As filed with the Securities and Exchange Commission on June 23, 2005
Registration No. 333-[___]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
LINCOLN EDUCATIONAL SERVICES CORPORATION
(Exact name of Registrant as specified in its charter)
New Jersey 57-1150621
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
200 Executive Drive, Suite 340
West Orange, New Jersey 07052
(Address of Registrant's principal executive offices)
LINCOLN TECHNICAL INSTITUTE MANAGEMENT STOCK OPTION PLAN
STOCK OPTION AND CONSULTING AGREEMENT BETWEEN LINCOLN EDUCATIONAL
SERVICES CORPORATION AND STEVEN W. HART
(Full title of the plans)
David E. Carney
Chairman of the Board and Chief Executive Officer
Lincoln Educational Services Corporation
200 Executive Drive, Suite 340
West Orange, New Jersey 07052
(973) 736-9340
(Name, address and telephone number of agent for service)
With copies of all communication to:
Rohan S. Weerasinghe, Esq.
Shearman & Sterling LLP
599 Lexington
New York, New York 10022
(212) 848-7179
CALCULATION OF REGISTRATION FEE
=======================================================================================================================
Title of Securities to be Amount to be Proposed Maximum Proposed Maximum Amount of
Registered (1) Registered (1) Offering Price Aggregate Offering Registration Fee
Per Share Price
- -----------------------------------------------------------------------------------------------------------------------
Ordinary Shares of Common Stock 2,087,835 $8.10 (2) $16,911,463.50 (2) $1,990.48
of Lincoln Educational Services
Corporation
To be issued for option grants
under the Lincoln Technical
Institute Management Stock
Option Plan
- ----------------------------------------------------------------------------------------------------------------------
=======================================================================================================================
Title of Securities to be Amount to be Proposed Maximum Proposed Maximum Amount of
Registered (1) Registered (1) Offering Price Aggregate Offering Registration Fee
Per Share Price
- -----------------------------------------------------------------------------------------------------------------------
To be issued for option grants 161,500 $1.54 (3) $248,710 (3) $29.27
under the Stock Option and
Consulting Agreement between
Lincoln Educational Services
Corporation and Steven W. Hart
- ----------------------------------------------------------------------------------------------------------------------
(1) For the sole purpose of calculating the registration fee, the
number of ordinary shares of common stock to be registered under
this Registration Statement has been broken down into two
subtotals.
(2) Pursuant to Rules 457(c) and 457(h) of the Securities Act, the
Proposed Maximum Offering Price Per Share and the Proposed Maximum
Aggregate Offering Price for a total of 2,087,835 ordinary shares
of common stock previously granted under the Lincoln Technical
Institute Management Stock Option Plan are based on the per share
weighted average exercise price of the stock options. The per
share weighted average exercise price for the stock options
granted under the Lincoln Technical Institute Management Stock
Option Plan is $8.10.
(3) Pursuant to Rule 457(h), the offering price is $1.54 per ordinary
share of common stock, which is the per share exercise price of
outstanding options granted pursuant to the Stock Option and
Consulting Agreement between the Registrant and Steven W. Hart.
Part I
INFORMATION REQUIRED IN THE SECTION 10(a) PROSPECTUS
The information required by Item 1 and Item 2 of Part I of Form S-8 is
omitted from this filing in accordance with Rule 428 under the Securities Act of
1933, as amended (the "Securities Act"), and the introductory note to Part I of
Form S-8. The documents containing the information specified in Part I will be
delivered to the participants in the plans covered by this Registration
Statement as required by Rule 428(b)(1).
Part II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference.
We incorporate by reference our Registration Statement on Form S-1
(File No. 333-123644) (the "Form S-1"), filed on June 22, 2005 with the
Securities and Exchange Commission (the "Commission"), and a description of the
Registrant's common stock contained in the Form S-1.
All documents that we subsequently file with the Commission pursuant to
Sections 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, as
amended, prior to the filing of a post-effective amendment to this Registration
Statement which indicates that all securities offered have been sold, or which
deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference in this Registration Statement and are a part thereof
from the date of filing of such documents.
Any statement contained in a document incorporated or deemed
incorporated by reference in this Registration Statement shall be deemed to be
modified or superseded for purposes of this Registration Statement to the extent
that a statement contained herein or in any other subsequently filed document
which is incorporated by reference herein modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Registration Statement.
Item 4. Description of Securities.
Not applicable.
Item 5. Interests of Named Experts and Counsel.
Not applicable.
Item 6. Indemnification of Directors and Officers.
The New Jersey Business Corporation Act permits or requires
indemnification of officers and directors in the event that certain statutory
standards of conduct are met.
The Registrant's certificate of incorporation and bylaws limits the
liability of directors to the maximum extent permitted by New Jersey law.
Specifically, a director will not be personally liable for monetary damages for
breach of fiduciary duty as a director, except liability for: (i) any breach of
their duty of loyalty to the Registrant or the Registrant's stockholders; (ii)
acts or omissions not in good faith or which involve a knowing violation of the
law; or (iii) any transaction from which the director derived an improper
personal benefit. The limitation of liability does not apply to liabilities
arising under the federal securities laws and does not affect the availability
of equitable remedies such as injunctive relief or rescission.
The Registrant's bylaws provide that it will indemnify its directors
and officers and may indemnify its employees and other agents to the fullest
extent permitted by law. The Registrant believes that indemnification under its
bylaws covers at least negligence and gross negligence on the part of
indemnified parties.
The Registrant's bylaws also provide that it will advance expenses
incurred by a director or officer in advance of the final disposition of any
action or proceeding and it may advance expenses incurred by its employees or
other agents in advance of the final disposition of any action or proceeding.
The Registrant's bylaws also permit it to secure insurance on behalf of any
officer, director, employee or other agent for any liability arising out of his
or her actions in his or her capacity as an officer, director, employee or other
agent. The Registrant believes that these bylaw provisions and indemnification
agreements are necessary to attract and retain the services of highly qualified
persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Act and is therefore unenforceable.
Item 7. Exemption from Registration Claimed.
Not applicable.
Item 8. Exhibits.
Exhibit No. Description of Document
---------- -----------------------
4.1 Bylaws of Lincoln Educational Services Corporation
(incorporated by reference from the Form S-1 filed on
June 22, 2005).
4.2 Lincoln Technical Institute Management Stock
Option Plan and the Stock Option and
Consulting Agreement between the Registrant and
Steven W.
Hart.
5 Opinion of McCarter & English, LLP as to the validity
of ordinary shares of common stock issued pursuant to
the Lincoln Technical Institute Management Stock
Option Plan and the Stock Option and Consulting
Agreement between the Registrant and Steven W. Hart.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of McCarter & English, LLP (included in
Exhibit 5).
24 Power of Attorney with respect to amendments to this
Registration Statement are included on the signature
pages.
Item 9. Undertakings.
(a) We undertake:
(1) To file, during any period in which offers or sales are being made
of securities registered hereby, a post-effective amendment to this
Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in this Registration
Statement or any material change to such information in this
Registration Statement;
provided, however, that the undertakings set forth in paragraphs
(a)(1)(i) and (a)(1)(ii) above do not apply if the information required
to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission
by us pursuant to Section 13 or Section 15(d) of the Exchange Act that
are incorporated by reference in this Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) We further undertake that, for purposes of determining any
liability under the Securities Act, each filing of our annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act that is incorporated by reference in
the Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
for our payment of expenses incurred or paid by one of our directors, officers
or controlling persons in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, then, unless in the opinion of
our counsel the matter has been settled by controlling precedent, we will submit
to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act, Lincoln Educational
Services Corporation certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-8 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in West Orange, New Jersey, on June 22, 2005.
LINCOLN EDUCATIONAL SERVICES CORPORATION
By: /s/ Cesar Ribeiro
----------------------
Name: Cesar Ribeiro
Title: Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Cesar Ribeiro and David F. Carney as such
person's true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for such person and in such person's name,
place and stead, in any and all capacities, to sign any amendments to this
Registration Statement, including post-effective amendments, and registration
statements filed pursuant to Rule 462 under the Securities Act, and to file the
same, with exhibits thereto and other documents in connection therewith, with
the Commission, and does hereby grant unto each said attorney-in-fact and agent
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as such person might or could do in person, hereby
ratifying and confirming all that each of said attorney-in-fact and agent, or
his substitute therefor, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the indicated
capacities on June 22, 2005.
Name and Signature Title
- ------------------ -----
/s/ David F. Carney Chief Executive Officer and
- --------------------------- Chairman of the Board of Directors
David F. Carney
/s/ Lawrence E. Brown
- --------------------------- President, Chief Operating Officer
Lawrence E. Brown
/s/ Scott M. Shaw Senior Vice-President, Strategic
- --------------------------- Planning & Development
Scott M. Shaw
/s/ Cesar Ribeiro Vice-President, Chief Financial
- --------------------------- Officer and Treasurer
Cesar Ribeiro
/s/ Alexis P. Michas
- --------------------------- Director
Alexis P. Michas
Name and Signature Title
- ------------------ -----
/s/ James J. Burke, Jr.
- --------------------------- Director
James J. Burke, Jr.
/s/ Steven W. Hart
- --------------------------- Director
Steven W. Hart
/s/ Jerry G. Rubinstein
- --------------------------- Director
Jerry G. Rubinstein
/s/ John Petillo
- --------------------------- Director
John Petillo
/s/ Paul Glaske
- --------------------------- Director
Paul Glaske
/s/ Peter S. Burgess
- --------------------------- Director
Peter S. Burgess
LINCOLN TECHNICAL INSTITUTE
MANAGEMENT STOCK OPTION PLAN
(Effective January 1, 2002)
1. Purpose. The Lincoln Technical Institute Management Stock Option
Plan (the "Plan") is intended to further the best interests of Lincoln Technical
Institute, Inc., a New Jersey corporation (the "Company"), and its subsidiaries
by encouraging key employees, consultants and non-employee directors of the
Company and such subsidiaries to continue their association with the Company and
its subsidiaries and by providing additional incentive for unusual industry and
efficiency through offering an opportunity to acquire a proprietary stake in the
Company and its future growth. The Company believes that this goal may best be
achieved through the grant of nonqualified stock options (the "Nonqualified
Stock Options") or incentive stock options intended to qualify under Section 422
of the Internal Revenue Code of 1986, as amended (the "Code") (the "Incentive
Stock Options", and together with the Nonqualified Stock Options, the
"Options"), to purchase shares of Class A common stock, no par value, of the
Company ("Common Stock"). Options are sometimes referred to herein as "Awards".
2. Shares Subject to Plan. There are reserved for issue upon the
exercise of Options granted under the Plan no more than 2,087,835 shares (the
"Option Shares") of the Company's authorized Common Stock. The Option Shares,
are reserved for grant as either Service Options (as defined below) or
Performance Options (as defined below). If any Option granted under the Plan
shall expire or terminate without having been exercised in full or cancelled in
exchange for a cash or other payment, subject to the terms of Section 9 hereof,
the unissued Option Shares subject thereto shall again be available for the
purposes of the Plan. Notwithstanding the foregoing, the maximum number of
shares of Common Stock that may be issued in connection with Incentive Stock
Options is 1,043,917 shares, subject to such adjustments under Section 8 as may
be permitted under Section 422 of the Code.
3. Effective Date of Plan. The Plan shall take effect on January 1,
2002 (the "Effective Date"). The shareholders of the Company shall duly approve
the Plan within 12 months after its adoption by the Board of Directors of the
Company (the "Board"). If such shareholder approval is not obtained, then the
Plan shall be void ab initio and any Awards made hereunder shall be
automatically rescinded.
4. Administration of the Plan. The Plan shall be administered by the
Board or by the Compensation Committee of the Board (the "Committee"). The Board
may authorize the Committee to exercise any and all of the powers and functions
of the Board pursuant to the Plan. The interpretation and construction by the
Committee or the Board of any provisions of the Plan or of any Awards granted
under it shall be final and conclusive. No member of the Committee or of the
Board shall be liable for any action or determination made in good faith with
respect to the Plan or any Awards granted under it.
5. Eligibility. Options may be granted only to those key employees
("Employees") consultants ("Consultants") and non-employee directors
("Directors") of the Company or of any subsidiary of the Company (as such term
is defined in Section 425 of the Code) selected by the Board or the Committee
(together, the "Participants").
6. Options.
(a) Grant of Options. The Company, by action of the Board or of the
Committee and subject to the provisions of this Plan, may, from time to time,
grant Options to purchase Option Shares to Participants and for such number of
Option Shares as may be determined by the Board or the Committee. Each grant of
an Option pursuant to this Plan shall be made in writing and upon such terms and
conditions as may be determined by the Board or by the Committee at the time of
grant, subject to the provisions and limitations set forth in this Plan. The
grant of any such Option shall be evidenced by a written agreement executed by
such officer of the Company as is designated in the resolution of the Board or
the Committee authorizing such Option grant, and the date thereof shall be the
date of grant of such Option.
(b) Option Price. The per share exercise price of each Option (the
"Option Price") granted pursuant to this Plan shall be determined by the Board
or by the Committee; provided that the Option Price of any Options granted on
the Effective Date shall be $3.10 per Option Share. Notwithstanding the
foregoing, the Option Price for an Incentive Stock Option shall be no less than
100% of the fair market value of a share of Common Stock as of the date of
grant, as determined in good faith by the Committee in accordance with Section
422 of the Code.
(c) Duration of Options. The period for which each Option granted
hereunder shall be effective shall commence upon the date of the written
agreement evidencing such Option and (unless otherwise expressly specified in
such written agreement) shall continue until such Option shall be terminated
according to its terms or as hereinafter provided (the "Option Period"). Except
as otherwise expressly provided in this Section 6(c) and in Section 10 hereof,
an Option (whether or not exercisable) shall terminate immediately upon an
Employee's ceasing to be an employee, a Consultant's ceasing to be a consultant
or, in the case of a Director, a Director's ceasing to be a member of the Board
of the Company or any of its subsidiaries. The Option Period of any Option
granted pursuant to this Plan shall terminate upon the earliest to occur of (1)
the tenth anniversary of the date of the written agreement evidencing such
Option and (2) the following dates:
(i) the six-month anniversary of the date upon which the Participant
holding such Option ceases to be an employee, consultant or director of the
Company or its subsidiaries by reason of death;
(ii) unless otherwise specifically provided in any agreement between
the Participant and the Company or one of its subsidiaries, the thirty-day
anniversary of the date of the Retirement or Disability (as such terms are
defined in the Management Stockholders Agreement dated April 1, 2001, by and
among the Company, the Management Investors (as defined therein) parties thereto
and Stonington (as defined therein) (as in effect from time to time, the
"Management Stockholders Agreement")) of the Participant if the Participant
retires or is disabled while an employee, consultant or director of the Company
or any of its subsidiaries,
2
or the thirty-day anniversary of the date of Retirement, Disability or
Involuntary Termination (as defined in the Management Stockholders Agreement) of
the Participant; provided, however, that in the event of a Participant's
termination of employment due to Retirement, Disability or Involuntary
Termination, Performance Options shall terminate on the thirty-day anniversary
of the later of (A) such termination of employment and (B) April 15th of the
year in which such termination of employment occurred.
(iii) immediately upon a Participant's Voluntary Resignation (as
defined in the Management Stockholders Agreement) or termination of employment,
consultancy or directorship with the Company or any of its subsidiaries for
Cause (as defined in the Management Stockholders Agreement).
(d) Non-Transferability. No Option granted pursuant to this Plan may be
sold, offered, disposed of, pledged, hypothecated, encumbered or otherwise
transferred by the Participant except to a deceased Participant's executors,
administrators and testamentary trustees or as provided in the Management
Stockholders Agreement, and, further, during the lifetime of the Participant,
the Option may be exercised only by, or on behalf of, the Participant.
(e) Incentive Stock Options Granted to Certain Shareholders. No
Incentive Stock Option may be issued pursuant to the Plan to any individual who,
at the time the Option is granted, owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any parent
or subsidiary (as defined in Section 424 of the Code) of the Company, unless (i)
the Option Price determined as of the date of grant is at least 110% of the fair
market value on the date of grant of the shares of Common Stock subject to such
Option, as determined in good faith by the Board in accordance with Section 422
of the Code, and (ii) the Incentive Stock Option is not exercisable more than
five years from the date of grant.
(f) Exercisability and Vesting of Options. Options granted hereunder
shall be designated by the Board or the Committee as Service Options or
Performance Options. Options shall become exercisable pursuant to the following
terms and (except as otherwise expressly provided for in the agreement granting
such Option, in any agreement between the Company and the Participant or below
in this Section 6(f)) only if the Employee is an employee or the Consultant is a
consultant of the Company or any of its subsidiaries (as determined pursuant to
Section 10 hereof) or, in the case of a Director, the Director is a member of
the Board or board of directors of any of its subsidiaries on the date on which
such Option becomes exercisable. An Option (or portion thereof) which becomes
exercisable pursuant to the terms of this Section 6(f) is referred to as a
"Vested Option."
(i) The Board or the Committee may designate certain Options as Service
Options ("Service Options"). Except as the Board or the Committee may otherwise
determine, Service Options granted on the Effective Date shall vest and become
exercisable with respect to 20% of the Option Shares as of the first anniversary
of the date of grant and with respect to an additional 20% of the Option Shares
as of each of the second, third, fourth and fifth anniversaries of the date of
grant; provided that the Employee or Consultant remains in the employ of the
Company or any of its subsidiaries (as determined pursuant to Section 10 hereof)
or the Director remains a member of the Board or board of directors of any of
its subsidiaries; and provided, further, that in the event of a Change in
Control (as herein defined) of the Company all
3
outstanding unvested Service Options held by Participants shall become fully
vested and immediately exercisable on the effective date of such Change in
Control.
(ii) The Board or the Committee may designate certain Options as
Performance Options ("Performance Options"). Except as the Board or the
Committee may otherwise determine, or except as expressly provided for in the
agreement granting such Option, Performance Options shall vest and become
exercisable at a rate of up to 20% per year subject to the achievement of
predetermined EBITDA Value (as defined in Schedule I hereto) targets for each
fiscal year of the Company (the "Target EBITDA Values"), or the achievement of
cumulative EBITDA Value targets (the "Cumulative Target EBITDA Values").
Performance Options shall vest and become exercisable on April 15th following
the year in which the Target EBITDA Values or the Cumulative Target EBITDA
Values are achieved, provided that the Participant (A) remains in the employ of
the Company or any of its subsidiaries (as determined pursuant to Section 10
hereof), or (B) is no longer in the employ of the Company or any of its
subsidiaries due to an Involuntary Termination which occurred after the last day
of the fiscal year of the Company. The Target EBITDA Values and the Cumulative
Target EBITDA Values for a grant of Performance Options shall be established
prior to the relevant date of grant. If the Target EBITDA Value for a fiscal
year is not achieved, none of the Performance Options subject to vesting for
such fiscal year shall become exercisable and such Performance Options shall
instead remain eligible to vest and become exercisable if and when the
applicable Cumulative Target EBITDA Value is achieved; provided, further, that
each Performance Option shall become fully vested and immediately exercisable on
the seventh anniversary of the date such Option was granted (the "Anniversary
Date"), provided that the Participant holding such Option has remained
continuously in the employ of the Company or any of its subsidiaries (as
determined pursuant to Section 10 hereof) through the Anniversary Date;
provided, further, that, in the event of a Change in Control, all outstanding
Performance Options held by Participants shall become fully vested and
immediately exercisable on the effective date of such Change in Control;
provided, further, that in the event of an IPO (as defined in the Management
Stockholders Agreement) Performance Options not yet vested will no longer become
exercisable in accordance with this Section 6(f)(ii) and will vest and become
exercisable as if they were Service Options, in the same manner as determined
under clause (i) of this Section 6(f).
Subject to Sections 8 and 11 hereof, the Target EBITDA Values and the
Cumulative Target EBITDA Values as established pursuant to the Plan, shall be
adjusted as determined by the Board in good faith if there has been a
disposition of assets representing a substantial portion of the consolidated
assets of the Company, an acquisition of assets representing a substantial
portion of the consolidated assets of the Company, a recapitalization or merger
of the Company, or other extraordinary transaction in the preceding four
quarters.
(iii) "Change in Control," shall mean: (A) on or prior to an IPO (i)
the merger of the Company with or into another corporation as a result of which
Stonington owns less than 30% of the outstanding common stock (on a fully
diluted basis, assuming exercise of all options and warrants, whether or not
then exercisable) of the surviving company (or parent thereof), (ii) the sale of
all or substantially all of the assets of the Company to an entity not
controlled by Stonington, or (iii) the sale (in a single transaction or series
of related transactions) to an entity not controlled by Stonington of shares of
Common Stock and as a result of which Stonington owns less than 30% of the
outstanding Common Stock (on a fully diluted basis, assuming
4
exercise of all options and warrants, whether or not then exercisable);
provided, however, that an IPO shall not constitute a Change in Control; and (B)
following an IPO (1) when a "person", as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in
Sections 13(d) and 14(d) thereof, including a "group", as defined in Section
13(d) and 14(d) thereof either directly or indirectly becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act) of 15% or more of
either (i) the then outstanding Common Stock or (ii) the combined voting power
of the then outstanding voting securities of the Company entitled to vote
generally in the election of directors; provided, however, that the following
acquisitions shall not constitute a Change in Control (i) any acquisition
directly from the Company, (ii) any acquisition by the Company, or (iii) any
acquisition by an employee benefit plan (or related trust) sponsored or
maintained by the Company or any corporation controlled by the Company; (2)
when, during any period of 24 consecutive months during the existence of the
Plan, the individuals who, at the beginning of such period, constitute the Board
(the "Company Incumbent Directors"), cease for any reason other than death to
constitute at least a majority thereof; provided, however, that a director who
was not a director at the beginning of such 24-month period shall be deemed to
be a Company Incumbent Director if such director was elected by, or on the
recommendation of or with the approval of at least two-thirds of the directors
of the Company, who then qualified as Company Incumbent Directors; (3) when the
stockholders of the Company approve a reorganization, merger or consolidation of
the Company without the consent or approval of a majority of the Company
Incumbent Directors; (4) the consummation of a reorganization, merger or
consolidation of the Company with or into another entity or any other corporate
reorganization, if more than 60% of the combined voting power of the continuing
or surviving entity's securities outstanding immediately after such
reorganization, merger or consolidation is owned by persons who were not
stockholders of the Company immediately prior to such reorganization, merger,
consolidation; or (5) a complete liquidation or dissolution of the Company or
the sale or other disposition of all or substantially all of the assets of the
Company.
(g) Procedure for Exercise and Payment for Shares. Exercise of an
Option shall be made by the giving of written notice to the Company by the
Participant. Such written notice shall be deemed sufficient for this purpose
only if it (i) is delivered to the Company at its principal offices, (ii) states
the number of Option Shares with respect to which the Option is being exercised,
and (iii) states the date, no earlier than the fifth business day after, and no
later than the tenth business day after, the date of such notice, upon which the
Option Shares shall be purchased and payment therefor shall be made. The
payments for Option Shares purchased pursuant to exercise of an Option shall be
made at the principal offices of the Company. Upon (x) the exercise of any
Option, in compliance with the provisions of this Section 6(g), (y) receipt by
the Company of the payment for the Option Shares so purchased together with cash
in the amount of (or the making of arrangements referred to in Section 13 of the
Plan with respect to) any taxes required to be collected or withheld as a result
of the exercise of this Option, and (z) receipt by the Company of an executed
copy of the Management Stockholders Agreement (unless such Participant is
already a party thereto or the Company receives such other evidence as the
Company may reasonably require to ensure that the Option Shares issuable upon
exercise of the Option shall be subject to the Management Stockholders
Agreement), the Company shall deliver or cause to be delivered to the
Participant so exercising an Option a certificate or certificates for the number
of Option Shares with respect to which the Option is so exercised and payment is
so made. The Option Shares shall be registered in the name of the exercising
5
Participant; provided that in no event shall any Option Shares be issued
pursuant to exercise of an Option until full payment therefor shall have been
made in one of the manners set forth below; and provided, further, that until
such payment has been made, the exercising Participant shall have no rights of a
shareholder. For purposes of this paragraph, the date of issuance shall be the
date upon which payment in full has been received by the Company as provided
herein. The exercise price shall be payable at the election of the Participant,
in whole or in part, in any one or a combination of cash or "Mature Common
Stock" valued at the Fair Value Price (as defined below) as of the date the
notice of exercise is given. Mature Common Stock is defined as shares of Common
Stock held by such Participant for more than six months.
(h) Cash-Out of Certain Options. (i) Without limiting any rights of the
Company under the Management Stockholders Agreement, the Board or Committee may
in its sole discretion cancel the vested portion of any Option held by a person
who is at such time no longer an employee, consultant or director of the Company
or its subsidiaries in exchange for a cash payment equal to the excess of (x)
the Fair Value Price (as defined below) of the Option Shares subject to such
Vested Option, over (y) the Option Price for such Option Shares, multiplied by
the number of Option Shares subject to such cancelled Options; provided,
however, that the exercise of the right of the Board or the Committee hereunder
shall not be made in contemplation of a Change in Control or an IPO.
(ii) Without limiting any rights of the Company under the Management
Stockholders Agreement, the Board or the Committee may cancel any outstanding
Option in exchange for a cash payment, or in the discretion of the Board or the
Committee payment of other property, to the Participant equal to the excess of
(x) the fair market value (as determined in good faith by the Board) of the
consideration received per Stonington Share by Stonington in any sale (by
merger, stock purchase or otherwise) to a person which is not an Affiliate (as
defined in the Management Stockholders Agreement) of the Company or Stonington
of all the then issued and outstanding Stonington Shares (as defined in the
Management Stockholders Agreement) (a "Transfer Event"), over (y) the Option
Price for such Option Shares, multiplied by the number of Option Shares subject
to such cancelled Options, in each case effective upon the consummation of the
Transfer Event.
(iii) "Fair Value Price," shall mean, with respect to each Option
Share, as of any date of determination, (X) in the event there is no public
market for the Common Stock, the quotient obtained by dividing (a) the excess of
(I) the product of (A) the Company's EBITDA (as defined in the Management
Stockholders Agreement) for the four full fiscal quarters ending immediately
preceding the date of determination, and (B) 6.0 over (II) the excess of (C) the
sum of (x) the aggregate principal amount of any Indebtedness (as defined in the
Management Stockholders Agreement), determined in accordance with GAAP (as
defined in the Management Stockholders Agreement), as of the end of the most
recently completed fiscal quarter of the Company and (y) the aggregate
liquidation value (including any accrued dividends thereon) of any outstanding
preferred stock of the Company or any of its subsidiaries that is held by
persons or entities other than the Company or any of its subsidiaries,
determined in accordance with GAAP, as of the end of the most recently completed
fiscal quarter of the Company, over (D) the sum of the amount of cash deemed to
be on hand as of the end of such quarter as a result of the assumed exercise of
all outstanding Options as described in the next paragraph and the amount of
cash and cash equivalents, determined in accordance with GAAP, held by the
Company or
6
any of its subsidiaries as of the end of such quarter by (b) the number of
Shares then outstanding determined on a fully diluted basis as of the end of its
most recently completed fiscal quarter of the Company; provided, however, if
there had been a disposition of assets representing a substantial portion of the
consolidated assets of the Company, an acquisition of assets representing a
substantial portion of the consolidated assets of the Company, a
recapitalization or merger of the Company, or other extraordinary transaction in
the preceding four quarters then the Fair Value Price shall be adjusted as
determined by the Board in good faith or (Y) in the event of a public market for
the Common Stock, the closing price of a share of Common Stock as reported on
the composite tape for securities listed on the New York Stock Exchange, or such
other national securities exchange as may be designated by the Board, or, in the
event that the Common Stock is not listed for trading on a national securities
exchange but is quoted on an automated system, on such automated system, in any
such case on the date of determination (or, if there were no sales on the date
of determination, the closing price of a share of Common Stock as reported on
said composite tape or automated system for the most recent day during which a
sale occurred).
In making calculations for purposes of subclauses (a) and (b) of clause
(X) of the preceding paragraph it shall be assumed that all Options (whether or
not then vested or exercisable), warrants and rights to purchase shares of
Common Stock and securities convertible or exchangeable into shares of Common
Stock, if any, outstanding on the date as of which the calculation is being made
had been exercised, converted or exchanged on such date if the exercise price or
conversion or exchange price is less than the Fair Value Price per share and any
purchase price for shares of Common Stock payable upon such exercise had been
paid in cash and appropriate adjustments (including without limitation the
reflection of such cash exercise price and the issuance of such additional
shares of Common Stock) made to the relevant balance sheet of the Company.
7. Requirements of Law and of Certain Agreements. If any law or any
regulation of any commission or agency of competent jurisdiction shall require
the Company or the exercising Participant to take any action with respect to any
Option Shares, then the date upon which the Company shall issue or cause to be
issued the certificate or certificates for such Option Shares shall be postponed
until full compliance has been made with all such requirements of law or
regulation; provided that the Company shall use reasonable efforts to take all
necessary action to comply with such requirements of law or regulation. Further,
if requested by the Company, at or before the time of the issuance of such
Option Shares, the Participant shall deliver to the Company his or her written
statements satisfactory in form and content to the Company, that he or she
intends to hold the Option Shares so acquired by him or her for investment and
not with a view to resale or other distribution thereof to the public in
violation of the Securities Act or any applicable state securities or "blue sky"
law. Moreover, in the event that the Company shall determine in its sole
discretion that, in compliance with the Securities Act or any applicable state
securities or "blue sky" law, it is necessary to register any of the Option
Shares, or to qualify any such Option Shares for exemption from any of the
requirements of the Securities Act or any other applicable statute or
regulation, no Options may be exercised until the required action has been
completed; provided that the Company shall use reasonable efforts to take all
necessary action to comply with such requirements of law or regulation. All
Option Shares shall bear the legends provided for in the Management Stockholders
Agreement.
7
8. Adjustments. In the event of the declaration of any stock dividend
on any class of shares of common stock of the Company or in the event of any
reorganization, merger, consolidation, acquisition, disposition, separation,
recapitalization, stock split, split-up, spin-off, combination or exchange of
any such shares of Common Stock or like event, the number and/or character of
the Option Shares and/or the Option Price of any Option granted under the Plan,
shall be appropriately adjusted by changes in this Plan and in any Options
outstanding pursuant to this Plan (including, if appropriate, by substitution of
options of the successor or transferee company in the event of a merger or
disposition, cash or other property for the Options) that may be deemed to be
appropriate by the Committee or the Board, acting in good faith.
9. Grant of Terminated Options. If any Option (or any portion thereof)
terminates as a result of an Participant's ceasing to be an Employee, Consultant
or Director of the Company or its subsidiaries, the Committee or the Board may
grant to any Participant other than such former Participant an additional Option
or Options with respect to the unissued Option Shares previously subject to the
Option (or portion thereof) so terminated at such price and on terms and
conditions determined by the Board at the date of such grant.
10. Termination of Employment or Consultancy.
(a) The employment of an Employee shall not be deemed to have
terminated if the Employee is an employee of the Company who is transferred to
and becomes an employee of a subsidiary of the Company or, if he or she is an
employee of a subsidiary of the Company, who is transferred to and becomes an
employee of the Company or another subsidiary of the Company; provided, however,
that if a subsidiary of the Company ceases to be a subsidiary, all employees of
such subsidiary not theretofore transferred to and becoming employees of the
Company or of another subsidiary of the Company shall be deemed to have ceased
to be Employees within the meaning of this Plan on the date such subsidiary
ceases to be a subsidiary of the Company.
(b) The consultancy of a Consultant shall not be deemed to have
terminated if the Consultant is a Consultant of the Company who is transferred
to and becomes an consultant of a subsidiary of the Company or, if he or she is
a consultant of a subsidiary of the Company, who is transferred to and becomes a
consultant of the Company or another subsidiary of the Company; provided,
however, that if a subsidiary of the Company ceases to be a subsidiary, any
consultants of such subsidiary not theretofore transferred to and becoming
consultants of the Company or of another subsidiary of the Company shall be
deemed to have ceased to be Consultants within the meaning of this Plan on the
date such subsidiary ceases to be a subsidiary of the Company.
8
11. Termination, Amendment or Discontinuance of the Plan.
(a) This Plan shall terminate upon, and no Options shall be granted
after, the close of business on January 1, 2012 unless it shall have sooner
terminated by there having been granted and either fully exercised or cancelled
in exchange for a cash payment Options covering the entire 2,087,835 Option
Shares subject to this Plan.
(b) The Board may, insofar as permitted by law, amend, suspend, or
discontinue this Plan at any time without restriction; provided, however, that
the Board may not alter or amend or discontinue or revoke or otherwise impair
any outstanding Options which have been granted pursuant to this Plan and which
remain unexercised in a manner adverse to Option holders, except in an
adjustment referred to in Section 8 above or in Section 11(c) below, or except
in the event that there is secured the written consent of the holder of the
outstanding Option proposed to be so altered or amended. Nothing contained in
this paragraph, however, shall in any way condition or limit the termination of
an Option as hereinabove provided where reference is made to termination of
employment, consultancy or directorship of a Participant. The Option Period of
any outstanding Option shall not be extended by any amendment or suspension or
discontinuance of the Plan.
(c) In the event of the declaration of any stock dividend on any class
of shares of common stock of the Company or in the event of any reorganization,
merger, consolidation, acquisition, disposition, separation, recapitalization,
stock split, split-up, spin-off, combination or exchange of any such shares of
Common Stock or like event, such substitution or adjustments (including if
appropriate substitution of options of the successor or transferee company in
the event of a merger or disposition, cash or other property) shall be made in
the aggregate number of shares reserved for issuance under the Plan, and in the
vesting criteria of outstanding Options, as may be determined to be appropriate
by the Committee or the Board, acting in good faith.
12. Liquidation of the Company. In the event of the complete
liquidation or dissolution of the Company other than as an incident to a merger,
reorganization, or other transaction referred to in Section 8 or 11(c) above,
any Options remaining unexercised shall be deemed cancelled without regard to or
limitation by any other provision of this Plan and each Vested Option shall be
entitled to a payment in cancellation thereof equal to the excess, if any, of
the amount received per Option Share in such liquidation or dissolution over the
Option Price, multiplied by the number of Option Shares subject to such Option.
13. General Provisions.
(a) Nothing contained in the Plan shall prevent the Company or any
subsidiary from adopting other or additional compensation arrangements for its
employees, consultants or directors.
(b) The adoption of the Plan shall not confer upon any Employee any
right to continued employment, any Consultant any right to continued consultancy
or any Director any right to continue as a member of the Board or board of
directors of any of its subsidiaries, nor shall it interfere in any way with the
right of the Company or any subsidiary to terminate the employment, consultancy
or directorship of any Employee, Consultant or Director at any time.
9
(c) No later than the date as of which an amount first becomes
includible in the gross income of the Participant for Federal income tax
purposes with respect to Option Shares acquired pursuant to the exercise of any
Option hereunder, such Participant shall pay to the Company, or make
arrangements reasonably satisfactory to the Company regarding the payment of,
any Federal, state, local or foreign taxes of any kind required by law to be
withheld with respect to such amount; provided, however, that such arrangements
need not involve the advancement by the Company of any funds to, for or on
behalf of any Participant or the incurrence or payment by the Company of any
costs or expenses. With the approval of the Committee, a Participant may satisfy
the foregoing requirements by electing to have the Company withhold from
delivery shares of Common Stock having a value equal to the amount of tax to be
withheld (but not in excess of the Company's minimum statutory withholding). The
obligations of the Company hereunder shall be conditional on such payment or
arrangements, and the Company shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment otherwise due to the
Participant.
(d) The Plan and all Awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of New York
without reference to the choice of law principles thereof.
10
SCHEDULE I
EBITDA Values
- --------------------------------------------------------------------------------------------------------------------
Fiscal Year 2002 2003 2004 2005 2006
- --------------------------------------------------------------------------------------------------------------------
Target EBITDA Value
(thousands) $ 13,000 $ 18,000 $ 23,000 $ 26,500 $ 30,000
- --------------------------------------------------------------------------------------------------------------------
Cumulative Target
EBITDA Value
(thousands) $ 13,000 $ 31,000 $ 54,000 $ 80,500 $ 110,500
- --------------------------------------------------------------------------------------------------------------------
EBITDA Value for a fiscal year shall mean the consolidated earnings from
continuing operations of the Company and its subsidiaries for such period before
consolidated interest, taxes, depreciation and amortization, determined in
accordance with GAAP in effect on the date hereof and consistent with the
principles utilized in connection with the preparation of the audited financial
statements of the Company for the Fiscal Year ended December 31, 2002 excluding
(i) extraordinary charges and gains and (ii) any charges or gains attributable
to the grant or exercise of the Option.
11
STOCK OPTION AND CONSULTING AGREEMENT
STOCK OPTION AGREEMENT AND CONSULTING AGREEMENT (the "Agreement"),
dated as of June 21, 1999, between LINCOLN TECHNICAL INSTITUTE, INC., a New
Jersey corporation (the "Company"), and STEVEN W. HART (the "Consultant").
WHEREAS, the Company is a party to a recapitalization agreement dated
as of April 26, 1999 (the "Recapitalization Agreement");
WHEREAS, the Consultant has provided consulting and advisory services
to the Company in connection with strategic and acquisition opportunities; and
WHEREAS, pursuant to the terms and subject to the conditions
hereinafter set forth, the Company desires to continue to engage the Consultant
to render consulting and advisory services during the period following the
closing of the transactions contemplated by the Recapitalization Agreement among
P.J. Santangelo, James Santangelo and Back to School Acquisition L.L.C. (the
"Transactions"), and to increase his interest in the success of the Company by
granting to the Consultant nonqualified stock options (the "Options") to
purchase shares of common stock, no par value per share, of the Company (the
"Common Stock").
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto agree as follows:
1. Consulting Engagement. The Company hereby agrees to engage the
Consultant, and the Consultant hereby accepts such engagement with the Company,
for the period set forth in Section 2 below, with the responsibilities
determined pursuant to Section 3 below, all in accordance with the terms and
conditions hereof.
2. Consulting Period. The period during which the Consultant shall be
engaged as a consultant by the Company (the "Consulting Period") shall commence
on the Closing Date (as such term is defined in the Recapitalization Agreement)
of the Transactions (the "Effective Date"), and shall continue until the second
anniversary of the Effective Date.
3. Responsibilities. During the Consulting Period, and subject to
Subsection 10(a) hereof, the duties of the Consultant shall consist of such
consulting and advisory services, and shall be provided at such times, as may be
agreed to from time to time by the Consultant and the Company. The Consultant
shall report to the Board of Directors of the Company (the "Board"), or to its
designee.
4. Consulting Capacity Only. The Consultant shall act solely in a
consulting capacity hereunder and shall not have authority to act for the
Company or to give instructions or orders on behalf of the Company or to make
any decisions or commitment for or on behalf of the Company, except as otherwise
expressly authorized by the Company. The parties hereto acknowledge and agree
that the Consultant shall not be an employee of the Company with respect to
which the Consultant shall render any consulting or advisory services during the
Consulting Period, but will act in the capacity of an independent contractor.
Consequently, the
1
Consultant shall, solely as a result of his service as a consultant, not be
entitled to participate in any employee benefit plans, programs or arrangements
of the Company.
5. Expenses. The Company shall pay or reimburse the Consultant for
reasonable expenses incurred by him in connection with the performance of his
obligations to the Company upon presentation by the Consultant of an itemized
account of such expenses in a manner consistent with the Company's policies and
procedures for employees.
6. Termination of Consulting Arrangement. Subject to the provision of
this Agreement, either the Consultant or the Company shall have the right to
terminate this Agreement for any reason or for no stated reason at any time upon
thirty (30) days' prior written notice to the other party.
7. Stockholders Agreement; Certain Restrictions. The Consultant and the
Company hereby confirm that, effective as of the date of exercise of the Option,
the Consultant shall enter into a Stockholders Agreement among the Company, Back
to School Acquisition, LLC, Hart/LTI, LLC and Steven W. Hart (the "Stockholders
Agreement") in the form attached as Exhibit A hereto, be deemed to be a
"Stockholder" with respect to the Option Shares and the Consultant agrees to be
bound by all the terms of the Stockholders Agreement. None of the Option Shares
may be sold, transferred, assigned, pledged, or otherwise encumbered or disposed
of to any third party other than the Company except as provided in the
Stockholders Agreement. None of the Options may be sold, transferred, assigned,
pledged, or otherwise encumbered or disposed of, except by will or the laws of
descent and distribution. During the Consultant's lifetime, an Option shall be
exercisable only by the Consultant. Each Permitted Transferee (as defined in the
Stockholders Agreement) (other than the Company) of any Option Share shall, as a
condition to the transfer thereof, execute an agreement pursuant to which it
shall become a party to the Stockholders Agreement.
8. Grant of Options. As exclusive compensation for the consulting
services to be performed by the Consultant hereunder during the Consulting
Period, and subject to the terms and conditions contained herein, the Company
hereby grants to the Consultant, effective as of the Effective Date (the "Date
of Grant"), an Option to purchase 1615 shares of Common Stock (the "Option
Shares") at an exercise price equal to $154.82.
9. Terms and Conditions of Options. The Options evidenced hereby are
subject to the following terms and conditions:
(a) Duration of Options. The period for which the Options are
effective shall commence upon the Date of Grant and shall continue until
the Options are terminated as hereinafter provided (the "Option Period").
The Option Period of the Options shall terminate upon the earliest to occur
of (1) the tenth anniversary of the Date of Grant and (2) the following
dates:
(i) if the Consultant voluntarily terminates his consulting
arrangement herein before the last day of the Consulting Period or the
Consultant breaches Subsection 10(a) following the Board's
determination that the Consultant has engaged in Competitive Activity
(as defined below) that has resulted, or
2
could reasonably be expected to result, in material harm to the
Company pursuant to Subsection 10(a), the ninetieth day following the
date on which the Consultant terminates the consulting arrangement or
the Board makes such determination, as the case may be.
(ii) immediately upon the Company's termination of the consulting
arrangement herein for "Cause". "Cause" shall mean (A) willful or
persistently repeated material non-performance of the Consultant's
duties to the Company after notice by the Company of such failure, (B)
the indictment of the Consultant for a felony offense, (C) the
commission by the Consultant of fraud or any willful misconduct that
brings the reputation of the Company into disrepute, or (D) a material
breach by the Consultant of any of the covenants set forth in
Subsections 10(b) and (c).
(b) Exercisability and Vesting of Options. The Options shall be fully
vested and fully exercisable on the Date of Grant.
(c) Procedure for Exercise and Payment for Shares. Exercise of these
Options shall be made by the Consultant's giving written notice to the
Company. Such written notice shall be deemed sufficient for this purpose
only if it (i) is delivered to the Company at its principal offices, (ii)
states the number of Option Shares with respect to which the Option is
being exercised, and (iii) states the date, no earlier than the fifth
business day after, and no later than the tenth business day after, the
date of such notice, upon which the Option Shares shall be purchased and
payment therefor shall be made. The payments for Option Shares purchased
pursuant to exercise of these Options shall be made at the principal
offices of the Company. Upon (x) the exercise of any Option, in compliance
with the provisions of this Subsection 9(c), (y) receipt by the Company of
the payment for the Option Shares so purchased together with cash in the
amount of any taxes required to be collected or withheld as a result of the
exercise of this Option, and (z) receipt by the Company of an executed copy
of the Stockholders Agreement (unless such Consultant is already a party
thereto or the Company receives such other evidence as the Company may
reasonably require to ensure that the Option Shares issuable upon exercise
of the Option will be subject to the Stockholders Agreement), the Company
shall deliver or cause to be delivered to the Consultant so exercising an
Option a certificate or certificates for the number of Option Shares with
respect to which these Options are exercised and payment is made. The
Option Shares shall be registered in the name of the exercising Consultant;
provided that in no event shall any Option Shares be issued pursuant to
exercise of an Option until full payment therefor shall have been made in
one of the manners set forth below; and provided, further, that until such
payment has been made, the exercising Consultant shall have no rights of a
shareholder. For purposes of this paragraph, the date of issuance shall be
the date upon which payment in full has been received by the Company as
provided herein. The exercise price shall be payable at the election of the
Consultant, in whole or in part, in any one or a combination of cash or
Mature Common Stock valued at the Fair Value Price (as defined below) as of
the date the notice of exercise is given. "Mature Common Stock" means
shares of Common Stock held by such Consultant for more than six months.
"Fair Value Price" means, as
3
of any date of determination, the fair market price per share of Common
Stock as of such date, as determined by the Board in its sole discretion.
(d) Stockholder Rights. The Consultant shall have no rights as a
stockholder with respect to any Option Shares until such Consultant shall
have exercised the related Options and until a certificate or certificates
evidencing such shares shall have been issued to the Consultant, and no
adjustment shall be made for dividends or distributions or other rights in
respect of any share for which the record date is prior to the date upon
which the Consultant shall become the holder of record thereof.
(e) Dividends and Distributions. Any shares of Common Stock or other
securities of the Company received by the Consultant as a result of a stock
distribution to holders of Option Shares, as a stock dividend on Option
Shares or pursuant to a similar transaction shall be subject to the same
restrictions as such Option Shares, and all references to Option Shares
hereunder shall be deemed to include such shares of Common Stock or other
securities.
10. Protection of the Company's Interests.
(a) Other Business Activities of the Consultant. The parties hereto
acknowledge that the Consultant and his affiliates and successors are
engaged in various businesses, including the business of acquiring, selling
and holding investments. Nothing herein shall be deemed to prohibit the
Consultant and his affiliates from advising, consulting for, being employed
by, engaging, directly or indirectly, in or owning, directly or indirectly,
any interest in, any other business ventures or activities that may be
considered competitive with the Company or its subsidiaries or affiliates
(collectively, "Competitive Activity"); provided, however, that during the
Consulting Period the Consultant shall be prohibited from engaging in any
such Competitive Activity if the Board determines in good faith that such
Competitive Activity has resulted, or could reasonably be expected to
result, in material harm to the Company or its subsidiaries or affiliates.
Nothing shall require the Consultant or his affiliates to permit the
Company or any of its subsidiaries or affiliates or any other shareholder
of the Company to participate in any manner in any profits or income earned
or derived by or accruing to the Consultant or his affiliates, or any of
their respective employees or other agents, from such business ventures or
activities. Nothing shall give the Company or its subsidiaries or
affiliates any interest in any information of or pertaining to such
business ventures or activities.
(b) Confidentiality. The Consultant recognizes that the services to be
performed by him hereunder are special, unique and extraordinary in that,
by reason of his consulting service hereunder, he may acquire confidential
information and trade secrets concerning the operation of the Company or
its affiliates or subsidiaries, the use or disclosure of which could cause
the Company or its affiliates or subsidiaries substantial losses and
damages that could not be readily calculated and for which no remedy at law
would be adequate. Accordingly, the Consultant covenants and agrees with
the Company that he shall not at any time, except in performance of his
obligations hereunder or with the prior written consent of the Company,
directly or indirectly, disclose to any person, entity or organization
(other than the Company or its employees,
4
officers, directors, shareholders or agents) or use for his own benefit any
confidential information that he may learn or has learned by reason of his
association with the Company, or any of its predecessors, subsidiaries and
affiliates. The Consultant further agrees that he will retain all copies
and extracts of any written confidential information acquired by him during
the consulting engagement, shareholding or association in trust for the
sole benefit of the Company, their affiliates and their successors and
assigns. The Consultant further agrees that he will not, without the prior
written consent of the Company, remove or take from the Company's premises
(or if previously removed or taken, he will, at the Company's request,
promptly return) any written confidential information or any copies or
extracts thereof. Upon the request and at the expense of the Company, the
Consultant shall promptly make all disclosures, execute all instruments and
papers and perform all acts reasonably necessary to vest and confirm in the
Company, fully and completely, all rights created or contemplated by this
Subsection 10(b). The term "confidential information" means any information
of the Company that is deemed to be confidential by the Company and that
was not previously disclosed or otherwise available to the public or to the
trade with respect to the Company's, or any of its predecessors',
affiliates' or subsidiaries', services, facilities and methods, trade
secrets and other intellectual property, systems, procedures, manuals,
confidential reports, student lists, course materials, financial
information or business plans.
(c) Exclusive Property. The Consultant confirms that all confidential
information is and shall remain the exclusive property of the Company. All
business records, papers and documents kept or made by the Consultant
specifically relating to the business of the Company, its predecessors,
affiliates and subsidiaries shall be and remain the property of the
Company. Upon the request of the Company at any time, the Consultant shall
promptly deliver to the Company, and shall not without the consent of the
Company retain copies of, any written materials not made available to the
public, or records and documents made by the Consultant or coming into his
possession concerning the business or affairs of the Company or any of its
affiliates or subsidiaries.
(d) Injunctive Relief. Without intending to limit the remedies
available to the Company, the Consultant acknowledges that a breach of any
of the covenants contained in this Section 10 may result in material
irreparable injury to the Company or its affiliates or subsidiaries for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of such
a breach or threat thereof, the Company shall be entitled to obtain a
temporary restraining order and/or a preliminary or permanent injunction
restraining the Consultant from engaging in activities prohibited by this
Section 10 or such other relief as may be required to specifically enforce
any of the covenants in this Section 10.
(e) Violation and Remedy. If the Company reasonably determines that
the Consultant has breached any of the provisions of this Section 10, in
addition to any other remedies available to the Company in law or equity,
the Company shall be entitled to immediately suspend as of the date of such
breach its obligation to make any payments or benefits to the Consultant
under this Agreement.
5
11. Requirements of Law and of Certain Agreements. If any law or any
regulation of any commission or agency of competent jurisdiction shall require
the Company or the exercising Consultant to take any action with respect to any
Option Shares, then the date upon which the Company shall issue or cause to be
issued the certificate or certificates for such Option Shares shall be postponed
until full compliance has been made with all such requirements of law or
regulation; provided that the Company shall use reasonable efforts to take all
necessary action to comply with such requirements of law or regulation. Further,
if requested by the Company, at or before the time of the issuance of such
Option Shares, the Consultant shall deliver to the Company his written
statements satisfactory in form and content to the Company, that he intends to
hold the Option Shares so acquired by him for investment and not with a view to
resale or other distribution thereof to the public in violation of the
Securities Act or any applicable state securities or "blue sky" law. Moreover,
in the event that the Company shall determine in its sole discretion that, in
compliance with the Securities Act or any applicable state securities or "blue
sky" law, it is necessary to register any of the Option Shares, or to qualify
any such Option Shares for exemption from any of the requirements of the
Securities Act or any other applicable statute or regulation, no Options may be
exercised until the required action has been completed; provided that the
Company shall use reasonable efforts to take all necessary action to comply with
such requirements of law or regulation. All Option Shares shall bear the legends
provided for in the Stockholders Agreement.
12. Miscellany.
(a) No Rights to Grant Employment. Neither this Agreement nor any
action taken or omitted to be taken hereunder shall be deemed to create or
confer on the Consultant any right to be employed by the Company or any
Subsidiary or other affiliate thereof, or to interfere with or to limit in
any way the right of the Company or any Subsidiary or other affiliate
thereof to terminate the consulting arrangement of the Consultant at any
time.
(b) No Restriction on Right of Company to Effect Corporate Changes.
Neither the Plan nor this Agreement shall affect in any way the right or
power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
capital structure or business of the Company, or any merger or
consolidation of the Company, or any issue of stock or of options, warrants
or rights to purchase stock or of bonds, debentures, preferred or prior
preference stocks whose rights are superior to or affect the Common Stock
or the rights thereof or which are convertible into or exchangeable for
Common Stock, or the dissolution or liquidation of the Company, or any sale
or transfer of all or any part of the assets or business of the Company, or
any other corporate act or proceeding, whether of a similar character or
otherwise.
(c) Merger, Sale of Assets, etc. If at any time while the Options or
any portion thereof are outstanding and unexpired, there shall be (i) a
reorganization (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), (ii) a merger or
consolidation of the Company with or into another corporation in which the
Company is not the surviving entity or a reverse triangular merger in which
the Company is the surviving entity but the shares of the Company's
6
capital stock outstanding immediately prior to the merger are converted by
virtue of the merger into other property, whether in the form of
securities, cash, or otherwise, or (iii) a sale or transfer of the
Company's properties and assets as, or substantially as, an entirety to any
other person, then, as a part of such reorganization, merger,
consolidation, sale or transfer, lawful provision shall be made so that the
holder of the Options shall thereafter be entitled to receive upon
exercise, the number of shares of stock or other securities or property of
the successor corporation resulting from such reorganization, merger,
consolidation, sale or transfer that a holder of the shares deliverable
upon exercise of the Options would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer if the Options had
been exercised immediately before such reorganization, consolidation,
merger, sale or transfer, all subject to further adjustment as provided
below. If the per share consideration payable to the holder hereof for
shares in connection with any such transaction is in a form other than cash
or marketable securities, then the value of such consideration shall be
determined in good faith by the Board. In all events, appropriate
adjustment (as determined in good faith by the Board) shall be made in the
application of the provisions of the Options with respect to the rights and
interest of the holder after the transaction, to the end that the
provisions of the Options shall be applicable after that event, as near as
reasonably may be, in relation to any shares or other property deliverable
after that event upon exercise of the Options.
(d) Reclassification, etc. Subject to Subsection 12(c), if, at any
time while the Options are outstanding, the Common Stock is changed by
reason of a stock split, reverse stock split, stock dividend or
recapitalization, or converted into or exchanged for other securities as a
result of a merger, consolidation or reorganization, the Company shall make
appropriate adjustments in the number and class of shares of stock subject
to the Options, and the exercise price.
(e) Notices. In the event, prior to termination of the Options, of a
dissolution or liquidation of the Company, a reorganization, merger or
consolidation in which the Company is not the surviving corporation or a
sale of all or substantially all of the assets of the Company to another
person or entity (a "Corporate Transaction"), the Consultant shall be given
(i) written notice of such Corporate Transaction a reasonable period prior
to its proposed effective date (as specified in such notice) and (ii) an
opportunity to fully exercise the Options.
(f) Impairment: Reservation of Shares.The Company shall not, by
amendment of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but shall at all times in good faith
assist in the carrying out of all the provisions hereof and in the taking
of all such action as may be necessary or appropriate in order to protect
the rights of the Consultant, as holder of the Options, against impairment.
The Company covenants that during the term that the Options are
exercisable, the Company shall reserve from its authorized and unissued
Common Stock a sufficient number of shares to provide for the issuance of
Common Stock upon the exercise of the Options. The Company agrees that its
issuance of the Options shall constitute full authority to its officers who
are charged
7
with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of the
Options.
(g) 1934 Act. Notwithstanding anything contained in this Agreement to
the contrary, if the consummation of any transaction under this Agreement
would result in the possible imposition of liability to the Consultant
pursuant to Subsection 16(b) of the 1934 Act, the Board or the Committee
shall have the right, in its sole discretion, but shall not be obligated,
to defer such transaction to the extent necessary to avoid such liability,
but in no event for a period in excess of 180 days.
(h) Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
The parties intend that any offending provision shall be enforced to the
fullest extent to which it is enforceable, that any unenforceable portion
thereof be severed from this Agreement, and that this Agreement, as
modified to sever any such unenforceable portion, shall be enforced to the
fullest extent permitted by law.
(i) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
(j) Headings. The headings contained in this Agreement are intended
solely for convenience of reference and shall not affect the rights of the
parties to this Agreement.
13. Survival; Assignment.
(a) All agreements, representations and warranties made herein and in
any certificates delivered pursuant hereto shall survive the issuance to
the Consultant of the Options and the Option Shares and, notwithstanding
any investigation heretofore or hereafter made by the Consultant or the
Company or on the Consultant's or the Company's behalf, shall continue in
full force and effect. Without the prior written consent of the Company,
the Consultant may not assign any of his rights hereunder except by will or
the laws of descent and distribution. Whenever in this Agreement any of the
parties hereto is referred to, such reference shall be deemed to include
the heirs and permitted successors and assigns of such party; and all
agreements herein by or on behalf of the Company, or by or on behalf of the
Consultant, shall bind and inure to the benefit of the heirs and permitted
successors and assigns of such parties hereto.
(b) The Company shall have the right to assign to any of its
affiliates any of its rights, or to delegate to any of its affiliates any
of its obligations (other than obligations with respect to the Company's
Options granted hereunder), under this Agreement.
14. Certain Remedies. Without intending to limit the remedies available to
either party, each party agrees that damages at law will be an insufficient
remedy in the event such party violates the terms of this Agreement. Each party
agrees that the other party may
8
apply for and have injunctive or other equitable relief in any court of
competent jurisdiction to restrain the breach or threatened breach of, or
otherwise specifically to enforce, any of the provisions hereof.
15. Notices. Any notice hereunder by either party to the other shall be
given in writing by personal delivery or certified mail, return receipt
requested, or by telex or facsimile, in any case delivered to the applicable
address set forth below:
(i) If to the Company: Lincoln Technical Institute, Inc.
200 Executive Drive
West Orange, NJ 07052
Attention: President
With a copy to:
Stonington Partners, Inc.
767 Fifth Avenue, 48th Floor
New York, NY 10153
Attention: James J. Burke, Jr.
(ii) If to the Consultant: Steven W. Hart
131 Rowayton Avenue
Rowayton, CT 06853
or to such other persons or other addresses as either party may specify to the
other in writing.
16. Amendments, Waiver, Etc. No provision of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing by both parties hereto. No waiver by any party hereto at
any time of any breach by the other party hereto of, or of compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by any party that are not expressly set forth in this Agreement,
and this Agreement shall supersede all prior agreements, negotiations,
correspondence, undertakings and communications of the parties, oral or written,
with respect to the subject matter hereof.
17. Entire Agreement; Governing Law. This Agreement and the other
related agreements expressly referred to herein set forth the entire agreement
and understanding between the parties hereto and supersede all prior agreements
and understandings relating to the subject matter hereof. This Agreement may be
executed in one or more counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
agreement. The headings of sections and subsections herein are included solely
for convenience of reference and shall not affect the meaning of any of the
provisions of this Agreement. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York.
9
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Consultant has executed this
Agreement, both as of the day and year first above written.
LINCOLN TECHNICAL INSTITUTE, INC.
By: /s/ P.J. Santangelo
--------------------------------
Name: P.J. Santangelo
Title: President
CONSULTANT
By: /s/ Steven W. Hart
-------------------------------
STEVEN W. HART
10
[McCarter & English, LLP Letterhead]
Todd M. Poland
Partner
tpoland@mccarter.com
June 22, 2005
Lincoln Educational Services Corporation
200 Executive Drive
Suite 340
West Orange, NJ 07052
Re: Lincoln Educational Services Corporation
Ladies and Gentlemen:
We have acted as special New Jersey counsel to Lincoln Educational
Services Corporation, a New Jersey corporation (the "Company") in connection
with the preparation and filing by the Company of a registration statement on
Form S-8 (the "Registration Statement") under the Securities Act of 1933 with
respect to the proposed future issuance by the Company of up to 2,087,835 shares
of Common Stock, without par value, pursuant to the Lincoln Technical Institute
Management Stock Option Plan (Effective January 1, 2002) (the "Stock Option
Plan"), and up to 161,500 shares of Common Stock, without par value, pursuant to
Stock Option and Consulting Agreement dated as of June 21, 1999 (the
"Agreement") between the Company and Steven W. Hart. The shares of Common Stock,
without par value, to be issued pursuant to the Stock Option Plan and the
Agreement are herein called the "Securities."
For the purpose of expressing the following opinions, we have examined
Company's Registration Statement on Form S-8, the Stock Option Plan, the
Agreement, the corporate actions of the Company taken in connection with this
matter (including an Officer's Certificate made by Scott M. Shaw, Senior Vice
President of the Company relating to approval of the Stock Option Plan by the
shareholders of the Company) and the Certificate of Incorporation and By-Laws of
the Company. We have also examined and relied upon the originals, or copies
certified or otherwise identified to our satisfaction, of such corporate
records, documents, and other evidence as we have deemed necessary or
appropriate for the purposes of the opinions hereinafter expressed.
Based upon the foregoing, it is our opinion that when the Securities
have been issued and sold by the Company against payment therefore pursuant to
the terms of the Stock Option Plan or the Agreement, as the case may be, they
will be legally issued, fully paid and nonassessable.
Lincoln Educational Services
June 22, 2005
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
/s/ McCarter & English, LLP
-------------------------------
McCarter & English, LLP
TMP/dvh
EXHIBIT 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in this Registration Statement on
Form S-8 of our report relating to the consolidated financial statements and
financial statement schedule of Lincoln Educational Services Corporation, dated
March 28, 2005 (which report expresses an unqualified opinion and includes an
explanatory paragraph related to a change in accounting method for stock based
compensation), appearing in the Registration Statement on Form S-1 of Lincoln
Educational Services Corporation.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
June 22, 2005