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CAREER EDUCATION CORPORATION.
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(Name of Registrant as Specified in Its Charter)
BOSTIC R STEVEN
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The following letter from Steve Bostic to the stockholders of Career Education
Corporation was first mailed to stockholders on or about April 24, 2006:
STEVE BOSTIC
Wachovia Plaza
P.O. Box 31046
Sea Island, Georgia 31561
April 24, 2006
Dear Fellow Stockholder,
Career Education Corporation (CEC) is at a crossroads. Its future direction will
be determined by your vote at this year's Annual Meeting of stockholders. I am
writing to ask for your support for our slate of director candidates - a slate
dedicated to the transformational change that CEC desperately needs. I am
convinced that without such change, the future of our investment in CEC is at
risk. As the owner of over one million shares of CEC stock, my interests are
clearly aligned with yours. I find the Company's current situation unacceptable,
and am conducting this proxy solicitation, at great personal expense, to remedy
it and to protect and enhance the value of CEC for all stockholders.
CEC's current board and management, led, and we believe dominated, by John
Larson, CEC's Chairman, President and Chief Executive Officer, have failed to
effectively respond to the challenges that CEC faces. This failed leadership has
led to a loss of over $3.4 billion in market value since April of 2004 and a
host of regulatory difficulties that have the potential, absent effective and
immediate action, to further diminish the value of the CEC franchise. As a
result of CEC's mismanagement, its estimated price to earnings multiple trails
that of the average of its peers by 42% as reported by Bloomberg on 4/21/2006.
The following table illustrates CEC's price to earnings multiple decline versus
its peers over the past 2 years ending 3/31/2006.
CEC vs. Peer Group P/E Ratios (Quarterly) - Last 2 Years
[GRAPHIC OMITTED - Line Chart]
CEC APOL COCO
Date Pe Ratio Date Pe Ratio Date Pe Ratio
3/31/2004 42.2015 3/31/2004 55.5871 3/31/2004 37.5114
6/30/2004 30.5772 6/30/2004 51.3314 6/30/2004 27.337
9/30/2004 17.4417 9/30/2004 39.2353 9/30/2004 15.6744
12/31/2004 21.8579 12/31/2004 40.1542 12/31/2004 22.1706
3/31/2005 16.7122 3/31/2005 34.77 3/31/2005 18.7143
6/30/2005 16.6409 6/30/2005 33.4274 6/30/2005 16.8026
9/30/2005 15.2618 9/30/2005 26.8785 9/30/2005 19.5147
12/30/2005 14.5095 12/30/2005 22.8937 12/30/2005 20.2931
3/31/2006 16.2349 3/31/2006 18.8824 3/31/2006 24.8276
DV EDMC ESI
Date Pe Ratio Date Pe Ratio Date Pe Ratio
3/31/2004 38.1646 3/31/2004 33.3298 3/31/2004 22.446
6/30/2004 33.439 6/30/2004 31.9029 6/30/2004 24.529
9/30/2004 30.4559 9/30/2004 24.6667 9/30/2004 20.8382
12/31/2004 31.5636 12/31/2004 27.9661 12/31/2004 24.6373
3/31/2005 36.3846 3/31/2005 21.5348 3/31/2005 23.8916
6/30/2005 45.0226 6/30/2005 24.8398 6/30/2005 24.9626
9/30/2005 37.9482 9/30/2005 22.5786 9/30/2005 21.8363
12/30/2005 35.5872 12/30/2005 22.0766 12/30/2005 25.1532
3/31/2006 40.516 3/31/2006 27.4063 3/31/2006 27.2553
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STRA
Date Pe Ratio
3/31/2004 50.1974
6/30/2004 44.9879
9/30/2004 44.751
12/31/2004 40.0693
3/31/2005 38.8082
6/30/2005 28.5629
9/30/2005 30.2949
12/30/2005 28.7423
3/31/2006 31.3681
Source: Bloomberg
REGULATORY PROBLEMS
We believe the P/E decline relative to its peers is primarily attributable to
CEC's many legal and regulatory problems. The carelessness which current
management seems to bring to its regulatory obligations is evident even in its
recent communications to you. In his April 18th letter, Mr. Larson mentions the
termination of an SEC investigation of the Company, the dismissal of a class
action lawsuit and the Company's success in a suit against its California
regulators as evidence of momentum! The Company is still facing investigations,
inquiries or reviews by the U.S. Department of Education; the U.S. Department of
Justice; the Texas Higher Education Coordinating Board; the Bureau of Consumer
Protection of the Office of the Attorney General in Pennsylvania; the California
Bureau for Private Postsecondary and Vocational Education (California Department
of Consumer Affairs currently reviewing court decision halting action); the New
Jersey Department of Labor and Workforce Development; and numerous lawsuits
against the Company and certain members of its senior management brought by
stockholders, current and former students, and employees.
AMERICAN INTERCONTINENTAL UNIVERSITY PROBATION
MUST BE RESOLVED
American Intercontinental University (AIU) is the Company's flagship division,
and represents a substantial amount of the Company's pre-tax income and market
capitalization. On December 6, 2005 AIU was placed on probation by the Southern
Association of Colleges and Schools, or SACS, its accrediting body, and given a
year to fix its problems or face the loss of its accreditation. Probation is
SAC's "most serious sanction, short of loss of membership, and is imposed on an
institution for failure to correct deficiencies or significant
non-compliance."(1) Probation was imposed for numerous violations of SACS'
Principles of Accreditation, including regulations relating to "integrity".
Among other findings, SACS determined that CEC was not in compliance with
regulatory provisions relating to the "integrity of student academic records and
accuracy in recruiting and admission practices". The portion of the SACS
document that discusses "integrity" states:
Integrity, essential to the purpose of higher education, functions
as the basic contract defining the relationship between the
Commission and each of its member institutions....Therefore,
evidence of intentionally withholding information, deliberately
providing inaccurate information to
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(1) Commission on Colleges of SACS Disclosure Statement dated December 12,
2005.
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the public, or failing to provide timely and accurate information to
the Commission will be seen as the lack of a full commitment to
integrity and may result in the loss of membership in the Commission
on Colleges.
We believe that a management team that would allow the Company's major asset to
be put at risk in this manner is guilty of negligence at the very least, and
that a board that would allow matters to progress to this point has failed its
investors and is in need of new leadership. It is telling that only weeks prior
to the announcement of AIU's probation, a Company spokesman indicated that "we
have a great relationship with SACS. We have really built a great
partnership..."
WE OFFER AN ALTERNATIVE PLAN
With the election of our nominees as a clear mandate from CEC's stockholders, we
fully expect to gain the cooperation of our fellow independent directors in
implementing the required changes in CEC's management policies and corporate
organization. We have a clear vision for the Company, and specific plans to:
o Promptly address and resolve the AIU accreditation and probation
issues by establishing a climate of trust and academic integrity.
o Design and implement an enterprise transformation plan to enhance
the company's financial performance:
o Pursue programs and quality improvement processes to
capitalize on the sizeable margin improvement
opportunities available to the Company.
o Design and implement a team-based marketing, recruiting
and enrollment model to improve student retention by
10,000 students annually.
o Retain a highly qualified curriculum consulting firm to
redesign CEC's classroom and online education programs
to both improve product quality and enhance student
retention.
o Rationalize the Company's cost structure to bring it in
line with the best in class of its industry peers.
We have the commitment, experience and ability needed to effect meaningful
change at CEC. We only need your vote to make it a reality.
OUR NOMINEES
Our nominees have demonstrated track records of leadership and success, and
possess the unimpeachable integrity and commitment to effective corporate
governance required to resolve AIU's accreditation problems and to help CEC
navigate through its pending regulatory investigations and litigation. Our
nominees are:
o Steve Bostic: From 1995 to 2001, Chairman and Chief Executive Officer of
the holding company that owned AIU prior to its acquisition by CEC. As
President and Chairman of the Board of AIU, he was directly involved in
maintaining and expanding the scope of AIU's SACS accreditation. AIU was
fully accredited by SACS during the entire period of his administration.
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o James E. Copeland, Jr.: Mr. Copeland is the former Chief Executive Officer
of Deloitte & Touche LLP and Deloitte Touche Tohmatsu and currently sits
on the board of directors of three public companies, Coca-Cola Enterprises
Inc., ConocoPhillips and Equifax Inc. Since 2003, Mr. Copeland has been a
Senior Fellow for Corporate Governance with the U.S. Chamber of Commerce.
o R. William Ide: Mr. Ide is a partner of the law firm McKenna Long &
Aldridge. Mr. Ide currently sits on the board of directors of two public
companies, AFC Enterprises and Albemarle Corporation. Mr. Ide was
Counselor to the United States Olympic Committee, for whom he oversaw the
investigation of allegations of malfeasance during the bid for the Salt
Lake City Games and the development and implementation of the Committee's
correction strategies. Mr. Ide also serves on the board of trustees of
Clark-Atlanta University and is a former President of the American Bar
Association.
THE FUTURE OF CEC IS IN YOUR HANDS.
Your vote in this election will decide whether "business as usual" will continue
under the Larson regime, or whether the necessary changes will be made and the
Company allowed to thrive under a revitalized board and leadership. We believe
that the critical regulatory difficulties and litigation besetting the Company
are directly attributable to the failures of the Larson management team. The
board's failure to ensure that CEC is managed effectively and with academic
integrity has put the entire Company in jeopardy.
VOTE TO PROTECT THE VALUE OF YOUR INVESTMENT
SIGN, DATE AND RETURN YOUR BLUE PROXY CARD TODAY
Even if you have already returned a white management card, you have every right
to change your vote by sending in a later-dated BLUE proxy. Only your latest
dated proxy will count.
Thank you for your support.
Sincerely,
/s/ Steve Bostic
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Steve Bostic
IMPORTANT
If your shares are held in your own name, please sign, date and return the
enclosed BLUE proxy card today. If your shares are held in "Street-Name," only
your broker or bank can vote your shares and only upon your specific
instructions. Please return the enclosed BLUE proxy card to your broker or bank
and contact the person responsible for your account to ensure that a BLUE proxy
is voted on your behalf.
Do not sign any White proxy card you may receive from CEC.
If you have any questions, or need assistance in voting your shares, please
contact the firm assisting us in the solicitation of proxies:
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INNISFREE M&A INCORPORATED
TOLL-FREE: (877) 750-9499
Banks and Brokers call collect: (212) 750-5833
SECURITY HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT AND OTHER DOCUMENTS
RELATED TO SOLICITATION OF PROXIES BY MR. BOSTIC AND HIS NOMINEES FROM THE
STOCKHOLDERS OF CAREER EDUCATION CORPORATION FOR USE AT ITS ANNUAL MEETING (A)
WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION,
INCLUDING INFORMATION RELATING TO THE PARTICIPANTS IN ANY SUCH PROXY
SOLICITATION, AND (B) WHEN AND IF COMPLETED, A DEFINITIVE PROXY STATEMENT AND A
FORM OF PROXY WHICH WILL BE MAILED TO STOCKHOLDERS OF CAREER EDUCATION
CORPORATION AND WILL BE AVAILABLE AT NO CHARGE AT THE SECURITIES AND EXCHANGE
COMMISSION'S WEBSITE AT HTTP://WWW.SEC.GOV. IN ADDITION, YOU MAY OBTAIN A FREE
COPY OF THE DEFINITIVE PROXY STATEMENT (WHEN IT IS AVAILABLE) BY CONTACTING OUR
PROXY SOLICITOR, INNISFREE M&A INCORPORATED.
PARTICIPANT INFORMATION:
MR. BOSTIC HAS AN INTEREST IN THE SOLICITATION OF PROXIES WITH RESPECT TO THE
2006 ANNUAL MEETING OF CAREER EDUCATION CORPORATION ARISING FROM HIS BENEFICIAL
OWNERSHIP OF THE COMMON STOCK OF CAREER EDUCATION CORPORATION. MR. BOSTIC IS THE
BENEFICIAL OWNER OF 1,081,340 SHARES OF CAREER EDUCATION CORPORATION'S COMMON
STOCK.
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