Document:

Exhibit 10.22

 

SECURITIES
PURCHASE AGREEMENT

 

BY
AND AMONG

 

KMG
CHEMICALS, INC.,

 

TONTINE
CAPITAL PARTNERS, L.P.

 

AND

 

TERRIER
PARTNERS L.P.

 

APRIL 21,
2005

 

 

TABLE
OF CONTENTS

 

	
  ARTICLE 1

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2

  	
  PURCHASE AND SALE OF SHARES

  	
   

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  Purchase of Shares

  	
   

  
	
  2.2

  	
  Purchase Price and Form of Payment;
  Delivery

  	
   

  
	
  2.3

  	
  Closing Date

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
  BUYERS’ REPRESENTATIONS AND WARRANTIES

  	
   

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Organization and Qualification

  	
   

  
	
  3.2

  	
  Authorization; Enforcement

  	
   

  
	
  3.3

  	
  Securities Matters

  	
   

  
	
  3.4

  	
  Information

  	
   

  
	
  3.5

  	
  Estimates and Projections

  	
   

  
	
  3.6

  	
  Restrictions on Transfer

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
  REPRESENTATIONS AND WARRANTIES OF THE
  COMPANY

  	
   

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Organization and Qualification

  	
   

  
	
  4.2

  	
  Authorization; Enforcement

  	
   

  
	
  4.3

  	
  Capitalization; Valid Issuance of Shares

  	
   

  
	
  4.4

  	
  No Conflicts

  	
   

  
	
  4.5

  	
  SEC Documents; Financial Statements

  	
   

  
	
  4.6

  	
  Absence of Certain Changes

  	
   

  
	
  4.7

  	
  Absence of Litigation

  	
   

  
	
  4.8

  	
  Patents, Copyrights

  	
   

  
	
  4.9

  	
  Tax Status

  	
   

  
	
  4.10

  	
  Permits; Compliance

  	
   

  
	
  4.11

  	
  Environmental Matters

  	
   

  
	
  4.12

  	
  Title to Property

  	
   

  
	
  4.13

  	
  No Investment Company

  	
   

  
	
  4.14

  	
  No Brokers

  	
   

  
	
  4.15

  	
  Registration Rights

  	
   

  
	
  4.16

  	
  Exchange Act Registration

  	
   

  
	
  4.17

  	
  Labor Relations

  	
   

  
	
  4.18

  	
  Transactions with Affiliates and Employees

  	
   

  
	
  4.19

  	
  Insurance

  	
   

  
	
  4.20

  	
  Disclosure

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 5

  	
  COVENANTS

  	
   

  
	
   

  	
   

  	
   

  
	
  5.1

  	
  Form D; Blue Sky Laws

  	
   

  
	
  5.2

  	
  Use of Proceeds

  	
   

  
	
  5.3

  	
  Expenses

  	
   

  
	
  5.4

  	
  Listing

  	
   

  
	
  5.5

  	
  No Integration

  	
   

  
	
  5.6

  	
  Restriction on Trading and Short Sales

  	
   

  

 

i

 

	
  ARTICLE 6

  	
  CONDITIONS TO THE COMPANY’S OBLIGATION

  	
   

  
	
   

  	
   

  	
   

  
	
  6.1

  	
  Delivery of Transaction Documents

  	
   

  
	
  6.2

  	
  Payment of Purchase Price

  	
   

  
	
  6.3

  	
  Representations and Warranties

  	
   

  
	
  6.4

  	
  Litigation

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 7

  	
  CONDITIONS TO EACH BUYER’S OBLIGATION

  	
   

  
	
   

  	
   

  	
   

  
	
  7.1

  	
  Delivery of Transaction Documents; Issuance
  of Shares

  	
   

  
	
  7.2

  	
  Representations and Warranties

  	
   

  
	
  7.3

  	
  Litigation

  	
   

  
	
  7.4

  	
  Opinion

  	
   

  
	
  7.5

  	
  No Material Adverse Change

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 8

  	
  INDEMNIFICATION

  	
   

  
	
   

  	
   

  	
   

  
	
  8.1

  	
  Indemnification by the Company

  	
   

  
	
  8.2

  	
  Notification

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 9

  	
  GOVERNING LAW; MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  
	
  9.1

  	
  Governing Law

  	
   

  
	
  9.2

  	
  Counterparts; Signatures by Facsimile

  	
   

  
	
  9.3

  	
  Headings

  	
   

  
	
  9.4

  	
  Severability

  	
   

  
	
  9.5

  	
  Entire Agreement; Amendments

  	
   

  
	
  9.6

  	
  Notices

  	
   

  
	
  9.7

  	
  Successors and Assigns

  	
   

  
	
  9.8

  	
  Third Party Beneficiaries

  	
   

  
	
  9.9

  	
  Publicity

  	
   

  
	
  9.10

  	
  Further Assurances

  	
   

  
	
  9.11

  	
  No Strict Construction

  	
   

  
	
  9.12

  	
  Obligations Several Not Joint

  	
   

  
	
  9.13

  	
  Rights Cumulative

  	
   

  
	
  9.14

  	
  Survival

  	
   

  

 

ii

 

SECURITIES
PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT, dated as
of April 21, 2005, is entered into by and among KMG CHEMICALS, INC., a
Texas corporation, TONTINE CAPITAL PARTNERS, L.P., a Delaware limited
partnership, and TERRIER PARTNERS L.P., a New York limited partnership.

 

RECITALS:

 

A.            The Company and the Buyers are executing and
delivering this Agreement in reliance upon the exemption from securities
registration afforded by Rule 506;

 

B.            Buyers desire to purchase and the Company desires
to issue and sell, upon the terms and conditions set forth in this Agreement,
1,200,000 shares of common stock, par value $0.01 per share of the Company; and

 

C.            Contemporaneous with the execution and delivery of
this Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement, in the form attached hereto as Exhibit A,
pursuant to which the Company has agreed to register the resale of the Shares
under the 1933 Act and the rules and regulations promulgated thereunder,
and applicable state securities laws.

 

AGREEMENT

 

NOW THEREFORE, the Company and each of the
Buyers hereby agree as follows:

 

ARTICLE 1

DEFINITIONS

 

“Agreement”
means this Securities
Purchase Agreement.

 

“Buyer(s)”
means solely or
collectively, Tontine Capital Partners, L.P., a Delaware limited partnership,
and Terrier Partners L.P., a New York limited partnership.

 

“Common Stock”
means the Company’s
common stock, par value $0.01 per share.

 

“Company”
 means KMG Chemicals, Inc., a Texas
corporation.

 

“Closing” has the meaning set forth in Section 2.3.

 

“Closing Date” means April 21, 2005 or such other time
as may be mutually agreed upon by the parties to this Agreement.

 

“Environmental
Laws” has
the meaning set forth in Section 4.11.

 

“Hazardous
Materials” has
the meaning set forth in Section 4.11.

 

“Intellectual Property” has the
meaning set forth in Section 4.8.

 

“Investment
Company” has the meaning set forth in Section 4.13.

 

 

“Material
Adverse Effect” means any material adverse effect on the business, operations, assets,
financial condition or prospects of the Company.

 

“1933 Act”
means the Securities
Act of 1933, as amended.

 

“1934 Act”
means the Securities
Exchange Act of 1934, as amended.

 

“Permits” has the meaning
set forth in Section 4.10.

 

“Purchase
Price” means
a price of $5.00 per share for the Shares to be issued and sold to the Buyers
at the Closing.

 

“Registration
Rights Agreement” means
the Registration Rights Agreement executed
and delivered contemporaneously with the Agreement pursuant to which the Company has agreed to register the
resale of the Shares under the 1933 Act and the rules and regulations
promulgated thereunder, and applicable state securities laws.

 

“Rule 506” means Rule 506 of Regulation D
promulgated under the 1933 Act.

 

“Shares” means the 1,200,000 shares of Common Stock being
issued and sold under the Agreement.

 

“SEC” means the United States Securities and
Exchange Commission.

 

“SEC
Documents” has
the meaning set forth in Section 4.5.

 

“Subsidiaries” means, with respect to the Company, KMG-Bernuth, Inc.,
a Delaware corporation, KMG de Mexico, SA de CV, a Mexican corporation, KMG
Chemicals de Argentina SPL, an Argentinean corporation, KMG Chemicals de
Venezuela CA, a Venezuelan corporation, KMG Chemicals de Costa Rica SA, a Costa
Rican corporation, and KMG Chemicals do Brasil LTDA, a Brazilian corporation.

 

“Transaction
Documents” means this Agreement, the Registrations
Rights Agreement, and any other documents contemplated by the Agreement.

 

“Transfer Instructions” has the meaning set forth in Section 2.2.

 

ARTICLE 2

PURCHASE AND SALE OF SHARES

 

2.1           Purchase
of Shares.  Subject to the terms and conditions of this
Agreement, on the Closing Date, the Company shall issue and sell the Shares and
each Buyer shall severally and not jointly, purchase from the Company such
number of Shares as is set forth below such Buyer’s name on the signature pages hereto.

 

2.2           Purchase Price and Form of Payment; Delivery.  On
the Closing Date each Buyer shall pay $5.00 per share for the Shares to be
issued and sold to it at the Closing. 
The Purchase Price shall be paid by wire transfer of immediately
available funds in accordance with the Company’s written instructions.  At the Closing, upon payment of the
Purchase Price therefore by such Buyer, the Company will deliver instructions (“Transfer Instructions”) to the transfer agent for the Company’s
Common Stock to issue certificates representing the Shares registered in the
name of each Buyer and to deliver

 

2

 

such certificates to each Buyer. 
The Company shall not have the power to revoke or amend the Transfer
Instructions without the written consent of each Buyer.

 

2.3           Closing
Date.  Subject to the satisfaction (or written
waiver) of the conditions set forth in Section 6 and Section 7
below, the closing of the transactions contemplated by this Agreement shall be
held on April 21, 2005 or such other time as may be mutually agreed upon
by the parties to this Agreement, at the offices of Haynes and Boone, LLP, 1221
McKinney Street, Suite 2100, Houston, Texas 77010 or at such other
location as may be mutually agreed upon by the parties to this Agreement (“Closing”).

 

ARTICLE 3

BUYERS’ REPRESENTATIONS AND WARRANTIES

 

Each Buyer
severally (and not jointly) represents and warrants to the Company that:

 

3.1           Organization and Qualification.  The Buyer is a limited
partnership duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is organized, with full power and
authority to purchase the Shares.

 

3.2           Authorization; Enforcement. This Agreement has been duly and validly authorized by, and duly
executed and delivered on behalf of, the Buyer, and this Agreement constitutes
the valid and binding agreement of the Buyer enforceable in accordance with its
terms, except as such enforceability may be limited by:  (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws in effect that limit creditors’
rights generally; (ii) equitable limitations on the availability of
specific remedies; and (iii) principles of equity.

 

3.3           Securities
Matters.  In connection with the Company’s compliance
with applicable securities laws:

 

a.             The Buyer understands that the Shares are
being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States and state securities laws and that
the Company is relying upon the truth and accuracy of, and the Buyer’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemption and the eligibility of the Buyer to acquire the
Shares.

 

b.             The Buyer is purchasing the Shares for its
own account, not as a nominee or agent, for investment purposes and not with a
present view towards resale, except pursuant to sales exempted from
registration under the 1933 Act, or registered under the 1933 Act as
contemplated by the Registration Rights Agreement.

 

c.             The Buyer is an “accredited investor” as that
term is defined in Rule 501(a) of Regulation D under the 1933 Act,
and has such knowledge and experience in financial and business matters as to
be capable of evaluating the merits and risks of an investment in the
Shares.  The Buyer understands that its
investment in the Shares involves a significant degree of risk. The Buyer
understands that no United States federal or state agency or any other
government or governmental agency has passed upon or made any recommendation or
endorsement of the Shares.

 

3.4           Information. 
Buyer has conducted its own due diligence examination of the Company’s
business, financial condition, results of operations, and prospects.  In connection with such investigation,

 

3

 

Buyer and its representatives (i) have reviewed copies of the
Company’s filings with the SEC, including the Company’s most recent annual
report on Form 10-K, quarterly reports on Form 10-Q for
the two most recently concluded interim periods and proxy statement on Schedule 14A,
(ii) have been given an opportunity to ask, to the extent Buyer considered
necessary, and have received answers from, officers of the Company concerning
the business, finances and operations of the Company and information relating
to the offer and sale of the Shares and (iii) have been given or afforded
access to all documents, records, books and additional information which Buyer
has requested regarding such matters.

 

3.5           Estimates and Projections.  In the course of the inquiry described
in Section 3.4 above, Buyer has received certain information
regarding the Company’s plans and prospects. Buyer acknowledges that: (i) any
estimates, plans or projections which have been furnished to it with respect to
the activities undertaken originally or to be undertaken by the Company are
based on certain assumptions made by the Company; (ii) actual experience
may vary from such assumptions; (iii) such estimates, plans and
projections may never be achieved; and (iv) Buyer has not relied upon the
achievement of any such estimates and projections in making its investment
decision to acquire the Shares.

 

3.6           Restrictions
on Transfer.  The Buyer understands that except as
provided in the Registration Rights Agreement, the issuance of the Shares has not
been and is not being registered under the 1933 Act or any applicable state
securities laws. The Buyer may be required to hold the Shares indefinitely and
the Shares may not be transferred unless (i) the Shares are sold pursuant
to an effective registration statement under the 1933 Act, or (ii) the
Buyer shall have delivered to the Company an opinion of counsel to the effect
that the Shares to be sold or transferred may be sold or transferred pursuant
to an exemption from such registration, which opinion shall be reasonably
acceptable to the Company. The Buyer understands that until such time as the
resale of the Shares has been registered under the 1933 Act as contemplated by
the Registration Rights Agreement or otherwise may be sold pursuant to an exemption
from registration, certificates evidencing the Shares may bear a restrictive
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the certificates evidencing such Shares):

 

“THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND
HAVE BEEN ISSUED IN RELIANCE UPON EXEMPTIONS AFFORDED UNDER APPLICABLE
LAWS.  THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE OFFERED, SOLD, HYPOTHECATED, TRANSFERRED OR
OTHERWISE ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR AN
APPLICABLE EXEMPTION (AS TO WHICH THE ISSUER SHALL BE REASONABLY SATISFIED,
INCLUDING RECEIPT OF AN ACCEPTABLE LEGAL OPINION) TO THE REGISTRATION
REQUIREMENTS OF SUCH LAWS.”

 

ARTICLE 4

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

Except as
set forth in the Company’s Disclosure Schedule attached hereto, the
Company represents and warrants to each Buyer that:

 

4.1           Organization and Qualification.  The Company and each of its Subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated, with corporate power and
authority to own, lease, use and operate its properties and to carry on its
business as now operated and conducted. 
The Company and each of its Subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in each jurisdiction in
which its ownership or use of property or the nature of the business conducted
by it makes such qualification

 

4

 

necessary, except where the failure to be so qualified or in good
standing would not have a Material Adverse Effect.

 

4.2           Authorization; Enforcement.  The Company has all requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement, and to consummate the transactions contemplated
hereby and thereby and to issue the Shares, in accordance with the terms hereof
and thereof.  The execution and delivery
of this Agreement and the Registration Rights Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Shares) have been duly
authorized by the Company’s Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or its shareholders is
required.  This Agreement and the other
documents executed in connection herewith have been duly executed and delivered
by the Company.  This Agreement
constitutes, and the Registration Rights Agreement will constitute upon execution
and delivery by the Company, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except
as such enforceability may be limited by: 
(i) applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws in effect that limit creditors’ rights generally; (ii) equitable
limitations on the availability of specific remedies; and (iii) principles
of equity.

 

4.3           Capitalization; Valid Issuance of Shares.  As
of the date hereof, the authorized capital stock of the Company consists of
40,000,000 shares of Common Stock, of which 7,575,019 shares are issued and outstanding, and 10,000,000 shares of preferred
stock, $.01 par value, none of which are outstanding.  All of such outstanding shares of Common
Stock are duly authorized, validly issued, fully paid and nonassessable.  The Shares have been duly authorized
and upon issuance pursuant to the terms hereof will be validly issued, fully
paid and nonassessable and not subject to any encumbrances, preemptive rights
or any other similar contractual rights of the shareholders of the Company or
any other person.  No shares of capital stock of the Company are
subject to preemptive rights or any other similar rights of the shareholders of
the Company or any liens or encumbrances imposed through the actions or failure
to act of the Company.  As of the date
hereof, the Company had outstanding options and warrants to purchase 973,050
shares of Common Stock.  As of the date
of this Agreement, except to the extent described in the preceding sentence and
the Company’s Disclosure Schedule attached hereto, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other
commitments or rights of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for any shares of capital stock of the
Company or any of its Subsidiaries, or arrangements by which the Company or any
of its Subsidiaries is or may become bound to issue additional shares of
capital stock, (ii) there are no agreements or arrangements under which
the Company or any of its Subsidiaries is obligated to register the sale of any
of its or their securities under the 1933 Act (except the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company (or in any agreement
providing rights to security holders) that will be triggered by the issuance
Shares.  To the Company’s
knowledge, there are no agreements between the Company’s shareholders with
respect to the voting or transfer of the Company’s capital stock or with
respect to any other aspect of the Company’s affairs.

 

4.4           No
Conflicts.  The execution, delivery and performance of
this Agreement, and the Registration Rights Agreement, by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of Shares) will not (i) conflict
with or result in a violation of any provision of the Articles of
Incorporation, as amended, of the Company or the By-laws, as amended, of the
Company, (ii) violate or conflict with, or result in a breach of any
provision of, or constitute a default (or an event which with notice or lapse
of time or both could become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, indenture, patent, patent license or instrument to which the

 

5

 

Company or any of its Subsidiaries is a
party, or (iii) result in a material violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and regulations of any self-regulatory organizations to
which the Company or its securities are subject) applicable to the Company or
any of its Subsidiaries or by which any property or asset of the Company or any
of its Subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a Material Adverse Effect).  Neither the Company nor any of its Subsidiaries
is in violation of its Articles of Incorporation, By-laws or other
organizational documents and neither the Company nor any of its Subsidiaries is
in default (and no event has occurred which with notice or lapse of time would
result in a default) under, and neither the Company nor any of its Subsidiaries
has taken any action or failed to take any action that would give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement or instrument to which the Company or any of its
Subsidiaries is a party or by which any property or assets of the Company or
any of its Subsidiaries is bound or affected, except for possible defaults as
would not, individually or in the aggregate, have a Material Adverse Effect.  Except as specifically contemplated by this
Agreement and as required under the 1933 Act and any applicable state
securities laws, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court,
governmental agency, regulatory agency, self regulatory organization or stock
market or any third party in order for it to execute, deliver or perform any of
its obligations under this Agreement or the Registration Rights Agreement.  All consents, authorizations, orders, filings
and registrations which the Company is required to obtain pursuant to the
preceding sentence have been obtained or effected on or prior to the date
hereof.  The Company is not in violation
of the listing requirements of the Nasdaq SmallCap Market.

 

4.5           SEC Documents; Financial
Statements.  Since March 31, 2004, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the 1934 Act )(all of
the foregoing filed prior to the date hereof and all exhibits included therein
and financial statements and schedules thereto and documents (other than
exhibits to such documents) incorporated by reference therein, being
hereinafter referred to herein as the “SEC Documents”).  As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they were filed with the SEC, contained any untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading.  As
of their respective dates, the financial statements of the Company included in
the SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
with respect thereto.  Such financial
statements have been prepared in accordance with United States generally
accepted accounting principles, consistently applied, during the periods involved
(except (i) as may be otherwise indicated in such financial statements or
the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may not include footnotes, year end adjustments or may be
condensed or summary statements) and fairly present in all material respects
the consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).  Except as set forth in the financial
statements of the Company included in the SEC Documents, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred
in the ordinary course of business subsequent to January 31, 2005 and (ii) obligations
under contracts and commitments incurred in the ordinary course of business and
not required under generally accepted accounting principles to be reflected in
such financial statements, which, individually or in the aggregate, are not
material to the financial condition or operating results of the Company.

 

6

 

4.6           Absence of Certain Changes.  Since January 31, 2005, the
Company has conducted its business only in the ordinary course, consistent with
past practice, and since that date there
has been no material adverse change and no material adverse development in the
assets, liabilities, business, properties, operations, financial condition, results
of operations or prospects of the Company.

 

4.7           Absence
of Litigation. 
There is no action, suit, claim, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body pending or, to the knowledge of the Company or any of its
Subsidiaries, threatened against or affecting the Company or any of its
Subsidiaries that might reasonably be expected to result in a Material Adverse
Effect.

 

4.8           Patents,
Copyrights.  To the Company’s knowledge, the Company and
each of its Subsidiaries owns or possesses the requisite licenses or rights to
use all patents, patent applications, patent rights, inventions, know-how,
trade secrets, copyrights, trademarks, trademark applications, service marks,
service names, trade names and copyrights (“Intellectual Property”) necessary to enable it to conduct its
business as now operated (and, to the Company’s knowledge, as presently
contemplated to be operated in the future); there is no claim or action by any
person pertaining to, or proceeding pending, or to the Company’s knowledge
threatened, which challenges the right of the Company or of a Subsidiary with
respect to any Intellectual Property necessary to enable it to conduct its
business as now operated and to the Company’s knowledge, the Company’s or its
Subsidiaries’ current products and processes do not infringe on any
Intellectual Property or other rights held by any person.

 

4.9           Tax Status.  The
Company and each of its Subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or
declarations apply.  There are no unpaid
taxes in any material amount claimed to be due by the taxing authority of any
jurisdiction, and the officers of the Company know of no basis for any such
claim.  The Company has not executed a
waiver with respect to the statute of limitations relating to the assessment or
collection of any foreign, federal, state or local tax.

 

4.10         Permits;
Compliance.  The Company and each of its Subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, “Permits”), and there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Permits.  Neither the Company nor any of its
Subsidiaries is in conflict with, or in default or violation of, any of the
Permits, except for any such conflicts, defaults or violations which, individually
or in the aggregate, would not reasonably be expected to have a Material
Adverse Effect.  Since January 31,
2005, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not reasonably be
expected to have a Material Adverse Effect.

 

4.11         Environmental
Matters.  Except for such matters as could not, singly
or in the aggregate, reasonably be expected to result in a Material Adverse
Effect, (i) neither the Company nor any of the Subsidiaries is in
violation of any federal, state, local or foreign statute, law, rule,
regulation, ordinance,

 

7

 

code, policy or rule of common law or any judicial or
administrative interpretation thereof, including any judicial or administrative
order, consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or wildlife,
including, without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, “Hazardous
Materials”) or to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials
(collectively, “Environmental
Laws”), (ii) the Company and the Subsidiaries have all
permits, authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements, (iii) there
are no pending or, to the Company’s knowledge or any of the Subsidiaries,
threatened administrative, regulatory or judicial actions, suits, demands,
demand letters, claims, liens, notices of noncompliance or violation,
investigation or proceedings relating to any Environmental Law against the
Company or any of the Subsidiaries and (iv) there are no events or
circumstances known to the Company or any of the Subsidiaries that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of the
Subsidiaries relating to Hazardous Materials or Environmental Laws.

 

4.12         Title
to Property.  The Company and its Subsidiaries have good
and marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries.  Any
real property and facilities held under lease by the Company and its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as would not have a Material Adverse Effect.

 

4.13         No
Investment Company.  The Company is not, and upon the issuance and
sale of the Shares as contemplated by this Agreement will not be an “investment
company” as defined under the Investment Company Act of 1940 (“Investment Company”).  The
Company is not controlled by an Investment Company.

 

4.14         No Brokers. 
Other than its arrangements with Boenning & Scattergood, Inc.
that have been disclosed to the Buyers, the Company has taken no action which
would give rise to any claim by any person for brokerage commissions,
transaction fees or similar payments relating to this Agreement or the
transactions contemplated hereby.

 

4.15         Registration
Rights.  Except as set forth in the Company’s
Disclosure Schedule, pursuant to the Registration Rights Agreement or as set
forth in the SEC Documents, effective upon the Closing, neither Company nor any
Subsidiary is currently subject to any agreement providing any person or entity
any rights (including piggyback registration rights) to have any securities of
the Company or any Subsidiary registered with the SEC or registered or
qualified with any other governmental authority.

 

4.16         Exchange Act Registration.  The Common Stock is registered
pursuant to Section 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which, to the knowledge of the Company, is
likely to have the effect of, terminating the registration of the Common Stock
under the Exchange Act.

 

4.17         Labor Relations.  No labor or employment
dispute exists or, to the knowledge of the Company, is imminent or threatened,
with respect to any of the employees or consultants of the Company that has, or
could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.

 

8

 

4.18         Transactions with Affiliates
and Employees.  Except as set forth in the SEC Documents, none
of the officers or directors of the Company, and to the knowledge of the
Company, none of the employees of the Company, is presently a party to any
transaction or agreement with the Company (other than for services as
employees, officers and directors) exceeding $60,000, including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any entity in which any officer, director, or any
such employee has a substantial interest or is an officer, director, trustee or
partner.

 

4.19         Insurance.  The Company and its
Subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amounts as is disclosed in the
Company’s Disclosure Schedule attached hereto.  The Company has no reason to believe that it
will not be able to renew existing insurance coverage for itself and its
Subsidiaries as and when such coverage expires or to obtain similar coverage
from similar insurers as may be necessary or appropriate to continue business.

 

4.20         Disclosure.  The Company understands
and confirms that each Buyer will rely on the representations and covenants
contained herein in effecting the transactions contemplated by this Agreement
and the Transaction Documents.  All
disclosure provided to the Buyers regarding the Company, its businesses and the
transactions contemplated hereby, including the disclosures in the Company’s
Disclosure Schedule attached hereto furnished by or on behalf of the
Company, taken as a whole is true and correct and does not contain any untrue
statement of material fact or omit to state any material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. 
No event or circumstance has occurred or information exists with respect
to the Company or its Subsidiaries or its or their businesses, properties,
prospects, operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company but which
has not been so publicly announced or disclosed.

 

ARTICLE 5

COVENANTS

 

5.1           Form D;
Blue Sky Laws.  Upon completion of the Closing, the Company
shall file with the SEC a Form D with respect to the Shares as required
under Regulation D and each applicable state securities commission and will
provide a copy thereof to each Buyer promptly after such filing.

 

5.2           Use of
Proceeds.  The Company shall use the proceeds from the
sale of the Shares for general corporate purposes, including acquisitions and
repayment of Company debt.

 

5.3           Expenses.  At
the Closing, the Company shall reimburse Tontine Capital Partners, L.P. for
expenses in the amount of up to $25,000 incurred by them in connection with the
negotiation, preparation, execution, delivery and performance of this Agreement
and the other Transaction Documents, including, without limitation, reasonable
attorneys’ fees and expenses, relating to review of or any consents or waivers
of provisions in the Transaction Documents, fees for the preparation of
opinions of counsel, escrow fees, and costs of structuring the transactions
contemplated by the Transaction Documents.

 

5.4           Listing.  The
Company will obtain and, so long as any Buyer owns any of the Shares, maintain
the listing and trading of its Shares on the Nasdaq SmallCap Market or any
equivalent replacement exchange and will comply in all respects with the
Company’s reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers and such exchanges, as
applicable.

 

9

 

5.5           No
Integration.  The Company shall not make any offers or
sales of any security (other than the Shares) under circumstances that would
require registration of the Shares being offered or sold hereunder under the
1933 Act or cause the offering of the Shares to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.

 

5.6           Restriction on Trading and Short
Sales.  The Buyers shall not, and Buyers shall cause
their affiliates to agree to not, trade in any of the Shares of the Company
prior to the date upon which the registration of Shares becomes effective. The
Buyer shall not, and Buyers shall cause their affiliates to further agree to
not, enter into or effect any “short sale” (as such term is defined in Rule 200
of Regulation SHO promulgated under the 1934 Act) of the Shares, foreign market
listing or hedging transaction which establishes a net short portion with
respect to the Shares.  The period for
this restriction begins upon first notice of the contemplated transaction under
this Agreement and the Registration Rights Agreement and extending nine months
after any Buyer or affiliate Shares become registered, free trading securities.

 

ARTICLE 6

CONDITIONS TO THE COMPANY’S OBLIGATION

 

The
obligation of the Company hereunder to issue and sell the Shares to a Buyer at
the Closing is subject to the satisfaction, at or before the Closing Date of
each of the following conditions thereto, provided that these conditions are
for the Company’s sole benefit and may be waived by the Company at any time in
its sole discretion:

 

6.1           Delivery of Transaction Documents.  Each Buyer shall have executed
and delivered the Transaction Documents to the Company.

 

6.2           Payment
of Purchase Price.  Each Buyer shall have delivered the Purchase
Price in accordance with Section 2.2 above.

 

6.3           Representations and Warranties.  The representations and
warranties of each Buyer shall be true and correct in all material respects as
of the date when made and as of the Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date),
and the applicable Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the applicable
Buyer at or prior to the Closing Date.

 

6.4           Litigation.  No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.

 

ARTICLE 7

CONDITIONS TO EACH BUYER’S OBLIGATION

 

The
obligation of each Buyer hereunder to purchase the Shares at the Closing is
subject to the satisfaction, at or before the Closing Date of each of the
following conditions, provided that these conditions are for such Buyer’s sole
benefit and may be waived by such Buyer at any time in its sole discretion:

 

10

 

7.1           Delivery of Transaction Documents; Issuance of Shares.  The
Company shall have executed and delivered the Transaction Documents to such
Buyer, and shall deliver the
Transfer Instructions to the transfer agent for the Company’s Common Stock to
issue certificates in the name of each Buyer representing the number of Shares being purchased by such Buyer as set
forth below such Buyer’s name on the signature pages hereto and to
deliver such certificates to each Buyer. 
The Company shall deliver a copy of the Transfer Instructions to each
Buyer at the Closing.

 

7.2           Representations and Warranties.  The representations and
warranties of the Company shall be true and correct in all material respects
(provided, however, that such qualification shall only apply to representations
or warranties not otherwise qualified by materiality) as of the date when made
and as of the Closing Date as though made at such time (except for
representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied in all material respects
with the covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the Closing
Date.

 

7.3           Litigation.  No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.

 

7.4           Opinion.  The
Buyer shall have received an opinion of the Company’s counsel, dated as of the
Closing Date, in form, scope and substance reasonably satisfactory to the Buyer
and in substantially the same form as Exhibit B attached hereto.

 

7.5           No Material Adverse Change.. 
There shall have been no material adverse change in the assets,
liabilities (contingent or otherwise), affairs, business, operations, prospects
or condition (financial or otherwise) of the Company prior to the Closing Date.

 

ARTICLE 8

INDEMNIFICATION

 

8.1           Indemnification by the Company. The Company agrees to indemnify the Buyer and its affiliates and hold
the Buyer and its affiliates harmless from and against any and all liabilities,
losses, damages, costs and expenses of any kind (including, without limitation,
the reasonable fees and disbursements of Buyer’s counsel in connection with any
investigative, administrative or judicial proceeding), which may be incurred by
the Buyer or such affiliates as a result of any claims made against the Buyer
or such affiliates by any person that relate to or arise out of (i) any
breach by the Company of any of its representations, warranties or covenants
contained in this Agreement or in the Transaction Documents (as defined below),
or (ii) any litigation, investigation or proceeding instituted by any
person with respect to this Agreement or the Shares (excluding, however, any
such litigation, investigation or proceeding which arises solely from the acts
or omissions of the Buyer or its affiliates). 
Notwithstanding anything to the contrary above, it is expressly
understood between the parties hereto that the Company pursuant to this Section 8.1
shall not be responsible for or assume any of the investment risk associated
with any securities purchased hereunder.

 

8.2           Notification. Any person entitled to indemnification
hereunder will (i) give prompt notice to the Company of any claim with
respect to which it seeks indemnification (but omission of such notice shall
not relieve the Company from liability hereunder except to the extent it is
actually prejudiced by such failure to give notice) and (ii) unless in
such indemnified party’s reasonable judgment a conflict of

 

11

 

interest may exist between such indemnified party and the Company with
respect to such claim, permit the Company to assume the defense of such claim
with counsel reasonably satisfactory to the indemnified party.  If such defense is not assumed by the
Company, the Company will not be subject to any liability for any settlement
made without its consent (but such consent will not be unreasonably withheld).  The Company will not 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 an unconditional release from all liability in respect to
such claim or litigation.  If the Company
elects not to or is not entitled to assume the defense of a claim, it will not
be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified with respect to such claim, unless an actual conflict of
interest exists between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event the Company will
be obligated to pay the fees and expenses of such additional counsel or
counsels.

 

ARTICLE 9

GOVERNING LAW; MISCELLANEOUS

 

9.1           Governing
Law.  This Agreement shall be enforced, governed by
and construed in accordance with the laws of the State of Texas applicable to
agreements made and to be performed entirely within such state, without regard
to the principles of conflict of laws. 
The parties hereto hereby submit to the exclusive jurisdiction of the
United States Federal Courts located in Houston, Texas with respect to any
dispute arising under this Agreement, the agreements entered into in connection
herewith or the transactions contemplated hereby or thereby.  All parties irrevocably waive the defense of
an inconvenient forum to the maintenance of such suit or proceeding.  All parties further agree that service of
process upon a party mailed by first class mail shall be deemed in every
respect effective service of process upon the party in any such suit or
proceeding.  Nothing herein shall affect
any party’s right to serve process in any other manner permitted by law. All
parties agree that a final non-appealable judgment in any such suit or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.  The party which does not prevail in any
dispute arising under this Agreement shall be responsible for all fees and
expenses, including attorneys’ fees, incurred by the prevailing party in
connection with such dispute.

 

9.2           Counterparts; Signatures by Facsimile.  This
Agreement may be executed in one or more counterparts, each of which shall be
deemed an original but all of which shall constitute one and the same agreement
and shall become effective when counterparts have been signed by each party and
delivered to the other party.  This
Agreement, once executed by a party, may be delivered to the other party hereto
by facsimile transmission of a copy of this Agreement bearing the signature of
the party so delivering this Agreement.

 

9.3           Headings.  The
headings of this Agreement are for convenience of reference only and shall not
form part of, or affect the interpretation of, this Agreement.

 

9.4           Severability.  In
the event that any provision of this Agreement is invalid or unenforceable
under any applicable statute or rule of law, then such provision shall be
deemed inoperative to the extent that it may conflict therewith and shall be
deemed modified to conform to such statute or rule of law.  Any provision hereof which may prove invalid
or unenforceable under any law shall not affect the validity or enforceability
of any other provision hereof.

 

9.5           Entire Agreement; Amendments.  This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein.  No provision of this Agreement may be waived
other than by an instrument in writing signed by the party to 

 

12

 

be charged with enforcement.  The provisions of this
Agreement may be amended only by a written instrument signed by the Company and
the Buyers.

 

9.6           Notices.  Any
notices required or permitted to be given under the terms of this Agreement
shall be sent by certified or registered mail (return receipt requested) or
delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed in
the mail, if mailed by regular United States mail, or upon receipt, if
delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party.  The addresses for such communications shall
be:

 

If to the Company:

 

KMG Chemicals, Inc.

10611 Harwin Drive, Suite 402

Houston, Texas 77036

Attention: John Sobchak

Telephone: (713) 988-9252, x 114

Facsimile: (713) 988-9298

 

With copy to:

 

Haynes and Boone, LLP

1221 McKinney, Suite 2100

Houston, Texas 77010

Attention: 
Charles D. Powell, Esq.

Telephone: (713) 547-2052

Facsimile: (713) 236-5513

 

If to a Buyer:

 

To the address set forth immediately below
such Buyer’s name on the signature pages hereto.

 

With copy to:

 

Barack Ferrazzano Kirschbaum Perlman &
Nagelberg LLP

333 West Wacker Drive, Suite 2700

Chicago, Illinois 60606

Attention: 
John E. Freechack

Telephone: 
(312) 984-3100

Facsimile: 
(312) 984-3150

 

Each party shall provide notice to the other
party of any change in address.

 

9.7           Successors
and Assigns.  This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns.  Neither the Company nor any Buyer shall
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the other.

 

9.8           Third Party Beneficiaries.  This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.

 

13

 

9.9           Publicity.  The Company and each of the
Buyers shall have the right to review a reasonable period of time before
issuing any press releases or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of any of the Buyers, to make any press
release with respect to such transactions as is required by applicable law and
regulations (although each of the Buyers shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof and be given an opportunity to comment thereon).  Notwithstanding the foregoing, the Company
shall file with the SEC a Form 8-K disclosing the transactions
herein and attaching the relevant agreements and instruments within four (4) business
days of the Closing Date.

 

9.10         Further
Assurances.  Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.

 

9.11         No
Strict Construction.  The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party.

 

9.12         Obligations Several Not Joint.  The obligations of each Buyer
under this Agreement are several and not joint with the obligations of any
other Buyer, and no Buyer shall be responsible in any way for the performance
of the obligations of any other Buyer under this Agreement.  Nothing contained herein, and no action taken
by any Buyer pursuant hereto, shall be deemed to constitute the Buyers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Buyers are in any way acting in concert or as a
group with respect to such obligations or the transactions contemplated by this
Agreement.  Each Buyer shall be entitled
to independently protect and enforce its rights, including without limitation
the rights arising out of this Agreement, and it shall not be necessary for any
other Buyer to be joined as an additional party in any proceeding for such
purpose.  Each Buyer has been represented
by its own separate legal counsel in their review and negotiation of this
Agreement, the Registration Rights Agreement, and any other documents
contemplated by any of the foregoing. 
The Company has elected to provide all Buyers with the same terms and
Transaction Documents for the convenience of the Company and not because it was
required or requested to do so by the Buyers.

 

9.13         Rights Cumulative.. 
Each and all of the various rights, powers and remedies of the parties
shall be considered cumulative with and in addition to any other rights, powers
and remedies which such parties may have at law or in equity in the event of
the breach of any of the terms of this Agreement.  The exercise or partial exercise of any
right, power or remedy shall neither constitute the exclusive election thereof
nor the waiver of any other right, power or remedy available to such party.

 

9.14         Survival.  The respective
representations and warranties given by and the respective covenants and
agreements agreed to by the parties hereto shall survive the Closing Date and
the consummation of the transactions contemplated herein.

 

 

[Signature page follows]

 

14

 

IN WITNESS WHEREOF, the undersigned have
caused this Agreement to be duly executed as of the date first above written.

 

	
   

  	
  KMG CHEMICALS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
         /s/
  John V. Sobchak

  	
   

  
	
   

  	
  Title:

  	
  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BUYERS:

  
	
   

  	
   

  	
   

  
	
   

  	
  TONTINE CAPITAL PARTNERS, L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
         /s/
  Jeffrey L Gendell

  	
   

  
	
   

  	
  Title:

  	
  Managing Member of General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  JURISDICTION: Delaware

  
	
   

  	
  ADDRESS:

  	
  55 Railroad Avenue, 3rd Floor

  
	
   

  	
   

  	
  Greenwich, CT 06830

  
	
   

  	
   

  	
  Telephone: (203) 757-2000

  
	
   

  	
   

  	
  Facsimile: (203) 767-2010

  
									

 

AGGREGATE SUBSCRIPTION AMOUNT:

 

	
  Aggregate Number of Shares:

  	
   

  	
  1,000,000

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  5,000,000

  

 

 

	
   

  	
  TERRIER PARTNERS L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
         /s/
  Bobby Melnick

  	
   

  
	
   

  	
  Title:

  	
  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  JURISDICTION: New York

  
	
   

  	
  ADDRESS:

  	
  145 East 57 th Street, 10 Floor

  
	
   

  	
   

  	
  New York, NY 10022

  
	
   

  	
   

  	
  Telephone: (     )

  
	
   

  	
   

  	
  Facsimile: (     )

  
						

 

AGGREGATE SUBSCRIPTION AMOUNT:

 

	
  Aggregate Number of Shares:

  	
   

  	
  200,000

  
	
  Aggregate Purchase Price:

  	
   

  	
  $

  	
  1,000,000

  

 

Signature Page to Stock
Purchase Agreement

 

 

EXHIBIT A

 

FORM OF
REGISTRATION RIGHTS AGREEMENT

 

 

EXHIBIT B

 

FORM OF
LEGAL OPINION

 

17

 

COMPANY’S
DISCLOSURE SCHEDULE

 

To the
extent that any disclosure provided below is responsive to or otherwise
qualifies one or more Sections in the Agreement, disclosure in this Disclosure Schedule is
to be considered disclosure under or pursuant to all such Sections of the
Agreement, regardless of whether or not such Sections are specifically
referenced pursuant to this Disclosure Schedule.

 

Section 4.3            Capitalization; Valid Issuance of Shares.

 

The issued
and outstanding shares of the Company listed in Section 4.3 do not include
180,000 shares of Common Stock held as treasury shares by the Company.

 

Section 4.9            Tax Status.

 

With the
exception of the Company’s 2003 federal income tax return, none of the Company’s
tax returns is presently being audited by any taxing authority.

 

Section 4.10         Permits; Compliance.

 

Our creosote
and pentachlorophenol products, and our animal health and other agricultural
chemical products, are each presently undergoing re-registration review by the
U.S. EPA under the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA).

 

Section 4.14         No
Brokers.

 

At Closing,
we have agreed to pay Boenning & Scattergood, Inc. (“B&S”) a fee of $275,000 ($25,000 of which has
already been paid), to issue 10,000 shares of Common Stock to B&S, and to
reimburse B&S for expenses related to its services.

 

Section 4.15         Registration
Rights.

 

The 10,000
shares of Common Stock to be issued to B&S described above will be entitled
to registration rights.  The Company has
also granted registration rights pursuant to the Warrant to purchase 25,000
shares between the Company and George W. Gilman.

 

Section 4.19         Insurance

 

	
  Coverage Type

  	
   

  	
  Carrier

  	
   

  	
  Limit

  
	
  General Liability

  	
   

  	
  XL (Indian Harbor)

  	
   

  	
  1M occ 2M Ann Agr

  
	
  Product Liability (Rabon, MSMA, Ravap)

  	
   

  	
  XL (Indian Harbor)

  	
   

  	
  1M occ 2M Ann Agr

  
	
  Automobile

  	
   

  	
  XL(Greenwich)

  	
   

  	
  1M

  
	
  Workers Compensation

  	
   

  	
  Hartford/Am. Interstate

  	
   

  	
  1M

  
	
  Commercial Umbrella

  	
   

  	
  XL(Indian Harbor)

  	
   

  	
  4M

  
	
  Foreign General Liability

  	
   

  	
  ACE USA

  	
   

  	
  1M

  
	
  Fixed Property

  	
   

  	
  Hartford

  	
   

  	
  1.1M

  
	
  Inventory

  	
   

  	
  St. Paul

  	
   

  	
  4.4M

  
	
  Plant, Equipment, BPP- Mexico

  	
   

  	
  Seguros Commercial

  	
   

  	
  14.9M

  

 

18Exhibit 10.23

 

REGISTRATION RIGHTS AGREEMENT

 

BY AND AMONG

 

KMG CHEMICALS, INC.,

 

TONTINE CAPITAL PARTNERS, L.P.

 

AND

 

TERRIER PARTNERS L.P.

 

APRIL 21, 2005

 

 

TABLE OF CONTENTS

 

 

	
  ARTICLE 1

  	
  DEFINITIONS

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 2

  	
  REGISTRATION RIGHTS

  	
   

  
	
   

  	
   

  	
   

  
	
  2.1

  	
  Required Registration

  	
   

  
	
  2.2

  	
  Current Public Information

  	
   

  
	
  2.3

  	
  Demand Registration

  	
   

  
	
  2.4

  	
  Piggyback Registration

  	
   

  
	
  2.5

  	
  Holdback Agreements

  	
   

  
	
  2.6

  	
  Registration Procedures

  	
   

  
	
  2.7

  	
  Conditions
  Precedent to Company’s Obligations Pursuant to this Agreement

  	
   

  
	
  2.8

  	
  Fees and Expenses

  	
   

  
	
  2.9

  	
  Indemnification

  	
   

  
	
  2.10

  	
  Participation in
  Registrations

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 3

  	
  TRANSFERS OF
  CERTAIN RIGHTS

  	
   

  
	
   

  	
   

  	
   

  
	
  3.1

  	
  Transfer

  	
   

  
	
  3.2

  	
  Transferees

  	
   

  
	
  3.3

  	
  Subsequent Transferees

  	
   

  
	
   

  	
   

  	
   

  
	
  ARTICLE 4

  	
  MISCELLANEOUS

  	
   

  
	
   

  	
   

  	
   

  
	
  4.1

  	
  Recapitalizations,
  Exchanges, etc

  	
   

  
	
  4.2

  	
  No Inconsistent Agreements

  	
   

  
	
  4.3

  	
  Amendments and Waivers

  	
   

  
	
  4.4

  	
  Severability

  	
   

  
	
  4.5

  	
  Counterparts

  	
   

  
	
  4.6

  	
  Notices

  	
   

  
	
  4.7

  	
  Governing
  Law

  	
   

  
	
  4.8

  	
  Forum; Service of Process

  	
   

  
	
  4.9

  	
  Captions

  	
   

  
	
  4.10

  	
  No
  Prejudice

  	
   

  
	
  4.11

  	
  Words in Singular and
  Plural Form

  	
   

  
	
  4.12

  	
  Remedy for Breach

  	
   

  
	
  4.13

  	
  Successors
  and Assigns, Third Party Beneficiaries

  	
   

  
	
  4.14

  	
  Entire
  Agreement

  	
   

  
	
  4.15

  	
  Attorneys’
  Fees

  	
   

  
	
  4.16

  	
  Termination of Rights

  	
   

  
						

 

 

REGISTRATION RIGHTS AGREEMENT

 

This REGISTRATION RIGHTS AGREEMENT, dated as of April 21,
2005, is entered into by and among KMG CHEMICALS, INC., a Texas corporation
(the “Company”), and TONTINE
CAPITAL PARTNERS, L.P., a Delaware limited partnership, and TERRIER PARTNERS
L.P., a New York limited partnership (each a “Purchaser,” and together, the “Purchasers”).

 

RECITALS:

 

A.                                   The Company desires to issue and sell
1,200,000 shares of its Common Stock to the Purchasers as set forth in the
Securities Purchase Agreement dated as of April 21, 2005 entered into by
and between the Company and the Purchasers (the “Securities Purchase Agreement”);

 

B.                                     It is a condition precedent to the
consummation of the transactions contemplated by the Securities Purchase
Agreement that the Company provide for the rights set forth in this Agreement;
and

 

C.                                     Certain terms used in this Agreement are
defined in Article 1 hereof.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing
premises and the mutual covenants and agreements hereinafter contained, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, intending to be legally bound, the parties hereto hereby
agree as follows:

 

ARTICLE 1

DEFINITIONS

 

“Affiliate” means any Person that directly or indirectly
controls, or is under control with, or is controlled by such Person.  As used in this definition, “control”
(including with its correlative meanings, “controlled by” and “under common
control with”) shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management or policies of a Person
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise).

 

“Business Day” means any day excluding Saturday, Sunday or
any other day which is a legal holiday under the laws of the State of Texas or
is a day on which banking institutions therein located are authorized or
required by law or other governmental action to close.

 

“Closing Date” has the meaning ascribed to such term in the
Securities Purchase Agreement.

 

“Common Stock” means the common stock, par value $0.01 per
share, of the Company.

 

“Company” has the meaning
set forth in the preamble.

 

“Designated Holder” means a holder of Registrable Securities.

 

“Exchange Act” means the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the SEC promulgated
thereunder.

 

 

“Indemnified Party” has the meaning set forth in Section 2.9.

 

“Losses” has the meaning set forth in Section 2.9.

 

“Majority Holders” means holders of a majority of the
Registrable Securities.

 

“Person”  means any individual, company, partnership,
firm, joint venture, association, joint-stock company, trust, unincorporated
organization, governmental body or other entity.

 

“Piggyback Registration” has the meaning set forth in Section 2.4.

 

“Purchaser(s)” has the meaning
set forth in the preamble.

 

“Registration
Period” means
the two years, plus any
additional periods required by the second paragraph of Section 2.1,
during which the Registration Statement contemplated by Section 2.1
is required to remain effective.

 

“Registrable Securities” means, subject to the immediately following
sentences, (i) shares of Common Stock acquired by the applicable Purchaser
from the Company pursuant to the Securities Purchase Agreement, and (ii) any
shares of Common Stock issued or issuable, directly or indirectly, with respect
to the securities referred to in clause (i) by way of stock dividend or
stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization. 
As to any particular shares of Common Stock constituting Registrable
Securities, if the Company has complied with the requirements of the second
paragraph of Section 2.1, such shares of Common Stock will cease to
be Registrable Securities for purposes of Section 2.1 and Section 2.3
following the expiration of the Registration Period.  In addition, any particular shares of Common
Stock constituting Registrable Securities will cease to be Registrable
Securities when they (x) have been effectively registered under the Securities
Act and disposed of in accordance with a Registration Statement covering them,
(y) have been sold to the public pursuant to Rule 144 (or by similar
provision under the Securities Act), or (z) are eligible for resale under Rule 144(k)
(or by similar provision under the Securities Act) without any limitation on
the amount of securities that may be sold under paragraph (e) thereof.

 

“Registration Statement” means a registration statement on Form S-3
(or, if the Company is not eligible to use Form S-3, such other
appropriate registration form of the SEC pursuant to which the Company is
eligible to register the resale of Registrable Securities) filed by the Company
under the Securities Act which covers any of the Registrable Securities
pursuant to the provisions of this Agreement, including the prospectus,
amendments and supplements to such registration statement, including
post-effective amendments, all exhibits and all material incorporated by
reference in such registration statement, which shall permit the
Purchasers to offer and sell, on a delayed or continuous basis pursuant to Rule 415
under the Securities Act, the Registrable Securities.

 

“Representatives” has the meaning set forth in Section 2.9.

 

“Required Filing Date” has the meaning set forth in Section 2.1.

 

“Required Registration Statement”
has the meaning
set forth in Section 2.1.

 

“SEC” means the United States Securities and
Exchange Commission or any other federal agency at the time administering the
Securities Act.

 

2

 

“Securities Act” means the Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated thereunder.

 

“Securities Purchase Agreement” has the meaning set forth in the recitals.

 

ARTICLE 2

REGISTRATION RIGHTS

 

2.1                                 Required
Registration.  The Company shall use its reasonable best
efforts to prepare and as promptly as possible after the date hereof, but in
any event, not later than 90 days from the Closing Date (or, if such 90th day
is not a Business Day, by the first Business Day thereafter) (the “Required Filing Date”) file a Registration Statement with the SEC
(the “Required Registration
Statement”) and cause
the Required Registration Statement to be declared effective under the
Securities Act within 180 days after the Closing Date (or, if such 180th day is
not a Business Day, by the first Business Day thereafter).  The Company agrees to include in the Required
Registration Statement all information which the Designated Holders shall reasonably
request.

 

The Company shall use its reasonable best efforts to
keep the Required Registration Statement continuously effective for a period of
two years after the Registration Statement first becomes effective, plus the
number of days during which such Registration Statement was not effective or
usable pursuant to Sections 2.5(b), 2.6(e) or 2.6(i),
or such shorter period as will terminate when all of the Registrable Securities
covered by the Required Registration Statement have been disposed of in
accordance with the Required Registration Statement or have otherwise ceased to
be Registrable Securities.  In the event
the Company shall give any notice pursuant to Sections 2.6(e) or (i),
the additional time period mentioned in this Section 2.1 during
which the Required Registration Statement is to remain effective shall be
extended by the number of days during the period from and including the date of
the giving of such notice pursuant to Sections 2.6(e) or (i) to
and including the date when each seller of a Registrable Security covered by
the Registration Statement shall have received the copies of the supplemented
or amended prospectus contemplated by Sections 2.6(e).

 

2.2                                 Current Public Information.  The Company covenants that it
will use its reasonable best efforts to file all reports required to be filed
by it under the Exchange Act and the rules and regulations adopted by the
SEC thereunder, and will use its reasonable best efforts to take such further
action as the Purchasers may reasonably request, all to the extent required to
enable the holders of Registrable Securities to sell Registrable Securities
pursuant to Rule 144 or Rule 144A adopted by the SEC under the
Securities Act or any similar rule or regulation hereafter adopted by the
SEC.  The Company shall, upon the request
of a Designated Holder, deliver to such Designated Holder a written statement
as to whether it has complied with such requirements during the twelve month
period immediately preceding the date of such request.

 

2.3                                 Demand
Registration

 

(a)                                  Subject to Section 2.3(g), upon
the written request of the Majority Holders, requesting that the Company effect
the registration under the Securities Act of all or part of such Designated
Holders’ Registrable Securities and specifying the intended method of
disposition thereof, the Company will promptly give written notice of such
requested registration to all Designated Holders, and thereupon the Company
will use its reasonable best efforts to effect as expeditiously as possible the
registration under the Securities Act of the following:

 

(i)                                     the Registrable Securities which the Company
has been so requested to be registered by such Designated Holders for
disposition in accordance with the intended method of disposition stated in
such request;

 

3

 

(ii)                                  all other Registrable Securities the holders
of which shall have made a written request to the Company for registration
thereof within 30 days after the giving of such written notice by the Company
(which request shall specify the intended method of disposition of such
Registrable Securities); and

 

(iii)                               all shares of Common Stock which the Company
or Persons entitled to exercise “piggy-back” registration rights pursuant to
contractual commitments of the Company may elect to register in connection with
the offering of Registrable Securities pursuant to this Section 2.3;

 

all to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid) of
the Registrable Securities and the additional shares of Common Stock, if any,
so to be registered; provided, that, the provisions of this Section 2.3
shall not require the Company to effect more than one registration of
Registrable Securities in addition to the Required Registration Statement
contemplated by Section 2.1.

 

(b)                                 The registrations under this Section 2.3
shall be on an appropriate Registration Statement that permits the disposition
of such Registrable Securities in accordance with the intended methods of
distribution specified by the Majority Holders in their request for
registration.  The Company agrees to
include in any such Registration Statement all information which Designated
Holders of Registrable Securities being registered shall reasonably request.

 

(c)                                  A registration requested pursuant to this Section 2.3
shall not be deemed to have been effected (i) unless a Registration
Statement with respect thereto has become effective; provided, that a
Registration Statement which does not become effective after the Company has
filed a Registration Statement with respect thereto solely by reason of the
refusal to proceed of the Majority Holders (other than a refusal to proceed
based upon the advice of counsel relating to a matter with respect to the
Company) shall be deemed to have been effected by the Company at the request of
the Majority Holders unless the Designated Holders electing to have Registrable
Securities registered pursuant to such Registration Statement shall have
elected to pay all fees and expenses otherwise payable by the Company in connection
with such registration pursuant to Section 2.8, (ii) if, after
it has become effective, such registration is withdrawn by the Company (other
than at the request of the Majority Holders) or interfered with by any stop
order, injunction or other order or requirement of the SEC or other
governmental agency or court for any reason prior to the expiration of a 180
day period following such Registration Statement’s effectiveness, or (iii) if
the conditions to closing specified in any purchase agreement or underwriting
agreement entered into in connection with such registration are not satisfied,
other than due solely to some act or omission by the Designated Holders
electing to have Registrable Securities registered pursuant to such
Registration Statement.

 

(d)                                 If a requested registration pursuant to this Section 2.3
involves an underwritten offering, the underwriter or underwriters thereof
shall be selected by the holders of a majority (by number of shares) of the
Registrable Securities requested to be included in such Registration Statement
and shall be reasonably acceptable to the Company.

 

(e)                                  If a requested registration pursuant to this Section 2.3
involves an underwritten offering, and the managing underwriter shall advise
the Company in writing (with a copy to each Designated Holder of Registrable
Securities requesting registration) that, in its opinion, the number of
securities requested to be included in such registration (including securities
of the Company and Right Holders which are not Registrable Securities) exceeds
the number which can be sold in such offering within a price range reasonably
acceptable to the Company and to the holders of a majority

 

4

 

(by number of shares) of the Registrable Securities
requested to be included in such Registration Statement, the Company will
include in such registration, to the extent of the number which the Company is
so advised can be sold in such offering, (i) first, the Registrable
Securities which have been requested to be included in such registration by the
Designated Holders pursuant to this Agreement (pro rata based on the amount of
Registrable Securities sought to be registered by such persons), (ii) second,
provided that no securities sought to be included by the Designated Holders
have been excluded from such registration, the securities of other persons
entitled to exercise “piggy-back” registration rights pursuant to contractual
commitments of the Company (pro rata based on the amount of securities sought
to be registered by such persons) and (iii) third, securities the Company
proposes to register.

 

(f)                                    The Company shall use its reasonable best
efforts to keep any Registration Statement filed pursuant to this Section 2.3
continuously effective (i) for a period of one year after the Registration
Statement first becomes effective, plus the number of days during which such
Registration Statement was not effective or usable pursuant to Sections
2.5(b), 2.6(e) or 2.6(i); (ii) if such Registration
Statement related to an underwritten offering, for such period as in the
opinion of counsel for the underwriters a prospectus is required by law to be
delivered in connection with sales of Registrable Securities by an underwriter
or dealer, or (iii) for such shorter period as will terminate when all of
the Registrable Securities covered by the Required Registration Statement have
been disposed of in accordance with the Required Registration Statement or have
otherwise ceased to be Registrable Securities. 
In the event the Company shall give any notice pursuant to Sections
2.6(e) or (i), the additional time period mentioned in Section 2.3(f)(i) during
which the Required Registration Statement is to remain effective shall be
extended by the number of days during the period from and including the date of
the giving of such notice pursuant to Sections 2.6(e) or (i) to
and including the date when each seller of a Registrable Security covered by
the Registration Statement shall have received the copies of the supplemented
or amended prospectus contemplated by Sections 2.6(e).

 

(g)                                 The right of Designated Holders to register
Registrable Securities pursuant to this Section 2.3 is only
exercisable if, prior to the expiration of the Registration Period, the Company
becomes ineligible to register the Registrable Securities on the Registration
Statement contemplated by Section 2.1 or such Registration
Statement otherwise becomes unusable or ineffective and the Company is not able
to correct the misstatements, have the applicable stop order rescinded or
otherwise restore the effectiveness of the Registration Statement as
contemplated by this Agreement.

 

2.4                                 Piggyback
Registration

 

(a)                                  Whenever the Company proposes to register any
of its securities under the Securities Act (other than pursuant to a
registration pursuant to Section 2.3 or a registration on Form S-4
or S-8 or any successor or similar forms) and the registration form to be used
may be used for the registration of Registrable Securities, whether or not for
sale for its own account, the Company will give prompt written notice (but in
no event less than 25 days before the anticipated filing date) to all
Designated Holders, and such notice shall describe the proposed registration
and distribution and offer to all Designate Holders the opportunity to register
the number of Registrable Securities as each such Designated Holder may
request.  The Company will include in
such registration statement all Registrable Securities with respect to which
the Company has received written requests for inclusion therein within 15 days
after the Designated Holders’ receipt of the Company’s notice (a “Piggyback Registration”).

 

(b)                                 The Company shall use its reasonable best
efforts to cause the managing underwriter or underwriters of a proposed underwritten
offering to permit the Registrable Securities

 

5

 

requested to be included in a Piggyback Registration
to be included on the same terms and conditions as any similar securities of
the Company or any other security holder included therein and to permit the
sale or other disposition of such Registrable Securities in accordance with the
intended method of distribution thereof.

 

(c)                                  Any Designated Holder shall have the right to
withdraw its request for inclusion of its Registrable Securities in any
Registration Statement pursuant to this Section 2.4 by giving
written notice to the Company of its request to withdraw; provided, that in the
event of such withdrawal (other than pursuant to Section 2.4(e) hereof,
the Company shall not be required to reimburse such holder for the fees and
expenses referred to in Section 2.8 hereof incurred by such
Designated Holder prior to such withdrawal, unless such withdrawal was due to a
material adverse change to the Company. 
The Company may withdraw a Piggyback Registration at any time prior to
the time it becomes effective.

 

(d)                                 If (i) a Piggyback Registration involves
an underwritten offering of the securities being registered, whether or not for
sale for the account of the Company, to be distributed (on a firm commitment
basis) by or through one or more underwriters of recognized standing under
underwriting terms appropriate for such a transaction, and (ii) the
managing underwriter of such underwritten offering shall inform the Company and
Designated Holders requesting such registration by letter of its belief that
the distribution of all or a specified number of such Registrable Securities
concurrently with the securities being distributed by such underwriters would
interfere with the successful marketing of the securities being distributed by
such underwriters (such writing to state the basis of such belief and the
approximate number of such Registrable Securities which may be distributed
without such effect), then the Company will be required to include in such
registration only the amount of securities which it is so advised should be
included in such registration.  In such
event: (x) in cases initially involving the registration for sale of securities
for the Company’s own account, securities shall be registered in such offering
in the following order of priority: (i) first, the securities which the
Company proposes to register, (ii) second, Registrable Securities and
securities which have been requested to be included in such registration by
Persons entitled to exercise “piggy-back” registration rights pursuant to
contractual commitments of the Company (pro rata based on the amount of
securities sought to be registered by Designated Holders and such other
Persons); and (y) in cases not initially involving the registration for sale of
securities for the Company’s own account, securities shall be registered in
such offering in the following order of priority: (i) first, the
securities of any Person whose exercise of a “demand” registration right
pursuant to a contractual commitment of the Company is the basis for the
registration, (ii) second, Registrable Securities and securities which
have been requested to be included in such registration by Persons entitled to
exercise “piggy-back” registration rights pursuant to contractual commitments
of the Company (pro rata based on the amount of securities sought to be
registered by Designated Holders and such other Persons), (iii) third, the
securities which the Company proposes to register.

 

(e)                                  If, as a result of the proration provisions
of this Section 2.4, any Designated Holders shall not be entitled
to include all Registrable Securities in a Piggyback Registration that such
Designated Holders has requested to be included, such holder may elect to
withdraw his request to include Registrable Securities in such registration.

 

2.5                                 Holdback Agreements.

 

(a)                                  To the extent not inconsistent with
applicable law, in connection with a public offering of securities of the
Company, upon the request of the Company or the underwriter, in the case of an
underwritten public offering of the Company’s securities, each Designated
Holder who beneficially owns (as defined in Rule 13d-3 adopted by the SEC
under the Exchange Act) at least

 

6

 

5% of the outstanding capital stock of the Company
will not effect any public sale or distribution (other than those included in
the registration statement being filed with respect to such public offering) of
any securities of the Company, or any securities, options or rights convertible
into or exchangeable or exercisable for such securities during the 14 days
prior to and the 90-day period beginning on such effective date, unless (in the
case of an underwritten public offering) the managing underwriters otherwise
agree to a shorter period of time. 
Notwithstanding the foregoing, no Designated Holder shall be required to
enter into any such “lock up” agreement unless and until all of the Company’s
executive officers and directors execute substantially similar “lock up”
agreements and the Company uses commercially reasonable efforts to cause each
holder of more than 5% of its outstanding capital stock to execute
substantially similar “lock up” agreements. 
Neither the Company nor the underwriter shall amend, terminate or waive
a “lock up” agreement unless each “lock up” agreement with a Designated Holder
is also amended or waived in a similar manner or terminated, as the case may
be.

 

(b)                                 The Company shall have the right at any time,
to suspend the filing of a Registration Statement under Section 2.3
or require that the Designated Holders of Registrable Securities suspend
further open market offers and sales of Registrable Securities pursuant to a
Registration Statement filed hereunder (i) for a period not to exceed an
aggregate of 30 days in any six month period or an aggregate of 60 days in any
twelve-month period for valid business reasons (not including avoidance of
their obligations hereunder) to avoid premature public disclosure of a pending
corporate transaction, including pending acquisitions or divestitures of
assets, mergers and combinations and similar events; and (ii) upon the
occurrence of any of the events specified in Sections 2.6(e) or (i).

 

2.6                                 Registration
Procedures.  The Company will use its reasonable best
efforts to effect the registration of Registrable Securities pursuant to this
Agreement in accordance with the intended methods of disposition thereof, and
pursuant thereto the Company will as expeditiously as possible:

 

(a)                                  before filing the Registration Statement, the
Company will furnish to the counsel selected by the holders of a majority of
the Registrable Securities a copy of such Registration Statement, and will
provided such counsel with all correspondence with the SEC regarding the
Registration Statement;

 

(b)                                 prepare and file with the SEC such amendments
and supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to keep such Registration Statement
effective for the period provided for in Section 2.1 or Section 2.3,
or the periods contemplated by the Company or the Persons requesting any
Registration Statement filed pursuant to Section 2.4;

 

(c)                                  furnish to each seller of Registrable
Securities such number of copies of such Registration Statement, each amendment
and supplement thereto, the prospectus included in the Registration Statement
(including each preliminary prospectus) and such other documents as such seller
may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;

 

(d)                                 use its reasonable best efforts to register
or qualify such Registrable Securities under such other state securities or
blue sky laws as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller and to keep each such registration or qualification
(or exemption therefrom) effective during the

 

7

 

period which the Registration Statement is required
to be kept effective (provided, that the Company will not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this subparagraph, (ii) subject itself to
taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);

 

(e)                                  notify each seller of such Registrable
Securities, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a result
of which the prospectus included in the Registration Statement contains an
untrue statement of a material fact or omits any fact necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made, and, at the request of any such seller, the Company will as
soon as possible prepare and furnish to such seller a reasonable number of
copies of a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
will not contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading in the light of
the circumstances under which they were made;

 

(f)                                    cause all such Registrable Securities to be
listed on each securities exchange on which similar securities issued by the
Company are then listed and, if not so listed, to be approved for trading on
any automated quotation system of a national securities association on which
similar securities of the Company are quoted;

 

(g)                                 provide a transfer agent and registrar for
all such Registrable Securities not later than the effective date of such
Registration Statement;

 

(h)                                 enter into such customary agreements
(including underwriting agreements) and take all other customary and
appropriate actions as the holders of a majority of the Registrable Securities
being sold or the underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities;

 

(i)                                     notify each Designated Holder of any stop
order issued or threatened by the SEC;

 

(j)                                     otherwise comply with all applicable rules and
regulations of the SEC, and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering the period of at least
twelve months beginning with the first day of the Company’s first full calendar
quarter after the effective date of the Registration Statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;

 

(k)                                  in the event of the issuance of any stop
order suspending the effectiveness of a Registration Statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any securities included in such Registration Statement for
sale in any jurisdiction, the Company will use its reasonable best efforts to
promptly obtain the withdrawal of such order;

 

(l)                                     if requested by a Designated Holder, obtain
one or more comfort letters, dated the effective date of the Registration Statement
(and, if such registration includes an underwritten offering, dated the date of
the closing under the underwriting agreement), signed by the Company’s
independent public accountants in customary form and covering such matter of
the type customarily covered by comfort letters as the holders of a majority of
the Registrable Securities being sold reasonably request;

 

8

 

(m)                               provide a legal opinion of the Company’s
outside counsel, dated the effective date of such Registration Statement (and,
if such registration includes an underwritten offering, dated the date of the
closing under the underwriting agreement), with respect to the Registration
Statement, each amendment and supplement thereto, the prospectus included
therein (including the preliminary prospectus) and such other documents
relating thereto in customary form and covering such matters of the type
customarily covered by legal opinions of such nature;

 

(n)                                 subject to execution and delivery of mutually
satisfactory confidentiality agreements, make available at reasonable times for
inspection by any seller of Registrable Securities, any managing underwriter
participating in any disposition of such Registrable Securities pursuant to the
Registration Statement, and any attorney, accountant or other agent retained by
such seller or any managing underwriter, during normal business hours of the
Company at the Company’s corporate office in Houston, Texas and without
unreasonable disruption of the Company’s business or unreasonable expense to
Company and solely for the purpose of due diligence with respect to the
Registration Statement, legally disclosable, financial and other records and
pertinent corporate documents of the Company and its subsidiaries reasonable
requested by such persons, and cause the Company’s employees and independent
accountants to supply all similar information reasonably requested by any such
seller, managing underwriter, attorney, accountant or agent in connection with
the Registration Statement, as shall be reasonably necessary to enable them to
exercise their due diligence responsibility;

 

(o)                                 cooperate with each seller of Registrable
Securities and each underwriter participating in the disposition of such
Registrable Securities and their respective counsel in connection with any
filings required to be made with the National Association of Securities
Dealers; and

 

(p)                                 take all other steps reasonably necessary to
effect the registration of the. Registrable Securities contemplated hereby.

 

2.7                                 Conditions Precedent to Company’s Obligations Pursuant to this Agreement.  It
shall be a condition precedent to the obligations of the Company to take any
action pursuant to this Agreement that each of the Designated Holders whose
Registrable Securities are to be registered pursuant to this Agreement shall
furnish such Designated Holder’s written agreement to be bound by the terms and
conditions of this Agreement prior to performance by the Company of its
obligations under this Agreement.  By
executing and delivering this Agreement, each Designated Holder represents and
warrants that the information concerning, and representations and warranties
by, such Designated Holder, including information concerning the securities of
the Company held, beneficially or of record, by such Designated Holder,
furnished to the Company pursuant to the Securities Purchase Agreement or
otherwise, are true and correct as if the same were represented and warranted
on the date any Registration Statement required pursuant to this Agreement is
filed with the SEC or the date of filing with the SEC of any amendment thereto,
and each Designated Holder covenants to immediately notify the Company in
writing of any change in any such information, representation or warranty and
to refrain from offering or disposing of any securities pursuant to any
Registration Statement until the Company has reflected such change in such
Registration Statement.  By executing and
delivering this Agreement, each Designated Holder further agrees to furnish any
additional information as the Company may reasonably request in connection with
any action to be taken by the Company pursuant to this Agreement, and to pay
such Designated Holder’s expenses which are not required to be paid by the
Company pursuant to this Agreement.

 

9

 

2.8                                 Fees
and Expenses.  All expenses incident to the Company’s
performance of or compliance with this Agreement including, without limitation,
all registration and filing fees payable by the Company, fees and expenses of
compliance by the Company with securities or blue sky laws, printing expenses
of the Company, messenger and delivery expenses of the Company, and fees and
disbursements of counsel for the Company and all independent certified public
accountants of the Company, and other Persons retained by the Company will be
borne by the Company, and the Company will pay its internal expenses
(including, without limitation, all salaries and expenses of the Company’s
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review, the expense of any liability insurance of the
Company and the expenses and fees for listing or approval for trading of the
securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed or on any automated quotation
system of a national securities association on which similar securities of the
Company are quoted.  In connection with
any Registration Statement filed pursuant to Section 2.3 or Section 2.4,
the Company will pay the reasonable fees and expenses of a single counsel
retained by the Designated Holders of a majority (by number of shares) of the
Registrable Securities requested to be included in such Registration Statement.  The Company shall have no obligation to pay
any underwriting discounts or commissions attributable to the sale of
Registrable Securities and any of the expenses incurred by any Designated
Holder which are not payable by the Company, such costs to be borne by such
Designated Holder or Holders, including, without limitation, underwriting fees,
discounts and expenses, if any, applicable to any Designated Holder’s
Registrable Securities; fees and disbursements of counsel or other
professionals that any Designated Holder may choose to retain in connection
with the Registration Statement filed pursuant to this Agreement (except as
otherwise provided herein or in the Securities Purchase Agreement); selling
commissions or stock transfer taxes applicable to the Registrable Securities
registered on behalf of any Designated Holder; any other expenses incurred by
or on behalf of such Designated Holder in connection with the offer and sale of
such Designated Holder’s Registrable Securities other than expenses which the
Company is expressly obligated to pay pursuant to this Agreement.

 

2.9                                 Indemnification.

 

(a)                                  The Company agrees to indemnify and hold
harmless, to the fullest extent permitted by law, each Designated Holder and
its general or limited partners, officers, directors, members, managers,
employees, advisors, representatives, agents and Affiliates (collectively, the “Representatives”) from and against any loss, claim, damage,
liability, attorney’s fees, cost or expense and costs and expenses of investigating
and defending any such claim (collectively, the “Losses”), joint or several, and any action in respect thereof to which such
Designated Holder or its Representatives may become subject under the
Securities Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereto) arise out of or are based
upon (i) any untrue or alleged untrue statement of a material fact
contained in any Registration Statement, prospectus or preliminary or summary
prospectus or any amendment or supplement thereto or (ii) any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and the Company
shall reimburse each such Designated Holder and its Representatives for any
legal or any other expenses incurred by them in connection with investigating
or defending or preparing to defend against any such Loss, action or
proceeding; provided, however, that the Company shall not be liable to any such
Designated Holder or other indemnitee in any such case to the extent that any
such Loss (or action or proceeding, whether commenced or threatened, in respect
thereof) arises out of or is based upon (x) an untrue statement or alleged
untrue statement or omission or alleged omission, made in such Registration
Statement, any such prospectus or preliminary or summary prospectus or any
amendment or supplement thereto, in reliance upon, and in conformity with,
written information prepared and furnished to the Company by any Designated
Holder or its

 

10

 

Representatives expressly for use therein and, with
respect to any untrue statement or omission or alleged untrue statement or
omission made in any preliminary prospectus relating to the Registration
Statement, to the extent that a prospectus relating to the Registrable
Securities was required to be delivered by such Designated Holder under the
Securities Act in connection with such purchase, there was not sent or given to
such person, at or prior to the written confirmation of the sale of such
Registrable Securities to such person, a copy of the final prospectus that
corrects such untrue statement or alleged untrue statement or omission or
alleged omission if the Company had previously furnished copies thereof to such
Designated Holder or (y) use of a Registration Statement or the related
prospectus during a period when a stop order has been issued in respect of such
Registration Statement or any proceedings for that purpose have been initiated
or use of a prospectus when use of such prospectus has been suspended pursuant
to Sections 2.5(b), 2.6(e) or (i); provided that in each
case, that such Holder received prior written notice of such stop order,
initiation of proceedings or suspension from the Company.  In no event, however, shall the Company be
liable for indirect, incidental or consequential or special damages of any
kind.  In connection with an underwritten
offering, the Company will indemnify such underwriters, their officers and
directors and each Person who controls such underwriters (within the meaning of
the Securities Act) to the same extent as provided above with respect to the
indemnification of the Designated Holders.

 

(b)                                 In connection with the filing of the
Registration Statement by the Company pursuant to this Agreement, the
Designated Holders will furnish to the Company in writing such information as
the Company reasonably requests for use in connection with such Registration
Statement and the related prospectus and, to the fullest extent permitted by
law, each such Designated Holder will indemnify and hold harmless the Company
and its Representatives from and against any Losses, severally but not jointly,
and any action in respect thereof to which the Company and its Representatives
may become subject under the Securities Act or otherwise, insofar as such
Losses (or actions or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon (i) the purchase or sale of
Registrable Securities during a suspension as set forth in Sections 2.5(b),
2.6(e) or (i) in each case after receipt of written
notice of such suspension, (ii) any untrue or alleged untrue statement of
a material fact contained in the Registration Statement, prospectus or
preliminary or summary prospectus or any amendment or supplement thereto, or (iii) any
omission or alleged omission of a material fact required to be stated therein
or necessary to make the statements therein not misleading, but, with respect
to clauses (ii) and (iii) above, only to the extent that such untrue
statement or omission is made in such Registration Statement, any such
prospectus or preliminary or summary prospectus or any amendment or supplement
thereto, in reliance upon and in conformity with written information prepared
and furnished to the Company by such Designated Holder expressly for use
therein or by failure of such Designated Holder to deliver a copy of the
Registration Statement or prospectus or any amendments or supplements thereto,
and such Designated Holder will reimburse the Company and each Representative
for any legal or any other expenses incurred by them in connection with
investigating or defending or preparing to defend against any such Loss, action
or proceeding; provided, however, that such Designated Holder shall not be
liable in any such case to the extent that prior to the filing of any such
Registration Statement or prospectus or amendment or supplement thereto, such
Designated Holder has furnished in writing to the Company information expressly
for use in such Registration Statement or prospectus or any amendment or
supplement thereto which corrected or made not misleading information
previously furnished to the Company.  The
obligation of each Designated Holder to indemnify the Company and its
Representatives shall be limited to the net proceeds received by such
Designated Holder from the sale of Registrable Securities under such
Registration Statement.

 

11

 

In no event, however, shall any Designated Holder be
liable for indirect, incidental or consequential or special damages of any
kind.

 

(c)                                  Promptly after receipt by any Person in
respect of which indemnity may be sought pursuant to Section 2.9(a) or
2.9(b) (an “Indemnified
Party”) of notice of any
claim or the commencement of any action, the Indemnified Party shall, if a
claim in respect thereof is to be made against the Person against whom such
indemnity may be sought (an “Indemnifying Party”), promptly notify the
Indemnifying Party in writing of the claim or the commencement of such action;
provided, that the failure to notify the Indemnifying Party shall not relieve
the Indemnifying Party from any liability which it may have to an Indemnified
Party under Section 2.9(a) or 2.9(b) except to the
extent of any actual prejudice resulting therefrom.  If any such claim or action shall be brought
against an Indemnified Party, and it shall notify the Indemnifying Party
thereof, the Indemnifying Party shall be entitled to participate therein, and,
to the extent that it wishes, jointly with any other similarly notified
Indemnifying Party, to assume the defense thereof with counsel reasonably
satisfactory to the Indemnified Party. After notice from the Indemnifying Party
to the Indemnified Party of its election to assume the defense of such claim or
action, the Indemnifying Party shall not be liable to the Indemnified Party for
any legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation; provided, that the Indemnified Party shall have the right to
employ separate counsel to represent the Indemnified Party and its
Representatives who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the Indemnified Party against the
Indemnifying Party, but the fees and expenses of such counsel shall be for the
account of such Indemnified Party unless (i) the Indemnifying Party and
the Indemnified Party shall have mutually agreed to the retention of such
counsel or (ii) in the written opinion of counsel to such Indemnified
Party, representation of both parties by the same counsel would be
inappropriate due to actual or potential conflicts of interest between them, it
being understood, however, that the Indemnifying Party shall not, in connection
with any one such claim or action or separate but substantially similar or
related claims or actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable for the fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for all Indemnified Parties.  No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
claim or pending or threatened proceeding in respect of which the Indemnified
Party is or could have been a party and indemnity could have been sought
hereunder by such Indemnified Party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability arising out
of such claim or proceeding other than the payment of monetary damages by the
Indemnifying Party on behalf of the Indemnified Party.  Whether or not the defense of any claim or
action is assumed by the Indemnifying Party, such Indemnifying Party will not
be subject to any liability for any settlement made without its consent, which
consent will not be unreasonably withheld.

 

(d)                                 If the indemnification provided for in this Section 2.9
is unavailable to the Indemnified Parties in respect of any Losses referred to
herein, then each Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Designated
Holders on the other from the offering of the Registrable Securities, or if such
allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits but also the relative
fault of the Company on the one hand and the Designated Holders on the other in
connection with the statements or omissions which resulted in such Losses, as
well as any other relevant equitable considerations. The relative fault of the
Company on the one hand and of each Designated Holder

 

12

 

on the other shall be determined by reference to,
among other things, whether any action taken, including any untrue or alleged
untrue statement of a material fact, or the omission or alleged omission to
state a material fact relates to information supplied by such party, and the
parties’ relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.

 

The Company and the
Designated Holders agree that it would not be just and equitable if
contribution pursuant to this Section 2.9(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 in the immediately
preceding paragraph.  The amount paid or
payable by an Indemnified Party as a result of the Losses referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim.  Notwithstanding the
provisions of this Section 2.9, no Designated Holder shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities of such Designated Holder were
offered to the public exceeds the amount of any Losses which such Designated
Holder has otherwise paid by reason of such untrue or alleged untrue statement
or omission or alleged omission.  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.  Each Designated Holder’s obligations to
contribute pursuant to this Section 2.9 is several in the
proportion that the proceeds of the offering received by such Designated Holder
bears to the total proceeds of the offering received by all the Designated
Holders.  The indemnification
provided by this Section 2.9 shall be a continuing right to indemnification
with respect to sales of Registrable Securities and shall survive the
registration and sale of any Registrable Securities by any Designated Holder
and the expiration or termination of this Agreement.  The indemnity and contribution agreements contained
herein are in addition to any liability that any Indemnifying Party might have
to any Indemnified Party.

 

2.10                           Participation in Registrations.

 

(a)                                  No Person may participate in any registration
hereunder which is underwritten unless such Person (i) agrees to sell such
Person’s securities on the basis provided in any underwriting arrangements
approved by the Person or Persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements and this Agreement.

 

(b)                                 Each Person that is participating in any
registration under this Agreement agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 2.6(e) or
(i) above, such Person will forthwith discontinue the disposition
of its Registrable Securities pursuant to the Registration Statement and all
use of the Registration Statement or any prospectus or related document until
such Person’s receipt of the copies of a supplemented or amended prospectus as
contemplated by such Section 2.6(e) and, if so directed by the
Company, will deliver to the Company (at the Company’s expense) all copies,
other than permanent file copies, then in such Designated Holder’s possession
of such documents at the time of receipt of such notice.  Furthermore, each Designated Holder agrees
that if such Designated Holder uses a prospectus in connection with the
offering and sale of any of the Registrable Securities, the Designated Holder
will use only the latest version of such prospectus provided by Company.

 

13

 

ARTICLE 3

TRANSFERS OF CERTAIN RIGHTS

 

3.1                                 Transfer.  The rights granted to the
Purchaser under this Agreement are non-transferable except for a transfer,
without any consideration whatsoever, to a person or entity which is an
Affiliate of the transferor, and any such transfer, in any case, shall be
subject to the provisions of Sections 3.2 and 3.3; provided that
nothing contained herein shall be deemed to permit an assignment, transfer or
disposition of the Registrable Securities in violation of the terms and
conditions of the Securities Purchase Agreement, or applicable law.

 

3.2                                 Transferees.  Any
permitted transferee to whom rights under this Agreement are transferred shall,
as a condition to such transfer, deliver to the Company a written instrument by
which such transferee agrees to be bound by the obligations imposed upon the
Purchaser under this Agreement to the same extent as if such transferee were a
Purchaser hereunder.

 

3.3                                 Subsequent
Transferees.  A transferee to whom rights are transferred
pursuant to this Section 3 may not again transfer such rights to
any other person or entity, other than as provided in Sections 3.1 or 3.2
above.

 

ARTICLE 4

MISCELLANEOUS

 

4.1                                 Recapitalizations, Exchanges, etc.  The provisions of this Agreement shall apply to the full extent set forth
herein with respect to (i) the Registrable Securities, (ii) any and
all shares of Common Stock into which the Registrable Securities are converted,
exchanged or substituted in any recapitalization or other capital
reorganization by the Company and (iii) any and all equity securities of
the Company or any successor or assign of the Company (whether by merger,
consolidation, sale of assets or otherwise) which may be issued in respect of,
in conversion of, in exchange for or in substitution of, the Registrable
Securities and shall be appropriately adjusted for any stock dividends, splits,
reverse splits, combinations, recapitalizations and the like occurring after
the date hereof. The Company shall cause any successor or assign (whether by
merger, consolidation, sale of assets or otherwise) to enter into a new
registration rights agreement with the Designated Holders on terms
substantially the same as this Agreement as a condition of any such
transaction.

 

4.2                                 No Inconsistent Agreements.  The Company has not and shall
not enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Purchasers in this Agreement.  The Parties acknowledge and agree that the
Company has granted registration rights heretofore and may grant registration
rights hereafter, which are or shall be pari passu with the registration rights
of the Purchasers, and shall not be deemed to conflict with this covenant.

 

4.3                                 Amendments
and Waivers.  The provisions of this Agreement may be
amended and the Company may take action herein prohibited, or omit to perform
any act herein required to be performed by it, if, but only if, the Company has
obtained the written consent of holders of at least a majority of the
Registrable Securities then in existence.

 

4.4                                 Severability. 
Whenever possible, each provision of this Agreement shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be held to be prohibited by or invalid wider
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.

 

14

 

4.5                                 Counterparts.  This Agreement may be executed in
one or more counterparts each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

 

4.6                                 Notices.  All
notices, requests and other communications to any party hereunder shall be in
writing (including telecopy, telex or similar writing) and shall be deemed
given or made as of the date delivered, if delivered personally or by telecopy
(provided that delivery by telecopy shall be followed by delivery of an
additional copy personally, by mail or overnight courier), one day after being
delivered by overnight courier or four business days after being mailed by
registered or certified mail (postage prepaid for the most expeditious form of
delivery, return receipt requested), to the parties at the following addresses
(or to such other address or telex or telecopy number as a party may have
specified by notice given to the other party pursuant to this provision):

 

If to the Company, to:

 

KMG Chemicals, Inc.

10611 Harwin Drive, Suite 402

Houston, Texas 77036

Attention:  Roger C. Jackson

Telephone: (713) 988-9252,
x 113

Facsimile: (713) 988-9298

 

With copy to:

 

Haynes and Boone, LLP

1221 McKinney, Suite 2100

Houston, Texas 77010

Attention: 
Charles D. Powell, Esq.

Telephone: (713) 547-2052

Facsimile: (713) 236-5513

 

If to a Purchaser, to:

 

The address or facsimile number of each Purchaser
set forth on the signature page of this Agreement.

 

4.7                                 Governing
Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas, without regard to
the conflicts of laws rules or provisions.

 

4.8                                 Forum;
Service of Process.  Any legal suit, action or proceeding brought
by any party or any of its Affiliates arising out of or based upon this
Agreement shall be instituted in any federal or state court in Harris County,
Texas, and each party waives any objection which it may now or hereafter have
to the laying of venue or any such proceeding, and irrevocably submits to the
jurisdiction of such courts in any such suit, action or proceeding.

 

4.9                                 Captions.  The
captions, headings and arrangements used in this Agreement are for convenience
only and do not in any way limit or amplify the terms and provisions hereof.

 

4.10                           No
Prejudice.  The terms of this Agreement shall not be
construed in favor of or against any party on account of its participation in
the preparation hereof.

 

15

 

4.11                           Words in Singular and Plural Form.  Words used in the singular form
in this Agreement shall be deemed to import the plural, and vice versa, as the
sense may require.

 

4.12                           Remedy
for Breach.  The Company hereby acknowledges that in the
event of any breach or threatened breach by the Company of any of the
provisions of this Agreement, the Designated Holders would have no adequate
remedy at law and could suffer substantial and irreparable damage.  Accordingly, the Company hereby agrees that,
in such event, the Designated Holders shall be entitled, and notwithstanding
any election by any Designated Holder to claim damages, to obtain a temporary
and/or permanent injunction to restrain any such breach or threatened breach or
to obtain specific performance of any such provisions, all without prejudice to
any and all other remedies which any Designated Holders may have at law or in
equity.

 

4.13                           Successors and Assigns, Third Party Beneficiaries.  This
Agreement and all of the provisions hereof shall be binding upon and inure to
the benefit of the parties hereto, each assignee of the Designated Holders
permitted pursuant to Article 3 and their respective permitted
successors and assigns and executors, administrators and heirs.  Designated Holders are intended third party
beneficiaries of this Agreement and this Agreement may be enforced by such Designated
Holders.

 

4.14                           Entire
Agreement.  This Agreement sets forth the entire
agreement and understanding between the parties as to the subject matter hereof
and merges and supersedes all prior discussions, agreements and understandings
of any and every nature among them.

 

4.15                           Attorneys’ Fees.  In the event of any action or suit based upon
or arising out of any actual or alleged breach by any party of any
representation, warranty, covenant or agreement in this Agreement, the
prevailing party shall be entitled to recover its reasonable attorneys’ fees
and expenses of such action or suit from the other party in addition to any
other relief ordered by any court.

 

4.16                           Termination of Rights.  Upon the expiration of the Registration
Period all rights of Designated Holders under Section 2.1 and Section 2.3
of this Agreement will terminate.  All
rights under this Agreement will terminate when the Designated Holders no
longer hold any Registrable Securities.

 

[Signature Page Follows]

 

16

 

IN
WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed as of the date and year first written above.

 

	
   

  	
  KMG
  CHEMICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ John V.
  Sobchak

  	
   

  
	
   

  	
  Title:

  	
  Chief Financial
  Officer

  

 

IN
WITNESS WHEREOF, the undersigned Purchaser has caused this Registration Rights
Agreement to be duly executed as of the date and year first above written and
to be bound hereby.

 

	
   

  	
  PURCHASERS:

  
	
   

  	
   

  	
   

  
	
   

  	
  TONTINE
  CAPITAL PARTNERS, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Jeffrey L
  Gendell

  	
   

  
	
   

  	
  Title:

  	
  Managing Member
  of General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  JURISDICTION:
  Delaware

  
	
   

  	
  ADDRESS:

  	
  55 Railroad
  Avenue, 3rd Floor

  
	
   

  	
   

  	
  Greenwich, CT
  06830

  
	
   

  	
   

  	
  Telephone: (203)
  767-2000

  
	
   

  	
   

  	
  Facsimile: (203)
  767-2010

  
					

 

AGGREGATE SUBSCRIPTION AMOUNT:

Aggregate Number of Shares of Common Stock:  1,000,000

 

	
   

  	
  TERRIER
  PARTNERS L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Bobby
  Melnick

  	
   

  
	
   

  	
  Title:

  	
  General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
  JURISDICTION:
  New York

  
	
   

  	
  ADDRESS:

  	
  145 East 57
  th Street, 10 Floor

  
	
   

  	
   

  	
  New York, NY
  10022

  
	
   

  	
   

  	
  Telephone:
  (     )

  
	
   

  	
   

  	
  Facsimile: (      )

  
					

 

AGGREGATE SUBSCRIPTION AMOUNT:

Aggregate Number of Shares of Common Stock:  200,000

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