EXHIBIT 4.17
CAPELLA EDUCATION COMPANY
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CLASS F CONVERTIBLE PREFERRED STOCK
STOCK PURCHASE AGREEMENT
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TABLE OF CONTENTS
Page
SECTION 1. ISSUANCE AND SALE OF THE CLASS F 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.................................... 2
1.5. Signing............................................................. 3
1.6. Individual Retirement Accounts...................................... 4
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................... 5
2.1. Organization and Standing........................................... 5
2.2. Power............................................................... 5
2.3. Subsidiaries........................................................ 5
2.4. Capitalization...................................................... 6
2.5. Authorization; No Breach............................................ 8
2.6. Material Contracts.................................................. 8
2.7. Litigation.......................................................... 9
2.8. Consents............................................................ 9
2.9. Title to Properties; Liens and Encumbrances; Assets of the
Business......................................................... 9
2.10. Intellectual Property............................................... 10
2.11. Taxes............................................................... 12
2.12. Brokers............................................................. 12
2.13. Compliance with Laws; Permits; Accreditation and State Regulatory
Requirements...................................................... 13
2.14. Offering Exemption.................................................. 17
2.15. Employees; Proprietary Information Agreement........................ 17
2.16. Insurance........................................................... 17
2.17. [Intentionally Omitted]............................................. 18
2.18. Financial Statements................................................ 18
2.19. Related Party Transactions.......................................... 18
2.20. Environmental Matters............................................... 19
2.21. Employee Benefit Plans.............................................. 19
2.22. Labor Relations; Employees.......................................... 21
2.23. Absence of Changes.................................................. 22
2.24. Suppliers and Customers............................................. 23
2.25. Suitability......................................................... 23
2.26. Operations of the Company........................................... 23
2.27. Recruitment; Admissions Procedures; Attendance; Reports............. 23
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2.28. USDOE Demonstration Program......................................... 24
2.29. Disclosure.......................................................... 25
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS................. 25
3.1. Power; Authorization................................................ 25
3.2. No Breach........................................................... 25
3.3. Investment; Securities Laws......................................... 26
3.4. Accredited Investor................................................. 26
3.5. Rule 144............................................................ 26
3.6. Availability of Funds............................................... 26
3.7. Brokers............................................................. 26
3.8. Independent Investigation and Counsel............................... 26
3.9. Investor Qualifications............................................. 27
3.10. Compliance.......................................................... 27
SECTION 4. CONDITIONS TO CLOSING OF THE INVESTORS.......................... 27
4.1. Representations and Warranties Correct.............................. 28
4.2. Covenants........................................................... 28
4.3. Material Adverse Change............................................. 28
4.4. Compliance Certificate.............................................. 28
4.5. Opinion of Company's Counsel........................................ 28
4.6. Officer's Certificate............................................... 28
4.7. Board Membership.................................................... 28
4.8. Amended and Restated Investor Rights Agreement...................... 28
4.9. Second Amended and Restated Co-Sale and Board Representation
Agreement........................................................ 28
4.10. Registration Rights Amendment....................................... 29
4.11. 1998 Warrant Amendment.............................................. 29
4.12. 2000 Warrant Amendment.............................................. 29
4.13. Simultaneous Closing................................................ 29
SECTION 5. CONDITIONS TO CLOSING OF THE COMPANY............................ 29
5.1. Representations and Warranties Correct.............................. 29
5.2. Covenants........................................................... 29
5.3. Compliance Certificate.............................................. 29
5.4. Consents............................................................ 30
SECTION 6. PRE-CLOSING COVENANTS OF THE COMPANY AND THE INVESTORS.......... 30
6.1. Cooperation......................................................... 30
6.2. No Solicitation..................................................... 30
6.3. Publicity........................................................... 30
6.4. Conduct of Business Prior to the Closing............................ 31
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SECTION 7. POST-CLOSING AND ON-GOING COVENANTS............................. 31
7.1. Directors........................................................... 31
7.2. Reimbursement of Directors.......................................... 31
7.3. Indemnification of Directors........................................ 31
7.4. Representative...................................................... 32
7.5. Financial Statements and Other Information.......................... 34
7.6. Approval and Notification........................................... 35
7.7. Corporate Existence................................................. 37
7.8. Conduct of Business................................................. 37
7.9. Board Meetings...................................................... 37
7.10. Insurance........................................................... 37
7.11. Non-disclosure and Invention Agreements............................. 37
7.12. Publicity........................................................... 38
SECTION 8. TERMINATION..................................................... 38
8.1. Termination......................................................... 38
8.2. Effect on Obligations............................................... 39
SECTION 9. MISCELLANEOUS................................................... 39
9.1. Survival............................................................ 39
9.2. Indemnification..................................................... 39
9.3. Expenses............................................................ 41
9.4. Delays or Omissions; Remedies....................................... 41
9.5. Further Assurances.................................................. 42
9.6. Successors and Assigns.............................................. 42
9.7. Entire Agreement.................................................... 42
9.8. Notices............................................................. 42
9.9. Counterparts........................................................ 45
9.10. Titles and Subtitles; Definitions................................... 45
9.11. Governing Law; Waiver of Jury Trial................................. 46
9.12. Severability........................................................ 46
9.13. Massachusetts Business Trusts....................................... 46
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INDEX OF DEFINED TERMS
Accrediting Body ......................... 2.13(k)
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
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
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
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 F Convertible
Preferred Stock ............................................... Recitals
B Board Membership .............................................. 4.8
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
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CAPELLA EDUCATION COMPANY
PREFERRED STOCK PURCHASE AGREEMENT
AGREEMENT, dated as of January 31, 2002, by and among Capella
Education Company, a Minnesota corporation (the "Company"), Forstmann Little &
Co. Equity Partnership - VII, L.P., a Delaware limited partnership
("Equity-VII"), Forstmann Little & Co. Subordinated Debt and Equity Management
Buyout Partnership-VIII, L.P., a Delaware limited partnership ("MBO-VIII" and,
together with Equity-VII, the "Forstmann Little Entities"), the certain funds
and accounts managed by affiliates of ▇▇▇▇▇▇ Investments, LLC, a Delaware
limited liability company, that are listed on Schedule 1.1 (collectively,
"▇▇▇▇▇▇"), DRW Venture Partners LP ("Dain"), ThinkEquity Investment Partners LLC
("Think"), ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇"), a resident of Minnesota, and the members
of Capella's management or board of directors (or accounts under their
direction) that are listed on Schedule 1.1 ("Management Investors" and, together
with MBO-VIII , Equity-VII, Dain, Think and ▇▇▇▇▇▇, the "Investors").
W I T N E S S E T H:
WHEREAS, the Forstmann Little Entities, Dain, Think, ▇▇▇▇▇▇▇ and the
Management Investors have executed this Agreement and it is binding on each of
them as of the date hereof. It is contemplated that ▇▇▇▇▇▇ shall sign this
Agreement on the Closing Date and become a party hereto; 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 F Convertible
Preferred Stock, par value $.01 per share, of the Company (the "Class F
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 F Preferred Stock in the
form of Exhibit A (the "Certificate of Designation"); and
WHEREAS, on or prior to Closing (as hereinafter defined), the
parties hereto, SmartForce plc, NCS ▇▇▇▇▇▇▇, Inc., Cherry Tree Ventures IV,
Forstmann Little & Co. Equity Partnership-VI, L.P. ("Equity-VI") and ▇▇▇▇▇▇▇
▇▇▇▇▇ intend to enter into a Second 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 intend to
enter into an Amended and Restated Investor Rights Agreement (the "Investor
Rights Agreement") to become effective simultaneously with the Closing.
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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 F 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 1,425,457 shares of Class F Preferred Stock (the
"Purchase") at a purchase price of $11.71 per share and an aggregate purchase
price of $16,692,101.47 (the "Purchase Price"). Immediately following the
Closing, the Investors in the aggregate shall own 11.78% of the equity of the
Company on a fully diluted basis (i.e., assuming the exercise of all 12,100,275
outstanding stock options and other outstanding Stock Rights (as hereinafter
defined) (including the conversion of the Class F Preferred Stock, and the
issuance of all shares of Common Stock reserved for issuance upon the future
grant of 706,492 employee options and other 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 the next
business day following the satisfaction (or waiver) of all the conditions set
forth in Sections 4 and 5 (but no earlier than the 30th calendar day after the
date hereof) 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 F 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
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adjustment to the purchase price paid by the Investors per share of Class F
Preferred Stock, an additional amount of Class F Preferred Stock such that, if
such issuance of additional Class F 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 F 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 F 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 F
Preferred Stock were converted into shares of Common Stock) of the amount of
Class F 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 F Preferred Stock were
converted into shares of Common Stock.
(c) Any additional shares of Class F Preferred Stock and Common
Stock issued to the Investors pursuant to this Section 1.4 shall be treated as
if they were 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
F 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 F
Preferred Stock so issued. Any shares of Class F 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).
1.5. Signing. (a) This Agreement is binding upon each of the
Forstmann Little Entities, Dain, Think, ▇▇▇▇▇▇▇ and the Management Investors as
of the date hereof. The obligations to consummate the purchase and sale of the
shares of Class F Preferred
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Stock of the Forstmann Little Entities hereunder are conditioned upon ▇▇▇▇▇▇
signing this Agreement and the conditions in Section 4 of this Agreement.
(b) Upon their signing of this Agreement, this Agreement shall be
binding upon ▇▇▇▇▇▇ as of the date of this Agreement. Upon signing this
Agreement, ▇▇▇▇▇▇ OTC and Emerging Growth Fund and TH ▇▇▇, ▇▇▇▇▇▇ Investment
Trust - TH ▇▇▇, ▇▇▇▇▇▇ Emerging Opportunities Portfolio shall be "▇▇▇▇▇▇" under
this agreement and shall be subject to all of the rights and obligations of
"▇▇▇▇▇▇" under this Agreement.
1.6. Individual Retirement Accounts. ▇▇▇▇▇▇▇ agrees, and agrees to
cause USB ▇▇▇▇▇ ▇▇▇▇▇▇▇ as Custodian FBO ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ Account #▇▇▇▇▇▇▇▇
(the "▇▇▇▇▇▇▇ ▇▇▇") and any other party necessary, to perform all of the
obligations of ▇▇▇▇▇▇▇ ▇▇▇ under this Agreement. Any notice given to the ▇▇▇▇▇▇▇
▇▇▇ under this Agreement shall also be given to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, c/o Capella
Education Company ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇,
telecopy: (▇▇▇) ▇▇▇-▇▇▇▇. For purposes of Section 3 of this Agreement, the term
"Investor" shall include ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ hereby represents and warrants to
the Company on behalf of himself and ▇▇▇▇▇▇▇ ▇▇▇ the representations and
warranties set forth in Section 3. Notwithstanding anything else in Section 3 to
the contrary, the representations and warranties of ▇▇▇▇▇▇▇ ▇▇▇ in Sections 3.2
through 3.9 are not made by ▇▇▇▇▇▇▇ ▇▇▇, but are made by ▇▇▇▇▇▇▇ on behalf of
▇▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇▇▇ ▇▇▇▇▇ ("▇▇▇▇▇") agrees, and agrees to cause USB ▇▇▇▇▇
▇▇▇▇▇▇▇ as Custodian FBO ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇ Account #▇▇▇▇▇▇▇▇ ("▇▇▇▇▇ ▇▇▇")
and any other party necessary, to perform all of the obligations of ▇▇▇▇▇ ▇▇▇
under this Agreement. Any notice given to the ▇▇▇▇▇ ▇▇▇ under this Agreement
shall also be given to: ▇▇▇▇▇▇▇ ▇▇▇▇▇, c/o Capella Education Company ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, telecopy: (▇▇▇) ▇▇▇-▇▇▇▇. ▇▇▇▇▇
hereby represents and warrants to the Company on behalf of himself and ▇▇▇▇▇ ▇▇▇
the representations and warranties set forth in Section 3. Notwithstanding
anything else in Section 3 to the contrary, the representations and warranties
of ▇▇▇▇▇ ▇▇▇ in Sections 3.2 through 3.9 are not made by ▇▇▇▇▇ ▇▇▇, but are made
by ▇▇▇▇▇ on behalf of ▇▇▇▇▇ ▇▇▇.
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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
Certificate of Designation; the Board Representation Agreement; the Schedules to
this Agreement and all other certificates, instruments and other documents
executed and delivered at the Closing pursuant to Section 4 hereof (collectively
with this Agreement, the "Transaction Documents") (ii) to execute and deliver
Amendment No. 2 to the Registration Rights Agreement, dated as of June 16, 1998,
by and among the Company and NCS ▇▇▇▇▇▇▇, Inc., as successor to National
Computer Systems, Inc. (the "Registration Rights Amendment"), Amendment No. 1 to
the Warrant to purchase Common Shares of the Company issued on May 11, 2000 to
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, Incorporated (the "2000 Warrant Amendment") and
Amendment No. 2 to the Warrant to purchase Common Shares of the Company issued
on June 16, 1998 to ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, Incorporated (the "1998 Warrant
Amendment"), and (iii) to carry out and perform its obligations hereunder and
thereunder.
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
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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 in Schedule 2.4),
capital stock of the Company authorized, outstanding or reserved for issuance
consists of (i) 15,000,000 shares of Common Stock, of which 1,501,629 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"), of which 1,022,222 shares are issued and outstanding, (v) 2,596,491
shares of Class E Convertible Preferred Stock ("Class E Preferred Stock", and,
together with the Class A Preferred Stock, Class B Preferred Stock and Class D
Preferred Stock, the "Preferred Stock"), of which 2,596,491 shares are issued
and outstanding, (vi) 5,146,358 shares of preferred stock, undesignated as to
class or series, (vii) 1,184,290 shares of Common Stock are reserved for
issuance pursuant to employee stock options granted pursuant to the Company's
stock option plans and 706,492 shares of Common Stock are reserved for issuance
for future grants of employee stock options pursuant to the Company's stock
option plans, (viii) 334,048 shares of Common Stock are reserved for issuance
upon the exercise of any outstanding warrants of the Company and (ix) 6,948,359
shares of Common Stock have been duly reserved for issuance upon conversion of
the outstanding shares of convertible Preferred Stock. Immediately following the
Closing, the capital stock of the Company authorized, outstanding or
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reserved for issuance will be as set forth in the preceding sentence except that
(i) 1,425,457 shares of Class F Preferred Stock will have been issued and be
outstanding, and (ii) 1,425,457 shares of Common Stock will be reserved for
issuance upon conversion of the shares of Class F Preferred Stock (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 in
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) 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 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
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). Except as set forth 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). Immediately following the Closing, the shares of Common Stock issuable
upon conversion of the Class F Preferred Stock issued to the Investors under
this Agreement will represent, in the aggregate, 11.78% of the outstanding
capital stock of the Company on a Fully Diluted Basis, and the voting power of
such issued shares of Class F Preferred Stock will
- 7 -
represent, in the aggregate, no less than 11.78% 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) The execution, delivery and
performance by the Company of this Agreement and the other Transaction Documents
to which the Company is a party, and the consummation by the Company of the
transactions contemplated hereby and thereby, including the offer, sale and
issuance of the Class F Preferred Stock pursuant to this Agreement, and the
issuance of the Conversion Stock upon conversion of the Class F Preferred Stock,
have been duly authorized by all required actions of the Company and its equity
holders and, except as set forth on Schedule 2.5, will not (i) conflict with, or
result in any violation of, any provision 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
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 F
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 F 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
- 8 -
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
("Litigation") pending, or, to the Company's knowledge threatened, to which the
Company is a party or its property, 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 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.
- 9 -
(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
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
- 10 -
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;
(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
- 11 -
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 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.
- 12 -
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 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.
- 13 -
(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) 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 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 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.
(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 in the programs authorized by Title IV and
other federal student financial aid funding programs as set forth at 34 C.F.R.
Sections 600 et. seq. 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.
- 14 -
(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 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.
- 15 -
(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 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) To the knowledge of the Company, there exist no facts or
circumstances attributable to the Company or the School that would reasonably be
expected to cause any State Approval Agency whose authorization or consent or
similar approval is required in connection with the transactions contemplated by
this Agreement, as set forth in Schedule 2.8, to refuse to deliver 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,
- 16 -
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 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, the offer, sale and issuance of the Class F Preferred Stock as
contemplated hereby are, the issuance of the Conversion Stock upon the
conversion of the Class F Preferred Stock in accordance with the terms of the
Certificate of Designation will be, and all prior issuances 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.
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. 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
- 17 -
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, 2000, and the related consolidated
statements of operations, changes in shareholders' equity and cash flows for the
fiscal year ended December 31, 2000 audited by Ernst & Young LLP and (b) the
unaudited consolidated balance sheet of the Company as of December 31, 2001 and
the related unaudited consolidated statements of operations, changes in
shareholders' equity and cash flows for the fiscal year ended December 31, 2001
(the "Financial Statements"). The 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 generally accepted accounting principles
("GAAP") consistently applied (except that the December 31, 2001 Financial
Statements do not contain all footnotes required by generally accepted
accounting principles and are subject to normal year-end audit adjustments). The
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 or
any other Schedule to this Agreement, 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 generally accepted
accounting principles. 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.
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 in 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
associates, directly pertaining to the Company. Except as set forth on Schedule
2.19, no
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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
- 19 -
(each Contract in clauses (ii) and (iii), an "Employee Agreement"). The Company
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.
- 20 -
(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 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 receive 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 and the other Transaction Documents
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
- 21 -
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 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 December 31, 2000, or in the case of item
(k), since September 30, 2001, 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
- 22 -
(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 December 31, 2001, 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 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) Schedule 2.27 contains a complete and correct list of 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
(collectively, the "Policy Guidelines"). The Company has made available to the
Investors true and complete copies of all Policy Guidelines.
- 23 -
(b) The operations of the Company and the School have been conducted
in accordance with the Policy Guidelines, 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.
(c) 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 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.
(d) 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, 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.
- 24 -
2.29. Disclosure. (a) Neither this Agreement nor any of the
Transaction Documents 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 any future period may vary from the projections and the
variations may be material and adverse.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.
Subject to the provisions of Section 1.6, 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.
- 25 -
3.3. Investment; Securities Laws. Such Investor is acquiring the
Class F 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 F Preferred Stock has not been, and the
Conversion Stock will not be, registered under the Securities Act or any state
securities Laws, and (ii) the Class F 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. (a) 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 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. Other than Think, no Investor was formed for the purpose of this
investment within the meaning of Rule 501 under the Securities Act.
(b) Think and each of the equity holders of Think is an "Accredited
Investor" (as defined in Rule 501(a) under the Securities Act). Think shall
cause each of the equity holders of Think to provide to the Company prior to
Closing a manually signed representation that such equity holder is an
"Accredited Investor" (as defined in Rule 501(a) 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
- 26 -
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.
(d) For purposes of this Section 3.9, the term "Investor" shall
mean only Equity VII, MBO-VIII, Dain, Think, ▇▇▇▇▇▇▇, the ▇▇▇▇▇▇ entities
identified in Schedule 1.1 and the Management Investors identified in Schedule
1.1. 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 Equity VII,
MBO-VIII, Dain, Think or ▇▇▇▇▇▇.
3.10. Compliance. The representations and warranties made by ▇▇▇▇▇▇
in this Agreement shall be deemed made as of Closing with full force and effect
as if made as of such time.
SECTION 4. CONDITIONS TO CLOSING OF THE INVESTORS.
Each of Dain's, Think's and each Management Investor's obligation to
purchase the Class F Preferred Stock at the Closing is subject to each of ▇▇▇▇▇▇
and the Forstmann Little Entities simultaneously consummating the Closing. The
Forstmann Entities' obligation to purchase the Class F Preferred Stock at the
Closing is subject to the fulfillment at or prior to the Closing of the
following conditions:
-27-
4.1. Representations and Warranties Correct. The representations
and warranties made by the Company in Section 2 shall be true and correct 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, 4.7 and 4.8.
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, stockholders approving this Agreement and the other
Transaction Documents 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.
4.7. Board Membership. The seven people listed on Exhibit B shall
have been elected to, and shall comprise, the Board.
4.8. Amended and Restated Investor Rights Agreement. The Investor
Rights Agreement shall have been executed in the form attached hereto as Exhibit
E.
4.9. Second Amended and Restated Co-Sale and Board Representation
Agreement. The Board Representation Agreement shall have been amended and
restated in the form attached hereto as Exhibit F.
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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.
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.
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.
4.13. Simultaneous Closing. ▇▇▇▇▇▇, ▇▇▇▇, Think and the Management
Investors shall simultaneously be consummating the Closing.
4.14. Bankruptcy Event.Neither Equity-VII nor MBO-VIII shall have
filed for relief in bankruptcy or shall have had entered against it an order for
relief in bankruptcy.
SECTION 5. CONDITIONS TO CLOSING OF THE COMPANY.
The Company's obligation to sell the Class F Preferred Stock to the
Investors 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 Investors in Section 3 of this Agreement shall be
true and correct in all material respects as of the time of Closing 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 Investors at or prior to the Closing
shall have been performed or complied with in all material respects.
5.3. Compliance Certificate. The Investors, except for ▇▇▇▇▇▇,
shall have delivered to the Company a certificate executed by the Investors,
dated as of the Closing Date, and certifying as to the fulfillment of the
conditions specified in Sections 5.1 and 5.2.
-29-
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).
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 cooperate with the
other parties to cause the consummation of such transactions in accordance with
the terms and conditions hereof and thereof.
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 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 other parties hereto (which
consent shall not be unreasonably withheld), except as such release or
announcement may be required by Law
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or the rules or regulations of any securities exchange, in which case the party
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. Directors. Effective at the Closing, the holders of shares of
Class F Preferred Stock and Conversion Stock shall have the right to designate a
director of the Company in accordance with the provisions of Section 3 of the
Board Representation Agreement, who shall initially be ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇.
7.2. Reimbursement of Directors. The Company shall reimburse each
director designated by the holders of the shares of Class F Preferred Stock and
Conversion Stock for all reasonable costs and expenses associated with attending
meetings of the Board or any committee thereof.
7.3. Indemnification of Directors. (a) The Company shall
indemnify, defend and hold harmless each person who serves as a member of the
Board or committee thereof from and against all losses, claims, damages and
expenses (including reasonable attorneys' fees and expenses) to the fullest
extent permitted from time to time under applicable Law.
(b) To the fullest extent permitted from time to time under
applicable Law, the Company shall pay, on an as-incurred basis, the reasonable
fees and expenses of the directors (including reasonable attorneys' fees and
expenses) in advance of the final disposition of any Litigation that is the
subject of the right to indemnification.
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(c) In the event of any Litigation, subject to the provisions of
any insurance policy the director shall be entitled to control the defense
thereof with counsel of the director's own choosing reasonably acceptable to the
Company and the Company shall cooperate in the defense thereof; provided, that,
such director shall have no power to settle or compromise any Litigation for
which indemnification is being sought without the prior written consent of the
Company which shall not be unreasonably withheld.
(d) The Articles of Incorporation and By-Laws of the Company shall
contain provisions for the indemnification and exculpation of directors to the
maximum extent permitted under applicable Law, and shall be amended as and when
necessary to effectuate the foregoing.
(e) The Company shall cause to be maintained in effect, with
financially sound insurers, a policy of directors' and officers' liability
insurance on terms and amounts substantially similar to the directors' and
officers' liability insurance maintained as of the date hereof. Upon the
Company's initial public offering, the Company shall expand such directors' and
officers' liability insurance to that it shall be on such terms and in such
amounts as are customary for similarly situated public companies.
7.4. Representative. (a) From and after the Closing and so long as
an Investor holds more than 320,239 shares (subject to appropriate adjustments
for stock dividends, stock splits, combinations, recapitalizations or the like)
of Class F Preferred Stock (or Common Stock acquired upon conversion thereof)
(treating (i) ▇▇▇▇▇▇ and their respective affiliated investment funds as one
holder for purposes of this Section 7.4(a); and (ii) the Forstmann Little
Entities and their respective affiliated investment funds as one holder for
purposes of counting the number of shares held by any Forstmann Little Entity
under 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 designate
(without the consent of other Investors) a director under the Board
Representation Agreement or is entitled to appoint a representative to observe
Board meetings pursuant to any other agreement with the Company. For the
avoidance of doubt and subject to the limitations set forth in the previous
sentence when such entity is entitled to designate a director, (i) so long as
▇▇▇▇▇▇ collectively hold at least 320,239 shares (as adjusted from time to time
to reflect stock splits, dividends, recapitalizations, combinations or the like)
of Class F Preferred (or Common Stock
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acquired upon conversion thereof), ▇▇▇▇▇▇ shall collectively be entitled to one
Representative; and (ii) so long as the Forstmann Little Entities collectively
hold at least 320,239 shares (as adjusted from time to time to reflect stock
splits, dividends, recapitalizations, combinations or the like) of Class F
Preferred (or Common Stock acquired upon conversion thereof), each such
Forstmann Little Entity holding shares of Capital Stock shall be entitled to
designate one Representative. The Representative for each of the Forstmann
Little Entities shall initially be ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇. 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 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, ▇▇▇▇▇▇ and each Forstmann
Little Entity 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 ▇▇▇▇▇▇ and
each Forstmann Little Entity 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 ▇▇▇▇▇▇ and each Forstmann Little
Entity reasonable advance written notice of any significant new initiatives or
material changes to existing operating plans and shall afford ▇▇▇▇▇▇ and each
Forstmann Little Entity adequate time to meet with management to consult on such
initiatives or changes prior to implementation. The Company shall furnish ▇▇▇▇▇▇
and each Forstmann Little Entity with such financial and operating data and
other information with respect to the Business and the properties of the Company
as ▇▇▇▇▇▇ or such Forstmann Little Entity may request, except to the extent
necessary to preserve attorney-client privilege. The Company shall permit ▇▇▇▇▇▇
and each Forstmann Little Entity 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 ▇▇▇▇▇▇ or any
Forstmann Little Entity.
(b) The rights set forth in Sections 7.1 and 7.4 are, in part,
intended to satisfy the requirement of contractual management rights for
purposes of qualifying the
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ownership interests of Equity VII and MBO-VIII 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, Equity VII and MBO-VIII shall
reasonably cooperate in good faith to agree upon mutually satisfactory
Contractual Management Rights which satisfy such regulations.
(c) The rights of ▇▇▇▇▇▇ 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 Capital Stock; provided, however, ▇▇▇▇▇▇'▇ rights set forth in
Section 7.4 shall be reinstated if such registration statement is withdrawn
prior to being declared effective.
(d) The rights set forth in Section 7.4 may not be transferred
unless (i) such transfer is made by a Forstmann Little Entity to an affiliated
investment fund, (ii) in connection with the transfer of shares of Class F
Preferred (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, Equity-VII or MBO-VIII
hold any shares of Class F Preferred (or Common Stock acquired upon conversion
thereof) and do not have Contractual Management Rights, the Company and
Equity-VII or MBO-VIII, as applicable, 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 generally accepted accounting principles
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
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accordance with generally accepted accounting principles 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 generally
accepted accounting principles consistently applied, and accompanied by an audit
opinion, without qualification or reservation, by Ernst & Young or another
"Big-5" 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 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) ▇▇▇▇▇▇'▇ 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
Capital Stock; provided, however, ▇▇▇▇▇▇'▇ rights set forth in Section 7.5 shall
be reinstated if such registration statement is withdrawn prior to being
declared effective.
7.6. Approval and Notification.(a) The Company and the Investors
hereby acknowledge and agree that the transactions contemplated hereby are
subject to
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the usual and customary conditions relating to the change of ownership resulting
in a change of control of postsecondary educational institutions certified as
eligible to participate in the student financial assistance programs authorized
under Title IV of the Higher Education Act of 1965, as amended, and that the
Company shall promptly seek to have the USDOE issue (i) a temporary Provisional
Program Participation Agreement extending the School's certification to
participate in Title IV funding programs immediately following Closing and (ii)
a new Provisional Program Participation Agreement permitting the School to
maintain participation in Title IV funding upon expiration of the temporary
Provisional Program Participation Agreement.
(b) The Company shall ensure that a materially complete
application for approval of the change of ownership (the "Application") is filed
with USDOE no later than ten (10) business days following Closing. For purposes
of this Agreement, a materially complete Application consists of a completed
application form for approval to participate in federal student financial aid
programs and the following: (i) a copy of the School's current authorization
from the State of Minnesota Higher Education Services Office ("MHESO"); (ii)
documentation from the Higher Learning Commission of the North Central
Association of Colleges and Schools (the "Higher Learning Commission")
demonstrating that the School is currently accredited and that the accrediting
agency has approved all non-degree programs offered by the School; (iii) audited
financial statements of the School's two most recently completed fiscal years
that are prepared in accordance with GAAP and audited in accordance with
Generally Accepted Government Auditing Standards ("GAGAS") published by the
Governmental Accounting Standards Board; and (iv) if required by the USDOE, (1)
audited financial statements of the Investors' two most recently completed
fiscal years (or the period since such Investors' formation, whichever is
shorter) that are prepared in accordance with GAAP and, if also required by the
USDOE (and in which case the Company shall reimburse the Investor for the
additional cost of auditing such statements in accordance with GAGAS if such
statements are not already prepared), audited in accordance with GAGAS
(collectively, with statements prepared in accordance with GAAP, the "Audited
Financial Statements") or (2) such other equivalent financial information of the
Investors that is acceptable to the USDOE, (it being understood that the
Investors shall provide the Company with the information described in this
clause (iv) for purposes of the Application but that the Investors shall not be
required to provide information, financial or otherwise, more extensive or
detailed than the Audited Financial Statements). The Company shall ensure that
the following are filed with USDOE by the last day of the month following the
month in which the Closing occurred: (i) a balance sheet showing the financial
position of the School, as of the date of the Closing, that is prepared in
accordance with GAAP and audited in accordance with GAGAS; (ii) approval of the
transaction from MHESO or, alternatively, a letter from MHESO stating that
approval of the transaction is not required under its rules and regulations; and
(iii) approval of the transaction from the
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Higher Learning Commission or, alternatively, a letter from the Higher Learning
Commission stating that approval of the transaction is not required under its
standards and processes.
(c) 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 2002 plan (attached hereto as Schedule 9.10) unless otherwise
explicitly approved by a majority of the Board.
7.9. Board Meetings. The Company agrees, as a general practice, to
hold meetings of its Board of Directors periodically, and in any case not less
than once every calendar quarter, and to hold meetings of the committees of its
Board of Directors as frequently as is necessary or appropriate.
7.10. Insurance. The Company will procure and maintain 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 similar business and all such insurance
shall be effected and maintained in force under a policy or policies issued by
insurers of recognized responsibility, except that the Company may effect
worker's compensation or similar insurance in respect of operations in any state
or other jurisdiction either through an insurance fund operated by such state or
other jurisdiction or by causing to be maintained a system or systems of
self-insurance which is in accord with applicable laws.
7.11. Non-disclosure and Invention Agreements. The Company shall
cause all Key Employees currently employed or hereafter hired by the Company to
execute the Company's Statement of Policy and Employee Responsibilities (which
includes non-disclosure and invention assignment provisions) in a form that is
determined by the executive officers of the Company to reasonably protect the
proprietary information of the Company. "Key Employee" shall mean any executive
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officer and any officer having policy-making functions, including, without
limitation, the persons set forth on Schedule 7.11.
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 ▇▇▇▇▇▇ and Equity-VII and MBO-VIII (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 ▇▇▇▇▇▇ and Equity-VII and MBO-VIII 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 Equity VII, MBO-VIII and the
Company;
(b) by any of Equity VII, MBO-VIII 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, MBO-VIII
or Equity VII 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 any of Equity VII, MBO-VIII or the Company, by giving
written notice to the other parties, if the Closing shall not have occurred on
or prior to March 15, 2002, provided that the terminating party is not in
material breach of its obligations under this Agreement.
(d) by Equity-VII, MBO-VIII or the Company, by giving written
notice to the other parties, if ▇▇▇▇▇▇ shall have informed Equity-VII, MBO-VIII
or the Company in writing of its intention not to execute this Agreement or
purchase the Series F Preferred Stock.
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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 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 F 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 F 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
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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 F 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 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
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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 Forstmann Little Entities and ▇▇▇▇▇▇ for, all reasonable costs and expenses
incurred by such Investors in connection with the negotiation, execution,
delivery, performance and consummation of this Agreement and the transactions
contemplated hereby; but in no event shall the Company pay or reimburse the
Forstmann Little Entities for such costs and expenses in an amount in excess of
$150,000. 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 F 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 F
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 F 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 F 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.
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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 F Preferred Stock. The Company
acknowledges that, after the Closing, subject to compliance with applicable
securities Laws and the applicable provisions of this 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:
-42-
(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 Forstmann Little Entities, to:
Forstmann Little & Co.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
with copies to:
Fried, Frank, Harris, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
-43-
and
(iii) if to ▇▇▇▇▇▇, to:
▇▇▇▇▇▇ Investment Management
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇
with copies to:
Ropes & ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
and
(iv) if to Management Investors, to:
▇▇▇▇▇▇▇ ▇▇▇▇▇
Capella Education Company
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
and
(v) if to Dain, to:
DRW Venture Partners LP
▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇
and
(vi) if to Think, to:
c/o ThinkEquity Holdings LLC
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
-▇▇-
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Board of Managers
and
(vii) if to ▇▇▇▇▇▇▇ ▇▇▇:
USB ▇▇▇▇▇ ▇▇▇▇▇▇▇ as Custodian FBO
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ Account #▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
J10 100 01
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇▇
and
(vii) if to ▇▇▇▇▇ ▇▇▇:
USB ▇▇▇▇▇ ▇▇▇▇▇▇▇ as Custodian FBO
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇ Account #▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
J10 100 01
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇▇
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
-45-
(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 2002 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 generally accepted accounting principles. 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. Massachusetts Business Trusts. A copy of the Agreement and
Declaration of Trust of each ▇▇▇▇▇▇ fund or series investment company (each, a
"Fund"), that is a Massachusetts business trust is on file with the Secretary of
State of the Commonwealth of Massachusetts, and notice is hereby given that this
Agreement is executed on behalf of such Fund by the Trustees of the relevant
Fund as Trustees, and not
-46-
individually, and that the obligations of this Agreement are not binding upon
any of the Trustees, officers or shareholders of the Fund individually but are
binding only upon the assets and property of such Fund.
9.14. 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, 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 9.14, furnish that portion of the
confidential information which, in the Stockholder'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, (A) any
Investor that is a legal entity may disclose summary financial information and a
narrative description of the Company to its partners, stockholders or members
and prospective partners and (B) any Investor may disclose confidential
information to its advisors, provided, in each case, that the recipients of such
information have agreed to abide by the terms of this provision. 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 9.14 shall survive the
-47-
termination of this Agreement and shall terminate with respect to any
Stockholder on the date which is two years after the date on which such
Stockholder no longer holds any shares of Capital Stock.
-48-
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
CAPELLA EDUCATION COMPANY
By /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------------
Its Chairman and CEO
FORSTMANN LITTLE & CO.
EQUITY PARTNERSHIP-VII, L.P.
By: FLC XXXII PARTNERSHIP, L.P.,
its General Partner
By /s/
---------------------------------
A General Partner
FORSTMANN LITTLE & CO.
SUBORDINATED DEBT AND EQUITY
MANAGEMENT BUYOUT
PARTNERSHIP-VIII, L.P.
By: FLC XXXIII Partnership, L.P.,
its General Partner
By /s/
---------------------------------
A General Partner
▇▇▇▇▇▇ OTC AND EMERGING
GROWTH FUND
By: ▇▇▇▇▇▇ Investment Management, LLC
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Senior Vice President
-49-
TH ▇▇▇, ▇▇▇▇▇▇ INVESTMENT TRUST
-TH ▇▇▇, ▇▇▇▇▇▇ EMERGING
OPPORTUNITIES PORTFOLIO
By TH ▇▇▇, ▇▇▇▇▇▇ Capital
Management, LLC
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Senior Vice President
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
-50-
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
DRW VENTURE PARTNERS LP
By RBC ▇▇▇▇ ▇▇▇▇▇▇▇▇ CORP.
Its: General Partner
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
--------------------------------
▇▇▇▇ ▇▇▇▇▇▇
Its: Director of Finance and
Administration, RBC CMS
THINKEQUITY INVESTMENT
PARTNERS LLC
By: ThinkEquity Holdings LLC
Its: Manager
By /s/ ▇▇▇▇ ▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇
Its: Representative of the
Board of Managers
USB ▇▇▇▇▇ ▇▇▇▇▇▇▇ AS CUSTODIAN
FBO ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇
ACCOUNT #▇▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Its: Managing Director
-51-
USB ▇▇▇▇▇ ▇▇▇▇▇▇▇ AS CUSTODIAN
FBO ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇
ACCOUNT #▇▇▇▇▇▇▇▇
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Its: Managing Director
-52-
Schedule 1.1
INVESTOR SHARES PURCHASE PRICE
-------- --------- ----------------
Forstmann Little & Co. Equity Partnership-VII, L.P. 400,298 $ 4,687,489.58
Forstmann Little & Co., Subordinated Debt and Equity Management Buyout
Partnership-VIII, L.P. 240,180 $ 2,812,507.80
▇▇▇▇▇▇ OTC and Emerging Growth Fund 213,493 $ 2,500,003.03
▇▇ ▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ - ▇▇ ▇▇▇, ▇▇▇▇▇▇ Emerging
Opportunities Portfolio 426,985 $ 4,999,994.35
▇▇▇▇▇▇ ▇▇▇▇▇ 42,699 $ 500,005.29
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 10,000 $ 117,100.00
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 17,079 $ 199,995.09
USB ▇▇▇▇▇ ▇▇▇▇▇▇▇ as Custodian FBO ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇ Account
#▇▇▇▇▇▇▇▇ 4,270 $ 50,001.70
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 8,540 $ 100,003.40
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 4,270 $ 50,001.70
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 4,270 $ 50,001.70
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 6,405 $ 75,002.55
USB ▇▇▇▇▇ ▇▇▇▇▇▇▇ as Custodian FBO ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇ Account #▇▇▇▇▇▇▇▇ 4,270 $ 50,001.70
DRW Venture Partners LP 21,349 $ 249,996.79
ThinkEquity Investment Partners LLC 21,349 $ 249,996.79
--------- ----------------
Total 1,425,457 $ 16,692,101.47
========= ================
-53-
Exhibit B
Board of Directors
▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Exhibit C
▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇