UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c) of the
Securities Exchange Act of 1934
Check the appropriate box:
o
Preliminary
Information Statement.
o
Confidential,
for Use of the Commission only (as permitted by
Rule 14c-5(d)(2))
þ
Definitive
Information Statement.
APOLLO GROUP, INC.
(Name of Registrant as Specified In
Charter)
Payment of Filing Fee (Check the appropriate box):
þ
No
fee required.
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Fee computed on table below per Exchange Act
Rules 14c-5(g)
and 0-11.
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(1)
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Title of each class of securities to which transaction applies:
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Aggregate number of securities to which transaction applies:
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(3)
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act
Rule 0-11
(set forth the amount on which the filing fee is calculated and
state how it is determined):
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(4)
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Proposed maximum aggregate value of transaction:
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Fee paid previously with preliminary materials.
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Check box if any part of the fee is offset as provided by
Exchange Act
Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount Previously Paid:
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Form, Schedule or Registration Statement No.:
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TABLE OF CONTENTS
ANNUAL
MEETINGS OF CLASS A AND CLASS B SHAREHOLDERS
December 21,
2010
To the holders of Class A Common Stock and Class B
Common Stock of Apollo Group:
NOTICE IS HEREBY GIVEN that the Annual Meeting of the holders of
Class B Common Stock (the Class B
Shareholders) of Apollo Group, Inc. (the
Company), an Arizona corporation, will be held on
January 12, 2011 at 11:30 A.M., local time, by
telephone, and the Annual Meeting of holders of Class A
Common Stock (the Class A Shareholders) of the
Company will be held on January 26, 2011 at 1:00 P.M.,
local time, in Rooms 101 and 102 on the first floor of the
Companys principal executive offices located at 4025 South
Riverpoint Parkway, Phoenix, Arizona, 85040 (together, the
Annual Meetings) and such meetings are to be held
for the following purposes:
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For the Class B Shareholders:
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To elect the Directors of the Company to serve for a one-year
term, each until his or her successor is duly elected.
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To ratify the appointment of Deloitte & Touche LLP as
the Companys independent registered public accounting firm
for the fiscal year ending August 31, 2011.
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For the Class A Shareholders:
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To receive the results of the Annual Meeting of the Class B
Shareholders.
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To raise questions with the Company.
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Only Class B Shareholders of record at the close of
business on December 10, 2010 are entitled to notice of,
and to attend and vote at, the Annual Meeting of Class B
Shareholders or any adjournment or postponement thereof, and
only Class A Shareholders of record at the close of
business on December 10, 2010 are invited to attend the
Annual Meeting of Class A Shareholders and any adjournment
or postponement thereof.
Sincerely,
Brian L. Swartz
Senior Vice President and
Chief Financial Officer
Phoenix, Arizona
December 21, 2010
We are not asking you for a proxy and you are requested not
to send us a proxy.
INFORMATION
STATEMENT
ANNUAL
MEETINGS OF CLASS A SHAREHOLDERS AND CLASS B
SHAREHOLDERS
OF
APOLLO GROUP, INC.
To be held on January 26, 2011 and January 12,
2011, respectively.
QUESTIONS
AND ANSWERS REGARDING THE INFORMATION
STATEMENT, ANNUAL REPORT AND ANNUAL MEETINGS
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Why am I receiving these materials?
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The Board of Directors of Apollo Group, Inc. (Apollo
Group, the Company, we,
our or us) is providing this information
statement to you in connection with Apollo Groups Annual
Meeting of Class B Shareholders to be held on January 12, 2011
at 11:30 A.M., local time, and Annual Meeting of Class A
Shareholders to be held on January 26, 2011 at 1:00 P.M.,
local time (together, the Annual Meetings). As a
shareholder of record, you are invited to attend the Annual
Meeting for which you own shares, which, for Class A
Shareholders, will be held in Rooms 101-102 in our offices at
4025 South Riverpoint Parkway, Phoenix, Arizona, 85040 and, for
Class B Shareholders, will be held by telephone. The purposes of
the Annual Meetings are set forth in the accompanying Notice of
Annual Meetings of Class A Shareholders and Class B Shareholders
and this Information Statement.
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Our principal executive offices are located at 4025 South
Riverpoint Parkway, Phoenix, Arizona, 85040, and our telephone
number is (480) 966-5394.
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Internet Availability of Information Statement Materials
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We are furnishing information statement materials to our
shareholders via the Internet, rather than mailing printed
copies of those materials to each shareholder. If you received a
Notice of Internet Availability of Information Statement
Materials by mail, you will not receive a printed copy of the
information statement materials unless you request one. Instead,
the Notice of Internet Availability will instruct you as to how
you may access and review the information statement materials.
If you received a Notice of Internet Availability by mail and
would like to receive a printed copy of our information
statement materials, please follow the instructions included in
the Notice of Internet Availability.
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We anticipate that the Notice of Internet Availability will be
mailed to shareholders on or about December 21, 2010.
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Am I entitled to vote at the Annual Meeting?
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You may vote if our records showed that you owned shares of
Apollo Group Class B Common Stock as of December 10, 2010 (the
Record Date). Each share of Class B Common Stock is
entitled to one vote, and directors are elected by a plurality
of the votes cast by the holders of outstanding Class B Common
Stock at a meeting at which a quorum is present at the time of
such vote, with such holders entitled to cumulative voting.
Class A Common Stock is not voting stock.
At the close of
business on the Record Date, we had a total of
142,667,384 shares of Class A Common Stock issued and
outstanding, 475,149 shares of Class B Common Stock issued
and outstanding, and no shares of Preferred Stock outstanding.
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Is this a Proxy Statement?
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No. This is not a proxy statement.
We are not asking you for
a proxy and you are requested not to send us a proxy.
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2
OUR BOARD OF DIRECTORS AND ITS COMMITTEES
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OUR BOARD OF DIRECTORS AND ITS COMMITTEES
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Board Leadership Structure
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Dr. John G. Sperling, the Companys founder and
controlling shareholder, serves as the Executive Chairman of the
Board. We believe that this structure is appropriate, because
Dr. Sperling, as the holder of a significant amount of our
nonvoting Class A Common Stock and a majority of our voting
Class B Common Stock, is uniquely well-positioned to represent
the interests of stockholders. Dr. Sperlings dual
role promotes leadership, accountability and clarity in the
overall direction of the Companys business strategy. The
duties of the Executive Chairman of the Board include:
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Presiding over all meetings of the Board;
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Preparing the agenda for Board meetings in consultation with the
Co-Chief Executive Officers and other members of the Board; and
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Presiding over all meetings of Class B Common Stockholders.
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However, because of the significant sharing of executive
responsibility with our two co-CEOs, we do not consider
Dr. Sperling to be our principal executive officer. Rather,
we consider our two co-CEOs, who also serve as directors, to be
our principal executive officers.
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Apollo Group is a controlled company, for purposes of the NASDAQ
Listing Rules. As such, we are not required to have a board
composed of a majority of independent directors. Despite this, a
majority of our directors are independent and each member of our
standing committees is independent. In addition, the Board has a
Lead Independent Director, who presides over regular meetings of
the Independent Director Committee.
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The authority and responsibilities of the Lead Independent
Director are detailed in a Board-approved Charter pursuant to
which the Lead Independent Director has the following specific
responsibilities, among others:
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Advising senior management as to the information, agenda and
meeting schedules for the Board of Directors and Board Committee
meetings;
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Advising senior management as to the quality, quantity and
timeliness of the information submitted by the Companys
management that is necessary or appropriate for the independent
directors to perform their duties effectively;
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Recommending to senior management the retention of advisers and
consultants who report directly to the Board of Directors;
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Assisting the Board of Directors, the Boards Nominating
and Governance Committee and the officers of the company in
ensuring compliance with and implementation of significant
corporate governance standards;
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Developing agendas for and serving as Chairman of meetings of
the Boards independent directors;
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Serving as principal liaison between the independent directors
and senior management on strategy, policy and other matters;
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Recommending to the Nominating and Governance Committee and to
the Chairman the membership of the various Board Committees, as
well as the selection of Committee chairmen; and
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Chairing meetings of the Board of Directors when the Chairman
and Vice Chairman are not present.
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The Charter of the Lead Independent Director is available via
our website at
http://www.apollogrp.edu/CorporateGovernance/CorporateGovernance.aspx
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The Board believes that the foregoing leadership structure
provides an appropriate balance between the authority of those
who oversee the Company and those who manage it on a day-to-day
basis.
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Board Risk Oversight
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The entire Board of Directors considers enterprise level risks
facing Apollo Group. In connection with this, the Board is
informed of developments that could affect our risk profile or
other aspects of our business. Strategic risk, which relates to
our ability to properly define and achieve our high-level goals
and mission, and operating risk, the effective and efficient use
of resources and pursuit of opportunities, are monitored by the
full Board through the Boards approval and periodic review
of our annual operating plan. At each of the Boards
regularly scheduled meetings throughout the year, management
presents an update on the Companys performance.
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In addition, the Audit Committee of the Board of Directors
discusses with senior management the guidelines and policies
governing the process by which management assesses and manages
major financial risks, and the Compensation Committee considers
the risks associated with our compensation policies and
practices with respect to both executive compensation and
compensation generally.
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While the Board oversees our risk management processes in
connection with its approval and review of our annual operating
plan, management is responsible for identifying and managing
risk. We believe this division of responsibility is an
appropriate approach for addressing the risks we face and
believe that our Board leadership structure is consistent with
this approach.
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Director Independence
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The Board of Directors consists of a majority of independent
directors, as independence is determined in accordance with Rule
5605(a)(2) of the NASDAQ Listing Rules. The Board of Directors
has determined that the following incumbent directors are
independent under this standard:
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Dino J. DeConcini,
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Samuel A. DiPiazza, Jr.,
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Stephen J. Giusto,
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Dr. Roy A. Herberger, Jr.,
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Dr. Ann Kirschner,
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K. Sue Redman,
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James R. Reis,*
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Manuel F. (Manny) Rivelo and
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George A. Zimmer.
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* Mr. Reis has decided not to stand for reelection, and his term
will conclude at the Annual Meeting of Class B Shareholders.
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Board Committees
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The Board of Directors has four principal committees as of
December 10, 2010:
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(1)
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an Audit Committee composed of K. Sue Redman (Chair), Stephen
J. Giusto, James R. Reis and Samuel A. DiPiazza, Jr.;
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(2)
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a Compensation Committee composed of Dr. Roy A. Herberger,
Jr. (Chair), Dino J. DeConcini, Manuel F. Rivelo and
Dr. Ann Kirschner;
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(3)
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a Nominating and Governance Committee composed of
Dino J. DeConcini (Chair), Dr. Ann Kirschner and
George Zimmer; and
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(4)
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an Independent Director Committee composed of Dr. Roy A.
Herberger, Jr. (Chair), Dino J. DeConcini, Samuel A. DiPiazza,
Jr., Stephen J. Giusto, Dr. Dr. Ann
Kirschner, K. Sue Redman, James R. Reis, Manuel F. Rivelo and
George A. Zimmer.
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During fiscal year 2010, the Board of Directors also had an
Independent Panel composed of Stephen J. Giusto (Chair) and
Dr. Roy A. Herberger, Jr. The Independent Panel was
disbanded in September 2010.
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Each of the Audit Committee, the Compensation Committee, the
Nominating and Governance Committee and the Independent Director
Committee meets regularly and has a written charter approved by
the Board of Directors, all of which are available via our
website at
http://www.apollogrp.edu/CorporateGovernance/CorporateGovernance.aspx
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In addition, at each regularly scheduled Board of Directors
meeting, a member of each Committee reports on any significant
matters addressed by the Committee. The Board of Directors and
each Committee, as applicable, regularly reviews the Committee
charters. The charters provide, among other items, that each
member must be independent as such term is defined by the
applicable rules of the NASDAQ Listing Rules and the SEC.
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Audit Committee
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The Company has a separately-designated standing Audit Committee
which complies with the standards of Section 3(a)(58)(A) of the
Securities Exchange Act of 1934, as amended. The Audit Committee
is responsible for reviewing the Companys quarterly and
annual financial statements and related press releases and
filings with the SEC and discussing such items with management
and the Companys independent auditors prior to issuance
and filing with the SEC. The Committee reviews and discusses
with management and the independent auditors the adequacy of the
Companys internal controls and procedures. The Committee
has sole authority to appoint, determine funding for and oversee
the work of the Companys independent auditors. The
Committee also reviews on an ongoing basis and at least annually
all transactions with the Company in which directors, executive
officers and their immediate family members have an interest.
See Certain Relationships and Transactions with Related
Persons, below. The Audit Committee held nine meetings during
fiscal 2010. The Board of Directors has determined that K. Sue
Redman, Stephen J. Giusto, James R. Reis and Samuel A. DiPiazza,
Jr. are audit committee financial experts as defined
in Item 407(d) of Regulation S-K. Each of the members of this
committee is an independent director as defined in
Rule 5605(a)(2) of the NASDAQ Listing Rules. The Audit Committee
charter is available on the Companys website at
http://www.apollogrp.edu/CorporateGovernance/CorporateGovernance.aspx
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Compensation Committee
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The Compensation Committee of our Board of Directors, which met
12 times during fiscal 2010, determines all aspects of
compensation of our executive officers. Each of the members of
this committee is an independent director as defined
in Rule 5605(a)(2) of the NASDAQ Listing Rules and an
outside director as defined in Internal Revenue Code
Section 162(m). The Compensation Committee has overall
responsibility for approving and evaluating the compensation
plans and programs for our executive officers. Accordingly, the
Compensation Committee establishes the overall compensation
philosophy governing executive officer compensation, reviews and
approves compensation arrangements for our executive officers
and uses the services of an independent consultant to benchmark
that compensation against a comparator group that it revises
periodically. The Compensation Committee also administers both
our 2000 Stock Incentive Plan with respect to the executive
officers and all other individuals eligible for grants and our
executive officer annual cash incentive bonus plan, recommends
equity retention guidelines for our executive officers and
non-employee
Board members and makes recommendations regarding the
compensation of our non-employee directors. The Compensation
Committee charter is available on the Companys website at
http://www.apollogrp.edu/CorporateGovernance/CorporateGovernance.aspx
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The Compensation Committee has the authority to engage the
services of its own outside advisors for assistance in setting
the compensation levels for our executive officers. For the 2010
fiscal year, the Compensation Committee continued to retain
Pearl Meyer & Partners as its independent compensation
consultant. The nature and scope of the services that Pearl
Meyer & Partners rendered the Compensation Committee are
described in more detail below in the Compensation
Discussion & Analysis section of this Information
Statement. Pearl Meyer & Partners did not perform any other
professional services for the Company and did not receive any
compensation from us during the 2010 fiscal year other than for
services rendered the Compensation Committee.
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The Compensation Committee established, with the approval of the
Board of Directors, a subcommittee designated the Equity Award
Subcommittee. The Equity Award Subcommittee has the authority,
within specified parameters, to make awards under the 2000 Stock
Incentive Plan to faculty members and newly hired individuals.
The Equity Award Subcommittee members are Dr. Roy A.
Herberger, Jr. and Dr. Ann Kirschner, who are also current
members of the Compensation Committee. The Equity Award
Subcommittee did not meet during the 2010 fiscal year. The
Equity Award Subcommittee charter is available on the
Companys website at
http://www.apollogrp.edu/CorporateGovernance/CorporateGovernance.aspx
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Nominating and Governance Committee
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The Nominating and Governance Committee, which met three times
in fiscal 2010, is responsible for recommending to the Board of
Directors nominees for election to the Board, recommending
individuals to the Board of Directors to fill the unexpired term
of any vacancy existing on the Board of Directors, the
development of qualification criteria for new nominees to the
Board of Directors, conducting an assessment of the size and
composition of the Board of Directors and recommending changes
in the Boards size, assisting the Board of Directors with
corporate governance matters, overseeing the orientation and
training of new directors, and consulting with the Chair of the
Board regarding the composition of standing committees of the
Board.
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The Nominating and Governance Committee of the Board considers
candidates for director nominees identified by the Committee,
proposed by other directors, or proposed by holders of our Class
B voting Common Stock, which is our only class of stock entitled
to vote on the election of directors. Currently, all of our
outstanding Class B Common Stock is beneficially owned by
Dr. and Mr. Sperling. The Committee may retain
recruiting professionals to assist in identifying and evaluating
candidates for director nominees. The Committee believes that it
is desirable for the directors to possess a mix of skills and
perspectives (functional, cultural and geographic). In
particular, the Committee endeavors to collectively establish a
number of key areas of expertise on the Board, including
management, accounting and finance, industry knowledge,
marketing, political and regulatory matters, academic
administration and international markets. In selecting nominees,
the Committee assesses candidates independence, business
acumen, personal and professional ethics, integrity, values and
willingness to devote sufficient time to prepare for and attend
meetings and participate effectively on the Board and the degree
to which the candidate possesses one or more of the foregoing
key areas of expertise for directors, including areas not then
represented on the Board. All members of the Board are given the
opportunity to interview final candidates, as part of its
periodic self-evaluation of its effectiveness, considers the
degree to which the directors collectively possess the foregoing
key areas of expertise.
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The Nominating and Governance Committee does not have a policy
regarding the consideration of director candidates recommended
by holders of our Class A Common Stock. The Board believes this
is appropriate because only the holders of our Class B Common
Stock participate in the election of directors.
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Each of the members of this committee is an independent
director as defined in Rule 5605(a)(2) of the NASDAQ
Listing Rules. The Nominating and Governance Committee charter
is available on our website at
http://www.apollogrp.edu/CorporateGovernance/CorporateGovernance.aspx
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Independent Panel
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An Independent Panel was appointed by the court in the
shareholder derivative action entitled Barnett v. John
Blair et al on July 31, 2009. The panels purpose was
to determine whether the maintenance of the derivative action is
in the best interests of the Company, in accordance with the
provisions of Arizona Revised Statutes Section 10-744. The panel
met 7 times during fiscal year 2010 and was disbanded on
September 23, 2010 after the Barnett derivative action was
settled by the parties, and settlement was approved by the court.
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Independent Director Committee
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The Independent Director Committee, which met six times during
fiscal 2010, was formally established in October 2007. The Lead
Independent Director charter is available on our website at
http://www.apollogrp.edu/CorporateGovernance/CorporateGovernance.aspx
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Attendance
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During the fiscal year ended August 31, 2010, the Board of
Directors met on eight occasions and each incumbent Board member
attended at least 80% of the aggregate number of meetings of the
Board of Directors and each Committee of the Board on which such
Board member served (during the periods that he or she served on
such Committee).
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We do not have a formal policy mandating attendance by members
of the Board of Directors at our annual shareholders meetings.
No independent directors attended the Annual Meeting of the
holders of our Class A Common Stock held in February 2010 or
Class B Common Stock held in February 2010.
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Chart of Board and
Committee Member
Changes
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The chart below indicates the members of the Board of Directors
and the five committees of the Board as of December 10,
2010, including changes since August 31, 2009.
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Nominating
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and
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Independent
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Board of
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Audit
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Compensation
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Governance
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Director
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Independent
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Directors
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Committee
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Committee
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Committee
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Committee
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Panel
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Dr. John G. Sperling
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C
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Peter V. Sperling
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Terri C. Bishop
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Gregory W. Cappelli
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Dino J. DeConcini
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M(2)
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Samuel A. DiPiazza, Jr.
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M(1)
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M(1)
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M(1)
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Charles B. Edelstein
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Stephen J. Giusto
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C(3)
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Dr. Roy A. Herberger, Jr.
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C(2)
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M(3)
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Dr. Ann Kirschner
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K. Sue Redman
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James R. Reis
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M(5)
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M(5)
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M(5)
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Manuel F. Rivelo
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George A. Zimmer
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Current Chair
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Current Member
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(1)
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Mr. DiPiazza joined the Board on December 7, 2009, and
was appointed to the Audit Committee on December 10, 2009.
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(2)
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On September 23, 2010, Mr. DeConcini resigned as Lead
Independent Director, and Dr. Herberger was appointed as
Lead Independent Director.
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(3)
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On September 23, 2010, the Independent Panel was disbanded.
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(4)
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Dr. Kirschner was appointed to the Nominating and
Governance Committee on December 9, 2010.
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(5)
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Mr. Reis has decided not to stand for reelection, and his
term will conclude at the Annual Meeting of Class B
Shareholders.
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8
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OUR DIRECTORS
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Set forth below are the names, ages and business experience of
the directors of Apollo Group as of December 10, 2010. All of
the incumbent directors are nominees for re-election at the
Annual Meeting of Class B Shareholders except Mr. Reis, who has
decided not to stand for reelection. The vacancy on the Board of
Directors is not being filled at this time. The Nominating and
Governance Committee, consisting solely of independent directors
as determined under the rules of the NASDAQ Listing Rules, has
recommended all of the nominees for election by the holders of
Class B Common Stock. The nominees will be elected if approved
by a plurality of the votes cast by the holders of outstanding
Class B Common Stock. The holders of Class B Common Stock are
entitled to cumulate their votes in the election of directors,
meaning that each holder can cast, on an aggregate basis, that
number of votes equal to the number of nominees multiplied by
the number of shares held. Because there are only two beneficial
owners of Class B Common Stock, which is not listed on an
exchange, there will be no broker non-votes. If elected, the
nominees will serve as directors until the next annual meeting
of our holders of Class B Common Stock in 2012. As of the date
of this Information Statement, the Board of Directors is not
aware of any nominee who is unable or who will decline to serve
as a director, if elected.
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Name
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Principal Occupation During the Past Five Years
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Age
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Dr. John G. Sperling
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See Dr. Sperlings biographical information below
under Our Executive Officers.
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89
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Dr. Sperling is the founder of Apollo Group and is regarded
as one of the pioneers of the proprietary education industry.
Dr. Sperling brings to the Board deep and comprehensive
knowledge of Apollo Group and the proprietary education
industry, as well as the higher education sector.
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Terri C. Bishop
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See Ms. Bishops biographical information below under
Our Executive Officers.
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57
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Ms. Bishop, who serves as Executive Vice President, Integrated
Academic Strategies and Senior Advisor to the Chief Executive
Officers of Apollo Group, has been involved with Apollo Group
since 1982, serving is many capacities, including Executive Vice
President, External Affairs, Chief Communications Officer and
Senior Vice President of Public Affairs. Her deep knowledge and
diverse experience at Apollo Group bring valuable institutional
expertise to the Board.
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Gregory W. Cappelli
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See Mr. Cappellis biographical information below under
Our Executive Officers.
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43
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As the Co-Chief Executive Officer of Apollo Group and Chairman
of Apollo Global, Mr. Cappelli brings to the Board the senior
leadership perspective of Apollo Group, as well has his
extensive knowledge of the proprietary education sector.
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Dino J. DeConcini
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Mr. DeConcini became a member of the Board of Directors of the
Company in 1992. He currently serves as Chair of the Nominating
and Governance Committee and a member of the Compensation
Committee. From October 2007 to September 2010, he served as
Lead Independent Director and from December 2006 to October
2007, Mr. DeConcini served as Chair of the Compensation
Committee. He also served as a member of the Audit Committee
from fiscal year 1996 to March 2009. From 2002 to 2008, Mr.
DeConcini was Senior Vice President of Projects International,
Inc., an international business consulting firm.
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76
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9
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Name
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Principal Occupation During the Past Five Years
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Age
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From 1995 to 2000, Mr. DeConcini was the Executive Director,
Savings Bonds Marketing Office, U.S. Department of the Treasury.
From 1991 to 1993 and 1980 to 1990, Mr. DeConcini was a Vice
President and partner of Paul R. Gibson & Associates, an
international business consulting firm. Between 1981 and 1992,
he was a member of the Board of Directors of the University of
Phoenix, Inc. He served as a member of the Board of Directors of
Arizona Public Service Company from 1980 to 1990. From 1979 to
1995, Mr. DeConcini was a shareholder and employee of DeConcini,
McDonald, Brammer, Yetwin and Lacy, P.C., Attorneys at Law.
He was Chief of Staff for the Governor of Arizona from 1975
through 1978. Mr. DeConcini is a graduate of the Georgetown
University School of Foreign Service and the University of
Arizona Law School.
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Mr. DeConcini brings to the board significant prior experience
as a director of Apollo Group, international business expertise,
and expertise in governmental regulatory matters.
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Samuel A. DiPiazza, Jr.
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Samuel A. DiPiazza, Jr. became a director of Apollo Group and a
member of the Audit Committee in December 2009. From January
2002 to June 2009, Mr. DiPiazza served as Global Chief Executive
Officer of PricewaterhouseCoopers International Limited. Prior
to serving as Global Chief Executive Officer, Mr. DiPiazza was a
tax partner with the firm, specializing in mergers and
acquisitions, the financial services industry and international
tax. During the period prior to 2002, Mr. DiPiazza held
various regional leadership roles within
PricewaterhouseCoopers domestic practice, eventually
serving as chairman and senior partner of its U.S. operations
and as a member of the global leadership team. Mr. DiPiazza
began his career with PricewaterhouseCoopers in 1973 and was
named partner in 1979. Mr. DiPiazza also serves as a
trustee of the International Accounting Standards Committee
Foundation, is the past chairman of the Geneva-based World
Business Council on Sustainable Development, serves on the USA
Foundation Board of the World Economic Forum, and is a member of
the executive committee and the immediate past chairman of the
board of trustees of The Conference Board, Inc. Mr. DiPiazza is
the past global chairman of Junior Achievement Worldwide, and
serves as a member of the executive council of the Inner-City
Scholarship Fund in New York City. He currently serves on the
Board of Directors of Direct TV, Inc. Mr. DiPiazza received a
degree in Accounting from the University of Alabama, an MS in
Tax Accounting from the University of Houston and is a Certified
Public Accountant.
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60
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As the former Global Chief Executive Officer and former tax
partner of PricewaterhouseCoopers International Limited, Mr.
DiPiazza brings to the Board significant international,
financial, accounting and corporate governance experience.
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Charles B. Edelstein
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See Mr. Edelsteins biographical information below under
Our Executive Officers.
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50
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As the Co-Chief Executive Officer of Apollo Group,
Mr. Edelstein brings to the Board the senior leadership
perspective of Apollo Group, as well has his extensive knowledge
of the proprietary education sector.
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10
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Name
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Principal Occupation During the Past Five Years
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Age
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Stephen J. Giusto
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Stephen J. Giusto has been a director of Apollo Group and a
member of the Audit Committee since March 2009. He also served
as Chair of the Independent Panel from its formation in July
2009 until it was disbanded in September 2010. Mr. Giusto is
currently the CEO of SJG Consulting which provides strategy,
financial and operational advice to services businesses. During
2010 he served as Senior Advisor to the Chief Executive Officer
of Korn Ferry International, a leading executive search and
leadership consulting firm and before that he served as its
Executive Vice President and Chief Financial Officer. Before
joining Korn Ferry in November 2007, Mr. Giusto was a Founder,
Director, Executive Vice President and Chief Financial Officer
of Resources Connection, Inc., a global professional services
firm. Mr. Giusto began his career at Deloitte & Touche
where he spent 13 years and was admitted as a partner in
1996. Mr. Giusto holds a Bachelor of Science degree in
business from California Polytechnic State University,
San Luis Obispo and is an inactive Certified Public
Accountant. He was named the Orfalea School of Business Honored
Alumnus in 2005 and is a member of their Deans Advisory
Council. He is also a member of the board of trustees and
chairman of the finance committee of Cate School, and a member
of the board and past chairman of the American Cancer Society
Orange County region.
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48
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As the former Executive Vice President and Chief Financial
Officer of Korn Ferry, Founder and former Director,
Executive Vice President and Chief Financial Officer of
Resources Connection, Inc., and former partner of Deloitte
& Touche, Mr. Giusto brings to the Board significant
international, human resources, financial, accounting and
corporate governance experience.
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Dr. Roy A. Herberger, Jr.
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Dr. Herberger has been a director of Apollo Group since
June 2007 and is currently Lead Independent Director and Chair
of the Compensation Committee and was a member of the
Independent Panel until it was disbanded in September 2010.
Dr. Herberger is also President Emeritus of Thunderbird
School of Global Management, and served as the schools
President from 1989 until 2004. From 1982 until 1989, he served
as Dean of the Edwin L. Cox School of Business at Southern
Methodist University. He previously served as Associate Dean for
Academic Affairs at the Graduate School of Business at the
University of Southern California (USC) and director of the
International Business Education and Research Program, also at
USC. Dr. Herberger currently serves on the Board of
Directors of Pinnacle West Capital Corporation and on the Board
of Trustees of the Mayo Clinic. He previously served on the
Advisory Board of MedAire Inc. Dr. Herberger holds a
bachelors degree in Business and a Master of Arts in
Communication from the University of Texas, Austin. He also
holds a doctoral degree in Business from the University of
Colorado, Boulder.
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68
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Dr. Herbergers experience as President of Thunderbird
School of Global Management, Dean of the Edwin L. Cox School of
Business at Southern Methodist University and Associate Dean for
Academic Affairs at the Graduate School of Business at the
University of Southern California provides the Board with
extensive expertise in higher education.
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11
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Name
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Principal Occupation During the Past Five Years
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Age
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Dr. Ann Kirschner
|
|
Dr. Ann Kirschner has been a director of Apollo Group since
November 2007, a member of the Compensation Committee since
December 2007, and a member of the Nominating and Governance
Committee since December 9, 2010. Since 2006, Dr. Kirschner
has been the University Dean of Macaulay Honors College of The
City University of New York. From 1991 to 1994, and from 2001 to
2006, Dr. Kirschner served as president of Comma
Communications, a consulting company specializing in higher
education and technology, where she focused on strategic
planning for public and private universities and education
companies. Her career as an entrepreneur in media and technology
has included founding Fathom, an online knowledge network, in
association with Columbia University. She also co-created NFL
SUNDAY TICKET and NFL.COM for the National Football League.
Dr. Kirschner serves on the Board of Directors of Public
Agenda. Previously she served on the Board of Directors of Topps
Company, Inc. and Onhealth.com. Dr. Kirschner received her
Doctor of Philosophy in English literature from Princeton
University, a Master of Arts from the University of Virginia,
and a Bachelor of Arts from the State University of New York at
Buffalo.
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59
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Dr. Kirschners experience as University Dean of
Macaulay Honors College of The City University of New York and
former president of Comma Communications provides the Board with
extensive expertise in higher education. Her experience as an
entrepreneur also brings to the Board expertise in marketing,
media and technology.
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K. Sue Redman
|
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K. Sue Redman has been a director of Apollo Group and Chair of
the Audit Committee since December 2006. She is a former member
of the Compensation Committee and the Special Committee formed
to oversee the Companys stock option practices, which was
disbanded in March 2009. Ms. Redman is president of Redman
Advisors, LLC, a private consulting firm that specializes in the
areas of enterprise risk management, corporate finance,
accounting and strategy. From 2004 to 2008, Ms. Redman served as
Senior Vice President and Chief Financial Officer of Texas
A&M University. From 1999 to 2004, Ms. Redman was a Vice
President and Corporate Controller of AdvancePCS, Inc. From 1980
to 1999, Ms. Redman held various positions, most notably as a
partner with the accounting firm PricewaterhouseCoopers LLP,
where she provided accounting and consulting services to both
public and private companies in a variety of industries. Ms.
Redman earned her Bachelor of Business Administration in
Accounting from Texas A&M University and is a Certified
Public Accountant in Texas, Arizona and California.
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53
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Ms. Redmans experience as Senior Vice President and Chief
Financial Officer of Texas A&M University, Vice President
and Corporate Controller of AdvancePCS, Inc. and partner at
PricewaterhouseCoopers LLP provides significant finance and
accounting expertise to the Board, including specific
post-secondary education expertise.
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12
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Name
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Principal Occupation During the Past Five Years
|
|
Age
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James R. Reis
|
|
James R. Reis has been a director of Apollo Group and a member
of the Audit Committee since January 2007 and was the former
Chair of the Special Committee formed to oversee the
Companys stock option practices, which was disbanded in
March 2009. Since 2007, Mr. Reis has served as Vice Chairman of
GAINSCO, INC., an insurance company, and previously served as
its Executive Vice President. Since 2001, Mr. Reis has performed
merchant banking and management consulting services through
First Western Capital, LLC, of which he is the founder, managing
director and owner, and through which he provided consulting
services to a subsidiary of GAINSCO, INC. from 2003 to 2005. Mr.
Reis served as Vice Chairman of Pilgrim America Capital
Corporation, an asset management company, which he co-founded,
from 1989 to 2000 when it was acquired by ING Groep NV. Mr. Reis
also currently serves on the Board of Directors of Arcadia
Bio-Science, Inc., which is controlled by Dr. Sperling. Mr.
Reis received his Bachelor of Science from St. John Fisher
College in Rochester, New York and is an inactive Certified
Public Accountant.
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53
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Mr. Reis experience as Vice Chairman and Executive Vice
President of GAINSCO, INC., founder, managing director and owner
of First Western Capital, LLC and founder and manager of Pilgrim
America Capital Corporation brings business, operational,
accounting, finance and management expertise to the Board.
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Manuel F. Rivelo
|
|
Manuel F. Rivelo has been a director of Apollo Group and a
member of the Compensation Committee since March 2009. Mr.
Rivelo has been employed by Cisco Systems, Inc., an information
technology provider, since 1992, and is currently Senior Vice
President of Ciscos Enterprise Systems and Operations
group within the Enterprise, Commercial and Small Business
development organization. Mr. Rivelo also oversees multiple
internal councils and boards that address business and technical
requirements for Cisco customers of all sizes. He is also
responsible for operational excellence, standardization around
processes and tools, enabling new business models, and strategic
communications. Prior to his current role Mr. Rivelo was a
member of the Cisco Development Council, the senior leadership
team of the Cisco Development Organization. He previously served
as a systems engineer and was named Ciscos head of the
worldwide systems engineering (SE) organization. Mr. Rivelo
holds a bachelors and masters degree in electrical
engineering from the Stevens Institute of Technology.
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46
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Mr. Rivelos experience at Cisco Systems, Inc., most
recently as Senior Vice President of Ciscos Enterprise
Systems and Operations group, brings technology, management and
operational expertise to the Board.
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Peter V. Sperling
|
|
See Mr. Sperlings biographical information below under
Our Executive Officers.
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51
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Mr. Sperling has been with Apollo Group since 1983 and brings
his knowledge of Apollo Group to the Board.
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13
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Name
|
|
Principal Occupation During the Past Five Years
|
|
Age
|
|
|
George A. Zimmer
|
|
George A. Zimmer has been a director of Apollo Group since June
2006 and a member of the Nominating and Governance Committee
since October 2007. Until October 2007, Mr. Zimmer also served
on the Compensation Committee. Mr. Zimmer is the founder, Chief
Executive Officer and Chairman of The Mens Wearhouse,
Inc., a retailer of mens apparel. Mr. Zimmer is currently
a member of the board of the Institute of Noetic Sciences in
Petaluma, California, and serves on several advisory boards
including The Boys & Girls Club of Oakland, California, and
the World Business Academy of Ojai, California. Mr. Zimmer
received his Bachelor of Arts in Economics from Washington
University.
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62
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As the Chief Executive Officer of founder, Chief Executive
Officer and Chairman of The Mens Wearhouse, Inc., Mr.
Zimmer brings senior leadership, strategic and management
expertise to the Board.
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14
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|
OUR EXECUTIVE OFFICERS
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|
Set forth below are the names, ages, positions and business
experience of the executive officers of Apollo Group as of
December 10, 2010.
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Name and Position
|
|
Principal Occupation During the Past Five Years
|
|
Age
|
|
Dr. John G. Sperling
Executive Chairman of the Board
|
|
Dr. John G. Sperling is the founder and the Executive
Chairman of the Board of Apollo Group. Dr. Sperling was
President of Apollo Group until February 1998, Chief Executive
Officer of Apollo Group until August 2001 and Chairman of the
Board until June 2004. Dr. Sperling served as Acting
Executive Chairman of the Board from January 2006 to September
2008 and has served as Executive Chairman of the Board since
September 2008. Prior to his involvement with Apollo Group, from
1961 to 1973, Dr. Sperling was a professor of Humanities at
San Jose State University where he was the Director of the
Right to Read Project and the Director of the NSF Cooperative
College-School Science Program in Economics. At various times
from 1955 to 1961, Dr. Sperling was a member of the faculty
at the University of Maryland, Ohio State University and
Northern Illinois University. Dr. Sperling received his
Doctor of Philosophy from Cambridge University, a Master of Arts
from the University of California, Berkeley, and a Bachelor of
Arts from Reed College. Dr. Sperling is the father of
Peter V. Sperling.
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89
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Peter V. Sperling
Vice Chairman of the Board
|
|
Peter V. Sperling was appointed Vice Chairman of the Board of
Apollo Group in June 2008. Mr. Sperling was a Senior Vice
President of Apollo Group from June 1998 to December 2007 and
Secretary of Apollo Group from June 2006 to December 2007. Mr.
Sperling has been with Apollo Group since 1983. Mr. Sperling was
Vice President of Administration from 1992 to June 1998 and
served as Secretary and Treasurer of Apollo Group from 1988 to
January 2003. From 1987 to 1992, Mr. Sperling was Director of
Operations at Apollo Education Corporation. From 1983 to 1987,
Mr. Sperling was Director of Management Information
Services of Apollo Group. Mr. Sperling received his Master of
Business Administration from The University of Phoenix and his
Bachelor of Arts from the University of California,
Santa Barbara. Mr. Sperling is also the Chairman and
co-founder of CallWave, Inc., a telecommunications services
corporation. Mr. Sperling is the son of Dr. John G.
Sperling.
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51
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Gregory W. Cappelli
Co-Chief Executive Officer
|
|
Gregory W. Cappelli was appointed Co-Chief Executive Officer in
April 2009. Mr. Cappelli has also been serving as Chairman of
Apollo Global since its inception in October 2007 and a director
of Apollo Group since June 2007. Mr. Cappelli previously served
as Executive Vice President of Global Strategy and Assistant to
the Executive Chairman from April 2007 to April 2009. Before
joining Apollo Group, Mr. Cappelli spent 10 years as a
research analyst for Credit Suisse, where he most recently
served as Managing Director and Senior Research Analyst and
founded the Credit Suisse Global Services Teams. Before joining
Credit Suisse, Mr. Cappelli was Vice President and Senior
Research Analyst with ABN AMRO. He holds his Bachelor of Arts in
Economics from Indiana University and his Master of Business
Administration from the Brennan School of Business at Dominican
University. Mr. Cappelli is currently on the board of directors
for Everybody Wins and on the board of trustees of Dominican
University.
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43
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15
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|
Name and Position
|
|
Principal Occupation During the Past Five Years
|
|
Age
|
|
Charles B. Edelstein
Co
-
Chief Executive Officer
|
|
Mr. Edelstein became Chief Executive Officer and a director of
the Board of Apollo Group in August 2008 and Co-Chief Executive
Officer in April 2009. Prior to joining Apollo Group, Mr.
Edelstein was employed by Credit Suisse, a financial services
firm, since 1987, and served as a Managing Director since 1998.
He was also the head of the Global Services Group within the
Investment Banking Division of Credit Suisse. His focus was on
providing advisory services regarding acquisitions, dispositions
and capital raising transactions. Mr. Edelstein founded and
oversaw Credit Suisses leading advisory practice in the
education industry, where he served as advisor to many of the
largest education companies, including Apollo Group. Prior to
that, he worked at Price Waterhouse (now PricewaterhouseCoopers)
for three years as an auditor and management consultant. Mr.
Edelstein sits on the Chicago board of directors for both Teach
for America and Junior Achievement. He received a Bachelor of
Arts with highest distinction from the University of Illinois
and a Master of Business Administration from the Harvard
Business School, where he graduated as a Baker Scholar with high
distinction.
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50
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|
Joseph L. DAmico
President and Chief Operating Officer
|
|
Joseph L. DAmico was appointed President and Chief
Operating Officer in March 2009. Previously, Mr. DAmico
served as President, Chief Financial Officer and Treasurer from
June 2008 to March 2009; Executive Vice President and Chief
Financial Officer from June 2007 to June 2008; and served in the
role of Chief Financial Officer from December 8, 2006 to June
2007 as a consultant. Prior to joining the Company, Mr.
DAmico was a senior managing director of FTI Palladium
Partners, an interim management company and a division of FTI
Consulting, Inc. Prior to joining FTI in August 2002, he was a
partner with PricewaterhouseCoopers LLP for 21 years where
he served in leadership roles in the firms Financial
Advisory Services group as well as having served as an audit
partner earlier in his career, responsible for public and
privately held companies. He received his Master of Business
Administration from the University of Chicago and his Bachelor
of Science in Accountancy from the University of Illinois at
Urbana-Champaign and is an inactive Certified Public Accountant.
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61
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Terri C. Bishop
Executive Vice President, Integrated Academic Strategies,
Senior Advisor to the Chief Executive Officers
|
|
Terri C. Bishop became Executive Vice President, Integrated
Academic Strategies and Senior Advisor to the Chief Executive
Officers in November 2010. Ms. Bishop has also been serving as a
director of Apollo Group since March 2009. Ms. Bishop served as
Executive Vice President, External Affairs from 2008 to 2010 and
Chief Communications Officer and Senior Vice President of Public
Affairs of Apollo Group from 1999 to 2008, overseeing public and
government relations. Except for her service as Executive Vice
President of Convene International, an education software
company, from 1998 to 1999, Ms. Bishop has been with the Apollo
Group since 1982 and during that time she has served in the
areas of institutional licensure and accreditation, curriculum
development, institutional research and online learning. She was
the founding director of University of Phoenix Online, providing
oversight during its first 10 years of start up and
development. Ms. Bishop received her bachelors degree in
Business and Master of Arts in Human Relations and
Organizational Management from University of Phoenix.
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57
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16
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Name and Position
|
|
Principal Occupation During the Past Five Years
|
|
Age
|
|
Sean B. W. Martin
Senior
V
ice President, General Counsel and
Secretary
|
|
Sean B. W. Martin was appointed Senior Vice President, General
Counsel and Secretary in September 2010. Mr. Martin previously
served in various legal capacities at Amgen commencing in 2005,
including most recently as Vice President of Corporate Law and
Assistant Secretary. At Amgen, Mr. Martin managed corporate
legal matters, including corporate governance, SEC filings,
merger and acquisition activity, investor relations and complex
regulatory issues, and handled contracting, sales, marketing,
reimbursement, antitrust and pricing issues. From 2000 to 2005,
Mr. Martin served as Vice President and Deputy General
Counsel at Fresenius Medical Care North America where he oversaw
commercial litigation, regulatory affairs and other legal
matters. From 1998 to 2000, Mr. Martin was a litigation partner
at the law firm Foley & Lardner, focusing on corporate
compliance, health care fraud and abuse, internal investigations
and commercial litigation. Prior to that, Mr. Martin spent
nearly nine years as Assistant U.S. Attorney for the Northern
District of Illinois. In addition, he has served as an adjunct
professor at the Loyola University School of Law. Mr. Martin
earned a Bachelor of Arts in History from the University of
Michigan, as well as a Juris Doctor from Harvard Law School,
where he graduated magna cum laude. After law school, he clerked
for the Honorable Andrew J. Kleinfeld, U.S. District Court Judge
(D. Alaska).
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47
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Brian L. Swartz
Senior Vice President and Chief Financial Officer
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Brian L. Swartz was appointed Chief Financial Officer in March
2009 and Senior Vice President of Finance in June 2007. Mr.
Swartz previously served as Treasurer from March 2009 to
February 2010, Chief Accounting Officer from February 2007 to
March 2009 and Vice President, Corporate Controller and Chief
Accounting Officer from February 2007 to June 2007. Prior to
joining the Company, Mr. Swartz was with EaglePicher
Incorporated, a technology and industrial products and services
company, from 2002 to 2006, as its Vice-President and Corporate
Controller. At EaglePicher, Mr. Swartz was an integral member of
their senior management team and successfully guided the company
through a bankruptcy restructuring. From 1994 to 2002, Mr.
Swartz was at Arthur Andersen LLP where he had primary
responsibilities in international audit and due diligence
projects. He graduated from the University of Arizona with a
Bachelor of Science in Accounting and was a member of the Warren
Berger Entrepreneurship Program. Mr. Swartz is a Certified
Public Accountant. Mr. Swartz is on the board of directors of
the Arizona Society of Certified Public Accountants and of the
Phoenix Childrens Hospital Foundation.
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17
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Name and Position
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Principal Occupation During the Past Five Years
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Age
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Robert W. Wrubel
Executive Vice President, Chief Marketing and Product
Development Officer
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Robert W. Wrubel was named Executive Vice President and Chief
Marketing and Product Development Officer in December 2009. He
served as Senior Vice President, Marketing from November 2008 to
December 2009 and as Vice President, Marketing from June 2008 to
November 2008. He also has served as Chief Executive Officer of
Aptimus, Inc., a wholly-owned subsidiary of Apollo Group, since
it was acquired by Apollo Group in October 2007. Before joining
Aptimus in 2005, Mr. Wrubel was co-founder and co-Chief
Executive Officer of Yoga Works, the countrys largest yoga
and alternative fitness company. Prior to that, Mr. Wrubel was
Entrepreneur-in-residence at Highland Capital Partners, a
venture capital firm. From 1998 to 2001, Mr. Wrubel was the
founding Chief Executive Officer of Ask Jeeves, where he grew
the company to become one of the top-ranked search engines.
Before Ask Jeeves, Mr. Wrubel was the Chief Operating Officer of
Knowledge Adventure, a publisher of educational software brands
including Jumpstart and MathBlaster. Mr. Wrubel received his
Bachelor of Arts in History and Economics from Yale University.
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Gregory J. Iverson
Vice President, Chief Accounting Officer and
Controller
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Gregory J. Iverson was appointed Vice President, Chief
Accounting Officer and Controller in March 2009. He served as
Vice President and Corporate Controller from April 2007 to March
2009. He joined the Company from US Airways Group, Inc. where he
served as Director, Financial Reporting from 2006 to 2007.
Previously, he was Director, Assistant Corporate Controller with
EaglePicher Incorporated from 2003 to 2006. Mr. Iverson
began his career in public accounting and worked as Assurance
Manager with Arthur Andersen, LLP and Deloitte & Touche
LLP. He graduated summa cum laude from The University of Idaho
with a Bachelor of Science in Business. Mr. Iverson is a
Certified Public Accountant.
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Dr. William J. Pepicello
President, University of Phoenix, Inc.
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Dr. William J. Pepicello became Provost of University of
Phoenix in January 2006 and was appointed as President in
October 2006. Dr. Pepicello has been with University of
Phoenix since 1995. Dr. Pepicello served as Vice Provost
for Academic Affairs from 2003 to 2006 and Dean of the School of
Advanced Studies from 2002 to 2003. From 2000 to 2002,
Dr. Pepicello was President of University of Sarasota and
then Chief Academic Officer of American Intercontinental
University. From 1995 to 2000, he was Dean of the College of
General and Professional Studies and also held the position of
Vice President of Academic Affairs of University of Phoenix.
Dr. Pepicello holds both a Master of Arts and a Doctor of
Philosophy in Linguistics from Brown University and a Bachelor
of Arts in Classics from Gannon University.
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Name and Position
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Principal Occupation During the Past Five Years
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Age
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Frederick J. Newton
Senior Vice President and Chief Human Resources
Officer
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Frederick J. Newton was appointed Senior Vice President and
Chief Human Resources Officer in March 2009. Prior to joining
Apollo Group, from 2006 to 2009, Mr. Newton held the position of
Chief People Officer at SSC Schottenstein Stores Corporation, a
privately held holding company consisting of numerous legal
brands including DSW, Inc., American Eagle Outfitters, American
Signature Furniture, Filenes Basement, Judith Leiber and
Steuben Glass. From 2002 to 2006 Mr. Newton served as Executive
Vice President and Chief Administrative Officer at Cinergy Corp.
From 1998 to 2002 he served as Senior Vice President and Chief
Administration Officer at LG&E Energy Corporation. Prior to
joining LG&E Energy Corporation, Mr. Newton was part of the
senior management team at Venator Corp. (parent company of
Footlocker and Champs Sports, among others) and Unilever/Lever
Brothers Co. Mr. Newton began his corporate career at
Pepsico/Frito-Lay, Inc. and prior to that, he spent seven years
as an officer and aviator in the United States Navy. Mr. Newton
has a Bachelor of Science in Business Administration from the
University of Rhode Island, a Master of Business Administration
in Labor Relations from San Diego State University and has
completed the Advanced Management Program at Harvard Business
School. Mr. Newton serves on the board of directors for the
Phoenix/Tucson Region of Teach for America.
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19
OUR CORPORATE GOVERNANCE PRACTICES
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OUR CORPORATE GOVERNANCE PRACTICES
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At Apollo Group, we believe that strong and effective corporate
governance procedures and practices are an extremely important
part of our corporate culture. In that spirit, we have
summarized several of our corporate governance practices below.
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Monitoring Board Effectiveness
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It is important that our Board of Directors is performing
effectively and in the best interests of the Company and its
shareholders. The Board of Directors annually assesses its
effectiveness in fulfilling its obligations. In addition, our
Nominating and Governance Committee is charged with annually
reviewing the Board of Directors and its membership.
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Independent Director Committee
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The Independent Director Committee meets regularly in executive
sessions without Apollo Group management or any non-independent
directors.
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Hiring Outside Advisors
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The Board and each of its Committees may retain outside advisors
and consultants of their choosing at the Companys expense,
without managements consent.
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Code of Business Ethics
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Apollo Group expects its directors, executives and employees to
conduct themselves with the highest degree of integrity, ethics
and honesty. Apollo Groups credibility and reputation
depend upon the good judgment, ethical standards and personal
integrity of each director, executive and employee. In order to
provide assurances to Apollo Group and its shareholders, Apollo
Group has adopted a Code of Business Ethics which provides clear
conflict of interest guidelines to its employees, as well as an
explanation of reporting and investigatory procedures. The Code
of Business Ethics is available on our website at:
http://www.apollogrp.edu/CorporateGovernance/CodeofEthics.aspx
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The Code of Business Ethics applies to all employees, including
our directors, executive officers, principal financial officer,
principal accounting officer and all other members of our
finance department. If the Company makes any amendment to, or
grants any waiver from, a provision of the Code of Business
Ethics that applies to our principal executive officers,
principal financial officer, principal accounting officer,
controller or certain other senior officers and requires
disclosure under applicable SEC rules, we intend to disclose
such amendment or waiver and the reasons for the amendment or
waiver on our website,
http://www.apollogrp.edu
,
and as required by NASDAQ, file a Current Report on Form 8-K
with the SEC reporting the amendment or waiver.
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Providing Transparency
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Apollo Group believes it is important that shareholders
understand our governance practices. In order to help ensure
transparency of our practices, we have posted information
regarding our corporate governance procedures on our website at
http://www.apollogrp.edu/CorporateGovernance/CorporateGovernance.aspx
.
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Communications with the Board of Directors
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Although Apollo Group does not have a formal policy regarding
communications with the Board of Directors, shareholders may
communicate with the Board of Directors by writing to the
Company at Apollo Group, Inc., Attention: Investor Relations,
4025 South Riverpoint Parkway, Phoenix, Arizona, 85040.
Shareholders who would like their submission directed to a
specific member of the Board may so specify, and the
communication will be forwarded, as appropriate.
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Controlled Company
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We are a Controlled Company as defined in Rule
5615(c)(1) of the NASDAQ Listing Rules, because more than 50% of
the voting power of Apollo Group Common Stock is held by the
John Sperling Voting Stock Trust. As a consequence, we are
exempt from certain requirements of NASDAQ Listing Rule 5605,
including that (a) our Board be composed of a majority of
Independent Directors (as defined in NASDAQ Listing Rule
5605(a)(2)), (b) the compensation of our officers be determined
by a majority of the independent directors or a compensation
committee composed solely of independent directors and (c)
nominations to the Board of Directors be made by a majority of
the independent directors or a nominations committee composed
solely of independent directors. However, NASDAQ Listing Rule
5605(b)(2) does require that our independent directors have
regularly scheduled meetings at which only independent directors
are present (executive sessions) and Internal
Revenue Code Section 162(m) does require a compensation
committee of outside directors (within the meaning of Section
162(m)) to approve stock option grants to executive officers in
order for us to be able to deduct the stock option grants as an
expense. Notwithstanding the foregoing exemptions, we do have a
majority of independent directors on our Board of Directors and
we do have a Compensation Committee and a Nominating and
Governance Committee composed solely of independent directors.
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Certain Relationships and Transactions with Related
Persons
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The Audit Committee reviews on an ongoing basis and at least
annually all related party transactions, which are transactions
with the Company in which directors, executive officers or their
immediate family members have an interest, for potential
conflict of interest situations. The Committees
responsibility is set forth in the Audit Committee Charter. To
identify transactions with related persons, we regularly require
our directors and executive officers to complete questionnaires
identifying any transactions with us in which the executive
officer or director or their family members have an interest. A
conflict of interest occurs when an individuals private
interest interferes, or appears to interfere, with our
interests. The Committee evaluates related person transactions
in accordance with the standards set forth in our Code of Ethics.
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Yo Pegasus, LLC
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Yo Pegasus, LLC, an entity controlled by Dr. John G.
Sperling, leases an aircraft to us as well as to other entities.
Payments to Yo Pegasus for the business use of the airplane,
including hourly flight charges, fuel, and direct operating
expenses during fiscal year 2010 were $0.3 million. This amount
is included in general and administrative expenses in the
Consolidated Statements of Income.
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Sperling Gallery
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In January 2010, we purchased certain artwork from an art
gallery owned by Virginia Sperling for $88,110. Virginia
Sperling is the former wife of Dr. John Sperling and the
mother of Mr. Peter Sperling. Before purchasing this artwork, we
leased it pursuant to a contract between Apollo Group and the
art gallery. Lease payments under the contract during fiscal
year 2010 were $8,000.
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Earth Day Network
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We have provided grants directly or through University of
Phoenix Foundation, a non-profit entity affiliated with the
University of Phoenix, to Earth Day Network totaling $500,000 in
fiscal year 2010. Art Edelstein, the Director of Development of
Earth Day Network, is the brother of Charles B. Edelstein, our
Co-Chief Executive Officer.
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Cisco Systems, Inc.
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During fiscal year 2010, we purchased goods and services from
Cisco Systems, Inc., directly and through third party sellers,
in the normal course of our business, and we expect to do so in
the future. Manuel F. Rivelo, a member of our Board of
Directors, is employed by Cisco Systems, Inc. as Senior Vice
President of Enterprise Systems and Operations.
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Deferred Compensation Agreement with Dr. John G.
Sperling
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The deferred compensation agreement relates to an agreement
between Apollo and Dr. John G. Sperling. The related
$2,948,000 liability balance is included in other long-term
liabilities in our Consolidated Balance Sheet.
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Ensuring Auditor Independence
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Apollo Group has taken a number of steps to ensure the continued
independence of our independent auditors. Our independent
auditors report directly to the Audit Committee, which is
required to approve in advance or reject any non-audit services
proposed to be conducted by our independent auditors.
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22
COMPENSATION
DISCUSSION & ANALYSIS
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I.
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Executive
Summary of 2010 Fiscal Year Compensation Actions and
Decisions
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The core principle of our compensation philosophy for executive
officers continues to be a strong
pay-for-performance
structure that ties a significant portion of each executive
officers compensation to both company and individual
performance. Company performance is measured in terms of
financial and strategic goals that contribute to the creation of
long-term shareholder value, and individual performance is
measured primarily in terms of qualitative factors. For the 2010
fiscal year, we believe we effectively executed this philosophy
through the following actions and decisions:
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We targeted cash compensation opportunities in the form of base
salary and target bonus at the
50
th
percentile
of our peer group and targeted total direct compensation (base
salary plus annual target bonus plus the grant-date value of
annual equity awards) at the
75
th
percentile.
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We structured a substantial portion (at least 80%) of the total
direct compensation of our named executive officers in the form
of annual performance-based cash incentives and long-term
stock-based compensation. This structure ensured an appropriate
balance between our long-term and short-term performance and was
designed to create a positive relationship between our
operational performance and shareholder return.
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As in prior years, the equity awards made to our named executive
officers for the 2010 fiscal year were designed to serve as
long-term incentive vehicles that aligned the interests of our
executive officers with those of our shareholders. The award to
each named executive officer was in most instances equally
divided in grant-date value between a stock option grant and a
restricted stock unit award. The restricted stock unit
component, which has both an initial performance vesting
condition and a four-year annual service vesting requirement,
reduces the overall risk nature of our equity award program
because the restricted stock units will continue to have value
and serve as a meaningful retention vehicle even in periods of
declining market prices for our Class A Common Stock. To
strengthen the relationship between our operational performance
and shareholder return, we introduced performance share unit
awards as part of our 2011 fiscal year award process and
allocated 15% of the grant-date value of the equity award made
to each executive officer for the 2011 fiscal year to new
performance share units tied to the average of the annual growth
rates in our adjusted free cash flow for each of the 2011, 2012
and 2013 fiscal years. The remaining 85% of the grant-date value
of the award was allocated equally between service-vesting stock
options and restricted stock units subject to both a
performance-vesting condition and a service-vesting schedule.
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During the 2010 fiscal year, we extended the term of our
existing employment agreement with Mr. DAmico through
August 31, 2012 and established a new equity compensation
structure for him. The Compensation Committee worked with its
independent compensation consultant to assure that the extended
agreement would continue to provide a competitive level of
compensation in relation to our comparator group and in
conformity with our
pay-for-performance
philosophy.
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During the 2010 fiscal year, we revised our equity retention
policies to encourage our executive officers to retain equity,
either in the form of direct ownership of shares of our
Class A Common Stock or through their holding of
equity-based awards, such as restricted stock units and vested
stock options, equal in value to a specified multiple of base
salary.
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We do not offer guaranteed retirement or pension benefits.
Instead, the wealth creation opportunities we provide our
executive officers are tied primarily to the value of their
equity awards so that there is commonality of interests between
our executive officers and our shareholders.
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During the 2010 fiscal year, we implemented severance plans for
both our executive officers and our remaining employee base that
provide, consistent with peer group norms, standard severance
benefits (pursuant to a formula that varies by employee level)
in the event of an involuntary termination of employment without
cause. For the executive officers, such severance benefits
include salary continuation payments, limited pro-rata vesting
of their post-June 23, 2010 equity awards and, at certain
executive officer levels, an additional payment equal to the
average annual bonus earned for the prior three years and a
payment to cover estimated continued health care costs for a
specified period. We also have employment
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23
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agreements with several of our named executive officers that
provide a higher level of severance benefits in event they cease
employment by reason of an involuntary termination or
resignation for good reason or should they leave our employ in
connection with a change in control. Those severance benefits
will reduce their potential severance plan benefits to the
extent necessary to avoid any duplication of benefits. As of
August 26, 2010, none of our executive officers are
entitled to any tax
gross-up
payments with respect to any parachute payments they may receive
in connection with a change in control event.
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For the 2010 fiscal year, we increased the target bonus level of
one named executive officer (Dr. Pepicello) from 65% to 75%
of his base salary but did not make any changes to the base
salary or target bonus levels for any other named executive
officer. The annual bonus payment earned by each of our named
executive officers for the 2010 fiscal year was at 172% of the
target opportunity established for such individual. The bonus
level was based on the Companys performance relative to
the revenue and operating profit objectives set by the
Compensation Committee at the beginning of the year. In setting
such bonus level, the Compensation Committee also took into
account its overall assessment of the Companys progress in
terms of its strategic initiatives for the 2010 fiscal year,
including the academic excellence initiatives undertaken at the
Companys universities during such fiscal year, and the
individual performance of each named executive officer. The
performance-vesting condition for the restricted stock unit
awards made to the named executive officers for the 2010 fiscal
year was also attained, and 25% the shares of the Companys
Class A Common Stock subject to each such award vested at
the end of that fiscal year.
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For the 2011 fiscal year, we increased the base salaries of two
of our named executive officers (Mr. Swartz and
Dr. Pepicello) by the respective amounts of $50,000 and
$20,000 and did not make any changes to the percentage target
bonus for any named executive officer.
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We do not believe that the performance-based nature of our
executive compensation program encourages excessive risk-taking.
First, it is important to note that each component of our
variable performance-based compensation is subject to a cap or
other limit. For example, the maximum bonus that our named
executive officers could earn under our short-term cash
incentive program for the 2010 fiscal year was set at 200% of
their target bonus opportunity. For Dr. Sperling and
Messrs. Edelstein, Cappelli and DAmico, the target
bonus was set at 100% of annual base salary, and for
Mr. Swartz and Dr. Pepicello, it was set at 75%. The
performance share units we awarded for the 2011 fiscal year are
tied to adjusted free cash flow growth rates and are capped so
that the maximum number of shares of Class A Common Stock
that can be earned by any named executive officer is limited to
two times the target number of performance share units awarded.
Secondly, the performance metrics utilized under our executive
officer cash and equity incentive compensation plans are tied to
strategic objectives designed to create and sustain shareholder
value. In addition, the wealth creation opportunities for our
named executive officers and other senior management are
primarily in the form of their equity awards that vest over time
in addition to any performance-vesting requirements that may
have to be attained. We do not have retirement plans or other
meaningful sources of wealth creation provided under our cash
compensation programs. Excessive risk taking would not only
jeopardize the financial viability of our company but would also
subject our named executive officers and other senior management
to substantial economic loss were the Companys
Class A Common Stock to drop substantially in price.
Finally, we have instituted equity retention guidelines which
require our executive officers to retain a substantial portion
of their equity holdings, whether in the form of actual shares
of our Class A Common Stock or vested stock options or
unvested restricted stock units, thereby further aligning their
interests with those of our shareholders and mitigating the risk
of excessive risk taking.
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For the 2010 fiscal year, the actual total direct compensation
for our named executive officers, when expressed as an average
dollar amount per person in that group, was at the
94
th
percentile
of our peer group. Our 2010 performance relative to such peer
group is at the
94
th
percentile
for annual revenue and operating income growth, the
73
rd
percentile
for operating margin and the
88
th
percentile
for both return on equity and return on assets. As of
August 31, 2010, the Companys one-year total
shareholder return on the Class A Common Stock shares is
the lowest and the three-year return is at the
40
th
percentile
of our comparator peer group. However, when total shareholder
return for the same period is compared to total shareholder
returns for publicly traded for-profit education companies, our
performance levels increase to the 22nd and
57
th
percentile
over the one and three-year periods, respectively. We believe
that the market price performance of the Class A Common
Stock diverges from
24
our financial performance due to the markets initial
reaction to our strategic shift to implement programs which
focus on student quality and retention as well as the
uncertainty of government regulations affecting for-profit
educational institutions and the impact that those regulations
may have on the potential level of future student enrollment and
the anticipated increase in compliance costs.
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II.
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Our
Compensation Philosophy and Objectives
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The overarching principle governing the Companys
compensation philosophy for its executive officers is to
maintain a
pay-for-performance
approach that ties a significant portion of each executive
officers compensation to the Companys financial
performance, as measured in terms of both pre-established
financial objectives for the fiscal year and the value of the
Class A Common Stock. In implementing this philosophy, the
Compensation Committee of the Board of Directors utilizes a
combination of cash and equity incentive programs under which
the total direct compensation of the executive officers will
vary with the Companys performance and the market price of
the Class A Common Stock. Accordingly, the general
objective of the Company is to target cash compensation (base
salary plus a performance-based annual target bonus) per
executive officer position to the
50
th
percentile
of the comparable position at an identified peer group and to
target total direct compensation (which includes the grant-date
value of the executive officers long-term equity awards,
annualized for any multi-year award) to the
75
th
percentile
of the comparable position at the peer group. However, the
actual compensation provided a particular executive officer may
vary from those targeted percentiles based on individual
circumstances, such as that officers level of experience,
any employment agreement negotiated in connection with his
hiring and the long-term incentives that may be needed to retain
his services. In structuring the various components of total
direct compensation, the Company utilizes a balanced risk/reward
approach through a predominant long-term equity incentive
component that allows the executive officers to share in the
appreciation in the market price of the Class A Common
Stock with its stock option component but also reduces the
potential for excessive risk-taking through the use of
restricted stock unit awards that provide varying levels of
compensation as the market price of the Class A Common
Stock fluctuates over time.
This compensation philosophy is also reflected in the employment
agreements the Company has negotiated with several of the named
executive officers. The employment agreements currently in
effect set the total cash compensation of each officer at
approximately the
50
th
percentile
and bring total direct compensation to approximately the
75
th
percentile
through a more heavily-weighted long-term equity incentive
component.
III. Role
of the Compensation Committee
A. General
The Compensation Committee, in consultation with its independent
compensation consultant, analyzes the reasonableness and
competitiveness of the various components of compensation paid
to the executive officers, evaluates the effectiveness of each
of those components in achieving the compensation objectives
stated above and assesses the risks posed by the Companys
various compensation programs. The Compensation Committee also
obtains legal advice regarding executive compensation matters
from the Companys outside legal counsel.
The Compensation Committee periodically seeks input from each of
the Companys Co-Chief Executive Officers and other senior
executive officers with respect to certain items of
compensation, including their recommendations regarding the
parameters of the annual cash incentive program, the bonus
amounts to be paid under that program and their proposals
regarding long-term equity incentive awards. However, all final
decisions regarding executive officer compensation are made
solely by the Compensation Committee and are based on a number
of factors, including its independent evaluation of management
proposals, its own internal deliberations and the input provided
by its independent compensation consultant.
The duties and responsibilities of the Compensation Committee
are more fully set forth in its formal charter, as approved by
the Companys Board of Directors. The corporate governance
provisions of the charter were revised in April 2010 to reflect
the process the Compensation Committee will undertake
periodically to assess the risks posed by the Companys
compensation programs. The revised charter may be viewed,
together with any future changes that may occur, on our website
at
www.apollogrp.edu
at
INVESTOR
RELATIONS Corporate Governance.
25
B. Interaction
with Compensation Consultants
In making its determinations with respect to executive officer
compensation, the Compensation Committee has historically
engaged the services of an independent compensation consulting
firm. Beginning with the 2006 fiscal year and continuing through
the current 2011 fiscal year, the Compensation Committee has
retained the services of Pearl Meyer & Partners, LLC
(Pearl Meyer & Partners) to assist with
its periodic review of existing compensation programs for the
Companys executive officers and the formulation and
implementation of new executive compensation arrangements. In
addition, Pearl Meyer & Partners has assisted the
Compensation Committee with related projects, such as
establishing equity retention guidelines for the executive
officers and non-employee directors, evaluating non-employee
director compensation levels and providing advice and relevant
market data with respect to the design of various cash and
equity-based executive compensation programs.
The Compensation Committee retains Pearl Meyer &
Partners directly, although in carrying out its assignments,
Pearl Meyer & Partners may also interact with Company
management to the extent necessary and appropriate. However,
Pearl Meyer & Partners has not been retained to
perform any consulting or advisory services for Company
management, except in a few limited situations where
market-level compensation data was provided to management in
connection with certain new hire equity awards. For assistance
with more significant compensation projects, the Company
management has retained the services of its own independent
compensation consultant.
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IV.
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Compensation
Structure
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A. Pay
Elements Overview
The Compensation Committee utilizes three main components in
structuring the compensation program for the executive officers:
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Base Salary a fixed rate of pay that takes into
account an individuals duties and responsibilities,
experience and expertise and individual performance and that is
designed to provide a level of economic security from year to
year based on competitive market data.
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Annual Cash Incentive variable cash compensation
that does not provide any economic guarantees and is designed to
reward the executive officers based on the performance of the
Company and their individual performance.
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|
|
|
Long-Term Equity Incentives stock-based awards,
including stock options (that are valued at grant on the basis
of their Black-Scholes value), restricted stock units (RSUs),
that derive their actual value from the market price of the
Companys Class A Common Stock and performance share
units that convert into actual shares of the Companys
Class A Common Stock based on the level at which the
defined performance objective is in fact attained.
|
B. Pay
Mix
The Compensation Committee believes that the particular elements
of compensation identified above provide a well-proportioned mix
of compensation that includes a level of economic security (base
salary), creates a meaningful incentive for long-term retention
(equity awards) and offers a short-term performance-based
component (annual cash incentive program). Accordingly, the
overall objective of the structure is to create short-term and
long-term performance incentives and rewards that are designed
to accomplish the Companys major compensation objectives.
By applying this portfolio approach to total direct
compensation, the Compensation Committee provides each executive
officer with a measure of security in the minimum level of
compensation he or she is to receive through base salary, while
the annual cash and long-term equity incentive components
provide variable levels of compensation with no economic
guarantees. The incentive components are primarily designed to
motivate the executive officer to focus on the attainment of
specific business goals that will advance the Companys
strategic objectives and promote a high level of Company
performance, with corresponding increases in shareholder value
and long-term wealth creation opportunities for the executive
officer.
26
The various components of the compensation packages for the
executive officers are described in more detail below. Those
components are weighted heavily toward performance-based pay.
The same approach has been applied in those instances where the
Company has negotiated employment agreements with several of the
named executive officers. Under the employment agreements with
Messrs. Edelstein, Cappelli and DAmico, total cash
compensation was in general set at less than the
50
th
percentile
for the comparable position at the comparator group, and total
direct compensation was weighted more heavily in terms of
long-term equity incentives to reach in general the
75
th
percentile
objective for each of them.
The 2010 base salary and total target cash compensation for each
named executive officer generally falls below the
50
th
percentile
market level compensation for the comparable position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentile Above/Below
|
|
|
|
|
|
|
|
|
50
th
Percentile
|
|
|
Base
|
|
Target
|
|
Target Total
|
|
Base
|
|
Target Total
|
Name
|
|
Salary
|
|
Bonus
|
|
Cash Compensation
|
|
Salary
|
|
Cash Compensation
|
|
Dr. Sperling
|
|
$
|
850,000
|
|
|
$
|
850,000
|
|
|
$
|
1,700,000
|
|
|
|
+12
|
%
|
|
|
+36
|
%
|
Mr. Edelstein
|
|
$
|
600,000
|
|
|
$
|
600,000
|
|
|
$
|
1,200,000
|
|
|
|
−11
|
%
|
|
|
−24
|
%
|
Mr. Cappelli
|
|
$
|
600,000
|
|
|
$
|
600,000
|
|
|
$
|
1,200,000
|
|
|
|
−11
|
%
|
|
|
−24
|
%
|
Mr. DAmico
|
|
$
|
525,000
|
|
|
$
|
525,000
|
|
|
$
|
1,050,000
|
|
|
|
+5
|
%
|
|
|
−14
|
%
|
Mr. Swartz
|
|
$
|
375,000
|
|
|
$
|
281,250
|
|
|
$
|
656,250
|
|
|
|
−14
|
%
|
|
|
−13
|
%
|
Dr. Pepicello
|
|
$
|
350,000
|
|
|
$
|
262,500
|
|
|
$
|
612,500
|
|
|
|
0
|
%
|
|
|
−13
|
%
|
The 2010 fiscal year total direct compensation for each named
executive officer was within the following percentages of the
75
th
percentile
of market level compensation for the comparable position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
|
|
|
|
Values of
|
|
|
|
Percentage
|
|
|
Base
|
|
Target
|
|
Equity
|
|
Total Direct
|
|
Above/Below
|
Name
|
|
Salary
|
|
Bonus
|
|
Compensation*
|
|
Compensation
|
|
75
th
Percentile
|
|
Dr. Sperling
|
|
$
|
850,000
|
|
|
$
|
850,000
|
|
|
$
|
4,752,128
|
|
|
$
|
6,452,128
|
|
|
|
+3
|
%
|
Mr. Edelstein
|
|
$
|
600,000
|
|
|
$
|
600,000
|
|
|
$
|
6,094,725
|
|
|
$
|
7,294,725
|
|
|
|
+11
|
%
|
Mr. Cappelli
|
|
$
|
600,000
|
|
|
$
|
600,000
|
|
|
$
|
4,267,254
|
|
|
$
|
5,467,254
|
|
|
|
−16
|
%
|
Mr. DAmico
|
|
$
|
525,000
|
|
|
$
|
525,000
|
|
|
$
|
3,981,323
|
|
|
$
|
5,031,323
|
|
|
|
−11
|
%
|
Mr. Swartz
|
|
$
|
375,000
|
|
|
$
|
281,250
|
|
|
$
|
1,237,958
|
|
|
$
|
1,894,208
|
|
|
|
−24
|
%
|
Dr. Pepicello
|
|
$
|
350,000
|
|
|
$
|
262,500
|
|
|
$
|
1,159,681
|
|
|
$
|
1,772,181
|
|
|
|
−22
|
%
|
|
|
|
*
|
|
For a multi-year award, the grant date value is annualized over
the relevant multi-year period (including the 2010 and 2011
fiscal years, when applicable) for which that award is made. The
grant-date value of stock options is based on a Black-Scholes
formula and does not represent the intrinsic value of those
options (the excess of the market price of the Companys
Class A Common Stock over the exercise price). A
substantial number of the options included in the grant-date
value column were
out-of-the
money as of August 31, 2010.
|
In connection with his promotion to Chief Financial Officer in
March 2009, the Compensation Committee positioned
Mr. Swartzs total direct compensation between the
50
th
and
75
th
percentile
of market level compensation for chief financial officers to
reflect his relative level of experience in comparison to the
other chief financial officers in the comparator group. For the
2011 fiscal year, the Compensation Committee increased his total
direct compensation by approximately 19% through (i) a
$50,000 increase to his base salary, with a resulting increase
to the dollar amount of his target bonus by reason of its
percentage linkage to base salary, and (ii) an increase in
the grant-date value of his annual equity award by approximately
$350,000. As a result, his total direct compensation for the
2011 fiscal year is approximately 14% below the
75
th
percentile.
Dr. Pepicello also received a substantial equity incentive
award for the 2010 fiscal year that was designed to bring his
total direct compensation closer to the
75
th
percentile
of market level compensation for individuals who serve in the
role of President at major business subsidiaries of companies
within the market capitalization comparator group or other
comparable companies.
27
The following charts reflect the performance-based nature of the
compensation packages provided the executive officers when base
salary is compared to total direct compensation (base salary,
annual cash incentive at target level and the grant-date value
of long-term equity incentives). For purposes of such
presentation, the grant-date value of the multi-year grants made
to Messrs. Edelstein, Cappelli and DAmico have been
annualized over the applicable time horizon for which each of
those grants was made. The grant-date value of the
make-whole restricted stock unit awards made to them
to compensate them for the compensation opportunities they
forfeited when they left their former employers has been
excluded.
2010
FISCAL YEAR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary as a
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
Total Direct
|
|
Total Direct
|
Name/Group
|
|
Base Salary
|
|
Compensation
|
|
Compensation
|
|
Dr. Sperling
|
|
$
|
850,000
|
|
|
$
|
6,452,128
|
|
|
|
13
|
%
|
Mr. Edelstein
|
|
$
|
600,00
|
|
|
$
|
7,294,725
|
|
|
|
8
|
%
|
Mr. Cappelli
|
|
$
|
600,000
|
|
|
$
|
5,467,254
|
|
|
|
11
|
%
|
Mr. DAmico
|
|
$
|
525,000
|
|
|
$
|
5,031,323
|
|
|
|
10
|
%
|
Mr. Swartz
|
|
$
|
375,000
|
|
|
$
|
1,894,208
|
|
|
|
20
|
%
|
Dr. Pepicello
|
|
$
|
350,000
|
|
|
$
|
1,772,181
|
|
|
|
20
|
%
|
All Other Executive Officers of the Company as a Group (6
individuals)
|
|
$
|
1,500,000
|
|
|
$
|
8,563,547
|
|
|
|
18
|
%
|
Market Benchmarking of the Compensation of the Named Executive
Officers of the Company as a Group*
|
|
$
|
3,400,721
|
|
|
$
|
18,344,335
|
|
|
|
19
|
%
|
Market Benchmarking of the Compensation of All Other Executive
Officers of the Company as a Group*
|
|
$
|
1,640,813
|
|
|
$
|
5,294,582
|
|
|
|
31
|
%
|
|
|
|
*
|
|
Based on market data compiled during the 2009 calendar year from
proxy statements filed by companies in the comparator group
discussed below and other survey data for similarly-sized
companies compiled by the Compensation Committees
independent consultant. For each executive officer position at
the Company, base salary and total direct compensation was
calculated for the comparable position at the median level of
the benchmarking data.
|
28
2011
FISCAL YEAR
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary as a
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
Total Direct
|
|
Total Direct
|
Name/Group
|
|
Base Salary
|
|
Compensation
|
|
Compensation
|
|
Dr. Sperling
|
|
$
|
850,000
|
|
|
$
|
6,457,016
|
|
|
|
13
|
%
|
Mr. Edelstein
|
|
$
|
600,000
|
|
|
$
|
7,294,725
|
|
|
|
8
|
%
|
Mr. Cappelli
|
|
$
|
600,000
|
|
|
|
5,467,254
|
|
|
|
11
|
%
|
Mr. DAmico
|
|
$
|
525,000
|
|
|
$
|
5,055,854
|
|
|
|
10
|
%
|
Mr. Swartz
|
|
$
|
425,000
|
|
|
$
|
2,252,953
|
|
|
|
19
|
%
|
Dr. Pepicello
|
|
$
|
370,000
|
|
|
$
|
1,876,520
|
|
|
|
20
|
%
|
All Other Executive Officers as a Group (6 individuals)
|
|
|
1,945,000
|
|
|
$
|
8,930,597
|
|
|
|
22
|
%
|
Market Benchmarking of the Compensation of the Named Executive
Officers of the Company as a Group*
|
|
$
|
3,628,581
|
|
|
$
|
18,584,708
|
|
|
|
20
|
%
|
Market Benchmarking of the Compensation of All Other Executive
Officers at Comparator Group Companies as a Group*
|
|
$
|
2,028,035
|
|
|
$
|
5,780,078
|
|
|
|
35
|
%
|
|
|
|
*
|
|
Based on market data compiled during the 2009 calendar year from
proxy statements filed by companies in the comparator group
discussed below and other survey data for similarly-sized
companies compiled by the Compensation Committees
independent consultant. For each executive officer position at
the Company, base salary and total direct compensation was
calculated for the comparable position at the median level of
the benchmarking data.
|
Accordingly, the pay mix for both the 2010 and 2011 fiscal years
is consistent with the overall
pay-for-performance
philosophy for the executive officers.
C. Pay
Levels and Benchmarking
The overall compensation level for each executive officer is
determined by a number of factors, including the
individuals duties and responsibilities within the
Company, his or her experience and expertise, the compensation
levels for peers within the Company, compensation levels in the
marketplace for similar positions, performance of the individual
and the Company as a whole, and the level of compensation
necessary to retain the individual or to recruit such individual
in the case of a new hire.
In order to determine competitive compensation practices, the
Compensation Committee relies on compensation data provided by
Pearl Meyer & Partners. The data is derived
principally from surveys of compensation practices of comparable
companies, including general survey data compiled and presented
by Pearl Meyer & Partners and additional data
developed by Pearl Meyer & Partners from public
filings by selected companies that the Compensation Committee
considers appropriate comparators for the purposes of developing
executive compensation benchmarks.
During the 2007 fiscal year, the Compensation Committee worked
with its independent compensation consultant to formulate a new
comparator group of companies for the purpose of benchmarking
executive compensation. The comparator group that resulted
replaced the prior peer group comprised solely of publicly-held
for-profit educational institutions. That industry peer group
was no longer considered an adequate benchmark, because the
institutions that comprised that group were significantly
smaller than the Company in terms of revenue and market
capitalization. However, the Compensation Committee continues to
review market data for publicly-held for-profit educational
institutions in order to track compensation levels in the
education industry and assure that the Companys
compensation remains highly competitive in such industry.
The initial comparator group formed in 2007 was comprised of
twelve companies selected from the consumer, commercial and
financial-services industries based on revenue (generally
between $1 and $3 billion), market
29
capitalization (generally between $7 and $14 billion) and
high
price-to-sales
multiples. In April 2008, the Compensation Committee reviewed
the appropriateness of the peer group and decided to eliminate
two of those companies and add several new companies in order to
assure that the compensation levels at the revised peer group
would be a more accurate indicator of the market.
The resulting comparator group was comprised of companies with
market capitalizations ranging from $5 billion to
$20 billion, annual revenue ranging from $1 billion to
$6.5 billion and
price-to-sales
ratios ranging from 1.5 to 7.0. The Company was at approximately
the 50th percentile of such comparator group, when measured
in terms of those metrics. This comparator group was used by the
Compensation Committee for benchmarking 2009 fiscal year
compensation through March 2009 and was comprised of the
following companies:
|
|
|
American Capital Strategies, Ltd
|
|
Intuit, Inc.
|
Autodesk, Inc.
|
|
Laboratory Corp. of American Holdings
|
CA, Inc.
|
|
Moodys Corp.
|
Expedia, Inc.
|
|
Paychex, Inc.
|
Expeditors Intl of Washington, Inc.
|
|
Symantec Corp.
|
Fiserv, Inc.
|
|
TD Ameritrade Holding Corp.
|
Interactive Brokers Group, Inc.
|
|
The E.W. Scripps Co.
|
International Game Technology
|
|
The Washington Post Co.
|
|
|
Wynn Resorts Ltd
|
The Compensation Committee continues to review the comparator
group on at least an annual basis to determine whether new
companies should be added or existing companies removed. In
performing such reviews, the Compensation Committees
objective is to maintain a comparator group comprised of
similarly-sized, highly-successful service-based businesses that
meet one or more of the following criteria in addition to the
financial metrics discussed above: sophisticated brand
management experience; significant marketing/advertising
experience (including the use of Internet marketing); experience
with large employee populations; Internet-related content and
transaction experience; nationwide retail presence; and
consumer, rather than business, service experience.
March 2009 Review.
In order to
re-position the Company to approximately the
50
th
percentile
of the comparator group in terms of market capitalization,
revenue and
price-to-sales
ratios, the Compensation Committee decided in March 2009 to
adjust the peer group by eliminating American Capital Ltd and
The E.W. Scripps Company and adding Activision Blizzard.
As a result of those adjustments, the Company was repositioned
to the
59
th
percentile
of the revised comparator group. The March 2009 revised
comparator group was used for benchmarking both 2009 fiscal year
compensation decisions made after March 25, 2009 and 2010
fiscal year compensation decisions.
March 2010 Review.
The Compensation
Committee was informed by its compensation consultant in
March 2010 that the Companys position with respect to
the comparator group was at the following percentiles in terms
of the three financial metrics used to construct that group: the
56
th
percentile
in terms of revenue, the 63rd percentile in terms of market
capitalization and the
44
th
percentile
in terms of
price-to-sale
ratio. In order to reposition the Company to the
50
th
percentile
in terms of those financial measures, the Compensation Committee
decided to replace Interactive Brokers Group with McGraw-Hill.
The Compensation Committee based its decision on the fact that
McGraw-Hill had business operations in the education sector and
possessed similar non-financial criteria utilized in the past to
construct the comparator group, such as significant investment
in brand management, significant marketing/advertising
experience and internet-related content. The March 2010 revised
comparator group was used for benchmarking any 2010 fiscal year
compensation decisions made after March 23, 2010 and as
well as for 2011 fiscal year compensation decisions made to date.
30
Accordingly, the revised comparator group in effect at the end
of the 2010 fiscal year was comprised of the following companies:
|
|
|
Activision Blizzard, Inc.
|
|
Laboratory Corp. of American Holdings
|
Autodesk, Inc.
|
|
McGraw-Hill
|
CA, Inc.
|
|
Moodys Corp.
|
Expedia, Inc.
|
|
Paychex, Inc.
|
Expeditors Intl of Washington, Inc.
|
|
Symantec Corp.
|
Fiserv, Inc.
|
|
TD Ameritrade Holding Corp.
|
International Game Technology
|
|
The Washington Post Co.
|
Intuit, Inc.
|
|
Wynn Resorts Ltd
|
2010
Fiscal Year Performance vs. Comparator Group
The following chart indicates the various percentile rankings of
the Companys performance for the 2010 fiscal year, when
compared in terms of the indicated financial metrics to the
companies comprising the comparator group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Operating
|
|
Operating
|
|
Net Income
|
|
Shareholder
|
Revenue Growth
|
|
Margin
|
|
Income
|
|
Growth
|
|
Return
|
|
94
th
percentile
|
|
71
st
percentile
|
|
94
th
percentile
|
|
64
th
percentile
|
|
Lowest
|
The Company believes that the market price performance of the
Class A Common Stock diverges from its financial
performance due to the markets initial reaction to the
Companys strategic shift to implement programs that focus
on enhancement of student quality and retention as well as the
uncertainty of government regulations affecting for-profit
educational institutions and the impact that those regulations
may have on the potential level of future student enrollment and
the anticipated increase in the Companys business costs in
operating in the increasingly regulated for-profit education
industry.
Five-Year
Average Financial Performance vs. Comparator Group
The following chart indicates the various percentile rankings of
the Companys performance for the five fiscal-year period
ending with the 2010 fiscal year, when compared in terms of the
indicated financial metrics for that period to the companies in
the comparator group.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Operating
|
|
Operating
|
|
Net Income
|
|
Shareholder
|
Revenue Growth
|
|
Margin
|
|
Income
|
|
Growth
|
|
Return
|
|
79
th
percentile
|
|
73
rd
percentile
|
|
77
th
percentile
|
|
54
th
percentile
|
|
10
th
percentile
|
While the total direct compensation of each of the
Companys named executive officers is in general targeted
at the
75
th
percentile
of the market level of total direct compensation for the
comparable position, the actual total direct compensation for
the Companys five highest-paid named executive officers on
an aggregate basis is at approximately the
94
th
percentile
of the total direct compensation determined on an aggregate
basis for the named executive officers at the comparator group.
The higher aggregate level of actual total direct compensation
is due in part to the payment of the 2010 fiscal year bonus at
above target level to each of the named executive officers and
also reflects the fact that the executive officer structure of
the Company, with an executive chairman of the board, co-chief
executive officers, a president and chief operating officer and
two executive vice presidents, differs from the organizational
structure of the companies in the comparator group. In addition,
the Compensation Committee may in certain instances set targeted
compensation at levels that depart from the general compensation
philosophy discussed above as a result of individual
negotiations with incoming executive officers. The dollar amount
of that aggregate actual compensation is $28,194,999, which was
less than 0.20% of the Companys adjusted operating income
for the 2010 fiscal year (see the discussion below in
Annual Cash Incentive Plan
f
or 2010 Fiscal
Year
for the calculation of such adjusted operating
income). However, it remains the stated compensation philosophy
of the Compensation Committee to
31
maintain the total direct compensation of each individual
executive officer at approximately the
75
th
percentile
of the market level of total direct compensation for his or her
comparable position.
D. New
Agreements with Certain Executive Officers
Mr. DAmico.
The Compensation
Committee decided in April 2010 to extend the term of
Mr. DAmicos existing employment agreement from
the scheduled June 15, 2010 expiration date to
August 31, 2012. The extension was affected in the form of
a restated employment agreement which revised
Mr. DAmicos compensation in several respects
but which was in conformity with the
pay-for-performance
principles discussed above. The Compensation Committee worked
with its independent compensation consultant to maintain
Mr. DAmicos total cash compensation (base
salary plus annual cash incentive at target level) at
approximately the
50
th
percentile
of the comparator group and utilized a significant equity
component to bring his target total direct compensation to
approximately the
75
th
percentile
of chief operating officer compensation at the comparator group.
The key features of Mr. DAmicos revised
compensation package under the restated employment agreement are
summarized in the section of this Information Statement entitled
Executive Compensation Agreements
Regarding Employment, Change in Control and Termination of
Employment.
The Compensation Committee believed that the new compensation
package, in addition to being aligned with the compensation
philosophy for the named executive officers and in accord with
the comparative market data for his position, was fair and
reasonable in light of the valuable contributions
Mr. DAmico has made to the Company and his continued
importance to the Companys strategic success and that
certain elements of the package, such as continued vesting of
his equity awards following his termination of employment, would
serve as an appropriate retirement reward for his service with
the Company and his dedication to the business and affairs of
the Company.
Mr. Moya.
In April 2010, the
Compensation Committee also approved a special transition
arrangement for P. Robert Moya, who was at the time serving
as the Companys Executive Vice President, General Counsel
and Secretary. Pursuant to that arrangement, which was
formalized by the May 2010 Transition Agreement between
Mr. Moya and the Company, Mr. Moya resigned from those
positions on September 20, 2010 but continued in the
Companys full time employ as Executive Vice President,
Special Projects, through October 31, 2010. Mr. Moya
was paid a base salary at the annual rate of $400,000 during
such period of full-time employment, but ceased participation in
the executive officer incentive compensation plan with the
completion of the 2010 fiscal year on August 31, 2010.
On November 1, 2010, Mr. Moya converted to part-time
employee status in the role of Senior Advisor for which he is
paid a monthly salary of $10,000. Unless earlier terminated,
that arrangement will continue through August 31, 2011.
The Compensation Committee believed that the transition
arrangement was essential to assure an orderly transition period
for the new General Counsel and to facilitate the preparation
and filing of the Companys periodic reports under the
federal securities laws. In addition, the Compensation Committee
believed that Mr. Moya could render important and valuable
services to the Company in his Senior Advisor role and his
continued presence with the Company would provide a valuable
resource and source of institutional knowledge for other
personnel to utilize. Accordingly, the Compensation Committee
concluded that the transition arrangement was fair and
reasonable and the provision for continued vesting of his equity
awards following his termination of employment was an
appropriate retirement reward for Mr. Moyas service
with the Company.
Mr. Martin.
On September 20,
2010, Mr. Martin joined the Company as Senior Vice
President, General Counsel and Secretary, pursuant to an offer
letter dated August 23, 2010. The compensation package
which the Company negotiated with Mr. Martin is set forth
in the offer letter and is structured in a manner which reflects
the Companys
pay-for-performance
compensation philosophy.
On an annualized basis, Mr. Martins total direct
compensation will be in the amount of $1,761,250 for the 2011
fiscal year and is in accord with the comparative market data
for a person of Mr. Martins skill set and level of
experience. In addition to such compensation, Mr. Martin
also received a $263,000 sign-on bonus and a relocation package
which includes up to a $290,000 reimbursement of any loss he
incurs upon the sale of his California
32
residence and a tax
gross-up
on
such reimbursement. The Committee felt that such additional
compensation and relocation package was necessary in order to
attract a person of Mr. Martins experience and
expertise.
E. Risk
Assessment
The compensation programs and practices for the named executive
officers are structured in a manner that does not encourage
unnecessary or excessive risk-taking and are not reasonably
likely to create a material risk to the Company. Such conclusion
is based on the following considerations:
1. The predominant component of the Companys
compensation structure for the named executive officers is in
the form of long-term equity awards tied to the price of the
Companys Class A Common Stock, and increasing levels
of compensation are derived from those awards as the stock price
appreciates and shareholder value is thereby created.
Accordingly, the Companys overall compensation program is
structured so as to encourage long-term growth and appreciation
in the value of the Companys business and stock price. In
addition, the increasing use of restricted stock unit awards in
lieu of option grants has reduced the risk element associated
with the equity awards. Stock option grants have a higher
risk/reward nature because they only have value to the extent
the market price of the underlying shares appreciates over the
grant-date market price that serves as the exercise price.
Restricted stock units, on the other hand, continue to provide
value and serve as a meaningful retention vehicle even in
periods of declining stock prices, because there is no exercise
price or other cash consideration to be paid for the underlying
shares. The significant downside protection that restricted
stock units afford lowers the overall risk profile of the total
compensation package.
2. The Companys variable performance-based annual
cash incentive plan for the named executive officers is subject
to a maximum dollar limitation per participant that cannot in
any instance exceed 200% of annual base salary. The actual bonus
for each named executive officer for the 2010 fiscal year was at
172% of target. For other individuals who participated in the
2010 executive officer cash incentive plan, their target bonuses
ranged from 40% to 100% of base salary, and their actual bonus
amounts were also at 172% of target. The actual bonus amount was
in each instance higher than the corresponding target bonus
primarily because the Company attained its pre-established
performance goals at above-target, maximum levels and made
significant progress in advancing the initiatives undertaken
during the 2010 fiscal year to enhance the academic and
educational excellence of its universities.
3. The performance goals for the 2010 annual cash incentive
plan for the named executive officers were based on strategic
objectives vital to the Companys long-term financial
success. The first performance goal was tied to revenue, and the
second and equally weighted performance goal was tied to
operating profit. Revenue growth and increasing levels of
operating profit represent financial metrics that are in
alignment with the Companys overall objective to create
long-term shareholder value. In addition, the Compensation
Committee reserved the right to reduce the potential bonus based
on those financial metrics by up to 30% based on its assessment
of the Companys success in implementing and advancing its
strategic initiatives for the 2010 fiscal year, including the
initiatives undertaken to improve academic and educational
excellence at its universities, The Compensation Committee could
make a further reduction of up to an additional 20% based on its
evaluation of the individual performance of each executive
officer participant. In exercising such discretion, the
Compensation Committee decided to reduce the actual bonus amount
paid to each named executive officer for the 2010 fiscal year
from the 200% maximum to 172% of target based on (i) the
level of progress the Company achieved with respect to certain
of its strategic goals, including goals relating to the further
enhancement of the academic and educational excellence of its
universities, enhancement of the processes for data collection
and analysis, the improvement of cost efficiencies, the
diversification of revenue sources, the further enhancement of
student protections and the enhancement of communication and
relationships with external parties and (ii) its assessment
of individual performance.
4. The wealth creation opportunities for the named
executive officers and other senior management are primarily in
the form of their long-term equity incentive awards. The Company
does not have retirement plans or other meaningful sources of
wealth creation provided under its cash compensation programs.
Excessive risk-taking would not only jeopardize the financial
viability of the Company but would also subject the named
33
executive officers and other senior management to substantial
economic loss were the Companys Class A Common Stock
to drop significantly in value.
5. Finally, the Company has instituted equity retention
guidelines pursuant to which the named executive officers,
certain other officers and each non-employee member of the Board
of Directors are expected to retain equity in the Company,
either in the form of direct ownership of shares of the
Companys Class A Common Stock or through their
holding of equity-based awards, such as restricted stock units
and vested stock options, equal in value to a specified multiple
of their base salary or annual cash retainer, thereby further
aligning their interests with those of the shareholders and
mitigating the potential for excessive risk taking. Although
there are no specific time limits by which such individuals must
attain their retention level, there are restrictions and
limitations on their ability to sell the shares of the
Companys Class A Common Stock they acquire under the
Companys various compensation programs, as noted in
Section VIII below, until such retention level is attained.
F. Compensation
Decisions Details
(1) Base
Salary
Base salaries are set at levels that are intended to reflect the
individuals position within the Company and his or her
current and sustained performance results. However, certain
named executive officers have employment agreements with the
Company in which their base salary levels were established
through negotiation in the hiring process and, in the case of
Mr. DAmico, was preserved at the current level when
the initial term of his employment agreement was extended.
Base salary, whether set by the Compensation Committee or by the
terms of an existing or extended employment agreement, is
designed primarily to provide a level of economic security from
year to year. Each executive officers base salary level is
reviewed annually by the Compensation Committee, and adjustments
may be made (subject to the terms of the existing employment
agreements) on the basis of such factors as the overall
performance of the individual and his or her areas of
responsibility, any new duties
and/or
responsibilities assumed by such individual, his or her impact
on strategic goal attainment and his or her length of service
with the Company. However, there is no specific weighting
applied to any one factor in setting the level of base salary,
and the process ultimately relies on the Compensation
Committees consideration of managements
recommendations and the subjective exercise of its own judgment.
Although salaries are generally targeted at the
50
th
percentile
of the comparator group and other relevant compensation survey
data (as discussed above), the Compensation Committee may also
take into account the individuals current level of base
salary, duties that may go beyond such individuals title
and position, his or her potential as a key contributor, and any
special recruitment or retention circumstances.
The following chart lists the named executive officers who have
employment agreements, the minimum level of annual base salary
required under those agreements and their base salary levels for
each of the 2010 and 2011 fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
|
|
2010 FY
|
|
2011 FY
|
Name
|
|
Base Salary
|
|
Base Salary
|
|
Base Salary
|
|
Dr. Sperling
|
|
$
|
850,000
|
|
|
$
|
850,000
|
|
|
$
|
850,000
|
|
Mr. Edelstein
|
|
$
|
600,000
|
|
|
$
|
600,000
|
|
|
$
|
600,000
|
|
Mr. Cappelli
|
|
$
|
600,000
|
*
|
|
$
|
600,000
|
|
|
$
|
600,000
|
|
Mr. DAmico
|
|
$
|
500,000
|
|
|
$
|
525,000
|
**
|
|
$
|
525,000
|
|
|
|
|
*
|
|
Mr. Cappellis employment agreement was amended to
increase his minimum rate of base salary from $500,000 to
$600,000 in April 2009 in connection with his promotion to
Co-Chief Executive Officer.
|
|
**
|
|
The adjustment was effected in connection with
Mr. DAmicos promotion to President and Chief
Operating Officer.
|
34
Mr. Swartz and Dr. Pepicello do not have employment
agreements with the Company. However the following adjustments
have been made to their respective levels of base salary:
Mr. Swartz.
In connection with his
promotion to the Companys Chief Financial Officer in March
2009, Mr. Swartzs annual rate of base salary was
increased from $300,000 to $375,000, retroactive to
March 1, 2009. For the 2011 fiscal year,
Mr. Swartzs base salary was increased to $425,000.
Dr. Pepicello.
No changes were
made to Dr. Pepicellos base salary for the 2010
fiscal year, and accordingly, his base salary for that year
remained at $350,000. However, for the 2011 fiscal year,
Dr. Pepicellos base salary was increased to $370,000.
In making each of the foregoing adjustments to base salary, the
Compensation Committee took into account recommendations from
senior management and input with respect to those
recommendations from its own compensation consultant. Such
input, together with other information provided it, allowed the
Compensation Committee to compare the proposed levels of base
salary to market data with respect to comparable positions. The
final levels of base salary that emerged as a result of such
deliberative process were generally in the
50
th
percentile
range (or lower) of market level base salary for comparable
positions.
(2) Annual
Cash Incentive Plan for 2010 Fiscal Year
At its November 24, 2009 meeting, the Compensation
Committee approved the executive officer cash incentive plan to
be in effect for the 2010 fiscal year. The potential cash
incentives under the plan were tied to the Companys
attainment of certain revenue and operating profit targets for
the year. The target cash incentive for each named executive
officer was set at 100% of base salary, except for
Mr. Swartz and Dr. Pepicello for whom the target cash
incentive was set at 75% of base salary. The target cash
incentives established for Messrs. Edelstein, Cappelli and
DAmico under the plan were in accordance with the target
bonus levels (100% of base salary) set forth in their respective
employment agreements. The remaining executive officers
participated in the plan at varying target percentages tied to
their base salary.
The actual cash incentive which each named executive officer
could earn for the 2010 fiscal year ranged from 0 to 200% of his
target level. The actual percentage was determined on the basis
of the following factors: (i) the Companys attainment
of the revenue and operating profit goals (as adjusted) that the
Compensation Committee established for the 2010 fiscal year at
the November 2009 meeting, (ii) the Compensation
Committees overall assessment of the progress made by the
Company in advancing its strategic initiatives, including those
designed to enhance the academic and educational excellence of
its universities and (iii) the Compensation
Committees subjective evaluation of the individual
performance of each of executive officer participant.
Specifically, the target, threshold and maximum levels that the
Compensation Committee set for the revenue and operating profit
goals for the 2010 fiscal year were as follows:
|
|
|
|
|
|
|
Goal
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Revenue Goal (50% weight)
|
|
$4.634 Billion
|
|
$4.793 Billion
|
|
$4.912 Billion
|
Operating Profit Goal (50% weight)
|
|
$1.209 Billion
|
|
$1.267 Billion
|
|
$1.325 Billion
|
Potential Pay-Out as % of Target Bonus
|
|
50%
|
|
100%
|
|
200%
|
The goals represented revenue growth of approximately 11% at
threshold, 15% at target, and 18% at maximum level, and
operating profit growth of 4% at threshold, 9% at target, and
14% at maximum level, when compared to the Companys
financial performance for the 2009 fiscal year. The growth rates
set for the 2010 financial metrics were lower than those that
were used to establish the revenue and operating profit goals
for the 2009 fiscal year and reflected the Compensation
Committees concurrence with managements assessment
that the rate of both revenue and operating profit growth for
the second half of the 2010 fiscal year should be allowed to
decline substantially as the Company implemented enhancements to
both student protection measures and enrollment standards for
University of Phoenix students in order to better identify
students more likely to succeed in its academic programs.
The 2010 cash incentive plan provided for certain adjustments to
the calculation of the applicable revenue and operating profit
targets. With respect to the revenue target, revenue
attributable to companies acquired during the 2010 fiscal year
and revenue attributable to Western International University
were excluded. With respect to the
35
operating profit component, the following amounts were excluded:
all expense recorded for the 2010 fiscal year with respect to
the bonuses that became payable under the Companys various
bonus plans, including the 2010 fiscal year executive officer
cash incentive plan; all acquisition costs expensed for such
fiscal year; operating income or loss attributable to entities
acquired during the 2010 fiscal year; any operating income or
loss realized by Western International University for such
fiscal year; all amounts relating to judgments, settlements or
verdicts in connection with certain litigation matters; and any
impairment charges relating to goodwill, intangible assets or
other long-lived assets. The financial results of Western
International University were specifically excluded because its
management was allowed broad discretion in the allocation of
resources to strategic long-term objectives. It was felt that
the economic impact of those investment decisions should not be
taken into account in measuring the Companys performance
under the 2010 cash incentive plan.
The Companys revenue and operating income (subject to the
adjustments summarized above) for the 2010 fiscal year were each
above the maximum level established under the 2010 fiscal year
cash incentive plan. Adjusted revenue for such fiscal year was
above $4.933 billion, when compared to the
$4.912 billion maximum level established under the plan,
and the Companys adjusted operating income was
$1.409 billion, when compared to the $1.325 billion
maximum level set under the plan. The revenue and operating
income of Insight Schools, Inc. for the 2010 fiscal year, as
reported in the footnotes to the Companys financial
statements for such year, was included in the respective
calculations of the Companys consolidated revenue and
operating income for purposes of determining the level of
attainment of each such performance goal. Such footnote
reporting was required under GAAP because Insight Schools, Inc.
must be treated as a discontinued operation as a result of the
Companys disclosed intention to sell that entity.
The Compensation Committee reserved discretion to reduce the
cash incentive otherwise payable to the named executive officers
based on such financial performance by up to 30% based on its
overall assessment of the Companys performance in terms of
the initiatives undertaken during the 2010 fiscal year to
enhance the academic and educational excellence of its
universities and by up to an additional 20% based on the
Compensation Committees overall assessment of individual
executive officer performance for the year. For purposes of
exercising its discretion with respect to those potential
reduction factors, the Compensation Committee took into
consideration managements assessment of the Companys
progress in advancing initiatives to improve the academic and
educational excellence of its universities in a number of areas.
Those areas included, among others, improvement of first course
completion rates, increases in the proportion of students
enrolling in courses leading to Bachelor and advanced degrees,
and enhanced student protection measures. The Compensation
Committee also took into account the Companys progress in
other areas that it believed important to the further
enhancement of academic and educational excellence, such as
increasing the enrollment level of students with higher
retention potential, enhancing processes for data collection and
analysis, improving cost efficiencies, diversifying revenue
sources, further enhancing student protections and enhancing
communication and relationships with external parties.
However, the Compensation Committee did not pre-establish or
otherwise utilize any specific quantifiable or objective goals
to measure the Companys success in enhancing academic and
educational excellence at its universities. Instead, the
Compensation Committee made its own overall, subjective
assessment of the improvements and advancements made by the
Company and the additional work and effort still required with
respect to the initiatives and other efforts undertaken to
enhance academic excellence at its universities.
For purposes of the additional 20% potential reduction factor
for personal performance, the Compensation Committee took into
account the individual performance reviews provided by the
Co-Chief Executive Officers for themselves and each of the other
named executive officers. The individual performance of each of
the Co-Chief Executive Officers was also reviewed by the
Compensation Committee with the other independent members of the
Companys Board of Directors. The Compensation Committee
did not establish any specific performance goals for the
Co-Chief Executive Officers or any of the other named executive
officers to achieve for the 2010 fiscal year, except that for
Mr. Swartz the Compensation Committee set a specific goal
that there be no material weaknesses identified with respect to
the Companys internal controls over financial reporting.
Based on the Compensation Committees evaluation, in
conjunction with that of the other independent members of the
Board of Directors, of the performance of each of the Co-Chief
Executive Officers, the individual performance reviews submitted
by the Co-Chief Executive Officers for themselves and the other
named executive
36
officers and its own overall general assessment of their
individual performance, the Committee did not deem that any
reduction to individual bonus levels was warranted due to any
individual performance deficiencies identified for any of the
named executive officers. However, the Compensation Committee
agreed with managements recommendation that an
across-the-board
reduction should be applied to the individual bonus amounts for
the named executive officers in the light of the progress yet to
be made with respect to various strategic objectives undertaken
by the Company to enhance the academic and academic excellence
of its universities. Accordingly, the Compensation Committee
decided to reduce the individual bonus amount for each executive
officer who participated in executive officer cash incentive
plan for the 2010 fiscal year to 172% of his or her target
amount.
|
|
a.
|
History
of Prior Grants.
|
During 2007 the Compensation Committee undertook an extensive
examination of the relative advantages and disadvantages of the
previous equity grant policy which used stock options as the
exclusive long-term equity incentive vehicle for executive
officers. The Compensation Committee determined that several
features made it desirable to introduce restricted stock units
(RSUs) as a substantial component of the long-term
equity incentive program. Those factors included:
|
|
|
|
(i)
|
the significant accounting charges that result from stock
options and the lack of a direct correlation between those
accounting charges and the actual value delivered to the
executive officers,
|
|
|
(ii)
|
the failure of stock options to serve as a meaningful retention
vehicle should the market price of the Companys
Class A Common Stock drop to a level below the exercise
price, and
|
|
|
(iii)
|
the downside protection that the RSUs afford during periods of
declining stock prices reduces the overall risk profile of the
Companys equity compensation programs.
|
Such considerations led the Compensation Committee to conclude
that long-term equity incentives should be delivered to
executive officers through a combination of stock options and
RSU awards. Accordingly, beginning with the grants made for the
2008 fiscal year and continuing through the grants made for the
2010 fiscal year, the equity incentive awards made to the named
executive officers have been primarily in the combined form of
stock options and RSU awards. For the 2010 fiscal year award
made to the named executive officers, the total grant-date value
of each award was in general divided equally between stock
options (based on their Black-Scholes grant-date value) and RSU
awards (based on the closing price per share of the underlying
Class A Common Stock on the grant date).
In June 2010, the Compensation Committee made equity awards for
the 2011 fiscal year to certain named executive officers. As
part of that grant process, the Compensation Committee decided
to allocate 15% of the total grant-date value of the authorized
award for each such named executive officer to performance share
units and divided the balance equally between stock options and
RSU awards. For the purposes of such allocation, the grant-date
fair value of the performance share units was measured in terms
of the probable outcome of the applicable performance goal. The
Compensation Committee believed that the introduction of
performance share units would further advance the Companys
pay-for-performance
philosophy by tying this new element of equity compensation to
the attainment of strategic mid-term operational results.
|
|
c.
|
Equity
Awards for 2010 Fiscal Year
|
Equity awards for the 2010 fiscal year were made on July 2,
2009 to the following named executive officers as part of their
total direct compensation for the 2010 fiscal year:
Drs. Sperling and Pepicello and Messrs. DAmico
and Swartz. Those awards were designed to maintain the total
direct compensation of each such named executive officer at
approximately the
75
th
percentile
(other than Mr. Swartz whose total direct compensation
remained between the
50
th
and
75
th
percentile
of market level total direct compensation for chief financial
officers). Messrs. Edelstein and Cappelli did not receive
any equity awards for the 2010 fiscal year because they had each
37
received multi-year grants as part of their negotiated
employment agreements with the Company that were intended to
cover the initial four-year term of those agreements.
The following chart summarizes the long-term equity incentive
awards made to the named executive officers on July 2, 2009
as part of the Companys regular annual grant process for
the 2010 fiscal year. The grants for an upcoming fiscal year are
typically made during the final quarter of the current fiscal
year. The grant-date value of each award is determined in
accordance with Accounting Standards Codification, Topic 718
(ASC 718).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ASC 718
|
|
|
|
|
|
|
|
|
Option
|
|
Black Scholes
|
|
RSU
|
|
ASC 718
|
|
|
Grant
|
|
Awards
|
|
Grant Date
|
|
Awards
|
|
Grant Date
|
Name
|
|
Date
|
|
(#Shares)
|
|
Fair Value
|
|
(#Shares)
|
|
Fair Value
|
|
Dr. Sperling
|
|
|
07/02/09
|
|
|
|
77,492
|
|
|
$
|
2,113,897
|
|
|
|
31,852
|
|
|
$
|
2,162,751
|
|
Mr. Edelstein
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. Cappelli
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mr. DAmico
|
|
|
07/02/09
|
|
|
|
46,754
|
|
|
$
|
1,186,371
|
|
|
|
11.968
|
|
|
$
|
812,627
|
|
Mr. Swartz
|
|
|
07/02/09
|
|
|
|
22,432
|
|
|
$
|
611,920
|
|
|
|
9,220
|
|
|
$
|
626,038
|
|
Dr. Pepicello
|
|
|
07/02/09-
|
|
|
|
21,504
|
|
|
$
|
586,606
|
|
|
|
8,840
|
|
|
$
|
600,236
|
|
d.
Equity
Awards for 2011 Fiscal Year
Equity awards for the 2011 fiscal year were made on July 6,
2010 to the following named executive officers as part of their
total direct compensation for such fiscal year:
Drs. Sperling and Pepicello and Messrs. DAmico
and Swartz. Those awards were intended to maintain the total
direct compensation of each such named executive officer at
approximately the
75
th
percentile
(other than Mr. Swartz whose total direct compensation
remained between the
50
th
and
75
th
percentile
of market level total direct compensation for chief financial
officers).
The equity awards that were made to the named executive officers
for the 2011 fiscal year were sized in terms of a fixed dollar
amount, with fifteen percent of that dollar amount allocated to
the new performance share units and the balance allocated
equally between the Black-Scholes value of the stock option
component (as calculated as of a fixed date prior to the actual
award date) and the fair market value of the shares of the
Companys Class A Common Stock subject to the RSU
component.
The new performance share unit component did not result in any
increase in the total grant-date value of a named executive
officers equity award package for the 2011 fiscal year.
The new performance share units simply added a mid-term
incentive performance component to balance the short-term
performance component represented by the Companys annual
incentive cash bonus plan and the long-term equity component in
the form of stock options and RSUs.
The performance share units have both performance-vesting and
service-vesting requirements. Performance vesting will be
measured in terms of the average of the annual growth rates in
the Companys adjusted free cash flow for each of the three
fiscal years comprising the performance period (the
Companys 2011, 2012 and 2013 fiscal years). The
Compensation Committee felt that adjusted free cash flow was an
important financial metric to assess corporate performance
because it was aligned with the methodology used by
institutional investors to gauge both the operating and capital
efficiency of the Company.
Adjusted free cash flow for each applicable fiscal year will be
calculated in accordance with the parameters established by the
Compensation Committee at the time the performance share unit
awards were made. The growth rate of adjusted free cash flow for
the 2011 fiscal year will be determined by comparing the
adjusted free cash flow for that year against the adjusted free
cash flow for the 2010 fiscal year. The growth in adjusted free
cash flow for each of the two (2) remaining fiscal years
will be calculated in comparison to the adjusted free cash flow
realized for the immediately preceding fiscal year. Once the
growth rate for each of the three (3) fiscal years is
calculated, the simple average of those three (3) annual
growth rates will be determined, and that average (rounded up to
the next whole one-tenth decimal point) will represent the
actual level of performance attainment.
Following the completion of the performance period, the
Compensation Committee will certify the actual level of attained
performance, and the number of performance share units will be
multiplied by the applicable percentage
38
set forth below to determine the maximum number of shares of the
Companys Class A Common Stock issuable on the basis
of the certified level of attained performance:
|
|
|
|
|
|
|
Percentage of Performance
|
|
|
Share Unit Conversion into
|
Average of the Annual Adjusted
|
|
Actual Shares of Class A
|
Free Cash Flow Growth Rates
|
|
Common Stock
|
|
< 5%
|
|
|
0
|
%
|
5.0-5.9%
|
|
|
40
|
%
|
6.0-7.1%
|
|
|
55
|
%
|
7.2-8.3%
|
|
|
70
|
%
|
8.4-9.5%
|
|
|
80
|
%
|
9.6-10.7%
|
|
|
90
|
%
|
10.8-11.9%
|
|
|
95
|
%
|
12.0-12.9%
|
|
|
100
|
%
|
13.0-14.1%
|
|
|
105
|
%
|
14.2-15.3%
|
|
|
115
|
%
|
15.4-16.5%
|
|
|
130
|
%
|
16.6-17.7%
|
|
|
150
|
%
|
17.8-18.9%
|
|
|
175
|
%
|
> 19.0%
|
|
|
200
|
%
|
To illustrate how the conversion would operate, assume that a
named executive officer received a performance share unit award
covering 1,000 shares of the Companys Class A
Common Stock. If the growth rate in adjusted free cash flow for
the 2011 fiscal year were 8%, the growth rate in adjusted free
cash flow for the 2012 fiscal year were 12% and the growth rate
for adjusted free cash flow for the 2013 fiscal year were 14%,
the simple average of those growth rates would be 11.3%. Based
on that attained average, the performance share unit award would
convert into 950 actual shares of Class A Common Stock
(1,000 shares x .95). If the simple average of the growth
rates in adjusted free cash flow were 15% for such period, then
the performance share unit award would convert into
1,115 actual shares of Class A Common Stock (1,000 x
1.15).
The actual number of shares of Class A Common Stock in
which the award recipient will vest will be determined by
multiplying the number of shares of Class A Common Stock
into which his or her performance share units are so converted
by a fraction, the numerator of which is the number of fiscal
years of employment such individual completes with the Company
within the performance period and the denominator of which is
the three (3).
(4) Other
Executive Benefits, including Perquisites and Retirement
Benefits
Executive officers are, in general, entitled to the same
employee benefits available to all other full-time employees
(subject to the satisfaction of applicable minimum service and
other eligibility requirements). Such benefits include vacation
accruals, health and welfare benefits and participation in the
Companys 401(k) Savings Plan and Employee Stock Purchase
Plan.
However, executive officers who first join the Company after
August 25, 2009 will be fully reimbursed, on a tax
gross-up
basis, for the COBRA costs they incur for continued health care
coverage for themselves and their spouses and eligible
dependents under their prior employers group health plan
for the period preceding their coverage under the Companys
group health care plan, up to a maximum period of three months
of such reimbursed coverage.
In addition, certain perquisites are made available to one or
more executive officers, including the personal use of
Company-provided automobiles (including reimbursement of
registration fees, insurance costs and fuel and maintenance
expenses), reimbursement of expenses incurred for personal tax
planning, housing allowances and reimbursement of duplicative
living costs at secondary business locations, reimbursement of
certain personal travel expenses, limited use of
Company-chartered aircraft for personal travel by the executive
officer and his or her
39
family members and limited personal use of the Company-owned
condominium in Phoenix, AZ. The Company has adopted formal
policies governing the personal use of Company-chartered
aircraft and the Company-owned condominium. The policies are
designed to assure that all personal use of Company-provided
aircraft or the Company-owned condominium is carefully monitored
and properly recorded and that any taxable income to the
executive officer resulting from such personal use is accurately
reported, with the requisite tax withholdings collected, and any
reportable perquisites associated with such use is properly
disclosed in accordance with applicable securities law
regulations. In addition, the policies require a quarterly
report to the Compensation Committee with respect to all
personal or non-business use of Company-chartered aircraft or
the Company-owned condominium by the executive officers during
the period covered by the report.
The Company has also entered into a stadium naming rights
agreement with the Arizona Cardinals Football Club of the
National Football League. The Company believes that such
agreement provides a valuable marketing tool that substantially
increases the Companys visibility and name recognition on
a national level to an important segment of the potential market
for its educational course offerings. The agreement also serves
as an important vehicle in enhancing the Companys
community relations efforts in the Greater Phoenix area. The
contract has a twenty-year term with a fixed schedule of annual
fees payable by the Company over that term. A number of
ancillary benefits are provided to the Company under the
contract, including access to a private stadium loft for a
limited number of guests for all Cardinals home football games
and certain other entertainment events held at the stadium,
additional tickets to all home games played by the Arizona
Cardinals at the stadium, fully-paid expenses (transportation,
food and lodging) to three away games for a limited number of
guests per trip, fully-paid expenses (transportation, food and
lodging) to the Super Bowl and NFL Pro Bowl each year for up to
4 guests per trip, a specified number of tickets to each Super
Bowl held at the stadium and the right to buy a fixed number of
additional tickets to each Super Bowl held at the stadium and up
to a specified number of seats to Super Bowls held at other
locations.
The tickets provided the Company under the contract are
allocated first to those executive officers and other employees
who will use them for business entertainment or business
development purposes or to establish or strengthen ties with
representatives of local community organizations. To the extent
the tickets are not to be used for such purposes, they are
generally made available first to the executive officers and
other members of senior management as an additional reward for
their services to the Company and then to the general employee
population.
There is no separate cost allocation under the naming rights
agreement for the tickets provided to the Company or the use of
the private stadium loft, nor are there any separate charges for
the fully-paid trips to away games sponsored by the Arizona
Cardinals football team or to the Super Bowl or Pro Bowl events
covered under the contract. As a result, there is no incremental
cost to the Company in providing those tickets or trips, or
access to the private stadium loft, to one or more named
executive officers. However, when the Company does purchase
additional tickets to any event, any reportable executive
officer perquisites with respect to that event are determined on
an average cost per ticket basis. Such average cost is
determined by dividing the aggregate cost incurred by the
Company for the additional tickets by the total number of
tickets available to the Company for that event, including the
no-cost tickets provided under the contract.
The Compensation Committee believes that the perquisites
available to the executive officers, taking into account the
limitations and restrictions of the aircraft and condominium
policies and the ticket allocation process under the stadium
naming rights agreement, have been set at a reasonable and
appropriate level commensurate with their duties and
responsibilities and are among the personal benefits typically
provided to senior executive officers of companies with which
the Company competes for executive talent. In addition, the
reimbursement of certain personal expenses (such as travel
costs, housing allowances and reimbursement of duplicative
living costs) in lieu of salary increases to cover those
recurring expenses avoids the additional costs the Company might
otherwise occur with respect to certain other compensation or
employee benefit programs that are tied directly or indirectly
to the level of an executive officers base salary.
Accordingly, the Compensation Committee believes that the
overall structure of the executive officer perquisite program
serves as a valuable recruiting and retention mechanism for its
executive officers and enables the Company to compete more
successfully for qualified executive talent.
Further details regarding executive perquisites and other
personal benefits are contained in the Summary Compensation
Table and accompanying footnotes that appear later in this
Information Statement.
40
G. Conclusion
Both the level and mix of compensation that the Compensation
Committee authorized for the named executive officers for the
2010 fiscal year were considered within the context of objective
market data derived from the compensation levels in effect for
comparable positions at the comparator group and the financial
performance of that comparator group in relation to that of the
Company. The Compensation Committee believes that the total
compensation package for each of the named executive officers
was sized and valued competitively on the basis of objective
comparative data, even in those instances where subjective
factors may have influenced the Committee with respect to
certain compensation decisions.
|
|
V.
|
Timing
of Equity Grants
|
The Compensation Committee Charter imposes a number of
limitations on the dates on which equity awards may be made and
expressly precludes the repricing of outstanding stock options.
Pursuant to those limitations, equity awards (other than new
hire grants) will normally occur or otherwise become effective
during a window period beginning with the second and ending no
later than the tenth business day following the release of the
Companys annual or quarterly financial results. New hire
awards will typically become effective on the fifteenth day of
the month coincident with or next following the employment
commencement date.
|
|
VI.
|
Adjustment
or Recovery of Awards
|
At present, the Company does not have any specific policies to
adjust or recoup prior bonus payments or equity awards in the
event the Company were required to restate the financial results
on which those payments or awards were based. However, the
recently-enacted Dodd-Frank Wall Street Reform and Consumer
Protection Act will require public reporting companies, such as
the Company, to implement recoupment policies that will apply in
the event the Company is required to restate its financial
statements as a result of material non-compliance with
applicable financial reporting requirements. In such event, the
Company would have to recover the amount of any incentive-based
compensation paid during the three-year period preceding such
restatement that was in excess of the amount that would have
been paid on the basis of the restated results. The policy must
cover all present and former executive officers who receive such
incentive-based compensation. The Company has decided to defer
the implementation of such a policy until the Securities and
Exchange Commission issues regulations governing such recoupment
policies. It is expected that such regulations will be published
in the Spring or Summer of 2011.
|
|
VII.
|
Consideration
of Prior Amounts Realized
|
The Companys philosophy is to reward the executive
officers for future performance. Accordingly, compensation
realized by the executive officers from prior-year equity awards
(such as gains realized from the exercise of prior-year option
grants or value derived from the vesting of prior-year
restricted stock unit awards) are not considered in setting
current compensation levels.
VIII.
Employment
Agreements and Post-Termination Payments
A. Employment
Agreements and Severance Arrangements
The Company has existing employment agreements with the
following named executive officers: Dr. Sperling and
Messrs. Edelstein, Cappelli and DAmico. These
agreements, together with their severance benefit provisions,
are summarized in the section of this Information Statement
below entitled
Executive Compensation
Agreements Regarding Employment, Change in Control and
Termination of Employment.
The Company does not
maintain employment agreements with any executive officers other
than those named above, but as noted above, the Company has
recently employed Mr. Martin as Senior Vice President,
General Counsel and Secretary, pursuant to a formal offer letter
in which his compensation package is set forth and has also
entered into a transition agreement with Mr. Moya in
connection with his retirement from those positions.
The employment agreement with Dr. Sperling was originally
executed in December 1993, when he was serving in the roles of
President, Chief Executive Officer and Chairman of the Board,
and has been continually renewed through successive one-year
extensions since the expiration date of the original term in
December 1997.
41
The employment agreements with Messrs. Edelstein, Cappelli
and DAmico were each based on arms-length
negotiation between the Company and the executive officer. The
compensation package provided under each of those agreements was
determined by the Compensation Committee to be fair and
reasonable on the basis of the comparative compensation data
provided by its independent compensation consultant.
On June 24, 2010, the Compensation Committee approved the
Senior Executive Severance Pay Plan pursuant to which the
Companys executive officers and other senior executives
may become entitled to salary continuation payments and certain
other severance benefits in the event their employment with the
Company is involuntarily terminated other than for cause. The
severance benefits to which the covered participants may become
entitled upon such a termination of employment are summarized in
the section of this Information Statement below entitled
Executive Compensation Potential
Payments upon Termination or Change in Control.
However, to the extent a named executive officer or other
covered individual is entitled to severance benefits under an
employment agreement or other severance arrangement in effect
with the Company at the time of his or her termination of
employment, then his or her severance benefits sunder the plan
will be reduced by the severance benefits payable under such
employment agreement or other arrangement so that there will be
no duplication of benefits. At present, Dr. Sperling and
Messrs. Edelstein, Cappelli and DAmico each have
employment or other agreements with the Company that provide
severance benefits in the event their employment is terminated
under certain circumstances, and those benefits will reduce the
potential benefits to which they may otherwise become entitled
under the new Senior Executive Severance Pay Plan.
The receipt of severance benefits under the Senior Executive
Severance Pay Plan will be conditioned upon the terminating
executives delivery of an effective and enforceable
general release of all claims against the Company and its
affiliates and his compliance with certain non-competition,
non-solicitation and non-disparagement covenants.
The Compensation Committee felt that the implementation of the
Senior Executive Severance Pay Plan was warranted as an
important recruitment and retention vehicle that would allow the
Company to remain competitive in attracting and retaining
executive talent and would also reduce the need to execute
formal employment agreements with new executives by assuring
them of a reasonable severance package in the event their
employment were to be involuntarily terminated other than for
cause.
B. Retirement
Programs
To date, the principal program maintained by the Company to
provide retirement income for the named executive officers and
other Company employees is the Companys broad-based 401(k)
Savings Plan, a defined contribution plan. However, the Company
has also maintained a special defined-benefit type retirement
arrangement with Dr. Sperling for a number of years. That
arrangement is described below in the section of this
Information Statement entitled
Executive
Compensation Pension Benefits.
C. Potential
Payments Due Upon Termination and/or a Change in
Control
The Companys equity compensation plans provide for
accelerated vesting of all outstanding options, RSUs and
performance share unit awards in the event of certain changes in
control or ownership of the Company. The Compensation Committee
believes that such single-trigger accelerated vesting is
appropriate for the following reasons:
(i) The Company relies primarily on long-term equity
incentive awards to provide the named executive officers with
the opportunity for wealth creation and the accumulation of
substantial resources to fund their retirement income, and the
Compensation Committee accordingly believes that a change in
control event is an appropriate liquidation point for awards
designed for such purposes.
(ii) By protecting the most significant component of their
total direct compensation, the acceleration feature mitigates
any potential conflicts of interest that might otherwise arise
between the named executive officers and the shareholders and
serves as a substantial incentive for those officers to obtain
the highest possible value for the shareholders, should the
Company become an acquisition target. It also allows the named
executive officers to remain focused on the Companys
business operations and strategic objectives without
42
undue concern over their own financial security during periods
when substantial disruptions and distractions might otherwise
prevail should the Company become the subject of acquisition
overtures.
(iii) Immediate acceleration preserves the economic value
of outstanding equity awards in those instances where the awards
would not otherwise be assumed by the acquiring company and
would accordingly be cancelled.
The Compensation Committee periodically reviews tally sheets
prepared by its independent compensation consultant indicating
the severance benefits to which the named executive officers
would be entitled under their existing employment agreements or
the Senior Executive Severance Pay Plan were their employment to
be terminated under various scenarios, such as an involuntary
termination without cause or a resignation for good reason. The
tally sheets indicate the total dollar amount of cash severance
under each scenario, the intrinsic value of accelerated equity
awards at various assumed stock prices and any other special
benefits that would be triggered by the termination event. The
Compensation Committee last performed such a periodic review in
March 2009 and determined that the severance benefits for the
named executive officers, as reflected in the tally sheets, were
at or below competitive levels compared to market practice. In
conducting such review, the Committee noted (i) the absence
of any meaningful wealth accumulation opportunities afforded by
the Companys compensation programs to date, because of the
relatively short periods those individuals have been with the
Company and the fact that a number of outstanding stock option
awards are out of the money, (ii) the perceived value of
the severance benefit package as an important element of
economic security and (iii) the significant retention
vehicle such package provides. The Committee did not believe
that a tally sheet review was necessary for the 2010 fiscal
year, since there had not been any significant changes to the
various items of compensation included in the tally.
Calculations and further explanation of the payments due the
named executive officers upon termination of employment
and/or
a
change in control event are found under the portion of the
Executive Compensation section of this Information Statement
entitled
Executive Compensation
Potential Payments Upon Terminations or Change in
Control.
IX. Equity
Retention Guidelines and Hedging Policies
The Company originally adopted equity retention guidelines for
its executive officers in May 2007 and effected certain
revisions in January and September 2009 and made further
adjustments to the guidelines in June 2010. The principal
features of the policy as so revised may be summarized as
follows:
Retention Levels:
Each covered executive
officer is expected to attain and retain a level of qualifying
equity securities, either in the form of shares of the
Companys Class A Common Stock or certain equity
incentive awards under which such shares may be acquired, with
an aggregate value on each periodic measurement date equal to
the applicable multiple of annual base salary. The applicable
multiples for the named executive officers are as follows:
|
|
|
|
|
Name
|
|
Applicable Multiple
|
|
Edelstein
|
|
|
5
|
x
|
Cappelli
|
|
|
5
|
x
|
DAmico
|
|
|
4
|
x
|
Swartz
|
|
|
3
|
x
|
Pepicello
|
|
|
3
|
x
|
Measurement Date.
Retention levels will be
measured periodically (usually prior to the start of each
quarterly trading window), and the fair market value per share
of the Companys Class A Common Stock on any such
measurement date will be calculated at the average of the
closing selling prices per share over the two-hundred (200)-day
period ending with such measurement date (the
measurement period price per share
).
43
Qualifying Securities:
The following
securities will be taken into account in calculating a covered
individuals equity retention level on the applicable
measurement date:
|
|
|
|
|
shares of Class A Common Stock directly owned, including
shares purchased on the open market or under the Companys
Employee Stock Purchase Plan and shares acquired and held upon
the exercise of stock options or the vesting of RSU or
performance share unit awards,
|
|
|
|
60% of the total number of shares underlying his or her unvested
restricted stock unit awards,
|
|
|
|
shares that on the applicable measurement date represent 60% of
the intrinsic value of any vested options held at that time by
such individual, with such intrinsic value to be calculated as
follows:
|
(i) the number of shares Class A Common Stock subject
to the vested portion of each outstanding option held by that
individual will be multiplied by the dollar amount by which the
measurement period price per share exceeds the applicable
exercise price per share, and
(ii) the dollar amount so obtained will be divided by that
measurement period price per share to determine the number of
shares representing 100% of the intrinsic value of that option,
with 60% of that number to be counted as qualifying securities
under the guidelines; and
|
|
|
|
|
shares subject to performance share unit awards will not be
taken into account as qualifying securities while such awards
remain outstanding, and only the net number of shares actually
issued upon the vesting of those awards will be counted as
qualifying securities.
|
Sale Limitation:
Until the equity retention
target is attained, a covered individual will be subject to the
following limitation on the number of shares of the Class A
Common Stock that he or she will be permitted to sell:
|
|
|
|
|
on a cumulative basis not more than 50% of the net number of
shares (after tax withholding) acquired after March 26,
2009 upon the vesting of restricted stock units, whether
pursuant to the covered individuals current RSU holdings
or any future awards, and
|
|
|
|
on a cumulative basis not more than 50% of the number of shares
subject to the covered individuals options that were
vested on March 26, 2009 or that vest after that date,
whether pursuant of his or her existing option holdings or any
future grants.
|
However, none of the shares directly owned by the covered
individual as of March 26, 2009 or (if later) as of the
date he or she first becomes a covered individual may be sold
until the required level of equity retention is attained.
Excess Sales:
Once the covered individual
attains his or her targeted level of equity retention, he or she
may continue to sell shares subject to the foregoing sales
limitation, whether or not those limited sales would reduce his
or her level of equity retention below the targeted level.
However, such individual should not engage in any sales or other
transactions in excess of that sales limitation unless the
number of shares involved in such sales or transactions are
drawn from the portion of his or her share holdings that is in
excess of the number of qualifying securities needed at the time
to maintain his or her targeted level of equity retention.
Exceptions:
The Compensation Committee may
allow exceptions or deviations from the foregoing sale
restrictions and limitations in hardship situations.
The Company does not have any policies prohibiting executives
from holding Company securities in margin accounts, pledging
Company securities as collateral for loans or entering into
pre-paid variable forward sale contracts covering the
Companys securities. However, executive officers are not
permitted to engage in short sales of Company securities.
|
|
X.
|
Impact of
Tax and Accounting
|
As a general matter, the Compensation Committee takes into the
account the various tax and accounting implications of the
compensation programs maintained for the Companys
executive officers.
44
When determining the amount of the long-term equity incentive
awards to be made to the executive officers and other employees,
the Compensation Committee considers the accounting cost
associated with those grants. Under ASC 718 of the
Financial Accounting Standards Board, stock option grants, RSU
awards and performance share units result in a financial
accounting charge for the Company. That charge is equal to the
grant-date fair value of those securities. For RSUs the
accounting cost is generally equal to the fair market value of
the underlying shares of Class A Common Stock on the award
date. That cost is then amortized over the requisite service
period. With respect to stock options, the Company generally
calculates the grant-date fair value of the option based on the
Black-Scholes formula (with an adjustment for possible
forfeitures) and amortizes that value as a compensation expense
over the vesting period. However, as noted with respect to
certain equity awards made to the executive officers, the
Compensation Committee may size those awards based on a
Black-Scholes valuation calculated prior to the actual grant
date, but the actual ASC 718 accounting charge for those
awards will be determined by the
Black-Scholes
valuation of those awards on the actual grant date. The
Compensation Committee believes that the use of an earlier
Black-Scholes valuation solely for sizing purposes is
appropriate in order to facilitate the orderly administration
and implementation of those awards and to assure the timely
filing of the appropriate public reports, including Form 4
reports, with respect to those awards. For each performance
share unit, the accounting cost is generally equal to the fair
market value per share of Class A Common Stock on the award
date multiplied by the number of shares of Class A Common
Stock that would be issued under that unit at target level
attainment, assuming such level of attainment is the probable
outcome for the award. The cost is then amortized over the
requisite service period, subject to subsequent adjustment in
the event a different level of performance goal attainment is
determined to be the probable outcome. Any such adjustment to
the accounting cost of the award would be effected on a
cumulative prospective basis by revising the number of shares of
Class A Common Stock likely to become issuable under the
award, but the original grant-date fair value of those shares
would continue to be used for purposes of determining the target
compensation.
Section 162(m) of the Internal Revenue Code disallows an
income tax deduction to publicly-traded companies such as the
Company for compensation paid to certain executive officers to
the extent that compensation exceeds $1 million per officer
in any taxable year and does not otherwise qualify as
performance-based compensation. The Companys existing
equity compensation plan (the 2000 Stock Incentive Plan) is
structured so that the compensation deemed paid to an executive
officer in connection with the exercise of stock options granted
under that plan should qualify as performance-based compensation
that is not subject to the $1 million limitation.
However, the Company has had to apply revised measurement dates
to certain stock option grants for financial accounting
purposes, and the options with those revised measurement dates
may not qualify as performance-based compensation for purposes
of Section 162(m). As a result, the compensation deemed
paid when those options are exercised may be subject to the
Section 162(m) limitation.
In addition, other awards made under the 2000 Stock Incentive
Plan may or may not qualify as performance-based compensation.
However, it is expected that most RSU awards and performance
share unit awards made to date under the 2000 Stock Incentive
Plan will qualify as performance-based compensation because each
of those awards is subject to the attainment of pre-established
performance goals. However, the Compensation Committee may from
time to time make RSU awards that are not subject to performance
goals and that will not qualify as performance-based
compensation, particularly in instances where those awards are
intended to serve as make-whole awards to compensate
newly-hired individuals for any equity awards or other
compensation they forfeit from their former employer as a result
of their commencement of employment with the Company. The
Company or the Compensation Committee may also structure
relocation packages for newly-hired individuals which have
components that may not be deductible in whole or in part for
income tax purposes by reason of the Section 162(m)
limitation but which the Company or the Compensation Committee
deems essential to secure the services of those individuals.
The cash incentive plan implemented for the named executive
officers for the 2010 fiscal year was designed to provide cash
incentive payments that would qualify as performance-based
compensation under Section 162(m) and should be fully
deductible by the Company. However, payments under future cash
incentive plans may not always be structured to qualify in whole
or in part as such performance-based, deductible compensation,
and it is likely that a portion of the payments that may become
due under the 2011 fiscal year cash incentive plan may not so
qualify.
45
The Compensation Committee will continue to take
Section 162(m) into consideration when structuring
incentive compensation awards for the executive officers.
However, in establishing the cash and equity incentive
compensation programs for the executive officers, the
Compensation Committee believes that the potential deductibility
of the compensation payable under those programs should be only
one of a number of relevant factors taken into consideration,
and not the sole or primary factor. The Compensation Committee
believes that cash and equity incentive compensation must be
maintained at the requisite level to attract and retain the
executive officers essential to the Companys financial
success, even if all or part of that compensation may not be
deductible by reason of the Section 162(m) limitation.
For the 2010 fiscal year, the Company did not lose any income
tax deductions by reason of the Section 162(m) limitation
imposed on non-performance-based compensation.
46
BOARD COMPENSATION COMMITTEE REPORT ON
EXECUTIVE COMPENSATION
|
|
|
|
|
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
|
|
|
|
|
|
|
|
|
The information contained in this report shall not be deemed
to be soliciting material or filed with
the SEC or subject to the liabilities of Section 18 of the
Securities Exchange Act of 1934, as amended, except to the
extent that Apollo Group specifically incorporates it by
reference into a document filed under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as
amended.
|
We have reviewed and discussed the foregoing Compensation
Discussion and Analysis with management. Based on such review
and discussion with management, we have recommended to the Board
of Directors that the Compensation Discussion and Analysis be
included in the Companys Annual Report on
Form 10-K
for the year ended August 31, 2010 and the Information
Statement on Schedule 14C.
Submitted by:
Dr. Roy A. Herberger, Jr., Chair
Dino J. DeConcini
Dr. Ann Kirschner
Manuel F. Rivelo
47
RISK
ASSESSMENT OF COMPENSATION PROGRAMS
The Company undertook a comprehensive review of the various
compensation programs maintained throughout the organization to
determine whether any of those programs encouraged excess risk
taking that might create a material risk to the Companys
economic viability. As the first step in that process, the Human
Resources Department compiled an inventory of the various
compensation plans and programs, noting their principal
features, the potential risks posed to the Company and any
mitigating factors, such as payment caps, internal processes for
the review of the applicable performance measures and
calculations and the retained discretion to effect reductions
and adjustments to the payout amounts.
The plan inventory was presented to the Compensation Committee
for review. The findings reached by the Compensation Committee
with respect to its risk assessment of the compensation programs
maintained for the Companys executive officers are set
forth in the Compensation Discussion and Analysis section of
this Information Statement.
In conducting their respective reviews, both the Company and the
Compensation Committee noted the following points with respect
to the inventoried plans:
|
|
|
*
|
|
The Companys compensation structure is applied uniformly
throughout the organization, with the only major exception
relating to the special long-term incentive plans implemented at
several subsidiaries of the Companys majority-owned
subsidiary, Apollo Global, Inc. Those plans are structured as
phantom stock appreciation right programs that are settled in
cash upon the completion of a designated four-year performance
cycle. The amount of the payout for each performance cycle is
tied to the entitys Earnings Before Interest Tax
Depreciation and Amortization compounded annual growth rate for
that cycle. In addition, the participant must, in general,
remain in the subsidiarys employ for the first three years
of the performance cycle in order to vest in 40% of the award
and must continue in such employment throughout the entire
four-year cycle in order to vest in 100% of the award. Although
the phantom stock appreciation right programs are unique to the
Apollo Global, Inc. subsidiaries, they were structured in a
manner designed to mitigate potential risks. For example, there
is a limit on the maximum number of units that can be awarded
under those plans; there is a multi-year performance period in
effect for each cycle for which awards are made, the
service-vesting schedule is back loaded to promote retention and
the performance measures are subject to an internal review
process.
|
|
*
|
|
Management-level employees in the organization receive equity
awards on a recurring basis. Those awards are either in the form
of restricted stock units or a combination of stock option
grants, restricted stock units and performance share unit
awards. Although stock options have the potential to encourage
risk taking, the equity awards of which they are a component
vest over a period of years so as to encourage the award
recipients to focus on sustaining the Companys long-term
performance. In addition, the equity awards are generally made
on an annual basis, and as a result, the Companys
executive officers and other management-level employees
typically have unvested awards outstanding that could decrease
significantly in value if the Companys business is not
managed for the long-term.
|
|
*
|
|
The Companys overall compensation structure is not overly
weighted toward short-term incentives and, for management-level
employees, there is a significant long-term equity award
component tied to the value of the Companys Class A
Common Stock. The short-term incentive programs the Company has
implemented are subject to a dollar cap per individual tied to a
percentage of his or her base salary. As a result, there is a
meaningful limitation on the amount of compensation that can be
generated from such short-term incentive programs, thereby
mitigating the potential for excessive risk taking with respect
to short-term goals. In addition, at the executive officer
level, the Compensation Committee has reserved the discretion to
reduce the bonus amounts payable to the executive officers by
taking into account such factors as it deems appropriate,
including whether the executive officer has caused the Company
to incur any unnecessary or excessive risks.
|
Based on the foregoing considerations, both the Company and the
Compensation Committee concluded that it is not reasonably
likely that the Companys overall employee compensation
structure, when analyzed in terms of its organization-wide
application or its specific application to its various major
business units, would have a material adverse effect upon the
Company.
48
SUMMARY
COMPENSATION INFORMATION
The following table provides certain summary information
concerning the compensation earned for services rendered in all
capacities to the Company and its subsidiaries for the fiscal
years ended August 31, 2010, August 31, 2009 and August 31,
2008, respectively, by the Companys Principal Executive
Officers, Principal Financial Officer, and each of the
Companys three other most highly compensated executive
officers whose total compensation for the fiscal year ended
August 31, 2010 was in excess of $100,000 and who were serving
as executive officers at the end of that fiscal year. No other
executive officers who would have otherwise been includable in
such table on the basis of total compensation for the 2010
fiscal year have been excluded by reason of their termination of
employment or change in executive officer status during that
year. The listed individuals shall be hereinafter referred to as
the named executive officers.
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Change in
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Pension Value
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and
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Non-Equity
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Nonqualified
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Incentive
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Deferred
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All
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Stock
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Option
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Plan
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Compensation
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Other
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Salary
|
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Bonus
|
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Awards
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Awards
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Compensation
|
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Earnings
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Compensation
|
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Total
|
Name and Principal Position
|
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Year
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($)(1)
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($)(1)
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($)(2)(3)
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($)(4)
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($)
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($)(5)
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($)(6)
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($)
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(a)
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(b)
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(c)
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(d)
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(e)
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(f)
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(g)
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(h)
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(i)
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(j)
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Dr. John G. Sperling,
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2010
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850,000
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|
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2,458,846
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|
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1,823,399
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|
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1,462,000
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|
|
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356,510
|
|
|
|
12,484
|
(7)(8)
|
|
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6,963,239
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Founder and Executive
|
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2009
|
|
|
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850,000
|
|
|
|
|
|
|
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2,875,298
|
|
|
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2,827,791
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|
|
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1,700,000
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|
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265,256
|
|
|
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99,252
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(8)(9)
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8,617,597
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Chairman of the Board
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|
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2008
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|
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850,000
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|
|
|
|
|
|
|
|
|
|
|
|
|
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1,700,000
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|
|
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129,265
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|
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100,003
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(8)(10)
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2,779,268
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Charles B. Edelstein,
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2010
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600,000
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|
|
|
|
|
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1,032,000
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|
|
|
|
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4,950
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(12)
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1,636,950
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Co-Chief Executive Officer
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2009
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|
600,000
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|
|
|
|
|
|
|
|
|
|
|
|
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1,200,000
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|
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|
|
|
|
|
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1,800,000
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(Principal Executive Officer)
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2008
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|
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9,230
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200,000
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(11)
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4,951,605
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|
|
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24,836,300
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|
|
|
|
|
|
|
|
|
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29,997,135
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Gregory W. Cappelli,
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2010
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600,000
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|
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|
|
|
|
|
|
|
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|
1,032,000
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|
|
|
|
|
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27,712
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(15)
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|
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1,659,712
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Co-Chief Executive Officer
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2009
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|
535,616
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(13)
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66,667
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(14)
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|
|
|
|
|
|
|
|
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1,000,000
|
|
|
|
|
|
|
|
20,552
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(16)
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|
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1,622,835
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(Principal Executive Officer)
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|
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2008
|
|
|
|
500,000
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|
|
|
|
|
|
|
|
|
|
|
|
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|
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1,000,000
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|
|
|
|
|
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|
900
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(17)
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1,500,900
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|
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Joseph L. DAmico,
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2010
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525,000
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|
|
|
|
|
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2,300,164
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|
|
|
1,705,690
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|
|
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903,000
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|
|
|
|
|
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66,392
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(18)
|
|
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5,500,246
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President and
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|
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2009
|
|
|
|
500,000
|
|
|
|
|
|
|
|
1,321,023
|
|
|
|
2,218,907
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|
|
|
1,000,000
|
|
|
|
|
|
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75,333
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(19)
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5,115,263
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Chief Operating Officer
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2008
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500,000
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|
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1,000,000
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|
|
|
|
|
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57,736
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(20)
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|
|
1,557,736
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Brian L. Swartz,
|
|
|
2010
|
|
|
|
375,000
|
|
|
|
|
|
|
|
866,577
|
|
|
|
642,626
|
|
|
|
483,750
|
|
|
|
|
|
|
|
1,648
|
(23)
|
|
|
2,369,601
|
|
Senior Vice President and
|
|
|
2009
|
|
|
|
337,808
|
(21)
|
|
|
131,250
|
(22)
|
|
|
791,038
|
|
|
|
779,337
|
|
|
|
300,000
|
|
|
|
|
|
|
|
5,946
|
(24)
|
|
|
2,345,379
|
|
Chief Financial Officer (Principal Financial Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. William J. Pepicello,
|
|
|
2010
|
|
|
|
350,000
|
|
|
|
|
|
|
|
705,740
|
|
|
|
523,280
|
|
|
|
451,500
|
|
|
|
|
|
|
|
4,950
|
(25)
|
|
|
2,035,470
|
|
President, University of Phoenix
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Includes amounts deferred under the Companys Employee
Savings Plan, a tax-qualified deferred compensation plan under
section 401(k) of the Internal Revenue Code.
|
|
(2)
|
|
Represents the aggregate grant-date fair value of the restricted
stock units (RSUs) awarded to the named executive
officer during the applicable year, calculated in accordance
with ASC 718, and does not take into account any estimated
forfeitures related to service-based vesting conditions. Such
grant-date fair value has been calculated on the basis of the
fair market value of the Companys Class A Common
Stock on the respective grant date of each RSU award.
|
|
(3)
|
|
Includes the aggregate grant-date fair value of the performance
share units awarded to the named executive officer during the
2010 fiscal year, calculated in accordance with ASC 718 and
based on the probable outcome of the applicable performance
goal, which is assumed for such purpose to be at target level
attainment. Such amount does not take into account any estimated
forfeitures related to service-vesting conditions. The amount so
included for each named executive officer who received a
performance share unit award is as follows: Dr. Sperling,
$641,405; Mr. DAmico, $600,065; Mr. Swartz,
$226,102; and, Dr. Pepicello, $184,128. The grant-date fair
value of those 2010 performance share units awards assuming
payout at maximum attained level are as follows:
Dr. Sperling, $1,282,810; Mr. DAmico,
$1,200,130; Mr. Swartz, $452,204; and Dr. Pepicello,
$368,256.
|
|
(4)
|
|
Represents the aggregate grant-date fair value of the stock
option awarded to the named executive officer for the applicable
year, calculated in accordance with ASC 718, and does not
take into account any estimated forfeitures related to
service-vesting conditions. Assumptions used in the calculation
of such grant-date fair
|
49
|
|
|
|
|
value are set forth in Note 2 and 17 to our Consolidated
Financial Statements for the year ended August 31, 2010
included in our Annual Report on
Form 10-K
for such fiscal year.
|
|
(5)
|
|
Represents the
year-over-year
change in each of the 2008, 2009 and 2010 fiscal years of the
actuarial present value of Dr. Sperlings pension
benefit payable pursuant to his deferred compensation agreement
with the Company dated December 31, 1993.
|
|
(6)
|
|
As indicated in the Compensation Discussion & Analysis
section above, the Company has a stadium naming rights agreement
(the Stadium Agreement) with the Arizona Cardinals
of the National Football League pursuant to which a number of
ancillary benefits are provided as part of the fixed contract
fee, including access to a private stadium loft for a limited
number of guests for all games played by the Arizona Cardinals
at the stadium and certain other sporting and entertainment
events held at the stadium, a specified number of additional
tickets to all home games played by the Arizona Cardinals at the
stadium, fully-paid expenses to three away games per year for a
limited number of guests per trip and fully-paid expenses to the
Super Bowl and NFL Pro Bowl each year for a limited number of
guests per trip. As a result, the Company did not incur any
incremental costs to the extent one or more named executive
officers may have enjoyed the personal use of those ancillary
benefits. However, to the extent the Company did incur
incremental costs in purchasing additional tickets to
stadium-held events, the incremental cost per ticket (determined
by dividing the aggregate
out-of-pocket
cost the Company incurred in purchasing those additional tickets
by the total number of tickets available to the Company for the
event, including the no-cost tickets provided under the Stadium
Agreement) was allocated to any named executive officer who
received for personal use one or more tickets to a stadium-held
event for which additional tickets were purchased by the
Company. Such incremental cost was taken into account in
determining the named executive officers potentially
disclosable and quantifiable perquisites for the fiscal year.
The Company maintains procedures to track and record the
disposition of all tickets acquired or purchased pursuant to the
Stadium Agreement and the business or personal use of the
allotted tickets.
|
|
(7)
|
|
Represents (i) $6,134 in registration fees, insurance costs
and maintenance and fuel expenses attributable to
Dr. Sperlings personal use of Company-owned vehicles
and (ii) $6,350 relating to reimbursement of personal
transportation costs. The Company-owned vehicles provided to
Dr. Sperling were fully depreciated by the Company prior to
the start of the 2007 fiscal year, and accordingly, there were
no other incremental costs incurred by the Company as a result
of Dr. Sperlings personal use of those vehicles.
|
|
(8)
|
|
The Company also provides office space and related services to
an employee of one of Dr. Sperlings companies, and
the administrative assistant for Dr. Sperling, employed by
the Company provides assistance with personal matters. However,
the Company does not believe that any incremental costs have
been incurred in connection with these items and accordingly no
additional amount is reflected for such perquisite in column
(i) for any of the 2010, 2009 and 2008 fiscal years.
|
|
(9)
|
|
Represents (i) $12,722 in registration fees, insurance
costs and maintenance and fuel expenses attributable to
Dr. Sperlings personal use of Company-owned vehicles,
(ii) $8,121 relating to reimbursement of personal
transportation costs, (iii) fees in the amount of $75,000
for personal financial and tax planning services paid by the
Company on behalf of Dr. Sperling and (iv) $3,409 as a
tax
gross-up
to cover Dr. Sperlings tax liability associated with
the reimbursement of fees and costs attributable to his personal
use of Company-owned vehicles during the 2009 fiscal year. The
Company-owned vehicles provided to Dr. Sperling were fully
depreciated by the Company prior to the start of the 2007 fiscal
year, and accordingly, there were no other incremental costs
incurred by the Company as a result of Dr. Sperlings
personal use of those vehicles.
|
|
(10)
|
|
Represents (i) fees in the amount of $75,000 for personal
financial and tax planning services paid by the Company on
behalf of Dr. Sperling, (ii) $15,584 in fuel,
maintenance, registration fees and insurance costs attributable
to Dr. Sperlings personal use of Company-owned
vehicles and (iii) $9,419 relating to the reimbursement of
personal transportation costs. The Company-owned vehicles
provided to Dr. Sperling were fully depreciated by the
Company prior to the start of the 2007 fiscal year, and
accordingly, there were no other incremental costs incurred by
the Company as a result of Dr. Sperlings personal use
of those vehicles.
|
|
(11)
|
|
Represents a sign-on bonus paid to Mr. Edelstein pursuant
to the terms of his employment agreement with the Company.
|
|
(12)
|
|
Represents a matching contribution by the Company to the named
executive officers account under the Companys
Employee Savings Plan.
|
|
(13)
|
|
Calculated based on an annual rate of base salary of $500,000
for the period September 1, 2008 to April 23, 2009 and
$600,000 for the period April 24, 2009 to August 31,
2009.
|
50
|
|
|
(14)
|
|
Represents a discretionary bonus awarded to Mr. Cappelli
for his performance as Co-Chief Executive Officer following his
promotion to such position in April 2009.
|
|
(15)
|
|
Represents (i) a matching contribution in the amount of
$4,950 made by the Company to Mr. Cappellis account
under the Companys Employee Savings Plan,
(ii) $15,068 relating to personal use of Company-chartered
aircraft, (iii) $601 relating to personal use of
Company-owned condominium, (iv) $6,558 relating to the
reimbursement of commuting costs and (v) $535 relating to
the attendance of Mr. Cappellis spouse and guests at
Company events. In addition, Mr. Cappelli received for
personal use tickets to certain sporting and entertainment
events for which the Company incurred no incremental costs under
the Stadium Agreement.
|
|
(16)
|
|
Represents (i) a matching contribution in the amount of
$4,950 made by the Company to Mr. Cappellis account
under the Companys Employee Savings Plan, (ii) $2,434
relating to personal use of Company-chartered aircraft,
(iii) $798 relating to personal use of Company-owned
condominium, (iv) $5,795 relating to the reimbursement of
commuting costs which was erroneously reported as $4,920 in the
Companys Information Statement dated December 30,
2009, (v) $2,339 as a tax
gross-up
to
cover Mr. Cappellis tax liability with respect to
income imputed to him as a result of certain personal travel on
aircraft owned and operated by an entity controlled by
Dr. Sperling, (vi) $1,932 relating to the incremental
cost per ticket of the 2009 Super Bowl tickets provided to
Mr. Cappelli and his guests and (vii) $2,304 relating
to the reimbursement of legal fees incurred by Mr. Cappelli
in connection with the amendment to his employment agreement to
reflect his new Co-Chief Executive Officer position. In
addition, Mr. Cappelli received for personal use tickets to
certain sporting and entertainment events for which the Company
incurred no incremental costs under the Stadium Agreement.
|
|
(17)
|
|
Represents a matching contribution made by the Company to the
named executive officers account under the Companys
Employee Savings Plan.
|
|
(18)
|
|
Represents (i) $30,000 reimbursement of duplicative living
costs incurred by Mr. DAmico in his secondary
business location, (ii) $22,276 relating to the
reimbursement of personal transportation costs, (iii) a matching
contribution in the amount of $4,950 made by the Company to his
account under the Companys Employee Savings Plan,
(iv) $3,150 relating to personal use of Company-chartered
aircraft and (v) $6,016 relating to the incremental cost of
the attendance of Mr. DAmicos spouse and guests
at Company events. In addition, Mr. DAmico received
for personal use tickets to certain sporting and entertainment
events for which the Company incurred no incremental costs under
the Stadium Agreement.
|
|
(19)
|
|
Represents (i) $30,000 reimbursement of duplicative living
costs incurred by Mr. DAmico in his secondary
business location, (ii) $38,130 relating to the
reimbursement of personal transportation costs, (iii) a
matching contribution in the amount of $4,950 made by the
Company to Mr. DAmicos account under the
Companys Employee Savings Plan, (iv) $649 relating to
personal use of Company-chartered aircraft and (v) $1,604
relating to the incremental cost of the 2009 Super Bowl tickets
provided to Mr. DAmico and his guest and the
reimbursement of certain ancillary personal expenses relating to
such event. In addition, Mr. DAmico received for
personal use tickets to certain sporting and entertainment
events for which the Company incurred no incremental costs under
the Stadium Agreement.
|
|
(20)
|
|
Represents (i) a housing allowance of $30,000,
(ii) $24,961 of costs reimbursed in connection with
personal travel to and from the Companys headquarters in
Phoenix, AZ and his personal residence in Chicago, IL, and to
and from the Companys Chicago, IL office and his personal
residence in Chicago, IL during such fiscal year, and
(iii) a matching contribution in the amount of $2,775 made
by the Company to his account under the Companys Employee
Savings Plan.
|
|
(21)
|
|
Calculated based on an annual rate of base salary of $300,000
for the period September 1, 2008 to February 28, 2009
and $375,000 for the period March 1, 2009 to
August 31, 2009.
|
|
(22)
|
|
Represents a discretionary bonus awarded to Mr. Swartz for
his performance as Chief Financial Officer following his
promotion to such position in March 2009.
|
|
(23)
|
|
Represents a matching contribution by the Company to the named
executive officers account under the Companys
Employee Savings Plan.
|
|
(24)
|
|
Represents a matching contribution by the Company to the named
executive officers account under the Companys
Employee Savings Plan.
|
|
(25)
|
|
Represents a matching contribution by the Company to the named
executive officers account under the Companys
Employee Savings Plan.
|
51
GRANTS OF PLAN-BASED AWARDS
|
|
|
|
|
GRANTS OF PLAN-BASED AWARDS
|
|
|
|
|
|
|
|
|
The following table provides certain summary information
concerning each grant of an award made to a named executive
officer in the 2010 fiscal year under a compensation plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
Grant-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Exercise
|
|
Date
|
|
|
|
|
|
|
Potential Payouts
|
|
Estimated Future Payouts Under
|
|
Number of
|
|
or Base
|
|
Fair
|
|
|
|
|
Date of
|
|
Under Non-Equity Incentive
|
|
Equity Incentive Plan Awards(3)
|
|
Securities
|
|
Price of
|
|
Value of
|
|
|
|
|
Pre-
|
|
Plan Awards(2)
|
|
(4)
|
|
Underlying
|
|
Option
|
|
Equity
|
|
|
Grant
|
|
Authorization
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Options
|
|
Awards
|
|
Awards
|
Name
|
|
Date
|
|
(1)
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
(#)
|
|
($/Sh)
|
|
($)(5)
|
(a)
|
|
(b)
|
|
(b)(2)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
(f)
|
|
(g)
|
|
(h)
|
|
(j)
|
|
(k)
|
|
(l)
|
|
Dr. John G. Sperling
|
|
|
11/24/09
|
|
|
|
|
|
|
|
425,000
|
|
|
|
850,000
|
|
|
|
1,700,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/6/10
|
|
|
|
6/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,996
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,817,441
|
|
|
|
|
7/6/10
|
|
|
|
6/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,948
|
(8)
|
|
|
42.27
|
|
|
|
1,823,399
|
|
|
|
|
7/6/10
|
|
|
|
6/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,070
|
(7)
|
|
|
15,174
|
(7)
|
|
|
30,348
|
(7)
|
|
|
|
|
|
|
|
|
|
|
641,405
|
|
Charles B. Edelstein
|
|
|
11/24/09
|
|
|
|
|
|
|
|
300,000
|
|
|
|
600,000
|
|
|
|
1,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gregory W. Cappelli
|
|
|
11/24/09
|
|
|
|
|
|
|
|
300,000
|
|
|
|
600,000
|
|
|
|
1,200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Joseph L. DAmico
|
|
|
11/24/09
|
|
|
|
|
|
|
|
262,500
|
|
|
|
525,000
|
|
|
|
1,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/6/10
|
|
|
|
6/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,220
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,700,099
|
|
|
|
|
7/6/10
|
|
|
|
6/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,044
|
(8)
|
|
|
42.27
|
|
|
|
1,705,690
|
|
|
|
|
7/6/10
|
|
|
|
6/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,679
|
(7)
|
|
|
14,196
|
(7)
|
|
|
28,392
|
(7)
|
|
|
|
|
|
|
|
|
|
|
600,065
|
|
Brian L. Swartz
|
|
|
11/24/09
|
|
|
|
|
|
|
|
140,625
|
|
|
|
281,250
|
|
|
|
562,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/6/10
|
|
|
|
6/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,152
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
640,475
|
|
|
|
|
7/6/10
|
|
|
|
6/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,692
|
(8)
|
|
|
42.27
|
|
|
|
642,626
|
|
|
|
|
7/6/10
|
|
|
|
6/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,140
|
(7)
|
|
|
5,349
|
(7)
|
|
|
10,698
|
(7)
|
|
|
|
|
|
|
|
|
|
|
226,102
|
|
Dr. William J. Pepicello
|
|
|
11/24/09
|
|
|
|
|
|
|
|
131,250
|
|
|
|
262,500
|
|
|
|
525,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/6/10
|
|
|
|
6/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,340
|
(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
521,612
|
|
|
|
|
7/6/10
|
|
|
|
6/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,692
|
(8)
|
|
|
42.27
|
|
|
|
523,280
|
|
|
|
|
7/6/10
|
|
|
|
6/24/10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,743
|
(7)
|
|
|
4,356
|
(7)
|
|
|
8,712
|
(7)
|
|
|
|
|
|
|
|
|
|
|
184,128
|
|
|
|
|
(1)
|
|
The Compensation Committee pre-authorized these equity awards on
June 24, 2010 to subsequently become effective at the close
of business on the third trading day following the filing of the
Companys financial results for the fiscal quarter ended
May 31, 2010.
|
|
(2)
|
|
Reflects potential payouts under the Companys Executive
Officer Incentive Compensation Plan for the 2010 fiscal year.
Each potential payout was tied to a designated level of revenue
and operating profit attainment pre-established by the
Compensation Committee for the 2010 fiscal year. The
Companys financial performance for the 2010 fiscal year
exceeded the maximum levels of revenue and operating profit
attainment set for that year, and the cash bonus paid to each
named executive officer after the Compensation Committee applied
a reduction based on its assessment of the Companys
overall performance and individual officer performance was at
86% of the maximum level indicated for him in the above table. A
description of the principal provisions of the Executive Officer
Incentive Compensation Plan for the 2010 fiscal year is set
forth below.
|
|
(3)
|
|
Includes restricted stock unit awards with both
performance-vesting and service-vesting components. Each
restricted stock unit represents the right to receive one share
of the Companys Class A Common Stock following the
satisfaction of the applicable performance and service-vesting
requirements. For the restricted stock units awarded on
July 6, 2010, the applicable performance-vesting condition
is the Companys attainment of adjusted net income of not
less than $400 million for the fiscal year ended
August 31, 2011.
|
|
(4)
|
|
Includes performance share unit awards with both
performance-vesting and service-vesting components. The
performance-vesting component is tied to the average of the
annual growth rates in the Companys adjusted free cash
flow for each of the three fiscal years of the Company
comprising the performance period (the 2011, 2012 and 2013
fiscal years). In determining the average of those annual growth
rates, the growth rate of adjusted free cash flow for the 2011
fiscal year will be determined by comparing the adjusted free
cash flow for that year against the adjusted free cash flow for
the 2010 fiscal year. The growth in adjusted free cash flow for
each of the two (2) remaining fiscal years will be
calculated in comparison to the adjusted free cash flow realized
for the immediately preceding fiscal year. Once the growth rate
for each of the three fiscal years is calculated, the simple
average of those three annual growth rates will be determined,
and that average (rounded up to the next whole one-tenth decimal
point) will represent the actual level of performance
attainment. The calculation of
|
52
|
|
|
|
|
adjusted free cash flow for each relevant fiscal year will be
based on cash flow from operations for that fiscal year, as
determined on a consolidated basis with the Companys
consolidated subsidiaries for financial reporting purposes, and
will be subject to certain pre-specified adjustments, reductions
and exclusions. Based on the attained performance level, the
performance share units will convert into actual shares of
Class A Common Stock. Such conversion will be effected by
multiplying the number of performance share units subject to
each award by the applicable conversion percentage that will
range from 40% at threshold level attainment to 100% at target
level attainment and to 200% at maximum level attainment. For
further information concerning the applicable performance
measure for the performance share units and the conversion
process based on performance goal attainment, please see the
Compensation Discussion and Analysis section above.
|
|
(5)
|
|
The dollar value reported in column (l) with respect to
stock options represents the grant-date fair value of each
option determined in accordance with the provisions of
ASC 718. A discussion of the valuation assumptions used in
the ASC 718 calculation of grant-date fair value is set
forth in Notes 2 and 17 to the Companys audited
financial statements for the fiscal year ended August 31,
2010, included in the Companys Annual Report on
Form 10-K
filed with the Securities and Exchange Commission on
October 21, 2010. The dollar value reported in column
(l) with respect to the restricted stock unit awards
represents the grant-date fair value of each such award based on
the fair market value of the underlying shares of the
Companys Class A Common Stock on the grant date. The
dollar value reported in column (1) with respect to the
performance share unit awards represents the grant-date fair
value of each such award based on the fair market value on the
grant date of the number of shares of the Companys
Class A Common Stock issuable under that award based on the
probable outcome of the applicable performance goal, which is
assumed for such purpose to be at target level attainment. In
each instance, the grant-date fair value was not reduced for any
estimated forfeitures related to service-vesting conditions.
|
|
(6)
|
|
Represents an award of restricted stock units. Upon the
attainment of the applicable 2011 fiscal year adjusted net
income performance goal, one fourth of the restricted stock
units will vest, and the balance of the restricted stock units
will vest in three successive equal annual installments on each
of the second, third and fourth one-year anniversaries of the
July 6, 2010 award date, provided the named executive
officer continues in the Companys employ through each such
annual vesting date, subject to full vesting acceleration upon a
change in control of the Company.
|
|
(7)
|
|
Represents an award of performance share units. The number of
shares of Class A Common Stock into which each performance
share unit award is converted on the basis of the level of
performance goal attainment will also be subject to a
service-vesting requirement. Accordingly, the actual number of
shares of Class A Common Stock in which the named executive
officer will vest will be determined by multiplying the number
of shares of Class A Common Stock into which his
performance share units are converted by a fraction, the
numerator of which is the number of fiscal years of employment
such individual completes with the Company within the
performance period and the denominator of which is three.
|
|
(8)
|
|
The shares covered by each option will vest in four successive
equal annual installments on each of the first four one-year
anniversaries of the July 6, 2010 grant date upon the named
executive officers continuation in the Companys
employ through each such annual vesting date, subject to full
vesting acceleration in the event of a change in control of the
Company.
|
Executive
Officer Incentive Bonus Plan
On November 24, 2009, the Compensation Committee
implemented the Executive Officer Incentive Bonus Plan for the
2010 fiscal year. For each of the named executive officers
(other than Mr. Swartz and Dr. Pepicello), the target
bonus was set at 100% of their respective base salaries for such
fiscal year. For Mr. Swartz and Dr. Pepicello, the
target bonus was set at 75% of their respective base salaries
for the 2010 fiscal year. The actual bonus which each
participant could earn for the 2010 fiscal year ranged from 0 to
200% of the annual target bonus. The actual percentage was to be
determined based on the level at which the Companys
performance goals tied to revenue and operating profit, as
adjusted for certain pre-established items, for the 2010 fiscal
year were in fact attained. Three separate levels of potential
attainment were established by the Compensation Committee at the
time the plan was implemented. Further information concerning
such target, threshold, and maximum levels of attainment and the
53
pre-authorized adjustments to the revenue and operating profit
goals may be found in the Cash Incentive Plan for the 2010
Fiscal Year section of Compensation Discussion and
Analysis above.
The Compensation Committee reserved the discretion to reduce the
cash bonus otherwise payable to each named executive officer by
up to 30% based on its overall assessment of the Companys
performance in terms of the strategic initiatives undertaken
during the 2010 fiscal year, including initiatives to improve
academic and educational excellence and by up to an additional
20% based on its assessment of the officers individual
performance for such year.
The actual incentive bonus earned under the plan by each named
executive officer is set forth in the Summary Compensation
Table. For further information concerning the Executive Officer
Incentive Compensation Plan, please see Compensation
Discussion and Analysis above.
54
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table provides certain summary information
concerning outstanding equity awards held by the named executive
officers as of August 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan
|
|
Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Awards:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Market or
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unearned
|
|
Payout Value
|
|
|
Number of
|
|
Number of
|
|
|
|
|
|
|
|
|
|
Shares,
|
|
of Unearned
|
|
|
Securities
|
|
Securities
|
|
|
|
|
|
Number of
|
|
Market Value
|
|
Units or
|
|
Shares, Units
|
|
|
Underlying
|
|
Underlying
|
|
|
|
|
|
Shares or Units
|
|
of Shares or
|
|
Other
|
|
or Other
|
|
|
Unexercised
|
|
Unexercised
|
|
Option
|
|
Option
|
|
of Stock That
|
|
Units of Stock
|
|
Rights That
|
|
Rights That
|
|
|
Options (#)
|
|
Options (#)
|
|
Exercise
|
|
Expiration
|
|
Have Not
|
|
That Have Not
|
|
Have Not
|
|
Have Not
|
Name
|
|
Exercisable
|
|
Unexercisable
|
|
Price ($)
|
|
Date
|
|
Vested (#)
|
|
Vested ($)
|
|
Vested
|
|
Vested ($)
|
(a)
|
|
(b)
|
|
(c)(1)
|
|
(e)
|
|
(f)
|
|
(g)(1)
|
|
(h)(2)
|
|
(i)(1)
|
|
(j)(2)
|
|
Dr. John G. Sperling
|
|
|
150
|
|
|
|
|
|
|
|
29.3267
|
|
|
|
1/2/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
41.92
|
|
|
|
10/21/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
60.90
|
|
|
|
10/19/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20,250
|
|
|
|
|
|
|
|
71.23
|
|
|
|
8/5/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107,656
|
|
|
|
|
|
|
|
28.424
|
|
|
|
10/24/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
225,000
|
|
|
|
|
|
|
|
30.77
|
|
|
|
9/21/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
|
|
|
|
|
|
23.29
|
|
|
|
9/21/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
|
|
|
|
|
|
51.33
|
|
|
|
6/22/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,500
|
|
|
|
83,500
|
(3)
|
|
|
58.03
|
|
|
|
7/2/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,213
|
|
|
|
8,607
|
(3)
|
|
|
69.51
|
|
|
|
10/30/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,373
|
|
|
|
58,119
|
(4)
|
|
|
67.90
|
|
|
|
7/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
106,948
|
(5)
|
|
|
42.27
|
|
|
|
7/5/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,500
|
(6)
|
|
|
531,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,417
|
(7)
|
|
|
145,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,889
|
(8)
|
|
|
1,015,044
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,996
|
(9)
|
|
|
1,826,900
|
|
|
|
15,174
|
(10)
|
|
|
644,743
|
|
Charles B. Edelstein
|
|
|
500,000
|
|
|
|
500,000
|
(11)
|
|
|
62.51
|
|
|
|
8/25/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,243
|
(12)
|
|
|
605,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,600
|
(13)
|
|
|
67,984
|
|
|
|
|
|
|
|
|
|
Gregory W. Cappelli
|
|
|
750,000
|
|
|
|
250,000
|
(14)
|
|
|
48.47
|
|
|
|
5/23/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112,284
|
|
|
|
37,427
|
(14)
|
|
|
59.00
|
|
|
|
9/3/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
794
|
|
|
|
264
|
(14)
|
|
|
63.67
|
|
|
|
4/1/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,474
|
(15)
|
|
|
1,209,860
|
|
|
|
|
|
|
|
|
|
Joseph L. DAmico
|
|
|
333,333
|
|
|
|
|
|
|
|
58.03
|
|
|
|
7/2/2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,519
|
|
|
|
|
|
|
|
69.51
|
|
|
|
10/30/2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,279
|
|
|
|
21,837
|
(4)
|
|
|
67.90
|
|
|
|
7/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,638
|
|
|
|
|
|
|
|
67.90
|
|
|
|
7/1/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
100,044
|
(5)
|
|
|
42.27
|
|
|
|
7/5/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,220
|
(9)
|
|
|
1,708,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,976
|
(8)
|
|
|
381,390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,196
|
(10)
|
|
|
603,188
|
|
Brian L. Swartz
|
|
|
45,000
|
|
|
|
15,000
|
(3)
|
|
|
58.03
|
|
|
|
7/2/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,508
|
|
|
|
4,524
|
(16)
|
|
|
68.75
|
|
|
|
4/2/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,608
|
|
|
|
16,824
|
(4)
|
|
|
67.90
|
|
|
|
7/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,692
|
(5)
|
|
|
42.27
|
|
|
|
7/5/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500
|
(6)
|
|
|
106,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,800
|
(17)
|
|
|
76,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,915
|
(8)
|
|
|
293,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,152
|
(9)
|
|
|
643,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,349
|
(10)
|
|
|
227,279
|
|
Dr. William J. Pepicello
|
|
|
67,500
|
|
|
|
22,500
|
(3)
|
|
|
58.03
|
|
|
|
7/2/2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250
|
|
|
|
|
|
|
|
71.23
|
|
|
|
8/6/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,376
|
|
|
|
16,128
|
(4)
|
|
|
67.90
|
|
|
|
7/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,000
|
|
|
|
|
|
|
|
71.21
|
|
|
|
11/1/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,692
|
(5)
|
|
|
42.27
|
|
|
|
7/5/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,500
|
(6)
|
|
|
148,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,630
|
(8)
|
|
|
281,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,340
|
(9)
|
|
|
524,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,356
|
(10)
|
|
|
185,086
|
|
55
|
|
|
(1)
|
|
The unvested portion of each outstanding stock option,
restricted stock unit award and performance share unit award
will fully vest on an accelerated basis upon certain changes in
control or ownership of the Company. In such event, the
performance share units will be converted into actual shares of
the Companys Class A Common Stock at a conversion rate of
not less than 100%.
|
|
(2)
|
|
Based on the $42.49 closing selling price per share of the
Companys Class A Common Stock on August 31, 2010.
|
|
(3)
|
|
These particular options will vest upon the named executive
officers continuation in the Companys employ through
August 31, 2011.
|
|
(4)
|
|
These particular options will vest in three successive equal
annual installments on the second, third and fourth one-year
anniversaries of the initial July 2, 2009 grant date upon
the named executive officers continuation in the
Companys employ through each such annual vesting date.
|
|
(5)
|
|
These particular options will vest in four successive equal
annual installments on the first four one-year anniversaries of
the July 6, 2010 grant date upon the officers
continuation in the Companys employ through each such
annual vesting date.
|
|
(6)
|
|
These particular restricted stock units will vest upon the named
executive officers continuation in the Companys
employ through August 31, 2011.
|
|
(7)
|
|
These particular restricted stock units will vest upon the named
executive officers continuation in the Companys
employ through August 31, 2011.
|
|
(8)
|
|
These particular restricted stock units will vest in a series of
three successive equal annual installments on the second, third
and fourth one-year anniversaries of the July 2, 2009 grant
date, upon the named executive officers continuation in
the Companys employ through each such annual vesting date.
|
|
(9)
|
|
These particular restricted stock units were awarded on
July 6, 2010. The award has both performance-vesting and
service-vesting components. Upon the attainment of the
applicable 2011 fiscal year adjusted net income performance
goal, one-fourth of the restricted stock units will vest, and
the balance of the restricted stock units will vest in a series
of three successive equal annual installments on the second,
third, and fourth one-year anniversaries of the July 6,
2010 grant date, upon the named executive officers
continuation in the Companys employ through each such
annual vesting date.
|
|
(10)
|
|
These performance share units were awarded on July 6, 2010
and have both performance-vesting and service-vesting
conditions. The performance-vesting component is tied to the
average of the annual growth rates in the Companys
adjusted free cash flow for each of the three fiscal years of
the Company comprising the performance period (the 2011, 2012
and 2013 fiscal years). The calculation of adjusted free cash
flow for each relevant fiscal year will be based on cash flow
from operations for that fiscal year, as determined on a
consolidated basis with the Companys consolidated
subsidiaries for financial reporting purposes, and will be
subject to certain pre-specified adjustments, reductions and
exclusions. Based on the attained performance level, the
performance share units will be converted into actual shares of
Class A Common Stock by multiplying the number of
performance share units subject to each award by the applicable
conversion percentage that will range from 40% at threshold
level attainment to 100% at target level attainment and to 200%
at maximum level attainment. The number of shares of
Class A Common Stock in which each performance share unit
award is converted will also be subject to a service-vesting
requirement. Accordingly, the actual number of shares of
Class A Common Stock in which the named executive officer
will vest will be determined by multiplying the number of shares
of Class A Common Stock into which the performance shares
units are converted by a fraction, the numerator of which is the
number of fiscal years of employment such individual completes
with the Company within the performance period and the
denominator of which is three.
|
|
(11)
|
|
These particular options will vest in a series of two successive
equal annual installments on each of the third and fourth
one-year anniversaries of the August 26, 2008 grant date
upon Mr. Edelsteins continuation in the
Companys employ through each such annual vesting date.
However, the options will vest and become immediately
exercisable for a portion of the shares on an accelerated basis
upon Mr. Edelsteins termination of service under
certain circumstances.
|
56
|
|
|
(12)
|
|
These particular restricted stock units will vest upon
Mr. Edelsteins continuation in the Companys
employ through August 26, 2011, subject to full vesting
acceleration upon his termination of service under certain
circumstances.
|
|
(13)
|
|
These particular restricted stock units will vest upon
Mr. Edelsteins continuation in the Companys
employ through August 26, 2011, subject to full vesting
acceleration upon his termination of service under certain
circumstances.
|
|
(14)
|
|
Each of these particular options will vest upon
Mr. Cappellis continuation in the Companys
employ through April 2, 2011. However, each of the options
will vest and become immediately exercisable for a portion of
the shares on an accelerated basis upon Mr. Cappellis
termination of service under certain circumstances.
|
|
(15)
|
|
These particular restricted stock units will vest upon
Mr. Cappellis continuation in the Companys
employ through April 2, 2011, subject to full vesting
acceleration upon Mr. Cappellis termination of
employment under certain circumstances.
|
|
(16)
|
|
These particular options will vest in three successive equal
annual installments on the second, third and fourth one-year
anniversaries of the April 3, 2009 grant date upon
Mr. Swartzs continuation in the Companys employ
through each such annual vesting date.
|
|
(17)
|
|
These particular restricted stock units will vest in a series of
three successive equal annual installments on the second, third,
and fourth one-year anniversaries of the April 3, 2009
grant date, upon Mr. Swartzs continuation in the
Companys employ through each such annual vesting date.
|
57
OPTION EXERCISES AND STOCK VESTED
|
|
|
|
|
OPTION EXERCISES AND STOCK VESTED
|
|
|
|
|
|
The following table provides certain summary information
concerning the exercise of stock options and the vesting of
stock awards with respect to the named executive officers during
the 2010 fiscal year. The shares of the Companys
Class A Common Stock underlying certain stock awards that
vested on August 31, 2010 were not issued to the named
executive officers until October 25, 2010 following the
Compensation Committees certification of the attainment of
the applicable performance goal tied to the Companys
adjusted net income, after tax expense, for the 2010 fiscal
year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
Stock Awards
|
|
|
Number of
|
|
|
|
Number of
|
|
|
|
|
Shares
|
|
Value
|
|
Shares
|
|
Value
|
|
|
Acquired on
|
|
Realized on
|
|
Acquired on
|
|
Realized on
|
Name
|
|
Exercise (#)
|
|
Exercise ($)(1)
|
|
Vesting (#)
|
|
Vesting ($)(2)
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
Dr. John G. Sperling
|
|
|
|
|
|
|
|
|
|
|
23,880
|
|
|
|
966,485
|
|
Charles B. Edelstein
|
|
|
|
|
|
|
|
|
|
|
31,685
|
|
|
|
1,340,909
|
|
Gregory W. Cappelli
|
|
|
|
|
|
|
|
|
|
|
28,474
|
|
|
|
1,751,151
|
|
Joseph L. DAmico
|
|
|
|
|
|
|
|
|
|
|
26,649
|
|
|
|
1,251,661
|
|
Brian L. Swartz
|
|
|
|
|
|
|
|
|
|
|
5,405
|
|
|
|
212,083
|
|
Dr. William J. Pepicello
|
|
|
|
|
|
|
|
|
|
|
5,710
|
|
|
|
229,247
|
|
|
|
|
(1)
|
|
Value realized is determined by multiplying (i) the amount
by which the market price of the Companys Class A
Common Stock on the date of exercise exceeded the exercise price
by (ii) the number of shares of Class A Common Stock
for which the options were exercised.
|
|
(2)
|
|
Value realized is determined by multiplying (i) the closing
market price of the Companys Class A Common Stock on
the vesting date by (ii) the number of shares of
Class A Common Stock that vested on that date.
|
58
|
|
|
|
|
PENSION BENEFITS
|
|
|
|
|
|
The following table sets forth for each plan that provides for
payments or other benefits in connection with a named executive
officers retirement, the number of years of service
credited to such named executive officer under the plan (if
relevant to the benefit formula), the actuarial present value of
his accumulated benefit under each applicable plan, and the
dollar amount of any payments and benefits paid to such named
executive officer during the Companys last completed
fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Present Value of
|
|
Payments
|
|
|
|
|
Years Credited
|
|
Accumulated
|
|
During Last
|
Name
|
|
Plan Name
|
|
Service (#)
|
|
Benefit ($)
|
|
Fiscal Year ($)
|
(a)
|
|
(b)
|
|
(c)
|
|
(d)
|
|
(e)
|
|
Dr. John G. Sperling
|
|
Deferred
Compensation
Agreement Dated
12/31/93(1)
|
|
|
not applicable
|
|
|
$
|
2,948,171
|
(2)
|
|
$
|
0
|
|
|
|
|
(1)
|
|
Pursuant to his deferred compensation agreement with the Company
dated December 31, 1993, Dr. Sperling will, upon his
termination of employment with the Company, receive an annuity
for life in a dollar amount per year equal to the highest annual
rate of base salary in effect for him in any of the last three
calendar years preceding the calendar year in which his
employment terminates. The annual annuity for
Dr. Sperlings lifetime will be payable in equal
monthly installments. In addition, upon Dr. Sperlings
death, his designated beneficiary will be paid an amount equal
to three times the highest annual rate of base salary in effect
for him in any of the three calendar years during the three-year
period immediately preceding the calendar year in which his
employment terminates. Such death benefit will be payable in 36
equal monthly installments, with the first such installment due
on the first day of the month following the month of
Dr. Sperlings death.
|
|
(2)
|
|
Based on a lifetime annuity of $850,000 per year, as determined
as of the close of the 2010 fiscal year.
|
59
Executive
Officer Compensation for Peter Sperling
Mr. Peter Sperling serves in the executive officer capacity
of Vice Chairman of the Board and is the son of Dr. John
Sperling, the Executive Chairman of the Board and one of the
Companys named executive officers for the 2010 fiscal
year. In his capacity as Vice Chairman of the Board,
Mr. Sperling received a combination of cash and equity
compensation for the 2010 fiscal year comprised of the following
elements:
|
|
|
|
(i)
|
base salary at the rate of $100,000 per year;
|
|
|
(ii)
|
participation in the Companys Executive Officer Incentive
Bonus Plan, with a target bonus equal to 100% of base
salary; and
|
|
|
(iii)
|
an equity compensation award comprised of restricted stock units
and stock options.
|
For the 2010 fiscal year, Mr. Sperling earned a $172,000
bonus under the Executive Officer Incentive Bonus Plan. Such
bonus was based on the Companys attainment of performance
goals tied to revenue and operating profit, as adjusted for
certain pre-established items, for such year at levels in excess
of the maximum levels established by the Compensation Committee
and was subject to the same 14% reduction to maximum bonus level
applied by the Compensation Committee to all executive officer
bonuses for the 2010 fiscal year. Accordingly,
Mr. Sperlings salary and bonus for the 2010 fiscal
year was $272,000 in the aggregate.
On July 2, 2009, Mr. Sperling received his equity
compensation award for the 2010 fiscal year. The award consisted
of the following components and had an aggregate grant-date fair
value under ASC 718 of $326,515:
|
|
|
|
(i)
|
restricted stock units covering 2,432 shares of the
Companys Class A Common Stock that have both
performance-vesting and service-vesting components. Accordingly,
none of the awarded RSUs would have vested unless the
Companys adjusted net income for the 2010 fiscal year was
at least $350 million. Upon the attainment of that
performance objective for the 2010 fiscal year, one-fourth of
the total number of restricted stock units vested, and the
underlying shares were subsequently issued on October 25,
2010. The balance of the RSUs will vest in three equal annual
installments on the second, third and fourth anniversaries of
the effective date of the award, provided he continues in the
Companys employ through each such annual vesting date. All
of the RSUs will immediately vest upon certain changes in
control or ownership of the Company.
|
|
|
(ii)
|
a stock option for 5,916 shares of the Companys
Class A Common Stock with an exercise price of $67.90 per
share and a maximum term of six years that will vest and become
exercisable in four successive equal annual installments upon
his completion of each year of continued employment with the
Company over the four-year period measured from the grant date.
The stock option will vest in full on an accelerated basis upon
certain changes in control or ownership of the Company.
|
On July 2, 2009, Mr. Sperling also received a
supplemental equity compensation award. The award consisted of
the following components and had an aggregate grant-date fair
value under ASC 718 of $533,927:
|
|
|
|
(i)
|
restricted stock units covering 3,978 shares of the
Companys Class A Common Stock that have both
performance-vesting and service-vesting components. Accordingly,
none of the awarded RSUs would have vested unless the
Companys adjusted net income for the 2010 fiscal year was
at least $350 million. Upon the attainment of that
performance objective for the 2010 fiscal year, one-fourth of
the total number of restricted stock units vested, and the
underlying shares were subsequently issued on October 25,
2010. The balance of the RSUs will vest upon his continuation in
the Companys employ through August 31, 2011. All of
the RSUs will immediately vest upon certain changes in control
or ownership of the Company.
|
|
|
(ii)
|
a stock option for 10,170 shares of the Companys
Class A Common Stock with an exercise price of $67.90 per
share and a maximum term of six years that vested and became
exercisable for two-thirds of the shares on August 31, 2009
and will vest and become exercisable for the balance upon his
continuation in the Companys employ through
August 31, 2011. The stock option will vest in full on an
accelerated basis upon certain changes in control or ownership
of the Company.
|
60
On July 6, 2010, Mr. Sperling received his equity
compensation award for the 2011 fiscal year. The award consisted
of the following components and had an aggregate grant-date fair
value under ASC 718 of $327,523:
|
|
|
|
(i)
|
a restricted stock units covering 3,288 shares of the
Companys Class A Common Stock that have both
performance-vesting and service-vesting components. Accordingly,
none of the awarded RSUs will vest unless the Companys
adjusted net income for the 2011 fiscal year is at least
$400 million. Upon the attainment of that performance
objective for the 2011 fiscal year, one-fourth of the total
number of restricted stock units will vest, and the balance of
the RSUs will vest in three equal annual installments on the
second, third and fourth anniversaries of the effective date of
the award, provided he continues in the Companys employ
through each such annual vesting date. All of the RSUs will
immediately vest upon certain changes in control or ownership of
the Company.
|
|
|
(ii)
|
a stock option for 8,180 shares of the Companys
Class A Common Stock with an exercise price of $42.27 per
share and a maximum term of six years that will vest and become
exercisable in four successive equal annual installments upon
his continuation in the Companys employ over the four-year
period measured from the grant date. The stock option will vest
in full on an accelerated basis upon certain changes in control
or ownership of the Company.
|
|
|
(iii)
|
a performance share unit award covering 1,161 shares of the
Companys Class A Common Stock that have both
performance vesting and service-vesting components. The
performance-vesting component is tied to the average of the
annual growth rates in the Companys adjusted free cash
flow for each of the three fiscal years of the Company
comprising the performance period (the 2011, 2012 and 2013
fiscal years). The calculation of adjusted free cash flow for
each relevant fiscal year will be based on cash flow from
operations for that fiscal year, as determined on a consolidated
basis with the Companys consolidated subsidiaries for
financial reporting purposes, and will be subject to certain
pre-specified adjustments, reductions and exclusions. Based on
the attained performance level, the performance share units will
be converted into actual shares of Class A Common Stock by
multiplying the number of performance share units subject to his
award by the applicable conversion percentage that will range
from 40% at threshold level attainment to 100% at target level
attainment and to 200% at maximum level attainment. The number
of shares of Class A Common Stock in which his performance
share unit award is converted will also be subject to a
service-vesting requirement. Accordingly, the actual number of
shares of Class A Common Stock in which he will vest will
be determined by multiplying the number of share of Class A
Common Stock into which his performance shares units are
converted by a fraction, the numerator of which is the number of
fiscal years of employment he completes with the Company within
the performance period and the denominator of which is three.
The performance share units will vest upon an accelerated basis
upon certain changes in control or ownership of the Company. In
such event, the performance share units will be converted into
actual shares of the Companys Class A Common Stock at
a conversion rate not less than 100%.
|
As part of his 2010 fiscal year compensation, Mr. Sperling
also received a matching contribution in the amount of $4,950
made by the Company to his account under the Companys
Employee Savings Plan.
61
|
|
|
|
|
|
|
AGREEMENTS REGARDING EMPLOYMENT, CHANGE OF
CONTROL AND TERMINATION OF EMPLOYMENT
|
|
|
|
|
|
|
|
|
As of August 31, 2010, we had employment agreements in
effect with the following named executive officers:
Dr. John G. Sperling, Charles B. Edelstein, Joseph L.
DAmico and Gregory W. Cappelli. The principal terms of
each of those employment agreements are summarized below.
|
|
|
|
Dr. John G. Sperling
|
|
In December 1993, we entered into an employment agreement with
Dr. John G. Sperling. The initial term of that agreement
was for four years and automatically renews for additional
one-year periods thereafter. Currently, Dr. Sperlings
annual rate of base salary payable under his employment
agreement is $850,000 and is subject to annual review by the
Compensation Committee. We may terminate the employment
agreement only for cause, and Dr. Sperling may terminate
the employment agreement at any time upon 30 days written
notice.
|
|
|
|
Charles B. Edelstein
|
|
On July 7, 2008, the Company entered into an employment
agreement with Mr. Edelstein, pursuant to which he became
the Companys Chief Executive Officer on his
August 26, 2008 employment commencement date. The
employment agreement has a four-year term and will accordingly
end on August 26, 2012, subject to successive one-year
renewals thereafter, unless either party provides timely notice
of non-renewal. The employment agreement was amended in April
2009 to reflect the new Co-Chief Executive Officer structure and
establish the primary areas of responsibility Mr. Edelstein
would retain as
Co-Chief
Executive Officer.
|
|
|
|
|
|
During the term of the employment agreement, Mr. Edelstein
will be entitled to an annual base salary at a rate not less
than $600,000 and an annual target bonus not less than 100% of
such base salary.
|
|
|
|
|
|
Pursuant to the agreement, Mr. Edelstein was granted the
following equity awards:
|
|
|
|
|
|
|
|
(i)
|
|
a stock option to purchase 1,000,000 shares of Class A
Common Stock with an exercise price per share equal to $62.51,
the closing price per share on the August 26, 2008 grant
date, and a maximum term of six years, and
|
|
|
|
|
|
|
|
(ii)
|
|
two restricted stock unit awards covering 79,213 shares of
the Companys Class A Common Stock in the aggregate,
with each unit representing the right to receive one share of
such Class A Common Stock upon the vesting of that unit.
|
|
|
|
|
|
The stock option award will vest in four successive equal annual
installments upon Mr. Edelsteins completion of each
year of employment with the Company over the four-year period
measured from his August 26, 2008 employment commencement
date. The two restricted stock unit awards were subject to a
performance-vesting condition tied to the Companys
attainment of a specified level of net income, after tax
expense, for the 2009 fiscal year. Such performance goal was in
fact achieved, and Mr. Edelstein vested in 40% of each of
his restricted stock awards on August 31, 2009 and in an
additional 40% of each award upon his continuation in the
Companys employ through August 26, 2010. He will vest
in the balance of each award upon his continued employment
through August 26, 2011. However, the unvested portion of
the stock option grant and the two restricted stock unit awards
will be subject to accelerated vesting in whole or in part upon
certain changes in control of the Company or the termination of
Mr. Edelsteins employment under certain prescribed
circumstances.
|
62
|
|
|
|
|
|
|
|
|
|
Mr. Edelstein will also receive certain severance benefits
should his employment terminate under certain specified
circumstances during the term of his employment agreement.
Accordingly, should (i) the Company terminate
Mr. Edelsteins employment without cause,
(ii) Mr. Edelstein resign for good reason,
(iii) Mr. Edelstein resign for any reason within a
30-day
period beginning six months after the closing of a change in
control of the Company or (iv) the Company fail to renew
his employment agreement, then Mr. Edelstein will become
entitled to the following severance benefits upon his delivery
of a general release to the Company:
|
|
|
|
|
|
|
|
(i)
|
|
a cash amount equal to two times the sum of (A) his annual
base salary and (B) the average of his actual bonuses for
the three fiscal years (or fewer number of fiscal years of
employment) preceding the fiscal year in which such termination
of employment occurs, payable over the one-year period measured
from his termination date;
|
|
|
|
|
|
|
|
(ii)
|
|
accelerated vesting of up to 50% of the unvested portion of the
initial option grant described above or (if greater) the portion
of that option that would have vested had he completed an
additional 12 months of employment;
|
|
|
|
|
|
|
|
(iii)
|
|
accelerated vesting of the unvested portion of the initial
restricted stock unit awards described above; and
|
|
|
|
|
|
|
|
(iv)
|
|
reimbursement of health care coverage costs for himself and his
eligible dependents under the Companys group health plan
for a period not to exceed 18 months.
|
|
|
|
|
|
In the event Mr. Edelsteins employment terminates due
to death or disability, he or his estate will receive a special
payment in a dollar amount determined by multiplying
(x) the average of his actual annual bonuses for the three
fiscal years (or fewer number of fiscal years of employment with
the Company) immediately preceding the fiscal year in which such
termination of employment occurs by (y) a fraction, the
numerator of which is the number of months (rounded to the next
whole month) during which he is employed by the Company in the
fiscal year in which such termination of employment occurs and
the denominator of which is twelve. In addition, should his
employment terminate as a result of his death, then any of his
unvested stock options, restricted stock units or other equity
awards that would otherwise vest solely on the basis of his
continued service with the Company will immediately vest as to
the number of shares in which he would have otherwise been
vested on the date of his death had the service-vesting schedule
for each of those grants been in the form of successive equal
monthly installments over the applicable service-vesting period.
Should any such unvested equity awards also have a
performance-vesting condition at the time of his death, then
upon the attainment of the applicable performance goals, the
service-vesting component of each such award will be applied as
if that service-vesting component had been in the form of
successive equal monthly installments over the applicable
service-vesting period.
|
|
|
|
|
|
For the one-year period following termination of employment,
Mr. Edelstein will be subject to certain non-compete and
non-solicitation covenants.
|
63
|
|
|
|
|
Joseph L. DAmico
|
|
On June 5, 2007, the Company entered into an employment
agreement with Mr. DAmico, pursuant to which he
became a full-time employee of the Company in the position of
Executive Vice President and Chief Financial Officer. The
employment agreement became effective on June 15, 2007 and
had an initial four-year term ending on June 15, 2010. In
May 2010, the Company entered into an amended and restated
employment agreement with Mr. DAmico that extended
the term of that agreement to August 31, 2012 and revised
his compensation in several respects. The key features of
Mr. DAmicos revised compensation package may be
summarized as follows:
|
|
|
|
|
|
|
|
(i)
|
|
During the extended term of the agreement, Mr. DAmico
will continue to serve as the Companys President and Chief
Operating Officer at an annual rate of base salary not less than
his current $525,000 annual rate. He will also continue to
participate in the executive officer incentive bonus plan for
each of the 2011 and 2012 fiscal years at a target bonus level
equal to 100% of his annual base salary. In the event
Mr. DAmicos employment terminates by reason of
death or disability, then he or his estate will be paid a
pro-rated portion of the actual bonus he would have otherwise
earned for the fiscal year in which his employment terminates
based on the level at which the applicable performance goals for
that year are attained.
|
|
|
|
|
|
|
|
(ii)
|
|
Mr. DAmico will receive equity awards for each of the
2011 and 2012 fiscal years with a grant-date value of at least
$4 million per annual award. The awards may be made in form
of stock options, restricted stock units and/or other
equity-based awards covering shares of the Companys
Class A Common Stock.
|
|
|
|
|
|
|
|
(iii)
|
|
The new equity awards will have special vesting acceleration and
vesting continuation features. Accordingly,
Mr. DAmico would receive an additional eighteen
(18)-months of service vesting credit under each of those awards
in the event his employment with the Company were to terminate
by reason of death or disability. In addition, each of those new
awards would continue to vest over the remainder of the vesting
schedule should his employment terminate under any of the
following circumstances: his retirement after August 31,
2012, the termination of his employment by the Company without
cause, his resignation for good reason or the failure of the
Company to renew his extended employment agreement upon its
August 31, 2012 expiration date. Such continued vesting of
the equity awards would be subject to
Mr. DAmicos compliance with certain
non-competition and non-solicitation covenants.
|
64
|
|
|
|
|
|
|
|
|
|
|
|
(iv)
|
|
Mr. DAmicos cash severance benefits under his
original employment agreement have been retained. Accordingly,
should his employment be terminated by the Company other than
for cause or should he resign for good reason, or should the
Company fail to extend his employment agreement for at least an
additional year following the new August 31, 2012
expiration date upon substantially the same terms and provisions
and with total direct compensation (base salary, annual target
cash bonus and the grant-date fair value of the equity
components) of not less than $5 million per year, or should
he resign for any reason within a
30-day
period beginning six months after the closing of a change in
control of the Company, then Mr. DAmico would be
entitled to cash severance in an amount equal to the sum of
(x) two times his annual rate of base salary at the time of
termination and (y) two times the average of his actual
annual bonuses for the 3 fiscal years immediately preceding the
fiscal year of his termination. Such amount would, in general,
be paid as follows: one half of the amount will paid on the
first day of the 7th month following his termination date and
the balance will be paid in 12 successive equal semi-monthly
increments thereafter. Mr. DAmico will also be
entitled to reimbursement of the health care coverage costs for
himself and his eligible dependents under the Companys
group health plans for a period not to exceed 18 months.
However, Mr. DAmico must deliver a general release to
the Company as a condition to his entitlement to such severance
benefits.
|
|
|
|
|
|
Mr. DAmico will also continue to be entitled to a
monthly allowance of $2,500 to cover his duplicative living
expenses at his minor post of duty in Chicago, IL and
reimbursement of his travel costs to and from Phoenix, AZ.
|
|
|
|
|
|
Pursuant to his restated employment agreement,
Mr. DAmico was granted the following equity awards on
July 6, 2010:
|
|
|
|
|
|
|
|
(i)
|
|
a stock option grant to purchase 100,044 shares of
Class A Common Stock with an exercise price per share equal
to the $42.27 closing price per share on the grant date and with
a maximum term of six years,
|
|
|
|
|
|
|
|
(ii)
|
|
restricted stock units covering 40,220 shares of
Class A Common Stock, with each unit representing the right
to receive one share of such Class A Common Stock upon the
vesting of that unit; and
|
|
|
|
|
|
|
|
(iii)
|
|
performance share units covering an additional
14,196 shares of Class A Common Stock that will
convert into actual shares of such Class A Common Stock
upon the attainment of a performance condition tied to the
average of the annual growth rates of the Companys
adjusted free cash flow for each of the three fiscal years
comprising the performance period, with such conversion rate not
to exceed two hundred percent.
|
|
|
|
|
|
For further information concerning those equity awards, please
see the section entitled Grant of Plan-Based Awards
that appears earlier in this Information Statement.
|
65
|
|
|
|
|
|
|
|
Gregory W. Cappelli
|
|
On March 31, 2007, the Company entered into an employment
agreement with Gregory W. Cappelli, pursuant to which he was
employed as Executive Vice President, Global Strategy. The
employment agreement has an initial term of four years measured
from Mr. Cappellis start date of April 2, 2007 and
will be subject to successive one-year renewals thereafter,
unless either party provides timely notice of non-renewal. Under
the original terms of the employment agreement,
Mr. Cappelli was entitled to an annual rate of base salary
of not less than $500,000 and an annual target bonus not less
than 100% of such base salary. However, in April 2009,
Mr. Cappellis employment agreement was amended to
reflect his appointment to Co-Chief Executive Officer, and his
minimum annual rate of base salary was increased to $600,000,
with no change in his target bonus percentage.
|
|
|
|
|
|
Pursuant to his agreement Mr. Cappelli received the
following equity compensation awards:
|
|
|
|
|
|
|
|
(i)
|
|
On May 25, 2007, Mr. Cappelli was granted a stock
option for 1,000,000 shares of Class A Common Stock
with an exercise price per share of $48.47, the closing price
per share on the grant date, and a maximum term of six years.
|
|
|
|
|
|
|
|
(ii)
|
|
On September 4, 2007, Mr. Cappelli was granted a
supplemental stock option for 149,711 shares of
Class A Common Stock with an exercise price per share of
$59.00, the closing price per share on the grant date, and a
maximum term of six years.
|
|
|
|
|
|
|
|
(iii)
|
|
On September 4, 2007, Mr. Cappelli was awarded
restricted stock units covering 113,896 shares of the
Companys Class A Common Stock. Each restricted stock
unit represents the right to receive one share of such
Class A Common Stock following the satisfaction of the
applicable performance-vesting and service-vesting components of
that award.
|
|
|
|
|
|
|
|
(iv)
|
|
On October 5, 2007, Mr. Cappelli was granted an option
for an additional 1,058 shares of the Companys
Class A Common Stock at an exercise price of $63.67 per
share, the fair market value of the Class A Common Stock on
the grant date and a maximum term of six years.
|
66
|
|
|
|
|
|
|
|
|
|
Each of the foregoing option grants will each vest in a series
of four successive equal annual installments upon
Mr. Cappellis completion of each year of employment
with the Company over the four-year period measured from his
April 2, 2007 start date. The restricted stock unit award
was subject to a performance-vesting condition tied to the
Companys attainment of a specified level of net income,
after tax expense, for the 2008 fiscal year. Such performance
goal was attained, and one-fourth of the restricted stock units
vested at the end of the 2008 fiscal year, and an additional
one-fourth of the restricted stock units vested upon
Mr. Cappellis completion of each of the next two
years of his continued employment with the Companys employ
through April 2, 2010. The remaining one-fourth of the
units will vest upon his continuation in the Companys
employ through April 2, 2011. However, the unvested portion
of each award will be subject to accelerated vesting in whole or
in part upon certain changes in control of the Company or the
termination of Mr. Cappellis employment under certain
prescribed circumstances. Should (i) the Company terminate
Mr. Cappellis employment without cause, (ii)
Mr. Cappelli resign for good reason,
(iii) Mr. Cappelli resign for any reason within a
30-day
period beginning six months after the closing of a change in
control of the Company or (iv) the Company fail to renew
his employment agreement, then Mr. Cappelli will become
entitled to the following severance benefits upon his delivery
of a general release to the Company:
|
|
|
|
|
|
|
|
(i)
|
|
a cash amount equal to two times the sum of (A) his annual
base salary and (B) the average of his actual bonuses for
the three fiscal years (or fewer number of fiscal years of
employment) preceding the fiscal year in which such termination
of employment occurs, payable over the one-year period measured
from his termination date;
|
|
|
|
|
|
|
|
(ii)
|
|
accelerated vesting of the final installment of each of his new
hire awards described above; and (iii) reimbursement of
health care coverage costs for himself and his eligible
dependents under the Companys group health plan for a
period not to exceed 18 months.
|
|
|
|
|
|
In the event Mr. Cappellis employment terminates by
reason of death or disability, then he or his estate will be
paid his target bonus, pro-rated for his actual period of
employment during the year in which his employment terminates,
and in the event of death, each of Mr. Cappellis
unvested equity awards will partially vest on an accelerated
basis as if the vesting schedule for that award had been in the
form of successive equal monthly installments over the
applicable vesting period. Should any such unvested equity
awards also have a performance-vesting condition at the time of
his death, then upon the attainment of the applicable
performance goals, the service-vesting component of each such
award will be applied as if that service-vesting component had
been in the form of successive equal monthly installments over
the applicable service-vesting period.
|
|
|
|
|
|
For the one-year period following termination of employment,
Mr. Cappelli will be subject to certain non-compete and
non-solicitation covenants.
|
67
|
|
|
|
|
Executive Severance Pay Plan
|
|
On June 24, 2010, the Company implemented the Senior Executive
Severance Pay Plan pursuant to which the Companys
executive officers and other senior executives may become
entitled to salary continuation payments and certain other
severance benefits in the event their employment with the
Company is involuntarily terminated other than for cause. The
severance benefits to which the covered participants may become
entitled upon such a termination of employment may be summarized
as follows:
|
|
|
|
|
|
|
|
(i)
|
|
separation pay in the form of salary continuation payments
ranging from nine (9) months for Grade Level 18 executives to
twenty-four (24) months for Grade Level 22 executives;
|
|
|
|
|
|
|
|
(ii)
|
|
for executives in Grade Levels 20 or above, such separation pay
will also include 100% of the average of their annual bonuses
earned for the three (3) fiscal years preceding the fiscal year
of their termination, and for Grade 19 Level executives, such
separation pay will also include 50% of such average annual
bonus;
|
|
|
|
|
|
|
|
(iii)
|
|
lump sum payment of COBRA health care coverage costs for
executives at Grade Level 20 and above for a period coterminous
with their salary continuation period;
|
|
|
|
|
|
|
|
(iv)
|
|
limited pro-rata vesting of equity awards made on or after the
June 24, 2010 effective date of the plan to individuals who are
at Grade Level 18 or above on the effective date of those
awards, with such pro-rata vesting applied as if the annual
vesting installment for the twelve (12)-month measurement period
in which such termination occurs had vested in twelve successive
equal monthly installments, but subject to the attainment of any
applicable performance goals; and
|
|
|
|
|
|
|
|
(v)
|
|
outplacement assistance for up to six (6) months.
|
|
|
|
|
|
Each of the named executive officers is eligible to participate
in the plan at the Grade Level indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monthly
|
|
|
|
|
Salary
|
|
|
Grade
|
|
Continuation
|
Name
|
|
Level
|
|
Period
|
|
Dr. John G. Sperling
|
|
|
22
|
|
|
|
24
|
|
Charles B. Edelstein
|
|
|
22
|
|
|
|
24
|
|
Gregory W. Cappelli
|
|
|
22
|
|
|
|
24
|
|
Joseph L. DAmico
|
|
|
21
|
|
|
|
18
|
|
Brian L. Swartz
|
|
|
20
|
|
|
|
18
|
|
Dr. William J. Pepicello
|
|
|
20
|
|
|
|
18
|
|
68
|
|
|
|
|
|
|
However, to the extent a named executive officer or other
covered individual is entitled to severance benefits or other
post-employment salary/bonus continuation payments under an
employment agreement or other severance or termination
arrangement in effect with the Company at the time of his or her
termination of employment, then his or her severance benefits
under the plan will be reduced by the severance benefits or
salary/bonus continuation payments payable under such employment
agreement or other arrangement so that there will be no
duplication of benefits. At present, Dr. Sperling and
Messrs. Edelstein, Cappelli and DAmico each have
employment or other agreements with the Company that provide
severance benefits or salary/bonus continuation payments in the
event their employment is terminated under certain
circumstances, and those amounts will be applied as a direct
offset to their potential benefits under the new Senior
Executive Severance Pay Plan.
|
|
|
|
|
|
The receipt of severance benefits under the Plan will be
conditioned upon the named executive officers delivery of
an effective and enforceable general release of all claims
against the Company and its affiliates and his compliance with
certain non-competition, non-solicitation and non-disparagement
covenants.
|
69
|
|
|
|
|
Equity Awards
|
|
Pursuant to the terms of the Companys 2000 Stock Incentive
Plan, each outstanding award under such plan will vest in full
on an accelerated basis in the event of certain changes in
control of the Company, including an acquisition of the Company
by merger or asset sale or the acquisition of 50% or more of the
Companys outstanding Class A Common Stock.
|
|
|
|
|
|
Quantification of Benefits
|
|
|
|
|
|
The charts below indicate the potential payments to which each
of our named executive officers would be entitled pursuant to
the employment agreements or Senior Executive Severance Pay Plan
provisions described above or under the vesting acceleration
provisions of the 2000 Stock Incentive Plan based upon the
following assumptions:
|
|
|
|
|
|
|
|
(i)
|
|
the named executive officers employment terminated on
August 31, 2010 under circumstances entitling such officer to
severance benefits under his employment agreement or the Senior
Executive Severance Pay Plan, as applicable;
|
|
|
|
|
|
|
|
(ii)
|
|
as to any severance benefits tied to the named executive
officers annual rate of base salary, such rate is assumed
to be such officers annual rate of base salary in effect
as of August 31, 2010;
|
|
|
|
|
|
|
|
(iii)
|
|
as to any benefits tied to a change in control, the change in
control is assumed to have occurred on August 31, 2010 and the
change in control consideration paid per share of outstanding
Class A Common Stock is assumed to be equal to the closing
selling price of such common stock on August 31, 2010, which was
$42.49 per share;
|
|
|
|
|
|
|
|
(iv)
|
|
for Messrs. Edelstein, DAmico and Cappelli, the cash
severance calculation includes a bonus component equal to two
times the average of their actual bonuses for the three or fewer
fiscal years of employment preceding the 2010 fiscal year in
which their employment is assumed to terminate;
|
|
|
|
|
|
|
|
(v)
|
|
for Dr. Sperling, the cash severance calculation includes a
bonus component equal to one times the average of his actual
bonuses for the three fiscal years preceding the 2010 fiscal
year in which his employment is assumed to terminate; and
|
|
|
|
|
|
|
|
(vi)
|
|
for Mr. Swartz and Dr. Pepicello, the cash severance
calculation is calculated under the Senior Executive Severance
Pay Plan on the basis of their Grade 20 Level as of August 31,
2010 and consists of a salary continuation amount equal to 1.5
times annual base salary and one times the average of their
actual bonuses for the three fiscal years preceding the 2010
fiscal year in which their employment is assumed to terminate.
|
70
Potential
Payments Upon Termination in Connection with a Change in
Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated
|
|
|
|
|
|
Intrinsic
|
|
|
|
|
|
|
|
|
|
Vesting of
|
|
|
Continued
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Health
|
|
|
Outstanding
|
|
|
|
|
|
|
Cash
|
|
|
Awards
|
|
|
Care
|
|
|
Vested
|
|
|
Total
|
|
Executive
|
|
Severance ($)(1)
|
|
|
($)(2)
|
|
|
Coverage ($)
|
|
|
Awards ($)(3)
|
|
|
Payment ($)
|
|
|
Dr. John G. Sperling
|
|
|
1,348,099
|
(4)
|
|
|
4,186,529
|
|
|
|
12,698
|
|
|
|
5,170,264
|
|
|
|
10,717,590
|
|
Charles B. Edelstein
|
|
|
3,600,000
|
|
|
|
673,169
|
|
|
|
9,331
|
|
|
|
|
|
|
|
4,282,500
|
|
Gregory W. Cappelli
|
|
|
2,911,111
|
|
|
|
1,209,860
|
|
|
|
27,496
|
|
|
|
|
|
|
|
4,148,467
|
|
Joseph L. DAmico
|
|
|
2,850,000
|
|
|
|
2,715,536
|
(5)
|
|
|
1,556
|
|
|
|
|
|
|
|
5,567,092
|
|
Brian L. Swartz
|
|
|
833,597
|
|
|
|
1,355,904
|
|
|
|
19,014
|
|
|
|
|
|
|
|
2,208,515
|
|
Dr. William J. Pepicello
|
|
|
815,518
|
|
|
|
1,146,589
|
|
|
|
14,158
|
|
|
|
|
|
|
|
1,976,265
|
|
|
|
|
(1)
|
|
The cash severance amount in the above table will be payable in
a series of successive equal monthly installments over a period
ranging from 24 months for Dr. Sperling to
18 months for Mr. Swartz and Dr. Pepicello to
12 months for Messrs. Edelstein, Cappelli and
DAmico.
|
|
(2)
|
|
Represents the intrinsic value of each stock option or other
equity award which vests on an accelerated basis upon the change
in control and is calculated by multiplying (i) the
aggregate number of shares of the Companys Class A
Common Stock which vest on such an accelerated basis under such
award by (ii) the amount by which the $42.49 closing
selling price of the Class A Common Stock on
August 31, 2010 exceeds any exercise price payable per
vested share. The performance share unit awards are deemed to
convert at 100% based on an assumed attainment of the applicable
performance goal at target level.
|
|
(3)
|
|
Based on the spread between the $42.49 closing selling price of
the Companys Class A Common Stock on August 31,
2010, and the exercise price in effect for each outstanding
option that was already vested on such date in accordance with
its normal annual installment vesting schedule.
|
|
(4)
|
|
Dr. Sperling will also be entitled to receive pension
payments at the rate of $850,000 per year over his lifetime
pursuant to his deferred compensation agreement, as disclosed in
the Pension Benefits section above.
|
|
(5)
|
|
Mr. DAmicos July 3, 2007 option grant for
500,000 shares will remain outstanding for the balance of
the four-year option term, whether or not his employment
terminates at an earlier time, and his July 6, 2010 option
grant for 100,044 shares will remain outstanding for an
extended period should his employment terminate under certain
circumstances.
|
71
Potential
Payments Upon Termination Not in Connection with a Change in
Control
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated
|
|
|
|
|
|
Intrinsic
|
|
|
|
|
|
|
|
|
|
Vesting of
|
|
|
|
|
|
Value of
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Continued
|
|
|
Outstanding
|
|
|
|
|
|
|
Cash
|
|
|
Awards
|
|
|
Health Care
|
|
|
Vested
|
|
|
Total
|
|
Executive
|
|
Severance ($)(1)
|
|
|
($)(2)(3)
|
|
|
Coverage ($)
|
|
|
Awards ($)(4)
|
|
|
Payment ($)
|
|
|
Dr. John G. Sperling
|
|
|
1,348,099
|
(5)
|
|
|
77,123
|
|
|
|
12,698
|
|
|
|
5,170,264
|
|
|
|
6,608,184
|
|
Charles B. Edelstein
|
|
|
3,600,000
|
|
|
|
673,169
|
|
|
|
9,331
|
|
|
|
|
|
|
|
4,282,500
|
|
Gregory W. Cappelli
|
|
|
2,911,111
|
|
|
|
1,209,860
|
|
|
|
27,496
|
|
|
|
|
|
|
|
4,148,467
|
|
Joseph L. DAmico
|
|
|
2,850,000
|
|
|
|
2,334,146
|
(6)
|
|
|
1,556
|
|
|
|
|
|
|
|
5,185,702
|
|
Brian L. Swartz
|
|
|
833,597
|
|
|
|
27,200
|
|
|
|
19,014
|
|
|
|
|
|
|
|
879,811
|
|
Dr. William J. Pepicello
|
|
|
815,518
|
|
|
|
22,163
|
|
|
|
14,158
|
|
|
|
|
|
|
|
851,839
|
|
|
|
|
(1)
|
|
The cash severance amount in the above table will be payable in
a series of successive equal monthly installments over a period
ranging from 24 months for Dr. Sperling to
18 months for Mr. Swartz and Dr. Pepicello to
12 months for Messrs. Edelstein, Cappelli and
DAmico.
|
|
(2)
|
|
For Messrs. Edelstein, Cappelli, and DAmico,
represents the intrinsic value of each stock option or other
equity award which vests on an accelerated basis in connection
with an involuntary termination of employment (other than for
cause) or resignation for good reason and is calculated by
multiplying (i) the aggregate number of shares of the
Companys Class A Common Stock which vest on such an
accelerated basis under such award by (ii) the amount by
which the $42.49 closing selling price of the Class A
Common Stock on August 31, 2010 exceeds any exercise price
payable per vested share. For each of
Mr. DAmicos July 6, 2010 equity awards,
the continued vesting that would otherwise occur during the
period following his termination of employment is included in
the above table as if the vesting of those equity awards
occurred on an accelerated basis at the time of his termination
of employment, since no further service would actually be
required for the continued vesting period. In addition, for
Mr. DAmicos July 6, 2010 performance share
unit award, it is assumed that such award will convert at 100%
based on an assumed attainment of the applicable performance
goal at target level.
|
|
(3)
|
|
For Mr. Swartz and Dr. Pepicello, represents the
intrinsic value of the limited portion of each stock option or
other equity award granted after June 23, 2010 which vests
on an accelerated basis under the Senior Executive Severance Pay
Plan in connection with an involuntary termination of employment
(other than for cause) and is calculated by multiplying
(i) the limited number of shares of the Companys
Class A Common Stock which vest on such an accelerated
basis under such award by (ii) the amount by which the
$42.49 closing selling price of the Class A Common Stock on
August 31, 2010 exceeds any exercise price payable per
vested share.
|
|
(4)
|
|
Based on the spread between the $42.49 closing selling price of
the Companys Class A Common Stock on August 31,
2009, and the exercise price in effect for each outstanding
option that was already vested on such date in accordance with
its normal annual installment vesting schedule.
|
|
(5)
|
|
Dr. Sperling will also be entitled to receive pension
payments at the rate of $850,000 per year over his lifetime
pursuant to his deferred compensation agreement, as disclosed in
the Pension Benefits section above.
|
|
(6)
|
|
Mr. DAmicos July 3, 2007 option grant for
500,000 shares will remain outstanding for the balance of
the four-year option term, whether or not his employment
terminates at an earlier time, and his July 6, 2010 option
grant for 100,044 shares will remain outstanding for an
extended period should his employment terminate under certain
circumstances.
|
Messrs. Cappelli and Edelstein would also be entitled to
pro-rata vesting of their equity awards, as if those awards
vested in monthly installments over the applicable vesting
period, should their employment cease by reason of death. The
intrinsic value of each option or other equity award which would
have vested had such termination occurred on August 31,
2010, assuming all applicable performance-vesting conditions
were met, would be $403,273 and $0 for Messrs. Cappelli,
and Edelstein, respectively.
72
Mr. DAmico would be entitled to pro-rata vesting of
his pre-July 6, 2010 unvested equity awards, as if those
awards vested in monthly installments over the applicable
vesting period, should his employment cease by reason of death
or disability. Mr. DAmico would also be entitled to
18-months
of
service-vesting credit with respect to each of his July 6,
2010 equity awards should his employment cease by reason of
death or disability. The intrinsic value of each option or other
equity award which would have vested on such a basis had the
termination of Mr. DAmicos employment occurred
on August 31, 2010 by reason of his death or disability
would be $655,005, assuming all applicable performance-vesting
conditions were met at target level.
In addition, Messrs. Edelstein, DAmico, and Cappelli
would each receive a pro-rated bonus for the portion of the
fiscal year preceding their death or disability. For
Mr. Edelstein, the pro-rated bonus would be based on his
prior three-year average bonus; for Mr. Cappelli, the
pro-rated bonus would be based on his target bonus; and for
Mr. DAmico, the pro-rated bonus would be based on the
actual level of performance goal attainment for the year in
which his death or disability occurs.
73
|
|
|
|
|
DIRECTOR COMPENSATION
|
|
|
|
|
|
|
|
|
The following table sets forth certain information regarding the
compensation of each individual who served as a member of our
Board of Directors during the 2010 fiscal year for services
rendered in such capacity during that year. Board members who
are also employees of the Company but who do not receive any
additional compensation for their Board service are not included
in the table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid in Cash
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
|
|
Name
|
|
($)(1)
|
|
|
($)(2)
|
|
|
($)(3)
|
|
|
Total ($)
|
|
(a)
|
|
(b)
|
|
|
(c)
|
|
|
(d)
|
|
|
(h)
|
|
|
Dino J. DeConcini
|
|
|
129,500
|
|
|
|
140,041
|
|
|
|
140,875
|
|
|
|
410,416
|
|
Samuel A. DiPiazza, Jr.
|
|
|
56,500
|
|
|
|
233,399
|
|
|
|
238,951
|
|
|
|
528,850
|
|
Stephen J. Giusto
|
|
|
130,000
|
|
|
|
140,041
|
|
|
|
140,875
|
|
|
|
410,916
|
|
Dr. Roy A. Herberger, Jr.
|
|
|
124,250
|
|
|
|
140,041
|
|
|
|
140,875
|
|
|
|
405,166
|
|
Dr. Ann Kirschner
|
|
|
91,250
|
|
|
|
140,041
|
|
|
|
140,875
|
|
|
|
372,166
|
|
K. Sue Redman
|
|
|
113,000
|
|
|
|
140,041
|
|
|
|
140,875
|
|
|
|
393,916
|
|
James R. Reis
|
|
|
93,000
|
|
|
|
140,041
|
|
|
|
140,875
|
|
|
|
373,916
|
|
Manuel F. Rivelo
|
|
|
91,250
|
|
|
|
140,041
|
|
|
|
140,875
|
|
|
|
372,166
|
|
George A. Zimmer
|
|
|
75,250
|
|
|
|
140,041
|
|
|
|
140,875
|
|
|
|
356,166
|
|
|
|
|
(1)
|
|
The amounts set forth in this column represent fees earned by
each Board member during fiscal year 2010 for service in such
capacity, regardless of whether the fees were actually paid
during the fiscal year. The aggregate amount reported for each
Board member is comprised of the following categories of
payments, and no other cash compensation was paid to those Board
members for the 2010 fiscal year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Committee
|
|
|
|
|
|
|
|
|
Committee
|
|
Chairperson
|
|
|
|
|
Annual
|
|
Board Meeting
|
|
Meeting Fees
|
|
Additional
|
|
|
Name
|
|
Retainer ($)
|
|
Fees ($)
|
|
($)
|
|
Retainer ($)
|
|
Total ($)
|
|
Dino J. DeConcini
|
|
|
50,000
|
|
|
|
12,000
|
|
|
|
31,500
|
|
|
|
36,000
|
|
|
|
129,500
|
|
Samuel A. DiPiazza, Jr.
|
|
|
37,500
|
|
|
|
7,000
|
|
|
|
12,000
|
|
|
|
|
|
|
|
56,500
|
|
Stephen J. Giusto
|
|
|
50,000
|
|
|
|
12,000
|
|
|
|
48,000
|
|
|
|
20,000
|
*
|
|
|
130,000
|
|
Dr. Roy A. Herberger, Jr.
|
|
|
50,000
|
|
|
|
12,000
|
|
|
|
44,250
|
|
|
|
18,000
|
|
|
|
124,250
|
|
Dr. Ann Kirschner
|
|
|
50,000
|
|
|
|
12,000
|
|
|
|
29,250
|
|
|
|
|
|
|
|
91,250
|
|
K. Sue Redman
|
|
|
50,000
|
|
|
|
12,000
|
|
|
|
31,000
|
|
|
|
20,000
|
|
|
|
113,000
|
|
James R. Reis
|
|
|
50,000
|
|
|
|
12,000
|
|
|
|
31,000
|
|
|
|
|
|
|
|
93,000
|
|
Manuel F. Rivelo
|
|
|
50,000
|
|
|
|
12,000
|
|
|
|
29,250
|
|
|
|
|
|
|
|
91,250
|
|
George A. Zimmer
|
|
|
50,000
|
|
|
|
11,000
|
|
|
|
14,250
|
|
|
|
|
|
|
|
75,250
|
|
|
|
|
*
|
|
Includes a $5,000 quarterly retainer that was previously
disclosed in the Information Statement for fiscal year 2009,
filed with the Securities and Exchange Commission on
December 29, 2009.
|
74
|
|
|
(2)
|
|
Represents the grant-date fair value of each restricted stock
unit award made to the non-employee Board member during the 2010
fiscal year. The grant-date fair value of each such award was
determined in accordance with ASC 718, and accordingly
calculated by multiplying the number of shares of the
Class A Common Stock underlying the restricted stock unit
award by the closing price per share of such common stock on the
award date, without any adjustment to estimated forfeitures
related to service-based vesting conditions. The table below
shows for each non-employee Board member (i) the award date
of his or her restricted stock units during the 2010 fiscal
year, (ii) the ASC 718 grant-date fair value of each
such award and (iii) the aggregate number of shares of the
Companys Class A Common Stock underlying the
outstanding restricted stock unit awards held by that individual
as of August 31, 2010. See Director Equity
Compensation below for a description of the terms of the
restricted stock units awarded to our non-employee Board members
during fiscal year 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares of
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
|
|
|
|
ASC 718
|
|
|
Subject to All Outstanding
|
|
|
|
|
|
Grant-Date Fair
|
|
|
Restricted Stock Units Held
|
|
Name
|
|
Award Date
|
|
Value ($)
|
|
|
as of August 31, 2010 (#)
|
|
|
Dino J. DeConcini
|
|
July 6, 2010
|
|
|
140,041
|
|
|
|
3,313
|
|
Samuel A. DiPiazza, Jr.
|
|
December 9, 2009
|
|
|
93,358
|
|
|
|
|
|
Samuel A. DiPiazza, Jr.
|
|
July 6, 2010
|
|
|
140,041
|
|
|
|
3,313
|
|
Stephen J. Giusto
|
|
July 6, 2010
|
|
|
140,041
|
|
|
|
3,313
|
|
Dr. Roy A. Herberger, Jr.
|
|
July 6, 2010
|
|
|
140,041
|
|
|
|
3,313
|
|
Dr. Ann Kirschner
|
|
July 6, 2010
|
|
|
140,041
|
|
|
|
3,313
|
|
K. Sue Redman
|
|
July 6, 2010
|
|
|
140,041
|
|
|
|
3,313
|
|
James R. Reis
|
|
July 6, 2010
|
|
|
140,041
|
|
|
|
3,313
|
|
Manuel F. Rivelo
|
|
July 6, 2010
|
|
|
140,041
|
|
|
|
3,313
|
|
George A. Zimmer
|
|
July 6, 2010
|
|
|
140,041
|
|
|
|
3,313
|
|
|
|
|
(3)
|
|
Represents the grant-date fair value of each stock option grant
made to the non-employee Board member during the 2010 fiscal
year, calculated in accordance with ASC 718, and does not
take into account any estimated forfeitures related to
service-based vesting conditions. Assumptions used in the
calculation of the ASC 718 grant-date fair value of each
option grant are set forth in Notes 2 and 17 to the
Companys consolidated financial statements for the fiscal
year ended August 31, 2010 included in the Companys
Annual Report on
Form 10-K
filed with the Securities and Exchange Commission on
October 21, 2010. The following table shows for each named
individual (i) the grant date of each option granted to him
or her during the 2010 fiscal year, (ii) the grant-date
fair value of such option, as calculated in accordance with
ASC 718, and (iii) the aggregate number of shares of
the Companys Class A Common Stock subject to all
outstanding options held by that individual as of
August 31, 2010. See Director Equity
Compensation below for a description of the number and
terms of the options granted to our non-employee Board members
during fiscal year 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Shares of
|
|
|
|
|
|
|
|
|
Class A Common Stock
|
|
|
|
|
|
|
|
|
Subject to All
|
|
|
|
|
|
ASC 718
|
|
|
Outstanding Options
|
|
|
|
|
|
Grant-Date Fair
|
|
|
Held as of
|
|
Name
|
|
Option Grant Date
|
|
Value ($)
|
|
|
August 31, 2010 (#)
|
|
|
Dino J. DeConcini
|
|
July 6, 2010
|
|
|
140,875
|
|
|
|
97,751
|
|
Samuel A. DiPiazza, Jr.
|
|
December 9, 2009
|
|
|
98,076
|
|
|
|
|
|
Samuel A. DiPiazza, Jr.
|
|
July 6, 2010
|
|
|
140,875
|
|
|
|
13,001
|
|
Stephen J. Giusto
|
|
July 6, 2010
|
|
|
140,875
|
|
|
|
17,501
|
|
Dr. Roy A. Herberger, Jr.
|
|
July 6, 2010
|
|
|
140,875
|
|
|
|
30,501
|
|
Dr. Ann Kirschner
|
|
July 6, 2010
|
|
|
140,875
|
|
|
|
27,501
|
|
K. Sue Redman
|
|
July 6, 2010
|
|
|
140,875
|
|
|
|
21,001
|
|
James R. Reis
|
|
July 6, 2010
|
|
|
140,875
|
|
|
|
33,501
|
|
Manuel F. Rivelo
|
|
July 6, 2010
|
|
|
140,875
|
|
|
|
17,501
|
|
George A. Zimmer
|
|
July 6, 2010
|
|
|
140,875
|
|
|
|
37,001
|
|
75
|
|
|
Cash Retainer/Meeting
Fees
|
|
Dr. Sperling and Messrs. Edelstein, Cappelli, Peter
Sperling and Ms. Bishop, executive officers of the Company, did
not receive any additional compensation for their service on the
Board of Directors during the 2010 fiscal year.
|
|
|
|
|
|
Retainer Fees.
For the 2010 fiscal year, our
non-employee Board members received a $50,000 annual retainer or
a pro-rated amount for a partial year of service. In addition,
for the 2010 fiscal year, the Audit Committee Chair received a
$20,000 retainer, the Compensation Committee Chair received an
$18,000 retainer and the Nominating and Governance Committee
Chair received a $16,000 retainer. The Independent Director
Committee Chair received a $20,000 retainer and the Independent
Panel Chair received a $20,000 retainer for the 2010 fiscal
year. Such retainer fees are paid quarterly. In addition, the
two members of the Independent Panel, Mr. Giusto and
Dr. Herberger, each received an additional $5,000 payment
for their document review work in connection with the settlement
of the shareholder derivative action entitled Barnett v.
John Blair et al.
|
|
|
|
|
|
Meeting Fees.
Non-employee Board members
received $2,000 for each Board meeting attended. In addition,
members of the Audit Committee, Independent Panel and
Independent Director Committee received $2,000 for each
committee meeting attended. Members of the Compensation
Committee and Nominating and Governance Committee received
$1,500 for each committee meeting attended, including working
group meetings. The meeting fee for each of the various Board
Committees is reduced by 50% if the duration of the meeting is
less than one hour.
|
|
|
|
|
|
Expenses.
Non-employee Board members are also
reimbursed for out-of-pocket expenses.
|
|
|
|
|
|
No changes were made to the retainer or meeting fees payable to
the non-employee Board members for their service on the Board or
any committee of the Board in fiscal year 2011. The Independent
Panel was disbanded in September 2010.
|
76
|
|
|
Director Equity Compensation
|
|
|
|
Equity Compensation
For fiscal year 2010
|
|
For Fiscal Year 2010 Board service, each of the following
non-employee Board members was granted an option on July 2, 2009
to purchase 6,000 shares of the Companys Class A
Common Stock under the Companys 2000 Stock Incentive Plan:
Dino J. DeConcini, Stephen J. Giusto, Dr. Roy A. Herberger,
Jr., Dr. Ann Kirschner, K. Sue Redman, James R. Reis,
Manuel F. Rivelo and George A. Zimmer. Each option has an
exercise price of $67.90 per share, the fair market value of the
Class A Common Stock on the grant date, and a maximum term of
ten years, subject to earlier termination following the
cessation of Board service. The grant-date fair value of each
such option, as calculated in accordance with ASC 718 was
$181,199. Each option vested upon the optionees
continuation in Board service through August 31, 2010. In
addition, on July 2, 2009, each of the foregoing non-employee
Board members received an award of restricted stock units
covering 2,062 shares of the Companys Class A Common
Stock, with an aggregate value on that date of $140,000 per
award. Each restricted stock unit entitled the Board member to
one share of the Companys Class A Common Stock on the
vesting date of that unit. The restricted stock units vested
upon the directors continuation in Board service through
August 31, 2010.
|
|
|
|
|
|
Samuel A. DiPiazza, Jr., who joined the Board as a non-employee
director on December 7, 2009, received compensation similar to
the foregoing for fiscal year 2010 Board service, pro-rated to
reflect the date on which he commenced service. In particular,
on December 9, 2009, Mr. DiPiazza was granted an option to
purchase 4,000 shares of Class A Common Stock at an
exercise price of $55.34 per share, the fair market value per
share on the grant date, and restricted stock units covering
1,687 shares of Class A Common Stock, with a grant-date
value of $93,358. All the other terms of his stock option grant
and restricted stock unit award are the same as those for the
other non-employee Board members.
|
77
|
|
|
Equity Compensation
For Fiscal Year 2011
|
|
Effective with the equity awards for fiscal year 2011 Board
service, the stock option component was revised so that it would
no longer be structured as an award for a fixed number of shares
of the Companys Class A Common Stock, such as the
6,000-share option grant made to each non-employee Board members
in prior fiscal years, but would instead have a fixed value of
$140,000, calculated in accordance with the Black-Scholes
option-pricing formula, as of a specified date shortly before
the actual grant date in order to allow the timely filing of the
requisite Form 4 reports. Accordingly, each of the following
non-employee Board members was granted an option on July 6,
2010 to purchase 9,001 shares of the Companys Class A
Common Stock under the Companys 2000 Stock Incentive Plan:
Dino J. DeConcini, Samuel A. DiPiazza, Jr., Stephen J. Giusto,
Dr. Roy A. Herberger, Jr., Dr. Ann Kirschner, K. Sue
Redman, James R. Reis, Manuel F. Rivelo and George A. Zimmer.
Each option has an exercise price of $42.27 per share, the fair
market value of the Class A Common Stock on the grant date, and
a maximum term of six years, subject to earlier termination
following the cessation of Board services. Each option will vest
upon the optionees continuation in Board services through
August 31, 2011. In addition, on July 6, 2010 each of the
foregoing non-employee Board members received an award of
restricted stock units covering 3,313 shares of the
Companys Class A Common Stock, with a value of $140,041
per award, based on the closing selling price per share of such
common stock as of a specified date shortly before the actual
grant date in order to allow the timely filing of the requisite
Form 4 reports. Each restricted stock unit will entitle the
Board member to one share of the Companys Class A Common
Stock on the vesting date of that unit, unless the issuance of
such vested share is subject to a deferral election. The
restricted stock units will vest upon the directors
continuation in the Board service through August 31, 2011.
|
|
|
|
Deferral Election Program for
Non-Employee
Board Members
|
|
Effective with the 2010 calendar year, the Company has
implemented a deferral election program for the non-employee
Board members. Pursuant to that program, each non-employee Board
member may elect to defer up to 100% of the annual retainer fees
payable for service on the Board or any Board committee. The
deferral election must be made prior to the start of the
calendar year for which the retainer fees subject to the
election are to be earned. During the deferral period, the
deferred fees will be credited with an investment return based
on the investment funds the non-employee Board member selects to
measure that return. The available investment funds will be
substantially the same as those offered under the Companys
broad-based employee 401(k) savings plan, and the non-employee
Board member may change investment selections on a daily basis.
The fees deferred for each calendar year, together with the
credited investment return, will be paid either in a lump sum or
in a series of up to 10 annual installments (as specified by the
non-employee Board member in his or her deferral election for
that year) following his or her cessation of Board service.
|
78
|
|
|
|
|
Effective with the 2010 calendar year, each non-employee Board
member may also file a deferral election with respect to the
shares of the Companys Class A Common Stock that vest and
become issuable under any restricted stock unit awards made to
him or him on her while the program is in effect. The election
must be made prior to the start of the calendar year in which
the restricted stock units subject to that election are awarded.
The non-employee Board member may elect to defer up to 100% of
the shares subject to the restricted stock unit award or a
designated dollar amount of those shares in any multiple of
$1,000. The deferred shares of the Companys Class A Common
Stock will be issued either in a lump sum or in a series of up
to 10 equal annual installments (as specified by the
non-employee Board member in his or her deferral election for
that restricted stock unit award) following his or her cessation
of Board service.
|
|
|
|
|
|
In the event of the non-employee Board members death, his
or her deferred fees and deferred shares under the program will
be distributed in a lump sum to his or her designated
beneficiary.
|
79
|
|
|
|
|
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
|
|
|
|
|
|
|
|
|
The Audit Committee has the sole authority to retain or dismiss
our independent auditors. The Audit Committee has selected
Deloitte & Touche LLP, an independent registered public
accounting firm, to audit the consolidated financial statements
of the Company for its fiscal year ending August 31, 2010.
Before making its determination, the Audit Committee carefully
considered that firms qualifications as independent
auditors. The Board of Directors, following the Audit
Committees determination, has unanimously recommended that
the holders of Class B Common Stock vote for ratification of
such appointment.
|
|
|
|
|
|
Representatives of Deloitte & Touche LLP will be present at
the Annual Meeting of Class A Shareholders, will have the
opportunity to make a statement, and will be available to
respond to questions.
|
|
|
|
Pre-Approval Policies
and Procedures
|
|
The Audit Committee pre-approves, directly and through delegated
authority to the chair of the Audit Committee, all engagements
of Deloitte & Touche LLP to provide services to the Company
and its subsidiaries. During fiscal year 2010, no non-audit
services were provided without pre-approval under the de minimus
provisions of Section 10A(i)(1)(B) of the Securities Exchange
Act of 1934, as amended and paragraph (c)(7)(i)(C) of Rule 2-01
of Regulation S-X.
|
|
|
|
Independence Assessment
by Audit Committee
|
|
The Companys Audit Committee considered and determined
that the provision of the services provided by Deloitte &
Touche LLP as set forth herein is compatible with maintaining
Deloitte & Touche LLPs independence and approved all
non-audit related fees and services.
|
|
|
|
Fees of the Independent
Registered Public
Accounting
Firm
|
|
The following is a summary of the fees billed to us by Deloitte
& Touche LLP and Deloitte Tax LLP for professional services
rendered for the fiscal years ended August 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
Fee Category
|
|
Fiscal 2010
|
|
|
Fiscal 2009
|
|
|
Audit fees
|
|
|
|
|
|
|
|
|
SEC filings and subsidiary stand-alone financial statements
|
|
$
|
1,889,000
|
|
|
$
|
1,485,000
|
|
Compliance and regulatory audits
|
|
|
937,000
|
|
|
|
285,000
|
|
Other fees
|
|
|
341,000
|
|
|
|
81,000
|
|
Tax fees
|
|
|
952,000
|
|
|
|
2,154,000
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$
|
4,119,000
|
|
|
$
|
4,005,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit Fees
consist of fees billed for professional
services rendered for the audit of our consolidated and
subsidiary annual financial statements, stand-alone financial
statements and internal controls over financial reporting,
review of interim consolidated financial statements, and
services performed in connection with statutory and regulatory
filings.
|
|
|
|
|
|
Tax Fees
consist of fees billed for professional services
for tax compliance, tax advice, and tax planning. These services
include assistance regarding federal, state and international
tax compliance, tax audit defense, mergers and acquisitions, and
international tax planning.
|
80
BOARD AUDIT COMMITTEE REPORT ON AUDIT RELATED MATTERS
The information contained in this report shall not be deemed
to be soliciting material or filed with
the SEC or subject to the liabilities of Section 18 of the
Securities Exchange Act of 1934, as amended, except to the
extent that Apollo Group specifically incorporates it by
reference into a document filed under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as
amended.
The Audit Committee of the Board of Directors (the
Committee) assists the Board in fulfilling its
oversight responsibilities with respect to the external
reporting process and the adequacy of the Companys
internal controls. Specific responsibilities of the Committee
are set forth in the Audit Committees Charter adopted by
the Board and last amended October 23, 2009. The Charter is
available on the Companys website at
http://www.apollogrp.edu/CorporateGovernance/CorporateGovernance.aspx
.
The Committee is composed of four directors, all of whom meet
the standards of independence adopted by the Securities and
Exchange Commission. The Committee appoints the Companys
independent registered public accounting firm. The Committee
approves in advance all services to be performed by
Deloitte & Touche LLP (Deloitte), the
companys independent registered public accounting firm.
Management is responsible for the Companys financial
statements and reporting process, for establishing and
maintaining an adequate system of internal control over
financial reporting, and for assessing the effectiveness of the
Companys internal control over financial reporting. The
Committee has reviewed and discussed the Companys 2010
Annual Report on
Form 10-K,
including the audited consolidated financial statements of the
Company and Managements Report on Internal Control over
Financial Reporting, for the year ended August 31, 2010
with management and with representatives of Deloitte.
The Committee has also discussed with Deloitte the matters
required to be discussed by Statement on Auditing Standards
No. 114. The Committee has received from Deloitte the
written disclosures and the letter from Deloitte required by
applicable requirements of the Public Company Accounting
Oversight Board regarding Deloittes communications with
the Committee concerning independence, and has discussed with
Deloitte its independence.
The Committee has considered whether the provision to the
Company by Deloitte of limited nonaudit services is compatible
with maintaining the independence of Deloitte. The Committee has
satisfied itself as to the independence of Deloitte.
Based on the above review and discussions, the Committee
recommended to the Board of Directors that the audited
consolidated financial statements be included in the
Companys Annual Report on
Form 10-K
for the year ended August 31, 2010.
Submitted by:
K. Sue Redman, Chairperson
Samuel A. DiPiazza, Jr.
Stephen J. Giusto
James R. Reis
81
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of our common stock as of October 31,
2010, by each person known to us to own more than 5% of our
Class B Common Stock, each director and nominee for
director, each named executive officer and all directors and
executive officers as a group. Except as otherwise indicated, to
our knowledge, all persons listed below have sole voting and
investment power with respect to their shares, except to the
extent that authority is shared by spouses under applicable law
or as otherwise noted below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Apollo Group
|
|
Apollo Group
|
|
|
Class A Common Stock
|
|
Class B Common Stock
|
|
|
Number of
|
|
Percent of
|
|
Number of
|
|
Percent of
|
Beneficial Owner
|
|
Shares Owned
|
|
Class Owned
|
|
Shares Owned
|
|
Class Owned
|
|
Directors and Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. John G. Sperling
|
|
|
16,739,704
|
(1)
|
|
|
11.3
|
%
|
|
|
243,081
|
(19)
|
|
|
51.2
|
%
|
Peter V. Sperling
|
|
|
6,736,331
|
(2)
|
|
|
4.6
|
%
|
|
|
232,068
|
(20)
|
|
|
48.8
|
%
|
Gregory W. Cappelli
|
|
|
917,904
|
(3)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Charles B. Edelstein
|
|
|
542,981
|
(4)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Joseph L. DAmico
|
|
|
452,821
|
(5)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Terri C. Bishop
|
|
|
144,895
|
(6)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Dino J. DeConcini
|
|
|
95,977
|
(7)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
William Pepicello
|
|
|
86,556
|
(8)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Brian L. Swartz
|
|
|
62,204
|
(9)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
George A. Zimmer
|
|
|
38,077
|
(10)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
James R. Reis
|
|
|
32,827
|
(11)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Dr. Roy A. Herberger, Jr.
|
|
|
29,077
|
(12)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Dr. Ann Kirschner
|
|
|
22,783
|
(13)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
K. Sue Redman
|
|
|
19,062
|
(14)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Stephen J. Giusto
|
|
|
12,325
|
(15)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Manuel F. Rivelo
|
|
|
11,614
|
(16)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
Samuel A. DiPiazza, Jr.
|
|
|
7,772
|
(17)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
All Executive Officers and Directors (22 persons)
|
|
|
24,888,838
|
(18)
|
|
|
16.5
|
%
|
|
|
|
|
|
|
|
|
Total Shares Outstanding
|
|
|
147,358,361
|
|
|
|
100.0
|
%
|
|
|
475,149
|
|
|
|
100.0
|
%
|
|
|
|
*
|
|
Represents beneficial ownership of less than 1%.
|
|
(1)
|
|
Includes (a) 1,357,339 shares held by the John
Sperling 1994 Irrevocable Trust, for which Dr. Sperling and
Mr. Sperling are the co-trustees (also included in the
shares being reported as beneficially owned by
Mr. Sperling); (b) 1,578,036 shares held by The
Aurora Foundation, for which Dr. Sperling is the trustee;
(c) 11,125,514 shares held by the John Sperling
Revocable Trust, for which Dr. Sperling is the trustee;
(d) 990,142 shares that Dr. Sperling has the
right to acquire within 60 days of the date of the table
set forth above; (e) 243,080 shares that the John
Sperling Voting Stock Trust has the right to acquire at any
time, subject to certain limitations under the Shareholder
Agreement as amended, upon conversion of its Class B Common
Stock, for which Dr. Sperling is the sole trustee; and
(f) one share that Dr. Sperling has the right to
acquire at any time upon conversion of his share of Class B
Common Stock.
|
|
(2)
|
|
Includes (a) 1,357,339 shares held by the John
Sperling 1994 Irrevocable Trust, for which Dr. Sperling and
Mr. Sperling are the co-trustees (also included in the
shares being reported as beneficially owned by
Dr. Sperling); (b) 551,156 shares held by the
Peter V. Sperling Revocable Trust, for which Mr. Sperling
is the trustee; (c) 221,619 shares that
Mr. Sperling has the right to acquire within 60 days
of the date of the table set forth above;
(d) 232,067 shares that the Peter Sperling Voting
Stock Trust has the right to acquire at any
|
82
|
|
|
|
|
time, subject to certain limitations under the Shareholder
Agreement as amended, upon conversion of its Class B Common
Stock, for which Mr. Sperling is the trustee; and
(e) one share that Mr. Sperling has the right to
acquire at any time upon conversion of his share of Class B
Common Stock. Of the shares held by Mr. Sperling,
1,285,670 shares are pledged as security for various
obligations of Mr. Sperling.
|
|
(3)
|
|
Includes 863,078 shares that Mr. Cappelli has the
right to acquire within 60 days of the date of the table
set forth above.
|
|
(4)
|
|
Includes 500,000 shares that Mr. Edelstein has the
right to acquire within 60 days of the date of the table
set forth above.
|
|
(5)
|
|
Includes 400,769 shares that Mr. DAmico has the
right to acquire within 60 days of the date of the table
set forth above.
|
|
(6)
|
|
Includes 136,162 shares that Ms. Bishop has the right
to acquire within 60 days of the date of the table set
forth above.
|
|
(7)
|
|
Includes 88,750 shares that Mr. DeConcini has the
right to acquire within 60 days of the date of the table
set forth above.
|
|
(8)
|
|
Includes 78,126 shares that Dr. Pepicello has the
right to acquire within 60 days of the date of the table
set forth above.
|
|
(9)
|
|
Includes 52,116 shares that Mr. Swartz has the right
to acquire within 60 days of the date of the table set
forth above.
|
|
(10)
|
|
Includes 28,000 shares that Mr. Zimmer has the right
to acquire within 60 days of the date of the table set
forth above.
|
|
(11)
|
|
Includes 24,500 shares that Mr. Reis has the right to
acquire within 60 days of the date of the table set forth
above.
|
|
(12)
|
|
Includes 21,500 shares that Dr. Herberger has the
right to acquire within 60 days of the date of the table
set forth above.
|
|
(13)
|
|
Includes (a) 6 shares held jointly in a custodial
account with another person and (b) 18,500 shares that
Dr. Kirschner has the right to acquire within 60 days
of the date of the table set forth above.
|
|
(14)
|
|
Includes 12,000 shares that Ms. Redman has the right
to acquire within 60 days of the date of the table set
forth above.
|
|
(15)
|
|
Includes 8,500 shares that Mr. Giusto has the right to
acquire within 60 days of the date of the table set forth
above.
|
|
(16)
|
|
Includes (a) 200 shares held by Mr. Rivelos
spouse as to which he disclaims beneficial ownership and
(b) includes 8,500 shares that Mr. Rivelo has the
right to acquire within 60 days of the date of the table
set forth above.
|
|
(17)
|
|
Includes 4,000 shares that Mr. DiPiazza has the right
to acquire within 60 days of the date of the table set
forth above.
|
|
(18)
|
|
Includes 3,729,135 shares that all Directors and Executive
Officers as a group have the right to acquire within
60 days of the date of the table set forth above. The
1,357,339 shares of Class A Common Stock that are
deemed to be beneficially owned by both Dr. Sperling and
Mr. Sperling, and that are included in the total beneficial
ownership of Class A Common Stock reported for each of
them, are only counted once in the total number of shares of
Class A Common Stock reported as beneficially owned by the
Executive Officers and Directors.
|
|
(19)
|
|
Includes 243,080 shares held by the John Sperling Voting
Stock Trust, which will terminate after the death of
Dr. Sperling if and when the trust no longer holds
Class B Common Stock of the Company. Dr. Sperling is
the trustee of the John Sperling Voting Stock Trust.
|
|
(20)
|
|
Includes 232,067 shares held by the Peter Sperling Voting
Stock Trust, which will terminate after the death of
Mr. Sperling if and when the trust no longer holds
Class B Common Stock of the Company. Mr. Sperling is
the trustee of the Peter Sperling Voting Stock Trust.
|
83
The address of each of the listed shareholders, unless noted
otherwise, is in care of Apollo Group, Inc., 4025 South
Riverpoint Parkway, Phoenix, Arizona 85040. The number of shares
beneficially owned by each entity, director or executive officer
is determined under the rules of the SEC and the information is
not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, an entity or person is deemed a
beneficial owner of a security if it, he or she has
or shares the power to vote or direct the voting of such
security or the power to dispose or direct the disposition of
such security. An entity or person is also deemed to be a
beneficial owner of any securities for which that entity or
person has the right to acquire beneficial ownership within
60 days of October 31, 2010.
84
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth, for each of our equity
compensation plans, the number of shares of our Class A
Common Stock subject to outstanding awards as of August 31,
2010 and the number of such shares available for future award as
of that date. The table does not include information with
respect to shares of our Class A Common Stock subject to
outstanding options, stock appreciation rights or other equity
awards granted under equity compensation plans or agreements
that were assumed by us in connection with our acquisitions of
the companies that originally granted those options, stock
appreciation rights or awards. Those awards are not included as
part of our existing equity compensation plans because we did
not originally grant those particular awards and no additional
options, stock appreciation rights or other equity awards may be
granted by us under those assumed plans. However, Footnote 6 to
the table sets forth the total number of shares of our
Class A Common Stock subject to those assumed options,
stock appreciation rights or other awards as of August 31,
2010, and the weighted average exercise price of such assumed
options and stock appreciation rights.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A.
|
|
|
B.
|
|
|
C.
|
|
|
|
Number of Shares
|
|
|
Weighted Average
|
|
|
Number of Shares
|
|
|
|
to be Issued Upon
|
|
|
Exercise Price of
|
|
|
Remaining
|
|
|
|
Exercise of
|
|
|
Outstanding
|
|
|
Available for Future
|
|
|
|
Outstanding
|
|
|
Options,
|
|
|
Issuance (Excluding
|
|
|
|
Options, Warrants
|
|
|
Warrants and
|
|
|
Securities Reflected
|
|
Plan Category
|
|
and Rights
|
|
|
Rights
|
|
|
in Column A)
|
|
|
Equity compensation plans approved by shareholders(1)
|
|
|
11,721,394
|
(2)
|
|
$
|
56.62
|
(3)
|
|
|
8,211,447
|
(4)(5)
|
Equity compensation plans not approved by shareholders(6)
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
11,721,394
|
|
|
|
56.62
|
|
|
|
8,211,447
|
|
|
|
|
(1)
|
|
Consists of the Apollo Group, Inc. Second Amended and Restated
Director Stock Plan (Director Stock Plan), the
Apollo Group, Inc. Amended and Restated 2000 Stock Incentive
Plan (2000 Incentive Plan) and the Apollo Group,
Inc. Third Amended and Restated 1994 Employee Stock Purchase
Plan (Purchase Plan).
|
|
(2)
|
|
Includes 1,549,835 shares of Class A Common Stock
subject to outstanding restricted stock units and
69,468 shares of Class A Common Stock (at maximum
level of attainment) subject to outstanding performance share
unit awards that will entitle each holder to the issuance of one
share of Class A Common Stock for each unit that vest over
the holders period of continued employment with the
Company. Excludes outstanding purchase rights under the Purchase
Plan. Under the Purchase Plan, each eligible employee may
purchase shares of Class A Common Stock at quarterly
intervals), up to a maximum of $25,000 worth of stock each
calendar year. The purchase price payable per share will be
equal to 95% of the fair market value on the quarterly purchase
date.
|
|
(3)
|
|
Excludes the 1,549,835 shares of Class A Common Stock
subject to outstanding restricted stock units and
69,468 shares of Class A Common Stock (at maximum
level of attainment) subject to outstanding performance share
unit awards that will become issuable as those units vest,
without any cash consideration or other payment required for
such shares.
|
|
(4)
|
|
Includes shares of Class A Common Stock available for
future issuance under the 2000 Incentive Plan and the Purchase
Plan. As of August 31, 2010, 3,660,554 shares of
Class A Common Stock were available for issuance under the
2000 Incentive Plan. Under such plan, we may grant non-qualified
stock options, incentive stock options, stock appreciation
rights, restricted stock units, performance awards and other
stock-based awards to our officers, key employees and
non-employee Board members. As of August 31, 2010,
4,550,893 shares of Class A Common Stock were
available for issuance under the Purchase Plan.
|
85
|
|
|
(5)
|
|
The Director Stock Plan provided our non-employee directors with
annual option grants to purchase shares of our Class A
Common Stock. The grants occurred on September 1 of each year
through 2003. No further options may be granted under that plan.
|
|
(6)
|
|
The table does not include information with respect to equity
compensation plans or agreements that were assumed by us in
connection with our acquisitions of the companies that
originally established those plans or agreements because no
additional options, stock appreciation rights or other equity
awards may be granted under those assumed plans or agreements.
As of August 31, 2010, 46,520 shares of Class A
Common Stock were subject to outstanding options and stock
appreciation rights under those assumed plans and agreements.
The weighted average exercise price of those outstanding options
and stock appreciation rights is $81.99 per share.
|
86
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires our directors and executive officers, as well as
persons who beneficially own more than 10% of a registered class
of our equity securities, to file with the SEC initial reports
of ownership and reports of changes in beneficial ownership.
Directors, executive officers and greater than 10% beneficial
owners of our Class A Common Stock are required by SEC
regulations to furnish us with copies of all Section 16(a)
forms they file. Based solely upon a review of the copies of
such forms furnished to us, or written representations that no
forms were required, we are not aware of any failure by our
directors, officers and beneficial owners of greater than 10% of
our Class A Common Stock to file on a timely basis reports
required by Section 16(a) during the fiscal year ended
August 31, 2010.
87
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