Executive Compensation
Summary Compensation Table
Name and Principal Position | Year | Salary ($) | Stock Awards ($) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($) | Total ($) | Year | Salary ($) | Stock Awards (1) ($) | Non-Equity Incentive Plan Compensation (2) ($) | All Other Compensation (3) ($) | Total ($) |
| | | (2) | (3) | (4) | | |
Scott M. Shaw | 2017 | 500,000 | - | 5,241 | 505,241 | 2022 | 500,000 | 1,100,000 | 126,720 | 14,264 | 1,740,984 |
President and | 2016 | 500,000 | 278,250 | 500,000 | 7,941 | 1,286,191 | 2021 | 500,000 | 681,815 | 11,793 | 1,693,608 |
Chief Executive Officer | | | | | | |
| | | | | | |
Brian K. Meyers | 2017 | 340,000 | - | 7,170 | 347,170 | 2022 | 358,955 | 500,000 | 68,230 | 11,595 | 938,780 |
Executive Vice President, Chief | 2016 | 331,750 | 159,000 | 255,000 | 9,658 | 755,408 | 2021 | 358,955 | 250,000 | 367,111 | 11,053 | 987,119 |
Financial Officer and Treasurer | | | | | | |
| | | | | | |
Deborah M. Ramentol (1) | 2017 | 310,241 | - | 3,370 | 313,611 | |
Former Senior Group President | 2016 | 310,241 | 79,500 | 155,120 | 6,070 | 550,931 | |
Stephen M. Buchenot | | 2022 | 304,387 | 350,000 | 38,572 | 17,915 | 710,874 |
Executive Vice President of | | 2021 | 304,387 | 250,000 | 207,536 | 17,807 | 779,730 |
Campus Operations | | | | | |
| | | | | | |
(1) | For fiscal year 2022, represents the aggregate grant date fair value of time-based and performance-based restricted stock awards on February 23, 2022. The fair values of these grants were determined in accordance with Financial Accounting Standards Board Accounting Standards Code Topic 718 (excluding the effect of estimated forfeitures). See Note 10 to the audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the Securities and Exchange Commission regarding assumptions underlying the valuation of equity awards. Whether, and to what extent, a named executive officer realizes value will depend on our actual operating performance, stock price fluctuations and the named executive officer’s continued employment. Amounts reported for these awards may not represent the amounts that the named executive officers will actually realize from the awards. The terms and conditions of the performance-based restricted stock awards are described in the “Compensation Discussion and Analysis.” |
(1) Ms. Ramentol retired effective February 1, 2018.
(2) | Reflects the value of cash incentive awards paid under our MIC Plan as described in the “Compensation Discussion and Analysis.” |
(3) | Reflects the following for fiscal years 2022 and 2021, respectively: (a) the costs related to personal use of a company-owned vehicle of $3,912 and 3,615 for Mr. Shaw as well as $3,616 and $3,074 for Mr. Meyers; (b) premiums paid on each named executive officer’s life insurance policy: $6,915 and $6,915 for Mr. Shaw, $4,541 and $4,541 for Mr. Meyers, and $15,810 and $15,810 for Mr. Buchenot; and (c) 401(k) matching contributions for each named executive officer as follows: $2,925 and $750 for Mr. Shaw, $2,925 and $2,925 for Mr. Meyers, and $1,591 and $1,484 Mr. Buchenot. |
(2) Represents the aggregate grant date fair value of grants of common stock and restricted common stock (time-based and performance-based) during each of the years presented. The fair values of these grants were determined in accordance with FASB ASC Topic 718 (excluding the effect of estimated forfeitures). See Note 1 to the audited consolidated financial statements in our Annual Report on Form 10-K for the fiscal years ended December 31, 2017 and December 31, 2016 filed with the SEC on March 9, 2018 and March 10, 2017, respectively, regarding assumptions underlying the valuation of equity awards. Whether, and to what extent, a named executive officer realizes value will depend on our actual operating performance, stock price fluctuations and the named executive officer’s continued employment. Amounts reported for these awards may not represent the amounts that the named executive officers will actually realize from the awards. The terms and conditions of the time-based and performance-based restricted stock awards are described in the “Compensation Discussion and Analysis.”
In the case of Mr. Shaw, the amount reflected in this column consists of the grant date fair value of, for fiscal year 2016, 175,000 shares of performance-based restricted stock, subject to vesting in equal annual installments over a two year performance period commencing on March 15, 2017.
In the case of Mr. Meyers, the amount reflected in this column consists of the grant date fair value of, for fiscal year 2016, 100,000 shares of performance-based restricted stock, subject to vesting in equal annual installments over a two year performance period commencing on March 15, 2017.
In the case of Ms. Ramentol, the amount reflected in this column consists of the grant date fair value of, for fiscal year 2016, 50,000 shares of performance-based restricted stock, subject to vesting in equal annual installments over a two year performance period commencing on March 15, 2017. The second tranche of her restricted stock award, or 25,000 shares, vested on the last day of her employment, February 1, 2018, pursuant to the terms of a Separation and Release Agreement dated January 24, 2018 between the Company and Ms. Ramentol.
(3) Reflects the value of cash incentive awards paid under our MIC Plan as described in the “Compensation Discussion and Analysis.”
(4) Amounts reflected in this column include the following: (a) 401(k) matching contributions for each named executive officer as follows: for 2017 $0 for each named executive officer; for 2016, $2,700 for Mr. Shaw, $2,488 for Mr. Meyers, $2,700 for Ms. Ramentol; (b) the costs related to personal use of a company-owned vehicle by each named executive officer as follows: for 2017, $ 2,214 for Mr. Shaw, $4,426 for Mr. Meyers, $0 for Ms. Ramentol; for 2016, $ 2,214 for Mr. Shaw, $4,426 for Mr. Meyers, $0 for Ms. Ramentol (c) premiums paid on each named executive officer’s life insurance policy during the fiscal year as follows: for 2017, $3,027 for Mr. Shaw, $2,744 for Mr. Meyers, $3,370 for Ms. Ramentol; for 2016, $3,027 for Mr. Shaw, $2,744 for Mr. Meyers, $3,370 for Ms. Ramentol.
Oustanding Equity Awards
at Fiscal Year End December 31, 2017
2022
| Option Awards | Stock Awards | Stock Awards |
| | | | | | Equity Incentive Plan Awards: |
Name | Number of securities
underlying
unexercised
options
(#)
Exercisable
| Option exercise
price
($)
| Option expiration
date
| Number of shares,
units or units of stockother rights that have not vested (#)
| Market value of shares or units of
stock that have not
vested
($)
| Number of
shares,units or
other rights that
have not vested
(#)
| Market value of
shares, or payout units units or other
rights that have not vested (1) vested
($) |
| | | | | | | (1) |
Scott M. Shaw | 100,000 (2) | | | | | 87,500 (2) | 176,750579,000 |
| 57,174 (3) | 331,039 |
| 150,892 (4) | 873,665 |
| | |
Brian K. Meyers | 80,000 (2) | 463,200 |
| 28,588 (3) | 165,522 |
| 68,587 (4) | 14,286 (3) | 28,858397,119 |
| | |
Stephen M. Buchenot | 60,000 (2) | 347,400 |
| 28,588 (3) | 165,522 |
| 50,000 (2)48,011 (4) | 101,000 277,984 |
| | | | | | | |
Deborah M. Ramentol | | | | | | 25,000 (2) | 50,500 |
| | | | | | | |
(1) All equity award values are based on a December 31, 2017 closing stock price of $2.02.
(2) The performance-based stock vests in equal installments over two years based upon the attainment of greater than a 1.0 composite score for each year during the performance period. The terms and conditions of the Performance Shares are described in detail above in the Compensation Discussion and Analysis under the heading “Long-Term Stock Incentives.”(1) | All equity award values are based on a December 31, 2022 closing stock price of $5.79. |
(2) | Awarded on February 20, 2020, the performance-based restricted stock grant awarded to the named executive officer vested, over three years, 20%, 30% and 50%, respectively, commencing with fiscal year 2020. |
(3) The performance-based stock vest in equal installments over four years based upon the attainment of a threshold operating income margin and annual EBITDA performance criteria targets set by the Compensation Committee for each year during the performance period. The terms and conditions of the Performance Shares are described in detail above in the Compensation Discussion and Analysis under the heading “Long-Term Stock Incentives.”
(3) | Awarded on February 25, 2021, the performance-based restricted stock grant awarded to the named executive officer vests, if achieved, ratably over three years, commencing with fiscal year 2021 target. |
(4) | Awarded on February 23, 2022, the grant includes a mix 50% time-based and 50% performance-based restricted stock awarded to the named executive officer and vests ratably over three years (if achieved as to the performance-based award), commencing with the fiscal year 2022 target. |
Potential Payments upon a Termination or Change in Control
The following table summarizes the value of the termination payments and benefits that Messrs. Shaw and Meyersour named executive officers would receive upon:
| · | the executive’s Involuntary Termination (as defined below); |
the Executive’s Involuntary Termination (as defined below);
| · | a Change in Control (as defined below); or |
| · | the executive’s death or disability. |
a Change in Control (as defined below); or
the Executive’s Death or Disability.
In each case, the amounts are determined as if the trigger event occurred on December 31, 20172022 and equity is valued based on the closing stock price of $2.02$5.79 on December 31, 2017.2022. This table excludes vested account balances under our 401(k) plan, which is generally available to all of our employees. The terms of the benefits are set forth in the employment agreements of Messrs. Shaw and Meyersour named executive officers as described immediately following the table.
Payment upon Termination
at Fiscal Year End December 31, 2017
2022 | | | |
| | | |
Name | Aggregate Severance | Stock Awards | Benefits | Total | Aggregate Severance ($) | Stock Awards (1) ($) | Benefits (2) ($) | Total ($) |
(1) | ($) | ($) | |
| | (2) | (3) | | |
Scott M. Shaw | | |
Involuntary Termination | 2,000,000 | 176,750 | 17,000 | 2,193,750 | |
Involuntary Termination (3) | | 2,000,000 | 1,783,704 | 29,613 | 3,813,317 |
| | | | |
Change in Control | - | 176,750 | - | 176,750 | - | 1,783,704 | - | 1,783,704 |
| | | | |
Death or Disability (4) | 500,000 | 176,750 | - | 676,750 | 500,000 | 1,783,704 | - | 2,283,704 |
| | | | |
Termination for Cause or Resignation without Good Reason | - | - | - | - |
Brian Meyers | | |
Involuntary Termination | 1,041,250 | 129,858 | 17,500 | 1,188,608 | |
Involuntary Termination (5) | | 1,099,300 | 1,025,841 | 27,040 | 2,152,181 |
| | | | |
Change in Control | - | 129,858 | - | 129,858 | - | 1,025,841 | - | 1,025,841 |
| | | | | |
Death or Disability (4) | 255,000 | 129,858 | - | 384,858 | 269,216 | 1,025,841 | - | 1,295,057 |
| | | | |
Termination for Cause or Resignation without Good Reason | - | - | - | - |
Stephen M. Buchenot | | |
Involuntary Termination (6) | | 684,870 | 790,906 | 33,310 | 1,509,086 |
| | | | |
Change in Control | | - | 790,906 | - | 790,906 |
| | | | |
Death or Disability (4) | | 152,194 | 790,906 | - | 943,100 |
| | | | |
Termination for Cause or Resignation without Good Reason | | - | - | - |
(1)Ms. Ramentol is not included in this table due to her retirement effective February 1, 2018. Ms. Ramentol’s retirement and the terms of separation from the Company were reported in a Form 8-K filed with the SEC on January 26, 2018.
(1) | All outstanding stock options, restricted stock and performance-based restricted stock granted by the Company to the named executive officers will become fully vested and immediately exercisable upon (i) a Change in Control (as defined below); (ii) an Involuntary Termination (as defined below); or (iii) upon the executive’s death or disability. |
(2) | Includes a cash payment equal to the Company’s estimate of the employer portions of the premiums that would be necessary to continue the executive’s health care benefits coverage until the first anniversary of the executive’s date of termination. |
(3) | Consists of a lump sum payment equal to two times the sum of Mr. Shaw’s 2022 base salary and the target amount of his annual performance bonus for the fiscal year ended December 31, 2022. |
(4) | Includes an annual cash incentive compensation award under the MIC Plan for the year of termination based upon target levels. |
(5) | Consists of a lump sum payment equal to one and three-quarters times the sum of Mr. Meyer’s 2022 base salary and the target amount of his annual performance bonus for the fiscal year ended December 31, 2022. |
(6) | Consists of a lump sum payment equal to one and one-half times the sum of Mr. Buchenot’s 2022 base salary and the target amount of his annual performance bonus for the fiscal year ended December 31, 2022. |
(2) All outstanding stock options, restricted stock and performance-based restricted stock granted by the Company to the named executive officers will become fully vested and immediately exercisable upon (i) a Change in Control (as defined below), (ii) an Involuntary Termination (as defined below) or (iii) upon the executive’s death or disability.24
(3) Includes a cash payment equal to the Company’s estimate
(4) Includes an annual incentive compensation award under the MIC Plan for the year of termination based upon attainment of target levels.
Employment Agreements
The Company is a party to employment agreements with each of Messrs. Shaw, Meyers and Meyers. Ms. Ramentol was an at-will employee of the Company until her retirement on February 1, 2018.Buchenot.
Employment Agreement dated December 13, 2022 with Scott M. Shaw
The terms of the Company’s employment agreement with Mr. Shaw are summarized below.
Employment Period. The agreement provides that Mr. Shaw will serve as our President and Chief Executive Officer through December 31, 2018.2025.
Compensation and Benefits. Mr. Shaw will receive a minimum annual base salary of $500,000, will be eligible to participate in the MIC Plan and, to the extent eligible, in all of our employee benefit plans, programs and arrangements that are established for, or made available to, our senior executives. The Company provides to Mr. Shaw a vehicle for his business and personal use and pays the associated costs, including automobile insurance, parking and fuel; Mr. Shaw is responsible for all taxes related to this benefit.
Involuntary Termination. In the event of an “Involuntary Termination” (as defined below) of Mr. Shaw’s employment, in addition to Mr. Shaw’s right to receive payment of all accrued and unpaid compensation and benefits due to him through the date of termination or resignation of employment, including any accrued unpaid bonuses for a completed year, we will pay him: (1) two times the sum of (a) his base salary, as is then in effect; and (b) the target amount of the annual performance bonus for him in the year in which the termination occurs; (2) unreimbursed expenses for reasonable travel and other business expenses incurred by him through the date of termination; and (3) the estimated employer portion of premiums that would be necessary to Mr. Shaw’s coverage under the Company’s healthcare plan until the first anniversary of the date of termination (subject to proration should Mr. Shaw become insured under a subsequent healthcare plan). Mr. Shaw would receive the sum of these amounts in a lump-sum payment 60 days following his Involuntary Termination. In addition, Mr. Shaw would receive a prorated annual award under the MIC Plan for the year in which the Involuntary Termination occurs based on actual performance, payable at the time that awards are generally paid to employees for the applicable year.
Termination for Cause; Resignation Other than for Good Reason. In the event that Mr. Shaw’s employment is terminated by us for Cause or Mr. Shaw resigns from his employment other than for “Good Reason” (as defined below), we will pay him his accrued but unpaid base salary, unreimbursed expenses and employee benefits earned through the date of his termination, including, without limitation, any MIC Plan award due but not yet paid for a completed calendar year.
Death or Disability. In the event that Mr. Shaw dies or his employment is terminated as a result of his disability, we will pay him (or his estate, if applicable) his accrued but unpaid base salary and employee benefits earned through the date of his termination, including, without limitation, any MIC Plan award due but not yet paid for a completed calendar year. In addition, (i) Mr. Shaw will receive a prorated target MIC Plan award for the year of termination and (ii) all of Mr. Shaw’s outstanding stock options and restricted stock shall become fully vested, and stock options shall become immediately exercisable and remain exercisable for one year (or until the option’s normal expiration date, if earlier).
Change in Control. Upon a “Change in Control” (as defined below), we (or our successor) will continue the employment of Mr. Shaw for a period of two years commencing on the date of the Change in Control and ending on the second anniversary thereof. In addition, all of Mr. Shaw’s restricted stock and stock options will vest in full and the stock options will become immediately exercisable on the date of the Change in Control.
In the event that any payment or distribution by us to or for the benefit of Mr. Shaw pursuant to the terms of the employment agreement or otherwise would be considered a “parachute payment” and the amount of the parachute payment, after deduction of all relevant taxes, including excise taxes imposed by Section 4999 of the Internal Revenue Code, is less than the amount Mr. Shaw would receive if he was paid three times his average “base amount” less $1.00, then the aggregate amounts constituting the parachute payment will be reduced (or returned by Mr. Shaw if already paid to him) to an amount that will equal three times his average “base amount” less $1.00.
Noncompetition. Mr. Shaw is subject to a noncompetition restrictive covenant during the term of his employment and for a period of two years thereafter, although the covenant will not apply if his employment is terminated due to an Involuntary Termination.
Nonsolicitation. Mr. Shaw is subject to a nonsolicitation restrictive covenant of clients, employees and key consultants during the term of his employment and for one year thereafter.
Confidentiality. Mr. Shaw is subject to a confidentiality restrictive covenant of unlimited duration.
Waiver and Release. Our obligations upon a termination of employment under Mr. Shaw’s employment agreement are subject to Mr. Shaw executing and delivering a waiver and release of claims against us.
Employment Agreement dated December 13, 2022 with Brian K. Meyers
The terms of the Company’s employment agreement forwith Mr. Meyers are identical to those set forthcontained in Mr. Shaw’s employment agreement described above, except that: (a) Mr. Meyers will serve as Executive Vice President, Chief Financial Officer and Treasurer, and will receive a minimum annual base salary of $340,000.$358,955.00; and (b) in the event of an Involuntary Termination, Mr. Meyers will be entitled to receive a payment of one and three-quarters times the sum of (1) his annual base salary and (2) the target amount of the annual performance bonus for him in the year in which the termination of employment occurs.
Employment Agreement dated December 13, 2022 with Stephen M. Buchenot
The terms of the Company’s employment agreement with Mr. Buchenot are identical to those contained in Mr. Shaw’s employment agreement described above, except that: (a) Mr. Buchenot will serve as Executive Vice President of Campus Operations and will receive a minimum annual base salary of $304,387.43; (b) in the event of an Involuntary Termination, Mr. Buchenot will be entitled to receive a payment of one and one-half times the sum of (1) his annual base salary and (2) the target amount of the annual performance bonus for him in the year in which the termination of employment occurs; and (c) Mr. Buchenot is not provided the use of an automobile.
In the case of all employment agreements, the following definitions apply:
“Involuntary Termination” generally means the termination of the executive’s employment by the executive for Good Reason or by the Company without Cause.
Prior to a “Change in Control” (as defined below), “Cause” generally means any of the following: (i) the executive’s willful failure to perform his duties in any material respect, (ii) malfeasance or gross negligence in the performance of his duties, (iii) the executive’s conviction of a felony, (iv) the executive’s intentional or reckless disclosure of confidential information, (v) the executive’s commission of an act of sexual harassment that would normally constitute grounds for termination, or (vi) any other act or omission by the executive which is materially injurious to the financial condition or business reputation of the Company or any of its affiliates. The definition also requires that the executive be given 30 days’ notice to cure a breach of (i) and (ii) above. After a Change in Control, Cause would not include (v) and (vi) above.
“Good Reason” generally means the occurrence of any of the following without the executive’s written consent: (i) a reduction in the executive’s base salary or target annual incentive compensation award; (ii) an adverse change in the executive’s title, authority, duties or responsibilities; (iii) the relocation of the executive’s principal place of employment to a location more than 10 miles from West Orange, New Jersey; (iv) a failure by the Company to pay material compensation when due; or (v) a material breach of the executive’s employment agreement by the Company. The definition also requires that the Company be given 10 days’ notice to cure any Good Reason that is susceptible to cure.
“Change in Control” generally means any of the following: (i) when a person directly or indirectly becomes the beneficial owner of 25% or more of either (1) the then outstanding common stockCommon Stock or (2) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (other than any acquisition directly from the Company, by the Company, or by an employee benefit plan sponsored by the Company); (ii) when, during any period of 24 consecutive months, the individuals who constitute the boardBoard of directorsDirectors of the Company cease to constitute at least a majority thereof; (iii) when the shareholders approve a reorganization, merger or consolidation of the Company without the consent or approval of a majority of the boardBoard of directors;Directors; (iv) when there is a consummation of a merger, amalgamation or consolidation of the Company with any other corporation, the issuance of voting securities of the Company in connection with such a transaction or the sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another corporation (unless there is no significant change in the beneficial ownership of the common stock)Common Stock); or (v) a complete liquidation or dissolution of the Company or the sale or other disposition of all or substantially all of the assets of the Company.
Separation Agreement with Deborah M. Ramentol
In connection with her retirement from the Company on February 1, 2018, Ms. Ramentol and the Company entered into a Separation and Release Agreement dated January 24, 2018 (the “Separation Agreement”), pursuant to which, in consideration for a release of claims, Ms. Ramentol received a lump sum cash payment of $284,387.25, subject to withholding. In addition, pursuant to the Separation Agreement, the Company will pay the employer-portion of the monthly premiums due for continuation of medical, dental and vision plan coverage for Ms. Ramentol and her family under COBRA through January 31, 2019 and 50,000 shares of restricted stock awarded by the Company to Ms. Ramentol became fully vested on the effective date of Ms. Ramentol’s retirement from the Company.
The following chart summarizes the compensation of the Company’searned by non-employee directors during the fiscal year ended December 31, 2017. Following the table is a discussion of material factors related to the information disclosed in the table.directors:
Director Compensation
for Fiscal Year End December 31, 20172022
Name | Fees Earned ($) | Stock Awards (1) ($) | Total ($) |
J. Barry Morrow | 95,000 | 105,000 | 200,000 |
John A. Bartholdson | 79,000 | 60,000 | 139,000 |
James J. Burke, Jr. | 71,000 | 60,000 | 131,000 |
Kevin M. Carney | 70,000 | 60,000 | 130,000 |
Ronald E. Harbour | 67,000 | 60,000 | 127,000 |
Michael A. Plater | 69,000 | 60,000 | 129,000 |
Felecia J. Pryor | 67,000 | 60,000 | 127,000 |
Carlton E. Rose | 69,000 | 60,000 | 129,000 |
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Total ($) |
| | (1) | |
J. Barry Morrow | 89,000 | 95,000 | 184,000 |
Alvin O. Austin | 60,500 | 55,000 | 115,500 |
Peter S. Burgess | 70,000 | 55,000 | 125,000 |
James J. Burke, Jr. | 52,000 | 55,000 | 107,000 |
Celia H. Currin | 65,000 | 55,000 | 120,000 |
Ronald Harbour | 55,000 | 55,000 | 110,000 |
(1) | Represents the grant date fair value of a restricted stock awardsaward granted on May 5, 2017.2022 to each of the Directors. The fair valuesvalue of these grants werethis grant was determined in accordance with FASB ASC Topic 718 (excluding the effect of estimated forfeitures) as determined based on applying the assumptions used in the Company’s financial statements. See Note 110 to the audited consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2017,2022, regarding assumptions underlying the valuation of equity awards. These grants vest on the first anniversary of the award date, May 5, 2018. |
Fiscal year 2022 Compensation. Each of the Company paid each of its non-employee directors earned an annual retainer of $40,000$55,000 for services to the Company. In addition, each non-employee director received $1,500 per board meeting attended in person or by telephone. Non-employee directors on committees of the board each received an additional payment of $1,500 for each committee meeting attended on a day other than the day of a board meeting for which that director has been compensated. The Audit CommitteeCompany and J. Barry Morrow, our Non-Executive Chair, received an additional $15,000 annual retainer of $40,000.
In addition to their annual retainers as members of the Board, members of the Audit Committee earned an additional annual retainer of $8,000 except in the case of the Audit Committee Chair who earned an annual retainer of $15,000 and the chairpersonsmembers of each of the Nominating and Corporate Governance Committee and the Compensation Committee received an additional $10,000 annual retainer.
J. Barry Morrow, our Non-Executive Chairman, receivedwho earned an additional annual retainer of $6,000 except in the case of the Chairs of such Committees who, in each case, earned an annual retainer of $10,000.
Non-employee directors are also eligible to receive awards of shares of restricted common stockCommon Stock under the Amended and Restated 2005 Non-Employee Directors Restricted Stock2020 Long-Term Incentive Plan as compensation for their services as directors.
Annual Grants of Restricted Stock. On the date of each annual meeting of shareholders, each non-employee director receives an award of shares of restricted stockCommon Stock equal to $55,000$60,000 and the Chair receives $105,000 (based on the fair market value of a share of common stockthe Company’s Common Stock on the date of grant) for service as a director of the Company, provided that such non-employee director continues to serve as a director of the Company immediately after such annual meeting.
On May 5, 2017,2022, each non-employee director received 9,009 shares of restricted Common Stock, while Mr. Morrow received 33,68815,766 shares of restricted common stock and each other non-employee director received 19,504 shares of restricted common stock, whichCommon Stock. The restricted stock awards will vest in full on May 5, 2018,2023, the first anniversary of the grant date. The per share fair market value of a share of the Company’s common stockCommon Stock on May 5, 20172022, based on the closing price of the Common Stock on such date, was $2.82.$6.66.
The following table shows, for the last two fiscal years, the total compensation paid to our named executive officers as reflected in our Summary Compensation Table (the “SCT”), “compensation actually paid” to our named executed officers (as determined in accordance with applicable rules), our total shareholder return (“TSR”) and our net income.
The information provided under the heading “Pay versus Performance” shall not be considered “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate it by reference into a filing.
Year | Total Compensation Per SCT Paid to Principal Executive Officer (1) ($) | Compensation Actually Paid to Principal Executive Officer (2) ($) | Average Compensation Total for Non-Principal Executive Officer - NEOs (3) ($) | Average Compensation Actually Paid to Non-Principal Executive Officer - NEOs (4) ($) | Value of Initial Fixed $100 Investment Based on Total Shareholder Return (5) ($) | Net Income (in thousands) (6) ($) |
2022 | 1,740,984 | 842,209 | 824,827 | 386,445 | 89 | 12,634 |
2021 | 1,693,608 | 1,996,032 | 883,424 | 1,064,992 | 115 | 34,718 |
(1) | The dollar amounts reported are the amounts of total compensation reported for Scott Shaw, our President and Chief Executive Officer, recognized as our Principal Executive Officer for these purposes for each corresponding year in the “Total” column of the Summary Compensation Table. |
(2) | The dollar amounts reported represent the amount of “compensation actually paid” to Mr. Shaw, as computed in accordance with Item 402(v) of Regulation S-K. In accordance with the requirements of Item 402(v) of Regulation S-K, the following table sets forth the adjustments made to Mr. Shaw’s total compensation for each year to determine the “compensation actually paid”. Mr. Shaw holds no options, no awards were modified during the year and no dividends or other earnings were paid during the year prior to the vesting date of an award. |
Adjustments to Determine “Compensation Actually Paid” to the Principal Executive Officer |
Year | Total Compensation Per SCT ($) | Deduct Amounts Reported as Stock Awards in SCT( $) | Add Year-end Value of Unvested Equity Awards Granted in Year ($) | Change in Value of Unvested Equity Awards Granted in Prior Years ($) | Change in Value of Equity Awards Granted in Prior Years Which Vested in Year ($) | Deduct Prior Year-end Fair Value of Awards Granted in Prior Years That Failed to Meet the Vesting Conditions in Year * ($) | Total Compensation Actually Paid ($) |
2022 | 1,740,984 | (1,100,000) | 873,665 | (264,053) | (6,979) | (401,408) | 842,209 |
2021 | 1,693,608 | (500,000) | 640,652 | 180,699 | (18,927) | - | 1,996,032 |
In 2018, the non-employee directors advised the full board that they believed it was in the best interests of the Company that they forgo the 2018 annual award of shares of restricted stock for the financial benefit of the Company. The award would otherwise be awarded in May 2018 with vesting on the anniversary date of the grant.
| * | While the vesting conditions were not met during 2022, the restricted stock award may nevertheless vest if the financial performance of a subsequent year within the applicable award period exceeds the target by an amount at least equal to the 2022 shortfall on a cumulative basis. |
(3) | The dollar amounts reported represent the average of the amounts reported for our named executive officers, NEOs, excluding Mr. Shaw, in the “Total” Column of the Summary Compensation Table for each corresponding year. The NEOs, excluding Mr. Shaw, included for purposes of calculating the average amounts in each applicable year are Brian K. Meyers and Stephen M. Buchenot. |
All(4) | The dollar amounts reported represent the average of the amounts of “compensation actually paid” to our NEOs, excluding Mr. Shaw, as computed in accordance with Item 402(v) of Regulation S-K. In accordance with the requirements of Item 402(v) of Regulation S-K, the following table sets forth the adjustments made to our NEOs’ total compensation, excluding Mr. Shaw for each year to determine the “compensation actually paid”. Neither of Messrs. Meyers or Buchenot holds any options, no awards were modified during the year and no dividends or other earnings were paid during the year prior to the vesting date of an award. |
Adjustments to Determine Average “Compensation Actually Paid” to the Non-Principal Executive Officer NEOs |
Year | Average Compensation Per SCT ($) | Deduct Amounts Reported as Stock Awards in SCT ($) | Add Year-end Value of Unvested Equity Awards Granted in Year ($) | Change in Value of Unvested Equity Awards Granted in Prior Years ($) | Change in Value of Equity Awards Granted in Prior Years Which Vested in Year ($) | Deduct Prior Year-end Fair Value of Awards Granted in Prior Years That Failed to Meet the Vesting Conditions in Year * ($) | Average Compensation Actually Paid ($) |
2022 | 824,827 | (425,000) | 337,552 | (165,627) | (5,948) | (179,358) | 386,446 |
2021 | 883,425 | (250,000) | 320,326 | 118,731 | (7,490) | - | 1,064,992 |
| * | While the vesting conditions were not met during 2022, the restricted stock award may nevertheless vest if the financial performance of a subsequent year within the applicable award period exceeds the target by an amount at least equal to the 2022 shortfall on a cumulative basis. |
(5) | The amounts represent the value of an initial fixed investment of $100 and are calculated by dividing the sum of (i) the cumulative amount of dividends for the measurement period, assuming dividend reinvestment, and (ii) the difference between the closing stock price of the Company’s Common Stock at the end and at the beginning of the measurement period, by the closing stock price of our Common Stock at the beginning of the measurement period. The closing stock price of the Company’s Common Stock on the last trading day in December in each of 2020, 2021 and 2022 was $6.50, $7.47 and $5.79, respectively. There were no dividends in any of such years. |
(6) | The dollar amounts reported represent the amount of net income reflected in our consolidated audited financial statements for the applicable year. |
Analysis of the grant date. ThereInformation Presented in the Pay Versus Performance Table
As described in more detail in the section “Compensation Discussion and Analysis,” the Company’s executive compensation program is no vesting period oncomprised of a variety of components including a performance-based approach. While the rightCompany utilizes several performance metrics to vote oralign executive compensation with Company performance, not all of these are covered by the rightPay versus Performance table. Further, while the Company seeks to receive dividends on these shares.incentivize long-term performance, this is not necessarily aligned with “compensation actually paid” (as computed in accordance with Item 402(v) of Regulation S-K) for a particular year. In accordance with Item 402(v) of Regulation S-K, the Company is providing the following descriptions of the relationships between information presented in the Pay versus Performance table.
Compensation Actually Paid and Cumulative TSR
As reflected by the following graph, the amount of “compensation actually paid” to Mr. Shaw and the average amount of “compensation actually paid” to the Company’s NEOs as a group (excluding Mr. Shaw) is aligned with the Company’s Cumulative Total Shareholder Return (“TSR”) over the two years presented in the Pay versus Performance table demonstrating the direct correlation between executive compensation and Company performance.
Compensation Actually Paid and Net Income
As reflected by the following graph, the amount of “compensation actually paid” to Mr. Shaw and the average amount of “compensation actually paid” to the Company’s NEOs as a group (excluding Mr. Shaw) is generally aligned with the Company’s net income over the two years presented in the Pay versus Performance table. The Company uses net income (as well as adjusted EBITDA) as a performance measure in its overall executive compensation program, this measure is directly correlated with “compensation actually paid”.
The Audit Committee assists the boardBoard of directorsDirectors in fulfilling its oversight responsibilities with respect to the Company’s financial reporting process by monitoring, among other matters, the quality and integrity of the Company’s financial statements,statements; the independence and performance of Deloitte & Touche LLP, the Company’s independent registered public accounting firm,firm; and the performance of the Company’s internal auditors. Management has primary responsibility for preparing the financial statements and for the reporting processes, including the design and maintenance of the Company’s system of internal controls. The independent registered public accounting firm is responsible for auditing the Company’s consolidated financial statements and opining upon the effectiveness of internal control over financial reporting in accordance with the standards of the Public Company Accounting Oversight Board (“PCAOB”). The Audit Committee is solely responsible for the compensation, appointment and oversight of the Company’s independent registered public accounting firm.
In this context, the Audit Committee has met and held discussions with management, the independent registered public accounting firm and the internal auditors, separately and together, with and without management present, regarding the Company’s audited consolidated financial statements as of December 31, 2017,2022, and for the year then ended and regarding the Company’s internal controls. Management represented to the Audit Committee that the Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles in the U.S. The Audit Committee also discussed with the independent registered public accounting firm the matters required to be discussed by PCAOB Interim Auditing Standard No. 16 (1301 (formerly Auditing Standard No. 61), Communications with Audit Committees).Committees. Further, the Audit Committee discussed with the internal auditors the Company’s plans for and scope of internal audits, identification of audit risks and results of audit activities.
The Audit Committee reviewed and discussed with the independent registered public accounting firm the auditor’s independence from the Company and its management. As part of that review, the Company’s independent registered public accounting firm submitted to the Audit Committee the written disclosures and the letter required by PCAOB Rule 3526 (Independence Discussions with Audit Committees) in which Deloitte & Touche LLP affirmed its independence from the Company. Further, the Audit Committee discussed with Deloitte &Touche& Touche LLP the firm’s independence and considered whether the firm’s provision of non-audit services to the Company was compatible with maintaining the firm’s independence. The Audit Committee concluded that Deloitte & Touche LLP is independent from the Company and its management.
Based upon the considerations described above and subject to the limitations upon the role and responsibilities of the Audit Committee as set forth in the Audit Committee’s charter, the Audit Committee recommended to the boardBoard of directorsDirectors that the audited consolidated financial statements for the year ended December 31, 2017,2022 be included in the Company’s 20172022 Annual Report on Form 10-K.Report.
| AUDIT COMMITTEE |
| Peter S. Burgess, Chair |
| Celia H. CurrinKevin M. Carney, Chair |
| RonaldJohn A. Bartholdson |
| Michael A. Plater |
| Carlton E. HarbourRose |
PROPOSAL 2:NON-BINDING ADVISORY VOTE ON THE COMPANY’S COMPENSATION OF NAMED EXECUTIVE OFFICERS
Pursuant to the rules of the Securities and Exchange Commission adopted under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, we are providing shareholders with a proposal to approve, on a non-binding advisory “say-on-pay” vote to approvebasis, the compensation of our named executive officers as disclosed in the Compensation Discussion and Analysis and tabular and narrative disclosures of this proxy statement.statement (the “say-on-pay” vote).
We encourage shareholders to read the Compensation Discussion and Analysis beginning on page 914 of this proxy statement, which describes how our executive compensation policies and procedures operate and are designed to achieve our compensation objectives, as well as the Summary Compensation Table and other related compensation tables and narrative which provide detailed information on the compensation of our named executive officers. The Compensation Committee and the boardBoard of directorsDirectors believe that the policies and procedures articulated in this proxy statement are effective in achieving our goals.
The board unanimouslyBoard recommends a vote for the following resolution:
“RESOLVED, that the shareholders hereby approve the compensation of the named executive officers as disclosed pursuant to Item 402 of Regulation S-K under the Securities Act of 1933, as amended, including the Compensation Discussion and Analysis, the accompanying compensation disclosure tables and any related narrative disclosure in this proxy statement.”
Although the vote on this Proposal 2 is advisory and non-binding, the Compensation Committee and the boardBoard of Directors will review the voting results on the proposal and will consider shareholder views in connection with our executive compensation program. At the 20172022 Annual Meeting, approximately 76%98% of the votes cast on the say-on-pay proposal voted in favor of our NEO’sNEOs’ compensation.
Required Vote
AThe affirmative vote of a majority of the votes cast at the annual meeting will beby holders of our Common Stock is required to approve, on a non-binding advisory basis, the compensation of the Company’s named executive officers.
Our boardBoard of directors unanimouslyDirectors recommends a vote FOR“FOR” the proposal to approveapproval, on a non-binding advisory basis, of the compensation of the named executive officers described in this proxy statement. Proxies
PROPOSAL 3:PROPOSAL 3: NON-BINDING ADVISORY VOTE ON FREQUENCY OF SAY-ON-PAY VOTE Pursuant to the rules of the Securities and Exchange Commission adopted under the Dodd-Frank Act, we are required, at least once every six years, to afford our shareholders the opportunity to cast an advisory vote on how often our shareholders shall have a non-binding advisory vote on the compensation of the named executive officers, such as Proposal 2 above. Accordingly, we are asking our shareholders to vote on whether future non-binding advisory votes on the named executive officers’ compensation should occur every year, every two years, or every three years. In lieu of voting for one of these options, shareholders may also abstain from voting. Our shareholders last voted on the frequency of the advisory vote on executive compensation in 2017, when they recommended that such votes be held on an annual basis.
After careful consideration, the Board of Directors believes it is appropriate for executive compensation to continue to be submitted to an advisory vote of shareholders on an annual basis. An annual advisory vote on the compensation of our named executive officers will allow us to continue to obtain our shareholders’ views with respect to the compensation of our named executive officers and our executive compensation program and practices on a consistent basis. Further, a vote every year is consistent with the Company’s commitment to engage in regular dialogue with our shareholders on corporate governance matters, including our executive compensation philosophy, policies and programs.
For the reasons discussed above, the Board of Directors recommends that future non-binding advisory votes on executive compensation be conducted every year. While the Board of Directors recommends that future non-binding advisory votes on executive compensation be conducted every year, shareholders are not voting to approve or disapprove the Board’s recommendation. Rather, shareholders are being asked to vote on whether the advisory vote on executive compensation should be conducted every year, every two years or every three years Shareholders may choose among the three choices or may abstain from voting on this proposal.
While this advisory vote is required by Section 14A of the Exchange Act, the voting result is not binding on our Board of Directors and may not be construed as overruling any decision by our Board of Directors. However, the Board of Directors and the Compensation Committee value the views of our shareholders and will review and give serious consideration to the outcome of the vote when making the determination as to the frequency of future say-on-pay votes. It is expected that the next shareholder advisory vote as to the frequency of presenting say-on-pay advisory votes will occur at the 2029 annual meeting of shareholders.
Required Vote
The choice receiving the highest number of votes will be deemed the choice of the shareholders.
The Board of Directors recommends a vote for a frequency of every YEAR for future non-binding advisory votes on the compensation of the Company’s named executive officers.
PROPOSAL 4:APPROVAL OF AN AMENDMENT TO THE LINCOLN EDUCATIONAL SERVICES CORPORATION 2020 LONG-TERM INCENTIVE PLAN At its February 23, 2023 meeting, the Board of Directors approved, subject to shareholder approval, amending the Company’s 2020 Long-Term Incentive Plan (the “LTIP”) to increase the aggregate number of shares available under LTIP from 2,000,000 shares to 4,000,000 shares (an increase of 2,000,000 shares). The LTIP was adopted in 2020. As of the Record Date, there were only 188,765 shares of Common Stock available for issuance under the LTIP.
The Board of Directors believes that the use of equity awards as a component of its compensation program is essential to its continued success and vital to its ability to attract and retain highly skilled employees and that incentive compensation plans like the LTIP are an important attraction, retention and motivation tool for participants in the plan. Our equity awards foster an ownership culture among employees by aligning the financial interests of employees with those of our shareholders. Equity awards also help motivate employees to perform at peak levels because the value of these awards is linked to the Company’s long-term performance. The Board of Directors believes that the number of shares currently available under the LTIP does not give the Company sufficient authority and flexibility to adequately provide for future incentives.
Based solely on the closing price of the Company’s Common Stock, as reported on the Nasdaq Global Select Market on March 16, 2023, the maximum aggregate market value of the 2,000,000 additional shares that could be granted under the amendment to the LTIP is $11.2 million.
The Board recommends that the Company’s shareholders approve the amendment of the LTIP because it believes that employee ownership in the Company serves the best interests of all shareholders by promoting a focus on long-term increase in shareholder value. The affirmative vote of a majority of the shares represented and entitled to vote at the 2020 Annual Meeting is required to approve this amendment to the LTIP.
The following is a summary of the principal provisions of the LTIP, and is not intended to be a complete description of all its terms and provisions. This description is qualified by reference to the LTIP document, which is attached to this proxy as Annex A.
Summary Description of the LTIP
Purpose
The purpose of the LTIP is to provide an incentive to certain directors, officers, employees and consultants of the Company and its subsidiaries to increase their interest in the Company’s success by offering them an opportunity to obtain a proprietary interest in the Company through the grant of equity-based awards.
Administration
The LTIP is generally administered by the Compensation Committee. The Compensation Committee has the full authority to construe and interpret the LTIP subject to the LTIP’s terms and conditions, including the authority to determine who will be granted awards, the terms and conditions of awards, and the number of shares subject to, or the cash amount payable with respect to, an award. The Compensation Committee also may delegate its authority to grant awards (other than to executive officers) to a subcommittee(s) or appropriate officers of the Company.
Eligibility
The Compensation Committee has the authority under the LTIP to select the individuals who will be granted awards from among the officers, employees, directors, consultants, advisors, and independent contractors of the Company or any of its subsidiaries. Currently, officers and employees of the Company and its subsidiaries (including all of the Company’s named executive officers), and each of the eight members of the Board of Directors who are not employed by the Company or any of its subsidiaries (“Non-Employee Directors”), are considered eligible under the LTIP.
Number of Shares Available for Issuance
If amended pursuant to this proposal, the maximum number of shares of our common stock that may be issued for all purposes under the LTIP will be increased to an aggregate of 4,000,000 shares. Shares issued under the LTIP may be authorized and unissued shares or may be issued shares that have been reacquired by the Company. As of the Record Date, there were only 188,765 shares of Common Stock available for issuance under the LTIP.
Shares covered by awards granted under the LTIP that are executedforfeited or cancelled or otherwise expire without having been exercised or settled generally will become available for issuance pursuant to a new award. In addition, if an award is settled through the payment of cash or other non-share consideration, the shares subject to the award will become available for issuance pursuant to a new award. Shares that are tendered or withheld to pay the exercise price of an award or to satisfy tax withholding obligations will also be available for issuance pursuant to a new award. Notwithstanding the above, upon the cancellation of a stock appreciation right granted in tandem with an option or the cancellation of an option granted in tandem with a stock appreciation right no shares will become available for issuance pursuant to a new award.
Types of Awards; Limits
The Compensation Committee may grant the following types of awards under the Plan: options; restricted shares; restricted share units; performance share units; stock appreciation rights; and returnedother awards based on, or related to, shares of Company common stock. However, the LTIP contains various limits with respect to the types of awards, as follows:
the maximum number of shares that may be issued pursuant to options and stock appreciation rights granted to any eligible individual in any calendar year is 300,000 shares; and
the maximum amount of restricted shares, restricted share units, and performance share units that may be awarded to any eligible individual in any calendar year is five million dollars ($5,000,000) measured as of the date of grant (with respect to awards denominated in cash) and 300,000 shares measured as of the date of grant (with respect to awards denominated in shares).
Stock Options
A stock option is the right to acquire shares of Company common stock at a fixed exercise price for a fixed period of time (generally up to ten years). The exercise price is set by the Compensation Committee but cannot be less than 100% of the fair market value of Company common stock on the date of grant. The term of a stock option may not exceed ten years.
The Compensation Committee may grant either incentive stock options or nonqualified stock options. As described in detail below, incentive stock options entitle the participant, but not the Company, to preferential tax treatment. The Compensation Committee determines the rules and procedures for exercising options. The exercise price may be paid in cash, shares, a combination of cash and shares, through net settlement (meaning the Company withholds shares otherwise issuable upon exercise to pay the exercise price), or by any other means authorized by the Compensation Committee, including cashless exercise, a procedure whereby vested shares covered by the option are sold by a broker and a portion of the sale proceeds are delivered to the Company to pay the exercise price.
Stock Appreciation Rights
Stock appreciation rights are awards that entitle the participant to receive an amount equal to the excess, if any, of the fair market value on the exercise date of the number of shares for which the stock appreciation right is exercised over the grant price. The grant price is set by the Compensation Committee, but cannot be less than 100% of the fair market value of Company common stock on the date of grant. Payment to the participant on exercise may be made in cash or shares, as determined by the Compensation Committee. If the Compensation Committee determines at the time of grant that a stock appreciation right may be settled only in shares, the term may not exceed ten years. The Compensation Committee may grant stock appreciation rights in tandem with an option.
Restricted Shares
Restricted share awards are shares of Company common stock that are subject to cancellation, restrictions, and vesting conditions, as determined by the Compensation Committee. The shares may be either granted or sold to the participant.
Restricted Share Units
Restricted share units entitle a participant to receive one or more shares of Company common stock in the future upon satisfaction of vesting conditions determined by the Compensation Committee. The Compensation Committee determines whether restricted share units will be voted FORsettled through the delivery of shares, cash of equivalent value, or a combination of shares and cash.
Performance Share Units
Performance share units entitle a participant to receive a target number of shares if specified performance targets are achieved during a specified performance period. The Compensation Committee sets the performance targets and performance period at the date of grant. When the Compensation Committee determines the performance targets have been satisfied, performance share units are settled through the delivery of shares of Company common stock, cash of equivalent value, or a combination of cash and shares.
Other Awards
The Compensation Committee also may grant other forms of awards that proposal, exceptgenerally are based on the value of shares of Company common stock. These other awards may provide for cash payments based in whole or in part on the value or future value of shares, may provide for the future delivery of shares to the participant, or may provide for a combination of cash payments and future delivery of shares.
Performance-Based Awards
The Compensation Committee may determine whether any award is intended to be performance-based compensation. Any awards designated to be performance-based compensation will be conditioned on the achievement of one or more specified performance goals established by the Compensation Committee at the date of grant. The performance goals will be comprised of specified levels of one or more of the following performance criteria, as the Compensation Committee deems appropriate:
cash flow or cash flow on investment;
pre-tax or post-tax profit levels or earnings; net operating profit after tax;
return on investment; net operating profit after tax;
earned value added; earned value added expense reduction levels;
free cash flow; free cash flow per share;
earnings per share; net earnings per share;
return on assets; return on net assets; return on equity; return on capital;
return on sales; sales growth; sales volume;
growth in managed assets;
operating margin; operating income; operating cost management;
economic profit; profit in excess of cost of capital;
return on invested capital;
total stockholder return or stock price appreciation;
market share, market penetration or other performance measures with respect to specific designated products or product groups and/or specific geographic areas;
reduction of losses, loss ratios or expense ratios;
reduction in fixed costs;
productivity improvements;
inventory turnover measurements;
customer satisfaction based on specified objective goals or a Company-sponsored customer survey;
revenue; revenue before deferral; net revenues; operating revenues; or
in each case determined in accordance with generally accepted accounting principles consistently applied on a business unit, subsidiary or consolidated basis or any combination thereof.
The performance goals may be described in terms of objectives that are related to the individual participant or objectives that are Company-wide or related to a subsidiary, division, department, region, function or business unit. Performance goals may be measured on an absolute or cumulative basis, or on the basis of percentage of improvement over time. Further, performance goals may be measured in terms of Company performance (or performance of the applicable subsidiary, division, department, region, function or business unit) or measured relative to selected peer companies or a market index.
The applicable performance goals will be established by the Compensation Committee within 90 days following the commencement of the applicable performance period or as otherwise determined by the Company. Each participant will be assigned a target number of shares of Company common stock or cash value payable if target performance goals are achieved. The Compensation Committee will certify the attainment of the performance goals at the end of the applicable performance period. If a participant’s performance exceeds such participant’s target performance goals, the number of shares of Company common stock or the cash value payable under the performance-based award may be greater than the target number, but in no event can the amounts exceed the award limits described above. In addition, unless otherwise provided in an award agreement, the Compensation Committee may reduce the number of shares or cash value payable with respect to a performance-based award even if the performance objectives are satisfied.
Amendment and Termination; Term
Generally, the Board may terminate, amend, modify, or suspend the LTIP at any time. The Company will obtain shareholder approval of any termination, amendment, modification, or suspension if required by applicable law or NASDAQ rule. Subject to limited exceptions, no termination, amendment, modification, or suspension may materially impair the rights of a participant with respect to an outstanding award without the participant’s consent. Unless terminated earlier, the Plan will expire in 2030, on the tenth anniversary of the date on which it was approved by shareholders, and no additional awards may be granted after this date. Awards granted prior to this date will remain outstanding in accordance with their terms.
Change of Control
In the event of a transaction constituting a change in control of the Company (as determined by the Compensation Committee), the Compensation Committee may take steps it considers appropriate with respect to outstanding awards, including accelerating vesting, modifying an award to reflect the transaction, providing that outstanding awards will be assumed, or substituted for, by the surviving corporation or permitting or requiring participants to surrender options and stock appreciation rights in exchange for a cash payout equal to the difference between the highest price paid in the transaction and the exercise price. The treatment may be specified in the award document or determined at a subsequent time. If a participant’s employment is terminated within one year following a change in control, any outstanding awards to that participant will become fully vested and exercisable.
Other Provisions
Dividends and Dividend Equivalents. Participants are not currently entitled to receive dividends for unvested restricted stock, although under the Plan the Compensation Committee has discretion to provide participants with the right to receive dividends (or payments equivalent to dividends) or interest with respect to unvested restricted stock and other outstanding awards. Any such dividends or interest may either be paid currently or may be deemed to have been reinvested in shares, and may be settled in shares, cash, or a combination of cash and shares. No dividends or dividend equivalents will be paid with respect to options or stock appreciation rights.
Shareholder Rights. A participant will have no rights as a shareholder with respect to shares covered by an award until the date the participant or his nominee becomes the holder of record of such shares. Generally, no adjustment will be made for dividends or other rights for which the record date is prior to such date.
Repricing of Options and Stock Appreciation Rights. Options and stock appreciation rights may not be repriced. To reprice an award means (i) to reduce the exercise or grant price, (ii) to cancel outstanding options or stock appreciation rights in exchange for cash or other awards or (iii) to grant a new award with a lower exercise or grant price in exchange for the cancellation of the original award. This provision will not apply if shareholder approval is obtained or such reduction, cancellation or grant is in connection with a corporate transaction involving the Company.
Adjustments or Changes in Capitalization. In the event of a stock split, reverse stock split, stock dividend, extraordinary cash dividends, recapitalization, reorganization, liquidation, merger or other similar corporate event or distribution of stock or property affecting the shares of Company common stock, the aggregate number of shares of available for issuance under the Plan, the various Plan limits, and the number of shares subject to, and exercise or grant price of, outstanding awards will be appropriately adjusted by the Compensation Committee in order to preserve the benefits or potential benefits intended to be made available to the participants.
Limited Transferability. Generally, an award may only be transferred upon the participant’s death to a designated beneficiary or in accordance with the participant’s will or the laws of descent or distribution, and pursuant to a domestic relations order. The Compensation Committee also may permit limited transferability, generally to a participant’s family member, a trust for the benefit of a family member, a charitable organization, or any other individual or entity permitted under law and the rules of the exchange that lists the applicable award.
New Plan Benefits
The Company has not approved any awards that are conditioned upon shareholder approval of the amendment of the LTIP. Except as described below, the Company is not currently considering any other specific award grants under the LTIP.
The number of awards that an individual may receive under the LTIP is in the sole discretion of the Compensation Committee and therefore cannot be determined in advance. If the amendment to the LTIP had been in effect in fiscal year 2022, we expect that our award grants for fiscal year 2022 would not have been substantially different from those actually made in that year. For information regarding stock-based awards granted to the named executive officers during fiscal year 2022, see the “Executive Compensation” section of this proxy statement.
U.S. Federal Income Tax Consequences
Nonqualified Stock Options and Stock Appreciation Rights. A participant will not recognize taxable income upon the grant of a nonqualified stock option or stock appreciation right. Upon exercise, the participant will recognize ordinary income equal to the amount the fair market value of the shares on the exercise date exceeds the exercise or grant price. Upon subsequent sale of the acquired shares, any additional gain or loss will be capital gain or loss, long-term if the shares have been held for more than one year.
Incentive Stock Options. A participant will not recognize taxable income when an incentive stock option is granted or exercised. However, the excess of the fair market value of the covered shares over the exercise price on the date of exercise is an item of tax preference for alternative minimum tax purposes. If the participant exercises the option and holds the acquired shares for more than two years following the date of option grant and more than one year after the date of exercise, the difference between the sale price and exercise price will be taxed as long-term capital gain or loss. If the participant sells the acquired shares before the end of the two-year and one-year holding periods, he or she generally will recognize ordinary income at the time of sale equal to the fair market value of the shares on the exercise date (or the sale price, if less) minus the exercise price of the option. Any additional gain will be capital gain, long-term if the shares have been held for more than one year.
Restricted Shares, Restricted Share Units, Performance Share Units. A participant will not recognize taxable income upon the grant of restricted shares, restricted shares units, or performance share units. Instead, the participant will recognize ordinary income at the time of vesting equal to the fair market value of the shares (or cash) received minus any amounts the participant paid. Any subsequent gain or loss will be capital gain or loss, long-term if the shares have been held for more than one year. For restricted shares only, the participant may instead elect to be taxed at the time of grant. If the participant makes such an election, the one year long-term capital gains holding period begins on the date of grant.
Tax Effect for the Company. The Company generally will receive a deduction for any ordinary income recognized by a participant with respect to an award. However, special rules limit the deductibility of compensation paid to certain officers. Under Section 162(m) of the U.S. tax code, the annual compensation paid to covered employees may not be deductible to the extent that particular proxies contain instructionsit exceeds $1,000,000. Covered employees subject to the limit generally include the Company’s Principal Executive Officer, Principal Financial Officer and any other person who was one of the Company’s three highest-paid officers for the year
The foregoing is not to be considered as tax advice to any person who may be a participant, and any such persons are advised to consult their own tax counsel. The foregoing is intended to be a general discussion of U.S. Federal tax consequences, and does not cover other aspects of an individual’s unique tax situation, such as the tax consequences of deferred compensation or state and local taxes.
Required Vote
The affirmative vote against,of a majority of the votes cast by holders of our Common Stock (in person via attendance at the Annual Meeting or by proxy) is required to abstain from voting with regardapprove the amendment to that proposal.the Lincoln Educational Services Corporation 2020 Long-Term Incentive Plan.
The Board of Directors recommends a vote “FOR” the proposal to approve the amendment to the Company’s LTIP as described above.
PROPOSAL 3: 5:RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has appointed Deloitte & Touche LLP, which has served as the Company’s independent registered public accounting firm since 1999, to be the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018.2023. Deloitte & Touche LLP has advised the Company that it does not have any direct or indirect financial interest in the Company. Representatives of Deloitte & Touche LLP are expected to attend the annual meetingAnnual Meeting and will be given the opportunity to make a statement if they choose to do so. They will also be available to respond to appropriate questions.
Before appointing Deloitte & Touche LLP, the Audit Committee carefully considered Deloitte & Touche LLP’s qualifications, including the firm’s performance as independent registered public accounting firm for the Company in prior years and its reputation for integrity and competence in the fields of accounting and auditing. The Audit Committee also considered whether Deloitte & Touche LLP’s provision of non-audit services to the Company is compatible with its independence from the Company.
Shareholders will be asked at the annual meetingAnnual Meeting to ratify the appointment of Deloitte & Touche LLP. If the shareholders ratify the appointment, the Audit Committee may still, in its discretion, appoint a different independent registered public accounting firm at any time during 20182023 if it concludes that such a change would be in the best interests of the Company. If the shareholders fail to ratify the appointment, the Audit Committee will reconsider, but not necessarily rescind, the appointment of Deloitte & Touche LLP.
Fees Billed by Independent Registered Public Accounting Firm
As more fully described below, all services to be provided by Deloitte & Touche LLP are pre-approved by the Audit Committee, including audit services, tax services and certain other services.
The SECSecurities and Exchange Commission requires disclosure of fees billed by the Company’s independent registered public accounting firm for certain services. The following table sets forth the aggregate billed fees and anticipated feesbilled by Deloitte & Touche LLP for professional services rendered for each of the years ended December 31, 2017 and 2016:past two years:
Audit Fees
for Fiscal Year End December 31, 2017
2022Fee Category | | 2017 | | | 2016 | | | 2022 | | | 2021 | |
Audit and Audit Related Fees | | $ | 1,017,000 | | | $ | 985,500 | | | $ | 966,594 | | | $ | 945,000 | |
Tax Fees | | | 150,000 | | | | 197,994 | | | | 160,000 | | | | 193,905 | |
All Other Fees | | | 8,280 | | | | 8,280 | | | | 2,020 | | | | 2,020 | |
| | | | | | | | | | | | | | | | |
Total Fees | | $ | 1,175,280 | | | $ | 1,191,774 | | | $ | 1,128,614 | | | $ | 1,140,925 | |
Audit and Audit Related Fees consisted principally of audit services of our consolidated financial statements, review of our quarterly financial statements, services that are normally provided by the independent auditors in connection with statutory and regulatory filings and the audit of the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002.
Tax Fees consisted principally of professional services rendered by Deloitte & Touche LLP in connection with the Company’s tax compliance activities, including technical and tax advice related to the preparation of tax returns.
All Other Fees primarily consisted of professional services rendered in connection with the Company’s employee benefit plan.plan and the subscription to the research tool.
Audit Committee Pre-Approval Policy
The Audit Committee approves, prior to engagement, all audit and non-audit services provided by Deloitte & Touche LLP and all fees to be paid for such services. All services are considered and approved on an individual basis. In its pre-approval and review of non-audit service fees, the Audit Committee considers, among other factors, the possible effect of the performance of such services on the auditors’ independence.
Required Vote
AThe affirmative vote of a majority of the votes cast at the annual meeting will beby holders of our Common Stock is required to ratify the appointment of Deloitte & Touche LLP as the Company’sour independent registered public accounting firm for 2018.the fiscal year ending December 31, 2023.
Our boardBoard of directorsDirectors recommends a vote FOR“FOR” the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018.2023.
ANNUAL REPORT AND FINANCIAL STATEMENTS AND
COMMITTEE AND
CORPORATE GOVERNANCE MATERIALS OF THE COMPANY
Copies of the Company’s Annual Report filed with the SEC on Form 10-KSecurities and Exchange Commission for the fiscal year ended December 31, 2017,2022, including the Company’s consolidated financial statements and financial statement schedule,schedules, will be mailed to interested shareholders, without charge, upon written request. Exhibits to our Form 10-KAnnual Report will be provided upon written request and payment to the Company of the cost of preparing and distributing those materials. The current charters of the board’sBoard’s Audit, Compensation, Nominating and Corporate Governance Committees, along with the Company’s Integrity Assurance Program – A Code of Business Ethics and Conduct, are available to interested shareholders upon request and are posted on our website at www.lincolntech.eduhttps://investors.lincolneducationalservices.com. under Corporate Governance. Written requests should be sent to Lincoln Educational Services Corporation, 200 Executive Drive,14 Sylvan Way, Suite 340, West Orange, New Jersey 07052,A, Parsippany, NJ 07054, Attention: Investor Relations.
CORPORATE GOVERNANCE GUIDELINES AND CODE OF ETHICS
The boardCompany’s Board of directorsDirectors has adopted corporate governance guidelines,Corporate Governance Guidelines, which include, among other things, guidelines for determining director independence, director responsibilities, director access to management and independent advisors, succession planning, director retirement, and director stock ownership.
The boardOur Board of directorsDirectors has also adopted an Integrity Assurance Program – Aa Code of Business Ethics and Conduct (the “Code of Conduct”) that applies to all directors, officers and employees and that is intended, among other things, to comply with Section 406 of the Sarbanes-Oxley Act of 2002 and related SECSecurities and Exchange Commission and NASDAQ rules requiring a code of ethics for a company’s directors, officers and employees. The Code of Conduct prohibits our directors, executive officers and senior management from holding the Company’s securities in a margin account, engaging in hedging transactions or otherwise pledging the Company’s securities as collateral for a loan and underloan. In certain limited circumstances, involvingthe Board of Directors may, in its sole discretion, grant an accounting restatement requires the claw back of bonus or incentive compensation paidexception to officers of the Company.
this prohibition. A copy of the Code of Conduct is posted on our website at www.lincolntech.edu.https://investors.lincolneducationalservices.com under Corporate Governance. The Audit CommitteeBoard of Directors must approve any requests for amendments to or waivers from the Integrity Assurance ProgramCode of Conduct with respect to directors and executive officers, and the Company intends to report such amendments or waivers that are required to be reported pursuant to the rules of the SECSecurities and Exchange Commission and the NASDAQ Global Select Market on the Company’s website.
TRANSACTIONS WITH RELATED PERSONS
The Company recognizes that related person transactions present a heightened risk of conflicts of interest. As a general matter, it is the preference of the Company to avoid related person transactions. The term “related person transaction” refers to a transaction required to be disclosed pursuant to Item 404 of Regulation S-K, under the Securities Act of 1933, as amended.
Nevertheless,During the fiscal years ended December 31, 2022 and 2021, the Company did not engage in any “related person transaction.” We note, however, that our director, John Bartholdson, may be deemed to have had an interest in the Series A Preferred Stock issued by the Company in November 2019 to, among other parties, Juniper Targeted Opportunity Fund, L.P. and Juniper Targeted Opportunities Fund, L.P. of which Mr. Bartholdson is an affiliate. Mr. Bartholdson was not a “related person” of the Company at the time of the sale and issuance of the Series A Preferred Stock but, as a result of the transaction, Mr. Bartholdson became the Series A Preferred Stock director designee to our Board of Directors in November 2019 and has remained so since that time. In each of 2022 and 2021, the Company paid $1,100,000 and $1,219,200, respectively, in cash dividends on the Series A Preferred Stock; in both cases, the Juniper investment funds participated on a pro rata basis. In accordance with the transaction documents relating to the sale and issuance of the Series A Preferred Stock, the Company registered with the Securities and Exchange Commission the resale of the shares of Common Stock issued upon conversion of the Series A Preferred Stock and the investors continue to have rights under a Registration Rights Agreement entered into in connection with the sale and issuance of the Series A Preferred Stock including “piggyback” registration rights. The Series A Preferred Stock was converted into the Company’s Common Stock in the last quarter of 2022.
The Company recognizes that there are situations where related person transactions may be in, or may not be inconsistent with, the best interests of the Company and its shareholders. As a result, pursuant to the Company’s Audit Committee charter, the Audit Committee is charged with the responsibility to review and approve all related person transactions on an ongoing basis. All such transactions must be approved in advance by the Audit Committee.
In addition, the Company’s Code of Conduct contains policies and procedures with respect to conflicts of interest and related person transactions. The Code of Conduct requires that all directors, officers, employees, and certain other persons subject to the Code of Conduct, adhere to it and prohibits certain arrangements that may be relevant to related person transactions including, but not limited to, prohibitions against: obtaining a substantial interest in any entity which does or seeks to do business with, or is a competitor of, the Company; entering into various arrangements (including family or other relationships) which might dissuade such director, officer, employee or other person from acting in the best interest of the Company; entering into a financial transaction or relationship with a student, prospect, vendor, agent or competitor of the Company; benefiting, or seeking to benefit, (directlydirectly or indirectly)indirectly, from such person’s position with the Company from any sale, purchase or other activity of the Company; using Company property or information for personal gain; obtaining loans or guarantees for personal obligations from the Company; and competing with the Company.
The Company is a party to an agreement39
DELINQUENT SECTION 16(a) REPORTS Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Matco Agreement”) with Matco Tools Corporation (“Matco”“Exchange Act”), a tool distributor forand related SEC regulations require the automotiveCompany’s directors, executive officers and other industries, which provides to Matco the exclusive right to offer for sale its products to the students and instructors at 12holders of more than 10% of the Company’s campuses, which exclusivity includes, but is not limitedCommon Stock to allfile with the Securities and Exchange Commission initial reports of beneficial ownership on Form 3 and reports of changes in beneficial ownership on Form 4 of our Common Stock and other tool manufacturersequity securities. To our knowledge, based solely on a review of copies of Forms 3, 4 and tool distributors. The Matco Agreement also provides to 5 and any amendments thereto filed with the Company, on an advance commission basis, credits based on tool purchases bySecurities and Exchange Commission and shareholder reports from our transfer agent and written representations that no other reports were required, during the Company’s students, which credits are redeemable in Matco-branded tools, tool storage, equipment, and diagnostics products over the term of the agreement. The aggregate amount of the Company’s purchases under the Matco Agreement were $2.4 million and $1.0 million for the yearsfiscal year ended December 31, 20172022, our officers, directors and 2016, respectively.
Matco is10% or more shareholders complied with all Section 16(a) filing requirements applicable to them, except that: (i) on June 2, 2022, Mr. Bartholdson filed a subsidiarylate Form 4 reporting the acquisition of Fortive Corporation,certain restricted shares; (ii) on June 3, 2022, each of Messrs. Burke, Carney, Harbour, Carlton, and Morrow, Ms. Pryor and Dr. Plater filed a NYSE-listed company (“Fortive”). James A. Lico,late Form 4 reporting the Presidentacquisition of certain restricted shares; and Chief Executive Officer(iii) on March 10, 2022, Mr. Nyce filed a late Form 4 reporting the acquisition of Fortive, iscertain restricted shares and the brother-in-lawdisposition of Ronald E. Harbour, who iscertain restricted shares to fund tax withholding upon the vesting of a directorportion of the Company and a memberrestricted share award. Each of the Audit Committee. As the President and Chief Executive Officer of Fortive, Mr. Lico’s compensation and bonuses are based, in part, upon the financial performance of Fortis and its consolidated subsidiaries, including Matco. The Audit Committee has determined that the terms of the Matco Agreement are arm’s length and comparable to those available to third parties. Mr. Harbourtransactions disclosed on these delinquent reports was recusedexempt from all discussions and decisions of the Audit Committee in that regard. The Matco Agreement remains in effect until July 31, 2019.disgorgement under Section 16.
SHAREHOLDER PROPOSALS FOR THE
20192024 ANNUAL MEETING OF SHAREHOLDERS
Shareholder proposals that are intended to be presented at the 20192024 Annual Meeting of Shareholders pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, must be received by the Secretary of the Company, in writing, no later than November 24, 2018,26, 2023, in order to be considered for inclusion in the Company’s proxy materials for that annual meeting. Shareholder proposals and shareholder nominations for election to the boardBoard of directorsDirectors must also comply with the current advance notice and other requirements set forth in the Company’s bylaws to be eligible to be presented at an annual meeting. These requirements include, in part, the requirement that any such proposal or nomination must, with certain exceptions if the date of the annual meeting is advanced or delayed more than 30 days from that of the anniversary of this year’s annual meeting, be submitted to the Secretary of the Company at least 120 and not more than 150 days prior to the first anniversary of the date of mailing of the notice for this year’s annual meeting (or between October 25, 2018,27, 2022 and November 24, 2018,26, 2022, based on this year’s notice mailing date of March 23, 2018)April 5, 2023).
COMMUNICATING WITH THE BOARD OF DIRECTORS
You may contact any non-employee director, or the entire board,Board of Directors, at any time. Your communication may be sent to the Lincoln Educational Services Corporation Board of Directors – Non-Employee Directors, c/o Corporate Secretary, Lincoln Educational Services Corporation, 200 Executive Drive,14 Sylvan Way, Suite 340, West Orange, New Jersey 07052.A, Parsippany, NJ 07054.
Communications are distributed to the board,Board of Directors, or any board memberdirector as appropriate, depending on the facts and circumstances outlined in the communication. Certain items that are unrelated to the duties and responsibilities of the boardBoard of Directors will be excluded, such as spam and other junk mail, resumes and other job inquiries, surveys and business solicitations or advertisements. Material that is unduly hostile, threatening, illegal or similarly unsuitable will also be excluded. We will make available to any non-employee director any communication that is filtered in accordance with the process described above, at that director’s request.
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
Some banks, brokers and other nominee record holders may participate in the practice of “householding” proxy statements and annual reports. This means that unless shareholders give contrary instructions, only one copy of our proxy statement or annual report may be sent to multiple shareholders in each household who share an address. We will promptly deliver a separate copy of either document to you if you call or write to us at the following address or telephone number: Lincoln Educational Services Corporation, c/o Corporate Secretary, 200 Executive Drive,14 Sylvan Way, Suite 340, West Orange, New Jersey 07052;A, Parsippany, NJ 07054; telephone (973) 736-9340. If you wish to receive separate copies of our proxy statement or annual report in the future, or if you are receiving multiple copies and would like to receive only one copy per household, please contact your bank, broker or other record holder, or you may contact us at the above address or telephone number.
Proxy authorizations submitted via the Internet must be received by 7:0011:59 p.m. (Eastern Time) on May 2, 2018.4, 2023. To give your proxy authorization via the Internet, please read the instructions accompanying the enclosed proxy card. Costs associated with electronic access, such as from access providers, will be borne by the shareholder.
| By Order of the Board of Directors |
| |
| Alexandra M. Luster |
| Corporate Secretary |
West Orange,Parsippany, New Jersey | |
March 23, 2018 | |
Annex ALINCOLN EDUCATIONAL SERVICES CORPORATION
2020 LONG-TERM INCENTIVE PLAN
(As Amended by the Board on February 23, 2023, Subject to Shareholder Approval)
The purpose of the Plan is to provide an incentive to certain directors, officers, employees and consultants of the Company and its Subsidiaries to increase their interest in the Company’s success by offering them an opportunity to obtain a proprietary interest in the Company through the grant of equity-based awards.
| 2. | Definitions and Rules of Construction |
(a)Definitions. For purposes of the Plan, the following capitalized words shall have the meanings set forth below:
“Award” means an Option, Restricted Share, Restricted Share Unit, Performance Share Unit, Stock Appreciation Right or Other Award granted by the Committee pursuant to the terms of the Plan.
“Award Document” means an agreement, certificate or other type or form of document or documentation approved by the Committee which sets forth the terms and conditions of an Award. An Award Document may be in written, electronic or other media, may be limited to a notation on the books and records of the Company and, unless the Committee requires otherwise, need not be signed by a representative of the Company or a Participant.
“Board” means the Board of Directors of the Company.
“CEO” means the Chief Executive Officer of the Company.
“Cause” means (except as otherwise provided in an Award Document) any of the following: (i) Participant’s conviction of, or plea of guilty or nolo contendere to, a felony or a crime involving embezzlement, conversion of property or moral turpitude; (ii) a finding by a majority of the Board of Directors of Participant’s fraud, embezzlement or conversion of the Company’s property; (iii) Participant’s conviction of, or plea of guilty or nolo contendere to, a crime involving the acquisition, use or expenditure of federal, state or local government funds or the unlawful use, possession or sale of illegal substances; (iv) an administrative or judicial determination that Participant committed fraud or any other violation of law involving federal, state or local government funds; (v) a finding by a majority of the Board of Directors of Participant’s knowing breach of any of Participant’s fiduciary duties to the Company or the Company’s stockholders or making of a misrepresentation or omission which breach, misrepresentation or omission would reasonably be expected to materially adversely affect the business, properties, assets, condition (financial or other) or prospects of the Company; (vi) Participant’s alcohol or substance abuse, which materially interferes with Participant’s ability to discharge the duties, responsibilities and obligations to or for the Company; provided, that Participant has been given notice and 30 days from such notice fails to cure such abuse; and (vii) Participant’s personal (as opposed to the Company’s) material and knowing failure, to observe or comply with applicable laws whether as an officer, stockholder or otherwise, in any material respect or in any manner which would reasonably be expected to have a material adverse effect in respect of the Company’s ongoing business, operations, conditions, other business relationship or properties.
Any rights the Company or any of its Subsidiaries has to determine the existence of events giving rise to Cause are in addition to the rights the Company or any of its Subsidiaries may have under any other agreement with the Participant or at law or in equity. If, after a Participant’s termination of employment or services, the Company discovers that the Participant’s employment or services could have been terminated for Cause, the Participant’s employment or services will, in the Board’s sole discretion, be deemed to have been terminated for Cause retroactively to the date the events giving rise to Cause occurred.
“Change in Control” means
| a. | when a “person” (as defined in Section 3(a)(9) of the Exchange Act), including a “group” (as defined in Section 13(d) and 14(d) of the Exchange Act), either directly or indirectly becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of 25% or more of either (i) the then outstanding Common Stock, or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; provided, however, that the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company; (2) any acquisition by the Company; or (3) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company; |
| b. | when, during any period of 24 consecutive months of employment, the individuals who, at the beginning of such period, constitute the Board (the “Company Incumbent Directors”) cease for any reason other than death to constitute at least a majority thereof; provided, however, that a director who was not a director at the beginning of such 24-month period shall be deemed to be a Company Incumbent Director if such director was elected by, or on the recommendation of or with the approval of at least two-thirds of the directors of the Company, who then qualified as Company Incumbent Directors; |
| c. | when the stockholders of the Company approve a reorganization, merger or consolidation of the Company without the consent or approval of a majority of the Company Incumbent Directors; |
| d. | consummation of a merger, amalgamation or consolidation of the Company with any other corporation, the issuance of voting securities of the Company in connection with a merger, amalgamation or consolidation of the Company or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another corporation (each, a” Business Combination”), unless, in each case of a Business Combination, immediately following such Business Combination, all or substantially all of the individuals and entities who were the beneficial owners of the Common Stock outstanding immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then outstanding shares of common stock and 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Common Stock; or |
| e. | a complete liquidation or dissolution of the Company or the sale or other disposition of all or substantially all of the assets of the Company. |
“Code” means the Internal Revenue Code of 1986, as amended and the applicable rulings and regulations thereunder.
“Committee” means the Compensation Committee of the Board or such other committee appointed by the Board to administer the Plan which committee shall meet the requirements of Section 16 (b) of the Exchange Act and the applicable rules of the NASDAQ Stock Market; provided, however, that, if any Committee member is found not to have met the qualification requirements of Section 16(b) of the Exchange Act, any actions taken or Awards granted by the Committee shall not be invalidated by such failure to so qualify.
“Common Stock” means the common stock of the Company, no par value per share, or such other class of shares or other securities as may be applicable under Section 13(b) of the Plan.
“Company” means Lincoln Educational Services Corporation or any successor to substantially all of its business.
“EBITDA” means earnings before interest, taxes, depreciation and amortization. “EBITA” means the Company’s earnings before interest, taxes and amortization.
“Effective Date” means the date on which the Plan is approved by the Board, subject to the approval by the stockholders of the Company within 12 months of the Effective Date, as further set forth in Section 15.
“Eligible Individual” means an individual described in Section 4(a) of the Plan.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
“Fair Market Value” means (i) if the Common Stock is listed on a securities exchange or is traded over the NASDAQ Stock Market, the closing sales price on such exchange or over such system on such date or, in the absence of reported sales on such date, the closing sales price on the immediately preceding date on which sales were reported, or (ii) if the Common Stock is not listed on a securities exchange or traded over the NASDAQ Stock Market, the mean between the bid and offered prices as quoted by the NASDAQ Stock Market for such date, provided that if it is determined that the fair market value is not properly reflected by such NASDAQ Stock Market quotations, Fair Market Value shall be determined by such other method as the Committee determines in good faith to be reasonable.
“Good Reason” means, so long as the Participant has not committed conduct giving rise to the Company’s right to terminate for Cause, the occurrence of any of the following without the Participant’s consent: (i) a material diminution in the Participant’s authority, duties or responsibilities; (ii) any change in the Participant’s title or change in Participant’s reporting relationship; (iii) any Change in Control (as hereinafter defined) unless any successor by sale or merger has assumed and confirmed the terms of any employment agreement to which Participant is a party or which otherwise covers the Participant; (iv) a change in the location at which Participant performs his primary obligations to a location that is more than 30 miles from the location at which Participant performed his primary obligations immediately prior to such Change in Control; or (v) other action or inaction that constitutes a material breach by the Company or successor thereto of any employment agreement to which Participant is a party or which otherwise covers the Participant.
Notwithstanding the above, the events described in (i)-(v) above will constitute Good Reason only if the Participant notifies the Company in writing within 90 days of the occurrence of any of the events or circumstances described in (i)-(v) above and the Company fails to cure such event or circumstances within 30 days after receipt of such notice.
“Incentive Stock Option” means an Option that is intended to comply with the requirements of Section 422 of the Code or any successor provision thereto.
“Nonqualified Stock Option” means an Option that is not intended to comply with the requirements of Section 422 of the Code or any successor provision thereto.
“Option” means an Incentive Stock Option or Nonqualified Stock Option granted pursuant to Section 7 of the Plan.
“Other Award” means any form of Award other than an Option, Restricted Share, Restricted Share Unit, Performance Share Unit or Stock Appreciation Right granted pursuant to Section 11 of the Plan.
“Participant” means an Eligible Individual who has been granted an Award under the Plan.
“Performance Period” means the period established by the Committee and set forth in the applicable Award Document over which Performance Targets are measured.
“Performance Share Unit” means a right to receive a Target Number of shares of Common Stock (or cash, if applicable) payable at the end of a Performance Period, subject to the achievement of the applicable Performance Targets, granted pursuant to Section 9 of the Plan.
“Performance Target” means the targets established by the Committee from among the performance criteria set forth in Section 6(f) and set forth in the applicable Award Document.
“Permitted Transferee” means (i) a charitable institution, (ii) a Participant’s family member, (iii) one or more trusts established in whole or in part for the benefit of one or more of such family members, (iv) one or more entities which are beneficially owned in whole or in part by one or more such family members, or (v) any other individual or entity permitted under law and the rules of NASDAQ Stock Market or any other exchange that lists the applicable Award.
“Plan” means the Lincoln Educational Services Corporation 2020 Long-Term Incentive Plan as described herein and as it may be amended from time to time.
“Plan Limit” means the maximum aggregate number of shares that may be issued for all purposes under the Plan as set forth in Section 5(a) of the Plan.
“Prior Plan” means the Lincoln Technical Institute Management 2005 Long Term Incentive Plan.
“Restricted Share” means one or more Restricted Shares granted or sold pursuant to Section 8(a) of the Plan.
“Restricted Share Unit” means a right to receive a share of Common Stock (or cash, if applicable) in the future, subject to time vesting and the Participant’s continued employment with the Company, granted pursuant to Section 8(b) of the Plan.
“Stock Appreciation Right” means a right to receive all or some portion of the appreciation on shares of Common Stock granted pursuant to Section 10 of the Plan.
“Subsidiary” means (i) a corporation or other entity with respect to which the Company, directly or indirectly, has the power, whether through the ownership of voting securities, by contract or otherwise, to elect at least a majority of the members of such corporation’s board of directors or analogous governing body, or (ii) any other corporation or other entity in which the Company, directly or indirectly, has an equity or similar interest and which the Committee designates as a Subsidiary for purposes of the Plan. For purposes of determining eligibility for the grant of Incentive Stock Options under the Plan, the term “Subsidiary” shall be defined in the manner required by Section 424(f) of the Code.
“Target Number” means the target number of shares of Common Stock or cash value established by the Committee and set forth in the applicable Award Document.
| (b) | Rules of Construction. |
The masculine pronoun shall be deemed to include the feminine pronoun and the singular form of a word shall be deemed to include the plural form, unless the context requires otherwise. Unless the text indicates otherwise, references to sections are to sections of the Plan.
| (a) | Committee. The Plan shall be administered by the Committee, which shall, subject to the express provisions hereof, have full power and authority to: |
(i) select the Participants from the Eligible Individuals;
(ii) grant Awards in accordance with the Plan;
(iii) determine the number of shares of Common Stock subject to each Award or the cash amount payable in connection with an Award;
(iv) determine the terms and conditions of each Award, including, without limitation, those related to term, vesting, forfeiture, payment, settlement, exercisability, Performance Periods, Performance Targets, Target Numbers, and the effect, if any, of a Participant’s termination of employment with the Company or any of its Subsidiaries or a Change in Control or similar transaction of the Company;
(v) subject to Section 16 of the Plan, to amend the terms and conditions of an Award after the granting thereof;
(vi) specify and approve the provisions of the Award Documents delivered to Participants connection with their Awards;
(vii) construe and interpret any Award Document delivered under the Plan;
(viii) prescribe, amend, waive and rescind rules and procedures relating to the Plan;
(ix) make factual determinations in connection with the administration or interpretation of the Plan;
(x) employ such legal counsel, independent auditors and consultants as it deems desirable for the administration of the Plan and to rely upon any opinion or computation received therefrom;
(xi) vary the terms of Awards to take account of tax, securities law and other regulatory requirements of foreign jurisdictions or to procure favorable tax treatment for Participants;
(xii) correct any defects, supply any omission or reconcile any inconsistency in any Award Document or the Plan; and
(xiii) make all other determinations and take any other action desirable or necessary to interpret, construe or implement properly the provisions of the Plan or any Award Document.
(b)Action by the Committee. A majority of the Committee will constitute a quorum. The acts of a majority of the members present at any meeting at which a quorum is present, and acts approved in writing by a majority of the Committee in lieu of a meeting, will be deemed the acts of the Committee. Each member of the Committee is entitled to, in good faith, rely or act upon any report or other information furnished to that member by any officer or other employee of the Company or any Subsidiary, the Company’s independent certified public accountants, any executive compensation consultant or other professional retained by the Company to assist in the Plan’s administration.
(c)Plan Construction and Interpretation. The Committee shall have full power and authority, subject to the express provisions hereof, to construe and interpret the Plan.
(d)Determinations of Committee Final and Binding. All determinations by the Committee in carrying out and administering the Plan and in construing and interpreting the Plan shall be made in the Committee’s sole discretion and shall be final, binding and conclusive for all purposes and upon all persons interested herein.
(e)Delegation of Authority. To the extent not prohibited by applicable laws, rules and regulations, the Committee may, from time to time, delegate some or all of its authority under the Plan to a subcommittee or subcommittees thereof or other persons or groups of persons as it deems necessary, appropriate or advisable under such conditions or limitations as it may set at the time of such delegation or thereafter; provided, however, that the Committee may not delegate its authority (i) to make Awards to employees (A) who are subject on the date of the Award to the reporting rules under Section 16(a) of the Exchange Act, (B) whose compensation for such fiscal year may be subject to the limit on deductible compensation pursuant to Section 162(m) of the Code or (C) who are officers of the Company who are delegated authority by the Committees hereunder, or (ii) pursuant to Section 17(d) of the Plan. For purposes of the Plan, reference to the Committee shall be deemed to refer to any subcommittee, subcommittees, or other persons or groups of persons to whom the Committee delegates authority pursuant to this Section 3(d).
(f)Liability of Committee and its Delegates. Subject to applicable laws, rules and regulations: (i) no member of the Board or Committee (or its delegates) shall be liable for any good faith action, omission or determination made in connection with the operation, administration or interpretation of the Plan and (ii) the members of the Board or the Committee (and its delegates) shall be entitled to indemnification and reimbursement in the manner provided in the Company’s Certificate of Incorporation as it may be amended from time to time. In the performance of its responsibilities with respect to the Plan, the Committee shall be entitled to rely upon information and advice furnished by the Company’s officers or employees, the Company’s accountants, the Company’s counsel and any other party the Committee deems necessary, and no member of the Committee shall be liable for any action taken or not taken in reliance upon any such information or advice.
(g)Action by the Board. Anything in the Plan to the contrary notwithstanding, subject to applicable laws, rules and regulations, any authority or responsibility that, under the terms of the Plan, may be exercised by the Committee may alternatively be exercised by the Board.
(a)Eligible Individuals. Awards may be granted to officers, employees, directors, consultants, advisers and independent contractors of the Company or any of its Subsidiaries; provided, however, that only employees of the Company or a parent or Subsidiary may be granted Incentive Stock Options, and any Option designated as an Incentive Stock Option purported to be granted to an individual other than an employee shall be treated as a Nonqualified Option. The Committee shall have the authority to select the persons to whom Awards may be granted and to determine the type, number and terms of Awards to be granted to each such Participant. Under the Plan, references to “employment” or “employed” include the engagement of Participants who are consultants, advisors and independent contractors of the Company or its Subsidiaries and the service of Participants who are Non-Employee Directors, except for purposes of determining eligibility to be granted Incentive Stock Options.
(b)Grants to Participants. The Committee shall have no obligation to grant any Eligible Individual an Award or to designate an Eligible Individual as a Participant solely by reason of such Eligible Individual having received a prior Award or having been previously designated as a Participant. The Committee may grant more than one Award to a Participant and may designate an Eligible Individual as a Participant for overlapping periods of time.
| 5. | Common Stock Subject to the Plan |
(a)Plan Limit. Subject to Section 13(b), the maximum number of shares of Common Stock that may be awarded for all purposes under the Plan shall be the aggregate of 4,000,000 shares of Common Stock, plus any shares of Common Stock that remain available for issuance under the Prior Plan. Shares of Common Stock issued pursuant to Awards under the Plan may be either authorized and unissued shares of Common Stock or shares of Common Stock held by the Company in its treasury, or a combination thereof. All of the shares of Common Stock available under the Plan may be issued as Incentive Stock Options.
(b)Rules Applicable to Determining Shares Available for Issuance. The number of shares of Common Stock remaining available for issuance will be reduced by the number of shares of Common Stock subject to outstanding Awards and, for Awards that are not denominated by shares, by the number of shares actually delivered upon settlement or payment of the Award. For purposes of determining the number of shares of Common Stock that remain available for issuance under the Plan, the number of shares that are tendered by a Participant or withheld by the Company to pay the exercise price of an Award or to satisfy the participant’s tax withholding obligations in connection with the vesting, exercise or settlement of an Award will not be added back to the Plan Limit. In addition, for purposes of determining the number of shares that remain available for issuance under the Plan, the number of shares corresponding to Awards under the Plan or the Prior Plan that are forfeited or cancelled or otherwise expire for any reason without having been exercised or settled or that are settled through the issuance of consideration other than shares (including, without limitation, cash) shall be added back to the Plan Limit and again be available for the grant of Awards; provided, however, that this provision shall not be applicable with respect to (A) the cancellation of a Stock Appreciation Right granted in tandem with an Option upon the exercise of the Option or (B) the cancellation of an Option granted in tandem with a Stock Appreciation Right upon the exercise of the Stock Appreciation.
(c)Special Limits. Anything to the contrary in Section 5(a) above notwithstanding, but subject to Section 13(b), the following special limits shall apply to shares of Common Stock available for Awards under the Plan:
(i) he maximum number of shares of Common Stock that may be subject to Options or Stock Appreciation Rights granted to any Eligible Individual in any calendar year shall equal 300,000 shares;
(ii) the maximum amount of Awards (other than those Awards set forth in Section 5(c)(i)) that may be awarded to any Eligible Individual in any calendar year is $5,000,000 measured as of the date of grant (with respect to Awards denominated in cash) or 300,000 shares measured as of the date of grant (with respect to Awards denominated in shares).
(a)Types of Awards. Awards under the Plan may consist of Options, Restricted Shares, Restricted Share Units, Performance Share Units, Stock Appreciation Rights and Other Awards. Any Award described in Sections 7 through 11 of the Plan may be granted singly or in combination or tandem with any other Awards, as the Committee may determine. Awards under the Plan may be made in combination with, in replacement of, or as alternatives to awards or rights under any other compensation or benefit plan of the Company, including the plan of any acquired entity.
(b)Terms Set Forth in Award Document. The terms and conditions of each Award shall be set forth in an Award Document in a form approved by the Committee for such Award, which shall contain terms and conditions not inconsistent with the Plan. Notwithstanding the foregoing and subject to applicable laws, rules and regulations, the Committee may, except as otherwise set forth in this Plan, at any time (i) accelerate the vesting, settlement or payment of any Award, (ii) accelerate the lapse of restrictions on any Award, (iii) eliminate any conditions applicable to an Award, (iv) accelerate the date on which any Award first becomes exercisable or (v) extend the post-termination exercise period of an Award (but not later than the original expiration date). The terms of Awards may vary among Participants, and the Plan does not impose upon the Committee any requirement to make Awards subject to uniform terms. Accordingly, the terms of individual Award Documents may vary.
(c)Termination of Employment. In connection with a Participant’s termination of employment with the Company or any of its Subsidiaries, except as otherwise set forth in this Plan, the Committee shall have the authority to accelerate the vesting, exercisability or settlement of, eliminate the restrictions and conditions applicable to, or extend the post-termination exercise period of an outstanding Award, which provisions may be specified in the applicable Award Document or determined at a subsequent time; provided, however, that if a Participant’s termination of employment with the Company or any of its Subsidiaries is for Cause, any unexercised Stock Options, whether vested or not, and any unvested Restricted Share Units, Performance Share Units, Stock Appreciation Rights or Other Awards granted to such Participant under this Plan shall lapse and become void as of the date of such termination. The employment of a Participant shall not be deemed to have terminated if such Participant is transferred among the Company and any of its Subsidiaries. If a Participant’s termination of employment with the Company or any of its Subsidiaries is for Cause, any unexercised Stock Options, whether vested or not, and any unvested Restricted Share Units, Performance Share Units, Stock Appreciation Rights or Other Awards granted to such Participant under this Plan shall lapse and become void as of the date of such termination. The employment of a Participant shall not be deemed to have terminated if such Participant is transferred among the Company and any of its Subsidiaries.
(d)Change in Control Transactions. Notwithstanding any other provision of the Plan to the contrary, unless the Committee shall determine pursuant to a written employment, services or other agreement or arrangement between the Participant and the Company, in the event of a Change in Control:
(i) If and to the extent that a successor to the Company converts, assumes, substitutes or replaces an Award, the vesting restrictions and/or forfeiture provisions applicable to such Award shall not be accelerated or lapse, and all such vesting restrictions and/or forfeiture provisions shall continue with respect to any shares of the successor or other consideration that may be received with respect to such Award; provided, however, that if the Participant’s employment or other service is terminated, other than for Cause, within 12 months coincident with or immediately following such Change in Control, any unvested Awards shall become fully vested and exercisable upon such termination of employment or other service.
(ii) If and to the extent that such Awards are not converted, assumed, substituted for or replaced by a successor to the Company, the Committee will notify the Participants in writing or electronically that such Award will be exercisable for a period of time determined by the Committee in its sole discretion, or may determine that the Participants will receive an amount equal to the consideration per share of Common Stock in such Change in Control (or, in the case of an Appreciation Award, the consideration per share of Common Stock minus the exercise price or base price of such Award). Awards need not be treated in the same manner.
(iii) An Award shall be considered converted, assumed, substituted for or replaced by a successor if following the Change in Control the option or right confers the right to purchase or receive, for each share of Common Stock subject to the Award immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) received in the Change in Control by holders of Common Stock for each share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided, however, that if such consideration received in the Change in Control is not solely common stock of the successor, the Committee may, with the consent of the successor, provide for the consideration to be received pursuant to the Award, for each share of Common Stock subject thereto, to be solely common stock of the successor substantially equal in fair market value to the per share consideration received by holders of Common Stock in the Change in Control. The determination of such substantial equality of value of consideration shall be made by the Committee, and its determination shall be conclusive and binding.
(e)Dividends and Dividend Equivalents. No dividends or dividend equivalents shall be paid with respect to any outstanding Award prior to the acquisition of fully vested Common Stock pursuant to such Award or the lapse of vesting conditions on such Award.
(f)Rights of a Stockholder. A Participant shall have no rights as a stockholder with respect to shares of Common Stock covered by an Award until the date the Participant or his nominee becomes the holder of record of such shares. No adjustment shall be made for dividends or other rights for which the record date is prior to such date, except as provided in Section 13(b).
(g)Performance-Based Awards. (i) The Committee may determine whether any Award under the Plan is intended to be performance-based compensation. Any such Awards designated to be performance-based compensation shall be conditioned on the achievement of one or more Performance Targets. The Performance Targets will be comprised of specified levels of one or more of the following performance criteria as the Committee deems appropriate: net income; cash flow or cash flow on investment; pre-tax or post-tax profit levels or earnings; operating earnings; return on investment; net operating profit after tax; earned value added; earned value added expense reduction levels; free cash flow; free cash flow per share; earnings per share; net earnings per share; return on assets; return on net assets; return on equity; return on capital; return on sales; growth in managed assets; operating margin; sales growth; sales volume; economic profit; profit in excess of cost of capital; return on invested capital; net operating profit after tax; total stockholder return or stock price appreciation; operating income; dividends; market share, market penetration or other performance measures with respect to specific designated products or product groups and/or specific geographic areas; reduction of losses, loss ratios or expense ratios; reduction in fixed costs; operating cost management; cost of capital; debt reduction; productivity improvements; inventory turnover measurements; or customer satisfaction based on specified objective goals or a Company-sponsored customer survey; EBITDA; adjusted EBITDA; EBITA; adjusted EBITA; revenue; revenue before deferral; net revenues; operating revenues; and/or share price. Each Performance Target shall be consistently applied on a business unit, divisional, subsidiary or consolidated basis or any combination thereof. The Performance Targets may be described in terms of objectives that are related to the individual Participant or objectives that are Company-wide or related to a Subsidiary, division, department, region, function or business unit and may be measured on an absolute or cumulative basis or on the basis of percentage of improvement over time, and may be measured in terms of Company performance (or performance of the applicable Subsidiary, division, department, region, function or business unit) or measured relative to selected peer companies or a market index. The Performance Targets shall be determined in accordance with generally accepted accounting principles (subject to adjustments and modifications approved by the Committee consistently applied on a business unit, division, Subsidiary or consolidated basis or any combination thereof. At the time of grant, the Committee may provide for adjustments to the Performance Targets in accordance.
(ii) The Participants will be designated, and the applicable Performance Targets will be established, by the Committee within ninety (90) days following the commencement of the applicable Performance Period, or as otherwise determined by the Company. Each Participant will be assigned a Target Number payable if Performance Targets are achieved. Any payment of an Award granted with Performance Targets shall be conditioned on the written certification of the Committee in each case that the Performance Targets and any other material conditions were satisfied. The Committee may determine, at the time of Award grant, that if performance exceeds the specified Performance Targets, the Award may be settled with payment greater than the Target Number, but in no event may such payment exceed the limits set forth in Section 5(c). The Committee retains the right to reduce any Award notwithstanding the attainment of the Performance Targets.
(iii) The Committee may also grant Awards not intended to qualify as “performance-based compensation” . With respect to such awards, the Committee may establish Performance Targets based on other criteria as it deems appropriate.
(h)Recoupment. Notwithstanding anything in the Plan to the contrary, all Awards granted under the Plan, any payments made under the Plan and any gains realized upon exercise or settlement of an Award shall be subject to claw-back or recoupment as permitted or mandated by applicable law, rules, regulations or any Company policy as enacted, adopted or modified from time to time.
| 7. | Terms and Conditions of Options |
(a)General. The Committee, in its discretion, may grant Options to eligible Participants and shall determine whether such Options shall be Incentive Stock Options or Nonqualified Stock Options. Each Option shall be evidenced by an Award Document that shall expressly identify the Option as an Incentive Stock Option or Nonqualified Stock Option, and shall be in such form and contain such provisions as the Committee shall from time to time deem appropriate. If an Option by its terms could qualify as an Incentive Stock Option, the designation of the Option as an Incentive Stock Option or a Nonqualified Stock Option shall control. If the Option is not so designated, the Option shall be an Incentive Stock Option.
(b)Exercise Price. The exercise price of an Option shall be fixed by the Committee at the time of grant or shall be determined by a method specified by the Committee at the time of grant, but in no event shall the exercise price of an Option be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant. Payment of the exercise price of an Option shall be made in any form approved by the Committee at the time of grant. The Committee is specifically authorized to provide for payment in cash, in shares, or in a cashless exercise.
(c)Term. An Option shall be effective for such term as shall be determined by the Committee and as set forth in the Award Document relating to such Option, and the Committee may extend the term of an Option after the time of grant; provided, however, that the term of an Option may in no event extend beyond the tenth anniversary of the date of grant of such Option.
(d)Incentive Stock Options. The exercise price per share of an Incentive Stock Option may not be less than 100% of the Fair Market Value per share of Common Stock on the date of grant (or, if the exercise price is not fixed on the date of grant, on such date as the exercise price is fixed). No Incentive Stock Option may be issued pursuant to the Plan to any individual who, at the time the Incentive Stock Option is granted, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any of its Subsidiaries, unless (i) the exercise price determined as of the date of grant is at least 110% of the Fair Market Value on the date of grant of the shares of Common Stock subject to such Incentive Stock Option and (ii) the Incentive Stock Option is not exercisable more than five years from the date of grant thereof. No Participant shall be granted any Incentive Stock Option which would result in such Participant receiving a grant of Incentive Stock Options that would have an aggregate Fair Market Value in excess of $100,000, determined as of the time of grant, that would be exercisable for the first time by such Participant during any calendar year. The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code, or any successor provision thereto, and any regulations promulgated thereunder. No Incentive Stock Option may be granted under the Plan after the tenth anniversary of the Effective Date.
| 8. | Terms and Conditions of Restricted Shares and Restricted Share Units |
(a)Restricted Shares. The Committee is authorized to grant or sell Restricted Shares to Eligible Individuals. An Award of Restricted Shares shall consist of one or more Restricted Shares granted or sold to an Eligible Individual, and shall be subject to the terms, conditions and restrictions set forth in the Plan and applicable Award Document. Restricted Shares may, among other things, be subject to restrictions on transferability, vesting requirements or other specified circumstances under which it may be canceled.
(b)Restricted Share Units. The Committee is authorized to grant Restricted Share Units to Eligible Individuals. A Restricted Share Unit shall entitle a Participant to receive, subject to the terms, conditions and restrictions set forth in the Plan and applicable Award Document, one or more shares of Common Stock in consideration of the Participant’s employment with the Company or any of its Subsidiaries. If and when the forfeiture provisions lapse, the Restricted Share Units shall become shares of Common Stock owned by the corresponding Participant or, at the sole discretion of the Committee, cash, or a combination of cash and shares of Common Stock, with a value equal to the Fair Market Value of the shares at the time of payment.
| 9. | Terms and Conditions of Performance Share Units |
The Committee is authorized to grant Performance Share Units to Eligible Individuals. A Performance Share Unit shall entitle a Participant to receive, subject to the terms, conditions and restrictions set forth in the Plan and applicable Award Document, a Target Number of shares of Common Stock based upon the achievement of Performance Targets over the applicable Performance Period. At the sole discretion of the Committee, Performance Share Units shall be settled through the delivery of shares of Common Stock or cash, or a combination of cash and shares of Common Stock, with a value equal to the Fair Market Value of the shares of Common Stock as of the last day of the applicable Performance Period.
| 10. | Stock Appreciation Rights |
(a)General. The Committee is authorized to grant Stock Appreciation Rights to Eligible Individuals. A Stock Appreciation Right shall entitle a Participant to receive, upon satisfaction of the conditions to payment specified in the applicable Award Document, an amount equal to the excess, if any, of the Fair Market Value on the exercise date of the number of shares of Common Stock for which the Stock Appreciation Right is exercised, over the exercise price for such Stock Appreciation Right specified in the applicable Award Document. The exercise price per share of Common Stock covered by a Stock Appreciation Right shall be fixed by the Committee at the time of grant or shall be determined by a method specified by the Committee at the time of grant, but in no event shall the exercise price of a Stock Appreciation Right be less than 100% of the Fair Market Value of a share of Common Stock on the date of grant. At the sole discretion of the Committee, payments to a Participant upon exercise of a Stock Appreciation Right may be made in cash or shares of Common Stock, or in a combination of cash and shares of Common Stock, having an aggregate Fair Market Value as of the date of exercise equal to such cash amount. A Stock Appreciation Right shall be effective for such term as shall be determined by the Committee and as set forth in the Award Document relating to such Stock Appreciation Right, and the Committee may extend the term of a Stock Appreciation Right after the time of grant; provided, however, that the term of a Stock Appreciation Right may in no event extend beyond the tenth anniversary of the date of grant of such Stock Appreciation Right.
(b)Methods of Exercise. In accordance with the rules and procedures established by the Committee for this purpose, and subject to the provisions of the applicable Award Document, the Committee shall determine the permissible methods of exercise for a Stock Appreciation Right.
(c)Stock Appreciation Rights in Tandem with Options. A Stock Appreciation Right granted in tandem with an Option may be granted either at the same time as such Option or subsequent thereto. If granted in tandem with an Option, a Stock Appreciation Right shall cover the same number of shares of Common Stock as covered by the Option (or such lesser number of shares as the Committee may determine) and shall be exercisable only at such time or times and to the extent the related Option shall be exercisable, and shall have the same term and exercise price as the related Option (which, in the case of a Stock Appreciation Right granted after the grant of the related Option, may be less than the Fair Market Value per share on the date of grant of the tandem Stock Appreciation Right). Upon exercise of a Stock Appreciation Right granted in tandem with an Option, the related Option shall be canceled automatically to the extent of the number of shares covered by such exercise; conversely, if the related Option is exercised as to some or all of the shares covered by the tandem grant, the tandem Stock Appreciation Right shall be canceled automatically to the extent of the number of shares covered by the Option exercise.
The Committee shall have the authority to specify the terms and provisions of other forms of equity-based or equity-related Awards not described above that the Committee determines to be consistent with the purpose of the Plan and the interests of the Company, which Awards may provide for cash payments based in whole or in part on the value or future value of shares of Common Stock, for the acquisition or future acquisition of shares of Common Stock, or any combination thereof.
(a)Transfers. No Award shall be transferable other than by the laws of descent and distribution or pursuant to a domestic relations order, as the case may be; provided, however, that the Committee may, subject to applicable laws, rules and regulations and such terms and conditions as it shall specify, permit the transfer of the Award, including, without limitation, for no consideration to a Permitted Transferee. Any Award transferred to a Permitted Transferee may not be further transferable without the Committee’s approval and any Award transferred to a Permitted Transferee shall be further transferable only by last will and testament or the laws of descent and distribution or, for no consideration, to another Permitted Transferee of the Participant.
(b)Award Exercisable Only by Participant. During the lifetime of a Participant, an Award shall be exercisable only by the Participant or a Permitted Transferee to whom such Award has been transferred in accordance with Section 12(a). The grant of an Award shall impose no obligation on a Participant to exercise or settle the Award.
| 13. | Recapitalization or Reorganization |
(a)Authority of the Company and Stockholders. The existence of the Plan, the Award Documents and the Awards granted hereunder shall not affect or restrict in any way the right or power of the Company or the stockholders of the Company to make or authorize any adjustment, recapitalization, reorganization or other change in the Company’s capital structure or business, any merger or consolidation of the Company, any issue of stock or of options, warrants or rights to purchase stock or of bonds, debentures, preferred or prior preference stocks whose rights are superior to or affect the shares of Common Stock or the rights thereof or which are convertible into or exchangeable for shares of Common Stock, or the dissolution or liquidation of the Company, or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.
(b)Change in Capitalization. Notwithstanding any provision of the Plan or any Award Document, the number and kind of shares authorized for issuance under Section 5 of the Plan, including the maximum number of shares available under the special limits provided for in Section 5(c), shall be equitably adjusted in the manner deemed necessary by the Committee in the event of a stock split, reverse stock split, stock dividend, recapitalization, reorganization, partial or complete liquidation, reclassification, merger, consolidation, separation, extraordinary cash dividend, split-up, spin-off, combination, exchange of shares, warrants or rights offering to purchase shares at a price substantially below Fair Market Value, or any other corporate event or distribution of stock or property of the Company affecting the shares of Common Stock in order to preserve, but not increase, the benefits or potential benefits intended to be made available under the Plan. In addition, upon the occurrence of any of the foregoing events, the number and kind of shares subject to any outstanding Award and the exercise price per Share (or the grant price per Share, as the case may be), if any, under any outstanding Award shall be equitably adjusted in the manner deemed necessary by the Committee (including by payment of cash to a Participant) in order to preserve the benefits or potential benefits intended to be made available to Participants. Unless otherwise determined by the Committee, such adjusted Awards shall be subject to the same restrictions and vesting or settlement schedule to which the underlying Award is subject.
(c)Repricing of Options and Stock Appreciation Rights. Except in connection with a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination, or exchange of shares), the terms of outstanding Awards may not be amended, without stockholder approval, to reduce the exercise price of outstanding Options or Stock Appreciation Rights, or to cancel outstanding Options or Stock Appreciation Rights in exchange for cash, other Awards, or Options or Stock Appreciation Rights with an exercise price that is less than the exercise price of the original Options or Stock Appreciation Rights.
The Plan shall become effective on the Effective Date; provided, however, that, if the Plan is not approved by the stockholders upon submission to them for approval, the Plan shall be void ab initio and of no further force and effect.
Unless earlier terminated pursuant to Section 16, the Plan shall terminate on the tenth anniversary of the Effective Date, except with respect to Awards then outstanding, which shall remain subject to their terms. No Awards may be granted under the Plan after the tenth anniversary of the Effective Date.
| 16. | Amendment and Termination |
Notwithstanding anything herein to the contrary and subject to applicable laws, rules and regulations, the Board may, at any time, terminate or, from time to time, amend, modify or suspend the Plan; provided, however, that no termination, amendment, modification or suspension of the Plan (i) shall be effective without the approval of the stockholders of the Company if such approval is required under applicable laws, rules and regulations, including the rules of the NASDAQ Stock Market or (ii) shall materially and adversely alter or impair the rights of a Participant in any Award previously made under the Plan without the consent of the holder thereof and no amendment which increases the Plan Limit shall be effective without stockholder approval (other than in connection with a transaction or event described in Section 13(b) of the Plan). Notwithstanding the foregoing, the Board shall have broad authority to amend the Plan or any Award under the Plan without the consent of a Participant to the extent it deems necessary or desirable to (a) comply with, or take into account changes in or interpretation of applicable tax laws, securities laws, employment laws, accounting rules and other applicable laws, rules and regulations, (b) to take into account unusual or nonrecurring events or market conditions (including, without limitation, the events described in Section 13(b)), or (c) to take into account significant acquisitions or dispositions of assets or other property by the Company.
(a)Tax Withholding. The Company or a Subsidiary, as appropriate, may require any individual entitled to receive a payment in respect of an Award to remit to the Company, prior to such payment, an amount sufficient to satisfy any applicable tax withholding requirements. In the case of an Award payable in shares of Common Stock, the Company or a Subsidiary, as appropriate, may permit or require such individual to satisfy, in whole or in part, such obligation to remit taxes by directing the Company to withhold shares that would otherwise be received by such individual or to repurchase shares that were issued to such individual to satisfy the minimum statutory withholding rates for any applicable tax withholding purposes, in accordance with all applicable laws and pursuant to such rules as the Committee may establish from time to time. The Company or a Subsidiary, as appropriate, shall also have the right to deduct from all cash payments made to a Participant (whether or not such payment is made in connection with an Award) any applicable taxes required to be withheld with respect to such payments.
(b)No Right to Awards or Employment. No person shall have any claim or right to receive Awards under the Plan. Neither the Plan, the grant of Awards under the Plan, nor any action taken or omitted to be taken under the Plan shall be deemed to create or confer on any Eligible Individual any right to be retained in the employ of the Company or any Subsidiary or other affiliate thereof, or to interfere with or to limit in any way the right of the Company or any Subsidiary or other affiliate thereof to terminate the employment of such Eligible Individual at any time. No Award shall constitute salary, recurrent compensation or contractual compensation for the year of grant, any later year or any other period of time. Payments received by a Participant under any Award made pursuant to the Plan shall not be included in, nor have any effect on, the determination of employment-related rights or benefits under any other employee benefit plan or similar arrangement provided by the Company and the Subsidiaries, unless otherwise specifically provided for under the terms of such plan or arrangement or by the Committee.
(c)Section 16(b) of the Exchange Act. The Plan is intended to comply in all respects with Section 16 (b) of the Exchange Act.
(d)Securities Law Restrictions. An Award may not be exercised or settled, and no shares may be issued in connection with an Award, unless the issuance of such shares (i) has been registered under the Securities Act of 1933, as amended, (ii) has qualified under applicable state “blue sky” laws (or the Company has determined that an exemption from registration and from qualification under such state “blue sky” laws is available) and (iii) complies with all applicable foreign securities laws. The Committee may require each Participant purchasing or acquiring shares of Common Stock pursuant to an Award under the Plan to represent to and agree with the Company in writing that such Participant is acquiring the shares of Common Stock for investment purposes and not with a view to the distribution thereof. All certificates for shares of Common Stock delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under the rules, regulations, and other requirements of the Securities and Exchange Commission, any exchange upon which the shares of Common Stock are then listed, and any applicable securities law, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
(e)Award Document. In the event of any conflict or inconsistency between the Plan and any Award Document, the Plan shall govern and the Award Document shall be interpreted to minimize or eliminate any such conflict or inconsistency.
(f)Headings. The headings of sections herein are included solely for convenience of reference and shall not affect the meaning of any of the provisions of the Plan.
(g)Section 409A of the Code. To the extent that the Committee determines that any Award granted under the Plan is subject to Section 409A of the Code, the Award Document evidencing such Award shall incorporate the terms and conditions required by Section 409A of the Code. To the extent applicable, the Plan and Award Documents shall be interpreted in accordance with Section 409A of the Code and interpretive guidance issues thereunder. Notwithstanding any contrary provision in the Plan or an Award Document, if any provision of the Plan or an Award Document contravenes any regulations or guidance promulgated under Section 409A of the Code or would cause an Award to be subject to additional taxes, accelerated taxation, interest and/or penalties under Section 409A of the Code, such provision of the Plan or Award Document may be modified by the Committee without consent of the Participant in any manner the Committee deems reasonable or necessary. In making such modifications the Committee shall attempt, but shall not be obligated, to maintain, to the maximum extent practicable, the original intent of the applicable provision without contravening the provisions of Section 409A of the Code. Moreover, any discretionary authority that the Committee may have pursuant to the Plan shall not be applicable to an Award that is subject to Section 409A of the Code to the extent such discretionary authority would contravene Section 409A of the Code or the guidance promulgated thereunder.
(h)Satisfaction of Obligations. Subject to applicable law, the Company may apply any cash, Shares, securities or other consideration received upon exercise or settlement of an Award to any obligations a Participant owes to the Company and the Subsidiaries in connection with the Plan or otherwise, including, without limitation, any tax obligations or obligations under a currency facility established in connection with the Plan.
(i)No Limitation on Corporate Actions. Nothing contained in the Plan shall be construed to prevent the Company or any Subsidiary from taking any corporate action, whether or not such action would have an adverse effect on any Awards made under the Plan. No Participant, beneficiary or other person shall have any claim against the Company or any Subsidiary as a result of any such action.
(j)Successors. All obligations of the Company under the Plan with respect to Awards granted hereunder shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect purchase, merger, consolidation, or otherwise, of all or substantially all of the business and/or assets of the Company.
(k)Severability. If any provision of this Plan is held unenforceable, the remainder of the Plan shall continue in full force and effect without regard to such unenforceable provision and shall be applied as though the unenforceable provision were not contained in the Plan.
(l)Expenses. The cost and expenses of administering the Plan shall be borne by the Company.
(m)Application of Funds. The proceeds received by the Company from the sale of shares of Common Stock pursuant to Awards shall be used for general corporate purposes.
(n)Governing Law. The Plan and all agreements entered into under the Plan shall be construed in accordance with and governed by the laws of the State of New York.
(o)Unfunded Plan. The Plan is intended to constitute an unfunded plan for incentive compensation. Prior to the issuance of shares in connection with an Award, nothing contained herein shall give any Participant any rights that are greater than those of a general unsecured creditor of the Company. In its sole discretion, the Committee may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan to deliver shares with respect to awards hereunder.