Minnesota | 8221 | 41-1717955 | ||
(State or other jurisdiction of
incorporation or organization) |
(Primary Standard Industrial
Classification Code Number) |
(I.R.S. Employer
Identification No.) |
225 South 6th Street, 9th Floor
Minneapolis, Minnesota 55402 (888) 227-3552 (Address, including zip code, and telephone number, including area code, of Registrants principal executive offices) Stephen G. Shank Chairman and Chief Executive Officer Capella Education Company 225 South 6th Street, 9th Floor Minneapolis, Minnesota 55402 (888) 227-3552 (Name, address, including zip code, and telephone number, including area code, of agent for service) |
David B. Miller, Esq.
Michael K. Coddington, Esq. Faegre & Benson LLP 2200 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402 Telephone: (612) 766-7000 Facsimile: (612) 766-1600 |
Kris F. Heinzelman, Esq.
George A. Stephanakis, Esq. Cravath, Swaine & Moore LLP Worldwide Plaza 825 Eighth Avenue New York, NY 10019 Telephone: (212) 474-1000 Facsimile: (212) 474-3700 |
The information in this prospectus is not
complete and may be changed. We may not sell these securities
until the registration statement filed with the Securities and
Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer
to buy these securities in any state where the offer or sale is
not permitted.
|
Underwriting | Proceeds to | |||||||||||||||
Price to | Discounts and | Proceeds to | Selling | |||||||||||||
Public | Commissions | Capella | Shareholders | |||||||||||||
Per Share
|
$ | $ | $ | $ | ||||||||||||
Total
|
$ | $ | $ | $ |
i
1
2
3
4
Table of Contents
Table of Contents
we are unable to comply with the extensive regulatory
requirements to which our business is subject, including
Title IV of the Higher Education Act and the regulations
under that act, from which we derived 67% of our revenues
(calculated on a cash basis) in 2005, state laws and
regulations, and accrediting agency requirements, and our
inability to comply with these regulations could result in our
ceasing operations altogether;
we experience any learner, regulatory, reputational,
instructional or other events that adversely affect our doctoral
offerings, from which we currently derive a significant portion
of our revenues and, after the full allocation of corporate
overhead expenses, all of our operating income;
we are unable to develop new programs and expand our existing
programs in a timely and cost-effective manner;
we are unable to attract and retain working adult learners to
our programs in the highly competitive market in which we
operate;
we are unable to attract and retain key personnel needed to
sustain and grow our business; or
Table of Contents
our reputation is damaged by regulatory actions or negative
publicity affecting us or other companies in the for-profit
higher education sector.
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5
6
7
8
9
shares
of common stock reserved for future issuance under our stock
option plans,
including shares
of common stock reserved for future issuance upon the exercise
of stock options outstanding as
of ,
2006 under our stock option plans, at a weighted average
exercise price of
$ per
share; and
shares
of common stock reserved for future issuance upon the vesting of
common stock outstanding under our stock purchase plan.
no exercise by the underwriters of their option to purchase up
to additional
shares from us to cover over-allotments of shares;
all outstanding shares of our preferred stock have been
converted into shares of common stock in connection with this
offering; and
no outstanding options have been exercised
since ,
2006.
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Table of Contents
Six Months Ended
Year Ended December 31,
June 30,
2003
2004
2005
2005
2006
(a)
(In thousands, except per share and enrollment data)
$
81,785
$
117,689
$
149,240
$
70,018
$
85,376
43,759
58,850
71,243
33,997
41,342
22,246
35,089
45,623
20,664
27,573
11,710
13,885
17,501
7,689
10,374
77,715
107,824
134,367
62,350
79,289
4,070
9,865
14,873
7,668
6,087
427
724
2,306
898
1,971
4,497
10,589
17,179
8,566
8,058
104
(8,196
)
6,929
3,505
3,361
$
4,393
$
18,785
$
10,250
$
5,061
$
4,697
$
0.41
$
1.68
$
0.89
$
0.45
$
0.40
$
0.39
$
1.62
$
0.86
$
0.43
$
0.39
10,804
11,189
11,476
11,331
11,671
11,154
11,599
11,975
11,896
12,001
$
4,177
$
5,454
$
6,474
$
3,119
$
4,096
$
15,399
$
16,049
$
28,940
$
12,736
$
11,064
$
3,719
$
7,541
$
9,079
$
3,258
$
6,595
$
8,247
$
15,319
$
21,347
$
10,787
$
10,183
9,313
12,252
14,613
13,208
16,078
As of June 30, 2006
As of December 31,
Pro
2003
2004
2005
Actual
Forma
(e)
(In thousands)
$
41,190
$
49,980
$
72,133
$
75,064
$
27,516
37,935
53,718
55,725
55,402
80,026
106,562
114,291
57,646
57,646
57,646
57,646
(20,416
)
(5
)
14,414
22,328
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(a)
Operating income, income before income taxes and EBITDA for the
six months ended June 30, 2006 included $2.1 million
of stock-based compensation expense recognized under
FAS 123(R). Net income and net income per common share for
the six months ended June 30, 2006 included
$1.6 million of stock-based compensation expense recognized
under FAS 123(R). In accordance with the modified
prospective transition method provided under FAS 123(R),
our consolidated financial statements for prior periods have not
been restated to reflect, and do not include, the impact of
FAS 123(R).
(b)
Depreciation and amortization is calculated using the
straight-line method over the estimated useful lives of the
assets. Amortization includes amounts related to purchased
software, capitalized website development costs and internally
developed software.
(c)
EBITDA consists of net income minus other income, net plus
income tax expense (benefit) and plus depreciation and
amortization. Other income, net consists primarily of interest
income earned on short-term marketable securities, net of any
interest expense for capital leases or notes payable. We use
EBITDA as a measure of operating performance. However, EBITDA is
not a recognized measurement under U.S. generally accepted
accounting principles, or GAAP, and when analyzing our operating
performance, investors should use EBITDA in addition to, and not
as an alternative for, net income as determined in accordance
with GAAP. Because not all companies use identical calculations,
our presentation of EBITDA may not be comparable to similarly
titled measures of other companies. Furthermore, EBITDA is not
intended to be a measure of free cash flow, as it does not
consider certain cash requirements such as tax payments.
We believe EBITDA is useful to an investor in evaluating our
operating performance and liquidity because it is widely used to
measure a companys operating performance without regard to
items such as depreciation and amortization. Depreciation and
amortization can vary depending upon accounting methods and the
book value of assets. We believe EBITDA presents a meaningful
measure of corporate performance exclusive of our capital
structure and the method by which assets were acquired.
Our management uses EBITDA:
as a measurement of operating performance, because it assists us
in comparing our performance on a consistent basis, as it
removes depreciation, amortization, interest and taxes; and
in presentations to the members of our board of directors to
enable our board to have the same measurement basis of operating
performance as is used by management to compare our current
operating results with corresponding prior periods and with the
results of other companies in our industry.
The following table provides a reconciliation of net income to
EBITDA:
Six Months Ended
Year Ended December 31,
June 30,
2003
2004
2005
2005
2006
(In thousands)
$
4,393
$
18,785
$
10,250
$
5,061
$
4,697
(427
)
(724
)
(2,306
)
(898
)
(1,971
)
104
(8,196
)
6,929
3,505
3,361
4,177
5,454
6,474
3,119
4,096
$
8,247
$
15,319
$
21,347
$
10,787
$
10,183
(d)
Enrollment reflects the total number of learners registered in a
course as of the last day of classes for such periods.
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(e)
The consolidated pro forma balance sheet data as of
June 30, 2006, give effect to:
the conversion of all outstanding shares of preferred stock into
shares of common stock in connection with this offering;
the sale
of shares
of common stock by us in this offering at an offering price of
$ per
share (the midpoint of the range set forth on the cover page of
this prospectus); and
our receipt of the estimated net proceeds of that sale after
deducting underwriting discounts and commissions and estimated
offering expenses payable by us.
(f)
Working capital is calculated by subtracting total current
liabilities from total current assets.
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If we fail to comply with the extensive regulatory requirements for our business, we could face significant restrictions on our operations and monetary penalties, including loss of access to federal loans and grants for our learners on which we are substantially dependent. |
We must seek recertification to participate in Title IV programs no less than every six years, and may, in certain circumstances, be subject to review by the Department of Education prior to seeking recertification. |
10
Congress may change the law or reduce funding for Title IV programs, which could reduce our learner population, revenues and profit margin. |
If we fail to maintain our institutional accreditation, we would lose our ability to participate in Title IV programs. |
11
If Capella University does not maintain its authorization in Minnesota, it may not operate or participate in Title IV programs. |
Our regulatory environment and our reputation may be negatively influenced by the actions of other for-profit institutions. |
We are subject to sanctions if we fail to correctly calculate and timely return Title IV program funds for learners who withdraw before completing their educational program. |
A failure to demonstrate financial responsibility may result in the loss of eligibility by Capella University to participate in Title IV programs or require the posting of a letter of credit in order to maintain eligibility to participate in Title IV programs. |
12
A failure to demonstrate administrative capability may result in the loss of Capella Universitys eligibility to participate in Title IV programs. |
| comply with all applicable Title IV program regulations; | |
| have capable and sufficient personnel to administer the federal student financial aid programs; | |
| have acceptable methods of defining and measuring the satisfactory academic progress of its students; | |
| not have cohort default debt rates above specified levels; | |
| have various procedures in place for safeguarding federal funds; | |
| not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting or engaging in activity that is cause for debarment or suspension; | |
| provide financial aid counseling to its students; | |
| refer to the Department of Educations Office of Inspector General any credible information indicating that any applicant, student, employee or agent of the institution has been engaged in any fraud or other illegal conduct involving Title IV programs; | |
| submit in a timely manner all reports and financial statements required by the regulations; and | |
| not otherwise appear to lack administrative capability. |
| require the repayment of Title IV funds; | |
| transfer the institution from the advance system of payment of Title IV funds to cash monitoring status or to the reimbursement system of payment; | |
| place the institution on provisional certification status; or | |
| commence a proceeding to impose a fine or to limit, suspend or terminate the participation of the institution in Title IV programs. |
13
We are subject to sanctions if we pay impermissible commissions, bonuses or other incentive payments to individuals involved in certain recruiting, admissions or financial aid activities. |
Our failure to comply with regulations of various states could result in actions taken by those states that would have a material adverse effect on our enrollments, revenues and results of operations. |
State | Capella University activity constituting presence requiring licensure or authorization | |
Alabama
|
Agreement with a former provider of library services to Capella students; employment of one-full time individual at the offices of the former library services provider. | |
Arizona
|
State agency broadly interprets presence requiring licensure to include the offering of degree programs by distance education; Capella also conducts in-state seminars. | |
Arkansas
|
Agreement with Wal-Mart Stores, Inc. under which Wal-Mart employees located in Arkansas receive discounted tuition for certain Capella University programs. | |
Colorado
|
No determination of presence; authorization granted in order to have marketing and recruiting agents in the state. | |
Florida
|
Recruiting activities in the state. | |
Georgia
|
Direct marketing and recruiting activities in the state. | |
Illinois
|
State agency broadly interprets presence requiring authorization to include the offering of degree programs by distance education. | |
Kentucky
|
Direct marketing and recruiting activities in the state. | |
Nevada
|
Direct marketing and recruiting activities in the state; agreements with community colleges. | |
Ohio
|
Direct marketing and recruiting activities in the state for select programs. | |
Virginia
|
Direct marketing and recruiting activities in the state; agreements with community colleges. | |
Washington
|
Direct marketing and recruiting activities in the state; agreements with community colleges. | |
West Virginia
|
Direct marketing and recruiting activities in the state. | |
Wisconsin
|
State agency broadly interprets licensure requirements to cover all institutions serving residents of the state. |
14
The inability of our graduates to obtain licensure in their chosen professional fields of study could reduce our enrollments and revenues, and potentially lead to litigation that could be costly to us. |
If regulators do not approve or delay their approval of transactions involving a change of control of our company, our ability to participate in Title IV programs may be impaired. |
15
Government and regulatory agencies and third parties may conduct compliance reviews, bring claims or initiate litigation against us. |
We may lose eligibility to participate in Title IV programs if our student loan default rates are too high, which would significantly reduce our learner population. |
We may lose eligibility to participate in Title IV programs if the 50% Rules are reinstated temporarily or permanently, which would significantly reduce our learner population and have an adverse effect on our revenues and operating profits. |
16
We may lose eligibility to participate in Title IV programs if the percentage of our revenue derived from those programs is too high, which would significantly reduce our learner population. |
Our success depends in part on our ability to update and expand the content of existing programs and develop new programs and specializations on a timely basis and in a cost-effective manner. |
Our financial performance depends on our ability to continue to develop awareness among, and attract and retain, working adult learners. |
17
| the emergence of more successful competitors; | |
| factors related to our marketing, including the costs of Internet advertising and broad-based branding campaigns; | |
| performance problems with our online systems; | |
| failure to maintain accreditation; | |
| learner dissatisfaction with our services and programs; | |
| adverse publicity regarding us, our competitors or online or for-profit education generally; | |
| price reductions by competitors that we are unwilling or unable to match; | |
| a decline in the acceptance of online education; and | |
| a decrease in the perceived or actual economic benefits that learners derive from our programs. |
Strong competition in the post-secondary education market, especially in the online education market, could decrease our market share, increase our cost of acquiring learners and put downward pressure on our tuition rates. |
We operate in a highly competitive market with rapid technological change, and we may not have the resources needed to compete successfully. |
18
System disruptions and vulnerability from security risks to our online computer networks could impact our ability to generate revenue and damage the reputation of Capella University, limiting our ability to attract and retain learners. |
At present we derive a significant portion of our revenues and, after the full allocation of corporate overhead expenses, all of our operating income from our doctoral programs. |
19
We are transitioning our library services and resources in-house, and by July 2007 we will have responsibility for providing library services to our learners. We have limited experience providing such services and any inability to do so effectively could limit our ability to attract and retain learners, and adversely affect our enrollments, revenues and operating profits. |
We may experience declines in our revenue and enrollment growth rates, and our growth may place a strain on our resources. |
We rely on exclusive proprietary rights and intellectual property that may not be adequately protected under current laws, and we encounter disputes from time to time relating to our use of intellectual property of third parties. |
20
We may incur liability for the unauthorized duplication or distribution of class materials posted online for class discussions. |
A reclassification of our adjunct faculty by authorities may have a material adverse effect on our results of operations. |
We may not be able to retain our key personnel or hire and retain the personnel we need to sustain and grow our business. |
21
Our learner population and revenues could decrease if the government tuition assistance offered to U.S. Armed Forces personnel is reduced or eliminated, if the tuition discounts which we offer to U.S. Armed Forces personnel are reduced or eliminated, or if our informal arrangements with any military bases deteriorate. |
Our expenses may cause us to incur operating losses if we are unsuccessful in achieving growth. |
22
Seasonal and other fluctuations in our results of operations could adversely affect the trading price of our common stock. |
Our current success and future growth depend on the continued acceptance of the Internet and the corresponding growth in users seeking educational services on the Internet. |
| inadequate Internet infrastructure; | |
| security and privacy concerns; and | |
| the unavailability of cost-effective Internet service and other technological factors. |
Government regulations relating to the Internet could increase our cost of doing business, affect our ability to grow or otherwise have a material adverse effect on our business. |
An increase in interest rates could adversely affect our ability to attract and retain learners. |
23
The price of our common stock may fluctuate significantly, and you could lose all or part of your investment. |
| our quarterly or annual earnings or those of other companies in our industry; | |
| the publics reaction to our press releases, our other public announcements and our filings with the Securities and Exchange Commission, or SEC; | |
| changes in earnings estimates or recommendations by research analysts who track our common stock or the stocks of other companies in our industry; | |
| changes in our number of enrolled learners; | |
| new laws or regulations or new interpretations of laws or regulations applicable to our business; | |
| seasonal variations in our learner population; | |
| changes in accounting standards, policies, guidance, interpretations or principles; | |
| changes in general conditions in the U.S. and global economies or financial markets, including those resulting from war, incidents of terrorism or responses to such events; | |
| litigation involving our company or investigations by regulators into the operations of our company or our competitors; and | |
| sales of common stock by our directors, executive officers and significant shareholders. |
There is no existing market for our common stock, and we do not know if one will develop to provide you with adequate liquidity. |
24
Future sales of our common stock in the public market could lower our stock price. |
Our executive officers, directors and principal existing shareholders will continue to own a large percentage of our voting stock after this offering, which may allow them to collectively control substantially all matters requiring shareholder approval and, in the case of certain of our principal shareholders, will have other unique rights that may afford them access to our management. |
25
Our articles of incorporation, bylaws, Minnesota law and regulations of state and federal education agencies may discourage takeovers and business combinations that our shareholders might consider in their best interests. |
26
Being a public company will increase our expenses and administrative workload. |
| create or expand the roles and duties of our board of directors, our board committees and management; | |
| institute more comprehensive compliance and internal audit functions; | |
| evaluate and maintain our system of internal control over financial reporting, and report on managements assessment thereof, in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board; | |
| prepare and distribute periodic public reports in compliance with our obligations under the federal securities laws; | |
| implement more comprehensive internal policies, such as those relating to disclosure controls and procedures and insider trading; | |
| involve and retain to a greater degree outside counsel and accountants in the above activities; | |
| hire investor relations support personnel; and | |
| hire additional personnel to perform external reporting and internal accounting functions, including tax accounting functions. | |
27
We will be exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act of 2002. |
We will have broad discretion in applying the net proceeds of this offering and may not use those proceeds in ways that will enhance the market value of our common stock. |
You will suffer immediate and substantial dilution. |
28
| our failure to comply with the extensive regulatory framework applicable to our industry, including Title IV of the Higher Education Act and the regulations thereunder, state laws and regulatory requirements, and accrediting agency requirements; | |
| risks associated with changes in applicable federal and state laws and regulations and accrediting agency policies; | |
| the pace of growth of our enrollment; | |
| our ability to convert prospective learners to enrolled learners and to retain active learners; | |
| our success in updating and expanding the content of existing programs and developing new programs in a cost-effective manner or on a timely basis; | |
| industry competition; | |
| failure on our part to maintain and expand existing commercial relationships with the U.S. Armed Forces and various corporations and develop new commercial relationships; | |
| risks associated with the competitive marketing environment in which we operate; | |
| failure on our part to keep up with advances in technology that could enhance the online experience for our learners; | |
| our ability to effectively implement our enterprise resource planning system; | |
| our ability to manage future growth effectively; | |
| general and economic conditions; and | |
| other factors discussed under the headings Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations, Business and Regulatory Environment. |
29
30
| on an actual basis; | |
| on a pro forma basis, giving effect to (i) our sale of shares of our common stock in this offering (at an assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus and after deducting underwriting discounts and commissions and estimated offering expenses payable by us); and (ii) the conversion of all outstanding shares of our Class A, Class B and Class D convertible preferred stock and our Class E and Class G redeemable convertible preferred stock into shares of our common stock, which is expected to occur concurrently with the consummation of this offering in accordance with the provisions of each class of preferred stocks respective certificate of designation. | |
31
As of | |||||||||||
June 30, 2006 | |||||||||||
Actual | Pro Forma (a) | ||||||||||
(In thousands, | |||||||||||
except share and | |||||||||||
per share amounts) | |||||||||||
Cash, cash equivalents and short-term marketable securities
|
$ | 75,064 | $ | ||||||||
Debt:
|
|||||||||||
Line of
credit
(b)
|
$ | | $ | ||||||||
Capital lease obligations
|
15 | ||||||||||
Notes
payable
(c)
|
1,200 | ||||||||||
Total debt
|
1,215 | ||||||||||
Redeemable preferred stock:
|
|||||||||||
Class E Redeemable Convertible Preferred Stock:
$0.01 par value; 2,596,491 shares authorized, issued
and outstanding, actual; none authorized, issued and
outstanding, pro forma
|
34,985 | ||||||||||
Class G Redeemable Convertible Preferred Stock:
$0.01 par value; 2,184,550 shares authorized,
2,184,540 shares issued and outstanding, actual; none
authorized, issued and outstanding, pro forma
|
22,661 | ||||||||||
Total redeemable preferred stock
|
57,646 | ||||||||||
Shareholders equity:
|
|||||||||||
Class A Convertible Preferred Stock: $1.00 par value;
3,000,000 shares authorized, 2,810,000 shares issued
and outstanding, actual; none authorized, issued and
outstanding, pro forma
|
2,810 | ||||||||||
Class B Convertible Preferred Stock: $2.50 par value;
1,180,000 shares authorized, 460,000 shares issued and
outstanding, actual; none authorized, issued and outstanding,
pro forma
|
1,150 | ||||||||||
Class D Convertible Preferred Stock: $4.50 par value;
1,022,222 shares authorized, issued and outstanding,
actual; none authorized, issued and outstanding, pro forma
|
4,600 | ||||||||||
Undesignated preferred stock: 2,961,808 authorized, none issued
and outstanding, actual; 10,000,000 shares authorized, none
issued and outstanding, pro forma
|
| ||||||||||
Common stock: $0.10 par value; 100,000,000 shares
authorized, 2,552,600 shares issued and outstanding,
actual; 100,000,000 shares
authorized, shares
issued and outstanding, pro
forma
(d)
|
255 | ||||||||||
Additional paid-in capital
|
12,541 | ||||||||||
Accumulated other comprehensive loss
|
(36 | ) | |||||||||
Retained earnings
|
1,008 | ||||||||||
Total shareholders equity
|
22,328 | ||||||||||
Total capitalization
|
$ | 81,189 | $ | ||||||||
(a) | Each $1.00 increase or decrease in the assumed public offering price of $ per share would increase or decrease, respectively, each of additional paid-in capital, total shareholders equity and total capitalization by approximately $ , assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us. A $1.00 increase or decrease in the assumed public offering price of $ per share would increase or decrease, respectively, cash, cash equivalents and short-term marketable securities by approximately $ , assuming the number of shares offered by us, as |
32
set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions payable by us. |
(b) | At June 30, 2006, we had available funds under our revolving line of credit in the amount of $10.0 million. There have been no borrowings to date under our revolving line of credit. | |
(c) | During 2005 we entered into two payment plan agreements to finance asset purchases related to our enterprise resource planning system. See Note 6 to our consolidated financial statements included elsewhere in this prospectus for more information regarding these payment plan arrangements. |
(d) | Excludes: |
33
Assumed initial public offering price per share of common stock
|
$ | ||||||||
Pro forma net tangible book value per share of common stock as
of June 30, 2006
|
$ | ||||||||
Increase per share of common stock attributable to new investors
|
|||||||||
Pro forma as adjusted net tangible book value per share of
common stock after this offering
|
|||||||||
Dilution per share of common stock to new investors
|
$ | ||||||||
34
Shares Purchased | Total Consideration | ||||||||||||||||||||
Average Price | |||||||||||||||||||||
Number | Percent | Amount | Percent | Per Share | |||||||||||||||||
(In thousands) | (In thousands) | ||||||||||||||||||||
Existing shareholders
|
% | $ | % | $ | |||||||||||||||||
New investors
|
$ | ||||||||||||||||||||
Total
|
% | $ | % | ||||||||||||||||||
35
Six Months Ended | ||||||||||||||||||||||||||||||
Year Ended December 31, | June 30, | |||||||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2005 | 2006 (a) | ||||||||||||||||||||||||
(In thousands, except per share and enrollment data) | ||||||||||||||||||||||||||||||
Statement of Operations Data:
|
||||||||||||||||||||||||||||||
Revenues
|
$ | 29,806 | $ | 49,556 | $ | 81,785 | $ | 117,689 | $ | 149,240 | $ | 70,018 | $ | 85,376 | ||||||||||||||||
Costs and expenses:
|
||||||||||||||||||||||||||||||
Instructional costs and services
|
21,230 | 28,074 | 43,759 | 58,850 | 71,243 | 33,997 | 41,342 | |||||||||||||||||||||||
Selling and promotional
|
13,848 | 15,894 | 22,246 | 35,089 | 45,623 | 20,664 | 27,573 | |||||||||||||||||||||||
General and administrative
|
8,422 | 11,582 | 11,710 | 13,885 | 17,501 | 7,689 | 10,374 | |||||||||||||||||||||||
Total costs and expenses
|
43,500 | 55,550 | 77,715 | 107,824 | 134,367 | 62,350 | 79,289 | |||||||||||||||||||||||
Operating income (loss)
|
(13,694 | ) | (5,994 | ) | 4,070 | 9,865 | 14,873 | 7,668 | 6,087 | |||||||||||||||||||||
Other income, net
|
731 | 327 | 427 | 724 | 2,306 | 898 | 1,971 | |||||||||||||||||||||||
Income (loss) before income taxes
|
(12,963 | ) | (5,667 | ) | 4,497 | 10,589 | 17,179 | 8,566 | 8,058 | |||||||||||||||||||||
Income tax expense (benefit)
|
| | 104 | (8,196 | ) | 6,929 | 3,505 | 3,361 | ||||||||||||||||||||||
Net income (loss)
|
$ | (12,963 | ) | $ | (5,667 | ) | $ | 4,393 | $ | 18,785 | $ | 10,250 | $ | 5,061 | $ | 4,697 | ||||||||||||||
Net income (loss) per common share:
|
||||||||||||||||||||||||||||||
Basic
|
$ | (1.54 | ) | $ | (0.58 | ) | $ | 0.41 | $ | 1.68 | $ | 0.89 | $ | 0.45 | $ | 0.40 | ||||||||||||||
Diluted
|
$ | (1.54 | ) | $ | (0.58 | ) | $ | 0.39 | $ | 1.62 | $ | 0.86 | $ | 0.43 | $ | 0.39 | ||||||||||||||
Weighted average number of common shares outstanding:
|
||||||||||||||||||||||||||||||
Basic
|
8,407 | 9,698 | 10,804 | 11,189 | 11,476 | 11,331 | 11,671 | |||||||||||||||||||||||
Diluted
|
8,407 | 9,698 | 11,154 | 11,599 | 11,975 | 11,896 | 12,001 |
36
Six Months Ended | ||||||||||||||||||||||||||||
Year Ended December 31, | June 30, | |||||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2005 | 2006 (a) | ||||||||||||||||||||||
(In thousands, except per share and enrollment data) | ||||||||||||||||||||||||||||
Other Data:
|
||||||||||||||||||||||||||||
Depreciation and
amortization
(b)
|
$ | 2,044 | $ | 3,108 | $ | 4,177 | $ | 5,454 | $ | 6,474 | $ | 3,119 | $ | 4,096 | ||||||||||||||
Net cash provided by (used in) operating activities
|
$ | (9,977 | ) | $ | 123 | $ | 15,399 | $ | 16,049 | $ | 28,940 | $ | 12,736 | $ | 11,064 | |||||||||||||
Capital expenditures
|
$ | 4,555 | $ | 3,805 | $ | 3,719 | $ | 7,541 | $ | 9,079 | $ | 3,258 | $ | 6,595 | ||||||||||||||
EBITDA
(c)
|
$ | (11,650 | ) | $ | (2,886 | ) | $ | 8,247 | $ | 15,319 | $ | 21,347 | $ | 10,787 | $ | 10,183 | ||||||||||||
Enrollment
(d)
|
4,038 | 6,578 | 9,313 | 12,252 | 14,613 | 13,208 | 16,078 |
As of December 31, | As of June 30, 2006 | |||||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | Actual | Pro Forma (e) | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Consolidated Balance Sheet Data:
|
||||||||||||||||||||||||||||
Cash, cash equivalents and short-term marketable securities
|
$ | 10,655 | $ | 22,060 | $ | 41,190 | $ | 49,980 | $ | 72,133 | $ | 75,064 | $ | |||||||||||||||
Working
capital
(f)
|
6,203 | 15,340 | 27,516 | 37,935 | 53,718 | 55,725 | ||||||||||||||||||||||
Total assets
|
23,882 | 35,380 | 55,402 | 80,026 | 106,562 | 114,291 | ||||||||||||||||||||||
Total redeemable preferred stock
|
34,985 | 50,401 | 57,646 | 57,646 | 57,646 | 57,646 | ||||||||||||||||||||||
Shareholders equity (deficit)
|
(20,999 | ) | (26,250 | ) | (20,416 | ) | (5 | ) | 14,414 | 22,328 |
(a) | Operating income, income before income taxes and EBITDA for the six months ended June 30, 2006 included $2.1 million of stock-based compensation expense recognized under FAS 123(R). Net income and net income per common share for the six months ended June 30, 2006 included $1.6 million of stock-based compensation expense recognized under FAS 123(R). In accordance with the modified prospective transition method provided under FAS 123(R), our consolidated financial statements for prior periods have not been restated to reflect, and do not include, the impact of FAS 123(R). |
(b) | Depreciation and amortization is calculated using the straight-line method over the estimated useful lives of the assets. Amortization includes amounts related to purchased software, capitalized website development costs and internally developed software. |
(c) | EBITDA consists of net income minus other income, net plus income tax expense (benefit) and plus depreciation and amortization. Other income, net consists primarily of interest income earned on short-term marketable securities, net of any interest expense for capital leases and notes payable. We use EBITDA as a measure of operating performance. However, EBITDA is not a recognized measurement under U.S. generally accepted accounting principles, or GAAP, and when analyzing our operating performance, investors should use EBITDA in addition to, and not as an alternative for, net income (loss) as determined in accordance with GAAP. Because not all companies use identical calculations, our presentation of EBITDA may not be comparable to similarly titled measures of other companies. Furthermore, EBITDA is not intended to be a measure of free cash flow, as it does not consider certain cash requirements such as tax payments. | |
We believe EBITDA is useful to an investor in evaluating our operating performance and liquidity because it is widely used to measure a companys operating performance without regard to items such as depreciation and amortization. Depreciation and amortization can vary depending upon accounting methods and the book value of assets. We believe EBITDA presents a meaningful measure of corporate performance exclusive of our capital structure and the method by which assets were acquired. |
37
| as a measurement of operating performance, because it assists us in comparing our performance on a consistent basis, as it removes depreciation, amortization, interest and taxes; and | |
| in presentations to the members of our board of directors to enable our board to have the same measurement basis of operating performance as is used by management to compare our current operating results with corresponding prior periods and with the results of other companies in our industry. |
The following table provides a reconciliation of net income (loss) to EBITDA: |
Six Months Ended | ||||||||||||||||||||||||||||
Year Ended December 31, | June 30, | |||||||||||||||||||||||||||
2001 | 2002 | 2003 | 2004 | 2005 | 2005 | 2006 | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Net income (loss)
|
$ | (12,963 | ) | $ | (5,667 | ) | $ | 4,393 | $ | 18,785 | $ | 10,250 | $ | 5,061 | $ | 4,697 | ||||||||||||
Other income, net
|
(731 | ) | (327 | ) | (427 | ) | (724 | ) | (2,306 | ) | (898 | ) | (1,971 | ) | ||||||||||||||
Income tax expense (benefit)
|
| | 104 | (8,196 | ) | 6,929 | 3,505 | 3,361 | ||||||||||||||||||||
Depreciation and amortization
|
2,044 | 3,108 | 4,177 | 5,454 | 6,474 | 3,119 | 4,096 | |||||||||||||||||||||
EBITDA
|
$ | (11,650 | ) | $ | (2,886 | ) | $ | 8,247 | $ | 15,319 | $ | 21,347 | $ | 10,787 | $ | 10,183 | ||||||||||||
(d) | Enrollment reflects the total number of learners registered in a course as of the last day of classes for such periods. |
(e) | The consolidated pro forma balance sheet data as of June 30, 2006, give effect to: |
| the conversion of all outstanding shares of preferred stock into shares of common stock in connection with this offering; | |
| the sale of shares of common stock by us in this offering at an offering price of $ per share (the mid-point of the range set forth on the cover page of this prospectus); and | |
| our receipt of the estimated net proceeds of that sale after deducting underwriting discounts and commissions and estimated offering expenses payable by us. | |
(f) | Working capital is calculated by subtracting total current liabilities from total current assets. |
38
Background |
Our key financial results metrics |
39
For the Years Ended | For the Quarter | ||||||||||||||||||||
December 31, | Ended June 30, | ||||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | |||||||||||||||||
Doctoral
|
4,251 | 5,611 | 6,471 | 5,965 | 6,868 | ||||||||||||||||
Masters
|
3,695 | 4,543 | 5,640 | 4,957 | 6,557 | ||||||||||||||||
Bachelors
|
1,169 | 1,859 | 2,380 | 2,139 | 2,542 | ||||||||||||||||
Other
|
198 | 239 | 122 | 147 | 111 | ||||||||||||||||
Total
|
9,313 | 12,252 | 14,613 | 13,208 | 16,078 | ||||||||||||||||
40
Factors affecting comparability |
41
42
Instructional costs and services
|
$ | 450 | ||
Selling and promotional
|
232 | |||
General and administrative
|
1,425 | |||
Stock-based compensation expense included in operating income
|
2,107 | |||
Tax benefit
|
549 | |||
Stock-based compensation expense, net of tax
|
$ | 1,558 | ||
43
44
45
46
Year Ended December 31, | |||||||||||||||||
Six Months Ended | |||||||||||||||||
2003 | 2004 | 2005 | June 30, 2005 | ||||||||||||||
Net income
|
$ | 4,393 | $ | 18,785 | $ | 10,250 | $ | 5,061 | |||||||||
Stock-based compensation expense included in net income as
reported
|
37 | 4 | 202 | 89 | |||||||||||||
Compensation expense determined under fair-value-based method,
net of tax
|
(1,868 | ) | (2,154 | ) | (1,966 | ) | (885 | ) | |||||||||
Pro forma net income
|
$ | 2,562 | $ | 16,635 | $ | 8,486 | $ | 4,265 | |||||||||
Net income per common share:
|
|||||||||||||||||
Basic as reported
|
$ | 0.41 | $ | 1.68 | $ | 0.89 | $ | 0.45 | |||||||||
Basic pro forma
|
$ | 0.24 | $ | 1.49 | $ | 0.74 | $ | 0.38 | |||||||||
Diluted as reported
|
$ | 0.39 | $ | 1.62 | $ | 0.86 | $ | 0.43 | |||||||||
Diluted pro forma
|
$ | 0.23 | $ | 1.45 | $ | 0.71 | $ | 0.36 |
Instructional costs and services
|
$ | 450 | ||
Selling and promotional
|
232 | |||
General and administrative
|
1,425 | |||
Stock-based compensation expense included in operating income
|
2,107 | |||
Tax benefit
|
549 | |||
Stock-based compensation expense, net of tax
|
$ | 1,558 | ||
Six Months Ended | ||||||||||||||||||||
Year Ended December 31, | June 30, | |||||||||||||||||||
2003 | 2004 | 2005 | 2005 | |||||||||||||||||
(Pro forma) | (Pro forma) | (Pro forma) | (Pro forma) | 2006 | ||||||||||||||||
Expected life (in
years)
(1)
|
6.0 | 6.0 | 6.0 | 6.0 | 6.25 | |||||||||||||||
Expected
volatility
(2)
|
53.9 | % | 44.1 | % | 38.5 | % | 38.5 | % | 45.6 | % | ||||||||||
Risk-free interest
rate
(3)
|
3.8 | % | 3.9 | % | 3.9-4.4 | % | 3.9-4.3 | % | 4.4- 4.9 | % | ||||||||||
Dividend
yield
(4)
|
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||
Weighted-average fair value of options
granted
(5)
|
$ | 6.49 | $ | 8.54 | $ | 8.87 | | $ | 10.26 |
(1) | For the six months ended June 30, 2006, the expected option life was determined using the simplified method for estimating expected option life for service-based stock options. Prior to the six months ended June 30, 2006, the expected option life was based on the average expected option life experienced by our peer group of post-secondary education companies. |
(2) | As our stock has not been publicly traded, the expected volatility assumption for the six months ended June 30, 2006 reflects a detailed evaluation of the stock price of our peer group of public post-secondary education companies for a six-year period starting from the date they went public. Prior to the six months ended June 30, 2006 the expected volatility assumption reflects the public disclosures of our peer group of post-secondary education companies. |
47
(3) | The risk-free interest rate assumption is based upon the U.S. Treasury zero coupon yield curve on the grant date for a maturity similar to the expected life of the options. |
(4) | The dividend yield assumption is based on our history and expectation of regular dividend payments. |
(5) | There were no service-based stock option grants for the six months ended June 30, 2005. |
48
Six Months
Year Ended December 31,
Ended June 30,
2003
2004
2005
2005
2006
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
53.5
50.0
47.7
48.6
48.4
27.2
29.8
30.6
29.5
32.3
14.3
11.8
11.7
11.0
12.2
95.0
91.6
90.0
89.1
92.9
5.0
8.4
10.0
10.9
7.1
0.5
0.6
1.5
1.3
2.3
5.5
9.0
11.5
12.2
9.4
0.1
(7.0
)
4.6
5.0
3.9
5.4
%
16.0
%
6.9
%
7.2
%
5.5
%
Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005 |
49
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004 |
50
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 |
51
Quarterly Results and Seasonality |
First | Second | Third | Fourth | ||||||||||||||
Quarter | Quarter | Quarter | Quarter | ||||||||||||||
(In thousands, except per share and | |||||||||||||||||
enrollment data) | |||||||||||||||||
2004
|
|||||||||||||||||
Revenues
|
$ | 26,488 | $ | 28,321 | $ | 28,040 | $ | 34,840 | |||||||||
Operating income
|
1,383 | 1,773 | 2,147 | 4,562 | |||||||||||||
Net income
|
1,466 | 1,892 | 2,310 | 13,117 | |||||||||||||
Net income per common share:
|
|||||||||||||||||
Basic
|
$ | 0.13 | $ | 0.17 | $ | 0.21 | $ | 1.17 | |||||||||
Diluted
|
$ | 0.13 | $ | 0.16 | $ | 0.20 | $ | 1.11 | |||||||||
Enrollment
|
10,157 | 10,623 | 11,293 | 12,252 |
52
First | Second | Third | Fourth | ||||||||||||||
Quarter | Quarter | Quarter | Quarter | ||||||||||||||
(In thousands, except per share and | |||||||||||||||||
enrollment data) | |||||||||||||||||
2005
|
|||||||||||||||||
Revenues
|
$ | 34,610 | $ | 35,408 | $ | 37,303 | $ | 41,919 | |||||||||
Operating income
|
4,145 | 3,523 | 2,925 | 4,280 | |||||||||||||
Net income
|
2,705 | 2,356 | 2,204 | 2,985 | |||||||||||||
Net income per common share:
|
|||||||||||||||||
Basic
|
$ | 0.24 | $ | 0.21 | $ | 0.19 | $ | 0.26 | |||||||||
Diluted
|
$ | 0.23 | $ | 0.20 | $ | 0.18 | $ | 0.25 | |||||||||
Enrollment
|
12,955 | 13,208 | 13,308 | 14,613 |
First | Second | ||||||||||||||||
Quarter | Quarter | ||||||||||||||||
(In thousands, except | |||||||||||||||||
per share and | |||||||||||||||||
enrollment data) | |||||||||||||||||
2006
|
|||||||||||||||||
Revenues
|
$ | 41,858 | $ | 43,518 | |||||||||||||
Operating income
|
1,884 | 4,203 | |||||||||||||||
Net income
|
1,642 | 3,055 | |||||||||||||||
Net income per common share:
|
|||||||||||||||||
Basic
|
$ | 0.14 | $ | 0.26 | |||||||||||||
Diluted
|
$ | 0.14 | $ | 0.25 | |||||||||||||
Enrollment
|
15,792 | 16,078 |
53
Liquidity |
54
Operating Activities |
Investing Activities |
55
Financing Activities |
56
Payments Due by Period
Less than
More than
Total
1 Year
1-3 Years
3-5 Years
5 Years
$
8
$
8
$
$
$
12,436
2,691
7,881
1,864
2,639
2,639
8,299
8,299
$
23,382
$
13,637
$
7,881
$
1,864
$
(a) | Minimum lease commitments for our headquarters and miscellaneous office equipment. | |
(b) | Consists of notes payable used to finance asset purchases related to the enterprise resource planning system. | |
(c) | Consists of payment obligations to adjunct faculty as of December 31, 2005, based on existing contractual agreements with them. | |
Market Risk |
Interest Rate Risk |
57
58
59
60
61
Our Approach to Academic Quality |
| Curricula. We design the curriculum for our programs around professional competencies desired for high performance in each field. The particular competencies are identified and validated through a variety of external sources and reviews. There are specific learning outcomes for each course as well as for the overall program, and we assess the learners achievement of the expected learning outcomes during his or her period of enrollment. | |
| Faculty. We select our faculty based on their academic credentials and teaching and practitioner experience. Our faculty members tend to be scholars as well as practitioners, and they bring relevant, practical experience from their professional careers into the courses they teach. Approximately 76% of our faculty members hold a doctoral degree in their respective fields. We invest in the professional development of our faculty members through training in online teaching techniques as well as events and discussions designed to foster sharing of best practices and a commitment to academic quality. | |
| Online Course Design. We employ a comprehensive design framework to ensure that our online courses offer a consistent learning experience, high quality interaction, and the tools required for assessing learning outcomes. We regularly assess course outcomes data as well as learner assessments to identify opportunities for course upgrades. | |
| Learner Support. We establish teams comprised of both academic and administrative personnel that are assigned to serve as the primary support contact point for each of our learners throughout the duration of their studies. All of our support services, including academic, administrative, library |
62
and career counseling services are accessible online, allowing users to access these services at a time and in a manner that is convenient to them. We believe that a committed support network is as important to maintaining learner motivation and commitment as the knowledge and engagement of our faculty. | ||
| Academic Oversight. Our academic management organization is structured to provide leadership and continuity across our academic offerings. In addition to regular reviews by accrediting bodies, our academic management team oversees periodic examinations of our curricula by internal and external reviewers. Internal reviews are performed by our assessment and institutional research team to assess academic content, delivery method and learning outcomes for each program. Our internal academic oversight process is further strengthened by our ability to track and analyze data and metrics related to learner performance and satisfaction. External reviews are performed by individuals with professional certifications in their fields to provide additional evaluation and verification of program quality and workplace applicability. | |
| Accreditation. In addition to being accredited by The Higher Learning Commission of the North Central Association of Colleges and Schools, we also pursue specialized accreditation, where appropriate, such as our accreditation from the Council for the Accreditation of Counseling and Related Educational Programs (CACREP) for our mental health counseling and marital family couple therapy specializations within our masters in human services program. Our commitment to maintaining regional accreditation, and specialized accreditation where appropriate, reflects our goal to provide our learners with an academic experience commensurate with that of traditional post-secondary educational institutions. | |
| Low student to faculty ratio. Our courses average between 15 and 20 learners, providing each learner the opportunity to interact directly with our faculty and to receive individualized feedback and attention. We believe this adds to the academic quality of our programs by ensuring that each learner is encouraged to participate actively, thus enabling the instructor to better evaluate the learners understanding of course material. | |
| Diverse learner population. Our online format allows us to focus on adult learners as well as to attract a diverse population of learners with a variety of professional backgrounds and life experiences. | |
| Practitioner-oriented course experience. Our courses are designed to encourage our learners to incorporate workplace issues or projects into their studies, providing relevant context to many of the academic theories covered by our curricula. | |
| Time efficiency. While many campus-based students are required to spend time commuting, parking, or otherwise navigating a large campus, our online learning format enables our learners to focus their time on course assignments and discussions. | |
| Residential colloquia experience. Our residential colloquia allows doctoral learners to engage in face-to -face interaction with other learners and faculty, which provides for a rich learning experience with relevant content. | |
63
Curricula |
Programs | Specializations | |
Business, Organization and Management | ||
Doctor of Philosophy in | General | |
Organization and Management |
Human Resource
Management |
|
Information Technology Management | ||
Leadership | ||
Master of Science in | General | |
Organization and Management | Human Resource Management | |
Information Technology Management | ||
Leadership | ||
Master of Business | General Business | |
Administration | Accounting | |
Finance | ||
Health Care Management | ||
Information Technology Management | ||
Marketing | ||
Project Management | ||
Bachelor of Science in | Accounting | |
Business | Business Administration | |
Finance | ||
Human Resources Management | ||
Management and Leadership | ||
Marketing | ||
Education | ||
Doctor of Philosophy | Leadership for Educational | |
in Education | Administration | |
Leadership for Higher Education | ||
Curriculum and Instruction | ||
Post-Secondary and Adult Education | ||
Instructional Design for Online Learning | ||
Training and Performance Improvement | ||
Professional Studies in Education | ||
K-12 Studies in Education | ||
Master of Science in | Leadership for Educational | |
in Education | Administration | |
Leadership for Higher Education | ||
Curriculum and Instruction | ||
Post-Secondary and Adult Education | ||
Instructional Design for Online Learning | ||
Training and Performance Improvement | ||
Professional Studies in Education | ||
K-12 Studies in Education | ||
Reading and Literacy | ||
Enrollment Management |
Programs | Specializations | |
Psychology | ||
Doctor of Psychology | Clinical Psychology | |
Counseling Psychology | ||
Doctor of Philosophy in | General Psychology | |
Psychology | Industrial/Organizational Psychology | |
Educational Psychology | ||
Master of Science in | Clinical Psychology | |
Psychology | Counseling Psychology | |
School Psychology | ||
General Psychology | ||
Industrial/Organizational Psychology | ||
Educational Psychology | ||
Sport Psychology | ||
Human Services | ||
Doctor of Philosophy in | General Human Services | |
Human Services | Criminal Justice | |
Counseling Studies | ||
Health Care Administration | ||
Management of Non-Profit Agencies | ||
Social and Community Services | ||
Master of Science in | General Human Services | |
Human Services | Criminal Justice | |
Counseling Studies | ||
Health Care Administration | ||
Management of Non-Profit Agencies | ||
Marital, Couple, and Family Counseling/Therapy | ||
Mental Health Counseling | ||
Social and Community Services | ||
Information Technology | ||
Master of Science in | General Information | |
Information Technology | Technology | |
Information Security | ||
Network Architecture and Design | ||
Project Management and Leadership | ||
System Design and Programming | ||
Bachelor of Science in | General Information | |
Information Technology | Technology | |
Graphics and Multimedia | ||
Information Assurance and Security | ||
Network Technology | ||
Project Management | ||
Web Application Development |
64
Faculty |
65
Learner Support Services |
| Academic Services. We provide learners with a variety of services designed to support their academic studies. These services include new learner orientation, technical support, academic advising, research services (particularly for doctoral degree candidates), writing services and other online tutoring. We also provide appropriate educational accommodations to learners with documented disabilities through our disability support services team. | |
| Administrative Services. We provide learners with the ability to access a variety of administrative services both telephonically and via the Internet. For example, learners can register for classes, apply for financial aid, pay their tuition and access their transcripts online. We believe this online accessibility provides the convenience and self-service capabilities that our learners value. Our financial aid counselors provide personalized online and telephonic support to our learners. | |
| Library Services. We provide learners with complete online access to the Capella University Library. Our library, currently provided through a contractual relationship with the Sheridan Libraries at The Johns Hopkins University, supplies learners with full-text articles, electronic books, reference assistants and hard copy materials via inter-library loans. Over the next year, we will be terminating our current relationship with The Johns Hopkins University and transitioning in-house most of the library services currently performed by The Johns Hopkins University, while continuing to outsource certain library services to other university providers. | |
| Career Counseling Services. Our staff of professional career counselors use a variety of tools, including individualized phone, email and face-to -face communications, online newsletters, online seminars and conference calls to provide career planning services to learners and alumni. Our counselors also assist our recruitment staff with prospective learners selection of the Capella University program and specialization that best suits their professional aspirations. |
Admissions |
66
Marketing and Learner Recruitment |
| Corporate Relationships. We developed our corporate alliance program to offer education opportunities to employees of large companies. Pursuant to these arrangements, program participants make information about Capella University available to their employees. In return, we provide a tuition discount to participants employees and their immediate family members. Our corporate alliance program agreements are non-exclusive written agreements that generally have three year terms with automatic renewal provisions, but the parties may generally terminate the agreements at any time on 60 to 90 days prior notice. Through our corporate alliance programs, we presently have learners from approximately 100 corporations. | |
| U.S. Armed Forces Relationships and Discount Program. We offer a discount on tuition to all members of the U.S. Armed Forces, including active duty members, veterans, national guard members, reservists, civilian employees of the Department of Defense and immediate family members of active duty personnel. We also have arrangements with various educational institutions of the U.S. Armed Forces pursuant to which we have agreed to accept credits from certain military educational programs earned by learners who meet our transfer requirements, which they can apply toward a Capella University degree. As part of these arrangements, several of these educational institutions make information about Capella University available to their members. In addition, we have arrangements with the Army National Guard, the U.S. Coast Guard Institute and several military bases pursuant to which these organizations make information about Capella University available to interested service members. Our arrangements with the various educational institutions, the Army National Guard and the U.S. Coast Guard Institute, are non-exclusive written agreements with varying terms that may generally be terminated by either party upon 30 to 45 days prior notice. Our arrangements with military bases are established through informal relationships between us and the respective base. For the six months ended June 30, 2006, approximately 18% of our learners received a U.S. Armed Forces tuition discount. | |
| Educational Relationships. We developed our educational alliance program to allow graduates of community colleges to matriculate into our programs and to recruit community college faculty to attend our graduate programs. Pursuant to the arrangements between us and approximately 230 | |
67
community colleges, we provide a tuition discount and an application fee waiver for community college students, alumni, faculty, administrators and staff in exchange for marketing opportunities within each community college. Our educational alliance agreements are non-exclusive written agreements that generally have a one year term which automatically renews annually, but generally either party may terminate the agreement at any time upon 30 to 60 days prior notice. |
Enrollment |
Enrollment | |||||||||
Number of | |||||||||
Learners | % of Total | ||||||||
Doctoral
|
6,868 | 42.7 | % | ||||||
Masters
|
6,557 | 40.8 | % | ||||||
Bachelors
|
2,542 | 15.8 | % | ||||||
Other
|
111 | 0.7 | % | ||||||
Total
|
16,078 | 100.0 | % | ||||||
Tuition and Fees |
68
Technology |
69
| relevant, practical and accredited program offerings; | |
| reputation of the college or university and marketability of the degree; | |
| convenient, flexible and dependable access to programs and classes; | |
| qualified and experienced faculty; | |
| level of learner support; | |
| cost of the program; | |
| relative marketing and selling effectiveness; and | |
| the time necessary to earn a degree. |
70
71
| authorized to offer its programs of instruction by the applicable state education agencies in the states in which it is physically located (in our case, Minnesota); | |
| accredited by an accrediting agency recognized by the Secretary of the Department of Education; and | |
| certified as an eligible institution by the Department of Education. |
72
| whether the institution and the program were approved by the state in which the graduate seeks licensure, or by a professional association; |
73
| whether the program from which the student graduated meets all state requirements for professional licensure; and | |
| whether the institution is accredited. |
1) FFEL. Under the FFEL program, banks and other lending institutions make loans to learners. If a learner defaults on a loan, payment is guaranteed by a federally recognized guaranty agency, which is then reimbursed by the Department of Education. Students with financial need qualify for interest subsidies while in school and during grace periods. In 2005, we derived approximately 66.6% of our revenues (calculated on a cash basis) from the FFEL program. | |
2) Pell. Under the Pell program, the Department of Education makes grants to students who demonstrate financial need. In 2005, we derived approximately 0.4% of our revenues (calculated on a cash basis) from the Pell program. | |
74
75
| comply with all applicable Title IV program regulations; | |
| have capable and sufficient personnel to administer the federal student financial aid programs; | |
| have acceptable methods of defining and measuring the satisfactory academic progress of its students; | |
| not have cohort default debt rates above specified levels; | |
| have various procedures in place for safeguarding federal funds; |
76
| not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting or engaging in activity that is cause for debarment or suspension; | |
| provide financial aid counseling to its students; | |
| refer to the Department of Educations Office of Inspector General any credible information indicating that any applicant, student, employee or agent of the institution, has been engaged in any fraud or other illegal conduct involving Title IV programs; | |
| submit in a timely manner all reports and financial statements required by the regulations; and | |
| not otherwise appear to lack administrative capability. |
| require the repayment of Title IV funds; | |
| transfer the institution from the advance system of payment of Title IV funds to cash monitoring status or to the reimbursement system of payment; | |
| place the institution on provisional certification status; or | |
| commence a proceeding to impose a fine or to limit, suspend or terminate the participation of the institution in Title IV programs. |
| posting a letter of credit in an amount equal to at least 50% of the total Title IV program funds received by the institution during the institutions most recently completed fiscal year; | |
| posting a letter of credit in an amount equal to at least 10% of such prior years Title IV program funds received by us, accepting provisional certification, complying with additional Department of Education monitoring requirements and agreeing to receive Title IV program funds under an arrangement other than the Department of Educations standard advance funding arrangement; or |
77
| complying with additional Department of Education monitoring requirements and agreeing to receive Title IV program funds under an arrangement other than the Department of Educations standard advance funding arrangement such as the reimbursement system of payment or cash monitoring. |
78
79
80
81
82
Name | Age | Position | ||||
Stephen G. Shank
|
62 |
Chairman and Chief Executive Officer
(Mr. Shank also serves as Chancellor of Capella University) |
||||
Kenneth J. Sobaski
|
50 | President and Chief Operating Officer | ||||
Michael J. Offerman
|
58 |
Senior Vice President
(Dr. Offerman also serves as President and as a director of Capella University) |
||||
Lois M. Martin
|
43 | Senior Vice President and Chief Financial Officer | ||||
Paul A. Schroeder
|
47 |
Senior Vice President
(Mr. Schroeder also serves as Senior Vice President and a director of Capella University) |
||||
Reed A. Watson
|
47 | Senior Vice President, Marketing | ||||
Scott M. Henkel
|
51 | Vice President and Chief Information Officer | ||||
Gregory W. Thom
|
49 | Vice President, General Counsel, and Secretary | ||||
Elizabeth M. Rausch
|
54 | Vice President, Human Resources | ||||
Tony J. Christianson
|
54 | Director | ||||
Gordon A. Holmes
|
37 | Director | ||||
S. Joshua Lewis
|
43 | Director | ||||
Jody G. Miller
|
48 | Director | ||||
James A. Mitchell
|
64 | Director | ||||
Jon Q. Reynolds, Jr.
|
38 | Director | ||||
David W. Smith
|
61 | Director | ||||
Jeffrey W. Taylor
|
52 | Director | ||||
Sandra E. Taylor
|
55 | Director | ||||
Darrell R. Tukua
|
52 | Director |
83
84
85
86
(1) Insight-Salmon River LLC, which has designated Mr. Lewis; | |
(2) Cherry Tree Ventures IV, which has designated Mr. Christianson; | |
(3) Forstmann VI, which has designated Mr. Holmes; | |
(4) Stephen Shank (so long as he is our Chief Executive Officer or the beneficial owner of not less than 5% of our outstanding capital stock), who has designated himself; | |
(5) The holders of 66 2 / 3 % of our outstanding shares of Class G preferred stock, who at the date of this prospectus have not designated a director; and | |
(6) The directors designated under (1) to (5) above, by majority vote; these directors have designated Mr. Taylor. |
87
88
89
90
91
92
93
94
95
96
97
98
99
Long Term
Compensation Awards
Annual Compensation
Securities Underlying
All Other
Name and Principal Position
Year
Salary
Bonus
Options (#)
Compensation
(a)
2005
$
396,539
$
145,267
26,971
$
10,647
Chairman and Chief Executive Officer
2005
$
267,308
$
65,416
16,494
$
9,417
Senior Vice President and Chief Financial Officer
2005
$
263,846
$
64,434
16,556
$
10,383
Senior Vice President
2005
$
263,846
$
64,434
16,556
$
9,323
Senior Vice President
2005
$
191,769
$
40,970
$
9,419
Vice President and Chief Information Officer
2005
$
229,462
$
177,987
$
900
Former Senior Vice President of Marketing
(a)
Represents the value of shares of our common stock contributed
to the accounts of the named executives in the Employee Stock
Ownership Plan, our matching contributions to the 401(k)
accounts of the named executives and the premiums we paid for
group term life insurance on behalf of the named executives.
(b)
Dr. Offerman also serves as President and a director of
Capella University.
(c)
Mr. Schroeder also serves as Senior Vice President and a
director of Capella University.
(d)
Ms. Thom terminated her employment with us on
December 1, 2005. Ms. Thoms bonus compensation
consisted of $55,987 under the 2005 Annual Incentive Plan for
Management Employees, and a special one-time retention bonus of
$122,000.
Table of Contents
Potential Realizable
Option Term
Value at Assumed
Annual Rates of Stock
Percent of Total
Price Appreciation for
Number of Shares
Options Granted
Exercise or
Option Term
(a)
Underlying
to Employees
Base Price
Expiration
Name
Options Granted
in 2005
Per Share
Date
5% ($)
10% ($)
26,971
(b)
9.1
%
$
20.00
8/12/15
16,494
(c)
5.6
%
$
20.00
8/12/15
16,556
(d)
5.6
%
$
20.00
8/12/15
16,556
(e)
5.6
%
$
20.00
8/12/15
(a)
In accordance with the rules of the SEC, the amounts shown on
this table represent hypothetical gains that could be achieved
for the respective options if exercised at the end of the option
term. These gains are based on assumed rates of stock
appreciation of 5% and 10% compounded annually and do not
reflect our estimates or projections of the future price of our
common stock. These amounts represent assumed rates of
appreciation in the value of our common stock from the initial
public offering price, assuming an initial public offering price
of
$ per
share (the midpoint of the range set forth on the cover page of
this prospectus). The gains shown are net of the option exercise
price, but do not include deductions for taxes or other expenses
associated with the exercise. Actual gains, if any, on stock
option exercises will depend on the future performance of our
common stock, the option holders continued employment
through the option period, and the date on which the options are
exercised.
(b)
The options were granted under our 2005 Stock Incentive Plan on
August 12, 2005, and vest as to
33
1
/
3
%
of the shares on each of the first three anniversaries of the
date of grant.
(c)
The options were granted under our 2005 Stock Incentive Plan on
August 12, 2005, and vest as to 25% of the shares on each
of the first four anniversaries of the date of grant.
(d)
The options were granted under our 2005 Stock Incentive Plan on
August 12, 2005, and vest as to 25% of the shares on each
of the first four anniversaries of the date of grant.
(e)
The options were granted under our 2005 Stock Incentive Plan on
August 12, 2005, and vest as to 25% of the shares on each
of the first four anniversaries of the date of grant.
Table of Contents
Number of Shares
Underlying Unexercised
Value of
Options at
In-the-Money Options
December 31, 2005
at December 31, 2005
(a)
Shares Acquired
Value
Name
on Exercise
Realized
Exercisable
Unexercisable
Exercisable
Unexercisable
130,574
74,412
25,000
91,494
88,896
38,057
114,128
38,290
8,750
26,250
(a)
There was no public trading market for the common stock as of
December 31, 2005. Accordingly, these values have been
calculated in accordance with the rules of the SEC, on the basis
of the initial public offering price per share of
$ (the
midpoint of the range set forth on the cover page of this
prospectus), less the applicable exercise price.
Paul Schroeder
Michael J. Offerman, Ed.D.
Table of Contents
Scott M. Henkel
Lois M. Martin
Kenneth J. Sobaski
Table of Contents
Reed A. Watson
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Table of Contents
Shares of | Shares of | |||||||
Class F | Class G | |||||||
Investors (a) | Preferred Stock (b) | Preferred Stock (c) | ||||||
Directors and executive officers:
|
||||||||
Stephen G.
Shank
(d)
|
17,079.00 | | ||||||
Michael J.
Offerman
(e)
|
4,270.00 | | ||||||
Paul A.
Schroeder
(e)
|
6,405.00 | | ||||||
Elizabeth M.
Rausch
(e)
|
4,270.00 | | ||||||
David W.
Smith
(c)
|
| 8,992.00 | ||||||
S. Joshua
Lewis
(e)
|
42,699.00 | | ||||||
Stephen J. Weiss and Piper Jaffray as custodian for
Stephen J. Weiss
IRA
(f)
|
12,810.00 | | ||||||
Russell A.
Gullotti
(g)
|
10,000.00 | | ||||||
Piper Jaffray as custodian for Joseph C. Gaylord IRA
(h)
|
4,270.00 | | ||||||
5% shareholders:
|
||||||||
Forstmann VII and
VIII
(i)
|
640,478.00 | | ||||||
Maveron
entities
(c)(j)
|
| 674,460.20 | ||||||
Putnam
entities
(e)
|
640,478.00 | |
(a) | See Principal and Selling Shareholders for additional information about ownership of shares held by these shareholders. | |
(b) | The Class F preferred stock was issued and sold on January 31, 2002, for an aggregate purchase price of $16,692,101.47. In January 2003, all shares of Class F preferred stock were exchanged for shares of Class G preferred stock pursuant to an exchange agreement. Each share of Class F preferred stock was exchanged for 1.053 shares of our Class G preferred stock. As a result, there are no shares of Class F preferred stock currently outstanding. | |
(c) | The Class G preferred stock was issued and sold on January 15, 2003, for an aggregate purchase price of $7,599,988.42. Each share of Class G preferred stock is convertible into one share of common stock, subject to adjustments. We expect that each share of Class G preferred stock will convert into one share of common stock upon the closing of this offering. | |
(d) | Mr. Shank originally acquired 17,985.17 shares of Class G preferred stock pursuant to the exchange agreement discussed in footnote (b) above and subsequently transferred 14,967 shares of Class G preferred stock to the entities affiliated with Technology Crossover Ventures and 3,018 shares of Class G preferred stock to the Maveron entities. |
100
(e) | Messrs. Offerman, Schroeder and Lewis, Ms. Rausch, The S. Joshua and Teresa D. Lewis Issue Trust, and the Putnam entities obtained their Class G preferred stock pursuant to the exchange agreement discussed in footnote (b) above. | |
(f) | Stephen J. Weiss was an executive officer of Capella from 1998 to 2003. | |
(g) | Russell A. Gullotti was a director of Capella from 2001 to 2004. | |
(h) | Joseph C. Gaylord was an executive officer of Capella from 2003 to 2004. | |
(i) | Gordon A. Holmes, a director of the company, represents the interests of FLC XXXII Partnership, L.P. and FLC XXXIII Partnership, L.P., the general partners of Forstmann VII and Forstmann VIII. Forstmann VII and Forstmann VIII originally obtained 674,460.20 shares of Class G preferred stock pursuant to the exchange agreement described in footnote (b) above. Forstmann VII and Forstmann VIII subsequently transferred 369,023 shares of Class G preferred stock to the entities affiliated with Technology Crossover Ventures and 74,400 shares of Class G preferred stock to the Maveron entities. | |
(j) | Jody Miller, a director of the company, is a venture partner at Maveron LLC, an affiliate of the Maveron entities. Dan Levitan, a board observer of the company, is a managing partner of Maveron General Partner 2000 LLC and a managing member of Maveron LLC, affiliates of the Maveron entities. The Maveron entities acquired 674,460.20 shares of Class G preferred stock pursuant to the Class G preferred issuance discussed in footnote (b) above and acquired an additional 77,418 shares of Class G preferred stock pursuant to a transfer of 3,018 shares of Class G preferred stock to the Maveron entities by Mr. Shank and a transfer of 74,400 shares of Class G preferred stock to the Maveron entities by Forstmann VII and Forstmann VIII. | |
Directors: | Stephen Shank (Mr. Shank is also an executive officer of the company and beneficially holds more than 5% of our voting securities), David Smith and Joshua Lewis (Mr. Lewis also beneficially holds more than 5% of our voting securities) | |
Executive Officers: | Elizabeth Rausch, Michael Offerman and Paul Schroeder | |
5% Shareholders: |
Cherry Tree Ventures IV, the Forstmann Little entities, the
Maveron entities, the Putnam entities, the entities affiliated
with Technology Crossover Ventures, as transferees of
Forstmann VII and Forstmann VIII, and Insight-Salmon
River LLC, as transferee of NCS Pearson, Inc.
|
|
Immediate Family Members of the Related Parties: |
Judith F. Shank, Susan Shank, Mary Retzlaff and The S. Joshua
and Teresa D. Lewis Issue Trust
|
|
101
Directors: | Stephen Shank (Mr. Shank is also an executive officer of the company and beneficially holds more than 5% of our voting securities), David Smith and Joshua Lewis (Mr. Lewis also beneficially holds more than 5% of our voting securities) | |
Executive Officers: | Elizabeth Rausch, Michael Offerman and Paul Schroeder | |
5% Shareholders: | The Forstmann Little entities, the Maveron entities, the Putnam entities and the entities affiliated with Technology Crossover Ventures, as transferees of Forstmann VII and VIII and Stephen Shank. |
102
| each person, or group of affiliated persons, known to us to own beneficially 5% or more of our outstanding common stock, | |
| each of our directors, | |
| each of our named executive officers, | |
| all of our directors and executive officers as a group, and | |
| each selling shareholder. |
103
Shares | ||||||||||||||||||||||||||||||||
Shares Beneficially | Beneficially | Shares Beneficially | ||||||||||||||||||||||||||||||
Owned Prior to the | Owned After | Owned After | ||||||||||||||||||||||||||||||
Offering (a) | Shares | Offering | Over-Allotment | Over-Allotment (b) | ||||||||||||||||||||||||||||
Being | Shares Being | |||||||||||||||||||||||||||||||
Name of Beneficial Owner | Shares | Percent | Offered | Shares | Percent | Offered (b) | Shares | Percent | ||||||||||||||||||||||||
Principal Shareholders
|
||||||||||||||||||||||||||||||||
Forstmann Little
entities
(c)
|
1,106,372 | 9.4 | % | |||||||||||||||||||||||||||||
Cherry Tree Ventures IV,
L.P.
(d)
|
1,779,746 | 15.2 | % | |||||||||||||||||||||||||||||
Entities affiliated with Technology Crossover
Ventures
(e)
|
1,858,681 | 15.8 | % | |||||||||||||||||||||||||||||
Putnam
entities
(f)
|
674,459 | 5.7 | % | |||||||||||||||||||||||||||||
Maveron
entities
(g)
|
1,049,191 | 8.9 | % | |||||||||||||||||||||||||||||
Salmon River and Insight
entities
(h)
|
1,224,726 | 10.4 | % | |||||||||||||||||||||||||||||
Directors and Named Executive Officers
|
||||||||||||||||||||||||||||||||
Stephen G.
Shank
(i)
|
2,446,064 | 20.6 | % | |||||||||||||||||||||||||||||
Michael J.
Offerman
(j)
|
101,334 | * | ||||||||||||||||||||||||||||||
Lois M.
Martin
(k)
|
29,123 | * | ||||||||||||||||||||||||||||||
Paul A.
Schroeder
(l)
|
128,814 | 1.1 | % | |||||||||||||||||||||||||||||
Scott M.
Henkel
(m)
|
17,500 | * | ||||||||||||||||||||||||||||||
Tony J.
Christianson
(d)
|
1,779,746 | 15.2 | % | |||||||||||||||||||||||||||||
Gordon A. Holmes
|
| | ||||||||||||||||||||||||||||||
S. Joshua
Lewis
(n)
|
1,216,711 | 10.4 | % | |||||||||||||||||||||||||||||
Jody G.
Miller
(o)
|
2,500 | * | ||||||||||||||||||||||||||||||
James A.
Mitchell
(p)
|
59,775 | * | ||||||||||||||||||||||||||||||
David W.
Smith
(q)
|
21,992 | * | ||||||||||||||||||||||||||||||
Jeffrey W.
Taylor
(r)
|
5,000 | * | ||||||||||||||||||||||||||||||
Darrell R.
Tukua
(s)
|
12,500 | * | ||||||||||||||||||||||||||||||
Jon Q.
Reynolds, Jr.
(e)
|
1,858,681 | 15.8 | % | |||||||||||||||||||||||||||||
Sandra E.
Taylor
(t)
|
| | ||||||||||||||||||||||||||||||
All directors and executive officers as a group (19
persons)
|
7,965,093 | 65 | % | |||||||||||||||||||||||||||||
Selling Shareholders
|
* | Less than 1% | |
(a) | Beneficial ownership is determined in accordance with the rules of the SEC that generally attribute beneficial ownership of securities to persons who possess sole or shared voting power and/or investment power with respect to those securities and includes shares of common stock issuable pursuant to the exercise of stock options that are immediately exercisable or exercisable within 60 days. Unless otherwise indicated, the persons or entities identified in this table have sole voting and investment power with respect to all shares shown as beneficially owned by them. Percentage ownership calculations prior to the offering, after the offering, and after over-allotment are based on 11,730,710 shares, shares and shares, respectively, of common stock outstanding. | |
(b) | Amounts presented assume that the over-allotment option is exercised in full. | |
(c) | Consists of (1) 875,336 shares of common stock issuable upon conversion of preferred stock owned by Forstmann VI; (2) 144,397 shares of common stock issuable upon conversion of preferred stock owned by Forstmann VII; and (3) 86,639 shares of common stock issuable upon conversion of preferred stock owned by Forstmann VIII. Each of Forstmann VI, Forstmann VII and Forstmann VIII disclaims beneficial ownership of shares owned by the other entities. The general partner of Forstmann VI and Forstmann VII is FLC XXXII Partnership, L.P. (FLC XXXII) and the general partner of Forstmann VIII is FLC XXXIII Partnership, L.P. (FLC XXXIII). The general partners of FLC XXXII and FLC XXXIII are Theodore J. Forstmann, Winston W. Hutchins, and T. Geoffrey McKay. Accordingly, each of the individuals named above, other than Mr. McKay for the reason described below, may be deemed the beneficial owner of shares owned by Forstmann VI, Forstmann VII and Forstmann VIII. Mr. McKay does not have any voting or | |
104
investment power with respect to, or any economic interest in, the shares of our common stock held by Forstmann VI, Forstmann VII or Forstmann VIII and, accordingly, Mr. McKay is not deemed to be a beneficial owner of these shares. The address of Forstmann VI, Forstmann VII and Forstmann VIII is c/o Forstmann Little & Co., 767 Fifth Avenue, New York, New York 10153. | ||
(d) | Consists of (1) 50,000 shares of common stock and 1,698,000 shares of common stock issuable upon conversion of preferred stock owned by Cherry Tree Ventures IV, L.P.; (2) 29,366 shares of common stock owned by Cherry Tree Core Growth Fund, L.L.L.P.; and (3) 2,380 shares of common stock owned by InfoPower L.L.L.P. The general partner of Cherry Tree Ventures IV, L.P. is CTV Partners IV. CTV Partners IV is controlled by Tony J. Christianson and Gordon Stofer, its managing partners, who share voting and investment power with respect to the shares beneficially owned by Cherry Tree Ventures IV, L.P. The general partner of Cherry Tree Core Growth Fund, L.L.L.P. is Cherry Tree Investments, LLC. Cherry Tree Investments, LLC is controlled by Tony J. Christianson and Gordon Stofer, its managing members, who share voting and investment power with respect to the shares beneficially owned by Cherry Tree Core Growth Fund, L.L.L.P. The general partners of InfoPower, L.L.L.P. are Gordon Stofer and Adam Smith Companies, LLC. Adam Smith Companies, LLC. is controlled by Tony J. Christianson, its managing member. Gordon Stofer and Tony J. Christianson share voting and investment power with respect to the shares beneficially owned by InfoPower, L.L.L.P. Messrs. Christianson and Stofer disclaim beneficial ownership of such shares except to the extent of their pecuniary interest therein. The address of Cherry Tree Ventures IV, L.P., Cherry Tree Core Growth Fund, L.L.L.P. and InfoPower, L.L.L.P. is 301 Carlson Parkway, Suite 103, Minnetonka, MN 55305. | |
(e) | Consists of (1) 6,289 shares of common stock and 1,817,937 shares of common stock issuable upon conversion of preferred stock owned by TCV V, L.P.; and (2) 119 shares of common stock and 34,336 shares of common stock issuable upon conversion of preferred stock owned by TCV Member Fund, L.P. The general partner of TCV V, L.P. and TCV Member Fund, L.P. is Technology Crossover Management V, L.L.C. (TCM V). The investment activities of TCM V are managed by Jon Q. Reynolds, Jr., a director of the company, Jay C. Hoag, Richard H. Kimball, John L. Drew, Henry J. Feinberg and William J.G. Griffith IV (collectively, the TCM Members), who share voting and investment power with respect to the shares beneficially owned by TCV V, L.P. and TCV Member Fund, L.P. TCM V and the TCM Members disclaim beneficial ownership of such shares except to the extent of their pecuniary interest therein. The address of TCV V, L.P. and TCV Member Fund, L.P. is 528 Ramona Street, Palo Alto, CA 94301. | |
(f) | Consists of (1) 224,820 shares of common stock issuable upon conversion of preferred stock owned by Putnam OTC & Emerging Growth Fund; and (2) 449,639 shares of common stock issuable upon conversion of preferred stock owned by TH Lee, Putnam Investment Trust TH Lee, Putnam Emerging Opportunities Portfolio. The investment adviser of Putnam OTC & Emerging Growth Fund is Putnam Investment Management, LLC, which is a wholly owned subsidiary of Putnam, LLC, which is an indirectly owned subsidiary of Marsh & McLennan Companies, Inc., a company traded on the New York Stock Exchange. The investment adviser of TH Lee, Putnam Investment Trust TH Lee, Putnam Emerging Opportunities Portfolio is TH Lee, Putnam Capital Management, LLC. TH Lee, Putnam Capital Management, LLC is indirectly majority owned by Putnam, LLC, which is an indirectly owned subsidiary of Marsh & McLennan Companies, Inc., a company traded on the New York Stock Exchange. Marsh & McLennan Companies, Inc. and Putnam, LLC disclaim beneficial ownership of all such shares. The address for Putnam OTC & Emerging Growth Fund and TH Lee, Putnam Investment Trust TH Lee, Putnam Emerging Opportunities Portfolio is One Post Office Square, Boston, MA 02109. | |
(g) | Consists of (1) 1,089 shares of common stock and 887,643 shares of common stock issuable upon conversion of preferred stock owned by Maveron Equity Partners 2000, L.P.; (2) 42 shares of common stock and 34,348 shares of common stock issuable upon conversion of preferred stock owned by Maveron Equity Partners 2000-B, L.P.; and (3) 161 shares of common stock and 125,908 shares of common stock issuable upon conversion of preferred stock owned by MEP 2000 Associates LLC. The general partner of Maveron Equity Partners 2000, L.P. and Maveron Equity Partners 2000-B, | |
105
L.P. is Maveron General Partner 2000 LLC. Maveron General Partner 2000 LLC is controlled by Dan Levitan, Howard Schultz, and Debra Somberg, its managing partners, who share voting and investment power with respect to the shares beneficially owned by Maveron Equity Partners 2000, L.P. and Maveron Equity Partners 2000-B, L.P. The managing member of MEP 2000 Associates LLC is Maveron LLC. Maveron LLC is controlled by Dan Levitan, Howard Schultz, and Debra Somberg, its managing members, who share voting and investment power with respect to the shares beneficially owned by MEP 2000 Associates LLC. Mr. Levitan, Mr. Schultz, and Ms. Somberg disclaim beneficial ownership of such shares except to the extent of their pecuniary interest therein. The address for Maveron LLC is 505 Fifth Avenue South, Suite 600, Seattle, WA 98104. | ||
(h) | Consists of (1) 750,000 shares of common stock issuable upon conversion of preferred stock owned by Insight-Salmon River LLC; (2) 24,308 shares of common stock owned by Insight Venture Partners IV, L.P.; (3) 272,222 shares of common stock issuable upon conversion of preferred stock owned by Salmon River Capital I LLC; (4) 146,018 shares of common stock issuable upon conversion of preferred stock owned by Salmon River CIP LLC; (5) 194 shares of common stock owned by Insight Venture Partners IV (Fund B), L.P.; (6) 2,997 shares of common stock owned by Insight Venture Partners VI (Co-Investors), L.P.; (7) 3,251 shares of common stock owned by Insight Venture Partners (Cayman) IV, L.P.; and (8) 25,736 shares of common stock issuable upon conversion of preferred stock owned by Salmon River Capital II, L.P. The managing member of Insight-Salmon River LLC is Salmon River Capital LLC, and the non-managing members of Insight-Salmon River LLC are Insight Venture Partners IV, L.P., Insight Venture Partners (Fund B) IV, L.P., Insight Venture Partners (Co-Investor) IV, L.P., and Insight Venture Partners (Cayman) IV, L.P. (collectively, the Insight Partnerships). Salmon River Capital LLC, as managing member of Insight-Salmon River LLC, generally controls the voting power over the shares held by Insight-Salmon River LLC, but the Insight Partnerships have shared voting power with Salmon River Capital LLC over such shares with respect to certain matters. In addition, Salmon River Capital LLC and the Insight Partnerships have shared investment power over the shares held by Insight-Salmon River LLC. The managing member of Salmon River Capital LLC is S. Joshua Lewis, a director of the company. The general partner of the Insight Partnerships is Insight Venture Associates, LLC. The managing member of Insight Venture Associates, LLC is Insight Holdings Group, LLC. Insight Holdings Group, LLC is managed by its board of managers. Accordingly, Mr. Lewis, Insight Venture Associates, LLC, and Insight Holdings Group, LLC have shared voting and investment powers with respect to the shares beneficially owned by Insight-Salmon River LLC. The foregoing is not an admission by such persons that such persons are the beneficial owners of the shares held by Insight-Salmon River LLC, and each disclaims beneficial ownership of such shares except to the extent of their pecuniary interest therein. Insight Venture Associates, LLC and Insight Holdings Group, LLC have voting and investment power with respect to the shares beneficially owned by Insight Venture Partners IV, L.P. The foregoing is not an admission by Insight Venture Associates, LLC or Insight Holdings Group, LLC that they are the beneficial owners of the shares held by Insight Venture Partners IV, L.P., and each disclaims beneficial ownership of such shares except to the extent of their pecuniary interest therein. The managing member of Salmon River Capital I LLC and Salmon River CIP LLC is Salmon River Capital LLC. The managing member of Salmon River Capital LLC is Mr. Lewis. Mr. Lewis has voting and investment powers with respect to the shares beneficially owned by Salmon River Capital I LLC and Salmon River CIP LLC. The foregoing is not an admission by Mr. Lewis that he is the beneficial owner of the shares held by Salmon River Capital I LLC and Salmon River CIP LLC, and Mr. Lewis disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. The general partner of Salmon River Capital II, L.P. is Salmon River Capital GP, LLC. The sole member of Salmon River Capital GP, LLC is Mr. Lewis. Accordingly, Mr. Lewis has voting and investment powers with respect to the shares beneficially owned by Salmon River Capital II, L.P. The foregoing is not an admission by Mr. Lewis that he is the beneficial owner of the shares held by Salmon River Capital II, L.P., and Mr. Lewis disclaims beneficial ownership of such shares except to the extent of | |
106
his pecuniary interest therein. The address for the Salmon River and Insight entities is 680 Fifth Avenue, 8th Floor, New York, NY 10019. | ||
(i) | Consists of (1) 635,892 shares of common stock owned by Stephen G. Shank, 1,380,188 shares of common stock issuable upon conversion of preferred stock owned by Mr. Shank, and 152,385 shares of common stock underlying options that are exercisable within 60 days granted to Mr. Shank; (2) 75,202 shares of common stock controlled by Mary Shank Retzlaff, Mr. Shanks daughter, as trustee of the Stephen G. Shank 2004 Grantor Retained Annuity Trust; (3) 39,798 shares of common stock owned by Judith F. Shank, Mr. Shanks wife, and 85,397 shares of common stock issuable upon conversion of preferred stock owned by Judith F. Shank; (4) 75,202 shares of common stock controlled by Susan Shank, Mr. Shanks daughter, as trustee of the Judith F. Shank 2004 Grantor Retained Annuity Trust; and (5) 2,000 shares of common stock controlled by Susan Shank, as trustee of the Emma Jia Chen Retzlaff 2004 Irrevocable Trust. | |
(j) | Includes 4,496 shares of common stock issuable upon conversion of preferred stock and 96,838 shares of common stock underlying options, that are exercisable within 60 days, granted to Dr. Offerman. | |
(k) | Consists of 29,123 shares underlying options, that are exercisable within 60 days, granted to Ms. Martin. | |
(l) | Includes 6,744 shares of common stock issuable upon conversion of preferred stock and 122,070 shares of common stock underlying options, that are exercisable within 60 days, granted to Mr. Schroeder. | |
(m) | Consists of 17,500 shares of common stock underlying options, that are exercisable within 60 days, granted to Mr. Henkel. | |
(n) | Consists of (1) 750,000 shares of common stock issuable upon conversion of preferred stock owned by Insight-Salmon River LLC; (2) 272,222 shares of common stock issuable upon conversion of preferred stock owned by Salmon River Capital I LLC; (3) 146,018 shares of common stock issuable upon conversion of preferred stock owned by Salmon River CIP LLC; (4) 25,736 shares of common stock issuable upon conversion of preferred stock owned by Salmon River Capital II, L.P.; (5) 10,235 shares of common stock issuable upon conversion of preferred stock owned by S. Joshua Lewis; and (6) 12,500 shares of common stock underlying options that are exercisable within 60 days granted to S. Joshua Lewis. The managing member of Insight-Salmon River LLC is Salmon River Capital LLC, and the non-managing members of Insight-Salmon River LLC are Insight Venture Partners IV, L.P., Insight Ventures Partners (Fund B) IV, L.P., Insight Venture Partners (Co-Investor) IV, L.P., and Insight Venture Partners (Cayman) IV, L.P. (collectively, the Insight Partnerships). Salmon River Capital LLC, as managing member of Insight-Salmon River LLC, generally controls the voting power over the shares held by Insight-Salmon River LLC, but the Insight Partnerships have shared voting power with Salmon River Capital LLC over such shares with respect to certain matters. In addition, Salmon River Capital LLC and the Insight Partnerships have shared investment power over the shares held by Insight-Salmon River LLC. The managing member of Salmon River Capital LLC is S. Joshua Lewis. The general partner of the Insight Partnerships is Insight Venture Associates, LLC. The managing member of Insight Venture Associates, LLC is Insight Holdings Group, LLC. The managing member of Insight Holdings Group, LLC is managed by its board of managers. Accordingly, Mr. Lewis, Insight Venture Associates, LLC, and Insight Holdings Group, LLC have shared voting and investment powers with respect to the shares beneficially owned by Insight-Salmon River LLC. The foregoing is not an admission by such persons that such persons are the beneficial owners of the shares held by Insight-Salmon River LLC, and each disclaims beneficial ownership of such shares except to the extent of their pecuniary interest therein. The managing member of Salmon River Capital I LLC and Salmon River CIP LLC is Salmon River Capital LLC. The managing member of Salmon River Capital LLC is Mr. Lewis. Mr. Lewis has voting and investment powers with respect to the shares beneficially owned by Salmon River Capital I LLC and Salmon River CIP LLC. The foregoing is not an admission by Mr. Lewis that he is the beneficial owner of the shares held by Salmon River Capital I LLC and Salmon River CIP LLC, and Mr. Lewis disclaims beneficial ownership of such shares except to the extent of his | |
107
pecuniary interest therein. The general partner of Salmon River Capital II, L.P. is Salmon River Capital GP, LLC. The sole member of Salmon River Capital GP, LLC is Mr. Lewis. Accordingly, Mr. Lewis has voting and investment powers with respect to the shares beneficially owned by Salmon River Capital II, L.P. The foregoing is not an admission by Mr. Lewis that he is the beneficial owner of the shares held by Salmon River Capital II, L.P., and Mr. Lewis disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein. | ||
(o) | Consists of 2,500 shares underlying options, that are exercisable within 60 days, granted to Ms. Miller. | |
(p) | Consists of (1) 41,275 shares of common stock controlled by James A. Mitchell, as trustee of the James A. Mitchell Trust; and (2) 18,500 shares of common stock underlying options, that are exercisable within 60 days, granted to Mr. Mitchell. | |
(q) | Consists of 8,992 shares of common stock issuable upon conversion of preferred stock and 13,000 shares of common stock underlying options, that are exercisable within 60 days, granted to Mr. Smith. | |
(r) | Consists of 5,000 shares underlying options, that are exercisable within 60 days, granted to Mr. Taylor. | |
(s) | Consists of 12,500 shares of common stock underlying options, that are exercisable within 60 days, granted to Mr. Tukua. | |
(t) | No options exercisable within 60 days. | |
108
109
110
Minnesota Law |
Articles of Incorporation and Bylaws |
111
| any vacancy on the board of directors, however occurring, including a vacancy resulting from an enlargement of the board, may only be filled by vote of a majority of the directors then in office; | |
| any action required or permitted to be taken by the shareholders at a regular meeting or special meeting of shareholders may only be taken if it is properly brought before such meeting; | |
| special meetings of the shareholders may only be called by our chief executive officer, chief financial officer, our board of directors, any two or more members of our board of directors or holders of at least 10% of the voting power of all shares then entitled to vote, provided that any special meeting called by one or more shareholders to take action concerning a proposed business combination may be called only by holders of at least 25% of the voting power of all shares then entitled to vote; and | |
| in order for any matter to be considered properly brought before a meeting, a shareholder must comply with requirements to provide advance notice to us. |
112
113
| shares will be eligible for immediate sale on the date of this prospectus because such shares may be sold pursuant to Rule 144(k); | |
| shares will be eligible for sale at various times beginning 90 days after the date of this prospectus pursuant to Rules 144, 144(k) and 701; and | |
| shares subject to the lock-up agreements will be eligible for sale at various times beginning 180 days after the date of this prospectus pursuant to Rules 144, 144(k) and 701. |
| one percent of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering, or | |
| the average weekly trading volume of our common stock on The Nasdaq Stock Market, Inc. during the four calendar weeks preceding the date of filing of a notice on Form 144 with respect to the sale. | |
114
| 125,783 shares of common stock were reserved pursuant to our 1993 Plan for future issuance in connection with the exercise of outstanding options previously awarded under this plan, and options with respect to 125,783 shares had vested; | |
| 1,066,357 shares of common stock were reserved pursuant to our 1999 Plan for future issuance in connection with the exercise of outstanding options previously awarded under this plan, and options with respect to 728,940 shares had vested; | |
| 899,574 shares of common stock were reserved pursuant to our 2005 Plan for future issuance in connection with the exercise of outstanding options previously awarded under this plan, and options with respect to 27,500 shares had vested; and | |
| 450,000 shares of common stock were reserved pursuant to our ESPP for future employee purchases under this plan. |
115
| a citizen or resident of the United States, including an alien individual who is a lawful permanent resident of the United States or meets the substantial presence test under section 7701(b)(3) of the Internal Revenue Code; | |
| a corporation (or an entity treated as a corporation) created or organized in the United States or under the laws of the United States, any state thereof, or the District of Columbia; | |
| an estate, the income of which is subject to U.S. federal income tax regardless of its source; or | |
| a trust, if a U.S. court can exercise primary supervision over the administration of the trust and one or more U.S. persons can control all substantial decisions of the trust, or certain other trusts that have a valid election to be treated as a U.S. person in effect. |
116
| the gain is effectively connected with a trade or business carried on by the Non-U.S. Holder within the United States, in which case the branch profits tax discussed above may also apply if the Non-U.S. Holder is a corporation; and | |
| the Non-U.S. Holder is an individual who holds shares of common stock as capital assets and is present in the United States for 183 days or more in the taxable year of disposition and various other conditions are met. |
| the broker has documentary evidence in its files that the holder is a Non-U.S. Holder and other conditions are met; or | |
| the holder otherwise establishes an exemption. |
117
Number of | |||||
Underwriter | Shares | ||||
Credit Suisse Securities (USA) LLC
|
|||||
Banc of America Securities LLC
|
|||||
Piper Jaffray & Co.
|
|||||
Total
|
|||||
Per Share | Total | |||||||||||||||
Without | With | Without | With | |||||||||||||
Over-allotment | Over-allotment | Over-allotment | Over-allotment | |||||||||||||
Underwriting Discounts and Commissions paid by us
|
$ | $ | $ | $ | ||||||||||||
Expenses payable by us
|
$ | $ | $ | $ | ||||||||||||
Underwriting Discounts and Commissions paid by selling
shareholders
|
$ | $ | $ | $ | ||||||||||||
Expenses payable by the selling shareholders
|
$ | $ | $ | $ |
118
| the information presented in this prospectus and otherwise available to the underwriters; | |
| the history of and the prospectus for the industry in which we will compete; | |
| the ability of our management; | |
| the prospects for our future earning; | |
| the present state of our development and our current financial condition; | |
| the recent market prices of, and the demand for, publicly traded common stock of generally comparable companies; and | |
| the general condition of the securities markets at the time of the offering. |
119
| Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. | |
| Over-allotment involves sales by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase, which creates a syndicate short position. The short position may be either a covered short position or a naked short position. In a covered short position, the number of shares over-allotted by the underwriters is not greater than the number of shares that they may purchase in the over-allotment option. In a naked short position, the number of shares involved is greater than the number of shares in the over-allotment option. The underwriters may close out any covered short position by either exercising their over-allotment option and/or purchasing shares in the open market. | |
| Syndicate covering transactions involve purchases of the common stock in the open market after the distribution has been completed in order to cover syndicate short positions. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. If the underwriters sell more shares than could be covered by the over- allotment option, a naked short position, the position can only be closed out by buying shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. | |
| Penalty bids permit the representative to reclaim a selling concession from a syndicate member when the common stock originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions. |
120
| the purchaser is entitled under applicable provincial securities laws to purchase the common stock without the benefit of a prospectus qualified under those securities laws, | |
| where required by law, that the purchaser is purchasing as principal and not as agent, | |
| the purchaser has reviewed the text above under Resale Restrictions and | |
| the purchaser acknowledges and consents to the provision of specified information concerning its purchase of the common stock to the regulatory authority that by law is entitled to collect the information. | |
121
122
Page | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
F-7 |
F-1
F-2
F-3
F-4
F-5
F-6
Table of Contents
Six Months Ended
Year Ended December 31,
June 30,
2003
2004
2005
2005
2006
(Unaudited)
(In thousands, except per share amounts)
$
81,785
$
117,689
$
149,240
$
70,018
$
85,376
43,759
58,850
71,243
33,997
41,342
22,246
35,089
45,623
20,664
27,573
11,710
13,885
17,501
7,689
10,374
77,715
107,824
134,367
62,350
79,289
4,070
9,865
14,873
7,668
6,087
427
724
2,306
898
1,971
4,497
10,589
17,179
8,566
8,058
104
(8,196
)
6,929
3,505
3,361
$
4,393
$
18,785
$
10,250
$
5,061
$
4,697
$
0.41
$
1.68
$
0.89
$
0.45
$
0.40
$
0.39
$
1.62
$
0.86
$
0.43
$
0.39
10,804
11,189
11,476
11,331
11,671
11,154
11,599
11,975
11,896
12,001
Table of Contents
Class A
Class B
Class D
Convertible
Convertible
Convertible
Accumulated
Retained
Preferred Stock
Preferred Stock
Preferred Stock
Common Stock
Additional
Other
Earnings/
Paid-In
Deferred
Comprehensive
Accumulated
Comprehensive
Shares
Amount
Shares
Amount
Shares
Amount
Shares
Amount
Capital
Compensation
Income (Loss)
Deficit
Total
Income
(In thousands)
2,810
$
2,810
460
$
1,150
1,022
$
4,600
1,548
$
155
$
2,193
$
(41
)
$
$
(37,117
)
$
(26,250
)
$
176
17
789
806
56
6
120
126
48
5
485
490
37
37
(2
)
(18
)
(18
)
4,393
4,393
4,393
2,810
2,810
460
1,150
1,022
4,600
1,826
183
3,569
(4
)
(32,724
)
(20,416
)
$
4,393
205
21
837
858
150
150
47
4
637
641
4
4
(4
)
(27
)
(27
)
18,785
18,785
18,785
2,810
2,810
460
1,150
1,022
4,600
2,074
208
5,166
(13,939
)
(5
)
$
18,785
52
5
273
278
271
27
3,012
3,039
46
4
924
928
(12
)
(1
)
(279
)
(280
)
3
50
(50
)
19
19
(3
)
(50
)
31
(19
)
202
202
10
10
(8
)
(8
)
(8
)
10,250
10,250
10,250
2,810
2,810
460
1,150
1,022
4,600
2,431
243
9,308
(8
)
(3,689
)
14,414
$
10,242
60
6
267
273
(412
)
(412
)
2,107
2,107
46
46
62
6
1,235
1,241
(10
)
(10
)
(28
)
(28
)
(28
)
4,697
4,697
4,697
2,810
$
2,810
460
$
1,150
1,022
$
4,600
2,553
$
255
$
12,541
$
$
(36
)
$
1,008
$
22,328
$
4,669
Table of Contents
Six Months Ended
Year Ended December 31,
June 30,
2003
2004
2005
2005
2006
(Unaudited)
(In thousands)
$
4,393
$
18,785
$
10,250
$
5,061
$
4,697
616
1,376
2,263
819
1,204
4,177
5,454
6,474
3,119
4,096
(158
)
(43
)
(90
)
(35
)
(35
)
359
1,020
156
51
22
4
2,107
578
1,135
1,381
677
226
(28
)
(8,445
)
6,203
2,977
(549
)
(271
)
(4,278
)
(4,106
)
(99
)
(1,024
)
(348
)
(1,905
)
(409
)
(258
)
505
831
(768
)
(318
)
(1,908
)
(960
)
4,642
1,036
3,647
2,137
(1,308
)
140
(292
)
(78
)
3,808
2,366
(273
)
422
2,499
1,518
316
(1,373
)
15,399
16,049
28,940
12,736
11,064
(3,719
)
(7,541
)
(9,079
)
(3,258
)
(6,595
)
(53,000
)
(39,700
)
(59,879
)
(21,675
)
(115,609
)
30,600
35,050
46,360
19,450
105,213
(26,119
)
(12,191
)
(22,598
)
(5,483
)
(16,991
)
(469
)
(629
)
(314
)
(241
)
(9
)
(964
)
(234
)
(1,452
)
(241
)
80
391
64
28
806
858
278
206
273
126
3,039
3,039
(412
)
(18
)
(27
)
(280
)
(10
)
7,245
7,449
282
2,150
2,834
(1,582
)
(3,271
)
4,140
8,492
10,087
(7,509
)
4,611
1,340
5,480
5,480
13,972
$
1,340
$
5,480
$
13,972
$
15,567
$
6,463
$
78
$
56
$
23
$
11
$
18
$
104
$
109
$
1,080
$
605
$
101
$
$
$
3,595
$
1,168
$
$
629
$
1,445
$
2,477
$
1,733
$
2,590
$
837
$
$
$
$
16
$
490
$
641
$
928
$
928
$
1,241
Table of Contents
1. | Nature of Business |
2. | Summary of Significant Accounting Policies |
Consolidation |
Unaudited Interim Financial Information |
Revenue Recognition |
Cash and Cash Equivalents |
F-7
Marketable Securities |
Allowance for Doubtful Accounts |
Concentration of Credit Risk |
F-8
Property and Equipment |
Computer equipment
|
2-3 years | |
Furniture and office equipment
|
5-7 years | |
Computer software
|
3-7 years |
Income Taxes |
Use of Estimates |
Impairment of Long-Lived Assets |
F-9
Advertising |
Net Income Per Common Share |
Six Months Ended | |||||||||||||||||||||
Year Ended December 31, | June 30, | ||||||||||||||||||||
2003 | 2004 | 2005 | 2005 | 2006 | |||||||||||||||||
(Unaudited) | |||||||||||||||||||||
Numerator:
|
|||||||||||||||||||||
Net income
|
$ | 4,393 | $ | 18,785 | $ | 10,250 | $ | 5,061 | $ | 4,697 | |||||||||||
Denominator:
|
|||||||||||||||||||||
Denominator for basic net income per common share
weighted average shares outstanding (restated for years ended
December 31, 2003, 2004 and 2005)
|
10,804 | 11,189 | 11,476 | 11,331 | 11,671 | ||||||||||||||||
Effect of dilutive stock options and warrants
|
350 | 410 | 499 | 565 | 330 | ||||||||||||||||
Denominator for diluted net income per common share
|
11,154 | 11,599 | 11,975 | 11,896 | 12,001 | ||||||||||||||||
Basic net income per common share (restated for years ended
December 31, 2003, 2004 and 2005)
|
$ | 0.41 | $ | 1.68 | $ | 0.89 | $ | 0.45 | $ | 0.40 | |||||||||||
Diluted net income per common share
|
$ | 0.39 | $ | 1.62 | $ | 0.86 | $ | 0.43 | $ | 0.39 |
F-10
Deferred Initial Public Offering Costs |
Reclassification |
Comprehensive Income |
Stock-Based Compensation |
F-11
New Accounting Standards |
3. | Marketable Securities |
December 31, 2004 | |||||||||||||||||
Gross | Gross | Estimated | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | ||||||||||||||
Cost | Gains | (Losses) | Value | ||||||||||||||
Auction rate
|
$ | 44,500 | $ | | $ | | $ | 44,500 | |||||||||
U.S. Agency
|
| | | | |||||||||||||
Corporate debt
|
| | | | |||||||||||||
Total
|
$ | 44,500 | $ | | $ | | $ | 44,500 | |||||||||
December 31, 2005 | |||||||||||||||||
Gross | Gross | Estimated | |||||||||||||||
Amortized | Unrealized | Unrealized | Fair | ||||||||||||||
Cost | Gains | (Losses) | Value | ||||||||||||||
Auction rate
|
$ | 44,775 | $ | | $ | | $ | 44,775 | |||||||||
U.S. Agency
|
4,851 | | (9 | ) | 4,842 | ||||||||||||
Corporate debt
|
8,550 | 2 | (8 | ) | 8,544 | ||||||||||||
Total
|
$ | 58,176 | $ | 2 | $ | (17 | ) | $ | 58,161 | ||||||||
F-12
As of December 31,
2004
2005
$
$
11,382
2,004
44,500
44,775
$
44,500
$
58,161
4. | Property and Equipment |
As of December 31, | ||||||||
2004 | 2005 | |||||||
Computer software
|
$ | 12,076 | $ | 18,469 | ||||
Computer equipment
|
5,077 | 10,235 | ||||||
Furniture and office equipment
|
5,445 | 6,612 | ||||||
Leasehold improvements
|
1,318 | 1,318 | ||||||
23,916 | 36,634 | |||||||
Less accumulated depreciation and amortization
|
(11,790 | ) | (17,075 | ) | ||||
Property and equipment, net
|
$ | 12,126 | $ | 19,559 | ||||
5. | Accrued Liabilities |
As of December 31, | As of | |||||||||||
June 30, | ||||||||||||
2004 | 2005 | 2006 | ||||||||||
(Unaudited) | ||||||||||||
Accrued compensation and benefits
|
$ | 3,952 | $ | 4,510 | $ | 2,872 | ||||||
Accrued instructional fees
|
2,626 | 3,189 | 3,864 | |||||||||
Accrued vacation
|
1,494 | 1,386 | 1,731 | |||||||||
Customer deposits
|
924 | 1,010 | 920 | |||||||||
Other
|
3,257 | 7,128 | 7,858 | |||||||||
$ | 12,253 | $ | 17,223 | $ | 17,245 | |||||||
6. | Financing Arrangements |
F-13
7. | Operating and Capital Lease Obligations |
Operating | ||||
2006
|
$ | 2,691 | ||
2007
|
2,773 | |||
2008
|
2,803 | |||
2009
|
2,305 | |||
2010
|
1,864 | |||
Total minimum payments
|
$ | 12,436 | ||
F-14
8. | Litigation |
9. | Preferred Stock |
Class A Convertible Preferred Stock |
Class B Convertible Preferred Stock |
Class D Convertible Preferred Stock |
F-15
10. | Redeemable Preferred Stock |
Class E Redeemable Convertible Preferred Stock |
Class F Redeemable Convertible Preferred Stock |
F-16
Class G Redeemable Convertible Preferred Stock |
11. | Stock-Based Compensation |
F-17
Stock-based compensation plans |
F-18
Plan Options
Outstanding
Weighted-Average
Available
Exercise Price
Service-based stock options
for Grant
Incentive
Non-Qualified
Price Per Share
Per Share
470
1,048
354
$
2.50 - 15.68
$
9.90
(481
)
375
106
11.12 - 13.11
12.07
(146
)
(27
)
2.50 - 14.25
4.79
101
(101
)
(28
)
4.50 - 14.25
12.18
500
(98
)
492
1,176
405
2.50 - 15.68
10.93
(415
)
241
174
15.13 - 20.00
17.83
(190
)
(20
)
2.50 - 14.25
4.42
139
(139
)
(11
)
4.50 - 15.13
11.66
216
1,087
548
2.50 - 20.00
13.45
(307
)
230
77
20.00
20.00
(56
)
2.50 - 14.25
6.27
10
(141
)
(31
)
11.12 - 20.00
15.30
(214
)
1,613
1,318
1,120
594
4.50 - 20.00
14.67
(370
)
107
263
20.00
(79
)
(3
)
8.76
22
(119
)
(47
)
14.62
970
1,029
807
15.98
(a) | The total available for grant, including the 255 performance-based stock option grants, was 715. | |
Weighted- | ||||||||||||||||
Weighted- | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Number of | Exercise | Contractual | Intrinsic | |||||||||||||
Service-based stock options | Shares | Price | Term | Value | ||||||||||||
Balance at June 30, 2006 (unaudited)
|
1,836 | $ | 15.98 | 7.3 | $ | 7,381 | ||||||||||
Vested and expected to vest, June 30, 2006 (unaudited)
|
1,754 | $ | 15.83 | 7.2 | $ | 7,315 | ||||||||||
Exercisable, June 30, 2006 (unaudited)
|
882 | $ | 13.29 | 5.7 | $ | 5,917 |
F-19
Proceeds from stock options exercised
|
$ | 273 | ||
Tax benefits related to stock options exercised
|
46 | |||
Intrinsic value of stock options exercised
|
923 |
Instructional costs and services
|
$ | 450 | ||
Selling and promotional
|
232 | |||
General and administrative
|
1,425 | |||
Stock-based compensation expense included in operating income
|
2,107 | |||
Tax benefit
|
549 | |||
Stock-based compensation expense, net of tax
|
$ | 1,558 | ||
F-20
Options Outstanding
Options Exercisable
Number
Weighted
Number
Outstanding
Average
Weighted
Exercisable
Weighted
as of
Remaining
Average
as of
Average
Range of
December 31,
Contractual
Exercise
December 31,
Exercise
Exercise Prices
2005
Life (Years)
Price
2005
Price
96
3.3
$
4.50
96
$
4.50
10
4.2
10.00
10
10.00
389
7.3
11.74
279
11.73
172
6.5
12.79
118
12.76
499
5.7
14.47
447
14.39
142
8.6
17.72
49
17.72
406
9.4
19.99
39
20.00
1,714
7.1
$
14.67
1,038
$
12.89
2003 | 2004 | 2005 | |||||||||||||||||||||||
Fair | Exercise | Fair | Exercise | Fair | Exercise | ||||||||||||||||||||
Value | Price | Value | Price | Value | Price | ||||||||||||||||||||
Weighted average:
|
|||||||||||||||||||||||||
Stock price greater than exercise price
|
$ | | $ | | $ | | $ | | $ | | $ | | |||||||||||||
Stock price equal to exercise price
|
6.55 | 11.99 | 8.56 | 17.80 | 8.87 | 20.00 | |||||||||||||||||||
Stock price less than exercise price
|
5.64 | 13.11 | 7.23 | 19.49 | | |
F-21
Six Months
Ended
Year Ended December 31,
June 30,
2003
2004
2005
2005
(Unaudited)
$
4,393
$
18,785
$
10,250
$
5,061
37
4
202
89
(1,868
)
(2,154
)
(1,966
)
(885
)
$
2,562
$
16,635
$
8,486
$
4,265
$
0.41
$
1.68
$
0.89
$
0.45
$
0.24
$
1.49
$
0.74
$
0.38
$
0.39
$
1.62
$
0.86
$
0.43
$
0.23
$
1.45
$
0.71
$
0.36
Six Months Ended | ||||||||||||||||||||
Year Ended December 31, | June 30, | |||||||||||||||||||
2003 | 2004 | 2005 | 2005 | |||||||||||||||||
(Pro forma) | (Pro forma) | (Pro forma) | (Pro forma) | 2006 | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
Expected life (in
years)
(1)
|
6.0 | 6.0 | 6.0 | 6.0 | 6.25 | |||||||||||||||
Expected
volatility
(2)
|
53.9 | % | 44.1 | % | 38.5 | % | 38.5 | % | 45.6 | % | ||||||||||
Risk-free interest
rate
(3)
|
3.8 | % | 3.9 | % | 3.9-4.4 | % | 3.9-4.3 | % | 4.4- 4.9 | % | ||||||||||
Dividend
yield
(4)
|
0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | 0.0 | % | ||||||||||
Weighted-average fair value of options
granted
(5)
|
$ | 6.49 | $ | 8.54 | $8.87 | | $10.26 |
(1) | For the six months ended June 30, 2006, the expected option life was determined using the simplified method for estimating expected option life for service-based stock options. Prior to the six months ended June 30, 2006, the expected option life was based on the average expected option life experienced by our peer group of post-secondary education companies. |
(2) | As the Companys stock has not been publicly traded, the expected volatility assumption for the six months ended June 30, 2006 reflects a detailed evaluation of the stock price of its peer group of public |
F-22
post-secondary education companies for a six-year period starting from the date they went public. Prior to the six months ended June 30, 2006 the expected volatility assumption reflects the public disclosures of the Companys peer group of post-secondary education companies. |
(3) | The risk-free interest rate assumption is based upon the U.S. Treasury zero coupon yield curve on the grant date for a maturity similar to the expected life of the options. |
(4) | The dividend yield assumption is based on the Companys history and expectation of regular dividend payments. |
(5) | There were no service-based stock option grants for the six months ended June 30, 2005. |
12. | Deferred Compensation |
13. | Warrants |
F-23
14. | Income Taxes |
Year Ended December 31, | |||||||||||||
2003 | 2004 | 2005 | |||||||||||
Current:
|
|||||||||||||
Federal
|
$ | 104 | $ | 187 | $ | 345 | |||||||
State
|
| 62 | 381 | ||||||||||
Deferred
|
| (8,445 | ) | 6,203 | |||||||||
$ | 104 | $ | (8,196 | ) | $ | 6,929 | |||||||
Year Ended December 31, | ||||||||||||
2003 | 2004 | 2005 | ||||||||||
Statutory rate
|
34.0 | % | 35.0 | % | 35.0 | % | ||||||
State income taxes
|
7.0 | 3.5 | 2.6 | |||||||||
Other
|
0.1 | 2.0 | 2.7 | |||||||||
Change in rate applied to deferred tax assets and liabilities
|
| 3.6 | | |||||||||
Change in valuation allowance
|
(38.8 | ) | (121.5 | ) | | |||||||
2.3 | % | (77.4 | )% | 40.3 | % | |||||||
F-24
As of December 31,
2004
2005
$
8,613
$
1,878
415
489
327
646
105
89
981
1,810
36
5
10,477
4,917
(1,882
)
(2,525
)
(1,882
)
(2,525
)
$
8,595
$
2,392
15. | Regulatory |
F-25
16. | Other Employee Benefit Plans |
F-26
17.
Quarterly Financial Summary (unaudited)
First
Second
Third
Fourth
(a)
Total
$
26,488
$
28,321
$
28,040
$
34,840
$
117,689
1,383
1,773
2,147
4,562
9,865
1,466
1,892
2,310
13,117
18,785
$
0.13
$
0.17
$
0.21
$
1.17
$
1.68
$
0.13
$
0.16
$
0.20
$
1.11
$
1.62
First
Second
Third
Fourth
Total
$
34,610
$
35,408
$
37,303
$
41,919
$
149,240
4,145
3,523
2,925
4,280
14,873
2,705
2,356
2,204
2,985
10,250
$
0.24
$
0.21
$
0.19
$
0.26
$
0.89
$
0.23
$
0.20
$
0.18
$
0.25
$
0.86
(a) | During the fourth quarter of 2004, the Company recorded an impairment charge of $1,020 related to previously capitalized software development costs for software projects that were abandoned. | |
(b) | Because the Company achieved three years of cumulative taxable income and expected profitability in future years, the Company concluded that it is more likely than not that all of its net deferred tax assets will be realized. As a result, in accordance with FAS No. 109, the remaining valuation allowance applied to net deferred tax assets of $10,619 was reversed during the fourth quarter of 2004. | |
F-27
II-1
II-2
II-3
II-4
II-5
II-6
Item 13.
Other Expenses of Issuance and Distribution
$
10,152
9,125
*
*
*
*
*
*
*
$
*
*
To be completed by Amendment.
Item 14.
Indemnification of Directors and Officers
Table of Contents
Item 15.
Recent Sales of Unregistered Securities
Item 16.
Exhibits and Financial Statement Schedules
Exhibit
Number
Description
1
.1*
Form of Underwriting Agreement.
3
.1#
Articles of Incorporation of the Registrant, as amended to date
and as currently in effect, including all Certificates of
Designation.
Table of Contents
Exhibit
Number
Description
3
.2#
Form of Amended and Restated Articles of Incorporation of the
Registrant to be effective upon completion of this offering.
3
.4#
Amended and Restated By-Laws of the Registrant.
4
.1*
Specimen of common stock certificate.
4
.2#
Third Amended and Restated Co-Sale and Board Representation
Agreement, dated as of January 22, 2003, by and among the
Registrant and the shareholders named therein.
4
.3
Reserved.
4
.4
Reserved.
4
.5
Reserved.
4
.6
Reserved.
4
.7#
Second Amended and Restated Investor Rights Agreement, dated as
of January 22, 2003, by and among the Registrant and the
shareholders named therein.
4
.8#
Warrant, dated as of June 16, 1998, issued by the
Registrant to Legg Mason Wood Walker, Incorporated.
4
.9#
Amendment No. 1 to Warrant, dated as of April 20,
2000, by and between the Registrant and Legg Mason Wood Walker,
Incorporated.
4
.10#
Amendment No. 2 to Warrant, dated as of February 21,
2002, by and between the Registrant and Legg Mason Wood Walker,
Incorporated.
4
.11#
Amendment No. 3 to Warrant, dated as of January 22,
2003, by and between the Registrant and Legg Mason Wood Walker,
Incorporated.
4
.12#
Warrant, dated as of May 11, 2000, issued by the Registrant
to Legg Mason Wood Walker, Incorporated.
4
.13#
Amendment No. 1 to Warrant, dated as of February 21,
2002, by and between the Registrant and Legg Mason Wood Walker,
Incorporated.
4
.14#
Amendment No. 2 to Warrant, dated as of January 22,
2003, by and between the Registrant and Legg Mason Wood Walker,
Incorporated.
4
.15#
Exchange Agreement, dated as of January 22, 2003, by and
among the Registrant and the shareholders named therein.
4
.16#
Class G Convertible Preferred Stock Purchase Agreement,
dated as of January 15, 2003, by and among the Registrant
and the shareholders named therein.
4
.17#
Class F Convertible Preferred Stock Purchase Agreement,
dated as of January 31, 2002, by and among the Registrant
and the shareholders named therein.
4
.18#
Class E Convertible Preferred Stock Purchase Agreement,
dated as of April 20, 2000, by and among the Registrant and
the shareholders named therein.
5
.1*
Opinion of Faegre & Benson LLP.
10
.1#
Capella Education Company 2005 Stock Incentive Plan.
10
.2
Forms of Option Agreements for the Capella Education Company
2005 Stock Incentive Plan.
10
.3#
Capella Education Company 1999 Stock Option Plan, as amended.
10
.4#
Form of Non-Statutory Stock Option Agreement (Director) for the
Capella Education Company 1999 Stock Option Plan.
10
.5#
Form of Non-Statutory Stock Option Agreement (Employee) for the
Capella Education Company 1999 Stock Option Plan.
10
.6#
Form of Incentive Stock Option Agreement for the Capella
Education Company 1999 Stock Option Plan.
10
.7#
Learning Ventures International, Inc. 1993 Stock Option Plan, as
amended.
10
.8#
Form of Option Agreement for the Learning Ventures
International, Inc. 1993 Stock Option Plan.
Table of Contents
Exhibit
Number
Description
10
.9
Capella Education Company Employee Stock Ownership Plan as
amended.
10
.10#
Capella Education Company Retirement Plan with Adoption
Agreement and EGTRRA Amendment.
10
.11#
Capella Education Company Form of Executive Severance Plan.
10
.12#
Capella Education Company Employee Stock Purchase Plan.
10
.13#
Capella Education Company Annual Incentive Plan for Management
Employees 2005.
10
.14#
Confidentiality, Non-Competition and Inventions Agreement, dated
as of April 16, 2001, by and between the Registrant and
Michael J. Offerman.
10
.15#
Confidentiality, Non-Competition and Inventions Agreement, dated
as of May 9, 2001, by and between the Registrant and Paul
A. Schroeder.
10
.16#
Form of Confidentiality, Non-Competition and Inventions
Agreement (executed by Scott M. Henkel).
10
.17#
Offer Letter, dated as of March 9, 2001, by and between the
Registrant and Paul A. Schroeder.
10
.18#
Offer Letter, dated as of November 10, 2003, by and between
the Registrant and Michael J. Offerman.
10
.19#
Offer Letter, dated as of December 22, 2003, by and between
the Registrant and Scott M. Henkel.
10
.20#
Offer Letter, dated June 3, 2003, by and between the
Registrant and Heidi K. Thom.
10
.21#
Form of Nondisclosure Agreement (executed by Scott M. Henkel,
Paul A. Schroeder, Stephen G. Shank, Heidi K. Thom, Michael J.
Offerman and Lois M. Martin).
10
.22#
Office Lease, dated as of February 23, 2004, by and between
the Registrant and 601 Second Avenue Limited Partnership.
10
.23#
Short Term Office Space Lease, dated as of February 23,
2004, by and between the Registrant and 601 Second Avenue
Limited Partnership.
10
.24#
Memorandum of Lease, dated as of March 10, 2004, by and
between the Registrant and 601 Second Avenue Limited Partnership.
10
.25#
Office Lease, dated as of June 28, 2000, as amended, by and
between the Registrant and 222 South Ninth Street Limited
Partnership and ND Properties, Inc. as successor in interest to
222 South Ninth Street Limited Partnership.
10
.26
Capella Education Company Annual Incentive Plan for Management
Employees 2006.
10
.27
Form of Performance Vesting Option Agreement (Annual Incentive
Plan for Management Employees 2006) for the Capella
Education Company 2005 Stock Incentive Plan.
10
.28
Offer Letter, dated October 20, 2004, by and between the
Registrant and Lois M. Martin.
10
.29
Offer Letter, dated February 21, 2006, by and between the
Registrant and Kenneth J. Sobaski.
10
.30
Confidentiality, Non-Competition and Inventions Agreement dated
as of February 27, 2006, by and between the Registrant and
Kenneth J. Sobaski.
10
.31
Offer Letter, dated June 6, 2006, by and between the
Registrant and Reed Watson.
10
.32
Confidentiality, Non-Competition and Inventions Agreement dated
as of June 20, 2006, by and between the Registrant and Reed
Watson.
10
.33
Employment Agreement dated May 30, 2006 between Capella
Education Company and Michael J. Offerman.
10
.34
Amendment to Confidentiality, Non-Competition and Inventions
Agreement, dated June 16, 2005, by and between the
Registrant and Michael J. Offerman.
10
.35
Employment Agreement dated May 30, 2006 between Capella
Education Company and Paul A. Schroeder.
10
.36
First Amendment to Lease, dated as of May 16, 2006, by and
between the Registrant and 601 Second Avenue Limited Partnership.
Table of Contents
Exhibit
Number
Description
10
.37
Letter Agreement, dated July 5, 2006, between the
Registrant and ASB Minneapolis 225 Holdings, LLC
10
.38
Amendment No. 3 to Lease Agreement, dated as of
June 16, 2005, by and between the Registrant and ND
Properties, Inc. and ND Properties of Delaware, Inc.
10
.39
Amendments to Capella Education Company Retirement Plan dated as
of April 20, 2006 and June 1, 2006.
10
.40*
Amendment 1 to Employment Agreement dated August 25, 2006
between Paul Schroeder and Capella Education Company
10
.41*
Amendment 1 to Employment Agreement dated August 25, 2006
between Michael Offerman and Capella Education Company
21
.1#
Subsidiaries of the Registrant.
23
.1
Consent of Ernst & Young.
23
.2*
Consent of Faegre & Benson LLP (to be included in
Exhibit No. 5.1 to Registration Statement).
24
.1#
Powers of Attorney other than for Ms. Taylor and
Ms. Drifka.
24
.2
Powers of Attorney for Ms. Taylor and Ms. Drifka.
#
Previously filed
*
To be filed by Amendment
(b)
Financial Statement Schedule
Schedule II Valuation and Qualifying Accounts.
Other schedules are omitted because they are not required.
Table of Contents
Minneapolis, Minnesota
February 10, 2006
Table of Contents
Schedule II Valuation and Qualifying
Accounts
Fiscal Years 2003, 2004 and 2005
Additions
Beginning
Charged to
Ending
Balance
Expense
Deductions
Balance
(In thousands)
$
1,222
$
616
$
(1,125
)
(a)
$
713
14,465
(1,602
)
(b)
12,863
713
1,376
(1,024
)
(a)
1,065
12,863
(12,863
)
(c)
1,065
2,263
(2,029
)
(a)
1,299
(a) | Write-off of accounts receivables. | |
(b) | Reversal of valuation allowance in an amount equal to the reduction in net deferred tax assets due primarily to utilization of net operating loss carryforwards. | |
(c) | Reversal of deferred tax valuation allowance as a result of achieving three years of cumulative taxable income in 2004 along with expectations of future profitability. | |
II-7
Item 17. | Undertakings. |
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. | |
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
II-8
II-9
II-10
Capella Education Company
By
/s/
Stephen G. Shank
Stephen G. Shank
Chairman of the Board of Directors
and Chief Executive Officer
Signature
Title
/s/
Stephen G. Shank
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/
Lois M. Martin
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/
Amy L. Drifka
Vice President and Controller
(Principal Accounting Officer)
/s/
S. Joshua Lewis
Director
/s/
James A. Mitchell
Director
/s/
David W. Smith
Director
/s/
Tony J.
Christianson
Director
/s/
Gordon A. Holmes
Director
/s/
Jody G. Miller
Director
/s/
Jeffrey W. Taylor
Director
/s/
Darrell R. Tukua
Director
Table of Contents
Signature
Title
/s/
Jon Q.
Reynolds, Jr.
Director
/s/
Sandra E. Taylor
Director
*
Stephen G. Shank, by signing his name hereto, does hereby sign
this document on behalf of each of the above-named officers
and/or directors of the Registrant pursuant to powers of
attorney duly executed by such persons.
By
/s/
Stephen G. Shank
Stephen G. Shank
Attorney-in
-Fact
Table of Contents
Exhibit
Number
Description
1
.1*
Form of Underwriting Agreement.
3
.1#
Articles of Incorporation of the Registrant, as amended to date
and as currently in effect, including all Certificates of
Designation.
3
.2#
Form of Amended and Restated Articles of Incorporation of the
Registrant to be effective upon completion of this offering.
3
.4#
Amended and Restated By-Laws of the Registrant.
4
.1*
Specimen of common stock certificate.
4
.2#
Third Amended and Restated Co-Sale and Board Representation
Agreement, dated as of January 22, 2003, by and among the
Registrant and the shareholders named therein.
4
.3
Reserved.
4
.4
Reserved.
4
.5
Reserved.
4
.6
Reserved.
4
.7#
Second Amended and Restated Investor Rights Agreement, dated as
of January 22, 2003, by and among the Registrant and the
shareholders named therein.
4
.8#
Warrant, dated as of June 16, 1998, issued by the
Registrant to Legg Mason Wood Walker, Incorporated.
4
.9#
Amendment No. 1 to Warrant, dated as of April 20,
2000, by and between the Registrant and Legg Mason Wood Walker,
Incorporated.
4
.10#
Amendment No. 2 to Warrant, dated as of February 21,
2002, by and between the Registrant and Legg Mason Wood Walker,
Incorporated.
4
.11#
Amendment No. 3 to Warrant, dated as of January 22,
2003, by and between the Registrant and Legg Mason Wood Walker,
Incorporated.
4
.12#
Warrant, dated as of May 11, 2000, issued by the Registrant
to Legg Mason Wood Walker, Incorporated.
4
.13#
Amendment No. 1 to Warrant, dated as of February 21,
2002, by and between the Registrant and Legg Mason Wood Walker,
Incorporated.
4
.14#
Amendment No. 2 to Warrant, dated as of January 22,
2003, by and between the Registrant and Legg Mason Wood Walker,
Incorporated.
4
.15#
Exchange Agreement, dated as of January 22, 2003, by and
among the Registrant and the shareholders named therein.
4
.16#
Class G Convertible Preferred Stock Purchase Agreement,
dated as of January 15, 2003, by and among the Registrant
and the shareholders named therein.
4
.17#
Class F Convertible Preferred Stock Purchase Agreement,
dated as of January 31, 2002, by and among the Registrant
and the shareholders named therein.
4
.18#
Class E Convertible Preferred Stock Purchase Agreement,
dated as of April 20, 2000, by and among the Registrant and
the shareholders named therein.
5
.1*
Opinion of Faegre & Benson LLP.
10
.1#
Capella Education Company 2005 Stock Incentive Plan.
10
.2
Forms of Option Agreements for the Capella Education Company
2005 Stock Incentive Plan.
10
.3#
Capella Education Company 1999 Stock Option Plan, as amended.
10
.4#
Form of Non-Statutory Stock Option Agreement (Director) for the
Capella Education Company 1999 Stock Option Plan.
10
.5#
Form of Non-Statutory Stock Option Agreement (Employee) for the
Capella Education Company 1999 Stock Option Plan.
10
.6#
Form of Incentive Stock Option Agreement for the Capella
Education Company 1999 Stock Option Plan.
Table of Contents
Exhibit
Number
Description
10
.7#
Learning Ventures International, Inc. 1993 Stock Option Plan, as
amended.
10
.8#
Form of Option Agreement for the Learning Ventures
International, Inc. 1993 Stock Option Plan.
10
.9
Capella Education Company Employee Stock Ownership Plan as
amended.
10
.10#
Capella Education Company Retirement Plan with Adoption
Agreement and EGTRRA Amendment.
10
.11#
Capella Education Company Form of Executive Severance Plan.
10
.12#
Capella Education Company Employee Stock Purchase Plan.
10
.13#
Capella Education Company Annual Incentive Plan for Management
Employees 2005.
10
.14#
Confidentiality, Non-Competition and Inventions Agreement, dated
as of April 16, 2001, by and between the Registrant and
Michael J. Offerman.
10
.15#
Confidentiality, Non-Competition and Inventions Agreement, dated
as of May 9, 2001, by and between the Registrant and Paul
A. Schroeder.
10
.16#
Form of Confidentiality, Non-Competition and Inventions
Agreement (executed by Scott M. Henkel).
10
.17#
Offer Letter, dated as of March 9, 2001, by and between the
Registrant and Paul A. Schroeder.
10
.18#
Offer Letter, dated as of November 10, 2003, by and between
the Registrant and Michael J. Offerman.
10
.19#
Offer Letter, dated as of December 22, 2003, by and between
the Registrant and Scott M. Henkel.
10
.20#
Offer Letter, dated June 3, 2003, by and between the
Registrant and Heidi K. Thom.
10
.21#
Form of Nondisclosure Agreement (executed by Scott M. Henkel,
Paul A. Schroeder, Stephen G. Shank, Heidi K. Thom, Michael J.
Offerman and Lois M. Martin).
10
.22#
Office Lease, dated as of February 23, 2004, by and between
the Registrant and 601 Second Avenue Limited Partnership.
10
.23#
Short Term Office Space Lease, dated as of February 23,
2004, by and between the Registrant and 601 Second Avenue
Limited Partnership.
10
.24#
Memorandum of Lease, dated as of March 10, 2004, by and
between the Registrant and 601 Second Avenue Limited Partnership.
10
.25#
Office Lease, dated as of June 28, 2000, as amended, by and
between the Registrant and 222 South Ninth Street Limited
Partnership and ND Properties, Inc. as successor in interest to
222 South Ninth Street Limited Partnership.
10
.26
Capella Education Company Annual Incentive Plan for Management
Employees 2006.
10
.27
Form of Performance Vesting Option Agreement (Annual Incentive
Plan for Management Employees 2006) for the Capella
Education Company 2005 Stock Incentive Plan.
10
.28
Offer Letter, dated October 20, 2004, by and between the
Registrant and Lois M. Martin.
10
.29
Offer Letter, dated February 21, 2006, by and between the
Registrant and Kenneth J. Sobaski.
10
.30
Confidentiality, Non-Competition and Inventions Agreement dated
as of February 27, 2006, by and between the Registrant and
Kenneth J. Sobaski.
10
.31
Offer Letter, dated June 6, 2006, by and between the
Registrant and Reed Watson.
10
.32
Confidentiality, Non-Competition and Inventions Agreement dated
as of June 20, 2006, by and between the Registrant and Reed
Watson.
10
.33
Employment Agreement dated May 30, 2006 between Capella
Education Company and Michael J. Offerman.
10
.34
Amendment to Confidentiality, Non-Competition and Inventions
Agreement, dated June 16, 2005, by and between the
Registrant and Michael J. Offerman.
10
.35
Employment Agreement dated May 30, 2006 between Capella
Education Company and Paul A. Schroeder.
10
.36
First Amendment to Lease, dated as of May 16, 2006, by and
between the Registrant and 601 Second Avenue Limited Partnership.
Table of Contents
Exhibit
Number
Description
10
.37
Letter Agreement, dated July 5, 2006, between the
Registrant and ASB Minneapolis 225 Holdings, LLC
10
.38
Amendment No. 3 to Lease Agreement, dated as of
June 16, 2005, by and between the Registrant and ND
Properties, Inc. and ND Properties of Delaware, Inc.
10
.39
Amendments to Capella Education Company Retirement Plan dated as
of April 20, 2006 and June 1, 2006.
10
.40*
Amendment 1 to Employment Agreement dated August 25, 2006
between Paul Schroeder and Capella Education Company
10
.41*
Amendment 1 to Employment Agreement dated August 25, 2006
between Michael Offerman and Capella Education Company
21
.1#
Subsidiaries of the Registrant.
23
.1
Consent of Ernst & Young.
23
.2*
Consent of Faegre & Benson LLP (to be included in
Exhibit No. 5.1 to Registration Statement).
24
.1#
Powers of Attorney other than for Ms. Taylor and
Ms. Drifka.
24
.2
Powers of Attorney for Ms. Taylor and Ms. Drifka.
#
Previously filed
*
To be filed by Amendment
EXHIBIT 10.2
CAPELLA EDUCATION COMPANY
2005 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
This is an Incentive Stock Option Agreement ("Agreement") between Capella Education Company, a Minnesota corporation (the "Company"), and the optionee identified above (the "Optionee") effective as of the date of grant specified above. To the extent any capitalized terms used in this Agreement are not defined, they shall have the meaning ascribed to them in the Company's 2005 Stock Incentive Plan (the "Plan").
RECITALS
WHEREAS, the Company maintains the Capella Education Company 2005 Stock Incentive Plan (the "Plan"); and
WHEREAS, pursuant to the Plan, the Board of Directors of the Company (the "Board") or a committee of two or more directors of the Company (the "Committee") designated by the Board administers the Plan and has the authority to determine the awards to be granted under the Plan (if the Board has not appointed a committee to administer the Plan, then the Board shall constitute the Committee); and
WHEREAS, the Committee has determined that the Optionee is eligible to receive an award under the Plan in the form of an incentive stock option (the "Option");
NOW, THEREFORE, the Company hereby grants this Option to the Optionee under the terms and conditions as follows.
TERMS AND CONDITIONS*
1. GRANT. The Optionee is granted this Option to purchase the number of Shares specified at the beginning of this Agreement.
2. EXERCISE PRICE. The price to the Optionee of each Share subject to this Option shall be the exercise price specified at the beginning of this Agreement (which price shall not be less than the Fair Market Value (as defined in Section 2(o) of the Plan) as of the date of grant or, if the Optionee owns or is deemed to own stock possessing more than 10% of the combined voting power of all classes of stock of the Company, 110% of the Fair Market Value as of the date of grant).
3. INCENTIVE STOCK OPTION. This Option is intended to be an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
4. EXERCISE SCHEDULE. This Option shall vest and become exercisable as to the number of Shares and on the dates specified in the exercise schedule at the beginning of this Agreement. The exercise schedule shall be cumulative; thus, to the extent this Option has not already been exercised and has not expired, terminated or been cancelled, the Optionee or the person otherwise entitled to exercise this Option as provided herein may at any time, and from time to time, purchase all or any portion of the Shares then purchasable under the exercise schedule.
This Option may also be exercised in full (notwithstanding the exercise schedule) under the circumstances described in Section 8 of this Agreement if it has not expired prior thereto.
5. EXPIRATION. This Option shall expire at 5:00 p.m. Central Time on the earliest of:
(a) The expiration date specified at the beginning of this Agreement (which date shall not be later than ten years after the date of grant or, if the Optionee owns or is deemed to own stock possessing more than 10% of the combined voting power of all classes of stock of the Company, five years after the date of grant);
(b) The last day of the period following the termination of employment of the Optionee during which this Option can be exercised (as specified in Section 7 of this Agreement); or
(c) The date (if any) fixed for cancellation pursuant to Section 8 of this Agreement.
If termination of the Optionee's employment by the Company shall have been for Cause, this Option shall expire immediately upon such termination. In no event may anyone
exercise this Option, in whole or in part, after it has expired, notwithstanding any other provision of this Agreement.
6. PROCEDURE TO EXERCISE OPTION.
Notice of Exercise. This Option may be exercised by delivering written notice of exercise to the Company at the principal executive office of the Company, to the attention of the Company's Secretary, in the form attached to this Agreement. The notice shall state the number of Shares to be purchased, and shall be signed by the person exercising this Option. If the person exercising this Option is not the Optionee, he/she also must submit appropriate proof of his/her right to exercise this Option.
Tender of Payment. Upon giving notice of any exercise hereunder, the Optionee shall provide for payment of the purchase price of the Shares being purchased through one or a combination of the following methods:
(a) Cash;
(b) Cancellation of indebtedness;
(c) By delivery to the Company of unencumbered Shares having an aggregate Fair Market Value on the date of exercise equal to the purchase price of the Shares as to which this Option is exercised;
(d) To the extent permitted by law, a broker-assisted cashless exercise in which the Optionee irrevocably instructs a broker to deliver proceeds of a sale of all or a portion of the Shares to be issued pursuant to the exercise (or a loan secured by such Shares) to the Company in payment of the purchase price of the Shares as to which this Option is exercised.
Notwithstanding the foregoing, the Optionee shall not be permitted to pay any portion of the purchase price with Shares if the Committee, in its sole discretion, determines that payment in such manner could have adverse financial accounting consequences for the Company.
Execution of Shareholder Agreement. Optionee, or the person exercising this option, must execute the Purchase Agreement substantially in the form of Exhibit A to the notice of exercise attached to this Agreement.
Company Right to Repurchase Option. At any time after six (6) months but within nine (9) months following the exercise of this Option (the "Repurchase Period:"), the Company shall have the right ("Repurchase Option") to cancel this Option to the extent, and reduce the number of Shares that the Optionees may purchase pursuant to this Option in the amount, of the number of Shares requested to be purchased in the notice of exercise (the "Requested Shares") and pay the Optionee cash in an amount, for each Requested Share, equal to the per Share Fair Market Value of the Requested Shares (the "Repurchase Option Price"). The Company may exercise its Repurchase Option by
giving written notice to the Optionee and paying the Repurchase Option Price to the Optionee during the Repurchase Period. Coincident with the payment of the Repurchase Option Price, the Company and the Optionee shall enter into a written amendment to this Option to reflect the appropriate decrease the number of Shares which the Optionee may purchase pursuant to this Option. The Repurchase Option shall terminate upon the first underwritten sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended.
Delivery of Certificates. Subject to the right of repurchase of this Option set forth above, as soon as practicable after the Company receives the notice and purchase price and executed Purchase Agreement provided for above, it shall deliver to the person exercising this Option, in the name of such person, a certificate or certificates representing the Shares being purchased (or provide for direct registration book-entry of the Shares in the name of the person exercising this Option). The Company shall pay any original issue or transfer taxes with respect to the issue or transfer of the Shares and all fees and expenses incurred by it in connection therewith. All Shares so issued shall be fully paid and nonassessable. Notwithstanding anything to the contrary in this Agreement, the Company shall not be required to issue or deliver any Shares prior to the completion of such registration or other qualification of such Shares under any state or federal law, rule or regulation as the Company shall determine to be necessary or desirable.
7. EMPLOYMENT REQUIREMENT. This Option may be exercised only while the Optionee remains employed with the Company or a parent or subsidiary thereof, and only if the Optionee has been continuously so employed since the date of this Agreement; provided that:
(a) If the Optionee's employment by the Company terminates because of the Optionee's death or if the Optionee dies during the three month period described below in Section 7(d), then this Option may be exercised, to the extent permissible under Section 8 below, for one year following the date of the Optionee's death.
(b) If the Optionee's employment by the Company terminates because of the Optionee's Disability (as defined in the Plan), then this Option may be exercised, to the extent permissible under Section 8 below, for one year following the date of the Optionee's Disability.
(c) If the Optionee's employment by the Company terminates because of the Optionee's Retirement (as defined in the Plan), then this Option may be exercised for one year following the date of the Optionee's Retirement, but only to the extent that it was exercisable immediately prior to termination of employment.
(d) If the Optionee's employment by the Company terminates for a reason other than death, Disability or Retirement, then this Option may be exercised for three months following the date of the Optionee's termination of employment, but only
to the extent that it was exercisable immediately prior to termination of employment; provided, however, that if termination of the Optionee's employment shall have been for Cause, this Option shall expire, and all rights to purchase Shares hereunder shall terminate, immediately upon such termination.
Notwithstanding the above, this Option may not be exercised after it has expired.
8. ACCELERATION OF OPTION.
Death or Disability. This Option may be exercised in full, regardless of
whether such exercise occurs prior to a date on which this Option would
otherwise vest, upon the death or Disability of the Optionee; provided
that the Optionee shall have been continuously employed by the Company or
a parent or subsidiary thereof between the date of this Agreement and the
date of such death or Disability. The Option may also be exercised in full
upon the death of the Optionee during the three month period described in
Section 7(d) above.
Change in Control. If a Change in Control (as defined in Section 9 of this Agreement) of the Company shall occur and within three years of such Change in Control, (i) Optionee's employment with the Company shall be terminated other than for Cause (as defined in the Plan), or (ii) Optionee shall voluntarily leave employment with the Company for Good Reason (as defined below), then, upon the date of such termination or voluntary leaving of employment for Good Reason, the options subject to this Agreement, if not already exercised in full or otherwise terminated, expired or cancelled, shall become immediately exercisable in full and may be exercised within 30 days after such termination or voluntary leaving (subject to any applicable shorter time period for exercise set forth in this Section 8). For purposes of this Agreement, "Good Reason" is defined as the demotion or reduction of the job responsibilities of Optionee or the reassignment, without Optionee's consent, of Optionee's place of work to a location more than 50 miles from the Optionee's place of work immediately prior to the Change in Control.
Merger or Sale. In the event of a merger of the Company with or into another corporation or limited liability company or the sale of substantially all of the assets of the Company, and the successor entity, or a parent or subsidiary of the successor entity, refuses to assume this Option or to substitute an equivalent option, then this Option shall become exercisable in full immediately. The Committee shall notify Optionee in writing or electronically that the Option shall be fully vested and exercisable for a period of 15 days from the date of such notice and that the Option shall terminate upon the expiration of such period.
Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Committee shall notify Optionee as soon as practicable prior to the effective date of such proposed transaction. The Committee in its discretion may provide for Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Shares covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Committee may, but shall
not be obligated to, provide that any Company repurchase option applicable to the Shares shall lapse as to all such Shares, provided that the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action.
Discretionary Acceleration. The Committee has the power, in its sole discretion, to declare at any time that this Option shall be immediately exercisable.
9. CHANGE IN CONTROL.
(a) Definition. For purposes of this Plan, a "Change in Control" of the Company shall be deemed to occur if any of the following occur:
(1) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) acquires or becomes a "beneficial owner"
(as defined in Rule 13d-3 or any successor rule under the
Exchange Act), directly or indirectly, of securities of the
Company representing the following: (i) 50% or more of the
combined voting power of the Company's then outstanding
securities entitled to vote generally in the election of
directors ("Voting Securities") at any time prior to the
Company selling any of its shares in a public offering
pursuant to a registration statement filed under the
Securities Act of 1933, as amended (the "Securities Act"), or
(ii) 35% or more of the combined voting power of the Company's
then outstanding Voting Securities at any time after the
Company sells any of its shares in a public offering pursuant
to a registration statement filed under the Securities Act.
Provided, however, that the following shall not constitute a
Change in Control pursuant to this Section 9(a)(1):
(A) any acquisition or beneficial ownership by the Company or a subsidiary;
(B) any acquisition or beneficial ownership by any employee benefit plan (or related trust) sponsored or maintained by the Company or one or more of its subsidiaries;
(C) any acquisition or beneficial ownership by any corporation with respect to which, immediately following such acquisition, more than 50% of both the combined voting power of the Company's then outstanding Voting Securities and the Shares of the Company is then beneficially owned, directly or indirectly, by all or substantially all of the persons who beneficially owned Voting Securities and Shares of the Company immediately prior to such acquisition in substantially the same proportions as their ownership of such Voting Securities and Shares, as the case may be, immediately prior to such acquisition;
(2) A majority of the members of the Board of Directors of the Company shall not be Continuing Directors. "Continuing Directors" shall mean: (A) individuals who, on the date hereof, are directors of the Company, (B) individuals elected as directors of the Company subsequent to the date hereof for whose election proxies shall have been solicited by the Board of Directors of the Company or (C) any individual elected or appointed by the Board of Directors of the Company to fill vacancies on the Board of Directors of the Company caused by death or resignation (but not by removal) or to fill newly-created directorships;
(3) Consummation by the Company of a reorganization, merger or consolidation of the Company or a statutory exchange of outstanding Voting Securities of the Company, unless, immediately following such reorganization, merger, consolidation or exchange, all or substantially all of the persons who were the beneficial owners, respectively, of Voting Securities and Shares of the Company immediately prior to such reorganization, merger, consolidation or exchange beneficially own, directly or indirectly, more than 50% (subject to the modification in subsection (b) below) of, respectively, the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors and the then outstanding shares of common stock, as the case may be, of the corporation resulting from such reorganization, merger, consolidation or exchange in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, consolidation or exchange, of the Voting Securities and Shares of the Company, as the case may be;
(4) Consummation by the Company of the sale or other disposition of all or substantially all of the assets of the Company (in one or a series of transactions), other than to a corporation with respect to which, immediately following such sale or other disposition, more than 50% (subject to the modification in subsection (b) below) of, respectively, the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and the then outstanding shares of common stock of such corporation is then beneficially owned, directly or indirectly, by all or substantially all of the persons who were the beneficial owners, respectively, of the Voting Securities and Shares of the Company immediately prior to such sale or other disposition in substantially the same proportions as their ownership, immediately prior to such sale or other disposition, of the Voting Securities and Shares of the Company, as the case may be; or
(5) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
(b) After a Public Offering. At all times after the Company sells any of
its shares in a public offering pursuant to a registration statement
filed under the Securities Act, the references to 50% in subsections
(a)(1)(C), (a)(3) and (a)(4) of this Section 9 shall be changed to
65%.
10. LIMITATION ON TRANSFER. While the Optionee is alive, only the Optionee or his/her legal representative may exercise this Option. This Option may not be assigned or transferred other than to a Successor in the event of the Optionee's death or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder.
11. ASSIGNMENT OF THE COMPANY'S OBLIGATIONS. In the event of a merger of the Company with or into another corporation or limited liability company, or the sale of substantially all of the assets of the Company, then the successor entity, or a parent or subsidiary of the successor entity, may assume this Option or substitute an equivalent option.
12. NO SHAREHOLDER RIGHTS BEFORE EXERCISE. No person shall have any of the rights of a shareholder of the Company with respect to any Share subject to this Option until the Share actually is issued to him/her upon exercise of this Option.
13. DISCRETIONARY ADJUSTMENT. In the event of a Fundamental Change, recapitalization, reclassification, stock dividend, stock split, stock combination or other relevant change, the Committee (or if the Company does not survive any such transaction, a comparable committee of the board of directors of the surviving corporation) may in its sole discretion make such adjustment as it determines to be appropriate as to the number and kind of securities subject to and reserved under the Plan and, in order to prevent dilution or enlargement of rights of the Optionee, the number and kind of securities issuable upon exercise of this Option and the exercise price hereof.
14. TRANSFER OF SHARES -- TAX EFFECTS. The Optionee hereby acknowledges that if any Shares received pursuant to the exercise of any portion of this Option are sold within two years from the date of grant or within one year from the effective date of exercise of the Option, or if certain other requirements of the Code are not satisfied, such Shares will be deemed under the Code not to have been acquired by the Optionee pursuant to an "incentive stock option" as defined in the Code; and that the Company shall not be liable to the Optionee in the event the Option for any reason is deemed not to be an "incentive stock option" within the meaning of the Code.
15. INTERPRETATION OF THIS AGREEMENT. All decisions and interpretations made by the Committee with regard to any question arising hereunder or under the Plan shall be binding and conclusive upon the Company and the Optionee. If there is any inconsistency between the provisions of this Agreement and the Plan, the provisions of the Plan shall govern.
16. DISCONTINUANCE OF EMPLOYMENT. This Agreement shall not give the Optionee a right to continued employment with the Company or any parent or subsidiary of the Company, and the Company or any such parent or subsidiary employing the Optionee may
terminate his/her employment at any time and otherwise deal with the Optionee without regard to the effect it may have upon him/her under this Agreement.
17. FORFEITURE EVENTS.
(a) The Optionee, by accepting this Option, agrees and covenants that during the period during which the Optionee is employed by the Company and twelve months following the date of termination of the Optionee's employment by the Company (the "Restricted Period") for any reason whatsoever, the Optionee will not, directly or indirectly:
(1) perform services for any Competitive Business as employee, consultant, contractor or otherwise;
(2) solicit or attempt to solicit any employee or independent contractor of the Company to cease working for the Company;
(3) use or disclose to any person any Confidential Information for any purpose;
(4) take any action that might divert any opportunity from the Company or any of its affiliates, successors or assigns (the "Related Parties") that is within the scope of the present or future operations or business of any Related Parties;
(5) contact, call upon or solicit any customer of the Company, or attempt to divert or take away from the Company the business of any of its customers;
(6) contact, call upon or solicit any prospective customer of the Company that the Optionee became aware of or were introduced to in the course of the Optionee's duties for the Company, or otherwise divert or take away from the Company the business of any prospective customer of the Company; or
(7) engage in any activity that is harmful to the interests of the Company, including, without limitation, any conduct during the term of the Optionee's employment that violates the Company's codes of conduct or other policies.
(b) If the Company determines that the Optionee violated any provisions of Section 17(a) above during the Restricted Period, the Optionee agrees and covenants that:
(1) any portion of the Option (whether or not vested) that has not been exercised as of the date of such determination shall be immediately forfeited;
(2) the Optionee shall automatically forfeit any rights the Optionee may have with respect to the Option as of the date of such determination; and
(3) if the Optionee exercised all or any part of the Option within the six-month period immediately preceding termination of the Optionee's employment with the Company (or following the date of any such violation), upon the Company's demand, the Optionee shall immediately deliver to it a certificate or certificates for shares of the Company's Common Stock with a Fair Market Value (determined on the date of such demand) equal to the gain realized by the Optionee upon such exercise.
(c) The foregoing remedies set forth in Section 17(b) shall not be the Company's exclusive remedies. The Company reserves all other rights and remedies available to it at law or in equity.
(d) The Company may exercise its right to demand forfeiture within ninety days after discovery of such an occurrence but in no event later than fifteen months after the Optionee's termination of employment with the Company.
(e) For purposes of this Section 17, the following terms shall have the meanings set forth below:
"Competitive Business" shall mean any person, corporation, not-for-profit organization, or other entity that provides, develops, sells, or markets on-line credit-granting educational products or services in any country in which the Company did business or had customers at any time during the last 12 months of the Optionee's employment with the Company. In the case of an organization that provides, develops, sells, or markets on-line credit-granting educational products or services within or from a distinct, separate division or unit of the organization (the "On-Line Unit") and also provides, develops, sells, or markets credit-granting educational products or services through other means within other distinct, separate divisions or units, the term "Competitive Business" shall be limited to the On-Line Unit, and shall not apply to the organization as a whole.
"Confidential Information" means information proprietary to the Company and not generally known (including trade secret information) about the Company's customers, products, services, personnel, pricing, sales strategy, technology, methods, processes, research, development, finances, systems, techniques, accounting, purchasing, and business strategies. All information disclosed to the Optionee or to which the Optionee obtains access, whether originated by the Optionee or by others, during the period of the Optionee's employment, shall be presumed to be Confidential Information if it is treated by the Company as being Confidential Information or if the Optionee has a reasonable basis to believe it to be Confidential Information.
18. OPTION SUBJECT TO PLAN, ARTICLES OF INCORPORATION AND BY-LAWS. The Optionee acknowledges that this Option and the exercise thereof is subject to the Plan, the Articles of Incorporation, as amended from time to time, and the By-Laws, as amended from time to time, of the Company, and any applicable federal or state laws, rules or regulations.
19. OBLIGATION TO RESERVE SUFFICIENT SHARES. The Company shall at all times during the term of this Option reserve and keep available a sufficient number of Shares to satisfy this Agreement.
20. BINDING EFFECT. This Agreement shall be binding in all respects on the heirs, representatives, successors and assigns of the Optionee.
21. CHOICE OF LAW. This Agreement is entered into under the laws of the State of Minnesota and shall be construed and interpreted thereunder (without regard to its conflict of law principles).
IN WITNESS WHEREOF, the Optionee and the Company have executed this Agreement as of the ____day of _______, 200__.
OPTIONEE
CAPELLA EDUCATION COMPANY
By ______________________________________
Its _____________________________________
__________________, 20___
CAPELLA EDUCATION COMPANY
225 South 6th Street, 9th Floor
Minneapolis, Minnesota 55402
Attention: Secretary
Ladies and Gentlemen:
I hereby exercise the following option (the "Option") granted to me under the Capella Education Company 2005 Stock Incentive Plan (the "Plan") with respect to the number of shares of Common Stock ("Shares") of Capella Education Company (the "Company"), indicated below:
NAME: ____________________________ DATE OF GRANT OF OPTION: ____________________________ EXERCISE PRICE PER SHARE: ____________________________ NUMBER OF SHARES WITH RESPECT TO WHICH THE OPTION IS HEREBY EXERCISED: ____________________________ TOTAL EXERCISE PRICE: ____________________________ |
[ ] Enclosed with this letter is a check, bank draft or money order in the amount of the Total Exercise Price.
[ ] I hereby agree to pay the Total Exercise Price by cancellation of a debt owed to me by the Company.
[ ] I hereby agree to pay the Total Exercise Price within five business days of the date hereof and, as stated in the attached Broker's Letter, I have delivered irrevocable instructions to __________________________________________________ to promptly deliver to the Company the amount of sale or loan proceeds from the Shares to be issued pursuant to this exercise necessary to satisfy my obligation hereunder to pay the Total Exercise Price.
[ ] Enclosed with this letter is a certificate evidencing unencumbered Shares (duly endorsed in blank) having an aggregate Fair Market Value (as defined in the Plan) equal to or in excess of the Total Exercise Price.
[ ] I elect to pay the Total Exercise Price through a reduction in the number of Shares delivered to me upon this exercise of the Option as provided in Section 6(d) of the Option.
If I am enclosing Shares with this letter, I hereby represent and warrant
that I am the owner of such Shares free and clear of all liens, security
interests and other restrictions or encumbrances. I agree that I will pay any
required withholding taxes in connection with this exercise as provided in
Section 14 of the Plan.
I have read and signed the Purchase Agreement attached to this notice as Exhibit A and I am enclosing a signed copy of the Purchase Agreement.
Please issue a certificate (the "Certificate") for the number of Shares with respect to which the Option is being exercised in the name of the person indicated below and deliver the Certificate to the address indicated below:
NAME IN WHICH TO ISSUE CERTIFICATE: __________________________________
ADDRESS TO WHICH CERTIFICATE __________________________________ SHOULD BE DELIVERED: __________________________________ __________________________________ __________________________________ __________________________________ PRINCIPAL MAILING ADDRESS FOR __________________________________ HOLDER OF THE CERTIFICATE (IF __________________________________ DIFFERENT FROM ABOVE): __________________________________ __________________________________ __________________________________ |
Very truly yours,
__________________, 20___
CAPELLA EDUCATION COMPANY
225 South 6th Street, 9th Floor Minneapolis, Minnesota 55402 Attention: Secretary Ladies and Gentlemen: NAME OF OPTIONEE: _________________________________ DATE OF GRANT OF OPTION: _________________________________ EXERCISE PRICE PER SHARE: _________________________________ NUMBER OF SHARES WITH RESPECT TO WHICH THE OPTION IS TO BE EXERCISED: _________________________________ TOTAL EXERCISE PRICE: _________________________________ |
The above Optionee has requested that we finance the exercise of the above Option to purchase Shares of common stock of Capella Education Company (the "Company") and has given us irrevocable instructions to promptly deliver to the Company the amount of sale or loan proceeds from the Shares to be issued pursuant to such exercise to satisfy the Optionee's obligation to pay the Total Exercise Price.
Very truly yours,
EXHIBIT A TO EXERCISE NOTICE
CAPELLA EDUCATION COMPANY
2005 STOCK INCENTIVE PLAN
PURCHASE AGREEMENT
This Agreement ("Agreement") is made as of ____________, 20__, by and between Capella Education Company, a Minnesota corporation (the "Company"), and __________________________ ("Purchaser"). To the extent any capitalized terms used in this Agreement are not defined, they shall have the meaning ascribed to them in the Company's 2005 Stock Incentive Plan (the "Plan").
1. DEFINITIONS. The term "Shares" shall mean the __________ shares of the Common Stock of the Company the Purchaser purchased pursuant to an option granted to the Purchaser under and pursuant to the Plan and the Stock Option Agreement dated __________, 20__ (the "Option Agreement"). The term "Shares" shall include the purchased Shares and all securities received in replacement of the Shares or as stock dividends or splits, all securities received in replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Purchaser is entitled by reason of Purchaser's ownership of the Shares.
2. REPURCHASE RIGHT. The Company shall have the right to purchase all Shares from the Purchaser or any transferee of the Purchaser (or the Purchaser's legal representative or beneficiaries if the Purchaser is deceased or incapacitated) (collectively sometimes referred to herein as the "Holder") at any time at least six (6) months but no more than nine (9) months after the original issuance of the Shares (the "Repurchase Period") and on the terms and conditions set forth in this Section 2 (the "Repurchase Right").
(i) EXERCISE OF REPURCHASE OPTION. The Company and/or its assignee(s) may, by giving written notice to the Holder (the "Repurchase Notice") at any time during the Repurchase Period, elect to purchase all, but not less than all, of the Shares at the purchase price determined in accordance with subsection (ii) below.
(ii) REPURCHASE PRICE. The purchase price (the "Repurchase
Price") for the Shares purchased by the Company or its assignee(s) under this
Section 2 shall be the Fair Market Value (as defined in the Plan) of such
Shares.
(iii) PAYMENT AND DELIVERY OF SHARES. Payment of the Repurchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof during of the Repurchase Period. Coincident with the payment of the Repurchase Price, the Holder shall deliver to the Company the certificates representing the Shares purchased, duly endorsed in blank, and appropriate entries in the records of the Company shall be made to effect
the transfer of the Shares to the Company free and clear of any restrictions on transfer, voting agreements, liens, encumbrances or other defects of title.
(iv) TERMINATION OF RIGHTS. The Repurchase Option shall terminate upon the earlier to occur of (i) the date nine (9) months after the original issuance of the Shares and (ii) an IPO (as defined below). The term "IPO" shall mean the first underwritten sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act").
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on transfer created by applicable securities laws, Purchaser shall not sell, transfer (including, without limitation, a transfer by gift), exchange, assign, encumber or dispose of any interest in the Shares except in compliance with the provisions below and applicable securities laws and after such time as the Repurchase Option has expired.
(a) RIGHT OF FIRST REFUSAL. Before any Shares held by Holder may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 3(a) (the "Right of First Refusal").
(i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to the Company a written notice (the "Refusal Right Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the terms and conditions of each proposed sale or transfer. The Holder shall offer the Shares at the same price (the "Offered Price") and upon the same terms (or terms as similar as reasonably possible) to the Company or its assignee(s). The Company may, prior to the purchase of any Shares hereunder, require evidence of a bona fide offer to purchase such Shares and, in the case of a disposition for consideration, evidence that the Proposed Transferee has offered such consideration for the Shares.
(ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within 30 days after receipt of the Refusal Right Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (iii) below.
(iii) REFUSAL RIGHT PURCHASE PRICE. The purchase price ("Refusal Right Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section 3(a) shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company, or a duly authorized committee of the Board of Directors, in good faith.
(iv) PAYMENT AND DELIVERY OF SHARES. Payment of the Refusal Right Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check),
by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Refusal Right Notice or in the manner and at the times set forth in the Refusal Right Notice. Coincident with the payment of the Refusal Right Purchase Price, the Holder shall deliver to the Company the certificates representing the Shares purchased, duly endorsed in blank, and appropriate entries in the records of the Company shall be made to effect the transfer of the Shares to the Company free and clear of any restrictions on transfer, voting agreements, liens, encumbrances or other defects of title.
(v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed
in the Refusal Right Notice to be transferred to a given Proposed Transferee are
not purchased by the Company and/or its assignee(s) as provided in this Section
3(a), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Refusal Right Notice and provided further that any such sale or other transfer
is effected in accordance with any applicable securities laws and the Proposed
Transferee agrees in writing that the provisions of this Section 3 shall
continue to apply to the Shares in the hands of such Proposed Transferee. If the
Shares described in the Refusal Right Notice are not transferred to the Proposed
Transferee within such period, or if the Holder proposes to change the price or
other terms to make them more favorable to the Proposed Transferee, a new
Refusal Right Notice shall be given to the Company, and the Company and/or its
assignees shall again be offered the Right of First Refusal before any Shares
held by the Holder may be sold or otherwise transferred.
(vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained in this Section 3(a) notwithstanding, the transfer of any or all of the Shares during Purchaser's lifetime or on Purchaser's death by will or intestacy to Purchaser's Immediate Family (as defined below) or a trust for the benefit of Purchaser's Immediate Family shall be exempt from the provisions of this Section 3(a). "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 3.
(b) INVOLUNTARY TRANSFER.
(i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding, in the event of death, a transfer to Immediate Family as set forth in
Section 3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the purchase price determined in accordance with subsection (ii)
below. Upon such a transfer, the person acquiring the Shares shall promptly
notify the Secretary of the Company of such transfer. The right to purchase such
Shares shall be provided to the Company for a period of 30 days following
receipt by the Company of written notice by the person acquiring the Shares.
(ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock to be transferred pursuant to Section 3(b)(i), the price per Share shall be the Fair Market Value of the Shares. The Company shall notify Purchaser or his or her executor of the price so determined within 30 days after receipt by it of written notice of the transfer or proposed transfer of Shares. Coincident with the payment of the said purchase price, the Holder shall deliver to the Company the certificates representing the Shares purchased, duly endorsed in blank, and appropriate entries in the records of the Company shall be made to effect the transfer of the Shares to the Company free and clear of any restrictions on transfer, voting agreements, liens, encumbrances or other defects of title.
(c) ASSIGNMENT. The right of the Company to purchase any part of the Shares may be assigned in whole or in part to any stockholder or stockholders of the Company or other persons or organizations; provided, however, that an assignee, other than a corporation that is the parent or a 100% owned subsidiary of the Company, must pay the Company, upon assignment of such right, cash equal to the difference between the original purchase price and Fair Market Value, if the original purchase price is less than the Fair Market Value of the Shares subject to the assignment.
(d) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares or any interest therein will receive and hold such Shares or interest subject to the provisions of this Agreement. Any sale or transfer of the Shares shall be void unless the provisions of this Agreement are satisfied.
(e) TERMINATION OF RIGHTS. The Right of First Refusal and the Company's right to repurchase the Shares in the event of an involuntary transfer pursuant to Section 3(b) above shall terminate upon an IPO.
(f) MARKET STANDOFF AGREEMENT. In connection with an initial public offering of the Company's securities and upon request of the Company or the underwriters managing such underwritten offering of the Company's securities, Purchaser agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 270 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company's initial public offering.
4. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Purchaser is purchasing the Shares for investment for his or her own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered under the Securities Act and applicable state laws by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, Purchaser must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Purchaser acknowledges that the Company has no obligation to register or qualify the Shares for resale. Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under no obligation and may not be able to satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice.
5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. The certificate or certificates representing the Shares shall bear the following legends (as well as any legends required by applicable state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
(ii) THE ISSUER OF THESE SECURITIES WILL FURNISH TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR SERIES AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN DETERMINED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT CLASSES OR SERIES.
(iii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A PURCHASE
AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
(d) REMOVAL OF LEGEND. When all of the following events have
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 5(a)(iii): (i) the termination of the Repurchase
Option; (ii) the termination of the Right of First Refusal; and (ii) the
expiration or termination of the market standoff provisions of Section 3(f) (and
of any agreement entered pursuant to Section 3(f)). After such time, and upon
Purchaser's request, a new certificate or certificates representing the Shares
not repurchased shall be issued without the legend referred to in Section
5(a)(iii), and delivered to Purchaser.
6. NO EMPLOYMENT RIGHTS. This Agreement shall not give the Purchaser a right to continued employment with the Company or any parent or subsidiary of the Company, and the Company or any such parent or subsidiary employing the Purchaser may terminate his/her employment at any time and otherwise deal with the Purchaser without regard to the effect it may have upon him/her under this Agreement.
7. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Minnesota, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of
the Agreement shall be interpreted as if such provision were so excluded and
(iii) the balance of the Agreement shall be enforceable in accordance with its
terms.
(d) NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax or 48 hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice.
(e) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.
(f) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of Purchaser under this Agreement may only be assigned with the prior written consent of the Company.
(g) RIGHTS CUMULATIVE. The purchase rights of the Company pursuant to Sections 2 and 3 shall be in addition to and not in lieu of any other purchase rights that the Company or any other holders of capital stock of the Company may at any time have under any other contract, by operation of law, or otherwise.
The parties have executed this Purchase Agreement as of the date first set forth above.
COMPANY:
CAPELLA EDUCATION COMPANY
By:
Name:
Title:
Address:
225 South 6th Street, 9th Floor
Minneapolis, Minnesota 55402
PURCHASER:
I, ______________________, spouse of , have read and hereby approve the foregoing Agreement. In consideration of the Company's granting my spouse the right to purchase the Shares as set forth in the Agreement, I hereby agree to be bound irrevocably by the Agreement and further agree that any community property or similar interest that I may have in the Shares shall hereby be similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement.
CAPELLA EDUCATION COMPANY
2005 STOCK INCENTIVE PLAN
NON-STATUTORY STOCK OPTION AGREEMENT
(EMPLOYEE)
This is a Non-Statutory Stock Option Agreement ("Agreement") between Capella Education Company, a Minnesota corporation (the "Company"), and the optionee identified above (the "Optionee") effective as of the date of grant specified above. To the extent any capitalized terms used in this Agreement are not defined, they shall have the meaning ascribed to them in the Company's 2005 Stock Incentive Plan (the "Plan").
RECITALS
WHEREAS, the Company maintains the Capella Education Company 2005 Stock Incentive Plan (the "Plan"); and
WHEREAS, pursuant to the Plan, the Board of Directors of the Company (the "Board") or a committee of two or more directors of the Company (the "Committee") designated by the Board administers the Plan and has the authority to determine the awards to be granted under the Plan (if the Board has not appointed a committee to administer the Plan, then the Board shall constitute the Committee); and
WHEREAS, the Committee has determined that the Optionee is eligible to receive an award under the Plan in the form of an incentive stock option (the "Option");
NOW, THEREFORE, the Company hereby grants this Option to the Optionee under the terms and conditions as follows.
TERMS AND CONDITIONS*
1. GRANT. The Optionee is granted this Option to purchase the number of Shares specified at the beginning of this Agreement.
2. EXERCISE PRICE. The price to the Optionee of each Share subject to this Option shall be the exercise price specified at the beginning of this Agreement (which price shall not be less than the Fair Market Value (as defined in Section 2(o) of the Plan) as of the date of grant.
3. NON-STATUTORY STOCK OPTION. This Option is not intended to be an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
4. EXERCISE SCHEDULE. This Option shall vest and become exercisable as to the number of Shares and on the dates specified in the exercise schedule at the beginning of this Agreement. The exercise schedule shall be cumulative; thus, to the extent this Option has not already been exercised and has not expired, terminated or been cancelled, the Optionee or the person otherwise entitled to exercise this Option as provided herein may at any time, and from time to time, purchase all or any portion of the Shares then purchasable under the exercise schedule.
This Option may also be exercised in full (notwithstanding the exercise schedule) under the circumstances described in Section 8 of this Agreement if it has not expired prior thereto.
5. EXPIRATION. This Option shall expire at 5:00 p.m. Central Time on the earliest of:
(a) The expiration date specified at the beginning of this Agreement (which date shall not be later than ten years after the date of grant);
(b) The last day of the period following the termination of employment of the Optionee during which this Option can be exercised (as specified in Section 7 of this Agreement); or
(c) The date (if any) fixed for cancellation pursuant to Section 8 of this Agreement.
If termination of the Optionee's employment by the Company shall have been for Cause, this Option shall expire immediately upon such termination. In no event may anyone exercise this Option, in whole or in part, after it has expired, notwithstanding any other provision of this Agreement.
6. PROCEDURE TO EXERCISE OPTION.
Notice of Exercise. This Option may be exercised by delivering written notice of exercise to the Company at the principal executive office of the Company, to the attention of the Company's Secretary, in the form attached to this Agreement. The notice shall state the number of Shares to be purchased, and shall be signed by the person exercising this Option. If the person exercising this Option is not the Optionee, he/she also must submit appropriate proof of his/her right to exercise this Option.
Tender of Payment. Upon giving notice of any exercise hereunder, the Optionee shall provide for payment of the purchase price of the Shares being purchased through one or a combination of the following methods:
(a) Cash;
(b) Cancellation of indebtedness;
(c) By delivery to the Company of unencumbered Shares having an aggregate Fair Market Value on the date of exercise equal to the purchase price of the Shares as to which this Option is exercised;
(d) To the extent permitted by law, a broker-assisted cashless exercise in which the Optionee irrevocably instructs a broker to deliver proceeds of a sale of all or a portion of the Shares to be issued pursuant to the exercise (or a loan secured by such Shares) to the Company in payment of the purchase price of the Shares as to which this Option is exercised.
Notwithstanding the foregoing, the Optionee shall not be permitted to pay any portion of the purchase price with Shares if the Committee, in its sole discretion, determines that payment in such manner could have adverse financial accounting consequences for the Company.
Execution of Shareholder Agreement. Optionee, or the person exercising this option, must execute the Purchase Agreement substantially in the form of Exhibit A to the notice of exercise attached to this Agreement.
Company Right to Repurchase Option. At any time after six (6) months but within nine (9) months following the exercise of this Option (the "Repurchase Period"), the Company shall have the right ("Repurchase Option") to cancel this Option to the extent, and reduce the number of Shares that the Optionees may purchase pursuant to this Option in the amount, of the number of Shares requested to be purchased in the notice of exercise (the "Requested Shares") and pay the Optionee cash in an amount, for each Requested Share, equal to the per Share Fair Market Value of the Requested Shares (the "Repurchase Option Price"). The Company may exercise its Repurchase Option by giving written notice to the Optionee and paying the Repurchase Option Price to the Optionee during the Repurchase Period. Coincident with the payment of the Repurchase Option Price, the Company and the Optionee shall enter into a written amendment to this Option to reflect
the appropriate decrease the number of Shares which the Optionee may purchase pursuant to this Option. The Repurchase Option shall terminate upon the first underwritten sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended.
Delivery of Certificates. Subject to the right of repurchase of this Option set forth above, as soon as practicable after the Company receives the notice and purchase price and executed Purchase Agreement provided for above, it shall deliver to the person exercising this Option, in the name of such person, a certificate or certificates representing the Shares being purchased (or provide for direct registration book-entry of the Shares in the name of the person exercising this Option). The Company shall pay any original issue or transfer taxes with respect to the issue or transfer of the Shares and all fees and expenses incurred by it in connection therewith. All Shares so issued shall be fully paid and nonassessable. Notwithstanding anything to the contrary in this Agreement, the Company shall not be required to issue or deliver any Shares prior to the completion of such registration or other qualification of such Shares under any state or federal law, rule or regulation as the Company shall determine to be necessary or desirable.
7. EMPLOYMENT REQUIREMENT. This Option may be exercised only while the Optionee remains employed with the Company or a parent or subsidiary thereof, and only if the Optionee has been continuously so employed since the date of this Agreement; provided that:
(a) If the Optionee's employment by the Company terminates because of the Optionee's death or if the Optionee dies during the three month period described below in Section 7(d), then this Option may be exercised, to the extent permissible under Section 8 below, for one year following the date of the Optionee's death.
(b) If the Optionee's employment by the Company terminates because of the Optionee's Disability (as defined in the Plan), then this Option may be exercised, to the extent permissible under Section 8 below, for one year following the date of the Optionee's Disability.
(c) If the Optionee's employment by the Company terminates because of the Optionee's Retirement (as defined in the Plan), then this Option may be exercised for one year following the date of the Optionee's Retirement, but only to the extent that it was exercisable immediately prior to termination of employment.
(d) If the Optionee's employment by the Company terminates for a reason other than death, Disability or Retirement, then this Option may be exercised for three months following the date of the Optionee's termination of employment, but only to the extent that it was exercisable immediately prior to termination of employment; provided, however, that if termination of the Optionee's
employment shall have been for Cause, this Option shall expire, and all rights to purchase Shares hereunder shall terminate, immediately upon such termination.
Notwithstanding the above, this Option may not be exercised after it has expired.
8. ACCELERATION OF OPTION.
Death or Disability. This Option may be exercised in full, regardless of
whether such exercise occurs prior to a date on which this Option would
otherwise vest, upon the death or Disability of the Optionee; provided
that the Optionee shall have been continuously employed by the Company or
a parent or subsidiary thereof between the date of this Agreement and the
date of such death or Disability. The Option may also be exercised in full
upon the death of the Optionee during the three month period described in
Section 7(d) above.
Change in Control. If a Change in Control (as defined in Section 9 of this Agreement) of the Company shall occur and within three years of such Change in Control, (i) Optionee's employment with the Company shall be terminated other than for Cause (as defined in the Plan), or (ii) Optionee shall voluntarily leave employment with the Company for Good Reason (as defined below), then, upon the date of such termination or voluntary leaving of employment for Good Reason, the options subject to this Agreement, if not already exercised in full or otherwise terminated, expired or cancelled, shall become immediately exercisable in full and may be exercised within 30 days after such termination or voluntary leaving (subject to any applicable shorter time period for exercise set forth in this Section 8). For purposes of this Agreement, "Good Reason" is defined as the demotion or reduction of the job responsibilities of Optionee or the reassignment, without Optionee's consent, of Optionee's place of work to a location more than 50 miles from the Optionee's place of work immediately prior to the Change in Control.
Merger or Sale. In the event of a merger of the Company with or into another corporation or limited liability company or the sale of substantially all of the assets of the Company, and the successor entity, or a parent or subsidiary of the successor entity, refuses to assume this Option or to substitute an equivalent option, then this Option shall become exercisable in full immediately. The Committee shall notify Optionee in writing or electronically that the Option shall be fully vested and exercisable for a period of 15 days from the date of such notice and that the Option shall terminate upon the expiration of such period.
Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Committee shall notify Optionee as soon as practicable prior to the effective date of such proposed transaction. The Committee in its discretion may provide for Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Shares covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Committee may, but shall not be obligated to, provide that any Company repurchase option applicable to the Shares shall lapse as to all such Shares, provided that the proposed dissolution or liquidation
takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action.
Discretionary Acceleration. The Committee has the power, in its sole discretion, to declare at any time that this Option shall be immediately exercisable.
9. CHANGE IN CONTROL.
(a) Definition. For purposes of this Plan, a "Change in Control" of the Company shall be deemed to occur if any of the following occur:
(1) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) acquires or becomes a "beneficial owner"
(as defined in Rule 13d-3 or any successor rule under the
Exchange Act), directly or indirectly, of securities of the
Company representing the following: (i) 50% or more of the
combined voting power of the Company's then outstanding
securities entitled to vote generally in the election of
directors ("Voting Securities") at any time prior to the
Company selling any of its shares in a public offering
pursuant to a registration statement filed under the
Securities Act of 1933, as amended (the "Securities Act"), or
(ii) 35% or more of the combined voting power of the Company's
then outstanding Voting Securities at any time after the
Company sells any of its shares in a public offering pursuant
to a registration statement filed under the Securities Act.
Provided, however, that the following shall not constitute a
Change in Control pursuant to this Section 9(a)(1):
(A) any acquisition or beneficial ownership by the Company or a subsidiary;
(B) any acquisition or beneficial ownership by any employee benefit plan (or related trust) sponsored or maintained by the Company or one or more of its subsidiaries;
(C) any acquisition or beneficial ownership by any corporation with respect to which, immediately following such acquisition, more than 50% of both the combined voting power of the Company's then outstanding Voting Securities and the Shares of the Company is then beneficially owned, directly or indirectly, by all or substantially all of the persons who beneficially owned Voting Securities and Shares of the Company immediately prior to such acquisition in substantially the same proportions as their ownership of such Voting Securities and Shares, as the case may be, immediately prior to such acquisition;
(2) A majority of the members of the Board of Directors of the Company shall not be Continuing Directors. "Continuing Directors" shall mean:
(A) individuals who, on the date hereof, are directors of the Company, (B) individuals elected as directors of the Company subsequent to the date hereof for whose election proxies shall have been solicited by the Board of Directors of the Company or (C) any individual elected or appointed by the Board of Directors of the Company to fill vacancies on the Board of Directors of the Company caused by death or resignation (but not by removal) or to fill newly-created directorships;
(3) Consummation by the Company of a reorganization, merger or consolidation of the Company or a statutory exchange of outstanding Voting Securities of the Company, unless, immediately following such reorganization, merger, consolidation or exchange, all or substantially all of the persons who were the beneficial owners, respectively, of Voting Securities and Shares of the Company immediately prior to such reorganization, merger, consolidation or exchange beneficially own, directly or indirectly, more than 50% (subject to the modification in subsection (b) below) of, respectively, the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors and the then outstanding shares of common stock, as the case may be, of the corporation resulting from such reorganization, merger, consolidation or exchange in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, consolidation or exchange, of the Voting Securities and Shares of the Company, as the case may be;
(4) Consummation by the Company of the sale or other disposition of all or substantially all of the assets of the Company (in one or a series of transactions), other than to a corporation with respect to which, immediately following such sale or other disposition, more than 50% (subject to the modification in subsection (b) below) of, respectively, the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and the then outstanding shares of common stock of such corporation is then beneficially owned, directly or indirectly, by all or substantially all of the persons who were the beneficial owners, respectively, of the Voting Securities and Shares of the Company immediately prior to such sale or other disposition in substantially the same proportions as their ownership, immediately prior to such sale or other disposition, of the Voting Securities and Shares of the Company, as the case may be; or
(5) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
(b) After a Public Offering. At all times after the Company sells any of its shares in a public offering pursuant to a registration statement filed under the Securities Act,
the references to 50% in subsections (a)(1)(C), (a)(3) and (a)(4) of this Section 9 shall be changed to 65%.
10. TRANSFERABILITY. While the Optionee is alive, only the Optionee, his/her legal representative or a transferee who receives this Option in a permitted transfer (as described below in this Section 10) may exercise this Option. This Option may not be assigned or transferred other than to a Successor in the event of the Optionee's death or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder; provided, however, that the Optionee may transfer this Option to a member or members of his or her immediate family (i.e., his or her children, grandchildren and spouse) or to one or more trusts for the benefit of such family members or partnerships in which such family members are the only partners, if the Optionee does not receive any consideration for the transfer. This Option shall continue to be subject to the same terms and conditions that were applicable to this Option immediately prior to its transfer and may be exercised by such transferee as and to the extent that this Option has become exercisable and has not terminated in accordance with the provisions of the Plan and this Agreement. For purposes of any provision of the Plan or this Agreement relating to notice to the Optionee or to vesting or termination of this Option upon the death, disability or termination of employment of the Optionee, the references to "optionee" shall mean the original grantee of this Option and not any transferee.
11. ASSIGNMENT OF THE COMPANY'S OBLIGATIONS. In the event of a merger of the Company with or into another corporation or limited liability company, or the sale of substantially all of the assets of the Company, then the successor entity, or a parent or subsidiary of the successor entity, may assume this Option or substitute an equivalent option.
12. NO SHAREHOLDER RIGHTS BEFORE EXERCISE. No person shall have any of the rights of a shareholder of the Company with respect to any Share subject to this Option until the Share actually is issued to him/her upon exercise of this Option.
13. DISCRETIONARY ADJUSTMENT. In the event of a Fundamental Change, recapitalization, reclassification, stock dividend, stock split, stock combination or other relevant change, the Committee (or if the Company does not survive any such transaction, a comparable committee of the board of directors of the surviving corporation) may in its sole discretion make such adjustment as it determines to be appropriate as to the number and kind of securities subject to and reserved under the Plan and, in order to prevent dilution or enlargement of rights of the Optionee, the number and kind of securities issuable upon exercise of this Option and the exercise price hereof.
14. TAX WITHHOLDING. Delivery of Shares upon exercise of this Option shall be
subject to any required withholding taxes. As a condition precedent to
receiving Shares upon exercise of this Option, the Optionee may be
required to pay to the Company, in accordance with the provisions of
Section 14 of the Plan, an amount equal to the amount of any required
withholdings.
15. INTERPRETATION OF THIS AGREEMENT. All decisions and interpretations made by the Committee with regard to any question arising hereunder or under the Plan shall be binding and conclusive upon the Company and the Optionee. If there is any inconsistency between the provisions of this Agreement and the Plan, the provisions of the Plan shall govern.
16. DISCONTINUANCE OF EMPLOYMENT. This Agreement shall not give the Optionee a right to continued employment with the Company or any parent or subsidiary of the Company, and the Company or any such parent or subsidiary employing the Optionee may terminate his/her employment at any time and otherwise deal with the Optionee without regard to the effect it may have upon him/her under this Agreement.
17. Forfeiture Events.
(a) The Optionee, by accepting this Option, agrees and covenants that during the period during which the Optionee is employed by the Company and twelve months following the date of termination of the Optionee's employment by the Company (the "Restricted Period") for any reason whatsoever, the Optionee will not, directly or indirectly:
(1) perform services for any Competitive Business as employee, consultant, contractor or otherwise;
(2) solicit or attempt to solicit any employee or independent contractor of the Company to cease working for the Company;
(3) use or disclose to any person any Confidential Information for any purpose;
(4) take any action that might divert any opportunity from the Company or any of its affiliates, successors or assigns (the "Related Parties") that is within the scope of the present or future operations or business of any Related Parties;
(5) contact, call upon or solicit any customer of the Company, or attempt to divert or take away from the Company the business of any of its customers;
(6) contact, call upon or solicit any prospective customer of the Company that the Optionee became aware of or were introduced to in the course of the Optionee's duties for the Company, or otherwise divert or take away from the Company the business of any prospective customer of the Company; or
(7) engage in any activity that is harmful to the interests of the Company, including, without limitation, any conduct during the term of the
Optionee's employment that violates the Company's codes of conduct or other policies.
(b) If the Company determines that the Optionee violated any provisions of Section 17(a) above during the Restricted Period, the Optionee agrees and covenants that:
(1) any portion of the Option (whether or not vested) that has not been exercised as of the date of such determination shall be immediately forfeited;
(2) the Optionee shall automatically forfeit any rights the Optionee may have with respect to the Option as of the date of such determination; and
(3) if the Optionee exercised all or any part of the Option within the six-month period immediately preceding termination of the Optionee's employment with the Company (or following the date of any such violation), upon the Company's demand, the Optionee shall immediately deliver to it a certificate or certificates for shares of the Company's Common Stock with a Fair Market Value (determined on the date of such demand) equal to the gain realized by the Optionee upon such exercise.
(c) The foregoing remedies set forth in Section 17(b) shall not be the Company's exclusive remedies. The Company reserves all other rights and remedies available to it at law or in equity.
(d) The Company may exercise its right to demand forfeiture within ninety days after discovery of such an occurrence but in no event later than fifteen months after the Optionee's termination of employment with the Company.
(e) For purposes of this Section 17, the following terms shall have the meanings set forth below:
"Competitive Business" shall mean any person, corporation, not-for-profit organization, or other entity that provides, develops, sells, or markets on-line credit-granting educational products or services in any country in which the Company did business or had customers at any time during the last 12 months of the Optionee's employment with the Company. In the case of an organization that provides, develops, sells, or markets on-line credit-granting educational products or services within or from a distinct, separate division or unit of the organization (the "On-Line Unit") and also provides, develops, sells, or markets credit-granting educational products or services through other means within other distinct, separate divisions or units, the term "Competitive Business" shall be limited to the On-Line Unit, and shall not apply to the organization as a whole.
"Confidential Information" means information proprietary to the Company and not generally known (including trade secret information) about the Company's customers, products, services, personnel, pricing, sales strategy, technology,
methods, processes, research, development, finances, systems, techniques, accounting, purchasing, and business strategies. All information disclosed to the Optionee or to which the Optionee obtains access, whether originated by the Optionee or by others, during the period of the Optionee's employment, shall be presumed to be Confidential Information if it is treated by the Company as being Confidential Information or if the Optionee has a reasonable basis to believe it to be Confidential Information.
18. OPTION SUBJECT TO PLAN, ARTICLES OF INCORPORATION AND BY-LAWS. The Optionee acknowledges that this Option and the exercise thereof is subject to the Plan, the Articles of Incorporation, as amended from time to time, and the By-Laws, as amended from time to time, of the Company, and any applicable federal or state laws, rules or regulations.
19. OBLIGATION TO RESERVE SUFFICIENT SHARES. The Company shall at all times during the term of this Option reserve and keep available a sufficient number of Shares to satisfy this Agreement.
20. BINDING EFFECT. This Agreement shall be binding in all respects on the heirs, representatives, successors and assigns of the Optionee.
21. CHOICE OF LAW. This Agreement is entered into under the laws of the State of Minnesota and shall be construed and interpreted thereunder (without regard to its conflict of law principles).
IN WITNESS WHEREOF, the Optionee and the Company have executed this Agreement as of the ___ day of _______, 20__.
OPTIONEE
CAPELLA EDUCATION COMPANY
By _____________________________________
Its ____________________________________
__________________, 20___
CAPELLA EDUCATION COMPANY
225 South 6th Street, 9th Floor
Minneapolis, Minnesota 55402
Attention: Secretary
Ladies and Gentlemen:
I hereby exercise the following option (the "Option") granted to me under the Capella Education Company 2005 Stock Incentive Plan (the "Plan") with respect to the number of shares of Common Stock ("Shares") of Capella Education Company (the "Company"), indicated below:
NAME: __________________________________ DATE OF GRANT OF OPTION: __________________________________ EXERCISE PRICE PER SHARE: __________________________________ NUMBER OF SHARES WITH RESPECT TO WHICH THE OPTION IS HEREBY EXERCISED: __________________________________ TOTAL EXERCISE PRICE: __________________________________ |
[ ] Enclosed with this letter is a check, bank draft or money order in the amount of the Total Exercise Price.
[ ] I hereby agree to pay the Total Exercise Price by cancellation of a debt owed to me by the Company.
[ ] I hereby agree to pay the Total Exercise Price within five business days of the date hereof and, as stated in the attached Broker's Letter, I have delivered irrevocable instructions to _________________________________________ to promptly deliver to the Company the amount of sale or loan proceeds from the Shares to be issued pursuant to this exercise necessary to satisfy my obligation hereunder to pay the Total Exercise Price.
[ ] Enclosed with this letter is a certificate evidencing unencumbered Shares (duly endorsed in blank) having an aggregate Fair Market Value (as defined in the Plan) equal to or in excess of the Total Exercise Price.
[ ] I elect to pay the Total Exercise Price through a reduction in the number of Shares delivered to me upon this exercise of the Option as provided in Section 6(d) of the Option.
If I am enclosing Shares with this letter, I hereby represent and warrant
that I am the owner of such Shares free and clear of all liens, security
interests and other restrictions or encumbrances. I agree that I will pay any
required withholding taxes in connection with this exercise as provided in
Section 14 of the Plan.
I have read and signed the Purchase Agreement attached to this notice as Exhibit A and I am enclosing a signed copy of the Purchase Agreement.
Please issue a certificate (the "Certificate") for the number of Shares with respect to which the Option is being exercised in the name of the person indicated below and deliver the Certificate to the address indicated below:
NAME IN WHICH TO ISSUE CERTIFICATE: _________________________________
ADDRESS TO WHICH CERTIFICATE _________________________________ SHOULD BE DELIVERED: _________________________________ _________________________________ _________________________________ _________________________________ PRINCIPAL MAILING ADDRESS FOR _________________________________ HOLDER OF THE CERTIFICATE (IF _________________________________ DIFFERENT FROM ABOVE): _________________________________ _________________________________ _________________________________ |
Very truly yours,
__________________, 20___
CAPELLA EDUCATION COMPANY
225 South 6th Street, 9th Floor Minneapolis, Minnesota 55402 Attention: Secretary Ladies and Gentlemen: NAME OF OPTIONEE: _________________________________ DATE OF GRANT OF OPTION: _________________________________ EXERCISE PRICE PER SHARE: _________________________________ NUMBER OF SHARES WITH RESPECT TO WHICH THE OPTION IS TO BE EXERCISED: _________________________________ TOTAL EXERCISE PRICE: _________________________________ |
The above Optionee has requested that we finance the exercise of the above Option to purchase Shares of common stock of Capella Education Company (the "Company") and has given us irrevocable instructions to promptly deliver to the Company the amount of sale or loan proceeds from the Shares to be issued pursuant to such exercise to satisfy the Optionee's obligation to pay the Total Exercise Price.
Very truly yours,
By ____________________________
EXHIBIT A TO EXERCISE NOTICE
CAPELLA EDUCATION COMPANY
2005 STOCK INCENTIVE PLAN
PURCHASE AGREEMENT
This Agreement ("Agreement") is made as of ____________, 20__, by and between Capella Education Company, a Minnesota corporation (the "Company"), and ___________________________ ("Purchaser"). To the extent any capitalized terms used in this Agreement are not defined, they shall have the meaning ascribed to them in the Company's 2005 Stock Incentive Plan (the "Plan").
1. DEFINITIONS. The term "Shares" shall mean the __________ shares of the Common Stock of the Company the Purchaser purchased pursuant to an option granted to the Purchaser under and pursuant to the Plan and the Stock Option Agreement dated __________, 20__ (the "Option Agreement"). The term "Shares" shall include the purchased Shares and all securities received in replacement of the Shares or as stock dividends or splits, all securities received in replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Purchaser is entitled by reason of Purchaser's ownership of the Shares.
2. REPURCHASE OPTION. The Company shall have the right to purchase all Shares from the Purchaser or any transferee of the Purchaser (or the Purchaser's legal representative or beneficiaries if the Purchaser is deceased or incapacitated) (collectively sometimes referred to herein as the "Holder") at any time at least six (6) months but no more than nine (9) months after the original issuance of the Shares and on the terms and conditions set forth in this Section 2 (the "Repurchase Option").
(i) EXERCISE OF REPURCHASE OPTION. The Company and/or its assignee(s) may, by giving written notice to the Holder (the "Repurchase Notice") at any time during the Repurchase Period, elect to purchase all, but not less than all, of the Shares at the purchase price determined in accordance with subsection (ii) below.
(ii) REPURCHASE PRICE. The purchase price (the "Repurchase
Price") for the Shares purchased by the Company or its assignee(s) under this
Section 2 shall be the Fair Market Value (as defined in the Plan) of such
Shares.
(iii) PAYMENT AND DELIVERY OF SHARES. Payment of the Repurchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof during the Repurchase Period. Coincident with the payment of the Repurchase Price, the Holder shall deliver to the Company the certificates representing the Shares purchased, duly endorsed in
blank, and appropriate entries in the records of the Company shall be made to effect the transfer of the Shares to the Company free and clear of any restrictions on transfer, voting agreements, liens, encumbrances or other defects of title.
(iv) TERMINATION OF RIGHTS. The Repurchase Right shall terminate upon the earlier to occur of (i) the date nine (9) months after the original issuance of the shares or (ii) an IPO (as defined below). The term "IPO" shall mean the first underwritten sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act").
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on transfer created by applicable securities laws, Purchaser shall not sell, transfer (including, without limitation, a transfer by gift), exchange, assign, encumber or dispose of any interest in the Shares except in compliance with the provisions below and applicable securities laws and after such time as the Repurchase Option has expired.
(a) RIGHT OF FIRST REFUSAL. Before any Shares held by Holder may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 3(a) (the "Right of First Refusal").
(i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to the Company a written notice (the "Refusal Right Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the terms and conditions of each proposed sale or transfer. The Holder shall offer the Shares at the same price (the "Offered Price") and upon the same terms (or terms as similar as reasonably possible) to the Company or its assignee(s). The Company may, prior to the purchase of any Shares hereunder, require evidence of a bona fide offer to purchase such Shares and, in the case of a disposition for consideration, evidence that the Proposed Transferee has offered such consideration for the Shares.
(ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within 30 days after receipt of the Refusal Right Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (iii) below.
(iii) REFUSAL RIGHT PURCHASE PRICE. The purchase price ("Refusal Right Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section 3(a) shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company, or a duly authorized committee of the Board of Directors, in good faith.
(iv) PAYMENT AND DELIVERY OF SHARES. Payment of the Refusal Right Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Refusal Right Notice or in the manner and at the times set forth in the Refusal Right Notice. Coincident with the payment of the Refusal Right Purchase Price, the Holder shall deliver to the Company the certificates representing the Shares purchased, duly endorsed in blank, and appropriate entries in the records of the Company shall be made to effect the transfer of the Shares to the Company free and clear of any restrictions on transfer, voting agreements, liens, encumbrances or other defects of title.
(v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed
in the Refusal Right Notice to be transferred to a given Proposed Transferee are
not purchased by the Company and/or its assignee(s) as provided in this Section
3(a), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Refusal Right Notice and provided further that any such sale or other transfer
is effected in accordance with any applicable securities laws and the Proposed
Transferee agrees in writing that the provisions of this Section 3 shall
continue to apply to the Shares in the hands of such Proposed Transferee. If the
Shares described in the Refusal Right Notice are not transferred to the Proposed
Transferee within such period, or if the Holder proposes to change the price or
other terms to make them more favorable to the Proposed Transferee, a new
Refusal Right Notice shall be given to the Company, and the Company and/or its
assignees shall again be offered the Right of First Refusal before any Shares
held by the Holder may be sold or otherwise transferred.
(vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained in this Section 3(a) notwithstanding, the transfer of any or all of the Shares during Purchaser's lifetime or on Purchaser's death by will or intestacy to Purchaser's Immediate Family (as defined below) or a trust for the benefit of Purchaser's Immediate Family shall be exempt from the provisions of this Section 3(a). "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 3.
(b) INVOLUNTARY TRANSFER.
(i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding, in the event of death, a transfer to Immediate Family as set forth in
Section 3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the purchase price determined in accordance with subsection (ii)
below. Upon such a transfer, the person acquiring the Shares shall promptly
notify the Secretary of the Company of such transfer. The right to purchase such
Shares shall be provided to the Company
for a period of 30 days following receipt by the Company of written notice by the person acquiring the Shares.
(ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock to be transferred pursuant to Section 3(b)(i), the price per Share shall be the Fair Market Value of the Shares. The Company shall notify Purchaser or his or her executor of the price so determined within 30 days after receipt by it of written notice of the transfer or proposed transfer of Shares. Coincident with the payment of the said purchase price, the Holder shall deliver to the Company the certificates representing the Shares purchased, duly endorsed in blank, and appropriate entries in the records of the Company shall be made to effect the transfer of the Shares to the Company free and clear of any restrictions on transfer, voting agreements, liens, encumbrances or other defects of title.
(c) ASSIGNMENT. The right of the Company to purchase any part of the Shares may be assigned in whole or in part to any stockholder or stockholders of the Company or other persons or organizations; provided, however, that an assignee, other than a corporation that is the parent or a 100% owned subsidiary of the Company, must pay the Company, upon assignment of such right, cash equal to the difference between the original purchase price and Fair Market Value, if the original purchase price is less than the Fair Market Value of the Shares subject to the assignment.
(d) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares or any interest therein will receive and hold such Shares or interest subject to the provisions of this Agreement. Any sale or transfer of the Shares shall be void unless the provisions of this Agreement are satisfied.
(e) TERMINATION OF RIGHTS. The Right of First Refusal and the Company's right to repurchase the Shares in the event of an involuntary transfer pursuant to Section 3(b) above shall terminate upon an IPO.
(f) MARKET STANDOFF AGREEMENT. In connection with an initial public offering of the Company's securities and upon request of the Company or the underwriters managing such underwritten offering of the Company's securities, Purchaser agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 270 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company's initial public offering.
4. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Purchaser is purchasing the Shares for investment
for his or her own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered under the Securities Act and applicable state laws by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, Purchaser must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Purchaser acknowledges that the Company has no obligation to register or qualify the Shares for resale. Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under no obligation and may not be able to satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice.
5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. The certificate or certificates representing the Shares shall bear the following legends (as well as any legends required by applicable state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
(ii) THE ISSUER OF THESE SECURITIES WILL FURNISH TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE
DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR SERIES AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN DETERMINED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT CLASSES OR SERIES.
(iii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A PURCHASE AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
(d) REMOVAL OF LEGEND. When all of the following events have
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 5(a)(iii): (i) the termination of the Repurchase
Right; (ii) the termination of the Right of First Refusal; and (ii) the
expiration or termination of the market standoff provisions of Section 3(f) (and
of any agreement entered pursuant to Section 3(f)). After such time, and upon
Purchaser's request, a new certificate or certificates representing the Shares
not repurchased shall be issued without the legend referred to in Section
5(a)(iii), and delivered to Purchaser.
6. NO EMPLOYMENT RIGHTS. This Agreement shall not give the Purchaser a right to continued employment with the Company or any parent or subsidiary of the Company, and the Company or any such parent or subsidiary employing the Purchaser may terminate his/her employment at any time and otherwise deal with the Purchaser without regard to the effect it may have upon him/her under this Agreement.
7. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and
interpreted in accordance with the laws of the State of Minnesota, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.
(d) NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax or 48 hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice.
(e) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.
(f) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of Purchaser under this Agreement may only be assigned with the prior written consent of the Company.
(g) RIGHTS CUMULATIVE. The purchase rights of the Company pursuant to Sections 2 and 3 shall be in addition to and not in lieu of any other purchase rights that the Company or any other holders of capital stock of the Company may at any time have under any other contract, by operation of law, or otherwise.
The parties have executed this Purchase Agreement as of the date first set forth above.
COMPANY:
CAPELLA EDUCATION COMPANY
By: ________________________________
Name: ______________________________
Title: _____________________________
Address:
225 South 6th Street, 9th Floor
Minneapolis, Minnesota 55402
PURCHASER:
I, ______________________, spouse of , have read and hereby approve the foregoing Agreement. In consideration of the Company's granting my spouse the right to purchase the Shares as set forth in the Agreement, I hereby agree to be bound irrevocably by the Agreement and further agree that any community property or similar interest that I may have in the Shares shall hereby be similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement.
CAPELLA EDUCATION COMPANY
2005 STOCK INCENTIVE PLAN
NON-STATUTORY STOCK OPTION AGREEMENT
(NON-EMPLOYEE DIRECTOR)
This is a Non-Statutory Stock Option Agreement ("Agreement") between Capella Education Company, a Minnesota corporation (the "Company"), and the optionee identified above (the "Optionee") effective as of the date of grant specified above. To the extent any capitalized terms used in this Agreement are not defined, they shall have the meaning ascribed to them in the Company's 2005 Stock Incentive Plan (the "Plan").
RECITALS
WHEREAS, the Company maintains the Capella Education Company 2005 Stock Incentive Plan (the "Plan"); and
WHEREAS, pursuant to the Plan, the Board of Directors of the Company (the "Board") or a committee of two or more directors of the Company (the "Committee") designated by the Board administers the Plan and the Board has the authority to determine the awards to be granted under the Plan to non-employee directors serving on the Board; and
WHEREAS, the Board has determined that the Optionee is eligible to receive an award under the Plan in the form of a non-statutory stock option (the "Option");
NOW, THEREFORE, the Company hereby grants this Option to the Optionee under the terms and conditions as follows.
TERMS AND CONDITIONS*
1. GRANT. The Optionee is granted this Option to purchase the number of Shares specified at the beginning of this Agreement.
2. EXERCISE PRICE. The price to the Optionee of each Share subject to this Option shall be the exercise price specified at the beginning of this Agreement (which price shall not be less than the Fair Market Value (as defined in Section 2(o) of the Plan) as of the date of grant.
3. NON-STATUTORY STOCK OPTION. This Option is not intended to be an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
4. EXERCISE SCHEDULE. This Option shall vest and become exercisable as to the number of Shares and on the dates specified in the exercise schedule at the beginning of this Agreement. The exercise schedule shall be cumulative; thus, to the extent this Option has not already been exercised and has not expired, terminated or been cancelled, the Optionee or the person otherwise entitled to exercise this Option as provided herein may at any time, and from time to time, purchase all or any portion of the Shares then purchasable under the exercise schedule.
This Option may also be exercised in full (notwithstanding the exercise schedule) under the circumstances described in Section 8 of this Agreement if it has not expired prior thereto.
5. EXPIRATION. This Option shall expire at 5:00 p.m. Central Time on the earliest of:
(a) The expiration date specified at the beginning of this Agreement (which date shall not be later than ten years after the date of grant);
(b) The last day of the period following the Optionee's termination of service as a director of the Company during which this Option can be exercised (as specified in Section 7 of this Agreement); or
(c) The date (if any) fixed for cancellation pursuant to Section 8 of this Agreement.
If termination of the Optionee's status as a director of the Company shall have been for Cause, this Option shall expire immediately upon such termination. In no event may anyone exercise this Option, in whole or in part, after it has expired, notwithstanding any other provision of this Agreement.
6. PROCEDURE TO EXERCISE OPTION.
Notice of Exercise. This Option may be exercised by delivering written notice of exercise to the Company at the principal executive office of the Company, to the attention of the Company's Secretary, in the form attached to this Agreement. The notice shall state the number of Shares to be purchased, and shall be signed by the person exercising this Option. If the person exercising this Option is not the Optionee, he/she also must submit appropriate proof of his/her right to exercise this Option.
Tender of Payment. Upon giving notice of any exercise hereunder, the Optionee shall provide for payment of the purchase price of the Shares being purchased through one or a combination of the following methods:
(a) Cash;
(b) Cancellation of indebtedness;
(c) By delivery to the Company of unencumbered Shares having an aggregate Fair Market Value on the date of exercise equal to the purchase price of the Shares as to which this Option is exercised; or
(d) To the extent permitted by law, a broker-assisted cashless exercise in which the Optionee irrevocably instructs a broker to deliver proceeds of a sale of all or a portion of the Shares to be issued pursuant to the exercise (or a loan secured by such Shares) to the Company in payment of the purchase price of the Shares as to which this Option is exercised.
Notwithstanding the foregoing, the Optionee shall not be permitted to pay any portion of the purchase price with Shares if the Committee, in its sole discretion, determines that payment in such manner could have adverse financial accounting consequences for the Company.
Execution of Shareholder Agreement. Optionee, or the person exercising this option, must execute the Purchase Agreement substantially in the form of Exhibit A to the notice of exercise attached to this Agreement.
Company Right to Repurchase Option. At any time after six (6) months but within nine (9) months following the exercise of this Option (the "Repurchase Period"), the Company shall have the right ("Repurchase Option") to cancel this Option to the extent, and reduce the number of Shares that the Optionees may purchase pursuant to this Option in the amount, of the number of Shares requested to be purchased in the notice of exercise (the "Requested Shares") and pay the Optionee cash in an amount, for each Requested Share, equal to the per Share Fair Market Value of the Requested Shares (the "Repurchase Option Price"). The Company may exercise its Repurchase Option by giving written notice to the Optionee and paying the Repurchase Option Price to the Optionee during the Repurchase Period. Coincident with the payment of the Repurchase Option Price, the Company and the Optionee shall enter into a written amendment to this Option to reflect the appropriate decrease the number of Shares which the Optionee may purchase pursuant to this Option. The Repurchase Option shall terminate upon the first underwritten sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended.
Delivery of Certificates. Subject to the right of repurchase of this Option set forth above, as soon as practicable after the Company receives the notice and purchase price and executed Purchase Agreement provided for above, it shall deliver to the person exercising this Option, in the name of such person, a certificate or certificates representing the Shares being purchased (or provide for direct registration book-entry of the Shares in the name of the person exercising this Option). The Company shall pay any original issue or transfer taxes with respect to the issue or transfer of the Shares and all fees and expenses incurred by it in connection therewith. All Shares so issued shall be fully paid and nonassessable. Notwithstanding anything to the contrary in this Agreement, the Company shall not be required to issue or deliver any Shares prior to the completion of such registration or other qualification of such Shares under any state or federal law, rule or regulation as the Company shall determine to be necessary or desirable.
7. STATUS AS DIRECTOR REQUIREMENT. This Option may be exercised only while the Optionee remains a director of the Company or a parent or subsidiary thereof, and only if
the Optionee has been a director continuously since the date of this Agreement; provided that:
(a) If the Optionee's status as a director of the Company terminates because of the Optionee's death or Disability (as defined in the Plan), then this Option may be exercised, to the extent permissible under Section 8 below, for one year following the date of the Optionee's death or Disability.
(b) If the Optionee's status as a director of the Company terminates for a reason other than death or Disability, then this Option may be exercised any time before its expiration, but only to the extent that it was exercisable immediately prior to the termination of the Optionee's status as a director of the Company; provided, however, that if termination of the Optionee's status as a director of the Company shall have been for Cause, this Option shall expire, and all rights to purchase Shares hereunder shall terminate, immediately upon such termination.
Notwithstanding the above, this Option may not be exercised after it has expired.
8. ACCELERATION OF OPTION.
Death or Disability. This Option may be exercised in full, regardless of whether such exercise occurs prior to a date on which this Option would otherwise vest, upon the death or Disability of the Optionee; provided that the Optionee shall have been continuously been a director of the Company or a parent or subsidiary thereof between the date of this Agreement and the date of such death or Disability.
Change in Control. If a Change in Control (as defined in Section 9 of this Agreement) of the Company shall occur and within three years of such Change in Control, Optionee's status as a director of the Company shall be terminated other than for Cause (as defined below), the options subject to this Agreement, if not already exercised in full or otherwise terminated, expired or cancelled, shall become immediately exercisable in full and may be exercised within 30 days after such termination (subject to any applicable shorter time period for exercise set forth in this Section 8). For purposes of this Agreement, the term "Cause" shall be limited to the following grounds for termination:
(1) Optionee's failure or refusal substantially to perform his/her duties to the full extent of his/her abilities for reasons other than death or disability, after written notice to Optionee of such failure or refusal providing Optionee 30 days to take corrective action;
(2) Conviction of a felony crime, or commission of any act, the conviction for which would be a gross misdemeanor or felony conviction; and
(3) Theft or misappropriation of the Company's property.
Merger or Sale. In the event of a merger of the Company with or into another corporation or limited liability company or the sale of substantially all of the assets of the Company, and the successor entity, or a parent or subsidiary of the successor entity,
refuses to assume this Option or to substitute an equivalent option, then this Option shall become exercisable in full immediately. The Committee shall notify Optionee in writing or electronically that the Option shall be fully vested and exercisable for a period of 15 days from the date of such notice and that the Option shall terminate upon the expiration of such period.
Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, the Committee shall notify Optionee as soon as practicable prior to the effective date of such proposed transaction. The Committee in its discretion may provide for Optionee to have the right to exercise his or her Option until ten (10) days prior to such transaction as to all of the Shares covered thereby, including Shares as to which the Option would not otherwise be exercisable. In addition, the Committee may, but shall not be obligated to, provide that any Company repurchase option applicable to the Shares shall lapse as to all such Shares, provided that the proposed dissolution or liquidation takes place at the time and in the manner contemplated. To the extent it has not been previously exercised, an Option will terminate immediately prior to the consummation of such proposed action.
Discretionary Acceleration. The Committee has the power, in its sole discretion, to declare at any time that this Option shall be immediately exercisable.
9. CHANGE IN CONTROL.
(a) Definition. For purposes of this Plan, a "Change in Control" of the Company shall be deemed to occur if any of the following occur:
(1) Any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act) acquires or becomes a "beneficial owner"
(as defined in Rule 13d-3 or any successor rule under the
Exchange Act), directly or indirectly, of securities of the
Company representing the following: (i) 50% or more of the
combined voting power of the Company's then outstanding
securities entitled to vote generally in the election of
directors ("Voting Securities") at any time prior to the
Company selling any of its shares in a public offering
pursuant to a registration statement filed under the
Securities Act of 1933, as amended (the "Securities Act"), or
(ii) 35% or more of the combined voting power of the Company's
then outstanding Voting Securities at any time after the
Company sells any of its shares in a public offering pursuant
to a registration statement filed under the Securities Act.
Provided, however, that the following shall not constitute a
Change in Control pursuant to this Section 9(a)(1):
(A) any acquisition or beneficial ownership by the Company or a subsidiary;
(B) any acquisition or beneficial ownership by any employee benefit plan (or related trust) sponsored or maintained by the Company or one or more of its subsidiaries;
(C) any acquisition or beneficial ownership by any corporation with respect to which, immediately following such acquisition, more than 50% of both the combined voting power of the Company's then outstanding Voting Securities and the Shares of the Company is then beneficially owned, directly or indirectly, by all or substantially all of the persons who beneficially owned Voting Securities and Shares of the Company immediately prior to such acquisition in substantially the same proportions as their ownership of such Voting Securities and Shares, as the case may be, immediately prior to such acquisition;
(2) A majority of the members of the Board of Directors of the Company shall not be Continuing Directors. "Continuing Directors" shall mean: (A) individuals who, on the date hereof, are directors of the Company, (B) individuals elected as directors of the Company subsequent to the date hereof for whose election proxies shall have been solicited by the Board of Directors of the Company or (C) any individual elected or appointed by the Board of Directors of the Company to fill vacancies on the Board of Directors of the Company caused by death or resignation (but not by removal) or to fill newly-created directorships;
(3) Consummation by the Company of a reorganization, merger or consolidation of the Company or a statutory exchange of outstanding Voting Securities of the Company, unless, immediately following such reorganization, merger, consolidation or exchange, all or substantially all of the persons who were the beneficial owners, respectively, of Voting Securities and Shares of the Company immediately prior to such reorganization, merger, consolidation or exchange beneficially own, directly or indirectly, more than 50% (subject to the modification in subsection (b) below) of, respectively, the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors and the then outstanding shares of common stock, as the case may be, of the corporation resulting from such reorganization, merger, consolidation or exchange in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, consolidation or exchange, of the Voting Securities and Shares of the Company, as the case may be;
(4) Consummation by the Company of the sale or other disposition of all or substantially all of the assets of the Company (in one or a series of transactions), other than to a corporation with respect to which, immediately following such sale or other disposition, more than 50% (subject to the modification in subsection (b) below) of, respectively, the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and the then outstanding shares of common stock of such corporation is then beneficially owned, directly or indirectly, by all or substantially all of the
persons who were the beneficial owners, respectively, of the Voting Securities and Shares of the Company immediately prior to such sale or other disposition in substantially the same proportions as their ownership, immediately prior to such sale or other disposition, of the Voting Securities and Shares of the Company, as the case may be; or
(5) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company.
(b) After a Public Offering. At all times after the Company sells any of
its shares in a public offering pursuant to a registration statement
filed under the Securities Act, the references to 50% in subsections
(a)(1)(C), (a)(3) and (a)(4) of this Section 9 shall be changed to
65%.
10. TRANSFERABILITY. While the Optionee is alive, only the Optionee, his/her legal representative or a transferee who receives this Option in a permitted transfer (as described below in this Section 10) may exercise this Option. This Option may not be assigned or transferred other than to a Successor in the event of the Optionee's death or pursuant to a qualified domestic relations order as defined by the Code or Title I of the Employee Retirement Income Security Act, or the rules thereunder; provided, however, that the Optionee may transfer this Option to a member or members of his or her immediate family (i.e., his or her children, grandchildren and spouse) or to one or more trusts for the benefit of such family members or partnerships in which such family members are the only partners, if the Optionee does not receive any consideration for the transfer. This Option shall continue to be subject to the same terms and conditions that were applicable to this Option immediately prior to its transfer and may be exercised by such transferee as and to the extent that this Option has become exercisable and has not terminated in accordance with the provisions of the Plan and this Agreement. For purposes of any provision of the Plan or this Agreement relating to notice to the Optionee or to vesting or termination of this Option upon the death, disability or termination of the Optionee's status as a director of the Company, the references to "optionee" shall mean the original grantee of this Option and not any transferee.
11. ASSIGNMENT OF THE COMPANY'S OBLIGATIONS. In the event of a merger of the Company with or into another corporation or limited liability company, or the sale of substantially all of the assets of the Company, then the successor entity, or a parent or subsidiary of the successor entity, may assume this Option or substitute an equivalent option.
12. NO SHAREHOLDER RIGHTS BEFORE EXERCISE. No person shall have any of the rights of a shareholder of the Company with respect to any Share subject to this Option until the Share actually is issued to him/her upon exercise of this Option.
13. DISCRETIONARY ADJUSTMENT. In the event of a Fundamental Change, recapitalization, reclassification, stock dividend, stock split, stock combination or other relevant change, the Committee (or if the Company does not survive any such transaction, a comparable committee of the board of directors of the surviving corporation) may in its sole discretion make such adjustment as it determines to be appropriate as to the number and
kind of securities subject to and reserved under the Plan and, in order to prevent dilution or enlargement of rights of the Optionee, the number and kind of securities issuable upon exercise of this Option and the exercise price hereof.
14. TAX WITHHOLDING. Delivery of Shares upon exercise of this Option shall be
subject to any required withholding taxes. As a condition precedent to
receiving Shares upon exercise of this Option, the Optionee may be
required to pay to the Company, in accordance with the provisions of
Section 14 of the Plan, an amount equal to the amount of any required
withholdings.
15. INTERPRETATION OF THIS AGREEMENT. All decisions and interpretations made by the Committee with regard to any question arising hereunder or under the Plan shall be binding and conclusive upon the Company and the Optionee. If there is any inconsistency between the provisions of this Agreement and the Plan, the provisions of the Plan shall govern.
16. DISCONTINUANCE OF EMPLOYMENT OR SERVICE AS DIRECTOR. This Agreement shall not give the Optionee a right to continued employment or service as a director of the Company or any parent or subsidiary of the Company, and the Company or any such parent or subsidiary employing the Optionee or of which the Optionee serves as a director may terminate his/her employment or service as a director, as the case may be, at any time and otherwise deal with the Optionee without regard to the effect it may have upon him/her under this Agreement.
17. OPTION SUBJECT TO PLAN, ARTICLES OF INCORPORATION AND BY-LAWS. The Optionee acknowledges that this Option and the exercise thereof is subject to the Plan, the Articles of Incorporation, as amended from time to time, and the By-Laws, as amended from time to time, of the Company, and any applicable federal or state laws, rules or regulations.
18. OBLIGATION TO RESERVE SUFFICIENT SHARES. The Company shall at all times during the term of this Option reserve and keep available a sufficient number of Shares to satisfy this Agreement.
19. BINDING EFFECT. This Agreement shall be binding in all respects on the heirs, representatives, successors and assigns of the Optionee.
20. CHOICE OF LAW. This Agreement is entered into under the laws of the State of Minnesota and shall be construed and interpreted thereunder (without regard to its conflict of law principles).
IN WITNESS WHEREOF, the Optionee and the Company have executed this Agreement as of the ___ day of _______, 20__.
OPTIONEE
CAPELLA EDUCATION COMPANY
By _________________________________
Its ________________________________
__________________, 20___
CAPELLA EDUCATION COMPANY
225 South 6th Street, 9th Floor
Minneapolis, Minnesota 55402
Attention: Secretary
Ladies and Gentlemen:
I hereby exercise the following option (the "Option") granted to me under the Capella Education Company 2005 Stock Incentive Plan (the "Plan") with respect to the number of shares of Common Stock ("Shares") of Capella Education Company (the "Company"), indicated below:
NAME: _______________________________ DATE OF GRANT OF OPTION: _______________________________ EXERCISE PRICE PER SHARE: _______________________________ NUMBER OF SHARES WITH RESPECT TO WHICH THE OPTION IS HEREBY EXERCISED: _______________________________ TOTAL EXERCISE PRICE: _______________________________ |
[ ] Enclosed with this letter is a check, bank draft or money order in the amount of the Total Exercise Price.
[ ] I hereby agree to pay the Total Exercise Price by cancellation of a debt owed to me by the Company.
[ ] I hereby agree to pay the Total Exercise Price within five business days of the date hereof and, as stated in the attached Broker's Letter, I have delivered irrevocable instructions to _________________________________________ to promptly deliver to the Company the amount of sale or loan proceeds from the Shares to be issued pursuant to this exercise necessary to satisfy my obligation hereunder to pay the Total Exercise Price.
[ ] Enclosed with this letter is a certificate evidencing unencumbered Shares (duly endorsed in blank) having an aggregate Fair Market Value (as defined in the Plan) equal to or in excess of the Total Exercise Price.
[ ] I elect to pay the Total Exercise Price through a reduction in the number of Shares delivered to me upon this exercise of the Option as provided in Section 6(d) of the Option.
If I am enclosing Shares with this letter, I hereby represent and warrant
that I am the owner of such Shares free and clear of all liens, security
interests and other restrictions or encumbrances. I agree that I will pay any
required withholding taxes in connection with this exercise as provided in
Section 14 of the Plan.
I have read and signed the Purchase Agreement attached to this notice as Exhibit A and I am enclosing a signed copy of the Purchase Agreement.
Please issue a certificate (the "Certificate") for the number of Shares with respect to which the Option is being exercised in the name of the person indicated below and deliver the Certificate to the address indicated below:
NAME IN WHICH TO ISSUE CERTIFICATE: __________________________________
ADDRESS TO WHICH CERTIFICATE __________________________________ SHOULD BE DELIVERED: __________________________________ __________________________________ __________________________________ __________________________________ PRINCIPAL MAILING ADDRESS FOR __________________________________ HOLDER OF THE CERTIFICATE (IF __________________________________ DIFFERENT FROM ABOVE): __________________________________ __________________________________ __________________________________ |
Very truly yours,
__________________, 20___
CAPELLA EDUCATION COMPANY
225 South 6th Street, 9th Floor Minneapolis, Minnesota 55402 Attention: Secretary Ladies and Gentlemen: NAME OF OPTIONEE: _________________________________ DATE OF GRANT OF OPTION: _________________________________ EXERCISE PRICE PER SHARE: _________________________________ NUMBER OF SHARES WITH RESPECT TO WHICH THE OPTION IS TO BE EXERCISED: _________________________________ TOTAL EXERCISE PRICE: _________________________________ |
The above Optionee has requested that we finance the exercise of the above Option to purchase Shares of common stock of Capella Education Company (the "Company") and has given us irrevocable instructions to promptly deliver to the Company the amount of sale or loan proceeds from the Shares to be issued pursuant to such exercise to satisfy the Optionee's obligation to pay the Total Exercise Price.
Very truly yours,
By ___________________________
EXHIBIT A TO EXERCISE NOTICE
CAPELLA EDUCATION COMPANY
2005 STOCK INCENTIVE PLAN
PURCHASE AGREEMENT
This Agreement ("Agreement") is made as of ____________, 20__, by and between Capella Education Company, a Minnesota corporation (the "Company"), and ___________________________ ("Purchaser"). To the extent any capitalized terms used in this Agreement are not defined, they shall have the meaning ascribed to them in the Company's 2005 Stock Incentive Plan (the "Plan").
1. DEFINITIONS. The term "Shares" shall mean the __________ shares of the Common Stock of the Company the Purchaser purchased pursuant to an option granted to the Purchaser under and pursuant to the Plan and the Stock Option Agreement dated __________, 20__ (the "Option Agreement"). The term "Shares" shall include the purchased Shares and all securities received in replacement of the Shares or as stock dividends or splits, all securities received in replacement of the Shares in a recapitalization, merger, reorganization, exchange or the like, and all new, substituted or additional securities or other properties to which Purchaser is entitled by reason of Purchaser's ownership of the Shares.
2. REPURCHASE OPTION. The Company shall have the right to purchase all Shares from the Purchaser or any transferee of the Purchaser (or the Purchaser's legal representative or beneficiaries if the Purchaser is deceased or incapacitated) (collectively sometimes referred to herein as the "Holder") at any time at least six (6) months but no more than nine (9) months after the original issuance of the Shares and on the terms and conditions set forth in this Section 2 (the "Repurchase Option").
(i) EXERCISE OF REPURCHASE OPTION. The Company and/or its assignee(s) may, by giving written notice to the Holder (the "Repurchase Notice") at any time during the Repurchase Period, elect to purchase all, but not less than all, of the Shares at the purchase price determined in accordance with subsection (ii) below.
(ii) REPURCHASE PRICE. The purchase price (the "Repurchase
Price") for the Shares purchased by the Company or its assignee(s) under this
Section 2 shall be the Fair Market Value (as defined in the Plan) of such
Shares.
(iii) PAYMENT AND DELIVERY OF SHARES. Payment of the Repurchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof during the Repurchase Period. Coincident with the payment of the Repurchase Price, the Holder shall deliver to the Company the certificates representing the Shares purchased, duly endorsed in blank, and appropriate entries in the records of the Company shall be made to effect the transfer of the Shares to the Company free and clear of any restrictions on transfer, voting agreements, liens, encumbrances or other defects of title.
(iv) TERMINATION OF RIGHTS. The Repurchase Right shall terminate upon the earlier to occur of (i) the date nine (9) months after the original issuance of the shares or (ii) an IPO (as defined below). The term "IPO" shall mean the first underwritten sale of Common Stock of the Company to the general public pursuant to a registration statement filed with and declared effective by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act").
3. LIMITATIONS ON TRANSFER. In addition to any other limitation on transfer created by applicable securities laws, Purchaser shall not sell, transfer (including, without limitation, a transfer by gift), exchange, assign, encumber or dispose of any interest in the Shares except in compliance with the provisions below and applicable securities laws and after such time as the Repurchase Option has expired.
(a) RIGHT OF FIRST REFUSAL. Before any Shares held by Holder may be sold or otherwise transferred (including transfer by gift or operation of law), the Company or its assignee(s) shall have a right of first refusal to purchase the Shares on the terms and conditions set forth in this Section 3(a) (the "Right of First Refusal").
(i) NOTICE OF PROPOSED TRANSFER. The Holder of the Shares shall deliver to the Company a written notice (the "Refusal Right Notice") stating: (i) the Holder's bona fide intention to sell or otherwise transfer such Shares; (ii) the name of each proposed purchaser or other transferee ("Proposed Transferee"); (iii) the number of Shares to be transferred to each Proposed Transferee; and (iv) the terms and conditions of each proposed sale or transfer. The Holder shall offer the Shares at the same price (the "Offered Price") and upon the same terms (or terms as similar as reasonably possible) to the Company or its assignee(s). The Company may, prior to the purchase of any Shares hereunder, require evidence of a bona fide offer to purchase such Shares and, in the case of a disposition for consideration, evidence that the Proposed Transferee has offered such consideration for the Shares.
(ii) EXERCISE OF RIGHT OF FIRST REFUSAL. At any time within 30 days after receipt of the Refusal Right Notice, the Company and/or its assignee(s) may, by giving written notice to the Holder, elect to purchase all, but not less than all, of the Shares proposed to be transferred to any one or more of the Proposed Transferees, at the purchase price determined in accordance with subsection (iii) below.
(iii) REFUSAL RIGHT PURCHASE PRICE. The purchase price ("Refusal Right Purchase Price") for the Shares purchased by the Company or its assignee(s) under this Section 3(a) shall be the Offered Price. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration shall be determined by the Board of Directors of the Company, or a duly authorized committee of the Board of Directors, in good faith.
(iv) PAYMENT AND DELIVERY OF SHARES. Payment of the Refusal Right Purchase Price shall be made, at the option of the Company or its assignee(s), in cash (by check), by cancellation of all or a portion of any outstanding indebtedness of the Holder to the Company (or, in the case of repurchase by an assignee, to the assignee), or by any combination thereof within 30 days after receipt of the Refusal Right Notice or in the manner and at the times set
forth in the Refusal Right Notice. Coincident with the payment of the Refusal Right Purchase Price, the Holder shall deliver to the Company the certificates representing the Shares purchased, duly endorsed in blank, and appropriate entries in the records of the Company shall be made to effect the transfer of the Shares to the Company free and clear of any restrictions on transfer, voting agreements, liens, encumbrances or other defects of title.
(v) HOLDER'S RIGHT TO TRANSFER. If all of the Shares proposed
in the Refusal Right Notice to be transferred to a given Proposed Transferee are
not purchased by the Company and/or its assignee(s) as provided in this Section
3(a), then the Holder may sell or otherwise transfer such Shares to that
Proposed Transferee at the Offered Price or at a higher price, provided that
such sale or other transfer is consummated within 60 days after the date of the
Refusal Right Notice and provided further that any such sale or other transfer
is effected in accordance with any applicable securities laws and the Proposed
Transferee agrees in writing that the provisions of this Section 3 shall
continue to apply to the Shares in the hands of such Proposed Transferee. If the
Shares described in the Refusal Right Notice are not transferred to the Proposed
Transferee within such period, or if the Holder proposes to change the price or
other terms to make them more favorable to the Proposed Transferee, a new
Refusal Right Notice shall be given to the Company, and the Company and/or its
assignees shall again be offered the Right of First Refusal before any Shares
held by the Holder may be sold or otherwise transferred.
(vi) EXCEPTION FOR CERTAIN FAMILY TRANSFERS. Anything to the contrary contained in this Section 3(a) notwithstanding, the transfer of any or all of the Shares during Purchaser's lifetime or on Purchaser's death by will or intestacy to Purchaser's Immediate Family (as defined below) or a trust for the benefit of Purchaser's Immediate Family shall be exempt from the provisions of this Section 3(a). "Immediate Family" as used herein shall mean spouse, lineal descendant or antecedent, father, mother, brother or sister. In such case, the transferee or other recipient shall receive and hold the Shares so transferred subject to the provisions of this Section, and there shall be no further transfer of such Shares except in accordance with the terms of this Section 3.
(b) INVOLUNTARY TRANSFER.
(i) COMPANY'S RIGHT TO PURCHASE UPON INVOLUNTARY TRANSFER. In
the event, at any time after the date of this Agreement, of any transfer by
operation of law or other involuntary transfer (including divorce or death, but
excluding, in the event of death, a transfer to Immediate Family as set forth in
Section 3(a)(vi) above) of all or a portion of the Shares by the record holder
thereof, the Company shall have the right to purchase all of the Shares
transferred at the purchase price determined in accordance with subsection (ii)
below. Upon such a transfer, the person acquiring the Shares shall promptly
notify the Secretary of the Company of such transfer. The right to purchase such
Shares shall be provided to the Company for a period of 30 days following
receipt by the Company of written notice by the person acquiring the Shares.
(ii) PRICE FOR INVOLUNTARY TRANSFER. With respect to any stock to be transferred pursuant to Section 3(b)(i), the price per Share shall be the Fair Market Value of the Shares. The Company shall notify Purchaser or his or her executor of the price so determined
within 30 days after receipt by it of written notice of the transfer or proposed transfer of Shares. Coincident with the payment of the said purchase price, the Holder shall deliver to the Company the certificates representing the Shares purchased, duly endorsed in blank, and appropriate entries in the records of the Company shall be made to effect the transfer of the Shares to the Company free and clear of any restrictions on transfer, voting agreements, liens, encumbrances or other defects of title.
(c) ASSIGNMENT. The right of the Company to purchase any part of the Shares may be assigned in whole or in part to any stockholder or stockholders of the Company or other persons or organizations; provided, however, that an assignee, other than a corporation that is the parent or a 100% owned subsidiary of the Company, must pay the Company, upon assignment of such right, cash equal to the difference between the original purchase price and Fair Market Value, if the original purchase price is less than the Fair Market Value of the Shares subject to the assignment.
(d) RESTRICTIONS BINDING ON TRANSFEREES. All transferees of Shares or any interest therein will receive and hold such Shares or interest subject to the provisions of this Agreement. Any sale or transfer of the Shares shall be void unless the provisions of this Agreement are satisfied.
(e) TERMINATION OF RIGHTS. The Right of First Refusal and the Company's right to repurchase the Shares in the event of an involuntary transfer pursuant to Section 3(b) above shall terminate upon an IPO.
(f) MARKET STANDOFF AGREEMENT. In connection with an initial public offering of the Company's securities and upon request of the Company or the underwriters managing such underwritten offering of the Company's securities, Purchaser agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed 270 days) from the effective date of such registration as may be requested by the Company or such managing underwriters and to execute an agreement reflecting the foregoing as may be requested by the underwriters at the time of the Company's initial public offering.
4. INVESTMENT AND TAXATION REPRESENTATIONS. In connection with the purchase of the Shares, Purchaser represents to the Company the following:
(a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares. Purchaser is purchasing the Shares for investment for his or her own account only and not with a view to, or for resale in connection with, any "distribution" thereof within the meaning of the Securities Act.
(b) Purchaser understands that the Shares have not been registered under the Securities Act and applicable state laws by reason of a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Purchaser's investment intent as expressed herein.
(c) Purchaser understands that the Shares are "restricted securities" under applicable U.S. federal and state securities laws and that, pursuant to these laws, Purchaser must hold the Shares indefinitely unless they are registered with the Securities and Exchange Commission and qualified by state authorities, or an exemption from such registration and qualification requirements is available. Purchaser acknowledges that the Company has no obligation to register or qualify the Shares for resale. Purchaser further acknowledges that if an exemption from registration or qualification is available, it may be conditioned on various requirements including, but not limited to, the time and manner of sale, the holding period for the Shares, and requirements relating to the Company which are outside of the Purchaser's control, and which the Company is under no obligation and may not be able to satisfy.
(d) Purchaser understands that Purchaser may suffer adverse tax consequences as a result of Purchaser's purchase or disposition of the Shares. Purchaser represents that Purchaser has consulted any tax consultants Purchaser deems advisable in connection with the purchase or disposition of the Shares and that Purchaser is not relying on the Company for any tax advice.
5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. The certificate or certificates representing the Shares shall bear the following legends (as well as any legends required by applicable state and federal corporate and securities laws):
(i) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
(ii) THE ISSUER OF THESE SECURITIES WILL FURNISH TO ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR SERIES AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN DETERMINED, AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT CLASSES OR SERIES.
(iii) THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF A PURCHASE AGREEMENT BETWEEN THE COMPANY AND THE STOCKHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE COMPANY.
(b) STOP-TRANSFER NOTICES. Purchaser agrees that, in order to ensure compliance with the restrictions referred to herein, the Company may issue appropriate "stop transfer" instructions to its transfer agent, if any, and that, if the Company transfers its own securities, it may make appropriate notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to transfer on its books any Shares that have been sold or otherwise transferred in violation of any of the provisions of this Agreement or (ii) to treat as owner of such Shares or to accord the right to vote or pay dividends to any purchaser or other transferee to whom such Shares shall have been so transferred.
(d) REMOVAL OF LEGEND. When all of the following events have
occurred, the Shares then held by Purchaser will no longer be subject to the
legend referred to in Section 5(a)(iii): (i) the termination of the Repurchase
Right; (ii) the termination of the Right of First Refusal; and (ii) the
expiration or termination of the market standoff provisions of Section 3(f) (and
of any agreement entered pursuant to Section 3(f)). After such time, and upon
Purchaser's request, a new certificate or certificates representing the Shares
not repurchased shall be issued without the legend referred to in Section
5(a)(iii), and delivered to Purchaser.
6. NO EMPLOYMENT RIGHTS. This Agreement shall not give the Purchaser a right to continued employment with the Company or any parent or subsidiary of the Company, and the Company or any such parent or subsidiary employing the Purchaser may terminate his/her employment at any time and otherwise deal with the Purchaser without regard to the effect it may have upon him/her under this Agreement.
7. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto and the rights and obligations of the parties hereto shall be governed, construed and interpreted in accordance with the laws of the State of Minnesota, without giving effect to principles of conflicts of law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter herein and merges all prior discussions between them. No modification of or amendment to this Agreement, nor any waiver of any rights under this Agreement, shall be effective unless in writing signed by the parties to this Agreement. The failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of any rights of such party.
(c) SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, the parties agree to renegotiate such provision in good faith.
In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (i) such provision shall be excluded from this Agreement, (ii) the balance of the Agreement shall be interpreted as if such provision were so excluded and (iii) the balance of the Agreement shall be enforceable in accordance with its terms.
(d) NOTICES. Any notice required or permitted by this Agreement shall be in writing and shall be deemed sufficient when delivered personally or sent by telegram or fax or 48 hours after being deposited in the U.S. mail, as certified or registered mail, with postage prepaid, and addressed to the party to be notified at such party's address as set forth below or as subsequently modified by written notice.
(e) COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.
(f) SUCCESSORS AND ASSIGNS. The rights and benefits of this Agreement shall inure to the benefit of, and be enforceable by the Company's successors and assigns. The rights and obligations of Purchaser under this Agreement may only be assigned with the prior written consent of the Company.
(g) RIGHTS CUMULATIVE. The purchase rights of the Company pursuant to Sections 2 and 3 shall be in addition to and not in lieu of any other purchase rights that the Company or any other holders of capital stock of the Company may at any time have under any other contract, by operation of law, or otherwise.
The parties have executed this Purchase Agreement as of the date first set forth above.
COMPANY:
CAPELLA EDUCATION COMPANY
By:
Name:
Title:
Address:
225 South 6th Street, 9th Floor
Minneapolis, Minnesota 55402
PURCHASER:
I, ______________________, spouse of , have read and hereby approve the foregoing Agreement. In consideration of the Company's granting my spouse the right to purchase the Shares as set forth in the Agreement, I hereby agree to be bound irrevocably by the Agreement and further agree that any community property or similar interest that I may have in the Shares shall hereby be similarly bound by the Agreement. I hereby appoint my spouse as my attorney-in-fact with respect to any amendment or exercise of any rights under the Agreement.
EXHIBIT 10.9
CAPELLA EDUCATION COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
(SECOND 2005 RESTATEMENT)
CAPELLA EDUCATION COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
(SECOND 2005 RESTATEMENT)
TABLE OF CONTENTS
ARTICLE I INTRODUCTION........................................................................................... 1 1.1 PLAN DESIGN............................................................................................ 1 1.2 PLAN DOCUMENT.......................................................................................... 1 1.3 EFFECTIVE DATE OF DOCUMENT............................................................................. 1 ARTICLE II DEFINITIONS AND CONSTRUCTION........................................................................... 1 2.1 DEFINITIONS............................................................................................ 1 2.2 CHOICE OF LAW.......................................................................................... 6 2.3 USE OF COMPOUNDS OF WORD "HERE"........................................................................ 6 2.4 CONSTRUED AS A WHOLE................................................................................... 6 2.5 HEADINGS............................................................................................... 6 ARTICLE III PARTICIPATION.......................................................................................... 7 3.1 START OF PARTICIPATION................................................................................. 7 3.2 END OF PARTICIPATION................................................................................... 7 ARTICLE IV NO EMPLOYEE CONTRIBUTIONS.............................................................................. 7 ARTICLE V EMPLOYER CONTRIBUTIONS................................................................................. 7 5.1 ESOP CONTRIBUTIONS..................................................................................... 7 5.2 ALLOCATION OF CONTRIBUTIONS............................................................................ 8 ARTICLE VI CONTRIBUTION LIMITS.................................................................................... 8 6.1 MAXIMUM ANNUAL ADDITIONS............................................................................... 8 6.2 DEDUCTION LIMIT........................................................................................ 11 ARTICLE VII ACCOUNTS............................................................................................... 11 7.1 ACCOUNTS............................................................................................... 11 7.2 VALUATION OF ACCOUNTS.................................................................................. 11 7.3 VOTING RIGHTS ON COMPANY STOCK - PUBLIC COMPANY........................................................ 13 7.4 VOTING RIGHTS ON COMPANY STOCK - PRIVATE COMPANY....................................................... 13 ARTICLE VIII INVESTMENT OF ACCOUNTS................................................................................. 14 8.1 INVESTMENT IN COMPANY STOCK............................................................................ 14 8.2 REPAYMENT OF EXEMPT LOAN............................................................................... 14 ARTICLE IX VESTING ............................................................................................... 15 9.1 VESTING AT NORMAL RETIREMENT AGE....................................................................... 15 9.2 VESTING IN EVENT OF DISABILITY OR DEATH................................................................ 15 9.3 VESTING BASED ON SERVICE............................................................................... 15 9.4 FORFEITURE OF NONVESTED BALANCE........................................................................ 15 9.5 FORFEITURE ACCOUNT..................................................................................... 15 9.6 REINSTATEMENT UPON RETURN TO SERVICE................................................................... 15 9.7 FORFEITURE IN EVENT OF MISSING PARTICIPANT OR BENEFICIARY.............................................. 15 ARTICLE X DIVERSIFICATION WHILE EMPLOYED......................................................................... 16 10.1 ELIGIBILITY FOR DIVERSIFICATION........................................................................ 16 10.2 MAXIMUM PERCENTAGE LIMIT............................................................................... 16 10.3 MAXIMUM NUMBER OF SHARES............................................................................... 16 10.4 DIVERSIFICATION DISTRIBUTION PROCEDURES - PUBLIC COMPANY............................................... 16 10.5 DIVERSIFICATION PROCEDURES - PRIVATE COMPANY........................................................... 17 ARTICLE XI DISTRIBUTION AFTER TERMINATION OF EMPLOYMENT........................................................... 18 11.1 DISTRIBUTION AFTER TERMINATION OF EMPLOYMENT........................................................... 18 11.2 DISTRIBUTION PROCEDURES................................................................................ 18 11.3 CASH-OUT OF SMALL ACCOUNTS............................................................................. 19 11.4 MINIMUM DISTRIBUTION RULES............................................................................. 20 ARTICLE XII DISTRIBUTION AFTER DEATH............................................................................... 20 12.1 DISTRIBUTION AFTER DEATH............................................................................... 20 12.2 DISTRIBUTION PROCEDURES................................................................................ 20 12.3 BENEFICIARY DESIGNATION................................................................................ 22 12.4 MULTIPLE BENEFICIARIES................................................................................. 23 |
12.5 CASH-OUT OF SMALL ACCOUNTS............................................................................. 23 12.6 MINIMUM DISTRIBUTION RULES............................................................................. 24 ARTICLE XIII MISCELLANEOUS BENEFIT PROVISIONS....................................................................... 24 13.1 VALUATION OF ACCOUNTS FOLLOWING TERMINATION OF EMPLOYMENT.............................................. 24 13.2 DIRECT ROLLOVER OPTION................................................................................. 24 13.3 BENEFIT STATEMENTS..................................................................................... 24 13.4 MISSING PARTICIPANTS OR BENEFICIARIES.................................................................. 25 13.5 DISTRIBUTION TO ALTERNATE PAYEE........................................................................ 25 13.6 PUT OPTION; RIGHT OF FIRST REFUSAL; OTHER RESTRICTIONS ON COMPANY STOCK................................ 26 13.7 NO OTHER BENEFITS...................................................................................... 27 13.8 SOURCE OF BENEFITS..................................................................................... 27 13.9 INCOMPETENT PAYEE...................................................................................... 27 13.10 NO ASSIGNMENT OR ALIENATION OF BENEFITS................................................................ 27 13.11 PAYMENT OF TAXES....................................................................................... 28 13.12 CONDITIONS PRECEDENT................................................................................... 28 13.13 DELAY OF DISTRIBUTION IN EVENT OF STOCK DIVIDEND OR SPLIT.............................................. 28 13.14 EFFECT OF REEMPLOYMENT................................................................................. 28 ARTICLE XIV TRUST FUND............................................................................................. 28 14.1 COMPOSITION............................................................................................ 28 14.2 NO DIVERSION........................................................................................... 28 14.3 BORROWING TO PURCHASE COMPANY STOCK.................................................................... 28 14.4 FUNDING POLICY......................................................................................... 30 14.5 SHARE REGISTRATION..................................................................................... 30 14.6 PURCHASE/SALE OF COMPANY STOCK......................................................................... 30 ARTICLE XV ADMINISTRATION......................................................................................... 31 15.1 ADMINISTRATION......................................................................................... 31 15.2 CERTAIN FIDUCIARY PROVISIONS........................................................................... 31 15.3 PAYMENT OF EXPENSES.................................................................................... 31 15.4 EVIDENCE............................................................................................... 32 15.5 CORRECTION OF ERRORS AND DUTY TO REVIEW INFORMATION.................................................... 32 15.6 CLAIMS AND LIMITATIONS ON ACTIONS...................................................................... 32 15.7 WAIVER OF NOTICE....................................................................................... 32 15.8 AGENT FOR LEGAL PROCESS................................................................................ 32 15.9 INDEMNIFICATION........................................................................................ 32 15.10 EXERCISE OF AUTHORITY.................................................................................. 33 15.11 TELEPHONIC OR ELECTRONIC NOTICES AND TRANSACTIONS...................................................... 33 ARTICLE XVI AMENDMENT, TERMINATION, MERGER......................................................................... 33 16.1 AMENDMENT.............................................................................................. 33 16.2 PERMANENT DISCONTINUANCE OF CONTRIBUTIONS.............................................................. 34 16.3 TERMINATION............................................................................................ 34 16.4 PARTIAL TERMINATION.................................................................................... 34 16.5 MERGER, CONSOLIDATION, OR TRANSFER OF PLAN ASSETS...................................................... 34 16.6 DEFERRAL OF DISTRIBUTIONS.............................................................................. 34 ARTICLE XVII MISCELLANEOUS PROVISIONS............................................................................... 34 17.1 SPECIAL TOP-HEAVY RULES................................................................................ 34 17.2 QUALIFIED MILITARY SERVICE............................................................................. 36 17.3 INSURANCE COMPANY NOT RESPONSIBLE FOR VALIDITY OF PLAN................................................. 36 17.4 NO GUARANTEE OF EMPLOYMENT............................................................................. 36 |
CAPELLA EDUCATION COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
(SECOND 2005 RESTATEMENT)
ARTICLE I
INTRODUCTION
1.1 PLAN DESIGN. The Capella Education Company Employee Stock Ownership Plan
is a stock bonus and employee stock ownership plan (within the meaning of
Code Section 4975(3)(7)) that is intended to qualify under Code Section
401(a). Thus, the Plan is designed to invest primarily in Company Stock.
1.2 PLAN DOCUMENT. The Plan document consists of this document, any amendments to this document, the List of Participating Employers maintained for the Plan, the List of Predecessor Employers maintained for the Plan, and any other document that is expressly incorporated by reference into the Plan.
1.3 EFFECTIVE DATE OF DOCUMENT. The Plan (as amended and restated in this document) is effective June 1, 2005, unless a different date is specified for some purpose in this document.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 DEFINITIONS.
2.1.1 "Account" means either of the following:
(a) A bookkeeping account maintained to reflect the Participant's interest in the Trust Fund.
(b) A Forfeiture Account.
2.1.2 "Affiliate" means any corporation that is a member of the same controlled
group as the Company as defined in Code Section 414(b), any business
entity that is under common control with the Company as defined in Code
Section 414(c), any business entity that is a member of an affiliated
service group with the Company as defined in Code Section 414(m), or any
other business entity that is required to be aggregated and treated as one
employer with the Company under Code Section 414(o). For purposes of
applying the limits of Code Section 415, Code Sections 414(b) and 414(c)
will be applied as modified by Code Section 415(h).
2.1.3 "Beneficiary" means a person (or persons) designated as such pursuant to Sec. 12.3.
2.1.4 "Code" means the Internal Revenue Code of 1986, as amended.
2.1.5 "Company" means Capella Education Company, a Minnesota corporation, and any successor.
2.1.6 "Company Stock" means the following, as applicable:
(a) Private. If the Company is Private, that class of common stock of the Company having a combination of voting power and dividend rights equal to or in excess of: (i) that class of common stock having the greatest voting power, and (ii) that class of common stock having the greatest dividend rights.
(b) Public. If the Company is Public, the common stock (including associated rights, if any) of the Company which is readily tradable on an established securities market.
2.1.7 "Covered Compensation" means the wages and other compensation reported on Form W-2 (as defined in paragraph (a) below) by a Participating Employer for an individual's employment as an Eligible Employee, but adjusted as described in paragraphs (b), (c) and (d) below.
(a) Form W-2 Definition. Form W-2 includes wages within the meaning of Code Section 3401(a) and all other payments of compensation to an Eligible Employee by a Participating Employer (in the course of the Participating Employer's trade or business) for which the Participating Employer is required to furnish the Eligible Employee a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. This compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)).
(b) Specific Inclusions. Covered Compensation also will include contributions made by pay reduction to:
(1) Any qualified cash or deferred arrangement (as defined in Code
Section 401(k)) that forms part of a plan maintained by the
Participating Employer, which contributions are excludable
from gross income under Code Section 402(e)(3).
(2) Any cafeteria plan (as defined in Code Section 125) maintained by the Participating Employer, which contributions are excludable from gross income under Code Section 125.
(3) Receive qualified transportation fringe benefits provided by the Participating Employer, which contributions are excludable from gross income under Code Section 132(f).
(c) Specific Exclusions. However, Covered Compensation does not include:
(1) Amounts earned while the individual is not an Eligible Employee.
(2) Expense allowances or reimbursements (including but not limited to moving expenses).
(3) Severance pay and any other amounts the payment of which, or entitlement to which, is triggered or accelerated by reason of Termination of Employment (including but not limited to accumulated vacation pay paid at Termination of Employment).
(4) Contributions to, allocations under or distributions from any nonqualified plan of deferred compensation under Code Section 409A (including but not limited to deferred bonuses).
(5) Grants of any stock option, restricted stock, deferred stock unit, stock appreciation right or similar equity compensation (or cash payments in lieu thereof).
(6) Amounts reported as taxable income on Form W-2 as a result of the exercise of a non-qualified stock option or as a result of vesting in restricted stock granted under any stock compensation plan.
(7) Amounts reported as taxable income on Form W-2 as a result of receiving group-term life insurance.
(8) Merchandise or service discounts, non-cash employee awards, earnings payable in a form other than cash, any amounts paid to or for an individual that receive special tax benefits, or any other fringe benefits.
(d) Code Section 401(a)(17) Limit. Covered Compensation does not include any amounts in excess of the limit in effect under Code Section 401(a)(17) for any Plan Year.
2.1.9 "Eligible Employee" means the following:
(a) General Rule. An Eligible Employee is an Employee of a Participating Employer, other than the following (that is, the following are excluded):
(1) Any individual who is a Leased Employee with respect to the Participating Employer, or any other individual who performs services through, or is paid by, a third-party (including, for example, an employee leasing or staffing agency).
(2) Any individual who is classified as a consultant, independent contractor, or as having any status other than a common-law employee by the Participating Employer (regardless of whether such individual is subsequently determined to be a common-law employee or an employee for any other purpose).
(3) Any individual who is a nonresident alien with respect to the United States and who either:
(A) Receives no earned income (within the meaning of
Code Section 911(d)(2)) from the Participating
Employer that constitutes income from sources within
the United States (within the meaning of Code
Section 861(a)(3)), or who receives such earned
income but it all is exempt from income tax in the
United States under the terms of an income tax
treaty; or
(B) Is on temporary assignment in the United States.
(b) Collective Bargaining Employees. An Employee is not an Eligible Employee during any period he/she is a member of a unit of Employees covered by a collective bargaining agreement unless the agreement expressly provides that he/she is eligible to participate in this Plan. For this purpose, a collective bargaining agreement will be deemed to continue in effect after it expires during the pendency of collective bargaining negotiations until the parties have negotiated to "impasse" as determined by the Company, and an Employee thereafter will be an Eligible Employee if and only if participation is part of the impasse proposal of the Company or the Employee was an Eligible Employee before the collective bargaining agreement expired and the Company elects to continue such status with respect to the Plan.
(c) Authorized Leaves of Absence. An Employee will continue as an Eligible Employee during any authorized leave of absence if he/she was an Eligible Employee prior to the start of such leave until Termination of Employment or the happening of any event that would have caused the Employee to cease to be an Eligible Employee if he/she had not been on a leave of absence (e.g., if his/her employer ceases to be a Participating Employer).
An "authorized leave of absence" for this purpose means any absence authorized by the Participating Employer under its standard personnel practices, and also includes any absence due to service in the Armed Forces of the United States provided the Employee returns to employment with the Participating Employer with reemployment rights provided by law.
(d) Termination of Plan. No Employee will become or remain an Eligible Employee after termination of the Plan.
2.1.10 "Employee" means any common-law employee of the Company or an Affiliate (while it is an Affiliate) and any Leased Employee with respect to the Company or an Affiliate (while it is an Affiliate). However, a Leased Employee will not be an Employee if Leased Employees do not constitute more than twenty percent (20%) of the combined workforce of the Company and Affiliates and the Leased Employee is covered by a plan of the leasing organization that is described in Code Section 414(n)(5).
2.1.11 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended.
2.1.12 "Exempt Loan" means a loan or other extension of credit to the Plan to enable the Plan to acquire shares of Company Stock, or to refinance a prior Exempt Loan.
2.1.13 "Forfeiture" means the nonvested balance of a Participant's Account that is forfeited by the Participant upon Termination of Employment, or any other amount treated as a Forfeiture under the terms of the Plan.
2.1.14 "Forfeiture Account" means an Account maintained to reflect Forfeitures (and investment income, gains and losses).
2.1.15 "Highly Compensated Employee" means an Employee who was a five-percent owner (as defined in Code Section 414(q)(2)) at any time during the current Plan Year or the look-back period, or an Employee who received compensation (as defined in Sec. 6.2.2) in excess of the amount in effect under Code Section 414(q)(1)(A) for the look-back period.
The "look-back period" for this purpose is the twelve-month period immediately preceding the current Plan Year.
2.1.16 "Hour of Service" means each of the following (but in no event will duplicate credit be given for the same hour under more than one subsection):
(a) Work Periods. Each hour for which the individual is paid or entitled to payment by the Company or an Affiliate for the performance of services for the Company or Affiliate (while it is an Affiliate), with overtime hours credited on a straight-time basis.
(b) Non-Work Periods. Each hour for which the individual is paid or entitled to payment by the Company or an Affiliate (while it is an Affiliate) on account of a period of time during which no services are performed for the Company or Affiliate (irrespective of whether the employment relationship has terminated) due to vacation (but excluding hours attributable to accrued vacation for which payment is made in lieu of actual time off from work), holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence. However, no more than five hundred and one (501) hours will be credited under this paragraph for any single continuous period during which the individual performs no services. Hours will not be credited under this paragraph with respect to a payment under a plan maintained to comply with applicable workers' compensation, unemployment compensation, or disability insurance laws, or with respect to a payment which reimburses the individual for medical or medically-related expenses.
(c) Back Pay Awards. Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Company or an Affiliate (while it is an Affiliate), with such hours to be credited to the computation period or periods to which the award or agreement pertains, rather than to the computation period in which the award, agreement, or payment is made.
(d) Credit if No Hour Records Maintained. If an individual is within a classification for which a record of hours for the performance of services is not maintained, or if he/she is on an authorized leave of absence or military leave, the individual will be credited with ten (10) hours of service for each day for which he/she would otherwise be credited under (a), (b) or (c) with at least one Hour of Service.
To determine the Hours of Service of a Leased Employee, a payment to the Leased Employee by the leasing organization for services rendered to the Company or an Affiliate will be deemed to be a payment by the Company or Affiliate.
The Company may use any records to determine hours of service which it considers an accurate reflection of the actual facts.
2.1.17 "Leased Employee" means an individual defined as such under Code Section
414(n); generally, any individual who is not a common-law employee of the
Company or an Affiliate, but who performs services for the Company or
Affiliate (while it is an Affiliate) pursuant to an agreement with any
other person, provided such individual has performed such services for
the Company or Affiliate on a substantially full-time basis for a period
of at least one year and such services are performed under the primary
direction and control of the Company or Affiliate.
2.1.18 "Normal Retirement Age" means the later of: (i) the individual's sixty-fifth (65th) birthday, or (ii) the third (3rd) anniversary of the date the individual became a Participant.
2.1.19 "Participant" means either of the following:
(a) an Eligible Employee, or
(b) an Employee or former Employee who is no longer an Eligible Employee but who still has a vested Account balance under the Plan.
2.1.20 "Participating Employer" means the Company and each Affiliate that is identified as a Participating Employer, in the List of Participating Employers maintained for the Plan.
2.1.21 "Plan" means the Capella Education Company Employee Stock Ownership Plan, as amended.
2.1.22 "Plan Year" means the calendar year.
2.1.23 "Predecessor Employer" means any business entity from whose employment a group of Employees has been transferred to employment with the Company or an Affiliate, or any member of a controlled group of corporations of which an Affiliate used to be a member prior to becoming a member of the controlled group of the Company. Each such Predecessor Employer will be identified in the List of Predecessor Employers maintained for the Plan.
2.1.24 "Private" means that the Company's common stock is not readily tradable on an established securities market.
2.1.25 "Public" means that the Company's common stock is readily tradable on an established securities market.
2.1.26 "Spouse" means a person of the opposite sex to whom the Participant is legally married (including a common-law spouse in any state that recognizes common-law marriage), except that a former spouse will be treated as the Spouse to the extent provided under a qualified domestic relations order (as defined in Code Section 414(p)).
2.1.27 "Termination of Employment" means either of the following:
(a) Common Law Employee. In the case of a common-law employee, his/her resignation, discharge, failure to return to work at the end of an authorized leave of absence, death or the happening of any other event or circumstances that results in the severance of the common-law employee relationship between that individual and his/her employer (as determined under the employment policies and practices of the Company). However, a Termination of Employment will not occur with respect to an individual even though there has been a severance of the common-law employee relationship between that individual and his/her employer if he/she remains an Employee (for example, he/she leaves one Affiliate and becomes a common-law employee of another Affiliate, or if he/she continues work as a Leased Employee).
(b) Leased Employee. In the case of a Leased Employee, the end of his/her status as a Leased Employee, unless he/she then becomes a common-law employee of the Company or an Affiliate (while it is an Affiliate).
2.1.28 "Trust Fund" means the trust fund (or funds) that serve as a funding vehicle for the Plan.
2.1.29 "Trustee" means a trustee (or trustees) appointed and acting as such with respect to all or any portion of the Trust Fund.
2.1.30 "Unallocated Reserve" means the portion of the Trust Fund that consists of:
(a) The proceeds of an Exempt Loan,
(b) The shares of Company Stock that were acquired with the proceeds of an Exempt Loan and that have not yet been allocated to Accounts,
(c) The dividends and other investment earnings on the shares of Company Stock or other assets held in the Unallocated Reserve, and
(d) The proceeds from any sale of shares of Company Stock (or other assets) held in the Unallocated Reserve.
2.1.31 "Valuation Date" means the following, as applicable:
(a) Private. If the Company is Private, December 31 of each Plan Year, and any other date, as designated by the Company in written notice to the Trustee, as the Company may consider necessary or advisable to satisfy the requirements of the Code or to provide for the orderly and equitable administration of the Plan.
(b) Public. If the Company is Public, each day on which trading occurs on the principal United States Securities Exchanges registered under the Securities Exchange Act of 1934, as amended.
2.1.32 "Vesting Service" means the following measure of an Employee's service with the Company and Affiliates (while they are Affiliates):
(a) Computation. One year of Vesting Service will be credited to the Employee for each Plan Year in which the Employee has one thousand (1,000) or more Hours of Service.
(b) Completion. A year of Vesting Service will be deemed completed as of the date in the Plan Year that the Employee completes one thousand (1,000) Hours of Service.
(c) No Fractional Years. Fractional years of Vesting Service will not be credited.
(d) Predecessor Employers. Vesting Service also will include service with a Predecessor Employer (such service will be treated as service with an Affiliate) as required under Code Section 414(a) or as provided under the List of Predecessor Employers maintained for the Plan.
2.2 CHOICE OF LAW. The Plan will be governed by the substantive laws of the State of Minnesota (without giving effect to the choice or conflict of law principles of that state), to the extent that such laws are not preempted by the laws of the United States. All controversies, disputes, and claims arising under the Plan and not otherwise resolved must be submitted to the United States District Court for the District of Minnesota, except as otherwise provided in any trust agreement governing all or a portion of the Trust Fund.
2.3 USE OF COMPOUNDS OF WORD "HERE". Use of the words "hereof," "herein," "hereunder," or similar compounds of the word "here" will mean and refer to the entire Plan unless the context clearly indicates to the contrary.
2.4 CONSTRUED AS A WHOLE. The Plan is to be construed as a whole in such manner as to carry out its purpose and a given provision is not to be construed separately without relation to the context.
2.5 HEADINGS. Headings at the beginning of Articles and Sections are for convenience of reference, are not considered a part of the text of the Plan, and will not influence its construction.
ARTICLE III
PARTICIPATION
3.1 START OF PARTICIPATION. An Employee will become a Participant on the date that he/she becomes (or again becomes) an Eligible Employee.
3.2 END OF PARTICIPATION. A Participant will continue as such until:
(a) Nonvested Participant. Termination of Employment without a vested Account balance.
(b) Vested Participant. Full distribution of his/her vested Account balance.
ARTICLE IV
NO EMPLOYEE CONTRIBUTIONS
Employee contributions (including before-tax or after-tax contributions, or rollover contributions) are not required or permitted under the Plan.
ARTICLE V
EMPLOYER CONTRIBUTIONS
5.1 ESOP CONTRIBUTIONS. An ESOP Contribution will be made for any Plan Year for which a payment is due on an Exempt Loan or for any other Plan Year for which the Company in its sole discretion determines that such a contribution will be made. 5.1.1 Amount of Contribution. The amount of the ESOP Contribution for a Plan Year will be determined at the sole discretion of the Company, but will not be less than the minimum amount sufficient to enable the Trustee to make the payment due on any Exempt Loan for the Plan Year to the extent that such payment is not satisfied from (i) cash dividends and other investment earnings on the shares of Company Stock or other assets held in the Unallocated Reserve, (ii) the proceeds from any refinancing of the Exempt Loan, or (iii) the proceeds from any sale of shares of Company Stock or other assets held in the Unallocated Reserve. 5.1.2 Form of Contribution. ESOP Contributions will be made in cash or shares of Company Stock as determined at the sole discretion of the Company. If a contribution is made in shares of Company Stock, each share so contributed will be valued as follows: (a) Private. If the Company is Private, each share will be valued using the value as of the last Valuation Date of the Plan Year to which the contribution relates. (b) Public. If the Company is Public, each share will be valued at the closing price of a share of Company Stock for the Valuation Date immediately preceding the date the Company directs its transfer agent to issue such share to the Trust Fund (as such price is reported in any financial newspaper or on any electronic stock reporting service deemed accurate by the Company). 5.1.3 Time of Contribution. ESOP Contributions will be made to the Trust Fund at such time or times as the Company in its sole discretion deems appropriate. However, the ESOP contribution (if any) for a given Plan Year will be delivered to the Trustee for deposit in the Trust Fund not later than the time prescribed by federal law (including extensions) for filing the federal income tax return of the Company for the taxable year in which the Plan Year ends. 5.1.4 Limits. ESOP Contributions will be subject to the applicable limits set forth in Article VI. 5.2 ALLOCATION OF CONTRIBUTIONS. 5.2.1 Contributions Used for Loan Repayment. The ESOP Contribution for a Plan Year first will be applied to make the payment due on any outstanding Exempt Loan. The shares of Company Stock released from the Unallocated Reserve as a result of such payment will be allocated as provided in Sec. 7.2.2. 5.2.2 Contributions Not Used for Loan Repayment. The ESOP Contribution (or the portion thereof) for a Plan Year that is not applied to an Exempt Loan will be allocated among the Accounts of the allocation eligible Participants for the Plan Year, and the portion allocated to each such Account will be credited to the Account as of the last Valuation Date in the Plan Year. The portion of the ESOP Contribution allocated to the Account of each allocation eligible Participant will equal the total amount of the ESOP Contribution to be so allocated multiplied by a fraction, the numerator of which is the Covered Compensation of the Participant for the Plan Year, and the denominator of which is the aggregate Covered Compensation of all allocation eligible Participants for the Plan Year. 5.2.3 Eligible Participants. An "allocation eligible" Participant for a Plan |
Year is:
(a) A Participant who both:
(1) Has one thousand (1,000) or more Hours of Service during the Plan Year, and
(2) Is an Employee on the last day of the Plan Year.
(b) A Participant whose Termination of Employment occurred during the Plan Year as a result of his/her:
(1) Retirement at or after Normal Retirement Age,
(2) Total and permanent disability (as evidenced by a determination from the Social Security Administration), or
(3) Death.
5.2.4 S Corporation Limitation. Notwithstanding the foregoing, no portion of Plan assets attributable to Company Stock in an S corporation may, during a nonallocation year (as defined in Code Section 409(p)(3)), accrue to the benefit of a disqualified person (as defined in Code Section 409(p)(4)). |
ARTICLE VI
CONTRIBUTION LIMITS
6.1 MAXIMUM ANNUAL ADDITIONS.
6.1.1 Defined Contribution Plan Limit. The annual additions for a Participant for a limitation year will not exceed the lesser of: (a) The dollar amount in effect for such limitation year under Code Section 415(c)(1)(A)), or (b) One-hundred percent (100%) of the Participant's compensation for the limitation year. If a Participant has annual additions under more than one defined contribution plan maintained by the Company or an Affiliate (while it is an Affiliate), the Annual Additions under all such plans will not exceed the limit specified above. 6.1.2 Special Definitions. For purposes of Article VI, the following definitions apply: (a) "Annual Addition" means any of the following amounts credited to the individual as of any date within the limitation year: (1) Employee after-tax contributions credited under any defined contribution plan maintained by the Company or an Affiliate, but not including rollover contributions (whether after-tax or before-tax). (2) Employer contributions and elective deferrals credited under any defined contribution plan or simplified employee pension plan maintained by the Company or an Affiliate, but not including: (i) any excess deferrals under Code Section 402(g) that are timely distributed, (ii) any catch-up contributions under Code Section 414(v), or (iii) any buy-back contributions made to restore a prior forfeiture. (3) Forfeitures credited under this Plan any other defined contribution plan maintained by the Company or an Affiliate. (4) Amounts credited to any individual medical benefit account (as described in Code Section 415(l)(2)) under any defined benefit plan maintained by the Company or an Affiliate. However, such amounts will be disregarded in applying the one hundred percent (100%) of compensation limit under Code Section 415(c)(1)(B). |
(5) Amounts credited to any separate account for retiree medical benefits (as described in Code Section 419A(d)(2)) on behalf of any Key Employee under any welfare benefit fund maintained by the Company or an Affiliate.
Any contrary provision notwithstanding, employer contributions under this Plan that are applied to pay interest on an Exempt Loan will not be an annual addition if no more than one-third (1/3rd) of such employer contributions that are applied to pay principal or interest on an Exempt Loan for the Plan Year are allocated to Participants who are Highly Compensated Employees.
(b) "Compensation" means the wages and other compensation reported on Form W-2 by the Company and all Affiliates for the individual's employment during the limitation year, subject to the following:
(1) Form W-2 Definition. Form W-2 includes wages within the meaning of Code Section 3401(a) and all other payments of compensation to the individual by his/her employer (in the course of the employer's trade or business) for which the employer is required to furnish the individual a written statement under Code Sections 6041(d), 6051(a)(3) and 6052. This compensation must be determined without regard to any rules under Code Section 3401(a) that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Code Section 3401(a)(2)).
(2) Specific Inclusions. Compensation also will include contributions made by pay reduction to
(A) Any qualified cash or deferred arrangement (as defined in Code Section 401(k)) that forms part of a plan maintained by the Company or an Affiliate, which contributions are excludable from gross income under Code Section 402(e)(3).
(B) Any cafeteria plan (as defined in Code Section 125)
maintained by the Company or an Affiliate which
contributions are excludable from gross income under
Code Section 402(e)(3).
(C) Receive qualified transportation fringe benefits provided by the Company or an Affiliate, which contributions are excludable from gross income under Code Section 132(f).
(c) "Limitation Year" means the Plan Year.
6.1.3 Correction if Limit Is Exceeded. If the limit specified in Sec. 6.1.1 would be exceeded for a Participant for a limitation year, the following actions will be taken in the following sequence, to the extent necessary to eliminate the excess: (a) Employee After-Tax Contributions and Elective Deferrals. The defined contribution plan will: (1) Return any unmatched employee contributions made by the individual for the limitation year to the Participant (adjusted for their proportionate share of gains but not losses while held in the defined contribution plan). (2) Distribute unmatched elective deferrals (within the meaning of Code Section 402(g)(3)) made for the limitation year to the individual (adjusted for their proportionate share of gains but not losses while held in the defined contribution plan). (3) Return any matched employee contributions made by the individual for the limitation year to the individual (adjusted for their proportionate share of gains but not losses while held in the defined contribution plan). (4) Distribute matched elective deferrals (within the meaning of Code Section 402(g)(3)) made for the limitation year to the individual (adjusted for their proportionate share of gains but not losses while held in the defined contribution plan). -9- |
To the extent matched employee contributions are returned or any matched elective deferrals are distributed, any matching contribution made with respect thereto shall be forfeited and applied as provided in the defined contribution plan. (b) Employer Contributions. If, after taking all the actions described in paragraph (a), an excess still exists, the defined contribution plan will dispose of the excess as follows: (1) Covered. If the individual is covered by the defined contribution plan at the end of the limitation year, the employer shall cause such excess to be used to reduce employer contributions for the next limitation year ("second limitation year") and succeeding limitation years, as necessary, for that individual. (2) Not Covered. If the individual is not covered by the defined contribution plan at the end of the limitation year, however, then the excess amounts must be held unallocated in an "excess account" for the second limitation year (or succeeding limitation years) and allocated and reallocated in the second limitation year (or succeeding limitation years) to all the remaining participants in the defined contribution plan as if an employer contribution for the second limitation year (or succeeding limitation year). However, if the allocation or reallocation of the excess amounts pursuant to the provisions of the defined contribution plan causes the limitations of Sec. 6.1.1 to be exceeded with respect to each participant for the second limitation year (or succeeding limitation years), then these amounts must be held unallocated in an excess account. If an excess account is in existence at any time during the second limitation year (or any succeeding limitation year), all amounts in the excess account must be allocated and reallocated to participants' accounts (subject to the limitations of Sec. 6.1.1) as if they were additional employer contributions before any employer contribution and any participant contributions which would constitute annual additions may be made to the defined contribution plan for that limitation year. Furthermore, the excess amounts must be used to reduce employer contributions for the second limitation year (and succeeding limitation years, as necessary) for all of the remaining participants. (3) No Distributions. Excess amounts may not be distributed from the defined contribution plan to participants or former participants. If an excess account is in existence at any time during a limitation year, the investment income, gains and losses attributable to the excess account will be allocated to such excess account. To the extent that investment income, gains and losses are allocated to the excess account, the entire amount allocated to participants from the excess account, including any such investment income and gains or less any investment losses, will be considered as an annual addition. If the defined contribution plan should be terminated prior to the date any such temporarily held, unallocated excess can be allocated to the accounts of participants, the date of termination will be deemed to be a valuation date for the purpose of allocating such excess and, if any portion of such excess cannot be allocated as of such deemed valuation date by reason of the limitations of Sec. 6.1.1, such remaining excess will be returned to the Company or Affiliate that maintained the plan. (c) Sequence of Plans. Each step of remedial action under paragraphs (a) and (b) as may be necessary to correct an excess allocation will be made in all defined contribution plans before the next step of remedial action is made. Each such step will be made in the defined contribution plans in the following sequence: (1) All profit sharing and stock bonus plans containing cash or deferred arrangements. (2) All money purchase pension plans, other than money purchase pension plans that are part of employee stock ownership plans. (3) All profit sharing and stock bonus plans, other than profit sharing and stock bonus plans containing cash or deferred arrangements and employee stock ownership plans. |
(4) All employee stock ownership plans.
If an excess allocation occurs in two (2) or more plans in the same category, correction of the excess allocation will be made in chronological order as determined by the original effective date of each plan beginning with the most recently established plan.
6.2 DEDUCTION LIMIT. The contributions made for any Plan Year will not exceed the maximum amount allowable as a deduction in computing the taxable income for federal income tax purposes of the Company and Affiliates for the taxable year of the Company that ends with or within the Plan Year. Each contribution is expressly conditioned upon its being deductible under Code Section 404.
ARTICLE VII
ACCOUNTS
7.1 ACCOUNTS.
7.1.1 Balance of Accounts. Each Account will have a stock balance expressed in full and fractional shares of Company Stock, and may have a cash balance expressed in United States dollars to reflect (i) cash contributions, cash dividends, and other cash amounts received by the Trust Fund that are held in cash temporarily pending investment in shares of Company Stock, and (ii) such minor amounts (if any) as the Trustee determines are appropriate to hold in cash for purposes of honoring anticipated distribution and transfer requests from Participants and Beneficiaries. 7.1.2 Accounts for Bookkeeping Only. Accounts are for bookkeeping purposes only. The maintenance of Accounts will not require any segregation of assets of the Trust Fund. 7.2 VALUATION OF ACCOUNTS. 7.2.1 Valuation Date Adjustments. Accounts will be adjusted as of each Valuation Date as follows: (a) Contributions. Contributions made with respect to a Participant will be added to the balance of his/her Account as soon as administratively practicable after such contributions are paid into the Trust Fund. However, for purposes of applying the nondiscrimination tests under Code Section 401(a)(4), for purposes of determining the maximum allocations under Code Section 415, for purposes of calculating the deductions under Code Section 404 and for any other qualification provision of the Code, a contribution will be treated as having been made for the Plan Year designated by the Company, provided that the contribution is made to the Trust Fund by such deadline as may be prescribed for the applicable provision of the Code. (b) Cash Dividends. The cash dividends paid on shares of Company Stock held by the Trust Fund as of the record date of such dividend (other than cash dividends paid on shares held in the Unallocated Reserve) will be allocated among the Accounts. The portion allocated to each Account will be added to balance of the Account as soon as administratively practicable after such dividends are paid into the Trust Fund. The portion of such cash dividends allocated to each Participant's Account will be determined by multiplying the total cash dividends (other than cash dividends paid on shares held in the Unallocated Reserve) by a fraction, the numerator of which is the number of shares of Company Stock credited to the Participant's Account as of the date the dividends are paid into the Trust Fund (or as of such other date as may be established by the Company), and the denominator of which is the total number of shares of Company Stock held in all Participants' Accounts as of the date the dividends are paid into the Trust Fund (or as of such other date as may be established by the Company). The cash dividends paid on shares of Company Stock held in the Unallocated Reserve as of the record date of such dividend will be credited to the Unallocated Reserve and will thereafter be applied to any payment due for the Plan Year on the Exempt Loan. |
(c) Stock Dividends and Splits. The stock dividends paid on shares of Company Stock credited to the Participant's Account as of the record date of such dividend, and stock splits or reverse stock splits with respect to shares of Company Stock credited to the Participant's Account as of the record date of such split, will be added to the balance of the Account as soon as administratively practicable after the additional shares resulting from such stock dividend, stock split or reverse stock split are paid into the Trust Fund.
The stock dividends paid on shares of Company Stock held in the Unallocated Reserve as of the record date of such dividend, and stock splits or reverse stock splits with respect to shares of Company Stock held in the Unallocated Reserve as of the record date of such split, will be credited to the Unallocated Reserve.
(d) Distributions and Transfers. The distributions and transfers made
from an Account will be subtracted from the balance of the Account as of the date the distribution or transfer is made from the Trust Fund. Any items of investment income and gain not provided for under the above provisions and not applied to pay expenses of the Plan will be allocated among the Accounts in accordance with rules prescribed for this purpose by the Company. Any items of investment loss and any expenses not provided for under the above provisions will be allocated among the Accounts in accordance with rules prescribed for this purpose by the Company. The portion allocated to each Account will be added to or subtracted from the Account as of the date established by the Company. 7.2.2 Annual Adjustments for ESOP Contributions/Shares Released from Unallocated Reserve. (a) Contributions Used for Loan Repayment. The shares of Company Stock released from the Unallocated Reserve for a Plan Year will be allocated among the Accounts of the allocation eligible Participants (as defined in Sec. 5.2.3) for the Plan Year. The shares allocated to each such Account will be added to the balance of the Account as of the last Valuation Date in the Plan Year. The number of shares of Company Stock allocated to the Account of each allocation eligible Participant will be determined by multiplying the number of shares of Company Stock released from the Unallocated Reserve by a fraction, the numerator of which is the Covered Compensation of the allocation eligible Participant for the Plan Year, and the denominator of which is the aggregate Covered Compensation of all allocation eligible Participants for the Plan Year. (b) Contributions Not Used for Loan Repayment. Any ESOP Contribution for a Plan Year that is allocated to a Participant under Sec. 5.2.2 (and not applied to an Exempt Loan) will be added to the balance of the Participant's Account as of the last Valuation Date in the Plan Year. 7.2.3 Processing Transactions Involving Accounts. Accounts will be adjusted to reflect contributions, dividends, distributions and transfers, and other transactions as provided above. However, all information necessary to properly reflect a given transaction in the Accounts may not be immediately available, in which case the transaction will be reflected in the Accounts when such information is received and processed. Further, subject to express limits that may be imposed under the Code or ERISA, the Company reserves the right to delay the processing of any contribution, dividend, distribution or transfer, or other transaction for any legitimate business reason (including, but not limited to, failure of systems or computer programs, failure of the means of the transmission of data, force majeure, the failure of a service provider to timely receive asset values or prices, or to correct for its errors or omissions or the errors or omissions of any service provider). 7.2.4 Valuation of Company Stock - Private Company. If the Company is Private, all valuations of Company Stock for purposes of the Plan will be performed by an independent appraiser as provided in Code Section 401(a)(28)(C). 7.3 VOTING RIGHTS ON COMPANY STOCK - PUBLIC COMPANY. 7.3.1 Voting of Allocated Shares. A Participant (or Beneficiary of a deceased Participant) may instruct the Trustee as to how to vote shares of Company Stock credited to his/her Account on any matter submitted for a vote to shareholders of the Company. The number of shares with respect to -12- |
which a Participant (or Beneficiary) may provide voting instructions will equal the number of full and fractional shares credited to his/her Account as of the record date for determining the shareholders entitled to vote at the shareholders meeting. The Company will cause the proxy materials that are sent to shareholders to be sent to Participants (and Beneficiaries of deceased Participants) prior to the shareholders meeting at which the vote is to be cast. The Company or Trustee will establish a deadline by which instructions must be received from Participants (and Beneficiaries). The Trustee will tabulate the instructions received by that deadline, will determine the number of votes for and against each proposal, and will vote the allocated shares in accordance with the directions received. The Trustee will vote all shares of Company Stock credited to Accounts for which instructions from the Participants (or Beneficiaries) have not been received by the established deadline in the same proportion as the votes cast by Participants (or Beneficiaries). 7.3.2 Voting of Unallocated Shares. The Trustee will vote in its discretion all shares of Company Stock held in the Unallocated Reserve (if any). 7.3.3 Named Fiduciary. A Participant (or Beneficiary) will be a "named fiduciary" to the extent of the voting control granted under this Section. 7.4 VOTING RIGHTS ON COMPANY STOCK - PRIVATE COMPANY. 7.4.1 Trustee Voting of Shares. Shares of Company Stock will be voted by the Trustee as follows: (a) Unallocated Shares. The Trustee will vote in its discretion all shares of Company Stock held in the Unallocated Reserve (if any). (b) Allocated Shares. The Trustee will vote in its discretion all shares of Company Stock credited to Accounts. However, with respect to a transaction for which Participants (or Beneficiaries of deceased Participants) have been granted voting control under Sec. 7.4.2, all shares of Company Stock credited to Accounts will be voted as follows: (1) Shares for which instructions from the Participants (or Beneficiaries) have been received by the established deadline will be voted in accordance with those instructions; and (2) Shares for which instructions from the Participants (or Beneficiaries) have not been received by the established deadline will be voted in the same proportion as the votes cast by Participants (or Beneficiaries) pursuant to Sec. 7.4.2. 7.4.2 Pass-Through Voting for Certain Transactions. A Participant (or Beneficiary of a deceased Participant) may instruct the Trustee as to how to vote shares of Company Stock credited to his/her Account with respect to any vote required for the approval or disapproval of any corporate merger or consolidation, recapitalization, liquidation, dissolution, or sale of substantially all of the assets of the Company, or such similar transaction as the Secretary of the Treasury may prescribe in regulations. The number of shares with respect to which a Participant (or Beneficiary) may provide voting instructions will equal the number of full and fractional shares credited to his/her Account as of the record date for determining the shareholders entitled to vote at the shareholders meeting. The Company will cause the proxy materials that are sent to shareholders to be sent to Participants (and Beneficiaries of deceased Participants) prior to the shareholders meeting at which the vote is to be cast. The Company or Trustee will establish a deadline by which instructions must be received from Participants (and Beneficiaries). The Trustee will tabulate the instructions received by that deadline, will determine the number of votes for and against each proposal, and will vote the allocated shares in accordance with the directions received. 7.4.3 Named Fiduciary. A Participant (or Beneficiary) will be a "named fiduciary" to the extent of the voting control granted under this Section. |
ARTICLE VIII
INVESTMENT OF ACCOUNTS
8.1 INVESTMENT IN COMPANY STOCK. All Accounts will be invested exclusively in shares of Company Stock, except for such minor amounts (if any) as the Trustee determines are appropriate to hold in cash for purposes of honoring anticipated distribution and transfer requests from Participants and Beneficiaries. All shares of Company Stock held under the Plan will be held in the name of the Trustee or the nominee of the Trustee.
8.2 REPAYMENT OF EXEMPT LOAN.
8.2.1 Contribution Requirement. If an Exempt Loan is outstanding, an ESOP Contribution will be made for the Plan Year in an amount at least sufficient to make the payment due on the Exempt Loan to the extent that such payment is not made from (i) cash dividends and other investment earnings on the shares of Company Stock or other assets held in the Unallocated Reserve, (ii) the proceeds from any refinancing of the Exempt Loan, or (iii) the proceeds from any sale of shares of Company Stock or other assets held in the Unallocated Reserve. 8.2.2 Dividend Limitation. Dividends paid on shares of Company Stock allocated to Participants' Accounts will not be used to make payments on an Exempt Loan. |
ARTICLE IX
VESTING
9.1 VESTING AT NORMAL RETIREMENT AGE. A Participant will have a vested and non-forfeitable interest in the full balance of his/her Account upon reaching Normal Retirement Age while employed with the Company or an Affiliate (while it is an Affiliate).
9.2 VESTING IN EVENT OF DISABILITY OR DEATH. A Participant will have a vested and non-forfeitable interest in the full balance of his/her Account upon:
(a) The occurrence of a total and permanent disability (as evidenced by a determination of the Social Security Administration) prior to Termination of Employment; or
(b) Termination of Employment as a result of death.
9.3 VESTING BASED ON SERVICE. As of any date prior to an event specified in Sec. 9.1 or 9.2, the vested balance of a Participant's Account will equal the balance of that Account as of such date multiplied by the vested percentage determined under the following table:
Years of Vested Vesting Service Percentage --------------- ---------- Less than 3 0% 3 or more 100% |
9.4 FORFEITURE OF NONVESTED BALANCE. The nonvested balance of a Participant's Account will become a Forfeiture immediately upon the Participant's Termination of Employment. The Participant will lose all claim to the nonvested balance of an Account upon Forfeiture, subject to possible restoration under Sec. 9.6.
9.5 FORFEITURE ACCOUNT. A Forfeiture Account will be maintained within the Plan. Upon the Forfeiture of the nonvested balance of a Participant's Account, the Forfeiture will be transferred to the Forfeiture Account. As of the last Valuation Date in each Plan Year, the balance of the Forfeiture Account will be used first to restore prior Forfeitures pursuant to Sec. 9.6 and any remaining balance of the Forfeiture Account will be applied under Sec. 5.2 as if it were an ESOP Contribution for the Plan Year.
9.6 REINSTATEMENT UPON RETURN TO SERVICE.
9.6.1 Return Before Recognized Break in Service. If a Participant resumes employment with the Company or an Affiliate (while it is an Affiliate) after a Forfeiture but before he/she has a recognized break in service, an amount will be restored to the Participant's Account equal to the value of such Account as of the date of the Forfeiture. A "recognized break in service" for this purpose means a period of five (5) or more consecutive Plan Years during each of which the individual has five hundred (500) or less Hours of Service. 9.6.2 Restoration of Account. The restoration will be made as of the last Valuation Date of the Plan Year in which the Participant resumes employment with the Company or an Affiliate. Only the actual Forfeiture amount (as a dollar value, not as a number of shares of Company Stock) will be restored. The Participant will not be credited with interest or with any investment income, gain or loss during the period between the Forfeiture date and the restoration date. 9.6.3 Employer Contribution. If the Forfeiture Account is not sufficient to make the restorations due as of the last Valuation Date of the Plan Year, the Participating Employers will made an additional contribution equal to the amount remaining to be restored. This contribution will be made without regard to the limitations of Code Section 415. 9.7 FORFEITURE IN EVENT OF MISSING PARTICIPANT OR BENEFICIARY. If a Participant or Beneficiary cannot be found after reasonable effort, the Participant's Account (or the portion thereof assigned to the Beneficiary) will be treated as a Forfeiture or will be applied in such other manner as may be directed by the Company in accordance with any regulations or other guidance issued by the Internal Revenue Service or the Department of Labor (including payment to any account authorized by law). In the event of such a Forfeiture, if the individual is subsequently located, the Participant's Account (or the portion thereof assigned to the Beneficiary) will be restored either under Sec. 9.6 of the Plan (prior to its termination) or under another qualified defined contribution plan then maintained by the Company or an Affiliate. If no plan is then being maintained by the Company or an Affiliate, restoration will be made by means of a payment from the business assets of the Participating Employers or other method deemed appropriate by the Company. |
ARTICLE X
DIVERSIFICATION WHILE EMPLOYED
10.1 ELIGIBILITY FOR DIVERSIFICATION. Diversification options are available to a Participant while employed with the Company or an Affiliate, starting on the January 1st after he/she:
(a) Attains age fifty-five (55), and
(b) Completes ten (10) or more years of participation in the Plan.
10.2 MAXIMUM PERCENTAGE LIMIT. The maximum percentage of shares of Company Stock available to a Participant for diversification during a given Plan Year will be determined as follows: (a) First Five Years. During the first five (5) Plan Years that the Participant is eligible for diversification, the maximum is twenty-five percent (25%) of the shares of Company Stock that have been credited to his/her Account. (b) Subsequent Years. During the sixth (6th) and subsequent Plan Years that the Participant is eligible for diversification, the maximum is fifty percent (50%) of the shares of Company Stock that have been credited to his/her Account. 10.3 MAXIMUM NUMBER OF SHARES. The maximum number of shares of Company Stock available to the Participant for diversification during a given Plan Year will be determined as follows: (a) Start with the number of shares credited to the Participant's Account as of the December 31st preceding the Plan Year. (b) Add the number of shares (if any) the Participant previously has diversified. (c) Multiply that sum by the maximum percentage specified in Sec. 10.2 for the Plan Year. |
(d) Round that product down to the next lower whole number of shares.
(e) Subtract the number of shares (if any) that the Participant previously has diversified.
(f) The result is the number of shares available to the Participant for diversification during the Plan Year.
10.4 DIVERSIFICATION DISTRIBUTION PROCEDURES - PUBLIC COMPANY.
10.4.1 Election to Diversify. To diversify while the Company is Public, the Participant must elect to diversify in such manner and in accordance with such rules as may be prescribed for this purpose by the Company. The election may be made any time after the Participant becomes eligible to diversify.
10.4.2 Time of Diversification. The diversification will be made as soon as administratively practicable after (i) the Participant is eligible for diversification, (ii) the Participant makes proper application for diversification, and (iii) the Company determines the entitlement of the Participant.
10.4.3 Amount of Diversification. The Participant may elect to diversify any percentage or number of the shares of Company Stock that have been credited to his/her Account, up to the maximum specified in Sec. 10.2 and 10.3.
10.4.4 Method of Diversification. The diversification will be made in either one or a combination of the following methods at the election of the Participant:
(a) Single-Sum Distribution. A single-sum distribution to the Participant.
(b) Direct Rollover. A direct rollover to an eligible retirement plan (as described in Sec. 13.2). However, the rollover cannot be less than $200.
10.4.5 Medium of Diversification. The diversification distribution or rollover will be made in whole shares of Company Stock (any fractional share will be disregarded).
10.4.6 Annual Limit. Only one diversification election is permitted during each Plan Year.
10.5 DIVERSIFICATION PROCEDURES - PRIVATE COMPANY.
10.5.1 Election to Diversify. To diversify while the Company is Private, the Participant must elect to diversify in such manner and in accordance with such rules as may be prescribed for this purpose by the Company. Unless the Company prescribes a longer election period for a given Plan Year, the election may be made only during the first ninety (90) days each Plan Year starting on or after the date the Participant becomes eligible to diversify.
10.5.2 Time of Diversification. The diversification will be made as soon as administratively practicable after (i) the Participant is eligible for diversification, (ii) the Participant makes proper application for diversification, (iii) the Company determines the entitlement of the Participant, and (iv) the valuation required under Sec. 7.2.4 has been completed.
10.5.3 Amount of Diversification. The Participant may elect to diversify any
percentage or number of the shares of Company Stock that have been
credited to his/her Account, up to the maximum specified in Sec. 10.2 and
10.3. The diversification amount will be based on the per share value of
Company Stock as of the last Valuation Date in the Plan Year prior to the
Plan Year in which the diversification occurs.
10.5.4 Method of Diversification. The diversification will be made in any one or a combination of the following methods at the election of the Participant:
(a) Single-Sum Distribution. A single-sum distribution to the Participant.
(b) Direct Rollover. A direct rollover to an eligible retirement plan (as described in Sec. 13.2). However, the rollover cannot be less than $200.
(c) Transfer to Capella Savings Plan. A transfer to the Capella Education Company Retirement Savings Plan ("Savings Plan") for investment in investments other than Company Stock, provided that the Company offers three or more investment options in the Savings Plan.
10.5.5 Medium of Diversification. The diversification distribution, rollover or transfer will be made in cash.
10.5.6 Annual Limit. Only one diversification election is permitted during each Plan Year.
ARTICLE XI
DISTRIBUTION AFTER TERMINATION OF EMPLOYMENT
11.1 DISTRIBUTION AFTER TERMINATION OF EMPLOYMENT. A Participant will be eligible to receive a distribution of the vested balance of his/her Account following his/her Termination of Employment in accordance with the terms of this Article. 11.2 DISTRIBUTION PROCEDURES. |
11.2.1 Application for Distribution. To receive the distribution, the Participant must apply in such manner and in accordance with such rules as may be prescribed for this purpose by the Company.
11.2.2 Valuation of Distribution.
(a) Private. If the Company is Private, the Participant becomes eligible for distribution on the January 1st following his/her Termination of Employment. The Valuation Date for the distribution will be determined as follows:
(1) If the Participant is eligible for distribution and the Company receives his/her proper application for distribution between January 1st and June 30th (inclusive) or such later date as the Company may prescribe for a given Plan Year, the distribution value will be determined as of the last Valuation Date of the Plan Year preceding the application date.
(2) If the Participant is eligible for distribution and the Company receives his/her proper application after the date established in (1) above, but on or before December 31st, the distribution value will be determined as of the Valuation Date coincident with or next following the application date.
(b) Public. If the Company is Public, the Participant becomes eligible for distribution on the day after his/her Termination of Employment. The distribution value will be determined as of the Valuation Date coincident with or immediately preceding the distribution date, as determined by the Company.
11.2.3 Time of Distribution.
(a) General Rule. The distribution will be made as follows:
(1) Private. If the Company is Private, the distribution will
be made as soon as administratively practical after (i) the
Participant is eligible for distribution, (ii) the
Participant makes proper application for distribution,
(iii) the Company determines the entitlement of the
Participant, and (iv) the valuation required under Sec.
7.2.4 has been completed
(2) Public. If the Company is Public, the distribution will be
made as soon as administratively practicable after (i) the
Participant is eligible for distribution, (ii) the
Participant makes proper application for distribution, and
(iii) the Company determines the entitlement of the
Participant.
(b) Normal Retirement Age. While a distribution generally will be made not later than sixty (60) days after the close of the Plan Year in which a Participant attains Normal Retirement Age (or in which his/her Termination of Employment occurs, if later), a failure to apply for the distribution will serve as a waiver of this requirement.
(c) Required Beginning Date. The deadline for distribution to the
Participant, however, is his/her required beginning date. For this
purpose, "required beginning date' means the April 1 of the
calendar year after the later of (i) the calendar year in which
the Participant attains age seventy and one-half (70-1/2), or (ii)
the calendar year of Termination of Employment. However, clause
(ii) will not apply to any Participant who is more than a
five-percent (5%) owner (as defined in Code Section 416) with
respect to the Plan Year in which he/she attains age seventy and
one-half (70-1/2).
11.2.4 Method of Distribution. The distribution will be made in either one or a combination of the following methods at the election of the Participant:
(a) Single-Sum Distribution. A single-sum distribution to the Participant.
(b) Direct Rollover. A direct rollover to an eligible retirement plan (as described in Sec. 13.2). However, the rollover cannot be less than $200.
(c) Transition Rules.
(1) Special Installment Option. Notwithstanding the above, a Participant whose Termination of Employment occurred prior to June 1, 2005, may also elect to receive distribution in five (5) (or more) annual installment distributions, pursuant to the terms of the Plan as in effect prior to June 1, 2005.
(2) Special Single-Sum Option. Notwithstanding anything in the Plan to the contrary, a Participant who as of June 1, 2005 is receiving installment distributions under the terms of the Plan as in effect prior to June 1, 2005, may elect to receive his/her remaining vested Account balance in a single-sum distribution.
11.2.5 Medium of Distribution. The distribution (including any direct rollover) will be made in the following medium, as applicable:
(a) Private. If the Company is Private, the Participant may elect either one or a combination of the following:
(1) Cash, or
(2) Whole shares of Company Stock (with any fractional share in cash).
If the Participant does not elect a medium of distribution, the distribution will be made in cash.
(b) Public. If the Company is Public, the distribution will be made in whole shares of Company Stock (with any fractional share in cash).
11.2.6 Default upon Failure to Request Distribution. If the Participant fails to apply for a distribution in advance of his/her required beginning date under Sec. 11.2.3, a single-sum distribution will be made to the Participant immediately before his/her required beginning date in the following medium, as applicable:
(a) Private. If the Company is Private, the distribution will be made in cash.
(b) Public. If the Company is Public, the distribution will be made in whole shares of Company Stock (with any fractional share in cash).
11.3 CASH-OUT OF SMALL ACCOUNTS.
11.3.1 Cash-Out Amount. If the vested balance of a Participant's Account does not exceed one thousand dollars ($1,000) when the Participant becomes eligible for distribution, a single-sum distribution of the full vested balance of the Account will be made to the Participant, as follows:
(a) Private. If the Company is Private, the distribution will be made as soon as administratively practicable after (i) the Participant becomes eligible for distribution, (ii) the Company determines the entitlement of the Participant and (iii) the valuation required under Sec. 7.2.4 has been completed.
(b) Public. If the Company is Public, the distribution will be made as soon as administratively practicable after (i) the Participant's Termination of Employment occurs and (ii) the Company determines the entitlement of the Participant.
11.3.2 Subsequent Changes. If the vested balance of a Participant's Account exceeds one thousand dollars ($1,000) when the Participant becomes eligible for distribution, but subsequently falls below such amount (for example, because of investment losses), the Company may then direct that a single-sum distribution of the full vested balance of the Account be made to the Participant.
11.3.3 Medium of Distribution. The distribution (including any direct rollover) will be made in the following medium, as applicable:
(a) Private. If the Company is Private, the Participant may elect either one or a combination of the following:
(1) Cash, or
(2) Whole shares of Company Stock (with any fractional share in cash).
If the Participant does not elect a medium of distribution, the distribution will be made in cash.
(b) Public. If the Company is Public, the distribution will be made in
whole shares of Company Stock (with any fractional share in cash). 11.4 MINIMUM DISTRIBUTION RULES. Any contrary provision notwithstanding, distribution will be made as necessary to comply with the minimum distribution rules of Code Section 401(a)(9) (including the incidental death benefit rules of Code Section 401(a)(9)(G)). |
ARTICLE XII
DISTRIBUTION AFTER DEATH
12.1 DISTRIBUTION AFTER DEATH. The Beneficiary of a Participant will be eligible to receive a distribution of that portion of the vested balance of the Participant's Account allocated to such Beneficiary following the Participant's death in accordance with the terms of this Article. 12.2 DISTRIBUTION PROCEDURES. |
12.2.1 Application for Distribution. To receive the distribution, the Beneficiary must apply in such manner and in accordance with such rules as may be prescribed for this purpose by the Company.
12.2.2 Valuation of Distribution.
(a) Private. If the Company is Private, the Beneficiary becomes eligible for distribution on the January 1st following the Participant's death. The Valuation Date for the distribution will be determined as follows:
(1) If the Beneficiary is eligible for distribution and the Company receives his/her proper application for distribution between January 1st and June 30th (inclusive) or such later date as the Company may prescribe for a given Plan Year, the
distribution value will be determined as of the last Valuation Date of the Plan Year preceding the application date.
(2) If the Beneficiary is eligible for distribution and the Company receives his/her proper application after the date established in (1) above, but on or before December 31st, the distribution value will be determined as of the Valuation Date coincident with or next following the application date.
(b) Public. If the Company is Public, the Beneficiary becomes eligible for distribution on the day after the Participant's death. The distribution value will be determined as of the Valuation Date coincident with or immediately preceding the distribution date, as determined by the Company.
12.2.3 Time of Distribution.
(a) General Rule. The distribution will be made as follows:
(1) Private. If the Company is Private, the distribution will
be made as soon as administratively practical after (i) the
Beneficiary is eligible for distribution, (ii) the
Beneficiary makes proper application for distribution,
(iii) the Company determines the entitlement of the
Beneficiary, and (iv) the valuation required under Sec.
7.2.4 has been completed.
(2) Public. If the Company is Public, the distribution will be
made as soon as administratively practicable after (i) the
Beneficiary is eligible for distribution, (ii) the
Beneficiary makes proper application for distribution, and
(iii) the Company determines the entitlement of the
Beneficiary.
(b) Distribution Deadline. The deadline for distribution to the Beneficiary is December 31st of the calendar year in which falls the fifth (5th) anniversary of the Participant's death.
12.2.4 Method of Distribution.
(a) General Rule. The distribution will be made in the form of a single-sum distribution to the Beneficiary.
(b) Spouse's Rollover Option. A Beneficiary who is the Participant's surviving Spouse may elect a direct rollover to an eligible retirement plan (as described in Sec. 13.2) of all or any part (but not less than $200) of his/her benefit.
(c) Transition Rules.
(1) Special Installment Option. Notwithstanding the above, if the Participant died prior to June 1, 2005, the Beneficiary may also elect to receive distribution in five (5) (or more) annual installment distributions, pursuant to the terms of the Plan as in effect prior to June 1, 2005.
(2) Special Single-Sum Option. Notwithstanding anything in the Plan to the contrary, a Beneficiary who as of June 1, 2005 is receiving installment distributions under the terms of the Plan as in effect prior to June 1, 2005, may elect to receive his/her remaining vested Account balance in a single-sum distribution.
12.2.5 Medium of Distribution. The distribution (including any direct rollover) will be made in the following medium, as applicable:
(a) Private. If the Company is Private, the Beneficiary may elect either one or a combination of the following:
(1) Cash, or
(2) Whole shares of Company Stock (with any fractional share in cash).
If the Beneficiary does not elect a medium of distribution, the distribution will be made in cash.
(b) Public. If the Company is Public, the distribution will be made in whole shares of Company Stock (with any fractional share in cash).
12.2.6 Default Upon Failure to Request Distribution. If the Beneficiary fails to apply for distribution in advance of the deadline specified in Sec. 12.2.3, a single-sum distribution will be made to the Beneficiary immediately before such deadline in the following medium, as applicable:
(a) Private. If the Company is Private, the distribution will be made in cash.
(b) Public. If the Company is Public, the distribution will be made in whole shares of Company Stock (with any fractional share in cash).
12.3 BENEFICIARY DESIGNATION.
12.3.1 General Rule. A Participant may designate any person (natural or otherwise, including a trust or estate) as his/her Beneficiary to receive any balance remaining in his/her Account when he/she dies, and may change or revoke a Beneficiary designation previously made without the consent of any Beneficiary named therein.
12.3.2 Special Requirements for Married Participants. If a Participant has a Spouse at the time of death, such Surviving Spouse will be his/her Beneficiary unless:
(a) The Spouse has consented in writing to the designation of a different Beneficiary;
(b) The Spouse's consent acknowledges the effect of such designation; and
(c) The Spouse's consent is witnessed by a notary public or an authorized representative of the Plan.
Consent of a Spouse will be deemed to have been obtained if it is established to the satisfaction of the Company that such consent cannot be obtained because the Spouse cannot be located, or because of such other circumstances as may be prescribed by the Secretary of Treasury. A consent by a Spouse will be effective only with respect to such Spouse, and cannot be revoked. A Beneficiary designation that has received spousal consent cannot be changed without spousal consent.
12.3.3 Form and Method of Designation. A Beneficiary designation must be made on such form and in accordance with such rules as may be prescribed for this purpose by the Company. A Beneficiary designation will be effective (and will revoke all prior designations) only if it is received by the Company and either:
(a) It is received by the Company prior to the date of death of the Participant; or
(b) If sent by mail, the post-mark of the mailing is prior to the date of death of the Participant.
The Company may rely on the latest designation on file with it (or may direct that payment be made pursuant to the default provision if an effective designation is not on file) and will not be liable to any person making claim for such payment under a subsequently filed designation or for any other reason.
If a Participant designates a Beneficiary by name that is accompanied by a description of a business, legal or familial relationship to the Participant (for example, "spouse", "business partner", "landlord"), such Beneficiary will be deemed to have predeceased the Participant if such relationship has been dissolved or no longer exists at the death of the Participant. If a Participant designates a Beneficiary by name that is accompanied by a description of a personal relationship to the Participant (for example, "friend"), the dissolution of that relationship will not affect the designation.
12.3.4 Default Designation. If a Beneficiary designation is not on file with the Company, or if no designated Beneficiary survives the Participant, the Beneficiary will be the person or persons surviving the Participant in the first of the following classes in which there is a survivor, share and share alike:
(a) The Participant's Spouse.
(b) The Participant's children, except that if any of the Participant's children predecease the Participant but leave issue surviving the Participant, such issue will take by right of representation the share their parent would have taken if living.
(c) The Participant's parents.
(d) The Participant's brothers and sisters, except that if any of the Participant's siblings predecease the Participant but leave issue surviving the Participant, such issue will take by right of representation the share their parent would have taken if living.
(e) The Participant's estate.
The identity of the Beneficiary in each case will be determined by the Company.
12.3.5 Successor Beneficiary. If a Beneficiary survives the Participant but dies
before receiving the full balance to which he/she is entitled, the remaining balance will be payable to the surviving contingent Beneficiary designated by the Participant or otherwise to the estate of the deceased Beneficiary. 12.4 MULTIPLE BENEFICIARIES. If more than one Beneficiary is entitled to benefits following the death of a Participant, the interest of each will be segregated for purposes of applying this Article. 12.5 CASH-OUT OF SMALL ACCOUNTS. |
12.5.1 Cash-Out Amount. If the vested balance of the Account payable to a Beneficiary does not exceed one thousand dollars ($1,000) when the Beneficiary becomes eligible for distribution, a single-sum distribution of the full vested balance of the Account will be made to the Beneficiary as follows:
(a) Private. If the Company is Private, the distribution will be made as soon as administratively practicable after (i) the Beneficiary becomes eligible for distribution, (ii) the Company determines the entitlement of the Beneficiary, and (iii) the valuation required under Sec. 7.2.4 has been completed.
(b) Public. If the Company is Public, the distribution will be made as soon as administratively practicable after (i) the Participant's death occurs and (ii) the Company determines the entitlement of the Beneficiary.
12.5.2 Subsequent Changes. If the vested balance of the Account payable to a Beneficiary exceeds one-thousand dollars ($1,000) when the Beneficiary becomes eligible for distribution, but subsequently falls below such amount (for example, because of investment losses), the Company may then direct that a single-sum distribution of the full vested balance of the Account be made to the Beneficiary.
12.5.3 Medium of Distribution. The distribution (including any direct rollover) will be made in the following medium, as applicable:
(a) Private. If the Company is Private, the Beneficiary may elect either one or a combination of the following:
(1) Cash, or
(2) Whole shares of Company Stock (with any fractional share in cash).
If the Beneficiary does not elect a medium of distribution, the distribution will be made in cash.
(b) Public. If the Company is Public, the distribution will be made in
whole shares of Company Stock (with any fractional share in cash). 12.6 MINIMUM DISTRIBUTION RULES. Any contrary provision notwithstanding, distribution after the death of the Participant will be made as necessary to comply with the minimum distribution rules of Code Section 401(a)(9). |
ARTICLE XIII
MISCELLANEOUS BENEFIT PROVISIONS
13.1 VALUATION OF ACCOUNTS FOLLOWING TERMINATION OF EMPLOYMENT.
13.1.1 Continued Adjustment of Accounts. If a distribution of all or any portion of an Account is deferred or delayed for any reason, the Account will continue to be adjusted to reflect increases or decreases in the value of Company Stock, dividends on Company Stock, and other investment income, gains or losses of the Trust Fund in accordance with the terms of the Plan.
13.1.2 Disbursement Account. To facilitate cash distributions from the Plan, the Plan may participate in a disbursement account established by the Trustee or recordkeeper for the Plan. The person entitled to the distribution will not be entitled to any interest or other income earned on such disbursement account; rather, such interest or other income will be applied in accordance with the policies and procedures of the Trustee or recordkeeper for the Plan.
13.2 DIRECT ROLLOVER OPTION.
13.2.1 Eligible Individuals. An eligible rollover distribution of two hundred dollars ($200) or more made to a Participant, the Spouse of a deceased Participant, or an alternate payee under a qualified domestic relations order who is the Spouse or former Spouse of a Participant may be made in the form of a direct rollover to an eligible retirement plan. The recipient of an eligible rollover distribution must provide the Company with the information necessary to accomplish the direct rollover in such manner and in accordance with such rules as may be prescribed for this purpose by the Company.
13.2.2 Eligible Rollover Distribution. An "eligible rollover distribution" for purpose is any distribution defined as such under Code Section 402(c)(4) (for example, an eligible rollover distribution does not include a hardship distribution, a distribution that is part of a series of installments payable over a period of ten (10) years or more, a cash dividend distribution under Code Section 404(k) or a distribution that is required under Code Section 401(a)(9)).
13.2.3 Eligible Retirement Plan. An "eligible retirement plan" for this purpose
is any individual retirement plan described in Code Section 408(a), any
individual retirement annuity described in Code Section 408(b) (other
than an endowment contract), any qualified trust as described in Code
Section 402(c)(8)(a), any annuity plan described in Code Section 403(a),
any eligible deferred compensation plan described in Code Section 457(b)
which is maintained by an eligible employer described in Code Section
457(e)(1)(A), and any annuity contract described in Code Section 403(b).
13.3 BENEFIT STATEMENTS.
13.3.1 Issuance of Statements. The Company may cause benefit statements to be issued from time to time advising Participants and Beneficiaries of the balance and/or investment of their Accounts. However, the Company is not required to issue benefits statements except at the request of a Participant or Beneficiary to the extent so required by ERISA.
13.3.2 Errors on Statements. The Company may correct errors that appear on benefit statements at any time, and the issuance of a benefit statement (and any errors that may appear on a statement) will not in any way alter or affect the rights of a Participant or Beneficiary with respect to the Plan.
13.3.3 Participant's Duty to Review Statements. Each Participant or Beneficiary has a duty to promptly review each benefit statement and to notify the Company of any error that appears on such statement within thirty (30) days of the date such statement is provided or made available to the
Participant or Beneficiary (for example, the date the statement is sent by mail, or the date the statement is provided or made available electronically). If a Participant or Beneficiary fails to review a benefit statement or fails to notify the Company of any error that appears on such statement within such period of time, he/she will not be able to bring any claim seeking relief or damages based on the error. 13.4 MISSING PARTICIPANTS OR BENEFICIARIES. A Participant or Beneficiary must maintain his/her most recent post office address on file with the Company. Any communication addressed to the Participant or Beneficiary at the post office address on file with the Company will be binding on the Participant or Beneficiary for all purposes of the Plan. If a Participant or Beneficiary fails to claim any amount payable under the Plan, or if any check or stock certificate is returned after being sent to the most recent post office address on file with the Company, or if a Participant or Beneficiary fails to cash any check drawn on the disbursement account established for the Plan, such amount will be disposed of as provided in Sec. 9.7. 13.5 DISTRIBUTION TO ALTERNATE PAYEE. |
13.5.1 Immediate Distribution Option. An alternate payee under a qualified domestic relations order (each as defined in Code Section 414(p)) may elect to receive a single-sum distribution of the amount assigned to such individual under the order as soon as administratively practicable after the Company has determined that the order is a qualified domestic relations order (and all time for appeal of such decision has expired), or as of such later date as may be specified in the order, without regard to whether such distribution is made prior to the earliest retirement age (as defined in Code Section 414(p)). The Valuation Date for such distribution will be determined under Sec. 11.2.2 using the date the Company receives the order (or any later distribution date specified in the order) as the application date under that section. If the Company is Private, the distribution will be delayed until the valuation required under Sec. 7.2.4 has been completed.
13.5.2 Small Amounts. If the amount assigned to the alternate payee under a qualified domestic relations order does not exceed one thousand ($1,000), such amount will be distributed to the alternate payee in a single-sum distribution as soon as administratively practicable after the Company has determined that the order is a qualified domestic relations order (and all time for appeal of such decision has expired), and a delayed distribution option will not be available to the alternate payee. The Valuation Date for such distribution will be determined under Sec. 11.2.3 using the date the Company receives the order as the application date under that section. If the Company is Private, the distribution will be delayed until the valuation required under Sec. 7.2.4 has been completed.
13.5.3 Medium of Distribution. The distribution (including any direct rollover) will be made in the following medium, as applicable:
(a) Private. If the Company is Private, the alternate payee may elect either one or a combination of the following:
(1) Cash, or
(2) Whole shares of Company Stock (with any fractional share in cash).
If the alternate payee does not elect a medium of distribution, the distribution will be made in cash.
(b) Public. If the Company is Public, the distribution will be made in whole shares of Company Stock (with any fractional share in cash).
13.6 PUT OPTION; RIGHT OF FIRST REFUSAL; OTHER RESTRICTIONS ON COMPANY STOCK.
13.6.1 Put Option. If shares of Company Stock are either not readily tradable on an established securities market (in other words, the Company is Private) or are subject to a trading limitation when such shares are distributed, such shares will be subject to a "put option" as follows:
(a) The put option will be to the Company; provided that, the Trustee may at its discretion cause the Plan to voluntarily assume the rights and obligations of the Company with respect to the put option.
(b) The put option may be exercised only by the distributee (whether the Participant, Beneficiary or alternate payee), any person to whom the shares have passed by gift from the distributee or any person (including an estate or distributee of an estate) to whom the shares have passed on the death of the distributee.
(c) The put option may be exercised only during the following periods:
(1) The three (3) month period beginning on the date the shares are distributed from the Plan; and
(2) The three (3) month period beginning on the first anniversary of the date the shares were distributed from the Plan;
provided that, each exercise period will be extended by the number of days during such period that the holder is unable to exercise the put option because the Company is prohibited from honoring the put option by federal or state law.
(d) The put option may be exercised by written notice of exercise to the Company made on such form and in accordance with such rules as may be prescribed for this purpose by the Company.
(e) Any put option provided under this Sec. 13.6.1 will lapse at the time that such distributed shares become readily tradable on an established securities market (in other words, when the Company is Public).
(f) The Company will honor a put option by paying to the holder the fair market value either in a single lump sum or substantially equal installments (bearing a reasonable rate of interest and providing adequate security to the holder) over a period beginning within thirty (30) days following the date the put option is exercised and ending not more than five (5) years after the date the put option is exercised.
A "trading limitation" means a restriction under any federal or state securities law or under any agreement affecting the shares that would make the shares not as freely tradable as shares not subject to such restriction.
13.6.2 Right of First Refusal. If the Company is Private when shares of Company stock are distributed from the Plan, the shares will be subject to a "right of first refusal" as follows:
(a) A distributee (as defined in Sec. 13.6.1(b) above) will not sell, assign, give, bequeath or otherwise transfer or dispose of any of the shares of Company Stock distributed hereunder without first giving written notice to the Company of the distributee's intent to sell or make such disposition. Notwithstanding the above, an eligible distributee may transfer the shares of Company Stock to an individual retirement account as defined in Code Section 408 that is established by the distributee for his/her benefit; provided that, the put option and right of first refusal provided in the Plan continue to apply after the transfer.
(b) The notice must state the number of shares that are proposed to be disposed of, the amount of any consideration offered, and the name of the respective purchaser or assignee.
(c) For fourteen (14) days following the receipt of the notice, the Company will have the option to purchase the shares for the greater of the following:
(1) The fair market value of the shares of Company Stock, or
(2) The price per share to be paid in the manner consistent with the payment terms contained in a good-faith written offer to buy such shares, as provided under (b) above.
(d) The Company will notify the distributee of its intent to exercise its rights under this Sec. 13.6.2; provided that, the such right may also be exercised by the Plan.
(e) The Company (or the Plan) will exercise its rights by paying to
the holder the purchase price either in a single lump sum or
substantially equal installments (bearing a reasonable rate of
interest and providing adequate security to the holder) over a
period beginning within thirty (30) days following the date the
right of first refusal is exercised and ending not more than five
(5) years after the date the right of first refusal is exercised.
(f) If the Company (or the Plan) does not exercise its right of first refusal, the distributee may dispose of the shares of Company Stock in accordance with the notice provided under (b) above for a period of one hundred twenty (120) days after the expiration of the Company's fourteen (14) day option period.
(g) The right of first refusal provided under this Sec. 13.6.2 will lapse at the time that such distributed shares become readily tradable on an established securities market (in other words, when the Company is Public).
13.6.3 No Other Restrictions. Except as provided above, no other options,
buy-sell arrangements, puts, call, rights of first refusal or other restrictions on alienability will attach to any shares of Company Stock acquired with the proceeds of an Exempt Loan and held in the Trust Fund or distributed from the Plan, whether or not the Plan continues to be an employee stock ownership plan. 13.7 NO OTHER BENEFITS. No benefits other than those specifically provided for in the Plan document will be provided under the Plan. 13.8 SOURCE OF BENEFITS. All benefits to which any person becomes entitled under the Plan will be provided only out of the Trust Fund and only to the extent that the Trust Fund is adequate therefor. The Participants and Beneficiaries assume all risk connected with any decrease in the market value of shares of Company Stock or any other assets held under the Plan, and the Company and its Affiliates do not in any way guarantee the Trust Fund against any loss or depreciation, or the payment of any amount, that may be or become due to any person from the Trust Fund. 13.9 INCOMPETENT PAYEE. If a person entitled to distribution hereunder is in the opinion of the Company unable to care for his/her affairs because of a mental or physical condition, any distribution due such person may be made to such person's guardian, conservator, or other legal personal representative upon furnishing the Company with evidence satisfactory to the Company of such status. Prior to the furnishing of such evidence, the Company may cause the distribution due the person to be made, for such person's use and benefit, to any person or institution then in the opinion of the Company caring for or maintaining the person. The Company will have no liability with respect to any distribution so made and will have no duty to make inquiry as to the competence of any person entitled to receive distribution hereunder. 13.10 NO ASSIGNMENT OR ALIENATION OF BENEFITS. The interests of any person who is entitled to benefits under the Plan may not in any manner whatsoever be assigned or alienated, whether voluntarily or involuntarily, directly or indirectly, except as expressly permitted under Code Section 401(a)(13). 13.11 PAYMENT OF TAXES. The Trustee may pay any estate, inheritance, income, or other tax, charge, or assessment attributable to any benefit payable hereunder which in the Trustee's opinion it will be or may be required to pay out of such benefit. The Trustee may require, before making any payment, such release or other document from any taxing authority and such indemnity from the intended payee as the Trustee will deem necessary for its protection. 13.12 CONDITIONS PRECEDENT. No person will be entitled to a benefit until his/her right to such benefit has been finally determined by the Company nor until he/she has submitted to the Company relevant data reasonably requested by the Company, including, but not limited to, proof of birth or death. 13.13 DELAY OF DISTRIBUTION IN EVENT OF STOCK DIVIDEND OR SPLIT. The Company may direct that, no distribution will be made between the record date and the ex-date of any stock dividend, stock split or reverse stock split if the ex-date is after the record date. -26- |
13.14 EFFECT OF REEMPLOYMENT. If a Participant is reemployed by the Company or an Affiliate (while it is an Affiliate) before he/she has received full distribution of the vested balance of his/her Account, entitlement to a distribution will cease upon such reemployment, and will recommence in accordance with the terms of the Plan upon subsequent Termination of Employment. |
ARTICLE XIV
TRUST FUND
14.1 COMPOSITION. The assets of the Plan will be held in trust by one or more Trustees appointed by the Company under one or more trust agreements. The Company may cause the assets held under any trust agreement to be divided into any number of parts for investment purposes or any other purpose deemed necessary or advisable for the proper administration of the Plan. 14.2 NO DIVERSION. The Trust Fund will be maintained for the exclusive purpose of providing benefits to Participants and their Beneficiaries and defraying reasonable expenses of administering the Plan. No part of the corpus or income of the Trust Fund may be used for, or diverted to, purposes other than for the exclusive benefit of Participants or their Beneficiaries. Notwithstanding the foregoing: (a) Mistake of Fact. If all or any portion of a contribution is made as a result of a mistake of fact, the Trustee will, upon written request of the Company, return such portion of the contribution to the Company within one year after its payment to the Trust Fund. Earnings attributable to such contribution (or portion thereof) will not be returned but will remain in the Trust Fund, and the amount returned will be reduced by any losses attributable to such contribution (or portion thereof). (b) Disallowance of Deduction. Each contribution is conditioned upon the deductibility of the contribution under Code Section 404. To the extent the deduction is disallowed, the Trustee will return such contribution to the Company within one year after the disallowance of the deduction; however, earnings attributable to such contribution (or disallowed portion thereof) will not be returned but will remain in the Trust Fund, and the amount returned will be reduced by any losses attributable to such contribution (or disallowed portion thereof). In the case of any such return of contribution, the Company will cause such adjustments to be made to the Accounts of Participants as it considers fair and equitable under the circumstances resulting in the return of such contribution. 14.3 BORROWING TO PURCHASE COMPANY STOCK. The Plan may engage in an Exempt |
Loan that satisfies the following requirements:
14.3.1 Lender. The Exempt Loan may be made by the Company or any lender acceptable to the Company, and may be made or guaranteed by a party in interest (as defined in ERISA Section 3(14)) or a disqualified person (as defined in Code Section 4975).
14.3.2 Use of Loan Proceeds. The Exempt Loan must be used within a reasonable time after receipt to acquire shares of Company Stock for the Unallocated Reserve, or to repay a prior Exempt Loan, or for any combination of these purposes.
14.3.3 No Recourse Against Trust Fund. The Exempt Loan must be without recourse against the Trust Fund, except that:
(a) The Company Stock acquired with the proceeds of the Exempt Loan may be pledged or otherwise used to secure repayment of the Exempt Loan.
(b) The Company Stock acquired with the proceeds of a prior Exempt Loan which is repaid with the proceeds of the Exempt Loan may be pledged or otherwise used to secure repayment of the Exempt Loan, and
(c) Any cash contributions to the Plan that are made for the purpose of satisfying the obligations under the Exempt Loan (and earnings thereon) may be pledged or otherwise used to secure repayment of the Exempt Loan.
(d) The earnings attributable to shares of Company Stock acquired with the proceeds of an Exempt Loan may be used to repay that Exempt Loan or any renewal or extension of it.
(e) The earnings attributable to unallocated shares of Company Stock that were acquired with the proceeds of an Exempt Loan may be pledged or otherwise used as security for another Exempt Loan.
14.3.4 Term of Loan. The Exempt Loan must provide for principal and interest to be paid over a specific term.
14.3.5 Release of Shares from Unallocated Reserve. Payments on an Exempt Loan will result in release of shares from the Unallocated Reserve, with the number of shares released each Plan Year being determined in accordance with one of the following methods as directed by the Company:
(a) Principal and Interest Method. The number of shares released from the Unallocated Reserve will equal the number of shares held in the Unallocated Reserve immediately before the release multiplied by a fraction, the numerator of which is equal to the principal and interest payments made on the Exempt Loan for the Plan Year and the denominator of which is equal to the total principal and interest paid on the Exempt Loan for the current Plan Year and scheduled to be paid for all subsequent Plan Years. The number of future years for which principal and interest are payable under the Exempt Loan must be definitely ascertainable and must be determined without taking into Account any possible extensions or renewal periods. If the interest rate under the loan is variable, the amount of future interest payable will be calculated by using the interest rate in effect on the last day of the current Plan Year.
(b) Principal Only Method. The number of shares of Company Stock released from the Unallocated Reserve will be equal to the number of shares held in the Unallocated Reserve immediately before the release multiplied by a fraction, the numerator of which is equal to the principal payments made on the Exempt Loan for the Plan Year and the denominator of which is equal to the total principal outstanding on the Exempt Loan. This method may be used only if:
(1) The Exempt Loan provides for principal and interest
payments at a cumulative rate that is not less rapid at any
time than level annual payments of such amounts for ten
(10) years.
(2) If the Exempt Loan constitutes a renewal, extension or refinancing of a prior Exempt Loan, the sum of the expired duration of the prior Exempt Loan, the renewal period, the extension period, and the duration of the new Exempt Loan does not exceed ten (10) years.
(3) For purposes of this subsection, the amount of interest included in any payment is disregarded only to the extent that it would be determined to be interest under standard loan amortization tables.
14.3.6 Interest Rate. The Exempt Loan must bear interest at a fixed or variable rate that is not in excess of a reasonable rate of interest considering all relevant factors (including, but not limited to, the amount and duration of the loan, the security given, the guarantees involved, the credit standing of the Plan, the Company, and the guarantors, and the generally prevailing rates of interest).
14.3.7 Default. The Exempt Loan must provide that, in the event of default, the fair market value of Company Stock and other assets which can be transferred in satisfaction of the loan must not exceed the amount of the loan. If the lender is a party in interest or disqualified person, the loan must provide for a transfer of Plan assets upon default only upon and to the extent of the failure of the Plan to satisfy the payment schedule of the Exempt Loan.
14.4 FUNDING POLICY. The Company will adopt a procedure, and revise it from time to time as it considers advisable, for establishing and carrying out a funding policy and method consistent with the objectives of the Plan and the requirements of ERISA. 14.5 SHARE REGISTRATION. Interests in the Plan, and any shares of Company Stock contributed by or purchased from the Company will be registered in accordance with requirements prescribed by the Securities and Exchange Commission. The number of shares so registered will be appropriately adjusted to reflect any stock dividends, stock splits, or other similar changes. 14.6 PURCHASE/SALE OF COMPANY STOCK. |
14.6.1 Purchases of Company Stock.
(a) Private. If the Company is Private and it is necessary to purchase Company Stock for the Trust Fund, such purchase may be made from a shareholder or from the Company. If shares are purchased from a disqualified person as (defined in Code Section 4975(e)(2)) or party in interest (as defined in ERISA Section 3(14)), the purchase will be for not more than fair market value, as determined by an independent appraiser meeting the requirements of Code section 401(a)(28), and no commission will be paid.
(b) Public. If the Company is Public and it is necessary to purchase Company Stock for the Trust Fund, such purchase may be on the open market or from the Company. If shares are purchased from the Company, the purchase will be made at the closing price of a share of Company Stock on the Valuation Date immediately preceding the transaction (as reported in a financial newspaper or by any electronic stock reporting service deemed accurate by the Company and Trustee). No commission will be paid on any purchase from the Company.
14.6.2 Sales of Company Stock.
(a) Private. If the Company is Private and it is necessary to convert shares of Company Stock held in the Trust Fund to cash to provide for a distribution, transfer, or for any other reason required under the Plan, the conversion may be made by exchanging such shares for cash (if any) then held in the Trust Fund and credited to Accounts, or by selling such shares to the Company or another purchaser. If shares are sold to a disqualified person (as defined in Code Section 4975(e)(2)) or party in interest (as defined in ERISA Section 3(14)), the sale will be for not less than fair market value, as determined by an independent appraiser meeting the requirements of Code Section 401(a)(28), and no commission will be paid.
(b) Public. If the Company is Public and it is necessary to convert shares of Company Stock held in the Trust Fund to cash to provide for a distribution, transfer, or for any other reason required under the Plan, the conversion may be made by exchanging such shares for cash (if any) then held in the Trust Fund and credited to Accounts, or by selling such shares on the open market or to the Company. If shares are exchanged for cash then held in the Trust Fund or sold to the Company, the exchange or sale will be made at the closing price of a share of Company Stock for the Valuation Date immediately preceding the transaction (as reported in any financial newspaper or by any electronic stock reporting service deemed accurate by the Company and Trustee). No commission will be paid on any sale to the Company.
ARTICLE XV
ADMINISTRATION
15.1 ADMINISTRATION.
15.1.1 Administrator. The Company is the "administrator" of the Plan, with authority to control and manage the operation and administration of the Plan and make all decisions and determinations incident thereto. Action on behalf of the Company as administrator may be taken by any of the following:
(a) Its Board of Directors (or a committee thereof).
(b) Its Chief Executive Officer.
(c) Any individual, committee, or entity to whom responsibility for the operation and administration of the Plan is allocated to by action of one of the above.
15.1.2 Third-Party Service Providers. The Company may from time to time contract with or appoint a recordkeeper or other third-party service provider for the Plan. Any such recordkeeper or other third-party service provider will serve in a nondiscretionary capacity and will act in accordance with directions given and/or procedures established by the Company, unless such recordkeeper or other third-party service provider is expressly designated as a "named fiduciary" of the Plan and makes a written acceptance of such designation.
15.2 CERTAIN FIDUCIARY PROVISIONS.
15.2.1 Named Fiduciaries. The Company is a "named fiduciary" of the Plan with authority to appoint additional named fiduciaries and to allocate responsibilities among them, and the power to appoint one or more investment managers (as defined in ERISA Section 3(38)) to manage any assets of the Plan (including the power to acquire and dispose of such assets). If so permitted by the Company in the appointment of a named fiduciary, such named fiduciary may designate another person to carry out any or all of the fiduciary responsibilities of the named fiduciary; except that, a named fiduciary may not designate another person to carry out any responsibilities relating to the management or control of Plan assets other than in exercise of a power granted under the trust agreement to appoint an investment manager.
15.2.2 Corporate Versus Personal Liability. The Company as a legal entity can
only act through others. The Company's intent is that, while the Company will at times be a fiduciary (as that term is used in ERISA) with respect to the Plan, the individual directors, officers and employees of the Company through which the Company acts will not individually be considered to be fiduciaries. Accordingly, it is intended that while the Company with have corporate responsibility and liability for its actions or omissions with respect to the Plan, the individual directors, officers and employees through which the Company acts will not have individual liability for their actions or omissions with respect to the Plan. 15.3 PAYMENT OF EXPENSES. The compensation and expense reimbursements payable to any fiduciary, or to any recordkeeper or other third-party service provider, any other fees and expenses incurred in the operation or administration of the Plan may be paid out of the Trust Fund if not prohibited by ERISA. Such other fees and expenses include, but are not limited to, fees and expenses for investment education or advice services, distribution costs (for example, stock certificate issuance fees and check-writing fees), premiums on bonds required under ERISA and direct costs incurred by the Company or any Affiliate to the extent that the payment of such amounts out of the Trust Fund is not prohibited by ERISA. Distribution costs (for example, the actual stock certificate issuance fee and actual check-writing fee) of any elective distribution and similar fees may be charged to the Account of the Participant (or Beneficiary of a deceased Participant) if directed by the Company and not prohibited under ERISA. 15.4 EVIDENCE. Evidence required of anyone under the Plan may be by certificate, affidavit, document, or other instrument which the person acting in reliance thereon considers to be pertinent and reliable and to be signed, made, or presented by the proper party. 15.5 CORRECTION OF ERRORS AND DUTY TO REVIEW INFORMATION. |
15.5.1 Correction of Errors. Errors may occur in the operation and administration of the Plan. The Company reserves the right to cause such equitable adjustments to be made to correct for such errors as it considers appropriate (including adjustments to Participant or Beneficiary Accounts), which will be final and binding on the Participant or Beneficiary.
15.5.2 Participant's Duty to Review Information. Each Participant and Beneficiary has the duty to promptly review any information that is provided or made available to the Participant or Beneficiary and that relates in any way to the operation and administration of the Plan or his/her elections under the Plan (for example, to review benefit statements, to review summary plan descriptions, etc.) and to notify the Company of any error made in the operation or
administration of the Plan that affects the Participant or Beneficiary within thirty (30) days of the date such information is provided or made available to the Participant or Beneficiary (for example, the date the information is sent by mail or the date the information is provided or made available electronically). If the Participant or Beneficiary fails to review any information or fails to notify the Company of any error within such period of time, he/she will not be able to bring any claim seeking relief or damages based on the error.
If the Company is notified of an alleged error within the thirty (30) day time period, the Company will investigate and either correct the error or notify the Participant or Beneficiary that it believes that no error occurred. If the Participant or Beneficiary is not satisfied with the correction (or the decision that no correction is necessary), he/she will have sixty (60) days from the date of notification of the correction (or notification of the decision that no correction is necessary), to file a formal claim under the claims procedures established for the Plan.
15.6 CLAIMS AND LIMITATIONS ON ACTIONS.
15.6.1 Claims Procedures. The Company will establish a claims procedure for the Plan as a separate written document (which may be a section in the summary plan description) that will be deemed to form a part of the Plan and is hereby incorporated by reference into the Plan.
15.6.2 Limitation on Actions After Exhaustion of Claims Process. A claimant must
follow the claims procedure (and comply with all applicable deadlines established as part thereof) as a condition to the receipt of any benefit under the Plan, and as a condition to the availability of any other relief under or with respect to the Plan. The failure of a claimant to follow the claims procedure (including the failure to comply with the deadlines established as part thereof) will extinguish his/her right to file a subsequent claim or to file a lawsuit with respect to the claim. If a claimant follows the claims procedure, but his/her final appeal is denied, he/she will have six months to file a lawsuit with respect to that claim, and failure to meet the six-month deadline will extinguish his/her right to file a lawsuit with respect to that claim. 15.7 WAIVER OF NOTICE. Any notice required hereunder may be waived by the person entitled thereto. 15.8 AGENT FOR LEGAL PROCESS. The Company will be the agent for service of legal process with respect to any matter concerning the Plan (unless it designates some other entity or individual as such agent). 15.9 INDEMNIFICATION. The Company and its Affiliates jointly and severally agree to indemnify and hold harmless, to the extent permitted by law, each director, officer, and employee against any and all liabilities, losses, costs, or expenses (including legal fees) of whatsoever kind and nature that may be imposed on, incurred by, or asserted against such person at any time by reason of such person's services in the administration of the Plan, but only if such person did not act dishonestly, or in bad faith, or in willful violation of the law or regulations under which such liability, loss, cost, or expense arises. 15.10 EXERCISE OF AUTHORITY. The Company and any person who has authority with respect to the management, administration or investment of the Plan may exercise that authority in its/his/her full discretion, subject only to the duties imposed under ERISA. This discretionary authority includes, but is not limited to, the authority to make any and all factual determinations and interpret all terms and provisions of this document (or any other document established for use in the administration of the Plan) relevant to the issue under consideration. The exercise of authority will be binding upon all persons. It is intended that the exercise of authority be given deference in all courts of law to the greatest extent allowed under law, and that it not be overturned or set aside by any court of law unless found to be arbitrary and capricious. 15.11 TELEPHONIC OR ELECTRONIC NOTICES AND TRANSACTIONS. Any notice that is required to be given under the Plan to a Participant or Beneficiary, and any action that can be taken under the Plan by a Participant or Beneficiary (including enrollments, distributions, consents, etc.), may be by means of voice response or other electronic system to the extent so authorized by the Company and permitted under the Code and ERISA. Any notice or other communication sent by a Participant or Beneficiary to the Company, or to a recordkeeper or other service-provider acting on behalf of the Company with respect to the Plan, via e-mail will be considered adequate only if it is sent to a specific e-mail address provided for purposes of such notice or other -31- |
communication, it is confirmed to have been received and it complies with such other procedural requirements as may be established for this purpose by the Company. |
ARTICLE XVI
AMENDMENT, TERMINATION, MERGER
16.1 AMENDMENT.
16.1.1 Amendment. The Company expressly reserves the right to amend the Plan in whole or in part at any time and from time to time and for any reason. An amendment may be adopted:
(a) By resolution of the Board of Directors (or a committee thereof).
(b) By signed writing of the Chief Executive Officer (but only if such amendment does not materially increase the cost of the Plan to Participating Employers).
(c) By signed writing of any person to whom amendment authority has been delegated by action of one of the above.
No action by any individual, committee or entity with amendment authority will constitute an amendment to the Plan unless it is expressly designated as an amendment to the Plan.
16.1.2 Effect on Prior Operation of Plan. An amendment will not affect the operation of the Plan or the rights of any Participant retroactive to a date prior to the effective date of the amendment. The Account of a Participant (and all payment options and other rights with respect thereto) will be determined and paid in accordance with the terms of the Plan in effect as of his/her Termination of Employment, without regard to any subsequent amendment to the Plan (including an amendment with an effective date retroactive to a date prior to Termination of Employment) unless such amendment is required by law to be applied to the Participant or the amendment expressly provides that it will apply to Participants who have already had a Termination of Employment. The Company reserves the right to adopt an amendment with a retroactive effective date to the extent that retroactive application of the amendment is required by law or for any other reason deemed appropriate by the Company.
16.1.3 Effect on Vesting. An amendment will not reduce the vested percentage of a Participant determined as of the later of the effective date or adoption date of the amendment. Further, if the Company amends the vesting schedule under the Plan, with respect to any Participant who has three (3) or more years of vesting service (determined using the elapsed time methodology set forth in ERISA Reg. Section 2530.200b-9), the Company either will permit such Participant to elect to have his/her vested percentage computed without regard to such amendment or will amend the Plan to provide that the vested interest of such Participant will be the greater of his/her vested interest with regard to such amendment or his/her vested interest without regard to such amendment.
The election period for which the Participant may elect to have his or her vested percentage computed without regard to such amendment shall begin no later than the adoption date of the amendment and end no earlier than sixty (60) days after the latest of the following dates:
(a) The adoption date of the amendment,
(b) The effective date of the amendment, or
(c) The day of the Participant is issued written notice of the amendment.
16.1.4 Effect on Protected Benefits. An amendment will not reduce any Account
balance or eliminate any optional form of benefit to the extent to prohibited under Code Section 411(d)(6). 16.2 PERMANENT DISCONTINUANCE OF CONTRIBUTIONS. The Company may completely discontinue contributions under the Plan. No Employee will become a Participant after such discontinuance, and each Participant will be vested in the full balance of his/her Account. Subject to the -32- |
foregoing, all of the provisions of the Plan will continue in effect, and upon entitlement thereto distributions will be made in accordance with the terms of the Plan. 16.3 TERMINATION. The Company may terminate the Plan at any time and for any reason by action of its Board of Directors. After the Plan is terminated no further contributions will be made. No Employee will become a Participant after such termination, and each Participant will be vested in the full balance of his/her Account. Distributions will be made to Participants and Beneficiaries promptly after the termination of the Plan, but not before the earliest date permitted under the Code and applicable regulations, and the Plan and any related trust agreement will continue in force for the purpose of making such distributions. 16.4 PARTIAL TERMINATION. If the Company determines that there has been a partial termination of the Plan, any Participant affected by such partial termination will become vested in the full balance of his/her Account. 16.5 MERGER, CONSOLIDATION, OR TRANSFER OF PLAN ASSETS. If the Plan is merged or consolidated with any other plan, or if assets or liabilities of the Plan are transferred to any other plan, provision will be made so that each Participant and Beneficiary would (if such other plan then terminated) receive a benefit immediately after the merger, consolidation, or transfer that is equal to or greater than the benefit he/she would have been entitled to receive immediately before the merger, consolidation, or transfer (if the Plan had then terminated). 16.6 DEFERRAL OF DISTRIBUTIONS. In the case of a complete discontinuance of contributions to the Plan or of a complete or partial termination of the Plan, the Company or the Trustee may defer any distribution of benefits to Participants and Beneficiaries with respect to which such discontinuance or termination applies (except for distributions which are required to be made under Code Section 401(a)(9)) until appropriate adjustment of Accounts to reflect taxes, costs, and expenses, if any, incident to such discontinuance or termination. |
ARTICLE XVII
MISCELLANEOUS PROVISIONS
17.1 SPECIAL TOP-HEAVY RULES. The following provisions apply in any Plan Year in which the Plan is top-heavy.
17.1.1 Minimum Contribution. If the Plan is Top-Heavy for a Plan Year, a minimum contribution will be made for such Plan Year on behalf of each Participant who is not a Key Employee and who is employed with the Company or an Affiliate on the last day of such Plan Year. The minimum contribution will equal that percentage of the Participant's Compensation for the Plan Year which is the smaller of:
(a) Three percent (3%).
(b) The percentage which is the largest percentage of Compensation allocated to any Key Employee from employer contributions for such Plan Year.
However, any required minimum contribution will be made under the Company's profit sharing plan before any minimum contribution is made under this Plan. Also, the minimum contribution due under this Plan for each Top-Heavy Eligible Participant will be reduced by the amount of any minimum contribution made for him/her under the Company's profit sharing plan.
17.1.2 Definitions. The following terms have the following meanings in this Section:
(a) "Compensation" means compensation as defined in Sec. 6.1.2, but disregarding any amounts in excess of the limit in effect under Code Section 401(a)(17).
(b) "Determination Date" means the last day of the preceding Plan Year.
(c) "Determination Period" means the Plan Year in which the applicable Determination Date occurs and the four preceding Plan Years.
(d) "Key Employee" means any Employee or former Employee of the Company or an Affiliate who is defined as such under Code Section 416(i).
(e) "Required Aggregation Group" means each qualified plan of the Company or an Affiliate in which at least one Key Employee participates in the Plan Year that contains the Determination Date or any of the four preceding Plan Years, and any other qualified plan of the Company or an Affiliate that enables such a Plan to meet the requirements of Code Sections 401(a)(4) and 410.
(f) "Permissive Aggregation Group" means the Required Aggregation Group plus any other qualified plan of the Company or an Affiliate which, when consolidated as a group with the Required Aggregation Group, would continue to satisfy the requirements of Code Sections 401(a)(4) and 410.
(g) "Present Value" for purposes of determining whether a defined benefit plan is Top-Heavy, will be calculated using the actuarial assumptions specified in the defined benefit plan for this purpose.
(h) "Top-Heavy" means the condition of the Plan that exists (or would exist) for any Plan Year if:
(1) The Plan is not part of a Required Aggregation Group and the top-heavy ratio for the Plan exceeds 60%; or
(2) The Plan is a part of a Required Aggregation Group and the top-heavy ratio for the Required Aggregation Group exceeds 60%
Notwithstanding the above, the Plan is not Top-Heavy if the Plan is a part of a Permissive Aggregation Group and the top-heavy ratio for the Permissive Aggregation Group does not exceed 60%.
The "top-heavy ratio" for this purpose means a fraction, the numerator of which is the sum of account balances as of the Determination Date of all Key Employees under all defined contribution plans maintained by the Company or an Affiliate (including any part of any account balance distributed in the five-year period ending on the Determination Date), and the Present Value of accrued benefits as of the Determination Date of all Key Employees under all defined benefit plans maintained by the Company or an Affiliate, and the denominator of which is the sum of all account balances as of the Determination Date of all Employees under all such defined contribution plans (including any part of any account balance distributed in the five-year period ending on the Determination Date), and the Present Value of accrued benefits as of the Determination Date of all Employees under all such defined benefit plans, all determined in accordance with Code Section 416 and the regulations thereunder. The account balances under a defined contribution plan and the accrued benefits under a defined benefit plan in both the numerator and denominator of the top-heavy ratio will be increased for any distribution made during the one-year period (or, in the case of a distribution for any reason other than separation from service, death or disability, the five-year period) ending on the Determination Date.
For purposes of calculating the top-heavy ratio, the value of the account balances and the accrued benefits will be determined as of the most recent Valuation Date that falls within the 12-month period ending on the Determination Date. If an individual has not performed services for the Company or an Affiliate at any time during the one-year period ending on the Determination Date, any account balance or accrued benefit of such individual will be disregarded.
(i) "Valuation Date" is the last day of each Plan Year and is the date as of which account balances or accrued benefits are valued for purposes of calculating the top-heavy ratio.
17.1.3 Exception For Collective Bargaining Unit. The minimum contribution requirement described above will not apply to any Employee covered by the provisions of a collective bargaining agreement.
17.1.4 Defined Benefit Plan Accrued Benefit. For purposes of determining if a
defined benefit plan included in a Required Aggregation Group of which this Plan is a part is a Top-Heavy Plan, the accrued benefit to any employee (other than a Key Employee) shall be determined under the method which is used for accrual purposes under all defined benefit plans maintained by the employer, or, if there is no such method, as if such benefit accrued not more rapidly than the lowest accrual rate permitted under Code Section 411(b)(1)(C). 17.2 QUALIFIED MILITARY SERVICE. The Plan will comply with the requirements of Code Section 414(u) with respect to each Participant who is absent from service because of "qualified military service" (as defined in Code Section 414(u)(5)) provided that he/she returns to employment within such period after the end of the qualified military service as is prescribed under Code Section 414(u) (or other federal law cited therein). 17.3 INSURANCE COMPANY NOT RESPONSIBLE FOR VALIDITY OF PLAN. Any insurance company that issues a contract under the Plan will not have any responsibility for the validity of the Plan. An insurance company to which an application may be submitted hereunder may accept such application and will have no duty to make any investigation or inquiry regarding the authority of the applicant to make such application or any amendment thereto or to inquire as to whether a person on whose life any contract is to be issued is entitled to such contract under the Plan. 17.4 NO GUARANTEE OF EMPLOYMENT. The Plan is not an employment agreement, and participation herein does not constitute a guarantee of employment with the Company or any Affiliate. |
IN WITNESS WHEREOF, the Company has caused this Plan document to be executed on October 27, 2005.
CAPELLA EDUCATION COMPANY
By /s/ Stephen Shank Its Chairman and CEO |
And
By /s/ Gregory W. Thom Its VP, General Counsel and Secretary |
CAPELLA EDUCATION COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
(2005 RESTATEMENT)
LIST OF PARTICIPATING EMPLOYERS
(EFFECTIVE JUNE 1, 2005)
As of June 1, 2005, the Participating Employers are:
1. Capella Education Company
2. Capella University, Inc.
CAPELLA EDUCATION COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
(2005 RESTATEMENT)
LIST OF PREDECESSOR EMPLOYERS
(EFFECTIVE JUNE 1, 2005)
As of June 1, 2005, there are no Predecessor Employers.
FIRST AMENDMENT
TO THE
CAPELLA EDUCATION COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
(SECOND 2005 RESTATEMENT)
The Capella Education Company Employee Stock Ownership Plan (Second 2005 Restatement) is amended by adding a new section 5.2.5 to read as follows:
5.2.5 Plan Year 2006 Allocations. Notwithstanding anything to the contrary in this Article V, the ESOP Contribution for the 2006 Plan Year will be allocated in accordance with the following:
(a) To be an "allocation eligible" Participant for the ESOP Contribution for the 2006 Plan Year, the Participant must be an Employee on June 30, 2006. However, the special rules in Sec. 5.2.3(b) continue to apply to these 2006 Plan Year allocations for any Participant whose Termination of Employment occurred during the Plan Year and prior to June 30, 2006.
(b) The portion of the ESOP Contribution allocated to the Account of the allocation eligible Participant for the 2006 Plan Year (as defined in (a) above) will equal the total amount of the ESOP Contribution to be so allocated multiplied by a fraction, the numerator of which is Covered Compensation of the Participant for the period from January 1, 2006 through June 30, 2006 (the "allocation period"), and the denominator of which is the aggregate Covered Compensation for that period of all allocation eligible Participants.
In witness whereof, this Amendment has been signed as of the date set forth below.
Date: June 1 2006 Capella Education Company By: Gregory W. Thom Its: VP, General Counsel and Secretary |
EXHIBIT 10.26
CAPELLA EDUCATION COMPANY
ANNUAL INCENTIVE PLAN
MANAGEMENT EMPLOYEES - 2006
PLAN OBJECTIVE
To recognize and reward eligible management employees for the achievement of company financial goals.
PLAN SUMMARY
- The plan is based upon company performance components, revenue and profit as compared to plan, for eligible participants as follows:
- 70% of the incentive opportunity is based on 2006 total company performance, measured by achievement of revenue and profit to plan.
- 30% of the incentive opportunity is based on achievement of the total company revenue and profit achievement in Q3 and Q4, cumulatively, compared to the Q3/Q4 plan for 2006.
- You have the opportunity to earn from 0% - 200 % of your target incentive amount. The financial performance and payout matrices will be reviewed periodically as to progress during the year.
- Your incentive earnings will be paid within two and a half months after the end of the plan year based on year-end company financial achievement (plan funding).
NOTE: The remaining pages and exhibits provide further explanation regarding plan design, payout criteria, and administration.
SEE EXHIBIT 1 FOR SPECIFIC INFORMATION, INCLUDING DEFINITIONS, TERMS AND CONDITIONS, AND PAYOUT CRITERIA.
ELIGIBILITY CRITERIA
Select management-level employees who meet the Eligibility Criteria (see Definition of Eligibility Criteria) are eligible for plan participation. Criteria the plan administrator will consider when selecting eligible employees for participation include scope and level of responsibility, organizational impact, internal equity and external competitiveness. Incentive awards for employees who work less than full-time will be prorated accordingly.
PLAN ADMINISTRATOR
The Compensation Committee of the Board of Directors of the Company will administer the plan. The Committee may delegate to the Chief Executive Officer and the Vice President of Human Resources the authority to determine incentive awards under the plan for eligible employees who are not executive officers of the Company. Awards granted pursuant to such
delegated authority shall be made consistent with the criteria established by the Committee and shall be subject to any other restrictions placed on the delegation by the Committee. Any incentive award under the plan to the Company's Chief Executive Officer will be approved and administered by the Executive Committee of the Board of Directors.
To the full extent permitted by law, (i) no member of the Committee or other
plan administrator shall be liable for any action or determination taken or made
in good faith with respect to the plan or any award made under the plan, and
(ii) the members of the Committee and the other plan administrators shall be
entitled to indemnification by the Company with regard to such actions.
SIZE OF AWARD OPPORTUNITY
Incentive potential for plan participants is expressed as a percentage of base compensation as of December 31st of the plan year (see Definition section for Base Compensation). At target level performance, the size of the incentive award opportunity is based upon your position as determined by the plan administrator.
PAYOUT CRITERIA - COMPANY FINANCIAL RESULTS
TOTAL YEAR REVENUE AND PROFIT
- 70% of your targeted incentive potential is based on total year, year-end company financial results, combining revenue and profit against the plan.
- At the beginning of the year, an annual financial target will be established at the Company level, approved by the Board of Directors. The Chief Executive Officer or designate will communicate this financial target to you. Incentive potential will be based on the level of Company financial performance within a specified range.
- All participants, unless otherwise communicated to you, will have a financial target that reflects overall Company financial results.
- If the Company exceeds the target financial level on the full year performance, you will be eligible to receive a greater than target level incentive award for this portion of the plan.
- This portion of the plan pays out for a range of financial performance with an upward potential of 170% of your target incentive award opportunity. (Please see the financial matrices for the specific payout schedule).
Q3 AND Q4 REVENUE AND PROFIT
- 30% of your targeted incentive potential is based on Q3 and Q4 cumulative results for revenue and profit. 0-30% is the incentive potential for this factor. The maximum target level for this component of the plan is 30%.
QUALIFICATION OF AWARD PAYMENT
The plan administrator reserves the right to withhold incentive payment in the event an individual fails to perform his or her day-to-day job in a satisfactory manner after the Company has provided reasonable notice of such failure.
EXHIBIT 1
CAPELLA EDUCATION COMPANY
MANAGEMENT INCENTIVE PLAN
I. DEFINITIONS OF TERMS
The following terms as used in the plan have meaning as described below:
COMPANY - Capella Education Company.
BASE COMPENSATION - total base salary wages for the plan year. (Note:
excludes any incentive compensation payment(s), lump sump merit increases
and taxable fringes). Base salary wages will be reduced for any leave of
absence, paid or unpaid, beyond 90 days.
ELIGIBILITY CRITERIA - Individuals need to be regular status, work a minimum of half time to be eligible for plan participation (average of 40 hours per pay period), and be considered a management level employee (functional leader or above). Incentive awards for employees who work less than full-time will be prorated according to his/her total annual base salary wages.
FINANCIAL OBJECTIVE - the level of company performance against any financial measure approved by the Committee to define operating performance. The Committee may amend the goals to reflect material adjustment in or changes to the Company's policies; to reflect material company changes such as mergers or acquisitions; and to reflect such other events having a material impact on goals.
PERFORMANCE MEASURES - means any of the following measures with respect to the performance of the Company or a group, a unit, an Affiliate, or an individual; specified levels of the Company's stock price, market share, sales, earnings per share, return on equity, costs, operating income, net income before interest, taxes, depreciation and/or amortization, net income before or after extraordinary items, return on operating assets or levels of cost savings, earnings before taxes, net earnings, asset turnover, total shareholder return, pre-tax, pre-interest expense return on invested capital, return on incremental invested capital, free cash flow or cash flow from operations, or customer satisfaction or learner success metrics. In addition, with respect to an Award that is not intended to qualify for the exemption from the limitation on deductibility imposed by Section 162(m) of the Code on compensation paid to "covered employees" as defined therein, "Performance Measures" may include any other measure determined by the Committee. Such performance measures may be set as an absolute measure or relative to a designated peer group or index of comparable companies.
PLAN YEAR - the fiscal year of the Company.
PAYOUT -- the actual amount to be paid to a participant based upon achievement of Company financial objectives.
II. PLAN ADMINISTRATION
NEW HIRES - new hires must start by October 1st to qualify. For individuals hired by October 1st of the plan year, eligibility begins on the first date of employment. Individual incentive awards will be prorated from the date of hire based on an individual's year-to-date total annual base wages.
PROMOTIONS - individuals must be promoted into an eligible management level position by October 1st to be eligible for participation in that plan year. Note: if an individual is promoted October 1st or after of the plan year it will be at the Committee's discretion to determine the percentage of incentive payout that an employee will receive at year-end.
TERMINATION OF EMPLOYMENT - in the event any eligible participant ceases to be an employee during any year in which he/she is participating in the plan, he/she will not be eligible to receive any incentive compensation for such year unless otherwise provided for in the Executive Severance Plan. Individuals need to be employed at the time of award payment to be eligible for any incentive payments unless otherwise provided for in the Executive Severance Plan. Incentive awards to individuals who are subject to the Executive Severance Plan will be determined in accordance with the plan, as adjusted in accordance with the Executive Severance Plan, and all payouts will be made in accordance with the Executive Severance Plan. Employees who become disabled or retire during the year will be eligible to receive a prorated portion of the incentive payment, if earned.
RIGHT TO CONTINUE EMPLOYMENT - nothing contained in the plan shall be construed to confer upon any employee the right to continue in the employment of, or the Company's right to terminate his/her employment at any time.
TAX WITHHOLDING - The Company shall have the right to withhold from cash payments under the plan to a participant or other person an amount sufficient to cover any required withholding taxes.
UNFUNDED PLAN - The plan shall be unfunded and the Company shall not be required to segregate any assets that may at any time be represented by awards under the plan.
PLAN AMENDMENT, MODIFICATION, OR TERMINATION - from time to time the Committee may amend the plan as it believes appropriate and/or may terminate the plan, provided that no such amendment or termination will affect the right of any participant to receive incentive compensation in accordance with the terms of the plan for the portion of any year up to the date of the amendment or termination. Typically, any such modification would be made on an annual basis.
GOVERNING LAW - To the extent that federal laws do not otherwise control, the plan and all determinations made and actions taken pursuant to the plan shall be governed by the laws of Minnesota and construed accordingly.
EXHIBIT 10.27
[CAPELLA UNIVERSITY LOGO]
To: __________________
From: Shawn Featherston
Date: __________, 2006
Subj: Special Stock Option Grant - 2006
Attached is the stock option agreement(s) as granted by the Capella Education Company Compensation Committee on February 14, 2006. I am confirming the previous communication that explains the terms associated with this grant as follows:
- These options are being issued in lieu of the cash incentive opportunity that is normally offered as part of the Management Annual Incentive Plan and is intended to replace the cash incentive for 2006 only.
- This agreement reflects the number of options from the February 14, 2006 grant that will vest assuming achievement of 100% performance against the incentive plan matrix.
- The number of options granted was calculated based on the following formula:
- Salary x incentive opportunity target at 100% divided by Black Scholes value of stock option x 1.75 (risk multiplier)
- The actual number of options that ultimately vest will depend upon the actual achievement of the company's operating plan performance thresholds.
- This grant is scheduled to vest on 12/31/06, assuming minimum performance thresholds are achieved.
- The company performance to operating plan will be measured using the same payout matrix as the 2006 Management Incentive Plan.
- If company performance is greater than 100% of operating plan, any excess over 100% will be payable in the form of a cash incentive.
- If company performance is between the minimum payout threshold and 100% of operating plan, the number of stock options will be reduced by a pro-rating factor that is per the payout matrix.
- If the company performance is below the minimum threshold for payout, these options will be cancelled.
The terms of this memo modify and supplement the terms of the attached agreement(s).
Please indicate your concurrence with these terms by signing below, and signing the attached agreement(s), and returning one original to me by April 20th, 2006. If you have any questions, let me know. Thank you.
____________________________ (Date)
Attach form of
Capella Education Company 2005 Stock Incentive Plan, Incentive Stock Option Agreement
and/or
Capella Education Company 2005 Stock Incentive Plan, Non-Statutory Stock Option Agreement (Employee),
as applicable.
EXHIBIT 10.28
(CAPELLA EDUCATION COMPANY LOGO)
October 20, 2004
Ms. Lois Martin
2460 Sunrise Drive
Little Canada, MN 55117
Dear Lois:
We are pleased to formally extend you this offer of employment for the position of Senior Vice President and Chief Financial Officer for Capella Education Company. This is a corporate officer position and reports to the Chairman and Chief Executive Officer, Steve Shank. This offer is contingent upon signing a Confidentiality, Non-Competition and Inventions Agreement, a copy of which is enclosed, and the successful completion of a background check.
You will be paid on a bi-weekly basis, an amount that will equal $265,000 when annualized. You will be eligible for a performance and salary review as of July 1, 2005. Your next review will be scheduled for March 1, 2006 and, under normal circumstances, annually thereafter. Capella offers a comprehensive compensation system; more information will be provided to you after your start.
ANNUAL INCENTIVE COMPENSATION: In addition to your salary, you will be eligible to earn an annual incentive compensation award with a target of 40% of your base salary starting in fiscal 2005. The details of the incentive compensation program will be specified in the enclosed annual award plan, a copy of which you have received.
SIGNING BONUS: Capella will pay you a lump sum of $50,000 (before taxes) the first payroll period following your hire date. Should you voluntarily leave Capella within 12 months of your hire date, for other than "Good Reason," as defined in the Addendum, you agree to reimburse Capella for this payment on a prorata basis.
BENEFIT PLANS: The following will summarize the current benefit plans, for which you would be eligible as a full-time employee:
Medical - Effective the first day of the month following employment, you would be eligible to participate in the company's medical plan. The plan is administered through Medica. Medica offers you a choice of networks and/or benefit levels. Capella will pay 100% of the premium for the medical coverage.
Dental - You will also be eligible to participate in the company's dental plan, administered by Delta Dental. Delta offers you a choice of networks and/or benefit levels.
Life Insurance - The company provides paid life insurance in the amount of 1X salary. You may also elect to purchase additional coverage for yourself, spouse and/or dependents.
Disability Benefits - The Company offers short and long-term disability benefits. The short-term disability coverage provides salary replacement for up to 26 weeks of disability. The amount and length of coverage is based upon length of service with the company. This benefit is paid for by the Company. You may elect to purchase long-term disability coverage. The Plan replaces up to 60% of your salary as long as you are eligible for disability benefits under the Plan. The Company pays 50% of the cost of this plan.
Cafeteria Plan - This plan allows you to pay for medical premiums, unreimbursed medical and child care expenses from pre-tax dollars. You would be eligible for this plan at the same time you are eligible for the medical insurance.
Physical: If you choose to waive company provided medical insurance, Capella will pay for an annual physical at a provider of your choice up to an annual maximum of $10,000.
401K Retirement Plan - Under this plan, you may contribute up to 35% of your eligible compensation on a pre-tax basis (up to IRS limits).
ESOP - The Company will also make an annual discretionary contribution to the ESOP up to 3% of eligible compensation in the form of company stock once you are eligible to participate. Employer contributions made in your first three years with Capella will vest at the end of your third year of service as defined in the Plan document. Employer contributions made after the end of your third year of service will vest immediately.
Stock Option Grant - You will be granted options to purchase 100,000 shares of Capella Education Company common stock at the exercise price then in effect at the next scheduled Board of Directors meeting. The terms of the stock option grant will be specified in a definitive stock option agreement (the "Stock Option Agreement") which will provide that the right to exercise options to purchase 25,000 shares which will vest on each of your first four anniversary dates of your initial employment with the Company. The Stock Option Agreement will also provide for immediate acceleration of the vesting of your stock option rights if, within the period required for full vesting of your stock option exercise rights, (1) there is a change of control of the ownership of the Company as defined in the Stock Option Agreement, and (2) within such period your employment is terminated or your job adversely affected by such changes as a reduction in responsibility or compensation or a relocation of the job.
Capella also offers an annual executive option grant award program that becomes effective for eligible participants July 1 following two years of employment. Capella will waive the standard waiting period and you will become eligible to participate in the program beginning July 1, 2005.
The specific amount of the grant is based on your position and base compensation using a "multiple of pay" formula, and calculated using the Black Sholes valuation based on the market price at the time of the grant. Your multiple of pay percentage is set at 60% of base pay. The number of options is determined by taking your salary as of June 30 (in the year the grant is awarded) multiplied by the multiple of pay percentage. That amount is
divided by the Black Scholes valuation of the FMV of the options at the time of the grant to determine the actual number of options that will be granted. Options granted as part of the annual grant program vest over a 4-year period.
EXECUTIVE SEVERANCE PLAN. Capella Education Company has established the Capella Education Company Executive Severance Plan to provide severance pay and other benefits to eligible employees. In your current position as Senior Vice President and Chief Financial Officer, you have been designated as an eligible Level II participant. Please refer to the Plan Document you have already received, for information on the specific provisions and conditions of the Plan. Special considerations are outlined in the attached Addendum.
CONFIDENTIALITY, NON-COMPETITION AND INVENTIONS AGREEMENT: With our growing leadership position in the market, the Company has a great opportunity to build national recognition of the Capella brand as the brand of choice in the elearning market. However, Capella expects increasing competition from for-profit and not for-profit organizations in the rapidly growing elearning market. Capella believes it is essential to take certain steps, including the execution of a Confidentiality, Non-Competition, and Inventions Agreement for certain key positions, in order to protect the legitimate business interests of the Company and to ensure the security and confidentiality of the company's customers, pricing, sales strategy, and technology. Accordingly, Capella requires as a condition of employment that candidates, such as you, for key positions execute Confidentiality, Non-Competition and Invention Agreements. This Agreement must be signed and dated no later than your first day of employment.
EMPLOYMENT AT WILL: Your employment will be at will. This means that either you or Capella may terminate the employment at any time for any reason, without advance notice.
OTHER BENEFITS: You will be entitled to Personal Time Off earned on a prorated monthly basis equal to a maximum 27 days/year, in accordance with the Company benefit statement, and 10 paid holidays. You are also eligible for paid parking in a designated parking facility. You will also be provided a personal wireless connectivity product such as Blackberry, which includes cell phone service.
Lois, we are delighted to be able to offer you this opportunity to join Capella. Your education and experience are impressive and I am confident you will make a valuable contribution to the Company's continued success.
Please sign and date below your acceptance of this offer and return in the enclosed envelope.
Sincerely,
CAPELLA EDUCATION COMPANY
/s/ Betsy Rausch ------------------------------------- Betsy Rausch Vice President Human Resources |
c.c Steve Shank
ACCEPTANCE: I hereby accept the offer of employment by Capella Education Company on the terms described in this letter and Addendum A. I understand that I must sign and return to Capella the Confidentiality, Non-Competition and Inventions Agreement provided to me with this letter before I start my Capella employment.
/s/ Lois Martin 10/25/04 ------------------------------------- Date Lois Martin |
EXHIBIT 10.29
(CAPELLA UNIVERSITY LOGO)
February 21, 2006
Mr. Kenneth Sobaski
18851 Vogel Farm Trail
Eden Prairie, MN 55347
Dear Ken:
We are pleased to formally extend you this offer of employment for the position of President and Chief Operating Officer for Capella Education Company. This is a corporate officer position and reports to the Chairman and Chief Executive Officer, Steve Shank. This offer is contingent upon signing a Confidentiality, Non-Competition and Inventions Agreement, a copy of which you have received, and the successful completion of a background check.
You will be paid on a bi-weekly basis, an amount that will equal $400,000 when annualized. You will be eligible for a performance and salary review as of the first pay period closest to March 1, 2007, and under normal circumstances, annually thereafter. Capella offers a comprehensive compensation system; more information will be provided to you after your start.
ANNUAL INCENTIVE COMPENSATION: In addition to your salary, you will be eligible to earn an annual incentive compensation award with a target of 50% of your base salary starting in fiscal 2006. The details of the incentive compensation program will be specified in the annual award plan, a copy of which you have received. Capella will guarantee payment of your first year bonus at the target bonus of 50%, assuming you remain employed in good standing as of 12/31/2006. The bonus amount will be calculated using the base compensation you were actually paid during 2006. The target percentage may be subject to modification after fiscal 2006.
SIGNING BONUS: Capella will pay you a lump sum of $60,000 (before taxes) the first payroll period following your hire date. Should you voluntarily leave Capella within 12 months of your hire date, for other than "Good Reason," as defined in this letter, you agree to reimburse Capella for this payment on a prorata basis.
BENEFIT PLANS: The following will summarize the current benefit plans, for which you will be eligible as a full-time employee. You will be eligible to participate in the company's benefit plans on the first day of the month following employment, unless noted otherwise below. The terms of these benefit plans may be subject to modification
Ken Sobaski Offer Letter
February 21, 2006
after fiscal 2006; however, the definitions of "Cause" and "Good Reason" as set forth below in is letter are not subject to modification.
Medical - Effective the first day of the month following employment, you will be eligible to participate in the company's medical plan. The plan is administered through Medica. Medica offers you a choice of networks and/or benefit levels. Capella will pay 100% of the full family premium for the medical coverage.
Dental - You and your family will also be eligible to participate in the company's dental plan, administered by Delta Dental, on the first day of the month following employment. Delta offers you a choice of networks and/or benefit levels.
Life Insurance - The company provides paid life insurance in the amount of 1X salary. You may also elect to purchase additional coverage for yourself, spouse and/or dependents. You will be eligible to participate in the company's life insurance plan on the first day of the month following employment.
Disability Benefits - The Company offers short and long-term disability benefits. The short-term disability coverage provides salary replacement for up to 26 weeks of disability. The amount and length of coverage is based upon length of service with the company. There is no premium cost to you for these disability benefits. You may elect to purchase long-term disability coverage. The Plan replaces up to 60% of your salary as long as you are eligible for disability benefits under the Plan. The Company pays 50% of the cost of the long-term disability coverage plan. You will be eligible to participate in the company's short-term disability plan on the first day of the month following employment.
Cafeteria Plan - This plan allows you to pay for medical premiums, unreimbursed medical and child care expenses from pre-tax dollars. You will be eligible for this plan at the same time you are eligible for the medical insurance.
401K Retirement Plan - Under this plan, you may contribute up to 100% of your eligible compensation, up to the IRS annual limit on deferrals and compensation. The company will match 50% of employee contributions, up to 4% of compensation - or, put another way, the company contributes a 2% match. There is a 5-year vesting schedule on the employer match, with 20% of the employer contribution vesting annually. You can begin to participate in this plan after approximately one month of service. More specific information and details about the plan and the investment funds will be provided in your orientation.
ESOP - The Company will also make an annual discretionary contribution to the ESOP up to 3% of eligible compensation in the form of company stock once you are eligible to participate. Employer contributions made in your first three years with Capella will vest at the end of your third year of service as defined in the Plan document. Employer contributions made after the end of your third year of service will vest immediately. The form and amount of employer contributions to any type of qualified retirement plan is currently under review and, while it is our desire to offer a competitive retiree benefit
Ken Sobaski Offer Letter
February 21, 2006
program, there should be no expectations that future ESOP contributions will continue in the same manner as in the past.
Stock Option Grant - You will be granted options to purchase 165,000 shares of Capella Education Company common stock at the exercise price then in effect as of your first day of employment. The terms of the stock option grant will be specified in a definitive stock option agreement (the "Stock Option Agreement") which will provide that the right to exercise options to purchase 41,250 shares which will vest on each of your first four anniversary dates of your initial employment with the Company.
Capella also offers an annual executive option grant award program that becomes effective for eligible participants July 1 following two years of employment.
The specific amount of the grant is based on your position and base compensation using a "multiple of pay" formula, and calculated using the Black Sholes valuation based on the market price at the time of the grant. Your multiple of pay percentage is set at 60% of base pay. The number of options is determined by taking your salary as of June 30 (in the year the grant is awarded) multiplied by the multiple of pay percentage. That amount is divided by the Black Sholes valuation of the FMV of the options at the time of the grant to determine the actual number of options that will be granted. Options granted as part of the annual grant program vest over a 4-year period.
EXECUTIVE SEVERANCE PLAN. Capella Education Company has established the Capella Education Company Executive Severance Plan (the "Severance Plan") to provide severance pay and other benefits to eligible employees. Notwithstanding the provisions of the Severance Plan, in your current position as President and Chief Operating Officer, you will receive severance in the following amounts and under the following circumstances: 1) 12 months total compensation (defined as base salary plus target bonus), 2) "senior executive" outplacement services for the full term of severance (12 months), and 3) use of laptop, cell phone, and blackberry for term of severance or until a job is found, whichever is shorter. You will be able to receive the above listed severance compensation if you are terminated without cause or quit for good reason, as both are defined and limited in this letter. You will be entitled to receive the full 12 months compensation regardless whether you find other employment during that time and no amount of replacement income will be set off. Capella will require any successor to assume its obligations in this letter or will remain obligated after any sale. Please refer to the Severance Plan document you have already received for information on the additional provisions and conditions of the Severance Plan. Your rights to severance as provided in this letter continue even if the Severance Plan is changed after you sign this letter.
DEFINITION OF CAUSE: For purposes of this letter and in interpreting your rights to severance under the Severance Plan, Incentive Compensation Plan and Stock Incentive Plan, as well as under any Change of Control, "Cause" for termination shall be defined and limited as follows: 1) your commission of a crime or other act that could materially damage the reputation of Capella; 2) your theft, misappropriation, or embezzlement of Capella property; 3) your falsification of records maintained by Capella; 4) your failure substantially to comply with the written policies and procedures of Capella as they may
Ken Sobaski Offer Letter
February 21, 2006
be published or revised from time to time (in writing, on the Faculty Center website, or on the Stella intranet); or 5) your misconduct directed toward learners, employees, or adjunct faculty.
DEFINITION OF GOOD REASON: "Good reason" shall be defined as "a voluntary termination by you, whether or not preceded by a Change in Control, in any of the following events: (i) your position is changed to a position with a lower pay grade or lesser responsibilities than the President and Chief Operating Officer position; (ii) your fixed compensation is decreased by more than ten percent (10%) in any twelve (12) month period; (iii) you are reassigned to a work location more than fifty (50) miles from the location in which you are working immediately prior to the reassignment; or (iv) Steve Shank is no longer CEO and you are not assigned to the CEO position.
CONFIDENTIALITY, NON-COMPETITION AND INVENTIONS AGREEMENT: With our growing leadership position in the market, the Company has a great opportunity to build national recognition of the Capella brand as the brand of choice in the elearning market. However, Capella expects increasing competition from for-profit and not for-profit organizations in the rapidly growing elearning market. Capella believes it is essential to take certain steps, including the execution of a Confidentiality, Non-Competition, and Inventions Agreement for certain key positions, in order to protect the legitimate business interests of the Company and to ensure the security and confidentiality of the company's customers, pricing, sales strategy, and technology. Accordingly, Capella requires as a condition of employment that candidates, such as you, for key positions execute Confidentiality, Non-Competition and Invention Agreements. This Agreement must be signed and dated no later than your first day of employment.
CHANGE OF CONTROL BENEFIT: In the event of a "Change in Control" as defined in agreements provided by Capella, you will be entitled to 2 times your normal severance package as defined in this letter assuming an eligible severance event occurs.
EMPLOYMENT AT WILL: Your employment will be at will. This means that either you or Capella may terminate the employment at any time for any reason, without advance notice.
ATTORNEYS' FEES: If either party breaches its obligations under this letter and the referenced documents, the prevailing party shall be entitled to its costs and reasonable attorneys' fees incurred in enforcing its rights.
OTHER BENEFITS: You will be entitled to Personal Time Off earned on a prorated monthly basis equal to a maximum 27 days/year, in accordance with the Company benefit statement, and 10 paid holidays. You are also eligible for paid parking in a designated parking facility. You will also be provided a personal wireless connectivity product such as Blackberry, which includes cell phone service.
Ken Sobaski Offer Letter
February 21, 2006
To the extent the specific terms of this offer letter are inconsistent with the severance, stock incentive, and annual incentive agreements, the terms of this offer letter supersede any such inconsistent terms and control over those agreements.
Ken, we are delighted to be able to offer you this opportunity to join Capella. Your education and experience are impressive and I am confident you will make a valuable contribution to the Company's continued success.
Please sign and date below your acceptance of this offer and return in the enclosed envelope.
Sincerely,
CAPELLA EDUCATION COMPANY
/s/ Betsy Rausch ------------------------------------- Betsy Rausch Vice President Human Resources |
c.c Steve Shank
ACCEPTANCE: I hereby accept the offer of employment by Capella Education Company on the terms described and as amended in this letter with additional amendments as noted. I understand that I must sign and return to Capella the Confidentiality, Non-Competition and Inventions Agreement provided to me with this letter before I start my Capella employment.
/s/ Kenneth Sobaski 2/27/06 ------------------------------------- Date Kenneth Sobaski |
EXHIBIT 10.30
CONFIDENTIALITY, NON-COMPETITION AND INVENTIONS AGREEMENT
This Confidentiality, Non-Competition, and Inventions Agreement ("Agreement") is entered into this 27th day of February 2006 between Kenneth Sobaski ("Employee") and Capella Education Company.
A. Capella Education Company and its subsidiaries (including Capella University, Inc.) are collectively referred to as "Capella" in this Agreement.
B. Capella desires to employ Employee as President and Chief Operating Officer, and Employee desires to be employed in that capacity.
C. As an employee of Capella, Employee would have access to Confidential Information (a term which is defined below).
D. Capella provides, develops, sells, and markets on-line educational products and services. Much of the work of Capella is done through the Internet, which is global in coverage and can be accessed by people throughout the world.
E. As a condition of Employee's employment by Capella, Employee and Capella enter into this Agreement, the terms of which Employee acknowledges are reasonable and necessary for the protection of the legitimate interests of Capella.
AGREEMENT
In consideration of Capella's employing Employee, the parties agree as follows:
1. DEFINITIONS. For the purposes of this Agreement, the following terms have the following meanings:
a. "Capella Confidential Information" means information proprietary to Capella and not generally known (including trade secret information) about Capella's business, customers, learners, products, services, personnel, pricing, sales strategy, marketing efforts, technology, methods, processes, research, development, finances, systems, software, techniques, accounting, purchasing, business strategies, and plans. All information disclosed to Employee or to which Employee obtains access during Employee's Capella employment, whether originated by Employee or by others, shall be presumed to be Capella Confidential Information if it is treated by Capella as being Capella Confidential Information or if Employee has a reasonable basis to believe it to be Capella Confidential Information.
b. "Inventions" means discoveries, improvements, ideas, concepts, processes, formulas, methods, analyses, software, and works of authorship (whether or not reduced to writing or put into practice, and whether or not copyrighted, copyrightable, patented, or patentable) that (1) relate directly to the business of Capella; (2) relate to Capella's actual or demonstrably anticipated research or development; (3) result from any work performed by Employee for Capella; (4) for which equipment, supplies, facilities, or trade secret information of Capella is used; (5) are developed, created, conceived or reduced to practice using any time for which Employee is compensated by Capella; or (6) are developed, created, conceived, or reduced
to practice during the period in which Employee is employed by Capella or within one year after the termination of that employment for any reason.
c. "Non-Assigned Inventions" means as any invention for which no equipment, supplies, facility or trade secret information of Capella was used and which was developed entirely on Employee's own time, and (1) which does not relate (a) directly to the business of Capella or (b) to Capella's actual or demonstrably anticipated research and development, or (2) which does not result from any work performed for Capella.
d. "Competitor" means any person, corporation, not-for-profit organization, or other entity that provides, develops, sells, or markets on-line credit-granting educational products or services in any country in which Capella did business or had customers or learners at any time the last 12 months of my Capella employment. In the case of a not-for-profit organization that provides, develops, sells, or markets on-line credit-granting educational products or services within or from a distinct, separate division or unit of the organization (the "On-Line Unit") and also provides, develops, sells, or markets credit-granting educational products or services through other means within other distinct, separate divisions or units, the term "Competitor" shall be limited to the On-Line Unit, and shall not apply to the organization as a whole.
2. CONFIDENTIAL INFORMATION. Except as required in Employee's duties of Capella employment or as authorized in writing by the Chief Executive Officer or his designee, Employee shall not, either during the Employee's employment by Capella or at any time thereafter, use or disclose to any person any Capella Confidential Information for any purpose. Employee shall follow all procedures and policies adopted by Capella from time to time regarding the treatment and protection of Capella Confidential Information as well as the confidential information of learners or of others.
3. RESTRICTIONS ON COMPETITION. For a period of 12 months after the Employee's Capella employment ends for any reason, Employee shall:
a. inform any prospective new employer, prior to accepting employment, of the existence of this Agreement and provide such employer a copy of this Agreement;
b. not, directly or indirectly, as employee, consultant, contractor or otherwise, perform services for any Competitor; and
c. not directly or indirectly solicit or attempt to solicit any employee or independent contractor of Capella to cease working for Capella.
4. INVENTIONS.
a. With respect to Inventions developed, made, created, authored, conceived, or reduced to practice by Employee, in whole or in part, either by Employee or in connection with others, during Employee's employment by Capella (regardless of whether during normal working hours or whether at Capella premises) or within one year after the termination of that employment for any reason, Employee shall:
(i) keep complete and accurate records of such Inventions, which records shall be Capella property (except for records related solely to Non-Assigned Inventions, which records must be kept but are not Capella property);
(ii) comply with all of Capella's policies and guidelines related to inventions and copyrights, as they may be revised from time to time;
(iii) promptly disclose in writing such Inventions to Capella;
(iv) assign (and Employee hereby does assign) to Capella all of Employee's rights to such Inventions (except for Non-Assigned Inventions) and to letters patent and copyrights granted upon such Inventions (except for Non-Assigned Inventions) in all countries; and
(v) execute such documents and do such other acts as may be necessary in the opinion of Capella to establish and preserve its property rights and to obtain and maintain letters patent and copyrights in favor of Capella.
If for any reason any such assignment is invalid or ineffective for any reason, then Employee hereby grants Capella a perpetual, royalty-free, non-exclusive, worldwide license fully to exploit any intellectual property or proprietary rights in such Invention and any copyrights or patents (or other intellectual property or proprietary registrations or applications) resulting therefrom.
b. Capella shall compensate employees for assigning their rights in inventions that Capella seeks to protect under patent laws in an amount not to exceed $100 per invention (evenly allocated among all inventors).
c. If Capella in good faith believes that any Invention constitutes a Non-Assigned Invention, then Capella shall inform Employee of that fact within thirty (30) days of receiving a disclosure under subparagraph a(iii) of this Paragraph 4 (unless the parties agree on a different period of time on a case-by-case basis). If Capella does not so notify Employee and Employee nonetheless in good faith believes that such Invention constitutes a Non-Assigned Invention, then Employee shall inform Capella within thirty (30) days of the end of the period set forth in the preceding sentence, setting forth reasons for such belief. If within thirty (30) days of Capella's receipt thereof Capella informs Employee that it disagrees, then the parties shall attempt in good faith to resolve their disagreement. Employee shall bear the burden of proving that such Invention constitutes a Non-Assigned Invention.
d. Unless proven otherwise, any Invention shall be presumed to have been conceived during Employee's employment with Capella if within one (1) year after termination of such employment such Invention is disclosed to others, is completed, or has a patent application filed thereon.
e. When developing a Capella course and/or content for a Capella course, (i) Employee shall abide by all of the terms, conditions and policies of Capella related to course and content development; (ii) Employee shall abide by the terms of any separate agreement between Employee and Capella related to the course or content development; and (iii) if Employee chooses to include or refer to any materials for which Employee owns the copyright,
then Employee hereby grants, and agrees to grant, to Capella a royalty-free, perpetual, irrevocable, nonexclusive, and fully sublicensable right to use, reproduce, adapt, publish, translate, create derivative works of, distribute, perform, and display such materials (in whole or in part) worldwide and/or to incorporate them in other works in any form, media, or technology now known or later developed, solely in connection with providing the course (as the course may be changed from time to time).
f. Except to the degree that such materials are created in connection with the development of course design or content, Capella does not claim the copyrights to scholarly books or articles written by faculty members that relate to the faculty member's area of subject matter expertise and that do not relate to methods of course delivery or distance learning proprietary to Capella.
5. RETURN OF PROPERTY. Upon termination of employment with Capella, Employee shall deliver promptly to Capella all records, manuals, books, forms, documents, letters, memoranda, data, tables, photographs, video tapes, audio tapes, computer disks and other computer storage media, and copies thereof, that are the property of Capella, or that relate in any way to the business, products, services, personnel, customers, learners, practices, or techniques of Capella, and all other property of Capella (such as, for example, computers, cellular telephones, pagers, credit cards, and keys), whether or not containing Confidential Information, that are in Employee' possession or under his control.
6. REASONABLENESS OF RESTRICTIONS. Employee acknowledges and agrees that the terms of this Agreement are reasonable and necessary for the protection of Capella's Confidential Information and business and to prevent damage or loss to Capella as a result of any action of Employee. Employee specifically acknowledges and agrees that because of the world-wide coverage and accessibility of the Internet, it is not possible to limit further the geographic scope of the restrictions described in Paragraph 3 above in a manner that would still provide reasonable protection for the legitimate interests of Capella.
7. REMEDIES FOR BREACH. Employee hereby acknowledges and agrees that any breach by Employee of the provisions of this Agreement may cause Capella irreparable harm for which there is no adequate remedy at law. Therefore, Capella shall be entitled, in addition to any other remedies available, to injunctive or other equitable relief to require specific performance or to prevent a breach of the provisions of this Agreement. Any delay by Capella in asserting a right under this Agreement or any failure by Capella to assert a right under this Agreement will not constitute a waiver by Capella of any right hereunder, and Capella may subsequently assert any or all of its rights under this Agreement as if the delay or failure to assert rights had not occurred.
8. NO EMPLOYMENT RIGHTS. This Agreement does not require Capella to employ Employee for any particular length of time and does not restrict the ability of Capella to terminate the employment relationship. Except as provided in a separate written agreement signed by the Capella Chief Executive Officer or his designee, Employee's Capella employment is at-will.
9. PARTIAL INVALIDITY. In the event that any portion of this Agreement is held to be invalid or unenforceable for any reason, that invalidity or unenforceability shall not affect the other portions of this Agreement and the remaining terms and conditions, or portions thereof, shall remain in full force and effect. A court of competent jurisdiction may so modify the objectionable provision as to make it valid, reasonable, and enforceable. It is the intention of the parties that the restrictions imposed by this Agreement be enforced to the maximum permissible extent.
10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall be enforceable by the parties hereto and their respective successors and assigns.
11. GOVERNING LAW. This Agreement and any disputes arising out of it shall be governed by the laws of the State of Minnesota without regard for the conflicts of law principles of any state.
12. FORUM SELECTION. Any disputes arising out of or related to this Agreement shall be litigated only in Minnesota state courts or in the United States District Court for the District of Minnesota, and Capella and Employee hereby consent to the exercise of personal jurisdiction over them for that purpose by Minnesota state courts and the United States District Court for the District of Minnesota. Neither employee nor Capella shall commence litigation against the other arising out of or related to this Agreement in any court outside the state of Minnesota.
EMPLOYEE
/s/ Kenneth Sobaski ---------------------------------------- |
CAPELLA EDUCATION COMPANY
By /s/ Betsy Rausch ------------------------------------- Its VP Human Resources |
EXHIBIT 10.31
(CAPELLA UNIVERSITY LOGO)
June 6, 2006
Reed A. Watson
4465 Vinewood Lane North
Plymouth, MN 55442
Dear Reed,
We are pleased to formally extend you this offer of employment for the position of Senior Vice President of Marketing for Capella University. The position reports to Ken Sobaski, President and Chief Operating Officer. Your start date is to be determined pending further discussion. Please note that this offer of employment is contingent upon successful completion of a background check and the signing of a confidentiality / non-compete agreement on or prior to your first day of employment.
You will be paid on a bi-weekly basis at a rate of $9,423.07, which equals $245,000.00 when annualized. This position is classified as exempt. You will be eligible for a prorated performance and salary review in March 2007. Capella is an "at-will employer;" this means that either you or Capella may terminate employment at any time for any reason, without advance notice.
On your first day, please report to the 9th floor lobby at the 225 S. 6th St. building by 8:15 a.m. and check in with the receptionist as a new employee attending orientation. If you have questions in regards to your first day, scheduling, or other concerns, please contact me directly at (612) 977-5309.
Signing Bonus--In addition, you will receive a signing bonus equal to $50,000.00 (pretax) payable on your first pay date. By accepting this offer of employment, you authorize Capella to reclaim a pro-rated portion of this signing bonus should you voluntarily leave the company within your first year of employment. As used in this paragraph "prorate" means that the amount of the signing bonus to be returned is reduced by 1/12 for each month that you do not work (due to you leaving the organization voluntarily) prior to your one year anniversary date with the Capella.
Annual incentive compensation potential - In addition to your salary, you will be eligible to earn an annual incentive compensation award with a target of 40% of your annual base salary earnings. Payout for this award typically takes place in March of each year. The details of the incentive compensation program will be specified in an annual award plan. As discussed, you will be eligible to participate in the 2006 plan on a pro-rated basis based on your date of hire. Capella will guarantee a minimum of target payout for the 2006 plan. (Target is 40%, and the pro-ration factor will be determined by your date of hire.) If company performance should yield a payout higher than target, your payout will be based on company performance. You will receive this guaranteed 2006 incentive compensation award if you remain employed as of December 31, 2006. The target percentage is subject to modification after fiscal year 2006.
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Stock Option Grant - You will be granted options to purchase 75,000 shares of Capella University common stock at the exercise price then in effect on the date of the award. This option grant is subject to approval by the Board of Director's Compensation Committee. The terms and conditions of the stock option grant will be outlined in a Capella Education Stock Option Agreement that you will receive within a week following confirmation of the stock option award. The stock option shares will vest pro rata over a four-year period of time after the grant and the options can be exercised during a ten-year period from the date of the award, providing you are still employed by the company.
BENEFIT PLANS: The following will summarize the current benefit plans, for which you would be eligible as a full time employee:
Medical/Dental- Beginning the first day of the month following your hire date, you will be eligible to participate in the company's medical and dental plans. The medical plan is administered through Medica. As a Senior Vice President, Capella will pay 100% of the premium for medical coverage for you, your spouse and dependent children. (For specific options and plan details, please refer to your benefits handout.) You will also be eligible to participate in the company's dental plan, administered by Delta Dental. Both plans offer you a choice of networks and/or benefit levels.
Life Insurance - The company provides paid life insurance in the amount of lx salary. You may also elect to purchase additional coverage for yourself, spouse and/or dependents. You will be eligible to participate in the company's life insurance plan on the first day of the month following employment.
Disability Benefits - The company offers short and long-term disability benefits. The short-term disability coverage provides salary replacement for up to 26 weeks of disability. The amount and length of coverage is based upon length of service with the company. This benefit is paid for by the company. You may elect to purchase long-term disability coverage. The Plan replaces up to 60% of your salary as long as you are eligible for disability benefits under the Plan. The company pays 50% of the cost of this plan.
Cafeteria Plan - This plan allows you to pay for medical premiums, unreimbursed medical and child care expenses from pre-tax dollars. You would be eligible for this plan at the same time you are eligible for the medical insurance.
401k Retirement Plan - Under this plan, you may contribute up to 100% of your eligible compensation, up to the IRS annual limit on deferrals. The company will match 50% of employee contributions, up to 4% of compensation - or, put another way, the company contributes a 2% match. There is a 5-year vesting schedule on the employer match, with 20% of the employer contribution vesting annually. You can begin to participate in this plan after approximately one month of service. More specific information and details about the plan and the investment funds will be provided in your orientation.
ESOP - The Company may also make an annual discretionary contribution to the ESOP up to 3% of eligible compensation in the form of company stock once you are eligible to participate. Employer contributions made in your first three years with Capella will vest at the end of your third year of service as defined in the Plan document. Employer contributions made after the end of your third year of service will vest immediately. The form and amount of employer contributions is currently under review and, while it is our desire to offer a competitive retiree benefit program, there should be no expectation that future ESOP contributions will continue in the same manner as in the past.
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Time Off - You will be entitled to Capella's paid time off (PTO) benefit which is accrued and earned on a pro-rated bi-weekly basis equal to a maximum 27 days/year, as well as 10 paid holidays/year.
Executive Severance Plan - Capella Education Company has established the Capella Education Company Executive Severance Plan (the "Severance Plan") to provide severance pay and other benefits to eligible employees. Notwithstanding any contrary provisions of the Severance Plan, you will receive severance of 12 months total compensation (defined as base salary). You will be able to receive the above listed severance compensation if you are terminated without cause or quit for good reason, as both are defined and limited in this letter. You will be entitled to receive the full 12 months compensation regardless whether you find other employment during that time and no amount of replacement income will be set off. Capella will require any successor to assume its obligations in this letter or will remain obligated after any sale. You are eligible for up to 12 months of outplacement assistance through the outplacement agency then used by Capella. Any outplacement assistance provided under the Plan will be paid directly to the outplacement agency.
Continuation Coverage - Federal and state laws require Capella Education Company to offer certain departing employees (and where applicable, their dependents) the right to continue coverage, at their own expense, under our group health, dental and life insurance programs. For health and dental benefits, this continuation coverage is called COBRA. Upon termination of employment, you will receive information further describing how this continuation coverage works, its limitations, and your rights and duties to maintain coverage. Capella Education Company will pay the regular employer portion towards continued coverage for you, your spouse and dependent children under Capella Education Company's group health, dental and basic life insurance plans for the number of months upon which your severance pay is based. After that time, you must pay the entire cost of continuation coverage if you wish to continue coverage.
Change in Control - If you voluntarily terminate for Good Reason, as limited in this letter, following a Change in Control, or if you are involuntarily terminated other than for Cause, within 24 months after a qualified Change in Control, you will be entitled to severance pay equal to twelve months of your base salary. You will also be entitled to 80% of the amount of any targeted bonus for the year in which you terminate, prorated to the date of termination, without regard to performance.
Please refer to the Severance Plan document you have already received for information on the additional provisions and conditions of the Severance Plan. You are entitled all other Level 2 benefits in the Plan and any enhancements provided at that level in the future. Your rights to severance as provided in this letter continue even if the Severance Plan is changed after you sign this letter. Your entitlement begins on your first day of employment.
Parking - Capella will also provide monthly-contract parking for you at our expense. More information will be provided to you about parking once you start.
Definition of Cause - For purposes of this letter and in interpreting your rights to severance under the Severance Plan, Incentive Compensation Plan and Stock Incentive Plan, as well as under any Change of Control, "Cause" for termination shall be defined and limited as follows: 1) your conviction of a crime or commission of other acts either of which could materially damage the reputation of Capella; 2) your theft, misappropriation, or embezzlement of Capella property, 3) your falsification of records maintained by Capella; 4) your failure substantially to comply with the written policies and procedures of Capella as they may be published or revised from time to time (in
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writing, on the Faculty Center website, or on the Stella intranet); or 5) your gross misconduct directed toward learners, employees, or adjunct faculty.
Definition of Good Reason - "Good reason" shall be defined as a termination initiated by you, whether or not preceded by a Change in Control, in any of the following circumstances: (i) your position is changed to a position with a lower pay grade or lesser responsibilities than the Senior Vice President of Marketing position; (ii) your fixed compensation is decreased by more than 10 percent (10%) in any twelve (12) month period; or (iii) you are reassigned to a work location more than fifty (50) miles from the location in which you are working immediately prior to the reassignment.
Attorneys' Fees - If either party breaches its obligations under this letter and the referenced documents, the prevailing party shall be entitled to its costs and reasonable attorneys' fees incurred in enforcing its rights.
Reed, we are pleased to be able to offer you this opportunity to join Capella! We are confident you will find this a rewarding role where you will make a valuable contribution to the company's success!
Sincerely,
/s/ Seth Lockner ------------------------------------- Seth Lockner Human Resources Director |
cc: Ken Sobaski
Enclosures
PLEASE SIGN AND DATE BELOW YOUR ACCEPTANCE OF THIS OFFER AND RETURN IN THE ENCLOSED ENVELOPE. PLEASE RETAIN THE ADDITIONAL COPY FOR YOUR RECORDS.
/s/ Reed A. Watson June 6, 2006 ------------------------------------- DATED SIGNED |
EXHIBIT 10.32
CONFIDENTIALITY, NON-COMPETITION AND INVENTIONS AGREEMENT
This Confidentiality, Non-Competition, and Inventions Agreement ("Agreement") is entered into this 20th day of June 2006 between Reed Watson ("Employee") and Capella Education Company.
A. Capella Education Company and its subsidiaries (including Capella University, Inc.) are collectively referred to as "Capella" in this Agreement.
B. Capella desires to employ Employee as Senior Vice President of Marketing, and Employee desires to be employed in that capacity.
C. As an employee of Capella, Employee would have access to Confidential Information (a term which is defined below).
D. Capella provides, develops, sells, and markets on-line educational products and services. Much of the work of Capella is done through the Internet, which is global in coverage and can be accessed by people throughout the world.
E. As a condition of Employee's employment by Capella, Employee and Capella enter into this Agreement, the terms of which Employee acknowledges are reasonable and necessary for the protection of the legitimate interests of Capella.
AGREEMENT
In consideration of Capella's employing Employee, the parties agree as follows:
1. DEFINITIONS. For the purposes of this Agreement, the following terms have the following meanings:
a. "Capella Confidential Information" means information proprietary to Capella and not generally known (including trade secret information) about Capella's business, customers, learners, products, services, personnel, pricing, sales strategy, marketing efforts, technology, methods, processes, research, development, finances, systems, software, techniques, accounting, purchasing, business strategies, and plans. All information disclosed to Employee or to which Employee obtains access during Employee's Capella employment, whether originated by Employee or by others, shall be presumed to be Capella Confidential Information if it is treated by Capella as being Capella Confidential Information or if Employee has a reasonable basis to believe it to be Capella Confidential Information.
b. "Inventions" means discoveries, improvements, ideas, concepts, processes, formulas, methods, analyses, software, and works of authorship (whether or not reduced to writing or put into practice, and whether or not copyrighted, copyrightable, patented, or patentable) that (1) relate directly to the business of Capella; (2) relate to Capella's actual or demonstrably anticipated research or development; (3) result from any work performed by Employee for Capella; (4) for which equipment, supplies, facilities, or trade secret information of Capella is used; (5) are developed, created, conceived or reduced
to practice using any time for which Employee is compensated by Capella; or (6) are developed, created, conceived, or reduced to practice during the period in which Employee is employed by Capella or within one year after the termination of that employment for any reason.
c. "Non-Assigned Inventions" means as any invention for which no equipment, supplies, facility or trade secret information of Capella was used and which was developed entirely on Employee's own time, and (1) which does not relate (a) directly to the business of Capella or (b) to Capella's actual or demonstrably anticipated research and development, or (2) which does not result from any work performed for Capella.
d. "Competitor" means any person, corporation, not-for-profit organization, or other entity that provides, develops, sells, or markets on-line credit-granting educational products or services in any country in which Capella did business or had customers or learners at any time the last 12 months of my Capella employment. In the case of a not-for-profit organization that provides, develops, sells, or markets on-line credit-granting educational products or services within or from a distinct, separate division or unit of the organization (the "On-Line Unit") and also provides, develops, sells, or markets credit-granting educational products or services through other means within other distinct, separate divisions or units, the term "Competitor" shall be limited to the On-Line Unit, and shall not apply to the organization as a whole.
2. CONFIDENTIAL INFORMATION. Except as required in Employee's duties of Capella employment or as authorized in writing by the Chief Executive Officer or his designee, Employee shall not, either during the Employee's employment by Capella or at any time thereafter, use or disclose to any person any Capella Confidential Information for any purpose. Employee shall follow all procedures and policies adopted by Capella from time to time regarding the treatment and protection of Capella Confidential Information as well as the confidential information of learners or of others.
3. RESTRICTIONS ON COMPETITION. For a period of 12 months after the Employee's Capella employment ends for any reason, Employee shall:
a. inform any prospective new employer, prior to accepting employment, of the existence of this Agreement and provide such employer a copy of this Agreement;
b. not, directly or indirectly, as employee, consultant, contractor or otherwise, perform services for any Competitor; and
c. not directly or indirectly solicit or attempt to solicit any employee or independent contractor of Capella to cease working for Capella.
4. INVENTIONS.
a. With respect to Inventions developed, made, created, authored, conceived, or reduced to practice by Employee, in whole or in part, either by Employee or in connection with others, during Employee's employment by Capella (regardless of whether
during normal working hours or whether at Capella premises) or within one year after the termination of that employment for any reason, Employee shall:
(i) keep complete and accurate records of such Inventions, which records shall be Capella property (except for records related solely to Non-Assigned Inventions, which records must be kept but are not Capella property);
(ii) comply with all of Capella's policies and guidelines related to inventions and copyrights, as they may be revised from time to time;
(iii) promptly disclose in writing such Inventions to Capella;
(iv) assign (and Employee hereby does assign) to Capella all of Employee's rights to such Inventions (except for Non-Assigned Inventions) and to letters patent and copyrights granted upon such Inventions (except for Non-Assigned Inventions) in all countries; and
(v) execute such documents and do such other acts as may be necessary in the opinion of Capella to establish and preserve its property rights and to obtain and maintain letters patent and copyrights in favor of Capella.
If for any reason any such assignment is invalid or ineffective for any reason, then Employee hereby grants Capella a perpetual, royalty-free, non-exclusive, worldwide license fully to exploit any intellectual property or proprietary rights in such Invention and any copyrights or patents (or other intellectual property or proprietary registrations or applications) resulting therefrom.
b. Capella shall compensate employees for assigning their rights in inventions that Capella seeks to protect under patent laws in an amount not to exceed $100 per invention (evenly allocated among all inventors).
c. If Capella in good faith believes that any Invention constitutes a Non-Assigned Invention, then Capella shall inform Employee of that fact within thirty (30) days of receiving a disclosure under subparagraph a(iii) of this Paragraph 4 (unless the parties agree on a different period of time on a case-by-case basis). If Capella does not so notify Employee and Employee nonetheless in good faith believes that such Invention constitutes a Non-Assigned Invention, then Employee shall inform Capella within thirty (30) days of the end of the period set forth in the preceding sentence, setting forth reasons for such belief. If within thirty (30) days of Capella's receipt thereof Capella informs Employee that it disagrees, then the parties shall attempt in good faith to resolve their disagreement. Employee shall bear the burden of proving that such Invention constitutes a Non-Assigned Invention.
d. Unless proven otherwise, any Invention shall be presumed to have been conceived during Employee's employment with Capella if within one (1) year after termination of such employment such Invention is disclosed to others, is completed, or has a patent application filed thereon.
e. When developing a Capella course and/or content for a Capella course, (i) Employee shall abide by all of the terms, conditions and policies of Capella related to course and content development; (ii) Employee shall abide by the terms of any separate agreement between Employee and Capella related to the course or content development; and (iii) if Employee chooses to include or refer to any materials for which Employee owns the copyright, then Employee hereby grants, and agrees to grant, to Capella a royalty-free, perpetual, irrevocable, nonexclusive, and fully sublicensable right to use, reproduce, adapt, publish, translate, create derivative works of, distribute, perform, and display such materials (in whole or in part) worldwide and/or to incorporate them in other works in any form, media, or technology now known or later developed, solely in connection with providing the course (as the course may be changed from time to time).
f. Except to the degree that such materials are created in connection with the development of course design or content, Capella does not claim the copyrights to scholarly books or articles written by faculty members that relate to the faculty member's area of subject matter expertise and that do not relate to methods of course delivery or distance learning proprietary to Capella.
5. RETURN OF PROPERTY. Upon termination of employment with Capella, Employee shall deliver promptly to Capella all records, manuals, books, forms, documents, letters, memoranda, data, tables, photographs, video tapes, audio tapes, computer disks and other computer storage media, and copies thereof, that are the property of Capella, or that relate in any way to the business, products, services, personnel, customers, learners, practices, or techniques of Capella, and all other property of Capella (such as, for example, computers, cellular telephones, pagers, credit cards, and keys), whether or not containing Confidential Information, that are in Employee' possession or under his control.
6. REASONABLENESS OF RESTRICTIONS. Employee acknowledges and agrees that the terms of this Agreement are reasonable and necessary for the protection of Capella's Confidential Information and business and to prevent damage or loss to Capella as a result of any action of Employee. Employee specifically acknowledges and agrees that because of the world-wide coverage and accessibility of the Internet, it is not possible to limit further the geographic scope of the restrictions described in Paragraph 3 above in a manner that would still provide reasonable protection for the legitimate interests of Capella.
7. REMEDIES FOR BREACH. Employee hereby acknowledges and agrees that any breach by Employee of the provisions of this Agreement may cause Capella irreparable harm for which there is no adequate remedy at law. Therefore, Capella shall be entitled, in addition to any other remedies available, to injunctive or other equitable relief to require specific performance or to prevent a breach of the provisions of this Agreement. Any delay by Capella in asserting a right under this Agreement or any failure by Capella to assert a right under this Agreement will not constitute a waiver by Capella of any right hereunder, and Capella may subsequently assert any or all of its rights under this Agreement as if the delay or failure to assert rights had not occurred.
8. NO EMPLOYMENT RIGHTS. This Agreement does not require Capella to employ Employee for any particular length of time and does not restrict the ability of Capella to terminate the employment relationship. Except as provided in a separate written agreement signed by the Capella Chief Executive Officer or his designee, Employee's Capella employment is at-will.
9. PARTIAL INVALIDITY. In the event that any portion of this Agreement is held to be invalid or unenforceable for any reason, that invalidity or unenforceability shall not affect the other portions of this Agreement and the remaining terms and conditions, or portions thereof, shall remain in full force and effect. A court of competent jurisdiction may so modify the objectionable provision as to make it valid, reasonable, and enforceable. It is the intention of the parties that the restrictions imposed by this Agreement be enforced to the maximum permissible extent.
10. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall be enforceable by the parties hereto and their respective successors and assigns.
11. GOVERNING LAW. This Agreement and any disputes arising out of it shall be governed by the laws of the State of Minnesota without regard for the conflicts of law principles of any state.
12. FORUM SELECTION. Any disputes arising out of or related to this Agreement shall be litigated only in Minnesota state courts or in the United States District Court for the District of Minnesota, and Capella and Employee hereby consent to the exercise of personal jurisdiction over them for that purpose by Minnesota state courts and the United States District Court for the District of Minnesota. Neither employee nor Capella shall commence litigation against the other arising out of or related to this Agreement in any court outside the state of Minnesota.
EMPLOYEE
/s/ Reed Watson ---------------------------------------- |
CAPELLA EDUCATION COMPANY
By /s/ Betsy Rausch ------------------------------------- Its 6/27/2006 |
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of this 30th day of May, 2006 between Michael Offerman ("Employee") and Capella Education Company.
RECITALS
WHEREAS, Capella Education Company and its affiliates and subsidiaries, including without limitation Capella University, Inc., (individually and collectively "CEC") are engaged in the business of providing, developing, selling and marketing on-line educational products and services;
WHEREAS, CEC currently employs Employee as University President and Senior Vice President, Capella Education Company;
WHEREAS, CEC desires to retain Employee in that position in conjunction with the move of Paul Schroeder to the position of Senior Vice President, Capella University, reporting to Employee; and
WHEREAS, Employee also desires to retain the positions of University President and Senior Vice President, Capella Education Company.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the following undertakings, CEC and Employee agree as follows:
1. Employment.
(a) Position. CEC will continue to employ Employee as its President, Capella University, and Senior Vice President, Capella Education Company. Employee will continue to report to the Chairman and Chief Executive Officer oaf CEC.
(b) Duties. Employee's duties are as set forth on Exhibit A hereto.
2. Term of Employment. CEC will employ Employee on an at-will basis with no fixed employment termination date. Either Employee or CEC may terminate Employee's employment with CEC at any time and for any reason upon 30 days' prior written notice.
3. Compensation. As compensation for services to be rendered by Employee under this Agreement, CEC will provide the following:
(a) Base Salary. CEC will pay to Employee a base salary at the same rate currently in effect for Employee, which salary shall be paid in accordance with CEC's normal payroll policies and procedures.
(b) Management Incentive Plan. The terms of the Management Incentive Plan for 2006 shall continue to apply to Employee. If Employee's employment with CEC ends prior to December 31, 2006, he shall not receive a bonus for calendar year 2006; provided, however, that if Employee gives three-month notice of termination on or before October 31, 2006, but his employment does not end until December 31, 2006 or later, he shall be entitled to receive a bonus for full calendar year 2006, regardless of when such bonus is paid by CEC.
(c) Participation in Benefit Plans. Employee shall be entitled to participate in employee benefit plans or programs established by CEC from time to time to the extent that he is eligible under the terms of the plan or program. Employee's participation in any such plan or program shall be subject to the terms, rules, and laws applicable thereto.
4. Stock Options. Employee shall be entitled to receive an annual stock option grant in 2006, provided that he is still an employee of CEC at the time of the grant.
5. Severance Plan.
(a) Participation in Severance Plan. Employee shall be eligible to participate in the Capella Education Company Executive Severance Plan (the "Severance Plan"), as amended from time to time, according to its terms.
(b) Termination for Cause. If CEC terminates Employee's employment at any time for "Cause," as defined in the Severance Plan, Employee shall not be entitled to receive severance benefits outlined in the Severance Plan.
(c) Termination other than for Cause. If CEC terminates Employee's employment at any time other than for "Cause," as defined in the Severance Plan, Employee shall be entitled to receive severance benefits outlined in the Severance Plan.
(d) Voluntary Termination Prior to January 31, 2007. If Employee voluntarily terminates his employment with CEC such that his employments ends before January 31, 2007, Employee shall not be entitled to receive severance benefits outlined in the Severance Plan.
(e) Voluntary Termination Between January 31, 2007 and April 30, 2007. If Employee voluntarily terminates his employment with CEC by providing advance notice of termination on or before October 31, 2006 such that his employment ends on or after January 31, 2007, and on or before April 30, 2007, he shall be entitled to receive severance benefits outlined in the Severance Plan.
(f) Voluntary Termination for "Good Reason". Notwithstanding any contrary provisions herein, if Employee voluntarily terminates his employment for
"Good Reason" between the date hereof and the termination date of
this Agreement, he shall be entitled to receive severance
benefits outlined in the Severance Plan. "Good Reason" shall be
defined as "a voluntary termination by Employee, whether or not
preceded by a change in control, in any of the following cases:
(i) Employee's position is changed to a position with a lower pay
grade or lesser responsibilities than his current position of
President, Capella University and Senior Vice President, Capella
Education Company (as more fully described in Exhibit A hereto);
(ii) Employee's fixed compensation is decreased; or (iii)
Employee's reporting relationship to the Capella University Board
is materially changed."
6. Confidentiality Agreement. The Confidentiality, Non-Competition and Inventions Agreement entered into between Employee and CEC on April 16, 2001 ("Confidentiality Agreement") shall remain in effect and shall not expire upon termination of Employee's employment.
7. Lockup Agreement. CEC covenants and agrees that, incident to any proposed sale of CEC's shares of capital stock pursuant to a registration statement filed under the Securities Act of 1933, it shall not obligate Employee to execute a lockup agreement until such time as CEC is within ten business days of commencing its "road show."
8. Release of Claims. As a condition of receiving the severance payments described in Section 5 above, Employee must sign a release of all claims in a form prescribed by CEC and allow all applicable rescission and revocation periods to expire without a rescission or revocation. Without limiting the generality of the foregoing, it is intended that the release will release all claims that Employee may have against CEC, its shareholders, directors, officers, insurers, agents, representatives, and employees that relate in any manner to Employee's employment by CEC or the termination of his employment from CEC.
9. Term of Agreement. This Agreement shall remain in effect until May 1, 2007, and shall terminate on that date. In the event that Employee is still employed by CEC on May 1, 2007, such employment shall be at-will and on such terms as are at such time agreed by Employee and CEC.
10. Notices. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered to Employee or to the Chief Executive Officer of CEC or when mailed by United States registered or certified mail (return receipt requested, postage pre-paid) or sent by express delivery service to the last known residence address of the Employee or, in the case of the Company, to its principal executive office to the attention of the Chief Executive Officer, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.
11. Successors and Assigns. This Agreement is binding on and inures to the benefit of Employee and Employee's heirs and legal representatives and on CEC and its successors and assigns. No rights or obligations of the Employee hereunder may be assigned, pledged, disposed of, or transferred to any other person or entity without the prior written consent of CEC.
12. Governing Law. This Agreement shall be construed under and governed by the laws of the State of Minnesota without regard for the conflicts of law principles of any state.
13. Amendments and Waivers. No provision hereof may be modified, waived, or discharged in any way whatsoever except by written agreement executed by both parties. No delay or failure of either party to insist, in any one or more instances, upon performance of any of the terms and conditions of this Agreement or to exercise any rights or remedies hereunder shall constitute a waiver of such rights or remedies or any other rights or remedies hereunder.
14. Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the specific subjects addressed herein, and this Agreement supersedes all prior oral and written agreements, representations, and promises between the parties which are inconsistent with the terms herein. It is specifically understood that this Agreement does not supersede any agreements or terms of employment not specifically discussed or contradicted herein, such as, by way of example but not limitation, stock option agreements currently in place between Employee and CEC, the Management Incentive Plan, the Confidentiality Agreement, the Severance Plan and the offer letter of employment to from CEC to Employee dated April 16, 2001.
IN WITNESS WHEREOF, the parties have hereunto set their hands, intending to be legally bound, as of the date first above written.
CAPELLA EDUCATION COMPANY
By: /s/ Stephen Shank ------------------------------------ Its: CEO |
EMPLOYEE:
/s/ Michael J. Offerman ---------------------------------------- Michael Offerman |
EXHIBIT A
DESCRIPTION OF DUTIES
President, Capella University
ROLE
The President reports to the Capella University Board of Directors on matters of policy, governance, and general direction. The Board consists of ten (10) members, a majority of whom serve as representatives of the public interest. With respect to operating matters and strategic direction and implementation, the President reports to the CEO of Capella Education Company, parent company of Capella University. Under the current organization, the following position reports directly to the President: Senior Vice President of the University. The University President serves both an internal and external role focused on thought leadership and related positioning and differentiation of Capella University from other educational providers. The University Senior Vice President is responsible for all day-to-day operations, operational decisions and supervision of the university.
Internally, the President conducts research that is used to conceptualize and articulate possible strategic positions and actions for consideration by the University Senior Vice President and other company and university leadership. Examples of areas for consideration include increased transparency of outcomes data, expansion of ideas for the next generation of online learning, the identification and exploration of pedagogical implications and applications unique to the online delivery environment, models of assessment and predictive profile development and exploration of emerging educational opportunities based on developments in cognitive science and technology. The President develops papers, positions, presentations and other communication on these and other issues to inform Capella leadership.
When appropriate, the President uses this information and information on other existing aspects of the University (for example, the Predictive Model) in external communications to promote and differentiate Capella University in a positive and brand-appropriate manner. Examples of external communications include publications, presentations, editorials and briefings. The President seeks out local, state, national and international presentations and related opportunities to showcase Capella University and to become established as a thought leader.
Responsibilities
As a core member of the senior management team of Capella Education, the President participates in providing strategic direction and works effectively with the organization's business functions providing financial, marketing, operations and technology support to the University.
Specific expectations for the position will include but not be limited to:
- articulating a vision for the University to internal and external constituencies;
- collaboration in the development of a strategic plan for the University as an integral part of the Capella Education Company strategy;
- ensuring the high quality implementation of the academic program, including improving institutional research and data collection for planning and benchmarking purposes;
- promulgating best practices in higher education and incorporating them throughout the University;
- providing inspirational leadership;
- providing executive leadership to and interface with the Capella University Board of Directors;
- creation of potential new academic and/or business partnerships;
- enhancement of relations with national organizations critical to the University, such as the American Council on Education (ACE);
- engagement in public policy debate and formulation through engagement with public policy bodies (state, federal, international) and both government and non-government organizations involved in the establishment and oversight of educational standards and regulations;
- engagement with other research organizations and efforts such as the WCET, Carnegie Foundation and others;
- research into the faculty experience through engagement in faculty orientation, training, mentor development and faculty development courses and programs.
EXHIBIT 10.34
Addendum A to Confidentiality, Non-Competition and Inventions Agreement dated April 16, 2001, By and Between Capella Education Company ("Capella") and Michael Offerman ("Employee")
WHEREAS, Capella and Employee entered into a Confidentiality, Non-Competition and Inventions Agreement dated April 16, 2001 (the "Agreement"), and
WHEREAS, Employee has requested that Capella amend the Agreement to provide more flexibility to Employee with respect to the covenant not to compete contained in the Agreement; and
WHEREAS, Capella has agreed to amend the Agreement, on the terms contained below.
NOW, THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Capella and Employee hereby agree as follows:
1) Section 1.c. of the Agreement shall be modified by adding the following as a second and third paragraphs:
Notwithstanding anything to the contrary above, an On-Line Unit of a not-for-profit organization shall not be considered a "Competing Organization" unless that entity is defined by Capella as a "major competitor," which major competitors are listed below:
- Western Governors University
- University of Massachusetts
- University of Maryland University College
- New York University
- University of Indiana
Capella may, at its discretion, amend the list of "major competitors" effective on any annual anniversary of the effective date of this Addendum A by notifying Employee in writing within thirty days of such anniversary date of additions and/or deletions to the list; provided, however, that in no event shall the total number of organizations named as "major competitors" exceed five.
2) Section 9 of the Agreement shall be modified by adding the following as a second paragraph:
In the event that the modification to Section 1.c. of the Agreement made pursuant to Addendum A is held to be invalid or unenforceable for any reason, such modification shall be deemed null and void and Section 1.c. of the Agreement shall be enforceable in accordance with its original terms.
There parties hereto have agreed to this Addendum A as of this 16th day of June, 2005. This Addendum A shall become effective on the 1st day of September, 2005.
EMPLOYEE CAPELLA EDUCATION COMPANY /s/ Michael J. Offerman By /s/ Stephen Shank ------------------------------------- ------------------------------------- Michael Offerman Its Chair and CEO |
EXHIBIT 10.35
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of this 30th day of May, 2006 between Paul Schroeder ("Employee") and Capella Education Company.
RECITALS
WHEREAS, Capella Education Company and its affiliates and subsidiaries, including without limitation Capella University, Inc., (individually and collectively "CEC") are engaged in the business of providing, developing, selling and marketing on-line educational products and services;
WHEREAS, CEC employed Employee as its Senior Vice President, Business Team Management;
WHEREAS, CEC desired Employee to move into the position of Senior Vice President, Capella University;
WHEREAS, Employee also desired to move into the position of Senior Vice President, Capella University; and
WHEREAS, in March, 2006, Employee moved into the position of Senior Vice President, Capella University.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the following undertakings, CEC and Employee agree as follows:
1. Employment.
(a) Position. CEC has employed Employee effective this date as its Senior Vice President, Capella University. Employee reports to the President of Capella University.
(b) Duties. Employee's duties are as set forth on Exhibit A hereto, subject to modification from time to time as jointly agreed by Employee and CEC.
2. Term of Employment. CEC will continue to employ Employee on an at-will basis with no fixed employment termination date. Either Employee or CEC may terminate Employee's employment with CEC at any time and for any reason upon 30 days' prior written notice.
3. Compensation. As compensation for services to be rendered by Employee under this Agreement, CEC will provide the following:
(a) Base Salary. CEC will pay to Employee a base salary at the same rate currently in effect for Employee, which salary shall be paid in accordance with CEC's normal payroll policies and procedures.
(b) Management Incentive Plan. The terms of the Management Incentive Plan for 2006 shall continue to apply to Employee. If Employee's employment with CEC ends prior to December 31, 2006, he shall not receive a bonus for calendar year 2006; provided, however, that if Employee gives notice of termination on or before October 31, 2006, but his employment does not end until December 31, 2007 or later, he shall be entitled to receive a bonus for full calendar year 2006, regardless of when such bonus is paid by CEC.
(c) Participation in Benefit Plans. Employee shall be entitled to participate in employee benefit plans or programs established by CEC from time to time to the extent that he is eligible under the terms of the plan or program. Employee's participation in any such plan or program shall be subject to the terms, rules, and laws applicable thereto.
4. Stock Options. Employee shall be entitled to receive an annual stock option grant in 2006, provided that he is still an employee of CEC at the time of the grant.
5. Severance Plan.
(a) Participation in Severance Plan. Employee shall be eligible to participate in the Capella Education Company Executive Severance Plan (the "Severance Plan"), as amended from time to time, according to its terms.
(b) Termination for Cause. If CEC terminates Employee's employment at any time for "Cause," as defined in the Severance Plan, Employee shall not be entitled to receive severance benefits outlined in the Severance Plan.
(c) Termination other than for Cause. If CEC terminates Employee's employment at any time other than for "Cause," as defined in the Severance Plan, Employee shall be entitled to receive severance benefits outlined in the Severance Plan.
(d) Voluntary Termination Prior to January 31, 2007. If Employee voluntarily terminates his employment with CEC such that his employments ends before January 31, 2007, Employee shall not be entitled to receive severance benefits outlined in the Severance Plan.
(e) Voluntary Termination Between January 31, 2007 and April 30, 2007. If Employee voluntarily terminates his employment with CEC by providing advance notice of termination on or before October 31, 2006, such that his employment ends on or after January 31, 2007, and on or before April 30,
2007, he shall be entitled to receive severance benefits outlined in the Severance Plan.
6. Confidentiality Agreement. The Confidentiality, Non-Competition and Inventions Agreement entered into between Employee and CEC on May 9, 2001 ("Confidentiality Agreement") shall remain in effect and shall not expire upon termination of Employee's employment.
7. Release of Claims. As a condition of receiving the severance payments described in Section 5 above, Employee must sign a release of all claims in a form prescribed by CEC and allow all applicable rescission and revocation periods to expire without a rescission or revocation. Without limiting the generality of the foregoing, it is intended that the release will release all claims that Employee may have against CEC, its shareholders, directors, officers, insurers, agents, representatives, and employees that relate in any manner to Employee's employment by CEC or the termination of his employment from CEC.
8. Term of Agreement. This Agreement shall remain in effect until May 1, 2007, and shall terminate on that date. In the event that Employee is still employed by CEC on May 1, 2007, such employment shall be at-will and on such terms as are at such time agreed by Employee and CEC.
9. Covenant by Employee. In consideration of the commitments made by CEC in Section 5 above, Employee agrees that, from the date hereof until October 31, 2006, he shall not actively search for employment opportunities outside of CEC.
10. Notices. For the purpose of this Agreement, notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when personally delivered to Employee or to the Chief Executive Officer of CEC or when mailed by United States registered or certified mail (return receipt requested, postage pre-paid) or sent by express delivery service to the last known residence address of the Employee or, in the case of the Company, to its principal executive office to the attention of the Chief Executive Officer, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.
11. Successors and Assigns. This Agreement is binding on and inures to the benefit of Employee and Employee's heirs and legal representatives and on CEC and its successors and assigns. No rights or obligations of the Employee hereunder may be assigned, pledged, disposed of, or transferred to any other person or entity without the prior written consent of CEC.
12. Governing Law. This Agreement shall be construed under and governed by the laws of the State of Minnesota without regard for the conflicts of law principles of any state.
13. Amendments and Waivers. No provision hereof may be modified, waived, or discharged in any way whatsoever except by written agreement executed by both parties. No delay or failure of either party to insist, in any one or more instances, upon performance of any of the terms and conditions of this Agreement or to exercise any rights or remedies hereunder shall constitute a waiver of such rights or remedies or any other rights or remedies hereunder.
14. Entire Agreement. This Agreement constitutes the entire agreement between the parties with respect to the specific subjects addressed herein, and this Agreement supersedes all prior oral and written agreements, representations, and promises between the parties which are inconsistent with the terms herein. It is specifically understood that this Agreement does not supersede any agreements or terms of employment not specifically discussed or contradicted herein, such as, by way of example but not limitation, stock option agreements currently in place between Employee and CEC, the Management Incentive Plan, the Confidentiality Agreement and the Severance Plan.
IN WITNESS WHEREOF, the parties have hereunto set their hands, intending to be legally bound, as of the date first above written.
CAPELLA EDUCATION COMPANY
By: /s/ Stephen Shank ------------------------------------ Its: Chair and CEO |
EMPLOYEE:
/s/ Paul Schroeder ---------------------------------------- Paul Schroeder |
EXHIBIT A
DESCRIPTION OF DUTIES
As a core member of the senior management team of CEC and reporting to the President of Capella University, the Senior Vice President participates in the development and implementation of CEC's strategic direction and works effectively with the organization's business functions which provide financial, marketing, operations and technology support to the University.
The Senior Vice President provides overall direction and direct day-to-day management for the University, which includes five schools, learner support, and related academic support services. The Senior Vice President will lead the University in efforts to offer a broad range of innovative educational programs ensuring the highest possible quality, exceptional teaching and student services capabilities, and outstanding learning outcomes.
Specific expectations for the position will include but not be limited to:
- ensuring the high quality implementation of the academic programs, including improving institutional research and data collection for planning and benchmarking purposes;
- promulgating best practices in higher education and incorporating them throughout the University;
- developing and achieving multiple-year budgets to support the strategic plan;
- championing and continuing to develop an effective and interactive educational process;
- providing inspirational leadership and collaborative management, while developing and empowering a strong academic management team;
- addressing key learner management issues, such as retention and completion rates, through development of academic requirements, advising and residency;
- managing, recruiting and developing a faculty community;
- providing the leadership and professional development opportunities necessary for the faculty and administration; and
- diversifying the current course and degree offerings according to market demands.
EXHIBIT 10.36
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("AMENDMENT" or "FIRST AMENDMENT") is entered into effective as of May 16, 2006, by and between 601 Second Avenue Limited Partnership, a Texas limited partnership ("LANDLORD"), and Capella Education Company, a Minnesota corporation ("TENANT").
RECITALS
A. Landlord and Tenant are parties to an Office Lease dated February 23, 2004 (the "EXISTING LEASE" and as amended by this First Amendment, the "LEASE"), relating to certain premises (the "PREMISES") situated in the office project now commonly known as 225 South Sixth Street in Minneapolis, Minnesota.
B. Landlord and Tenant now want to memorialize certain agreements pertaining to Tenant's installation and use of an emergency generator on the terms and conditions hereinafter set forth.
Accordingly, Landlord and Tenant hereby agree as follows:
1. APPLICATION OF LEASE TERMS. Except to the extent inconsistent with this Amendment and except to the extent that the terms of this Amendment specifically address a topic, the terms and conditions of the Existing Lease shall apply. Those capitalized terms which are used in this Amendment and are not defined herein shall have the respective meaning given to them in the Existing Lease.
2. TENANT'S EMERGENCY GENERATOR. Landlord hereby grants Tenant the right, throughout the Lease Term and in accordance with and subject to Section 36.3 of the Existing Lease (i) to install and maintain a 500 KW emergency generator, related equipment and switchgear (collectively, "TENANT'S EMERGENCY GENERATOR EQUIPMENT") at the location on the B1 Level of the Project which is identified on the floor plan attached hereto as Exhibit P ("TENANT'S EMERGENCY GENERATOR SITE") for the exclusive use of Tenant, and (ii) to use the two existing four inch empty conduits which are depicted on Exhibit P attached hereto for connection to the 600 amp electrical feed on the B1 Level of the Project to transmit power from Tenant's Emergency Generator Equipment to the 15th floor of the Premises for the exclusive use of Tenant. Tenant hereby agrees that Landlord shall have no obligation to make any improvements to Tenant's Emergency Generator Site or to provide any improvement or build-out allowance with respect thereto.
3. LANDLORD'S EMERGENCY GENERATOR. Within ten (10) days after beginning to use Tenant's Emergency Generator Equipment, Tenant shall surrender possession to Landlord of Landlord's 205 KW generator, switchgear and related conduit (collectively, "LANDLORD'S EMERGENCY GENERATOR EQUIPMENT") on the B1 Level of the Project to Landlord after having performed any reasonable maintenance to Landlord's Emergency Generator Equipment which is requested by Landlord and is necessary to put Landlord's Emergency Generator Equipment in as a good a condition as it was in prior to Tenant's use thereof.
4. COSTS; UTILITIES. Tenant shall be responsible for all costs incurred in installing, operating, repairing, maintaining and replacing Tenant's Emergency Generator Equipment. Sub-meters to measure the electrical and fuel oil consumption of Tenant's Emergency Generator Equipment shall be installed by Landlord, at Tenant's expense, and Tenant shall pay Landlord for such electrical and fuel oil consumption on a monthly basis. To the extent that Tenant's Emergency Generator Equipment requires any other utility service, Landlord shall only be obligated to use its reasonable efforts to cause the applicable public utility to furnish the same. Any failure or interruption in the furnishing of the utilities to any extent needed by Tenant's Emergency Generator Equipment, shall not render Landlord liable in any respect for damages to either person or property, nor be construed as an eviction of Tenant, nor, work an abatement of any Rent, nor relieve Tenant from fulfillment of any covenant or agreement in the Lease. Landlord agrees, however, to use diligent efforts to promptly cause the applicable public utilities to restore the same.
5. RULES. Tenant's use of Tenant's Emergency Generator Equipment and Tenant's Emergency Generator Site shall be subject to such reasonable rules, procedures and conditions as Landlord may establish from time to time.
6. INDEMNITY. Subject to the provisions of Section 17 of the Existing Lease
which shall control if they conflict with the provisions of this Section 6,
Tenant shall indemnify, defend (at Landlord's request and with counsel
reasonably approved by Landlord) and hold Landlord and Landlord's Affiliates
(and each of their partners, directors, officers, shareholders and employees)
harmless from and against every demand, claim, cause of action, judgment and
expense, including, but not limited to, reasonable attorneys' fees and
disbursements of counsel, whether suit is initiated or not, and all loss, bodily
or personal injury, death or property damage occurring, in whole or in part,
because of or in manner related to the installation, use, operation, repair,
maintenance or replacement of Tenant's Emergency Generator Equipment, except to
the extent caused by the gross negligence or willful misconduct of Landlord or
Landlord's Affiliates or any of their representatives, agents, contractors or
employees.
7. WAIVER OF SUBROGATION. Tenant hereby waives any and all rights of recovery, claim, action or cause of action, against Landlord and Landlord's Affiliates and each of their partners, property managers, officers, employees and contractors for any loss or damage that may occur to Tenant's Emergency Generator Equipment; it being agreed that Tenant shall assume the entire risk of any such loss and maintain such insurance as Tenant believes it is prudent to maintain to insure against any such loss.
8. REMOVAL. Tenant's Emergency Generator Equipment shall become the property of Landlord upon the expiration or termination of this Lease and shall be surrendered with the Premises.
9. BROKERAGE COMMISSION. Tenant warrants that Tenant has not engaged or dealt with any broker in connection with this First Amendment and Tenant agrees to defend, indemnify and hold Landlord and Landlord's agents harmless from and against all losses, damages, costs and expenses (including reasonable attorneys' fees) suffered by Landlord as a result of any claim for brokers' fees or finders' fees asserted on account of any dealings with Tenant by any broker in connection with this First Amendment.
10. COUNTERPARTS. This First Amendment may be executed in any number of counterparts, all of which shall be considered one and the same Amendment, even though all parties hereto have not signed the same counterpart. Signatures on this Amendment which are transmitted by facsimile shall be valid for all purposes. Any party shall, however, deliver an original signature for this Amendment to the other party upon request.
11. REAFFIRMATION OF LEASE. Except as expressly amended herein, all of the terms and conditions of the Existing Lease remain in full force and effect.
12. SUCCESSORS AND ASSIGNS. This First Amendment shall be binding upon and be enforceable by Landlord and Tenant and their successors and permitted assigns.
[The remainder of this page is blank]
IN WITNESS WHEREOF, Tenant has executed this First Amendment to Lease to be effective as of the date first above written.
TENANT:
CAPELLA EDUCATION COMPANY
a Minnesota corporation
By: /s/ Gregory W. Thom ------------------------------------ Name: Gregory W. Thom Title: VP, General Counsel, & Secretary |
This is a signature page to the First Amendment to Lease between 601 Second Avenue Limited Partnership, a Texas limited partnership, as Landlord, and Capella Education Company, a Minnesota corporation, as Tenant.
IN WITNESS WHEREOF, Landlord has executed this First Amendment to Lease to be effective as of the date first above written.
LANDLORD:
601 SECOND AVENUE LIMITED PARTNERSHIP
By: Minneapolis 601 Limited Partnership,
a Texas limited partnership, its
general partner
By: Hines Acquisitions No. 2 Limited
Partnership, a Texas limited
partnership, its sole general
partner
By: Hines Interests Limited Partnership,
a Delaware limited partnership, its
sole general partner
By: Hines Holdings, Inc., a Texas close
corporation, its sole general
partner
By: /s/ O. David McGinnis ------------------------------------ Name: O. David McGinnis Title: Senior Vice President |
This is a signature page to the First Amendment to Lease between 601 Second Avenue Limited Partnership, a Texas limited partnership, as Landlord, and Capella Education Company, a Minnesota corporation, as Tenant.
EXHIBIT P
DEPICTION OF EMERGENCY GENERATOR SITE
(Attach Floor Plan)
EXHIBIT P
Tenant's Emergency
Generator Site
(FLOOR PLAN)
EXHIBIT 10.37
Capella Education Company
225 South Sixth Street, Suite 900
Minneapolis, MN 55402
July 5, 2006
Minneapolis 225 Holdings, LLC
c/o ASB Capital Management, LLC
Two North Riverside Plaza, Suite 1141
Chicago, Illinois 60606
Attn: Keyvan Arjomand
The undersigned certifies to and agrees with ASB Minneapolis 225 Holdings, LLC, a Delaware limited liability company ("Purchaser") in connection with its acquisition of the office project located at 225 South Sixth Street, Minneapolis, Minnesota, commonly known as 225 South Sixth, as of the date hereof as follows:
1. It is the tenant under a lease dated February 23, 2004 (the "Lease") between 601 Second Avenue Limited Partnership, a Texas limited partnership, as landlord (together with its successors and assigns, "Landlord"), and the undersigned, as tenant ("Tenant"), for 203,321 square feet in Suite Nos. 600, 700, 800 and 900 (the "Leased Premises") at 225 South Sixth (the "Building"). All capitalized terms not otherwise defined herein shall have the meanings provided in the Lease.
2. The Lease is in full force and effect. The Lease has not been amended, modified or supplemented except as follows: First Amendment to Lease dated May 16, 2006. The Lease represents the entire agreement between Landlord and Tenant and there are no other agreements, representations or understanding, whether written or oral, between Tenant and Landlord with respect to the Lease, the Leased Premises or the Building.
3. Tenant has accepted possession of and occupies the entire Leased Premises under the Lease. The term of the Lease commenced February 23, 2004 and expires on October 31, 2010, subject to the following renewal options: Two (2) five-year Extension Options.
4. The annual fixed, minimum or basic rent under the Lease is $10.00 per square foot and such base rent and additional rent has been paid through the month of June. For purposes of calculating additional rent, Tenant's percentage share for calendar year 2006 is 13.9394%. All additional rent, percentage rent, Tenant's proportionate share of real estate taxes, insurance and operating expenses and all other sums or charges (except for non-recurring charges not exceeding $10,000, if any) due and payable under the Lease by Tenant have been paid in full (as of the month set forth in this paragraph) and no such rents, additional rents, percentage rents or other sums or charges have been paid for more than one (1) month in advance of the due date thereof. There is no remaining free rent period or any unexpired concession in or abatement of rent.
5. The amount of security deposit is $0.00.
6. To Tenant's knowledge, both Tenant and Landlord have performed all of their respective obligations under the Lease and Tenant has no knowledge of any event which with the giving of notice, the passage of time or both would constitute a default by Landlord under the Lease.
7. Tenant has no claim against Landlord and no offset or defense to enforcement of any of the terms of the Lease.
8. All improvements required to be completed by Landlord have been completed and there are no contributions, credits or other sums due to Tenant from Landlord.
9. The Lease has not been assigned, by operation of law or otherwise, by Tenant and no sublease, concession agreement or license, covering the Leased Premises, or any portion of the Leased Premises, has been entered into by Tenant.
10. Tenant has no right or option pursuant to the Lease or otherwise to purchase all or any part of the Leased Premises or the Building. Tenant does not have any right or option to lease additional space in the Building except a Second Expansion Option of one to two full floors in the Tower or Park Building which is contiguous to the Premises as determined by landlord and a Right of Offer to lease a floor contiguous to the Leased Premises with the exception of Floor 15 in the Tower.
11. No voluntary actions or, to Tenant's knowledge, involuntary actions are pending against Tenant under the bankruptcy laws of the United States or any state thereof, nor has Tenant received any notice of any present violation of any federal, state, county or municipal laws, regulations, ordinances, orders or directives relating to the use or condition of the Leased Premises or the Building.
12. Tenant has no right to terminate or contract the Lease, except to the extent contained in Section 5.3 of the Lease and, except to the extent contained in the Lease, in connection with a casualty or condemnation and, except to the extent permitted by applicable law, in connection with an actual or constructive eviction.
13. Tenant hereby acknowledges that Purchaser and its lender are relying on the certifications provided herein in acquiring the Building and making a loan financing the Purchaser's interest in the Building. The information contained in this letter shall be for the benefit of Purchaser, its lender and their successors and assigns.
The undersigned individually hereby certifies that he or she is duly authorized to sign, acknowledge and deliver this letter on behalf of Tenant.
Sincerely,
CAPELLA EDUACATION COMPANY
By: /s/ Gregory W. Thom ------------------------------------ Name: Gregory W. Thom Title: VP, General Counsel, & Secretary |
EXHIBIT 10.38
AMENDMENT NO. 3 TO LEASE AGREEMENT
This Amendment No. 3 to Lease Agreement ("Amendment") is made effective as of June 16, 2005, between ND PROPERTIES, INC., registered in Minnesota as ND PROPERTIES OF DELAWARE, INC. ("Landlord") and CAPELLA EDUCATION COMPANY ("Tenant").
A. Landlord's predecessor in interest and Tenant entered into a written Office Lease dated June 28, 2000 ("Initial Lease"), relating to the premises ("Premises") currently consisting of approximately 91,480 rentable square feet on the 16th, 18th, 19th and 20th floors of the building commonly known as 222 South Ninth Street Minneapolis, Minnesota (the "Building").
B. The initial Lease has not previously been amended or modified except by Amendment No. 1 to Lease Agreement dated December 5, 2001 ("Amendment No. 1"), and Amendment No. 2 to Lease Agreement dated October 28, 2002 ("Amendment No. 2"). The Initial Lease and Amendments No. 1 and 2 are referred to herein collectively as the "Lease."
C. Landlord and Tenant desire to extend the Term of the Lease and to otherwise amend the Lease as provided in this Amendment.
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which are expressly acknowledged, the parties agree as follows:
1. Effect. The Lease is hereby amended to the extent necessary to give effect to this Amendment, and the terms of this Amendment shall supersede any contrary terms in the Lease. All references in the Lease to "this Lease" shall be deemed to refer to the Lease as amended by this Amendment. In all other respects, the terms and conditions of the Lease shall remain unmodified and in effect. Unless otherwise defined herein, capitalized terms used in this Amendment shall have the same meanings as provided in the Lease.
2. Term. The Term of the Lease is hereby extended for one (1) period of thirty-nine (39) months ("First Extension Term") commencing on December 1, 2005, and ending on February 28, 2009. Except as expressly provided otherwise in the Lease or this Amendment, the Lease shall continue during the First Extension Term on all of the same terms and conditions, and any reference in the Lease to the Term of the Lease shall he deemed to refer to and include the First Extension Term.
3. Rent. During the First Extension Term, Tenant shall pay Rent for the Premises as follows:
A. Tenant shall pay Base Rent at an annual rate per rentable square foot and payable in advance in monthly installments as follows:
Monthly Annual Annual Base Rent Period Base Rent Base Rent Per Square Foot ------ ---------- ----------- ---------------- 12/1/05 - 12/31/06 $47,645.83 $571,750.00 $6.25 1/1/07 - 1/31/08 $51,457.50 $617,490.00 $6.25 2/1/08 - 2/28/09 $55,269.17 $663,230.00 $7.25 |
B. Tenant shall pay Tenant's Prorata Share of Taxes and Operating Expenses for the Premises in the same manner and subject to the same adjustments as provided in the Lease.
4. Tenant Improvements.
A. So long as Tenant is not in default under this Amendment or the Lease (beyond any applicable cure period), Landlord will provide an allowance (the "Improvement Allowance") in the amount of $375,000.00 to be applied toward the Cost of the Work incurred by Tenant after the full execution of this Amendment for Work relating to the Premises (the "Cost of the Work" and "Work," as well as the disbursement procedures for the Improvement Allowance, are defined in Exhibit B to the Initial Lease, which is hereby incorporated herein by reference). The Improvement Allowance shall be treated by Landlord and Tenant as a tenant improvement allowance, and all of the leasehold improvements that are constructed as part of the Work and paid for with the Improvement Allowance shall be owned by Landlord. The Improvement Allowance will he disbursed, and Tenant will perform the Work in the Premises, in accordance with all of the terms and conditions of Exhibit B to the Lease, subject to the following modifications:
(1) All references in said Exhibit B to the "Premises" shall be deemed to refer to the Premises as defined in this Amendment;
(2) All references in said Exhibit B to the "Improvement Allowance" shall be deemed to refer to the Improvement Allowance as defined in this Section 4A;
(3) Notwithstanding the provisions of the last paragraph of Section 2 of said Exhibit B, no portion of the Improvement Allowance may be applied toward Rent, and if any portion of the Improvement Allowance is not used, Landlord shall be entitled to such savings;
(4) Notwithstanding the provisions of Sections 3A and 4A of said Exhibit B, the Work may be performed in one or more separate projects affecting all or portions of the Premises so long as Tenant complies with the construction rules for the Building, and there shall be no specific date required for submission of any Space Plan or Working: Drawings relating to the Work, nor (under Section 4B) any required date by which Tenant must submit revised plans to Landlord;
(5) To the extent that the Work involves only painting, wall coverings, floor coverings, other finishes and/or cosmetic work, then Tenant may submit to Landlord a narrative description of such Work and the location thereof, and such narrative description shall serve as the "Space Plan" and "Working Drawings" for purposes of Exhibit B;
(6) Tenant will submit the Work for competitive bids to a minimum of three
(3) contractors approved by Landlord (such consent not to be unreasonably
withheld, conditioned or delayed), and Landlord's recommended contractor
will be included in the bidding process; Tenant shall be free to select
from among the responding bidders so approved by Landlord (and need not
select the lowest bidder); and Tenant may, but need not, seek competitive
bids for any portion of the Work the cost of which does not exceed
$50,000 so long as such portion of the Work is performed by contractors and subcontractors approved by landlord (such approval not to be unreasonably withheld, conditional or delayed);
(7) Tenant may submit to Landlord applications for reimbursement for the Cost of the Work no more frequently than on a monthly basis; Landlord agrees to reimburse Tenant directly for the Cost of Work within thirty (30) days after each complete application for payment is received by Landlord; provided, however, that if Tenant submits a complete application for payment on or before the first business day of a calendar month, Landlord shall reimburse Tenant not later than the last business day of such month. If Landlord fails for sixty (60) days to pay any portion of the Improvement Allowance which is properly due and payable, Tenant shall be entitled to offset said amounts against Rent due and payable under the Lease as amended hereby;
(8) Notwithstanding Section 6 of said Exhibit B, Tenant may use qualified space planners architects and engineers, as selected by Tenant and approved by Landlord (such approval not to be unreasonably withheld, conditional or delayed), to prepare design materials relating to the Work;
(9) Notwithstanding the provisions of Section 10A of said Exhibit B, there shall be no specific date (or dates) required for commencement of the Work;
(10) Section 10G of said Exhibit B shall be dated, provided that the financial responsibility of any contractor or subcontractor may be taken into account by Landlord in connection with the approval or disapproval of such contractor or subcontractor;
(11) Section 10H of said Exhibit B shall be modified by deleting the requirement for written notice of anticipated completion;
(12) Section 10L of said Exhibit B shall be modified to require "Record Drawings" (i.e. final Working Drawings updated to record the Work as actually constructed, including any change orders and other changes or modifications in the Work) rather than "as-built drawings";
(13) Section 10P of said Exhibit B shall be deleted; and
(14) The Work shall be performed in compliance with the Tenant Improvement Work Specifications Manual (June, 2003, edition) for the Campbell Mithun Tower.
B. Notwithstanding the provision of Article 8 of the Lease:
(1) No additional approval by Landlord of contractors, subcontractors or suppliers shall be required beyond the approval described in Section 4A(6), above;
(2) Contractor and subcontractor bonds shall not be required; and
(3) The Work shall not be performed under Landlord's direction or supervision: Landlord may monitor the progress of the Work, but Tenant shall not owe Landlord any fee or charges on account thereof.
C. Landlord shall, at its expense, provide a complete shampooing and steam cleaning of all carpeting in the Premises prior to the commencement of the First Extension Term (provided, that Landlord shall not be required to move any furniture or equipment in connection therewith); and such work shall be performed outside of Tenant's normal business hours, shall he coordinated with Tenant for minimal disruption and shall be performed in compliance with the carpet manufacturer's specifications (provided Tenant supplies Landlord with such specifications).
D. Except as provided in this Section, Tenant agrees to accept the Premises on an "as is" basis, and Landlord has no obligation to do or pay for any leasehold improvements or plans. Landlord hereby confirms that the Premises are currently in the condition in which the Premises would be required to be surrendered under Article 13 of the Lease, without the need for removal of any improvements heretofore constructed or installed in the Premises (except for Tenant's trade fixtures, equipment, furnishings, personal property and Lines [as defined in and subject to the provisions of Article 29 of the Initial Lease]). Tenant hereby confirms that any work required by the Lease (or any prior amendment) for the occurrence of the Commencement Date for any portion or all of the Premises has been completed, and any contribution required by Landlord toward such work has been paid. Under no circumstance shall Tenant be entitled to any free rent period, tenant finish allowance, leasehold improvements or other work, or any other such economic incentives during the First Extension Term that may have been provided to Tenant in connection with entering into the Lease or any prior Amendment.
5. Extension Option. Article 36 of the Initial Lease is hereby entirely deleted from the Lease. Tenant is hereby granted the option to extend this Lease for two (2) additional periods of two (2) years each (any such option and period is sometimes herein called an "Extension Option" and an "Extension Term" and the successive options and periods are sometimes herein called the Second and Third Extension Options and the Second and Third Extension Terms) commencing immediately after the expiration of the then current Extension Term of this Lease (the First Extension Term or the then current Extension Term, as the case may be), as follows:
A. To exercise an Extension Option, Tenant shall give written notice of exercise ("Extension Notice") to Landlord not more than twelve (12), and not less than six (6), full calendar months prior to the expiration of the then current Extension Term. Within thirty (30) days after Landlord receives Tenant's Extension Notice, Landlord shall give written notice to Tenant of Landlord's determination of the Base Rent for the Premises for the applicable Extension Term (based on the definition of Prevailing Rental Rate set forth in Subsection D below). Tenant's exercise of the Extension Option and Landlord's determination of the Base Rent for the Extension Term shall be binding and irrevocable unless Tenant shall, at Tenant's option, give Landlord written notice, within thirty (30) days after Landlord's notice of the Base Rent is given, that either: (i) Tenant withdraws Tenant's Extension Notice, in which case the Extension Option shall terminate, or (ii) Tenant contests Landlord's determination of the Base Rent, in which case Tenant's Extension Notice shall be binding and irrevocable, but the Base Rent for the Extension
Term shall be determined as provided in Subsection E below. Time is of the essence with respect to Tenant's notices.
B. If Tenant exercises an Extension Option, the Extension Term shall be upon the same terms and conditions of this Lease, except that:
(1) Tenant shall pay Base Rent for the Premises during the Extension Term at the Prevailing Rental Rate as determined under this Section. Tenant shall continue to pay Tenant's Prorata Share of Taxes and Operating Expenses for the Premises during the Extension Term as provided in the Lease.
(2) Tenant agrees to accept the Premises in its then existing condition on an "as is" basis at he time the Extension Term commences. Unless otherwise agreed in writing, Tenant shall not be entitled to any free rent or rent abatement period, tenant finish allowance, tenant improvements or other work to the Premises, or any other allowance or other economic incentives that may have been provided to Tenant in connection with entering into this Amendment or the initial Term (but the condition of the Premises and any concessions then being provided in the rental marketplace shall he taken into account in determining the Base Rent for the Premises).
(3) The Term of this Lease shall be deemed to include and refer to the Extension Term, except as expressly provided otherwise in this Lease.
(4) Tenant shall have no Extension Option beyond the expiration of the Third Extension Term.
C. Tenant's exercise of a particular Extension Option shall, at Landlord's election, be null and void if Tenant has received written notice that it is in default of a material term under the Lease and such default remains uncured (i) with respect to a monetary default, at the date of the Extension Notice, or (ii) with respect to any default, at the commencement of the Extension Term. If Tenant shall fail to timely or properly exercise an Extension Option as herein provided, said Option shall terminate, and shall be null and void and of no further force and effect. Tenant's exercise of an Extension Option shall not operate to cure any default by Tenant of any of the terms or provisions in the Lease, nor to extinguish or impair any rights or remedies of Landlord arising by virtue of such default. If the Lease or Tenant's right to possession of the Premises shall terminate in any manner whatsoever before Tenant shall exercise an Extension Option herein provided, or if Tenant shall have assigned the Lease or subleased all or any portion of the Premises (other than to a Related Entity), then immediately upon such termination, sublease or assignment, all Extension Options herein granted shall simultaneously terminate and become null and void. The Extension Options are personal to Tenant. Under no circumstances whatsoever shall the assignee under a complete or partial assignment of the Lease (other than a Related Entity) or a subtenant under a sublease of the Premises, have any right to exercise the Extension Options granted herein. If the Second Extension Option terminates, the Third Extension Option shall also terminate.
D. "Prevailing Rental Rate" means the net market rental rate for the Premises (determined by reference to the annual rental rates for comparable space in the Building. primarily, and in comparable office buildings Minneapolis Central Business District, secondarily) that would be payable by a willing tenant to a willing landlord, neither being under any compulsion to act, in equal monthly payments during a term equal to the applicable term and commencing on the first day of the applicable term thereof (taking into consideration all pertinent factors, including, without limitation, the length of term, use, quality of services provided, size of space, location of the space within the building, definition of net rentable area, leasehold improvements provided, quality, age, and location of the applicable building, tenant clientele of the building, financial strength of the applicable tenant, any applicable reductions arising from rental concessions and abatements, lease takeovers/assumptions, moving expenses and other concessions for the benefit of the applicable tenant, distinction between "gross" and 'net" leases, base year or amount allowed by the landlord for payment of building operating expenses (expense stop), method for computing and the amount of operating costs, taxes, and other expenses payable by tenants, parking and other amenities (and any related charge) and the time the particular rate under consideration becomes effective, all to the same extent and in the same manner as the rental marketplace takes such factors into account).
E. If Tenant timely exercises an Extension Option and timely gives Landlord written notice that Tenant contests Landlord's determination of the Base Rent, the Prevailing Rental Rate (as defined in the preceding Subsection D) for the Premises shall be determined by arbitration, in accordance with the procedure set forth in Exhibit D to the Initial Lease, which is hereby incorporated herein by reference. Such determination shall be final and binding upon the parties. If the Prevailing Rental Rate has not been determined before the commencement of the applicable Extension Term, Tenant shall pay Base Rent at the rental rate previously or then in effect for the Premises, which will be adjusted retroactively between the parties within thirty (30) days after the Prevailing Rental Rate has been determined to reflect any difference.
F. Within ten (10) days after written request by Landlord or Tenant to the other, Landlord and Tenant shall execute and deliver an instrument in form reasonably satisfactory to Landlord confirming any exercise or termination of the Extension Option, but an otherwise valid exercise of the Extension Option shall be fully effective, whether or not such confirmatory documentation is executed.
6. Miscellaneous.
A. Article 37 (Option to Expand) and 38 (Right of First Offer) of the Initial Lease have been fulfilled, terminated or waived, and the same are hereby entirely deleted from the Lease. Pursuant to Article 35 of the Initial Lease, Tenant has caused to be issued, and Landlord currently holds, a $100,000 letter of credit in favor of Landlord, as beneficiary (the "Letter of Credit"). The Letter of Credit has an expiry date of October 31, 2005. Any provision of the Lease or Letter of Credit to the contrary notwithstanding (i) Tenant need not provide a substitute letter of credit or renew the Letter of Credit prior to its expiry date; (ii) Landlord shall make no draw, presentation or demand under the Letter of Credit by reason of Tenant's failure to provide a substitute letter of credit or to renew the Letter of Credit, prier to its expiry date, and (iii)
Landlord shall return the original Letter of Credit to Tenant promptly following the expiry date. Effective as of the day immediately following the Letter of Credit expiry date, Article 35 (Security Deposit) of the Initial Lease shall be deemed fulfilled, terminated and waived, and the same shall be entirely deleted from the Lease, without further act or deed from Landlord or Tenant; provided, however, that if on the day immediately following the Letter of Credit expiry date the Landlord shall hold any Letter of Credit proceeds, then such proceeds shall continue to be held on and subject to the provisions of said Article 35 until used, applied or released as provided therein.
B. The first sentence of the first paragraph of Article 11 of the Initial Lease is hereby entirely deleted and replaced with the following;
Tenant shall maintain during the Term commercial general liability insurance, with limits of not less than $2,000,000 combined single limit for personal injury, bodily injury or death, or property damage or destruction (including loss of use thereof) for any one occurrence, and umbrella coverage of not less than $2,000,000. The foregoing insurance requirements may be satisfied by Tenant's basic policy, or by the basic policy in combination with umbrella or excess policies, so long as the total limits and coverages are at least as broad as that required herein.
If the Term is extended beyond the First Extension Term, Landlord shall have the right, upon thirty (30) days written notice, to require Tenant to increase the limits and coverages of Tenant's insurance under Article 11 of the Lease consistent with the requirements of prudent landlords or lenders for similar tenants occupying similar premises in the Minneapolis-St Paul metropolitan area.
7. Tenant Representations. Tenant hereby represents to Landlord that there has been no assignment of Tenant's interest under the Lease and no sublease of all or any portion of the Premises by Tenant requiring Landlord's consent that has not been obtained, there are no existing defenses, claims or offsets which Tenant has against Landlord or against enforcement of the Lease or Landlord, and Landlord and Tenant are not currently in default under the Lease.
8. Brokers. Landlord and Tenant each represents that it has not engaged or dealt with any real estate broker, agent or finder with respect to this Amendment, except for United Properties LLC (representing Landlord and whose commission, if any, shall be paid by Landlord pursuant to a separate written agreement) and CRESA Partners (representing Tenant and whose commission, if any, shall be paid by Landlord pursuant to a separate written agreement). Landlord and Tenant shall indemnify and hold each other harmless from all claims, liability or expense (including reasonable attorneys' fees) in connection with am claim for broker's, finder's or other fees or commissions as a result of such party's actions or alleged actions.
9. Mortgages. Landlord hereby represents to Tenant that there are no mortgages encumbering the Building or the Premises on the date of this Amendment.
10. Entire Agreement. The Lease, including, without limitation, this Amendment and all exhibits which are attached hereto and hereby incorporated by reference, constitutes the entire agreement between Landlord and Tenant with respect to the subject matter hereof. Tenant
acknowledges that it has not been induced to enter into this Amendment by any agreements or representations which are not set forth in this Amendment. This Amendment shall not be effective until execution and delivery by both Landlord and Tenant.
By signing this Amendment, the parties agree to the above terms.
LANDLORD: TENANT: ND PROPERTIES, INC., registered CAPELLA EDUCATION COMPANY in Minnesota as ND PROPERTIES OF DELAWARE, INC. By: /s/ James P. Garofalo By: /s/ Gregory W. Thom --------------------------------- ------------------------------------ Name: James P. Garofalo Name: Gregory W. Thom Title: Assistant Secretary Title: VP, General Counsel & Secretary Date Signed: 7/13/2005 Date Signed: July 8,2005 |
EXHIBIT 10.39
AMENDMENT TO THE
CAPELLA EDUCATION COMPANY
RETIREMENT SAVINGS PLAN
WHEREAS, Capella Education Company (the "Company") adopted the Capella Education Company Retirement Savings Plan (the "Plan") effective July 1, 1994 and as amended through April 1, 2005; and
WHEREAS, Article VIII of the Plan document grants the Company the right to amend the Plan at any time;
NOW THEREFORE BE IT RESOLVED, that the Plan Adoption Agreement as in effect as of April 1, 2005 is hereby amended effective January 1, 2006 as follows:
Item 31(f) - Period of Determining Employer Matching Contributions - shall be
replaced and substituted with Item 31(e) to provide that matching contributions
shall be determined on the basis of the entire Plan Year.
IN WITNESS WHEREOF, this amendment is executed this 20th day of April, 2006.
CAPELLA EDUCATION COMPANY
BY: Gregory W. Thom
TITLE: VP, General Counsel and Secretary
AMENDMENT TO THE
CAPELLA EDUCATION COMPANY
RETIREMENT SAVINGS PLAN
WHEREAS, Capella Education Company (the "Company") adopted the Capella Education Company Retirement Savings Plan (the "Plan") effective July 1, 1994 and as amended through April 1, 2005; and
WHEREAS, Article VIII of the Plan document grants the Company the right to amend the Plan at any time;
NOW THEREFORE BE IT RESOLVED, that the Plan Adoption Agreement as in effect as of April 1, 2005 is hereby amended effective for the payroll period beginning July 9, 2006 as follows:
Item 31(d) - Formula for Determining Employer Matching Contributions - shall be
replaced and substituted with Item 31(d) to read as follows:
"The Employer will make matching contributions equal to the sum of 100% of the portion of the Participant's Elective Deferrals which do not exceed 2% of the Participant's Compensation plus 50% of the portion of the Participant's Elective Deferrals which do not exceed the next 4% of the Participant's Compensation."
IN WITNESS WHEREOF, this amendment is executed this 1st day of June, 2006.
CAPELLA EDUCATION COMPANY
BY: Gregory W. Thom
TITLE: VP, General Counsel and Secretary
/s/ Ernst & Young LLP |
EXHIBIT 24.2
POWERS OF ATTORNEY
The undersigned director and/or officer of Capella Education Company, a Minnesota corporation, does hereby make, constitute and appoint Stephen G. Shank and Lois M. Martin, and either of them, the undersigned's true and lawful attorneys-in-fact, with full power of substitution and re-substitution, for the undersigned and in the undersigned's name, place and stead, to sign and affix the undersigned's name as such director and/or officer of said Company to a Registration Statement or Registration Statements, on Form S-1 or other applicable form, including any Registration Statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended (the "Securities Act"), and all amendments, including post-effective amendments, thereto, to be filed by said Company with the Securities and Exchange Commission, Washington, D.C., in connection with the registration under the Securities Act of shares of Common Stock of said Company to be issued pursuant to a public offering, and to file the same, with all exhibits thereto and other supporting documents, with said Commission, granting unto said attorneys-in-fact, and either of them full power and authority to do and perform any and all acts necessary or incidental to the performance and execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's hand this 21st day of August, 2006.
/s/ Amy L. Drifka /s/ Sandra E. Taylor ------------------------------- ------------------------------------ Amy L. Drifka Sandra E. Taylor |