Warrant to Purchase Common Shares - Capella Education Co. and Legg Mason Wood Walker Inc.
WARRANT NO. _____
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933 0R ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED,
OFFERED, PLEDGED OR OTHERWISE DISTRIBUTED FOR VALUE UNLESS THERE IS AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR LAWS COVERING SUCH SECURITY OR THE
COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THIS SECURITY
(SATISFACTORY TO THE COMPANY AND ITS LEGAL COUNSEL) STATING THAT SUCH SALE.
TRANSFER. ASSIGNMENT, PLEDGE OR DISTRIBUTION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND ALL
APPLICABLE STATE SECURITIES LAWS.
WARRANT
TO PURCHASE
COMMON SHARES
OF
CAPELLA EDUCATION COMPANY
FOR VALUE RECEIVED, Legg Mason Wood Walker, Incorporated, a Maryland
corporation, is entitled to subscribe for and purchase from Capella Education
Company, a Minnesota corporation (the "Company"), up to One Hundred Thirty Five
Thousand Eighty Eight (135,088) duly authorized, fully paid and nonassessable
Common Shares of the Company, $.10 par value per share, or such greater or
lesser number of such shares as may be determined by application of the
anti-dilution provisions of this warrant, at the price of Seventeen and 10/100
Dollars ($17.10) per share, subject to adjustments as noted below (the "Warrant
Exercise Price").
This warrant is subject to the following provisions, terms and conditions:
1. Expiration. This warrant shall expire on the earlier of (i) May 11,
2005, or (ii) the second anniversary of the Company's initial public offering of
its Common Shares which is registered with the Securities and Exchange
Commission under the provisions of the Securities Act of 1933 (the "Act").
Subject to the foregoing, this warrant may be exercised, in whole or in part, by
the holder hereof at any time or from time to time prior to the expiration
hereof.
2. Exercise. The rights represented by this warrant may be exercised by
the holder hereof, in whole or in part, by written notice of exercise delivered
to the Company and by the surrender of this warrant (properly endorsed if
required) at the principal office of the Company and upon payment to it by
either (i) cash, certified check or bank draft of the purchase price for the
shares to be purchased, or (ii) delivery of certificates for the Company's
Common Shares already owned by the holder having a fair market value equal to
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the purchase price for the shares to be purchased. "Fair market value" per
Common Share on any date shall be (A) the average of the daily closing prices of
the Common Shares for the thirty (30) consecutive trading days preceding such
date on the principal national securities exchange or national securities market
on which the Common Shares are listed or admitted to trading or, (B) if not so
listed or admitted, the average of the medians of the highest reported bid and
lowest reported asked quotations for the Common Shares for each trading day
during such period as furnished by the National Association of Securities
Dealers, Inc. or its successor, or, (C) if not so listed, admitted or quoted, as
determined in good faith by the Company's Board of Directors using customary
valuation methods, provided that no representative, delegate or agent of the
holder on the Company's Board of Directors shall be entitled to vote on the
determination of such fair market value, and provided further that the Board of
Directors shall not be required to retain outside advisors in making its
determination. The shares to be purchased shall be deemed to be issued as of the
close of business on the date on which this warrant has been exercised by
payment to the Company of the Warrant Exercise Price. Certificates for the
shares so purchased, bearing the restrictive legend set forth at the beginning
of this warrant, shall be delivered to the holder within ten (10) days after the
rights represented by this warrant shall have been so exercised, and, unless
this warrant has expired, a new warrant representing the number of shares, if
any, with respect to which this warrant has not been exercised shall also be
delivered to the holder hereof within such time. No fractional shares shall be
issued upon the exercise of this warrant, but in lieu of any such fractional
share the Company shall make a cash payment therefor equal in amount to the
product of the applicable fraction multiplied by the current fair market value
per Common Share.
3. Right to Convert Warrant. The holder of this warrant shall have the
right to require the Company to convert this warrant (the "Conversion Right"),
in whole or in part, at any time prior to its expiration, into the Company's
Common Shares as provided for in this Section 3. Upon exercise of the Conversion
Right, the Company shall deliver to the holder (without payment by the holder of
any Warrant Exercise Price) that number of the Company's Common Shares equal to
the quotient obtained by dividing (i) the value of the warrant at the time the
Conversion Right is exercised (determined by subtracting the aggregate Warrant
Exercise Price for the shares subject to the warrant in effect immediately prior
to the exercise of the Conversion Right from the aggregate fair market value of
the shares subject to the warrant immediately prior to the exercise of the
Conversion Right) by (ii) the fair market value of one Common Share of the
Company immediately prior to the exercise of the Conversion Right and
multiplying the quotient so obtained by a fraction equal to the portion of this
Warrant which the holder desires to convert. For purposes hereof, "fair market
value" per Common Share shall be determined as provided in Section 2. The
Conversion Right may be exercised by the holder hereof, in whole or in part, by
written notice of exercise delivered to the Company and by the surrender of this
warrant (properly endorsed if required) at the principal office of the Company.
The shares to be issued upon exercise of the Conversion Right shall be deemed to
be issued as of the close of business on the date on which the Conversion Right
has been exercised by written notice and surrender of this warrant to the
Company. Certificates for the shares so issued, bearing the restrictive legend
set forth at the beginning of this warrant, together with cash in lieu of any
fractional
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share shall be delivered to the holder within ten (10) days after the Conversion
Right shall have been so exercised, and, unless this warrant has expired, a new
warrant representing the number of shares, if any, with respect to which the
Conversion Right has not been exercised shall also be delivered to the holder
hereof within such time. No fractional shares shall be issued upon the exercise
of the Conversion Right, but in lieu of any such fractional share the Company
shall make a cash payment therefor equal in amount to the product of the
applicable fraction multiplied by the current fair market value per Common
Share.
4. Covenants of the Company. The Company covenants and agrees that all
shares that may be issued upon the exercise of the rights represented by this
warrant shall, upon issuance, be duly authorized and issued, fully paid and
nonassessable shares. The Company further covenants and agrees that during the
period within which the rights represented by this warrant may be exercised, the
Company will at all times have authorized, and reserved for the purpose of issue
or transfer upon exercise of the subscription rights evidenced by this warrant,
a sufficient number of its Common Shares to provide for the exercise of the
rights represented by this warrant, and will not permit the par value, if any of
its Common Shares to exceed the Warrant Exercise Price. If the Company shall
list its Common Shares on any securities exchange it will, at its expense, list,
or obtain approval for listing upon issuance of, the Common Shares issuable
under this warrant. The Company shall similarly list, or obtain approval for
listing upon issuance of, any other security issuable under this warrant if such
other security has been listed on any securities exchange.
5. Adjustments to Warrant Exercise Price. The Warrant Exercise Price shall
be subject to adjustment from time to time as hereinafter provided in this
Section 5:
(a) If the Company at any time divides its outstanding Common Shares into
a greater number of shares (whether pursuant to a stock split, stock dividend or
otherwise), and conversely, if its outstanding Common Shares are combined into a
smaller number of shares, the Warrant Exercise Price in effect immediately prior
to such division or combination shall be proportionately adjusted to reflect the
reduction or increase in the value of each such Common Share.
(b) If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of the Company's Common
Shares shall be entitled to receive stock, securities or assets with respect to
or in exchange for such Common Shares, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, the holder of
this warrant shall have the right to purchase and receive upon the basis and
upon the terms and conditions specified in this warrant and in lieu of the
Common Shares of the Company immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby, such shares of stock other
securities or assets as would have been issued or delivered to the holder of
this warrant if it had exercised this warrant and had received such Common
Shares prior to such reorganization, reclassification, consolidation, merger or
sale. The Company shall not effect any such consolidation, merger or sale,
unless prior to the consummation
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thereof the successor corporation (if other than the Company) resulting from
such consolidation or merger or the corporation purchasing such assets shall
assume by written instrument executed and mailed to the registered holder of
this warrant at the last address of such holder appearing on the books of the
Company, the obligation to deliver to such holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase.
(c) Upon each adjustment of the Warrant Exercise Price, the holder of this
warrant shall thereafter be entitled to purchase, at the Warrant Exercise Price
resulting from such adjustment, the number of shares obtained by multiplying the
Warrant Exercise Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the Warrant Exercise Price
resulting from such adjustment.
(d) Upon any adjustment of the Warrant Exercise Price, the Company shall
give written notice thereof, by first class mail, postage prepaid, addressed to
the registered holder of this warrant at the address of such holder as shown on
the books of the Company, which notice shall state the Warrant Exercise Price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares purchasable at such price upon the exercise of this warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
6. No Voting_Rights. This warrant shall not entitle the holder hereof to
any voting rights or other rights as a shareholder of the Company.
7. Registration Rights. If, at any time commencing after the date hereof,
the Company proposes to register any of its securities for money under the Act,
other than pursuant to Form S-4, Form S-8 or a comparable registration statement
and other than in connection with demand registrations initiated by other
security holders of the Company whose rights exclude or restrict (to the extent
of such restriction) participation by other holders of registration rights, it
will give written notice by registered mail, at least thirty (30) days prior to
the filing of each such registration statement to the holder of this warrant
and/or the Common Shares and any other securities issuable upon exercise of this
warrant (collectively, the "warrant securities") of its intention to do so. If
the holder of this warrant and/or warrant securities notifies the Company within
twenty (20) business days after receipt of any such notice of its desire to
include any such securities in such proposed registration statement, the Company
shall afford the holder of this warrant and/or warrant securities the
opportunity to have any such warrant securities registered under such
registration statement. Notwithstanding the foregoing sentence, the Company
shall have the right at any time after it shall have given the written notice
provided (irrespective of whether a written request for inclusion of any such
securities shall have been made) to delay or elect not to file any such proposed
registration statement or to withdraw the same after the filing but prior to the
effective date thereof. If any registration shall be underwritten in whole or in
part, the Company may require that the warrant securities be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. If in the
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good faith judgment of the managing underwriter the registration of all, or part
of, the warrant securities which the holders have requested to be included would
materially and adversely affect such public offering, then the Company shall be
required to include in the underwriting only that number of warrant securities,
if any, which the managing underwriter believes may be sold without causing such
material adverse effect. If the number of warrant securities to be included in
the underwriting in accordance with the foregoing is less than the total number
of shares which the holders of warrant securities have requested to be included,
then, (A) in the case of a registration statement whose filing was initiated by
the Company, the securities to be included in such underwriting shall be
allocated (x) first to the Company and (y) second among the holders of warrant
securities, Class D Registrable Securities and Class E Registrable Securities
who have requested registration, on a pro rata basis based on the number of
shares included in their respective requests for registration and (B) in the
case of a registration statement whose filing was initiated by a selling
stockholder, the securities to be included in such underwriting shall be
allocated among the holders of warrant securities, Class D Registrable
Securities and Class E Registrable Securities who have requested registration on
a pro rata basis based on the number of shares included in their respective
requests for registration. "Class D Registrable Securities" means shares of the
Company's capital stock that are defined as "Registrable Securities" in that
certain Registration Rights Agreement between the Company and National Computer
Systems, Inc., dated as of June 16, 1998, as amended as of April 20, 2000.
"Class E Registrable Securities" means "Registrable Shares" as defined in that
certain Investor Rights Agreement between the Company and the purchasers of the
Company's Class E Convertible Preferred Stock dated as of April 20, 2000. Those
warrant securities which are thus excluded from the underwritten public offering
shall be withheld from the market for a period, not to exceed 180 days, which
the managing underwriter reasonably determines is necessary in order to effect
the underwritten public offering. In the event of any registration of warrant
securities in connection with an underwritten public offering, the holder shall
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter selected by the Company for
such offering. In connection with any registration hereunder, the Company and
the holder by acceptance hereof further agree as follows:
(a) the Company shall use its best efforts to cause such registration
statement to become effective and shall furnish the holder desiring to sell
warrant securities such number of prospectuses as shall reasonably be requested;
(b) the Company shall pay all costs (excluding fees and expenses of
holder's counsel and any underwriting or selling commissions), fees and expenses
in connection with all registration statements filed hereunder including,
without limitation, the Company's legal and accounting fees, printing expenses
and blue sky fees and expenses;
(c) the Company will take all necessary action which may be required in
qualifying or registering the warrant securities included in a registration
statement for offering and sale under the securities or blue sky laws of such
states as reasonably are requested by the holder, provided that the Company
shall not be obligated to execute or file
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any general consent to service of process or to qualify as a foreign corporation
to do business under the laws of any such jurisdiction;
(d) the Company shall indemnify the holder of the warrant securities to be
sold pursuant to any registration statement and each person, if any, who
controls such holder within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all losses, claims, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such registration statement, except to the extent
any such loss, claim, damage, expense or liability arises from information
furnished by or on behalf of the holder of this warrant, or its successors or
assigns for specific inclusion in such registration statement;
(e) the holder of the warrant securities to be sold pursuant to a
registration statement, and its successors and assigns, shall indemnify the
Company, its officers and directors and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, against all losses, claims, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become subject under
the Act, the Exchange Act or otherwise, arising from information furnished by or
on behalf of such holder, or its successors or assigns, for specific inclusion
in such registration statement;
(f) nothing contained in this warrant shall be construed as requiring the
holder to exercise its warrant prior to the initial filing of any registration
statement or the effectiveness thereof;
(g) at the time of the effectiveness of the registration statement the
Company shall furnish to each underwriter, if any, for the holder participating
in the offering, and if at such time the holder is deemed to be an "affiliate"
of the Company under the Act, the Company shall furnish to such holder, a signed
counterpart, addressed to such underwriter or holder, as the case may be, of an
opinion of counsel to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public offering,
an opinion dated the date of the closing under the underwriting agreement), and
the Company shall furnish to each such underwriter a "cold comfort" letter dated
the effective date of such registration statement (and, if such registration
includes an underwritten public offering, a letter dated the date of the closing
under the underwriting agreement) signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in each case covering substantially the same matters
with respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect to events
subsequent to the date of such financial statements, as are customarily covered
in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities;
(h) the Company shall as soon as practicable after the effective date of
the
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registration statement, and in any event within fifteen (15) months thereafter,
make "generally available to its security holders" (within the meaning of Rule
158 under the Act) an earnings statement (which need not be audited) complying
with Section 11(a) of the Act and covering a period of at least twelve (12)
consecutive months beginning after the effective date of the registration
statement;
(i) the holder shall furnish to the Company such information regarding
itself, the warrant securities, the intended method of disposition thereof and
such other matters as shall be reasonably requested by the Company in connection
with the registration of the warrant securities;
(j) the holder shall in connection with the first underwritten public
offering of Common Shares by the Company, and any public offering of the warrant
securities, upon request of the Company or the underwriters managing the
underwritten offering of the Company's securities, agree not to sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of any warrant securities other than those included in the registration without
the prior written consent of the Company or such underwriters, as the case may
be, for such period of time (not exceeding 180 days) from the effective date of
such registration as may be requested by the underwriters; provided, that all
other holders of at least 5% of the Company's outstanding voting equity
securities (other than holders which have acquired such shares in registered
offerings, open market transactions or block trades) and all of the officers and
directors of the Company who own stock of the Company also agree to such
restrictions; and provided further that such agreement under this paragraph (j)
shall be applicable only to registration statements of the Company which cover
Common Shares or other securities to be sold on its behalf to the public in an
underwritten offering; and
(k) the right of the holder to request registration or inclusion of
warrant securities in any registration shall terminate on the earlier to occur
of (i) June 30, 2007 or (ii) any public sale of such warrant securities pursuant
to a registration statement, Section 4(1) of the Act, or Rule 144 under the Act,
or (iii) such time as such warrant securities shall be eligible for sale under
Rule 144 without limitations as to volume, or (iv) any sale or transfer in any
manner to a person or entity in violation of Section 10 of this warrant.
8. Notice of Certain Events. In case any time:
(a) the Company shall pay any dividend payable in stock upon Common Shares
or make any distribution (other than regular cash dividends) to the holders of
Common Shares; or
(b) the Company shall offer for subscription pro rata to the holders of
Common Shares any additional shares of stock of any class or other rights, or
(c) there shall be any capital reorganization, reclassification of the
capital stock of the Company, or consolidation or merger of the Company with, or
sale of all or substantially
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all of its assets, to another corporation; or
(d) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first-class mail, postage prepaid, addressed to the holder of this warrant of
the date on which (A) the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights, or (B) such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice also
shall specify the date as of which the holders of Common Shares of record shall
participate in such dividend, distribution or subscription rights, or shall be
entitled to exchange their Common Shares for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be. Such written
notice shall be given at least thirty (30) days prior to the action in question
and not less than thirty (30) days prior to the record date or the date on which
the Company's transfer books are closed in respect thereto.
9. Investment Representations of Holder. The holder of this warrant by
acceptance hereof, represents that it is acquiring this warrant for investment
for its own account and not with the view to, or for resale in connection with,
any distribution or public offering. The holder of this warrant further
understands and acknowledges:
(a) that neither this warrant nor the Common Shares of the Company to be
issued upon exercise of this warrant has been registered under the Securities
Act or any state securities laws by reason of its and their contemplated
issuance in transactions exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof and applicable state securities
laws, and that the reliance of the Company and others upon these exemptions is
predicated in part upon this representation;
(b) that neither this warrant nor the Common Shares of the Company to be
issued upon exercise of this warrant may be transferred or resold without (i)
registration under the Securities Act and any applicable state securities laws
or (ii) an exemption from the requirements of the Securities Act and applicable
state securities laws, the applicability of which shall be demonstrated by a
legal opinion from legal counsel for the holder of this warrant satisfactory to
the Company and its legal counsel;
(c) that the holder of this warrant is an accredited corporate investor
which has had a reasonable opportunity to make inquiries of the Company and its
management and the holder has particular knowledge and information concerning
the business and prospects of the Company.
10. Transfer or Assignment: Replacement. This warrant and the Common
Shares issuable hereunder are non-transferable except (i) to a successor of Legg
Mason Wood Walker, Incorporated or Legg Mason, Inc. by merger, the acquisition
of all or substantially
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all of the assets thereof or any similar transaction, (ii) to officers of Legg
Mason Wood Walker, Incorporated or its successor following the date on which the
Common Shares of the Company have first been sold in a registered offering under
the Act, provided that such transfer or transfers are exempt from registration
under the Act and applicable state securities laws, (iii) to other persons or
entities following the date on which the Common Shares of the Company have first
been sold in a registered offering under the Act in transactions which satisfy
the requirements of Section 9(b) of this warrant, and (iv) otherwise with the
prior written consent of the Company. Each holder of this warrant, by taking or
holding the same, consents and agrees that the bearer of this warrant, when
endorsed, may be treated by the Company and all other persons dealing with this
warrant as the absolute owner hereof for any purpose and as the person entitled
to exercise the rights represented by this warrant, or to the transfer hereof on
the books of the Company, any notice to the contrary notwithstanding; but until
such transfer on such books, the Company may treat the registered owner hereof
as the owner for all purposes. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this warrant
and, in the case of loss, theft or destruction, on delivery of any indemnity
agreement or bond reasonably satisfactory in form and amount to the Company or,
in the case of mutilation, on surrender and cancellation of this warrant, the
Company will execute and deliver, in lieu of this warrant, a new warrant of like
tenor.
11. Miscellaneous.
(a) This warrant and the terms hereof may be amended, changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of the amendment, change, waiver, discharge or
termination is sought.
(b) This warrant shall be governed by and construed under the laws of the
State of Minnesota as applied to agreements among Minnesota residents entered
into and to be performed entirely within Minnesota.
(c) Any notice under this warrant shall be given in writing and shall be
deemed effectively given upon personal delivery to the party to be notified or
upon deposit with the United States Post Office, by registered or certified
mail, postage prepaid and addressed to the party to be notified at the address
indicated below:
If to the holder:
Legg Mason Wood Walker, Incorporated
100 Light Street
34th Floor
Baltimore, MD 21202
Attention: Director of Investment Banking
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If to the Company:
Capella Education Company
330 Second Avenue South, Suite 550
Minneapolis, MN 55401
Attention: Stephen G. Shank, President
or at such other address as such party may designate by ten (10) days' advance
written notice to the other party.
IN WITNESS WHEREOF, the Company has caused this warrant to be signed and
delivered by a duly authorized officer as of May 11, 2000.
CAPELLA EDUCATION COMPANY
By: /s/ Paul F. Clifford
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Its: CFO, Secretary
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WARRANT EXERCISE OR CONVERSION
(To be signed only upon exercise or conversion of warrant)
The undersigned, the holder of the foregoing warrant, hereby irrevocably elects
to:
(a) exercise the purchase right represented by such warrant for, and to
purchase thereunder, __________ of the Common Shares of Capella Education
Company to which such warrant relates, and herewith makes payment of $________
therefor in cash or by certified check or bank draft as the purchase price
therefor, or herewith delivers _____________ Common Shares having a fair market
value equal to such purchase price, or
(b) convert such warrant to the extent of ___________ Common Shares into
such number of Common Shares as are deliverable upon exercise of the Conversion
Right under such warrant,
and requests that the certificates for such shares be issued in the name of, and
be delivered to ___________________ whose address is set forth below the
signature of the undersigned.
Dated: ___________________ LEGG MASON WOOD WALKER,
INCORPORATED
By:_________________________________
____________________________________
____________________________________
____________________________________
[Address]
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WARRANT ASSIGNMENT
(To be signed only upon transfer of warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
_________ the purchase right represented by the foregoing warrant to purchase
the Common Shares of Capella Education Company to which such warrant relates and
appoints ________________ attorney to transfer such purchase right on the books
of Capella Education Company with full power of substitution in the premises.
Dated: ___________________ LEGG MASON WOOD WALKER,
INCORPORATED
By:_______________________________
__________________________________
__________________________________
__________________________________
[Name and Address of Transferee]
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