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
|
$ | $ | $ | $ |
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F-1 | ||||||||
Articles of Incorporation | ||||||||
Amended and Restated By-Laws | ||||||||
Executive Severance Plan | ||||||||
Amendment No. 1 to Employment Agreement - Schroeder | ||||||||
Amendment No. 1 to Employment Agreement - Offerman | ||||||||
Amendment No. 1 to 2005 Stock Incentive Plan | ||||||||
Senior Executive Severance Plan | ||||||||
Conent of Ernst & Young |
i
1
2
3
4
Table of Contents
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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;
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we are unable to attract and retain key personnel needed to
sustain and grow our business; or
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
10
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;
Table of Contents
all outstanding shares of our preferred stock have been
converted into shares of common stock in connection with this
offering;
no outstanding options have been exercised
since ,
2006; and
that following the closing of this offering, we will pay a
special cash dividend to our shareholders of record as of
October 3, 2006 in an amount equal to the gross proceeds
from the sale of common stock by us in this offering, not
including any proceeds received by us from the
underwriters exercise of their over-allotment option.
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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);
our receipt of the estimated net proceeds of that sale after
deducting underwriting discounts and commissions and estimated
offering expenses payable by us; and
the payment following the closing of this offering of a special
cash dividend to our shareholders of record as of
October 3, 2006 in an amount equal to the gross proceeds
from the sale of common stock by us in this offering, not
including any proceeds received by us from the
underwriters exercise of their over-allotment option.
Based on an estimated offering price of
$ per
share (the midpoint of the range set forth on the cover page of
this prospectus), the aggregate amount of the special cash
dividend would be
$ million.
A $1.00 increase in the assumed offering price of
$ per
share would increase the aggregate amount of the special cash
dividend by
$ million
and would decrease total assets and cash, cash equivalents and
short-term marketable securities by $ million, assuming the
number of shares offered by us, as set forth on the cover page
of this prospectus, remains the same. A $1.00 decrease in the
assumed offering price of
$ per
share would decrease the aggregate amount of the special cash
dividend by
$ million
and would increase total assets and cash, cash equivalents and
short-term marketable securities by
$ million,
assuming the number of shares offered by us, as set forth on the
cover page of this prospectus, remains the same.
(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. |
11
Congress may change the law or reduce funding for Title IV programs, which could reduce our learner population, revenues and profit margin. |
The Office of Inspector General of the U.S. Department of Education has commenced a compliance audit of Capella University which is ongoing and which may result in repayment of Title IV funds, fines, penalties, remedial action and damage to our reputation in the industry. |
12
If we fail to maintain our institutional accreditation, we would lose our ability to participate in Title IV programs. |
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. |
13
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. |
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; |
14
| 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. |
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. |
15
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. |
16
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. |
Government and regulatory agencies and third parties may conduct compliance reviews, bring claims or initiate litigation against us. |
17
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. |
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. |
18
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. |
| 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. |
19
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. |
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. |
20
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. |
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. |
21
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. |
We may incur liability for the unauthorized duplication or distribution of class materials posted online for class discussions. |
22
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. |
23
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. |
Seasonal and other fluctuations in our results of operations could adversely affect the trading price of our common stock. |
24
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. |
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; |
25
| 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 or audits 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. |
Future sales of our common stock in the public market could lower our stock price. |
26
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. |
27
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. |
Being a public company will increase our expenses and administrative workload. |
28
| 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. |
We will be exposed to risks relating to evaluations of controls required by Section 404 of the Sarbanes-Oxley Act of 2002. |
29
We do not expect to retain proceeds from this offering after payment of the special dividend and our cash on hand may decrease. |
You will suffer immediate and substantial dilution. |
30
| 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; | |
| issuance of draft and final audit reports of the OIG arising out of its ongoing compliance audit of Capella University, unanticipated findings therein, and possible remedial actions resulting therefrom; | |
| 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. |
31
32
| 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); (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; and (iii) the payment of a special dividend to our existing shareholders in the amount of the aggregate gross proceeds from the sale of common stock by us in this offering (not including any proceeds received by us from the underwriters exercise of their over-allotment option), which is expected to occur promptly upon the consummation of this offering. | |
33
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/(Accumulated deficit)
|
1,008 | ||||||||||
Total shareholders equity
|
22,328 | ||||||||||
Total capitalization
|
$ | 81,189 | $ | ||||||||
(a) | Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, a $1.00 increase in the assumed public offering price of $ per share would; |
| increase the aggregate amount of the special cash dividend by $ ; | |
| increase additional paid-in capital by approximately $ ; | |
| decrease total shareholders equity and total capitalization by approximately $ ; and | |
| decrease cash, cash equivalents and short-term marketable securities by approximately $ . | |
34
Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, a $1.00 decrease in the assumed public offering price of $per share would: |
| decrease the aggregate amount of the special cash dividend by $ ; | |
| decrease each of additional paid-in capital by approximately $ ; | |
| increase total shareholders equity and total capitalization by approximately $ ; and | |
| increase cash, cash equivalents and short-term marketable securities by approximately $ . | |
(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: |
| 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. |
35
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
|
|||||||||
Decrease per share of common stock after payment of underwriting
discounts and commissions and estimated offering expenses by us
and after payment of the special dividend to our existing
shareholders
|
|||||||||
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
|
$ | ||||||||
36
Shares Purchased | Total Consideration | ||||||||||||||||||||
Average Price | |||||||||||||||||||||
Number | Percent | Amount | Percent | Per Share | |||||||||||||||||
(In thousands) | (In thousands) | ||||||||||||||||||||
Existing shareholders
|
% | $ | % | $ | |||||||||||||||||
New investors
|
$ | ||||||||||||||||||||
Total
|
% | $ | % | ||||||||||||||||||
37
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 |
38
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)
$
2,044
$
3,108
$
4,177
$
5,454
$
6,474
$
3,119
$
4,096
$
(9,977
)
$
123
$
15,399
$
16,049
$
28,940
$
12,736
$
11,064
$
4,555
$
3,805
$
3,719
$
7,541
$
9,079
$
3,258
$
6,595
$
(11,650
)
$
(2,886
)
$
8,247
$
15,319
$
21,347
$
10,787
$
10,183
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)
$
10,655
$
22,060
$
41,190
$
49,980
$
72,133
$
75,064
$
6,203
15,340
27,516
37,935
53,718
55,725
23,882
35,380
55,402
80,026
106,562
114,291
34,985
50,401
57,646
57,646
57,646
57,646
(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. |
39
| 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); | |
| our receipt of the estimated net proceeds of that sale after deducting underwriting discounts and commissions and estimated offering expenses payable by us; and | |
| the payment following the closing of this offering of a special cash dividend to our existing shareholders of record as of October 3, 2006 in an amount equal to the gross proceeds from the sale of common stock by us in this offering, not including any proceeds received by us from the underwriters exercise of their over-allotment option. Based on an estimated offering price of $ per share (the midpoint of the range set forth on the cover page of this prospectus), the aggregate amount of the special cash dividend would be $ million. | |
A $1.00 increase in the assumed offering price of $ per share would increase the aggregate amount of the special cash dividend by $ million and would decrease total assets and cash, cash equivalents and short-term marketable securities by $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. A $1.00 decrease in the assumed offering price of $ per share would decrease the aggregate amount of the special cash dividend by $ million and would increase total assets and cash, cash equivalents and short-term marketable securities by $ million, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same. |
(f) | Working capital is calculated by subtracting total current liabilities from total current assets. |
40
Background |
Our key financial results metrics |
41
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 | ||||||||||||||||
42
Factors affecting comparability |
43
44
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 | ||
45
46
47
48
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. |
49
(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. |
50
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 |
51
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004 |
52
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 |
53
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 |
54
First
Second
Third
Fourth
Quarter
Quarter
Quarter
Quarter
(In thousands, except per share and
enrollment data)
$
34,610
$
35,408
$
37,303
$
41,919
4,145
3,523
2,925
4,280
2,705
2,356
2,204
2,985
$
0.24
$
0.21
$
0.19
$
0.26
$
0.23
$
0.20
$
0.18
$
0.25
12,955
13,208
13,308
14,613
First
Second
Quarter
Quarter
(In thousands, except
per share and
enrollment data)
$
41,858
$
43,518
1,884
4,203
1,642
3,055
$
0.14
$
0.26
$
0.14
$
0.25
15,792
16,078
55
Liquidity |
56
Operating Activities |
Investing Activities |
57
Financing Activities |
58
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 |
59
60
61
62
63
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 |
64
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. |
65
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 Resource Management | ||
Management and Leadership | ||
Marketing | ||
Education | ||
Doctor of Philosophy | Leadership in 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 in 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 |
66
Faculty |
67
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 |
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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 |
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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 |
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Technology |
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| 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. |
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| 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. |
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| whether the institution and the program were approved by the state in which the graduate seeks licensure, or by a professional association; |
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| 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. |
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| 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; |
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| 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 |
79
| 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. |
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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
|
55 | Vice President, Human Resources | ||||
Tony J. Christianson
|
54 | Director | ||||
Gordon A. Holmes
|
37 | Director | ||||
S. Joshua Lewis
|
44 | 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
|
53 | Director | ||||
Sandra E. Taylor
|
55 | Director | ||||
Darrell R. Tukua
|
52 | Director |
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89
(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. |
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91
92
93
94
95
96
97
98
99
100
101
102
103
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
$
10,369
Chairman and Chief Executive Officer
2005
$
267,308
$
65,416
16,494
$
9,390
Senior Vice President and Chief Financial Officer
2005
$
263,846
$
64,434
16,556
$
10,405
Senior Vice President
2005
$
263,846
$
64,434
16,556
$
9,350
Senior Vice President
2005
$
191,769
$
40,970
$
9,399
Vice President and Chief Information Officer
2005
$
229,462
$
177,987
$
935
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
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. |
104
(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
|
105
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. |
106
| 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. |
107
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
1,106,372
9.4
%
1,779,746
15.2
%
1,858,681
15.8
%
674,459
5.7
%
1,049,191
8.9
%
1,224,726
10.4
%
2,446,064
20.6
%
101,334
*
29,123
*
128,814
1.1
%
17,500
*
1,779,746
15.2
%
1,216,711
10.4
%
2,500
*
59,775
*
21,992
*
5,000
*
12,500
*
1,858,681
15.8
%
7,965,093
65
%
* | 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 |
108
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, |
109
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 IV, LLC. The managing member of Insight Venture Associates IV, LLC is Insight Holdings Group, LLC. Insight Holdings Group, LLC is managed by its board of managers. Accordingly, Mr. Lewis, Insight Venture Associates IV, 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 IV, 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 IV, 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 | |
110
such shares except to the extent of 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 IV, LLC. The managing member of Insight Venture Associates IV, 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 IV, 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 | |
111
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. |
112
113
114
Minnesota Law |
115
Articles of Incorporation and Bylaws |
| 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. |
116
117
| 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. |
118
| 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. |
119
| 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. |
120
| 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. |
121
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
|
$ | $ | $ | $ |
122
| 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. |
123
| 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. |
124
| 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. |
125
126
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
|
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
|
$ | 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 |
Deferred Initial Public Offering Costs |
F-10
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 | | |
Six Months | ||||||||||||||||
Ended | ||||||||||||||||
Year Ended December 31, | June 30, | |||||||||||||||
2003 | 2004 | 2005 | 2005 | |||||||||||||
(Unaudited) | ||||||||||||||||
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 |
F-21
Six Months Ended
Year Ended December 31,
June 30,
2003
2004
2005
2005
(Pro forma)
(Pro forma)
(Pro forma)
(Pro forma)
2006
(Unaudited)
6.0
6.0
6.0
6.0
6.25
53.9
%
44.1
%
38.5
%
38.5
%
45.6
%
3.8
%
3.9
%
3.9-4.4
%
3.9-4.3
%
4.4- 4.9
%
0.0
%
0.0
%
0.0
%
0.0
%
0.0
%
$
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 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 |
F-22
13. | Warrants |
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 | |||||||
F-23
Year Ended December 31,
2003
2004
2005
34.0
%
35.0
%
35.0
%
7.0
3.5
2.6
0.1
2.0
2.7
3.6
(38.8
)
(121.5
)
2.3
%
(77.4
)%
40.3
%
As of December 31, | |||||||||
2004 | 2005 | ||||||||
Deferred tax assets:
|
|||||||||
Net operating loss carryforwards
|
$ | 8,613 | $ | 1,878 | |||||
Accounts receivable
|
415 | 489 | |||||||
Alternative minimum tax credit
|
327 | 646 | |||||||
Goodwill
|
105 | 89 | |||||||
Accrued liabilities
|
981 | 1,810 | |||||||
Other
|
36 | 5 | |||||||
10,477 | 4,917 | ||||||||
Deferred tax liabilities:
|
|||||||||
Property and equipment
|
(1,882 | ) | (2,525 | ) | |||||
(1,882 | ) | (2,525 | ) | ||||||
Net deferred tax asset
|
$ | 8,595 | $ | 2,392 | |||||
15. | Regulatory |
F-24
16. | Other Employee Benefit Plans |
F-25
17. | Subsequent Event |
18. | Quarterly Financial Summary (unaudited) |
First | Second | Third | Fourth (a) | Total | |||||||||||||||||
2004
|
|||||||||||||||||||||
Revenues
|
$ | 26,488 | $ | 28,321 | $ | 28,040 | $ | 34,840 | $ | 117,689 | |||||||||||
Operating income
|
1,383 | 1,773 | 2,147 | 4,562 | 9,865 | ||||||||||||||||
Net
income
(b)
|
1,466 | 1,892 | 2,310 | 13,117 | 18,785 | ||||||||||||||||
Net income per common share
|
|||||||||||||||||||||
Basic
|
$ | 0.13 | $ | 0.17 | $ | 0.21 | $ | 1.17 | $ | 1.68 | |||||||||||
Diluted
|
$ | 0.13 | $ | 0.16 | $ | 0.20 | $ | 1.11 | $ | 1.62 |
First | Second | Third | Fourth | Total | |||||||||||||||||
2005
|
|||||||||||||||||||||
Revenues
|
$ | 34,610 | $ | 35,408 | $ | 37,303 | $ | 41,919 | $ | 149,240 | |||||||||||
Operating income
|
4,145 | 3,523 | 2,925 | 4,280 | 14,873 | ||||||||||||||||
Net income
|
2,705 | 2,356 | 2,204 | 2,985 | 10,250 | ||||||||||||||||
Net income per common share
|
|||||||||||||||||||||
Basic
|
$ | 0.24 | $ | 0.21 | $ | 0.19 | $ | 0.26 | $ | 0.89 | |||||||||||
Diluted
|
$ | 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-26
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, as amended to
date and as currently in effect.
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 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
10
.42
Amendment No. 1 to Capella Education Company 2005 Stock
Incentive Plan.
10
.43
Capella Education Company Senior Executive Severance Plan.
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
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 Corporate 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, as amended to
date and as currently in effect.
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 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
10
.42
Amendment No. 1 to Capella Education Company 2005 Stock
Incentive Plan.
10
.43
Capella Education Company Senior Executive Severance Plan.
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 3.1
ARTICLES OF INCORPORATION
OF
UNIVERSITY GROUP, INC
To form a Minnesota business corporation under and pursuant to the Minnesota Business Corporation Act, the following Articles of Incorporation are adopted:
ARTICLE 1. NAME
The name of the Corporation is University Group, Inc.
ARTICLE 2. REGISTERED OFFICE
The address of the registered office of the corporation is Interchange North Building, Suite 500, 300 South Highway 169, St. Louis Park, Minnesota 55426.
ARTICLE 3. AUTHORIZED SHARES
The aggregate number of authorized common shares of the Corporation is five (5) million, of par value of $.10 per share.
ARTICLE 4. INCORPORATOR
The name and address of the incorporator, who is a natural person of full age, are:
William R Hibbs, Esq.
c/o Dorsey & Whitney
2200 First Bank Place East
Minneapolis, Minnesota 55402
ARTICLE 5. CUMULATIVE VOTING
There shall be no cumulative voting by shareholders of the Corporation.
ARTICLE 6. PREEMPTIVE RIGHTS
The shareholders of the Corporation shall not have any preemptive rights to subscribe for or acquire securities or rights to purchase securities of any class, kind, or series of the Corporation.
ARTICLE 7. DIRECTOR LIABILITY
A director of this Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its shareholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Sections 302A.559 or 80A.23 of the Minnesota Statutes; (iv) for any transaction from which the director derived an improper personal benefit; or (v) for any act or omission occurring prior to the date when this Article 7 became effective.
If the Minnesota Business Corporation Act is hereafter amended to authorize any further limitation of the liability of a director, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Minnesota Business Corporation Act, as amended.
Any repeal or modification of the foregoing provisions of the Article 7 by the shareholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
IN WITNESS WHEREOF, the undersigned, Incorporator for the Corporation, has executed this document on this 27th day of December, 1991.
/s/ William R. Hibbs -------------------------------- William R. Hibbs, Esq. |
STATE OF MINNESOTA ) ) ss. COUNTY OF HENNEPIN ) |
On this 27th day of December, 1991, before me, a Notary Public within and for said county, personally appeared William R. Hibbs, Esq., to me known to be the person described in and who executed the foregoing instrument.
(Notarial Seal) /s/ Darlene R. Spangler ------------------------------- Notary Public |
EXHIBIT 3.1
AMENDMENT AND RESTATEMENT OF
ARTICLES OF INCORPORATION OF
UNIVERSITY GROUP, INC
This Amendment and Restatement has been adopted pursuant to Chapter 302A of the Minnesota Statutes, the Minnesota Business Corporation Act, and supersedes the original Articles.
ARTICLE I. NAME
The name of the Corporation is Learn Net, Inc.
ARTICLE II. REGISTERED OFFICE
The address of the registered office of the Corporation is 1400 Northland Plaza, 3800 West 80th Street, Minneapolis, Minnesota 55431.
ARTICLE III. AUTHORIZED SHARES
Section 1. Shares and Classes Authorized
(A) Authorized Capital Stock. The aggregate number of shares which the Corporation has the authority to issue is twenty-three million (23,000,000) shares, ten million (10,000,000) of which shall be designated common shares, $.10 par value (the "Common Shares"), and three million (3,000,000) of which shall be designated Class A convertible preferred shares, $1.00 par value (the "Class A Preferred Shares"). The Common Shares and the Class A Preferred Shares are herein sometimes referred to collectively as "Capital Stock."
(B) Additional Preferred Shares. Additionally, the Board of Directors of the Corporation is hereby authorized to cause to be issued from time to time, by resolution or resolutions adopted by such Board, an additional ten million (10,000,000) preferred shares. The Board is authorized to cause such preferred shares to be issued in one or more classes and/or series, to establish the designation and number of shares of each such class or series, and to fix the relative rights and preferences of the shares of each such class or series, all to the full extent permitted by Minnesota Statutes, Section 302A.401, or any successor provision. Without limiting the generality of the foregoing, the Board of Directors is authorized to provide that shares of a class or series of preferred stock:
(1) are entitled to cumulative, partially cumulative or noncumulative dividends or other distributions in payable in cash, capital stock or indebtedness of the Corporation or other property, at such times and in such amounts as are set forth in the Board resolutions establishing such class or series or as are determined in a manner specified in such resolutions;
(2) are entitled to a preference with respect to payment of dividends over one or more other classes and/or series of capital stock of the Corporation;
(3) are entitled to a preference with respect to any distribution of assets of the Corporation upon its liquidation, dissolution or winding up over one or more other classes and/or series of capital stock of the Corporation in such amount as is set forth in the Board resolutions establishing such class or series or as is determined in a manner specified in such resolutions;
(4) are redeemable or exchangeable at the option of the Corporation and/or on a mandatory basis for cash, capital stock or indebtedness of the Corporation or other property, at such times or upon the occurrence of such events, and at such prices, as are set forth in the Board resolutions establishing such class or series or as are determined in a manner specified in such resolutions;
(5) are entitled to the benefits of such sinking fund, if any, as is required to be established by the Corporation for the redemption and/or purchase of such shares by the Board resolutions establishing such class or series;
(6) are convertible at the option of the holders thereof into shares of any other class or series of capital stock of the Corporation, at such times or upon the occurrence of such events, and upon such terms, as are set forth in the Board resolutions establishing such class or series or as are determined in a manner specified in such resolutions;
(7) are exchangeable at the option of the holders thereof for cash, capital stock or indebtedness of the Corporation or other property, at such times or upon the occurrence of such events, and at such prices, as are set forth in the Board resolutions establishing such class or series or as are determined in a manner specified in such resolutions;
(8) are entitled to such voting rights, if any, as are specified in the Board resolutions establishing such class or series (including, without limiting the generality of the foregoing, the right to elect one or more directors voting alone as a single class or series or together with one or more other classes and/or series of preferred stock, if so specified by such Board resolutions) at all times or upon the occurrence of specified events; and
(9) are subject to restrictions on the issuance of additional shares of preferred stock of such class or series or of any other class or series, or on the reissuance of shares of preferred stock of such class or series or of any other
class or series, or on increases or decreases in the number of authorized shares of preferred stock of such class or series or of any other class or series.
Without limiting the generality of the foregoing authorizations, any of the rights and preferences of a class or series of preferred stock may be made dependent upon facts ascertainable outside the Board resolutions establishing such class or series, and may incorporate by reference some or all of the terms of any agreements, contracts or other arrangements entered into by the Corporation in connection with the issuance of such class or series, all to the full extent permitted by Minnesota Statutes. Unless otherwise specified in the Board resolutions establishing a class or series of preferred stock, holders of a class or series of preferred stock shall not be entitled to cumulate their votes in any election of directors in which they are entitled to vote and shall not be entitled to any preemptive rights to acquire shares of any class or series of capital stock of the Corporation.
Section 2. Description of the Capital Stock.
The rights, preferences, privileges and restrictions granted to or imposed upon the respective classes or series of shares or the holders thereof are as follows:
(A) Voting Rights.
Each holder of Common Shares shall have one vote on all matters submitted
to the shareholders for each Common Share standing in the name of such holder on
the books of this Corporation. Each holder of Class A Preferred Shares shall
have one vote on all matters submitted to the shareholders for each Common Share
which such holder of Class A Preferred Shares would be entitled to receive upon
the conversion of his Class A Preferred Shares pursuant to the provisions of
Section 2(C)(3). No holder of any shares of Capital Stock shall have any
cumulative voting rights.
(B) Preemptive Rights.
No holders of shares of any class of Capital Stock shall be entitled, as a matter of right, to subscribe for, purchase or receive any part of any stock of this Corporation of any class whatsoever, or of securities convertible into or exchangeable for any stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend.
(C) Class A Preferred Shares.
(1) Dividends. Dividends shall be payable on Class A Preferred Shares out of funds legally available for the declaration of dividends, only if and when declared by this Corporation's Board of Directors. However, in no event shall any dividend be paid on any Common Shares unless equal or greater dividends are paid on the Class A Preferred Shares. Class A Preferred Shares shall be counted on an
as-if-converted basis in determining whether dividends paid on the Class A Preferred Shares are equal to or greater than the dividends paid on the Common Shares.
(2) Liquidation Right and Preference. In the event of the liquidation, dissolution or winding up of this Corporation, whether voluntary or involuntary, the holders of Class A Preferred Shares shall be entitled to receive in cash, out of the assets of this Corporation, an amount equal to the par value of each outstanding Preferred Share (that is, $1.00 per share), plus all accumulated but unpaid dividends, before any payment shall be made or any assets distributed to the holders of Common Shares or any other class of shares of this Corporation ranking junior to the Class A Preferred Shares. If, upon any liquidation, dissolution or winding up of this Corporation, the assets of this Corporation are insufficient to pay the amounts described in the preceding sentence, the holders of such Class A Preferred Shares shall share pro rata in any such distribution in proportion to the full amounts to which they would otherwise be respectively entitled Following such payment to the holders of Class A Preferred Shares upon such liquidation, dissolution or winding up of this Corporation, the holders of Common Shares shall then be entitled, to the exclusion of the holders of Class A Preferred Shares, to receive in cash or in kind, all remaining assets of this Corporation, if any.
The merger or consolidation of this Corporation into or with another corporation or the merger or consolidation of any other corporation into or with this Corporation (in which consolidation or merger the shareholders of this Corporation receive any distributions of cash or securities or other property as a result of such consolidation or merger), or the sale, transfer or other disposition of all or substantially all of the assets of this Corporation, shall be deemed to be a liquidation or dissolution of this Corporation for purposes of this Section 2(C)(2).
(3) Conversion Rights.
(a) Optional Conversion. At the option of the holder thereof, all Class A Preferred Shares then held by such holder shall be convertible into Common Shares of this Corporation in accordance with the provisions and subject to the adjustments provided for in Section 2(C)(3)(b); provided, however, that each Class A Preferred Share called for redemption by this Corporation shall cease to be convertible on and after the redemption date if provision shall have been made for its payment. In order to exercise the conversion privilege, a holder of Class A Preferred Shares shall surrender the certificate or certificates evidencing all Class A Preferred Shares then held by such holder to this Corporation at its principal office, duly endorsed to this Corporation and accompanied by written notice to this Corporation that the holder elects to convert all of such shares. Class A Preferred Shares converted at the option of the holder shall be deemed to have been converted on the day of surrender of the certificate representing such shares for conversion in accordance with the foregoing provisions, and at such time the rights of the
holder of such Class A Preferred Shares shall cease and such holder shall be treated for all purposes as the record holder of Common Shares issuable upon conversion. As promptly as practicable on or after the conversion date, this Corporation shall issue and mail or deliver to such holder a certificate or certificates for the number of Common Shares issuable upon conversion, computed to the nearest one hundredth of a full share, and a certificate or certificates for the balance of Class A Preferred Shares surrendered, if any, not so converted into Common Shares.
(b) Conversion Price and Adjustments. The number of Common Shares issuable in exchange for each Class A Preferred Share upon either optional or automatic conversion shall be equal to One Dollar ($1.00) divided by the conversion price then in effect for Class A Preferred Shares (the "Class A Conversion Price"). The Class A Conversion Price shall initially be One Dollar ($1.00), but such Class A Conversion Price shall be subject to adjustment from time to time, as provided in the following sentence. In case this corporation shall at any time subdivide or split its outstanding Common Shares into a greater number of shares or declare any dividend payable in Common Shares, the Class A Conversion Price in effect immediately prior to such subdivision, split or dividend shall be proportionately decreased, and conversely, in case the outstanding Common Shares of this Corporation shall be combined into a smaller number of shares, the Class A Conversion Price in effect immediately prior to such combination shall be proportionately increased.
(c) Rights to Preconversion Distributions. The holders of Class A Preferred Shares shall have the following rights to certain properties received by the holders of Common Shares:
(i) in case this Corporation shall declare a dividend or distribution upon Common Shares payable other than in cash out of earnings or surplus or other than in Common Shares, then thereafter each holder of Class A Preferred Shares upon the conversion thereof will be entitled to receive the number of Common Shares into which such Class A Preferred Shares shall be converted, and, in addition and without payment therefor, the property which such holder would have received as a dividend if continuously since the record date for any such dividend or distribution such holder (A) had been the record holder of the number of Common Shares then received, and (B) had retained all dividends or distributions in stock or securities payable in respect of such Common Shares or in respect of any stock or securities paid as dividends or distributions and originating directly or indirectly from such Common Shares.
(ii) Subject to the provisions of Section 2(C)(2) regarding liquidation rights, if any capital reorganization or reclassification of the Capital Stock of this Corporation, or consolidation or merger of this Corporation with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Shares shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Shares, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby the holders of Class A Preferred Shares shall thereafter have the right to receive, in lieu of Common Shares of this Corporation immediately theretofore receivable upon the conversion of such Class A Preferred Shares, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding Common Shares equal to the number of Common Shares immediately theretofore receivable upon the conversion or such Class A Preferred Shares had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the holders of the Class A Preferred Shares to the end that the provisions hereof (including without limitation provisions for adjustments of the Class A Conversion Price and of the number of shares receivable upon the conversion of such Class A Preferred Shares) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter receivable upon the conversion of such Class A Preferred Shares. This Corporation shall not effect any such reorganization, reclassification consolidation, merger or sale, unless prior to the consummation thereof the surviving corporation (if other than this Corporation), the corporation resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument executed and mailed to the registered holders of the Class A Preferred Shares at the last address of such holders appearing on the books of the Corporation, the obligation to deliver to such holders such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holders may be entitled to receive.
(d) Notice of Certain Events. In case any time:
(i) this Corporation shall pay any dividend payable in stock upon Common Shares or make any distribution (other than regular cash dividends) to the holders of Common Shares; or
(ii) this Corporation shall offer for subscription pro rata to the holders of Common Shares any additional shares of stock of any class or other rights; or
(iii) there shall be any capital reorganization, reclassification of the capital stock of this Corporation, or consolidation or merger of this Corporation with, or sale of all or substantially all of its assets, to another corporation; or
(iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of this Corporation;
then, in any one or more of said cases, this Corporation shall give written notice, by first-class mail, postage prepaid, addressed to the holders of Class A Preferred Shares at the addresses of such holders as shown on the books of this Corporation, of the date on which (A) the books of this Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights, or (B) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice shall also specify the date as of which the holders of Common Shares of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Shares for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. Such written notice shall be given at least thirty (30) days prior to the action in question and not less than thirty (30) days prior to the record date or the date on which this Corporation's transfer books are dosed in respect thereto.
(4) Redemption Rights.
(a) This corporation shall at any time have the conditional right, but not the obligation, to purchase and redeem all, but not less than all, of the then outstanding Class A Preferred Shares at the redemption price, plus all accrued but unpaid dividends, if the exercise of such conditional redemption option is approved by all of the members of this Corporation's Board of Directors. The "redemption price" of all Class A Preferred Shares shall be the par value of such Class A Preferred Shares. Within thirty (30) days after the meeting of the Board of Directors at which the exercise of such conditional redemption right was approved by the requisite number of members of the Board, the Corporation shall deliver notice of exercise to all holders of Class A Preferred Shares subject to redemption. Thereafter, each holder of Class A Preferred Shares subject to redemption shall have a period of ninety (90) days in which to convert his Class A Preferred
Shares into Common Shares pursuant to the provisions of Section
2(C)(3). If the holder of Class A Preferred Shares subject to
redemption does not convert his Class A Preferred Shares into Common
Shares within such ninety (90) day period, the Class A Preferred
Shares shall thereafter be redeemed pursuant to the provisions of
this Section 2(C)(4).
(b) This Corporation shall complete the redemption of all
Class A Preferred Shares outstanding on the date of expiration of
the ninety (90) day notice period described in part (a) of this
Section 2(C)(4) by (i) notifying the holders of such outstanding
Class A Preferred Shares of the date on which the shares will be
redeemed, and (ii) depositing in trust with a bank or trust company
located in the United States of America and having capital, surplus
and undivided profits of at least Five Million Dollars ($5,000,000),
within ten (10) days after the expiration of the ninety (90) day
notice period described in part (a) of this Section 2(C)(4), an
amount in cash out of moneys legally available therefor sufficient
to redeem such Class A Preferred Shares at the redemption prices
specified in this Section 2(C)(4), with instructions and authority
to such bank or trust company to pay the redemption price on or
after the date fixed for redemption, upon surrender by such holders
of the certificates evidencing the shares being redeemed, which
certificates shall be properly endorsed in blank. If the
certificates evidencing such shares are not surrendered, the
dividends with respect to such shares shall cease to accrue after
the date fixed for redemption and all rights with respect to such
shares shall forthwith after such date cease and terminate, except
only the right of the holders to receive the redemption price
without interest upon surrender of their certificates therefor. Any
moneys deposited by this Corporation pursuant to this paragraph and
unclaimed at the end of one year after the date fixed for redemption
shall be repaid to this Corporation upon its request expressed in a
resolution of its Board of Directors, and thereafter the holders of
shares so called for redemption shall be entitled to receive payment
of the redemption price only from this Corporation. All Class A
Preferred Shares which are in any manner redeemed or acquired by
this Corporation shall be retired and canceled and none of such
shares shall be reissued.
ARTICLE 4. DIRECTOR LIABILITY
A director of this Corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its shareholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Sections
302A.559 or 80A.23 of the Minnesota Statutes; (iv) for any transaction from which the director derived an improper personal benefit; or (v) for any act or omission occurring prior to the date when this Article 4 became effective.
If the Minnesota Business Corporation Act is hereafter amended to authorize any further limitation of the liability of a director, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Minnesota Business Corporation Act, as amended.
Any repeal or modification of the foregoing provisions of the Article 4 by the shareholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
IN WITNESS WHEREOF, the undersigned, Incorporator of the Corporation, has executed this document on this 11th day of February, 1993.
/s/ William R. Hibbs --------------------------- William R. Hibbs, Esq. |
EXHIBIT 3.1
AMENDMENT AND RESTATEMENT OF
ARTICLES OF INCORPORATION OF
LEARN-NET, INC.
This Amendment and Restatement has bean adopted pursuant to Chapter 302A of the Minnesota Statutes, the Minnesota Business Corporation Act, and supersedes the original Articles.
ARTICLE I. NAME
The name of the Corporation is Learning Ventures, Inc.
ARTICLE II REGISTERED OFFICE
The address of the registered office of the Corporation is 1400 Northland Plaza, 3800 West 80th Street, Minneapolis, Minnesota 55431.
ARTICLE III. AUTHORIZED SHARES
Section 1. Shares and Classes Authorized.
(A) Authorized Capital Stock. The aggregate number of shares which the Corporation has the authority to issue is twenty-three million (23,000,000) shares, ten million (10,000,000) of which shall be designated common shares, $.10 par value (the "Common Shares"), and three million (3,000,000) of which shall be designated Class A convertible preferred shares, $1.00 par value (the "Class A Preferred Shares"). The Common Shares and the Class A Preferred Shares are herein sometimes referred to collectively as "Capital Stock." Additionally, the Board of Directors of the corporation is hereby authorized to cause to be issued from time to time, by resolution or resolutions adopted by such Board, an additional ten million (10,000,000) preferred shares (the "Open Term Preferred Shares").
(B) Open Term Preferred Shares. The Board is authorized to cause the Open Term Preferred Shares to be issued in one or more classes and/or series, to establish the designation and number of shares of each such class or series, and to fix the relative rights and preferences of the shares of each such class or series, all to the full extent permitted by Minnesota Statutes, Section 302A.401, or any successor provision. Without limiting the generality of the foregoing, the Board of Directors is authorized to provide that shares of a class or series of preferred stock:
(1) are entitled to cumulative, partially cumulative or noncumulative dividends or other distributions in payable in cash, capital stock or indebtedness of the corporation or other property, at such times and in such amounts as are set forth in the Board resolutions establishing such class or series or as are determined in a manner specified in such resolutions;
(2) are entitled to a preference with respect to payment of dividends over one or more other classes and/or series of capital stock of the Corporation;
(3) are entitled to a preference with respect to any distribution of assets of the Corporation upon its liquidation, dissolution or winding up over one or more other classes and/or series of capital stock of the Corporation in such amount as is set forth in the Board resolutions establishing such class or series or as is determined in a manner specified in such resolutions;
(4) are redeemable or exchangeable at the option of the Corporation and/or on a mandatory basis for cash, capital stock or indebtedness of the Corporation or other property, at such times or upon the occurrence of such events, and at such prices, as are set forth in the Board resolutions establishing such class or series or as are determined in a manner specified in such resolutions;
(5) are entitled to the benefits of such sinking fund, if any, as is required to be established by the Corporation for the redemption and/or purchase of such shares by the Board resolutions establishing such class or series;
(6) are convertible at the option of the holders thereof into shares of any other class or series of capital stock of the Corporation, at such times or upon the occurrence of such events, and upon such terms, as are set forth in the Board resolutions establishing such class or series or as are determined in a manner specified in such resolutions;
(7) are exchangeable at the option of the holders thereof for cash, capital stock or indebtedness of the Corporation or other property, at such times or upon the occurrence of such events, and at such prices, as are set forth in the Board resolutions establishing such class or series or as are determined in a manner specified in such resolutions;
(8) are entitled to such voting rights, if any, as are specified in the Board resolutions establishing such class or series (including, without limiting the generality of the foregoing, the right to elect one or more directors voting alone as a single class or series or together with one or more other classes and/or series of preferred stock, if so specified by such Board resolutions) at all times or upon the occurrence of specified events; and
(9) are subject to restrictions on the issuance of additional shares of preferred stock of such class or series or of any other class or series, or on the reissuance of shares of preferred stock of such class or series or of any other
class or series, or on increases or decreases in the number of authorized shares of preferred stock of such class or series or of any other class or series.
Without limiting the generality of the foregoing authorizations, any of the rights and preferences of a class or series of preferred stock may be made dependent upon facts ascertainable outside the Board resolutions establishing such class or series, and may incorporate by reference some or all of the terms of any agreements, contracts or other arrangements entered into by the Corporation in connection with the issuance of such class or series, all to the full extent permitted by Minnesota Statutes. Unless otherwise specified in the Board resolutions establishing a class or series of preferred stock, holders of a class or series of preferred stock shall not be entitled to cumulate their votes in any election of directors in which they are entitled to vote and shall not be entitled to any preemptive rights to acquire shares of any class or series of capital stock of the Corporation.
Section 2. Description of the Capital Stock.
The rights, preferences, privileges and restrictions granted to or imposed upon the respective classes or series of shares or the holders thereof are as follows:
(A) Voting Rights.
Each holder of Common Shares shall have one vote on all matters submitted
to the shareholders for each Common Share standing in the name of such holder on
the books of this Corporation. Each holder of Class A Preferred Shares shall
have one vote on all matters submitted to the shareholders for each Common Share
which such holder of Class A Preferred Shares would be entitled to receive upon
the conversion of his Class A Preferred Shares pursuant to the provisions of
Section 2(C)(3). No holder of any shares of Capital Stock shall have any
cumulative voting rights.
(B) Preemptive Rights.
No holders of shares of any class of Capital Stock shall be entitled, as a matter of right, to subscribe for, purchase or receive any part of any stock of this Corporation of any class whatsoever, or of securities convertible into or exchangeable for any stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend.
(C) Class A Preferred Shares.
(1) Dividends. Dividends shall be payable on Class A Preferred Shares out of funds legally available for the declaration of dividends, only if and when declared by this Corporation's Board of Directors. However, in no event shall any dividend be paid on any Common Shares unless equal or greater dividends are paid an the Class A Preferred Shares. Class A Preferred Shares shall be counted on an as-if-converted
basis in determining whether dividends paid on the Class A Preferred Shares are equal to or greater than the dividends paid on the Common Shares.
(2) Liquidation Right and Preference. In the event of the liquidation, dissolution or winding up of this Corporation, whether voluntary or involuntary, the holders of Class A Preferred Shares shall be entitled to receive in cash, out of the assets of this Corporation, an amount equal to the par value of each outstanding Preferred Share (that is, $1.00 per share), plus all accumulated but unpaid dividends, before any payment shall be made or any assets distributed to the holders of Common Shares or any other class of shares of this Corporation ranking junior to the Class A Preferred Shares. If, upon any liquidation, dissolution or winding up of this Corporation, the assets of this Corporation are insufficient to pay the amounts described in the preceding sentence, the holders of such Class A Preferred Shares shall share pro rata in any such distribution in proportion to the full amounts to which they would otherwise be respectively entitled. Following such payment to the holders of Class A Preferred Shares upon such liquidation, dissolution or winding up of this Corporation, the holders of Common Shares shall then be entitled, to the exclusion of the holders of Class A Preferred Shares, to receive in cash or in kind, all remaining assets of this Corporation, if any.
The merger or consolidation of this Corporation into or with another corporation or the merger or consolidation of any other corporation into or with this corporation (in which consolidation or merger the shareholders of this Corporation receive any distributions of cash or securities or other property as a result of such consolidation or merger), or the sale, transfer or other disposition of all or substantially all of the assets of this Corporation, shall be deemed to be a liquidation or dissolution of this Corporation for purposes of this Section 2(C)(2).
(3) Conversion Rights.
(a) Optional Conversion. At the option of the holder thereof, all Class A Preferred Shares then held by such holder shall be convertible into Common Shares of this Corporation in accordance with the provisions and subject to the adjustments provided for in Section 2(C)(3)(c); provided, however, that each Class A Preferred Share called for redemption by this Corporation shall cease to be convertible on and after the redemption date if provision shall have been made for its payment. In order to exercise the conversion privilege, a holder of Class A Preferred Shares shall surrender the certificate or certificates evidencing all Class A Preferred Shares then held by such holder to this Corporation at its principal office, duly endorsed to this Corporation and accompanied by written notice to this Corporation that the holder elects to convert all of such shares. Class A Preferred Shares converted at the option of the holder shall be deemed to have been converted on the day of surrender of the certificate representing such shares for conversion in accordance with the foregoing provisions, and at such time the rights of the holder of such Class A Preferred Shares shall cease and such holder shall be treated for all purposes as the record holder of
Common Shares issuable upon conversion. As promptly as practicable on or after the conversion date, this Corporation shall issue and mail or deliver to such holder a certificate or certificates for the number of Common Shares issuable upon conversion, computed to the nearest one hundredth of a full share, and a certificate or certificates for the balance of Class A Preferred Shares surrendered, if any, not so converted into Common Shares.
(b) Automatic Conversion. The Class A Preferred Shares shall be automatically converted into Common Shares, upon the election of this Corporation and delivery of written notice of such election to the holders of the Class A Preferred Shares (which election and notice may be delivered within ninety (90) days before or after the automatic conversion event described below without affecting the effective time of such automatic conversion), if this Corporation closes the issuance and sale of Common Shares in one or more underwritten public offerings, pursuant to an effective registration statement under the Securities Act of 1933, as amended, in which the gross proceeds received by this Corporation equal or exceed Ten Million Dollars ($10,000,000).
(c) Conversion Price and Adjustments. The number of Common Shares issuable in exchange for each Class A Preferred Share upon either optional or automatic conversion shall be equal to One Dollar ($1.00) divided by the conversion price then in effect for Class A Preferred Shares (the "Class A Conversion Price"). The Class A Conversion Price shall initially be One Dollar ($1.00), but such Class A Conversion Price shall be subject to adjustment from time to time, as provided in the following sentence. In case this Corporation shall at any time subdivide or split its outstanding Common Shares into a greater number of shares or declare any dividend payable in Common Shares, the Class A Conversion Price in effect immediately prior to such subdivision, split or dividend shall be proportionately decreased, and conversely, in case the outstanding Common Shares of this Corporation shall be combined into a smaller number of shares, the Class A Conversion Price in effect immediately prior to such combination shall be proportionately increased.
(d) Rights to Preconversion Distributions. The holders of Class A Preferred Shares shall have the following rights to certain properties received by the holders of Common Shares:
(i) In case this Corporation shall declare a dividend or distribution upon Common Shares payable other than in cash out of earnings or surplus or other than in Common Shares, then thereafter each holder of Class A Preferred Shares upon the conversion thereof will be entitled to receive the number of Common Shares into which such Class A Preferred Shares shall be converted, and, in addition and without payment therefor, the property which such holder would have received as a dividend if continuously since the record date for any such dividend or distribution such holder (A) had been the record holder of the number of Common Shares then received, and (B) had retained all
dividends or distributions in stock or securities payable in respect of such Common Shares or in respect of any stock or securities paid as dividends or distributions, and originating directly or indirectly from such Common Shares.
(ii) Subject to the provisions of Section 2(C)(2) regarding liquidation rights, if any capital reorganization or reclassification of the Capital Stock of this Corporation, or consolidation or merger of this Corporation with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Shares shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Shares, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby the holders of Class A Preferred Shares shall thereafter have the right to receive, in lieu of Common Shares of this Corporation immediately theretofore receivable upon the conversion of such Class A Preferred Shares, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding Common Shares equal to the number of Common Shares immediately theretofore receivable upon the conversion or such Class A Preferred Shares had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the holders of the Class A Preferred Shares to the end that the provisions hereof (including without limitation provisions for adjustments of the Class A Conversion Price and of the number of shares receivable upon the conversion of such Class A Preferred Shares) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter receivable upon the conversion of such Class A Preferred Shares. This Corporation shall not effect any such reorganization, reclassification consolidation, merger or sale, unless prior to the consummation thereof the surviving corporation (if other than this Corporation), the corporation resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument executed and mailed to the registered holders of the Class A Preferred Shares at the last address of such holders appearing on the books of the Corporation, the obligation to deliver to such holders such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holders may be entitled to receive.
(e) Notice of Certain Events. In case any time:
(i) this Corporation shall pay any dividend payable in stock upon Common Shares or make any distribution (other than regular cash dividends) to the holders of Common Shares; or
(ii) this Corporation shall offer for subscription pro rata to the holders of Common Shares any additional shares of stock of any class or other rights; or
(iii) there shall be any capital reorganization, reclassification of the capital stock of this corporation, or consolidation or merger of this Corporation with, or sale of all or substantially all of its assets, to another corporation; or
(iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of this Corporation;
then, in any one or more of said cases, this Corporation shall give written notice, by first-class mail, postage prepaid, addressed to the holders of Class A Preferred Shares at the addresses of such holders as shown on the books of this Corporation, of the date on which (A) the books of this Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights, or (B) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice shall also specify the date as of which the holders of Common Shares of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Shares for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. Such written notice shall be given at least thirty (30) days prior to the action in question and not less than thirty (30) days prior to the record date or the date on which this Corporation's transfer books are closed in respect thereto.
(4) Redemption Rights.
(a) At any time after February 24, 2000, the Corporation shall have the conditional right, but not the obligation, to purchase and redeem all, but not less than all, of the then outstanding Class A Preferred Shares at the redemption price, plus all accrued but unpaid dividends, if the exercise of such conditional redemption option is approved by all of the members of this Corporation's Board of Directors. The "redemption price" of all Class A Preferred Shares shall be the par value of such Class A Preferred Shares. Within thirty (30) days after the meeting of the Board of Directors at which the exercise of such conditional redemption right was approved by the requisite number of members of the Board, the Corporation shall deliver notice of exercise to all holders of Class A Preferred Shares subject to redemption. Thereafter, each holder of Class A Preferred Shares subject to redemption shall have a period of ninety (90) days in which to convert his Class A Preferred Shares into Common Shares pursuant to the provisions of Section 2(C)(3). If the holder of Class A Preferred Shares subject to redemption does not convert his Class A Preferred Shares into Common Shares within such
ninety (90) day period, the Class A Preferred Shares shall thereafter be redeemed pursuant to the provisions of this Section 2(C)(4).
(b) This Corporation shall complete the redemption of all Class A
Preferred Shares outstanding on the date of expiration of the ninety (90)
day notice period described in part (a) of this Section 2(C)(4) by (i)
notifying the holders of such outstanding Class A Preferred Shares of the
date on which the shares will be redeemed, and (ii) depositing in trust
with a bank or trust company located in the United States of America and
having capital, surplus and undivided profits of at least Five Million
Dollars ($5,000,000), within ten (10) days after the expiration of the
ninety (90) day notice period described in part (a) of this Section
2(C)(4), an amount in cash out of moneys legally available therefor
sufficient to redeem such Class A Preferred Shares at the redemption
prices specified in this Section 2(C)(4), with instructions and authority
to such bank or trust company to pay the redemption price on or after the
date fixed for redemption, upon surrender by such holders of the
certificates evidencing the shares being redeemed, which certificates
shall be properly endorsed in blank. If the certificates evidencing such
shares are not surrendered, the dividends with respect to such shares
shall cease to accrue after the date fixed for redemption and all rights
with respect to such shares shall forthwith after such date cease and
terminate, except only the right of the holders to receive the redemption
price without interest upon surrender of their certificates therefor. Any
moneys deposited by this Corporation pursuant to this paragraph and
unclaimed at the end of one year after the date fixed for redemption shall
be repaid to this Corporation upon its request expressed in a resolution
of its Board of Directors, and thereafter the holders of shares so called
for redemption shall be entitled to receive payment of the redemption
price only from this Corporation. All Class A Preferred Shares which are
in any manner redeemed or acquired by this Corporation shall be retired
and canceled and none of such shares shall be reissued.
ARTICLE 4. DIRECTOR LIABILITY
A director of this corporation shall not be personally liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its shareholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Sections 302A.559 or 80A.23 of the Minnesota Statutes; (iv) for any transaction from which the director derived an improper personal benefit; or (v) for any act or omission occurring prior to the date when this Article 4 became effective.
If the Minnesota Business Corporation Act is hereafter amended to authorize any further limitation of the liability of a director, then the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by the Minnesota Business Corporation Act, as amended.
Any repeal or modification of the foregoing provisions of the Article 4 by the shareholders of the corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
IN WITNESS WHEREOF, the undersigned, Incorporator of the Corporation, has executed this document on this 22nd day of February, 1993.
/s/ William R. Hibbs --------------------------- William R. Hibbs, Esq. |
EXHIBIT 3.1
MINNESOTA SECRETARY OF STATE
AMENDMENT OF ARTICLES OF INCORPORATION
BEFORE COMPLETING THIS FORM, PLEASE READ INSTRUCTIONS LISTED BELOW.
CORPORATE NAME:(List the name of the company prior to any desired name change)
Learning Ventures, Inc.
This amendment Is effective on the day it Is filed with the Secretary of State, unless you indicate another date, no later than 30 days after filing with the Secretary of State. November 15, 1993
The following amendment(s) of articles regulating the above corporation were adopted: (Insert full text of newly amended article(s) indicating which article(s) is (are) being amended or added.) If the full text of the amendment will not fit in the space provided, attach additional numbered pages. (Total number of pages including this form______ .)
ARTICLE 2
The address of the registered office of the corporation is 121 South 8th Street, Suite 730, Minneapolis, Minnesota 55402.
This amendment has been approved pursuant to Minnesota Statutes chapter 302A or 317A. I certify that I am authorized to execute this amendment and I further certify that I understand that by signing this amendment, I am subject to the penalties of perjury as set forth in section 609.48 as if I had signed this amendment under oath.
/s/ Marie Hubonette, Asst. Corp. Secretary ------------------------------------------- (Signature of Authorized Person) |
EXHIBIT 3.1
MINNESOTA SECRETARY OF STATE
AMENDMENT OF ARTICLES OF INCORPORATION
BEFORE COMPLETING THIS FORM, PLEASE READ INSTRUCTIONS LISTED BELOW.
CORPORATE NAME:(List the name of the company prior to any desired name change)
Learning Ventures, Inc.
This amendment Is effective on the day it Is filed with the Secretary of State, unless you indicate another date, no later than 30 days after filing with the Secretary of State.__________________
The following amendment(s) of articles regulating the above corporation were adopted: (Insert full text of newly amended article(s) indicating which article(s) is (are) being amended or added.) If the full text of the amendment will not fit in the space provided, attach additional numbered pages. (Total number of pages including this form _________ .)
ARTICLE______
See attached Certificate of Designation of Class B Convertible Preferred Stock of Learning Ventures, Inc. pursuant to Article IIIB of the Restated Articles of Incorporation.
This amendment has been approved pursuant to Minnesota Statutes chapter 302A or 317A. I certify that I am authorized to execute this amendment and I further certify that I understand that by signing this amendment, I am subject to the penalties of perjury as set forth in section 609.48 as if I had signed this amendment under oath.
/s/ Paul F. Clifford -------------------------- Paul Clifford, Secretary |
EXHIBIT 3.1
CERTIFICATE OF DESIGNATION
OF
CLASS B CONVERTIBLE PREFERRED STOCK
OF
LEARNING VENTURES, INC
I, Paul F. Clifford, the Secretary of Learning Ventures, Inc., a Minnesota corporation (the "Corporation"), do hereby certify that by a written action of the Board of Directors of the Corporation dated as of October 25, 1994, the following resolutions effecting the creation of a series of preferred stock designated as "Class B Convertible Preferred Stock" were duly approved by the Board of Directors of the Corporation and that such resolutions have not been subsequently modified or rescinded
RESOLVED, that the Corporation shall create a class of shares of preferred stock designated as "Class B Convertible Preferred Shares" and will reserve One Hundred Eighty Thousand (180,000) of the Corporation's authorized but unissued shares of preferred stock for issuance under such class.
FURTHER RESOLVED, that the Class B Convertible Preferred Shares shall be entitled to the relative rights and preferences described in the attached Exhibit A.
I further certify that the document attached hereto and marked Exhibit A and entitled "Learning Ventures, Inc. Certificate of Designation for Class B Convertible Preferred Stock" is a true and correct copy of the document referred to in the foregoing resolutions.
IN WITNESS WHEREOF, I have executed this certificate as of this 25th day of October, 1994.
/s/ Paul F. Clifford --------------------------- Paul F. Clifford, Secretary |
EXHIBIT 3.1
EXHIBIT A
LEARNING VENTURES, INC
CERTIFICATE OF DESIGNATION
FOR
CLASS B CONVERTIBLE PREFERRED STOCK
1. Designation; Number of Shares; Par Value. A class of shares of preferred stock of Learning Ventures, Inc. (the "Corporation") shall be designated as Class B Convertible Preferred Stock (the "Class B Preferred Shares"). The number of shares constituting the Class B Preferred Shares shall be One Hundred Eighty Thousand (180,000) shares. The "Class B Preferred Shares shall have a par value of $2.50 per share.
2. Voting Rights. On all matters submitted to the shareholders, each holder of Class B Preferred Shares shall have one vote for each share of common stock of the Corporation which such holder of Class B Preferred Shares would be entitled to receive upon the conversion of such holder's Class B Preferred Shares pursuant to the provisions of Section 6. No holder of any Class B Preferred Shares shall have any cumulative voting rights.
3. No Preemptive Rights. Holders of Class B Preferred Shares shall not be entitled, as a matter of right, to subscribe for, purchase or receive any part of any stock of the Corporation of any class whatsoever, or of securities convertible into or exchangeable for any stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend.
4. Dividends. The Class B Preferred Shares shall rank equal to the Class A convertible preferred stock of the Corporation (the "Class A Preferred Shares") and senior to the common stock of the Corporation (the "Common Shares") with respect to the payment of dividends. Dividends shall be payable on Class B Preferred Shares out of funds legally available for the declaration of dividends only if and when declared by the Corporation's Board of Directors. However, in no event shall any dividend be paid on any Common Shares or any other class of shares of the Corporation ranking equal to or junior to the Class B Preferred Shares unless equal or greater dividends are paid on the Class B Preferred Shares. All shares of stock of the Corporation shall be counted on an as-if-converted-to-Common-Shares basis in determining whether dividends paid on the Class B Preferred Shares are equal to or greater than the dividends paid on any other shares.
5. Liquidation Right and Preference. In the event of the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the
holders of Class B Preferred Shares shall be entitled to receive in cash, out of the assets of the Corporation, an amount equal to the par value of each outstanding Class B Preferred Share (i.e., $2.50 per share), plus all accumulated but unpaid dividends, before any payment shall be made or any assets distributed to the holders of Common Shares or any other class of shares of the Corporation ranking junior to the Class B Preferred Shares. If, upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation are insufficient to pay the amounts described in the preceding sentence, the holders of Class B Preferred Shares and any other class of shares of the Corporation ranking equal to the Class B Preferred Shares shall share pro rata in any such distribution in proportion to the full amounts to which they would otherwise be respectively entitled. Following such payment to the holders of Class B Preferred Shares and any other class of shares of the Corporation ranking equal to the Class B Preferred Shares upon such liquidation, dissolution or winding up of the Corporation, the holders of Common Shares and any other class of shares of the Corporation ranking junior to the Class B Preferred Shares shall then be entitled, to the exclusion of the holders of Class B Preferred Shares, to receive in cash or in kind, all remaining assets of the Corporation, if any.
The merger or consolidation of the Corporation into or with another corporation or the merger or consolidation of any other corporation into or with the Corporation (in which consolidation or merger the shareholders of the Corporation receive any distributions of cash or securities or other property as a result of such consolidation or merger), or the sale, transfer or other disposition of all or substantially all of the assets of the Corporation, shall be deemed to be a liquidation or dissolution of the Corporation for purposes of this Section 5.
6. Conversion into Common Shares.
(a) Optional Conversion. At the option of the holder thereof, all Class B Preferred Shares then held by such holder shall be convertible into Common Shares of the Corporation in accordance with the provisions and subject to the adjustments provided for in Section 6(c); provided, however, that each Class B Preferred Share called for redemption by the Corporation shall cease to be convertible on and after the redemption date if provision shall have been made for its payment. In order to exercise the conversion privilege, a holder of Class B Preferred Shares shall surrender the certificate or certificates evidencing all Class B Preferred Shares then held by such holder to the Corporation at its principal office, duly endorsed to the Corporation and accompanied by written notice to the Corporation that the holder elects to convert all of such shares. Class B Preferred Shares converted at the option of the holder shall be deemed to have been converted on the day of surrender of the certificate representing such shares for conversion in accordance with the foregoing provisions, and at such time the rights of the holder of such Class B Preferred Shares shall cease and such holder shall be treated for all purposes as the record holder of Common Shares issuable upon conversion. As promptly
as practicable on or after the conversion date, the Corporation shall issue and mail or deliver to such holder a certificate or certificates for the number of Common Shares issuable upon conversion, computed to the nearest one hundredth of a full share.
(b) Automatic Conversion. The Class B Preferred Shares shall be automatically converted into Common Shares, upon the election of the Corporation and delivery of written notice of such election to the holders of the Class B Preferred Shares (which election and notice shall be delivered within ninety (90) days before or after the automatic conversion event described below without affecting the effective time of such automatic conversion), if the Corporation closes the issuance and sale of Common Shares in one or more underwritten public offerings, pursuant to an effective registration statement under the Securities Act of 1933, as amended, in which the gross proceeds received by the Corporation equal or exceed Ten Million Dollars ($10,000,000).
(c) Conversion Price and Adjustments. The number of Common Shares issuable in exchange for each Class B Preferred Share upon either optional or automatic conversion shall be equal to One Dollar ($1.00) divided by the conversion price then in effect for Class B Preferred Shares (the "Class B Conversion Price"). The Class B Conversion Price shall initially be One Dollar ($1.00), but such Class B Conversion Price shall be subject to adjustment from time to time, as provided in the following sentence. In case the Corporation shall at any time subdivide or split its outstanding Common Shares into a greater number of shares or declare any dividend payable in Common Shares, the Class B Conversion Price in effect immediately prior to such subdivision, split or dividend shall be proportionately decreased, and conversely, in case the outstanding Common Shares of the Corporation shall be combined into a smaller number of shares, the Class B Conversion Price in effect immediately prior to such combination shall be proportionately increased.
(d) Rights to Preconversion Distributions. The holders of Class B Preferred Shares shall have the following rights to certain properties received by the holders of Common Shares:
(i) In case the Corporation shall declare a dividend or distribution upon Common Shares payable other than in cash out of earnings or surplus or other than in Common Shares, then thereafter each holder of Class B Preferred Shares upon the conversion thereof will be entitled to receive the number of Common Shares into which such Class B Preferred Shares shall be converted, and, in addition and without payment therefor, the property which such holder would have received as a dividend if continuously since the record date for any
such dividend or distribution such holder (A) had been the record holder of the number of Common Shares then received, and (B) had retained all dividends or distributions in stock or securities payable in respect of such Common Shares or in respect of any stock or securities paid as dividends or distributions and originating directly or indirectly from such Common Shares.
(ii) Subject to the provisions of Section 5 regarding liquidation rights, if any capital reorganization or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Shares shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Shares, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby the holders of Class B Preferred Shares shall thereafter have the right to receive, in lieu of Common Shares of the Corporation immediately theretofore receivable upon the conversion of such Class B Preferred Shares, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding Common Shares equal to the number of Common Shares immediately theretofore receivable upon the conversion or such Class B Preferred Shares had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the holders of the Class B Preferred Shares to the end that the provisions hereof (including without limitation provisions for adjustments of the Class B Conversion Price and of the number of shares receivable upon the conversion of such Class B Preferred Shares) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter receivable upon the conversion of such Class B Preferred Shares. The Corporation shall not effect any such reorganization, reclassification consolidation, merger or sale, unless prior to the consummation thereof the surviving corporation (if other than the Corporation), the corporation resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument executed and mailed to the registered holders of the Class B Preferred Shares at the last address of such holders appearing on the books of the Corporation, the obligation to deliver to such holders such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holders may be entitled to receive.
(e) Notice of Certain Events. In case any time:
(i) the Corporation shall pay any dividend payable in stock upon Common Shares or make any distribution (other than regular cash dividends) to the holders of Common Shares; or
(ii) the Corporation shall offer for subscription pro rata to the holders of Common Shares any additional shares of stock of any class or other rights; or
(iii) there shall be any capital reorganization,, reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with or sale of all or substantially all of its assets, to another corporation; or
(iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give written notice, by first-class mail, postage prepaid, addressed to the holders of Class B Preferred Shares at the addresses of such holders as shown on the books of the Corporation, of the date on which (A) the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights, or (B) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice also shall specify the date as of which the holders of Common Shares of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Shares for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. Such written notice shall be given at least thirty (30) days prior to the action in question and not less than thirty (30) days prior to the record date or the date on which the Corporation's transfer books are dosed in respect thereto.
7. Conversion Into Preferred Shares.
If the Corporation issues, between October 25, 1994 and December 31, 1995, any shares of preferred stock, each share of which is convertible into one Common Share, other than Class A Preferred Shares or Class B Preferred Shares (such stock hereinafter referred to as the "Class C Preferred Shares"), then the Class B Preferred Shares shall be convertible into Class C Preferred Shares at the option of the holder thereof or the Corporation, as provided in this Section 7.
(a) Holder's Conversion Option. If the par value of the Class C Preferred Shares is less than $2.50 per share, then all Class B Preferred Shares shall be convertible into Class C Preferred Shares at the option of the holder of such Class B Preferred Shares. This conversion option shall be exercisable for
a period of 90 days following the closing of the first sale of Class C
Preferred Shares which occurs prior to December 31, 1995, and shall expire
at the end of such 90-day period; provided, however, that each Class B
Preferred Share called for redemption by the Corporation pursuant to
Section 8 shall cease to be convertible on and after the redemption date
if provision shall have been made for its payment. In order to exercise
the conversion privilege, a holder of Class B Preferred Shares shall
surrender the certificate or certificates evidencing all Class B Preferred
Shares then held by such holder to the Corporation at its principal
office, duly endorsed to the Corporation and accompanied by written notice
to the Corporation that the holder elects to convert all of such shares.
Class B Preferred Shares converted at the option of the holder shall be
deemed to have been converted on the day of surrender of the certificate
representing such shares in accordance with the foregoing provisions, and
at such time the rights of the holder of such Class B Preferred Shares
shall cease and such holder shall be treated for all purposes as the
record holder of the Class C Preferred Shares issuable upon such
conversion. As promptly as practicable on or after the conversion date,
the Corporation shall issue and mail or deliver to such holder a
certificate or certificates for the number of Class C Preferred Shares
issuable upon such conversion, computed to the nearest one hundredth of a
full share.
(b) Corporation's Conversion Option. If the par value of the Class C Preferred Shares is greater than or equal to $2.50 per share, then all Class B Preferred Shares shall be convertible into Class C Preferred Shares at the option of the Corporation. This conversion option shall be exercisable for a period of 90 days following the closing of the first sale of Class C Preferred Shares which occurs prior to December 31,1995, and shall expire at the end of such 90-day period. In order to exercise the conversion privilege, the Corporation shall send written notice of such exercise to all holders of Class B Preferred Shares by first class mail, postage prepaid, addressed to such holders at the addresses shown on the books of the Corporation. As promptly as practicable following receipt of such conversion notice, a holder of Class B Preferred Shares shall surrender the certificate or certificates evidencing all Class B Preferred Shares then held by such holder to the Corporation at its principal office, duly endorsed to the Corporation. Class B Preferred Shares converted at the option of the Corporation shall be deemed to have been converted on the day the Corporation mails notice of its exercise of the conversion option, and at such time the rights of a holder of Class B Preferred Shares shall cease and such holder shall be treated for all purposes as the record holder of the Class C Preferred Shares issuable upon such conversion. As promptly as practicable after receipt of the share certificates representing the converted Class B Preferred Shares, the Corporation shall issue and mail or deliver to each holder a certificate or certificates for the number of Class C Preferred Shares issuable upon conversion, computed to the nearest one hundredth of a full share.
(c) Conversion Price. The number of Class C Preferred Shares issuable in exchange for each Class B Preferred Share upon either the holder's or the Corporation's exercise of its conversion option shall be equal to the par value of one Class B Preferred Share (i.e. $2.50) divided by the par value of one Class C Preferred Share.
(d) Termination of Conversion Rights. If the Corporation does not complete a sale of Class C Preferred Shares on or before December 31, 1995, the conversion rights provided in this Section 7 shall terminate and shall be of no further force or effect.
8. Redemption Rights:
(a) At any time after February 24, 2000, the Corporation shall
have the conditional right, but not the obligation, to purchase and redeem
all, but not less than all, of the then outstanding Class B Preferred
Shares at the redemption price, plus all accrued but unpaid dividends, if
the exercise of such conditional redemption option is approved by all of
the members of the Corporation's Board of Directors. The "redemption
price" of the Class B Preferred Shares shall be the par value of such
Class B Preferred Shares. Within thirty (30) days after the meeting of the
Board of Directors at which the exercise of such conditional redemption
right was approved by all members of the Board, the Corporation shall
deliver notice of redemption to all holders of Class B Preferred Shares.
Thereafter, each holder of Class B Preferred Shares subject to redemption
shall have a period of ninety (90) days in which to convert such holder's
Class B Preferred Shares into Common Shares pursuant to the provisions of
Section 6. If a holder of Class B Preferred Shares subject to redemption
does not convert such holder's Class B Preferred Shares into Common Shares
within such ninety (90) day period, the Class B Preferred Shares shall
thereafter be redeemed pursuant to the provisions of this Section 8(b).
(b) The Corporation shall complete the redemption of all Class B
Preferred Shares outstanding on the date of expiration of the ninety (90)
day notice period described in part (a) of this Section 8 by (i) notifying
the holders of such outstanding Class B Preferred Shares of the date on
which the shares will he redeemed, and (ii) depositing in trust with a
bank or trust company located in the United States of America and having
capital, surplus and undivided profits of at least Five Million Dollars
($5,000,000), within ten (10) days after the expiration of the ninety (90)
day notice period described in part (a) of this Section 8, an amount in
cash out of moneys legally available therefor sufficient to redeem such
Class B Preferred Shares at the redemption price specified in this Section
8, with instructions and authority to such bank or trust company to pay
the redemption price on or after the date fixed for
redemption, upon surrender by such holders of the certificates evidencing the shares being redeemed, which certificates shall be properly endorsed in blank. If the certificates evidencing such shares are not surrendered, the dividends with respect to such shares shall cease to accrue after the date fixed for redemption and all rights with respect to such shares shall forthwith after such date cease and terminate, except only the right of the holders to receive the redemption price without interest upon surrender of their certificates therefor. Any moneys deposited by the Corporation pursuant to this paragraph and unclaimed at the end of one year after the date fixed for redemption shall be repaid to the Corporation upon its request expressed in a resolution of its Board of Directors, and thereafter the holders of shares so called for redemption shall be entitled to receive payment of the redemption price only from the Corporation. All Class B Preferred Shares which are in any manner redeemed or acquired by the Corporation shall be retired and canceled and none of such shares shall be reissued.
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF THE
ARTICLES OF INCORPORATION
OF
LEARNING VENTURES, INC.
Adopted Pursuant to Minn. Stat. Ch. 302A
Pursuant to the unanimous resolution of the directors and shareholders of the corporation dated December 27, 1995, adopted pursuant to the authority granted under Minn. Stat. Sections. 302A.239 and 302A.441, the Articles of Incorporation of the corporation are hereby amended as follows:
Article I of the Articles of Incorporation be and the same is hereby amended by deleting the whole thereof and inserting in its place the following:
ARTICLE I
The name of this corporation shall be Learning Ventures International, Inc.
IN TESTIMONY WHEREOF, I have hereunto set my hand this 9th day of May, 1996.
/s/ Paul F. Clifford --------------------------- Secretary Learning Ventures International, Inc. |
EXHIBIT 3.1
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
LEARNING VENTURES INTERNATIONAL, INC.
Learning Ventures International, Inc., a Minnesota corporation, hereby adopts and files with the Secretary of State these Articles of Amendment pursuant to Section 302A.139 of the Minnesota Business Corporation Act.
1. The rights and preferences of the Corporation's Class B Convertible Preferred Shares shall be amended, and an additional One Million (1,000,000) of the Corporation's authorized but unissued shares of preferred stock shall be reserved for issuance under such class, resulting in a total of One Million One Hundred Eighty Thousand (1,180,000) shares of preferred stock being reserved for issuance under such class, all as set forth in the Amended and Restated Certificate of Designation for Class B Convertible Preferred Stock attached hereto as Exhibit A.
2. There is hereby created a new class of preferred stock of the Corporation which shall be designated as Class C Preferred Shares, and Fifty-Five Thousand (55,000) of the Corporation's authorized but unissued shares of preferred stock shall be reserved for issuance under such class, all as set forth in the Certificate of Designation for Class C Preferred Stock attached hereto as Exhibit B.
3. The remaining provisions of the Articles of Incorporation shall remain unchanged.
4. These Articles of Amendment have been approved and adopted by the directors and shareholders of Learning Ventures International, Inc. as required by the Minnesota Business Corporation Act
Date: September 29, 1997 LEARNING VENTURES INTERNATIONAL, INC. By /s/ Stephen Shank ----------------------- Its President |
EXHIBIT 3.1
EXHIBIT A
LEARNING VENTURES INTERNATIONAL, INC.
AMENDED AND RESTATED
CERTIFICATE OF DESIGNATION
FOR
CLASS B CONVERTIBLE PREFERRED STOCK
1. Designation; Number of Shares; Par Value. A class of shares of preferred stock of Learning Ventures International, Inc. (the "Corporation") shall be designated as Class B Convertible Preferred Stock (the "Class B Preferred Shares"). The number of shares constituting the Class B Preferred Shares shall be One Million One Hundred Eighty Thousand (1,180,000) shares. The Class B Preferred Shares shall have a par value of $2.50 per share.
2. Voting Rights. On all matters submitted to the shareholders, each holder of Class B Preferred Shares shall have one vote for each share of common stock of the Corporation which such holder of Class B Preferred Shares would be entitled to receive upon the conversion of such holder's Class B Preferred Shares pursuant to the provisions of Section 6. No holder of any Class B Preferred Shares shall have any cumulative voting rights.
3. No Preemptive Rights . Holders of Class B Preferred Shares shall not be entitled, as a matter of right, to subscribe for, purchase or receive any part of any stock of the Corporation of any class whatsoever, or of securities convertible into or exchangeable for any stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend.
4. Dividends. The Class B Preferred Shares shall rank senior to the Class A convertible preferred stock of the Corporation (the "Class A Preferred Shares") and senior to the common stock of the Corporation (the "Common Shares") with respect to the payment of dividends. Dividends shall be payable on Class B Preferred Shares out of funds legally available for the declaration of dividends only if and when declared by the Corporation's Board of Directors. However, in no event shall any dividend be paid on any Class A Preferred Shares, Common Shares or any other class of shares of the Corporation ranking equal to or junior to the Class B Preferred Shares unless equal or greater dividends are paid on the Class B Preferred Shares. All shares of stock of the Corporation shall be counted on an as-if-converted-to-Common-Shares basis in determining whether dividends paid on the Class B Preferred Shares are equal to or greater than the dividends paid on any other shares.
5. Liquidation Right and Preference. The Class B Preferred Shares shall rank senior to the Class A Preferred Shares and senior to the Common Shares with respect to the liquidation of the Corporation. In the event of the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Class B Preferred Shares shall be entitled to receive in cash, out of the assets of the Corporation, an amount equal to the par value of each outstanding Class B Preferred Share (i.e., $2.50 per share), plus all accumulated but unpaid dividends, before any payment shall be made or any assets distributed to the holders of Class A Preferred Shares, Common Shares or any other class of shares of the Corporation ranking junior to the Class B Preferred Shares. If, upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation are insufficient to pay the amounts described in the preceding sentence, the holders of Class B Preferred Shares and any other class of shares of the Corporation ranking equal to the Class B Preferred Shares shall share pro rata in any such distribution in proportion to the full amounts to which they would otherwise be respectively entitled. Following such payment to the holders of Class B Preferred Shares and any other class of shares of the Corporation ranking equal to the Class B Preferred Shares upon such liquidation, dissolution or winding up of the Corporation, the holders of Class A Preferred Shares, Common Shares and any other class of shares of the Corporation ranking junior to the Class B Preferred Shares shall then be entitled, to the exclusion of the holders of Class B Preferred Shares, to receive in cash or in kind, all remaining assets of the Corporation, if any.
The merger or consolidation of the Corporation into or with another corporation or the merger or consolidation of any other corporation into or with the Corporation (in which consolidation or merger the shareholders of the Corporation receive any distributions of cash or securities or other property as a result of such consolidation or merger), or the sale, transfer or other disposition of all or substantially all of the assets of the Corporation, shall be deemed to be a liquidation or dissolution of the Corporation for purposes of this Section 5.
6. Conversion into Common Shares.
(a) Optional Conversion. At the option of the holder thereof, all Class B Preferred Shares then held by such holder shall be convertible into Common Shares of the Corporation in accordance with the provisions and subject to the adjustments provided for in Section 6(c); provided, however, that each Class B Preferred Share called for redemption by the Corporation shall cease to be convertible on and after the redemption date if provision shall have been made for its payment. In order to exercise the conversion privilege, a holder of Class B Preferred Shares shall surrender the certificate or certificates evidencing all Class B Preferred Shares then held by such holder to the Corporation at its principal office, duly endorsed to the Corporation and accompanied by written notice to the Corporation that the holder elects to convert all of such shares. Class B Preferred Shares converted at the option of
the holder shall be deemed to have been converted on the day of surrender of the certificate representing such shares for conversion in accordance with the foregoing provisions, and at such time the rights of the holder of such Class B Preferred Shares shall cease and such holder shall be treated for all purposes as the record holder of Common Shares issuable upon conversion. As promptly as practicable on or after the conversion date, the Corporation shall issue and mail or deliver to such holder a certificate or certificates for the number of Common Shares issuable upon conversion, computed to the nearest one hundredth of a full share.
(b) Automatic Conversion. The Class B Preferred Shares shall be automatically converted into Common Shares, upon the election of the Corporation and delivery of written notice of such election to the holders of the Class B Preferred Shares (which election and notice shall be delivered within ninety (90) days before or after the automatic conversion event described below without affecting the effective time of such automatic conversion), if the Corporation closes the issuance and sale of Common Shares in one or more underwritten public offerings, pursuant to an effective registration statement under the Securities Act of 1933, as amended, in which the gross proceeds received by the Corporation equal or exceed Ten Million Dollars ($10,000,000).
(c) Conversion Price and Adjustments. The number of Common Shares issuable in exchange for each Class B Preferred Share upon either optional or automatic conversion shall be equal to One Dollar ($1.00) divided by the conversion price then in effect for Class B Preferred Shares (the "Class B Conversion Price"). The Class B Conversion Price shall initially be One Dollar ($1.00), but such Class B Conversion Price shall be subject to adjustment from time to time, as provided in the following sentence. In case the Corporation shall at any time subdivide or split its outstanding Common Shares into a greater number of shares or declare any dividend payable in Common Shares, the Class B Conversion Price in effect immediately prior to such subdivision, split or dividend shall be proportionately decreased, and conversely, in case the outstanding Common Shares of the Corporation shall be combined into a smaller number of shares, the Class B Conversion Price in effect immediately prior to such combination shall be proportionately increased.
(d) Rights to Preconversion Distributions. The holders of Class B Preferred Shares shall have the following rights to certain properties received by the holders of Common Shares:
(i) In case the Corporation shall declare a dividend or distribution upon Common Shares payable other than in cash out of earnings or surplus or other than in Common Shares, then thereafter
each holder of Class B Preferred Shares upon the conversion thereof will be entitled to receive the number of Common Shares into which such Class B Preferred Shares shall be converted, and, in addition and without payment therefor, the property which such holder would have received as a dividend if continuously since the record date for any such dividend or distribution such holder (A) had been the record holder of the number of Common Shares then received, and (B) had retained all dividends or distributions in stock or securities payable in respect of such Common Shares or in respect of any, stock or securities paid as dividends or distributions and originating directly or indirectly from such Common Shares.
(ii) Subject to the provisions of Section 5 regarding liquidation rights, if any capital reorganization or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Shares shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Shares, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby the holders of Class B Preferred Shares shall thereafter have the right to receive, in lieu of Common Shares of the Corporation immediately theretofore receivable upon the conversion of such Class B Preferred Shares, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding common shares equal to the number of Common Shares immediately theretofore receivable upon the conversion or such Class B Preferred Shares had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the holders of the Class B Preferred Shares to the end that the provisions hereof (including without limitation provisions for adjustments of the Class B Conversion Price and of the number of shares receivable upon the conversion of such Class B Preferred Shares) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter receivable upon the conversion of such Class B Preferred Shares. The Corporation shall not effect any such reorganization, reclassification consolidation, merger or sale, unless prior to the consummation thereof the surviving corporation (if other than the Corporation), the corporation resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument executed and mailed to the registered holders of the Class B Preferred Shares at the last address of such holders appearing on the books of the Corporation, the obligation to
deliver to such holders such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holders may be entitled to receive.
(e) Notice of Certain Events. In case any time:
(i) the Corporation shall pay any dividend payable in stock upon Common Shares or make any distribution (other than regular cash dividends) to the holders of Common Shares; or
(ii) the Corporation shall offer for subscription pro rata to the holders of Common Shares any additional shares of stock of any class or other rights; or
(iii) there shall be any capital reorganization, reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with, or sale of all or substantially all of its assets, to another corporation; or
(iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give written notice, by first-class mail, postage prepaid, addressed to the holders of Class B Preferred Shares at the addresses of such holders as shown on the books of the Corporation, of the date on which (A) the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights, or (B) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice also shall specify the date as of which the holders of Common Shares of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Shares for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. Such written notice shall be given at least thirty (30) days prior to the action in question and not less than thirty (30) days prior to the record date or the date on which the Corporation's transfer books are closed in respect thereto.
7. Redemption Rights.
(a) At any time after February 24, 2000, the Corporation shall have the conditional right, but not the obligation, to purchase and redeem all, but not less than all, of the then outstanding Class B Preferred Shares at the redemption price, plus all accrued but unpaid dividends, if the exercise of such
conditional redemption option is approved by all of the members of the
Corporation's Board of Directors. The "redemption price" of the Class B
Preferred Shares shall be the par value of such Class B Preferred Shares.
Within thirty (30) days after the meeting of the Board of Directors at
which the exercise of such conditional redemption right was approved by
all members of the Board, the Corporation shall deliver notice of
redemption to all holders of Class B Preferred Shares. Thereafter, each
holder of Class B Preferred Shares subject to redemption shall have a
period of ninety (90) days in which to convert such holder's Class B
Preferred Shares into Common Shares pursuant to the provisions of Section
6. If a holder of Class B Preferred Shares subject to redemption does not
convert such holder's Class B Preferred Shares into Common Shares within
such ninety (90) day period, the Class B Preferred Shares shall thereafter
be redeemed pursuant to the provisions of this Section 7(b).
(b) The Corporation shall complete the redemption of all Class B
Preferred Shares outstanding on the date of expiration of the ninety (90)
day notice period described in part (a) of this Section 7 by (i) notifying
the holders of such outstanding Class B Preferred Shares of the date on
which the shares will be redeemed, and (ii) depositing in trust with a
bank or trust company located in the United States of America and having
capital, surplus and undivided profits of at least Five Million Dollars
($5,000,000), within ten (10) days after the expiration of the ninety (90)
day notice period described in part (a) of this Section 7, an amount in
cash out of moneys legally available therefor sufficient to redeem such
Class B Preferred Shares at the redemption price specified in this Section
7, with instructions and authority to such bank or trust company to pay
the redemption price on or after the date fixed for redemption, upon
surrender by such holders of the certificates evidencing the shares being
redeemed, which certificates shall be properly endorsed in blank. If the
certificates evidencing such shares are not surrendered, the dividends
with respect to such shares shall cease to accrue after the date fixed for
redemption and all rights with respect to such shares shall forthwith
after such date cease and terminate, except only the right of the holders
to receive the redemption price without interest upon surrender of their
certificates therefor. Any moneys deposited by the Corporation pursuant to
this paragraph and unclaimed at the end of one year after the date fixed
for redemption shall be repaid to the Corporation upon its request
expressed in a resolution of its Board of Directors, and thereafter the
holders of shares so called for redemption shall be entitled to receive
payment of the redemption price only from the Corporation. All Class B
Preferred Shares which are in any manner redeemed or acquired by the
Corporation shall be retired and canceled and none of such shares shall be
reissued.
EXHIBIT 3.1
EXHIBIT B
LEARNING VENTURES INTERNATIONAL, INC.
CERTIFICATE OF DESIGNATION
FOR
CLASS C PREFERRED STOCK
1. Designation; Number of Shares; Par Value. A class of shares of preferred stock of Learning Ventures International, Inc. (the "Corporation") shall be designated as Class C Preferred Stock (the "Class C Preferred Shares"). The number of shares constituting the Class C Preferred Shares shall be Fifty-Five Thousand (55,000) shares. The Class C Preferred Shares shall have a par value of $0.01 per share.
2. Voting Rights. Holders of Class C Preferred Shares shall not be entitled to vote in the election of directors or on any other matters submitted for vote to the shareholders of the Corporation; provided, however, that each holder of Class C Preferred Shares shall have one vote for each Class C Preferred Share on any proposal to change the rights or preferences of the Class C Preferred Shares.
3. No Preemptive Rights. Holders of Class C Preferred Shares shall not be entitled, as a matter of right, to subscribe for, purchase or receive any part of any stock of the Corporation of any class whatsoever, or of securities convertible into or exchangeable for any stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend.
4. No Dividends. The Class C Preferred Shares shall not be entitled to any dividends.
5. Liquidation Right and Preference. The Class C Preferred Shares shall rank equal to the Class B convertible preferred stock of the Corporation (the "Class B Preferred Shares"), and senior to the Class A convertible preferred stock of the Corporation (the "Class A Preferred Shares") and the common stock of the Corporation (the "Common Shares") with respect to the liquidation of the Corporation. In the event of the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of Class C Preferred Shares shall be entitled to receive in cash, out of the assets of the Corporation, an amount equal to Three Dollars ($3.00) for each outstanding Class C Preferred Share after payment is made to the holders of any class of shares of the Corporation ranking senior to the Class C Preferred Shares, and before any payment shall be made or any assets distributed to the holders of Class A Preferred Shares, Common Shares or any other class of shares of the Corporation ranking junior to the Class C Preferred
Shares. If, upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation are insufficient to pay the amounts described in the preceding sentence, the holders of Class C Preferred Shares, Class B Preferred Shares and any other class of shares of the Corporation ranking equal to the Class C Preferred Shares shall share pro rata in any such distribution in proportion to the full amounts to which they would otherwise be respectively entitled. Following such payment to the holders of Class C Preferred Shares, Class B Preferred Shares and any other class of shares of the Corporation ranking equal to the Class C Preferred Shares upon such liquidation, dissolution or winding up of the Corporation, the holders of Class A Preferred Shares, Common Shares and any other class of shares of the Corporation ranking junior to the Class C Preferred Shares shall then be entitled, to the exclusion of the holders of Class C Preferred Shares, to receive in cash or in kind, all remaining assets of the Corporation, if any.
The merger or consolidation of the Corporation into or with another corporation or the merger or consolidation of any other corporation into or with the Corporation (in which consolidation or merger the shareholders of the Corporation receive any distributions of cash or securities or other property as a result of such consolidation or merger), or the sale, transfer or other disposition of all or substantially all of the assets of the Corporation, shall be deemed to be a liquidation or dissolution of the Corporation for purposes of this Section 5.
6. Designation of Additional Series. The Corporation shall have the power to issue additional series of preferred stock which rank equal to or senior to the Class C Preferred Shares with respect to the payment of dividends and payment upon the liquidation of the Corporation, and to increase the number of authorized shares of any such series, without the vote or consent of the holders of the Class C Preferred Shares.
7. Redemption.
(a) At any time and from time to time, the Corporation shall have the right to purchase and redeem all or any portion of the then outstanding Class C Preferred Shares at the redemption price of Three Dollars ($3.00) for each outstanding Class C Preferred Share. If the Corporation purchases and redeems less than all of the then outstanding Class C Preferred Shares, such purchase and redemption shall be pro rata from each holder of Class C Preferred Shares, based on the number of Class C Preferred Shares then held by each.
(b) The Corporation shall purchase and redeem all of the then outstanding Class C Preferred Shares at the redemption price of Three Dollars ($3.00) for each outstanding Class C Preferred Share upon the earlier of (i) June 1, 2001, (ii) the completion by the Corporation of any single financing from the sale of Common Shares which results in net proceeds to the Corporation (determined by deducting selling commissions and all other costs
and expenses of the financing) of not less than Six Million Dollars
($6,000,000), (iii) the consolidation or merger of the Corporation with
another corporation (other than a wholly-owned subsidiary of the
Corporation) if the Corporation is not the surviving corporation, or (iv)
the sale of substantially all of the assets of the Corporation. Any
redemption required pursuant to item (i) above shall occur on or before
June 1, 2001, and any redemption required pursuant to item (ii), (iii) or
(iv) above shall occur within thirty (30) days after the event triggering
the redemption.
(c) The Corporation shall complete the redemption of Class C Preferred Shares as described in part (a) or (b) of this Section 7 by (i) notifying the holders of such outstanding Class C Preferred Shares of the date on which the shares will be redeemed, and (ii) depositing in trust with a bank or trust company located in the United States of America and having capital, surplus and undivided profits of at least Five Million Dollars ($5,000,000), within ten (10) days after the date of such notice, an amount in cash out of funds legally available therefor sufficient to redeem such Class C Preferred Shares called for redemption at the redemption price specified in this Section 7, with instructions and authority to such bank or trust company to pay the redemption price on or after the date fixed for redemption, upon surrender by such holders of the certificates evidencing the shares being redeemed, which certificates shall be properly endorsed in blank. If the certificates evidencing such shares are not surrendered, all rights with respect to such shares shall forthwith after such date cease and terminate, except only the right of the holders to receive the redemption price without interest upon surrender of their certificates therefor. Any funds deposited by the Corporation pursuant to this paragraph and unclaimed at the end of one year after the date fixed for redemption shall be repaid to the corporation upon its request expressed in a resolution of its Board of Directors, and thereafter the holders of shares so called for redemption shall be entitled to receive payment of the redemption price only from the Corporation. All Class C Preferred Shares which are in any manner redeemed or acquired by the Corporation shall be retired and canceled and none of such shares shall be reissued.
EXHIBIT 3.1
CERTIFICATE OF DESIGNATION
OF
CLASS D CONVERTIBLE PREFERRED STOCK
OF
LEARNING VENTURES INTERNATIONAL, INC.
I, Paul F. Clifford, the Secretary of Learning Ventures International, Inc., a Minnesota corporation (the "Corporation"), do hereby certify that at a meeting of the Board of Directors of the Corporation held on June 16, 1998, the following resolutions effecting the creation of a series of preferred stock designated as "Class D Convertible Preferred Stock" were duly approved by the Board of Directors of the Corporation and that such resolutions have not been subsequently modified or rescinded
RESOLVED, that the Corporation shall create a class of shares of preferred stock designated as "Class D Convertible Preferred Stock" and will reserve One Million Twenty Two Thousand Two Hundred Twenty Two (1,022,222) of the Corporation's authorized but unissued shares of preferred stock for issuance under such class.
FURTHER RESOLVED, that shares of the Class D Convertible Preferred Stock shall be entitled to the relative rights and preferences described in the attached Exhibit A.
I further certify that the document attached hereto and marked Exhibit A and entitled "Learning Ventures International, Inc. Certificate of Designation for Class D Convertible Preferred Stock" is a true and correct copy of the document referred to in the foregoing resolutions.
IN WITNESS WHEREOF, I have executed this certificate as of this 16th day of June, 1998.
s/s Paul F. Clifford ---------------------------- Paul F. Clifford, Secretary |
EXHIBIT 3.1
EXHIBIT A
LEARNING VENTURES INTERNATIONAL, INC.
CERTIFICATE OF DESIGNATION
FOR CLASS D CONVERTIBLE PREFERRED STOCK
1. Designation; Number of Shares; Par Value. A class of shares of preferred stock of Learning Ventures International, Inc. (the "Corporation") shall be designated as Class D Convertible Preferred Stock (the "Class D Preferred Shares"). The number of shares constituting the Class D Preferred Shares shall be One Million Twenty Two Thousand Two Hundred Twenty Two (1,022,222) shares. The Class D Preferred Shares shall have a par value of $4.50 per share.
2. Voting Rights. On all matters submitted to the shareholders, each holder of Class D Preferred Shares shall have one vote for each share of common stock of the Corporation which such holder of Class D Preferred Shares would be entitled to receive upon the conversion of such holder's Class D Preferred Shares pursuant to the provisions of Section 6. No holder of any Class D Preferred Shares shall have any cumulative voting rights.
3. No Preemptive Rights. Holders of Class D Preferred Shares shall not be entitled, as a matter of right, to subscribe for, purchase or receive any part of any stock of the Corporation of any class whatsoever, or of securities convertible into or exchangeable for any stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend.
4. Dividends. The Class D Preferred Shares shall rank equal to the Class B convertible preferred stock of the Corporation (the "Class B Preferred Shares"), senior to the Class A convertible preferred stock of the Corporation (the "Class A Preferred Shares"), senior to the Class C preferred stock of the Corporation (the "Class C Preferred Shares") and senior to the common stock of the Corporation (the "Common Shares") with respect to payment of dividends. Dividends shall be payable on Class D Preferred Shares out of funds legally available for the declaration of dividends only if and when declared by the Corporation's Board of Directors. However, in no event shall any dividend be paid on any Class B Preferred Shares, Class A Preferred Shares, Class C Preferred Shares, Common Shares or any other class of shares of the Corporation ranking equal to or junior to the Class D Preferred Shares unless equal or greater dividends are paid on the Class D Preferred Shares. All shares of stock of the Corporation shall be counted on an as-if-converted-to-Common-Shares basis in determining whether dividends paid on the Class D Preferred Shares are equal to or greater than the dividends paid on any other shares.
5. Liquidation Right and Preference. The Class D Preferred Shares shall rank equal to the Class B Preferred Shares, equal to the Class C Preferred Shares, senior to the Class A Preferred Shares and senior to the Common Shares with respect to the liquidation of the Corporation. In the event of the liquidation, dissolution or winding up or the Corporation, whether voluntary or involuntary, the holders of the Class D Preferred Shares shall be entitled to receive in cash, out of the assets of the Corporation, an amount equal to the par value of each outstanding Class D Preferred Share (i.e., $4.50 per share), plus all accumulated but unpaid dividends, before any payment shall be made or any assets distributed to the holders of Class A Preferred Series, Common Shares or any other class of shares of the Corporation ranking junior to the Class D Preferred Shares. If, upon any liquidation, dissolution or winding up of the Corporation, the assets of the Corporation are insufficient to pay the amounts described in the preceding sentence, the holders of the Class D Preferred Shares, Class B Preferred Shares, Class C Preferred Shares and any other class of shares of the Corporation ranking equal to the Class D Preferred Shares shall share pro rata in any such distribution in proportion to the full amounts to which they would otherwise be respectively entitled. Following such payment to the holders of Class D Preferred Shares, Class B Preferred Shares, Class C Preferred Shares and any other class of shares of the Corporation ranking equal to the Class D Preferred Shares upon such liquidation, dissolution or winding up of the Corporation, the holders of the Class A Preferred Shares, Common Shares and any other class of shares of the Corporation ranking junior to the Class D Preferred Shares shall then be entitled, to the exclusion of the holders of Class D Preferred Shares, to receive in cash or in kind, all remaining assets of the Corporation, if any.
The merger or consolidation of the Corporation into or with another corporation or the merger or consolidation of any other corporation into or with the Corporation (in which consolidation or merger the shareholders of the Corporation receive any distributions of cash or securities or other property as a result of such consolidation or merger), or the sale, transfer or other disposition of all or substantially all of the assets of the Corporation, shall be deemed to be a liquidation or dissolution of the Corporation for purposes of this Section 5.
6. Conversion into Common Shares.
(a) Optional Conversion. At the option of the holder thereof, all Class D Preferred Shares then held by such holder shall be convertible into Common Shares of the Corporation in accordance with the provisions and subject to the adjustments provided for in Section 6(c). In order to exercise the conversion privilege, a holder of Class D Preferred Shares shall surrender the certificate or certificates evidencing all Class D Preferred Shares then held by such holder to the Corporation at its principal office, duly endorsed to the Corporation and accompanied by written notice to the Corporation that the holder elects to convert all of such shares. Class D Preferred Shares converted at the option of the holder shall be deemed to have been converted on the day of surrender of the certificate representing such shares for conversion in accordance with the foregoing provisions, and at such time the rights of the holder of such Class D Preferred Shares shall cease and such holder shall be treated for all purposes as the record holder of Common Shares issuable upon conversion. As
promptly as practicable on or after the conversion date, the Corporation shall issue and mail or deliver to such holder a certificate or certificates for the number of Common Shares issuable upon conversion, computed to the nearest one hundredth of a full share.
(b) Automatic Conversion. The Class D Preferred Shares shall be automatically converted into Common Shares, (i) upon the election of the holders of a majority of the outstanding Class D Preferred Shares to convert their Class D Preferred Shares into Common Shares; or (ii) upon the election of the Corporation and delivery of written notice of such election to the holders of the Class D Preferred Shares (which election and notice shall be delivered within ninety (90) days before or after the automatic conversion event described below without affecting the effective time of such automatic conversion), if the Corporation closes the issuance and sale of Common Shares in one or more underwritten public offerings, pursuant to an effective registration statement under the Securities Act of 1933, as amended, in which the gross proceeds received by the Corporation and/or selling shareholders, if any, equal or exceed Twenty Million Dollars ($20,000,000) at an average price per Common Share of at least $5.40.
(c) Conversion Price and Adjustments. The number of Common Shares issuable in exchange for each Class D Preferred Share upon either optional or automatic conversion shall be equal to Four Dollars and Fifty Cents ($4.50) divided by the conversion price then in effect for Class D Preferred Shares (the "Class D Conversion Price"). The Class D Conversion Price shall initially be Four Dollars and Fifty Cents ($4.50), but such Class D Conversion Price shall be subject to adjustment from time to time, as hereinafter provided:
(i) In case the Corporation shall at any time subdivide or split its outstanding Common Shares into a greater number of shares or declare any dividend payable in Common Shares, the Class D Conversion Price in effect immediately prior to such subdivision, split or dividend shall be proportionately decreased, and conversely, in case the outstanding Common Shares of the Corporation shall be combined into a smaller number of shares, the Class D Conversion Price in effect immediately prior to such combination shall be proportionately increased.
(ii) If and whenever the Corporation shall issue or sell any Common Shares for a consideration per share less than the Class D Conversion Price then in effect (other than options issued and issuable under the Corporation's 1993 Stock Option Plan dated February 24, 1993, as amended through September 29, 1997 (the "Plan"), and shares issued and issuable upon exercise of such options; options for the issuance of up to five hundred thousand (500,000) additional shares issuable under any future amendment to the Plan or successor plan and shares issuable upon exercise of such options; options, warrants and rights to purchase shares outstanding or which the Corporation
has agreed to issue in writing prior to June 16, 1998 and shares
issuable upon the exercise or conversion thereof; and dividends
payable in Common Shares), or shall issue any options, warrants or
other rights for the purchase of such shares at a consideration per
share of less than the Class D Conversion Price then in effect, the
Class D Conversion Price in effect immediately prior to such
issuance or sale shall be adjusted and shall be equal to (A) the
Class D Conversion Price then in effect, multiplied by (B) a
fraction, the numerator of which shall be an amount equal to the sum
of (1) the number of Common Shares outstanding immediately prior to
such issuance or sale multiplied by the Class D Conversion Price
then in effect, and (2) the total consideration payable to this
Corporation upon such issuance or sale of such shares and such
purchase rights and upon the exercise of such purchase rights, and
the denominator of which shall be the amount determined by
multiplying (aa) the number of Common Shares outstanding immediately
after such issuance or sale plus the number of the Common Shares
issuable upon the exercise of any purchase rights thus issued, by
(bb) the Class D Conversion Price then in effect. If any options,
warrants or other purchase rights that are taken into account in any
such adjustment of the Class D Conversion Price subsequently expire
without exercise, the Class D Conversion Price shall be recomputed
by deleting such options, warrants or other purchase rights. If the
Class D Conversion Price is adjusted as the result of the issuance
of any options, warrants or other purchase rights, no further
adjustment of the Class D Conversion Price shall be made at the time
of the exercise of such options, warrants or other purchase rights.
(iii) The anti-dilution provisions of this section 6(c) may be waived by the affirmative vote of the holders (acting together as a class) of at least ninety percent (90%) of the then outstanding Class D Preferred Shares.
(d) Notice of Class D Conversion Price Adjustment. Upon any adjustment of the Class D Conversion Price, then and in each such case the Corporation shall give written notice thereof, by first-class mail, postage prepaid, addressed to the registered holders of Class D Preferred Shares at the addresses of such holders as shown on the books of this Corporation, which notice shall state the Class D Conversion Price resulting from such adjustment and the increase or decrease, if any, in the number of shares receivable at such price upon the Conversion of Class D Preferred Shares, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.
(e) Rights to Preconversion Distributions. The holders of Class D Preferred Shares shall have the following rights to certain properties received by the holders of Common Shares:
(i) In case the Corporation shall declare a dividend or distribution upon Common Shares payable other than in cash out of earnings or surplus or
other than in Common Shares, then thereafter each holder of Class D Preferred Shares upon the conversion thereof will be entitled to receive the number of Common Shares into which such Class D Preferred Shares shall be converted, and, in addition and without payment therefor, the property which such holder would have received as a dividend if continuously since the record date for any such dividend or distribution such holder (A) had been the record holder of the number of Common Shares then received, and (B) had retained all dividends or distributions in stock or securities payable in respect of such Common Shares or in respect of any stock or securities paid as dividends or distributions and originating directly or indirectly from such Common Shares.
(ii) Subject to the provisions of Section 5 regarding liquidation rights, if any capital reorganization or reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of Common Shares shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Shares, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, lawful and adequate provision shall be made whereby the holders of Class D Preferred Shares shall thereafter have the right to receive, in lieu of Common Shares of the Corporation immediately theretofore receivable upon the conversion of such Class D Preferred Shares, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding Common Shares equal to the number of Common Shares immediately theretofore receivable upon the conversion of such Class D Preferred Shares had such reorganization, reclassification, consolidation, merger or sale not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of the holders of the Class D Preferred Shares to the end that the provisions hereof (including without limitation provisions for adjustments of the Class D Conversion Price and of the number of shares receivable upon the conversion of such Class D Preferred Shares) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter receivable upon the conversion of such Class D Preferred Shares. The Corporation shall not effect any such reorganization, reclassification, consolidation, merger or sale, unless prior to the consummation thereof the surviving corporation (if other than the Corporation), the corporation resulting from such consolidation or the corporation purchasing such assets shall assume by written instrument executed and mailed to the registered holders of the Class D Preferred Shares at the last address of such holders appearing on the books of the Corporation, the obligation to deliver to such holders such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holders may be entitled to receive.
(f) Notice of Certain Events. In case any time:
(i) the Corporation shall pay any dividend payable in stock upon Common Shares or make any distribution (other than regular cash dividends) to the holders of Common Shares; or
(ii) the Corporation shall offer for subscription pro rata to the holders of Common Shares any additional shares of stock of any class or other rights; or
(iii) there shall be any capital reorganization, reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with, or sale of all or substantially all of its assets, to another corporation; or
(iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give written notice, by first-class mail, postage prepaid, addressed to the holders of Class D Preferred Shares at the addresses of such holders as shown on the books of the Corporation, of the date on which (A) the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights, or (B) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice also shall specify the date as of which the holders of Common Shares of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Shares for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. Such written notice shall be given at least thirty (30) days prior to the action in question and not less than thirty (30) days prior to the record date or the date on which the Corporation's transfer books are closed in respect thereto.
EXHIBIT 3.1
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
LEARNING VENTURES INTERNATIONAL, INC.
Learning Ventures International, Inc., a Minnesota corporation, hereby adopts and files with the Secretary of State these Articles of Amendment pursuant to Section 302A.139 of the Minnesota Business Corporation Act.
1. The name of the corporation is Learning Ventures International, Inc.
2. Article I of the Articles of Incorporation of Learning Ventures International, Inc. is hereby amended and restated in its entirety to read as follows:
ARTICLE I. NAME
The name of the corporation is Capella Education Company.
3. The other provisions of the Articles of Incorporation shall remain unchanged.
4. This amendment shall be effective June 1, 1999.
5. This amendment has been approved and adopted by the directors and shareholders of Learning Ventures International, Inc. as required by the Minnesota Business Corporation Act.
Date: May 28, 1999 LEARNING VENTURES INTERNATIONAL, INC. By /s/ Paul F. Clifford ----------------------- Its Secretary |
EXHIBIT 3.1
CAPELLA EDUCATION COMPANY
STATEMENT OF DESIGNATION
OF
RIGHTS, PREFERENCES AND LIMITATIONS
OF
SERIES E CONVERTIBLE PREFERRED STOCK
The undersigned, Stephen G. Shank, the Chief Executive Officer of Capella Education Company, a Minnesota corporation (the "Corporation"), does hereby certify that the following resolutions establishing Series E Convertible Preferred Stock of the Corporation, pursuant to Minnesota Statutes, Section 302A.401, were duly adopted on May 10, 2000 by a Stock Committee of the board of Directors of the Corporation duly authorized by the directors of the Corporation:
RESOLVED, there is hereby established a new class of Series E Convertible Preferred Stock of this Company with the rights, preferences and privileges as set forth in the Certificate of Designation attached hereto as Exhibit A to these resolutions (the "Certificate of Designation");
RESOLVED, that the appropriate officers of this Company are authorized and directed to make, execute and file with the Minnesota Secretary of State in the method required by law, the Certificate of Designation, and to take all other actions they may deem necessary or advisable to effect adoption of the Certificate of Designation; and
RESOLVED, that the officers of the Company, and each of them, be and hereby are authorized and directed, for and on behalf of the Company, to execute such documents and take such other action as they, and each of them, deem necessary, desirable and in the best interest of the Company to complete the transactions contemplated by the foregoing resolutions.
[remainder of page intentionally blank]
IN WITNESS WHEREOF, I have subscribed my name this 10th day of May, 2000.
/s/ Stephen G. Shank ----------------------------------------- Stephen G. Shank, President and Chief Executive Officer Capella Education Company |
EXHIBIT A
CAPELLA EDUCATION COMPANY
CERTIFICATE OF DESIGNATION
FOR CLASS E CONVERTIBLE PREFERRED STOCK
1. DESIGNATION; NUMBER OF SHARES; PAR VALUE.
A class of shares of preferred stock of Capella Education Company (the "Corporation") shall be designated as Class E Convertible Preferred Stock (the "Class E Preferred Stock"). The number of shares constituting the Class E Preferred Stock shall be Two Million Five Hundred Ninety-Six Thousand Four Hundred Ninety-One (2,596,491) shares. The Class E Preferred Stock shall have a par value of $.01 per share.
2. VOTING RIGHTS.
(a) GENERAL. On all matters submitted to the shareholders, each holder of Class E Preferred Stock shall have one vote for each share of common stock of the Corporation (the "Common Stock") which such holder of Class E Preferred Stock would be entitled to receive upon the conversion of such holder's Class E Preferred Stock pursuant to the provisions hereof. Except as otherwise provided herein, and except as otherwise required by agreement or law, the shares of capital stock of the Corporation shall vote as a single class on all matters submitted to the shareholders. No holder of any Class E Preferred Stock shall have any cumulative voting rights.
(b) ADDITIONAL CLASS VOTES BY CLASS E STOCK. Without the affirmative vote of the holders of a majority of the Class E Preferred Stock at the time outstanding at a meeting of the holders of Class E Preferred Stock called for such purpose or written consent of the holders (acting together as a class) of a majority of the Class E Preferred Stock at the time outstanding, the Corporation shall not:
(1) create, authorize or issue any shares of capital stock ranking senior to or having a priority over the Class E Preferred Stock as to the payment or distribution of dividends or of assets upon the liquidation, dissolution or winding up, voluntary or involuntary, of the Corporation; or
(2) amend, alter, modify or repeal any provision of the Articles of Incorporation of the Corporation so as to alter the rights and preferences of the Class E Preferred Stock; or
(3) redeem, repurchase or acquire (or make any payment into, or set aside, a sinking fund for such purposes) any of the Corporation's capital stock, except any such redemption, repurchase or acquisition which is:
(i) pursuant to mandatory redemption obligations set forth herein or in the Articles of Incorporation (including any certificate of designation) as of the date of filing of this Certificate of Designation;
(ii) Common Stock issued under employee benefit plans of the Corporation;
(iii) made pursuant to a repurchase agreement approved by the Board of Directors; or
(4) effect any acquisition of the Corporation by another entity by means of any transaction or series of related transactions with the Corporation (including, without limitation any merger, consolidation or recapitalization), which results in 50% or more of the voting capital stock of the Corporation being acquired by persons who were not shareholders of the Corporation prior to such transaction or series of transactions, unless such acquisition provides for the exchange or payment of consideration in respect of each share of Class E Preferred Stock, or the shares of Common Stock or other securities into which a share of Class E Preferred Stock is then convertible, having a value equal to or greater than $42.75 (subject to appropriate adjustments for stock dividends, stock splits, combinations and similar recapitalization affecting the Class E Preferred Stock) (a "Qualified Amount"); or
(5) effect any sale or other disposition of all or substantially all of the assets of the Corporation, unless such sale, if followed by an immediate liquidation, would result in distributable proceeds in respect of each share of Class E Preferred Stock, or the shares of Common Stock or other securities into which a share of Class E Preferred Stock is then convertible, in a Qualified Amount; or
(6) effect the liquidation or dissolution of the Company, unless such liquidation or dissolution would result in distributable proceeds in respect of each share of Class E Preferred Stock, or the shares of Common Stock or other securities into which a share of Class E Preferred Stock is then convertible, in a Qualified Amount.
(c) VALUATION OF NON-CASH CONSIDERATION. In connection with any transaction set forth in Section 2(b) above involving the receipt of consideration or proceeds in a form other than cash, the fair market value of such non-cash consideration or proceeds shall be utilized in determining whether such transaction must be approved by the holders of Class E Preferred Stock pursuant to Section 2(b). The fair market value of any non-cash consideration will be determined as follows:
(i) the fair market value of stock and other securities that are publicly traded shall be the average of the last closing market price of such stock or securities on each of the ten trading days ending five business days
prior to the execution by the Company of a definitive agreement, or adoption by the Board of Directors of the Company of any plan, relating to such transaction (the "Time of Determination");
(ii) the fair market value of stock and other equity securities that are not publicly traded and the value of all other non-cash consideration, other than consideration of the nature described in clause (iii) below, shall be the fair market value thereof at the Time of Determination as mutually agreed by the Company and a director designated to serve on the Board of Directors by a holder of Class E Preferred Stock (a "Class E Director"), or if the Company and a Class E Director are unable to reach an agreement within five business days of receipt of written notice from the Company of such transaction by the Class E Director, as determined by an investment banking firm or other person experienced in valuing such stock, equity securities or other non-cash consideration mutually acceptable to a Class E Director and the Company, or if they are unable to agree, or there exists no such Class E Director, then a nationally recognized investment banking firm selected in good faith by the Board of Directors of the Company; or
(iii) the value of any promissory note or other debt instrument that is not publicly traded and the value of any and all deferred installments of the consideration and any other deferral of payments included in the total consideration shall be deemed to be the face amount of the promissory notes or other debt instruments or the total amount of payments that are deferred with respect to deferred obligations that are not evidenced by promissory notes or other debt instruments.
A security is "publicly traded" if such security is part of a class of securities that is listed on the New York or American stock exchanges (or on a foreign stock exchange of comparable depth and liquidity) or is traded on the NASDAQ Stock Market.
(d) MEETINGS. A proper officer of the Corporation may, and upon the
written request of the holders of record of at least twenty-five percent (25%)
of the shares of Class E Preferred Stock then outstanding addressed to the
Secretary of the Corporation shall, call a special meeting of the holders of
Class E Preferred Stock, for the purpose of holding a class vote pursuant to
Section 2(b). If such meeting shall not be called by a proper officer of the
Corporation within twenty (20) days after personal service of said written
request upon the Secretary of the Corporation, or within twenty (20) days after
mailing the same within the United States by certified mail, addressed to the
Secretary of the Corporation at its principal executive offices, then the
holders of record of at least twenty-five percent (25%) of the outstanding
shares of Class E Preferred Stock may designate in writing one of their number
to call such meeting at the expense of the Corporation, and such meeting may be
called by the person so designated upon the notice required for the annual
meeting of stockholders of the Corporation and shall be held at the place for
holding the annual meetings of stockholders.
3. NO PREEMPTIVE RIGHTS.
Holders of Class E Preferred Stock shall not be entitled, as a matter of right, to subscribe for, purchase or receive any part of any stock of the Corporation of any class whatsoever, or of securities convertible into or exchangeable for, or otherwise creating a right to acquire, any stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend. Nothing herein shall limit the power of the Corporation to grant any of the foregoing rights to persons by contract or otherwise.
4. DIVIDENDS.
In the event any dividend or distribution is declared or made with respect to outstanding shares of any class of capital stock, a comparable dividend or distribution must be simultaneously declared or made with respect to the outstanding shares of Class E Preferred Stock. In the event any dividend or distribution is declared or made with respect to the Common Stock or any class of capital stock convertible or exchangeable into Common Stock of the Corporation, each holder of shares of Class E Preferred Stock (and any other holder of capital stock so convertible or exchangeable and entitled to payment of such dividend or distribution) shall be paid such comparable dividend or receive such comparable distribution on the basis of the number of shares of Common Stock into which such holder's shares of capital stock are then convertible on the date established as the record date with respect to such dividend or distribution. In case any portion of the dividend or distribution declared or made by the Corporation shall be in a form other than cash, the fair market value of such non-cash portion, as determined in good faith by the Board of Directors of the Company, shall be utilized in determining the comparable dividend or distribution to be declared or made with respect to the outstanding shares of Class E Preferred Stock.
5. LIQUIDATION RIGHT AND PREFERENCE.
In the event of the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (a "Liquidation Event"), the holders of the Class E Preferred Stock shall be entitled to receive, in respect of each share of Class E Preferred Stock, the greater of (i) the amount of $14.25 (subject to appropriate adjustment for any stock dividends, combinations or splits with respect to such share), plus the aggregate amount of all declared but unpaid dividends on such share of Class E Preferred Stock (the "Class E Preference Amount") or (ii) the aggregate amount that would be payable in the Liquidation Event in respect of the share or shares of Common Stock into which such share of Class E Preferred Stock would be convertible if all of the holders were to convert their shares of Class E Preferred Stock into shares of Common Stock immediately prior to the Liquidation Event, and the Class E Preference Amount was not paid in preference to any class of Junior Stock, as hereafter provided.
Upon occurrence of a Liquidation Event, the holders of then outstanding shares of Class B Convertible Preferred Stock ("Class B Preferred Stock"), Class C Preferred Stock, Class D Convertible Preferred Stock ("Class D Preferred Stock"), Class E Preferred Stock and any other class of capital stock hereafter established ranking on a parity in such Liquidation Event with the Class B Preferred Stock, Class C, Class D Preferred Stock and Class E Preferred Stock (collectively, "Parity Stock") shall be entitled to be paid as to each share of such Parity Stock, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Class A Convertible Preferred Stock ("Class A Preferred Stock"), Common Stock or any other class or series of capital stock hereafter established ranking junior in a Liquidation Event to the Parity Stock (collectively, "Junior Stock"), and after distribution of any of the assets of the Corporation, to the extent of the liquidation preference applicable thereto, to the holders of any class or series of capital stock hereafter established ranking senior in a Liquidation Event to the Parity Stock (collectively "Senior Stock"), out of assets available for distribution, an amount, plus the aggregate amount of all declared but unpaid dividends on such shares, equal to $2.50 per share in the case of the Class B Preferred Stock (the "Class B Preference Amount"), $3.00 per share in the case of the Class C Preferred Stock (the "Class C Preference Amount"), $4.50 per share in the case of the Class D Preferred Stock (the "Class D Preference Amount") (subject, in each case, to appropriate adjustment for any stock dividends, combinations or splits with respect to each share), the Class E Preference Amount in the case of the Class E Preferred Stock, and, in the case of any other Parity Stock, such amount as shall be specified in the applicable Certificate of Designation (the "Parity Preference Amount", and, together with the Class B Preference Amount, Class C Preference Amount, Class D Preference Amount and Class E Preference Amount, collectively, the "Parity Preference Amounts").
If, upon any Liquidation Event, the remaining assets of the Corporation available for distribution to the holders of Parity Stock are insufficient to pay the holders of Parity Stock their full Parity Preference Amounts to which they are entitled, the holders of Parity Stock shall share pro rata in any such distribution in proportion to the full Parity Preference Amounts to which they would otherwise be respectively entitled.
Following such payment of Parity Preference Amounts to the holders of Parity Stock, and payment to the holders of any Senior Stock of any preferential amount to which they are entitled, the holders of the Junior Stock shall then be entitled, to the exclusion of the holders of Parity Stock or Senior Stock, to receive in cash or in kind, all remaining assets of the Corporation, if any, in accordance with their relative priorities in a Liquidation Event.
6. CONVERSION INTO COMMON STOCK.
(a) OPTIONAL CONVERSION. At the option of the holder thereof, any or all Class E Preferred Stock then held by such holder shall be convertible into Common Stock of the Corporation in accordance with the provisions and subject to the adjustments provided for in Section 6(c). In order to exercise the conversion privilege, a holder of Class E Preferred Stock shall surrender the certificate or certificates duly endorsed to the Corporation evidencing the shares of Class E Preferred Stock each holder wishes to convert to the
Corporation at its principal office and accompanied by written notice to the
Corporation that the holder elects to convert all of such shares. Any shares of
Class E Preferred Stock converted at the option of the holder shall be deemed to
have been converted on the day of surrender of the certificate representing such
shares for conversion in accordance with the foregoing provisions, and at such
time the rights of the holder of such Class E Preferred Stock with respect to
such shares shall cease and such holder shall be treated as the record holder of
the number of shares of Common Stock issuable upon conversion. As promptly as
practicable on or after the conversion date, the Corporation shall issue and
mail or deliver to such holder (i) a certificate or certificates for the number
of Common Stock issuable upon conversion, computed to the nearest one hundredth
of a full share, (ii) any cash adjustment required pursuant to Section 6(f), and
(iii) in the event of a conversion in part, a certificate or certificates for
the whole number of shares of Class E Preferred Stock not being so converted.
(b) AUTOMATIC CONVERSION. The Class E Preferred Stock shall automatically be converted into Common Stock of the Corporation, without any act by the Corporation or the holders of the Class E Preferred Stock, concurrently with the closing of the first public offering by the Corporation of shares of Common Stock of the Corporation registered under the Securities Act of 1933, as amended, in which (1) the aggregate gross public offering price of the securities sold for cash by the Corporation in the offering is at least $30.0 million, or such lower amount as may be approved by the holders of a majority of the shares of Class E Preferred Stock then outstanding, and (2) the public offering price per share of Common Stock is at least $28.50 (as adjusted from time to time to reflect stock splits, dividends, recapitalizations, combinations or the like), or such lower amount as may be approved by the holders of a majority of the shares of Class E Preferred Stock then outstanding. Each holder of a share of Class E Preferred Stock so converted shall be entitled to receive the full number of shares of Common Stock into which such share of Class E Preferred Stock held by such holder could be converted if such holder had exercised its conversion right at the time of closing of such public offering. Upon such conversion, each holder of a share of Class E Preferred Stock shall immediately surrender such share in exchange for (i) appropriate stock certificates representing a share or shares of Common Stock of the Corporation, and (ii) any cash adjustment required pursuant to Section 6(f).
(c) CONVERSION PRICE AND ADJUSTMENTS. The number of shares of Common Stock issuable in exchange for each share of Class E Preferred Stock upon either optional or automatic conversion shall be equal to $14.25 divided by the conversion price then in effect for Class E Preferred Stock (the "Class E Conversion Price"). The Class E Conversion Price shall initially be $14.25, but such Class E Conversion Price shall be subject to adjustment from time to time, as hereinafter provided:
(i) In case the Corporation shall at any time (A) declare a dividend or make a distribution on Common Stock payable in Common Stock (other than dividends or distributions payable to holders of the Series E Preferred Stock including dividends paid as contemplated by Section 4), (B) subdivide or split the outstanding Common Stock, (C) combine or reclassify the outstanding Common Stock into a
smaller number of shares, (D) issue any shares of its capital stock in a
reclassification of Common Stock (including any such reclassification in
connection with a consolidation or merger in which the Corporation is the
continuing corporation), or (E) consolidate with, or merge with or into,
any other person, the Class E Conversion Price in effect (and, where
appropriate, the securities into which the Class E Preferred Stock are
then convertible) at the time of the record date for such dividend or
distribution or on the effective date of such subdivision, split,
combination, consolidation, merger or reclassification shall be adjusted
so that the conversion of the Class E Preferred Stock after such time
shall entitle the holder to receive the aggregate number of shares of
Common Stock or other securities of the Corporation (or other securities
into which such shares of Common Stock have been converted, exchanged,
combined, consolidated, merged or reclassified pursuant to clause
6(c)(i)(C), 6(c)(i)(D) or 6(c)(i)(E) above) which, if the Class E
Preferred Stock had been converted immediately prior to such time, such
holder would have owned upon such conversion and been entitled to receive
by virtue of such dividend, distribution, subdivision, split, combination,
consolidation, merger or reclassification. Such adjustment shall be made
successively whenever an event listed above shall occur.
(ii) If and whenever the Corporation shall issue or sell any Common Stock for a consideration per share less than the Class E Conversion Price then in effect, or shall issue any options, warrants or other rights for the purchase of such shares at a consideration per share of less than the Class E Conversion Price then in effect (other than securities subject to Section 6(c)(i) hereof; options issued as of April 20, 2000 under existing stock option plans of the Corporation, and 730,729 shares issuable upon exercise of such options; options for the issuance of up to 533,137 additional shares under any existing stock option plan of the Corporation and shares issuable upon exercise of such options; warrants to purchase 198,960 shares outstanding as of April 20, 2000, warrants to purchase 135,088 shares to be issued in connection with the issuance of the Class E Preferred Stock and shares issuable upon the exercise thereof; 2,810,000 shares of Class A Preferred Stock, 460,000 shares of Class B Preferred Stock, 1,022,222 shares of Class D Preferred Stock and shares issuable upon conversion thereof; shares issued to the employee stock ownership plan of the Corporation, provided such contribution is approved by the compensation committee of the Board of Directors of the Corporation and does not exceed that number of shares the fair market value of which is three percent (3%) of annual compensation (as measured by applicable benefit plan rules) (any of the foregoing share amounts shall be subject to appropriate adjustment from time to time to reflect stock splits, dividends, recapitalizations, combinations or the like)), the Class E Conversion Price in effect immediately prior to such issuance or sale shall be reduced to an amount determined by multiplying (A) the Class E Conversion Price then in effect, and (B) a fraction, the numerator of which shall be an amount equal to the sum of (1) the number of shares of Common Stock outstanding immediately prior to such issuance or sale multiplied by the Class E Conversion Price then in effect, and (2) the total consideration payable to this Corporation upon such issuance or sale of such shares and such purchase rights and upon the exercise of such purchase rights, and the
denominator of which shall be the amount determined by multiplying (aa) the number of shares of Common Stock outstanding immediately after such issuance or sale plus the number of shares of Common Stock issuable upon the exercise of any purchase rights thus issued, by (bb) the Class E Conversion Price then in effect. In case any portion of the consideration to be received by the Corporation shall be in a form other than cash, the fair market value of such non-cash consideration, as determined in good faith by the Board of Directors of the Company, shall be utilized in the foregoing computation.
For purposes of this Section 6(c), "Common Stock outstanding" shall include, in addition to Common Stock issued and outstanding, those shares of Common Stock issuable upon conversion of outstanding shares of Preferred Stock and Common Stock issuable upon the exercise, exchange or conversion of any other outstanding right to acquire Common Stock.
If any options, warrants or other purchase rights that are taken into account in any such adjustment of the Class E Conversion Price subsequently expire without exercise, the Class E Conversion Price shall be recomputed by deleting such expired options, warrants or other purchase rights. If the Class E Conversion Price is adjusted as the result of the issuance of any options, warrants or other purchase rights, no further adjustment of the Class E Conversion Price shall be made at the time of the exercise of such options, warrants or other purchase rights.
(iii) In case the Corporation shall fix a record date for the
issuance on a pro rata basis of rights, options or warrants to the holders
of its Common Stock or other securities entitling such holders to
subscribe for or purchase shares of Common Stock (or securities
convertible into or exercisable or exchangeable for shares of Common
Stock) at a price per share of Common Stock (or having a conversion,
exercise or exchange price per share of Common Stock, in the case of a
security convertible into, or exercisable or exchangeable for, shares of
Common Stock) less than the Class E Conversion Price on such record date,
the maximum number of shares of Common Stock issuable upon exercise of
such rights, options or warrants (or conversion of such convertible
securities) shall be deemed to have been issued and outstanding as of such
record date and the Class E Conversion Price shall be adjusted pursuant to
Section 6(c)(ii) hereof, as though such maximum number of shares of Common
Stock had been so issued for an aggregate consideration payable by the
holders of such rights, options, warrants or other securities prior to
their receipt of such shares of Common Stock. In case any portion of such
consideration shall be in a form other than cash, the fair market value of
such non-cash consideration shall be determined as set forth in Section
6(c)(ii) hereof. Such adjustment shall be made successively whenever such
record date is fixed; and in the event that such rights, options or
warrants are not so issued or expire in whole or in part unexercised, or
in the event of a change in the number of shares of Common Stock to which
the holders of such rights, options or warrants are entitled (other than
pursuant to adjustment provisions therein comparable to those contained in
this Section 6(c)), the Class E
Conversion Price shall again be adjusted as follows: (A) in the event that
all of such rights, options or warrants expire unexercised, the Class E
Conversion Price shall be the Class E Conversion Price that would then be
in effect if such record date had not been fixed; (B) in the event that
less than all of such rights, options or warrants expire unexercised, the
Class E Conversion Price shall be adjusted pursuant to Section 6(c)(ii) to
reflect the maximum number of shares of Common Stock issuable upon
exercise of such rights, options or warrants that remain outstanding
(without taking into effect shares of Common Stock issuable upon exercise
of rights, options or warrants that have lapsed or expired); and (C) in
the event of a change in the number of shares of Common Stock to which the
holders of such rights, options or warrants are entitled (other than
pursuant to adjustment provisions therein comparable to those contained in
this Section 6(c)), the Class E Conversion Price shall be adjusted to
reflect the Class E Conversion Price which would then be in effect if such
holder had initially been entitled to such changed number of shares of
Common Stock. Notwithstanding anything herein to the contrary, no further
adjustment to the Class E Conversion Price shall be made upon the issuance
or sale of Common Stock upon the exercise of any rights, options or
warrants to subscribe for or purchase Common Stock, if any adjustment in
the Class E Conversion Price was made or required to be made upon the
record date for the issuance or sale of such rights, options or warrants
under this Section 6(c)(iii). Notwithstanding anything herein to the
contrary, no adjustment in the Class E Conversion Price shall be made
under this Section 6(c)(iii) to the extent the holders of Class E
Preferred Stock participate in any such distribution in accordance with
Section 4 hereof.
(iv) The anti-dilution provisions of this Section 6(c) may be waived by the affirmative vote of the holders (acting together as a class) of a majority of the then outstanding Class E Preferred Stock.
(d) NOTICE OF CLASS E CONVERSION PRICE ADJUSTMENT. Upon any adjustment of the Class E Conversion Price, then and in each such case the Corporation shall give written notice thereof, by first-class mail, postage prepaid, addressed to the registered holders of Class E Preferred Stock at the addresses of such holders as shown on the books of this Corporation, which notice shall state the Class E Conversion Price resulting from such adjustment and the increase or decrease, if any, in the number of shares receivable at such price upon the conversion of Class E Preferred Stock, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.
(e) NOTICE OF CERTAIN EVENTS. In case any time:
(i) the Corporation shall pay any dividend payable in stock upon Common Stock or make any distribution (other than regular cash dividends) to the holders of Common Stock; or
(ii) the Corporation shall offer for subscription pro rata to the holders of Common Stock any additional shares of stock of any class or other rights; or
(iii) there shall be any capital reorganization, reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with, or sale of all or substantially all of its assets to another corporation; or
(iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give written notice, by first-class mail, postage prepaid, addressed to the holders of Class E Preferred Stock at the addresses of such holders as shown on the books of the Corporation, of the date on which (A) the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights, or (B) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice also shall specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. Such written notice shall be given at least thirty (30) days prior to the action in question and not less than thirty (30) days prior to the record date or the date on which the Corporation's transfer books are closed in respect thereto.
(f) FRACTIONAL SHARES. In connection with the conversion of any shares of Class E Preferred Stock, no fractions of shares of Common Stock shall be required to be issued to the holder of such shares of Class E Preferred Stock, but in lieu thereof the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest multiplied by the Conversion Price per share of Common Stock on the business day next preceding the business day on which such shares of Class E Preferred Stock are deemed to have been converted.
(g) RESERVATION OF SHARES.
(i) The Corporation covenants that it will at all times reserve and keep available, free from preemptive rights, such number of its authorized but unissued shares of Common Stock as shall be required for the purpose of effecting conversions of the Class E Preferred Stock.
(ii) Prior to the delivery of any securities which the Corporation shall be obligated to deliver upon conversion of the Class E Preferred Stock, the Corporation shall comply with all applicable federal and state laws and regulations which require action to be taken by the Corporation.
(h) TRANSFER TAXES. The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversion of the Class E Preferred Stock pursuant hereto; provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the holder of the Class E Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
7. OPTIONAL REDEMPTION AT THE ELECTION OF THE HOLDERS OF CLASS E PREFERRED STOCK.
(a) ELECTION.
(i) At any time and from time to time after the seventh anniversary of the original issue date of the shares of Class E Preferred Stock, the holders of the then outstanding shares of the Class E Preferred Stock shall have the option, exercisable by the holders of not less than 25% (in the aggregate) of the then outstanding shares of the Class E Preferred Stock, voting as a single class, by giving a written notice to the Corporation (the "Redemption Notice"), to require the Corporation to redeem any or all of the shares of such Class E Preferred Stock of such holders then outstanding. Upon the affirmative vote by the holders of a majority of the outstanding shares of Class E Preferred Stock, the holders of all outstanding shares of Class E Preferred Stock will be required to have such shares redeemed (a "Mandatory Redemption").
(ii) Within five (5) days after receiving the Redemption
Notice, the Corporation shall send a copy of such notice to all other
holders of record of the Class E Preferred Stock. Such other holders may
elect to participate in the Redemption Notice by notifying the Corporation
in writing within ten (10) days after receiving a copy of the Redemption
Notice from the Corporation. Upon receipt of such Redemption Notice, the
Board shall within thirty (30) days specify a date on which the redemption
of such shares provided herein will take place (the "Redemption Date"),
which shall be no less than forty-five (45) days and no more than ninety
(90) days after receipt of the Redemption Notice.
(iii) The Corporation shall have no obligation to honor more than two (2) redemption requests of the holders of shares of Class E Preferred Stock.
(b) REDEMPTION PRICE. The redemption price for each share of the Class E Preferred Stock (the "Redemption Price") shall be $14.25 (subject to adjustment from time to time to reflect stock splits, dividends, recapitalizations, combinations or the like), plus an amount equal to all declared but unpaid dividends, if any, payable with respect to such share.
(c) NOTIFICATION. At least fifteen (15) days prior to the Redemption Date, the Corporation shall mail written notice by first class mail, postage prepaid, to each holder of record of the Class E Preferred Stock who sought redemption, at its address last shown on the records of the Corporation, notifying such holder of such redemption, specifying the Redemption Date, the Redemption Price and the date on which such holder's conversion rights as to such shares terminate and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, his, or its certificate or certificates representing the shares to be redeemed (such notice, the "Closing Notice").
(d) SURRENDER AND PAYMENT. On or prior to the Redemption Date, each holder of shares of Class E Preferred Stock to be redeemed shall surrender its certificate or certificates representing such shares to the Corporation, in the manner and at the place designated in the Closing Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. The Redemption Price due to each holder shall be payable, from any source of funds legally available therefor, by delivery on the Redemption Date of a certified or bank cashier's check in an amount equal to the aggregate Redemption Price due to such holder. From and after the date a holder of shares of the Class E Preferred Stock has received payment in full by receipt of cash, all rights of such holder with respect to such Class E Preferred Stock so redeemed shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.
(e) INSUFFICIENT FUNDS. If, on any Redemption Date, funds of the Corporation legally available therefor shall be insufficient to redeem all of the shares of Class E Preferred Stock required to be redeemed, funds to the extent legally available shall be used to redeem the maximum possible number of such shares ratably on the basis of the relative value of such shares based on the Redemption Prices of such shares on such date if the funds of the Corporation legally available therefore had been sufficient to redeem all shares required to be redeemed on such date. Thereafter, the Corporation shall use its best efforts to obtain sufficient funds to redeem the balance of such shares. When additional funds of the Corporation become legally available for the redemption of the balance of such shares, such additional funds will be used to redeem at the Redemption Price (together with interest at the annual rate of 9%) the balance of the shares which the Corporation was therefore obligated to redeem, ratably on the basis set forth in the preceding sentence. Notwithstanding anything herein to the contrary, if the Redemption Price is not paid when due, all powers, preferences, rights, qualifications, limitations and restrictions (including, without limitation, dividend rights, conversion rights, and liquidation preferences, and voting rights) with respect to shares surrendered for redemption, but not actually redeemed, shall continue until the Redemption Price is paid in full.
(f) REISSUE. Any shares of Class E Preferred Stock redeemed pursuant to this Section 7 shall permanently be retired, shall no longer be deemed outstanding and shall not under any circumstances be reissued as Class E Preferred Stock, but shall instead have
the status of authorized Open Term Preferred Stock, as defined in the Corporation's Restated Articles of Incorporation.
8. OPTIONAL REDEMPTION AT THE ELECTION OF THE CORPORATION.
(a) ELECTION. At any time and from time to time after the seventh
anniversary of the original issue date of the shares of Class E Preferred Stock,
to the extent the Corporation shall have funds legally available for such
payment, and subject to the rights of the holders pursuant to Section 6 hereof,
the Corporation shall have the right to purchase and redeem all or any portion
of the then outstanding shares of Class E Preferred Stock. The Board of
Directors shall specify a Redemption Date, which shall be not less than thirty
(30) days nor more than sixty (60) days from the date the Corporation shall mail
a Closing Notice to the holders of Class E Preferred Stock.
(b) REDEMPTION PRICE. The redemption price for each share of Class E Preferred Stock redeemed pursuant to this Section 8 shall be the Redemption Price, plus an amount equal to all declared but unpaid dividends, if any, payable with respect to such share.
(c) SURRENDER AND PAYMENT. On or prior to the Redemption Date, each holder of shares of Class E Preferred Stock to be redeemed shall surrender its certificate or certificate representing such shares to the Corporation, in the manner and at the place designated in the Closing Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. The Redemption Price due to each holder shall be payable, from any source of funds legally available therefor, by delivery on the Redemption Date of a certified or bank cashier's check in an amount equal to the aggregate Redemption Price due to such holder. From and after the date a holder of shares of the Class E Preferred Stock has received payment in full by receipt of cash, all rights of such holder with respect to such Class E Preferred Stock so redeemed shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.
(d) PARTIAL REDEMPTION. In the event of a redemption of less than all of the outstanding shares of Class E Preferred Stock pursuant to the first paragraph of this Section 8, redemption as among the holders of such shares of Class E Preferred Stock shall be on a pro rata basis.
(e) REISSUE. Any shares of Class E Preferred Stock redeemed pursuant to this Section 8 shall permanently be retired, shall no longer be deemed outstanding and shall not under any circumstances be reissued as Class E Preferred Stock, but shall instead have the status of authorized Open Term Preferred Stock, as defined in the Corporation's Restated Articles of Incorporation.
STATEMENT OF CANCELLATION
OF
CAPELLA EDUCATION COMPANY
The undersigned officer of Capella Education Company (the "Corporation") hereby certifies that:
1. The name of the Corporation is Capella Education Company.
2. The Corporation has repurchased and canceled 54,929 Shares of Class C Preferred Stock of the Corporation.
2. There are currently no shares of Class C Preferred Stock outstanding.
3. The 54,929 shares formerly designated as Class C Preferred Stock shall be canceled and not subject to reissue.
4. After giving effect to the cancellation, the Company shall be authorized to issue shares in the amount and class as follows:
10,000,000 Common Stock 3,000,000 Class A Convertible Preferred Stock 1,180,000 Class B Convertible Preferred Stock 71 Class C Preferred Stock 1,022,222 Class D Convertible Preferred Stock 2,596,491 Class E Convertible Preferred Stock 5,146,287 Preferred Stock (undesignated as to class or series)
IN WITNESS WHEREOF, the undersigned has executed this statement of cancellation this 6th day of June, 2001.
CAPELLA EDUCATION COMPANY
By: /s/ Paul F. Clifford -------------------------------------- Its: Corporate Secretary |
ARTICLES OF AMENDMENT
OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CAPELLA EDUCATION COMPANY
The undersigned, Paul F. Clifford, Secretary of Capella Education Company, a Minnesota corporation, (the "Corporation"), hereby certifies that:
(i) The name of the Corporation is Capella Education Company.
(ii) Article 3 Section 1 (A) of the Corporation's Amended and Restated Articles of Incorporation has been amended to read in its entirety as follows:
"(A) Authorized Capital Stock. The aggregate number of shares which the Corporation has the authority to issue is twenty-eight million (28,000,000) shares, fifteen million (15,000,000) of which shall be designated common shares, $.10 par value (the "Common Shares") and three million (3,000,000) of which shall be designated Class A convertible preferred shares, $1.00 par value (the "Class A Preferred Shares"). The Common Shares and the Class A Preferred Shares are herein sometimes referred to collectively as "Capital Stock." Additionally, the Board of Directors of the Corporation is hereby authorized to cause to be issued from time to time, by resolution or resolutions adopted by such Board, an additional ten million (10,000,000) preferred shares (the "Open Term Preferred Shares")."
(iii) The foregoing amendment has been adopted pursuant to Chapter 302A of the Minnesota Statutes.
IN WITNESS WHEREOF, I have subscribed my name this 6th day of July, 2001.
/s/ Paul F. Clifford -------------------------------- Paul F. Clifford, Secretary |
STATEMENT OF CANCELLATION
OF THE STATEMENT FIXING THE RIGHTS AND PREFERENCES
OF THE CLASS C PREFERRED STOCK
OF
CAPELLA EDUCATION COMPANY
The undersigned officer of Capella Education Company (the "Company") hereby certifies that:
1. The name of the Company is Capella Education Company.
2. The Company's Board of Directors has directed that the statement fixing the rights and preferences of the Company's Class C Preferred Stock be canceled pursuant to Section 302A.133 of the Minnesota Statutes.
3. There are currently no shares of Class C Preferred Stock outstanding.
4. The 71 shares formerly designated as Class C Preferred Stock shall have the status of authorized but unissued, undesignated preferred shares.
5. After giving effect to the cancellation, the Company shall be authorized to issue shares in the amount and class as follows:
15,000,000 Common Stock
3,000,000 Class A Convertible Preferred Stock
1,180,000 Class B Convertible Preferred Stock
1,022,222 Class D Convertible Preferred Stock
2,596,491 Class E Convertible Preferred Stock
5,146,358 preferred shares (undesignated as to class or series)
IN WITNESS WHEREOF, the undersigned has executed this statement of cancellation this 22nd day of January, 2002.
CAPELLA EDUCATION COMPANY
By: /s/ Paul Schroeder -------------------------------- Its: SVP & CFO |
CAPELLA EDUCATION COMPANY
STATEMENT OF DESIGNATION
OF
RIGHTS, PREFERENCES AND LIMITATIONS
OF
CLASS F CONVERTIBLE PREFERRED STOCK
The undersigned, Paul Schroeder, the Senior Vice President of Capella Education Company, a Minnesota corporation (the "Corporation"), hereby certifies that the following resolutions establishing Class F Convertible Preferred Stock of the Corporation pursuant to Minnesota Statutes, Section 302A.401 were duly adopted by the directors of the Corporation on January 31, 2002:
RESOLVED, that (i) the form of the Certificate of Designation for
the Class F Convertible Preferred Stock (the "Certificate of Designation")
attached hereto as Exhibit B is hereby authorized and approved; (ii) there
is hereby established a new Class F Convertible Preferred Stock of this
Company with the rights, preferences and privileges as set forth in the
Certificate of Designation; (iii) the appropriate officers of this Company
are authorized and directed to make, execute and file with the Minnesota
Secretary of State in the method required by law, the Certificate of
Designation, in substantially the form approved hereby, with such changes,
deletions and insertions as any of such officers shall approve, the
execution and filing of the Certificate of Designation by any of the
officers of the Company being conclusive evidence of such approval, and
(iv) each of the officers of the Company is hereby authorized to take all
other actions they may deem necessary or advisable to effect adoption of
the Certificate of Designation.
RESOLVED FURTHER, that the officers of the Company, and each of them, are authorized for and on behalf of the Company, to execute and deliver such other instruments or documents and to take such other actions as they, or any of them, may deem necessary or advisable to carry out the purposes of the foregoing resolutions.
[remainder of page intentionally blank]
IN WITNESS WHEREOF, I have subscribed my name this 7th day of February, 2002.
/s/ Paul Schroeder ------------------------------------ Paul Schroeder, Senior Vice President Capella Education Company |
EXHIBIT B
CAPELLA EDUCATION COMPANY
CERTIFICATE OF DESIGNATION
FOR CLASS F CONVERTIBLE PREFERRED STOCK
1. DESIGNATION; NUMBER OF SHARES; PAR VALUE.
A class of shares of preferred stock of Capella Education Company (the "Corporation") shall be designated as Class F Convertible Preferred Stock (the "Class F Preferred Stock"). The number of shares constituting the Class F Preferred Stock shall be 1,425,457. The Class F Preferred Stock shall have a par value of $.01 per share.
2. VOTING RIGHTS.
(a) GENERAL. On all matters submitted to the shareholders, each holder of Class F Preferred Stock shall have one vote for each share of common stock of the Corporation (the "Common Stock") which such holder of Class F Preferred Stock would be entitled to receive upon the conversion of such holder's Class F Preferred Stock pursuant to the provisions hereof. Except as otherwise provided herein, and except as otherwise required by agreement or law, the shares of capital stock of the Corporation shall vote as a single class on all matters submitted to the shareholders. No holder of any Class F Preferred Stock shall have any cumulative voting rights.
(b) ADDITIONAL CLASS VOTES BY CLASS F STOCK. Without the affirmative vote of the holders of a majority of the Class F Preferred Stock at the time outstanding at a meeting of the holders of Class F Preferred Stock called for such purpose or written consent of the holders (acting together as a class) of a majority of the Class F Preferred Stock at the time outstanding, the Corporation shall not:
(1) create, authorize, issue or reclassify any outstanding shares of capital stock into any shares of capital stock ranking senior to or on parity with the Class F Preferred Stock as to the payment or distribution of dividends or of assets upon the liquidation, dissolution or winding up, voluntary or involuntary, of the Corporation; or
(2) amend, alter, modify or repeal any provision of the Articles of Incorporation of the Corporation so as to alter the rights and preferences of the Class F Preferred Stock; or
(3) redeem, repurchase or acquire (or make any payment into, or set aside, a sinking fund for such purposes), or declare or pay any dividend or make any other
distribution on, any of the Corporation's capital stock, except any such redemption, repurchase, acquisition, dividend or distribution which is:
(i) pursuant to mandatory redemption obligations set forth herein or in the Articles of Incorporation (including any certificate of designation) as of the date of filing of this Certificate of Designation;
(ii) Common Stock issued under employee benefit plans of the Corporation;
(iii) made pursuant to a repurchase agreement approved by at least 66 2/3% of the members of the Board of Directors; or
(iv) a dividend pro rata to all holders of the class or series of securities upon which such dividend is declared in shares of Common Stock or capital stock of the Corporation that ranks junior to the Class F Preferred Stock as to the payment or distribution of dividends and of assets upon the liquidation, dissolution or winding up, voluntary or involuntary, of the Corporation.
(4) effect any acquisition of the Corporation by another entity by means of any transaction or series of related transactions with the Corporation (including, without limitation any merger, consolidation or recapitalization), which results in 50% or more of the voting capital stock of the Corporation being acquired by persons who were not shareholders of the Corporation prior to such transaction or series of transactions, unless such acquisition provides for the exchange or payment of consideration in respect of each share of Class F Preferred Stock, or the shares of Common Stock or other securities into which a share of Class F Preferred Stock is then convertible, having a value equal to or greater than $42.75 (subject to appropriate adjustments for stock dividends, stock splits, combinations and recapitalizations and similar events affecting the Class F Preferred Stock) (a "Qualified Amount"); or
(5) effect any sale or other disposition of all or substantially all of the assets of the Corporation, unless such sale, if followed by an immediate liquidation, would result in distributable proceeds in respect of each share of Class F Preferred Stock, or the shares of Common Stock or other securities into which a share of Class F Preferred Stock is then convertible, in a Qualified Amount; or
(6) effect the liquidation or dissolution of the Corporation, unless such liquidation or dissolution would result in distributable proceeds in respect of each share of Class F Preferred Stock, or the shares of Common Stock or other securities into which a share of Class F Preferred Stock is then convertible, in a Qualified Amount.
(c) VALUATION OF NON-CASH CONSIDERATION. In connection with any transaction set forth in Section 2(b) above involving the receipt of consideration or proceeds in a form other than cash, the fair market value of such non-cash consideration or proceeds shall be utilized in determining whether such transaction must be approved by the holders of Class F Preferred Stock pursuant to Section 2(b). The fair market value of any non-cash consideration will be determined as follows:
(i) the fair market value of stock and other securities that are publicly traded shall be the average of the last closing market price of such stock or securities on each of the ten trading days ending five business days prior to the execution by the Corporation of a definitive agreement, or adoption by the Board of Directors of the Corporation of any plan, relating to such transaction (the "Time of Determination");
(ii) the fair market value of stock and other equity securities that are not publicly traded and the value of all other non-cash consideration, other than consideration of the nature described in clause (iii) below, shall be the fair market value thereof at the Time of Determination as mutually agreed by the Corporation and a director designated to serve on the Board of Directors by the holders of Class F Preferred Stock (a "Class F Director"), or if the Corporation and a Class F Director are unable to reach an agreement within five business days of receipt of written notice from the Corporation of such transaction by the Class F Director, as determined by an investment banking firm or other person experienced in valuing such stock, equity securities or other non-cash consideration mutually acceptable to a Class F Director and the Corporation, or if they are unable to agree, or there exists no such Class F Director, then a nationally recognized investment banking firm selected in good faith by the Board of Directors of the Corporation; or
(iii) the value of any promissory note or other debt instrument that is not publicly traded and the value of any and all deferred installments of the consideration and any other deferral of payments included in the total consideration shall be deemed to be the face amount of the promissory notes or other debt instruments or the total amount of payments that are deferred with respect to deferred obligations that are not evidenced by promissory notes or other debt instruments.
A security is "publicly traded" if such security is part of a class of securities that is listed on the New York or American stock exchanges (or on a foreign stock exchange of comparable depth and liquidity) or is traded on the NASDAQ Stock Market.
(d) MEETINGS. A proper officer of the Corporation may, and upon the written request of the holders of record of at least twenty-five percent (25%) of the shares of Class F Preferred Stock then outstanding addressed to the Secretary of the Corporation shall, call a special meeting of the holders of Class F Preferred Stock, for the purpose of holding a
class vote pursuant to Section 2(b). If such meeting shall not be called by a
proper officer of the Corporation within twenty (20) days after personal service
of said written request upon the Secretary of the Corporation, or within twenty
(20) days after mailing the same within the United States by certified mail,
addressed to the Secretary of the Corporation at its principal executive
offices, then the holders of record of at least twenty-five percent (25%) of the
outstanding shares of Class F Preferred Stock may designate in writing their own
representative to call such meeting at the expense of the Corporation, and such
meeting may be called by the person so designated upon the notice required for
the annual meeting of stockholders of the Corporation and shall be held at the
place for holding the annual meetings of stockholders.
3. NO PREEMPTIVE RIGHTS.
Holders of Class F Preferred Stock shall not be entitled, as a matter of right, to subscribe for, purchase or receive any part of any stock of the Corporation of any class whatsoever, or of securities convertible into or exchangeable for, or otherwise creating a right to acquire, any stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend. Nothing herein shall limit the power of the Corporation to grant any of the foregoing rights to persons by contract or otherwise.
4. DIVIDENDS.
Subject to the affirmative voting requirement of Section 2(b)(3) of this Certificate of Designation, in the event any dividend or distribution is declared or made with respect to outstanding shares of any class of capital stock, a comparable dividend or distribution must be simultaneously declared or made with respect to the outstanding shares of Class F Preferred Stock. Subject to the affirmative voting requirement of Section 2(b)(3) of this Certificate of Designation, in the event any dividend or distribution is declared or made with respect to the Common Stock or any class of capital stock convertible or exchangeable into Common Stock of the Corporation, each holder of shares of Class F Preferred Stock (and any other holder of capital stock so convertible or exchangeable and entitled to payment of such dividend or distribution) shall be paid such comparable dividend or receive such comparable distribution on the basis of the number of shares of Common Stock into which such holder's shares of capital stock are then convertible on the date established as the record date with respect to such dividend or distribution. In case any portion of the dividend or distribution declared or made by the Corporation shall be in a form other than cash, the fair market value of such non-cash portion, as determined in good faith by the Board of Directors of the Corporation, shall be utilized in determining the comparable dividend or distribution to be declared or made with respect to the outstanding shares of Class F Preferred Stock.
5. LIQUIDATION RIGHT AND PREFERENCE.
In the event of the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (a "Liquidation Event"), the holders of the Class F Preferred Stock shall be entitled to receive, in respect of each share of Class F Preferred Stock, the greater of (i) the amount of $23.42 (subject to appropriate adjustment for any stock dividends, combinations or splits with respect to such share), plus the aggregate amount of all declared but unpaid dividends on such share of Class F Preferred Stock (the "Class F Preference Amount") or (ii) the aggregate amount that would be payable in the Liquidation Event in respect of the share or shares of Common Stock into which such share of Class F Preferred Stock would be convertible if all of the holders were to convert their shares of Class F Preferred Stock into shares of Common Stock immediately prior to the Liquidation Event, and the Class F Preference Amount was not paid in preference to any class of Junior Stock, as hereafter provided.
Upon occurrence of a Liquidation Event, the holders of then outstanding shares of Class B Convertible Preferred Stock ("Class B Preferred Stock"), Class D Preferred Stock ("Class D Preferred Stock"), Class E Convertible Preferred Stock ("Class E Preferred Stock"), Class F Preferred Stock and any other class of capital stock hereafter established ranking on a parity in such Liquidation Event with the Class B Preferred Stock, Class D Preferred Stock, Class E Preferred Stock and Class F Preferred Stock (collectively, "Parity Stock") shall be entitled to be paid as to each share of such Parity Stock, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Class A Convertible Preferred Stock ("Class A Preferred Stock"), Common Stock or any other class or series of capital stock hereafter established ranking junior in a Liquidation Event to the Parity Stock (collectively, "Junior Stock"), and after distribution of any of the assets of the Corporation, to the extent of the liquidation preference applicable thereto, to the holders of any class or series of capital stock hereafter established ranking senior in a Liquidation Event to the Parity Stock (collectively "Senior Stock"), out of assets available for distribution, an amount, plus the aggregate amount of all declared but unpaid dividends on such shares, equal to $2.50 per share in the case of the Class B Preferred Stock (the "Class B Preference Amount"), $4.50 per share in the case of the Class D Preferred Stock (the "Class D Preference Amount"), $14.25 per share in the case of the Class E Preferred Stock (the "Class E Preference Amount") (subject, in each case, to appropriate adjustment for any stock dividends, combinations or splits with respect to each share), the Class F Preference Amount in the case of the Class F Preferred Stock, and, in the case of any other Parity Stock, such amount as shall be specified in the applicable Certificate of Designation (the "Parity Preference Amount", and, together with the Class B Preference Amount, Class D Preference Amount, Class E Preference Amount and Class F Preference Amount, collectively, the "Parity Preference Amounts").
If, upon any Liquidation Event, the remaining assets of the Corporation available for distribution to the holders of Parity Stock are insufficient to pay the holders of Parity Stock their full Parity Preference Amounts to which they are entitled, the holders of
Parity Stock shall share pro rata in any such distribution in proportion to the full Parity Preference Amounts to which they would otherwise be respectively entitled.
Following such payment of Parity Preference Amounts to the holders of Parity Stock, and payment to the holders of any Senior Stock of any preferential amount to which they are entitled, the holders of the Junior Stock shall then be entitled, to the exclusion of the holders of Parity Stock or Senior Stock, to receive in cash or in kind, all remaining assets of the Corporation, if any, in accordance with their relative priorities in a Liquidation Event.
The merger or consolidation of the Corporation into or with another corporation or the merger or consolidation of any other corporation into or with the Corporation (in which consolidation or merger the shareholders of the Corporation receive any distributions of cash or securities or other property as a result of such consolidation or merger), or the sale, transfer or other disposition of all or substantially all of the assets of the Corporation, shall be deemed to be a Liquidation Event for purposes of this Section 5.
6. CONVERSION INTO COMMON STOCK.
(a) OPTIONAL CONVERSION. At the option of the holder thereof, at any time and from time to time any or all Class F Preferred Stock then held by such holder shall be convertible into Common Stock of the Corporation in accordance with the provisions and subject to the adjustments provided for in Section 6(c). In order to exercise the conversion privilege, a holder of Class F Preferred Stock shall surrender the certificate or certificates duly endorsed to the Corporation evidencing the shares of Class F Preferred Stock each holder wishes to convert to the Corporation at its principal office and accompanied by written notice to the Corporation that the holder elects to convert all of such shares. Any shares of Class F Preferred Stock converted at the option of the holder shall be deemed to have been converted on the day of surrender of the certificate representing such shares for conversion in accordance with the foregoing provisions, and at such time the rights of the holder of such Class F Preferred Stock with respect to such shares shall cease and such holder shall be treated as the record holder of the number of shares of Common Stock issuable upon conversion. As promptly as practicable on or after the conversion date, the Corporation shall issue and mail or deliver to such holder (i) a certificate or certificates for the number of shares of Common Stock issuable upon conversion, rounding down to the nearest full share, (ii) any cash adjustment required pursuant to Section 6(f), and (iii) in the event of a conversion in part, a certificate or certificates for the whole number of shares of Class F Preferred Stock not being so converted.
(b) AUTOMATIC CONVERSION. The Class F Preferred Stock shall
automatically be converted into Common Stock of the Corporation, without any act
by the Corporation or the holders of the Class F Preferred Stock, concurrently
(i) with the closing of the first public offering by the Corporation of shares
of Common Stock of the Corporation registered under the Securities Act of 1933,
as amended, in which (1) the aggregate gross proceeds received by the
Corporation in the offering are at least $30.0 million, and (2) the public
offering price per share of Common Stock is at least $28.50 (as adjusted from
time to
time to reflect stock splits, dividends, recapitalizations, combinations or the
like), or (ii) upon the affirmative vote or written consent of the holders of a
majority of the outstanding shares of Class F Preferred Stock then outstanding;
provided, however, if any other class or series of preferred stock of the
Corporation would remain outstanding after the conversion of the Class F
Preferred Stock, the affirmative vote or written consent of holders of 60% of
the outstanding shares of Class F Preferred Stock shall be required for
automatic conversion pursuant to this clause (ii). In the case of a conversion
pursuant to clause (i), each holder of a share of Class F Preferred Stock so
converted shall be entitled to receive the full number of shares of Common Stock
into which such share of Class F Preferred Stock held by such holder could be
converted if such holder had exercised its conversion right at the time of
closing of such public offering. Upon any conversion pursuant to this Section
6(b), each holder of a share of Class F Preferred Stock shall immediately
surrender such share in exchange for (i) appropriate stock certificates
representing a share or shares of Common Stock of the Corporation, and (ii) any
cash adjustment required pursuant to Section 6(f).
(c) CONVERSION PRICE AND ADJUSTMENTS. The number of shares of Common Stock issuable in exchange for each share of Class F Preferred Stock upon either optional or automatic conversion shall be computed to the nearest hundredth of a share and shall be equal to $11.71 divided by the conversion price then in effect for Class F Preferred Stock (the "Class F Conversion Price"). The Class F Conversion Price shall initially be $11.71, but such Class F Conversion Price shall be subject to adjustment from time to time, as hereinafter provided:
(i) In case the Corporation shall at any time (A) declare a
dividend or make a distribution on Common Stock payable in Common Stock
(other than dividends or distributions payable to holders of the Series F
Preferred Stock including dividends paid as contemplated by Section 4),
(B) subdivide or split the outstanding Common Stock, (C) combine or
reclassify the outstanding Common Stock into a smaller number of shares,
(D) issue any shares of its capital stock in a reclassification of Common
Stock (including any such reclassification in connection with a
consolidation or merger in which the Corporation is the continuing
corporation), or (E) consolidate with, or merge with or into, any other
person, the Class F Conversion Price in effect (and, where appropriate,
the securities into which the Class F Preferred Stock are then
convertible) at the time of the record date for such dividend or
distribution or on the effective date of such subdivision, split,
combination, consolidation, merger or reclassification shall be adjusted
so that the conversion of the Class F Preferred Stock after such time
shall entitle the holder to receive the aggregate number of shares of
Common Stock or other securities of the Corporation (or other securities
into which such shares of Common Stock have been converted, exchanged,
combined, consolidated, merged or reclassified pursuant to clause
6(c)(i)(C), 6(c)(i)(D) or 6(c)(i)(E) above) which, if the Class F
Preferred Stock had been converted immediately prior to such time, such
holder would have owned upon such conversion and been entitled to receive
by virtue of such dividend, distribution, subdivision, split, combination,
consolidation, merger or reclassification. Such adjustment shall be made
successively whenever an event listed above shall occur.
(ii) If, at any time after the first anniversary of the original issue date of the shares of Class F Preferred Stock, the Corporation shall issue or sell any Common Stock for a consideration per share less than the Class F Conversion Price then in effect, or shall issue any options, warrants or other rights for the purchase of such shares at a consideration per share of less than the Class F Conversion Price then in effect (other than securities subject to Section 6(c)(i) hereof; options issued as of January 31, 2002 under existing stock option plans of the Corporation, and 1,184,290 shares issuable upon exercise of such options; options for the issuance of up to 706,492 additional shares under any existing stock option plan of the Corporation and shares issuable upon exercise of such options; warrants to purchase 334,048 shares outstanding as of January 31, 2002; 2,810,000 shares of Class A Preferred Stock and shares issued upon conversion thereof; 460,000 shares of Class B Preferred Stock and shares issued upon conversion thereof; 1,022,222 shares of Class D Preferred Stock and shares issued upon conversion thereof; 2,596,491 shares of Class E Preferred Stock and shares issuable upon conversion thereof; shares issued to the employee stock ownership plan of the Corporation, provided such contribution is approved by the compensation committee of the Board of Directors of the Corporation and does not exceed that number of shares the fair market value of which is three percent (3%) of annual compensation (as measured by applicable benefit plan rules) (any of the foregoing share amounts shall be subject to appropriate adjustment from time to time to reflect stock splits, dividends, recapitalizations, combinations or the like) (all of the foregoing are collectively referred to as the "Exempt Securities")), the Class F Conversion Price in effect immediately prior to such issuance or sale shall be reduced to an amount determined by multiplying (A) the Class F Conversion Price then in effect, and (B) a fraction, the numerator of which shall be an amount equal to the sum of (1) the number of shares of Common Stock outstanding immediately prior to such issuance or sale multiplied by the Class F Conversion Price then in effect, and (2) the total consideration payable to this Corporation upon such issuance or sale of such shares and such purchase rights and upon the exercise of such purchase rights, and the denominator of which shall be the amount determined by multiplying (aa) the number of shares of Common Stock outstanding immediately after such issuance or sale plus the number of shares of Common Stock issuable upon the exercise of any purchase rights thus issued, by (bb) the Class F Conversion Price then in effect. In case any portion of the consideration to be received by the Corporation shall be in a form other than cash, the fair market value of such non-cash consideration, as determined in good faith by the Board of Directors of the Corporation, shall be utilized in the foregoing computation.
For purposes of this Section 6(c), "Common Stock outstanding" shall include, in addition to Common Stock issued and outstanding, those shares of Common Stock issuable upon conversion of outstanding shares of Preferred Stock and Common Stock issuable upon the exercise, exchange or conversion of any other outstanding right to acquire Common Stock.
If any options, warrants or other purchase rights that are taken into account in any such adjustment of the Class F Conversion Price subsequently expire without exercise, the Class F Conversion Price shall be recomputed by deleting such expired options, warrants or other purchase rights. If the Class F Conversion Price is adjusted as the result of the issuance of any options, warrants or other purchase rights, no further adjustment of the Class F Conversion Price shall be made at the time of the exercise of such options, warrants or other purchase rights.
(iii) If, on or prior to the first anniversary of the original issue date of the shares of Class F Preferred Stock, the Corporation shall issue or sell any Common Stock (other than Exempt Securities) for a consideration per share less than the Class F Conversion Price then in effect, or shall issue any options, warrants or other rights for the purchase of such shares (other than Exempt Securities) at a consideration per share of less than the Class F Conversion Price then in effect, the Class F Conversion Price shall be reduced to an amount equal to the per share consideration payable to the Corporation in such sale or issuance. In case any portion of the consideration to be received by the Corporation shall be in a form other than cash, the fair market value of such non-cash consideration, as determined in good faith by the Board of Directors of the Corporation, shall be utilized to determine the consideration per share.
If any options, warrants or other purchase rights that are taken into account in any such adjustment of the Class F Conversion Price subsequently expire without exercise, the Class F Conversion Price shall be readjusted as if such options, warrants or other purchase rights had not been issued. If the Class F Conversion Price is adjusted as the result of the issuance of any options, warrants or other purchase rights, no further adjustment of the Class F Conversion Price shall be made at the time of the exercise of such options, warrants or other purchase rights.
(iv) In case the Corporation shall fix a record date for the
issuance on a pro rata basis of rights, options or warrants to the holders
of its Common Stock or other securities entitling such holders to
subscribe for or purchase shares of Common Stock (or securities
convertible into or exercisable or exchangeable for shares of Common
Stock) at a price per share of Common Stock (or having a conversion,
exercise or exchange price per share of Common Stock, in the case of a
security convertible into, or exercisable or exchangeable for, shares of
Common Stock) less than the Class F Conversion Price on such record date,
the maximum number of shares of Common Stock issuable upon exercise of
such rights, options or warrants (or conversion of such convertible
securities) shall be deemed to have been issued and outstanding as of such
record date and the Class F Conversion Price shall be adjusted pursuant to
Section 6(c)(ii) or Section 6(c)(iii), as the case may be, as though such
maximum number of shares of Common Stock had been so issued for an
aggregate consideration payable by the holders of such rights, options,
warrants or other securities prior to their receipt of such shares of
Common Stock. In case any portion of such consideration shall be in a form
other than cash, the fair market value
of such non-cash consideration shall be determined as set forth in Section 6(c)(ii) hereof. Such adjustment shall be made successively whenever such record date is fixed; and in the event that such rights, options or warrants are not so issued or expire in whole or in part unexercised, or in the event of a change in the number of shares of Common Stock to which the holders of such rights, options or warrants are entitled (other than pursuant to adjustment provisions therein comparable to those contained in this Section 6(c)), the Class F Conversion Price shall again be adjusted as follows: (A) in the event that all of such rights, options or warrants expire unexercised, the Class F Conversion Price shall be the Class F Conversion Price that would then be in effect if such record date had not been fixed; (B) in the event that less than all of such rights, options or warrants expire unexercised, the Class F Conversion Price shall be adjusted pursuant to Section 6(c)(ii) or Section 6(c)(iii), as the case may be, to reflect the maximum number of shares of Common Stock issuable upon exercise of such rights, options or warrants that remain outstanding (without taking into effect shares of Common Stock issuable upon exercise of rights, options or warrants that have lapsed or expired); and (C) in the event of a change in the number of shares of Common Stock to which the holders of such rights, options or warrants are entitled (other than pursuant to adjustment provisions therein comparable to those contained in this Section 6(c)), the Class F Conversion Price shall be adjusted to reflect the Class F Conversion Price which would then be in effect if such holder had initially been entitled to such changed number of shares of Common Stock. Notwithstanding anything herein to the contrary, no further adjustment to the Class F Conversion Price shall be made upon the issuance or sale of Common Stock upon the exercise of any rights, options or warrants to subscribe for or purchase Common Stock, if any adjustment in the Class F Conversion Price was made or required to be made upon the record date for the issuance or sale of such rights, options or warrants under this Section 6(c)(iv). Notwithstanding anything herein to the contrary, no adjustment in the Class F Conversion Price shall be made under this Section 6(c)(iv) to the extent the holders of Class F Preferred Stock participate in any such distribution in accordance with Section 4 hereof.
(iv) The anti-dilution provisions of this Section 6(c) may be waived by the affirmative vote of the holders (acting together as a class) of 67% or more of the then outstanding Class F Preferred Stock.
(d) NOTICE OF CLASS F CONVERSION PRICE ADJUSTMENT. Upon any adjustment of the Class F Conversion Price, then and in each such case the Corporation shall give written notice thereof, by first-class mail, postage prepaid, addressed to the registered holders of Class F Preferred Stock at the addresses of such holders as shown on the books of this Corporation, which notice shall state the Class F Conversion Price resulting from such adjustment and the increase or decrease, if any, in the number of shares receivable at such price upon the conversion of Class F Preferred Stock, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.
(e) NOTICE OF CERTAIN EVENTS. In case any time:
(i) the Corporation shall pay any dividend payable in stock upon Common Stock or make any distribution (other than regular cash dividends) to the holders of Common Stock; or
(ii) the Corporation shall offer for subscription pro rata to the holders of Common Stock any additional shares of stock of any class or other rights; or
(iii) there shall be any capital reorganization, reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with, or sale of all or substantially all of its assets to another corporation; or
(iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give written notice, by first-class mail, postage prepaid, addressed to the holders of Class F Preferred Stock at the addresses of such holders as shown on the books of the Corporation, of the date on which (A) the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights, or (B) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice also shall specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. Such written notice shall be given at least thirty (30) days prior to the action in question and not less than thirty (30) days prior to the record date or the date on which the Corporation's transfer books are closed in respect thereto.
(f) FRACTIONAL SHARES. In connection with the conversion of any shares of Class F Preferred Stock, no fractions of shares of Common Stock shall be issued to the holder of such shares of Class F Preferred Stock, but in lieu thereof the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest multiplied by the Class F Conversion Price per share of Common Stock on the business day next preceding the business day on which such shares of Class F Preferred Stock are deemed to have been converted.
(g) RESERVATION OF SHARES.
(i) The Corporation covenants that it will at all times reserve and keep available, free from preemptive rights, such number of its authorized but unissued shares of Common Stock as shall be required for the purpose of effecting conversions of the Class F Preferred Stock.
(ii) Prior to the delivery of any securities which the Corporation shall be obligated to deliver upon conversion of the Class F Preferred Stock, the Corporation shall comply with all applicable federal and state laws and regulations which require action to be taken by the Corporation.
(h) TRANSFER TAXES. The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversion of the Class F Preferred Stock pursuant hereto; provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the holder of the Class F Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
7. OPTIONAL REDEMPTION AT THE ELECTION OF THE HOLDERS OF CLASS F PREFERRED STOCK.
(a) ELECTION.
(i) At any time after the seventh anniversary of the original issue date of the shares of Class F Preferred Stock, upon the affirmative vote or written consent of the holders of a majority of the outstanding shares of Class F Preferred Stock, the Corporation shall be required to redeem all of the outstanding shares of Class F Preferred Stock and the holders of all outstanding shares of Class F Preferred Stock shall be required to have such shares redeemed (a "Mandatory Redemption"). The holders of Class F Preferred Stock shall deliver to the Corporation written notice of such affirmative vote or written consent (the "Redemption Notice").
(ii) Within five business days after receiving the Redemption Notice, the Corporation shall send a copy of such Redemption Notice to all other holders of record of the Class F Preferred Stock. Upon receipt of the Redemption Notice, the Board shall within thirty (30) days specify a date on which the redemption of such shares provided herein shall take place (the "Redemption Date"), which shall be no less than forty-five (45) days and no more than ninety (90) days after receipt of the Redemption Notice.
(b) OPTIONAL REDEMPTION PRICE. The redemption price for each share of the Class F Preferred Stock shall be an amount equal to $11.71 (subject to adjustment from time to time to reflect stock splits, dividends, recapitalizations, combinations or the like) plus an amount equal to all declared but unpaid dividends, if any, payable with respect to such share (the "Optional Redemption Price").
(c) NOTIFICATION. At least fifteen (15) days prior to the Redemption Date, the Corporation shall mail written notice by first class mail, postage prepaid, to each holder of record of the Class F Preferred Stock, at its address last shown on the records of the Corporation, notifying such holder of such redemption, specifying the Redemption Date, the Optional Redemption Price and the date on which such holder's conversion rights as to such shares terminate and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, his, or its certificate or certificates representing the shares to be redeemed (such notice, the "Closing Notice").
(d) SURRENDER AND PAYMENT. On or prior to the Redemption Date, each holder of shares of Class F Preferred Stock shall surrender its certificate or certificates representing such shares to the Corporation, in the manner and at the place designated in the Closing Notice, and thereupon the Optional Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. The Optional Redemption Price due to each holder shall be payable, from any source of funds legally available therefor, by delivery on the Redemption Date of a certified or bank cashier's check in an amount equal to the aggregate Optional Redemption Price due to such holder. From and after the date a holder of shares of the Class F Preferred Stock has received payment in full by receipt of cash, all rights of such holder with respect to such Class F Preferred Stock so redeemed shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.
(e) INSUFFICIENT FUNDS. If, on any Redemption Date, funds of the Corporation legally available therefor shall be insufficient to redeem all of the shares of Class F Preferred Stock required to be redeemed, funds to the extent legally available shall be used to redeem the maximum possible number of such shares ratably on the basis of the relative value of such shares based on the Optional Redemption Prices of such shares on such date if the funds of the Corporation legally available therefore had been sufficient to redeem all shares required to be redeemed on such date. Thereafter, the Corporation shall use its best efforts to obtain sufficient funds to redeem the balance of such shares. When additional funds of the Corporation become legally available for the redemption of the balance of such shares, such additional funds will be used to redeem at the Optional Redemption Price (together with interest at the annual rate of 9%) the balance of the shares which the Corporation was therefore obligated to redeem, ratably on the basis set forth in the preceding sentence. Notwithstanding anything herein to the contrary, if the Optional Redemption Price is not paid when due, all powers, preferences, rights, qualifications, limitations and restrictions (including, without limitation, dividend rights, conversion rights, and liquidation preferences, and voting rights) with respect to shares surrendered for redemption, but not actually redeemed, shall continue until the Optional Redemption Price is paid in full.
(f) REISSUE. Any shares of Class F Preferred Stock redeemed pursuant to this Section 7 shall permanently be retired, shall no longer be deemed outstanding and shall not under any circumstances be reissued as Class F Preferred Stock, but shall instead have
the status of authorized Open Term Preferred Stock, as defined in the Corporation's Restated Articles of Incorporation.
8. OPTIONAL REDEMPTION AT THE ELECTION OF THE CORPORATION.
(a) ELECTION. At any time and from time to time after the seventh
anniversary of the original issue date of the shares of Class F Preferred Stock,
to the extent the Corporation shall have funds legally available for such
payment, and subject to the rights of the holders pursuant to Section 6 hereof,
the Corporation shall have the right to purchase and redeem all or any portion
of the then outstanding shares of Class F Preferred Stock. The Board of
Directors shall specify a Redemption Date, which shall be not less than thirty
(30) days nor more than sixty (60) days from the date the Corporation shall mail
a Closing Notice to the holders of Class F Preferred Stock.
(b) MANDATORY REDEMPTION PRICE. The redemption price for each share of the Class F Preferred Stock shall be an amount equal to $23.42 (subject to adjustment from time to time to reflect stock splits, dividends, recapitalizations, combinations or the like) plus an amount equal to all declared but unpaid dividends, if any, payable with respect to such share (the "Mandatory Redemption Price").
(c) SURRENDER AND PAYMENT. On or prior to the Redemption Date, each holder of shares of Class F Preferred Stock to be redeemed shall surrender its certificate or certificate representing such shares to the Corporation, in the manner and at the place designated in the Closing Notice, and thereupon the Mandatory Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. The Mandatory Redemption Price due to each holder shall be payable, from any source of funds legally available therefor, by delivery on the Redemption Date of a certified or bank cashier's check in an amount equal to the aggregate Mandatory Redemption Price due to such holder. From and after the date a holder of shares of the Class F Preferred Stock has received payment in full by receipt of cash, all rights of such holder with respect to such Class F Preferred Stock so redeemed shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.
(d) PARTIAL REDEMPTION. In the event of a redemption of less than all of the outstanding shares of Class F Preferred Stock pursuant to the first paragraph of this Section 8, redemption as among the holders of such shares of Class F Preferred Stock shall be on a pro rata basis.
(e) REISSUE. Any shares of Class F Preferred Stock redeemed pursuant to this Section 8 shall permanently be retired, shall no longer be deemed outstanding and shall not under any circumstances be reissued as Class F Preferred Stock, but shall instead have the status of authorized Open Term Preferred Stock, as defined in the Corporation's Restated Articles of Incorporation.
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
CAPELLA EDUCATION COMPANY
The undersigned, being the Secretary of Capella Education Company, a Minnesota corporation (the "Company"), hereby certifies that:
(i) The name of the Company is Capella Education Company.
(ii) The Company's Certificate of Designation for Class E Convertible Preferred Stock is amended and restated as shown in Exhibit A.
(iii) The foregoing amendments have been adopted pursuant to Chapter 302A of the Minnesota Statutes.
IN WITNESS WHEREOF, I have subscribed my name this ____ day of January, 2003.
/s/ Paul Clifford ------------------------------ Secretary Capella Education Company |
CAPELLA EDUCATION COMPANY
AMENDED AND RESTATED CERTIFICATE OF DESIGNATION
FOR CLASS E CONVERTIBLE PREFERRED STOCK
1. DESIGNATION; NUMBER OF SHARES; PAR VALUE.
A class of shares of preferred stock of Capella Education Company (the "Corporation") shall be designated as Class E Convertible Preferred Stock (the "Class E Preferred Stock"). The number of shares constituting the Class E Preferred Stock shall be Two Million Five Hundred Ninety-Six Thousand Four Hundred Ninety-One (2,596,491) shares. The Class E Preferred Stock shall have a par value of $.01 per share.
2. VOTING RIGHTS.
(a) GENERAL. On all matters submitted to the shareholders, each holder of Class E Preferred Stock shall have one vote for each share of common stock of the Corporation (the "Common Stock") which such holder of Class E Preferred Stock would be entitled to receive upon the conversion of such holder's Class E Preferred Stock pursuant to the provisions hereof. Except as otherwise provided herein, and except as otherwise required by agreement or law, the shares of capital stock of the Corporation shall vote as a single class on all matters submitted to the shareholders. No holder of any Class E Preferred Stock shall have any cumulative voting rights.
(b) ADDITIONAL CLASS VOTES BY CLASS E STOCK. Without the affirmative vote of the holders of a majority of the Class E Preferred Stock at the time outstanding at a meeting of the holders of Class E Preferred Stock called for such purpose or written consent of the holders (acting together as a class) of a majority of the Class E Preferred Stock at the time outstanding, the Corporation shall not:
(1) create, authorize or issue any shares of capital stock ranking senior to or having a priority over the Class E Preferred Stock as to the payment or distribution of dividends or of assets upon the liquidation, dissolution or winding up, voluntary or involuntary, of the Corporation; or
(2) amend, alter, modify or repeal any provision of the Articles of Incorporation of the Corporation so as to alter the rights and preferences of the Class E Preferred Stock; or
(3) redeem, repurchase or acquire (or make any payment into, or set aside, a sinking fund for such purposes) any of the Corporation's capital stock, except any such redemption, repurchase or acquisition which is:
(i) pursuant to mandatory redemption obligations set forth herein or in the Articles of Incorporation (including any certificate of designation) as of the date of filing of this Certificate of Designation;
(ii) Common Stock issued under employee benefit plans of the Corporation;
(iii) made pursuant to a repurchase agreement between the Corporation and any of its employees, officers or directors approved by the Board of Directors; or
(4) effect any acquisition of the Corporation by another entity by means of any transaction or series of related transactions with the Corporation (including, without limitation any merger, consolidation or recapitalization), which results in 50% or more of the voting capital stock of the Corporation being acquired, by exchange, cancellation or otherwise, by persons who were not shareholders of the Corporation prior to such transaction or series of transactions, unless such acquisition provides for the exchange or payment of consideration in respect of each share of Class E Preferred Stock, or the shares of Common Stock or other securities into which each such share of Class E Preferred Stock is then convertible, having a value equal to or greater than $28.50 (subject to appropriate adjustments for stock dividends, stock splits, combinations and similar recapitalization affecting the Class E Preferred Stock) (a "Qualified Amount"); or
(5) effect any sale or other disposition of all or substantially all of the assets of the Corporation, unless such sale, if followed by an immediate liquidation, would result in distributable proceeds in respect of each share of Class E Preferred Stock, or the shares of Common Stock or other securities into which each such share of Class E Preferred Stock is then convertible, in a Qualified Amount; or
(6) effect the liquidation or dissolution of the Company, unless such liquidation or dissolution would result in distributable proceeds in respect of each share of Class E Preferred Stock, or the shares of Common Stock or other securities into which each such share of Class E Preferred Stock is then convertible, in a Qualified Amount.
(c) VALUATION OF NON-CASH CONSIDERATION. In connection with any transaction set forth in Section 2(b) above involving the receipt of consideration or proceeds in a form other than cash, the fair market value of such non-cash consideration or proceeds shall be utilized in determining whether such transaction must be approved by the holders of Class E Preferred Stock pursuant to Section 2(b). The fair market value of any non-cash consideration will be determined as follows:
(i) the fair market value of stock and other securities that are publicly traded shall be the average of the last closing market price of such stock or securities on each of the ten trading days ending five business days prior to the execution by the Company of a definitive agreement, or adoption by the Board of Directors of the Company of any plan, relating to such transaction (the "Time of Determination");
(ii) the fair market value of stock and other equity securities that are not publicly traded and the value of all other non-cash consideration, other than consideration of the nature described in clause (iii) below, shall be the fair market value thereof at the Time of Determination as mutually agreed by the Company and a director designated to serve on the Board of Directors by a holder of Class E Preferred Stock (a "Class E Director"), or if the Company and a Class E Director are unable to reach an agreement within five business days of receipt of written notice from the Company of such transaction by the Class E Director, as determined by an investment banking firm or other person experienced in valuing such stock, equity securities or other non-cash consideration mutually acceptable to a Class E Director and the Company, or if they are unable to agree, or there exists no such Class E Director, then a nationally recognized investment banking firm selected in good faith by the Board of Directors of the Company; or
(iii) the value of any promissory note or other debt instrument that is not publicly traded and the value of any and all deferred installments of the consideration and any other deferral of payments included in the total consideration shall be deemed to be the face amount of the promissory notes or other debt instruments or the total amount of payments that are deferred with respect to deferred obligations that are not evidenced by promissory notes or other debt instruments.
A security is "publicly traded" if such security is part of a class of securities that is listed on the New York or American stock exchanges (or on a foreign stock exchange of comparable depth and liquidity) or is traded on the NASDAQ Stock Market.
(d) MEETINGS. A proper officer of the Corporation may, and upon the
written request of the holders of record of at least twenty-five percent (25%)
of the shares of Class E Preferred Stock then outstanding addressed to the
Secretary of the Corporation shall, call a special meeting of the holders of
Class E Preferred Stock, for the purpose of holding a class vote pursuant to
Section 2(b). If such meeting shall not be called by a proper officer of the
Corporation within twenty (20) days after personal service of said written
request upon the Secretary of the Corporation, or within twenty (20) days after
mailing the same within the United States by certified mail, addressed to the
Secretary of the Corporation at its principal executive offices, then the
holders of record of at least twenty-five percent (25%) of the outstanding
shares of Class E Preferred Stock may designate in writing one of their number
to call such meeting at the expense of the Corporation, and such meeting may be
called by
the person so designated upon the notice required for the annual meeting of stockholders of the Corporation and shall be held at the place for holding the annual meetings of stockholders.
3. NO PREEMPTIVE RIGHTS.
Holders of Class E Preferred Stock shall not be entitled, as a matter of right, to subscribe for, purchase or receive any part of any stock of the Corporation of any class whatsoever, or of securities convertible into or exchangeable for, or otherwise creating a right to acquire, any stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend. Nothing herein shall limit the power of the Corporation to grant any of the foregoing rights to persons by contract or otherwise.
4. DIVIDENDS.
In the event any dividend or distribution is declared or made with respect to outstanding shares of any class of capital stock, a comparable dividend or distribution must be simultaneously declared or made with respect to the outstanding shares of Class E Preferred Stock. In the event any dividend or distribution is declared or made with respect to the Common Stock or any class of capital stock convertible or exchangeable into Common Stock of the Corporation, each holder of shares of Class E Preferred Stock (and any other holder of capital stock so convertible or exchangeable and entitled to payment of such dividend or distribution) shall be paid such comparable dividend or receive such comparable distribution on the basis of the number of shares of Common Stock into which such holder's shares of capital stock are then convertible on the date established as the record date with respect to such dividend or distribution. In case any portion of the dividend or distribution declared or made by the Corporation shall be in a form other than cash, the fair market value of such non-cash portion, as determined in good faith by the Board of Directors of the Company, shall be utilized in determining the comparable dividend or distribution to be declared or made with respect to the outstanding shares of Class E Preferred Stock.
5. LIQUIDATION RIGHT AND PREFERENCE.
In the event of the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (a "Liquidation Event"), the holders of the Class E Preferred Stock shall be entitled to receive, in respect of each share of Class E Preferred Stock, the greater of (i) the amount of $14.25 (subject to appropriate adjustment for any stock dividends, combinations or splits with respect to such share), plus the aggregate amount of all declared but unpaid dividends on such share of Class E Preferred Stock (the "Class E Preference Amount") or (ii) the aggregate amount that would be payable in the Liquidation Event in respect of the share or shares of Common Stock into which such share of Class E Preferred Stock would be convertible if all of the holders were to convert their shares of Class E Preferred Stock into shares of Common Stock immediately prior to the
Liquidation Event, and the Class E Preference Amount was not paid in preference to any class of Junior Stock, as hereafter provided.
Upon occurrence of a Liquidation Event, the holders of then outstanding shares of Class B Convertible Preferred Stock ("Class B Preferred Stock"), Class C Preferred Stock, Class D Convertible Preferred Stock ("Class D Preferred Stock"), Class E Preferred Stock and any other class of capital stock hereafter established ranking on a parity in such Liquidation Event with the Class B Preferred Stock, Class C, Class D Preferred Stock and Class E Preferred Stock (collectively, "Parity Stock") shall be entitled to be paid as to each share of such Parity Stock, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Class A Convertible Preferred Stock ("Class A Preferred Stock"), Common Stock or any other class or series of capital stock hereafter established ranking junior in a Liquidation Event to the Parity Stock (collectively, "Junior Stock"), and after distribution of any of the assets of the Corporation, to the extent of the liquidation preference applicable thereto, to the holders of any class or series of capital stock hereafter established ranking senior in a Liquidation Event to the Parity Stock (collectively "Senior Stock"), out of assets available for distribution, an amount, plus the aggregate amount of all declared but unpaid dividends on each such share, equal to $2.50 per share in the case of the Class B Preferred Stock (the "Class B Preference Amount"), $3.00 per share in the case of the Class C Preferred Stock (the "Class C Preference Amount"), $4.50 per share in the case of the Class D Preferred Stock (the "Class D Preference Amount") (subject, in each case, to appropriate adjustment for any stock dividends, combinations or splits with respect to each share), the Class E Preference Amount in the case of the Class E Preferred Stock, and, in the case of any other Parity Stock, such amount as shall be specified in the applicable Certificate of Designation (the "Parity Preference Amount", and, together with the Class B Preference Amount, Class C Preference Amount, Class D Preference Amount and Class E Preference Amount, collectively, the "Parity Preference Amounts").
If, upon any Liquidation Event, the remaining assets of the Corporation available for distribution to the holders of Parity Stock are insufficient to pay the holders of Parity Stock their full Parity Preference Amounts to which they are entitled, the holders of Parity Stock shall share pro rata in any such distribution in proportion to the full Parity Preference Amounts to which they would otherwise be respectively entitled.
Following such payment of Parity Preference Amounts to the holders of Parity Stock, and payment to the holders of any Senior Stock of any preferential amount to which they are entitled, the holders of the Junior Stock shall then be entitled, to the exclusion of the holders of Parity Stock or Senior Stock, to receive in cash or in kind, all remaining assets of the Corporation, if any, in accordance with their relative priorities in a Liquidation Event.
6. CONVERSION INTO COMMON STOCK.
(a) OPTIONAL CONVERSION. At the option of the holder thereof, any or all Class E Preferred Stock then held by such holder shall be convertible into Common Stock of
the Corporation in accordance with the provisions and subject to the adjustments
provided for in Section 6(c). In order to exercise the conversion privilege, a
holder of Class E Preferred Stock shall surrender the certificate or
certificates duly endorsed to the Corporation evidencing the shares of Class E
Preferred Stock each holder wishes to convert to the Corporation at its
principal office and accompanied by written notice to the Corporation that the
holder elects to convert all of such shares. Any shares of Class E Preferred
Stock converted at the option of the holder shall be deemed to have been
converted on the day of surrender of the certificate representing such shares
for conversion in accordance with the foregoing provisions, and at such time the
rights of the holder of such Class E Preferred Stock with respect to such shares
shall cease and such holder shall be treated as the record holder of the number
of shares of Common Stock issuable upon conversion. As promptly as practicable
on or after the conversion date, the Corporation shall issue and mail or deliver
to such holder (i) a certificate or certificates for the number of Common Stock
issuable upon conversion, computed to the nearest one hundredth of a full share,
(ii) any cash adjustment required pursuant to Section 6(f), and (iii) in the
event of a conversion in part, a certificate or certificates for the whole
number of shares of Class E Preferred Stock not being so converted.
(b) AUTOMATIC CONVERSION. The Class E Preferred Stock shall automatically be converted into Common Stock of the Corporation, without any act by the Corporation or the holders of the Class E Preferred Stock, concurrently with the closing of the first public offering by the Corporation of shares of Common Stock of the Corporation registered under the Securities Act of 1933, as amended, in which (1) the aggregate gross public offering price of the securities sold for cash by the Corporation in the offering is at least $30.0 million, or such lower amount as may be approved by the holders of a majority of the shares of Class E Preferred Stock then outstanding, and (2) the public offering price per share of Common Stock is at least $28.50 (as adjusted from time to time to reflect stock splits, dividends, recapitalizations, combinations or the like), or such lower amount as may be approved by the holders of a majority of the shares of Class E Preferred Stock then outstanding. Each holder of a share of Class E Preferred Stock so converted shall be entitled to receive the full number of shares of Common Stock into which such share of Class E Preferred Stock held by such holder could be converted if such holder had exercised its conversion right at the time of closing of such public offering. Upon such conversion, each holder of a share of Class E Preferred Stock shall immediately surrender such share in exchange for (i) appropriate stock certificates representing a share or shares of Common Stock of the Corporation, and (ii) any cash adjustment required pursuant to Section 6(f).
(c) CONVERSION PRICE AND ADJUSTMENTS. The number of shares of Common Stock issuable in exchange for each share of Class E Preferred Stock upon either optional or automatic conversion shall be equal to $14.25 divided by the conversion price then in effect for Class E Preferred Stock (the "Class E Conversion Price"). The Class E Conversion Price shall initially be $14.25, but such Class E Conversion Price shall be subject to adjustment from time to time, as hereinafter provided:
(i) In case the Corporation shall at any time (A) declare a dividend or make a distribution on Common Stock payable in Common Stock (other than dividends or distributions payable to holders of the Series E Preferred Stock including dividends paid as contemplated by Section 4), (B) subdivide or split the outstanding Common Stock, (C) combine or reclassify the outstanding Common Stock into a smaller number of shares, (D) issue any shares of its capital stock in a reclassification of Common Stock (including any such reclassification in connection with a consolidation or merger in which the Corporation is the continuing corporation), or (E) consolidate with, or merge with or into, any other person, the Class E Conversion Price in effect (and, where appropriate, the securities into which the Class E Preferred Stock are then convertible) at the time of the record date for such dividend or distribution or on the effective date of such subdivision, split, combination, consolidation, merger or reclassification shall be adjusted so that the conversion of the Class E Preferred Stock after such time shall entitle the holder to receive the aggregate number of shares of Common Stock or other securities of the Corporation (or other securities into which such shares of Common Stock have been converted, exchanged, combined, consolidated, merged or reclassified pursuant to clause 6(c)(i)(C), 6(c)(i)(D) or 6(c)(i)(E) above) which, if the Class E Preferred Stock had been converted immediately prior to such time, such holder would have owned upon such conversion and been entitled to receive by virtue of such dividend, distribution, subdivision, split, combination, consolidation, merger or reclassification. Such adjustment shall be made successively whenever an event listed above shall occur.
(ii) If and whenever the Corporation shall issue or sell any Common Stock for a consideration per share less than the Class E Conversion Price then in effect, or shall issue or sell any options, warrants or other rights (including, without limitation, securities convertible into or exercisable for Common Stock) for the purchase of such shares at a consideration per share of less than the Class E Conversion Price then in effect (other than securities subject to Section 6(c)(i) hereof; options issued as of April 20, 2000 under existing stock option plans of the Corporation, and 730,729 shares issuable upon exercise of such options; options for the issuance of up to 533,137 additional shares under any existing stock option plan of the Corporation and shares issuable upon exercise of such options; warrants to purchase 198,960 shares outstanding as of April 20, 2000, warrants to purchase 135,088 shares to be issued in connection with the issuance of the Class E Preferred Stock and shares issuable upon the exercise thereof; 2,810,000 shares of Class A Preferred Stock, 460,000 shares of Class B Preferred Stock, 1,022,222 shares of Class D Preferred Stock and shares issuable upon conversion thereof; shares issued to the employee stock ownership plan of the Corporation, provided such contribution is approved by the compensation committee of the Board of Directors of the Corporation and does not exceed that number of shares the fair market value of which is three percent (3%) of annual compensation (as measured by applicable benefit plan rules) (any of the foregoing share amounts shall be subject to appropriate adjustment from time to time to reflect stock splits, dividends, recapitalizations, combinations or the like)), the Class E Conversion Price in effect immediately prior to such issuance
or sale shall be reduced to an amount determined by multiplying (A) the Class E Conversion Price then in effect, and (B) a fraction, the numerator of which shall be an amount equal to the sum of (1) the number of shares of Common Stock outstanding immediately prior to such issuance or sale multiplied by the Class E Conversion Price then in effect, and (2) the total consideration payable to this Corporation upon such issuance or sale of such shares and such purchase rights and upon the exercise or conversion of such purchase or acquisition rights, and the denominator of which shall be the amount determined by multiplying (aa) the number of shares of Common Stock outstanding immediately after such issuance or sale plus the number of shares of Common Stock issuable upon the exercise or conversion of any purchase or acquisition rights thus issued, by (bb) the Class E Conversion Price then in effect. In case any portion of the consideration to be received by the Corporation shall be in a form other than cash, the fair market value of such non-cash consideration, as determined in good faith by the Board of Directors of the Company, shall be utilized in the foregoing computation.
For purposes of this Section 6(c), "Common Stock outstanding" shall include, in addition to Common Stock issued and outstanding, those shares of Common Stock issuable upon conversion of outstanding shares of Preferred Stock and Common Stock issuable upon the exercise, exchange or conversion of any other outstanding right to acquire Common Stock.
If any options, warrants or other purchase rights that are taken into account in any such adjustment of the Class E Conversion Price subsequently expire without exercise, the Class E Conversion Price shall be recomputed by deleting such expired options, warrants or other purchase rights. If the Class E Conversion Price is adjusted as the result of the issuance of any options, warrants or other purchase or acquisition rights, no further adjustment of the Class E Conversion Price shall be made at the time of the exercise of such options, warrants or other purchase rights or acquisition rights or the conversion of such purchase or acquisition rights.
(iii) In case the Corporation shall fix a record date for the
issuance on a pro rata basis of rights, options or warrants to the holders
of its Common Stock or other securities entitling such holders to
subscribe for or purchase shares of Common Stock (or securities
convertible into or exercisable or exchangeable for shares of Common
Stock) at a price per share of Common Stock (or having a conversion,
exercise or exchange price per share of Common Stock, in the case of a
security convertible into, or exercisable or exchangeable for, shares of
Common Stock) less than the Class E Conversion Price on such record date,
the maximum number of shares of Common Stock issuable upon exercise of
such rights, options or warrants (or conversion of such convertible
securities) shall be deemed to have been issued and outstanding as of such
record date and the Class E Conversion Price shall be adjusted pursuant to
Section 6(c)(ii) hereof, as though such maximum number of shares of Common
Stock had been so issued for an aggregate consideration payable by the
holders of such rights, options, warrants or other securities prior to
their receipt
of such shares of Common Stock. In case any portion of such consideration
shall be in a form other than cash, the fair market value of such non-cash
consideration shall be determined as set forth in Section 6(c)(ii) hereof.
Such adjustment shall be made successively whenever such record date is
fixed; and in the event that such rights, options or warrants are not so
issued or expire in whole or in part unexercised, or in the event of a
change in the number of shares of Common Stock to which the holders of
such rights, options or warrants are entitled (other than pursuant to
adjustment provisions therein comparable to those contained in this
Section 6(c)), the Class E Conversion Price shall again be adjusted as
follows: (A) in the event that all of such rights, options or warrants
expire unexercised, the Class E Conversion Price shall be the Class E
Conversion Price that would then be in effect if such record date had not
been fixed; (B) in the event that less than all of such rights, options or
warrants expire unexercised, the Class E Conversion Price shall be
adjusted pursuant to Section 6(c)(ii) to reflect the maximum number of
shares of Common Stock issuable upon exercise of such rights, options or
warrants that remain outstanding (without taking into effect shares of
Common Stock issuable upon exercise of rights, options or warrants that
have lapsed or expired); and (C) in the event of a change in the number of
shares of Common Stock to which the holders of such rights, options or
warrants are entitled (other than pursuant to adjustment provisions
therein comparable to those contained in this Section 6(c)), the Class E
Conversion Price shall be adjusted to reflect the Class E Conversion Price
which would then be in effect if such holder had initially been entitled
to such changed number of shares of Common Stock. Notwithstanding anything
herein to the contrary, no further adjustment to the Class E Conversion
Price shall be made upon the issuance or sale of Common Stock upon the
exercise of any rights, options or warrants to subscribe for or purchase
Common Stock, if any adjustment in the Class E Conversion Price was made
or required to be made upon the record date for the issuance or sale of
such rights, options or warrants under this Section 6(c)(iii).
Notwithstanding anything herein to the contrary, no adjustment in the
Class E Conversion Price shall be made under this Section 6(c)(iii) to the
extent the holders of Class E Preferred Stock participate in any such
distribution in accordance with Section 4 hereof.
(iv) The anti-dilution provisions of this Section 6(c) may be waived by the affirmative vote of the holders (acting together as a class) of a majority of the then outstanding Class E Preferred Stock.
(d) NOTICE OF CLASS E CONVERSION PRICE ADJUSTMENT. Upon any adjustment of the Class E Conversion Price, then and in each such case the Corporation shall give written notice thereof, by first-class mail, postage prepaid, addressed to the registered holders of Class E Preferred Stock at the addresses of such holders as shown on the books of this Corporation, which notice shall state the Class E Conversion Price resulting from such adjustment and the increase or decrease, if any, in the number of shares receivable at such price upon the conversion of Class E Preferred Stock, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.
(e) NOTICE OF CERTAIN EVENTS. In case any time:
(i) the Corporation shall pay any dividend payable in stock upon Common Stock or make any distribution (other than regular cash dividends) to the holders of Common Stock; or
(ii) the Corporation shall offer for subscription pro rata to the holders of Common Stock any additional shares of stock of any class or other rights; or
(iii) there shall be any capital reorganization, reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with, or sale of all or substantially all of its assets to another corporation; or
(iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give written notice, by first-class mail, postage prepaid, addressed to the holders of Class E Preferred Stock at the addresses of such holders as shown on the books of the Corporation, of the date on which (A) the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights, or (B) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice also shall specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. Such written notice shall be given at least thirty (30) days prior to the action in question and not less than thirty (30) days prior to the record date or the date on which the Corporation's transfer books are closed in respect thereto.
(f) FRACTIONAL SHARES. In connection with the conversion of any shares of Class E Preferred Stock, no fractions of shares of Common Stock shall be required to be issued to the holder of such shares of Class E Preferred Stock, but in lieu thereof the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest multiplied by the Conversion Price per share of Common Stock on the business day next preceding the business day on which such shares of Class E Preferred Stock are deemed to have been converted.
(g) RESERVATION OF SHARES.
(i) The Corporation covenants that it will at all times reserve and keep available, free from preemptive rights, such number of its authorized but unissued shares of Common Stock as shall be required for the purpose of effecting conversions of the Class E Preferred Stock.
(ii) Prior to the delivery of any securities which the Corporation shall be obligated to deliver upon conversion of the Class E Preferred Stock, the Corporation shall comply with all applicable federal and state laws and regulations which require action to be taken by the Corporation.
(h) TRANSFER TAXES. The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversion of the Class E Preferred Stock pursuant hereto; provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the holder of the Class E Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
7. OPTIONAL REDEMPTION AT THE ELECTION OF THE HOLDERS OF CLASS E PREFERRED STOCK.
(a) ELECTION.
(i) At any time and from time to time after the seventh anniversary of the original issue date of the shares of Class E Preferred Stock, the holders of the then outstanding shares of the Class E Preferred Stock shall have the option, exercisable by the holders of not less than 25% (in the aggregate) of the then outstanding shares of the Class E Preferred Stock, voting as a single class, by giving a written notice to the Corporation (the "Redemption Notice"), to require the Corporation to redeem any or all of the shares of such Class E Preferred Stock of such holders then outstanding. Upon the affirmative vote by the holders of a majority of the outstanding shares of Class E Preferred Stock, the holders of all outstanding shares of Class E Preferred Stock will be required to have such shares redeemed (a "Mandatory Redemption").
(ii) Within five (5) days after receiving the Redemption
Notice, the Corporation shall send a copy of such notice to all other
holders of record of the Class E Preferred Stock. Such other holders may
elect to participate in the Redemption Notice by notifying the Corporation
in writing within ten (10) days after receiving a copy of the Redemption
Notice from the Corporation. Upon receipt of such Redemption Notice, the
Board shall within thirty (30) days specify a date on which the redemption
of such shares provided herein will take place (the "Redemption Date"),
which shall be no less than forty-five (45) days and no more than ninety
(90) days after receipt of the Redemption Notice.
(iii) The Corporation shall have no obligation to honor more than two (2) redemption requests of the holders of shares of Class E Preferred Stock.
(b) REDEMPTION PRICE. The redemption price for each share of the Class E Preferred Stock (the "Redemption Price") shall be $14.25 (subject to appropriate adjustment from time to time to reflect stock splits, dividends, recapitalizations, combinations or the like), plus an amount equal to all declared but unpaid dividends, if any, payable with respect to such share.
(c) NOTIFICATION. At least fifteen (15) days prior to the Redemption Date, the Corporation shall mail written notice by first class mail, postage prepaid, to each holder of record of the Class E Preferred Stock who sought redemption, at its address last shown on the records of the Corporation, notifying such holder of such redemption, specifying the Redemption Date, the Redemption Price and the date on which such holder's conversion rights as to such shares terminate and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, his, or its certificate or certificates representing the shares to be redeemed (such notice, the "Closing Notice").
(d) SURRENDER AND PAYMENT. On or prior to the Redemption Date, each holder of shares of Class E Preferred Stock to be redeemed shall surrender its certificate or certificates representing such shares to the Corporation, in the manner and at the place designated in the Closing Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. The Redemption Price due to each holder shall be payable, from any source of funds legally available therefor, by delivery on the Redemption Date of a certified or bank cashier's check in an amount equal to the aggregate Redemption Price due to such holder. From and after the date a holder of shares of the Class E Preferred Stock has received payment in full by receipt of cash, all rights of such holder with respect to such Class E Preferred Stock so redeemed shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.
(e) INSUFFICIENT FUNDS. If, on any Redemption Date, funds of the Corporation legally available therefor shall be insufficient to redeem all of the shares of Class E Preferred Stock required to be redeemed, funds to the extent legally available shall be used to redeem the maximum possible number of such shares ratably on the basis of the relative value of such shares based on the Redemption Prices of such shares on such date if the funds of the Corporation legally available therefore had been sufficient to redeem all shares required to be redeemed on such date. Thereafter, the Corporation shall use its best efforts to obtain sufficient funds to redeem the balance of such shares. When additional funds of the Corporation become legally available for the redemption of the balance of such shares, such additional funds will be used to redeem at the Redemption Price (together with interest at the annual rate of 9%) the balance of the shares which the Corporation was therefore obligated to redeem, ratably on the basis set forth in the preceding sentence. Notwithstanding anything herein to the contrary, if the Redemption Price is not paid when due, all powers, preferences, rights, qualifications, limitations and restrictions (including, without limitation, dividend rights, conversion rights, and liquidation preferences, and voting
rights) with respect to shares surrendered for redemption, but not actually redeemed, shall continue until the Redemption Price is paid in full.
(f) REISSUE. Any shares of Class E Preferred Stock redeemed pursuant to this Section 7 shall permanently be retired, shall no longer be deemed outstanding and shall not under any circumstances be reissued as Class E Preferred Stock, but shall instead have the status of authorized Open Term Preferred Stock, as defined in the Corporation's Restated Articles of Incorporation.
8. OPTIONAL REDEMPTION AT THE ELECTION OF THE CORPORATION.
(a) ELECTION. At any time and from time to time after the seventh
anniversary of the original issue date of the shares of Class E Preferred Stock,
to the extent the Corporation shall have funds legally available for such
payment, and subject to the rights of the holders pursuant to Section 6 hereof,
the Corporation shall have the right to purchase and redeem all or any portion
of the then outstanding shares of Class E Preferred Stock. The Board of
Directors shall specify a Redemption Date, which shall be not less than thirty
(30) days nor more than sixty (60) days from the date the Corporation shall mail
a Closing Notice to the holders of Class E Preferred Stock.
(b) REDEMPTION PRICE. The redemption price for each share of Class E Preferred Stock redeemed pursuant to this Section 8 shall be the Redemption Price, plus an amount equal to all declared but unpaid dividends, if any, payable with respect to such share.
(c) SURRENDER AND PAYMENT. On or prior to the Redemption Date, each holder of shares of Class E Preferred Stock to be redeemed shall surrender its certificate or certificate representing such shares to the Corporation, in the manner and at the place designated in the Closing Notice, and thereupon the Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. The Redemption Price due to each holder shall be payable, from any source of funds legally available therefor, by delivery on the Redemption Date of a certified or bank cashier's check in an amount equal to the aggregate Redemption Price due to such holder. From and after the date a holder of shares of the Class E Preferred Stock has received payment in full by receipt of cash, all rights of such holder with respect to such Class E Preferred Stock so redeemed shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.
(d) PARTIAL REDEMPTION. In the event of a redemption of less than all of the outstanding shares of Class E Preferred Stock pursuant to the first paragraph of this Section 8, redemption as among the holders of such shares of Class E Preferred Stock shall be on a pro rata basis.
(e) REISSUE. Any shares of Class E Preferred Stock redeemed pursuant to this Section 8 shall permanently be retired, shall no longer be deemed outstanding and shall
not under any circumstances be reissued as Class E Preferred Stock, but shall instead have the status of authorized Open Term Preferred Stock, as defined in the Corporation's Restated Articles of Incorporation.
CAPELLA EDUCATION COMPANY
STATEMENT OF DESIGNATION
OF
RIGHTS, PREFERENCES AND LIMITATIONS
OF
CLASS G CONVERTIBLE PREFERRED STOCK
The undersigned, Paul Clifford, the Secretary of Capella Education Company, a Minnesota corporation (the "Corporation"), hereby certifies that the following resolutions establishing Class G Convertible Preferred Stock of the Corporation pursuant to Minnesota Statutes, Section 302A.401 were duly adopted by the directors of the Corporation on January 15, 2003:
RESOLVED FURTHER, that (i) the form of the Certificate of
Designation for the Class G Convertible Preferred Stock (the "Class G
Certificate") attached hereto as Exhibit C is hereby authorized and
approved; (ii) there is hereby established a new Class G Convertible
Preferred Stock of this Company with the rights, preferences and
privileges as set forth in the Class G Certificate; (iii) the appropriate
officers of this Company are authorized and directed to make, execute and
file with the Minnesota Secretary of State in the method required by law,
the Class G Certificate, in substantially the form approved hereby, with
such changes, deletions and insertions as any of such officers shall
approve, the execution and filing of the Class G Certificate by any of the
officers of the Company being conclusive evidence of such approval, and
(iv) each of the officers of the Company is hereby authorized to take all
other actions they may deem necessary or advisable to effect adoption of
the Class G Certificate.
RESOLVED FURTHER, that the officers of the Company, and each of them, are authorized for and on behalf of the Company, to execute and deliver such other instruments or documents and to take such other actions as they, or any of them, may deem necessary or advisable to carry out the purposes of the foregoing resolutions.
[remainder of page intentionally blank]
IN WITNESS WHEREOF, I have subscribed my name this ____ day of January, 2003.
/s/ Paul Clifford ----------------------------------------- Paul Clifford, Secretary Capella Education Company |
CAPELLA EDUCATION COMPANY
CERTIFICATE OF DESIGNATION
FOR CLASS G CONVERTIBLE PREFERRED STOCK
1. DESIGNATION; NUMBER OF SHARES; PAR VALUE.
A class of shares of preferred stock of Capella Education Company (the "Corporation") shall be designated as Class G Convertible Preferred Stock (the "Class G Preferred Stock"). The number of shares constituting the Class G Preferred Stock shall be 2,184,550. The Class G Preferred Stock shall have a par value of $.01 per share.
2. VOTING RIGHTS.
(a) GENERAL. On all matters submitted to the shareholders, each holder of Class G Preferred Stock shall have one vote for each share of common stock of the Corporation (the "Common Stock") which such holder of Class G Preferred Stock would be entitled to receive upon the conversion of such holder's Class G Preferred Stock pursuant to the provisions hereof. Except as otherwise provided herein, and except as otherwise required by agreement or law, the shares of capital stock of the Corporation shall vote as a single class on all matters submitted to the shareholders. No holder of any Class G Preferred Stock shall have any cumulative voting rights.
(b) ADDITIONAL CLASS VOTES BY CLASS G STOCK. Without the affirmative vote of the holders of 66 2/3% of the Class G Preferred Stock at the time outstanding at a meeting of the holders of Class G Preferred Stock called for such purpose or written consent of the holders (acting together as a class) of 66 2/3% of the Class G Preferred Stock at the time outstanding, the Corporation shall not:
(1) create, authorize, issue or reclassify any outstanding shares of capital stock into any shares of capital stock ranking senior to or on parity with the Class G Preferred Stock as to the payment or distribution of dividends or of assets upon the liquidation, dissolution or winding up, voluntary or involuntary, of the Corporation; or
(2) amend, alter, modify or repeal any provision of the Articles of Incorporation of the Corporation so as to alter the rights and preferences of the Class G Preferred Stock; or
(3) redeem, repurchase or acquire (or make any payment into, or set aside, a sinking fund for such purposes), or declare or pay any dividend or make any other
distribution on, any of the Corporation's capital stock, except any such redemption, repurchase, acquisition, dividend or distribution which is:
(i) pursuant to mandatory redemption obligations set forth herein or in the Articles of Incorporation (including any certificate of designation) as of the date of filing of this Certificate of Designation;
(ii) Common Stock issued under employee benefit plans of the Corporation;
(iii) made pursuant to a repurchase agreement between the Corporation and any of its employees, officers or directors approved by at least 66 2/3% of the members of the Board of Directors; or
(iv) a dividend pro rata to all holders of the class or series of securities upon which such dividend is declared in shares of Common Stock or capital stock of the Corporation that ranks junior to the Class G Preferred Stock as to the payment or distribution of dividends and of assets upon the liquidation, dissolution or winding up, voluntary or involuntary, of the Corporation.
(4) effect any acquisition of the Corporation by another entity by means of any transaction or series of related transactions with the Corporation (including, without limitation any merger, consolidation or recapitalization), which results in 50% or more of the voting capital stock of the Corporation being acquired, by exchange, cancellation or otherwise, by persons who were not shareholders of the Corporation prior to such transaction or series of transactions, unless such acquisition provides for the exchange or payment of consideration in respect of each share of Class G Preferred Stock, or the shares of Common Stock or other securities into which each such share of Class G Preferred Stock is then convertible, having a value equal to or greater than $28.50 (subject to appropriate adjustments for stock dividends, stock splits, combinations and recapitalizations and similar events affecting the Class G Preferred Stock) (a "Qualified Amount"); or
(5) effect any sale or other disposition of all or substantially all of the assets of the Corporation, unless such sale, if followed by an immediate liquidation, would result in distributable proceeds in respect of each share of Class G Preferred Stock, or the shares of Common Stock or other securities into which each such share of Class G Preferred Stock is then convertible, in a Qualified Amount; or
(6) effect the liquidation or dissolution of the Corporation, unless such liquidation or dissolution would result in distributable proceeds in respect of each share of Class G Preferred Stock, or the shares of Common Stock or other securities into which each such share of Class G Preferred Stock is then convertible, in a Qualified Amount.
(c) VALUATION OF NON-CASH CONSIDERATION. In connection with any transaction set forth in Section 2(b) above involving the receipt of consideration or proceeds in a form other than cash, the fair market value of such non-cash consideration or proceeds shall be utilized in determining whether such transaction must be approved by the holders of Class G Preferred Stock pursuant to Section 2(b). The fair market value of any non-cash consideration will be determined as follows:
(i) the fair market value of stock and other securities that are publicly traded shall be the average of the last closing market price of such stock or securities on each of the ten trading days ending five business days prior to the execution by the Corporation of a definitive agreement, or adoption by the Board of Directors of the Corporation of any plan, relating to such transaction (the "Time of Determination");
(ii) the fair market value of stock and other equity securities that are not publicly traded and the value of all other non-cash consideration, other than consideration of the nature described in clause (iii) below, shall be the fair market value thereof at the Time of Determination as mutually agreed by the Corporation and a director designated to serve on the Board of Directors by the holders of Class G Preferred Stock (a "Class G Director"), or if the Corporation and a Class G Director are unable to reach an agreement within five business days of receipt of written notice from the Corporation of such transaction by the Class G Director, as determined by an investment banking firm or other person experienced in valuing such stock, equity securities or other non-cash consideration mutually acceptable to a Class G Director and the Corporation, or if they are unable to agree, or there exists no such Class G Director, then a nationally recognized investment banking firm selected in good faith by the Board of Directors of the Corporation; or
(iii) the value of any promissory note or other debt instrument that is not publicly traded and the value of any and all deferred installments of the consideration and any other deferral of payments included in the total consideration shall be deemed to be the face amount of the promissory notes or other debt instruments or the total amount of payments that are deferred with respect to deferred obligations that are not evidenced by promissory notes or other debt instruments.
A security is "publicly traded" if such security is part of a class of securities that is listed on the New York or American stock exchanges (or on a foreign stock exchange of comparable depth and liquidity) or is traded on the NASDAQ Stock Market.
(d) MEETINGS. A proper officer of the Corporation may, and upon the written request of the holders of record of at least twenty-five percent (25%) of the shares of Class G Preferred Stock then outstanding addressed to the Secretary of the Corporation shall,
call a special meeting of the holders of Class G Preferred Stock, for the purpose of holding a class vote pursuant to Section 2(b). If such meeting shall not be called by a proper officer of the Corporation within twenty (20) days after personal service of said written request upon the Secretary of the Corporation, or within twenty (20) days after mailing the same within the United States by certified mail, addressed to the Secretary of the Corporation at its principal executive offices, then the holders of record of at least twenty-five percent (25%) of the outstanding shares of Class G Preferred Stock may designate in writing their own representative to call such meeting at the expense of the Corporation, and such meeting may be called by the person so designated upon the notice required for the annual meeting of stockholders of the Corporation and shall be held at the place for holding the annual meetings of stockholders.
3. NO PREEMPTIVE RIGHTS.
Holders of Class G Preferred Stock shall not be entitled, as a matter of right, to subscribe for, purchase or receive any part of any stock of the Corporation of any class whatsoever, or of securities convertible into or exchangeable for, or otherwise creating a right to acquire, any stock of any class whatsoever, whether now or hereafter authorized and whether issued for cash or other consideration or by way of dividend. Nothing herein shall limit the power of the Corporation to grant any of the foregoing rights to persons by contract or otherwise.
4. DIVIDENDS.
Subject to the affirmative voting requirement of Section 2(b)(3) of this Certificate of Designation, in the event any dividend or distribution is declared or made with respect to outstanding shares of any class of capital stock, a comparable dividend or distribution must be simultaneously declared or made with respect to the outstanding shares of Class G Preferred Stock. Subject to the affirmative voting requirement of Section 2(b)(3) of this Certificate of Designation, in the event any dividend or distribution is declared or made with respect to the Common Stock or any class of capital stock convertible or exchangeable into Common Stock of the Corporation, each holder of shares of Class G Preferred Stock (and any other holder of capital stock so convertible or exchangeable and entitled to payment of such dividend or distribution) shall be paid such comparable dividend or receive such comparable distribution on the basis of the number of shares of Common Stock into which such holder's shares of capital stock are then convertible on the date established as the record date with respect to such dividend or distribution. In case any portion of the dividend or distribution declared or made by the Corporation shall be in a form other than cash, the fair market value of such non-cash portion, as determined in good faith by the Board of Directors of the Corporation, shall be utilized in determining the comparable dividend or distribution to be declared or made with respect to the outstanding shares of Class G Preferred Stock.
5. LIQUIDATION RIGHT AND PREFERENCE.
In the event of the liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (a "Liquidation Event"), the holders of the Class G Preferred Stock shall be entitled to receive, in respect of each share of Class G Preferred Stock , the greater of (i) the amount of $22.24 (subject to appropriate adjustment for any stock dividends, combinations or splits with respect to such share), plus the aggregate amount of all declared but unpaid dividends on such share of Class G Preferred Stock (the "Class G Preference Amount") or (ii) the aggregate amount that would be payable in the Liquidation Event in respect of the share or shares of Common Stock into which such share of Class G Preferred Stock would be convertible if all of the holders were to convert their shares of Class G Preferred Stock into shares of Common Stock immediately prior to the Liquidation Event, and the Class G Preference Amount was not paid in preference to any class of Junior Stock, as hereafter provided.
Upon occurrence of a Liquidation Event, the holders of then outstanding shares of Class B Convertible Preferred Stock ("Class B Preferred Stock"), Class D Preferred Stock ("Class D Preferred Stock"), Class E Convertible Preferred Stock ("Class E Preferred Stock"), Class G Preferred Stock and any other class of capital stock hereafter established ranking on a parity in such Liquidation Event with the Class B Preferred Stock, Class D Preferred Stock, Class E Preferred Stock and Class G Preferred Stock (collectively, "Parity Stock") shall be entitled to be paid as to each share of such Parity Stock, prior and in preference to any distribution of any of the assets of the Corporation to the holders of Class A Convertible Preferred Stock ("Class A Preferred Stock"), Common Stock or any other class or series of capital stock hereafter established ranking junior in a Liquidation Event to the Parity Stock (collectively, "Junior Stock"), and after distribution of any of the assets of the Corporation, to the extent of the liquidation preference applicable thereto, to the holders of any class or series of capital stock hereafter established ranking senior in a Liquidation Event to the Parity Stock (collectively "Senior Stock"), out of assets available for distribution, an amount, plus the aggregate amount of all declared but unpaid dividends on each such share, equal to $2.50 per share in the case of the Class B Preferred Stock (the "Class B Preference Amount"), $4.50 per share in the case of the Class D Preferred Stock (the "Class D Preference Amount"), $14.25 per share in the case of the Class E Preferred Stock (the "Class E Preference Amount") (subject, in each case, to appropriate adjustment for any stock dividends, combinations or splits with respect to each share), the Class G Preference Amount in the case of the Class G Preferred Stock, and, in the case of any other Parity Stock, such amount as shall be specified in the applicable Certificate of Designation (the "Parity Preference Amount", and, together with the Class B Preference Amount, Class D Preference Amount, Class E Preference Amount and Class G Preference Amount, collectively, the "Parity Preference Amounts").
If, upon any Liquidation Event, the remaining assets of the Corporation available for distribution to the holders of Parity Stock are insufficient to pay the holders of Parity Stock their full Parity Preference Amounts to which they are entitled, the holders of
Parity Stock shall share pro rata in any such distribution in proportion to the full Parity Preference Amounts to which they would otherwise be respectively entitled.
Following such payment of Parity Preference Amounts to the holders of Parity Stock, and payment to the holders of any Senior Stock of any preferential amount to which they are entitled, the holders of the Junior Stock shall then be entitled, to the exclusion of the holders of Parity Stock or Senior Stock, to receive in cash or in kind, all remaining assets of the Corporation, if any, in accordance with their relative priorities in a Liquidation Event.
The merger or consolidation of the Corporation into or with another
corporation, the merger or consolidation of any other corporation into or with
the Corporation or a plan of exchange between the Corporation and any other
corporation (in which consolidation, merger or plan of exchange the shareholders
of the Corporation receive any distributions of cash or securities or other
property as a result of such consolidation, merger or plan of exchange), or the
sale, transfer or other disposition of all or substantially all of the assets of
the Corporation, shall be deemed to be a Liquidation Event for purposes of this
Section 5.
6. CONVERSION INTO COMMON STOCK.
(a) OPTIONAL CONVERSION. At the option of the holder thereof, at
any time and from time to time any or all Class G Preferred Stock then held by
such holder shall be convertible into Common Stock of the Corporation in
accordance with the provisions and subject to the adjustments provided for in
Section 6(c). In order to exercise the conversion privilege, a holder of Class G
Preferred Stock shall surrender the certificate or certificates duly endorsed to
the Corporation evidencing the shares of Class G Preferred Stock each holder
wishes to convert to the Corporation at its principal office and accompanied by
written notice to the Corporation that the holder elects to convert all of such
shares. Any shares of Class G Preferred Stock converted at the option of the
holder shall be deemed to have been converted on the day of surrender of the
certificate representing such shares for conversion in accordance with the
foregoing provisions, and at such time the rights of the holder of such Class G
Preferred Stock with respect to such shares shall cease and such holder shall be
treated as the record holder of the number of shares of Common Stock issuable
upon conversion. As promptly as practicable on or after the conversion date, the
Corporation shall issue and mail or deliver to such holder (i) a certificate or
certificates for the number of shares of Common Stock issuable upon conversion,
rounding down to the nearest full share, (ii) any cash adjustment required
pursuant to Section 6(f), and (iii) in the event of a conversion in part, a
certificate or certificates for the whole number of shares of Class G Preferred
Stock not being so converted.
(b) AUTOMATIC CONVERSION. The Class G Preferred Stock shall
automatically be converted into Common Stock of the Corporation, without any act
by the Corporation or the holders of the Class G Preferred Stock, concurrently
(i) with the closing of the first public offering by the Corporation of shares
of Common Stock of the Corporation registered under the Securities Act of 1933,
as amended, in which (1) the aggregate gross
proceeds received by the Corporation in the offering are at least $30.0 million, and (2) the public offering price per share of Common Stock is at least $28.50 (as adjusted from time to time to reflect stock splits, dividends, recapitalizations, combinations or the like), or (ii) upon the affirmative vote or written consent of the holders of 66 2/3% of the outstanding shares of Class G Preferred Stock then outstanding; provided, however, if any other class or series of preferred stock of the Corporation would remain outstanding after the conversion of the Class G Preferred Stock, the affirmative vote or written consent of holders of 70% of the outstanding shares of Class G Preferred Stock shall be required for automatic conversion pursuant to this clause (ii). In the case of a conversion pursuant to clause (i), each holder of a share of Class G Preferred Stock so converted shall be entitled to receive the full number of shares of Common Stock into which such share of Class G Preferred Stock held by such holder could be converted if such holder had exercised its conversion right at the time of closing of such public offering. Upon any conversion pursuant to this Section 6(b), each holder of a share of Class G Preferred Stock shall immediately surrender such share in exchange for (i) appropriate stock certificates representing a share or shares of Common Stock of the Corporation, and (ii) any cash adjustment required pursuant to Section 6(f).
(c) CONVERSION PRICE AND ADJUSTMENTS. The number of shares of Common Stock issuable in exchange for each share of Class G Preferred Stock upon either optional or automatic conversion shall be computed to the nearest hundredth of a share and shall be equal to $11.12 divided by the conversion price then in effect for Class G Preferred Stock (the "Class G Conversion Price"). The Class G Conversion Price shall initially be $11.12, but such Class G Conversion Price shall be subject to adjustment from time to time, as hereinafter provided:
(i) In case the Corporation shall at any time (A) declare a dividend or make a distribution on Common Stock payable in Common Stock (other than dividends or distributions payable to holders of the Class G Preferred Stock including dividends paid as contemplated by Section 4), (B) subdivide or split the outstanding Common Stock, (C) combine or reclassify the outstanding Common Stock into a smaller number of shares, (D) issue any shares of its capital stock in a reclassification of Common Stock (including any such reclassification in connection with a consolidation or merger in which the Corporation is the continuing corporation) (other than an event treated under Section 5 as a Liquidation Event), or (E) consolidate with, or merge with or into, any other person (other than an event treated under Section 5 as a Liquidation Event), the Class G Conversion Price in effect (and, where appropriate, the securities into which the Class G Preferred Stock are then convertible) at the time of the record date for such dividend or distribution or on the effective date of such subdivision, split, combination, consolidation, merger or reclassification shall be adjusted so that the conversion of the Class G Preferred Stock after such time shall entitle the holder to receive the aggregate number of shares of Common Stock or other securities of the Corporation (or other securities into which such shares of Common Stock have been converted, exchanged, combined, consolidated, merged or reclassified pursuant to clause 6(c)(i)(C), 6(c)(i)(D) or 6(c)(i)(E) above) which, if the Class G Preferred Stock had been converted
immediately prior to such time, such holder would have owned upon such conversion and been entitled to receive by virtue of such dividend, distribution, subdivision, split, combination, consolidation, merger or reclassification. Such adjustment shall be made successively whenever an event listed above shall occur.
(ii) If, at any time after February 21, 2003, the Corporation
shall issue or sell any Common Stock for a consideration per share less
than the Class G Conversion Price then in effect or shall issue or sell
any options, warrants or other rights (including, without limitation,
securities convertible into or exercisable for Common Stock) for the
purchase of such shares at a consideration per share of less than the
Class G Conversion Price then in effect (other than securities subject to
Section 6(c)(i) hereof; options issued as of January 31, 2002 under
existing stock option plans of the Corporation, and 1,184,290 shares
issuable upon exercise of such options; options for the issuance of up to
706,492 additional shares under any existing stock option plan of the
Corporation and shares issuable upon exercise of such options; warrants to
purchase 334,048 shares outstanding as of January 31, 2002; 2,810,000
shares of Class A Preferred Stock and shares issued upon conversion
thereof; 460,000 shares of Class B Preferred Stock and shares issued upon
conversion thereof; 1,022,222 shares of Class D Preferred Stock and shares
issued upon conversion thereof; 2,596,491 shares of Class E Preferred
Stock and shares issuable upon conversion thereof; shares issued to the
employee stock ownership plan of the Corporation, provided such
contribution is approved by the compensation committee of the Board of
Directors of the Corporation and does not exceed that number of shares the
fair market value of which is three percent (3%) of annual compensation
(as measured by applicable benefit plan rules) (any of the foregoing share
amounts shall be subject to appropriate adjustment from time to time to
reflect stock splits, dividends, recapitalizations, combinations or the
like) (all of the foregoing are collectively referred to as the "Exempt
Securities")), the Class G Conversion Price in effect immediately prior to
such issuance or sale shall be reduced to an amount determined by
multiplying (A) the Class G Conversion Price then in effect, and (B) a
fraction, the numerator of which shall be an amount equal to the sum of
(1) the number of shares of Common Stock outstanding immediately prior to
such issuance or sale multiplied by the Class G Conversion Price then in
effect, and (2) the total consideration payable to this Corporation upon
such issuance or sale of such shares and such purchase rights and upon the
exercise or conversion of such purchase or acquisition rights, and the
denominator of which shall be the amount determined by multiplying (aa)
the number of shares of Common Stock outstanding immediately after such
issuance or sale plus the number of shares of Common Stock issuable upon
the exercise or conversion of any purchase or acquisition rights thus
issued, by (bb) the Class G Conversion Price then in effect. In case any
portion of the consideration to be received by the Corporation shall be in
a form other than cash, the fair market value of such non-cash
consideration, as determined in good faith by the Board of Directors of
the Corporation, shall be utilized in the foregoing computation.
For purposes of this Section 6(c), "Common Stock outstanding" shall include, in addition to Common Stock issued and outstanding, those shares of Common Stock issuable upon conversion of outstanding shares of Preferred Stock and Common
Stock issuable upon the exercise, exchange or conversion of any other outstanding right to acquire Common Stock.
If any options, warrants or other purchase rights that are taken into account in any such adjustment of the Class G Conversion Price subsequently expire without exercise, the Class G Conversion Price shall be recomputed by deleting such expired options, warrants or other purchase rights. If the Class G Conversion Price is adjusted as the result of the issuance of any options, warrants or other purchase or acquisition rights, no further adjustment of the Class G Conversion Price shall be made at the time of the exercise of such options, warrants or other purchase or acquisition rights or the conversion of such purchase or acquisition rights.
(iii) If, on or prior to February 21, 2003, the Corporation shall issue or sell any Common Stock (other than Exempt Securities) for a consideration per share less than the Class G Conversion Price then in effect, or shall issue or sell any options, warrants or other rights (including, without limitation, securities convertible into or exercisable for Common Stock) for the purchase or acquisition of such shares (other than Exempt Securities) at a consideration per share of less than the Class G Conversion Price then in effect, the Class G Conversion Price shall be reduced to an amount equal to the per share consideration payable to the Corporation in such sale or issuance. The consideration per share payable to the Corporation in a sale or issuance of options, warrants or other rights for the purchase or acquisition of shares of Common Stock shall be determined by dividing: (A) the total amount, if any, received or receivable by the Corporation as consideration for the sale of issue of such options, warrants or other rights, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such options, warrants or other rights or conversion or exercise of such other rights, by (B) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such options, warrants or other rights or conversion or exercise of such other rights. In case any portion of the consideration to be received by the Corporation shall be in a form other than cash, the fair market value of such non-cash consideration, as determined in good faith by the Board of Directors of the Corporation, shall be utilized to determine the consideration per share.
If any options, warrants or other purchase rights that are taken into account in any such adjustment of the Class G Conversion Price subsequently expire without exercise, the Class G Conversion Price shall be readjusted as if such options, warrants or other purchase rights had not been issued. If the Class G Conversion Price is adjusted as the result of the issuance of any options, warrants or other purchase rights, no further adjustment of the Class G Conversion Price shall be made at the time of the exercise of such options, warrants or other purchase rights.
(iv) In case the Corporation shall fix a record date for the
issuance on a pro rata basis of rights, options or warrants to the holders
of its Common Stock or other securities entitling such holders to
subscribe for or purchase shares of Common Stock (or securities
convertible into or exercisable or exchangeable for shares of Common
Stock) at a price per share of Common Stock (or having a conversion,
exercise or exchange price per share of Common Stock, in the case of a
security convertible into, or exercisable or exchangeable for, shares of
Common Stock) less than the Class G Conversion Price on such record date,
the maximum number of shares of Common Stock issuable upon exercise of
such rights, options or warrants (or conversion of such convertible
securities) shall be deemed to have been issued and outstanding as of such
record date and the Class G Conversion Price shall be adjusted pursuant to
Section 6(c)(ii) or Section 6(c)(iii), as the case may be, as though such
maximum number of shares of Common Stock had been so issued for an
aggregate consideration payable by the holders of such rights, options,
warrants or other securities prior to their receipt of such shares of
Common Stock. In case any portion of such consideration shall be in a form
other than cash, the fair market value of such non-cash consideration
shall be determined as set forth in Section 6(c)(ii) hereof. Such
adjustment shall be made successively whenever such record date is fixed;
and in the event that such rights, options or warrants are not so issued
or expire in whole or in part unexercised, or in the event of a change in
the number of shares of Common Stock to which the holders of such rights,
options or warrants are entitled (other than pursuant to adjustment
provisions therein comparable to those contained in this Section 6(c)),
the Class G Conversion Price shall again be adjusted as follows: (A) in
the event that all of such rights, options or warrants expire unexercised,
the Class G Conversion Price shall be the Class G Conversion Price that
would then be in effect if such record date had not been fixed; (B) in the
event that less than all of such rights, options or warrants expire
unexercised, the Class G Conversion Price shall be adjusted pursuant to
Section 6(c)(ii) or Section 6(c)(iii), as the case may be, to reflect the
maximum number of shares of Common Stock issuable upon exercise of such
rights, options or warrants that remain outstanding (without taking into
effect shares of Common Stock issuable upon exercise of rights, options or
warrants that have lapsed or expired); and (C) in the event of a change in
the number of shares of Common Stock to which the holders of such rights,
options or warrants are entitled (other than pursuant to adjustment
provisions therein comparable to those contained in this Section 6(c)),
the Class G Conversion Price shall be adjusted to reflect the Class G
Conversion Price which would then be in effect if such holder had
initially been entitled to such changed number of shares of Common Stock.
Notwithstanding anything herein to the contrary, no further adjustment to
the Class G Conversion Price shall be made upon the issuance or sale of
Common Stock upon the exercise of any rights, options or warrants to
subscribe for or purchase Common Stock, if any adjustment in the Class G
Conversion Price was made or required to be made upon the record date for
the issuance or sale of such rights, options or warrants under this
Section 6(c)(iv). Notwithstanding anything herein to the contrary, no
adjustment in the Class G Conversion Price shall be made under this
Section 6(c)(iv) to the extent
the holders of Class G Preferred Stock participate in any such distribution in accordance with Section 4 hereof.
(v) The anti-dilution provisions of this Section 6(c) may be waived by the affirmative vote of the holders (acting together as a class) of 67% or more of the then outstanding Class G Preferred Stock.
(d) NOTICE OF CLASS G CONVERSION PRICE ADJUSTMENT. Upon any adjustment of the Class G Conversion Price, then and in each such case the Corporation shall give written notice thereof, by first-class mail, postage prepaid, addressed to the registered holders of Class G Preferred Stock at the addresses of such holders as shown on the books of this Corporation, which notice shall state the Class G Conversion Price resulting from such adjustment and the increase or decrease, if any, in the number of shares receivable at such price upon the conversion of Class G Preferred Stock, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.
(e) NOTICE OF CERTAIN EVENTS. In case any time:
(i) the Corporation shall pay any dividend payable in stock upon Common Stock or make any distribution (other than regular cash dividends) to the holders of Common Stock; or
(ii) the Corporation shall offer for subscription pro rata to the holders of Common Stock any additional shares of stock of any class or other rights; or
(iii) there shall be any capital reorganization, reclassification of the capital stock of the Corporation, or consolidation or merger of the Corporation with, or sale of all or substantially all of its assets to another corporation; or
(iv) there shall be a voluntary or involuntary dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give written notice, by first-class mail, postage prepaid, addressed to the holders of Class G Preferred Stock at the addresses of such holders as shown on the books of the Corporation, of the date on which (A) the books of the Corporation shall close or a record shall be taken for such dividend, distribution or subscription rights, or (B) such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up shall take place, as the case may be. Such notice also shall specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding up, as the case may be. Such written notice shall be given at least thirty (30) days prior to the action in question and not less than thirty (30) days
prior to the record date or the date on which the Corporation's transfer books are closed in respect thereto.
(f) FRACTIONAL SHARES. In connection with the conversion of any shares of Class G Preferred Stock, no fractions of shares of Common Stock shall be issued to the holder of such shares of Class G Preferred Stock, but in lieu thereof the Corporation shall pay a cash adjustment in respect of such fractional interest in an amount equal to such fractional interest multiplied by the Class G Conversion Price per share of Common Stock on the business day next preceding the business day on which such shares of Class G Preferred Stock are deemed to have been converted.
(g) RESERVATION OF SHARES.
(i) The Corporation covenants that it will at all times reserve and keep available, free from preemptive rights, such number of its authorized but unissued shares of Common Stock as shall be required for the purpose of effecting conversions of the Class G Preferred Stock.
(ii) Prior to the delivery of any securities which the Corporation shall be obligated to deliver upon conversion of the Class G Preferred Stock, the Corporation shall comply with all applicable federal and state laws and regulations which require action to be taken by the Corporation.
(h) TRANSFER TAXES. The Corporation will pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of shares of Common Stock on conversion of the Class G Preferred Stock pursuant hereto; provided that the Corporation shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue or delivery of shares of Common Stock in a name other than that of the holder of the Class G Preferred Stock to be converted and no such issue or delivery shall be made unless and until the person requesting such issue or delivery has paid to the Corporation the amount of any such tax or has established, to the satisfaction of the Corporation, that such tax has been paid.
7. OPTIONAL REDEMPTION AT THE ELECTION OF THE HOLDERS OF CLASS G PREFERRED STOCK.
(a) ELECTION.
(i) At any time after February 21, 2009, upon the affirmative vote or written consent of the holders of 66 2/3% of the outstanding shares of Class G Preferred Stock, the Corporation shall be required to redeem all of the outstanding shares of Class G Preferred Stock and the holders of all outstanding shares of Class G Preferred Stock shall be required to have such shares redeemed (a "Mandatory Redemption"). The holders of Class G Preferred Stock shall deliver to the
Corporation written notice of such affirmative vote or written consent (the "Redemption Notice").
(ii) Within five business days after receiving the Redemption Notice, the Corporation shall send a copy of such Redemption Notice to all other holders of record of the Class G Preferred Stock. Upon receipt of the Redemption Notice, the Board shall within thirty (30) days specify a date on which the redemption of such shares provided herein shall take place (the "Redemption Date"), which shall be no less than forty-five (45) days and no more than ninety (90) days after receipt of the Redemption Notice.
(b) OPTIONAL REDEMPTION PRICE. The redemption price for each share of the Class G Preferred Stock shall be an amount equal to $11.12 (subject to appropriate adjustment from time to time to reflect stock splits, dividends, recapitalizations, combinations or the like) plus an amount equal to all declared but unpaid dividends, if any, payable with respect to such share (the "Optional Redemption Price").
(c) NOTIFICATION. At least fifteen (15) days prior to the Redemption Date, the Corporation shall mail written notice by first class mail, postage prepaid, to each holder of record of the Class G Preferred Stock, at its address last shown on the records of the Corporation, notifying such holder of such redemption, specifying the Redemption Date, the Optional Redemption Price and the date on which such holder's conversion rights as to such shares terminate and calling upon such holder to surrender to the Corporation, in the manner and at the place designated, his, or its certificate or certificates representing the shares to be redeemed (such notice, the "Closing Notice").
(d) SURRENDER AND PAYMENT. On or prior to the Redemption Date, each holder of shares of Class G Preferred Stock shall surrender its certificate or certificates representing such shares to the Corporation, in the manner and at the place designated in the Closing Notice, and thereupon the Optional Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. The Optional Redemption Price due to each holder shall be payable, from any source of funds legally available therefor, by delivery on the Redemption Date of a certified or bank cashier's check in an amount equal to the aggregate Optional Redemption Price due to such holder. From and after the date a holder of shares of the Class G Preferred Stock has received payment in full by receipt of cash, all rights of such holder with respect to such Class G Preferred Stock so redeemed shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.
(e) INSUFFICIENT FUNDS. If, on any Redemption Date, funds of the Corporation legally available therefor shall be insufficient to redeem all of the shares of Class G Preferred Stock required to be redeemed, funds to the extent legally available shall be used to redeem the maximum possible number of such shares ratably on the basis of the
relative value of such shares based on the Optional Redemption Prices of such shares on such date if the funds of the Corporation legally available therefore had been sufficient to redeem all shares required to be redeemed on such date. Thereafter, the Corporation shall use its best efforts to obtain sufficient funds to redeem the balance of such shares. When additional funds of the Corporation become legally available for the redemption of the balance of such shares, such additional funds will be used to redeem at the Optional Redemption Price (together with interest at the annual rate of 9%) the balance of the shares which the Corporation was therefore obligated to redeem, ratably on the basis set forth in the preceding sentence. Notwithstanding anything herein to the contrary, if the Optional Redemption Price is not paid when due, all powers, preferences, rights, qualifications, limitations and restrictions (including, without limitation, dividend rights, conversion rights, and liquidation preferences, and voting rights) with respect to shares surrendered for redemption, but not actually redeemed, shall continue until the Optional Redemption Price is paid in full.
(f) REISSUE. Any shares of Class G Preferred Stock redeemed pursuant to this Section 7 shall permanently be retired, shall no longer be deemed outstanding and shall not under any circumstances be reissued as Class G Preferred Stock, but shall instead have the status of authorized Open Term Preferred Stock, as defined in the Corporation's Restated Articles of Incorporation.
8. OPTIONAL REDEMPTION AT THE ELECTION OF THE CORPORATION.
(a) ELECTION. At any time and from time to time after February 21,
2009, to the extent the Corporation shall have funds legally available for such
payment, and subject to the rights of the holders pursuant to Section 6 hereof,
the Corporation shall have the right to purchase and redeem all or any portion
of the then outstanding shares of Class G Preferred Stock. The Board of
Directors shall specify a Redemption Date, which shall be not less than thirty
(30) days nor more than sixty (60) days from the date the Corporation shall mail
a Closing Notice to the holders of Class G Preferred Stock.
(b) MANDATORY REDEMPTION PRICE. The redemption price for each share of the Class G Preferred Stock shall be an amount equal to $22.24 (subject to appropriate adjustment from time to time to reflect stock splits, dividends, recapitalizations, combinations or the like) plus an amount equal to all declared but unpaid dividends, if any, payable with respect to such share (the "Mandatory Redemption Price").
(c) SURRENDER AND PAYMENT. On or prior to the Redemption Date, each holder of shares of Class G Preferred Stock to be redeemed shall surrender its certificate or certificate representing such shares to the Corporation, in the manner and at the place designated in the Closing Notice, and thereupon the Mandatory Redemption Price of such shares shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof and each surrendered certificate shall be canceled. The Mandatory Redemption Price due to each holder shall be payable, from any source of funds legally available therefor, by delivery on the Redemption Date of a certified or bank cashier's check in an amount equal to the aggregate Mandatory Redemption Price due to
such holder. From and after the date a holder of shares of the Class G Preferred Stock has received payment in full by receipt of cash, all rights of such holder with respect to such Class G Preferred Stock so redeemed shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever.
(d) PARTIAL REDEMPTION. In the event of a redemption of less than all of the outstanding shares of Class G Preferred Stock pursuant to the first paragraph of this Section 8, redemption as among the holders of such shares of Class G Preferred Stock shall be on a pro rata basis.
(e) REISSUE. Any shares of Class G Preferred Stock redeemed pursuant to this Section 8 shall permanently be retired, shall no longer be deemed outstanding and shall not under any circumstances be reissued as Class G Preferred Stock, but shall instead have the status of authorized Open Term Preferred Stock, as defined in the Corporation's Restated Articles of Incorporation.
STATEMENT OF CANCELLATION
OF THE STATEMENT FIXING THE RIGHTS AND PREFERENCES
OF THE CLASS F CONVERTIBLE PREFERRED STOCK
OF
CAPELLA EDUCATION COMPANY
The undersigned officer of Capella Education Company (the "Company") hereby certifies that:
1. The name of the Company is Capella Education Company.
2. The Company's Board of Directors has directed that the statement fixing the rights and preferences of the Company's Class F Convertible Preferred Stock be canceled pursuant to Section 302A.133 of the Minnesota Statutes.
3. There are currently no shares of Class F Convertible Preferred Stock outstanding.
4. The 1,425,457 shares formerly designated as Class F Convertible Preferred Stock shall have the status of authorized but unissued, undesignated preferred shares.
5. After giving effect to the cancellation, the Company shall be authorized to issue shares in the amount and class as follows:
15,000,000 Common Stock 3,000,000 Class A Convertible Preferred Stock 1,180,000 Class B Convertible Preferred Stock 1,022,222 Class D Convertible Preferred Stock 2,596,491 Class E Convertible Preferred Stock 2,184,550 Class G Convertible Preferred Stock 2,961,808 preferred shares (undesignated as to class or series)
IN WITNESS WHEREOF, the undersigned has executed this statement of cancellation this 19th day of February, 2003.
CAPELLA EDUCATION COMPANY
By: /s/ Paul Schroeder ------------------------------------ Its:Senior Vice President and Chief Financial Officer |
ARTICLES OF AMENDMENT
OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
CAPELLA EDUCATION COMPANY
The undersigned, Gregory W. Thom, Secretary of Capella Education Company, a Minnesota corporation, (the "Corporation"), hereby certifies that:
(i) The name of the Corporation is Capella Education Company.
(ii) Article III, Section 1 (A) of the Corporation's Amended and Restated Articles of Incorporation (the "Articles") has been amended to read in its entirety as follows:
"(A) Authorized Capital Stock. The aggregate number of shares which the Corporation has the authority to issue is one hundred thirteen million (113,000,000) shares, one hundred million (100,000,000) of which shall be designated common shares, $.10 par value (the "Common Shares") and three million (3,000,000) of which shall be designated Class A convertible preferred shares, $1.00 par value (the "Class A Preferred Shares"). The Common Shares and the Class A Preferred Shares are herein sometimes referred to collectively as "Capital Stock." Additionally, the Board of Directors of the Corporation is hereby authorized to cause to be issued from time to time, by resolution or resolutions adopted by such Board, an additional ten million (10,000,000) preferred shares (the "Open Term Preferred Shares")."
(iii) The Articles have been amended by adding a new Article V to read in its entirety as follows:
"ARTICLE V: CONTROL SHARE ACQUISITION STATUTE NOT APPLICABLE Neither Section 302A.671 of the Minnesota Statutes nor any successor statute thereto shall apply to, or govern in any manner, the Corporation or any control share acquisition of shares of capital stock of the Corporation or limit in any respect the voting or other rights of any existing or future shareholder of the Corporation or entitle the Corporation or its shareholders to any redemption or other rights with respect to outstanding capital stock of the Corporation that the Corporation or its shareholders would not have in the absence of Section 302A.671 of the Minnesota Statutes or any successor statute thereto."
(iv) The Articles have been amended by adding a new Article VI to read in its entirety as follows:
"ARTICLE VI: DISSENTERS' RIGHTS To the extent permitted by Chapter 302A of the Minnesota Statutes, no action set forth in paragraph (a) of Section 302A.471, subdivision 1, of the Minnesota Statutes (including any amendment or successor statute thereto) shall create any right of any shareholder of the Corporation to dissent from, and obtain the fair value of the shareholder's shares in the event of, any such action."
(v) The Articles have been amended by adding a new Article VII to read in its entirety as follows:
"ARTICLE VII: WRITTEN ACTION OF THE BOARD OF DIRECTORS Any action required or permitted to be taken at a meeting of the Board of Directors of the Corporation not needing approval by the shareholders under Chapter 302A of the Minnesota Statutes may be taken by written action signed by the number of directors that would be required to take such action at a meeting of the Board of Directors at which all directors are present."
(vi) The foregoing amendments have been adopted pursuant to Chapter 302A of the Minnesota Statutes.
IN WITNESS WHEREOF, I have subscribed my name this 2nd day of June, 2005.
/s/Gregory W. Thom --------------------------------- Gregory W. Thom, Secretary |
ARTICLES OF AMENDMENT
OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
CAPELLA EDUCATION COMPANY
The undersigned, Gregory W. Thom, Secretary of Capella Education Company, a Minnesota corporation, (the "Corporation"), hereby certifies that:
(i) The name of the Corporation is Capella Education Company.
(ii) Article III, Section 2(C)(3)(e)(i) of the Corporation's Amended
and Restated Articles of Incorporation, Section 6(e)(i) of the Amended and
Restated Certificate of Designation for Class B Convertible Preferred Stock, and
Section 6(f)(i) of the Certificate of Designation for Class D Convertible
Preferred Stock have each been amended to delete the word "regular" and, as
amended, each such section reads in its entirety as follows:
"(i) the Corporation shall pay any dividend payable in stock upon Common Shares or make any distribution (other than cash dividends) to the holders of Common Shares; or"
(iii) Section 6(e)(i) of the Amended and Restated Certificate of Designation for Class E Convertible Preferred Stock and Section 6(e)(i) of the Certificate of Designation for Class G Convertible Preferred Stock have each been amended to delete the word "regular" and, as amended, each such section reads in its entirety as follows:
"(i) the Corporation shall pay any dividend payable in stock upon Common Stock or make any distribution (other than cash dividends) to the holders of Common Stock; or"
(iv) The foregoing amendments have been adopted pursuant to Chapter 302A of the Minnesota Statutes.
IN WITNESS WHEREOF, I have subscribed my name this 29th day of September, 2006.
/s/ Gregory W. Thom ---------------------------- Gregory W. Thom, Secretary |
EXHIBIT 3.4
AMENDED AND RESTATED BYLAWS
OF
CAPELLA EDUCATION COMPANY
(EFFECTIVE AS OF SEPTEMBER 11, 2006)
TABLE OF CONTENTS
SHAREHOLDERS......................................................................................................1 Section 1.01 Place of Meetings...........................................................................1 Section 1.02 Regular Meetings............................................................................1 Section 1.03 Special Meetings............................................................................1 Section 1.04 Meetings Held Upon Shareholder Demand.......................................................1 Section 1.05 Adjournments................................................................................2 Section 1.06 Notice of Meetings..........................................................................2 Section 1.07 Waiver of Notice............................................................................2 Section 1.08 Voting Rights...............................................................................2 Section 1.09 Proxies.....................................................................................3 Section 1.10 Quorum......................................................................................3 Section 1.11 Acts of Shareholders........................................................................3 Section 1.12 Action Without a Meeting....................................................................3 Section 1.13 Nomination of Director Candidates...........................................................3 Section 1.14 Advance Notice of Shareholder Proposals.....................................................5 DIRECTORS.........................................................................................................6 Section 2.01 Number; Qualifications......................................................................6 Section 2.02 Term........................................................................................6 Section 2.03 Vacancies...................................................................................6 Section 2.04 Place of Meetings...........................................................................6 Section 2.05 Regular Meetings............................................................................7 Section 2.06 Special Meetings............................................................................7 Section 2.07 Waiver of Notice; Previously Scheduled Meetings.............................................7 Section 2.08 Quorum......................................................................................7 Section 2.09 Acts of Board...............................................................................7 Section 2.10 Participation by Remote Communication.......................................................7 Section 2.11 Absent Directors............................................................................8 Section 2.12 Action Without a Meeting....................................................................8 Section 2.13 Committees..................................................................................8 Section 2.14 Special Litigation Committee................................................................8 Section 2.15 Compensation................................................................................9 OFFICERS..........................................................................................................9 Section 3.01 Number and Designation......................................................................9 Section 3.02 Chief Executive Officer.....................................................................9 |
Section 3.03 Chief Financial Officer.....................................................................9 Section 3.04 President...................................................................................9 Section 3.05 Vice Presidents............................................................................10 Section 3.06 Secretary..................................................................................10 Section 3.07 Treasurer.................................................................................10 Section 3.08 Authority and Duties.......................................................................10 Section 3.09 Term.......................................................................................10 Section 3.10 Salaries...................................................................................11 INDEMNIFICATION..................................................................................................11 Section 4.01 Indemnification............................................................................11 Section 4.02 Insurance..................................................................................11 SHARES...........................................................................................................11 Section 5.01 Certificated and Uncertificated Shares.....................................................11 Section 5.02 Declaration of Dividends and Other Distributions...........................................12 Section 5.03 Transfer of Shares.........................................................................12 Section 5.04 Record Date................................................................................12 MISCELLANEOUS....................................................................................................12 Section 6.01 Execution of Instruments...................................................................12 Section 6.02 Advances...................................................................................12 Section 6.03 Corporate Seal.............................................................................12 Section 6.04 Fiscal Year................................................................................12 Section 6.05 Amendments.................................................................................12 |
This Table of Contents is not part of the Bylaws of the Corporation. It is intended merely to aid in the utilization of the Bylaws.
AMENDED AND RESTATED BYLAWS
OF
CAPELLA EDUCATION COMPANY
(EFFECTIVE AS OF SEPTEMBER 11, 2006)
SHAREHOLDERS
Section 1.01 Place of Meetings. Each meeting of the shareholders shall be held at the principal executive office of the Corporation or at such other place as may be designated by the Board of Directors or the Chief Executive Officer. But any meeting called by or at the demand of a shareholder or shareholders shall be held in the county where the principal executive office of the Corporation is located. The Board of Directors may determine that a meeting of the shareholders shall not be held at a physical place, but instead solely by means of remote communication. Participation by remote communication constitutes presence at the meeting.
Section 1.02 Regular Meetings. Regular meetings of the shareholders may be held on an annual or other less frequent basis as determined by the Board of Directors; provided, however, that if a regular meeting has not been held during the immediately preceding 15 months, a shareholder or shareholders holding 3% or more of the voting power of all shares entitled to vote may demand a regular meeting of shareholders by written demand given to the Chief Executive Officer or Chief Financial Officer of the Corporation. At each regular meeting the shareholders shall elect qualified successors for directors who serve for an indefinite term or whose terms have expired or are due to expire within six months after the date of the meeting, subject to the provisions of Section 1.13, and may transact any other business, provided, however, that no business with respect to which special notice is required by law shall be transacted unless such notice shall have been given.
Section 1.03 Special Meetings. A special meeting of the shareholders may be called for any purpose or purposes at any time by the Chief Executive Officer; by the Chief Financial Officer; by the Board of Directors or any two or more members thereof; or by one or more shareholders holding not less than 10% of the voting power of all shares of the Corporation entitled to vote (except that a special meeting for the purpose of considering any action to directly or indirectly facilitate or effect a business combination, including any action to change or otherwise affect the composition of the Board for that purpose, must be called by shareholders holding not less than 25% of the voting power of all shares of the Corporation entitled to vote), who shall demand such special meeting by written notice given to the Chief Executive Officer or the Chief Financial Officer of the Corporation specifying the purposes of such meeting.
Section 1.04 Meetings Held Upon Shareholder Demand. Within 30 days after receipt of a demand by the Chief Executive Officer or the Chief Financial Officer from any
shareholder or shareholders entitled to call a meeting of the shareholders, it shall be the duty of the Board of Directors of the Corporation to cause a special or regular meeting of shareholders, as the case may be, to be duly called and held on notice no later than 90 days after receipt of such demand. If the Board fails to cause such a meeting to be called and held as required by this Section, the shareholder or shareholders making the demand may call the meeting by giving notice as provided in Section 1.06 hereof at the expense of the Corporation.
Section 1.05 Adjournments. Any meeting of the shareholders may be adjourned from time to time to another date, time and place. If any meeting of the shareholders is so adjourned, no notice as to such adjourned meeting need be given if the adjourned meeting is to be held not more than 120 days after the date fixed for the original meeting and the date, time and place at which the meeting will be reconvened are announced at the time of adjournment.
Section 1.06 Notice of Meetings. Unless otherwise required by
law, written notice of each meeting of the shareholders, stating the date, time,
and place and, in the case of a special meeting, the purpose or purposes, shall
be given at least 10 days and not more than 60 days before the meeting to every
holder of shares entitled to vote at such meeting except as specified in Section
1.05 or as otherwise permitted by law. Notice may be given to a shareholder by
means of electronic communication if the requirements of Minnesota Statutes
Section 302A.436, Subdivision 5, as amended from time to time, are met. Notice
to a shareholder is also effectively given if the notice is addressed to the
shareholder or a group of shareholders in a manner permitted by the rules and
regulations under the Securities Exchange Act of 1934, so long as the
Corporation has first received the written or implied consent required by those
rules and regulations. The business transacted at a special meeting of
shareholders is limited to the purposes stated in the notice of the meeting.
Section 1.07 Waiver of Notice. A shareholder may waive notice of the date, time, place, or purpose of a meeting of shareholders. A waiver of notice by a shareholder entitled to notice is effective whether given before, at, or after the meeting, and whether given in writing, orally, by authenticated electronic communication, or by attendance. Attendance by a shareholder at a meeting, including attendance by means of remote communication, is a waiver of notice of that meeting, unless the shareholder objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened, or objects before a vote on an item of business because the item may not lawfully be considered at that meeting and does not participate in the consideration of the item at that meeting.
Section 1.08 Voting Rights. Subdivision 1. A shareholder shall have one vote for each share held which is entitled to vote. Except as otherwise required by law, a holder of shares entitled to vote may vote any portion of the shares in any way the shareholder chooses. If a shareholder votes without designating the proportion or number of shares voted in a particular way, the shareholder is deemed to have voted all of the shares in that way.
Subdivision 2. The Board of Directors may fix, or authorize an officer to fix, a date not more than 60 days before the date of a meeting of shareholders as the date for the determination of the holders of shares entitled to notice of and entitled to vote at the meeting.
When a date is so fixed, only shareholders on that date are entitled to notice of and permitted to vote at that meeting of shareholders.
Section 1.09 Proxies. A shareholder may cast or authorize the casting of a vote by (a) filing a written appointment of a proxy, signed by the shareholder, with an officer of the Corporation at or before the meeting at which the appointment is to be effective, or (b) by telephonic transmission or authenticated electronic communication, whether or not accompanied by written instructions of the shareholder, of an appointment of a proxy with the Corporation or the Corporation's duly authorized agent at or before the meeting at which the appointment is to be effective. The telephonic transmission or authenticated electronic communication must set forth or be submitted with information from which it can be determined that the appointment was authorized by the shareholder. Any copy, facsimile telecommunication, or other reproduction of the original of either the writing or transmission may be used in lieu of the original, provided that it is a complete and legible reproduction of the entire original.
Section 1.10 Quorum. The holders of a majority of the voting power of the shares entitled to vote at a shareholders meeting are a quorum for the transaction of business. If a quorum is present when a duly called or held meeting is convened, the shareholders present may continue to transact business until adjournment, even though the withdrawal of a number of the shareholders originally present leaves less than the proportion or number otherwise required for a quorum.
Section 1.11 Acts of Shareholders. Subdivision 1. Except as otherwise required by law or specified in the Articles of Incorporation of the Corporation, the shareholders shall take action by the affirmative vote of the holders of the greater of (a) a majority of the voting power of the shares present and entitled to vote on that item of business or (b) a majority of the voting power of the minimum number of shares entitled to vote that would constitute a quorum for the transaction of business at a duly held meeting of shareholders.
Subdivision 2. A shareholder voting by proxy authorized to vote on less than all items of business considered at the meeting shall be considered to be present and entitled to vote only with respect to those items of business for which the proxy has authority to vote. A proxy who is given authority by a shareholder who abstains with respect to an item of business shall be considered to have authority to vote on that item of business.
Section 1.12 Action Without a Meeting. Any action required or permitted to be taken at a meeting of the shareholders of the Corporation may be taken without a meeting by written action signed, or consented to by authenticated electronic communication, by all of the shareholders entitled to vote on that action. The written action is effective when it has been signed, or consented to by authenticated electronic communication, by all of those shareholders, unless a different effective time is provided in the written action.
Section 1.13 Nomination of Director Candidates. Only persons who are nominated in accordance with the procedures set forth in this Section 1.13 shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of shareholders (i) by or at the direction of the Board of
Directors, or (ii) by any shareholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures hereinafter set forth in this Section.
Subdivision 1. Timing of Notice. Nominations by shareholders shall be made pursuant to timely notice in writing to the secretary of the Corporation. To be timely, a shareholder's notice of nominations to be made at an annual meeting of shareholders must be delivered to the secretary of the Corporation, or mailed and received at the principal executive office of the Corporation, not less than 90 days before the first anniversary of the date of the preceding year's annual meeting of shareholders. If, however, the date of the annual meeting of shareholders is more than 30 days before or after such anniversary date, notice by a shareholder shall be timely only if so delivered or so mailed and received not less than 90 days before such annual meeting or, if later, within 10 days after the first public announcement of the date of such annual meeting. If a special meeting of shareholders of the Corporation is called in accordance with Section 1.03 for the purpose of electing one or more directors to the Board of Directors or if a regular meeting other than an annual meeting is held, for a shareholder's notice of nominations to be timely it must be delivered to the secretary of the Corporation, or mailed and received at the principal executive office of the Corporation, not less than 90 days before such special meeting or such regular meeting or, if later, within 10 days after the first public announcement of the date of such special meeting or such regular meeting. Except to the extent otherwise required by law, the adjournment of a regular or special meeting of shareholders shall not commence a new time period for the giving of a shareholder's notice as described above.
Subdivision 2. Content of Notice. A shareholder's notice to the Corporation of nominations for a regular or special meeting of shareholders shall set forth (A) as to each person whom the shareholder proposes to nominate for election or re-election as a director: (i) such person's name, age, business address and residence address and principal occupation or employment, (ii) all other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or that is otherwise required, pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, and (iii) such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected; and (B) as to the shareholder giving the notice: (i) the name and address, as they appear on the Corporation's books, of such shareholder, (ii) the class or series (if any) and number of shares of the Corporation that are beneficially owned by such shareholder, and (iii) a representation that the shareholder is a holder of record of shares of the Corporation entitled to vote for the election of directors and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice. At the request of the Board of Directors, any person nominated by the Board of Directors for election as a director shall furnish to the secretary of the Corporation the information required to be set forth in a shareholder's notice of nomination that pertains to a nominee.
Subdivision 3. Consequences of Failure to Give Timely Notice. Notwithstanding anything in these Bylaws to the contrary, no person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section. The officer of the Corporation chairing the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed in this Section and, if such officer should so determine, such officer shall so declare to the meeting, and the defective nomination shall be disregarded.
Subdivision 4. Public Announcement. For purposes of this
Section and Section 1.14, "public announcement" means disclosure (i) when made
in a press release reported by the Dow Jones News Service, Associated Press, or
comparable national news service, (ii) when filed in a document publicly filed
by the Corporation with the Securities and Exchange Commission pursuant to
Section 13, 14, or 15(d) of the Securities Exchange Act of 1934, as amended, or
(iii) when mailed as the notice of the meeting pursuant to Section 1.06.
Section 1.14 Advance Notice of Shareholder Proposals. As provided in Section 1.03, the business conducted at any special meeting of shareholders of the Corporation shall be limited to the purposes stated in the notice of the special meeting pursuant to Section 1.06. At any regular meeting of shareholders of the Corporation, only such business (other than the nomination and election of directors, which shall be subject to Section 1.13) may be conducted as shall be appropriate for consideration at the meeting of shareholders and as shall have been brought before the meeting (i) by or at the direction of the Board of Directors, or (ii) by any shareholder of the Corporation entitled to vote at the meeting who complies with the notice procedures hereinafter set forth in this Section.
Subdivision 1. Timing of Notice. For such business to be properly brought before any regular meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the secretary of the Corporation. To be timely, a shareholder's notice of any such business to be conducted at an annual meeting must be delivered to the secretary of the Corporation, or mailed and received at the principal executive office of the Corporation, not less than 90 days before the first anniversary of the date of the preceding year's annual meeting of shareholders. If, however, the date of the annual meeting of shareholders is more than 30 days before or after such anniversary date, notice by a shareholder shall be timely only if so delivered or so mailed and received not less than 90 days before such annual meeting or, if later, within 10 days after the first public announcement of the date of such annual meeting. To be timely, a shareholder's notice of any such business to be conducted at a regular meeting other than an annual meeting must be delivered to the secretary of the Corporation, or mailed and received at the principal executive office of the Corporation, not less than 90 days before such regular meeting or, if later, within 10 days after the first public announcement of the date of such regular meeting. Except to the extent otherwise required by law, the adjournment of a regular meeting of shareholders shall not commence a new time period for the giving of a shareholder's notice as required above.
Subdivision 2. Content of Notice. A shareholder's notice to the Corporation shall set forth as to each matter the shareholder proposes to bring before the regular meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and address, as they appear on the Corporation's books, of the shareholder proposing such business, (iii) the class or series (if any) and number of shares of the Corporation that are beneficially owned by the shareholder, (iv) any
material interest of the shareholder in such business, and (v) a representation that the shareholder is a holder of record of shares entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to make the proposal.
Subdivision 3. Consequences of Failure to Give Timely Notice. Notwithstanding anything in these Bylaws to the contrary, no business (other than the nomination and election of directors) shall be conducted at any regular meeting except in accordance with the procedures set forth in this Section. The officer of the Corporation chairing the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the procedures described in this Section and, if such officer should so determine, such officer shall so declare to the meeting, and any such business not properly brought before the meeting shall not be transacted. Nothing in this Section shall be deemed to preclude discussion by any shareholder of any business properly brought before the meeting in accordance with these Bylaws.
Subdivision 4. Compliance with Law. Notwithstanding the foregoing provisions of this Section, a shareholder shall also comply with all applicable requirements of Minnesota law and the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder with respect to the matters set forth in this Section.
DIRECTORS
Section 2.01 Number; Qualifications. Except as authorized by the shareholders pursuant to a shareholder control agreement or unanimous affirmative vote, the business and affairs of the Corporation shall be managed by or under the direction of a Board of one or more directors. Directors shall be natural persons. The number of directors to constitute the Board shall be determined from time to time by resolution of the Board. Directors need not be shareholders.
Section 2.02 Term. Each director shall serve for an indefinite term that expires at the next regular meeting of the shareholders. A director shall hold office until a successor is elected and has qualified or until the earlier death, resignation, removal or disqualification of the director.
Section 2.03 Vacancies. Vacancies on the Board of Directors resulting from the death, resignation, removal or disqualification of a director may be filled by the affirmative vote of a majority of the remaining members of the Board, though less than a quorum. Vacancies on the Board resulting from newly created directorships may be filled by the affirmative vote of a majority of the directors serving at the time such directorships are created. Each person elected to fill a vacancy shall hold office until a qualified successor is elected by the shareholders at the next regular meeting or at any special meeting duly called for that purpose.
Section 2.04 Place of Meetings. Each meeting of the Board of Directors shall be held at the principal executive office of the Corporation or at such other place as may be designated from time to time by a majority of the members of the Board or by the Chief Executive Officer. The Board of Directors may determine that a meeting of the Board not be held at a physical place,
but instead solely by means of remote communication through which the directors may participate with each other during the meeting.
Section 2.05 Regular Meetings. Regular meetings of the Board of Directors for the election of officers and the transaction of any other business shall be held at such time and place as the Board of Directors shall determine. Directors shall receive not less than two days notice of the date, time and place of any regular meeting, provided that when notice is mailed, at least four days' notice shall be given.
Section 2.06 Special Meetings. A special meeting of the Board of Directors may be called for any purpose or purposes at any time by any member of the Board by giving not less than two days' notice to all directors of the date, time and place of the meeting, provided that when notice is mailed, at least four days' notice shall be given. The notice need not state the purpose of the meeting.
Section 2.07 Waiver of Notice; Previously Scheduled Meetings. Subdivision 1. A director of the Corporation may waive notice of the date, time and place of a meeting of the Board. A waiver of notice by a director entitled to notice is effective whether given before, at or after the meeting, and whether given in writing, orally or by attendance. Attendance by a director at a meeting is a waiver of notice of that meeting, unless the director objects at the beginning of the meeting to the transaction of business because the meeting is not lawfully called or convened and thereafter does not participate in the meeting.
Subdivision 2. If the day or date, time and place of a Board meeting have been provided herein or announced at a previous meeting of the Board, no notice is required. Notice of an adjourned meeting need not be given other than by announcement at the meeting at which adjournment is taken of the date, time and place at which the meeting will be reconvened.
Section 2.08 Quorum. The presence in person of a majority of the directors currently holding office shall be necessary to constitute a quorum for the transaction of business. In the absence of a quorum, a majority of the directors present may adjourn a meeting from time to time without further notice until a quorum is present. If a quorum is present when a duly called or held meeting is convened, the directors present may continue to transact business until adjournment, even though the withdrawal of a number of the directors originally present leaves less than the proportion or number otherwise required for a quorum.
Section 2.09 Acts of Board. Except as otherwise required by
law or specified in the Articles of Incorporation of the Corporation, the Board
shall take action by the affirmative vote of the greater of (a) a majority of
the directors present at a duly held meeting at the time the action is taken or
(b) a majority of the minimum proportion or number of directors that would
constitute a quorum for the transaction of business at the meeting.
Section 2.10 Participation by Remote Communication. A director may participate in a Board meeting by conference telephone, or, if authorized by the Board, by any other means of remote communication through which the director, other directors so participating, and all
directors physically present at the meeting may participate with each other during the meeting. A director so participating is deemed present at the meeting.
Section 2.11 Absent Directors. A director of the Corporation may give advance written consent or opposition to a proposal to be acted on at a Board meeting. If the director is not present at the meeting, consent or opposition to a proposal does not constitute presence for purposes of determining the existence of a quorum, but consent or opposition shall be counted as the vote of a director present at the meeting in favor of or against the proposal and shall be entered in the minutes or other record of action at the meeting, if the proposal acted on at the meeting is substantially the same or has substantially the same effect as the proposal to which the director has consented or objected.
Section 2.12 Action Without a Meeting. An action required or permitted to be taken at a Board meeting may be taken without a meeting by written action signed, or consented to by authenticated electronic communication, by all of the directors. Any action, other than an action requiring shareholder approval, if the Articles of Incorporation so provide, may be taken by written action signed, or consented to by authenticated electronic communication, by the number of directors that would be required to take the same action at a meeting of the Board at which all directors were present. The written action is effective when signed, or consented to by authenticated electronic communication, by the required number of directors, unless a different effective time is provided in the written action. When written action is permitted to be taken by less than all directors, all directors shall be notified immediately of its text and effective date.
Section 2.13 Committees. Subdivision 1. A resolution approved by the affirmative vote of a majority of the Board may establish committees having the authority of the Board in the management of the business of the Corporation only to the extent provided in the resolution. Committees shall be subject at all times to the direction and control of the Board, except as provided in Section 2.14 or otherwise provided by law.
Subdivision 2. A committee shall consist of one or more natural persons, who need not be directors, appointed by affirmative vote of a majority of the directors present at a duly held Board meeting.
Subdivision 3. Section 2.04 and Sections 2.06 to 2.12 hereof shall apply to committees and members of committees to the same extent as those sections apply to the Board and directors.
Subdivision 4. Minutes, if any, of committee meetings shall be made available upon request to members of the committee and to any director.
Section 2.14 Special Litigation Committee. Pursuant to the procedure set forth in Section 2.13, the Board may establish a committee composed of one or more independent directors or other independent persons to determine whether it is in the best interests of the Corporation to consider legal rights or remedies of the Corporation and whether those rights and remedies should be pursued. The committee, once established, is not subject to the direction or control of, or (unless required by law) termination by, the Board. To the extent permitted by
law, a vacancy on the committee may be filled by a majority vote of the remaining committee members. The good faith determinations of the committee are binding upon the Corporation and its directors, officers and shareholders to the extent permitted by law. The committee terminates when it issues a written report of its determinations to the Board.
Section 2.15 Compensation. The Board may fix the compensation, if any, of directors.
OFFICERS
Section 3.01 Number and Designation. The Corporation shall have one or more natural persons exercising the functions of the offices of Chief Executive Officer and Chief Financial Officer. The Board of Directors may elect or appoint such other officers or agents as it deems necessary for the operation and management of the Corporation, with such powers, rights, duties and responsibilities as may be determined by the Board, including, without limitation, a President, one or more Vice Presidents, a Secretary and a Treasurer, each of whom shall have the powers, rights, duties and responsibilities set forth in these Bylaws unless otherwise determined by the Board. Any of the offices or functions of those offices may be held by the same person.
Section 3.02 Chief Executive Officer. Unless provided otherwise by a resolution adopted by the Board of Directors, the Chief Executive Officer (a) shall have general active management of the business of the Corporation; (b) shall, when present, preside at all meetings of the shareholders and Board; (c) shall see that all orders and resolutions of the Board are carried into effect; (d) may maintain records of and certify proceedings of the Board and shareholders; and (e) shall perform such other duties as may from time to time be assigned by the Board.
Section 3.03 Chief Financial Officer. Unless provided otherwise by a resolution adopted by the Board of Directors, the Chief Financial Officer (a) shall keep accurate financial records for the Corporation; (b) shall deposit all monies, drafts and checks in the name of and to the credit of the Corporation in such banks and depositories as the Board shall designate from time to time; (c) shall endorse for deposit all notes, checks and drafts received by the Corporation as ordered by the Board, making proper vouchers therefor; (d) shall disburse corporate funds and issue checks and drafts in the name of the Corporation, as ordered by the Board; (e) shall render to the Chief Executive Officer and the Board, whenever requested, an account of all of such officer's transactions as Chief Financial Officer and of the financial condition of the Corporation; and (f) shall perform such other duties as may be prescribed by the Board or the Chief Executive Officer from time to time.
Section 3.04 President. Unless otherwise determined by the Board of Directors, the President shall be the Chief Executive Officer of the Corporation. If an officer other than the President is designated Chief Executive Officer, the President shall perform such duties as may from time to time be assigned by the Board.
Section 3.05 Vice Presidents. Any one or more Vice Presidents, if any, may be designated by the Board of Directors as Executive Vice Presidents or Senior Vice Presidents. During the absence or disability of the President, it shall be the duty of the highest ranking Executive Vice President, and, in the absence of any such Vice President, it shall be the duty of the highest ranking Senior Vice President or other Vice President, who shall be present at the time and able to act, to perform the duties of the President. The determination of who is the highest ranking of two or more persons holding the same office shall, in the absence of specific designation of order of rank by the Board, be made on the basis of the earliest date of appointment or election, or, in the event of simultaneous appointment or election, on the basis of the longest continuous employment by the Corporation.
Section 3.06 Secretary. The Secretary, unless otherwise determined by the Board of Directors, shall attend all meetings of the shareholders and all meetings of the Board, shall record or cause to be recorded all proceedings thereof in a book to be kept for that purpose, and may certify such proceedings. Except as otherwise required or permitted by law or by these Bylaws, the Secretary shall give or cause to be given notice of all meetings of the shareholders and all meetings of the Board.
Section 3.07 Treasurer. Unless otherwise determined by the Board of Directors, the Treasurer shall be the Chief Financial Officer of the Corporation. If an officer other than the Treasurer is designated Chief Financial Officer, the Treasurer shall perform such duties as may from time to time be assigned by the Board.
Section 3.08 Authority and Duties. In addition to the foregoing authority and duties, all officers of the Corporation shall respectively have such authority and perform such duties in the management of the business of the Corporation as may be designated from time to time by the Board of Directors. Unless prohibited by a resolution approved by the affirmative vote of a majority of the directors present, an officer elected or appointed by the Board may, without the approval of the Board, delegate some or all of the duties and powers of an office to other persons.
Section 3.09 Term. Subdivision 1. All officers of the Corporation shall hold office until their respective successors are chosen and have qualified or until their earlier death, resignation or removal.
Subdivision 2. An officer may resign at any time by giving written notice to the Corporation. The resignation is effective without acceptance when the notice is given to the Corporation, unless a later effective date is specified in the notice.
Subdivision 3. An officer may be removed at any time, with or without cause, by a resolution approved by the affirmative vote of a majority of the directors present at a duly held Board meeting.
Subdivision 4. A vacancy in an office because of death, resignation, removal, disqualification or other cause may, or in the case of a vacancy in the office of Chief Executive
Officer or Chief Financial Officer shall, be filled for the unexpired portion of the term by the Board.
Section 3.10 Salaries. The salaries of all officers of the Corporation shall be fixed by the Board of Directors or by the Chief Executive Officer if authorized by the Board.
INDEMNIFICATION
Section 4.01 Indemnification. The Corporation shall indemnify its officers and directors for such expenses and liabilities, in such manner, under such circumstances, and to such extent, as required or permitted by Minnesota Statutes, Section 302A.521, as amended from time to time, or as required or permitted by other provisions of law.
Section 4.02 Insurance. The Corporation may purchase and maintain insurance on behalf of any person in such person's official capacity against any liability asserted against and incurred by such person in or arising from that capacity, whether or not the Corporation would otherwise be required to indemnify the person against the liability.
SHARES
Section 5.01 Certificated and Uncertificated Shares. Subdivision 1. The shares of the Corporation shall be either certificated shares or uncertificated shares.
Subdivision 2. Each certificate of shares of the Corporation shall bear the corporate seal, if any, and shall be signed by the Chief Executive Officer, or the President or any Vice President, and the Chief Financial Officer, or the Secretary or any Assistant Secretary, but when a certificate is signed by a transfer agent or a registrar, the signature of any such officer and the corporate seal upon such certificate may be facsimiles, engraved or printed. If a person signs or has a facsimile signature placed upon a certificate while an officer, transfer agent or registrar of the Corporation, the certificate may be issued by the Corporation, even if the person has ceased to serve in that capacity before the certificate is issued, with the same effect as if the person had that capacity at the date of its issue.
Subdivision 3. A certificate representing shares issued by the Corporation shall, if the Corporation is authorized to issue shares of more than one class or series, set forth upon the face or back of the certificate, or shall state that the Corporation 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 to determine the relative rights and preferences of subsequent classes or series.
Subdivision 4. A resolution approved by the affirmative vote of a majority of the directors present at a duly held meeting of the Board may provide that some or all of any or all classes and series of the shares of the Corporation will be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until the certificate is surrendered to the Corporation.
Section 5.02 Declaration of Dividends and Other Distributions. The Board of Directors shall have the authority to declare dividends and other distributions upon the shares of the Corporation to the extent permitted by law.
Section 5.03 Transfer of Shares. Shares of the Corporation may be transferred only on the books of the Corporation by the holder thereof, in person or by such person's attorney. In the case of certificated shares, shares shall be transferred only upon surrender and cancellation of certificates for a like number of shares. The Board of Directors, however, may appoint one or more transfer agents and registrars to maintain the share records of the Corporation and to effect transfers of shares.
Section 5.04 Record Date. The Board of Directors may fix a time, not exceeding 120 days preceding the date of the payment of any dividend or other distribution, as a record date for the determination of the shareholders entitled to receive payment of such dividend or other distribution, and in such case only shareholders of record on the date so fixed shall be entitled to receive payment of such dividend or other distribution, notwithstanding any transfer of any shares on the books of the Corporation after any record date so fixed.
MISCELLANEOUS
Section 6.01 Execution of Instruments. Subdivision 1. All deeds, mortgages, bonds, checks, contracts and other instruments pertaining to the business and affairs of the Corporation shall be signed on behalf of the Corporation by the Chief Executive Officer, President, Chief Financial Officer, or any Vice President, or the Secretary, or by such other person or persons as may be designated from time to time by the Board of Directors.
Subdivision 2. If a document must be executed by persons holding different offices or functions and one person holds such offices or exercises such functions, that person may execute the document in more than one capacity if the document indicates each such capacity.
Section 6.02 Advances. The Corporation may, without a vote of the directors, advance money to its directors, officers or employees to cover expenses that can reasonably be anticipated to be incurred by them in the performance of their duties and for which they would be entitled to reimbursement in the absence of an advance.
Section 6.03 Corporate Seal. The Corporation shall have no seal.
Section 6.04 Fiscal Year. The fiscal year of the Corporation shall be determined by the Board of Directors.
Section 6.05 Amendments. The Board of Directors shall have the power to adopt, amend or repeal the Bylaws of the Corporation, subject to the power of the shareholders to change or repeal the same, provided, however, that the Board shall not adopt, amend or repeal any By-Law fixing a quorum for meetings of shareholders, prescribing procedures for removing directors or filling vacancies in the Board, or fixing the number of directors or their classifications, qualifications or terms of office, but may adopt or amend a By-Law that increases the number of directors.
EXHIBIT 10.11
CAPELLA EDUCATION COMPANY
EXECUTIVE SEVERANCE PLAN
(AS ORIGINALLY EFFECTIVE FEBRUARY 1, 2003 AND AS AMENDED
MAY 11, 2005, MAY 25, 2006 AND SEPTEMBER 11, 2006)
I. INTRODUCTION
Capella Education Company ("CEC") has established the Capella Education Company Executive Severance Plan (the "Plan") to provide severance pay and other benefits to eligible employees of CEC and its subsidiaries whose employment terminates under certain covered circumstances. CEC, in its complete and sole discretion, will determine who is an eligible employee, the requirements to receive severance benefits, and the amount of any benefits.
The Plan was originally effective February 1, 2003. The Plan was amended effective May 11, 2005 and May 25, 2006. The Plan, as amended in this document, is effective for eligible employees who terminate on or after September 11, 2006. This Plan supersedes and replaces any policy, plan or practice that may have existed in the past regarding the payment of severance benefits to eligible employees, with the exception of the Capella Education Company Senior Executive Severance Plan. However, any individual written employment contract or agreement between CEC (or a subsidiary) and an eligible employee that specifically provides for the payment of severance benefits remains in force, as detailed below.
This document is both the "Plan document" and the "Summary Plan Description" for the Plan.
Any reference in this Plan to "Capella" includes CEC and its subsidiaries.
II. ELIGIBILITY
Only those employees who have been designated in writing by CEC's Chief Executive Officer ("CEO") as eligible to participate in the Plan are eligible to become participants in the Plan. However, any employee who is a participant in the Capella Education Company Senior Executive Severance Plan is not eligible to participate in this Plan while participating in that plan, regardless of any designation to the contrary.
The terms of the written designation by the CEO, not the employee's job title or classification for other purposes, determine whether an employee is eligible for benefits under the Plan. The written designation for a particular employee may be changed from time to time at the discretion of the CEO.
If you are designated as an eligible employee, you must also complete 90 days of service with Capella, measured from your most recent date of hire, prior to becoming a participant in the Plan.
You will cease to be a participant in this Plan when you cease to be designated by CEC as an eligible employee.
III. SEVERANCE EVENTS
In general, if you are an eligible participant in this Plan, and you comply with all provisions and requirements of the Plan, you will receive severance benefits if your employment with Capella is involuntarily terminated other than for Cause. A voluntary termination by you for Good Reason within 24 months following a qualified Change in Control is also a severance eligible event. These concepts are described in detail below.
"FOR CAUSE". You will not be eligible for benefits under this Plan if your employment is terminated by Capella "for Cause." "Cause" means 1) employee's commission of a crime or other act that could materially damage the reputation of Capella; 2) employee's theft, misappropriation, or embezzlement of Capella property; 3) employee's falsification of records maintained by Capella; 4) employee's failure substantially to comply with the written policies and procedures of Capella as they may be published or revised from time to time (in writing, on the Faculty Center website, or on the Stella intranet); 5) employee's misconduct directed toward learners, employees, or adjunct faculty; or 6) employee's failure substantially to perform the material duties of employee's Capella employment, which failure is not cured within 30 days after written notice from Capella specifying the act of non-performance.
"GOOD REASON". If you terminate employment with Capella voluntarily, you will be eligible for Plan benefits only if you terminated with Good Reason following a qualified Change in Control, as defined below. "Good Reason" means 1) the demotion or reduction of your job responsibilities upon a Change in Control; 2) your total targeted compensation is decreased by more than ten percent in a twelve month period; or 3) a reassignment of your principal place of work, without your consent, to a location more than 50 miles from your principal place of work upon a Change of Control. To be eligible for Plan benefits, you must terminate employment for Good Reason within 24 months after the date of the qualified Change in Control. In addition, you must have provided written notice to CEC of the asserted Good Reason not later than 30 days after the occurrence of the event on which Good Reason is based and at least 30 days prior to your proposed termination date. CEC may take action to cure your stated Good Reason within this 30-day period. If CEC does so, you will not be eligible for Plan benefits if you voluntarily terminate.
"CHANGE IN CONTROL". For purposes of this Plan, a qualifying "Change in Control" of CEC shall be deemed to occur if any of the following occur:
(1) Any "person" (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (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 CEC representing the following: (i) 50% or more of the combined voting power of CEC's then outstanding securities entitled to vote generally in the election of directors ("Voting Securities") at any time prior to CEC 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 CEC's then outstanding Voting Securities at any time after CEC 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:
(A) any acquisition or beneficial ownership by CEC or a subsidiary;
(B) any acquisition or beneficial ownership by any employee benefit plan (or related trust) sponsored or maintained by CEC 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 CEC's then outstanding Voting Securities and the Shares of CEC is then beneficially owned, directly or indirectly, by all or substantially all of the persons who beneficially owned Voting Securities and Shares of CEC 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 acquisitions;
(D) any acquisition of Shares or Voting Securities in CEC's initial public offering pursuant to a registration statement filed under the Securities Act.
(2) A majority of the members of the Board of Directors of CEC
shall not be Continuing Directors. "Continuing Directors" shall mean:
(A) individuals who, on the date hereof, are directors of CEC, (B)
individuals elected as directors of CEC subsequent to the date hereof
for whose election proxies shall have been solicited by the Board of
Directors of CEC or (C) any individual elected or appointed by the
Board of Directors of CEC to fill vacancies on the Board of Directors
of CEC caused by death or resignation (but not by removal) or to fill
newly-created directorships;
(3) Approval by the stockholders of CEC of a reorganization, merger or consolidation of CEC or a statutory exchange of outstanding Voting Securities of CEC, 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 CEC immediately prior to such reorganization, merger, consolidation or exchange beneficially own, directly or indirectly, more than 50% 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 CEC as the case may be; or
(4) Approval by the stockholders of CEC of (x) a complete liquidation or dissolution of CEC or (y) the sale or other disposition of all or substantially all of the assets of CEC (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% 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 CEC 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 CEC, as the case may be.
At all times after CEC 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 (1)(C), (3) and (4) above shall be changed to 65%.
RELEASE REQUIRED. Regardless of the reason for your termination, you will not be eligible for Plan benefits unless you sign a release form after your employment with CEC or a subsidiary actually terminates. You may obtain a copy of the current release form at any time by contacting the CEC Human Resources Department. However, CEC will determine the contents of the release form, and may revise it from time to time as appropriate to deal with particular severance situations. As such, the release form you will be required to sign to receive benefits under the Plan may differ from any release form you previously received.
The release will generally include provisions regarding noncompetition with Capella for a period of time after your employment terminates, confidentiality, return of Capella property and other topics, including a release of all claims against Capella, its employees and its representatives. The release may also include other topics in a given situation, including non-solicitation of clients and/or employees and compliance with CEC policies (such as code of conduct, business ethics and insider trading, as applicable). Severance benefits will be paid only after any period for rescinding the release has expired. If you violate the release, CEC will no longer be required to pay you any remaining severance benefits due to you under the Plan.
INELIGIBILITY FOR BENEFITS. Severance benefits will not be paid under this Plan in any of the following circumstances:
- You are offered another position with Capella (or
the successor/purchasing entity) and you refuse to
accept that position, other than for Good Reason
in connection with a qualified Change in Control.
- You voluntarily terminate your employment with
Capella (or the successor/purchasing entity),
other than for Good Reason in connection with a
qualified Change in Control.
- Your termination of employment does not qualify as
a "separation from service" under Internal Revenue
Code Section 409A or any guidance issued
thereunder.
- Your employment is terminated by Capella (or the
successor/purchasing entity) for Cause, whether or
not in connection with a Change in Control.
- You are placed on a temporary layoff.
- Your employment terminates due to death,
disability, or failure to return to work for
Capella following a leave of absence, layoff or
any other period of authorized absence from
Capella.
- You refuse to sign the release form prepared by
CEC, or you rescind the release before it becomes
final.
- You are a participant in the Capella Education
Company Senior Executive Severance Plan at the
time of your termination.
- You leave Capella under any other program in which
management solicits and accepts voluntary
terminations (in which case, severance pay will be
determined and paid only under the other program).
- You are covered by an individual written
employment contract or agreement with Capella at
the time your employment terminates that provides
for severance pay or other benefits upon
termination, except as described below.
IV. PLAN BENEFITS
A Participant who experiences a qualifying severance event under
Section III will be eligible to receive severance benefits under the
Plan, including severance pay, outplacement assistance and continuation
coverage under certain employee benefit plans.
SEVERANCE PAY
The amount and type of severance pay provided under the Plan depends on the severance event.
INVOLUNTARY TERMINATION. If your employment is involuntarily terminated by Capella, other than for Cause or within 24 months after a qualified Change in Control, you will be entitled to severance pay equal to six months of your base salary.
CHANGE IN CONTROL. If you voluntarily terminate for Good Reason 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.
YOUR "BASE SALARY." Severance pay under this Plan is calculated using your base salary at the time your employment terminates. Base salary excludes all bonuses (such as signing bonuses and incentive bonuses), stock options, profit sharing, benefits, taxable fringes, expenses allowances or reimbursements, imputed income, or any other special compensation.
PAYMENT. Generally, you will receive any severance pay you are entitled to in bi-weekly payments, spread out over the number of months on which your severance amount is based. Severance payments will begin as soon as administratively feasible after the date the release becomes irrevocable.
However, if as of the date of your termination of employment, you are a "specified employee", as such term is defined in Section 409A of the Internal Revenue Code (or the regulations thereunder) and if CEC's stock is publicly traded on an established
securities market, then you will receive any severance pay under this Plan in accordance with the following rules. Your initial severance payment will be made as of the first bi-weekly payment date occurring on or after the first day of the seventh month following your separation from service. The initial payment will equal the amount you would have received under the prior paragraph from the date the release became irrevocable until the initial payment date. After the initial payment, payments will continue bi-weekly for the remainder of the number of months on which your severance amount is based, if any.
OUTPLACEMENT ASSISTANCE
Participants eligible for benefits under this Plan will be eligible for up to 6 months of outplacement assistance. Any outplacement assistance provided under this Plan will be paid directly to the outplacement agency.
CONTINUATION COVERAGE
Federal and state laws require CEC 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.
If you are eligible for benefits under this Plan, CEC will pay the regular employer portion towards your continued coverage under CEC's group health, dental and basic life insurance plans for the number of months upon which your severance pay is based. For example, if you are a entitled to six months of severance pay, CEC will contribute to your continuation coverage for six months, subject to the limitations described below. After that time, you must pay the entire cost of continuation coverage if you wish to continue coverage.
To receive this continuation coverage benefit, you must elect continuation coverage in accordance with the documents you receive. In addition, you must pay the remaining portion of the cost of your continued coverage. If CEC changes the portion it contributes toward benefit coverage for active employees, it may also change its employer portion for purposes of continuation coverage benefits under this Plan. Any continuation benefit provided under this Plan will be paid directly to the applicable health, dental and/or basic life insurance program. If you are not eligible for continuation coverage at the time of termination or if you do not properly elect continuation coverage, you will not receive any payments in lieu of this subsidized continuation coverage.
IF YOU LOSE ELIGIBILITY FOR COBRA OR OTHER CONTINUATION COVERAGE, AS DESCRIBED IN THE COBRA DOCUMENTS YOU WILL RECEIVE, CEC WILL STOP PAYING ITS PORTION OF THE PREMIUMS FOR YOUR CONTINUATION COVERAGE.
REDUCTIONS OF SEVERANCE BENEFITS
All severance benefits payable under this Plan will be reduced by the amount of any severance or similar payment required to be paid to you by CEC under applicable federal, state, and local laws. Cash severance payments are also subject to all applicable withholding, including state and federal income tax withholding and FICA and Medicare tax withholding.
In addition, in no event will the severance amount you receive exceed two times your yearly salary for the twelve months preceding your termination (or the amount you would have earned had you worked a full year).
Severance pay under this Plan will be reduced (offset) by the amount of any payment made by CEC to you pursuant to an employment contract, agreement or other severance arrangement, to the extent such payment is called a severance payment or otherwise becomes payable due to a termination. If such an agreement, contract or arrangement provides for severance payments in excess of those provided under this Plan, no severance pay will be due under this Plan, however, you may still be eligible for other benefits under the Plan, to the extent benefits are not duplicative of what you are receiving under the agreement, contract or arrangement.
TERMINATION OF SEVERANCE BENEFITS
All severance benefits payable under this Plan (including severance pay, outplacement assistance and continuation coverage premiums) will be terminated if CEC determines that you have violated the noncompetition or confidentiality provisions contained in your release form.
V. AMENDMENT AND TERMINATION OF THE PLAN
Except as provided below, CEC reserves the right in its discretion to amend or terminate this Plan, or to alter, reduce, or eliminate any severance benefit, practice or policy hereunder, in whole or in part, at any time and for any reason without the consent of or notice to any employee or any other person having any beneficial interest in this Plan. Such action may be taken by the Board of Directors of CEC, by the Chief Executive Officer of CEC, or by any other individual or committee to whom such authority has been delegated by the Board of Directors.
However, during the 24-month period following a Change in Control, the Plan may not be amended, terminated or otherwise altered to reduce the amount (or change the
terms) of any severance benefit that becomes payable to a Participant who was a Participant in the Plan on the day prior to the Change in Control.
In addition, if a Change in Control occurs within the 6-month period following the effective date of an amendment to terminate the Plan or otherwise reduce the amount (or alter the terms) of any severance benefit under the Plan, such amendment (or portion of such amendment) will become null and void upon the Change in Control. Upon the Change in Control, the Plan will automatically revert to the terms in effect prior to the adoption of said amendment.
Notwithstanding the above limitations, the Plan may be amended at any time (and such amendment will be given affect) if such amendment is required to bring the Plan into compliance with applicable law, including but not limited to Section 409A of the Internal Revenue Code.
This Plan shall terminate immediately upon CEC's filing for relief in bankruptcy or on such date as an order for relief in bankruptcy is entered against CEC. A Participant who experiences a severance event after such termination will not be eligible for benefits under this Plan.
VI. SUBMITTING CLAIMS FOR BENEFITS
Normally, CEC will determine an employee's eligibility and benefit amount on its own and without any action on the part of the terminating employee, other than returning the release form. The severance payments will begin as soon as administratively feasible after the date the release becomes irrevocable.
FORMAL CLAIMS FOR BENEFITS. If you think you are entitled to benefits but have not been so notified by CEC, if you disagree with a decision made by CEC, or if you have any other complaint regarding the Plan that is not resolved to your satisfaction, you or your authorized representative may submit a written claim for benefits. The claim must be submitted to CEC's Human Resources Department in Minneapolis, Minnesota within six months after the date you terminated employment. Claims received after that time will not be considered.
CEC will ordinarily respond to the claim within 90 days of the date on which it is received. However, if special circumstances require an extension of the period of time for processing a claim, the 90-day period can be extended for an additional 90 days by giving you written notice of the extension, the reason why the extension is necessary, and the date a decision is expected.
CEC will give you a written notice of its decision if it denies your claim for benefits in whole or in part. The notice will explain the specific reasons for the decision, including references to the relevant plan provision upon which the decision is based,
with a description of any additional material or information necessary for you to perfect your claim, and the procedures for appealing the decision.
APPEALS. If you disagree with the initial claim determination, in whole or in part, you or your authorized representative can request that the decision be reviewed by filing a written request for review with CEC's Human Resources Department in Minneapolis, Minnesota within 60 days after receiving notice that the claim has been denied. You or your representative may present written statements describing reasons why you believe the claim denial was in error, and should include copies of any documents you want us to consider in support of your appeal. Your claim will be decided based on the information submitted, so you should make sure that your submission is complete. Upon request to CEC, you may review all documents we considered or relied on in deciding your claim. (You may also receive copies of these documents free of charge.)
Any appeal will be reviewed and decided by person(s) other than the person(s) who made the determination on your original claim. Generally, the decision will be reviewed within 60 days after CEC receives a request for review. However, if special circumstances require a delay, the review may take up to 120 days. (If a decision cannot be made within the 60-day period, you will be notified of this fact in writing.) You will receive a written notice of the decision on the appeal, which will explain the reasons for the decision by making specific reference to the Plan provisions on which the decision is based.
LIMITATIONS PERIOD. The claims procedure above is mandatory. If an employee has completed the entire claims procedure and still disagrees with the outcome of the employee's claim, the employee may commence a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The employee must commence such civil action within one year of the date of the final denial, or the employee will waive all rights to relief under ERISA.
VII. PLAN ADMINISTRATION
The following information relates to the administration of the Plan and the determination of Plan benefits.
NAME OF PLAN:
Capella Education Company Executive Severance Plan
TYPE OF PLAN:
The Plan is a "welfare benefits plan" that provides severance benefits in the event a participant's employment with CEC or its subsidiaries terminates under certain
circumstances. All benefits are paid from the general assets of CEC. No trust fund, insurance contract or other pool of assets is maintained to provide Plan benefits.
PLAN ADMINISTRATOR/PLAN SPONSOR:
CEC is the "Plan Sponsor" and "Plan Administrator" of this Plan. Communications to CEC regarding the Plan should be addressed to:
Capella Education Company ATTN: Human Resources Department 225 South Sixth Street, 8th Floor Minneapolis, MN 55402
Telephone: (612) 977-5299
As Plan Administrator, CEC has complete discretionary authority to interpret the provisions of the Plan and to determine which employees are eligible to participate and eligible for Plan benefits, the requirements to receive severance benefits, and the amount of those benefits. CEC also has authority to correct any errors that may occur in the administration of the Plan, including recovering any overpayment of benefits from the person who received it.
EMPLOYER IDENTIFICATION NUMBER: 41-1717955
PLAN NUMBER: 506
PLAN YEAR: The calendar year.
AGENT FOR SERVICE OF LEGAL PROCESS:
Legal process regarding the Plan may be served on CEC at the address listed above.
ASSIGNMENT OF BENEFITS:
You cannot assign your benefits under this Plan to anyone else, and your benefits are not subject to attachment by your creditors. CEC will not pay Plan benefits to anyone other than you (or your estate, if you die after having a qualifying severance event but before receiving the complete severance amount payable to you up to the date of your death).
GOVERNING LAW:
This Plan, to the extent not preempted by ERISA or any other federal law shall be governed by and construed in accordance with, the laws of the sate of Minnesota.
EMPLOYMENT RIGHTS:
Establishment of the Plan shall not be construed to in any way modify the parties' at-will employment relationship, or to give any employee the right to be retained in CEC's service or to any benefits not specifically provided by the Plan. The right of an employer to terminate the employment relationship of an employee (or to accelerate the termination date) will not in any way be affected by the terms of this Plan or any release.
STATEMENT OF RIGHTS OF PARTICIPANTS:
As a participant in this Plan, you are entitled to certain rights and protections under the Employee Retirement Income Security Act of 1974 ("ERISA"). ERISA provides that all Plan participants are entitled to:
1. Examine, without charge, at CEC's Human Resources Department and at other specified locations, such as worksites, all documents governing the Plan and a copy of the latest annual report (Form 5500 Series) filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee Benefits Security Administration, if required.
2. Obtain, upon written request to CEC's Human Resources Department, copies of documents governing the operation of the Plan and copies of the latest annual report (Form 5500 Series), if required, and updated summary plan description. CEC may make a reasonable charge for the copies.
3. Receive a summary of the Plan's annual financial report (if the Plan is required to file such a report). CEC is required by law to furnish each participant with a copy of this summary financial report.
In addition to creating rights for Plan participants, ERISA imposes duties upon the people who are responsible for the operation of the Plan. The people who operate your Plan, called "fiduciaries" of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one may fire you or otherwise discriminate against you in any way to prevent you from obtaining a welfare benefit or exercising your rights under ERISA.
If your claim for a welfare benefit is denied or ignored, in whole or in part, you have the right to know why this was done, to obtain copies of documents relating to the decision without charge, and to appeal any denial, all with certain time schedules.
Under ERISA there are steps you can take to enforce the above rights. For instance, if you request a copy of plan documents or the latest annual report from the Plan and do not receive them within 30 days, you may file suit in a federal court. In such a case, the court may require CEC to provide the materials and pay you up to $110 a
day until you receive the materials, unless the materials were not sent because of reasons beyond its control. If you have a claim for benefits which is denied or ignored, in whole or in part, and you have exhausted your appeal rights under the Plan's claims procedure, you may file suit in a state or federal court. If you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in federal court. The court will decide who should pay costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous.
If you have any questions about the Plan, you should contact CEC's Human Resources Department. If you have any questions about this statement or about your rights under ERISA, or if you need assistance in obtaining documents from CEC, you should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C., 20210. You may also obtain certain publications about your rights and responsibilities under ERISA by calling the publications hotline of the Employee Benefits Security Administration.
EXHIBIT 10.40
AMENDMENT 1 TO
EMPLOYMENT AGREEMENT
This Amendment 1 to Employment Agreement ("Amendment") is entered into as of this 25th day of August, 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 and Employee entered into an Employment Agreement dated May 30, 2006 (the "Agreement"); and
WHEREAS CEC and Employee now wish to modify the Agreement as more fully described below.
AMENDMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the following undertakings, CEC and Employee agree as follows:
1. Section 3(b) of the Agreement is hereby deleted in its entirety and replaced with the following:
(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's employment with CEC terminates on or after December 31, 2006, he shall receive a bonus for 2006, regardless of when such bonus is paid by CEC.
2. Section 5 (c) of the Agreement is hereby deleted in its entirety and replaced with the following:
(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, he shall be entitled to receive severance benefits outlined in the Severance Plan for such a termination.
3. Section 5(d) of the Agreement is hereby deleted in its entirety and replaced with the following:
(d) Voluntary Termination prior to March 3, 2007. If Employee voluntarily terminates his employment with CEC such that his employment ends before March 3, 2007, Employee shall not be entitled to receive severance benefits as outlined in the Severance Plan.
4. Section 5(e) of the Agreement is hereby deleted in its entirety and replaced with the following:
(e) Voluntary Termination between March 3, 2007 and May 31, 2007, Inclusive. If Employee voluntarily terminates his employment with CEC by providing at least thirty-days' advance notice of termination during the month of February 2007, such that his employment ends on or after March 3, 2007 and on or before May 31, 2007, he shall be entitled to receive severance benefits outlined in the Severance Plan for an involuntary termination other than for Cause.
6. Section 8 of the Agreement is hereby deleted in its entirety and replaced with the following:
8. Term of Agreement. This Agreement shall remain in effect until June 1, 2007. In the event that Employee is still employed by CEC on June 1, 2007, such employment shall be at-will and on such terms as are at such time agreed by Employee and CEC.
5. A new Section 10 is added to the Agreement as indicated below, and existing Sections 10, 11, 12, 13 and 14 are renumbered as Sections 11, 12, 13, 14 and 15, respectively:
10. Lockup Agreement. Employee agrees to sign a lockup agreement in conjunction with CEC's planned initial public offering. In the event that CEC's initial public offering is completed in calendar year 2006, the lockup shall expire not later than 214 days following the date of the final prospectus used to sell the securities. In the event that the initial public offering is not completed in calendar year 2006, the lockup shall expire on December 31, 2006.
7. Except as expressly modified by this Amendment, the terms of the Agreement remain unchanged and in full force and effect.
[The balance of this page was intentionally left blank]
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/ Gregory W. Thom ----------------------------------- Its: VP, General Counsel & Secretary ------------------------------ EMPLOYEE: /s/ Paul Schroeder ------------------ Paul Schroeder |
EXHIBIT 10.41
AMENDMENT 1 TO
EMPLOYMENT AGREEMENT
This Amendment 1 to Employment Agreement ("Amendment") is entered into as of this 25th day of August, 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 and Employee entered into an Employment Agreement dated May 30, 2006 (the "Agreement"); and
WHEREAS CEC and Employee now wish to modify the Agreement as more fully described below.
AMENDMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the following undertakings, CEC and Employee agree as follows:
1. Section 3(b) of the Agreement is hereby deleted in its entirety and replaced with the following:
(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's employment with CEC terminates on or after December 31, 2006, he shall receive a bonus for 2006, regardless of when such bonus is paid by CEC.
2. Section 5 (c) of the Agreement is hereby deleted in its entirety and replaced with the following:
(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, he shall be entitled to receive severance benefits outlined in the Severance Plan for such a termination.
3. Section 5(d) of the Agreement is hereby deleted in its entirety and replaced with the following:
(d) Voluntary Termination prior to March 3, 2007. If Employee voluntarily terminates his employment with CEC such that his employment ends before March 3, 2007, Employee shall not be entitled to receive severance benefits as outlined in the Severance Plan.
4. Section 5(e) of the Agreement is hereby deleted in its entirety and replaced with the following:
(e) Voluntary Termination between March 3, 2007 and May 31, 2007, Inclusive. If Employee voluntarily terminates his employment with CEC by providing at least thirty-days' advance notice of termination during the month of February 2007, such that his employment ends on or after March 3, 2007 and on or before May 31, 2007, he shall be entitled to receive severance benefits outlined in the Severance Plan for an involuntary termination other than for Cause.
5. Section 7 of the Agreement is hereby deleted in its entirety and replaced with the following:
7. Lockup Agreement. Employee agrees to sign a lockup agreement within ten days of CEC commencing its initial public offering "road show." In the event that CEC's initial public offering is completed in calendar year 2006, the lockup shall expire not later than 214 days following the date of the final prospectus used to sell the securities. In the event that the initial public offering is not completed in calendar year 2006, the lockup shall expire on December 31, 2006.
6. Section 9 of the Agreement is hereby deleted in its entirety and replaced with the following:
9. Term of Agreement. This Agreement shall remain in effect until June 1, 2007. In the event that Employee is still employed by CEC on June 1, 2007, such employment shall be at-will and on such terms as are at such time agreed by Employee and CEC.
7. Except as expressly modified by this Amendment, the terms of the Agreement remain unchanged and in full force and effect.
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/ Gregory W. Thom ----------------------------- Its: VP, General Counsel & Secretary ------------------------ |
EMPLOYEE:
/s/ Michael J. Offerman ----------------------------------- Michael Offerman |
EXHIBIT 10.42
AMENDMENT NO. 1
TO
CAPELLA EDUCATION COMPANY
2005 STOCK INCENTIVE PLAN
This Amendment No. 1 is effective as of September 29, 2006 with respect to the 2005 Stock Incentive Plan (the "Plan") of Capella Education Company (the "Company").
The Board of Directors of the Company recommended and the stockholders of the Company approved on September 29, 2006 an amendment to Section 4(a) of the Plan to increase the aggregate number of Shares available for distribution under the Plan from 1,613,000 to 3,013,000.
All defined terms not otherwise defined herein shall have the meaning set forth in the Plan.
The Plan is hereby amended as follows:
1. Section 4(a) of the Plan is amended by deleting "1,613,000" and inserting in lieu thereof "3,013,000".
Except as amended hereby, the Plan is unchanged and remains in full force and effect.
EXHIBIT 10.43
CAPELLA EDUCATION COMPANY
SENIOR EXECUTIVE SEVERANCE PLAN
(AS EFFECTIVE SEPTEMBER 11, 2006)
I. INTRODUCTION
Capella Education Company ("CEC") has established the Capella Education Company Senior Executive Severance Plan (the "Plan") to provide severance pay and other benefits to eligible employees of CEC and its subsidiaries whose employment terminates under certain covered circumstances. CEC, in its complete and sole discretion, will determine who is an eligible employee, the requirements to receive severance benefits, and the amount of any benefits.
The Plan is effective for eligible employees who terminate on or after September 11, 2006. Prior to that date, severance benefits for certain eligible employees were provided under the Capella Education Company Executive Severance Plan. This Plan supersedes and replaces any policy, plan or practice that may have existed in the past regarding the payment of severance benefits to eligible employees, with the exception of the Capella Education Company Executive Severance Plan. However, any individual written employment contract or agreement between CEC (or a subsidiary) and an eligible employee that specifically provides for the payment of severance benefits remains in force, as detailed below.
This document is both the "Plan document" and the "Summary Plan Description" for the Plan.
Any reference in this Plan to "Capella" includes CEC and its subsidiaries.
II. ELIGIBILITY
Only those employees who have been designated in writing by CEC's Chief Executive Officer ("CEO") as eligible to participate in the Plan are eligible to become participants in the Plan. However, any employee who was designated as a Level 2 Participant under the Capella Education Company Executive Severance Plan as of the effective date of this Plan shall automatically become a Participant in this Plan on such date.
The terms of the written designation by the CEO, not the employee's job title or classification for other purposes, determine whether an employee is eligible for benefits under the Plan. The written designation for a particular employee may be changed from time to time at the discretion of the CEO.
However, the Plan is intended to cover only employees who are in a select group of management or highly compensated employees within the meaning of ERISA Sections 201(2), 301(a)(3) and 401(a)(1); and, accordingly, if any interpretation is issued by the Department of Labor that would exclude any employee from satisfying that requirement, such employee immediately will cease to be in a participant in this Plan and will instead become a participant in the Capella Education Company Executive Severance Plan.
If you are designated as an eligible employee under this Plan, you must also complete 90 days of service with Capella, measured from your most recent date of hire, prior to becoming a participant in the Plan.
You will cease to be a participant in this Plan when you cease to be designated by CEC as an eligible employee.
III. SEVERANCE EVENTS
In general, if you are an eligible participant in this Plan, and you comply with all provisions and requirements of the Plan, you will receive severance benefits if your employment with Capella is involuntarily terminated other than for Cause. A voluntary termination by you for Good Reason within 24 months following a qualified Change in Control is also a severance eligible event. These concepts are described in detail below.
"FOR CAUSE". You will not be eligible for benefits under this Plan if your employment is terminated by Capella "for Cause." "Cause" means 1) employee's commission of a crime or other act that could materially damage the reputation of Capella; 2) employee's theft, misappropriation, or embezzlement of Capella property; 3) employee's falsification of records maintained by Capella; 4) employee's failure substantially to comply with the written policies and procedures of Capella as they may be published or revised from time to time (in writing, on the Faculty Center website, or on the Stella intranet); 5) employee's misconduct directed toward learners, employees, or adjunct faculty; or 6) employee's failure substantially to perform the material duties of employee's Capella employment, which failure is not cured within 30 days after written notice from Capella specifying the act of non-performance.
"GOOD REASON". If you terminate employment with Capella voluntarily, you will be eligible for Plan benefits only if you terminated with Good Reason following a qualified Change in Control, as defined below. "Good Reason" means 1) the demotion or reduction of your job responsibilities upon a Change in Control; 2) your total targeted compensation is decreased by more than ten percent in a twelve month period; or 3) a reassignment of your principal place of work, without your consent, to a location more than 50 miles from your principal place of work upon a Change of Control. To be eligible for Plan benefits, you must terminate employment for Good Reason within 24 months after the date of the qualified Change in Control. In
addition, you must have provided written notice to CEC of the asserted Good Reason not later than 30 days after the occurrence of the event on which Good Reason is based and at least 30 days prior to your proposed termination date. CEC may take action to cure your stated Good Reason within this 30-day period. If CEC does so, you will not be eligible for Plan benefits if you voluntarily terminate.
"CHANGE IN CONTROL". For purposes of this Plan, a qualifying "Change in Control" of CEC shall be deemed to occur if any of the following occur:
(1) Any "person" (as such term is used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934 (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 CEC representing the following: (i) 50% or more of the combined voting power of CEC's then outstanding securities entitled to vote generally in the election of directors ("Voting Securities") at any time prior to CEC 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 CEC's then outstanding Voting Securities at any time after CEC 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:
(A) any acquisition or beneficial ownership by CEC or a subsidiary;
(B) any acquisition or beneficial ownership by any employee benefit plan (or related trust) sponsored or maintained by CEC 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 CEC's then outstanding Voting Securities and the Shares of CEC is then beneficially owned, directly or indirectly, by all or substantially all of the persons who beneficially owned Voting Securities and Shares of CEC 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 acquisitions;
(D) any acquisition of Shares or Voting Securities in CEC's initial public offering pursuant to a registration statement filed under the Securities Act.
(2) A majority of the members of the Board of Directors of CEC
shall not be Continuing Directors. "Continuing Directors" shall mean:
(A) individuals who, on the date hereof, are directors of CEC, (B)
individuals elected as directors of CEC subsequent to the date hereof
for whose election proxies shall have been solicited by
the Board of Directors of CEC or (C) any individual elected or appointed by the Board of Directors of CEC to fill vacancies on the Board of Directors of CEC caused by death or resignation (but not by removal) or to fill newly-created directorships;
(3) Approval by the stockholders of CEC of a reorganization, merger or consolidation of CEC or a statutory exchange of outstanding Voting Securities of CEC, 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 CEC immediately prior to such reorganization, merger, consolidation or exchange beneficially own, directly or indirectly, more than 50% 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 CEC as the case may be; or
(4) Approval by the stockholders of CEC of (x) a complete liquidation or dissolution of CEC or (y) the sale or other disposition of all or substantially all of the assets of CEC (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% 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 CEC 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 CEC, as the case may be.
At all times after CEC 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 (1)(C), (3) and (4) above shall be changed to 65%.
RELEASE REQUIRED. Regardless of the reason for your termination, you will not be eligible for Plan benefits unless you sign a release form after your employment with CEC or a subsidiary actually terminates. You may obtain a copy of the current release form at any time by contacting the CEC Human Resources Department. However, CEC will determine the contents of the release form, and may revise it from time to time as appropriate to deal with particular severance situations. As such, the release form you will be required to sign to receive benefits under the Plan may differ from any release form you previously received.
The release will generally include provisions regarding noncompetition with Capella for a period of time after your employment terminates, confidentiality, return of Capella property and other topics, including a release of all claims against Capella, its employees and its representatives. The release may also include other topics in a given situation, including non-solicitation of clients and/or employees and compliance with CEC policies (such as code of conduct, business ethics and insider trading, as applicable). Severance benefits will be paid only after any period for rescinding the release has expired. If you violate the release, CEC will no longer be required to pay you any remaining severance benefits due to you under the Plan.
INELIGIBILITY FOR BENEFITS. Severance benefits will not be paid under this Plan in any of the following circumstances:
- You are offered another position with Capella (or
the successor/purchasing entity) and you refuse to
accept that position, other than for Good Reason
in connection with a qualified Change in Control.
- You voluntarily terminate your employment with
Capella (or the successor/purchasing entity),
other than for Good Reason in connection with a
qualified Change in Control.
- Your termination of employment does not qualify as
a "separation from service" under Internal Revenue
Code Section 409A or any guidance issued
thereunder.
- Your employment is terminated by Capella (or the
successor/purchasing entity) for Cause, whether or
not in connection with a Change in Control.
- You are placed on a temporary layoff.
- Your employment terminates due to death,
disability, or failure to return to work for
Capella following a leave of absence, layoff or
any other period of authorized absence from
Capella.
- You refuse to sign the release form prepared by
CEC, or you rescind the release before it becomes
final.
- You are a participant in the Capella Education
Company Executive Severance Plan at the time of
your termination.
- You leave Capella under any other program in which
management solicits and accepts voluntary
terminations (in which case, severance pay will be
determined and paid only under the other program).
- You are covered by an individual written
employment contract or agreement with Capella at
the time your employment terminates that provides
for severance pay or other benefits upon
termination, except as described below.
IV. PLAN BENEFITS
A Participant who experiences a qualifying severance event under
Section III while a Participant will be eligible to receive severance
benefits under the Plan, including severance pay, outplacement
assistance and continuation coverage under certain employee benefit
plans.
SEVERANCE PAY
The amount and type of severance pay provided under the Plan depends on the severance event.
INVOLUNTARY TERMINATION. If your employment is involuntarily terminated by Capella, other than for Cause or within 24 months after a qualified Change in Control, you will be entitled to severance pay equal to twelve months of your base salary.
CHANGE IN CONTROL. If you voluntarily terminate for Good Reason 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 twenty-four months of your base salary. You will also be entitled to two times the amount of any targeted bonus for the year in which you terminate, without regard to performance.
However, if the CEO as of the original effective date of this Plan voluntarily terminates for Good Reason following a Change in Control, or if he is involuntarily terminated other than for Cause, within 24 months after a qualified Change in Control, he will be entitled to severance pay equal to twelve month of his base salary and 80% of the amount of any targeted bonus for the year in which he terminates, prorated to the date of termination, without regard to performance.
YOUR "BASE SALARY." Severance pay under this Plan is calculated using your base salary at the time your employment terminates. Base salary excludes all bonuses (such as signing bonuses and incentive bonuses), stock options, profit sharing, benefits, taxable fringes, expenses allowances or reimbursements, imputed income, or any other special compensation.
PAYMENT. Generally, you will receive any severance pay you are entitled to in bi-weekly payments, spread out over the number of months on which your severance amount is based. Severance payments will begin as soon as administratively feasible after the date the release becomes irrevocable.
However, if as of the date of your termination of employment, you are a "specified employee", as such term is defined in Section 409A of the Internal Revenue Code (or the regulations thereunder) and if CEC's stock is publicly traded on an established securities market, then you will receive any severance pay under this Plan in
accordance with the following rules. Your initial severance payment will be made as of the first bi-weekly payment date occurring on or after the first day of the seventh month following your separation from service. The initial payment will equal the amount you would have received under the prior paragraph from the date the release became irrevocable until the initial payment date. After the initial payment, payments will continue bi-weekly for the remainder of the number of months on which your severance amount is based.
OUTPLACEMENT ASSISTANCE
Participants eligible for benefits under this Plan will also be eligible for up to 12 months of outplacement assistance. Any outplacement assistance provided under this Plan will be paid directly to the outplacement agency.
CONTINUATION COVERAGE
Federal and state laws require CEC 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.
If you are eligible for benefits under this Plan, CEC will pay the regular employer portion towards your continued coverage under CEC's group health, dental and basic life insurance plans for the number of months upon which your severance pay is based, up to a maximum of 18 months. For example, if you are entitled to twelve months of severance pay, CEC will contribute to your continuation coverage for twelve months, subject to the limitations described below. However, if you are entitled to twenty-four months of severance pay, CEC will contributed to your continuation coverage for eighteen months, subject to the limitations described below. After that time, you must pay the entire cost of continuation coverage if you wish to continue coverage.
To receive this continuation coverage benefit, you must elect continuation coverage in accordance with the documents you receive. In addition, you must pay the remaining portion of the cost of your continued coverage. If CEC changes the portion it contributes toward benefit coverage for active employees, it may also change its employer portion for purposes of continuation coverage benefits under this Plan. Any continuation benefit provided under this Plan will be paid directly to the applicable health, dental and/or basic life insurance program. If you are not eligible for continuation coverage at the time of termination or if you do not properly elect continuation coverage, you will not receive any payments in lieu of this subsidized continuation coverage.
IF YOU LOSE ELIGIBILITY FOR COBRA OR OTHER CONTINUATION COVERAGE, AS DESCRIBED IN THE COBRA DOCUMENTS YOU WILL RECEIVE, CEC WILL STOP PAYING ITS PORTION OF THE PREMIUMS FOR YOUR CONTINUATION COVERAGE.
REDUCTIONS OF SEVERANCE BENEFITS
All severance benefits payable under this Plan will be reduced by the amount of any severance or similar payment required to be paid to you by CEC under applicable federal, state, and local laws. Cash severance payments are also subject to all applicable withholding, including state and federal income tax withholding and FICA and Medicare tax withholding.
Severance pay under this Plan will be reduced (offset) by the amount of any payment made by CEC to you pursuant to an employment contract, agreement or other severance arrangement, to the extent such payment is called a severance payment or otherwise becomes payable due to a termination. If such an agreement, contract or arrangement provides for severance payments in excess of those provided under this Plan, no severance pay will be due under this Plan, however, you may still be eligible for other benefits under the Plan, to the extent benefits are not duplicative of what you are receiving under the agreement, contract or arrangement.
TERMINATION OF SEVERANCE BENEFITS
All severance benefits payable under this Plan (including severance pay, outplacement assistance and continuation coverage premiums) will be terminated if CEC determines that you have violated the noncompetition or confidentiality provisions contained in your release form.
V. AMENDMENT AND TERMINATION OF THE PLAN
Except as provided below, CEC reserves the right in its discretion to amend or terminate this Plan, or to alter, reduce, or eliminate any severance benefit, practice or policy hereunder, in whole or in part, at any time and for any reason without the consent of or notice to any employee or any other person having any beneficial interest in this Plan. Such action may be taken by the Board of Directors of CEC, by the Chief Executive Officer of CEC, or by any other individual or committee to whom such authority has been delegated by the Board of Directors.
However, during the 24-month period following a Change in Control, the Plan may not be amended, terminated or otherwise altered to reduce the amount (or change the terms) of any severance benefit that becomes payable to a Participant who was a Participant in the Plan on the day prior to the Change in Control.
In addition, if a Change in Control occurs within the 6-month period following the effective date of an amendment to terminate the Plan or otherwise reduce the amount
(or alter the terms) of any severance benefit under the Plan, such amendment (or portion of such amendment) will become null and void upon the Change in Control. Upon the Change in Control, the Plan will automatically revert to the terms in effect prior to the adoption of said amendment.
Notwithstanding the above limitations, the Plan may be amended at any time (and such amendment will be given affect) if such amendment is required to bring the Plan into compliance with applicable law, including but not limited to Section 409A of the Internal Revenue Code.
This Plan shall terminate immediately upon CEC's filing for relief in bankruptcy or on such date as an order for relief in bankruptcy is entered against CEC. A Participant who experiences a severance event after such termination will not be eligible for benefits under this Plan.
VI. SUBMITTING CLAIMS FOR BENEFITS
Normally, CEC will determine an employee's eligibility and benefit amount on its own and without any action on the part of the terminating employee, other than returning the release form. The severance payments will begin as soon as administratively feasible after the date the release becomes irrevocable.
FORMAL CLAIMS FOR BENEFITS. If you think you are entitled to benefits but have not been so notified by CEC, if you disagree with a decision made by CEC, or if you have any other complaint regarding the Plan that is not resolved to your satisfaction, you or your authorized representative may submit a written claim for benefits. The claim must be submitted to CEC's Human Resources Department in Minneapolis, Minnesota within six months after the date you terminated employment. Claims received after that time will not be considered.
CEC will ordinarily respond to the claim within 90 days of the date on which it is received. However, if special circumstances require an extension of the period of time for processing a claim, the 90-day period can be extended for an additional 90 days by giving you written notice of the extension, the reason why the extension is necessary, and the date a decision is expected.
CEC will give you a written notice of its decision if it denies your claim for benefits in whole or in part. The notice will explain the specific reasons for the decision, including references to the relevant plan provision upon which the decision is based, with a description of any additional material or information necessary for you to perfect your claim, and the procedures for appealing the decision.
APPEALS. If you disagree with the initial claim determination, in whole or in part, you or your authorized representative can request that the decision be reviewed by filing a written request for review with CEC's Human Resources Department in Minneapolis,
Minnesota within 60 days after receiving notice that the claim has been denied. You or your representative may present written statements describing reasons why you believe the claim denial was in error, and should include copies of any documents you want us to consider in support of your appeal. Your claim will be decided based on the information submitted, so you should make sure that your submission is complete. Upon request to CEC, you may review all documents we considered or relied on in deciding your claim. (You may also receive copies of these documents free of charge.)
Any appeal will be reviewed and decided by person(s) other than the person(s) who made the determination on your original claim. Generally, the decision will be reviewed within 60 days after CEC receives a request for review. However, if special circumstances require a delay, the review may take up to 120 days. (If a decision cannot be made within the 60-day period, you will be notified of this fact in writing.) You will receive a written notice of the decision on the appeal, which will explain the reasons for the decision by making specific reference to the Plan provisions on which the decision is based.
LIMITATIONS PERIOD. The claims procedure above is mandatory. If an employee has completed the entire claims procedure and still disagrees with the outcome of the employee's claim, the employee may commence a civil action under Section 502(a) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The employee must commence such civil action within one year of the date of the final denial, or the employee will waive all rights to relief under ERISA.
VII. PLAN ADMINISTRATION
The following information relates to the administration of the Plan and the determination of Plan benefits.
NAME OF PLAN:
Capella Education Company Senior Executive Severance Plan
TYPE OF PLAN:
The Plan is a "top-hat" plan -- that is, an unfunded plan maintained
primarily for the purpose of providing deferred compensation/severance
benefits for a select group of management or highly compensated
employees within the meaning of ERISA Sections 201(2), 301(a)(3) and
401(a)(1), and therefore is exempt from Parts 2, 3 and 4 of Title I of
ERISA.
PLAN ADMINISTRATOR/PLAN SPONSOR:
CEC is the "Plan Sponsor" and "Plan Administrator" of this Plan. Communications to CEC regarding the Plan should be addressed to:
Capella Education Company ATTN: Human Resources Department 225 South Sixth Street, 8th Floor Minneapolis, MN 55402
Telephone: (612) 977-5299
As Plan Administrator, CEC has complete discretionary authority to interpret the provisions of the Plan and to determine which employees are eligible to participate and eligible for Plan benefits, the requirements to receive severance benefits, and the amount of those benefits. CEC also has authority to correct any errors that may occur in the administration of the Plan, including recovering any overpayment of benefits from the person who received it.
EMPLOYER IDENTIFICATION NUMBER: 41-1717955
PLAN YEAR: The calendar year.
AGENT FOR SERVICE OF LEGAL PROCESS:
Legal process regarding the Plan may be served on CEC at the address listed above.
ASSIGNMENT OF BENEFITS:
You cannot assign your benefits under this Plan to anyone else, and your benefits are not subject to attachment by your creditors. CEC will not pay Plan benefits to anyone other than you (or your estate, if you die after having a qualifying severance event but before receiving the complete severance amount payable to you up to the date of your death).
GOVERNING LAW:
This Plan, to the extent not preempted by ERISA or any other federal law shall be governed by and construed in accordance with, the laws of the sate of Minnesota.
EMPLOYMENT RIGHTS:
Establishment of the Plan shall not be construed to in any way modify the parties' at-will employment relationship, or to give any employee the right to be retained in CEC's service or to any benefits not specifically provided by the Plan. The right of an employer to terminate the employment relationship of an employee (or to accelerate the termination date) will not in any way be affected by the terms of this Plan or any release.
/s/ Ernst & Young LLP |