ENGLISH LANGUAGE LEARNING & INSTRUCTION SYSTEM, INC.
STOCKHOLDERS AGREEMENT
Dated as of September 20, 2001
TABLE OF CONTENTS
Page
Article I. Definitions; Rules of Construction...............................1
1.1 Definitions..................................................... 1
1.2 Rules of Construction........................................... 2
Article II. Board of Directors............................................. 3
2.1 Election of Directors Generally................................. 3
2.2 Vacancies....................................................... 3
2.3 Removal and Substitution of Directors........................... 3
2.4 Expenses........................................................ 3
Article III. Rights and Information........................................ 3
3.1 Information Rights.............................................. 3
3.2 Litigation...................................................... 4
3.3 Defaults........................................................ 4
3.4 Regulatory Filings.............................................. 4
3.5 Accountant's Reports............................................ 5
3.6 Miscellaneous................................................... 5
3.7 Visitation and Observer Rights.................................. 5
Article IV. Limitations on Transfers of Stock; Assignment of Rights........ 5
4.1 Prohibited Transfer............................................. 5
4.2 Permitted Transfer.............................................. 5
4.3 Assignment of Rights............................................ 6
4.4 Legend.......................................................... 6
Article V. Right of First Refusal.......................................... 6
5.1 The Right....................................................... 6
5.2 Notice of Proposed Transfer..................................... 6
5.3 Exercise of Right of First Refusal.............................. 6
5.4 Assignability................................................... 7
5.5 Exceptions to Right of First Refusal............................ 7
Article VI. Right of Co-Sale............................................... 7
6.1 General......................................................... 7
6.2 Prohibited Transfers............................................ 8
Article VII. Drag Along Right/Voting Agreement............................. 9
7.1 The Right....................................................... 9
7.2 Drag-Along Notice............................................... 9
i
7.3 Purchase of Drag-Along Amount................................... 9
7.4 Voting Agreement - Sale of Company.............................. 9
7.5 Put Right...................................................... 10
Article VIII. Right of First Offer........................................ 10
8.1 The Right...................................................... 10
Article IX. Camden Purchasers Protective Provisions....................... 12
9.1 Protective Provisions.......................................... 12
Article X. Covenants...................................................... 12
10.1 No Short Sales................................................. 12
10.2 Intellectual Property Assignments.............................. 13
10.3 Board Representation........................................... 13
10.4 Insurance...................................................... 13
Article XI. Miscellaneous................................................. 13
11.1 Severability................................................... 13
11.2 Aggregation of Stock........................................... 13
11.3 Entire Agreement............................................... 13
11.4 Successors and Assigns......................................... 13
11.5 Counterparts; Fax Signatures................................... 13
11.6 Fees and Expenses.............................................. 13
11.7 Specific Performance; Remedies................................. 14
11.8 Notices........................................................ 14
11.9 Governing Law.................................................. 14
11.10 WAIVER OF JURY TRIAL........................................... 14
11.11 Further Assurances............................................. 15
11.12 After-Acquired Shares.......................................... 15
11.13 Amendment...................................................... 15
11.14 Waiver......................................................... 15
Article XII. Termination.................................................. 15
12.1 Termination.................................................... 15
Article XIII. Definitions................................................. 16
13.1 Definitions.................................................... 16
ii
STOCKHOLDERS AGREEMENT
This STOCKHOLDERS AGREEMENT, dated as of September 20, 2001, is by and
among English Language Learning & Instruction System, Inc., a Delaware
corporation (the "Company"), the undersigned holders of the Common Stock, par
value .00001 per share (the "Common Stock"), of the Company set forth on
SCHEDULE A attached hereto (the "Common Stockholders"), Camden Partners
Strategic Fund II-A, L.P., a Delaware limited partnership, and Camden Partners
Strategic Fund II-B, L.P., a Delaware limited partnership, (collectively, the
"Camden Purchasers" and together with the Common Stockholders, the
"Stockholders").
RECITALS
A. The Camden Purchasers wish to acquire 500,000 shares of Common
Stock and 1,000,000 shares of the Series A Preferred Stock, par value $.00001
per share (the "Series A Preferred Stock"), of the Company.
B. The Company and the Camden Purchasers have entered into that
certain Common Stock and Series A Preferred Stock Purchase Agreement dated as
of the date hereof (the "Purchase Agreement").
C. Each of the Common Stockholders currently owns and or controls that
number of shares of Common Stock, as set forth next to his or her respective
name on Schedule A.
D. The Purchase Agreement provides that, as a condition precedent to
the obligations of the Camden Purchasers under the Purchase Agreement, the
Common Stockholders, the Camden Purchasers and the Company will have entered
into this Agreement.
E. It is deemed to be in the best interest of the Company and the
Stockholders that provision be made for the continuity and stability of the
business and policies of the Company, and, to that end, the Company and the
Stockholders hereby set forth their agreement with respect to the capital
stock of the Company owned by them.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises herein
contained, and other consideration, the receipt and adequacy of which hereby
is acknowledged, the parties agree as follows:
Article I.
Definitions; Rules of Construction.
1.1 Definitions. Capitalized terms used in this Agreement have the
meanings ascribed to them below:
1
"Common Stock Equivalent" means a share of Common Stock or the
right to acquire, whether or not immediately exercisable, a share of Common
Stock, whether evidenced by an option, warrant, convertible security or other
instrument or agreement.
"Holder" means each Camden Purchaser and any Permitted Transferee.
"Person" shall be construed broadly and shall include, without
limitation, an individual, a partnership, an investment fund, a limited
liability company, a corporation, an association, a joint stock company, a
trust, a joint venture, an unincorporated organization and a governmental
entity or any department, agency or political subdivision thereof.
"Securities" means shares of the Company's Common Stock issued or issuable
upon conversion of the Series A Preferred Stock of the Company whether or not
authorized on the date hereof, and rights, options or warrants to purchase
Common Stock or Series A Preferred Stock and securities of any type whatsoever
that are, or may become, convertible into Common Stock or Series A Preferred
Stock.
"Transfer" shall be construed broadly and shall include any
transfer (whether voluntary, involuntary or by operation of law) of Securities
or any interest therein, including without limitation, by way of issuance,
sale, participation, pledge, hypothecation, gift, bequeath, interstate
transfer, distribution, liquidation, merger or consolidation in each case, to
any Person other than the Company.
1.2 Rules of Construction.
(a) The use in this Agreement of the term "including" means
"including, without limitation." The words "herein," "hereof," "hereunder"
and other words of similar import refer to this Agreement as a whole,
including the exhibits, as the same may from time to time be amended or
supplemented, and not to any particular section, subsection, paragraph,
subparagraph or clause contained in this Agreement. All references to
sections and exhibits mean the sections of this Agreement and the exhibits
attached to this Agreement.
(b) The title of and the section and paragraph headings in
this Agreement are for convenience of reference only and shall not govern the
interpretation of any of the terms or provisions of this Agreement.
(c) The use herein of the masculine, feminine or neuter forms
shall also denote the other forms, as in each case the context may require.
(d) Where specific language is used to clarify by example a
general statement contained herein, such specific language shall not be deemed
to modify, limit or restrict in any manner the construction of the general
statement to which it relates. The language used in this Agreement has been
chosen by the parties to express their mutual intent. If an ambiguity or
question of intent or interpretation arises, then this Agreement will be
construed as if drafted jointly by the parties to this Agreement, and no
presumption or burden of proof will arise favoring or disfavoring any party to
this Agreement by virtue of the authorship of any of the provisions of this
Agreement.
2
Article II.
Board of Directors.
2.1 Election of Directors Generally. From and after the date of this
Agreement, upon the request of ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, each of the Stockholders
shall vote, or cause the vote of, all shares of Common Stock, Series A
Preferred Stock and other voting securities of the Company over which such
Stockholder has voting control, and will take all other necessary or desirable
actions within his, her or its control (whether in his, her or its capacity as
a stockholder, director or officer of the Company or otherwise) in order to
ensure that the size of the Board of Directors (the "Board") shall be no less
than seven (7) and to cause the election to the Board of one (1) designee of
the Camden Purchasers for as long as either of the Camden Purchasers holds any
shares of Common Stock or Series A Preferred Stock. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ shall
initially serve as the designee of the Camden Purchasers and shall be elected
to the Board within five (5) days of the Camden Purchasers' request.
2.2 Vacancies. In the event that any representative designated as
provided in Section 2.1 above for any reason ceases to serve as a member of
the Board during his or her term of office, the Stockholders shall take such
actions as are necessary and within their power to cause the resulting vacancy
to be filled by a representative designated as provided in Section 2.1. Each
of the Stockholders shall attend, and vote its shares of the voting stock of
the Company in accordance with this Agreement at, each annual meeting of the
stockholders of the Company and each special meeting of the stockholders of
the Company involving the election of directors of the Company.
2.3 Removal and Substitution of Directors. No party hereto shall vote
for the removal of a director nominated and elected pursuant to Section 2.1 of
this Agreement, and no such vote shall be effective, unless the Camden
Purchasers, voting among themselves shall vote for the removal of such
director. The Company hereby agrees to take such actions as are necessary,
and the Stockholders agree to vote his, her or its shares of Common Stock and
Series A Preferred Stock of the Company (and any other shares of the capital
stock of the Company over which he, she or it exercises voting control) and
take such other actions as are necessary, for the removal of any director
nominated and elected pursuant to Section 2.1 upon the request of the Camden
Purchasers and for the election to the Board of a substitute designated by
such holders in accordance with the provisions of Sections 2.1.
2.4 Expenses. The Company shall pay the reasonable out-of-pocket
expenses incurred by each Board member designated pursuant to Section 2.1 in
connection with attending the meetings of the Board and any committees
thereof.
Article III.
Rights and Information.
3.1 Information Rights. The Company will furnish the following
reports to each Camden Purchaser:
(a) as soon as practicable after the end of each fiscal year of
the Company, and in any event within 90 days thereafter, a consolidated
balance sheet of the Company and its
3
subsidiaries as at the end of such fiscal year, and consolidated statements of
income and cash flows of the Company and its subsidiaries for such year,
prepared in accordance with generally accepted accounting principles
consistently applied, all in reasonable detail and audited by an independent
public accountant of recognized national standing selected by the Company;
(b) as soon as practicable after the end of each fiscal quarter
and in any event within 45 days thereafter, a consolidated balance sheet of
the Company and its subsidiaries as of the end of each quarterly period, and
consolidated statements of income and cash flows of the Company and its
subsidiaries prepared in accordance with generally accepted accounting
principles consistently applied, subject to changes resulting from year-end
audit adjustments and the absence of notes, all in reasonable detail and
certified by the principal financial or accounting officer of the Company;
(c) as soon as practicable after the end of each month and in
any event within 30 days thereafter, a consolidated balance sheet of the
Company and its subsidiaries as of the end of each monthly period, and
consolidated statements of income and cash flows of the Company and its
subsidiaries for such period, prepared in accordance with generally accepted
accounting principles consistently applied, subject to changes resulting from
year-end audit adjustments and the absence of notes, all in reasonable detail
and certified by the principal financial or accounting officer of the Company;
(d) as soon as practicable after its presentment to the Board but
in no event less than 30 days prior to the end of a fiscal year, an annual
financial plan and budget of the Company, which financial plan and budget
shall have been approved by the Board and shall provide projections of the
Company's monthly financial statements for the forthcoming fiscal year;
(e) as soon as practicable after the end of each month, an
executive summary of the activities of the Company including, without
limitation, marketing, financial, product development and support and other
material activities;
3.2 Litigation. Within ten days after the Company learns of the filing
or commencement, or receives a written threat of commencement or filing, of
any material litigation or proceeding against the Company or any of its
subsidiaries, or any of their respective assets, the Company will provide the
Camden Purchasers with written notice of the nature and extent of such
litigation or proceeding. In addition, the Company shall give the Camden
Purchasers notice of any material litigation or proceeding that the Company or
any of its subsidiaries commences or files against any third party, with a
written notice of the nature and extent of such litigation or proceeding.
3.3 Defaults. Within ten days after the receipt by the Company of
written notice of a default by the Company under any material contract,
agreement or document to which the Company is a party or by which it is bound,
the Company will provide the Camden Purchasers with written notice of the
nature and extent of such default.
3.4 Regulatory Filings. Within ten days after filing, copies of all
reports filed by the Company pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934, as
4
amended, shall be furnished or made available in electronic form to the Camden
Purchasers, and promptly upon the request of any Camden Purchaser, the Company
shall furnish or make available in electronic form to such Camden Purchaser
copies of any press releases and other documents that the Company shall have
released to the press during the preceding 90 days.
3.5 Accountant's Reports. Promptly upon becoming available, the
Company shall furnish to the Camden Purchasers copies of all reports prepared
for or delivered to the management of the Company by its outside accountants
or auditors.
3.6 Miscellaneous. Promptly, from time to time, the Company shall
furnish to the Camden Purchasers such other information (in writing if so
requested) regarding the assets and properties and operations, business
affairs, profit and loss statements, budgets, initial projections and
financial condition of the Company as any Camden Purchaser may reasonably
request.
3.7 Visitation and Observer Rights. In addition to any rights of
inspection afforded stockholders by statute or otherwise, the Company shall
permit each Camden Purchaser to visit and inspect the Company's properties, to
examine its books of account and records and to consult with and advise its
officers with respect to the Company's affairs, finances and accounts, all at
such reasonable times and upon reasonable advance notice as may be as may be
requested by such Camden Purchaser.
Article IV.
Limitations on Transfers of Stock; Assignment of Rights.
4.1 Prohibited Transfer. Each Common Stockholder agrees not to
transfer, assign, or pledge its Securities except as allowed under this
Agreement. Each Holder of Securities will cause any proposed pledgee,
transferee or donee (each a "Permitted Transferee") of the Securities to agree
to take and hold such Securities subject to the provisions and upon the
conditions specified in this Agreement. Subject to Section 6.2, any transfer,
assignment or pledge of any Securities in violation of this provisions of this
Agreement shall be void ab initio.
4.2 Permitted Transfer. For purposes of this Agreement, a "Permitted
Transfer" shall mean:
(a) The transfer of at least ten percent (10%) of the
Securities originally issued to the Camden Purchasers on the date hereof; or
(b) Any distribution of Securities without consideration to
the general or limited partners or retired partners of a transferring Holder
that is a partnership or the members of a transferring Stockholder that is a
limited liability company or any Person that directly or indirectly, through
one or more intermediaries, Controls, or is Controlled by, or is under common
Control with the general partner of Camden Partners or any partnership or
limited liability company in which the general partner of Camden Partners is a
general partner or managing member, respectively. The term "Control"
includes, without limitation, the possession, directly or indirectly, of the
power to direct the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
5
4.3 Assignment of Rights. The right of first refusal, right of first
offer, and co-sale rights set forth in Article V, Article VI, and Article
VIII, respectively, may be assigned (but only with all related obligations)
only to a Permitted Transferee.
4.4 Legend. Each certificate evidencing Securities and each
certificate issued in exchange for or upon the Transfer of the Securities (if
such shares remain subject to this Agreement after such Transfer) shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
ALSO SUBJECT TO A STOCKHOLDERS AGREEMENT, DATED AS
OF SEPTEMBER 20, 2001, AMONG THE ISSUER OF SUCH
SECURITIES (THE "COMPANY") AND CERTAIN OF THE
COMPANY'S STOCKHOLDERS. THE TERMS OF SUCH
STOCKHOLDERS' AGREEMENT INCLUDE, AMONG OTHER
THINGS, VOTING AGREEMENTS AND RESTRICTIONS ON
TRANSFERS. A COPY OF SUCH STOCKHOLDERS' AGREEMENT
WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO
THE HOLDER HEREOF UPON WRITTEN REQUEST."
The Company shall imprint such legends on the Common Stockholders'
certificates evidencing shares outstanding prior to the date hereof or issued
hereafter upon the exercise of any Common Stock Equivalent. The legend set
forth above shall be removed from the certificates evidencing any shares that
cease to be Securities subject to this Agreement.
Article V.
Right of First Refusal.
5.1 The Right. In the event that ▇▇. ▇▇▇▇▇ ▇▇▇▇ or ▇▇. ▇▇▇ ▇▇▇▇ or
any immediate family members identified on Schedule B attached hereto (each
hereinafter referred to in such a capacity as a "Seller") proposes to sell,
assign, pledge or in any manner transfer (a "Transfer") any of the Securities
held by such Seller, whether voluntarily or by operation of law or by gift or
otherwise, such Seller shall promptly forward a Transfer Notice complying with
Section 5.2 to the Holders, then such Seller shall first grant the Holders the
right (the "Right of First Refusal") to purchase all or any part of such
securities (the "Offered Securities") on the same terms as such Seller is
willing to Transfer the Offered Securities to such transferee (the
"Transferee").
5.2 Notice of Proposed Transfer. Before any Securities held by a
Seller may be Transferred, the Seller shall deliver to the Camden Purchasers a
written notice (the "Transfer Notice") stating (i) the Seller's bona fide
intention to Transfer such Securities; (ii) the name of the proposed
Transferee(s); (iii) the number of shares of Securities to be Transferred to
each proposed Transferee; and (iv) the bona fide cash price or other
consideration for which the Seller proposes to Transfer the Securities, and
all other material terms and conditions of such Transfer.
5.3 Exercise of Right of First Refusal. The Right of First Refusal
set forth in this Article V may be exercised first by each Holder as to any or
all of the Offered Securities by giving notice to the Seller and the Company
within fifteen (15) days of the receipt by such
6
Holder of the Transfer Notice (the "Notice Period"). Each Holder shall have a
right of over-allotment such that if the other Holders fails to exercise its
right hereunder to purchase its pro rata share of Offered Securities, the
other Holders may purchase the non-purchasing Holder's entire portion within
five (5) days from the date the Company provides the "ROFR Notice" as defined
herein. Each Holder's pro rata share, for purposes of this Right of First
Refusal, is the ratio of the number of shares of Common Stock Equivalents
owned by such Holder immediately prior to the date of the Transfer Notice, to
the total number of shares of Common Stock Equivalents owned by all Holders
immediately prior to the date of the Transfer Notice. Immediately upon the
termination of the Notice Period, the Company shall notify each Holder as to
whether, and to what extent, the other Holders failed to fully exercise their
rights hereunder (the "ROFR Notice"). If the Holders do not exercise their
Right of First Refusal as to all of such Offered Securities within such
period, then the Seller shall have thirty (30) days thereafter to Transfer (or
enter into an agreement pursuant to which the Transfer of Offered Securities
covered thereby shall be closed, if at all, within twenty (20) days from the
date of said agreement) the Offered Securities respecting which the rights of
the Camden Purchasers were not exercised at a price and upon terms no more
favorable to the Transferees thereof than specified in the Transfer Notice,
all subject to Article VI hereof (Right of Co-Sale). In the event the Seller
has not Transferred the Offered Securities within such thirty (30) day period
(or Transferred Offered Securities in accordance with the foregoing within
twenty (20) days from the date of such agreement) the Seller shall not
thereafter Transfer any Offered Securities, without first offering such
Offered Securities to the Holders in the manner provided above.
5.4 Assignability. The Right of First Refusal is nonassignable except
in connection with a Transfer pursuant to Article IV of this Agreement.
5.5 Exceptions to Right of First Refusal. The provisions of this
Article V shall not apply to sales of up to an aggregate of five percent (5%)
of the total Common Stock Equivalents owned by each of ▇▇. ▇▇▇▇▇ ▇▇▇▇ and ▇▇.
▇▇▇ ▇▇▇▇ on the date hereof during each of the first three calendar years
measured from the date of this Agreement. The provisions of this Article V
shall not apply to ▇▇. ▇▇▇ ▇▇▇▇ twelve months from the date on which he is
neither an officer nor a director of the Company.
Article VI.
Right of Co-Sale.
6.1 General.
(a) In the event that the Holders do not fully exercise their
available Right of First Refusal set forth in Article V, then the Holders
which notify the Seller in writing within twenty (20) days after the
expiration of (i) the Notice Period, or (ii) the five (5) day period after the
issuance of the Right of First Refusal Notice, as applicable shall have the
right (the "Right of Co-Sale") to participate in such Transfer of the Offered
Securities on the same terms and conditions as specified in the Transfer
Notice by delivering written notice of acceptance (the "Co-Sale Notice of
Acceptance") that sets forth the number of Common Stock Equivalents (up to the
maximum amount set forth in Section 6.1(b)) that such Holder wishes to sell.
Upon expiration of the 20-day period, the Seller will use reasonable efforts
to convince the Transferee to purchase all the Common Stock Equivalents that
he and the Holders are interested in selling,
7
provided that to the extent that any Transferee refuses to purchase all of the
Common Stock Equivalents that the Holders have indicated on the Co-Sale Notice
of Acceptance that they desire to sell, the Seller shall not sell to such
Transferee any Securities unless and until, simultaneously with such sale, the
Seller shall purchase such Securities from such Holders in an amount not less
than their pro rata right as set forth in Section 6.1(b) and for the same
consideration and on the same terms and conditions as the proposed transfer
described in the Transfer Notice.
(b) Each Holder may sell all or any part of that number of
Securities equal to the product obtained by multiplying (i) the aggregate
number of Common-Stock Equivalents that the proposed Transferee proposes to
purchase by (ii) a fraction, the numerator of which is the number of Common
Stock Equivalents owned by such Holder on the date of the Transfer Notice and
the denominator of which is the total number of Common Stock Equivalents owned
on the date of the Transfer Notice by the Seller and each of the Holders who
has validly exercised its co-sale rights under this Article VI with respect to
the proposed Transfer.
6.2 Prohibited Transfers.
(a) In the event any Seller transfers any Securities in
contravention of the right of first refusal and/or co-sale rights of the
Holders as set forth in Article V and Article VI (a "Prohibited Transfer"), to
the extent such transfer is valid and recorded on the books of and recognized
by the Company, the Holders, in addition to such other remedies as may be
available at law, in equity or hereunder, shall have the put option provided
below, and such Seller shall be bound by the applicable provisions of such
option
(b) In the event of a Prohibited Transfer, each Holder shall
have the right to sell to the Seller the type and number of Common Stock
Equivalents equal to the number of shares each Holder would have been entitled
to transfer to the Transferee above had the Prohibited Transfer been effected
pursuant to and in compliance with the terms hereof. Such sale shall be made
on the following terms and conditions:
(i) The price per share at which the shares are to be sold
to the Seller shall be equal to the price per share paid by the Transferee to
the Seller in the Prohibited Transfer.
(ii) Within sixty (60) days after the later of the dates
on which the Holders (A) received notice of the Prohibited Transfer or (B)
otherwise became aware of the Prohibited Transfer, each Holder shall, if
exercising the option created hereby, deliver to the Seller the certificate or
certificates representing shares to be sold, each certificate to be properly
endorsed for transfer.
(iii) The Seller shall, upon receipt of the certificate or
certificates for the shares to be sold by a Holder pay the aggregate purchase
price therefor in cash or by other means acceptable to such Holder.
8
Article VII.
Drag Along Right/Voting Agreement.
7.1 The Right. In the event the Camden Purchasers (the "Initiating
Sellers") propose a Transfer of all of their Securities in one or more related
transactions (including without limitation, a merger or consolidation) (a
"Camden Sale of the Company") to a bona fide third party purchaser (the
"Proposed Buyer") on an arm's length basis, the Initiating Seller(s) shall
have the right (the "Drag-Along Right") to require the Common Stockholders
(each a "Drag-Along Seller" and collectively the "Drag-Along Sellers") to
sell, and each Drag-Along Seller hereby agrees to sell, to the Proposed Buyer
the "Applicable Percentage" (as defined herein) of the Securities held by such
Drag-Along Seller (the "Drag-Along Amount") in the same terms as the Proposed
Buyer has agreed to purchase the Securities of the Initiating Sellers,
provided, however, if the holders of a majority of the common stock held by
the Common Stockholders elect to purchase all and not less than all of the
Securities from the Initiating Sellers on the same terms and conditions as
offered by the Proposed Buyer (except that the consideration must be in cash
regardless of the consideration offered by the Proposed Buyer) (the "Put
Right") as set forth more fully in Section 7.5 below, the Initiating Sellers
shall have the right but not the obligation to sell such Securities to the
Common Stockholders in accordance with the Put Right. "Applicable Percentage"
means, with respect to Securities, the ratio (expressed as a percentage) of
(A) the number of shares of Securities proposed to be Transferred by the
Initiating Sellers, to (B) the total number of shares of Securities held by
the Initiating Sellers.
7.2 Drag-Along Notice. The Initiating Seller(s) shall notify the
Company, and the Company shall promptly notify the Drag-Along Sellers in
writing of such proposed Transfer (the "Drag-Along Notice"). The Drag-Along
Notice shall set forth (a) the name and address of the Proposed Buyer and (b)
a copy of the written proposal pursuant to which the Camden Sale will be
effected containing all of the material terms and conditions thereof,
including (i) the number of shares of Securities (calculated on a fully
diluted, as converted, basis) proposed to be Transferred by the Initiating
Seller(s), (ii) the Drag-Along Amount, (iii) the price per share of Securities
to be paid, (iv) the terms and conditions of payment offered by the Proposed
Buyer and, in the case of consideration in whole or in part other than cash,
the fair market value thereof as determined in good faith by the Board, which
determination shall be evidenced by a Board resolution filed with the minutes
of the Company, (v) whether the Initiating Seller(s) has determined to
exercise the Drag-Along Right, (vi) in the event the Initiating Seller(s) has
determined to exercise the Drag-Along Right, that the Proposed Buyer has been
informed of the Drag-Along Right provided for in this Article VII and has
agreed to purchase the Drag-Along Amount in accordance with the terms hereof
and to be bound by such terms subsequent to such purchase to the same extent
as the Drag-Along Seller immediately prior to that sale and (vii) the date and
location of and procedures for selling shares of Securities to the Proposed
Buyer.
7.3 Purchase of Drag-Along Amount. Securities purchased from each
Drag-Along Seller by the Proposed Buyer pursuant to this Article VII shall be
paid for at the same price per share and upon the same terms and conditions as
the Securities to be sold by the Initiating Seller(s), all on an as converted
basis.
7.4 Voting Agreement - Sale of Company. If the Camden Purchasers vote
in favor of or otherwise approve a transaction that qualifies as a Sale of the
Company (as defined below),
9
each of the Common Stockholders agrees that he, she or it shall (i) vote, or
cause the vote of, all shares of Common Stock, Series A Preferred Stock and
other voting securities of the Company over which such Stockholder has voting
control in favor of the Sale of the Company, (ii) not exercise statutory
appraisal or dissenter's rights in connection with the Sale of the Company, if
applicable; (iii) if requested by the Camden Purchasers, elect to receive cash
in lieu of any securities issued or received in connection with a Sale of the
Company; and (iv) will take all other necessary or desirable actions within
his, her or its control in order to vote in favor of any Sale of the Company.
For purposes of this Section 7.4, the term "Sale of the Company" shall mean,
the consolidation or merger of the Company with or into any other corporation
or other entity, or a sale, lease, conveyance or other disposition (whether in
one transaction or a series of related transactions) of all or substantially
all of the assets of this Company or a transaction or series of related
transactions as a result of which the owners of this corporation's outstanding
voting securities immediately prior thereto do not own at least a majority of
the outstanding voting securities of the surviving, resulting or consolidated
entity.
7.5 Put Right. In the event the Common Stockholders elect the Put
Right, the Common Stockholders shall have ten (10) days to enter into a
binding agreement to exercise the Put Right and thirty (30) days from the date
of the Drag-Along Notice to tender the full purchase price in immediately
available funds (regardless of whether the offer described in the Drag-Along
Notice was for consideration in whole or in part other than cash) and comply
with all of the Proposed Buyer's terms and conditions as set forth in the
Drag-Along Notice, provided, however, that at any time prior to the tender of
the full purchase price, the Initiating Sellers shall have the right to
terminate the Put Right and retain ownership of their Securities. In the
event that the Common Stockholders fail to enter into a binding agreement to
repurchase the securities of the Initiating Purchasers in accordance with the
Put Right with in ten (10) days from the date of the Drag-Along Notice or
tender the full purchase price within thirty (30) days from the date of the
Drag-Along Notice, the Initiating Purchasers shall have the right to enforce
the Drag-Along Right as set forth in Section 7.1(i).
Article VIII.
Right of First Offer.
8.1 The Right. The Company hereby grants to each Holder the right of
first offer (the "Right of First Offer") to purchase a pro rata share of New
Securities (as defined in this Article VIII) which the Company may, from time
to time, propose to sell and issue. Each Holder's pro-rata share, for
purposes of this Right of First Offer, is the ratio of the number of shares of
Common Stock Equivalents owned by such Holder immediately prior to the
issuance of New Securities, to the total number of shares of Common Stock
Equivalents outstanding immediately prior to the issuance of New Securities.
Each Holder will have the right of over-allotment such that if the other
Holders fails to exercise their right hereunder to purchase its pro rata share
of New Securities, the such Holder may elect to purchase the non-purchasing
Holders' entire portion within twenty (20) days from the date the Company
provides the notice set forth in the last sentence of Section 8.1(b) hereof.
This Right of First Offer shall be subject to the following provisions:
(a) "New Securities" shall mean any Common Stock and Preferred
Stock of the Company whether or not authorized on the date hereof, and rights,
options, or warrants to
10
purchase Common Stock or Preferred Stock and securities of any type whatsoever
that are, or may become, convertible into Common Stock or Preferred Stock;
provided, however, that "New Securities" does not include the following:
1. shares of Common Stock, or options to purchase shares
of Common Stock, issued or granted to officers,
directors and employees of, or consultants to, the
Company or its subsidiaries pursuant to the 2000
Stock Plan of the Company (the "Company Stock Plan")
approved by the Board of Directors;
2. shares of Common Stock issued upon conversion of the
Series A Preferred Stock;
3. shares of Common Stock or Preferred Stock issued in
connection with any stock split, stock dividend, or
recapitalization where the proportionate equity of
the Holders remains unchanged by the Company;
(b) In the event that the Company proposes to undertake an
issuance of New Securities, it shall give each Holder written notice of its
intention, describing the type of New Securities, the price, and the general
terms upon which the Company proposes to issue the same. Each Holder shall
have thirty (30) business days after receipt of such notice to agree to
purchase its pro rata share of such New Securities at the price and upon the
terms specified in the notice by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased. Such Holder's
obligation to purchase such New Securities under this Article VIII will be
contingent upon the completion of the issuance of the New Securities
substantially in the form as provided in the written notice. Immediately upon
the termination of such 30 day period, the Company shall notify each Holder as
to whether, and to what extent, the other Holders failed to fully exercise
their rights hereunder.
(c) The Company shall have sixty (60) days after the thirty (30)
business days specified above (or, in the event any Camden Purchaser has the
right of over-allotment set forth above, after the 20 day period thereof) to
sell (or enter into an agreement pursuant to which the sale of New Securities
covered thereby shall be closed, if at all, within thirty (30) days from the
date of said agreement) the New Securities respecting which the rights of the
Camden Purchasers were not exercised at a price and upon terms no more
favorable to the purchasers thereof than specified in the Company's notice.
In the event the Company has not sold the New Securities within such sixty
(60) day period (or sold and issued New Securities in accordance with the
foregoing within thirty (30) days from the date of such agreement) the Company
shall not thereafter issue or sell any New Securities, without first offering
such New Securities to the Camden Purchasers in the manner provided above.
(d) Assignability. This Right of First Offer is nonassignable
except in connection with a Transfer pursuant to Article IV of this Agreement.
11
Article IX.
Camden Purchasers Protective Provisions.
9.1 Protective Provisions. For so long as any Camden Purchaser holds
any shares of Company Securities, the Company will not, without the prior
written consent of the Camden Purchasers, take any action which:
(i) alters or changes the rights, preferences or privileges of the
Series A Preferred Stock;
(ii) increases or decreases the authorized number of shares of Common
Stock or Series A Preferred Stock;
(iii) creates (by reclassification or otherwise), authorizes,
designates or issues any new class or series of securities having rights,
preferences or privileges senior to or on parity with the Series A Preferred
Stock;
(iv) results in the redemption of any shares of the Company's
Securities;
(v) amends or waives any provision of the Company's Certificate of
Incorporation or Bylaws relative to the Series A Preferred Stock;
(vi) would be a Deemed Liquidation (as defined in the Company's
certificate of incorporation, as amended from time to time) with net proceeds
to holders of the Series A Preferred Stock less than the Liquidation
Preference (as defined in the Company's certificate of incorporation, as
amended from time to time);
(vii) pays or declares any dividends;
(viii) increases the size of the Board of Directors to more than seven
(7) members;
(ix) grant any options under the 2000 Stock Option Plan at an exercise
price less than Fair Market Value, calculated on the date of the grant;
(x) incurs indebtedness or guarantees the debt of another Person such
that the Company's aggregate debt (including, without limitation, guaranteed
debt) exceeds $5,000,000; or
(xi) results in any Company expenditure or commitment (including but
not limited to debt repayments, acquisitions, and joint ventures) in excess of
$5,000,000 to the extent that such expenditure or commitment has not been
previously approved by the Company's Board of Directors, including the
designee of the Camden Purchasers.
Article X.
Covenants
10.1 No Short Sales. Each Stockholder and each affiliate thereof
agrees that it will not, during the 180 days from the date hereof, without the
prior written consent of the Company, directly or indirectly, engage in any
short sales of the Common Stock, Preferred Stock or any other securities of
the Company, whether now owned or hereafter acquired by such Stockholder or
with respect to which such Stockholder has or hereafter acquires the power of
disposition.
12
10.2 Intellectual Property Assignments. Each of the Common
Stockholders agrees that it will execute and deliver to the Company valid
assignments in connection with all Company Intellectual Property, including,
without limitation, all assignments required by the United States Patent and
Trademark Office in connection with the filing of patent applications.
10.3 Board Representation. Within five (5) days of the Camden
Purchaser's request, the Common Stockholder agree to elect ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ to
the Board of Directors of the Company.
10.4 Insurance. The Company shall obtain a directors' and officers'
liability insurance policy, or policies reasonably satisfactory to the Camden
Purchasers.
Article XI.
Miscellaneous.
11.1 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
11.2 Aggregation of Stock. All Company Stock held or acquired by
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
11.3 Entire Agreement. This Agreement, the Purchase Agreement and the
Related Agreements (as defined in the Purchase Agreement) embody the complete
agreement and understanding among the parties hereto with respect to the
subject matter hereof and thereof and supersedes and preempts any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof or thereof in any
way.
11.4 Successors and Assigns. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
11.5 Counterparts; Fax Signatures. This Agreement may be executed by
facsimile and in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument. Any
signature page delivered by a fax machine or telecopy machine shall be binding
to the same extent as an original signature page, with regard to any agreement
subject to the terms hereof or any amendment thereto. Any party who delivers
such a signature page agrees to later deliver an original counterpart to any
party which requests it.
11.6 Fees and Expenses. The parties hereto agree that if any parties
seek to resolve any dispute arising under this Agreement pursuant to a legal
proceeding, the prevailing parties to such proceeding shall be entitled to
receive reasonable fees and expenses (including reasonable attorneys' fees and
expenses) incurred in connection with such proceedings.
13
11.7 Specific Performance; Remedies. Each party hereto acknowledges
that the other parties will be irreparably harmed and that there will be no
adequate remedy at law for any violation by any of them of any of the
covenants or agreements contained in this Agreement. It is accordingly agreed
that, in addition to any other remedies which may be available upon the breach
of any such covenants or agreements, each party hereto shall have the right to
obtain injunctive relief to restrain a breach or threatened breach of, or
otherwise to obtain specific performance of, the other parties, covenants and
agreements contained in this Agreement. All remedies, either under this
Agreement or by law or otherwise afforded to any party, shall be cumulative
and not alternative.
11.8 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon (i) personal delivery, (ii) delivery by a nationally
recognized overnight courier, (iii) at the time of transmission by facsimile
addressed to the other party at its facsimile number specified herein (or
hereafter modified by subsequent notice to the parties hereto), until
confirmation of receipt made by printed confirmation sheet verifying
successful transmission of the facsimile, or (iv) four (4) days after deposit
with the United States Post Office, by registered or certified mail, postage
prepaid. Such notice shall be addressed to the party to be notified at the
address indicated for such party on the signature page to this Agreement, or
at such other address as such party may designate by ten (10) days' advance
written notice to the other parties. The Company's address is:
English Language Learning & Instruction System, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇, President and CEO
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
The address for each Stockholder shall be as set forth in the
stock records of the Company or shall be such other address that such
Stockholder may provide by written notice to the Company.
11.9 Governing Law. This Agreement shall be governed by and
construed, interpreted and enforced in accordance with the laws of Delaware,
without regard to principles of conflicts of laws. Each of the parties
hereto, (a) consents to submit itself to the personal jurisdiction of the
Court of Chancery of the State of Delaware and Federal District Court for the
District of Delaware in the event any dispute arises out of this Agreement or
any transaction contemplated hereby, (b) agrees that it will not attempt to
deny or defeat such personal jurisdiction by motion or other request for leave
from any such court, (c) agrees that it will not bring any action relating to
this Agreement or any transaction contemplated hereby in any court other than
the Court of Chancery of the State of Delaware or the Federal District Court
for the District of Delaware and (d) waives any right to trial by jury with
respect to any action related to or arising out of this Agreement or any
transaction contemplated hereby.
11.10 WAIVER OF JURY TRIAL. EACH PARTY TO THIS AGREEMENT WAIVES ITS
RESPECTIVE RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE
14
OF ACTION ARISING OUT OF THIS AGREEMENT OR ANY DEALINGS BETWEEN ANY OF THE
PARTIES HERETO RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT. THE SCOPE OF
THIS WAIVER IS INTENDED TO BE ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT
MAY BE FILED IN ANY COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS
AGREEMENT, INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS AND ALL
OTHER COMMON LAW AND STATUTORY CLAIMS. THIS WAIVER IS IRREVOCABLE, MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT OR TO ANY OTHER DOCUMENT OR AGREEMENT RELATING TO THE TRANSACTIONS
CONTEMPLATED HEREIN.
11.11 Further Assurances. Each party hereto shall do and perform or
cause to be done and performed all such further acts and things and shall
execute and deliver all such other agreements, certificates, instruments, and
documents as any other party hereto reasonably may request in order to carry
out the provisions of this Agreement and the consummation of the transactions
contemplated hereby.
11.12 After-Acquired Shares. Each party hereto acknowledges that the
rights and burdens under this Agreement shall apply and affect any
after-acquired shares of the Company's Securities acquired by either of the
Camden Purchasers in the future.
11.13 Amendment. Except as expressly set forth herein, the provisions
of this Agreement may only be amended, waived or terminated with the prior
written consent of the Company, holders of a majority of the Common Stock held
by the Common Stockholders and the Camden Purchasers. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon the Company,
each Common Stockholder and each Camden Purchaser and their respective
successors and assigns.
11.14 Waiver. No course of dealing between the Company, its
Subsidiaries and the Stockholders (or any of them) or any delay in exercising
any rights hereunder will operate as a waiver of any rights of any party to
this Agreement. The failure of any party to enforce any of the provisions of
this Agreement will in no way be construed as a waiver of such provisions and
will not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
Article XII
Termination.
12.1 Termination. This Agreement terminates at the earlier of: (i) the
written agreement of the Company and each of the Camden Purchasers; (ii) when
the Camden Purchasers hold less than 15% of the Company's Securities initially
acquired by the Camden Purchasers; or (iii) seven years from the date hereof.
15
Article XIII.
Definitions.
13.1 Definitions. The defined terms below have the meaning set forth
on the page number referred to below.
Term Page #
Applicable Percentage.................................................... 9
Board.................................................................... 3
Camden Purchasers........................................................ 1
Camden Sale of the Company .............................................. 9
Common Stock ............................................................ 1
Common Stock Equivalent ................................................. 2
Common Stockholders...................................................... 1
Company.................................................................. 1
Company Stock Plan....................................................... 10
Control.................................................................. 5
Co-Sale Notice of Acceptance............................................. 7
Drag-Along Amount........................................................ 9
Drag-Along Notice........................................................ 9
Drag-Along Right......................................................... 9
Drag-Along Seller........................................................ 9
Drag-Along Sellers ...................................................... 9
Holder................................................................... 2
Initiating Sellers....................................................... 9
New Securities .......................................................... 10
Notice Period............................................................ 7
Offered Securities ...................................................... 6
Permitted Transfer....................................................... 5
Permitted Transferee..................................................... 5
Person................................................................... 2
Prohibited Transfer...................................................... 8
Proposed Buyer........................................................... 9
Purchase Agreement ...................................................... 1
Right of Co-Sale......................................................... 7
Right of First Offer..................................................... 10
Right of First Refusal................................................... 6
ROFR Notice.............................................................. 7
Sale of the Company...................................................... 10
Securities............................................................... 2
Seller................................................................... 6
Series A Preferred Stock................................................. 1
Stockholders ............................................................ 1
Transfer ................................................................ 2,6
Transfer Notice.......................................................... 6
Transferee............................................................... 6
(Signature page follows.)
16
IN WITNESS WHEREOF, the undersigned have duly executed this
Stockholders' Agreement as of the date first written above.
ENGLISH LANGUAGE LEARNING & INStruction services, Inc.
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇
By:___________________________________________________
Name: ▇▇▇▇▇▇▇ ▇▇▇▇
Title: President and Chief Executive Officer
Address: ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇▇▇▇, President and CEO
With a copy to:
▇▇▇▇ & ▇▇▇▇, P.C.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇'▇ ▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
COMMON STOCKHOLDERS
/s/ ▇▇▇▇▇ ▇▇▇▇
_________________________________
▇▇. ▇▇▇▇▇ ▇▇▇▇
Address:_________________________
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇
_________________________________
▇▇▇▇▇▇▇ ▇▇▇▇
Address:_________________________
/s/ ▇▇▇ ▇▇▇▇
_________________________________
▇▇▇ ▇▇▇▇
Address:_________________________
PURCHASERS:
CAMDEN PARTNERS STRATEGIC FUND II A, L.P.
By: Camden Partners Strategic II, LLC,
its General Partner
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
By:_____________________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Managing Member
Address: Camden Partners
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
CAMDEN PARTNERS STRATEGIC FUND II B, L.P.
By: Camden Partners Strategic II, LLC,
its General Partner
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
By: ___________________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Managing Member
Address: Camden Partners
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
With a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
SCHEDULE A
▇▇. ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇
SCHEDULE B
▇▇. ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇