EXHIBIT 4.16
CAPELLA EDUCATION COMPANY
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MAVERON CLASS G CONVERTIBLE PREFERRED
STOCK PURCHASE AGREEMENT
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TABLE OF CONTENTS
Page
SECTION 1. ISSUANCE AND SALE OF THE CLASS G PREFERRED STOCK................................................. 2
1.1. The Purchase..................................................................................... 2
1.2. The Closing...................................................................................... 2
1.3. Deliveries at the Closing........................................................................ 2
1.4. Additional Issuances; Adjustment................................................................. 3
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................... 4
2.1. Organization and Standing........................................................................ 4
2.2. Power............................................................................................ 4
2.3. Subsidiaries..................................................................................... 4
2.4. Capitalization................................................................................... 5
2.5. Authorization; No Breach......................................................................... 7
2.6. Material Contracts............................................................................... 7
2.7. Litigation....................................................................................... 8
2.8. Consents......................................................................................... 8
2.9. Title to Properties; Liens and Encumbrances; Assets of the Business.............................. 8
2.10. Intellectual Property............................................................................ 9
2.11. Taxes............................................................................................ 10
2.12. Brokers.......................................................................................... 11
2.13. Compliance with Laws; Permits; Accreditation and State Regulatory Requirements................... 11
2.14. Offering Exemption............................................................................... 15
2.15. Employees; Proprietary Information Agreement..................................................... 15
2.16. Insurance........................................................................................ 16
2.17. [Intentionally Omitted].......................................................................... 16
2.18. Financial Statements............................................................................. 16
2.19. Related Party Transactions....................................................................... 17
2.20. Environmental Matters............................................................................ 17
2.21. Employee Benefit Plans........................................................................... 18
2.22. Labor Relations; Employees....................................................................... 20
2.23. Absence of Changes............................................................................... 20
2.24. Suppliers and Customers.......................................................................... 21
2.25. Suitability...................................................................................... 21
2.26. Operations of the Company........................................................................ 21
2.27. Recruitment; Admissions Procedures; Attendance; Reports.......................................... 22
2.28. USDOE Demonstration Program...................................................................... 22
2.29. Disclosure....................................................................................... 23
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SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.................................................. 23
3.1. Power; Authorization............................................................................. 23
3.2. No Breach........................................................................................ 23
3.3. Investment; Securities Laws...................................................................... 24
3.4. Accredited Investor.............................................................................. 24
3.5. Rule 144......................................................................................... 24
3.6. Availability of Funds............................................................................ 24
3.7. Brokers.......................................................................................... 24
3.8. Independent Investigation and Counsel............................................................ 24
3.9. Investor Qualifications.......................................................................... 25
SECTION 4. CONDITIONS TO CLOSING OF THE INVESTORS........................................................... 25
4.1. Representations and Warranties Correct........................................................... 25
4.2. Covenants........................................................................................ 25
4.3. Material Adverse Change.......................................................................... 26
4.4. Compliance Certificate........................................................................... 26
4.5. Opinion of Company's Counsel..................................................................... 26
4.6. Officer's Certificate............................................................................ 26
4.7. Exchange Agreement............................................................................... 26
4.8. Second Amended and Restated Investor Rights Agreement............................................ 26
4.9. Third Amended and Restated Co-Sale and Board Representation Agreement............................ 26
4.10. Registration Rights Amendment.................................................................... 26
4.11. 1998 Warrant Amendment........................................................................... 26
4.12. 2000 Warrant Amendment........................................................................... 27
4.13 Certificate of Designation....................................................................... 27
4.14 Amendment to the Class E Certificate of Designation.............................................. 27
SECTION 5. CONDITIONS TO CLOSING OF THE COMPANY............................................................. 27
5.1. Representations and Warranties Correct........................................................... 27
5.2. Covenants........................................................................................ 27
5.3. Compliance Certificate........................................................................... 27
5.4. Consents......................................................................................... 27
5.5. Shareholder Approval............................................................................. 28
5.6. Second Amended and Restated Investor Rights Agreement............................................ 28
5.7. Third Amended and Restated Co-Sale and Board Representation Agreement............................ 28
SECTION 6. PRE-CLOSING COVENANTS OF THE COMPANY AND THE INVESTORS........................................... 28
6.1. Cooperation...................................................................................... 28
6.2. No Solicitation.................................................................................. 29
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6.3. Publicity........................................................................................ 29
6.4. Conduct of Business Prior to the Closing......................................................... 29
SECTION 7. POST-CLOSING AND ON-GOING COVENANTS.............................................................. 29
7.1. Intentionally Omitted............................................................................ 29
7.2. Intentionally Omitted............................................................................ 29
7.3. Intentionally Omitted............................................................................ 29
7.4. Representative................................................................................... 29
7.5. Financial Statements and Other Information....................................................... 31
7.6. Approval and Notification........................................................................ 32
7.7. Corporate Existence.............................................................................. 32
7.8. Conduct of Business.............................................................................. 32
7.9. Intentionally Omitted............................................................................ 33
7.10. Intentionally Omitted............................................................................ 33
7.11. Intentionally Omitted............................................................................ 33
7.12. Publicity........................................................................................ 33
SECTION 8. TERMINATION...................................................................................... 33
8.1. Termination...................................................................................... 33
8.2. Effect on Obligations............................................................................ 33
SECTION 9. MISCELLANEOUS.................................................................................... 34
9.1. Survival......................................................................................... 34
9.2. Indemnification.................................................................................. 34
9.3. Expenses......................................................................................... 36
9.4. Delays or Omissions; Remedies.................................................................... 36
9.5. Further Assurances............................................................................... 36
9.6. Successors and Assigns........................................................................... 37
9.7. Entire Agreement................................................................................. 37
9.8. Notices.......................................................................................... 37
9.9. Counterparts..................................................................................... 39
9.10. Titles and Subtitles; Definitions................................................................ 39
9.11. Governing Law; Waiver of Jury Trial.............................................................. 40
9.12. Severability..................................................................................... 40
9.13. Confidentiality Agreement........................................................................... 40
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INDEX OF DEFINED TERMS
Accrediting Body.......................... 2.13(k)
Amended and Restated Class E Certificate.. Recitals
Articles of Incorporation................. 1.4(c)
Benefit Plan.............................. 2.21(a)
Board..................................... 4.6
Board Representation Agreement............ Recitals
Certificate of Designation................ Recitals
Claim Notice.............................. 9.2(e)
Class A Preferred Stock................... 2.4
Class B Preferred Stock................... 2.4
Class C Preferred Stock................... 2.4
Class D Preferred Stock................... 2.4
Class F Preferred Stock................... Recitals
Class G Preferred Stock................... Recitals
Closing................................... 1.2
Closing Date.............................. 1.2
Code...................................... 2.21(a)
Common Stock.............................. Recitals
Company................................... Preamble
Company Intellectual Property............. 2.10
Company's Accountants..................... 7.5(b)
Contract.................................. 9.10
Conversion Stock.......................... 2.4
designated employee....................... 9.10
Employee.................................. 2.21(a)
Employee Agreement........................ 2.21(a)
Encumbrances.............................. 2.9
Environmental Law......................... 2.20
Equity-VII................................ Preamble
ERISA..................................... 2.21(a)
Exchange Act.............................. 2.19
Exchange Agreement........................ Recitals
Financial Statements...................... 2.18
Fully Diluted Basis....................... 1.1
Governmental Consents..................... 2.8
Governmental Entity....................... 2.8
Governmental Filings...................... 2.8
including................................. 9.10
indemnified party......................... 9.2(c)
indemnifying party........................ 9.2(c)
Intellectual Property Rights.............. 2.10
Investor Rights Agreement................. Recitals
Investors................................. Preamble
IRS....................................... 2.21(c)
Laws...................................... 2.5
Litigation................................ 2.7
Losses.................................... 9.2(b)
Management Investors...................... Preamble
material.................................. 9.10
Material Adverse Effect on the Company.... 9.10
Material Contracts........................ 2.6
Orders.................................... 2.7
person.................................... 9.10
Preferred Stock........................... 2.4
Purchase.................................. 1.1
Purchase Price............................ 1.1
School.................................... 2.13
Securities Act............................ 2.14
State Approval Agency..................... 2.3(e)
Stock Rights.............................. 2.4
Subsidiary................................ 9.10
Tax Return................................ 2.11(d)
Tax(es)................................... 2.11(d)
Third Party Consents...................... 6.1
Title IV.................................. 2.13(e)
to the Company's knowledge................ 9.10
Transaction Documents..................... 2.2
USDOE..................................... 2.13(e)
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LIST OF EXHIBITS
Exhibits Section
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A Certificate of Designation of Class G Convertible Preferred Stock............... Recitals
B Exchange Agreement.............................................................. Recitals
C People included in definition of "the Company's knowledge" and
"designated employees".......................................................... 9.10
D-1 Opinion of Faegre & ▇▇▇▇▇▇, LLP................................................. 4.5
D-2 Opinion of Drinker, ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP.......................................... 4.5
E Amended and Restated Investor Rights Agreement.................................. 4.9
F Amended and Restated Board Representation Agreement............................. 4.10
G Registration Rights Amendment................................................... 4.11
H 1998 Warrant Amendment.......................................................... 4.12
I 2000 Warrant Amendment.......................................................... 4.13
J Amended and Restated Certificate of Designation of Class E
Convertible Preferred Stock..................................................... Recitals
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CAPELLA EDUCATION COMPANY
PREFERRED STOCK PURCHASE AGREEMENT
THIS AGREEMENT, dated as of January 15, 2003, by and among Capella
Education Company, a Minnesota corporation (the "Company"), Maveron Equity
Partners 2000, L.P., a Delaware limited partnership, Maveron Equity Partners
2000-B, L.P., a Delaware limited partnership, MEP 2000 Associates LLC, a
Delaware limited liability company, (collectively the "Maveron Entities") and
▇▇▇▇▇ ▇▇▇▇▇, a resident of Minnesota ("▇▇▇▇▇" and together with the Maveron
Entities, collectively the "Investors") shall supersede and replace that certain
Maveron Class F Convertible Preferred Stock Purchase Agreement, dated as of
September 25, 2002, by and among the Investors and the Company, as amended (the
"Prior Agreement"). The Prior Agreement is hereby cancelled and terminated in
its entirety and shall be of no further force and effect.
W I T N E S S E T H:
WHEREAS, on February 21, 2002, the Company sold Forstmann Little &
Co. Equity Partnership-VII, L.P. ("Equity-VII"), Forstmann Little & Co.
Subordinated Debt and Equity Management Buyout Partnership-VIII, L.P.
("MBO-VIII"), ▇▇▇▇▇▇ OTC Emerging Growth Fund ("▇▇▇▇▇▇ OTC"), TH ▇▇▇, ▇▇▇▇▇▇
Investment Trust-TH ▇▇▇, ▇▇▇▇▇▇ Emerging Opportunities Portfolio ("▇▇▇▇▇▇ TH
▇▇▇", and, together with ▇▇▇▇▇▇ OTC, collectively "▇▇▇▇▇▇"), ThinkEquity
Investment Partners LLC ("ThinkEquity"), DRW Venture Partners LLP ("Dain") and
the members of Capella's management or board of directors (or accounts under
their direction) that are listed on Schedule 1.1 thereto (the "Management
Investors"), pursuant to the Class F Convertible Preferred Stock Purchase
Agreement dated January 31, 2002 (the "Class F Purchase Agreement"), 1,425,457
shares of Class F Convertible Preferred Stock of the Company (the "Class F
Preferred Stock"); and
WHEREAS, upon the terms and subject to the conditions contained in
this Agreement, the Company wishes to sell to the Investors and the Investors
wish to purchase from the Company shares of newly issued Class G Convertible
Preferred Stock, par value $.01 per share, of the Company (the "Class G
Preferred Stock"), which shares will be initially convertible into the
equivalent number of shares of Common Stock, par value $.10 per share, of the
Company (the "Common Stock"), and will have such other terms as are to be set
forth in the Certificate of Designation for the Class G Preferred Stock, in the
form of Exhibit A (the "Certificate of Designation"); and
WHEREAS, on or prior to the Closing, Equity-VII, MBO-VIII, ▇▇▇▇▇▇,
ThinkEquity, Dain, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇"), the Management Investors and the
S. ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Issue Trust (collectively referred to as the
"Class F Investors") intend to enter into an Exchange Agreement, in the form of
Exhibit B (the "Exchange Agreement") pursuant to which the Class F Investors
will agree severally to
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exchange each of the outstanding shares of Class F Preferred Stock held by such
investor for shares of Class G Preferred Stock (the "Exchange"); and
WHEREAS, on or prior to Closing (as hereinafter defined), the
parties hereto, SmartForce plc ("Smart Force"), NCS ▇▇▇▇▇▇▇, Inc. ("Pearson"),
Cherry Tree Ventures IV ("Cherry Tree"), Forstmann Little & Co. Equity
Partnership-VI, L.P. ("Equity-VI" and, together with Equity-VII and MBO-VIII,
collectively the "Forstmann Little Entities"), Equity-VII, MBO-VIII, ▇▇▇▇▇▇,
ThinkEquity, ▇▇▇▇, ▇▇▇▇▇▇▇, the Management Investors, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇ ▇▇▇▇▇▇▇▇ and the S. ▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇ Issue Trust intend to enter
into a Third Amended and Restated Co-Sale and Board Representation Agreement
(the "Board Representation Agreement") to become effective simultaneously with
the Closing; and
WHEREAS, on or prior to the Closing, the parties hereto, the
Forstmann Entities, ▇▇▇▇▇▇, SmartForce, the Management Investors, ThinkEquity,
Dain and ▇▇▇▇▇▇▇ intend to enter into a Second Amended and Restated Investor
Rights Agreement (the "Investor Rights Agreement") to become effective
simultaneously with the Closing; and
WHEREAS, on or prior to the Closing, the Company will have amended
the Certificate of Designation for the Class E Convertible Preferred Stock of
the Company (the "Class E Preferred Stock"), in the form of Exhibit J (the
"Amended and Restated Class E Certificate").
NOW THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:
SECTION 1. ISSUANCE AND SALE OF THE CLASS G PREFERRED STOCK.
1.1. The Purchase. Upon the terms and subject to the conditions
contained in this Agreement, at the Closing, the Investors shall purchase from
the Company, and the Company shall sell to the Investors (as set forth on
Schedule 1.1), an aggregate of 683,452.20 shares of Class G Preferred Stock (the
"Purchase") at a purchase price of $11.12 per share and an aggregate purchase
price of $7,599,988.42 (the "Purchase Price"). Immediately following the
Closing, and assuming no valid exercise of dissenters' rights in connection with
the adoption of the Amended and Restated Class E Certificate and assuming the
Exchange occurs, the Investors in the aggregate shall own 5.28% of the equity of
the Company on a fully diluted basis (i.e., Common Stock and assuming the
exercise of all 12,936,941.80 outstanding stock options and other outstanding
Stock Rights (as hereinafter defined), including the conversion of the Preferred
Stock (as hereinafter defined), and the issuance of all shares of Common Stock
reserved for issuance upon the future grant of 470,464 employee options and
other
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Common Stock-based awards, but excluding future contributions under the
Company's Employee Stock Ownership Plan), all as of the Closing and as more
fully described and set forth in Schedule 2.4 to this Agreement ("Fully Diluted
Basis").
1.2. The Closing. The closing of the transactions contemplated by
the Purchase (the "Closing") shall take place at the offices of Faegre & ▇▇▇▇▇▇
LLP, 2200 ▇▇▇▇▇ Fargo Center, Minneapolis, Minnesota, at 10:00 a.m. on or about
January 22, 2003 or at such other time or place or on such other date as the
Company and the Investors may mutually determine (such date, the "Closing
Date").
1.3. Deliveries at the Closing. At the Closing, the Company shall
deliver to each Investor a certificate or certificates representing the shares
of Class G Preferred Stock purchased by such Investor, registered in the name of
such Investor or its nominee affiliate, against receipt at the Closing by the
Company from such Investor of its portion of the Purchase Price, which shall be
paid by wire transfer to an account designated at least two business days prior
to the Closing Date by the Company.
1.4. Additional Issuances; Adjustment. (a) In lieu of a claim for
indemnification under Section 9 of this Agreement arising out of the inaccuracy
in the representation and warranty set forth in the last sentence of Section
2.4, in the event that at any time after the Closing the representation and
warranty set forth in the last sentence of Section 2.4 is determined not to have
been true as of the Closing, the Company shall issue to the Investors (on a pro
rata basis), at no cost to the Investors, and as an adjustment to the purchase
price paid by the Investors per share of Class G Preferred Stock, an additional
amount of Class G Preferred Stock such that, if such issuance of additional
Class G Preferred Stock had been made at the Closing, such representation and
warranty would have been true and accurate in all respects at the Closing.
(b) If at the time of any required adjustment pursuant to Section
1.4(a) all shares of Class G Preferred Stock have been converted into shares of
Common Stock, the Company shall, to the extent of authorized capital available
therefor, promptly issue to the Investors (on a pro rata basis), at no cost to
the Investors and as an adjustment to the purchase price paid by the Investors
per share of Class G Preferred Stock, an additional amount and kind of Common
Stock equal to the amount and kind of Common Stock issuable upon the conversion
(based on the conversion ratio in effect at the time the last shares of Class G
Preferred Stock were converted into shares of Common Stock) of the amount of
Class G Preferred Stock which would have been issued with respect to such
adjustment pursuant to Section 1.4(a) if such adjustment had been made
immediately prior to the time the last shares of Class G Preferred Stock were
converted into shares of Common Stock.
(c) Any additional shares of Class G Preferred Stock and Common
Stock issued to the Investors pursuant to this Section 1.4 shall be treated as
if they were
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issued at the Closing and shall reflect any dividends or other distributions
which would have accrued or have been payable with respect to, and the
application of any anti-dilution, ratable treatment or similar provisions (as
set forth in the Articles of Incorporation of the Company (the "Articles of
Incorporation"), the Certificate of Designation, applicable Law (as hereinafter
defined) or otherwise) which would have been applicable to, such shares of Class
G Preferred Stock and Common Stock had they been issued at the Closing.
(d) In connection with any issuances of stock determined to be
required pursuant to this Section 1.4, the Company (i) shall take all action
within its control necessary to cause its Articles of Incorporation to be
amended to increase the authorized capital of the Company to permit such
issuances and (ii) shall reserve a sufficient number of shares of Common Stock
for issuance to the Investors upon the conversion of any shares of Class G
Preferred Stock so issued. Any shares of Class G Preferred Stock or Common Stock
issued to the Investors pursuant to this Section 1.4 shall, when issued, be
validly issued and fully paid and nonassessable with no personal liability
attaching to the ownership thereof and free and clear of all Encumbrances (as
hereinafter defined).
SECTION 2. Representations and Warranties of the Company.
The Company represents and warrants to the Investors as of the date hereof
and as of the Closing as follows (with all references to the Company in this
Section 2 (other than Sections 2.2, 2.4 and 2.5(b)) being deemed to include
references to the Subsidiaries (as hereinafter defined)):
2.1. Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the Laws of the
jurisdiction of its organization and has all requisite power and authority to
own, lease and operate its properties and to carry on its business as currently
conducted. Except as set forth on Schedule 2.1, the Company is duly qualified to
transact business as a foreign entity in, and is in good standing under the Laws
of, each jurisdiction where the failure to be so qualified would, individually
or in the aggregate, have a Material Adverse Effect on the Company (as
hereinafter defined). The Company has made available to the Investors true and
complete copies of the organization and governance documents of the Company.
2.2. Power. The Company has all requisite power and authority (i) to
execute and deliver this Agreement, the Investor Rights Agreement, the Board
Representation Agreement, the Schedules to this Agreement and all other
certificates, instruments and other documents executed and delivered by the
Company at the Closing pursuant to Section 4 hereof (collectively, together with
the Certificate of Designation and the Amended and Restated Class E Certificate,
the "Transaction Documents") (ii) to execute and deliver Amendment No. 3 to the
Registration Rights Agreement, dated as of June 16, 1998, by and among the
Company and NCS ▇▇▇▇▇▇▇, Inc., as successor to
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National Computer Systems, Inc. (the "Registration Rights Amendment"), Amendment
No. 2 to the Warrant to purchase Common Shares of the Company issued on May 11,
2000 to ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, Incorporated (the "2000 Warrant Amendment"),
Amendment No. 3 to the Warrant to purchase Common Shares of the Company issued
on June 16, 1998 to ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, Incorporated (the "1998 Warrant
Amendment") and the Exchange Agreement, and (iii) to carry out and perform its
obligations hereunder and thereunder. Upon receipt of all requisite approval of
the shareholders of the Company, the Company will have all requisite power and
authority to execute and file with the Secretary of State of Minnesota the
Certificate of Designation and the Amended and Restated Class E Certificate.
2.3. Subsidiaries. (a) Except as set forth on Schedule 2.3, the
Company has no Subsidiaries and does not own, hold or control, directly or
indirectly, any rights to acquire any shares of stock or any other debt or
equity interest in any person (as hereinafter defined).
(b) Schedule 2.3 sets forth the authorized and outstanding equity
capitalization of each of the Subsidiaries, including the amount and kind of
equity interests held by the Company in the Subsidiary and the percentage
interest represented thereby. All of the outstanding shares of capital stock of
each of the Subsidiaries have been validly issued and are fully paid and
nonassessable, with no personal liability attaching to the ownership thereof,
and are owned by the Company free and clear of all Encumbrances. There are no
outstanding warrants, options, agreements, convertible securities or other
Contracts (as hereinafter defined) pursuant to which either of the Subsidiaries
is or may become obligated to issue any shares of the capital stock of or other
equity interests in such Subsidiary, and there are no other rights, including
preemptive or similar rights, to purchase or otherwise acquire, or sell or
otherwise transfer, or otherwise relating to, any issued or unissued shares of
the capital stock of or other equity interests in any of the Subsidiaries
pursuant to any provision of Law, the Subsidiary's organizational documents, any
Contract to which the Subsidiary is a party or otherwise; and none of the
Subsidiaries is a party to, and to the Company's knowledge there is not, any
Contract or Encumbrance (including a right of first refusal, right of first
offer, proxy, voting agreement, voting trust, registration rights agreement, or
shareholders agreement, whether or not the Subsidiary is a party thereto) with
respect to the purchase, sale or voting of any shares of capital stock of or any
other equity interests in any of the Subsidiaries (whether outstanding or
issuable upon conversion or exercise of outstanding securities).
2.4. Capitalization. The authorized and outstanding equity
capitalization of the Company on the date hereof is as set forth on Schedule
2.4. As of the date hereof and immediately prior to the Closing (except for
exercise or conversion of outstanding Stock Rights set forth on Schedule 2.4,
assuming no valid exercise of dissenters' rights in connection with the adoption
of the Amended and Restated Class E Certificate and
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assuming the Exchange has not yet occurred), the capital stock of the Company
authorized, outstanding or reserved for issuance consists of (i) 15,000,000
shares of Common Stock, of which 1,548,427 shares are issued and outstanding,
(ii) 3,000,000 shares of Class A Convertible Preferred Stock ("Class A Preferred
Stock"), of which 2,810,000 shares are issued and outstanding, (iii) 1,180,000
shares of Class B Convertible Preferred Stock ("Class B Preferred Stock"), of
which 460,000 shares are issued and outstanding, (iv) 1,022,222 shares of Class
D Convertible Preferred Stock ("Class D Preferred Stock", and together with the
Class A Preferred Stock, Class B Preferred Stock, the Class E Preferred Stock,
the Class F Preferred Stock and the Class G Preferred Stock, collectively the
"Preferred Stock"), of which 1,022,222 shares are issued and outstanding, (v)
2,596,491 shares of Class E Preferred Stock of which 2,596,491 shares are issued
and outstanding, (vi) 1,425,457 shares of Class F Preferred Stock of which
1,425,457 shares are issued and outstanding (vi) 3,720,901 shares of preferred
stock, undesignated as to class or series, (vii) 1,408,893 shares of Common
Stock are reserved for issuance pursuant to employee stock options granted
pursuant to the Company's stock option plans and 470,464 shares of Common Stock
are reserved for issuance for future grants of employee stock options pursuant
to the Company's stock option plans, (viii) 331,048 shares of Common Stock are
reserved for issuance upon the exercise of any outstanding warrants of the
Company and (ix) 8,373,816 shares of Common Stock have been duly reserved for
issuance upon conversion of the outstanding shares of convertible preferred
stock of the Company. Except as set forth in item 11 on Schedule 2.4,
immediately following the Closing and the Exchange (and prior to the Company
filing a certificate of cancellation for the Class F Preferred Certificate of
Designation), the capital stock of the Company authorized, outstanding or
reserved for issuance will be as set forth in the preceding sentence except that
(i) no shares of Class F Preferred Stock will be outstanding, (ii) 2,184,550
shares of Class G Preferred Stock shall be authorized and a total of
2,184,540.49 shares of Class G Preferred Stock will have been issued and be
outstanding, (iii) a total of 1,536,351 shares of preferred stock will be
undesignated as to class or series and (iv) a total of 9,178,109 shares of
Common Stock will have been duly reserved for issuance upon conversion of the
outstanding shares of Preferred Stock (including an additional 2,184,540 shares
of Common Stock that will have been duly reserved for the issuance upon
conversion of the Class G Preferred Stock issued pursuant to this Agreement (the
"Conversion Stock")). All of the outstanding shares of capital stock of the
Company were duly authorized and validly issued and are fully paid and
nonassessable.
Except for exercise or conversion of outstanding Stock Rights set forth on
Schedule 2.4 and Stock Rights granted pursuant to existing stock option plans,
Schedule 2.4 sets forth a list of (i) all holders of equity interests in the
Company on the date hereof, including the amount and kind of equity interests
held by each such holder, (ii) except as set forth in item 11 on Schedule 2.4,
all holders of capital stock of the Company immediately following the Closing,
and the number and type of shares to be held by each, and (iii) all outstanding
warrants, options, agreements, convertible securities or other Contracts
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pursuant to which the Company is or may become obligated to issue any shares of
the capital stock or other securities of or other equity interests in the
Company ("Stock Rights") and the holders thereof. Except as set forth in this
Section 2.4 or on Schedule 2.4, there are, and immediately following the Closing
there will be, no Stock Rights or other rights, including preemptive or similar
rights, to purchase or otherwise acquire, or sell or otherwise transfer, or
otherwise relating to, any issued or unissued shares of the capital stock of or
other equity interests in the Company pursuant to any provision of Law, the
Company's organizational documents, any Contract to which the Company is a party
or otherwise; and, except as set forth in the Articles of Incorporation, on
Schedule 2.4 or as contemplated by the Transaction Documents, the Company is not
a party to, and to the Company's knowledge there is not, and immediately after
the Closing, there will not be, any Contract or Encumbrance (including a right
of first refusal, right of first offer, proxy, voting agreement, voting trust,
registration rights agreement, or shareholders agreement, whether or not the
Company is a party thereto) with respect to the purchase, sale or voting of any
shares of capital stock of or any other equity interests in the Company (whether
outstanding or issuable upon conversion or exercise of outstanding securities)
or regarding the declaration or payment of dividends or other distributions upon
any such shares of capital stock or other equity interests in the Company
(whether outstanding or issuable upon conversion or exercise of outstanding
securities). Except as set forth in item 12 on Schedule 2.4, the execution,
delivery and performance of this Agreement and the Transaction Documents by the
parties hereto and thereto and the consummation of the transactions contemplated
hereby and thereby will not trigger any anti-dilution adjustments under the
terms of any equity securities disclosed or required to be disclosed pursuant to
this Section 2.4. Except as set forth on Schedule 2.4 and other than under the
Investor Rights Agreement, the Company has not agreed to register any of its
authorized or outstanding securities under the Securities Act (as hereinafter
defined). Except as set forth in item 11 on Schedule 2.4, immediately following
the Closing, the shares of Common Stock issuable upon conversion of the Class G
Preferred Stock issued to the Investors under this Agreement will represent, in
the aggregate, 5.28% of the outstanding capital stock of the Company on a Fully
Diluted Basis, and the voting power of such issued shares of Class G Preferred
Stock will represent, in the aggregate, no less than 5.28% of the total number
of votes able to be cast on any matter by any voting securities of the Company
on a Fully Diluted Basis.
2.5. Authorization; No Breach. (a) Except as set forth on Schedule
2.5, the execution, delivery and performance by the Company of this Agreement,
the other Transaction Documents to which the Company is a party and the Exchange
Agreement, and the consummation by the Company of the transactions contemplated
hereby and thereby, including the offer, sale and issuance of the Class G
Preferred Stock pursuant to this Agreement, and the issuance of the Conversion
Stock upon conversion of such Class G Preferred Stock, have been duly authorized
by all required actions of the Company and its equity holders and will not (i)
conflict with, or result in any violation of, any provision
- 7 -
of the organizational documents of the Company or any federal, state, local or
foreign law, statute, rule or regulation ("Laws") or Orders (as hereinafter
defined) to which the Company is subject, (ii) conflict with, or result in any
default or breach, or give rise to a right of termination, cancellation,
modification or acceleration, or cause the forfeiture of any right, under, any
Contract, Company Intellectual Property, Accreditation, License or Permit (each
as hereinafter defined), except for conflicts, defaults, breaches, rights or
forfeitures which would not, individually or in the aggregate, have a Material
Adverse Effect on the Company or (iii) require any consent to be obtained or
notice to be given under any Contract, Accreditation, License or Permit except
for consents and notices the lack of which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
(b) The Transaction Documents to which the Company is a party and
the Exchange Agreement constitute valid and binding obligations of the Company,
enforceable in accordance with their respective terms, subject to Laws of
general application relating to bankruptcy, insolvency and the relief of debtors
and Laws governing specific performance, injunctive relief or other equitable
remedies. The Class G Preferred Stock and the Conversion Stock, when issued in
compliance with the provisions of this Agreement, will be validly issued and
outstanding, fully paid and nonassessable with no personal liability attaching
to the ownership thereof. Subject to applicable law, the terms, designations,
powers, preferences and relative, participating, optional and other special
rights, and the qualifications, limitations and restrictions, of the Class G
Preferred Stock will be as stated in the Certificate of Designation.
2.6. Material Contracts. Copies (or, where oral, a written
description) of the mortgages, indentures, leases and other Contracts to which
the Company is a party or by which it is bound and which involve current
obligations of, or payments to, the Company in excess of $100,000 or are
otherwise material to the Company (the "Material Contracts") have been delivered
or made available to the Investors. The Material Contracts are listed on
Schedule 2.6. All of the Material Contracts are valid and binding agreements of
the Company and in full force and effect and enforceable against and, to the
Company's knowledge, by the Company in accordance with their respective terms,
subject to Laws of general application relating to bankruptcy, insolvency and
the relief of debtors and Laws governing specific performance, injunctive relief
or other equitable remedies, except as would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. Except as set forth on
Schedule 2.6, the Company is not in default or breach under any of the Material
Contracts and, to the Company's knowledge, no other party to any of the Material
Contracts is in default or breach thereunder.
2.7. Litigation. Except as set forth on Schedule 2.7, there are no
actions, suits, proceedings, or governmental investigations, inquiries or audits
(other than education audits in the ordinary course of business) ("Litigation")
pending, or, to the Company's knowledge threatened, to which the Company is a
party or its property,
- 8 -
including without limitation any Company Intellectual Property, is subject or
against any officer, director or employee of the Company in connection with such
person's relationship with or actions taken on behalf of the Company. None of
the matters identified in item 11 of Schedule 2.7 has had, or will have,
individually or in the aggregate, a Material Adverse Effect on the Company. The
Company is not subject to any outstanding judgment, order, writ, injunction,
stipulation, ruling, decree or award ("Orders").
2.8. Consents. Schedule 2.8 sets forth each consent, approval,
qualification, order or authorization or acknowledgement ("Governmental
Consents") of, or registration, declaration, notification, application, or
filing ("Governmental Filings") with, any court, administrative agency or
commission, Accrediting Body (as hereinafter defined), State Approval Agency (as
hereinafter defined) or other governmental authority or instrumentality
("Governmental Entity") that is required to be obtained or made in connection
with the valid execution, delivery or performance by the Company of any of the
Transaction Documents or the Exchange Agreement or the consummation of any of
the transactions contemplated thereby.
2.9. Title to Properties; Liens and Encumbrances; Assets of the
Business. (a) Except as set forth on Schedule 2.9 or the Financial Statements or
as would not, individually or in the aggregate, have a Material Adverse Effect
on the Company, the Company has good and marketable title to all of the assets
and properties which it purports to own, and, with respect to the assets and
properties leased by the Company, holds valid and subsisting leasehold interests
therein, free and clear of any mortgages, judgments, claims, liens, security
interests, pledges, escrows, charges or other encumbrances of any kind or
character whatsoever ("Encumbrances") except Encumbrances for taxes not yet due
and payable. Except as set forth on Schedule 2.9, the assets and properties
owned by, or leased to, the Company are sufficient for the conduct of the
business and operation of the Company as currently conducted.
(b) The business of the Company is conducted exclusively by the
Company and the Subsidiaries. All assets used or held for use in the conduct of
such business are owned by the Company and/or the Subsidiaries or the rights to
use such assets are held by the Company and/or the Subsidiaries pursuant to
valid and binding Contracts, leases, agreements or other rights.
2.10. Intellectual Property. The term "Intellectual Property Rights"
shall mean (i) all inventions (whether patentable or unpatentable and whether or
not reduced to practice), all improvements thereon, and all patents, patent
applications and patent disclosures, together with all reissues, continuations,
continuations-in-part, revisions, divisions, extensions and reexaminations
thereof, (ii) all trademarks, service marks, trade dress, logos, trade names,
domain names and corporate names, and including all goodwill associated
therewith, and all applications, registrations and renewals in connection
- 9 -
therewith, (iii) all copyrightable works, all copyrights, and all applications,
registrations and renewals in connection therewith, (iv) all mask works and all
applications, registrations and renewals in connection therewith, (v) all trade
secrets and confidential business information (including but not limited to
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, methods, schematics, technology,
flowcharts, block diagrams, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information and business and
marketing plans and proposals), (vi) all computer software (including data,
website content and related documentation), (vii) all copies and tangible
embodiments of any of the foregoing (in whatever form or medium) and (viii) all
licenses, sublicenses, permissions or Contracts in connection with any of the
foregoing. The term "Company Intellectual Property" shall mean all Intellectual
Property Rights which are used in connection with the conduct of the business of
the Company as currently conducted.
Other than off-the-shelf software and work for hire agreements, each item
of Company Intellectual Property which is material to the Company's business and
is a patent, patent application, trademark, trademark application, service ▇▇▇▇,
service ▇▇▇▇ application, trade name, domain name, corporate name, copyright
registration, copyright application, mask work registration, mask work
application or license, sublicense, agreement, or permission, is set forth on
Schedule 2.10. Except as set forth on Schedule 2.10:
(a) except as would not, individually or in the aggregate, have a
Material Adverse Effect on the Company, the Company either (i) is the sole and
exclusive owner of and possesses all right, title and interest in and to (free
and clear of any Encumbrances), all Company Intellectual Property (including but
not limited to the Intellectual Property Rights set forth on Schedule 2.10),
(ii) has rights to use in the United States and in the manner presently used by
the Company all Company Intellectual Property pursuant to license, sublicense,
Contract, or permission (and is not contractually obligated to grant any rights
to any third party in respect thereof) or (iii) has the right to require the
applicant of any Company Intellectual Property which constitutes an application
for registration, including, but not limited to, all patent applications,
trademark applications, service ▇▇▇▇ applications, copyright applications and
mask work applications, to transfer to the Company all right, title and interest
in the application and of the registration once it issues;
(b) all Company Intellectual Property which are registrations,
including, but not limited to, all registered patents, trademarks, service
marks, domain names, copyrights and mask works, are valid and subsisting and in
full force and effect except where the failure to be valid, subsisting and in
full force and effect would not have a Material Adverse Effect on the Company;
- 10 -
(c) to the Company's knowledge, no third party, including any
employee or former employee of the Company, has interfered with, infringed upon,
diluted, misappropriated, come into conflict with or used without authorization
any Company Intellectual Property;
(d) to the Company's knowledge, the Company has not infringed on,
interfered with or misappropriated, and the continued operation of the Company's
business as currently conducted, will not infringe on, interfere with, dilute,
misappropriate or otherwise come into conflict with, any Intellectual Property
Right of any other person. None of the matters identified under the heading
"2.10(d) Infringement, Interference or Misappropriation" on Schedule 2.10 has
had, or will have, individually or in the aggregate, a Material Adverse Effect
on the Company;
(e) to the Company's knowledge, no claim of infringement,
interference or misappropriation of any Intellectual Property Right of any other
person or other claim otherwise contesting the validity, enforceability, use or
ownership of any Company Intellectual Property (other than claims made by a
Governmental Entity during the examination of an application for registration of
such Company Intellectual Property) has been asserted or, to the Company's
knowledge, is threatened by any person (including any claim that the Company
must license or refrain from using any Intellectual Property Rights of any third
party);
(f) the Company is not currently licensing or sublicensing its
rights in any material Company Intellectual Property to any third party other
than nonexclusive licenses in the ordinary course of business; and
(g) the School and/or the Company owns the copyright in the course
design (namely the course structure, the course outline and the course syllabus)
of all courses offered on the School's or the Company's website(s), except where
the failure to own the copyright would not have a Material Adverse Effect on the
Company.
2.11. Taxes. (a) Except as set forth on Schedule 2.11, (i) the
Company has timely filed in accordance with all applicable Laws (taking into
account valid extensions) all Tax Returns (as hereinafter defined) required to
be filed by it, and all such Tax Returns are true, correct and complete in all
material respects, (ii) all Taxes (as hereinafter defined) which are due and
payable by the Company, including any Taxes levied upon any of its properties,
assets, income or franchises, have been timely paid, (iii) all amounts required
to be collected or withheld by the Company have been collected or withheld and
any such amounts that are required to be remitted to any taxing authority have
been duly and timely remitted by the Company, (iv) no examination, claim,
assessment, deficiency or other Litigation is pending or, to the Company's
knowledge, threatened, with regard to any Taxes or Tax Returns of the Company
and (v) the
- 11 -
Company is not (nor has it ever been) a party to or bound by any Tax sharing or
Tax allocation or similar Contract.
(b) Schedule 2.11 sets forth the method of accounting used by the
Company for federal, state, local and foreign Tax purposes, and such method has
been used by the Company at all times since the date of its organization, except
as set forth in Schedule 2.11.
(c) For purposes of this Agreement, "Tax" or "Taxes" means any
taxes, assessment, duties, fees, levies, imposts, deductions, or withholdings,
including income, gross receipts, ad valorem, value added, excise, real or
personal property, asset, sales, use, license, payroll, transaction, capital,
net worth and franchise taxes, estimated taxes, withholding, employment, social
security, workers compensation, utility, severance, production, unemployment
compensation, occupation, premium, windfall profits, transfer and gains taxes,
or other governmental charges of any nature whatsoever, imposed by any taxing
authority of any government or country or political subdivision of any country,
and any liabilities with respect thereto, including any penalties, additions to
tax, fines or interest thereon and includes any liability for Taxes of another
person by Contract, as a transferee or successor, under Treasury Regulation
1.1502-6 or analogous state, local or foreign law provision or otherwise, and
"Tax Return" means any report, return, statement, estimate, declaration, notice,
form or other information required to be supplied to a taxing authority in
connection with Taxes.
2.12. Brokers. Except as set forth on Schedule 2.12, the Company has
not incurred, and will not incur, directly or indirectly, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in
connection with the transactions contemplated by this Agreement and the other
Transaction Documents.
2.13. Compliance with Laws; Permits; Accreditation and State
Regulatory Requirements. Except as set forth on Schedule 2.13, the Company and
Capella University Inc. (the "School") (a) have complied in all material
respects with all Laws applicable to them and their business and that pertain to
the operation of the School (b) have all licenses, accreditations, certificates,
permits, consents, franchises, approvals, authorizations, and other approvals of
federal, state and local governments or regulatory bodies, State Approval
Agencies and of Accrediting Bodies (the "Accreditations, Licenses and Permits")
material to and necessary in the conduct of the education, learning or training
business and operations of the Company and the School as currently conducted.
Schedule 2.13 contains a complete and correct list and summary description of
all Accreditations, Licenses and Permits. Except for instances that would not,
individually or in the aggregate, have a Material Adverse Effect on the Company,
(i) all of the Accreditations, Licenses and Permits of each of the Company and
the School are in full force and effect, (ii) the Company and the School are in
compliance with the terms and conditions of such Accreditations, Licenses and
Permits and have received no notices
- 12 -
that the Company or the School are in violation of any of the terms or
conditions of such Accreditations, Licenses and Permits or alleging the failure
to hold or obtain any Accreditation, License or Permit and (iii) no Litigation,
hearing or other proceeding is pending or, to the Company's knowledge,
threatened to revoke or limit the use of any of its Accreditations, Licenses or
Permits. Neither the Company nor the School has received notice that any of the
Accreditations, Licenses or Permits will not be renewed and to the Company's
knowledge, there is no reasonable basis for nonrenewal. In addition, and without
limiting the foregoing:
(a) Schedule 2.13 contains a complete and correct description of the
accreditation granted to the School, the date that accreditation was last
granted, and the current term of accreditation. Neither the School nor the
educational and training programs offered by the School are on probation or
warning, have been directed to show cause why accreditation should not be
revoked, or are subject to an action by an Accrediting Body to withdraw or deny
accreditation. To the Company's knowledge, there are no facts, circumstances, or
omissions concerning the School that would reasonably be expected to lead to
such actions by an Accrediting Body.
(b) The Company and the School have complied in all material
respects with all stipulations, conditions and other requirements imposed by the
School's Accrediting Bodies and State Approval Agencies at the time of, or
since, the last grant of accreditation or approval, including but not limited to
the timely filing of all required reports and responses.
(c) The Company and the School have secured all requisite approvals
from their institutional accrediting bodies for the educational and training
programs currently offered.
(d) Except as set forth in Schedule 2.13, the Company and the School
have secured all requisite licenses to operate from the respective State
Approval Agencies in the states in which the School is located or in those
states that a State Approval Agency has formally determined that the School has
a physical presence that requires the School to obtain such a license (including
without limitation all such states in which the School offers residency
programs, residency courses or residency seminars) and the Company has similarly
secured all requisite approvals from State Approval Agencies for the educational
and training programs currently offered. There are no proceedings pending to
revoke or withdraw such licenses and approvals. To the Company's knowledge,
there are no facts, circumstances or omissions concerning the School that would
reasonably be expected to lead to such action.
(e) Schedule 2.13 contains a complete and correct description of the
United States Department of Education ("USDOE") certification and eligibility
status for the School, including the date that certification was last granted
and the current term of
- 13 -
certification. The School is certified by the USDOE to participate in the
student financial assistance programs authorized by Title IV of the Higher
Education Act of 1965, as amended ("Title IV"), and is a party to, and is in
compliance with, a valid and effective Program Participation Agreement with the
USDOE, except for any instances of non-compliance which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Company. The School is not subject to limitation, suspension or termination
proceedings, or subject to any other investigation, action or proceeding by the
USDOE or any guaranty agency that could result in the loss of certification or
eligibility or a material liability or fine. To the Company's knowledge, there
are no facts, circumstances, or omissions concerning the School that would
reasonably be expected to lead to such an action by the USDOE or any guaranty
agency.
(f) The School is in compliance in all material respects with all
rules, regulations and requirements established by the USDOE pertaining to the
School's eligibility to participate, and participation, in the programs
authorized by Title IV and other federal student financial aid funding programs
including without limitation those set forth at 34 C.F.R. Parts 600, 668, and
682. To the Company's knowledge, there are no facts, circumstances, or omissions
concerning the School that would be expected to result in a finding of material
non-compliance with regard to such rules, regulations and requirements of Law.
Without limiting the foregoing:
(i) Each educational or training program offered by the School
is an eligible program in accordance with the requirements of 34 C.F.R. Section
668.8.
(ii) For each of the past three (3) fiscal years ending after
October 7, 1998, the School has received no greater than ninety percent (90%) of
its revenues from programs authorized by Title IV and satisfies the requirements
regarding Title IV program funds established by the USDOE as set forth at 34
C.F.R. Section 600.5. The attached Compliance Schedule contains a correct
statement of the School's percentage of revenue from Title IV program funds for
such years.
(iii) The School has timely filed all compliance audits and
audited financial statements required by 34 C.F.R. Section 668.23.
(iv) The School meets the USDOE standards of financial
responsibility set forth at 34 C.F.R. Sections 668.171-668.175 and for the
fiscal years ended December 31, 1998, December 31, 1999, December 31, 2000 and
December 31, 2001 achieved a composite score of 1.5 or higher under the
financial ratios set forth at 34 C.F.R. Section 668.172.
(g) USDOE program review and compliance audits conducted at the
School since the date of the School's last recertification have not materially
adversely affected the Company or the School, nor has any program review or
compliance audit resulted in the imposition of any liability, financial or
otherwise, adversely affecting the
- 14 -
Company or the School. The Company and the School have complied with all the
findings and conditions arising from the program reviews and compliance audits.
To the extent that any program review or audit remains pending or unresolved,
there are no issues or findings of non-compliance of which the Company has
notice which could result in the loss of certification or eligibility or a
material liability or fine.
(h)(i) Since July 1, 1994, neither the Company, nor, to the
Company's knowledge, any person or entity that exercises Substantial Control
over the Company or the School (the term "Substantial Control" being defined in
34 C.F.R. 668.15(f)(2)), nor any member of such person's family (as the term
"family" is defined in 34 C.F.R. 668.15(f)(3)), alone or together, (a) exercises
or exercised Substantial Control over another institution or third-party
servicer (as that term is defined in 34 C.F.R. 668.2) that owes a liability for
a violation of a Title IV program requirement, or (b) owes a liability for a
Title IV program violation.
(ii) Since July 1, 1994, neither the Company, nor, to the
Company's knowledge, any person or entity that exercises Substantial Control
over the Company or the School, or who will have the power to direct or cause
the direction of the management or policies of the Company or the School, has
filed for relief in bankruptcy or has had entered against it an order for relief
in bankruptcy.
(iii) Neither the Company, nor, to the Company's knowledge,
any person or entity that exercises Substantial Control over the Company or the
School, nor any person or entity which is an owner of the School, has pled
guilty to, has pled nolo contendere to or has been found guilty of, a crime
involving the acquisition, use or expenditure of funds under the Title IV
programs or has been judicially determined to have committed fraud involving
funds under the Title IV programs.
(iv) To the Company's knowledge, neither the Company nor the
School has employed any individual or entity in a capacity that involves the
administration or receipt of funds under the Title IV programs, or contracted
with any institution or third-party servicer, which has been terminated from the
Title IV programs for a reason involving the acquisition, use, or expenditure of
federal, state or local government funds, or has been convicted of, or has pled
nolo contendere or guilty to, a crime involving the acquisition, use or
expenditure or federal, state, or local government funds, or has been
administratively or judicially determined to have committed fraud or any other
material violation of law involving federal, state or local government funds.
(i) Since July 1, 1994, the Company and the School have complied
with all requirements or standards of the USDOE, any State Approval Agency or
any Accrediting Body that pertain to the provision of commissions, bonuses or
other incentive payments to admissions representatives, agents and other persons
engaged in
- 15 -
student recruiting or admissions activities or in making decisions regarding the
awarding of Title IV program funds for or on behalf of the Company or School.
(j) The transactions contemplated hereby and the transactions
contemplated by the Exchange Agreement will not (i) result in a change of
ownership resulting in a change in control of the School for purposes of Title
IV and the USDOE regulations thereunder, or (ii) adversely affect the School's
eligibility to participate in Title IV programs. In connection with the
transactions contemplated by this Agreement and the transactions contemplated
the Exchange Agreement, to the knowledge of the Company, there exist no facts or
circumstances attributable to the Company or the School that would (x)
reasonably be expected to require any authorization or consent or similar
approval by any State Approval Agency or Accrediting Body, or (y) to the extent
any authorization, consent or similar approval were required, as set forth in
Schedule 2.8, cause any State Approval Agency or Accrediting Body to refuse to
deliver any such authorization, consent or similar approval.
(k) For purposes of this Agreement, "Accrediting Body" means any
entity or organization which engages in granting or withholding accreditation or
similar approval for the School and its educational programs, in accordance with
standards relating to the performance, operation, financial condition and/or
educational quality of such schools and programs.
(l) For purposes of this Agreement, "State Approval Agency" means
any authority, whether governmental or quasi-governmental, in any state in which
the School is located, or in any state in which a state approval agency has
formally determined that the School has a physical presence that requires the
School to obtain an approval, license or permit from such state approval agency
(including, but not limited to, all such states in which the School offers
residency programs, courses or seminars) and that engages in the granting or
withholding of approvals, licenses or permits for and regulates private
postsecondary schools and educational programs in accordance with standards
relating to the operation, financial condition, or academic standards of such
schools or programs or regulates the provision of financial assistance.
2.14. Offering Exemption. Assuming the accuracy of the
representations and warranties made by the Investors in Section 3 of this
Agreement, Section 3 of the Class F Purchase Agreement and Section 4 of the
Exchange Agreement, the offer, sale and issuance of the Class G Preferred Stock
as contemplated hereby and by the Exchange Agreement are, the issuance of the
Conversion Stock upon the conversion of the Class G Preferred Stock in
accordance with the terms of the Certificate of Designation will be, and all
prior issuance of securities of the Company were at the time made, exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and otherwise effected in compliance with all applicable federal and
state securities Laws.
- 16 -
2.15. Employees; Proprietary Information Agreement. To the Company's
knowledge, no officer or designated employee (as hereinafter defined) of the
Company, and except as would not, individually or in the aggregate, have a
Material Adverse Effect on the Company, no independent contractor utilized by
the Company or any other person who performs services for or on behalf of the
Company (including any employee of the Company) is in violation of any term of
any employment Contract, patent disclosure agreement or any other Contract or
Order relating to the relationship of such person with the Company or any other
party because of the nature of the business conducted by the Company. To the
Company's knowledge, none of its officers or designated employees has any
obligations under any Contract or Order that would interfere with such person's
exercising his or her best efforts to promote the interests of the Company or
that would conflict with the Company's business as currently conducted.
2.16. Insurance. The Company has procured, and maintains insurance
with respect to its properties and business against such casualties and
contingencies, of such types (including, without limitation, errors and
omissions coverage), on such terms and in such amounts (including deductibles,
co-insurance and self-insurance, if adequate reserves are maintained with
respect thereto) as the Company believes is customary in the case of similarly
situated entities engaged in the same or a similar business. Schedule 2.16 sets
forth a list of all insurance policies maintained by the Company, including the
name of the insurer and the nature and amount of coverage. Except as set forth
on Schedule 2.16, the Company has not received any notice of increase in
premiums with respect to, or cancellation or non-renewal of, any of its
insurance policies, and the Company has not made any claim against an insurance
policy as to which the insurer is denying coverage or defending the claim under
a reservation of rights. Each insurance policy maintained by the Company is in
full force and effect, except as would not, individually or in the aggregate,
have a Material Adverse Effect on the Company. The Company is not in default in
any material respect under any insurance policy maintained by it.
2.17. [Intentionally Omitted]
2.18. Financial Statements. Schedule 2.18 sets forth (a) the balance
sheet of the Company at December 31, 2001, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for the
fiscal year ended December 31, 2001 audited by Ernst & Young LLP (the "Annual
Financial Statements"), (b) the unaudited consolidated balance sheet of the
Company as of September 30, 2002 and the related unaudited consolidated
statements of operations, changes in shareholders' equity and cash flows for the
nine months ended September 30, 2002 (the "Quarterly Financial Statements", and
together with the Annual Financial Statements, collectively referred to as the
"Financial Statements"), and (c) the unaudited consolidated balance sheets of
the Company as of October 31, 2002 and November 30, 2002 and the related
unaudited consolidated statements of operations, changes in shareholders' equity
and
- 17 -
cash flows for the months ended October 31, 2002 and November 30, 2002 (the
"Monthly Financial Statements"). The Annual Financial Statements are complete in
all material respects, are in accord with the books and records of the Company
and have been prepared in accordance with United States generally accepted
accounting principles ("U.S. GAAP") consistently applied. The Quarterly
Financial Statements are complete in all material respects, are in accord with
the books and records of the Company and have been prepared in accordance with
United States generally accepted accounting principles ("U.S. GAAP")
consistently applied, but do not contain all footnotes required by U.S. GAAP and
are subject to normal year-end audit adjustments. The Monthly Financial
Statements are prepared consistent with the Company's normal processes and
procedures for the preparation of monthly financial statements. The Annual
Financial Statements and Quarterly Financial Statements fairly present the
financial condition, results of operations and cash flows of the Company as of
the respective dates and for the respective periods indicated therein. Except as
disclosed on Schedule 2.18, the Company has no liabilities or obligations,
contingent or otherwise (and whether or not the subject of any other
representation or warranty hereunder), other than (a) liabilities or obligations
reserved against or otherwise disclosed in the Financial Statements and (b)
liabilities or obligations which would not, individually or in the aggregate,
have a Material Adverse Effect on the Company. The Company maintains and will
continue to maintain accounting methods, practices and procedures and maintains
and will continue to maintain accounting systems and controls which permit
financial statements to be prepared in accordance with U.S. GAAP. The books and
records of the Company are in all material respects true and complete, are
maintained in accordance with good business practice and all applicable Laws,
and accurately present and reflect in all material respects all of the
transactions that are or should be therein described. The Company agrees to use
commercially reasonable efforts to deliver to Investors before Closing, or as
soon as practicable thereafter, the unaudited consolidated balance sheet of the
Company as of December 31, 2002 and the related unaudited consolidated
statements of operations, changes in shareholders' equity and cash flows for the
twelve months ended December 31, 2002 (the "Year-End Financial Statements"). The
Year-End Financial Statements will be complete in all material respects, will be
in accord with the books and records of the Company and will have been prepared
in accordance with United States generally accepted accounting principles ("U.S.
GAAP") consistently applied, but will not contain all footnotes required by U.S.
GAAP and will be subject to normal year-end audit adjustments.
2.19. Related Party Transactions. (a) Schedule 2.19 sets forth a
list of all obligations and transactions, other than compensation in the
ordinary course of business, (i) between the Company and any of the Company's
affiliates, (ii) between the Company and any of the Company's officers,
directors, equityholders or employees, or any of their affiliates or associates
(each term as defined under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) and (iii) between any of the Company's affiliates and any of
the Company's officers, directors or employees, or any of their affiliates or
- 18 -
associates, directly pertaining to the Company. Except as set forth on Schedule
2.19, no officer or director of the Company or person who owns at least ten
percent of the outstanding equity of the Company (nor any parent, child or
spouse of any of such persons, or any trust, partnership or corporation in which
any of such persons has or has had an interest), has or has had, directly or
indirectly, (i) any interest or involvement in any entity which furnished or
sold, or furnishes or sells, services or products which the Company furnishes or
sells, or proposes to furnish or sell or (ii) any interest or involvement in any
entity which purchases from or sells or furnishes to, the Company, any goods or
services; provided, that ownership of no more than one percent of the
outstanding voting stock of a publicly traded corporation shall not be deemed an
interest in any entity for purposes of this Section 2.19.
(b) Each transaction set forth on Schedule 2.19 is on terms that are
(i) consistent with past practice of the Company and (ii) no less favorable to
the Company as would be available with independent third parties dealing at
arms' length.
2.20. Environmental Matters. The Company is in compliance in all
material respects with all applicable Environmental Laws (as hereinafter
defined). There are no past or present conditions, events, circumstances or
facts that would reasonably be expected to form the basis of any claim or
Litigation against or involving the Company based on or related to any violation
of any Environmental Law that could, individually or in the aggregate, have a
Material Adverse Effect on the Company. For purposes of this Agreement, the term
"Environmental Law" shall mean any Law relating to human health, employee safety
or the protection of the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980 and
the Occupational Safety and Health Act.
2.21. Employee Benefit Plans. (a) Schedule 2.21 sets forth a list of
(i) each plan, program, policy or Contract providing for incentive compensation,
severance, termination pay, performance awards, stock or stock-related awards,
fringe benefits or other employee benefits of any kind, whether formal or
informal, funded or unfunded, written or oral, and whether or not legally
binding, which is now or previously has been sponsored, maintained, contributed
to or required to be contributed to by the Company or any of its subsidiaries
and pursuant to which the Company or any of its subsidiaries has or may have any
liability, contingent or otherwise, including any "employee benefit plan" within
the meaning of Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") (each a "Benefit Plan"), (ii) each management, bonus,
option, equity (or equity related), severance, non-compete, confidentiality or
similar Contract between the Company and any current, former or retired
employee, officer, consultant, independent contractor, agent or director of the
Company (an "Employee") under which the Company has or may have any liability
and (iii) each employment or consulting Contract between the Company and an
Employee (each Contract in clauses (ii) and (iii), an "Employee Agreement"). The
Company
- 19 -
currently does not sponsor, maintain, contribute to, and is not required
to contribute to, nor has the Company ever sponsored, maintained, contributed to
or been required to contribute to, or incurred any liability with respect to,
(i) any "defined benefit plan" (as defined in ERISA Section 3(35)), (ii) any
"multiemployer plan" (as defined in ERISA Section 3(37)) or (iii) any Benefit
Plan which provides, or has any material liability to provide, life insurance,
medical, severance or other employee welfare benefits to any Employee upon his
or her retirement or termination of employment, except as required by Section
4980B of the Internal Revenue Code of 1986, as amended (the "Code") or any
similar state law regarding continuation of coverage. Except as set forth on
Schedule 2.21, to the Company's knowledge, the Company has not committed to
establish any new employee benefit plan, program or arrangement or to modify or
terminate any Benefit Plan which, individually or in the aggregate, would
materially increase the obligation of the Company to any or all of its
employees.
(b) The Company has no liability, contingent or otherwise, with
respect to any employee benefit plan maintained by or contributed to by any
ERISA Affiliate. For this purpose, an ERISA affiliate is any entity (other than
any current subsidiary of the Company) that is or ever has been (i) a member of
a "controlled group of corporations," under "common control" or an "affiliated
service group" within the meaning of Sections 414(b), (c) or (m) of the Code,
(ii) required to be aggregated under Section 414(o) of the Code or (iii) under
"common control," within the meaning of Section 4001(a)(14) of ERISA, or any
regulations promulgated or proposed under any of the foregoing Sections, in any
such case with the Company.
(c) The Company has made available to the Investors true and
complete copies of all documents embodying or relating to each Benefit Plan and
each Employee Agreement, including all amendments thereto, trust or funding
agreements relating thereto (if any), the two most recent annual reports (Series
5500 and related schedules) required under ERISA (if any), the two most recent
annual actuarial valuations (if any), the most recent determination letter
received from the Internal Revenue Service (the "IRS") (if any) and the most
recent summary plan description (with all material modifications) (if any)
relating to any Benefit Plan or Employee Agreement required to be listed on
Schedule 2.21.
(d) Each Benefit Plan and Employee Agreement has been established
and maintained in accordance with its terms and in compliance in all material
respects with all applicable Laws, including but not limited to ERISA and the
Code, and each Benefit Plan intended to qualify under Section 401 of the Code
is, and since its inception has been, so qualified.
(e) (i) To the knowledge of the Company, no "prohibited
transaction," within the meaning of Section 4975 of the Code or Section 406 of
ERISA, has occurred with respect to any Benefit Plan, (ii) there is no
Litigation pending, or to the Company's
- 20 -
knowledge, threatened (other than routine claims for benefits) with respect to
any Benefit Plan or Employee Agreement, (iii) to the Company's knowledge, no
Employee has been hired by the Company in violation of any restrictive covenant
or any non-compete Contract with any other Person, (iv) no liability under any
Benefit Plan has been funded, nor has any such obligation been satisfied, with
the purchase of a contract from an insurance company as to which the Company has
received notice that such insurance company is insolvent or is in rehabilitation
or any similar proceeding, (v) the Company has not received notice that any
Benefit Plan is under audit or investigation by the IRS, the Department of Labor
or the Pension Benefit Guaranty Corporation, and, to the Company's knowledge, no
such audit or investigation is threatened and (vi) with respect to each Benefit
Plan which provides medical benefits or long-term disability benefits, all
claims incurred by the Company under such Benefit Plan are either insured
pursuant to a contract of insurance whereby the insurance company bears any risk
of loss with respect to such claims or covered under a contract with a health
maintenance organization pursuant to which such health maintenance organization
bears the liability for such claims.
(f) The execution and delivery of, and performance of the
transactions contemplated by, this Agreement, the other Transaction Documents
and the Exchange Agreement will not (either alone or upon the occurrence of any
additional or subsequent events) (i) constitute an event under any Benefit Plan
or Employee Agreement that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligations to fund benefits with respect
to any Employee or (ii) result in the triggering or imposition of any
restrictions or limitations on the right of the Company to amend or terminate
any Benefit Plan, or upon the right, upon any such amendment or termination, to
receive the full amount of any excess assets remaining or resulting from such
amendment or termination. No payment or benefit which will or may be made by the
Company or any of its affiliates with respect to any Employee will be
characterized as an "excess parachute payment," within the meaning of Section
280G(b)(1) of the Code.
2.22. Labor Relations; Employees. Except as set forth on Schedule
2.22, (a) the Company is in compliance in all material respects with all
applicable Laws respecting employment, employment practices, labor, terms and
conditions of employment and wages and hours, (b) the Company is not a party to
any Contract with any labor union, and no labor union has requested or, to the
Company's knowledge, has sought to represent any of the employees,
representatives or agents of the Company, (c) there is no labor strike, dispute,
slowdown or stoppage pending, or, to the Company's knowledge, threatened against
or involving the Company, (d) the Company is not involved in or, to the
Company's knowledge, threatened with any Litigation relating to labor matters
(including discrimination complaints and charges of unfair labor practices) and
(e) to the Company's knowledge, no officer of the Company or employee whose
annual compensation is in excess of $70,000 has any plans to terminate his or
her
- 21 -
employment with the Company. The Company has not received notice of any worker's
compensation claims.
2.23. Absence of Changes. Except as set forth on Schedule 2.23 or as
contemplated by this Agreement or the other Transaction Documents or reflected
in the Financial Statements, since September 30, 2002, the Company has conducted
its business in the ordinary course, consistent with past practice, and there
has not been (a) any event or condition which has had or would reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company, (b) any waiver of any material right, claim or debt held by the
Company, (c) any payment or declaration of dividends on, or other distribution
with respect to, or any direct or indirect redemption or acquisition of, any
securities of or other equity interest in the Company, (d) any issuance of any
securities of or other equity interest in the Company other than pursuant to the
exercise of the previously outstanding options set forth on Schedule 2.4, (e)
any sale, assignment or transfer of any tangible or intangible assets of the
Company, except (i) in the ordinary course of business and (ii) assets for which
the book value does not exceed $100,000 and which are not, individually or in
the aggregate, material, (f) any loan by the Company to any officer, director,
employee, consultant or equityholder of the Company (other than advances to such
persons in the ordinary course of business in connection with travel and
travel-related expenses, advances against payroll provided to non-officer
employees to help with short-term cash flow issues and advances to employees for
moving expenses, which advances, in the aggregate, did not exceed $50,000
outstanding at any one time), (g) any damage, destruction or loss (whether or
not covered by insurance) which would, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on the Company, (h)
other than in the ordinary course of business, any increase, direct or indirect,
in the compensation paid or payable to any officer or director of the Company,
or to any other employee, consultant or agent of the Company, (i) any change in
the accounting or Tax methods, practices or policies or in any Tax election of
the Company, (j) any indebtedness incurred for borrowed money other than in the
ordinary course of business or pursuant to a Contract set forth on Schedule
2.23, (k) any amendment to or termination of any Material Contract, (l) any
changes with respect to the regulation, accreditation or approval of the Company
or its products and services by any Governmental Entity, Accrediting Body or
State Approval Agency which would, individually or in the aggregate, have a
Material Adverse Effect on the Company, (m) any material change in the manner of
business or operations of the Company or (n) any commitment by the Company
(contingent or otherwise) to do any of the foregoing.
2.24. Suppliers and Customers. Except as set forth in Schedule 2.24,
since September 30, 2002, there has been no termination, cancellation or, to the
Company's knowledge, threatened termination or cancellation or any material
modification or change in, or any material dissatisfaction with, the business
relationship between the Company
- 22 -
and any supplier, vendor, customer or client of the Company which would
reasonably be expected to have a Material Adverse Effect on the Company.
2.25. Suitability. Neither the Company nor, to its knowledge, any of
its directors or officers (a) has ever been indicted for or convicted of any
felony or any crime involving fraud or misrepresentation, (b) is subject to any
Order barring, suspending or otherwise limiting the right of the Company or such
person to engage in any activity conducted by the Company, (c) has ever been the
subject of any bankruptcy or similar proceeding or (d) to the Company's
knowledge, has ever been denied any Accreditation, License or Permit affecting
the Company's or such person's ability to conduct any activity conducted by the
Company, nor, to the Company's knowledge, is there any basis upon which such
Accreditation, License or Permit would reasonably be expected to be denied.
2.26. Operations of the Company. Schedule 2.26 sets forth a list of
the Company's domain names (each, a "Domain Name"). The Company has registered
each Domain Name listed on Schedule 2.26 for the periods set forth on Schedule
2.26. The Company's web site (▇▇▇.▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇▇.▇▇▇) (the "Web Site") is
commercially operational, and has performed, for the six-month period prior to
the date of this Agreement. The Company has used commercially reasonable efforts
to ensure that customers or clients of the Company will not be adversely
affected by a failure or disruption of any of the computer networks or the Web
Site of the Company.
2.27. Recruitment; Admissions Procedures; Attendance; Reports
(a) The operations of the Company and the School have been conducted
in accordance with all policy manuals and other statements of procedures or
instructions relating to (i) recruitment of students for the School, including
procedures for assisting in the application by prospective students for direct
or indirect state or federal financial assistance; (ii) admissions procedures,
including any descriptions of procedures for insuring compliance with federal,
state and accreditation requirements applicable to such procedures; and (iii)
procedures for encouraging and verifying attendance, minimum required attendance
policies, and other relevant criteria relating to course performance
requirements and completion, except where the failure to do so would not have a
Material Adverse Effect on the Company, and all relevant standards and
requirements imposed by applicable Accrediting Bodies or State Approval
Agencies, and other agencies administering state or federal governmental
financial assistance programs in which the Company or the School participate,
and other applicable legal requirements.
(b) The Company has submitted all reports, audits, and other
information, whether periodic in nature or pursuant to specific requests, for
the Company and the School to all agencies or other entities with which such
filings are required related to its compliance with (i) applicable accreditation
standards and State Approval
- 23 -
Agency requirements, (ii) legal requirements governing programs pursuant to
which the School or its students receive student financial assistance funding,
and (iii) all articulation agreements between the School and other institutions
of higher education in effect as of the date hereof except for any such reports,
audits and other information the failure to file would not have a Material
Adverse Effect on the Company.
(c) All student financial aid grants and loans, disbursements and
record keeping relating thereto have been completed in compliance with all
federal and state requirements, except where the failure to do so would not have
a Material Adverse Effect on the Company, and there are no material deficiencies
in respect thereto. Except as set forth on Schedule 2.27, and except where the
failure to do so would not have a Material Adverse Effect on the Company and
except as previously disclosed in prior audits or compliance reviews by the
USDOE or other relevant state agency, no student at the School has been funded
prior to the date for which such student was eligible for funding or for any
amount other than the amount such student was eligible to receive, and such
student's records conform in form and substance to all relevant regulatory
requirements.
2.28. USDOE Demonstration Program. The School is authorized by the
USDOE to participate in the Distance Education Demonstration Program
("Demonstration Program") authorized under section 486 of the Higher Education
Act of 1965, as amended. The School is in compliance with all terms and
conditions of the February 21, 2000 agreement with the USDOE amending the
School's Program Participation Agreement to permit the School's participation in
the Demonstration Program, except for any instances of non-compliance which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the Company. To the Company's knowledge, there exists
no fact or circumstances that would reasonably be expected to cause the USDOE to
revoke or limit the School's authorization to participate in the Demonstration
Program.
2.29. Disclosure. (a) Neither this Agreement, any of the Transaction
Documents nor the Exchange Agreement contains any untrue statement by or on
behalf of the Company of a material fact or omits to state a material fact
necessary in order to make the statements by or on behalf of the Company
contained herein and therein, in light of the circumstances under which they
were made, not misleading.
(b) The projections set forth on Schedule 2.29 (a) have been
prepared by management of the Company in good faith, (b) are based on
assumptions believed by management of the Company to be reasonable and (c)
represent good faith estimates by management of the Company as to the financial
performance of the Company for the periods indicated, but do not represent any
guarantee or assurance of the future financial results of the Company. The
Investors acknowledge that unanticipated future events and circumstances may
occur, that the Company's business, financial condition and results of
operations are subject to risks and uncertainties, and that actual results
achieved during
- 24 -
any future period may vary from the projections and the variations may be
material and adverse.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.
Each of the Investors severally, and not jointly, represents and warrants
to the Company as of the date hereof and as of the Closing as follows:
3.1. Power; Authorization. The execution, delivery and performance
of this Agreement and the other Transaction Documents to which such Investor is
a party, and the consummation of all transactions contemplated hereby and
thereby have been duly authorized by all required actions on the part of the
Investor. Each of the Transaction Documents constitutes a valid and binding
obligation of such Investor enforceable against such Investor in accordance with
its terms, subject to Laws of general application relating to bankruptcy,
insolvency and the relief of debtors and Laws governing specific performance,
injunctive relief or other equitable remedies.
3.2. No Breach. The execution, delivery and performance by such
Investor of this Agreement and the other Transaction Documents and the
consummation by such Investor of the transactions contemplated hereby and
thereby will not (i) conflict with, or result in any violation of, any provision
of the organizational or formation documents of such Investor or any Law or
Order to which such Investor is subject or (ii) conflict with, or result in any
default or breach, or give rise to a right of termination, cancellation,
modification or acceleration, or cause the forfeiture of any right, under, any
of its Contracts, Accreditations, Licenses or Permits.
3.3. Investment; Securities Laws. Such Investor is acquiring the
Class G Preferred Stock to be purchased under this Agreement for its own
account, not as a nominee or agent, for investment and not with a view to the
distribution thereof (within the meaning of the Securities Act) except in
compliance with all applicable federal and state securities Laws. Such Investor
understands that (i) the Class G Preferred Stock has not been, and the
Conversion Stock will not be (except as set forth in the Investor Rights
Agreement), registered under the Securities Act or any state securities Laws,
and (ii) the Class G Preferred Stock and the Conversion Stock may not be sold
unless such disposition is registered under the Securities Act and applicable
state securities Laws or is exempt from registration thereunder.
3.4. Accredited Investor. Such Investor is an "Accredited Investor"
(as defined in Rule 501(a) under the Securities Act). The state in which such
Investor's principal office (or domicile, if such Investor is an individual) is
located is set forth in Schedule 3.4. Such Investor has such knowledge and
experience in financial and business matters that such Investor is capable of
evaluating the merits and risks of the investment to be made hereunder by such
Investor. Such Investor has and has had access
- 25 -
to all of the Company's material books and records and access to the Company's
executive officers has been provided to such Investor or to such Investor's
qualified agents. No Investor was formed for the purpose of this investment
within the meaning of Rule 501 under the Securities Act.
3.5. Rule 144. Such Investor acknowledges that the exemption from
registration afforded by Rule 144 promulgated under the Securities Act (the
provisions of which Rule are known to the Investor) depends on the satisfaction
of various conditions, and that, if applicable, Rule 144 may afford the basis
for sales only in limited amounts.
3.6. Availability of Funds. Such Investor has available sufficient
funds or available capital commitments to pay its portion of the Purchase Price.
3.7. Brokers. Such Investor has not incurred, and will not incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with the transactions
contemplated by this Agreement and the other Transaction Documents.
3.8. Independent Investigation and Counsel. Such Investor
acknowledges to the Company and to the other Investors that it has had an
opportunity to conduct its own independent due diligence investigation of the
Company and no Investor is relying on any other Investor for such Investor's due
diligence investigation of the Company. Such Investor acknowledges to the other
Investors that it was represented by counsel of its own choosing and no Investor
is relying on the counsel of the Company or any other Investors for any purpose
whatsoever.
3.9. Investor Qualifications. (a) Since July 1, 1994, no such
Investor (i) has exercised Substantial Control (as that term is defined in 34
C.F. R. 668.15(f)(2)) over an institution of higher education that participates
in a Title IV program (other than the Company or the School) or Third-Party
Servicer (as that term is defined in 34 C.F.R. 668.2) that owes a liability for
a violation of a Title IV program requirement or (ii) owes a liability for a
Title IV program violation.
(b) Since July 1, 1994, no such Investor who will have the ability
to direct or cause the direction of the management or policies of the School has
filed for relief in bankruptcy or has had entered against it an order for relief
in bankruptcy.
(c) No such Investor has pled guilty to, pled nolo contendere to or
been found guilty of, a crime involving the acquisition, use or expenditure of
funds under the Title IV programs or been judicially determined to have
committed fraud or any other material violation of law involving federal, state
or local government funds, including but not limited to, funds disbursed
pursuant to the Title IV Programs.
- 26 -
(d) For purposes of this Section 3.9, the term "Investor" shall mean
only the Maveron Entities and ▇▇▇▇▇. The term "Investor" shall not mean or
extend to general partners, partners, institutions, affiliates or individuals
who have ownership interests in or who control, are controlled by or are under
common control with the Maveron Entities.
SECTION 4. CONDITIONS TO CLOSING OF THE INVESTORS.
▇▇▇▇▇'▇ obligation to purchase the Class G Preferred Stock at the Closing
is subject to each of the Maveron Entities consummating the Closing. The Maveron
Entities' obligation to purchase the Class G Preferred Stock at the Closing is
subject to the fulfillment at or prior to the Closing of the following
conditions:
4.1. Representations and Warranties Correct. The representations and
warranties made by the Company in Section 2 shall be true and correct in all
material respects when made and as of the time of the Closing with the same
force and effect as if made at such time, other than such representations and
warranties as are expressly stated to be made as of another date, which shall be
true and correct as of such date.
4.2. Covenants. All covenants, agreements and conditions contained
in this Agreement to be performed by the Company at or prior to the Closing
shall have been performed or complied with in all material respects.
4.3. Material Adverse Change. Since the date of this Agreement, no
event or change shall have occurred which, individually or in the aggregate, has
had, or would reasonably be expected to have, a Material Adverse Effect on the
Company.
4.4. Compliance Certificate. The Company shall have delivered to
such Investor a certificate of the Company, executed by the Chief Executive
Officer of the Company, dated the Closing Date, and certifying as to the
fulfillment of the conditions specified in Sections 4.1, 4.2, 4.3 and 4.13.
4.5. Opinion of Company's Counsel. Such Investor shall have received
from (a) Faegre & ▇▇▇▇▇▇ LLP, counsel to the Company, an opinion addressed to
each of the Investors, dated the Closing Date, in the form set forth in Exhibit
D-1 and (b) Drinker, ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP, special counsel to the Company, an
opinion addressed to each of the Investors, dated the Closing Date, in the form
set forth in Exhibit D-2.
4.6. Officer's Certificate. The Company shall have delivered to such
Investor a certificate executed by an appropriate officer of the Company dated
as of the Closing Date, certifying the following matters: (a) the corporate
proceedings taken by the Company's Board of Directors (the "Board") and, if
required, shareholders approving this Agreement, the other Transaction Documents
and the Exchange Agreement and the transactions contemplated hereby and thereby;
(b) the Articles of Incorporation, (c) the By-laws of the Company and (d) the
Certificate of Designation.
- 27 -
4.7. Exchange Agreement. The Exchange Agreement shall have been
executed in the form attached hereto as Exhibit B by the Company and each party
thereto and a copy thereof delivered at Closing and the Exchange shall occur
contemporaneously with the Closing.
4.8. Second Amended and Restated Investor Rights Agreement. The
Investor Rights Agreement shall have been executed and delivered at Closing in
the form attached hereto as Exhibit E by the Company and each party thereto
(other than the Maveron Entities).
4.9. Third Amended and Restated Co-Sale and Board Representation
Agreement. The Board Representation Agreement shall have been executed in the
form attached hereto as Exhibit F by the Company and each party thereto (other
than the Maveron Entities) and delivered at Closing.
4.10. Registration Rights Amendment. The Registration Rights
Amendment shall have been executed by all required parties substantially in the
form attached hereto as Exhibit G and delivered at Closing.
4.11. 1998 Warrant Amendment. The 1998 Warrant Amendment shall have
been executed by all required parties substantially in the form attached hereto
as Exhibit H and delivered at Closing.
4.12. 2000 Warrant Amendment. The 2000 Warrant Amendment shall have
been executed by all required parties substantially in the form attached hereto
as Exhibit I and delivered at Closing.
4.13. Certificate of Designation. The Certificate of Designation
shall have been approved by the Board, approved, as required, by the
shareholders of the Company and filed with the Secretary of State of Minnesota
in the form attached hereto as Exhibit A.
4.14. Amendment to the Class E Certificate of Designation. The
Amended and Restated Class E Certificate shall have been approved by the Board,
approved, as required, by the shareholders of the Company and filed with the
Secretary of State of Minnesota in the form attached hereto as Exhibit J.
SECTION 5. CONDITIONS TO CLOSING OF THE COMPANY.
The Company's obligation to sell the Class G Preferred Stock to ▇▇▇▇▇ at
the Closing is subject to ▇▇▇▇▇ fulfilling at or prior to the Closing the same
conditions as the Maveron Entities in this Section 5 and is also subject to each
of the Maveron Entities meeting the conditions of this Section 5. The Company's
obligation to sell the Class G
- 28 -
Preferred Stock to the Maveron Entities at the Closing is subject to the
fulfillment at or prior to the Closing of the following conditions:
5.1. Representations and Warranties Correct. The representations and
warranties made by the Maveron Entities in Section 3 of this Agreement shall be
true and correct in all material respects as of the time of Closi ng with the
same force and effect as if made as of such time, other than such
representations and warranties as are expressly stated to be made as of another
date which shall be true and correct in all material respects as of such date.
5.2. Covenants. All covenants, agreements and conditions contained
in this Agreement to be performed by the Maveron Entities at or prior to the
Closing shall have been performed or complied with in all material respects.
5.3. Intentionally Omitted.
5.4. Consents. The 1998 Warrant Amendment, 2000 Warrant Amendment
and the Registration Rights Amendment shall have been executed by all required
parties (other than the Company).
5.5. Shareholder Approval. The Certificate of Designation and the
Amended and Restated Class E Certificate shall have received all requisite
approval of the shareholders of the Company.
5.6. Second Amended and Restated Investor Rights Agreement. The
Investor Rights Agreement shall have been executed in the form attached hereto
as Exhibit E by the parties thereto (other than the Company).
5.7. Third Amended and Restated Co-Sale and Board Representation
Agreement. The Board Representation Agreement shall have been executed in the
form attached hereto as Exhibit F by the parties thereto (other than the
Company).
5.8. Exchange Agreement The Exchange Agreement shall have been
executed in the form attached hereto as Exhibit B by the parties thereto (other
than the Company) and the Exchange shall occur contemporaneously with the
Closing.
SECTION 6. PRE-CLOSING COVENANTS OF THE COMPANY AND THE INVESTORS.
6.1. Cooperation. From the date hereof and prior to the Closing,
each of the parties shall use its best efforts to make all Governmental Filings
required to be made by it, and to obtain all Governmental Consents and all
necessary consents from other third parties ("Third Party Consents") as shall be
required to be obtained by it, for the consummation of the transactions
contemplated hereby and by the other Transaction Documents, all as set forth in
Schedule 2.8, and shall otherwise use its best efforts and
- 29 -
cooperate with the other parties to cause the consummation of such transactions
in accordance with the terms and conditions hereof and thereof.
The Maveron Entities and the Company agree that, if a shareholder of the
Company notifies the Company before Closing that the shareholder intends to
exercise dissenters' rights to which the shareholder may be entitled by virtue
of the transactions contemplated hereby, then the Company and the Maveron
Entities shall cooperate in good faith to consider revisions to the terms of the
transactions contemplated hereby, pursuant to which the shareholder would not
have dissenters' rights or would agree not to exercise such rights; provided,
however, that any failure for any reason to so revise the terms of the
transactions contemplated hereby shall not excuse the Company or the Maveron
Entities from any of their obligations hereunder, including, without limitation,
their respective obligations to close the transactions contemplated hereby,
subject to the terms and conditions hereof, without regard to whether
dissenters' rights arise or may be exercised with respect to such transactions.
6.2. No Solicitation. Except as set forth on Schedule 6.2, from the
date hereof and until the Closing, other than in connection with the
transactions contemplated hereby and in connection with the Company's
preparation for its initial public offering of securities of the Company, the
Company shall not solicit, propose or facilitate (including by way of providing
information regarding the Company or its business to any person or providing
access to any person), directly or indirectly, any inquiries, discussions or
proposals regarding, continue or enter into negotiations looking toward, or
enter into or consummate any agreement or understanding in connection with any
proposal regarding, any purchase or other acquisition of all or any portion of
the Company (other than the ordinary course of business sale of products or
services or replacement of assets) or any equity securities (whether newly
issued or currently outstanding, but excluding Common Stock issued upon the
exercise of currently outstanding options) of the Company, any merger, business
combination or recapitalization involving the Company, the liquidation,
dissolution or reorganization of the Company, or any similar transaction. If any
such inquiries or proposals are received by, any such information is requested
from, or any such negotiations or discussions are sought to be initiated or
continued with, the Company or any of its representatives, then the Company
shall promptly notify the Investors of the nature and terms of any of the
foregoing and the identity of the parties involved.
6.3. Publicity. Prior to the Closing, no public release or
announcement or other public disclosure concerning the transactions contemplated
hereby and by the Transaction Documents or the terms hereof and thereof shall be
made by any party, without the prior consent of the Company and the Maveron
Entities (which consent shall not be unreasonably withheld), except as such
release or announcement may be required by Law or the rules or regulations of
any securities exchange, in which case the party
- 30 -
required to make the release or announcement shall give notice to and consult
with the other parties hereto in advance of such issuance.
6.4. Conduct of Business Prior to the Closing. The Company covenants
and agrees that, except as set forth in Schedule 6.4, between the date hereof
and the Closing, neither the Company nor any of the Subsidiaries shall conduct
its business other than in the ordinary course and consistent with prior
practice. Without limiting the generality of the foregoing, except as set forth
in Schedule 6.4, between the date hereof and the Closing, the Company shall, and
shall cause each Subsidiary and otherwise use commercially reasonable efforts
to, (a) preserve intact the business organization of the business, (b) keep
available the services of the Employees, (c) continue in full force and effect
without material modification all existing policies or binders of insurance
presently maintained in respect of the business, (d) preserve its current
relationships with its customers, suppliers and other persons with which it has
significant business relationships; and (e) not engage in any practice, take any
action, embark on any course of inaction or enter into any transaction which
could result in any misrepresentation or breach of any warranty or covenant made
by the Company in this Agreement or in any Transaction Document.
SECTION 7. POST-CLOSING AND ON-GOING COVENANTS.
7.1. Intentionally Omitted.
7.2. Intentionally Omitted.
7.3. Intentionally Omitted.
7.4. Representative. (a) From and after the Closing and so long as
the Maveron Entities hold more than 337,230 shares (subject to appropriate
adjustments for stock dividends, stock splits, combinations, recapitalizations
or the like) of Class G Preferred Stock (or Common Stock acquired upon
conversion thereof) (treating the Maveron Entities and their respective
affiliated investment funds as one holder for purposes of this Section 7.4(a))
(a "Qualified Investor"), such Qualified Investor shall be entitled to designate
one representative (the "Representative") to observe Board meetings and all
committees thereof; provided, however, that no such Investor shall be entitled
to designate a Representative pursuant to this Section 7.4 during such time that
such Investor is entitled to appoint a representative to observe Board meetings
pursuant to any other agreement with the Company. The Company shall, after
receiving notice from the Qualified Investor as to the identity of the
Investor's Representative and a confidentiality agreement that is reasonably
acceptable to the Company and is executed by the Representative, except to the
extent necessary to preserve attorney-client privilege, (i) permit the
Representative to attend all Board meetings and all committees thereof, (ii)
provide the Representative advance notice of each such meeting, including such
meeting's time and place, at the same time and in the same manner as such notice
is
- 31 -
provided to the members of the Board (or such committee thereof) and copies of
all materials distributed to the members of the Board (or such committee
thereof) at the same time as such materials are distributed to the Board (or
such committee thereof) and shall permit the Representative to have the same
access to information concerning the business and operations of the Company as
the directors (or committee members) have, (iii) permit the Representative to
discuss the affairs, finances and accounts of the Company with, and to make
proposals and furnish advice with respect thereto to, the Board, without voting,
and (iv) reimburse the Qualified Investor for its Representative's reasonable
costs in attending Board meetings. The Board (or any committee thereof) and the
Company's management shall give due consideration to the advice given and any
proposals made by a Representative.
In addition, the Maveron Entities shall have the right to consult
with and advise management of the Company on significant business issues,
including management's proposed annual operating plans, and management will meet
with a representative of the Maveron Entities at the Company's facilities at
mutually agreeable times for such consultation and advice, including to review
progress in achieving said plans. The Company shall give the Maveron Entities
reasonable advance written notice of any significant new initiatives or material
changes to existing operating plans and shall afford the Maveron Entities
adequate time to meet with management to consult on such initiatives or changes
prior to implementation. The Company shall furnish the Maveron Entities with
such financial and operating data and other information with respect to the
business and the properties of the Company as the Maveron Entities may request,
except to the extent necessary to preserve attorney-client privilege. The
Company shall permit the Maveron Entities to discuss the affairs, finances and
accounts of the Company with, and to make proposals and furnish advice with
respect thereto to, the principal officers of the Company, except to the extent
necessary to preserve attorney-client privilege. The Company shall give due
consideration to the advice given and any proposals made by the Maveron
Entities.
(b) The rights set forth in this Section 7.4 are, in part, intended
to satisfy any applicable requirement of contractual management rights for
purposes of qualifying the ownership interests of the Maveron Entities in the
Company as venture capital investments for purposes of the Department of Labor's
"plan assets" regulations ("Contractual Management Rights"), and in the event
such rights are not satisfactory for such purpose, the Company and the Maveron
Entities shall reasonably cooperate in good faith to agree upon mutually
satisfactory Contractual Management Rights which satisfy such regulations.
(c) The rights of the Maveron Entities set forth in this Section 7.4
shall terminate automatically upon effectiveness of a registration statement
filed with the Securities and Exchange Commission for the Company's initial
public offering of equity securities of the Company; provided, however, the
Maveron Entities' rights set forth in
- 32 -
Section 7.4 shall be reinstated if such registration statement is withdrawn
after being declared effective but prior to consummation of such initial public
offering.
(d) The rights set forth in Section 7.4 may not be transferred
unless (i) such transfer is made by a Maveron Entity to an affiliated investment
fund, (ii) in connection with the transfer of shares of Class G Preferred Stock
(or Common Stock acquired upon conversion thereof) and (iii) the transferee
assumes in writing the rights and obligations of such transferor under this
Agreement.
(e) If at any time after the Closing Date, any of the Maveron
Entities holds any shares of Class G Preferred Stock (or Common Stock acquired
upon conversion thereof) and does not have Contractual Management Rights, the
Company and the Maveron Entities shall reasonably cooperate in good faith and
shall agree upon mutually satisfactory Contractual Management Rights as
necessary for that particular holder.
7.5. Financial Statements and Other Information. From and after the
Closing, so long as an Investor is a Qualified Investor and subject to Section
7.5(g) below, the Company shall furnish to such Investor the following:
(a) as soon as available but in any event within 30 days after the
end of the first, second and third quarterly accounting periods in each fiscal
year, (i) unaudited consolidated statements of income, stockholders' equity and
cash flows of the Company and its subsidiaries for such quarterly period and for
the period from the beginning of the fiscal year to the end of such quarterly
period and consolidated balance sheet of the Company and its subsidiaries as of
the end of such quarterly period, setting forth in each case comparisons to the
annual budget and to the corresponding period in the preceding fiscal year, all
prepared in accordance with U.S. GAAP consistently applied (subject to normal
year-end audit adjustments), plus (ii) a statement certified by the Chief
Financial Officer of the Company, certifying that the financial statements
referred to in subparagraph (i) are presented fairly and have been prepared in
accordance with U.S. GAAP consistently applied (subject to normal year-end audit
adjustments);
(b) as soon as practicable and in any event within 90 days after the
end of each fiscal year, audited consolidated statements of income,
stockholders' equity and cash flows of the Company and its subsidiaries for such
fiscal year, and consolidated balance sheet of the Company and its subsidiaries
as of the end of such fiscal year, all prepared in accordance with U.S. GAAP
consistently applied, and accompanied by an audit opinion, without qualification
or reservation, by Ernst & Young or another "Big-4" public accounting firm
selected by the Company (the "Company's Accountants");
(c) promptly upon receipt thereof, a copy of the annual management
letter of the Company's Accountants to the Board and any additional written
reports or management letters concerning material aspects of the Company's
operations and
- 33 -
financial affairs delivered by the Company's Accountants to the audit committee
(and not otherwise contained in other materials provided hereunder);
(d) at least 15 days prior to the end of each fiscal year, an annual
operating budget prepared on a monthly basis for the Company for the succeeding
fiscal year (displaying anticipated statements of income and cash flows, changes
in financial position and balance sheets), an annual budget for capital
expenditures of the Company for the succeeding fiscal year, and a strategic plan
for the succeeding fiscal year, which budgets and strategic plan shall have been
approved by the Board, and promptly upon preparation thereof any other
significant budgets which the Company prepares, and any revisions of such annual
or other budgets or strategic plan;
(e) as soon as available, copies of any independent accountants'
reports prepared for federal or state educational regulatory purposes, together
with any related reports prepared by the Company; and
(f) with reasonable promptness, such other information and financial
data concerning the Company as such Investor may reasonably request.
(g) The Maveron Entities' rights set forth in Section 7.5 shall
terminate automatically upon effectiveness of a registration statement filed
with the Securities and Exchange Commission for the Company's initial public
offering of equity securities of the Company; provided, however, the Maveron
Entities' rights set forth in Section 7.5 shall be reinstated if such
registration statement is withdrawn after being declared effective but prior to
consummation of such initial public offering.
7.6. Approval and Notification. The Company shall timely make all
required Governmental Filings with State Approval Agencies and Accrediting
Bodies that are required to be made as a result of this transaction as set forth
in Schedule 2.8.
7.7. Corporate Existence. The Company shall, and shall cause each
Subsidiary to, maintain the corporate existence in good standing of each such
entity unless otherwise explicitly approved by a majority of the Board.
7.8. Conduct of Business. The Company shall conduct its business and
operations in the ordinary course of business substantially consistent with the
Company's year 2003 plan (attached hereto as Schedule 9.10) unless otherwise
explicitly approved by a majority of the Board.
7.9. Intentionally Omitted.
7.10. Intentionally Omitted.
7.11. Intentionally Omitted.
- 34 -
7.12. Publicity. No public release or announcement or other
disclosure concerning the transactions contemplated hereby and by the
Transaction Documents or the terms hereof and thereof shall be made by the
Company, without the prior consent of the Maveron Entities (which consent shall
not be unreasonably withheld), except as such release or announcement may be
required by Law or the rules or regulations of any securities exchange, in which
case the Company shall use its best efforts to give notice to and consult with
the Maveron Entities in advance of such issuance.
SECTION 8. TERMINATION.
8.1. Termination. This Agreement may be terminated and the
transaction contemplated hereby may be abandoned at any time prior to the
Closing Date:
(a) by mutual written consent of the Maveron Entities and the
Company;
(b) by either the Maveron Entities or the Company, by giving written
notice to the other parties hereto, if any Governmental Entity with jurisdiction
over such matters shall have issued an Order restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such Order shall
have become final and non-appealable; provided, however, that the provisions of
this Section 8 shall not be available to the Company, or the Maveron Entities
unless the Company or such investors, as the case may be, shall have complied
with their respective obligations under Section 6.1 and 6.2, or otherwise used
their reasonable best efforts to oppose any such Order or to have such Order
vacated or made inapplicable to the transactions contemplated by this Agreement;
or
(c) by either the Maveron Entities or the Company, by giving written
notice to the other parties, if (i) the Closing shall not have occurred on or
prior to February 14, 2002, provided that the terminating party is not in
material breach of its obligations under this Agreement, or (ii) the Exchange
Agreement is terminated in accordance with its terms.
8.2. Effect on Obligations. Termination of this Agreement pursuant
to this Section 8 shall terminate all obligations of the parties hereunder,
except for the obligations under Sections 9.1, 9.2, 9.8 and 9.11; provided,
however, that nothing herein shall relieve the defaulting or breaching party
from any liability to the other party hereto.
SECTION 9. MISCELLANEOUS.
9.1. Survival. All representations and warranties hereunder shall
survive the Closing until the end of the 18th month following the Closing, and
shall in no way be affected by any knowledge possessed by, or investigation of
the subject matter thereof made by or on behalf of, the Investors, provided,
however, that the representations and
- 35 -
warranties set forth in Sections 2.2, 2.4, 2.5(b), 2.19, 3.1, 3.3 and 3.4 shall
survive indefinitely. All statements contained in any Transaction Document shall
constitute representations and warranties by the Company under this Agreement.
All covenants and agreements contained herein shall survive indefinitely until
performed in accordance with their terms.
9.2. Indemnification. (a) The Company shall indemnify, defend and
hold harmless each Investor, its affiliates, and each of their respective
officers, directors, partners (and the partners of such partners), managing
directors, employees, agents, advisors, consultants, representatives, successors
and assigns (including any transferee of Class G Preferred Stock or Conversion
Stock) from and against all Losses (as hereinafter defined) incurred or suffered
by any of the foregoing (whether incurred or suffered directly or indirectly
through ownership of Conversion Stock or Class G Preferred Stock) arising out
of, relating to or resulting from (i) any breach of any of the representations
or warranties made by the Company in this Agreement or in any of the Transaction
Documents, and (ii) any breach of any of the covenants or agreements made by the
Company in this Agreement or in any of the Transaction Documents. Each Investor
shall, severally and not jointly, indemnify, defend and hold harmless the
Company, its affiliates, and each of their respective officers, directors,
employees, agents, advisors, consultants, representatives, successors and
assigns against all Losses arising from the breach of any of the
representations, warranties, covenants or agreements made by such Investor in
this Agreement or in any of the Transaction Documents or in any certificate or
instrument delivered pursuant to Section 5.
(b) For purposes hereof, "Losses" shall mean each and all of the
following items: claims, losses, liabilities, obligations, payments, actual and
punitive damages, charges, judgments, fines, penalties, amounts paid in
settlement, costs and expenses (including, without limitation, interest which
may be imposed in connection therewith, costs and expenses of investigation and
fees, expenses and disbursements of counsel, consultants and other experts), but
excluding consequential damages. Any payment by the Company to any Investor
pursuant to this Section 9.2 shall be treated for all income Tax purposes as an
adjustment to the price paid by such Investor for the Class G Preferred Stock
pursuant to this Agreement.
(c) Each of the representations and warranties that contains any
"Material Adverse Effect," "in all material respects," or other materiality (or
correlative meaning) qualifications shall be deemed to have been given as though
there were no "Material Adverse Effect," "in all material respects," or other
materiality (or correlative meaning) qualifications for purposes of determining
the amount of Losses under this Section 9.2, but not the accuracy of any
representation or warranty.
(d) Any claim for indemnification pursuant to this Section 9.2 must
be made before the expiration of the survival periods set forth in Section 9.1.
No party shall
- 36 -
be entitled to indemnification against a Loss arising from the breach of any
representations or warranties of any other party unless the party seeking
indemnification (the "indemnified party") shall have given to the party from
whom indemnification is sought (the "indemnifying party") a claim notice
relating to such Loss (a "Claim Notice") prior to expiration of the
representation or warranty upon which the claim is based. The written Claim
Notice shall be given reasonably promptly after the indemnified party becomes
aware of the facts indicating that a claim for indemnification may be warranted,
and shall state in reasonable detail (to the extent known) the nature of the
claim. The failure of any indemnified party to give a Claim Notice shall not
relieve the indemnifying party of its obligations under this Section 9.2, except
to the extent that the indemnifying party is actually materially prejudiced by
failure to give such Claim Notice. The indemnifying party may, through counsel
of its own choosing and reasonably satisfactory to the indemnified party, assume
the defense thereof or other indemnification obligation with respect thereto;
provided, however, that any indemnified party shall be (a) entitled to
participate in any such claim with counsel of its own choice but at its own
expense and (b) shall be entitled to participate in any such claim with counsel
of its own choice at the expense of the indemnifying party if representation of
both parties by the same counsel is otherwise inappropriate under applicable
standards of professional conduct. In any event, if the indemnifying party
disputes the claim or otherwise fails to take reasonable steps necessary to
defend diligently the action or proceeding within 20 days after receiving notice
from such indemnified party, the indemnified party may assume such defense or
other indemnification obligation and the fees and expenses of its attorneys will
be covered by the indemnity provided for in this Section 9.2 if and upon
determination of an indemnifying party's obligation therefor. The indemnifying
party shall not, without the written consent of the indemnified party, which
shall not be unreasonably withheld or delayed, settle or compromise any pending
or threatened Litigation or claim in respect of which indemnification may be
sought hereunder (whether or not the indemnified party is an actual or potential
party to such action or claim) or consent to the entry of any judgment (i) which
does not, to the extent that an indemnified party may have any liability with
respect to such action or claim, include as an unconditional term thereof the
delivery by the claimant or plaintiff to the indemnified party of a written
release from all liability in respect of such action or claim, (ii) which
includes any statement as to or an admission of fault, culpability or a failure
to act, by or on behalf of any indemnified party, or (iii) in any manner that
involves any injunctive relief against the indemnified party or may materially
and adversely affect the indemnified party. The indemnified party may not
compromise or settle any claim without the prior written consent of the
indemnifying party (which consent shall not be unreasonably withheld or
delayed), unless the sole relief granted is equitable relief for which the
indemnifying party would have no liability or to which the indemnifying party
would not be subject.
9.3. Expenses. At the Closing, the Company shall pay, or reimburse
the Maveron Entities for, all reasonable costs and expenses incurred by the
Maveron Entities in connection with the negotiation, execution, delivery,
performance and consummation
- 37 -
of this Agreement and the transactions contemplated hereby; but in no event
shall the Company pay or reimburse the Maveron Entities for such costs and
expenses in an amount in excess of $35,000. The Company shall pay its own
expenses incurred in connection with the negotiation, execution, delivery,
performance and consummation of this Agreement and the transactions contemplated
hereby.
9.4. Delays or Omissions; Remedies. Except as expressly provided
herein, no delay or omission to exercise any right, power or remedy accruing to
any holder of any shares of Class G Preferred Stock or shares of Conversion
Stock upon any breach or default of the Company under this Agreement shall
impair any such right, power or remedy of such holder nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
any similar breach or default thereafter occurring; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or approval of
any kind or character on the part of any holder of any shares of Class G
Preferred Stock or shares of Conversion Stock with respect to any breach or
default under this Agreement, or any waiver on the part of any holder of shares
of Class G Preferred Stock or shares of Conversion Stock of any provisions or
conditions of this Agreement, must be in writing signed by such holder and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by Law or otherwise afforded to any
holder of shares of Class G Preferred Stock or shares of Conversion Stock, shall
be cumulative and not alternative, and any person having any rights under any
provision of this Agreement will be entitled to enforce such rights
specifically, to recover damages by reason of any breach of this Agreement and
to exercise all other rights granted by Law, equity or otherwise.
9.5. Further Assurances. At any time or from time to time after the
Closing, each party hereto agrees to cooperate with each other, and at the
request of any other party, to execute and deliver any further instruments or
documents and to take all such further action as any other party may reasonably
request in order to evidence or effectuate the consummation of the transactions
contemplated hereby and by the other Transaction Documents and to otherwise
carry out the intent of the parties hereunder and thereunder.
9.6. Successors and Assigns. This Agreement shall bind and inure to
the benefit of the Company and each of the Investors and the respective
successors, assigns, heirs and personal representatives of the Company and each
of the Investors. The Company may assign its rights or obligations under this
Agreement to any successor by merger, purchase, consolidation or otherwise of
the Company, provided that such successor becomes a signatory to this Agreement.
Prior to the Closing, the Investors may not assign their right or obligation
under this Agreement to purchase shares of Class G Preferred Stock. The Company
acknowledges that, after the Closing, subject to compliance with applicable
securities Laws and the applicable provisions of this
- 38 -
Agreement and the other Transaction Documents, any of the Investors may transfer
all or part of the securities acquired by it hereunder and may, in its
discretion, assign all or part of its rights and obligations under this
Agreement to a transferee of such securities.
9.7. Entire Agreement. This Agreement and the Transaction Documents
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire agreement among the parties with respect to the subject matter hereof
and supersede all prior and contemporaneous arrangements, understandings or
representations by or among the parties hereto, written or oral, to the extent
they relate in any way to the subject matter hereof.
9.8. Notices. All notices, requests, consents and other
communications hereunder to any party shall be deemed to be sufficient if
contained in a written instrument delivered in person or sent by telecopy (with
a confirmatory copy sent by a different means within three business days of such
notice), nationally recognized overnight courier or first class registered or
certified mail, return receipt requested, postage prepaid, addressed to such
party at the address set forth below or such other address as may hereafter be
designated in writing by such party to the other parties:
(i) if to the Company, to:
Capella Education Company
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Chief Executive Officer
with a copy to:
Faegre & ▇▇▇▇▇▇ LLP
2200 ▇▇▇▇▇ Fargo Center
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
and
(ii) if to the Maveron Entities, to:
Maveron LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
- 39 -
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇
with copies to:
▇▇▇▇▇▇▇ Coie LLP
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
and
(iii) if to ▇▇▇▇▇, to:
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
All such notices, requests, consents and other communications shall be
deemed to have been given when received.
9.9. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
9.10. Titles and Subtitles; Definitions. The titles and subtitles
used in this Agreement are used for convenience only and are not considered in
construing or interpreting this Agreement. The term "including" shall mean
including without limitation, whether or not so stated, and is meant to be by
way of example rather than limitation. The term "Material Adverse Effect on the
Company" shall mean a material adverse effect on the Company and the
Subsidiaries, taken as a whole, and the term "material" (including when used in
the foregoing phrase or in the phrase "in all material respects") shall mean
material to the business, assets, liabilities, prospects, condition (financial
or otherwise) or results of operations of the Company and the Subsidiaries taken
as a whole; provided, that, the Company and the Investors agree that Material
Adverse Effect shall not include any such effect primarily attributable to or
resulting from (a) changes in general economic or business conditions, the
securities markets (public or private) or the Internet or education industries
generally as they may affect the Company, (b) the announcement to employees,
customers, suppliers or others of the transactions contemplated hereby, (c) the
incurrence of liabilities, obligations and losses in the ordinary course of
business substantially consistent with the Company's year 2003
- 40 -
plan (attached hereto as Schedule 9.10), (d) the taking of any action required
by this Agreement or the other Transaction Documents and (e) any changes in U.S.
GAAP. The term "Contract" shall mean any agreement, contract, understanding or
arrangement, whether written or oral, and including all amendments thereto. The
term "to the Company's knowledge" shall mean the knowledge of any of the persons
set forth in Exhibit C, after reasonable inquiry. The term "person" shall mean
any individual, corporation, association, partnership, trust or other entity or
organization, including a Governmental Entity. The term "designated employee"
shall mean the persons listed as such on Exhibit C. The term "Subsidiary" shall
mean each corporation or other person of which shares of capital stock or other
equity interests having ordinary voting power to elect a majority of the board
of directors or other managers of such corporation or other person are at the
time owned, directly or indirectly, or the management of which is otherwise
controlled, directly or indirectly, or both, by the Company.
9.11. Governing Law; Waiver of Jury Trial. This Agreement shall be
governed by and construed in accordance with the Laws of the State of Minnesota
without giving effect to the principles of conflict of laws. Each of the parties
irrevocably and unconditionally waives, to the fullest extent permitted by
applicable Law, any and all rights to trial by jury in connection with any
Litigation arising out of or relating to this Agreement or the transactions
contemplated hereby.
9.12. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid, but
if any provision of this Agreement is held to be invalid or unenforceable in any
respect, such invalidity or unenforceability shall not render invalid or
unenforceable any other provision of this Agreement.
9.13. Confidentiality Agreement. Each Investor agrees that it will
keep confidential and will not disclose or divulge any confidential, proprietary
or secret information about the Company or Capella University, Inc. (the
"School") that such Investor obtains from the Company or the School pursuant to
this Agreement (including the diligence in connection with, and negotiation of,
this Agreement) unless (a) such information is or becomes publicly available
other than as a result of a disclosure in breach of this Agreement by the
Investor or anyone to whom the Investor transmitted such confidential
information, (b) is or was known by the Investor on a non-confidential basis
from a source other than the Company or the School who is not known by the
Investor to be bound by a confidentiality agreement or other obligation of
secrecy with respect to such confidential information or (c) is or was available
to the Investor on a non-confidential basis prior to its disclosure to such
Investor by the Company or the School. Notwithstanding the foregoing,
information that is already in the public domain will not constitute
confidential, proprietary or secret information with respect to any Investor for
purposes of this Agreement. In addition, if, in the Investor's good faith
judgment, the Investor is requested or becomes legally compelled (by oral
questions,
- 41 -
interrogatories, requests for information or documents, subpoena, civil or
criminal investigative demand or similar process), or must, in order to defend
against or assert a claim in connection with this Agreement or the Transaction
Documents, disclose any confidential information, the Investor agrees to provide
the Company with prompt written notice so that the Company may seek, at its
expense, a protective order or other appropriate remedy and/or waive compliance
with the provisions of this Agreement and, in the event that such protective
order or other remedy is not timely obtained, or that the Company waives
compliance with the provisions of this Agreement, the Investor may, without
liability under this Section 9.13, furnish that portion of the confidential
information which, in the Investors's good faith judgment, is required for such
purpose and will exercise its best efforts, at the Company's expense, to obtain
reliable assurance that confidential treatment will be accorded the confidential
information. Notwithstanding the foregoing, the Maveron Entities may disclose to
their limited partners summary financial information and a narrative description
of the Company, provided that any such disclosing Maveron Entity instructs its
limited partners that the information is confidential and may not be shared with
any third party without the consent of the Maveron Entities and the Company. The
Maveron Entities further agree to confer with the Company in good faith
regarding the content of the Maveron Entities' updates to their limited partners
regarding the Company before such updates are mailed. Each Investor acknowledges
its responsibilities under federal and state securities laws with respect to
trading in securities while aware of material non-public information obtained
from the Company and with respect to providing such information to other persons
who purchase or sell securities of the Company. The provisions of this Section
9.13 shall survive the termination of this Agreement and shall terminate with
respect to any Investor on the date which is two years after the date on which
such Investor no longer holds any shares of capital stock of the Company.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
CAPELLA EDUCATION COMPANY
By /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇
Its: Chief Executive Officer
MAVERON EQUITY PARTNERS 2000, L.P.
By: MAVERON GENERAL PARTNER 2000 LLC
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------
▇▇▇ ▇▇▇▇▇▇▇
Its: Manager
MAVERON EQUITY PARTNERS 2000-B, L.P.
By: MAVERON GENERAL PARTNER 2000 LLC
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------
▇▇▇ ▇▇▇▇▇▇▇
Its: Manager
MEP 2000 ASSOCIATES LLC
By: MAVERON GENERAL PARTNER 2000 LLC
By: /s/ ▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------
▇▇▇ ▇▇▇▇▇▇▇
Its: Manager
/s/ ▇▇▇▇▇ ▇▇▇▇▇
---------------------------------------
▇▇▇▇▇ ▇▇▇▇▇
- 43 -
Schedule 1.1
INVESTOR SHARES PURCHASE PRICE
-------- ------ ----------------
Maveron Equity Partners 2000, L.P. 573,025.72 $ 6,372,046.01
Maveron Equity Partners ▇▇▇▇-▇, ▇.▇. 22,086.22 $ 245,598.74
MEP 2000 Associates LLC 79,348.26 $ 882,352.63
---------- ----------------
Maveron Entities (total) 674,460.20 $ 7,499,997.38
▇▇▇▇▇ ▇▇▇▇▇ 8,992.00 $ 99,991.04
Total 683,452.20 $ 7,599,988.42
========== ================
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Exhibit C
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▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
- 45 -
