Item 5.01
|
Changes in Control of Registrant.
|
On January 17, 2018, Dr. David C. Collins and Mrs. Mary C. Collins filed with the SEC an amendment to their beneficial ownership report on Schedule 13D (“Schedule 13D Amendment”). The Schedule 13D Amendment stated that Dr. and Mrs. Collins have reached a determination to seek to reduce their ownership in the Company’s common stock by selling or otherwise disposing of some or all of their shares in the Company, and that they may engage in discussions with third parties, including other stockholders of the Company. Based on their Schedule 13D Amendment, Dr. and Mrs. Collins, together with affiliated trusts, beneficially own 7,495,332 shares of Common Stock, or approximately 56.7% of the outstanding shares of the Company (“Collins Shares”).
As a result of these efforts, Dr. and Mrs. Collins and trusts and other entities affiliated with Dr. and Mrs. Collins, entered into a Securities Purchase Agreement, dated June 29, 2018, that provided for the sale of all of the Collins Shares to The Kevin Ross Gruneich Legacy Trust, which sale was completed on the same date it was signed. As a result of this transaction, The Kevin Ross Gruneich Legacy Trust acquired 7,495,332 shares of Common Stock, representing approximately 56.7% of issued and outstanding shares as of June 29, 2018. Pursuant to the Purchase Agreement, the 7,495,332 shares of Common Stock were purchased for $7,495,332, or $1.00 per share, and represented all of the Common Stock owned by the Collins. To the knowledge of the Company, the source of funds used by the Trust was cash on hand that was held by the Trust. In connection with the consummation of the sale of the Collins Shares to the Trust and pursuant to the terms of the Purchase Agreement, Dr. and Mrs. Collins resigned as directors, as well as all other positions with the Company and its subsidiaries, and Mr. Kevin Gruneich was appointed by the Board (i) as a Class III Director to fill a director vacancy and (ii) to serve as Chairman of the Board. Additionally, the Trust was provided with additional rights to nominate up to three additional directors, which right is summarized in Item 1.01 of this Form 8-K.
At the time of the sale of the Collins Shares by Dr. and Mrs. Collins to the Trust was consummated, the Company entered into the Credit Agreement with the Trust that provides the Company with access to borrow up to $5.0 million. Pursuant to the terms of the Credit Agreement, the principal amount of sums that are borrowed by the Company from the Trust under the Credit Agreement may be converted by the Trust at any time into shares of Common Stock (or Conversion Shares) at any time during the Term. On June 29, 2018, the Company received an initial advance under the Credit Agreement in the amount of $2.0 million, which principal amount may be converted at the Conversion Price into Conversion Shares at any time, which if converted in full on the date hereof, the Company would issue 2,000,000 shares of Common Stock to the Trust. If the Company were to borrow an additional $3.0 million under the Credit Agreement and the Trust converted that entire principal amount into Conversion Shares, then based on the Conversion Price as of the date hereof, the Trust would be entitled to receive an additional 3,000,000 shares of Common Stock. The Conversion Shares are restricted securities under the Securities Act.
For additional information regarding the terms and transactions contemplated by the Purchase Agreement and the Credit Agreement, see Items 1.01, 2.03 and 5.02 of this Form 8-K.
Item 5.02
|
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
|
(a)
On June 29, 2018, Dr. Collins and Mrs. Collins, both directors on the Board, each provided a written resignation to the Company resigning as directors on the Board, including Dr. Collins resigning his position as Chairman of the Board, which resignations became effective upon the consummation of the Sale Transaction contemplated by the Purchase Agreement on June 29, 2018. The resignations of Dr. and Mrs. Collins were a closing condition of the Trust to consummate the Sale Transaction.
Dr. Collins’ written resignation also included terminating his employment with the Company with immediate effect, which notice was accepted by the Company and effective on June 29, 2018. Other than payments due to Dr. Collins for his service to the Company through the date of resignation, no other payments or other compensation will be paid to Dr. Collins in connection with the termination of his employment agreement or resignation as a director of the Board. Mrs. Collins’ written resignation also terminated her consulting services with the Company, which was accepted by the Company to be effective June 29, 2018. Since no consulting service were provided by Mrs. Collins through the termination date, no compensation is payable to Mrs. Collins as a result the cancellation of her services.
(d)
Effective as of June 29, 2018, Mr. Kevin Gruneich was appointed by the Board to fill the Class III director vacancy, which vacancy existed as a result of the resignation of Dr. Collins. Mr. Gruneich will stand for election at the Company’s 2019 annual meeting of stockholders along with the other Class III directors. The Board also appointed Mr. Gruneich to serve as the Chairman of the Board. Upon his appointment, Mr. Gruneich will not be entitled to receive any compensation for his service on the Board as a non-independent director. In connection with his appointment to the Board, Mr. Gruneich will also enter into an Indemnification Agreement with the Company, the terms of which are described in Item 1.01 of the Current Report on Form 8-K filed on November 8, 2017 and the form of such agreement is filed herein as
Exhibit 10.4
, which are both incorporated by reference hereby.
The terms of the Purchase Agreement provided the Trust with the right to nominate Mr. Gruneich as a director, subject to review and approval of the Company’s Nominating and Corporate Governance Committee and the Board, and for Mr. Gruneich, upon election of the Board, to serve as Chairman of the Board. Additionally, the Trust has additional rights to nominate up to three additional directors, which is summarized in Item 1.01 and Item 5.01 of this Form 8-K. Mr. Gruneich is related to the Trust, which is the new majority stockholder of the Company and a party to both the Purchase Agreement and the Credit Agreement, as disclosed in Items 1.01, 2.03 and 5.01 of this Form 8-K, and incorporated by reference hereto. Such transactions involve amounts exceeding $120,000 and in which Mr. Gruneich, as a result of his relationship with the Trust, has a material interest within the meaning of Item 404(a) of Regulation S-K. Mr. Gruneich does not have a family relationship with any director or executive officer of the Company.
Mr. Gruneich currently serves on the Board of The University of Iowa Center for Advancement and on its Investment Committee, as well as on the Advisory Board for Spy Hop Productions, a leading youth media arts program. Mr. Gruneich served as a Director of Questar Assessment beginning 2008 until its sale to ETS (Educational Testing Service) in 2017. From 1996 to 2004, Mr. Gruneich worked for The Bear Stearns Companies in New York serving in the following positions: Senior Managing Director, Senior Publishing/Information Analyst and Co-Head of the Global Media Research Group. Prior to 1996, Mr. Gruneich served as Managing Director and Senior Publishing/Information Analyst at First Boston since 1982. Mr. Gruneich was named to Institutional Investor Magazine’s All America Research Team for 20 consecutive years. Mr. Gruneich’s financial industry experience includes equity research, covering the Publishing/Information Industry, mergers & acquisitions, capital markets, corporate finance, private equity and strategic transactions/initiatives. Mr. Gruneich holds a B.S. in Finance and Industrial Relations with a minor in Political Science from the University of Iowa and an MBA from The Wharton School, University of Pennsylvania.
(e)
On June 29, 2018, the Company amended the employment agreements of Richard Spires, Magnus Nyland and David Asai, dated October 7, 2015 (as amended), July 27, 2016 and April 8, 2013, respectively, by entering into a Supplement to Employment Agreement with each executive officer of the Company (the “Supplemental Agreements”). The Company entering into the Supplemental Agreements was a condition required by the Trust in the Purchase Agreement.
Pursuant to the Supplemental Agreements, Messrs. Spires, Nylund and Asai were granted incentive stock options under the Learning Tree International, Inc. Equity Incentive Plan (“Incentive Plan”) to purchase shares of Common Stock (“Options”) with 10% vesting on the date of grant and 30% vesting on the one-year, two-year and three-year anniversaries. Mr. Spires was granted 25,000 Options and Messrs. Nylund and Asai were each granted 50,000 Options. Contingent on continued employment, the Supplemental Agreements provide for each of Messrs. Spires, Nylund and Asai to receive additional options to purchase Common Stock (25,000 for Mr. Spires and 50,000 for Messrs. Nylund and Asai) on the first and second anniversary of the Supplemental Agreements. If a merger, sale of all or substantially all of the assets of the Company, or a change in control occurs then the unvested portion of outstanding Options will vest on the date immediately prior to such transaction. Pursuant to the Supplemental Agreements, if an executive’s employment is terminated for any other reason, all unvested Options will be forfeited.
The Supplemental Agreements did not change the annual base salaries of Messrs. Spires, Nylund and Asai, however they did formalize each executive officer’s incentive compensation for fiscal 2018. The Supplemental Agreements all provide for a fiscal 2018 target goal of $1,000,000 in consolidated operating income of the Company (“Target Goal”). If the Target Goal is achieved, then the incentive compensation payable to Mr. Spires for fiscal 2018 would equal $200,000, and he will also be eligible to receive an additional $50,000 for each $1,000,000 of consolidated operating income in excess of the amount of the Target Goal. Messrs. Nylund’s and Asai’s incentive compensation under their respective Supplemental Agreement will be earned on a sliding scale that is based on the Company’s consolidated operating income for fiscal 2018. In the event that the Target Goal is achieved, then each of Messrs. Nylund and Asai will be entitled to incentive compensation (“2018 Incentive Compensation”) equal to 20% of their respective annual base compensation. However, in the event that the Company’s consolidated operating income is greater than the Target Goal, then Messrs. Nylund and Asai will be entitled to a 10% increase in the amount of their 2018 Incentive Compensation for every $100,000 in consolidated operating income above the Target Goal up to a maximum amount of 2018 Incentive Compensation equal to 40% of annual base compensation if the Company’s consolidated operating income for fiscal 2018 reaches $2,000,000. If the Target Goal is not achieved by the Company in fiscal 2018, then Messrs. Nylund and Asai will still be eligible to receive 2018 Incentive Compensation. In this circumstance, the amount of the 2018 Incentive Compensation payable will be calculated to equal the amount of the Target Goal (20% of annual base compensation), reduced by 10% for every $100,000 that the Company’s consolidated operating is below the Target Goal.
Under the terms of the Supplemental Agreements, the employment of each of Messrs. Spires, Nylund and Asai will remain as “at-will.” The Supplemental Agreements, however, did amend their respective employment agreements to provide that in the event of either termination without cause or termination by the employee with Good Reason (as defined in the Supplemental Agreements), each of Messrs. Spires, Nylund and Asai would be entitled to severance equal to: (i) six months of his base salary, (ii) a continuation of health insurance coverage for six months following the date of termination, and (iii) the pro rata portion of the employee’s incentive compensation.
The Supplemental Agreements for Messrs. Spires and Asai also contain non-competition covenants that apply while these executives are employed by the Company and for two years following their termination. The Supplemental Agreement with Mr. Nylund expanded his existing one-year
non-competition covenant to (i) apply for a two-year period post-employment and (ii) to provide for a geographic limitation on his ability to compete with the Company of 50 miles from any location where the Company is actively engaged. The Supplemental Agreements additionally expanded the scope of the two-year non-solicitation covenant under each of Messrs. Spires, Nylund and Asai’s employment agreement to increase the restriction upon soliciting Company employees or contractors to apply to any Company employee or contractor who was employed by the Company 12 months prior to such executive’s termination of employment, instead of the prior six month period.
The foregoing summaries of the Supplemental Agreements are not complete and are qualified in their entirety by reference to the complete text of such supplements, which are filed as
Exhibits 10.5
,
10.6
and
10.7
to this Form 8-K and which are incorporated herein by reference in its entirety.