Document:

Prepared by MERRILL CORPORATION

Exhibit 10.27

 

ESI

 

SENIOR EXECUTIVE SEVERANCE PAY PLAN

 

 

ESI provides a Senior Executive

Severance Plan (the "Severance Plan") for the Chairman, President and

Chief Executive Officer of ESI.

 

The Severance Plan supersedes

any previous severance plan or plans for this individual.

 

The Severance Plan benefits

include:

 

	

  (a)

  	

  severance

  pay in an amount equal to the lower of:

  
	

   

  	

   

  	

   

  
	

   

  	

  (I)

  	

  24 months'

  base salary

  
	

   

  	

   

  	

   

  
	

   

  	

  (II)

  	

  base salary

  for the number of months remaining between the termination of employment and

  normal retirement date, or

  
	

   

  	

   

  	

   

  
	

   

  	

  (III)

  	

  two times

  the individual's total annual compensation during the year immediately

  preceding the individual's termination, and

  
	

   

  	

   

  	

   

  
	

  (b)

  	

  continued

  participation in ESI's employee benefit plans (except for short-term or

  long-term disability plans and  the

  Business Travel Accident Plan) during the period that the individual receives

  severance pay.

  

 

The Chairman, President and

Chief Executive Officer will be entitled to severance benefits under the

Severance Plan  unless their employment

is terminated by ESI:

 

	

  (a)

  	

  for cause

  
	

   

  	

   

  
	

  (b)

  	

  on or after

  their normal retirement date or,

  
	

   

  	

   

  
	

  (c)

  	

  as a result

  of:

  
	

   

  	

   

  
	

   

  	

  (I)

  	

  acceptance

  of employment, or refusal of comparable employment with a purchaser of ESI.

  
	

   

  	

   

  	

   

  
	

   

  	

  (II)

  	

  voluntary

  resignation

  
	

   

  	

   

  	

   

  
	

   

  	

  (III)

  	

  voluntary

  retirement

  
	

   

  	

   

  	

   

  
	

   

  	

  (IV)

  	

  failure to

  return from an approved leave of absence, including a medical leave of

  absence

  
	

   

  	

   

  	

   

  
	

   

  	

  (V)

  	

  death

  
	

   

  	

   

  	

   

  
	

   

  	

  (VI)

  	

  disability

  

 

The severance pay benefits

under the Severance Plan will be offset/diminished by the amount of any other

severance or separation compensation that the participant receives from ESI and

requires that the Chairman, President and Chief Executive Officer refrain from

competing with ESI business activities during the term of the severance payout

and complies with conduct guidelines in the Employee Handbook.  Severance payments would normally be made

semi-monthly over the scheduled term of such payments, but ESI has the option

to make such payments in the form of a single lump-sum payment discounted to

present value.

 

	

   

  	

  Ÿ

  	

  ESI may

  determine a need for a retention payment in addition to this Severance Plan

  
	

   

  	

   

  	

   

  
	

   

  	

  Ÿ

  	

  If the

  Chairman, President and Chief Executive Officer is rehired by ESI while

  receiving severance benefits under the Severance Plan, all payments will

  cease as of the rehire date; and if ESI paid this person a lump-sum payment

  of severance benefits and ESI the rehire was prior to the date that severance

  benefits would have ceased, the Chairman, President and Chief Executive

  Officer must reimburse ESI for a percentage of the severance benefits

  determined by dividing the number of weeks during which the severance

  benefits would have been paid out if such benefits had not been paid out in a

  lump sum into the number of weeks remaining in such period as of the person's

  rehire date.

  
	

   

  	

   

  	

   

  
	

   

  	

  Ÿ

  	

  The

  Chairman, President and Chief Executive Officer may only receive severance

  benefits under one ESI severance plan.Prepared by MERRILL CORPORATION

Exhibit 10.28

 

ESI Special Senior

Executive Severance Pay Plan

 

____________________________________________________________________________________________________________

 

1.  

Purpose

 

The purpose of

this ESI Special Senior Executive Severance Pay Plan ("Plan") is to

assist in occupational transition by providing Severance Benefits, as defined

herein, for employees covered by this Plan whose employment is terminated under

conditions set forth in this Plan within two years after an Acceleration Event,

as defined herein.

 

2.  

Covered Employees

 

Covered

employees under this Plan ("Special Severance Executives") are

full-time, regular salaried employees of ITT Educational Services, Inc.

("ESI") and of any subsidiary company ("ESI Subsidiary")

(collectively or individually as the context requires "Company") who

are designated by the Compensation Committee of ESI's Board of Directors to be

in either Band A or B at any time within the two-year period immediately

preceding an Acceleration Event.

 

After the

occurrence of an Acceleration Event, the terms "ESI", "ESI

Subsidiary" and "Company" as used herein shall also include,

respectively and as the context requires, any successor company to ESI or any

successor company to any ESI Subsidiary and any affiliate of any such successor

company.

 

3.  

Definitions

 

An

"Acceleration Event" shall occur if (i) a report on Schedule 13D

shall be filed with the Securities and Exchange Commission pursuant to Section

13(d) of the Securities Exchange Act of 1934 (the "Act") disclosing

that any person (within the meaning of Section 13(d) of the Act), other than

ESI or a subsidiary of ESI or any employee benefit plan sponsored by ESI or a

subsidiary of ESI, is the beneficial owner directly or indirectly of 20 percent

or more of the outstanding Common Stock, $0.01 par value, of ESI (the

"Stock"); (ii) any person (within the meaning of Section 13(d) of the

Act), other than ESI or a subsidiary of ESI, or any employee benefit plan

sponsored by ESI or a subsidiary of ESI, shall purchase shares pursuant to a

tender offer or exchange offer to acquire any Stock  (or securities convertible into Stock) for cash, securities or

any other consideration, provided that after consummation of the offer, the

person in question is the beneficial owner (as such term is defined in Rule

13d-3 under the Act), directly or indirectly, of 15 percent or more of the

outstanding Stock (calculated as provided in paragraph (d) of Rule 13d-3 under

the Act in the case of rights to acquire Stock); (iii) the stockholders of ESI

shall approve (A) any consolidation or merger of ESI in which ESI is not the

continuing or surviving corporation or pursuant to which shares of Stock would

be converted into cash, securities or other property, other than a merger of

ESI in which holders of Stock immediately prior to the merger have the same

proportionate ownership of common stock of the surviving corporation

immediately after the merger as they had in the Stock immediately before, or

(B) any sale, lease, exchange or other transfer (in one transaction or a series

of related transactions) of all or substantially all the assets of ESI, or (iv)

there shall have been a change in a majority of the members of the Board of

Directors of ESI within a 12-month period unless the election or nomination for

election by ESI's stockholders of each new director during such 12-month period

was approved by the vote of two-thirds of the directors then still in office

who were directors at the beginning of such 12-month period.

"Cause" shall mean action by the

Special Severance Executive involving willful malfeasance or the Special

Severance Executive's failure to act involving material nonfeasance that would

have a materially adverse effect on the Company. No act or emission on the part

of the Special Severance Executive shall be considered "willful,"

unless it is done or omitted in bad faith or without reasonable belief that the

action or omission was in the interests of the Company.

 

"Good

Reason" shall mean: (i) without the Special Severance Executive's express

written consent and excluding for this purpose an isolated, minor,

insubstantial, insignificant and inadvertent action not taken in bad faith and

which is remedied by the Company or its affiliates immediately after receipt of

notice thereof given by the Special Severance Executive, (A) a reduction in the

Special Severance Executive's annual base salary (whether or not deferred) or

annual bonus (as measured by the highest bonus paid or awarded, whether or not

deferred, in any of the three calendar years preceding an Acceleration Event,

including, among the bonuses taken into account for this purpose, any bonus

paid or awarded by reason of an Acceleration Event, without regard to whether

such bonus is paid, whether or not deferred, during such three year period or

after an Acceleration Event) or any reduction in any other compensation or any

employee benefits, (B) the assignment to the Special Severance Executive of any

duties inconsistent in any respect with the Special Severance Executive's

position (including status, offices, titles and reporting requirements),

authority, duties, responsibilities, support or assistance, or (C) any other

action by the Company or its affiliates which results in a diminution in such

position, authority, duties, responsibilities, support or assistance; (ii)

without the Special Severance Executive's express written consent, the

Company's requiring the Special Severance Executive's work location to be other

than within 15 miles of the location where such Special Severance Executive was

principally working immediately prior to the Acceleration Event; or (iii) any

failure by the Company to obtain the express written assumption of this Plan

from any successor to the Company.

 

4.  

Severance Benefits Upon Termination of Employment

 

If, within two

years after an Acceleration Event, the Company terminates the employment of a

Special Severance Executive other than for Cause or if the Special Severance

Executive terminates his or her employment for Good Reason, he or she shall

receive the severance benefits set forth in Section 5 hereof ("Severance

Benefits"). For purposes hereof, a determination by a Special Severance

Executive that he or she has "Good Reason" hereunder shall be final

and binding on the parties hereto absent a showing of bad faith on the Special

Severance Executive's part.

 

5.  

Severance Benefits

 

	

  (I)

  	

  Severance

  Benefits for Special Severance Executives in Band A:

  
	

   

  	

   

  	

   

  
	

   

  	

  (a)   Severance Pay - The sum of (i) three

  times the highest annual base salary rate paid (whether or not deferred) to

  the Special Severance Executive at any time during the three year period

  immediately preceding the Special Severance Executive's termination of

  employment, and (ii) three times the highest bonus paid or awarded (whether

  or not deferred) to the Special Severance Executive in any of the three years

  preceding an Acceleration Event, including, among the bonuses taken into

  account for this purpose, any bonus paid or awarded by reason of an

  Acceleration Event, without regard to whether such bonus is paid (whether or

  not deferred) during such three year period or after an Acceleration Event.

  

 

	

   

  	

  (b)   Benefits and Perquisites –

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (i)   Continued health and life insurance

  benefits and perquisites (including, without limitation, any Company provided

  automobile and any tax or financial advisory services) for three years

  following the Special Severance Executive's termination of employment at the

  same cost to the Special Severance Executive, and at the same coverage

  levels, as provided to the Special Severance Executive (and the Special

  Severance Executive's eligible dependents) immediately prior to his or her

  termination of employment.

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (ii)   Payment of a lump sum amount

  ("Pension Lump Sum Amount") equal to the difference between (A) the

  total lump sum value of the Special Severance Executive's pension benefit

  under the ESI Pension Plan and, as applicable, the ESI Excess Pension Plan of

  the Company (collectively, "Pension Plans") as of the Special

  Severance Executive's termination of employment and (B) the total lump sum

  value of the Special Severance Executive's pension benefit under the Pension

  Plans after crediting an additional three years of pay and interest credits

  to the Special Severance Executive’s Cash Balance Account, calculated based

  on an additional year of age and year of eligibility and benefit service to

  the Special Severance Executive (for purposes of determining the pay credits

  and vested interest) and applying the highest annual base salary rate and

  highest bonus determined above under "Severance Pay" (for purposes

  of determining the Special Severance Executive’s Compensation) with respect

  to each of the additional three years of the pay and interest credits so

  credited.  This provision shall apply

  to any Special Severance Executive having a pension benefit under any of the

  Pension Plans as of the date of the Acceleration Event.

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (iii)  Crediting of an additional three years of

  age and three years of eligibility service for purposes of the Company's

  retiree life insurance benefits. This provision shall apply to any Special

  Severance Executive covered under such benefits any time during the three

  year period immediately preceding the Special Severance Executive's

  termination of employment.

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (iv)  Payment of a lump sum amount

  ("Savings Plan Lump Sum Amount") equal to three times the following

  amount: the highest annual base salary rate determined above under

  "Severance Pay" times the highest percentage rate of Company

  contributions  with respect to the

  Special Severance Executive under the ESI 401(k) Plan and/or the ESI Excess

  Savings Plan (collectively, "Savings Plans") (including Matching

  Company Contributions and Retirement Contributions) at any time during the

  three year period immediately preceding the Special Severance Executive's

  termination of employment. This provision shall apply to any Special

  Severance Executive who is a member of any of the Savings Plans at any time

  during such three year period.

  

 

	

   

  	

  (c)   Outplacement - Outplacement services by a

  firm selected by the Special Severance Executive for one year following the

  Special Severance Executive’s termination of employment.

  
	

   

  	

   

  	

   

  
	

   

  	

  (d)   Tax Preparation - Tax preparation

  services by a firm selected by the Special Severance Executive for the

  Special Severance Executive’s federal, state and local income tax returns for

  the calendar year(s) in which the Special Severance Executive is paid the

  Severance Pay, Pension Lump Sum Amount and Savings Plan Lump Sum Amount.

  
	

   

  	

   

  	

   

  
	

  (II)

  	

  Severance

  Benefits for Special Severance Executives in Band B:

  
	

   

  	

   

  	

   

  
	

   

  	

  (a)   Severance Pay - The sum of (i) two times

  the highest annual base salary rate paid (whether or not deferred) to the

  Special Severance Executive at any time during the three year period

  immediately preceding the Special Severance Executive's termination of

  employment and (ii) two times the highest bonus paid or awarded (whether or

  not deferred) to the Special Severance Executive in any of the three years

  preceding an Acceleration Event, including, among the bonuses taken into

  account for this purpose, any bonus paid or awarded by reason of an

  Acceleration Event, without regard to whether such bonus is paid (whether or

  not deferred) during such three year period or after an Acceleration Event.

  
	

   

  	

   

  	

   

  
	

   

  	

  (b)   Benefits and Perquisites –

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (i)   Continued health and life insurance

  benefits and perquisites (including, without limitation, any Company provided

  automobile and any tax or financial advisory services) for two years

  following the Special Severance Executive's termination of employment at the

  same cost to the Special Severance Executive, and at the same coverage

  levels, as provided to the Special Severance Executive (and the Special

  Severance Executive's eligible dependents) immediately prior to his or her

  termination of employment.

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (ii)   Payment of a lump sum amount

  ("Pension Lump Sum Amount") equal to the difference between (A) the

  total lump sum value of the Special Severance Executive's pension benefit

  under the ESI Pension Plan and, as applicable, the ESI Excess Pension Plan of

  the Company (collectively, "Pension Plans") as of the Special

  Severance Executive's termination of employment and (B) the total lump sum

  value of the Special Severance Executive's pension benefit under the Pension

  Plans after crediting an additional two years of pay and interest credits to

  the Special Severance Executive's Cash Balance Account, calculated based on

  an additional year of age and year of eligibility and benefit service to the

  Special Severance Executive (for purposes of determining the pay credits and

  vested interest) and applying the highest annual base salary rate and highest

  bonus determined above under "Severance Pay" (for purposes of

  determining  the Special Severance

  Executive's Compensation) with respect to each of the additional two years of

  the pay and interest credits so credited. 

  This provision shall apply to any Special Severance Executive having a

  pension benefit under any of the Pension Plans as of the date of the Acceleration

  Event.

  
	

   

  	

   

  	

   

  
	

   

  	

   

  	

  (iii)  Crediting of an additional two years of

  age and two years of eligibility service for purposes of the Company's

  retiree life insurance benefits. This provision shall apply to any Special

  Severance Executive covered under such benefits any time during the three

  year period immediately preceding the Special Severance Executive's

  termination of employment.

  

 

	

   

  	

   

  	

  (iv)   Payment of a lump sum amount

  ("Savings Plan Lump Sum Amount") equal to two times the following

  amount: the highest annual base salary rate determined above under

  "Severance Pay" times the highest percentage rate of Company

  contributions with respect to the Special Severance Executive under the ESI

  401(k) Plan and/or the ESI Excess Savings Plan (collectively, "Savings

  Plans") (including Matching Company Contributions and Retirement

  Contributions) at any time during the three year period immediately preceding

  the Special Severance Executive's termination of employment. This provision

  shall applyto any Special Severance Executive who is a member of any

  of the Savings Plans at any time during such three year period.

  
	

   

  	

   

  	

   

  
	

   

  	

  (c)   Outplacement - Outplacement services by a

  firm selected by the Special Severance Executive for one year following the

  Special Severance Executive’s termination of employment.

  
	

   

  	

   

  	

   

  
	

   

  	

  (d)   Tax Preparation - Tax preparation

  services by a firm selected by the Special Severance Executive for the

  Special Severance Executive's federal, state and local income tax returns for

  the calendar year(s) in which the Special Severance Executive is paid the Severance

  Pay, Pension Lump Sum Amount and Savings Plan Lump Sum Amount.

  
	

   

  	

   

  	

   

  
	

  (III)   With respect to the provision of benefits

  and perquisites during the above described respective three and two year

  periods, if, for any reason at any time the Company is unable to treat the

  Special Severance Executive as being eligible for ongoing participation in

  any Company employee benefit plans or perquisites in existence immediately

  prior to the termination of employment of the Special Severance Executive,

  and if, as a result thereof, the Special Severance Executive does not receive

  a benefit or perquisite or receives a reduced benefit or perquisite, the

  Company shall provide such benefits or perquisites by (a) direct payment to

  the Special Severance Executive of the amounts the Special Severance

  Executive would have received from such benefit plan or perquisite had the

  Special Severance Executive continued to be eligible or (b) at the Company's

  option, making available equivalent benefits or perquisites from other sources.

  

 

6.  

Form of Payment of Severance Pay and Lump Sum Payments

 

Severance Pay

shall be paid in cash, in a non-discounted lump sum within five business days

after the date the employment of the Special Severance Executive terminates.

The Pension Lump Sum Amount and the Savings Plan Lump Sum Amount shall be paid

in cash within 30 calendar days after the date the employment of the Special

Severance Executive terminates.

 

7.  

Termination of Employment for Cause

 

The only basis upon which the Severance Benefits shall not be provided

to a Special Severance Executive terminated by the Company within two years

after an Acceleration Event is upon a termination of the Special Severance

Executive’s employment for Cause, as defined herein.

8.  

Administration of Plan

 

This Plan

shall be administered by ESI, who shall have the exclusive right to interpret

this Plan, adopt any rules and regulations for carrying out this Plan as may be

appropriate and decide any and all matters arising under this Plan, including

but not limited to the right to determine appeals. Subject to applicable

federal and state law, all interpretations and decisions by ESI shall be final,

conclusive and binding on all parties affected thereby.

 

Notwithstanding

the preceding paragraph, following an Acceleration Event, any controversy or

claim arising out of or relating to this Plan, or the breach thereof, shall be

settled by arbitration administered by the American Arbitration Association

under its Commercial Arbitration Rules and the entire cost thereof shall be

borne by the Company. Judgment on the award rendered by the arbitrator(s) may

be entered in any court having jurisdiction thereof. The Company shall pay all

attorney's fees, legal fees, costs of litigation, prejudgment interest, and

other expenses which are incurred by the Special Severance Executive as a

result of the Company's refusal to provide any of the Severance Benefits to

which the Special Severance Executive becomes entitled under this Plan, or as a

result of the Company's (or any third party's) contesting the validity,

enforceability or interpretation of this Plan, or as a result of any conflict

between the Special Severance Executive and the Company pertaining to this

Plan. The Company shall pay such fees and expenses from the general assets of

the Company.

 

9.  

Termination or Amendment

 

ESI may

terminate or amend this Plan ("Plan Change") at any time; except

that, following an Acceleration Event, no Plan Change that would adversely

affect any Special Severance Executive may be made without the prior written

consent of such Special Severance Executive affected thereby.

 

10. 

Offset

 

Any Severance

Benefits provided to a Special Severance Executive under this Plan shall be

offset by reducing (a) any Severance Pay hereunder by any severance pay, salary

continuation pay, termination pay or similar pay or allowance and (b) any other

Severance Benefits hereunder by corresponding employee benefits, perquisites or

outplacement services, which the Special Severance Executive receives or is entitled

to receive: (i) under the ESI Senior Executive Severance Pay Plan; (ii)

pursuant to any other Company policy, practice, program or arrangement; (iii)

pursuant to any Company employment agreement or other agreement between the

Special Severance Executive and the Company; or (iv) by virtue of any law,

excluding, however, any unemployment compensation or worker's compensation,

unless the Special Severance Executive voluntarily expressly waives (which the

Special Severance Executive shall have the exclusive right to do) in writing

any such respective entitlement.

11.  

Excise Tax

 

In the event

that it shall be determined that any payment or distribution by the Company to

or for the benefit of the Special Severance Executive (whether paid or payable

or distributed or distributable pursuant to the terms of this Plan or

otherwise, but determined without regard to any additional payments required

under this paragraph 11, such payments or distributions being referred to

herein as "Payments") would give rise to liability of the Special

Severance Executive for the excise tax imposed by Section 4999 of the Internal

Revenue Code, as amended (the "Code"), or any other or subsequent

provision of the Code, or that any interest or penalties are incurred by the

Special Severance Executive with respect to such excise tax (such excise tax,

together with any such interest and penalties, are hereinafter collectively

referred to as the "Excise Tax"), then the Special Severance

Executive shall be entitled to receive an additional payment (the

"Gross-Up Payment") in an amount such that after payment by the

Special Severance Executive of all federal, state and local taxes (including

any interest or penalties imposed with respect to such taxes), including,

without limitation, any income and employment taxes (and any interest and

penalties imposed with respect to such taxes) and Excise Tax imposed upon the

Gross-Up Payment, the Special Severance Executive retains an amount of the

Gross-Up Payment equal to the Excise Tax imposed upon the Payments.  For this purpose, the Special Severance

Executive shall be deemed to be in the highest marginal rate of federal, state

and local taxes. This payment shall be made as soon as possible following the date

of the Special Severance Executive's termination of employment, but in no event

later than 30 calendar days following such date.

 

In the event

the Gross-Up Payment shall fail to make the Special Severance Executive whole

on an after-tax basis, the Gross-Up Payment shall be recalculated ("Recalculated

Gross-Up Payment"), using the Special Severance Executive's actual

effective tax rate, once it is known for the calendar year in which the

Gross-Up Payment is made, and the Company shall reimburse the Special Severance

Executive for the full amount of any amount by which the Recalculated Gross-Up

Payment exceeds the Gross-Up Payment ("Additional Gross-Up Payment").

 

The Gross-Up

Payment and any Additional Gross-Up Payment shall be paid out of the general

assets of the Company.

 

In the event

the Internal Revenue Service subsequently adjusts the excise tax computation

herein described, the Company shall reimburse the Special Severance Executive

for the full amount necessary to make the Special Severance Executive whole on

an after-tax basis (less any amounts received by the Special Severance

Executive that the Special Severance Executive would not have received had the

computations initially been computed as subsequently adjusted), including the

value of any underpaid excise tax, and any related interest and/or penalties

due to the Internal Revenue Service.

 

12.  

Miscellaneous

 

The Special

Severance Executive shall not be entitled to any notice of termination or pay

in lieu thereof.

 

In cases where

Severance Benefits are provided under this Plan, pay in lieu of any unused

current year vacation entitlement will be paid to the Special Severance

Executive in a lump sum, in cash within five business days after the date the

employment of the Special Severance Executive terminates.

Severance Benefits under this Plan are paid entirely by the

Company from its general assets.

 

This Plan is

not a contract of employment, does not guarantee the Special Severance

Executive employment for any specified period and does not limit the right of

the Company to terminate the employment of the Special Severance Executive at

any time.

 

If a Special

Severance Executive should die while any amount is still payable to the Special

Severance Executive hereunder had the Special Severance Executive continued to

live, all such amounts shall be paid in accordance with this Plan to the

Special Severance Executive's designated heirs or, in the absence of such

designation, to the Special Severance Executive's estate.

 

The numbered

paragraph headings contained in this Plan are included solely for convenience

of reference and shall not in any way affect the meaning of any provision of

this Plan.

 

If, for any

reason, any one or more of the provisions or part of a provision contained in

this Plan shall be held to be invalid, illegal or unenforceable in any respect,

such invalidity, illegality or unenforceability shall not affect any other

provision or part of a provision of this Plan not held so invalid, illegal or

unenforceable, and each other provision or part of a provision shall to the full

extent consistent with law remain in full force and effect.

 

13.  

Adoption Date

 

This Plan was

adopted by ESI on October 16, 2001 ("Adoption Date") and does not

apply to any termination of employment which occurred or which was communicated

to the Special Severance Executive prior to the Adoption Date.

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