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Offer Letter - Capella Education Co. and Heidi Thom

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June 3, 2003

Ms. Heidi Thom
320 Louisiana Avenue North
Golden Valley, MN 55427

Dear Heidi:

We are pleased to formally extend you this offer of employment for the position
of Vice President, Marketing for Capella Education Company. The position reports
to Steve Shank, Chairman and CEO. This offer is contingent upon signing a
Confidentiality, Non-Competition and Inventions Agreement, a copy of which is
enclosed and the successful completion of a background check.

You will be paid on a bi-weekly basis, an amount that will equal $210,000 when
annualized. You will be eligible for a performance and salary review as of
February 1, 2004 and, under normal circumstances, annually thereafter. Merit pay
guidelines currently in effect are based on 12 month intervals. Accordingly,
increases awarded over a shorter time interval may be prorated based on the
number of months from your hire date or date of last increase. Capella offers a
comprehensive compensation system; more information will be provided to you
after your start.

HIRING BONUS: You will be paid a lump sum hiring bonus equal to $35,000,
effective the first full payroll period following your start date. Your
agreement to this offer of employment also indicates your agreement that, if you
voluntarily terminate employment from Capella within 12 months (52 weeks) of
your start date, you will return the net (of taxes) amount of this bonus to
Capella on a prorata basis (1/12 per month). This payment is not considered
"base salary compensation" for purposes of the Executive Severance Plan or
Management Incentive Plan.

ANNUAL INCENTIVE COMPENSATION: In addition to your salary, you will be eligible
to earn an annual incentive compensation award with a target of 40% of your base
salary earnings in 2003. The details of the incentive compensation program will
be specified in the enclosed annual award plan. Capella will guarantee 100% of
your targeted incentive award for 2003.

BENEFIT PLANS: The following will summarize the current benefit plans, for which
you would be eligible as a full-time employee:

Medical/Dental - Effective the first day of the month following employment, you
would be eligible to participate in the company's medical plan. The plan is
administered through Medica. Under this plan, you would contribute 30% and the
Company would pay 70% of the monthly premium. You will also be eligible to
participate in the Company's dental plan,


Heidi Thom
Page 2

administered by Delta Dental. Both plans offer you a choice of networks and/or
benefit levels.

Life Insurance - The Company provides paid life insurance in the amount of 1X
salary. You may also elect to purchase additional coverage for yourself, spouse
and/or dependents.

Disability Benefits - The Company offers short and long-term disability
benefits. The short-term disability coverage provides salary replacement for up
to 26 weeks of disability. The amount and length of coverage is based upon
length of service with the company. This benefit is paid for by the Company. You
may elect to purchase long-term disability coverage. The Plan replaces up to 60%
of your salary as long as you are eligible for disability benefits under the
Plan. The Company pays 50% of the cost of this plan.

Cafeteria Plan - This plan allows you to pay for medical premiums, unreimbursed
medical and child care expenses from pre-tax dollars. You would be eligible for
this plan at the same time you are eligible for the medical insurance.

401K Retirement Plan - Under this plan, you may contribute up to 35% of your
eligible compensation on a pre-tax basis (up to IRS limits).

ESOP - The Company will also make an annual discretionary contribution to the
ESOP up to 3% of eligible compensation in the form of company stock once you are
eligible to participate. Employer contributions made in your first three years
with Capella will vest at the end of your third year of service as defined in
the Plan document. Employer contributions made after the end of your third year
of service will vest immediately.

Stock Option Grant - You will be granted options to purchase 50,000 shares of
Capella Education Company common stock at the exercise price then in effect at
the next scheduled Board of Directors meeting. The terms of the stock option
grant will be specified in a definitive stock option agreement (the "Stock
Option Agreement") which will provide that the right to exercise options to
purchase 12,500 shares which will vest on each of your first four anniversary
dates of your initial employment with the Company. The Stock Option Agreement
will also provide for immediate acceleration of the vesting of your stock option
rights if, within the period required for full vesting of your stock option
exercise rights, (1) there is a change of control of the ownership of the
Company as defined in the Stock Option Agreement, and (2) within such period
your employment is terminated or your job adversely affected by such changes as
a reduction in responsibility or compensation or a relocation of the job.

You will also participate in an annual grant award program beginning July 1
following two years of employment with the company. The specific amount of the
grant is based on your position and base compensation using a multiple of pay
formula, and calculated using the Black Sholes valuation based on the market
price at the time of the grant.

EXECUTIVE SEVERANCE PLAN: As a designated "Management Employee," you are
eligible to participate in the Executive Severance Plan. This Plan provides for
severance and other associated benefits in the event of termination of
employment or other qualified adverse action due to a Change of Control, or
termination of employment for reason other than


Heidi Thom
Page 3

"Cause." The terms and conditions of this benefit program are specified in the
Executive Severance Plan document, a copy of which you will receive.

leadership position in the market, the Company has a great opportunity to build
national recognition of the Capella brand as the brand of choice in the
elearning market. However, Capella expects increasing competition from
for-profit and not for-profit organizations in the rapidly growing elearning
market. Capella believes it is essential to take certain steps, including the
execution of a Confidentiality, Non-Competition, and Inventions Agreement for
certain key positions, in order to protect the legitimate business interests of
the Company and to ensure the security and confidentiality of the company's
customers, pricing, sales strategy, and technology. Accordingly, Capella
requires as a condition of employment that candidates, such as you, for key
positions execute Confidentiality, Non-Competition and Invention Agreements.

OTHER BENEFITS: You will be entitled to Personal Time Off earned on a prorated
monthly basis equal to a maximum 27 days/year, in accordance with the Company
benefit statement, and 10 paid holidays. You are also eligible for paid parking
in a designated parking facility.

Heidi, we are delighted to be able to offer you this opportunity to join
Capella. Your education and experience are impressive and I am confident you
will make a valuable contribution to the Company's continued success.

Please sign and date below your acceptance of this offer and return in the
enclosed envelope.



/s/ Betsy

Betsy Rausch
Vice President Human Resources


C.c. Steve Shank


ACCEPTANCE: I hereby accept the offer of employment by Capella Education Company
on the terms described in this letter. I understand that I must sign and return
to Capella the Confidentiality, Non-Competition and Inventions Agreement
provided to me with this letter before I start my Capella employment.

/s/ Heidi K. Thom                               6/4/03
Heidi Thom                                      Date