Career Education whips out the checkbook for ex-CEO…
Yesterday Career Education Corporation (CECO) filed an amended 8-K that serves as a kind of bookend to an earlier one filed on November 2. Both relate to the October 31 resignation of president, CEO, and director Gary E. McCullough. While the first one got some attention, we found yesterday’s disclosures even more interesting.
We’ve actually been on the lookout for this amended 8-K ever since the first filing included an attached letter that said McCullough had “irrevocably resigned” from his employment, that the parties would negotiate a Separation Agreement, and that he would be entitled to outplacement services with a $100,000 cap, which seemed kind of generous to us, based on what we see in other filings.
So the parties have spent the past few weeks hammering out terms, and how did McCullough fare in the Separation Agreement? Well, you be the judge.
For starters, McCullough is getting more than $1.01 million as a pro rata bonus, and the company will continue to pay his base salary (at the rate of $824,000 per year) for the next two years, which adds up to another chunk of nearly $1.65 million. Career Education will also pay McCullough a second bonus – dubbed a “Cash Bonus” – of $2.428 million. And it agreed to pay “at its full cost” two years’ worth of life insurance premiums and health insurance coverage for McCullough and his family.
However, since “[s]uch coverage may not be at the same or greater level of health, dental, and vision benefit coverage in effect as of the Separation Date,” Career Education is forking out about $88,000 more to make up for any difference in benefits, provide disability coverage, and compensate McCullough for what the company would have contributed to his retirement plans. And then there is the previously-promised capper: McCullough got $100,000 to spend on outplacement services.
By our count, McCullough is walking away with more than $5.27 million, plus benefits.
In addition to the company and McCullough exchanging General Releases, another section of the Separation Agreement that caught our eye was McCullough’s affirmation:
“…that he has reported all compliance issues and violations of federal, state and local laws or regulations or any policy of the Company or the Company Affiliates of which he had knowledge during the term of his employment, if any. The Executive represents and acknowledges that he has no further or additional knowledge or information regarding compliance issues or possible violations of federal, state or local laws or regulations or policy of the Company or the Company Affiliates other than what the Executive has previously raised, if any.”
This may be boilerplate verbiage, but it also may relate to Career Education’s current legal woes: It is the subject of investigations by the Attorneys General of New York and Florida (most recently described in the November 9 10-Q); and on November 21, it disclosed in this 8-K that 49 of its schools are at risk of losing their accreditation from the Accrediting Council for Independent Colleges and Schools. And – as if that weren’t enough to deal with – the third quarter results were disappointing. Shareholders can’t be happy either: the stock has lost about 60% over the past year.
When McCullough resigned, Chairman and newly-appointed transitional president/CEO Steven H. Lesnik stated in the company’s press release, “Given the complexities of the regulatory environment and other issues that have arisen over the last year, CEC is moving towards a new phase and the Board views it as the appropriate time to start the process of putting in place fresh leadership at the CEO level.” While all that may be true, we suspect that McCullough – who’s walking away with millions – got the easier end of the deal than Lesnik and the board, who still have to come up with solutions for the company’s current messes.
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