Document:

Exhibit

Exhibit 10.2

BROCADE COMMUNICATIONS SYSTEMS, INC.
2009 STOCK PLAN
RESTRICTED STOCK UNIT AGREEMENT
FOR
FY16 PERFORMANCE STOCK UNITS

NOTICE OF GRANT
[FIRST_NAME MIDDLE_NAME LAST_NAME]

You (“Grantee”) have been granted an award of market-based performance Restricted Stock Units under the Company’s 2009 Stock Plan (the “Plan”). The date of this Restricted Stock Unit Agreement (the “Agreement”) is the Grant Date defined below. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to them in the Plan or Appendix A, which are attached hereto and incorporated herein in their entirety. The principal features of this award are as follows:
		
	Grant Date:
	[_______] (the “Grant Date”)

Baseline Number of 
		
	Restricted Stock Units:
	[_______] (the “Baseline Number of Restricted Stock Units”)

Maximum Number
		
	of Restricted Stock Units:
	[To be calculated as 150% of the Baseline Number of Restricted Stock Units] (the “Maximum Number of Restricted Stock Units”)

		
	Performance Period:
	November 1, 2015 through October 28, 2017 (subject to Section 4(c) of Appendix A) (the “Performance Period”).

		
	Performance Matrix:
	The number of Restricted Stock Units (“RSU”), if any, in which you may vest in accordance with the Vesting Schedule will depend upon the Company’s Stock Price Performance as compared to the NASDAQ Telecom Stock Price Performance for the Performance Period and will be determined in accordance with Section 1 of Appendix A.

		
	Vesting Schedule:
	Subject to Section 4 of Appendix A and the terms of the Plan, if there are any Calculated RSUs (as defined in Appendix A), the Grantee will vest as to fifty percent (50%) of the Calculated RSUs at the close of business on the last day of the Performance Period (the “First Vesting Date”). To the extent that the number of Calculated RSUs is less than the Baseline Number of Restricted Stock Units, the difference between the Baseline Number of Restricted Stock Units and the actual number of Calculated RSUs shall be immediately forfeited.

Subject to Section 4 of Appendix A and the terms of the Plan, the Grantee will vest as to the remaining fifty percent (50%) of the Calculated RSUs, if any, at the close of business on the one year anniversary of the last day of the Performance Period (the “Second Vesting Date”). Each of the First Vesting Date and the Second Vesting Date is hereinafter defined as a “Vesting Date”.

Notwithstanding the foregoing and except as otherwise provided in Appendix A, the Grantee will not vest in the Restricted Stock Units, even if they are Calculated RSUs, unless he or she remains a Service Provider (as defined in the Plan) through the applicable Vesting Date. If Grantee is employed on the First Vesting Date, but ceases to be a Service Provider prior to the date the Calculated RSUs are determined, Grantee shall not forfeit any RSUs until such date as the Calculated RSUs are determined.

Your acceptance online indicates your agreement and understanding that this award is subject to all of the terms and conditions contained in Appendix A and the Plan. For example, important additional information on vesting and forfeiture of the Restricted Stock Units is contained in Sections 3 through 5 and Section 7 of Appendix A. PLEASE BE SURE TO READ ALL OF APPENDIX A AND THE PLAN, WHICH CONTAIN THE SPECIFIC TERMS AND CONDITIONS OF THIS AWARD.

	
			
	BROCADE COMMUNICATIONS SYSTEMS, INC.
	GRANTEE

	 
	 
	 

	 
	 
	 

	Signature
	 
	Signature

	 
	 
	 

	 
	 
	 

	Print Name
	 
	Print Name

	 
	 
	 

	 
	 
	 

	Title
	 
	 

Electronic Signature will be required on E*Trade

Attachments:    Appendix A
2009 Stock Plan (To be attached when distributed to plan participants)

APPENDIX A
TERMS AND CONDITIONS OF RESTRICTED STOCK UNITS
(FY16 PERFORMANCE STOCK UNITS)

Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to them in the Plan.
1.    Grant.
(a)    The Company hereby grants to the Grantee under the Plan an award of the Baseline Number of Restricted Stock Units set forth on the Notice of Grant, subject to adjustment for market performance and vesting requirements in accordance with the Notice of Grant and this Appendix A and all of the terms and conditions in this Agreement and the Plan. For each Restricted Stock Unit that vests, the Grantee will be entitled to receive one (1) Share (subject to automatic adjustment for stock splits, combinations and other adjustments contemplated in the Plan).
(b)    The number of Restricted Stock Units in which the Grantee may vest in accordance with the Vesting Schedule will depend upon the Company’s Stock Price Performance as compared to the NASDAQ Telecom Stock Price Performance for the Performance Period and will be determined following the end of the Performance Period as follows:
(i)    Performance Calculation.
(a)    The “Company’s Stock Price Performance” means the percentage increase or decrease in the total return (change in share price plus reinvestment of any dividends) of the Company’s Common Stock for (i) the last sixty (60) market trading days in the Performance Period, over (ii) the sixty (60) market trading day period beginning on the thirtieth (30th) market trading day prior to the first day of the Performance Period and ending on the thirtieth (30th) market trading day following (and including) the first day of the Performance Period.
(b)    The “NASDAQ Telecom Stock Price Performance” means the percentage increase or decrease in the total return (change in share price plus reinvestment of any dividends) of a share of the NASDAQ Telecommunications Index, ticker symbol “IXTC,” (or any successor fund) for (i) the last sixty (60) market trading days in the Performance Period, over (ii) the sixty (60) market trading day period beginning on the thirtieth (30th) market trading day prior to the first day of the Performance Period and ending on the thirtieth (30th) market trading day following (and including) the first day of the Performance Period.
(c)    The Company’s Stock Price Performance will be compared against the NASDAQ Telecom Stock Price Performance (each expressed as a growth rate percentage as of the beginning of the Performance Period) to result in the growth rate difference (the “Growth Rate Delta”) equal to the Company’s Stock Price Performance minus the NASDAQ Telecom Stock Price Performance.
(ii)    RSU Calculation.
(a)    If the Growth Rate Delta is equal to zero percent (0%), the number of Restricted Stock Units that will be eligible to vest (the “Calculated RSUs”) will equal the Baseline Number of Restricted Stock Units; and
(b)    If the Growth Rate Delta is greater or less than zero percent (0%), the Calculated RSUs will be equal to: (i) the Baseline Number of Restricted Stock Units, multiplied by (ii) the sum of (A) 100% and (B) five (5) times the Growth Rate Delta; provided, however, that in no event will more than the Maximum Number of Restricted Stock Units become Calculated RSUs or will the number of Calculated RSUs be less than zero.

(iii)    Examples (for illustration purposes only).
(a)    Example #1: If the Growth Rate Delta was +10%, then 150% (equal to 100% plus (5 times 10%)) of the Baseline Number of Restricted Stock Units would be Calculated RSUs.
(b)    Example #2: If the Growth Rate Delta was -10%, then 50% (equal to 100% plus (5 times -10%)) of the Baseline Number of Restricted Stock Units would be Calculated RSUs.
(c)    When Shares are paid to the Grantee in payment for the Restricted Stock Units, par value ($.001 per share) will be deemed paid by the Grantee for each Restricted Stock Unit by services rendered by the Grantee, and will be subject to the appropriate tax withholdings in accordance with Section 9 below.
2.    Company’s Obligation to Pay. Each Restricted Stock Unit has a value equal to the Fair Market Value of a Share on the date that the Restricted Stock Unit is granted. Unless and until the Restricted Stock Units have vested in the manner set forth in Sections 3 through 5, the Grantee will have no right to payment of such Restricted Stock Units. Prior to actual payment of Shares upon the vesting of any Restricted Stock Units, such Restricted Stock Units will represent an unsecured obligation. Payment of any vested Restricted Stock Units shall be made in whole Shares only and any fractional Shares will be forfeited at the time of payment.
3.    Vesting Schedule/Period of Restriction. Except as provided in Sections 4 and 5 and subject to Section 7, the Restricted Stock Units awarded by this Agreement shall vest in accordance with the vesting provisions set forth on the Notice of Grant. Restricted Stock Units shall not vest in accordance with any of the provisions of this Agreement unless the Grantee shall have been continuously employed by the Company or by its Parent or other successor or a Subsidiary from the Grant Date through the dates the Restricted Stock Units are otherwise scheduled to vest.
4.    Modifications to Vesting Schedule.
(a)    Vesting upon Leave of Absence. In the event that the Grantee takes an authorized leave of absence (“LOA”), the Restricted Stock Units awarded by this Agreement that are eligible to be earned shall either: (i) not be affected, or (ii) shall be deferred for a period of time equal to the duration of such LOA, based on the Company’s LOA policy in effect at such time as determined by the Company in its sole discretion.
(b)    Death or Disability of Grantee. In the event that the Grantee’s relationship with the Company or its Parent or other successor or a Subsidiary as a Service Provider is terminated prior to full vesting of the Restricted Stock Units due to his or her death or Disability, the unvested portion of the Restricted Stock Units subject to this Restricted Stock Unit Award shall be forfeited on the date of the Grantee’s death or Disability, unless otherwise determined by the Administrator.
(c)    Change in Control. In the event of a Change in Control, the Performance Period shall be deemed to end upon the closing of the Change in Control for purposes of determining the Company’s Stock Price Performance and the NASDAQ Telecom Stock Price Performance and the number of Restricted Stock Units that are Calculated RSUs otherwise will be determined in accordance with the Performance Matrix and Section 1 of this Appendix A. The Grantee shall vest in the number of Calculated RSUs determined based on the preceding sentence as follows: fifty percent (50%) of the Calculated RSUs will vest immediately prior to and contingent upon the Change in Control (the “New First Vesting Date”) and the remaining fifty percent (50%) of the Calculated RSUs will vest on the one-year anniversary of the closing of the Change in Control (the “New Second Vesting Date,” and each of the New First Vesting Date and the New Second Vesting Date, a “New Vesting Date”), and provided that the Grantee remains a Service Provider through such New Vesting Date or as otherwise set forth in this Agreement, in each case unless vested earlier or as otherwise provided in accordance with the terms of this Award, Section 18 of the Plan, any Change of Control Retention Agreement between Grantee and the Company or any employment or other change in control agreement by and between the Company and the Grantee. In accordance with Section 1 of this Appendix A, the Administrator shall not be entitled to eliminate or reduce the number of Calculated RSUs determined in accordance with Section 1 of Appendix A following a Change in Control.

5.    Administrator Discretion. The Administrator, in its discretion, at any time may accelerate the vesting of the balance, or some lesser portion of the balance, of: (a) the Calculated RSUs; or (b) the Restricted Stock Units held by any Grantee who, for the year in which the acceleration occurs, will not be a “covered employee” as that term is defined in Code Section 162(m), subject to the terms of the Plan. If so accelerated, such Restricted Stock Units will be considered as having vested as of the date specified by the Administrator. Subject to the provisions of this paragraph 5, if the Administrator, in its discretion, accelerates the vesting of all or a portion of any unvested Restricted Stock Units, the payment of such accelerated Restricted Stock Units shall be made as soon as practicable upon or following the accelerated vesting date, but in no event later than 60 days following the vesting date of such accelerated Restricted Stock Units. The Grantee is hereby advised to consult with the Grantee’s own personal tax, legal and financial advisors regarding the Grantee’s participation in the Plan before taking any action related to the Plan.
Notwithstanding anything in the Plan or this Agreement to the contrary, if the vesting of all or a portion of any unvested Restricted Stock Units is accelerated in connection with the termination of the Grantee’s relationship with the Company as a Service Provider (a “Termination of Service”) other than due to death, and if both (a) the Grantee is a “specified employee” within the meaning of Section 409A at the time of such Termination of Service, and (b) the payment of such accelerated Restricted Stock Units would result in the imposition of additional tax under Section 409A if paid to the Grantee within the six (6) month period following the Grantee’s Termination of Service, then the payment of such accelerated Restricted Stock Units will not be made until the date that is six (6) months and one (1) day following the date of the Grantee’s Termination of Service, unless the Grantee dies following his or her Termination of Service, in which case, the Restricted Stock Units will be paid in Shares to the Grantee’s estate as soon as practicable following his or her death. It is the intent of this Agreement to be exempt from or comply with the requirements of Section 409A so that none of the Restricted Stock Units provided under this Agreement or shares issuable thereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities or ambiguous terms herein will be interpreted to be so exempt or comply. For purposes of this Agreement, “Section 409A” means Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and any proposed, temporary or final Treasury Regulations and Internal Revenue Service guidance thereunder, as each may be amended from time to time.
6.    Payment after Vesting. Any Restricted Stock Units that vest in accordance with this Agreement will be paid to the Grantee (or in the event of the Grantee’s death, to his or her estate) as soon as practicable following the applicable Vesting Date (or New Vesting Date, as applicable), subject to Sections 9 and 21, but no later than sixty (60) days following the applicable Vesting Date (or New Vesting Date, as applicable).
7.    Forfeiture. Except as set forth in Sections 4 or 5 or applicable Change of Control Retention Agreement between Grantee and the Company (or successor), the balance of the Restricted Stock Units that have not vested pursuant to Sections 3 through 5 at the time of the termination of the Grantee’s relationship with the Company as a Service Provider for any or no reason will be forfeited.
8.    [Reserved]
9.    Withholding of Taxes.
(a)    General. Regardless of any action the Company and/or the Grantee’s employer (the “Employer”) take with respect to any or all income tax (including U.S. federal, state, local and/or non-U.S. taxes), social insurance, payroll tax, payment on account or other tax-related withholdings (“Tax-Related Items”), the Grantee acknowledges that the ultimate liability for all Tax-Related Items legally due by the Grantee is and remains the Grantee’s responsibility and that the Company and/or the Employer (i) make no guarantees or undertakings regarding the treatment of any Tax-Related Items in connection with any aspect of the award, including the grant of the Restricted Stock Units, the vesting of the Restricted Stock Units, the delivery of Shares, the subsequent sale of any Shares received at vesting and the receipt of any dividends; and (ii) do not commit to structure the terms of the grant or any aspect of the award to reduce or eliminate the Grantee’s liability for Tax-Related Items.

(b)    Payment of Tax-Related Items. The Grantee authorizes the Company and/or the Employer, at its discretion, to satisfy the obligations with regard to all Tax-Related Items by automatically withholding a portion of the Shares issued as payment for vested Restricted Stock Units that have an aggregate market value sufficient to pay all Tax-Related Items required to be withheld by the Company and/or the Employer with respect to the vesting of the Restricted Stock Units and issuance of the Shares, unless the Company, in its sole discretion, either requires or otherwise permits the Grantee to make alternate arrangements satisfactory to the Company for such withholdings in advance of, or concurrently with, the arising of any withholding obligations. The number of Shares withheld pursuant to the prior sentence will be rounded up to the nearest whole Share, with no refund for any value of the Shares withheld in excess of the tax obligation as a result of such rounding.
If the obligation of Tax-Related Items is satisfied by reducing the number of Shares delivered as described herein, the Grantee is deemed to have been issued the full number of Shares subject to the award of Restricted Stock Units, notwithstanding that a number of the Shares are held back solely for the purpose of paying the Tax-Related Items due as a result of any aspect of the award.
If the foregoing method of withholding is prohibited or insufficient to satisfy all Tax-Related Items required to be withheld by the Company and/or the Employer with respect to the vesting of the Restricted Stock Units and issuance of the Shares or if the Company, in its discretion, determines not to apply the foregoing method of withholding, then the Grantee hereby authorizes the Company and/or the Employer to satisfy such obligations by one or a combination of the following: (i) withholding from the Grantee’s wages or other cash compensation paid to the Grantee by the Company and/or the Employer, to the maximum extent permitted by law; or (ii) selling the applicable number of Shares or arranging for the sale of the applicable number of Shares (in either case on the Grantee’s behalf and at the Grantee’s discretion pursuant to this authorization) issued in settlement of vested Restricted Stock Units and retaining the requisite proceeds from such sale.
Finally, the Grantee shall pay to the Company and/or the Employer any amount of Tax-Related Items that the Company and/or the Employer may be required to withhold as a result of the Grantee’s participation in the Plan that cannot be satisfied by the means previously described. The Company may refuse to deliver to the Grantee any Shares pursuant to the award if the Grantee fails to comply with the Grantee’s obligations in connection with the Tax-Related Items, as described in this Section 9.
10.    Rights as Stockholder. Neither the Grantee nor any person claiming under or through the Grantee will have any of the rights or privileges of a stockholder of the Company in respect of any Shares deliverable hereunder unless and until certificates representing such Shares (which may be in book entry form) will have been issued, recorded on the records of the Company or its transfer agents or registrars, and delivered to the Grantee (including through electronic delivery to a brokerage account). After such issuance, recordation and delivery, the Grantee will have all the rights of a stockholder of the Company with respect to voting such Shares and receipt of dividends and distributions on such Shares.
11.    No Effect on Employment. Subject to any employment contract with the Grantee, the terms of such employment will be determined from time to time by the Company, or the Subsidiary employing the Grantee, as the case may be, and the Company, or the Subsidiary employing the Grantee, as the case may be, will have the right, which is hereby expressly reserved, to terminate or change the terms of the employment of the Grantee at any time for any reason whatsoever, with or without good cause. The transactions contemplated hereunder and the vesting schedule set forth on the first page of this Agreement do not constitute an expressed or implied promise of continued employment for any period of time. A leave of absence or an interruption in service (including an interruption during military service) authorized or acknowledged by the Company or the Subsidiary employing the Grantee, as the case may be, shall not be deemed a termination of the Grantee’s relationship with the Company or its Subsidiary as a Service Provider for the purposes of this Agreement.
12.    Address for Notices. Any notice to be given to the Company under the terms of this Agreement will be addressed to the Company, in care of Stock Administrator, at 130 Holger Way, San Jose, California, 95134, USA, or at such other address as the Company may hereafter designate in writing, with a copy to the Company, C/O General Counsel, 130 Holger Way, San Jose, California, 95134, USA.

13.    Grant is Not Transferable. Except to the limited extent provided in this Agreement or the Plan, this grant of Restricted Stock Units and the rights and privileges conferred hereby will not be sold, pledged, assigned, hypothecated, transferred or disposed of any way (whether by operation of law or otherwise) and will not be subject to sale under execution, attachment or similar process, until the Grantee has been issued Shares in payment of the Restricted Stock Units. Upon any attempt to sell, pledge, assign, hypothecate, transfer or otherwise dispose of this grant, or any right or privilege conferred hereby, or upon any attempted sale under any execution, attachment or similar process, this grant and the rights and privileges conferred hereby immediately will become null and void. Notwithstanding the foregoing, Grantee may, in a manner and in accordance with terms specified by the Administrator, transfer these Restricted Stock Units to Grantee’s spouse, former spouse or dependent pursuant to a court-approved domestic relations order which relates to the provision of child support, alimony payments or marital property rights.
14.    Restrictions on Sale of Securities. The Shares issued as payment for vested Restricted Stock Units under this Agreement will be registered under U.S. federal securities laws and will be freely tradable upon receipt. However, a Grantee’s subsequent sale of the Shares may be subject to any market blackout-period that may be imposed by the Company and must comply with the Company’s insider trading policies, and any other U.S. securities laws or other Applicable Laws.
15.    Binding Agreement. Subject to the limitation on the transferability of this grant contained herein, this Agreement will be binding upon and inure to the benefit of the heirs, legatees, legal representatives, successors and assigns of the parties hereto.
16.    Additional Conditions to Issuance of Certificates for Shares. The Company shall not be required to issue any certificate or certificates for Shares hereunder prior to fulfillment of all the following conditions: (a) the admission of such Shares to listing on all stock exchanges on which such class of stock is then listed; (b) the completion of any registration or other qualification of such Shares under any U.S. state or federal or non-U.S. law or under the rulings or regulations of the Securities and Exchange Commission or any other governmental regulatory body, which the Administrator shall, in its absolute discretion, deem necessary or advisable; (c) the obtaining of any approval or other clearance from any U.S. state or federal or non-U.S. governmental agency, which the Administrator shall, in its absolute discretion, determine to be necessary or advisable; and (d) the lapse of such reasonable period of time following the Vesting Date of the Restricted Stock Units as the Administrator may establish from time to time for reasons of administrative convenience. The Company shall use its commercially reasonable efforts to satisfy the preceding conditions, as determined by the Administrator.
17.    Plan Governs. This Agreement is subject to all the terms and provisions of the Plan. In the event of a conflict between one or more provisions of this Agreement and one or more provisions of the Plan, the provisions of the Plan will govern.
18.    Administrator Authority. The Administrator will have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules (including, but not limited to, the determination of whether or not any Restricted Stock Units have vested). All actions taken and all interpretations and determinations made by the Administrator in good faith will be final and binding upon the Grantee, the Company and all other interested persons. No member of the Administrator will be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or this Agreement.
19.    Captions. Captions provided herein are for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.
20.    Agreement Severable. In the event that any provision in this Agreement will be held invalid or unenforceable, such provision will be severable from, and such invalidity or unenforceability will not be construed to have any effect on, the remaining provisions of this Agreement.

21.    Modifications to the Agreement. This Agreement, including Appendix A, together with the Plan, constitutes the entire understanding of the parties on the subjects covered, subject to any applicable pre-existing agreement or agreement entered into after the date hereof relating to full or partial acceleration of vesting in the event of a change of control of the Company (or similar event). The Grantee expressly warrants that he or she is not accepting this Agreement in reliance on any promises, representations, or inducements other than those contained herein or expressly contemplated above. Modifications to this Agreement or the Plan can be made only in an express written contract executed by a duly authorized officer of the Company. Notwithstanding anything to the contrary in the Plan or this Agreement, the Company reserves the right to revise this Agreement as it deems necessary or advisable, in its sole discretion and without the consent of the Grantee, to comply with Section 409A or to otherwise avoid imposition of any additional tax or income recognition under Section 409A prior to the actual payment of Shares pursuant to this award of Restricted Stock Units. However, in no event will the Company be required to reimburse the Grantee (or his or her estate) for any taxes or other costs under Section 409A or for any other Tax-Related Item.
22.    Amendment, Suspension or Termination of the Plan. By accepting this Restricted Stock Unit Award, the Grantee expressly warrants that he or she has received a right to receive stock under the Plan, and has received, read and understood a description of the Plan. The Grantee understands that the Plan is discretionary in nature and may be modified, amended, suspended or terminated by the Company at any time, except as otherwise provided in the Plan and/or the Agreement.
23.    Labor Law and Nature of Grant. In accepting the award of Restricted Stock Units, the Grantee acknowledges that:
(a)    the Plan is established voluntarily by the Company;
(b)    the award of Restricted Stock Units is voluntary and occasional and does not create any contractual or other right to receive future awards of Restricted Stock Units, or benefits in lieu of Restricted Stock Units even if Restricted Stock Units have been awarded repeatedly in the past;
(c)    all decisions with respect to future awards, if any, will be at the sole discretion of the Company;
(d)    the Grantee’s participation in the Plan is voluntary;
(e)    the award is an extraordinary item that is outside the scope of the Grantee’s employment or service contract, if any;
(f)    the award is not part of normal or expected compensation or salary for any purposes, including, but not limited to, calculation of any severance, resignation, termination, redundancy, end of service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments;
(g)    in the event that the Grantee is not an employee of the Company, the award will not be interpreted to form an employment or service contract or relationship with the Company; and, furthermore, the award will not be interpreted to form an employment or service contract or relationship with the Employer or any Parent or other successor or a Subsidiary of the Company;
(h)    the future value of the underlying Shares is unknown and cannot be predicted with certainty;
(i)    the Company is not providing any tax, legal, or financial advice, nor is the Company making any recommendations regarding the Grantee’s participation in the Plan or the acquisition or sale of Shares; and
(j)    the Grantee is hereby advised to consult with the Grantee’s own personal tax, legal and financial advisors regarding the Grantee’s participation in the Plan before taking any action related to the Plan.

24.    Data Privacy. The Grantee hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of the Grantee’s personal data as described in the Notice of Grant and this Agreement and any other Restricted Stock Unit grant materials by and among, as applicable, the Employer, the Company and its Subsidiaries for the exclusive purpose of implementing, administering and managing the Grantee’s participation in the Plan.
The Grantee understands that the Company and the Employer may hold certain personal information about the Grantee, including, but not limited to, the Grantee’s name, home address and telephone number, date of birth, social insurance or other identification number, salary, nationality, job title, any Shares or directorships held in the Company, details of all Restricted Stock Units or any other entitlement to Shares awarded, canceled, vested, unvested or outstanding in the Grantee’s favor, for the exclusive purpose of implementing, administering and managing the Plan (“Data”).
The Grantee understands that Data will be transferred to E*Trade or such other stock plan service provider as may be selected by the Company in the future, which is assisting the Company with the implementation, administration and management of the Plan. The Grantee understands the recipients of Data may be located in the Grantee’s country, in the United States or elsewhere, and that the recipients’ country may have different data privacy laws and protections than the Grantee’s country. The Grantee understands that the Grantee may request a list with the names and addresses of any potential recipients of the Data by contacting the Grantee’s local human resources representative. The Grantee authorizes the Company, E*Trade and any other potential recipients which may assist the Company (presently or in the future) with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the sole purpose of implementing, administering and managing the Grantee’s participation in the Plan. The Grantee understands that he or she may, at any time, view the Data, request additional information about the storage and processing of the Data, require any necessary amendments to the Data or refuse or withdraw the consents herein, in any case without cost, by contacting in writing the Grantee’s local human resources representative. The Grantee understands, however, that refusing or withdrawing consent may affect the Grantee’s ability to participate in the Plan. For more information on the consequences of the Grantee’s refusal to consent or withdrawal of consent, the Grantee understands that he or she may contact his or her local human resources representative.
25.    Notice of Governing Law. This award of Restricted Stock Units shall be governed by, and construed in accordance with, the laws of the State of California, without regard to principles of conflict of laws. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by the award of Restricted Stock Units, the parties hereby submit to and consent to the exclusive jurisdiction of the State of California and agree that such litigation shall be conducted on in the courts of Santa Clara County, California or the federal courts for the United States for the Northern District of California, and no other courts, where this grant is made and/or to be performed.
26.    Electronic Delivery. The Company may, in its sole discretion, decide to deliver any documents related to Restricted Stock Units awarded under the Plan or future Restricted Stock Units that may be awarded under the Plan by electronic means, or to request the Grantee’s consent to participate in the Plan by electronic means. The Grantee hereby consents to receive such documents by electronic delivery and if requested, to agree to participate in the Plan through an on-line or electronic system established and maintained by the Company or another third party designated by the Company.Exhibit 10.1

SECOND AMENDMENT TO CREDIT AGREEMENT

 

THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as of February 29, 2016, is by and among LINCOLN EDUCATIONAL SERVICES CORPORATION, a New Jersey corporation (“Parent”), and its Subsidiaries party hereto (Parent and such Subsidiaries, each, individually, a “Borrower”, and collectively, “Borrowers”), the lenders identified on the signature pages hereof, and HPF SERVICE, LLC, as administrative agent for the Lenders party to the below described Credit Agreement (in such capacity, together with its successors and assigns in such capacity, “Administrative Agent”) and as Tranche A Collateral Agent.

W I T N E S S E T H:

 

WHEREAS, pursuant to the Credit Agreement dated as of July 31, 2015 (the “Existing Credit Agreement”) by and among Borrowers, the Tranche A Lenders and Tranche B Lenders party thereto, Administrative Agent, Tranche A Collateral Agent, and ALOSTAR BANK OF COMMERCE, as collateral agent for the Tranche B Lenders (in such capacity, together with its successors and assigns in such capacity, the “Tranche B Collateral Agent”), the Tranche A Lenders and the Tranche B Lenders made certain loans to Borrowers; and

WHEREAS, Borrowers have requested that certain amendments be made to the Existing Credit Agreement, and Administrative Agent and the Lenders are willing to make such amendments, subject to the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the agreements herein contained and other good and valuable consideration, the parties hereby agree as follows:

PART  I.

DEFINITIONS

SUBPART 1.1    Certain Definitions.  Unless otherwise defined herein or the context otherwise requires, the following terms used in this Amendment, including its preamble and recitals, have the following meanings:

“Amended Credit Agreement” means the Existing Credit Agreement as amended hereby.

SUBPART 1.2   Other Definitions.  Unless otherwise defined herein or the context otherwise requires, terms used in this Amendment, including its preamble and recitals, have the meanings provided in the Amended Credit Agreement.

PART  II.

AMENDMENTS TO EXISTING CREDIT AGREEMENT AND SECURITY AGREEMENT

SUBPART 2.1   Amendment to Schedules (Schedule C-1).  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Existing Credit Agreement is hereby amended to reflect that the aggregate Tranche B Commitment (all of which is currently held by the Tranche B Lender party to this Amendment) is $20,000,000.

 

1

SUBPART 2.2    Amendment to Schedules (Schedule H).  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Existing Credit Agreement is hereby amended by adding new Schedule H in the form of Schedule H attached to this Amendment.

SUBPART 2.3    Amendment to Section 2.1 (Making of Term Loans).  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Existing Credit Agreement is hereby amended by deleting Section 2.1 and replacing such Section with the following:

2.1        Making of Term Loans.  Borrowers, Lenders and Administrative Agent acknowledge that (a) on the Closing Date, (i) each Tranche A Lender made (severally, not jointly or jointly and severally) a term loan (collectively, the “Tranche A Term Loan”) to Borrowers in an amount equal to such Lender’s share of the Tranche A Term Loan Amount based on its Tranche A Commitment, and (ii) each Tranche B Lender made (severally, not jointly or jointly and severally) a term loan (collectively, the “Tranche B Term Loan”) to Borrowers in an amount equal to such Lender’s share of the Tranche B Term Loan Amount (as in effect on the Closing Date) based on its Tranche B Commitment (as in effect on the Closing Date), (b) the outstanding principal balance of the Tranche A Term Loan as of the date hereof is $29,616,449.20, and (c) the outstanding principal balance of the Tranche B Term Loan as of the date hereof is $15,000,000. Subject to the terms and conditions of this Agreement, on the Second Amendment Effective Date, the Tranche B Lender agrees (severally, not jointly or jointly and severally) to make an additional term loan of $5,000,000 to Borrowers as part of the Tranche B Term Loan, such that, upon the making of such additional term loan, the outstanding principal balance of the Tranche B Term Loan shall equal the Tranche B Term Loan Amount (which, after giving effect to this Amendment, shall be $20,000,000).  The making of such additional term loan by the Tranche B Lender shall not constitute a novation of any of the Term Loans made on the Closing Date.

SUBPART 2.4    Amendment to Sub-Section 2.3(d) (Mandatory Prepayments).  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Existing Credit Agreement is hereby amended by adding the following new clause (v) at the end of Sub-Section 2.3(d):

(v)        Covenant Level Prepayments.  In the event a Covenant Level Prepayment is required to be made in accordance with the terms of Article 7, Borrowers shall make such Covenant Level Prepayment in accordance with the terms of Article 7 for application to the prepayment of the outstanding Obligations in accordance with Section 2.3(e).

SUBPART 2.5    Amendment to Sub-Section 2.3(e) (Application of Prepayments).  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Existing Credit Agreement is hereby amended by deleting Sub-Section 2.3(e) and replacing such Sub-Section with the following:

 

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(e)         Application of Prepayments.  Each prepayment made pursuant to Section 2.3(c) or (d) shall be accompanied by the payment of accrued interest to the date of such payment on the amount prepaid, together with the Applicable Prepayment Premium.  Each such prepayment shall be applied by Administrative Agent to installment payments in the inverse order of maturities (for the avoidance of doubt, any amount that is payable on the Maturity Date shall constitute an installment) between the Tranche A Term Loan and the Tranche B Term Loan in such manner as Administrative Agent may determine in its sole discretion (including (i) by applying the entire amount of any such prepayment to the Tranche A Term Loan, (ii) with the consent of the Required Lenders, by applying the entire amount of any such prepayment to the Tranche B Term Loan, or (iii) with the consent of the Required Lenders, by applying a portion of any such prepayment to the Tranche A Term Loan and the remaining portion of such prepayment to the Tranche B Term Loan); provided, that, notwithstanding the foregoing, (A) Borrowers may direct that Administrative Agent apply up to $5,000,000 in the aggregate from voluntary prepayments made by Borrowers under Section 2.3(c) after the first anniversary of the Second Amendment Effective Date to the Tranche B Term Loan (and Administrative Agent shall comply with such directions) if all of the following conditions are satisfied: (1) at the time of such prepayment, no Default or Event of Default shall have occurred and is continuing; and (2) Borrowers shall have provided Administrative Agent written notice as to such directions at least 10 Business Days prior to the date of such prepayment (prepayments of the Tranche B Term Loan that satisfy the foregoing requirements and conditions, being referred to as “Tranche B Designated Prepayments”); and (B) any Covenant Level Prepayment shall be applied by Administrative Agent to regularly scheduled amortization installments of the Tranche A Term Loan under Section 2.2(a) in the order of maturity of such installments.

SUBPART 2.6    Amendment to Sub-Section 2.7(b) (Prepayment Premiums).  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Existing Credit Agreement is hereby amended by deleting Sub-Section 2.7(b) and replacing such Sub-Section with the following:

 

(b)        Except for mandatory prepayments resulting from the application of insurance proceeds or condemnation awards, in the event all or any portion of the principal balance of the Term Loans are prepaid for any reason whatsoever (including as a result of (i) any voluntary or mandatory prepayment under Section 2.3 hereof), (ii) the acceleration of any of the Obligations in connection with the occurrence of an Event of Default, (iii) any foreclosure and sale of, or collection of, the Collateral, (iv) any sale of the Collateral in any Insolvency Proceeding, or (v) the restructure, reorganization, or compromise of any of the Obligations by the confirmation of a plan of reorganization or any other plan of compromise, restructure, or arrangement in any Insolvency Proceeding), then, in view of the impracticability and extreme difficulty of ascertaining the actual amount of damages to the Lender Group or profits lost by the Lender Group as a result of such prepayment, and by mutual agreement of the parties as to a reasonable estimation and calculation of the lost profits or damages of the Lender Group, (A) Borrowers shall pay to Administrative Agent, in cash, the Applicable Prepayment Premium, measured as of the date of such prepayment, and (B) Administrative Agent shall remit to each Lender (subject to any contrary agreement between Administrative Agent and such Lender), from the Applicable Prepayment Premium actually received by Administrative Agent, such Lender’s Pro Rata Share of such Applicable Prepayment Premium based on the principal amount of the Term Loans held by such Lender that are prepaid in connection therewith.  As used herein, “Applicable Prepayment Premium” means, as of any date of determination, an amount equal to (i) during the period from and after the Closing Date up to (but not including) the date that is the first anniversary of the Closing Date (the “First Period”), 5.00% times the amount prepaid, (ii) during the period from and including the date that is the first anniversary of the Closing Date up to (but not including) the date that is the second anniversary of the Closing Date, 5.00% times the amount prepaid, and (iii) during the period from and including the date that is the second anniversary of the Closing Date up to (but not including) the date that is the third anniversary of the Closing Date, 3.00% times the amount prepaid; provided, that: (1) no Applicable Prepayment Premium shall be due with respect to up to $15,000,000 in the aggregate of prepayments of the Term Loans that are made during the First Period pursuant to Sections 2.3(d)(i) and (ii); (2) no Applicable Prepayment Premium shall be due with respect to up to $5,000,000 in the aggregate of Tranche B Designated Prepayments (as defined in Section 2.3(e)) that are made in accordance with the proviso set forth in Section 2.3(e) after the first anniversary of the Second Amendment Effective Date; and (3) no Applicable Prepayment Premium shall be due with respect to any Covenant Level Prepayment.

 

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SUBPART 2.7   Amendment to Section 5.15 (Cash Collateral).  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Existing Credit Agreement is hereby amended by deleting Section 5.15 and replacing such Section with the following:

Section 5.15     Cash Collateral.  Maintain the Cash Collateral in the Cash Collateral Account, subject to a Control Agreement, at all times (it being agreed that all interest that accrues from time to time on the Cash Collateral shall be property of Borrowers and constitute Cash Collateral).  Notwithstanding the foregoing: (a) if (i) no Default or Event of Default shall then exist or would result therefrom, (ii) EBITDA for the four fiscal quarter period ended as of the last day of the most recent fiscal quarter for which Borrowers are then required to have delivered quarterly financial statements to Administrative Agent in accordance with Section 5.1 is at least $30,000,000, (iii) the outstanding principal balance of the Term Loans is less than 50% of the aggregate of the Real Property Minimum Sale Amount with respect to all Real Property Collateral then owned by Borrowers, and (iv) Borrowers provide the Administrative Agent a certification in form and detail reasonably acceptable to the Administrative Agent as to the satisfaction of the foregoing conditions, then Borrowers may request that the Administrative Agent arrange for the release of a to-be-determined percentage of the Cash Collateral, and the Administrative Agent may elect to approve or deny all or a portion of such request in its sole discretion (but no such approval may be made without the direction of all of the Tranche A Lenders and the consent of the Tranche B Collateral Agent); (b) if (i) no Default or Event of Default shall then exist, (ii) Borrowers have made up to $5,000,000 in the aggregate of Tranche B Designated Prepayments (as defined in Section 2.3(e)) in accordance with the proviso set forth in Section 2.3(e) after the first anniversary of the Second Amendment Effective Date, and (iii) the amount of Cash Collateral exceeds the outstanding principal balance of the Tranche B Term Loan by more than $250,000, then Administrative Agent shall, promptly following the request of Borrowers, require the Tranche B Collateral Agent and the Tranche A Collateral Agent to release such excess amount of the Cash Collateral, it being understood that the amount of Cash Collateral shall at all times exceed the outstanding principal amount of the Tranche B Term Loan by at least $250,000; (c) if (i) no Default or Event of Default shall then exist, and (ii) the amount of Cash Collateral exceeds the outstanding principal balance of the Tranche B Term Loan by more than $250,000, then Administrative Agent (at the direction of all of the Tranche A Lenders) shall have the right in its sole discretion, at the request of Borrowers, to require the Tranche B Collateral Agent and the Tranche A Collateral Agent to release such excess amount of the Cash Collateral, it being understood that the amount of Cash Collateral shall at all times exceed the outstanding principal amount of the Tranche B Term Loan by at least $250,000; and (d) if (i) no Default or Event of Default shall then exist, and (ii) the amount of Cash Collateral would exceed the outstanding principal balance of the Tranche B Term Loan by more than $250,000 after giving effect thereto, then, not more than once during each calendar quarter, Borrowers may request, by written notice to Administrative Agent and the Tranche B Collateral Agent, that the Tranche B Collateral Agent and the Tranche A Collateral Agent release to Borrowers (and the Tranche B Collateral Agent and the Tranche A Collateral Agent hereby agree to release) any or all interest in the Cash Collateral Account that has accrued and is then payable in accordance with the scheduled interest payment terms applicable to the Cash Collateral Account.

 

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SUBPART 2.8   Amendment to Article 7 (Financial Covenants).  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Existing Credit Agreement is hereby amended by deleting Article 7 and replacing such Article with the new Article 7 attached to this Amendment as Exhibit A.

SUBPART 2.9     Amendment to Schedule 1.1 (Definition of Cash Collateral).  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Existing Credit Agreement is hereby amended by deleting the definition of “Cash Collateral” in Schedule 1.1 and replacing such definition with the following:

“Cash Collateral” means cash collateral in the initial amount of $20,250,000 maintained in the Cash Collateral Account.

SUBPART 2.10  Amendment to Schedule 1.1 (Definition of Covenant Level Prepayment).  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Existing Credit Agreement is hereby amended by adding the following new definition of “Covenant Level Prepayment” in appropriate alphabetical order in Schedule 1.1:

“Covenant Level Prepayment” shall have the meaning ascribed thereto in Article 7.

SUBPART 2.11  Amendment to Schedule 1.1 (Definition of Fee Letter).  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Existing Credit Agreement is hereby amended by deleting the definition of “Fee Letter” in Schedule 1.1 and replacing such definition with the following:

“Fee Letter” means that certain amended and restated fee letter, dated as of February 29, 2016, among Administrative Borrower and Administrative Agent, in form and substance reasonably satisfactory to Administrative Agent and Administrative Borrower.

SUBPART 2.12  Amendment to Schedule 1.1 (Definition of Healthcare and Other Professions Schools).  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Existing Credit Agreement is hereby amended by adding the following new definition of “Healthcare and Other Professions Schools” in appropriate alphabetical order in Schedule 1.1:

“Healthcare and Other Professions Schools” means, collectively, the Schools listed on Schedule H.

SUBPART 2.13  Amendment to Schedule 1.1 (Definition of Real Property Collateral Sale Conditions).  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Existing Credit Agreement is hereby amended effective as of December 31, 2015 by deleting clause (b) of the definition of “Real Property Collateral Sale Conditions” in Schedule 1.1 and replacing such clause (b) with the following:

(b)         Borrowers shall make a prepayment of the Term Loans in accordance with Sections 2.3(d) and (e) of the Agreement (which, in the case of any proposed sale of Real Property Collateral in connection with a School Disposition involving a School that, in whole or in part, occupies such Real Property Collateral, shall be in addition to the prepayment required under clause (e) of the definition of School Release Conditions) in an amount equal to the greater of (i) the Net Cash Proceeds of such proposed sale of Real Property Collateral, and (ii) the Real Property Minimum Sale Amount with respect to such Real Property Collateral; provided, that, (A) in no case shall the required prepayment under this clause (b) with respect to any sale of the Real Property Collateral located in Suffield, Connecticut exceed $5,000,000; and (B) in no case shall the sum of (1) the required prepayment under this clause (b) with respect to any sale on or after January 1, 2016 of the Real Property Collateral located in West Palm Beach, Florida plus (2) the required prepayments under clause (e) of the definition of School Release Conditions with respect to School Dispositions of Healthcare and Other Professions Schools on or after January 1, 2016 plus (3) the required prepayments under clause (i) of the definition of School Release Conditions with respect to School Dispositions of Healthcare and Other Professions Schools on or after January 1, 2016 exceed $10,000,000 in the aggregate.

 

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SUBPART 2.14  Amendment to Schedule 1.1 (Definition of School Release Conditions).  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Existing Credit Agreement is hereby amended effective as of December 31, 2015 by deleting clauses (c), (d), (e) and (f) of the definition of “School Release Conditions” in Schedule 1.1 and replacing such clauses (c), (d), (e) and (f) with the following:

(c)         Borrowers have provided Administrative Agent with written confirmation, supported by reasonably detailed calculations, that on a pro forma basis (including pro forma adjustments arising out of events which are directly attributable to such proposed School Disposition, are factually supportable, and are expected to have a continuing impact, in each case, determined as if the School Disposition had been accomplished at the beginning of the relevant period), Borrowers and their Subsidiaries would have been in compliance with the minimum EBITDA covenant set forth in Section 7.2 of the Agreement, measured as of the last day of the fiscal quarter most recently ended prior to the proposed date of consummation of such proposed School Disposition for which Borrowers are then required to have delivered internally prepared financial statements to Administrative Agent in accordance with Section 5.1 of the Agreement, and (ii) are projected to be in compliance with the minimum EBITDA covenant set forth in Section 7.2 of the Agreement as of each fiscal quarter ending during the one year period after the proposed date of consummation of such proposed School Disposition;

                        

(d)         the Net Cash Proceeds from such proposed School Disposition shall not be less than the School Disposition Amount with respect to such School; provided, that, this clause (d) shall not apply with respect to School Dispositions of Healthcare and Other Professions Schools;

 

(e)         Borrowers shall prepay the Term Loans in accordance with Sections 2.3(d) and (e) of the Agreement from the Net Cash Proceeds of such proposed School Disposition (exclusive of any portion of such Net Cash Proceeds allocated to student loan (or installment contract) receivables sold as part of such School Disposition in accordance with clause (i) below) in an amount not less than the greater of (i) 25% of such Net Cash Proceeds (exclusive of any portion of such Net Cash Proceeds allocated to student loan (or installment contract) receivables sold as part of such School Disposition in accordance with clause (i) below), and (ii) the School Prepayment Amount with respect to such School; provided, that, (A) in no case shall the sum of (1) the required prepayments under this clause (e) with respect to School Dispositions of Healthcare and Other Professions Schools on or after January 1, 2016 plus (2) the required prepayments under clause (i) of the definition of School Release Conditions with respect to School Dispositions of Healthcare and Other Professions Schools on or after January 1, 2016 exceed $4,000,000 in the aggregate; and (B) in no case shall the sum of (1) the required prepayments under this clause (e) with respect to School Dispositions of Healthcare and Other Professions Schools on or after January 1, 2016 plus (2) the required prepayment under clause (b) of the definition of Real Property Collateral Sale Conditions with respect to any sale on or after January 1, 2016 of the Real Property Collateral located in West Palm Beach, Florida plus (3) the required prepayments under clause (i) of the definition of School Release Conditions with respect to School Dispositions of Healthcare and Other Professions Schools on or after January 1, 2016 exceed $10,000,000 in the aggregate;

 

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(f)          Borrowers shall deposit with the Tranche A Collateral Agent, from the Net Cash Proceeds of any proposed School Disposition (other than any School Dispositions of Healthcare and Other Professions Schools on and after January 1, 2016), as School Closure and Capex Cash Collateral to be held in the School Closure and Capex Cash Collateral Account, an amount not less than the greater of (i) 25% of such Net Cash Proceeds, and (ii) the Designated School Deposit Amount with respect to such School;

SUBPART 2.15  Amendment to Schedule 1.1 (Definition of School Release Conditions).  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Existing Credit Agreement is hereby amended effective as of December 31, 2015 by deleting clause (i) of the definition of “School Release Conditions” in Schedule 1.1 and replacing such clause (i) with the following:

(i)          if the proposed School Disposition includes the sale or other disposition of student loan (or installment contract) receivables with respect to graduated students, in addition to the minimum prepayments and other requirements described above with respect to such proposed School Disposition, (i) Borrowers shall have provided Administrative Agent with Borrowers’ proposal as to the portion of the aggregate Net Cash Proceeds relating to such proposed School Disposition to be allocated to such student loan (or installment contract) receivables not later than 5 Business Days prior to the anticipated closing date of the proposed School Disposition, which allocation shall be subject to Administrative Agent’s approval, (ii) Borrowers shall prepay the Term Loans in accordance with Sections 2.3(d) and (e) of the Agreement from the Net Cash Proceeds allocated to such student loan (or installment contract) receivables in an amount not less than 50% of such allocated Net Cash Proceeds, and (iii) if the Net Cash Proceeds allocated to such student loan (or installment contract) receivables is less than 50% of the aggregate outstanding principal amount of such student loan (or installment contract) receivables, Administrative Agent shall have consented (in its discretion) to the sale or disposition of such student loan (or installment contract) receivables; provided, that, (A) in no case shall the sum of (1) the required prepayments under clause (e) of the definition of School Release Conditions with respect to School Dispositions of Healthcare and Other Professions Schools on or after January 1, 2016 plus (2) the required prepayments under this clause (i) with respect to School Dispositions of Healthcare and Other Professions Schools on or after January 1, 2016 exceed $4,000,000 in the aggregate; and (B) in no case shall the sum of (1) the required prepayments under clause (e) of the definition of School Release Conditions with respect to School Dispositions of Healthcare and Other Professions Schools on or after January 1, 2016 plus (2) the required prepayment under clause (b) of the definition of Real Property Collateral Sale Conditions with respect to any sale on or after January 1, 2016 of the Real Property Collateral located in West Palm Beach, Florida plus (3) the required prepayments under this clause (i) with respect to School Dispositions of Healthcare and Other Professions Schools on or after January 1, 2016 exceed $10,000,000 in the aggregate;

SUBPART 2.16   Amendment to Schedule 1.1 (Definitions of Second Amendment and Second Amendment Effective Date).  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Existing Credit Agreement is hereby amended by adding the following new definitions of “Second Amendment” and “Second Amendment Effective Date” in appropriate alphabetical order in Schedule 1.1:

 

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“Second Amendment” means that certain Second Amendment to Credit Agreement dated as of February 29, 2016 among Borrowers, Lenders and Administrative Agent.

“Second Amendment Effective Date” means the date on which all of the conditions precedent to the effective of Part II of the Second Amendment are satisfied.

SUBPART 2.17   Amendment to Schedule 1.1 (Definition of Tranche B Term Loan Amount).  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Existing Credit Agreement is hereby amended by deleting the definition of “Tranche B Term Loan Amount” in Schedule 1.1 and replacing such definition with the following:

“Tranche B Term Loan Amount” means $20,000,000.

SUBPART 2.18   Amendment to Security Agreement.  Subject to the satisfaction of the conditions precedent set forth in Part III of this Amendment, the Security Agreement is hereby amended by deleting the reference to “$15,250,000” set forth in the definition of “Cash Collateral” in Section 1 of the Security Agreement and replacing such reference with a reference to “$20,250,000”.

PART  III.

CONDITIONS TO EFFECTIVENESS OF PART II

SUBPART 3.1     Effectiveness of Amendments.  The effectiveness of Part II of this Amendment shall be subject to the conditions set forth in this Part III having been satisfied (it being understood and agreed that the remainder of this Amendment shall be effective upon the execution and delivery hereof by the parties hereto).

SUBPART 3.2     Payment of Tranche A Term Loan.  Administrative Agent shall have received from Borrower immediately available funds of $5,000,000 as a payment of the principal balance of the Tranche A Term Loan, which principal payment shall be applied by Administrative Agent to the outstanding principal balance of the Tranche A Term Loan to installment payments thereon in the inverse order of maturities (for the avoidance of doubt, any amount that is payable on the Maturity Date shall constitute an installment).  Each of the Lenders party hereto acknowledges and agrees that, notwithstanding any contrary term set forth in the Amended Credit Agreement, Borrower shall not be required to pay, and the Lenders shall not be entitled to receive, any Applicable Prepayment Premium in connection with such payment on the Second Amendment Effective Date.

SUBPART 3.3     Payment of Applicable Fees.  Administrative Agent shall have received from Borrower immediately available funds in the amount of all fees required to be paid on the Second Amendment Effective Date under the terms of the Fee Letter.

SUBPART 3.4     Payment of Applicable Expenses.  Borrowers shall have paid all reasonable attorneys’ fees of Administrative Agent and the Lenders that have been invoiced as of the Second Amendment Effective Date.

SUBPART 3.5    Composite Score Certification.  Administrative Agent shall have received (i) a certificate from the chief financial officer of Parent to Administrative Agent, in form and detail reasonably acceptable to Administrative Agent, setting forth, and containing a detailed calculation of, Parent’s composite score as of December 31, 2015 under the factors of financial responsibility set forth in 34 C.F.R. Part 668, Subpart L (which composite score shall be 1.5 or more, and which composite score and the calculation thereof may be prepared from draft, unaudited financial statements of Borrowers), and (ii) such other supporting evidence as Administrative Agent may reasonably require with respect thereto.

 

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SUBPART 3.6   Execution of Amendment and Other Documents.  Administrative Agent shall have received fully executed counterparts of this Amendment, the Fee Letter and such legal opinions, officer’s certificates and resolutions as Administrative Agent may reasonably require, in each case in form and substance reasonably satisfactory to Administrative Agent and the Lenders.

SUBPART 3.7     Execution of Amendment and Other Documents.  The Tranche B Lender shall have received (a) a fully executed Tranche B Note issued in order to amend and restate the existing Tranche B Note and to reflect the new Tranche B Term Loan Amount (after giving effect to this Amendment), and (b) an amendment to the Cash Collateral Security Agreement in order to reflect the new Cash Collateral Amount (after giving effect to this Amendment), in each case in form and substance reasonably satisfactory to Administrative Agent and the Tranche B Lender.

SUBPART 3.8     Accuracy of Representations and Warranties.  Each of the representations and warranties set forth in Subpart 4.6 hereof shall be true and correct in all respects.

PART  IV.

MISCELLANEOUS

SUBPART 4.1     No Additional Obligations.  Borrowers acknowledge and agree that the execution, delivery and performance of this Amendment shall not create (nor shall any Borrower rely upon the existence of or claim or assert that there exists) any obligation of any of Administrative Agent or Lenders to consider or agree to any other amendment of or waiver or consent with respect to the Amended Credit Agreement or any other instrument or agreement to which Administrative Agent or any Lender is a party (collectively, an “Additional Amendment” or “Consent”), and in the event that Administrative Agent and/or Lenders subsequently agree to consider any requested Additional Amendment or Consent, neither the existence of this Amendment nor any other conduct of Administrative Agent or Lenders related hereto, shall be of any force or effect on Administrative Agent’s or Lenders’ consideration or decision with respect to any such requested Additional Amendment or Consent, and Administrative Agent and Lenders shall not have any obligation whatsoever to consider or agree to any such Additional Amendment or Consent.

SUBPART 4.2     Waiver of Claims.  In order to induce Administrative Agent and the Lenders party hereto to enter into this Amendment, each Borrower hereby releases, remises, acquits and forever discharges each Lender and Administrative Agent and each of their respective employees, agents, representatives, consultants, attorneys, officers, directors, partners, fiduciaries, predecessors, successors and assigns, subsidiary corporations, parent corporations and related corporate divisions (collectively, the “Released Parties”), from any and all actions, causes of action, judgments, executions, suits, debts, claims, demands, liabilities, damages and expenses of any and every character, known or unknown, direct or indirect, at law or in equity, of whatever nature or kind, whether heretofore or hereafter arising, for or because of any manner of things done, omitted or suffered to be done by any of the Released Parties (excluding the gross negligence or willful misconduct of any of the Released Parties), prior to and including the date of this Amendment, and in any way directly or indirectly arising out of any or in any way connected to this Amendment, the Amended Credit Agreement or the other Loan Documents (collectively, the “Released Matters”); provided, that the foregoing shall not apply as to any Released Party to matters resulting from such Released Party’s own willful misconduct or gross negligence.  Each Borrower hereby acknowledges that the agreements in this Subpart 4.2 are intended to be in full satisfaction of all or any alleged injuries or damages arising in connection with the Released Matters.  Each Borrower hereby represents and warrants to each Lender and Administrative Agent that it has not purported to transfer, assign or otherwise convey any right, title or interest in any Released Matter to any other Person and that the foregoing constitutes a full and complete release of all Released Matters.

 

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SUBPART 4.3   Acknowledgments and Stipulations.  In order to induce Administrative Agent and the Lenders party hereto to enter into this Amendment, each Borrower acknowledges, stipulates and agrees that: (a) all of the Obligations are absolutely due and owing to Administrative Agent and Lenders in accordance with the terms and provisions of the Amended Credit Agreement without any defense, deduction, offset or counterclaim (and, to the extent any Borrower had any defense, deduction, offset or counterclaim on the date hereof, the same is hereby waived by each Borrower); (b) the Loan Documents executed by each Borrower are legal, valid and binding obligations of such Borrower, enforceable against such Borrower in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally; (c) the Liens granted by each Borrower to the Collateral Agents in the Collateral are valid and duly perfected Liens, subject only to Permitted Liens; (d) each of the recitals contained at the beginning of this Amendment is true and correct; and (e) prior to executing this Amendment, each Borrower consulted with and had the benefit of advice of legal counsel of its own selection and have relied upon the advice of such counsel, and in no part upon the representation of Administrative Agent, any Lender or any counsel to Administrative Agent or any Lender concerning the legal effects of this Amendment or any provision hereof.

SUBPART 4.4    Cross-References.  References in this Amendment to any Part or Subpart are, unless otherwise specified, to such Part or Subpart of this Amendment.

SUBPART 4.5     References in Other Credit Documents.  At such time as this Amendment shall become effective pursuant to the terms of Subpart 3.1, all references in the Existing Credit Agreement (including without limitation the Schedules thereto) to the “Agreement”, and all references in the other Loan Documents to the “Credit Agreement”, shall be deemed to refer to the Amended Credit Agreement.

SUBPART 4.6   Representations and Warranties of Borrowers.  Each Borrower hereby represents and warrants that, after giving effect to the amendments contained herein, (a) the representations and warranties contained in Section 4 of the Existing Credit Agreement are correct in all material respects on and as of the date hereof as though made on and as of such date, except to the extent that any such representation or warranty specifically relates to an earlier date, and (b) no Default or Event of Default exists under the Existing Credit Agreement.

SUBPART 4.7     Lender Group Expenses.  To the extent not paid by Borrowers on the Second Amendment Effective Date, Borrowers agree to pay each Agent’s and Lender’s reasonable costs and expenses (including reasonable attorneys fees) incurred in connection with this Amendment and the transactions contemplated hereby within 10 days after demand therefor is made by Administrative Agent accompanied by supporting documentation (which may take the form of a summary invoice).

SUBPART 4.8   This Amendment Constitutes a Loan Document.  Without limiting the generality of anything contained in the Amended Credit Agreement, this Amendment constitutes a Loan Document.  The breach of any representation, covenant, agreement or obligation of any Borrower set forth herein shall constitute an Event of Default and, notwithstanding anything to the contrary set forth in the Amended Credit Agreement or any other Loan Document, shall not be subject to any notice, grace or cure period.

 

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SUBPART 4.9     Counterparts.  This Amendment may be executed in any number of counterparts each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.  THIS AMENDMENT SUPPLEMENTS, AND FORMS A PART OF, THE EXISTING CREDIT AGREEMENT, BUT (FOR THE AVOIDANCE OF DOUBT) THE PARTIES HERETO IN ANY EVENT SPECIFICALLY AGREE (WITHOUT LIMITATION OF THE FIRST PART OF THIS SENTENCE) THAT THE PROVISIONS OF SECTION 12 OF THE EXISTING CREDIT AGREEMENT APPLY TO THIS AMENDMENT, MUTATIS MUTANDIS.

SUBPART 4.10  Successors and Assigns.  This Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

[The remainder of this page is intentionally left blank.]

 

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Each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written.

	 	
BORROWERS:

	 
	 	 	 	 
	 	
LINCOLN EDUCATIONAL SERVICES

	 
	 	
CORPORATION, a New Jersey corporation

	 
	 	 	 	 
	 	
BY:

	
/s/ Scott M. Shaw

	 
	 	 	 	 
	 	
NAME:

	
Scott M. Shaw

	 
	 	 	 	 
	 	
TITLE:

	
Chief Executive Officer and President

	 
	 	 	 	 
	 	
LINCOLN TECHNICAL INSTITUTE, INC.,

	 
	 	
a New Jersey corporation

	 
	 	 	 	 
	 	
BY:

	
/s/ Scott M. Shaw

	 
	 	 	 	 
	 	
NAME:

	
Scott M. Shaw

	 
	 	 	 	 
	 	
TITLE:

	
President

	 
	 	 	 	 
	 	
NEW ENGLAND ACQUISITION, LLC,

	 
	 	
a Delaware limited liability company

	 
	 	 	 	 
	 	
BY:

	
/s/ Scott M. Shaw

	 
	 	 	 	 
	 	
NAME:

	
  Scott M. Shaw

	 
	 	 	 	 
	 	
TITLE:

	
 President

	 
	 	 	 	 
	 	
SOUTHWESTERN ACQUISITION, L.L.C.,

	 
	 	
a Delaware limited liability company

	 
	 	 	 	 
	 	
BY:

	
/s/ Scott M. Shaw

	 
	 	 	 	 
	 	
NAME:

	
Scott M. Shaw

	 
	 	 	 	 
	 	
TITLE:

	
President

	 

 

[LINCOLN—SECOND AMENDMENT TO CREDIT AGREEMENT]

 

	 	
NASHVILLE ACQUISITION, L.L.C.,

	 
	 	
a Delaware limited liability company

	 
	 	 	 	 
	 	
BY:

	
/s/ Scott M. Shaw

	 
	 	 	 	 
	 	NAME:	
Scott M. Shaw

	 
	 	 	 	 
	 	
TITLE:

	
President

	 
	 	 	 	 
	 	
EUPHORIA ACQUISITION, LLC,

	 
	 	
a Delaware limited liability company

	 
	 	 	 	 
	 	
BY:

	
/s/ Scott M. Shaw

	 
	 	 	 	 
	 	
NAME:

	
Scott M. Shaw

	 
	 	 	 	 
	 	
TITLE:

	
President

	 
	 	 	 	 
	 	
NEW ENGLAND INSTITUTE OF TECHNOLOGY

	 
	 	
AT PALM BEACH, INC., a Florida corporation

	 
	 	 	 	 
	 	
BY:

	
/s/ Scott M. Shaw

	 
	 	 	 	 
	 	
NAME:

	
Scott M. Shaw

	 
	 	 	 	 
	 	
TITLE:

	
President

	 
	 	 	 	 
	 	
LTI HOLDINGS, LLC,

	 
	 	
a Colorado limited liability company

	 
	 	 	 	 
	 	
BY:

	
/s/ Scott M. Shaw

	 
	 	 	 	 
	 	
NAME:

	
Scott M. Shaw

	 
	 	 	 	 
	 	
TITLE:

	
President

	 
	 	 	 	 
	 	
NN ACQUISITION, LLC,

	 
	 	
a Delaware limited liability company

	 
	 	 	 	 
	 	
BY:

	
/s/ Scott M. Shaw

	 
	 	 	 	 
	 	
NAME:

	
Scott M. Shaw

	 
	 	 	 	 
	 	
TITLE:

	
President

	 

 

[LINCOLN—SECOND AMENDMENT TO CREDIT AGREEMENT]

 

	 	
LCT ACQUISITION, LLC,

	 
	 	
a Delaware limited liability company

	 
	 	 	 	 
	 	
BY:

	
/s/ Scott M. Shaw

	 
	 	 	 	 
	 	
NAME:

	
Scott M. Shaw

	 
	 	 	 	 
	 	
TITLE:

	
President

	 

 

[LINCOLN—SECOND AMENDMENT TO CREDIT AGREEMENT]

 

	 	AGENTS AND LENDERS:	 
	 	 	 	 
	 	HPF SERVICE, LLC,	 
	 	as Administrative Agent and Tranche A Collateral Agent	 
	 	 	 
	 	
By:

	
VIRGO SERVICE COMPANY LLC,

	 
	 	 	
its Managing Member

	 
	 	 	 	 
	 	
By:

	
/s/ Robert Racusin

	 
	 	
Name:

	
Robert Racusin

	 
	 	
Title:

	
Authorized Signatory

	 

 

[LINCOLN—SECOND AMENDMENT TO CREDIT AGREEMENT]

 

	 	RUSHING CREEK 4, LLC,	 
	 	as a Tranche A Lender	 
	 	 	 	 
	 	
By:

	
VIRGO SERVICE COMPANY LLC,

	 
	 	 	
its Manager

	 
	 	 	 	 
	 	
By:

	
/s/ Robert Racusin

	 
	 	
Name:

	
Robert Racusin

	 
	 	
Title:

	
Authorized Signatory

	 

 

[LINCOLN—SECOND AMENDMENT TO CREDIT AGREEMENT]

 

	 	HPF HOLDCO, LLC,	 
	 	as a Tranche A Lender	 
	 	 	 	 
	 	
By:

	
/s/ Jonathan Goodman

	 
	 	
Name:

	
Jonathan Goodman

	 
	 	
Title:

	
Manager

	 

 

[LINCOLN—SECOND AMENDMENT TO CREDIT AGREEMENT]

 

	 	TIGER CAPITAL GROUP, LLC,	 
	 	as a Tranche A Lender	 
	 	 	 	 
	 	
By:

	
/s/ Robert DeAngelis

	 
	 	
Name:

	
Robert DeAngelis

	 
	 	
Title:

	
Executive Managing Director

	 

 

[LINCOLN—SECOND AMENDMENT TO CREDIT AGREEMENT]

 

	 	ALOSTAR BANK OF COMMERCE,	 
	 	as the Tranche B Lender	 
	 	 	 	 
	 	
By:

	
/s/ Brian Long

	 
	 	
Name:

	
Brian Long

	 
	 	
Title:

	
Vice President

	 

 

[LINCOLN—SECOND AMENDMENT TO CREDIT AGREEMENT]

 

Exhibit A

7.            FINANCIAL COVENANTS.

Each Borrower covenants and agrees that, until payment in full of the Obligations:

7.1           Minimum Liquidity.  Borrowers will maintain Unrestricted Cash as of each fiscal quarter end of not less than the applicable amount required below:

	
Fiscal Quarter End

	
Minimum Unrestricted Cash

	
March 31, 2016

	
$11,500,000

	
June 30, 2016

	
$5,700,000

	
September 30, 2016

	
$11,000,000

	
December 31, 2016

	
$18,000,000

; provided, that, (a) to the extent that, as of any fiscal quarter end, the Borrowers’ reimbursement obligations under Permitted Letters of Credit exceed the aggregate amount of Permitted Letters of Credit outstanding as of the Closing Date, the minimum Unrestricted Cash required as of such fiscal quarter end shall be reduced, on a dollar for dollar basis, by the lesser of the amount of such excess and $3,000,000, (b) in Administrative Agent’s sole discretion, Administrative Agent may consent to the reduction of the minimum Unrestricted Cash in amounts not to exceed verified out of pocket costs incurred by Borrowers after the Closing Date with respect to closures of Designated Schools, and (c) subject to Administrative Agent’s receipt of account statements or other supporting documentation reasonably acceptable to it, Borrowers shall be entitled to include in the calculation of Unrestricted Cash as of any fiscal quarter end the aggregate amount of Title IV Program trust funds that were transferred by Borrowers from the trust fund accounts containing such funds to a Deposit Account of Borrowers that exclusively contain Unrestricted Cash (and is subject to a Control Agreement) within two Business Days after such fiscal quarter end.

7.2           Minimum EBITDA.  Borrowers and their Subsidiaries will have EBITDA, measured as of the last day of each fiscal quarter for the four fiscal quarter period then ending, of not less than the applicable amount required below:

	
Fiscal Quarter Ending

	
Minimum EBITDA

	
March 31, 2016

	
$4,000,000

	
June 30, 2016

	
$4,000,000

	
September 30, 2016

	
$4,000,000

	
December 31, 2016

	
$4,000,000

; provided, that, in calculating EBITDA for each of the four fiscal quarter periods listed above, EBITDA shall be adjusted to reflect the exclusion of lease termination payments actually paid during such periods of up to $5,000,000 in the aggregate with respect to the Hartford LTI School and up to $2,900,000 in the aggregate with respect to the Fern Park School.

 

7.3           Maximum Capital Expenditures.  Borrowers and their Subsidiaries will not make or incur Capital Expenditures (a) during the fiscal year ending December 31, 2015 or any portion thereof, in excess of the sum of $4,625,000 plus the Excess Capex Amount with respect to such fiscal year or then applicable portion thereof, or (b) during the fiscal year ending December 31, 2016 or any portion thereof, in excess of the sum of $6,000,000 plus the Excess Capex Amount with respect to such fiscal year or then applicable portion thereof.

The covenants set forth in Sections 7.1, 7.2 and 7.3 will be re-set for fiscal year 2017 and each subsequent fiscal year at either (a) the applicable levels with respect to fiscal year 2016 (and each fiscal quarter thereof) as set forth in this Agreement as of the initial Closing Date (the “2016 Closing Date Covenant Levels”), or (b) the applicable levels with respect to fiscal year 2016 (and each fiscal quarter thereof) as set forth in the Second Amendment (the “2016 Second Amendment Covenant Levels”), as elected by Borrowers’ written notice to Administrative Agent, such written notice to be delivered by Borrowers to Administrative Agent on or before January 10, 2017.  In the event that Borrowers fail to deliver such written notice to Administrative Agent on or before January 10, 2017, Borrowers shall be deemed to have elected to have the 2016 Second Amendment Covenant Levels apply for fiscal year 2017 and each subsequent fiscal year.  In the event that Borrowers elect (or are deemed to have elected) to have the 2016 Second Amendment Covenant Levels apply for fiscal year 2017 and each subsequent fiscal year, then Borrowers shall make a mandatory prepayment of the Term Loans (any such prepayment, a “Covenant Level Prepayment”) in accordance with the following terms: (i) if Borrowers have made $4,000,000 in the aggregate of prepayments of the Term Loans under clauses (e) and (i) of the definition of School Release Conditions with respect to School Dispositions of Healthcare and Other Professions Schools on or after January 1, 2016, then the amount of such Covenant Level Prepayment shall be $2,000,000; (ii) if Borrowers have not made $4,000,000 in the aggregate of prepayments of the Term Loans under clauses (e) and (i) of the definition of School Release Conditions with respect to School Dispositions of Healthcare and Other Professions Schools on or after January 1, 2016, then the amount of such Covenant Level Prepayment shall be $4,000,000; and (iii) any such Covenant Level Prepayment shall be due and payable on or before January 15, 2017 in accordance with the terms of Section 2.3(d).

 

Schedule H

Healthcare and Other Professions Schools

	
Name of School

	 
	
Allentown

	 
	
Edison

	 
	
Moorestown

	 
	
Lincoln

	 
	
Brockton

	 
	
Somerville

	 
	
Lowell

	 
	
Marietta

	 
	
NE Philadelphia

	 
	
CC Philadelphia

	 
	
Paramus

	 
	
New Britain

	 
	
Shelton

	 
	
Summerlin

	 
	
Green Valley

	 
	
West Palm Beach

	 
	
Southington LCNE

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