Operating margins were favorably affected by the inclusion of Becker results, where operating margins have historically been higher, by the higher revenues and improved facility utilization from the increased enrollments at the DeVRY Institutes and KGSM and by continued cost containment measures. Interest expense in the first half of fiscal 1997 increased by $1.1 million or 198.2% from the comparable period in fiscal 1996 because of higher outstanding debt levels resulting from the acquisition, for cash, of Becker in June 1996. At December 31, 1996, long-term debt increased by nearly $27.0 million from December 31, 1995. The provision for income taxes of $7.6 million for the first half of fiscal 1997 continued at a lower rate than in the comparable fiscal 1996 period because of a different mix in the earnings from domestic and foreign operations and because of a lower effective state income tax rate. The effective tax rate represents the combination of U.S. federal and state and Canadian federal and provincial income taxes on the Company's operations in these jurisdictions. Net income of $11.7 million, or $0.35 per share, was a record for the six month period ending December 31, 1996, increasing by 24.7% from the same period in fiscal 1996. Fiscal Year Ended June 30, 1996 vs. Fiscal Year Ended June 30, 1995 Tuition revenues in fiscal 1996 increased by $29.1 million or 14.0% from fiscal 1995. This was the largest tuition revenue increase in the history of the Company and is attributable to both higher student enrollment at the DeVRY Institutes and KGSM and, to a lesser extent, to tuition increases implemented during the year. Cumulatively, total student enrollment at the DeVRY Institutes in the three semesters of fiscal 1996 increased by 8.6% compared with fiscal 1995. This was partly due to higher enrollments at the Long Beach, California and Scarborough (Toronto), Ontario, Canada campuses, both of which opened in the previous year, and partly due to increased enrollments at the previously existing DeVRY Institutes. Fiscal 1996 was the fifth consecutive year that total cumulative enrollment at the DeVRY Institutes increased from the previous year and the largest rise in any of those years. At KGSM, cumulative total student enrollment for the five terms of fiscal 1996 grew by 16.7% compared to fiscal 1995. The increase in enrollments was due to higher enrollments 14 16 at the Pomona and Long Beach, California centers, both of which opened in fiscal 1995, the fiscal 1996 opening of a center in Tysons Corner, Virginia (Washington, D.C. area) and continued growth in enrollments at the previously existing centers. Tuition increases have historically been implemented by the DeVRY Institutes effective with the spring term and effective with the fall term at KGSM. Tuition rates rose approximately 5% at DeVRY, which is slightly below the rate of this increase in fiscal 1995 and below the average rate of tuition increases at other colleges and universities. Tuition rates rose similarly at KGSM. Other educational revenues increased by $2.5 million or 12.3% because of sales to the increased number of students attending the Company's educational programs. Interest income on short-term investments of cash balances in excess of those needed for daily operations declined by $117,000 or 10.0% from fiscal 1995, as the higher level of payments for taxes on income, payments and receivable increases associated with financial aid processing at the Toronto-area campuses and completion of the new DeVRY Institute campus in North Brunswick, New Jersey, reduced average investible balances during fiscal 1996. Cost of educational services rose by $18.5 million or 13.6% in fiscal 1996 from fiscal 1995. Costs associated with the new DeVRY Institutes and KGSM centers contributed to this increase along with higher educational costs resulting from higher student enrollments at the existing locations. Depreciation expense on the Company's continued investment in facilities and equipment for its students increased by $1.4 million or 22.1% from fiscal 1995. Tuition refund and uncollectible account expense increased in the year partly because of higher enrollments and higher tuition revenue at DeVRY Institutes and KGSM and partly because of the higher proportion of new DeVRY Institutes' students in fiscal 1996 as a result of growing new student enrollments. New student enrollment at the DeVRY Institutes increased by 10.5% from fiscal 1995 to fiscal 1996. New students historically withdraw at higher rates than do students in later terms. Student services and administrative expense increased by $7.9 million or 12.6% from fiscal 1995. Marketing costs have grown to support the new DeVRY Institutes and KGSM locations and to support the higher number of new students recruited at the existing locations. General and administrative expenses increased from fiscal 1995 partly due to normal inflationary changes and partly because of efforts associated with the Ontario Ministry of Education and Training's suspension and subsequent conditional reinstatement of financial aid eligibility for students attending the Company's Toronto-area campuses. The Company's earnings from operations, before interest expense and taxes on income, reached a record $33.8 million for fiscal 1996. This represents an operating margin of 13.0%, up from 12.6% and 12.1% in fiscal 1995 and fiscal 1994, respectively. Higher revenues and cost-containment measures contributed to the improved margins. Interest expense was reduced by $2.0 million or 65.4% to $1.1 million for fiscal 1996 from fiscal 1995. The lower interest expense resulted from lower outstanding levels of debt throughout most of fiscal 1996 and the absence of the non-recurring make-whole premium payment made in fiscal 1995 when the Company voluntarily prepaid all of its senior subordinated notes. Net income of $19.2 million, or $0.57 per share, was a record for any fiscal year, increasing by 29.2% from fiscal 1995. Fiscal Year Ended June 30, 1995 vs. Fiscal Year Ended June 30, 1994 Tuition revenues in fiscal 1995 increased by $16.3 million or 8.5% from fiscal 1994. The rise was attributable primarily to tuition increases implemented during the year and, to a lesser extent, to higher student enrollments at the DeVRY Institutes and KGSM. Cumulatively, total student enrollment at the DeVRY Institutes in the three semesters of fiscal 1995 increased by 3.3% compared with fiscal 1994. At KGSM, cumulative total student enrollment for the five terms of fiscal 1995 grew by 17.7% from fiscal 1994. Tuition rates grew by more than 5% at the DeVRY Institutes, a slightly lower percentage increase than was implemented in 1994. Tuition rates were increased similarly at KGSM. Interest income on short-term investments increased by $625,000 or 113.4% during fiscal 1995 because of higher cash balances available for investment throughout most of the year and because of higher prevailing interest rates. 15 17 Cost of educational services increased by $9.0 million or 7.1% in fiscal 1995 from fiscal 1994. Costs associated with rising student enrollment, such as additional faculty and higher wages and benefits, were largely responsible for the increase. The Company also continued its investment in growth with the opening of new DeVRY Institutes in Long Beach, California and Scarborough (Toronto), Ontario Canada. During the year, KGSM opened two new centers in California, operating in the DeVRY Institute campuses in these locations. Partially offsetting these cost increases was a reduction in depreciation expense on certain assets whose depreciable lives expired in the first quarter of fiscal 1995. Tuition refund and bad debt expenses also declined, reflecting educational program and student service quality initiatives that favorably affected the pattern of student retention, reducing refund expense and uncollected account balances compared to prior periods. Student services and administrative expense in fiscal 1995 increased by $4.9 million or 8.4% from fiscal 1994. Marketing costs grew at a somewhat faster rate than tuition revenue in support of the two new DeVRY campuses and two KGSM centers that opened during fiscal 1994. For the year, new student enrollment at the DeVRY Institutes increased by 7.6% from fiscal 1994. The Company's earnings from operations, before interest expense and taxes on income, reached a record $28.8 million in fiscal 1995. This represents an operating margin of 12.6%, up from 12.1% in fiscal 1994 and 11.7% in fiscal 1993. Higher revenues; improved educational program success, producing greater student retention; and cost-containment measures contributed to the improved margins even as expansion continued. Interest expense was reduced by $1.5 million or 33.5% to $3.1 million for fiscal 1995. The lower interest expense resulted from scheduled principal payments and voluntary prepayments of the Company's funded debt. In June 1995, the Company voluntarily prepaid all $7.9 million of its 13% senior subordinated notes, with a make-whole premium payment of $573,000 included in interest expense in the Consolidated Statement of Income. In fiscal 1995, total funded debt was reduced by $10.2 million. Net income of $14.9 million or $0.45 per share was a record for any prior fiscal year increasing by 21.9% from fiscal 1994. LIQUIDITY AND CAPITAL RESOURCES The Company's primary source of liquidity is the cash received from student payments for tuition, fees and books. These payments include cash from student and family educational loans, from other financial aid under various federal, state and provincial programs and from student and family resources. The pattern of cash receipts is somewhat seasonal. The level of accounts receivable from which cash payments are collected reaches a peak immediately after the billing of tuition, fees and books at the beginning of each DeVRY Institute semester in July, November and March. Collections of these receivables are heaviest at the start of each semester. In the first two months of each semester, collections typically exceed payments for operating expenses applicable to that period. Accounts receivable reach their lowest level just prior to the start of the next semester, dropping to their lowest point in the year at the end of June. The end of June corresponds to both the end of the spring semester and to the end of a financial aid year, at which time all financial aid for the previous 12 months should have been disbursed to students' accounts. Both KGSM and Becker also experience seasonality in their cash receipts and expenditures based upon their respective operating cycles. At December 31, 1996, accounts receivable, net of the related increase in deferred tuition revenue generated by higher enrollment and revenue levels for the first half of fiscal 1997, were approximately equal to the level achieved at the end of the comparable period in fiscal 1996, reflecting a continuation of the good collection performance on balances owed by students, similar to the collection experience in the past several years. Included in the accounts receivable at December 31, 1996 were the receivable balances from students attending the Becker CPA classes which were not included in the Company's net accounts receivable balance at December 31, 1995. At June 30, 1996, net accounts receivable were $9.7 million. The increase in accounts receivable from June 30, 1995 resulted from the inclusion of a $1.5 million receivable of refundable income tax and from higher revenues and number of students at the DeVRY Institutes and KGSM during the year. The increase in accounts receivable is also attributable, in part, to the tuition financing offered by DeVRY Canada to those students at the Toronto area campuses who were affected by the temporary 16 18 suspension of financial aid. In conjunction with the conditional reinstatement of financial aid processing effective with the spring 1996 term, the Company returned to the Ontario Ministry of Education and Training approximately $1.7 million (CDN) in payments believed to have been inappropriately disbursed to students. In addition, the Company posted a $2.0 million (CDN) letter of credit with the Ministry as security against possible additional amounts that may have been inappropriately disbursed to students who incorrectly completed their financial aid applications. The Company estimates that historically nearly 70% of the DeVRY Institutes' tuition, bookstore and fee revenues are derived from some form of government-provided financial aid to its students. These financial aid and assistance programs, in which most of the Company's students participate, are subject to political and budgetary considerations. There is no assurance that such funding will be maintained at current levels. Extensive and complex regulations in the U.S. and Canada govern all of the government financial assistance programs in which the Company's students participate. The Company's administration of these programs is periodically reviewed by various regulatory agencies. Any regulatory violation could be the basis for the initiation of a suspension, limitation or termination proceeding against the Company. Under the terms of the Company's participation in governmental financial aid programs, certain cash received from the U.S. Department of Education is maintained in restricted bank accounts. This cash becomes available for general use by the Company only after student loans and grants have been credited to the accounts of students and the cash is transferred to an unrestricted operating cash account. The introduction of electronic fund transfers for student loans and the direct loan program from the Department of Education have generally accelerated the receipt and processing of these payments by the DeVRY Institutes and KGSM, contributing to the Company's liquidity. Cash payments for income taxes no longer benefit from the net operating loss carryforwards, which were fully utilized by the end of the first quarter of fiscal 1996. In July 1996, the Company entered into an out-of-court settlement agreement with the Internal Revenue Service (IRS) relative to the Statutory Notice of Deficiency issued by the IRS against the Company for tax years 1988 through 1991. The claimed deficiencies related to the amortization of intangible assets purchased during the acquisition of the DeVRY Institutes in 1987. All of these issues have been resolved as a result of the settlement. The settlement amount was paid in the first quarter of fiscal 1997 and is immaterial to the Company's financial position, results of operations and liquidity. Cash generated from operations in the first half of fiscal 1997 was approximately equal to the amount generated in the first half of fiscal 1996. Higher earnings, plus the increased non-cash charges for depreciation and amortization, contributed to a higher operating cash flow, but were offset by increases in restricted cash and decreases in accounts payable and accrued expenses that exceeded the related benefits from changes in deferred tuition revenue and advance tuition payments. Cash generated from operations in fiscal 1996 was $28.4 million, approximately the same as in each of the prior two fiscal years. The generation and use of cash during the year reflects the seasonal operating patterns discussed above. During some periods just prior to the start of a semester, cash balances may be supplemented by temporary borrowings under the Company's revolving line of credit. Cash generated from operations each year has been sufficient to meet all of the Company's operating needs and capital investment needs while reducing debt on a regular basis. Capital expenditures in fiscal 1996 were $18.4 million. Capital expenditures have been primarily for expansion and facility improvement, replacement and upgrading of school laboratories and for teaching and administrative equipment. Capital expenditures for the first half of fiscal 1997 decreased by $3.3 million or 31.1% from the first half of fiscal 1996, reflecting the completion of construction payments and June 1996 occupancy of the DeVRY Institutes' New Jersey campus. During the second half of fiscal 1997, capital expenditures are expected to increase substantially in connection with the purchase of properties for two new DeVRY Institutes as part of the Company's expansion plans. See "Business -- Properties." Cash generated from operations and existing cash resources have been sufficient to meet capital requirements in the past and, with the revolving line of credit, are anticipated to be sufficient to cover expansion plans in the future. 17 19 During the first half of fiscal 1997, the Company repaid $17.5 million of its revolving loan facility using existing cash balances and cash generated from operations. Future borrowings and/or repayments will be based upon the Company's seasonal cash flow cycle and payment requirements for capital spending and possible future acquisitions. See "Use of Proceeds." In June 1996, the Company and its banks renegotiated the Company's 1994 term loan agreement. This $85.0 million unsecured revolving line of credit has a higher borrowing limit, longer term and lower interest rate, effective upon the attainment of certain financial ratios, already partly achieved. The revolving loan facility allows the Company to take advantage of its seasonal cash flows to reduce debt while also providing flexibility for expansion. At February 27, 1996, approximately $42.5 million of the revolving line had been utilized in the form of borrowings and letters of credit. The Company's bank borrowings are at a floating interest rate of LIBOR plus 0.625%. At the present time, the Company does not have an interest rate swap or other form of protection against increases in the floating rate but does fix the interval of interest rate adjustment on most of its borrowings for a three- to six-month period. The Company periodically evaluates its need for additional protection in light of projected interest expense and borrowing levels. In June 1996, the Company acquired certain tangible assets and tradenames of the Becker CPA Review for $18.5 million in cash and acquired copyrights, other intellectual property and publicity rights of the Becker CPA Review for $17.9 million. Funds for the acquisition were provided by borrowings under the Company's newly renegotiated revolving line of credit. The Company believes that current balances of unrestricted cash, cash generated from operations and, if needed, the revolving loan facility will be sufficient to fund its operations for the foreseeable future. 18 20 BUSINESS The Company, through its wholly-owned subsidiaries, owns and operates the DeVRY Institutes and KGSM, which collectively form one of the largest private degree-granting higher education systems in North America. The Company also owns and operates Becker, which prepares candidates for the CPA and CMA professional certification examinations, and CES, which provides customized, on-site technical education and training services to corporations and government agencies. The DeVRY Institutes were founded in 1931 and for more than 65 years have provided a career-oriented technical education to high school graduates in the United States and Canada. KGSM, founded in 1973, employs a faculty of practicing business professionals to teach MBA and other master's degree programs to working adults in the United States. The DeVRY Institutes and KGSM are each accredited by the Commission on Institutions of Higher Education of the North Central Association of Colleges and Schools, the same agency that accredits other four-year publicly supported and independent colleges in the North Central region. Becker, which was acquired by the Company in June 1996, was founded in 1957 and has become a leading CPA review course, which is administered nationally and internationally. COMPANY STRATEGY The Company's objective is to further strengthen its position as a leading provider of high quality, career-oriented postsecondary education. The Company seeks to achieve continued revenue and earnings growth by (i) pursuing enrollment growth at both the DeVRY Institutes and KGSM, (ii) capitalizing on opportunities to cross-sell and expand product offerings in the adult education market through KGSM, Becker and CES, (iii) pursuing external growth through the acquisition of complementary businesses, such as the Company's recent acquisition of Becker, and (iv) further developing and implementing CES on-site management and technical training programs for large employers. The Company intends to achieve enrollment growth through (i) the expansion of existing curricula to additional sites, (ii) the development of new curricula, (iii) the development of new programs and delivery formats for part-time and evening students and (iv) the expansion of recruiting efforts in selected regions. In order to increase market penetration and operating leverage and to capitalize more extensively on economies of scale realized through local marketing and national advertising efforts, the Company plans to continue to upgrade and expand certain existing school facilities and open new schools. The Company believes that it is strongly positioned to capitalize on projected demographic and market trends, including the projected increase in the number of U.S. high school graduates, the expected increased demand for technical curricula and the projected increase in the number of adult students entering the postsecondary education system. DEVRY INSTITUTES OF TECHNOLOGY The DeVRY Institutes are located on 10 campuses in the United States and four campuses in Canada. At the beginning of the fall 1996 semester (the second of three semesters of the Company's 1997 fiscal year), 30,585 full and part-time students were enrolled in the DeVRY Institutes' diploma, associate and bachelor's degree day and evening programs in electronics, electronics engineering technology, computer information systems, accounting, business operations, technical management and telecommunications management, an increase of 4.3% from the fall 1995 semester. This was the eighteenth consecutive term in which total enrollments exceeded the prior year level. Cumulatively, total student enrollment for the three semesters of fiscal 1996 increased by 8.6% compared with fiscal 1995. As a result of the expansions and improvements initiated in the past several years, fiscal 1996 marks the fifth consecutive year that total cumulative enrollment has increased from the prior year. The DeVRY Institutes' operations accounted for approximately 93% of the Company's revenues in fiscal 1996. In the first half of fiscal 1997, which period for the first time included the operations of Becker, the DeVRY Institutes' operations accounted for approximately 88% of the Company's revenues. The Company believes the DeVRY Institutes enjoy a number of competitive advantages over four-year colleges and universities, two-year community colleges and other for-profit schools, all of which are the Company's educational competitors. These advantages include (i) career-oriented curricula developed with 19 21 regular, structured employer input, (ii) the demonstrated effectiveness of its career services activities, (iii) year-round class scheduling and (iv) its North American brand identity, market presence and student recruitment organization, as discussed below: - Career-oriented curricula providing hands-on experience. The DeVRY Institutes' curriculum development process includes ongoing research into business trends and surveys of companies to determine the skills and knowledge that will be required by employers into the next century. This information results in timely curriculum upgrades, which helps ensure that the DeVRY Institutes' graduates will be marketable to employers. - High graduate employment rate. The DeVRY Institutes' career services staff works closely with graduates by conducting and videotaping practice job interviews, assisting in resume preparation, actively soliciting job leads and developing relationships with potential and current employers and setting up on-campus interviews. The DeVRY Institutes' use of national advertising media also contributes to establishing the DeVRY Institutes' favorable reputation with employers and assists in career services efforts. These efforts have contributed to a 92% average net graduate employment rate at the DeVRY Institutes over the past 10 years. See "Business--Career Services." - Year-round class scheduling. The DeVRY Institutes schedule classes year-round, enabling students to complete four-year bachelor's degree programs in three years. This results in a significant financial advantage to students since they are able to enter the work force a year earlier than if they had attended a traditional four-year institution. - Strong student recruitment organization. The DeVRY Institutes' field student recruiting force of approximately 250 full-time employees located throughout the United States and Canada makes career-planning presentations in approximately 10,000 high schools throughout North America. The Company believes its student recruitment organization is not easily matched by other educational entities. Many higher education institutions are restricted to one locality and possess limited marketing resources and therefore cannot match the national advertising and marketing programs used by the DeVRY Institutes. Changing demographics in the United States are expected to continue to benefit DeVRY Institutes' enrollment. After declining through much of the 1980s and stabilizing in the early 1990s, the number of high school graduates, which represents a substantial portion of DeVRY Institutes' new student enrollment each year, is projected by the U.S. Department of Education to increase without interruption by more than 20% from a low of 2,482,000 in 1992 to over 3,000,000 by the year 2004. In addition, the Department of Education's National Center for Education Statistics found that, in 1994, 62% of high school graduates (ages 16-24) went directly to college, up from 51% in 1975. Recent data from the U.S. Department of Education also indicates that more than one-third of U.S. undergraduate students are 25 years of age or older and that these older students will continue to be a significant portion of college enrollments in the coming years. The Company estimates that approximately 40% of the students enrolled at its DeVRY Institutes are 25 years of age or older. To attract the growing number of adults returning to college, the DeVRY Institutes introduced a bachelor of science degree completion program in technical management which focuses on business and management skills vital to career advancement for students who already have an associate degree. Programs are being offered on weekends in some locations to better serve the working adult. DeVRY Institutes is also currently developing a weekend Computer Information Systems curriculum with a shorter term length and time to completion. While this program will be an intensive and demanding experience for students, it will enable them to fulfill their other responsibilities during the normal work week while still completing this program in a relatively short period of time on weekends. 20 22 The Company believes that the following additional factors should support the Company's strategy to continue to increase student enrollments: - Facility improvement and expansion. In 1991, DeVRY Institutes initiated a facility improvement and expansion program to attract and retain an increased student enrollment. Among the actions taken as a result of that program are the following: renovation and expansion of the Atlanta campus; relocation of the suburban Chicago, Dallas, Los Angeles and New Jersey Institutes; and opening of branch or satellite campuses in Long Beach, California, Scarborough (Toronto), Canada and Mississauga, Ontario. In addition, a satellite of the Atlanta DeVRY Institute is currently under construction in Alpharetta, Georgia and is scheduled to open in July 1997. - Integration of general and technical education. Each of DeVRY Institutes' programs is designed to integrate general and technical education. DeVRY Institutes' general education courses develop skills and competencies that help graduates enhance both their professional and personal capabilities. Laboratory courses throughout each curriculum provide the opportunity to translate classroom learning into practical, hands-on experience that better prepares the student for the workplace. - Quality of faculty. More than 80% of DeVRY Institutes' U.S. regular faculty hold advanced academic degrees. In 1996, the average compensation for DeVRY Institutes' U.S. faculty was approximately equal to the $48,500 average salary of faculty members at state-supported four-year institutions, as reported in a 1996 study by the College and University Personnel Association. - Additional learning resources. To facilitate student success, DeVRY devotes significant resources to libraries and academic support services which can assist students in any phase of their educational program. In addition, the DeVRY Institutes encourage students to participate in campus activities and offer a student success strategies course aimed at preparing students to assume responsibility for their learning and growth through practical strategies and methods for realizing success. KELLER GRADUATE SCHOOL OF MANAGEMENT KGSM offers a practitioner-based graduate management program leading to a master's degree. In addition to the MBA program, which KGSM began offering in 1977, KGSM introduced a Master of Project Management ("MPM") degree program in 1991 and a Master of Human Resource Management ("MHRM") degree program in 1993. KGSM is one of only a few schools in the country offering a master's degree in project management. In September 1995, KGSM began offering a Health Services Management ("HSM") concentration within its MBA program. The HSM concentration includes five health services management courses within the 16 course MBA curriculum. This program is being offered in response to the growing demands of the health services industry and professionals in related fields such as the insurance or pharmaceutical industries. In February 1997, KGSM introduced a Master of Telecommunications Management ("MTM") degree program to meet the growing demand for expertise in that field. At the start of the November 1996 term, enrollment at KGSM was 4,011, an increase of 732 students or 22.3% from the November 1995 term. KGSM offers classes in the evenings and on weekends and emphasizes a practitioner orientation, excellence in teaching and service to working adults. KGSM's curricula are regularly reviewed for relevance to both students and employers through advisory councils composed of representatives of distinction and achievement in business and community affairs. KGSM faculty members are practicing professionals who bring their expertise to the classroom, emphasizing theory and practices that will best serve students in their work as managers. Critical competencies in areas such as business communications, technology, quality and international issues are woven throughout the curricula. KGSM offers five 10-week terms each year. Courses meet once a week, either in the evening or on Saturday. This schedule allows students with heavy travel or other demands on their time to more easily fit courses into their schedules. In addition, the Company believes that in most markets KGSM is able to offer greater flexibility in course scheduling, a greater choice of elective courses and a more convenient location than its competitors. 21 23 From a base of six sites in Illinois and Wisconsin in 1987, KGSM classes are now offered at 19 locations. KGSM operates five of its teaching sites on DeVRY Institute campuses in Arizona, California, Georgia and Missouri and one site at the Company's corporate headquarters in Oakbrook Terrace, Illinois. BECKER CPA REVIEW In June 1996, the Company acquired Becker CPA Review. Becker is a leading international training firm preparing students for the CPA exam and the CMA exam. Becker, which is headquartered in Los Angeles, offers classes at more than 140 locations in the United States and at 10 locations in the Middle East, Pacific Rim and Canada. Becker's proprietary course materials and teaching methods result in pass rates on the CPA exam for Becker students that are approximately double the national average pass rate. More than one-third of all students passing the CPA exam are Becker alumni, who now number over 200,000 since the course was founded in 1957. According to the most recently published data by the National Association of State Boards of Accountancy, the number of first time CPA exam takers has declined from approximately 46,100 who sat for the 1994 exams to approximately 43,300 who sat for the exams in 1995. Although the number of students taking the CPA exam has declined, the Company believes that Becker provides opportunities for growth through expansion to additional domestic and international locations, through synergies among Becker, KGSM and DeVRY Institutes and through new products and delivery methods. CORPORATE EDUCATIONAL SERVICES To serve what the Company believes is a large and growing need for employee training, CES was created in 1991. CES offers customized professional services and training in business, project management, electronics and telecommunications. Conducted at customers' sites, CES programs emphasize the direct, practical application of business concepts, techniques and skills. The operations of CES have been aligned with KGSM, allowing CES to utilize the academic and operational infrastructure of KGSM's national system and to better link its clients to one of the largest applications-based education and training organizations in North America. CES draws on the faculty, staff and curriculum resources of the DeVRY Institutes and KGSM systems as needed. CURRICULUM The DeVRY Institutes offer comprehensive undergraduate programs of study in six technology-based areas--electronics, electronics engineering technology, computer information systems, telecommunications management, accounting and business operations--each designed to teach the technical skills required for entry-level positions in these fields. Programs are offered in day and evening sessions throughout the entire year, in three 15-week semesters of instruction. Many students attend all three semesters per year on a full-time basis, which allows them to complete their education in less time than is possible at most other comparable degree-granting institutions. While many of the courses relate to the chosen field of study, the degree programs also integrate general education and business subjects such as English, economics, history, literature, psychology and public speaking across the curriculum. Laboratory work is a substantial component of each semester of instruction. Typical course materials include textbooks, journal articles, faculty-prepared outlines and articles and other materials typically used in higher education instruction. KGSM offers a practitioner-based graduate management program designed to enable students to qualify for administrative and managerial jobs. The program consists of core and advanced/elective courses. The core courses provide functional skills in accounting, finance, marketing, quantitative methods, information systems and business economics. Advanced courses allow students to obtain greater depth and breadth in the core areas and to explore other areas of interest. Advanced coursework is offered in accounting, finance, marketing, information systems, human resources management, health services management, telecommunications management, business planning and general management. Because the majority of KGSM's students are adults who work full-time, KGSM classes are offered in the evenings and on weekends in five 10-week terms during the year. 22 24 Becker classes are conducted over a four- or five-month period ending the week before the CPA exam is administered in May and November. CMA review courses, which are approximately six weeks in length, are offered in May and November. Courses are designed to be highly interactive using instructors who work in the areas of financial accounting, auditing, tax and business law. Instructors, who are engaged on a part-time, as-needed basis, receive comprehensive training in applying the proprietary teaching methods that have made these courses so successful. CURRICULUM DEVELOPMENT AND REVIEW The DeVRY Institutes' ability to attract and find employment for students depends on curriculum offerings that provide students with the knowledge and competencies sought by the business community. Given the rapid change in technology and business, the need to educate students in the most current applications of technology is especially critical. To meet this need, DeVRY Institutes has established two primary vehicles for curriculum development--the Continuous Curriculum Assessment and Improvement Process and the Standing Programmatic Curriculum Committees. The Continuous Curriculum Assessment and Improvement Process was developed in response to the accelerating pace of technological and business change. This approach allows DeVRY Institutes to reduce curriculum development cycle times while preserving the positive values of a periodic comprehensive review of each curriculum. The Standing Programmatic Curriculum Committees review curriculum suggestions synthesized from business and industrial consultant practitioners, based on the consultants' knowledge of technology, the business environment and the potential for employment after graduation. Recommended changes are referred to various curriculum product managers, campus academic management and faculty members for review prior to modification by selected faculty curriculum guide authors under the guidance of the appropriate curriculum product manager. The Company believes that future growth in enrollment at the DeVRY Institutes will come, at least in part, from the development of new programs that appeal to a diverse student population. The Company implemented bachelor's degree programs in telecommunications management, business operations and accounting, which have attracted more students, particularly women. The recently introduced bachelor's degree completion program offers a bachelor's degree in technical management to community college graduates with a technical background and to other associate degree holders, including DeVRY Institutes' electronics graduates. This program increases enrollment and enhances facility utilization at the DeVRY Institutes. The Company has also introduced KGSM programs at five DeVRY Institutes. The offering of KGSM and Becker programs, whose courses are taught primarily in the evening and on weekends, at the DeVRY Institutes' campuses, where the majority of classes are taught during the day, has resulted in increased enrollment and enhanced facility utilization. KGSM's curricula are regularly reviewed for relevance to both students and employers. Critical competencies for today's successful managers, in areas such as business communications, technology, ethics, quality and international business, are woven throughout the curricula. Becker CPA course materials are updated twice each year based upon the most recently administered exam and newly issued accounting pronouncements. ADMINISTRATION AND EMPLOYEES Each DeVRY Institutes campus is managed by a president and has a staff of academic deans, career service and student service personnel and other professionals. Each campus also has an admissions director who reports to the Company's vice president of admissions. Each KGSM center is managed by a center director. The Company employs approximately 230 people, approximately 10% of its total work force, at its corporate headquarters in Oakbrook Terrace, Illinois, including KGSM management and staff. As of February 1997, the Company had approximately 2,500 regular full- and part-time employees. In addition, the Company employs approximately 1,200 students as faculty assistants and in other part-time positions. Becker is 23 25 managed by an administrative staff headquartered in Los Angeles and by regional administrative staffs which support instructors and coordinate local recruiting efforts. None of the Company's employees is represented by a union. The Company believes that its relationships with its employees are satisfactory. FACULTY Each DeVRY Institutes' campus president hires faculty members in accordance with criteria established by the Company and applicable state law. Most faculty members teaching in technical areas have related industrial experience. Faculty members are evaluated each semester based on student comments and observations by an academic dean. As of February 1997, there were over 630 full-time faculty members among all of the DeVRY Institutes' campuses. In addition, DeVRY Institutes engaged approximately 550 part-time, adjunct and visiting faculty, mostly in the evening programs. Approximately 80% of the DeVRY Institutes' faculty members hold advanced academic degrees. KGSM faculty members are practicing business professionals who are engaged by KGSM to teach on a course-by-course basis. Less than 10% of KGSM's instructors, excluding staff members who regularly teach, are full-time employees of KGSM. More than 90% of KGSM's faculty have advanced degrees. For its November 1996 term, KGSM classes were taught by over 170 faculty members. Becker's faculty, numbering nearly 500 each term, are primarily practicing professionals who teach part-time on a course-by-course basis. STUDENT RECRUITING Students at the DeVRY Institutes are recruited by admissions representatives at on-campus admissions offices and by field student recruiters. Field student recruiters are an important nationwide element of the recruiting process because a significant portion of the DeVRY Institutes' students come from outside the immediate area in which the DeVRY Institute campus they attend is located. The percentage of enrollment coming from these two recruiting sources varies by campus but is predicated largely on each school's location. Overall, admissions representatives currently generate over 66% of the DeVRY Institutes' total enrollments. The DeVRY Institutes employ approximately 380 admissions representatives and field recruiters throughout the United States and Canada. In order to recruit students in certain states and Canadian provinces, representatives and recruiters must be licensed or authorized by the appropriate regulatory agency. Regulations governing student participation in federal financial assistance programs prohibit an institution from paying a commission, bonus or incentive to the Company's representatives and recruiters based upon their success in securing enrollments. The Company believes that its method of representative and recruiter compensation complies with the regulations. The admissions representatives are salaried, full-time Company employees. They are located at each DeVRY Institutes campus and work with potential applicants who learn of the school through the Company's advertising or by other means. Admissions representatives generally work with older students, many of them working adults wanting to attend class in the evening, recently unemployed adults seeking to improve their job skills as a way to re-enter the workforce and students transferring to DeVRY Institutes from nearby junior colleges. Each DeVRY Institute has entered into agreements with nearby community colleges to facilitate the enrollment of their students seeking to transfer course credits to a DeVRY Institutes' program. Over 20% of new students recently enrolled at the DeVRY Institutes had some prior college experience. Field student recruiters are salaried, full-time Company employees who are trained by both field managers and headquarters-based staff. Field student recruiters meet individually with prospective students who are contacted primarily through high school, club and youth group presentations. These student recruiters visited over 10,000 high schools in North America in fiscal year 1996, making presentations on career choices and the importance of a college education. Field recruiters also receive student inquiries generated by direct mail and television advertising in the particular recruiter's territory. Follow-up interview sessions with prospective students are generally held in the student's home with the student and his or her parents. The continued downsizing of the U.S. military and recent base closings also present recruiting opportunities. Veterans with military-specific technical training are attracted to DeVRY Institutes' practical career-oriented education. Numerous new students with V.A. benefits have enrolled at the DeVRY Institutes over the past several years. 24 26 In support of its recruiting force, the DeVRY Institutes advertise on television and radio, in magazines and newspapers, and utilize telemarketing and direct mail to reach prospective students. Prospective students are also frequently referred by their employers, alumni or currently enrolled students. In addition to the more traditional recruiting methods, DeVRY Institutes' Internet site provides another avenue for students to receive information and apply for admission. KGSM recruits students through direct mail, radio advertising, telemarketing, print advertising and referrals from employers, alumni and current students. KGSM employs on-campus admissions representatives at each teaching center who meet with, counsel and evaluate admission qualifications of prospective students. Becker markets its courses directly to potential students and to some of their employers (e.g., Big Six accounting firms). Alumni referrals, direct mail, print advertising and a network of on-campus recruiters at colleges and universities across the country generate the new students who take the CPA or CMA review courses, which are offered twice each year. Becker enrolls many students who have previously completed a competitor's course or a self-study program but were unable to pass the exam. ADMISSIONS CRITERIA To be admitted to a DeVRY Institutes program in the United States, an applicant must be a high school graduate, have a General Education Development (GED) certificate or hold a degree from an accredited postsecondary institution. In Canada, an applicant must either be a high school graduate or meet "mature student" criteria. Applicants must also meet minimum entrance examination scores which vary depending on the program to which they are applying. In 1996, the DeVRY Institutes implemented a Computerized Placement Test ("CPT") designed in collaboration with The College Board and Educational Testing Service. This exam helps DeVRY Institutes better serve the needs of its students by allowing DeVRY Institutes to assess students' achievement levels and developmental needs during the admission process. To be admitted to a KGSM program, applicants must hold a degree from a U.S. institution that is accredited by or in candidacy status with a regional accrediting agency. Foreign applicants must hold a degree recognized to be equivalent to a U.S. bachelors' degree. Applicants must also achieve acceptable scores on either the Graduate Management Admission Test (GMAT), the Graduate Record Examination (GRE) or KGSM's alternative admission test. Admission decisions are based on evaluation of a candidate's academic credentials, entrance test score and personal interview. STUDENT RETENTION As is the case at most higher education institutions, some students at the DeVRY Institutes end their studies for personal, financial or academic reasons. In an effort to increase the rate of student retention, the Company has implemented management programs by which the campus presidents and academic deans are evaluated, in part, on the basis of the percentage of students who complete each semester. The Company has also developed courses and supplemental programs to assist students in their studies at the DeVRY Institutes. Among them is an orientation course taught to students in their first semester, in addition to their regular academic schedule, which deals with both academic and nonacademic problems frequently encountered by students. Also, developmental mathematics, language skills and reading comprehension courses are offered for students whose entrance or placement exam scores indicate a need for academic support in these areas. Most importantly, working with The College Board and Education Testing Service, the Company has adopted a CPT that is used to screen students and help to more accurately determine their ability to succeed and assess their developmental needs upon admission to the DeVRY Institutes. KGSM has established a student monitoring program to retain its students, who are typically adults with substantial outside commitments. Under this program, every first-, second- and third-term student at KGSM is contacted and counseled every term about results of courses completed and recommended future courses. Similarly, academically eligible former students who do not return for the subsequent term are contacted and encouraged to resume their education. Additionally, KGSM's decentralized system of small centers enables KGSM to focus on building a personal relationship with each student. 25 27 TUITION AND FEES Effective with the spring 1997 term, the DeVRY Institutes' tuition in the United States for two semesters (one academic year) will range from $6,940 to $7,015, an increase of approximately 5.5% from spring 1996. Variations in tuition depend on term of enrollment. Students enrolled on less than a full-time basis are charged somewhat lower tuition. Based upon current tuition rates, for a student enrolled in the DeVRY Institutes' five-term electronics technician program, total tuition cost would be $17,425. For a student enrolled in the eight-term accounting program, total tuition cost would be $27,835. For a student enrolled in the nine-term Electronics Engineering Technology program, total tuition cost would be $31,305. A national survey of tuition released in the fall of 1995 by The College Board reported that annual tuition and fee increases adopted by publicly supported and independent four-year institutions averaged approximately 6.0% for the 1995-96 academic year. Effective with the spring 1997 term, tuition in Canada will increase to $6,380 (CDN) for the two-semester period, an increase of approximately 6.0% from spring 1996. KGSM tuition per course (four quarter credit hours) ranges from $905 to $1,110, depending on the state in which the student is enrolled. This compares to tuition rates from $855 to $1,050 in 1996. The price of the complete Becker CPA review course is $1,435, which includes an enrollment fee. The price of the complete Becker CMA review course is $1,155, which also includes an enrollment fee. In addition to the tuition amounts described above, students at the DeVRY Institutes and KGSM must purchase textbooks and supplies as part of their educational program. If a student leaves school prior to completing a term, federal, state and provincial regulations and accreditation criteria permit the Company to retain only a set percentage of the total tuition received from such student, which varies with, but generally equals or exceeds, the percentage of the term completed by such student. Amounts received by the Company in excess of such set percentage of tuition are refunded to the student or the appropriate funding source. CAREER SERVICES The Company believes that the employment of its graduating students is essential to its ability to attract new students. At the DeVRY Institutes, there were more than 44,400 graduates over the ten-year period ending June 1996 who were eligible for career services assistance (i.e., excluding graduates who continued their education, students from foreign countries not legally eligible to work in the United States, etc.). Of the more than 42,000 graduates who actively pursued employment or were already employed, 92.4% held positions in their chosen fields within six months of graduation. Each DeVRY Institute has career services staff working with students in the areas of career choice activity, resume preparation and job interviewing. The staff also maintains contact with local and national employers to determine job opportunities and arrange interviews. The DeVRY Institutes have recently formed a strategic alliance with Alternative Resources Corporation ("ARC"). ARC is a leading provider of technical staffing, whose 50 local offices can provide DeVRY Institutes' students with educational and career-enhancing opportunities ranging from student internships to full-time employment opportunities in the computer information services and telecommunications management fields for DeVRY Institutes graduates. This alliance enhances DeVRY Institutes' ongoing career services activity and complements the Company's commitment to providing quality career-oriented programs in business and technology. DeVRY Institutes attempts to gather accurate data on the number of its graduates employed within six months following graduation in an industry or field that relates to their education. To a large extent, the reliability of such data is dependent on the information that graduates report to DeVRY Institutes. 26 28 Full and part-time U.S. degree and diploma program graduates for the three classes which ended in fiscal year 1996, and for the three classes which ended in fiscal 1995, were employed in their chosen field within six months of graduation, based on data reported to the DeVRY Institutes, as follows: THE U.S. DEVRY INSTITUTES' GRADUATE EMPLOYMENT STATISTICS
NUMBER OF GRADUATES PERCENT OF GRADUATES WHO WHO ACTIVELY PURSUED NUMBER OF GRADUATES ACTIVELY PURSUED AND OBTAINED NUMBER OF NET EMPLOYMENT OR WERE EMPLOYED IN EDUCATION- EMPLOYMENT AND THOSE WHO GRADUATES(1) ALREADY EMPLOYED(2) RELATED POSITIONS WERE ALREADY EMPLOYED(2) ------------- -------------------- ---------------------- ----------------------------- Fiscal 1996 Graduating Classes (10/95, 2/96, 6/96)................ 4,154 4,075 3,910 96.0% Fiscal 1995 Graduating Classes (10/94, 2/95, 6/95)................ 4,129 4,018 3,837 95.5% PERCENT OF NET GRADUATES EMPLOYED(1) ------------- Fiscal 1996 Graduating Classes (10/95, 2/96, 6/96)................ 94.1% Fiscal 1995 Graduating Classes (10/94, 2/95, 6/95)................ 92.9%
- ------------------------- (1) Net graduates exclude students continuing their education, students from foreign countries who are legally ineligible to work in the United States and students ineligible for employment because of extreme circumstances. (2) Does not include students who actively pursued employment for less than six months and did not obtain employment. The majority of employers of the DeVRY Institutes' graduates are in the electronics or information processing industries. The Company believes that no single employer has hired more than 5% of the DeVRY Institutes' graduates in recent years. Major employers of the DeVRY Institutes' graduates include the following companies: Andersen Consulting, Applied Materials, AT&T, Cellular One, Eastman Kodak, EDS, General Electric, IBM, INTEL, Motorola and Sprint. KGSM maintains a career services office to assist current and past graduates. This office offers a full range of services designed to enhance each individual's career development skills and is available to graduates, at no charge, on a lifetime basis. OTHER STUDENT SERVICES The DeVRY Institutes also provide the following student services: Student activities. DeVRY Institutes' students can participate in a wide range of activities and organizations. Professional organizations that are active at many of the DeVRY Institutes include the Institute of Electrical and Electronics Engineers, the Data Processing Management Association, the Instrument Society of America and several professional fraternities. In addition, the DeVRY Institutes provide curriculum-related organizations, such as computer and ham radio clubs and a variety of intramural sports. Housing. While the DeVRY Institutes do not own any student housing, the DeVRY Institutes provide referral housing and rent directly or guarantee rents on apartments, including fully furnished units, for students who want to attend a DeVRY Institute but do not live in the area. Advising. Students at each of the DeVRY Institutes are assisted with problems relating to coursework, career plans, the financing of their education and other personal matters. Each campus has a new student coordinator to assist out-of-town students prior to the first day of class. Faculty members also meet with students to discuss any problems the students may be having in their coursework. Part-time employment. The DeVRY Institutes Student Employment Office helps students find part-time work while they are attending school. The majority of DeVRY Institutes' students work part-time; however, many part-time jobs are not in students' career fields because such positions can often only be filled by individuals who have completed the required specialized education. DeVRY Institutes' career services staff help upper-term students find career-related part-time jobs through the Cooperative Education ("Co-op") 27 29 Program. Co-op positions are limited in number and are generally available only to students with above-average academic records. On-campus jobs. The DeVRY Institutes employ approximately 1,200 students on campus as faculty assistants and in various other positions. Some of these jobs utilize skills which involve the students' fields of study. ACCREDITATION AND APPROVALS Accreditation is a process for recognizing educational institutions and the professional programs offered by those institutions for a level of quality that entitles them to the confidence of the educational community and the public they serve. In the United States, this recognition is extended primarily through nongovernmental, voluntary, regional or specialized accrediting associations. Accredited institutions are subject to periodic review by accrediting bodies to ensure that these institutions maintain the level of performance, evidence institutional and program improvement, demonstrate integrity and fulfill requirements established by the accrediting body. Although regional accreditation in the United States is a voluntary process designed to promote educational quality and improvement, it is an important strength of the DeVRY Institutes, providing significant advantages over most other for-profit colleges. College and university administrators depend on the accredited status of an institution in evaluating transfers of credit and applications to graduate schools. Employers rely on the accredited status of an institution when evaluating a candidate's credentials, and parents and high school counselors look to accreditation for assurance that an institution meets quality educational standards. Moreover, accreditation is necessary for students to qualify for eligibility for federal financial assistance. Also, most scholarship commissions restrict their awards to students attending accredited institutions. The DeVRY Institutes and KGSM are each accredited by the Commission on Institutions of Higher Education of the North Central Association of Colleges and Schools, the same agency that accredits other four-year publicly supported and independent colleges and universities in the North Central region. The DeVRY Institutes and KGSM accreditations were last reaffirmed by the North Central Commission in 1992 for the maximum 10-year period. An interim progress monitoring visit is scheduled for the DeVRY Institutes in May 1997. Accreditations of the DeVRY Institutes and KGSM in the United States and of the DeVRY Institutes in Canada are as follows: UNITED STATES --------------------------------------------------- - - Commission on Institutions of Higher Education of the North Central Association of Colleges and Schools - - Technology Accreditation Commission of the Accreditation Board for Engineering and Technology (DeVRY's Electronics Engineering Technology Bachelor of Science Degree program and, at the New Jersey campus, the Electronics Engineering Technology Associate in Applied Science Degree program) CANADA --------------------------------------------------- - - Canadian Technology Accrediting Board (DeVRY/Calgary's Electronics Engineering Technology and Electronics Engineering Technician programs) In Canada, the Company is also in the process of seeking re-affirmation of its accreditation from the Canadian Technology Accrediting Board for its Toronto-area campuses' Electronics Engineering Technology and Electronics Engineering Technician programs. In the United States, each DeVRY Institute is approved to grant associate and bachelor's degrees by the respective state where it is located. In New Jersey, however, authorization is only at the associate degree level for three programs--electronics engineering technology, computer information systems and 28 30 telecommunications management. Students at the DeVRY Institute, North Brunswick, are encouraged, upon completion of their associate degrees, to transfer to other DeVRY Institutes to complete bachelor's degree requirements. In June 1996, the New York Board of Regents Commission on Higher and Professional Education voted to grant permission to establish a DeVRY Institutes' campus in the New York City area with authority to grant certain bachelor's and associate degrees. The Company has begun a search for an appropriate facility for this campus. Under current Canadian law, the Canadian DeVRY Institutes are not permitted to grant degrees. However, students at the Canadian Institutes are allowed to transfer to DeVRY Institutes in the United States to complete their degree requirements. In 1995, the Alberta Department of Advanced Education, the State of Arizona and the Commission on Institutions of Higher Education of the North Central Association of Colleges and Schools approved the DeVRY Institute in Phoenix to offer its bachelor of science degree-completion program on the Calgary campus. This allows students attending classes at the Calgary campus to complete their degree studies without relocating to a campus in the United States. Students attending one of the Toronto-area campuses may transfer to Calgary to participate in this program rather than transferring to a campus in the United States. KGSM is authorized to operate and award degrees under authority of the Illinois Board of Higher Education, the Georgia Nonpublic Postsecondary Education Commission, the Wisconsin Educational Approval Board, the Arizona State Board for Private Postsecondary Education, the Missouri Coordinating Board for Higher Education, the California Council for Private Postsecondary and Vocational Education and the Virginia Council of Higher Education. STATE AND PROVINCIAL APPROVAL AND LICENSING Authorizations from state or provincial licensing agencies or ministries are required to recruit students, operate the Company's schools and grant degrees. Many states and provinces require for-profit postsecondary education institutions to post surety bonds for licensure. The Company has posted approximately $4.3 million of surety bonds with state and local regulatory authorities and approximately $1.0 million (CDN) of surety bonds with regulatory agencies in Canada and believes it is currently in material compliance with state and Canadian provincial regulations. Certain states have set standards of financial responsibility beyond those prescribed by federal regulation. For example, fiscal tests adopted by the California legislature (as discussed more fully below) and similar regulations adopted or proposed by other state regulators may place the Company in future non-compliance under certain state regulations. If the Company were unable to meet these tests and could not otherwise demonstrate that it was financially responsible, it could be required to cease operations in a particular state. To date, the Company has successfully demonstrated its financial responsibility where required. In January 1991, the State of California adopted legislation that requires private, postsecondary educational institutions to meet certain fiscal tests in order to continue operating in the state. These fiscal tests include three requirements: (i) not having an operating loss in each of an institution's two most recent fiscal years; (ii) having positive net worth in its latest fiscal year; and (iii) maintaining a ratio of current assets to current liabilities of 1.25:1 or greater. The Company has achieved two of the required fiscal tests but has not maintained the ratio of current assets to current liabilities of 1.25:1, because the Company believes that maintaining such a ratio would be an inefficient use of its assets. At June 30, 1996, the Company had a ratio of current assets to current liabilities of 1.17:1. The California Council for Private Postsecondary and Vocational Education (the "California Council") also has discretion under this statute to allow an educational institution to continue operating, even if it does not satisfy the financial tests, if the institution can demonstrate that it has maintained sufficient financial resources to sustain all of its promised educational services. The Company believes that at June 30, 1996 it had satisfactorily demonstrated to the California Council its financial strength and ability to continue to operate. In connection with granting authority for continued operations, California law also requires an on-site visit to all postsecondary institutions having accreditation from a regional accrediting association other than the Western Association of Colleges and Schools. The California Council 29 31 conducted a visit to the California campuses in August 1996 and recently issued its report, granting approval for continued degree-granting operation for the maximum five-year period. FINANCIAL AID AND FINANCING STUDENT EDUCATION Students attending the DeVRY Institutes finance their education through a combination of family contributions, individual resources (including earnings from full- or part-time employment), financial aid (including Company-provided financial aid) and tuition reimbursement from their employers. The recent temporary restoration of the tax exemption for undergraduate education employer tuition reimbursement is a benefit to some DeVRY Institutes students, mainly those working adults attending its part-time evening programs who receive partial or full tuition reimbursement. The Company believes that approximately 79% of the U.S. DeVRY Institutes' students receive some government-sponsored financial aid and that a similar percentage of the students attending the Canadian DeVRY Institutes receive some government-sponsored financial assistance. The Company believes that between 10% and 15% of KGSM's students receive some government-sponsored financial aid. In addition, a substantial number of KGSM students receive tuition reimbursement from their employers. Students attending the Becker CPA or CMA review courses are not eligible for financial aid but many of them receive partial or full tuition reimbursement from their employers. The DeVRY Institutes assist their undergraduate students in locating part-time employment. Data from the National Center for Education Statistics indicates that in 1993, almost half of all full-time college students between the ages of 16 and 24 were employed. The Company believes that a substantially greater percentage of its full-time students are employed to help finance their costs of education. On the basis of a financial aid application completed by the student and the student's family, the DeVRY Institutes develop an assistance package for students who require financial aid. Government-sponsored financial aid is of great importance to the Company because approximately 68% of the DeVRY Institutes' U.S. tuition, book and fee revenues collected in fiscal 1996 were dependent on some form of such financial aid received by its students. In fiscal 1995, approximately 69% of revenues collected were dependent on financial aid. The government-provided financial aid and assistance programs in which many of the Company's students participate are subject to political and budgetary considerations. There is no assurance that government funding for the financial aid programs in which the Company's students participate will be maintained at current levels. A reduction in funding levels to financial aid programs could result in lower enrollments and/or an increased amount of Company-provided financial aid to its students. Extensive and complex regulations in the United States and Canada govern all of the government grant, loan and work programs in which the Company and its students participate. Regulations and standards that an institution must satisfy in order for its students to participate in federal financial assistance programs include, among others, maximum student loan default rates; limits on the proportion of an institution's revenue that can be derived from federal aid programs; financial responsibility and administrative capability requirements; and prohibition of certain types of incentive payments to student recruiters. At June 30, 1996, the Company achieved an operating profit, positive net worth, a "quick ratio" (cash plus accounts receivable to all current liabilities) in excess of the federal minimum of 1:1 and maintained the required cash reserve for the payment of refunds. This fully satisfied the standards of financial responsibility established by the U.S. Department of Education for participation in federal financial assistance programs. Similarly, the Company fully satisfied the standards of financial responsibility at June 30, 1995 and 1994. Failure to achieve these standards or otherwise demonstrate, in conformity to the regulations, its ability to continue to provide the educational services it offers could result in the Company being required to post a surety bond to permit its students to continue to participate in federal financial assistance programs. The Company maintains a staff at its Oakbrook Terrace headquarters to review, interpret and establish procedures for compliance with these regulations. Because U.S. financial assistance programs are required to be administered in accordance with the standard of care and diligence of a fiduciary, any regulatory violation 30 32 could be the basis for the initiation of a suspension, limitation or termination proceeding against the Company. In addition, changes in or new interpretations of applicable laws, rules or regulations could have a material adverse effect on the Company in the future. Although the Company has no reason to believe that any proceeding against the Company is presently contemplated, if such a proceeding were initiated against the Company and resulted in a substantial curtailment of the Company's participation in government grant or loan programs, the Company could be materially adversely affected. In the United States, the Company has completed and submitted all required audits of compliance with federal financial assistance programs. The Department of Education conducted a site visit in August 1996 at the DeVRY Institutes' North Brunswick, New Jersey, campus as a part of its program of periodic review of the administration of student financial assistance programs. The visit was satisfactorily concluded without further follow-up or action. DeVRY Institutes' Toronto-area campuses were notified at the end of August 1995 that the Ontario Ministry of Education and Training had temporarily suspended the processing of new financial aid applications from DeVRY Institutes' students pending review of inaccuracies found in applications filed by some students. The Ministry believed that some of DeVRY Institutes' Toronto-area students applied for and collected what might be excessive government-sponsored financial aid by inappropriately reporting that they had "zero income." A Ministry audit of the administration of financial aid at DeVRY Institutes' Toronto area campuses, with the Company's full cooperation, began in September 1995 and is still in progress. In order to restore financial aid eligibility, the Company refunded to the Ministry approximately $1.7 million (CDN) for the 1995-1996 academic year, which the Company believes is substantially all of the financial aid previously inappropriately disbursed to such "zero income" students for this time period, and posted a letter of credit for $2.0 million (CDN) against possible additional amounts that may have been inappropriately disbursed, as determined by the Ministry audit. Effective with the spring 1996 term, which began in March 1996, the Ministry conditionally reinstated approval for the processing of financial aid applications. As a consequence, results of operations for the Company's Canadian operations were materially adversely affected. See Note 9 to the Consolidated Financial Statements. Full unconditional reinstatement is subject to the Ministry appointed auditor's completion of its audit and verification of the Company's compliance with financial aid processing regulations. The following is a description of the U.S. and Canadian financial aid programs in which the Company's students participate: United States Government Financial Aid Programs The following U.S. Department of Education financial aid programs under Title IV of the Higher Education Act are utilized by the Company's students in the United States: (i) Federal Pell Grants ("Pell"), (ii) Federal Supplemental Educational Opportunity Grant ("SEOG"), (iii) Federal Family Education Loan Program ("FFELP"), (iv) Federal Perkins Direct Student Loan program ("Perkins"), (v) Federal Work Study ("FWS") and (vi) William D. Ford Federal Direct Student Loan Program ("FDSL"). Grants. Grants are funds made available by the government to eligible students who demonstrate financial need. Grants do not have to be repaid. Some of the Company's students are eligible to participate in the Pell and SEOG grant programs, which are programs for undergraduate students. Eligible students receive a Pell grant ranging in amount from $400 to $2,470 per year. SEOG is a supplement to the Pell grant, available to only the neediest students because SEOG funds are limited in amount at each institution based upon a federally determined formula. In addition to these federal assistance funds, DeVRY Institutes is required to make a 25% institutional matching contribution of all SEOG funds disbursed. The institutional matching contribution may be satisfied, in whole or in part, by the DeVRY Institutes scholarship funds, discussed separately in this section, or by externally provided scholarship grants. Loans. Students at the DeVRY Institutes participate in the Stafford and PLUS programs within the FFELP and in the Perkins loan program. Stafford loans may include an interest subsidy depending upon the financial need of the student, and loan repayment is scheduled to begin six months after a student no 31 33 longer attends school on at least a half-time basis. In 1996, over 80% of the financial aid received by students attending the Company's U.S. DeVRY Institutes was provided by federal student loans. Students at KGSM participate in FDSL, which represents 100% of the Federal financial aid received by these students. In 1993, Congress passed legislation creating the new Direct Student Loan Program. Under this program, students may complete all loan application and processing steps at their educational institution. Besides the benefit of one-stop processing, which can be done at the institution in conjunction with the application for aid under other programs, this loan program offers other benefits to student borrowers such as income-based repayments, lower loan fees and lower loan interest rates. For the 1994-95 school year, the DeVRY Institute Addison was one of only 104 institutions in the nation chosen by the Department of Education to pilot the implementation. For the 1995-96 school year, four additional DeVRY Institutes and KGSM were chosen for participation. The U.S. Congress has considered various proposals to eliminate this program or to cap loans made under this program at some percentage of all federal student loans until there is more experience with its success and realized cost savings. Work Study. FWS wages are 75% paid from federal funds and 25% from qualified employer funds. Work opportunities, both on or off-campus, under FWS are offered on a part-time basis by the U.S. DeVRY Institutes to undergraduate students who demonstrate financial need. State Financial Aid Programs State grant assistance may be received by eligible students attending DeVRY Institutes in Arizona, California, Georgia, Ohio and New Jersey. Canadian Government Financial Aid Programs Canadian students, other than students from Quebec, are eligible for loans under the Canada Student Loan Plan, which is financed by the Canadian government but administered at the provincial level. Canadian Student Loans are available to students who are Canadian citizens or a permanent resident of Canada enrolled at approved postsecondary institutions. Students from Quebec are eligible for loans under the Quebec Student Loan Plan. The loans are interest-free while the student is in school and repayment begins six months after the student leaves school. All other forms of government financial aid in Canada, both loans and grants, are financed and administered by the provinces. Company-Provided Financial Assistance The Company's EDUCARD Plan is available to students attending the U.S. DeVRY Institutes. The EDUCARD Plan is an installment loan program designed to assist students unable to completely cover educational costs with student and family contributions, federal and state grants and loans. The installment loan feature of the EDUCARD Plan is available to a student only after other student financial assistance has been applied toward the payment of tuition, books and fees and is available only for those purposes. Repayment of EDUCARD Plan balances is worked out in accordance with the financial circumstances of the particular student, but is typically on a monthly basis with all balances required to be paid within 12 months following a student's graduation or termination of study. The receivable balance related to Company-provided financial aid at the U.S. DeVRY Institutes at June 30, 1996, the end of the most recently completed fiscal year, was approximately $10.8 million. Improved timeliness in financial aid processing and the collection of student-owed balances maintained this receivable at approximately the same amount owed by students at June 30, 1995 under the EDUCARD Plan, although the number of enrolled students and tuition revenues increased from the prior year. Amounts owed by students under the EDUCARD Plan are subject to a monthly interest charge of 1.0% of the average outstanding balance. In addition to the student financial assistance provided by the EDUCARD Plan, the DeVRY Institutes Scholarship Competition annually offers merit-based scholarships. The U.S. DeVRY Institutes offered 30 full-tuition and 90 half-tuition scholarships to 1995/96 high school graduates. Each scholarship covers the application fee and tuition for one of DeVRY Institutes' degree programs. The total value of these 32 34 scholarships was over $2.0 million. Similar scholarship offers have been made to high school graduates in previous years and are expected to be offered in the future. To attract students who attend community or junior colleges, the U.S. DeVRY Institutes annually offers 36 half-tuition scholarships, valued at more than $500,000, to students who graduated from an accredited community/junior college in 1994 or later. In Canada, the DeVRY Institutes annually offers 7 full-tuition and 14 half-tuition scholarships valued at more than $300,000 (CDN) to high school graduates. The DeVRY Institutes have also provided funds in the form of institutional grants which help students most in need of financial assistance. 85/15 RULE The "85/15 Rule" affects only for-profit postsecondary institutions, such as the Company. Under this federal regulation, students attending a for-profit institution that derives more than 85% of its revenues from federal financial assistance programs in any year will not be able to participate in these programs for the following year. This regulation is commonly referred to as the 85/15 Rule. Each of the campuses of DeVRY Institutes (except for the Long Beach, California Institute, which currently operates as an additional location of the Pomona, California, Institute) and KGSM is established as a separate institution under the HEA provisions and must separately meet the criteria for the 85/15 Rule and for loan default rates. In fiscal 1995, the U.S. DeVRY Institutes derived approximately 69% of its revenues from these defined federal assistance programs. In fiscal 1996, DeVRY Institutes derived approximately 68% of its revenues from these programs and no institute within the DeVRY Institutes' system derived more than 78% of its revenues from these programs. STUDENT LOAN DEFAULTS The Company believes that in 1996, federal student loans represented more than 80% of the federal aid received by students at the U.S. DeVRY Institutes and 100% of the federal aid received by students at KGSM. A substantial majority of these student loans is provided under the FFELP and FDSL programs. For a variety of reasons, high student loan default rates on federal student loans are most often found in proprietary institutions, institutions having large minority populations and community colleges, all of which tend to have a higher percentage of low income students enrolled than do four-year publicly supported and independent colleges and universities. In 1989, the U.S. Department of Education instituted strict regulations that penalize educational institutions with high student loan default rates. These regulations were further tightened by the 1992 HEA. Any individual institution with a FFELP or FDSL cohort default rate ("cohort default rate") exceeding 20% for the year is required to develop a default management plan meeting specified federal standards in order to reduce defaults, although the institution's operations and its students' ability to utilize student loans are not restricted. Due to the recent introduction of the FDSL program, no default rates for this program have yet been reported. Any individual institution with a cohort default rate of 25% or more for three consecutive years is ineligible for participation in these loan programs and cannot offer student loans administered by the U.S. Department of Education for the fiscal year in which the ineligibility determination is made and for the two succeeding fiscal years. In addition, students attending an institution whose cohort default rate has exceeded 25% for three consecutive years will be ineligible for Pell grants. Any institution with a cohort default rate of 40% or more in any year is subject to immediate limitation, suspension or termination proceedings from all federal aid programs. No DeVRY Institute has ever had a cohort default rate of 25% or more for three consecutive years nor a cohort default rate of 40% or more in any one year. The Company carefully monitors its students' loan default rate. To help reduce student loan default rates, the Department of Education requires that all educational institutions wait 30 days before disbursing funds to first-time, first-year undergraduates to prevent potential early-term dropouts from defaulting on their loans. Students who leave school in the early part of their educational program typically default on their loans at a higher rate than those students who remain and complete the course. Another significant factor in controlling student loan default rates is the servicing and collection efforts by lenders and guaranty agencies. The Company assists the efforts of these lenders and agencies by contacting its students who are delinquent in their loan repayments and advising them of their responsibilities and rights to deferments or collection forbearance if they are eligible. According to reports by the U.S. Department of Education, the Company's schools had cohort default rates for 1994 (the latest year for which statistics are available) ranging from 1.5% to 25.1%. 33 35 The Company's systemwide cohort default rate was approximately 17.6% for 1994. The reported rates for 1994 reflect the proportion of former students who were due to begin repaying their loans during that year but who were in default by the end of 1995. For 1993, the Company's weighted average cohort default rate was 18.6%. Cohort default rates are subject to revision by the Department of Education as new data becomes available and are subject to appeal by schools contesting the accuracy of the data. Upon review of the calculations of the cohort default rates for DeVRY Institutes, the Company discovered errors and exceptions. The Company has requested that the Department of Education recalculate the cohort default rate for 1994. Only one of the DeVRY Institutes had a cohort default rate greater than 20% for 1994. That Institute, whose cohort default rate was reported at 25.1% has initiated a default management plan and has requested that the Department of Education recalculate its cohort default rate based upon its belief that erroneous data was included and resulted in an overstatement of the reported cohort default rate. This same Institute had a cohort default rate of 26.6% for 1993 and a cohort default rate of 22.5% for 1992. If this Institute were to have a cohort default rate above 25.0% for fiscal 1995 (preliminary results for which are expected to be available in spring 1997), this Institute would lose its eligibility to participate in student loan programs and the Pell grant program. Default rate reduction initiatives are underway at each Institute. No DeVRY Institute is currently subject to any restrictions or termination under these student loan programs. Students who attend the U.S. DeVRY Institutes also participate in the Federal Perkins loan program. This program provides low interest educational loans to students who demonstrate exceptional need. Funding for this program is provided, in part, by the Department of Education and, in part, by the participating institution. As loans are repaid, the principal and interest from these repayments is returned to the pool of funds available for future loans to students at that institution. The program, including the responsibility for collection of outstanding loans, is administered by the institution. Any institution with a Perkins loan cohort default rate exceeding 15% must establish a default reduction plan. Any institution with a Perkins loan cohort default rate between 20% and 30% will receive a reduced annual federal contribution to the program. If the Perkins loan cohort default rate exceeds 30%, the institution will not receive any new federal contribution to the program. However, new loans to eligible students may continue to be made from the pool of funds created by monthly repayments on previous loans. The DeVRY Institutes reported Perkins loan default rates for 1995 (the latest year for which statistics are available) ranging from 15.6% to 34.0%. The U.S. DeVRY Institutes weighted average Perkins loan cohort default rate was 25.9%. For 1994, the Perkins loan cohort default rates ranged from 10.8% to 27.0% and the U.S. DeVRY Institutes weighted average Perkins loan cohort default rate was approximately 20.5%. A portion of the increase in the 1995 default rates results from regulatory changes in the default rate calculation which now includes as defaults some loans previously considered to be not in default. For 1996, the Company expects that some of these calculation revisions will be rescinded resulting in lower reported default rates. Student counseling and additional collection efforts are being implemented to reduce these default rates. SEASONALITY The Company's business is somewhat seasonal, varying according to the enrollment periods throughout the year. Highest enrollment and revenues at the DeVRY Institutes and KGSM typically occur during the fall back-to-school period which corresponds to the second and third quarters of the Company's fiscal year. Slightly lower enrollment is experienced in the spring and the lowest enrollment occurs during the summer months. Becker experiences higher enrollments for its courses beginning in June and July leading to the fall CPA exam than for its courses beginning in December and January leading to the spring CPA exam. Results of operations reflect this seasonal enrollment pattern and the pattern of student recruiting activity costs that precede the start of every term. Revenues, income before interest and taxes and net income by quarter for each of the past two fiscal years are included in Note 10 to the Consolidated Financial Statements. TRADEMARKS AND SERVICE MARKS The Company uses a number of trademarks, including "DeVRY Institute of Technology," "Becker CPA Review" and variants thereof. All trademarks, service marks and copyright registrations associated with the 34 36 business are registered in the name of the Company or one of its subsidiaries and expire over various periods of time. The Company vigorously defends against infringements of its trademarks, service marks and copyrights. COMPETITION The postsecondary education market, composed of approximately 7,000 universities, colleges and schools, is highly fragmented and competitive with no single institution having a significant market share. The Company believes that it is one of the largest private, degree-granting, regionally accredited, higher education school systems in North America. The DeVRY Institutes compete with traditional publicly supported and independent two-year and four-year colleges, other for-profit schools and alternatives to higher education, such as employment and military service. Publicly supported colleges may offer programs similar to those of the DeVRY Institutes at a lower tuition level due to government subsidies, government and foundation grants, tax-deductible contributions and other financial sources not available to for-profit schools. Tuition at independent not-for-profit institutions is, on average, higher than the tuition at the DeVRY Institutes. Other for-profit schools offer programs that compete, to a limited extent, with those of the DeVRY Institutes. According to Company surveys of prospective students, the most common alternative to attending a DeVRY Institute is attending a four-year college. Other frequently cited alternatives are keeping or seeking a full-time job, attending another career-oriented school or joining the military. KGSM competes with other MBA programs offered in all markets in which it has operations. In the Chicago area, there are currently over 20 MBA programs. Nationwide there are more than 700 graduate business programs. Competition with KGSM's MHRM program varies by the market area in which it is offered but is generally more moderate than competition for the MBA program. KGSM is one of only a few schools in the country offering a master's degree in project management, but increasing interest in this field is beginning to attract similar offerings. Becker competes with CPA exam preparation through self-study, with courses offered by colleges and universities and with other training companies, most of which operate on a local or regional basis, although at least one training company competitor operates nationally. Courses offered by competitors generally have a lower total course cost to help attract students. Becker differentiates itself from its competitors by providing more classroom hours of instruction, extensive and constantly updated review and practice test materials and experienced, qualified instructors for each area of specialty included in the exam. The high success rate of students who take the Becker review course and the numbers of students enrolling after taking other review courses but not passing the CPA exam is testimony to the quality and value of the Becker methodology. CES competes with individual consultants, colleges, industry associations, other training companies and the internal training departments of many large potential corporate customers and government agencies. CES, utilizing KGSM's national system and drawing on the DeVRY Institutes, differentiates itself in the marketplace through the applied curriculum expertise of both KGSM and the DeVRY Institutes, particularly in the areas of project management, electronics and telecommunications. Materials are derived from the proven instructional success in these topics at the DeVRY Institutes and KGSM, modified as necessary using the academic resources of both. PROPERTIES DeVRY Institutes The DeVRY Institutes' campuses are located in both suburban communities and urban neighborhoods. They are generally easily accessible to major thoroughfares. Each campus includes teaching facilities, admissions and administrative offices. Teaching facilities are housed in modern, air-conditioned buildings that include classrooms, laboratories, libraries, bookstores and student lounges. Electronics laboratories include PC-based instrumentation and microprocessor development/circuit simulation systems, along with traditional oscilloscopes, digital multimeters, power supplies, signal generators and other equipment. Computer laboratories include both stand-alone and networked PC-compatible workstations that support all curricula areas. Resources available to students include access to a central mainframe owned and operated by a third party, 35 37 UNIX and numerous software packages supporting a variety of business, engineering and scientific applications. Connections to the Internet and World Wide Web are included through the computer laboratories as a part of the program curriculum. Telecommunications laboratories provide central office simulation, PBX administration, inter-networking and teaching LAN environments. None of the six DeVRY Institute campuses owned by the Company is subject to a mortgage or other indebtedness. In June 1996, the DeVRY Technical Institute in Woodbridge, N.J., moved to a new, 97,000 square foot company-owned facility in North Brunswick, N.J., in advance of the summer term. In July 1996, the Company began operation of a satellite campus in Mississauga (Toronto), Ontario, Canada. Opened in 42,000 square feet of space, this is the second satellite to the main campus operation in North York (Toronto) and the fourth DeVRY Institute in Canada. The table below sets forth certain information regarding each of the properties at which the DeVRY Institutes conduct educational operations: DEVRY INSTITUTE CAMPUSES
AREA (APPROXIMATE FULL AND PART-TIME STUDENTS SQUARE FEET) ATTENDING FALL 1996 OWNERSHIP ----------------- --------------------------- --------- Decatur (Atlanta), Georgia.................. 107,500 3,108 Owned Chicago, Illinois........................... 104,850 3,196 Owned Addison (Chicago), Illinois................. 91,600 3,466 Leased Columbus, Ohio.............................. 106,480(1) 2,643 Owned North Irving (Dallas), Texas................ 95,250 2,420 Leased Kansas City, Missouri....................... 74,500 2,130 Owned Phoenix, Arizona............................ 120,200 2,854 Owned Pomona (Los Angeles), California............ 100,500 3,037 Leased Long Beach (Los Angeles), California........ 98,240 1,366 Leased North Brunswick, New Jersey................. 97,470 2,918 Owned Calgary, Alberta, Canada.................... 42,900 1,350 Leased North York (Toronto), Ontario, Canada....... 51,690 1,023 Leased Scarborough (Toronto), Ontario, Canada...... 35,400 709 Leased Mississauga (Toronto), Ontario, Canada...... 42,300 365 Leased ------- 30,585 =======
- ------------------------- (1) Includes 14,400 square feet of modular buildings. The Company placed a deposit in escrow to purchase a parcel of land in the San Fernando Valley, California, for the construction of a third campus in the Los Angeles area. Completion of the purchase is dependent upon, among other things, obtaining zoning of the property for campus use. In Alpharetta (Atlanta), Georgia, the Company is completing the construction of a build-to-suit, leased campus in that suburb. The facility, planned at 65,000 square feet, is expected to open for classes in July 1997. In Calgary (Alberta) Canada, the Company has signed a lease for a build-to-suit campus to replace its current site beginning with the summer 1998 term. The Company has signed a letter of intent for the purchase of a parcel of land in the San Francisco area for construction of a campus to serve the Northern California area. In New York, a search is underway for an existing building that can be renovated to the Company's specifications for operation in the New York City area. 36 38 KGSM KGSM centers include teaching facilities, admissions and administrative offices. The centers are housed in modern, air conditioned buildings whose locations were chosen for their convenience to students. KGSM centers range in size from approximately 3,600 to 9,000 square feet. In the spring of 1996, KGSM opened a new center in Tysons Corner, Virginia (Washington, D.C. area). In the fall of 1996, KGSM opened a center at the Company's corporate headquarters location in Oakbrook Terrace, Illinois. This is the seventh center in the Chicago area and the nineteenth center in the system. The downtown Chicago center relocated to a new and larger facility in the downtown Chicago area in fall 1996 to permit increased enrollment at this location. In January 1997, KGSM signed a lease for space in Irvine, California, to accommodate its twentieth center scheduled to open in April 1997. The table below sets forth certain information regarding each of the properties at which KGSM conducts educational operations: KGSM CENTERS
PART-TIME STUDENTS NOVEMBER 1996 OWNERSHIP ------------- --------- Chicago, Illinois........................................... 435 Leased Schaumburg, Illinois........................................ 397 Leased Downers Grove, Illinois..................................... 310 Leased Lincolnshire, Illinois...................................... 378 Leased Orland Park, Illinois....................................... 185 Leased Elgin, Illinois............................................. 173 Leased Oakbrook Terrace, Illinois.................................. 142 Leased(1) Milwaukee, Wisconsin........................................ 225 Leased Waukesha, Wisconsin......................................... 195 Leased St. Louis, Missouri......................................... 107 Leased Kansas City, Missouri (downtown)............................ 167 Leased Kansas City, Missouri....................................... 147 (2) Phoenix, Arizona............................................ 135 (2) Mesa, Arizona............................................... 173 Leased Decatur, Georgia............................................ 188 (2) Atlanta, Georgia............................................ 280 Leased Pomona, California.......................................... 153 (2) Long Beach, California...................................... 116 (2) Tysons Corner, Virginia..................................... 105 Leased ----- 4,011 =====
- ------------------------- (1) Company headquarters. (2) Operates on a DeVRY Institutes' campus. Becker Becker is headquartered in leased offices in Encino, California. Classes are conducted in leased facilities, less than 20 of which are leased on a full-time basis. The remainder of the classes are conducted in facilities which are leased on an as-used basis, allowing classes to be expanded or relocated as enrollments require. Becker classes are also currently offered in some DeVRY Institutes and KGSM sites where the location and facility availability are appropriate. 37 39 Corporate The Company's administrative offices are located in approximately 70,000 square feet of a leased facility in Oakbrook Terrace, Illinois. In addition, the Company leases approximately 17,900 square feet of storage and other miscellaneous use space at this facility. CES maintains its headquarters at the Company's administrative offices in Oakbrook Terrace, Illinois. The Company's leased facilities are occupied under leases whose remaining terms range from one to 12 years. A majority of these leases can be renewed for additional periods. LEGAL PROCEEDINGS The Company is subject to occasional lawsuits, investigations and claims arising out of the normal conduct of its business. Neither the Company nor any of its subsidiaries is currently a party to any material legal action except those described below. On July 8, 1996, the Ontario Ministry of Education and Training temporarily suspended and later conditionally reinstated the processing of financial aid applications for students attending the Company's Toronto-area schools. Full unconditional reinstatement is subject to the Ministry's completion of certain procedures regarding verification of the Company's compliance with financial aid processing regulations. See "Business--Financial Aid and Financing Student Education." In July 1996, the Company and DeVRY Canada, Inc., a wholly-owned subsidiary, were served with a purported class action lawsuit filed in the Ontario Court (General Division) in Canada by a former student alleging breach of contract and negligent and fraudulent misrepresentation about the quality of the DeVRY Institutes' educational programs and seeking up to $400 million (CDN) in compensatory and punitive damages. The Company believes that the claims in the lawsuit are frivolous and without merit. In response to the lawsuit, on July 24, 1996 the Company filed a Statement of Defense and intends to contest vigorously the allegations and the certification of the class. A hearing on the motion to certify the class has not yet been held and is not expected for several months. This lawsuit and the actions taken by the Ontario Ministry of Education and Training have resulted in a decline in enrollment at the Company's Canadian DeVRY Institutes. Although the outcomes cannot be predicted with certainty, the Company believes the resolution of these matters will not have a material effect on the Company's financial position, results of operations or liquidity. 38 40 MANAGEMENT AND DIRECTORS The following sets forth the names and ages of certain of the Company's Directors and executive officers and the positions they hold with the Company:
NAME AGE POSITION WITH COMPANY ---- --- --------------------- Dennis J. Keller(1)....................... 55 Chairman of the Board and Chief Executive Officer Ronald L. Taylor(1)....................... 53 President, Chief Operating Officer and Director Ewen M. Akin.............................. 66 Director Charles A. Bowsher(2)..................... 65 Director David S. Brown(1)(2)...................... 56 Director Ann Ida Gannon, BVM(2).................... 81 Director Robert E. King(1)(3)...................... 61 Director Frederick A. Krehbiel(3).................. 55 Director Robert C. McCormack(1).................... 57 Director Julie A. McGee(2)......................... 54 Director Thurston E. Manning(3).................... 70 Director Hugo J. Melvoin(3)........................ 68 Director Marilynn J. Cason......................... 53 Senior Vice President, General Counsel and Corporate Secretary Norman M. Levine.......................... 54 Vice President, Chief Financial Officer and Controller Norman C. Metz............................ 48 Senior Vice President O. John Skubiak........................... 47 Senior Vice President
- ------------------------- (1) Member of the Nominating Committee. (2) Member of the Audit Committee. (3) Member of the Compensation Committee. Mr. Keller has been Chairman of the Board of the Company and Chief Executive Officer since August 1987. In 1973 he co-founded KGSM and was from 1973 to August 1987 its Chairman of the Board and Chief Executive Officer. Mr. Keller is a graduate of Princeton University and holds a Master of Business Administration degree from the University of Chicago Graduate School of Business. He is also a director of NICOR. Mr. Taylor has been President and Chief Operating Officer and a Director of the Company since August 1987. In 1973 Mr. Taylor co-founded KGSM and was from 1973 to August 1987 its President. Mr. Taylor is a graduate of Harvard University and holds a Master of Business Administration degree from Stanford University. He is also a director of SPR, Inc. Dr. Akin has been a Director of the Company since February 1997. Appointed as Assistant Professor of Physics in 1963, Dr. Akin subsequently became Vice President for Academic Affairs and in 1976 became President of Kennedy-King College, a position he held until 1986. His service for Kennedy-King College was interrupted for a three-year period (1973-76) in which he served as President of Malcolm X College. Mr. Bowsher has been a Director of the Company since February 1997. He was Controller General of the United States from 1981 until 1996, prior to which time he was for 25 years a partner in Arthur Andersen LLP, except for a four-year period (1967-1971) when he served as Assistant Secretary of the Navy for Financial Management. Mr. Brown has been a Director of the Company since 1987 and was a founding stockholder and director of KGSM. He was a partner in the Chicago law firm of McBride and Baker from 1972 to 1979. Mr. Brown served as general counsel to KGSM from its inception to 1979. After 1980, Mr. Brown was employed by United Laboratories, Inc., a manufacturer and seller of specialty chemicals where he was until March 1997 Executive Vice President, Chief Financial Officer and General Counsel. He currently serves as Vice President, Treasurer and Director of Oakbrook Racquet Club, Inc., a tennis, health and fitness club. He served as General Counsel of the U.S. Office of Minority Business Enterprise from 1971 to 1972. 39 41 Sister Ann Ida Gannon, BVM, has been a Director of the Company since 1987 and has served on the KGSM Advisory Council since 1973. She was a Professor of Philosophy at Mundelein College from 1951 until her retirement in 1985 and was President of Mundelein College from 1957 to 1975. Mr. King has been a Director of the Company since August 1987. Since 1994, he has been Chairman of Salt Creek Ventures, a private equity firm. From 1983 through 1994, Mr. King was Chairman and Chief Executive Officer of Newtrend Group, a software company and computer services company. He was President and Chief Executive Officer of DELTAK, Inc., a video publisher, from 1971 to 1982. He is also a director of U.S. SERVIS INC. Mr. Krehbiel has been a director of the Company since 1996. He has been employed by Molex Incorporated, an electronics component manufacturer, since 1965 and has served as Chief Executive Officer since 1988 and as Chairman since 1993. In addition to his service as a director of Molex Incorporated, Mr. Krehbiel is a director of Tellabs, Inc., Nalco Chemical Co., and Northern Trust Corp. Mr. McCormack has been a director of the Company since 1996. He is a founding partner of Trident Capital, Inc., a private equity firm established in 1993 to invest in information and business service companies. From 1990 to 1993 Mr. McCormack was the Assistant Secretary and Comptroller of the Navy, prior to which time he served for 2 1/2 years on the staff of the Secretary of Defense in various positions. Mr. McCormack spent 20 years in investment banking with Dillon, Read & Co. Inc. and Morgan Stanley & Co. Incorporated before his government service. He is also a director of Illinois Tool Works, Inc. and MetroMail Corporation. Ms. McGee became a Director of the Company in 1994. Since 1991, she has been President of McDougal Littell, a Houghton Mifflin company, in Evanston, Illinois and a corporate Executive Vice President of Houghton Mifflin Company in Boston, which publishes print and electronic materials for elementary and secondary schools and colleges and references for the office automation and microcomputer markets, as well as fiction and nonfiction literature. Ms. McGee began her career at McDougal Littell in 1988 as an editorial director. From 1986 to 1988, she held management positions at Ligature, Inc., prior to which she was, for three years, Director of Marketing and Software Development for a division of Tandy Corporation. Dr. Manning has been a Director of the Company since 1990. He was President of the Council on Post-secondary Accreditation from 1987 to 1991, prior to which time he was, for 12 years, Executive Director of the Commission on Institutions of Higher Education of the North Central Association of Colleges and Schools. Mr. Melvoin has been a Director of the Company since August 1987. He is a founding stockholder and director of KGSM. Mr. Melvoin, a practicing attorney since 1953, was a partner in the Chicago law firm of Mayer, Brown & Platt from 1960 to 1981, when he established the law firm of Hugo Melvoin, P.C. Ms. Cason joined the Company as Vice President, General Counsel and Corporate Secretary in January 1989 with responsibility for the Company's legal affairs and human resources. In her current position as a Senior Vice President, Ms. Cason has responsibility for facilities planning, purchasing and management information systems in addition to her responsibilities for legal affairs and human resources. Mr. Levine has been Controller of the Company since 1987 and has been the Chief Financial Officer since March 1989. From November 1982 to 1987, Mr. Levine was Controller of the DeVRY Institutes. Mr. Metz joined the Company in April 1983 as a Vice President and in 1986 assumed responsibility for operations of the DeVRY Institutes. In addition, Mr. Metz is responsible for student recruiting. Mr. Skubiak has been with KGSM for more than 18 years, progressing from admissions representative to Dean of KGSM. In his current position as Senior Vice President of the Company, which he has held since 1994, Mr. Skubiak has responsibility for the Company's marketing, other than student recruitment, and the operations of KGSM and CES. 40 42 PRINCIPAL AND SELLING STOCKHOLDERS The table below sets forth the number and percentage of outstanding shares of Common Stock beneficially owned prior to the Offering, the number of shares of Common Stock to be sold in the Offering, and the number and percentage of shares of Common Stock to be beneficially owned after the Offering by (i) each person known by the Company to own beneficially more than 5% of the Common Stock, (ii) each Director of the Company, (iii) the Company's Chief Executive Officer and four other most highly compensated executive officers, (iv) all Directors and executive officers of the Company as a group and (v) each Selling Stockholder, in each case as of February 18, 1997, except as otherwise noted. The Company believes that each individual or entity named has sole investment and voting power with respect to the shares of Common Stock indicated as beneficially owned by them, except as otherwise noted.
SHARES OWNED SHARES TO BE OWNED PRIOR TO THE OFFERING(1) AFTER THE OFFERING(1) ------------------------------ SHARES ------------------------------ PERCENT OFFERED PERCENT NAME NUMBER OF TOTAL HEREBY NUMBER OF TOTAL ---- ------------- -------- ------- ------------- -------- Dennis J. Keller.............. 4,860,382 (2) 14.6% 200,000 4,660,382 13.6% Ronald L. Taylor.............. 1,894,288 (3) 5.7 723,000 1,171,288 3.5 Ewen M. Akin.................. 20 * -- 20 * Charles J. Bowsher............ -- * -- -- * David S. Brown................ 214,000 (4) * 25,000 189,000 (4) * Ann Ida Gannon................ 14,000 (4) * -- 14,000 (4) * Robert E. King................ 165,280 (4)(5) * 40,000 125,280 (4)(5) * Fredrick A. Krehbiel.......... 7,060 * -- 7,060 * Thurston E. Manning........... 14,000 (4) * -- 14,000 (4) * Robert C. McCormick........... 418,272 (6) 1.3 -- 418,272 (6) * Julie A. McGee................ 8,000 (7) * -- 8,000 (7) * Hugo J. Melvoin............... 86,964 (4)(8) * 12,000 74,964 (4)(8) * Marilynn J. Cason............. 18,196 (9) * -- 18,196 (9) * Norman M. Levine.............. 37,938 (10) 37,938 (10) * Norman C. Metz................ 106,800 (11) * 106,800 (11) * O. John Skubiak............... 47,450 (12) * 47,450 (12) * GeoCapital Corporation........ 2,698,000 (13) 8.1 -- 2,698,000 (13) 7.9 Pilgrim Baxter & Associates... 2,225,600 (14) 6.7 -- 2,225,600 (14) 6.3 Baron Capital, Inc............ 1,759,400 (15) 5.3 -- 1,759,400 (15) 5.1 All Directors and Executive Officers as a group (24 Persons).................... 7,991,282 24.0% 1,000,000 6,991,282 20.4%
- ------------------------- * Represents less than 1% of the outstanding Common Stock. (1) Calculated pursuant to Rule 13d-3(d) of the Exchange Act. Under Rule 13d-3(d), shares not outstanding which are subject to options, warrants, rights or conversion privileges exercisable within 60 days are deemed outstanding for the purpose of calculating the number and percentage owned by such person, but not deemed outstanding for the purpose of calculating the percentage owned by each other person listed. (2) Includes 4,756 shares owned by Mr. Keller's wife and 6,000 shares owned by Mr. Keller's children and 37,000 shares subject to purchase upon the exercise of stock options. Mr. Keller disclaims beneficial ownership of the shares owned by his wife and children. Mr. Keller's address is One Tower Lane, Oakbrook Terrace, Illinois 60181. (3) Includes 200 shares owned by Mr. Taylor's children and 37,000 shares subject to purchase upon the exercise of stock options. Mr. Taylor disclaims beneficial ownership of the shares owned by his children. Mr. Taylor has granted the Underwriters a 30-day option to purchase up to 100,000 additional shares of Common Stock. If such option is exercised in full, Mr. Taylor will own 1,071,288 shares of Common Stock, representing 3.2% of the outstanding shares of Common Stock. Mr. Taylor's address is One Tower Lane, Oakbrook Terrace, Illinois 60181. (4) Includes 14,000 shares subject to purchase upon the exercise of stock options. 41 43 (5) Includes the following shares held by trusts for which Robert E. King is trustee: 47,240 shares of Common Stock held by LaSalle Trust No. 03-630780-9 for Robert E. King Jr.; 47,240 shares of Common Stock held by LaSalle Trust No. 03-630780-1 for Heather Oakes King; and 47,240 shares of Common Stock held by LaSalle Trust No. 03-630770-0 for Margaret E. King. The trusts and their respective beneficiaries mentioned in this footnote acquired the shares upon the dissolution of Keltin Partnership. (6) Includes 412,448 shares held by The Northern Trust Company and Robert C. McCormack Trust UA DTD 10-6-67. (7) Includes 8,000 shares subject to purchase upon the exercise of stock options. (8) Includes 10,000 shares owned by the Melvoin Foundation. (9) Includes 824 shares acquired through the DeVRY Inc. Profit Sharing Retirement Plan, 172 shares acquired through the Employee Stock Purchase Plan and 11,050 shares subject to purchase upon the exercise of stock options. (10) Includes 2,124 shares acquired through the DeVRY Inc. Profit Sharing Retirement Plan, 214 shares acquired through the Employee Stock Purchase Plan and 27,500 shares subject to purchase upon the exercise of stock options. (11) Includes 98,300 shares subject to purchase upon the exercise of stock options. (12) Includes 5,172 shares held in an IRA at Northern Trust Brokerage, 11,600 shares held in an IRA at Northern Trust Brokerage for Luba Skubiak and 4,400 shares subject to purchase upon the exercise of stock options. (13) GeoCapital Corporation, whose address is 767 Fifth Avenue, New York, New York 10153, as of December 31, 1996, had shared voting power and sole investment power as to 2,698,000 shares. (14) Pilgrim Baxter & Associates, whose address is 1255 Drummers Lane #300, Wayne, PA 19087, as of December 31, 1996, had shared voting power and sole investment power as to 1,112,800 shares. (15) Baron Capital, Inc. whose address is 450 Park Avenue, New York, New York 10022, as of September 30, 1996, had sole voting and investment power as to 1,759,400 shares. 42 44 DESCRIPTION OF CAPITAL STOCK The following summarizes certain provisions of the Amended and Restated Certificate of Incorporation of the Company (the "Certificate of Incorporation"), the Amended and Restated By-Laws of the Company, dated as of June 1, 1991 (the "By-Laws") and the Amended and Restated Registration Agreement, dated as of November 15, 1987, as amended, among the Company and certain of its stockholders (the "Registration Agreement"). Such summaries do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all of the provisions of the Certificate of Incorporation, the By-Laws and the Registration Agreement, including the definitions therein of certain terms. Copies of the Certificate of Incorporation, the By-Laws and the Registration Agreement are filed or incorporated by reference as exhibits to the Registration Statement of which this Prospectus is a part. GENERAL The Certificate of Incorporation authorizes the issuance of 75,000,000 shares of Common Stock. As of February 24, 1997, 33,292,194 shares of Common Stock are issued and outstanding and 1,516,790 shares of Common Stock are reserved for issuance under the Restated Stock Option Plan, the 1991 Stock Option Plan and the 1994 Stock Option Plan. COMMON STOCK The shares of Common Stock have no preemptive or other subscription rights and are not subject to any future call or assessment. The Common Stock is listed on the NYSE under the symbol "DV." Holders of shares of Common Stock are entitled to receive such dividends as may be declared by the Board of Directors out of funds legally available therefor. See "Price Range of Common Stock and Dividend Policy." In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of shares of Common Stock are entitled to share ratably in all assets remaining after payment in full of liabilities. There are no redemption, conversion or sinking fund provisions with respect to the Common Stock. The holders of shares of Common Stock are entitled to one vote per share on any matter submitted to stockholders. Certain holders of Common Stock may require the Company to register certain of their shares of Common Stock under certain circumstances. See "Description of Capital Stock--Registration Agreement." The availability for issue of shares of Common Stock by the Company without any further action by stockholders (except as may be required by applicable NYSE regulations) could be viewed as enabling the Board of Directors to make more difficult a change in control of the Company, including by issuing warrants or rights to acquire shares of Common Stock to discourage or defeat unsolicited stock accumulation programs and acquisition proposals and by issuing shares in a private placement or public offering to dilute or deter stock ownership of persons seeking to obtain control of the Company. REGISTRATION AGREEMENT Pursuant to the Registration Agreement, the parties thereto (who hold approximately 25% of the outstanding shares of Common Stock) are entitled to certain "demand" and "piggyback" registration rights. Under certain circumstances, the holders of at least 25% of the Common Stock received on conversion of the Company's former Series A Preferred Stock are entitled to require registration under the Securities Act of their Series A Registrable Shares (as defined in the Registration Agreement) and the holders of at least 33% of the Common Stock received on conversion of the Company's former Series B Preferred Stock are entitled to require registration under the Securities Act of their Founding Registrable Shares (as defined in the Registration Agreement) and to require the Company to pay certain costs related to such registration. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar for the Common Stock is Harris Trust & Savings Bank, Chicago, Illinois. 43 45 ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS The Certificate of Incorporation and By-Laws of the Company contain certain provisions that may make the acquisition of control of the Company by means of a tender offer, open market purchase, a proxy fight or otherwise more difficult. These provisions are designed to encourage persons seeking to acquire control of the Company to negotiate with the Company's Board of Directors. The Company believes that, as a general rule, the interest of its stockholders would be served best if any change in control results from negotiations with its Board of Directors based upon careful consideration of the proposed terms, such as the price to be paid to stockholders, the form of consideration to be paid and the anticipated tax effects of the transaction. However, the provisions could have the effect of discouraging a prospective acquirer from making a tender offer or otherwise attempting to obtain control of the Company. To the extent that these provisions discourage takeover attempts, they could deprive stockholders of opportunities to realize takeover premiums for their shares or could depress the market price for the shares. Moreover, these provisions could discourage accumulations of large blocks of the Company's stock, thus depriving stockholders of any advantages which large accumulations of stock might provide. Set forth below is a description of the relevant provisions of the Certificate of Incorporation and the By-Laws. The descriptions are intended as a summary only and are qualified in their entirety by reference to the Certificate of Incorporation and By-Laws which are filed or incorporated by reference as exhibits to the Registration Statement of which this Prospectus is a part. Classified Board of Directors and related provisions. The Certificate of Incorporation provides that the Board of Directors is divided into three classes of Directors serving staggered three-year terms. As a result, approximately one-third of the Company's Board of Directors will be elected each year. See "Management and Directors." The classified board provision will prevent a party who acquires control of a majority of the outstanding voting stock of the Company from obtaining control of the Board of Directors until the second annual stockholders meeting following the date the acquiror obtains the controlling interest. The Certificate of Incorporation provides that the number of Directors will not be less than three nor more than 12 and that the Directors will have the exclusive power to set the exact number of Directors within that range from time to time by resolution adopted by vote of a majority of the entire Board of Directors. The Certificate of Incorporation further provides that Directors may be removed only for cause and by the affirmative vote of the holders of a majority of all outstanding voting stock entitled to vote. This provision, in conjunction with the provisions of the Certificate of Incorporation authorizing the Board of Directors to fill vacant directorships, will prevent stockholders from removing incumbent Directors without cause and filling the resulting vacancies with their own nominees. No stockholder action by written consent; special meetings. The Certificate of Incorporation provides that stockholder action can be taken only at an annual or special meeting of stockholders and cannot be taken by written consent in lieu of a meeting. The Certificate of Incorporation provides that, except as otherwise required by law, special meetings of the stockholders can only be called by a majority of the entire Board of Directors, the Chairman of the Board of Directors or the President. Stockholders are not permitted to call a special meeting or to require the Board of Directors to call a special meeting of stockholders. Any call for a special meeting must specify the matters to be acted upon at the meeting. Other constituencies provision. The Certificate of Incorporation provides that, in determining whether to take or refrain from taking any corporate action, the Board of Directors may take into account long-term as well as short-term interests of the Company and its stockholders, customers, employees, students, graduates, faculty and other constituencies of the Company, including the effect on communities in which the Company does business. Stockholder proposals. The By-Laws provide that, if a stockholder desires to submit a proposal at an annual or special stockholders' meeting or to nominate persons for election as Directors, the stockholder must submit written notice to the Company at least 60 days prior to the anniversary date of the prior annual meeting or within 10 days after notice of a special meeting is sent or given to the stockholders by the Company. The notice must describe the proposal or nomination and set forth the name and address of, and stock held of 44 46 record and beneficially by, the stockholder. Notices of stockholders' proposals must set forth reasons for conducting such business and any material interest of the stockholder in such business. Director nomination notices must set forth the name and address of the nominee, arrangements between the stockholder and the nominee and other information as would be required under Regulation 14A of the Exchange Act. The presiding officer of the meeting may refuse to acknowledge a proposal or nomination not made in compliance with the procedures contained in the By-Laws. The By-Laws also provide that, in order for stockholders to approve precatory proposals requesting the Board of Directors to take certain actions, a majority of the outstanding stock of the Company entitled to vote thereon (and not of the stock present at the meeting) must be voted for the proposal. The advance notice requirements regulating stockholder nominations and proposals may have the effect of precluding a contest for the election of Directors or the introduction of a stockholder proposal if the procedures established by it are not followed and may discourage or deter a third party from conducting a solicitation of proxies to elect its own slate of Directors or to introduce a proposal. The requirement that precatory proposals receive approval of a majority of the outstanding shares entitled to vote rather than a majority of the shares present at the meeting will make it more difficult for stockholders to obtain the vote required to approve such proposals. SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offering, the Company will have 34,292,194 shares of Common Stock outstanding. Of these shares of Common Stock, the shares offered hereby may be resold without registration under the Securities Act (except by affiliates of the Company). The Company, its officers and directors, the Selling Stockholders and certain other stockholders of the Company designated by the Underwriters have agreed that, for a period of 90 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 Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock. But for these agreements, all outstanding shares of the Company's Common Stock immediately prior to the closing of the Offering would be eligible for sale, subject to the volume resale, manner of sale and notice limitations of Rule 144 under the Securities Act. In general, under Rule 144 as currently in effect, an "affiliate" is entitled to sell, within any three-month period, that number of shares that does not exceed the greater of 1% of the outstanding shares or the average weekly trading volume of the then outstanding shares during the four calendar weeks preceding such sale. As defined in Rule 144, an "affiliate" of an issuer is a person that directly or indirectly controls, or is controlled by, or is under common control with such issuer. No prediction can be made as to the effect, if any, that future sales of shares, or the availability of shares for future sale, will have on the market price of the Common Stock prevailing from time to time. Sales of substantial amounts of Common Stock, or the perception that such sales could occur, could adversely affect prevailing market prices of the Common Stock. 45 47 UNDERWRITING Upon the terms and subject to the conditions stated in the Underwriting Agreement dated the date hereof, each Underwriter named below has severally agreed to purchase, and the Company and the Selling Stockholders have agreed to sell to such Underwriter, the number of shares of Common Stock set forth opposite the name of such Underwriter.
NUMBER OF UNDERWRITER SHARES ----------- --------- Smith Barney Inc. .......................................... ABN AMRO Chicago Corporation................................ Alex. Brown & Sons Incorporated............................. Credit Suisse First Boston Corporation...................... ---------- Total.................................................. 2,000,000 ==========
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 Common Stock offered hereby (other than those covered by the over-allotment option described below) if any such shares are taken. The Underwriters 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. After the initial public offering of the shares to the public, the public offering price and such concessions may be changed by the Representatives. The Company and one of the Selling Stockholders have granted to the Underwriters an option, exercisable for thirty days from the date of this Prospectus, to purchase up to 200,000 and 100,000 additional shares of Common Stock, respectively, 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, the Selling Stockholders and certain other stockholders of the Company designated by the Underwriters have agreed that, for a period of 90 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 Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock. The Company, the Selling Stockholders, and the Underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act of 1933. In connection with the Offering and pursuant to Regulation M under the Exchange Act, the Underwriters may engage in transactions that stabilize or maintain the market price of the Common Stock at levels above those which might otherwise prevail in the open market. Such stabilizing, if commenced, may be discontinued at any time. 46 48 VALIDITY OF SHARES The validity of the shares of Common Stock offered hereby and certain other legal matters will be passed upon for the Company by Mayer, Brown & Platt, Chicago, Illinois, special counsel to the Company. Certain legal matters relating to the Offering will be passed upon for the Selling Stockholders by Mayer, Brown & Platt, Chicago, Illinois, and for the Underwriters by Katten Muchin & Zavis, a partnership including professional corporations, Chicago, Illinois. EXPERTS The consolidated financial statements of the Company as of June 30, 1996 and 1995 and for each of the three years in the period ended June 30, 1996 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. 47 49 INDEX TO FINANCIAL STATEMENTS
PAGE ---- Report of Independent Accountants........................... F-2 Consolidated Balance Sheets................................. F-3 Consolidated Statements of Income........................... F-4 Consolidated Statements of Shareholders' Equity............. F-5 Consolidated Statements of Cash Flows....................... F-6 Notes to Consolidated Financial Statements.................. F-7
F-1 50 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of DeVry Inc. We have audited the accompanying consolidated balance sheets of DeVry Inc. and its subsidiaries as of June 30, 1996 and 1995, and the related consolidated statements of income, of shareholders' equity and of cash flows for each of the three years in the period ended June 30, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements audited by us present fairly, in all material respects, the financial position of DeVry Inc. and its subsidiaries at June 30, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended June 30, 1996, in conformity with generally accepted accounting principles. PRICE WATERHOUSE LLP Chicago, Illinois August 6, 1996, Except for Note 11 which is as of December 18, 1996 F-2 51 DEVRY INC. CONSOLIDATED BALANCE SHEETS (DOLLARS IN THOUSANDS) ASSETS
DECEMBER 31, JUNE 30, -------------------- -------------------- 1996 1995 1996 1995 -------- -------- -------- -------- (UNAUDITED) Current Assets: Cash and Cash Equivalents.......................... $ 27,543 $ 22,760 $ 29,948 $ 26,252 Restricted Cash.................................... 28,479 26,852 16,590 20,179 Accounts Receivable, Net........................... 28,438 23,629 9,684 6,189 Inventories........................................ 1,087 1,155 3,290 3,553 Prepaid Expenses and Other......................... 2,313 2,936 2,055 1,846 -------- -------- -------- -------- Total Current Assets........................ 87,860 77,332 61,567 58,019 Land, Buildings and Equipment: Land............................................... 18,722 18,952 18,956 18,952 Buildings.......................................... 50,101 40,492 50,570 39,399 Equipment.......................................... 58,639 47,109 51,198 43,390 Construction In Progress........................... 387 6,272 -- 1,337 -------- -------- -------- -------- 127,849 112,825 120,724 103,078 Accumulated Depreciation........................... (53,072) (45,062) (49,283) (42,820) -------- -------- -------- -------- Land, Buildings and Equipment, Net.......... 74,777 67,763 71,441 60,258 Other Assets: Intangible Assets, Net............................. 37,859 1,991 37,709 2,022 Perkins Program Fund, Net.......................... 5,885 4,951 5,483 4,522 Other Assets....................................... 1,764 1,777 1,889 1,850 -------- -------- -------- -------- Total Other Assets.......................... 45,508 8,719 45,081 8,394 -------- -------- -------- -------- TOTAL ASSETS......................................... $208,145 $153,814 $178,089 $126,671 ======== ======== ======== ======== LIABILITIES Current Liabilities: Accounts Payable................................... $ 16,164 $ 14,677 $ 18,859 $ 14,957 Accrued Salaries, Wages & Benefits................. 15,378 12,895 14,735 12,369 Accrued Expenses................................... 6,520 5,307 7,640 3,671 Advance Tuition Payments........................... 5,823 10,607 7,617 13,982 Deferred Tuition Revenue........................... 44,097 38,825 3,609 3,768 -------- -------- -------- -------- Total Current Liabilities................... 87,982 82,311 52,460 48,747 -------- -------- -------- -------- Other Liabilities: Revolving Loan..................................... 44,000 17,029 61,500 33,029 Deferred Income Tax Liability...................... 2,142 2,641 2,207 2,318 Deferred Rent and Other............................ 4,936 4,426 4,635 4,609 -------- -------- -------- -------- Total Other Liabilities..................... 51,078 24,096 68,342 39,956 -------- -------- -------- -------- TOTAL LIABILITIES.................................... 139,060 106,407 120,802 88,703 -------- -------- -------- -------- SHAREHOLDERS' EQUITY Common Stock, $0.01 par value, 75,000,000 Shares Authorized, 33,265,244, 33,235,304, 33,243,704 and 33,226,984 Shares Issued and Outstanding at December 31, 1996, December 31, 1995, June 30, 1996 and June 30, 1995, Respectively............. 333 333 333 333 Additional Paid-in Capital......................... 36,744 36,638 36,694 36,610 Retained Earnings.................................. 31,561 9,991 19,820 575 Cumulative Translation Adjustment.................. 447 445 440 450 -------- -------- -------- -------- TOTAL SHAREHOLDERS' EQUITY........................... 69,085 47,407 57,287 37,968 -------- -------- -------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........... $208,145 $153,814 $178,089 $126,671 ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-3 52 DEVRY INC. CONSOLIDATED STATEMENTS OF INCOME (DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE AMOUNTS)
FOR THE SIX MONTHS ENDED DECEMBER 31, FOR THE YEAR ENDED JUNE 30, ------------------- ------------------------------ 1996 1995 1996 1995 1994 -------- -------- -------- -------- -------- (UNAUDITED) REVENUES: Tuition................................. $135,508 $113,793 $236,607 $207,530 $191,205 Other Educational....................... 14,603 12,364 22,341 19,887 19,681 Interest................................ 400 622 1,059 1,176 551 -------- -------- -------- -------- -------- Total Revenues.................. 150,511 126,779 260,007 228,593 211,437 -------- -------- -------- -------- -------- COSTS AND EXPENSES: Cost of Educational Services............ 89,656 76,699 155,254 136,721 127,673 Student Services and Administrative Expense.............................. 39,866 33,362 70,992 63,043 58,146 Interest Expense........................ 1,691 567 1,063 3,070 4,615 -------- -------- -------- -------- -------- Total Costs and Expenses........ 131,213 110,628 227,309 202,834 190,434 -------- -------- -------- -------- -------- Income Before Income Taxes................ 19,298 16,151 32,698 25,759 21,003 Income Tax Provision...................... 7,557 6,735 13,453 10,863 8,778 -------- -------- -------- -------- -------- NET INCOME................................ $ 11,741 $ 9,416 $ 19,245 $ 14,896 $ 12,225 ======== ======== ======== ======== ======== EARNINGS PER COMMON SHARE................. $ 0.35 $ 0.28 $ 0.57 $ 0.45 $ 0.37 ======== ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated financial statements. F-4 53 DEVRY INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DOLLARS IN THOUSANDS)
FOR THE SIX MONTHS ENDED DECEMBER 31, FOR THE YEAR ENDED JUNE 30, ------------------ ----------------------------- 1996 1995 1996 1995 1994 ------- ------- ------- ------- ------- (UNAUDITED) Common Stock End of period........................ $ 333 $ 333 $ 333 $ 333 $ 333 ======= ======= ======= ======= ======= Additional Paid-In Capital Beginning of period.................. 36,694 36,610 36,610 36,563 36,557 Shares issued for exercise of stock options........................... 50 28 84 47 6 ------- ------- ------- ------- ------- End of period........................ 36,744 36,638 36,694 36,610 36,563 ======= ======= ======= ======= ======= Retained Earnings (Accumulated Deficit) Beginning of period.................. 19,820 575 575 (14,321) (26,546) Net income per accompanying statement......................... 11,741 9,416 19,245 14,896 12,225 ------- ------- ------- ------- ------- End of period........................ 31,561 9,991 19,820 575 (14,321) ======= ======= ======= ======= ======= Cumulative Translation Adjustment Beginning of period.................. 440 450 450 403 678 Translation Adjustment............... 7 (5) (10) 47 (275) ------- ------- ------- ------- ------- End of period........................ 447 445 440 450 403 ======= ======= ======= ======= ======= TOTAL SHAREHOLDERS' EQUITY, END OF PERIOD............................... $69,085 $47,407 $57,287 $37,968 $22,978 ======= ======= ======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements. F-5 54 DEVRY INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
FOR THE SIX MONTHS ENDED DECEMBER 31, FOR THE YEAR ENDED JUNE 30, -------------------- -------------------------------- 1996 1995 1996 1995 1994 -------- -------- -------- -------- -------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net Income.................................. $ 11,741 $ 9,416 $ 19,245 $ 14,896 $ 12,225 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation............................ 4,155 3,140 7,516 6,157 6,981 Amortization............................ 788 31 63 63 346 Provision for Refunds and Uncollectible Accounts............................. 9,356 8,186 16,130 12,810 14,101 Deferred Income Taxes................... 253 876 (456) 5,480 2,419 (Gain) Loss on Disposals of Land, Buildings and Equipment.............. (145) 21 19 (7) 338 Changes in Assets and Liabilities: Restricted Cash...................... (11,889) (6,673) 3,589 (9,130) (1,447) Accounts Receivable.................. (27,997) (25,498) (18,645) (11,746) (14,125) Inventories.......................... 2,203 2,398 263 (629) 34 Prepaid Expenses And Other........... (986) (396) (118) (128) 266 Perkins Program Fund Contribution and Other.............................. (515) (557) (1,188) (1,649) 1,717 Accounts Payable..................... (2,695) (280) 3,210 3,136 1,380 Accrued Salaries, Wages, Expenses and Benefits........................... (579) 805 6,239 667 3,601 Advance Tuition Payments............. (1,794) (3,375) (7,340) 7,943 1,010 Deferred Tuition Revenue............. 40,488 35,057 (159) 337 (441) -------- -------- -------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES... 22,384 23,151 28,368 28,200 28,405 -------- -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Capital Expenditures........................ (7,346) (10,666) (18,352) (14,551) (6,288) Acquisition of Net Assets (Note 2): Payment for Purchase of Operating Assets, Net of Cash Acquired.................... (16,930) Payment for Purchase of Intellectual Property................................ (17,935) -------- -------- -------- -------- -------- NET CASH USED IN INVESTING ACTIVITIES....... (7,346) (10,666) (53,217) (14,551) (6,288) -------- -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds From Exercise of Stock Options..... 50 28 84 47 6 Proceeds From Revolving Credit Facility..... 46,500 22,000 35,029 Repayments Under Revolving Credit Facility.................................. (17,500) (16,000) (18,029) (20,000) (4,000) Repayments of Debt.......................... (12,195) (43,517) -------- -------- -------- -------- -------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES................................ (17,450) (15,972) 28,555 (10,148) (12,482) -------- -------- -------- -------- -------- Effects of Exchange Rate Differences.......... 7 (5) (10) 47 (275) -------- -------- -------- -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................................. (2,405) (3,492) 3,696 3,548 9,360 Cash and Cash Equivalents at Beginning of Period...................................... 29,948 26,252 26,252 22,704 13,344 -------- -------- -------- -------- -------- Cash and Cash Equivalents at End of Period.... $ 27,543 $ 22,760 $ 29,948 $ 26,252 $ 22,704 ======== ======== ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest Paid During the Period............. $ 1,709 $ 802 $ 1,429 $ 3,367 $ 4,606 Income Taxes Paid During the Period......... $ 8,568 $ 7,183 13,902 7,080 4,607
The accompanying notes are an integral part of these consolidated financial statements. F-6 55 DEVRY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 1996 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS DeVry Inc. (the Company) is a holding company which, through its wholly owned subsidiaries, operates a national system of degree-granting, career-oriented higher-education schools and a leading international training firm. Keller Graduate School of Management, Inc. (KGSM), is one of the largest regionally accredited higher-education systems in North America. Its DeVry Institutes award associate and bachelor's degrees in electronics, computer information systems, business operations, accounting, technical management and telecommunications management. The DeVry Institutes are located on 10 campuses in the United States and four campuses in Canada. Keller Graduate School (Keller) awards master's degrees in business administration, human resource management and project management. Keller classes are offered at 18 locations in Illinois, Wisconsin, Missouri, Georgia, Arizona, California and Virginia. The Corporate Educational Services division offers on-site management and technical training programs for larger employers and government agencies. Becker CPA Review (Becker CPA), acquired June 19, 1996 (Note 2), is the leading international training firm preparing students to pass the Certified Public Accountant's (CPA) examination. Currently, the CPA exam review course is offered at approximately 135 locations in the United States and at eight international locations. Becker CPA also offers a Certified Management Accountant (CMA) examination review course in the United States. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. Becker CPA accounts are consolidated based upon an April 30 fiscal year end, which is its natural year end based on its business cycle. There were no events occurring during the intervening period before June 30, that materially effected the financial position or results of operations of the Company. Unless indicated, or the context requires otherwise, references to years refer to the Company's fiscal years then ended. CASH AND CASH EQUIVALENTS Cash and cash equivalents include time deposits, commercial paper, municipal bonds and bankers acceptances with maturities of three months or less or that are highly liquid and readily convertible to a known amount of cash. These investments are stated at cost, which approximates market, due to their short duration or liquid nature. The Company limits the amount of credit exposure with any one investment instrument or with any one financial institution. The Company evaluates the creditworthiness of the security issuers and financial institutions with which it invests. FINANCIAL AID AND RESTRICTED CASH The financial aid and assistance programs, in which most of the Company's students participate, are subject to political and budgetary considerations. There is no assurance that such funding will be maintained at current levels. Extensive and complex regulations in the U.S. and Canada govern all of the government financial assistance programs in which the Company's students participate. The Company's administration of these programs is periodically reviewed by various regulatory agencies. Any regulatory violation could be the basis for the initiation of a suspension, limitation or termination proceeding against the Company. A significant portion of revenues is provided by students who participate in government financial aid and assistance programs. Restricted cash represents amounts received from the U.S. government under various student aid grant and loan programs. The cash is held in separate bank accounts and does not become F-7 56 DEVRY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) available for general use by the Company until the financial aid is credited to the accounts of students and the cash is transferred to an operating cash account. REVENUE RECOGNITION Tuition revenue and provisions for refunds and uncollectible accounts are recognized ratably over each of the academic terms in a fiscal year. The provisions for refunds and uncollectible accounts are included in the cost of educational services in the Consolidated Statements of Income. Related reserves are $6,603,000 and $5,368,000 at June 30, 1996 and 1995, respectively. Textbook sales and other educational revenues are recognized when they occur. Revenue from training services is recognized when the training is provided. INVENTORIES Inventories consist mainly of textbooks, electronics kits and supplies held for sale to students enrolled in KGSM's educational programs. Inventories are valued at the lower of cost (first-in, first-out) or market. LAND, BUILDINGS AND EQUIPMENT Land, buildings and equipment are recorded at cost. Cost includes additions and those improvements that increase the capacity or lengthen the useful lives of the assets. Repairs and maintenance costs are expensed as incurred. Interest is capitalized as a component of cost on major projects during the construction period. The amount of interest capitalized for the years ended June 30, 1996 and 1995, was $314,000 and $101,000, respectively. Assets under construction are reflected in construction in progress until they are ready for their intended use. Depreciation is computed using the straight line method over estimated service lives ranging from three to 31 years. INTANGIBLE ASSETS Intangible assets relate to the acquired business operations of the DeVry Institutes and Becker CPA (Note 2). These assets consist of the purchase prices allocated to the estimated fair value of certain assets acquired (Note 3). Accumulated amortization is computed using the straight line method over the assets' estimated useful lives of 25 to 40 years. The Company expenses all marketing and new school opening costs as incurred. PERKINS PROGRAM FUND The Company makes contributions to the Perkins Student Loan Fund at a rate equal to 33% of that contributed by the federal government. As previous borrowers repay their Perkins loans, their payments are used to fund new loans thus creating a permanent revolving loan fund. The Company carries its investment in such contributions at original values net of allowances for losses on loan collections of $1,547,000 and $1,275,000 at June 30, 1996 and 1995, respectively. FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount reported in the Consolidated Balance Sheets for cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and advanced and deferred tuition payments approximate fair value because of the immediate or short-term maturity of these financial F-8 57 DEVRY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) instruments. The carrying amount reported for borrowings under the revolving loan agreement approximates fair value because the underlying instruments are variable-rate notes. FOREIGN CURRENCY TRANSLATION The financial position and results of operations of KGSM's Canadian subsidiary are measured using the local currency as the functional currency. Assets and liabilities of the foreign subsidiary are translated to U.S. dollars using exchange rates in effect at the balance sheet dates. Income and expense items are translated at monthly average rates of exchange prevailing during the year. The resultant translation adjustments are included in the component of shareholders' equity designated as Cumulative Translation Adjustment. Transaction gains or losses during the years ended June 30, 1996, 1995 and 1994, were insignificant. INCOME TAXES Income taxes are provided by applying statutory rates to income recognized for financial statement purposes. Deferred income taxes are provided for revenue and expense items that are recognized in different accounting periods for financial reporting purposes than for income tax purposes. Effects of statutory rate changes are recognized for financial reporting purposes in the year in which enacted by law. STOCK SPLIT On May 17, 1995, the Company's board of directors authorized a two-for-one stock split in the form of a 100% stock dividend payable on June 21, 1995, to shareholders of record on June 1, 1995. The par value of the additional shares arising from the split has been reclassified from retained earnings to common stock. In addition, all references in the financial statements to the number of shares outstanding, per share amounts, stock option data and market prices of the Company's common stock have been restated to reflect the stock split (Note 11). EARNINGS PER COMMON SHARE Earnings per common share are determined by dividing net earnings by the weighted average number of common and common share equivalents outstanding during the year after giving retroactive effect to the stock splits. Incentive stock options are included as common stock equivalents using the treasury stock method. The number of shares used in computing the net earnings per share was 33,661,000, 33,454,000 and 33,388,000 in 1996, 1995 and 1994, respectively. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. INTERIM FINANCIAL INFORMATION The interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. These financial statements are unaudited but, in the opinion of management, contain all adjustments, consisting only of normal, recurring adjustments, necessary to present fairly the financial condition and results of operations of the Company. F-9 58 DEVRY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) The results of operations for the six months ended December 31, 1996, are not necessarily indicative of results to be expected for the entire fiscal year. Certain reclassifications have been made to the December 1995 financial statements to conform with the June 1996 and December 1996 presentation. NOTE 2: ACQUISITION On June 19, 1996, a newly formed, wholly owned subsidiary of the Company acquired substantially all of the tangible operating assets and tradenames and assumed certain liabilities of Becker CPA for $18,458,000 in cash. On this same date, another newly formed, wholly owned subsidiary of the Company acquired certain copyrights, other intellectual property and publicity rights of Becker CPA for $17,935,000 in cash. Becker CPA is the leading international training firm preparing students to pass the nationally administered and centrally graded CPA exam, and it also offers a CMA exam review course. Funding for the acquisitions was obtained through borrowings under the Company's revolving credit facility (Note 5). The acquisitions have been accounted for under the purchase method of accounting. Accordingly, the purchase prices were allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values. The intangible assets are being amortized using the straight line method over a 25-year period for financial reporting purposes and are being deducted for tax reporting purposes over shorter statutory lives. The following unaudited pro forma financial information presents the results of operations of the Company and the acquired Becker CPA business as if the acquisitions had occurred at the beginning of each fiscal year. The pro forma information is based on historical results of operations and does not necessarily reflect the actual results that would have occurred, nor is it necessarily indicative of future results of operations of the combined enterprises (dollars in thousands except for per share amounts):
1996 1995 ----------- ----------- (UNAUDITED) (UNAUDITED) Net Sales........................................... $279,938 $248,386 Net Income.......................................... 19,375 15,035 Earnings Per Common Share........................... $ 0.58 $ 0.45
NOTE 3: INTANGIBLE ASSETS Intangible assets that were not fully amortized at June 30 consist of the following:
1996 1995 ----------- ----------- Trademarks......................................... $ 2,521,000 $2,521,000 Tradenames......................................... 17,465,000 -- Intellectual Property.............................. 17,425,000 -- Other.............................................. 860,000 -- ----------- ---------- 38,271,000 2,521,000 Accumulated Amortization........................... (562,000) (499,000) ----------- ---------- $37,709,000 $2,022,000 =========== ==========
F-10 59 DEVRY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 NOTE 4: INCOME TAXES The components of income (loss) before income taxes are as follows:
FOR THE YEAR ENDED JUNE 30, ----------------------------------------- 1996 1995 1994 ----------- ----------- ----------- U.S................................. $35,645,000 $23,323,000 $18,220,000 Foreign............................. (2,947,000) 2,436,000 2,783,000 ----------- ----------- ----------- Total............................... $32,698,000 $25,759,000 $21,003,000 =========== =========== ===========
The net income tax provisions (benefits) related to the above results are as follows:
FOR THE YEAR ENDED JUNE 30, ---------------------------------------- 1996 1995 1994 ----------- ----------- ---------- Current Tax Provision: U.S. Federal............................... $11,373,000 $ 3,141,000 $4,237,000 State and Local............................ 2,400,000 897,000 596,000 Foreign.................................... (776,000) 1,345,000 1,526,000 ----------- ----------- ---------- Total Current...................... 12,997,000 5,383,000 6,359,000 ----------- ----------- ---------- Deferred Tax Provision: U.S. Federal............................... 381,000 4,578,000 2,039,000 State and Local............................ 273,000 838,000 268,000 Foreign.................................... (198,000) 64,000 112,000 ----------- ----------- ---------- Total Deferred..................... 456,000 5,480,000 2,419,000 ----------- ----------- ---------- Net Income Tax Provision..................... $13,453,000 $10,863,000 $8,778,000 =========== =========== ==========
The income tax provisions differ from those computed using the statutory rate as a result of the following items:
FOR THE YEAR ENDED JUNE 30, ------------------------------------------------------------- 1996 1995 1994 ------------------ ------------------ ----------------- Expected Provision.......... $11,444,000 35.0% $ 9,016,000 35.0% $7,351,000 35.0% Higher Rates on Foreign Operations................ (312,000) (1.0) 323,000 1.3 308,000 1.5 State Income Taxes.......... 1,767,000 5.4 1,123,000 4.4 875,000 4.1 Other....................... 554,000 1.7 401,000 1.5 244,000 1.2 ----------- ---- ----------- ---- ---------- ---- Income Tax Provision........ $13,453,000 41.1% $10,863,000 42.2% $8,778,000 41.8% =========== ==== =========== ==== ========== ====
F-11 60 DEVRY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 NOTE 4: INCOME TAXES (CONTINUED) Deferred income tax assets (liabilities) result primarily from the recognition of the tax benefits of net operating loss carryforwards and from temporary differences in the recognition of various expenses for tax and financial statement purposes. These assets and liabilities are composed of the following:
FOR THE YEAR ENDED JUNE 30, ----------------------------------------- 1996 1995 1994 ----------- ----------- ----------- Loss Carryforwards.......................... $ -- $ 829,000 $ 5,038,000 Employee Benefits........................... 1,207,000 1,187,000 1,027,000 Tax Credits................................. -- 47,000 92,000 Rental and Occupancy........................ 762,000 787,000 609,000 Receivable Reserves and Other............... 2,953,000 1,608,000 1,943,000 ----------- ----------- ----------- Gross Deferred Tax Assets................. 4,922,000 4,458,000 8,709,000 ----------- ----------- ----------- Depreciation and Other...................... (4,837,000) (5,014,000) (3,970,000) Amortization................................ (1,176,000) (991,000) (806,000) ----------- ----------- ----------- Gross Deferred Tax Liabilities............ (6,013,000) (6,005,000) (4,776,000) ----------- ----------- ----------- Net Deferred Taxes.......................... $(1,091,000) $(1,547,000) $ 3,933,000 =========== =========== ===========
Based on the Company's history of operating earnings and its expectations for the future, management believes that operating income will more than likely be sufficient to recognize fully all deferred tax assets. Deferred income tax provisions (benefits) result primarily from temporary differences in the recognition of various expenses for tax and financial statement purposes. The sources and tax effects of these differences are as follows:
FOR THE YEAR ENDED JUNE 30, -------------------------------------- 1996 1995 1994 --------- ---------- ----------- Realization of Operating Loss Carryforwards....................... $ 829,000 $4,220,000 $ 4,497,000 Excess (Tax) Book Depreciation and Amortization........................ (266,000) 87,000 (339,000) Excess of Amounts Expensed for (Book) Tax Purposes Over Amounts Deductible for Book (Tax) Purposes............. (159,000) 973,000 (1,739,000) Other, Net............................ 52,000 200,000 -- --------- ---------- ----------- Deferred Tax Provision................ $ 456,000 $5,480,000 $ 2,419,000 ========= ========== ===========
NOTE 5: REVOLVING LOAN AGREEMENT All of the Company's borrowings and letters of credit under its revolving loan agreement are through its operating subsidiary, KGSM. This agreement consists of a revolving credit and letter of credit facility, which is available to KGSM in an aggregate amount not to exceed $85,000,000. This agreement was amended in June 1996 to permit the acquisition of Becker CPA (Note 2), increase the borrowing limits, extend its term and provide for reduced interest rates upon the achievement of certain financial ratios. All borrowings and letters of credit under the revolving loan agreement now mature in August 1999, and there are no required installment payments. Outstanding borrowings under the revolving loan agreement are $61,500,000 and $33,029,000 at June 30, 1996 and 1995, respectively. There is also a $1,460,000 letter of credit outstanding under this agreement at June 30, 1996. Outstanding borrowings under the revolving loan agreement bear interest, payable quarterly, at either the prime rate or a Eurodollar rate plus 0.75%, at the option of KGSM. F-12 61 DEVRY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 NOTE 5: REVOLVING LOAN AGREEMENT (CONTINUED) Upon achieving certain financial ratios included in the June 1996 amendment, the interest rate can be reduced to a Eurodollar rate plus 0.35%. The effective interest rate on outstanding borrowings at June 30, 1996, was 6.84%. Outstanding letters of credit under the revolving loan agreement are charged an annual fee equal to 0.75% of the undrawn face amount of the letter of credit, payable quarterly. The bank financing agreement contains certain covenants that, among other things, limit capital expenditure to $25,000,000 annually and require maintenance of certain financial ratios as defined in the agreement. None of these covenants negatively impacts the Company's liquidity or capital resources. In June 1995, the Company voluntarily prepaid the entire $7,870,000 remaining balance of its senior subordinated notes. On December 1, 1994, in conjunction with the scheduled principal payment on this date, the Company made a voluntary prepayment of $775,000. These senior subordinated notes bore interest at a rate of 13% per annum and were subordinate to the revolving credit facility. NOTE 6: EMPLOYEE BENEFIT PLANS PROFIT SHARING RETIREMENT PLAN All employees who meet certain eligibility requirements can participate in KGSM's 401(k) Profit Sharing Retirement Plan. KGSM contributes to the plan an amount equal to 1.5% of the total eligible compensation of employees who make contributions under the plan. KGSM's matching contributions under the plan were approximately $765,000, $636,000 and $608,000 in 1996, 1995 and 1994, respectively. In addition, the Company's board of directors may also make discretionary contributions for the benefit of all eligible employees. Provisions for discretionary contributions under the plan were approximately $1,924,000, $1,566,000 and $1,413,000 in 1996, 1995 and 1994, respectively. EMPLOYEE STOCK PURCHASE PLAN Effective August 1, 1993, the Company established the DeVry Inc. Employee Stock Purchase Plan. The Plan stipulates that any eligible employee may authorize the Company to withhold up to $25,000 of annual earnings to purchase common stock of the Company on the open market at 100% of the prevailing market price. The Company pays all brokerage commissions and administrative fees associated with the Plan. These expenses were insignificant for the years ended June 30, 1996, 1995 and 1994. NOTE 7: STOCK OPTION PLANS The Company maintains three stock option plans: the Amended and Restated Stock Incentive Plan, established in 1988, the 1991 Stock Incentive Plan and the 1994 Stock Incentive Plan. Under these Plans, directors, key executives and managerial employees are eligible to receive incentive stock or nonqualified options to purchase shares of the Company's common stock. The Amended and Restated Stock Incentive Plan and the 1994 Stock Incentive Plan are administered by a Plan Committee of the board of directors. Plan Committee members will be granted automatic, nondiscretionary annual options. The 1991 Stock Incentive Plan is administered by the board of directors. Options under all three Plans are granted for terms of up to 10 years and vest over periods of one to five years. The option price under the Plans is the fair market value of the shares on the date of the grant. F-13 62 DEVRY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 NOTE 7: STOCK OPTION PLANS (CONTINUED) Share status of each of these plans at June 30, 1996, was as follows:
AVAILABLE FOR RESERVED FOR FUTURE AUTHORIZED ISSUANCE GRANT ---------- ------------ ------------- Stock Incentive Plan..................... 400,000 369,200 6,800 1991 Stock Incentive Plan................ 400,000 398,080 122,200 1994 Stock Incentive Plan................ 800,000 796,000 716,000
Activity during the three years ended June 30, 1996, with respect to options under these plans, was as follows:
SHARES OPTION PRICES ------- -------------- Under Option at June 30, 1993....................... 244,000 0.79 - 5.09 Options Exercised................................. (3,600) 1.75 Options Canceled.................................. (4,000) 6.56 Options Granted................................... 130,800 6.56 - 6.94 Under Option at June 30, 1994....................... 367,200 0.79 - 6.94 Options Exercised................................. (14,000) 1.75 - 6.56 Options Canceled.................................. (15,200) 1.75 - 6.56 Options Granted................................... 285,000 6.47 - 7.38 Under Option at June 30, 1995....................... 623,000 0.79 - 7.38 Options Exercised................................. (16,720) 1.75 - 7.38 Options Canceled.................................. (21,100) 6.47 - 10.88 Options Granted................................... 133,100 10.88 - 12.56 Under Option at June 30, 1996....................... 718,280 0.79 - 12.56 Exercisable at June 30, 1996...................... 302,080 0.79 - 7.38
NOTE 8: COMMITMENTS AND CONTINGENCIES KGSM and Becker CPA lease certain equipment and facilities under non-cancelable operating leases, some of which contain renewal options, escalation clauses and requirements to pay taxes, insurance and maintenance costs. Future minimum rental commitments for all non-cancelable operating leases having a remaining term in excess of one year at June 30, 1996, are as follows:
AS OF AS OF YEAR ENDED JUNE 30, JUNE 30, 1996 DECEMBER 31, 1996 ------------------- ------------- ----------------- (UNAUDITED) 1997.......................................... $12,410,000 $12,490,000 1998.......................................... 11,740,000 12,780,000 1999.......................................... 10,580,000 12,540,000 2000.......................................... 9,480,000 11,440,000 2001.......................................... 9,360,000 11,320,000 Thereafter...................................... 56,170,000 81,850,000
The Company recognizes rent expense on a straight-line basis over the term of the lease, although the lease may include escalation clauses that provide for lower rent payments at the start of the lease term and higher lease payments at the end of the lease term. F-14 63 DEVRY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 NOTE 8: COMMITMENTS AND CONTINGENCIES (CONTINUED) Rent expenses for the years ended June 30, 1996, 1995 and 1994, were $13,879,000, $12,553,000 and $9,611,000, respectively. The Company is subject to occasional lawsuits, investigations and claims arising out of the normal conduct of its business. Neither the Company nor any of its subsidiaries is currently a party to any material legal action except those described below. In July 1996, the Company entered into an out-of-court settlement agreement with the Internal Revenue Service (IRS) relative to the Statutory Notice of Deficiency issued by the IRS against the Company for tax years 1988 through 1991. The claimed deficiencies related to the amortization of intangible assets purchased during the acquisition of the DeVry Institutes in 1987 (Notes 1 and 3). All of these issues have been resolved as a result of the settlement. The settlement amount is immaterial to the Company's financial position, results of operations and liquidity. During 1996, the Ontario Ministry of Education and Training temporarily suspended and conditionally reinstated the processing of financial aid applications for students attending the Company's Toronto-area schools. Full unconditional reinstatement is subject to the Ministry's completion of certain procedures regarding verification of the Company's compliance with financial aid processing regulations. In July 1996, the Company was served with a class action lawsuit in Canada alleging misrepresentation about the quality of the DeVry Institutes' educational programs. The Company believes that the claims in the lawsuit are frivolous and without merit. In response to the lawsuit, the Company has filed a Statement of Defense and intends to vigorously contest the allegations. Although the outcome cannot be predicted with certainty, the Company believes the resolution of this matter will not have a material effect on the Company's financial position, results of operations or liquidity. NOTE 9: OPERATIONS BY GEOGRAPHIC AREA The Company operates in a single industry segment as a provider of educational services. The Company conducts its educational operations in the United States and Canada. Revenues, income before interest and taxes, and identifiable assets by geographic area are as follows:
FOR THE YEAR ENDED JUNE 30, -------------------------------------------- 1996 1995 1994 ------------ ------------ ------------ Revenues: U.S.................................... $234,180,000 $205,424,000 $192,842,000 Foreign................................ 25,827,000 23,169,000 18,595,000 Income Before Interest and Taxes: U.S.................................... 36,708,000 26,393,000 22,835,000 Foreign................................ (2,947,000) 2,436,000 2,783,000 Identifiable Assets: U.S.................................... 170,828,000 119,160,000 100,080,000 Foreign................................ 7,261,000 7,511,000 6,718,000
F-15 64 DEVRY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JUNE 30, 1996 NOTE 10: QUARTERLY FINANCIAL DATA (UNAUDITED) Summarized unaudited quarterly data for the years ended June 30, 1996 and 1995, are as follows (dollars in thousands, except for per share amounts):
QUARTER ------------------------------------- TOTAL FIRST SECOND THIRD FOURTH YEAR ------- ------- ------- ------- -------- 1996 Revenues.............................. $59,839 $66,940 $68,412 $64,816 $260,007 Income Before Interest and Taxes...... 7,382 9,336 8,822 8,221 33,761 Net Income............................ 4,031 5,385 5,062 4,767 19,245 ------- ------- ------- ------- -------- Earnings Per Common Share............. .12 .16 .15 .14 .57 ======= ======= ======= ======= ========
QUARTER ------------------------------------- TOTAL FIRST SECOND THIRD FOURTH YEAR ------- ------- ------- ------- -------- 1995 Revenues.............................. $51,955 $59,299 $59,739 $57,600 $228,593 Income Before Interest and Taxes...... 5,770 8,198 7,652 7,209 28,829 Net Income............................ 2,932 4,343 4,098 3,523 14,896 ------- ------- ------- ------- -------- Earnings Per Common Share............. .09 .13 .12 .11 .45 ======= ======= ======= ======= ========
NOTE 11: SUBSEQUENT EVENT On November 19, 1996, the Company's board of directors authorized a two-for-one stock split in the form of a 100% stock dividend payable on December 18, 1996, to shareholders of record on December 2, 1996. The par value of the additional shares arising from the splits has been reclassified from retained earnings to common stock. In addition, all references in the financial statements to the number of shares outstanding, per share amounts, stock option data and market prices of the Company's common stock have been restated to reflect the stock split. F-16 65 ==================================================== NO DEALER, SALESMAN 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, ANY SELLING STOCKHOLDER 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 ---- Available Information................ 2 Incorporation of Certain Documents by Reference.......................... 2 Prospectus Summary................... 3 Risk Factors......................... 6 Use of Proceeds...................... 10 Price Range of Common Stock and Dividend Policy.................... 10 Capitalization....................... 11 Selected Consolidated Financial Data............................... 12 Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 13 Business............................. 19 Management and Directors............. 39 Principal and Selling Stockholders... 41 Description of Capital Stock......... 43 Shares Eligible for Future Sale...... 45 Underwriting......................... 46 Validity of Shares................... 47 Experts.............................. 47 Index to Financial Statements........ F-1
==================================================== ==================================================== 2,000,000 SHARES DEVRY INC. COMMON STOCK DEVRY LOGO ------------ P R O S P E C T U S MARCH , 1997 ------------ SMITH BARNEY INC. ABN AMRO CHICAGO CORPORATION ALEX. BROWN & SONS INCORPORATED CREDIT SUISSE FIRST BOSTON ====================================================== 66 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following are the estimated expenses in connection with the distribution of the securities being registered: Securities and Exchange Commission Registration Fee......... $ 17,250 Accounting Fees and Expenses................................ 30,000 Attorneys' Fees and Expenses................................ 75,000 NASD Filing Fee............................................. 6,193 Printing and Engraving Expenses............................. 111,557 Listing Fees................................................ 5,000 Miscellaneous............................................... 5,000 -------- Total.................................................. $250,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS (a) The Delaware General Corporation Law ("Delaware GCL") (Section 145) gives Delaware corporations broad powers to indemnify their present and former directors and officers and those of affiliated corporations against expenses incurred in the defense of any lawsuit to which they are made parties by reason of being or having been such directors or officers, subject to specified conditions and exclusions, gives a director or officer who successfully defends an action the right to be so indemnified, and authorizes the Registrant to buy directors' and officers' liability insurance. Such indemnification is not exclusive of any other rights to which those indemnified may be entitled under any by-laws, agreement, vote of stockholders or otherwise. (b) Article Ninth of the Certificate of Incorporation of the Registrant permits, and Article Ninth of the By-Laws of the Registrant provides for, indemnification of directors, officers, employees and agents to the fullest extent permitted by law. (c) In accordance with Section 102(b)(7) of the Delaware GCL, the Registrant's Certificate of Incorporation provides that directors shall not be personally liable for monetary damages for breaches of their fiduciary duty as directors except for (1) breaches of their duty of loyalty to the Registrant or its stockholders, (2) acts or omissions not in good faith or which involve intentional misconduct or knowing violations of law, (3) under Section 174 of the Delaware GCL (unlawful payment of dividends) or (4) transactions from which a director derives an improper personal benefit. (d) [Provisions of Underwriting Agreements] ITEM 16. EXHIBITS A list of the exhibits included as part of this Registration Statement is set forth in the Exhibit Index which immediately precedes such exhibits and which is incorporated herein by reference. ITEM 17. UNDERTAKINGS The undersigned Registrant hereby undertakes that: (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 shall be deemed to be part of this registration statement as of the time it was declared effective. II-1 67 (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by reference in this 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. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referred to in Item 15, 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 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-2 68 SIGNATURES Pursuant to the requirements of the Securities Act, the Company certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Oakbrook Terrace and State of Illinois on the 27th day of February, 1997. DeVRY INC. By: /s/ DENNIS J. KELLER ------------------------------------------ Dennis J. Keller Chairman of the Board and Chief Executive Officer POWER OF ATTORNEY Each person whose signature appears below hereby constitutes and appoints Dennis J. Keller, Ronald L. Taylor and Marilynn J. Cason and each of them, the true and lawful attorneys-in-fact and agents of the undersigned, with full power of substitution and resubstitution, for and in the name, place and stead of the undersigned, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, and hereby grants to such 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, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities indicated on the 27th day of February, 1997.
SIGNATURE TITLE --------- ----- /s/ DENNIS J. KELLER Chairman of the Board and Chief Executive - --------------------------------------------------- Officer Dennis J. Keller /s/ RONALD L. TAYLOR Director, President and Chief Operating - --------------------------------------------------- Officer Ronald L. Taylor /s/ NORMAN M. LEVINE Vice President, Controller and Chief Financial - --------------------------------------------------- Officer (principal financial officer and Norman M. Levine principal accounting officer) /s/ CHARLES A. BOWSHER Director - --------------------------------------------------- Charles A. Bowsher
II-3 69
SIGNATURE TITLE --------- ----- /s/ DAVID S. BROWN Director - --------------------------------------------------- David S. Brown /s/ ANN IDA GANNON Director - --------------------------------------------------- Ann Ida Gannon, BVM /s/ ROBERT E. KING Director - --------------------------------------------------- Robert E. King /s/ FREDERICK A. KREHBIEL Director - --------------------------------------------------- Frederick A. Krehbiel /s/ THURSTON E. MANNING Director - --------------------------------------------------- Thurston E. Manning /s/ ROBERT C. MCCORMACK Director - --------------------------------------------------- Robert C. McCormack /s/ JULIE A. MCGEE Director - --------------------------------------------------- Julie A. McGee /s/ HUGO J. MELVOIN Director - --------------------------------------------------- Hugo J. Melvoin /s/ EWEN M. AKIN Director - --------------------------------------------------- Ewen M. Akin
II-4 70 EXHIBIT INDEX
EXHIBIT SEQUENTIAL NUMBER DESCRIPTION PAGE NO. - ------- ----------- ---------- 1.1 Underwriting Agreement...................................... 3.1 Restated Certificate of Incorporation of the Company, as amended..................................................... 5.1 Opinion of Mayer, Brown & Platt............................. 10.1 Amended and Restated DeVRY INC. Stock Incentive Plan........ 10.2 Amended and Restated DeVRY INC. 1994 Stock Incentive Plan... 10.3 Amended and Restated DeVRY INC. 1991 Stock Incentive Plan... 23.1 Consent of Mayer, Brown & Platt (included in their opinion filed as Exhibit 5.1 hereto)......................................... 23.2 Consent of Price Waterhouse LLP............................. 24.1 Powers of Attorney (included on the signature page of this registration statement).....................................
EX-1.1 2 UNDERWRITING AGREEMENT 1 EXHIBIT 1.1 2,000,000 Shares DEVRY INC. Common Stock UNDERWRITING AGREEMENT March , 1997 [Subject to Negotiation] SMITH BARNEY INC. CREDIT SUISSE FIRST BOSTON CORPORATION ABN AMRO CHICAGO CORPORATION ALEX. BROWN & SONS INCORPORATED As Representatives of the Several Underwriters c/o SMITH BARNEY INC. 388 Greenwich Street New York, New York 10013 Dear Sirs: DEVRY INC., a Delaware corporation (the "Company"), proposes to issue and sell an aggregate of 1,000,000 shares of its common stock, $0.01 par value per share, to the several Underwriters named in Schedule II hereto (the "Underwriters"), and the persons named in Part A of Schedule I hereto (the "Selling Stockholders") propose to sell to the several Underwriters an aggregate of 1,000,000 shares of common stock of the Company. The Company and the Selling Stockholders are hereinafter sometimes referred to as the "Sellers". The Company's common stock, $0.01 par value, is hereinafter referred to as the "Common Stock" and the 1,000,000 shares of Common Stock to be issued and sold to the Underwriters by the Company and the 1,000,000 shares of Common Stock to be sold to the Underwriters by the Selling Stockholders are hereinafter referred to as the "Firm Shares". The Company and the Selling Stockholder listed in Part B of Schedule I hereto also propose to sell to the Underwriters, upon the terms and conditions set forth in Section 2 hereof, up to an additional 300,000 shares (the "Additional Shares") of Common Stock. The Firm Shares and the Additional Shares are hereinafter collectively referred to as the "Shares". The Company and the Selling Stockholders wish 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. 2 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 and all information omitted therefrom in reliance on Rule 430A under the Act and contained in the Prospectus referred to below), as amended at the 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. If the Company files with the Commission an additional registration statement relating to a portion of the Shares pursuant to Rule 462(b) under the Act (a "462(b) Registration Statement"), any reference in this Agreement to the Registration Statement shall be deemed to include such 462(b) Registration Statement. 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, the Company hereby agrees, subject to all the terms and conditions set forth herein, to issue and sell to each Underwriter and, upon the basis 2 3 of the representations, warranties and agreements of the Company and the Selling Stockholders herein contained and subject to all the terms and conditions set forth herein, each Underwriter agrees, severally and not jointly, to purchase from the Company, at a purchase price of $_____ per Share (the "purchase price per share"), the number of Firm Shares which bears the same proportion to the aggregate number of Firm Shares to be issued and sold by the Company 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 Company and the Selling Stockholders. Subject to such adjustments as you may determine in order to avoid fractional shares, each Selling Stockholder 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 Stockholders herein contained and subject to all the terms and conditions set forth herein, each Underwriter, severally and not jointly, agrees to purchase from each Selling Stockholder at 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 Stockholder 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 Company and the Selling Stockholders. The Company and the Selling Stockholder listed in 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 Stockholders herein contained and subject to all the terms and conditions set forth herein, the Underwriters shall have the right to purchase from the Company and the Selling Stockholder listed in 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 200,000 Additional Shares from the Company and up to an aggregate of 100,000 shares from the Selling Stockholder listed in Part B of Schedule I hereto. 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 the Company and by the Selling Stockholder who has agreed to sell Additional Shares in proportion to the respective maximum numbers of Additional Shares which the Company and the Selling Stockholder has agreed to sell. Upon any exercise of the over-allotment option, each Underwriter, severally and not jointly, agrees to purchase from the Company and the Selling Stockholder who has agreed to sell Additional Shares 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 3 4 of Additional Shares to be sold by the Company and the Selling Stockholder 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 Company and the Selling Stockholders. Certificates in transferable form for the Shares (including any Additional Shares) which each of the Selling Stockholders agrees to sell pursuant to this Agreement have been placed in custody with (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 Stockholders appointing and as agents and attorneys-in-fact (the "Attorneys-in-Fact"). Each Selling Stockholder 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 Stockholder, (ii) the arrangements made by the Selling Stockholders for such custody are, except as specifically provided in the Custody Agreement, irrevocable, and (iii) the obligations of the Selling Stockholders hereunder and under the Custody Agreement shall not be terminated by any act of such Selling Stockholder or by operation of law, whether by the death or incapacity of any Selling Stockholder or the occurrence of any other event. If any Selling Stockholder 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 Stockholder shall be delivered to the Underwriters by the Attorneys-in-Fact in accordance with the terms and conditions of this 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 Stockholders, 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 Stockholder, 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 Stockholder in connection with the sale and public offering of such Shares, to distribute the balance thereof to such Selling Stockholder, 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. The Sellers have been advised by you that the Underwriters propose to make a public offering of their respective portions of the Shares as soon after the Registration Statement and this Agreement have become effective as in your judgment is advisable and initially 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 Smith Barney Inc., 388 Greenwich Street, New York, NY 10013, at 10:00 A.M., New York City time, on , 1997 (the "Closing Date"). The place of closing for the Firm Shares and the Closing Date may be varied by agreement among you, the Company and the Attorneys-in-Fact. 4 5 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 Smith Barney Inc. 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 two 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 Company and the Attorneys-in-Fact 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 9:30 A.M., New York City time, on the second 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 therefor in immediately available funds. 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 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 5 6 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) five signed copies of the registration statement (including any 462(b) 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 (including any 462(b) 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) five 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 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, 6 7 becomes an 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 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 (i) as soon as available, a copy of each report of the Company mailed to stockholders or filed with the Commission, and (ii) from time to time such other information concerning the Company as you may 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 Stockholders to comply with the terms or fulfill any of the conditions of this Agreement, the Company agrees 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) The Company will apply the net proceeds from the sale of the Shares to be sold by it hereunder substantially in accordance with the description set forth in the Prospectus. 7 8 (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) If an additional registration statement is required to register a portion of the Shares under the Act, the Company will file with the Commission a 462(b) Registration Statement with respect to such Shares not later than 10:00 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. (n) Except as provided in this Agreement, the Company will not sell, contract to sell or otherwise dispose of any Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock, or grant any options or warrants to purchase Common Stock, for a period of 90 days after the date of the Prospectus, without the prior written consent of Smith Barney Inc.. (o) 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 and each of its stockholders designated by you. (p) 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 manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. (q) The Company will use its best efforts to have the shares of Common Stock which it agrees to sell under this Agreement listed, subject to notice of issuance, on the New York Stock Exchange on or before the Closing Date. 6. Agreements of the Selling Stockholders. Each of the Selling Stockholders agrees with the several Underwriters as follows: (a) Such Selling Stockholder 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 Stockholder will pay all Federal and other taxes, if any on the transfer or sale of the Shares being sold by the Selling Stockholder to the Underwriters. (c) Such Selling Stockholder will do or perform all things required to be done or performed by the Selling Stockholder 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. 8 9 (d) Such Selling Stockholder has executed or will execute a "lock-up" letter as provided in Section 5(n) above and 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 90 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 Stockholder 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 Stockholder 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 Stockholder 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 Stockholder 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 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, complied or will comply in all material respects with the provisions of the Act and 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 9 10 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, 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 Common Stock of the Company have been duly authorized and validly issued, are fully paid and nonassessable and are free of any preemptive or similar rights; the Shares to be issued and sold by the Company have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free 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 Delaware 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 subsidiaries (collectively, the "Subsidiaries") are listed in an exhibit to the Company's Annual Report on Form 10-K which is incorporated by reference into the Registration Statement. 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 10 11 (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 the Prospectus or to be filed as an exhibit to 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 violation of its certificate or articles of incorporation or by-laws, or other organizational documents, or 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 the Subsidiaries, or in default in any material respect in the performance of any 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 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 issuance and 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) 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 breach of, or a 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, or violates or will violate any statute, law, regulation or 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. 11 12 (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 as required by the Act. (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. (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), 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), 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 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 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. 12 13 (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 has such permits, licenses, franchises and authorizations of governmental or regulatory authorities ("permits"), including, without limitation, all permits required for participation in federal financial aid programs under Title IV of the Higher Education Act of 1965, as amended ("Title IV Programs"), 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 which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material 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, other than the Selling Stockholders, has any right (other than rights that have been validly waived) to require registration of shares of 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. 13 14 (u) The Company and the Subsidiaries own or possess all patents, trademarks, trademark registration, 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) Except as described in the Prospectus, the Company and the Subsidiaries are duly qualified under and in full compliance with all applicable laws and regulations in each jurisdiction in which such entity participates in student financial aid programs, with such exceptions that would not and could not be expected, individually or in the aggregate, to 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, and no proceedings for the suspension, limitation or termination of any such entity's' participation in such financial aid programs have been initiated or, to the Company's knowledge, threatened by any United States or state regulatory agency or by any Canadian or provincial regulatory agency. (w) Except as described in the Prospectus, the Company has no knowledge that the student loan default rate of any educational institution operated by the Company and the Subsidiaries is in excess of 20%, and the Company has no knowledge of any existing or threatened restriction or termination of any such institution's participation in the student loan programs administered by the U.S. Department of Education. (x) Except as described in the Prospectus, each of the Company and the Subsidiaries (including any individual institution within any such entity) meets all fiscal tests and/or bonding requirements imposed by applicable United States federal and state and Canadian federal and provincial regulatory authorities. (y) The Company and the Subsidiaries possess the accreditations set forth in the Prospectus, and the Company has no knowledge of any threatened review, suspension or termination of such accreditations other than such reviews as may occur in the ordinary course in connection with the periodic renewal of such accreditations. (z) The Company has complied with all provisions of Florida Statutes, '517.075, relating to issuers doing business with Cuba. 8. Representations and Warranties of the Selling Stockholders. Each Selling Stockholder represents and warrants to each Underwriter that: (a) Such Selling Stockholder 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 Stockholder, free and clear of any lien, claim, security interest or other encumbrance, including, without limitation, any restriction on transfer. 14 15 (b) Such Selling Stockholder 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 Stockholder and are the valid and binding agreements of such Selling Stockholder enforceable against such Selling Stockholder in accordance with their terms. (d) Neither the execution and delivery of this Agreement or the Custody Agreement by or on behalf of such Selling Stockholder nor the consummation of the transactions herein or therein contemplated by or on behalf of such Selling Stockholder 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 and the Exchange 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 Stockholder is a party or by which such Selling Stockholder is or may be bound or to which any of such Selling Stockholder's property or assets is subject, or any statute, law, rule, regulation, ruling, judgment, injunction, order or decree applicable to such Selling Stockholder or to any property or assets of such Selling Stockholder. (e) The Registration Statement and the Prospectus, insofar as they relate to such Selling Stockholder, 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 Stockholder 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 Stockholder in the Custody Agreement are, and on the Closing Date and any Option Closing Date will be, true and correct. (h) Such Selling Stockholder 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 Common Stock to facilitate the sale or resale of the Shares, except for the lock-up arrangements described in the Prospectus. 15 16 9. Indemnification and Contribution. (a) The Company and each of Dennis J. Keller and Ronald L. Taylor (collectively, the "Indemnifying Selling Stockholders"), jointly and severally, agree 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 Indemnifying Selling Stockholder 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 Indemnifying Selling Stockholder, 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 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 16 17 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 of the Selling Stockholders who are not Indemnifying Seller Stockholders (collectively, the "Non-Indemnifying Selling Stockholders") agrees, severally and not jointly, 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, the Company, its directors, its officers who sign the Registration Statement, 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 Indemnifying Stockholders to each Underwriter, but only with respect to the information furnished in writing by or on behalf of such Non-Indemnifying Selling Stockholder 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 any Underwriter, any such controlling person of any Underwriter, the Company, any of its directors, any such officer, or any such controlling person of the Company, 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 Non-Indemnifying Selling Stockholder pursuant to this paragraph (c), such Non-Indemnifying Selling Stockholder 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 Non-Indemnifying Selling Stockholder 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 Non-Indemnifying Selling Stockholder's expense), and each Underwriter, each such controlling person of any Underwriter, the Company, its directors, any such officer, and any such controlling person of the Company shall have 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 Non- Indemnifying Selling Stockholder may otherwise have. 17 18 (d) 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 Stockholder, 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 Stockholders 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 Stockholder, 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, the Selling Stockholders, and any such controlling person shall have 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. (e) If the indemnification provided for in this Section 9 is unavailable to an indemnified party under paragraphs (a) or (c) 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 Stockholders 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 Stockholders 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 Stockholders 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 Stockholders 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 Stockholders or the Underwriters from the offering of the Shares shall include the net proceeds (before deducting expenses) received by the Company and the Selling Stockholders, 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 18 19 notes to the table on the cover page of the Prospectus. The relative fault of the Company and the Selling Stockholders 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 Stockholders 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. (f) The Company, the Selling Stockholders 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 (d) 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 (d) 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 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. (g) 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. (h) 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 Stockholders 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 Stockholders 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 19 20 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. (i) Notwithstanding any other provision of this Section 9, the total liability of any Selling Stockholder for indemnification or contribution under this Section 9 shall not exceed an amount equal to the number of Shares sold by such Selling Stockholder hereunder multiplied by the purchase price per share set forth in Section 2 hereof. 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; if an additional registration statement is required to register a portion of the Shares under the Act, a 462(b) Registration Statement with respect to such Shares shall have been filed with the Commission and become effective not later than 10:00 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; 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 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 Stockholder 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 Mayer, Brown & Platt, counsel for the Company and the Selling Stockholders, 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 Delaware with full corporate power and authority to own, lease and operate its properties and to conduct its business as described in the 20 21 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 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; (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 prior to the issuance of the Shares to be issued and sold by the Company hereunder, have been duly authorized and validly issued, and are fully paid and nonassessable; (v) The Shares to be issued and sold to the Underwriters by the Company hereunder have been duly authorized and, when issued and delivered to the Underwriters against payment therefor in accordance with the terms hereof, will be validly issued, fully paid and nonassessable and free of any preemptive, or to the best knowledge of such counsel after reasonable inquiry, similar rights that entitle or will entitle any person to acquire any Shares upon the issuance thereof by the Company; (vi) The form of certificates for the Shares conforms to the requirements of the Delaware General Corporation Law; (vii) 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); 21 22 (viii) The Company has corporate power and authority to enter into this Agreement and to issue, sell and deliver the Shares to be sold by it to the Underwriters as provided herein, and this Agreement has been duly authorized, executed and delivered by the Company and is 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; (ix) 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, except as may be disclosed in the Prospectus; (x) Neither the offer, sale or delivery of the Shares, 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 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 (assuming compliance with all applicable state securities and Blue Sky laws), judgment, injunction, order or decree known to such counsel after reasonable inquiry, applicable to the Company, the Subsidiaries or any of their respective properties; (xi) No 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 is required on the part of the Company (except as have been obtained under the Act and the Exchange Act or such as may be required under state securities or Blue Sky laws governing the purchase and distribution of the Shares) for the valid issuance and sale of the Shares to the Underwriters as contemplated by this Agreement; (xii) 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 22 23 thereto and the schedules and other financial and statistical data included 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; (xiii) 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; (xiv) To the best knowledge of such counsel after reasonable inquiry, 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 the Subsidiaries; (xv) The statements in the Registration Statement and Prospectus (other than the statements under the headings "Risk Factors--Dependence on Student Financial Aid; Prior Non-Compliance" with Financial Aid Regulation," "--Student Loan Defaults," "--State Approval and Licensing" and "-- Effect of Changes in CPA Examination Requirements" and "Business--Accreditation and Approvals," "-- State and Provincial Approval and Licensing," "--Financial Aid and Financing Student Education" and "--Student Loan Defaults," as to which such counsel need not express an opinion), insofar as they are descriptions of contracts, agreements or other legal documents, refer to statements of law or legal conclusions or constitute summaries of applicable laws and regulations or of judicial or administrative proceedings, are accurate and complete and present fairly the information purported to be shown; (xvi) This Agreement and the Custody Agreement have each been duly executed and delivered by or on behalf of each of the Selling Stockholders and are valid and binding agreements of each Selling Stockholder enforceable against each Selling Stockholder in accordance with their terms; 23 24 (xvii) To the knowledge of such counsel, each Selling Stockholder 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 Stockholder has agreed to sell pursuant to this Agreement; (xviii) The execution and delivery of this Agreement and the Custody Agreement by the Selling Stockholders 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 Stockholder 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 Stockholder or to any of the property or assets of any Selling Stockholder; (xix) 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; and (xx) 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 the contents of all Incorporated Documents), and nothing has come to the attention of such counsel that has caused them 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). In rendering their opinion as aforesaid, counsel may rely upon an opinion or opinions, each dated the Closing Date, of other counsel retained by them or the Company as to laws of any jurisdiction other than the United States and the States of Delaware, Illinois and New York, provided that (1) each such local counsel is acceptable to the Representatives, (2) such reliance is expressly authorized by each opinion so relied upon and a copy of each such opinion is delivered to the Representatives and is, in form and substance satisfactory to them and 24 25 their counsel, and (3) counsel shall state in their opinion that they believe that they and the Underwriters are justified in relying thereon. (d) You shall have received on the Closing Date, an opinion of Marilynn J. Cason, Esq., corporate counsel for the Company, dated the Closing Date and addressed to you, as Representatives of the several Underwriters, to the effect that: (i) The Company and each of the Subsidiaries has full corporate power and authority, and all necessary governmental authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental regulatory officials and bodies, including, without limitation, all permits 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, as described in the Prospectus; (ii) Except as disclosed in the Prospectus, the Company owns of record, directly or indirectly, all the outstanding shares of capital stock of each of the Subsidiaries free and clear of any lien, adverse claim, security interest, equity, or other encumbrance; (iii) 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); (iv) 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; (v) 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 such 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; (vi) 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 the Subsidiaries; 25 26 (vii) Except as described in the Prospectus, there are no outstanding options, warrants or other rights calling for the issuance of, and such 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; (viii) 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 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 Common Stock or other securities of the Company: (ix) Except as described in the Prospectus, the Company and the Subsidiaries are duly qualified under and in full compliance with all applicable laws and regulations in each jurisdiction in which such entity participates in student financial aid programs, and no proceeding for the suspension, limitation or termination of any such entity's participation in such financial aid programs have been initiated or threatened by any United States or state regulatory agency or by any Canadian or provincial regulatory agency; and (x) The statements in the Registration Statement and Prospectus under the headings "Risk Factors--Dependence on Student Financial Aid; Prior Non-Compliance with Financial Aid Regulation," "--Student Loan Defaults", "--State Approval and Licensing" and "--Effects of Changes in CPA Examination Requirements" and "Business--Accreditation and Approvals," "--State and Provincial Approval and Licensing," "--Financial Aid and Financing Student Education" and "--Student Loan Defaults" and "Legal Proceedings," insofar as they are descriptions of contracts, agreements or other legal documents, refer to statements of law or legal conclusions or constitute summaries of applicable laws and regulations or of judicial or administrative proceedings, are accurate and complete and present fairly the information purported to be shown. (e) You shall have received on the Closing Date an opinion of Katten Muchin & Zavis, 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 (v), (vii), (viii), (xii) and (xxi) of the foregoing paragraph (c) and such other related matters as you may request. (f) 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. (g)(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 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 26 27 chief financial officer of the Company (or such other officers as are acceptable to you), to the effect set forth in this Section 10(g) and in Section 10(h) hereof. (h) 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. (i) All the representations and warranties of the Selling Stockholders 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 Stockholders to the effect set forth in this Section 10(i) and in Section 10(j) hereof. (j) The Selling Stockholders shall not have failed at or prior to the Closing Date to have performed or complied with any of their agreements herein contained and required to be performed or complied with by them hereunder at or prior to the Closing Date. (k) Prior to the Closing Date the shares of Common Stock which the Company agrees to sell pursuant to this Agreement shall have been listed, subject to notice of issuance, on the New York Stock Exchange. (l) The Sellers 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 Stockholder 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 Stockholders or the particular Selling Stockholder, 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 called for by paragraphs (c), (d) and (e) shall be revised to reflect the sale of Additional Shares. 11. Expenses. The Sellers (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 27 28 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 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 New York Stock Exchange; (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 of counsel for the Underwriters relating to 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 Stockholders. 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 Stockholders. 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 28 29 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 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 Stockholder, 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, the American Stock Exchange or the Nasdaq National Market shall have been suspended or materially limited, (ii) a general moratorium on commercial banking activities in New York or Illinois 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 29 30 delivered (i) if to the Company, at the office of the Company at One Tower Lane, Oakbrook Terrace, Illinois 60181, Attention: Marilynn J. Cason, Senior Vice President, General Counsel and Corporate Secretary; or (ii) if to the Selling Stockholders, at , Attention: ________________________, or (iii) if to you, as Representatives of the several Underwriters, 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 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. 30 31 Please confirm that the foregoing correctly sets forth the agreement among the Company, the Selling Stockholders and the several Underwriters. Very truly yours, DEVRY INC. By _____________________________________ Dennis J. Keller Chairman of the Board and Chief Executive Officer Each of the Selling Stockholders named in Schedule I hereto By _____________________________________ Attorney-in-Fact By _____________________________________ 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. CREDIT SUISSE FIRST BOSTON CORPORATION ABN AMRO CHICAGO CORPORATION ALEX. BROWN & SONS INCORPORATED As Representatives of the Several Underwriters By: SMITH BARNEY INC. By ___________________________ Managing Director 31 32 SCHEDULE I NAME OF COMPANY Part A - Firm Shares
Number of Selling Stockholders Firm Shares ------------------------ ----------- Donald J. Keller .......... Ronald L. Taylor .......... Robert E. King ............ --------- Total........ 1,000,000 ---------
Part B - Additional Shares
Number of Selling Stockholder Additional Shares -------------------- ----------------- Ronald L. Taylor ......... ------- Total........ 100,000 -------
32 33 SCHEDULE II NAME OF COMPANY
Number of Underwriter Firm Shares - ----------- ----------- Smith Barney Inc.................................. Credit Suisse First Boston Corporation............ ABN AMRO Chicago Corporation...................... Alex. Brown & Sons Incorporated .................. --------- Total..... 2,000,000 ---------
33 EX-3.1 3 RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF DeVRY INC. The undersigned, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, as amended (the "Corporation"), DOES HEREBY CERTIFY as follows: 1. The Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of the State of Delaware on August 3, 1987, and amended on August 7, 1987, December 8, 1987, June 11, 1990, June 11, 1991, June 21, 1991 and February 9, 1995. 2. On August 20, 1996 and November 19, 1996, in the manner prescribed by Sections 242 and 245 of the General Corporation Law of the State of Delaware, as amended, resolutions were duly adopted by the Board of Directors and the stockholders of the Corporation, respectively, duly amending the certificate of incorporation of the Corporation as herein provided. 3. The text of the amended section of the certificate of incorporation of the Corporation as amended and restated herein, shall read as follows: * * * FOURTH: The total number of shares which the Corporation shall have authority to issue is seventy-five million (75,000,000), consisting of seventy-five million (75,000,000) shares of Common Stock, par value $.01 per share (the "Common Stock"). IN WITNESS WHEREOF, the Corporation has caused this amendment to the Restated Certificate of Incorporation to be signed by its President and attested by its Secretary. DeVRY INC. (Corporate Seal) By: /s/Ronald L. Taylor ------------------------------ Ronald L. Taylor President ATTEST: /s/Marilynn J. Cason - ----------------------------- Marilynn J. Cason Secretary 2 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF DeVRY INC. The undersigned, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, as amended (the "Corporation"), DOES HEREBY CERTIFY as follows: 1. The Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of the State of Delaware on August 3, 1987, and amended on August 7, 1987, December 8, 1987, June 11, 1990, June 11, 1991 and June 21, 1991. 2. On August 4, 1994 and November 15, 1994, in the manner prescribed by Sections 242 and 245 of the General Corporation Law of the State of Delaware, as amended, resolutions were duly adopted by the Board of Directors and the stockholders of the Corporation, respectively, duly amending the certificate of incorporation of the Corporation as herein provided. 3. The text of the amended section of the certificate of incorporation of the Corporation as amended and restated herein, shall read as follows: * * * FOURTH: The total number of shares which the Corporation shall have authority to issue is twenty million (20,000,000), consisting of twenty million (20,000,000) shares of Common Stock, par value $.01 per share (the "Common Stock"). IN WITNESS WHEREOF, the Corporation has caused this amendment to the Restated Certificate of Incorporation to be signed by its President and attested by its Secretary. DeVRY INC. (Corporate Seal) By: /s/Ronald L. Taylor ------------------------------ Ronald L. Taylor President ATTEST: /s/Marilynn J. Cason - ------------------------------ Marilynn J. Cason Secretary 3 CERTIFICATE OF CORRECTION OF RESTATED CERTIFICATE OF INCORPORATION OF DeVRY INC. DeVRY INC., a Delaware corporation (the "Corporation"), pursuant to Section 103(f) of the General Corporation Law of the State of Delaware, as amended, hereby certifies that: 1. The Restated Certificate of Incorporation of the Company, which was filed with the Secretary of State of the State of Delaware on June 11, 1991, is an inaccurate record of the corporate action therein referred to. 2. Said Restated Certificate of Incorporation is incorrect in that paragraph number 3 on the first page of the Restated Certificate of Incorporation states that the Restated Certificate of Incorporation is not to become effective until 9:00 a.m. Chicago time on June 28, 1991, whereas it should state that the Restated Certificate of Incorporation is not to become effective until 9:00 a.m. Chicago time on June 27, 1991. 3. Paragraph number 3 on the first page of the Restated Certificate of Incorporation in correct form is as follows: "3. Pursuant to the provisions of Section 103(d) of the General Corporation Law of the State of Delaware, as amended, this Restated Certificate of Incorporation is not to become effective until 9:00 a.m. Chicago time on June 27, 1991." 4 IN WITNESS WHEREOF, DeVRY INC. has caused this Certificate of Correction to be signed by Ronald L. Taylor, its President and attested by Marilynn J. Cason, its Secretary, this 20th day of June, 1991. DeVRY INC. (Corporate Seal) By: /s/Ronald L. Taylor ------------------------------ Ronald L. Taylor President ATTEST: /s/Marilynn J. Cason - ------------------------------ Marilynn J. Cason Secretary 5 CERTIFICATE OF CORRECTION OF RESTATED CERTIFICATE OF INCORPORATION OF DeVRY INC. DeVRY INC., a Delaware corporation (the "Corporation"), pursuant to Section 103(f) of the General Corporation Law of the State of Delaware, as amended, hereby certifies that: 1. The Restated Certificate of Incorporation of the Company, which was filed with the Secretary of State of the State of Delaware on June 11, 1991, is an inaccurate record of the corporate action therein referred to. 2. Said Restated Certificate of Incorporation is incorrect in that paragraph number 3 on the first page of the Restated Certificate of Incorporation states that the Restated Certificate of Incorporation is not to become effective until 9:00 a.m. Chicago time on June 19, 1991, whereas it should state that the Restated Certificate of Incorporation is not to become effective until 9:00 a.m. Chicago time on June 28, 1991. 3. Paragraph number 3 on the first page of the Restated Certificate of Incorporation in correct form is as follows: "3. Pursuant to the provisions of Section 103(d) of the General Corporation Law of the State of Delaware, as amended, this Restated Certificate of Incorporation is not to become effective until 9:00 a.m. Chicago time on June 28, 1991." 6 IN WITNESS WHEREOF, DeVRY INC. has caused this Certificate of Correction to be signed by Ronald L. Taylor, its President and attested by Marilynn J. Cason, its Secretary, this 17th day of June, 1991. DeVRY INC. By: /s/Ronald L. Taylor ------------------------- Ronald L. Taylor President ATTEST: /s/Marilynn J. Cason - --------------------------- Marilynn J. Cason Secretary 7 RESTATED CERTIFICATE OF INCORPORATION OF DeVRY INC. The undersigned, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, as amended (the "Corporation"), DOES HEREBY CERTIFY as follows: 1. The Certificate of Incorporation of the Corporation was filed in the Office of the Secretary of State of the State of Delaware on August 3, 1987 and amended on August 7, 1987, December 8, 1987 and June 11, 1990. 2. On May 14, 1991 and June 4, 1991, in the manner prescribed by Sections 242 and 245 of the General Corporation Law of the State of Delaware, as amended, resolutions were duly adopted by the Board of Directors and the stockholders of the Corporation, respectively, duly adopting this Restated Certificate of Incorporation and amending the certificate of incorporation of the Corporation as herein provided. 3. Pursuant to the provisions of Section 103(d) of the General Corporation Law of the State of Delaware, as amended, this Restated Certificate of Incorporation is not to become effective until 9:00 a.m. Chicago time on June 19, 1991. 4. The text of the certificate of incorporation of the Corporation as amended and restated herein, shall, at the effective time of this Restated Certificate of Incorporation, read as follows: * * * FIRST: The name of the Corporation is DeVRY INC. (hereinafter the "Corporation"). SECOND: The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle. The name of the registered agent at that address is The Corporation Trust Company. 8 THIRD: The purpose of the Corporation is: 1. To establish degree-granting educational institutions in which individuals may be taught such branches of useful, practical and/or general knowledge as shall prepare them for a career, a profession, or occupations requiring knowledge in the arts and sciences, as well as further study and educational activities. To impart instruction, conduct examinations, and confer academic degrees in branches of engineering technology, business operations, telecommunications, information systems, and other branches of human knowledge. To prepare, manufacture, sell and generally deal in books, lesson and examination papers, drawings, instruments, tools and school supplies of every class and description; and 2. To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware, as amended (the "GCL"). FOURTH: The total number of shares which the Corporation shall have authority to issue is ten million (10,000,000), consisting of ten million (10,000,000) shares of Common Stock, par value $.01 per share (the "Common Stock"). SECTION Common Stock A. A statement of the designations, powers, preferences, rights, qualifications, limitations and restriction in respect of the shares of Common Stock is as follows: (1) Dividends. The Board of Directors of the Corporation may cause dividends to be paid to the holders of shares of Common Stock out of funds legally available for the payment of dividends by declaring an amount per share as a dividend. When and as dividends are declared, whether payable in cash, in property or in shares of stock of the Corporation, the holders of Common Stock shall be entitled to share equally, share for share, in such dividends. No dividends shall be declared or paid in shares of -2- 9 Common Stock, or options, warrants, or rights to acquire such a stock or securities convertible into or exchangeable for shares of such stock, except dividends payable ratably according to the number of shares of Common Stock held by them, in shares of, or securities convertible into or exchangeable for, Common Stock to holders of that class of stock. (2) Liquidation Rights. In the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation, the holders of Common Stock shall be entitled, to share, ratably according to the number of shares of Common Stock held by them, in all remaining assets of the Corporation available for distribution to its stockholders. (3) Voting Rights. Except as otherwise provided in this Certificate of Incorporation or by applicable law, the holders of Common Stock shall be entitled to vote on each matter on which the stockholders of the Corporation shall be entitled to vote, and each holder of Common Stock shall be entitled to one vote for each share of such stock held by him. FIFTH: At all meetings of stockholders, each stockholder shall be entitled to vote, in person or by proxy, the shares of voting stock owned by such stockholders of record on the record date for the meeting. When a quorum is present or represented at any meeting, the vote of the holders of a majority of the voting power of all of the shares of stock of the Corporation outstanding and entitled to vote on any matter, question or proposal brought before such meeting shall decide such question, unless the question is one upon which, by express provision of law, this Certificate of Incorporation or the By-Laws, a different vote is required, in which case such express provision shall govern and control the decision of such question. SIXTH: The Corporation is to have perpetual existence. SEVENTH: The number of directors of the Corporation shall be fixed from time to time by the vote of a majority of the entire Board of Directors, but such number shall in no case be less than three nor more than 12. Any such determination made by the Board of Directors shall continue in effect unless and until changed by the Board of Directors, but no such changes shall affect the term of any directors then in office. -3- 10 The directors shall be divided into three classes, designated Class I, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third of the total number of directors constituting the entire Board of Directors. At the 1991 annual meeting of stockholders, Class I directors shall be elected for a one-year term, Class II directors for a two-year term and Class III directors for a three-year term. At each succeeding annual meeting of stockholders beginning in 1992, successors to the class of directors whose term expires at the annual meeting shall be elected for a three-year term. If the authorized number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from any increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Subject to the By-laws, a majority of the entire Board of Directors shall constitute a quorum for the transaction of business. From and after June 30, 1993, any vacancy on the Board of Directors that results from an increase in the number of directors shall be filled only by a majority of the Board of Directors then in office, provided that a quorum is present, and any other vacancy occurring in the Board of Directors shall be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor. From and after June 30, 1993, any director elected by the stockholders, or by the Board of Directors to fill a vacancy, may be removed only for cause by the affirmative vote of the holders of a majority of the votes which could be cast by the holders of all of the outstanding shares of capital stock entitled to vote for the election of directors, voting together as a class, given at a duly called annual or special meeting of stockholders. -4- 11 Advance notice of nominations for the election of directors, other than nominations by the Board of Directors or a committee thereof, shall be given to the Corporation in the manner provided in the By-laws. EIGHTH: For the management of the business and for the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation and of its directors and of its stockholders or any class thereof, as the case may be, it is further provided: (1) The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. (2) The directors shall have concurrent power with the stockholders to make, alter, amend, change, add to or repeal the By-Laws of the Corporation. (3) In addition to the powers and authority hereinbefore or by statute expressly conferred upon them, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the provisions of the GCL, this Certificate of Incorporation, and any By-Laws adopted by the stockholders; provided, however, that no By-Laws hereafter adopted by the stockholders shall invalidate any prior act of the directors which would have been valid if such By-Laws had not been adopted. NINTH: (1) Meetings of stockholders may be held within or without the State of Delaware as the By-Laws may provide. The books of the Corporation may be kept (subject to any provision contained in the GCL) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the By-Laws of the Corporation. (2) Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual special meeting of such holders and may not be effected by a consent in writing by any such holders. (3) Except as otherwise required by law, from and after June 30, 1993, special meetings of the stockholders of the Corporation may be called only by (i) the Board of Directors pursuant to a resolution approved by the affirmative vote of a majority of the directors then in office, (ii) the Chairman -5- 12 of the Board, if one is elected or (iii) the President. Prior to June 30, 1993, special meetings of the stockholders may be called either by the person referred to in clauses (i), (ii) and (iii), or by any person(s) holding 5% or more of the outstanding Common Stock. Only those matters set forth in the notice of the special meeting may be considered or acted upon at such special meeting, unless otherwise provided by law. TENTH: (1) The Corporation shall, to the fullest extent permitted by Section 145 of the GCL, as the same may be amended and supplemented, indemnify any and all directors and officers whom it shall have power to indemnify under said Section and may, upon the act of the Board of Directors, indemnify all other persons whom it shall have power to indemnify under said Section, from and against any and all of the expenses, liabilities or other matters referred to in or covered by said Section, and the indemnification provided for herein shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any By-Law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office, and shall continue as a director or officer who has ceased to be a director or officer, and shall inure to the benefit of the heirs, executors and administrators of the director or officer, and may, upon such act of the Board of Directors, continue as to such other persons and inure to the benefit of the heirs, executors and administrators of such other persons. (2) No director shall be personally liable to the Corporation or any of its stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (1) for breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the GCL or (iv) for any transaction from which the director derived any improper personal benefit. Any repeal or modification of this ARTICLE TENTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. -6- 13 ELEVENTH: In addition to any other considerations which the Board of Directors may lawfully take into account, in determining whether to take or to refrain from taking corporate action or any matter, including proposing any matter to the stockholders of the Corporation, the Board of Directors may take into account the long-term as well as short-term interests of the Corporation and its stockholders (including the possibility that these interests may be best served by the continued independence of the Corporation), customers, employees, students, graduates, faculty and other constituencies of the Corporation and its subsidiaries, including the effect upon communities in which the Corporation and its subsidiaries do business. TWELFTH: The Corporation reserves the right to repeal, alter or amend this Certificate of Incorporation in the manner now or hereafter prescribed by statute. No repeal, alteration or amendment of this Certificate of Incorporation shall be made unless the same is first approved by the Board of Directors of the Corporation pursuant to a resolution adopted by the directors then in office in accordance with the By-laws and applicable law and thereafter approved by the stockholders. THIRTEENTH: The Corporation has elected not to be governed by Section 203 of the GCL. FOURTEENTH: The Certificate of Incorporation of the Corporation, as herein amended, shall constitute a restatement of, and shall supersede the Certificate of Incorporation of the Corporation, as previously awarded. IN WITNESS WHEREOF, the Corporation has caused this Restated Certificate of Incorporation to be signed by its President and attested by its Secretary. DEVRY INC. (Corporate Seal) By:/s/Ronald L. Taylor ----------------------- Ronald L. Taylor President ATTEST: /s/ Marilynn J. Cason - ----------------------------- Marilynn J. Cason Secretary -7- EX-5.1 4 OPINION OF MAYER, BROWN & PLATT 1 Exhibit 5.1 February 26, 1997 Devry Inc. One Tower Lane Oakbrook Terrace, Illinois 60181 Re: Devry Inc. Registration Statement on Form S-3 ---------------------------------- Dear Ladies and Gentlemen: We have represented Devry Inc., a Delaware corporation (the "Company"), in connection with the registration of 2,300,000, shares of Common Stock, par value $0.01 per share, of the Company (the "Shares") and the sale of such Shares to the public pursuant to an underwriting agreement (the "Underwriting Agreement") between the Company, certain selling stockholders (the "Selling Stockholders") and the underwriters party thereto. In connection with our representation, we have examined the corporate records of the Company, including its Certificate of Incorporation, its By-Laws, and other corporate records and documents and have made such other examinations as we consider necessary to render this opinion. Based upon the foregoing, it is our opinion that: (i) the Company is a corporation duly organized and validly existing in good standing under the laws of the State of Delaware; (ii) the Shares to be sold by the Selling Stockholders have been validly issued, and are fully paid and non-assessable; and (iii) the Shares to be sold by the Company will be validly issued and, assuming such Shares are sold pursuant to the terms of the Underwriting Agreement, fully paid and non-assessable. We consent to the filing of this opinion as an exhibit to the registration statement referred to above and to all references to this firm in such registration statement. Very truly yours, /s/ Mayer, Brown & Platt Mayer, Brown & Platt EX-10.1 5 AMENDED RESTATED DEVRY INC. 1 EXHIBIT 10.1 AMENDED AND RESTATED DEVRY INC. STOCK INCENTIVE PLAN (Revised 2/18/97) 1. Purpose. The Amended and Restated DeVry Inc. Stock Incentive Plan (the "Plan") has been established by DeVry Inc. (the "Company") to aid the Company and its Subsidiaries (as defined below) in attracting, rewarding and retaining well-qualified directors and executive and managerial personnel and to further the identity of the interests of such individuals with the interests of the Company's shareholders. The term "Subsidiary" means any corporation during any period in which the Company owns directly or indirectly, at least 50% of the total combined voting power of all classes of stock entitled to vote. 2. Administration. The authority to manage and control the operation and administration of the Plan shall be vested in the Plan Committee, subject to approval by the Compensation Committee of the Board of Directors. The Plan Committee shall consist of members of the Company's Board of Directors who are full-time, salaried employees of the Company. All determinations of the Plan Committee shall be made by a majority of its members. Any interpretation of the Plan by the Plan Committee and any decision made by it under the Plan are final and binding on all persons. 3. Participation. Subject to the terms and conditions of the Plan and approval by the Compensation Committee of the Board of Directors of actions taken with respect to employees, the Plan Committee shall determine and designate, from time to time, the directors and key executives and managerial employees of the Company and its subsidiaries to whom stock options are to be granted or awarded (the "Participants"), and the number thereof to be granted or awarded to each Participant. Except as otherwise agreed to by the Company and the Participant, any grant or award under this Plan shall not affect any previous grant or award to the Participant by the Company under this Plan or any other plan maintained by the Company or its Subsidiaries. 4. Automatic Grant of Option to Plan Committee. Notwithstanding Paragraph 3 above, directors who are members of the Plan Committee shall receive, for service as a director, only an automatic nondiscretionary stock option grant on August 18 of every year during the term of the Plan. The amount of shares subject to option that will be automatically granted to each director who is a member of the Plan Committee for service as a director shall be the lesser of (i) 500 shares or (ii) that number of shares equal to the largest multiple of 25 whose fair market value on the date of grant does not exceed $15,000. 5. Shares Subject to the Plan. The shares of stock with respect to which awards or grants may be made under the Plan shall be shares of the Company's Common Stock, either authorized and unissued shares or shares issued and held in its treasury. Subject to the provisions of paragraph 12, the aggregate number of shares of Common Stock with respect to which awards or grants may be made under the Plan shall not exceed 100,000 shares. If, for any reason, any award 1 2 or grant under the Plan shall expire, terminate or be forfeited with respect to any number of shares, such number of shares shall again be available for award or grant under the Plan. 6. Options. Subject to Paragraph 4 above, the Plan Committee may, from time to time, grant options to Participants under the Plan. the Plan Committee shall have complete authority to determine at the time an option is granted whether such option shall be an incentive stock option qualified under Section 422 of the Internal Revenue Code, as amended, or whether such option shall be a nonqualified stock option. The price at which a share of Common Stock may be purchased pursuant to the exercise of an option under the Plan shall be 100% (110% in the case of an incentive stock option, as described in Section 422A of the Internal Revenue Code of 1986, as amended, granted to a 10% shareholder) of the Fair Market Value (as defined below) of a share of such Common Stock on the date on which the option is granted. Subject to the provisions of paragraph 12, for all purposes of the Plan, the "Fair Market Value" of a share of Common Stock as at any date means the fair market value of such share determined in good faith by the Plan Committee. Notwithstanding the foregoing, in no event shall the aggregate Fair Market Value (determined at the time the option is granted) of the Common Stock with respect to which incentive stock options are exercisable for the first time by any individual during any calendar year (under all plans of the Company and its Subsidiaries) exceed $100,000. 7. Option Expiration Date. The "Expiration Date" with respect to an option granted to a Participant under the Plan means the earlier of: (a) the date which is 10 years (5 years in the cases of an incentive stock option granted to a 10% shareholder) after the date on which the option or stock appreciation right is granted; or (b) the date established by the Board of Directors at the time of the grant. 8. Exercise of Options. Each option shall be exercisable at such time or times as shall be determined by the Plan Committee at the time the option is granted or at such earlier times as the Plan Committee may subsequently determine. Except as otherwise agreed to between the Company and the Participant, a Participant's right to exercise any option under the Plan shall not be affected by any other outstanding stock option granted to the Participant under this Plan or any other plan maintained by the Company or its Subsidiaries. A Participant may exercise an option by giving written notice thereof prior to the Expiration Date to the Secretary of the Company at the Company's corporate headquarters. Payment of the purchase price of the shares purchased pursuant to the exercise of a stock option shall be in cash or other consideration, including shares of Common Stock and Participant notes, as the Board of Directors may permit. 9. Compliance with Applicable Laws and Withholding of Taxes. Notwithstanding any other provision of the Plan, the Company shall have no liability to issue any shares under the Plan unless 2 3 such issuance would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity. Prior to the issuance of any shares under the Plan, the Company may require a written statement that the recipient is acquiring the shares for investment and not for the purpose or with the intention of distributing the shares. All awards, grants, and payments under the Plan are subject to withholding of all applicable taxes, which withholding obligations may be satisfied, with the consent of the Plan Committee, through the surrender of shares of Common Stock to which a Participant is otherwise entitled under the Plan. 10. Transferability. Incentive stock options granted under the Plan are not transferable except by will or by the laws of descent and distribution. Such incentive stock options may be exercised during the lifetime of the Participant only by the Participant. Nonqualified stock options may be transferred by the Participant to, and exercised by, Participant's family members, family trusts, family partnerships or any other similarly situated transferee approved by the Plan Committee. Notification and approval of all such transfers shall be in a form specified by the Plan Committee. 11. Employment and Shareholder Status. The Plan does not constitute a contract of employment, and selection as a Participant will not give any employee the right to be retained in the employ of the Company or any Subsidiary. No award or grant under the Plan shall confer upon the holder thereof any right as a shareholder of the Company prior to the date on which he fulfills all conditions in receipt of shares of Company stock. 12. Adjustments to Number of Shares Subject to the Plan and to Option Terms. Subject to the following provisions of this paragraph 12, in the event of any change in the outstanding shares of Common Stock of the Company by reason of any stock dividend, split, recapitalization, merger, consolidation, combination, exchange of shares or other similar change, the aggregate number of shares with respect to which awards or grants may be made under the Plan and the terms of any outstanding option shall be equitably adjusted by the Plan Committee subject to approval by the Compensation Committee. Notwithstanding the preceding sentence, in no event shall any fraction of a share of stock be issued under the Plan. 13. Agreement With Company. At the time of any grant under the Plan, the Plan Committee may require a Participant to enter into an agreement with the Plan Committee in a form specified by the Plan Committee, agreeing to the terms and condition of the Plan and to such additional terms and conditions (including but not limited to a call provision), not inconsistent with the Plan, as the Plan Committee may, in it sole discretion, prescribe. 14. Term of Plan. Subject to the approval of the stockholder of the Company at the Company's 1992 annual meeting of it shareholders, the Plan shall be effective as of August 18, 1992. No options may be granted under the Plan after June 30, 2002. 15. Amendment and Termination of Plan. Subject to the following provisions of this paragraph 15, the Plan Committee of the Company may at any time amend, suspend or terminate the Plan. No amendment of the Plan and, except as provided in paragraph 12, no action of the 3 4 Plan Committee shall, without further approval of the shareholders of the Company: (a) increase the total number of shares of Common Stock with respect to which awards or grants may be made under the Plan or otherwise materially increase the benefits to Participants under the Plan; (b) permit any awards or grants to be made under the Plan after June 30, 2002; or (c) materially modify the requirements as to eligibility for participation under the Plan. No amendment, suspension or termination of the Plan shall alter or impair any option previously granted under the Plan without the consent of the holder thereof. EX-10.2 6 DEVRY INC. 1994 STOCK INCENTIVE PLAN 1 EXHIBIT 10.2 DEVRY INC. 1994 STOCK INCENTIVE PLAN (Revised 2/18/97) 1. Purpose. The DeVRY INC. Stock Incentive Plan (the "Plan") has been established by DeVRY INC. (the "Company") to provide the Company's directors and key employees with opportunities to acquire Common Stock of the Company on favorable terms. The purpose of the Plan is to: (1) provide a means to attract, retain and reward the company's independent directors for their judgment and knowledge, on which the Company relies for the continued success of its operations, by promoting a greater identity of interest between them and the Company's stockholders and providing an opportunity to share in the future success of the Company; (2) provide a means to attract and retain competent personnel; and (3) provide to participating officers and other key employees long-term incentive for high levels of performance and for extraordinary efforts to improve the financial performance of the Company. 2. Administration. The authority to manage and control the operation and administration of the Plan shall be vested in the Plan Committee, subject to approval by the Compensation Committee of the Board of Directors. The Plan Committee shall consist of members of the Company's Board of Directors who are full-time, salaried employees of the Company. All determinations of the Plan Committee shall be made by a majority of its members. Any interpretation of the Plan by the Plan Committee and any decision made by it under the Plan are final and binding on all persons. 3. Participation. Subject to the terms and conditions of the Plan and approval by the Compensation Committee of the Board of Directors of actions taken with respect to employees, the Plan Committee shall determine and designate, from time to time, the directors and key employees of the Company and its Subsidiaries to whom stock options are to be granted or awarded (the "Participants"), and the number thereof to be granted or awarded to each Participant. Except as otherwise agreed to by the Company and the Participant, any grant or award under this Plan shall not affect any previous grant or award to the Participant by the Company under this Plan or any other plan maintained by the Company or its Subsidiaries. 4. Automatic Grant of Option to Plan Committee. Notwithstanding Paragraph 3 above, directors who are members of the Plan Committee shall receive, for service as a director, only an automatic nondiscretionary stock option grant on July 1 of every year during the term of the Plan. The amount of shares subject to option that will be automatically granted to each director who is a member of the Plan Committee for service as a director shall be the lesser of (i) 500 shares or (ii) that number of shares equal to the largest multiple of 25 whose fair market value on the date of grant does not exceed $25,000. 5. Shares Subject to the Plan. The shares of stock with respect to which awards or grants may be made under the Plan shall be shares of the Company's Common Stock, either authorized and unissued shares or shares issued and held in its treasury. Subject to the provisions of 1 2 paragraph 12, the aggregate number of shares of Common Stock with respect to which awards or grants may be made under the Plan shall not exceed 200,000 shares. If, for any reason, any award or grant under the Plan shall expire, terminate or be forfeited with respect to any number of shares, such number of shares shall again be available for award or grant under the Plan. 6. Options. Subject to Paragraph 4 above, the Plan Committee may, from time to time, grant options to Participants under the Plan. the Plan Committee shall have complete authority to determine at the time an option is granted whether such option shall be an incentive stock option qualified under Section 422 of the Internal Revenue Code, as amended, or whether such option shall be a nonqualified stock option. The price at which a share of Common Stock may be purchased pursuant to the exercise of an option under the Plan shall be 100% (110% in the case of an incentive stock option, as described in Section 422A of the Internal Revenue Code of 1986, as amended, granted to a 10% shareholder) of the Fair Market Value (as defined below) of a share of such Common Stock on the date on which the option is granted. Subject to the provisions of paragraph 12, for all purposes of the Plan, the "Fair Market Value" of a share of Common Stock as at any date means the fair market value of such share determined in good faith by the Plan Committee. Notwithstanding the foregoing, in no event shall the aggregate Fair Market Value (determined at the time the option is granted) of the Common Stock with respect to which incentive stock options are exercisable for the first time by any individual during any calendar year (under all plans of the Company and its Subsidiaries) exceed $100,000. 7. Option Expiration Date. The "Expiration Date" with respect to an option granted to a Participant under the Plan means the earlier of: (a) the date which is 10 years (5 years in the cases of an incentive stock option granted to a 10% shareholder) after the date on which the option or stock appreciation right is granted; or (b) the date established by the Board of Directors at the time of the grant. 8. Exercise of Options. Each option shall be exercisable at such time or times as shall be determined by the Plan Committee at the time the option is granted or at such earlier times as the Plan Committee may subsequently determine. Except as otherwise agreed to between the Company and the Participant, a Participant's right to exercise any option under the Plan shall not be affected by any other outstanding stock option granted to the Participant under this Plan or any other plan maintained by the Company or its Subsidiaries. A Participant may exercise an option by giving written notice thereof prior to the Expiration Date to the Secretary of the Company at the Company's corporate headquarters. Payment of the purchase price of the shares purchased pursuant to the exercise of a stock option shall be in cash or other consideration, including shares of Common Stock and Participant notes, as the Board of Directors may permit. 2 3 9. Compliance with Applicable Laws and Withholding of Taxes. Notwithstanding any other provision of the Plan, the Company shall have no liability to issue any shares under the Plan unless such issuance would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity. Prior to the issuance of any shares under the Plan, the Company may require a written statement that the recipient is acquiring the shares for investment and not for the purpose or with the intention of distributing the shares. All awards, grants, and payments under the Plan are subject to withholding of all applicable taxes, which withholding obligations may be satisfied, with the consent of the Plan Committee, through the surrender of shares of Common Stock to which a Participant is otherwise entitled under the Plan. 10. Transferability. Incentive stock options granted under the Plan are not transferable except by will or by the laws of descent and distribution. Such incentive stock options may be exercised during the lifetime of the Participant only by the Participant. Nonqualified stock options may be transferred by the Participant to, and exercised by, Participant's family members, family trusts, family partnerships or any other similarly situated transferee approved by the Plan Committee. Notification and approval of all such transfers shall be in a form specified by the Plan Committee. 11. Employment and Shareholder Status. The Plan does not constitute a contract of employment, and selection as a Participant will not give any employee the right to be retained in the employ of the Company or any Subsidiary. No award or grant under the Plan shall confer upon the holder thereof any right as a shareholder of the Company prior to the date on which he fulfills all conditions in receipt of shares of Company stock. 12. Adjustments to Number of Shares Subject to the Plan and to Option Terms. Subject to the following provisions of this paragraph 12, in the event of any change in the outstanding shares of Common Stock of the Company by reason of any stock dividend, split, recapitalization, merger, consolidation, combination, exchange of shares or other similar change, the aggregate number of shares with respect to which awards or grants may be made under the Plan and the terms of any outstanding option shall be equitably adjusted by the Plan Committee subject to approval by the Compensation Committee. Notwithstanding the preceding sentence, in no event shall any fraction of a share of stock be issued under the Plan. 13. Agreement With Company. At the time of any grant under the Plan, the Plan Committee may require a Participant to enter into an agreement with the Plan Committee in a form specified by the Plan Committee, agreeing to the terms and condition of the Plan and to such additional terms and conditions (including but not limited to a call provision), not inconsistent with the Plan, as the Plan Committee may, in it sole discretion, prescribe. 14. Term of Plan. Subject to the approval of the stockholder of the Company at the Company's 1992 annual meeting of it shareholders, the Plan shall be effective as of August 4, 1994. No options may be granted under the Plan after June 30, 2004. 3 4 15. Amendment and Termination of Plan. Subject to the following provisions of this paragraph 15, the Plan Committee of the Company may at any time amend, suspend or terminate the Plan. No amendment of the Plan and, except as provided in paragraph 12, no action of the Plan Committee shall, without further approval of the shareholders of the Company: (a) increase the total number of shares of Common Stock with respect to which awards or grants may be made under the Plan or otherwise materially increase the benefits to Participants under the Plan; (b) permit any awards or grants to be made under the Plan after June 30, 2004; or (c) materially modify the requirements as to eligibility for participation under the Plan. No amendment, suspension or termination of the Plan shall alter or impair any option previously granted under the Plan without the consent of the holder thereof. EX-10.3 7 DEVRY INC. 1991 STOCK INCENTIVE PLAN 1 EXHIBIT 10.3 DEVRY INC. 1991 STOCK INCENTIVE PLAN (Revised 2/18/97) 1. Purpose. The DeVry Inc. 1991 Stock Incentive Plan (the "Plan") has been established by DeVry Inc. (the "Company") to aid the Company and its Subsidiaries (as defined below) in attracting, rewarding and retaining well-qualified executive and managerial personnel and to futher the identity of the interests of such personnel with the interest of the Company's shareholders.. The term "Subsidiary" means any corporation during any period in which the Company owns directly or indirectly, at least 50% of the total combined voting power of all classes of stock entitled to vote. 2. Administration. The authority to manage and control the operation and administration of the Plan shall be vested in the Board of Directors of the Company. Any interpretation of the Plan by the Board of Directors and any decision made by it under the Plan is final and binding on all persons. 3. Participation. Subject to the terms and conditions of the Plan, the Board of Directors shall determine and designate, from time to time, the key executives and managerial employees of the Company and its subsidiaries to whom stock options are to be granted or awarded (the "Participants"), and the number thereof to be granted or awarded to each Participant. Except as otherwise agreed to by the Company and the Participant, any grant or award under this Plan shall not affect any previous grant or award to the Participant by the Company under this Plan or any other plan maintained by the Company or its Subsidiaries. 4. Shares Subject to the Plan. The shares of stock with respect to which awards or grants may be made under the Plan shall be shares of the Company's Common Stock, either authorized and unissued shares or shares issued and held in its treasury. Subject to the provisions of paragraph 11, the aggregate number of shares of Common Stock with respect to which awards or grants may be made under the Plan shall not exceed 20,000 shares. If, for any reason, any award or grant under the Plan shall expire, terminate or be forfeited with respect to any number of shares, such number of shares shall again be available for award or grant under the Plan. 5. Options. The Board of Directors may, from time to time, grant options to Participants under the Plan. The price at which a share of Common Stock may be purchased pursuant to the exercise of an option under the Plan shall be 100% (110% in the case of an incentive stock option, as described in section 422A of the Internal Revenue Code of 1986, as amended, granted to a 10% shareholder) of the Fair Market Value (as defined below) of a share of such Common Stock on the date on which the option is granted. Subject to the provisions of paragraph 11, for all purposes of the Plan, the "Fair Market Value" of a share of Common Stock as at any date means the fair market value of such share determined in good faith by the Board of Directors. Notwithstanding the foregoing, in no event shall the aggregate Fair Market Value (determined at 1 2 the time the option is granted) of the Common Stock with respect to which incentive stock options are exercisable for the first time by any individual during any calendar year (under all plans of the Company and its Subsidiaries) exceed $100,000. 6. Option Expiration Date. The "Expiration Date" with respect to an option granted to a Participant under the Plan means the earliest of: (a) the date which is 10 years (5 years in the cases of an incentive stock option granted to a 10% shareholder) after the date on which the option or stock appreciation right is granted; or (b) the date established by the Board of Directors at the time of the grant. 7. Exercise of Options. Each option shall be exercisable at such time or times as shall be determined by the Board of Directors at the time the option is granted or at such earlier times as the Board of Directors may subsequently determine. Except as otherwise agreed to between the Company and the Participant, a Participant's right to exercise any option under the Plan shall not be affected by any other outstanding stock option granted to the Participant under this Plan or any other plan maintained by the Company or its Subsidiaries. A Participant may exercise an option by giving written notice thereof prior to the Expiration Date to the Secretary of the Company at the Company's corporate headquarters. Payment of the purchase price of the shares purchased pursuant to the exercise of a stock option shall be in cash or other consideration, including shares of Common Stock and Participant notes, as the Board of Directors may permit. 8. Compliance with Applicable Laws and Withholding of Taxes. Notwithstanding any other provision of the Plan, the Company shall have no liability to issue any shares under the Plan unless such issuance would comply with all applicable laws and the applicable requirements of any securities exchange or similar entity. Prior to the issuance of any shares under the Plan, the Company may require a written statement that the recipient is acquiring the shares for investment and not for the purpose or with the intention of distributing the shares. All awards, grants, and payments under the Plan are subject to withholding of all applicable taxes, which withholding obligations may be satisfied, with the consent of the Board of Directors, through the surrender of shares of Common Stock to which a Participant is otherwise entitled under the Plan. 9. Transferability. Incentive stock options granted under the Plan are not transferable except by will or by the laws of descent and distribution. Such incentive stock options may be exercised during the lifetime of the Participant only by the Participant. Nonqualified stock options may be transferred by the Participant to, and exercised by, Participant's family members, family trusts, family partnerships or any other similarly situated transferee approved by the Board. Notification and approval of all such transfers shall be in a form specified by the Board. 10. Employment and Shareholder Status. The Plan does not constitute a contract of employment, and selection as a Participant will not give any employee the right to be retained in the employ of the Company or any Subsidiary. No award or grant under the Plan shall confer 2 3 upon the holder thereof any right as a shareholder of the Company prior to the date on which he fulfills all conditions in receipt of shares of Company stock. 11. Adjustments to Number of Shares Subject to the Plan and to Option Terms. Subject to the following provisions of this paragraph 11, in the event of any change in the outstanding shares of Common Stock of the Company by reason of any stock dividend, split, recapitalization, merger, consolidation, combination, exchange of shares or other similar change, the aggregate number of shares with respect to which awards or grants may be made under the Plan and the terms of any outstanding option shall be equitably adjusted by the Board of Directors in its sole discretion. Notwithstanding the preceding sentence, in no event shall any fraction of a share of stock be issued under the Plan. 12. Agreement With Company. At the time of any grant under the Plan, the Board of Directors may require a Participant to enter into an agreement with the Board of Directors in a form specified by the Board of Directors, agreeing to the terms and condition of the Plan and to such additional terms and conditions (including but not limited to a call provision), not inconsistent with the Plan, as the Board of Directors may, in it sole discretion, prescribe. 13. Term of Plan. Subject to the approval of the stockholders of the Company at the special meeting of its Company's stockholders, the Plan shall be effective as of July 1, 1991. No options may be granted under the Plan after June 30,2001. 14. Amendment and Termination of Plan. Subject to the following provisions of this paragraph 14, the Board of Directors of the Company may at any time amend, suspend or terminate the Plan. No amendment of the Plan and, except as provided in paragraph 11, no action of the Board of Directors shall, without further approval of the shareholders of the Company: (a) increase the total number of shares of Common Stock with respect to which awards or grants may be made under the Plan or otherwise materially increase the benefits to Participants under the Plan; (b) permit any awards or grants to be made under the Plan after June 30, 2001; or (c) materially modify the requirements as to eligibility for participation under the Plan. No amendment, suspension or termination of the Plan shall alter or impair any option previously granted under the Plan without the consent of the holder thereof. EX-23.2 8 CONSENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23.2 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 August 6, 1996, except as to the stock split described in Note 11 which is as of December 18, 1996, relating to the financial statements of DeVRY Inc., which appears in such Prospectus. We also consent to the application of such report to the Financial Statement Schedule for the three years ended June 30, 1996 listed under Item 14(a)(2) in the Company's Annual Report on Form 10-K for the year ended June 30, 1996 when such schedule is read in conjunction with the financial statements referred to in our report. The audits referred to in such report also included this schedule. 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 Chicago, Illinois February 27, 1997 -----END PRIVACY-ENHANCED MESSAGE-----