Exhibit 10.39
EXECUTION COPY
WARRANT AGREEMENT
BETWEEN
EDISON SCHOOLS INC.,
AND
XXXXXXX XXXXX MORTGAGE CAPITAL INC.
WARRANT AGREEMENT
DATED AS OF JULY 31, 2002
COUDERT BROTHERS LLP
0000 XXXXXX XX XXX XXXXXXXX
XXX XXXX, XXX XXXX 00000-0000
TABLE OF CONTENTS
PAGE
Section 1. Purchase of the Warrant........................................................................ 1
Section 2. Representations and Warranties of the Company.................................................. 1
2.1 Organization, Corporate Power and Licenses........................................................ 1
2.2 Capital Stock..................................................................................... 1
2.3 Valid Issuance.................................................................................... 2
2.4 Authorization; No Breach.......................................................................... 2
2.5 SEC Documents..................................................................................... 2
2.6 Broker's Fee...................................................................................... 3
2.7 Compliance with ERISA............................................................................. 3
2.8 No Voting Trusts.................................................................................. 3
Section 3. Representations and Warranties of Merrill...................................................... 3
3.1 Organization...................................................................................... 3
3.2 Accredited Investor............................................................................... 3
3.3 Securities Registration........................................................................... 3
3.4 Investment Intent................................................................................. 4
3.5 Broker's Fees..................................................................................... 4
3.6 Compliance with ERISA............................................................................. 4
3.7 Legends........................................................................................... 4
Section 4. Registration Rights............................................................................ 4
4.1 Request for Registration.......................................................................... 5
4.2 Company Registration.............................................................................. 6
4.3 Shelf Registration................................................................................ 7
4.4 Obligations of the Company........................................................................ 7
4.5 Furnish Information............................................................................... 9
4.6 Expenses of Demand Registration................................................................... 9
4.7 Expenses of Company Registration.................................................................. 10
4.8 Expenses of Shelf Registration.................................................................... 10
4.9 Underwriting Requirements......................................................................... 10
4.10 Delay of Registration............................................................................. 11
4.11 Indemnification................................................................................... 11
4.12 Assignment of Registration Rights................................................................. 13
4.13 Limitations on Subsequent Registration Rights..................................................... 13
4.14 "Market Standoff" Agreement....................................................................... 13
4.15 Termination of Registration Rights................................................................ 14
Section 5. Certain Investor Rights........................................................................ 14
5.1 Merrill Rights to Observe Board................................................................... 14
5.2 Non-Assignment and Expiration of Rights........................................................... 14
Section 6. Indemnification................................................................................ 14
i
........................................................................................................ 14
6.1 Merrill Indemnification........................................................................... 14
6.2 Company Indemnification........................................................................... 15
Section 7. Miscellaneous.................................................................................. 15
7.1 Entire Agreement.................................................................................. 15
7.2 Further Assurances................................................................................ 15
7.3 Survival.......................................................................................... 15
7.4 Successors and Assigns............................................................................ 15
7.5 Amendments........................................................................................ 15
7.6 Confidentiality................................................................................... 15
7.7 Severability...................................................................................... 15
7.8 Notices........................................................................................... 15
7.9 Governing Law; Waiver of Jury Trial............................................................... 16
7.10 Counterparts...................................................................................... 16
ii
WARRANT AGREEMENT
WARRANT AGREEMENT ("Agreement"), dated as of July 31, 2002 between
EDISON SCHOOLS INC., a Delaware corporation (the "Company") and XXXXXXX XXXXX
MORTGAGE CAPITAL INC., a Delaware corporation ("Merrill").
RECITALS:
WHEREAS, at the request of Edison Receivables Company LLC ("ERC"), a
wholly-owned special purpose subsidiary of the Company, as additional
consideration for Merrill to amend and restate the existing financing facility
for ERC, for which ERC has paid fair consideration to the Company, the Company
has agreed to issue to Merrill a warrant substantially in the form attached
hereto as Exhibit A (the "Warrant"), to purchase up to an aggregate of 2,152,959
shares of Class A Common Stock, par value $.01 per share, of the Company (the
"Common Stock"; the shares of Common Stock issuable upon exercise of the Warrant
are referred to herein as the "Warrant Shares").
NOW, THEREFORE, in consideration of the premises and mutual agreements
herein contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Merrill hereby
agree as follows:
SECTION 1. Purchase of the Warrant. The purchase and sale of the
Warrant (the "Closing") shall take place at 10.00 AM at the offices of Coudert
Brothers LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000 on July 31,
2002 or at such other time, place and date as the Company and Merrill agree (the
"Closing Date"). At the Closing, (i) each of the Company and Merrill shall
execute and deliver this Agreement, and (ii) the Company shall issue the Warrant
to Merrill.
SECTION 2. Representations and Warranties of the Company. The Company
hereby represents and warrants to Merrill that as of the Closing Date:
2.1 Organization, Corporate Power and Licenses. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority and
all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted and to enter into and fulfill
its obligations under this Agreement and the Warrant.
2.2 Capital Stock. As of July 26, 2002, the capital stock of the
Company consisted solely of: (i) 155,000,000 authorized shares of common stock,
par value $.01 per share (collectively, the "Common Stock") of which (A)
150,000,000 shares have been designated Class A Common Stock, 52,018,855 shares
of which are issued and outstanding and 11,984,979 shares are reserved for
issuance upon exercise of the options and warrants of the Company currently
outstanding, (B) 5,000,000 authorized shares have been designated Class B Common
Stock, 1,805,132 shares of which are issued and outstanding; and (ii) 5,000,000
shares of preferred stock, par value $.01 per share, none of which are issued
and outstanding. The rights, privileges and preferences of the Common Stock and
the Preferred Stock are as stated in the Sixth Amended and Restated Certificate
of Incorporation of the Company dated as of November 17, 1999, as amended.
Except as set forth above and except for 1,911,143 shares reserved for
1
issuance under the Company's Stock Incentive Plan, there are no options,
warrants, calls, pre-emptive rights, subscriptions or other rights, agreements,
arrangements or commitments of any character, relating to the issued or unissued
capital stock of the Company, obligating the Company to issue, transfer or sell
or cause to be issued, transferred or sold, any shares of capital stock or other
equity or debt interest in, the Company or securities convertible into or
exchangeable for such shares or equity interests, or obligating the Company to
grant, extend or enter into any such option, warrant, call, subscription or
other right, agreement, arrangement or commitment.
2.3 Valid Issuance. The Company shall at all times keep a sufficient
number of authorized and unissued shares of Common Stock reserved for issuance
upon the exercise of the Warrant. All outstanding shares of the Company's stock
are, and upon issuance in accordance with this Agreement and the Warrant, the
Warrant Shares will be, (i) duly and validly issued, (ii) fully paid and
nonassessable, (iii) free of any liens other than those created by the owner
thereof, and (iv) issued in compliance with all applicable federal and state
securities laws.
2.4 Authorization; No Breach. The execution, delivery and performance
of this Agreement and the Warrant and the issuance of the Warrant Shares as
provided herein and therein have been duly authorized by the Company. Each of
this Agreement and the Warrant constitutes a valid and binding obligation of the
Company enforceable against the Company in accordance with its respective terms,
except as the enforceability thereof may be limited by bankruptcy, insolvency or
other similar rights generally affecting the enforceability of creditors rights
or by general principles of equity. The execution and delivery by the Company of
this Agreement and the Warrant, the offering, sale and issuance of the Warrant,
the issuance of the Warrant Shares upon exercise of the Warrant, and the
fulfillment of and compliance with the respective terms hereof and thereof by
the Company, do not and shall not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under (with or
without notice or lapse of time or both), (iii) result in the creation of any
lien, security interest, charge or encumbrance upon the Company's capital stock
or assets pursuant to, (iv) give any third party the right to modify, terminate
or accelerate any obligation under, (v) result in a violation of, or (vi)
require any authorization, consent, approval, exemption or other action by or
notice or declaration to, or filing with, any court or administrative or
governmental body or agency pursuant to, the charter or bylaws of the Company or
any subsidiary, or any law, statute, rule or regulation to which the Company or
any subsidiary is subject, or any agreement, instrument, order judgment or
decree to which the Company or any subsidiary is subject.
2.5 SEC Documents. The Company has filed all required reports,
schedules, forms, statements and other documents (including exhibits and all
other information incorporated therein) with the Securities and Exchange
Commission (the "SEC") since January 1, 2001 (the "Company SEC Documents").
Except to the extent that information contained in any Company SEC Documents has
been revised or superseded by a subsequently filed Company SEC Document (but
prior to the date hereof): (i) as of their respective dates, the Company SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Act") or the Securities Exchange Act of
1934, as amended (the "1934 Act"), as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Company SEC
Documents, and none of the Company SEC Documents when filed contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they are made, not misleading; (ii) none
of the Company SEC Documents contains any untrue statement of a material fact or
omits to state any material fact required to be
2
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; and (iii) the
financial statements of the Company included in the Company SEC Documents comply
as to form, as of their respective dates of filing with the SEC, in all material
respects with applicable accounting requirements and published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles (except, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the notes thereto)
and fairly present in all material respects the consolidated financial position
of the Company and its consolidated subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal recurring
year-end audit adjustments).
2.6 Broker's Fee. No person or entity acting on behalf of or under the
authority of the Company is or will be entitled to any broker's, finder's or
similar fee or commission in connection with the transactions contemplated
hereby.
2.7 Compliance with ERISA. In reliance upon the representation made by
Merrill in Section 3.6 hereof, the purchase of the Warrant by Merrill will not
result in a prohibited transaction under Section 406 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or Section 4975 of the
Internal Revenue Code of 1986, as amended (the "Code") or any other statute,
rule or regulation currently in effect and applicable to the transaction.
2.8 No Voting Trusts. There are no voting trusts or other agreements or
understandings to which the Company is a party with respect to the voting of the
capital stock of the Company.
Section 3. Representations and Warranties of Merrill. To induce the
Company to enter this Agreement, Merrill hereby represents and warrants to the
Company as follows:
3.1 Organization. Merrill is duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization.
3.2 Accredited Investor. Merrill is an "accredited investor" within the
meaning of SEC Rule 501 of Regulation D, as presently in effect.
3.3 Securities Registration. Merrill understands that neither the
offering nor the sale of the Warrant or the Warrant Shares have been registered
under the Act, in reliance upon an exemption therefrom for non-public offerings,
nor have such offering or sale been registered or qualified under any state
securities or "Blue Sky" law in reliance upon similar exemptions. Merrill
understands that the Warrant and the Warrant Shares must be held indefinitely
unless disposed of pursuant to the terms and conditions of the Act and any state
securities or "Blue Sky" laws and any such disposition must either be registered
under the Act and all applicable
3
state securities or "Blue Sky" laws, or exempt from registration. Merrill
further understands that except as specifically provided herein, the Company is
under no obligation to register the Warrant or the Warrant Shares or to assist
Merrill in complying with any exemption from registration. Merrill understands
that none of this Agreement, the Warrant or the Warrant Shares have been
reviewed, approved or otherwise passed upon by the SEC, any state securities
administrator, the National Association of Securities Dealers Inc. ("NASD"), any
securities or commodities exchange, or any other governmental agency or
self-regulatory authority.
3.4 Investment Intent. The Warrant is being purchased solely for
Xxxxxxx'x own account and not for the account of any other person and not, in
whole or in part, for distribution to others within the meaning of the Act,
without prejudice to Xxxxxxx'x rights at all times to sell or otherwise dispose
of all or part of such Warrant under a registration statement under the Act or
an exemption available thereunder.
3.5 Broker's Fees. No person or entity acting on behalf or under the
authority of Merrill is or will be entitled to any broker's, finder's or similar
fee or commission in connection with the transactions contemplated hereby.
3.6 Compliance with ERISA. The source of funds to be used by Merrill to
pay the purchase price of the Warrant to be purchased hereunder, either (a) does
not include assets of any employee benefit plan subject to Title I of ERISA, or
(b) constitutes assets of one or more specific employee benefit plans (the
"Plan") which Merrill has identified in writing to the Company and that the
purchase of the Warrant is permitted by provisions of the Plan and trust
established thereunder.
3.7 Legends. Merrill agrees that the instrument evidencing the Warrant
and any Warrant Shares issuable pursuant thereto shall bear a legend
substantially in the form of the following (and such other legends, if any,
required under state or federal securities laws in the reasonable opinion of
legal counsel for the Company):
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR ANY
STATE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE ON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT. THE
SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED OR OTHERWISE
DISPOSED OF OTHER THAN PURSUANT TO A REGISTRATION STATEMENT
THAT HAS BEEN DECLARED EFFECTIVE UNDER THE ACT OR AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE ACT AND
ANY STATE SECURITIES LAWS.
The foregoing legend shall be removed and the Company shall issue new
certificates representing Warrant Shares to the holder of Warrant Shares upon
which such legend appears if such holder satisfies the requirements of Rule
144(k) under the Act.
Section 4. Registration Rights.
4
4.1 Request for Registration. (a) If the Company shall receive, at
any time after the date hereof, a written request from a Holder or Holders (as
defined below) of Registrable Securities (as defined below) that the Company
file a registration statement under the Act covering the registration of
Registrable Securities the anticipated aggregate offering price for which would
exceed $3,000,000, then the Company shall:
(i) within ten (10) days of the receipt thereof, give written
notice of such request to all Holders; and
(ii) file as soon as practicable, and in any event within thirty
(30) days of the receipt of such request and use commercially reasonable efforts
to cause to be declared effective, the registration under the Act of all
Registrable Securities which the Holders request to be registered, subject to
the limitations of subsection 4.1(b), within twenty (20) days of the mailing of
such notice by the Company.
For purposes of this Section 4, a "Holder" or "Holders" shall mean any
person owning or having the right to acquire Registrable Securities or any
assignee thereof in accordance with Section 4.12 hereof. The term "Registrable
Securities" shall mean (i) the Warrant Shares issuable or issued upon exercise
of the Warrant, and (ii) any Common Stock of the Company issued as (or issuable
upon the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of the shares referenced in (i) above, excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which
the rights under Section 4 are not assigned.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to subsection 4.1(a) and the Company
shall include such information in the written notice referred to in subsection
4.1(a). The underwriter will be selected by a majority in interest of the
Initiating Holders and shall be reasonably acceptable to the Company. In such
event, the right of any Holder to include its Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 4.4(e)) enter into an
underwriting agreement in customary form and reasonably acceptable to the
Company with the underwriter or underwriters selected for such underwriting.
Notwithstanding any other provision of this Section 4.1, if the underwriter
advises the Initiating Holders in writing that marketing factors require a
limitation of the number of shares to be underwritten, then the Initiating
Holders shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company requested and entitled to be included in such registration by each
Holder; provided, however, that the number of shares of Registrable
5
Securities to be included in such underwriting shall not be reduced unless all
other securities are first entirely excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 4.1, a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than ninety (90) days after
receipt of the request of the Initiating Holders; provided, however, that the
Company may not utilize this right more than twice or for periods aggregating
more than ninety (90) days in any twelve (12) month period.
(d) In addition, the Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 4.1:
(i) Pursuant to a request by the Holders of Registrable
Securities initially held by or issuable to Merrill after the Company has
effected pursuant to this Section 4.1 one (1) registration at the request of
such Holders and such registration has been declared or ordered effective;
(ii) During the period starting with the date thirty (30) days
prior to the Company's good faith estimate of the date of filing of, and ending
on a date ninety (90) days after the effective date of, a registration subject
to Section 4.2 hereof; provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective; or
(iii) If the Initiating Holders propose to dispose of shares of
Registrable Securities all of which may be disposed of without registration
pursuant to Rule 144 under the Act during a three-month period or all of which
may be disposed of pursuant to a registration statement filed pursuant to
Section 4.3 below.
With a view to making available to the Holders the benefits of certain
rules and regulations of the SEC which may permit the sale of such Holders'
shares to the public without registration, the Company agrees to use its
reasonable efforts to: (i) make and keep public information available at all
times, as those terms are understood and defined in Rule 144 or any similar or
analogous rule promulgated under the Act; (ii) file with the SEC, in a timely
manner, all reports and other documents required of the Company under the 1934
Act; and (iii) so long as the Holders own the Warrant or any Warrant Shares,
furnish to the Holders forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of Rule 144(c) of the Act,
a copy of the most recent annual or quarterly report of the Company, and such
other reports and documents as the Holder may reasonably request in availing
itself of any rule or regulation of the SEC allowing it to sell any such
securities without registration.
4.2 Company Registration. If (but without any obligation to do so) the
Company proposes to register (including for this purpose a registration effected
by the Company for stockholders other than the Holders) any of its stock or
other securities under the Act in
6
connection with the public offering of such securities solely for cash (other
than a registration relating solely to the sale of securities to participants in
a Company stock or option plan or a registration on any form which does not
permit the inclusion of the Registered Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within thirty (30) days after receipt of
such notice by the Company, the Company shall, subject to the provisions of
Section 4.9, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
4.3 Shelf Registration. (a) Within sixty (60) days after the date
hereof, the Company shall prepare and file with the SEC a registration statement
for an offering to be made on a delayed or continuous basis pursuant to Rule 415
of the Act (a "Shelf Registration") registering the resale from time to time by
the Holders of all the Registrable Securities (the "Initial Shelf
Registration").
(b) If the Initial Shelf Registration or any Subsequent Shelf
Registration (as defined below) ceases to be effective for any reason at any
time, except as set forth below, the Company shall use reasonable commercial
efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event shall within forty-five (45) days of
such cessation of effectiveness file an amendment to such Shelf Registration in
a manner reasonably expected to obtain the withdrawal of the order suspending
the effectiveness thereof, or to promptly file an additional Shelf Registration
covering such Warrant Shares as were covered by the Initial Shelf Registration
(a "Subsequent Shelf Registration").
(c) The other provisions of this Section 4.3 notwithstanding, the
Company shall not be obligated to maintain the effectiveness of any Shelf
Registration if all Warrant Shares covered by such registration may be disposed
of without registration pursuant to Rule 144 under the Act during a three-month
period or if Form S-3 or a similar or substitute form is not available for such
Shelf Registration.
4.4 Obligations of the Company. Whenever required under this Section 4
to effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its reasonable commercial efforts
to cause such registration statement to become effective, and except for a
registration filed pursuant to Section 4.3 hereto, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder keep
such registration statement effective for a period of up to one hundred twenty
(120) days; provided, however, that such 120-day period shall be extended for a
period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
7
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
"Blue Sky" laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement reasonably satisfactory
to the Company, in usual and customary form, with the managing underwriter of
such offering. Each Holder participating in such underwriting shall also enter
into and perform its obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Notify each Holder participating in such registration after it
shall receive notice thereof, of the time when such registration statement has
become effective or a supplement to any prospectus forming a part of such
registration statement has been filed.
(h) Notify each Holder participating in such registration of any
request by the SEC for the amending or supplementing of such registration
statement or prospectus or for additional information.
(i) Prepare and file with the SEC, promptly upon the request of the
Holder, any amendments or supplements to such registration statement or
prospectus relating to such Holder or the distribution of the Registrable
Securities held by such Holder being included in such Registration Statement,
which, in the opinion of counsel for such Holder, is required under the Act or
the rules and regulations thereunder in connection with the distribution of the
Registrable Securities by the Holder.
(j) Prepare and promptly file with the SEC and promptly notify the
Holder of the filing of such amendment or supplement to such registration
statement or prospectus as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such securities is
required to be delivered under the Act, any event shall have occurred as the
result of which any such prospectus or any other prospectus as then in effect
would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein in the light of the
circumstances in which they were made, not misleading.
8
(k) Advise each Holder participating in such registration, after it
shall receive notice or obtain knowledge thereof, of the issuance of any stop
order by the SEC suspending the effectiveness of such registration statement or
the initiating or threatening of any proceeding for that purpose and use its
reasonable efforts to prevent the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued.
(l) Not file any amendment or supplement to such registration
statement or prospectus to which the Holder shall have reasonably objected on
the grounds that such amendment or supplement does not comply in all material
respects with the requirements of the Act or the rules and regulations
thereunder, after having been furnished with a copy thereof at least five (5)
business days prior to the filing thereof, unless in the opinion of counsel for
the Company the filing of such amendment or supplement is reasonably necessary
to protect the Company from any liabilities under any applicable federal or
state law and such filing will not violate applicable law. For the avoidance of
doubt, no filings by the Company incorporated by reference into the registration
statement or prospectus shall be deemed an amendment or supplement hereunder.
(m) At the request of a Holder and if required by the underwriters,
furnish: (i) an opinion of counsel to the Company, addressed to the
underwriters, and to the Holder, covering such matters as such underwriters and
Holder may reasonably request; and (ii) letters dated as of the effective date
of the registration statement from the independent certified public accountants
of the Company, addressed to the underwriters and to the Holder, covering such
matters as such underwriters and Holder may reasonably request.
(n) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or automated quotation system
on which similar securities issued by the Company are then listed.
(o) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
4.5 Furnish Information. (a) It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Section 4
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 4.1 or Section 4.3 if, due to the
operation of subsection 4.5(a), the anticipated aggregate offering price of the
Registrable Securities to be included in the registration does not equal or
exceed the anticipated aggregate offering price required to originally trigger
the Company's obligation to initiate such registration as specified in
subsection 4.1(a) or subsection 4.3(d)(ii), whichever is applicable.
4.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications
9
pursuant to Section 4.1, including (without limitation) all registration,
filing, NASD and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company and the reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 4.1 that
is subsequently withdrawn at the request of the Holders; provided further,
however, that if at the time of such withdrawal, the Holders have learned of a
material adverse change in the condition, business, or prospects of the Company
from that known to the Holders at the time of their request and have withdrawn
the request with reasonable promptness following disclosure by the Company of
such material adverse change, then the Holders shall not be required to pay any
of such expenses and shall retain their rights pursuant to Section 4.1.
4.7 Expenses of Company Registration. The Company shall bear and pay
all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 4.2 for each Holder (which right may be assigned as provided
in Section 4.12), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating to or apportionable
thereto and the reasonable fees and disbursements of one counsel for the selling
Holders selected by them but excluding underwriting discounts and commissions
relating to Registrable Securities.
4.8 Expenses of Shelf Registration. All expenses incurred in connection
with a registration filed pursuant to Section 4.3, including (without
limitation) all registration, filing, qualification, printer's and accounting
fees and the reasonable fees and disbursements of counsel for the selling Holder
or Holders and counsel for the Company shall be borne by the Company.
4.9 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 4.2 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters and then only in such
quantity as the underwriters determine in their sole discretion will not,
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in any underwritten offering exceeds the amount of securities sold
other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling stockholders
according to the total amount of securities requested and entitled to be
included therein by each selling stockholder or in such other proportions as
shall mutually be agreed to by such selling stockholders). For purposes of the
preceding parenthetical concerning apportionment, for any selling stockholder
which is a holder of Registrable Securities and which is a partnership or
corporation, the partners, retired partners and stockholders of such holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "selling stockholder," and any pro-rata reduction with respect to such
"selling stockholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals
10
included in such "selling stockholder," as defined in this sentence, which were
requested to be included in such registration statement.
4.10 Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 4.
4.11 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 4:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, its officers and directors, any underwriter (as
defined in the Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Act or the 1934 Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a statement required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the 1934 Act, any state securities law or
any Rule or regulation promulgated under the Act, the 1934 Act, or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 4.11(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such loss,
claim, damage, liability, or action to the extent that it arises out of or is
based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly or
used in connection with such registration; and each such Holder will pay any
legal or other expenses reasonably incurred by any person intended to be
indemnified pursuant to this subsection 4.11(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however,
11
that the indemnity agreement contained in this subsection 4.11(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld; provided, that, with respect
to each Holder, in no event shall any indemnity under this subsection 4.11(b)
exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 4.11 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 4.11 deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
4.11, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 4.11.
(d) If the indemnification provided for in this Section 4.11 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such, loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission; provided, however, that in no event shall the amount of
contribution under this Section 4.11(d) exceed the net proceeds from the
offering received by such Holder.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
12
(f) The obligations of the Company and Holders under this Section
4.11 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 4, and otherwise.
4.12 Assignment of Registration Rights. The rights to cause the Company
to register Registrable Securities pursuant to this Section 4 may be assigned
(but only with all related obligations) by a Holder to (a) any partner or
retired partner of any Holder which is a partnership or member or retired member
of any Holder which is a limited liability company, (b) any family member or
trust for the benefit of any individual Holder, (c) any affiliate of such
Holder, or (d) any transferee or assignee of such securities who, after such
assignment or transfer, holds at least 250,000 shares of Registrable Securities
(subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations), provided: (i) the Company is, within
a reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (ii) such transferee or
assignee agrees in writing to be bound by and subject to the terms and
conditions of this Agreement; and (iii) such assignment shall be effective only
if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Act.
4.13 Limitations on Subsequent Registration Rights. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would grant registration rights which rank senior to the
rights granted herein or otherwise allow such holder or prospective holder (i)
to include such securities in any registration filed under Section 4.1 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included or (ii) to make a demand
registration which could result in such registration statement being declared
effective within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 4.1.
4.14 "Market Standoff" Agreement. Each Holder hereby agrees that,
during the period of duration specified by the Company and an underwriter of
Common Stock or other securities of the Company, following the effective date of
a registration statement of the Company filed under the Act, it shall not, to
the extent requested by the Company and such underwriter, directly or indirectly
sell, offer to sell, contract to sell (including, without limitation, any short
sale), grant any option to purchase or otherwise transfer or dispose of (other
than to donees who agree to be similarly bound) any Registrable Securities of
the Company held by it at any time during such period except Common Stock
included in such registration; provided, however, that:
(a) all executive officers and directors of the Company enter into
similar agreements; and
(b) such market standoff time period shall not exceed ninety (90)
days.
13
In order to enforce the foregoing covenant, the Company may impose stop
transfer instructions with respect to the Registrable Securities of each Holder
(and the shares or securities of every other person subject to the foregoing
restrictions) until the end of such period.
4.15 Termination of Registration Rights. All rights and duties provided
for in this Section 4 shall terminate on the date on which all shares of
Registrable Securities held or entitled to be held upon exercise by each Holder
may immediately be sold under Rule 144 during any ninety (90)-day period.
Section 5. Certain Investor Rights.
5.1 Merrill Rights to Observe Board. Merrill shall have the right to
designate an individual to attend meetings of the Board of Directors of the
Company as a non-voting observer and such observer shall be entitled to receive
notice of each meeting and information relating to each such meeting in the same
way as is provided to members of the Board of Directors; provided, however, that
Merrill and such observer shall agree to hold in strict confidence all
information provided either orally or in writing in connection with such
observation, except that such information may be disclosed to Merrill, and,
subject to all applicable laws, Merrill may use such information in connection
with its position as a holder of the Warrant; and provided further, that the
Company reserves the right to withhold any information and to exclude such
observer from any meeting or portion thereof if access to such information or
attendance at such meeting or portion thereof could, in the opinion of Company's
counsel, result in the waiver or other loss of the attorney-client privilege
between the Company and its counsel.
5.2 Non-Assignment and Expiration of Rights(a) (a) The rights of
Merrill set forth in this Section 5 are personal to Merrill and may not be
assigned to any other party and such rights shall terminate immediately upon any
purported assignment thereof.
(b) The rights of Merrill set forth in this Section 5 shall
terminate and be of no further force or effect, and Merrill shall have no
further claim to such rights, upon the occurrence of both of the following
events:
(i) that certain loan facility made available to ERC by Merrill
and School Services LLC ("School Services") in the amount of $55,000,000
pursuant to that certain Amended and Restated Credit and Security Agreement,
dated as of July 31, 2002 among ERC, Merrill and School Services shall have been
repaid in full and no further amounts may be drawn thereunder; and
(ii) Merrill shall no longer hold or be entitled to receive upon
exercise of the Warrant 538,240 or more of the Warrant Shares for which the
Warrant is initially exercisable by Merrill (as adjusted pursuant to the terms
thereof).
Section 6. Indemnification.
6.1 Merrill Indemnification. Merrill shall indemnify and hold harmless
the Company and its respective officers, directors and affiliates from and
against all damages, losses, costs and expenses (including reasonable attorneys'
fees and expenses) which any of them may incur by
14
reason of the failure of Merrill to fulfill any of the terms or conditions of
this Agreement, or by reason of any breach of the representations or warranties
made by Merrill herein.
6.2 Company Indemnification. The Company shall indemnify and hold
harmless Merrill and its respective officers, directors and affiliates from and
against all damages, losses, costs and expenses (including reasonable attorneys'
fees and expenses) which any of them may incur by reason of the failure of the
Company to fulfill any of the terms or conditions of this Agreement, or by
reason of any breach of the representations and warranties made by the Company
herein.
Section 7. Miscellaneous.
7.1 Entire Agreement. This Agreement together with the Warrant
constitutes the entire agreement among the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and undertakings,
written or oral, among the parties with respect to such subject matter.
7.2 Further Assurances. Within five (5) days after receipt of a written
request, each party shall provide the information and execute and deliver such
documents as may be reasonably requested by another party in order to carry out
the purposes of this Agreement.
7.3 Survival. The representations and warranties of Merrill and the
Company set forth herein shall survive the purchase of the Warrant pursuant to
this Agreement.
7.4 Successors and Assigns. This Agreement shall be binding upon, and
inure to the benefit of, the Company and Merrill and their respective successors
and permitted assigns.
7.5 Amendments. The terms and provisions of this Agreement may not be
modified or amended except pursuant to an instrument signed by the parties.
7.6 Confidentiality. Each of the Company and Merrill agrees to maintain
in confidence all proprietary information provided by the others in connection
with the purchase of the Warrant, and not to disclose such information except to
such advisors as may be assisting or advising such party in connection with such
purchase and to instruct such persons to treat such information confidentially
or as required by law. Confidential information shall not include (i)
information which is known to any party or learned other than in connection with
the transactions contemplated herein and not subject to any confidentiality
agreement, (ii) is or becomes part of the public domain other than through a
breach of this Agreement or (iii) is generally made available to others without
restriction as to use.
7.7 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
7.8 Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to
15
have been given when delivered personally to the recipient, sent to the
recipient by reputable overnight courier service (charges paid) or mailed to the
recipient by certified or registered mail, return receipt requested and postage
prepaid, or by confirmed facsimile. Such notices, demands and other
communications shall be sent to Merrill and to the Company at the respective
addresses indicated below:
Edison Schools Inc.
000 Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxxxxxx X. Xxxx
Tel. (000) 000-0000
Fax. (000) 000-0000
Xxxxxxx Xxxxx Mortgage Capital Inc.
4 World Financial Center
22nd Floor
New York, New York 10080
Attention: Xxxxxxx Xxxx
Tel. (000) 000-0000
Fax. (000) 000-0000
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
7.9 Governing Law; Waiver of Jury Trial. The Agreement shall be
governed by and construed in accordance with the laws of the State of New York
applicable to agreements entered into and to be performed entirely in the State
of New York. EACH PARTY HERETO HEREBY VOLUNTARILY AND IRREVOCABLY WAIVES ANY
RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE ARISING OUT OF, IN
CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP BETWEEN THE
PARTIES ESTABLISHED BY THIS AGREEMENT.
7.10 Counterparts. This Agreement may be executed in two or more
counterparts and by facsimile, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of this 31st day of July, 2002.
EDISON SCHOOLS INC.
By: /s/ Xxxxx Xxxxx
------------------------
Name: Xxxxx Xxxxx
Title: Senior Vice
President and
General Counsel
XXXXXXX XXXXX MORTGAGE CAPITAL INC.
By: /s/ Xxxxxxx Xxxx
------------------------
Name: Xxxxxxx Xxxx
Title: Managing Director
17
EXHIBIT A
FORM OF WARRANT CERTIFICATE
