<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as permitted by Rule
14A-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S) 240.14a-12
CAREER EDUCATION CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-------------------------------------------------------------------------
(5) Total fee paid:
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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SEC 1913 (3/99)
<PAGE>
[Career Education Corporation Logo]
CAREER EDUCATION CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
May 12, 2000
----------------
NOTICE AND PROXY STATEMENT
<PAGE>
[Career Education Corporation Logo]
April 13, 2000
Dear Stockholder:
On behalf of the Board of Directors, I cordially invite you to attend the
2000 Annual Meeting of Stockholders of Career Education Corporation to be held
at our offices, 2895 Greenspoint Parkway, Suite 600, Hoffman Estates, Illinois,
on May 12, 2000 at 1:00 p.m., local time. The formal notice of the Annual
Meeting appears on the following page.
The attached Notice of Annual Meeting and Proxy Statement describe the
matters that we expect to be acted upon at the Annual Meeting. During the
Annual Meeting, stockholders will view a presentation by CEC and have the
opportunity to ask questions.
Whether or not you plan to attend the Annual Meeting, it is important that
your shares be represented. Regardless of the number of shares you own, please
sign and date the enclosed proxy card and promptly return it to us in the
enclosed postage paid envelope. If you sign and return your proxy card without
specifying your choices, your shares will be voted in accordance with the
recommendations of the Board of Directors contained in the Proxy Statement.
We look forward to seeing you on May 12, 2000 and urge you to return your
proxy card as soon as possible.
Sincerely,
JOHN M. LARSON
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
[Career Education Corporation Logo]
----------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 12, 2000
----------------
To the Stockholders of
Career Education Corporation:
The Annual Meeting of Stockholders of Career Education Corporation will be
held at 1:00 p.m., local time, on May 12, 2000, at our offices, 2895
Greenspoint Parkway, Suite 600, Hoffman Estates, Illinois, for the following
purposes:
(1) To elect two Class II directors to CEC's Board of Directors;
(2) To approve an amendment to the Career Education Corporation 1998 Employee
Incentive Compensation Plan which authorizes the addition of 750,000 shares
of Common Stock authorized for issuance under such plan;
(3) To ratify the appointment by the Board of Directors of Arthur Andersen LLP
as the independent auditors of CEC'S financial statements for the year
ended December 31, 2000; and
(4) To transact such other business as may properly come before the meeting or
any adjournments thereof.
The Board of Directors has fixed the close of business on March 15, 2000 as
the record date for determining stockholders entitled to notice of, and to vote
at, the meeting.
By order of the Board of Directors,
Patrick K. Pesch
Senior Vice President, Chief
Financial
Officer, Treasurer and Secretary
Hoffman Estates, Illinois
April 13, 2000
All stockholders are urged to attend the meeting in person or by proxy.
Whether or not you expect to be present at the meeting, please complete, sign
and date the enclosed proxy card and return it promptly in the enclosed postage
paid envelope furnished for that purpose.
<PAGE>
Career Education Corporation
2895 Greenspoint Parkway,
Suite 600
Hoffman Estates, Illinois 60195
(847) 781-3600
PROXY STATEMENT
The accompanying proxy is solicited by the Board of Directors of Career
Education Corporation, a Delaware corporation, for use at the Annual Meeting of
Stockholders to be held at 1:00 p.m., Chicago time, Friday, May 12, 2000, at our
offices, 2895 Greenspoint Parkway, Suite 600, Hoffman Estates, Illinois, and any
adjournments thereof. This Proxy Statement and accompanying form of proxy were
first released to stockholders on or about April 13, 2000.
Record Date and Outstanding Shares -- The Board of Directors has fixed the
close of business on March 15, 2000, as the record date (the "Record Date") for
the determination of stockholders entitled to notice of, and to vote at, the
Annual Meeting or any adjournments thereof. As of the Record Date, CEC had
outstanding 7,951,182 shares of Common Stock, par value $0.01 per share (the
"Common Stock"). Each of the outstanding shares of Common Stock is entitled to
one vote on all matters to come before the Annual Meeting.
Voting of Proxies -- John M. Larson and Thomas B. Lally, the persons named
as proxies on the proxy card accompanying this Proxy Statement, were selected by
the Board of Directors to serve in such capacity. Messrs. Larson and Lally are
directors of CEC, and Mr. Larson is also an officer of CEC. Each executed and
returned proxy will be voted in accordance with the directions indicated
thereon, or if no direction is indicated, such proxy will be voted in accordance
with the recommendations of the Board of Directors contained in this Proxy
Statement. Each stockholder giving a proxy has the power to revoke it at any
time before the shares it represents are voted. Revocation of a proxy is
effective upon receipt by the Secretary of CEC of either (i) an instrument
revoking the proxy or (ii) a duly executed proxy bearing a later date.
Additionally, a stockholder may change or revoke a previously executed proxy by
voting in person at the Annual Meeting.
Required Vote -- A plurality of the shares of Common Stock voted in person
or by proxy is required to elect the nominees for directors. The affirmative
vote of a majority of the shares of Common Stock represented in person or by
proxy is required to (i) approve an amendment to the Career Education
Corporation 1998 Employee Incentive Compensation Plan (the "Incentive
Compensation Plan") which authorizes the addition of 750,000 shares of Common
Stock authorized for issuance under such Plan and (ii) ratify the appointment by
the Board of Directors of Arthur Andersen LLP as the independent auditors of
CEC's financial statements for the year ended December 31, 2000. Each
stockholder will be entitled to vote the number of shares of Common Stock held
as of the Record Date by such stockholder for the number of directors to be
elected. Stockholders will not be allowed to cumulate their votes in the
election of directors.
<PAGE>
Quorum; Abstentions and Broker Non-Votes -- The required quorum for
transaction of business at the Annual Meeting will be a majority of the shares
issued and outstanding as of the Record Date. Votes cast by proxy or in person
at the Annual Meeting will be tabulated by the election inspectors appointed for
the meeting and will determine whether or not a quorum is present. The election
inspectors will treat abstentions and broker non-votes as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum but as unvoted for purposes of determining the approval of any matter
submitted to the stockholders for a vote. If a broker indicates on the proxy
that it does not have discretionary authority as to certain shares to vote on a
particular matter, those shares will not be considered as present and entitled
to vote with respect to that matter.
Stockholder List -- A list of stockholders entitled to vote at the Annual
Meeting, arranged in alphabetical order, showing the address of, and number of
shares registered in the name of, each stockholder, will be open to the
examination of any stockholder, for any purpose germane to the Annual Meeting,
during ordinary business hours, commencing May 1, 2000 and continuing through
the date of the Annual Meeting, at the principal offices of CEC, 2895
Greenspoint Parkway, Suite 600, Hoffman Estates, Illinois 60195.
Summary Annual Report to Stockholders -- CEC's Form 10-K and Summary Annual
Report to Stockholders for the year ended December 31, 1999, containing
financial and other information pertaining to CEC, are being furnished to
stockholders with this Proxy Statement.
PROPOSAL 1
ELECTION OF DIRECTORS
CEC's Board of Directors consists of six directors. Article V of CEC's
Certificate of Incorporation provides that the Board of Directors shall be
classified with respect to the terms for which its members shall hold office by
dividing the members into three classes. At the Annual Meeting, two Class II
directors will be elected, each for a term of three years expiring at CEC's 2003
Annual Meeting of Stockholders. Both of the nominees are presently serving as
directors of CEC. The Board of Directors recommends that the stockholders vote
in favor of the election of the nominees named in this Proxy Statement to serve
as directors of CEC. See "Nominees" below.
The four directors whose terms of office do not expire in 2000 will
continue to serve after the Annual Meeting until such time as their respective
terms of office expire or their successors are duly elected and qualified. See
"Other Directors" below.
If at the time of the Annual Meeting any of the nominees should be unable
or decline to serve, the persons named as proxies on the proxy card will vote
for such substitute nominee or nominees as the Board of Directors recommends, or
vote to allow the vacancy created thereby to remain open until filled by the
Board of Directors, as the Board of Directors recommends. The Board of
Directors has no reason to believe that any nominee will be unable or decline to
serve as a director if elected.
2
<PAGE>
NOMINEES
The names of the nominees for the office of director, together with certain
information concerning such nominees, are set forth below:
<TABLE>
<CAPTION>
Served as
Name Age Position With Company Director Since
- ----------------------------- ----- ------------------------- ------------------
<S> <C> <C> <C>
Wallace O. Laub(1)........... 75 Director 1994
Keith K. Ogata(2)(3)......... 45 Director 1998
</TABLE>
__________________
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Executive Committee.
Wallace O. Laub has been a Director of CEC since October 1994. Mr. Laub was
a co-founder of National Education Corporation, Inc., where he served as
Executive Vice President and director from 1955 to 1993. From 1981 to 1990, Mr.
Laub served as a director of the Distance Education Training Council, a trade
association and accrediting agency for distance education companies. Mr. Laub is
now retired.
Keith K. Ogata has been a Director of CEC since January 1998. Mr. Ogata is
currently president of, and a private investor in, 3-K Financial Corporation, a
private investment company, and a managing member of Hemet 99, LLC, a real
estate investment company. From 1996 to 1998, Mr. Ogata served as President of
National Education Centers, Inc., a subsidiary of National Education
Corporation. From 1990 to 1998, he served as Vice President, Chief Financial
Officer and Treasurer of National Education Corporation, with responsibility for
finance, accounting, treasury, tax, mergers and acquisitions, human resources,
investor and public relations and information systems.
The Board of Directors recommends that stockholders vote FOR all of the
nominees for election as Class II Directors.
OTHER DIRECTORS
The following persons will continue to serve as directors of CEC after the
Annual Meeting until their terms of office expire (as indicated below) or until
their successors are elected and qualified.
<TABLE>
<CAPTION>
Served as Term
Name Age Position With Company Director Since Expires
- ---------------------------------- ----- ------------------------------------- ---------------- ---------
<S> <C> <C> <C> <C>
Robert E. Dowdell(1)(2)(3)........ 54 Director 1994 2002
Thomas B. Lally(1)(2)............. 56 Director 1998 2001
John M. Larson(3)................. 48 Chairman of the Board, President,
Chief Executive Officer and Director 1994 2001
Patrick K. Pesch(3)............... 43 Senior Vice President, Chief 1995 2002
Financial Officer, Treasurer,
Secretary and Director
</TABLE>
__________________
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
(3) Member of the Executive Committee.
Robert E. Dowdell has been a Director of CEC since its inception in January
1994. From 1989 to present, Mr. Dowdell has served as Chief Executive Officer
and as a director of Marshall & Swift, L.P., a publishing company. Mr. Dowdell
is also the general partner of LaQuinta Springs, L.P., a real estate investment
company, and is a managing member of Hemet 99.
3
<PAGE>
Thomas B. Lally has been a Director of CEC since January 1998. Mr. Lally
was designated to be a director by Heller Equity Capital Corporation ("Heller").
He has been the President of Heller since 1996 and an Executive Vice President
of Heller Financial, Inc. ("HFI"), the parent of Heller, since 1994, with direct
responsibility for the asset quality oversight of HFI's portfolio of loan and
equity investments. Mr. Lally joined HFI in 1974.
John M. Larson has served as President, Chief Executive Officer and a
Director of CEC since January 1994 and as Chairman of the Board since January
24, 2000. From July 1993 until CEC's formation, Mr. Larson served as a
consultant to Heller, working with Heller to establish CEC. From January
through May 1993, Mr. Larson served as the Eastern Regional Operating Manager of
Educational Medical, Inc., which provides career-oriented postsecondary
education. From 1989 until 1993, Mr. Larson served as the Senior Vice President
of College Operations of Phillips Colleges, Inc., overseeing a nationwide system
of 58 schools, which offered a wide range of academic programs. From March
through September 1989, he served as Senior Vice President of Operations for the
Geneva Companies, a mergers and acquisitions firm. From 1980 to 1989, Mr. Larson
was Vice President of Marketing at National Education Centers, Inc., a
subsidiary of National Education Corporation, where he managed the entire
admissions program, including marketing and advertising efforts, with a team of
approximately 500 employees. Mr. Larson has also served in marketing positions
with DeVry Inc., at its Chicago and Kansas City campuses. Mr. Larson received a
Bachelor's of Science in Business Administration from the University of
California at Berkeley and has completed the Executive Management Program at
Stanford University.
Patrick K. Pesch has served as Senior Vice President, Chief Financial
Officer, Treasurer and Secretary of CEC since October 1999 and has been a
Director of CEC since 1995. From 1992 until joining CEC, Mr. Pesch served as a
Senior Vice President of HFI and also as an officer of Heller, managing a
portfolio of loan and equity investments. Mr. Pesch joined HFI in 1985 as head
of the internal audit function and served in a number of positions, including
senior credit officer for Heller Corporate Finance. Previously, he was an audit
manager with Arthur Young & Company (currently Ernst & Young). Mr. Pesch
received a Bachelor of Science of Commerce degree from DePaul University and is
a certified public accountant.
Arrangements for Nomination as Director -- Mr. Lally was designated to the
Board of Directors pursuant to an agreement with Heller. Under the agreement,
Heller is entitled to designate two directors as long as it owns at least 25% of
CEC's capital stock. The number of directors that Heller is entitled to
designate is reduced to one if Heller no longer owns 25% of CEC's capital stock,
and the agreement terminates when Heller no longer owns at least 10% of CEC's
capital stock. The agreement provides that CEC will cause the Heller designees
to be nominated and solicit proxies from CEC stockholders to vote in favor of
them, and will appoint the Heller designees to the Compensation and Audit
Committees of the Board of Directors. Heller currently owns approximately 20% of
our Common Stock.
Director Compensation -- During 1999, each director of CEC who was not an
employee or consultant of CEC (the "Outside Directors") was paid an annual fee
of $6,000 for their services as directors and was paid $1,000 for each Board of
Directors meeting attended and $500 for each Board Committee meeting attended.
In addition, each Outside Director who was first elected to the Board of
Directors after adoption of the Career Education Corporation 1998 Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"), was granted stock options
to purchase 8,000 shares of Common Stock at the fair market value of the Common
Stock, as determined by a committee appointed by the Board of Directors, as of
the date of issuance of each stock option and each Outside Director first
elected to the Board of Directors on or after May 20, 1999 will be granted
options to purchase 10,000 shares of
4
<PAGE>
Common Stock. Each Outside Director will also be granted an option to purchase
6,000 shares of Common Stock on the date of each regular annual stockholders
meeting thereafter if such director is elected at such meeting to serve as a
non-employee director or continues to serve as a non-employee director. One-
third of the options granted to Outside Directors under the Directors' Plan vest
on the grant date and on each of the first two anniversaries of the grant date.
All options granted under the Directors' Plan to Outside Directors are
exercisable for ten years. All Outside Directors are also reimbursed for their
reasonable out-of-pocket expenses incurred in attending Board of Directors and
Committee meetings.
Meetings -- During the year ended December 31, 1999, the Board of Directors
held twelve (12) formal meetings. Each director attended at least 75% of the
aggregate number of Board of Directors meetings held (during the period for
which he has been a director) and the total number of Committee meetings on
which he served that were held (during the period in which he was a member of
such Committee) during 1999.
Committees of the Board of Directors -- The Board of Directors has
established an Audit Committee and a Compensation Committee, each comprised
entirely of directors who are not officers of CEC, and an Executive Committee.
The members of the Audit Committee are Messrs. Ogata (Chairman), Dowdell and
Lally. The members of the Compensation Committee are Messrs. Dowdell (Chairman),
Lally and Laub. The members of the Executive Committee are Messrs. Larson
(Chairman), Dowdell, Ogata and Pesch. CEC does not have a standing nominating
committee.
The Audit Committee generally has responsibility for recommending
independent auditors to the Board of Directors for selection, reviewing the plan
and scope of the annual audit, reviewing CEC's audit and control functions and
reporting to the full Board of Directors regarding all of the foregoing. During
the year ended December 31, 1999, the Audit Committee held four (4) formal
meetings.
The Compensation Committee generally has responsibility for recommending to
the Board of Directors guidelines and standards relating to the determination of
executive compensation, reviewing CEC's executive compensation policies and
reporting to the Board of Directors regarding the foregoing. The Compensation
Committee also has responsibility for administering the stock option plans,
determining the number of options to be granted to CEC's employees and
consultants pursuant to the plans, determining the number of options to be
granted to our executive officers pursuant to such plans and reporting to the
Board of Directors regarding the foregoing. During the year ended December 31,
1999, the Compensation Committee held six (6) formal meetings. See "Report of
the Compensation Committee of the Board of Directors."
The Executive Committee may exercise the powers of the Board of Directors
in the management of the business and affairs of CEC in the intervals between
meetings of the full Board of Directors. During the year ended December 31,
1999, the Executive Committee did not meet.
EXECUTIVE OFFICERS
Set forth below is a table identifying the executive officers of CEC who
are not identified in the tables entitled "Election of Directors - Nominees" or
"- Other Directors."
<TABLE>
<CAPTION>
Name Age Position
------------------------ ----- ----------------------------------
<S> <C> <C>
Nick Fluge.............. 48 Senior Vice President - Operations
Jacob P. Gruver......... 45 Senior Vice President - Operations
</TABLE>
5
<PAGE>
The Board of Directors elects officers annually and such officers serve at
the discretion of the Board of Directors, subject, in the case of Mr. Larson, to
the terms of his employment agreement. Mr. Larson is the only officer with an
employment agreement with CEC. See "Executive Compensation and Certain
Transactions -- Employment Agreements." There are no family relationships among
any of the directors or officers of CEC.
Section 16(a) Beneficial Ownership Reporting Compliance -- Section 16 of
the Securities Exchange Act of 1934, as amended, requires CEC's officers (as
defined under Section 16), directors and persons who beneficially own greater
than 10% of a registered class of CEC's equity securities to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). Based solely on a review of the forms it has received and on
written representations from certain reporting persons that no such forms were
required for them, CEC believes that, during 1999 all Section 16 filing
requirements applicable to its officers, directors and greater than 10%
beneficial owners were complied with by such persons.
EXECUTIVE COMPENSATION
The following table provides information concerning the annual and long-
term compensation for services in all capacities to CEC for the years ended
December 31, 1999, 1998 and 1997 to our chief executive officer and our other
executive officers (collectively, the "Named Officers").
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
--------
Securities All other
Annual Compensation Underlying compensation
-------------------------
Name and Principal Position Year Salary ($) Bonus ($) Options (#) ($)
- ----------------------------------- ------ ------------ ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
John M. Larson 1999 $379,167 $412,977 155,000 $ 7,711 (1)
Chairman of the Board, President 1998 308,333 201,810 180,000(2) 7,659 (3)
and Chief Executive Officer 1997 229,167 143,000 21,105 17,018 (4)
Patrick K. Pesch(5) 1999 $ 53,521 $143,788 46,000 $ 92 (6)
Senior Vice President, Chief
Financial Officer, Treasurer and
Secretary
Nick Fluge 1999 $192,625 $160,000 30,000 $ 7,039 (7)
Senior Vice President - Operations
Jacob P. Gruver 1999 $189,583 $160,000 50,000 $ 7,028 (8)
Senior Vice President - Operations
William A. Klettke(9) 1999 $138,333 $ 0 30,000 $ 6,844(10)
Former Senior Vice President, Chief 1998 169,167 73,815 45,000 6,491(11)
Financial Officer and Treasurer 1997 152,500 47,850 9,844 6,771(12)
</TABLE>
__________________
(1) Includes $6,400 in 401(k) matching contributions by CEC and $1,311 in term
life insurance premium payments by CEC.
(2) On February 8, 1999, 80,000 of these options were canceled and then
reissued. The exercise price and vesting terms were not changed.
6
<PAGE>
(3) Includes $6,000 in 401(k) matching contributions by CEC and $1,659 in term
life insurance premium payments by CEC.
(4) Includes $8,594 in 401(k) matching contributions by CEC and $8,424 in term
life insurance premium payments by CEC.
(5) Mr. Pesch began his employment with CEC in September 1999.
(6) Represents term life insurance paid by CEC.
(7) Includes $6,400 in 401(k) matching contributions by CEC and $639 in term
life insurance premium payments by CEC.
(8) Includes $6,400 in 401(k) matching contributions by CEC and $626 in term
life insurance premium payments by CEC.
(9) Mr. Klettke resigned from CEC, effective September 30, 1999.
(10) Includes $6,400 in 401(k) matching contributions by CEC and $444 in term
life insurance premium payments by CEC.
(11) Includes $6,400 in 401(k) matching contributions by CEC and $91 in term
life insurance premium payments by CEC.
(12) Includes $6,100 in 401(k) matching contributions by CEC and $671 in term
life insurance premium payments by CEC.
Option Grants in 1999
The following table contains information concerning the grant of stock
options by us to our Named Officers during 1999.
<TABLE>
<CAPTION>
Potential Realizable Value at
Percentage Assumed Annual Rates of
Number of of Total Stock Price Appreciation for
Shares Price Option Term (2)
------------------------------
Underlying Granted to
Options Employees Exercise or
Granted in Fiscal Base Price Expiration
Name (#) (1) Year ($/Sh) Date 5% ($) 10% ($)
- ------------------------- ---------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
John M. Larson 80,000 13.6% $ 26.25 7/28/2008 $ 1,320,679 $ 3,346,859
75,000 12.7% $ 37.25 5/19/2009 $ 1,756,974 $ 4,452,518
Patrick K. Pesch 6,000(3) 1.0% $ 37.25 5/19/2009 $ 140,558 $ 356,201
40,000 6.8% $26.875 9/09/2009 $ 676,062 $ 1,713,273
Nick Fluge 10,000 1.7% $ 37.25 5/19/2009 $ 234,263 $ 593,669
20,000 3.4% $23.625 9/26/2009 $ 297,153 $ 753,043
Jacob P. Gruver 30,000 5.1% $ 37.25 5/19/2009 $ 702,790 $ 1,781,007
20,000 3.4% $23.625 9/26/2009 $ 297,153 $ 753,043
William A. Klettke 30,000 5.1% $ 37.25 5/19/2009 $ 702,790 $ 1,781,007
</TABLE>
__________________
(1) Except as provided in footnote 3 below, these options were granted under the
Incentive Compensation Plan and each of these options is a non-qualified
stock option and vests in five equal annual installments on each of the
first five anniversaries of the grant date.
(2) Potential realizable value is presented net of the option exercise price,
but before any federal or state income taxes associated with exercise, and
is calculated assuming that the fair market value on the date of the grant
appreciates at the indicated annual rates, compounded annually, for the term
of the option. The 5% and 10% assumed rates of appreciation are mandated by
the rules of the Commission and do not represent our estimate or projection
of future increases in the price of our common stock. Actual gains are
dependent on the future performance of our common stock and the option
holder's continued employment throughout the vesting periods. The amounts
reflected in the table may not necessarily be achieved.
(3) 3,000 of these options were granted under the 1998 Non-employee Director
Stock Option Plan and all of these options vest in three equal annual
installments on each of the grant date and the first two anniversaries
thereof.
7
<PAGE>
Aggregated Option Exercises in 1999 and Year-End 1999 Option Values -- The
following table provides information regarding each of the Named Officers'
option exercises during 1999 and unexercised options at December 31, 1999.
Aggregated Option Exercises in 1999 and Year-End 1999 Option Values
<TABLE>
<CAPTION>
Number of Value of
Securities Underlying Unexercised In-The-Money
Unexercised Options at Options at
Shares acquired Value Year-End 1999 (#) Year-End 1999 ($) (1)
------------------------------ ------------------------------
Name on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- --------------------------- --------------- ------------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
John M. Larson............. 50,000 1,369,750 123,718 219,000 3,659,576 2,322,375
Patrick K. Pesch........... 0 0 7,333 46,667 121,576 524,174
Nick Fluge................. 0 0 11,514 51,080 283,202 615,308
Jacob P. Gruver............ 10,670 324,215 12,585 90,000 225,504 982,910
William A. Klettke......... 29,797 552,587 0 0 0 0
</TABLE>
_______________
(1) The value per option is calculated by subtracting the exercise price per
option from the closing price of the Common Stock on the Nasdaq National
Market on December 31, 1999 of $38.375.
Employment Agreements -- CEC entered into an amended and restated
employment agreement dated October 9, 1997 with John M. Larson which provides
for an initial annual base salary of $250,000 plus bonus compensation
established by the Board of Directors. Effective June 1, 1998 and June 1, 1999,
Mr. Larson's annual base salary was increased to $350,000 and $400,000,
respectively. Mr. Larson's employment agreement terminates on July 31, 2000 but
is automatically renewed for successive one year periods unless 90-day prior
written notice of termination is given by CEC to Mr. Larson. The agreement
provides for continuation of salary, bonus and benefits for one year following
Mr. Larson's termination of employment with us, other than termination by us for
"Cause" or termination by Mr. Larson without "Good Reason." "Cause" is defined
in the agreement to include indictment or conviction of Mr. Larson on any felony
criminal charges, willful misconduct or malfeasance in the performance of Mr.
Larson's duties and a material breach by Mr. Larson of the terms of the
agreement. "Good Reason" includes a material breach by CEC of the terms of the
employment agreement, a material change by CEC in Mr. Larson's duties or
responsibilities and a change of control of CEC. The agreement also prohibits
Mr. Larson from disclosing confidential information and prohibits him from
engaging in activities competitive with CEC for a period which includes the term
of his employment with CEC or service as one of CEC's directors and continues
for two years thereafter. However, if Mr. Larson's employment with CEC is
terminated by CEC without "Cause" or by Mr. Larson for "Good Reason," the non-
competition period will expire on the later of the termination of Mr. Larson's
service as a director with CEC or six months after the termination of his
employment. In such case, CEC may extend the non-competition period up to an
additional 18 months if CEC pays Mr. Larson's base salary, a portion of his
bonus and benefits during this additional period. If the term of the agreement
expires and CEC refuses to renew the agreement or Mr. Larson refuses to renew
the agreement for Good Reason, the non-competition period will expire on the
later of the termination of Mr. Larson's employment or the termination of his
service as a director. In such case, CEC may extend the non-competition period
for up to an additional two years if CEC pays Mr. Larson's base salary, a
portion of his bonus and benefits during this additional period.
8
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation Committee of the Board of Directors (the "Committee"),
which is composed entirely of outside, Non-Employee Directors, establishes CEC's
compensation strategy and policies and determines the nature and amount of all
compensation for CEC's executive officers. The objectives of the Board of
Directors in determining the levels and components of executive and key employee
compensation are to (i) attract, motivate and retain talented and dedicated
executive officers and other key employees, (ii) provide executive officers and
other key employees with both cash and equity incentives to further the
interests of CEC and its stockholders and (iii) compensate executive officers
and other key employees at levels comparable to those of executive officers and
key employees at other comparable companies. CEC retained Arthur Andersen LLP to
review its compensation program in 1999 to ensure that it (i) aligns
compensation with responsibility, (ii) provides for a competitive sharing of
future increases in stockholder value with key executives and employees and
(iii) is consistent with CEC's strategic and financial goals. Generally, the
compensation of all executive officers and other key employees is composed of a
base salary plus targeted bonuses based upon achievement of specified goals. In
addition, stock options are granted to provide the opportunity for compensation
based upon the performance of the Common Stock over time.
In determining the base salaries of the executive officers in 1999, the
Board of Directors considered the performance of each executive, the nature of
the executive's responsibilities, the salary levels of executives at comparable
publicly-held companies and CEC's general compensation practices. Based on these
criteria, Mr. Larson's base salary was set at $250,000 in June 1997 and
increased to $350,000 in June 1998 and $400,000 in June, 1999. The base salaries
of each of Messrs. Fluge, Gruver and Pesch were set at $215,000 in October 1999.
The base salaries of the executive officers are effective until changed at the
discretion of the Compensation Committee.
Discretionary bonuses for executive officers are directly tied to
achievement of specified goals of CEC and are a function of the criteria which
the Compensation Committee believes appropriately takes into account the
specific areas of responsibility of the particular officer. Targets for
discretionary bonuses are determined based on a percentage of the employee's
base salary. Various executive officers and key employees were awarded cash
bonuses in 1999 for their contributions. For 1999, the Compensation Committee
paid bonuses of $412,977 to Mr. Larson, $143,788 to Mr. Pesch and $160,000 to
each of Messrs. Fluge and Gruver.
Periodically, the Compensation Committee also grants stock options to
executive officers and other key employees in order to provide a long-term
incentive, which is directly tied to the performance of CEC's Common Stock.
These options provide an incentive to maximize stockholder value because they
reward option holders only if stockholders also benefit. The exercise price of
these stock options is the fair market value of the Common Stock on the date of
grant. In general, the options vest in equal annual installments over a five-
year period beginning one year after the date of grant. Vesting periods are used
to retain key employees and to emphasize the long-term aspect of contribution
and performance. In making stock option grants to executives and other key
employees, the Compensation Committee considers a number of factors, including
the performance of such persons, achievement of specific delineated goals, the
responsibilities and the relative position of such persons within CEC, review of
compensation of executives and key employees in comparable companies and review
of the number of stock options each such person currently possesses. In 1999,
the Compensation Committee granted Mr. Larson 75,000 stock options, Mr. Pesch
40,000 stock options, Mr. Fluge 30,000 stock options, Mr. Gruver 50,000 stock
options and Mr. Klettke 30,000 stock options. In addition, on February 8, 1999,
80,000 stock options granted to Mr. Larson in July 1998 were canceled and
reissued to Mr. Larson. The exercise price and vesting terms were not changed.
9
<PAGE>
Compliance with Section 162(m)
The Compensation Committee currently intends for all compensation paid to
the Named Officers to be tax deductible to CEC pursuant to Section 162(m) of the
Internal Revenue Code of 1986, as amended ("Section 162(m)"). Section 162(m)
provides that compensation paid to the Named Officers in excess of $1,000,000
cannot be deducted by CEC for Federal income tax purposes unless, in general,
such compensation is performance based, is established by a committee of
independent directors, is objective and the plan or agreement providing for such
performance based compensation has been approved in advance by stockholders. The
Compensation Committee believes that the requirements of Section 162(m) are
uncertain at this time and may arbitrarily impact CEC. In the future, the
Compensation Committee may determine to adopt a compensation program that does
not satisfy the conditions of Section 162(m) if in its judgment, after
considering the additional costs of not satisfying Section 162(m), such program
is appropriate.
COMPENSATION COMMITTEE
----------------------
Robert E. Dowdell (Chairman)
Thomas B. Lally
Wallace O. Laub
Patrick K. Pesch (through September 1999)
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Robert E. Dowdell, Thomas B. Lally, Wallace O. Laub and Patrick K. Pesch,
who resigned from the Committee in September 1999, served as members of the
Compensation Committee during 1999.
CEC entered into a Registration Rights Agreement with Heller, dated as of
February 3, 1998. Under this agreement, Heller is entitled, subject to certain
exceptions, to demand that CEC register shares of Common Stock held by Heller on
up to three occasions and to cause CEC to register such shares in any
registration by CEC on its own account or for the account of other security
holders.
10
<PAGE>
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total returns for CEC,
the Russell 2000 Index and an index of peer companies selected by CEC during the
period commencing on January 28, 1998, the date of CEC's initial public
offering, and ending on December 31, 1999. The comparison assumes $100 was
invested on January 28, 1998 in the Common Stock, the Russell 2000 Index and the
peer companies selected by CEC and assumes the reinvestment of all dividends, if
any. The companies in the peer group, all of which are education companies, are
weighted according to their market capitalization as of the end of each period
for which a return is indicated. Included in the peer group are: Apollo Group
Inc., Computer Learning Centers, Inc., DeVry, Inc., Education Management
Corporation, EduTrek International, Inc., ITT Educational Services, Inc., Quest
Education Corporation, Strayer Education, Inc. and Whitman Education Group,
Inc. The performance graph begins with CEC's initial public offering price of
$16.00 per share.
Comparison of Cumulative Total Return Since IPO
Career Education, Russell 2000 Index, and Peer Index
[GRAPH APPEARS HERE]
-----------------------------------------------
1/28/98 12/31/98 12/31/99
-----------------------------------------------
CECO 100.00 187.50 239.84
-----------------------------------------------
Russell 2000 100.00 98.45 117.77
-----------------------------------------------
Peer Index 100.00 120.80 70.37
-----------------------------------------------
11
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS
The following table sets forth, as of March 31, 2000, certain information
with respect to the beneficial ownership of the Common Stock by (i) each person
known by CEC to own beneficially more than 5% of the outstanding shares of
Common Stock, (ii) each Company director, (iii) each of the Named Officers and
(iv) all Company executive officers and directors as a group.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Shares
Beneficially Owned(1) Beneficially Owned
- ------------------------------------------------------------- ----------------------- --------------------
<S> <C> <C>
Heller Equity Capital Corporation (2)........................ 1,560,507 19.6%
Baron Capital Group, Inc. (3)................................ 1,035,000 13.0
Bank of America Corporation(4)............................... 475,500 6.0
John M. Larson (5)........................................... 166,350 2.1
Patrick K. Pesch(6).......................................... 16,800 *
William A. Klettke........................................... 20,783 *
Robert E. Dowdell (7)........................................ 103,483 1.3
Nick Fluge(8)................................................ 15,837 *
Jacob P. Gruver (9).......................................... 21,942 *
Thomas B. Lally (10)......................................... 13,000 *
Wallace O. Laub (10)......................................... 33,818 *
Keith K. Ogata (11).......................................... 37,000 *
All directors and executive officers as a group
(8 persons)................................................. 408,230 5.0
</TABLE>
__________________
* Denotes beneficial ownership less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission. The number of shares beneficially owned by a person and the
percentage ownership of that person includes shares of common stock subject
to options held by that person that are currently exercisable or
exercisable within 60 days of March 31, 2000.
(2) As reported on a Schedule 13D/A filed with the Commission on January 7,
2000 jointly by The Fuji Bank, Limited, Fuji America Holdings, Inc., Heller
Financial, Inc. and Heller Equity Capital Corporation ("HECC"). According
to the Schedule 13D/A, HECC has sole voting and sole dispositive power with
respect to 1,560,507 shares of common stock. The address of HECC is 500
West Monroe Street, Chicago, Illinois 60661.
(3) As reported on Schedule 13G/A filed with the Commission on February 15,
2000 jointly by Baron Capital Group, Inc., BAMCO, Inc., Baron Capital
Management, Inc., Baron Small Cap Fund and Ronald Baron (collectively, the
"Baron Entities"). According to the Schedule 13G/A: (i) Baron Capital
Group, Inc. and Ronald Baron have shared voting and shared dispositive
power with respect to 1,035,000 shares of common stock, (ii) BAMCO, Inc.
and Baron Small Cap Fund have shared voting and shared dispositive power
with respect to 1,000,000 shares of common stock and (iii) Baron Capital
Management, Inc. has shared voting and shared dispositive power with
respect to 35,000 shares of common stock. The address of each of the Baron
Entities is (or, in the case of Ronald Baron, is %): 767 Fifth Avenue, New
York, NY 10153.
(4) As reported on Schedule 13G/A filed with the Commission on February 2, 2000
jointly by Bank of America Corporation, Bank of America, N.A., NB Holdings
Corporation and TradeStreet Investment Associates, Inc (collectively, the
"BOA Entities"). According to the Schedule 13G/A: (i) Bank of America and
NB Holdings Corporation have shared voting and shared dispositive power
with respect to 475,500 shares of common stock, (ii) Bank of America, N.A.
has sole voting and sole dispositive power with respect to 46,600 shares of
common stock and shared voting and shared dispositive power with respect to
428,900 shares of common stock and (iii) TradeStreet Investment Associates,
Inc. has shared voting and shared dispositive power with respect to 428,900
shares of common stock. The address of each of the BOA Entities is: 100
North Tyron Street, Charlotte, NC 28255.
(5) Includes 150,718 shares of common stock which may be acquired by Mr. Larson
upon the exercise of stock options which are currently exercisable or
exercisable within 60 days of March 31, 2000.
12
<PAGE>
(6) Includes 2,700 shares of common stock held by Mr. Pesch's individual
retirement account, 1,100 shares of common stock held by Cathy Pesch's
individual retirement account (Cathy Pesch is Mr. Pesch's spouse), 1,000
shares of common stock held in a joint account with Cathy Pesch and 12,000
shares of common stock which may be acquired upon the exercise of stock
options which are currently exercisable or exercisable within 60 days of
March 31, 2000.
(7) Includes 2,834 shares of common stock held by Mr. Dowdell, as Custodian for
Brian M. Dowdell under the Uniform Transfers to Minors Act; 2,034 shares of
common stock held by Mr. Dowdell, as Custodian for Sharon T. Dowdell under
the Uniform Transfers to Minors Act; 18,000 shares of common stock held by
Mr. Dowdell and Grace C. Dowdell, as Trustees under a Trust Agreement dated
July 1, 1991; and 41,980 shares of common stock which may be acquired by
Mr. Dowdell upon the exercise of stock options which are currently
exercisable or exercisable within 60 days of March 31, 2000 (of which
36,980 were transferred from Mr. Dowdell, individually, to RGD Partners,
L.P. for whom Mr. Dowdell is a general partner.)
(8) Includes 14,514 shares of common stock which may be acquired by Mr. Fluge
upon the exercise of stock options which are currently exercisable or
exercisable within 60 days of March 31, 2000.
(9) Includes 21,585 shares of common stock which may be acquired by Mr. Gruver
upon the exercise of stock options which are currently exercisable or
exercisable within 60 days of March 31, 2000.
(10) Includes 12,000 shares of common stock which may be acquired upon the
exercise of stock options which are currently exercisable or exercisable
within 60 days of March 31, 2000.
(11) Includes 7,000 shares of common stock which may be acquired by Mr. Ogata
upon the exercise of stock options which are currently exercisable or
exercisable within 60 days of March 31, 2000.
13
<PAGE>
PROPOSAL 2
APPROVAL OF THIRD AMENDMENT TO THE CAREER EDUCATION CORPORATION
1998 EMPLOYEE INCENTIVE COMPENSATION PLAN
The stockholders are asked to consider and vote to approve the proposal to
amend the Incentive Compensation Plan to authorize the addition of 750,000
shares of Common Stock authorized for issuance under the Incentive Compensation
Plan.
The Board of Directors recommends approval of the Incentive Compensation
Plan Amendment. Unless otherwise directed, Proxies will be voted "FOR" approval
of the Incentive Compensation Plan Amendment. Abstentions and broker non-votes
will not constitute or be counted as "votes" cast for purposes of the Annual
Meeting.
Background
CEC's Board of Directors and stockholders adopted the Incentive
Compensation Plan, effective as of January 28, 1998 and adopted the first and
second amendments thereto, effective May 20, 1999. A total of 1,350,000 shares
of Common Stock have been authorized and reserved for issuance under the
Incentive Compensation Plan.
On January 24, 2000, the Board of Directors approved the Third Amendment to
the Incentive Compensation Stock Option Plan (the "Plan Amendment"), subject to
stockholder approval at the May 12, 2000 Annual Meeting of Stockholders. The
Plan Amendment will not be implemented if it is not approved by a majority of
the votes cast, in person or by proxy, at the Annual Meeting. The Amendment
provides for the issuance of up to an additional 750,000 shares under the
Incentive Compensation Plan.
The following brief summary of certain features of the Incentive
Compensation Plan is qualified in its entirety by reference to the full text of
the Incentive Compensation Plan, the first and second amendments thereto and the
Plan Amendment, which are set forth in Exhibit A to this Proxy Statement.
---------
Terms of the Incentive Compensation Plan
The Incentive Compensation Plan provides for the issuance of options to
purchase up to 1,350,000 shares of Common Stock, which shares are reserved and
available for purchase upon the exercise of such options granted under the
Incentive Compensation Plan. As of January 1, 2000, options to purchase
1,011,500 shares of Common Stock had been granted under the Incentive
Compensation Plan, leaving 338,500 shares available for future awards. As of
December 31, 1999, 18,000 of these options had been exercised.
The Incentive Compensation Plan provides for the issuance of awards in a
variety of forms, including (i) nonqualified and incentive stock options for the
purchase of Common Stock, (ii) stock appreciation rights, (iii) restricted
stock, (iv) deferred stock, (v) dividend equivalents, (vi) other stock-based
awards, (vii) performance awards and (viii) cash incentive awards. Directors,
officers and employees of, and consultants to, CEC or any subsidiary of CEC are
eligible to participate in the Incentive Compensation Plan. Options granted
will provide for the purchase of Common Stock at prices determined by the
Compensation Committee. The Board of Directors believes that the Incentive
Compensation Plan will better align the interests of CEC's officers, employees
and consultants with the interests of CEC's stockholders. In adopting the
Incentive Compensation Plan Amendment, the Board of Directors noted that many
other companies have adopted equity plans to compensate their officers,
employees and consultants and believes that such a plan is appropriate to
attract and retain well-qualified persons for service as officers, employees and
consultants.
14
<PAGE>
The Incentive Compensation Plan is administered by the Compensation
Committee. The Compensation Committee is authorized to construe the provisions
of the Incentive Compensation Plan and to adopt and amend rules and regulations
for administering the Incentive Compensation Plan, subject to stockholder
approval if required by applicable law. No amendment may impair the rights of a
holder of an outstanding option without the consent of such holder.
The Compensation Committee has the authority to grant awards under the
Incentive Compensation Plan to directors, officers and employees of, and
consultants to, CEC or any subsidiary of CEC. In determining the terms and
conditions of the awards, the Compensation Committee may give consideration to
the person's functions and responsibilities, the person's contributions to CEC
and its subsidiaries, the value of the individual's service to CEC and its
subsidiaries and other factors deemed relevant by the Compensation Committee.
In the event of any stock dividend, stock split, combination or exchange of
shares, recapitalization or other change in the capital structure of CEC,
corporate separation or division of CEC, sale by CEC of all or a substantial
portion of its assets, reorganization, rights offering, a partial or complete
liquidation, or any other corporate transaction, Company stock offering or event
involving CEC and having an effect similar to any of the foregoing, the
Committee will adjust or substitute, as the case may be, the aggregate number of
shares of Common Stock subject to the Incentive Compensation Plan and the number
and exercise price of shares subject to outstanding awards; provided, however,
-------- -------
that any fractional shares resulting from such adjustment will be eliminated by
rounding to the next lower whole number of shares with appropriate payment for
such fractional share as may be determined by the Board of Directors.
Change in Control
Upon the occurrence of a Change in Control (as defined in the Incentive
Compensation Plan), all unexercised stock options and stock appreciation rights
will become immediately exercisable, all restrictions and deferral limitations
on any deferred stock, restricted stock or other award shall lapse and all
performance goals and other conditions with respect to any outstanding
performance award or cash incentive award shall be deemed to have been satisfied
in full. In addition, after a Change in Control an employee will have the right
to surrender all or part of the outstanding options and receive cash from CEC in
the following amount for each award: (i) the excess of the Change in Control
Price (as defined in the Incentive Compensation Plan) over the exercise price of
the option multiplied by (ii) the number of shares of Common Stock subject to
the award.
15
<PAGE>
New Plan Benefits
The table below sets forth certain information concerning options granted
and outstanding, as of January 1, 2000, under the Incentive Compensation Plan.
New Plan Benefits
Career Education Corporation
1998 Employee Incentive Compensation Plan
<TABLE>
<CAPTION>
Name and Position Dollar Value ($)(1) Number of Shares (2)
- ------------------------------------- ------------------------- --------------------------
<S> <C> <C>
John M. Larson, - 155,000
Chairman of the Board, President and
Chief Executive Officer
Patrick K. Pesch
Senior Vice President, Chief - 43,000
Financial Officer, Treasurer and
Secretary
Nick Fluge - 30,000
Senior Vice President
Jacob P. Gruver - 50,000
Senior Vice President
William A. Klettke,
Former Vice President and Chief - 30,000
Financial Officer
Executive Group - 308,000
Non-Executive Director Group - -
Non-Executive Officer - -
Employee Group
</TABLE>
__________________
(1) The dollar value of the grants is indeterminate at this time as these
grants are subject to a vesting schedule and the value of the grants are
dependent on the price of the Common Stock achieving levels above the grant
price. All of the grants were granted at the fair market value of the
Common Stock on the date of grant.
(2) As of January 1, 2000, options to purchase 338,500 shares of Common Stock
were available for issuance under the Incentive Compensation Plan.
Discussion of Federal Income Tax Consequences
The following summary of tax consequences is not comprehensive and is based
on laws and regulations in effect on January 1, 2000. Such laws and regulations
are subject to change.
A person granted an option under the Incentive Compensation Plan does not
recognize taxable income upon grant, and CEC is not entitled to a deduction for
Federal income tax purposes upon such grant. Upon exercise of the option, the
amount by which the fair market value of the shares on the date of exercise
exceeds the option exercise price (the "spread") will generally be taxable to
the grantee as compensation income and will generally be deductible for tax
purposes by CEC. In determining the amount of the spread or the amount of
consideration paid to the grantee, the fair market value of the Common Stock on
the date of exercise is used. CEC, in computing its Federal income tax, will be
entitled to a deduction in an amount equal to the compensation taxable to the
grantee. The dispositions of shares
16
<PAGE>
acquired upon exercise of a stock option will generally result in a capital gain
or loss for the grantee, but will have no tax consequences for CEC.
In the event any payments or rights accruing to a grantee upon a Change in
Control, or any other payments awarded under the Incentive Compensation Plan,
constitute "parachute payments" under Section 280G of the Code, depending upon
the amount of such payments accruing and the other income of the grantee from
CEC, the grantee may be subject to an excise tax (in addition to ordinary income
tax) and CEC may be disallowed a deduction for the amount of the actual payment.
The Board of Directors recommends approval of the Incentive Compensation
Plan Amendment. Unless otherwise directed, Proxies will be voted "FOR" approval
of the Incentive Compensation Plan Amendment. Abstentions and broker-non votes
will not constitute or be counted as "votes" cast for purposes of the Annual
Meeting.
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF AUDITORS
The Board of Directors, upon the recommendation of the Audit Committee, has
appointed Arthur Andersen LLP, independent certified public accountants, as
auditors of CEC's financial statements for the year ended December 31, 2000.
Arthur Andersen LLP has acted as auditors for CEC since its inception in 1994.
The Board of Directors has determined to afford stockholders the
opportunity to express their opinions on the matter of auditors, and,
accordingly, is submitting to the stockholders at the Annual Meeting a proposal
to ratify the Board of Directors' appointment of Arthur Andersen LLP. If a
majority of the shares voted at the Annual Meeting, in person or by proxy, are
not voted in favor of the ratification of the appointment of Arthur Andersen
LLP, the Board of Directors will interpret this as an instruction to seek other
auditors.
It is expected that representatives of Arthur Andersen will be present at
the meeting and will be available to respond to questions. They will be given an
opportunity to make a statement if they desire to do so.
The Board of Directors recommends that the stockholders vote FOR the
ratification of the appointment of Arthur Andersen LLP as the independent
auditors of CEC's financial statements for the year ended December 31, 2000.
17
<PAGE>
MISCELLANEOUS AND OTHER MATTERS
Solicitation -- The cost of this proxy solicitation will be borne by CEC.
CEC may request banks, brokers, fiduciaries, custodians, nominees and certain
other record holders to send proxies, proxy statements and other materials to
their principals at CEC's expense. Such banks, brokers, fiduciaries, custodians,
nominees and other record holders will be reimbursed by CEC for their reasonable
out-of-pocket expenses of solicitation. CEC does not anticipate that costs and
expenses incurred in connection with this proxy solicitation will exceed an
amount normally expended for a proxy solicitation for an election of directors
in the absence of a contest.
Proposals of Stockholders -- Proposals of stockholders (1) intended to be
considered at CEC's 2001 Annual Meeting of Stockholders and (2) to be considered
for inclusion in the Company's proxy statement and proxy for the 2001 Annual
Meeting of Stockholders, must be received by the Secretary of CEC not less than
120 days nor more than 150 days prior to April 13, 2001.
Other Business -- The Board of Directors is not aware of any other matters
to be presented at the Annual Meeting other than those mentioned in CEC's Notice
of Annual Meeting of Stockholders enclosed herewith. If any other matters are
properly brought before the Annual Meeting, however, it is intended that the
persons named in the proxy will vote as the Board of Directors directs.
Additional Information -- CEC will furnish, without charge, a copy of its
Annual Report on Form 10-K for its year ended December 31, 1999, as filed with
the Commission, upon the written request of any person who is a stockholder as
of the Record Date, and will provide copies of the exhibits to such Form 10-K
upon payment of a reasonable fee which shall not exceed CEC's reasonable
expenses in connection therewith. Requests for such materials should be directed
to Career Education Corporation, 2800 West Higgins Road, Suite 790, Hoffman
Estates, Illinois 60195, Attention: John M. Larson. Such information may also
be obtained free of charge by accessing the Commission's web site at
www.sec.gov.
By order of the Board of Directors
Patrick K. Pesch
Senior Vice President, Chief Financial Officer,
Treasurer and Secretary
Hoffman Estates, Illinois
April 13, 2000
ALL STOCKHOLDERS ARE REQUESTED TO COMPLETE,
DATE, SIGN AND RETURN THE ENCLOSED PROXY PROMPTLY.
18
<PAGE>
EXHIBIT A
CAREER EDUCATION CORPORATION
1998 EMPLOYEE INCENTIVE COMPENSATION PLAN
A-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I ESTABLISHMENT.................................................... A-5
1.1 Purpose.......................................................... A-5
ARTICLE II DEFINITIONS...................................................... A-5
2.1 "Affiliate"...................................................... A-5
2.2 "Agreement"...................................................... A-5
2.3 "Award".......................................................... A-5
2.4 "Beneficiary".................................................... A-5
2.5 "Board of Directors" or "Board".................................. A-6
2.6 "Cash Incentive Award"........................................... A-6
2.7 "Cause".......................................................... A-6
2.8 "Change in Control" and "Change in Control Price"................ A-6
2.9 "Code" or "Internal Revenue Code"................................ A-6
2.10 "Commission"..................................................... A-6
2.11 "Committee"...................................................... A-6
2.12 "Common Stock"................................................... A-6
2.13 "Company"........................................................ A-6
2.14 "Covered Employee"............................................... A-6
2.15 "Deferred Stock"................................................. A-6
2.16 "Disability"..................................................... A-6
2.17 "Dividend Equivalent"............................................ A-7
2.18 "Effective Date"................................................. A-7
2.19 "Exchange Act"................................................... A-7
2.20 "Fair Market Value".............................................. A-7
2.21 "Grant Date"..................................................... A-7
2.22 "Incentive Stock Option"......................................... A-7
2.23 "Initial Public Offering"........................................ A-7
2.24 "Nasdaq"......................................................... A-7
2.25 "Non-Qualified Stock Option"..................................... A-7
2.26 "Option Period".................................................. A-8
2.27 "Option Price"................................................... A-8
2.28 "Other Stock-Based Awards"....................................... A-8
2.29 "Participant".................................................... A-8
2.30 "Performance Award".............................................. A-8
2.31 "Plan"........................................................... A-8
2.32 "Representative"................................................. A-8
2.33 "Restricted Stock"............................................... A-8
2.34 "Retirement"..................................................... A-8
2.35 "Rule 16b-3"..................................................... A-8
2.36 "Securities Act"................................................. A-8
2.37 "Stock Appreciation Right"....................................... A-8
2.38 "Stock Option" or "Option"....................................... A-9
2.39 "Termination of Employment"...................................... A-9
2.40 "Transfer"....................................................... A-9
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C>
ARTICLE III ADMINISTRATION................................................... A-9
3.1 Committee Structure and Authority................................ A-9
ARTICLE IV STOCK SUBJECT TO PLAN............................................ A-11
4.1 Number of Shares................................................. A-11
4.2 Release of Shares................................................ A-11
4.3 Restrictions on Shares........................................... A-11
4.4 Stockholder Rights............................................... A-12
4.5 Reasonable Efforts To Register................................... A-12
4.6 Anti-Dilution.................................................... A-12
ARTICLE V ELIGIBILITY...................................................... A-12
5.1 Eligibility...................................................... A-12
5.2 Per Person Award Limitations..................................... A-13
ARTICLE VI STOCK OPTIONS.................................................... A-13
6.1 General.......................................................... A-13
6.2 Grant and Exercise............................................... A-13
6.3 Terms and Conditions............................................. A-13
6.4 Termination by Reason of Death................................... A-15
6.5 Termination by Reason of Disability.............................. A-15
6.6 Other Termination................................................ A-15
6.7 Cashing Out of Option............................................ A-15
ARTICLE VII STOCK APPRECIATION RIGHTS........................................ A-16
7.1 General.......................................................... A-16
7.2 Grant............................................................ A-16
7.3 Terms and Conditions............................................. A-16
ARTICLE VIII RESTRICTED STOCK................................................. A-17
8.1 General.......................................................... A-17
8.2 Awards and Certificates.......................................... A-17
8.3 Terms and Conditions............................................. A-17
ARTICLE IX DEFERRED STOCK................................................... A-18
9.1 General.......................................................... A-18
9.2 Terms and Conditions............................................. A-19
ARTICLE X OTHER AWARDS..................................................... A-20
10.1 Bonus Stock and Awards In Lieu of Obligations.................... A-20
10.2 Dividend Equivalents............................................. A-20
10.3 Other Stock-Based Awards......................................... A-20
10.4 Performance Awards............................................... A-20
ARTICLE XI PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN........... A-23
11.1 Limited Transfer During Offering................................. A-23
11.2 Committee Discretion............................................. A-23
11.3 No Company Obligation............................................ A-23
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C>
ARTICLE XII CHANGE IN CONTROL PROVISIONS..................................... A-23
12.1 Impact of Event.................................................. A-23
12.2 Definition of Change in Control.................................. A-24
12.3 Change in Control Price.......................................... A-24
ARTICLE XIII MISCELLANEOUS.................................................... A-25
13.1 Amendments and Termination....................................... A-25
13.2 Stand-Alone, Additional, Tandem, and Substitute Awards........... A-25
13.3 Form and Timing of Payment Under Awards; Deferrals............... A-25
13.4 Status of Awards Under Code Section 162(m)....................... A-26
13.5 Unfunded Status of Plan; Limits on Transferability............... A-26
13.6 General Provisions............................................... A-26
13.7 Mitigation of Excise Tax......................................... A-27
13.8 Rights with Respect to Continuance of Employment................. A-28
13.9 Awards in Substitution for Awards Granted by Other Corporations.. A-28
13.10 Procedure for Adoption........................................... A-28
13.11 Procedure for Withdrawal......................................... A-28
13.12 Delay............................................................ A-28
13.13 Headings......................................................... A-28
13.14 Severability..................................................... A-28
13.15 Successors and Assigns........................................... A-28
13.16 Entire Agreement................................................. A-28
</TABLE>
A-4
<PAGE>
CAREER EDUCATION CORPORATION
1998 EMPLOYEE INCENTIVE COMPENSATION PLAN
ARTICLE I
---------
ESTABLISHMENT
-------------
1.1 Purpose.
-------
The Career Education Corporation 1998 Employee Incentive Compensation Plan
is hereby established by Career Education Corporation. The purpose of the Plan
is to promote the overall financial objectives of the Company and its
stockholders by motivating those persons selected to participate in the Plan to
achieve long-term growth in stockholder equity in the Company and by retaining
the association of those individuals who are instrumental in achieving this
growth. At the time the Company is a publicly held corporation, if any, it is
intended that compensation awarded under the Plan qualifies for tax
deductibility under Section 162(m) of the Code to the extent deemed appropriate
by the Committee (as defined herein). The Plan and the grant of awards
hereunder are expressly conditioned upon the Plan's approval by the stockholders
of the Company. If such approval is not obtained, then this Plan and all Awards
(as defined herein) hereunder shall be null and void ab initio. The Plan is
-- ------
adopted, subject to stockholder approval, effective as of the date of
consummation of the Initial Public Offering (as defined herein).
ARTICLE II
----------
DEFINITIONS
-----------
For purposes of the Plan, the following terms are defined as set forth
below:
2.1 "Affiliate" means any individual, corporation, partnership,
---------
association, joint-stock company, trust, unincorporated association or other
entity (other than the Company) that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, the
Company including, without limitation, any member of an affiliated group of
which the Company is a common parent corporation as provided in Section 1504 of
the Code.
2.2 "Agreement" or "Award Agreement" means, individually or collectively,
--------- ---------------
any agreement entered into pursuant to the Plan pursuant to which an Award is
granted to a Participant.
2.3 "Award" means any Option, Stock Appreciation Right, Restricted Stock,
-----
Deferred Stock, Stock, Dividend Equivalent, Other Stock-Based Award, Performance
Award or Cash Incentive Award, together with any other right or interest granted
to a Participant under the Plan.
2.4 "Beneficiary" means the person, persons, trust or trusts which have
-----------
been designated by a Participant in such Participant's most recent written
beneficiary designation filed with the Committee to receive the benefits
specified under the Plan upon such Participant's death or to which Awards or
other rights are transferred if and to the extent permitted hereunder. If, upon
a Participant's death, there is no designated Beneficiary or surviving
designated Beneficiary, then the term Beneficiary means the person, persons,
trust or trusts entitled by will or the laws of descent and distribution to
receive such benefits.
A-5
<PAGE>
2.5 "Board of Directors" or "Board" means the Board of Directors of the
------------------ -----
Company.
2.6 "Cash Incentive Award" means a conditional right granted to a
--------------------
Participant under Section 10.4(c) hereof to receive a cash payment, unless
otherwise determined by the Committee, after the end of a specified period.
2.7 "Cause" shall mean, for purposes of whether and when a Participant has
-----
incurred a Termination of Employment for Cause, any act or omission which
permits the Company to terminate the written agreement or arrangement between
the Participant and the Company or an Affiliate for "cause" as defined in such
agreement or arrangement, or in the event there is no such agreement or
arrangement or the agreement or arrangement does not define the term "cause" or
a substantially equivalent term, then Cause shall mean (a) any act or omission
which the Company believes is of a criminal nature and the result of which the
Company believes is detrimental to the interests of the Company or an Affiliate,
(b) the material breach of a fiduciary duty owing to the Company, including,
without limitation, fraud or embezzlement or (c) conduct, or the omission of
conduct, on the part of the Participant which constitutes a material breach of
any statutory or common-law duty of loyalty to the Company or an Affiliate.
2.8 "Change in Control" and "Change in Control Price" have the meanings
----------------- -----------------------
set forth in Sections 12.2 and 12.3, respectively.
2.9 "Code" or "Internal Revenue Code" means the Internal Revenue Code of
----
1986, as amended, Treasury Regulations (including proposed regulations)
thereunder and any subsequent Internal Revenue Code.
2.10 "Commission" means the Securities and Exchange Commission or any
----------
successor agency.
2.11 "Committee" means the Compensation Committee of the Board and/or such
---------
other individuals designated by the Board to administer the Plan.
2.12 "Common Stock" means the shares of the Company's Common Stock, $.01
------------
par value, whether presently or hereafter issued, and any other stock or
security resulting from adjustment thereof as described hereinafter or the
common stock of any successor to the Company which is designated for the purpose
of the Plan.
2.13 "Company" means Career Education Corporation, a Delaware corporation,
-------
and includes any successor or assignee corporation or corporations into which
the Company may be merged, changed or consolidated; any corporation for whose
securities the securities of the Company shall be exchanged; and any assignee of
or successor to substantially all of the assets of the Company.
2.14 "Covered Employee" means a Participant who is a "covered employee"
----------------
within the meaning of Section 162(m) of the Code.
2.15 "Deferred Stock" means a right, granted to a Participant under Section
--------------
Section 9.1 hereof, to receive Common Stock, cash or a combination thereof at
the end of a specified deferral period.
2.16 "Disability" means a mental or physical illness that entitles the
----------
Participant to receive benefits under the long-term disability plan of the
Company or an Affiliate, or if the Participant is not covered by such a plan or
the Participant is not an employee of the Company or an Affiliate, a mental or
physical illness that renders a Participant totally and permanently incapable of
performing the Participant's
A-6
<PAGE>
duties for the Company or an Affiliate. Notwithstanding the foregoing, a
Disability shall not qualify under this Plan if it is the result of (i) a
willfully self-inflicted injury or willfully self-induced sickness; or (ii) an
injury or disease contracted, suffered, or incurred while participating in a
felony criminal offense. Determination of Disability shall be made by the
Committee. Determination of Disability for purposes of this Plan shall not be
construed to be an admission of disability for any other purpose.
2.17 "Dividend Equivalent" means a right, granted to a Participant under
-------------------
Section 10.2, to receive cash, Common Stock, other Awards or other property
equal in value to dividends paid with respect to a specified number of shares of
Common Stock.
2.18 "Effective Date" means the date of consummation of the Initial Public
--------------
Offering.
2.19 "Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations promulgated thereunder.
2.20 "Fair Market Value" means the value determined on the basis of the
-----------------
good faith determination of the Committee, without regard to whether the Common
Stock is restricted or represents a minority interest, pursuant to the
applicable method described below:
(a) if the Common Stock is listed on a national securities exchange
or quoted on Nasdaq, the closing price of the Common Stock on the relevant
date (or, if such date is not a business day or a day on which quotations
are reported, then on the immediately preceding date on which quotations
were reported), as reported by the principal national exchange on which
such shares are traded (in the case of an exchange) or by Nasdaq, as the
case may be;
(b) if the Common Stock is not listed on a national securities
exchange or quoted on Nasdaq, but is actively traded in the over-the-
counter market, the average of the closing bid and asked prices for the
Common Stock on the relevant date (or, if such date is not a business day
or a day on which quotations are reported, then on the immediately
preceding date on which quotations were reported), or the most recent
preceding date for which such quotations are reported; and
(c) if, on the relevant date, the Common Stock is not publicly traded
or reported as described in (a) or (b), the fair market value determined in
good faith by the Committee.
2.21 "Grant Date" means the date as of which an Agreement is entered into
----------
pursuant to the Plan.
2.22 "Incentive Stock Option" means any Stock Option intended to be and
----------------------
designated as an "incentive stock option" which satisfies the requirements of
Section 422 of the Code.
2.23 "Initial Public Offering" means the Company's initial public offering
-----------------------
of Common Stock under the Securities Act.
2.24 "Nasdaq" means The Nasdaq Stock Market, including the Nasdaq National
Market.
2.25 "Non-Qualified Stock Option" means an Option which is not an Incentive
--------------------------
Stock Option.
A-7
<PAGE>
2.26 "Option Period" means the period during which an Option shall be
-------------
exercisable in accordance with the related Agreement and Article VI.
2.27 "Option Price" means the price at which the Common Stock may be
------------
purchased under an Option as provided in Section 6.3(b).
2.28 "Other Stock-Based Awards" means Awards granted to a Participant under
------------------------
Section 10.3 hereof.
2.29 "Participant" means a person who satisfies the eligibility conditions
-----------
of Article V and with whom an Agreement has been entered into under the Plan,
and in the event a Representative is appointed for a Participant or another
person becomes a Representative, then the term "Participant" shall mean such
Representative. The term shall also include a trust for the benefit of the
Participant, the Participant's parents, spouse or descendants, or a custodian
under a uniform gifts to minors act or similar statute for the benefit of the
Participant's descendants, to the extent permitted by the Committee.
Notwithstanding the foregoing, the term "Termination of Employment" shall mean
the Termination of Employment of the person to whom the Award was originally
granted.
2.30 "Performance Award" means a right, granted to a Participant under
-----------------
Section 10.4 hereof, to receive Awards based upon performance criteria specified
by the Committee.
2.31 "Plan" means the Career Education Corporation 1998 Stock Incentive
----
Compensation Plan, as herein set forth and as may be amended from time to time.
2.32 "Representative" means (a) the person or entity acting as the executor
--------------
or administrator of a Participant's estate pursuant to the last will and
testament of a Participant or pursuant to the laws of the jurisdiction in which
the Participant had the Participant's primary residence at the date of the
Participant's death; (b) the person or entity acting as the guardian or
temporary guardian of a Participant; (c) the person or entity which is the
Beneficiary of the Participant upon or following the Participant's death; or (d)
any person to whom an Option has been permissibly transferred; provided that
only one of the foregoing shall be the Representative at any point in time as
determined under applicable law and recognized by the Committee.
2.33 "Restricted Stock" means Common Stock granted to a Participant under
----------------
Section 8.1 hereof, that is subject to certain restrictions and to a risk of
forfeiture.
2.34 "Retirement" means the Participant's Termination of Employment after
----------
attaining either the normal retirement age or the early retirement age as
defined in the principal (as determined by the Committee) tax-qualified plan of
the Company or an Affiliate, if the Participant is covered by such a plan, or if
the Participant is not covered by such a plan, then age 65.
2.35 "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
----------
applicable to the Plan and Participants, promulgated by the Commission under
Section 16 of the Exchange Act.
2.36 "Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder.
2.37 "Stock Appreciation Right" means a right granted under Article VII.
------------------------
A-8
<PAGE>
2.38 "Stock Option" or "Option" means a right, granted to a Participant
------------
under Section 6.1 hereof, to purchase Common Stock at a specified price during
specified time periods.
2.39 "Termination of Employment" means the occurrence of any act or event
-------------------------
that actually or effectively causes or results in the person's ceasing, for
whatever reason, to be an officer, director or employee of, or consultant to,
the Company or of any subsidiary of the Company, or to be an officer, director
or employee of, or consultant to, any entity that provides services to the
Company or a subsidiary of the Company, including, without limitation, death,
Disability, dismissal, severance at the election of the Participant, Retirement,
or severance as a result of the discontinuance, liquidation, sale or transfer by
the Company or its subsidiaries of all businesses owned or operated by the
Company or its subsidiaries. With respect to any person who is not an employee
with respect to the Company, an Agreement shall establish what act or event
shall constitute a Termination of Employment for purposes of the Plan. A
transfer of employment from the Company to a subsidiary, or from a subsidiary to
the Company, will not be a Termination of Employment, unless expressly
determined by the Committee. A Termination of Employment shall occur for an
employee who is employed by a subsidiary of the company if the subsidiary shall
cease to be a subsidiary and the Participant shall not immediately thereafter
become an employee of the Company or a subsidiary of the Company.
2.40 "Transfer" means any sale, gift, assignment, distribution, conveyance,
--------
pledge, hypothecation, encumbrance or other transfer of title, whether by
operation of law or otherwise.
In addition, certain other terms used herein have definitions given to them
in the first place in which they are used.
ARTICLE III
-----------
ADMINISTRATION
--------------
3.1 Committee Structure and Authority. The Plan shall be administered by
---------------------------------
a committee (the "Committee") of the Board of Directors composed of no fewer
than two directors designated by the Board of Directors. A majority of the
Committee shall constitute a quorum, and the acts of a majority of the members
present at any meeting at which a quorum is present, or acts approved in writing
by all of the members, shall be the acts of the Committee. A member of the
Committee shall not exercise any discretion respecting himself or herself under
the Plan. The Board shall have the authority to remove, replace or fill any
vacancy of any member of the Committee upon notice to the Committee and the
affected member. Any member of the Committee may resign upon notice to the
Board. The Board may select different Committees to administer Awards for
different classes of Participants. The Committee may allocate among one or more
of its members, or may delegate to one or more of its agents, such duties and
responsibilities as it determines.
Among other things, the Committee shall have the authority, subject to the
terms of the Plan:
(a) to select those persons to whom Awards may be granted from time
to time;
(b) to determine whether and to what extent Awards are to be granted
hereunder;
(c) to determine the number of shares of Common Stock to be covered
by each Award granted hereunder;
A-9
<PAGE>
(d) to determine the terms and conditions of any Award granted
hereunder (including, but not limited to, any Option Price or Option
Period, any exercise restriction or limitation or exercise acceleration,
forfeiture or waiver, and any performance criteria);
(e) to adjust the terms and conditions, at any time or from time to
time, of any Award, subject to the limitations of Section 13.1;
(f) to determine to what extent and under what circumstances Common
Stock and other amounts payable with respect to an Award shall be deferred;
(g) to determine under what circumstances an Award may be settled in
cash or Common Stock;
(h) to provide for the forms of Agreements to be utilized in
connection with the Plan;
(i) to determine whether a Participant has a Disability or a
Retirement;
(j) to determine what securities law requirements are applicable to
the Plan, Awards and the issuance of shares of Common Stock under the Plan
and to require of a Participant that appropriate action be taken with
respect to such requirements;
(k) to cancel, with the consent of Participants or as otherwise
provided in the Plan or an Agreement, outstanding Awards;
(l) to interpret and make final determinations with respect to the
remaining number of shares of Common Stock available under this Plan;
(m) to require, as a condition of the exercise of an Award or the
issuance or transfer of a certificate of Common Stock, the withholding from
a Participant of such amount of any Federal, state or local taxes as may be
necessary in order for the Company or any other employer to obtain a
deduction or as may be otherwise required by law;
(n) to determine whether and under what circumstances a Participant
has incurred a Termination of Employment;
(o) to determine whether the Company or any other person has a right
or obligation to purchase Common Stock from a Participant and, if so, the
terms and conditions on which such Common Stock is to be purchased;
(p) to determine the restrictions or limitations on the transfer of
Common Stock;
(q) to determine whether an Award is to be adjusted, modified or
purchased, or is to become fully exercisable, under the Plan or the terms
of an Agreement;
(r) to determine the permissible methods of Award exercise and
payment, including cashless exercise arrangements;
(s) to adopt, amend and rescind such rules and regulations as, in its
opinion, may be advisable in the administration of the Plan; and
A-10
<PAGE>
(t) to appoint and compensate agents, counsel, auditors or other
specialists to aid it in the discharge of its duties.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable, to interpret the terms and provisions of the
Plan and any Award issued under the Plan (and any Agreement) and to otherwise
supervise the administration of the Plan. The Committee's policies and
procedures may differ with respect to Awards granted at different times or to
different Participants.
Any determination made by the Committee pursuant to the provisions of the
Plan shall be made in its sole discretion and, in the case of any determination
relating to an Award, may be made at the time of the grant of the Award or,
unless in contravention of any express term of the Plan or an Agreement, at any
time thereafter. All decisions made by the Committee pursuant to the provisions
of the Plan shall be final and binding on all persons, including the Company and
Participants. No determination shall be subject to de novo review if challenged
-- ----
in court.
ARTICLE IV
----------
STOCK SUBJECT TO PLAN
---------------------
4.1 Number of Shares. Subject to the adjustment under Section 4.6, the
----------------
total number of shares of Common Stock reserved and available for distribution
pursuant to Awards under the Plan shall be 600,000 shares of Common Stock
authorized for issuance on the Effective Date. Such shares may consist, in
whole or in part, of authorized and unissued shares or treasury shares.
4.2 Release of Shares. Subject to Section 6.3(f), if any shares of Common
-----------------
Stock that are subject to any Award cease to be subject to an Award or are
forfeited, if any Award otherwise terminates without issuance of shares of
Common Stock being made to the Participant, or if any shares (whether or not
restricted) of Common Stock are received by the Company in connection with the
exercise of an Award, including the satisfaction of tax withholding, such
shares, in the discretion of the Committee, may again be available for
distribution in connection with Awards under the Plan.
4.3 Restrictions on Shares. Shares of Common Stock issued as or in
----------------------
conjunction with an Award shall be subject to the terms and conditions specified
herein and to such other terms, conditions and restrictions as the Committee in
its discretion may determine or provide in an Agreement. The Company shall not
be required to issue or deliver any certificates for shares of Common Stock,
cash or other property prior to (i) the listing of such shares on any stock
exchange or Nasdaq (or other public market) on which the Common Stock may then
be listed (or regularly traded), (ii) the completion of any registration or
qualification of such shares under Federal or state law, or any ruling or
regulation of any government body which the Committee determines to be necessary
or advisable, and (iii) the satisfaction of any applicable withholding
obligation in order for the Company or an Affiliate to obtain a deduction with
respect to the exercise of an Award. The Company may cause any certificate for
any share of Common Stock to be delivered to be properly marked with a legend or
other notation reflecting the limitations on transfer of such Common Stock as
provided in this Plan or as the Committee may otherwise require. The Committee
may require any person exercising an Award to make such representations and
furnish such information as it may consider appropriate in connection with the
issuance or delivery of the shares of Common Stock in compliance with applicable
law or otherwise. Fractional shares shall not be delivered, but shall be
rounded to the next lower whole number of shares.
A-11
<PAGE>
4.4 Stockholder Rights. No person shall have any rights of a stockholder
------------------
as to shares of Common Stock subject to an Award until, after proper exercise of
the Award or other action required, such shares shall have been recorded on the
Company's official stockholder records as having been issued or transferred.
Upon exercise of an Award or any portion thereof, the Company will have thirty
(30) days in which to issue the shares, and the Participant will not be treated
as a stockholder for any purpose whatsoever prior to such issuance. No
adjustment shall be made for cash dividends or other rights for which the record
date is prior to the date such shares are recorded as issued or transferred in
the Company's official stockholder records, except as provided herein or in an
Agreement.
4.5 Reasonable Efforts To Register. The Company will use its reasonable
------------------------------
efforts to register under the Securities Act the Common Stock delivered or
deliverable pursuant to Awards on Commission Form S-8 if available to the
Company for this purpose (or any successor or alternate form that is
substantially similar to that form to the extent available to effect such
registration), in accordance with the rules and regulations governing such
forms, when the Committee, in its sole discretion, shall deem such registration
appropriate. The Company will use its reasonable efforts to cause the
registration statement to become effective and to file such supplements and
amendments to the registration statement as may be necessary to keep the
registration statement in effect until the earliest of (a) one year following
the expiration of the Award Period of the last Award outstanding, (b) the date
the Company is no longer a reporting company under the Exchange Act and (c) the
date all Participants have disposed of all shares delivered pursuant to any
Award.
4.6 Anti-Dilution. In the event, after the Effective Date, of any Company
-------------
stock dividend, stock split, combination or exchange of shares, recapitalization
or other change in the capital structure of the Company, corporate separation or
division of the Company (including, but not limited to, a split-up, spin-off,
split-off or distribution to Company stockholders other than a normal cash
dividend), sale by the Company of all or a substantial portion of its assets
(measured on either a stand-alone or consolidated basis), reorganization, rights
offering, partial or complete liquidation, or any other corporate transaction,
Company stock offering or event involving the Company and having an effect
similar to any of the foregoing, then the Committee shall adjust or substitute,
as the case may be, the number of shares of Common Stock available for Awards
under the Plan, the number of shares of Common Stock covered by outstanding
Awards, the exercise price per share of outstanding Awards, and performance
conditions and any other characteristics or terms of the Awards as the Committee
shall deem necessary or appropriate to reflect equitably the effects of such
changes to the Participants; provided, however, that the Committee may limit any
such adjustment so as to maintain the deductibility of the Awards under Section
162(m) and that any fractional shares resulting from such adjustment shall be
eliminated by rounding to the next lower whole number of shares with appropriate
payment for such fractional shares as shall reasonably be determined by the
Committee.
ARTICLE V
---------
ELIGIBILITY
-----------
5.1 Eligibility. Except as herein provided, the persons who shall be
-----------
eligible to participate in the Plan and be granted Awards shall be those persons
who are directors, officers, and employees of, and consultants to, the Company
or any subsidiary of the Company, who shall be in a position, in the opinion of
the Committee, to make contributions to the growth, management, protection and
success of the Company and its subsidiaries. Of those persons described in the
preceding sentence, the Committee may, from time to time, select persons to be
granted Awards and shall determine the terms and conditions
A-12
<PAGE>
with respect thereto. In making any such selection and in determining the form
of the Award, the Committee may give consideration to the person's functions and
responsibilities, the person's contributions to the Company and its
subsidiaries, the value of the individual's service to the Company and its
subsidiaries and such other factors deemed relevant by the Committee.
5.2 Per Person Award Limitations. In each fiscal year during any part of
----------------------------
which this Plan is in effect, a Participant may not be granted Awards relating
to more than 100,000 shares of Common Stock, subject to adjustment as provided
in Section 4.6, under each of Articles VI, VII, VIII and IX and Sections 10.1,
10.2, 10.3 and 10.4(b). In addition, the maximum aggregate amount that may be
paid out as final Cash Incentive Awards or other cash Awards in any fiscal year
to any Participant shall be $1,000,000.
ARTICLE VI
----------
STOCK OPTIONS
-------------
6.1 General. The Committee shall have authority to grant Stock Options
-------
under the Plan at any time or from time to time. Stock Options may be either
Incentive Stock Options or Non-Qualified Stock Options. An Option shall entitle
the Participant to receive shares of Common Stock upon exercise of such Option,
subject to the Participant's satisfaction in full of any conditions,
restrictions or limitations imposed in accordance with the Plan or an Option
Agreement (the terms and provisions of which may differ from other Agreements),
including, without limitation, payment of the Option Price.
6.2 Grant and Exercise. The grant of a Stock Option shall occur as of the
------------------
date the Committee determines. Each Option granted under this Plan shall be
evidenced by an Agreement, in a form approved by the Committee, which shall
embody the terms and conditions of such Option and which shall be subject to the
express terms and conditions set forth in the Plan. Such Agreement shall become
effective upon execution by the Participant. To the extent that any Stock Option
is not designated as an Incentive Stock Option or, even if so designated, does
not qualify as an Incentive Stock Option, it shall constitute a Non-Qualified
Stock Option. Anything in the Plan to the contrary notwithstanding, no term of
the Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be
exercised, so as to disqualify the Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any Incentive
Stock Option under such Section 422.
6.3 Terms and Conditions. Stock Options shall be subject to such terms
--------------------
and conditions as shall be determined by the Committee, including the following:
(a) Option Period. The Option Period of each Stock Option shall be
-------------
fixed by the Committee; provided that no Stock Option shall be exercisable
more than ten (10) years after the date the Stock Option is granted. In
the case of an Incentive Stock Option granted to an individual who owns
more than ten percent (10%) of the combined voting power of all classes of
stock of the Company, a corporation which is a parent corporation of the
Company or any subsidiary of the Company (each as defined in Section 424 of
the Code), the Option Period shall not exceed five (5) years from the date
of grant. No Option which is intended to be an Incentive Stock Option
shall be granted more than ten (10) years from the date the Plan is adopted
by the Company or the date the Plan is approved by the stockholders of the
Company, whichever is earlier.
A-13
<PAGE>
(b) Option Price. The Option Price per share of the Common Stock
------------
purchasable under an Option shall be determined by the Committee in its
sole and absolute discretion; provided, however, that in the case of an
Incentive Stock Option granted to an individual who owns more than ten
percent (10%) of the combined voting power of all classes of stock of the
Company, a corporation which is a parent corporation of the Company or any
subsidiary of the Company (each as defined in Section 424 of the Code), the
Option Price per share shall not be less than one hundred ten percent
(110%) of the Fair Market Value per share on the date the Option is
granted.
(c) Exercisability. Subject to Section 12.1, Stock Options shall be
--------------
exercisable at such time or times and subject to such terms and conditions
as shall be determined by the Committee. If the Committee provides that
any Stock Option is exercisable only in installments, the Committee may at
any time waive such installment exercise provisions, in whole or in part,
and, subject to the foregoing, may at any time accelerate the
exercisability of any Stock Option. If the Committee intends that an
Option be an Incentive Stock Option, the Committee may, in its discretion,
provide that the aggregate Fair Market Value (determined at the date the
Option is granted) of the Common Stock as to which such Incentive Stock
Option which is exercisable for the first time during any calendar year
shall not exceed $100,000.
(d) Method of Exercise. Subject to the provisions of this Article VI,
------------------
a Participant may exercise Stock Options, in whole or in part, at any time
during the Option Period by the Participant's giving to the Company written
notice of exercise on a form provided by the Committee (if available)
specifying the number of shares of Common Stock subject to the Stock Option
to be purchased. Such notice shall be accompanied by payment in full of
the purchase price by cash or check or such other form of payment as the
Company may accept. If set forth in an Agreement or otherwise approved by
the Committee, payment in full or in part may also be made (i) by
delivering Common Stock already owned by the Participant having a total
Fair Market Value on the date of such delivery equal to the Option Price;
(ii) by the execution and delivery of a note or other evidence of
indebtedness (and any security agreement thereunder) satisfactory to the
Committee and permitted in accordance with Section 6.3(e); (iii) by the
delivery of cash or the extension of credit by a broker-dealer to whom the
Participant has submitted a notice of exercise or otherwise indicated an
intent to exercise the Option (in accordance with Part 220, Chapter II,
Title 12 of the Code of Federal Regulations, so-called "cashless"
exercise); or (iv) by any combination of the foregoing. In the case of an
Incentive Stock Option, the right to make a payment in the form of already
owned shares of Common Stock of the same class as the Common Stock subject
to the Stock Option may be authorized only at the time the Stock Option is
granted. No shares of Common Stock shall be issued until full payment
therefor, as determined by the Committee, has been made.
(e) Company Loan or Guarantee. Upon the exercise of any Option and
-------------------------
subject to the pertinent Agreement and the discretion of the Committee, the
Company may at the request of the Participant:
(i) lend to the Participant an amount equal to such portion of
the Option Price as the Committee may determine; or
(ii) guarantee a loan obtained by the Participant from a third-
party for the purpose of tendering the Option Price.
A-14
<PAGE>
The terms and conditions of any loan or guarantee, including the term,
interest rate and any security interest thereunder and whether the loan
shall be with recourse, shall be determined by the Committee, except that
no extension of credit or guarantee shall obligate the Company for an
amount to exceed the lesser of the aggregate Fair Market Value per share of
the Common Stock on the date of exercise, less the par value of the shares
of Common Stock to be purchased upon the exercise of the Award, or the
amount permitted under applicable laws or the regulations and rules of the
Federal Reserve Board and any other governmental agency having
jurisdiction.
(f) Non-transferability of Options. Except as provided herein or in
------------------------------
an Agreement, no Stock Option or interest therein shall be transferable by
the Participant other than by will or by the laws of descent and
distribution, and all Stock Options shall be exercisable during the
Participant's lifetime only by the Participant.
6.4 Termination by Reason of Death. Unless otherwise provided in an
------------------------------
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to death, any unexpired and unexercised Stock Option held by
such Participant shall thereafter be fully exercisable for a period of ninety
(90) days following the date of the appointment of a Representative (or such
other period or no period as the Committee may specify) or until the expiration
of the Option Period, whichever period is the shorter.
6.5 Termination by Reason of Disability. Unless otherwise provided in an
-----------------------------------
Agreement or determined by the Committee, if a Participant incurs a Termination
of Employment due to a Disability, any unexpired and unexercised Stock Option
held by such Participant shall thereafter be fully exercisable by the
Participant for the period of ninety (90) days (or such other period or no
period as the Committee may specify) immediately following the date of such
Termination of Employment or until the expiration of the Option Period,
whichever period is shorter, and the Participant's death at any time following
such Termination of Employment due to Disability shall not affect the foregoing.
In the event of the Participant's Termination of Employment by reason of
Disability, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, such
Stock Option will thereafter be treated as a Non-Qualified Stock Option.
6.6 Other Termination. Unless otherwise provided in an Agreement or
-----------------
determined by the Committee, if a Participant incurs a Termination of Employment
due to Retirement or if the Termination of Employment is involuntary on the part
of the Participant (but is not due to death or Disability or with Cause), any
Stock Option held by such Participant shall immediately terminate, except that
such Stock Option, to the extent then exercisable, may be exercised for the a
period of the ninety (90) days immediately following the date of such
Termination of Employment or until the expiration of the Option Period,
whichever is shorter. Unless otherwise provided in an Agreement or determined
by the Committee, if a Participant incurs a Termination of Employment which is
voluntary on the part of the Participant (and is not due to Retirement) or if
the Participant's Termination of Employment is for Cause, any Stock Option held
by such Participant shall terminate immediately, without any exercise thereof.
The death or Disability of a Participant after a Termination of Employment
otherwise provided herein shall not extend the time permitted to exercise an
Option.
6.7 Cashing Out of Option. On receipt of written notice of exercise, the
---------------------
Committee may elect to cash out all or part of the portion of any Stock Option
to be exercised by paying the Participant an amount, in cash or Common Stock,
equal to the excess of the Fair Market Value of the Common Stock that is subject
to the Option over the Option Price times the number of shares of Common Stock
subject to the Option on the effective date of such cash-out.
A-15
<PAGE>
ARTICLE VII
-----------
STOCK APPRECIATION RIGHTS
-------------------------
7.1 General. The Committee shall have authority to grant Stock
-------
Appreciation Rights under the Plan at any time or from time to time. Subject to
the Participant's satisfaction in full of any conditions, restrictions or
limitations imposed in accordance with the Plan or an Agreement, a Stock
Appreciation Right shall entitle the Participant to surrender to the Company the
Stock Appreciation Right and to be paid therefor in shares of the Common Stock,
cash or a combination thereof as herein provided, the amount described in
Section 7.3(b).
7.2 Grant. Stock Appreciation Rights may be granted in conjunction
-----
with all or part of any Stock Option granted under the Plan, in which case the
exercise of the Stock Appreciation Right shall require the cancellation of a
corresponding portion of the Stock Option, and the exercise of a Stock Option
shall result in the cancellation of a corresponding portion of the Stock
Appreciation Right. In the case of a Non-Qualified Stock Option, such rights
may be granted either at or after the time of grant of such Stock Option. In
the case of an Incentive Stock Option, such rights may be granted only at the
time of grant of such Stock Option. A Stock Appreciation Right may also be
granted on a stand-alone basis. Each Stock Appreciation Right granted under
this Plan shall be evidenced by an Agreement, which shall embody the terms and
conditions of such Stock Appreciation Right and which shall be subject to the
terms and conditions set forth in this Plan.
7.3 Terms and Conditions. Stock Appreciation Rights shall be subject
--------------------
to such terms and conditions as shall be determined by the Committee, including
the following:
(a) Period and Exercise. The term of a Stock Appreciation Right shall
-------------------
be established by the Committee. If granted in conjunction with a Stock
Option, the Stock Appreciation Right shall have a term which is the same as
the Option Period and shall be exercisable only at such time or times and
to the extent the related Stock Options would be exercisable in accordance
with the provisions of Article VI. A Stock Appreciation Right which is
granted on a stand-alone basis shall be for such period and shall be
exercisable at such times and to the extent provided in an Agreement.
Stock Appreciation Rights shall be exercised by the Participant's giving
written notice of exercise on a form provided by the Committee (if
available) to the Company specifying the portion of the Stock Appreciation
Right to be exercised.
(b) Amount. Upon the exercise of a Stock Appreciation Right granted
------
in conjunction with a Stock Option, a Participant shall be entitled to
receive an amount in cash, shares of Common Stock or both as determined by
the Committee or as otherwise permitted in an Agreement equal in value to
the excess of the Fair Market Value per share of Common Stock over the
Option Price per share of Common Stock specified in the related Agreement
multiplied by the number of shares in respect of which the Stock
Appreciation Right is exercised. In the case of a Stock Appreciation Right
granted on a stand-alone basis, the Agreement shall specify the value to be
used in lieu of the Option Price per share of Common Stock. The aggregate
Fair Market Value per share of the Common Stock shall be determined as of
the date of exercise of such Stock Appreciation Right.
A-16
<PAGE>
(c) Non-transferability of Stock Appreciation Rights. Stock
------------------------------------------------
Appreciation Rights shall be transferable only when and to the extent that
a Stock Option would be transferable under the Plan, unless otherwise
provided in an Agreement.
(d) Termination. A Stock Appreciation Right shall terminate at such
-----------
time as a Stock Option would terminate under the Plan, unless otherwise
provided in an Agreement.
(e) Effect on Shares Under the Plan. Upon the exercise of a Stock
-------------------------------
Appreciation Right, the Stock Option or part thereof to which such Stock
Appreciation Right is related shall be deemed to have been exercised for
the purpose of the limitation set forth in Section 4.1 on the number of
shares of Common Stock to be issued under the Plan, but only to the extent
of the number of shares of Common Stock covered by the Stock Appreciation
Right at the time of exercise based on the value of the Stock Appreciation
Right at such time.
(f) Incentive Stock Option. A Stock Appreciation Right granted in
----------------------
tandem with an Incentive Stock Option shall not be exercisable unless the
Fair Market Value of the Common Stock on the date of exercise exceeds the
Option Price. In no event shall any amount paid pursuant to the Stock
Appreciation Right exceed the difference between the Fair Market Value on
the date of exercise and the Option Price.
ARTICLE VIII
------------
RESTRICTED STOCK
----------------
8.1 General. The Committee shall have authority to grant Restricted
-------
Stock under the Plan at any time or from time to time, either alone or in
addition to other Awards granted under the Plan. The Committee shall determine
the persons to whom and the time or times at which grants of Restricted Stock
will be awarded, the number of shares of Restricted Stock to be awarded to any
Participant, the time or times within which such Awards may be subject to
forfeiture and any other terms and conditions of the Awards. Each Award shall
be confirmed by, and be subject to the terms of, an Agreement. The Committee
may condition the grant of Restricted Stock upon the attainment of specified
performance goals by the Participant or by the Company or an Affiliate
(including a division or department of the Company or an Affiliate) for or
within which the Participant is primarily employed or upon such other factors or
criteria as the Committee shall determine. The provisions of Restricted Stock
Awards need not be the same with respect to any Participant.
8.2 Awards and Certificates. Notwithstanding the limitations on
-----------------------
issuance of shares of Common Stock otherwise provided in the Plan, each
Participant receiving an Award of Restricted Stock shall be issued a certificate
in respect of such shares of Restricted Stock. Such certificate shall be
registered in the name of such Participant and shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to such Award as
determined by the Committee. The Committee may require that the certificates
evidencing such shares be held in custody by the Company until the restrictions
thereon shall have lapsed and that, as a condition of any Award of Restricted
Stock, the Participant shall have delivered a stock power, endorsed in blank,
relating to the Common Stock covered by such Award.
8.3 Terms and Conditions. Shares of Restricted Stock shall be subject
--------------------
to the following terms and conditions:
A-17
<PAGE>
(a) Limitations on Transferability. Subject to the provisions of the
------------------------------
Plan and the Agreement, during a period set by the Committee commencing
with the date of such Award (the "Restriction Period"), the Participant
shall not be permitted to sell, assign, transfer, pledge or otherwise
encumber any interest in shares of Restricted Stock.
(b) Rights. Except as provided in Section 8.3(a), the Participant
------
shall have, with respect to shares of Restricted Stock, all of the rights
of a stockholder of the Company holding the class of Common Stock that is
the subject of the Restricted Stock, including, if applicable, the right to
vote the shares and the right to receive any cash dividends. Unless
otherwise determined by the Committee and subject to the Plan, cash
dividends on the class of Common Stock that is the subject of the
Restricted Stock shall be automatically deferred and reinvested in
additional Restricted Stock, and dividends on the class of Common Stock
that is the subject of the Restricted Stock payable in Common Stock shall
be paid in the form of Restricted Stock of the same class as the Common
Stock on which such dividends were paid.
(c) Acceleration. Based on service, performance by the Participant or
------------
by the Company or an Affiliate, including any division or department for
which the Participant is employed, or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of
restrictions in installments and may accelerate the vesting of all or any
part of any Award and waive the restrictions for all or any part of such
Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
----------
determined by the Committee, if the Participant incurs a Termination of
Employment during the Restriction Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Restricted Stock. Unless otherwise provided in an Agreement or determined
by the Committee, upon a Participant's Termination of Employment for any
reason during the Restriction Period other than death or Disability, all
shares of Restricted Stock still subject to restriction shall be forfeited
by the Participant, except the Committee shall have the discretion to waive
in whole or in part any or all remaining restrictions with respect to any
or all of such Participant's Restricted Stock.
(e) Delivery. If and when the Restriction Period expires without a
--------
prior forfeiture of the Restricted Stock subject to such Restriction
Period, certificates for such shares shall be delivered to the Participant.
(f) Election. A Participant may elect to further defer receipt of the
--------
Restricted Stock for a specified period or until a specified event, subject
in each case to the Committee's approval and to such terms as are
determined by the Committee. Subject to any exceptions adopted by the
Committee, such election must be made one (1) year prior to completion of
the Restriction Period.
ARTICLE IX
----------
DEFERRED STOCK
--------------
9.1 General. The Committee shall have authority to grant Deferred
-------
Stock under the Plan at any time or from time to time, either alone or in
addition to other Awards granted under the Plan. The Committee shall determine
the persons to whom and the time or times at which Deferred Stock will be
awarded, the number of shares of Deferred Stock to be awarded to any
Participant, the duration of the
A-18
<PAGE>
period (the "Deferral Period") prior to which the Common Stock will be
delivered, and the conditions under which receipt of the Common Stock will be
deferred and any other terms and conditions of the Awards. Each Award shall be
confirmed by, and be subject to the terms of, an Agreement. The Committee may
condition the grant of Deferred Stock upon the attainment of specified
performance goals by the Participant or by the Company or an Affiliate,
including a division or department of the Company or an Affiliate for or within
which the Participant is primarily employed, or upon such other factors or
criteria as the Committee shall determine. The provisions of Deferred Stock
Awards need not be the same with respect to any Participant.
9.2 Terms and Conditions. Deferred Stock Awards shall be subject to
--------------------
the following terms and conditions:
(a) Limitations on Transferability. Subject to the provisions of the
------------------------------
Plan and the Agreement, Deferred Stock Awards, or any interest therein, may
not be sold, assigned, transferred, pledged or otherwise encumbered during
the Deferral Period. At the expiration of the Deferral Period (or Elective
Deferral Period as defined in Section 9.2(e), where applicable), the
Committee may elect to deliver Common Stock, cash equal to the Fair Market
Value of such Common Stock or a combination of cash and Common Stock to the
Participant for the shares covered by the Deferred Stock Award.
(b) Rights. Unless otherwise determined by the Committee and subject
------
to the Plan, cash dividends on the Common Stock that is the subject of the
Deferred Stock Award shall be automatically deferred and reinvested in
additional Deferred Stock, and dividends on the Common Stock that is the
subject of the Deferred Stock Award payable in Common Stock shall be paid
in the form of Deferred Stock of the same class as the Common Stock on
which such dividends were paid.
(c) Acceleration. Based on service, performance by the Participant or
------------
by the Company or the Affiliate, including any division or department for
which the Participant is employed, or such other factors or criteria as the
Committee may determine, the Committee may provide for the lapse of
deferral limitations in installments and may accelerate the vesting of all
or any part of any Award and waive the deferral limitations for all or any
part of such Award.
(d) Forfeiture. Unless otherwise provided in an Agreement or
----------
determined by the Committee, if the Participant incurs a Termination of
Employment during the Deferral Period due to death or Disability, the
restrictions shall lapse and the Participant shall be fully vested in the
Deferred Stock. Unless otherwise provided in an Agreement or determined by
the Committee, upon a Participant's Termination of Employment for any
reason during the Deferral Period other than death or Disability, the
rights to the shares still covered by the Award shall be forfeited by the
Participant, except the Committee shall have the discretion to waive in
whole or in part any or all remaining deferral limitations with respect to
any or all of such Participant's Deferred Stock.
(e) Election. A Participant may elect further to defer receipt of the
--------
Deferred Stock payable under an Award (or an installment of an Award) for a
specified period or until a specified event (an "Elective Deferral
Period"), subject in each case to the Committee's approval and to such
terms as are determined by the Committee. Subject to any exceptions
adopted by the Committee, such election must be made at least one (1) year
prior to completion of the Deferral Period for the Award (or of the
applicable installment thereof).
A-19
<PAGE>
ARTICLE X
---------
OTHER AWARDS
------------
10.1 Bonus Stock and Awards In Lieu of Obligations. The Committee is
---------------------------------------------
authorized to grant Common Stock as a bonus, or to grant Common Stock or other
Awards in lieu of Company obligations to pay cash or deliver other property
under other plans or compensatory arrangements. Common Stock or Awards granted
hereunder shall be subject to such other terms as shall be determined by the
Committee.
10.2 Dividend Equivalents. The Committee is authorized to grant
--------------------
Dividend Equivalents to a Participant, entitling the Participant to receive
cash, Common Stock, other Awards, or other property equal in value to dividends
paid with respect to a specified number of shares of Common Stock. Dividend
Equivalents may be awarded on a free-standing basis or in connection with
another Award. The Committee may provide that Dividend Equivalents will be paid
or distributed when accrued or will be deemed to have been reinvested in
additional Common Stock, Awards or other investment vehicles, and subject to
such restrictions on transferability and risks of forfeiture, as the Committee
may specify.
10.3 Other Stock-Based Awards. The Committee is authorized, subject to
------------------------
limitations under applicable law, to grant to Participants such other Awards
that may be denominated or payable in, valued in whole or in part by reference
to, or otherwise based on, or related to, Common Stock, as deemed by the
Committee to be consistent with the purposes of the Plan, including, without
limitation, convertible or exchangeable debt securities, other rights
convertible or exchangeable into Common Stock, purchase rights for Common Stock,
Awards with value and payment contingent upon performance of the Company or any
other factors designated by the Committee, and Awards valued by reference to the
book value of Common Stock or the value of securities of or the performance of
specified subsidiaries. The Committee shall determine the terms and conditions
of such Awards. Common Stock delivered pursuant to an Award in the nature of a
purchase right granted under this Section 10.3 shall be purchased for such
consideration and paid for at such times, by such methods, and in such forms,
including, without limitation, cash, Common Stock, other Awards, or other
property, as the Committee shall determine. Cash awards, as an element of or
supplement to any other Award under the Plan, may also be granted pursuant to
this Section 10.3.
10.4 Performance Awards.
------------------
(a) Performance Conditions. The right of a Participant to exercise or
----------------------
receive a grant or settlement of any Award, and its timing, may be subject
to performance conditions specified by the Committee. The Committee may
use business criteria and other measures of performance it deems
appropriate in establishing any performance conditions, and may exercise
its discretion to reduce or increase the amounts payable under any Award
subject to performance conditions, except as limited under Sections 10.4(b)
and 10.4(c) hereof in the case of a Performance Award intended to qualify
under Code Section 162(m).
(b) Performance Awards Granted to Designated Covered Employees. If
----------------------------------------------------------
the Committee determines that a Performance Award to be granted to a person
the Committee regards as likely to be a Covered Employee should qualify as
"performance-based compensation" for purposes of Code Section 162(m), the
grant and/or settlement of such Performance Award shall be contingent upon
achievement of preestablished performance goals and other terms set forth
in this Section 10.4(b).
A-20
<PAGE>
(i) Performance Goals Generally. The performance goals for any
---------------------------
such Performance Awards shall consist of one or more business criteria
and a targeted level or levels of performance with respect to such
criteria, as specified by the Committee consistent with this Section
10.4(b). Performance goals shall be objective and shall otherwise
meet the requirements of Code Section 162(m), including the
requirement that the level or levels of performance targeted by the
Committee result in the performance goals being "substantially
uncertain."
(ii) Business Criteria. One or more of the following business
-----------------
criteria for the Company, on a consolidated basis, and/or for
specified subsidiaries or business units of the Company (except with
respect to the total stockholder return and earnings per share
criteria), shall be used exclusively by the Committee in establishing
performance goals for such Performance Awards: (1) total stockholder
return; (2) such total stockholder return as compared to total return
(on a comparable basis) of a publicly available index, such as, but
not limited to, the Standard & Poor's 500 or the Nasdaq-U.S. Index;
(3) net revenue; (4) net income; (5) pre-tax income; (6) EBITDA
(earnings before interest, taxes, depreciation and amortization); (7)
EBITDA margin (EBITDA as a percentage of net revenue); (8) operating
income; (9) operating margin (operating income as a percentage of net
revenue); (10) earnings per share; (11) return on equity; (12) return
on capital; and (13) return on investment. The foregoing business
criteria shall also be exclusively used in establishing performance
goals for Cash Incentive Awards granted under Section 10.4(c) hereof.
(iii) Performance Period: Timing For Establishing Performance
-------------------------------------------------------
Goals. Achievement of performance goals in respect of such
-----
Performance Awards shall be measured over such periods as may be
specified by the Committee. Performance goals shall be established on
or before the dates that are required or permitted for "performance-
based compensation" under Code Section 162(m).
(iv) Settlement of Performance Awards; Other Terms. Settlement
---------------------------------------------
of such Performance Awards may be in cash or Common Stock, or other
Awards, or other property, in the discretion of the Committee. The
Committee may, in its discretion, reduce the amount of a settlement
otherwise to be made in connection with such Performance Awards, but
may not exercise discretion to increase any such amount payable in
respect of a Performance Award subject to this Section 10.4(b). The
Committee shall specify the circumstances in which such Performance
Awards shall be forfeited or paid in the event of a Termination of
Employment or a Change in Control prior to the end of a performance
period or settlement of Performance Awards, and other terms relating
to such Performance Awards.
(c) Cash Incentive Awards Granted to Designated Covered Employees.
-------------------------------------------------------------
The Committee may grant Cash Incentive Awards to Participants including
those designated by the Committee as likely to be Covered Employees, which
Awards shall represent a conditional right to receive a payment in cash,
unless otherwise determined by the Committee, after the end of a specified
fiscal year or fiscal quarter or other period specified by the Committee,
in accordance with this Section 10.4(c).
(i) Cash Incentive Award. The Cash Incentive Award for
--------------------
Participants the Committee regards as likely to be regarded as Covered
Employees shall be based on
A-21
<PAGE>
achievement of a performance goal or goals based on one or more of the
business criteria set forth in Section 10.4(b), and may be based on
such criteria for any other Participant. The Committee may specify the
amount of the individual Cash Incentive Award as a percentage of any
such business criteria, a percentage thereof in excess of a threshold
amount or another amount which need not bear a strictly mathematical
relationship to such business criteria. The Committee may establish a
Cash Incentive Award pool that includes Participants the Committee
regards likely to be Covered Employees, which shall be an unfunded
pool, for purposes of measuring Company performance in connection with
Cash Incentive Awards. The amount of the Cash Incentive Award pool
shall be based upon the achievement of a performance goal or goals
based on one or more of the business criteria set forth in Section
10.4(b) hereof in the given performance period, as granted by the
Committee. The Committee may specify the amount of the Cash Incentive
Award pool as a percentage of any of such business criteria, a
percentage thereof in excess of a threshold amount or another amount
which need not bear a strictly mathematical relationship to such
business criteria.
(ii) Potential Cash Incentive Awards. Not later than the date
-------------------------------
required or permitted for "qualified performance-based compensation"
under Code Section 162(m), the Committee shall determine the
Participants who will potentially receive Cash Incentive Awards for
the specified fiscal year, quarter or other period, either as
individual Cash Incentive Awards or out of an Cash Incentive Award
pool established by such date and the amount or method for determining
the amount of the individual Cash Incentive Award or the amount of
such Participant's portion of the Cash Incentive Award pool.
(iii) Payout of Cash Incentive Awards. After the end of the
-------------------------------
specified fiscal year, quarter or other period, as the case may be,
the Committee shall determine the amount, if any, of potential
individual Cash Incentive Award payable to a Participant or of any
Cash Incentive Award pool and the maximum amount of potential Cash
Incentive Award payable to each Participant in any Cash Incentive
Award pool. The Committee may, in its discretion, determine that the
amount payable to any Participant as a final Cash Incentive Award
shall be increased or reduced from the amount of his or her potential
Cash Incentive Award, including a determination to make no final Award
whatsoever, but may not exercise discretion to increase any such
amount in the case of a Cash Incentive Award intended to qualify under
Code Section 162(m). The Committee shall specify the circumstances in
which a Cash Incentive Award shall be paid or forfeited in the event
of Termination of Employment by the Participant or a Change in Control
prior to the end of the period for measuring performance or the payout
of such Cash Incentive Award, and other terms relating to such Cash
Incentive Award in accordance with the Plan. Upon the completion of
the measuring period and the determination of the right to payment and
the amount, the Committee shall direct the Company to make payment.
(d) Written Determinations. All determinations by the Committee as
----------------------
to the establishment of performance goals and the potential Performance
Awards or Cash Incentive Awards related to such performance goals and as to
the achievement of performance goals relating to such Awards, the amount of
any Cash Incentive Award pool and the amount of final Cash Incentive
Awards, shall be made in writing in the case of any Award intended to
qualify under Code Section 162(m). The Committee may not delegate any
responsibility relating to such Performance Awards or Cash Incentive
Awards.
A-22
<PAGE>
ARTICLE XI
----------
PROVISIONS APPLICABLE TO STOCK ACQUIRED UNDER THE PLAN
------------------------------------------------------
11.1 Limited Transfer During Offering. In the event there is an effective
--------------------------------
registration statement under the Securities Act pursuant to which shares of
Common Stock shall be offered for sale in an underwritten offering, a
Participant shall not, during the period requested by the underwriters managing
the registered public offering, effect any public sale or distribution of shares
received directly or indirectly as, or pursuant to an exercise of, any Award.
11.2 Committee Discretion. The Committee may in its sole discretion
--------------------
include in any Agreement an obligation that the Company purchase a Participant's
shares of Common Stock received upon the exercise of an Award (including the
purchase of any unexercised Awards which have not expired), or may obligate a
Participant to sell shares of Common Stock to the Company, upon such terms and
conditions as the Committee may determine and set forth in an Agreement. The
provisions of this Article XI shall be construed by the Committee in its sole
discretion and shall be subject to such other terms and conditions as the
Committee may from time to time determine. Notwithstanding any provision herein
to the contrary, the Company may upon determination by the Committee assign its
right to purchase shares of Common Stock under this Article XI, whereupon the
assignee of such right shall have all the rights, duties and obligations of the
Company with respect to purchase of the shares of Common Stock.
11.3 No Company Obligation. None of the Company, an Affiliate or the
---------------------
Committee shall have any duty or obligation to disclose affirmatively to a
record or beneficial holder of Common Stock or an Award, and such holder shall
have no right to be advised of, any material information regarding the Company
or any Affiliate at any time prior to, upon or in connection with receipt or the
exercise of an Award or the Company's purchase of Common Stock or an Award from
such holder in accordance with the terms hereof.
ARTICLE XII
-----------
CHANGE IN CONTROL PROVISIONS
----------------------------
12.1 Impact of Event. Notwithstanding any other provision of the Plan to
---------------
the contrary, unless otherwise provided in an Agreement, in the event of a
Change in Control (as defined in Section 12.2):
(a) Any Stock Appreciation Rights and Stock Options outstanding as of
the date such Change in Control and not then exercisable shall become fully
exercisable to the full extent of the original grant;
(b) The restrictions and deferral limitations applicable to any
Restricted Stock, Deferred Stock or other Award shall lapse, and such
Restricted Stock, Deferred Stock or other Award shall become free of all
restrictions and become fully vested and transferable to the full extent of
the original grant.
(c) The performance goals and other conditions with respect to any
outstanding Performance Award or Cash Incentive Award shall be deemed to
have been satisfied in full, and such Award shall be fully distributable,
if and to the extent provided by the Committee in the
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<PAGE>
Agreement relating to such Award or otherwise, notwithstanding that the
Award may not be fully deductible to the Company under Section 162(m) of
the Code.
(d) Notwithstanding any other provision of the Plan, unless the
Committee shall provide otherwise in an Agreement, a Participant shall have
the right, whether or not the Award is fully exercisable or may be
otherwise realized by the Participant, by giving notice during the sixty
(60) day period from and after a Change in Control to the Company, to elect
to surrender all or part of a stock-based Award to the Company and to
receive cash, within thirty (30) days of such notice, in an amount equal to
the amount by which the "Change in Control Price" (as defined in Section
12.3) per share of Common Stock on the date of such election shall exceed
the amount which the Participant must pay to exercise the Award per share
of Common Stock under the Award (the "Spread"), multiplied by the number of
shares of Common Stock granted under the Award as to which the right
granted under this Section 12.1 shall have been exercised.
12.2 Definition of Change in Control. For purposes of this Plan, a
-------------------------------
"Change in Control" shall be deemed to have occurred if (a) any corporation,
person or other entity (other than the Company, a majority-owned subsidiary of
the Company or any of its subsidiaries, or an employee benefit plan (or related
trust) sponsored or maintained by the Company), including a "group" as defined
in Section 13(d)(3) of the Exchange Act, becomes the beneficial owner of stock
representing more than twenty percent (20%) of the combined voting power of the
Company's then outstanding securities; (b)(i) the stockholders of the Company
approve a definitive agreement to merge or consolidate the Company with or into
another corporation other than a majority-owned subsidiary of the Company, or to
sell or otherwise dispose of all or substantially all of the Company's assets,
and (ii) the persons who were the members of the Board of Directors of the
Company prior to such approval do not represent a majority of the directors of
the surviving, resulting or acquiring entity or the parent thereof; (c) the
stockholders of the Company approve a plan of liquidation of the Company; or (d)
within any period of 24 consecutive months, persons who were members of the
Board of Directors of the Company immediately prior to such 24-month period,
together with any persons who were first elected as directors (other than as a
result of any settlement of a proxy or consent solicitation contest or any
action taken to avoid such a contest) during such 24-month period by or upon the
recommendation of persons who were members of the Board of Directors of the
Company immediately prior to such 24-month period and who constituted a majority
of the Board of Directors of the Company at the time of such election, cease to
constitute a majority of the Board.
12.3 Change in Control Price. For purposes of the Plan, "Change in Control
-----------------------
Price" means the higher of (a) the highest reported sales price of a share of
Common Stock in any transaction reported on the principal exchange on which such
shares are listed or on Nasdaq during the sixty (60) day period prior to and
including the date of a Change in Control or (b) if the Change in Control is the
result of a tender or exchange offer, merger, consolidation, liquidation or sale
of all or substantially all of the assets of the Company (in each case a
"Corporate Transaction"), the highest price per share of Common Stock paid in
such Corporate Transaction, except that, in the case of Incentive Stock Options
and Stock Appreciation Rights relating to Incentive Stock Options, such price
shall be based only on the Fair Market Value of the Common Stock on the date any
such Incentive Stock Option or Stock Appreciation Right is exercised. To the
extent that the consideration paid in any such Corporate Transaction consists
all or in part of securities or other non-cash consideration, the value of such
securities or other non-cash consideration shall be determined in the sole
discretion of the Committee.
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<PAGE>
ARTICLE XIII
------------
MISCELLANEOUS
-------------
13.1 Amendments and Termination. The Board may amend, alter or discontinue
--------------------------
the Plan at any time, but no amendment, alteration or discontinuation shall be
made which would impair the rights of a Participant under a Stock Option, Stock
Appreciation Right, Restricted Stock Award or Deferred Stock Award theretofore
granted without the Participant's consent. In addition, no such amendment shall
be made without the approval of the Company's stockholders to the extent such
approval is required by law or agreement.
The Committee may amend the Plan at any time provided that (a) no amendment
shall impair the rights of any Participant under any Award theretofore granted
without the Participant's consent, and (b) any amendment shall be subject to the
approval or rejection of the Board.
The Committee may amend the terms of any Award or other Award theretofore
granted, prospectively or retroactively, but no such amendment shall impair the
rights of any Participant without the Participant's consent or reduce an Option
Price.
Subject to the above provisions, the Board shall have authority to amend
the Plan to take into account changes in law and tax and accounting rules, as
well as other developments, and to grant Awards which qualify for beneficial
treatment under such rules without stockholder approval. Notwithstanding
anything in the Plan to the contrary, if any right under this Plan would cause a
transaction to be ineligible for pooling of interests accounting that would, but
for the right hereunder, be eligible for such accounting treatment, the
Committee may modify or adjust the right so that pooling of interests accounting
shall be available, including the substitution of Common Stock having a Fair
Market Value equal to the cash otherwise payable hereunder for the right which
caused the transaction to be ineligible for pooling of interests accounting.
13.2 Stand-Alone, Additional, Tandem, and Substitute Awards. Awards
------------------------------------------------------
granted under the Plan may, in the discretion of the Committee, be granted
either alone or in addition to, in tandem with, or in substitution or exchange
for, any other Award or any award granted under another plan of the Company, any
subsidiary, or any business entity to be acquired by the Company or a
subsidiary, or any other right of a Participant to receive payment from the
Company or any subsidiary. Such additional, tandem, and substitute or exchange
Awards may be granted at any time. If an Award is granted in substitution or
exchange for another Award or award, the Committee shall require the surrender
of such other Award or award in consideration for the grant of the new Award.
In addition, Awards may be granted in lieu of cash compensation, including in
lieu of cash amounts payable under other plans of the Company or any subsidiary.
13.3 Form and Timing of Payment Under Awards; Deferrals. Subject to the
--------------------------------------------------
terms of the Plan and any applicable Agreement, payments to be made by the
Company or an Affiliate upon the exercise of an Award or settlement of an Award
may be made in such forms as the Committee shall determine, including, without
limitation, cash, Common Stock, other Awards or other property, and may be made
in a single payment or transfer, in installments, or on a deferred basis. The
settlement of any Award may be accelerated, and cash may be paid in lieu of
Common Stock in connection with such settlement, in the discretion of the
Committee or upon occurrence of one or more specified events (in addition to a
Change in Control). Installment or deferred payments may be required by the
Committee (subject to Section 13.1 of the Plan) or permitted at the election of
the Participant. Payments may include, without limitation,
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<PAGE>
provisions for the payment or crediting of reasonable interest on installment or
deferred payments or the granting or crediting of Dividend Equivalents in
respect of installment or deferred payments denominated in Common Stock.
13.4 Status of Awards Under Code Section 162(m). It is the intent of the
------------------------------------------
Company that Awards granted to persons who are Covered Employees within the
meaning of Code Section 162(m) shall constitute "qualified performance-based
compensation" satisfying the requirements of Code Section 162(m). Accordingly,
the provisions of the Plan shall be interpreted in a manner consistent with Code
Section 162(m). If any provision of the Plan or any agreement relating to such
an Award does not comply or is inconsistent with the requirements of Code
Section 162(m), such provision shall be construed or deemed amended to the
extent necessary to conform to such requirements.
13.5 Unfunded Status of Plan; Limits on Transferability. It is intended
--------------------------------------------------
that the Plan be an "unfunded" plan for incentive and deferred compensation.
The Committee may authorize the creation of trusts or other arrangements to meet
the obligations created under the Plan to deliver Common Stock or make payments;
provided, however, that, unless the Committee otherwise determines, the
existence of such trusts or other arrangements is consistent with the "unfunded"
status of the Plan. Unless otherwise provided in this Plan or in an Agreement,
no Award shall be subject to the claims of Participant's creditors, and no Award
may be transferred, assigned, alienated or encumbered in any way other than by
will or the laws of descent and distribution or to a Representative upon the
death of the Participant.
13.6 General Provisions.
------------------
(a) Representation. The Committee may require each person purchasing
--------------
or receiving shares pursuant to an Award to represent to and agree with the
Company in writing that such person is acquiring the shares without a view
to the distribution thereof. The certificates for such shares may include
any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
(b) No Additional Obligation. Nothing contained in the Plan shall
------------------------
prevent the Company or an Affiliate from adopting other or additional
compensation arrangements for its employees.
(c) Withholding. No later than the date as of which an amount first
-----------
becomes includible in the gross income of the Participant for Federal
income tax purposes with respect to any Award, the Participant shall pay to
the Company (or other entity identified by the Committee), or make
arrangements satisfactory to the Company or other entity identified by the
Committee regarding the payment of, any Federal, state, local or foreign
taxes of any kind required by law to be withheld with respect to such
amount required in order for the Company or an Affiliate to obtain a
current deduction. If the Participant disposes of shares of Common Stock
acquired pursuant to an Incentive Stock Option in any transaction
considered to be a disqualifying transaction under the Code, the
Participant must give written notice of such transfer and the Company shall
have the right to deduct any taxes required by law to be withheld from any
amounts otherwise payable to the Participant. Unless otherwise determined
by the Committee, withholding obligations may be settled with Common Stock,
including Common Stock that is part of the Award that gives rise to the
withholding requirement. The obligations of the Company under the Plan
shall be conditional on such payment or arrangements, and the Company and
its Affiliates shall, to the extent permitted by law, have the right to
deduct any such taxes from any payment otherwise due to the Participant.
A-26
<PAGE>
(d) Reinvestment. The reinvestment of dividends in additional
------------
Deferred or Restricted Stock at the time of any dividend payment shall be
permissible only if sufficient shares of Common Stock are available under
the Plan for such reinvestment (taking into account then outstanding
Options and other Awards).
(e) Representation. The Committee shall establish such procedures as
--------------
it deems appropriate for a Participant to designate a Representative to
whom any amounts payable in the event of the Participant's death are to be
paid.
(f) Controlling Law. The Plan and all Awards made and actions taken
---------------
thereunder shall be governed by and construed in accordance with the laws
of the State of Illinois (other than its law respecting choice of law).
The Plan shall be construed to comply with all applicable law and to avoid
liability to the Company, an Affiliate or a Participant, including, without
limitation, liability under Section 16(b) of the Exchange Act.
(g) Offset. Any amounts owed to the Company or an Affiliate by the
------
Participant of whatever nature may be offset by the Company from the value
of any shares of Common Stock, cash or other thing of value under this Plan
or an Agreement to be transferred to the Participant, and no shares of
Common Stock, cash or other thing of value under this Plan or an Agreement
shall be transferred unless and until all disputes between the Company and
the Participant have been fully and finally resolved and the Participant
has waived all claims to such against the Company or an Affiliate.
(h) Fail Safe. With respect to persons subject to Section 16 of the
---------
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3, as applicable. To the extent any
action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
13.7 Mitigation of Excise Tax. If any payment or right accruing to a
------------------------
Participant under this Plan (without the application of this Section 13.7),
either alone or together with other payments or rights accruing to the
Participant from the Company or an Affiliate ("Total Payments"), would
constitute a "parachute payment" (as defined in Section 280G of the Code and
regulations thereunder), such payment or right shall be reduced to the largest
amount or greatest right that will result in no portion of the amount payable or
right accruing under the Plan being subject to an excise tax under Section 4999
of the Code or being disallowed as a deduction under Section 280G of the Code.
The determination of whether any reduction in the rights or payments under this
Plan is to apply shall be made by the Committee in good faith after consultation
with the Participant, and such determination shall be conclusive and binding on
the Participant. The Participant shall cooperate in good faith with the
Committee in making such determination and providing the necessary information
for this purpose. The foregoing provisions of this Section 13.7 shall apply
with respect to any person only if, after reduction for any applicable Federal
excise tax imposed by Section 4999 of the Code and Federal income tax imposed by
the Code, the Total Payments accruing to such person would be less than the
amount of the Total Payments as reduced, if applicable, under the foregoing
provisions of the Plan and after reduction for only Federal income taxes. In
addition, the foregoing provisions of this Section 13.7 are not meant to be
exclusive with regard to any Participant, and the Company or an Affiliate may,
pursuant to employment, severance or other agreements, provide for additional
payments to a Participant due to a Participant's rights under an award
constituting a "parachute payment."
A-27
<PAGE>
13.8 Rights with Respect to Continuance of Employment. Nothing contained
------------------------------------------------
herein shall be deemed to alter the relationship between the Company or an
Affiliate and a Participant, or the contractual relationship between a
Participant and the Company or an Affiliate if there is a written contract
regarding such relationship. Nothing contained herein shall be construed to
constitute a contract of employment between the Company or an Affiliate and a
Participant. The Company or an Affiliate and each of the Participants continue
to have the right to terminate the employment or service relationship at any
time for any reason, except as provided in a written contract.
13.9 Awards in Substitution for Awards Granted by Other Corporations.
---------------------------------------------------------------
Awards (including cash in respect of fractional shares) may be granted under the
Plan from time to time in substitution for awards held by employees, directors
or service providers of other corporations who are about to become officers,
directors or employees of the Company or an Affiliate as the result of a merger
or consolidation of the employing corporation with the Company or an Affiliate,
or the acquisition by the Company or an Affiliate of the assets of the employing
corporation, or the acquisition by the Company or Affiliate of the stock of the
employing corporation, as the result of which it becomes a designated employer
under the Plan. The terms and conditions of the Awards so granted may vary from
the terms and conditions set forth in this Plan at the time of such grant as the
Committee may deem appropriate to conform, in whole or in part, to the
provisions of the awards in substitution for which they are granted.
13.10 Procedure for Adoption. Any Affiliate of the Company may by resolution
----------------------
of such Affiliate's board of directors, with the consent of the Board of
Directors and subject to such conditions as may be imposed by the Board of
Directors, adopt the Plan for the benefit of its employees as of the date
specified in the board resolution.
13.11 Procedure for Withdrawal. Any Affiliate which has adopted the Plan
------------------------
may, by resolution of the board of directors of such Affiliate, with the consent
of the Board of Directors and subject to such conditions as may be imposed by
the Board of Directors, terminate its adoption of the Plan.
13.12 Delay. The Company shall have the right to suspend or delay any time
-----
period described in the Plan or an Agreement if the Committee shall determine
that the action may constitute a violation of any law or result in liability
under any law to the Company, an Affiliate or a stockholder of the Company until
such time as the action required or permitted shall not constitute a violation
of law or result in liability to the Company, an Affiliate or a stockholder of
the Company.
13.13 Headings. The headings contained in this Plan are for reference
--------
purposes only and shall not affect the meaning or interpretation of this Plan.
13.14 Severability. If any provision of this Plan shall for any reason be
------------
held to be invalid or unenforceable, such invalidity or unenforceability shall
not effect any other provision hereby, and this Plan shall be construed as if
such invalid or unenforceable provision were omitted.
13.15 Successors and Assigns. This Plan shall inure to the benefit of and be
----------------------
binding upon each successor and assign of the Company. All obligations imposed
upon a Participant, and all rights granted to the Company hereunder, shall be
binding upon the Participant's heirs, legal representatives and successors.
13.16 Entire Agreement. This Plan and the Agreements constitute the entire
----------------
agreement with respect to the subject matter hereof and thereof, provided that
in the event of any inconsistency between the Plan and any Agreement, the terms
and conditions of the Plan shall control.
A-28
<PAGE>
FIRST AMENDMENT TO THE
CAREER EDUCATION CORPORATION
1998 EMPLOYEE INCENTIVE COMPENSATION PLAN
WHEREAS, Career Education Corporation (the "Corporation") has established and
maintains the Career Education Corporation 1998 Employee Incentive Compensation
Plan (the "Plan"), effective as of April 1, 1998; and
WHEREAS, the Corporation has determined that it desires to amend the Plan to
increase the maximum number of Awards (as defined in the Plan) which may be
granted to a Participant in the Plan in any fiscal year;
NOW, THEREFORE, BE IT RESOLVED that, pursuant to the power and authority
reserved to the Corporation by Section 13.1 of the Plan, and pursuant to the
authority delegated to the Committee, as defined in the Plan, the Plan be and is
hereby amended effective July 29, 1998, unless otherwise specified herein, in
the following particulars:
Section 5.2 is amended by deleting its first sentence and replacing it with
the following:
"In each fiscal year during any part of which this Plan is in effect,
a Participant may not be granted Awards relating to more than 250,000 shares
of Common Stock, subject to adjustment as provided in Section 4.6, under each
of Articles VI, VII, VIII and IX and Sections 10.1, 10.2, 10.3 and 10.4(b)."
Except as provided herein, the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this amendment to be executed
effective as of the 29th day of July, 1998.
CAREER EDUCATION CORPORATION
By: /s/ William A. Klettke
-------------------------------------------
William A. Klettke
Vice President and Chief Financial Officer
A-29
<PAGE>
SECOND AMENDMENT TO THE
CAREER EDUCATION CORPORATION
1998 EMPLOYEE INCENTIVE COMPENSATION PLAN
WHEREAS, Career Education Corporation (the "Corporation") has established and
maintains the Career Education Corporation 1998 Employee Incentive Compensation
Plan (the "Plan"), effective as of April 1, 1998, as amended on July 29, 1998;
and
WHEREAS, the Corporation desires to further amend the Plan to increase the
total number of shares of Common Stock (unless otherwise stated in this
Amendment, defined terms used herein shall have the meanings ascribed to them in
the Plan) reserved and available for distribution pursuant to Awards under the
Plan;
NOW, THEREFORE, BE IT RESOLVED that, pursuant to the power and authority
reserved to the Corporation by Section 13.1 of the Plan, and pursuant to the
authority delegated to the Committee, the Plan be and hereby is amended,
effective February 17, 1999, in the following manner:
Section 4.1 is amended by deleting its first sentence and replacing it with
the following:
"4.1 Number of Shares. Subject to the adjustment under Section 4.6,
----------------
the total number of shares of Common Stock reserved and available
for distribution pursuant to Awards under the Plan shall be
1,350,000 shares of Common Stock authorized for issuance as of
the Effective Date."
Except as provided herein, the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this amendment to be executed
effective as of the 17th day of February, 1999.
CAREER EDUCATION CORPORATION
By: /s/ William A. Klettke
-------------------------------------------
William A. Klettke
Vice President and Chief Financial Officer
A-30
<PAGE>
THIRD AMENDMENT TO THE
CAREER EDUCATION CORPORATION
1998 EMPLOYEE INCENTIVE COMPENSATION PLAN
WHEREAS, Career Education Corporation (the "Corporation") has established and
maintains the Career Education Corporation 1998 Employee Incentive Compensation
Plan (the "Plan"), effective as of April 1, 1998, as amended on July 29, 1998
and February 17, 1999; and
WHEREAS, the Corporation desires to further amend the Plan to increase the
total number of shares of Common Stock (unless otherwise stated in this
Amendment, defined terms used herein shall have the meanings ascribed to them in
the Plan) reserved and available for distribution pursuant to Awards under the
Plan;
NOW, THEREFORE, BE IT RESOLVED that, pursuant to the power and authority
reserved to the Corporation by Section 13.1 of the Plan, and pursuant to the
authority delegated to the Committee, the Plan be and hereby is amended,
effective January 24, 2000, in the following manner:
Section 4.1 is amended by deleting its first sentence and replacing it with
the following:
"4.1 Number of Shares. Subject to the adjustment under Section 4.6,
----------------
the total number of shares of Common Stock reserved and available
for distribution pursuant to Awards under the Plan shall be
2,100,000 shares of Common Stock authorized for issuance as of
the Effective Date."
Except as provided herein, the Plan shall remain in full force and effect.
IN WITNESS WHEREOF, the Corporation has caused this amendment to be executed
effective as of the 24th day of January, 2000.
CAREER EDUCATION CORPORATION
By: /s/ John M. Larson
--------------------------------------
John M. Larson
President and Chief Executive Officer
A-31
<PAGE>
- -------------------------------------------------------------------------------
PROXY PROXY
CAREER EDUCATION CORPORATION
Proxy Solicited on Behalf of the Board of Directors
For The Annual Meeting of Stockholders - May 12, 2000
The undersigned appoints John M. Larson and Thomas B. Lally, and each of
them, as proxies, with full power of substitution and revocation, to vote, as
designated on the reverse side hereof, all the Common Stock of Career Education
Corporation which the undersigned has power to vote, with all powers which the
undersigned would possess if personally present, at the annual meeting of
stockholders thereof to be held on May 12, 2000, or at any adjournment thereof.
Unless otherwise marked, this proxy will be voted FOR the election of the
nominees named in Proposal No. 1 and FOR Proposal Nos. 2 and 3.
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
(Continued and to be signed to reverse side.)
- -------------------------------------------------------------------------------
<PAGE>
CAREER EDUCATION CORPORATION
PLEASE MARK VOTE IN OVAL IN THE FOLLOWING MANNER USING DARK INK ONLY (x)
[ ]
For Withhold For All
1. Election of Directors - All All Except
NOMINEES: ( ) ( ) ( )
01 Wallace O. Laub 02 Keith K. Ogata
2. Approval of amendment to the Career Education For Against Abstain
Corporation 1998 Employee Incentive Compensation ( ) ( ) ( )
Plan.
3. Ratification of Auditors for fiscal year 2000. For Against Abstain
( ) ( ) ( )
_____________________________________________
(Except nominee(s) written above.)
The undersigned acknowledges
receipt of the Notice of
Annual Meeting of
Stockholders and of the
Proxy Statement.
Dated: _____________ ,2000
__________________________
Signature(s)
__________________________
Please sign exactly as your
name appears. Joint owners
should each sign personally.
Where applicable, indicate
your official position or
representation capacity.
_______________________________________________________________________________
. FOLD AND DETACH HERE .
PLEASE VOTE, SIGN, DATE AND RETURN THIS PROXY FORM
PROMPTLY USING THE ENCLOSED ENVELOPE.
