def14a
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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
Filed by the Registrant þ
Filed by a Party other than the Registrant o
Check the appropriate box:
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Preliminary Proxy Statement |
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Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to Section 240.14a-12 |
American Public Education, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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Payment of Filing Fee (Check the appropriate box): |
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11. |
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Title of each class of securities to which transaction applies: |
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Aggregate number of securities to which transaction applies: |
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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): |
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Proposed maximum aggregate value of transaction: |
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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. |
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Amount previously paid: |
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Form, Schedule or Registration Statement No.: |
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Date Filed: |
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AMERICAN PUBLIC EDUCATION,
INC.
111 W. Congress Street
Charles Town, West Virginia 25414
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS
MAY 16, 2008
To Our Stockholders:
You are cordially invited to attend our 2008 Annual Meeting of
Stockholders, which will be held on Friday, May 16, 2008,
at 8:00 a.m. local time, at Westfields Marriott Washington
Dulles, 14750 Conference Center Drive, Chantilly, Virginia 20151
for the following purposes:
1. to elect seven members of the Board of Directors;
2. to ratify the appointment of McGladrey &
Pullen, LLP as the independent registered public accounting firm
for the Company for the fiscal year ending December 31,
2008; and
3. to consider any other matters that properly come before
the Annual Meeting or any adjournment or postponement thereof.
Management is presently aware of no other business to come
before the Annual Meeting.
Each outstanding share of American Public Education, Inc. common
stock (NASDAQ: APEI) entitles the holder of record at the close
of business on March 31, 2008, to receive notice of and to
vote at the Annual Meeting or any adjournment or postponement of
the Annual Meeting. Shares of our common stock can be voted at
the Annual Meeting only if the holder is present in person or by
valid proxy. We have enclosed a copy of our Proxy Statement and
our 2007 Annual Report on
Form 10-K,
which includes our audited financial statements. You are
cordially invited to attend the Annual Meeting.
IF YOU
PLAN TO ATTEND:
Please note that space limitations make it necessary to limit
attendance to stockholders and one guest. Registration and
seating will begin at 7:30 a.m. local time. Stockholders
holding stock in brokerage accounts (street name
holders) will need to bring to the meeting a letter from the
broker, bank or other nominee confirming their beneficial
ownership of the shares to be voted. Cameras, recording devices
and other electronic devices will not be permitted at the
meeting.
By Order of the Board of Directors
Wallace E. Boston, Jr.
President and Chief Executive Officer
April 8, 2008
IMPORTANT: WHETHER OR NOT YOU EXPECT TO ATTEND IN
PERSON, WE URGE YOU TO VOTE YOUR SHARES AT YOUR EARLIEST
CONVENIENCE. THIS WILL ENSURE THE PRESENCE OF A QUORUM AT THE
ANNUAL MEETING. PROMPTLY VOTING YOUR SHARES BY SIGNING, DATING
AND RETURNING THE ENCLOSED PROXY CARD WILL SAVE US THE EXPENSE
AND EXTRA WORK OF ADDITIONAL SOLICITATION. AN ADDRESSED ENVELOPE
FOR WHICH NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES
IS ENCLOSED. SUBMITTING YOUR PROXY NOW WILL NOT PREVENT YOU FROM
VOTING YOUR SHARES AT THE MEETING IF YOU DESIRE TO DO SO, AS
YOUR PROXY IS REVOCABLE AT YOUR OPTION. YOUR VOTE IS IMPORTANT,
SO PLEASE ACT TODAY.
AMERICAN PUBLIC EDUCATION,
INC.
111 W. Congress Street
Charles Town, West Virginia 25414
PROXY
STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
To Be Held On May 16, 2008
This Proxy Statement (the Proxy Statement), which
was first mailed to stockholders on or about April 8, 2008,
is furnished in connection with the solicitation of proxies by
the Board of Directors (the Board) of American
Public Education, Inc. (hereinafter, we
us and American Public Education), to be
voted at the Annual Meeting of Stockholders (the Annual
Meeting) and at any adjournment or postponement of the
Annual Meeting, which will be held at 8:00 a.m. local time
on Friday, May 16, 2008, at Westfields Marriott Washington
Dulles, 14750 Conference Center Drive, Chantilly, Virginia
20151, for the purposes set forth in the accompanying Notice of
Annual Meeting of Stockholders.
ABOUT THE
ANNUAL MEETING
Purpose
of the Annual Meeting
The purpose of the Annual Meeting is for our stockholders to
consider and act upon the proposals described in this Proxy
Statement and any other matters that properly come before the
Annual Meeting or any adjournment or postponement thereof.
Management is presently aware of no other business to come
before the Annual Meeting. In addition, management will report
on the performance of American Public Education and respond to
questions from stockholders.
Proposals
to be Voted Upon at the Annual Meeting
There are two proposals scheduled to be voted upon at the Annual
Meeting. The proposals for stockholders to consider and vote
upon are:
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Proposal No. 1: To elect seven
directors to the Board, each of whom will hold office until the
next annual meeting of stockholders and until his or her
successor is elected and qualified or until his or her earlier
death, resignation or removal.
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Proposal No. 2: To ratify the
selection of McGladrey & Pullen, LLP
(McGladrey & Pullen) as American Public
Educations independent registered public accounting firm
for the fiscal year ending December 31, 2008.
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In addition, any other matters that properly come before the
Annual Meeting or any adjournment or postponement thereof will
be considered. Management is presently aware of no other
business to come before the Annual Meeting.
Recommendation
of the Board
The Board recommends that you vote FOR each of the nominees to
the Board (Proposal 1) and FOR the ratification of the
appointment of McGladrey & Pullen as our independent
registered public accounting firm for the fiscal year ending
December 31, 2008 (Proposal 2).
Voting at
the Annual Meeting
Stockholders will be entitled to vote at the Annual Meeting on
the basis of each share held of record at the close of business
on March 31, 2008 (the Record Date).
If on the Record Date you hold shares of our common stock that
are registered directly in your name with our transfer agent,
American Stock Transfer & Trust Company
(AST), you are considered the stockholder of record
with respect to those shares, and AST is sending these proxy
materials directly to you on our behalf. As a stockholder of
record, you may vote in person at the meeting or by proxy.
Whether or not you plan to attend the Annual Meeting, we urge
you to fill out and return the enclosed proxy card.
If on the Record Date you hold shares of our common stock in an
account with a brokerage firm, bank, or other nominee, then you
are a beneficial owner of the shares and hold such shares in
street name, and these proxy materials are being forwarded to
you by that organization. As a beneficial owner, you have the
right to direct your broker, bank, or other nominee on how to
vote the shares held in their account, and the nominee has
enclosed or provided voting instructions for you to use in
directing it how to vote your shares. The nominee that holds
your shares, however, is considered the stockholder of record
for purposes of voting at the Annual Meeting. Because you are
not the stockholder of record, you may not vote your shares in
person at the Annual Meeting unless you bring a letter from your
broker, bank or other nominee confirming your beneficial
ownership of the shares to the Annual Meeting. Whether or not
you plan to attend the Annual Meeting, we urge you to vote by
proxy to ensure that your vote is counted.
All proxies will be voted in accordance with the instructions
specified on the proxy card. If you do not give voting
instructions as to how your shares should be voted on a
particular proposal at the Annual Meeting, your shares will be
voted in accordance with the recommendations of our Board stated
in this Proxy Statement.
If you are a beneficial owner and do not vote, and your broker,
bank or other nominee does not have discretionary power to vote
your shares, your shares may constitute broker
non-votes (described below) and will not be counted in
determining the number of shares necessary for approval of
proposals. However, shares that constitute broker non-votes will
be counted for the purpose of establishing a quorum at the
Annual Meeting. Voting results will be tabulated and certified
by the inspector of elections appointed for the Annual Meeting.
If you receive more than one proxy card, it is because your
shares are registered in more than one name or are registered in
different accounts. Please complete, sign and return each proxy
card to ensure that all of your shares are voted.
You may revoke your proxy at any time before it is exercised at
the Annual Meeting by submitting a new proxy bearing a later
date, by providing written notice to our Corporate Secretary
c/o 111 W. Congress
Street, Charles Town, West Virginia 25414, or by voting in
person at the Annual Meeting. Your presence at the Annual
Meeting does not in and of itself revoke your proxy. Also, if
you are a beneficial owner and you wish to vote at the meeting,
you must bring to the meeting a letter from the broker, bank or
other nominee confirming your beneficial ownership of the shares
to be voted.
A list of stockholders of record as of the Record Date will be
available for inspection during ordinary business hours at our
offices located at 111 W. Congress Street, Charles
Town, West Virginia 25414, from May 6, 2008 to the date of
our Annual Meeting. The list will also be available for
inspection at the Annual Meeting.
Quorum
Requirement for the Annual Meeting
The presence at the Annual Meeting, whether in person or by
valid proxy, of the persons holding a majority of shares of
common stock outstanding on the Record Date will constitute a
quorum, permitting us to conduct our business at the Annual
Meeting. On the Record Date, there were 17,837,558 shares
of common stock outstanding, held by 415 stockholders of record.
Abstentions (i.e., if you or your broker mark
ABSTAIN on a proxy card) and broker
non-votes will be considered to be shares present at the
meeting
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for purposes of a quorum. Broker non-votes occur when shares
held by a broker for a beneficial owner are not voted with
respect to a particular proposal and generally occur because:
(1) the broker does not receive voting instructions from
the beneficial owner and (2) the broker lacks discretionary
authority to vote the shares. Banks, brokers and other nominees
cannot vote on their clients behalf on
non-routine proposals. Banks, brokers and other
nominees can, however, vote your shares in their discretion for
the election of directors.
For the purpose of determining whether stockholders have
approved a particular proposal, abstentions are treated as
shares present and entitled to vote and broker non-votes are
treated as present and not entitled to vote.
Required
Vote
Election of Directors. The election of
directors requires a plurality of the votes cast for the
election of directors; accordingly, the seven directorships to
be filled at the Annual Meeting will be filled by the seven
nominees receiving the highest number of votes. Broker non-votes
and abstentions are not taken into account in determining the
outcome of this proposal because only a plurality of votes
actually cast is required to elect a director.
Ratification of the appointment of independent registered
public accounting firm. Approval of the proposal
to ratify the audit committees appointment of
McGladrey & Pullen as our independent registered
public accounting firm for the fiscal year ending
December 31, 2008 requires the affirmative vote of the
holders of at least a majority of the shares of common stock
present in person or represented by proxy at the Annual Meeting
and entitled to vote. Broker non-votes are not taken into
account in determining the outcome of this proposal, however,
abstentions will have the effect of a vote against this proposal.
Solicitation
of Proxies
We will bear the cost of solicitation of
proxies. This includes the charges and expenses
of brokerage firms and others for forwarding solicitation
material to beneficial owners of our outstanding common stock.
We may solicit proxies by mail, personal interview, telephone or
via the Internet through our officers, directors and other
management employees, who will receive no additional
compensation for their services.
CORPORATE
GOVERNANCE STANDARDS AND DIRECTOR INDEPENDENCE
The Board has adopted Corporate Governance Guidelines (the
Guidelines), a Code of Business Conduct and Ethics
(the Code of Ethics), and a Policy for Related
Person Transactions as part of our corporate governance
practices and in accordance with rules of the Securities and
Exchange Commission (the SEC) and the listing
standards of The NASDAQ Stock Market (NASDAQ).
Corporate
Governance Matters
The Guidelines set forth a framework to assist the Board in the
exercise of its responsibilities. The Guidelines cover, among
other things, the composition and certain functions of the
Board, director independence, stock ownership by our
non-employee directors, management succession and review, Board
committees, the selection of new directors, and director
expectations.
The Code of Ethics covers, among other things, compliance with
laws, rules and regulations, conflicts of interest, corporate
opportunities, confidentiality, protection and proper use of
company assets, and the reporting process for any illegal or
unethical conduct. The Code of Ethics is applicable to all of
our officers, directors and employees, including our Chief
Executive Officer and our Chief Financial Officer. The Code of
Ethics includes provisions that are specifically applicable to
our Chief Executive Officer, Chief Financial Officer and other
Principal Officers (as defined in the Code of Ethics).
Any waiver of the Code of Ethics for our directors, executive
officers or Principal Officers may be made only by our Board and
will be promptly disclosed as may be required by law, regulation
or rule of the SEC or NASDAQ listing standards. If we amend our
Code of Ethics or waive the Code of Ethics with respect to our
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Chief Executive Officer, principal financial officer or other
Principal Officer, we will post the amendment or waiver on our
corporate website.
The Guidelines and Code of Ethics are each available in the
Corporate Governance section of our corporate website, which is
located at www.americanpubliceducation.com. The
Guidelines, Code of Ethics and Policy for Related Person
Transactions are reviewed periodically by our nominating and
corporate governance committee, and changes are recommended to
our Board for approval as appropriate.
Certain
Relationships and Related Person Transactions
Policies
and Procedures for Related Person Transactions
Effective as of the date of our initial public offering, our
Board adopted the Code of Ethics, pursuant to which our
executive officers, directors and principal stockholders,
including their immediate family members and affiliates, are not
permitted to enter into a related person transaction with us
without the prior consent of our nominating and corporate
governance committee, or other independent committee of our
board of directors. Any request for us to enter into a
transaction with an executive officer, director, principal
stockholder or any of such persons immediate family
members or affiliates, in which the amount involved exceeds
$120,000 must first be presented to our nominating and corporate
governance committee for review, consideration and approval. All
of our directors, executive officers and employees are required
to report to our nominating and corporate governance committee
any such related person transaction. In approving or rejecting
the proposed agreement, our nominating and corporate governance
committee shall consider the facts and circumstances available
and deemed relevant to the nominating and corporate governance
committee, including, but not limited to the risks, costs and
benefits to us, the terms of the transaction, the availability
of other sources for comparable services or products, and, if
applicable, the impact on a directors independence. Our
nominating and corporate governance committee shall approve only
those agreements that, in light of known circumstances, are in,
or are not inconsistent with, our best interests, as our
nominating and corporate governance committee determines in the
good faith exercise of its discretion. Under the policy, if we
should discover related person transactions that have not been
approved, the nominating and corporate governance committee will
be notified and will determine the appropriate action, including
ratification, rescission or amendment of the transaction.
Related
Person Transactions
Set forth below is a summary of certain transactions since
January 1, 2007 among us, our directors, our executive
officers, beneficial owners of more than 5% of either our common
stock or our Class A common stock, which was outstanding
before completion of our initial public offering, and some of
the entities with which the foregoing persons are affiliated or
associated in which the amount involved exceeds or will exceed
$120,000.
In connection with our initial public offering, our shares of
Class A common stock were converted into shares of our
common stock on a one for one basis. ABS Capital Partners IV,
L.P., ABS Capital Partners IV-A, L.P., ABS Capital
Partners IV Offshore L.P. and ABS Capital Partners IV
Special Offshore L.P., which we refer to collectively as
entities affiliated with ABS Capital Partners, received
7,111,236 shares of common stock, and Camden Partners
Strategic Fund III, L.P. and Camden Partners Strategic
Fund III-A,
L.P., which we refer to collectively as entities affiliated with
Camden Partners, received 1,760,000 shares of common stock.
Two of our board members, Messrs. Clough and Weglicki, are
managing members of the general partner of the entities
affiliated with ABS Capital Partners. One of our board members,
Mr. Warnock, is a managing member of the general partner of
entities affiliated with Camden Partners.
We declared a special distribution that was paid promptly after
the completion of our initial public offering in November 2007
to our stockholders who owned shares of record immediately prior
to the closing of our initial public offering. The aggregate
amount of the special distribution was equal to the proceeds
from the sale of common stock in our initial public offering
before the underwriting discount but before expenses, excluding
any proceeds received by us from the underwriters exercise
of their over-allotment option. The
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aggregate amount of the special distribution was
$93.8 million, or approximately $7.63 per common share on
an as if converted basis.
The following table sets forth the amount of cash paid as a
result of the special distribution in respect of outstanding
shares of our capital stock as to which each of our 5%
stockholders, executive officers and directors was deemed to
have sole or shared voting or investment power as of the date of
the special distribution.
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Original
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Shares
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Acquisition
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Special
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Beneficially
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Date of
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Cost of Shares
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Distribution
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Owned and
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Acquisition
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to which
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Amount for
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Outstanding as of
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of Shares
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Special
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Shares
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November 14,
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Beneficially
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Distribution
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Beneficially
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Name of Beneficial Owner
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2007(1)
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Owned(2)
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Relates
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Owned
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5% Stockholders
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Entities affiliated with ABS Capital Partners
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5,352,952
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August 30, 2002
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$
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10,000,434
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$
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40,848,129
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1,760,000
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August 2, 2005
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$
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8,000,000
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$
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13,430,478
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Total
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7,112,952
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$
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18,000,434
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$
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54,278,607
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Entities affiliated with Camden Partners
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1,760,000
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August 2, 2005
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$
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8,000,000
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$
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13,430,478
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Directors
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Wallace E. Boston, Jr.(3)
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220,000
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December 30, 2002
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$
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290,000
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$
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1,678,810
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132,000
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November 30, 2004
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$
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188,880
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$
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1,007,286
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Total
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352,000
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$
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478,880
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$
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2,686,096
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Phillip A. Clough(4)
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5,352,952
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August 30, 2002
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$
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10,000,434
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$
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40,848,129
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1,760,000
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August 2, 2005
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$
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8,000,000
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$
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13,430,478
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Total
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7,112,952
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$
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18,000,434
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$
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54,278,607
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J. Christopher Everett
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F. David Fowler
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Jean C. Halle
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3,300
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May 29, 2006
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$
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15,000
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$
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25,182
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David L. Warnock(5)
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1,760,000
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August 2, 2005
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$
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8,000,000
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$
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13,430,278
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Timothy T. Weglicki(4)
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5,352,952
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August 30, 2002
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$
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10,000,434
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$
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40,848,129
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1,760,000
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August 2, 2005
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$
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8,000,000
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$
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13,430,478
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Total
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7,112,952
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$
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18,000,434
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$
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54,278,607
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Executive Officers
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Harry T. Wilkins
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45,611.50
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(6)
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August 31, 2004
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$
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50,007
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$
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348,059
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99,000
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(7)
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December 31, 2004
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$
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112,500
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$
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755,464
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55,000
|
|
|
|
February 28, 2007
|
|
|
$
|
300,000
|
|
|
$
|
419,702
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
199,611.50
|
|
|
|
|
|
|
$
|
462,507
|
|
|
$
|
1,523,225
|
|
James H. Herhusky
|
|
|
165,000
|
|
|
|
September 30, 2000
|
|
|
$
|
20,000
|
|
|
$
|
1,259,107
|
|
|
|
|
110,000
|
|
|
|
January 31, 2001
|
|
|
$
|
30,000
|
|
|
$
|
839,405
|
|
|
|
|
110,000
|
|
|
|
April 4, 2002
|
|
|
$
|
30,000
|
|
|
$
|
839,405
|
|
|
|
|
110,000
|
|
|
|
June 14, 2002
|
|
|
$
|
145,000
|
|
|
$
|
839,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
495,000
|
|
|
|
|
|
|
$
|
225,000
|
|
|
$
|
3,777,322
|
|
Dr. Frank B. McCluskey
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peter W. Gibbons
|
|
|
26,400
|
|
|
|
October 16, 2003
|
|
|
$
|
41,096
|
|
|
$
|
201,457
|
|
|
|
|
8,800
|
|
|
|
January 14, 2005
|
|
|
$
|
6,296
|
|
|
$
|
67,152
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
35,200
|
|
|
|
|
|
|
$
|
47,392
|
|
|
$
|
268,609
|
|
Carol S. Gilbert
|
|
|
33,000
|
|
|
|
November 30, 2004
|
|
|
$
|
47,220
|
|
|
$
|
251,821
|
|
Mark L. Leuba
|
|
|
13,200
|
|
|
|
January 24, 2005
|
|
|
$
|
18,888
|
|
|
$
|
100,729
|
|
|
|
|
4,400
|
|
|
|
May 4, 2007
|
|
|
$
|
42,488
|
|
|
$
|
33,576
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
17,600
|
|
|
|
|
|
|
$
|
61,776
|
|
|
$
|
134,305
|
|
All directors and executive officers as a group
|
|
|
10,008,664
|
|
|
|
|
|
|
$
|
27,338,209
|
|
|
$
|
76,375,651
|
|
5
|
|
|
(1) |
|
For the purpose of calculating shares beneficially owned and
outstanding as of November 14, 2007, the number of shares
of common stock deemed outstanding assumes the conversion of all
outstanding shares of our Class A common stock into common
stock, and excludes all shares of common stock subject to
options. Beneficial ownership is determined in accordance with
the rules of the SEC that generally attribute beneficial
ownership of securities to persons that possess sole or shared
voting power and/or investment power with respect to those
securities. The persons identified in this table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them, except as set forth in the footnotes
to the table included in Beneficial Ownership of Common
Stock. |
|
(2) |
|
Represents the date on which either the option to acquire the
related shares was granted or when the shares were acquired. |
|
(3) |
|
Mr. Boston is our Chief Executive Officer and a member of
our board of directors. |
|
(4) |
|
Represents shares owned by ABS Capital Partners. Mr. Clough
is a Managing General Partner and Mr. Weglicki is a
Founding Partner of ABS Capital Partners. |
|
(5) |
|
Represents shares owned by Camden Partners. Mr. Warnock is
a Partner of Camden Partners. |
|
(6) |
|
Shares originally acquired from us by a different stockholder
for $50,007 and subsequently acquired from that stockholder by
Mr. Wilkins on August 31, 2004. |
|
(7) |
|
Shares of common stock owned of record by WLM Investments, LLC.
Mr. Wilkins, a member of WLM Investments, LLC, disclaims
beneficial ownership of the shares held of record by WLM
Investments, LLC except to the extent of his pecuniary interest. |
Pursuant to the terms of our equity incentive arrangements, the
special distribution also caused a proportionate adjustment to
the stock options, other than those issued in connection with
our initial public offering, held by our optionees, including
our directors and executive officers. This adjustment caused the
total number of shares subject to options held by our optionees
to increase while the aggregate exercise price remained the
same. Effectively, as a result of the special distribution, our
optionees were entitled to receive more shares for the same
aggregate exercise price for each option held. The following
table shows each option held by our directors and executive
officers as of the date of the special distribution (other than
those issued in connection with our initial public offering),
the aggregate exercise price for all shares subject to an option
as of that date, and the total number of shares for which the
options were exercisable as a result of the adjustment in
connection with the special distribution:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Subject to
|
|
|
|
|
|
|
|
|
|
Options
|
|
|
|
|
|
Shares Subject to
|
|
|
|
Outstanding as of
|
|
|
Aggregate
|
|
|
Options as
|
|
|
|
November 14,
|
|
|
Exercise
|
|
|
Adjusted for the
|
|
Name of Optionee
|
|
2007
|
|
|
Price
|
|
|
Special Distribution
|
|
|
Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
Wallace E. Boston, Jr.(1)
|
|
|
88,000
|
|
|
$
|
125,920
|
|
|
|
121,576
|
|
Jean C. Halle
|
|
|
24,200
|
|
|
$
|
166,220
|
|
|
|
36,473
|
|
J. Christopher Everett
|
|
|
27,500
|
|
|
$
|
265,550
|
|
|
|
37,993
|
|
F. David Fowler
|
|
|
27,500
|
|
|
$
|
150,000
|
|
|
|
37,993
|
|
Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
Harry T. Wilkins
|
|
|
165,000
|
|
|
$
|
900,000
|
|
|
|
227,955
|
|
Peter W. Gibbons
|
|
|
19,800
|
|
|
$
|
27,588
|
|
|
|
27,355
|
|
Carol S. Gilbert
|
|
|
22,000
|
|
|
$
|
31,480
|
|
|
|
30,394
|
|
James H. Herhusky
|
|
|
55,000
|
|
|
$
|
250,000
|
|
|
|
75,985
|
|
Dr. Frank B. McCluskey
|
|
|
110,000
|
|
|
$
|
376,200
|
|
|
|
151,970
|
|
Mark L. Leuba
|
|
|
26,400
|
|
|
$
|
92,064
|
|
|
|
36,473
|
|
|
|
|
(1) |
|
Mr. Boston is our Chief Executive Officer and a member of
our board of directors. |
6
Board
Independence
Our Board believes, and our Guidelines require, that a majority
of its members be independent directors. In addition, the
respective charters of the audit, compensation and nominating
and corporate governance committees, currently require that each
member of such committees be independent directors. Currently,
six of the seven members of our Board are independent directors,
as defined in the applicable rules for companies listed on
NASDAQ. NASDAQs independence criteria includes a series of
objective tests, such as that the director is not an employee of
American Public Education and has not engaged in various types
of business dealings with us. In addition, as further required
by NASDAQ rules, the Board has made a subjective determination
as to each independent director that no relationship exists
that, in the opinion of the Board, would interfere with the
exercise of independent judgment in carrying out the
responsibilities of a director. In making these determinations,
the directors reviewed and discussed information provided by the
directors and management with regard to each directors
business and personal activities as they may relate to us and
our management. Based on this review and consistent with our
independence criteria, the Board has affirmatively determined
that all of our directors are independent of American Public
Education and our management, with the exception of
Mr. Boston, who is our President and Chief Executive
Officer.
In accordance with our Guidelines, the independent members of
our Board will hold at least two executive session
meetings each year. If the chairperson of the Board is not an
independent director, a chairperson will be selected for each
executive session. In general, these meetings are intended to be
used as a forum to discuss such topics as the independent
directors deem necessary or appropriate, the annual evaluation
of the Chief Executive Officers performance and the annual
review of the Chief Executive Officers plan for management
succession.
Meetings
of the Board of Directors and its Committees
Information concerning the Board and its three standing
committees is set forth below. Each Board committee currently
consists only of directors who are not employees of American
Public Education and who are independent as defined
in NASDAQs rules.
The Board and its committees meet regularly throughout the year,
and also hold special meetings and act by written consent from
time-to-time. The Board held a total of 5 meetings during the
fiscal year ended December 31, 2007. During this time all
directors attended at least 75% of the aggregate number of
meetings held by the Board and all committees of the Board on
which such director served (during the period which such
director served). The Board does not have a formal policy with
respect to Board member attendance at annual meetings of
stockholders. Our 2007 annual meeting of stockholders, which was
held prior to the time we were a public company, was attended by
5 of our directors.
The Board has three standing committees: the nominating and
corporate governance committee; the compensation committee; and
the audit committee. The charters for the nominating and
corporate governance, compensation, and audit committees can be
accessed electronically on the Committees page of our corporate
website at www.americanpubliceducation.com.
The Board conducts, and the nominating and corporate governance
committee oversees, an annual evaluation of the Boards
operations and performance in order to enhance its
effectiveness. Recommendations resulting from this evaluation
are made by the nominating and corporate governance committee to
the full Board for its consideration.
7
BOARD
COMMITTEES AND THEIR FUNCTIONS
The following table describes which directors serve on each of
the Boards standing committees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nominating and
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
Compensation
|
|
|
Audit
|
|
Name
|
|
Governance Committee
|
|
|
Committee
|
|
|
Committee
|
|
|
J. Christopher Everett
|
|
|
X
|
|
|
|
|
|
|
|
X
|
|
F. David Fowler
|
|
|
|
|
|
|
|
|
|
|
X
|
(1)
|
Jean C. Halle
|
|
|
|
|
|
|
X
|
|
|
|
X
|
|
Wallace E. Boston, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
Phillip A. Clough(2)
|
|
|
|
|
|
|
X
|
(1)
|
|
|
|
|
David L. Warnock
|
|
|
X
|
|
|
|
X
|
|
|
|
|
|
Timothy T. Weglicki
|
|
|
X
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Chair of the committee. |
|
(2) |
|
Chairperson of the Board. |
Audit
Committee
The Board has established a separately designated standing audit
committee in accordance with Section 3(a)(58)(A) of the
Securities Exchange Act of 1934. The audit committee is
responsible, among its other duties and responsibilities, for
overseeing our accounting and financial reporting processes, the
audits of our financial statements, the qualifications of our
independent registered public accounting firm, and the
performance of our internal audit function and independent
registered public accounting firm. The audit committee reviews
and assesses the qualitative aspects of our financial reporting,
our processes to manage business and financial risk, and our
compliance with significant applicable legal, ethical and
regulatory requirements. The audit committee is directly
responsible for the appointment, compensation, retention and
oversight of our independent registered public accounting firm.
The members of our audit committee are Mr. Fowler, who
serves as chair of the committee, Mr. Everett and
Ms. Halle. Our Board has determined that Mr. Fowler is
an audit committee financial expert, as that term is
defined under the SEC rules implementing Section 407 of the
Sarbanes-Oxley Act of 2002. Our Board has determined that each
member of our audit committee is independent under NASDAQs
listing standards and each member of our audit committee is
independent pursuant to
Rule 10A-3
of the Securities Exchange Act.
Nominating
and Corporate Governance Committee
The nominating and corporate governance committee is responsible
for recommending candidates for election to the Board. The
committee is also responsible, among its other duties and
responsibilities, for making recommendations to the Board or
otherwise acting with respect to corporate governance policies
and practices, including board size and membership
qualifications, new director orientation, committee structure
and membership, succession planning for our Chief Executive
Officer and other key executive officers, and communications
with stockholders. The members of our nominating and corporate
governance committee are Mr. Weglicki, who serves as chair
of the committee, Mr. Everett and Mr. Warnock. Our
Board has determined that the composition of our nominating and
corporate governance committee meets NASDAQs independence
requirements for director nominations.
Compensation
Committee
The compensation committee is responsible, among its other
duties and responsibilities, for establishing the compensation
and benefits of our Chief Executive Officer and other executive
officers, monitoring compensation arrangements applicable to our
Chief Executive Officer and other executive officers in light of
their performance, effectiveness and other relevant
considerations and administering our equity incentive plans. The
members of our compensation committee are Mr. Clough, who
serves as chair of the committee, Ms. Halle and
Mr. Warnock. Our Board has determined that the composition
of our compensation committee meets NASDAQs independence
requirements for approval of the compensation of our Chief
Executive Officer and other executive officers.
8
DIRECTOR
NOMINATIONS AND COMMUNICATION WITH DIRECTORS
Criteria
for Nomination to the Board
The nominating and corporate governance committee considers
candidates submitted by American Public Education stockholders,
as well as candidates recommended by directors and management,
for nomination to the Board. It evaluates candidates submitted
by stockholders in the same manner as other candidates
identified to it. The nominating and corporate governance
committee reviews the appropriate skills and characteristics
required of directors in the context of the current composition
of the Board, our operating requirements and the long-term
interests of our stockholders. It may use outside consultants to
assist in identifying candidates.
Director Qualifications. The nominating and
corporate governance committee will consider, among other
things, the following criteria in selecting director nominees:
|
|
|
|
|
compliance with applicable regulatory requirements, including
with respect to independence;
|
|
|
|
overall Board composition;
|
|
|
|
professional skills and background, experience in relevant
industries, age and geographic background;
|
|
|
|
past performance of incumbent directors in light of the director
expectations set forth in the Guidelines; and
|
|
|
|
integrity, judgment, acumen and time and ability to make a
constructive contribution to the Board.
|
The nominating and corporate governance committee and, as
needed, a retained search firm, will screen Board candidates,
perform reference checks, prepare a biography for each candidate
for the nominating and corporate governance committee to review
and conduct interviews. The nominating and corporate governance
committee will interview candidates that meet our director
nominee criteria, and will recommend to the Board nominees that
best suit the Boards needs.
Director
Nomination Process
The nominating and corporate governance committee recommends,
and the Board nominates, candidates to stand for election as
directors. Stockholders may also nominate persons to be elected
as directors. If a stockholder wishes to nominate a person for
election as director, he or she must follow the procedures
contained in our bylaws and satisfy the requirements of
Regulation 14A of the Securities Exchange Act of 1934. To
nominate a person to stand for election as a director at the
annual meeting of stockholders for 2008, our Corporate Secretary
must receive such nominations at our principal executive offices
not more than 120 days, and not less than 90 days,
before the anniversary date of the preceding annual meeting,
except that if the annual meeting is set for a date that is not
within 30 days before or 60 days after such
anniversary, the nomination must be received no later than the
close of business on the tenth day following the notice or
public disclosure of the meeting. Each submission must include
the following information:
|
|
|
|
|
the name and address of the stockholder who intends to make the
nomination and the name and address of the person or persons to
be nominated;
|
|
|
|
a representation that the stockholder is a holder of record of
Corporation capital stock entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to
nominate the person or persons;
|
|
|
|
if applicable, a description of all arrangements or
understandings between the stockholder and each nominee and any
other person or persons, naming such person or persons, pursuant
to which the nomination is to be made by the stockholder;
|
|
|
|
such other information regarding each nominee to be proposed by
such stockholder as would be required to be included in a proxy
statement filed under the SECs proxy rules if the nominee
had been nominated, or intended to be nominated, by the Board;
|
|
|
|
if applicable, the consent of each nominee to serve as a
director if elected; and
|
|
|
|
such other information that the Board may request in its
discretion.
|
9
The Board may require any proposed nominee to furnish such other
information as it may reasonably require to determine the
eligibility of such proposed nominee to serve as one of its
directors.
Additional information regarding requirements for stockholder
nominations for next years annual meeting is described in
this proxy statement under General Matters
Stockholder Proposals and Nominations.
Contacting
the Board of Directors
Stockholders wishing to communicate with our Board may do so by
writing to any of the Board, chairperson of the Board, or the
non-management members of the Board as a group, at:
American Public Education, Inc.
111 W. Congress Street
Charles Town, West Virginia 25414
Attn: Corporate Secretary
Complaints or concerns relating to our accounting, internal
accounting controls or auditing matters will be referred to
members of the audit committee. Other correspondence will be
referred to the relevant individual or group. All correspondence
is required to prominently display the legend Board
Communication in order to indicate to the Corporate
Secretary that it is communication subject to our policy and
will be received and processed by the Corporate Secretarys
office. Each communication received by the Corporate Secretary
will be copied for our files and will be promptly forwarded to
the addressee. The Board has requested that certain items not
related to the Boards duties and responsibilities be
excluded from its communication policy. In addition, the
Corporate Secretary is not required to forward any communication
that the Corporate Secretary, in good faith, determines to be
frivolous, unduly hostile, threatening, illegal or similarly
unsuitable. However, the Corporate Secretary will maintain a
list of each communication subject to this policy that is not
forwarded, and on a quarterly basis, will deliver the list to
the chairperson of the Board. In addition, each communication
subject to this policy that is not forwarded because it was
determined by the Secretary to be frivolous shall nevertheless
be retained in our files and made available at the request of
any member of the Board to whom such communication was addressed.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
Our nominees for the election of directors at the Annual Meeting
include six independent non-management directors and our Chief
Executive Officer. Each director is elected to serve a one-year
term, with all directors subject to annual election. At the
recommendation of the nominating and corporate governance
committee, the Board has nominated the following persons to
serve as directors for the term beginning at the Annual Meeting
on May 16, 2008: Wallace E. Boston, Jr., Phillip A.
Clough, J. Christopher Everett, F. David Fowler, Jean C. Halle,
David L. Warnock and Timothy T. Weglicki. All nominees are
currently serving on the Board.
Unless proxy cards are otherwise marked, the persons named as
proxies will vote all proxies FOR the election of each nominee
named in this section. Proxies submitted for the Annual Meeting
can only be voted for those nominees named in this Proxy
Statement. If, however, any director nominee is unable or
unwilling to serve as a nominee at the time of the Annual
Meeting, the persons named as proxies may vote for a substitute
nominee designated by the Board, or the Board may reduce the
size of the Board. Each nominee has consented to serve as a
director if elected, and the Board does not believe that any
nominee will be unwilling or unable to serve. Each director will
hold office until his or her successor is duly elected and is
qualified or until his or her earlier death, resignation or
removal.
10
Nominees
for Director
The names of each nominee for director, their ages as of
March 31, 2008, and other information about each nominee is
shown below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
Name
|
|
Age
|
|
Principal Occupation
|
|
Since
|
|
Wallace E. Boston, Jr.
|
|
|
53
|
|
|
President, Chief Executive Officer of American Public Education
|
|
|
2004
|
|
Phillip Clough
|
|
|
46
|
|
|
Managing General Partner of ABS Capital Partners
|
|
|
2002
|
|
J. Christopher Everett
|
|
|
60
|
|
|
Retired
|
|
|
2007
|
|
F. David Fowler
|
|
|
74
|
|
|
Retired
|
|
|
2007
|
|
Jean C. Halle
|
|
|
49
|
|
|
Chief Executive Officer of Calvert Education Services
|
|
|
2006
|
|
David Warnock
|
|
|
50
|
|
|
Partner with Camden Partners
|
|
|
2005
|
|
Timothy Weglicki
|
|
|
56
|
|
|
Founding Partner of ABS Capital Partner
|
|
|
2002
|
|
Wallace E. Boston, Jr. joined us in September 2002
as Chief Financial Officer and, since June 2004 has served as
President, Chief Executive Officer and a member of our Board.
From August 2001 to April 2002, Mr. Boston served as Chief
Financial Officer of Sun Healthcare Group. From July 1998 to May
2001, Mr. Boston served as Chief Operating Officer and
later, President of NeighborCare Pharmacies. From February 1993
to May 1998, Mr. Boston served as VP-Finance and later, SVP
of Acquisitions and Development of Manor Healthcare Corporation,
now Manor Care, Inc. From November 1985 to December 1992,
Mr. Boston served as Chief Financial Officer of Meridian
Healthcare.
Phillip A. Clough has served on our Board since August
2002 and has been Chairman of our Board since August 2005.
Mr. Clough is a Managing General Partner of ABS Capital
Partners, a private equity firm that he joined in September
2001. Prior to joining ABS Capital Partners, Mr. Clough
served as President of Sitel Corporation from January 1997 to
May 1998, and as President and Chief Executive Officer from May
1998 to April 2001. Previously, Mr. Clough was an
investment banker with Alex. Brown & Sons from 1990 to
1997 and served in the United States Army from 1983 to 1988,
rising to the rank of Captain in 1987. Mr. Clough currently
serves on the board of directors of several of ABS Capital
Partners portfolio companies, including Rosetta Stone,
Inc., a language learning software company and publisher.
Mr. Clough also serves on the board of directors of
Liquidity Services, Inc., an operator of online marketplaces for
the sale and purchase of surplus corporate and government assets.
J. Christopher Everett has served on our Board since
May 2007. Mr. Everett has been an independent consultant
and investor since his retirement from PricewaterhouseCoopers in
2000. Mr. Everett served as an Executive in Residence at
the Kogod School of Business at American University from 2000 to
2003 where he taught graduate courses in the application of
technology and strategy. Prior to his retirement in 2000,
Mr. Everett was a senior partner at PricewaterhouseCoopers
and was a leader in the firms Management Consulting
Services Practice. Mr. Everett led the
PricewaterhouseCoopers Global
E-business
practice from 1998 until 2000. Mr. Everett also served as a
member of the PricewaterhouseCoopers Global Oversight Board, the
firms board of directors, and served on the firms
Global Leadership Team from 1995 until his retirement in 2000.
Mr. Everett currently serves on the board of directors of
several private companies.
F. David Fowler has served on our Board since May
2007. From June 2001 to 2006, Mr. Fowler served on the
board of directors of MicroStrategy, Inc. and as chairman of its
Audit Committee. Mr. Fowler also served as a member and
chairman of the board of directors of FBR Funds, an open-end
management investment company that is part of FBR Capital
Markets Corporation and the Friedman, Billings, Ramsey Group,
Inc., from 1997 to 2006. Mr. Fowler was the dean of the
School of Business at The George Washington University from July
1992 until his retirement in June 1997 and a member of KPMG LLP
from 1963 until his retirement in June 1992. As a member of
KPMG, Mr. Fowler served as managing partner of the
Washington, D.C. office from 1987 until 1992, as partner in
charge of human resources for the firm in
11
New York City, as a member of the firms board of
directors, operating committee and strategic planning committee
and as chairman of the KPMG Foundation and the KPMG personnel
committee. Mr. Fowler also serves on the board of directors
of Liquidity Services, Inc., an operator of online marketplaces
for the sale and purchase of surplus corporate and government
assets, and is chairman of its Audit Committee.
Jean C. Halle has served on our Board since March 2006.
Ms. Halle currently serves as Chief Executive Officer of
Calvert Education Services, a provider of classroom instruction
through the Calvert School and of accredited homeschooling
program, assessment and educational support services. From 1991
to 2001, Ms. Halle was the Chief Financial Officer and Vice
President of New Business Development for Times Mirror
Interactive, a digital media subsidiary of the former Times
Mirror Company. From 1986 to 1999, Ms. Halle held a number
of positions with The Baltimore Sun Company, including Vice
President of New Business Development, Chief Financial Officer
and Vice President of Finance, President of Homestead
Publishing, a subsidiary of The Baltimore Sun Company, and
Director of Strategic Planning. From 1983 to 1986,
Ms. Halle was the Chief Financial Officer and Vice
President of Finance for Abell Communications, the predecessor
to Times Mirror Interactive, and Assistant Treasurer of A.S.
Abell Company, the former parent company of The Baltimore Sun
Company. Previously, from 1979 to 1983, Ms. Halle had been
a Senior Management Consultant with Deloitte, Haskins and Sells,
now Deloitte & Touche, an international accounting and
professional services firm. Ms. Halle currently serves on
the board of trustees for Calvert School.
David L. Warnock has served on our Board since August
2005. Since May 2007, Mr. Warnock has served as Chairman,
Chief Executive Officer and President of Camden Learning
Corporation. Mr. Warnock is also a partner with Camden
Partners, a private equity firm that he co-founded in 1995.
Prior to co-founding Camden Partners, from 1983 to 1995,
Mr. Warnock was employed with T. Rowe Price Associates,
serving as President of T. Rowe Price Strategic Partners and T.
Rowe Price Strategic Partners II and co-manager of the T.
Rowe Price New Horizons Fund. From July 1995 to December 1997,
Mr. Warnock served as a consultant to the advisory
committees of T. Rowe Price Strategic Partners and T. Rowe Price
Strategic Partners II. Mr. Warnock currently serves on the
board of directors of several of Camden Partners portfolio
companies, including Nobel Learning Communities, a leading
non-sectarian, for-profit provider of private pay education and
services for education entities serving the preschool through
12th grade market, and New Horizons Worldwide, the
worlds largest computer training company. Mr. Warnock
is also Chairman of Calvert Education Services.
Timothy T. Weglicki has served on our Board since August
2002. Mr. Weglicki is a Founding Partner of ABS Capital
Partners, a private equity firm founded in 1993. Prior to
co-founding ABS Capital Partners, from 1977 to 1993,
Mr. Weglicki was an investment banker with Alex.
Brown & Sons where he founded and headed the capital
markets group from 1989 to 1993. Mr. Weglicki currently
serves on the board of directors of Coventry Health Care, Inc.
and of several of ABS Capital Partners portfolio companies.
Required
Vote and Board Recommendation
The election of directors requires a plurality of the votes cast
for the election of directors; accordingly, the seven
directorships to be filled at the Annual Meeting will be filled
by the seven nominees receiving the highest number of votes. A
properly executed proxy marked ABSTAIN with respect
to the election of one or more directors will not be voted with
respect to the nominee or nominees indicated, although it will
be counted for purposes of determining whether there is a
quorum. A broker non-vote, discussed below, will
also have no effect on the outcome because only a plurality of
votes actually cast is required to elect a director.
Stockholders do not have the right to cumulate their votes in
the election of directors. If an incumbent nominee in an
uncontested election such as the election to be held at the
Annual Meeting fails to be elected, the incumbent nominee will
continue in office.
12
THE BOARD
RECOMMENDS A VOTE FOR ELECTION OF EACH
OF THE SEVEN NOMINATED DIRECTORS
2007 Director
Compensation
In 2007, in connection with their joining the board, we made
option grants to Mr. Everett and Mr. Fowler of 27,500
stock options, exercisable in three equal installments beginning
on the first anniversary of the date of grant. We also granted
Ms. Halle an additional 11,000 stock options, exercisable
in three equal installments beginning on the first anniversary
of the date of grant.
In July 2007, we adopted a new directors compensation
policy for our non-employee directors that was effective upon
our initial public offering in November 2007. The new
compensation policy utilizes annual retainers and restricted
stock grants. Our non-employee directors will receive an annual
retainer of $32,250 and each committee chair will receive an
additional annual retainer of $4,500, except for the chair of
the audit committee, whose additional annual retainer will be
$10,000. The annual retainers will be payable in quarterly
installments, and each director will have the alternative to
elect before the beginning of the applicable year to receive
their annual retainer in common stock having the same value as
the portion of the annual retainer to be paid, calculated as of
the close of business on the first business day of the year.
After our annual meeting of stockholders each year, we will also
make an annual grant to each director of restricted stock having
a value of $36,750 on the date of delivery. The restricted stock
grant will vest on the earlier of the one year anniversary of
the date of grant and immediately prior to the next years
annual meeting of stockholders.
In adopting this policy, our compensation committee received
input from its compensation consultant, Towers Perrin, in order
to assist us in transitioning to best practices for director
compensation in anticipation of being a public company. The
compensation committee used the information from Towers Perrin
to determine the appropriate aggregate value for the
compensation of our directors. Towers Perrin did not recommend
or determine the amount or form of director compensation
provided to our directors as part of our new 2007 compensation
policy. Instead, Towers Perrin provided this comparative,
market-based information to the committee, and the committee
made all final decisions with respect to the policy.
In 2007, in connection with our initial public offering, we also
made restricted stock grants to our non-employee directors in an
amount equivalent to a pro-rated portion of the annual
restricted stock grant award discussed above under our new
directors compensation policy. Each non-employee director
received a restricted stock grant of 1,148 shares at the
time of the closing of our initial public offering. In arriving
at the number of shares of restricted stock, we used an assumed
estimated fair market value of $16.00 per share, which was the
midpoint of the price range on the cover of the preliminary
prospectus for our initial public offering when it was first
circulated.
The following table sets forth information regarding
compensation paid to directors during 2007:
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Fees
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Earned
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or Paid in
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Stock
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Option
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Cash
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Awards
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Awards
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Total
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Name(1)
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($)
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($)
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($)(2)
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($)
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Phillip A. Clough
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3,380
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3,380
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J. Christopher Everett
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18,750
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3,380
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29,529
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51,659
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F. David Fowler
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26,250
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3,380
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33,461
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63,091
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Jean C. Halle
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20,250
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3,380
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19,558
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43,188
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David A. Warnock
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3,380
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3,380
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Timothy T. Weglicki
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3,380
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3,380
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(1) |
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See the Summary Compensation Table in the Executive Compensation
section of this Proxy Statement for disclosure related to
Mr. Boston who is one of our NEOs as of December 31,
2007. |
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(2) |
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Amounts represent the dollar amount recognized for financial
statement purposes for each director during 2007, as computed
pursuant to FAS 123R, excluding any estimates of
forfeitures relating to service-based |
13
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vesting conditions. Our determination of the fair value of these
stock option awards was affected by the estimated fair value of
our common stock on the date of grant, as well as assumptions
regarding a number of highly complex and subjective variables.
We calculate the expected term of stock option awards using the
simplified method as defined by Staff Accounting
Bulletin No. 107 because we lack historical data and
are unable to make reasonable expectations regarding the future.
We also estimate forfeitures of share-based awards at the time
of grant and revise such estimates in subsequent periods if
actual forfeitures differ from original projections. We make
assumptions with respect to expected stock price volatility
based on the average historical volatility of peers with similar
attributes. In addition, we determine the risk free interest
rate by selecting the U.S. Treasury constant maturity, quoted on
an investment basis in effect at the time of grant for that
business day. Estimates of fair value are subjective and are not
intended to predict actual future events, and subsequent events
are not indicative of the reasonableness of the original
estimates of fair value made under FAS 123R. |
We also reimburse all directors for travel and other necessary
business expenses incurred in the performance of their services
for us and extend coverage to them under the our directors
and officers indemnity insurance policies.
As of December 31, 2007, the aggregate number of vested and
unvested stock awards and exercisable and unexercisable option
awards outstanding held by our non-employee directors were as
follows:
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Stock
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Options
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Name
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Awards
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Awards
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Phillip A. Clough
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1,148
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J. Christopher Everett
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1,148
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37,992
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F. David Fowler
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1,148
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37,992
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Jean C. Halle
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1,148
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36,733
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David A. Warnock
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1,148
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Timothy T. Weglicki
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1,148
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COMPENSATION
OF EXECUTIVE OFFICERS
EXECUTIVE
COMPENSATION
Compensation
Discussion and Analysis
The following compensation discussion and analysis provides
information regarding the objectives and elements of our
compensation philosophy and policies for the compensation of our
named executive officers, or NEOs, for 2007. These executives,
who appear in the Summary Compensation Table below, are:
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Wallace E. Boston, Jr., our President, Chief Executive
Officer, Member of our Board of Directors and Member of our
Board of Trustees;
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Harry T. Wilkins, Executive Vice President, Chief Financial
Officer
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James H. Herhusky, Executive Vice President, Institutional
Advancement;
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Frank B. McCluskey, Executive Vice President and
Provost; and
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Mark Leuba, Senior Vice President, Chief Information Officer.
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We determined which executives to include in this discussion and
in the Summary Compensation Table below based on the rules and
regulations of the Securities and Exchange Commission.
14
Philosophy
and Objectives of our Compensation Programs
Overview
Our overall company-wide compensation philosophy, which is also
applicable to our NEOs, is to provide competitive levels of
compensation that utilize variable cash compensation based on
performance metrics, reflect the level of capability and effort
required to achieve our corporate goals, encourage continuous
quality improvement and are easily understood.
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Variable Cash Compensation. We believe in
using variable cash compensation to motivate and reward good
results at all levels of the organization, and particularly for
our NEOs.
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Focus on Corporate Goals. We strive to provide
compensation that is directly related to the achievement of our
corporate goals, which we measure through individual management
objectives and through earnings results compared to budget.
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Continuous Quality Improvement. We have
developed a Student Satisfaction Quotient, or SSQ,
to encourage employees to work together across organizational
boundaries to improve the processes that we believe contribute
to our success as an organization. The SSQ is designed to
measure the quality of our efforts on behalf of our students by
utilizing a variety of metrics applicable to our business. We
use the SSQ as a component of our annual incentive plan to
reward continued improvement to our performance in various
student satisfaction metrics, often compared to prior period
performance.
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Simple and Straightforward Incentives. We seek
to minimize the complexity of our compensation policies and
practices and to maximize our employees understanding of
the elements of compensation.
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In implementing this philosophy for our NEOs, we award
compensation that (i) assists us in attracting and
retaining qualified executives, (ii) aligns executive
compensation with our SSQ goals and performance goals, and
(iii) uses equity-based awards in an effort to further
align executives and stockholders interests.
Attract
and Retain Qualified Executives
We believe that the supply of qualified executive talent is
limited and have designed our compensation programs to help us
attract qualified candidates by providing compensation that is
competitive within the for-profit education industry and the
broader market for executive talent, taking into account that,
until our initial public offering in November 2007, we were a
private company. We also believe that the design of our
incentive compensation programs is important in helping us to
retain qualified executives, including each of the NEOs. Our
executive compensation policies are designed to assist us in
attracting and retaining qualified executives by providing
competitive levels of compensation that are consistent with the
executives alternatives.
Reflect
SSQ Goals and Performance Goals
As part of our executive compensation program, we reward
achieving and surpassing corporate goals through our Annual
Incentive Compensation Plan. Our annual incentive program is
designed to reward participants for the achievement of quarterly
company-wide SSQ goals by providing cash awards tied to SSQ
results. Our annual incentive program is designed to reward
participants for the achievement of company-wide performance
goals by providing cash awards that are paid if earnings targets
and individual management objectives are met. We believe that
because a significant portion of awards are tied to company-wide
student satisfaction and earnings goals and are in-part measured
by the improvement of our processes, our officers are rewarded
for superior corporate performance in the areas that we feel are
most directly related to increasing stockholder value.
Similarly, we believe that the use of annual performance goals
provides our executive officers, including the NEOs, with a
straightforward reward.
15
Utilize
Equity-Based Awards
Our compensation program uses equity-based awards, the value of
which is contingent on our longer-term performance, in order to
provide our NEOs with a direct incentive to seek increased
stockholder returns. Our stockholders receive value when our
stock price increases, and by using equity-based awards our NEOs
also receive increased value when our stock price increases and
decreased value when it decreases. We believe that equity-based
awards exemplify our philosophy of having a straightforward
structure by reminding NEOs that a measure of long-term
corporate success is increased stockholder value over time.
Review
of Compensation
During 2007, in anticipation of our initial public offering, the
compensation committee commenced a review of best practices and
appropriate levels of compensation for public company
compensation. In connection with that review, the compensation
committee engaged Towers Perrin to provided services to our
compensation committee, as requested and directed by the
Committee. Towers Perrin provided information on competitive
levels of compensation, including information on base salary,
annual bonuses, equity awards and total compensation. Towers
Perrins information was provided after 2007 base salary
and annual incentive awards were established, and the
compensation committee deferred any changes to base salary and
annual incentive awards until January 2008, in connection with
the committees ordinary annual review of executive officer
compensation. As discussed further below, however, the
compensation committee did make equity awards in 2007 after
taking into account information from Towers Perrin.
Peer
Group
In approving Mr. Bostons 2007 base salary and annual
incentive award, the compensation committee reviewed publicly
available compensation information for the chief executive
officers of Strayer Education Inc., Capella Education Co. and
Laureate Education Inc. The compensation committee used this
information for informational and comparative purposes only. The
compensation committee selected these companies as
representative of companies that operate for-profit schools.
Because limited information is available on private companies,
the compensation committee determined that it was appropriate to
consider the information that was available for these public
companies. In considering this information, the compensation
committee considered our relative size compared to these
companies, as well as our status as a private company.
During 2007, our compensation committee, with the assistance of
its compensation consultant, Towers Perrin, identified a group
of companies against which to compare compensation paid to our
executives, including our NEOs. These companies were selected
because the compensation committee considered them to be similar
to, and competitive with, us in the market for executive talent,
and because they are in comparable or related businesses. This
group, which we refer to as our peer group, consisted of the
following companies:
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Apollo Group Inc.
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Career Education Corporation
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Laureate Education Inc.
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Corinthian Colleges Inc.
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DeVry Inc.
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ITT Educational Services Inc.
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University Technical Institute Inc.
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Lincoln Educational Services Corporation
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Strayer Education Inc.
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Capella Education Co.
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GP Strategies Corporation
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Nobel Learning Communities Inc.
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Princeton Review Inc.
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16
This peer group was not identified until after our base salaries
and annual incentive compensation were set for 2007. As
discussed below, this peer group was only used in 2007 in
connection with our awarding of certain equity compensation in
connection with our initial public offering. While the
compensation committee reviewed this comparative peer group
information in connection with certain equity compensation
awards, the committee did not benchmark or target a
certain percentile within the peer group with respect to the
equity compensation paid to the NEOs, or with respect to any
other compensation paid. Instead, the committee used this
information for general comparative purposes and to ensure our
NEO equity awards were in line with the peer group. The
compensation committee supplemented its review of the peer group
information with additional survey data provided by Towers
Perrin. The companies included as part of the additional survey
information were based on a compilation prepared by Towers
Perrin as part of their proprietary database and were not
disclosed to the compensation committee. The compensation
committee confirmed that the information from Towers Perrin took
into account appropriate regression analyses to reflect our
relative size. The compensation committee asked for this
information from Towers Perrin simply as an additional,
objective data point for comparison purposes.
Elements
of Compensation
The compensation program for our NEOs is comprised of three
elements: base salary; annual incentive cash compensation; and
long-term equity incentives.
In setting base salary and annual incentive cash compensation
for 2007, we considered the compensation levels for our NEOs in
2006, the respective performances of each of our NEOs other than
Mr. Wilkins in 2006 and what we believed was required based
on the marketplace for executive talent. For Mr. Boston, we
also considered certain comparable information discussed above.
The base salary and annual incentive cash compensation for
Mr. Wilkins was established in February 2007, when
Mr. Wilkins joined the company as Chief Financial Officer.
Mr. Wilkins compensation was based on negotiations with
Mr. Wilkins taking into account the levels of compensation
for our other NEOs and the marketplace for executive talent. In
evaluating what was required based on the marketplace for
executive talent, the members of our compensation committee used
their collective experience and judgment. For example, because
Messrs. Clough and Warnock are general partners of private
equity firms that have multiple portfolio companies, they were
able to bring their experiences working with other private
companies on executive recruitment and compensation to the
discussion on compensation for our NEOs.
Base
Salary
Base salary is an integral part of compensation for our NEOs,
and is generally set in January of each year, absent other
factors, such as promotions. In 2007, the annual base salary for
Mr. Boston was increased $55,000 to an annual base salary
amount of $300,000. In setting the annual base salary amount for
Mr. Boston, we took into account that Mr. Boston had
not had a substantial increase in his compensation in prior
years, including no significant adjustment for the increase in
his responsibilities when he assumed the role of Chief Executive
Officer in 2004. We also considered Mr. Bostons
excellent performance, the continued success of our business and
the assessment by our compensation committee that
Mr. Bostons base salary was below market. The
compensation committee also considered the comparative
information available on the three public companies discussed
above, and determined that even given the substantial increase,
Mr. Bostons base salary and annual incentive awards
would still be substantially less than that of the comparables
considered. As discussed above, Mr. Wilkins salary was set
on the basis of negotiations with him, and was set at $225,000.
The annual base salary amount for Mr. Herhusky did not
change in 2007, in part in reflection that his base salary
compensation was already set at a higher level than our NEOs
other than Mr. Boston and Mr. Wilkins. The annual base
salary amounts for Dr. McCluskey and Mr. Leuba
increased by $5,000 and $10,000, respectively, in 2007 to
reflect cost of living adjustments and nominal increases to
recognize their successful performance through 2006.
We have historically been of the belief that it is important to
have an amount of compensation consist of fixed and liquid
compensation in the form of base salary to provide our NEOs with
a level of assurance of compensation. However, given our focus
on performance, our status as a private, entrepreneurial
organization,
17
our strong annual incentive program and the potential for
significant rewards through our equity incentives, we have
historically tried to set base salaries on the lower end of what
we consider competitive.
Annual
Incentive Cash Compensation
We believe annual incentive pay furthers our compensation
philosophy and objectives by focusing our NEOs on corporate
goals, encouraging continuous quality improvement and providing
straightforward incentives. The target for annual incentive pay
for our NEOs is expressed as a percentage of base salary and was
50% for all of our NEOs during 2007, except for Mr. Boston,
whose annual incentive pay target was set at 60% of his base
salary. These percentages remained the same in 2007 as they were
in 2006 for Mr. Boston, Mr. Herhusky and
Dr. McCluskey, and for these officers and Mr. Wilkins
reflect the percentages set forth in their employment
agreements. The committee did not believe, in their subjective
judgment, that these amounts should be increased for 2007.
Mr. Leubas percentage was increased from 35% to 50%
effective for the second quarter of 2007 to reflect his
promotion to senior vice president and chief information
officer. Mr. Bostons annual incentive target is set
at a higher percentage than the other NEOs as a result of the
negotiation of his employment agreement in 2004, at which time
we agreed to provide him a larger annual incentive to reflect
his greater ability as Chief Executive Officer to influence our
business success as well as his greater responsibilities as the
head of our company. Overall, we believe that the proportion of
target annual incentive pay to total target cash compensation
for our NEOs comprises a relatively high percentage of total
cash compensation. In order to focus our NEOs on our SSQ and
performance goals, and because of our belief in the importance
of variable cash compensation, we believe that it is important
to have a strong annual incentive when compared to what we
believed, at the time, was the norm at other private companies.
In our judgment, 50% of base salary, or 60% in the case of
Mr. Boston, reflected this belief.
Annual incentive pay is awarded to our NEOs through our Annual
Incentive Compensation Plan, in which all of our full-time
employees, with the exception of our full-time faculty,
participate. In addition, Mr. Boston, Mr. Wilkins,
Mr. Herhusky and Dr. McCluskey are entitled to
participate in the plan pursuant to the terms of their
employment agreements. The target percentage for employees
differs depending on an employees position within our
company. The Annual Incentive Compensation Plan is designed to
reward our employees for meeting or exceeding our SSQ goals and
for financial performance. One half of each participants
target award under the Annual Incentive Plan relates to
achievement and surpassing of our SSQ goals, and one half is
related to achievement and surpassing our financial performance
goal. We determined this split between our SSQ goals and
financial performance goal in order to send a message to our
employees that they should be focused on both operational and
earnings goals. We also believe that given our view that both
these measures are important to our success it makes most sense
to have them be equal in order to provide our employees with a
system that is straightforward, rather than having employees try
and extrapolate from any difference between their relative
percentages.
SSQ Goals. We believe that the focus on
continuous quality improvement related to the achievement and
surpassing of our SSQ goals encourages our employees to work
together across organizational boundaries to improve the
processes involved in our operations, with a particular focus on
processes that we believe contribute to the satisfaction of our
students, which is consistent with our mission of Educating
Those Who
Servetm.
The half of each participants Annual Incentive
Compensation Plan target award related to the SSQ is divided
into four equal quarterly amounts that are paid based on
quarterly metrics that are measured monthly. Our SSQ uses over
20 metrics that are divided into the following four categories:
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student satisfaction, which includes metrics based on student
surveys;
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marketing efficiency, which includes metrics related to
applications and new students;
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retention, which includes metrics related to registrations and
course loads; and
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performance monitoring, which includes metrics related to course
drops and transfer credit evaluation processes.
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Each month we compare the performance for each metric against
the baseline for that metric. The baselines are set annually by
the committee, generally as a percentage improvement over past
results, such as
18
the actual past performance in a prior month, quarter or year.
Results for each metric are then expressed as a percentage of
the baseline. The percentage of achievement for each metric in a
given month are then averaged. The monthly average is then
averaged with the monthly average for the other months in a
given quarter to obtain the quarterly average. If the quarterly
average is at least 100%, one-eighth of the maximum amount of
the SSQ portion of the annual incentive plan is then paid. If
the quarterly average is greater than 115%, one-fourth of the
maximum amount of the SSQ portion of the annual incentive plan
is then paid. If the quarterly average is not at least 100%,
then the portion of the annual incentive plan applicable to that
quarters SSQ goals is not paid.
The SSQ is based on metrics that measure objective operational
targets. This is in keeping with our compensation philosophy of
providing simple and straightforward incentives. Because of the
way that we calculate the monthly and quarterly averages, each
metric is weighted equally. As a result, we believe that no one
metric provides an incentive to our executive officers to focus
disproportionately on any area of our business. Rather, we
believe that the SSQ is structured to provide an incentive to
focus more generally on our business operations and continuous
quality improvement. Furthermore, we have structured the SSQ to
be paid on a quarterly basis based on monthly results because we
track the components of the SSQ daily, and we believe frequent
payments heightens the focus of our employees on these metrics
and continuous quality improvement. All of our employees and
NEOs have the same SSQ goals.
Financial performance. The half of a target
award that is based on a financial goal is tied directly to
achieving and surpassing a specified amount of earnings before
interest, taxes, depreciation and amortization, stock-based
compensation expense and other non-cash charges (i.e. adjusted
EBITDA) on an annual basis, which for 2007 was
$13.0 million. We believe that our investors are focused on
increasing earnings and that adjusted EBITDA is a good proxy for
earnings that is within the control of management. By tying half
of the target award to earnings, we are also requiring that
funds be generated for the payment of this portion of the award.
Payment of the half of the target award that is tied to earnings
for senior level participants in our Annual Incentive
Compensation Plan, including our NEOs, is reduced to the extent
that personal management by objective, or MBO, targets are not
achieved. Thus, even if the annual financial goal is met but the
NEO does not achieve all of his annual MBO targets, the
NEOs payment related to the financial goal is reduced by
the relative weight of the missed MBO targets. We believe that
setting personal MBO targets for our NEOs that are tied to
company-wide goals for which they are directly responsible, or
to whose success they contribute, provide personal
accountability in addition to rewards for company performance.
We have conditioned receipt of this portion of the award on
achieving MBO targets in order to recognize that corporate
success is the most important measure and that individual
success alone will not be rewarded without meeting the financial
targets. Similarly, many MBO targets are shared between
executives to reflect that executives have to work together to
achieve results.
For 2007 our compensation committee set MBO targets for
Mr. Boston. Mr. Boston in turn set MBOs for the other
NEOs. In turn, our NEOs set MBOs for their direct reports and so
on throughout the organization for all employees eligible to
receive a bonus based on the financial performance of the
Company. MBOs for our NEOs are derived from the MBOs that are
set for Mr. Boston and our annual corporate performance
goals, including taking into account the sphere of
responsibility for achievement of those goals for the particular
NEO. We strive to have MBOs that can be objectively measured and
are time-bound, which helps to provide incentives that can be
clearly understood by our NEOs. We believe that the MBOs help to
keep management from focusing solely on the current years
financial results, because many of the MBOs represent our view
of key actions required to capture future market opportunities
and help prepare the company for continued growth and
improvement in the future.
For Mr. Boston, the compensation committee adopted the
following MBOs consistent with his role as our Chief Executive
Officer:
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upgrading our PAD system, including to handle additional active
students, serve additional federal student aid students, meet
compliance initiatives and digitize data;
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achieving at least 19,398 net student registrations from
new students, including at least 4,325 new students from
non-military markets;
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19
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achieving at least 54,545 net student registrations from
returning students;
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achieving at least budgeted earnings measures; and
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achieving steps in the process of completing an initial public
offering in 2008.
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Mr. Wilkins MBOs, consistent with his
responsibilities as our chief financial officer, included:
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upgrading our PAD system, including to handle additional active
students, add accounting capabilities, integrate with federal
student aid programs and digitize data;
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achieving at least 54,545 net student registrations from
returning students;
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meeting stated objectives as part of our timeline to comply with
Section 404 of the Sarbanes-Oxley Act of 2002;
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managing his department to budget;
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achieving steps in the process of completing an initial public
offering in 2008; and
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supporting implementation of data warehousing and digitization
projects.
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Mr. Herhuskys MBOs, consistent with his
responsibilities for institutional advancement, included:
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gaining entry into various Servicemembers Opportunity Colleges;
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supporting our timeline to comply with Section 404 of the
Sarbanes-Oxley Act of 2002;
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achieving alumni relations objectives;
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obtaining appropriate state licensures;
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managing his department to budget; and
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preparing a facilities plan for 2008 and 2009 growth.
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Dr. McCluskeys MBOs, consistent with his role as our
provost and chief academic officer, included:
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upgrading our PAD system, including to handle additional active
students, add accounting capabilities and integrate with federal
student aid programs;
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achieving at least 54,545 net student registrations from
returning students;
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instituting and implementing an improved course scheduling
system; and
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presenting education degrees to the West Virginia Higher
Education policy Commission.
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Mr. Leubas MBOs, consistent with his role as our
chief information officer, included:
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upgrading our PAD system, including to add accounting
capabilities, integrate with federal student aid programs and
move to co-location;
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meeting stated objectives as part of our timeline to comply with
Section 404 of the Sarbanes-Oxley Act of 2002;
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managing his department to budget;
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completion of data warehousing project; and
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completion of data digitization project.
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Based on 2006 results, for 2007 the committee set our SSQ and
financial performance targets on what it believed to be the high
end of realistically achievable goals. Similar to the approach
that we use for setting our internal budget, the committee
determined to increase the SSQ targets and EBITDA financial
goal. In 2007, we had excellent results, including significant
year-over-year revenue and net course registration increases. As
a result, in 2007 our SSQ and financial performance targets were
surpassed and 100% of the amounts related to the SSQ and
financial goals were paid to our NEOs. In 2006, 100% of the
amounts related to the SSQ and financial goals were also paid;
however, prior to 2006, there had not been a year in which the
20
SSQ goals were surpassed by a sufficient amount in each quarter
to result in a payout of 100% of the amount related to the SSQ
goals. In 2005, our NEOs only received approximately 56% of the
maximum payout because (i) the SSQ goals were not surpassed
by at least 15% in three of the four quarters in 2005, and
(ii) only 50% of the portion of the award tied to the
financial performance goal was paid because in 2005 we had a
two-tiered payout for the financial goal based on the amount by
which the financial goal was surpassed. In setting the SSQ goals
for 2007, in keeping with our objective of continuous
improvement, the compensation committee expected that there
would be an improvement from 2006 performance for the metrics
used in the SSQ, and consistent with past practice, removed
metrics from the SSQ for which the committee determined that the
company was already performing well and there was not
significant room for improvement. In establishing our MBOs for
2007, which was the second year in which we used MBOs, we set
goals that were consistent with our strategic plan. Accordingly,
our MBOs were set at levels that we thought could realistically
be achieved but were at a level necessary for superior company
performance.
We believe that 2007 was a year of extraordinary achievement for
the company, including an increase in revenues, profitability
and course registrations. As a result, in 2007 we surpassed all
of our SSQ goals by greater than 15% and achieved our financial
goal so all of our employees, including the NEOs, were entitled
to receive the total payout available under each portion of our
annual incentive plan. In addition, because each of our NEOs
achieved his respective MBO targets, the portion of the annual
incentive plan related to their financial goals was not reduced.
We designed our incentive plan to help produce the results we
had in 2007, and the committee was pleased that the amounts were
fully paid consistent with the terms of the plan targets set at
the beginning of the year.
Equity
Incentives
We believe that NEOs should have a significant potential to
benefit from increases in our equity value in order to align the
interests of the NEOs and our stockholders. However, due to our
nature as a private company until November 2007, including the
illiquidity of our equity, the significant size of our awards,
and the potential for significant increase in the value of the
underlying equity, we did not believe that annual equity awards
were necessary or appropriate, preferring instead to make awards
in connection with hirings, advancement decisions and other
significant events. We have used stock options as the form of
equity award because they represent a straightforward mechanism
for rewarding achievement of increases in long-term stockholder
value and because stock options require an increase in stock
price to have value to the NEO. We also believe that because
stock options are commonly used by private companies, they help
us in attracting and retaining executives by giving them
compensation that is more directly comparable to positions with
our competitors and are more easily understood. We also believe
that use of stock options was consistent with compensation
practices of other for-profit education companies, including
companies that have recently gone public.
Historically, grants of stock options to our NEOs typically vest
on each of the first five anniversaries of the date of grant, or
in some cases from an earlier date to coincide with the
beginning of service to us, and expire after ten years. We
selected five years in part to provide what we believe was the
maximum retention benefit.
Prior to our retention of Towers Perrin in 2007, the size and
timing of each named executive officers equity grant(s)
were determined by the compensation committee in its collective,
subjective experience and judgment, as we discuss above.
Consistent with our prior practice, in May 2007 in recognition
of his promotion to senior vice president, chief information
officer we granted Mr. Leuba an option award of 11,000
stock options that had terms consistent with our historical
practice.
As part of the negotiations with Mr. Wilkins for his hiring
in 2007, we agreed to grant Mr. Wilkins two option awards
at that time. The first option award was for a total of
165,000 shares, with a term of ten years and a five year
vesting schedule, provided that we gave Mr. Wilkins credit
for two years of service to reflect his prior extensive service
to us on our board of directors, board of trustees and his work
for us as a consultant. The second option award was for a total
of 55,000 shares, which was fully vested at the time of
grant and was exercisable for a period of 30 days. The size
and the timing of these awards was determined as
21
a result of our negotiation with Mr. Wilkins and reflect
the importance and value we placed on his joining our company
and having a significant equity interest aligned with our
stockholders. The exercise price of these awards was at the fair
market value on the date of grant, as determined by our board of
directors.
As discussed above, in connection with the compensation
committees review of compensation practices in
anticipation of our initial public offering the compensation
committee engaged Towers Perrin in July 2007 to provide the
committee with advice and comparative data for our peer group
and for comparably sized companies in general industry surveys.
After reviewing the information provided by Towers Perrin, the
compensation committee determined that our total levels of
compensation for our NEOs were not competitive with public
companies, primarily as a result of the level of our equity
awards. After reviewing the information provided by Towers
Perrin, the compensation committee also determined that the form
and terms of our equity awards were also not consistent with
best practices. The compensation committee determined that it
was appropriate to make equity awards to our chief executive
officer, chief financial officer and other NEOs in connection
with our initial public offering. These awards were anticipated
to be in lieu of making equity awards as part of the
committees ordinary annual review of executive officer
compensation for 2008.
Beginning with the grants at the time of our initial public
offering, for the first time our equity awards were split
between stock options and restricted stock. We determined to use
a component of restricted stock in addition to options so that
the NEOs are incented to preserve as well as grow stockholder
value. The stock options and restricted stock awards granted in
connection with our initial public offering use three-year
vesting with options having seven year terms. The change in
terms was in part because we believe that this will reduce the
accounting cost of future equity grants.
For each NEOs award at the time of our initial public
offering, we calculated an aggregate award value after taking
into account the peer group and comparative survey information
requested by the committee and provided by Towers Perrin.
(Towers Perrin did not determine the amount or size of any
equity award to our NEOs.) In calculating the aggregate award
value, we considered the peer group information provided by
Towers Perrin, after applying certain regression analyses to
account for our relative size, and determined that the award
values we selected were near the mid-point of the downward
adjusted equity values. We determined that given our expected
status as a newly public company and that the awards were in
connection with our initial public offering, it was appropriate
for the time being to consider the average, on an adjusted
basis, of comparable companies. We then split the aggregate
award value for each NEO into options and restricted stock by
using 60% options and 40% restricted stock. In arriving at the
aggregate award value and number of options and restricted
stock, we used an assumed estimated fair market value of $16 per
share, which was the midpoint of the price range on the cover of
the preliminary prospectus for our initial public offering when
it was first circulated. We determined to calculate the number
of options and restricted stock in that manner in part to
facilitate disclosure of our plans to make these grants at the
time of our initial public offering. The options and restricted
stock awards were approved and effective in connection with the
pricing of our initial public offering. The options were issued
with an exercise price equal to the price to the public in our
initial public offering, in part to align the interests of our
NEOs with those stockholders who acquired shares in the public
offering. The formal issuance of the shares of restricted stock
was delayed until after the closing of the initial public
offering so that the shares of restricted stock were not
outstanding prior to the record time of the special distribution
made in connection with our initial public offering.
The grants to our NEOs other than Mr. Boston and
Mr. Wilkins were in lieu of 2008 annual grants. The grants
for Mr. Boston and Mr. Wilkins at the time of the
initial public offering were equivalent to a three year award.
We felt it was desirable to award a larger grant to these
officers than we would have if we expected to award them a grant
every year to provide them incentive to gain from the value
created above the initial public offering price given their
importance to our success, and to align their interests most
directly with investors acquiring our shares in connection with
our initial public offering. For other NEOs, we believe that
making annual grants will assist with retention (as there will
always be unvested incentives) and there will be more parity
between our other NEOs over time as new executives are added
because longer tenured employees will not have all their options
at different prices than newer employees. In addition, this will
result in our other NEOs having equity incentives based on a
blend of prices over time. We expect the next annual grant of
equity incentives to be made in the first quarter of 2009 for
all NEOs except Mr. Boston and Mr. Wilkins.
22
Equity
Grant Practices
As described above, grants of equity awards have historically
not been made on a set schedule, but rather have been made from
time to time based upon events such as hirings and promotions.
For the awards made prior to our initial public offering, all of
our option awards were made at prices that our board of
directors determined were at least equal to the fair market
value of our common stock. For additional information on the
grant prices for our option awards in 2007 prior to our initial
public offering, please see Managements Discussion
and Analysis of Financial Condition and Results of
Operations Our key financial results and
metrics Costs and Expenses Stock Based
Compensation in our Annual Report for the year ended
December 31, 2007. For the grants made in connection with
our initial public offering, the exercise prices of our options
was the initial price to the public in that offering. In the
future, the exercise price of stock options will be based on the
fair market value of our common stock on the grant date, which
will be equal to the closing price of our common stock on that
date.
The gross proceeds of our initial public offering prior to the
underwriters exercise of their over-allotment option were used
for a special distribution to our existing stockholders, which
caused a proportionate adjustment to the stock options held by
our employees. The adjustment is a result of the terms of our
2002 Stock Incentive Plan that provides for the equitable
adjustment of outstanding stock options to take into account
various recapitalization events, including the special
distribution with the proceeds of our initial public offering.
Pursuant to the 2002 Stock Incentive Plan, the special
distribution resulted in a proportionate adjustment to our
outstanding employee stock options that represents the intrinsic
value of what the special distribution would have been on the
shares of common stock underlying the option if the option had
been exercised in full prior to the record date of the special
distribution. This is to reflect that the special distribution
with the proceeds of our initial public offering had the net
effect of a recapitalization where the proportionate amount of
the enterprise value that each share of capital stock
outstanding immediately before the record date for the special
distribution represents is reduced by an amount equivalent to
the special distribution for that share. See Certain
Relationships and Related Person Transactions
Related Person Transactions below for information on the
proportionate adjustment for our named executive officers. The
provisions requiring the adjustment were adopted in 2002 when
the 2002 Stock Incentive Plan was first established. The purpose
of the provision is to treat our employees equitably. To the
extent that there is a recapitalization event from which our
stockholders benefit, our optionees are entitled to an
adjustment so that they recognize a benefit, as well, We believe
that treating optionees similarly to stockholders in
recapitalization events is consistent with our philosophy that
stock options awards are intended to align the interests of our
optionees with our stockholders.
Adoption
of 2007 Omnibus Incentive Plan
Our board of directors unanimously approved the American Public
Education, Inc. 2007 Omnibus Incentive Plan on August 3,
2007, and our stockholders approved the new incentive plan in
November 2007.
The board of directors adopted the new incentive plan because
there were a limited number of shares available for grant under
our prior equity incentive plan and because it believed that the
new plan was appropriate to facilitate implementation of our
future compensation programs as a public company. The plan was
approved by the board with a view to providing our compensation
committee with maximum flexibility to structure an executive
compensation program that provides a wider range of potential
incentive awards to our named executive officers, and employees
generally, on a going-forward basis. For example, pursuant to
the new incentive plan, the compensation committee has the
discretion to determine the portion of each named executive
officers total compensation that will consist of awards
under the plan, the mix of short-term and long-term incentives
represented by the awards, the allocation of the awards between
equity and cash-based incentives, the forms of the equity
awards, and the service-based requirements
and/or
performance goals the officer will have to satisfy to receive
the awards. The compensation philosophy and objectives adopted
by the committee after we are a public company will likely
determine the structure of the awards granted by the committee
pursuant to the new incentive plan. As discussed under
Equity Incentives above and consistent with the
grants made at the time of our initial public offering, we
initially plan that equity awards under the new incentive plan
will be in the form of stock option and restricted stock awards.
In the future, awards under
23
our annual incentive compensation plan will also be awarded
pursuant to the new incentive plan in order to comply with
certain tax provisions discussed under Effect of
Accounting and Tax Treatment on Compensation Decisions
below.
Employment
Agreements and Post-Termination Compensation
We have entered into employment agreements with each of
Mr. Boston, Mr. Wilkins, Mr. Herhusky and
Dr. McCluskey. These agreements provide the executive with
severance payments upon certain terminations, including
termination in connection with a
change-in-control,
which are commonly referred to as double-trigger provisions,
terminations without cause, terminations by the executive for
good reason in the event of a change of control, or if the
executives employment agreement is not assumed by a
successor entity in a change of control. We believe that these
agreements were necessary to attract some of our NEOs and help
in our retention of our NEOs due to the prevalence of similar
provisions in the market in which we compete for executives and
so that we can be competitive with our peers.
In September 2007, we entered into an amendment and restatement
of our employment agreements with Mr. Boston and
Mr. Wilkins to provide for additional severance payments
for certain terminations in connection with a change of control
and to provide that if severance payments payable by us become
subject to the excise tax on excess parachute
payments that we will reimburse him for the amount of such
excise tax (and the income and excise taxes on such
reimbursement). We agreed to provide Mr. Boston and
Mr. Wilkins with these changes in anticipation of our
initial public offering to reflect what we think are prevalent
practices in the marketplace in which we compete for executives,
because as a newly public company we want these officers to be
able to focus on our operations and not be distracted by their
personal situations in the event a change in control transaction
arises and, in the case of Mr. Boston, to reflect his
long-term commitment to us and our long-term commitment to him
as our Chief Executive Officer. For Mr. Wilkins, we
determined that in light of his shorter tenure with us, the
additional severance benefits in connection with a change of
control would not be effective until after February 28,
2009. Additional information regarding these agreements,
including a quantification of benefits that would be received by
these officers had termination occurred on December 31,
2007, is found below under the heading Potential Payments
on Termination or
Change-in-Control.
Effect
of Accounting and Tax Treatment on Compensation
Decisions
Section 162(m) of the Internal Revenue Code of 1986, as
amended, generally imposes a $1 million limit on the amount
that a public company may deduct for compensation paid to a
companys CEO or, based upon recent guidance from the IRS,
any of the companys three other most highly compensated
executive officers (other than the CFO) 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
individuals performance meets pre-established objective
goals based on performance criteria approved by stockholders)
that is established by a committee that consists only of
outside directors as defined for purposes of
Section 162(m). For 2007, we did not consider
Section 162(m) because most of our compensation awards were
made prior to the time we became a public company. However, all
members of the compensation committee qualify as outside
directors, and we intend to consider the potential
long-term impact of Section 162(m) when establishing
compensation, and we currently expect to qualify our
compensation programs as performance-based compensation within
the meaning of the Internal Revenue Code to the extent that
doing so remains consistent with our compensation philosophy and
objectives.
Role
of Executives in Executive Compensation Decisions
Historically, each element of compensation has been recommended
to the compensation committee by our Chief Executive Officer for
compensation of executive officers other than himself, and the
compensation committee determines the target level of
compensation for each executive officer. Our Chief Executive
Officer sets the MBO targets for our other executive officers
based on his MBO targets and our annual corporate performance
goals, after taking into account the sphere of responsibility
for achievement of those goals for the
24
particular NEO. The Chief Executive Officer reports the MBOs of
the other NEOs and other key executives to the compensation
committee for its comment prior to the end of the first quarter.
The amount of each element of compensation for our Chief
Executive Officer is determined by the compensation committee.
Neither our Chief Executive Officer nor any of our other
executives participates in deliberations relating to his or her
own compensation.
Compensation
Committee Report
The compensation committee reviewed and discussed the above
Compensation Discussion and Analysis (CD&A)
with the Companys management. Based on its review and
discussions with the Companys management, the compensation
committee recommended that the CD&A be included in the
Companys Proxy Statement and in the Companys Annual
Report on
Form 10-K
(including by incorporation to the Proxy Statement).
Compensation Committee (March 28, 2008)
Phillip A.
Clough (Chair)
Jean C. Halle
David L. Warnock
Compensation
Tables and Disclosures
Summary
Compensation Table
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Non-Equity
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Incentive
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All
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Stock
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Option
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Plan
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Other
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Salary
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Awards
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Awards
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Compensation
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Compensation
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Total
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Name and Principal Position
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Year
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($)
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($)(2)
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($)(2)
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($)(3)
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($)(4)
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($)(5)
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Wallace E. Boston, Jr.(1)
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2007
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297,885
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31,640
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48,787
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180,000
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21,174
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579,486
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President and Chief
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2006
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243,077
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18,348
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147,000
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13,691
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422,116
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Executive Officer
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Harry T. Wilkins
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2007
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209,605
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14,240
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428,210
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103,549
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17,128
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772,732
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Executive Vice
President, Chief
Financial Officer
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James H. Herhusky
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2007
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207,999
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480
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|
25,981
|
|
|
|
102,500
|
|
|
|
16,169
|
|
|
|
353,129
|
|
Executive Vice
|
|
|
2006
|
|
|
|
204,038
|
|
|
|
|
|
|
|
21,704
|
|
|
|
102,500
|
|
|
|
14,069
|
|
|
|
342,311
|
|
President, Institutional Advancement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr. Frank B. McCluskey
|
|
|
2007
|
|
|
|
174,615
|
|
|
|
2,060
|
|
|
|
34,357
|
|
|
|
87,500
|
|
|
|
11,343
|
|
|
|
309,875
|
|
Executive Vice
|
|
|
2006
|
|
|
|
169,517
|
|
|
|
|
|
|
|
29,542
|
|
|
|
85,000
|
|
|
|
16,754
|
|
|
|
300,813
|
|
President, Provost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mark Leuba
|
|
|
2007
|
|
|
|
179,615
|
|
|
|
1,180
|
|
|
|
33,034
|
|
|
|
86,625
|
|
|
|
10,601
|
|
|
|
311,055
|
|
Senior Vice President,
Chief Information
Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Mr. Boston served as both our principal executive officer
and principal financial officer until February 2007 when
Mr. Wilkins became our principal financial officer when he
joined us as Chief Financial Officer. |
|
(2) |
|
Amounts reflect the dollar amount that will be recognized for
financial statement reporting purposes for 2007, as computed in
accordance with the provisions of Statement of Financial
Accounting Standards (SFAS) No. 123R,
Share-based Payments, which we refer to as
FAS 123R, other than disregarding any estimates of
forfeitures relating to service-based vesting conditions. See
Note 9 of our consolidated |
25
|
|
|
|
|
financial statements for the year ended December 31, 2006
included in our Annual Report for the year ended
December 31, 2007 regarding assumptions underlying
valuation of equity awards in 2006. For 2007, our determination
of the fair value of these stock option awards was affected by
the estimated fair value of our common stock on the date of
grant, as well as assumptions regarding a number of highly
complex and subjective variables. We calculate the expected term
of stock option awards using the simplified method
as defined by Staff Accounting Bulletin No. 107
because we lack historical data and are unable to make
reasonable expectations regarding the future. We also estimate
forfeitures of share-based awards at the time of grant and
revise such estimates in subsequent periods if actual
forfeitures differ from original projections. We make
assumptions with respect to expected stock price volatility
based on the average historical volatility of peers with similar
attributes. In addition, we determine the risk free interest
rate by selecting the U.S. Treasury constant maturity, quoted on
an investment basis in effect at the time of grant for that
business day. Estimates of fair value are subjective and are not
intended to predict actual future events, and subsequent events
are not indicative of the reasonableness of the original
estimates of fair value made under FAS 123R. |
|
(3) |
|
Amounts represent annual incentive payments paid pursuant to our
Annual Incentive Compensation Plan based upon the achievement of
certain performance goals established by our compensation
committee for 2007. |
|
(4) |
|
Amounts in this column consist of (i) life insurance
premiums and 401(k) contribution matches by us; (ii) for
Mr. Herhusky and Mr. Wilkins, fringe benefit payment
in lieu of health benefits; (iii) for Mr. Boston and
Mr. Herhusky, a service anniversary gift, and (iv) in
2006 for Dr. McCluskey, reimbursement of relocation
expenses and commuting expenses for the period after he joined
us. |
2007
Grants of Plan-Based Awards
The following table sets forth information with respect to
grants of plan-based awards to our NEOs during 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated Future
|
|
|
Number
|
|
|
Option
|
|
|
Exercise
|
|
|
Grant Date
|
|
|
|
|
|
|
Payouts Under Non-
|
|
|
of
|
|
|
Awards:
|
|
|
or Base
|
|
|
Fair Value
|
|
|
|
|
|
|
Equity Incentive Plan
|
|
|
Shares
|
|
|
Number of
|
|
|
Price of
|
|
|
of Stock and
|
|
|
|
|
|
|
Awards(1)
|
|
|
of Stock
|
|
|
Shares of
|
|
|
Option
|
|
|
Option
|
|
|
|
Grant
|
|
|
Threshold
|
|
|
Target
|
|
|
or Units
|
|
|
Stock or
|
|
|
Awards
|
|
|
Awards
|
|
Name and Principal Position
|
|
Date
|
|
|
($)
|
|
|
($)
|
|
|
(#)(2)
|
|
|
Units (#)(3)
|
|
|
($/Sh)
|
|
|
($)(4)
|
|
|
Wallace E. Boston, Jr.
|
|
|
|
|
|
|
11,250
|
|
|
|
180,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/8/2007
|
|
|
|
|
|
|
|
|
|
|
|
32,265
|
|
|
|
|
|
|
|
|
|
|
|
1,348,032
|
|
|
|
|
11/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,390
|
|
|
|
20.00
|
|
|
|
664,085
|
|
Harry T. Wilkins
|
|
|
|
|
|
|
7,031
|
|
|
|
112,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2/9/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,000
|
|
|
|
5.46
|
|
|
|
|
|
|
|
|
2/9/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,272
|
|
|
|
3.96
|
|
|
|
311,039
|
|
|
|
|
2/9/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
126,682
|
|
|
|
3.96
|
|
|
|
392,148
|
|
|
|
|
11/8/2007
|
|
|
|
|
|
|
|
|
|
|
|
14,520
|
|
|
|
|
|
|
|
|
|
|
|
606,646
|
|
|
|
|
11/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,880
|
|
|
|
20.00
|
|
|
|
298,861
|
|
James H. Herhusky
|
|
|
|
|
|
|
6,406
|
|
|
|
102,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/8/2007
|
|
|
|
|
|
|
|
|
|
|
|
480
|
|
|
|
|
|
|
|
|
|
|
|
20,054
|
|
|
|
|
11/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,875
|
|
|
|
20.00
|
|
|
|
9,854
|
|
Dr. Frank B. McCluskey
|
|
|
|
|
|
|
5,469
|
|
|
|
87,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/8/2007
|
|
|
|
|
|
|
|
|
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
87,738
|
|
|
|
|
11/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,610
|
|
|
|
20.00
|
|
|
|
45,241
|
|
Mark Leuba
|
|
|
|
|
|
|
5,625
|
|
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5/4/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,400
|
|
|
|
9.66
|
|
|
|
20,270
|
|
|
|
|
5/4/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,118
|
|
|
|
7.00
|
|
|
|
30,405
|
|
|
|
|
11/8/2007
|
|
|
|
|
|
|
|
|
|
|
|
1,200
|
|
|
|
|
|
|
|
|
|
|
|
50,136
|
|
|
|
|
11/14/2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,475
|
|
|
|
20.00
|
|
|
|
28,766
|
|
26
|
|
|
(1) |
|
These columns show the range of cash payouts for 2007
performance pursuant to our Annual Incentive Compensation Plan.
As set forth in the Summary Compensation Table above, the target
for payments under each NEOs non-equity incentive award
was met. For a discussion of the performance goals established
by the compensation committee for these awards, see the section
titled Annual Incentive Cash Compensation in the
Compensation Discussion and Analysis. The threshold amounts in
this table represent the amounts that would have been paid if
only SSQ goals for one quarter were achieved, and the target
amounts are also the maximum that may be paid out pursuant to
our Annual Incentive Compensation Plan. |
|
(2) |
|
Amounts represent restricted stock awards granted pursuant to
the American Public Education, Inc. 2007 Stock Incentive Plan
and vest in three equal annual installments beginning on the
first anniversary following the closing of our initial public
offering on November 14, 2007. The formal issuance of the
shares of restricted stock was delayed until after the closing
of the initial public offering so that the shares of restricted
stock were not outstanding prior to the record time of the
special distribution made in connection with our initial public
offering. |
|
(3) |
|
Amounts for grants dated November 8, 2007, represent stock
option awards granted pursuant to the American Public Education,
Inc. 2007 Stock Incentive Plan and vest in three equal annual
installments beginning on the first anniversary following the
grant date. Amounts for grants dated February 9, 2007 and
May 4, 2007 to Mr. Wilkins and Mr. Leuba,
respectively, represent stock option awards granted pursuant to
the American Public Education, Inc. 2002 Stock Incentive Plan,
as amended, and reflect the effect of the adjustment as a result
of the special distribution discussed above under Compensation
Discussion and Analysis Equity Grant Practices. The
awards of 165,000 options to Mr. Wilkins and 11,000 options
to Mr. Leuba, prior to the adjustment as a result of the
special distribution, were each 40% vested at the date of grant,
with the remainder vesting in three equal annual installments
beginning on the first anniversary following the grant date. The
award of 55,000 options to Mr. Wilkins was fully vested at
the date of grant and exercised in full prior to the adjustment
to stock options as a result of the special distribution.
Dividends will not accrue on the stock option awards. |
|
(4) |
|
Amounts shown in this column represent the full grant date fair
market value of option awards granted in 2007, as determined
pursuant to FAS 123R. |
Narrative
Disclosure to Summary Compensation Table and Grants of
Plan-Based Awards Table
Employment
Agreements
For Mr. Boston, Mr. Wilkins, Mr. Herhusky and
Dr. McCluskey, the amounts disclosed in the tables above
are in part a result of the terms of their employment
agreements. We do not have employment agreements with our other
NEOs.
Mr. Bostons Employment
Agreement. In June 2004, we entered into an
employment agreement with Mr. Boston to serve as our
president and Chief Executive Officer with an initial term of
three years starting from June 21, 2004 and ending
June 21, 2007, which was subsequently amended to provide
for renewal until February 28, 2009 and annually thereafter
unless we give written notice of our intent not to renew at
least 30 days prior to the renewal date. Pursuant to his
agreement, Mr. Bostons initial base salary was set at
$225,000 per year, subject to annual review and adjustment by
our compensation committee. Under the agreement,
Mr. Bostons base salary may be reduced at any time as
part of a general salary reduction to all employees with annual
salaries in excess of $100,000, provided, however, that any
reduction shall be no more than the lesser of the median
percentage salary reduction applied to such employees or 20%.
Mr. Bostons employment agreement provides that he is
entitled to participate in our annual incentive plan with a
target award of up to 60% of his then base salary as determined
by our compensation committee and based upon the performance
goals set by that committee for the year.
In addition to a base salary and annual bonus, Mr. Boston
is entitled to receive such other benefits approved by our
compensation committee and made available to our other senior
executives and to participate
27
in plans and receive bonuses, incentive compensation and fringe
benefits as we may grant or establish from time to time.
Furthermore, under Mr. Bostons employment agreement,
we are required to pay or reimburse him for customary and
reasonable moving expenses he incurs in connection with any
subsequent relocation of our executive offices, including a
gross-up
amount in the event that the relocation expense amount is
considered taxable income to him. In his employment agreement,
Mr. Boston has agreed not to compete with us nor solicit
our employees for alternative employment during the term of his
agreement and for a period of one year after termination for any
reason.
Mr. Bostons base salary for 2007 was $300,000 and his
annual incentive compensation plan award for 2006 was targeted
at $180,000.
Mr. Wilkinss Employment
Agreement. Upon his hiring in February 2007, we
entered into an employment agreement with Mr. Wilkins to
serve as our executive vice president and chief financial
officer, which agreement was amended and restated on
October 10, 2007. The agreement has an initial term of
approximately three years commencing from January 29, 2007
and ending February 28, 2010 and will automatically renew
for additional one year terms unless we give written notice of
our intent not to renew at least 30 days prior to the
renewal date. Pursuant to his agreement, Mr. Wilkinss
initial base salary is set at $225,000 per year, subject to
annual review and adjustment by our compensation committee.
Under the agreement, Mr. Wilkinss base salary may be
reduced at any time as part of a general salary reduction to all
employees with annual salaries in excess of $100,000, provided,
however, that any reduction shall be no more than the lesser of
the median percentage salary reduction applied to such employees
or 20%. Pursuant to his employment agreement, Mr. Wilkins
is entitled to participate in our annual incentive plan with a
target award of up to 50% of his then base salary as determined
by our compensation committee and based upon the performance
goals set by that committee for the year.
In addition to a base salary and annual bonus, Mr. Wilkins
is entitled to receive such other benefits approved by our
compensation committee and made available to our other senior
executives and to participate in plans and receive bonuses,
incentive compensation and fringe benefits as we may grant or
establish from time to time. Furthermore, under
Mr. Wilkinss employment agreement, we are required to
pay or reimburse him for customary and reasonable moving
expenses he incurs in connection with any subsequent relocation
of our executive offices, including a
gross-up
amount in the event that the relocation expense amount is
considered taxable income to him. In his employment agreement,
Mr. Wilkins has agreed not to compete with us nor solicit
our employees for alternative employment during the term of his
agreement and for a period of one year after termination for any
reason.
Mr. Wilkinss base salary for 2007 was $225,000 and
his annual incentive compensation plan award for 2007 was
targeted at $103,537.
Mr. Herhusky and Dr. McCluskeys Employment
Agreements. We have employment agreements with
Mr. Herhusky and Dr. McCluskey that have similar
provisions to Mr. Bostons agreement, except with
respect to their positions, term renewal provisions and amounts
relating to their base salary and annual bonus. We entered into
the employment agreements with Mr. Herhusky to serve as
Executive Vice President for Institutional Advancement, and
Dr. McCluskey to serve as Executive Vice President and
Provost (Chief Academic Officer) beginning October 31, 2003
and April 10, 2005, respectively. Under their respective
employment agreements, Mr. Herhusky and McCluskey each have
an initial term of employment of three years from the date
employment commenced. Pursuant to their agreements,
Mr. Herhusky and Dr. McCluskey, respectively, had
$200,000 and $160,000 as their initial base salary and both were
eligible for an annual bonus of 50% of their base salary then in
effect. In 2007, Mr. Herhusky and Dr. McCluskeys
base salary and target annual bonuses were $205,000 and $175,000
and $102,500 and $87,500, respectively.
In addition, each of the above employment agreements provides
for payments upon certain terminations of the executives
employment. For a description of these termination provisions,
whether or not following a
change-in-control,
and a quantification of benefits that would be received by these
executives see the heading Potential Payments upon
Termination or
Change-in-Control
below.
28
2007
Outstanding Equity Awards at Fiscal Year-End
The following table sets forth information with respect to the
outstanding equity awards at fiscal year-end for our NEOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards(1)
|
|
|
Stock Awards
|
|
|
|
Number of
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
Securities
|
|
|
Securities
|
|
|
|
|
|
|
|
|
Shares or
|
|
|
Market Value of
|
|
|
|
Underlying
|
|
|
Underlying
|
|
|
|
|
|
|
|
|
Units of
|
|
|
Shares or Units
|
|
|
|
Unexercised
|
|
|
Unexercised
|
|
|
Option
|
|
|
Option
|
|
|
Stock That
|
|
|
of Stock That
|
|
|
|
Options (#)
|
|
|
Options (#)
|
|
|
Exercise
|
|
|
Expiration
|
|
|
Have Not
|
|
|
Have Not
|
|
Name
|
|
Exercisable
|
|
|
Unexercisable
|
|
|
Price ($)
|
|
|
Date
|
|
|
Vested (#)
|
|
|
Vested ($)(2)
|
|
|
Wallace E. Boston, Jr.
|
|
|
0
|
|
|
|
121,576
|
|
|
|
1.05
|
|
|
|
6/20/2014
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
126,390
|
|
|
|
20.00
|
|
|
|
11/13/2014
|
|
|
|
32,265
|
|
|
|
1,348,032
|
|
Harry T. Wilkins
|
|
|
25,318
|
|
|
|
75,954
|
|
|
|
3.96
|
|
|
|
2/8/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
65,873
|
|
|
|
60,808
|
|
|
|
3.96
|
|
|
|
2/8/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
56,880
|
|
|
|
20.00
|
|
|
|
11/13/2014
|
|
|
|
14,520
|
|
|
|
606,646
|
|
James H. Herhusky
|
|
|
15,197
|
|
|
|
60,788
|
|
|
|
3.30
|
|
|
|
2/27/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
1,875
|
|
|
|
20.00
|
|
|
|
11/13/2014
|
|
|
|
480
|
|
|
|
20,054
|
|
Dr. Frank B. McCluskey
|
|
|
23,486
|
|
|
|
60,788
|
|
|
|
1.67
|
|
|
|
4/10/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
15,197
|
|
|
|
60,788
|
|
|
|
3.30
|
|
|
|
2/27/2016
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
8,610
|
|
|
|
20.00
|
|
|
|
11/13/2014
|
|
|
|
2,100
|
|
|
|
87,738
|
|
Mark Leuba
|
|
|
0
|
|
|
|
27,354
|
|
|
|
1.05
|
|
|
|
1/23/2015
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
9,118
|
|
|
|
7.00
|
|
|
|
5/3/2017
|
|
|
|
|
|
|
|
|
|
|
|
|
0
|
|
|
|
5,475
|
|
|
|
20.00
|
|
|
|
11/13/2014
|
|
|
|
1,200
|
|
|
|
50,136
|
|
|
|
|
(1) |
|
The vesting date for each service-based option award that is not
otherwise fully vested is listed in the table below by
expiration date: |
|
|
|
Expiration Date
|
|
Vesting Schedule and Date
|
|
6/20/2014
|
|
Five equal installments on June 21, 2005, 2006, 2007, 2008 and
2009
|
11/29/2014
|
|
Five equal installments on May 15, 2005, 2006, 2007, 2008 and
2009
|
4/10/2015
|
|
Five equal installments on April 11, 2006, 2007, 2008, 2009 and
2010
|
2/27/2016
|
|
Five equal installments on February 28, 2007, 2008, 2009, 2010
and 2011
|
2/8/2017
|
|
Forty percent vested at date of grant with remainder vesting in
three equal installments on February 9, 2008, 2009 and 2010.
|
|
|
|
(2) |
|
The market value of the shares of common stock that have not
vested is based on the closing price of our common stock on The
NASDAQ Global Market of $41.78 on December 31, 2007. |
Option
Exercises and Stock Vested
The following table sets forth information with respect to
option exercises by our NEOs during 2007:
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
Number of Shares
|
|
|
Value Realized on
|
|
|
|
Acquired on
|
|
|
Exercise
|
|
Name
|
|
Exercise (#)
|
|
|
($)(1)
|
|
|
Wallace E. Boston, Jr.
|
|
|
132,000
|
|
|
|
1,289,640
|
|
Harry T. Wilkins
|
|
|
55,000
|
|
|
|
222,200
|
|
James H. Herhusky
|
|
|
|
|
|
|
|
|
Dr. Frank B. McCluskey
|
|
|
5,000
|
|
|
|
191,450
|
|
Mark Leuba
|
|
|
13,200
|
|
|
|
128,964
|
|
29
|
|
|
(1) |
|
The value realized on exercise is based on the difference
between the exercise price of the option and the fair market
value of our common stock, as determined by our board of
directors, or in the case of Dr. McCluskeys
acquisition, the closing price of our common stock on The NASDAQ
Global Market on the day of exercise, and the exercise price of
the option, multiplied by the number of shares acquired. |
Potential
Payments on Termination or
Change-in-Control
The section below describes the payments that may be made to our
NEOs in connection with a
change-in-control
or pursuant to certain termination events. In the absence of an
employment agreement or other arrangement, our NEOs are employed
at-will and are not entitled to any payments upon termination or
a
change-in-control
other than their accrued but unpaid salary or benefits.
Accordingly, the table below does not provide information for
Mr. Leuba.
The employment agreements for Mr. Boston, Mr. Wilkins,
Mr. Herhusky and Dr. McCluskey, described above, have
certain provisions that provide for payments to them in the
event of the termination of their respective employment.
Termination for cause, without good reason or by reason of
death. In the event that any of
Mr. Bostons, Mr. Wilkins,
Mr. Herhuskys or Dr. McCluskeys employment
is terminated by us for cause, by the executive
without good reason, or by reason of death (each of
cause and good reason as defined below),
we will pay to each of them or their estate, as the case may be,
their full base salary and benefits that are otherwise payable
to them through the termination date of their employment.
However, in the event that their employment is terminated
without good reason or by reason of their death, we
will also pay to them or their estate any earned, but unpaid,
amounts they are entitled to under any of our incentive
compensation plans or programs, including the annual bonus under
their employment agreements.
Termination by reason of disability. If any of
Mr. Bostons, Mr. Wilkins,
Mr. Herhuskys or Dr. McCluskeys employment
is terminated by reason of disability, we are required to pay to
them or their estates, as the case may be, the full base salary
or other benefits payable to them, including any earned, but
unpaid, amounts they are entitled to under any of our incentive
compensation plans or programs, including the annual bonus under
their employment agreements. However, payments made to them
during the time they are disabled shall be reduced by the sum of
the amounts, if any, payable to them at or prior to the time of
any payment under our disability benefit plans and which amounts
were not previously applied to reduce any payment.
Termination without cause or for good
reason. In the event that we terminate any of
Mr. Bostons, Mr. Wilkins,
Mr. Herhuskys or Dr. McCluskeys employment
without cause or they terminate their employment for
good reason, we are required to pay, or provide, to
them:
|
|
|
|
|
in a lump sum, the sum of (a) their full base salary
through the date of their termination, (b) a pro-rata
amount of their annual bonus for the current fiscal year,
provided that the necessary performance requirements were
satisfied, adjusted for the shorter period, through their
termination date, and (c) any compensation previously
deferred by them and any accrued vacation pay;
|
|
|
|
for a period of 12 months following their termination date,
an amount equal to the sum of their base salary and their annual
bonus, to the extent that their and our performance was
satisfying the relevant performance targets, adjusted for the
short period, after their termination date through the end of
the calendar year and, as to the remainder of the 12 month
period following the termination date, only if our net income
has increased from the same period in the prior year and the
performance targets established for the NEOs successor are
being satisfied in that period;
|
|
|
|
for a period of 12 months following their termination date
or any longer period provided for under the terms of any
benefit, a continuation of benefits to them or their family at a
level and in an amount that is at least equal to that which
would have been provided by us to them had they continued their
|
30
|
|
|
|
|
employment, provided, however, that if they become reemployed
and are eligible to receive any of the benefits that had been
provided by us, then the benefits we provide shall be
secondary; and
|
|
|
|
|
|
to the extent not otherwise paid or provided, for a period of
12 months following their termination date, any other
amounts or benefits required to be paid or provided or which
they are eligible to receive under any of our other existing
benefit schemes.
|
In addition, for each of Messrs. Boston and Herhusky, to
the extent that less than
331/3%
of all stock options granted to the executive are outstanding
and unexercisable on their termination date, such additional
options, if any, shall immediately accelerate and vest and
become exercisable. Pursuant to an amendment and restatement of
his employment agreement in August 2007, if we terminate
Mr. Bostons employment without cause or
he terminates his employment for good reason in
connection with a change of control, we will calculate the
amounts referred to in the last three bullet points above for a
24-month
period instead of a
12-month
period, will pay the amount in respect of the annual bonus for
that period based on his and our prior performance and not with
respect to future performance and will pay the amount in respect
of his base salary and annual bonus in a lump sum instead of in
accordance with our regular payroll practices. The amendment and
restatement of Mr. Bostons employment agreement also
provides that if severance payments payable by us become subject
to the excise tax on excess parachute payments
imposed by Section 4999 of the Internal Revenue Code
(IRC) or additional tax under Section 409A of
the IRC, we will reimburse him for the amount of such excise tax
(and the income and excise taxes on such reimbursement). We
entered into a similar amendment and restatement of
Mr. Wilkins agreement in August 2007, provided that
the provisions related to the termination of his employment in
connection with a change in control will not be effective until
after February 28, 2009.
Acceleration of options upon change of
control. Under Messrs. Bostons,
Wilkins and Herhuskys employment agreements,
immediately prior to a change of control (as defined below), all
stock options granted to them on or prior to the date of their
respective employment agreements that are outstanding
immediately prior to a change of control shall vest and become
fully exercisable.
For purposes of Mr. Bostons, Mr. Wilkins,
Mr. Herhuskys and Dr. McCluskeys
employment agreements, the following definitions apply:
|
|
|
|
|
refusal by the NEO to follow a written order of the Chairman of
our Board or of the Board;
|
|
|
|
the NEOs engagement in conduct materially injurious to us
or our reputation;
|
|
|
|
dishonesty of a material nature that relates to the performance
of the NEOs duties under their employment agreement; the
NEOs conviction for any crime involving moral turpitude or
any felony; and
|
|
|
|
the NEOs continued failure to perform his duties under his
employment agreement (except due to the NEOs incapacity as
a result of physical or mental illness) to the satisfaction of
our Board for a period of at least 30 consecutive days after
written notice is delivered to the NEO specifically identifying
the manner in which the NEO has failed to perform his duties.
|
|
|
|
|
|
Change of Control means:
|
|
|
|
|
|
our dissolution or liquidation, or a merger, consolidation or
reorganization of us with one or more other entities in which we
are not the surviving entity;
|
|
|
|
a sale of substantially all of our assets to another person or
entity; or
|
|
|
|
any transaction (including without limitation a merger or
reorganization in which we are the surviving entity) which
results in any person or entity owning 50% or more of the
combined voting power of all classes of our stock.
|
31
|
|
|
|
|
the assignment to the NEO of duties inconsistent in any material
respect with the NEOs position as set forth in, or in
accordance with, their employment agreement, excluding an
isolated, insubstantial and inadvertent action that we remedy
promptly after receipt of notice from the NEO;
|
|
|
|
any failure by us to comply with any provisions of the
NEOs employment agreement, excluding an isolated,
insubstantial and inadvertent action that we remedy promptly
after receipt of notice from the NEO;
|
|
|
|
there is a merger, acquisition or other similar affiliation with
another entity and the NEO does not continue in his position, or
any other office he holds at the time of the transaction, of the
most senior resulting entity succeeding to our business; and
|
|
|
|
any failure by us to require any successor or any party that
acquires control of us, whether directly or indirectly, by
purchase, merger, consolidation or otherwise, or all or
substantially all of our business
and/or
assets to assume expressly and agree to perform the NEOs
employment agreement in the same manner and to the same extent
that we would be required to perform it if no succession had
taken place.
|
32
Payment
and Benefit Estimates
The table below was prepared to reflect the estimated payments
that would have been made pursuant to the agreements described
above. The estimated payments were calculated as though the
applicable triggering event occurred, and the NEOs
employment was terminated, on December 31, 2007, using the
closing price of our common stock on the NASDAQ Global Market of
$41.78 on December 31, 2007. As discussed in the narrative
above, upon termination for cause, by the NEO without good
reason or upon death or disability, the NEO is generally only
entitled to receive amounts he is owed as of the termination
date (e.g., salary, benefits and, in limited cases, any
previously earned, but unpaid, annual incentive compensation).
Assuming a termination date of December 31, 2007, these
amounts are set forth in the tables above, and we have not
included any such amounts below. In addition, we have not
included these earned, but unpaid amounts, in the termination
events included in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated
|
|
|
Accelerated
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
|
|
|
Vesting
|
|
|
Vesting
|
|
|
Welfare
|
|
|
|
|
|
|
|
|
|
Severance
|
|
|
of Stock
|
|
|
of Restricted
|
|
|
Benefits
|
|
|
|
|
|
|
|
|
|
Pay(1)
|
|
|
Options
|
|
|
Stock
|
|
|
Continuation
|
|
|
|
|
|
|
|
Executive
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
Gross-Up
|
|
|
Total ($)
|
|
|
Wallace E. Boston, Jr.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination without Cause or by executive for Good Reason
|
|
|
480,000
|
|
|
|
917,591
|
|
|
|
449,344
|
|
|
|
12,000
|
|
|
|
|
|
|
|
1,858,935
|
|
Termination without cause or by executive for Good Reason in
connection with a
Change-in-Control
|
|
|
960,000
|
|
|
|
7,704,565
|
|
|
|
1,348,032
|
|
|
|
24,000
|
|
|
|
2,790,040
|
|
|
|
12,826,637
|
|
Harry T. Wilkins
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination without Cause or by executive for Good Reason
|
|
|
328,549
|
|
|
|
|
|
|
|
|
|
|
|
12,000
|
|
|
|
|
|
|
|
340,549
|
|
Termination without cause or by executive for Good Reason in
connection with a
Change-in-Control
|
|
|
328,549
|
|
|
|
6,411,237
|
|
|
|
606,646
|
|
|
|
12,000
|
|
|
|
3,539,948
|
|
|
|
10,898,380
|
|
James H. Herhusky
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination without Cause or by executive for Good Reason
|
|
|
307,500
|
|
|
|
|
|
|
|
|
|
|
|
3,904
|
|
|
|
|
|
|
|
311,404
|
|
Termination without cause or by executive for Good Reason in
connection with a
Change-in-Control
|
|
|
307,500
|
|
|
|
2,379,941
|
|
|
|
20,054
|
|
|
|
3,904
|
|
|
|
|
|
|
|
2,711,399
|
|
Dr. Frank B. McCluskey
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination without Cause or by executive for Good Reason
|
|
|
262,500
|
|
|
|
|
|
|
|
|
|
|
|
4,323
|
|
|
|
|
|
|
|
266,823
|
|
Termination without cause or by executive for Good Reason in
connection with a
Change-in-Control
|
|
|
262,500
|
|
|
|
4,355,303
|
|
|
|
87,738
|
|
|
|
4,323
|
|
|
|
|
|
|
|
709,864
|
|
Mark Leuba
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination in connection with a
Change-in-Control
|
|
|
|
|
|
|
1,550,498
|
|
|
|
50,136
|
|
|
|
|
|
|
|
|
|
|
|
1,600,634
|
|
|
|
|
(1) |
|
We have assumed for purposes of calculating the aggregate
severance pay that our net income and the NEOs
successors performance would be sufficient for the NEO to
receive the maximum payout. |
Compensation
Committee Interlocks and Insider Participation
No member of our compensation committee has ever been an
executive officer or employee of ours. None of our executive
officers currently serves, or has served during the last
completed fiscal year, on the compensation committee or board of
directors of any other entity that has one or more executive
officers serving as a member of our board of directors or
compensation committee.
33
PROPOSAL NO. 2
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
We are asking our stockholders to ratify the audit
committees selection of McGladrey & Pullen, LLP
(McGladrey & Pullen) as our independent
registered public accounting firm for the fiscal year ending
December 31, 2008. Although ratification is not required by
our bylaws or otherwise, the Board is submitting the selection
of McGladrey & Pullen to our stockholders for
ratification as a matter of good corporate practice. If the
selection is not ratified, the audit committee will consider
whether it is appropriate to select another registered public
accounting firm. Even if the selection is ratified, the audit
committee in its discretion may select a different registered
public accounting firm at any time during the year if it
determines that such a change would be in the best interests of
American Public Education and our stockholders.
The Board first approved McGladrey & Pullen as our
independent auditors in October 2007, and McGladrey &
Pullen audited our financial statements for the fiscal year
ended December 31, 2007. Representatives of
McGladrey & Pullen are expected to be present at the
meeting. They will be given an opportunity to make a statement
at the meeting if they desire to do so, and they will be
available to respond to appropriate questions.
Principal
Accountant Fees and Services
We regularly review the services and fees of our independent
accountants. These services and fees are also reviewed by the
audit committee on an annual basis. The aggregate fees billed
for the fiscal years ended December 31, 2007 and 2006 for
each of the following categories of services are as follows:
|
|
|
|
|
|
|
|
|
Fee Category
|
|
2007
|
|
|
2006
|
|
|
Audit Fees
|
|
$
|
220,000
|
|
|
$
|
107,000
|
|
Audit-Related Fees
|
|
|
346,000
|
|
|
|
0
|
|
Tax Fees
|
|
|
70,000
|
|
|
|
84,900
|
|
All Other Fees
|
|
|
0
|
|
|
|
0
|
|
Total Fees
|
|
$
|
636,000
|
|
|
$
|
191,900
|
|
Audit Fees. Consist of fees billed for
professional services rendered for the audit of our annual
financial statements and services provided in connection with
our securities offerings and registration statements.
Audit-Related Fees. Consist of fees billed for
assurance and related services that are reasonably related to
the performance of the audit or review of our financial
statements and are not reported under Audit Fees.
Includes fees filled for SAS No. 100 and IPO related
services.
Tax Fees. Consist of fees billed for tax
compliance, tax advice and tax planning. Includes fees for tax
return preparation.
All Other Fees. Consist of fees billed for
products and services, other than those described above under
Audit Fees, Audit-Related Fees and Tax Fees.
During the fiscal years ended December 31, 2007 and 2006,
McGladrey & Pullen has provided various services, in
addition to auditing our financial statements. The audit
committee has determined that the provision of such services is
compatible with maintaining McGladrey & Pullens
independence. In 2007, all fees paid to McGladrey &
Pullen were pre-approved pursuant to the policy described below.
Audit
Committees Pre-Approval Policies and Procedures
The audit committee reviews with McGladrey & Pullen
and management the plan and scope of McGladrey &
Pullens proposed annual financial audit and quarterly
reviews, including the procedures to be utilized and
McGladrey & Pullens compensation. The audit
committee also pre-approves all auditing services, internal
control related services and permitted non-audit services
(including the fees and terms thereof) to be performed for us by
McGladrey & Pullen, subject to the de minimus
exception for non-audit services that are approved by the audit
committee prior to the completion of an audit. The audit
committee may delegate pre-
34
approval authority to one or more members of the audit committee
consistent with applicable law and listing standards, provided
that the decisions of such audit committee member or members
must be presented to the full audit committee at its next
scheduled meeting.
Audit
Committee Report
THE FOLLOWING REPORT OF THE AUDIT COMMITTEE DOES NOT CONSTITUTE
SOLICITING MATERIAL AND SHOULD NOT BE DEEMED FILED OR
INCORPORATED BY REFERENCE INTO ANY OTHER FILING BY US UNDER THE
SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934,
EXCEPT TO THE EXTENT WE SPECIFICALLY INCORPORATE THIS REPORT.
During 2007, in anticipation of our initial public offering, the
composition of our audit committee was set to consist of F.
David Fowler, who serves as the chairperson, J. Christopher
Everett and Jean C. Halle. The audit committee operates under a
written charter adopted by the Board, which is available in the
Committees section of our corporate website, which is located at
www.americanpubliceducation.com. The audit committee
reviews the charter and proposes necessary changes on an annual
basis.
During the fiscal year ended December 31, 2007, the audit
committee fulfilled its duties and responsibilities generally as
outlined in its charter. The audit committee has:
|
|
|
|
|
reviewed and discussed with management our audited financial
statements for the fiscal year ended December 31, 2007;
|
|
|
|
discussed with McGladrey & Pullen, our independent
auditors for fiscal 2007, the matters required to be discussed
by Statement on Auditing Standards No. 61, Communication
with Audit Committees, as currently in effect; and
|
|
|
|
received the written disclosures and the letter from the
independent auditors required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit
Committees, as currently in effect, and has discussed with the
independent auditors their independence.
|
On the basis of the reviews and discussions referenced above,
the audit committee recommended to the Board that the audited
financial statements be included in our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007 for filing with
the SEC.
AUDIT
COMMITTEE (March 25, 2008)
F. David
Fowler, Chairperson
J. Christopher Everett
Jean C. Halle
SECTION 16(A)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires our directors, executive officers and 10% stockholders
to file reports of ownership of our equity securities. To our
knowledge, based solely on review of the copies of such reports
furnished to us related to the year ended December 31,
2007, all such reports were made on a timely basis, except for
one transaction reported late on a Form 4 by
Dr. McCluskey with respect to shares acquired following the
exercise of a stock option.
BENEFICIAL
OWNERSHIP OF COMMON STOCK
The following table sets forth certain information as of
March 31, 2008 (unless otherwise specified), with respect
to the beneficial ownership of our common stock by each person
who is known to own beneficially more than 5% of the outstanding
shares of common stock, each person currently serving as a
director, each
35
nominee for director, each Named Executive Officer (as defined
below), and all directors and executive officers as a group:
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Shares of Common
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Stock Beneficially
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Name and Address of Beneficial Owner
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Owned(1)
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Percentage of Class
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5% Stockholders:
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Entities affiliated with ABS Capital Partners(2)
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4,612,952
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25.8
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%
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Directors and Named Executive Officers
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Wallace E. Boston, Jr.(3)
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340,265
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1.9
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%
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Phillip A. Clough(2)
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4,614,328
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25.9
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%
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J. Christopher Everett
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16,162
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*
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F. David Fowler(5)
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14,524
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*
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Jean C. Halle
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16,523
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*
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David L. Warnock(4)
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834,888
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4.7
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%
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Timothy T. Weglicki(2)
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4,614,328
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25.9
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%
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Harry T. Wilkins(6)
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351,911
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2.0
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%
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James H. Herhusky(7)
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420,953
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2.4
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%
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Dr. Frank B. McCluskey(8)
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48,085
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*
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Mark L. Leuba(9)
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32,537
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*
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All of our directors and executive officers as a group
(13 persons)(10)
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6,793,946
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37.5
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%
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* |
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Represents beneficial ownership of less than 1%. |
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(1) |
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Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or investment power
with respect to securities. Shares of common stock subject to
options or warrants currently exercisable or exercisable within
60 days of March 31, 2008 are deemed outstanding for
purposes of computing the percentage ownership of the person
holding such options, but are not deemed outstanding for
purposes of computing the percentage ownership of any other
person. Except where indicated otherwise, and subject to
community property laws where applicable, the persons named in
the table above have sole voting and investment power with
respect to all shares of common stock shown as beneficially
owned by them. |
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(2) |
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Includes: |
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(i) |
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4,082,018 shares of common stock held of record by ABS
Capital Partners IV, L.P. (Fund IV); |
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(ii) |
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136,677 shares of common stock held of record by ABS
Capital Partners IV-A, L.P.; |
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(iii) |
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234,791 shares of common stock held of record by ABS
Capital Partners IV Offshore, L.P.; and |
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(iv) |
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159,826 shares of common stock held of record by ABS
Capital Partners IV Special Offshore, L.P. (together with
Fund IV, ABS Capital Partners IV-A, L.P. and ABS Capital
Partners IV Offshore, L.P., the ABS Entities). |
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ABS Partners IV, L.L.C. is the general partner of the ABS
Entities and has voting and dispositive power over these shares,
which is shared by Messrs. Clough and Weglicki, Donald B.
Hebb, Jr., John D. Stobo, Jr. Frederic G. Emry, Ashoke Goswami,
Ralph S. Terkowitz and Laura L. Witt (the Managers)
as the managing members of ABS Partners IV, L.L.C. Each of the
Managers, including Messrs. Clough and Weglicki who both
serve on our board of directors, disclaims beneficial ownership
of these shares except to the extent of their respective
pecuniary interests. The address for these entities is 400 East
Pratt Street, Suite 910, Baltimore, Maryland 21202.
Fund IV has shared voting and dispositive power over the
shares owned of record by each of the other ABS Entities
pursuant to the terms of an Irrevocable Proxy and Power of
Attorney that each of the other ABS Entities entered into with
Fund IV. Under the terms of each Irrevocable Proxy and
Power of Attorney Fund IV is entitled to vote or dispose of
the shares of the |
36
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granting party to the extent such party could take such action.
The Irrevocable Proxy and Power of Attorney remains in full
force and effect until such time that Fund IV terminates it. |
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(3) |
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Includes 62,814 shares of common stock held of record by
The Boston Family LLC, which is 98% owned by trusts for the
benefit of the Mr. Bostons family members.
Mr. Boston is the managing member of The Boston Family LLC
and has voting and dispositive power over the shares.
Mr. Boston disclaims beneficial ownership of the shares
except to the extent of his pecuniary interest therein. |
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(4) |
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Includes: |
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(i) |
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800,282 shares of common stock held of record by Camden
Partners Strategic Fund III, L.P.; and |
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(ii) |
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33,258 shares of common stock held of record by Camden
Partners Strategic
Fund III-A,
L.P. (together with Camden Partners Strategic Fund III,
L.P., the Camden Entities). |
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Camden Partners Strategic III, LLC is the general partner of the
Camden Entities and its managing member is Camden Partners
Strategic Manager, LLC, which has sole voting and dispositive
power over these shares. The managing members of Camden Partners
Strategic Manager, LLC, are Mr. Warnock, Donald W. Hughes,
Richard M. Berkeley and Richard M. Johnston (the Camden
Members). Each of the Camden Managers, including
Mr. Warnock who serves on our board of directors, disclaims
beneficial ownership of these shares except to the extent of
their respective pecuniary interests. The address for these
entities is 500 East Pratt Street, Suite 1200, Baltimore,
Maryland 21202. |
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(5) |
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Includes 12,664 shares of common stock issuable upon
exercise of options that are exercisable within 60 days of
March 31, 2008. |
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(6) |
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Includes: |
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(i) |
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136,779 shares of common stock issuable upon exercise of
options that are exercisable within 60 days of
March 31, 2008; |
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(ii) |
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46,611 shares of common stock held of record by Wilkins
Asset Management, Inc., in which company Mr. Wilkins has an
interest. Mr. Wilkins disclaims beneficial ownership of the
shares except to the extent of his pecuniary interest therein;
and |
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(iii) |
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99,000 shares of common stock held of record by WLM
Investments, LLC. Mr. Wilkins is a member of WLM
Investments, LLC and disclaims beneficial ownership of the
shares except to the extent of his pecuniary interest therein. |
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(i) |
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30,394 shares of common stock issuable upon exercise of
options that are exercisable within 60 days of
January 31, 2008; |
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(ii) |
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348,359 shares of common stock held of record by The James
Harold Herhusky Trust dated September 26, 2007, for which
trust Mr. Herhusky serves as trustee.
Mr. Herhusky disclaims beneficial ownership of the shares
except to the extent of his pecuniary interest therein; and |
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(iii) |
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35,000 shares of common stock held of record by The
Herhusky Group, LLC. Mr. Herhusky is the sole manager and
officer of The Herhusky Group, LLC and disclaims beneficial
ownership of the shares except to the extent of his pecuniary
interest therein. |
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(8) |
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Includes 45,985 shares of common stock issuable upon
exercise of options that are exercisable within 60 days of
March 31, 2008. |
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(9) |
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Includes 3,039 shares of common stock issuable upon
exercise of options that are exercisable within 60 days of
March 31, 2008. |
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(10) |
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The shares of common stock shown as beneficially owned by all
directors and executive officers as a group include
266,347 shares of common stock issuable upon exercise of
options that are exercisable within 60 days of
March 31, 2008. |
37
GENERAL
MATTERS
Availability
of Certain Documents
A copy of our 2007 Annual Report on
Form 10-K
has been mailed concurrently with this Proxy Statement to all
stockholders entitled to notice of and to vote at the Annual
Meeting. We will mail without charge, upon written request, a
copy of our 2007 Annual Report on
Form 10-K
excluding exhibits. Please send a written request to our
Corporate Secretary at:
American Public Education, Inc.
111 W. Congress Street
Charles Town, West Virginia 25414
Attention: Corporate Secretary
These documents are also available in the Financial Information
section of our corporate website, which is located at
www.americanpubliceducation.com, and can be requested
through the Contact Us section of our corporate website.
The charters for our audit, compensation and nominating and
corporate governance committees, as well as our Guidelines and
our Code of Ethics, are in the Committees section of our
corporate website, which is located at
www.americanpubliceducation.com, and are also available
in print without charge by writing to the address above.
Stockholder
Proposals and Nominations
Requirements for Stockholder Proposals to be Considered for
Inclusion in our Proxy Materials. To be
considered for inclusion in next years proxy statement,
stockholder proposals must be received by our Corporate
Secretary at our principal executive offices no later than the
close of business on December 9, 2008.
Requirements for Stockholder Proposals to be Brought Before
an Annual Meeting. Our bylaws provide that, for
stockholder nominations to the Board or other proposals to be
considered at an annual meeting, the stockholder must have given
timely notice thereof in writing to the Corporate Secretary at
American Public Education, Inc., 111. W. Congress Street,
Charles Town, West Virginia 25414, Attn: Corporate Secretary. To
be timely for the 2009 annual meeting, the stockholders
notice must be delivered to or mailed and received by us not
more than 120 days, and not less than 90 days, before
the anniversary date of the preceding annual meeting, except
that if the annual meeting is set for a date that is not within
30 days before or 60 days after such anniversary date,
we must receive the notice not later than the close of business
on the tenth day following the day on which we provide notice or
public disclosure of the date of the meeting. Such notice must
provide the information required by our bylaws with respect to
each matter the stockholder proposes to bring before the 2009
annual meeting.
Other
Matters
As of the date of this Proxy Statement, the Board does not
intend to present any matters other than those described herein
at the Annual Meeting and is unaware of any matters to be
presented by other parties. If other matters are properly
brought before the meeting for action by the stockholders,
proxies returned to us in the enclosed form will be voted in
accordance with the recommendation of the Board or, in the
absence of such a recommendation, in accordance with the
judgment of the proxy holder.
By Order of the Board of Directors
Wallace E. Boston, Jr.
President and Chief Executive Officer
38
AMERICAN PUBLIC EDUCATION, INC.
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 16, 2008
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Wallace E. Boston, Jr. and Phillip A.
Clough as proxies, each with full power of substitution, to represent and vote as designated on the reverse side, all the shares of Common Stock of American Public Education, Inc. held of record by the undersigned on March 31, 2008, at the Annual Meeting of Stockholders to be held at 8:00 a.m. located at Westfields Marriott Washington Dulles, 14750 Conference Center Drive, Chantilly, Virginia 20151, on May 16, 2008, or any adjournment or postponement thereof.
(Continued and to be signed on the reverse side)
ANNUAL MEETING OF STOCKHOLDERS OF
AMERICAN PUBLIC EDUCATION, INC.
May 16, 2008
Date, sign and mail your proxy card in the envelope provided as soon as possible.
Please detach along perforated line and mail in the envelope provided.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF DIRECTORS AND FOR PROPOSAL 2. PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN HERE ý
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1.
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Election of Directors: |
NOMINEES: |
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FOR
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AGAINST
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ABSTAIN |
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2. |
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To ratify the appointment of McGladrey & Pullen, LLP as the independent registered public accounting firm for the Company for the fiscal year ending December 31, 2008.
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FOR ALL NOMINEES
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¡ ¡ |
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Wallace E. Boston, Jr. Phillip A. Clough |
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WITHHOLD AUTHORITY FOR ALL |
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¡ ¡ |
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J. Christopher Everett F. David Fowler |
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3. |
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In their discretion, the proxies are authorized to vote upon such other business as may properly come before the meeting.
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NOMINEES FOR ALL EXCEPT (See instructions below) |
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Jean C. Halle David L. Warnock |
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¡ |
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Timothy T. Weglicki |
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INSTRUCTION: To withhold authority to vote for any individual nominee(s), mark FOR ALL EXCEPT and fill in the circle next to each nominee you wish to withhold, as shown here:
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This proxy is solicited on behalf of the Board of Directors of the Company. This proxy, when properly executed, will be voted in accordance with the instructions given above. If no
instructions are given, this proxy will be voted FOR election of the Directors and FOR proposal 2.
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To change the address on your account, please check the box at right and indicate your new address in the address space above. Please note that changes to the registered name(s) on the account may not be submitted via this method.
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