PLACEMENT AGENCY
AGREEMENT
Canaccord Adams
Inc.
99 High Street
Boston, Massachusetts 02110
David L. Hatcher
(the “ Selling Stockholder ”) proposes, subject
to the terms and conditions stated in this Placement Agency
Agreement (this “ Agreement ”) and the
subscription agreements in the form of Exhibit A
attached hereto (the “ Subscription Agreements
”) entered into with the investors identified therein (each,
an “ Investor ” and collectively, the “
Investors ”), to sell up to an aggregate of 1,000,000
shares (the “ Shares ”) owned by the Selling
Stockholder of the common stock, par value $0.01 per share (the
“ Common Stock ”), of KMG Chemicals, Inc., a
Texas corporation (the “ Company ”). Each of the
Company and the Selling Stockholder hereby confirms its agreements
with Canaccord Adams Inc. (“ Canaccord ”) as set
forth below. The Shares are more fully described in the Statutory
Prospectus (as defined below).
1.
Agreement to Act as Placement Agent; Delivery and
Payment . On the basis of the representations, warranties
and agreements of the Company and the Selling Stockholder herein
contained, and subject to the terms and conditions set forth in
this Agreement:
(a) The
Selling Stockholder hereby engages Canaccord, as the exclusive
agent of the Selling Stockholder, to, on a commercially reasonable
efforts basis, solicit offers to purchase Shares from the Selling
Stockholder on the terms and subject to the conditions set forth in
the Subscription Agreements and Statutory Prospectus (as defined
below). Canaccord shall use commercially reasonable efforts to
assist the Selling Stockholder in obtaining performance by each
Investor whose offer to purchase the Shares was solicited by
Canaccord and accepted by the Selling Stockholder, but Canaccord
shall not, except as otherwise provided in this Agreement, have any
liability to the Selling Stockholder or the Company in the event
any such purchase is not consummated for any reason. In connection
with its commercially reasonable efforts to solicit offers to
purchase the Shares, Canaccord shall only communicate information
regarding the Company and/or the Selling Stockholder to potential
purchasers of the Shares that is consistent with the information
contained in the Statutory Prospectus. Under no circumstances will
Canaccord or any of its affiliates be obligated to underwrite or
purchase any of the Shares for its own account or otherwise provide
any financing. Canaccord shall act solely as the Selling
1
Stockholder’s agent and not as principal.
Canaccord shall not have any authority to bind the Selling
Stockholder with respect to any prospective offer to purchase
Shares, and the Selling Stockholder shall have the sole right to
accept offers to purchase Shares and may reject any such offer, in
whole or in part.
(b) As
compensation for services rendered by Canaccord hereunder, on the
Closing Date (as defined below), the Selling Stockholder shall pay
or cause to be paid to Canaccord by wire transfer of immediately
available funds to an account or accounts designated by Canaccord,
an aggregate amount equal to four and one-half percent (4.5%) of
the gross proceeds received by the Selling Stockholder from the
sale of the Shares to Investors (the “ Agency Fee
”). Canaccord agrees that the foregoing compensation,
together with any expense reimbursement payable hereunder,
constitutes all of the compensation that Canaccord shall be
entitled to receive in connection with the Offering contemplated
hereby. Canaccord may allow concessions, or pay commissions, to
other dealers participating in the offering of the
Shares.
(c) The
Shares are being sold to the Investors at a price of $17.50 per
share (the “ Purchase Price ”) as set forth on
the cover page of the Statutory Prospectus. The purchases of Shares
by the Investors shall be evidenced by the execution of the
Subscription Agreements by each of the parties thereto in the form
attached hereto as Exhibit A .
(d) Prior
to the earlier of ( i ) the date on which this Agreement is
terminated and ( ii ) the Closing Date, neither the Company
nor the Selling Stockholder shall, without the prior written
consent of Canaccord, solicit or accept offers to purchase the
Shares, otherwise than through Canaccord in accordance
herewith.
(e) No
Shares which the Selling Stockholder has agreed to sell pursuant to
this Agreement and the Subscription Agreements shall be deemed to
have been purchased and paid for, or sold by the Selling
Stockholder, until such Shares shall have been delivered to the
Investor purchasing such Shares against payment therefor by such
Investor. If the Selling Stockholder shall default in its
obligations to deliver Shares to an Investor whose offer it has
accepted, the Selling Stockholder shall indemnify and hold
Canaccord harmless against any loss, claim, damage or liability
directly or indirectly arising from or as a result of the default
by the Company in accordance with the procedures set forth in
Section 8(c) hereof.
(f) Payment
of the purchase price for, and delivery of the Shares shall be made
at a closing (the “ Closing ”) at the offices of
Haynes and Boone LLP, counsel for the Company, located at 1 Houston
Center, 1221 McKinney, Suite 2100, Houston, TX 77010, at
10:00 a.m., Houston time, on April 26, 2010 or at such
other time and date as Canaccord and the Selling Stockholder
determine pursuant to Rule 15c6-1(a) under the Securities
Exchange Act of 1934, as amended (the “ Exchange Act
”) (such date of payment and delivery being herein referred
to as the “ Closing Date ”). Unless otherwise
specified in the applicable Subscription Agreement, the Shares will
be settled through the facilities of The Depository Trust
Company’s DWAC system. Subject to the terms hereof, payment
of the purchase price for the Shares shall be made to the Selling
Stockholder in the manner set forth below by Federal Funds wire
transfer, against delivery of the Shares to such persons and shall
be registered in the name or names and shall be in such
denominations as Canaccord may request at least one business day
before the Closing Date. Payment of the purchase price for the
Shares to be purchased by Investors shall be made
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by such
Investors directly to the Selling Stockholder. Subject to the terms
and conditions hereof, on the Closing Date, the Selling Stockholder
shall pay to Canaccord the Agency Fee set forth in paragraph
(b) above and reimburse Canaccord for the amount of expenses
for which Canaccord is entitled to reimbursement pursuant hereto.
At least one day prior to the Closing Date, Canaccord shall submit
to the Selling Stockholder its bona fide estimate of the amount of
expenses for which it is entitled to reimbursement pursuant hereto.
As soon as reasonably practicable after the Closing Date, Canaccord
shall submit to the Selling Stockholder its expense reimbursement
invoice and the Selling Stockholder or Canaccord, as applicable,
shall make any necessary reconciling payment(s) within thirty days
of receipt of such invoices.
2.
Representations and Warranties of the Company. The
Company represents and warrants to Canaccord as of the date hereof,
and as of the Closing Date and agree with Canaccord, as follows.
(For the purposes of this Section 2, unless the context
otherwise requires or as otherwise provided, “Company”
shall mean and include the Company and its
subsidiaries.)
(a)
Filing of Registration Statement . The Company has prepared
and filed, in conformity with the requirements of the Securities
Act of 1933, as amended (the “ Securities Act
”), and the published rules and regulations thereunder (the
“ Rules and Regulations ”) adopted by the
Securities and Exchange Commission (the “ Commission
”), a registration statement, including a prospectus, on Form
S-3 (File No. 333-144349), which became effective as of
July 24, 2007, relating to the Shares and the offering thereof
(the “ Offering ”) from time to time in
accordance with Rule 415(a)(1)(x) of the Rules and
Regulations, and such amendments thereof as may have been required
to the date of this Agreement. The term “ Registration
Statement ” as used in this Agreement means the
aforementioned registration statement, as amended at the time of
such registration statement’s effectiveness for purposes of
Section 11 of the Securities Act, (the “ Effective
Time ”), including ( i ) all documents filed as a
part thereof or incorporated or deemed to be incorporated by
reference therein and ( ii ) any information in the
corresponding Base Prospectus (as defined below) or a prospectus
supplement filed with the Commission pursuant to Rule 424(b) under
the Securities Act, to the extent such information is deemed
pursuant to Rule 430A (“ Rule 430A ”),
430B (“ Rule 430B ”) or 430C (“
Rule 430C ”) under the Securities Act to be a
part thereof at the Effective Time. For purposes of this Agreement,
all references to the Registration Statement, the Base Prospectus,
any Preliminary Prospectus (as defined below), the Statutory
Prospectus (as defined in below) 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 ”). All references
in this Agreement to amendments or supplements to the Registration
Statement, the Base Prospectus, any Preliminary Prospectus or the
Statutory Prospectus shall be deemed to mean and include the
subsequent filing of any document under the Exchange Act prior to
completion of distribution of the Shares and which is deemed to be
incorporated therein by reference therein or otherwise deemed to be
a part thereof.
(b)
Effectiveness of Registration Statement; Certain Defined
Terms . The Company and the transactions contemplated by this
Agreement meet the requirements and comply with the conditions for
the use of Form S-3 under the Securities Act. The Registration
Statement meets, and the offering and sale of the Shares as
contemplated hereby complies with, the requirements of
Rule 415 under the Securities Act. The Company has complied,
to the Commission’s satisfaction, with all requests of the
Commission for additional or supplemental
3
information. No
stop order preventing or suspending use of the Registration
Statement, any Preliminary Prospectus or the Statutory Prospectus
or the effectiveness of the Registration Statement has been issued
by the Commission, and no proceedings for such purpose pursuant to
Section 8A of the Securities Act against the Company or
related to the Offering have been instituted or are pending or, to
the Company’s knowledge, are contemplated or threatened by
the Commission, and any request received by the Company on the part
of the Commission for additional information has been complied
with. As used in this Agreement:
(1) “
Base Prospectus ” means the prospectus included in the
Registration Statement at the Effective Time.
(2) “
Disclosure Package ” means ( i ) the Statutory
Prospectus, ( ii ) each Issuer Free Writing Prospectus, if
any, filed or used by the Company on or before the Effective Time
and listed on Schedule I hereto (other than a roadshow
that is an Issuer Free Writing Prospectus but is not required to be
filed under Rule 433 of the Rules and Regulations) and (
iii ) the pricing and other information as set forth on
Exhibit B hereto, all considered together.
(3) “
Issuer Free Writing Prospectus ” means any
“issuer free writing prospectus,” as defined in
Rule 433 of the Rules and Regulations relating to the Shares
in the form filed or required to be filed with the Commission or,
if not required to be filed, in the form retained in the
Company’s records pursuant to Rule 433(g) of the Rules and
Regulations.
(4) “
Preliminary Prospectus ” means any preliminary
prospectus, subject to completion, relating to the Shares, filed by
the Company with the Commission under the Securities Act for use in
connection with the offering and sale of the Shares.
(5) “
Statutory Prospectus ” means the Preliminary
Prospectus, if any, and the Base Prospectus, each as amended and
supplemented immediately prior to the Time of Sale, including any
document incorporated by reference therein and any prospectus
supplement.
(6) “Time
of Sale” means 3:55 p.m., New York City time, on the date
of this Agreement.
(c)
Contents of Registration Statement . The Registration
Statement complied when it became effective, complies as of the
date hereof and, as amended or supplemented, at the Time of Sale
and at all times during which a prospectus is required by the
Securities Act to be delivered (whether physically or through
compliance with Rule 172 under the Securities Act or any
similar rule) in connection with any sale of Shares (the “
Prospectus Delivery Period ”), will comply, in all
material respects, with the requirements of the Securities Act and
the Rules and Regulations; the Registration Statement did not, as
of the Effective Time, contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein
or necessary in order to make the statements therein not
misleading; provided that the Company makes no
representation or warranty in this subsection (c) with
respect to statements in or omissions from the Registration
Statement in reliance upon, and in conformity with,
written
4
information
furnished to the Company and/or the Selling Stockholder by
Canaccord specifically for inclusion therein, which information the
parties hereto agree is limited to Canaccord’s Information
(as defined in Section 9 hereof).
(d)
Incorporated Documents . Each of the documents incorporated
or deemed to be incorporated by reference in the Registration
Statement, at the time such document was filed with the Commission
or at the time such document became effective, as applicable,
complied, in all material respects, with the requirements of the
Exchange Act, was filed on a timely basis with the Commission and
did not include an untrue statement of a material fact or 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.
(e)
Disclosure Package . The Disclosure Package, as of the Time
of Sale, did not, and at the Closing Date will not, contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under
which they were made, not misleading; provided that the
Company makes no representations or warranty in this subsection
(e) with respect to statements in or omissions from the
Disclosure Package in reliance upon, and in conformity with,
written information furnished to the Company by Canaccord
specifically for inclusion therein, which information the parties
hereto agree is limited to the Canaccord Information.
(f)
Distributed Materials; Conflict with Registration Statement
. Other than the Base Prospectus, any Preliminary Prospectus and
the Statutory Prospectus, neither the Company nor the Selling
Stockholder has made, used, prepared, authorized, approved or
referred to and will not make, use, prepare, authorize, approve or
refer to any “written communication” (as defined in
Rule 405 under the Securities Act) that constitutes an offer to
sell or a solicitation of an offer to buy the Shares other than (
i ) any document not constituting a prospectus pursuant to
Section 2(a)(10)(a) of the Securities Act or Rule 134
under the Securities Act or ( ii ) the documents listed on
Schedule I hereto and other written communications
approved in advance by Canaccord.
(g)
Issuer Free Writing Prospectuses . Each Issuer Free Writing
Prospectus, if any, conformed or will conform in all material
respects to the requirements of the Securities Act and the Rules
and Regulations on the date of first use, and the Company has
complied or will comply with any filing requirements applicable to
such Issuer Free Writing Prospectus pursuant to the Rules and
Regulations. Each Issuer Free Writing Prospectus, if any, when
considered together with the Disclosure Package, as of its issue
date and at all subsequent times through the completion of the
Prospectus Delivery Period did not, does not and will not include
any information that conflicted, conflicts or will conflict with
the information contained in the Registration Statement or the
Statutory Prospectus, including any document incorporated by
reference therein and any prospectus supplement deemed to be a part
thereof that has not been superseded or modified, or includes an
untrue statement of a material fact or omitted or would omit to
state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the
circumstances prevailing at the subsequent time, not misleading;
provided that the Company makes no representation or
warranty in this subsection (g) with respect to statements
in or omissions from any Issuer Free Writing Prospectus in reliance
upon, and in conformity with, written information furnished to
the
5
Company by
Canaccord specifically for inclusion therein, which information the
parties hereto agree is limited to the Canaccord
Information.
(h)
Not an Ineligible Issuer . ( i ) At the earliest time
after the filing of the Registration Statement that the Company or
another offering participant made a bona fide offer (within the
meaning of Rule 164(h)(2) under the Securities Act) of the
Shares and ( ii ) at the date hereof, the Company was not
and is not an “ineligible issuer,” as defined in
Rule 405 under the Securities Act (“
Rule 405 ”).
(i)
Due Incorporation . The Company has been duly organized and
is validly existing as a corporation in good standing under the
laws of the State of Texas, with the corporate power and authority
to own its properties and to conduct its business as it is
currently being conducted and as described in the Registration
Statement, the Statutory Prospectus and the Disclosure Package. The
Company is duly qualified to transact business and is in good
standing as a foreign corporation or other legal entity in each
other jurisdiction in which its ownership or leasing of property or
the conduct of its business requires such qualification, except
where the failure to be so qualified or in good standing or have
such power or authority ( i ) would not have, individually
or in the aggregate, a material adverse effect upon, the business,
operations, properties, financial condition, or results of
operations of the Company, taken as a whole, or ( ii )
impair in any material respect the power or ability of the Company
to perform its obligations under this Agreement or to consummate
any transactions contemplated by the Agreement and the Subscription
Agreements, including the issuance and sale of the Shares (any such
effect as described in clauses (i) or (ii), a “
Material Adverse Effect ”).
(j)
Subsidiaries . Except as otherwise described in the
Registration Statement, the Statutory Prospectus and the Disclosure
Package, the Company has no subsidiaries and does not own any
beneficial interest, directly or indirectly, in any corporation,
partnership, joint venture or other business entity.
(k)
Due Authorization and Enforceability . The Company has the
full right, power and authority to enter into this Agreement, and
to perform and discharge its obligations hereunder; and this
Agreement has been duly authorized, executed and delivered by the
Company, and constitutes a valid, legal and binding obligation of
the Company, enforceable against the Company in accordance with its
terms, except as rights to indemnity hereunder may be limited by
federal or state securities laws and except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization
or similar laws affecting the rights of creditors generally and
subject to general principles of equity and limitations on the
granting of equitable remedies.
(l)
The Shares . The Shares are duly and validly authorized and
issued and are fully paid and nonassessable, and are not subject to
any statutory or contractual preemptive rights or other rights to
subscribe for or purchase or acquire any shares of Common Stock of
the Company that have not been waived or complied with, and conform
in all material respects to the description thereof contained in
the Disclosure Package and the Statutory Prospectus and such
description conforms in all material respects to the rights set
forth in the instruments defining the same.
6
(m)
Capitalization . The information regarding the
capitalization of the Company contained in the Statutory Prospectus
and the Disclosure Package is fairly presented on a basis
consistent with the Company’s financial statements. The
certificates evidencing the Shares, if any, are in due and proper
legal form and, when issued, were duly authorized for issuance by
the Company. The authorized capital stock of the Company conforms
as to legal matters to the description thereof contained in the
Statutory Prospectus and the Disclosure Package. The issued and
outstanding shares of capital stock of the Company have been duly
authorized and validly issued, are fully paid and nonassessable,
and have been issued in compliance with all federal and state
securities laws. None of the outstanding shares of Common Stock was
issued in violation of any preemptive rights, rights of first
refusal or other similar rights to subscribe for or purchase or
acquire any securities of the Company. There are no authorized or
outstanding shares of capital stock, options, warrants, preemptive
rights, rights of first refusal or other rights to purchase, or
equity or debt securities convertible into or exchangeable for, any
capital stock of the Company other than those described in the
Statutory Prospectus and the Disclosure Package. The description of
the Company’s stock option, stock bonus and other stock plans
or arrangements, and the options or other rights granted
thereunder, as described in the Statutory Prospectus and the
Disclosure Package, accurately and fairly present the information
required to be shown with respect to such plans, arrangements,
options and rights. The outstanding shares of Common Stock owned by
persons other than affiliates of the Company (as defined in the
Rules and Regulations) had a market value greater than
$100 million within the sixty days prior to the date
hereof.
(n)
No Conflict . The execution, delivery and performance by the
Company of this Agreement, and the consummation of the transactions
contemplated hereby, will not conflict with or result in a breach
or violation of, or constitute a default under (nor constitute any
event which with or without notice, lapse of time or both would
result in any breach or violation of or constitute a default
under), give rise to any right of termination or other right or the
cancellation or acceleration of any right or obligation or loss of
a benefit under, or give rise to the creation or imposition of any
lien, encumbrance, security interest, claim or charge upon any
property or assets of the Company pursuant to ( i ) any
indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company is a party or by which
the Company or any of its properties may be bound or to which any
of its property or assets is subject, ( ii ) result in any
violation of the provisions of the charter or by-laws of the
Company, or ( iii ) result in any violation of any law,
statute, rule, regulation, judgment, order or decree of any court
or governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any of its properties or
assets.
(o)
No Consents Required . No approval, authorization, consent
or order of or filing, qualification or registration with, any
court or governmental agency or body, foreign or domestic, which
has not been made, obtained or taken and is not in full force and
effect, is required in connection with the Company’s
execution, delivery and performance of this Agreement, the
consummation by the Company of the transactions contemplated
hereby.
(p)
Preemptive Rights . There are no preemptive rights or other
rights (other than rights which have been waived in writing in
connection with the transactions contemplated by this Agreement or
otherwise satisfied) to subscribe for or to purchase any shares of
Common Stock or shares of any other capital stock or other equity
interests of the Company, or any
7
agreement or
arrangement between the Company and any of the Company’s
stockholders, or to the Company’s knowledge, between or among
any of the Company’s shareholders, which grant special rights
with respect to any shares of the Company’s capital stock or
which in any way affect any stockholder’s ability or right to
alienate freely or vote such shares.
(q)
Registration Rights . There are no contracts, agreements or
understandings between the Company and any person granting such
person the right (other than rights which have been waived in
writing in connection with the transactions contemplated by this
Agreement or otherwise satisfied) to require the Company to
register any securities with the Commission.
(r)
Independent Accountants . UHY LLP, whose reports on the
consolidated financial statements of the Company are incorporated
by reference in the Registration Statement, the Statutory
Prospectus and the Disclosure Package, is ( i ) an
independent public accounting firm within the meaning of the
Securities Act, ( ii ) a registered public accounting firm
(as defined in Section 2(a)(12) of the Sarbanes-Oxley Act of
2002 (the “ Sarbanes-Oxley Act ”)), and (
iii ) to the Company’s knowledge, not in violation of
the auditor independence requirements of the Sarbanes-Oxley Act.
Except as disclosed in the Registration Statement and as
pre-approved in accordance with the requirements set forth in
Section 10A of the Exchange Act, UHY LLP has not been engaged
by the Company to perform any “prohibited activities”
(as defined in Section 10A of the Exchange Act).
(s)
Financial Statements . The consolidated financial statements
of the Company, together with the related schedules and notes
thereto, set forth or incorporated by reference in the Registration
Statement, the Statutory Prospectus and the Disclosure Package
comply in all material respects with the applicable requirements of
the Securities Act and the Exchange Act, as applicable, and present
fairly in all material respects ( i ) the financial
condition of the Company as of the dates indicated and ( ii
) the consolidated results of operations, stockholders’
equity and changes in cash flows of the Company for the periods
therein specified; and such financial statements and related
schedules and notes thereto have been prepared in conformity with
United States generally accepted accounting principles,
consistently applied throughout the periods involved (except as
otherwise stated therein and subject, in the case of unaudited
financial statements, to the absence of footnotes and normal
year-end adjustments). There are no other financial statements
(historical or pro forma) that are required to be included or
incorporated by reference in the Registration Statement, the
Statutory Prospectus or the Disclosure Package; and the Company
does not have any material liabilities or obligations, direct or
contingent (including any off-balance sheet obligations), not
disclosed in the Registration Statement, the Disclosure Package and
the Statutory Prospectus; and all disclosures contained in the
Registration Statement, the Disclosure Package and the Statutory
Prospectus regarding “non-GAAP financial measures” (as
such term is defined by the rules and regulations of the
Commission) comply with Regulation G of the Exchange Act and
Item 10(e) of Regulation S-K under the Securities Act, to the
extent applicable, and present fairly the information shown therein
and the Company’s basis for using such measures.
(t)
Absence of Material Changes . Subsequent to the respective
dates as of which information is given in the Registration
Statement, the Statutory Prospectus and the Disclosure Package, and
except as may be otherwise stated or incorporated by reference in
the Registration Statement, the Statutory Prospectus and the
Disclosure Package, there has not been
8
( i )
any Material Adverse Effect, ( ii ) any transaction which is
material to the Company and out of the ordinary course of business,
( iii ) any obligation, direct or contingent (including any
off-balance sheet obligations), incurred by the Company, which is
material to the Company, ( iv ) any dividend or distribution
of any kind declared, paid or made on the capital stock of the
Company, ( v ) any change in the capital stock (other than a
change in the number of outstanding shares of Common Stock due to
the issuance of shares upon the exercise of outstanding options or
warrants or the conversion of convertible indebtedness), or
material change in the short-term debt or long-term debt of the
Company (other than upon conversion of convertible indebtedness) or
any issuance of options, warrants, convertible securities or other
rights to purchase the capital stock (other than grants of stock
options under the Company’s stock option plans existing on
the date hereof) of the Company.
(u)
Legal Proceedings . There are no legal or governmental
actions, suits, claims or proceedings pending or, to the
Company’s knowledge, threatened or contemplated to which the
Company is or would be a party or of which any of their respective
properties is or would be subject at law or in equity, before or by
any federal, state, local or foreign governmental or regulatory
commission, board, body, authority or agency, or before or by any
self-regulatory organization or other non-governmental regulatory
authority which are required to be described in the Registration
Statement, the Disclosure Package or the Statutory Prospectus or a
document incorporated by reference therein and are not so described
therein, or which, singularly or in the aggregate, if resolved
adversely to the Company, would reasonably be likely to result in a
Material Adverse Effect or prevent or m
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