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The virtual Annual Meeting platform is fully supported across browsers (Internet Explorer, Firefox, Chrome and Safari) and devices (desktops, laptops, tablets and cell phones) running the most updated version of applicable software and plugins. Shareholders (or their authorized representatives) should ensure that they have a strong Wi-Fi connection wherever they intend to participate in the meeting. Shareholders (or their authorized representatives) should also give themselves plenty of time to log in and ensure that they can hear streaming audio prior to the start of the meeting.

 

We are committed to ensuring that our shareholders have the same rights and opportunities to participate in the Annual Meeting as if our Annual Meeting were being held as an in-person meeting at a physical location. If you encounter any technical difficulties with the virtual meeting platform on the meeting day, please call the Continental Stock Transfer & Trust Company technical support phone number, 917-262-2373. Technical support will be available starting at 8:45 a.m. (Eastern Time) on June 16, 2020, and through the conclusion of the meeting.

 

Shareholders as of the close of business on April 27, 2020 (the record date for the Annual Meeting) who attend and participate in the virtual Annual Meeting at will have an opportunity to submit questions pertinent to meeting matters live via the internet during a designated portion of the Annual Meeting. These shareholders may also submit a question in advance of the Annual Meeting at https://www.cstproxy.com/lincolntech/2020 at any time after June 9, 2020 at 9:00 a.m. (Eastern Time), the commencement of pre-registration.  In both cases, shareholders must have available their control number provided on their proxy card or Notice of Internet Availability of Proxy Materials.

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Board Diversity

 

The Nominating and Corporate Governance Committee, in accordance with the Board’s governance principles, seeks to create a Board that, as a whole, is strong in its collective knowledge and has a diversity of skills and experience with respect to vision and strategy, management and leadership, business operations, business judgment, crisis management, risk assessment, industry knowledge, accounting and finance, corporate governance and markets in general.  The Nominating and Corporate Governance Committee does not have a formal policy with respect to diversity; however, the Board of Directors and the Nominating and Corporate Governance Committee believe that it is essential that the members of our Board of Directors represent diverse viewpoints. The Nominating and Corporate Governance Committee focuses on diversity of gender, race and national origin, education, professional experience and differences in viewpoints and skills. In considering candidates for the Board of Directors, the Nominating and Corporate Governance Committee considers the entirety of each candidate’s credentials in the context of these standards.

 

Committees of the Board of Directors

 

The Board of Directors has an Audit Committee, a Nominating and Corporate Governance Committee and a Compensation Committee.

 

Audit Committee

 

The Audit Committee is comprised of directors Burgess (Chairman), Bartholdson, Carney, Currin and Harbour.  Mr. Bartholdson has served on our Audit Committee since his appointment on November 14, 2019 and Mr. Carney was appointed to the Audit Committee by the Board of Directors on April 24, 2020. The Audit Committee held four meetings in 2019. The Board of Directors has adopted a written charter for the Audit Committee, which is available on our website at www.lincolntech.edu.  The Audit Committee is directly responsible for the oversight of, among other things, 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 Financial Accounting Standards Board, the SEC, the American Institute of Certified Public Accountants and the Public Company Accounting Oversight Board; 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 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 to the extent required by applicable law or listing standards; 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 Audit Committee is also charged with reviewing and approving all related person transactions.

 

The Board of Directors has determined that Mr. Burgess is an “audit committee financial expert” within the meaning of the regulations of the SEC.  Messrs. Bartholdson, Burgess, Carney and Harbour and Ms. Currin are independent directors under the Sarbanes Oxley Act of 2002 and the NASDAQ listing standards.

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee is comprised of directors Austin (Chair), Bartholdson, Burke and Harbour. Mr. Bartholdson has served on our Nominating and Corporate Governance Committee since his appointment on November 14, 2019.  The Nominating and Corporate Governance Committee held three meetings in 2019. The charter for the Nominating and Corporate Governance Committee is published on our website at www.lincolntech.edu. The Nominating and 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 Nominating and Corporate Governance 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.

 

Nomination Process. The Nominating and 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 Company’s bylaws will be forwarded to the Chair of the Nominating and 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 Nominating and Corporate Governance Committee. The Nominating and Corporate Governance 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 Nominating and Corporate Governance Committee.

 

Generally, once the Nominating and Corporate Governance Committee has identified a prospective nominee, it will make an initial determination as to whether to conduct a full evaluation of the candidate based on information provided to it with the recommendation of the candidate, as well as the Nominating and Corporate Governance 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 Nominating and Corporate Governance 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 Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee then evaluates the candidate against the standards and qualifications set out in guidelines for director candidates adopted by the Board of Directors, including, without limitation, the nominee’s management, leadership and business experience, skills such as financial literacy and knowledge of directorial duties, diversity, integrity and professionalism.

 

The Nominating and Corporate Governance 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 Nominating and Corporate Governance Committee determines whether to interview the prospective nominee, and, if warranted, one or more members of the Nominating and Corporate Governance Committee, and others as appropriate, interview prospective nominees in person or by telephone. After completing this evaluation and interview, the Nominating and Corporate Governance 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 Nominating and Corporate Governance Committee.

 

Compensation Committee

 

The Compensation Committee is comprised of directors Currin (Chair), Bartholdson, Burke and Austin. Mr. Bartholdson has served on our Compensation Committee since his appointment on November 14, 2019. The Compensation Committee held two meetings in 2019. Each member of the Compensation Committee meets the independence requirements under the NASDAQ listing standards. The charter for the Compensation Committee is published on our website at www.lincolntech.edu. 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 shareholders;  recommend compensation, special benefits, perquisites, and incidental benefits 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 in control plans that provide for benefits upon a change in control, or other provisions for our executive officers and directors, to our board. The Compensation Committee may retain compensation consultants having special competence to assist it in evaluating director and executive compensation and may also retain counsel, accountants or other advisors, in its sole discretion. The Compensation Committee did not retain a compensation consultant in 2019. The Compensation Committee also has the power to delegate its authority and duties to subcommittees or individual members of the committee, as it deems appropriate in accordance with applicable laws and regulations.

 

Committee Membership

 

The table below lists the current membership of each committee and the number of committee meetings held in 2019:

Director Independence

 

Our Board of Directors has a majority of independent directors as is required by the NASDAQ Marketplace Rules. Our Board of Directors has determined that each of our director nominees other than Scott M. Shaw, our Chief Executive Officer, is an “independent director” as such term is defined under the NASDAQ listing rules.  All of the members of the Audit Committee, the Nominating and Corporate Governance Committee and the Compensation Committee are independent directors.

 

Board Leadership Structure

 

Currently, the roles of Chief Executive Officer and Chairman of the Board of Directors are held by different individuals.  In the past, the position of Chief Executive Officer and Chairman were combined when deemed appropriate by the Board of Directors.

 

Our Board of Directors has adopted a flexible policy regarding the issue of whether the positions of Chairman and Chief Executive Officer should be separate or combined.  Our Board of Directors regularly evaluates whether the interest of the Company and its shareholders are best served at any particular time by having the Company’s Chief Executive Officer or another director hold the position of Chairman.  Our Board of Directors believes that no single, one-size fits all, board-leadership model is universally or permanently appropriate. This structure has proven especially useful to facilitate executive leadership training, succession, and orderly transitions. At present, the Board of Directors believes that its current structure effectively maintains independent oversight of management.

 

As Non-Executive Chairman of the Board of Directors, J. Barry Morrow ensures that the Board of Directors fulfills its oversight and governance responsibilities and directs the activities and meetings of the Board of Directors. In addition, Mr. Morrow is responsible for coordinating the activities of the non-employee directors and leading executive sessions of the non-employee directors, which are generally held in conjunction with each regularly scheduled Board of Directors meeting.

 

Board of Directors’ Role in Risk Oversight

 

Our Board of Directors has an active role, as a whole and also at the committee level, in overseeing the risk management of the Company. This is designed to support the achievement of organizational objectives, including strategic objectives, to improve long-term organizational value. A fundamental part of risk management is not only understanding the risks a company faces and what steps management is taking to manage those risks, but also understanding what level of risk is appropriate for the Company. The involvement of the full Board of Directors in setting the Company’s business strategy is a key part of its assessment of management’s appetite for risk and also a determination of what constitutes an appropriate level of risk for the Company.

 

Fundamental aspects of the Board of Directors’ risk management oversight activities include:

 

 

 

 

While the Board of Directors has the ultimate oversight responsibility for the risk management process, various committees of the Board of Directors also have responsibility for risk management. In particular, the Audit Committee focuses on financial risk, including internal controls, and receives an annual risk assessment report from the Company’s internal auditors.  The Audit Committee also assists the Board of Directors in fulfilling its oversight responsibility with respect to legal and compliance issues.  The Nominating and Corporate Governance Committee, in addition to making recommendations with respect to corporate governance matters and nominations of directors, manages risks associated with the independence of the Board of Directors and potential conflicts of interest. The Compensation Committee strives to create incentives that encourage a level of risk-taking behavior consistent with the Company’s business which are appropriately balanced and do not motivate employees to take imprudent risks. All committees report to the full board as appropriate, including when a matter rises to the level of a material or enterprise level risk.

 

The Company has reviewed its compensation programs and considered the extent to which its compensation policies and practices influence the behaviors of our executives and other employees with respect to taking business risks that could affect the Company.  We believe that our compensation policies and practices are not reasonably likely to have a material adverse effect on the Company, either individually or in the aggregate.

 

Compensation Committee Interlocks and Insider Participation

 

Ms. Currin and Messrs. Burke and Austin served on the Compensation Committee during the entire 2019 fiscal year. Mr. Bartholdson has served on our Compensation Committee since his appointment on November 14, 2019.  During the 2019 fiscal year:

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

 

The following tables provide information regarding the beneficial ownership of our Common Stock as of the Record Date by (1) each of our directors, (2) each of our named executive officers, (3) all directors and executive officers as a group, and (4) each person known to us to be the beneficial owner of more than 5% of the outstanding shares of our Common Stock.  This table is based on information provided to us or filed with the SEC by our directors, executive officers and principal shareholders named below.  Except as otherwise indicated, we believe, based on information furnished by such owners, that the beneficial owners of our Common Stock listed below have sole investment and voting power with respect to such shares, subject to community property laws where applicable.  Unless otherwise noted below, the address of each beneficial owner listed in the table is: c/o Lincoln Educational Services Corporation, 200 Executive Drive, Suite 340, West Orange, New Jersey 07052.

 

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

 

To the Company’s knowledge, and as reported to us or filed with the SEC, as of the Record Date, the only persons or groups that are known to us to be the beneficial owners of more than 5% of the Company’s outstanding stock are:

 

Name and Address of Beneficial Owner		Common Stock								Series A Preferred Stock
		Shares(1)					%(1)			Shares(1)					%(1)
Juniper Investment Company, LLC (2) 555 Madison Avenue, 24 th Floor New York, NY  10022			5,656,472	(2)			18.1	% (2)			11,200	(3)			88.2	% (3)
Heartland Advisors, Inc.  (4) 789 North Water Street Milwaukee, WI 53202			3,334,010				12.6	%
Paradice Investment Management, LLC. (5) 257 Fillmore Street, Suite 200 Denver, CO 80206			2,614,753				9.9	%
Nantahala Capital Management, LLC (6) 19 Old Kings Highway S, Suite 200 Darien, CT 06820			2,436,805				9.2	%
Talanta Investment Group, LLC (7) 401 N. Tryon Street, 10 th Floor Charlotte, NC 28202			2,449,643	(7)			9.1	% (7)			1,500	(7)			11.8	% (7)
Alyeska Investment Group, L.P. (8) 77 West Wacker Drive, 7 th floor Chicago, IL 60601			2,376,145				9.0	%
22NW, LP (9) 1455 NW Leary Way, Suite 400 Seattle, WA 98107			1,767,459				6.7	%

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(1)

As of the close of business on April 27, 2020, there were 26,364,521 shares of our Common Stock and 12,700 shares of our Series A Preferred Stock outstanding and entitled to vote at the Annual Meeting. Each share of Common Stock is entitled to one vote on each matter voted upon. Holders of Series A Preferred Stock are entitled to vote with the holders of Common Stock, and not as a separate class, on an as-converted basis, on all matters except the election of the Series A Preferred Stock Director, which will be determined solely by the holders of our Series A Preferred Stock. As of April 27, 2020, each Series A Preferred Share may be converted into 442.373 shares of Common Stock or an aggregate of 5,618,137 shares of Common Stock.

SECURITY OWNERSHIP OF MANAGEMENT

 

The following table sets forth information as to the beneficial ownership of shares of our Common Stock as of the Record Date of each director and each named executive 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.

 

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*	Less than 1%.

 

 

 

 

 

 

 

 

 

 

 

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires that the Company’s directors and officers, and persons who beneficially own more than 10% of a registered class of the Company’s equity securities, file with the SEC reports of initial ownership of the Company’s Common Stock and subsequent changes in that ownership and furnish the Company with copies of all forms they file with the SEC pursuant to Section 16(a) of the Exchange Act. Subject to the foregoing, to the Company’s knowledge based solely on a review of the copies of the reports furnished to the Company and/or written representations received from the Company’s directors, officers and greater than 10% beneficial owners that no other reports were required, all Section 16(a) filing requirements applicable to its officers, directors and greater than 10% beneficial owners were complied with during, or in respect of, the Company’s 2019 fiscal year.

 

EQUITY COMPENSATION PLAN INFORMATION

 

We have various equity compensation plans under which equity securities are authorized for issuance. Information regarding these securities as of December 31, 2019 is as follows:

 

COMPENSATION DISCUSSION AND ANALYSIS

 

This section provides an overview and analysis of our executive officer compensation program and policies, the material compensation decisions we have made under those programs and policies, and the material factors that we considered in making those decisions.  Later in this proxy statement under the heading “Executive Compensation,” are a series of tables containing specific information about the compensation earned or paid in 2019 to the following individuals, whom we refer to as our “named executive officers” or “NEOs.”

 

In 2019, the Company had three named executive officers:

 

 

The discussion below is intended to aid in understanding the information provided in the tables that follow and put that information into context within our overall compensation program.

 

Executive Summary

 

2019 Advisory Vote on Executive Compensation

 

At the 2019 Annual Meeting of the Company’s shareholders, we held a non-binding advisory “say-on-pay” vote on our executive compensation program as set forth in our proxy statement dated April 30, 2019, which was filed with the SEC on that date.  Approximately 82% of the votes cast on the say-on-pay proposal voted in favor of the program.

Performance-Based Executive Compensation

 

 

 

 

 

The Compensation Committee believes that these practices highlight the close link between pay and performance under our executive officer compensation program.

Recent Changes to Compensation Program

 

Over the past few years, we made key changes to our annual cash and long-term stock incentive compensation program to enhance our pay-for-performance philosophy to better align the interests of our executives with those of our shareholders.  These changes reflect our continuing commitment to improving our pay-for-performance alignment, while embracing contemporary compensation and governance best practices.  The changes included the following:

 

 

 

 

The Compensation Committee continually reviews the executive compensation program and may, from time to time, modify certain aspects of the program to ensure that it remains aligned with the interests of the Company’s shareholders.

 

Sound Compensation Governance Practices .

 

The Company seeks to implement and maintain sound compensation governance practices to ensure adherence to our pay-for-performance philosophy while appropriately managing risk and aligning our executive compensation program with the financial interests of the Company’s shareholders. Highlights of our practices include:

 

 

 

 

Compensation Philosophy and Objectives

 

The Company and the Compensation Committee believe that compensation paid to executive officers should be closely aligned with our performance on both a short-term and long-term basis, and that such compensation should assist us in attracting and retaining key executives that are critical to our long-term success.

 

Our compensation program is designed to offer executive officers competitive compensation based on our performance and the individual’s contribution, performance and leadership in the execution of our business model.  Our compensation policies are intended to motivate, reward and retain highly qualified executives for long-term strategic management and 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 our long-term success and competitiveness.  Our compensation goals are further intended to mitigate incentives for our executives who take excessive risks that may be adverse to the Company and our shareholders in the long-term.

 

The Compensation Committee has reviewed all components of the compensation for the named executive officers, including salary, annual incentives, equity and long-term incentive compensation, accumulated realized and unrealized stock options, the dollar value to the executive and cost to the Company of all perquisites, and the actual projected payout obligations under potential severance and change in control scenarios.

 

Setting Executive Compensation

 

We intend to continue our strategy of compensating our executives through programs that emphasize performance-based incentive compensation.  We have structured annual cash and long-term equity incentive compensation to both motivate executives to achieve the business goals set by the Company and to reward the executives for achieving such goals.  Our executive compensation program is further designed to discourage excessive risk taking by assessing performance across multiple dimensions and metrics, including both regulatory performance and student outcomes.

 

For the named executive officers, the main components of our compensation program are base salary, an annual performance-based cash incentive and long-term performance-based restricted stock.  In allocating compensation among these components, the Compensation Committee believes that the compensation of senior management, the levels of management having the greatest ability to influence our performance, should be predominately performance-based.  Base salary is intended to provide a certain level of income commensurate with an executive’s position, responsibilities, and contributions to the Company.

 

The annual performance-based cash incentive compensation focuses on short-term performance while the performance-based restricted stock is tied to achievement of performance over a longer period of time.  This mix of short- and long-term incentives provides sufficient rewards to motivate near-term performance, while at the same time providing significant incentives to keep our executives focused on longer term corporate goals that drive shareholder value.  In addition, we believe this balance of short-term and long-term incentive compensation and the mix of varied performance metrics helps mitigate the incentive for executives to take excessive risk that may have the potential to harm the Company in the long-term.

 

Compensation for Scott M. Shaw, our President and Chief Executive Officer, is based on the Compensation Committee’s independent assessment of his performance during the year.  Our President and Chief Executive Officer plays a significant role in setting the compensation for the other named executive officers by presenting an evaluation of each executive’s performance and his recommendation for levels of their compensation.  The Compensation Committee makes all final decisions with respect to the total compensation package for each of the named executive officers and has the authority to accept, reject, or modify these recommendations in connection with its determination.  The Compensation Committee may retain compensation consultants having special competence to assist it in evaluating the compensation of the named executive officers, in its sole discretion. The Compensation Committee did not retain a compensation consultant in 2019.

 

Base Salary

 

Base salaries for our named executive officers are based on job responsibilities and individual contribution with reference to base salary levels of executives at comparable publicly held companies.  The Compensation Committee also considers several other factors in setting base salaries, including the executive’s experience and tenure, our overall annual budget for merit increases and pre-tax profit, the executive’s individual performance, changes in the executive’s responsibility and the executive’s overall contribution to our success.  We review salary levels annually to recognize these factors.  We do not target base salary at any particular percentage of total compensation.

 

2019 Annual Performance-Based Incentive Compensation

 

Our named executive officers are eligible to participate in the MIC Plan.  Under the MIC Plan, the Compensation Committee approves the calculation of performance-based cash incentive opportunity for our named executive officers by taking into account certain financial performance targets and as well as company-wide quality focused outcomes.  Awards under the MIC Plan reflect the Compensation Committee’s belief that a significant portion of the total annual compensation of each named executive officer should be contingent upon the overall financial performance of the Company as well as the attainment of corporate initiatives relating to student outcomes and shareholder value.  For 2019, the Compensation Committee set the target incentive compensation award levels at 100% of base salary for Mr. Shaw, 75% of base salary for Mr. Meyers and 50% of base salary for Mr. Buchenot.  The maximum amount payable to each named executive officer is 200% of his or her target incentive compensation award.

 

The 2019 performance measures under the MIC Plan, including their relative weightings, are as follows:

 

At the beginning of 2019, the Compensation Committee set target goals for each of the above performance measures.  In general, the Compensation Committee sets the net income and revenue performance targets above the performance targets publicly announced for the Company.  This is consistent with the Compensation Committee’s philosophy that performance-based annual compensation awards should incent our named executive officers to attain better than average performance.

 

Net Income / Loss Component.  For 2019, 47% of each named executive officer’s target incentive opportunity was based on the achievement of net income goals.  The named executive officers could earn a portion of their target incentive opportunity if the Company’s net income was within 10% of our target goal.  The percentage of the net income component paid decreases by 10% for each percentage point that actual performance was below the target net income goal.  No payments are made with respect to the net income component if actual performance was at or below 90% of the target net income goal.  Our named executive officers could earn more than their target net income component if the Company’s net income was greater than the target goal.  The percentage increases by 8% for each percentage point that actual performance was above the target net income goal.

 

For 2019, the Compensation Committee set a net income goal of $2.2 million.  Actual adjusted consolidated net income was $2.0 million.  As a result, the Company achieved 11.7% of the 47% of target incentive opportunity attributable to net income.

 

Revenue Component.  For 2019, 33% of each named executive officer’s target incentive opportunity was based on the achievement of revenue goals.  The named executive officers could earn a portion of their target incentive opportunity if our revenues were within 10% of our target goal.  The percentage of the revenue component paid decreases by 10% for each percentage point that actual performance was below our target revenue goal.  No payments are made with respect to the revenue component if actual performance was at or below 90% of our target revenue goal.  Our named executive officers could earn more than their target revenue component if our revenues were greater than the target goal.  The percentage increases by 8% for each percentage point that actual performance was above the target revenue goal.

 

For 2019, the Compensation Committee set a revenue goal of $295.3 million. Actual adjusted consolidated revenues were $273.3 million. As a result, the Company achieved 8.5% of the 33% of their target incentive opportunity attributable to revenue.

 

Company-Wide Quality Focused Outcomes Component.  Each of our named executive officers could earn 20% of their target incentive opportunity for the achievement of company-wide quality focused outcomes.   The performance goals related to the achievement of specific aspects of the Company’s business strategy and corporate initiatives relating to student outcomes and to shareholder value.

 

No payments are made with respect to each initiative of the company-wide quality focused outcomes component if the specified target for such initiative was not attained.  Our named executive officers could earn more than their target incentive opportunity for this component if performance with respect to one or more of the initiatives was greater than the target goal.  The percentage increases by 8% for each percentage point that actual performance was above the target goal for the initiative.

 

For 2019, we targeted a student retention rate of 66.5%.  The actual student retention rate was 67.9%.  As a result, the Company achieved 22.2% of the 20% of target incentive opportunity attributable to Company-wide quality focused outcomes in 2018.

 

Aggregate Incentive Compensation Paid under MIC Plan. Based on the above, for 2019, each of our named executive officers received an aggregate incentive award under the MIC of 42.4% of his respective target incentive opportunities as set forth below:

 

 

Long-Term Stock Incentives

 

Stock incentives focus executives’ attention on the Company from the perspective of an owner with an equity stake in the business.  The Compensation Committee believes that the Company’s long-term performance is achieved through an ownership culture that encourages long-term performance by our named executive officers through grants of stock-based awards.  Our shareholder-approved Lincoln Technical Institute Management 2005 Long-Term Incentive Plan provides for the grant of stock options, restricted stock, performance stock and other equity-based awards.  Equity awards are generally made at the discretion of the Compensation Committee based on a multiplicity of factors, including total compensation at peer companies, the level of equity ownership of the executives, and judgments of individual performance during the year.

 

In 2011, the Compensation Committee implemented a restricted stock program pursuant to which our named executive officers receive awards of both time-based restricted stock and performance-based restricted stock.  The Compensation Committee believes that a combination of time-based and performance-based restricted stock grants will better align the interests of our named executive officers with those of our shareholders.  The EBITDA targets are set by the Compensation Committee at the beginning of each applicable year.  If the applicable EBITDA target is not attained, the Compensation Committee has the discretion to determine that the performance-based restricted stock that would have vested had the target been attained will not be forfeited but, instead, will be subject to a catch-up EBITDA target to be set in the subsequent year.  A catch-up target is a stretch goal that requires a greater level of performance than the performance goal set for the applicable performance period.  In addition, notwithstanding the attainment of the applicable performance targets, the Compensation Committee has the discretion to determine that all or a portion of performance-based restricted stock will not vest based on facts and circumstances occurring after the date of grant that the Compensation Committee deems relevant.

 

Time-Based Restricted Stock

 

On February 28, 2019, the Compensation Committee awarded time-based restricted stock to certain members of our management, including each of our name executive officers.  The restricted stock vests ratably over three years on the first through third anniversary dates of the grant date.

 

The Compensation Committee did not award any time-based restricted stock to any of our NEOs in 2018.

 

Performance-Based Restricted Stock

 

The Compensation Committee did not award any performance-based restricted stock to any of our NEOs in 2019 or 2018.

 

No Backdating or Spring Loading

 

The Company does not backdate options or grant options retroactively.  In addition, we do not plan to coordinate grants of options, restricted stock or other equity awards so that they are made before announcement of favorable information or after announcement of unfavorable information.  Stock options are granted at fair market value on the date the option grants are approved by our Compensation Committee.  Fair market value has been consistently determined as the closing price on the NASDAQ Global Select Market on the grant date.  All option grants and restricted stock awards require the approval of the Compensation Committee.  The Company’s general practice is to grant options and restricted stock only on the date of a regularly scheduled Compensation Committee meeting, although there are occasions when grants have been made on other dates.

 

Comparative Data

 

The Company has not implemented a formal benchmarking process and does not target named executive officer compensation at a specified level of a peer group.  In 2019, the Compensation Committee informally reviewed compensation information set forth in public filings with the SEC (including base salaries, annual incentive bonuses and equity-based compensation) for the following companies:

 

2U, Inc.	K12 Inc.
Adtalem Global Education Inc.	Strategic Education, Inc.
American Public Education, Inc.	Universal Technical Institute, Inc.
Career Education Corporation	Zovio, Inc.
Grand Canyon Education, Inc.

The purpose of this review was to determine whether the level of compensation proposed to be paid to the Company’s named executive officers during 2019 was outside the range of the compensation paid to the named executive officers at our peer companies, with the understanding that adjustments would be considered if such proposed compensation proved to be significantly outside the range of our peer groups.  After this informal review, the Compensation Committee determined that the compensation proposed to be paid to the Company’s named executive officers was within the peer group range and consequently that no adjustments were required at that time.

 

The Compensation Committee also reviewed general survey data across a broad cross-section of industries for companies with revenues similar to ours.

 

Employment Agreements and Change in Control Benefits

 

The Company has entered into employment agreements with Messrs. Shaw, Meyers and Buchenot.  Each of these agreements will expire on December 31, 2020.  The employment agreements are described below under “Employment Agreements.”

The employment agreement for each of Messrs. Shaw, Meyers and Buchenot provides that upon a change in control of the Company, the term of the agreement will be automatically extended for an additional two-year term commencing on the date of the change in control and ending on the second anniversary of the date of the change in control.  Each employment agreement further provides that all stock options and restricted stock awards held by the named executive officer will immediately vest upon the occurrence of a change in control of the Company.

 

Retirement Plans

 

The Company maintains a plan qualified under Section 401(k) of the Internal Revenue Code for the benefit of all employees.  Our named executive officers are eligible to participate in this plan on the same terms and conditions as all other employees.  At the discretion of our Board of Directors, we may make discretionary matching and/or profit-sharing contributions into our 401(k) plan for eligible employees, which may be subject to vesting requirements.  We believe that a 401(k) plan encourages our employees to save for future retirement needs by matching 15% of our employee’s annual contributions, up to 6% of total compensation, subject to a compensation limitation and/or a contributions limitation pursuant to the Internal Revenue Code.  In 2019, the Company did not have an employee 401(k) contribution match; therefore, the named executive officers did not receive a matching contribution. 

 

We do not provide any additional retirement benefits for our named executive officers.  None of our named executive officers participate in a non-qualified deferred compensation program or pension arrangement.

 

Welfare Benefits and Perquisites

 

Our named executive officers are eligible to participate in our medical and dental health insurance plans, our life insurance plan and our long-term disability insurance plan on the same terms and conditions offered to all other employees.  We also provide our named executive officers with supplemental life insurance.  We believe that the benefits we offer are important components of our comprehensive benefit package, which encourages employees to remain with us.

 

Pursuant to their employment agreements, we also provide to Messrs. Shaw and Meyers use of a vehicle for business and personal use and pay for associated costs, including automobile insurance, parking and fuel.  The executives are responsible for all taxes related to this benefit.

 

We do not provide any other perquisites or benefits to our named executive officers and we do not pay any tax gross-ups with respect to any compensation.

 

Tax Deductibility of Compensation; Accounting

 

Section 162(m) of the Internal Revenue Code generally precludes a public corporation from taking a deduction for compensation in excess of $1 million with respect to the Company’s principal executive officer, principal financial officer and one other person who was one of the Company’s three highest paid officers for the year.  The Compensation Committee strives to provide our named executive officers with compensation programs that will preserve the tax deductibility of compensation paid by the Company, to the extent reasonably practicable and to the extent consistent with the Company’s other compensation objectives.  However, the Compensation Committee believes that shareholder interests are best served if it retains the flexibility to compensate executives in a manner intended to promote varying corporate goals, even if certain amounts that may be payable in excess of $1 million may not be deductible under Section 162(m).

 

The Compensation Committee also takes accounting considerations, including the impact of Financial Accounting Standards Board Accounting Standards Codification 718 Compensation – Stock Compensation, into account in structuring compensation programs and determining the form and amount of compensation awarded.

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed with the Company’s management the Compensation Discussion and Analysis included in this proxy statement.  Based on that review and discussion, the Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

Executive Compensation

 

SUMMARY COMPENSATION TABLE

(1)	Reflects the value of cash incentive awards paid under our MIC Plan as described in the “Compensation Discussion and Analysis.”

 

 

OUTSTANDING EQUITY AWARDS

AT FISCAL YEAR END DECEMBER 31, 2019

(1)	All equity award values are based on a December 31, 2019 closing stock price of $2.70.

 

Potential Payments upon a Termination or Change in Control

 

The following table summarizes the value of the termination payments and benefits that our named executive officers would receive upon:

 

 

 

 

In each case, the amounts are determined as if the trigger event occurred on December 31, 2019 and equity is valued based on the closing stock price of $2.70 on December 31, 2019.  This table excludes vested account balances under our 401(k) plan, which is generally available to all of our employees.  The terms of the benefits are set forth in the employment agreements of our named executive officers as described immediately following the table.

Payment upon Termination

at Fiscal Year End December 31, 2019

 

Name		Aggregate Severance				Stock Awards				Benefits				Total
		($)				($)				($)				($)
						(1)				(2)
Scott M. Shaw
Involuntary Termination (3)			2,000,000				212,933				17,896				2,230,829
Change in Control			-				212,933				-				212,933
Death or Disability (6)			500,000				212,933				-				712,933
Termination for Cause or Resignation without Good Reason			-				-				-				-
Brian K. Meyers
Involuntary Termination (4)			1,072,488				108,597				16,965				1,198,049
Change in Control			-				108,597				-				108,597
Death or Disability (6)			262,650				108,597				-				371,247
Termination for Cause or Resignation without Good Reason			-				-				-				-
Stephen M. Buchenot
Involuntary Termination (5)			652,260				59,929				18,440				730,630
Change in Control			-				59,929				-				59,929
Death or Disability (6)			144,947				59,929				-				204,876
Termination for Cause or Resignation without Good Reason			-				-				-				-

---

 

 

 

 

Employment Agreements

 

The Company is party to employment agreements with Messrs. Shaw, Meyers and Buchenot.

 

Employment Agreement dated November 7, 2018 with Scott M. Shaw

 

Employment Period .   The agreement provides that Mr. Shaw will serve as our President and Chief Executive Officer through December 31, 2020.

 

Compensation and Benefits .   Mr. Shaw will receive a minimum annual base salary of $500,000, will be eligible to participate in the MIC Plan and, to the extent eligible, in all of our employee benefit plans, programs and arrangements that are established for, or made available to, our senior executives.   The Company provides to Mr. Shaw a vehicle for his business and personal use and pays the associated costs, including automobile insurance, parking and fuel; Mr. Shaw is responsible for all taxes related to this benefit.

 

Involuntary Termination .   In the event of an “Involuntary Termination” (as defined below) of Mr. Shaw’s employment, in addition to Mr. Shaw’s right to receive payment of all accrued and unpaid compensation and benefits due to him through the date of termination or resignation of employment, including any accrued unpaid bonuses for a completed year, we will pay him: (1) two times the sum of (a) his base salary, as is then in effect; and (b) the target amount of the annual performance bonus for him in the year in which the termination occurs; (2) unreimbursed expenses for reasonable travel and other business expenses incurred by him through the date of termination; and (3) the estimated employer portion of premiums that would be necessary to Mr. Shaw’s coverage under the Company’s healthcare plan until the first anniversary of the date of termination (subject to proration should Mr. Shaw become insured under a subsequent healthcare plan).  Mr. Shaw would receive the sum of these amounts in a lump-sum payment 60 days following his Involuntary Termination.  In addition, Mr. Shaw would receive a prorated annual award under the MIC Plan for the year in which the Involuntary Termination occurs based on actual performance, payable at the time that awards are generally paid to employees for the applicable year.

 

Termination for Cause; Resignation Other than for Good Reason . In the event that Mr. Shaw’s employment is terminated by us for Cause or Mr. Shaw resigns from his employment other than for “Good Reason” (as defined below), we will pay him his accrued but unpaid base salary, unreimbursed expenses and employee benefits earned through the date of his termination, including, without limitation, any MIC Plan award due but not yet paid for a completed calendar year.

 

Death or Disability .   In the event that Mr. Shaw dies or his employment is terminated as a result of his disability, we will pay him (or his estate, if applicable) his accrued but unpaid base salary and employee benefits earned through the date of his termination, including, without limitation, any MIC Plan award due but not yet paid for a completed calendar year.  In addition, (i) Mr. Shaw will receive a prorated target MIC Plan award for the year of termination and (ii) all of Mr. Shaw’s outstanding stock options and restricted stock shall become fully vested, and stock options shall become immediately exercisable and remain exercisable for one year (or until the option’s normal expiration date, if earlier).

 

Change in Control .   Upon a “Change in Control” (as defined below), we (or our successor) will continue the employment of Mr. Shaw for a period of two years commencing on the date of the Change in Control and ending on the second anniversary thereof.  In addition, all of Mr. Shaw’s restricted stock and stock options will vest in full and the stock options will become immediately exercisable on the date of the Change in Control.

 

In the event that any payment or distribution by us to or for the benefit of Mr. Shaw pursuant to the terms of the employment agreement or otherwise would be considered a “parachute payment” and the amount of the parachute payment, after deduction of all relevant taxes, including excise taxes imposed by Section 4999 of the Internal Revenue Code, is less than the amount Mr. Shaw would receive if he was paid three times his average “base amount” less $1.00, then the aggregate amounts constituting the parachute payment will be reduced (or returned by Mr. Shaw if already paid to him) to an amount that will equal three times his average “base amount” less $1.00.

 

Noncompetition .  Mr. Shaw is subject to a noncompetition restrictive covenant during the term of his employment and for a period of two years thereafter, although the covenant will not apply if his employment is terminated due to an Involuntary Termination.

 

Nonsolicitation .   Mr. Shaw is subject to a nonsolicitation restrictive covenant of clients, employees and key consultants during the term of his employment and for one year thereafter.

 

Confidentiality .   Mr. Shaw is subject to a confidentiality restrictive covenant of unlimited duration.

 

(1)

Mr. Carney is not reflected in the table as he only became a director in 2020.

(2)

Represents the grant date fair value of a restricted stock award granted on May 2, 2019.  The fair value of this grant was determined in accordance with FASB ASC Topic 718 (excluding the effect of estimated forfeitures) as determined based on applying the assumptions used in the Company’s financial statements.  See Note 1 to the audited consolidated financial statements in our Annual Report on Form 10-K/A for the year ended December 31, 2019, regarding assumptions underlying the valuation of equity awards.  This grant vests on the first anniversary of the award date, May 2, 2020.

	AUDIT COMMITTEE
	Peter S. Burgess, Chair John A. Bartholdson
	Celia H. Currin
	Ronald E. Harbour

•

the maximum number of shares that may be issued pursuant to options and stock appreciation rights granted to any eligible individual in any calendar year is 300,000 shares; and

•

the maximum amount of restricted shares, restricted share units, and performance share units that may be awarded to any eligible individual in any calendar year is five million dollars ($5,000,000) measured as of the date of grant (with respect to awards denominated in cash) and 300,000 shares measured as of the date of grant (with respect to awards denominated in shares).

•

net income;

•

cash flow or cash flow on investment;

•

pre-tax or post-tax profit levels or earnings; net operating profit after tax;

•

operating earnings;

•

return on investment; net operating profit after tax;

•

earned value added; earned value added expense reduction levels;

•

free cash flow; free cash flow per share;

•

earnings per share; net earnings per share;

•

return on assets; return on net assets; return on equity; return on capital;

•

return on sales; sales growth; sales volume;

•

growth in managed assets;

•

operating margin; operating income; operating cost management;

•

economic profit; profit in excess of cost of capital;

•

return on invested capital;

•

total stockholder return or stock price appreciation;

•

market share, market penetration or other performance measures with respect to specific designated products or product groups and/or specific geographic areas;

•

reduction of losses, loss ratios or expense ratios;

•

reduction in fixed costs;

•

cost of capital;

•

debt reduction;

•

productivity improvements;

•

inventory turnover measurements;

•

customer satisfaction based on specified objective goals or a Company-sponsored customer survey;

•

EBITDA; adjusted EBITDA;

•

EBITA; adjusted EBITA;

•

revenue; revenue before deferral; net revenues; operating revenues; or

•

Share price,

	By Order of the Board of Directors
	Alexandra M. Luster
	Corporate Secretary
West Orange, New Jersey
May 5, 2020

1.

Purposes of the Plan

2.

Definitions and Rules of Construction

a.

when a “person” (as defined in Section 3(a)(9) of the Exchange Act), including a “group” (as defined in Section 13(d) and 14(d) of the Exchange Act), either directly or indirectly becomes the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act) of 25% or more of either (i) the then outstanding Common Stock, or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors; provided, however, that the following acquisitions shall not constitute a Change in Control: (1) any acquisition directly from the Company; (2) any acquisition by the Company; or (3) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company;

b.

when, during any period of 24 consecutive months of employment, the individuals who, at the beginning of such period, constitute the Board (the “Company Incumbent Directors”) cease for any reason other than death to constitute at least a majority thereof; provided, however, that a director who was not a director at the beginning of such 24-month period shall be deemed to be a Company Incumbent Director if such director was elected by, or on the recommendation of or with the approval of at least two-thirds of the directors of the Company, who then qualified as Company Incumbent Directors;

c.

when the stockholders of the Company approve a reorganization, merger or consolidation of the Company without the consent or approval of a majority of the Company Incumbent Directors;

d.

consummation of a merger, amalgamation or consolidation of the Company with any other corporation, the issuance of voting securities of the Company in connection with a merger, amalgamation or consolidation of the Company or sale or other disposition of all or substantially all of the assets of the Company or the acquisition of assets of another corporation (each, a” Business Combination”), unless, in each case of a Business Combination, immediately following such Business Combination, all or substantially all of the individuals and entities who were the beneficial owners of the Common Stock outstanding immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of the then outstanding shares of common stock and 50% of the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the entity resulting from such Business Combination (including, without limitation, an entity which as a result of such transaction owns the Company or all or substantially all of the Company’s assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Common Stock; or

e.

a complete liquidation or dissolution of the Company or the sale or other disposition of all or substantially all of the assets of the Company.

3.

Administration

4.

Eligibility

5.

Common Stock Subject to the Plan

6.

Awards in General

7.

Terms and Conditions of Options

8.

Terms and Conditions of Restricted Shares and Restricted Share Units

9.

Terms and Conditions of Performance Share Units

10.

Stock Appreciation Rights

11.

Other Awards

12.

Certain Restrictions

13.

Recapitalization or Reorganization

14.

Term of the Plan

15.

Effective Date

16.

Amendment and Termination

17.

Miscellaneous