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EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is entered into as of this
1st day of August, 2000 by and among JOHN M. LARSON ("Larson"), CAREER EDUCATION
CORPORATION, a Delaware corporation (the "Company") and CEC EMPLOYEE GROUP, LLC
("Employee Group").
RECITALS
WHEREAS, Larson has experience and expertise in the acquisition and
management of private post-secondary vocational schools, and has served as the
Company's President and Chief Executive Officer since its founding and as its
Chairman of the Board since January, 2000;
WHEREAS, Larson is an employee of Employee Group;
WHEREAS, the Company is engaged primarily in the ownership, management,
operation and acquisition of post-secondary vocational schools (collectively,
the "Schools"); and
WHEREAS, Larson has agreed to continue to act as Chairman of the Board,
President and Chief Executive Officer of the Company and as an employee of
Employee Group and not to engage in certain activities competitive with the
Company or its subsidiaries or to disclose certain confidential or proprietary
information, on the terms and subject to the conditions set forth below.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is hereby agreed that:
1. Employment. The Company hereby employs Larson, and Larson hereby
accepts employment with the Company, as Chairman of the Board, President and
Chief Executive Officer, with authority over the day to day operations of the
Company and its operating subsidiaries, and employment with Employee Group.
Larson shall be the highest ranking executive of the Company and Employee Group
and shall be subject to the direction and control of the Board of Directors of
the Company (the "Board"). Larson shall devote all of his business time and
services to the business and affairs of the Company and Employee Group. Larson
shall also perform such other executive-level duties consistent with his
position as Chairman of the Board, President and Chief Executive Officer as may
be assigned to him from time to time by the Board, including, without
limitation, serving as a member of any Board Committee if the Board shall elect
Larson to such positions, and serving as an officer and/or director of the
Company's operating subsidiaries. To the extent that such activities do not
inhibit Larson from performing his duties to the Company and Employee Group,
nothing in this Agreement shall preclude Larson from (i) service as a director
of any other entity, (ii) service to any civic, religious, charitable or similar
type organization, (iii) public speaking engagements, and (iv) management of
personal and family investments. The duties and services to be performed by
Larson hereunder shall be substantially rendered at the Company's principal
offices as determined by the Board, except for reasonable travel on the
Company's and Employee Group's business incident to the performance of Larson's
duties.
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2. Compensation. As compensation for Larson's services provided
hereunder, the Company agrees to provide the following compensation:
2.1. Base Salary. During the term of this Agreement, the Company agrees
to pay to Larson a base salary at the rate of $450,000 per annum commencing on
the date hereof ("Base Salary"). The Base Salary shall be subject to annual
review by the Board and may be increased by the Board in their sole and absolute
discretion but may not be decreased. Such salary shall be payable to Larson in
such equal periodic payments as the Company generally pays its employees, but in
no event less frequently than monthly. In addition to the foregoing, the Company
agrees that Larson's base salary under the terms and conditions of his prior
employment arrangements with the Company shall be deemed increased to $450,000
per annum effective June 1, 2000, and the Company shall promptly pay to Larson
all past due amounts resulting from such increase.
2.2. Cash Bonus. Larson shall be eligible for an annual achievement
based cash bonus based upon annual quantitative and qualitative performance
targets as established by the Board ("Cash Bonus"); provided, that there will be
no guaranteed minimum Cash Bonus, and that the bonus plan will permit Larson to
earn a Cash Bonus based on an increasing scale of targets with a maximum bonus
of up to seventy-five percent (75%) of the Base Salary. In addition, Larson
shall be eligible for an additional cash bonus consistent with the
overachievement bonus in effect on the date hereof (the "Overachievement
Bonus"). Bonuses shall be payable, if at all, after the date of the delivery of
the audited financial statements for the applicable fiscal year. The Board shall
establish a bonus plan for the each fiscal year of the Company.
2.3. Fringe Benefits. The Company shall, during the term of Larson's
employment under this Agreement: (i) provide Larson with health and
hospitalization, dental and disability insurance under the Company's or its
subsidiaries group policy on terms comparable to those provided to other
executive officers of the Company ("Insurance"); (ii) provide Larson with such
pension, profit sharing, paid vacations, non-contributory term life insurance
and other fringe benefits as the Company provides to its executive officers in
accordance with the usual and ordinary practices of the Company (provided, that
notwithstanding and in lieu of Company policy with respect to provision of life
insurance to executive officers, during the term of this Agreement the Company
shall provide Larson, at the Company's expense, and Larson shall designate the
beneficiaries of, a $5,000,000 term life insurance policy and such policy shall
be deemed included in Insurance for the purposes of Section 2.4 below); (iii)
pay, upon submission of appropriate vouchers and supporting documentation, all
ordinary and necessary expenses of Larson incurred in the performance of his
duties, including, without limitation, travel, lodging and entertainment
expenses; and (iv) provide such other benefits, including but not limited to
equity incentive plans, policies and programs, as are generally made available
to executive officers of the Company.
2.4. Severance Benefits.
(a) Death. If Larson's employment under this Agreement is
terminated by reason of his death, the Company shall pay or cause to be paid,
within thirty (30) days of the Date of
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Termination, to such person or persons as Larson shall have designated for that
purpose in a notice filed with the Company, or, if no such person shall have
been so designated, to his estate, the amount of Larson's Accrued Obligations
(as defined below). Any amounts payable under this Section 2.4(a) shall be
exclusive of and in addition to any payments or benefits which Larson's widow,
beneficiaries or estate may be entitled to receive pursuant to any pension plan,
profit sharing plan, any employee benefit plan, equity incentive plan or life
insurance policy maintained by the Company ("Benefit Plan"). For purposes of
this Agreement, Larson's "Accrued Obligations" means, as of the Date of
Termination, any accrued but unpaid Base Salary, accrued Cash Bonus and
Overachievement Bonus (including (1) any accrued but unpaid Cash Bonus and
Overachievement Bonus (if any) with respect to the fiscal year prior to the year
in which the Date of Termination occurs, and (2) the amount of Larson's Accrued
Current Year Bonus multiplied by a fraction, the numerator of which is the
number of days from the first day of the fiscal year of the Company in which
such termination occurs through and including the Date of Termination and the
denominator of which is 365 (the "Pro Rata Bonus")). The "Accrued Current Year
Bonus" shall be that amount of Cash Bonus and Overachievement Bonus that was
earned by Larson from the beginning of the fiscal year through the date of the
most recently completed fiscal quarter.
(b) Disability. If Larson's employment under this Agreement is
terminated by reason of his Disability (as defined in Section 3.6), the Company
shall pay or cause to be paid, within thirty (30) days of the Date of
Termination, to Larson the amount of Larson's Accrued Obligations. Any amounts
payable under this Section 2.4(b) shall be exclusive of and in addition to any
payments or benefits which Larson may be entitled to receive pursuant to any
Benefit Plan, including but not limited to any long-term or short-term
disability plan or program.
(c) By the Company for Cause or Larson Without Good Reason. If
Larson's employment is terminated by the Company for Cause, or if Larson
terminates his employment other than for Good Reason, the Company shall pay or
cause to be paid to Larson the amount of any accrued but unpaid Base Salary
within thirty (30) days of the Date of Termination and the Company thereafter
shall have no further obligation to Larson under this Agreement, other than for
payment of any amounts or benefits accrued and vested under any Benefit Plan.
(d) By Larson for Good Reason, the Company other than for
Cause, or upon non-extension of Agreement.
(i) Termination Prior to a Change in Control.
(A) Severance Benefits. Subject to the
provisions of Section 2.4(e), if, prior to (and not in anticipation of) or more
than one year after a Change in Control (as defined in Section 3.3), the Company
terminates Larson's employment without Cause, or Larson terminates his
employment for Good Reason, or this Agreement is not extended beyond December
31, 2003, then the Company shall pay, cause to be paid or provide to Larson the
following benefits (the "Severance Benefits"):
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(1) the amount of his Accrued
Obligations, that amount being payable in a single lump sum cash payment within
thirty (30) days of the Date of Termination and any payments or benefits which
Larson may be entitled to receive pursuant to any Benefit Plan;
(2) a cash amount equal to
twenty-four (24) times the sum of (i) one-twelfth (1/12) of Larson's Base Salary
at the highest rate in effect at any time during the twelve (12)-month period
prior to the Date of Termination, (ii) one-twelfth (1/12) of Larson's Average
Bonus, and (iii) one-twelfth (1/12) of an amount equal to the amount the Company
contributed on Larson's behalf for the prior fiscal year ending before the Date
of Termination under any qualified or unqualified (under Section 401(a) of the
Internal Revenue Code of 1986, as amended) defined contribution plans maintained
by the Company as of the Date of Termination, that total amount being payable in
each of the twenty-four (24) months following the month in which the Date of
Termination occurs; and
(3) all welfare benefits, including
(to the extent applicable) medical, dental, vision, life and disability benefits
pursuant to plans maintained by the Company under which Larson and/or Larson's
family is eligible to receive benefits and/or coverage, shall be continued for
the twenty-four (24) month period following the Date of Termination, with such
benefits provided to Larson at no less than the same coverage level as in effect
as of the Date of Termination and Larson shall pay any portion of such cost as
was required to be borne by key executives of the Company generally on the Date
of Termination; provided, however, that, notwithstanding the foregoing, the
benefits described in this Section may be discontinued prior to the end of the
period provided in this Subsection (3) to the extent, but only to the extent,
that Larson receives substantially similar benefits from a subsequent employer.
For purposes of this Section 2.4, "Average Bonus" shall mean an amount equal to
Larson's average annual Cash Bonus and Overachievement Bonus paid pursuant to
Section 2.2 (including without limitation years prior to the date hereof during
which Larson was employed by the Company) with respect to the most recent two
(2) fiscal years or, if greater, the most recently completed fiscal year.
(ii) Termination in Anticipation of or After a Change
in Control.
(A) Change in Control Severance Benefits.
Subject to the provisions of Section 2.4(e), if, in anticipation of (as defined
below) or within a one year period following the occurrence of a Change in
Control, the Company terminates Larson's employment without Cause, or Larson
terminates his employment for Good Reason, then the Company shall pay, cause to
be paid or provide to Larson the following benefits (the "Change in Control
Severance Benefits"):
(1) the sum of his Accrued
Obligations, that amount being payable in a single lump sum cash payment within
thirty (30) days of the Date of Termination and any payments or benefits which
Larson may be entitled to receive pursuant to any Benefit Plan;
(2) a cash amount equal to
thirty-six (36) times the sum of (i) one-twelfth (1/12) of Larson's Base Salary
at the highest rate in effect at any time during the twelve
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(12)-month period prior to the Date of Termination, (ii) one-twelfth (1/12) of
Larson's Average Bonus and (iii) one-twelfth (1/12) of an amount equal to the
amount the Company contributed on Larson's behalf for the prior fiscal year
ending before the Date of Termination under any qualified or unqualified (under
Section 401(a) of the Internal Revenue Code of 1986, as amended) defined
contribution plans maintained by the Company as of the Date of Termination, that
total amount being payable in each of the thirty-six (36) months following the
month in which the Date of Termination occurs; and
(3) all welfare benefits, including
(to the extent applicable) medical, dental, vision, life and disability benefits
pursuant to plans maintained by the Company under which Larson and/or Larson's
family is eligible to receive benefits and/or coverage, shall be continued for
the thirty-six (36) month period following the Date of Termination, with such
benefits provided to Larson at no less than the same coverage level as in effect
as of the Date of Termination and Larson shall pay any portion of such cost as
was required to be borne by key executives of the Company generally on the Date
of Termination; provided, however, that, notwithstanding the foregoing, the
benefits described in this Section may be discontinued prior to the end of the
period provided in this Subsection (3) to the extent, but only to the extent,
that Larson receives substantially similar benefits from a subsequent employer.
(iii) Definition of In Anticipation Of. For purposes
of this Section 2.4(d), the termination of Larson's employment shall be deemed
to have been "in anticipation of" a Change in Control if such termination (A)
was at the request of an unrelated third party who has taken steps reasonably
calculated to effect a Change in Control, or (b) otherwise arose in connection
with a Change in Control.
(e) Conditions to Receipt of Severance Benefits under Section
2.4(d). As a condition to receiving any Severance Benefits (other than any
Accrued Obligations) to which Larson may otherwise be entitled under Section
2.4(d) only, the Company and/or Employee Group may reasonably request Larson to
execute a release (the "Release"), in a form and substance reasonably
satisfactory to the Company and/or Employee Group and consented to by Larson
whose consent shall not be unreasonably withheld of any claims, whether arising
under Federal, state or local statute, common law or otherwise, against Employee
Group, the Company and its direct or indirect subsidiaries which arise or may
have arisen on or before the date of the Release, other than any claims under
this Agreement, any rights to indemnification from the Company and its direct or
indirect subsidiaries pursuant to any provisions of the Company's (or any of its
subsidiaries') articles of incorporation or by-laws or any directors and
officers liability insurance policies maintained by the Company or any payment,
provision of benefit or other claim under any Benefit Plan. If Larson
unreasonably fails or otherwise refuses to execute a Release within 60 days or
other reasonable time after the Company's request to do so, Larson will not be
entitled to any Severance Benefits or any other benefits provided under this
Agreement and the Company shall have no further obligations with respect to the
payment of the Severance Benefits; provided, however, that notwithstanding
anything in this Section 2.4(e) to the contrary, Larson shall not be required,
nor shall he forfeit entitlement to Severance Benefits nor will the Company be
relieved of its obligation with respect to
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the Severance Benefits, to execute a release unless the Company and Employee
Group concurrently execute a mutual release of Larson ("Mutual Release"), in a
form and substance reasonably satisfactory to Larson and consented to by the
Company and Employee Group whose consent shall not be unreasonably withheld, of
any claims, whether arising under Federal, state or local statute, common law or
otherwise, against Larson which arise or may have arisen on or before the date
of the Mutual Release, other than any claims under this Agreement or any
payment, provision of benefit or other claim under any Benefit Plan. In
addition, if, following a termination of employment that gives Larson a right to
the payment of Severance Benefits under Section 2.4(d), Larson engages in any
activities that violate any of the covenants in Sections 4 and 5, Larson shall
have no further right or claim to any Severance Benefits (other than any Accrued
Obligations) to which Larson may otherwise be entitled under Section 2.4(d) from
and after the date on which Larson engages in such activities and the Company
shall have no further obligations with respect to the payment of the Severance
Benefits.
3. Term; Termination.
3.1. Term. Unless this Agreement is terminated earlier pursuant to the
provisions of this Section 3, the Company, its successors and assigns, shall
employ Larson, and Larson shall remain employed by the Company, for a period
ending on December 31, 2003 (the "Term"). Notwithstanding the foregoing, the
Term shall be extended automatically without further action by either party by
one additional year (added to the end of the Term) first on January 1, 2002
(extending the Term to December 31, 2004) and on each succeeding January 1st
thereafter, unless either party shall have served written notice upon the other
party prior to one year preceding the date upon which such extension would
become effective electing not to extend the Term further, in which case
employment shall terminate at the end of the Term as extended, subject to
earlier termination in accordance with this Section 3. "Date of Termination"
shall mean the earlier of (a) the end of the Term and (b) if Larson's employment
is terminated (i) by his death, the date of his death, or (ii) pursuant to the
provisions of Sections 3.2, 3.3, 3.4, 3.5 or 3.6, as the case may be, the date
on which Larson's employment with the Company actually terminates.
3.2. Termination by the Company for Cause. The Company may terminate
Larson's employment under this Agreement at any time for Cause (as hereinafter
defined). The termination shall be evidenced by written notice thereof to
Larson, which shall specify the cause for termination. For purposes of this
Section 3.2, the term "Cause" shall be limited to the following: (i) commission
of any material act of fraud by Larson with respect to which there is an
admission of guilt or a conviction or final, unappealable civil judgment; (ii)
misappropriation of funds or embezzlement by Larson with respect to which there
is an admission of guilt or a conviction; (iii) Larson's conviction on any
felony criminal charges (excluding vehicular crimes unless a prison term of
thirty (30) days or more is actually imposed); (iv) willful misconduct or
malfeasance in the performance of Larson's duties in any material respect; (v)
any willful misrepresentation or willful series of misrepresentations made by
Larson to the Company or the Board in connection with the performance of his
duties hereunder which individually or in the aggregate are material; (vi) any
material breach by Larson of any of the provisions of Sections 4 or 5 of this
Agreement; or (vii) any other material breach by Larson of this Agreement
(including, without limitation, any willful failure to adhere to
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good faith, lawful instructions given by the Board) which is not cured by Larson
within thirty (30) days after his receipt of written notice thereof; provided,
that if such failure is curable but is incapable of cure within thirty (30) days
after such written notice, Larson shall have ninety (90) days after such notice
to cure the failure, so long as Larson commences action to cure such failure
within such thirty (30) day period and thereafter diligently and continuously
takes action to cure such failure during the remainder of such ninety (90) days.
Larson shall not be deemed to have been terminated for Cause unless and until
the occurrence of the following two events:
(i) Larson is given a notice from the Board that identifies
the grounds for the proposed termination of Larson's employment and notifies
Larson that he, along with his legal counsel, shall have an opportunity to
address the Board with respect to the alleged grounds for termination at a
meeting of the Board called and held for the purpose of determining whether
Larson engaged in conduct described in this Section 3.2; and
(ii) Larson is given a copy of resolutions, duly adopted by
the affirmative vote of not less than a majority of the entire membership of the
Board (excluding Larson) at a meeting of the Board called and held (either
according to 3.2(i) or after such meeting) for the purpose of finding that, in
the opinion of a majority of the Board, Larson was guilty of conduct set forth
in Section 3.2, which specify the grounds and evidence for termination and
indicate that the grounds for termination have not been cured within the time
limits, if applicable, specified in the notice referred to in this Section 3.2.
3.3. Termination by Larson for Good Reason. Larson may terminate his
employment for Good Reason (as hereinafter defined) at any time, by written
notice to the Company. As used herein, the term "Good Reason" shall mean any of
the following: (a) any material breach by the Company or Employee Group of the
terms of this Agreement, including the failure to pay salary or bonus when due
(b) any material change by the Company or Employee Group in Larson's duties or
responsibilities inconsistent with the terms hereof or the assignment to Larson
by the Company or Employee Group of duties or responsibilities inconsistent with
Larson's position as Chairman, President and Chief Executive Officer of the
Company, (c) a relocation of the principal offices of the Company which requires
Larson to relocate his current residence to an area more than seventy-five (75)
miles from Hoffman Estates, Illinois, or (d) a Change in Control; provided, that
Larson's termination right following a Change in Control event may only be
exercised during a period commencing thirty (30) days following such Change in
Control event and terminating 365 days following such Change in Control event.
For purposes of this Agreement, "Change in Control" shall mean:
(i) The acquisition by any individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of twenty-five percent (25%) or more of either (A) the then-
outstanding shares of common stock of the Company (the "Outstanding
Company Common Stock") or (B) the combined voting power of the
then-outstanding voting securities of the
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Company entitled to vote generally in the election of directors (the
"Outstanding Company Voting Securities"); provided, however, that for
purposes of this subsection (i), the following acquisitions shall not
constitute a Change in Control; (A) any acquisition by an individual,
entity or group who immediately prior to such acquisition beneficially
owned twenty-five percent (25%) or more of the Outstanding Common Stock
or twenty-five percent (25%) or more of the Outstanding Company Voting
Securities, as the case may be, (B) any acquisition by (1) Baron
Capital Group, Inc. or any of its Affiliates, (B) any acquisition by
the Company, (C) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any
corporation controlled by the Company, or (D) any acquisition by any
corporation pursuant to a transaction which complies with clauses (A),
(B) and (C) of subsection (iii) of this Section 3.3;
(ii) Individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board; provided, however, that any individual
becoming a director subsequent to the date hereof whose appointment or
election, or nomination for election by the Company's stockholders, was
approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest (as such
terms are used in Rule 14a-11 or Regulation 14A under the Exchange Act,
including any successor to such Rule) with respect to the election or
removal of directors or other actual or threatened solicitation of
proxies or consents by or on behalf of an individual, entity or group
other than the Board;
(iii) Consummation of a reorganization, merger, consolidation,
sale or other disposition of all or substantially all of the assets of
the Company, or similar corporate transaction (a "Business
Combination"), in each case, unless, following such Business
Combination, (A) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities immediately prior to such Business Combination beneficially
own, directly or indirectly, more than fifty percent (50%) of,
respectively, the then-outstanding shares of common stock and the
combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a
result of such transaction owns the Company or all or substantially all
of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Business Combination of the Outstanding
Company Common Stock and Outstanding Company Voting Securities, as the
case may be, (B) no individual, entity or group (excluding any
corporation resulting from such Business Combination or any employee
benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly
or indirectly, twenty-five percent (25%) or more of, respectively, the
then outstanding shares of common stock of the corporation resulting
from such Business
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Combination, or the combined voting power of the then outstanding
voting securities of such corporation, except to the extent that such
ownership existed prior to the Business Combination and (C) at least a
majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent
Board at the time of the execution of the initial agreement, or of the
action of the Board, providing for such Business Combination; or
(iv) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(v) Any good faith, reasonable determination by Larson that
any of the events specified in Section 3.3 (a) through (d) has occurred
and constitutes Good Reason after a Change in Control shall be
conclusive and binding for all purposes, unless the Company establishes
that Larson did not have any reasonable basis for such determination.
3.4. Termination by the Company Without Cause. Immediately upon
delivery of written notice to Larson, the Company shall be entitled to terminate
Larson's employment without Cause, as defined in Section 3.2 hereof, in which
event Larson shall be entitled to severance benefits under Section 2.4 hereof.
3.5. Termination by Larson Without Good Reason. Upon sixty (60) days
prior written notice to the Company, Larson shall be entitled to terminate his
employment without Good Reason, as defined in Section 3.3 hereof.
3.6. Death or Disability. The employment of Larson may be terminated by
the Company upon Larson's death or Disability (as defined herein). For purposes
hereof, "Disability" shall mean the substantial inability of Larson, by reason
of physical or mental illness or accident, to perform his regular
responsibilities hereunder indefinitely or for a period of one hundred eighty
(180) days. The determination that a Disability exists shall be made by a
physician, such physician reasonably selected by the Board and consented to by
Larson, whose consent shall not be unreasonably withheld, whose determination
shall be binding on the parties hereto.
3.7. Certain Additional Payments by the Company; Excise Tax Gross-up.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any economic benefit,
payment or distribution by the Company to or for the benefit of Larson, whether
paid, payable, distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would be subject to the excise tax imposed
by Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"),
or any interest or penalties with respect to such excise tax (such excise tax
and any applicable interest and penalties, collectively referred to in this
Agreement as the "Excise Tax"), then Larson shall be entitled to receive an
additional payment (a "Gross-Up-Payment") in an amount such that after payment
by Larson of all applicable taxes (including any federal, state or local income,
employment or other taxes, and any
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interest or penalties imposed with respect to such taxes, but excluding any
foreign income taxes ("Taxes")), Larson retains an amount equal to the amount he
would have retained had no Excise Tax been imposed upon the Payment.
Notwithstanding the foregoing, if at the Company's request, Larson resides
outside of the United States on the Date of Termination and Larson is subject to
foreign income taxes, the definition of "Taxes" for purposes of this Section 3.7
shall be deemed to include foreign income taxes.
(b) Subject to the provisions of Section 3.7(c), all
determinations required to be made under this Section 3.7, including whether a
Gross-Up Payment is required and the amount of such Gross-Up Payment, shall be
made by the Company's regular outside independent public accounting firm (the
"Accounting Firm") which shall provide detailed supporting calculations both to
the Company and Larson within fifteen (15) business days of the date of
termination of Larson's employment by the Company (the "Date of Termination"),
if applicable, or such earlier time as is requested by the Company. The initial
Gross-Up Payment, if any, as determined pursuant to this Section 3.7, shall be
paid to Larson within five (5) business days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax is
payable by Larson, it shall furnish Larson with an opinion that he has
substantial authority not to report any Excise Tax on his federal income tax
return. Any determination by the Accounting Firm shall be binding upon the
Company and Larson. As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting
Firm, it is possible that Gross-Up Payments that have not been made by the
Company should have been made ("Underpayment"), consistent with the calculations
required to be made under this Section 3.7(b). In the event that the Company
exhausts its remedies pursuant to Section 3.7(c) and Larson thereafter is
required to make a payment of any Excise Tax, the Accounting Firm shall
determine the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for the benefit of
Larson.
(c) Larson shall notify the Company of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment under the terms of this Section 3.7. This notice
shall be given as soon as practicable but no later than fifteen business days
after the later of either (i) the date Larson has actual knowledge of the claim,
or (ii) ten (10) days after the Internal Revenue Service issues to Larson either
a written report proposing imposition of the Excise Tax or a statutory notice of
deficiency with respect to the Excise Tax, and such notice shall apprize the
Company of the nature of the claim and the date on which the claim is requested
to be paid. Larson shall not pay the claim prior to the expiration of the thirty
(30) day period following the date on which he gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to the claim is due). If the Company notifies Larson prior to the
expiration of the above period that it desires to contest the claim, Larson
shall: (A) give the Company any information reasonably requested by the Company
relating to the claim, (B) take such action in connection with contesting the
claim as the Company shall reasonably request in writing from time to time,
including accepting legal representation with respect to the claim by an
attorney reasonably selected by the Company, (C) cooperate with the Company in
good faith in order to effectively contest the claim, (D) permit the Company to
participate in any
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proceedings relating to the claim; provided, however, that the Company shall
bear and pay directly all costs and expenses (including but not limited to all
additional interest and penalties and legal fees, costs and expenses) incurred
in connection with such contest and shall indemnify and hold Larson harmless, on
an after-tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation of the foregoing provisions of
this Section 3.7(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of the claim and may, at its sole option, either
direct Larson to request or accede to a request for an extension of the statute
of limitations with respect only to the tax claimed, or pay the tax claimed and
sue for a refund or contest the claim in any legally permissible manner, and
Larson agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs Larson to pay the claim and sue for a refund, the Company shall
bear and pay directly all costs and expenses (including but not limited to legal
fees, costs and expenses) and advance the amount of the required payment to
Larson, on an interest-free basis and shall indemnify and hold Larson harmless,
on an after-tax basis, from any Excise Tax or Taxes, including interest or
penalties with respect thereto, imposed with respect to any advance or with
respect to any imputed income in relation to any advance; and further provided
that any extension of the statute of limitations requested or acceded to by
Larson at the Company's request and relating to payment of taxes for the taxable
year of Larson with respect to which the contested amount is claimed to be due
is limited solely to the contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable under the Agreement and Larson shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by Larson of an amount advanced by
the Company pursuant to Section 3.7(c), Larson becomes entitled to receive any
refund with respect to the claim, Larson shall (subject to the Company's
complying with the requirements of Section 3.7(c)) promptly pay to the Company
the amount of that refund (together with any interest paid or credited thereon
after taxes applicable thereto) equal to the amount advanced under Section
3.7(c). If, after the receipt by Larson of an amount advanced by the Company
pursuant to Section 3.7(c), a determination is made that Larson shall not be
entitled to any refund with respect to the claim and the Company does not notify
Larson of its intent to contest such denial of refund prior to the expiration of
thirty (30) days after the determination, then the advance shall be forgiven and
shall not be required to be repaid and the amount of the advance shall offset,
to the extent thereof, the amount of Gross- Up Payment required to be paid.
(e) In the event that any state or municipality or subdivision
thereof shall subject any Payment to any special tax which shall be in addition
to the generally applicable income tax imposed by the state, municipality, or
subdivision with respect to receipt of the Payment, the foregoing provisions of
this Section 3.7 shall apply, mutatis mutandis, with respect to such special
tax.
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<PAGE>
3.8. Severance Benefits Includable for Employee Benefits Purposes.
Subject to all applicable federal and state laws and regulations, income
recognized by Larson pursuant to the provisions of this Section 3 (other than
income accrued but unpaid as of the Date of Termination) shall be included in
the determination of benefits under any employee benefit plan (as that term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended) or any other Benefit Plans applicable to Larson that are maintained
by the Company or any of its direct or indirect subsidiaries only to the extent
so explicitly provided in such plan, policy or program as in effect from time to
time, and the Company shall be under no obligation to continue to offer or
provide such benefits to Larson after the Date of Termination other than as
provided under this Section 3, to the extent so explicitly provided in such
plan, policy or program, or to the extent to which any benefit under a pertinent
plan, policy or program has accrued as of the Date of Termination.
3.9. Exclusive Benefits. The Severance Benefits payable under Section
2.4(d)(i) and the Change in Control Severance Benefits payable under Section
2.4(d)(ii), if either benefits become applicable under the terms of this
Agreement, shall be mutually exclusive and shall be in lieu of any other
severance or similar benefits that would otherwise be payable under any other
agreement, plan, program or policy of the Company. Notwithstanding anything in
the prior sentence to the contrary, Larson shall be entitled to benefits and
incentives under all Benefit Plans and equity incentive plans, policies and
programs, according to the terms of such Benefit Plans and equity incentive
plans, policies and programs as in effect from time to time, including any
acceleration of vesting provisions in the Company's option plans.
4. Inventions and Creations. Larson agrees that all inventions,
discoveries, improvements, ideas and other contributions (herein called
collectively "Inventions") whether or not copyrighted or copyrightable, patented
or patentable, or otherwise protectable in law, which are conceived, made,
developed or acquired by Larson, either individually or jointly, during his
employment with the Company or any of its subsidiaries, and which relate in any
manner to the business of the Company or any of its subsidiaries, shall belong
to the Company and Larson does hereby assign and transfer to the Company his
entire right, title and interest in the Inventions. Larson agrees to promptly
and fully disclose the Inventions to the Company, in writing if requested by the
Company, and to execute and deliver any and all lawful application, assignment
and other documents which the Company requests for protecting the Inventions in
the United States or any other country. The Company shall have the full and sole
power to prosecute such applications and to take all other action concerning the
Inventions, and Larson will cooperate fully within a lawful manner, at the
expense of the Company, in the preparation and prosecution of all such
applications and in any legal actions and proceedings concerning the Inventions.
The provisions of this Section 4 shall survive the termination of this
Agreement.
5. Non-Competition; Non-Solicitation; Confidential Information.
5.1. Non-Competition Agreement. Larson agrees that during the
Non-Competition Period (as defined below), he shall not own or engage in, either
directly or indirectly, as an officer,
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<PAGE>
manager, employee, independent contractor, consultant, director, partner, sole
proprietor or stockholder, any business operating any post-secondary, private
trade or vocational schools, that offers classes, courses or instruction in or
is otherwise engaged in any curriculum or field of study offered by any of the
Schools or any other curriculum or field of study which the Company has
expressed an interest in offering, during Larson's employment by the Company or
Employee Group, whether through the Schools or through a potential acquisition
(the "Competitive Activities"). Larson hereby acknowledges that the Company
intends to promote the Schools on an international basis and that the
geographical scope of this Agreement is intended to encompass all Competitive
Activities engaged in anywhere in the United States, its possessions and
territories and any other country where the Company and its subsidiaries are
promoting the Schools at the time of Larson's termination of employment or
resignation or removal of Larson as a director, as applicable. Nothing herein
shall prevent Larson from owning less than 2% of the capital stock of a company
whose stock is publicly traded and which is engaged in Competitive Activities.
For purposes hereof, "Non-Competition period" shall mean the period commencing
on the date hereof and ending two (2) years after the later of the termination
of Larson's employment hereunder (including the expiration of the term of this
Agreement) or Larson's submission of his resignation, or removal of Larson as a
director of the Company and the Company's payment and provision of the Severance
Benefit pursuant to Section 2.4(d)(i); provided, (a) that if Larson's employment
is terminated and the Company pays and provides the Change in Control Severance
Benefits pursuant to Section 2.4(d)(ii) the Non-Competition Period shall expire
three (3) years after the termination of his employment.
5.2. Non-Solicitation Agreement. During the term of this Agreement and
for three (3) years thereafter, Larson shall not, directly or indirectly,
individually or on behalf of any Person (as defined below) solicit, aid or
induce (a) any then current employee of Employee Group or the Company or its
Affiliates (as defined below) to leave Employee Group or the Company or its
Affiliates in order to accept employment with or render services for Larson or
such Person or (b) any student, customer, client, vendor, lender, supplier or
sales representative of the Company or its Affiliates or similar persons engaged
in business with the Company or its Affiliates to discontinue the relationship
or reduce the amount of business done with the Company or its Affiliates.
"Person" means any individual, a partnership, a corporation, an association, a
limited liability company, a joint stock company, a trust, a joint venture, an
unincorporated organization, a governmental entity, or any department, agency or
political subdivision thereof, or an accrediting body. "Affiliate" means with
respect to any Person, any individual related by blood or marriage to such
Person or any Person controlling, controlled by or under common control with
such Person.
5.3. Confidential Information. Larson acknowledges and agrees that he
is in possession of and will be exposed to during the course of, and incident
to, his employment by and affiliations with the Company, Confidential
Information (as defined herein) relating to the Company, its Affiliates and each
School. For purposes hereof, "Confidential Information" shall mean all
proprietary or confidential information concerning the business, finances,
financial statements, curricula, properties and operations of the Company, its
Affiliates and each School, including, without limitation, all student and
prospective student and supplier lists, know-how, trade secrets, business and
marketing plans, techniques, forecasts, projections, budgets, unpublished
financial
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<PAGE>
statements, price lists, costs, computer programs, source and object codes,
algorithms, data, and other original works of authorship, along with all
information received from third parties and held in confidence by the Company,
its Affiliates and each School (including, without limitation, personnel files
and student records). During the Non-Competition Period and at all times
thereafter, Larson will hold the Confidential Information in the strictest
confidence and will not disclose or make use of (directly or indirectly) the
Confidential Information or any portion thereof to or on behalf of himself or
any third party except (a) as required in the performance of his duties as an
employee, director or stockholder of the Company, (b) as required by the order
of any court or similar tribunal or any other governmental body or agency of
appropriate jurisdiction; provided, that Larson shall, to the extent
practicable, give the Company prior written notice of any such disclosure and
shall cooperate with the Company in obtaining a protective order or such similar
protection as the Company may deem appropriate to preserve the confidential
nature of such information. The foregoing obligations to maintain the
Confidential Information shall not apply to any Confidential Information which
is or, without any action by Larson, becomes generally available to the public.
Upon termination of any employment or consulting relationship between the
Company and Larson (including any Affiliate of Larson), Larson shall promptly
return to the Company all physical embodiments of the Confidential Information
(regardless of form or medium) in the possession of or under the control of
Larson.
5.4. Scope of Restriction. The parties have attempted to limit the
scope of the covenants set forth in Section 5 to the extent necessary to provide
the Company with the benefit of its purchase of each School. The parties
recognize, however, that reasonable people may differ in making such
determination. Consequently, the parties hereby agree that if the scope and
duration of such covenants would, but for this provision, be deemed by a court
of competent authority to be unreasonable or otherwise unenforceable, such court
may modify such covenants to the extent that such court determines to be
necessary in order to grant enforcement thereof as so modified.
5.5. Remedies. The parties hereto recognize that the Company will
suffer irreparable injury in the event of a breach of the terms of Section 5 by
Larson. In the event of a breach of the terms of Section 5, the Company shall be
entitled, in addition to any other remedies and damages available and without
proof of monetary or immediate damage, to a temporary and/or permanent
injunction, without bond, to restrain the violation of Section 5 by Larson or
any Persons acting for or in concert with him. Such remedy, however, shall be
cumulative and nonexclusive and shall be in addition to any other remedy which
the parties may have.
5.6. Common Law of Torts or Trade Secrets. The parties agree that
nothing in this Agreement shall be construed to limit or negate the common law
of torts or trade secrets where it provides the Company with broader protection
than that provided herein.
5.7. Survival of Section 5. The provisions of Section 5 shall survive
the termination of Larson's employment and the termination of this Agreement.
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<PAGE>
6. General Provisions.
6.1. Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable express courier service(charges
prepaid), sent by facsimile or mailed to the recipient by certified or
registered mail, return receipt requested and postage prepaid. Such notices,
demands and other communications shall be sent to the Company and to Larson at
the addresses indicated below:
If to the Company
or Employee Group: Career Education Corporation
2895 Greenspoint Parkway
Suite 600
Hoffman Estates, Illinois 60195
Attention: Chief Financial Officer
Facsimile: (847) 781-3600.
With copies to: Katten Muchin Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661
Attention: Lawrence D. Levin, Esq.
Facsimile: (312) 902-1061
If to Larson: John M. Larson
36 Lakeside Drive South
Barrington, Illinois 60010
With copies to: Sonnenschein Nath & Rosenthal
Suite 8000 Sears Tower
233 South Wacker Drive
Chicago, Illinois 60606
Attention: Linda Chaplik Harris and
Michelle Anne Potts
Facsimile: (312) 876-7934
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
6.2. Entire Agreement. Except as otherwise expressly set forth herein,
this Agreement and the other agreements executed in connection here embody the
complete agreement and understanding among the parties and supersede and preempt
any prior understandings, agreements
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<PAGE>
or representations by or among the parties, written or oral, which may have
related to the subject matter hereof in any way.
6.3. Successors and Assigns. All covenants and agreements contained in
this Agreement by or on behalf of either party hereto shall bind such party and
its heirs, legal representatives, successors and assigns and inure to the
benefit of the other party hereto and their heirs, legal representatives,
successors and assigns.
6.4. Governing Law. This Agreement shall be construed and enforced in
accordance with, and all questions concerning the construction, validity,
interpretation and performance of this Agreement shall be governed by the laws
of the State of Illinois without giving effect to the provisions thereof
regarding conflict of laws.
6.5. Consent to Jurisdiction and Service of Process. EACH PARTY HERETO
HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN
THE COUNTY OF COOK, STATE OF ILLINOIS AND IRREVOCABLY AGREES THAT SUBJECT TO
COMPANY'S ELECTION, ALL ACTIONS OR PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE OTHER RELATED DOCUMENTS SHALL BE LITIGATED IN SUCH COURTS.
EACH PARTY HERETO ACCEPTS FOR ITSELF AND HIMSELF, GENERALLY AND UNCONDITIONALLY,
THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF
FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT
RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. LARSON DESIGNATES AND
APPOINTS CT CORPORATION SYSTEM AND SUCH OTHER PERSONS AS MAY HEREINAFTER BE
SELECTED BY THE COMPANY WHO IRREVOCABLY AGREE IN WRITING TO SO SERVE AS AGENT TO
RECEIVE ON LARSON'S BEHALF SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY
SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED BY LARSON TO BE EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT. A COPY OF ANY SUCH PROCESS SO SERVED SHALL BE
MAILED BY REGISTERED MAIL TO EACH PARTY AS PROVIDED HEREIN. IF ANY AGENT
APPOINTED BY A PARTY REFUSES TO ACCEPT SERVICE, SUCH PARTY HEREBY AGREES THAT
SERVICE UPON IT OR HIM BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE. NOTHING
HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR SHALL LIMIT THE RIGHT OF THE COMPANY TO BRING PROCEEDINGS AGAINST LARSON
IN ANY OTHER COURT HAVING JURISDICTION OVER LARSON.
6.6. Waiver of Jury Trial. EACH PARTY HERETO HEREBY WAIVES ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS TRANSACTION AND THE RELATIONSHIP THAT IS BEING
ESTABLISHED. EACH PARTY HERETO ALSO WAIVES ANY BOND OR SURETY OR SECURITY UPON
SUCH BOND WHICH MIGHT, BUT FOR
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THIS WAIVER, BE REQUIRED OF THE OTHER PARTY. THE SCOPE OF THIS WAIVER IS
INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY
COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT
LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER
COMMON LAW AND STATUTORY CLAIMS. EACH PARTY HERETO ACKNOWLEDGES THAT THIS WAIVER
IS A MATERIAL INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS
ALREADY RELIED ON THE WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL
CONTINUE TO RELY ON THE WAIVER IN THEIR RELATED FUTURE DEALINGS. EACH PARTY
HERETO FURTHER WARRANTS AND REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER WITH
ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS OR HIS
JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THE TRANSACTIONS CONTEMPLATED HEREBY. IN THE EVENT OF LITIGATION,
THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
6.7. Representations of Larson. Larson hereby represents and warrants
to the Company that his execution, delivery and performance of this agreement
will not violate or result in any breach of any agreement, contract,
understanding or written policy to which Larson is subject as a result of any
prior employment, any investment or otherwise. Larson is not subject to any
agreement, contract or understanding which in any way restricts or limits his
ability to accept employment with the Company or perform services with respect
to Schools of any type.
6.8. Descriptive Headings; Interpretation. The descriptive headings of
this Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
6.9. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, any one of which need not contain the signatures of more
than one party, but all such counterparts taken together shall constitute one
and the same Agreement.
6.10. Amendments and Waivers. No modification, amendment or waiver of
any provisions of this Agreement shall be effective unless approved in writing
by each of the parties hereto. The Company's failure at any time to enforce any
of the provisions of this Agreement shall in no way be construed asa waiver of
such provisions and will not affect the right of the Company to enforce each and
every provision hereof in accordance with its terms.
6.11. Non-Assignment. This Agreement shall not be assigned by Larson
without the prior written consent of the Company.
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6.12. No Obligation to Mitigate. Larson shall not be required to seek
other employment or otherwise to mitigate damages upon any termination of
employment and the Severance Benefits and Change in Control Severance Benefits,
except to the extent provided herein, shall not be reduced on account of such
subsequent employment.
6.13. Reimbursement of Expenses in Enforcing Rights. All reasonable
costs and expenses (including fees and disbursements of counsel) incurred by
Larson in seeking to enforce rights pursuant to this Agreement shall be
reimbursed to Larson on behalf of Company, but only to the extent that Larson is
successful in asserting such rights. All reasonable costs and expenses
(including fees and disbursements of counsel) incurred by Larson in connection
with negotiating and drafting this Agreement shall be reimbursed to Larson on
behalf of the Company.
6.14. Interest. If the Company does not pay any amount due to Larson
under this Agreement within ten (10) business days after such amount first
became due and owing, interest shall accrue on such amount from the date it
became due and owing until the date of payment at an annual rate equal to the
highest rate of interest charged by the Company's principal lender on its
revolving credit agreements or, in the absence of such lender, 200 basis points
above the base commercial lending rate published in The Wall Street Journal in
effect from time to time during the period of such nonpayment.
6.15. Joint and Several Liability. The obligations of the Company and
Employee Group to Larson under this Agreement shall be joint and several.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
CAREER EDUCATION CORPORATION
By:/s/ Patrick K. Pesch
-----------------------------------
Patrick K. Pesch
Senior Vice-President and
Chief Financial Officer
CEC EMPLOYEE GROUP, LLC
By:/s/ Patrick K. Pesch
-----------------------------------
Patrick K. Pesch
Authorized Signatory
/s/ John M. Larson
--------------------------------------
John M. Larson
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