Operating lossRevenue increased by $0.5$1.7 million, or 9.3%, to $2.5$19.9 million for the three months ended September 30, 2017 from $2.02019, as compared to $18.3 million in the prior year comparable period. The decreaseincrease in revenue was mainly due to campus closures.a 9.1% increase in average student population, which is attributed to consistent start growth over the last two years.
28Educational services and facilities expense increased $0.6 million, or 7.1%, to $9.5 million for the three months ended September 30, 2019, from $8.9 million in the prior year comparable period. The increase in expense quarter over quarter was primarily due to additional instructional expense driven by a consistently growing student population.
IndexSelling, general and administrative expense increased by $0.5 million, or 5.7%, to $9 million for the three months ended September 30, 2019 from $8.6 million in the prior year comparable period. Increased expense was primarily the result of additional bad debt expense driven by a larger student population in combination with a slight deterioration of historical repayment rates.
Transitional
During the year ended December 31, 2018, one campus, the LCNE campus at Southington, Connecticut was categorized in the Transitional segment. This campus has been fully taught out of as of December 31, 2018 and financial information for this campus has been included in the Transitional segment for the period ending September 30, 2018. As of September 30, 2019, no campuses have been categorized in the Transitional segment.
Revenue was zero and $0.8 million for the three months ended September 30, 2019 and 2018 respectively. Operating loss was zero and $1.9 million for the three months ended September 30, 2019 and 2018, respectively.
Corporate and Other
This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and Otherother expenses decreased by $1.0were $6.0 million or 21.1%,for the three months ended September 30, 2019 as compared to $3.7 million from $4.7$5.2 million in the prior year comparable period. The decreaseAdditional expense was primarily driven by a $1.5 million gain resulting from the saleresult of two properties located in West Palm Beach, Florida on August 14, 2017 and a decreaseincreases in salaries expense of approximately $0.9 million. Partially offsetting these reductions was a $0.9 million increase inand benefits expense and $0.6 million of additional closed school costs. The decreasecosts incurred in benefits was attributable to historically lower medical claims in 2016 and the additional closed school costs related to the closure of the Hartford, Connecticut campus on December 31, 2016. The additional expenses relating to the Hartford Connecticut campus will terminateconnection with the apartment lease which ends in September 2019.evaluation of strategic initiatives intended to increase shareholder value. No additional costs pertaining to these strategic initiatives will be incurred going forward.
The following table presentspresent results for our three reportable segments for the nine months ended September 30, 20172019 and 2016:2018:
| | Nine Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2017 | | | 2016 | | | % Change | | | 2019 | | | 2018 | | | % Change | |
Revenue: | | | | | | | | | | | | | | | | | | |
Transportation and Skilled Trades | | $ | 131,169 | | | $ | 131,243 | | | | -0.1 | % | | $ | 141,005 | | | $ | 135,838 | | | 3.8 | % |
HOPS | | | 55,199 | | | | 57,030 | | | | -3.2 | % | |
Healthcare and Other Professions | | | 58,422 | | | 52,554 | | | 11.2 | % |
Transitional | | | 8,084 | | | | 24,718 | | | | -67.3 | % | | | - | | | | 4,695 | | | | -100.0 | % |
Total | | $ | 194,452 | | | $ | 212,991 | | | | -8.7 | % | | $ | 199,427 | | | $ | 193,087 | | | | 3.3 | % |
| | | | | | | | | | | | | | | | | | | | | |
Operating Income (Loss): | | | | | | | | | | | | | | | | | | | | | |
Transportation and Skilled Trades | | $ | 8,960 | | | $ | 11,916 | | | | -24.8 | % | | $ | 11,051 | | | $ | 8,747 | | | 26.3 | % |
Healthcare and Other Professions | | | (1,047 | ) | | | 2,634 | | | | -139.7 | % | | 4,214 | | | 2,747 | | | 53.4 | % |
Transitional | | | (3,900 | ) | | | (7,132 | ) | | | 45.3 | % | | - | | | (2,899 | ) | | 100.0 | % |
Corporate | | | (16,503 | ) | | | (17,566 | ) | | | 6.1 | % | | | (20,079 | ) | | | (18,305 | ) | | | -9.7 | % |
Total | | $ | (12,490 | ) | | $ | (10,148 | ) | | | -23.1 | % | | $ | (4,814 | ) | | $ | (9,710 | ) | | | 50.4 | % |
| | | | | | | | | | | | | | | | | | | | | |
Starts: | | | | | | | | | | | | | | | | | | | | | |
Transportation and Skilled Trades | | | 6,502 | | | | 6,686 | | | | -2.8 | % | | 7,247 | | | 7,156 | | | 1.3 | % |
Healthcare and Other Professions | | | 3,272 | | | | 3,386 | | | | -3.4 | % | | 3,368 | | | 3,048 | | | 10.5 | % |
Transitional | | | 132 | | | | 1,254 | | | | -89.5 | % | | | - | | | | 140 | | | | -100.0 | % |
Total | | | 9,906 | | | | 11,326 | | | | -12.5 | % | | | 10,615 | | | | 10,344 | | | | 2.6 | % |
| | | | | | | | | | | | | | | | | | | | | |
Average Population: | | | | | | | | | | | | | | | | | | | | | |
Transportation and Skilled Trades | | | 6,694 | | | | 6,723 | | | | -0.4 | % | | 7,169 | | | 6,891 | | | 4.0 | % |
Healthcare and Other Professions | | | 3,477 | | | | 3,508 | | | | -0.9 | % | | 3,581 | | | 3,245 | | | 10.4 | % |
Transitional | | | 574 | | | | 1,519 | | | | -62.2 | % | | | - | | | | 269 | | | | -100.0 | % |
Total | | | 10,745 | | | | 11,750 | | | | -8.6 | % | | | 10,750 | | | | 10,405 | | | | 3.3 | % |
| | | | | | | | | | | | | | | | | | | | | |
End of Period Population: | | | | | | | | | | | | | | | | | | | | | |
Transportation and Skilled Trades | | | 7,403 | | | | 7,667 | | | | -3.4 | % | | 8,055 | | | 7,922 | | | 1.7 | % |
Healthcare and Other Professions | | | 3,957 | | | | 3,826 | | | | 3.4 | % | | 3,960 | | | 3,637 | | | 8.9 | % |
Transitional | | | 155 | | | | 1,362 | | | | -88.6 | % | | | - | | | | 173 | | | | -100.0 | % |
Total | | | 11,515 | | | | 12,855 | | | | -10.4 | % | | | 12,015 | | | | 11,732 | | | | 2.4 | % |
Nine Months Ended September 30, 20172019 Compared to Nine Months Ended September 30, 20162018
Transportation and Skilled Trades
Student start results decreased by 2.8% to 6,502 from 6,686starts increased approximately 1.3% for the nine months ended September 30, 2017 as2019 when compared to the prior year comparable period.
Operating income decreasedincreased by $3.0$2.3 million, or 24.8%26.3%, to $9.0$11.1 million for the nine months ended September 30, 20172019 from $11.9$8.8 million in the prior year comparable period mainly driven bydue to the following factors:
| · | Revenue remained essentially flat at $131.2 million for the nine months ended September 30, 2017 as compared to the prior year comparable period mainly due to a higher carry in population compared to the prior year quarter in addition to a slight increase in revenue per student. Partially offsetting the increases was a decline in average population of approximately 30 students. |
Revenue increased by $5.2 million, or 3.8%, to $141 million for the nine months ended September 30, 2019, as compared to $135.8 million in the prior year comparable period. The increase in revenue is primarily due to a 4% increase in average student population year over year.
| · | Educational services and facilities expense decreased by $0.6 million, or 0.9% primarily due to a $1.2 million decrease in facilities expense, partially offset by a $0.6 million increase in instructional and books and tools expense. Reductions in facilities expense were primarily driven by reduced depreciation expense resulting from fully depreciated assets. Increases in instructional expenses were due to the launch of a new program at one of our campuses in combination with increased materials costs; and increased expenses for books and tools were due to the timing of the distribution of materials for students starting classes in combination with implementing the use of laptop computers for more of our program curriculums during the quarter. |
Educational services and facilities expense increased $0.4 million, or 0.6% to $64.8 million for the nine months ended September 30, 2019, as compared to $64.4 million in the prior year comparable period. Increased costs are primarily due to $1.4 million of additional instructional expenses and books and tools expense resulting from a higher student population. Partially offsetting the increases were cost savings of $1.0 million in facilities expense resulting from the successful negotiation of more favorable lease terms at one of our campuses.
| · | Selling, general and administrative expense increased by $3.6 million due to (a) $1.3 million of additional bad debt expense resulting from higher past due student accounts, higher account write-offs, and timing of Title IV fund receipts; and (b) $1.4 million increase in sales and marketing expenses. The increased spending in sales and marketing was part of a strategic effort to attract student enrollments and increase brand awareness.
Selling, general and administrative expense increased $2.7 million, or 4.3%, to $65.4 million for the nine months ended September 30, 2019, from $62.7 million in the prior year comparable period. Increased expenses were primarily the result of additional bad debt expense driven in part by a larger student population, in combination with a slight deterioration of historical repayment rates. Further contributing to the additional expense were increases in salaries and benefits expense and increased sales expense and marketing expense. Additional investment in sales expense and marketing expense are expected to yield continued start growth over the next several quarters. |
Healthcare and Other Professions
Student start results decreased by 3.4% to 3,272 from 3,386starts increased 10.5% for the nine months ended September 30, 2017 as2019 when compared to the prior year comparable period.
Operating lossincome increased by $1.5 million, or 53.4%, to $4.2 million for the nine months ended September 30, 2017 was $1.12019 from $2.7 million in the prior year comparable period mainly due to the following factors:
Revenue increased by $5.9 million, or 11.2%, to $58.4 million for the nine months ended September 30, 2019, as compared to operating income of $2.6$52.6 million in the prior year comparable period. The $3.7 million changeincrease in revenue was mainly driven bydue to a 10.4% increase in average student population, which is attributed to consistent start growth over the following factors:last two years.
| · | Revenue decreased to $55.2 million for the nine months ended September 30, 2017, as compared to $57.0 million in the prior year comparable quarter. The decrease in revenue is mainly attributable to two main factors, a decline in average population of approximately 30 students in combination with a 2.4% decline in average revenue per student due tuition decreases at certain campuses and shifts in our program mix. |
| · | Educational services and facilities expense remained essentially flat at $29.9 million for the nine months ended September 30, 2017 as compared to the prior year comparable period. |
| · | Selling, general and administrative expense increased by $1.9 million primarily resulting from a $1.1 million increase in sales and marketing expense. The increased marketing initiatives has resulted in a slight improvement in student starts in the adult demographic for the nine months ended September 30, 2017 as compared to the prior comparable period; and a $0.6 million increase in administrative expenses mainly the result of bad debt expense which increased due to higher past due student accounts, higher account write-offs, and timing of Title IV fund receipts.
|
Transitional
Revenue was $8.1Educational services and facilities expense increased $2.3 million, or 9%, to $28.2 million for the nine months ended September 30, 2017 as compared to $24.72019, from $25.9 million in the prior year comparable period mainly attributableperiod. The increase in expense was primarily driven by additional instructional expense and books and tools expense due to a 10.4% increase in average student population year over year. Further contributing to the closing of campuses within this segment.increased costs were increases in facilities expense.
Operating loss decreasedSelling, general and administrative expense increased by $3.2$2.1 million, or 8.7%, to $3.9$26.0 million for the nine months ended September 30, 20172019 from $7.1$23.9 million in the prior year comparable period. The decrease isIncreases in expense were primarily attributable to the closingresult of additional bad debt expense driven in part by a larger student population, in combination with a slight deterioration of historical repayment rates.
Transitional
During the year ended December 31, 2018, one campus, the LCNE campus at Southington, Connecticut was categorized in the Transitional segment. This campus has been fully taught out as of December 31, 2018 and financial information for this campus has been included in the Transitional segment for the period ending September 30, 2018. As of September 30, 2019, no campuses within this segmenthave been categorized in the Transitional segment.
Revenue was zero and $4.7 million for the nine months ended September 30, 2019 and 2018, respectively. Operating loss was zero and $2.9 million for the nine months ended September 30, 2019 and 2018, respectively.
Corporate and Other
This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and Other expense decreased by $1.1other expenses were $20.1 million or 6.0%,for the nine months ended September 30, 2019 as compared to $16.5 million from $17.6$18.3 million in the prior year comparable period. The decrease in corporate expensesAdditional expense was primarily driven by a $1.5 million gain resulting from the saleresult of two properties located in West Palm Beach, Florida on August 14, 2017 and a decreaseincreases in salaries expense of approximately $2.7 million. Partially offsetting these reductions was a $2.1 million increase inand benefits expense and $1.2 million of additional closed school costs. The increasecosts incurred in benefits was attributable to historically lower medical claims in 2016 and the additional closed school costs related to the closure of the Hartford, Connecticut campus on December 31, 2016. The additional expenses relating to the Hartford Connecticut campus will terminateconnection with the apartment lease which ends in September 2019.evaluation of strategic initiatives intended to increase shareholder value. No additional costs pertaining to these strategic initiatives will be incurred going forward.
LIQUIDITY AND CAPITAL RESOURCES
Our primary capital requirementsexpenditures are for facilities expansion and maintenance, and the development of new programs. Our principal sources of liquidity have been cash provided by operating activities and borrowings under our credit facility. The following chart summarizes the principal elements of our cash flow:flow for each of the nine months ended September 30, 2019 and 2018:
| | Nine Months Ended September 30, | | | Nine Months Ended September 30, | |
| | 2017 | | | 2016 | | | 2019 | | | 2018 | |
Net cash used in operating activities | | $ | (16,607 | ) | | $ | (9,513 | ) | | $ | (4,893 | ) | | $ | (5,816 | ) |
Net cash provided by (used in) investing activities | | | 10,897 | | | | (643 | ) | |
Net cash used in investing activities | | | (3,061 | ) | | (1,869 | ) |
Net cash used in financing activities | | | (8,077 | ) | | | (9,024 | ) | | (22,238 | ) | | (28,866 | ) |
AtAs of September 30, 2017,2019, the Company had $14.5a net debt balance of $11.4 million of cash, cash equivalents and restricted cash (which includes $7.2 million of restricted cash) as compared to $47.7a net debt balance of $3.4 million of cash, cash equivalents and restricted cash (which included $26.7 million of restricted cash) as of December 31, 2016. This2018. The decrease is primarilyin cash position can mainly be attributed to the resultrepayment of $27.2 million in borrowings under our line of credit facility; a net loss during the nine months ended September 30, 2017; repayment of $44.3 million under our previous term loan facility2019; and seasonality of the business. Management believes that the Company has adequate resources in place to execute its 2019 operating plan.
For the last several years, the Company and the proprietary school sector generally have faced deteriorating earnings growth. Government regulations have negatively impacted earnings by making it more difficult for prospective students to obtain loans, which when coupled with the overall economic environment have hindered prospective students from enrolling in our schools. In light of these factors, we have incurred significant operating losses as a result of lower student population. Despite these events,However, our financial and population results continue to improve as evidenced by our start growth for the last two years. As a result, we believe that our likely sources of cash should be sufficient to fund operations for the next twelve months and thereafter for the foreseeable future.
To fund our business plans, including any anticipated future losses, purchase commitments, capital expenditures and principal and interest payments on borrowings, we leveraged our owned real estate. We are also continuing to take actions to improve cash flow by aligning our cost structure to our student population.population, in addition to our current sources of capital that provide short term liquidity.
Our primary source of cash is tuition collected from our students. The majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay a substantial portion of their tuition and other education-related expenses. The most significant source of student financing is Title IV programsPrograms, which represented approximately 79%78% of our cash receipts relating to revenues in 2016.2018. Pursuant to applicable regulations, students must apply for a new loan for each academic period. Federal regulations dictate the timing of disbursements of funds under Title IV programsPrograms and loan funds are generally provided by lenders in two disbursements for each academic year. The first disbursement is usually received approximately 31 days after the start of a student’s academic year and the second disbursement is typically received at the beginning of the sixteenth week from the start of the student'sstudent’s academic year. Certain types of grants and other funding are not subject to a 31-day delay. In certain instances, if a student withdraws from a program prior to a specified date, any paid but unearned tuition or prorated Title IV Program financial aid is refunded according to federal, state and accrediting agency standards.
As a result of the significant amount of Title IV Program funds received by our students, we are highly dependent on these funds to operate our business. Any reduction in the level of Title IV Program funds that our students are eligible to receive or any restriction on our eligibility to receive Title IV Program funds would have a significant impact on our operations and our financial condition. See “Risk Factors” in Item 1A of ourthe Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2018.
Operating Activities
Net cash used in operating activities was $16.6$4.9 million for the nine months ended September 30, 20172019 compared to $9.5$5.8 million forin the prior year comparable period of 2016.period. The increasedecrease in cash used in operating activities infor the nine months ended September 30, 20172019 as compared to the nine months ended September 30, 20162018 is primarily due to an increased net loss as well asa decrease in operating losses and changes in other working capital such as accounts receivable, accounts payable, accrued expenses and unearned tuition.tuition year over year.
Investing Activities
Net cash provided byused in investing activities was $10.9$3.1 million for the nine months ended September 30, 20172019 compared to cash used of $0.6$1.9 million in the prior year comparable period. OurThe increase was primarily caused by proceeds received from the sale of the Mangonia Park Property in the prior year partially offset by reduced spending for capital expenditures.
One of our primary useuses of cash in investing activities was capital expenditures associated with investments in training technology, classroom furniture, and new program buildouts.
We currently lease a majority of our campuses. We own our schools in Grand Prairie, Texas; Nashville, Tennessee; and Denver, Colorado and our buildings in West Palm Beach, Florida; and Suffield, Connecticut.
On August 14, 2017, the Company completed the saleproperty owned as part of two of three propertiesa former school located in West Palm Beach Florida resulting in cash inflows of $15.5 million.Suffield, Connecticut.
Capital expenditures are expected to approximate 2% of revenues in 2017.2019. We expect to fund future capital expenditures with cash generated from operating activities, borrowings under our revolving credit facility, and cash from our real estate monetization.
Financing Activities
Net cash used in financing activities was $8.1 million as compared to net cash used of $9.0$22.2 million for the nine months ended September 30, 2017 and 2016, respectively.2019 as compared to $28.9 million in the prior year comparable period. The decrease of $0.9$6.7 million was primarily due to three main factors: (a)decreased net payments on borrowingborrowings of $6.5 million; (b) $2.9$22.1 million in lease termination fees paidfor the nine months ended September 30, 2019 as compared to $28.4 million in the prior year; and (c) the reclassification of $5 million in restricted cash in the prior year.year comparable period.
Net payments on borrowings consisted of: (a) total borrowing to date under our secured revolving credit facility of $38.0 million; (b) reclassification of payments of borrowing from restricted cash of $20.3$5 million; and (c) $64.8(b) $27.1 million in total repayments made by the Company.
March 31, 2017 Credit Agreement
On March 31, 2017, the Company entered intoobtained a secured revolving credit agreementfacility (the “Credit Agreement”Facility”) withfrom Sterling National Bank (the “Bank”) pursuant to whicha Credit Agreement dated March 31, 2017 among the Company, obtained a credit facility in the aggregate principal amount of up to $55 million (theCompany’s subsidiaries and the Bank, which was subsequently amended on November 29, 2017, February 23, 2018, July 11, 2018 and, most recently, on March 6, 2019 (as amended, the “Credit Facility”Agreement”). ThePrior to the most recent amendment of the Credit Facility consistsAgreement (the “Fourth Amendment”), the financial accommodations available to the Company under the Credit Agreement consisted of (a) a $30 million loan facility (“Facility 1”), which is comprised of a $25 million revolving loan facility designated as “Tranche A” and a $5 million non-revolving loan designated as “Tranche B,” which Tranche B was repaid during the quarter ended June 30, 2017 and“Facility 1”, (b) a $25 million revolving loan facility (“Facility 2”), which includes(including a sublimit amount for letters of credit of $10 million. The Credit Facility replacesmillion) designated as “Facility 2” and (c) a term$15 million revolving credit loan facility (the “Prior Credit Facility”) which was repaid and terminated concurrently with the effectiveness of the Credit Facility. The term of the Credit Facility is 38 months, maturing on May 31, 2020.designated as “Facility 3”.
The Credit Facility is secured by a first priority lien in favor of the Bank on substantially all of the personal property owned by the Company as well as mortgages on four parcels of real property owned by the Company in Connecticut, Colorado, Tennessee and Texas at which four of the Company’s schools are located.
At the closing of the Credit Facility, the Company drew $25 million under Tranche A of Facility 1, which, pursuantPursuant to the terms of the Credit Agreement,Fourth Amendment and upon its effectiveness, Facility 1 was used to repayconverted into a term loan (the “Term Loan”) in the Prior Creditoriginal principal amount of $22.7 million (such amount being the entire unpaid principal and accrued interest outstanding under Facility and to pay transaction costs associated with closing the Credit Facility. After the disbursements of such amounts, the Company retained approximately $1.8 million1 as of the borrowedeffective date of the Fourth Amendment), which matures on March 31, 2024 (the “Term Loan Maturity Date”). The Term Loan is being repaid in monthly installments as follows: (a) on April 1, 2019 and on the same day of each month thereafter through and including June 30, 2019, accrued interest only; (b) on July 1, 2019 and on the same day of each month thereafter through and including December 31, 2019, the principal amount for working capital purposes.
Also, at closing, $5of $0.2 million was drawnplus accrued interest; (c) on January 1, 2020 and on the same day of each month thereafter through and including June 30, 2020, accrued interest only; (d) on July 1, 2020 and on the same day of each month thereafter through and including December 31, 2020, the principal amount of $0.6 million plus accrued interest; (e) on January 1, 2021 and on the same day of each month thereafter through and including June 30, 2021, accrued interest only; (f) on July 1, 2021 and on the same day of each month thereafter through and including December 31, 2021, the principal amount of $0.4 million plus accrued interest; (g) on January 1, 2022 and on the same day of each month thereafter through and including June 30, 2022, accrued interest only; (h) on July 1, 2022 and on the same day of each month thereafter through and including December 31, 2022, the principal amount of $0.4 million plus accrued interest; (i) on January 1, 2023 and on the same day of each month thereafter through and including June 30, 2023, accrued interest only; (j) on July 1, 2023 and on the same day of each month thereafter through and including December 31, 2023, the principal amount of $0.4 million plus accrued interest; (k) on January 1, 2024 and on the same day of each month thereafter through and including the Term Loan Maturity Date, accrued interest only; and (l) on the Term Loan Maturity Date, the remaining outstanding principal amount of the Term Loan, together with accrued interest, will be due and payable. In the event of a sale of any campus, school or business permitted under Tranche B and, pursuant to the terms of the Credit Agreement, was deposited into an interest-bearing pledged account (the “Pledged Account”) in the name25% of the Company maintained at the Bank in order to secure payment obligations of the Company with respect to the costs of remediationnet proceeds of any environmental contamination discovered at certain of the mortgaged properties based upon environmental studies undertaken at such properties. During the quarter ended June 30, 2017, the environmental studies were completed and revealed no environmental issues existing at the properties. Accordingly, pursuant to the terms of the Credit Agreement, the $5 million in the Pledged Account was released andsale must be used to repaypay down the non-revolving loan outstanding under Tranche B. Upon the repayment of Tranche B, the maximum principal amount of the Term Loan in inverse order of maturity.
The maturity date of Facility 1 was permanently reduced to $25 million.2 is April 30, 2020. Facility 3 matured on May 31, 2019, unused, and is no longer available for borrowing.
Pursuant toUnder the terms of the Credit Agreement, all draws under Facility 2 for letters of credit or revolving loans must be secured by cash collateral in an amount equal to 100% of the aggregate stated amount of the letters of credit issued and revolving loans outstanding through draws from Facility 1the proceeds of the Term Loan or other available cash of the Company.
Accrued interest on each Notwithstanding such requirement, pursuant to the terms of the Fourth Amendment, a $2.5 million revolving loan will be payablewas advanced under Facility 2 at the closing of the Fourth Amendment on March 6, 2019 and an additional $1.25 million on both April 17, 2019 and July 26, 2019, respectively, without any requirement for cash collateral. The $5 million in revolving loans advanced under Facility 2 was repaid on November 1, 2019, as required by the Credit Agreement, and, prior to their repayment, the Company made monthly in arrears. Revolving loans under Tranche Apayments of Facility 1 will bearaccrued interest only on such revolving loans.
The Term Loan bears interest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.50%2.85% and (y) 6.00%. The amount borrowed under Tranche B of Facility 1 and revolvingRevolving loans advanced under Facility 2 that are cash collateralized will bear interest at a rate per annum equal to the greater of (x) the Bank’s prime rate and (y) 3.50%. Pursuant to the Fourth Amendment, revolving loans advanced under Facility 2 that are not secured by cash collateral will bear interest at a rate per annum equal to the greater of (x) the Bank’s prime rate plus 2.85% and (y) 6.00%.
The Bank is entitled to receive an unused facility fee on the average daily unused balance of Facility 2 at a rate per annum equal to 0.50%, which fee is payable quarterly in arrears.
In the event the Bank’s prime rate is greater than or equal to 6.50% while any loans are outstanding, the Company may be required to enter into a hedging contract in form and content satisfactory to the Bank.
The Company is required to give the Bank the first opportunity to provide any and all traditional banking services required by the Company, including, but not limited to, treasury management, loans and other financing services, on terms mutually acceptable to the Company and the Bank, in accordance with the terms set forth in the Fourth Amendment. In the event that loans provided under the Credit Agreement are repaid through replacement financing, the Company must pay to the Bank an exit fee in an amount equal to 1.25% of the total amount repaid and the face amount of all letters of credit replaced in connection with the replacement financing; provided, however, that no exit fee will be required in the event the Bank or the Bank’s affiliate arranges or provides the replacement financing or the payoff of the applicable loans occurs after March 5, 2021.
In connection with the effectiveness of the Fourth Amendment, the Company paid to the Bank a one-time modification fee in the amount of $50,000.
Pursuant to the Credit Agreement, in December 2018, the net proceeds of the sale of the Mangonia Park Property, which were held in a non-interest bearing cash collateral account at and by the Bank as additional collateral for the loans outstanding under the Credit Agreement, were applied to the outstanding principal balance of revolving loans outstanding under Facility 1 and, as a result of such repayment, the loan availability under Facility 1 was permanently reduced to a $22.7 million term loan.
The Credit Facility is secured by a first priority lien in favor of the Bank on substantially all of the personal property owned by the Company and mortgages on four parcels of real property owned by the Company in Colorado, Tennessee and Texas, at which three of the Company’s schools are located, as well as a former school property owned by the Company located in Connecticut.
Each issuance of a letter of credit under Facility 2 will require the payment of a letter of credit fee to the Bank equal to a rate per annum of 1.75% on the daily amount available to be drawn under the letter of credit, which fee shall be payable in quarterly installments in arrears. Letters of credit totaling $7.2$6.2 million that were outstanding under a $9.5 million letter of credit facility previously provided to the Company by the Bank, which letter of credit facility was set to mature on April 1, 2017, are treated as letters of credit under Facility 2.
The terms of the Credit Agreement provide thatrequire the Bank be paid an unused facility fee on the average daily unused balance of Facility 1 at a rate per annum equal to 0.50%, which fee is payable quarterly in arrears. In addition, the Company is required to maintain, on deposit in one or more non-interest bearing accounts, a minimum of $5 million in quarterly average aggregate balances. If in any quarter the required average aggregate account balance isbalances, which, if not maintained, the Company is required to pay the Bankresults in a fee of $12,500 payable to the Bank for that quarter and, in the event that the Company terminates the Credit Facility or refinances with another lender within 18 months of closing, the Company is required to pay the Bank a breakage fee of $500,000.quarter.
In addition to the foregoing, the Credit Agreement contains customary representations, warranties and affirmative and negative covenants, including financial covenants that restrict capital expenditures, prohibit the incurrence of a net loss commencing on December 31, 2018 and require a minimum adjusted EBITDA and a minimum tangible net worth, which is an annual covenant, as well ascovenants. The Credit Agreement also contains events of default customary for facilities of this type. As of September 30, 2017,2019, the Company is in compliance with all covenants.covenants, including financial covenants that (i) restrict capital expenditures tested on a fiscal year end basis; (ii) prohibit the incurrence of a net loss commencing on December 31, 2019; and (iii) require a minimum adjusted EBITDA tested quarterly on a rolling twelve-month basis. The Fourth Amendment (i) modifies the minimum adjusted EBITDA required; (ii) eliminates the requirement for a minimum funded debt to adjusted EBITDA ratio; and (iii) requires the maintenance of a maximum funded debt to adjusted EBITDA ratio tested quarterly on a rolling twelve month basis.
In connection with the Credit Agreement, the Company paid the Bank an origination fee in the amount of $250,000 and other fees and reimbursements that are customary for facilities of this type.
The Company incurred an early termination premium of approximately $1.8 million in connection with the termination of the Prior Credit Facility.
On April 28, 2017, the Company entered into an additional secured credit agreement with the Bank, pursuant to which the Company obtained a short term loan in the principal amount of $8 million, the proceeds of which were used for working capital and general corporate purposes. The loan, which had an interest rate equal to the greater of the Bank’s prime rate plus 2.50% or 6.00%, was secured by real property assets located in West Palm Beach, Florida at which schools operated by the Company were located and matured upon the earlier of October 1, 2017 and the date of the sale of the West Palm Beach, Florida property. The Company sold two of three properties located in West Palm Beach, Florida to Tambone in the third quarter of 2017 and subsequently repaid the $8 million.
As of September 30, 2017,2019, the Company had $17.5$27.1 million outstanding under the Credit Facility; offset by $0.8$0.3 million of deferred finance fees. As of December 31, 2016,2018, the Company had $44.3$49.3 million outstanding under the Prior Credit Facility;Facility, offset by $2.3$0.5 million of deferred finance fees, which were written-off. As of September 30, 20172019 and December 31, 2016, there were2018, letters of credit in the aggregate outstanding principal amount of $7.2$4.0 million and $6.2$1.8 million, respectively. As of September 30, 2017, there are no revolving loansrespectively, were outstanding under Facility 2.the Credit Facility.
The following table sets forth our long-term debt (in thousands):
| | September 30, 2017 | | | December 31, 2016 | |
Credit agreement | | $ | 16,721 | | | $ | - | |
Term loan | | | - | | | | 44,267 | |
| | | 16,721 | | | | 44,267 | |
Less current maturities | | | - | | | | (11,713 | ) |
| | $ | 16,721 | | | $ | 32,554 | |
| | September 30, 2019 | | | December 31, 2018 | |
Credit agreement and term loan | | $ | 27,133 | | | $ | 49,301 | |
Auto loan | | | 46 | | | | - | |
Deferred financing fees | | | (277 | ) | | | (532 | ) |
| | | 26,902 | | | | 48,769 | |
Less current maturities | | | (7,117 | ) | | | (15,000 | ) |
| | $ | 19,785 | | | $ | 33,769 | |
As of September 30, 2017,2019, we had outstanding loan commitments to our students of $46.9$71.5 million, as compared to $40.0$63.1 million at December 31, 2016. Loan commitments, net of interest that would be due on the loans through maturity, were $34.9 million at September 30, 2017, as compared to $30.0 million at December 31, 2016.2018.
Contractual Obligations
Long-term Debt. As of September 30, 2017,2019, our current portion of long-term debt and our long-term debt consisted of borrowings under our Credit Facility.Facility and an auto loan.
Lease Commitments. We lease offices, educational facilities and equipment for varying periods through the year 2030 at base annual rentals (excluding taxes, insurance, and other expenses under certain leases).
The following table contains supplemental information regarding our total contractual obligations as of September 30, 20172019 (in thousands):
| | Payments Due by Period | | | Payments Due by Period | |
| | Total | | | Less than 1 year | | | 1-3 years | | | 3-5 years | | | More than 5 years | | | Total | | | Less than 1 year | | | 1-3 years | | | 3-5 years | | | More than 5 years | |
Credit facility | | $ | 17,500 | | | $ | - | | | $ | - | | | $ | 17,500 | | | $ | - | | |
Credit facility and term loan | | | $ | 27,133 | | | $ | 7,270 | | | $ | 5,108 | | | $ | 14,755 | | | $ | - | |
Operating leases | | | 83,394 | | | | 19,506 | | | | 31,246 | | | | 15,723 | | | | 16,919 | | | | 66,349 | | | | 14,982 | | | | 22,467 | | | | 13,290 | | | | 15,610 | |
Total contractual cash obligations | | $ | 100,894 | | | $ | 19,506 | | | $ | 31,246 | | | $ | 33,223 | | | $ | 16,919 | | | $ | 93,482 | | | $ | 22,252 | | | $ | 27,575 | | | $ | 28,045 | | | $ | 15,610 | |
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of September 30, 2017,2019, except for surety bonds. As of September 30, 2017,2019, we posted surety bonds in the total amount of approximately $14.3$12.7 million. Cash collateralized letters of credit of $7.2$4.0 million are primarily comprised of letters of credit for the DOE and security deposits in connection with certain of our real estate leases. These off-balance sheet arrangements do not adversely impact our liquidity or capital resources.
Seasonality and Outlook
Seasonality
Our revenue and operating results normally fluctuate as a result of seasonal variations in our business, principally due to changes in total student population. Student population varies as a result of new student enrollments, graduations and student attrition. Historically, our schools have had lower student populations in our first and second quarters and we have experienced larger class starts in the third quarter and higher student attrition in the first half of the year. Our second half growth is largely dependent on a successful high school recruiting season. We recruit our high school students several months ahead of their scheduled start dates and, thus, while we have visibility on the number of students who have expressed interest in attending our schools, we cannot predict with certainty the actual number of new student enrollments and the related impact on revenue. Our expenses, however, typically do not vary significantly over the course of the year with changes in our student population and revenue. During the first half of the year, we make significant investments in marketing, staff, programs and facilities to meet our second half of the year targets and, as a result, such expenses do not fluctuate significantly on a quarterly basis. To the extent new student enrollments, and related revenue, in the second half of the year fall short of our estimates, our operating results could be negatively impacted. We expect quarterly fluctuations in operating results to continue as a result of seasonal enrollment patterns. Such patterns may change as a result of new school openings, new program introductions, and increased enrollments of adult students and/or acquisitions.
Outlook
SimilarOur nation is a facing a skills gap caused by technological, demographic and policy changes. Technology is permeating every industry and job and necessitating retraining of the existing workforce in order to many companies inkeep them productive and engaged. At the proprietary education sector, we have experienced significant deterioration in student enrollments oversame time, the last several years. This can be attributed to many factors including the economic environment and numerous regulatory changes such as changes to admissions advisor compensation policies, elimination of “ability-to-benefit,” changes to the 90/10 Rule and cohort default rates, gainful employment and modifications to Title IV amounts and eligibility. While the industry has not returned to growth, the trends are far more stable as declines have slowed.
As the economy continues to improve and the unemployment rate continues to decline our student enrollment is negatively impacted due to a portion of our potential student base entering the workforce earlier without obtaining any post-secondary training. Offsetting this short term decline in available students is the fact that an increasing number of individuals in the “baby boom” generation are retiring from the workforce. The retirement of baby boomers coupled within large numbers is forcing companies to look for replacement employees. Unfortunately, there are not enough new skilled employees to replace the retiring ones. A major reason for this shortfall is caused by the reduction of career education in many high schools starting in the 1980’s as policy makers decided more students needed to attend college and resources and programs were steered in that direction. Consequently, today there are more job openings than qualified people to fill the jobs. This problem presents a great opportunity for our Company and one we proudly seek to remedy.
Traditionally, our enrollments decline in a low unemployment environment. However, for the last seven quarters, we have achieved growth despite declining unemployment levels. We attribute this growth to both better marketing of our high return on investment programs and a growing economy has resulted in additional employers lookingawareness that four year post-secondary degrees along with their high costs may not be the best option for everyone. By partnering with industry and increasing our advertising spend, we expect to continue to grow awareness of our schools and increase our enrollments as we seek to eliminate the skills gap. Employers are reaching out to us seeking to help solveemploy our graduates. Like the economy in general, we have more job requests from employers than graduates to fill them.
Furthermore, when the economy slows down, we expect that our enrollments will also increase as more people are displaced from the workforce and need to acquire skills to find employment.
Pending DOE Determination Letters
On October 11, 2019, the DOE issued a preliminary audit determination letter to our Columbia and Indianapolis institutions in connection with the annual Title IV compliance audit for each institution for the 2018 fiscal year. The DOE requested that each of the two institutions conduct a file review of all students from the 2018 fiscal year to identify if any additional unearned federal student aid funds must be returned by the institution. We are in the process of preparing the required file reviews for submission to the DOE. After the file reviews are submitted, the DOE is expected to issue a final audit determination for both institutions in which it would assess any liabilities and identify any other required actions or sanctions, if necessary. We have the right to appeal any asserted liabilities under an administrative appeal process within the DOE.
On October 9, 2019, the DOE issued a final audit determination letter in connection with Lincoln College of New England (“LCNE”), which closed on December 31, 2018. The DOE asserts $62,848 in liabilities related to the DOE’s discharge of the Federal Direct loans of certain LCNE students. The DOE contends that students who are enrolled in an institution at the time of its closure or who withdrew from the institution within 120 days preceding its closure may qualify for a discharge of their workforce needs. With schoolsFederal student loans if they are unable to complete their program because of the institution’s closure. The DOE also contends that it has the authority to recover the cost of the closed school loan discharges from an institution and to impose additional liabilities if the DOE discharges loans for other LCNE students in the future. We have the right to appeal the liabilities under an administrative appeal process within the DOE.
The DOE may grant closed school loans discharges of Federal student loans based upon applications by qualified students. The DOE also may initiate discharges on its own for students who have not reenrolled in another Title IV eligible school within three years after the closure and who attended campuses that closed on or after November 1, 2013 as did some of our former campuses. If the DOE discharges some or all of these loans, the DOE may seek to recover the cost of the loan discharges from us. We have the right to appeal any asserted liabilities under an administrative appeal process within the DOE. We cannot predict the timing or amount of any loan discharges that the DOE may approve or the liabilities that the DOE may seek from us. We also cannot predict the timing or potential outcome of any administrative appeals of any such liabilities.
Borrower Defense to Repayment Regulations Update
The DOE published borrower defense to repayment regulations on November 1, 2016 (“2016 Final Regulations”) with an effective date of July 1, 2017, but subsequently delayed the effective date of a majority of the regulations until July 1, 2019, to ensure there would be adequate time to conduct negotiated rulemaking and, as necessary, develop revised regulations. However, a federal court ruled that the delay in the effective date of the regulations was unlawful and, on October 16, 2018, denied a request to extend a stay preventing the regulations from taking effect. The regulations are described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 under the caption “Regulatory Environment – Borrower Defense to Repayment Regulations.”
On March 15, states, we2019, the DOE published an electronic announcement with guidance regarding how the DOE is implementing the 2016 Final Regulations, including, among other things, the provisions regarding the processes for enabling borrowers to obtain from the DOE a discharge of some or all of their federal student loans based on circumstances involving the institution and for the DOE to impose and collect liabilities against the institution following the loan discharges, the prohibition on certain contractual provisions regarding arbitration, dispute resolution, and participation in class actions, and the requirement to submit certain arbitral and judicial records to the DOE in connection with certain proceedings concerning borrower defense claims. The DOE also stated that it would provide guidance at a later date about providing repayment warnings to students in the future and disclosures to students regarding the occurrence of certain financial events, actions, or conditions.
The DOE also provided guidance regarding the requirement to notify the DOE within specified timeframes of the occurrence of any of a list of events, actions or conditions that occur on or after July 1, 2017. The DOE stated in the electronic announcement that it recognized that some institutions may have been uncertain about how to comply with these requirements in light of the delays and court orders regarding the effective date of the 2016 Final Regulations. The DOE guidance generally gives institutions a 60-day period commencing from the date of the electronic announcement to send notifications of events, actions, or conditions that, with certain exceptions, occurred between the July 1, 2017 effective date of the 2016 Final Regulations and the date of the electronic announcement. Institutions have an ongoing obligation under the 2016 Final Regulations to notify the DOE of subsequent events, actions or conditions that are triggering circumstances in the regulations. See our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 under the caption “Regulatory Environment – Financial Responsibility Standards.”
The DOE published proposed regulations on July 31, 2018 that would modify the defense to repayment regulations. On September 23, 2019, the DOE published the final regulations which have a very attractive employment solutiongeneral effective date of July 1, 2020. The current regulations generally will remain in effect until the new regulations generally take effect on July 1, 2020.
Among other things, the new regulations amend the processes for large regionalborrowers to receive from ED a discharge of the obligation to repay certain Title IV loans first disbursed on or after July 1, 2020 based on certain acts or omissions by the institution or a covered party. The regulations establish detailed procedures and national employers.standards for the loan discharge processes, including the information required for borrowers to receive a loan discharge, and the authority of the DOE to seek recovery from the institution of the amount of discharged loans.
The regulations also modify the list of triggering events that could result in the DOE determining that the institution lacks financial responsibility and must submit to the DOE a letter of credit or other form of acceptable financial protection and accept other conditions on the institution’s Title IV eligibility. The regulations create lists of mandatory triggering events and discretionary triggering events. An institution is not able to meet its financial or administrative obligations if a mandatory triggering event occurs. The mandatory triggering events include:
the institution’s recalculated composite score is less than 1.0 as determined by the DOE as a result of an institutional liability from a settlement, final judgment, or final determination in an administrative or judicial action or proceeding brought by a Federal or State entity;
the institution’s recalculated composite score goes from less than 1.5 to less than 1.0 as determined by the DOE as a result of a withdrawal of owner’s equity from the institution;
the SEC takes certain actions against the institution or the institution fails to comply with certain filing requirements; or
the occurrence of two or more discretionary triggering events (as described below) within a certain time period.
The DOE also may determine that an institution lacks financial responsibility if one of the following discretionary triggering events occurs and the event is likely to have a material adverse effect on the financial condition of the institution:
a show cause or similar order from the institution’s accrediting agency that could result in the withdrawal, revocation or suspension of institutional accreditation;
a notice from the institution’s state licensing agency of an intent to withdraw or terminate the institution’s state licensure if the institution does not take steps to comply with state requirements;
a default, delinquency, or other event occurs as a result of an institutional violation of a security or loan agreement that enables the creditor to require an increase in collateral, a change in contractual obligations, an increase in interest rates or payment, or other sanctions, penalties or fees;
a failure to comply with the 90/10 rule during the institution’s most recently completed fiscal year;
high annual drop-out rates from the institution as determined by the DOE; or
official cohort default rates of at least 30 percent for the two most recent years unless a pending appeal could sufficiently reduce one of the rates.
The regulations require the institution to notify the DOE of the occurrence of a mandatory or discretionary triggering event and to provide certain information to the DOE to demonstrate why the event does not establish the institution’s lack of financial responsibility or require the submission of a letter of credit or imposition of other requirements.
The final regulations also will eliminate the current regulations regarding loan repayment rate warning requirements and generally will permit the use of arbitration clauses and class action waivers while requiring institutions to make certain disclosures to students.
Negotiated Rulemaking Update
On October 15, 2018, the DOE published a notice in the Federal Register announcing its intent to establish a negotiated rulemaking committee and three subcommittees to develop proposed regulations related to several matters that are described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 under the caption “Regulatory Environment – Negotiated Rulemaking.” The DOE released draft proposed regulations for consideration and negotiation by the negotiated rulemaking committee and subcommittee that covered additional topics and made additional revisions and updates to the draft proposed regulations prior to subsequent meetings of the committee and subcommittees in early 2019. The committee and subcommittees completed their meetings in April 2019 and reached consensus on draft proposed regulations. On June 12, 2019, the DOE published proposed regulations on some of the topics in a notice of proposed rulemaking in the Federal Register for public comment and to consider revisions to the regulations in response to the comments before publishing the final versions of the regulations. The DOE stated that it intends to publish proposed regulations on the remaining issues in a separate notice of proposed rulemaking, but did not indicate when it would publish those proposed changes. On November 1, 2019, the DOE published the final regulations. The regulations have a general effective date of July 1, 2020. We are in the process of analyzing the new regulations and their potential impact on us and our institutions.
To fund our business plans, including any anticipated future losses, purchase commitments, capital expenditures, principal and interest payments on borrowings and to satisfy the DOE financial responsibility standards, we have entered into a new credit facility as described above and continue to have the ability to sell our assets that are classified as held for sale. We are also continuing to take actions to improve cash flow by aligning our cost structure to our student population.
Regulatory Update
On April 26, 2013, the DOE notified our Union, New Jersey campus that an on-site Program Review was scheduled to begin on May 20, 2013. The Program Review assessed the institution’s administration of Title IV Programs in which the campus participated for the 2011-2012 and 2012-2013 awards years. On September 29, 2017, the DOE issued its Final Program Review Determination (“FPRD”) that closed the review and indicated that the DOE had determined the Company’s financial liability to the DOE resulting from the FPRD to be $175, which amount has been paid by the Company to the DOE.
Cohort Default Rates
In September 2017, the DOE released the final cohort default rates for the 2014 federal fiscal year. These are the most recent final rates published by the DOE. The rates for our existing institutions for the 2014 federal fiscal year range from 5.2% to 13.6%. None of our institutions had a cohort default rate equal to or greater than 30% for the 2014 federal fiscal year.
Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposed to certain market risks as part of our on-going business operations. On March 31, 2017, the Company repaid in full and terminated a previously existing term loan with the proceeds of a new revolving credit facility provided by Sterling National Bank in an aggregate principal amount of up to $50 million, which revolving credit facility is referred to in this report as the “Credit Facility.” Our obligations under theour Credit Facility are secured by a lien on substantially all of our assets and any assets that we or our subsidiaries may acquire in the future. Outstanding borrowings under theour Credit Facility bear interest at the rate of 6.75%7.85% as of September 30, 2017.2019. As of September 30, 2017,2019, we had $17.5$27.1 million outstanding under theour Credit Facility.Facility.
Based on our outstanding debt balance as of September 30, 2017,2019, a change of one percent in the interest rate would have caused a change in our interest expense of approximately $0.2 million, or $0.01 per basic share, on an annual basis. Changes in interest rates could have an impact on our operations, which are greatly dependent on our students’ ability to obtain financing and, as such, any increase in interest rates could greatly impact our ability to attract students and have an adverse impact on the results of our operations. The remainder of our interest rate risk is associated with miscellaneous capital equipment leases, which is not significant.
(a) Evaluation of disclosure controls and procedures. Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)) as of the end of the quarterly period covered by this report, have concluded that our disclosure controls and procedures are adequate and effective to reasonably ensure that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s Rulesrules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting. There were no changes made during our most recently completed fiscal quarter in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Information regarding certain specific legal proceedings in which the Company is involved is contained in Part I, Item 3 and in Note 14 to the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Unless otherwise indicated in this report, all proceedings discussed in the earlier report which are not indicated therein as having been concluded, remain outstanding as of September 30, 2017.
In the ordinary conduct of our business, we are subject to periodic lawsuits, investigations and claims, including, but not limited to, claims involving students or graduates and routine employment matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe that any currently pending legal proceeding to which we are a party will have a material adverse effect on our business, financial condition, results of operations or cash flows.
Information regarding certain specific legal proceedings in which the Company is involved is contained in Part II, Item 1, and in Note 9 to the notes to the condensed consolidated financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019. Unless otherwise indicated in this report, all proceedings discussed in the earlier report which are not indicated therein as having been concluded, remain outstanding as of September 30, 2019.
As previously reported, on July 6, 2018, the Company received an administrative subpoena from the Office of the Attorney General of the State of New Jersey (“NJ OAG”). Pursuant to the subpoena, the NJ OAG requested certain documents and detailed information relating to the November 21, 2012 Civil Investigative Demand letter addressed to the Company by the Massachusetts Office of the Attorney General (“MOAG”) that resulted in a previously reported Final Judgment by Consent between the Company and the MOAG dated July 13, 2015. The Company responded to this request and, by letter dated April 11, 2019, the NJ OAG issued a supplemental subpoena requesting additional information for the time period from April 11, 2014 to the present. The Company submitted its response to the supplemental subpoena. Subsequently, by email dated August 20, 2019, the NJ OAG requested additional records of the Company from the years 2012 and 2013. The Company has responded to the NJ OAG’s most recent record request and is continuing to cooperate with the NJ OAG.
(a)
(1) On November 8, 2017, the Company entered into a new employment agreement with Scott M. Shaw, the Company’s President and Chief Executive Officer, pursuant to which Mr. Shaw will continue to serve in such positions (the “Shaw Employment Agreement”). Mr. Shaw also serves as and will remain a member Sale of the Board of Directors of the Company. The Shaw Employment Agreement, the full text of which is filed as Exhibit 10.2 to this Quarterly Report on 10-Q and is incorporated herein by reference, replaces Mr. Shaw’s prior employment agreement with the Company, which would have expired by its terms on December 31, 2017.Series A Convertible Preferred Stock
On November 14, 2019, the Company raised gross proceeds of $12,700,000 from the sale of 12,700 shares of its newly designated Series A Convertible Preferred Stock, no par value per share (the “Series A Preferred Stock”). The termSeries A Preferred Stock was designated by the Company’s board of directors (“the Board”) pursuant to a certificate of amendment (“Charter Amendment”) to the Company’s amended and restated certificate of incorporation. The summaries of the Shaw Employment Agreement commenced onagreements and documents below are qualified in their entirety by the actual agreements and documents which are Exhibits to this Report.
Securities Purchase Agreement.
The Series A Preferred Stock was sold by the Company pursuant to a Securities Purchase Agreements dated as of November 8, 201714, 2019 (the “SPA”), among the Company, Juniper Targeted Opportunity Fund, L.P. and will expire on December 31, 2018, unless sooner terminated in accordanceJunior Targeted Opportunities, L.P. (together, “Juniper”) and another investor party thereto (such investors, together with its terms. DuringJuniper, the term“Investors”). The proceeds of the Shaw Employment Agreement, Mr. Shawsale net of transaction expenses will continue to receive an annual base salary of $500,000, an annual performance bonus based upon achievement of performance targetsbe used for working capital or other criteria as determinedgeneral corporate purposes.
The SPA contains customary representations, warranties and covenants including covenants relating to, among other things, the increase of the size of the Company’s Board and the appointment of a director to be selected solely by the holders of the Series A Preferred Stock, who shall initially be John A. Bartholdson, an affiliate of Juniper. In connection with Mr. Bartholdson’s appointment to the Company’s Board of Directors, or its Compensation Committeehe and a Company-owned vehicle, as well as insurance, maintenance, fuelthe Company entered into an indemnification agreement with the Company. The Company and each of the other costs associated with such vehicle.members of the Board and each of the Company’s executive officers also entered into indemnification agreements, the form of which is an Exhibit to this Report.
UnderRights and Preferences of the Series A Preferred Stock. The description below provides a summary of certain material terms of the Shaw Employment Agreement,Series A Preferred Stock issued pursuant to the SPA and set forth in the Charter Amendment.
Dividends. Dividends on the Series A Preferred Stock (“Series A Dividends”), at the initial annual rate of 9.6% is to be paid, in advance, from the date of issuance quarterly on each December 31, March 31, June 30 and September 30 with September 30, 2020 as the first dividend payment date. The Company, at its option, may pay dividends in cash or by increasing the number of Conversion Shares issuable upon conversion of the Series A Preferred Stock. The dividend rate is subject to increase (a) 2.4% per annum on the fifth anniversary of the issuance of the Series A Preferred Stock (b) by 20% per annum but in no event above 14% per annum should the Company may terminate Mr. Shaw’s employmentfail to perform certain obligations under the Charter Amendment.
Series A Preferred Stock Holders Right to Convert into Common Stock. Each share of Series A Preferred Stock, at any time, with or without Cause and Mr. Shaw may resign from his employment at any time, with or without Good Reason (in each case as such terms are defined in the Shaw Employment Agreement). In the event that Mr. Shaw’s employment should be terminated by the Company without Cause or by Mr. Shaw’s resignation for Good Reason, in addition to his right to receive paymentis convertible into a number of all accrued and unpaid compensation and benefits due to him through the dateshares of termination of employment, subject to Mr. Shaw’s execution of a release in favor of the Company and its subsidiaries and affiliates, Mr. Shaw would be entitled to receive a lump sum payment on the 60th day following termination of employmentCommon Stock equal to (a) two times(“Convertible Formula”) the quotient of (i) the sum of (i) his annual base salary and(A) $1,000 (subject to adjustment as provided in the Charter Amendment) plus (B) the dollar amount of any declared Series A Dividends not paid in cash divided by (ii) the target amountSeries A Conversion Price (as defined and adjusted in the Charter Amendment) as of the annual performance bonus for him in the year in which the termination of employment occurs, (b) all outstanding reasonable travel and other business expenses incurred through the date of termination and (c) the estimated employer portion of premiums that would be necessary to continue Mr. Shaw’s coverage under the Company’s healthcare plan until the first anniversary of the date of termination (subject to proration should Mr. Shaw become insured under a subsequent healthcare plan). In addition, Mr. Shaw would be entitled to receive a prorated portion of his annual bonus for the year of termination, which prorated annual bonus would be paid in a lump sum on the date that bonuses for the year in which the termination occurs are paid generally to the Company’s senior executives.
The Shaw Employment Agreement further provides that, upon a Change in Control of the Companyapplicable Conversion Date (as defined in the Shaw Employment Agreement), (a)Charter Amendment). The initial Conversion Price is $2.36. At all times, however, the termnumber of Conversion Shares that can be issued to any Series A Preferred Stock Holder may not result in such holder and its affiliates owning more than 19.99% of the Shaw Employment Agreement willtotal number of shares of Common Stock outstanding after giving effect to the conversion (the “Hard Cap”), unless prior stockholder approval is obtained or no longer required by the rules of the principal stock exchange on which the Company’s Common Stock trade.
Mandatory Conversion. If, at any time following November 14, 2022, the volume weighted average price of the Company’s Common Stock equals or exceeds 2.25 times the Conversion Price for a period of 20 consecutive trading days and on each such trading day at least 20,000 shares of Common Stock was traded, the Company may, at its option and subject to the Hard Cap, require that any or all of the then outstanding shares of Series A Preferred Stock be automatically extended for an additional two-year term commencing onconverted into shares of Common Stock at the date of the Change in Control and ending on the second anniversary of the date of the Change in Control and (b) all outstanding restricted stock and stock options held by Mr. Shaw will vest in full and all stock options will become immediately exercisable on the date of the Change in Control. The Shaw Employment Agreement also provides that if any amounts due to Mr. Shaw pursuant to the Shaw Employment Agreement or any other plan or arrangement constitute a “parachute payment” for purposes of Section 280G of the Internal Revenue Code and the amount of the parachute payment (after taking into account all taxes, including excise taxes) is less than the amount Mr. Shaw would receive if he was paid three times his “base amount” (as defined under Section 280G of the Internal Code), less one dollar (after taking into account all taxes, including excise taxes), then the aggregate of the amounts constituting the parachute payment will be reduced (or returned by Mr. Shaw if already paid to him) to an amount that will equal three times Mr. Shaw’s base amount less one dollar.
The Shaw Employment Agreement contains a two-year post-employment noncompetition agreement and standard no solicitation and confidentiality provisions.
The foregoing description of the Shaw Employment Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Shaw Employment Agreement filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
(2) Also on November 8, 2017, the Company entered into a new employment agreement with Brian K. Meyers, the Company’s Executive Vice President, Chief Financial Officer and Treasurer, pursuant to which Mr. Meyers will continue to serve in such positions (the “Meyers Employment Agreement”). The Meyers Employment Agreement, the full text of which is filed as Exhibit 10.3 to this Quarterly Report on Form 10-Q and is incorporated herein by reference, replaces Mr. Meyers’ prior employment agreement which would have expired by its terms on December 31, 2017.applicable convertible Formula.
The termRedemption. Beginning November 14, 2024, the Company may redeem all or any of the Meyers EmploymentSeries A Preferred Stock for a cash price equal to the greater of (“Liquidation Preference”) (i) the sum of $1,000 (subject to adjustment as provided in the Charter Amendment) plus the dollar amount of any declared Series A Dividends not paid in cash and (ii) the value of the Conversion Shares were such Series A Preferred Stock converted (as determined in the Charter Amendment) without regard to the Hard Cap.
Change of Control. In the event of certain changes of control, some of which are not in the Company’s control, as defined in the Charter Amendment as a “Fundamental Change” or a “Liquidation” (as defined in the Charter Amendment), the Series A Preferred Stockholders shall be entitled to receive the Liquidation Preference, unless such Fundamental Change is a stock merger in which certain value and volume requirements are met, in which case the Series A Preferred Stock will be converted into Common Stock in connection with such stock merger.
Voting. Holders of shares of Series A Preferred Stock will be entitled to vote with the holders of shares of Common Stock and not as a separate class, at any annual or special meeting of stockholders of the Company, on an as-converted basis, in all cases subject to the Hard Cap. In addition, a majority of the voting power of the Series A Preferred Stock must approve certain significant actions of the Company, including (i) declaring a dividend or otherwise redeeming or repurchasing any shares of Common Stock and other junior securities, if any, subject to certain exceptions, (ii) incurring indebtedness, except for certain permitted indebtedness or (iii) creating a subsidiary other than a wholly-owned subsidiary.
Board Representation. The holders of Series A Preferred Stock, voting as a separate class, have the right to appoint one director to the Board (the “Series A Director”) who may serve on any committees of the Board, until such time as the later of (i) the shares of Series A Preferred Stock have been converted into Common Stock or (ii) a holder still owns Conversion Shares and the sum of such Conversion Shares plus any other shares of Common Stock represent at least 10% of the total outstanding shares of Common Stock. In connection therewith John A. Bartholdson was appointed to the Company’s Board of Directors.
Additional Provisions. The Series A Preferred Stock is perpetual and therefore does not have a maturity date. The conversion price of the Series A Preferred Stock is subject to anti-dilution protections if the Company effects a stock split, stock dividend, subdivision, reclassification or combination of its Common Stock and certain other economically dilutive events.
Registration Rights Agreement commenced.
The SPA required, as a condition to closing, that the Company enter into a Registration Rights Agreement (“RRA”). The RRA provides for unlimited demand registration rights, of which there can be two underwritten offerings each for at least $5 million in gross proceeds, and piggyback registration rights, with respect to the Conversion Shares.
(b) $60 Million Credit Facility with Sterling National Bank
On November 14, 2019, the Company entered into a new senior secured credit agreement (the “2019 Credit Agreement”) with its lender, Sterling National Bank (the “Bank”), pursuant to which the Company obtained a new credit facility in the aggregate principal amount of up to $60 million (the “2019 Credit Facility”). The 2019 Credit Facility replaces the Company’s existing facility with the Bank and, among other things, increases aggregate borrowing from $47 million to $60 million. The following description of the 2019 Credit Facility is qualified in its entirety by the actual agreement which is an Exhibit to this Report.
The 2019 Credit Facility is comprised of four facilities: a $20 million senior secured term loan maturing on December 1, 2024 (the “Term Loan”), with monthly interest and principal payments based on 120-month amortization with the outstanding balance due on the maturity date; a $10 million senior secured delayed draw term loan maturing on December 1, 2024 (the “Delayed Draw Term Loan”), with monthly interest payments for the first 18 months and thereafter monthly payments of interest and principal based on 120-month amortization and all balances due on the maturity date; a $15 million senior secured committed revolving line of credit providing a sublimit of up to $10 million for standby letters of credit maturing on November 8, 201713, 2022 (the “Revolving Loan”), with monthly payments of interest only; and will expirea $15 million senior secured non-restoring line of credit maturing on DecemberJanuary 31, 2018, unless sooner terminated2021 (the “Line of Credit Loan”).
The 2019 Credit Facility is secured by a first priority lien in accordance with its terms. During the termfavor of the Meyers EmploymentBank on substantially all of the personal property owned by the Company, as well as a pledge of the stock and other equity in the Company’s subsidiaries and mortgages on parcels of real property owned by the Company in Colorado, Tennessee and Texas, at which three of the Company’s schools are located, as well as a former school property owned by the Company located in Connecticut.
At the closing of the 2019 Credit Facility, the Bank advanced the Term Loan to the Company, the net proceeds of which was $19.65 million after deduction of the Bank’s origination fee in the amount of $337,500 and other Bank fees and reimbursements to the Bank that are customary for facilities of this type. The Company used the net proceeds of the Term Loan, together with cash on hand, to repay the existing credit facility and transaction expenses.
Pursuant to the terms of the 2019 Credit Agreement, Mr. Meyersletters of credit issued under the Revolving Loan reduce dollar for dollar the availability of borrowings under the Revolving Loan. Borrowings under the Line of Credit Loan are to be secured by cash collateral.
Borrowing under the Delayed Draw Term Loan is available during the period commencing on the closing date of the 2019 Credit Facility and ending on May 31, 2021. Any amounts not borrowed during this period will continuenot be available to receivethe Company.
Accrued interest on each loan under the 2019 Credit Facility will be payable monthly in arrears. The Term Loan and the Delayed Draw Term Loan will bear interest at a floating interest rate based on the then one month LIBOR (“LIBOR”) plus 3.50%. At the closing of the 2019 Credit Facility, the Company entered into a swap transaction with the Bank for 100% of the principal balance of the Term Loan, which matures on the same date as the Term Loan. pursuant to a swap agreement between the Company and the Bank. At the end of the borrowing availability period for the Delayed Draw Term Loan, the Company is required to enter into a swap transaction with the Bank for 100% of the principal balance of the Delayed Draw Term Loan, which will mature on the same date as the Delayed Draw Term Loan, pursuant to a swap agreement between the Company and the Bank or the Bank’s affiliate. The Term Loan and Delayed Draw Term Loan are subject to a LIBOR interest rate floor of .25%.
Revolving Loans will bear interest at a floating interest rated based on the then LIBOR plus an annual base salary of $340,000 and an annual performance bonus based upon achievement of performance targets or other criteria asindicative spread determined by the Company’s Boardleverage as defined in the 2019 Credit Agreement or, if the borrowing of Directors or its Compensation Committee.a Revolving Loan is to be repaid within 30 days of such borrowing, the Revolving Loan will accrue interest at the Bank’s prime rate plus .50% with a floor of 4.0%. Line of Credit Loans will bear interest at a floating interest rated based on the Bank’s prime rate of interest. Revolving Loans are subject to a LIBOR interest rate floor of .00%.
Letters of credit will be charged an annual fee equal to (i) an applicable margin determined by the leverage ratio of the Company less (ii) .25%, paid quarterly in arrears, in addition to the Bank’s customary fees for issuance, amendment and other standard fees. Letters of credit totaling $4 million that were outstanding under the existing credit facility are treated as letters of credit under the Revolving Loan.
Under the terms of the Meyers Employment2019 Credit Agreement, the Company may terminate Mr. Meyers’ employment atprepay the Term Loan and/or the Delayed Draw Term Loan in full or in part without penalty except for any timeamount required to compensate the Bank for any swap breakage or other costs incurred in connection with or without Causesuch prepayment. The Bank receives an unused facility fee of 0.50% per annum payable quarterly in arrears on the unused portions of the Revolving Loan and Mr. Meyers may resign from his employment at any time,the Line of Credit Loan.
In addition to the foregoing, the Credit Agreement contains customary representations, warranties and affirmative and negative covenants (including financial covenants that (i) restrict capital expenditures, (ii) restrict leverage, (iii) require maintaining minimum tangible net worth, (iv) require maintaining a minimum fixed charge coverage ratio and (v) require the maintenance of a minimum of $5 million in quarterly average aggregate balances on deposit with or without Good Reason (in each case as such terms are definedthe Bank, which, if not maintained, will result in the Meyers Employment Agreement). In the event that Mr. Meyers’ employment should be terminated by the Company without Cause or by Mr. Meyers resignation for Good Reason, in addition to his right to receive payment of all accrued and unpaid compensation and benefits due to him through the date of termination of employment, subject to Mr. Meyers’ executionassessment of a release in favorquarterly fee of the Company and its subsidiaries and affiliates, Mr. Meyers would be entitled to receive a lump sum payment on the 60th day following termination$12,500), as well as events of employment equal to (a) one and three-quarters times the sumdefault customary for facilities of (i) his annual base salary and (ii) the target amount of the annual performance bonus for him in the year in which the termination of employment occurs, (b) all outstanding reasonable travel and other business expenses incurred through the date of termination and (c) the estimated employer portion of premiums that would be necessary to continue Mr. Meyers’ coverage under the Company’s healthcare plan until the first anniversary of the date of termination (subject to proration should Mr. Meyers become insured under a subsequent healthcare plan). In addition, Mr. Meyers would be entitled to receive a prorated portion of his annual bonus for the year of termination, which prorated annual bonus would be paid in a lump sum on the date that bonuses for the year in which the termination occurs are paid generally to the Company’s senior executives.this type.
The Meyers Employment Agreement further provides that, upon a Change in Control of the Company (as defined in the Meyers Employment Agreement), (a) the term of the Meyers Employment Agreement will be automatically extended for an additional two-year term commencing on the date of the Change in Control and ending on the second anniversary of the date of the Change in Control and (b) all outstanding restricted stock and stock options held by Mr. Meyers will vest in full and all stock options will become immediately exercisable on the date of the Change in Control. The Meyers Employment Agreement also provides that if any amounts due to Mr. Meyers pursuant to the Meyers Employment Agreement or any other plan or arrangement constitute a “parachute payment” for purposes of Section 280G of the Internal Revenue Code and the amount of the parachute payment (after taking into account all taxes, including excise taxes) is less than the amount Mr. Meyers would receive if he was paid three times his “base amount” (as defined under Section 280G of the Internal Code), less one dollar (after taking into account all taxes, including excise taxes), then the aggregate of the amounts constituting the parachute payment will be reduced (or returned by Mr. Meyers if already paid to him) to an amount that will equal three times Mr. Meyers’ base amount less one dollar.
The Meyers Employment Agreement contains a two-year post-employment noncompetition agreement and standard no solicitation and confidentiality provisions.
The foregoing description of the Meyers Employment Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Meyers Employment Agreement filed as Exhibit 10.3 to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
(3) Also on November 8, 2017, the Company entered into a change in control agreement with Deborah Ramentol (the “Ramentol Agreement”). The Ramentol Agreement, the full text of which is filed as Exhibit 10.4 to this Quarterly Report on Form 10-Q and is incorporated herein by reference, replaces Ms. Ramentol’s prior change in control agreement, which would have expired by its terms on December 31, 2017.
The Ramentol Agreement, which remains in effect until December 31, 2018, provides that in the event Ms. Ramentol’s employment should be terminated by the Company without Cause or by Ms. Ramentol’s resignation for Good Reason (in each case as such terms are defined in the Ramentol Agreement) during the one-year period following a Change in Control of the Company (as defined in the Ramentol Agreement), Ms. Ramentol would be entitled to receive a payment equal to the sum of (i) her annual base salary in effect on the date of the termination of her employment, (ii) the target amount of the annual performance bonus for her in the year in which the termination of employment occurs and (iii) the estimated employer portion of premiums that would be necessary to continue Ms. Ramentol’s coverage under the Company’s healthcare plan until the first anniversary of the date of termination (subject to proration should Ms. Ramentol become insured under a subsequent healthcare plan). In addition, all outstanding restricted stock and stock options held by Ms. Ramentol will vest in full and all stock options will become immediately exercisable on the date of the Change in Control.
The Ramentol Agreement also provides that if any amounts due to Ms. Ramentol pursuant to the Ramentol Agreement or any other plan or arrangement constitute a “parachute payment” for purposes of Section 280G of the Internal Revenue Code and the amount of the parachute payment (after taking into account all taxes, including excise taxes) is less than the amount Ms. Ramentol would receive if she was paid three times her “base amount” (as defined under Section 280G of the Internal Code), less one dollar (after taking into account all taxes, including excise taxes), then the aggregate of the amounts constituting the parachute payment will be reduced (or returned by Ms. Ramentol if already paid to her) to an amount that will equal three times Ms. Ramentol’s base amount less one dollar.
The foregoing description of the Ramentol Change in Control Agreement is not complete and is qualified in its entirety by reference to the full text of the Ramentol Agreement filed as Exhibit 10.4 to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Exhibit Number | | Description |
| |
3.1 | Certificate of Amendment, dated November 14, 2019, to the Amended and Restated Certificate of Incorporation of the Company |
10.1(1)10.1 | | Securities Purchase and Sale Agreement, dated March 14, 2017, between New England Institute of Technology at Palm Beach, Inc. and Tambone Companies, LLC, as amended by First Amendment to Purchase and Sale Agreement dated as of April 18, 2017, and as further amended by Second Amendment to Purchase and Sale Agreement dated as of May 12, 2017 |
| | |
10.2* | | Employment Agreement, dated as of November 8, 2017,14, 2019, between the Company and Scott M. Shaw.the investors parties thereto |
10.2 | | |
10.3* | | EmploymentRegistration Rights Agreement, dated as of November 8, 2017,14, 2019, between the Company and Brian K. Meyers.the investors parties thereto |
10.3 | | |
10.4* | | Change in ControlCredit Agreement, dated as of November 8, 2017,14, 2019, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and Sterling National Bank |
10.4 | Form of Indemnification Agreement between the Company and Deborah Ramentol.each director of the Company |
10.5
| Form of Indemnification Agreement between the Company and John A. Bartholdson |
| | |
31.1 * | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
31.2 * | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
32 * | | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
99 | | Press Release of the Company dated November 14, 2019 |
101** | | The following financial statements from Lincoln Educational Services Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,2019, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and in detail. |
| (1) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2017. |
** | As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934. |
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
| LINCOLN EDUCATIONAL SERVICES CORPORATION |
| | | |
Date: November 13, 201714, 2019 | By: | /s/ Brian Meyers | |
| | Brian Meyers | |
| | Executive Vice President, Chief Financial Officer and Treasurer |
Exhibit Index
10.1(1) | | PurchaseCertificate of Amendment, dated November 14, 2019, to the Amended and Sale Agreement, dated March 14, 2017, between New England InstituteRestated Certificate of Technology at Palm Beach, Inc. and Tambone Companies, LLC, as amended by First Amendment to Purchase and Sale Agreement dated asIncorporation of April 18, 2017, and as further amended by Second Amendment to Purchase and Sale Agreement dated as of May 12, 2017 |
| | the Company |
| | EmploymentSecurities Purchase Agreement, dated as of November 8, 2017,14, 2019, between the Company and Scott M. Shaw. |
| | the investors parties thereto |
| | EmploymentRegistration Rights Agreement, dated as of November 8, 2017,14, 2019, between the Company and Brian K. Meyers. |
| | the investors parties thereto |
| | Change in ControlCredit Agreement, dated as of November 8, 2017,14, 2019, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and Sterling National Bank |
| Form of Indemnification Agreement between the Company and Deborah Ramentol.each director of the Company |
10.5
| Form of Indemnification Agreement between the Company and John A. Bartholdson |
| |
| | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | Press Release of the Company dated November 14, 2019 |
101** | | The following financial statements from Lincoln Educational Services Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2017,2019, formatted in XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and in detail. |
| (1) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2017. |
** | As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934. |