UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
DATE OF REPORT (Date of earliest event reported): December 31, 2015
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ITT EDUCATIONAL SERVICES, INC.
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(Exact name of registrant as specified in its charter)
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Delaware
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1-13144
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36-2061311
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(State or other
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(Commission
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(IRS Employer
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jurisdiction of
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File Number)
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Identification No.)
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incorporation)
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13000 North Meridian Street
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Carmel, Indiana 46032-1404
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (317) 706-9200
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Item 1.01.
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Entry into a Material Definitive Agreement.
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On December 31, 2015, ITT Educational Services, Inc. (the “Company”) entered into Amendment No. 4 to Financing Agreement (the “Financing Agreement Amendment”) with Cerberus Business Finance, LLC (“Cerberus”), as collateral agent and administrative agent, and the lenders party thereto. The Financing Agreement Amendment provides for an amendment to the Financing Agreement, dated as of December 4, 2014, as amended on December 23, 2014, March 17, 2015, and September 18, 2015 (the “Financing Agreement”), by and among the Company, the subsidiary guarantors party thereto, Cerberus and the lenders party thereto.
The Financing Agreement Amendment:
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modifies the definition of Excess Cash Flow in the Financing Agreement to exclude special legal, accounting and similar charges from the calculation of Excess Cash Flow;
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establishes a minimum amount of $9.0 million to be paid in 2016 pursuant to the mandatory prepayment provision based on Excess Cash Flow;
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modifies the Leverage Ratio (as defined in the Financing Agreement) covenant requirement as of September 30, 2016 from 1.50:1.00 to 1.75:1.00;
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adjusts the definition of the Fixed Charge Coverage Ratio to exclude certain mandatory prepayments;
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revises the scheduled quarterly installment principal payment amounts and dates of the term loans outstanding under the Financing Agreement (the “Loans”) in 2016 from $5.0 million per quarter to: $10.0 million on March 1, 2016; $15.5 million on June 30, 2016; $15.5 million on September 30, 2016; and $20.0 million on December 31, 2016; and
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adds additional definitions and amends certain other provisions as necessary to reflect the replacement of the letter of credit payable to the U.S. Department of Education (the “ED Letter of Credit”) with the agreement with the U. S. Department of Education to hold funds provided by the Company in an escrow account (the “ED Cash Collateral Agreement”), which was described in the Company’s Form 8-K filed on December 22, 2015.
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As a condition for the Financing Agreement Amendment, on December 31, 2015 the Company made a prepayment of $7.174 million of outstanding principal of the Loans, with no prepayment premium required. This was the approximate amount of the difference between the amount of the collateral held related to the ED Letter of Credit and the amount being held under the ED Cash Collateral Agreement.
The above summary of the Financing Agreement Amendment is qualified in its entirety by the full text of the Financing Agreement Amendment, a copy of which is attached hereto as Exhibit 10.1 and incorporated herein by reference.
As previously disclosed in the Company’s Form 10-Q for the fiscal quarter ended September 30, 2015, the Company anticipated that it would need to make prepayments of principal under the Loans in the approximate amount of $15.0 million on or before March 31, 2016 (which would be reduced by any mandatory prepayment made under the Excess Cash Flow provision), $4.0 million on or before June 30, 2016, and $34.0 million on or before September 30, 2016, in order to maintain compliance with the Leverage Ratio requirements as of the end of each of the first three fiscal quarters of 2016. Additionally, the Company disclosed that if it were to make these prepayments, it believed that, as a result, it may not have been in compliance with the Fixed Charge Coverage Ratio as of September 30, 2016, and that if the Company was not in compliance with this covenant and could not obtain a waiver of compliance with this covenant, it may have been required to prepay the remaining balance of the Loans on or before September 30, 2016. The Company desired to enter into the Financing Agreement Amendment in order establish Leverage Ratio and Fixed Charge Covenant Ratio requirements that based on its current estimates it believes it could comply with in 2016, and to schedule mandatory principal payments on certain dates and of certain amounts based on its estimated cash balances, which payments if not scheduled might have otherwise been required to be made voluntarily in order to maintain compliance with those covenants and, if made as voluntary prepayments, would have required a premium payment of 1% of the prepayment amounts.
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Item 5.02.
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Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
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On December 31, 2015, Kevin M. Modany, the Chief Executive Officer of the Company, informed the Company of the rescission of his notice to resign from the Chief Executive Officer position, which notice he had provided to the Company in August 2014. In connection with that prior notice of his intent to resign, and as previously disclosed, on August 4, 2014, the Company and Mr. Modany entered into a letter agreement (the “2014 Letter Agreement”), pursuant to which, among other things, Mr. Modany would remain as the Chief Executive Officer of the Company for an initial period through February 4, 2015 (which period was subsequently extended through December 31, 2015), following which he would serve as a consultant to the Company for a period of 18 months.
In connection with Mr. Modany’s rescission of his resignation notice, the Board of Directors of the Company determined that it was in the best interests of the Company and its shareholders to retain Mr. Modany as the Company’s Chief Executive Officer. On December 31, 2015, the Company and Mr. Modany entered into a new letter agreement (the “New Letter Agreement”) that terminates the 2014 Letter Agreement in its entirety, including the consulting arrangement provisions. The New Letter Agreement provides that Mr. Modany will continue to be employed by the Company as its Chief Executive Officer on an at-will basis. All other employees of the Company are also employed on an at-will basis, as was Mr. Modany prior to the 2014 Letter Agreement.
The New Letter Agreement provides that if the Company terminates Mr. Modany’s employment with the Company without Cause (as defined in the Company’s Senior Executive Severance Plan (as amended, the “Severance Plan”)), or if Mr. Modany resigns his employment with the Company for Good Reason (as defined in the Severance Plan), Mr. Modany will be entitled to receive severance compensation in an amount equal to two times the sum of (i) his base salary, plus (ii) his target short-term compensation amount for the fiscal year in which the termination occurs, payable in substantially equal installments over the twenty-four months after the date of Mr. Modany’s termination of employment. In addition, the New Letter Agreement provides that Mr. Modany continues to be eligible to participate in the Severance Plan, which provides for certain severance benefits if a termination of employment occurs under certain circumstances and if a change in control of the Company has occurred or is imminent. If, however, Mr. Modany’s employment ends under circumstances in which he is eligible to receive the severance benefits under the Severance Plan, he will not be entitled to the severance compensation described in the New Letter Agreement.
Receipt of any amounts under the New Letter Agreement will be subject to and conditioned upon Mr. Modany’s compliance with the non-disclosure and restrictive covenants obligations of the New Letter Agreement and his execution and the effectiveness of a waiver and release of claims in favor of the Company. Pursuant to the New Letter Agreement, Mr. Modany is subject to certain restrictive covenants, such as confidentiality, non-competition, non-solicitation and non-interference during his employment and for specified periods of time after the termination of his employment. In the event that Mr. Modany breaches any of the non-disclosure or restrictive covenant provisions, he will forfeit any severance compensation, and will be obligated to pay to the Company any amounts of severance compensation already received, under the New Letter Agreement.
The foregoing summary of the New Letter Agreement is qualified in its entirety by reference to the complete terms and provisions of the New Letter Agreement, which is filed herewith as Exhibit 10.2 and is incorporated by reference herein.
Item 9.01. Financial Statements and Exhibits.
The following exhibits are being filed herewith:
Exhibit No. Description
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10.1
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Amendment No. 4 to Financing Agreement, dated as of December 31, 2015, by and among ITT Educational Services, Inc., the subsidiary guarantors party thereto, Cerberus Business Finance, LLC, as administrative agent and collateral agent, and the lenders party thereto
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10.2
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Letter Agreement, dated as of December 31, 2015, by and between ITT Educational Services, Inc. and Kevin M. Modany
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Except for the historical information contained herein, the matters discussed in this press release are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements are made based on the current expectations and beliefs of the company's management concerning future developments and their potential effect on the company. The company cannot assure you that future developments affecting the company will be those anticipated by its management. These forward-looking statements involve a number of risks and uncertainties. Among the factors that could cause actual results to differ materially are the following: the impact of the company’s late filings with the SEC, including the 2014 Form 10-K and the first quarter 2015 Form 10-Q; the impact of adverse actions by the U.S. Department of Education (the “ED”) related to litigation against the company, the company’s failure to submit its 2013 audited financial statements and 2013 compliance audits with the ED by the due date, and any failure to submit its 2014 audited financial statements and 2014 compliance audits to the ED by the due date; the impact of the consolidation of variable interest entities on the company and the regulations, requirements and obligations that it is subject to; the inability to obtain any required amendments or waivers of noncompliance with covenants under the company’s financing agreement; actions by the New York Stock Exchange to delist the company’s common stock; the company’s inability to remediate material weaknesses, or the discovery of additional material weaknesses, in the company’s internal control over financial reporting; issues related to the restatement of the company’s financial statements for the first three quarters of 2013; the company’s exposure under its guarantees related to private student loan programs; the outcome of litigation, investigations and claims against the company; the effects of the cross-default provisions in the company’s financing agreement; changes in federal and state governmental laws and regulations with respect to education and accreditation standards, or the interpretation or enforcement of those laws and regulations, including, but not limited to, the level of government funding for, and the company's eligibility to participate in, student financial aid programs utilized by the company's students; business conditions in the postsecondary education industry and in the general economy; the company's failure to comply with the extensive education laws and regulations and accreditation standards that it is subject to; effects of any change in ownership of the company resulting in a change in control of the company, including, but not limited to, the consequences of such changes on the accreditation and federal and state regulation of its campuses; the company's ability to implement its growth strategies; the company’s ability to retain or attract qualified employees to execute its business and growth strategies; the company's failure to maintain or renew required federal or state authorizations or accreditations of its campuses or programs of study; receptivity of students and employers to the company's existing program offerings and new curricula; the company’s ability to repay moneys it has borrowed; the company's ability to collect internally funded financing from its students; and other risks and uncertainties detailed from time to time in the company's filings with the U.S. Securities and Exchange Commission. The company undertakes no obligation to update or revise any forward-looking information, whether as a result of new information, future developments or otherwise.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Date: December 31, 2015
ITT Educational Services, Inc.
By: /s/ Rocco F. Tarasi, III
Name: Rocco F. Tarasi, III
Title: Interim Executive Vice President,
Chief Financial Officer
INDEX TO EXHIBITS
Exhibit No. Description
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10.1
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Amendment No. 4 to Financing Agreement, dated as of December 31, 2015, by and among ITT Educational Services, Inc., the subsidiary guarantors party thereto, Cerberus Business Finance, LLC, as administrative agent and collateral agent, and the lenders party thereto
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10.2
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Letter Agreement, dated as of December 31, 2015, by and between ITT Educational Services, Inc. and Kevin M. Modany
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Exhibit 10.1
EXECUTION VERSION
AMENDMENT NO. 4
TO FINANCING AGREEMENT
AMENDMENT NO. 4 TO FINANCING AGREEMENT, dated as of December 31, 2015 (this "Amendment"), to the Financing Agreement, dated as of December 4, 2014 (as amended, restated, supplemented or otherwise modified from time to time, the "Financing Agreement"), by and among ITT Educational Services, Inc. (the "Parent" or the "Borrower"), each subsidiary of the Parent listed as a "Guarantor" on the signature pages thereto (together with each other Person that executes a joinder agreement and becomes a "Guarantor" thereunder or otherwise guaranties all or any part of the Obligations (as defined therein), each a "Guarantor" and collectively, the "Guarantors"), the lenders from time to time party thereto (each a "Lender" and collectively, the "Lenders"), Cerberus Business Finance, LLC ("Cerberus"), as collateral agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, the "Collateral Agent"), and Cerberus, as administrative agent for the Lenders (in such capacity, together with its successors and assigns in such capacity, the "Administrative Agent" and together with the Collateral Agent, each an "Agent" and collectively, the "Agents").
WHEREAS, the Loan Parties have requested that the Agents and the Lenders amend certain terms and conditions of the Financing Agreement; and
WHEREAS, the Agents and the Lenders are willing to amend such terms and conditions of the Financing Agreement on the terms and conditions set forth herein.
NOW THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. All terms used herein that are defined in the Financing Agreement and not otherwise defined herein shall have the meanings assigned to them in the Financing Agreement.
2. Existing Definitions.
(a) Clause (l) of the definition of "Permitted Indebtedness" in Section 1.01 of the Financing Agreement is hereby amended in its entirety to read as follows:
"(l) Indebtedness in respect of the cash collateral under the DOE Cash Collateral Agreement in an aggregate amount not exceeding $120,000,000 at any time outstanding;"
(b) Clause (s) of the definition of "Permitted Liens" is hereby amended in its entirety to read as follows:
"(s) Liens on cash pursuant to the DOE Cash Collateral Agreement securing Indebtedness permitted under clause (l) of the definition of Permitted Indebtedness;"
(c) The definition of "Excess Cash Flow" is hereby amended by replacing the word "and" before clause (b)(vii) thereof with a comma and adding the following new clause (b)(viii) at the end thereof:
"and (viii) special legal, accounting and similar charges described in clause (b)(viii) of the definition of Consolidated EBITDA."
(d) The definition of "Fixed Charge Coverage Ratio" is hereby amended by adding the following proviso at the end of such definition:
"; provided, however, that no mandatory prepayments pursuant to Section 2.05(c)(iv) in respect of the DOE Excess Cash Collateral or the 2014 Net Operating Loss shall be included in any calculation of the Fixed Charge Coverage Ratio."
(e) New Definitions. Section 1.01 of the Financing Agreement is hereby amended by adding the following definitions, in appropriate alphabetical order:
"'Amendment No. 4' means Amendment No. 4 to Financing Agreement, dated as of December 31, 2015, by and among the Loan Parties, the Agents and the Lenders."
"'Amendment No. 4 Effective Date' means the "Amendment Effective Date" as set forth in Amendment No. 4."
"'DOE Cash Collateral Agreement' means the Agreement for the Department of Education to Hold Funds on Behalf of ITT Educational Services, Inc. (ITT) in lieu of a Letter of Credit Agreement, dated as of December 16, 2015, between the Borrower and the DOE, as amended, modified, supplemented, replaced, renewed or refinanced from time to time in accordance with the terms thereof."
"'DOE Excess Cash Collateral' means cash in an aggregate amount of $7,174,000 that secured the Borrower's obligations under the DOE Letter of Credit to the extent that such amount exceeded the face value of the DOE Letter of Credit prior to the cancellation of the DOE Letter of Credit."
(f) Repayment of Loans; Evidence of Debt. Section 2.03(a) of the Financing Agreement is hereby amended in its entirety to read as follows:
"(a) The outstanding unpaid principal amount of the Term Loan shall be repayable in consecutive quarterly installments (other than with respect to installments for Fiscal year 2016, as specifically indicated below), on the first Business Day of each December, March, June and September commencing on March 1, 2015, and ending on the Final Maturity Date, each in an amount equal to (i) during Fiscal Year 2015, $2,500,000, (ii) during Fiscal Year 2016, on the following dates and in the following amounts set forth opposite such dates:
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Amount
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March 1, 2016
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$10,000,000
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June 30, 2016
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$15,500,000
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September 30, 2016
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$15,500,000
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December 31, 2016
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$20,000,000
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, and (iii) during Fiscal Year 2017, $7,500,000; provided, however, that the last such installment shall be in the amount necessary to repay in full the unpaid principal amount of the Term Loan."
(g) Mandatory Prepayment. Section 2.05(c)(i)(A) of the Financing Agreement is hereby amended in its entirety to read as follows:
"(A) in the case of the Fiscal Year ending December 31, 2015, prepay the outstanding principal amount of the Loans in accordance with Section 2.05(d) in an amount equal to the greater of (x) $9,000,000 and (y) the result of (to the extent positive) (1) 50.0% of the Excess Cash Flow of the Parent and its Subsidiaries for such Fiscal Year minus (2) the aggregate principal amount of all payments made by the Borrower pursuant to Section 2.05(b) for such Fiscal Year"
(h) Reporting Requirements. Section 7.01(a)(xiii)(A) of the Financing Agreement is hereby amended in its entirety to read as follows:
"(A) any written request or demand by the DOE for an increase in the amount of cash secured by the DOE Cash Collateral Agreement or additional cash collateral,"
(i) Leverage Ratio. The reference to the "1.50:1.00" Leverage Ratio set forth in Section 7.03(a) of the Financing Agreement for the September 30, 2016 fiscal month end is hereby replaced with "1.75:1.00".
3. Conditions to Effectiveness. This Amendment shall become effective only upon satisfaction in full, in a manner satisfactory to the Agents, of the following conditions precedent (the first date upon which all such conditions shall have been satisfied being hereinafter referred to as the "Amendment Effective Date"):
(a) The representations and warranties contained Article VI of the Financing Agreement and in each other Loan Document shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to "materiality" or "Material Adverse Effect" in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of the Amendment Effective Date as though made on and as of such date, except to the extent that any such representation or warranty expressly relates solely to an earlier date (in which case such representation or warranty shall be true and correct in all material respects (except that such materiality qualifier shall not be applicable to any representations or warranties that already are qualified or modified as to "materiality" or "Material Adverse Effect" in the text thereof, which representations and warranties shall be true and correct in all respects subject to such qualification) on and as of such earlier date).
(b) After giving effect to this Amendment, no Default or Event of Default shall have occurred and be continuing on the Amendment Effective Date or result from this Amendment becoming effective in accordance with its terms.
(c) The Collateral Agent shall have received on or before the Amendment Effective Date this Amendment, duly executed by the Loan Parties, each Agent and each Lender.
(d) The Collateral Agent shall have received on or before the Amendment Effective Date, evidence reasonably satisfactory to the Collateral Agent of the cancellation of the DOE Letter of Credit.
4. DOE Excess Cash Collateral Payment. The Borrower shall prepay the outstanding principal amount of the Loans in an amount equal to the DOE Excess Cash Collateral in accordance with Section 2.05(c)(iv) of the Financing Agreement within two Business Days of the Amendment Effective Date; provided that, if such prepayment is not made within two Business Days of the Amendment Effective Date, this Amendment shall cease to be in effect.
5. Continued Effectiveness of the Financing Agreement and Other Loan Documents. Each Loan Party hereby (a) acknowledges and consents to this Amendment, (b) confirms and agrees that the Financing Agreement and each other Loan Document to which it is a party is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that on and after the Amendment Effective Date, all references in any such Loan Document to "the Financing Agreement", the "Agreement", "thereto", "thereof", "thereunder" or words of like import referring to the Financing Agreement shall mean the Financing Agreement as amended by this Amendment, and (c) confirms and agrees that, to the extent that any such Loan Document purports to assign or pledge to the Collateral Agent, for the benefit of the Agents and the Lenders, or to grant to the Collateral Agent, for the benefit of the Agents and the Lenders, a security interest in or Lien on any Collateral as security for the Obligations of the Loan Parties from time to time existing in respect of the Financing Agreement (as amended hereby) and the other Loan Documents, such pledge, assignment and/or grant of the security interest or Lien is hereby ratified and confirmed in all respects. This Amendment does not and shall not affect any of the obligations of the Loan Parties, other than as expressly provided herein, including, without limitation, the Loan Parties' obligations to repay the Loans in accordance with the terms of Financing Agreement or the obligations of the Loan Parties under any Loan Document to which they are a party, all of which obligations shall remain in full force and effect. Except as expressly provided herein, the execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of any Agent or any Lender under the Financing Agreement or any other Loan Document nor constitute a waiver of any provision of the Financing Agreement or any other Loan Document.
6. No Novation. Nothing herein contained shall be construed as a substitution or novation of the Obligations outstanding under the Financing Agreement or instruments securing the same, which shall remain in full force and effect, except as modified hereby.
7. No Representations by Agents or Lenders. Each Loan Party hereby acknowledges that it has not relied on any representation, written or oral, express or implied, by any Agent or any Lender, other than those expressly contained herein, in entering into this Amendment.
8. Release. Each Loan Party hereby acknowledges and agrees that: (a) neither it nor any of its Subsidiaries has any claim or cause of action against any Agent or any Lender (or any of the directors, officers, employees, agents, attorneys or consultants of any of the foregoing) and (b) the Agents and the Lenders have heretofore properly performed and satisfied in a timely manner all of their obligations to the Loan Parties, and all of their Subsidiaries and Affiliates. Notwithstanding the foregoing, the Agents and the Lenders wish (and the Loan Parties agree) to eliminate any possibility that any past conditions, acts, omissions, events or circumstances would impair or otherwise adversely affect any of their rights, interests, security and/or remedies. Accordingly, for and in consideration of the agreements contained in this Amendment and other good and valuable consideration, each Loan Party (for itself and its Subsidiaries and Affiliates and the successors, assigns, heirs and representatives of each of the foregoing) (collectively, the "Releasors") does hereby fully, finally, unconditionally and irrevocably release, waive and forever discharge the Agents and the Lenders, together with their respective Affiliates and Related Funds, and each of the directors, officers, employees, agents, attorneys and consultants of each of the foregoing (collectively, the "Released Parties"), from any and all debts, claims, allegations, obligations, damages, costs, attorneys' fees, suits, demands, liabilities, actions, proceedings and causes of action, in each case, whether known or unknown, contingent or fixed, direct or indirect, and of whatever nature or description, and whether in law or in equity, under contract, tort, statute or otherwise, which any Releasor has heretofore had or now or hereafter can, shall or may have against any Released Party by reason of any act, omission or thing whatsoever done or omitted to be done, in each case, on or prior to the Amendment Effective Date directly arising out of, connected with or related to this Amendment, the Financing Agreement or any other Loan Document, or any act, event or transaction related or attendant thereto, or the agreements of any Agent or any Lender contained therein, or the possession, use, operation or control of any of the assets of any Loan Party, or the making of any Loans or other advances, or the management of such Loans or other advances or the Collateral. Each Loan Party represents and warrants that it has no knowledge of any claim by any Releasor against any Released Party or of any facts or acts or omissions of any Released Party which on the date hereof would be the basis of a claim by any Releasor against any Released Party which would not be released hereby.
9. Miscellaneous.
(a) This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of this Amendment by facsimile or electronic mail shall be equally effective as delivery of an original executed counterpart of this Amendment.
(b) Section and paragraph headings herein are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.
(c) This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.
(d) Each Loan Party hereby acknowledges and agrees that this Amendment constitutes a "Loan Document" under the Financing Agreement.
(e) Any provision of this Amendment that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining portions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
[Remainder of page intentionally left blank.]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered as of the date set forth on the first page hereof.
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BORROWER:
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ITT EDUCATIONAL SERVICES, INC.
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By:
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Name: Kevin M. Modany
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Title: C.E.O.
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GUARANTORS:
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ESI SERVICE CORP.
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By:
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Name: Rocco F. Tarasi, III
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Title: VP & Treasurer
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DANIEL WEBSTER COLLEGE, INC.
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By:
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Name: Angela K. Knowlton
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Title: VP, Treasurer
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DOC ID - 23785637.3
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Amendment No. 4
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COLLATERAL AGENT:
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CERBERUS BUSINESS FINANCE, LLC
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By:
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Name: Daniel E. Wolf
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Title: President
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ADMINISTRATIVE AGENT:
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CERBERUS BUSINESS FINANCE, LLC
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By:
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Name: Daniel E. Wolf
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Title: President
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DOC ID - 23785637.3
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Amendment No. 4
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LENDERS:
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CERBERUS ASRS FUNDING LLC
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By:
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Name: Daniel E. Wolf
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Title: Vice President
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CERBERUS AUS LEVERED II LP
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By:
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CAL II GP LLC
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Its:
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General Partner
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By:
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Name: Daniel E. Wolf
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Title: Vice President
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CERBERUS ICQ LEVERED LLC
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By:
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Name: Daniel E. Wolf
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Title: Vice President
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CERBERUS ICQ LEVERED II LLC
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By:
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Name: Daniel E. Wolf
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Title: Vice President
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CERBERUS KRS LEVERED LLC
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By:
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Name: Daniel E. Wolf
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Title: Vice President
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CERBERUS N-1 FUNDING LLC
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By:
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Name: Daniel E. Wolf
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Title: Vice President
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DOC ID - 23785637.3
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Amendment No. 4
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LENDERS:
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CERBERUS OFFSHORE LEVERED II LP
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By:
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COL II GP Inc.
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Its:
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General Partner
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By:
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Name: Daniel E. Wolf
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Title: Vice President
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CERBERUS ONSHORE LEVERED II LLC
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By:
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Name: Daniel E. Wolf
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Title: Vice President
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CERBERUS SWC LEVERED LOAN OPPORTUNITIES MASTER FUND, L.P.
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By:
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Cerberus SWC Levered Opportunities GP, LLC
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Its:
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General Partner
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By:
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Name: Daniel E. Wolf
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Title: Senior Managing Director
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DOC ID - 23785637.3
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Amendment No. 4
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December 31, 2015
Mr. Kevin M. Modany
ITT Educational Services, Inc.
13000 North Meridian Street
Carmel, IN 46032-1404
Dear Kevin:
This letter agreement (this "Agreement") is intended to set forth our mutual understanding and agreement regarding your continued employment as Chief Executive Officer of ITT Educational Services, Inc. (the "Company").
Accordingly, you and the Company agree as follows.
1. Termination of August 4, 2014 Letter Agreement. Effective as of the date hereof, the letter agreement between you and the Company dated August 4, 2014, as amended (the "August 4, 2014 Letter Agreement"), is hereby terminated and neither you nor the Company shall have any further rights, obligations or claims under the August 4, 2014 Letter Agreement.
2. At-Will Employment. You shall continue to be employed by the Company as its Chief Executive Officer. Such employment shall be on an at-will basis, which means that your employment may be terminated at any time by either you or the Company for any or no reason. You will continue to receive cash compensation (including base salary and compensation pursuant to the short-term compensation plan or other bonus plan) as determined by the Compensation Committee (the “Committee”) of the Board of Directors (the "Board") from time to time, and participate in the Company's employee benefit plans, as such plans exist from time to time. You shall also be eligible to receive equity-based compensation as may be determined by the Committee from time to time.
3. Severance if Employment Terminated by the Company without Cause or by You for Good Reason.
(a) If the Company terminates your employment without Cause or if you resign your employment for Good Reason, you will be entitled to receive, subject to your compliance with subparts (d) and (e) below, severance compensation in an amount equal to two times the sum of (i) your base salary plus (ii) your target short-term compensation amount for the fiscal year in which the employment termination occurs, payable in substantially equal installments over the twenty-four (24) months following the employment termination date.
(b) For purposes of this Agreement, "Cause" shall have the meaning set forth in the ITT Educational Services, Inc. Senior Executive Severance Plan adopted on October 22, 2007, as amended (the "Senior Executive Severance Plan"), as in effect on the date hereof.
(c) For purposes of this Agreement, "Good Reason" shall have the meaning set forth in the Senior Executive Severance Plan as in effect on the date hereof, and a resignation of employment for "Good Reason" shall require the satisfaction of the conditions of subsections (A), (B) and (C) of Section 3(a) of the Senior Executive Severance Plan as in effect on the date hereof.
(d) You acknowledge and agree that the Company's payment of the severance compensation under this Agreement will be deemed to constitute a full settlement and discharge of any and all obligations of the Company to you arising out of this Agreement, your employment with the Company and/or the termination of your employment with the Company. You also acknowledge and agree that as a condition to receiving any of the severance compensation under this Agreement, you will execute, deliver to the Company, and not revoke a release agreement in a form prepared by, and satisfactory to, the Company (the "Release Agreement") pursuant to which you will release and waive, to the fullest extent permitted by law, all claims against the Company, its subsidiaries and affiliates, and all of its and their present and/or former owners, officers, directors, employees, agents, attorneys, insurers, representatives, employee benefit plans and their fiduciaries, both individually and in their representative capacities, including, without limitation, all claims arising out of this Agreement, your employment with the Company, and/or the termination of your employment with the Company; provided, however, that the Release Agreement will not affect or release (a) any rights to the severance compensation under this Agreement; (b) any vested rights or benefits you may have under any employee retirement or welfare benefit plan of the Company (except any severance plan), or (c) any vested rights or benefits you may have under the Company's Amended and Restated 2006 Equity Compensation Plan, any successor or other equity compensation plan, or any related option agreement or restricted stock unit agreement. The severance compensation described in this Agreement is in lieu of any severance benefits under any severance policy or plan the Company may have now or in the future, and you acknowledge that you are not entitled to any other severance benefits, except as set forth in subpart (g) below.
(e) Your entitlement to severance compensation under this Agreement is contingent on your compliance with the non-disclosure and restrictive covenant obligations of this Agreement. You acknowledge and agree that if you breach any of the non-disclosure or restrictive covenant provisions set forth in this Agreement, then in such event (i) you will have forfeited your right to receive, and the Company will have no further obligation to pay, any severance compensation that would otherwise be payable to you under this Agreement, and (b) you will be obligated to pay to the Company an amount equal to the amount of the severance compensation received by you under this Agreement, with such amount being due and payable immediately upon the Company making written demand on you for such payment. You further acknowledge and agree that such forfeiture and clawback are separate from, and not in lieu of, any and all other legal and/or equitable remedies that may be available to the Company in connection with your breach of any non-disclosure or restrictive covenant provision set forth in this Agreement and the Company reserves all such legal and/or equitable remedies.
(f) You acknowledge and agree that you will not be entitled to any severance in the event the Company terminates your employment because of a Disability Event. For purposes of this Agreement, the term "Disability Event" means either (i) when you are deemed disabled and entitled to benefits in accordance with any Company-provided long-term disability insurance policy, if any is applicable, covering you, (ii) your inability, because of injury, illness, disease or bodily or mental infirmity, to perform, with or without reasonable accommodation, the essential functions of your job for more than one hundred twenty (120) days during any period of three hundred sixty-five (365) days, or (iii) upon the written determination by a physician selected by the Company that, because of an injury, illness, disease or bodily or mental infirmity, you are unable to perform, with or without reasonable accommodation, the essential functions of your job, and, as of the date of determination, such condition is reasonably expected to last for a period of one hundred twenty (120) days or longer after the date of determination, based on the medical information reasonably available to such physician at the time of such determination.
(g) You shall be eligible to participate in the Senior Executive Severance Plan, subject to its terms and conditions, provided, however, that you and the Company agree that under no circumstances shall you be entitled to receive severance compensation or benefits under both this Agreement and under the Senior Executive Severance Plan. For purposes of clarity, the Severance Benefits (as defined in the Senior Executive Severance Plan) under the Senior Executive Severance Plan are in lieu of any severance payments or benefits described in this Agreement; accordingly, if your employment ends under circumstances in which you are eligible to receive the Severance Benefits (as defined in the Senior Executive Severance Plan) under Section 3(a) of the Senior Executive Severance Plan (subject to satisfaction of any applicable conditions as set forth in Section 3(b) of the Senior Executive Severance Plan), you shall not be entitled to the severance compensation described in this Agreement.
4. Non-Disclosure of Confidential Information.
(a) For purposes of this Agreement, the term "Confidential Information" means any and all of the Company's (and its subsidiaries' and affiliates') trade secrets, confidential and proprietary information and all other non-public information and data of or about the Company (and its subsidiaries and affiliates) and its business, including, without limitation, lists of customers, information pertaining to customers, marketing plans and strategies, information pertaining to suppliers, information pertaining to prospective suppliers, pricing information, engineering and technical information, software codes, cost information, data compilations, research and development information, business plans, financial information, personnel information, information received from third parties that the Company has agreed to keep confidential, and information about prospective customers or prospective products and services, whether or not reduced to writing or other tangible medium of expression, including, without limitation, work product created by you in rendering services for the Company; provided, however, that "Confidential Information" shall not include information that (i) is or becomes generally available to the public by use, publication or the like, through no fault of you or (ii) is obtained without restriction by you after termination of your employment with the Company from a third party who had the legal right to disclose such information to you.
(b) During your employment with the Company and thereafter, you will not use or disclose to others any of the Confidential Information, except (i) in the ordinary course of your work for and on behalf of the Company, (ii) with the prior written consent of the Company, (iii) as required by law or judicial process, provided you promptly notify the Company in writing of any subpoena or other judicial request for disclosure involving confidential information or trade secrets, and cooperate with any effort by the Company to obtain a protective order preserving the confidentiality of the confidential information or trade secrets, or (iv) in connection with reporting possible violations of law or regulations to any governmental agency or from making other disclosures protected under any applicable whistleblower laws. You agree that the Company owns the Confidential Information and you have no rights, title or interest in any of the Confidential Information. Additionally, you will abide by the Company's policies protecting the Confidential Information, as such policies may exist from time to time. At the Company's request or upon termination of your employment with the Company for any reason, you will immediately deliver to the Company any and all materials (including all copies and electronically stored data) containing any Confidential Information in your possession, custody or control. Upon termination of your employment with the Company for any reason, you will, if requested by the Company, provide the Company with a signed written statement disclosing whether you have returned to the Company all materials (including all copies and electronically stored data) containing any Confidential Information previously in your possession, custody or control. Your confidentiality/non-disclosure obligations under this Agreement continue after the termination of your employment with the Company. With respect to any particular trade secret information, your confidentiality/non-disclosure obligations will continue as long as such information constitutes a trade secret under applicable law. With respect to any particular Confidential Information that does not constitute a trade secret, your confidentiality/non-disclosure obligations will continue as long as such information remains confidential, and will not apply to information that becomes generally known to the public through no fault or action of you or others who were under confidentiality obligations with respect to such information.
5. Restrictive Covenants.
(a) For purposes of this Agreement, (i) "Competitive Business" means any for-profit entity that is engaged in the business of providing post-secondary education with annual revenues of at least $100 million and is competitive with the business of the Company; (ii) "Person" means any individual or entity (including without limitation a corporation, partnership, limited liability company, trust, joint venture, or governmental entity or agency); (iii) "Prohibited Capacity" means: (A) the same or similar capacity or function to that in which you worked for the Company; (B) any executive or senior management capacity or function; (C) any officer or director capacity; (D) any consulting or advisory capacity or function; (E) any ownership capacity (except you may own as a passive investment up to five percent (5%) of any class of securities regularly traded on a national stock exchange or other public market); (F) any capacity or function in which you likely would inevitably use or disclose any of the Company's trade secrets and/or Confidential Information; or (G) any other capacity or function in which your knowledge of the Confidential Information would facilitate or assist your work for the Competitive Business; (iv) "Restricted Geographic Area" means each of the states of the United States, including, without limitation, each and every state in which the Company is doing business as of the date your employment terminates; and (v) "Restricted Time Period" means during your employment with the Company and for a period that is the longer of: (A) one year after the date your employment terminates; or (B) if you are entitled to severance compensation under this Agreement or the Senior Executive Severance Plan, the period during which such severance compensation is to be paid.
(b) During the Restricted Time Period, you will not within the Restricted Geographic Area engage in (including, without limitation, being employed by, working for, or rendering services to) any Competitive Business in any Prohibited Capacity; provided, however, if a Competitive Business has multiple divisions, units or segments, some of which are not engaged in providing post-secondary education, you may work for or consult with only that division, unit or segment that is not engaged in providing post-secondary education, provided that (i) you first provide the Company with a written notice describing in reasonable detail your position with and anticipated activities for the Competitive Business, which such written notice also includes an assurance that your affiliation with and work for the Competitive Business will relate only to the non-competitive division, unit or segment and will not involve any activities that are competitive with the Company, and (ii) your affiliation with and/or work for the non-competitive division, unit or segment of the Competitive Business would not likely cause you to inevitably use and/or disclose any Confidential Information.
(c) During the Restricted Time Period, you will not urge, induce or seek to induce any of the Company's independent contractors, subcontractors, business partners, distributors, brokers, consultants, sales representatives, customers, vendors, suppliers or any other Person with whom the Company has a business relationship to terminate their relationship with, or representation of, the Company or to cancel, withdraw, reduce, limit or in any manner modify any such Person's business with, or representation of, the Company.
(d) During the Restricted Time Period, you will not: (i) solicit or recruit for employment, hire, employ, engage the services of, or attempt to hire, employ, or engage the services of, any individual who is an employee of the Company; (ii) assist any Person in the recruitment, hiring or engagement of any individual who is an employee of the Company; (iii) urge, induce or seek to induce any individual to terminate his/her employment with the Company; or (iv) advise, suggest to or recommend to any Competitive Business that it employ, engage the services of, or seek to employ or engage or engage the services of any individual who is an employee of the Company.
(e) During the Restricted Time Period, you will not make or publish any statement or comment that disparages or in any way injures the reputation and/or goodwill of the Company or any of its subsidiaries or affiliates or any of its or their shareholders, members, officers, directors or employees; provided, however, that nothing in this section is intended to prohibit you from (i) making any disclosures as may be required or compelled by law or legal process or (ii) making any disclosures or providing any information to a governmental agency or entity, including without limitation in connection with a complaint by you against the Company or the investigation of any complaint against the Company.
(f) You acknowledge and agree that the restrictive covenants contained herein prohibit you from engaging in certain activities directly or indirectly, whether on your own behalf or on behalf of any other Person, and regardless of whether you are acting as an employee, independent contractor, owner, partner, agent, consultant, or advisor.
(g) In the event you violate any of the restrictive covenants contained herein, the duration of all restrictive covenants (and the Restricted Time Period) will automatically be extended by the length of time during which you were in violation of any of the restrictive covenants.
(h) Although you and the Company consider the restrictive covenants contained in this Agreement to be reasonable, particularly given the competitive nature of the Company's business and your position with the Company, you and the Company acknowledge and agree that: (i) if any covenant, subsection, provision, portion or clause of this Agreement is determined to be unenforceable or invalid for any reason, such unenforceability or invalidity will not affect the enforceability or validity of the remainder of this Agreement; and (ii) if any particular covenant, subsection, provision, portion or clause of this Agreement is determined to be unreasonable or unenforceable for any reason, including, without limitation, the time period, geographic area, and/or scope of activity covered by any restrictive covenant, such covenant, subsection, provision, portion or clause will automatically be deemed reformed such that the contested covenant, subsection, provision, portion or clause will have the closest effect permitted by applicable law to the original form and shall be given effect and enforced as so reformed to whatever extent would be reasonable and enforceable under applicable law. We agree that any court interpreting any restrictive covenant provision of this Agreement will, if necessary, reform any such provision to make it enforceable under applicable law.
6. Injunctive Relief. You acknowledge that a breach or threatened breach by you of any of your non-disclosure or restrictive covenant obligations under this Agreement will give rise to irreparable injury to the Company and that money damages will not be adequate relief for such injury and, accordingly, you agree that the Company shall be entitled to obtain equitable relief, including, but not limited to, specific performance, temporary restraining orders, preliminary injunctions and/or permanent injunctions, without having to post any bond or other security, to restrain or prohibit such breach or threatened breach, in addition to any other legal remedies which may be available, including the recovery of money damages.
7. Cooperation. You agree that, for the longer of (a) one (1) year after the date your employment terminates or (b) if applicable, the period during which you are eligible to receive severance compensation under this Agreement or the Senior Executive Severance Plan, if the Company desires you to provide any information or testimony relating to any judicial, administrative or other proceeding involving the Company (or any of its subsidiaries or affiliates), you will cooperate in making yourself reasonably available for such purposes and will provide truthful information and/or testimony. The Company agrees to reimburse you for all necessary and reasonable out-of-pocket expenses you incur in connection with such matters. Should you be served with a subpoena in any legal proceeding relating to the Company (or any of its subsidiaries or affiliates), you agree to (x) notify the Company immediately of the subpoena and provide it with a copy of the subpoena, (y) reasonably cooperate with the Company and its attorneys in responding to the subpoena and in preparing for any hearings, depositions or other formal process by which evidence is taken or received, and (z) provide truthful testimony in response to questions that are within the scope of proper discovery.
8. Company Property. You acknowledge and agree that all tangible materials, equipment, documents, copies of documents, data compilations (in whatever form), and electronically created or stored materials that you receive or make in the course of your employment with the Company (or with the use of Company time, materials, facilities or trade secrets or confidential information) are and will remain the property of the Company. Upon the termination of your service with the Company, or at the Company's request, you will immediately deliver to the Company (a) any and all memoranda, notes, records, drawings, manuals, computer programs, documentation, diskettes, computer tapes, electronic data (in whatever form or media), and all copies thereof, in your possession or under your control, whether prepared by you or others, containing any Confidential Information; and (b) any and all property or equipment belonging to the Company, including, without limitation, keys, access cards, computers, files and documents.
9. Successors and Assigns. The Company shall have the right to assign this Agreement, and the rights and obligations of the Company under this Agreement will inure to the benefit of and be binding upon any and all successors and assigns of the Company, including without limitation by asset assignment, merger, consolidation or other reorganization. As used in this Agreement, "Company" means the Company as hereinbefore defined and any successor to its business and/or assets which assumes and agrees to perform this Agreement by operation of law, or otherwise. The services to be provided by you to the Company hereunder are personal, and you shall not have the right to assign this Agreement or any of your rights or obligations under this Agreement.
10. Clawback. You acknowledge and agree that the amounts paid by the Company to you, including amounts payable pursuant to this Agreement, may be subject to recoupment or clawback pursuant to the Sarbanes-Oxley Act of 2002, the Dodd-Frank Wall Street Reform and Consumer Protection Act or other applicable law, or pursuant to a policy or plan of the Company in effect from time to time, and you agree to repay such amounts to the extent required thereunder.
11. Compliance with Code Section 409A. Our intent is that payments and benefits under this Agreement comply with Section 409A of the Internal Revenue Code of 1986, as amended, and Treasury Regulation Section 1.409A-1(h) (collectively "Code Section 409A"), to the extent subject thereto, and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted and be administered to be in compliance therewith. Notwithstanding anything contained herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties under Code Section 409A, you will not be considered to have terminated employment with the Company for purposes of this Agreement until you would be considered to have incurred a "separation from service" from the Company within the meaning of Code Section 409A. Any payments described in this Agreement that are due within the "short-term deferral period" (as defined in Code Section 409A) will not be treated as deferred compensation unless applicable law requires otherwise. Each amount to be paid or benefit to be provided to you pursuant to this Agreement that constitutes deferred compensation subject to Code Section 409A shall be construed as a separate identified payment for purposes of Code Section 409A. Notwithstanding anything to the contrary in this Agreement, to the extent that any payments to be made in connection with your separation from service would result in the imposition of any individual excise tax and late interest charges imposed under Code Section 409A, the payment will instead be made on the first business day after the earlier of (a) the date that is six (6) months following such separation from service or (b) the date of your death.
12. Notices. Any notice required or permitted under this Agreement shall be in writing and either delivered personally or sent by nationally recognized overnight courier, express mail, or certified or registered mail, postage prepaid, return receipt requested, at the following respective address unless the party notifies the other party in writing of a change of address:
If to the Company:
ITT Educational Services, Inc.
13000 North Meridian St.
Carmel, IN 46032
Attention: Chief Legal Officer
With a copy to (which copy will not constitute notice):
Faegre Baker Daniels LLP
300 North Meridian Street, Suite 2700
Indianapolis, IN 46204
Attention: David A. Given
If to you:
To you most recent address on file with the Company for payroll purposes
A notice delivered personally will be deemed delivered and effective as of the date of delivery. A notice sent by overnight courier or express mail will be deemed delivered and effective the next business day after it is deposited with the postal authority or commercial carrier. A notice sent by certified or registered mail will be deemed delivered and effective three (3) days after it is deposited with the postal authority.
13. Entire Agreement; Modification; Waiver. This Agreement contains the full, complete, and entire agreement between us, superseding any and all other contracts or proposals, oral or written, and any and all other communications between us relating to the subject matter of this Agreement, including but not limited to the August 4, 2014 Letter Agreement. This Agreement shall not be varied, altered, modified, canceled, changed, or in any way amended except by (a) our mutual agreement in a written instrument executed by you and a Company representative duly authorized by the Board, or (b) reformation by a court as provided herein. Failure to insist upon strict compliance with any of the terms, covenants or conditions of this Agreement will not be deemed a waiver of such term, covenant or condition.
14. Governing Law. To the extent not preempted by federal law, the provisions of this Agreement shall be construed and enforced in accordance with the laws of the State of Indiana, without giving effect to any choice-of-law or conflict-of-law principle that would cause the application of the substantive law of any jurisdiction other than Indiana. You and the Company agree that any legal action arising out of or relating to this Agreement, your employment with the Company or the termination of your employment shall be commenced and maintained exclusively before any appropriate state court of record in Hamilton County, Indiana, or in the United States District Court for the Southern District of Indiana, Indianapolis Division; further, you and the Company hereby irrevocably submit to the jurisdiction and venue of such courts and waive any right to challenge or otherwise object to personal jurisdiction or venue in any action commenced or maintained in such courts; provided, however, the foregoing shall not affect any applicable right a party may have to remove a legal action to federal court.
15. Construction. This Agreement is the result of negotiations between you and the Company, and neither you nor the Company shall be deemed to be the drafter of this Agreement. The language of this Agreement shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against either you or the Company. This Agreement shall be interpreted and construed without any presumption or inference based upon or against the party causing this Agreement to be prepared.
16. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which together will constitute one and the same Agreement. Signatures transmitted by facsimile or other electronic means shall be effective the same as original signatures for execution of this Agreement.
If the foregoing accurately reflects our agreement, please sign where indicated below and return to us the enclosed duplicate copy of this letter.
Sincerely,
ITT EDUCATIONAL SERVICES, INC.
By: /s/ John E. Dean
Name: John E. Dean
Title: Executive Chairman of the Board of Directors
ACCEPTED AND AGREED:
/s/ Kevin M. Modany
Kevin M. Modany
Date: 12/31/15
ITT Educational Services (CE) (USOTC:ESINQ)
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