exv4w5



 





Exhibit 4.5




SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT




     This
SECOND AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this
“Agreement”) is entered into as of December      , 2003 by and among K12 Inc., a Delaware
corporation (the “Company”), the persons listed on the Schedule of Stockholders attached hereto as
Exhibit A (the “Schedule of Stockholders”) as Common Stockholders (the “Common
Stockholders”), the persons identified on the Schedule of Stockholders as Series B Preferred
Stockholders (the “Series B Stockholders”), and the persons identified on the Schedule of
Stockholders as Series C Preferred Stockholders (the “Series C Stockholders,” and together
with the Series B Stockholders, the “Preferred
Stockholders,” and the Preferred
Stockholders together with the Common Stockholders, the “Stockholders”).



RECITALS




     In connection
with an investment in the Company by William J. Bennett (“Dr. Bennett”),
the Company, Dr. Bennett and Knowledge Universe Learning Group LLC, a Delaware limited liability
company (“KULG”) (as assignee of Knowledge Universe
Learning, Inc., a Delaware corporation (“KULI”))
entered into that certain Stockholders Agreement dated as of February 20, 2000 (the “Bennett
Agreement”).



     In connection with the purchase of shares of Common Stock by Ronald J. Packard
(“Packard”) from KULI, the Company, Packard and KULG (as assignee of KULI) entered into
that certain Stockholders Agreement dated as of April 26, 2000 (the “Packard Agreement”).



     In connection with the issuance and sale of shares of Series B Preferred Stock pursuant to a
Series B Preferred Stock Purchase Agreement dated as of
July 27, 2001 (the “2001 Series B
Purchase Agreement”), the Company and the Stockholders party thereto entered into a
Stockholders Agreement dated as of July 27, 2001 (the “Stockholders Agreement”) which amended and
superseded the Bennett Agreement and the Packard Agreement in certain respects as specified in
Section 7.6 therein.



     In connection with the issuance and sale of shares of Series B Preferred Stock pursuant to a
Series B Preferred Stock Purchase Agreement dated as of March 31, 2003 (the “2003 Series B
Purchase Agreement” and together with the 2001 Series B Purchase Agreement the “Series B
Purchase Agreement”), the Company and the Stockholders amended and restated the Stockholders
Agreement in its entirety (the “First Amended and Restated Stockholders Agreement”).



     In connection with the issuance and sale of shares of Series C Preferred Stock pursuant to
a Series C Preferred Stock Purchase Agreement dated as of
December ___, 2003 (the “Series C
Purchase Agreement”), the Company and the Stockholders desire to amend and restate the
First Amended and Restated Stockholders Agreement in its entirety as follows:



AGREEMENT




     NOW THEREFORE, in consideration of the above recitals and the mutual covenants herein
contained and for other good and valuable consideration, the parties hereto agree as follows:



 









 





ARTICLE 1.




DEFINITIONS




          As used herein, the following terms shall have the following meanings:




     1.1.
“Affiliate” shall mean as applied to any Person, any other Person who, directly or
indirectly, controls, is controlled by, or is under common control with, such Person. For
purposes of this definition, “control” means the possession, directly or indirectly, of the power to
direct the management and policies of a Person, whether through the ownership of stock, by
contract, or otherwise; provided, however, that, in any event: (a) any Person which owns directly
or indirectly 10% or more of the securities having ordinary voting power for the election of
directors or other members of the governing body of a Person or 10% or more of the partnership
or other ownership interests of a Person (other than as a limited partner of such Person) shall be
deemed to control such Person, (b) each director (or comparable manager) of a Person shall be
deemed to be an Affiliate of such Person, and (c) each partnership or joint venture in which a Person is a partner or joint venturer shall be deemed to be an Affiliate of such Person.



     1.2. “Board” shall mean the Board of Directors of the Company.



     1.3. “Commission” shall mean the Securities and Exchange Commission.



     1.4. “Common Stock” shall mean common stock of the Company, par value $0.0001 per share.



     1.5. “Demand Registration” shall have the meaning provided in Section 4.1(a).



     1.6. “Demand Notice” shall have the meaning provided in Section 4.1(a).



     1.7.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.



     1.8. “Fully-Diluted Common Stock” shall mean all of the issued and outstanding shares
of Common Stock of the Company, assuming conversion, exercise or exchange of all
outstanding convertible, exercisable or exchangeable securities, options, warrants and similar
instruments into or for shares of Common Stock (regardless of whether such convertible
securities are at such time convertible, exercisable or exchangeable), but excluding (i) treasury
stock and (ii) shares of outstanding Common Stock and shares of Common Stock issuable upon
the conversion, exercise or exchange of options, warrants and other securities to the extent that
the acquisition of such outstanding shares, options, warrants or other securities was financed by a
loan from the Company which has not yet been repaid. As provided in Section 7.8, all such
calculations shall be appropriately adjusted for stock dividends, splits, reverse splits,
combinations, recapitalizations and the like as described therein.



     1.9. “Holder” shall mean any person owning or having the right to acquire Registrable Securities.



     1.10. “Indemnified Holder” shall have the meaning provided in Section 4.6(a).



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     1.11. “Long-form Registration” shall mean a Demand Registration under the Securities
Act on Form S-l or any similar long-form registration statement.



     1.12. “Person” shall mean natural persons, corporations, limited liability companies,
limited partnerships, general partnerships, limited liability partnerships, joint ventures, trusts, insurance companies, or other organizations.



     1.13. “Piggyback Registration” shall have the meaning provided in Section 4.2(a).



     1.14. “Piggyback Notice” shall have the meaning provided in Section 4.2(a).



     1.15. “Preferred Registrable Securities” shall mean any Registrable Securities issued or
issuable to Preferred Stockholders upon conversion of Preferred Stock.



     1.16. “Preferred Stock” shall mean the Series B Preferred Stock and the Series C Preferred Stock.



     1.17. “Proposed Drag-Along Transfer” shall have the meaning provided in Section 5.1.



     1.18. “Proposed Issuance” shall have the meaning provided in Section 3.1.



     1.19. “Prospectus” shall have the meaning provided in Section 4.3(a).



     1.20. “Qualified IPO” shall mean the underwritten offer and sale of Common Stock to the
public pursuant to an effective registration statement under the Securities Act that provides
aggregate gross proceeds to the Corporation of not less than $40,000,000 at a price per share to
the public of not less than $2.68 (subject to adjustments for stock dividends, splits, reverse splits,
combinations, recapitalizations and the like occurring after the date hereof).



     1.21. “Qualified Stockholder” shall mean a Stockholder who is an “accredited investor” for
purposes of Rule 501 under the Securities Act (or such other comparable provision) and has a
similar status under applicable Blue Sky laws that permit such Stockholder to be an offeree and
purchaser in an offering exempt from registration and qualification under such laws.



     1.22. “Qualified Trading Date” shall mean the first date subsequent to a public offering of
the Common Stock which is not a Qualified IPO on which (i) the average closing price of the
Common Stock for any thirty (30) consecutive trading days is equal to at least $2.68 per share
(subject to adjustments for stock dividends, splits, reverse splits, combinations, recapitalizations
and the like occurring after the date hereof) and (ii) the aggregate market value of all outstanding
shares of Common Stock (including all shares of preferred stock on an as-converted basis) is at
least $300,000,000.



     1.23. “Qualified Transfer” shall mean (i) any transfer of Shares by a Stockholder to a trust
created for the sole benefit of the Stockholder, the Stockholder’s spouse, lineal descendants or
siblings, (ii) any transfer of Shares by will or pursuant to the laws of descent and distribution to
any spouse, lineal descendant or sibling of a Stockholder, (iii) any transfer to any Person that is
an accredited investor for purposes of Rule 501 under the Securities Act (or such other
comparable provision), or (iv) any transfer of Shares by any Stockholder with the consent of the



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Board; provided that no such transfer shall constitute a “Qualified Transfer” unless (a) the
transferee agrees in writing to be bound by this Agreement as if such transferee were the
transferring Stockholder hereunder, and (b) the transfer is a transaction that is exempt from the
registration and qualification requirements of Federal and state securities laws and the Company
receives an opinion of counsel reasonably acceptable to the Company that such transfer is made in
compliance with applicable Federal and state securities laws.




     1.24. “Registrable Securities” shall mean shares of Common Stock (a) owned by any
Stockholder as of the date hereof and (b) issued or issuable to Preferred Stockholders upon
conversion of shares of Preferred Stock; provided, however, that a Registrable Security shall
cease to be a Registrable Security at such time that (A) the Registrable Security has been
effectively registered under the Securities Act and disposed of in accordance with the registration
statement covering it, or (B) the Holder thereof is able to sell all Registrable Securities held or
entitled to be held upon conversion of Preferred Stock by such Holder under Rule 144 (or any similar provision then in force) during any three-month period.



     1.25.
“Registration” shall have the meaning provided in Section 4.3.



     1.26.
“Registration Statement” shall have the meaning provided in Section 4.3(a).



     1.27.
“Securities Act” shall mean the Securities Act of 1933, as amended.



     1.28.
“Series B Preferred Stock” shall mean the Series B Convertible Preferred Stock of
the Company, par value $0.0001 per share.



     1.29.
“Series C Preferred Stock” shall mean the Series C Convertible Preferred Stock of
the Company, par value $0.0001 per share.



     1.30. “Shares” shall mean shares of Common Stock of the Company, and securities
convertible into, or exercisable or exchangeable for, shares of Common Stock of the Company.



     1.31.
“Short-form Registration” shall mean a Demand Registration under the Securities
Act on Form S-3 or any successor form thereto.



     1.32.
“Termination Date” shall mean the earlier to occur
of (a) the date of a Qualified IPO
or (b) the Qualified Trading Date.



     1.33.
“Threshold Number of Shares” shall mean at least sixty percent (60%) of the then
outstanding shares of Preferred Stock, including for purposes of the calculation shares of Common Stock issued and outstanding upon conversion of Preferred Stock.



     1.34.
“Transferring Holders” shall have the meaning provided in Section 5.1.



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ARTICLE 2.




TRANSFER
RESTRICTION — PREFERRED STOCKHOLDERS




     2.1. Prohibition on Transfer to Competitors. No Preferred Stockholder may, directly
or indirectly, voluntarily or involuntarily, by operation of law or otherwise, transfer Shares or
any interest therein to any Person that is a competitor of the Company, as determined by the
Board in its reasonable discretion, without the prior approval of the Board, which approval may
be withheld by the Board in its sole discretion.



     2.2.
Company Effecting Transfers. The Company agrees not to effect any transfer of
Shares by a Preferred Stockholder until it has received evidence reasonably satisfactory to it that
this Article 2 has been complied with.



     2.3.
Termination of Transfer Restriction. The transfer restriction provided under this
Article 2 shall automatically terminate and be of no further force or effect upon the Termination
Date.



ARTICLE 3.




RIGHT TO CO-INVEST




     3.1. General. If the Company proposes to newly-issue for cash (a “Proposed Issuance”)
any Shares, then the Company shall give written notice to the Preferred Stockholders of the
Proposed Issuance. Such notice shall describe the Proposed Issuance and shall contain an offer
to sell to each Preferred Stockholder who is a Qualified Stockholder such Qualified Stockholder’s
pro rata portion of the Shares (which shall be a percentage equal to the percentage of the Fully-Diluted Common Stock held by such Qualified Stockholder). If any such Qualified Stockholder
fails to accept such offer by written notice to the Company within fifteen (15) days following the
date the Company’s notice is given in accordance with Section 7.5 below, the Proposed Issuance
may be consummated, free of any right on the part of such Qualified Stockholder under this Section 3.1 in respect thereof.



     3.2.
Exemptions. The purchase right granted by Section 3.1 shall not apply to: (i) any
issuance of Shares in connection with any Qualified IPO; (ii) any issuance of Shares in
connection with a merger, consolidation, transfer of assets or other business combination
involving the Company; (iii) any issuance of Shares pursuant to any stock option plan, restricted
stock plan or other benefit plan, the terms of which are customary in the marketplace as
determined and approved by the Board in good faith; (iv) any issuance of Shares upon
conversion of Preferred Stock or the conversion or exercise of other securities outstanding on the
date hereof; (v) any issuance of any Shares in connection with loan transactions and/or
equipment leases, the terms of which are approved by the Board and in the case of any loan
transaction and/or equipment lease between the Company and any Affiliate of the Company, the
terms of which are also approved by either (A) the vote or written consent of at least a majority
of the members of the Board who were elected solely by the holders of Preferred Stock, or (B)
the vote or written consent of holders of at least sixty percent (60%) of the outstanding shares of
Preferred Stock; (vi) any issuance of any Shares pursuant to any transactions, the terms of which
are approved by the Board primarily for the purpose of (a) joint ventures or strategic alliances,



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(b) development, production or distribution of the Company’s products or services, (c) purchase or
licensing of technology, or (d) any other transactions that are primarily for purposes other than
raising capital, provided that the terms of any such transaction are approved by the Board and, in
the case of any transaction between the Company and any Affiliate of the Company, the terms are
also approved by either (A) the vote or written consent of at least a majority of the members of
the Board who were elected solely by the holders of Preferred Stock, or (B) the vote or written
consent of the holders of at least sixty percent (60%) of the outstanding shares of Preferred
Stock; (vii) any additional issuance of Series C Preferred Stock under the Series C Purchase
Agreement; or (viii) any issuance of Shares upon conversion or exercise of any Shares issued in
compliance with Section 3.1 or issued in a transaction that is exempt from Section 3.1.




     3.3. Termination of Co-Investment Right. The rights provided under this Article 3
shall automatically terminate and be of no further force or effect on the Termination Date.



ARTICLE 4.




REGISTRATION RIGHTS




     4.1. Demand Registration Rights.



          (a) Right to Demand. If the Company shall receive from Holders of at least
one-third (1/3) of the Preferred Registrable Securities a written request that the Company register
with the Commission, under and in accordance with the provisions of the Securities Act, all or part
of their Preferred Registrable Securities (a “Demand Registration”), the Company will,
within twenty (20) days after receipt of the request for a Demand Registration, send written notice
(a “Demand Notice”) of such registration request and its intention to comply therewith to
each other Holder and, subject to Section 4.1(b) below, include in such registration all
Registrable Securities of the Holders with respect to which the Company has received written
requests for inclusion therein within twenty (20) business days after the effectiveness of the
Demand Registration Notice. A Demand Registration may be either a Long-form Registration or, if the
Company is then eligible to use Form S-3, a Short-form Registration. All Demand Registrations shall
be Short-form Registrations whenever the Company is eligible to use any applicable short-form for
registrations. All requests made pursuant to this Section 4.1(a) will specify the aggregate number
of Registrable Securities requested to be registered and will also specify the intended methods of
disposition thereof; provided, however, that the Company shall not be obligated to
take any action to effect any such registration, qualification or compliance pursuant to this
Section 4.1(a):




               (i) unless the Holders initiating such Demand Registration indicate a good faith intention to
register Common Stock of the Company having a reasonably anticipated aggregate offering price, net
of underwriting discounts and commissions, of at least $10 million;



               (ii) prior to the date which is six (6) months following the effective date of the first
underwritten public offering of the Company’s Common Stock under the Securities Act;



               (iii) during the period starting with the date sixty (60) days prior to the Company’s
estimated date of filing of, and ending on the date six (6) months immediately



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following the effective date of any registration statement pertaining to securities of the Company
(other than a registration of securities in a Rule 145 transaction or with respect to an employee
benefit plan), provided that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective;




               (iv) after the Company has effected three (3) such registrations pursuant to this
Section 4.1(a); or



               (v) if the Company shall furnish to such Holders a certificate, signed by the President
of the Company, stating that in the good faith judgment of the Board it would be detrimental to the
Company or its stockholders for a Registration Statement to be filed at such time. In such event,
the Company’s obligation to use all reasonable efforts to register, qualify or comply under this
Section 4.1(a) shall be deferred for a single period not to exceed one hundred twenty (120) days
from the date of receipt of written request from the Holders initiating such Demand Registration,
provided that the Company shall not exercise this deferral right more than twice in any eighteen
month period.



          (b) Priority on Demand Registrations. If in any Demand Registration the
managing underwriter or underwriters thereof advise the Company in writing that in its or their
reasonable opinion (or in the case of a Demand Registration not being underwritten, the
Company shall reasonably determine (and notify the selling Holders of such determination)) that
the number of securities proposed to be sold in such Demand Registration is inconsistent with
that which can be sold in such offering without having a material adverse effect on the success of
the offering (including, without limitation, an impact on the selling price or the number of
Registrable Securities that any participating Holder may sell), the Company will include in such
registration only the number of securities that, in the reasonable opinion of such underwriter or
underwriters (or the Company, as the case may be) can be sold without having a material adverse
effect on the success of the offering, in the following order of priority: (i) first, the Preferred
Registrable Securities requested to be included in such Demand Registration (pro rata on the
basis of the number of Preferred Registrable Securities requested to be included), (ii) second, any
other Registrable Securities requested to be included in such Demand Registration (pro rata on
the basis of the number of Registrable Securities requested to be included), and (iii) third, any
other securities of the Company requested to be included in such Demand Registration.




          (c) Withdrawal. A Demand Registration may be withdrawn by the Holders
initiating such Demand Registration without the demand counting as a Demand Registration
hereunder; provided that such Holders reimburse the Company for all expenses incurred by the
Company in connection with the demand, except that no reimbursement shall be required if such
withdrawal is based on material adverse information about the Company of which such Holders
were not aware at the time of the request.




          (d) Selection of Underwriters. The selling Holders shall have the right to
determine whether or not any Demand Registration shall be underwritten. If any Demand
Registration is an underwritten offering, the selling Holders shall have the right to submit to the
Company, and the Company shall consider, a list of preferred managing underwriters or
underwriters to administer the offering; provided, however, that the Company shall have the sole
and exclusive right to (i) make the final selection of a managing underwriter or underwriters,




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which managing underwriter or underwriters shall be of nationally recognized standing, and (ii)
determine the terms under which such underwriting shall take place (which terms shall be customary
for registrations of that type as determined by the Company in good faith).




     4.2. Piggyback Registration Rights.



          (a) Right to Piggyback. Commencing six months after the initial underwritten
public offering of the Company’s Common Stock under the Securities Act, whenever the
Company proposes to register any shares of Common Stock (or securities convertible into or
exchangeable for, or options to purchase, Common Stock) with the Commission under the
Securities Act, other than (i) a registration relating solely to employee benefit plans, (ii) a
registration relating solely to a Rule 145 transaction, or (iii) a registration in which the only
equity security being registered is Common Stock issuable upon conversion of convertible debt
securities which are also being registered, and the registration form to be used may be used for
the registration of the Registrable Securities (a “Piggyback Registration”), the Company (A) will
give written notice (the “Piggyback Notice”) to all Holders no later than the later of (1) forty-five
(45) days prior to the anticipated filing date, or (2) promptly following its decision to file, of its
intention to effect such a registration, which Piggyback Notice will specify the proposed offering
price (or reasonable range thereof), the kind and number of securities proposed to be registered,
the distribution arrangements and such other information that at the time would be appropriate to
include in such notice, and (B) will, subject to Section 4.2(b) below, include in such Piggyback
Registration all Registrable Securities with respect to which the Company has received written
requests for inclusion therein within twenty (20) days after the date of the Piggyback Notice.




          (b) Priority on Piggyback Registrations. If the managing underwriter or
underwriters in any Piggyback Registration, if any, advise the selling Holders in writing that in
its or their reasonable opinion or, in the case of a Piggyback Registration not being underwritten,
the Company shall reasonably determine (and notify the selling Holders of such determination)
that the number or kind of securities proposed to be sold in such registration (including
Registrable Securities to be included pursuant to Section 4.2(a) above) is inconsistent with that
which can be sold in such registration without having a material adverse effect on the success of
the offering (including, without limitation, an impact on the selling price or the number of
securities that any participant may sell), the Company will include in such registration the
number of securities, if any, which, in the opinion of such underwriter or underwriters, or the
Company, as the case may be, can be sold, in the following order of priority: (i) first, the shares
the Company proposes to sell, and (ii) second, the Registrable Securities requested to be included
in such registration by Holders (pro rata based on the number of Registrable Securities that each
such Holder shall have requested to include therein).




          (c) Withdrawal. A request for Piggyback Registration may be withdrawn by
any Holder making such a request; provided that such Holder reimburse the Company for all
incremental, additional expenses reasonably incurred by the Company relating solely to such
request, except that no reimbursement shall be required if such withdrawal is based on material
adverse information about the Company of which such Holder was not aware at the time of the
request.




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          (d) Selection of Underwriters. If any Piggyback Registration is an underwritten
offering, the Company will (i) select a managing underwriter or underwriters to administer the
offering, which managing underwriter or underwriters will be of nationally recognized standing, and
(ii) determine the terms under which such underwriting shall take place.




     4.3. Registration Procedures. With respect to any registration of the Company’s
Common Stock pursuant to this Article 4 (generically, a “Registration”), the Company will,
subject to Sections 4.1(b) and 4.2(b), as expeditiously as practicable:



          (a) prepare and file with the Commission, within one hundred twenty (120)
days after mailing the applicable Notice, a registration statement or registration statements (the
“Registration Statement”) relating to the applicable Registration on any appropriate form under the
Securities Act, which form shall be available for the sale of the Registrable Securities in
accordance with the intended method or methods of distribution thereof, and use all
commercially reasonable efforts to cause such Registration Statement to become effective;
provided, however, that before filing a Registration Statement or prospectus related thereto (a
“Prospectus”) or any amendments or supplements thereto, the Company will furnish to the Holders
covered by such Registration Statement and the underwriters, if any, copies of all such
documents proposed to be filed, which documents will be subject to the reasonable review of
such Holders and underwriters and their respective counsel, and the Company will not file any
Registration Statement or amendment thereto or any Prospectus or any supplement thereto to
which the holders of a majority of the Registrable Securities covered by such Registration
Statement or the underwriters, if any, shall reasonably object;




          (b) prepare and file with the Commission such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep each Registration
Statement effective for a period of not less than sixty (60) days (or such shorter period which
will terminate when all Registrable Securities covered by such Registration Statement have been
sold or withdrawn), or, if such Registration Statement relates to an underwritten offering, such
longer period as in the opinion of counsel for the underwriters a Prospectus is required by law to
be delivered in connection with sales of Registrable Securities by an underwriter or dealer; cause
each Prospectus to be supplemented by any required Prospectus supplement, and as so
supplemented to be filed pursuant to Rule 424 under the Securities Act; and comply with the
provisions of the Securities Act with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the intended method or
methods of distribution by the sellers thereof set forth in such Registration Statement or
supplement to the Prospectus;




          (c) notify the selling Holders and the managing underwriters, if any, (A) when
the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and,
with respect to the Registration Statement or any post-effective amendment, when the same has
become effective, (B) of any request by the Commission for amendments or supplements to the
Registration Statement or the Prospectus or for additional information, (C) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, (D) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the Registrable Securities for




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sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, and
(E) of the happening of any event which makes any statement made in the Registration Statement, the
Prospectus or any document incorporated therein by reference untrue or which requires the making of
any changes in the Registration Statement, the Prospectus or any document incorporated therein by
reference in order to make the statements therein not misleading;




          (d) make reasonable efforts to obtain the withdrawal of any order suspending
the effectiveness of the Registration Statement at the earliest possible moment;




          (e) if reasonably requested by the managing underwriter or underwriters or a
holder of Registrable Securities being sold in connection with an underwritten offering,
incorporate in a Prospectus supplement or post-effective amendment such information as the
managing underwriters and the holders of a majority of the Registrable Securities being sold
agree should be included therein relating to the plan of distribution with respect to such
Registrable Securities, including, without limitation, information with respect to the number of
Registrable Securities being sold to such underwriters, the purchase price being paid therefor by
such underwriters and with respect to any other terms of the underwritten offering of the
Registrable Securities to be sold in such offering;




          (f) deliver to each selling Holder and the underwriters, if any, a reasonable
number of copies of the Prospectus (including each preliminary prospectus) and any amendment
or supplement thereto;




          (g) prior to any public offering of Registrable Securities, register or qualify or
cooperate with the selling Holders, the underwriters, if any, and their respective counsel in
connection with the registration or qualification of such Registrable Securities for offer and sale
under the securities or “Blue Sky” laws of such jurisdictions as the selling Holders and any
underwriter reasonably requests in writing, considering the amount of Registrable Securities
proposed to be sold in each such jurisdiction; provided, however, that the Company will not be
required to qualify generally to do business in any jurisdiction where it is not then so qualified or
to take any action that would subject it to general service of process in any such jurisdiction
where it is not then so subject;




          (h) cause all Registrable Securities covered by any Registration Statement to be listed
on each securities exchange on which similar securities issued by the Company are then listed, or
cause such Registrable Securities to be authorized for trading on the Nasdaq National Market System
if any similar securities issued by the Company are then so authorized, if requested by the holders
of a majority of such Registrable Securities or the managing underwriters, if any;




          (i) enter into such agreements (including an underwriting agreement in usual and customary
form) and take all such other actions in connection therewith in order to facilitate the
disposition of such Registrable Securities as shall be reasonably necessary;




          (j) permit Holders participating in such Registration to undertake such due diligence
is as usual and customary under the circumstances; provided that such selling Holders




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shall use their best efforts to coordinate such due diligence to avoid additional expense to the
Company and delay of the offering; and




          (k) keep each selling Holder of Registrable Securities advised in writing as to the
initiation and progress of any Registration hereunder.



As a condition to participating in a Registration, each Holder of Registrable Securities as
to which any Registration is being effected shall furnish to the Company in writing such
information regarding the Holder and the proposed distribution of such securities as the
Company may from time to time reasonably request in writing.



Each Holder of Registrable Securities agrees by acquisition of such Registrable Securities that,
upon receipt of any notice from the Company of the happening of any event of the kind described in
Section 4.3(c)(B),(C), (D), or (E), such Holder will forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement until such Holder’s receipt of copies
of the supplemented or amended Prospectus or until it is advised in writing by the Company that the
use of the Prospectus may be resumed, and has received copies of any additional or supplemental
filings that are incorporated by reference in the Prospectus, and, if so directed by the Company,
such Holder will deliver to the Company all copies, other than permanent file copies then in such
Holder’s possession, of the Prospectus covering such Registrable Securities.




     4.4. Restrictions on Public Sale. To the extent not inconsistent with applicable
law, (i) each Holder agrees not to effect any public sale or distribution of Shares, including a
sale pursuant to Rule 144 (or any similar provision then in force) under the Securities Act, during
the 180-day period (or such shorter period as may be agreed to by the managing underwriter or
underwriters) following the closing of the initial public offering of the Company’s Common Stock
under the Securities Act, and (ii) each Holder whose Registrable Securities are included in a
Registration Statement hereunder, if requested by the managing underwriter or underwriters for such
Registration, agrees not to effect any public sale or distribution of Registrable Securities,
including a sale pursuant to Rule 144 (or any similar provision then in force) under the Securities
Act, during the fifteen (15) business days prior to, and during the 90-day period (or such shorter
period as may be agreed to by such underwriter or underwriters) beginning on, the effective date of
a Registration Statement pursuant to such Demand Registration or Piggyback Registration (except as
part of such Demand Registration or Piggyback Registration); provided that all directors,
officers and Holders of 1% or more of the then outstanding Shares of the Company have agreed to the
same restrictions.



     4.5. Registration Expenses. All expenses incident to the Company’s performance of
or compliance with this Article 4 will be borne by the Company; provided, however,
the Company shall not bear the costs and expenses of underwriters’ commissions, brokerage fees or
transfer taxes for any selling Holder, or the fees and expenses of any attorneys, accountants or
other representatives retained by any selling Holder (except that the Company shall pay the
reasonable fees and disbursements of not more than one counsel selected by the selling Holders to
represent such Holders in connection with the Demand Registrations, in an aggregate amount not to
exceed $20,000).



11









 





     4.6. Indemnification



          (a) Indemnification by the Company. The Company agrees to indemnify each
Holder, its officers, directors and agents and each person who “controls’ such Holder within the
meaning of the Securities Act and the Exchange Act (each, an “Indemnified Holder), against
losses, claims, damages, including amounts incurred in settlement, liabilities and expenses
arising out of, based upon or resulting from any untrue statement or alleged untrue statement of a
material fact in the Registration Statement, Prospectus or preliminary Prospectus or any omission
or alleged omission to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made, not misleading;
provided, however, that the Company will not be liable in any such case to the extent that any
such loss, claim, damage, liability or expense arises out of or is based upon any untrue statement
or omission based upon information furnished in writing to the Company by such Indemnified
Holder or its representative expressly for use therein. The Company also will indemnify
underwriters, selling brokers, dealer managers and similar securities industry professionals
participating in the distribution, their officers and directors and each person who controls such
persons (within the meaning of the Securities Act and the Exchange Act) to the same extent as
provided above, if requested.




          (b) Indemnification by Holders of Registrable Securities. Each Holder
participating in a Registration agrees to indemnify the Company, its directors, officers and agents
and each person who “controls” the Company (within the meaning of the Securities Act and the
Exchange Act) against losses, claims, damages, liabilities and expenses resulting from any
untrue statement or alleged untrue statement of a material fact in the Registration Statement,
Prospectus or preliminary Prospectus or any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, to the extent, and only to the extent,
that any such loss, claim, damage, liability or expense arises out of, is based upon or results from
any untrue statement (or alleged untrue statement) or omission (or alleged omission) based upon,
in reliance on and in conformity in all material respects with, information furnished in writing to
the Company by such Holder or its representative expressly for use therein. In no event shall the
liability of any selling Holder hereunder or under any underwriting agreement be greater in
amount than the dollar amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the same extent as provided
above with respect to information so furnished in writing by such persons specifically for
inclusion in any Registration Statement or Prospectus.




          (c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder will: (i) give prompt written notice to the indemnifying party after the
receipt by the indemnified party of a written notice of the commencement of any action, suit,
proceeding or investigation or threat thereof made in writing for which such indemnified party will
claim indemnification or contribution pursuant to this Agreement; provided,
however, that the failure of any indemnified party to give notice as provided herein shall
not relieve the indemnifying party of its obligations under the preceding Section 4.6(a) or 4.6(b),
as applicable, except to the extent that the indemnifying party is actually prejudiced by such
failure to give




12









 




notice, and (ii) unless in such indemnified party’s reasonable judgment a conflict of interest may
exist between such indemnified and indemnifying parties with respect to such claim, permit such
indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the
indemnified party. Whether or not such defense is assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made without its consent
(but such consent will not be unreasonably withheld). No indemnifying party will be required to
consent to the entry of any judgment or to enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff of a release from all liability
in respect of such claim or litigation. An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more
than one counsel in any one jurisdiction for all parties indemnified by such indemnifying party
with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict
of interest may exist between such indemnified party and any other of such indemnified parties, in
which event the indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.




          (d)
Contribution. If for any reason the indemnification provided for in
Sections 4.6(a) or 4.6(b), as applicable, is unavailable to an indemnified party as contemplated by
such Section, then the indemnifying party, in lieu of indemnification, shall contribute to the
amount paid or payable by the indemnified party as a result of such loss, claim, damage, liability
or expense in such proportion as is appropriate to reflect not only the relative benefits received
by the indemnified party and the indemnifying party, but also the relative fault of the indemnified
party and the indemnifying party, as well as any other relevant equitable considerations.




     4.7. Rule 144. The Company agrees that at all times after it has filed a registration
statement pursuant to the requirements of the Securities Act relating to any class of equity
securities of the Company, it will use its best efforts to file in a timely manner all reports
required to be filed by it pursuant to the Securities Act and the Exchange Act and will take such
further action as any Holder may reasonably request in order that such Holder may effect sales of
Registrable Securities pursuant to Rule 144. At any reasonable time and upon the reasonable
request of a Holder, the Company will furnish such Holder with such information as may be
necessary to enable the Holder to effect sales of Common Stock pursuant to Rule 144 under the
Securities Act and will deliver to such Holder a written statement as to whether it has complied
with such requirements. Notwithstanding the foregoing, the Company may deregister any class
of its equity securities under Section 12 of the Exchange Act or suspend its duty to file reports
with respect to any class of its securities pursuant to Section 15(d) of the Exchange Act if it is
then permitted to do so pursuant to the Exchange Act and the rules and regulations thereunder.



     4.8. Participation in Underwritten Registrations. No Holder may participate in any
underwritten registration hereunder unless such Holder (i) agrees to sell its Registrable Securities
on the basis provided in any underwriting arrangements approved by the Company, and
(ii) accurately completes in a timely manner and executes all questionnaires, powers of attorney,
underwriting agreements and other documents customarily required under the terms of such
underwriting arrangements.



ARTICLE 5.




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DRAG-ALONG RIGHTS




     5.1. With respect to any proposed transfer of the Threshold Number of Shares in an
arm’s length transaction to a proposed purchaser that is not an Affiliate of either the Company or
any of the Stockholders (such proposed transfer being a “Proposed Drag-Along Transfer”) the
holders of the Threshold Number of Shares (the “Transferring Holders”) shall have the right to
require the Stockholders to sell their Shares in the Proposed Drag-Along Transfer to the
proposed purchaser at the price being paid by the proposed purchaser in the Proposed
Drag-Along Transfer, and, otherwise, upon the same terms and conditions as in the Proposed
Drag-Along Transfer. Such Transferring Holders shall provide a notice to each Stockholder and the
Company setting forth: (i) the name of the proposed purchaser and (ii) the proposed amount and
form of consideration and terms and conditions of payment offered by the proposed purchaser.



     5.2. At the closing of the transfer of Shares to the proposed purchaser on the terms
described above, each Stockholder shall (i) execute any documents or instruments, including,
without limitation, representations and warranties, reasonably requested by the proposed
purchaser and (ii) deliver certificates for the Shares being sold, duly endorsed and accompanied
by duly executed stock assignments separate from certificate, free and clear of all claims and
encumbrances, against delivery to each Stockholder of the consideration for the Shares of such holder being sold pursuant to this Article 5.



     5.3. The rights provided under this Article 5 (including the notice requirement set
forth herein) shall automatically terminate and be of no further force or effect on and after the
Termination Date.



ARTICLE 6.




OTHER COVENANTS




     6.1. Financial Information; Inspection.



          (a) Financial Information. The Company shall deliver to each Preferred
Stockholder:




               (i) as soon as practicable after the end of each fiscal year, and in any event within
one hundred fifteen (115) days thereafter, but in no event later than the March 15 following the
end of a fiscal year, a consolidated balance sheet of the Company and its subsidiaries, if any, as
of the end of such fiscal year, and a consolidated statement of income and a consolidated statement
of changes in financial position of the Company and its subsidiaries, if any, for such year,
prepared in accordance with generally accepted accounting principles and setting forth in each case
in comparative form the figures for the previous fiscal year and with an audit opinion thereon from
independent public accountants of recognized national standing;



               (ii) as soon as practicable after the end of the first, second and third
quarterly accounting periods in each fiscal year of the Company, and in any event within seventy
five (75) days thereafter, (A) a consolidated balance sheet of the Company and its subsidiaries, if
any, as of the end of each such quarterly period, and a consolidated statement of income and a
consolidated statement of changes in financial position of the Company and its subsidiaries, if



14









 




any, for such period and for the current fiscal year to date and setting forth in comparative form
the figures for the corresponding periods of the previous fiscal year, prepared in accordance with
generally accepted accounting principles, with the exception that no notes need be attached to such
statements and year-end audit adjustments may not have been made and (B) a management’s discussion
and analysis describing material activities and events for such period and material variances from
the Company’s budget;




               (iii) as soon as practicable after the end of each month in each fiscal
year of the Company, and in any event within thirty (30) days thereafter, a consolidated balance
sheet of the Company and its subsidiaries, if any, as of the end of each such monthly period, and
a consolidated statement of income and a consolidated statement of changes in financial position of
the Company and its subsidiaries, if any, for such period and for the current fiscal year to date
and setting forth in comparative form the figures for the corresponding periods of the previous
fiscal year, prepared in accordance with generally accepted accounting principles, with the
exception that no notes need be attached to such statements and year-end audit adjustments may not
have been made; and



               (iv) no later than ninety (90) days after the beginning of each fiscal year of the
Company, an annual budget for the Company for such fiscal year.



          (b) Inspection. Upon reasonable request the Company shall permit each
Preferred Stockholder who holds at least 2,000,000 shares of Preferred Stock or his or its
designee to visit and inspect the properties of the Company and examine its corporate and
financial records (and make copies thereof or extracts therefrom) during normal business hours
following reasonable notice. All costs incurred in connection with such inspection shall be borne
by such Preferred Stockholder, unless the Company is then in material breach of this Agreement
or the Series B Purchase Agreement or the Series C Purchase Agreement, in which case the
reasonable costs of such inspection shall be borne by the Company.




          (c) Confidentiality. Each Stockholder agrees that, except with the prior
written permission of the Company, it shall at all times keep confidential and not divulge, furnish
or make accessible to anyone any confidential information, knowledge or data concerning or
relating to the business or financial affairs of the Company; provided, however, that such
Stockholder may disclose such matters (a) to its advisors or agents in connection with its review
and negotiation of this Agreement, (b) to professional advisors, investment bankers, investors,
lenders or rating agencies, but only to the extent reasonably required in order to render services
to such Stockholder and all of whom shall be advised of the confidential nature of such
information and shall be bound by the terms of this Section 6.1(c), (c) as required by law or in
connection with the enforcement of this Agreement, (d) as requested by entities with regulatory
or other authority over such Stockholder, including the National Association of Insurance
Commissioners, the Commission or as otherwise required by generally accepted accounting
principles, or (e) to prospective and permitted assigns of such Stockholder, all of whom shall be
advised of the confidential nature of such information and shall be bound by the terms of this
Section 6.1(c). The provisions of this Section 6.1(c) shall be in addition to, and not in
substitution for, the provisions of any separate nondisclosure agreement executed by the parties
hereto with respect to the transactions contemplated hereby. Notwithstanding anything herein to
the contrary, each party to this Agreement (and each employee, representative, or other agent of




15









 




such party) may disclose to any and all Persons, without limitation of any kind, the tax treatment
and tax structure of the transactions contemplated herein and all materials of any kind (including
opinions or other tax analyses) that are provided to such party relating to such tax treatment and
tax structure.




          (d) Termination of Information and Inspection Rights. The rights provided by
Section 6.1(a) and (b) shall automatically terminate and be of no further force or effect upon the
earlier to occur of (i) a public offering of any class of the Company’s Common Stock under the
Securities Act or (ii) the date upon which the Company becomes subject to the reporting provisions
of the Securities Act; provided that (x) the rights provided in Section 6.1(a) shall
terminate earlier with respect to any Preferred Stockholder on the date such Preferred Stockholder
no longer holds at least 250,000 shares of Preferred Stock and (y) the rights provided in Section
6.1(b) shall terminate earlier with respect to any such Preferred Stockholder who no longer holds
at least 1,000,000 shares of Preferred Stock.




     6.2. Mergers or Sale of Assets. The Company shall not, without first obtaining the
approval of holders of at least the Threshold Number of Shares and a majority of the outstanding
shares of Common Stock, take any action which would result in (x) the merger or consolidation
of the Company into or with another corporation where, upon consummation of such transaction,
the holders of the Company’s voting stock immediately prior to such transaction will hold less
than 50% of the voting stock of the surviving corporation immediately after such transaction, or
(y) the sale or license of all or substantially all of assets of the Company.



     6.3. Other Covenants of the Company.



          (a) Board Committees. The Company shall use commercially reasonable
efforts to cause one Board representative of the Series C Stockholders to be a member of the
Board’s Compensation Committee, Audit Committee and any other committee of the Board. In
addition and not in limitation of the foregoing, the Company shall use its best efforts to
cause the
CV Director (as such term is defined in the Company’s Amended and Restated Certificate of
Incorporation, as amended) to be a member of the Board’s Executive Committee, provided,
however, that as a condition to such CV Director remaining as a member of the Board’s
Executive Committee such CV Director must regularly prepare for, attend and participate in the
Board’s Executive Committee meetings.




          (b) D&O Insurance. The Company shall use commercially reasonable efforts
to maintain directors’ and officers’ liability insurance reasonably satisfactory to the Board
and
providing coverage in an amount of at least $10,000,000.




          (c) Board Meetings. The Company shall use commercially reasonable efforts
to cause the Board to hold a board meeting at least once each calendar quarter.




          (d) Filing of Returns and Other Writings. The Company shall cause the
preparation and timely filing of all Company tax returns and shall, on behalf of the Company,
timely file all other writings required by any governmental authority having jurisdiction to
require such filing.




          (e) Subsidiaries. In the event that the Company creates any subsidiary of the




16









 




Company to which the majority of the assets of the Company will be transferred or by which such
assets will be held (a “Material Subsidiary”), the Company shall take all necessary action
to ensure that the composition of the board of directors (or similar governing body) thereof shall
be identical to that of the Board of Directors of the Company at all times.




          (f) Payment of Taxes. The Company shall pay and discharge all taxes,
assessments and governmental charges or levies imposed upon it or upon its income, profits or
business, or upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a lien or charge upon any
properties of the Company; provided, however, that the Company shall not be required to pay
any such tax, assessment, charge, levy or claim which is being contested in good faith and by
appropriate proceedings if the Company shall have set aside on its books sufficient reserves, if
any, with respect thereto.




          (g) Maintenance of Insurance. The Company shall maintain insurance with
responsible and reputable insurance companies or associations in such amounts and covering
such risks as the Company reasonably believes is customarily carried by companies engaged in
similar businesses and owning similar properties in the same general areas in which the
Company operates.




          (h) Preservation of Corporate Existence. The Company shall preserve and maintain
its corporate existence, rights, franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified, as a foreign corporation in each jurisdiction in
which such qualification is necessary or, in the determination of the Company, desirable in view of
its business and operations or the ownership or lease of its properties.




          (i) Compliance with Laws. The Company shall comply with the
requirements of all applicable laws, rules, regulations and orders of any governmental authority,
where noncompliance would have a material adverse effect on the business, financial condition,
operations, results of operations and prospects of the Company.




          (j) Maintenance of Properties. The Company shall maintain and preserve all of
its properties and assets, necessary for the proper conduct of its business, in good repair,
working order and condition, ordinary wear and tear excepted.




          (k) Compliance with ERISA. The Company shall comply with all minimum funding
requirements applicable to any pension, employee benefit plans or employee contribution plans which
are subject to ERISA or to the Code or any similar foreign laws, and comply, and cause each
subsidiary of the Company, if any, to comply, in all other material respects with the provisions of
ERISA and the Code and any similar foreign laws, and the rules and regulations thereunder, which
are applicable to any such plan. The Company shall not permit any event or condition to exist which
could permit any such plan to be terminated under circumstances which would cause the lien provided
for in Section 4068 of ERISA or any similar foreign laws to attach to the assets of the Company.




          (1) Financings. The Company shall instruct the officers of the Company to




17









 




inform the Board of Directors or the Board’s Executive Committee of any material negotiations,
offers or contracts relating to possible financings of a material nature for the Company,
whether initiated by the Company or any other person.




          (m) Termination. The provisions of this Section 6.3 shall terminate and be of no
further force or effect upon a public offering of any class of the Company’s Common Stock under the
Securities Act or the date upon which the Company becomes subject to the reporting provisions of
the Exchange Act.




ARTICLE 7.




MISCELLANEOUS




     7.1. Legend. In addition to any legends required by federal or state securities
laws, the certificates representing the Shares shall bear the following legends:




	 	(a)	 	“THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE “ACT) AND APPLICABLE STATE SECURITIES
LAWS AND MAY NOT BE SOLD OR TRANSFERRED UNLESS (X)
THE SALE OR TRANSFER IS COVERED BY AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, (Y) THE SALE
OR TRANSFER IS IN COMPLIANCE WITH RULE 144 UNDER THE
ACT, OR (Z) THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY
STATING THAT THE SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS
OF THE ACT AND APPLICABLE STATE SECURITIES LAWS.”
	 
	 	(b)	 	“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER SET
FORTH IN AN AMENDED AND RESTATED STOCKHOLDERS
AGREEMENT DATED AS OF DECEMBER      , 2003. A COPY OF
SUCH AGREEMENT MAY BE OBTAINED FROM THE COMPANY UPON REQUEST.”




The legend referred to in paragraph (a) above shall be removed when the securities evidenced
by the Certificate have been registered under Federal and state securities laws. The legend
referred to in paragraph (b) above shall be removed when the Company has consummated a Qualified
IPO.



Each of the parties hereto agrees that absent (i) an effective registration statement under the
Securities Act and qualification under applicable state securities laws or (ii) compliance with
Rule 144 under the Securities Act, such party will not sell, assign, transfer, pledge, hypothecate,
distribute or otherwise dispose of any or all of the Shares issued in connection with the
transactions contemplated hereby without first providing the Company with an opinion of counsel
reasonably satisfactory to the Company stating that such disposition is exempt from the




18









 




registration and prospectus delivery requirements of the Securities Act and has been registered or
qualified under (or is exempt from the registration and qualification requirements of) any
applicable state securities laws.




     7.2. Transferees; Additional Restrictions on Transfer. Each transferee of Shares or a
subsequent transferee (including the transferee in a transfer from one holder to another holder)
shall take such Shares subject to the same restrictions and obligations as existed in the hands of
the transferor. No transferee of Shares or a subsequent transferee, other than a transferee
receiving Shares in a Qualified Transfer, shall be entitled to the benefits provided to
Stockholders hereunder, including, without limitation, the registration rights provided under
Article 4 hereof. Shares sold to the public pursuant to an effective Registration Statement shall
no longer be subject to any of the provisions of this Agreement.



     7.3.
Future Stockholders. Any person who acquires Shares of the Company may, at
the option of the Company, become a party to this Agreement by execution and delivery to the
Company of a counterpart of this Agreement. Upon delivery of such counterpart, (i) the
signature pages hereto shall be amended to reflect the name of such new party, and (ii) such new
party shall thereafter be deemed a “Stockholder” for purposes of this Agreement.



     7.4.
Specific Performance, Etc. The Company and each Stockholder, in addition to
being entitled to exercise all rights provided herein, in the Company’s Certificate of
Incorporation, as amended, or granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. Each party agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a breach by it
of the provisions of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.



     7.5.
Notices. Any notice required or permitted by this Agreement shall be in writing
and shall be deemed sufficient upon delivery, when delivered personally or by overnight courier
or sent by telegram. or fax, or five (5) days after being deposited in the U.S. mail, as certified or
registered mail, with postage prepaid, addressed to the party to be notified at such party’s address
as set forth on Exhibit A to the Series B Purchase Agreement or the Series C Purchase
Agreement, as the case may be, or as subsequently modified by written notice, and if to the
Company, 8000 Westpark Drive, Suite 675, McLean, Virginia 22102, Attention: Chief
Executive Officer, with a copy to David S. Kyman, Maron & Sandler, 1250 Fourth Street, Suite
550, Santa Monica, California 90401. If notice is given in multiple fashions, the date of first
effective notice shall control.



     7.6.
Entire Agreement: Amendments and Waivers. This Agreement constitutes the
entire agreement among the parties pertaining to the subject matter hereof and supersedes all
prior agreements, understandings, negotiations and discussions, whether oral or written, of the
parties, including without limitation the First Amended and Restated Stockholders Agreement,
Articles IV, VI and VII and Sections 8.2 and 8.3 of Article VIII of the Bennett Agreement and
Articles III and IV of the Packard Agreement, all of which are expressly superseded by this
Agreement and are of no further force or effect. Notwithstanding the foregoing, except as
expressly provided above, the Bennett Agreement and the Packard Agreement shall remain in
full force and effect in accordance with their terms. This Agreement may be amended, modified,



19









 




waived or supplemented only by a written instrument executed by the Company, the holders of at
least the Threshold Number of Shares, and Common Stockholders holding a majority of the outstanding
shares of Common Stock held by such Common Stockholders. No action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action. The waiver by any party hereto of a
breach of any provision of this Agreement shall not operate or be construed as waiver of any
preceding or succeeding breach and no failure by any party to exercise any right or privilege
hereunder shall be deemed a waiver of such party’s rights or privileges hereunder or shall be
deemed a waiver of such party’s rights to exercise the same at any subsequent time or times
hereunder. Notwithstanding any provision herein to the contrary, the addition of a party to this
Agreement at any time in connection with such party becoming a Stockholder shall not constitute an
amendment, modification or supplement of this Agreement and shall only require the agreement of the
Company and the Stockholder being added as a party to this Agreement; all such persons shall be
considered to be Stockholders from the date they become a signatory to this Agreement.




     7.7. Termination. This Agreement shall terminate and cease to be of any further force
or effect upon the earlier of (a) the Company’s merger or consolidation with or into another
corporation or other entity where, upon consummation of such transaction, the holders of the
Company’s voting stock immediately prior to such transaction will hold less than 50% of the
voting stock of the surviving corporation immediately after such transaction, or (b) the
Company’s merger or consolidation with or into another corporation where in connection with
such transaction, all of the Shares are exchanged exclusively for cash and/or shares of capital
stock or other securities that are publicly traded on the New York Stock Exchange, American
Stock Exchange or Nasdaq National Market.



     7.8. Recapitalizations, Exchange, Etc. Affecting the Company’s Stock. The provisions
of this Agreement shall apply, to the full extent set forth herein with respect to the Shares, to any
and all shares of capital stock or other securities that may be issued in respect of, in exchange
for, or in substitution of the Shares and shall be appropriately adjusted for any stock dividends,
splits, reverse splits, combinations, recapitalizations and the like occurring after the date hereof.



     7.9. Arbitration; Governing Law. This Agreement has been made and executed under,
and will be construed and interpreted in accordance with, the internal laws of the State of
Delaware, without regard to principles of conflict of laws. Any dispute, controversy or claim
arising out of this Agreement or the performance, breach or termination thereof shall be settled
by binding arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The place of arbitration shall be Wilmington, Delaware. The
arbitration shall be conducted by a neutral arbitrator appointed by the American Arbitration
Association. The arbitrator shall be entitled to award any appropriate remedy including, but not
limited to, monetary damages, specific performance, and all other forms of legal and equitable
relief; provided, however, that the arbitrator shall not be entitled to award punitive damages.
Judgment upon the award rendered may be entered in any court having jurisdiction. The
arbitrator shall be entitled to award to the prevailing party all costs of arbitration including, but
not limited to, attorney’s fees. The arbitrator shall be charged with determining the prevailing
party. To the extent practicable, all information resulting from or otherwise pertaining to any
dispute shall be nonpublic and handled by the parties and their respective agents in such a way as



20









 




to prevent the public disclosure of such information. Notwithstanding the foregoing, either party
shall have the right to seek and obtain court ordered specific performance, injunctive and other
equitable remedies in connection with any actual or threatened breach of this Agreement.




     7.10. Multiple Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.



     7.11. Headings. The headings of the Articles and Sections herein are inserted for
convenience of reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement.



     7.12. Construction. Differences in language as between similar provisions covering
similar matters may reflect differences in style rather than a different substantive intent and
should be construed accordingly.



     7.13. Expenses. Except as otherwise provided in Section 6.9 of the Series C Purchase
Agreement, each party hereto shall pay its own legal, accounting, out-of-pocket and other
expenses incident to this Agreement and to any action taken by such party in preparation for carrying this Agreement into effect.



     7.14. Invalidity. In the event that any one or more of the provisions contained in this
Agreement or in any other document or instrument referred to herein, shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted
by law, such invalidity, illegality or unenforceability shall not affect any other provision of this
Agreement or any other such document or instrument.



     7.15. Cumulative Remedies. All rights and remedies of either party hereto are
cumulative of each other and of every other right or remedy such party may otherwise have at
law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair
the concurrent or subsequent exercise of other rights or remedies.



     7.16. Aggregation of Shares. All shares of Series B Preferred Stock held by Persons
that are Affiliates shall be aggregated together for the purpose of determining the availability of
any rights under this Agreement. All shares of Series C Preferred Stock held by Persons that are
Affiliates shall be aggregated together for the purpose of determining the availability of any
rights under this Agreement.



     7.17. Termination of First Amended and Restated Stockholders Agreement. By their
execution of this Agreement, the Company and the undersigned Stockholders who were parties
to the First Amended and Restated Stockholders Agreement and who hold at least the Threshold
Number of Shares (as defined in the First Amended and Restated Stockholders Agreement)
hereby terminate the First Amended and Restated Stockholders Agreement; and the Company,
such undersigned Stockholders and the other Stockholders set forth on the Schedule of
Stockholders attached hereto hereby enter into this Second Amended and Restated Stockholders
Agreement.



21









 





     IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first written above.



	 	 	 	 	 
	 	K12 INC.,

a Delaware corporation

 	 
	 	By:  	 	 
	 	 	Ronald J. Packard, 	 
	 	 	Chief Executive Officer 	 
	 



	 	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 

	 	WILLIAM J. BENNETT
	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 

	 	RONALD J. PACKARD	 	 






 









 





COUNTERPART SIGNATURE PAGE TO

STOCKHOLDERS AGREEMENT




(All joint owners to sign)




	 	 	 	 	 
	 

	 	COMMON STOCKHOLDER:
	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 

	 	Print Name	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 

	 	Signature	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	COMMON STOCKHOLDER:	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 

	 	Print Name	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 

	 	Signature	 	 






 









 





COUNTERPART SIGNATURE PAGE TO

STOCKHOLDERS AGREEMENT




(All joint owners to sign)




	 	 	 	 	 
	 

	 	SERIES B PREFERRED STOCKHOLDER:
	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 

	 	Print Name	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 

	 	Signature	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	SERIES B PREFERRED STOCKHOLDER:	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 

	 	Print Name	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 

	 	Signature	 	 






 









 





COUNTERPART SIGNATURE PAGE TO

STOCKHOLDERS AGREEMENT




(All joint owners to sign)




	 	 	 	 	 
	 

	 	SERIES C PREFERRED STOCKHOLDER:
	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 

	 	Print Name	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 

	 	Signature	 	 
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	SERIES C PREFERRED STOCKHOLDER:	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 

	 	Print Name	 	 
	 
	 	 	 	 
	 

	 	 	 	 
	 

	 	 	 	 
	 

	 	Signature