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SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
| ¨ Preliminary Proxy Statement |
¨ Confidential, For Use of the Commission Only(as permitted by Rule 14a-6(e)(2)) | |
| x Definitive Proxy Statement |
||
| ¨ Definitive Additional Materials | ||
| ¨ Soliciting Material Under Rule 14a-12 |
Capella Education Company
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
x No fee required.
¨ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
| 1. | Title of each class of securities to which transaction applies: |
| 2. | Aggregate number of securities to which transaction applies: |
| 3. | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
| 4. | Proposed maximum aggregate value of transaction: |
| 5. | Total fee paid: |
¨ Fee paid previously with preliminary materials:
| ¨ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. |
| 1. | Amount previously paid: |
| 2. | Form, Schedule or Registration Statement No.: |
| 3. | Filing Party: |
| 4. | Date Filed: |
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Capella Tower
225 South 6th Street, 9th Floor
Minneapolis, Minnesota 55402
(888) 227-3552
March 25, 2010
Dear Shareholder:
You are cordially invited to attend the annual meeting of shareholders of Capella Education Company to be held at Capella Tower, 225 South 6th Street, 3rd Floor Conference Center, Minneapolis, Minnesota 55402, commencing at 9:00 a.m. Central Time on Tuesday, May 11, 2010.
The Secretary’s notice of annual meeting and the proxy statement that follow describe the matters to come before the meeting. During the meeting, we also will review the activities of the past year and items of general interest about our company.
This year we are continuing to take advantage of the Securities and Exchange Commission (SEC) rule allowing companies to furnish proxy materials to shareholders over the Internet. If you are a shareholder who holds shares of our common stock in an account at a brokerage firm, bank or similar organization, you will receive a Notice Regarding the Availability of Proxy Materials by mail from the organization holding your account. The Notice contains instructions on how you can access our proxy materials and vote your shares over the Internet. It also will tell you how to request a paper or e-mail copy of our proxy materials.
If you are a shareholder whose shares are registered directly in your name with our transfer agent, Wells Fargo Bank, N.A., you will continue to receive a copy of the proxy statement and our annual report by mail.
We hope that you will be able to attend the meeting in person and we look forward to seeing you. Please mark, date and sign the enclosed proxy and return it in the accompanying envelope, or vote the enclosed proxy by telephone or through the Internet in accordance with the voting instructions set forth on the enclosed proxy card, as quickly as possible, even if you plan to attend the annual meeting. You may revoke the proxy and vote in person at that time if you so desire.
Sincerely,
J. Kevin Gilligan
Chairman and Chief Executive Officer
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VOTING METHODS
The accompanying proxy statement describes important issues affecting Capella Education Company. If you are a shareholder of record, you have the right to vote your shares through the Internet, by telephone or by mail. You also may revoke your proxy any time before the annual meeting. Please help us save time and administrative costs by voting through the Internet or by telephone. Each method is generally available 24 hours a day and will ensure that your vote is confirmed and posted immediately. To vote:
| 1. | BY TELEPHONE |
| a. | On a touch-tone telephone, call toll-free 1-800-690-6903, 24 hours a day, seven days a week, through 11:59 p.m. (ET) on May 10, 2010. |
| b. | Please have your proxy card available and follow the instructions provided. |
| 2. | BY INTERNET |
| a. | Go to the web site at www.proxyvote.com, 24 hours a day, seven days a week, through 11:59 p.m. (ET) on May 10, 2010. |
| b. | Please have your proxy card available and follow the instructions provided to obtain your records and to create an electronic voting instruction form. |
| 3. | BY MAIL (if you vote by telephone or Internet, please do not mail your proxy card) |
| a. | Mark, sign and date your proxy card. |
| b. | Return it in the enclosed postage-paid envelope. |
If your shares are held in an account at a brokerage firm, bank or similar organization, you will receive voting instructions from the organization holding your account and you must follow those instructions to vote your shares. You will receive a Notice Regarding the Availability of Proxy Materials that will tell you how to access our proxy materials on the Internet and vote your shares over the Internet. It will also tell you how to request a paper or e-mail copy of our proxy materials.
Your vote is important. Thank you for voting.
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Notice of Annual Meeting of Shareholders
to be held on May 11, 2010
The annual meeting of shareholders of Capella Education Company will be held at Capella Tower, 225 South 6th Street, 3rd Floor Conference Center, Minneapolis, Minnesota 55402, commencing at 9:00 a.m. Central Time on Tuesday, May 11, 2010 for the following purposes:
| 1. | To elect the following nine individuals to our Board of Directors, to serve until the next annual meeting of shareholders or until their successors have been duly elected and qualified: J. Kevin Gilligan, Mark N. Greene, Jody G. Miller, Stephen G. Shank, Andrew M. Slavitt, David W. Smith, Jeffrey W. Taylor, Sandra E. Taylor, and Darrell R. Tukua. |
| 2. | To ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010. |
| 3. | To transact other business that may properly be brought before the meeting. |
Our Board of Directors has fixed March 15, 2010 as the record date for the meeting, and only shareholders of record at the close of business on that date are entitled to receive notice of and vote at the meeting.
Your proxy is important to ensure a quorum at the meeting. Even if you own only a few shares, and whether or not you expect to be present, you are urgently requested to vote the enclosed proxy by telephone or through the Internet in accordance with the voting instructions provided to you. If you received a paper copy of the proxy card by mail, you may also date, sign and mail the proxy card in the postage-paid envelope that is provided. The proxy may be revoked by you at any time prior to being exercised, and voting your proxy by telephone or through the Internet or returning your proxy by mail will not affect your right to vote in person if you attend the meeting and revoke the proxy.
By Order of the Board of Directors,
Gregory W. Thom
Secretary
Minneapolis, Minnesota
March 25, 2010
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| PROPOSAL NO. 2—RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
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| Approval of Independent Registered Public Accounting Firm Services and Fees |
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| Determination of Fair Market Value for Option Awards of Common Stock |
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| SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
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PROXY STATEMENT
The enclosed proxy is being solicited by our Board of Directors for use in connection with the annual meeting of shareholders to be held on Tuesday, May 11, 2010 at Capella Tower, 225 South 6th Street, 3rd Floor Conference Center, Minneapolis, Minnesota 55402, commencing at 9:00 a.m. Central Time and at any adjournments thereof. Our telephone number is (888) 227-3552. The mailing of this proxy statement and our Board of Directors’ form of proxy to shareholders will commence on or about March 25, 2010.
Availability of Proxy Materials
As permitted by rules of the SEC, we are making our proxy materials, which include our notice of annual meeting, proxy statement and annual report, available to certain of our shareholders over the Internet. Any shareholder who holds shares of our common stock in an account at a brokerage firm, bank or similar organization will receive a Notice Regarding the Availability of Proxy Materials by mail from the organization holding the shareholder’s account. The Notice contains instructions on how these shareholders can access our proxy materials and vote their shares over the Internet. These shareholders will not receive proxy materials by mail unless they specifically request that printed copies of the proxy materials be sent to them. The Notice tells these shareholders how to make such a request.
Any shareholder whose shares are registered directly in the shareholder’s name with our transfer agent, Wells Fargo Bank, N.A., will continue to receive a printed copy of the proxy materials by mail.
Record Date and Quorum
Only shareholders of record at the close of business on March 15, 2010 will be entitled to vote at the annual meeting or adjournment. At the close of business on the record date, we had 16,768,929 shares of our common stock outstanding and entitled to vote. A majority of the shares outstanding on the record date, present in person or represented by proxy, will constitute a quorum for the transaction of business at the meeting.
Voting of Proxies
Proxies voted by telephone or through the Internet in accordance with the voting instructions set forth on the enclosed proxy card, or in the accompanying form that are properly signed and duly returned to us, and not revoked, will be voted in the manner specified. A shareholder executing a proxy retains the right to revoke it at any time before it is exercised by notice to one of our officers in writing of termination of the proxy’s authority or a properly signed and duly returned proxy bearing a later date.
Shareholder Proposals
We must receive shareholder proposals intended to be presented at the 2011 annual meeting of shareholders that are requested to be included in the proxy statement for that meeting at our principal executive office no later than November 25, 2010. We must receive any other shareholder proposals intended to be presented at the 2011 annual meeting of shareholders at our principal executive office no earlier than January 11, 2011 and no later than February 10, 2011.
Quorum
The presence at the meeting, in person or by proxy, of the holders of a majority of the shares of common stock outstanding on the record date will constitute a quorum for the transaction of business at the meeting. Abstentions and broker non-votes will be counted as present for purposes of determining the existence of a quorum.
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Vote Required
Election of Directors. The affirmative vote of a plurality of the shares of common stock present in person or by proxy at the meeting and entitled to vote is required for the election to the Board of Directors of each of the nominees for director. Shareholders do not have the right to cumulate their votes in the election of directors. Votes that are withheld and broker non-votes will have no effect on the outcome of the election.
Ratification of Independent Auditor. The affirmative vote of the holders of the greater of (1) a majority of the shares of common stock present in person or by proxy at the meeting and entitled to vote and (2) a majority of the minimum number of shares entitled to vote that would constitute a quorum for the transaction of business at the meeting is required for approval of the ratification of our independent auditor. A shareholder who abstains with respect to a proposal will have the effect of casting a negative vote on that proposal. A shareholder who does not vote in person or by proxy on a proposal (including a broker non-vote) is not deemed to be present in person or by proxy for the purpose of determining whether a proposal has been approved.
Adjournment of Meeting
If a quorum is not present to transact business at the meeting or if we do not receive sufficient votes in favor of the proposals by the date of the meeting, the persons named as proxies may propose one or more adjournments of the meeting to permit solicitation of proxies. Any adjournment would require the affirmative vote of a majority of the shares present in person or represented by proxy at the meeting.
Shares Held in Street Name
The election of directors is a proposal on which your broker does not have discretionary authority to vote your shares. Thus, if your shares are held in street name and you do not provide instructions as to how your shares are to be voted on the election of directors, your broker or other nominee will not be able to vote your shares on that matter. Accordingly, we urge you to direct your broker or nominee to vote your shares by following the instructions provided on the voting instruction card that you receive from your broker.
Expenses of Soliciting Proxies
We will pay the cost of soliciting proxies in the accompanying form. In addition to solicitation electronically or by the use of mail, certain directors, officers and regular employees may solicit proxies by telephone or personal interview, and may request brokerage firms and custodians, nominees and other record holders to forward soliciting materials to the beneficial owners of our stock, and we will reimburse them for their reasonable out-of-pocket expenses in forwarding these materials.
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ELECTION OF DIRECTORS
Composition of our Board of Directors
Our bylaws provide that our business will be managed by or under the direction of a Board of Directors. The number of directors constituting our Board of Directors is determined from time to time by our Board of Directors. Our Board currently consists of 10 members and will consist of nine members after the shareholder meeting. Each director will be elected at the annual meeting to hold office until the next annual shareholders meeting or the director’s resignation or removal. Upon the recommendation of the Governance Committee of the Board of Directors, the Board has nominated the nine persons named below for election as directors. Proxies solicited by our Board of Directors will, unless otherwise directed, be voted to elect the nine nominees named below to constitute the entire Board of Directors.
Directors and Director Nominees
Director Nominees: All of the nominees named below are current directors of our company. Each nominee has indicated a willingness to serve as a director for the ensuing year, but in case any nominee is not a candidate at the meeting for any reason, the proxies named in the enclosed proxy form may vote for a substitute nominee selected by the Governance Committee.
The following table sets forth certain information regarding each director nominee:
| Name |
Age | Position |
Committee Membership* | |||
| J. Kevin Gilligan |
55 | Chairman and Chief Executive Officer | None | |||
| Mark N. Greene |
55 | Director | Audit | |||
| Jody G. Miller |
52 | Director | Governance (chair) | |||
| Stephen G. Shank |
66 | Director | None | |||
| Andrew M. Slavitt |
43 | Director | Compensation (co-chair) | |||
| David W. Smith |
65 | Lead Director | Compensation, Governance | |||
| Jeffrey W. Taylor |
56 | Director | Audit, Compensation | |||
| Sandra E. Taylor |
59 | Director | Governance | |||
| Darrell R. Tukua |
56 | Director | Audit (chair) |
| * | Each of our independent directors, or all of our directors except Mr. Shank and Mr. Gilligan, serves on the Executive Committee. It is anticipated that Mr. Slavitt will become chair of the Compensation Committee at the time of our annual meeting, when the term of current chair James A. Mitchell expires. |
The biographies of each of the directors below contains information regarding the person’s service as a director, business experience, director positions held currently or at any time during the last five years, information regarding involvement in certain legal or administrative proceedings, if applicable, and the experiences, qualifications, attributes or skills that caused the Governance Committee and the Board to determine that the person should serve as a director of our company.
J. Kevin Gilligan joined our company on March 2, 2009 to serve as our Chief Executive Officer. On February 23, 2010, he was appointed Chair of our Board of Directors. Mr. Gilligan was previously the Chief Executive Officer of United Subcontractors, Inc., a nationwide construction services company, from 2004 until February 2009. United Subcontractors voluntarily filed for Chapter 11 bankruptcy on March 31, 2009 and emerged from the bankruptcy proceedings on June 30, 2009. From 2001 to 2004, Mr. Gilligan served as President and Chief Executive Officer of the Automation and Control Solutions Group of Honeywell International, a diversified technology and manufacturing company. From 2000 to 2001, Mr. Gilligan served as President of the Home and Building Control Division of Honeywell International. He also served as president of the Solutions and Services Division of Honeywell International from 1997 to 1999 and as Vice President and
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General Manager of the North American Region of the Home and Building Control Division from 1994 to 1997. Mr. Gilligan is a member of the board of directors for Graco Inc., a publicly held manufacturer and supplier of fluid handling equipment, and from September 2004 until February 2009 was a member of the board for ADC Telecommunications, Inc., a publicly held global supplier of network infrastructure. Mr. Gilligan earned a B.A. from Boston College. He is an experienced leader of large service organizations, with strong skills in strategic planning and operational execution.
Mark N. Greene has served as a director of our company since 2008. Dr. Greene is the Chief Executive Officer and a director of FICO, a provider of credit scoring, decision management, fraud detection and credit risk score services, a position he has held since February 2007. From 1995 through 2007, Dr. Greene held various positions with IBM, a global technology company, including Vice President of Sales and Distribution for Financial Services and General Manager of Global Banking. Dr. Greene earned a B.A. from Amherst and an M.A. and Ph.D. from the University of Michigan. He is an experienced leader of a public company with attributes similar to ours, with strong skills in risk management, strategic planning and operational matters.
Jody G. Miller has served as a director of our company since 2003. Ms. Miller serves as CEO and President of the Business Talent Group, a company matching independent business executives with interim and project-based assignments, which she founded in 2005. From 2000 through 2007, Ms. Miller was a venture partner with Maveron LLC, a Seattle-based venture capital firm. From 1995 to 1999, Ms. Miller held various positions at Americast, a digital video and interactive services partnership, including as Acting President and Chief Operating Officer, Executive Vice President, Senior Vice President for Operations and Consultant. From 1993 to 1995, Ms. Miller served in the White House as Special Assistant to the President with the Clinton Administration. Ms. Miller is a member of the Board of Directors of the National Campaign to Prevent Teenage Pregnancy, a not-for-profit program devoted to reducing teen pregnancy. In 2009, Ms. Miller joined the Board of Advisors for the Drucker Institute, an organization focused on stimulating effective management and responsible leadership. Since 2005, Ms. Miller has been serving as a member of the Board of Directors of TRW Automotive Holdings Corp., an NYSE-listed global supplier of automotive components. From 2000 to 2004, Ms. Miller also served as member of the Board of Directors of Exide Technologies, an NYSE listed battery manufacturing company. Ms. Miller earned a B.A. from the University of Michigan and a J.D. from the University of Virginia. She has extensive experience in our industry and a strong background in corporate governance, talent management and strategic planning.
Stephen G. Shank founded our company in 1991. Mr. Shank served as our Chief Executive Officer until March 2, 2009, and as our chairman until February 23, 2010. Mr. Shank served as a director of Capella University from 2006 to 2009 and from 1993 to 2003. Mr. Shank served as emeritus director of Capella University from 2003 to 2006. From 1979 to 1991, Mr. Shank was Chairman and Chief Executive Officer of Tonka Corporation, an NYSE-listed manufacturer of toys and games. Mr. Shank is a member of the Board of Directors of Tennant Company, an NYSE-listed manufacturer of cleaning solutions. Mr. Shank earned a B.A. from the University of Iowa, an M.A. from the Fletcher School, a joint program of Tufts and Harvard Universities, and a J.D. from Harvard Law School. He has experience leading our company for almost 20 years, a deep understanding of our industry and a strong background in strategic planning.
Andrew M. Slavitt has served as a director of our company since 2007. Since 2006, Mr. Slavitt has served as the CEO of Ingenix, a UnitedHealth Group subsidiary that provides health information technology solutions and consulting to 250,000 health care clients worldwide. He served as the COO of Ingenix from January 2005 through November 2006. From August 2004 through January 2005, Mr. Slavitt served as CEO of the consumer solutions business of UnitedHealth Group. Mr. Slavitt was the founder of HealthAllies, a consumer health care benefits company, and served as its CEO from August 1999 through August 2004. HealthAllies was acquired by UnitedHealth Group in 2003. Mr. Slavitt is a graduate of the Wharton School and The College of Arts & Sciences at the University of Pennsylvania, and received his M.B.A. from Harvard Business School. He is an experienced leader of a large, high growth organization with attributes similar to ours, with strong skills in government relations, strategic planning, and operational and regulated industry matters.
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David W. Smith has served as a director of our company since 1998 and is currently our lead director. From 2000 to 2003, when he retired, Mr. Smith was the Chief Executive Officer of NCS Pearson, Inc. Mr. Smith is a member of the board of directors of Plato Learning, Inc., a NASDAQ listed educational technology company. From 2004 to 2009, he served on the Board of Directors of Scientific Learning Corporation, a publicly traded company that provides education software. Mr. Smith earned a B.A. and an M.A. from Southern Illinois University, as well as an M.B.A. from the University of Iowa. He has extensive executive leadership experience in the education services industry and a strong background in strategic planning and operational matters.
Jeffrey W. Taylor has served as a director of our company since 2002. He is currently Senior Vice President, U.S. Government Policy and Investor Relations, for Pearson plc, a position he has held since 2008. He previously served as President of Pearson, Inc., the U.S. holding company of Pearson plc. From 2000 to 2003, Mr. Taylor served as Vice President of Government Relations for Pearson, Inc. From 1994 to 2000, he served as Vice President and Chief Financial Officer of National Computer Systems, an education testing and software company. Mr. Taylor earned a B.S. from Indiana State University. He has extensive executive leadership experience in the education services industry and a strong background in government relations and corporate finance.
Sandra E. Taylor has served as a director of our company since 2006. Ms. Taylor is the President and Chief Executive Officer of Sustainable Business International LLC, a consulting firm specializing in social responsibility and environmental sustainability for global businesses, which she founded in February 2008. From 2003 through January 2008, Ms. Taylor served as Senior Vice President, Corporate Social Responsibility of Starbucks Corporation. Prior to joining Starbucks, Ms. Taylor served as Vice President and Director of Public Affairs for Eastman Kodak Company from 1996 until 2003. She has also held senior leadership positions with a number of other organizations, including ICI Americas Inc. and the European American Chamber of Commerce in the United States. In addition, Ms. Taylor sits on the boards of several non-profit organizations, including Counterpoint International, the Intiman Theatre of Seattle and the Women’s Leadership Board of Harvard University Kennedy School of Government. Ms. Taylor received a B.A. from Colorado Women’s College, and a J.D. from Boston University School of Law. She has extensive experience in government relations and corporate responsibility programs.
Darrell R. Tukua has served as a director of our company since 2004. From 1988 to 2003, when he retired, Mr. Tukua was a Partner with KPMG LLP, a public accounting firm he joined in 1976. Since 2005, Mr. Tukua has served on the board of directors of MMIC Group, an insurance company, where he is also a member of the Audit & Budget, Investment and Strategic Planning Committees. Mr. Tukua is a member of the boards of directors of two subsidiaries of MMIC Group, MMIC Health IT and MMIC Agency. Mr. Tukua served as a board observer for MMIC from 2004 to 2005. In addition, Mr. Tukua has served since 2005 as a member of the board of directors and Audit, Compensation and Nominating/Corporate Governance Committees of Gate City Bank, a retail and commercial bank. During 2004, Mr. Tukua was an advisory board member of Gate City Bank. Mr. Tukua also serves on the boards of directors of two not-for-profit organizations, Habitat for Humanity of Minnesota and Catholic Charities of St. Paul and Minneapolis. Mr. Tukua earned a B.S. from the University of South Dakota. He has extensive experience in finance, accounting, auditing and financial reporting, regulatory compliance and public company disclosure matters, as well as risk management and regulated industry matters.
None of the above nominees is related to each other or to any of our executive officers.
Current Director not Standing for Reelection. Information about our current director not standing for reelection is set forth below.
James A. Mitchell has served as a director of our company since 1999. From 1993 to 1999, when he retired, Mr. Mitchell served as Executive Vice President of Marketing and Products of American Express Company, a diversified global financial services company. From 1984 to 1993, he served as Chairman, President and CEO of IDS Life, a life insurance company and a wholly owned subsidiary of American Express. From 1982 to 1984, he
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served as President of the reinsurance division at CIGNA Corp., an insurance company. Mr. Mitchell is Executive Fellow—Leadership at the Center for Ethical Business Cultures, a non-profit organization assisting business leaders in creating ethical and profitable cultures, and in 2008 he was named one of the “100 Most Influential People in Business Ethics” by Ethisphere magazine. Mr. Mitchell serves as a member of the Board of Directors of Great Plains Energy Incorporated, an NYSE-listed diversified public utility holding company. Mr. Mitchell earned a B.A. from Princeton University. He has extensive senior leadership experience in customer service industries and a strong background in public company executive compensation and business ethics.
Board of Directors Meetings and Attendance
Our Board of Directors held four meetings and took action by written consent two times during fiscal year 2009. During fiscal year 2009, each director attended at least 75% of the aggregate number of the meetings of our Board of Directors and of the board committees on which such director serves. We do not have a formal policy regarding attendance of our directors at annual meetings of our shareholders, but we do encourage each of our directors to attend annual meetings of our shareholders. All ten of our directors attended the 2009 annual meeting of our shareholders.
Our Board of Directors reviews at least annually the independence of each director. During these reviews, our Board of Directors considers transactions and relationships between each director (and his or her immediate family and affiliates) and our company and its management to determine whether any such transactions or relationships are inconsistent with a determination that the director was independent. In February 2010, our Board of Directors conducted its annual review of director independence and determined that no transactions or relationships existed that would disqualify any of the individuals who then served as a director under the rules of The NASDAQ Stock Market, Inc. or the SEC, with the exception of Mr. Gilligan, our current Chief Executive Officer, and Mr. Shank, who served as our Chief Executive Officer until March 2, 2009.
Based on a review of information provided by the directors and other information we reviewed, our Board of Directors concluded that none of our non-employee directors have or had any relationship with our company that would interfere with his or her ability to exercise independent judgment as a director. Based upon that finding, our Board of Directors determined that Messrs. Greene, Mitchell, Slavitt, Smith, Taylor and Tukua, and Ms. Miller and Ms. Taylor, are “independent.” The following transactions, relationships or arrangements involving the following directors were considered in reaching this determination: Mr. Slavitt (health care insurance services provided to our company through Medica, a business partner of UnitedHealth Group and Ingenix); and Mr. Taylor (business relationship between our company and Pearson, Inc.). The amounts we paid to each of Medica and Pearson, Inc. were less than the greater of $200,000 or 5% of the recipient’s gross revenues. Based on a review of the details of these arrangements, our Board of Directors concluded that neither of these arrangements precluded the directors from being “independent” under the applicable NASDAQ rules, and our Board of Directors does not believe that these arrangements interfere with the exercise of independent judgment by these directors.
With regard to Mr. Slavitt, the health care insurance services provided to our company by Medica are transactional in nature and not advisory. The relationship between Medica and our company is contractual and not influenced by any language or relationship outside of those defined in the Master Group Contract (MGC). Benefit determination, plan design and eligibility are established by our company, written into the MGC and then administered on a transactional basis by Medica.
Committees of Our Board of Directors
Our Board of Directors has four standing committees: an Audit Committee, a Compensation Committee, a Governance Committee and an Executive Committee. The charters for our Audit Committee, Compensation
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Committee, Governance Committee and Executive Committee are available in the Corporate Governance section of the Investor Relations page on our website at www.capellaeducation.com.
Audit Committee. Our Audit Committee consists of Messrs. Tukua (chair), Greene and Taylor. Our Audit Committee is directly responsible for, among other things, the appointment, compensation, retention and oversight of our independent registered public accounting firm. The oversight includes reviewing the plans and results of the audit engagement with the firm, approving any additional professional services provided by the firm and reviewing the independence of the firm. The committee is also responsible for discussing the effectiveness of internal control over financial reporting with the firm and relevant financial management. The purpose and responsibilities of our Audit Committee are more fully described in the committee’s charter, a copy of which, as mentioned in the immediately preceding paragraph, is available on our website. Our Audit Committee held nine meetings in 2009. Our Board of Directors has determined that each member of our Audit Committee is “independent,” as defined under and required by the rules of The NASDAQ Stock Market, Inc. and the federal securities laws. The Board of Directors has determined that each member of our Audit Committee qualifies as an “Audit Committee financial expert,” as defined under the rules of the federal securities laws.
Compensation Committee. Our Compensation Committee consists of Messrs. Mitchell (chair), Slavitt (co-chair), Smith and Taylor. It is anticipated Mr. Slavitt will become chair of the Committee when Mr. Mitchell’s term expires at our annual meeting. Our Compensation Committee is responsible for, among other things, recommending the compensation level of our chief executive officer to the Executive Committee, determining the compensation levels and compensation types (including base salary, stock options, perquisites and severance) of the other members of our senior executive team and administering our stock option plans and other compensation programs. The Compensation Committee also recommends compensation levels for board members and approves new hire offer packages for our senior executive management. The purpose and responsibilities of our Compensation Committee are more fully described in the committee’s charter. Our Compensation Committee held five meetings and took action by written consent once in 2009.
Governance Committee. Our Governance Committee consists of Ms. Miller (chair), Mr. Smith and Ms. Taylor. Our Governance Committee is responsible for, among other things, assisting the Board of Directors in selecting new directors and committee members, evaluating the overall effectiveness of the Board of Directors, reviewing CEO succession planning, and reviewing developments in corporate governance compliance. The purpose and responsibilities of our Governance Committee are more fully described in the committee’s charter. Our Governance Committee held five meetings in 2009.
Executive Committee. Our Executive Committee consists of all independent members of our Board of Directors, or all of our directors except Mr. Shank and Mr. Gilligan, and is chaired by Mr. Smith, who is our lead director. Our Executive Committee is responsible for, among other things, evaluating and determining the compensation of our chief executive officer, setting the agenda for meetings of our Board of Directors, establishing procedures for our shareholders to communicate with our Board of Directors and reviewing and approving our management succession plan. The purpose and responsibilities of our Executive Committee are more fully described in the committee’s charter. Our Executive Committee held one meeting and met in executive session following board meetings four times in 2009.
Corporate Governance Principles
Our Board of Directors has adopted Corporate Governance Principles. These guidelines are available on the Corporate Governance section of the Investor Relations page on our website at www.capellaeducation.com.
Director Stock Ownership Guidelines
Our Corporate Governance Principles include stock ownership guidelines for our non-employee directors. Under these guidelines, each such director should continue to hold the amount of equity compensation that he or she has been granted by us for service as a director over any of the past five years, excluding any equity
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compensation that would have been paid in cash but for the director electing to receive equity. Exceptions to this guideline should be authorized in advance by the Governance Committee. As with our executive stock ownership guidelines, we believe that these guidelines for directors promote alignment between the interests of our corporate leadership and our shareholders.
We have adopted the Capella Education Company Code of Business Conduct, which applies to all of our employees, directors, agents, consultants and other representatives. The Code of Business Conduct includes particular provisions applicable to our senior financial management, which includes our chief executive officer, chief financial officer, principal accounting officer and other employees performing similar functions. A copy of our Code of Business Conduct is available on the Corporate Governance section of the Investor Relations page on our website at www.capellaeducation.com. We intend to post on our website any amendment to, or waiver from, a provision of our Code of Business Conduct that applies to any director or officer, including our chief executive officer, chief financial officer, principal accounting officer and other persons performing similar functions, promptly following the date of such amendment or waiver.
Corporate Governance Documents Available on Our Website
Copies of our key corporate governance documents are available on the Investor Relations page of our website at www.capellaeducation.com. The charters for our Audit Committee, Compensation Committee, Governance Committee and Executive Committee, as well as copies of our Corporate Governance Principles and our Code of Business Conduct, are available on our website. In addition, any shareholder that wishes to obtain a hard copy of any of these corporate governance documents may do so without charge by writing to Investor Relations, Capella Education Company, Capella Tower, 225 South 6th Street, 9th Floor, Minneapolis, MN 55402.
Director Qualifications and Diversity
Candidates for director nominees are reviewed in the context of the current composition of our Board of Directors, our operating requirements and the long-term interests of our shareholders. Our Governance Committee works with our Board to determine the appropriate characteristics, skills, and experiences for the Board as a whole and its individual members with the objective of having a Board with diverse backgrounds and experience. Characteristics expected of all directors include independence, integrity, high personal and professional ethics, sound business judgment, and the ability and willingness to commit sufficient time to the Board. We believe all of our directors possess these characteristics.
In evaluating the suitability of individual Board members, the Governance Committee takes into account many factors, including general understanding of business strategy, marketing, finance, executive compensation and other disciplines relevant to the success of a publicly traded company in today’s business environment; understanding of our business and industry; educational and professional background; personal accomplishment; and gender, age, and ethnic diversity. The Governance Committee evaluates each individual in the context of the Board as a whole, with the objective of recommending a group that can best continue the success of our business and represent shareholder interests through the exercise of sound judgment using its diversity of experience. The Governance Committee evaluates each incumbent director to determine whether he or she should be nominated to stand for re-lection, based on the types of criteria outlined above as well as the director’s contributions to the Board during his or her current term
Our Governance Committee selects nominees for directors pursuant to the following process:
| • | the identification of director candidates by our Governance Committee based upon suggestions from current directors and senior management, recommendations by shareholders and/or use of a director search firm; |
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| • | a review of the candidates’ qualifications by our Governance Committee to determine which candidates best meet our Board of Directors’ required and desired criteria; |
| • | interviews of interested candidates who best meet these criteria by the chair of the Governance Committee, the chair of our Board of Directors, and/or certain other directors; |
| • | recommendation by our Governance Committee for inclusion in the slate of directors for the annual meeting of shareholders or appointment by our Board of Directors to fill a vacancy during the intervals between shareholder meetings; and |
| • | formal nomination by our Board of Directors. |
Our Governance Committee will reassess the qualifications of a director, including the director’s performance on our board to date, the director’s current employment, the director’s service on other boards and the director’s independence, prior to recommending a director for reelection to another term.
Shareholders who wish to recommend individuals for consideration by our Governance Committee to become nominees for election to our Board of Directors at the 2011 annual meeting may do so by submitting a written recommendation to our Governance Committee, c/o General Counsel, Capella Education Company, Capella Tower, 225 South 6th Street, 9th Floor, Minneapolis, Minnesota 55402, no earlier than January 11, 2011 and no later than February 10, 2011. Submissions must include a written recommendation and the reason for the recommendation, biographical information concerning the recommended individual, including age, a description of the recommended individual’s past five years of employment history and any past and current board memberships. The submission must be accompanied by a written consent of the individual to stand for election if nominated by our Governance Committee and to serve if elected by our Board of Directors or our shareholders, as applicable. Alternatively, shareholders may directly nominate a person for election to our Board of Directors by complying with the procedures set forth in our bylaws, any applicable rules and regulations of the SEC and any applicable laws.
Our Chief Executive Officer also serves as the Chair of our Board of Directors. Given our present size and stage of corporate development, as well as our successful history with a combined Chair/CEO role, our Governance Committee and Executive Committee have determined it is currently appropriate for our CEO to also serve as Board Chair. The Board retains the authority to separate these functions when and if deemed appropriate.
Our Executive Committee also elects a Lead Director from among our independent directors. Mr. Smith, our current Lead Director, has served in that role for over seven years and presides over executive sessions of the independent directors of the Board, works with the Board Chair to set meeting agendas, facilitates information flow and communication among the directors, and acts as a key liaison with the Board Chair.
Role of Board in Risk Oversight
The Board takes an active role in risk oversight of our company both as a full Board and through its committees. Presentations and discussions at Board and committee meetings include an assessment of opportunities and risks inherent in our strategies and external environment. The Board meets in executive session after each regularly scheduled Board meeting to, among other things, assess the quality of the meetings and to collect feedback for the Lead Director to present to the Chair of the Board and management. Such feedback includes any requests for specific information to assist the Board in carrying out its duties, including risk oversight.
Strategic risk, which relates to our company properly defining and achieving our high-level goals and mission, as well as operating risk, the effective and efficient use of resources and pursuit of opportunities, are
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regularly monitored and managed by the full Board through the Board’s regular and consistent review of our operating performance and strategic plan. For example, at each of the Board’s regularly scheduled meetings throughout the year, management provides presentations on our company’s performance. Pursuant to the Board’s established monitoring procedures, Board approval is required for our strategic plan and annual operating plan, which is reported on by management at each regular Board meeting.
Reporting risk, which relates to the reliability of our company’s financial reporting, and compliance risk, relating to our company’s compliance with applicable laws and regulations, are primarily overseen by the Audit Committee. The Audit Committee receives input directly from management as well as our independent registered public accounting firm, Ernst & Young LLP regarding our financial reporting process, internal controls and public filings. The Committee also receives regular updates from our company’s General Counsel regarding any Code of Conduct issues or legal compliance concerns.
In addition, our management conducts an annual enterprise wide risk assessment. Results of this risk assessment are presented to the Audit Committee. The objectives for the risk assessment process include (i) developing a defined list of key risks to be shared with the Audit Committee, Board and senior management; (ii) facilitating discussion of the risk factors to be included in Item 1A of our Annual Report on Form 10-K and (iii) guiding the development of the next year’s audit plans.
In 2009, the risk assessment process was conducted by our director of internal audit, in consultation with senior leadership from the legal and finance departments. Our director of internal audit interviewed key department and functional leaders from all sections of our company to identify and evaluate risks. Any identified risks were prioritized based on the potential exposure to the business, measured as a function of severity of impact and likelihood of occurrence. The risk profiles were discussed and refined during subsequent discussions with senior management. A summary of the results was presented to the Audit Committee, and the full Board was informed of the risk assessment process. In 2010, we will commence implementation of a formal Enterprise Risk Management (ERM) process.
Compensation Committee Interlocks and Insider Participation
During 2009, Messrs. Mitchell, Slavitt, Smith and Taylor served as the members of our Compensation Committee. None of our executive officers serve, or in the past has served, as a member of the Board of Directors or Compensation Committee of any entity that has any of its executive officers serving as a member of our Board of Directors or Compensation Committee.
Communication with our Board of Directors
Interested parties may communicate directly with Mr. Smith, our Lead Director, or the non-management members of our Board of Directors as a group, by mail addressed to the attention of Mr. Smith as Lead Director, or the non-management members of our Board of Directors as a group, c/o General Counsel, Capella Education Company, Capella Tower, 225 South 6th Street, 9th Floor, Minneapolis, MN 55402. If our General Counsel in consultation with Mr. Smith determines that such communication to non-management members as a group is relevant to and consistent with our operations and practices, our General Counsel will then forward the communication to the appropriate director or directors on a periodic basis.
Our Board of Directors recommends that the shareholders vote for the election of each of the nine nominees listed above to constitute our Board of Directors.
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RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The firm of Ernst & Young LLP (“Ernst & Young”) has been our independent registered public accounting firm since 1999. Our Audit Committee has selected Ernst & Young to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2010, subject to ratification by our shareholders. While it is not required to do so, our Audit Committee is submitting the selection of that firm for ratification in order to ascertain the view of our shareholders. If the selection is not ratified, our Audit Committee will reconsider its selection, and based on that reconsideration, may or may not select Ernst & Young. Proxies solicited by our Board of Directors will, unless otherwise directed, be voted to ratify the appointment of Ernst & Young as our independent registered public accounting firm for the fiscal year ending December 31, 2010.
A representative of Ernst & Young will be present at the meeting and will be afforded an opportunity to make a statement if the representative so desires and will be available to respond to appropriate questions during the meeting.
Fees
For the years ended December 31, 2009 and 2008, Ernst & Young billed us the amounts set forth below for professional services rendered in connection with audit, audit-related, tax and other professional services.
| Services Rendered |
2009 | 2008 | ||||
| Audit Fees(1) |
$ | 540,145 | $ | 560,945 | ||
| Audit-Related Fees |
— | — | ||||
| Tax Fees |
— | — | ||||
| All Other Fees(2) |
1,995 | 1,500 | ||||
| Total Fees |
$ | 542,140 | $ | 562,445 | ||
| (1) | Audit Fees include fees associated with the annual audit, including the audit of internal control over financial reporting, the reviews of our quarterly reports on Form 10-Q, and services provided by the auditor in connection with statutory and regulatory filings. |
| (2) | All Other Fees related to a license fee for an accounting database. |
Approval of Independent Registered Public Accounting Firm Services and Fees
The Audit Committee has adopted a policy regarding pre-approval of audit and non-audit services performed by the company’s independent registered public accounting firm. The Audit Committee is responsible for pre-approving all engagements of the company’s independent registered public accounting firm. The policy also highlights services the Audit Committee will and will not approve for audit and non-audit services. The policy requires written documentation be provided by the independent registered accounting firm to the Audit Committee for all tax services. In addition, all required discussions are held between the independent registered accounting firm and the Audit Committee.
The Audit Committee may, annually or from time to time, set fee levels for certain non-audit services, as defined in the policy, that may be paid for all non-audit services. Any engagements that exceed those fee levels must receive specific pre-approval from the Audit Committee. The Audit Committee may delegate to the Audit Committee chair authority to grant pre-approvals of permissible audit and non-audit services, provided that any pre-approvals by the chair must be reported to the full Audit Committee at the next scheduled meeting.
On a regular basis, management provides written updates to the Audit Committee consisting of the amount of audit and non-audit service fees incurred to date. All of the services described above were pre-approved by the company’s Audit Committee.
Our Board of Directors recommends that the shareholders vote for the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2010.
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The role of our Audit Committee, which is composed of three independent non-employee directors, is one of oversight of our company’s management and Ernst & Young, our independent registered public accounting firm, in regard to our company’s financial reporting and internal control over financial reporting. In performing our oversight function, we relied upon advice and information received in our discussions with management and Ernst & Young.
We have (a) reviewed and discussed our company’s audited consolidated financial statements for the fiscal year ended December 31, 2009 with management; (b) reviewed and discussed with management their assessment of our company’s internal control over financial reporting; (c) discussed with Ernst & Young the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board (PCAOB); and (d) received the written disclosures from Ernst & Young regarding the matters required to be discussed by the applicable requirements of the PCAOB regarding communications with the audit committee regarding Ernst & Young’s independence and discussed with Ernst & Young their independence.
Based on the review and discussions with management and our company’s independent registered public accounting firm referred to above, we recommended to our company’s Board of Directors that the audited consolidated financial statements be included in our company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2009 for filing with the SEC.
Audit Committee:
Darrell R. Tukua, Chair
Mark N. Greene
Jeffrey W. Taylor
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Compensation Discussion and Analysis
Overview
The Compensation Committee of our Board of Directors establishes and oversees our compensation programs as they apply to our executive officers. The Compensation Committee is responsible for ensuring that our compensation programs position us to compete successfully for skilled executive talent in our dynamic business environment. The goal of our compensation program is to align compensation with our shareholder interests, our business objectives, learner interests and our culture.
Our compensation design is influenced by the incentive compensation rules promulgated by the U.S. Department of Education. Under these rules, we may not provide any commission, bonus or other incentive payment to any person or entity engaged in any student recruitment, admissions or financial aid awarding activity, based directly or indirectly on success in securing enrollments or awarding financial aid. Mindful of these rules, and consistent with our philosophy, Capella has designed our compensation programs with a primary focus on overall company performance, with additional goals on sustainable, consistent performance, serving learner interests, and enhancing productivity. Compensation is expressly not pegged to driving enrollment levels or financial aid levels.
Our Philosophy
We believe that compensation programs should be designed to foster an innovative, high integrity and performance-oriented culture appropriate for our business strategies and values, while also reflecting our mission as an institution of higher education.
| • | Compensation programs should support our need for executives with the appropriate skill sets to create and lead our company through expected future growth and in a dynamic, competitive environment. |
| • | Compensation programs should include elements that are directly tied to performance metrics that we believe are important to our shareholders, particularly recurring and sustainable growth, increasing earnings and efficient operations. |
| • | Executive compensation should reflect a balance between short and long-term; risk and security; reward and retention. |
| • | General compensation arrangements, including base salary, short-term and long-term incentive opportunity, and perquisites and other compensation, should be consistent with relevant industry norms and must comply with all applicable rules and regulations including United States Department of Education incentive compensation regulations. |
Compensation Determination—Benchmarking
We benchmark our executive compensation against the for-profit education sector, along with the general market for executive-level talent, at least once annually.
In 2009 we maintained our comparator group used in 2008 to benchmark executive compensation. Our comparator group is a combination of competitors in the education field and companies outside of education with similar business models. When comparators were selected, we identified high performing mid-cap companies that are demonstrating high growth, and in which both technology and customer retention/renewal played a significant role in their success.
For purposes of comparison to companies in the for-profit education sector in 2009, we used three types of sources: (1) well-established third party executive compensation survey sources that include a representative sample of organizations, and (2) public filings for companies in the education industry, including: APEI, Apollo,
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Blackboard, Career Education Company, Corinthian Colleges, DeVry, ITT Educational Services, K12 and Strayer, and; (3) public filings for companies outside the education industry, including Administaff, Advisory Board Company, Allscripts Healthcare Solutions, Corporate Executive Board, FTI Consulting, Huron Consulting, Interactive Data Corporation, Monster Worldwide, Morningstar Inc., SkillSoft, WebMD Health Corporation and Weight Watchers. The list of comparator companies may change over time. The public filings utilized provided us information on the compensation for our comparators’ top five named executive officers. The information from all companies identified is grouped together to form a range and median. A standard deviation is identified to provide perspective on the amount of variability in the data between companies.
We believe it is important to understand and compare our compensation to other for-profit educational institutions. These firms vary greatly in size, approach and even target customer. For those that are significantly larger or smaller in size (e.g. revenue, income, and/or enrollment), their compensation data provides points of reference rather than targets.
In early 2009, with assistance from the consulting firm Compensation Strategies, Inc., the Compensation Committee benchmarked our compensation against our comparator group and against general industry surveys. The Compensation Committee’s benchmarking of executive compensation included the following elements: base salary; total cash compensation, which is comprised of base salary and short-term incentive compensation; and total direct compensation, which is comprised of total cash compensation plus the value of long-term incentive compensation. In making decisions on the compensation for Section 16 officers, the Committee considered the executive’s experience, performance, and competitive benchmarking to align pay and performance. The Committee reviewed the resulting executive’s total compensation relative to the benchmark data and is comfortable with each position relative to market median pay.
Role of Compensation Consultants and Management
Throughout 2009, the Compensation Committee worked with an external, independent consulting firm. In early 2009, that firm was Compensation Strategies Inc. In August 2009, the Compensation Committee selected Hewitt Associates to serve as the Committee’s executive compensation consultant. Management worked collaboratively with the Compensation Committee in the development of a position profile, selection process and interview questions. Two members of management (CEO and SVP Capella Experience) participated in the interviews with the prospective consultants. While management contributed to the selection process, the Committee was fully responsible for the selection of Hewitt Associates. At the direction of the Committee, the SVP Capella Experience communicated the Committee’s decision to prospective consultants to close out the selection process.
Prior to August 2009, Compensation Strategies Inc. provided the Compensation Committee counsel by (i) compiling data on our comparators, comparing our compensation practices to that group—for Section 16 officer positions and as a group, and (ii) recommending a design of the 2009 short-term management compensation plan (consistent with the Committee’s compensation philosophy).
For 2009, our Chairman and CEO recommended to the Committee the compensation levels (base pay, short-term management incentive plan target and long-term incentive target) for each of the other Section 16 officers. This recommendation was based on the market data provided by the consultants and the level of performance and value of each executive. This recommendation was taken into consideration as the Committee made its decisions. The Committee had sole responsibility for the final compensation decisions for all Section 16 officers.
Since August 2009, Hewitt Associates has been engaged to perform the following services related to 2010 executive officer compensation:
| • | Compile data on executive compensation from third-party surveys and comparator companies, |
| • | Review and provide input on the companies included in our comparator group used for benchmarking purposes, and |
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| • | Provide direction and input on the design of the 2010 short- and long-term compensation programs. |
Hewitt Associates was hired by and reports to the Compensation Committee and works collaboratively with management. At times management recommends compensation work to be conducted by the compensation consultant, such as market data collection and review for specific positions. However, all compensation consultant work is authorized by the Committee prior to any work being completed by the consultant.
Hewitt Associates does not have any other active compensation consulting engagements with management.
Performance Assessment of Executive Management
Each year, the Executive Committee of the Board of Directors conducts a performance review of the CEO. For other Section 16 officers, the CEO prepares the performance assessment. Both the CEO’s review and the review of the Section 16 officers are focused on achievement of specific, measurable organizational goals and milestones, and on demonstration of key leadership competencies. Following this review of the CEO, the Executive Committee directs the Compensation Committee to prepare a recommendation of compensation for the CEO. The recommendation, which considers the market benchmarking and the performance of the CEO, is made to the Executive Committee who makes the final determination on the appropriate compensation. In the case of the Section 16 officers other than the CEO, the CEO provides to the Committee his compensation recommendations. The recommendations are reviewed in light of the market benchmarking and performance of each Section 16 officer. If agreed, the Committee forwards these recommendations to the Executive Committee for final approval.
In 2009, we conducted an annual review of our then chairman and chief executive officer, Mr. Stephen Shank, consistent with the above described process in that the Executive Committee of the Board of Directors conducted this review. At the direction of the Executive Committee, the Compensation Committee and the compensation consultant used the information from this evaluation process, along with appropriate market benchmark information, to develop proposed compensation for Mr. Shank. This proposal was reviewed, and submitted for final approval by the Executive Committee of the Board of Directors.
With regard to general compensation plan design and implementation, our vice president of human resources (currently SVP Capella Experience) and our compensation consultant, under the direction of the Compensation Committee and our chairman and chief executive officer, gathered information and made recommendations to the Compensation Committee. Our finance and legal departments provided information to the Compensation Committee on important accounting, tax, financial, disclosure and other legal matters that may be applicable to plan design and implementation decisions.
Compensation of Retiring and New CEOs
In 2008, we commenced a CEO transition process and subsequently formed a CEO Search Committee to direct an executive search for a new CEO. Kevin Gilligan was hired and began work as CEO of Capella Education Company effective March 2, 2009. The Compensation Committee of the Board was directly responsible for the establishment of Mr. Shank’s 2009 compensation package and recommending the new compensation package for Mr. Gilligan to the Executive Committee of the Board which made the final decision on Mr. Gilligan’s compensation.
As part of the transition plan for our CEO, the Compensation Committee took into consideration the expected changes in Mr. Shank’s role in determining his compensation for 2009. In 2009, he served as Chairman and CEO for a portion of the year. In February, when Mr. Gilligan was appointed to the role of CEO, Mr. Shank continued in the role of Chairman, working closely with Mr. Gilligan to ensure a successful transition. Reflecting this, the Compensation Committee benchmarked Mr. Shank’s compensation to a CEO for the first part of 2009 and to an executive chairman for the latter part of the year. Mr. Shank was expected to be more actively involved
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in the daily management of the organization than most Chairmen. As described in “Benchmarking” above, the Committee used survey and SEC filing data for both CEO and Chairman positions in setting each compensation level for Mr. Shank. The Committee recommended and the Executive Committee of the Board approved Mr. Shank’s compensation package, including base pay and 2009 management incentive plan participation. Mr. Shank’s impending retirement was a dominant factor in determining that no equity grant would be made to him in 2009.
In hiring Capella’s new CEO Mr. Gilligan, the Compensation Committee consulted multiple sources of data to ensure an appropriate compensation package was offered. The compensation philosophy outlined above served as the primary guiding principle: ensuring the package (1) supported the need to attract an executive with the appropriate skill sets to create and lead our company through expected future growth in a dynamic, competitive environment; (2) included elements that are directly tied to performance metrics that we believe are important to our shareholders; (3) reflected a balance between short- and long-term; risk and security; reward and retention, and lastly (4) was consistent with relevant industry norms and complied with all applicable rules and regulations including United States Department of Education incentive compensation regulations. It was determined that the fundamental design of the 2009 incentive plans (management incentive plan and long-term incentive plan) provided an appropriate framework for an offer. However, through our studies and the CEO search process, we recognized that our level of base pay compensation and equity grants were not sufficiently competitive to attract the desired level of candidate. It is in this area that the compensation level offered to Mr. Gilligan was most different than that of our previous CEO and Chairman. Specifically, we performed benchmarking and the Compensation Committee established a level of base pay and short- and long-term incentive compensation that it determined was appropriate. The analysis of market comparators provided by Spencer Stuart and Compensation Strategies Inc, both indicated that the appropriate range for target annual (short-term incentive) was 80—100 percent of base pay and that the target long-term equity level was approximately $1 million.
Compensation Elements
At times, we have entered into certain employment agreements addressing specific compensation arrangements when hiring senior executives. This was true at the time we hired Ms. Martin as our Chief Financial Officer in 2004 and when we hired Mr. Gilligan as our CEO in 2009. Any such contracts are individually developed based on relevant considerations at the time of hiring. We have selectively offered signing bonuses and/or guaranteed incentive compensation for the first year of employment. Employment agreement terms have also included severance and change-in-control provisions. In those instances when we entered into employment agreements with senior executives, the Committee’s judgment was that such agreements were appropriate and necessary to retain the services of such executives.
Our current executive compensation mix includes the following elements: base salary; short-term incentive opportunity, generally in the form of annual cash bonuses based on achievement of company performance objectives; long-term incentive opportunity, in the form of both stock options, and restricted stock units (RSUs); severance benefits, and other benefits generally available to all employees. Perquisites are not a significant component of our executive compensation. In contrasting between the various compensation elements, the short-term incentive opportunity in 2009 was primarily focused on annual company financial performance, with a limited amount based on achievement of measurable individual performance goals, and the long-term incentive opportunity was based on long-term appreciation in value of our stock option awards and three-year cliff vesting RSUs.
Base Salary. Base salary reflects the experience, knowledge, skills and performance record the executive brings to the position, and is influenced by market factors.
The Compensation Committee annually reviews salaries for our executive officers against performance and market survey data. In 2009, all but one of our named executives officers held positions commonly held in other organizations (CEO, CFO, SVP Human Resources, General Counsel), and thus were directly benchmarked to
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similarly titled positions in our peer comparators’ organizations. In some cases, market competitive information may be difficult to obtain due to unique duties and responsibilities of a particular position. In those cases, Capella matches positions to the closest comparable peers consistent with our strategy. This was the case for
Dr. Offerman in 2009, who since 2007 has served as our Vice Chairman of External University Initiatives (following his previous service as our University President).
Individual executive base salaries may be adjusted based on individual performance, company performance and placement relative to compensation benchmarks. The performance assessment for each executive includes an evaluation of performance against objectives established at the beginning of the year and demonstration of leadership competencies. In evaluating executive performance for purposes of merit pay adjustments, the Compensation Committee also considers overall company performance, and the performance of the functional area(s) under an executive’s scope of responsibility.
Short-Term Incentive Opportunity. The short-term incentive opportunity for our executives is provided through our cash-based management incentive plan. The purpose of the plan is to tie executive compensation directly to performance metrics we believe are important to our shareholders, along with factors which drive business success like academic quality and learner experience. The plan is intended to encourage eligible management employees to produce a superior return for our shareholders and to remain in the employ of Capella. The management incentive plan is based on targets that reward strong company financial performance and growth, year over year, and is administered to comply with Department of Education guidelines described above in this Compensation Discussion and Analysis under “Overview.”
The level of participation for each executive in the annual incentive plan is based upon the degree to which his or her position impacts overall financial performance of the company, and also by benchmarking target incentive compensation levels to comparable positions in our peer companies. Target award opportunities are established as a percentage of the executive’s base salary, and ranged from 40 to 60 percent of base salary for 100 percent achievement of targets in 2008 and from 40 to 100 percent in 2009.
At the beginning of each year, the Compensation Committee approves a payout matrix that details payout opportunities based on the company’s achievement of plan objectives for the year. Upon completion of the fiscal year, executives receive incentive payments, if earned, pursuant to the terms of the management incentive plan and the payout matrix approved at the beginning of the year.
In making its annual determination of minimum, target and maximum payout levels under the management incentive plan, the Compensation Committee may consider any specific and unusual circumstances facing us during the year.
2009 Management Incentive Plan
Effective January 1, 2009, Capella Education Company managed our annual incentive plan within the framework of the shareholder-approved Annual Incentive Plan. A portion of our cash-based annual management incentive plan permits payments that constitute “performance-based compensation” which are therefore exempt from the $1 million limit on deductible compensation under Section 162(m).
In 2009, the management incentive plan was based on the company’s overall annual financial performance, as well as individual operational goal results. Our plan provided participants an opportunity to earn from 0 to 200 percent of the targeted incentive depending on the degree to which the company achieved its annual performance objectives for revenue, operating income and the degree to which they performed on their individual key objectives.
In 2009, the financial metrics accounted for 75 percent of the targeted incentive opportunity. Revenue accounted for 60 percent and operating income accounted for 40 percent of the financial component of the targeted opportunity. This weighting is based on our belief that revenue growth is a more critical goal at this
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stage of the Company’s development, is more important to our shareholders, and is the key driver for continuing to improve operating income growth.
Additionally, select plan participants (including all Section 16 officers) identified individual objectives. The objectives of the Section 16 officers were reviewed and approved by the Committee and reflect key financial, functional, departmental or individual goals which are critical contributors to our organization’s long-term health and success. The individual goals of our named executive officers are concentrated in the areas of regulatory compliance, talent management, productivity/cost management, academic quality and business development initiatives appropriate to their specific job responsibilities. The individual objectives create increased accountability for key deliverables. Below are those performance factors considered in determining each named executive’s bonus payment for the 25 percent of their bonus tied to individual goals.
Mr. Shank’s performance on his goals determined one-quarter of his bonus payment. The Compensation Committee considered his individual performance on each of his goals to determine his bonus. In particular in 2009, the Compensation Committee evaluated Mr. Shank on (i) the effectiveness of his leadership transition to Mr. Gilligan; (ii) his communication with the Board; (iii) the Company’s financial performance; (iv) the quality of his advice on the development of target growth areas and the performance of Capella in these market segments; and (v) the quality of his advice on development and execution of a new business development strategy. As a result of his performance, the Compensation Committee awarded Mr. Shank 100 percent of his target bonus potential relating to his individual performance.
Mr. Gilligan’s performance on his goals determined one-quarter of his bonus payment. In particular in 2009, the Compensation Committee evaluated Mr. Gilligan on (i) his leadership of the Company (particularly his successful on-boarding, relationship building and credibility); (ii) his communication with the Board; (iii) his strategic vision and direction for the Company; (iv) the Company’s financial performance; (v) the performance of the company in the areas of service and productivity, and (vi) his leadership development of the Company’s executives and corresponding succession planning. As a result of his performance, the Compensation Committee awarded Mr. Gilligan 100 percent of his target bonus potential relating to his individual performance.
Based on Ms. Martin’s performance and achievements as leader of the Company’s finance group, her management of internal and external financial reporting systems, oversight of the Company’s accounting operations, support of the Company’s strategic goals, her support of new business infrastructure, achievement of productivity and margin targets and involvement in the transition of leadership with our new CEO, Mr. Gilligan recommended that the Compensation Committee award Ms. Martin 100 percent of her target bonus potential relating to her individual performance objectives. The Compensation Committee accepted Mr. Gilligan’s recommendation.
Based on Dr. Offerman’s performance and achievements as Vice Chairman, External University Initiatives, his engagement with U.S. state and federal officials, and other key constituencies, his support of the Company’s strategic goals, and involvement in the transition of leadership with our new CEO, Mr. Gilligan recommended that the Compensation Committee award Dr. Offerman 100 percent of his target bonus potential relating to his individual performance objectives. The Compensation Committee accepted Mr. Gilligan’s recommendation.
Based on Mr. Thom’s performance and achievements as the Company’s General Counsel and Secretary, his management of compliance and regulatory matters, oversight of the Company’s legal matters, support of the Company’s strategic goals, his support of our operating expense initiatives and involvement in the transition of leadership with our new CEO, Mr. Gilligan recommended that the Compensation Committee award Mr. Thom 100 percent of his target bonus potential relating to his individual performance objectives. The Compensation Committee accepted Mr. Gilligan’s recommendation.
Based on Ms. Chial’s performance and achievements as leader of the Company’s human resources group, the expansion of her responsibilities to encompass the Capella experience, her management of initiatives in
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change management, selection and learning and development, and talent management across the Company, her support of the Company’s strategic goals, and involvement in the transition of leadership with our new CEO, Mr. Gilligan recommended that the Compensation Committee award Ms. Chial 100 percent of her target bonus potential relating to her individual performance objectives. The Compensation Committee accepted Mr. Gilligan’s recommendation.
Performance against the objectives listed above accounted for 25 percent of each executive’s total bonus opportunity. Assessment of performance against these goals for all Section 16 officers was done by the CEO and presented to the Compensation Committee.
2009 Management Incentive Plan Design: Measures and Weights
Weights
| Plan Components and Measures |
Applicable to the CEO, CFO, SVPs, VPs and some Directors in Key Operating Roles |
Applicable to All Other Plan Participants | ||
| Company Financial Measures |
75% | 100% | ||
| Revenue |
45% | 60% | ||
| Operating Income |
30% | 40% | ||
| Key Initiatives/ Objectives |
25% | 0% | ||
| Incentive Opportunity for Achieving 100% of All Targets |
100% | 100% |
Our performance-based variable pay plans have the necessary management controls to limit the amount of operating risk—using both operating revenue and operating income with caps on maximum payouts and minimum levels before payout is possible.
For participants to earn a payout for revenue under the 2009 plan, we needed to achieve a baseline minimum of 87.1 percent of our operating income objective. If the operating income threshold was met, payouts for the revenue metric would be made based on achievement of a minimum of 96.5 percent to a maximum of 105 percent of target, and payouts for the operating income metric would be made for achievement of a minimum of 87.1 percent to a maximum of 110 percent of target. Performance between minimum and maximum levels would result in prorated payments to plan participants. Payouts on the goal component could range from 0 to 100 percent. If Capella performed above 100 percent on financial goals, the executives’ bonus opportunity on the individual goal portion of their plan rose consistent with the Company’s financial performance. For example: if Capella achieved an overall financial performance of 110 percent, an executives’ payout opportunity on the goal portion (25 percent of the overall bonus target) would correspondingly raise from 100 to 110 percent if all objectives were accomplished.
2009 Management Incentive Plan Design: Payout Levels
| Payout Level as Percentage of Applicable Objective (1) |
Level of Achievement Compared to Objective |
|||||
| Revenue | Operating Income(2) | |||||
| 50% |
96.5% | 87.1% | ||||
| 100% |
100.0% | 100.0% | ||||
| 200% |
105.0% | 110.0% | ||||
| Range from 0 to 200% |
Key Initiatives/Department Objectives (goals) | |||||
| (1) | Payouts are interpolated for results between the threshold, target and maximum levels shown here. |
| (2) | Achievement of operating income of at least 87.1% of the target is required as a condition for any payout for revenue performance. |
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In 2009, we achieved $334.6 million in revenue (22.9 percent growth over 2008, resulting in a payout factor of 105 percent) and $63.9 million in operating income (59.4 percent growth over 2008, resulting in a payout factor of 155 percent). Based on the combined results achieved for these plan components, participants earned a total 125 percent of the targeted incentive opportunity in 2009.
2010 Management Incentive Plan
In 2010 Capella applied very similar principles to the design of the short-term (annual) management incentive plan as we did in 2009.
| • | Level of participation for each executive is based upon the degree to which his or her position impacts overall financial performance of the company, and also on market competitive factors. Target award opportunities are established as a percentage of the executive’s base salary, and ranged from 40 to 100 percent of base salary for 100 percent achievement of targets. |
| • | Financial measures which drive bonus earning opportunities are year-over-year revenue and operating income growth. We consider growth rates for both revenue and operating income, rather than absolute dollar targets to be more closely aligned with shareholder interests. |
| • | A component that pays for achievement of key initiatives/objectives for executive officers, vice presidents and a limited number of other plan participants is used to focus executives on important long-term, non-financial goals, including learner experience, academic excellence and course quality, productivity and process improvement, operational excellence in learner initiatives, efficiency, talent management and development, and new business development. |
| • | Weights for each component remain unchanged. |
| • | Operating risk is managed in the same way in 2010 as in 2009 with a minimum performance threshold, maximum payout cap and use of multiple metrics. |
All such 2010 plans and individual goals for our Section 16 officers have been reviewed and approved by the Compensation Committee.
2010 Management Incentive Plan Design: Measures and Weights
Weights
| Plan Components and Measures |
Applicable to the CEO, CFO, SVPs, VPs and some Directors in Key Operating Roles |
Applicable to All Other Plan Participants | ||
| Company Financial Measures |
75% | 100% | ||
| Revenue |
45% | 60% | ||
| Operating Income |
30% | 40% | ||
| Key Initiatives/ Objectives |
25% | 0% | ||
| Incentive Opportunity for Achieving 100% of All Targets |
100% | 100% |
Our annual incentive plan’s minimum threshold (the level below which management will earn no bonus) and maximum (the level above which management’s bonus payment remains static), are set consistent with our annual financial plan. Payments to plan participants for performance between minimum and maximum levels will be prorated. The Compensation Committee believes the payout schedules provide the appropriate rewards for achieving year-over-year growth.
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2010 Management Incentive Plan Design: Payout Levels
| Payout Level as Percentage of Applicable Objective(1) |
Level of Achievement Compared to Objective | |||
| Revenue |
Operating Income(2) | |||
| 50% |
95.6% | 91.7% | ||
| 100% |
100.0% | 100.0% | ||
| 200% |
105.2% | 113.5% | ||
| Range from 0 to 200% |
Key Initiatives/Objectives (goals) | |||
| (1) | Payouts on the key initiatives component can range from 0 – 100 percent. If Capella performs above 100 percent on financial goals, the executives’ bonus opportunity on the individual goal portion of their plan will rise consistent with the firm’s financial performance. |
| (2) | Achievement of operating income growth of at least 91.7 percent of the target is required as a condition for any payout for revenue performance. |
Long-Term Incentive Opportunity
Capella believes that an important way to align executives’ interests with those of the shareholders is to use equity grants in long-term compensation. Capella’s long-term incentives for executives have been comprised of equity grants with greater than one year vesting (most frequently stock options with four year graded vesting). In 2009, we delivered approximately one-third of the value of the total grant in the form of restricted stock units (with three year cliff vesting) and the remainder in the form of stock options (with four year graded vesting).
Equity grants are made once annually to eligible executives. Generally, we do not make an equity grant at the time of hire or promotion. Rather, a newly hired executive or a promoted executive is eligible for a grant commensurate with their level at the next regularly scheduled annual grant. Our new CEO, Mr. Gilligan, was provided an equity grant at the time of his hire in consideration of (i) ensuring our compensation package was consistent with market practices and at an appropriately competitive level and (ii) the timing of his start date relative to the annual grant.
Target grant levels are reviewed each year and set by the Compensation Committee. The Committee determines the amount of the long-term incentive opportunity by comparing to companies in the for-profit education sector and appropriate comparators outside the education sector. The same set of comparators is used for this benchmarking as are used to benchmark base pay and short-term incentive opportunity. As is the case for salary and short-term incentives, the benchmark information provides a median value and range for each position. (This process is outlined above in the section titled: “Benchmarking.”)
Target grant levels for each executive are expressed as a percent of the executives’ base pay.
Target grant values for our Section 16 officers range from 45 to 200 percent of base salary. In making decisions on the grant levels for these officers, the Committee referenced the range of competitors’ long-term incentive targets (as described above), and considered the performance level and experience of each executive. Actual grants made to named executives in 2009 appear in the table titled “Grants of Plan-Based Awards in 2009.
Perquisites and Other Compensation
Employee benefits offered to key executives are designed to meet current and future health and security needs for the executives and their families. Executive benefits are generally the same as those offered to all employees, except that medical insurance premiums are paid in full by the company for the named executive officers enrolled in our medical benefit plan and in a certain case, we have agreed to pay the cost of an annual comprehensive physical examination if the executive elects not to participate in our medical benefit plan. The employee benefits offered to all eligible employees include medical, dental and life insurance benefits, short-term
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disability pay, long-term disability insurance, flexible spending accounts for medical expense reimbursements, and a 401(k) retirement savings plan that includes a partial company match. In addition, named executive officers are eligible to participate in our Senior Executive Severance Plan.
The 401(k) retirement savings plan is a defined contribution plan under Section 401(a) of the Internal Revenue Code. Employees may make pre-tax contributions into the plan, expressed as a percentage of compensation, up to prescribed IRS annual limits. We provide an employer matching contribution of 100% on the first 2% of employee pay contributed, and 50% on the next 4% of employee pay contributed.
Our Senior Executive Severance Plan applies to our named executive officers and certain other senior executive officers. The plan provides severance benefits upon the occurrence of certain triggering events. The Compensation Committee believes that such a plan is necessary to attract and retain key executives in the company’s competitive employment market. Our Senior Executive Severance Plan pays additional benefits to most executives covered thereunder in the event of a change in control followed by an involuntary termination or termination for good reason. The Compensation Committee chose this “double trigger” design because it believed such design to be most consistent with current best practices.
Under our 1993 and 1999 Stock Option Plans, any vested but unexercised stock options at the time of retirement may be exercised for a period of 60 days and three months, respectively, after retirement. Under our 2005 Stock Incentive Plan, vested but unexercised stock options may be exercised for up to one year after retirement.
Policies and Practices
Grants of Equity Awards. Capella has had a clear and consistent policy for all equity grants which stipulates that no grants shall occur on a date when our insider trading window is closed, which includes the period beginning the fifteenth day of the third month of a quarter, and continuing through the second trading day after a release of the previous quarter’s earnings, in addition to other times throughout the year when we may be aware of material, non-public information.
This policy helps ensure that option grants are made at a time when any material information that may affect our stock price has been provided to the market and, therefore, the exercise price or value of the award reflects the fair value of our stock based on all relevant information.
Promotional and other discretionary grants may occur at regularly scheduled Committee meetings throughout the year. The full Board of Directors must approve all equity awards to non-employee directors.
In the case of option awards, the exercise price of the option award is set equal to the closing price of our common stock on the date of grant.
Equity Terms and Conditions. Since 2006, the terms of new stock options do not exceed seven years. At that time, we also adopted a practice of issuing nonqualified stock options and discontinued issuing incentive stock options. Vesting schedules for option awards are generally four years, at 25 percent per year. We believe this schedule reinforces performance over the long-term, which will ultimately be reflected in the stock price.
Stock Ownership Guidelines. In December 2008, our Board of Directors revised the stock ownership guidelines for our officers. The amended guidelines (shown below) clarify the positions covered under the guidelines. The intent of the guidelines is for executive officers to retain the equity awarded by Capella until the applicable retention amount is satisfied, rather than creating an expectation that executives need to make open market purchases to meet the guidelines. Prior to satisfying the guidelines, the only permitted disposition is sale/forfeiture to cover income tax liability associated with option exercises, the lapsing of restrictions on restricted stock awards or the constructive receipt of shares underlying restricted stock units. Compliance is measured at the time of proposed sale transactions using recent trading prices to determine fair market value.
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The Retention Guidelines remain unchanged and are as follows(1):
| Position |
Company Common Stock Value Equal to: | |
| Chief Executive Officer |
Four times annual salary | |
| Chief Operating Officer(2) |
Three times annual salary | |
| Senior Vice Presidents |
Two times annual salary | |
| Vice Presidents |
One times annual salary |
| (1) | These stock ownership guidelines apply to Vice Presidents who have been identified as “officers” for purposes of Section 16 of the Securities Exchange Act of 1934 except for the VP Finance/Controller and those holding an executive officer position on an “acting” or “interim” basis. |
| (2) | There is currently no one who holds the title of Chief Operating Officer. |
The stock ownership guidelines can be met through holding shares, in-the-money vested stock options, vested restricted stock or restricted stock units or a combination of these equity types. For executive officers other than the CEO or CFO, exceptions to the guidelines must be approved by the CEO or the CFO and reported to the Compensation Committee. For the CEO or CFO, exceptions must be approved by the Compensation Committee. Lastly, our insider trading policy prohibits executives from engaging in margin loans or otherwise pledging their shares. To the extent the guidelines are applicable to them, all of our executive officers are in compliance with our stock ownership guidelines.
Accounting and Tax Impact of Executive Compensation Programs. Section 162(m) of the Internal Revenue Code of 1986, as amended, imposes a $1 million limit on the amount that a public company may deduct for compensation paid to the company’s CEO or any of the company’s four other most highly compensated executive officers who are employed as of the end of the year. This limitation does not apply to compensation that meets the requirements under Section 162(m) for “qualifying performance-based” compensation (i.e., compensation paid only if the individual’s performance meets pre-established objective goals based on performance criteria approved by shareholders).
A portion of our cash-based annual management incentive plan permits payments that constitute “performance-based compensation” which are therefore exempt from the $1 million limit on deductible compensation under Section 162(m). All other portions of our executive compensation plans are subject to 162(m).
The Compensation Committee has discussed and reviewed the Compensation Discussion and Analysis with management. Based upon this review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
Compensation Committee:
James A. Mitchell, Chair
Andrew M. Slavitt, Co-Chair
David W. Smith
Jeffrey W. Taylor
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The following table shows, for (i) our chief executive officer, (ii) our chief financial officer, (iii) the three other most highly compensated executive officers of our company, and (iv) our former chief executive officer, together referred to as our named executive officers, information concerning compensation earned for services in all capacities during the fiscal years ended December 31, 2009, December 31, 2008 and December 31, 2007.
| Name and Principal Position |
Year | Salary ($) |
Bonus ($) |
Stock Awards ($)(1) |
Option Awards ($)(1) |
Non-Equity Incentive Plan Compensation ($)(2) |
All Other Compen- sation ($)(3) |
Total ($) | ||||||||||||
| J. Kevin Gilligan |
2009 | 464,423 | 20,000 | (6) | 634,161 | 617,508 | 600,599 | 10,506 | 2,347,197 | |||||||||||
| Chairman and Chief Executive Officer |
||||||||||||||||||||
| Stephen G. Shank(4) |
2009 | 312,789 | (5) | — | — | — | 362,773 | 10,317 | 685,879 | |||||||||||
| Former Chief Executive Officer |
2008 | 448,269 | — | — | — | 182,082 | 9,953 | 640,304 | ||||||||||||
| 2007 | 424,547 | — | — | 279,518 | 485,141 | 9,266 | 1,198,472 | |||||||||||||
| Lois M. Martin |
2009 | 338,385 | — | 122,904 | 247,003 | 248,976 | 10,369 | 967,637 | ||||||||||||
| Senior Vice President and Chief Financial Officer |
2008 | 312,192 | — | — | 241,718 | 105,776 | 9,725 | 669,411 | ||||||||||||
| 2007 | 287,163 | — | — | 174,612 | 273,639 | 9,506 | 744,920 | |||||||||||||
| Sally B. Chial |
2009 | 257,739 | — | 81,936 | 164,669 | 130,101 | 10,220 | 644,665 | ||||||||||||
| Senior Vice President—Capella Experience(7) |
2008 | 218,654 | — | — | (6) | — | 59,159 | 9,567 | 287,380 | |||||||||||
| Michael J. Offerman |
2009 | 294,000 | — | 51,210 | 102,918 | 147,000 | 10,294 | 605,422 | ||||||||||||
| Vice Chairman—External University Initiatives |
2008 | 291,038 | — | — | 158,907 | 78,774 | 9,689 | 538,408 | ||||||||||||
| 2007 | 280,072 | — | — | 169,824 | 213,394 | 8,514 | 671,804 | |||||||||||||
| Gregory W. Thom |
2009 | 261,692 | — | 56,331 | 104,976 | 131,093 | 10,240 | 564,332 | ||||||||||||
| Vice President and General Counsel |
| (1) | Valuation based on the grant date fair value of the awards granted in each fiscal year, calculated in accordance with ASC Topic 718. See Note 9 to our consolidated financial statements for the year ended December 31, 2009 for a description of the assumptions used in each year presented. |
| (2) | Based on 2009 company performance, incentive awards were paid out at 125.0% of target incentive opportunity; for further information, see table under “Grants of Plan-Based Awards in 2009” below. |
| (3) | Represents the value of our matching contribution to the 401(k) plan accounts of the named executive officers, and the premiums we paid for group term life insurance on behalf of the named executive officers. The amounts for 2009 include: |
| • | For Mr. Gilligan, a 401(k) matching contribution to his account of $9,800 and life insurance premiums paid on his behalf in the amount of $706. |
| • | For Mr. Shank, a 401(k) matching contribution to his account of $9,800 and life insurance premiums paid on his behalf in the amount of $517. |
| • | For Ms. Martin, a 401(k) matching contribution to her account of $9,800 and life insurance premiums paid on her behalf in the amount of $569. |
| • | For Ms. Chial, a 401(k) matching contribution to her account of $9,800 and life insurance premiums paid on her behalf in the amount of $420. |
| • | For Dr. Offerman, a 401(k) matching contribution to his account of $9,800 and life insurance premiums paid on his behalf in the amount of $494. |
| • | For Mr. Thom, a 401(k) matching contribution to his account of $9,800 and life insurance premiums paid on his behalf in the amount of $440. |
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| (4) | Effective March 2, 2009, Mr. Shank retired from his position as chief executive officer and became executive chair of our Board of Directors. |
| (5) | Includes $70,000 paid to Mr. Shank for his service as chief executive officer, and $242,789 paid to Mr. Shank for his service as executive chair during the remainder of the year. |
| (6) | Bonus approved by Compensation Committee for services prior to formal commencement of employment. |
| (7) | Ms. Chial was promoted to Senior Vice President—Capella Experience from Vice President—Human Resources, effective October 25, 2009. |
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Grants of Plan-Based Awards in 2009
The following table sets forth certain information concerning plan-based awards granted to the named executive officers during the fiscal year ended December 31, 2009.
| Name |
Grant Date |
Estimated Possible Payouts Under Non-Equity Incentive Plan Awards |
All Other Stock Awards: Number of Shares of Stock or Units |
All Other Option Awards: Number of Securities Underlying Options (#)(4) |
Exercise or Base Price of Option Awards ($/Sh) |
Grant Date Fair Value of Stock and Option Awards ($) | |||||||||||
| Threshold ($)(1) |
Target ($)(2) |
Maximum ($)(3) |
|||||||||||||||
| J. Kevin Gilligan |
— | 144,144 | 480,479 | 960,958 | — | — | — | — | |||||||||
| 3/2/2009 | — | — | — | 6,000 | — | — | 321,780 | ||||||||||
| 5/12/2009 | — | — | — | 6,100 | (5) | — | — | 312,381 | |||||||||
| 5/12/2009 | — | — | — | 30,000 | 51.21 | 617,508 | |||||||||||
| Stephen G. Shank |
— | 87,066 | 290,218 | 580,437 | — | — | — | — | |||||||||
| Lois M. Martin |
— | 59,752 | 199,174 | 398,348 | — | — | — | — | |||||||||
| 5/12/2009 | — | — | — | 2,400 | (5) | — | — | 122,904 | |||||||||
| 5/12/2009 | — | — | — | — | 12,000 | 51.21 | 247,003 | ||||||||||
| Sally B. Chial |
— | 31,224 | 104,081 | 208,162 | — | — | — | — | |||||||||
| 5/12/2009 | — | — | — | 1,600 | (5) | — | 81,936 | ||||||||||
| 5/12/2009 | — | — | — | — | 8,000 | 51.21 | 164,669 | ||||||||||
| Michael J. Offerman |
— | 35,280 | 117,600 | 235,200 | — | — | — | — | |||||||||
| 5/12/2009 | — | — | — | 1,000 | (5) | — | — | 51,210 | |||||||||
| 5/12/2009 | — | — | — | 5,000 | 51.21 | 102,918 | |||||||||||
| Gregory W. Thom |
— | 31,463 | 104,875 | 209,750 | — | — | — | — | |||||||||
| 5/12/2009 | — | — | — | 1,100 | (5) | — | — | 56,331 | |||||||||
| 5/12/2009 | — | — | — | — | 5,100 | 51.21 | 104,976 | ||||||||||
| (1) | Reflects the minimum cash incentive payout possible under the Management Incentive Plan for 2009, which was 30% of target incentive opportunity. |
| (2) | Reflects the target cash incentive payout possible under the Management Incentive Plan for 2009 for achievement of 100% of target. |
| (3) | Reflects the maximum cash incentive payout possible under the Management Incentive Plan for 2009, for achievement in excess of 100% of target and up to the maximum, which was 200% of target incentive opportunity. Based on actual plan achievement, a payout of 125% was earned. |
| (4) | Reflects stock options granted under our annual executive grant program. These vest and become exercisable in 25% increments on each annual anniversary of the date of grant. |
| (5) | Reflects restricted stock units granted under our annual executive grant program. These vest and become 100% exercisable on the third anniversary of the date of grant. |
Determination of Fair Market Value for Option Awards of Common Stock
In determining the exercise price for stock option grant awards, under our 2005 Stock Incentive Plan, options must be granted at an exercise price not less than the fair market value of our common stock on the grant date, determined by reference to the closing price of our common stock on such date. Prior to our initial public offering in November 2006, the valuation used to determine the fair market value of our common stock at each grant date was performed internally and contemporaneously with the issuance of the options. The options expire on the date determined by the Board of Directors but may not extend more than 10 years from the grant date for options granted prior to August 2, 2006. On August 2, 2006, the Board of Directors approved a change to our stock option policy to shorten the contractual term from 10 years to seven years for future grants. The options generally become exercisable over a four year period. Shares subject to options that expire or are cancelled become available for re-issuance under the 2005 Plan. We have also issued stock options under two discontinued plans (the 1993 and 1999 Plans). Stock options issued pursuant to the 1993 and 1999 Plans are still outstanding,
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however, unexercised options that are canceled upon termination of employment are not available for re-issuance.
Employment Agreement Provisions
The following provisions for individual employment agreements are applicable to understanding the compensation tables.
On January 20, 2009, we entered into an employment agreement with J. Kevin Gilligan, pursuant to which Mr. Gilligan agreed to serve as our Chief Executive Officer. Pursuant to the terms of his employment agreement, Mr. Gilligan received, among other things: (1) an initial annualized base salary of $575,000, (2) an initial annual incentive compensation award targeted at 100% of his base salary, and (3) 6,000 shares of restricted stock, subject to a two-year ratable vesting period.
On October 25, 2004, we entered into a letter agreement with Lois M. Martin, pursuant to which Ms. Martin agreed to serve as our senior vice president and chief financial officer. Pursuant to the terms of the letter agreement, Ms. Martin received, among other things, (1) an annual incentive compensation award initially targeted at 40% of her annual base salary, and (2) an option to purchase 100,000 shares of our common stock at an exercise price of $20.00 per share, of which all have vested.
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Outstanding Equity Awards at 2009 Fiscal Year-End
The following table sets forth certain information concerning equity awards outstanding to the named executive officers at December 31, 2009.
| Name |
Option Awards | Stock Awards | ||||||||||||
| Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Option Exercise Price ($) |
Option Expiration Date |
Number of Shares or Units of Stock That Have Not Vested (#) |
Market Value of Shares or Units of Stock That Have Not Vested ($) |
|||||||||
| J. Kevin Gilligan |
— | 30,000 | 51.21 | 5/11/2016 | (1) | — | — | |||||||
| — | — | — | — | 6,000 | 451,800 | (2) | ||||||||
| — | — | — | — | 6,100 | 459,330 | (3) | ||||||||
| Lois M. Martin |
4,604 | 4,604 | 20.00 | 8/1/2013 | (4) | — | — | |||||||
| 4,595 | 4,594 | 42.65 | 8/8/2014 | (5) | — | — | ||||||||
| 40,000 | — | 20.00 | 10/16/2014 | (6) | — | — | ||||||||
| 8,247 | — | 20.00 | 8/11/2015 | (7) | — | — | ||||||||
| 2,700 | 8,100 | 53.91 | 8/13/2015 | (8) | — | — | ||||||||
| — | 12,000 | 51.21 | 5/11/2016 | (9) | — | — | ||||||||
| — | — | — | — | 2,400 | 180,720 | (10) | ||||||||
| Sally B. Chial |
15,000 | 15,000 | 51.69 | 8/28/2014 | (11) | — | — | |||||||
| 8,000 | 51.21 | 5/11/2016 | (12) | |||||||||||
| — | — | — | 1,600 | 120,480 | (13) | |||||||||
| Michael J. Offerman |
3,017 | 4,521 | 20.00 | 8/1/2013 | (14) | — | — | |||||||
| 2,234 | 4,468 | 42.65 | 8/8/2014 | (15) | — | — | ||||||||
| 1,775 | 5,325 | 53.91 | 8/13/2015 | (16) | — | — | ||||||||
| — | 5,000 | 51.21 | 5/11/2016 | (17) | — | — | ||||||||
| — | — | — | — | 1,000 | 75,300 | (18) | ||||||||
| Gregory W. Thom |
858 | 1,679 | 20.00 | 8/1/2013 | (19) | — | — | |||||||
| 2,500 | — | 11.92 | 10/22/2013 | (20) | — | — | ||||||||
| 1,714 | 1,712 | 42.65 | 8/8/2014 | (21) | — | — | ||||||||
| 1,879 | — | 20.00 | 8/11/2015 | (22) | — | — | ||||||||
| 1,350 | 4,050 | 53.91 | 8/13/2015 | (23) | — | — | ||||||||
| — | 5,100 | 51.21 | 5/11/2016 | (24) | — | — | ||||||||
| — | — | — | — | 1,100 | 82,830 | (25) | ||||||||
| (1) | Stock option granted on 5/12/2009 for 30,000 shares vests and becomes exercisable in 25% increments on each yearly anniversary of the date of the grant. |
| (2) | Restricted stock award granted on 3/2/2009 for 6,000 shares vests in 50% increments on each yearly anniversary of the date of grant. |
| (3) | Restricted stock unit granted on 5/12/2009 for 6,100 shares vests three years from the anniversary of the date of grant. |
| (4) | Stock option granted on 8/2/2006 for 18,416 shares vests and becomes exercisable in 25% increments on each yearly anniversary of the date of grant. |
| (5) | Stock option granted on 8/9/2007 for 9,189 shares vests and becomes exercisable in 25% increments on each yearly anniversary of the date of grant. |
| (6) | Stock option granted on 10/27/2004 for 80,000 shares vested and became exercisable in 25% increments on November 15 of each year over a four year period. |
| (7) | Stock option granted on 8/12/2005 for 16,494 shares vested and became exercisable in 25% increments on August 12 of each year over a four year period. |
| (8) | Stock option granted on 8/14/2008 for 10,800 shares vests and becomes exercisable in 25% increments on each yearly anniversary of the date of grant. |
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| (9) | Stock option granted on 5/12/2009 for 12,000 shares vests and becomes exercisable in 25% increments on each yearly anniversary of the date of grant. |
| (10) | Restricted stock unit granted on 5/12/2009 for 2,400 shares vests three years from the anniversary of the date of grant. |
| (11) | Stock option granted on 8/29/2007 for 30,000 shares vests and becomes exercisable in 25% increments on each yearly anniversary of the date of grant. |
| (12) | Stock option granted on 5/12/2009 for 8,000 shares vests and becomes exercisable in 25% increments on each yearly anniversary of the date of grant. |
| (13) | Restricted stock unit granted on 5/12/2009 for 1,600 shares vests three years from the anniversary of the date of grant. |
| (14) | Stock option granted on 8/2/2006 for 18,086 shares vests and becomes exercisable in 25% increments on each yearly anniversary of the date of grant. |
| (15) | Stock option granted on 8/9/2007 for 8,937 shares vests and becomes exercisable in 25% increments on each yearly anniversary of the date of grant. |
| (16) | Stock option granted on 8/14/2008 for 7,100 shares vests and becomes exercisable in 25% increments on each yearly anniversary of the date of grant. |
| (17) | Stock option granted on 5/12/2009 for 5,000 shares vests and becomes exercisable in 25% increments on each yearly anniversary of the date of grant. |
| (18) | Restricted stock unit granted on 5/12/2009 for 1,000 shares vests three years from the anniversary of the date of grant. |
| (19) | Stock option granted on 8/2/2006 for 6,716 shares vests and becomes exercisable in 25% increments on each yearly anniversary of the date of grant. |
| (20) | Stock option granted on 10/23/2003 for 30,000 shares vested and became exercisable in 25% increments on October 23 of each year over a four year period. |
| (21) | Stock option granted on 8/9/2007 for 3,426 shares vests and becomes exercisable in 25% increments on each yearly anniversary of the date of grant. |
| (22) | Stock option granted on 8/12/2005 for 3,939 shares vested and became exercisable in 13.5% increments on the first two yearly anniversaries of the date of grant on August 12, and 36.5% on the third and fourth anniversary of the date of grant on August 12. |
| (23) | Stock option granted on 8/14/2008 for 5,400 shares vests and becomes exercisable in 25% increments on each yearly anniversary of the date of grant. |
| (24) | Stock option granted on 5/12/2009 for 5,100 shares vests and becomes exercisable in 25% increments on each yearly anniversary of the date of grant. |
| (25) | Restricted stock unit granted on 5/12/2009 for 1,100 shares vests three years from the anniversary of the date of grant. |
Option Exercises and Stock Vested in Fiscal Year 2009
The following table sets forth certain information concerning stock option exercises by the named executive officers in 2009.
| Option Awards | Stock Awards | |||||||
| Name |
Number of Shares Acquired on Exercise (#) |
Value Realized on Exercise ($)(1) |
Number of Shares Acquired on Vesting (#) |
Value Realized on Vesting ($)(2) | ||||
| J. Kevin Gilligan |
— | — | — | — | ||||
| Stephen G. Shank |
15,240 | 400,050 | — | — | ||||
| Lois M. Martin |
72,771 | 3,403,170 | — | — | ||||
| Sally B. Chial |
— | — | 581 | 36,806 | ||||
| Michael J. Offerman |
43,784 | 1,959,226 | — | — | ||||
| Gregory W. Thom |
3,500 | 171,465 | — | — | ||||
| (1) | The value realized on exercise is calculated as the multiple of (A) either (i) the actual sales price of the shares underlying the options exercised if the shares were immediately sold or (ii) the closing price of the |
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| shares underlying the options exercised if the shares were held, minus (B) the applicable exercise price of those options. |
| (2) | The value realized at vesting is calculated as the closing price of the shares on the date of vesting. |
Potential Payments Upon Termination or Change-in-Control
On September 11, 2007, we established the Capella Education Company Senior Executive Severance Plan, referred to as the Senior Executive Severance Plan, to provide severance pay and other benefits to certain eligible employees. To be eligible for the Senior Executive Severance Plan, the employee must: (1) be designated as a participant in writing by our chief executive officer, (2) be in a select group of management or highly compensated employees within the meaning of the Employee Retirement Income Security Act of 1974, (3) have completed 90 days of service with us from the most recent date of hire, (4) have their employment terminated under certain circumstances, (5) not be a participant in the Executive Severance Plan applicable to certain other employees and (6) execute a release. The release contains non-competition and non-solicitation provisions that apply for a period of 12 months post-termination of employment, and confidentiality provisions that apply indefinitely following termination of employment. As of December 31, 2009, the participants in the Senior Executive Severance Plan included our chief executive officer and chairman of the board of directors and all senior vice president level employees and vice president level employees, including all of the named executive officers in the Summary Compensation Table.
Under the Senior Executive Severance Plan, as amended on December 13, 2007 and August 14, 2008, a qualifying severance event occurs if, unrelated to a change-in-control, there is an involuntary termination other than for cause. A qualifying event also occurs in the event there is a change-in-control, and there is a voluntary termination of employment for good reason or an involuntary termination other than for cause, within 24 months following the change-in-control. Participants who experience a qualifying severance event will be eligible to receive severance benefits, based on their termination event, including severance pay equal to 12 months of base salary (or 24 months, if following a change-in-control), outplacement assistance for up to 12 months, and continuation coverage under certain employee benefit plans for up to 12 months (or up to 18 months, if following a change-in-control), subject to adjustments as provided below. For employee benefit plan continuation, the departed employee must pay the employee portion of applicable premiums during the applicable continuation period, just as he/she would have paid during his/her employment. In situations involving a qualifying termination within 24 months of the change-in-control event, a participant (except the chief executive officer) will also receive payment of 200% of any targeted bonus for the year of termination. Severance pay is paid bi-weekly in accordance with our standard payroll practices over the number of months upon which severance pay is based. However, amounts payable during the first six months following the participant’s termination may be limited, as necessary to be an “involuntary separation pay plan” under Internal Revenue Code Section 409A.
To further comply with Internal Revenue Code Section 409A, if a participant has a qualifying severance event in his/her first calendar year of employment with the company, any amounts otherwise payable to said participant under the Senior Executive Severance Plan during the first six months following termination will be paid by the March 15th of the calendar year following the calendar year in which the participant terminated employment.
We have also provided specific severance benefits to certain of our executives under such executives’ employment agreements, which are described below. The Senior Executive Severance Plan provides that any employment agreement that specifically provides for the payment of severance benefits will remain in full force and effect and that any amounts due and payable under the Senior Executive Severance Plan will be reduced or offset by any similar amounts payable due to termination under an employment agreement.
Our Board of Directors, chief executive officer, or any other individual or committee to whom such authority has been delegated may amend or terminate the Senior Executive Severance Plan (the “Plan”). The Plan cannot be amended to reduce benefits or alter Plan terms, except as may be required by law, for a period of 24 months following a change-in-control, as defined in the Plan. In addition, the Plan provides that any amendment to the Plan or termination of the Plan, adopted within six months prior to a change in control will become null
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and void upon the change-in-control event. The Senior Executive Severance Plan will terminate immediately upon our filing for relief in bankruptcy or on such date as an order for relief in bankruptcy is entered against us.
For purposes of the Senior Executive Severance Plan, certain terms are defined as follows:
| • | “Cause” means (1) employee’s commission of a crime or other act that could materially damage our reputation; (2) employee’s theft, misappropriation, or embezzlement of our property; (3) employee’s falsification of records maintained by us; (4) employee’s failure substantially to comply with our written policies and procedures as they may be published or revised from time to; (5) employee’s misconduct directed toward learners, employees, or adjunct faculty; or (6) employee’s failure substantially to perform the material duties of employee’s employment, which failure is not cured within 30 days after written notice from us specifying the act of non-performance. |
| • | “Good Reason” means (1) the demotion or reduction of the executive’s job responsibilities upon a Change-in-Control; (2) executive’s total target compensation is decreased by more than 10 percent in a 12 month period; or (3) a reassignment of executive’s principal place of work, without their consent, to a location more than 50 miles from their principal place of work upon a Change-in-Control. To be eligible for benefits, the executive must terminate employment for Good Reason within 24 months after the date of the qualified Change-in-Control. In addition, the executive must have provided written notice to us of the asserted Good Reason not later than 30 days after the occurrence of the event on which Good Reason is based and at least 30 days prior to executive’s proposed termination date. We may take action to cure executive’s stated Good Reason within this 30-day period. If we take action, executive will not be eligible for Plan benefits if the executive voluntarily terminates. |
| • | A “Change-in-Control” shall be deemed to occur if any of the following occur: |
| (1) | Any person or entity acquires or becomes a beneficial owner, directly or indirectly, of securities of Capella representing 35% or more of the combined voting power of our then outstanding voting securities, subject to certain exceptions; |
| (2) | A majority of the members of our Board of Directors shall not be continuing directors, for which purpose continuing directors are generally those directors who were members of our board at the time we adopted the Plan and those directors for whose election our Board of Directors solicited proxies or who were elected or appointed by our Board of Directors to fill vacancies caused by death or resignation or to fill newly-created directorships; |
| (3) | Approval by our shareholders of a reorganization, merger or consolidation or a statutory exchange of our outstanding voting securities unless, immediately following such reorganization, merger, consolidation or exchange, all or substantially all of the persons who were the beneficial owners, respectively, of our voting securities and shares immediately prior to such reorganization, merger, consolidation or exchange beneficially own, directly or indirectly, more than 65% of, respectively, the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors and the then outstanding shares of common stock, as the case may be, of the corporation resulting from such reorganization, merger, consolidation or exchange in substantially the same proportions as their ownership, immediately prior to such reorganization, merger, consolidation or exchange, of our voting securities and shares, as the case may be; or |
| (4) | Approval by the shareholders of (x) a complete liquidation or dissolution of our company or (y) the sale or other disposition of all or substantially all of our assets (in one or a series of transactions), other than to a corporation with respect to which, immediately following such sale or other disposition, more than 65% of, respectively, the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors and the then outstanding shares of common stock of such corporation is then beneficially owned, directly or indirectly, by all or substantially all of the persons who were the beneficial owners, respectively, of our voting securities and shares immediately prior to such sale or other disposition in substantially the same proportions as their ownership, immediately prior to such sale or other disposition, of our voting securities and shares, as the case may be. |
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J. Kevin Gilligan Employment Agreement. Under the terms of our employment agreement with Mr. Gilligan, in the event of Mr. Gilligan’s involuntary termination of employment without Cause, as defined in the Senior Executive Severance Plan, the severance payable to Mr. Gilligan shall be not less than an amount equal to three times Mr. Gilligan’s annualized base salary in effect immediately prior to the date of termination of Mr. Gilligan’s employment.
Lois M. Martin Employment Agreement. Under the terms of our letter agreement with Ms. Martin, in the event Ms. Martin’s employment terminates, she is entitled to receive the greater of the severance benefits provided to her under our Senior Executive Severance Plan or the severance benefits provided for in her letter agreement. Ms. Martin’s letter agreement provides that, if Ms. Martin voluntarily terminates her employment for good reason (as defined below), or if her employment is terminated by Capella for a reason other than cause (as defined below) or within two years of a change-in-control, she will be entitled to receive severance pay in an amount equal to up to 12 months base salary, outplacement assistance for up to 12 months, a benefits package at the regular employee rate, and 80 percent of her target bonus amount for the year of termination (prorated to the date of termination). As defined in her letter agreement, “good reason” includes (i) a change in her position to one with a lower pay grade or lesser responsibilities, (ii) a decrease in fixed compensation by more than 10% in any 12 month period, (iii) relocation more than 50 miles from her current work location, or (iv) being temporarily laid off and not reinstated within 90 days. “Cause” is defined as (i) commission of a crime or other act that could materially damage our reputation, (ii) theft, misappropriation or embezzlement of company property, (iii) falsification of company records, (iv) failure to substantially comply with our written policies and procedures, or (v) misconduct directed toward learners, employees or adjunct faculty. Finally, Ms. Martin’s letter agreement provides that she will be entitled to the highest level of severance benefits available to any other employee under the Senior Executive Severance Plan. Our obligation to make the severance payments described above will terminate if Ms. Martin breaches any provision the non-competition or confidentiality provisions of the release agreement.
For purposes of the following tables, certain terms, such as “cause,” “good reason,” and “change-in-control” are defined in the Senior Executive Severance Plan as described above, or, if the definition is more favorable to the executive, as such term is defined in any letter agreement between us and the executive, which are also described above.
In the event that an involuntary termination of the employment of a named executive officer other than for cause has occurred (assuming a change-in-control had not occurred) on December 31, 2009, the following amounts would have been paid to each named executive officer:
| Name |
Base Salary Payment Amount ($)(1) |
Target Bonus Compensation Payment Amount ($)(2) |
Estimated Value of Outplacement Assistance ($) |
Value of Insurance Premiums for Health, Dental and Life Insurance Continuation ($)(3) |
Total ($) | |||||
| J. Kevin Gilligan |
1,725,000 | — | 30,000 | 16,710 | 1,771,710 | |||||
| Stephen G. Shank(4) |
200,000 | — | 30,000 | 12,192 | 242,192 | |||||
| Lois M. Martin |
366,000 | 175,680 | 30,000 | 1,778 | 573,458 | |||||
| Sally B. Chial |
300,000 | — | 30,000 | 15,519 | 345,519 | |||||
| Michael J. Offerman |
294,000 | — | 30,000 | 12,113 | 336,113 | |||||
| Gregory W. Thom |
266,000 | — | 30,000 | 10,236 | 306,236 |
| (1) | Equal to 12 months of base salary in effect on December 31, 2009 for all named executive officers, except equal to three times annualized base salary for Mr. Gilligan. |
| (2) | Equal to 80% of the target bonus amount for fiscal 2009 for Ms. Martin. Amounts would be paid in a lump sum upon termination, subject to any six month delay in payments to comply with Section 409A. |
| (3) | Reflects the employer share of the premiums for our insurance plans for 12 months. |
| • | For Mr. Gilligan, includes medical insurance premiums of $15,005; dental insurance premiums of $720; and life insurance premiums of $985. |
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| • | For Mr. Shank, includes medical insurance premiums of $11,368; dental insurance premiums of $481; and life insurance premiums of $343. |
| • | For Ms. Martin, includes dental insurance premiums of $241; life insurance premiums of $627; and expenses related to a medical examination of $910. |
| • | For Ms. Chial, includes medical insurance premiums of $15,005; and life insurance premiums of $514. |
| • | For Dr. Offerman, includes medical insurance premiums of $11,368; dental insurance premiums of $241; and life insurance premiums of $504. |
| • | For Mr. Thom, includes medical insurance premiums of $9,003; dental insurance premiums of $777; and life insurance premiums of $456. |
| (4) | Mr. Shank retired from employee status as of February 23, 2010 and is no longer eligible for any payments related to termination of employment. |
If, on December 31, 2009, a named executive officer involuntarily terminated his or her employment within 24 months of a change-in-control for good reason, or if the employment of a named executive officer was involuntarily terminated other than for cause within 24 months of a change-in-control, the following amounts would have been paid to each named executive officer:
| Name |
Base Salary Payment Amount ($)(1) |
Target Bonus Compensation Payment Amount ($)(2) |
Value of Accelerated Options ($)(3) (4) |
Value of Accelerated Awards ($)(5) |
Estimated Value of Outplacement Assistance ($) |
Value of Insurance Premiums for Health, Dental and Life Insurance Continuation ($)(6) |
Total ($) | |||||||
| J. Kevin Gilligan |
1,150,000 | 1,150,000 | 722,700 | 911,130 | 30,000 | 25,066 | 3,988,896 | |||||||
| Stephen G. Shank(7) |
400,000 | 380,000 | — | — | 30,000 | 18,288 | 828,288 | |||||||
| Lois M. Martin |
732,000 | 439,200 | 866,934 | 180,720 | 30,000 | 2,438 | 2,251,292 | |||||||
| Sally B. Chial |
600,000 | 240,000 | 546,870 | 120,480 | 30,000 | 23,279 | 1,560,629 | |||||||
| Michael J. Offerman |
588,000 | 235,200 | 630,243 | 75,300 | 30,000 | 18,169 | 1,576,912 | |||||||
| Gregory W. Thom |
532,000 | 212,800 | 358,234 | 82,830 | 30,000 | 15,355 | 1,231,219 |
| (1) | Equal to 24 months of base salary in effect on December 31, 2009 for all named executive officers. Amounts would be paid in bi-weekly installments over the term of the severance period (calculated as the number of months during which the participant is entitled to receive base salary), subject to any six month delay in payments to comply with Section 409A. |
| (2) | Equal to two times the target bonus amount for fiscal 2009 for all named executive officers. Amounts would be paid in a lump sum upon termination, subject to any six month delay in payments to comply with Section 409A. |
| (3) | Based on the closing price of our common stock on December 31, 2009, the last trading day of fiscal 2009, of $75.30. |
| (4) | Under the 2005 Stock Incentive Plan, options vest in full if a termination of employment occurs within 3 years of the change-in-control. |
| (5) | Under the 2005 Stock Incentive Plan, forfeiture provisions on restricted stock cease if a termination of employment occurs within 2 years of the change-in-control. |
| (6) | Reflects the employer share of the premiums for our insurance plans for 18 months, as follows: |
| • | For Mr. Gilligan, includes medical insurance premiums of $22,508; dental insurance premiums of $1,080; and life insurance premiums of $1,478. |
| • | For Mr. Shank, includes medical insurance premiums of $17,052; dental insurance premiums of $722; and life insurance premiums of $514. |
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| • | For Ms. Martin, includes dental insurance premiums of $361; life insurance premiums of $941; and $1,136 for medical examinations. |
| • | For Dr. Offerman, includes medical insurance premiums of $17,052; dental insurance premiums of $361; and life insurance premiums of $756. |
| • | For Ms. Chial, includes medical insurance premiums of $22,508; and life insurance premiums of $771. |
| • | For Mr. Thom, includes medical insurance premiums of $13,505; dental insurance premiums of $1,166; and life insurance premiums of $684. |
| (7) | Mr. Shank retired from employee status as of February 23, 2010 and is no longer eligible for any payments related to termination of employment. |
Summary of Other Provisions—Termination of Employment
Disability Termination. Executive officers whose employment terminates due to disability have the following provisions specific to the termination event:
| • | 70% of any unused paid time off balance at the time of termination will be paid out. |
| • | Under the terms of our stock option plans and stock incentive plan, all unvested options immediately vest upon termination, and the employee has up to one year post-termination to exercise options before expiration. If a termination due to disability had occurred on December 31, 2009, the value of the accelerated options for each named executive officer would have been as follows: Mr. Gilligan—$722,700; Mr. Shank—$0; Ms. Martin—$866,934; Dr. Offerman—$630,243; Ms. Chial—$546,870; and Mr. Thom—$358,234. If a termination due to disability had occurred on December 31, 2009, the value of the accelerated restricted stock awards each named executive officer would have been as follows: Mr. Gilligan—$911,130; Mr. Shank—$0; Ms. Martin—$180,720; Dr. Offerman—$75,300; Ms. Chial—$120,480; and Mr. Thom—$82,830. |
| • | Under the terms of our long-term disability insurance plan, assuming the executive has enrolled, the executive is entitled to receive 60% of their regular base salary, up to a maximum of $10,000 a month, for as long as they are classified as disabled by the insurance company. Such amounts will be paid by the insurance company under the terms of our insured plan. |
Retirement. Senior executive officers (which currently includes all executives at or above the vice president level, including each of the named executive officers) whose employment terminates due to retirement have the following provisions specific to the termination event:
| • | 70% of any unused paid time off balance at the time of termination will be paid out. |
| • | Under the terms of our 2005 Stock Incentive Plan, the employee has up to one year post-termination to exercise any vested options which were vested as of the termination date. Under the terms of our 1999 Stock Option Plan, the employee has up to three months post-termination to exercise any options which were vested as of the termination date. Under the terms of our 1993 Stock Option Plan, the employee has up to sixty days post-termination to exercise any options which were vested as of the termination date. |
| • | The executive will be eligible to take a distribution consistent with reaching normal retirement age, and the provisions specified in the 401(k) retirement savings plan, from his or her account balance. |
Death.
| • | Upon death, all stock options issued under the 1999 Stock Option Plan and the 2005 Stock Incentive Plan become immediately exercisable, and remain exercisable for up to one year following the event. If a termination due to death had occurred on December 31, 2009, the value of the accelerated options for each named executive officer would have been as follows: Mr. Gilligan—$722,700; Mr. Shank—$0; |
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| Ms. Martin—$866,934; Dr. Offerman—$630,243; Ms. Chial—$546,870; and Mr. Thom—$358,234 . If a termination due to death had occurred on December 31, 2009, the value of the accelerated restricted stock awards each named executive officer would have been as follows: Mr. Gilligan—$911,130; Mr. Shank—$0; Ms. Martin—$180,720; Dr. Offerman—$75,300; Ms. Chial—$120,480; and Mr. Thom—$82,830. |
The following table shows, for the fiscal year ended December 31, 2009, all compensation that our company paid to our directors. We did not pay any director compensation in 2009 to Mr. Gilligan or Mr. Shank because they were our employees. The Stock Awards represent the grant date fair value of restricted stock units granted during 2009, calculated in accordance with ASC Topic 718. See Note 9 to our consolidated financial statements for the year ended December 31, 2009 for a description of the assumptions used in each year presented.
| Name |
Fees Earned or Paid in Cash ($)(1) |
Stock Awards (S) |
Total ($) | |||
| Mark N. Greene |
50,000 | 55,020 | 105,020 | |||
| Jody G. Miller |
56,000 | 55,020 | 111,020 | |||
| James A. Mitchell |
58,500 | 55,020 | 113,520 | |||
| Andrew M. Slavitt |
52,500 | 55,020 | 107,520 | |||
| David W. Smith |
60,000 | 55,020 | 115,020 | |||
| Jeffrey W. Taylor |
50,000 | 55,020 | 105,020 | |||
| Sandra E. Taylor |
50,000 | 55,020 | 105,020 | |||
| Darrell R. Tukua |
61,000 | 55,020 | 116,020 |
| (1) | Fees reflect annual retainer and committee chairperson fees that were paid quarterly. These fees were the only cash compensation paid to any director in 2009. |
The following table shows the aggregate number of shares underlying outstanding stock options and unvested restricted stock units held by our directors as of December 31, 2009.
| Name |
Shares Underlying Outstanding Stock Option Awards (#) |
Exercisable (#) |
Unexercisable (#) |
Shares Underlying Outstanding Stock Awards not Vested (#) | ||||
| Mark N. Greene |
10,000 | 2,500 | 7,500 | 1,050 | ||||
| Jody G. Miller |
6,427 | 6,427 | — | 1,050 | ||||
| James A. Mitchell |
8,927 | 8,927 | — | 1,050 | ||||
| Andrew M. Slavitt |
11,931 | 6,931 | 5,000 | 1,050 | ||||
| David W. Smith |
1,931 | 1,931 | — | 1,050 | ||||
| Jeffrey W. Taylor |
1,931 | 1,931 | — | 1,050 | ||||
| Sandra E. Taylor |
13,927 | 11,427 | 2,500 | 1,050 | ||||
| Darrell R. Tukua |
20,924 | 20,924 | — | 1,050 |
In 2009, we paid each non-employee director an annual cash retainer of $50,000, paid quarterly, for fees associated with board and committee service. Mr. Smith, our lead director, received an additional cash retainer of $7,500, paid quarterly, and also received $2,500 for serving as chair of our CEO Search Committee during 2009. Mr. Tukua, the chair of the Audit Committee, received $11,000, Mr. Mitchell, the chair of the Compensation Committee, received $8,500, and Ms. Miller, the chair of the Governance Committee, received $6,000, all paid quarterly. In addition, Mr. Slavitt received $2,500 for serving as co-chair of the Compensation Committee. Each non-employee director has the option to receive stock options in lieu of cash compensation; in 2009, no directors made this election.
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Each non-employee director also received restricted stock units valued at $55,020, which vest ratably over three years.
The Committee believes that a balance of equity and cash compensation for non-employee directors is the most appropriate way to compensate them for board service. Providing the non-employee director the ability to elect equity in lieu of any or all cash compensation also offers some flexibility to the individual members. Equity compensation also aligns the board member’s interests with the shareholders.
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SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the beneficial ownership of our common stock as of March 5, 2010 by:
| • | each persons or entities, including any “group” as that term is used in Section 13(d)(3) of the Securities Exchange Act of 1934 (the “Exchange Act”), who is known to own beneficially more than 5% of the outstanding shares of our common stock; |
| • | each current director; |
| • | each of the named executive officers; and |
| • | all directors and executive officers as a group. |
Beneficial ownership is determined in accordance with the SEC’s rules. In computing percentage ownership of each person, shares of common stock subject to options held by that person that are currently exercisable, or exercisable within 60 days of March 5, 2010, are deemed to be outstanding and beneficially owned by that person. These shares, however, are not deemed outstanding for the purpose of computing the percentage ownership of any other person.
Except as indicated in the notes to this table and pursuant to applicable community property laws, each shareholder named in the table has sole voting and investment power with respect to the shares set forth opposite such shareholder’s name. Percentage of ownership is based on 16,778,607 shares of our common stock outstanding on March 5, 2010, including 3,000 shares of unvested restricted stock. All fractional common share amounts have been rounded to the nearest whole number. The address for each executive officer and director is Capella Education Company, Capella Tower, 225 South 6th Street, 9th Floor, Minneapolis, Minnesota 55402.
| Name of Beneficial Owner |
Amount and Nature of Beneficial Ownership |
Percent of Common Stock |
|||
| 5% Shareholders (other than Mr. Shank) |
|||||
| Waddell & Reed Financial, Inc. (a) |
1,349,105 | 8.0 | % | ||
| 6300 Lamar Avenue |
|||||
| Overland Park, Kansas 66202 |
|||||
| T. Rowe Price Associates, Inc. (b) |
1,340,290 | 8.0 | % | ||
| 100 E. Pratt Street |
|||||
| Baltimore, Maryland 21202 |
|||||
| BlackRock, Inc. (c) |
1,181,826 | 7.0 | % | ||
| 40 East 52nd Street |
|||||
| New York, NY 10022 |
|||||
| Directors and Named Executive Officers |
|||||
| Sally B. Chial (d) |
15,782 | * | |||
| J. Kevin Gilligan (e) |
7,019 | * | |||
| Mark N. Greene (f) |
2,500 | * | |||
| Lois M. Martin (g) |
29,351 | * | |||
| Jody G. Miller (h) |
6,677 | * | |||
| James A. Mitchell (i) |
9,042 | * | |||
| Michael J. Offerman (j) |
15,355 | * | |||
| Stephen G. Shank (k) |
1,416,426 | 8.4 | % | ||
| Andrew M. Slavitt (l) |
6,931 | * | |||
| David W. Smith (m) |
16,346 | * | |||
| Jeffrey W. Taylor (n) |
6,977 | * | |||
| Sandra E. Taylor (o) |
11,675 | * | |||
| Gregory W. Thom (p ) |
8,480 | * | |||
| Darrell R. Tukua (q) |
21,174 | * | |||
| All directors and executive officers as a group (17 persons) (r) |
1,604,218 | 9.6 | % |
| * | Less than 1% |
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| (a) | Based on a Schedule 13G filed under the Exchange Act on February 12, 2010 reporting beneficial ownership as of December 31, 2009. The securities are beneficially owned by one or more open-end investment companies or other managed accounts which are advised or sub-advised by Ivy Investment Management Company (“IICO”), an investment advisory subsidiary of Waddell & Reed Financial, Inc. (“WDR”) or Waddell & Reed Investment Management Company (“WRIMCO”), an investment advisory subsidiary of Waddell & Reed, Inc. (“WRI”). WRI is a broker-dealer and underwriting subsidiary of Waddell & Reed Financial Services, Inc., a parent holding company (“WRFSI”). In turn, WRFSI is a subsidiary of WDR, a publicly traded company. |
| (b) | Based on a Schedule 13G filed under the Exchange Act on February 12, 2010 reporting beneficial ownership as of December 31, 2009. The securities are beneficially owned by various individual and institutional investors, for which T. Rowe Price Associates, Inc. (“Price Associates”) serves as investment adviser with power to direct disposition and/or sole power to vote the securities. Price Associates has sole voting power over 486,290 shares and sole dispositive power over 1,340,290 shares. For purposes of the reporting requirements of the Exchange Act, Price Associates is deemed to be a beneficial owner of such securities; however, Price Associates expressly disclaims that it is, in fact, the beneficial owner of such securities. |
| (c) | Based on a Schedule 13G filed under the Exchange Act on January 20, 2010 reporting beneficial ownership as of December 31, 2009. The securities are beneficially owned by BlackRock, Inc. following their December 1, 2009, acquisition of Barclays Global Investors, NA and related affiliates, reported beneficial ownership of 1,181,826 shares. BlackRock, Inc. reports having sole voting and sole dispositive power over all 1,181,826 shares. |
| (d) | Consists of (1) 782 shares held by Ms. Chial and (2) 15,000 shares underlying options granted to Ms. Chial that are exercisable within 60 days. |
| (e) | Consists of (1) 7,019 shares held by Mr. Gilligan of which 4,019 shares are held directly by Mr. Gilligan and 3,000 shares are unvested restricted stock over which Mr. Gilligan has voting power. |
| (f) | Consists of (1) 2,500 shares underlying options granted to Mr. Greene that are exercisable within 60 days. |
| (g) | Consists of (1) 17,500 shares held by Ms. Martin, (2) 11,419 shares underlying options granted to Ms. Martin that are exercisable within 60 days, and (3) 432 shares held by the Capella Retirement Savings Plan for Ms. Martin’s account. |
| (h) | Consists of (1) 250 shares held by Ms. Miller and (2) 6,427 shares underlying options granted to Ms. Miller that are exercisable within 60 days. |
| (i) | Consists of (1) 115 shares controlled by Mr. Mitchell, as trustee of the James A. Mitchell Trust and (2) 8,927 shares underlying options granted to Mr. Mitchell that are exercisable within 60 days. |
| (j) | Consists of (1) 5,770 shares held by Dr. Offerman, (2) 7,026 shares underlying options granted to Dr. Offerman that are exercisable within 60 days, and (3) 2,559 shares held by the Capella Retirement Savings Plan for Dr. Offerman’s account. |
| (k) | Consists of (1) 924,943 shares held by Mr. Shank; (2) 3,811 shares held by the Capella Retirement Savings Plan for Mr. Shank’s account; (3) 149,577 shares beneficially held by Mr. Shank’s spouse, Judith F. Shank; (4) 44,376 shares beneficially held by the Stephen G. Shank October 2008 Grantor Retained Annuity Trust, the trustee of which is Mary Shank Retzlaff, Mr. Shank’s daughter; (5) 44,376 shares beneficially held by Judith F. Shank October 2008 Grantor Retained Annuity Trust, the trustee of which is Susan Shank, Mr. Shank’s daughter; (6) 43,172 shares beneficially held by the Stephen G. Shank 2009 2 year #1 Grantor Retained Annuity Trust, the trustee of which is Mary Shank Retzlaff; (7) 43,172 shares beneficially held by the Judith F. Shank 2009 2 year #1 Grantor Retained Annuity Trust, the trustee of which is Susan Shank; (8) 43,172 shares beneficially held by the Stephen G. Shank 2009 5 year #1 Grantor Retained Annuity Trust, the trustee of which is Mary Shank Retzlaff; (9) 43,172 shares beneficially held by the Judith F. Shank 2009 5 year #1 Grantor Retained Annuity Trust, the trustee of which is Susan Shank; (10) 12,780 shares beneficially held by the Stephen G. Shank 2009 2 year #2 Grantor Retained Annuity Trust, the trustee of which is Mary Shank Retzlaff; (11) 12,780 shares beneficially held by Judith F. Shank 2009 2 year #2 Grantor Retained Annuity Trust, the trustee of which is Susan Shank; (12) 12,780 shares beneficially held by the Stephen G. Shank 2009 5 year #2 Grantor Retained Annuity Trust, the trustee of which is Mary Shank Retzlaff; (13) 12,780 shares beneficially held by Judith F. Shank 2009 5 year #2 |
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| Grantor Retained Annuity Trust, the trustee of which is Susan Shank and (14) 25,535 shares beneficially held by the Shank Family Foundation, of which Mr. Shank is a trustee. |
| (l) | Consists of (1) 6,931 shares underlying options granted to Mr. Slavitt that are exercisable within 60 days. |
| (m) | Consists of (1) 14,415 shares held by Mr. Smith and (2) 1,931 shares underlying options granted to Mr. Smith that are exercisable within 60 days. |
| (n) | Consists of (1) 5,046 shares held by Mr. Taylor, and (2) 1,931 shares underlying options granted to Mr. Taylor that are exercisable within 60 days. |
| (o) | Consists of (1) 248 shares held by Ms. Taylor and (2) 11,427 shares underlying options granted to Ms. Taylor that are exercisable within 60 days. |
| (p) | Consists of (1) 7,443 shares underlying options granted to Mr. Thom that are exercisable within 60 days and (2) 1,037 shares held by the Capella Retirement Savings Plan for Mr. Thom’s account. |
| (q) | Consists of (1) 250 shares controlled by Mr. Tukua as trustee of the Darrell R. Tukua Revocable Trust and (2) 20,924 shares underlying options controlled by Mr. Tukua as trustee of the Darrell R. Tukua Revocable Trust that are exercisable within 60 days. |
| (r) | Includes (1) 130,876 shares underlying options granted to our directors and executive officers that are exercisable within 60 days and (2) 9,332 shares held by the Capella Retirement Savings Plan for the accounts of our executive officers. |
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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
Related Person Transaction Approval Policy
Our Board of Directors has adopted a written related person transaction approval policy, which sets forth our company’s policies and procedures for the review, approval or ratification of any transaction required to be reported in the Company’s filings with the SEC. Our policy applies to any transaction, arrangement or relationship or any series of similar transactions, arrangements or relationships in which our company (including any subsidiaries) is or will be a participant and in which a related person has a direct or indirect interest, but exempts the following:
| • | payment of compensation by our company to a related person for the related person’s service to our company as a director, officer or employee; |
| • | transactions available to all employees or all shareholders of our company on the same terms; |
| • | transactions, which when aggregated with the amount of all other transactions between our company and a related person (or any entity in which the related person has an interest), involve less than $120,000 in a fiscal year; and |
| • | transactions in the ordinary course of business at the same prices and on the same terms as are made available to customers of the company generally. |
The Audit Committee of our Board of Directors is to approve any related person transaction subject to this policy before commencement of the related person transaction. If such a transaction is not identified until after it has commenced, it must then be brought to the Audit Committee, which will consider all options, including approval, ratification, amendment, denial, termination or, if the transaction is completed, rescission. The Audit Committee will analyze the following factors, in addition to any other factors the committee deems appropriate, in determining whether to approve or ratify a related person transaction:
| • | whether the terms are fair to our company; |
| • | whether the transaction is material to our company; |
| • | the role the related person has played in arranging the related person transaction; |
| • | the structure of the related person transaction; and |
| • | the interests of all related persons in the related person transaction. |
The Audit Committee may, in its sole discretion, approve or deny any related person transaction. Approval of a related person transaction may be conditioned upon our company and the related person taking any actions that the Audit Committee deems appropriate. The Audit Committee has delegated to its chairperson authority to approve or take any other action with respect to a related person transaction that the committee itself would be authorized to take pursuant to this policy.
Currently and during 2009, our company was not party to any transactions that were determined to be related person transactions.
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EQUITY COMPENSATION PLAN INFORMATION
The following table provides information as of December 31, 2009, with respect to shares of our common stock that may be issued under our existing equity compensation plans:
| Plan Category |
Number of securities to be issued upon exercise of outstanding options, warrants and rights |
Weighted-average exercise price of outstanding options, warrants and rights |
Number of securities remaining available for future issuance under equity compensation plans |
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| Equity Compensation Plans Approved by Securityholders |
749,889 | (1) | $ | 38.24 | 2,085,907 | (2) | |||
| Equity Compensation Plans Not Approved by Securityholders |
none | – | none | ||||||
| Total |
749,889 | (1) | $ | 38.24 | 2,085,907 | (2) | |||
| (1) | Includes outstanding options to purchase shares of our common stock under the Capella Education Company 2005 Stock Incentive Plan, the Capella Education Company 1999 Stock Option Plan, and the Capella Education Company 1993 Stock Option Plan. |
| (2) | Includes 1,635,907 shares available for future issuances under the Capella Education Company 2005 Stock Incentive Plan and 450,000 shares reserved for future issuance under an employee stock purchase plan that we may implement in the future. |
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires that our company’s directors and executive officers file initial reports of ownership and reports of changes in ownership with the SEC. Directors and executive officers are required to furnish our company with copies of all Section 16(a) forms they file. Based solely on a review of the copies of such forms furnished to our company and written representations from our company’s directors and executive officers, all Section 16(a) filing requirements were met for the fiscal year ended December 31, 2009, except that (i) one report was filed on May 20, 2009 as a result of administrative error for Ms. Ronneberg, reporting an award of 400 restricted stock units and 2,000 stock options on May 12, 2009; and (ii) one report was filed one day late on August 26, 2009 as a result of administrative error for Ms. Martin, reporting the exercise and sale of 500 stock options on August 20, 2009.
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Our 2009 Annual Report and our Annual Report on Form 10-K for fiscal year 2009, including financial statements, are being delivered with this proxy statement. Shareholders whose shares are held in a brokerage, bank or similar account will receive a Notice Regarding the Availability of Proxy Materials from the organization holding the account. The Notice contains instructions on how to access our proxy materials on the Internet and how to request a paper or e-mail copy of our proxy materials, including our 2009 Annual Report and Annual Report on Form 10-K.
As of the date of this proxy statement, management knows of no matters that will be presented for determination at the meeting other than those referred to herein. If any other matters properly come before the meeting calling for a vote of shareholders, it is intended that the persons named in the proxies solicited by our Board of Directors, in accordance with their best judgment, will vote the shares represented by these proxies.
Shareholders who wish to obtain an additional copy of our Annual Report on Form 10-K, to be filed with the SEC for the fiscal year ended December 31, 2009, may do so without charge by writing to Investor Relations, Capella Education Company, Capella Tower, 225 South 6th Street, 9th Floor, Minneapolis, Minnesota 55402.
By Order of the Board of Directors,
Gregory W. Thom
Secretary
Dated: March 25, 2010
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*** Exercise Your Right to Vote ***
IMPORTANT NOTICE Regarding the Availability of Proxy Materials
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Meeting Information | ||||
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Meeting Type: Annual Meeting | ||||
| CAPELLA EDUCATION CO. | For holders as of: March 15, 2010 | |||
| Date: May 11, 2010 Time: 9:00 AM CDT | ||||
| Location: Capella Tower | ||||
| 225 South 6th Street | ||||
| 3rd Floor Conference Center | ||||
| Minneapolis, Minnesota 55402
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You are receiving this communication because you hold shares in the above named company. | |||
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This is not a ballot. You cannot use this notice to vote these shares. This communication presents only an overview of the more complete proxy materials that are available to you on the Internet. You may view the proxy materials online at www.proxyvote.com or easily request a paper copy (see reverse side). | ||||
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We encourage you to access and review all of the important information contained in the proxy materials before voting.
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| See the reverse side of this notice to obtain proxy materials and voting instructions. | ||||
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| — Before You Vote — How to Access the Proxy Materials
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Proxy Materials Available to VIEW or RECEIVE:
1. Notice & Proxy Statement 2. Annual Report
How to View Online:
Have the 12-Digit Control Number available (located on the following page) and visit: www.proxyvote.com.
How to Request and Receive a PAPER or E-MAIL Copy:
If you want to receive a paper or e-mail copy of these documents, you must request one. There is NO charge for requesting a copy. Please choose one of the following methods to make your request:
1) BY INTERNET: www.proxyvote.com 2) BYTELEPHONE: 1-800-579-1639 3) BY E-MAIL*: sendmaterial@proxyvote.com
* If requesting materials by e-mail, please send a blank e-mail with the 12-Digit Control Number (located on the following page) in the subject line.
Requests, instructions and other inquiries sent to this e-mail address will NOT be forwarded to your investment advisor. Please make the request as instructed above on or before April 27, 2010 to facilitate timely delivery.
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— How To Vote — | ||
| Please Choose One of The Following Voting Methods
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Vote In Person: If you choose to vote these shares in person at the meeting, you must request a “legal proxy.” To do so, please follow the instructions at www.proxyvote.com or request a paper copy of the materials, which will contain the appropriate instructions. Many shareholder meetings have attendance requirements including, but not limited to, the possession of an attendance ticket issued by the entity holding the meeting. Please check the meeting materials for any special requirements for meeting attendance. | ||
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Vote By Internet: To vote now by Internet, go to www.proxyvote.com. Have the 12 Digit Control Number available and follow the instructions. | ||
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Vote By Mail: You can vote by mail by requesting a paper copy of the materials, which will include a voting instruction form.
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| Voting items | ||||||||||||||||||||
| The Board of Directors recommends that you vote FOR the following: |
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| 1. | Election of Directors | |||||||||||||||||||
| Nominees | ||||||||||||||||||||
| 01 | J. Kevin Gilligan | 02 | Mark N. Greene | 03 | Jody G. Miller | 04 | Stephen G. Shank | 05 | Andrew M. Slavitt | |||||||||||
| 06 | David W. Smith | 07 | Jeffrey W. Taylor | 08 | Sandra E. Taylor | 09 | Darrell R. Tukua | |||||||||||||
| The Board of Directors recommends you vote FOR the following proposal(s): | ||||||||||||||||||||
| 2 | To ratify the appointment of Ernst & Young LLP as the Company’s independent auditors for the fiscal year ending December 31, 2010 | |||||||||||||||||||
| NOTE: Such other business as may properly come before the meeting or any adjournment thereof. | ||||||||||||||||||||
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| Voting Instructions | ||||
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting: The Notice & Proxy Statement, Annual Report is/ are available at www.proxyvote.com.
| CAPELLA EDUCATION CO. Annual Meeting of Shareholders May 11, 2010 9:00 AM CT This proxy is solicited by the Board of Directors
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The undersigned, revoking all prior proxies, appoints J. Kevin Gilligan and Gregory W. Thom, or either of them acting alone, as proxies, with full power of substitution, to represent the undersigned and to vote, as indicated on the reverse side and otherwise in their discretion upon such other matters as may properly come before the meeting, all shares of the common stock of Capella Education Company that the undersigned is entitled to vote at the Annual Meeting of Shareholders of the Company to be held at Capella Tower, 225 South 6th Street, 3rd Floor Conference Center, Minneapolis, Minnesota 55402 on Tuesday, May 11, 2010 at 9:00 a.m. CT and at any adjournment thereof. The undersigned hereby acknowledges receipt of the Proxy Statement of the Annual Meeting.
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| This proxy, when properly executed, will be voted in the manner directed herein. If no such direction is made, this proxy will be voted in accordance with the Board of Directors’ recommendations.
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| Continued and to be signed on reverse side
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CAPELLA EDUCATION CO. ATTN: HEIDE ERICKSON 225 SOUTH 6th STREET, 9TH FLOOR MINNEAPOLIS, MN 55402 |
VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.
Electronic Delivery of Future PROXY MATERIALS
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
| TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | ||
| KEEP THIS PORTION FOR YOUR RECORDS | ||
| DETACH AND RETURN THIS PORTION ONLY | ||
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
| For All | Withhold All |
For All Except | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. | |||||||||||||||||||||||||
| The Board of Directors recommends that you vote FOR the following: |
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1. |
Election of Directors |
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| Nominees: | ||||||||||||||||||||||||||||
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01 06 |
J. Kevin Gilligan 02 Mark N. Greene 03 Jody G. Miller 04 Stephen G. Shank 05 Andrew M. Slavitt David W. Smith 07 Jeffrey W. Taylor 08 Sandra E. Taylor 09 Darrell R. Tukua | |||||||||||||||||||||||||||
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The Board of Directors recommends you vote FOR the following proposal(s): |
For | Against | Abstain | |||||||||||||||||||||||||
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2 |
To ratify the appointment of Ernst & Young LLP as the Company’s independent auditors for the fiscal year ending December 31, 2010 |
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¨ |
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NOTE: Such other business as may properly come before the meeting or any adjournment thereof.
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| Yes | No | |||||||||||||||||||||||||||
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Please indicate if you plan to attend this meeting |
¨ | ¨ | ||||||||||||||||||||||||||
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name, by authorized officer.
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| Signature [PLEASE SIGN WITHIN BOX] | Date | Signature (Joint Owners) | Date | |||||||||||||||||||||||||
