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EDISON SCHOOLS INC.
(a Delaware corporation)
5,000,000 Shares of Class A Common Stock
PURCHASE AGREEMENT
Dated: August -, 2000
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TABLE OF CONTENTS
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PURCHASE AGREEMENT................................................................ 1
SECTION 1. Representations and Warranties........................................ 3
(a) Representations and Warranties by the Company......................... 3
(i) Compliance with Registration Requirements.................... 3
(ii) Independent Accountants .................................... 4
(iii) Financial Statements .................................... 4
(iv) No Material Adverse Change in Business....................... 4
(v) Good Standing of the Company................................. 5
(vi) No Subsidiaries .................................... 5
(vii) Capitalization .................................... 5
(viii) Authorization of Agreement................................... 5
(ix) Authorization and Description of Securities.................. 6
(x) Absence of Defaults and Conflicts............................ 6
(xi) Absence of Labor Dispute .................................... 7
(xii) Absence of Proceedings .................................... 7
(xiii) Accuracy of Exhibits .................................... 7
(xiv) Possession of Intellectual Property.......................... 7
(xv) Absence of Further Requirements.............................. 8
(xvi) Possession of Licenses and Permits........................... 8
(xvii) Compliance with Statutes, Rules and Regulations, etc......... 9
(xviii) Title to Property............................................ 9
(xix) Investment Company Act .................................... 10
(xx) Environmental Laws .................................... 10
(xxi) Registration Rights .................................... 11
(xxii) Apex Online Learning Inc..................................... 11
(xxiii) Management Agreements........................................ 11
(xxiv) Insurance ................................................. 11
(xxv) Tax Returns and Payment of Taxes............................. 12
(xxvi) No Stabilization or Manipulation............................. 12
(xxvii) Certain Transactions......................................... 12
(xxviii) Statistical and Market Data.................................. 13
(xxix) Accounting and other Controls................................ 13
(b) Representations and Warranties by the Selling Shareholders............ 13
(i) Accurate Disclosure .................................... 13
(ii) Authorization of Agreements.................................. 13
(iii) Valid and Marketable Title................................... 14
(iv) Due Execution of Power of Attorney and Custody
Agreement.................................................... 14
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(v) Absence of Manipulation ................................... 15
(vi) Absence of Further Requirements............................. 15
(vii) Restriction on Sale of Securities........................... 15
(viii) Certificates Suitable for Transfer.......................... 15
(ix) No Association with NASD ................................... 16
(c) Officer's Certificates................................................ 16
SECTION 2. Sale and Delivery to Underwriters; Closing.......................... 16
(a) Initial Securities.................................................. 16
(b) Option Securities................................................... 16
(c) Payment ............................................................ 17
(d) Denominations; Registration......................................... 18
SECTION 3. Covenants of the Company............................................ 18
(a) Compliance with Securities Regulations and Commission Requests...... 18
(b) Filing of Amendments................................................ 19
(c) Delivery of Registration Statements................................. 19
(d) Delivery of Prospectus.............................................. 19
(e) Continued Compliance with Securities Laws........................... 19
(f) Blue Sky Qualifications............................................. 20
(g) Rule 158 ........................................................... 20
(h) Use of Proceeds..................................................... 20
(i) Listing ............................................................ 20
(j) Restriction on Sale of Securities................................... 21
(k) Reporting Requirements.............................................. 21
SECTION 4. Payment of Expenses................................................. 21
(a) Expenses ........................................................... 21
(b) Expenses of the Selling Shareholders................................ 22
(c) Termination of Agreement............................................ 22
(d) Allocation of Expenses.............................................. 22
SECTION 5. Conditions of Underwriters' Obligations............................. 22
(a) Effectiveness of Registration Statement............................. 23
(b) Opinion of Counsel for Company...................................... 23
(c) Opinion of Counsel for the Selling Shareholders..................... 23
(d) Opinion of Counsel for Underwriters................................. 24
(e) Officers' Certificate............................................... 24
(f) Certificate of the Selling Shareholder.............................. 24
(g) Accountant's Comfort Letter......................................... 24
(h) Bring-down Comfort Letter........................................... 25
(i) Approval of Listing................................................. 25
(j) No Objection ....................................................... 25
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(k) Lock-up Agreements.................................................. 25
(l) Form W-8 or W-9..................................................... 25
(m) Conditions to Purchase of Option Securities......................... 25
(n) Additional Documents................................................ 26
(o) Termination of Agreement............................................ 26
SECTION 6. Indemnification..................................................... 27
(a) Indemnification of Underwriters..................................... 27
(b) Indemnification of Company, Directors and Officers and
Selling Shareholders................................................ 29
(c) Actions against Parties; Notification............................... 29
(d) Settlement without Consent if Failure to Reimburse.................. 30
(e) Other Agreements with Respect to Indemnification.................... 30
SECTION 7. Contribution........................................................ 30
SECTION 8. Representations, Warranties and Agreements to Survive Delivery...... 32
SECTION 9. Termination of Agreement............................................ 32
(a) Termination; General................................................ 32
(b) Liabilities ....................................................... 32
SECTION 10. Default by One or More of the Underwriters.......................... 33
SECTION 11. Default by One or More of the Selling Shareholders or the
Company............................................................. 33
SECTION 12. Notices............................................................. 34
SECTION 13. Parties............................................................. 34
SECTION 14. GOVERNING LAW AND TIME.............................................. 35
SECTION 15. Effect of Headings.................................................. 35
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SCHEDULES
Schedule A - List of Underwriters................................. Sch A-1
Schedule B - List of Selling Shareholders......................... Sch B-1
Schedule C - Pricing Information.................................. Sch C-1
Schedule D - List of Persons subject to Lock-up................... Sch D-1
Schedule E - List of Management Agreements........................ Sch E-1
EXHIBITS
Exhibit A-1 - Form of Opinion of Company's Counsel................. A-1-1
Exhibit A-2 - Form of Opinion of Company's
General Counsel...................................... A-2-1
Exhibit A-3 - Form of Opinion of Selling
Shareholders' Counsel................................ A-3-1
Exhibit B - Form of Lock-up Letter............................... B-1
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EDISON SCHOOLS INC.
(a Delaware corporation)
5,000,000 Shares of Class A Common Stock
(Par Value $.01 Per Share)
PURCHASE AGREEMENT
August -, 2000
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Banc of America Securities LLC
Credit Suisse First Boston Corporation
Donaldson, Lufkin & Jenrette Securities Corporation
J.P. Morgan Securities Inc.
as Representatives of the several Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Edison Schools Inc., a Delaware corporation (the "Company"), and the
persons listed in Schedule B hereto (the "Selling Shareholders") confirm their
respective agreements with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and each of the other Underwriters named in
Schedule A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section 10
hereof), for whom Merrill Lynch, Banc of America Securities LLC, Credit Suisse
First Boston Corporation, Donaldson, Lufkin & Jenrette Securities Corporation
and J.P. Morgan Securities Inc. are acting as representatives (in such capacity,
the "Representatives"), with respect to the issue and sale by the Company and
the sale by the Selling Shareholders, acting severally and not jointly, and the
purchase by the Underwriters, acting severally and not jointly, of the
respective numbers of shares of class A common stock, par value $.01 per share,
of the Company ("Common Stock") set forth in said Schedules A
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and B hereof, and with respect to the grant by the Company and the Selling
Shareholders to the Underwriters, acting severally and not jointly, of the
option described in Section 2(b) hereof to purchase all or any part of 750,000
additional shares of Common Stock to cover over-allotments, if any. The
aforesaid 5,000,000 shares of Common Stock (the "Initial Securities") to be
purchased by the Underwriters and all or any part of the 750,000 shares of
Common Stock subject to the option described in Section 2(b) hereof (the "Option
Securities") are hereinafter called, collectively, the "Securities".
The Company and the Selling Shareholders understand that the
Underwriters propose to make a public offering of the Securities as soon as the
Representatives deem advisable after this Agreement has been executed and
delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-39516) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The
information included in such prospectus or in such Term Sheet, as the case may
be, that was omitted from such registration statement at the time it became
effective but that is deemed to be part of such registration statement at the
time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred
to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is
referred to as "Rule 434 Information." Each prospectus used before such
registration statement became effective, and any prospectus that omitted, as
applicable, the Rule 430A Information or the Rule 434 Information, that was used
after such effectiveness and prior to the execution and delivery of this
Agreement, is herein called a "preliminary prospectus." Such registration
statement, including the exhibits thereto and schedules thereto at the time it
became effective and including the Rule 430A Information and the Rule 434
Information, as applicable, is herein called the "Registration Statement." Any
registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations
is herein referred to as the "Rule 462(b) Registration Statement," and after
such filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The final prospectus in the form first furnished to the
Underwriters for use in connection with the offering of the Securities is herein
called the "Prospectus". If Rule 434 is relied on, the term "Prospectus" shall
refer to the preliminary prospectus dated July 7, 2000 together with the Term
Sheet and all references in this Agreement to the date of the Prospectus shall
mean the date of the applicable Term Sheet. For purposes of this Agreement, all
references to the
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Registration Statement, any preliminary prospectus, the Prospectus or any Term
Sheet or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company. The Company
represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b), hereof and agrees with each Underwriter,
as follows:
(i) Compliance with Registration Requirements. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information
has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments
thereto became effective and at the Closing Time (and, if any Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments
and supplements thereto complied and will comply in all material
respects with the requirements of the 1933 Act and the 1933 Act
Regulations and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Neither the Prospectus nor any amendment or supplement thereto
(including any prospectus wrapper), at the time the Prospectus or any
amendment or supplement thereto was issued and at the Closing Time
(and, if any Option Securities are purchased, at the Date of Delivery),
included or will include an untrue statement of a material fact or
omitted or will omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading. If Rule 434 is used, the Company
will comply with the requirements of Rule 434 and the Prospectus shall
not be "materially different", as such term is used in Rule 434, from
the prospectus included in the Registration Statement at the time it
became effective. The representations and warranties in this subsection
shall not apply to statements in or omissions from the Registration
Statement or the Prospectus made in reliance upon and in conformity
with information
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furnished to the Company in writing by any Underwriter through the
Representatives expressly for use in the Registration Statement or the
Prospectus.
Each preliminary prospectus and the prospectus filed as part
of the Registra tion Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectus
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(ii) Independent Accountants. The accountants who certified
the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.
(iii) Financial Statements. The financial statements included
in the Registra tion Statement and the Prospectus, together with the
related schedules and notes, present fairly the financial position and
stockholders' equity of the Company at the dates indicated and the
results of operations and cash flows of the Company for the periods
specified; said financial statements have been prepared in conformity
with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved. The selected
financial and other data and the summary financial and operating data
included in the Prospectus present fairly the information shown therein
and, in the cases of the selected financial data and the summary
financial data, have been compiled on a basis consistent with that of
the audited financial statements included in the Registration
Statement.
(iv) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business
prospects of the Company, whether or not arising in the ordinary course
of business (a "Material Adverse Effect"), (B) there have been no
transactions entered into by the Company other than those in the
ordinary course of business, which are material with respect to the
Company, and (C) there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital
stock.
(v) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its
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properties and to conduct its business as described in the Prospectus
and to enter into and perform its obligations under this Agreement; and
the Company is duly qualified as a foreign corporation to transact
business and is in good standing in each other jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing could not reasonably be
expected to result in a Material Adverse Effect.
(vi) No Subsidiaries. The Company has no subsidiaries.
(vii) Capitalization. The authorized, issued and outstanding
capital stock of the Company (a) as of March 31, 2000, was as set forth
in the Prospectus in the column entitled "Actual" under the caption
"Capitalization", and (b) after giving effect to the transactions
contemplated by this Agreement and the Registration Statement, will be
as set forth in the Prospectus in the column entitled "As Adjusted"
under the caption "Capitalization" (except for subsequent issuances, if
any, pursuant to this Agreement, pursuant to reservations, agreements
or employee benefit plans referred to in the Prospectus or pursuant to
the exercise of convertible securities, options or warrants referred to
in the Prospectus). The shares of issued and outstanding capital stock
of the Company, including, without limitation, the Securities to be
sold by the Selling Shareholders, have been duly authorized and validly
issued and are fully paid and non-assessable; none of the outstanding
shares of capital stock of the Company was issued in violation of the
preemptive or other similar rights of any securityholder of the
Company. The shares of issued and outstanding capital stock of the
Company have been issued in compliance, in all material respects, with
all federal and state securities laws. Except as disclosed in the
Prospectus, there are no outstanding options or warrants to purchase,
or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of the Company's
capital stock or any such options, warrants, rights, convertible
securities or obligations. The description of the Company's stock
option and purchase plans and the options or other rights granted and
exercised thereunder set forth in the Prospectus accurately and fairly
describe, in all material respects, the information required to be
shown with respect to such plans, arrangements, options and rights.
(viii) Authorization of Agreement. This Agreement has been
duly authorized, executed and delivered by the Company.
(ix) Authorization and Description of Securities. The
Securities to be purchased by the Underwriters from the Company have
been duly authorized for issuance and sale to the Underwriters pursuant
to this Agreement and, when issued
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and delivered by the Company pursuant to this Agreement, against
payment of the consideration set forth herein will be validly issued,
fully paid and non-assessable; the Common Stock conforms to all
statements relating thereto contained in the Prospectus and such
description conforms to the rights set forth in the instruments
defining the same; no holder of the Securities will be subject to
personal liability by reason of being such a holder; and the issuance
of the Securities is not subject to the preemptive or other similar
rights of any securityholder of the Company.
(x) Absence of Defaults and Conflicts. The Company is not in
violation of its charter or by-laws or in default in the performance or
observance of any obligation, agreement, covenant or condition
contained in any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, lease or other agreement or instrument to which
the Company is a party or by which it may be bound, or to which any of
the property or assets of the Company is subject (collectively,
"Agreements and Instruments") except for such defaults under Agreements
and Instruments that could not reasonably be expected to result in a
Material Adverse Effect; and the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated in
this Agreement and in the Registration Statement (including the
issuance and sale of the Securities and the use of the proceeds from
the sale of the Securities as described in the Prospectus under the
caption "Use of Proceeds") and compliance by the Company with its
obligations under this Agreement have been duly authorized by all
necessary corporate action and do not and will not, whether with or
without the giving of notice or passage of time or both, conflict with
or constitute a breach of, or default or Repayment Event (as defined
below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company
pursuant to, the Agreements and Instruments (except for such conflicts,
breaches or defaults or liens, charges or encumbrances that could not
reasonably be expected to result in a Material Adverse Effect), nor
will such action result in any violation of (a) the provisions of the
charter or by-laws of the Company or (b) any applicable law, statute,
rule, regulation, judgment, standard, guide, order, writ or decree of
any government, government instrumentality or court, domestic or
foreign, having jurisdiction over the Company or any of its assets,
properties or operations, including, without limitation, the Elementary
and Secondary Education Act of 1965, as amended, and all rules and
regulations promulgated thereunder (collectively, the "ESEA"), the
Individuals with Disabilities in Education Act and all rules and
regulations promulgated thereunder (collectively, the "IDEA") and any
other federal, state or local law, statute, rule, regulation, standard,
guide or order pertaining to the authorization to operate public
schools or the eligibility to receive funding under federal, state or
local programs related to the operation of public schools, except, in
the case of clause (b) above, for such violations which could not
reasonably be expected to result in a Material Adverse Effect. As used
herein, a "Repayment
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Event" means any event or condition which gives the holder of any note,
debenture or other evidence of indebtedness (or any person acting on
such holder's behalf) the right to require the repurchase, redemption
or repayment of all or a portion of such indebtedness by the Company.
(xi) Absence of Labor Dispute. No labor dispute with the
employees of the Company (including, without limitation, all
principals, teachers and other personnel employed by or working for or
in any school operated by the Company) exists or, to the knowledge of
the Company, is imminent, and the Company is not aware of any existing
or imminent labor disturbance by the employees of any of its principal
suppliers, manufacturers, customers or contractors, which, in any of
the foregoing cases, may reasonably be expected to result in a Material
Adverse Effect.
(xii) Absence of Proceedings. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign (including, without
limitation, any proceeding before the United States Department of
Education (the "USDE"), the United States Department of Justice (the
"DOJ"), the Equal Employment Opportunity Commission (the "EEOC"), state
and local educational agencies (including school boards and public
school districts) or charter school boards), now pending, or, to the
knowledge of the Company, threatened, against or affecting the Company
or any school operated by the Company, which is required to be
disclosed in the Registration Statement (other than as disclosed
therein), or which could reasonably be expected to result in a Material
Adverse Effect, or which could materially and adversely affect the
consummation of the transactions contemplated in this Agreement or the
performance by the Company of its obligations hereunder or thereunder;
the aggregate of all pending legal or governmental proceedings to which
the Company or any school operated by the Company is a party or of
which any of their respective property or assets is the subject which
are not described in the Registration Statement, including ordinary
routine litigation incidental to the business, could not reasonably be
expected to result in a Material Adverse Effect.
(xiii) Accuracy of Exhibits. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits thereto which
have not been so described and filed as required.
(xiv) Possession of Intellectual Property. The Company and
each of the schools operated by the Company own or possess, or can
acquire on reasonable terms, adequate patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks, trade
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names or other intellectual property (including, without limitation,
the right to use Success for All, a K-5 reading program developed by
Johns Hopkins University and the mathematics programs developed by the
University of Chicago School Mathematics Project) (collectively,
"Intellectual Property") necessary to carry on the business now
operated by them, and neither the Company nor, to the knowledge of the
Company, any of the schools operated by it has received any notice or
is otherwise aware of any infringement of or conflict with asserted
rights of others with respect to any Intellectual Property or of any
facts or circumstances which could render any Intellectual Property
invalid or inadequate to protect the interest of the Company therein,
and which infringement or conflict (if the subject of any unfavorable
decision, ruling or finding) or invalidity or inadequacy, singly or in
the aggregate, could reasonably be expected to result in a Material
Adverse Effect.
(xv) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities under this Agreement or the consummation of the
transactions contemplated by this Agreement, except such as have been
already obtained or as may be required under the 1933 Act or the 1933
Act Regulations and foreign or state securities or blue sky laws.
Neither the Company nor any of the schools operated by the Company is
subject to any requirements of, or regulation under, the Higher
Education Act of 1965, as amended.
(xvi) Possession of Licenses and Permits. The Company and each
of the schools operated by it possess such permits, licenses,
approvals, consents and other authorizations, including, without
limitation, authorizations required (i) to participate in federal,
state and local funding programs under the ESEA and the IDEA to the
extent the Company or such school currently receives material funding
thereunder, (ii) to operate the charter schools currently operated by
it, and (iii) to receive funding under federal, state and local
education laws, statutes, rules, regulations, standards, guides or
orders to the extent the Company or such school currently receives
material funding thereunder (collectively, "Governmental Licenses"),
issued by the appropriate federal, state, local or foreign regulatory
agencies or bodies necessary to conduct the business now operated by
them, except where the failure to possess such Governmental Licenses
could not reasonably be expected to have a Material Adverse Effect; the
Company and, to the knowledge of the Company, each of the schools
operated by the Company, is in compliance with the terms and conditions
of all such Governmental Licenses, except where the failure so to
comply could not, singly or in the aggregate, reasonably be expected to
have a Material Adverse Effect; all of the Governmental Licenses are
valid and in full force and effect, except when the
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invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect could not
reasonably be expected to have a Material Adverse Effect; and neither
the Company nor, to the knowledge of the Company, any of the schools
operated by it has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, could reasonably be expected to result in a Material
Adverse Effect.
(xvii) Compliance with Statutes, Rules and Regulations, etc.
The Company and each of the schools operated by it are in compliance
with all applicable laws, statutes, rules, regulations, standards,
guides or orders (including, without limitation, ESEA, IDEA, Family
Education Rights and Privacy Act of 1974, as amended, Gun-Free Schools
Act of 1994, Section 504 of the Rehabilitation Act of 1973, Americans
with Disabilities Act of 1990, Title VI and Title VII of the Civil
Rights Act of 1964, Title IX of the Education Amendments of 1972, Age
Discrimination Act of 1975, Age Discrimination in Employment Act of
1967, Equal Pay Act of 1963 and the Drug-Free Workplace Act of 1988)
administered, issued or implemented by any federal, state or local
government or any agency or subdivision of any of the foregoing,
including, without limitation, the USDE, the DOJ, the EEOC, state and
local education agencies (including school boards and public school
districts) or charter school boards, to the extent applicable, except
where failure to be so in compliance could not reasonably be expected
to have a Material Adverse Effect. The Company has not been advised,
and has no reason to believe, that either it or any of the schools
operated by the Company is not conducting business in compliance with
all applicable laws, statutes, rules and regulations of the
jurisdictions in which it is conducting business, including, without
limitation, all applicable federal, state and local laws, rules and
regulations; except where failure to be so in compliance could not
reasonably be expected to have a Material Adverse Effect.
(xviii) Title to Property. The Company has good and marketable
title to all real property owned by the Company and good title to all
other properties owned by it, in each case, free and clear of all
mortgages, pledges, liens, security interests, claims, restrictions or
encumbrances of any kind except such as (a) are described in the
Prospectus or (b) do not, singly or in the aggregate, materially affect
the value of such property and do not interfere with the use made and
proposed to be made of such property by the Company; and all of the
leases and subleases material to the business of the Company and the
schools operated by it, and under which the Company or any of the
schools operated by it holds properties described in the Prospectus,
are in full force and effect, and neither the Company nor any school
operated by it has any notice of any claim of any sort that has been
asserted by anyone adverse to the rights of the Company or any of the
schools operated by it under any
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of the leases or subleases mentioned above, or affecting or questioning
the rights of the Company or any of the schools operated by it to the
continued possession of the leased or subleased premises under any such
lease or sublease, which claim, if the subject of an unfavorable
decision, ruling or finding, could reasonably be expected to result in
a Material Adverse Effect.
(xix) Investment Company Act. The Company is not, and upon the
issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectus will not be, an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended (the "1940
Act").
(xx) Environmental Laws. Except as described in the
Registration Statement and except as could not, singly or in the
aggregate, be reasonably expected to result in a Material Adverse
Effect, (A) neither the Company nor, to the knowledge of the Company,
any of the schools operated by it is in violation of any federal,
state, local or foreign law, statute, rule, regulation, standard,
guide, ordinance, code, policy or rule of common law or any judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to
pollution or protection of human health or safety, the environment
(including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), natural resources or
wildlife, including, without limitation, laws and regulations relating
to the release or threatened release of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances
(including, without limitation, asbestos, polychlorinated biphenyls,
urea-formaldehyde insulation, petroleum or petroleum products)
(collectively, "Hazardous Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling, release or threatened release of Hazardous Materials
(collectively, "Environmental Laws"), (B) the Company and the schools
operated by it have all permits, authorizations and approvals required
under any applicable Environmental Laws and are each in compliance with
their requirements, (C) there are no pending or threatened
administrative, regulatory or judicial actions, suits, demands, demand
letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against
the Company or any of the schools operated by it, and (D) there are no
events or circumstances that might reasonably be expected to form the
basis of an order for clean-up or remediation, or an action, suit or
proceeding by any private party or governmental body or agency, against
or affecting the Company or the schools operated by it relating to
Hazardous Materials or any Environmental Laws.
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(xxi) Registration Rights. Except as disclosed in the
Prospectus under the caption "Description of Capital Stock-Registration
Rights", there are no persons with registration rights or other similar
rights to have any securities registered pursuant to the Registration
Statement or otherwise registered by the Company under the 1933 Act.
(xxii) Apex Online Learning Inc. The Company owns 2,000,000
shares of Series B preferred stock, par value $0.001 per share, of Apex
Online Learning Inc., a Washington corporation ("APEX"), which
currently represents approximately 19.7% of all of the issued and
outstanding capital stock of APEX, free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equity. The
Company does not own the equity securities or similar interests of any
other entity.
(xxiii) Management Agreements. The Company has provided to
Debevoise & Plimpton, counsel for the Underwriters, true, correct and
complete copies of each of the management agreements and school
charters to which the Company or any of the schools operated by the
Company is a party or pursuant to which any such school is operated, as
amended (collectively, the "Management Agreements"), none of which have
been subsequently amended, supplemented or modified, and each of the
Management Agreements is in full force and effect on the date hereof,
and, neither the Company, nor, to the knowledge of Company, any other
party is in default in the performance or observation of any material
obligation, agreement, covenant or condition contained therein.
Schedule E hereto is a true, correct and complete list of the
Management Agreements.
(xxiv) Insurance. The Company and each of the schools operated
by it and, to the knowledge of the Company, the school districts and
charter school boards responsible for supervising the schools operated
by the Company, are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the education industry; neither the Company,
nor any of the schools operated by it nor, to the knowledge of the
Company, any school district or charter school board responsible for
supervising any school operated by the Company, has been refused any
insurance coverage sought or applied for; and the Company does not have
any reason to believe that it or any of the schools operated by it or
any school district or charter school board responsible for supervising
any school operated by the Company, will not be able to renew its
existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its operations except where the failure to renew or maintain
such coverage could not reasonably be expected to result in a Material
Adverse Effect. The officers and directors of the Company are insured
by insurers of recognized financial responsibility against such losses
and risks and in
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such amounts as the Company believes are prudent and customary for
officers' and directors' liability insurance of a public company and as
the Company believes could cover claims which could reasonably be
expected to be made in connection with the issuance of the Securities;
and the Company has no reason to believe that it will not be able to
renew its existing directors' and officers' liability insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to cover its
officers and directors.
(xxv) Tax Returns and Payment of Taxes. The Company has timely
filed all federal, state, local and foreign tax returns that are
required to be filed or has duly requested extensions thereof and all
such tax returns are true, correct and complete, except to the extent
that any failure to file or request an extension, or any incorrect ness
could not reasonably be expected to result in a Material Adverse
Effect. The Company has timely paid all taxes shown as due on such
filed tax returns (including any related assessments, fines or
penalties), except to the extent that any such taxes are being
contested in good faith and by appropriate proceedings, or to the
extent that any failure to pay could not reasonably be expected to
result in a Material Adverse Effect; and adequate charges, accruals and
reserves have been provided for in the financial statements referred to
in Section 1(a)(iii) above in accordance with GAAP in respect of all
Federal, state, local and foreign taxes for all periods as to which the
tax liability of the Company has not been finally determined or remains
open to examination by applicable taxing authorities. The Company is
not a "United States real property holding corporation" within the
meaning of Section 897(c)(2) of the Internal Revenue Code of 1986, as
amended (the "Code").
(xxvi) No Stabilization or Manipulation. Neither the Company
nor, to the best of its knowledge, any of its directors, officers or
affiliates has taken or will take, directly or indirectly, any action
designed to, or that might be reasonably expected to, cause or result
in stabilization or manipulation of the price of the Securities in
violation of Regulation M under the Securities Exchange Act of 1934, as
amended (the "1934 Act").
(xxvii) Certain Transactions. Except as disclosed in the
Prospectus, there are no outstanding loans, advances, or guarantees of
indebtedness by the Company to or for the benefit of any of the
executive officers or directors of the Company or any of the members of
the families of any of them that would be required to be so disclosed
under the 1933 Act, the 1933 Act Regulations or Form S-1.
(xxviii) Statistical and Market Data. The statistical and
market-related data included in the Prospectus are derived from sources
which the Company reasonably
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and in good faith believes to be accurate, reasonable and reliable and
agrees with the sources from which it was derived.
(xxix) Accounting and other Controls. The Company has
established a system of internal accounting controls sufficient to
provide reasonable assurances that (i) transactions were, are and will
be executed in accordance with management's general or specific
authorization; (ii) transactions were, are and will be recorded as
necessary to permit preparation of financial statements in conformity
with generally accepted accounting principles and to maintain
accountability for assets; (iii) access to assets was, is and will be
permitted only in accordance with a management's general or specific
authorizations; and (iv) the recorded accountability for assets was, is
and will be compared with existing assets at reasonable intervals and
appropriate action was, is and will be taken with respect to any
differences.
(b) Representations and Warranties by the Selling Shareholders. Each
Selling Shareholder severally represents and warrants to each Underwriter as of
the date hereof, as of the Closing Time, and, if the Selling Shareholder is
selling Option Securities on a Date of Delivery, as of each such Date of
Delivery, and agrees with each Underwriter, as follows:
(i) Accurate Disclosure. Such Selling Shareholder has reviewed
and is familiar with the Registration Statement and the Prospectus and,
to the best knowledge of such Selling Shareholder, neither the
Prospectus nor any amendments or supplements thereto (including any
prospectus wrapper) includes any untrue statement of a material fact or
omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; such Selling Shareholder is not prompted to
sell the Securities to be sold by such Selling Shareholder under this
Agreement by any information concerning the Company or any subsidiary
of the Company which is not set forth in the Prospectus.
(ii) Authorization of Agreements. Such Selling Shareholder has
the full right, power and authority to enter into this Agreement, and a
Power of Attorney (the "Power of Attorney") and a Custody Agreement
(the "Custody Agreement") and to sell, transfer and deliver the
Securities to be sold by such Selling Shareholder under this Agreement.
The execution and delivery of this Agreement, the Power of Attorney and
the Custody Agreement, the sale and delivery of the Securities to be
sold by such Selling Shareholder, the consummation by such Selling
Shareholder of the transactions contemplated under this Agreement and
compliance by such Selling Shareholder with its obligations under this
Agreement have been duly authorized by such Selling Shareholder and do
not and will not, whether with or without the giving of notice or
passage of time or both, conflict with or constitute a breach of, or
default
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<PAGE> 19
under, or result in the creation or imposition of any tax, lien, charge
or encumbrance upon the Securities to be sold by such Selling
Shareholder or any property or assets of such Selling Shareholder
pursuant to any contract, indenture, mortgage, deed of trust, loan or
credit agreement, note, license, lease or other agreement or instrument
to which such Selling Shareholder is a party or by which such Selling
Shareholder may be bound, or to which any of the property or assets of
such Selling Shareholder is subject, nor will such action result in any
violation of the provisions of the charter or by-laws or other
organizational instrument of such Selling Shareholder, if applicable,
or any applicable treaty, law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over such Selling
Shareholder or any of its properties.
(iii) Valid and Marketable Title. Such Selling Shareholder (i)
has at the date hereof (excluding Richmont Capital Partners I, L.P.)
valid and marketable title to the Securities to be sold by such Selling
Shareholder under this Agreement or to the options or warrants that
will be exercised for such Securities prior to the Closing Time, in
each case free and clear of any security interest, mortgage, pledge,
lien, charge, claim, equity or encumbrance of any kind (collectively,
the "Lien"), other than pursuant to this Agreement, and (ii) will at
the Closing Time (including Richmont Capital Partners I, L.P.) and, if
any Option Securities are purchased, on the Date of Delivery, have
valid and marketable title to the Securities to be sold by such Selling
Shareholder under this Agreement, including any Securities received as
result of exercises of options or warrants, free and clear of any Lien,
other than pursuant to this Agreement; and upon delivery of such
Securities and payment of the purchase price therefor as contemplated
in this Agreement (assuming each such Underwriter has no notice of any
adverse claim, as defined in Uniform Commercial Code as adopted in the
State of New York (the "UCC")), each of the Underwriters will receive
valid and marketable title to the Securities purchased by it from such
Selling Shareholder, free and clear of any Lien.
(iv) Due Execution of Power of Attorney and Custody Agreement.
Such Selling Shareholder has duly executed and delivered, in the form
heretofore furnished to the Representatives, the Power of Attorney with
David A. Graff, Laura K. Eshbaugh and James L. Starr, or any of them,
as attorneys-in-fact (the "Attorneys-in-Fact") and the Custody
Agreement with the Company, as custodian (the "Custodian"); the
Custodian is authorized to deliver the Securities to be sold by such
Selling Shareholder under this Agreement and to accept payment
therefor; and each Attorney-in-Fact is authorized to execute and
deliver this Agreement and the certificate referred to in Section 5(f)
or that may be required pursuant to Sections 5(m) and 5(n) of this
Agreement on behalf of such Selling Shareholder, to sell, assign and
transfer to the Underwriters the Securities to be sold by such Selling
Shareholder
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<PAGE> 20
under this Agreement, to determine the purchase price to be paid by the
Underwriters and to such Selling Shareholder, as provided in Section
2(a) of this Agreement, to authorize the delivery of the Securities to
be sold by such Selling Shareholder under this Agreement, to accept
payment therefor, and otherwise to act on behalf of such Selling
Shareholder in connection with this Agreement.
(v) Absence of Manipulation. Such Selling Shareholder has not
taken, and will not take, directly or indirectly, any action designed
to, or that might reasonably be expected to cause or result in
stabilization or manipulation of the price of the Securities in
violation of Regulation M under the 1934 Act.
(vi) Absence of Further Requirements. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by such Selling
Shareholder of its obligations under this Agreement or in the Power of
Attorney or the Custody Agreement, or in connection with the offer,
sale and delivery by such Selling Shareholder of the Securities under
this Agreement or the consummation by such Selling Shareholder of the
transactions contemplated by this Agreement, except such as have been
already obtained or as may be required under the 1933 Act or the 1933
Act Regulations and state securities laws.
(vii) Restriction on Sale of Securities. During a period of 90
days from the date of the Prospectus, such Selling Shareholder will
not, without the prior written consent of Merrill Lynch, (i) offer,
pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise lend, transfer or dispose of,
directly or indirectly, any share of Common Stock, class B common stock
or any securities convertible into, exercisable or exchangeable for or
repayable with Common Stock or class B common stock, whether now owned
or hereafter acquired by such Selling Shareholder or with respect to
which such Selling Shareholder has or hereafter acquires the power of
disposition, or file, or request or demand that the Company file, any
registration statement under the 1933 Act with respect to any of the
foregoing or (ii) enter into any swap or any other agreement or any
transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock
or class B common stock, whether any such swap or transaction described
in clause (i) or (ii) above is to be settled by delivery of Common
Stock, class B common stock or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to the Securities to
be sold under this Agreement.
(viii) Certificates Suitable for Transfer. Certificates for
all of the Securities to be sold by such Selling Shareholder pursuant
to this Agreement, in suitable form
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for transfer by delivery or accompanied by duly executed instruments of
transfer or assignment in blank with signatures guaranteed, have been
placed in custody with the Custodian with irrevocable conditional
instructions to deliver such Securities to the Underwriters pursuant to
this Agreement.
(ix) No Association with NASD. Neither such Selling
Shareholder, nor any of its affiliates directly, or indirectly through
one or more intermediaries, controls, or is controlled by, or is under
common control with, or has any other association with (within the
meaning of Article I, Section (ee) of the By-laws of the National
Association of Securities Dealers, Inc. (the "NASD") any member firm of
the NASD.
(c) Officer's Certificates. Any certificate signed by any officer of
the Company delivered to Merrill Lynch, the Representatives or to counsel for
the Underwriters shall be deemed a representation and warranty by the Company to
each Underwriter as to the matters covered thereby; and any certificate signed
by or on behalf of the Selling Shareholders as such and delivered to Merrill
Lynch, the Representatives or to counsel for the Underwriters shall be deemed a
representation and warranty by such Selling Shareholder to the Underwriters as
to the matters covered thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) Initial Securities. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company and each Selling Shareholder, severally and not jointly,
agree to sell to each Underwriter, severally and not jointly, and each
Underwriter, severally and not jointly, agrees to purchase from the Company and
each Selling Shareholder, at the price per share set forth in Schedule C, that
proportion of the number of Initial Securities set forth in Schedule B opposite
the name of the Company or such Selling Shareholder, as the case may be, which
the number of Initial Securities set forth in Schedule A opposite the name of
such Underwriter, plus any additional number of Initial Securities which such
Underwriter may become obligated to purchase pursuant to the provisions of
Section 10 hereof, bears to the total number of Initial Securities, subject, in
each case, to such adjustments among the Underwriters as the Representatives in
their sole discretion shall make to eliminate any sales or purchases of
fractional securities.
(b) Option Securities. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Company and the Selling Shareholders, acting severally and not
jointly, hereby grant an option to the Underwriters, severally and not jointly,
to purchase up to an additional 750,000 shares of Common Stock, as set forth in
Schedule B, at the price per share set forth in Schedule C, less an amount per
share equal to any dividends or distributions declared by the
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<PAGE> 22
Company and payable on the Initial Securities but not payable on the Option
Securities. The option hereby granted will expire 30 days after the date hereof
and may be exercised in whole or in part from time to time only for the purpose
of covering over-allotments which may be made in connection with the offering
and distribution of the Initial Securities upon notice by the Representatives to
the Company and the Selling Shareholders setting forth the number of Option
Securities as to which the several Underwriters are then exercising the option
and the time and date of payment and delivery for such Option Securities. Any
such time and date of delivery for the Option Securities (a "Date of Delivery")
shall be determined by the Representatives, but shall not be later than seven
full business days after the exercise of said option, nor in any event prior to
the Closing Time, as hereinafter defined. If the option is exercised as to all
or any portion of the Option Securities, the purchase of Option Securities shall
be made initially among the Selling Shareholders in proportion to the maximum
number of Option Securities to be sold by each Selling Shareholder as set forth
in Schedule B until the Selling Shareholders have sold the maximum number of
Option Securities to be sold by the Selling Shareholders as set forth in
Schedule B and then from the Company, and each of the Underwriters, acting
severally and not jointly, will purchase that proportion of the total number of
Option Securities then being purchased which the number of Initial Securities
set forth in Schedule A opposite the name of such Underwriter bears to the total
number of Initial Securities, subject in each case to such adjustments as the
Representatives in their discretion shall make to eliminate any sales or
purchases of fractional shares.
(c) Payment. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of
Debevoise & Plimpton, 875 Third Avenue, New York, NY 10022, or at such other
place as shall be agreed upon by the Representatives and the Company and the
Selling Shareholders, at 9:00 A.M. (New York city time) on the third (fourth, if
the pricing occurs after 4:30 P.M. (New York city time) on any given day)
business day after the date hereof (unless postponed in accordance with the
provisions of Section 10), or such other time not later than ten business days
after such date as shall be agreed upon by the Representatives and the Company
and the Selling Shareholders (such time and date of payment and delivery being
herein called "Closing Time").
In addition, in the event that any or all of the Option Securities are
purchased by the Underwriters, payment of the purchase price for, and delivery
of certificates for, such Option Securities shall be made at the above-mentioned
offices, or at such other place as shall be agreed upon by the Representatives
and the Company and the Selling Shareholders, on each Date of Delivery as
specified in the notice from the Representatives to the Company and the Selling
Shareholders.
Payment shall be made to the Company and the Selling Shareholders by
wire transfer of immediately available funds to bank accounts designated by the
Company and the Custodian pursuant to each Selling Shareholder's Power of
Attorney and Custody Agreement,
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as the case may be, against delivery to the Representatives for the respective
accounts of the Underwriters of certificates for the Securities to be purchased
by them. It is understood that each Underwriter has authorized the
Representatives, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Initial Securities and the Option
Securities, if any, which it has agreed to purchase. Merrill Lynch, individually
and not as representative of the Underwriters, may (but shall not be obligated
to) make payment of the purchase price for the Initial Securities or the Option
Securities, if any, to be purchased by any Underwriter whose funds have not been
received by the Closing Time or the relevant Date of Delivery, as the case may
be, but such payment shall not relieve such Underwriter from its obligations
hereunder.
(d) Denominations; Registration. Certificates for the Initial
Securities and the Option Securities, if any, shall be in such denominations and
registered in such names as the Representatives may request in writing at least
one full business day before the Closing Time or the relevant Date of Delivery,
as the case may be. The certificates for the Initial Securities and the Option
Securities, if any, will be made available for examination and packaging by the
Representatives in The City of New York not later than 10:00 A.M. (Eastern time)
on the business day prior to the Closing Time or the relevant Date of Delivery,
as the case may be.
SECTION 3. Covenants of the Company. The Company covenants with each
Underwriter as follows:
(a) Compliance with Securities Regulations and Commission
Requests. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Representatives immediately, and confirm the notice in writing, (i)
when any post-effective amendment to the Registra tion Statement shall
become effective, or any supplement to the Prospectus or any amended
Prospectus shall have been filed, (ii) of the receipt of any comments
from the Commission, (iii) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement
to the Prospectus or for additional information, and (iv) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any order preventing
or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the Securities for offering or sale
in any jurisdiction, or of the initiation or threatening of any
proceedings for any of such purposes. The Company will promptly effect
the filings necessary pursuant to Rule 424(b) and will take such steps
as it deems necessary to ascertain promptly whether the form of
prospectus transmitted for filing under Rule 424(b) was received for
filing by the Commission and, in the event that it was not, it will
promptly file such prospectus. The Company
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will make every reasonable effort to prevent the issuance of any stop
order and, if any stop order is issued, to obtain the lifting thereof
at the earliest possible moment.
(b) Filing of Amendments. The Company will give the
Representatives notice of its intention to file or prepare any
amendment to the Registration Statement (including any filing under
Rule 462(b)), any Term Sheet or any amendment, supplement or revision
to either the prospectus included in the Registration Statement at the
time it became effective or to the Prospectus, will furnish the
Representatives with copies of any such documents a reasonable amount
of time prior to such proposed filing or use, as the case may be, and
will not file or use any such document to which the Representatives or
counsel for the Underwriters shall reasonably object.
(c) Delivery of Registration Statements. The Company has
furnished or will deliver to the Representatives and counsel for the
Underwriters, without charge, signed copies of the Registration
Statement as originally filed and of each amendment thereto (including
exhibits filed therewith or incorporated by reference therein) and
signed copies of all consents and certificates of experts, and will
also deliver to the Representatives, without charge, a conformed copy
of the Registration Statement as originally filed and of each amendment
thereto (without exhibits) for each of the Underwriters. The copies of
the Registration Statement and each amendment thereto furnished to the
Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(d) Delivery of Prospectus. The Company has delivered to each
Underwriter, without charge, as many copies of each preliminary
prospectus as such Underwriter reasonably requested, and the Company
hereby consents to the use of such copies for purposes permitted by the
1933 Act. The Company will furnish to each Underwriter, without charge,
during the period when the Prospectus is required to be delivered under
the 1933 Act or the 1934 Act, such number of copies of the Prospectus
(as amended or supplemented) as such Underwriter may reasonably
request. The Prospectus and any amendments or supplements thereto
furnished to the Underwriters will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(e) Continued Compliance with Securities Laws. The Company
will comply with the 1933 Act, the 1933 Act Regulations, the 1934 Act
and the 1934 Act Regulations so as to permit the completion of the
distribution of the Securities as contemplated in this Agreement, and
in the Prospectus. If at any time when a prospectus is required by the
1933 Act or the 1934 Act to be delivered in connection
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with sales of the Securities, any event shall occur or condition shall
exist as a result of which it is necessary, in the opinion of counsel
for the Underwriters or for the Company, to amend the Registration
Statement or amend or supplement the Prospectus in order that the
Prospectus will not include any untrue statements of a material fact or
omit to state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances existing at
the time it is delivered to a purchaser, or if it shall be necessary,
in the opinion of such counsel, at any such time to amend the
Registration Statement or amend or supplement the Prospectus in order
to comply with the requirements of the 1933 Act, the 1933 Act
Regulations, the 1934 Act or the 1934 Act Regulations, the Company will
promptly prepare and file with the Commission, subject to Section 3(b),
such amendment or supplement as may be necessary to correct such
statement or omission or to make the Registration Statement or the
Prospectus comply with such requirements, and the Company will furnish
to the Underwriters such number of copies of such amendment or
supplement as the Underwriters may reasonably request.
(f) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with the Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions (domestic or foreign) as the
Representatives may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject. In each jurisdiction in which the
Securities have been so qualified, the Company will file such
statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of
not less than one year from the effective date of the Registration
Statement and any Rule 462(b) Registration Statement.
(g) Rule 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.
(h) Use of Proceeds. The Company will use the net proceeds
received by it from the sale of the Securities in the manner specified
in the Prospectus under "Use of Proceeds".
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(i) Listing. The Company will use its best efforts to effect
and maintain the quotation of the Securities on the Nasdaq National
Market and will file with the Nasdaq National Market all documents and
notices required by the Nasdaq National Market of companies that have
securities that are traded in the over-the-counter market and
quotations for which are reported by the Nasdaq National Market.
(j) Restriction on Sale of Securities. During a period of 90
days from the date of the Prospectus, the Company will not, without the
prior written consent of Merrill Lynch, (i) directly or indirectly,
offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchase or otherwise transfer or dispose of any
share of Common Stock or class B common stock or any securities
convertible into or exercisable or exchangeable for Common Stock or
class B common stock or file any registration statement under the 1933
Act with respect to any of the foregoing or (ii) enter into any swap or
any other agreement or any transaction that transfers, in whole or in
part, directly or indirectly, the economic consequence of ownership of
the Common Stock or the class B common stock, whether any such swap or
the transaction described in clause (i) or (ii) above is to be settled
by delivery of Common Stock, class B common stock or such other
securities, in cash or otherwise. The foregoing sentence shall not
apply to (A) the Securities to be sold hereunder, (B) any shares of
Common Stock or class B common stock issued by the Company upon the
exercise of an option or warrant or the conversion of a security
outstanding on the date hereof and referred to in the Prospectus, or
(C) any shares of Common Stock or class B common stock issued or
options to purchase shares of Common Stock or class B common stock
granted pursuant to existing employee benefit plans of the Company
referred to in the Prospectus or (D) any shares of Common Stock that
may be issued by the Company from time to time upon the conversion of
shares of class B common stock into shares of Common Stock pursuant to
its sixth amended and restated certificate of incorporation.
(k) Reporting Requirements. The Company, during the period
when the Prospectus are required to be delivered under the 1933 Act or
the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the rules and regulations of the Commission
thereunder.
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SECTION 4. Payment of Expenses.
(a) Expenses. The Company will pay all expenses incident to the
performance of its obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters, (iv) the fees and
disbursements of the Company's counsel, accountants and other advisors, (v) the
qualification of the Securities under securities laws in accordance with the
provisions of Section 3(f) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection therewith and in
connection with the preparation of the Blue Sky Survey and any supplement
thereto, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Term Sheets and of the Prospectus and any amendments
or supplements thereto, (vii) the preparation, printing and delivery to the
Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii)
the fees and expenses of any transfer agent or registrar for the Securities,
(ix) the filing fees incident to, and the reasonable fees and disbursements of
counsel to the Underwriters in connection with, the review by the NASD of the
terms of the sale of the Securities and (x) the fees and expenses incurred in
connection with the inclusion of the Securities in the Nasdaq National Market.
(b) Expenses of the Selling Shareholders. The Selling Shareholders,
jointly and severally, will pay all expenses incident to the performance of
their respective obligations under, and the consummation of the transactions
contemplated by the Agreement, including (i) any stamp duties, capital duties
and stock transfer taxes, if any, payable upon the sale of the Securities to the
Underwriters, and their transfer between the Underwriters pursuant to an
agreement between such Underwriters and (ii) the fees and disbursements of their
respective counsel and accountants.
(c) Termination of Agreement. If this Agreement is terminated by the
Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company and the Selling Shareholders shall reimburse the
Underwriters for all of their out-of-pocket expenses, including the reasonable
fees and disbursements of counsel for the Underwriters.
(d) Allocation of Expenses. The provisions of this Section shall not
affect any agreement that the Company and the Selling Shareholders may make for
the sharing of such costs and expenses.
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SECTION 5. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Company and the Selling Shareholders
contained in Section 1 hereof or in certificates of any officer of the Company
or on behalf of any Selling Shareholder delivered pursuant to the provisions
hereof, to the performance by the Company of its covenants and other obligations
hereunder, and to the following further conditions:
(a) Effectiveness of Registration Statement. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued
under the 1933 Act or proceedings therefor initiated or threatened by
the Commission, and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of counsel to the Underwriters. A prospectus containing
the Rule 430A Information shall have been filed with the Commission in
accordance with Rule 424(b) (or a post-effective amendment providing
such information shall have been filed and declared effective in
accordance with the requirements of Rule 430A) or, if the Company has
elected to rely upon Rule 434, a Term Sheet shall have been filed with
the Commission in accordance with Rule 424(b).
(b) Opinion of Counsel for Company. At Closing Time, the
Representatives shall have received the favorable opinions, dated as of
Closing Time, of:
(i) Hale and Dorr LLP, counsel for the Company, in
form and substance satisfactory to counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of
the other Underwriters to the effect set forth in Exhibit A-1 hereto
and to such further effect as counsel to the Underwriters may
reasonably request; and
(ii) David A. Graff, general counsel for the Company,
in form and substance satisfactory to counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of
the other Underwriters to the effect set forth in Exhibit A-2 hereto
and to such further effect as counsel to the Underwriters may
reasonably request.
(c) Opinion of Counsel for the Selling Shareholders. At
Closing Time, the Representatives shall have received the favorable
opinion, dated as of Closing Time, of Hale and Dorr LLP, counsel for
certain of the Selling Shareholders, together with the favorable
opinion of each counsel for the other Selling Shareholders (which
23
<PAGE> 29
counsel shall be satisfactory to the Representatives), each in form and
substance satisfactory to counsel for the Underwriters, together with
signed or reproduced copies of such letters for each of the other
Underwriters to the effect set forth in Exhibit A-3 hereto and to such
other effect as counsel for the Underwriters may reasonably request.
(d) Opinion of Counsel for Underwriters. At Closing Time, the
Representatives shall have received the favorable opinion, dated as of
Closing Time, of Debevoise & Plimpton, counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of
the other Underwriters, in form and substance reasonably satisfactory
to the Underwriters. In giving such opinion such counsel may rely,
insofar as such opinion involves factual matters, to the extent they
deem proper, upon certificates of officers of the Company and
certificates of public officials.
(e) Officers' Certificate. At Closing Time, there shall not
have been, since the date hereof or since the respective dates as of
which information is given in the Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings,
business affairs or business prospects of the Company, whether or not
arising in the ordinary course of business, and the Representatives
shall have received a certificate of the Chief Executive Officer, Chief
Financial Officer and Chief Operating Officer of the Company, dated as
of Closing Time, to the effect that (i) there has been no such material
adverse change, (ii) the representations and warranties in Section 1(a)
hereof are true and correct with the same force and effect as though
expressly made at and as of Closing Time, (iii) the Company has
complied with all agreements and satisfied all conditions on its part
to be performed or satisfied at or prior to Closing Time, and (iv) no
stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been
instituted or are pending or are contemplated by the Commission.
(f) Certificate of the Selling Shareholder. At Closing Time,
the Representatives shall have received a certificate of an
Attorney-in-Fact on behalf of each Selling Shareholder, dated as of the
Closing Time, to the effect that (i) the representations and warranties
of each Selling Shareholder contained in Section 1(b) hereof are true
and correct in all respects with the same force and effect as though
expressly made at and as of Closing Time and (ii) each Selling
Shareholder has complied in all material respects with all agreements
and all conditions on its part to be performed under the Agreement at
or prior to Closing Time.
(g) Accountant's Comfort Letter. At the time of the execution
of this Agreement, the Representatives shall have received from
PricewaterhouseCoopers a
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<PAGE> 30
letter dated such date, in form and substance satisfactory to the
Representatives, together with signed or reproduced copies of such
letter for each of the other Underwriters containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement
and the Prospectus.
(h) Bring-down Comfort Letter. At Closing Time, the
Representatives shall have received from PricewaterhouseCoopers a
letter, dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (g) of
this Section, except that the specified date referred to shall be a
date not more than three business days prior to Closing Time.
(i) Approval of Listing. At Closing Time, the Securities shall
have been approved for inclusion in the Nasdaq National Market, subject
only to official notice of issuance.
(j) No Objection. The NASD has confirmed that it has not
raised any objection with respect to the fairness and reasonableness of
the underwriting terms and arrangements.
(k) Lock-up Agreements. At the date of this Agreement, the
Representatives shall have received an agreement substantially in the
form of Exhibit B hereto signed by the persons listed on Schedule D
hereto.
(l) Form W-8 or W-9. At the date of this Agreement, the
Representatives shall have received form W-8 or W-9, as required,
signed by each Selling Shareholder.
(m) Release of Liens. At Closing Time, the Representatives
shall have received a duly executed copy of the release, in form and
substance satisfactory to counsel for the Underwriters, dated Closing
Time, by The CIT Group/Commercial Services, Inc. with respect to
Initial Securities to be sold by Richmont Capital Partners I, L.P. and
all necessary UCC-3 statements in respect of such Initial Securities,
each in form and substance satisfactory to counsel for the
Underwriters.
(n) Conditions to Purchase of Option Securities. In the event
that the Underwriters exercise their option provided in Section 2(b)
hereof to purchase all or any portion of the Option Securities, the
representations and warranties of the Company and the Selling
Shareholders contained herein and the statements in any certificates
furnished by the Company and the Selling Shareholders hereunder shall
25
<PAGE> 31
be true and correct as of each Date of Delivery and, at the relevant
Date of Delivery, the Representatives shall have received:
(i) Officers' Certificate. A certificate, dated such Date of
Delivery, of the Chief Executive Officer, Chief Financial
Officer and Chief Operating Officer of the Company confirming
that the certificate delivered at the Closing Time pursuant to
Section 5(e) hereof remains true and correct as of such Date
of Delivery.
(ii) Certificate of Selling Shareholders. A certificate, dated
such Date of Delivery, of an Attorney-in-Fact on behalf of
each Selling Shareholder confirming that the certificate
delivered at Closing Time pursuant to Section 5(f) remains
true and correct as of such Date of Delivery.
(iii) Opinion of Counsel for Company. The favorable opinion of
Hale and Dorr LLP, counsel for the Company, together with the
favorable opinion of David A. Graff, general counsel for the
Company, each in form and substance satisfactory to counsel
for the Underwriters, dated such Date of Delivery, relating to
the Option Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion required by
Section 5(b) hereof.
(iv) Opinion of Counsel for the Selling Shareholders. The
favorable opinion of Hale and Dorr LLP, counsel for certain of
the Selling Shareholders, together with the favorable opinion
of each counsel for the other Selling Shareholders (which
counsel shall be satisfactory to the Representatives), each in
form and substance satisfactory to counsel for the
Underwriters, dated such Date of Delivery, relating to the
Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by
Section 5(c) hereof.
(v) Opinion of Counsel for Underwriters. The favorable opinion
of Debevoise & Plimpton, counsel for the Underwriters, dated
such Date of Delivery, relating to the Option Securities to be
purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(d) hereof.
(vi) Bring-down Comfort Letter. A letter from
PricewaterhouseCoopers, in form and substance satisfactory to
the Representatives and dated such Date of Delivery,
substantially in the same form and substance as the letter
furnished to the Representatives pursuant to Section 5(g)
hereof, except that
26
<PAGE> 32
the "specified date" in the letter furnished pursuant to this
paragraph shall be a date not more than two days prior to such
Date of Delivery.
(vii) Release of Liens. At Closing Time, the Representatives
shall have received a duly executed copy of the release, in
form and substance satisfactory to counsel for the
Underwriters, dated Closing Time, by The CIT Group/Commercial
Services, Inc. with respect to Option Securities to be sold by
Richmont Capital Partners I, L.P. and all necessary UCC-3
statements in respect of such Option Securities, each in form
and substance satisfactory to counsel for the Underwriters.
(o) Additional Documents. At Closing Time and at each Date of
Delivery, counsel for the Underwriters shall have been furnished with
such documents, certificates and opinions as they may require for the
purpose of enabling them to pass upon the issuance and sale of the
Securities as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any
of the conditions, herein contained; and all proceedings taken by the
Company and the Selling Shareholders in connection with the issuance
and sale of the Securities as herein contemplated shall be satisfactory
in form and substance to the Representatives and counsel for the
Underwriters.
(p) Termination of Agreement. If any condition specified in
this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of Option Securities on a Date of Delivery which is after the
Closing Time, the obligations of the several Underwriters to purchase
the relevant Option Securities, may be terminated by the
Representatives by notice to the Company at any time at or prior to
Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party
except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Underwriters. (1) The Company and the Selling
Shareholders severally agree to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act as follows:
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<PAGE> 33
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense what soever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that (subject to Section 6(d) below) any such settlement is effected
with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission, or any
such alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that (x) this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense (a) to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through the Representatives expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto), (b) with
respect to any preliminary prospectus, to the extent that the Company shall
sustain the burden of proving (i) that any such loss, claim, expense, damage or
liability of such Underwriter results from the fact that such Underwriter sold
Securities to a person as to whom there was not sent or given, at or prior to
the written confirmation of such sale, a copy of the Prospectus (as then amended
or supplemented) in any case where such delivery is required by the 1933 Act,
(ii) that the Company had previously furnished copies thereof in sufficient
quantities to such Underwriter
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<PAGE> 34
and the loss, claim, expense, damage or liability of such Underwriter results
from an untrue statement or omission of a material fact contained in the
preliminary prospectus that was corrected in the Prospectus and (iii) that
sending such Prospectus by the Closing Time to the person or persons asserting
such loss, liability, claim, damage or expense would have constituted a defense
to the claim asserted by such person or persons, and (y) that with respect to
each Selling Shareholder other than John E. Chubb and Manuel J. Rivera, the
indemnification provision in this Section 6(a)(1) shall be only with respect to
information furnished in writing by or on behalf of such Selling Shareholder
expressly for use in the Registration Statement (or any amendment thereto),
including Rule 430A Information and the Rule 434 Information, if applicable, or
any preliminary prospectus or Prospectus (or any amendment or supplement
thereto); and provided, further, that the aggregate liability of any Selling
Shareholder pursuant to this Section 6(a)(1) shall be limited to the net
proceeds received by such Selling Shareholder from the Securities purchased by
the Underwriters from such Selling Shareholder pursuant to this Agreement; and
provided further, that no Selling Shareholder shall be liable for any untrue
statement, omission or alleged omission of any other Selling Shareholder.
(2) Insofar as this indemnity agreement may permit indemnification for
liabilities under the 1933 Act of any person who is a partner of an Underwriter
or who controls an Underwriter within the meaning of Section 15 of the 1933 Act
or Section 20 of the 1934 Act and who, at the date of this Agreement, is a
director or officer of the Company or controls the Company within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act, such indemnity
agreement is subject to the undertaking of the Company in the Registration
Statement under Item 12.
(b) Indemnification of Company, Directors and Officers and Selling
Shareholders. Each Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each Selling
Shareholder and each person, if any, who controls the Selling Shareholder within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against
any and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a)(1) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Registration Statement (or any amendment thereto),
including the Rule 430A Information and the Rule 434 Information, if applicable,
or any preliminary prospectus or the Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by such Underwriter through the Representatives expressly for use
in the Registration Statement (or any amendment thereto) or such preliminary
prospectus or the Prospectus (or any amendment or supplement thereto).
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<PAGE> 35
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party, and any delay in such
notification, shall not relieve such indemnifying party from any liability
hereunder to the extent it is not materially prejudiced as a result thereof and
in any event shall not relieve it from any liability which it may have otherwise
than on account of this indemnity agreement. In the case of parties indemnified
pursuant to Section 6(a)(1) above, counsel to the indemnified parties shall be
selected by Merrill Lynch, and, in the case of parties indemnified pursuant to
Section 6(b) above, counsel to the indemnified parties shall be selected by the
Company. An indemnifying party may participate at its own expense in the defense
of any such action; provided, however, that counsel to the indemnifying party
shall not (except with the consent of the indemnified party) also be counsel to
the indemnified party. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances. No
indemnifying party shall, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any judgment with
respect to any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim whatsoever in
respect of which indemnification or contribution could be sought under this
Section 6 or Section 7 hereof (whether or not the indemnified parties are actual
or potential parties thereto), unless such settlement, compromise or consent (i)
includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(1)(ii) effected without its written consent if (i) such settlement
is entered into more than 45 days after receipt by such indemnifying party of
the aforesaid request, (ii) such indemnifying party shall have received notice
of the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
(e) Other Agreements with Respect to Indemnification. The provisions of
this Section shall not affect any agreement among the Company and the Selling
Shareholders with respect to indemnification.
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<PAGE> 36
SECTION 7. Contribution. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Shareholders on the one hand and the Underwriters on the other hand from
the offering of the Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Selling Shareholders on the one hand and of the Underwriters on the other hand
in connection with the statements or omissions, which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
The relative benefits received by the Company and the Selling
Shareholders on the one hand and the Underwriters on the other hand in
connection with the offering of the Securities pursuant to this Agreement shall
be deemed to be in the same respective proportions as the total net proceeds
from the offering of the Securities pursuant to this Agreement (before deducting
expenses) received by the Company and the Selling Shareholders and the total
underwriting discount received by the Underwriters, in each case as set forth on
the cover of the Prospectus, or, if Rule 434 is used, the corresponding location
on the Term Sheet, bear to the aggregate initial public offering price of the
Securities as set forth on such cover.
The relative fault of the Company, the Selling Shareholders and the
Underwriters shall be determined by reference to, among other things, whether
any such untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Selling Shareholders or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company, the Selling Shareholders and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 7
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above in this Section
7. The aggregate amount of losses, liabilities, claims, damages and expenses
incurred by an indemnified party and referred to above in this Section 7 shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
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<PAGE> 37
Notwithstanding the provisions of this Section 7, (i) no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission and (ii) no Selling
Shareholder shall be required to contribute any amount in excess of the amount
of the total net proceeds received by such Selling Shareholder from the sale of
Securities pursuant to this Agreement or on a basis other than as specified in
Section 6(a).
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter, and
each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company or any
Selling Shareholder within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act shall have the same rights to contribution as the Company or
such Selling Shareholder, as the case may be. The Underwriters' respective
obligations to contribute pursuant to this Section 7 are several in proportion
to the number of Initial Securities set forth opposite their respective names in
Schedule A hereto and not joint.
The provisions of this Section shall not affect any agreement among the
Company and the Selling Shareholders with respect to contribution.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company submitted pursuant
hereto, shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any Underwriter or controlling person, or
by or on behalf of the Company, and shall survive delivery of the Securities to
the Underwriters.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representatives may terminate this
Agreement, by notice to the Company and the Selling Shareholders, at any time at
or prior to Closing Time (i) if there has been, since the time of execution of
this Agreement or since the
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<PAGE> 38
respective dates as of which information is given in the Prospectus, any
material adverse change in the condition, financial or otherwise, or in the
earnings, business affairs or business prospects of the Company, whether or not
arising in the ordinary course of business, or (ii) if there has occurred any
material adverse change in the financial markets in the United States or the
international financial markets, any outbreak of hostilities or escalation
thereof or other calamity or crisis or any change or development involving a
prospective change in national or international political, financial or economic
conditions, in each case the effect of which is such as to make it, in the
judgment of the Representatives, impracticable to market the Securities or to
enforce contracts for the sale of the Securities, or (iii) if trading in any
securities of the Company has been suspended or materially limited by the
Commission or the Nasdaq National Market, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the Nasdaq National
Market has been suspended or materially limited, or minimum or maximum prices
for trading have been fixed, or maximum ranges for prices have been required, by
any of said exchanges or by such system or by order of the Commission, the NASD
or any other governmental authority, or (iv) if a banking moratorium has been
declared by either Federal or New York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. Default by One or More of the Underwriters. If one or more
of the Underwriters shall fail at Closing Time or a Date of Delivery to purchase
the Securities which it or they are obligated to purchase under this Agreement
(the "Defaulted Securities"), the Representatives shall have the right, within
24 hours thereafter, to make arrangements for one or more of the non-defaulting
Underwriters, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Representatives shall not have
completed such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of Securities to be purchased on such date, each of the
non-defaulting Underwriters shall be obligated, severally and not
jointly, to purchase the full amount thereof in the proportions that
their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of Securities to be purchased on such date, this Agreement or,
with respect to any Date of Delivery which occurs after the Closing
Time, the obligation of the Underwriters
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to purchase and of the Company to sell the Option Securities to be
purchased and sold on such Date of Delivery shall terminate without
liability on the part of any non-defaulting Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
Underwriters to purchase and the Company to sell the relevant Option Securities,
as the case may be, either (i) the Representatives or (ii) the Company and any
Selling Shareholder shall have the right to postpone Closing Time or the
relevant Date of Delivery, as the case may be, for a period not exceeding seven
days in order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 10.
SECTION 11. Default by One or More of the Selling Shareholders or the
Company.
(a) If a Selling Shareholder shall fail at Closing Time or at a Date of
Delivery to sell and deliver the number of Securities which such Selling
Shareholder or Selling Shareholders are obligated to sell hereunder, and the
remaining Selling Shareholders do not exercise the right hereby granted to
increase, pro rata or otherwise, the number of Securities to be sold by them
hereunder to the total number to be sold by all Selling Shareholders as set
forth in Schedule B hereto, then the Underwriters may, at option of the
Representatives, by notice from the Representatives to the Company and the
non-defaulting Selling Shareholders, either (a) terminate this Agreement without
any liability on the fault of any non-defaulting party except that the
provisions of Sections 1, 4, 6, 7 and 8 shall remain in full force and effect or
(b) elect to purchase the Securities which the non-defaulting Selling
Shareholders and the Company have agreed to sell hereunder. No action taken
pursuant to this Section 11 shall relieve any Selling Shareholder so defaulting
from liability, if any, in respect of such default.
In the event of a default by any Selling Shareholder as referred to in
this Section 11, each of the Representatives, the Company and the non-defaulting
Selling Shareholders shall have the right to postpone Closing Time or Date of
Delivery for a period not exceeding seven days in order to effect any required
change in the Registration Statement or Prospectus or in any other documents or
arrangements.
34
<PAGE> 40
(b) If the Company shall fail at Closing Time or at the Date of
Delivery to sell the number of Securities that it is obligated to sell
hereunder, then this Agreement shall terminate without any liability on the part
of any nondefaulting party; provided, however, that the provisions of Sections
1, 4, 6, 7 and 8 shall remain in full force and effect. No action taken pursuant
to this Section shall relieve the Company from liability, if any, in respect of
such default.
SECTION 12. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to the Representatives at North Tower, World
Financial Center, New York, New York 10281-1201, attention of Syndicate
Operations, with a copy to Debevoise & Plimpton, 875 Third Avenue, New York, New
York, attention of Michael W. Blair; notices to the Company shall be directed to
it at 515 Fifth Avenue, 15th Floor, New York, NY 10175, attention of James L.
Starr, Executive Vice President and Chief Financial Officer, with a copy to Hale
& Dorr LLP, 1455 Pennsylvania Avenue, N.W., Washington, D.C. 20004, attention of
David Sylvester and Brent B. Siler; and notices to the Selling Shareholders
shall be directed to the Selling Shareholders, attention of David A. Graff,
Laura K. Eshbaugh and James L. Starr, c/o the Company at the foregoing address.
SECTION 13. Parties. This Agreement shall each inure to the benefit of
and be binding upon the Underwriters, the Company and the Selling Shareholders
and their respective successors. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any person, firm or
corporation, other than the Underwriters, the Company and the Selling
Shareholders and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein contained. This Agreement and
all conditions and provisions hereof are intended to be for the sole and
exclusive benefit of the Underwriters, the Company and the Selling Shareholders
and their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such purchase.
SECTION 14. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW
YORK (WITHOUT GIVING EFFECT TO ITS PRINCIPLES OR RULES OF CONFLICT OF LAWS TO
THE EXTENT SUCH
35
<PAGE> 41
PRINCIPLES OR RULES WOULD REQUIRE OR PERMIT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION). SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 15. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
36
<PAGE> 42
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company and the Attorney-in Fact for
the Selling Shareholders a counterpart hereof, whereupon this instrument, along
with all counterparts, will become a binding agreement between the Underwriters,
the Company and the Selling Shareholders in accordance with its terms.
Very truly yours,
EDISON SCHOOLS INC.
By:
-------------------------------------
Name:
Title:
SELLING SHAREHOLDERS
By:
-------------------------------------
Name:
As Attorney-In-Fact acting on behalf
of the Selling Shareholders named in
Schedule B hereto
37
<PAGE> 43
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
BANC OF AMERICA SECURITIES LLC,
CREDIT SUISSE FIRST BOSTON CORPORATION,
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION,
J.P. MORGAN SECURITIES INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
------------------------------------------
Name:
Title: Authorized Signatory
For themselves and as Representatives of the
other Underwriters named in Schedule A hereto.
38
<PAGE> 44
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Name of Underwriter Initial Securities
------------------- ------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated -
Banc of America Securities LLC -
Credit Suisse First Boston Corporation -
Donaldson, Lufkin & Jenrette Securities
Corporation -
J.P. Morgan Securities Inc. -
---------
Total 5,000,000
=========
</TABLE>
Sch A-1
<PAGE> 45
SCHEDULE B
<TABLE>
<CAPTION>
Number of Initial Maximum Number of Option
Securities to be Sold Securities to Be Sold
---------------------------------------------------
<S> <C> <C>
Edison Schools Inc. 2,500,000 375,000
Manuel J. Rivera 50,000 - 0 -
John E. Chubb 25,000 - 0 -
D2F2 Foundation 600,000 - 0 -
Nazca Limited Partnership 128,500 - 0 -
Progressive Investment
Company, Inc. 887,740 375,000
Richmont Capital Partners I,
L.P. 200,000 - 0 -
RWJ Education Company I,
LLC 500,000 - 0 -
Trustees of Amherst College 40,584 - 0 -
Brearly School Endowment Fund 13,796 - 0 -
Elizabeth H. Mandell Trust for
the benefit of Peter Mandell 6,898 - 0 -
Elizabeth H. Mandell Trust for
the benefit of Olivia Mandell 6,898 - 0 -
Tab Products Company Pension
Plan 40,584 - 0 -
--------- -------
Total 5,000,000 750,000
</TABLE>
Sch B-1
<PAGE> 46
SCHEDULE C
EDISON SCHOOLS INC.
5,000,000 Shares of Common Stock
(Par Value $.01 Per Share)
I. The public offering price per share for the Securities,
determined as provided in said Section 2, shall be $-.
II. The purchase price per share for the Securities to be paid
by the several Underwriters shall be $-, being an amount equal to the
public offering price set forth above less $- per share; provided that
the purchase price per share for any Option Securities purchased upon
the exercise of the over-allotment option described in Section 2(b)
shall be reduced by an amount per share equal to any dividends or
distributions declared by the Company and payable on the Initial
Securities but not payable on the Option Securities.
Sch C-1
<PAGE> 47
SCHEDULE D
List of persons and entities
subject to lock-up
H. Christopher Whittle
Benno C. Schmidt, Jr.
Christopher D. Cerf
James L. Starr
John Chubb, Ph.D
Laura Eshbaugh
Reverend Floyd H. Flake
David A. Graff
Kathleen M. Hamel
Tonya G. Hinch
Deborah M. McGriff
Manuel J. Rivera
Donald N. Sunderland
Virginia G. Bonker
John W. Childs
Charles J. Delaney
Robert Finzi
John B. Fullerton
Janet A. Hickey
Klas Hillstrom
Jeffrey T. Leeds
William F. Weld
[All other holders of 1% or more of any class
the Company's common stock.]
Sch D-1
<PAGE> 48
SCHEDULE E
List of Management Agreements
1. Feaster-Edison Charter School Agreement between the Company and the
Chula Vista Elementary School District, California.
2. Charter School Management Agreement between the Company and the Board
of Education of the Ravenswood City School District, East Palo Alto,
California.
3. Charter School Agreement between the Company and the Board of Education
of the Fresno Unified School District, California.
4. Charter School Management Agreement between the Company and the Board
of Education of the Napa Valley Unified School District, California.
5. Charter School Management Agreement between the Company and the Board
of Education of the San Francisco Unified School District, California.
6. Charter School Management Agreement between the Company and the Board
of Education of the West Covina Unified School District, California.
7. Agreement between the Company and the Long Beach Unified School
District, Long Beach, California.
8. Agreement between the Company and the Board of Education of the Academy
School District, Colorado Springs, Colorado.
9. Modification Agreement between the Company and the Board of Education
of the Academy School District, Colorado.
10. Colorado Springs Charter School Management Agreement between the
Company and Colorado Springs School District No. 11, Colorado.
11. Third Amendment of the Colorado Springs Charter School Management
Agreement between the Company and Colorado Springs School District No.
11, Colorado.
12. Denver-Edison Charter School Management Agreement between the Company
and the Denver-Edison Charter School, Colorado.
Sch E-1
<PAGE> 49
13. Agreement between the Company and the Governing Board of Area
Cooperative Educational Services, Hamden, Connecticut.
14. Agreement between the Company and the Thomas A. Edison Charter School
of Wilmington, Inc., Wilmington, Delaware.
15. Agreement between the Company and the Friendship Public Charter School,
Inc., Washington, D.C.
16. Agreement among the Company, the Dade County Public Schools and the
United Teachers of Dade County, Florida.
17. Agreement between the Company and the Bibb County School District,
Macon, Georgia.
18. Agreement between the Company and the Drew Charter School, Inc.,
Atlanta, Georgia.
19. Agreement between the Company and the Board of Education of the Peoria
Public Schools, Peoria, Illinois.
20. Agreement between the Company and the Board of Education of the
Springfield Public Schools, Springfield, Illinois.
21. Agreement between Company and the Chicago Charter School Foundation,
Chicago, Illinois.
22. Agreement between the Company and the Davenport Community School
District, Davenport, Iowa.
23. Agreement between the Company and Wichita School District No. 259,
Wichita, Kansas.
24. Addendum #2 to the Agreement between the Company and Wichita School
District No. 259, Wichita, Kansas.
25. Agreement between the Company and the Baltimore City Board of
Education, Baltimore, Maryland.
26. Management Agreement between the Company and the Boston Renaissance
Charter School, Boston, Massachusetts.
Sch E-2
<PAGE> 50
27. Agreement between the Company and Seven Hills Charter School,
Worcester, Massachusetts.
28. Agreement between the Company and the Battle Creek Public School
District, Battle Creek, Michigan.
29. Management Agreement between the Company and the Edison Public School
Academy, Detroit, Michigan.
30. Agreement between the Company and the Detroit Academy of Arts and
Sciences, Detroit, Michigan.
31. Agreement between the Company and the YMCA Service Learning Academy,
Detroit, Michigan.
32. Agreement between the Company and the Edison Oakland Public School
Academy, Fernald, Michigan.
33. Management Agreement between the Company and the Flint School District,
Flint, Michigan.
34. First Amended Management Agreement between the Company and the
Mid-Michigan Public School Academy, Lansing, Michigan.
35. Management Agreement between the Company and the Board of Education of
the Mount Clemens Community School District, Mt. Clemens, Michigan.
36. Agreement between the Company and the Board of Education of the School
District of the City of Pontiac, Pontiac, Michigan.
37. Management Agreement between the Company and the Inkster School
District Board, Inkster, Michigan.
38. Management Agreement between the Company and the Board of Directors of
the Duluth Public Schools Academy, Duluth, Minnesota.
39. Agreement among the Company, Special School District No. 1 (Minneapolis
Public Schools) and Project for Pride in Living, Inc.
40. Agreement between the Company and the Westport Community Secondary
Schools, Kansas City, Missouri.
Sch E-3
<PAGE> 51
41. Agreement between the Company and the Westport Allen-Edison Village
Educational School, Kansas City, Missouri.
42. Management Agreement between the Company and the Granville Charter
School, Trenton, New Jersey.
43. Management Agreement between the Company and the Schomburg Charter
School, Inc., Jersey City, New Jersey.
44. Agreement between the Company and the Charter School of Science &
Technology, Rochester, New York.
45. Agreement between the Company and the Board of Education of the Wayne
County Public Schools, Goldsboro, North Carolina.
46. Agreement between the Company and the Board of Education of the
Nash-Rocky Mount Public Schools, Whitaker, North Carolina.
47. Management Agreement between the Company and the Alliance Community
Schools, Inc., Dayton, Ohio.
48. Agreement between the Company and the Renaissance Academy-Edison
Charter School, Phoenixville, Pennsylvania.
49. Agreement between the Company and the Southwest Independent School
District, San Antonio, Texas.
50. Stipulation of Agreement between the Company and the Sherman School
District, Sherman, Texas.
51. Agreement between the Company and the Board of Education of the Tyler
Independent School District, Tyler, Texas.
52. Agreement between the Company and the Dallas Independent School
District, Dallas, Texas.
53. Agreement between the Company and the Milwaukee Urban League Academy of
Business and Economics Inc., Milwaukee, Wisconsin.
54. Agreement between the Company and Milwaukee Science Education
Consortium, Milwaukee, Wisconsin.
Sch E-4
<PAGE> 52
Exhibit A-1
FORM OF OPINION OF COMPANY'S COUNSEL
TO BE DELIVERED PURSUANT TO
SECTION 5(b)(i)
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware.
(ii) The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectus and to enter into and perform its
obligations under the Purchase Agreement.
(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction
listed on Schedule A to this opinion.
(iv) The authorized, issued and outstanding capital stock of
record of the Company (a) was, as of March 31, 2000, as set forth in
the Prospectus in the column entitled "Actual" under the caption
"Capitalization" and (b) after giving effect to the transactions
contemplated by this Agreement and the Registration Statement, will be
as set forth in the Prospectus in the column entitled "As Adjusted"
under the caption "Capitalization" (except for issuances subsequent to
March 31, 2000, if any, pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectus or pursuant to the
exercise of convertible securities, options or warrants referred to in
the Prospectus); the shares of issued and outstanding capital stock of
the Company, including the Securities to be purchased by the
Underwriters from the Selling Shareholders, have been duly authorized
and validly issued and are fully paid and non-assessable; and none of
the outstanding shares of capital stock of record of the Company was
issued in violation of any preemptive or other similar rights of any
securityholder of the Company arising under (a) the Company's
certificate of incorporation or by-laws (as in effect from time to
time), (b) any contract, indenture, mortgage, loan agreement, note,
lease or other agreement or instrument filed as an exhibit to the
Registration Statement, (c) the Delaware General Corporation Law or (d)
to our knowledge, arising otherwise.
(v) The Securities to be purchased by the Underwriters from
the Company have been duly authorized for issuance and sale to the
Underwriters pursuant to the Purchase Agreement and, when issued and
delivered by the Company pursuant to the Purchase Agreement against
payment of the consideration
A-1-1
<PAGE> 53
set forth in the Purchase Agreement, will be validly issued and fully
paid and non-assessable and no holder of the Securities is or will be
subject to personal liability by reason of being such a holder.
(vi) The issuance of the Securities by the Company and the
sale of the Securities by the Selling Shareholders is not subject to
any preemptive or other similar rights of any securityholder of the
Company arising under (a) the Company's certificate of incorporation or
by-laws (as in effect on the date hereof), (b) any contract, indenture,
mortgage, loan agreement, note, lease or other agreement or instrument
filed as an exhibit to the Registration Statement, (c) the Delaware
General Corporation Law or (d) to our knowledge, arising otherwise.
(vii) To our knowledge, the Company does not have any
subsidiaries, and, to our knowledge, the Company does not have any
equity investments in other companies, except the Company's interest in
APEX.
(viii) The Purchase Agreement has been duly authorized,
executed and delivered by the Company.
(ix) The Registration Statement, including any Rule 462(b)
Registration Statement, has been declared effective under the 1933 Act;
any required filing of the Prospectus pursuant to Rule 424(b) has been
made in the manner and within the time period required by Rule 424(b);
and, to our knowledge, no stop order suspending the effectiveness of
the Registration Statement or any Rule 462(b) Registration Statement
has been issued under the 1933 Act and no proceedings for that purpose
have been instituted or are pending or threatened by the Commission.
(x) The Registration Statement, including any Rule 462(b)
Registration Statement, the Rule 430A Information and the Rule 434
Information, as applicable, the Prospectus and each amendment or
supplement to the Registration Statement and the Prospectus as of their
respective effective or issue dates (other than the financial
statements and supporting schedules included therein or omitted
therefrom, as to which we need express no opinion) complied as to form
in all material respects with the requirements of the 1933 Act and the
1933 Act Regulations.
(xi) If Rule 434 has been relied upon, the Prospectus was not
"materially different," as such term is used in Rule 434, from the
prospectus included in the Registration Statement at the time it became
effective.
A-1-2
<PAGE> 54
(xii) The form of certificate used to evidence the Common
Stock complies in all material respects with all applicable statutory
requirements, with any applicable requirements of the charter and
by-laws of the Company and the requirements of the Nasdaq National
Market.
(xiii) To our knowledge, there is not pending or threatened
any action, suit, proceeding, inquiry or investigation, to which the
Company or any school operated by the Company is a party, or to which
the property of the Company or any school operated by the Company is
subject, before or brought by any court or governmental agency or body,
domestic or foreign, which might reasonably be expected to result in a
Material Adverse Effect, or which might reasonably be expected to
materially and adversely affect the consummation of the transactions
contemplated in the Purchase Agreement or the performance by the
Company of its obligations thereunder.
(xiv) The information in the Prospectus under "Summary -
Description of Capital Stock", "Description of Capital Stock", and in
the first paragraph and the first and third sentences in the second
paragraph under "Management-Election of Directors", the last sentence
of "Management-Executive Officers and Directors", and in the
Registration Statement in the first two paragraphs under Item 14, to
the extent that it constitutes matters of law, summaries of legal
matters, the Company's charter and bylaws or legal proceedings, or
legal conclusions, has been reviewed by us and is correct in all
material respects.
(xv) To our knowledge, there are no statutes or regulations
that are required to be described in the Prospectus that are not
described as required.
(xvi) To our knowledge, there are no franchises, contracts,
indentures, mortgages, loan agreements, notes, leases or other
instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described
or referred to therein or filed or incorporated by reference as
exhibits thereto.
(xvii) To our knowledge, the Company is not in violation of
its charter or by-laws.
(xviii) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency, domestic or foreign (other than under
the 1933 Act and the 1933 Act Regulations, which have been obtained, or
as may be required under the securities or blue sky laws of the various
states, as to which we need express no opinion) is
A-1-3
<PAGE> 55
necessary or required in connection with the due authorization,
execution and delivery of the Purchase Agreement or for the offering,
issuance, sale or delivery of the Securities.
(xix) The execution, delivery and performance of the Purchase
Agreement and the consummation of the transactions contemplated in the
Purchase Agreement and in the Registration Statement (including the
issuance and sale of the Securities) and compliance by the Company with
its obligations under the Purchase Agreement do not and will not,
whether with or without the giving of notice or lapse of time or both,
conflict with or constitute a breach of, or default or Repayment Event
(as defined in Section 1(a)(x) of the Purchase Agreement) under or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company pursuant to any contract,
indenture, mortgage, deed of trust, loan or credit agreement, note,
lease or any other agreement or instrument filed as an exhibit to the
Registration Statement (except for such conflicts, breaches or defaults
or liens, charges or encumbrances that could not reasonably be expected
to have a Material Adverse Effect), nor will such action result in any
violation of the provisions of the charter or by-laws of the Company,
applicable law, statute, rule or regulation or any judgment, order,
writ or decree specifically naming the Company, known to us, of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any of its properties, assets
or operations.
(xx) To our knowledge, except as described in the Prospectus
under the caption "Description of Capital Stock--Registration Rights"
there are no persons with registration rights or other similar rights
to have any securities registered pursuant to the Registration
Statement or otherwise registered by the Company under the 1933 Act.
(xxi) To our knowledge, except as disclosed in the Prospectus,
there are no outstanding options to purchase, or any preemptive rights
or other rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to issue
or sell, shares of the Company's capital stock or any such options,
rights, convertible securities or obligations.
(xxii) The Company is not an "investment company" or an entity
"controlled" by an "investment company," as such terms are defined in
the 1940 Act.
In connection with the preparation of the Registration
Statement and the Prospectus, we have participated in conferences with
officers and representatives of
A-1-4
<PAGE> 56
the Company, counsel for the Underwriters and independent accountants
of the Company, at which conferences we made inquiries of such persons
and others and discussed the contents of the Registration Statement and
the Prospectus. While the limitations inherent in the independent
verification of factual matters and the character of determinations
involved in the registration process are such that we are not passing
upon and do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, subject to the foregoing and
based on such participation, inquiries and discussions, nothing has
come to our attention that would lead us to believe that the
Registration Statement or any amendment thereto, including the Rule
430A Information and Rule 434 Information (if applicable) (except for
financial statements and schedules and other financial data included
therein or omitted therefrom and percentages derived from financial
data included therein, as to which we need make no statement), at the
time such Registration Statement or any such amendment became
effective, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus or
any amendment or supplement thereto (except for financial statements
and schedules and other financial data included therein or omitted
therefrom and percentages derived from financial data included therein,
as to which we need make no statement), as of their respective dates or
at the Closing Time, included or includes an untrue statement of a
material fact or omitted or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
Such opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written
policy or other document relating to legal opinions, including, without
limitation, the Legal Opinion Accord of the ABA Section of Business Law
(1991).
A-1-5
<PAGE> 57
Exhibit A-2
FORM OF OPINION OF THE GENERAL COUNSEL
FOR THE COMPANY TO BE DELIVERED
PURSUANT TO SECTION 5(b)(ii)
(i) All descriptions in the Prospectuses of and references in
the Prospectus to franchises, contracts, indentures, mortgages, loan
agreements, notes, leases or other instruments or documents or
transactions to which the Company is or was a party are accurate in all
material respects;
(ii) To my knowledge, no default by the Company exists in the
due performance or observance of any material obligation, agreement,
covenant or condition contained in any Management Agreement or any
other contract, indenture, mortgage, loan agreement, note, lease or
other agreement or instrument that is described or referred to in the
Registration Statement or the Prospectus or filed or incorporated by
reference as an exhibit to the Registration Statement.
(iii) The execution, delivery and performance of the Purchase
Agreement and the consummation of the transactions contemplated in the
Purchase Agreement and in the Registration Statement (including the
issuance and sale of the Securities, and compliance by the Company with
its obligations under the Purchase Agreement do not and will not,
whether with or without the giving of notice or lapse of time or both,
conflict with or constitute a breach of, or default or Repayment Event
(as defined in Section 1(a)(x) of the Purchase Agreement) under or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company pursuant to any Management
Agreement or other contract, indenture, mortgage, deed of trust, loan
or credit agreement, note, lease or any other agreement or instrument
filed as an exhibit to the Registration Statement or otherwise known to
me (except for such conflicts, breaches or defaults or liens, charges
or encumbrances that could not reasonably be expected to have a
Material Adverse Effect), nor will such action result in any violation
of the provisions of the charter or by-laws of the Company, applicable
law, statute, rule, regulation, judgment, order, writ or decree, known
to me, of any government, government instrumentality or court, domestic
or foreign, having jurisdiction over the Company or any of its
properties, assets or operations.
(iv) The execution, delivery and performance of the Purchase
Agreement and the consummation of the transactions contemplated in the
Purchase Agreement and in the Registration Statement (including the
issuance and sale of the Securities, and compliance by the Company with
its obligations under the Purchase Agreement do not and will not result
in any violation of the ESEA, the IDEA, including any
A-2-1
<PAGE> 58
rules or regulations promulgated pursuant to such laws, or any other
federal, state or local statute pertaining to the authorization to
operate public schools or eligibility for funding under federal, state
or local programs.
(v) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, the USDE or,
to my knowledge, any state agency under any state statute pertaining to
authorization to operate public schools or eligibility for funding
under federal or state programs is necessary or required in connection
with the due authorization, execution and delivery of the Purchase
Agreement or for the offering, issuance, sale or delivery of the
Securities.
(vi) To my knowledge, the Company and each of the schools
operated by it possess all permits, licenses, approvals, consents and
other authorizations required, including without limitation
authorizations required (i) to participate in federal funding programs
under the ESEA and the IDEA to the extent the Company or such school
currently receives material funding thereunder, (ii) to operate charter
schools under state charter statutes, and (iii) to receive funding
under federal, state or local education laws, statutes, rules,
regulations, standards, guides and orders to the extent the Company or
such school currently receives material funding thereunder
(collectively, "Governmental Licenses"), issued by the appropriate
federal, state or local regulatory agencies or bodies necessary to
conduct the business now operated by them, except where the failure to
possess such Governmental Licenses could not reasonably be expected to
have a material Adverse Effect; the Company and, to my knowledge each
of the schools operated by it, is in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure
so to comply could not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full
force and effect could not have a Material Adverse Effect; and, to my
knowledge, the Company has not received any notice of proceedings
relating to the revocation or modification of any such Governmental
Licenses which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, could result in a Material
Adverse Effect.
(vii) To my knowledge, there is not pending or threatened any
action, suit, proceeding, inquiry or investigation, to which the
Company or any school operated by the Company is a party, or to which
the property of the Company or any school operated by the Company is
subject, before or brought by the USDE, the DOJ, the EEOC, state and
local educational agencies (including school boards and public school
districts) or charter school boards which might reasonably be expected
to result in a Material Adverse Effect, or which might reasonably be
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<PAGE> 59
expected to materially and adversely affect the consummation of the
transactions contemplated in the Purchase Agreement or the performance
by the Company of its obligations thereunder.
(viii) To my knowledge, the Company and each of the schools
operated by the Company are in compliance with all applicable education
laws, statutes, rules, regulations, standards, guides or orders
administered, issued or implemented by any federal, state or local
government or any agency or subdivision of any of the foregoing,
including, without limitation, the USDE, the DOJ, the EEOC, state and
local education agencies (including school boards and public school
districts) or charter school boards, except where the failure to be in
compliance would not reasonably be expected to have a Material Adverse
Effect. To my knowledge, neither the Company nor any of the schools
operated by it has been advised that either the Company or any of the
schools operated by the Company is not conducting business in
compliance with all applicable federal, state and local education laws,
statutes, rules, regulations, standards, guides and orders, except
where failure to be so in compliance could not reasonably be expected
to have a Material Adverse Effect.
(ix) The information in the Prospectus under "Risk
Factors--Risks Related to Governmental Funding and Regulation of the
Education Industry", "Business--Government Laws and Regulations", to
the extent that it constitutes matters of law, summaries of legal
matters, or legal conclusions (collectively, "Education Matters"), has
been reviewed by me and is correct in all material respects.
(x) Neither the Company, nor any of the schools operated by
the Company is subject to any requirements of, or regulation under, the
Higher Education Act of 1965, as amended.
Nothing has come to my attention that would lead me to believe
that the Registration Statement or any amendment thereto, including the
Rule 430A Information and Rule 434 Information (if applicable) (except
for financial statements and schedules and other financial data
included therein or omitted therefrom and percentages derived from
financial data included therein, as to which I need make no statement),
at the time such Registration Statement or any such amendment became
effective, contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that the Prospectus or
any amendment or supplement thereto (except for financial statements
and schedules and other financial data included therein or omitted
therefrom and percentages derived from
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<PAGE> 60
financial data included therein, as to which we need make no
statement), as of their respective dates or at the Closing Time,
included or includes an untrue statement of a material fact or omitted
or omits to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
Such opinion shall not state that it is to be governed or
qualified by, or that it is otherwise subject to, any treatise, written
policy or other document relating to legal opinions, including, without
limitation, the Legal Opinion Accord of the ABA Section of Business Law
(1991).
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<PAGE> 61
Exhibit A-3
FORM OF OPINION OF COUNSEL FOR THE
SELLING SHAREHOLDER(S)
TO BE DELIVERED PURSUANT TO SECTION 5(c)
(i) No filing with, or consent, approval, authorization, license,
order, registration, qualification or decree of, any court or governmental
authority or agency, domestic or foreign, (other than the issuance of the order
of the Commission declaring the Registration Statement effective and such
authorizations, approvals or consents as may be necessary under state securities
laws, as to which [I][we] need express no opinion) is necessary or required to
be obtained by the Selling Shareholder(s) for the performance by [each/the]
Selling Shareholder of its obligations under the Purchase Agreement or in the
Power of Attorney and Custody Agreement, or in connection with the offer, sale
or delivery of the Securities.
(ii) [Each/The] Power of Attorney and Custody Agreement has been duly
executed and delivered by the [respective] Selling Shareholder(s) [named
therein] and constitutes the legal, valid and binding agreement of [such/the]
Selling Shareholder. The Purchase Agreement has been duly authorized, executed
and delivered by or on behalf of [each/the] Selling Shareholder.
(iii) [Each/The] Attorney-in-Fact has been duly authorized by the
Selling Shareholder(s) to deliver the Securities on behalf of the Selling
Shareholder(s) in accordance with the terms of the Purchase Agreement.
(iv) The execution, delivery and performance of the Purchase Agreement
and the Power of Attorney and Custody Agreement and the sale and delivery of the
Securities and the consummation of the transactions contemplated in the Purchase
Agreement and in the Registration Statement and compliance by the Selling
Shareholder(s) with its obligations under the Purchase Agreement have been duly
authorized by all necessary action on the part of the Selling Shareholder(s) and
do not and will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default under or
result in the creation or imposition of any tax, lien, charge or encumbrance
upon the Securities or any property or assets of the Selling Shareholder(s)
pursuant to, any contract, indenture, mortgage, deed of trust, loan or credit
agreement, note, license, lease or other instrument or agreement to which
[any/the] Selling Shareholder is a party or by which [his/her/it/they] may be
bound, or to which any of the property or assets of the Selling Shareholder(s)
may be subject nor will such action result in any violation of the provisions of
the charter or by-laws of the Selling Shareholder(s), if applicable, or any law,
administrative regulation, judgment or order of any governmental agency or body
or any administrative or court decree having jurisdiction over [such/the]
Selling Shareholder or any of its properties.
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<PAGE> 62
(v) To the best of [our][my] knowledge, [each/the] Selling Shareholder
has valid and marketable title to the Securities to be sold by [such/the]
Selling Shareholder pursuant to the Purchase Agreement, free and clear of any
pledge, lien, security interest, charge, claim, equity or encumbrance of any
kind, and has full right, power and authority to sell, transfer and deliver such
Securities pursuant to the Purchase Agreement. By delivery of a certificate or
certificates therefor [such/the] Selling Shareholder will transfer to the
Underwriters who have purchased such Securities pursuant to the Purchase
Agreement (assuming each such Underwriter has no notice of any adverse claim, as
defined in Uniform Commercial Code as adopted in the State of New York (the
"NYUCC")), valid and marketable title to such Securities, free and clear of any
adverse claim (as defined in the NYUCC), pledge, lien, security interest,
charge, claim, equity or encumbrance of any kind.
Such opinion shall not state that it is to be governed or qualified by,
or that it is otherwise subject to, any treatise, written policy or other
document relating to legal opinions, including, without limitation, the Legal
Opinion Accord of the ABA Section of Business Law (1991).
A-3-2
<PAGE> 63
Exhibit B
[Form of lock-up from directors, officers or other stockholders]
_________ __, 2000
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
Banc of America Securities LLC
Credit Suisse First Boston Corporation
Donaldson, Lufkin & Jenrette Securities Corporation
J.P. Morgan Securities Inc.
as Representatives of the several
Underwriters to be named in the
within-mentioned Purchase Agreement
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Re: Proposed Public Offering by Edison Schools Inc.
Dear Sirs:
The undersigned, a stockholder, officer or director of Edison Schools
Inc., a Delaware corporation (the "Company"), understands that Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and
Banc of America Securities LLC, Credit Suisse First Boston Corporation,
Donaldson, Lufkin & Jenrette Securities Corporation, J.P. Morgan Securities Inc.
propose to enter into a Purchase Agreement (the "Purchase Agreement") with the
Company and the selling shareholders listed in the Purchase Agreement (the
"Selling Shareholders") providing for the public offering of shares (the
"Securities") of the Company's Class A common stock, par value $.01 per share
(the "Common Stock"). In recognition of the benefit that such an offering will
confer upon the undersigned as a stockholder, officer or director of the
Company, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the undersigned agrees with each
underwriter to be named in the Purchase Agreement that, during a period of 90
days from the date of the Purchase Agreement, the undersigned will not, without
the prior written consent of Merrill Lynch, directly or
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<PAGE> 64
indirectly, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, or otherwise dispose of or transfer any shares
of the Company's Common Stock or any securities convertible into or exchangeable
or exercisable for Common Stock, whether now owned or hereafter acquired by the
undersigned or with respect to which the undersigned has or hereafter acquires
the power of disposition, or file any registration statement under the
Securities Act of 1933, as amended , with respect to any of the foregoing or
(ii) enter into any swap or any other agreement or any transaction that
transfers, in whole or in part, directly or indirectly, the economic consequence
of ownership of the Common Stock, whether any such swap or transaction is to be
settled by delivery of Common Stock or other securities, in cash or otherwise.
[The foregoing restriction will not apply to Securities to be sold by the
Selling Shareholders under the Purchase Agreement.](1)
Notwithstanding the foregoing restrictions on transfer, the undersigned
shall be permitted to make the following transfers: (i) transfers made by gift,
will or intestacy, provided the donee thereof agrees in writing to be bound by
the terms hereof; (ii) transfers to the transferor's affiliates, as such term is
defined in Rule 405 promulgated under the Securities Act, provided that each
transferee agrees in writing to be bound by the terms hereof; (iii) transfers
made with prior written consent of Merrill Lynch; and (iv) in the event the
undersigned is an individual, transfers to his or her immediate family or to a
trust the beneficiaries of which are exclusively the undersigned or a member or
members of his or her immediate family, provided that any transferee agrees in
writing to be bound by the terms hereof.
Very truly yours,
[Name of company, corporation, partnership or trust](2)
By:
-------------------------------------------------
Name:
[Title:]
------------------
(1) To be included in the lock-up agreements to be signed by the Selling
Shareholders.
(2) Does not apply to individual shareholders.
B-2
