EXHIBIT 10.7
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TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
SERIES A CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
Dated as of May 31, 2006
Table of Contents
Page No.
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1. Authorization; Sale of Shares 1
1.1 Authorization 1
1.2 Sale of Shares 1
1.3 Use of Proceeds 1
1.4 Legend 1
2. The Closing 2
3. Representations of the Company 3
3.1 Organization and Standing 3
3.2 Subsidiaries, Etc 3
3.3 Capitalization 4
3.4 Issuance of Shares 6
3.5 Authority for Agreement; No Conflict 6
3.6 Governmental Consents 7
3.7 Litigation 7
3.8 Financial Statements 7
3.9 Absence of Undisclosed Liabilities 8
3.10 Absence of Changes 8
3.11 Taxes 8
3.12 Property and Assets 9
3.13 Intellectual Property 9
3.14 Insurance 12
3.15 Material Contracts and Obligations 12
3.16 Compliance 12
3.17 Employees 12
3.18 ERISA 13
3.19 Books and Records 13
3.20 Permits 13
3.21 Environmental Matters 13
3.22 Board of Directors 15
3.23 Disclosures 15
4. Representations of the Purchasers 15
4.1 Investment 15
4.2 Accredited Investor 15
4.3 Authority 15
4.4 Experience 16
5. Miscellaneous 16
5.1 Successors and Assigns 16
5.2 Survival of Representations and Warranties 16
5.3 Expenses 17
5.4 Brokers 17
5.5 Severability 17
5.6 Specific Performance 17
5.7 Governing Law 17
5.8 Notices 17
5.9 Complete Agreement 18
5.10 Amendments and Waivers 18
5.11 Pronouns 18
5.12 Counterparts; Facsimile Signatures 19
5.13 Section Headings and References 19
EXHIBITS
Exhibit A - List of Purchasers and Shares
Purchased
Exhibit B - Certificate of Designations
Exhibit C - Investor Rights Agreement
Exhibit D - Stockholders' Voting
Agreement
Exhibit E - Management rights letter
Exhibit F - Legal Opinion
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
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This Agreement dated as of May 31, 2006 is entered into by
and among Touchstone Applied Science Associates, Inc., a
Delaware corporation (the "Company"), Camden Partners Strategic
Fund III, L.P. and Camden Partners Strategic Fund III-A, L.P.
(the "Purchasers"). In consideration of the mutual promises and
covenants contained in this Agreement, the parties hereto agree
as follows:
1. AUTHORIZATION; SALE OF SHARES.
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1.1 AUTHORIZATION. The Company has, or before the
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Closing (as defined in Section 2) will have, duly authorized the
sale and issuance, pursuant to the terms of this Agreement, of
5,000,000 shares of Series A Convertible Preferred Stock,
$0.0001 par value per share (the "Series A Convertible
Preferred"), having the rights, privileges, preferences and
restrictions set forth in the Certificate of Designations to the
Certificate of Incorporation attached hereto as Exhibit B (the
"Certificate of Designations"). The Series A Convertible
Preferred is divided into two sub-series: Series A-1
Convertible Preferred Stock ("Series A-1 Preferred") and Series
A-2 Convertible Preferred Stock ("Series A-2 Preferred"). It is
intended that the Series A-1 Preferred and the Series A-2
Preferred shall have identical rights and benefits, except as
modified by agreements between the holders thereof and the
Company. The Company has, or before the Closing will have,
adopted and filed the Certificate of Designations with the
Secretary of State of the State of Delaware.
1.2 SALE OF SHARES. Subject to the terms and
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conditions of this Agreement, at the Closing (as defined in
Section 2) the Company will sell and issue to each of the
Purchasers, and each of the Purchasers will purchase, the number
of shares of Series A-1 Preferred set forth opposite such
Purchaser's name on Exhibit A for the purchase price of $4.50
per share (the "Purchase Price"). The shares of Series A-1
Preferred sold under this Agreement to the Purchasers are
referred to as the "Shares". The Company's agreement with each
Purchaser is a separate agreement, and the sale of Shares to
each Purchaser is a separate sale.
1.3 USE OF PROCEEDS. The Company will use the
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proceeds from the sale of the Shares to acquire the stock of
Questar Educational Systems, Inc. ("Questar").
1.4 LEGEND. Each certificate representing Shares
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shall bear a legend substantially in the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL SUCH SHARES ARE REGISTERED UNDER
SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO
THE COMPANY IS OBTAINED TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED."
The foregoing legend shall be removed from the certificates
representing any Shares, at the request of the holder thereof,
at such time as they become eligible for resale pursuant to
Rule 144(k) under the Securities Act.
2. THE CLOSING. Subject to the terms and conditions of
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this Agreement, the closing (the "Closing") of the sale and
purchase of the Shares under this Agreement shall take place at
the offices of Vedder, Price, Xxxxxxx & Kammholz, P.C., 000
Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, (or remotely via the
exchange of documents and signatures) on the date of this
Agreement (the "Closing Date"). At the Closing:
(a) the Company shall deliver to the Purchasers
the Disclosure Schedule (as defined in Section 3);
(b) the Company and the Purchasers shall execute
and deliver the Investor Rights Agreement in the form attached
hereto as Exhibit C (the "Investor Rights Agreement");
(c) the Company and the Purchasers shall execute
and deliver the Stockholders' Voting Agreement in the form
attached hereto as Exhibit D (the "Voting Agreement");
(d) the Company shall execute and deliver to
each Purchaser a management rights letter in the form attached
hereto as Exhibit E;
(e) the Company shall deliver to the Purchasers
certificates, as of the most recent practicable dates, (i) as to
the corporate good standing of the Company issued by the
Secretary of State of the State of Delaware and (ii) as to the
due qualification of the Company as a foreign corporation issued
by the Secretary of State of each state in which, by the nature
of its business, the Company is required to qualify as a foreign
corporation;
(f) the Company shall deliver to the Purchasers
the Certificate of Incorporation of the Company, as amended and
in effect as of the Closing Date (including the Certificate of
Designations), certified by the Secretary of State of the State
of Delaware;
(g) the Company shall deliver to the Purchasers
a Certificate of the Secretary of the Company attesting as to
(i) the By-laws of the Company; (ii) the signatures and titles
of the officers of the Company executing this Agreement or any
of the other agreements to be executed and delivered by the
Company at the Closing; and (iii) resolutions of the Board of
Directors of the Company, authorizing and approving all matters
in connection with this Agreement and the transactions
contemplated hereby;
(h) Vedder, Price, Xxxxxxx & Kammholz, P.C.,
counsel for the Company, shall deliver to the Purchasers an
opinion, dated the Closing Date, in substantially the form
attached hereto as Exhibit F;
(i) the Company shall deliver to each of the
Purchasers a certificate for the number of Shares set forth
opposite such Purchaser's name on Exhibit A, registered in the
name of such Purchaser; and
(j) each Purchaser shall pay to the Company, by
wire transfer of immediately available funds, the Purchase Price
for all Shares being purchased by such Purchaser. The Closing
shall not be deemed to occur, and all such payments by any
Purchaser shall be deemed to be held in escrow, until all
Purchasers listed on Exhibit A have tendered to the Company the
Purchase Price of the Shares being purchased as indicated on
Exhibit A.
3. REPRESENTATIONS OF THE COMPANY. Except as disclosed
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by the Company in a written Disclosure Schedule provided by the
Company to the Purchasers dated the date hereof (the "Disclosure
Schedule"), the Company hereby represents and warrants to each
Purchaser that the statements contained in this Section 3 are
complete and accurate as of the date of this Agreement. The
Disclosure Schedule shall be arranged in sections corresponding
to the numbered and lettered sections and subsections contained
in this Section 3, and the disclosures in any section or
subsection of the Disclosure Schedule shall qualify only the
corresponding section or subsection of this Section 3, unless
otherwise specified.
3.1 ORGANIZATION AND STANDING. The Company is a
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corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has full
corporate power and authority to conduct its business as
presently conducted and as proposed to be conducted by it, to
enter into and perform this Agreement and all other agreements
required to be executed by the Company at or prior to the
Closing pursuant to Section 2 (the "Ancillary Agreements"), and
to carry out the transactions contemplated by this Agreement and
the Ancillary Agreements. The Company is duly qualified to do
business as a foreign corporation and is in good standing in the
State of New York and in each other jurisdiction in which the
failure so to qualify would have a material adverse effect on
the business, prospects, assets or condition (financial or
otherwise) of the Company and the Subsidiaries (as defined
below), taken together (a "Company Material Adverse Effect").
The Company has furnished to the Purchasers complete and
accurate copies of its Certificate of Incorporation and By-laws,
each as amended to date and presently in effect. The Company
has at all times complied with all provisions of its Certificate
of Incorporation and By-laws and is not in default under, or in
violation of, any such provision.
3.2 SUBSIDIARIES, ETC.
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(a) Section 3.2 of the Disclosure Schedule sets
forth (a) the name and jurisdiction of organization of each
corporation, partnership, trust, limited liability company or
other non-corporate business enterprise in which the Company,
directly or indirectly, owns stock or other ownership interests
("Ownership Units") representing (i) more than 50% of the voting
power of all outstanding capital stock or Ownership Units of
such entity or (ii) the right to receive more than 50% of the
net assets of such entity available for distribution to the
holders of capital stock or Ownership Units upon a liquidation
or dissolution of such entity (each being hereinafter referred
to as a "Subsidiary") and (b) with respect to each Subsidiary,
(i) the number of authorized, issued and outstanding shares of
each class or series of capital stock or Ownership Units, and
(ii) the names and the number of shares of capital stock or
Ownership Units held by each holder thereof. Each Subsidiary is
duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization. Each Subsidiary
is duly qualified to conduct business and is in good standing
under the laws of each jurisdiction in which the nature of its
businesses or the ownership or leasing of its properties
requires such qualification, except where the failure to so
qualify would not have a material adverse effect on the
business, properties or rights of such Subsidiary. Each
Subsidiary has all requisite power and authority to carry on the
businesses in which it is engaged and to own and use the
properties owned and used by it. The Company has delivered or
made available to the Purchasers complete and accurate copies of
the organizational documents, such as the Certificate of
Incorporation and By-laws (the "Organizational Documents"), of
each Subsidiary, as amended to date. All of the issued and
outstanding shares of capital stock or Ownership Units of each
Subsidiary are duly authorized, validly issued, fully paid,
nonassessable and are held of record and beneficially by either
the Company or another Subsidiary, free and clear of any
restrictions on transfer (other than restrictions under the
Securities Act and state securities laws), claims, security
interests, options, warrants, rights, contracts, calls,
commitments, equities and demands. There are no outstanding or
authorized options, warrants, rights, agreements or commitments
to which the Company or any Subsidiary is a party or which are
binding on any of them providing for the issuance, disposition
or acquisition of any capital stock or Ownership Units of any
Subsidiary. There are no outstanding stock appreciation,
phantom stock or similar rights with respect to any Subsidiary.
There are no voting trusts, proxies or other agreements or
understandings with respect to the voting of any capital stock
or Ownership Units of any Subsidiary. No Subsidiary is in
default under or in violation of any provision of any of its
Organizational Documents. Except for the Subsidiaries, the
Company does not own or control, directly or indirectly, any
shares of capital stock of any other corporation or any interest
in any partnership, limited liability company, joint venture or
other non-corporate business enterprise.
(b) The representations and warranties made in
Sections 3.7 and 3.11 through 3.21, with respect to the Company
shall be deemed made with respect to both the Company and each
of the Subsidiaries.
3.3 CAPITALIZATION.
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(a) The authorized capital stock of the Company
(immediately prior to the Closing) consists of (i) 20,000,000
shares of Common Stock, $0.0001 par value per share, of which
2,913,738 shares are issued and outstanding as of May 25, 2006,
and no shares of Common Stock are held in the treasury of the
Company, and (ii) 5,000,000 shares of Preferred Stock, $0.0001
par value per share, of which 5,000,000 shares have been
designated as Series A Convertible Preferred, none of which are
issued or outstanding, except for the Shares to be issued
pursuant to this Agreement and the shares of Series A-2
Preferred contemplated to be issued pursuant to the Company's
acquisition of Questar. The shares of Series A-1 Preferred
shall have the rights, privileges, preferences and restrictions
set forth in the Certificate of Designations.
(b) The number of shares of Common Stock of the
Company which are issued and outstanding, and the beneficial
owners of more than 5% thereof, are described in the Company's
Annual Report on Form 10-KSB for its fiscal year ended October
31, 2005 (the "2005 10-K"). The Company has not received any
notice from any person or entity not disclosed therein as a
beneficial owner of more than 5% of the Company's Common Stock,
except as contemplated by this Agreement or by the Questar
transaction. All of the issued and outstanding shares of
capital stock of the Company have been duly authorized and
validly issued and are fully paid and nonassessable. All of the
issued and outstanding shares of capital stock of the Company
have been offered, issued and sold by the Company in compliance
with all applicable federal and state securities laws.
(c) The 2005 10-K includes a complete and
accurate list, as of the date of this Agreement, of: (i) all
stock option plans and other stock or equity-related plans of
the Company (the "Company Stock Plans"), indicating for each
Company Stock Plan the number of shares of Common Stock issued
to date under such Company Stock Plan, the number of shares
subject to outstanding options under such Company Stock Plan and
the number of shares reserved for future issuance under such
Company Stock Plan. Section 3.3(c) of the Disclosure Schedule
includes a complete and accurate list of (i) all holders of
outstanding options to purchase shares of Common Stock ("Company
Stock Options"), indicating with respect to each Company Stock
Option the Company Stock Plan under which it was granted, the
number of shares of Common Stock subject to such Company Stock
Option, the exercise price, the date of grant and the vesting
schedule (if such vesting schedule varies from the description
thereof contained in the Company Stock Plans); and (ii) all
holders of warrants or other rights (other than Company Stock
Options and convertible preferred stock) to purchase or acquire
shares of capital stock of the Company ("Company Warrants"),
indicating with respect to each Company Warrant the agreement or
other document under which it was granted, the number of shares
of capital stock, and the class or series of such shares,
subject to such Company Warrant, the exercise price, the date of
issuance and the expiration date thereof. All of the shares of
capital stock of the Company subject to Company Stock Options
and Company Warrants will be, upon issuance pursuant to the
exercise of such instruments, duly authorized, validly issued,
fully paid and nonassessable.
(d) Except as set forth in this Section 3.3 or
the Disclosure Schedule, except for outstanding options under
the Company Stock Plans, and except as contemplated by this
Agreement or in connection with the Questar transaction, (i) no
subscription, warrant, option, convertible security or other
right (contingent or otherwise) to purchase or acquire any
shares of capital stock of the Company is authorized or
outstanding, (ii) the Company has no obligation (contingent or
otherwise) to issue any subscription, warrant, option,
convertible security or other such right, or to issue or
distribute to holders of any shares of its capital stock any
evidences of indebtedness or assets of the Company, (iii) the
Company has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any shares of its capital stock or
any interest therein or to pay any dividend or to make any other
distribution in respect thereof, and (iv) there are no
outstanding or authorized stock appreciation, phantom stock or
similar rights with respect to the Company.
(e) Except for the Ancillary Agreements or as
set forth on the Disclosure Schedule, there is no agreement,
written or oral, between the Company and any holders of its
securities, or, to the best of the Company's knowledge, among
any holder of its securities, relating to the sale or transfer
(including without limitation agreements relating to rights of
first refusal, co-sale rights or "drag-long" rights),
registration under the Securities Act of 1933, as amended (the
"Securities Act"), or voting, of the capital stock of the
Company.
3.4 ISSUANCE OF SHARES. The issuance, sale and
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delivery of the Shares in accordance with this Agreement, and
the issuance and delivery of the shares of Common Stock issuable
upon conversion of the Shares, have been, or will be on or prior
to the Closing, duly authorized by all necessary corporate
action on the part of the Company, and all such shares have been
duly reserved for issuance. The Shares when so issued, sold and
delivered against payment therefor in accordance with the
provisions of this Agreement, and the shares of Common Stock
issuable upon conversion of the Shares, when issued upon such
conversion in accordance with the Certificate of Designations,
will be duly and validly issued, fully paid and nonassessable,
and free of restrictions on transfer other than restrictions
imposed or created under this Agreement or the Ancillary
Agreements, by applicable law, or by the Purchasers.
3.5 AUTHORITY FOR AGREEMENT; NO CONFLICT. The
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execution, delivery and performance by the Company of this
Agreement and the Ancillary Agreements, and the consummation by
the Company of the transactions contemplated hereby and thereby,
have been duly authorized by all necessary corporate action.
This Agreement has been, and the Ancillary Agreements when
executed at the Closing will be, duly executed and delivered by
the Company and constitute valid and binding obligations of the
Company enforceable against the Company in accordance with their
respective terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other
similar laws affecting creditors' rights and remedies generally,
to general principles of equity (including principles of
commercial reasonableness, good faith and fair dealing),
regardless of whether enforcement is sought in a proceeding at
law or in equity. The execution and delivery of this Agreement
and the Ancillary Agreements, the consummation of the
transactions contemplated hereby and thereby and the compliance
with their respective provisions by the Company will not (a)
conflict with or violate any provision of the Certificate of
Incorporation or By-laws of the Company, (b) except as set forth
on the Disclosure Schedule, conflict with, result in a breach
of, constitute (with or without due notice or lapse of time or
both) a default under, result in the acceleration of obligations
under, create in any party the right to accelerate, terminate,
modify or cancel, or require any notice, consent or waiver
under, any contract, lease, sublease, license, sublicense,
franchise, permit, indenture, agreement or mortgage for borrowed
money, instrument of indebtedness, Security Interest (as defined
below) or other arrangement to which the Company is a party or
by which the Company is bound or to which its assets are
subject, (c) result in the imposition of any Security Interest
upon any assets of the Company or (d) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to
the Company or any of its properties or assets. For purposes of
this Agreement, "Security Interest" means any mortgage, pledge,
security interest, encumbrance, charge or other lien (whether
arising by contract or by operation of law).
3.6 GOVERNMENTAL CONSENTS. No consent, approval,
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order or authorization of, or registration, qualification,
designation, declaration or filing with, any court,
arbitrational tribunal, administrative agency or commission or
other governmental or regulatory authority or agency (each of
the foregoing is hereafter referred to as a "Governmental
Entity") is required on the part of the Company in connection
with the offer, issuance, sale and delivery of the Shares, the
issuance and delivery of the shares of Common Stock issuable
upon conversion of the Shares or the other transactions to be
consummated at the Closing, as contemplated by this Agreement
and the Ancillary Agreements, except such filings as shall have
been made prior to and shall be effective on and as of the
Closing and such filings required to be made after the Closing
under applicable federal and state securities laws. In reliance
upon the representations and warranties made by each of the
Purchasers in Section 5 of this Agreement, the offer and sale of
the Shares to each of the Purchasers will be in compliance with
applicable federal and state securities laws.
3.7 LITIGATION. There is no action, suit or
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proceeding, or governmental inquiry or investigation, pending,
or, to the best of the Company's knowledge, any basis therefor
or threat thereof, against the Company, which questions the
validity of this Agreement, the Ancillary Agreements or the
right of the Company to enter into any such agreements, or which
might result, either individually or in the aggregate, in a
Company Material Adverse Effect. There is no litigation
pending, or, to the best of the Company's knowledge, any basis
therefor or threat thereof, against the Company, or any of its
employees by reason of the past employment relationships of any
of the employees, the proposed activities of the Company, or
negotiations by the Company with possible investors in the
Company. The Company is not subject to any outstanding
judgment, order or decree.
3.8 SEC REPORTS AND FINANCIAL STATEMENTS.
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(a) The Company has filed with the SEC all
forms, reports, schedules, registration statements, proxy
statements, certifications and other documents required to be
filed by the Company or its directors and executive officers (in
their capacity as such) with the SEC since January 1, 2004 (as
they have been amended since the time of their filing, and
including any documents filed as exhibits, annexes or schedules
thereto, collectively, the "SEC Reports"). As of their
respective dates, including all amendments, the SEC Reports
(including but not limited to any financial statements or
schedules included or incorporated by reference therein)
complied as to form in all material respects with the
requirements of the Exchange Act of 1934 or the Securities Act
of 1933, each as amended to date (and the rules and regulations
of the SEC promulgated thereunder) applicable, as the case may
be, to such SEC Reports, and none of the SEC Reports contained,
as of the end of the period to which such SEC Report relates,
including as of the date of any amendment or supplement thereto,
and, in the case of any proxy statement, at the date mailed to
the stockholders and at the date of the meeting, any untrue
statement of material fact or omitted to state a material fact
required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under
which they were made, not misleading. The financial statements
of the Company included in the Company SEC Reports comply as to
form in all material respects with all applicable accounting
requirements and the published rules and regulations of the SEC
with respect thereto.
(b) The Company has furnished to each of the
Purchasers a complete and accurate copy of (a) the audited
balance sheet of the Company at October 31, 2005 and the related
audited statements of operations and cash flows for the fiscal
year then ended, and (b) the unaudited balance sheet of the
Company (the "Balance Sheet") at January 31, 2006 (the "Balance
Sheet Date") and the related statements of operations and cash
flows for the four months then ended (collectively, the
"Financial Statements"). The Financial Statements are in
accordance with the books and records of the Company, present
fairly the financial condition and results of operations of the
Company, at the dates and for the periods indicated, and have
been prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied, except that the
unaudited Financial Statements may not be in accordance with
GAAP because of the absence of footnotes normally contained
therein and are subject to normal year-end audit adjustments
which in the aggregate will not be material.
3.9 ABSENCE OF UNDISCLOSED LIABILITIES. The Company
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does not have any liability (whether known or unknown and
whether absolute or contingent), except for (a) liabilities
shown on the Balance Sheet, (b) liabilities in the ordinary
course of business and which are similar in nature and amount to
the liabilities which arose during the comparable period of time
in the immediately preceding fiscal quarter or fiscal year, (c)
contractual liabilities incurred in the ordinary course of
business which are not required by GAAP to be reflected on a
balance sheet and which would not, either individually or in the
aggregate, have or result in a Company Material Adverse Effect,
and (d) liabilities incurred or to be incurred in connection
with the Company's acquisition of Questar and the financing
thereof.
3.10 ABSENCE OF CHANGES. Since October 31, 2005,
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there has been no event or development that, individually or in
the aggregate, has had a Company Material Adverse Effect.
3.11 TAXES.
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(a) For purposes of this Agreement: (i) "Tax"
or "Taxes" means all taxes, charges, fees, levies or other
similar assessments or liabilities, including without limitation
income, gross receipts, ad valorem, premium, value-added,
excise, real property, personal property, sales, use, transfer,
withholding, employment, unemployment insurance, social
security, business license, business organization,
environmental, workers compensation, payroll, profits, license,
lease, service, service use, severance, stamp, occupation,
windfall profits, customs, duties, franchise and other taxes
imposed by the United States of America or any state, local or
foreign government, or any other Governmental Entity, and any
interest, fines, penalties, assessments or additions to tax
resulting from, attributable to or incurred in connection with
any tax or any contest or dispute thereof; and (ii) "Tax
Returns" means all reports, returns, declarations, statements or
other information required to be supplied to a taxing authority
in connection with Taxes and any amendment thereof.
(b) The amount shown on the Balance Sheet as
provision for Taxes is sufficient in all material respects for
the payment of all unpaid Taxes for all periods ending on or
before the date thereof. The Company has timely filed or
obtained presently effective extensions with respect to all Tax
Returns that are or were required to be filed by it, such Tax
Returns are complete and accurate in all material respects and
all Taxes shown thereon to be due have been timely paid. All
Taxes that the Company is or was required by law to have
withheld or collected have been duly withheld or collected and,
to the extent required, have been timely paid to the proper
Governmental Entity. The Tax Returns of the Company have not
been audited by any Governmental Entity, and no controversy with
respect to Taxes is pending or, to the best of the Company's
knowledge, threatened. Neither the Company nor any of its
stockholders has ever filed an election pursuant to Section 1362
of the Internal Revenue Code of 1986, as amended (the "Code"),
that the Company be taxed as an S corporation.
(c) The Company is not now and has never been a
"United States real property holding corporation" as defined in
Section 897(c)(2) of the Code and the Treasury Regulations
thereunder.
(d) As of and immediately following the Closing
Date: (i) the Company will be a qualified small business within
the meaning of Code Section 1202(d); (ii) the Company will not
have made purchases of its own stock described in Code Section
1202(c)(3)(B) during the one-year period preceding the Closing
Date, except for purchases of a de minimis amount, as set forth
in Treas. Reg. Sections 1.1202-2 and except for purchases that
are disregarded under Treas. Reg. Section 1.1202-2;
3.12 PROPERTY AND ASSETS. The Company has good title
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to, or a valid leasehold interest in, all of its material
properties and assets, including all properties and assets
reflected in the Balance Sheet, except those disposed of since
the date thereof in the ordinary course of business, and none of
such properties or assets is subject to any Security Interest
other than those the material terms of which are described in
the Balance Sheet or in the Disclosure Schedule.
3.13 INTELLECTUAL PROPERTY.
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(a) The 2005 10-K lists each granted patent,
pending patent application, copyright registration or
application therefor, mask work registration or application
therefor, and trademark, service xxxx and domain name
registration or application therefor of the Company.
(b) The Company owns or has the right to use all
Intellectual Property (as defined below) necessary (i) to use,
manufacture, market and distribute the Customer Deliverables and
(ii) to operate the Internal Systems (as defined below). The
Company has taken all reasonable measures to protect the
proprietary nature of each item of Company Intellectual Property
(as defined below), and to maintain in confidence all trade
secrets and confidential information, that it owns or uses. No
other person or entity has any rights to any of the Company
Intellectual Property owned by the Company (except pursuant to
agreements or licenses additionally specified in the Disclosure
Schedule), and, to the Company's knowledge, as of the Effective
Date of this Agreement, no other person or entity is infringing,
violating or misappropriating any of the Company Intellectual
Property.
(c) None of the Customer Deliverables, or the
marketing, distribution, provision or use thereof, infringes or
violates, or constitutes a misappropriation of, any Intellectual
Property rights of any person or entity, and neither the
marketing, distribution, provision or use of any Customer
Deliverables currently under development by the Company will,
when such Customer Deliverables are commercially released by the
Company, infringe or violate, or constitute a misappropriation
of, any Intellectual Property rights of any person or entity.
None of the Internal Systems, or the use thereof, infringes or
violates, or constitutes a misappropriation of, any Intellectual
Property rights of any person or entity. The Disclosure
Schedule additionally lists any current, unresolved complaint,
claim or notice, or written threat thereof, received by the
Company alleging any such infringement, violation or
misappropriation; and the Company has provided to the Purchasers
complete and accurate copies of all written documentation in the
possession of the Company relating to any such current,
unresolved complaint, claim, notice or threat. The Company has
provided to the Purchasers complete and accurate copies of all
written documentation in the Company's possession relating to
current, unresolved claims or disputes known to the Company
concerning any Company Intellectual Property.
(d) The 2005 10-K describes the Company
Intellectual Property. Except as described in the Disclosure
Schedule, the Company has not agreed to indemnify any person or
entity against any infringement, violation or misappropriation
of any Intellectual Property rights with respect to any Company
Intellectual Property owned by the Company.
(e) The Disclosure Schedule additionally
identifies each item of Company Intellectual Property that is
owned by a party other than the Company, and the license or
agreement pursuant to which the Company uses it (excluding off-
the-shelf software programs licensed by the Company pursuant to
"shrink wrap" or "click through" licenses).
(f) The Company has not disclosed the source
code for any software developed by it, or other confidential
information constituting, embodied in or pertaining to such
software, to any person or entity, except pursuant to the
agreements listed in the Disclosure Schedule or in the 2005 10-
K, and the Company has taken reasonable measures to prevent
disclosure of such source code.
(g) All of the copyrightable materials
incorporated in or bundled with the Customer Deliverables have
been created by employees or agents of the Company within the
scope of their employment or engagement by the Company or by
independent contractors of the Company who have executed
agreements expressly assigning all right, title and interest in
such copyrightable materials to the Company. No portion of such
copyrightable materials was jointly developed with any third
party which has not been assigned to the Company.
(h) Except as set forth in the Disclosure
Schedule, to the Company's knowledge, the Company has not (i)
incorporated any Open Source Materials into, or combined Open
Source Materials with, any Customer Deliverables, (ii)
distributed Open Source Materials in connection with any
Customer Deliverables, or (iii) used Open Source Materials that
(with respect to either clause (i), (ii) or (iii) above) (A)
create, or purport to create, obligations for the Company with
respect to software developed or distributed by the Company or
(B) grant, or purport to grant, to any third party any rights or
immunities under intellectual property rights. Without limiting
the generality of the foregoing, to the Company's knowledge, the
Company has not used any Open Source Materials that require, as
a condition of use, modification and/or distribution of such
Open Source Materials, that other software incorporated into,
derived from or distributed with such Open Source Materials be
(1) disclosed or distributed in source code form, (2) licensed
for the purpose of making derivative works, or (3)
redistributable at no charge.
(i) The Customer Deliverables and the Internal
Systems, to the Company's knowledge, are free from significant
defects or programming errors and conform in all material
respects to the written documentation and specifications
therefor.
(j) For purposes of this Agreement, the
following terms shall have the following meanings:
(i) "Customer Deliverables" shall mean (A)
the products that the Company (1) currently manufactures,
markets, sells or licenses or (2) currently plans to
manufacture, market, sell or license in the future and (B) the
services that the Company (1) currently provides or (2)
currently plans to provide in the future.
(ii) "Internal Systems" shall mean the
internal systems of the Company that are necessary for the
Company to produce the Customer Deliverables.
(iii) "Intellectual Property" shall mean
all: (A) granted patents, pending patent applications, and all
related continuation, continuation-in-part, divisional, reissue
and re-examinations thereof, utility models, statutory invention
registrations and design patents; (B) trademarks, service marks,
trade dress, Internet domain names, logos, trade names and
corporate names and registrations and applications for
registration thereof; (C) copyrights and registrations and
applications for registration thereof; (D) mask works and
registrations and applications for registration thereof; (E)
computer software, data and documentation; (F) inventions, trade
secrets and confidential business information, whether
patentable or nonpatentable and whether or not reduced to
practice, know-how, manufacturing and product processes and
techniques, research and development information, unpublished
copyrightable works, financial, marketing and business data,
pricing and cost information, business and marketing plans and
customer and supplier lists and information; (G) other
proprietary rights relating to any of the foregoing (including
remedies against infringements thereof and rights of protection
of interest therein under the laws of all jurisdictions); and
(H) copies and tangible embodiments thereof.
(iv) "Company Intellectual Property" shall
mean the Intellectual Property owned by or licensed to the
Company and incorporated in, underlying or used in connection
with the Customer Deliverables or the Internal Systems.
(v) "Open Source Materials" shall mean all
software or other material that is distributed as "free
software", "open source software" or under a similar licensing
or distribution model, including without limitation the GNU
General Public License (GPL), GNU Lesser General Public License
(LGPL), Mozilla Public License (MPL), BSD Licenses, the Artistic
License, the Netscape Public License, the Sun Community Source
License (SCSL), the Sun Industry Standards License (SISL) and
the Apache License.
3.14 INSURANCE. The Company maintains valid policies
---------
of workers' compensation insurance and of insurance with respect
to its properties and business of the kinds and in the amounts
not less than is customarily obtained by corporations of
established reputation engaged in the same or similar business
and similarly situated, including, without limitation, insurance
against loss, damage, fire, theft, public liability and other
risks.
3.15 MATERIAL CONTRACTS AND OBLIGATIONS. The 2005
----------------------------------
10-K, and to the extent not listed therein, the Disclosure
Schedule, sets forth a list of all material agreements or
commitments of any nature (whether written or oral) to which the
Company is a party or by which it is bound, including without
limitation (a) any agreement which requires future expenditures
by the Company in excess of $100,000 or which might result in
payments to the Company in excess of $100,000, (b) any
employment or consulting agreement for the Company's executive
officers and key employees, (c) any distributor, sales
representative or similar agreement, (d) any agreement with any
current or former stockholder, officer or director of the
Company, or any "affiliate" or "associate" of such persons (as
such terms are defined in the rules and regulations promulgated
under the Securities Act), 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, (e)
any agreement under which the Company is restricted from
carrying on any business anywhere in the world, (f) any
agreement relating to material indebtedness for borrowed money,
(g) any agreement for the disposition of a material portion of
the Company's assets (other than for the sale of inventory in
the ordinary course of business), (h) any agreement for the
acquisition of the business or securities or other ownership
interests of another party other than Questar or (i) any other
agreement that is material to the operations, business or
finances of the Company and its Subsidiaries taken as a whole.
The Company has delivered or otherwise made available (including
by designation of those agreements which are publicly available
with the SEC) to the Purchasers copies of the foregoing
agreements. All of such agreements and contracts are valid,
binding against the Company and in full force and effect.
Neither the Company, nor, to the best of the Company's knowledge
without independent investigation, any other party thereto, is
in default of any of its obligations under any of the agreements
or contracts listed in the Disclosure Schedule.
3.16 COMPLIANCE. The Company has, in all material
----------
respects, complied with all laws, regulations and orders
applicable to its business as currently conducted or proposed to
be conducted, and has all material permits and licenses required
thereby. To the best of the Company's knowledge, no executive
officer or key employee of the Company is currently in violation
of any term of any contract or covenant (either with the Company
or with another entity) relating to employment, patents,
assignment of inventions, proprietary information disclosure,
non-competition or non-solicitation.
3.17 EMPLOYEES.
---------
(a) All current executive officers and key
employees of the Company are subject to the Company's standard
policies relating to non-disclosure and assignment of
intellectual property.
(b) To the best of the Company's knowledge as of
the Effective Date of this Agreement, (i) the Company is not
aware that any key employee of the Company has plans to
terminate his or her employment relationship with the Company;
(ii) the Company has complied in all material respects with all
applicable laws relating to wages, hours, equal opportunity,
collective bargaining, workers' compensation insurance and the
payment of social security and other Taxes, and (iii) none of
the employees of the Company is represented by any labor union,
and there is no labor strike or other labor trouble pending with
respect to the Company (including, without limitation, any
organizational drive) or, to the best of the Company's
knowledge, threatened.
(c) The 2005 10-K sets forth the annual
compensation of the President and the five most highly
compensated executive officers (including the President) of the
Company for the fiscal year ended October 31, 2005 and the
Disclosure Schedule lists the annual compensation of the
President and the five most highly compensated executive
officers (including the President) of the Company for the fiscal
year ending October 31, 2006.
3.18 ERISA. The Disclosure Schedule hereto lists all
-----
employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended
("ERISA")) maintained by the Company. Each of such employee
benefit plans complies in all material respects with (a) all
applicable requirements of ERISA and (b) all applicable
requirements of the Code.
3.19 BOOKS AND RECORDS. The minute books of the
-----------------
Company contain complete and accurate records of all meetings
and other corporate actions of its stockholders and its Board of
Directors and committees thereof. The stock ledger for the
Common Stock of the Company is maintained by American Stock
Transfer Company, as transfer agent, and to the best of the
Company's knowledge, such stock ledger is complete and accurate
and reflects all issuances, transfers, repurchases and
cancellations of shares of Common Stock of the Company.
3.20 PERMITS. The Disclosure Schedule sets forth a
-------
list of all material permits, licenses, registrations,
certificates, orders or approvals from any Governmental Entity
("Permits") issued to or held by the Company. Such listed
Permits are the only Permits that are required for the Company
to conduct its business as presently or proposed to be
conducted, except for those the absence of which would not have
a Company Material Adverse Effect. Each such Permit is in full
force and effect and, to the best of the Company's knowledge, no
suspension or cancellation of such Permit is threatened and
there is no basis for believing that such Permit will not be
renewable upon expiration.
3.21 ENVIRONMENTAL MATTERS.
---------------------
(a) The Company has complied with all applicable
Environmental Laws (as defined below). There is no pending or,
to the best of the Company's knowledge, threatened civil or
criminal litigation, written notice of violation, formal
administrative proceeding, or investigation, inquiry or
information request by any Governmental Entity, relating to any
Environmental Law involving the Company. For purposes of this
Agreement, "Environmental Law" shall mean any federal, state or
local law, statute, rule or regulation or the common law
relating to the environment or occupational health and safety,
including any statute, regulation, administrative decision or
order pertaining to (i) treatment, storage, disposal, generation
and transportation of industrial, toxic or hazardous materials
or substances or solid or hazardous waste; (ii) air, water and
noise pollution; (iii) groundwater and soil contamination;
(iv) the release or threatened release into the environment of
industrial, toxic or hazardous materials or substances, or solid
or hazardous waste, including emissions, discharges, injections,
spills, escapes or dumping of pollutants, contaminants or
chemicals; (v) the protection of wildlife, marine life and
wetlands, including all endangered and threatened species;
(vi) storage tanks, vessels, containers, abandoned or discarded
barrels and other closed receptacles; (vii) health and safety of
employees and other persons; and (viii) manufacturing,
processing, using, distributing, treating, storing, disposing,
transporting or handling of materials regulated under any law as
pollutants, contaminants, toxic or hazardous materials or
substances or oil or petroleum products or solid or hazardous
waste. As used above, the terms "release" and "environment"
shall have the meaning set forth in the federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended ("CERCLA").
(b) The Company has no liabilities or
obligations arising from the release of any Materials of
Environmental Concern (as defined below) into the environment.
For purposes of this Agreement, "Materials of Environmental
Concern" shall mean any chemicals, pollutants or contaminants,
hazardous substances (as such term is defined under CERCLA),
solid wastes and hazardous wastes (as such terms are defined
under the Resource Conservation and Recovery Act), toxic
materials, oil or petroleum and petroleum products or any other
material subject to regulation under any Environmental Law.
(c) The Company is not a party to or bound by
any court order, administrative order, consent order or other
agreement between the Company and any Governmental Entity
entered into in connection with any legal obligation or
liability arising under any Environmental Law.
(d) The Company is not aware of any material
environmental liability of any solid or hazardous waste
transporter or treatment, storage or disposal facility that has
been used by the Company.
(e) Set forth in the Disclosure Schedule is a
list of all documents (whether in hard copy or electronic form)
that contain any environmental reports, investigations and
audits relating to premises currently or previously owned or
operated by the Company (whether conducted by or on behalf of
the Company or a third party, and whether done at the initiative
of the Company or directed by a Governmental Entity or other
third party) which the Company has possession of or access to.
Such documents, if any, have been made available to the
Purchasers.
3.22 BOARD OF DIRECTORS. The Board of Directors of
------------------
the Company is currently comprised of Xxxxxx X. Xxxxx, Xxxxxxx
X. Xxxx, Xxxxx X. Xxxxxxx, Xxxxxx X. Xxxxxx, Xxxxxx X. Xxxxxx,
Xxxxx X. Xxxxxx, Xxxxx X. Xxxxxxx and Xxxxxx X. Xxxxxxxxxx, each
of whom has been elected for a term of one year expiring at the
Company's Annual Meeting of Stockholders to be held in 2007.
3.23 DISCLOSURES. Neither this Agreement nor any
-----------
Exhibit hereto, nor any Ancillary Agreement nor any report,
certificate or instrument furnished by the Company to any of the
Purchasers or their counsel in connection with the transactions
contemplated by this Agreement, when read together, contains any
untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements contained herein
or therein, in light of the circumstances under which they were
made, not misleading.
3.24 INVESTMENT COMPANY. The Company is not an
------------------
"investment company" within the meaning of the Investment
Company Act of 1940, as amended.
3.25 FOREIGN CORRUPT PRACTICES ACT. The Company has
-----------------------------
not made, offered or agreed to offer, anything of value to any
governmental official, political party or candidate for
government office, nor has it otherwise taken any action that
would cause the Company to be in violation of the Foreign
Corrupt Practices Act of 1977, as amended.
4. REPRESENTATIONS OF THE PURCHASERS. Each of the
---------------------------------
Purchasers severally represents and warrants to the Company as
follows:
4.1 INVESTMENT. Such Purchaser is acquiring the
----------
Shares, and the shares of Common Stock into which the Shares may
be converted, for his, her or its own account for investment and
not with a view to, or for sale in connection with, any
distribution thereof, nor with any present intention of
distributing or selling the same; and, except as contemplated by
this Agreement and the Exhibits hereto, such Purchaser has no
present or contemplated agreement, undertaking, arrangement,
obligation, indebtedness or commitment providing for the
disposition thereof.
4.2 ACCREDITED INVESTOR. Such Purchaser is an
-------------------
"accredited investor" as defined in Rule 501(a) under the
Securities Act.
4.3 AUTHORITY. Such Purchaser has full power and
---------
authority to enter into and to perform this Agreement and the
Ancillary Agreements in accordance with their terms. Any
Purchaser which is a corporation, limited liability company,
partnership or trust represents that it has not been organized,
reorganized or recapitalized specifically for the purpose of
investing in the Company. The execution, delivery and
performance of this Agreement and the Ancillary Agreements to
which it is a party have been duly and validly authorized by all
necessary action on the part of such Purchaser. This Agreement
and each Ancillary Agreement to which such Purchaser is a party
has been duly executed and delivered by such Purchaser, and
constitutes the legal, valid and binding obligations of such
Purchaser, enforceable against it in accordance with its
respective terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other
similar laws affecting creditors' rights and remedies generally,
to general principles of equity (including principles of
commercial reasonableness, good faith and fair dealing),
regardless of whether enforcement is sought in a proceeding at
law or in equity.
4.4 GOVERNMENTAL CONSENTS. No consent, approval,
---------------------
order or authorization of, or registration, qualification,
designation, declaration or filing with, any Governmental Entity
is required on the part of such Purchaser in connection with
such Purchaser's purchase of the Shares or the other
transactions to be consummated at the Closing, as contemplated
by this Agreement and the Ancillary Agreements, except such
filings as shall have been made by such Purchaser prior to and
shall be effective on and as of the Closing and such filings
required to be made by such Purchaser after the Closing under
applicable federal and state securities laws.
4.5 EXPERIENCE. Such Purchaser (a) has carefully
----------
reviewed (i) the periodic reports, proxy statements and
registrations statements of the Company on file with the SEC,
and (ii) the representations concerning the Company contained in
this Agreement, has read the Stock Purchase Agreement, dated as
of May 31, 2006 (the "Stock Purchase Agreement"), among the
Company, Questar and the shareholders of Questar, and (b) has
made detailed inquiry concerning the Company, its business and
its personnel. The officers of the Company have made available
to such Purchaser any and all written information which he, she
or it has requested and have answered, to such Purchaser's
satisfaction, all inquiries made by such Purchaser; and such
Purchaser has sufficient knowledge and experience in finance and
business that he, she or it is capable of evaluating the risks
and merits of his, her or its investment in the Company and such
Purchaser is able financially to bear the risks thereof.
5. MISCELLANEOUS.
-------------
5.1 SUCCESSORS AND ASSIGNS. This Agreement, and the
----------------------
rights and obligations of each Purchaser under this Agreement,
may be assigned by such Purchaser to (a) any person or entity to
which Shares are transferred by such Purchaser in accordance
with this Agreement and applicable federal and state securities
laws, or (b) to any affiliate, partner, member, stockholder or
subsidiary of such Purchaser, and, in each case, such transferee
shall be deemed a "Purchaser" for purposes of this Agreement and
the Ancillary Agreements to which such Purchaser is a party;
provided, that no Purchaser shall transfer shares if the
cumulative effect of such transfer and all prior transfers would
render the offering and sale of the Shares a public offering;
provided further, that each such assignment of rights shall be
contingent upon the transferee 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, however, that in the event of
the transfer to any affiliate, partner, member, stockholder or
subsidiary of such Purchaser, the Purchaser shall, unless the
Company otherwise gives its prior written consent (which consent
shall not be unreasonably withheld), continue to be liable for
its obligations specified in this Agreement or in the Ancillary
Agreements to which such Purchaser is a party. The Company may
not assign its rights under this Agreement.
5.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
------------------------------------------
representations and warranties contained herein shall survive
the execution and delivery of this Agreement and the closing of
the transactions contemplated hereby.
5.3 EXPENSES. The Company shall pay, at the Closing,
--------
the reasonable fees and out-of-pocket disbursements (up to a
maximum of $50,000 against an invoice with reasonable detail
thereof) of WilmerHale, counsel to the Purchasers, in
connection with the preparation of this Agreement and the other
agreements contemplated hereby and the closing of the
transactions contemplated hereby and thereby. The Company shall
pay from time to time as incurred the reasonable fees and out-
of-pocket expenses of one legal counsel for the Purchasers
reasonably retained by the Purchasers in connection with the
amendment or enforcement of this Agreement.
5.4 BROKERS.
-------
(a) The Company (a) represents and warrants to
each Purchaser that, other than Signal Hill Capital Group, LLC,
it has not retained a finder or broker in connection with the
transactions contemplated by this Agreement, and (b) will, (i)
pay all brokerage or finders' fees or commissions, or consulting
fees of Signal Hill Capital Group, LLC in connection with the
transactions contemplated by this Agreement, and (ii) indemnify
and save each Purchaser harmless from and against any and all
claims, liabilities or obligations with respect to brokerage or
finders' fees or commissions, or consulting fees in connection
with the transactions contemplated by this Agreement asserted by
any person on the basis of any statement or representation
alleged to have been made by such indemnifying party.
(b) Each Purchaser (a) represents and warrants
to the Company that it has not retained a finder or broker in
connection with the transactions contemplated by this Agreement,
and (b) will indemnify and save the Company harmless from and
against any and all claims, liabilities or obligations with
respect to brokerage or finders' fees or commissions, or
consulting fees in connection with the transactions contemplated
by this Agreement asserted by any person on the basis of any
statement or representation alleged to have been made by such
indemnifying party.
5.5 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.
5.6 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.
5.7 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).
5.8 NOTICES. All notices, requests, consents and
-------
other communications under this Agreement shall be in writing
and shall be deemed delivered (a) three business days after
being sent by registered or certified mail, return receipt
requested, postage prepaid or (b) 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, XX Xxx 000,
Xxxxxxxx, XX 00000-0000 Attention: President, Facsimile: 1-
000-000-0000, 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, Xxxxxxx & Kammholz, P.C., 000 Xxxxx Xxxxxx, Xxx Xxxx, XX
00000-0000, Attention: Xxxxxx X. Xxxxxx, 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 Xxxxxx Xxxxxx Xxxxxxxxx
Xxxx and Xxxx LLP, Attention: Xxxxxxx X. Xxxxx, Esq., 0000
Xxxxxx Xxxxxxxxx, Xxxxx 0000, XxXxxx, XX 00000, Facsimile No.
(000) 000-0000.
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, first class mail or electronic 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.
5.9 COMPLETE AGREEMENT. This Agreement (including
------------------
its Exhibits) 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 including, without limitation, that
certain Summary of Terms, dated April 24, 2006.
5.10 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 the holders of at least 50% of the 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. 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, consent,
termination or waiver effected in accordance with this Section
5.10 shall be binding in accordance with this Agreement, on each
Purchaser, even if such Purchaser does not execute such
amendment, consent, termination or waiver. 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.
5.11 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.
5.12 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 shall
constitute one and the same document. This Agreement may be
executed by facsimile signatures.
5.13 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/ XXXXXX X. XXXXX
-----------------------------
Name: Xxxxxx X. Xxxxx
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/ XXXXXX X. XXXXXX
-------------------------
Name: Xxxxxx X. Xxxxxx
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/ XXXXXX X. XXXXXX
--------------------------
Name: Xxxxxx X. Xxxxxx
Title: Managing Member
EXHIBIT A
---------
List of Purchasers and Shares Purchased
---------------------------------------
Name and Address No. of Shares of Aggregate
of Purchasers Series A Preferred Purchase Price
------------- ------------------ --------------
CAMDEN PARTNERS 1,600,167 $7,200,751.50
STRATEGIC FUND III, L.P.
c/o: Camden Partners Holdings LLC
000 Xxxx Xxxxx Xxxxxx,
Xxxxx 0000
Xxxxxxxxx, XX 00000
CAMDEN PARTNERS 66,500 $299,250.00
STRATEGIC FUND III-A, L.P.
c/o: Camden Partners Holdings LLC
000 Xxxx Xxxxx Xxxxxx,
Xxxxx 0000
Xxxxxxxxx, XX 00000
TOTAL 1,666,667 $7,500,001.50
EXHIBIT B
---------
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AMENDED CERTIFICATE OF DESIGNATIONS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
_________________________________
Pursuant to Section 151(g) of the
Delaware General Corporation Law
_________________________________
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC., a corporation
organized and existing under the General Corporation Law of the
State of Delaware (the "Corporation"), DOES HEREBY CERTIFY that
the following resolution was duly adopted by the Board of
Directors of the Corporation at a meeting duly called and held
on May 25, 2006, at which a quorum was present and acting
throughout:
RESOLVED, that the Corporation had heretofore authorized
and issued 1,500 shares of Series A Preferred Stock with a non-
cumulative dividend of $.01 per share and a liquidation
preference of $0.01 per share and the holders thereof have
surrendered such shares to the Corporation for cancellation and
no authorized shares are outstanding and none will be issued
with respect to the Certificate of Designations filed March 24,
1995; and further
RESOLVED, that, pursuant to authority conferred upon the
Board of Directors of the Corporation pursuant to Article Fourth
of the Certificate of Incorporation of the Corporation, a series
of Preferred Stock of the Corporation to be designated
collectively as Series A Convertible Preferred Stock, par value
$.0001 per share, be, and it hereby is, created, to consist of
5,000,000 shares of Preferred Stock which the Corporation has
authority to issue, and that the designations, powers,
preferences and relative, participating, optional and other
special rights and relative qualifications, limitations or
restrictions of the shares of such series hereby are fixed as
follows:
1. DESIGNATION. The number of shares of Series A
-----------
Convertible Preferred Stock (the "Series A Preferred Stock")
which the Corporation has authority to issue is 5,000,000
shares. The Series A Preferred Stock may be issued in sub-
series, designated as "Series A-1 Convertible Preferred Stock"
and "Series A-2 Convertible Preferred Stock". The Series A
Preferred Stock shall consist of the Series A-1 Convertible
Preferred Stock and the Series A-2 Convertible Preferred Stock,
collectively. Except as specifically set forth in this
Certificate of Designations or in an agreement between the
Corporation and the Holder(s) of the respective sub-series, the
Series A-1 Convertible Preferred Stock (hereinafter, "Series A-1
Preferred") and the Series A-2 Convertible Preferred Stock
(hereinafter, "Series A-2 Preferred") shall have identical
rights and benefits as set forth in this Certificate of
Designations. The Board of Directors shall, by resolution duly
adopted, designate the number of shares of Series A Preferred
Stock comprising Series A-1 Preferred and the number of shares
of Series A Preferred Stock comprising Series A-2 Preferred, to
be issued as the Board of Directors shall approve. The holders
of the shares of the Series A Preferred Stock (and all
securities or other rights issued with respect to, upon
conversion of or in exchange for such shares) are referred to in
this Certificate of Designations as the "Holders".
2. RANK. The Series A Preferred Stock shall be senior in
----
right to any other equity securities of the Corporation with
respect to dividend payments and the distribution of assets upon
Liquidation (as defined in paragraph 3 hereof).
3. LIQUIDATION RIGHTS.
------------------
(a) LIQUIDATION. In the event of the voluntary or
-----------
involuntary liquidation, dissolution or winding up
("Liquidation") of the Corporation, the Holders of the Series A
Preferred Stock shall be entitled to have paid to them out of
the assets of the Corporation, before any distribution is made
to or set apart for the holders of any other series of preferred
stock or any other class or series of stock ranking junior to
the Series A Preferred Stock in respect of distribution of
assets upon Liquidation, an amount per share in cash equal to
the Liquidation Value (as defined below) for each share of
Series A Preferred Stock held (including any shares of Preferred
Stock accrued but not yet issued as dividends pursuant to
Paragraph 4(a) hereof up to and including the date of final
distribution to the Holders of the Series A Preferred Stock
pursuant to this Paragraph 3 (the "Liquidation Date")).
For the purposes of this Certificate, the "Liquidation
Value" of each share of Series A Preferred Stock means the
greater of (a) $4.50 per share of Series A Preferred Stock plus
accrued but unpaid dividends with respect to such share, or (b)
the amount per share of Common Stock the Holder would have been
entitled to receive had such Holder converted such share of
Series A Preferred Stock immediately prior to the Liquidation.
For purposes of this Paragraph 3, each of the following shall be
considered a "Liquidation": (i) the adoption by Corporation of
any plan of liquidation providing for the distribution of all or
substantially all of its assets; (ii) the sale or disposition of
all or substantially all of the assets or business of the
Corporation pursuant to a merger, consolidation or other
transaction (unless the stockholders of the Corporation
immediately prior to such merger, consolidation or other
transaction beneficially own, directly or indirectly, 80% or
more of the combined voting power of the entity or entities, if
any, that succeed to the business of the Corporation, in
substantially the same proportion as they owned the combined
voting power of the Corporation); (iii) the combination of the
Corporation with another company pursuant to which the
Corporation 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
(iv) any person (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than any person who was a beneficial
owner of more than 15% of the then outstanding Common Stock of
the Corporation, par value $.0001 per share (the "Common
Stock"), on a fully-diluted basis, on or before the date hereof
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act) of securities of the Corporation representing
more than 50% of the combined voting power of the Corporation.
(b) INSUFFICIENT LIQUIDATION PROCEEDS. If, upon any
---------------------------------
Liquidation of the Corporation, the assets of the Corporation or
proceeds thereof distributable among the Holders shall be
insufficient to pay in full the preferential amounts payable to
such Holders, then such assets or the proceeds thereof shall be
distributed among such Holders ratably in accordance with the
respective amounts that would be payable on such shares if all
amounts payable thereon were not paid in full.
4. DIVIDENDS.
---------
(a) SERIES A DIVIDENDS. For a period of three (3) years
------------------
following the date of issuance of the shares of Series A
Preferred Stock, the Holders of outstanding shares of Series A
Preferred Stock shall not be entitled to receive any dividends,
and no dividends shall accrue with respect to shares of Series A
Preferred Stock, during such period. Commencing on the first
day of the fourth (4th) year following the date of issuance of
the shares of Series A Preferred Stock, the Holders of the
outstanding shares of Series A Preferred Stock shall be entitled
to receive dividends at the rate of eight percent (8.0%) per
annum of the Face Value (as defined below). Such dividends
shall be cumulative and shall accrue on a quarterly basis,
whether or not declared, from and including the most recent date
to which dividends have been paid, or if no dividends have been
paid, from the date of original issue thereof. The right to
dividends shall accrue regardless of whether there are profits,
surplus or other funds legally available for payment of
dividends. Whether the dividends on the Preferred Stock are to
be paid in cash or in-kind shall be at the sole election of the
Corporation at the end of each fiscal quarter of the
Corporation, but such election shall be applicable to all
Holders at the time of such election. If the Corporation elects
to pay the dividends in-kind by issuing additional shares of
Preferred Stock, it shall so notify the Holders in writing, and
such additional shares shall be issued or deemed issued only
immediately prior to (i) the occurrence of a Liquidation, (ii)
the redemption of the Series A Preferred Stock, or (iii) the
conversion of a Holder's shares of Series A Preferred Stock into
shares of Common Stock of the Corporation, par value $.0001 per
share (the "Common Stock") pursuant to Paragraph 5. Shares of
Series A Preferred Stock accrued as dividends pursuant to this
Paragraph 4(a) shall not be deemed outstanding for the purposes
of this Paragraph 4 or Paragraph 6, and no dividends shall
accrue with respect thereto, provided that such shares of Series
A Preferred Stock accrued as dividends pursuant to this
Paragraph 4(a) shall be deemed outstanding for the purposes of
Paragraph 5. In the event that a dividend payment is made
partly in cash and partly in-kind, each Holder will be entitled
to receive the same relative proportions of cash and in-kind
stock. Each dividend will be payable to Holders of record at
the close of business on the date (a "Record Date") which is the
last day of the fiscal quarter of the Corporation. To the
extent that the Corporation elects to pay a dividend in cash,
such cash payment will be made to the Holders no later than
fifteen (15) days following the Record Date for such dividend.
"Face Value" shall mean $4.50 per share of Series A Preferred
Stock, subject to proportionate adjustment upon the occurrence
of any of the events specified in Section 5(d)(iv) or (v) of
this Certificate.
(b) OTHER DIVIDENDS. So long as any shares of Series A
---------------
Preferred Stock are outstanding, no dividend, other than a
dividend payable in Junior Stock (as defined below), shall be
declared or set aside for payment or other distribution declared
or made upon Junior Stock, nor shall the Junior Stock be
redeemed, purchased or otherwise acquired for any consideration
by the Corporation (except by conversion into or exchange for
stock of the Corporation ranking junior to the Series A
Preferred Stock as to dividends or upon Liquidation) unless, in
each case, the full cumulative dividends on all outstanding
shares of Series A Preferred Stock shall have been paid or
declared and set apart. For the purposes of this Paragraph
4(b), "Junior Stock" means the Common Stock and any other class
or series of stock of the Corporation hereinafter authorized
which shall rank under the Series A Preferred Stock as to all
dividend payments or the distribution of assets upon
Liquidation.
5. CONVERSION. The Holders of the Series A Preferred
----------
Stock shall have conversion rights as follows (the "Conversion
Rights"):
(a) RIGHT TO CONVERT. Each Holder of any share or shares
----------------
of Series A Preferred Stock shall have the right, at its option
at any time, to convert any such shares of Series A Preferred
Stock into such number of fully paid and non-assessable whole
shares of Common Stock as is obtained by dividing (i) the
product of the number of shares of Series A Preferred Stock to
be converted multiplied by the Face Value, by (ii) the
Conversion Price (as hereinafter defined) per share. For
purposes of this Certificate of Designations, the "Conversion
Price" shall equal the Face Value, as adjusted pursuant to
Paragraph 5(d).
(b) MECHANICS OF CONVERSION. Each Holder desiring to
-----------------------
convert its shares shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the
Corporation, and shall give written notice to the Corporation at
such office specifying the number of shares of Series A
Preferred Stock to be converted. Whether or not specified in
such notice, the notice of conversion shall be deemed to include
the shares of Series A Preferred Stock issued as in-kind
dividends pursuant to Paragraph 4 hereof with respect to
Holder's shares of Series A Preferred Stock being converted. No
later than the fifth business day (in New York, New York)
following the Corporation's receipt of such notice of conversion
accompanied by the certificate(s) evidencing the shares to be
converted, the Corporation shall deliver to the Holder the
following:
(i) a certificate or certificates for the number of
shares of Common Stock to which such Holder is entitled
upon such conversion;
(ii) a cash payment in lieu of any fraction of a share
based upon the Liquidation Value of a whole share of Series
A Preferred Stock; and
(iii) a certificate or certificates evidencing the
number of shares of Series A Preferred Stock which had been
evidenced by the original certificate delivered to the
Corporation but have not been converted.
Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such
surrender of the certificate or certificates representing the
shares of Series A Preferred Stock to be converted, and the
Holder entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the
record holder of such shares of Common Stock on such date.
(c) AUTOMATIC CONVERSION. At any time after the
--------------------
occurrence of a Qualifying Event, the Corporation shall have the
right to cause each share of Series A Preferred Stock (and all
accrued in-kind dividends with respect thereto) to be converted
into shares of Common Stock as provided in Paragraph 5(a). In
order to effectuate such conversion, the Corporation shall be
required to provide written notice to each Holder of Series A
Preferred Stock being converted at least five (5) business days
prior to such conversion. For purposes of this Certificate of
Designations, a "Qualifying Event" shall have occurred if (i)
the rolling twenty (20)-trading day volume-weighted average
trading price of shares of the Corporation's Common Stock
exceeds 150% of the then applicable Series A Conversion Price,
(ii) the average trading volume of the shares of the
Corporation's Common Stock for the prior 45 calendar days
exceeds 30,000 shares per day, and (iii) there shall be an
effective registration statement under the Securities Act of
1933, as amended (the "Act") covering all of the shares of the
Corporation's Common Stock which would be issuable upon
conversion of all of the outstanding shares of Series A
Preferred Stock (including shares of Series A Preferred Stock
deemed issued as payment-in-kind of accrued dividends).
(d) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF COMMON
------------------------------------------------------
STOCK. Except as provided in Paragraph 5(e) hereof, if and
-----
whenever the Corporation shall issue or sell (or is deemed to
have issued or sold, in accordance with clauses (i) through
(viii) below) any shares of its Common Stock without
consideration or for a consideration per share less than the
Conversion Price in effect immediately prior to the time of such
issuance or sale (any such issuance or sale herein referred to
as a "Dilutive Issuance"), then, forthwith upon such Dilutive
Issuance the Conversion Price shall be reduced as follows: the
Conversion Price shall be reduced to the price determined by
dividing:
(A) an amount equal to the sum of (1) the total number
of shares of Common Stock outstanding immediately prior to
such issuance or sale (including as outstanding all shares
of Common Stock issuable upon conversion of outstanding
Series A Preferred Stock and shares of Series A Preferred
Stock accrued as in-kind dividends) multiplied by the
existing Conversion Price in effect immediately prior to
such issuance or sale; plus (2) the consideration, if any,
received by the Corporation upon such issuance or sale of
additional securities, by
(B) the total number of shares of Common Stock
outstanding immediately after such issuance or sale
(including as outstanding all shares of Common Stock
issuable upon conversion of outstanding Series A Preferred
Stock and shares of Series A Preferred Stock deemed issued
as in-kind dividends).
No adjustment of the Conversion Price however, shall be
made in an amount less than $.01 per share, and any such lesser
adjustment shall be carried forward and shall be made at the
time and together with the next subsequent adjustment which
together with any adjustments so carried forward shall amount to
$.01 per share or more.
For purposes of this subparagraph (d), the following
clauses (i) through (vii) shall also be applicable, subject to
subparagraph (e):
(i) ISSUANCE OF RIGHTS OR OPTIONS. If the Corporation
-----------------------------
shall in any manner grant (whether directly, by assumption
in a merger or otherwise) any options or rights to
subscribe for or to purchase Common Stock or any stock or
securities convertible into or exchangeable for Common
Stock (such rights or options being herein called "Options"
and such convertible or exchangeable stock or securities
being herein called "Convertible Securities"), whether or
not such Options or the right to convert or exchange any
such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable
upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities (determined by
dividing (i) the total amount, if any, received or
receivable by the Corporation as consideration for the
issuance of such Options, plus the minimum aggregate amount
of additional consideration payable to the Corporation upon
the exercise of all such Options, plus, in the case of such
Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any,
payable upon the issuance or sale of such Convertible
Securities and upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the
conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less
than the Conversion Price in effect immediately prior to
the time of the granting of such Options, then the total
maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of
the total maximum amount of such Convertible Securities
issuable upon the exercise of such Options shall be deemed
to have been issued for such price per share as of the date
of granting of such Options and thereafter shall be deemed
to be outstanding. Except as otherwise provided in clause
(iii) below, no adjustment of such Conversion Price shall
be made upon the actual issuance of such Common Stock or of
such Convertible Securities upon exercise of such Options
or upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(ii) ISSUANCE OF CONVERTIBLE SECURITIES. If the
----------------------------------
Corporation shall in any manner issue (whether directly or
by assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to
exchange or convert the same are immediately exercisable,
and the price per share for which Common Stock is issuable
upon such conversion or exchange (determined by dividing
(i) the total amount received or receivable by the
Corporation as consideration for the issuance or sale of
such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Conversion
Price in effect immediately prior to the time of such
issuance or sale, then the total maximum number of shares
of Common Stock issuable upon conversion or exchange of all
such Convertible Securities shall be deemed to have been
issued for such price per share as of the date of the
issuance or sale of such Convertible Securities and
thereafter shall be deemed to be outstanding. Except as
otherwise provided in clause (iii) below, no adjustment of
such Conversion Price shall be made upon the actual
issuance of Common Stock upon conversion or exchange of
such Convertible Securities. If any such issuance or sale
of such Convertible Securities is made upon exercise of any
Option to purchase any such Convertible Securities for
which adjustments of such Conversion Price have been or are
to be made pursuant to other provisions of this paragraph
(d), no further adjustment of such Conversion Price shall
be made by reason of such issuance or sale.
(iii) CHANGE IN OPTION PRICE OR CONVERSION RATE.
-----------------------------------------
If (1) the purchase price provided for in any Option
referred to in clause (i) above; (2) the additional
consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in
clauses (i) or (ii) above; or (3) the rate at which any
Convertible Securities referred to in clauses (i) or (ii)
above are convertible into or exchangeable for Common
Stock, shall change at any time (in each case other than
under or by reason of provisions designed to protect
against dilution), the Conversion Price in effect at the
time of such event shall forthwith be readjusted to the
Conversion Price which would have been in effect at such
time had such Options or Convertible Securities provided
for such changed purchase price, additional consideration
or conversion rate, as the case may be, at the time
initially granted, issued or sold. On the expiration of
any such Option or the termination of any such right to
convert or exchange such Convertible Securities, the
Conversion Price then in effect hereunder shall forthwith
be increased to the Conversion Price which would have been
in effect at the time of such expiration or termination had
such Option or Convertible Securities never been issued,
and the Common Stock issuable thereunder shall no longer be
deemed to be outstanding. If the purchase price provided
for in any such Option referred to in clause (i) or the
rate at which any Convertible Securities referred to in
clauses (i) or (ii) are convertible into or exchangeable
for Common Stock shall be reduced at any time under or by
reason of provisions with respect thereto designed to
protect against dilution, then, in case of the delivery of
Common Stock upon the exercise of any such Option or upon
conversion or exchange of any such Convertible Securities,
the Conversion Price then in effect hereunder shall
forthwith be adjusted to such respective amount as would
have been obtained had such Option or Convertible
Securities never been issued as to such Common Stock and
had adjustments been made upon the issuance of the shares
of Common Stock delivered as aforesaid, but only if as a
result of such adjustment such Conversion Price then in
effect hereunder is thereby reduced.
(iv) STOCK DIVIDENDS. If the Corporation shall declare
---------------
a dividend or make any other distribution upon any stock of
the Corporation payable in Common Stock, Options or
Convertible Securities, any Common Stock, Options or
Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration (except that
in the case of a distribution in respect of the
Corporation's Common Stock that is payable in Common Stock,
the Conversion Price shall be reduced, concurrently with
the effectiveness of such event, as if the Corporation had
subdivided its outstanding shares of Common Stock into a
greater number of shares, as provided in clause (v)
hereof); provided, however, that in the case of a dividend
payable in shares of Common Stock, no such adjustment shall
be made if the Holders of the Series A Preferred Stock
simultaneously receive a dividend or other distribution of
shares of Common Stock (or shares of Series A Preferred
Stock that are convertible, on the date of such event, into
shares of Common Stock) in a number equal to the number of
shares of Common Stock as they would have received if all
outstanding shares of Series A Preferred Stock had been
converted into Common Stock on the date of such event.
(v) SUBDIVISION OR COMBINATION OF STOCK. If the
-----------------------------------
Corporation shall split or subdivide its outstanding shares
of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such
subdivision shall, concurrently with the effectiveness of
such event, be proportionately reduced, and conversely, if
the outstanding shares of Common Stock of the Corporation
shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
(vi) CONSIDERATION FOR STOCK. In case any shares of
-----------------------
Common Stock, Options or Convertible Securities shall be
issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in
connection therewith. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold
for a consideration other than cash, the amount of the
consideration other than cash received by the Corporation
shall be deemed to be the fair value of such consideration
as determined in good faith by the Board of Directors of
the Corporation, without deduction of any expenses incurred
or any underwriting commissions or concessions paid or
allowed by the Corporation in connection therewith. In
case any Options shall be issued in connection with the
issuance and sale of other securities of the Corporation,
together comprising one integral transaction in which no
specific consideration is allocated to such Options by the
parties thereto, such Options shall be deemed to have been
issued without consideration.
(vii) OTHER TRANSACTIONS. If any event shall
------------------
occur as to which the other provisions of this subparagraph
(d) are not strictly applicable but as to which the failure
to make any adjustment would not fairly protect the
conversion rights of the Series A Preferred Stock in
accordance with the essential intent and principles hereof
then, in each such case, the Holders of the Series A
Preferred Stock may appoint a firm of independent public
accountants of recognized national standing reasonably
acceptable to the Corporation, which shall give their
opinion as to the adjustment, if any, on a basis consistent
with the essential intent and principles established
herein, necessary to preserve the conversion rights
represented herein. Upon receipt of such opinion, the
Corporation will promptly mail a copy thereof to all
registered Holders of the Series A Preferred Stock and
shall make the adjustments described therein. The fees and
expenses of such independent public accountants shall be
borne by the Corporation.
(e) EXCEPTIONS. Notwithstanding any other provision
----------
hereof, no adjustment to the Conversion Price will be made:
(i) upon the issuance of any share of Series A-2
Preferred in connection with the Corporation's acquisition
of Questar Educational Systems, Inc.; or
(ii) upon the issuance of any shares of Series A
Preferred Stock as in-kind dividends pursuant to Paragraph
4 of this Certificate of Designations; or
(iii) in the event of any subdivision,
combination, stock split, stock dividend, recapitalization,
reorganization or other analogous event; or
(iv) upon the issuance of Common Stock, Options or
Convertible Securities with the consent of the Holders of a
majority of the outstanding shares of the Series A
Preferred Stock; or
(v) upon the conversion of any shares of Series A
Preferred Stock; or
(vi) upon the issuance or exercise of options or
rights issued to employees, directors or consultants of the
Corporation, as approved by the Board of Directors, or a
committee thereof, of the Corporation; or
(vii) upon the exercise of options, warrants or
other rights outstanding on the date of issuance of the
Series A Preferred Stock; or
(viii) upon the issuance of any shares of Common
Stock pursuant to a firm underwritten public offering.
(f) FRACTIONAL SHARES. No fractional shares or scrip
-----------------
representing fractional shares of Common Stock shall be issued
upon conversion of shares of Series A Preferred Stock. In lieu
of any fractional share or scrip to which the Holder would
otherwise be entitled, the Corporation shall (after aggregation
of all holdings) pay a cash adjustment in respect of such
fractional interest in an amount equal to fair value thereof on
the conversion date, as determined in good faith by the Board of
Directors.
(g) RESERVATION OF COMMON STOCK ISSUABLE UPON CONVERSION.
----------------------------------------------------
The Corporation shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of the shares
of the Series A Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of Series A Preferred
Stock (including shares of Series A Preferred Stock which have
been issued or deemed issued as dividends upon outstanding
shares of Series A Preferred Stock). The Corporation shall use
its best efforts from time to time, in accordance with the laws
of the State of Delaware, to increase the authorized number of
shares of Common Stock if at any time the number of such
reserved shares shall not be sufficient to permit the conversion
of all the then outstanding shares of Series A Preferred Stock.
(h) PAYMENT OF TAXES. The Corporation shall pay all taxes
----------------
(other than taxes based upon income or transfer) and other
governmental charges that may be imposed with respect to the
issuance or delivery of shares of Common Stock upon conversion
of any shares of Series A Preferred Stock.
(i) CLOSING OF BOOKS. The Corporation shall at no time
----------------
close its transfer books against the transfer of any Series A
Preferred Stock or of any shares of Common Stock issued or
issuable upon the conversion of any shares of Series A Preferred
Stock in any manner which could reasonably interfere with the
timely conversion of such Series A Preferred Stock.
6. VOTING. Each Holder shall be entitled to one vote for
------
each share of Common Stock into which such Holder's shares of
Series A Preferred Stock may be converted, voting together as
one class with the Common Stock; provided, however, that shares
of Series A-2 Preferred held in escrow shall not be entitled to
any voting rights until such shares are released from escrow.
Neither the Certificate of Incorporation nor this Certificate
may be amended to alter or change the powers, preferences or
special rights of the Series A Preferred Stock without the
consent of the Holders of at least a majority of the number of
outstanding shares of the Series A Preferred Stock outstanding
at the time, given by such Holders together as one class, and
given by vote in person, by proxy at a meeting or by consent as
permitted under law.
7. IDENTICAL RIGHTS. Each share of the Series A
----------------
Preferred Stock, whether issued as Series A-1 Preferred or
Series A-2 Preferred, shall have the same relative rights and
preferences as set forth in this Certificate of Designations,
and shall be identical in all respects with, all respects with,
and all other shares of the Series A Preferred Stock, except as
otherwise set forth in this Certificate of Designations or as
may otherwise be agreed between a Holder and the Corporation.
8. CERTIFICATES. So long as any shares of the Series A
------------
Preferred Stock are outstanding, there shall be set forth on the
face or back of each stock certificate issued by the Corporation
a statement that the Corporation shall furnish without charge to
each stockholder who so requests, the powers, preferences and
rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences
or such rights.
9. MISCELLANEOUS.
-------------
(a) COMMUNICATIONS. All notices and other communications
--------------
required or permitted to be given to Holders pursuant to this
Certificate shall be in writing and shall be deemed to have been
duly given (i) when delivered by hand or by recognized overnight
courier to, (ii) upon receipt, if sent by facsimile confirmed
promptly in writing sent by United States mail, postage prepaid,
or (iii) otherwise, upon receipt or upon the Holder's having
actual knowledge of the contents thereof, addressed to the
persons shown on the books of the Corporation as the Holders of
the shares at the addresses as they appear in the books of the
Corporation, as of a record date or a date determined in
accordance with the Corporation's Certificate of Incorporation
or By-laws, this Certificate and applicable law.
(b) DESIGNATIONS AND PREFERENCES. Except as may otherwise
----------------------------
be required by law, shares of Series A Preferred Stock will not
have any designations, preferences, limitations or relative
rights other than those specifically set forth in this
Certificate or in the Corporation's Certificate of
Incorporation.
(c) HEADINGS. Headings used in this Certificate are for
--------
convenience only and shall not be used in the interpretation of
this Certificate. References to paragraphs are to the
paragraphs of this certificate.
(d) WAIVER; AMENDMENT. The preferences, special rights or
-----------------
powers of the Series A Preferred Stock may be waived, and any of
the provisions of the Series A Preferred Stock may be amended,
by the affirmative vote at a meeting or the written consent of
Holders of record of at least a majority of the outstanding
shares of Series A Preferred Stock.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be signed and its corporate seal hereunto affixed
by Xxxxxx X. Xxxxx, its President, and to be attested by Xxxxx
X. Xxxxxxx, its Secretary on this 25th day of May, 2006.
TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC.
By_____________________________
Xxxxxx X. Xxxxx
President
Attest:
_____________________________
Xxxxx X. Xxxxxxx
Secretary
EXHIBIT C
---------
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
INVESTOR RIGHTS AGREEMENT
MAY 31, 2006
TABLE OF CONTENTS
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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, XX Xxx 000,
Xxxxxxxx, XX 00000-0000 Attention: President, Facsimile: 1-
000-000-0000, 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, Xxxxxxx & Kammholz, P.C., 000 Xxxxx Xxxxxx, Xxx Xxxx, XX
00000-0000, Attention: Xxxxxx X. Xxxxxx, 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 Xxxxxx Xxxxxx Xxxxxxxxx
Xxxx and Xxxx LLP, Attention: Xxxxxxx X. Xxxxx, Esq., 0000
Xxxxxx Xxxxxxxxx, Xxxxx 0000, XxXxxx, XX 00000, Facsimile No.
(000) 000-0000.
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: ___________________________
Name: Xxxxxx X. Xxxxx
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: __________________________________
Name: Xxxxxx X. Xxxxxx
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: __________________________________
Name: Xxxxxx X. Xxxxxx
Title: Managing Member
EXHIBIT A
---------
LIST OF PURCHASERS
------------------
NAME AND ADDRESS
----------------
CAMDEN PARTNERS STRATEGIC FUND III, L.P.
c/o: Camden Partners Holdings LLC
000 Xxxx Xxxxx Xxxxxx,
Xxxxx 0000
Xxxxxxxxx, XX 00000
CAMDEN PARTNERS STRATEGIC FUND III-A, L.P.
c/o: Camden Partners Holdings LLC
000 Xxxx Xxxxx Xxxxxx,
Xxxxx 0000
Xxxxxxxxx, XX 00000
EXHIBIT D
---------
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
VOTING 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"), the persons and entities
listed on Exhibit A hereto (individually, a "Purchaser" and
collectively, the "Purchasers") and the persons and entities
listed on Exhibit B hereto (individually, a "Stockholder" and
collectively, the "Stockholders").
RECITALS:
---------
A. The Purchasers are purchasing, concurrently herewith,
certain shares of capital stock of the Company pursuant to the
Series A-1 Convertible Preferred Stock Purchase Agreement of
even date herewith (the "Purchase Agreement");
B. The Stockholders are currently stockholders of the
Company, each of whom (i) is the beneficial owner and controls
the vote of the Shares set forth on Exhibit B; and (ii) will
benefit from the consummation of the transactions contemplated
by the Purchase Agreement; and
C. The Purchasers, the Stockholders and the Company wish
to provide for the Purchasers representation on the Board of
Directors of the Company (the "Board of Directors") in the
manner set forth below.
In consideration of the mutual covenants contained herein
and the consummation of the sale and purchase of shares of
capital stock of the Company pursuant to the Purchase Agreement,
and for other valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. BOARD OF DIRECTORS.
------------------
(a) Until the next annual meeting of stockholders of
the Company, the Company shall be governed by a Board of
Directors consisting of not less than seven nor more than ten
members (each a "Director"). Without the consent of the
Purchaser Directors (as hereinafter defined), the number of
Directors constituting the full Board of Directors shall not be
increased beyond ten; without the consent of the Company
Directors (as hereinafter defined), the number of Directors
constituting the full Board of Directors shall not be reduced
below seven. Regular meetings of the Board shall be held at
least two times per year, on a semi-annual basis.
(b) Notwithstanding the provisions of Section 1(a)
above, the Company agrees that it, concurrent with the next
annual meeting of the stockholders of the Company, the Company
shall take all necessary actions to reduce the maximum number of
Directors constituting the full Board of Directors to nine.
From and after such annual meeting, without the consent of the
Purchaser Directors (as hereinafter defined), the number of
Directors constituting the full Board of Directors shall not be
increased beyond nine.
2. NOMINATION AND ELECTION OF DIRECTORS.
------------------------------------
(a) For so long as the Purchasers own at least
833,333 shares of Series A-1 Convertible Preferred Stock of the
Company or the equivalent shares of Common Stock of the Company
if converted, the Purchasers shall have the right to nominate up
to a maximum of three Directors (each, a "Purchaser Director").
Two of the Purchaser Directors shall initially be Xxxxx X.
Xxxxxxx and Xxxxxx X. Xxxxxx. The third Purchaser Director
shall be named at a later date.
(b) The Company agrees that it shall cause the Board
of Directors to endorse the nominees designated by the
Purchasers pursuant to Section 2(a) to serve as Directors. The
Board of Directors (other than the Purchaser Directors) shall
have the right to nominate no less than four nor more than seven
Directors (each a "Company Director"), to serve until their
respective successors are elected and qualified, provided, that
at such time as the number of Directors constituting the Board
of Directors is reduced to nine directors, the Board of
Directors (other than the Purchaser Directors) shall have the
right to nominate no less than four nor more than six Directors.
(c) On the date hereof and at each annual meeting of
stockholders of the Company or any special meeting called for
the purpose of electing directors of the Company or at such
other time or times as directors may be elected in accordance
with the Company's By-Laws and the General Corporation Law of
the State of Delaware, the Purchasers and the Stockholders agree
to cast all of their Shares in favor of the nominees for
Directors nominated pursuant to paragraphs (a) and (b) hereof,
and for no other persons. As used in this Agreement, the term
"Shares" shall mean and include any and all shares of capital
stock of the Company (including Common Stock, Series A-1
Convertible Preferred Stock and Series A-2 Convertible Preferred
Stock), by whatever name called, which carry voting rights and
shall include any such shares now owned or subsequently acquired
by a Purchaser or a Stockholder, however acquired, including
without limitation stock splits and stock dividends.
(d) So long as each of Xxxxxx, Xxxxxxx Strategic
Partners Fund, L.P. and Strategic Associates, L.P. are entitled
to elect two directors to the Board of Directors pursuant to
that certain Investor Rights Agreement, dated as of September 4,
1998, the Purchasers shall be required to designate the same two
directors designated by each of Xxxxxx, Xxxxxxx Strategic
Partners Fund, L.P. and Strategic Associates, L.P. (who are
initially Xxxxx X. Xxxxxxx and Xxxxxx X. Xxxxxx) as directors
pursuant to Section 2(a).
3. REMOVAL. The Purchaser Directors shall at all times
-------
have the right to recommend the removal, with or without cause,
of a Purchaser Director only, and the Company Directors shall at
all times have the right to recommend the removal, with or
without cause, of a Company Director only. If a Director's
removal shall have been recommended in accordance with the
preceding sentence, then the Board of Directors shall take such
corporate actions as may be required under the Company's By-Laws
and the General Corporation Law of the State of Delaware to
effect such removal and the Purchasers and Stockholders shall
cast all of their Shares in favor of such removal.
4. VACANCY. If any vacancy occurs in the Board of
-------
Directors because of the death, disability, resignation,
retirement or removal of a Purchaser Director, then the
Purchasers shall nominate a successor, and the Board of
Directors shall vote to elect such successor to the Board of
Directors, or if a vote of the stockholders of the Company is
held, the (a) Board of Directors shall recommend to the
stockholders that such successor be elected to the Board of
Directors; and (b) Purchasers and Stockholders shall cast all of
their Shares in favor of the nominees for Directors nominated by
the Purchasers, and for no other persons. If any vacancy occurs
in the Board of Directors because of the death, disability,
resignation, retirement or removal of a Company Director, then
the Company Directors shall either (i) nominate a successor, and
the Board of Directors shall vote to elect such successor to the
Board, or if a vote of the stockholders of the Company is held,
the Board of Directors shall recommend to the stockholders that
such successor be elected to the Board of Directors, or (ii)
decide expressly not to fill such vacancy at such time.
5. TERMINATION. This Agreement shall terminate and
-----------
thereafter be of no force and effect, except as set forth below,
upon the earlier to occur of the following:
(a) The Purchasers shall cease to own beneficially at
least 833,333 shares of Series A-1 Convertible Preferred Stock
of the Company or the equivalent shares of Common Stock of the
Company if converted (the "Purchaser Shares"); or
(b) The closing of a Company Sale (as defined in the
Investor Rights Agreement of even date herewith among the
Company and the Purchasers).
6. NO REVOCATION. The voting agreements contained herein
-------------
are coupled with an interest and may not be revoked, except by
an amendment, modification or termination effected in accordance
with Section 5 or 9(f) hereof. Nothing in this Section 6 shall
be construed as limiting the provisions of Section 5 or 9(f)
hereof.
7. RESTRICTIVE LEGEND. All certificates representing
------------------
Shares as owned or hereafter acquired by the Purchasers,
Stockholders or any transferee of any of them bound by this
Agreement shall have affixed thereto a legend substantially in
the following form:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE
ARE SUBJECT TO CERTAIN VOTING AGREEMENTS AS SET FORTH
IN THE VOTING AGREEMENT, AS AMENDED FROM TIME TO TIME,
BY AND AMONG THE REGISTERED OWNER OF THIS CERTIFICATE,
THE COMPANY AND CERTAIN OTHER STOCKHOLDERS OF THE
COMPANY, A COPY OF WHICH IS AVAILABLE FOR INSPECTION
AT THE OFFICES OF THE SECRETARY OF THE COMPANY."
8. OBLIGATIONS BINDING ON TRANSFEREES. Any person or
----------------------------------
entity to which Purchaser Shares, Registrable Shares (as defined
in the Investor Rights Agreement) or Shares are transferred by a
Purchaser or a Stockholder, as the case may be, whether
voluntarily or by operation of law, shall be bound by the voting
obligations imposed upon the transferor under this Agreement, to
the same extent as if such transferee were a Purchaser or
Stockholder hereunder, as the case may be; and no Purchaser or
Stockholder shall transfer any Purchaser Shares, Registrable
Shares or Shares unless the transferee provides a written
instrument to the Company notifying the Company of such transfer
and agreeing in writing to be bound by the terms of this
Agreement.
9. GENERAL.
-------
(a) 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.
(b) 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 and the Stockholders hereunder and to such other
injunctive or other equitable relief as may be granted by a
court of competent jurisdiction.
(c) GOVERNING LAW. This Agreement shall be governed
-------------
by and construed in accordance with the General Corporation Law
of the State of Delaware (without reference to the conflict of
law provisions thereof), and to the extent a matter is not
addressed by the General Corporation Law of the State of
Delaware, this Agreement shall be governed by and construed in
accordance with the laws of the State of New York (without
reference to the conflict of laws provisions thereof).
(d) 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, XX Xxx 000,
Xxxxxxxx, XX 00000-0000 Attention: President, Facsimile: 1-
000-000-0000, 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, Xxxxxxx & Kammholz, P.C., 000 Xxxxx Xxxxxx, Xxx Xxxx, XX
00000-0000, Attention: Xxxxxx X. Xxxxxx, 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 Xxxxxx Xxxxxx Xxxxxxxxx Xxxx and Xxxx
LLP, Attention: Xxxxxxx X. Xxxxx, Esq., 0000 Xxxxxx Xxxxxxxxx,
Xxxxx 0000, XxXxxx, XX 00000, Facsimile No. (000) 000-0000.
If to a Stockholder, at its address set forth on Exhibit B, or
at such other address as may have been furnished in writing by
such Stockholder to the other parties hereto.
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 9(d).
(e) 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.
(f) 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 and the Stockholders, voting together.
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. 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 9(f) 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.
(g) 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.
(h) 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.
(i) 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)
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto as of the day and year first above written.
COMPANY:
-------
TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC.
By:____________________________
Xxxxx X. Xxxxxxx
Secretary
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: __________________________________
Name: Xxxxxx X. Xxxxxx
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: __________________________________
Name: Xxxxxx X. Xxxxxx
Title: Managing Member
STOCKHOLDERS:
------------
XXXXXX, XXXXXXX STRATEGIC PARTNERS FUND, L.P.
By: XXXXXX XXXXXXX STRATEGIC
PARTNERS, L.P.,
its sole General Partner
By: ___________________________________
Name: Xxxxxx X. Xxxxxx
Title: General Partner
STRATEGIC ASSOCIATES, L.P.
By: XXXXXX XXXXXXX STRATEGIC
PARTNERS, L.P., its sole General
Partner
By: ___________________________________
Name: Xxxxxx X. Xxxxxx
Title: General Partner
_________________________________________
Xxxxxx X. Xxxxx
_________________________________________
Xxxxx X. Xxxxxxx
_________________________________________
Xxxxxxx X. Xxxx
EXHIBIT A
List of Purchasers
------------------
Name and Address
----------------
CAMDEN PARTNERS
STRATEGIC FUND III, L.P.
c/o: Camden Partners Holdings LLC
000 Xxxx Xxxxx Xxxxxx,
Xxxxx 0000
Xxxxxxxxx, XX 00000
CAMDEN PARTNERS
STRATEGIC FUND III-A, L.P.
c/o: Camden Partners Holdings LLC
000 Xxxx Xxxxx Xxxxxx,
Xxxxx 0000
Xxxxxxxxx, XX 00000
EXHIBIT B
List of Stockholders
--------------------
Name Number of Shares held
---- ---------------------
Xxxxxx, Xxxxxxx Strategic Partners
Fund, L.P.
000 Xxxx Xxxxx Xxxxxx,
Xxxxx 0000
Xxxxxxxxx, XX 00000
Strategic Associates, L.P.
000 Xxxx Xxxxx Xxxxxx,
Xxxxx 0000
Xxxxxxxxx, XX 00000
Xxxxxx X. Xxxxx 93,263 shares owned of record
c/o Touchstone Applied Science
Associates, Inc.
4 Hardscrabble Heights,
XX Xxx 000
Xxxxxxxx, XX 00000-0000
Xxxxx X. Xxxxxxx 50,694 shares owned of record
c/o Touchstone Applied Science
Associates, Inc.
4 Hardscrabble Heights,
XX Xxx 000
Xxxxxxxx, XX 00000-0000
Xxxxxxx X. Xxxx 94,750 shares owned of record
c/o Touchstone Applied Science
Associates, Inc.
4 Hardscrabble Heights,
XX Xxx 000
Xxxxxxxx, XX 00000-0000
EXHIBIT E
---------
MANAGEMENT RIGHTS LETTER
May 31, 2006
Camden Partners Strategic Fund III, L.P.
000 Xxxx Xxxxx Xxxxxx
Xxxxx 0000
Xxxxxxxxx, XX 00000
Re: Management Rights
Ladies and Gentlemen:
On the date hereof, Camden Partners Strategic Fund III,
L.P. (the "Investor") acquired shares of Series A Convertible
Preferred Stock ("Series A Stock") of Touchstone Applied Science
Associates, Inc., a Delaware corporation (the "Issuer"). In
connection with such investment, Investor is seeking to obtain
direct contractual rights to substantially participate in, or
substantially influence the conduct of, the management of the
Issuer, in order to satisfy certain requirements to (i) qualify,
or maintain its qualification, as a "venture capital operating
company" within the meaning of the regulations issued under the
Employee Retirement Income Security Act of 1974, as amended
("ERISA"), a law of the United States. In order to induce
Investor to invest in the Issuer and to enable the Investor to
satisfy such requirements, the Issuer has agreed to provide the
following contractual management rights, in addition to any
rights to non-public financial information, inspection rights
and other rights specifically provided to all investors in the
current financing:
1. Investor (together with Camden Partners Strategic Fund III-
A, L.P.) shall be entitled to designate three members of the
Issuer's Board of Directors pursuant to the Voting Agreement
dated May 31, 2006 (as amended from time to time, the "Voting
Agreement").
2. Investor shall be entitled to consult with and advise
management of the Issuer on significant business issues,
including management's proposed annual operating plans, and
management will meet with you regularly during each year at the
Issuer's facilities at mutually agreeable times for such
consultation and advice and to review progress in achieving said
plans.
3. Investor may examine the books and records of the Issuer
and inspect its facilities and its properties and may request
information at reasonable times and intervals concerning the
general status of the Issuer's financial condition and
operations.
4. If at any time Investor is not represented on the Issuer's
Board of Directors:
(a) the Issuer shall give a representative of Investor
copies of all notices, minutes, consents, financial statements,
budgets and other material that the Issuer provides to its
directors at the same time it provides such information to its
directors; and
(b) the Issuer shall invite the Investor to send a
representative to attend in a nonvoting observer capacity all
meetings of the Issuer's Board of Directors and such
representative may participate in discussions of matters brought
to the Board.
5. The Issuer shall deliver to Investor:
(a) as soon as available and in any event within 45 days
after the end of each of the first three quarters of each fiscal
year of the Issuer, consolidated balance sheets of the Issuer
and its subsidiaries as of the end of such period, and
consolidated statements of income and cash flows of the Issuer
and its subsidiaries for the period then ended, prepared in
conformity with generally accepted accounting principles in the
United States applied on a consistent basis, except as otherwise
noted therein, and subject to the absence of footnotes and to
year-end adjustments; and
(b) as soon as available and in any event within 120 days
after the end of each fiscal year of the Issuer, a consolidated
balance sheet of the Issuer and its subsidiaries as of the end
of such year, and consolidated statements of income and cash
flows of the Issuer and its subsidiaries for the year then
ended, prepared in conformity with generally accepted accounting
principles in the United States applied on a consistent basis,
except as otherwise noted therein, together with an auditors
report thereon of a firm of established national reputation.
6. Investor agrees, and any representative of Investor will
agree, to hold in confidence and trust and not use or disclose
any confidential information provided to or learned by it in
connection with its rights under this letter, except as required
by law.
7. This letter agreement may be executed in any number of
counterparts and, when so executed, all of such counterparts
shall constitute a single instrument binding upon all parties
notwithstanding the fact that all parties are not signatory to
the original or to the same counterpart.
8. The rights granted herein shall terminate and be of no
further force or effect upon the earlier to occur of (a) the
consummation of the sale of the Issuer's securities pursuant to
a registration statement filed by the Issuer under the
Securities Act of 1933, as amended, or under other applicable
local law, in connection with the firm commitment underwritten
offering of its securities to the general public, and (b) such
time as Investor shall no longer hold any securities of the
Issuer. The confidentiality provisions hereof will survive any
such termination.
9. Subject to paragraph 8 above, if the Issuer engages in a
restructuring or similar transaction, any resulting entity or
entities shall be subject to this Agreement in the same manner
as the Issuer.
10. So long as a nominee of the Investor is represented on
the Issuer's Board of Directors, to the extent that the
provisions of this Letter are inconstant with the provisions of
the Voting Agreement or the Investors Rights Agreement, dated as
of May 31, 2006, by and among the Issuer and the Investor (as
amended from time to time, the "Investor Rights Agreement"), the
provisions of the Voting Agreement and the Investor Rights
Agreement shall control.
[Signatures on Following Page]
Very truly yours,
Touchstone Applied Science Associates, Inc.
By:________________________
Name:
Title:
Accepted:
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: ___________________________________
Name: Xxxxxx X. Xxxxxx
Title: Managing Member
EXHIBIT F
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OPINION
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May 31, 2006
Camden Partners Strategic Fund III, L.P.
000 Xxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000
Camden Partners Strategic Fund III-A, L.P.
000 Xxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000
Re: Touchstone Applied Science Associates, Inc.
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Ladies and Gentlemen:
We have acted as counsel to Touchstone Applied Science
Associates, Inc., a Delaware corporation (the "Company"), in
connection with their negotiation, execution and delivery of,
and the transactions contemplated by, the Securities Purchase
Agreement, dated as of May 31, 2006 (the "Purchase Agreement")
by and among the Company and the Purchasers named therein. This
opinion is furnished to you pursuant to Section 2(h) of the
Purchase Agreement. Capitalized terms used herein and not
otherwise defined have the meanings ascribed to such terms in
the Purchase Agreement.
In rendering the opinions set forth herein, we have
examined the following documents, each dated as of the date
hereof:
(i) the Purchase Agreement;
(ii) the Investor Rights Agreement (the "Investor
Rights Agreement");
(iii) the Voting Agreement (the "Voting Agreement");
(iv) the Management Rights Letters (the
"Management Letters");
(v) Certificate of Incorporation of the Company,
certified by the Secretary of State of Delaware, on May 3,
2006, and the By-Laws of the Company;
(vi) Amended Certificate of Designations of the
Series A Convertible Preferred Stock of the Company, as
filed with the Secretary of State of Delaware on May 26,
2006 (the "Certificate of Designations");
(vii) resolutions of the Board of Directors of the
Company, approving the Purchase Agreement and the
transactions contemplated thereby; and
(viii) such other documents as we, in our
professional judgment, have deemed necessary or appropriate
as a basis for the opinions set forth below
The items referred to in clauses (i) through (iv) above are
referred to herein collectively as the "Purchase Documents".
In so acting, we have examined originals, or copies,
certified or otherwise identified to our satisfaction, of the
Purchase Documents and such corporate records, documents and
other instruments, and such certificates or comparable documents
of public officials and of officers and representatives of the
Company, and have made such inquiries of such officers and
representatives, as we have deemed relevant and necessary as a
basis for the opinions hereinafter set forth.
In such examination, we have assumed, with your permission,
(i) the genuineness of all signatures, other than those of
officers of the Company, (ii) the legal capacity of natural
persons, (iii) the authenticity of all documents submitted to us
as originals, (iv) the conformity to the original documents of
all documents submitted to us as conformed or photostatic copies
and (v) the authenticity of the originals of the Purchase
Documents. As to all questions of fact relevant to this
opinion, with your permission and without any independent
investigation or verification, we have relied upon, and assumed
the accuracy of, (i) the certificates or comparable documents of
public officials and officers and representatives of the Company
and (ii) the representations and warranties of the Company
contained in the Purchase Documents. We also have assumed, with
your permission and without any independent verification: (i)
compliance by each party to the Purchase Documents with its
agreements in the respective Purchase Documents; and (ii) that
each Purchase Document constitutes the legal, valid and binding
obligation of each party to it, other than the Company, and is
enforceable against each such other party in accordance with its
respective terms. With respect to matters stated to be based on
our "Actual Knowledge" or matters "Actually Known" to us, our
opinion is based on such information as has come to the actual
attention of the attorneys in our firm who have represented the
Company in connection with the transactions contemplated by the
Purchase Documents, and we have made no special investigation or
inquiries with respect thereto.
For purposes of this opinion, the following terms shall
have the following meanings: "Applicable Laws" shall mean the
General Corporation Law of the State of Delaware, the Limited
Liability Company Act of the State of Delaware, the statutory
laws and regulations of the State of New York, and the statutory
laws and regulations of the United States of America which, in
our experience, are normally applicable to transactions of the
type contemplated by the Purchase Documents, without our having
made any special investigation as to the applicability of any
specific law. "Governmental Approval" means any consent,
approval, license or authorization of, or filing, recording or
registration with, any governmental authority required by the
Applicable Laws.
We express no opinion as to the laws of any jurisdiction
other than the General Corporation Law of the State of Delaware,
the statutory laws and regulations of the State of New York, and
the statutory laws and regulations of the United States of
America. We express no opinion as to any law of any other
jurisdiction.
Based upon and subject to the foregoing, and subject to the
qualifications set forth herein we are of the opinion that:
1. The Company is a Delaware corporation validly existing
and in good standing under the laws of the State of Delaware,
and has the requisite corporate power and authority (i) to own
and operate its properties and to conduct its business as now
being conducted, and (ii) to execute and deliver the Purchase
Documents and to perform its respective obligations thereunder.
2. The execution, delivery and performance by the Company
of the Purchase Documents and the performance of its respective
obligations thereunder have been duly authorized by all
requisite corporate action. The Company has duly executed and
delivered each Purchase Document. Each Purchase Document
constitutes the valid and legally binding obligation of the
Company, enforceable against the Company in accordance with its
respective terms.
3. The Company's authorized capital stock consist of
25,000,000 shares as follows: (i) 20,000,000 shares of Common
Stock, par value $0.0001 per share ("Common Stock"), and (ii)
5,000,000 shares of Preferred Stock, par value $0.0001 per share
(the "Series A Preferred Stock"), of which the Board of
Directors of the Company has designated 1,666,667 shares as
Series A-1 Convertible Preferred Stock, and 1,333,333 shares as
Series A-2 Convertible Preferred Stock. Subject to the terms
and conditions of the Agreement, the Company has authorized the
reservation of the number of shares of Common Stock issuable
upon conversion of the Series A Preferred Stock from time to
time.
4. The execution, delivery and performance by the Company
of the Purchase Documents to which it is a party and the
performance of its obligations under each such Purchase
Document, each in accordance with it terms, and the performance
by each the Company of its respective obligations thereunder
will not (a) violate, contravene or conflict with any provision
of the certificate of incorporation or bylaws of the Company,
(b) violate, contravene or conflict with any Applicable Laws,
(c) violate any order, writ, injunction or decree of any court
or governmental authority or any arbitral award applicable to
the Company of which we have Actual Knowledge, (d) to our Actual
Knowledge, conflict with or result in a breach of, constitute a
default under, require any consent under, result in the
acceleration or required prepayment of any indebtedness, or
result in the creation of any lien, security interest or other
encumbrance upon any of the Company's properties under, any
agreement or instrument to which the Company is a party, except
for those consents disclosed in the Purchase Agreement which
have already been obtained.
5. Except as set forth in the Purchase Agreement, to our
Actual Knowledge, there is no action, suit, proceeding or
investigation pending or overtly threatened against the Company
before any governmental authority which seeks to affect the
enforceability of any of the Purchase Documents.
6. No Governmental Approval is required for the
execution, delivery and performance by any Company of the
Purchase Documents, except for those Governmental Approvals
specified in the Purchase Documents.
The foregoing opinions are subject to the following
additional qualifications, assumptions and limitations:
(a) With respect to our opinions in paragraph 1 above
regarding the good standing of Company, we have relied solely on
a Certificate of Good Standing issued by the Secretary of State
of Delaware.
(b) The enforceability of any obligation of the
Company may be limited by bankruptcy, insolvency, fraudulent
conveyance or similar laws, reorganization, rehabilitation,
moratorium, marshalling or other laws affecting the enforcement
generally of creditors' rights and remedies.
(c) The enforceability of any obligation of the
Company is subject to principles of equity (regardless of
whether considered and applied in a proceeding in equity or at
law), public policy, applicable law relating to fiduciary
duties, judicial imposition of an implied covenant of good faith
and fair dealing and principles regarding successor liability,
equitable subordination, substantive consolidation of entities
and the adequacy of consideration for a Person's guarantee of
its affiliate's obligations.
(d) No opinion is given herein as to the availability
of specific performance or equitable relief of any kind.
(e) We express no opinion as to the validity, binding
effect or enforceability of (i) purported waivers of any
statutory or other rights, court rules or defenses to
obligations or consents to any actions where such waivers or
consents (A) are against public policy or (B) constitute waivers
of rights or consents to actions which by law, regulation or
judicial decision may not otherwise be waived or given, (ii)
provisions indemnifying any person against, or relieving any
person of liability for, its own negligent or wrongful acts or
in any other circumstances where enforcement of such provisions
would be against public policy or limited or prohibited by
applicable law, (iii) any provisions which purport to authorize
or permit any person to act in a manner which is determined not
to be in good faith or commercially reasonable or any provisions
which purport to waive any rights in respect of such acts, (iv)
any provisions which purport to authorize or permit any person
to exercise any right or remedy upon any nonmaterial breach or
default, (v) any forum selection, exclusive jurisdiction or
choice of law provision or any provision purporting to waive the
right of trial by jury, the objection of improper venue or any
unknown rights and defenses, (vi) any powers of attorney to the
extent that they purport to grant rights and powers that may not
be granted under applicable law or any provision making such
powers of attorney irrevocable, whether or not coupled with an
interest, (vii) any provisions that purport to permit the
exercise of "self-help" remedies, including, without limitation,
the exercise of rights of setoff or purported rights to enter
onto the property of any person or take physical possession of
any property, (viii) any right or obligation to the extent that
the same may be varied by course of dealing or performance, (ix)
any provision which may provide for the compounding of interest
or the payment or accrual of interest on interest or for
interest after judgment or after the filing of a voluntary or
involuntary proceeding for bankruptcy, insolvency or
reorganization or as to the effect of such laws, if applicable,
(x) any provision purporting to establish evidentiary standards,
(xi) any provision that is subject to any mutual mistake of fact
or misunderstanding, fraud, duress or undue influence, (xii) any
provision prohibiting the non-written modification of any
document, (xiii) any provision purporting to determine damages
or impose penalties, or requiring payment of attorneys' fees and
expenses, in an amount in excess of reasonable attorneys' fees
and expenses actually incurred, or (xiv) any provision
purporting to shorten any statute of limitations, or waiving in
advance any defense with respect to statutes of limitation.
(f) The opinions expressed herein are matters of
professional judgment and are not a guarantee of result.
This opinion is solely for the information of the
Purchasers under the Purchase Agreement and is not to be quoted
in whole or in part or otherwise referred to, nor is it to be
filed with any government agency or any other person, without
our prior written consent, and no one other than the Purchasers
is entitled to rely on this opinion. This opinion is given to
you as of the date hereof and we assume no obligation to advise
you of any change which may hereafter be brought to our
attention.
Very truly yours,
