Offer Letter - Capella Education Co. and Kenneth Sobaski
(CAPELLA UNIVERSITY LOGO)
February 21, 2006
Mr. Kenneth Sobaski
18851 Vogel Farm Trail
Eden Prairie, MN 55347
Dear Ken:
We are pleased to formally extend you this offer of employment for the position
of President and Chief Operating Officer for Capella Education Company. This is
a corporate officer position and reports to the Chairman and Chief Executive
Officer, Steve Shank. This offer is contingent upon signing a Confidentiality,
Non-Competition and Inventions Agreement, a copy of which you have received, and
the successful completion of a background check.
You will be paid on a bi-weekly basis, an amount that will equal $400,000 when
annualized. You will be eligible for a performance and salary review as of the
first pay period closest to March 1, 2007, and under normal circumstances,
annually thereafter. Capella offers a comprehensive compensation system; more
information will be provided to you after your start.
ANNUAL INCENTIVE COMPENSATION: In addition to your salary, you will be eligible
to earn an annual incentive compensation award with a target of 50% of your base
salary starting in fiscal 2006. The details of the incentive compensation
program will be specified in the annual award plan, a copy of which you have
received. Capella will guarantee payment of your first year bonus at the target
bonus of 50%, assuming you remain employed in good standing as of 12/31/2006.
The bonus amount will be calculated using the base compensation you were
actually paid during 2006. The target percentage may be subject to modification
after fiscal 2006.
SIGNING BONUS: Capella will pay you a lump sum of $60,000 (before taxes) the
first payroll period following your hire date. Should you voluntarily leave
Capella within 12 months of your hire date, for other than "Good Reason," as
defined in this letter, you agree to reimburse Capella for this payment on a
prorata basis.
BENEFIT PLANS: The following will summarize the current benefit plans, for which
you will be eligible as a full-time employee. You will be eligible to
participate in the company's benefit plans on the first day of the month
following employment, unless noted otherwise below. The terms of these benefit
plans may be subject to modification
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Ken Sobaski Offer Letter
February 21, 2006
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after fiscal 2006; however, the definitions of "Cause" and "Good Reason" as set
forth below in is letter are not subject to modification.
Medical - Effective the first day of the month following employment, you will be
eligible to participate in the company's medical plan. The plan is administered
through Medica. Medica offers you a choice of networks and/or benefit levels.
Capella will pay 100% of the full family premium for the medical coverage.
Dental - You and your family will also be eligible to participate in the
company's dental plan, administered by Delta Dental, on the first day of the
month following employment. Delta offers 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. You will be eligible to participate in the company's life
insurance plan on the first day of the month following employment.
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. There is no premium cost to you for these
disability benefits. 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 the
long-term disability coverage plan. You will be eligible to participate in the
company's short-term disability plan on the first day of the month following
employment.
Cafeteria Plan - This plan allows you to pay for medical premiums, unreimbursed
medical and child care expenses from pre-tax dollars. You will 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 100% of your
eligible compensation, up to the IRS annual limit on deferrals and compensation.
The company will match 50% of employee contributions, up to 4% of compensation -
or, put another way, the company contributes a 2% match. There is a 5-year
vesting schedule on the employer match, with 20% of the employer contribution
vesting annually. You can begin to participate in this plan after approximately
one month of service. More specific information and details about the plan and
the investment funds will be provided in your orientation.
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. The form and amount of employer contributions
to any type of qualified retirement plan is currently under review and, while it
is our desire to offer a competitive retiree benefit
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Ken Sobaski Offer Letter
February 21, 2006
Page 3
program, there should be no expectations that future ESOP contributions will
continue in the same manner as in the past.
Stock Option Grant - You will be granted options to purchase 165,000 shares of
Capella Education Company common stock at the exercise price then in effect as
of your first day of employment. 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 41,250 shares
which will vest on each of your first four anniversary dates of your initial
employment with the Company.
Capella also offers an annual executive option grant award program that becomes
effective for eligible participants July 1 following two years of employment.
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. Your multiple of
pay percentage is set at 60% of base pay. The number of options is determined by
taking your salary as of June 30 (in the year the grant is awarded) multiplied
by the multiple of pay percentage. That amount is divided by the Black Sholes
valuation of the FMV of the options at the time of the grant to determine the
actual number of options that will be granted. Options granted as part of the
annual grant program vest over a 4-year period.
EXECUTIVE SEVERANCE PLAN. Capella Education Company has established the Capella
Education Company Executive Severance Plan (the "Severance Plan") to provide
severance pay and other benefits to eligible employees. Notwithstanding the
provisions of the Severance Plan, in your current position as President and
Chief Operating Officer, you will receive severance in the following amounts and
under the following circumstances: 1) 12 months total compensation (defined as
base salary plus target bonus), 2) "senior executive" outplacement services for
the full term of severance (12 months), and 3) use of laptop, cell phone, and
blackberry for term of severance or until a job is found, whichever is shorter.
You will be able to receive the above listed severance compensation if you are
terminated without cause or quit for good reason, as both are defined and
limited in this letter. You will be entitled to receive the full 12 months
compensation regardless whether you find other employment during that time and
no amount of replacement income will be set off. Capella will require any
successor to assume its obligations in this letter or will remain obligated
after any sale. Please refer to the Severance Plan document you have already
received for information on the additional provisions and conditions of the
Severance Plan. Your rights to severance as provided in this letter continue
even if the Severance Plan is changed after you sign this letter.
DEFINITION OF CAUSE: For purposes of this letter and in interpreting your rights
to severance under the Severance Plan, Incentive Compensation Plan and Stock
Incentive Plan, as well as under any Change of Control, "Cause" for termination
shall be defined and limited as follows: 1) your commission of a crime or other
act that could materially damage the reputation of Capella; 2) your theft,
misappropriation, or embezzlement of Capella property; 3) your falsification of
records maintained by Capella; 4) your failure substantially to comply with the
written policies and procedures of Capella as they may
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Ken Sobaski Offer Letter
February 21, 2006
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be published or revised from time to time (in writing, on the Faculty Center
website, or on the Stella intranet); or 5) your misconduct directed toward
learners, employees, or adjunct faculty.
DEFINITION OF GOOD REASON: "Good reason" shall be defined as "a voluntary
termination by you, whether or not preceded by a Change in Control, in any of
the following events: (i) your position is changed to a position with a lower
pay grade or lesser responsibilities than the President and Chief Operating
Officer position; (ii) your fixed compensation is decreased by more than ten
percent (10%) in any twelve (12) month period; (iii) you are reassigned to a
work location more than fifty (50) miles from the location in which you are
working immediately prior to the reassignment; or (iv) Steve Shank is no longer
CEO and you are not assigned to the CEO position.
CONFIDENTIALITY, NON-COMPETITION AND INVENTIONS AGREEMENT: With our growing
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.
This Agreement must be signed and dated no later than your first day of
employment.
CHANGE OF CONTROL BENEFIT: In the event of a "Change in Control" as defined in
agreements provided by Capella, you will be entitled to 2 times your normal
severance package as defined in this letter assuming an eligible severance event
occurs.
EMPLOYMENT AT WILL: Your employment will be at will. This means that either you
or Capella may terminate the employment at any time for any reason, without
advance notice.
ATTORNEYS' FEES: If either party breaches its obligations under this letter and
the referenced documents, the prevailing party shall be entitled to its costs
and reasonable attorneys' fees incurred in enforcing its rights.
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. You will also be provided a personal wireless
connectivity product such as Blackberry, which includes cell phone service.
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Ken Sobaski Offer Letter
February 21, 2006
Page 5
To the extent the specific terms of this offer letter are inconsistent with the
severance, stock incentive, and annual incentive agreements, the terms of this
offer letter supersede any such inconsistent terms and control over those
agreements.
Ken, 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.
Sincerely,
CAPELLA EDUCATION COMPANY
/s/ Betsy Rausch
-------------------------------------
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 and as amended in this letter with additional amendments
as noted. 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/ Kenneth Sobaski 2/27/06
------------------------------------- Date
Kenneth Sobaski