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Exhibit 10.29
APEX ONLINE LEARNING INC.
SHAREHOLDERS AGREEMENT
This Agreement dated as of July 2, 1999, is entered into by and among
Apex Online Learning Inc., a Washington corporation (the "Company"), The Edison
Project Inc., a Delaware corporation (the "Purchaser") and the existing
Shareholders of the Company listed on Exhibit A attached hereto (the "Existing
Shareholders") (the Purchaser and the Existing Shareholders are referred to
collectively herein as the "Shareholders").
Recitals
WHEREAS, the Company and the Shareholders desire to provide for certain
arrangements with respect to (i) the registration of shares of capital stock of
the Company under the Securities Act of 1933, (ii) the Shareholders' right of
first refusal with respect to certain issuances of securities of the Company,
(iii) certain negative covenants of the Company; and (iv) the continuing
representation of the Shareholders on the Board of Directors of the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. Certain Definitions.
As used in Section 2 of this Agreement, the following terms shall have
the following respective meanings:
"Commission" means the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, $0.001 par value per
share, of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Initiating Holders" means the Shareholders initiating a
request for registration pursuant to Section 2.1(a) or 2.1(b), as the case may
be.
"Initial Public Offering" means the initial underwritten
public offering of shares of Common Stock pursuant to an effective Registration
Statement.
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"Other Holders" shall have the meaning set forth in Section
2.1(d).
"Prospectus" means the prospectus included in any Registration
Statement, as amended or supplemented by an amendment or prospectus supplement,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
"Registration Statement" means a registration statement filed
by the Company with the Commission for a public offering and sale of securities
of the Company (other than a registration statement on Form S-8 or Form S-4, or
their successors, or any other form for a similar limited purpose, or any
registration statement covering only securities proposed to be issued in
exchange for securities or assets of another corporation).
"Registration Expenses" means the expenses described in
Section 2.4.
"Registrable Shares" means (i) the shares of Common Stock
issued or issuable upon conversion of the Shares, (ii) any shares of Common
Stock, and any shares of Common Stock issued or issuable upon the conversion or
exercise of any other securities, acquired by the Purchasers pursuant to Section
3 of this Agreement and (iii) any other shares of Common Stock issued in respect
of such shares (because of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events); provided, however, that shares of Common
Stock which are Registrable Shares shall cease to be Registrable Shares upon (i)
any sale pursuant to a Registration Statement or Rule 144 under the Securities
Act or (ii) any sale in any manner to a person or entity which, by virtue of
Section 6 of this Agreement, is not entitled to the rights provided by this
Agreement. Wherever reference is made in this Agreement to a request or consent
of holders of a certain percentage of Registrable Shares, the determination of
such percentage shall include shares of Common Stock issuable upon conversion of
the Shares even if such conversion has not been effected.
"Securities Act" means the Securities Act of 1933, as amended,
or any successor federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Selling Shareholder" means any Shareholder owning Registrable
Shares included in a Registration Statement.
"Shares" shall have the meaning set forth in Section 7 below.
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2. Registration Rights
2.1 Required Registrations.
(a) At any time after the earlier of (x) July 2, 2002, or
(y) six months after the closing of the Initial Public Offering, a Shareholder
or Shareholders holding in the aggregate at least 35% of the Registrable Shares
then outstanding may request, in writing, that the Company effect the
registration on Form S-1 or Form S-2 (or any successor form) of Registrable
Shares owned by such Shareholder or Shareholders having an aggregate value of at
least $5,000,000 (based on the then current market price or fair value).
(b) At any time after the Company becomes eligible to file
a Registration Statement on Form S-3 (or any successor form relating to
secondary offerings), a Shareholder or Shareholders holding in the aggregate at
least 1,000,000 of the Registrable Shares then outstanding (as adjusted for
stock splits, stock dividends and similar recapitalizations) may request, in
writing, that the Company effect the registration on Form S-3 (or such successor
form), of Registrable Shares having an aggregate value of at least $1,000,000
(based on the then current public market price); provided, that if a Shareholder
requests registration at least one year after the Initial Public Offering and
the Company is not then eligible to use Form S-3 (or such successor form), the
Company shall effect such registration on Form S-1 or Form S-2 (or any successor
form).
(c) Upon receipt of any request for registration pursuant
to this Section 2, the Company shall promptly give written notice of such
proposed registration to all other Shareholders. Such Shareholders shall have
the right, by giving written notice to the Company within 30 days after the
Company provides its notice, to elect to have included in such registration such
of their Registrable Shares as such Shareholders may request in such notice of
election, subject in the case of an underwritten offering to the approval of the
managing underwriter as provided in Section 2.1(d) below. Thereupon, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration on an appropriate registration form of all Registrable Shares which
the Company has been requested to so register.
(d) If the Initiating Holders intend to distribute the
Registrable Shares covered by their request by means of an underwriting, they
shall so advise the Company as a part of their request made pursuant to Section
2.1(a) or (b), as the case may be, and the Company shall include such
information in its written notice referred to in Section 2.1(c). The right of
any other Shareholder to include its Registrable Shares in such registration
pursuant to Section 2.1(a) or (b), as the case may be, shall be conditioned upon
such other Shareholder's participation in such underwriting on the terms set
forth herein. If the managing underwriter determines that the marketing factors
require a limitation of the number of shares to be underwritten, the number of
Registrable Shares to be included in a Registration
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Statement filed pursuant to this Section 2.1, shall be reduced pro rata among
the requesting Shareholders based on the quotient of (1) the total Registrable
Shares to be included in the Registration Statement, divided by (2) the total
number of Registrable Shares that requested registration.
(e) The Initiating Holders shall have the right to select
the managing underwriter(s) for any underwritten offering requested pursuant to
Section 2.1(a) or (b), subject to the approval of the Company, which approval
will not be unreasonably withheld.
(f) The Company shall not be required to effect more than
two registrations pursuant to Section 2.1(a) or more than three registrations
pursuant to Section 2.1(b). In addition, the Company shall not be required to
effect any registration (other than on Form S-3 or any successor form relating
to secondary offerings) within six months after the effective date of any other
Registration Statement of the Company. For purposes of this Section 2.1(f), a
Registration Statement shall not be counted until such time as such Registration
Statement has been declared effective by the Commission (unless the Initiating
Holders withdraw their request for such registration (other than as a result of
information concerning the business or financial condition of the Company which
is made known to the Shareholders after the date on which such registration was
requested) and elect not to pay the Registration Expenses therefor pursuant to
Section 2.4).
(g) If at the time of any request to register Registrable
Shares by Initiating Holders pursuant to this Section 2.1, the Company is
engaged or has plans to engage in a registered public offering or is engaged in
any other activity which, in the good faith determination of the Company's Board
of Directors, would be adversely affected by the requested registration, then
the Company may at its option direct that such request be delayed for a period
not in excess of 90 days from the date of such request, such right to delay a
request to be exercised by the Company not more than once in any 12-month
period.
2.2 Incidental Registration.
(a) Whenever the Company proposes to file a Registration
Statement (other than a Registration Statement filed pursuant to Section 2.1) at
any time and from time to time, it will, prior to such filing, give written
notice to all Shareholders of its intention to do so; provided, that no such
notice need be given if no Registrable Shares are to be included therein as a
result of a determination of the managing underwriter pursuant to Section
2.2(b). Upon the written request of a Shareholder or Shareholders given within
20 days after the Company provides such notice (which request shall state the
intended method of disposition of such Registrable Shares), the Company shall
use its best efforts to cause all Registrable Shares which the Company has been
requested by such Shareholder or Shareholders to register to be registered under
the Securities Act to the extent necessary to permit
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their sale or other disposition in accordance with the intended methods of
distribution specified in the request of such Shareholder or Shareholders;
provided that the Company shall have the right to postpone or withdraw any
registration effected pursuant to this Section 2.2 without obligation to any
Shareholder.
(b) If the registration for which the Company gives
notice pursuant to Section 2.2(a) is a registered public offering involving an
underwriting, the Company shall so advise the Shareholders as a part of the
written notice given pursuant to Section 2.2(a). In such event, the right of any
Shareholder to include its Registrable Shares in such registration pursuant to
Section 2.2 shall be conditioned upon such Shareholder's participation in such
underwriting on the terms set forth herein. All Shareholders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for the underwriting by the Company, provided that such underwriting
agreement shall not provide for indemnification or contribution obligations on
the part of Shareholders materially greater than the obligations of the
Shareholders pursuant to Section 2.5. Notwithstanding any other provision of
this Section 2.2, if the managing underwriter determines that the inclusion of
all shares requested to be registered would adversely affect the offering, the
Company may limit the number of Registrable Shares to be included in the
registration and underwriting. The Company shall so advise all holders of
Registrable Shares requesting registration, and the number of shares that are
entitled to be included in the registration and underwriting shall be allocated
in the following manner. The securities of the Company held by holders other
than Shareholders and Other Holders shall be excluded from such registration and
underwriting to the extent deemed advisable by the managing underwriter, and, if
a further limitation on the number of shares is required, the number of shares
that may be included in such registration and underwriting shall be allocated
among all Shareholders and Other Holders requesting registration in proportion,
as nearly as practicable, to the respective number of shares of Common Stock (on
an as-converted basis) which they held at the time the Company gives the notice
specified in Section 2.2(a), provided that the number of Registrable Shares
permitted to be included therein shall in any event be at least 50% of the
securities included therein (based on aggregate market values). If any
Shareholder or Other Holder would thus be entitled to include more securities
than such holder requested to be registered, the excess shall be allocated among
other requesting Shareholders and Other Holders pro rata in the manner described
in the preceding sentence. If any holder of Registrable Shares or any officer,
director or Other Holder disapproves of the terms of any such underwriting, such
person may elect to withdraw therefrom by written notice to the Company, and any
Registrable Shares or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
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2.3 Registration Procedures.
(a) If and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any Registrable Shares under the Securities Act, the Company shall:
(i) file with the Commission a Registration
Statement with respect to such Registrable Shares and use its best efforts to
cause that Registration Statement to become effective as soon as possible;
(ii) as expeditiously as possible prepare
and file with the Commission any amendments and supplements to the Registration
Statement and the prospectus included in the Registration Statement as may be
necessary to comply with the provisions of the Securities Act (including the
anti-fraud provisions thereof) and to keep the Registration Statement effective
for 12 months from the effective date or such lesser period until all such
Registrable Shares are sold;
(iii) as expeditiously as possible furnish
to each Selling Shareholder such reasonable numbers of copies of the Prospectus,
including any preliminary Prospectus, in conformity with the requirements of the
Securities Act, and such other documents as such Selling Shareholder may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Shares owned by such Selling Stockholder;
(iv) as expeditiously as possible use its
best efforts to register or qualify the Registrable Shares covered by the
Registration Statement under the securities or Blue Sky laws of such states as
the Selling Shareholders shall reasonably request, and do any and all other acts
and things that may be necessary or desirable to enable the Selling Shareholders
to consummate the public sale or other disposition in such states of the
Registrable Shares owned by the Selling Shareholder; provided, however, that the
Company shall not be required in connection with this paragraph (iv) to qualify
as a foreign corporation or execute a general consent to service of process in
any jurisdiction;
(v) as expeditiously as possible, cause all
such Registrable Shares to be listed on each securities exchange or automated
quotation system on which similar securities issued by the Company are then
listed;
(vi) promptly provide a transfer agent and
registrar for all such Registrable Shares not later than the effective date of
such registration statement;
(vii) promptly make available for inspection
by the Selling Shareholders, any managing underwriter participating in any
disposition pursuant to such Registration Statement, and any attorney or
accountant or other
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agent retained by any such underwriter or selected by the Selling Shareholders,
all financial and other records, pertinent corporate documents and properties of
the Company and cause the Company's officers, directors, employees and
independent accountants to supply all information reasonably requested by any
such seller, underwriter, attorney, accountant or agent in connection with such
Registration Statement;
(viii) as expeditiously as possible, notify
each Selling Shareholder, promptly after it shall receive notice thereof, of the
time when such Registration Statement has become effective or a supplement to
any Prospectus forming a part of such Registration Statement has been filed; and
(ix) as expeditiously as possible following
the effectiveness of such Registration Statement, notify each seller of such
Registrable Shares of any request by the Commission for the amending or
supplementing of such Registration Statement or Prospectus.
(b) If the Company has delivered a Prospectus to the
Selling Shareholders and after having done so the Prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the Selling Shareholders and, if requested, the Selling Shareholders
shall immediately cease making offers of Registrable Shares and return all
Prospectuses to the Company. The Company shall promptly provide the Selling
Shareholders with revised Prospectuses and, following receipt of the revised
Prospectuses, the Selling Shareholders shall be free to resume making offers of
the Registrable Shares.
(c) In the event that, in the judgment of the
Company, it is advisable to suspend use of a Prospectus included in a
Registration Statement due to pending material developments or other events that
have not yet been publicly disclosed and as to which the Company believes public
disclosure would be detrimental to the Company, the Company shall notify all
Selling Shareholders to such effect, and, upon receipt of such notice, each such
Selling Shareholder shall immediately discontinue any sales of Registrable
Shares pursuant to such Registration Statement until such Selling Shareholder
has received copies of a supplemented or amended Prospectus or until such
Selling Shareholder is advised in writing by the Company that the then current
Prospectus may be used and has received copies of any additional or supplemental
filings that are incorporated or deemed incorporated by reference in such
Prospectus. Notwithstanding anything to the contrary herein, the Company shall
not exercise its rights under this Section 2.3(c) to suspend sales of
Registrable Shares for a period in excess of 60 days in any 365-day period.
2.4 Allocation of Expenses. The Company will pay all
Registration Expenses for all registrations under this Agreement; provided,
however, that if a registration under Section 2.1 is withdrawn at the request of
Initiating Holders holding at least a majority of the Registrable Shares as to
which registration was
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requested (other than as a result of information concerning the business or
financial condition of the Company which is made known to the Shareholders after
the date on which such registration was requested) and if such Initiating
Holders elect not to have such registration counted as a registration requested
under Section 2.1, the requesting Shareholders shall pay the Registration
Expenses of such registration pro rata in accordance with the number of their
Registrable Shares included in such registration. For purposes of this Section,
the term "Registration Expenses" shall mean all expenses incurred by the Company
in complying with this Agreement, including, without limitation, all
registration and filing fees, exchange listing fees, printing expenses, fees and
expenses of counsel for the Company and the fees and expenses of one counsel
selected by the Selling Shareholders to represent the Selling Shareholders,
state Blue Sky fees and expenses, and the expense of any special audits incident
to or required by any such registration, but excluding underwriting discounts,
selling commissions and the fees and expenses of Selling Shareholders' own
counsel (other than the counsel selected to represent all Selling Shareholders).
2.5 Indemnification and Contribution.
(a) In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company will indemnify and hold harmless the seller of such Registrable Shares,
each underwriter of such Registrable Shares, and each other person, if any, who
controls such seller or underwriter within the meaning of the Securities Act or
the Exchange Act against any losses, claims, damages or liabilities, joint or
several, to which such seller, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state securities or Blue Sky
laws or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in any Registration
Statement under which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus contained in the
Registration Statement, or any amendment or supplement to such Registration
Statement, or arise out of or are based upon the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company will reimburse such seller,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such seller, underwriter or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or omission made in such
Registration Statement, preliminary prospectus or prospectus, or any such
amendment or supplement, in reliance upon and in conformity with information
furnished to the Company, in writing, by or on behalf of such seller,
underwriter or controlling person specifically for use in the preparation
thereof.
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(b) In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, each
seller of Registrable Shares, severally and not jointly, will indemnify and hold
harmless the Company, each of its directors and officers and each underwriter
(if any) and each person, if any, who controls the Company or any such
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities, joint or several, to which
the Company, such directors and officers, underwriter or controlling person may
become subject under the Securities Act, Exchange Act, state securities or Blue
Sky laws or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement under which such Registrable Shares were registered under
the Securities Act, any preliminary prospectus or final prospectus contained in
the Registration Statement, or any amendment or supplement to the Registration
Statement, or arise out of or are based upon any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, if the statement or omission was made in
reliance upon and in conformity with information relating to such seller
furnished in writing to the Company by or on behalf of such seller specifically
for use in connection with the preparation of such Registration Statement,
prospectus, amendment or supplement; provided, however, that the obligations of
a Shareholder hereunder shall be limited to an amount equal to the net proceeds
to such Shareholder of Registrable Shares sold in connection with such
registration.
(c) Each party entitled to indemnification under this
Section (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld); and, provided, further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section except to the extent
that the Indemnifying Party is adversely affected by such failure. The
Indemnified Party may participate in such defense at such party's expense;
provided, however, that the Indemnifying Party shall pay such expense if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding; provided further that in no event shall the
Indemnifying Party be required to pay the expenses of more than one law firm per
jurisdiction as counsel for the Indemnified Party. The Indemnifying Party also
shall be responsible for the expenses of such defense if the Indemnifying Party
does not elect to assume such defense. No Indemnifying Party, in the defense of
any such claim or litigation shall,
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except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect of such claim or litigation, and no
Indemnified Party shall consent to entry of any judgment or settle such claim or
litigation without the prior written consent of the Indemnifying Party, which
consent shall not be unreasonably withheld.
(d) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in this
Section 2.5 is due in accordance with its terms but for any reason is held to be
unavailable to an Indemnified Party in respect to any losses, claims, damages
and liabilities referred to herein, then the Indemnifying Party shall, in lieu
of indemnifying such Indemnified Party, contribute to the amount paid or payable
by such Indemnified Party as a result of such losses, claims, damages or
liabilities to which such party may be subject in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and the
Shareholders on the other in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company and the
Shareholders shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of material fact related to information
supplied by the Company or the Shareholders and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and the Shareholders agree that it would not
be just and equitable if contribution pursuant to this Section 2.5 were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph of Section 2.5, (a) in no case
shall any one Shareholder be liable or responsible for any amount in excess of
the net proceeds received by such Shareholder from the offering of Registrable
Shares and (b) the Company shall be liable and responsible for any amount in
excess of such proceeds; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect of which a claim for contribution may be made
against another party or parties under this Section, notify such party or
parties from whom contribution may be sought, but the omission so to notify such
party or parties from whom contribution may be sought shall not relieve such
party from any other obligation it or they may have thereunder or otherwise
under this Section. No party shall be liable for contribution with respect to
any action, suit, proceeding or claim settled without its prior written consent,
which consent shall not be unreasonably withheld.
2.6 Other Matters with Respect to Underwritten Offerings. In
the event that Registrable Shares are sold pursuant to a Registration Statement
in an underwritten offering pursuant to Section 2.1, the Company agrees to (a)
enter into
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an underwriting agreement containing customary representations and warranties
with respect to the business and operations of the Company and customary
covenants and agreements to be performed by the Company, including without
limitation customary provisions with respect to indemnification by the Company
of the underwriters of such offering; (b) use its best efforts to cause its
legal counsel to render customary opinions to the underwriters and the Selling
Shareholders with respect to the Registration Statement; and (c) use its best
efforts to cause its independent public accounting firm to issue customary "cold
comfort letters" to the underwriters and the Selling Shareholders with respect
to the Registration Statement.
2.7 Information by Holder. Each holder of Registrable Shares
included in any registration shall furnish to the Company such information
regarding such holder and the distribution proposed by such holder as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this
Agreement.
2.8 "Stand-Off" Agreement; Confidentiality of Notices. Each
Shareholder, if requested by the Company and the managing underwriter of an
underwritten public offering by the Company of Common Stock, shall not sell or
otherwise transfer or dispose of any Registrable Shares or other securities of
the Company held by such Shareholder for a period of 180 days following the
effective date of a Registration Statement; provided, that:
(a) such agreement shall only apply to the Initial
Public Offering; and
(b) all Shareholders of the Company then holding at
least a majority of the outstanding Common Stock (on an as-converted basis) and
all officers and directors of the Company enter into similar agreements.
The Company may impose stop-transfer instructions with respect to the
Registrable Shares or other securities subject to the foregoing restriction
until the end of such 180-day period.
Any Shareholder receiving any written notice from the Company regarding
the Company's plans to file a Registration Statement shall treat such notice
confidentially and shall not disclose such information to any person other than
as necessary to exercise its rights under this Agreement.
2.9 Limitations on Subsequent Registration Rights. The Company
shall not, without the prior written consent of Shareholders holding at least a
majority of the Registrable Shares then held by all Shareholders, enter into any
agreement (other than this Agreement) with any holder or prospective holder of
any securities of the Company which grant such holder or prospective holder
rights to include securities of the Company in any Registration Statement,
unless (a) such
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rights to include securities in a registration initiated by the Company or by
Shareholders are not more favorable than the rights granted to Other Holders
under Sections 2.1 and 2.2 of this Agreement, and (b) no rights are granted to
initiate a registration, other than registration pursuant to a registration
statement on Form S-3 (or its successor) in which Shareholders are entitled to
include Registrable Shares on a pro rata basis with such holders based on the
number of shares of Common Stock (on an as-converted basis) owned by
Shareholders and such holders.
2.10 Rule 144 Requirements. After the earliest of (i) the
closing of the sale of securities of the Company pursuant to a Registration
Statement, (ii) the registration by the Company of a class of securities under
Section 12 of the Exchange Act, or (iii) the issuance by the Company of an
offering circular pursuant to Regulation A under the Securities Act, the Company
agrees to:
(a) make and keep current public information about
the Company available, as those terms are understood and defined in Rule 144;
(b) use its best efforts to file with the Commission
in a timely manner all reports and other documents required of the Company under
the Securities Act and the Exchange Act (at any time after it has become subject
to such reporting requirements); and
(c) furnish to any holder of Registrable Shares upon
request (i) a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements),
(ii) a copy of the most recent annual or quarterly report of the Company, and
(iii) such other reports and documents of the Company as such holder may
reasonably request to avail itself of any similar rule or regulation of the
Commission allowing it to sell any such securities without registration.
2.11 Termination. All of the Company's obligations to register
Registrable Shares under Sections 2.1 and 2.2 of this Agreement shall terminate
five years after the closing of the Initial Public Offering.
3. Right Of First Refusal
(a) The Company shall not issue, sell or exchange,
agree to issue, sell or exchange, or reserve or set aside for issuance, sale or
exchange, (i) any shares of its Common Stock, (ii) any other equity securities
of the Company, including, without limitation, shares of preferred stock, (iii)
any option, warrant or other right to subscribe for, purchase or otherwise
acquire any equity securities of the Company, or (iv) any debt securities
convertible into capital stock of the Company (collectively, the "Offered
Securities"), unless in each such case the Company shall have first complied
with this Section 3. The Company shall deliver to the
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Shareholders a written notice of any proposed or intended issuance, sale or
exchange of Offered Securities (the "Offer"), which Offer shall (i) identify and
describe the Offered Securities, (ii) describe the price and other terms upon
which they are to be issued, sold or exchanged, and the number or amount of the
Offered Securities to be issued, sold or exchanged, (iii) identify the persons
or entities (if known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (iv) offer to issue and sell to or
exchange with each Shareholder (A) a pro rata portion of the Offered Securities
determined by dividing the aggregate number of shares of Common Stock then held
by such Shareholder (giving effect to the conversion of all shares of
convertible preferred stock then held) by the total number of shares of Common
Stock then outstanding (giving effect to the conversion of all outstanding
shares of convertible preferred stock) (the "Basic Amount"), and (B) any
additional portion of the Offered Securities attributable to the Basic Amounts
of other Shareholders as such Shareholder shall indicate it will purchase or
acquire should the other Shareholders subscribe for less than their Basic
Amounts (the "Undersubscription Amount").
(b) To accept an Offer, in whole or in part, each
Shareholder must deliver a written notice to the Company prior to the end of the
30-day period of the Offer, setting forth the portion of such Shareholder's
Basic Amount that such Shareholder elects to purchase and, if such Shareholder
shall elect to purchase all of its Basic Amount, the Undersubscription Amount
(if any) that such Shareholder elects to purchase (the "Notice of Acceptance").
If the Basic Amounts subscribed for by all Shareholders are less than the total
of all of the Basic Amounts available for purchase, then each Shareholder who
has set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts subscribed for, the
Undersubscription Amount it has subscribed for; provided, however, that if the
Undersubscription Amounts subscribed for exceed the difference between the total
of all of the Basic Amounts available for purchase and the Basic Amounts
subscribed for (the "Available Undersubscription Amount"), the Shareholder who
has subscribed for any Undersubscription Amount shall be entitled to purchase
only that portion of the Available Undersubscription Amount as the
Undersubscription Amount subscribed for by such Shareholder bears to the total
Undersubscription Amounts subscribed for by all Shareholders, subject to
rounding by the Board of Directors to the extent it deems reasonably necessary.
(c) The Company shall have 90 days from the
expiration of the period set forth in Section 3(b) above to issue, sell or
exchange all or any part of such Offered Securities as to which a Notice of
Acceptance has not been given by a Shareholder (the "Refused Securities"), but
only to the offerees or purchasers described in the Offer (if so described
therein) and only upon terms and conditions (including, without limitation, unit
prices and interest rates) which are not more favorable, in the aggregate, to
the acquiring person or persons or less favorable to the Company than those set
forth in the Offer.
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(d) In the event the Company shall propose to sell
less than all the Refused Securities (any such sale to be in the manner and on
the terms specified in Section 3(c) above), then each Shareholder may, at its
sole option and in its sole discretion, reduce the number or amount of the
Offered Securities specified in its Notice of Acceptance to an amount that shall
be not less than the number or amount of the Offered Securities that the
Shareholder elected to purchase pursuant to Section 3(b) above multiplied by a
fraction, (i) the numerator of which shall be the number or amount of Offered
Securities the Company actually proposes to issue, sell or exchange (including
Offered Securities to be issued or sold to Shareholders pursuant to Section 3(b)
above prior to such reduction) and (ii) the denominator of which shall be the
original amount of the Offered Securities. In the event that the Shareholders so
elect to reduce the number or amount of Offered Securities specified in the
Notices of Acceptance, the Company may not issue, sell or exchange more than the
reduced number or amount of the Offered Securities unless and until such
securities have again been offered to the Shareholders in accordance with
Section 3(a) above.
(e) Upon the closing of the issuance, sale or
exchange of all or less than all of the Refused Securities, each Shareholder
shall acquire from the Company, and the Company shall issue to each Shareholder,
the number or amount of Offered Securities specified in the Notices of
Acceptance, as reduced pursuant to Section 3(d) above if the Shareholders have
so elected, upon the terms and conditions specified in the Offer. The purchase
by the Shareholders of any Offered Securities is subject in all cases to the
preparation, execution and delivery by the Company and the Shareholders of a
purchase agreement relating to such Offered Securities reasonably satisfactory
in form and substance to the Shareholders and their counsel.
(f) Any Offered Securities not acquired by the
Shareholders or other persons in accordance with Section 3(c) above may not be
issued, sold or exchanged until they are again offered to the Shareholders under
the procedures specified in this Agreement.
(g) The rights of the Shareholders under this Section
3 shall not apply to:
(1) Common Stock issued as a stock dividend
to holders of Common Stock or upon any subdivision or combination of shares of
Common Stock;
(2) the issuance of any shares of Common
Stock upon conversion of shares of convertible preferred stock;
(3) the issuance of up to the greater of (i)
4,441,208 shares (such number to be proportionately adjusted in the event of any
stock splits, stock dividends, recapitalizations or similar events occurring on
or after the date of this Agreement) or (ii) 25% of the capital stock of the
Company on a fully-diluted
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basis (assuming the conversion to Common Stock of all convertible securities and
the exercise of all outstanding options and warrants), or the grant of options
or warrants therefor, including shares issued upon exercise of options
outstanding on the date of this Agreement to officers, directors, consultants
and employees of the Company or any subsidiary pursuant to the Stock Option Plan
or any other plan, agreement or arrangement approved by a vote of not less than
a majority of the Board of Directors of the Company (it being understood that
any shares subject to options that expire or terminate unexercised shall not
count towards the maximum number set forth in this clause (3));
(4) securities issued solely in
consideration for the bona fide acquisition (whether by merger or otherwise) by
the Company or any of its subsidiaries of all or a majority of the stock or
substantially all of the assets or a discrete product line of any other entity;
(5) securities issued in connection with
bona fide technology licensing, distribution or similar corporate partnering
arrangements, provided that any such arrangements are approved by the Company's
Board of Directors and are not for equity financing purposes, and further
provided, that any options or warrants issued pursuant to such arrangements
shall count towards the maximum number set forth in clause (3) above;
(6) up to $10,000,000 of Preferred Stock of
the Company issued to a Subsequent Purchaser pursuant to Section 2.2 of the
Preferred Stock Purchase Agreement of even date herewith between the Company and
the Purchaser; or
(7) shares of Common Stock sold by the
Company in an underwritten public offering pursuant to an effective registration
statement under the Securities Act.
4. Voting of Shares. The parties hereto acknowledge and agree that the
Purchaser has the right to designate and elect a director of the Company in
accordance with the provisions of the Certificate of Designation establishing
the Series B Preferred.
5. Restrictions on Transfer.
5.1 General.
(a) Any sale, transfer or other disposition, whether
voluntarily or by operation of law ("Transfer") of any of the Shares, as defined
in Section 7 below, by a Shareholder, other than according to the terms of this
Agreement, shall be void and transfer no right, title, or interest in or to any
of such Shares to the purported transferee. For purposes of calculating a
Shareholder's pro rata ownership of Shares,
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all shares of Preferred Stock of the Company shall be deemed to have been
converted into Common Stock of the Company.
(b) Each Shareholder agrees to present the
certificates representing the Shares presently owned or hereafter acquired by
him to the Secretary of the Company and cause the Secretary to stamp on the
certificate in a prominent manner the following legend:
"The sale or other disposition of any of the shares
represented by this certificate is restricted by a
Shareholders Agreement, dated as of July 2, 1999, as
amended from time to time, among certain of the
shareholders of this corporation and this corporation
(the "Agreement"). A copy of the Agreement is
available for inspection during normal business hours
at the principal executive office of this
corporation."
5.2 Transfer Not Subject to Restrictions.
(a) Any Shareholder may Transfer Shares to his spouse
or children or to a trust established for the benefit of his spouse, children or
himself, or dispose of them under his will, without compliance with Sections 5.3
through 5.6 hereof provided that the transferee delivers to the Company and the
Shareholders a written instrument agreeing to be bound by the terms of this
Agreement as if it were a Shareholder.
(b) The rights of the Company and the Shareholders
under Sections 5.4 and 5.5 hereof shall not apply to any pledge of Shares by a
Shareholder which creates a mere security interest, provided the pledgee
provides the Company and the Shareholders with a written agreement to be bound
hereby to the same extent as the pledging Shareholder.
5.3 Offer of Sale; Notice of Proposed Sale.
If any Shareholder desires to Transfer any of its Shares, or
any interest in such Shares, in any transaction other than pursuant to Section
5.2 of this Agreement, such Shareholder (the "Selling Shareholder") shall first
deliver written notice of its desire to do so (the "Notice") to the Company and
the other Shareholders, in the manner prescribed in Section 10(d) of this
Agreement. The Notice must specify: (i) the name and address of the party to
which the Selling Shareholder proposes to sell or otherwise dispose of the
Shares or an interest in the Shares (the "Offeror"), (ii) the number of Shares
the Selling Shareholder proposes to sell or otherwise dispose of (the "Offered
Shares"), (iii) the consideration per Share to be
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delivered to the Selling Shareholder for the proposed sale, transfer or
disposition, and (iv) all other material terms and conditions of the proposed
transaction.
5.4 Company's Option to Purchase.
(a) Subject to Section 5.6, the Company shall have
the first option to purchase all or any part of the Offered Shares for the
consideration per share and on the terms and conditions specified in the Notice.
The Company must exercise such option, no later than 15 days after such Notice
is deemed under Section 9(d) hereof to have been delivered to it, by written
notice to the Selling Shareholder.
(b) In the event the Company does not exercise its
option within such 15-day period with respect to all of the Offered Shares, the
Company shall, by the last day of such period, give written notice of that fact
(the "Shareholder Notice") to the other Shareholders (the "Eligible
Shareholders"). The Shareholder Notice shall specify the number of Offered
Shares not purchased by the Company (the "Remaining Shares").
(c) In the event the Company duly exercises its
option to purchase all or part of the Offered Shares, the closing of such
purchase shall take place at the offices of the Company on the later of (i) the
date five days after the expiration of such 15-day period or (ii) the date that
the Eligible Shareholders consummate their purchase of Remaining Shares under
Section 5.5(c) hereof.
(d) To the extent that the consideration proposed to
be paid by the Offeror for the Offered Shares consists of property other than
cash or a promissory note, the consideration required to be paid by the Company
and/or the Eligible Shareholders exercising their options under Sections 5.4 and
5.5 hereof may consist of cash equal to the value of such property, as
determined in good faith by agreement of the Selling Shareholder and the Company
and/or the Eligible Shareholders acquiring such Offered Shares.
(e) Notwithstanding anything to the contrary herein,
neither the Company nor the Eligible Shareholders shall have any right to
purchase any of the Offered Shares hereunder unless the Company and/or the
Eligible Shareholders exercise their option or options to purchase all of the
Offered Shares.
5.5 Shareholder Option to Purchase.
(a) Subject to Section 5.6, the Eligible Shareholders
shall have an option, exercisable for a period of 15 days from the date of
delivery of the Shareholder Notice, to purchase the Remaining Shares for the
consideration per share and on the terms and conditions set forth in the Notice.
Such option shall be exercised by delivery by each Eligible Shareholder of
written notice to the Secretary of the Company. Alternatively, an Eligible
Shareholder may within the same 15-day
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period, notify the Secretary of the Company of its desire to participate in the
sale of the Shares on the terms set forth in the Notice, and the number of
Shares it wishes to sell.
(b) In the event options to purchase have been
exercised by the Eligible Shareholders with respect to some but not all of the
Remaining Shares, those Eligible Shareholders who have exercised their options
within the 15-day period specified in Section 5.5(a) shall have an additional
option, for a period of five days next succeeding the expiration of such 15-day
period, to purchase all or any part of the balance of such Remaining Shares on
the terms and conditions set forth in the Notice, which option shall be
exercised by the delivery of written notice to the Secretary of the Company. In
the event there are two or more such Eligible Shareholders that choose to
exercise the last-mentioned option for a total number Remaining Shares in excess
of the number available, the Remaining Shares available for each such Eligible
Shareholder's options shall be allocated to such Eligible Shareholder pro rata
based on the number of Shares owned by the Eligible Shareholder so electing.
(c) If the option to purchase the Remaining Shares is
exercised in full by the Purchaser, the closing of the purchase of the Remaining
Shares shall take place at the offices of the Company no later than five days
after the date of such notice to the Purchaser.
5.6 Failure to Fully Exercise Options; Co-Sale.
(a) If the Company and the Eligible Shareholders do
not exercise their options to purchase all of the Offered Shares within the
periods described in this Agreement (the "Option Period"), then all options of
the Company and the Eligible Shareholders to purchase the Offered Shares,
whether exercised or not, shall terminate, but each Eligible Shareholder has,
pursuant to Section 5.5, expressed a desire to sell Shares in the transaction (a
"Participating Shareholder"), shall be entitled to do so pursuant to this
Section. The Company shall promptly, on expiration of the Option Period, notify
the Selling Shareholder of the aggregate number of Shares the Participating
Shareholders wish to sell. The Selling Shareholder shall use its best efforts to
interest the Offeror in purchasing, in addition to the Offered Shares, the
Shares the Participating Shareholders wish to sell. If the Offeror does not wish
to purchase all of the Shares made available by the Selling Shareholder and the
Participating Shareholders, then the Participating Shareholders and the Selling
Shareholder shall be entitled to sell, at the price and on the terms and
conditions set forth in the Notice, a portion of the Shares being sold to the
Offeror, in the same proportion as such Selling Shareholder or Participating
Shareholders' ownership of Shares bears to the aggregate number of Shares owned
by the Selling Shareholder and the Participating Shareholders. The transaction
contemplated by the Notice shall be consummated not later than 60 days after the
expiration of the Option Period.
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(b) If the Participating Shareholders do not elect to
sell the full number of Shares which they are entitled to sell pursuant to
Section 5.6(a), the Selling Shareholder shall be entitled to sell to the
Offeror, according to the terms set forth in the Notice, that number of its own
Shares which equals the difference between the number of Shares desired to be
purchased by the Offeror and the number of Shares the Participating Shareholders
are entitled to sell pursuant to Section 5.6(a). If the Selling Shareholder
wishes to Transfer any such Shares at a price per Share which differs from that
set forth in the Notice, upon terms different from those previously offered to
the Company and the Eligible Shareholders, or more than 60 days after the
expiration of the Option Period, then, as a condition precedent to such
transaction, such Shares must first be offered to the Company and the Eligible
Shareholders on the same terms and conditions as given the Offeror, and in
accordance with the procedures and time periods set forth above.
(c) The proceeds of any sale made by the Selling
Existing Shareholder without compliance with the provisions of this Section 5
shall be deemed to be held in constructive trust in such amount as would have
been due the Participating Shareholders if the Selling Shareholder had complied
with this Agreement.
6. Transfers of Rights; Additional Shareholders. This Agreement, and
the rights and obligations of each Shareholder hereunder other than the
Purchaser's rights under Section 4, may be assigned by such Shareholder to (i)
any person or entity to which at least 200,000 Shares (subject to appropriate
adjustment for stock splits, stock dividends, recapitalizations and other
similar events) are transferred by such Shareholder or (ii) to any partner or
stockholder of a Shareholder, and such transferee shall be deemed a
"Shareholder" for purposes of this Agreement; provided, that the transferee
provides written notice of such assignment to the Company and agrees in writing
to be bound hereby. The Purchaser shall have the right to require that the
Company, as a term of the issuance of stock of the Company to any additional
shareholder, require such shareholder to agree to the terms of Section 5 of this
Agreement to the same extent as if such shareholder were a "Shareholder"
hereunder; provided, that any party to whom securities are issued pursuant to a
transaction described in Section 3(g)(1), (2), (3), (4), (5) or (7) above shall
not be required to enter into this Agreement if such issuance does not result in
a majority of the capital stock of the Company on a fully-diluted basis
(assuming the conversion to Common Stock of all convertible securities and the
exercise of all outstanding options and warrants) being held by parties other
than the Shareholders.
7. Shares. As used in this Agreement, the term "Shares" shall mean all
shares of capital stock of the Company held by a Shareholder, whether now owned
or subsequently acquired.
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8. Termination. This Agreement shall terminate in its entirety on the
earliest of (a) the closing of the Company's initial public offering of shares
of Common Stock pursuant to an effective registration statement under the
Securities Act of 1933, as amended, resulting in at least $30,000,000 of gross
proceeds to the Company at a minimum price to the public of $10.00 per share
(subject to appropriate adjustment for stock splits, stock dividends,
recapitalizations and other similar events), or (b) the sale of all or
substantially of the assets or business of the Company, by merger, sale of
assets or otherwise;
9. General.
(a) Severability. The invalidity or unenforceability
of any provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement.
(b) Specific Performance. In addition to any and all
other remedies that may be available at law in the event of any breach of this
Agreement, the Purchaser shall be entitled to specific performance of the
agreements and obligations of the Company hereunder and to such other injunctive
or other equitable relief as may be granted by a court of competent
jurisdiction.
(c) Governing Law. This Agreement shall be governed
by and construed in accordance with the internal laws of the State of Washington
(without reference to the conflicts of law provisions thereof).
(d) Notices. All notices, requests, consents, and
other communications under this Agreement shall be in writing and shall be
deemed delivered (i) two business days after being sent by registered or
certified mail, return receipt requested, postage prepaid or (ii) one business
day after being sent via a reputable nationwide overnight courier service
guaranteeing next business day delivery, in each case to the intended recipient
as set forth below:
If to the Company, at 000 000xx Xxxxxx X.X., Xxxxx 000, Xxxxxxxx,
Xxxxxxxxxx 00000, Attention: President, Facsimile: (000) 000-0000, or at such
other address or addresses as may have been furnished in writing by the Company
to the Purchaser, with a copy to Xxxxx X. Israel, Esq., Xxxxxx Pepper &
Shefelman PLLC, 0000 Xxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxxxx 00000,
Facsimile: (000) 000-0000; or
If to a Shareholder, at its address set forth on Exhibit A, or at such
other address or addresses as may have been furnished to the Company in writing
by the Shareholder.
Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal
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delivery, messenger service, telecopy, first class mail or electronic mail), but
no such notice, request, consent or other communication shall be deemed to have
been duly given unless and until it is actually received by the party for whom
it is intended. Any party may change the address to which notices, requests,
consents or other communications hereunder are to be delivered by giving the
other parties notice in the manner set forth in this Section.
(e) Complete Agreement. This Agreement constitutes
the entire agreement and understanding of the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
(f) Amendments and Waivers. Any term of this
Agreement may be amended or terminated and the observance of any term of this
Agreement may be waived (either generally or in a particular instance and either
retroactively or prospectively), with the written consent of the Company and all
of the Shareholders. No waivers of or exceptions to any term, condition or
provision of this Agreement, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term, condition
or provision.
(g) Pronouns. Whenever the context may require, any
pronouns used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural, and vice versa.
(h) Counterparts; Facsimile Signatures. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original, and all of which together shall constitute one and the
same document. This Agreement may be executed by facsimile signatures.
(i) Section Headings. The section headings are for
the convenience of the parties and in no way alter, modify, amend, limit or
restrict the contractual obligations of the parties.
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COMPANY:
APEX ONLINE LEARNING INC.
By: /s/Xxxxx X. Xxxxxxxx
Xxxxx X. Xxxxxxxx, President
SHAREHOLDERS
VULCAN VENTURES
INCORPORATED
By: /s/Xxxx Xxxxx
Xxxx Xxxxx, Vice President
THE EDISON PROJECT INC.
By: /s/H. Xxxxxxxxxxx Xxxxxxx
H. Xxxxxxxxxxx Xxxxxxx,
President
/s/Xxxx X. Xxxxx
Xxxx X. Xxxxx
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EXHIBIT A
SHAREHOLDERS
Xxxx X. Xxxxx 000 000xx Xxxxxx X.X.
Xxxxx 000
Xxxxxxxx, XX
00000
Attention: Xx Xxxxxx
Telecopy: (000) 000-0000
Vulcan Ventures Incorporated 000 000xx Xxxxxx X.X.
Xxxxx 000
Xxxxxxxx, XX
00000
Attention: Xx Xxxxxx
Telecopy: (000) 000-0000
The Edison Project, Inc. 000 Xxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxxxxxx Xxxx, Esq.
Telecopy: (000) 000-0000
