EXHIBIT 4.2
-----------
EXECUTION VERSION
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
INVESTOR RIGHTS AGREEMENT
MAY 31, 2006
TABLE OF CONTENTS
-----------------
Page
----
1. Certain Definitions 1
2. Registration Rights 5
2.1 Required Registrations 5
2.2 Incidental Registration 7
2.3 Registration Procedures 8
2.4 Allocation of Expenses 10
2.5 Indemnification and Contribution 10
2.6 Other Matters with Respect to Underwritten Offerings 12
2.7 Information by Selling Stockholder 13
2.8 Confidentiality of Notices 13
2.9 Limitations on Subsequent Registration Rights 13
2.10 Rule 144 Requirements 13
2.11 Termination 14
3. Right of First Refusal 14
3.1 Rights of Purchasers to Acquire Offered Securities 14
3.2 Termination 16
4. Covenants 16
4.1 Negative Covenant 16
4.2 Affirmative Covenants 16
4.3 Inspection and Observation 17
4.4 Financial Statements and Other Information 18
4.5 Material Changes and Litigation 19
4.6 Board of Directors 19
4.7 Related Party Transactions 19
4.8 Reservation of Common Stock 19
4.9 Termination of Covenants 19
5. Confidentiality 19
6. Transfers of Rights; Calculation of Share Numbers 20
6.1 Transfer of Rights 20
6.2 Calculation of Share Numbers 20
7. General 20
7.1 Severability 20
7.2 Specific Performance 20
7.3 Governing Law 21
7.4 Notices 21
7.5 Complete Agreement 21
7.6 Amendments and Waivers 21
7.7 Pronouns 22
7.8 Counterparts; Facsimile Signatures 22
7.9 Section Headings and References 22
(signature page follows) 22
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
-------------------------------------------
INVESTOR RIGHTS AGREEMENT
-------------------------
This Agreement dated as of May 31, 2006 is entered into by
and among Touchstone Applied Science Associates, Inc., a
Delaware corporation (the "Company"), and the individuals and
entities listed on Exhibit A attached hereto (the "Purchasers").
RECITALS
--------
WHEREAS, the Company and the Purchasers have entered into a
Series A Convertible Preferred Stock Purchase Agreement of even
date herewith (as it may be amended from time to time, the
"Purchase Agreement"); and
WHEREAS, the Company and the Purchasers desire to provide
for certain arrangements with respect to (i) the registration of
shares of capital stock of the Company under the Securities Act
(as defined below), (ii) certain Purchasers' right of first
refusal with respect to certain issuances of securities of the
Company, and (iii) certain covenants of the Company;
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained in this Agreement, the parties hereto agree
as follows:
1. CERTAIN DEFINITIONS.
-------------------
As used in this Agreement, the following terms shall have
the following respective meanings:
"Affiliated Party" means, with respect to any
Purchaser, any person or entity which, directly or indirectly,
controls, is controlled by or is under common control with such
Purchaser, including, without limitation, any general partner,
officer or director of such Purchaser and any venture capital
fund now or hereafter existing which is controlled by one or
more general partners of, or shares the same management company
as, such Purchaser.
"Available Undersubscription Amount" means the
difference between the total of all of the Basic Amounts
available for purchase by Qualified Purchasers pursuant to
Section 3.1 and the Basic Amounts subscribed for pursuant to
Section 3.1.
"Basic Amount" means, with respect to a Qualified
Purchaser, its pro rata portion of the Offered Securities
determined by multiplying the number of Offered Securities by a
fraction, the numerator of which is the aggregate number of
shares of Common Stock issuable upon conversion of all Shares
then held by such Qualified Purchaser and the denominator of
which is the total number of shares of Common Stock then held by
all of the Qualified Purchasers (giving effect to the conversion
into Common Stock of all outstanding shares of convertible
preferred stock).
"Board of Directors" means the Board of Directors of
the Company.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Commission" means the Securities and Exchange
Commission, or any other federal agency at the time
administering the Securities Act.
"Common Stock" means the common stock, $0.0001 par
value per share, of the Company.
"Company" has the meaning ascribed to it in the
introductory paragraph hereto.
"Company Sale" means: (a) a merger or consolidation in
which (i) the Company is a constituent party, or (ii) a Company
Subsidiary is a constituent party and the Company issues shares
of its capital stock pursuant to such merger or consolidation,
except in the case of either clause (i) or (ii) any such merger
or consolidation involving the Company or a Company Subsidiary
in which the shares of capital stock of the Company outstanding
immediately prior to such merger or consolidation continue to
represent, or are converted into or exchanged for shares of
capital stock which represent, immediately following such merger
or consolidation, more than 50% by voting power of the capital
stock of (A) the surviving or resulting corporation or (B) if
the surviving or resulting corporation is a wholly owned
subsidiary of another corporation immediately following such
merger or consolidation, the parent corporation of such
surviving or resulting corporation; (b) the sale, lease,
transfer, exclusive license or other disposition, in a single
transaction or series of related transactions, by the Company or
a Company Subsidiary of all or substantially all the assets of
the Company and the Company Subsidiaries taken as a whole
(except where such sale, lease, transfer, exclusive license or
other disposition is to a wholly owned Company Subsidiary); (c)
the combination of the Company with another entity pursuant to
which the Company is the surviving corporation if, immediately
after the combination, the stockholders of the Corporation
immediately prior to the combination hold, directly or
indirectly, less than 50% of the combined voting power of the
combined company; or (d) any person (as such term is used in the
Exchange Act), other than any person who was a beneficial owner
of more than 15% of the outstanding Common Stock on a fully-
diluted basis on or before the date hereof, is or becomes the
"beneficial owner" (as defined the Exchange Act) of securities
of the Company representing more than 50% of the combined voting
power of the Company.
"Company Subsidiary" means any corporation,
partnership, trust, limited liability company or other non-
corporate business enterprise in which the Company (or a Company
Subsidiary) holds stock or other ownership interests
representing (a) more than 50% of the voting power of all
outstanding stock or ownership interests of such entity or (b)
the right to receive more than 50% of the net assets of such
entity available for distribution to the holders of outstanding
stock or ownership interests upon a liquidation or dissolution
of such entity.
"Confidential Information" means any information that
is labeled as confidential, proprietary or secret which a
Purchaser obtains from the Company pursuant to financial
statements, reports and other materials provided by the Company
to such Purchaser pursuant to this Agreement or pursuant to
visitation or inspection rights granted hereunder.
"Exchange Act" means the Securities Exchange Act of
1934, as amended, or any successor federal statute, and the
rules and regulations of the Commission issued under such Act,
as they each may, from time to time, be in effect.
"Indemnified Party" means a party entitled to
indemnification pursuant to Section 2.5.
"Indemnifying Party" means a party obligated to
provide indemnification pursuant to Section 2.5.
"Initiating Holders" means the Purchasers initiating a
request for registration pursuant to Section 2.1(a) or 2.1(b),
as the case may be.
"Notice of Acceptance" means a written notice from a
Purchaser to the Company containing the information specified in
Section 3.1(b).
"Offer" means a written notice of any proposed or
intended issuance, sale or exchange of Offered Securities
containing the information specified in Section 3.1(a).
"Offered Securities" means (a) any shares of the
Common Stock of the Company, (b) any other equity securities of
the Company, including, without limitation, shares of preferred
stock, (c) any option, warrant or other right to subscribe for,
purchase or otherwise acquire any equity securities of the
Company, or (d) any debt securities convertible into capital
stock of the Company.
"Other Holders" means holders of securities of the
Company (other than Purchasers) who are entitled, by contract
with the Company, to have securities included in a Registration
Statement.
"Prospectus" means the prospectus included in any
Registration Statement, as amended or supplemented by an
amendment or prospectus supplement, including post-effective
amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such Prospectus.
"Purchase Agreement" has the meaning ascribed to it in
the recitals hereto.
"Purchaser" has the meaning ascribed to it in the
introductory paragraph hereto.
"Qualified Purchaser" means a Purchaser that, together
with its Affiliated Parties, holds at least 500,000 Shares
(subject to stock splits, stock dividends, consolidations,
recapitalizations and other similar events).
"Questar" means Questar Educational Systems, Inc.
"Questar Preferred Shares" means the shares of Series
A-2 Convertible Preferred Shares, par value $0.0001 per share,
of the Company issued to the Questar Stockholders pursuant to
the Questar Purchase Agreement.
"Questar Purchase Agreement" means the Stock Purchase
Agreement, dated as of May 31, 2006, by and among the Company,
Questar and the Questar Stockholders who are selling their
shares of Questar to the Company pursuant thereto.
"Questar Registrable Shares" means the (a) the shares
of Common Stock issued or issuable upon conversion of the
Questar Preferred Shares, (b) any other shares of Common Stock,
and any shares of Common Stock issued or issuable upon the
conversion or exercise of any other securities, acquired by the
Questar Stockholders and (c) any other shares of Common Stock
issued in respect of such Questar Preferred Shares (because of
stock splits, stock dividends, reclassifications,
recapitalizations or similar events); provided, however, that
shares of Common Stock which are Questar Registrable Shares
shall cease to be Questar Registrable Shares upon any sale
pursuant to a Registration Statement or Rule 144 under the
Securities Act.
"Questar Stockholders" means the former stockholders
of Questar who are the beneficial owners of Questar Preferred
Shares, or who may be entitled to a distribution of Questar
Preferred Shares in accordance with the terms and provisions of
the Questar Purchase Agreement.
"Refused Securities" means those Offered Securities as
to which a Notice of Acceptance has not been given by the
Qualified Purchasers pursuant to Section 3.1.
"Registrable Shares", with respect to a Purchaser,
means (a) the shares of Common Stock issued or issuable upon
conversion of the Shares, (b) any other shares of Common Stock,
and any shares of Common Stock issued or issuable upon the
conversion or exercise of any other securities, acquired by such
Purchaser and (c) any other shares of Common Stock issued in
respect of such Shares (because of stock splits, stock
dividends, reclassifications, recapitalizations or similar
events); provided, however, that shares of Common Stock which
are Registrable Shares shall cease to be Registrable Shares upon
any sale pursuant to a Registration Statement or Rule 144 under
the Securities Act. Wherever reference is made in this
Agreement to a request or consent of holders of a certain
percentage of Registrable Shares, the determination of such
percentage shall include shares of Common Stock issuable upon
conversion of the Shares even if such conversion has not been
effected.
"Registration Expenses" means all expenses incurred by
the Company in complying with the provisions of Section 2,
including, without limitation, all registration and filing fees,
exchange listing fees, printing expenses, fees and expenses of
counsel for the Company and the fees and expenses of one counsel
selected by the Selling Stockholders to represent the Selling
Stockholders, state Blue Sky fees and expenses, and the expense
of any special audits incident to or required by any such
registration, but excluding underwriting discounts, selling
commissions and the fees and expenses of Selling Stockholders'
own counsel (other than the one counsel selected to represent
all Selling Stockholders).
"Registration Statement" means a registration
statement filed by the Company with the Commission for a public
offering and sale of securities of the Company (other than a
registration statement on Form S-8 or Form S-4, or the
respective successors forms, or any other form for a similar
limited purpose, or any registration statement covering only
securities proposed to be issued in exchange for securities or
assets of another corporation), including, without limitation, a
"shelf registration" statement pursuant to Rule 415 of the
Securities Act.
"Securities Act" means the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and
regulations of the Commission issued under such Act, as they
each may, from time to time, be in effect.
"Selling Stockholder" means any Purchaser owning
Registrable Shares and any Questar Stockholder owning Questar
Registrable Shares included in a Registration Statement.
"Shares" means shares of Series A-1 Convertible
Preferred Stock, $0.0001 par value per share, of the Company
issued to the Purchasers pursuant to the terms of the Purchase
Agreement.
"Undersubscription Amount" means, with respect to a
Qualified Purchaser, any additional portion of the Offered
Securities attributable to the Basic Amounts of other Qualified
Purchasers as such Qualified Purchaser indicates it will
purchase or acquire should the other Qualified Purchasers
subscribe for less than their Basic Amounts.
2. REGISTRATION RIGHTS.
-------------------
2.1 REQUIRED REGISTRATIONS.
----------------------
(a) At any time after the one-year anniversary
of the date of this Agreement, a Purchaser or Purchasers holding
in the aggregate at least 50% of the Registrable Shares then
outstanding may request, in writing, that the Company file a
Registration Statement covering Registrable Shares owned by such
Purchaser or Purchasers having an aggregate value of at least
$2,500,000 (based on the volume weighted average public market
price for the five trading days preceding the date of such
request).
(b) At any time after the one-year anniversary
of the date of this Agreement and after the Company becomes
eligible to file a Registration Statement on Form S-3 (or any
successor form relating to secondary offerings), a Purchaser or
Purchasers holding Registrable Shares having an aggregate value
of at least $1,000,000 (based on the volume weighted average
public market price for the five trading days preceding the date
of such request), may request, in writing, that the Company
effect the registration on Form S-3 (or such successor form), of
such Registrable Shares.
(c) Upon receipt of any request for registration
pursuant to this Section 2.1, the Company shall promptly give
written notice of such proposed registration to all other
Purchasers and to all Questar Stockholders. Such Purchasers
shall have the right, by giving written notice to the Company
within 30 days after the Company provides its notice, to elect
to have included in such registration such of their Registrable
Shares as such Purchasers may request in such notice of
election, and the Questar Stockholders shall have the right, by
giving written notice to the Company within 30 days after the
Company provides its notice, to elect to have included in such
registration such of their Questar Registrable Shares as such
Questar Stockholders may request in such notice of election, in
both cases, subject, in the event of an underwritten offering,
to the terms of Section 2.1(d). Thereupon, the Company shall,
as expeditiously as possible, use its best efforts to effect the
registration on an appropriate registration form of all
Registrable Shares and all Questar Registrable Shares which the
Company has been requested to so register; provided, however,
that in the case of a registration requested under Section
2.1(b), the Company will only be obligated to effect such
registration on Form S-3 (or any successor form).
(d) If the Initiating Holders intend to
distribute the Registrable Shares covered by their request by
means of an underwriting, they shall so advise the Company as a
part of their request made pursuant to Section 2.1(a) or (b), as
the case may be, and the Company shall include such information
in its written notice referred to in Section 2.1(c). In such
event, (i) the right of any other Purchaser to include its
Registrable Shares and the right of any Questar Stockholder to
include any Questar Registrable Shares in such registration
pursuant to Section 2.1(c), shall be conditioned upon such other
Purchaser's participation and such Questar Stockholder's
participation in such underwriting on the terms set forth
herein, and (ii) all Purchasers including Registrable Shares
and all Questar Stockholders including Questar Registrable
Shares in such registration shall enter into an underwriting
agreement upon customary terms with the underwriter or
underwriters managing the offering; provided that such
underwriting agreement shall not provide for indemnification or
contribution obligations on the part of the Selling Stockholders
materially greater than the obligations of the Selling
Stockholders pursuant to Section 2.5. The Initiating Holders
shall have the right to select the managing underwriter(s) for
any underwritten offering requested pursuant to Section 2.1(a)
or (b), subject to the approval of the Company, which approval
will not be unreasonably withheld, conditioned or delayed. If
any Purchaser who has requested inclusion of its Registrable
Shares or any Questar Stockholder who has requested inclusion of
its Questar Registrable Shares in such registration as provided
above disapproves of the terms of the underwriting, such
Purchaser or Questar Stockholder, as the case may be, may elect,
by written notice to the Company, to withdraw its Registrable
Shares or Questar Registrable Shares, respectively, from such
Registration Statement and underwriting. If the managing
underwriter advises the Company in writing that, in its
discretion, market factors require a limitation on the number of
shares to be underwritten, the number of Registrable Shares and
the Questar Registrable Shares to be included in the
Registration Statement and underwriting shall be allocated among
all Purchasers and the Questar Stockholders requesting
registration in proportion, as nearly as practicable, to the
respective number of Registrable Shares and the Questar
Registrable Shares, respectively, held by them on the date of
the request for registration made by the Initiating Holders
pursuant to Section 2.1(a) or (b), as the case may be. If any
Purchaser would thus be entitled to include more Registrable
Shares than such Purchaser requested to be registered, the
excess shall be allocated among other requesting Purchasers pro
rata in the manner described in the preceding sentence.
(e) The Company shall not be required to effect
(i) more than one registration pursuant to Section 2.1(a) and
Section 2.1(b) in any period of twelve consecutive months, or
(ii) no more than two registrations in total pursuant to Section
2.1(a) and Section 2.1(b). For purposes of this Section 2.1(e),
a Registration Statement shall not be counted until such time as
such Registration Statement has been declared effective by the
Commission (unless the Initiating Holders withdraw their request
for such registration (other than as a result of information
concerning the business or financial condition of the Company
which is made known to the Purchasers after the date on which
such registration was requested) and elect not to pay the
Registration Expenses therefor pursuant to Section 2.4). For
purposes of this Section 2.1(e), a Registration Statement shall
not be counted if, as a result of an exercise of the
underwriter's cut-back provisions as described in Section
2.1(d), less than 50% of the total number of Registrable Shares
that Initiating Holders have requested to be included in such
Registration Statement are so included.
(f) If at the time of any request to register
Registrable Shares by Initiating Holders pursuant to this
Section 2.1, the Company is engaged or has plans to engage in a
registered public offering or is engaged in any other activity
which, in the good faith determination of the Company's Board of
Directors, would be adversely affected by the requested
registration, then the Company may at its option direct that
such request be delayed for a period not in excess of 90 days
from the date of such request, such right to delay a request to
be exercised by the Company not more than once in any 12-month
period.
2.2 INCIDENTAL REGISTRATION.
-----------------------
(a) Whenever the Company proposes to file a
Registration Statement (other than a Registration Statement
filed pursuant to Section 2.1) at any time and from time to
time, it will, prior to such filing, give written notice to all
Purchasers of its intention to do so. Upon the written request
of a Purchaser or Purchasers given within 20 days after the
Company provides such notice (which request shall state the
intended method of disposition of such Registrable Shares), the
Company shall use its best efforts to cause all Registrable
Shares which the Company has been requested by such Purchaser or
Purchasers to register to be registered under the Securities Act
to the extent necessary to permit their sale or other
disposition in accordance with the intended methods of
distribution specified in the request of such Purchaser or
Purchasers; provided that the Company shall have the right to
postpone or withdraw any registration effected pursuant to this
Section 2.2 without obligation to any Purchaser.
(b) If the registration for which the Company
gives notice pursuant to Section 2.2(a) is a registered public
offering involving an underwriting, the Company shall so advise
the Purchasers as a part of the written notice given pursuant to
Section 2.2(a). In such event, (i) the right of any Purchaser
to include its Registrable Shares in such registration pursuant
to this Section 2.2 shall be conditioned upon such Purchaser's
participation in such underwriting on the terms set forth herein
and (ii) all Purchasers including Registrable Shares in such
registration shall enter into an underwriting agreement upon
customary terms with the underwriter or underwriters selected
for the underwriting by the Company; provided that such
underwriting agreement shall not provide for indemnification or
contribution obligations on the part of Purchasers materially
greater than the obligations of the Purchasers pursuant to
Section 2.5. If any Purchaser who has requested inclusion of
its Registrable Shares in such registration as provided above
disapproves of the terms of the underwriting, such person may
elect, by written notice to the Company, to withdraw its shares
from such Registration Statement and underwriting. If the
managing underwriter advises the Company in writing that, in its
discretion, market factors require a limitation on the number of
shares to be underwritten, the shares held by holders of
securities of the Company other than Purchasers and the Questar
Stockholders shall be excluded from such Registration Statement
and underwriting to the extent deemed advisable by the managing
underwriter, and, if a further reduction of the number of shares
is required, the number of shares that may be included in such
Registration Statement and underwriting shall be allocated among
all Purchasers and the Questar Stockholders requesting
registration in proportion, as nearly as practicable, to the
respective number of shares of Common Stock (on an as-converted
basis) held by them on the date the Company gives the notice
specified in Section 2.2(a). If any Purchaser or Questar
Stockholders would thus be entitled to include more shares than
such holder requested to be registered, the excess shall be
allocated among other requesting Purchasers and Questar
Stockholders pro rata in the manner described in the preceding
sentence.
2.3 REGISTRATION PROCEDURES.
-----------------------
(a) If and whenever the Company is required by
the provisions of this Agreement to use its best efforts to
effect the registration of any Registrable Shares and, if
applicable, any Questar Registrable Shares, under the Securities
Act, the Company shall:
(i) file with the Commission a Registration
Statement with respect to such Registrable Shares and Questar
Registrable Shares, if any, and use its best efforts to cause
that Registration Statement to become effective as soon as
possible;
(ii) as expeditiously as possible prepare
and file with the Commission any amendments and supplements to
the Registration Statement and the prospectus included in the
Registration Statement as may be necessary to comply with the
provisions of the Securities Act (including the anti-fraud
provisions thereof) and to keep the Registration Statement
effective for 36 months from the effective date or such lesser
period until all such Registrable Shares and Questar Registrable
Shares, if any, are sold;
(iii) as expeditiously as possible furnish to
each Selling Stockholder such reasonable numbers of copies of
the Prospectus, including any preliminary Prospectus, in
conformity with the requirements of the Securities Act, and such
other documents as such Selling Stockholder may reasonably
request in order to facilitate the public sale or other
disposition of the Registrable Shares or Questar Registrable
Shares, if any, owned by such Selling Stockholder;
(iv) as expeditiously as possible use its
best efforts to register or qualify the Registrable Shares and
Questar Registrable Shares, if any, covered by the Registration
Statement under the securities or Blue Sky laws of such states
as the Selling Stockholders shall reasonably request, and do any
and all other acts and things that may be necessary or desirable
to enable the Selling Stockholders to consummate the public sale
or other disposition in such states of the Registrable Shares
and Questar Registrable Shares, if any, owned by the Selling
Stockholders; provided, however, that the Company shall not be
required in connection with this paragraph (iv) to qualify as a
foreign corporation or to execute a general consent to service
of process in any jurisdiction or to amend its Certificate of
Incorporation or By-laws in a manner that the Board of Directors
determines is inadvisable;
(v) as expeditiously as possible, cause all
such Registrable Shares and Questar Registrable Shares, if any,
to be listed on each securities exchange or automated quotation
system on which similar securities issued by the Company are
then listed;
(vi) promptly provide a transfer agent and
registrar for all such Registrable Shares and Questar
Registrable Shares, if any, not later than the effective date of
such Registration Statement;
(vii) promptly make available for inspection
by the Selling Stockholders, any managing underwriter
participating in any disposition pursuant to such Registration
Statement, and any attorney or accountant or other agent
retained by any such underwriter or selected by the Selling
Stockholders, all financial and other records, pertinent
corporate documents and properties of the Company and cause the
Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by
any such seller, underwriter, attorney, accountant or agent in
connection with such Registration Statement;
(viii) notify each Selling Stockholder,
promptly after it shall receive notice thereof, of the time when
such Registration Statement has become effective or a supplement
to any Prospectus forming a part of such Registration Statement
has been filed; and
(ix) as expeditiously as possible following
the effectiveness of such Registration Statement, notify each
Selling Stockholder of any request by the Commission for the
amending or supplementing of such Registration Statement or
Prospectus.
(b) If the Company has delivered a Prospectus to
the Selling Stockholders and after having done so, such
Prospectus is subsequently amended to comply with the
requirements of the Securities Act, the Company shall promptly
notify the Selling Stockholders of such amendment and, if
requested by the Company, the Selling Stockholders shall
immediately cease making offers of Registrable Shares and return
all pre-amendment Prospectuses to the Company. The Company
shall promptly provide the Selling Stockholders with amended
Prospectuses and, following receipt of the amended Prospectuses,
the Selling Stockholders shall be free to resume making offers
of the Registrable Shares.
(c) In the event that, in the judgment of the
Company, it is advisable to suspend use of a Prospectus included
in a Registration Statement due to pending material developments
or other events that have not yet been publicly disclosed and as
to which the Company believes public disclosure would be
detrimental to the Company, the Company shall notify all Selling
Stockholders to such effect, and, upon receipt of such notice,
each such Selling Stockholder shall immediately discontinue any
sales of Registrable Shares and Questar Registrable Shares, if
any, pursuant to such Registration Statement until such Selling
Stockholder has received copies of a supplemented or amended
Prospectus or until such Selling Stockholder is advised in
writing by the Company that the then current Prospectus may be
used and has received copies of any additional or supplemental
filings that are incorporated or deemed incorporated by
reference in such Prospectus. Notwithstanding anything to the
contrary herein, the Company shall not exercise its rights under
this Section 2.3(c) to suspend sales of Registrable Shares for a
period in excess of 45 days consecutively or 90 days in any 365-
day period.
2.4 ALLOCATION OF EXPENSES. The Company will pay all
----------------------
Registration Expenses for all registrations under this
Agreement; provided, however, that if a registration under
Section 2.1 is withdrawn at the request of the Initiating
Holders (other than as a result of information concerning the
business or financial condition of the Company which is made
known to the Selling Stockholders after the date on which such
registration was requested) and if the Initiating Holders elect
not to have such registration counted as a registration
requested under Section 2.1, the Selling Stockholders shall pay
the Registration Expenses of such registration pro rata in
accordance with the number of their Registrable Shares included
in such registration.
2.5 INDEMNIFICATION AND CONTRIBUTION.
--------------------------------
(a) In the event of any registration of any of
the Registrable Shares under the Securities Act pursuant to this
Agreement, the Company will indemnify and hold harmless each
Selling Stockholder, each underwriter of such Registrable
Shares, and each other person, if any, who controls such Selling
Stockholder or underwriter within the meaning of the Securities
Act or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such Selling
Stockholder, underwriter or controlling person may become
subject under the Securities Act, the Exchange Act, state
securities or Blue Sky laws or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement
or alleged untrue statement of any material fact contained in
any Registration Statement under which such Registrable Shares
were registered under the Securities Act, any preliminary
prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to such Registration
Statement, (ii) the omission or alleged omission to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading, or (iii) any violation or
alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any
state securities law in connection with the Registration
Statement or the offering contemplated thereby; and the Company
will reimburse such Selling Stockholder, underwriter and each
such controlling person for any legal or any other expenses
reasonably incurred by such Selling Stockholder, underwriter or
controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises
out of or is based upon any untrue statement or omission made in
such Registration Statement, preliminary prospectus or
prospectus, or any such amendment or supplement, in reliance
upon and in conformity with information furnished to the
Company, in writing, by or on behalf of such Selling
Stockholder, underwriter or controlling person specifically for
use in the preparation thereof.
(b) In the event of any registration of any of
the Registrable Shares under the Securities Act pursuant to this
Agreement, each Selling Stockholder, severally and not jointly,
will indemnify and hold harmless the Company, each of its
directors and officers and each underwriter (if any) and each
person, if any, who controls the Company or any such underwriter
within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages or liabilities, joint or
several, to which the Company, such directors and officers,
underwriter or controlling person may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws
or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement under
which such Registrable Shares were registered under the
Securities Act, any preliminary prospectus or final prospectus
contained in the Registration Statement, or any amendment or
supplement to the Registration Statement, or (ii) any omission
or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, if and to the extent (and only to the extent) that
the statement or omission was made in reliance upon and in
conformity with information relating to such Selling Stockholder
furnished in writing to the Company by such Selling Stockholder
specifically for use in connection with the preparation of such
Registration Statement, prospectus, amendment or supplement;
provided, however, that the obligations of a Selling Stockholder
hereunder shall be limited to an amount equal to the net
proceeds to such Selling Stockholder of Registrable Shares sold
in connection with such registration.
(c) Each Indemnified Party shall give notice to
the Indemnifying Party promptly after such Indemnified Party has
actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom;
provided, that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be
unreasonably withheld, conditioned or delayed); and, provided,
further, that the failure of any Indemnified Party to give
notice as provided herein shall not relieve the Indemnifying
Party of its obligations under this Section 2.5 except to the
extent that the Indemnifying Party is adversely affected by such
failure. The Indemnified Party may participate in such defense
at such party's expense; provided, however, that the
Indemnifying Party shall pay such expense if the Indemnified
Party reasonably concludes that representation of such
Indemnified Party by the counsel retained by the Indemnifying
Party would be inappropriate due to actual or potential
differing interests between the Indemnified Party and any other
party represented by such counsel in such proceeding; provided
further that in no event shall the Indemnifying Party be
required to pay the expenses of more than one counsel per
jurisdiction for the Indemnified Party. The Indemnifying Party
also shall be responsible for the expenses of such defense if
the Indemnifying Party does not elect to assume such defense.
No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of
such claim or litigation, and no Indemnified Party shall consent
to entry of any judgment or settle such claim or litigation
without the prior written consent of the Indemnifying Party,
which consent shall not be unreasonably withheld, conditioned or
delayed.
(d) In order to provide for just and equitable
contribution in circumstances in which the indemnification
provided for in this Section 2.5 is due in accordance with its
terms but for any reason is held to be unavailable to an
Indemnified Party in respect to any losses, claims, damages and
liabilities referred to herein, then the Indemnifying Party
shall, in lieu of indemnifying such Indemnified Party,
contribute to the amount paid or payable by such Indemnified
Party as a result of such losses, claims, damages or liabilities
to which such party may be subject in such proportion as is
appropriate to reflect the relative fault of the Company, on the
one hand, and the Selling Stockholders, on the other hand, in
connection with the statements or omissions which resulted in
such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative fault of
the Company and the Selling Stockholders shall be determined by
reference to, among other things, whether the untrue or alleged
untrue statement of material fact related to information
supplied by the Company or the Selling Stockholders and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Selling Stockholders agree that it would not
be just and equitable if contribution pursuant to this Section
2.5(d) were determined by pro rata allocation or by any other
method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the
provisions of this Section 2.5(d), (i) in no case shall any one
Selling Stockholder be liable or responsible for any amount in
excess of the net proceeds received by such Selling Stockholder
from the offering of Registrable Shares or Questar Registrable
Shares, as applicable and (ii) the Company shall be liable and
responsible for any amount in excess of such proceeds; provided,
however, that no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Any party entitled
to contribution will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such
party in respect of which a claim for contribution may be made
against another party or parties under this Section 2.5(d),
notify such party or parties from whom contribution may be
sought, but the omission so to notify such party or parties from
whom contribution may be sought shall not relieve such party
from any other obligation it or they may have thereunder or
otherwise under this Section 2.5(d). No party shall be liable
for contribution with respect to any action, suit, proceeding or
claim settled without its prior written consent, which consent
shall not be unreasonably withheld, conditioned or delayed.
(e) The rights and obligations of the Company
and the Selling Stockholders under this Section 2.5 shall
survive the termination of this Agreement.
2.6 OTHER MATTERS WITH RESPECT TO UNDERWRITTEN
------------------------------------------
OFFERINGS. In the event that Registrable Shares are sold
---------
pursuant to a Registration Statement in an underwritten offering
pursuant to Section 2.1, the Company agrees to (a) enter into an
underwriting agreement containing customary representations and
warranties with respect to the business and operations of the
Company and customary covenants and agreements to be performed
by the Company, including without limitation customary
provisions with respect to indemnification by the Company of the
underwriters of such offering; (b) use its reasonable best
efforts to cause its legal counsel to render customary opinions
to the underwriters with respect to the Registration Statement;
and (c) use its reasonable best efforts to cause its independent
public accounting firm to issue customary "cold comfort letters"
to the underwriters with respect to the Registration Statement.
2.7 INFORMATION BY SELLING STOCKHOLDER. Each Selling
----------------------------------
Stockholder shall furnish to the Company such information
regarding such Selling Stockholder and the distribution proposed
by such Selling Stockholder as the Company may reasonably
request in writing and as shall be required in connection with
any registration, qualification or compliance referred to in
this Agreement.
2.8 CONFIDENTIALITY OF NOTICES. Any Purchaser
--------------------------
receiving any written notice from the Company regarding the
Company's plans to file a Registration Statement shall treat
such notice confidentially and shall not disclose such
information to any person other than as necessary to exercise
its rights under this Agreement.
2.9 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS.
---------------------------------------------
The Company shall not, without the prior written consent of
Purchasers holding at least 50% of the Registrable Shares then
held by all Purchasers, enter into any agreement (other than
this Agreement and an equivalent agreement granting registration
rights to the Questar Stockholders with respect to the Questar
Registrable Shares) with any holder or prospective holder of any
securities of the Company which grants such holder or
prospective holder rights to include securities of the Company
in any Registration Statement, unless (a) such rights to include
securities in a registration initiated by the Company or by
Purchasers are not more favorable than the rights granted to
Other Holders under Sections 2.1 and 2.2, and (b) no rights are
granted to initiate a registration, other than registration
pursuant to a registration statement on Form S-3 (or its
successor) in which Purchasers are entitled to include
Registrable Shares on a pro rata basis with such holders based
on the number of shares of Common Stock (on an as-converted
basis) owned by Purchasers and such holders.
2.10 RULE 144 REQUIREMENTS. So long as the Company
---------------------
maintains its registration of a class of securities under
Section 12 of the Exchange Act, the Company agrees to:
(a) make and keep current public information
about the Company available, as those terms are understood and
defined in Rule 144;
(b) use its best efforts to file with the
Commission in a timely manner all reports and other documents
required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to any holder of Registrable Shares
upon request (i) a copy of the most recent annual or quarterly
report of the Company, and (ii) such other reports and documents
of the Company as such holder may reasonably request to avail
itself of any similar rule or regulation of the Commission
allowing it to sell any such securities without registration.
2.11 TERMINATION. All of the Company's obligations to
-----------
register Registrable Shares under Sections 2.1 and 2.2 shall
terminate upon the earlier of (a) the date on which the
Purchasers do not beneficially own any Registrable Shares or
(b) a Company Sale.
3. RIGHT OF FIRST REFUSAL.
----------------------
3.1 RIGHTS OF PURCHASERS TO ACQUIRE OFFERED
---------------------------------------
SECURITIES.
----------
(a) Subject to Section 3.1(h), the Company shall
not issue, sell or exchange, agree to issue, sell or exchange,
or reserve or set aside for issuance, sale or exchange, any
Offered Securities, unless in each such case the Company shall
have first complied with this Section 3.1. The Company shall
deliver to each Purchaser an Offer, which shall (i) identify and
describe the Offered Securities, (ii) describe the price and
other terms upon which they are to be issued, sold or exchanged,
and the number or amount of the Offered Securities to be issued,
sold or exchanged, (iii) identify the persons or entities (if
known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged, and (iv) offer to issue and
sell to or exchange with such Purchaser that is a Qualified
Purchaser (A) such Qualified Purchaser's Basic Amount and (B)
such Qualified Purchaser's Undersubscription Amount.
(b) To accept an Offer, in whole or in part, a
Qualified Purchaser must deliver to the Company, on or prior to
the date 30 days after the date of delivery of the Offer, a
Notice of Acceptance indicating the portion of the Qualified
Purchaser's Basic Amount that such Qualified Purchaser elects to
purchase and, if such Qualified Purchaser shall elect to
purchase all of its Basic Amount, the Undersubscription Amount
(if any) that such Qualified Purchaser elects to purchase. If
the Basic Amounts subscribed for by all Qualified Purchasers are
less than the total of all of the Basic Amounts available for
purchase, then each Qualified Purchaser who has set forth an
Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amounts
subscribed for, the Undersubscription Amount it has subscribed
for; provided, however, that if the Undersubscription Amounts
subscribed for exceed the Available Undersubscription Amount,
each Qualified Purchaser who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that
portion of the Available Undersubscription Amount as the
Undersubscription Amount subscribed for by such Qualified
Purchaser bears to the total Undersubscription Amounts
subscribed for by all Purchasers, subject to rounding by the
Board of Directors to the extent it deems reasonably necessary.
(c) The Company shall have 90 days from the
expiration of the period set forth in Section 3.1(b) to issue,
sell or exchange all or any part of the Refused Securities, but
only to the offerees or purchasers described in the Offer (if so
described therein) and only upon terms and conditions
(including, without limitation, unit prices and interest rates)
which are not more favorable, in the aggregate, to the acquiring
person or persons or less favorable to the Company than those
set forth in the Offer.
(d) In the event the Company shall propose to
sell less than all the Refused Securities, then each Qualified
Purchaser may, at its sole option and in its sole discretion,
reduce the number or amount of the Offered Securities specified
in its Notice of Acceptance to an amount that shall be not less
than the number or amount of the Offered Securities that the
Qualified Purchaser elected to purchase pursuant to Section
3.1(b) multiplied by a fraction, (i) the numerator of which
shall be the number or amount of Offered Securities the Company
actually proposes to issue, sell or exchange (including Offered
Securities to be issued or sold to Qualified Purchasers pursuant
to Section 3.1(b) prior to such reduction) and (ii) the
denominator of which shall be the original amount of the Offered
Securities. In the event that any Qualified Purchaser so elects
to reduce the number or amount of Offered Securities specified
in its Notice of Acceptance, the Company may not issue, sell or
exchange more than the reduced number or amount of the Offered
Securities unless and until such securities have again been
offered to the Qualified Purchasers in accordance with Section
3.1(a).
(e) Upon (i) the closing of the issuance, sale
or exchange of all or less than all of the Refused Securities or
(ii) such other date agreed to by the Company and Qualified
Purchasers who have subscribed for a majority of the Offered
Securities subscribed for by the Qualified Purchasers, such
Qualified Purchaser or Purchasers shall acquire from the Company
and the Company shall issue to such Qualified Purchaser or
Purchasers, the number or amount of Offered Securities specified
in the Notices of Acceptance, as reduced pursuant to Section
3.1(d) if any of the Qualified Purchasers has so elected, upon
the terms and conditions specified in the Offer.
(f) The purchase by the Qualified Purchasers of
any Offered Securities is subject in all cases to the
preparation, execution and delivery by the Company and the
Qualified Purchasers of a purchase agreement relating to such
Offered Securities reasonably satisfactory in form and substance
to the Qualified Purchasers and their respective counsel.
(g) Any Offered Securities not acquired by the
Qualified Purchasers or other persons in accordance with Section
3.1(c) may not be issued, sold or exchanged until they are again
offered to the Qualified Purchasers under the procedures
specified in this Agreement.
(h) The rights of the Qualified Purchasers under
this Section 3.1 shall not apply to:
(i) the issuance of any shares of Common
Stock as a stock dividend to holders of Common Stock or upon any
subdivision, stock split, recapitalization or reorganization
combination of shares of Common Stock;
(ii) the issuance of any shares of Common
Stock upon conversion of shares of Series A-1 Convertible
Preferred Stock or Series A-2 Convertible Preferred Stock, or
upon the exercise of options or warrants issued and outstanding
as of the date of this Agreement;
(iii) the issuance or options to purchase
Common Stock to employees, directors or officers of, or
consultants to, the Company or any Company Subsidiary pursuant
to any plan, agreement or arrangement approved by the Board of
Directors or by the appropriate committee of the Board of
Directors;
(iv) the issuance of the Questar Preferred
Shares, and the Questar Registrable Shares upon the conversion
thereof;
(v) the issuance and sale of Common Stock
(or options or other rights to purchase Common Stock) in an
acquisition or other combination transaction, which transaction
has been approved by the Board of Directors, including a
majority of the directors nominated by the Purchasers and are
then serving on the Board of Directors.
(vi) the issuance of shares of Common Stock
by the Company in a firm-commitment underwritten public offering
pursuant to an effective registration statement under the
Securities Act.
3.2 TERMINATION. This Section 3 shall terminate upon
-----------
the earlier to occur of (a) the closing of a Company Sale, and
(b) the date on which the Purchasers in the aggregate
beneficially own less than 500,000 shares.
4. COVENANTS. Subject to Section 4.9, the Company
---------
covenants and agrees as follows:
4.1 NEGATIVE COVENANTS. The Company shall not,
------------------
directly or indirectly, without prior written consent of the
holders of not less than 50% of the then outstanding Shares:
(a) incur any indebtedness, or permit any
Company Subsidiary to incur any indebtedness, in excess of
$5,000,000 in the aggregate; provided, however, that for
purposes of this Section 4.1, the following shall be excluded
from the calculation of indebtedness: (a) trade payables, (b)
indebtedness from a Company Subsidiary to the Company or another
Company Subsidiary, (c) indebtedness, including all refinancings
thereof, incurred in connection with the consummation of the
transactions contemplated by the Questar Purchase Agreement, and
(d) indebtedness incurred by the Company pursuant to a
transaction or series of transactions approved by the Board of
Directors, including the approval of a majority of the directors
nominated by the Purchasers;
(b) amend or repeal any provision of, or add any
provision to, the Company's Certificate of Incorporation or
Bylaws (whether by merger, consolidation or otherwise) if such
action would change or adversely affect the rights, preference
or privileges of the Shares;
(c) authorize, designate or issue any class of
stock having any right, preference or priority superior to or on
a parity with the Shares, including the issuance of shares of
Series A-1 Preferred or Series A-2 Preferred (other than the
Questar Preferred Shares or as dividends on Shares or the
Questar Preferred Shares); or
(d) amend the Company's Certificate of
Incorporation (whether by merger, consolidation or otherwise) to
authorize any additional shares of Series A Convertible
Preferred Stock.
4.2 AFFIRMATIVE COVENANTS.
---------------------
The Company covenants and agrees that it will perform and
observe the following covenants and provisions and will cause
each Company Subsidiary to perform and observe such of the
following covenants and provisions as are applicable to such
Company Subsidiary:
(a) PAYMENT OF TAXES AND TRADE DEBT. Pay and
-------------------------------
discharge all taxes, assessments and governmental charges or
levies imposed upon it or upon its income or profits or
business, or upon any properties belonging to it, prior to the
date on which penalties attach thereto, and all lawful claims,
which, if unpaid, might become a lien or charge upon any
properties of the Company or a Company Subsidiary, other than
those which are being contested in good faith if the Company or
such Company Subsidiary shall have set aside on its books and
shall have provided, in accordance with generally accepted
accounting principles, adequate reserves with respect thereto;
and pay in conformity with customary trade terms, all lease
obligations, all trade debt, and all other indebtedness incident
to its operations, except such as are being contested in good
faith if the Company shall have set aside on its books and shall
have provided, in accordance with generally accepted accounting
principles, appropriate reserves with respect thereto.
(b) MAINTENANCE OF INSURANCE. Maintain with
------------------------
responsible and reputable insurance companies or associations,
insurance (including D&O and key-man insurance) in such amounts
and covering such risks in amounts and terms consistent with or
more favorable to those obtained by similarly-situated public
companies.
(c) PRESERVATION OF CORPORATE EXISTENCE.
-----------------------------------
Preserve and maintain its corporate existence, rights,
franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified as a foreign
corporation in each jurisdiction in which such qualification is
required, unless the failure to so qualify does not and will not
have a material and adverse effect on the business, operations
or financial condition of the Company; and preserve and maintain
all material licenses and other rights to use patents,
processes, licenses, trademarks, trade names, inventions,
intellectual property rights or copyrights owned or possessed by
it as are reasonably necessary or advisable for it to conduct its
business; provided, however, that the Company may, without the
consent of the Purchasers, dissolve or liquidate any inactive
Company Subsidiary or merge any Company Subsidiary into the
Company or any other Company Subsidiary.
(d) COMPLIANCE WITH LAWS. Comply with all
--------------------
applicable laws, rules, regulations and orders of any
governmental authority, noncompliance with which could
materially adversely affect its business or condition, financial
or otherwise, except non-compliance being contested in good
faith through appropriate proceedings so long as the Company
shall have set up and funded sufficient reserves, if any,
required under generally accepted accounting principles with
respect to such items.
(e) KEEPING OF RECORDS AND BOOKS OF ACCOUNT.
---------------------------------------
Keep adequate records and books of account, in which complete
entries will be made in accordance with generally accepted
accounting principles consistently applied, reflecting all
financial transactions of the Company, and in which, for each
fiscal year, all proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other purposes
in connection within its business shall be made.
(f) MAINTENANCE OF PROPERTIES, ETC. Maintain
------------------------------
and preserve all of its properties that the Company reasonably
deems necessary or useful in the proper conduct of its business
in good repair, working order and condition, ordinary wear and
tear excepted, and from time to time make all necessary and
proper repairs, renewals, replacements, additions and
improvements thereto; and comply with the provisions of all
material leases to which it is a party or under which it
occupies property so as to prevent any material loss or
forfeiture thereof or thereunder.
4.3 INSPECTION AND OBSERVATION. The Company shall
--------------------------
permit each Purchaser, or any authorized representative thereof,
to visit and inspect the properties of the Company, including
its corporate and financial records, and to discuss its business
and finances with executive officers of the Company, during
normal business hours following reasonable notice, but no more
than once per month for all Purchasers in the aggregate.
4.4 FINANCIAL STATEMENTS AND OTHER INFORMATION.
------------------------------------------
(a) The Company shall deliver to each Purchaser:
(i) within 120 days after the end of each
fiscal year of the Company, an audited balance sheet of the
Company as at the end of such year and audited statements of
income and of cash flows of the Company for such year, certified
by certified public accountants of established national
reputation selected by the Company, and prepared in accordance
with generally accepted accounting principles consistently
applied; and
(ii) within 60 days after the end of each
fiscal quarter of the Company (other than the fourth quarter),
an unaudited balance sheet of the Company as at the end of such
quarter, and unaudited statements of income and of cash flows of
the Company for such fiscal quarter and for the current fiscal
year to the end of such fiscal quarter.
(iii) within 30 days after the end of each
month (other than the last month of any fiscal quarter), an
unaudited balance sheet of the Company as at the end of such
month and unaudited statements of income and of cash flows of
the Company for such month and for the current fiscal year to
the end of such month, setting forth in comparative form the
Company's projected financial statements for the corresponding
periods for the current fiscal year; accompanied by a
certificate of the chief financial officer of the Company
stating that such statements have been prepared on a basis
consistent with the financial statements delivered pursuant to
clause (ii) and with prior monthly financial statements, but the
monthly financial statements are not required to be GAAP-
compliant;
(iv) as soon as available, but in any event
prior to the commencement of each new fiscal year, a business
plan and projected financial statements for such fiscal year;
(v) such other notices, information and
data with respect to the Company as the Company delivers to the
holders of its capital stock at the same time it delivers such
items to such holders; and
(vi) with reasonable promptness, such other
information and data as such Purchaser may from time to time
reasonably request.
(b) The financial statements delivered pursuant
to clauses (ii) and (iii) of paragraph (a) shall be accompanied
by a certificate of the Chief Executive Officer or Chief
Financial Officer that such financial statements fairly present
the financial condition and results of operations of the Company
at the date thereof and for the periods covered thereby, subject
to the assumptions contained therein and the limitations
described in clauses (ii) and (iii), respectively.
4.5 MATERIAL CHANGES AND LITIGATION. The Company
-------------------------------
shall promptly notify the Purchasers of any material adverse
change in the business, prospects, assets or condition,
financial or otherwise, of the Company and of any litigation or
governmental proceeding or investigation brought or, to the best
of the Company's knowledge, threatened against the Company, or
against any officer, director, or key employee of the Company
which, if adversely determined, would have a material adverse
effect on the business, prospects, assets or condition
(financial or otherwise) of the Company.
4.6 BOARD OF DIRECTORS. The Company's Certificate of
------------------
Incorporation shall at all times provide for the indemnification
of the members of the Board of Directors to the fullest extent
provided by the law of the jurisdiction in which the Company is
organized. In the event that the Company or any of its
successors or assigns (i) consolidates with or merges into any
other entity and shall not be the continuing or surviving
corporation in such consolidation or merger or (ii) transfers or
conveys all or substantially all of its properties and assets to
any entity, then, and in each such case, to the extent
necessary, proper provision shall be made so that the successors
and assigns of the Company assume the obligations of the Company
with respect to indemnification of members of the Board of
Directors as contained in the Company's Certificate of
Incorporation.
4.7 RELATED PARTY TRANSACTIONS. The Company shall
--------------------------
not enter into any agreement with any stockholder, officer or
director of the Company, or any Affiliated Party of such
persons, including without limitation any agreement or other
arrangement providing for the furnishing of services by, rental
of real or personal property from, or otherwise requiring
payments to, any such person or entity, without the consent of
at least a majority of the members of the Board of Directors
having no interest in such agreement or arrangement; provided,
however, that this covenant shall not apply to any transactions
between the Company and any Company Subsidiary.
4.8 RESERVATION OF COMMON STOCK. The Company shall
---------------------------
reserve and maintain a sufficient number of shares of Common
Stock for issuance upon conversion of all of the outstanding
Shares.
4.9 TERMINATION OF COVENANTS. All covenants of the
------------------------
Company contained in this Section 4 shall terminate upon the
earlier of (a) the closing of a Company Sale, and (b) the date
on which the Purchasers, in the aggregate, beneficially own less
than 500,000 Shares.
5. CONFIDENTIALITY. Each Purchaser agrees that he, she
---------------
or it will keep confidential and will not disclose, divulge or
use for any purpose, other than to monitor its investment in the
Company, any Confidential Information, unless such Confidential
Information (a) is known or becomes known to the public in
general (other than as a result of a breach of this Section 5 by
such Purchaser), (b) is or has been independently developed or
conceived by the Purchaser without use of the Company's
Confidential Information or (c) is or has been made known or
disclosed to the Purchaser by a third party without a breach of
any obligation of confidentiality such third party may have to
the Company; provided, however, that a Purchaser may disclose
Confidential Information (i) to its attorneys, accountants,
consultants, and other professionals to the extent necessary to
obtain their services in connection with monitoring its
investment in the Company, (ii) to any prospective purchaser of
any Shares from such Purchaser as long as such prospective
purchaser agrees to be bound by the provisions of this Section
5, (iii) to any Affiliated Party of such Purchaser, or (iv) as
may otherwise be required by law, provided that, prior to such
disclosure, such Purchaser provides reasonable prior notice to
the Company to afford the Company a reasonable opportunity to
contest such requested disclosure, the Purchaser takes
reasonable steps to minimize the extent of any such required
disclosure. Notwithstanding the foregoing, such information
shall not be deemed confidential for the purpose of enforcing
this Agreement.
6. TRANSFERS OF RIGHTS; CALCULATION OF SHARE NUMBERS.
-------------------------------------------------
6.1 TRANSFER OF RIGHTS. This Agreement, and the
------------------
rights and obligations of each Purchaser hereunder, may, upon
prior written notice to the Company, be assigned by such
Purchaser to any Affiliated Party, partner or member of such
Purchaser and such transferee shall be deemed a "Purchaser" for
purposes of this Agreement. In addition, this Agreement, and
the rights and obligations of each Purchaser under Section 2 of
this Agreement may be assigned by such Purchaser to any person
or entity to which Shares are transferred by such Purchaser and
such transferee shall be deemed a "Purchaser" for purposes of
this Agreement; provided, however, that such assignment of
rights shall be contingent upon the transferee's providing a
written instrument to the Company notifying the Company of such
transfer and assignment and agreeing in writing to be bound by
the terms of this Agreement; provided further, that such
Purchaser may not assign or transfer its rights under Sections 3
or 4 of this Agreement to any person or entity who is not an
Affiliated Party, partner or member of such Purchaser without
the Company's prior written consent in each instance; and
provided further, no transfer of rights can be made hereunder to
Affiliated Parties, partners or members of a Purchaser if such
transfer would have an adverse impact on the availability of an
exemption from registration under the Securities Act of the sale
of the Shares or would otherwise constitute a public offering
under the Securities Act.
6.2 CALCULATION OF SHARE NUMBERS. In determining the
----------------------------
number of Shares owned by a Purchaser for purposes of exercising
rights under this Agreement, (a) Shares owned by a Purchaser
shall be deemed to include Shares which have been converted into
Common Stock so long as such Common Stock is owned by such
Purchaser and (b) all Shares held by an Affiliated Party,
partner or member of such Purchaser shall be aggregated
together.
7. GENERAL.
-------
7.1 SEVERABILITY. The invalidity or unenforceability
------------
of any provision of this Agreement shall not affect the validity
or enforceability of any other provision of this Agreement.
7.2 SPECIFIC PERFORMANCE. In addition to any and all
--------------------
other remedies that may be available at law in the event of any
breach of this Agreement, each Purchaser shall be entitled to
specific performance of the agreements and obligations of the
Company hereunder and to such other injunctive or other
equitable relief as may be granted by a court of competent
jurisdiction.
7.3 GOVERNING LAW. This Agreement shall be governed
-------------
by and construed in accordance with the laws of the State of New
York (without reference to the conflicts of law provisions
thereof).
7.4 NOTICES. All notices, requests, consents and
-------
other communications under this Agreement shall be in writing
and shall be deemed delivered (i) three business days after
being sent by registered or certified mail, return receipt
requested, postage prepaid or (ii) one business day after being
sent via a reputable nationwide overnight courier service
guaranteeing next business day delivery, in each case to the
intended recipient as set forth below:
If to the Company, at 4 Hardscrabble Heights, ▇▇ ▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇ Attention: President, Facsimile: 1-
▇▇▇-▇▇▇-▇▇▇▇, or at such other address as may have been
furnished in writing by the Company to the other parties hereto,
with a copy (which shall not constitute notice) to Vedder,
Price, ▇▇▇▇▇▇▇ & Kammholz, P.C., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇
▇▇▇▇▇-▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., Facsimile: (212)
407-7799; or
If to a Purchaser, at its address set forth on Exhibit A,
or at such other address as may have been furnished in writing
by such Purchaser to the other parties hereto, with a copy
(which shall not constitute notice) to ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇ and ▇▇▇▇ LLP, Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq., ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Facsimile No.
(▇▇▇) ▇▇▇-▇▇▇▇.
Any party may give any notice, request, consent or other
communication under this Agreement using any other means
(including, without limitation, personal delivery, messenger
service, telecopy or first class mail), but no such notice,
request, consent or other communication shall be deemed to have
been duly given unless and until it is actually received by the
party for whom it is intended. Any party may change the address
to which notices, requests, consents or other communications
hereunder are to be delivered by giving the other parties notice
in the manner set forth in this Section 7.4.
7.5 COMPLETE AGREEMENT. This Agreement constitutes
------------------
the entire agreement and understanding of the parties hereto
with respect to the subject matter hereof and supersedes all
prior agreements and understandings relating to such subject
matter.
7.6 AMENDMENTS AND WAIVERS. This Agreement may be
----------------------
amended or terminated and the observance of any term of this
Agreement may be waived with respect to all parties to this
Agreement (either generally or in a particular instance and
either retroactively or prospectively), with the written consent
of the Company and Purchasers holding Shares representing at
least 50% of the voting power of all Shares then held by
Purchasers; provided that any amendment, termination or waiver
to the terms of Section 2 (or a defined term used therein) that
occurs after the closing of the Initial Public Offering shall
instead require the written consent of the Company and by
Purchasers holding Registrable Shares representing at least 50%
of the voting power of all Registrable Shares then held by all
Purchasers. Notwithstanding the foregoing, this Agreement may
not be amended or terminated and the observance of any term
hereunder may not be waived with respect to any Purchaser
without the written consent of such Purchaser unless such
amendment, termination or waiver applies to all Purchasers in
the same fashion (it being agreed that a waiver of the
provisions of Section 3 with respect to a particular transaction
shall be deemed to apply to all Qualified Purchasers in the same
fashion if such waiver does so by its terms, notwithstanding the
fact that certain Qualified Purchasers may nonetheless, by
agreement with the Company, purchase securities in such
transaction). The Company shall give prompt written notice of
any amendment or termination hereof or waiver hereunder to any
party hereto that did not consent in writing to such amendment,
termination or waiver. Any amendment, termination or waiver
effected in accordance with this Section 7.6 shall be binding on
all parties hereto, even if they do not execute such consent.
No waivers of or exceptions to any term, condition or provision
of this Agreement, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any
such term, condition or provision.
7.7 PRONOUNS. Whenever the context may require, any
--------
pronouns used in this Agreement shall include the corresponding
masculine, feminine or neuter forms, and the singular form of
nouns and pronouns shall include the plural, and vice versa.
7.8 COUNTERPARTS; FACSIMILE SIGNATURES. This
----------------------------------
Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, and all of which
together shall constitute one and the same document. This
Agreement may be executed by facsimile signatures.
7.9 SECTION HEADINGS AND REFERENCES. The section
-------------------------------
headings are for the convenience of the parties and in no way
alter, modify, amend, limit or restrict the contractual
obligations of the parties. Any reference in this agreement to
a particular section or subsection shall refer to a section or
subsection of this Agreement, unless specified otherwise.
(signature page follows)
Executed as of the date first written above.
COMPANY:
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President and CEO
PURCHASERS:
CAMDEN PARTNERS STRATEGIC FUND III, L.P.
By: Camden Partners Strategic III, LLC,
its General Partner
By: Camden Partners Strategic Manager, LLC,
its Managing Member
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Managing Member
CAMDEN PARTNERS STRATEGIC FUND III-A, L.P.
By: Camden Partners Strategic III, LLC,
its General Partner
By: Camden Partners Strategic Manager, LLC,
its Managing Member
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
-----------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Managing Member
EXHIBIT A
---------
LIST OF PURCHASERS
------------------
NAME AND ADDRESS
----------------
CAMDEN PARTNERS STRATEGIC FUND III, L.P.
c/o: Camden Partners Holdings LLC
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
CAMDEN PARTNERS STRATEGIC FUND III-A, L.P.
c/o: Camden Partners Holdings LLC
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
