1
EXHIBIT 10.11
FINANCIAL OPERATIONS AGREEMENT
This Financial Operations Agreement is made and entered into this 1st day of
October, 1995, between AMERICAN EUROPEAN MIDDLE EAST CORPORATION, LLC
(hereinafter referred to as "AEMEC"), a limited liability company of the State
of Georgia, United States of America, headquartered in Dubai, United Arab
Emirates, and MIDDLE EAST COLLEGES, LTD (hereinafter referred to as "MEC"), a
B.V.I. company headquartered in Dubai, United Arab Emirates.
WITNESSETH:
WHEREAS, AEMEC is a subsidiary of the American European Corporation, a
corporation of the State of Georgia, United States of America, which owns and
operates a degree granting institution of higher education in Atlanta known as
The American College (hereinafter referred to as "TAC") with branch campuses in
Los Angeles and London; and
WHEREAS, AEMEC desires to establish an institution of higher education in Dubai,
UAE, known as The American University in Dubai (hereinafter referred to as
"AUD"); and
WHEREAS, AEMEC and MEC have established a contractual relationship for the
purpose of establishing and mutually supporting AUD as specified in the
Agreement of the parties of even date herewith (hereinafter referred to as the
"Agreement", the Agreement being appropriately incorporated herein by reference
and this document being specifically established in part to facilitate the
implementation of the Agreement; and
WHEREAS, the geographical and time differences involved in the regular
operations of AUD as an institution of higher education in Dubai, UAE, may
occasionally make it difficult to confer and consult with all appropriate
parties concerning various issues and concerns, and it is deemed advisable to
agree to and establish certain specific operational guidelines, principles and
concepts for the financial operation of AUD; and
WHEREAS, the representatives and personnel of AEMEC, AUD, and MEC represent
differing corporate entities, professional interests, and nationalities, all of
whom also represent a variety of cultural environments and professional
backgrounds, and will of necessity on occasion function in one or more national
states with differing legal, governmental and corporate systems with differing
business climates, customs and operational understandings; therefore, it is to
the mutual advantage of all parties and their respective officers,
representatives and employees to adopt the herein identified and agreed to
operational concepts and understandings so as to facilitate the operation of AUD
to the mutual benefit of all concerned.
NOW THEREFORE, in consideration of Ten and No/100 Dollars ($10.00) and other
good and valuable consideration, the parties agree:
1 Effective Date. The effective date for this Financial Operations
Agreement is February 1, 1995. This agreement is intended to represent what has
been and will be the working relationship between the parties; however, to the
extent that any of the procedures of the parties have not been in accord with
the provisions of this document, such procedures
1
2
shall be modified retroactive to February 1, 1995; and this agreement supersedes
all prior agreements, whether written or oral, heretofore governing the
relationship of the parties relative to the subject matter of this document.
2 Accreditation. This agreement is drafted in part with the intention to
ensure compliance with the applicable Criteria and Guidelines of the Commission
on Colleges, Southern Association of Colleges and Schools, the appropriate
American regional accrediting agency with jurisdiction over The American
University in Dubai. In the event that any element of this document is found by
the Commission not to be in compliance with the above identified documents, the
parties agree to effect such modifications or enter into such new agreements as
may be necessary to remedy the non-compliance provision so as to operate in
compliance with applicable accreditation standards.
3 Bank Accounts. AEMEC and MEC shall establish a bank account or accounts
in the name of AUD for its operations and fiscal affairs in a bank or banks
approved by AEMEC and MEC. All revenues, receipts and advances received and
deposited in such accounts shall be used solely for AUD and shall be disbursed
in accordance with the provisions of this document or as otherwise specified in
the Agreement.
4 Signature Authority for the Bank Accounts. The appropriate
institutional officers possessing signature authority for AUD will be the
President, Xxxx X Xxxxxxxx, or a successor appointed by AEMEC; Xxxxx Xxx-Saab,
Vice President, or an appropriate successor appointed by MEC and approved by
AEMEC; both of these identified AUD officers having been appropriately appointed
as specified in the Agreement and approved by the Governing Board of TAC. In all
cases, the above parties shall possess joint signature authority with respect to
operating accounts and all withdrawals therefrom shall be in accordance with the
terms of this document of the Agreement. All checks written on an operating
account in excess of five hundred dollars ($500.00 - US) or the equivalent in
UAE currency must bear both signatures of the current occupants of the above
identified institutional positions.
5 Excess Funds. In the event the bank account or accounts established
pursuant to the above provision contain funds exceeding the immediate cash needs
for the operation of AUD, subject to joint agreement of the parties, such excess
funds or a portion thereof may be invested in savings accounts, certificates of
deposit, government obligations, commercial paper "money market" funds or the
like, provided however that the form of any such investment shall be consistent
with the need to liquidate any such investment so as to meet the cash needs for
the operation of AUD.
6 Advance Tuition Account. The parties acknowledge that tuition funds and
other appropriate fees collected from students will often be collected in
advance of their being earned by AUD. Such funds will be deposited in a special
account designated as "Advance Tuition Account" and may only be withdrawn and
used for AUD operating expenses as the tuition to which they apply is earned by
AUD on a weekly basis.
7 Accounting and Financial Records. AEMEC and AUD shall maintain books of
accounts for AUD in accordance with generally accepted accounting principles
consistently applies. Such books shall be maintained on a monthly basis and
shall be kept in UAE currency (Dirhams) and converted to U.S. Dollars ($) at
month end using the rate of exchange
2
3
in effect on the last day of the month. The books shall be maintained on a
fiscal year beginning October 1 and ending on September 30 of the following
year.
8 Audits and Reporting. AEMEC shall cause to be prepared and furnish to
appropriate parties, including MEC, unaudited financial statements on a monthly
basis. Within One Hundred Twenty (120) days of the end of the fiscal year,
financial statements shall be prepared by a firm of Certified Public or
Chartered Accountants selected by AEMEC and approved by MEC, such approval not
to be unreasonably withheld. MEC shall have the right at all reasonable times to
audit, examine and make copies of or extract information from the books of
account maintained by AEMEC for AUD.
9 Cash Flow Management. In accordance with their respective interests,
AEMEC and MEC may receive such cash distributions as prescribed in the terms of
the Agreement in monthly installments based on the projected cash flow for the
current year and as more particularly defined in Exhibit "B" of the Agreement.
Available cash flow shall take into account reserves for operating shortfalls,
as shall be agreed by AEMEC and MEC during the term of the Agreement. It is
understood by all parties that no distribution will be made at any time during
the first year of operations of AUD. If AEMEC and MEC are unable to agree on the
monthly cash distribution arrangement for any fiscal year, such distributions
shall be based on the distribution of the previous year until the parties
mutually agree otherwise. In the event of under-payment or over-payment, such
payments will be adjusted by proper remittance on or before One Hundred Twenty
(120) days after the end of each fiscal period during the term hereof.
Distributions earned for all periods consisting of less than a calendar year
shall be prorated on a daily basis. In continuing consideration of and in return
for services rendered, the parties shall retain their respective percentages in
any undistributed revenues and cash flow.
10 Reimbursement. AEMEC shall be entitled to reimbursement of one hundred
percent (100%) of the direct, incremental costs incurred by AEMEC or any of its
affiliates on behalf of AUD, including President Xxxx Xxxxxxxx'x relocation
costs and his salary from August 1, 1995 to October 1, 1995 and previously
approved by MEC.
11 Ownership of Student Contracts. All student contracts shall be owned by
AEMEC, and all tuition and other fees shall be collected and disbursed by AUD
for the payment of all operating expenses and distributions to AEMEC and MEC as
provided herein or the Agreement.
12 Contribution of Additional Funds. MEC shall have the exclusive
obligation to contribute additional funds, from time to time, during the period
ending the earlier of five (5) years following the commencement of the first
academic term or the end of the fiscal year in which AUD realizes an operating
profit as determined by AUD's auditors (selected as agreed to by the parties)
for operating shortfalls, to the extent any exist after application of any
reserves establishes for such purpose. Following the period of time during which
MEC is exclusively obligated to contribute additional funds for operating
shortfalls, AEMEC and MEC shall each contribute additional funds for operating
shortfalls, to the extent any exist after the application of reserves
established for such purpose; on a 35/65 basis; provided, however, that AEMEC
shall not be required to contribute any amounts pursuant to this sentence in
excess of the cash distributions previously paid to AEMEC pursuant to this
paragraph and paragraph 5 of the Agreement. At such time as AEMEC is no longer
required
3
4
to contribute additional funds for operating shortfalls pursuant to the
preceding sentence, MEC shall contribute one hundred percent (100%) of the
additional funds needed for operating shortfalls. All shortfall contributions
made exclusively by MEC during those periods of time when AEMEC is not required
to make shortfall contributions, will be returned to MEC by distributing
twenty-five percent (25%) of the Cash Flow to MEC to the extent there is Cash
Flow available for such distribution in any fiscal year, and provided that the
Cash Flow to AEMEC for such fiscal year is not less than U.S. $100,000.00.
13 Reserves. Reserves equal to ten percent (10%) of the net cash flow
shall be maintained to cover operating shortfalls and may be distributed to the
parties at such time and in such amounts as the parties shall agree.
14 Operating Budgets. AEMEC and MEC will prepare and submit to the
Governing Board of TAC, on the time frame established by TAC or such other
compatible time frame as may be necessary to meet the needs of AUD, an annual
operating budget for AUD. In the development of this operating budget, the
following understandings and stipulations will be observed:
(a) All academic department chairs and major administrative unit heads,
identified on an annual basis by the President of AUD, shall prepare and submit
to the President of AUD, on an internal time frame established by the President
of AUD, suggested annual operating budgets for the next fiscal year following
such budgetary guidelines as may be established for AUD and are compatible with
the policies and procedures of TAC.
(b) As components of this budget, funds allocated for salaries for
teaching and administrative personnel and operational accounts shall be
comparable to those paid for similar positions or allocated for similar
functions at the other TAC campuses prior to adjustments for relocation or local
living expenses or warranted by unusual local conditions or circumstances.
(c) For budget preparation purposes, the time frame to be used for
budget planning will be the fiscal year for AUD of June 1 through May 31, even
though for comparability and other reporting purposes reports and other
documents may be prepared on an academic year basis of October 1 through
September 30.
(d) The final proposed budget for AUD will be prepared for and
submitted to the Governing Board of TAC, as is the case for all TAC campuses;
the action of the Governing Board will be final with respect to the
establishment of the annual Operating Budget of AUD. In the event elements of
the Operating Budget are not approved by the Governing Board, they will be
modified appropriately.
(e) Prior to submission to the Governing Board, institutional officials
will consult and share budgetary information with an identified MEC
representative. The submission of this budget information will occur no later
than seventy-five (75) days prior to the required date for submission of the
budget to the Governing Board or the start of the current forthcoming fiscal
year, whichever first occurs. Subsequent to this submission, MEC shall have
thirty (30) days within which to comment on, approve, or otherwise propose
adjustments to such budgeting information. In the event that MEC fails to
approve the proposed budget allocations, the Operating Budget for the current
fiscal year increased by five percent (5%) for
4
5
each year said budget is in effect shall govern the expenditures for AUD for the
fiscal year in question until such time as the issues involved are resolved, MEC
has approved the Operating Budget for the year in question and the Governing
Board has approved the Operating Budget.
(f) The annual operating budget submitted to and approved by the TAC
Governing Board shall be referred to as the "Operating Budget" for AUD.
(g) Subject to institutional financial policies and procedures, the
expenditures reflected in the Operating Budget may be made on behalf of AUD, and
may, subject to institutional and AEMEC approval, exceed the aggregate amount of
the Operating Budget for contingencies and unforeseen expenses by an amount not
to exceed ten percent (10%) of the budget category for that particular
expenditure unless otherwise agreed to by the parties.
(h) Except as otherwise provided herein, neither party nor its
officers, employees, agents or representatives shall be authorized to incur
financial obligations for AUD without the consent of the other party.
(i) Appropriate parties and institutional administrators shall receive
such budgetary information as may be appropriate for their sphere of
responsibility as to exercise fiscal responsibility and accountability. Should
any modifications or reductions be made in the various budget categories, the
appropriate parties shall receive such notification as is necessary to comply
with accreditation guidelines.
15 Institutional Operational Policies and Procedures. It is acknowledged
by the parties that AEMEC has established, and will establish in the future,
certain operational policies and procedures for the operation of its educational
programs, student services, administration, personnel development, alumni
relations, institutional research and planning, institutional effectiveness,
recruitment and institutional promotion, library facilities and collections,
educational resources and equipment, and maintenance and expansion of physical
facilities. It is further acknowledged and agreed that, except as otherwise
provided in this document or the Agreement, AUD personnel shall be instructed
and encouraged to extend their reasonable efforts to adhere to and follow such
policies and procedures as have been and may be promulgated through appropriate
procedures and published in the policies and procedures manuals, administrative
memoranda, joint documents generated by AEMEC personnel in the annual meetings,
or as otherwise approved and distributed by the Governing Board. Inherent in
this provision is the understanding that AUD personnel shall have every
opportunity to represent the points of view of AUD and participate appropriately
in the establishment of such institutional operational policies and procedures.
16 Annual Review. This Agreement shall be reviewed by the parties from
time to time at the request of either party, but not more often than annually,
and the parties shall modify this Agreement in writing in such a manner as they
shall mutually agree.
5
6
IN WITNESS WHEREOF, each of the parties have duly executed and delivered this
Memorandum pursuant to proper authority the day and year first above written.
AMERICAN EUROPEAN MIDDLE EAST
CORPORATION, LLC
By: /s/ Xxxx Xxxxxxxx (SEAL)
---------------------------------
Xxxx Xxxxxxxx
Its: President
MIDDLE EAST COLLEGES, LTD
By: /s/ Xxxxx Xxx Saab (SEAL)
---------------------------------
Xxxxx Xxx Saab
Its: Director
6
7
EXHIBIT A
[Sets forth AUD first year capital requirements]
EXHIBIT B
DEFINITIONS
CASH FLOW
Cash distributions may be made to the parties each month as mutually
agreed to by the parties from available cash flow. Available cash flow shall be
defined as follows:
Monthly-
In no event may cash distributions be made to the
parties in excess of the following amounts within
thirty (30) days following the end of each month of
operations:
1. Ninety percent (90%) of the monthly net
income (as defined below) from operations
of the school.
2. One twelfth (1/12th) of ninety percent
(90%) of the annual, budgeted net income
of the school.
3. An amount as determined in 1. and 2.
above when reduced by a specific reserve
for an expenditure which is expected to
occur within the next ninety (90) day
period and will require funding from
current operations.
Annually-
No sooner than one hundred and twenty (120) days
after the end of each fiscal year; the excess funds
generated from operations of the school shall be
distributed to the parties of this agreement in the
amounts determined as follows:
1. Net income of the school as shown on the annual
audited financial statements by the University's
independent outside accountants and reduced by the
following:
A. Amounts distributed to the parties during
the fiscal year.
B. A reserve for growth of operation for the
next fiscal year, which amount be no less
than ten percent (10%) of the budgeted
net income of the next year.
NET INCOME
Net Income shall be determined in accordance with generally accepted
accounting principles except that there shall be no provision for depreciation
in the determination of net income and there shall be no deduction for capital
expenditures including the acquisition of textbooks. Expenses considered in the
determination of Net Income shall not include any rental or lease of capital
items set forth in the "Capital Budget which is attached to this contract as
Exhibit A.
