UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
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|_| Preliminary Proxy Statement
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|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to ss.240.14a-12
LINCOLN EDUCATIONAL SERVICES CORPORATION
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(Name of Registrant as Specified In Its Charter)
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[LINCOLN EDUCATIONAL SERVICES LOGO]
200 EXECUTIVE DRIVE, SUITE 340
WEST ORANGE, NJ 07052
TEL: 973-736-9340
FAX: 973-736-1750
April 21, 2006
Dear Shareholder:
You are invited to attend the 2006 Annual Meeting of Shareholders of
Lincoln Educational Services Corporation to be held on Tuesday, May 23, 2006, at
the Wilshire Grand Hotel, 350 Pleasant Valley Way, West Orange, New Jersey
07052, at 10:00 a.m. local time.
At this year's meeting you will be asked to elect nine directors, ratify
the appointment of Deloitte & Touche LLP as our independent registered public
accounting firm for our fiscal year ending December 31, 2006 and to approve the
Lincoln Educational Services Corporation 2006 Employee Stock Purchase Plan. The
accompanying Notice of Meeting and Proxy Statement describe these matters. We
urge you to read this information carefully.
Your board of directors unanimously believes that the election of its
nominees for directors, the ratification of its selection of independent
registered public accounting firm and the approval of the Lincoln Educational
Services Corporation 2006 Employee Stock Purchase Plan are in the best interests
of the company and its shareholders, and, accordingly, recommends a vote FOR the
election of the nominees for directors, FOR the ratification of the selection of
Deloitte & Touche LLP as our independent registered public accounting firm and
FOR the approval of the Lincoln Educational Services Corporation 2006 Employee
Stock Purchase Plan.
In addition to the formal business to be transacted, management will
report on the progress of our business and respond to comments and questions of
general interest to shareholders.
We sincerely hope that you will be able to attend and participate in the
meeting. Whether or not you plan to come to the meeting, however, it is
important that your shares be represented and voted. You may vote your shares by
completing the accompanying proxy card or giving your proxy authorization via
the Internet. Please read the instructions on the accompanying proxy card for
details on giving your proxy authorization via the Internet.
BY COMPLETING AND RETURNING THE ACCOMPANYING PROXY CARD OR BY GIVING
YOUR PROXY AUTHORIZATION VIA THE INTERNET, YOU AUTHORIZE MANAGEMENT TO REPRESENT
YOU AND VOTE YOUR SHARES ACCORDING TO YOUR INSTRUCTIONS. SUBMITTING YOUR PROXY
NOW WILL NOT PREVENT YOU FROM VOTING IN PERSON AT THE ANNUAL MEETING, BUT WILL
ASSURE THAT YOUR VOTE IS COUNTED IF YOUR PLANS CHANGE AND YOU ARE UNABLE TO
ATTEND.
Sincerely,
/s/ David F. Carney
-------------------
David F. Carney
CHAIRMAN AND CEO
LINCOLN EDUCATIONAL SERVICES CORPORATION
200 EXECUTIVE DRIVE, SUITE 340
WEST ORANGE, NEW JERSEY 07052
----------------------
NOTICE OF
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON TUESDAY, MAY 23, 2006
----------------------
To the Shareholders of Lincoln Educational Services Corporation:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of
Lincoln Educational Services Corporation, a New Jersey corporation (the
"Company"), will be held on Tuesday, May 23, 2006, at the Wilshire Grand Hotel,
350 Pleasant Valley Way, West Orange, New Jersey 07052, at 10:00 a.m. local
time. At the annual meeting, shareholders will be asked:
1. To elect nine directors to serve until the Company's next annual
meeting of shareholders and until their successors are duly
elected and qualified.
2. To ratify the appointment of Deloitte & Touche LLP as the
Company's independent registered public accounting firm for the
year ending December 31, 2006.
3. To approve the Lincoln Educational Services Corporation 2006
Employee Stock Purchase Plan.
4. To transact such other business as may properly come before the
annual meeting or any adjournment or postponement thereof and
may properly be voted upon.
The board of directors of the Company has fixed the close of business on
April 4, 2006 as the record date for the determination of shareholders entitled
to notice of and to vote at the annual meeting and any adjournment or
postponement thereof.
All shareholders are cordially invited to attend the annual meeting in
person. Shareholders of record as of the close of business on April 4, 2006, the
record date, will be admitted to the annual meeting upon presentation of
identification. Shareholders who own shares of Common Stock beneficially through
a bank, broker or other nominee will be admitted to the annual meeting upon
presentation of identification and proof of ownership or a valid proxy signed by
the record holder. A recent brokerage statement or a letter from a bank or
broker are examples of proof of ownership. If you own shares of the Company's
Common Stock beneficially and want to vote in person at the annual meeting, you
should contact your broker or applicable agent in whose name the shares are
registered to obtain a broker's proxy and bring it to the annual meeting in
order to vote.
WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING, PLEASE RETURN
YOUR PROXY (BY COMPLETING AND RETURNING THE ACCOMPANYING PROXY CARD OR BY GIVING
PROXY AUTHORIZATION VIA THE INTERNET) AS PROMPTLY AS POSSIBLE TO ENSURE YOUR
REPRESENTATION AT THE MEETING. EVEN IF YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL
VOTE IN PERSON IF YOU ATTEND THE ANNUAL MEETING.
By Order of the Board of Directors
/s/ Alexandra M. Luster
-----------------------
Alexandra M. Luster
SECRETARy
West Orange, New Jersey
April 21, 2006
LINCOLN EDUCATIONAL SERVICES CORPORATION
200 EXECUTIVE DRIVE, SUITE 340
WEST ORANGE, NEW JERSEY 07052
----------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD
TUESDAY, MAY 23, 2006
----------------------
GENERAL
This Proxy Statement is provided to the shareholders of Lincoln
Educational Services Corporation, a New Jersey corporation (the "Company"), to
solicit proxies, in the form enclosed, for use at the Annual Meeting of
Shareholders of the Company to be held on Tuesday, May 23, 2006, at the Wilshire
Grand Hotel, 350 Pleasant Valley Way, West Orange, New Jersey 07052, at 10:00
a.m. local time, and any and all adjournments or postponements thereof. The
board of directors knows of no matters to come before the annual meeting other
than those described in this Proxy Statement. This Proxy Statement and the
enclosed form of proxy are first being mailed to shareholders on or about April
21, 2006.
SOLICITATION
This solicitation is made by mail on behalf of the board of directors of
the Company. The Company will pay for the costs of the solicitation. Further
solicitation of proxies may be made, including by mail, telephone, fax, in
person or other means, by the directors, officers or employees of the Company or
its affiliates, none of whom will receive additional compensation for such
solicitation. The Company will reimburse banks, brokerage firms and other
custodians, nominees and fiduciaries for reasonable expenses incurred by them in
sending proxy materials to their customers or principals who are the beneficial
owners of shares of the Company's common stock, no par value per share (the
"Common Stock").
VOTING PROCEDURES
Only those holders of Common Stock of record as of the close of business
on April 4, 2006, the record date, will be entitled to notice of and to vote at
the annual meeting. A total of 25,198,971 shares of Common Stock were issued and
outstanding as of the record date. Each share of Common Stock entitles its
holder to one vote. Cumulative voting of shares of Common Stock is not
permitted.
The presence in person or by proxy of holders of a majority of the
outstanding shares of Common Stock entitled to vote will be necessary to
constitute a quorum to transact business at the annual meeting. Abstentions will
be treated as present for purposes of determining the existence of a quorum. At
the annual meeting, directors will be elected by a plurality of the votes cast
and a majority of the votes cast will be required to ratify the appointment of
Deloitte & Touche LLP as the Company's independent registered public accounting
firm and the approval of the Lincoln Educational Services Corporation 2006
Employee Stock Purchase Plan. Abstentions, however, will not be counted as votes
"for" or "against" the ratification of the appointment of Deloitte & Touche LLP.
It is expected that brokers will have discretionary power to vote on each of the
proposals.
Shares of Common Stock represented by properly executed proxies in the
form enclosed that are timely received by the Secretary of the Company and not
validly revoked will be voted as specified on the proxy. If no specification is
made on a properly executed and returned proxy, the shares represented thereby
will be voted FOR the election of each of the nine nominees for director named
in this Proxy Statement, FOR the ratification of the appointment of Deloitte &
Touche LLP as the independent registered public accounting firm of the Company
and FOR the approval of the Lincoln Educational Services Corporation 2006
Employee Stock Purchase Plan. If any other matters properly come before the
annual meeting, it is the intention of the persons named in the accompanying
proxy to vote such proxies in their discretion. In order to be voted, each proxy
must be filed with the Secretary of the Company prior to exercise.
REVOCABILITY OF PROXIES
Shareholders may revoke a proxy at any time before the proxy is
exercised. This may be done by filing a notice of revocation of the proxy with
the Secretary of the Company, by filing a later-dated proxy with the Secretary
of the Company, or by voting in person at the annual meeting.
1
PROPOSAL NUMBER ONE--ELECTION OF DIRECTORS
Shareholders will be asked at the annual meeting to elect nine
directors. Our bylaws allow for a minimum of three directors and a maximum of 11
directors. Each elected director will hold office until the next annual meeting
of shareholders and until the director's successor is duly elected and
qualified. The board of directors knows of no reason why any of the nominees
would be unable or unwilling to serve, if elected, but if any nominee should for
any reason be unable or unwilling to serve, if so elected, the proxies received
by the Company will be voted for the election of such other person for the
office of director as the Board of Directors may recommend in the place of such
nominee.
Shareholders may withhold authority to vote their proxies for either (i)
the entire slate of nominated directors by checking the box marked WITHHOLD
AUTHORITY on the proxy card, or (ii) any one or more of the individual nominees,
by following the instructions on the proxy card. Instructions on the
accompanying proxy card that withhold authority to vote for one or more of the
nominees will cause any such nominee to receive fewer votes.
The following nine persons have been selected by the board of directors
as nominees for election to the board of directors: David F. Carney, Alexis P.
Michas, James J. Burke, Jr., Steven W. Hart, Jerry G. Rubenstein, Paul E.
Glaske, Peter S. Burgess, J. Barry Morrow and Celia Currin. All of the nominees
are incumbent directors. Additional information about these nominees is provided
in the table and biographical information that follow.
REQUIRED VOTE
A plurality of the votes cast at the annual meeting is required for the
election of directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF THE NAMED
NOMINEES.
BOARD OF DIRECTORS, EXECUTIVE OFFICERS AND SENIOR MANAGEMENT
The following sets forth certain information concerning the directors,
executive officers and senior management of the Company as of the record date
for the annual meeting:
NAME AGE POSITION HELD
- ------------------------------------- ---------- -------------------------------------------------------------------
David F. Carney (1) 66 Chief Executive Officer and Chairman of the Board of Directors
Lawrence E. Brown 58 President, Chief Operating Officer
Scott M. Shaw 43 Senior Vice President, Strategic Planning and Development
Cesar Ribeiro 42 Vice President, Chief Financial Officer and Treasurer
Alexandra M. Luster 41 Vice President, General Counsel and Secretary
Thomas F. McHugh 58 Senior Vice President and Chief Compliance Officer
Alexis P. Michas (1) (3) (4) 48 Director
James J. Burke, Jr. (1) (3) (4) 54 Director
Steven W. Hart (3) 49 Director
Jerry G. Rubenstein (2) (5) 75 Director
Paul E. Glaske (3) (4) (5) 72 Director
Peter S. Burgess (2) (5) 63 Director
J. Barry Morrow (4) (5) 53 Director
Celia Currin (2) (5) 57 Director
- --------------------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Nominating and Corporate Governance Committee.
(5) Independent director.
DAVID F. CARNEY joined us in 1999 as Chief Executive Officer and
Chairman of the board of directors, prior to which he served as a consultant
following the sale of his two school companies to Computer Learning Centers,
Inc. Previously, Mr. Carney spent 20 years in various capacities with British
Oxygen Group Limited, including CFO and Vice President of Development of the
Education Services Division which operated 25 technical schools. From 1990 to
1992, Mr. Carney was President of the Massachusetts Association of Private
Career Schools. Mr. Carney received a B.S. from Seton Hall University. Mr.
Carney has over 29 years of experience in the career education industry.
2
LAWRENCE E. BROWN joined us in 1973 and currently serves as our
President and Chief Operating Officer. Prior to taking this position, Mr. Brown
held various positions with us including Assistant Director, Executive Director,
Regional Vice President, Vice President of Operations and Executive Vice
President. Mr. Brown oversees the operations of each of our 35 campuses. He has
also served as President of the Private Career Schools of New Jersey and State
Captain of the Skills 2000 lobbying effort for the reauthorization of the Higher
Education Act of 1992. Mr. Brown received a B.A. from Northern Illinois
University. Mr. Brown has over 33 years of experience in the career education
industry.
SCOTT M. SHAW joined us in 2001 and currently serves as our Senior Vice
President, Strategic Planning & Development, prior to which he was a partner at
Stonington Partners, Inc., where he had been since 1994. As a partner at
Stonington, Mr. Shaw was responsible for identifying, evaluating and acquiring
companies and then assisting in the oversight of these companies through
participation on the board of directors. In addition, Mr. Shaw worked closely
with senior management to develop long-term strategic plans, to evaluate
acquisition and new investment opportunities, to assist with refinancings, and
to execute on the final sale of the company either to the public or to another
company. Mr. Shaw also served as a consultant to Merrill Lynch Capital Partners
Inc., a private investment firm associated with Merrill Lynch & Co., Inc. from
1994 through 2000. Mr. Shaw holds an M.B.A. from the Wharton School of Business
and a B.A. from Duke University.
CESAR RIBEIRO joined us in 2004 as Vice President, Chief Financial
Officer and Treasurer. From September 2002 through June 2004, Mr. Ribeiro was
self-employed providing both consulting services and private money management
services. Prior to that, he was an audit partner with Arthur Andersen LLP, where
he had been since 1987. Mr. Ribeiro holds a B.S. from Rutgers University.
ALEXANDRA M. LUSTER joined us in 1995 and currently serves as our Vice
President, General Counsel and Secretary, prior to which she practiced law in
the private arena for four years. Mrs. Luster received a B.A. from Fordham
University and her Juris Doctor from Seton Hall University School of Law.
THOMAS F. MCHUGH joined us in 2000 and currently serves as our Senior
Vice President and Chief Compliance Officer. Mr. McHugh is responsible for all
regulatory compliance issues (States, Accreditation, US Department of Education
- -Title IV) with a focus on ensuring that the Company's policies and actions with
regards to regulatory and financial aid are in compliance at all levels. Mr.
McHugh has 30 years of experience in this industry serving in various financial,
planning and oversight roles of increasing levels of responsibility. His most
recent position prior to joining the company was as Director of Review and
Analysis at Computer Learning Centers. Mr. McHugh is a graduate of Fordham
University and holds a Master's Degree from Rutgers University.
ALEXIS P. MICHAS has served on our board of directors since 1999. He has
been the Managing Partner and a director of Stonington Partners, Inc. since
1994. Mr. Michas also served as a consultant to Merrill Lynch Capital Partners,
Inc., a private investment firm associated with Merrill Lynch & Co., Inc., from
1994 through 2000. Mr. Michas received a B.A. from Harvard University and an
M.B.A. from Harvard University Graduate School of Business Administration. Mr.
Michas also is a director of BorgWarner Inc. and Perkin Elmer, Inc.
JAMES J. BURKE, JR. has served on our board of directors since 1999. He
has been a partner and director of Stonington Partners Inc. since 1994. Mr.
Burke also served as a consultant to Merrill Lynch Capital Partners, Inc., a
private investment firm associated with Merrill Lynch & Co., Inc., from 1994
through 2000. He received a B.A. from Brown University and an M.B.A from Harvard
University Graduate School of Business Administration. Mr. Burke also serves on
the board of directors of Ann Taylor Stores Corporation.
STEVEN W. HART has served on our board of directors since 1999. Mr. Hart
is the owner and President of Hart Capital LLC, a private investment fund that
invests primarily in the education sector, which is the managing member of Five
Mile River Capital Partners LLC. Mr. Hart has more than 20 years of experience
as a principal investing in and managing companies in a wide range of
industries, and has actively served in several not-for-profit capacities. From
1995 to 2003, he served as Chairman of the Investment Advisory Council which
advises the State Treasurer regarding the management of the State of Connecticut
Retirement Plans & Trust Funds. From 1996 to 2003, he served as Trustee and then
Chairman of the Stanford University Business School Endowment Trust. Mr. Hart is
on the Board of Trustees of the South Street Seaport Museum and of Emagination
Foundation, Inc. Mr. Hart received a B.A. in Mathematics and Economics from
Wesleyan University and an M.B.A. from Stanford University Graduate School of
Business.
JERRY G. RUBENSTEIN has served on our board of directors since 1999. Mr.
Rubenstein has organized and managed several entrepreneurial ventures, including
OMNI Management Associates, where he has served as President since 1979. Mr.
Rubenstein currently serves on the boards of directors of The Philadelphia
Chamber Music Society (as Chairman), Marlboro Music School, Inc., and Foreign
Policy Research Institute. Mr. Rubenstein received his bachelor of business
administration from the City College of New York.
3
PAUL E. GLASKE has served on our board of directors since 2004. Mr.
Glaske was Chairman and Chief Executive Officer from April 1992 until his
retirement in 1999 of Blue Bird Corporation, a leading manufacturer of school
buses, motorhomes and a variety of other vehicles. He currently serves on the
board of directors of BorgWarner Inc., Camcraft, Inc. and Energy Transfer
Partners. He is also on the Senior Council of the Texas Association of Business
and is Treasurer of the Board of Trustees of LeTourneau University. Mr. Glaske
earned his B.S. in Business Administration from Bob Jones University and his
M.B.A. from Pepperdine University.
PETER S. BURGESS, CPA was elected to our board of directors on July 8,
2004. In 1999, Mr. Burgess retired from Arthur Andersen LLP where he was an
accounting and business advisory partner serving numerous manufacturing,
insurance and financial services enterprises. Following his retirement, he has
provided consulting services specializing in litigation support, mergers and
acquisitions and audit committee responsibilities under securities exchange
requirements and the Sarbanes-Oxley Act. Mr. Burgess is also a director and
chair of the audit committees of PMA Capital Corporation and John Hancock Trust
and Funds II and III. He also serves as a director of Duncaster Inc., a
not-for-profit continuing care retirement community. Mr. Burgess earned a B.S.
in Business Administration from Lehigh University.
J. BARRY MORROW was elected to our board of directors on February 24,
2006. He served as the Chief Executive Officer of Collegiate Funding Services
from 2002 until 2006 when the company was merged with JPMorgan Chase and
currently serves as the President of Chase Education Finance. Mr. Morrow held
the position of President and Chief Operating Officer of Collegiate Funding from
2000 to 2002. Prior to joining Collegiate Funding Services, Mr. Morrow served
with the U.S. Department of Education as the General Manager of Financial
Services for the Office of Student Financial Assistance and with SallieMae as
the Vice President of Regional Operations. Mr. Morrow holds a B.A. from Virginia
Tech and a M.A. in public administration from George Washington University.
CELIA CURRIN was elected to our board of directors on February 24, 2006.
Ms. Currin is the Founder and Principal of BenchStrength Marketing, a marketing
consultancy group focused on the information and media industries. Prior to
founding BenchStrength in 2003, Ms. Currin spent 25 years with Dow Jones &
Company in a variety of roles including as Marketing Communications Director for
The Wall Street Journal. Ms. Currin received her MBA from Harvard Business
School and her BS from the University of Oregon.
INFORMATION ON BOARD OF DIRECTORS AND ITS COMMITTEES
The board of directors met seven times in 2005 and took action on three
occasions during 2005 by unanimous written consent. No current member of our
board of directors who served during in 2005 attended less than 86% of the
aggregate number of meetings held by the board of directors during 2005 and by
all committees of which such director is a member.
The Company encourages each member of the board of directors to attend
the annual meeting of the Company's shareholders.
The board of directors has an Audit Committee, a Compensation Committee
and a Nominating & Corporate Governance Committee.
AUDIT COMMITTEE
The Audit Committee consists of Directors Burgess (Chairman), Rubenstein
and Currin. It held four meetings in 2005. The board of directors has adopted a
written charter for the Audit Committee. The charter of the Audit Committee is
attached to this Proxy Statement as Appendix B and is also available on our
website at WWW.LINCOLNEDUCATIONALSERVICES.COM. The Audit Committee is directly
responsible for our accounting and financial reporting processes; the quality
and integrity of our financial statements; the quality and integrity of our
system of internal controls; our compliance with laws and regulations; our
independent auditor's qualifications and independence; and the audit of our
financial statements by a qualified independent auditor.
To fulfill these responsibilities, the audit committee will be aware of
the current areas of greatest financial risk to us and understand management's
assessment and management of the risks; consider the effectiveness of our
disclosure controls and procedures to promote timely, accurate, compliant and
meaningful disclosure in our periodic reports filed with the Securities and
Exchange Commission ("SEC"); periodically review with the independent auditors
their assessment as to the adequacy of our structure of internal controls over
financial accounting and reporting, and their qualitative judgments as to the
accounting principles employed and related disclosures by us and the conclusions
expressed in our financial reports; review with management and the independent
auditors our accounting policies and practices to ensure they meet the
requirements with respect to the FASB, the SEC and the American Institute of
Certified Public Accountants; select, evaluate and, if necessary, replace our
independent auditors; actively engage in dialogue with the independent auditors
with respect to any disclosed relationships or services that may impact the
objectivity or independence of the independent auditors; engage advisors, as the
committee determines is necessary, to carry out its duties; meet with the
independent auditors, the internal auditors and senior management to review the
scope and methodology of the
4
proposed audit; discuss with management policies and practices regarding
earnings press releases, as well as financial information and earnings
guidelines provided to analysts and rating agencies; set clear hiring policies
with respect to any current or former employees of our independent auditors; and
establish procedures for the receipt, retention and treatment of complaints we
receive regarding our internal accounting controls or auditing matters and for
the confidential, anonymous submission by employees of their concerns regarding
our internal accounting controls and auditing matters.
The board of directors has determined that each of Messrs. Burgess and
Rubenstein is an "audit committee financial expert" within the meaning of the
regulations of the SEC.
AUDIT COMMITTEE REPORT
THIS AUDIT COMMITTEE REPORT SHALL NOT BE DEEMED TO BE "SOLICITING
MATERIAL" OR TO BE "FILED" WITH THE SEC NOR SHALL THIS INFORMATION BE
INCORPORATED BY REFERENCE INTO ANY FUTURE FILING UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES EXCHANGE ACT OF 1934, EACH AS AMENDED, EXCEPT TO THE
EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES IT BY REFERENCE INTO A FILING.
The Audit Committee is comprised of three directors and acts under a
written charter adopted and approved by the board of directors. Each member of
the Audit Committee has been determined by our board of directors to be an
independent director in conformity with the listing standards of the Nasdaq
National Market and the regulations of the Securities and Exchange Commission.
The Audit Committee operates under a written charter adopted by the board of
directors which is filed as Appendix B to this Proxy Statement, and is also
available for review on the Company's website at
WWW.LINCOLNEDUCATIONALSERVICES.COM.
Management has the primary responsibility for the Company's financial
statements and reporting process. The Company's independent registered public
accounting firm is responsible for expressing an opinion on the conformity of
the Company's audited financial statements to generally accepted accounting
principles. The Audit Committee reviews the Company's financial reporting
process on behalf of the board of directors. The limitations inherent in the
oversight role of a committee of the board of directors, however, do not provide
the Audit Committee with a basis independent of management and the Company's
independent registered public accounting firm to determine that accounting and
financial reporting principles and policies have been appropriately applied by
management or that the Company's internal control procedures designed to assure
compliance with accounting standards and applicable laws and regulations have
been appropriately implemented.
The Audit Committee has reviewed the Company's audited financial
statements and has discussed them with management and the independent registered
public accounting firm. The Audit Committee has also discussed with the
independent registered public accounting firm the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communication with Audit
Committees) and has received from the independent registered public accounting
firm the written disclosures required by Independence Standards Board Standard
No. 1 (Independence Discussion with Audit Committees) and discussed with them
their independence from the Company and its management. The Audit Committee has
further considered whether the independent registered public accounting firm's
provision of non-audit services to the Company is compatible with the auditors'
independence.
The independent registered public accounting firm reports directly to
the Audit Committee. The Audit Committee met with the internal and independent
registered public accounting firm four times in 2005, with and without
management present, to discuss the results of their examinations, their
evaluations of the Company's internal controls and the overall quality of the
Company's financial reporting. In addition, the Audit Committee met with the
Chief Executive Officer and Chief Financial Officer of the Company to discuss
the processes that they have undertaken to evaluate the accuracy and fair
presentation of the Company's financial statements and the effectiveness of the
Company's system of disclosure controls and procedures.
In reliance on the reviews and discussions described above, the Audit
Committee recommended to the board of directors that the audited financial
statements be included in the Company's Annual Report filed with the Securities
and Exchange Commission on Form 10-K for the year ended December 31, 2005.
AUDIT COMMITTEE
Peter S. Burgess, Chairman
Jerry G. Rubenstein
Celia Currin (1)
(1) Ms. Currin was not a member of the Audit Committee during 2005. John
Petillo was a member of the Audit Committee during 2005, but resigned
from the board of directors prior to the preparation of this report.
5
NOMINATING & CORPORATE GOVERNANCE COMMITTEE
The Nominating & Corporate Governance Committee consists of Directors
Michas (Chairman), Burke, Glaske and Morrow. The composition of the Nominating
and Corporate Governance Committee does not, and is not required to, satisfy the
independence requirements of The Nasdaq National Market because we are a
controlled company. The Committee held one meeting in 2005. The charter for the
Nominating & Corporate Governance Committee is published on our website at
WWW.LINCOLNEDUCATIONALSERVICES.COM. The Nominating & Corporate Governance
Committee is responsible for, among other things, making recommendations to the
board of directors with respect to corporate governance policies and reviewing
and recommending changes to the Company's corporate governance guidelines that
have been adopted by the board of directors. The Committee also recommends to
the board of directors candidates for nomination for election as directors of
the Company and appointments of directors as members of the committees of the
board of directors.
The Nominating & Corporate Governance Committee considers candidates for
directors suggested by shareholders for elections to be held at an annual
meeting of shareholders. Shareholders can suggest qualified candidates for
directors by complying with the advance notification and other requirements of
the Company's Bylaws regarding director nominations. Director nomination
materials submitted in accordance with the Bylaw procedures will be forwarded to
the Chairman of the Nominating & Corporate Governance Committee for review and
consideration. Director nominees suggested by shareholders will be evaluated in
the same manner, and subject to the same criteria, as other nominees evaluated
by the Committee. The Committee also considers candidates for director suggested
by its members, other directors and management and may from time to time retain
a third-party executive search firm to identify director candidates for the
Committee.
Generally, once the Nominating & Corporate Governance Committee has
identified a prospective nominee, the Committee makes an initial determination
as to whether to conduct a full evaluation of the candidate based on information
provided to the Committee with the recommendation of the candidate, as well as
the Committee's own knowledge of the candidate, which may be supplemented by
inquiries to the person making the recommendation or others. The initial
determination is based primarily on the need for additional directors to fill
vacancies or expand the size of the board of directors and the likelihood that
the candidate can satisfy the evaluation factors described below. If the
Committee determines, in consultation with the Chairman of the Board and other
directors, as appropriate, that additional consideration is warranted, it may
request a third-party search firm to gather additional information about the
candidate's background and experience and to report its findings to the
Committee. The Committee then evaluates the candidate against the standards and
qualifications set out in guidelines for director candidates adopted by the
board of directors, including the nominee's management, leadership and business
experience, skill and diversity, such as financial literacy and knowledge of
directorial duties, and integrity and professionalism.
The Committee also considers such other relevant factors as it deems
appropriate, including the current composition of the board of directors, the
balance of management and independent directors, the need for particular
expertise (such as Audit Committee expertise) and the evaluations of other
prospective nominees. In connection with this evaluation, the Committee
determines whether to interview the prospective nominee, and, if warranted, one
or more members of the Committee, and others as appropriate, interview
prospective nominees in person or by telephone. After completing this evaluation
and interview, the Committee makes a recommendation to the full board of
directors as to the persons who should be nominated by the board of directors
and the board of directors determines the nominees after considering the
recommendation of the Committee.
COMPENSATION COMMITTEE
The Compensation Committee consists of Directors Burke (Chairman),
Glaske, Hart and Michas. The composition of the compensation committee does not,
and is not required to, satisfy the independence requirements of The Nasdaq
National Market because we are a controlled company. It held five meetings in
2005. The Compensation Committee has the authority to develop and maintain a
compensation policy and strategy that creates a direct relationship between pay
levels and corporate performance and returns to stockholders; recommend
compensation and benefit plans to our board for approval; review and approve
annual corporate and personal goals and objectives to serve as the basis for the
chief executive officer's compensation, evaluate the chief executive officer's
performance in light of the goals and, based on such evaluation, determine the
chief executive officer's compensation; determine the annual total compensation
for our named executive officers; with respect to our equity-based compensation
plans, approve the grants of stock options and other equity-based incentives as
permitted under our compensation plans; review and recommend compensation for
non-employee directors to our board; and review and recommend employment
agreements, severance arrangements and change of control plans that provide for
benefits upon a change in control, or other provisions for our executive
officers and directors, to our board. The charter for the Compensation Committee
is published on our website at WWW.LINCOLNEDUCATIONALSERVICES.COM.
6
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
THIS COMPENSATION COMMITTEE REPORT SHALL NOT BE DEEMED TO BE "SOLICITING
MATERIAL" OR TO BE "FILED" WITH THE SEC NOR SHALL THIS INFORMATION BE
INCORPORATED BY REFERENCE INTO ANY FUTURE FILING UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES EXCHANGE ACT OF 1934, EACH AS AMENDED, EXCEPT TO THE
EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES IT BY REFERENCE INTO A FILING.
THE COMPENSATION COMMITTEE IS RESPONSIBLE FOR REVIEWING AND APPROVING
THE COMPANY'S COMPENSATION POLICIES AND THE COMPENSATION PAID TO EXECUTIVE
OFFICERS. THE FOLLOWING IS THE REPORT OF THE COMPENSATION COMMITTEE TO THE BOARD
OF DIRECTORS DESCRIBING COMPENSATION POLICIES AND RATIONALES APPLICABLE TO THE
COMPANY'S EXECUTIVE OFFICERS WITH RESPECT TO COMPENSATION PAID TO SUCH OFFICERS
FOR 2005.
COMPENSATION PHILOSOPHY. The Company's compensation program is designed
to offer executive officers competitive compensation based on the Company's
performance, its unique niche, strategy, business model and execution and on the
individual's contribution, performance and leadership. The Company's
compensation policies are intended to motivate, reward and retain highly
qualified executives for long-term strategic management and the enhancement of
shareholder value, to support a performance-oriented environment that rewards
achievement of specific internal Company goals, and to attract and retain
executives whose abilities are critical to the long-term success and
competitiveness of the Company. The Compensation Committee has reviewed all
components of the compensation of the Chief Executive Officer and the other
named executive officers, including salary, bonus, equity and long-term
incentive compensation, accumulated realized and unrealized stock options and
restricted stock gains, the dollar value to the executive and cost to the
company of all perquisites, and the actual projected payout obligations under
several potential severance and change-in-control scenarios.
The three main components in the Company's executive compensation
program are:
o Base Salary
o Incentive Bonus
o Stock Incentives
BASE SALARY. The salaries of Messrs. Carney, Brown, Shaw and Ribeiro are
established by their respective employment agreements with the Company and are
modified as determined by the Compensation Committee.
INCENTIVE BONUS. Annual incentive bonuses for executive officers, if
any, are intended to reflect the Compensation Committee's belief that a portion
of the annual compensation of each executive officer should be contingent upon
the performance of the Company, as well as the individual contribution of each
officer. The amount of such bonus will be based upon the Company's achievement
of revenue, EBIT margin and net income targets as well as each officer's
achievement of key non-financial performance objectives, in each case
established each year by our board of directors or the Compensation Committee.
STOCK INCENTIVES. The Company, from time to time, grants restricted
stock, stock options and other incentives (the "stock incentives"), as
appropriate, as long-term incentives to motivate, reward and retain executive
officers. The Compensation Committee, which has responsibility for making grants
of stock incentives under the Company's 2005 Long Term Incentive Plan (the
"Incentive Plan"), believes that stock incentives provide an incentive that
focuses the executive's attention on the Company from the perspective of an
owner with an equity stake in the business. For example, stock options have been
granted with an exercise price equal to the fair market value of the Common
Stock on the date of grant, which provides value to the recipient only when the
price of the Company's stock increases above the exercise price (that is, only
to the extent that shareholders as a whole have benefited). Generally, stock
options granted to executive officers vest ratably over a three-year period
based on the option holder's continuous service with the Company.
EMPLOYMENT CONTRACTS. The Company offers employment contracts to key
executives only when it is in the best interest of the Company and its
shareholders to attract, motivate and retain such key executives and to ensure
continuity and stability of management.
Mr. Carney and other executive officers in good standing may receive a
discretionary annual bonus as determined by the Compensation Committee. In
determining the amounts of such bonuses, the Compensation Committee considers
the individual performance of each executive and the performance of the Company.
Messrs. Carney, Brown, Shaw and Ribeiro are eligible for cash bonuses as
well as stock options and restricted stock awards; the stock options and
restricted stock awards are granted under the Company's 2005 Long-Term Incentive
Plan.
7
SECTION 162(M) POLICY. Section 162(m) of the Internal Revenue Code of
1986, as amended, generally provides that publicly held companies may not deduct
compensation paid to certain of their top executive officers to the extent such
compensation exceeds $1 million per officer in any year. However, pursuant to
regulations issued by the Treasury Department, certain limited exceptions to
Section 162(m) apply with respect to performance-based compensation. Awards
granted under the Incentive Plan are intended to constitute qualified
performance-based compensation. The Company will continue to monitor the
applicability of Section 162(m) to its ongoing compensation arrangements. The
Company does not expect that amounts of compensation paid to its executive
officers will fail to be deductible because of Section 162(m).
COMPENSATION COMMITTEE
James J. Burke, Jr. (Chairman)
Paul E. Glaske
Alexis P. Michas
Steven W. Hart
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Burke, Glaske, Michas and Hart served on the Compensation
Committee during the 2005 fiscal year.
The Company had a consulting agreement with Hart Capital LLC ("Hart
Capital"), which terminated by its terms in June 2004, to advise us in
identifying acquisition and merger targets and assist us with the due diligence
reviews of and negotiations with these targets. Hart Capital is the managing
member of Five Mile River Capital Partners LLC, which is our second largest
stockholder. Steven W. Hart, the President of Hart Capital, is a member of our
board of directors. We paid Hart Capital a monthly retainer, reimbursement of
expenses and an advisory fee for its work on successful acquisitions or mergers.
In accordance with the agreement and in connection with the consummation of the
acquisition of New England Technical Institute, we paid Hart Capital
approximately $370,000 in 2005.
In 2003, we entered into a management service agreement with Stonington
Partners, Inc. ("Stonington"). Stonington, through its controlled subsidiary
Back to School Acquisition, L.L.C., is our largest shareholder and Alexis P.
Michas, a Managing Partner of Stonington, and James J. Burke, Jr., a Partner,
are members of our board of directors. In accordance with this agreement, we
paid Stonington a management fee of $750,000 in 2005 for management consulting
and financial and business advisory services. Such services included valuing
acquisitions and structuring their financing and assisting with new loan
agreements. This agreement terminated upon completion of our initial public
offering in June 2005.
Mr. Glaske does not have any relationship or transaction required to be
disclosed pursuant to Item 402(j) of Regulation S-K promulgated under the
Securities Exchange Act of 1934, as amended.
During the 2005 fiscal year, none of our executive officers served on
the Compensation Committee or board of directors of any other company of which
any of the members of our Compensation Committee or any of our directors was an
executive officer. While serving as one of our officers, Mr. Carney does not and
will not serve as a member of our Compensation Committee.
COMPENSATION OF DIRECTORS
The Company currently pays each of its non-employee directors annual
compensation of $25,000 for services to the Company. In addition, each
non-employee director receives $1,000 per board meeting attended in person or by
telephone. The chairman of each committee of the board receives an additional
$500 per board meeting attended.
Non-employee directors on committees of the board will each receive an
additional payment of $1,000 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 committee chairman will receive an additional $10,000 annual retainer.
Non-employee directors are also eligible to receive awards of restricted
stock under the 2005 Non-Employee Directors Restricted Stock Plan (the
Restricted Stock Plan) as compensation for their services as directors. On July
29, 2005, the board of directors approved a restricted stock grant of 3,069
shares of Common Stock to Directors Michas, Burke, Hart, Rubenstein, Glaske,
Burgess and Petillo under the Restricted Stock Plan. The per share fair market
value of the Common Stock on July 29, 2005 was $19.55. These restricted stock
awards will vest ratably on the first, second and third year anniversary of the
grant date. Mr. Petillo's restricted shares were immediately forfeited on
January 6, 2006, the date the board of directors accepted his resignation. On
March 1, 2006, the board of directors approved a restricted stock grant of 3,625
shares of Common Stock to Directors Morrow and Currin under the Restricted Stock
Plan. The per share fair market value of the Common Stock on March 1, 2006 was
$16.55. These restricted stock awards will vest ratably on the first, second and
third year anniversary of the grant date.
8
In addition, as of the date of each Annual Meeting, each non-employee
director shall automatically receive an award of restricted stock equal to
$30,000, provided that such non-employee director continues to serve as a
director of the Company immediately after such Annual Meeting.
Mr. Carney does not receive any fees or stock awards for his service as
a director.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the
Company during the fiscal years ended December 31, 2005, 2004 and 2003 to its
Chief Executive Officer and the three other most highly compensated executive
officers of the Company (the "Named Executive Officers") for services rendered
to the Company in all capacities during the last three fiscal years.
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
----------------------------- ---------------------------
RESTRICTED SECURITIES ALL OTHER
STOCK UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY $ BONUS $ AWARDS OPTIONS (#) (1)
- ---------------------------------- ------- ------------- ------------ ---------- ------------ --------------
DAVID F. CARNEY 2005 375,000 114,019 - - 4,200
CHAIRMAN OF THE BOARD AND 2004 360,000 460,000 - - 3,900
CHIEF EXECUTIVE OFFICER 2003 300,000 450,000 - - 3,600
LAWRENCE E. BROWN 2005 330,000 50,168 - - 4,200
PRESIDENT AND 2004 300,000 213,792 - - 3,900
CHIEF OPERATING OFFICER 2003 270,000 202,500 - - 3,600
SCOTT E. SHAW 2005 280,000 42,567 - - 4,200
SENIOR VICE PRESIDENT STRATEGIC 2004 270,000 192,595 - - 3,900
PLANNING & DEVELOPMENT 2003 240,000 180,000 - - 2,160
CESAR RIBEIRO (2) 2005 250,000 38,006 - - 2,231
VICE PRESIDENT, CHIEF FINANCIAL 2004 115,276 85,774 - - -
OFFICER AND TREASURER 2003 - - - - -
- --------------------------
(1) All Other Compensation consists of contributions made by the Company to
employee accounts under the Company's 401(k) plan.
(2) Mr. Ribeiro joined the Company as our Chief Financial Officer on June 7,
2004.
9
OPTION GRANTS IN LAST FISCAL YEAR
THE FOLLOWING TABLE CONTAINS INFORMATION REGARDING OPTION GRANTS BY THE COMPANY TO OUR
NAMED EXECUTIVE OFFICERS DURING THE FISCAL YEAR ENDED DECEMBER 31, 2005
PERCENT OF POTENTIAL REALIZABLE VALUE
NUMBER OF TOTAL OPTIONS AT ASSUMED ANNUAL RATES
SECURITIES GRANTED TO OF STOCK APPRECIATION
UNDERLYING EMPLOYEES EXERCISE FOR OPTION TERM (3)
OPTIONS IN FISCAL PRICE EXPIRATION ---------------------------------
NAME GRANTED (1) YEAR ($/SHARE) (2) DATE 5% 10%
- -------------------------------- --------------- ---------------- ----------------- -------------- ------------------- -------------
David F. Carney - - - - - -
Lawrence E. Brown - - - - - -
Scott M. Shaw - - - - - -
Cesar Ribeiro 15,000 7.90% $14.19 12/9/2015 $133,860 $339,228
- --------------------------
(1) Options were awarded under the Company's 2005 Long-Term Incentive Plan
and vest ratably on the first, second and third year anniversary of the
grant date.
(2) All options were granted at an exercise price equal to the fair market
value of the underlying stock on the date of grant.
(3) The amounts shown on this table represent hypothetical gains that could
be achieved for the respective options if exercised at the end of the
option term. These gains are based on assumed rates of stock
appreciation of 5% and 10% compounded annually from the date the
respective options were granted to their expiration date. The gains
shown are net of the option exercise price, but do not include
deductions for taxes or other expenses associated with the exercise.
Actual gains, if any, on stock option exercises will depend on the
future performance of our common stock, the optionholder's continued
employment through the option period and the date on which the options
are exercised. If our common stock does not increase in value after the
grant date of the options, the options are valueless.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AS OF IN-THE-MONEY OPTIONS
SHARES DECEMBER 31, 2005 AT DECEMBER 31, 2005 (2)
ACQUIRED VALUE ---------------------------------- ----------------------------------
NAME ON EXERCISE REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------------- -------------- --------------- ----------------- --------------- -----------------
David F. Carney 0 0 339,901 122,549 $3,488,073 $1,018,869
Lawrence E. Brown 0 0 211,367 84,533 2,089,975 612,769
Scott M. Shaw 0 0 204,848 80,652 2,042,663 598,517
Cesar Ribeiro 0 0 8,000 47,000 0 1,050
- --------------------------
(1) The value realized is calculated by multiplying the number of securities
underlying such options by the difference between the closing sale price
of the Common Stock on the Nasdaq National Market on the date of
exercise and the option exercise price.
(2) The value of unexercised in-the-money options is calculated by
multiplying the number of securities underlying such options by the
difference between the closing price of the Common Stock on the Nasdaq
National Market at December 31, 2005 and the option exercise price.
10
EMPLOYMENT AGREEMENTS
The Company has employment agreements with each of Messrs. Carney,
Brown, Shaw and Ribeiro.
The agreement with Mr. Carney provides that he will serve as our
Chairman and Chief Executive Officer. The initial period of his employment term
will terminate on January 1, 2007. We have agreed that we will compensate Mr.
Carney with a minimum annual base salary of $375,000. Mr. Carney will also be
eligible to earn an annual bonus for each calendar year during the term of his
employment, pursuant to the terms of our key management team incentive
compensation plan in effect for such calendar year. The amount of such bonus
will be based upon our achievement of revenue and net income targets and Mr.
Carney's achievement of key non-financial performance objectives, in each case
established each year by our board of directors or our compensation committee.
Mr. Carney will also be included, to the extent eligible, in all of our employee
benefit plans, programs and arrangements (including, without limitation, any
plans, programs or arrangements providing for retirement benefits, profit
sharing, disability benefits, health and life insurance or vacation and paid
holidays) that are established for, or made available to, our senior executives.
We currently provide Mr. Carney with an automobile for business and personal use
and pay for associated costs, including automobile insurance, parking and fuel,
in accordance with our practices as consistently applied to other key employees.
In addition, we will furnish Mr. Carney with coverage by our customary director
and officer indemnification arrangements, subject to applicable law.
INVOLUNTARY TERMINATION. In the event that during Mr. Carney's
employment term, there is an "Involuntary Termination" (as defined hereinafter)
of Mr. Carney's employment, we will pay him: (1) two times the amount of his
base salary, as is then in effect; (2) two times the average of his annual
bonus; (3) all outstanding reasonable travel and other business expenses
incurred as of the date of his termination; and (4) the employer portion of the
premiums necessary to continue his health care coverage for the earlier of (A)
one year and (B) the date on which he is covered under another group health
plan. Mr. Carney will also be entitled to (1) the continued use of an automobile
and payment of associated costs by us for the greater of (A) one year and (B)
the remainder of his employment term and (2) receive any other accrued
compensation and benefits otherwise payable to him as of the date of his
termination. All the aforementioned payments would be paid by us in a lump-sum
amount no later than 30 days after the date of his termination. This lump sum
payment may be deferred for six months, if necessary, to comply with the
American Jobs Creation Act of 2004. For purposes of Mr. Carney's employment
agreement, "Involuntary Termination" means the termination of his employment (1)
by us (or any successor thereto) without "Cause" (as defined in his employment
agreement) or (2) by Mr. Carney for "Good Reason" (as defined in his employment
agreement).
TERMINATION FOR CAUSE, DEATH OR DISABILITY; RESIGNATION OTHER THAN FOR
GOOD REASON. In the event that during Mr. Carney's employment term, Mr. Carney's
employment is terminated by us for Cause, or Mr. Carney resigns from his
employment other than for Good Reason, we will pay him (or his estate, if
applicable) his accrued but unpaid base salary earned through the date of
termination, unreimbursed expenses, plus any other accrued but unpaid employee
benefits earned through the date of his termination, including, without
limitation, any annual bonus due but not yet paid for a completed calendar year.
CHANGE IN CONTROL. Upon a Change in Control (as defined in his
employment agreement), we (or our successor) will continue the employment of Mr.
Carney, and Mr. Carney will continue performing services for us for a period of
two years commencing on the date of the Change in Control and ending on the
second anniversary thereof. Upon a Change in Control, all outstanding stock
options granted by us or any of our affiliates to Mr. Carney will become fully
vested and immediately exercisable on the date of the Change in Control.
During a 30-day period commencing on the first anniversary of the date
of the Change in Control, Mr. Carney will have the right to resign from his
employment with us (or our successor) for any reason and receive an amount equal
to (i) one times the amount of his base salary, as is then in effect, and (ii)
one times the average of his annual bonus paid to him for the two years
immediately prior to the year in which such resignation occurs. If, however,
such resignation constitutes an Involuntary Termination (as defined above), he
will receive payments in accordance with an Involuntary Termination. All of the
aforementioned payments would be paid by us in a lump-sum amount no later than
30 days after the date of his termination.
REDUCTION IN PAYMENTS. The employment agreement contains an Internal
Revenue Code, as amended (referred to as the "Code") Section 280G "cusp"
provision. In the event that any payment or distribution by us to or for the
benefit of Mr. Carney 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 Code Section 4999, is less than the amount Mr. Carney 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. Carney if already paid to him) to an amount that will equal
three times his average "base amount" less $1.00.
11
NONCOMPETITION. Mr. Carney is subject to a noncompetition restrictive
covenant during the term of his employment and for one year thereafter, although
the covenant will not apply if his employment is terminated due to an
Involuntary Termination or he resigns during the 30-day period commencing on the
first anniversary of a Change in Control.
NONSOLICITATION. Mr. Carney is subject to a nonsolicitation restrictive
covenant of clients, employees and key consultants during the term of this
employment and for one year thereafter.
CONFIDENTIALITY. Mr. Carney is subject to a confidentiality restrictive
covenant of unlimited duration.
The terms of the Company's employment agreements for Messrs. Brown, Shaw
and Ribeiro are identical to those set forth in Mr. Carney's employment
agreement described above, except that (a) Mr. Brown will serve as President and
Chief Operating Officer and will receive a minimum annual base salary of
$330,000; (b) Mr. Shaw will serve as Senior Vice President, Strategic Planning
and Business Development, and will receive a minimum annual base salary of
$280,000; (c) Mr. Ribeiro will serve as Vice President, Chief Financial Officer
and Treasurer, and will receive a minimum annual base salary of $250,000; and
(d) in the event of an Involuntary Termination of either of Messrs. Brown's,
Shaw's or Ribeiro's employment term, Mr. Brown shall only be entitled to receive
a payment of one and one half times his base salary and annual bonus and Messrs.
Shaw and Ribeiro shall only be entitled to receive a payment of one times their
base salary and annual bonus.
STOCK PERFORMANCE GRAPH
This graph compares the Company's total cumulative shareholder return on
its common stock during the period from June 23, 2005 (the date on which our
common stock first traded on The Nasdaq National Market) through December 31,
2005 with the cumulative return on the Russell 2000 Index and a Peer Issuer
Group Index. The peer issuer group consists of the companies identified below,
which were selected on the basis of the similar nature of their business. The
graph assumes that $100 was invested on June 23, 2005, and any dividends were
reinvested on the date on which they were paid.
[PERFORMANCE GRAPH]
LINC PEER GROUP S&P 500 RUSSELL 2000
---- ---------- ------- ------------
23-Jun-05 $ 100 $ 100 $ 100 $ 100
30-Jun-05 $ 100 $ 105 $ 99 $ 100
8-Jul-05 $ 100 $ 102 $ 99 $ 101
15-Jul-05 $ 102 $ 103 $ 101 $ 103
22-Jul-05 $ 100 $ 101 $ 101 $ 104
29-Jul-05 $ 99 $ 105 $ 102 $ 106
5-Aug-05 $ 71 $ 102 $ 102 $ 104
12-Aug-05 $ 73 $ 101 $ 102 $ 104
19-Aug-05 $ 74 $ 104 $ 100 $ 101
26-Aug-05 $ 76 $ 103 $ 100 $ 102
2-Sep-05 $ 76 $ 105 $ 101 $ 104
12-Sep-05 $ 75 $ 104 $ 102 $ 105
19-Sep-05 $ 71 $ 103 $ 102 $ 104
26-Sep-05 $ 68 $ 95 $ 100 $ 102
3-Oct-05 $ 59 $ 97 $ 101 $ 104
10-Oct-05 $ 62 $ 95 $ 99 $ 100
17-Oct-05 $ 63 $ 92 $ 98 $ 98
24-Oct-05 $ 62 $ 93 $ 97 $ 98
31-Oct-05 $ 65 $ 96 $ 99 $ 99
7-Nov-05 $ 73 $ 100 $ 101 $ 102
14-Nov-05 $ 71 $ 103 $ 102 $ 104
21-Nov-05 $ 69 $ 103 $ 103 $ 104
29-Nov-05 $ 68 $ 104 $ 104 $ 104
6-Dec-05 $ 70 $ 105 $ 104 $ 107
13-Dec-05 $ 70 $ 100 $ 104 $ 107
20-Dec-05 $ 72 $ 97 $ 104 $ 104
28-Dec-05 $ 72 $ 95 $ 104 $ 105
Companies in the Peer Group include Apollo Group, Inc., Corinthian
Colleges, Inc., Career Education Corp., DeVry, Inc., Education Management
Corporation, ITT Educational Services, Inc. Strayer Education, Inc. and
Universal Technical Institute, Inc.
12
THE PERFORMANCE GRAPH SHALL NOT BE DEEMED TO BE "SOLICITING MATERIAL" OR
TO BE "FILED" WITH THE SEC NOR SHALL THE INFORMATION IN THE GRAPH BE
INCORPORATED BY REFERENCE INTO ANY FUTURE FILING UNDER THE SECURITIES ACT OF
1933 OR THE SECURITIES EXCHANGE ACT OF 1934, EACH AS AMENDED, EXCEPT TO THE
EXTENT THAT THE COMPANY SPECIFICALLY INCORPORATES IT BY REFERENCE INTO A FILING.
SECURITY OWNERSHIP OF MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
The following tables provide information regarding the beneficial
ownership of Common Stock as of the record date for the annual meeting by (1)
each of the Company's directors, (2) each of the Named Executive Officers, (3)
all directors and executive officers as a group, and (4) each person known by
the Company to be the beneficial owner of more than 5% of the outstanding shares
of Common Stock. This table is based on information provided to the Company or
filed with the SEC by the Company's directors, executive officers and principal
shareholders. Except as otherwise indicated, the Company believes, based on
information furnished by such owners, that the beneficial owners of the Common
Stock listed below have sole investment and voting power with respect to such
shares, subject to community property laws where applicable.
CERTAIN BENEFICIAL OWNERS
As of April 4, 2006, the only persons or groups that are known to the
Company to be the beneficial owners of more than five percent of the outstanding
common stock are:
NUMBER OF SHARES OF COMMON STOCK PERCENT OF COMMON STOCK
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED BENEFICIALLY OWNED
- ------------------------------------------------------------------------------------------------------------------------------------
Back to School Acquisition L.L.C. (1) 20,463,169 77.1%
Hart Capital LLC (2) 2,187,100 8.2%
Blum Capital Partners, L.P. (3) 1,354,064 5.1%
- --------------------------
(1) As reported in a statement on Schedule 13G filed with the SEC on
February 14, 2006 by Stonington Capital Appreciation 1994 Fund, L.P.,
Stonington Partners, L.P., Stonington Partners, Inc., Stonington
Partners, Inc. II (collectively, "Stonington") and Back to School
Acquisition, L.L.C. ("BSA"). Stonington controls and has a 100% economic
interest in BSA. BSA (i) owns 18,165,500 shares; (ii) has the power to
direct the voting and, in certain circumstances the disposition, of
2,187,100 shares through a voting agreement with Five Mile River Capital
Partners LLC (of which Hart Capital LLC is the managing member), (iii)
has the power to direct the voting and, in certain circumstances the
disposition, of 71,171 shares (which includes 11,500 shares issuable
pursuant to currently exercisable options) through a stockholders
agreement with Steven W. Hart and the Steven W. Hart 2003 Grantor
Retained Annuity Trust, and (iv) upon the exercise of currently
exercisable options held by the Steven W. Hart 2005 Grantor Retained
Annuity Trust to purchase 39,398 shares of our common stock, will have
the power to direct the voting and, in certain circumstances the
disposition, of such shares through a stockholders agreement with the
Steven W. Hart 2005 Grantor Retained Annuity Trust. Alexis P. Michas is
the Managing Partner of Stonington and James J. Burke, Jr. is a Partner
of Stonington. Both are members of our board of directors. Both Back to
School Acquisition, L.L.C. and Stonington have their business address at
540 Madison Avenue, 25th Floor, New York, New York 10022. We have not
attempted to independently verify any of the foregoing information,
which is based solely upon the information contained in the Schedule
13G.
(2) As reported in a statement on Schedule 13G filed with the SEC on
February 13, 2006 by Steven W. Hart, Five Mile River Capital Partners
LLC ("FMRCP") and Hart Capital LLC ("Hart Capital"). These shares are
owned by FMRCP, of which Hart Capital is the managing member. Hart
Capital disclaims beneficial ownership of all shares of common stock
held by FMRCP. FMRCP is party to a Stockholders' Agreement with Back to
School Acquisition, L.L.C. ("BSA") and the Company (the "FMRCP
Stockholders' Agreement"). Pursuant to the FMRCP Stockholders'
Agreement, BSA has the power to direct the voting and, under certain
circumstances, through the exercise of drag-along rights, the
disposition, of all shares of common stock held by FMRCP. These shares
are also reported by Steven W. Hart and Hart Capital LLC under shared
voting power and shared dispositive power. Steven W. Hart, a member of
our board of directors, is the owner and President of Hart Capital. Both
FMRCP and Hart Capital have their business address at 131 Rowayton
Avenue, Rowayton, Connecticut 06853. We have not attempted to
independently verify any of the foregoing information, which is based
solely upon the information contained in the Schedule 13G.
(3) As reported in a statement on Schedule 13D filed with the SEC on January
9, 2006 by Blum Capital Partners, L.P. ("Blum L.P."), Richard C. Blum &
Associates, Inc. ("RCBA Inc."), Blum Strategic GP III, L.L.C. ("Blum GP
III"), Blum Strategic GP III, L.P. ("Blum GP III LP") and Saddlepoint
Partners GP, L.L.C. ("Saddlepoint GP") (collectively, "Blum"). Blum L.P.
is an investment advisor registered with the SEC. The sole general
partner of Blum L.P. is Richard C. Blum and Associates, Inc. Voting and
investment power concerning these shares are held solely by Blum L.P.,
Blum GP III and Saddlepoint GP. The principal business office address of
Blum L.P. and RCBA Inc. is 909 Montgomery Street, Suite 400, San
Francisco, California 94133. We have not attempted to independently
verify any of the foregoing information, which is based solely upon the
information contained in the Schedule 13D.
13
The following table sets forth information as to the beneficial
ownership of shares of common stock of each director, including each nominee for
director, and each Named Officer and all directors and executive officers of the
Company, as a group. Except as otherwise indicated in the footnotes to the
table, each individual has sole investment and voting power with respect to the
shares of common stock set forth.
NUMBER OF SHARES OF COMMON STOCK PERCENT OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED BENEFICIALLY OWNED
- ------------------------------------------------------------------------------------------------------------------------------------
David F. Carney (2) (3) 545,740 2.1%
Lawrence E. Brown (2) (4) 331,194 1.2%
Scott M. Shaw (2) (5) 323,460 1.2%
Cesar Ribeiro (2) (6) 8,000 *
Alexandra M. Luster (2) (7) 21,000 *
Thomas F. McHugh (2) (8) 19,500 *
Alexis P. Michas (9) 20,466,238 77.1%
James J. Burke, Jr. (10) 20,466,238 77.1%
Steven W. Hart (11) 2,297,669 8.7%
Jerry G. Rubenstein (12) 46,709 *
Paul E. Glaske (13) 5,569 *
Peter S. Burgess (14) 5,069 *
J. Barry Morrow (15) 3,625 *
Celia Currin (16) 3,625 *
----------------------------------------------------------------------------------
All executive officers and directors as a group 21,782,798 82.0%
- --------------------------
* Less than 0.5%.
(1) "Beneficial ownership" is a term broadly defined by the SEC in Rule
13d-3 under the Exchange Act, and includes more than the typical forms
of stock ownership, that is, stock held in the person's name. The term
also includes what is referred to as "indirect ownership," meaning
ownership of shares as to which a person has or shares investment or
voting power. For purpose of this table, a person or group of persons is
deemed to have "beneficial ownership" of any shares as of a given date
that such person or group has the right to acquire within 60 days after
such date.
(2) Unless otherwise noted, the business address for each of the executive
officers is 200 Executive Drive, Suite 340, West Orange, New Jersey
07052.
(3) Includes 115,288 shares of common stock currently held of record and
options to purchase 430,452 shares of common stock.
(4) Includes 65,626 shares of common stock currently held of record and
options to purchase 265,568 shares of common stock.
(5) Includes 65,626 shares of common stock currently held of record and
options to purchase 257,834 shares of common stock.
(6) Includes options to purchase 8,000 shares of common stock.
(7) Includes options to purchase 21,000 shares of common stock.
(8) Includes 5,000 shares of common stock currently held of record and
options to purchase 14,500 shares of common stock.
(9) Alexis P. Michas serves on our board of directors and is the Managing
Partner of Stonington, our largest shareholder, which owns, through its
controlled subsidiary Back to School Acquisition, L.L.C., 77.1% of our
common stock. Mr. Michas disclaims beneficial ownership of all but 3,069
shares of our common stock. Mr. Michas' business address is 540 Madison
Avenue, 25th Floor, New York, New York 10022.
(10) James J. Burke, Jr. serves on our board of directors and is a Partner of
Stonington, our largest shareholder, which owns, through its controlled
subsidiary Back to School Acquisition, L.L.C., 77.1% of our common
stock. Mr. Burke disclaims beneficial ownership of all but 3,069 shares
of our common stock. Mr. Burke's business address is 540 Madison Avenue,
25th Floor, New York, New York 10022.
(11) Mr. Hart serves on our board of directors and is the owner and President
of Hart Capital LLC, the Managing Member of Five Mile River Capital
Partners LLC ("FMRCP"). FMRCP is our second largest shareholder and owns
8.2% of our common stock as described in footnote (2) of the "Certain
Beneficial Owners" table on page 13 of this Proxy Statement. The amount
listed in the table includes shares of common stock held by FMRCP of
which Mr. Hart may be deemed to be the beneficial owner by virtue of his
ownership of membership interests in, and/or position as President of,
Hart Capital LLC. Mr. Hart disclaims beneficial ownership of these
shares of common stock. Mr. Hart directly owns 4,069 shares of our
common stock and options to purchase 11,500 shares of our common stock.
Mr. Hart is a party
14
to a Stockholders' Agreement, with Back to School Acquisition, L.L.C.
("BSA"), the Steven W. Hart 2003 Grantor Retained Annuity Trust (the
"2003 Trust") and the Company (the "Non-FMRCP Stockholders' Agreement").
Pursuant to the Non-FMRCP Stockholders' Agreement, BSA has the power to
direct the voting and, under certain circumstances, through the exercise
of drag-along rights, the disposition, of all shares of common stock
held by Mr. Hart and the 2003 Trust. Mr. Hart beneficially owns 55,602
shares of common stock held in the 2003 Trust and options to purchase
39,398 shares of common stock held in the Steven W. Hart 2005 Grantor
Retained Annuity Trust (the "2005 Trust"), as to both of which trusts
Mr. Hart serves as co-trustee. Upon exercise of any of the 39,398
options to purchase shares of common stock held by the 2005 Trust, the
2005 Trust will be required to enter into a Stockholders' Agreement with
the Company and BSA pursuant to which BSA will have the power to direct
the voting and, under certain circumstances, through the exercise of
drag-along rights, the disposition, of all shares of common stock held
by the 2005 Trust. The number presented above does not include 3,000
shares of common stock held either directly, or indirectly as sole
trustee for the benefit of Mr. Hart's children, by Mr. Hart's wife, as
to which he disclaims beneficial ownership. Mr. Hart's business address
is 131 Rowayton Avenue, Rowayton, Connecticut 06853.
(12) Jerry Rubenstein serves on our board of directors and is the beneficial
owner of 46,709 shares of our common stock. The amount listed in the
table includes options to purchase 33,070 shares of common stock. Mr.
Rubenstein's business address is Omni Management Associates, Two Bala
Plaza, Suite 300, Bala Cynwyd, Pennsylvania 19004.
(13) Paul Glaske serves on our board of directors. Mr. Glaske's business
address is 18136 South Shore Drive, Flint, Texas 75762.
(14) Peter Burgess serves on our board of directors. Mr. Burgess' business
address is 88 Sherwood Drive, Glastonbury, Connecticut 06033.
(15) J. Barry Morrow serves on our board of directors. Mr. Morrow's business
address is 10304 Spotsylvania Avenue, Fredericksburg, Virginia 22408.
(16) Celia Currin serves on our board of directors. Ms. Currin's business
address is 33 East End Avenue, New York, New York 10028.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and officers and beneficial owners of 10% or
more of the Company's Common Stock to file reports of ownership of, and
transactions in, the Company's securities with the Securities and Exchange
Commission, the Nasdaq National Market and the Company. Based solely on the
Company's review of copies of such forms received by it, the Company believes
that all Securities and Exchange Commission filing requirements applicable to
the Company's directors and executive officers and beneficial owners of 5% or
more of the Company's Common Stock for 2005 were timely met.
PROPOSAL NUMBER TWO--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
year ending December 31, 2006. 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
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
that firm's independence from the Company.
Shareholders will be asked at the annual 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 the
year 2006 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.
15
The SEC requires disclosure of fees billed by the Company's independent
registered public accounting firm for certain services. The following table sets
forth the aggregate fees paid to Deloitte & Touche LLP during the years ended
December 31, 2005 and 2004:
FEE CATEGORY 2005 2004
-------------------------------------------------------------
Audit Fees $ 462,139 $ 349,585
Tax Fees 78,796 35,770
All Other Fees 256,539 1,247,107
-------------------------------
Total Fees $ 797,474 $ 1,632,462
===============================
AUDIT FEES consisted principally of audit services of our consolidated
financial statements, review of our quarterly financial statements, and services
that are normally provided by the independent auditors in connection with
statutory and regulatory filings.
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 consisted primarily of professional services rendered in
connection of the Company's initial public offering filing and the Company's
401(k) and pension plan audits.
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
A majority of the votes cast at the annual meeting will be required to
ratify the appointment of Deloitte & Touche LLP as the Company's independent
registered public accounting firm for 2006.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NUMBER TWO.
PROPOSAL NUMBER THREE -- APPROVAL OF THE
LINCOLN EDUCATIONAL SERVICES CORPORATION
2006 EMPLOYEE STOCK PURCHASE PLAN
INTRODUCTION
The Compensation Committee of our board of directors approved, subject
to shareholder approval, the Lincoln Educational Services Corporation 2006
Employee Stock Purchase Plan (the "Purchase Plan"). Our board of directors have
also approved the Purchase Plan and directed that the Purchase Plan be submitted
for approval by our shareholders at our 2006 annual meeting of shareholders. The
full text of the Purchase Plan is set forth in Appendix A to this Proxy
Statement and the following summary description is qualified in its entirety by
reference to the full text of the Purchase Plan.
PURPOSE
The purpose of the Purchase Plan is to provide the employees of our
company and our subsidiaries with an opportunity to acquire an equity interest
in our company through the purchase of our common stock and, thus, to develop a
stronger incentive to work for our continued success. The Purchase Plan is
intended to be an "employee stock purchase plan" within the meaning of Section
423 of the Code, and is interpreted and administered in a manner consistent with
such intent.
ADMINISTRATION
The Purchase Plan is administered by the Compensation Committee of our
board of directors (the "Committee"). The Committee is authorized to make any
uniform rules that may be necessary to carry out the provisions of the Purchase
Plan. Subject to the terms of the Purchase Plan, the Committee shall determine
the term of each purchase period and the manner for determining the purchase
price of shares to be sold during the purchase period. The Committee is also
authorized to determine any questions arising in
16
the administration, interpretation and application of the Purchase Plan, and all
such determinations are conclusive and binding on all parties.
ELIGIBILITY AND NUMBER OF SHARES
If the Purchase Plan is approved by our shareholders, there will be a
total of 1,000,000 shares of our common stock available for purchase under the
Purchase Plan, subject to appropriate adjustments by the Committee in the event
of certain changes in the outstanding shares of common stock by reason of stock
dividends, stock splits, corporate separations, recapitalizations, mergers,
consolidations, combinations, exchanges of shares or similar transactions.
Any of our employees and any parent or subsidiary corporation of our
company approved for participation by our board of directors is eligible to
participate in the Purchase Plan. The Committee may exclude from any Purchase
Period (as defined below) any employee who has been employed for less than six
months and any employee whose customary employment is less than 35 hours per
week. "Purchase Period" means a quarterly period commencing February 1, May 1,
August 1, November 1, or such other period of time as may be designated by the
Committee.
Any eligible employee may elect to become a participant in the Purchase
Plan for any Purchase Period by filing an enrollment form with us before the
first day of the Purchase Period. The election form will be effective as of the
first day of the next succeeding Purchase Period following receipt by us of the
enrollment form and will continue to be effective until the employee modifies
his or her authorization, withdraws from the Purchase Plan or ceases to be
eligible to participate in the Purchase Plan.
No employee may participate in the Purchase Plan if the employee would
be deemed for purposes of the Code to own stock possessing 5% or more of the
total combined voting power or value of all classes of our stock.
As of April 1, 2006, we had approximately 2,000 employees who would be
eligible to participate in the Purchase Plan.
PARTICIPATION
An eligible employee who elects to participate in the Purchase Plan
authorizes us to make payroll deductions of a specified amount of the employee's
compensation. The minimum and maximum amount that may be withheld for any week
during a pay period is 1% and 25%, respectively, of the employee's gross cash
compensation. A participant may increase or decrease the amount of his or her
payroll deductions, or discontinue deductions entirely, at any time during an
offering period. A participant may also elect to withdraw from the Purchase Plan
during any Purchase Period, in which event the entire balance of his or her
payroll deductions during the Purchase Period will be paid to the participant in
cash within 15 days after our receipt of notice of the withdrawal. A participant
who stops payroll deductions during a Purchase Period may not thereafter resume
payroll deductions during the same Purchase Period, and any participant who
withdraws from the Purchase Plan will not be eligible to reenter the Purchase
Plan until the next succeeding Purchase Period.
We hold amounts withheld under the Purchase Plan as part of our general
assets until the end of the Purchase Period and then applied to the purchase of
common stock. No interest is credited to a participant for amounts withheld.
PURCHASE OF STOCK
Amounts deducted for a participant in the Purchase Plan are used to
purchase our common stock as of the last day of the Purchase Period at a price
established from time to time by the Committee, which shall be no less than 95%
of the Fair Market Value of a share of common stock on the last day of the
Purchase Period. All amounts so deducted are used to purchase the number of
shares of common stock (excluding fractional shares) that can be purchased with
such amount, unless the participant has properly notified us that he or she
elects to withdraw in cash all of such withheld amounts or to purchase a lesser
number of shares. Any amount a participant has elected to receive in cash or
that represents a fractional share will be refunded to the participant, without
interest, in cash within 15 days after the end of the Purchase Period.
If purchases by all participants would exceed the number of shares of
common stock available for purchase under the Purchase Plan, each participant
will be allocated a ratable portion of the available shares of common stock. Any
amount not used to purchase shares of common stock will be refunded to the
participant in cash.
Certificates for the number of shares of common stock purchased by a
participant are issued and delivered to him or her only upon request.
No more than $25,000 in Fair Market Value of shares of common stock may
be purchased by any participant under the Purchase Plan and all other employee
stock purchase plans we sponsor in any calendar year.
17
DEATH, DISABILITY, RETIREMENT OR OTHER TERMINATION OF EMPLOYMENT
If the employment of a participant is terminated for any reason,
including death, disability or retirement, the amounts previously withheld will
be refunded in cash to the participant within 15 days.
RIGHTS NOT TRANSFERABLE
The rights of a participant under the Purchase Plan are exercisable only
by the participant during his or her lifetime. No right or interest of any
participant in the Purchase Plan may be sold, pledged, assigned or transferred
in any manner other than by will or the laws of descent and distribution.
AMENDMENT OR MODIFICATION
Our board of directors may at any time terminate or amend the Purchase
Plan in any respect that will not adversely affect the rights of participants
pursuant to shares of common stock previously acquired under the Purchase Plan,
provided that approval by our shareholders is required to: (a) increase the
number of shares of common stock to be reserved under the Purchase Plan (except
for adjustments by reason of stock dividends, stock splits, corporate
separations, recapitalizations, mergers, consolidations, combinations, exchanges
of shares or similar transactions), (b) decrease the minimum purchase price, (c)
withdraw the administration of the Purchase Plan from the Committee, (d) except
as otherwise provided in the Purchase Plan, change the designation of
corporations whose employees will be eligible to participate in the Purchase
Plan, or (e) make any other amendment if shareholder approval of the amendment
is required in order to comply with the rules of the Nasdaq National Market or
other listing standards.
FEDERAL TAX CONSIDERATIONS
Payroll deductions under the Purchase Plan are made after taxes.
Participants do not recognize any additional income as a result of participation
in the Purchase Plan until the disposal of shares of common stock acquired under
the Purchase Plan or the death of the participant. Participants who hold their
shares of common stock for more than eighteen months or die while holding their
shares of common stock will recognize ordinary income in the year of disposition
or death equal to the lesser of: (a) the excess of the fair market value of the
shares of common stock on the date of disposition or death over the purchase
price paid by the participant; or (b) 10% of the fair market value of the shares
of common stock on the first day of the Purchase Period as of which the shares
were purchased. If the eighteen month holding period has been satisfied when the
participant sells the shares of common stock or if the participant dies while
holding the shares of common stock, we will not be entitled to any deduction in
connection with the disposition of such shares by the participant.
Participants who dispose of their shares of common stock within eighteen
months after the shares of common stock were purchased will be considered to
have realized ordinary income in the year of disposition in an amount equal to
the excess of the fair market value of the shares of common stock on the date
they were purchased by the participant over the purchase price paid by the
participant. If such dispositions occur, we generally will be entitled to a
deduction at the same time and in the same amount as the participants who make
those dispositions are deemed to have realized ordinary income.
Participants will have a basis in their shares of common stock equal to
the purchase price of their shares of common stock plus any amount that must be
treated as ordinary income at the time of disposition of the shares of common
stock, as explained above. Any additional gain or loss realized on the
disposition of shares of common stock acquired under the Purchase Plan will be
capital gain or loss.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL NUMBER THREE.
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-K
FOR THE YEAR ENDED DECEMBER 31, 2005, INCLUDING THE COMPANY'S CONSOLIDATED
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE, WILL BE MAILED TO
INTERESTED SHAREHOLDERS, WITHOUT CHARGE, UPON WRITTEN REQUEST. EXHIBITS TO THE
FORM 10-K 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'S AUDIT, COMPENSATION, NOMINATING & CORPORATE GOVERNANCE COMMITTEES,
ALONG WITH THE COMPANY'S CORPORATE GOVERNANCE GUIDELINES AND INTEGRITY ASSURANCE
PROGRAM, ARE AVAILABLE TO INTERESTED SHAREHOLDERS UPON REQUEST AND ARE POSTED ON
OUR WEBSITE AT WWW.LINCOLNEDUCATIONALSERVICES.COM. WRITTEN REQUESTS SHOULD BE
SENT TO LINCOLN EDUCATIONAL SERVICES CORPORATION, 200 EXECUTIVE DRIVE, SUITE
340, WEST ORANGE, NEW JERSEY 07052, ATTENTION: INVESTOR RELATIONS.
18
CORPORATE GOVERNANCE GUIDELINES AND CODE OF ETHICS
The board of director's corporate governance guidelines, which include
guidelines for determining director independence, director responsibilities,
director access to management and independent advisors, and director and
executive officer stock ownership guidelines, are posted on our website at
WWW.LINCOLNEDUCATIONALSERVICES.COM. The board of directors has determined that
the following five directors satisfy the Nasdaq National Market's independence
requirements: Messrs. Rubenstein, Glaske, Burgess, Morrow and Ms. Currin.
The Company has adopted an Integrity Assurance Program - A Code of
Business Ethics and 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 Securities and Exchange Commission
and Nasdaq National Market rules requiring a code of ethics for a company's
directors, officers and employees. A copy of the Integrity Assurance Program - A
Code of Business Ethics and Conduct is posted on our website at
WWW.LINCOLNEDUCATIONALSERVICES.COM. The Audit Committee must approve any
requests for amendments to or waivers from the Integrity Assurance Program 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 Securities and Exchange Commission and the Nasdaq National Market
on Form 8-K.
SHAREHOLDER PROPOSALS FOR THE COMPANY'S 2007 ANNUAL MEETING
Shareholder proposals that are intended to be presented at the Company's
2007 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 December 22, 2006 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 board of
directors must also comply with the current advance notice and other
requirements set forth in the Company's current 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 first 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 November 22, 2006 and December 22, 2006 based on this year's
notice mailing date of April 21, 2006).
COMMUNICATING WITH THE BOARD
You may contact any non-employee Director, or the entire Board, at any
time. Your communication should 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, Suite
340, West Orange, New Jersey 07052.
Communications are distributed to the Board, or any Board member as
appropriate, depending on the facts and circumstances outlined in the
communication. Certain items that are unrelated to the duties and
responsibilities of the Board 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.
OTHER INFORMATION
Proxy authorizations submitted via the Internet must be received by 5:00
p.m. (Eastern Daylight Time) on May 22, 2006. To give your proxy authorization
via the Internet, please read the instructions on 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
/s/ Alexandra M. Luster
-----------------------
Alexandra M. Luster
SECRETARY
West Orange, New Jersey
April 21, 2006
19
ANNUAL MEETING OF SHAREHOLDERS OF
LINCOLN EDUCATIONAL SERVICES CORPORATION
MAY 23, 2006
Please date, sign and mail your proxy card in the
envelope provided as soon as possible.
v FOLD AND DETACH HERE AND READ THE REVERSE SIDE v
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
PLEASE MARK YOUR VOTES LIKE THIS |X|
1. Election of Directors:
[ ] 01. David F. Carney [ ] 06. Paul E. Glaske
[ ] 02. Alexis P. Michas [ ] 07. Peter S. Burgess
[ ] 03. James J. Burke, Jr. [ ] 08. J. Barry Morrow
[ ] 04. Steven W. Hart [ ] 09. Celia Currin
[ ] 05. Jerry G. Rubenstein
FOR ALL NOMINEES WITHHOLD AUTHORITY FOR ALL EXCEPT
(See instructions
below)
[ ] [ ] [ ]
(TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE(S), MARK "FOR ALL
EXCEPT" AND FILL IN THE CIRCLE NEXT TO EACH NOMINEE YOU WISH TO WITHHOLD, AS
SHOWN HERE) [X]
To change the address on your account, please check the box at right and
indicate your new address in the address space to the left. Please note that
changes to the registered name(s) on the account may not be submitted via this
method. [ ]
2. Ratification of the appointment of Deloitte & Touche LLP to serve as the
Company's independent registered public accounting firm for the fiscal
year ending December 31, 2006.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. Approval of the Lincoln Educational Services Corporation 2006 Employee
Stock Purchase Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment(s) or postponement(s) thereof and as to which
the undersigned hereby confers discretionary authority to the proxies.
CHECK HERE IF YOU PLAN TO ATTEND THE MEETING [ ]
Signature _______________________ Signature _______________________ Date: ______
NOTE: Please sign exactly as your name appears hereon. When shares are held by
joint owners, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give title as such. If a
corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
LINCOLN EDUCATIONAL SERVICES CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder of Lincoln Educational Services Corporation, a New
Jersey corporation (the "Company"), hereby appoints David F. Carney and Lawrence
E. Brown, and each of them, as proxies for the undersigned, with full power of
substitution in each of them, to attend the Annual Meeting of Shareholders of
the Company to be held on Tuesday, May 23, 2006, at 10:00 a.m., local time, at
the Wilshire Grand Hotel, 350 Pleasant Valley Way, West Orange, New Jersey
07052, and any adjournment(s) or postponement(s) thereof, to cast on behalf of
the undersigned all votes that the undersigned is entitled to cast at such
meeting and otherwise to represent the undersigned at the meeting, with the same
effect as if the undersigned were present. The undersigned hereby acknowledges
receipt of the Notice of Annual Meeting of Shareholders and the accompanying
Proxy Statement and revokes any proxy previously given with respect to such
shares.
THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED WILL BE CAST IN ACCORDANCE WITH
THE SPECIFICATIONS MADE BY THE UNDERSIGNED. IF THIS PROXY IS EXECUTED, BUT NO
SPECIFICATION IS MADE BY THE UNDERSIGNED, THE VOTES ENTITLED TO BE CAST BY THE
UNDERSIGNED WILL BE CAST "FOR" ALL NOMINEES AND THE FOREGOING PROPOSALS AND
OTHERWISE IN THE DISCRETION OF THE PROXIES AT THE ANNUAL MEETING OR ANY
ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF.
(CONTINUED AND TO BE DATED AND SIGNED ON REVERSE SIDE)
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APPENDIX A
LINCOLN EDUCATIONAL SERVICES CORPORATION
2006 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company with an opportunity to purchase Common Stock of the Company through
accumulated payroll deductions. It is the intention of the Company to have the
Plan qualify as an "Employee Stock Purchase Plan" under Section 423 of the
Internal Revenue Code of 1986, as amended. The provisions of the Plan,
accordingly, shall be construed so as to extend and limit participation in a
manner consistent with the requirements of that section of the Code.
2. DEFINITIONS.
(a) "ADMINISTRATOR" means the Board or any committee thereof
designated by the Board in accordance with Section 14.
(b) "BOARD" shall mean the Board of Directors of the
Company.
(c) "CHANGE IN CONTROL" means the occurrence of any of the
following events:
(1) Any "person" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act) becomes the "beneficial owner" (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the total voting power
represented by the Company's then outstanding voting securities;
(2) The consummation of the sale or disposition by
the Company of all or substantially all of the Company's assets;
(3) A change in the composition of the Board
occurring within a two-year period, as a result of which fewer than a majority
of the directors are Incumbent Directors. "Incumbent Directors" means directors
who either (A) are Directors as of the effective date of the Plan, or (B) are
elected, or nominated for election, to the Board with the affirmative votes of
at least a majority of the Incumbent Directors at the time of such election or
nomination (but will not include an individual whose election or nomination is
in connection with an actual or threatened proxy contest relating to the
election of directors to the Company); or
(4) The consummation of a merger or consolidation of
the Company with any other corporation, other than a merger or consolidation
which would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities of the surviving entity
or its parent) at least fifty percent (50%) of the total voting power
represented by the voting securities of the Company or such surviving entity or
its parent outstanding immediately after such merger or consolidation.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as
amended. Any reference to a section of the Code herein shall be a reference to
any successor or amended section of the Code.
(e) "COMMON STOCK" shall mean the Common Stock of the
Company.
(f) "COMPANY" shall mean Lincoln Educational Services
Corporation, a New Jersey corporation, or any successors thereto.
(g) "COMPENSATION" shall mean all base straight time gross
earnings and commissions, exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
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(h) "EFFECTIVE DATE" shall mean the date on which the Plan
is approved by the shareholders of the Company.
(i) "EMPLOYEE" shall mean any individual who is a common law
employee of the Company for tax purposes whose customary employment with the
Company or the Designate Subsidiary, as applicable, is at least thirty-five (35)
hours per week and more than five (5) months in any calendar year. For purposes
of the Plan, the employment relationship shall be treated as continuing intact
while the individual is on sick leave or other leave of absence approved by the
Company or the Designated Subsidiary, as applicable. Where the period of leave
exceeds 90 days and the individual's right to redeployment is not guaranteed
either by statute or by contract, the employment relationship shall be deemed to
have terminated on the 91st day of such leave. The employment status of an
individual shall be determined in accordance with United States Treasury
Regulation Section 1.421-1(h) or any successor regulation thereto.
(j) "ENROLLMENT DATE" shall mean the first Trading Day of
each Offering Period.
(k) "EXCHANGE ACT" means the Securities Exchange Act of
1934, as amended, including the rules and regulations promulgated thereunder.
(l) "EXERCISE DATE" shall mean the last day of each Offering
Period.
(m) "FAIR MARKET VALUE" shall mean, as of any date, the
value of Common Stock determined as follows:
(1) The closing sales price of the Common Stock (or the
closing bid, if no sales were reported) as quoted on the Nasdaq National Market
for the last market trading day on the date of such determination, as reported
in THE WALL STREET JOURNAL or such other source as the Administrator deems
reliable;
(n) "OFFERING PERIOD" shall mean a period of approximately
three (3) months during which an option granted pursuant to the Plan may be
exercised, as follows:
(1) the first Offering Period commencing on the
first Trading Day on or after February 1st of each year and terminating on the
first Trading Day on or following April 30th,
(2) the second Offering Period commencing on the
first Trading Day on or after May 1st of each year and terminating on the first
Trading Day on or following July 31st;
(3) the third Offering Period commencing on the
first Trading Day on or after August 1st of each year and terminating on the
first Trading Day on or following October 31st; and
(4) the fourth Offering Period commencing on the
first Trading Day on or after November 1st of each year and terminating on the
first Trading Day on or following January 31st of the following year.
The duration and commencement date of Offering Periods may be changed pursuant
to Section 4 of this Plan.
(o) "PARENT" shall mean a "parent corporation," whether now
or hereafter existing, as defined in Section 424(e) of the Code.
(p) "PLAN" shall mean this 2006 Employee Stock Purchase
Plan, as amended from time to time.
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(q) "PURCHASE PRICE" shall mean an amount equal to 95% of
the Fair Market Value of a share of Common Stock on the Exercise Date provided,
however, that the Purchase Price may be adjusted by the Administrator pursuant
to Section 20.
(r) "SUBSIDIARY" shall mean a "subsidiary corporation,"
whether now or hereafter existing, as defined in Section 424(f) of the Code.
(s) "TRADING DAY" shall mean a day on which the U.S.
national stock exchanges and the Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) FIRST OFFERING PERIOD. Any individual who is an Employee
immediately prior to the first Offering Period under the Plan automatically will
be enrolled in the first Offering Period.
(b) SUBSEQUENT OFFERING PERIODS. Any Employee who shall be
employed by the Company on an Enrollment Date of a given Offering Period shall
be eligible to participate in that Offering Period, subject to the requirements
of Section 5 hereof.
(c) LIMITATIONS. Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company or any Parent or Subsidiary of
the Company and/or hold outstanding options to purchase such stock possessing
five percent (5%) or more of the total combined voting power or value of all
classes of the capital stock of the Company or of any Parent or Subsidiary of
the Company, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans (as defined in Section 423 of the Code)
of the Company or any Parent or Subsidiary of the Company accrues at a rate
which exceeds Twenty-Five Thousand Dollars ($25,000) worth of the capital stock
(determined at the Fair Market Value of the shares at the time such option is
granted) for each calendar year in which such option is outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive
Offering Periods. The Administrator shall have the power to change the duration
of Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced prior
to the scheduled beginning of the first Offering Period to be affected
thereafter. However, in no event may the duration of an Offering Period exceed
five years.
5. PARTICIPATION.
(a) FIRST OFFERING PERIOD. An Employee who has become a
participant in the first Offering Period under the Plan pursuant to Section 3(a)
will be entitled to continue his or her participation in such Offering Period
only if he or she submits to the Company a properly completed subscription
agreement authorizing payroll deductions in the form and manner specified by the
Administrator for such purpose (i) no earlier than the effective date of the
filing of the Company's Registration Statement with respect to the shares of
Common Stock issuable under the Plan (the "Effective Date") and (ii) no later
than five (5) business days following the Effective Date or such other period of
time as the Administrator may determine (the "Enrollment Window"). A
participant's failure to submit the subscription agreement during the Enrollment
Window will result in the automatic termination of his or her participation in
the first Offering Period under the Plan.
(b) SUBSEQUENT OFFERING PERIODS. An eligible Employee may
become a participant in the Plan by completing a subscription agreement
authorizing payroll deductions in the form of Exhibit A to this Plan and filing
it with the Company's payroll office prior to the applicable Enrollment Date or
by following an electronic or other enrollment procedure prescribed by the
Administrator.
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6. PAYROLL DEDUCTIONS.
(a) At the time a participant enrolls in the Plan pursuant
to Section 5 hereof, he or she shall elect to have payroll deductions made on
each payroll date during the Offering Period in an amount not exceeding
twenty-five percent (25%) of the Compensation that he or she receives on each
payroll date during the Offering Period. A participant shall not be permitted to
make any additional payments into his or her account.
(b) Payroll deductions authorized for a participant shall
commence on the first payroll date following the Enrollment Date and shall end
on the last payroll date in the Offering Period to which such authorization is
applicable, unless the payroll deductions are sooner terminated by the
participant as provided in Section 10 hereof; provided, however, that for the
first Offering Period under the Plan, payroll deductions will commence on the
first payday on or following the end of the Enrollment Window.
(c) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant shall not be permitted to make any additional
payments into such account.
(d) A participant may discontinue his or her participation
in the Plan as provided in Section 10 hereof, or may increase or decrease the
rate of his or her payroll deductions during the Offering Period by completing
and filing with the Company on or before a date prescribed by the Administrator
prior to an applicable Exercise Date a new subscription agreement authorizing a
change in the payroll deduction rate in the form specified by the Administrator
for such purpose or by following an electronic or other procedure prescribed by
the Administrator. If a participant has not followed such procedures to change
the rate of payroll deductions, the rate of his or her payroll deductions shall
continue at the originally elected rate through the Offering Period and future
Offering Periods (unless the payroll deductions are terminated as provided in
Section 10). The Administrator may, in its sole discretion, limit the nature or
change the number or both limit the nature and change the number of payroll
deduction rate changes that a participant may make during any Offering Period.
Any change in the payroll deduction rate shall be effective as soon as
practicable following the Company's receipt of the new subscription agreement. A
participant's subscription agreement shall remain in effect for successive
Offering Periods unless terminated as provided in Section 10 hereof.
(e) Notwithstanding the foregoing, to the extent necessary
to comply with Section 423(b)(8) of the Code and Section 3(c) hereof, a
participant's payroll deductions may be decreased to zero percent (0%) at any
time during an Offering Period. Subject to Section 423(b)(8) and Section 3(c)
hereof, payroll deductions shall recommence at the rate provided in such
participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(f) At the time the option is exercised, in whole or in
part, or at the time some or all of the Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period,
each participant in such Offering Period shall be granted an option to purchase
on the Exercise Date of such Offering Period (at the applicable Purchase Price)
up to a number of shares of the Common Stock determined by dividing such
participant's payroll deductions accumulated prior to such Exercise Date and
retained in the participant's account as of the Exercise Date by the applicable
Purchase Price; provided that such purchase shall be subject to the limitations
set forth in Sections 3(c) and 13 hereof. The Administrator may, with respect to
future Offering Periods, increase or decrease, the maximum number of shares of
Common Stock that a participant may purchase
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during each Offering Period. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The Option shall expire on the last day of the Offering Period.
8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan
as provided in Section 10 hereof, his or her option for the purchase of shares
of Common Stock shall be exercised automatically on the Exercise Date, and the
maximum number of full shares subject to option shall be purchased for such
participant at the applicable Purchase Price with the accumulated payroll
deductions in his or her account. No fractional shares of Common Stock shall be
purchased; any payroll deductions accumulated in a participant's account which
are not sufficient to purchase a full share shall be retained in the
participant's account for the subsequent Offering Period, subject to earlier
withdrawal by the participant as provided in Section 10 hereof. Any other monies
left over in a participant's account after the Exercise Date shall be returned
to the participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
9. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares of Common Stock occurs, the Company shall arrange the
delivery to each participant, as appropriate, the shares purchased upon exercise
of his or her option.
10. WITHDRAWAL.
(a) Under procedures established by the Administrator, a
participant may withdraw all but not less than all the payroll deductions
credited to his or her account and not yet used to exercise his or her option
under the Plan at any time by following the procedures prescribed by the
Administrator. All of the participant's payroll deductions credited to his or
her account shall be paid to such participant promptly after receipt of notice
of withdrawal and such participant's option for the Offering Period shall be
automatically terminated, and no further payroll deductions for the purchase of
shares shall be made for such Offering Period. If a participant withdraws from
an Offering Period, payroll deductions shall not resume at the beginning of the
succeeding Offering Period unless the participant re-enrolls in the Plan in
accordance with the provisions of Section 5.
(b) A participant's withdrawal from an Offering Period shall
not have any effect upon his or her eligibility to participate in any similar
plan which may hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the Offering Period from which
the participant withdraws.
11. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be an
Employee for any reason, he or she shall be deemed to have elected to withdraw
from the Plan and the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option shall be
returned to such participant or, in the case of his or her death, to the person
or persons entitled thereto under Section 15 hereof, and such participant's
option shall be automatically terminated. A participant who receives payment in
lieu of notice of termination of employment shall not be treated as continuing
to be an Employee.
12. INTEREST. No interest shall accrue on the payroll deductions of
a participant in the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of
the Company as provided in Section 19 hereof, the maximum number of shares of
Common Stock that shall be made available for sale under the Plan shall be
1,000,000. If, on a given Exercise Date, the number of shares with respect to
which options are to be exercised exceeds the number of shares then available
under the Plan, the Administrator shall make a pro rata allocation of the shares
remaining available for purchase in as uniform a manner as shall be practicable
and as it shall determine to be equitable.
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(b) No participant shall have any voting, dividend, or other
shareholder rights with respect to shares of Common Stock subject to any option
granted under the Plan until such shares have been purchased and delivered to
the participant as provided in Section 9 hereof.
(c) Shares to be delivered to a participant under the Plan
shall be registered in the name of the participant or, if so requested in
written notice to the Company by the participant, in the name of the participant
and his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Administrator
shall have full and exclusive discretionary authority to construe, interpret and
apply the terms of the Plan, to determine eligibility, to adjudicate all
disputed claims filed under the Plan and to establish such procedures that it
deems necessary for administration of the Plan (including, without limitation,
to adopt such procedures and sub-plans as are necessary or appropriate to permit
the participation in the Plan by employees who are foreign nationals or employed
outside the United States). The Administrator, in its sole discretion and on
such terms and conditions as it may provide, may delegate to one or more
individuals all or any part of its authority and powers under the Plan. Every
finding, decision and determination made by the Administrator (or its designee)
shall, to the full extent permitted by law, be final and binding upon all
parties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions. Until
shares of Common Stock are issued under the Plan (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company), a participant will have only the rights of an unsecured
creditor with respect to such shares.
18. REPORTS. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
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19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
LIQUIDATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required
action by the shareholders of the Company, the number of shares authorized for
issuance under the Plan and the annual increases specified in Section 13, the
maximum number of shares each participant may purchase per Offering Period
(pursuant to Section 7), as well as the price per share and the number of shares
of Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a recapitalization, stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) CHANGE OF CONTROL. In the event of a Change in Control,
each outstanding option shall be assumed or an equivalent option substituted by
the successor corporation or a Parent or Subsidiary of the successor
corporation. In the event that the successor corporation refuses to assume or
substitute for the option, the Offering Period then in progress shall be
shortened by setting a new Exercise Date (the "New Exercise Date"). The New
Exercise Date shall be before the date of the Company's proposed sale or merger.
The Board shall notify each participant in writing, at least ten (10) business
days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Administrator may at any time and for any reason
terminate or amend the Plan. Except as provided in Section 19 hereof, no such
termination can affect options previously granted, provided that an Offering
Period may be terminated by the Administrator on any Exercise Date if the
Administrator determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and Section 20 hereof, no amendment may make any change in any
option therefore granted which adversely affects the rights of any participant.
To the extent necessary to comply with Section 423 of the Code (or any other
applicable law, regulation or stock exchange rule), the Company shall obtain
shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to
whether any participant rights may be considered to have been "adversely
affected," the Administrator shall be entitled to change the Offering Periods,
limit the frequency and/or number of changes in the amount withheld during an
Offering Period, establish the exchange ratio applicable to amounts withheld in
a currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's
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processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant's
Compensation, and establish such other limitations or procedures as the
Administrator determines in its sole discretion advisable which are consistent
with the Plan.
(c) In the event the Administrator determines that the
ongoing operation of the Plan may result in unfavorable financial accounting
consequences, the Board may, in its discretion and, to the extent necessary or
desirable, modify or amend the Plan to reduce or eliminate such accounting
consequence including, but not limited to:
(1) altering the Purchase Price for any Offering
Period including an Offering Period underway at the time of the change in
Purchase Price;
(2) shortening any Offering Period so that Offering
Period ends on a new Exercise Date, including an Offering Period underway at the
time of the Board action; and
(3) allocating shares.
Such modifications or amendments shall not require
shareholder approval or the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Shares shall not be issued with respect to an option
unless the exercise of such option and the issuance and delivery of such shares
pursuant thereto shall comply with all applicable provisions of law, domestic or
foreign, including, without limitation, the Securities Act of 1933, as amended,
the Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) As a condition to the exercise of an option, the Company
may require the person exercising such option to represent and warrant at the
time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares
if, in the opinion of counsel for the Company, such a representation is required
by any of the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan shall become effective upon the earlier
to occur of its adoption by the Board or its approval by the shareholders of the
Company. It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 20 hereof.
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APPENDIX B
LINCOLN EDUCATIONAL SERVICES CORPORATION
AUDIT COMMITTEE CHARTER
I. STATEMENT OF PURPOSE
The Committee's purpose is to provide assistance to the Board of Directors in
fulfilling its obligations with respect to matters involving the accounting,
auditing, financial reporting, internal control over financial reporting and
regulatory compliance functions of the Company and its subsidiaries, including
without limitation, assisting the Board of Directors in its oversight of (i) the
integrity of the Company's financial statements; (ii) the Company's compliance
with legal and regulatory requirements; (iii) the Company's independent
auditors' qualifications and independence; and (iv) the performance of the
Company's independent auditors and the Company's internal audit function. The
Committee shall also prepare the report of the Committee required to be included
in the Company's annual proxy statement.
II. ORGANIZATION
A. CHARTER. At least annually, this charter shall be reviewed and
reassessed by the Committee and any proposed changes shall be submitted to the
Board of Directors for approval.
B. MEMBERS. The Committee shall be comprised of three or more
directors to be appointed by the Board of Directors. Each member of the
Committee shall meet the independence, experience and expertise requirements of
the Nasdaq Stock Market, Inc. and applicable law. Each member of the Committee
must be financially literate, as such qualification is interpreted by the Board
of Directors in its business judgment, in accordance with the listing
requirements of the Nasdaq Stock Market, Inc. In addition, at least one member
of the Committee must have accounting or related financial management expertise,
as the Board of Directors interprets such qualification in its business
judgment. Further, either (i) at least one member of the Committee must be an
"audit committee financial expert", as such term is defined in item 401(h)(2) of
Regulations S-K, or (ii) if no member of the Committee is an audit committee
financial expert, the Committee shall so inform the Board of Directors and
disclose in an appropriate filing.
The Board of Directors shall also designate a Committee Chairperson who
may not serve on any other committee of the Board of Directors of the Company
unless the Board of Directors approves such service on another committee. No
director may serve as a member of the Committee if such director serves on the
audit committee of more than two other public companies, unless the Board of
Directors determines that such simultaneous service would not impair the ability
of such director to effectively serve on the Committee. Any such determination
must be disclosed in the Company's annual proxy statement. Committee members and
the Committee Chairperson serve at the pleasure of the Board of Directors.
C. MEETINGS. The Committee shall meet once every fiscal quarter or
more frequently as it shall determine is necessary to carry out its duties and
responsibilities. The Committee shall meet in executive session separately on a
periodic basis with (i) management, (ii) the director of the Company's internal
auditing department or other person responsible for the internal audit function
and (iii) the Company's independent auditors.
D. QUORUM; ACTION BY COMMITTEE. A quorum at any Committee meeting
shall be at least two members. All determinations of the Committee shall be made
by a majority of its members present at a meeting duly called or held (or where
only two members are present, by unanimous vote). The Board of Directors may
designate one or more directors as alternate members of the Committee, who may
replace any absent or disqualified member at any meeting of the Committee. In
the absence or disqualification of a member of the Committee, and in the absence
of a designation by the Board of Directors of an alternate member to replace the
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absent or disqualified member, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he/she or they
constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of any absent or disqualified
member, provided that such other member satisfies all applicable criteria for
membership on the Committee. Any decision or determination of the Committee
reduced to writing and signed by all the members of the Committee shall be fully
as effective as if it had been made at a meeting duly called and held.
E. AGENDA, MINUTES AND REPORTS. The Chairperson of the Committee
shall be responsible for establishing the agendas for the meetings of the
Committee. An agenda, together with materials relating to the subject matter of
each meeting, shall be communicated to the members of the Committee prior to
each meeting. Minutes for all meetings of the Committee shall be prepared to
document the Committee's discharge of its responsibilities. The minutes shall be
circulated in the draft form to all Committee members to ensure an accurate
final record and shall be approved at a subsequent meeting of the Committee. The
Chairperson of the Committee shall make regular reports to the Board of
Directors.
F. PERFORMANCE SELF-EVALUATION. The Committee shall evaluate its
performance on an annual basis and establish criteria for such self-evaluation
and shall report to the entire Board of Directors the results of the
self-evaluation.
III. RESPONSIBILITIES
The following shall be the principal responsibilities of the Committee:
A. ENGAGEMENT OF INDEPENDENT AUDITORS. The Committee shall be
directly responsible for the appointment, compensation, retention and oversight
of the work of the independent auditor engaged by the Company (including
resolution of disagreements between management and the auditor regarding
financial reporting) for the purpose of preparing or issuing an audit report or
performing other audit, review or attest services or related work. The
independent auditor shall report directly to the Committee. The Committee shall
also have the authority to engage and pre-approve the independent auditors to
perform non-audit services. The Committee shall oversee, evaluate and, where
appropriate, replace the independent auditors, and approve the fees paid to the
independent auditors, including in connection with any non-audit services, as
further described under Section III.E below.
B. DETERMINATION AS TO INDEPENDENCE AND PERFORMANCE OR INDEPENDENT
AUDITORS. The Committee shall receive, not less frequently than annually,
periodic reports from the independent auditors regarding the auditors'
independence, consistent with standards, rules and regulations adopted by the
Public Company Accounting Oversight Board and which reports shall include such
details as are required by applicable law or listing standards. The Committee is
responsible for ensuring its receipt from the independent auditor of a formal
written statement delineating all relationships between the independent auditor
and the Company, consistent with Independence Standards Board Standard 1, and
the Committee's responsibility for actively engaging in a dialogue with the
independent auditor with respect to any disclosed relationships or services that
may impact the objectivity and independence of the independent auditor and for
taking, or recommending that the full Board take, appropriate action to oversee
the independence of the outside auditor. The Committee shall discuss such
reports with the auditors, and if so determined by the Committee, take
appropriate action to satisfy itself of the independence of the auditors. To the
extent not included in the above reports, the Committee shall also receive
written periodic reports from the independent auditors (not less frequently than
annually) confirming that the (i) lead audit partner and reviewing audit partner
responsible for the audit of the Company's financial statements have not
performed audit services for the Company for more than the previous five
consecutive fiscal years of the Company, and (ii) chief executive officer, chief
financial officer, controller, chief accounting officer or other person serving
in an equivalent position of the Company, was not, within one year prior to the
initiation of the audit, an employee of the independent auditor who participated
in any capacity in the Company's audit. The Committee shall consider whether it
is appropriate to adopt a policy of rotating independent auditors on a periodic
basis. Any selection of the auditors by the Committee may be subject to
shareholders' approval.
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The Committee shall review the performance of the Company's independent
auditors annually. In doing so, the Committee shall consult with management and
the head of internal audit and shall also obtain and review a report by the
independent auditors describing their internal quality-control procedures and
any material issues raised by the most recent internal quality-control review,
or peer review (if applicable), or by any inquiry or investigation by
governmental or professional authorities within the preceding five years,
respecting one or more independent audits carried out by the independent
auditors and the response of the independent auditors, and any steps taken to
deal with any such issues; and all relationships between the independent auditor
and the Company.
C. DETERMINATION AS TO PERFORMANCE OF INTERNAL AUDITORS. The
Committee shall annually review the experience and qualifications of the senior
members of the internal audit group and review and approve any appointment,
reassignment or dismissal of such members. The Committee shall also consider, at
least annually, in consultation with the independent accountants, the director
of internal audit and the Chief Financial Officer, the audit scope and plan of
the internal audit group.
D. AUDITS BY INTERNAL AND INDEPENDENT AUDITORS. The Committee shall
discuss with the management, director of internal audit and the independent
auditors the overall scope and plans for their respective audits, including the
adequacy of staffing and other factors that may affect the effectiveness and
timeliness of such audits. In this connection, the Committee shall discuss with
management, the internal audit group and the independent auditors the Company's
major risk exposures (whether financial, operating or otherwise), the adequacy
and effectiveness of the accounting and financial controls, and the steps
management has taken to monitor and control such exposures and manage legal
compliance programs, among other considerations that may be relevant to their
respective audits. The Committee shall review with management and the
independent auditors the quality, adequacy and effectiveness of the Company's
internal controls and management's annual internal control report, including any
attestation of same by the independent auditors. The Committee shall review with
the Chief Executive Officer and Chief Financial Officer and independent
auditors, periodically, the following: (i) all material weaknesses and
significant deficiencies in the design or operation of internal control over
financial reporting which could adversely affect the Company's ability to
record, process, summarize, and report financial data; (ii) any fraud, whether
or not material, that involves management or other employees who have a
significant role in the Company's internal control over financial reporting; and
(iii) any significant changes in internal control over financial reporting or
other factors that could significantly affect internal control over financial
reporting, including any corrective actions with regard to significant
deficiencies and material weaknesses.
E. PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES. The Committee
shall approve guidelines for the retention of the independent auditors for any
non-audit services and the fee for such services and shall determine procedures
for the approval of audit and non-audit services in advance. The Committee
shall, in accordance with such procedures, approve in advance any audit or
non-audit service provided to the Company by the independent auditors, all as
required by applicable law or listing standards. Approval of the audit and
permitted non-audit services may also be made by one or more members of the
Committee as shall be designated by the Committee and the person(s) granting
such approval shall report such approval to the Committee for its approval at
the next scheduled meeting.
F. REVIEW OF DISCLOSURE CONTROLS AND PROCEDURES. The Committee
shall review with the Chief Executive Officer, Chief Operating Officer, Chief
Financial Officer and the General Counsel the Company's disclosure controls and
procedures and shall review periodically, but in no event less frequently than
quarterly, management's conclusions about the effectiveness of such disclosure
controls and procedures, including any significant deficiencies in, or material
non-compliance with, such controls and procedures.
G. REVIEW OF ANNUAL SEC FILINGS. The Committee shall review with
management, the independent auditors and, if appropriate, the director of
internal audit, the financial information to be included in the Company's Annual
Report on Form 10-K, including the disclosures under Management's Discussion and
Analysis of Financial Condition and Results of Operations and Critical
Accounting Policies, their judgment about the acceptability and quality of
accounting principles, the reasonableness of significant judgments, the clarity
of the disclosures in the financial statements and the adequacy of internal
control over financial reporting. The Committee shall also discuss the results
of the annual audit and any other matters required to be communicated to
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the Committee by the independent auditors under generally accepted auditing
standards, the applicable law or listing standards. Based on such review and
discussion, the Committee shall make a determination whether to recommend to the
Board of Directors that the audited financial statements be included in the
Company's Form 10-K.
H. REVIEW OF QUARTERLY SEC FILINGS AND OTHER COMMUNICATIONS. The
Committee shall review and discuss with management, the independent auditors
and, if appropriate, the director of internal audit, the quarterly financial
information to be included in the Company's Quarterly Reports on Form 10-Q,
including the disclosures under Management's Discussion and Analysis of
Financial Condition and Results of Operations and Critical Accounting Policies,
the results of the independent auditors' review of the Company's quarterly
financial information, and the adequacy of internal control over financial
reporting, and shall discuss any other matters required to be communicated to
the Committee by the independent auditors under generally accepted auditing
standards, applicable law or listing standards. The Committee shall also review
the Company's earnings press releases and financial information and earnings
guidance periodically provided to analysts and rating agencies (which may
consist of a discussion of the types of information to be provided, including
the use of any non-GAAP Financial Information, and types of presentation to be
made) to the extent required by applicable law or listing standards.
I. REVIEW OF CERTAIN MATTERS WITH INTERNAL AND INDEPENDENT
AUDITORS. The Committee shall review periodically with management, the director
of internal audit and independent auditors the effect of new or proposed
regulatory and accounting initiatives on the Company's financial statements and
other public disclosures and any communications between the audit team and the
independent auditors' national office with respect to auditing or accounting
issues presented by the engagement. The Committee shall review with management,
and any outside professionals as the Committee considers appropriate, important
trends and developments in financial reporting practices and requirements and
their effect on the Company's financial statements. In addition, the Committee
should obtain from the independent auditors a statement regarding alternative
treatments of financial information with GAAP that were discussed with
management, the ramifications of the use thereof and the independent auditors'
preferred treatment.
J. CONSULTATION WITH INDEPENDENT AUDITORS. The Committee shall
review with the independent auditors any problems or difficulties the auditors
may have encountered in connection with the annual audit. Such review shall
address any difficulties encountered in the course of the audit work, including
any restrictions on the scope of activities or access to required information,
any disagreements with management regarding generally accepted accounting
principles and other matters, material adjustments to the financial statements
recommended by the independent auditors and adjustments that were proposed but
"passed" (as immaterial or otherwise).
K. PREPARATION OF REPORT FOR PROXY STATEMENT. The Committee shall
produce the report of the Committee that is required to be included in the
Company's annual proxy statement, all in accordance with applicable rules and
regulations.
L. POLICIES FOR EMPLOYMENT OF FORMER AUDIT STAFF. The Committee
shall approve guidelines for the Company's hiring of former employees of the
independent auditors, which shall meet the requirements of applicable law and
listing standards.
M. ESTABLISHMENT OF "WHISTLEBLOWING" PROCEDURES. The Committee
shall establish procedures for the receipt, retention and treatment of
complaints received by the Company regarding accounting, internal accounting
controls or auditing matters and the confidential, anonymous submission by
employees of the Company of concerns regarding questionable accounting or
auditing matters.
N. REVIEW OF LEGAL AND REGULATORY COMPLIANCE. The Committee shall
periodically review with management, including the General Counsel, or outside
counsel or the Committee considers appropriate and the independent auditors any
correspondence with, or other action by, regulators or governmental agencies and
any employee complaints or published reports that raise concerns regarding the
Company's financial statements,
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accounting or auditing matters or compliance with the Company's Business Conduct
Guidelines. The Committee shall also meet periodically and separately with the
General Counsel or outside counsel or the Committee considers appropriate to
review legal matters (including status of pending litigation) that may have
material impact on the Company and the Company's compliance with applicable law
and listing standards, and the effectiveness of the Company's procedures to
ensure compliance with its legal and regulatory responsibilities. The Committee
shall also review and gain an understanding of the legal and compliance
functions.
O. CONFLICTS OF INTEREST, COMPLIANCE WITH BUSINESS CONDUCT
GUIDELINES; GRANT OF WAIVERS. The Committee shall review and investigate any
matters pertaining to the integrity of management, including conflicts of
interest, or adherence to the Company's Business Conduct Guidelines. In
connection with these reviews, the Committee will meet, as deemed appropriate,
with the General Counsel and other officers or employees of the Company. The
Committee shall review and approve all "related party transactions" on an
ongoing basis and all such transactions, if any, must be approved in advance by
the Committee. The term "related party transaction" shall refer to transactions
required to be disclosed pursuant to Item 404 of Regulation S-K. In addition,
the Committee shall obtain reports from management, the internal auditor and the
independent auditor regarding compliance with all applicable legal and
regulatory requirements, including the Foreign Corrupt Practices Act.
P. ACCESS TO RECORDS, CONSULTANTS AND OTHERS. The Committee shall
have full authority (i) to investigate any matter brought to its attention with
full access to all books, records, facilities and personnel of the Company; (ii)
to retain outside legal, accounting or other consultants to advise the Committee
in its sole discretion; and (iii) to request any officer or employee of the
Company, the Company's outside counsel, internal audit group or independent
auditors to attend a meeting of the Committee or to meet with any members of, or
consultants or advisors to, the Committee. The Committee shall be given the
resources, and shall determine the funding requirements, for the payment of
compensation to the independent auditors engaged for issuing an audit report or
performing other audit, review or attest services for the Company, and any
advisers employed by the Committee, and the payment of the ordinary
administrative expenses of the Committee that are necessary or appropriate in
carrying out its duties.
Q. DELEGATION. To the extent permitted by applicable law and
listing standards, the Committee may delegate any of its responsibilities to a
subcommittee comprised of one or more members of the Committee, and the
subcommittee shall make periodic reports to the Committee regarding such
delegated responsibilities.
R. OTHER DELEGATED RESPONSIBILITIES. The Committee shall also carry
out such other duties as may be delegated to it by the Board of Directors from
time to time.
IV. MANAGEMENT AND INDEPENDENT AUDITOR RESPONSIBILITY
In discharging its responsibilities, the Committee is not itself
responsible for the planning or conduct of audits or for any determination that
the Company's financial statements are complete and accurate or in accordance
with generally accepted accounting principles. Management has the responsibility
for the financial statements and the independent auditors have the
responsibility to audit such financial statements in accordance with generally
accepted auditing standards. The Committee's responsibility is one of oversight.
Therefore, each member of the Committee shall be entitled to rely, to the
fullest extent permitted by law, on the integrity of those persons and
organizations within and outside the Company from whom he or she receives
information, and the accuracy of the financial and other information provided to
the Committee by such person or organization.
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