SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 9, 1998
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
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(Exact Name of Registrant as Specified in Charter)
Delaware 0-20303 13-2846796
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State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
P.O. Box 382, 4 Hardscrabble Heights, Brewster, New York 10509
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(Address of Principal Executive Offices) Zip Code
Registrant's telephone number, including area code: (914) 277-8100
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P.O. Box 382, Fields Lane, Brewster, New York 10509
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Former name or former address, if changed since last report
<PAGE>
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
Acquisition of Assets of Mildred Elley Schools.
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On November 9, 1998 (the "Closing Date"), Touchstone Applied
Science Associates, Inc. (the "Company"), through MESI Acquisition
Corp. ("MESI"), a wholly-owned subsidiary of TASA Educational
Services Corporation, which is a wholly-owned subsidiary of
the Company, purchased substantially all of the assets (the
"Assets") of Mildred Elley School, Inc. (the "Seller") (the
"Acquisition") as of November 2, 1998. The Assets of the Seller
include:(i) cash on hand, (ii) accounts and accounts
receivable,(iii) prepaid expenses, (iv) furniture and
fixtures, machinery and equipment, and inventory in all forms,
(v) catalogs, (vi) student records and lists, and mailing
lists, (vii) leases, (viii) curriculum, (ix) all intellectual
property and proprietary rights and interests, (x) any and all
contracts and contract rights and (xi) the names of Seller,
including "Mildred Elley School, Inc.", "Mildred Elley Business
School" and all variations and derivatives thereof. The
Asset Purchase Agreement underlying the Acquisition also
contains a restrictive covenant which, among other things,
restricts the Seller's involvement in the ownership,
management, development and operation of post-secondary
schools for a period of two years after the Closing Date.
The purchase price for the Assets was $3,000,000,
paid as follows: (i) $2,000,000 in cash at the closing and
(ii) $1,000,000 by a five-year promissory note of MESI,
payable in equal quarterly installments of principal and
interest and bearing interest at a rate equal to 8.5%
per annum. In addition, MESI assumed certain liabilities
of the Seller related to the acquired business (the "Assumed
Liabilities"). The aggregate amount of the Assumed Liabilities
is approximately $1,000,000.
Simultaneous with the closing, MESI entered into
employment agreements with Faith Takes, the President of the
Seller, and three other employees of the Seller. Pursuant to
her employment agreement, Ms. Takes will be the President and
Chief Executive Officer of MESI and the Executive Vice President
of TASA Educational Services, Corporation, a wholly-owned
subsidiary of the Company and the parent company of MESI. Ms.
Takes' employment will be for an initial term of three years
at an annual compensation equal to $150,000 plus incentive
compensation.
Financing of the Acquisition. The Company financed
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the Acquisition through the issuance of debentures, with
warrants attached, pursuant to a Securities Purchase Agreement
with Cahill, Warnock Strategic Partners Fund, L.P. ("Cahill,
Warnock") and Strategic Associates, L.P. (together with
Cahill, Warnock, the "Purchasers"). Pursuant to the
Securities Purchase Agreement, the Company:(i) issued and
sold to the Purchasers 8% Debentures due 2003 (the
"Debentures") in the aggregate principal amount of $4,000,000,
(ii) issued and sold to the Purchasers, as additional
consideration for purchasing the Debentures, warrants (the
"Warrants") to acquire 2,760,918 shares of the Company's Common
Stock, which, on the date of issuance of the Debentures,
constituted 20% of the Company's issued and outstanding common
stock on a fully diluted basis, after giving effect to the
transactions contemplated in the Securities Purchase Agreement
and (iii) authorized the issuance and sale in the future to
the Purchasers of additional shares of the Company's Common
Stock upon the Company's exercise of a put option, the terms
and conditions of which are set forth in the Securities
Purchase Agreement, which is attached as an exhibit hereto.
Of the Warrants issued, 80% are immediately exercisable, and
20% will become exercisable 18 months after the issuance
thereof if the Company shall not have repaid the Debentures in
full by such date.
Pursuant to an Investor Rights Agreement between the
Company and the Purchasers, the Company has agreed that so
long as the Purchasers own at least 50% of the Warrants (or if
the Warrants have been exercised, the shares issuable pursuant
thereto), the Purchasers shall have the right to nominate two
directors to the Board of Directors of the Company. As of the
date of this Report, the Purchasers have nominated David L.
Warnock, who was elected to the Board of Directors by
unanimous written consent of the Directors on October 28, 1998.
Pursuant to the Investor Rights Agreement, the directors and
executive officers have agreed, at each meeting of
stockholders for the purpose of electing directors, to cast
their eligible votes in favor of the nominees of the
Purchasers. In addition, for a period of 29 months from the
date of the closing, at each meeting of stockholders for the
purpose of electing directors, the Purchasers have agreed to
cast all of their eligible votes in favor of the directors
nominated by the Company.
Pursuant to a Registration Rights Agreement between
the Company and the Purchasers,the Company has agreed to
register with the Securities and Exchange Commission the
shares of Common Stock underlying the Warrants.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL
INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
The audited financial statements of the business
acquired will be filed by amendment to this Current Report
on Form 8-K no later than the date which is sixty days
after the date of this Current Report.
(b) PRO FORMA FINANCIAL INFORMATION
The PRO FORMA financial information will be filed
by amendment to this Current Report on Form 8-K no later
than the date which is sixty days after the date of this
Current Report.
(c) EXHIBITS
Exhibit 4.1 Investor Rights Agreement, dated as of September
4, 1998, by and among the Company, Cahill Warnock
Strategic Partners Fund, L.P., Strategic Associates,
L.P., and the Individual Shareholders Named Therein
Exhibit 4.2 Registration Rights Agreement
Exhibit 4.3 Form of 8% Subordinated Debenture
Exhibit 4.4 Form of Warrant
Exhibit 10.1 Asset Purchase Agreement, dated as of November 2, 1998,
between Mildred Elley School, Inc. and MESI Acquisition
Corp.
Exhibit 10.2 Promissory Note of MESI Acquisition Corp.
Exhibit 10.3 Guaranty of TASA with respect to Promissory Note of
MESI Acquisition Corp.
Exhibit 10.4 Employment Agreement, dated as of November 2, 1998,
between Mildred Elley School, Inc. and Faith Takes
Exhibit 10.5 Securities Purchase Agreement, dated as of September
4, 1998, by and among the Company, Cahill Warnock
Strategic Partners Fund, L.P., and Strategic Associates,
L.P.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By:/s/ ANDREW L. SIMON
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Andrew L. Simon
President
Date: November 23, 1998
Exhibit 4.1
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INVESTOR RIGHTS AGREEMENT
DATED AS OF SEPTEMBER 4, 1998
BY AND AMONG
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.,
as the Company
AND
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.,
and
STRATEGIC ASSOCIATES, L.P.
as the Purchasers
AND
THE INDIVIDUAL SHAREHOLDERS IDENTIFIED HEREIN
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 Definitions 1
1.1. Defined Terms 1
1.2. Other Defined Terms 3
1.3. Other Definitional Provisions 4
SECTION 2 Representations by the Company 4
SECTION 3 Representations of the Investors 4
SECTION 4 Representations and Warranties of the Individual Shareholders 5
4.1. Authority; Validity 5
4.2. No Conflicts 5
4.3. Consents and Approvals 5
4.4. Stock Ownership 5
SECTION 5 Covenants of the Company 5
5.1. Information 5
5.2. Regulatory Matters 7
5.3. Access 8
5.4. Directors' and Officers' Insurance 8
5.5. Confidentiality 8
5.6. Restrictive Covenants 8
5.7. Publicity 9
5.8. Nasdaq Filings 9
5.9. Redemption of Preferred Stock 10
5.10. Use of Proceeds 10
5.11. Dealings with Affiliates 10
5.12. Maintenance of Properties, etc. 10
5.13. Maintenance of Board Representation 10
5.14. Payment of Taxes 10
5.15. Maintenance of Insurance 10
5.16. Preservation of Corporate Existence 11
5.17. Compliance with Laws 11
5.18. Keeping of Records and Books of Account 11
SECTION 6 Election of Directors 11
6.1. Board of Directors 11
6.2. Nomination and Election of Directors 12
6.4. Vacancy 12
6.5. Termination 13
SECTION 7 Miscellaneous 13
7.1. Amendment; Waiver 13
7.2. Restriction on Transfer of Voting Securities 13
7.3. Voting 13
7.4. Notices 13
7.5. Severability 14
7.6. Successors and Assigns 15
7.7. Survival of Representations, Warranties and Covenants 15
7.8. Entire Agreement 15
7.9. Choice of Law 15
7.10. Counterparts 15
7.11. Costs and Expenses 15
7.12. No Third-Party Beneficiaries 15
7.13. Indemnification 16
7.14. Specific Performance 17
INVESTOR RIGHTS AGREEMENT SIGNATURE PAGE 18
Exhibit A Individual Shareholders 19
<PAGE>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
INVESTOR RIGHTS AGREEMENT
INVESTOR RIGHTS AGREEMENT dated as of September 4, 1998
(this "Agreement"), is entered into by and among TOUCHSTONE
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APPLIED SCIENCE ASSOCIATES, INC., a Delaware corporation (the
"Company"), CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P., a
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limited partnership organized under the laws of the State of
Delaware, and STRATEGIC ASSOCIATES, L.P., a limited partnership
organized under the laws of the State of Delaware (each an
"Investor" and collectively the "Investors"), and the individual
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shareholders identified on Exhibit A hereto (each an "Individual
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Shareholder" and collectively the "Individual Shareholders").
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W I T N E S S E T H
WHEREAS, the Company and the Investors have entered
into a Securities Purchase Agreement, dated as of September 4,
1998 (the "Securities Purchase Agreement") pursuant to which the
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Investors have acquired debentures (the "Debentures") and
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warrants (the "Warrants") of the Company; and
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WHEREAS, as a condition precedent to closing under the
Securities Purchase Agreement, the Company and the Individual
Shareholders have agreed to grant the Investors the rights set
forth herein in order to induce the Investors into entering into
the Securities Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and
of the mutual covenants and agreements set forth herein, the
parties hereto agree as follows:
SECTION 1
Definitions
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1.1. Defined Terms. The following terms are defined as follows:
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"Affiliate" means, with respect to any Person, (i) any
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Person that holds direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act) of voting
securities or other voting interests representing at least 5% of
the outstanding voting power of a Person or equity securities or
other equity interests representing at least 5% of the
outstanding equity securities or equity interests in a Person,
(ii) any brother, sister, parent, child or spouse of such Person
or any Person described in clause (i), and (iii) any Person that
directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with,
such entity.
"Code" means the Internal Revenue Code of 1986 (or any
----
successor thereto), as amended from time to time.
"Common Stock" means the Common Stock, par value $.0001
------------
per share, of the Company.
"Exchange Act" means the Securities Exchange Act of
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1934, as amended.
"GAAP" means generally accepted accounting principles.
----
"Indebtedness" shall mean, as to any Person, all items
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that would, in conformity with generally accepted accounting
principles, be classified as liabilities or contingent
liabilities of such Person, but in any event including without
limitation (a) all obligations under leases that have been, or
under generally accepted accounting principles are required to
be, capitalized, (b) all indebtedness endorsed (other than for
collection or deposit in the ordinary course of business) or
discounted with recourse, and (c) all indebtedness in effect
guaranteed, directly or indirectly, by such Person.
"Knowledge" or derivations thereof shall mean the
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knowledge of the officers of the Company and each Subsidiary,
and, with respect to Sections 4.19 and 4.21, each person who
conducts human resource and employee benefits management
functions for the Company or any Subsidiary, whether or not an
officer of the Company or such Subsidiary.
"Permits" means any approvals, authorizations,
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consents, licenses, permits or certificates.
"Person" means an individual, partnership, limited
------
liability company, corporation, joint stock company, trust,
unincorporated association, joint venture or other entity, or a
government or any political subdivision or agency thereof.
"SEC" means the United States Securities and Exchange
---
Commission.
"Securities Act" means the Securities Act of 1933, as
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amended.
"Subsidiaries" means each corporation in which the
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Company owns or controls, directly or indirectly, capital stock
or other equity interests representing at least 50% of the
outstanding voting stock or other equity interests, including
without limitation Beck Evaluation & Testing Associates, Inc., a
New York corporation, and Modern Learning Press, Inc., a Delaware
corporation.
"Voting Securities" means any share of Common Stock
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and/or other voting security in the Company.
"Warrant Shares" means the shares of Common Stock
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issued or issuable upon exercise of the Warrants.
1.2. Other Defined Terms. The following terms shall have the
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meanings assigned to them in the identified Sections of this
Agreement.
"Agreement" as defined in the recitals to this Agreement.
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"Closing Date" as defined in Section 5.1.
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"Company" as defined in the recitals to this Agreement.
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"Company Director" as defined in Section 6.2(b).
----------------
"Company SEC Reports" as defined in Securities Purchase Agreement.
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"Debentures" as defined in Section 2.
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"Director" as defined in Section 6.1(a).
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"Event of Default" as defined in Section 10.1 of the
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Securities Purchase Agreement.
"Indemnified Party" as defined in Section 7.13(a).
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"Individual Shareholder" and "Individual Shareholders"
---------------------- -----------------------
as defined in the recitals to this Agreement.
"Investor" and "Investors" as defined in the recitals to
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this Agreement.
"Investor Director" as defined in Section 6.2(a).
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"Investor Rights Agreement" as defined in the recitals
-------------------------
to this Agreement.
"Loss" as defined in Section 7.13(a).
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"One Million Dollar Debt Basket" as defined in Section 5.6(h).
------------------------------
"Investors" as defined in the recitals to this Agreement.
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"Qualified Public Offering" as defined in Section 6.5(b).
-------------------------
"Registration Rights Agreement" as defined in the
-----------------------------
recitals to this Agreement.
"Warrants" as defined in the recitals to this Agreement.
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1.3. Other Definitional Provisions. Any additional capitalized
-----------------------------
terms shall have the meanings assigned to them in the
Securities Purchase Agreement unless otherwise defined in
text of this Agreement. Terms defined in the singular shall
have a comparable meaning when used in the plural and vice
versa.
SECTION 2
Representations by the Company
------------------------------
The Company represents and warrants to the Investors
that: (a) the execution, delivery and performance by the Company
of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action; (b) this Agreement has been duly executed and
delivered by the Company, and constitutes the legal, valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium and other laws affecting
creditors' rights generally and to general principles of equity;
(c) the execution, delivery and performance of this Agreement do
not conflict with, violate, breach or constitute a default under,
the Company's Certificate of Incorporation or By-Laws or any
indenture, lease, agreement or other instrument to which the
Company is a party or by which it or any of its assets is bound,
or any decree, judgment, order, statute, rule or regulation
applicable to the Company.
SECTION 3
Representations of the Investors
--------------------------------
Each Investor, jointly and severally, represents and
warrants to the Company that: (a) the execution, delivery and
performance by each Investor of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by all necessary action; (b) this Agreement has
been duly executed and delivered by each Investor, and
constitutes the legal, valid and binding obligation of each
Investor, enforceable against such Investor in accordance with
its terms, subject to applicable bankruptcy, insolvency,
moratorium and other laws affecting creditors' rights generally
and to general principles of equity; (c) the execution, delivery
and performance of this Agreement do not conflict with, violate,
breach or constitute a default under, the organizational
documents of either Investor or any indenture, lease, agreement
or other instrument to which either Investor is a party or by
which either Investor or any of its assets is bound, or any
decree, judgment, order, statute, rule or regulation applicable
to either Investor.
SECTION 4
Representations and Warranties of the Individual Shareholders
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Each of the Individual Shareholders (severally and not
jointly), hereby represents and warrants to and agrees with the
Investors, as follows:
4.1. Authority; Validity. Such Individual Shareholder has the
-------------------
full legal right, power, authority and capacity to enter
into this Agreement and to vote its shares of capital stock
in accordance with the terms of this Agreement. This
Agreement has been duly and validly executed by such
Individual Shareholder and this Agreement constitutes a
legal, valid and binding obligation of such Individual
Shareholder, enforceable in accordance with its terms.
4.2. No Conflicts. The execution, delivery and performance of
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this Agreement and the consummation of the transactions by
such Individual Shareholder contemplated hereby will not
conflict with, violate or result in a breach or constitute a
default under any order, decree, statute, ordinance,
regulation or other law applicable to such Individual
Shareholder.
4.3. Consents and Approvals. No consent, approval, order or
----------------------
authorization of, or registration, declaration or filing
with, any governmental authority or any third party is
required in connection with the execution, delivery and
performance of this Agreement by such Individual Shareholder
and the consummation of the transactions by such Individual
Shareholder hereunder.
4.4. Stock Ownership. That such Individual Shareholder is the
---------------
beneficial owner and has the right to vote all of the shares
of capital stock set forth on Exhibit A hereto.
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SECTION 5
Covenants of the Company
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5.1. Information. Commencing on the date on which the
-----------
transactions under the Securities Purchase Agreement are
consummated (the "Closing Date") and so long as the
------------
Debenture or any Warrant is outstanding and held by the
Investors, the Company shall deliver to the Investors the
information specified in this Section 5.1 unless any such
Investor at any time specifically requests that such
information not be delivered to it:
(a) Monthly Financial Statements. As soon as
----------------------------
available, but in any event not later than forty-five (45) days
after the end of each fiscal month the unaudited consolidated
balance sheet of the Company and its Subsidiaries as at the end
of each such period and the related unaudited consolidated
statements of income and cash flows of the Company and its
Subsidiaries for such period and for the elapsed period in such
fiscal year, all in reasonable detail and stating in comparative
form (i) the figures as of the end of and for the comparable
periods of the preceding fiscal year and (ii) if available, the
figures reflected in any operating budget for such period. All
such financial statements shall be prepared in accordance with
GAAP applied on a consistent basis throughout the periods
reflected therein except as stated therein and shall be
accompanied by a certificate of the Company's president or chief
financial officer to such effect.
(b) Quarterly Financial Statements. As soon as
------------------------------
available, but in any event not later than forty-five (45) days
after the end of each fiscal quarter the unaudited consolidated
balance sheet of the Company and its Subsidiaries as at the end
of each such period and the related unaudited consolidated
statements of income and cash flows of the Company and its
Subsidiaries for such period and for the elapsed period in such
fiscal year, all in reasonable detail and stating in comparative
form (i) the figures as of the end of and for the comparable
periods of the preceding fiscal year and (ii) if available, the
figures reflected in any operating budget for such period. All
such financial statements shall be prepared in accordance with
GAAP applied on a consistent basis throughout the periods
reflected therein except as stated therein and shall be
accompanied by a certificate of the Company's president or chief
financial officer to such effect.
(c) Annual Financial Statements. As soon as
---------------------------
available, but in any event within one hundred twenty days (120)
days after the end of each fiscal year of the Company, a copy of
the audited consolidated balance sheets of the Company and its
Subsidiaries as at the end of such fiscal year and the related
audited consolidated statements of operations, stockholders'
equity and cash flows of the Company and its Subsidiaries for
such fiscal year, all in reasonable detail and stating in
comparative form the figures as at the end of and for the
immediately preceding fiscal year, accompanied (in the case of
the audited consolidated financial statements) by an opinion of
an accounting firm of recognized national standing selected by
the Company, which opinion shall state that such accounting
firm's audit was conducted in accordance with generally accepted
auditing standards. All such financial statements shall be
prepared in accordance with GAAP applied on a consistent basis
throughout the periods reflected therein except as stated
therein.
(d) Material Litigation. Within ten (10) days after
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the Company learns of the commencement or receives a written
threat of commencement of any litigation or proceeding against
the Company or any of its Subsidiaries or any of their respective
assets that could reasonably be expected to have a material
adverse effect on the Company and its Subsidiaries taken as a
whole, written notice of the nature and extent of such litigation
or proceeding.
(e) Material Agreements. Within ten (10) days after
-------------------
the receipt by the Company of written notice of a default by the
Company or any of its Subsidiaries under any material contract,
agreement or document to which it is a party or by which it is
bound, written notice of the nature and extent of such default.
(f) Other Reports and Statements. Promptly upon any
----------------------------
distribution to its stockholders generally or to the financial
community of an annual report, quarterly report, proxy statement,
registration statement or other similar report or communication,
a copy of each such annual report, quarterly report, proxy
statement, registration statement or other similar report or
communication and promptly upon filing by the Company with the
SEC or with The Nasdaq Stock Market, the National Association of
Securities Dealers, Inc. or any national securities exchange or
other market system of any all regular and other reports or
applications (including without limitation listing applications),
a copy of each such report or application; and a copy of such
report or statement and copies of all press releases and other
statements made available generally by the Company to the public
concerning material developments in the Company.
(g) Accountants' Management Letters, Etc. Promptly
------------------------------------
after receipt by the Company, copies of all accountants'
management letters and all management and board responses to such
letters, and copies of all certificates as to compliance,
defaults, material adverse changes, material litigation or
similar matters relating to the Company and its Subsidiaries,
which shall be prepared by the Company or its officers and
delivered to the third parties.
(h) Stockholders' Lists. Unless otherwise provided at
-------------------
an earlier date during each fiscal year, within sixty (60) days
after the end of each fiscal year, a list of all stockholders of
record, showing the authorized and outstanding shares by class
(including the Common Stock equivalents of any convertible
security), the holders of all outstanding shares and all
outstanding options, warrants and convertible securities, and
detailing all options and warrants granted, exercised or lapsed
(including in each case, without limitation, all option and
warrant exercise prices, stock issuance prices' and other terms)
and all shares issued or sold (whether to directors or managers,
in connection with financing or otherwise).
(i) Annual Budget. As soon as available, but in any
-------------
event not later than thirty (30) days prior to the beginning of
each fiscal year of the Company, the financial plan of the
Company for such fiscal year, including without limitation, a
cash flow projection and operating budget, calculated quarterly,
as contained in its operating plan approved by the Company's
Board of Directors as well as any updates or revisions to such
plan as soon as available.
(j) Other Information. From time to time, and
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promptly, such additional information regarding results of
operations, financial condition or business of the Company and
its Subsidiaries, including without limitation, cash flow
analysis, projections and minutes of any meetings of the Board of
Directors, as the Investors may reasonably request.
5.2. Regulatory Matters. Each of the Company and Purchasers will
------------------
(i) make on a prompt and timely basis all governmental or
regulatory notifications, filings or submissions, as
necessary for the consummation of the transactions
contemplated hereby, including any filings required pursuant
to the Hart-Scott-Rodino Antitrust Act, if required, (ii)
use all reasonable efforts to cooperate with the other and
its representatives in (A) determining which notifications,
filings and submissions are required to be made prior to the
Closing Date with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the
Closing Date from, any governmental authority in connection
with the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, and (B)
timely making of all such notifications, filings or
submissions and timely seeking all such consents, approvals,
permits or authorizations, and (iii) use all reasonable
efforts to take, or cause to be taken, all other action and
do, or cause to be done, all other reasonable things
necessary or appropriate to consummate the transactions
contemplated by this Agreement. The Purchasers shall have
no obligation to expend any funds in connection with the
action to be taken by the Company pursuant to this section.
5.3. Access. From time to time and subject to the provisions of
------
Section 5.5 hereof, upon the reasonable prior written
request of the Investors, the Company shall promptly afford
the Investors and its accountants, counsel and other
representatives, full access during normal business hours to
all of its properties, books, contracts, commitments and
records, permit them to copy or make extracts therefrom and,
the Company shall furnish promptly to Investors all
information concerning its business, properties and
personnel as Investors may reasonably request; provided,
--------
however, that no investigation pursuant to this Section 5.3
-------
shall affect any representations or warranties of either
party hereunder.
5.4. Directors' and Officers' Insurance. The Company shall
----------------------------------
maintain a directors' and officers' liability insurance
policy providing coverage in the amount of not less than
$2.0 million and having such other terms as are reasonably
acceptable to Investors.
5.5. Confidentiality. From and after the date of this Agreement,
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each of the Company and Investors agree to hold, and will
cause its respective employees, agents and representatives
to hold, in confidence, unless compelled to disclose by
judicial or administrative process or, in the written
opinion of their counsel, by other requirements of law,
information furnished by the Company, on the one hand, to
Investors and information furnished by Investors, on the
other hand, to the Company in connection with the
transactions contemplated by this Agreement, and each of
such persons agree that they shall not release or disclose
such information to any other person, except their
respective officers, directors, partners, employees,
auditors, attorneys, financial advisors and other
consultants, advisors and representatives who need to know
such information and who have been informed of the
confidential nature of such information and have been
directed to treat such information as confidential. The
foregoing provisions of this Section 8.5 shall not apply to
any such information which (i) becomes generally available
to the public other than as a result of a disclosure by any
person bound hereunder, (ii) was available to a person bound
hereunder on a non-confidential basis prior to its
disclosure hereunder, or (iii) becomes available to any
person bound hereunder on a non-confidential basis by virtue
of the disclosure thereof by a source other than the party
providing such information in reliance upon the protection
of confidentiality reposed hereby.
5.6. Restrictive Covenants. Without the written consent of the
---------------------
Investors, the Company and its Subsidiaries shall not:
(a) issue any class or series of equity securities as
to payment of dividends or as to payments on dissolution,
liquidation or winding-up of the Company or a Subsidiary;
(b) enter into any agreement or arrangement of any
kind that would restrict the Company's ability to perform under
this Agreement or the Transaction Documents;
(c) amend the certificate of incorporation or by-laws
of the Company (or any such analogous formation document of any
Subsidiary) in any manner that would impair, reduce or affect the
rights of the Investors;
(d) increase the size of the Company's Board of
Directors, except as contemplated by the Transaction Documents;
(e) merge or consolidate with any other entity such
that the Company or, if a transaction by a Subsidiary, such
Subsidiary is not the surviving entity or sell all or
substantially all of its assets;
(f) enter into any transaction with any of its
officers, directors, employees (or relative of any of the
foregoing), or Affiliates, other than transactions in the
ordinary course of its business and on terms and conditions at
least as favorable as could be negotiated with an unrelated third
party;
(g) liquidate, dissolve or wind-up (including without
limitation through the filing of a voluntary bankruptcy
petition); or
(h) incur, issue, guarantee or assume any
Indebtedness (excluding (x) the $4 million of Debentures acquired
---------
hereunder, (y) trade payables incurred in the ordinary course of
business, and (z) up to $1 million of assumed liability pursuant
to the acquisition of the Mildred Elley Business School) in an
aggregate amount in excess of $1,000,000 (the "One Million Dollar
------------------
Debt Basket"); provided, however, that any Indebtedness ranking
- ----------- -------- -------
senior to or PARI PASSU with the Debentures incurred pursuant to
the acquisition of the Mildred Elley Business School shall be
included in the calculation of the One Million Dollar Debt
Basket; and provided further that any Indebtedness up to $1
----------------
million ranking junior to the Debentures incurred pursuant to the
acquisition of the Mildred Elley Business School shall not be
included in the calculation of the One Million Dollar Debt
Basket.
5.7. Publicity. Except as may be required by law or applicable
---------
regulations, the Company shall not use the name of, or make
reference to, any Investor or any of its Affiliates in any
press release or in any public manner without such
Investor's prior written consent.
5.8. Nasdaq Filings. As soon as possible, but in any case not
--------------
later than 20 days after the Closing, the Company shall file
all necessary documents and information with the Nasdaq
Stock Market in order to maintain listing thereon of the
Company's Common Stock; provided, however, that failure of
-------- -------
the Company's Common Stock to sustain a minimum trading
price shall not constitute a default hereunder. The Company
also shall use its best efforts to qualify for listing on
the Nasdaq National Stock Market and shall file all
necessary documents and information with Nasdaq not later
than 20 days after qualifying for listing thereon, although
the foregoing does not constitute a representation that the
Company is currently eligible for listing on the Nasdaq
National Stock Market or that it will be able to maintain
its listing on the Nasdaq SmallCap Market.
5.9. Redemption of Preferred Stock. By no later than the 31st
-----------------------------
day after the Closing Date, the Company shall redeem all
shares of the Series A Preferred Stock.
5.10. Use of Proceeds. The Company shall apply the proceeds
---------------
received as a result of the transactions contemplated
under the Securities Purchase Agreement as set forth
therein.
5.11. Dealings with Affiliates. Except for employee or
------------------------
director compensation, stock bonus, stock option or
similar plans or arrangements approved by the Board of
Directors, the Company will not enter or permit any
Subsidiary to enter into any transaction with any
holder of five percent (5%) or more of any class of
capital stock of the Company, or any member of their
families or any corporation or other entity in which
any one or more of such stockholders or members of
their immediate families directly or indirectly holds
five percent (5%) or more of any class of capital stock
except in the ordinary course of business and on terms
not less favorable to the Company or the Subsidiary
than it would obtain in a transaction between unrelated
parties.
5.12. Maintenance of Properties, etc. The Company shall
------------------------------
maintain and preserve, and cause each Subsidiary to
maintain and preserve, all of its properties, necessary
or useful in the proper conduct of its business, in
good repair, working order and condition, ordinary wear
and tear excepted, except as otherwise determined by
the Board of Directors.
5.13. Maintenance of Board Representation. The Company shall
-----------------------------------
use its best efforts to nominate and recommend that
David Warnock, or a replacement designated by him,
shall be a member of the Company's Board of Directors.
5.14. Payment of Taxes. The Company shall pay and discharge,
----------------
and cause each Subsidiary to pay and discharge, all
material taxes, assessments and governmental charges or
levies imposed on it or upon its income or profits or
business, or upon any properties belonging to it, prior
to the date on which penalties attach thereto, and all
lawful claims which, if unpaid, is reasonably likely
(in the Company's good faith opinion) to become a lien
or charge upon any properties of the Company or any
Subsidiary, provided that neither the Company nor the
Subsidiary shall be required to pay any such tax,
assessment, charge, levy or claim which is being
contested and/or negotiated in good faith and by
appropriate proceedings if the Company or Subsidiary
concerned shall have set aside on its books adequate
(in the Company's opinion) reserves with respect
thereto. The Company shall pay, when due, or in
conformity with customary trade terms, all material
lease obligations, all material trade debt, and all
other material indebtedness incident to the operations
of the Company, except such as are being contested in
good faith and by appropriate proceedings if the
Company shall have set aside on its books adequate
reserves with respect thereto.
5.15. Maintenance of Insurance. The Company shall maintain,
------------------------
and cause each Subsidiary to maintain, insurance with
responsible and reputable insurance companies or
associations in such amounts and covering such risks as
is usually carried by companies engaged in similar
businesses and owning similar properties in the same
general areas in which the Company or such Subsidiary
operates.
5.16. Preservation of Corporate Existence. The Company shall
-----------------------------------
preserve and maintain, and cause each Subsidiary to
preserve and maintain, its corporate existence, rights,
franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified, and
cause each Subsidiary to qualify and remain qualified,
as a foreign corporation in each jurisdiction in which
such qualification is necessary or desirable in view of
its business and operations or the ownership of its
properties; the Company shall preserve and maintain,
and cause each Subsidiary to preserve and maintain, all
licenses and other rights to use patents, processes,
licenses, trademarks, trade names, inventions,
intellectual property rights or copyrights owned or
used by and necessary to the conduct of its business;
provided, however, that the Company shall not be
-------- -------
required to preserve any such Subsidiary, license or
right if the Board of Directors shall reasonably
determine that the preservation is no longer desirable
in the conduct of the Company's business and that the
loss thereof is not likely to cause a material adverse
effect on the Company and its Subsidiaries taken as a
whole.
5.17. Compliance with Laws. The Company shall comply, and
--------------------
cause each Subsidiary to comply, with all applicable
laws, rules, regulations and orders of any governmental
authority, noncompliance with which could materially
adversely affect the Company's business or condition,
financial or otherwise of the Company and its
Subsidiaries taken as a whole. The Company shall file
all reports and other information and documents which
it is required to file with the SEC pursuant to Section
13 or 15(d) of the Exchange Act.
5.18. Keeping of Records and Books of Account. The Company
---------------------------------------
shall keep, and cause each Subsidiary to keep, adequate
records and books of account, in which complete entries
shall be made in accordance with generally accepted
accounting principles consistently applied, reflecting
all financial transactions of the Company and such
Subsidiary, and in which, for each fiscal year, all
proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
SECTION 6
Election of Directors
---------------------
6.1. Board of Directors.
------------------
(a) The Company shall be governed by a Board of
Directors consisting, as of the date hereof, of nine members
(each a "Director"). Without the consent of the Investor
--------
Directors (as hereinafter defined), the number of Directors
constituting the full Board of Directors shall not be increased
beyond nine; without the consent of the Company Directors (as
hereinafter defined), the number of Directors constituting the
full Board of Directors shall not be reduced below six. Regular
meetings of the Board shall be held at least two times per year,
on a semi-annual basis.
6.2. Nomination and Election of Directors.
------------------------------------
(a) The Investors shall have the right to nominate two
Directors (each, an "Investor Director").
-----------------
(b) The Company agrees that it shall cause the Board
of Directors in office immediately prior to the execution and
delivery of this Agreement to increase the size of the Board of
Directors by two, and to elect the nominees designated by the
Investors as Directors, to serve as Directors until their
respective successors are elected and qualified. The Board of
Directors (other than the Investor Directors) shall have the
right to nominate no less than four nor more than seven Directors
(each a "Company Director"), to serve until their respective
----------------
successors are elected and qualified. The initial Company
Directors shall be the incumbent Board of Directors as of the
date of execution and delivery of this Agreement.
(c) On the date hereof and at each annual meeting of
stockholders of the Company or any special meeting called for the
purpose of electing directors of the Company or at such other
time or times as directors may be elected in accordance with the
Company's By-Laws and the General Corporation Law of the State of
Delaware, the Investors agree to cast all of their eligible votes
in favor of the nominees for Directors nominated pursuant to
paragraphs (a) and (b) hereof, and for no other persons.
6.3. Removal. The Investor Directors shall at all times
-------
have the right to recommend the removal, with or without
cause, of an Investor Director only, and the Company
Directors shall at all time have the right to recommend the
removal, with or without cause, of a Company Director only.
If a Director's removal shall have been recommended in
accordance with the preceding sentence, then the Board of
Directors shall take such corporate actions as may be
required under the Company's By-Laws and the General
Corporation Law of the State of Delaware to effect such
removal.
6.4. Vacancy. If any vacancy occurs in the Board of Directors
-------
because of the death, disability, resignation, retirement or
removal of an Investor Director, then the Investors shall
nominate a successor, and the Board of Directors shall vote
to elect such successor to the Board, or if a vote of the
stockholders of the Company is held, the Board of Directors
shall recommend to the stockholders that such successor be
elected to the Board of Directors. If any vacancy occurs in
the Board of Directors because of the death, disability,
resignation, retirement or removal of a Company Director,
then the Company Directors shall either (i) nominate a
successor, and the Board of Directors shall vote to elect
such successor to the Board, or if a vote of the
stockholders of the Company is held, the Board of Directors
shall recommend to the stockholders that such successor be
elected to the Board of Directors, or (ii) decide expressly
not to fill such vacancy at such time.
6.5. Termination. Article 6 shall terminate and thereafter be of
-----------
no force and effect, except as set forth below, upon the
earlier to occur of the following:
(a) Investors shall cease to own of record at
least 50% of the aggregate of: (i) after the exercise of the
Warrants, the Warrant Shares, and (ii) if the Company exercises
the Company Put Option, the Option Shares; or
(b) the closing of a public offering of the
Common Stock of the Company which results in net proceeds to the
Company of at least $25,000,000 with an offering price of at
least $5.00 per share (a "Qualified Public Offering"); or
-------------------------
(c) the twenty-nine (29) month anniversary
date of the Closing Date; provided, however, that nothing in this
-------- -------
provision shall terminate the Investors' right to nominate two
Directors to the Company's Board of Directors so long as the
Investors continue to own of record at least 50% of the aggregate
of: (i) after the exercise of the Warrants, the Warrant Shares,
and (ii) if the Company exercises the Company Put Option, the
Option Shares.
SECTION 7
Miscellaneous
-------------
7.1. Amendment; Waiver. Neither this Agreement nor any provision
-----------------
hereof may be amended, modified, supplemented or waived,
except by a written instrument executed by all of the
parties hereto.
7.2. Restriction on Transfer of Voting Securities. Each
--------------------------------------------
Individual Shareholder agrees and acknowledges that it shall
be a condition precedent to any transfer of a Voting
Security held by such Individual Shareholder that the
transferee become a party to this Agreement and failure to
comply with this condition shall render the transfer void AB
INITIO.
7.3. Voting. Each Individual Shareholder agrees to vote all of
------
its Voting Securities in such a manner as to cause the
Company to comply with the covenants set forth in Section 5
of this Agreement.
7.4. Notices. Any notices or other communications required or
-------
permitted hereunder shall be sufficiently given if in
writing and delivered in Person, transmitted by facsimile
transmission (fax) or sent by registered or certified mail
(return receipt requested) or recognized overnight delivery
service, postage pre-paid, addressed as follows, or to such
other address has such party may notify to the other parties
in writing:
(a) if to the Company or any of the Individual Shareholders:
Touchstone Applied Science Associates, Inc.
P.O. Box 382
4 Hardscrabble Heights
Brewster, New York 10509
Attn: Andrew L. Simon
Telephone No.: 914-277-8100
Facsimile No.: 914-277-3548
with a copy to:
Christy & Viener
620 Fifth Avenue
New York, New York 10020
Attn: Steven R. Berger, Esq.
Telephone No.: 212-632-5500
Facsimile No.: 212-632-5555
(b) if to the Investors:
c/o Cahill, Warnock & Company, L.L.C.
One South Street, Suite 2150
Baltimore, MD 21202
Attn: David L. Warnock
Telephone No.: 410-895-3800
Facsimile No.: 410-895-3805
with a copy to:
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, MD 21202
Attn: George P. Stamas, Esq.
Telephone No.: 410-986-2800
Facsimile No.: 410-986-2828
A notice or communication will be effective (i) if delivered in
Person or by overnight courier, on the business day it is
delivered, (ii) if transmitted by telecopier, on the business day
of actual confirmed receipt by the addressee thereof, and (iii)
if sent by registered or certified mail, three (3) business days
after dispatch.
7.5. 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 is held to be prohibited by or
invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of this
Agreement.
7.6. Successors and Assigns. Except as otherwise provided
----------------------
herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors and permitted assigns of
the parties hereto. The Company shall not have the right to
assign its rights or delegate its obligations under this
Agreement without the prior written consent of the
Investors. Each Investor may assign its rights hereunder to
any transferee(s) of the Debentures and Warrants without the
consent of any other party hereto.
7.7. Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations and warranties made in, pursuant to or in
connection with this Agreement shall survive the execution
and delivery of this Agreement. Unless otherwise provided
in this Agreement, the covenants and agreements set forth in
Sections 5 and 6 shall survive and remain in force so long
as the Investors and any of their transferees hold in the
aggregate Warrants and/or Common Stock representing 10% of
the Company's capital stock on a fully diluted basis or upon
a Qualified Public Offering.
7.8. Entire Agreement. This Agreement and the other documents
----------------
delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard
to the subject matter hereof and thereof and supersede and
cancel all prior representations, alleged warranties,
statements, negotiations, undertakings, letters,
acceptances, understandings, contracts and communications,
whether verbal or written, among the parties hereto and
thereto or their respective agents with respect to or in
connection with the subject matter hereof.
7.9. Choice of Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of New
York, without regard to principles of conflict of laws.
7.10. Counterparts. This Agreement may be executed in any
------------
number of counterparts and by different parties hereto
in separate counterparts, with the same effect as if
all parties had signed the same document. All such
counterparts shall be deemed an original, shall be
construed together and shall constitute one and the
same instrument.
7.11. Costs and Expenses. Promptly after the Closing, the
------------------
Company shall pay the reasonable fees and disbursements
incurred by the Investors (including without limitation
reasonable attorneys' and consultants' fees) in
connection with the due diligence review and Closing
under this Agreement and the transactions contemplated
hereby (including without limitation the due diligence
review and attorneys' fees incurred in preparation for
the transactions as previously contemplated); provided,
--------
however, that the parties shall bear their own costs
-------
and expenses if the Closing hereunder fails to take
place.
7.12. No Third-Party Beneficiaries. Nothing in this
----------------------------
Agreement will confer any third party beneficiary or
other rights upon any Person (specifically including
any employees of the Company and its Subsidiaries) or
entity that is not a party to this Agreement.
7.13. Indemnification.
---------------
(a) The Company [and each Individual Shareholder]
agree to indemnify and hold harmless the Investors and their
Affiliates, and their respective partners, co-investors,
officers, directors, employees, agents, consultants, attorneys
and advisers (each, an "Indemnified Party"), from and against any
-----------------
and all actual losses, claims, damages, liabilities, costs and
expenses (including, without limitation, environmental
liabilities, costs and expenses and all reasonable fees, expenses
and disbursements of counsel), joint or several (hereinafter
collectively referred to as a "Loss"), which may be incurred by
----
or asserted or awarded against any Indemnified Party in
connection with or in any manner arising out of or relating to
any investigation, litigation or proceeding or the preparation of
any defense with respect thereto, arising out of or in connection
with or relating to this Agreement, the other Transaction
Documents or the transactions contemplated hereby or thereby or
any use made or proposal to be made with the proceeds of the
Investors' purchase of the Debentures, Warrants, Common Stock and
Conversion Shares pursuant to this Agreement, whether or not such
investigation, litigation or proceeding is brought by the
Company, any of its Subsidiaries, shareholders or creditors,
whether or not any of the transactions contemplated by this
Agreement or the other Transaction Documents are consummated,
except to the extent such Loss is found in a final judgment by a
court of competent jurisdiction to have resulted from such
Indemnified Party's gross negligence or willful misconduct.
(b) An Indemnified Party shall give written notice to
the Company of any claim with respect to which it seeks indemni-
fication within ten (10) days after the discovery by such parties
of any matters giving arise to a claim for indemnification
pursuant to Section 7.13(a); provided that the failure of any
Indemnified Party to give notice as provided herein shall not
relieve the Company of its obligations under this Section 7.13,
except to the extent that the Company is actually prejudiced by
such failure to give notice. In case any such action or claim is
brought against any Indemnified Party, the Company shall be
entitled to participate in and, unless in the reasonable good
faith judgment of the Indemnified Party a conflict of interest
between such Indemnified Party and the Company may exist in
respect of such action or claim, to assume the defense thereof,
with counsel satisfactory to the Indemnified Party and after
notice from the Company to the Indemnified Party of its election
so to assume the defense thereof, the Company shall not be liable
to such Indemnified Party for any legal or other expenses
subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. In
any event, unless and until the Company elects in writing to
assume and does so assume the defense of any such action or claim
the Indemnified Party's costs and expenses arising out of the
defense, settlement or compromise of any such action or claim
shall be Losses subject to indemnification hereunder. If the
Company elects to defend any such action or claim, then the
Indemnified Party shall be entitled to participate in such
defense with counsel of its choice at its sole cost and expense.
The Company shall not be liable for any settlement of any action
or claim effected without its written consent. Anything in this
Section 7.13 to the contrary notwithstanding, the Company shall
not, without the Indemnified Party's prior written consent,
settle or compromise any claim or consent to entry of any
judgment in respect thereof that imposes any future obligation on
the Indemnified Party or that does not include, as an
unconditional term thereof, the giving by the claimant or the
plaintiff to the Indemnified Party, a release from all liability
in respect of such claim.
(c) The Company agrees that no Indemnified Party shall
have any liability (whether direct or indirect, in contract, tort
or otherwise) to the Company or any of its Subsidiaries,
shareholders or creditors for or in connection with the
transactions contemplated by this Agreement or the other
Transaction Documents, except to the extent such liability is
found in a final judgment by a court of competent jurisdiction to
have resulted from such Indemnified Party's gross negligence or
willful misconduct or the misrepresentations of the Indemnified
Party, but in no event shall an Indemnified Party be liable for
punitive, exemplary or consequential damages.
7.14. Specific Performance. The parties hereto hereby
--------------------
declare that it is impossible to measure in money the
damages which will accrue to a party hereto by reason
of a failure to perform any of the obligations under
this Agreement. Therefore, if any party hereto shall
institute any action or proceeding to enforce the
provisions hereof, any person (including the Company)
against whom such action or proceeding is brought
hereby waives all claims or defenses therein that such
party has an adequate remedy at law and such person
shall not urge in any such action or proceeding the
claim or defense that such remedy at law exists.
[Remainder of Page Intentionally Left Blank]
<PAGE>
INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the Company and the Investors have
caused this Agreement to be executed effective as of the date
first above written.
THE COMPANY:
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By:/S/ ANDREW L. SIMON
--------------------------------------------
Name: Andrew L. Simon
Title: President and Chief Executive Officer
INVESTORS:
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.
By: CAHILL WARNOCK STRATEGIC PARTNERS, L.P.,
its General Partner
By:/S/ DAVID L. WARNOCK
---------------------------------
Name: David L. Warnock
Title: a General Partner
STRATEGIC ASSOCIATES, L.P.
By: CAHILL, WARNOCK & COMPANY, LLC, its
General Partner
By:/S/ DAVID L. WARNOCK
--------------------------------
Name: David L. Warnock
Title: Managing Member
INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INDIVIDUAL SHAREHOLDERS:
/S/ ANDREW L. SIMON
---------------------------------
Andrew L. Simon
/S/ LINDA G. STRALEY
---------------------------------
Linda G. Straley
/S/ STEPHEN H. IVENS
---------------------------------
Stephen H. Ivens
/S/ MICHAEL D. BECK
---------------------------------
Michael D. Beck
/S/ WALTER BARBE
---------------------------------
Walter Barbe
/S/ STEVEN R. BERGER
---------------------------------
Steven R. Berger
<PAGE>
Exhibit A
Individual Shareholders
Name of Individual Number of Shares and Type of
Shareholder Voting Security
- ----------- ---------------
Exhibit 4.2
-----------
REGISTRATION RIGHTS AGREEMENT
DATED AS OF SEPTEMBER 4, 1998
BY AND AMONG
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.,
CAHILL WARNOCK STRATEGIC PARTNERS FUND, L.P.
AND
STRATEGIC ASSOCIATES, L.P.
<PAGE>
Table of Contents
Page
1. Definitions; Certain Rules of Construction - 1 -
1.1. "1933 Act" - 1 -
1.2. "1934 Act" - 2 -
1.3. "Board of Directors" - 2 -
1.4. "Common Shares" - 2 -
1.5. "Common Stock" - 2 -
1.6. "Company" - 2 -
1.7. "Company Indemnitees" - 2 -
1.8. "Debentures" - 2 -
1.9. "Effective Period" - 2 -
1.10. "Form S-1", "Form S-3", "Form S-4", "Form S-8"
and "Form SB-2" - 2 -
1.11. "Indemnitee" - 2 -
1.12. "Initiating Holders" - 2 -
1.13. "Investors" - 2 -
1.14. "Holder" - 2 -
1.15. "Holder Indemnitee" - 2 -
1.16. "Initial Shelf Registration" - 2 -
1.17. "Person" - 2 -
1.18. "PORTAL" - 2 -
1.19. "register", "registered" and "registration" - 3 -
1.20. "Registrable Securities" - 3 -
1.21. "Rule 144" - 3 -
1.22. "Rule 144 Information" - 3 -
1.23. "SEC" - 3 -
1.24. "Shelf Registration" - 3 -
1.25. "Securities Purchase Agreement" - 3 -
1.26. "Subsequent Shelf Registration" - 3 -
1.27. "Violation" - 3 -
1.28. "Warrant Shares" - 4 -
1.29. "Warrants" - 4 -
2. Registration Rights. - 4 -
2.1. Demand Registration - 4 -
2.2. Company Registration - 6 -
2.3. Obligations of the Company - 6 -
2.4. Furnish Information - 8 -
2.5. Expenses of Demand Registration - 8 -
2.6. Expenses of Company Registration - 8 -
2.7. Underwriting Requirements - 8 -
2.8. Indemnification - 9 -
2.9. Reports Under Securities Exchange Act of 1934 - 11 -
2.10. Form S-3 Registration; Shelf Registration - 12 -
2.11. Lock-up Agreements - 14 -
2.12. Assignment of Registration Rights - 15 -
2.13. Limitations on Subsequent Registration Rights - 15 -
3. Legend - 15 -
4. Specific Performance - 16 -
5. Notices - 16 -
6. Binding Effect; Assignment - 17 -
7. Course of Dealing; Amendments, Waivers and Consents - 17 -
8. Miscellaneous - 17 -
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE - 19 -
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of
September 4, 1998, is among TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC., a Delaware corporation (the "Company"), CAHILL,
-------
WARNOCK STRATEGIC PARTNERS FUND, L.P., a limited partnership
organized under the laws of the State of Delaware, and STRATEGIC
ASSOCIATES, L.P., a limited partnership organized under the laws
of the State of Delaware (the "Investors").
---------
WHEREAS, contemporaneously with the execution and
delivery of this Agreement, the Company and the Investors are
entering into a certain Securities Purchase Agreement dated as of
September 4, 1998 (as amended and in effect from time to time,
the "Securities Purchase Agreement"), pursuant to which the
-----------------------------
Company is issuing and selling to the Investors, and the
Investors are purchasing from the Company (i) debentures with an
aggregate principal balance of Four Million Dollars ($4,000,000)
(the "Debentures), (ii) warrants (the "Warrants") which are
---------- --------
exercisable for 2,760,918 shares (or such other number of shares
after adjustment pursuant to the terms of the Warrants) of the
Company's Common Stock (as defined below) (the "Warrant Shares"),
--------------
and (iii) upon exercise of the Company Put Option as set forth in
the Securities Purchase Agreement, shares of the Company's Common
Stock (the "Common Shares");
-------------
WHEREAS, the Company desires to enter into this
Agreement as an inducement to the Investors entering into the
Securities Purchase Agreement; and
WHEREAS, it is a condition to the issuance and
sale by the Company, and the purchase by the Investors, of the
Debentures, Warrants and Common Shares that the Company and the
Investors enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual
covenants herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Definitions; Certain Rules of Construction. Certain
------------------------------------------
capitalized terms are used in this Agreement with the specific
meanings defined below in this Section 1. Except as otherwise
explicitly specified to the contrary or unless the context
clearly requires otherwise, (a) the capitalized term "Section"
refers to sections of this Agreement, (b) the capitalized term
"Exhibit" refers to exhibits to this Agreement, (c) references to
a particular Section include all subsections thereof, (d) the
word "including" shall be construed as "including without
limitation", (e) references to a particular statute or regulation
include all rules and regulations thereunder and any successor
statute, regulation or rules, in each case as from time to time
in effect, (f) words in the singular or plural form include the
plural and singular form, respectively, and (g) references to a
particular Person include such Person's successors and assigns to
the extent not prohibited by this Agreement.
1.1. "1933 Act" means the Securities Act of 1933, as amended
--------
and all regulations thereunder.
1.2. "1934 Act" means the Securities Exchange Act of 1934,
--------
as amended and all regulations thereunder.
1.3. "Board of Directors" means the Board of Directors of
------------------
the Company.
1.4. "Common Shares" is defined in the recitals to this
-------------
Agreement.
1.5. "Common Stock" means the Company's common stock, par
------------
value $.0001 per share.
1.6. "Company" is defined in the recitals to this Agreement.
-------
1.7. "Company Indemnitees" is defined in Section 2.8(b).
-------------------
1.8. "Debentures" is defined in the recitals to this Agreement.
----------
1.9. "Effective Period" means the period from the date on
----------------
which a shelf registration becomes effective to the date on which
all of the Registrable Securities cease to be Registrable
Securities.
1.10. "Form S-1", "Form S-3", "Form S-4", "Form S-8" and
-------- -------- -------- --------
"Form SB-2" mean such respective registration forms in effect on
---------
the date hereof (or any successor registration forms subsequently
adopted by the SEC) under the 1933 Act.
1.11. "Indemnitee" means each of the Company Indemnitees
----------
and the Holder Indemnitees.
1.12. "Initiating Holders" is defined in Section 2.1(a).
------------------
1.13. "Investors" is defined in the recitals to this
---------
Agreement.
1.14. "Holder" means (a) any Person that owns, or has
------
the right to acquire, Registrable Securities and (b) any assignee
thereof in accordance with Section 2.12.
1.15. "Holder Indemnitee" is defined in Section 2.8(a).
-----------------
1.16. "Initial Shelf Registration" is defined in Section
--------------------------
2.10(b).
1.17. "Person" means any present or future natural
------
person or any corporation, association, partnership, joint
venture, limited liability, joint stock or other company,
business trust, trust, organization, business or government or
any governmental agency or political subdivision thereof.
1.18. "PORTAL" is defined in Section 2.9(b).
------
1.19. "register", "registered" and "registration" refer to
-------- ---------- ------------
a registration effected by preparing and filing a registration
statement or similar document in compliance with the 1933 Act and
the automatic effectiveness, or the declaration or ordering of
effectiveness, of such registration statement or document.
1.20. "Registrable Securities" means (a) any Common
----------------------
Share acquired pursuant to the Securities Purchase Agreement, any
share of Common Stock issued or issuable upon the exercise of the
Warrants and (b) any share of Common Stock issued as (or issuable
upon the conversion or exercise of any warrant, right, or other
security which is issued as) a dividend or other distribution
with respect to, in exchange for, or in replacement of, any share
of Common Stock described in the foregoing clause (a); provided,
--------
however, that any share of Common Stock previously sold to the
- -------
public pursuant to a registered public offering or pursuant to an
exemption from the registration requirements of the 1933 Act
shall cease to be a Registrable Security. For purposes of this
Agreement, the number of Registrable Securities at any time
outstanding shall be the sum of (i) the number of shares of
Common Stock then outstanding which are Registrable Securities
plus (ii) the number of shares of Common Stock which are issuable
pursuant to then exercisable or convertible securities and which
upon issuance would be Registrable Securities.
1.21. "Rule 144" is defined in Section 2.9(a).
--------
1.22. "Rule 144 Information" is defined in Section
--------------------
2.9(b).
1.23. "SEC" means the Securities and Exchange Commission.
---
1.24. "Shelf Registration" means a registration
------------------
statement for an offering to be made on a delayed or continuous
basis pursuant to Rule 415 of the 1933 Act.
1.25. "Securities Purchase Agreement" is defined in the
-----------------------------
recitals to this Agreement.
1.26. "Subsequent Shelf Registration" is defined in
-----------------------------
Section 2.10(b).
1.27. "Violation" means, with respect to any
---------
registration statement which includes any Registrable Securities:
(a) any untrue statement or alleged untrue statement
of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto;
(b) the omission or alleged omission to state therein
a material fact required to be stated therein or necessary
to make the statements therein, in light of the
circumstances in which they were made, not misleading; or
(c) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the 1933 Act, the
1934 Act or any state securities law in connection with any
matter relating to such registration statement.
1.28. "Warrant Shares" means the Common Stock (or any
--------------
other securities) acquired or to be acquired upon exercise of the
Warrants.
1.29. "Warrants" is defined in the recitals to this Agreement.
--------
2. Registration Rights.
-------------------
2.1. Demand Registration.
-------------------
(a) At any time after the date of this Agreement, if
the Company shall receive a written request from the Holders
of a majority of the Registrable Securities then outstanding
and entitled to registration rights under this Section 2
(the "Initiating Holders") that the Company effect the
------------------
registration under the 1933 Act of at least 50% of the
Registrable Securities then outstanding and that such
registration shall have a minimum anticipated aggregate net
offering price of $5,000,000, then the Company shall, within
ten days of the receipt thereof, give written notice of such
request to all Holders and shall, subject to the limitations
of this Section 2.1, use its best efforts to effect such a
registration statement as soon as practicable and in any
event to file within 75 days of the receipt of such request
a registration statement under the 1933 Act covering all the
Registrable Securities which the Holders shall in writing
request (within 20 days of receipt of the notice given by
the Company pursuant to this Section 2.1(a)) to be included
in such registration and to use its best efforts to have
such registration statement become effective. Any demand
under Section 2.10 shall constitute a demand for purposes of
this Section 2.1.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of
an underwriting, they shall so advise the Company as part of
their request made pursuant to this Section 2.1 and the
Company shall include such information in the written notice
referred to in Section 2.1(a). In such event, the right of
any Holder to include its Registrable Securities in such
registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided
herein. All Holders proposing to distribute their
securities through such underwriting shall (together with
the Company as provided in Section 2.3(d)) enter into an
underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting
by a majority in interest of the Initiating Holders. The
Initiating Holders shall consult with the Board of Directors
regarding the selection of an underwriter or underwriters
and approval by the Board of Directors, of any underwriter
selected by the Initiating Holders shall not be unreasonably
withheld. Notwithstanding any other provision of this
Section 2.1, if, in the case of a registration requested
pursuant to Section 2.1(a), the underwriter advises the
Initiating Holders in writing that marketing factors require
a limitation of the number of shares to be underwritten,
then the Initiating Holders shall so advise the Company and
all Holders of Registrable Securities which would otherwise
be underwritten pursuant hereto, and all securities other
than Registrable Securities sought to be included in the
underwriting shall first be excluded. To the extent that
further limitation is required, the number of Registrable
Securities that may be included in the underwriting shall be
allocated pro rata among all Holders thereof desiring to
participate in such underwriting (according to the number of
Registrable Securities then held by each such Holder). No
Registrable Securities requested by any Holder to be
included in a registration pursuant to Section 2.1(a) shall
be excluded from the underwriting unless all securities
other than Registrable Securities are first excluded.
(c) The Company is obligated to effect only two
registrations pursuant to Section 2.1(a) (which for purposes
hereof shall include demands under Section 2.10); provided,
--------
however, that no registration pursuant to Section 2.1(a) or
-------
Section 2.10 shall be deemed to be a registration for any
purpose of this sentence if (i) the number of Registrable
Securities included in the registration statement does not
equal or exceed 35% of the number of Registrable Securities
proposed by the Holders to be included in the offering; and
provided, further, that no registration of Registrable
-------- -------
Securities which shall not have become and remained
effective in accordance with Section 2.3 shall be deemed to
be a registration for any purpose of this sentence.
(d) Notwithstanding the foregoing provisions of this
Section 2.1, in the event that the Company is requested to
file any registration statement pursuant to Section 2.1(a):
(i) the Company shall not be obligated to effect
the filing of such registration statement, during the
180 days following the effective date of any other
registration statement pertaining to a public offering
of securities for the account of the Company;
(ii) the Company shall not be obligated to effect
more than one registration pursuant to Section 2.1(a)
or Section 2.10 in any 12-month period; and
(iii) if the Company shall furnish to the
Initiating Holders a certificate signed by the
president of the Company stating that, in the good
faith judgment of the Board of Directors, it would not
be in the best interests of the Company and its
stockholders generally for such registration statement
to be filed, the Company shall have the right to defer
such filing for a period of not more than 90 days after
receipt of the request of the relevant Initiating
Holders; provided, however, that the Company may not
-------- -------
utilize the right set forth in this Section 2.1(d)(ii)
more than once in any 12-month period.
(e) Each registration requested pursuant to Section
2.1(a) or 2.10 shall be effected by the filing of a
registration statement on Form SB-2 or Form S-3 (if
applicable) (or if such form is not available, any other
form which includes substantially the same information
(other than information which is incorporated by reference)
as would be required to be included in a registration
statement on such form as currently constituted), or unless
another form would be equally effective.
2.2. Company Registration. If (but without any obligation
--------------------
to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for stockholders
other than the Holders) any of its capital stock or other
securities under the 1933 Act in connection with the public
offering of such securities solely for cash (other than a
registration on Form S-8 relating solely to the sale of
securities to participants in a Company stock plan or a
registration on Form S-4), the Company shall, at such time,
promptly give each Holder written notice of such registration.
Upon the written request of any Holder given within 20 days after
mailing of such notice by the Company, the Company shall, subject
to the provisions of Section 2.7, use its best efforts to cause a
registration statement covering all of the Registrable Securities
that each such Holder has requested to be registered to become
effective under the 1933 Act. The majority of Holders
participating in a registration under this Section 2.2 have the
right to select a co-lead underwriter, acceptable to the Company
and the lead underwriter, if such registration is for an
underwritten offering. The Company shall be under no obligation
to complete any offering of its securities it proposes to make
and shall incur no liability to any Holder for its failure to do
so.
2.3. Obligations of the Company. Whenever required under
--------------------------
this Section 2 to use its best efforts to effect the registration
of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible, prepare and file with the
SEC a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration
statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities to be
registered thereunder, keep such registration statement effective
for up to 180 days (except with respect to any Shelf Registration
under Section 2.10(b) which may be for a longer period) or until
such Holders have informed the Company in writing that the
distribution of their Registrable Securities has been completed.
In addition, the Company shall:
(a) prepare and file with the SEC such amendments and
supplements to such registration statement and the
prospectus used in connection with such registration
statement, and use its best efforts to cause each such
amendment and supplement to become effective, as may be
necessary to comply with the provisions of the 1933 Act with
respect to the disposition of all securities covered by such
registration statement;
(b) furnish to the Holders such reasonable number of
copies of a prospectus, including a preliminary prospectus,
in conformity with the requirements of the 1933 Act, and
such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities
owned by them;
(c) use its best efforts to register or qualify the
securities covered by such registration statement under such
other securities or blue sky laws of such states and
jurisdictions as shall be reasonably requested by the
Holders, except that the Company shall not be required in
connection therewith or as a condition thereto to qualify to
do business or file a general consent to service of process
in any such state or jurisdiction;
(d) in the event of any underwritten public offering,
enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing
underwriter of such offering; provided, however, that each
-------- -------
Holder participating in such underwriting shall also enter
into and perform its obligations under such an underwriting
agreement, including furnishing any opinion of counsel or
entering into a lock-up agreement reasonably requested by
the managing underwriter;
(e) notify each Holder of Registrable Securities
covered by such registration statement, at any time when a
prospectus relating thereto covered by such registration
statement is required to be delivered under the 1933 Act, of
the happening of any event as a result of which the
prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing
and promptly file such amendments and supplements which may
be required pursuant to Section 2.3(b) on account of such
event and use its best efforts to cause each such amendment
and supplement to become effective;
(f) furnish, at the request of any Holder requesting
registration of Registrable Securities pursuant to this
Section 2, on the date that such Registrable Securities are
delivered to the underwriters for sale in connection with a
registration pursuant to this Section 2, if such securities
are being sold through underwriters, or, if such securities
are not being sold through underwriters, on the date that
the registration statement with respect to such securities
becomes effective, (i) an opinion or opinions, dated such
date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is
customarily given by company counsel to the underwriters in
an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter
dated such date, from the independent certified public
accountant of the Company, in form and substance as is
customarily given by independent certified public
accountants to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities;
(g) apply for listing and use its best efforts to list
the Registrable Securities being registered on any national
securities exchange on which a class of the Company's equity
securities is listed or, if the Company does not have a
class of equity securities listed on a national securities
exchange, apply for qualification and use its best efforts
to qualify the Registrable Securities being registered for
inclusion on the automated quotation system of the National
Association of Securities Dealers, Inc.; and
(h) without in any way limiting the types of
registrations to which this Section 2 shall apply, in the
event that the Company shall effect a Shelf Registration,
the Company shall take all necessary action, including the
filing of post-effective amendments, to permit the Investors
to include their Registrable Securities in such registration
in accordance with the terms of this Section 2.
2.4. Furnish Information. It shall be a condition precedent
-------------------
to the obligations of the Company to take any action pursuant to
this Section 2 in respect of the Registrable Securities of any
selling Holder that such selling Holder shall furnish to the
Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of
such Registrable Securities as shall be required to effect the
registration of such Registrable Securities. The Company shall
have no responsibility, to the extent such Holder fails to
provide such information in a timely manner, and if the Company
determines it appropriate, the Company may delay the filing of
any such registration statement until the Holder provides such
information.
2.5. Expenses of Demand Registration. The Company shall
-------------------------------
bear all expenses relating to Registrable Securities incurred in
connection with each registration, filing or qualification
pursuant to Section 2.1(a) and each registration, filing or
qualification pursuant to Section 2.10, including all
registration, filing and qualification fees, printing and
accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements (not to exceed
$20,000 per registration) of one counsel for the selling Holders.
2.6. Expenses of Company Registration. The Company shall
--------------------------------
bear and pay all expenses incurred in connection with any
registration, filing or qualification of Registrable Securities
with respect to any registration pursuant to Section 2.2 for each
Holder, including all registration, filing and qualification
fees, printing and accounting fees, fees and disbursements of
counsel for the Company and the reasonable fees and disbursements
of one counsel for the selling Holders. All underwriting
discounts and commissions relating to Registrable Securities
included in any registration effected pursuant to Section 2.2
will be borne and paid ratably by the Holders of such Registrable
Securities and the Company.
2.7. Underwriting Requirements. In connection with any
-------------------------
offering involving an underwriting of securities being issued by
the Company, the Company shall not be required under Section 2.2
to include any of the Holders' securities in such underwriting
unless such Holders accept the terms of the underwriting as
agreed upon between the Company and the underwriters selected by
it, and then only in such quantity, if any, as will not, in the
opinion of the underwriters, jeopardize the success of the
offering by the Company. If the managing underwriter for the
offering shall advise the Company in writing that the total
amount of securities, including Registrable Securities, requested
by shareholders to be included in such offering exceeds the
amount of securities to be sold other than by the Company that
can be successfully offered, then the Company shall be required
to include in the offering only that number of such securities,
including Registrable Securities, which the managing underwriter
believes will not jeopardize the success of the offering. The
securities so included in the offering will be reduced as
follows:
(a) first, all securities which stockholders other
than the Company and the Holders seek to include in the
offering shall be excluded from the offering to the extent
limitation on the number of shares included in the
underwriting is required; and
(b) if further limitation on the number of shares to
be included in the offering is required, then the number of
shares held by Holders that may be included in the
underwriting shall be reduced pro rata among the selling
Holders in accordance with the number of shares of
Registrable Securities held by each such Holder;
provided, however, that in no event shall the amount of
- -------- -------
securities of the selling Holders included in the offering be
reduced below 35% of the total amount of securities included in
such offering, except if the managing underwriter makes the
determination described above and no securities other than those
of the Company are included. For purposes of the preceding
sentence concerning apportionment, for any selling stockholder
which is a Holder of Registrable Securities and which is a
partnership or a corporation, the partners, retired partners and
stockholders of such Holder, or the estates and family members of
such partners and retired partners and any trusts for the benefit
of any of the foregoing persons shall collectively be deemed to
be a "selling Holder," and any pro rata reduction with respect to
such "selling Holder" shall be based upon the aggregate amount of
shares carrying registration rights owned by all entities and
individuals included in such "selling Holder," as defined in this
sentence.
2.8. Indemnification. In the event any Registrable
---------------
Securities are included in a registration statement under this
Section 2:
(a) The Company will indemnify and hold harmless each
Holder, the officers, directors, partners, agents and
employees of each Holder, any underwriter (as defined in the
1933 Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of
the 1933 Act or the 1934 Act (collectively, the "Holder
------
Indemnitees"), against any losses, claims, damages or
-----------
liabilities (joint or several) to which they may become
subject under the 1933 Act, the 1934 Act or any other
federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise
out of or are based upon any Violation. The Company will
reimburse each Holder Indemnitee for any legal or other
expenses reasonably incurred by such Holder Indemnitee in
connection with investigating or defending any such loss,
claim, damage, liability or action. The indemnity agreement
contained in this Section 2.8(a) shall not apply to amounts
paid in settlement of any loss, claim, damage, liability or
action if such settlement is effected without the consent of
the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable to any Holder
Indemnitee in any such case for any such loss, claim,
damage, liability or action (i) to the extent that it arises
out of or is based upon a Violation which occurs in reliance
upon and in conformity with written information furnished
expressly for use in connection with such registration by or
on behalf of such Holder Indemnitee; provided, however, that
-------- -------
the Company shall not be required to indemnify any Holder
for information supplied by another Holder or (ii) in the
case of a sale directly by a Holder of Registrable
Securities (including a sale of such Registrable Securities
through any underwriter retained by such Holder engaging in
a distribution solely on behalf of such Holder), such untrue
statement or alleged untrue statement or omission or alleged
omission was contained in a preliminary prospectus and
corrected in a final or amended prospectus, and such Holder
failed to deliver a copy of the final or amended prospectus
at or prior to the confirmation of the sale of the
Registrable Securities to the Person asserting any such
loss, claim, damage or liability in any case in which such
delivery is required by the 1933 Act.
(b) Each Holder which includes any Registrable
Securities in any registration statement (i) will indemnify
and hold harmless the Company, each of its directors, each
of its officers who have signed the registration statement,
each person, if any, who controls the Company within the
meaning of the 1933 Act, each agent and any underwriter for
the Company, and any other Holder or other stockholder
selling securities in such registration statement or any of
its directors, officers, partners, agents or employees or
any Person who controls such Holder or such other
stockholder or such underwriter (collectively, the "Company
-------
Indemnitees"), against any losses, claims, damages or
-----------
liabilities (joint or several) to which any Company
Indemnitee may become subject under the 1933 Act, the 1934
Act or other federal or state law, insofar as such losses,
claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with
written information furnished by or on behalf of such Holder
expressly for use in connection with such registration and
(ii) will reimburse any legal or other expenses reasonably
incurred by any Company Indemnitee in connection with
investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the liability
-------- -------
of any Holder hereunder shall be limited to the amount of
net proceeds (after deduction of all underwriters' discounts
and commissions paid by such Holder in connection with the
registration in question) received by such Holder in the
offering giving rise to the Violation; and provided,
--------
further, that the indemnity agreement contained in this
-------
Section 2.8(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of such Holder
(which consent shall not be unreasonably withheld) nor, in
the case of a sale directly by the Company of its securities
(including a sale of such securities through any underwriter
retained by the Company to engage in a distribution solely
on behalf of the Company), shall such Holder be liable to
the Company in any case in which such untrue statement or
alleged untrue statement or omission or alleged omission was
contained in a preliminary prospectus and corrected in a
final or amended prospectus, and the Company failed to
deliver a copy of the final or amended prospectus at or
prior to the confirmation of the sale of the securities to
the Person asserting any such loss, claim, damage or
liability in any case in which such delivery is required by
the 1933 Act.
(c) Promptly after receipt by any Indemnitee under
this Section 2.8 of notice of the commencement of any action
(including any governmental action), such Indemnitee will,
if a claim in respect thereof is to be made against any
indemnifying party under this Section 2.8, deliver to the
indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly
noticed, to assume and control the defense thereof with
counsel mutually satisfactory to the parties; provided,
--------
however, that such Indemnitee shall have the right to retain
-------
its own counsel, with the fees and expenses to be paid by
the indemnifying party, if representation of such Indemnitee
by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing
interests, as reasonably determined by either party, between
such Indemnitee and any other party represented by such
counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of
the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve such
indemnifying party of any liability to the Indemnitee under
this Section 2.8 to the extent of such prejudice, but the
omission so to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have
to such Indemnitee otherwise than under this Section 2.8.
(d) The obligations of the Company and the Holders
under this Section 2.8 shall survive the completion of any
offering of Registrable Securities in a registration
statement whether under this Section 2 or otherwise.
(e) If the indemnification provided for in this
Section 2.8 is unavailable to a party that would have been
an Indemnitee under this Section 2.8 in respect of any
losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to herein, then
each party that would have been an indemnifying party
hereunder shall, in lieu of indemnifying such Indemnitee,
contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof)
in such proportion as is appropriate to reflect the relative
fault of such indemnifying party, on the one hand, and such
Indemnitee, on the other hand, in connection with the
statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions or proceedings in
respect thereof). The relative fault shall be determined by
reference to, among other things, whether the Violation
relates to information supplied by such indemnifying party
or such Indemnitee and the parties' relative intent,
knowledge, access to information and opportunity to correct
or prevent such Violation. The parties agree that it would
not be just and equitable if contribution pursuant to this
Section 2.8(e) 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 preceding
sentence. The amount paid or payable by a contributing
party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 2.8(e) shall include any
legal or other expenses reasonably incurred by such
Indemnitee in connection with investigating or defending any
such action or claim. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any
Person who was not guilty of such fraudulent
misrepresentation. The liability of any Holder of
Registrable Securities in respect of any contribution
obligation of such Holder (after deduction of all
underwriters' discounts and commissions paid by such Holder
in connection with the registration in question) arising
under this Section 2.8(e) shall not in any event exceed an
amount equal to the net proceeds to such Holder from the
disposition of the Registrable Securities disposed of by
such Holder pursuant to such registration.
2.9. Reports Under Securities Exchange Act of 1934.
---------------------------------------------
(a) With a view to making available to the Holders the
benefits of Rule 144 promulgated under the 1933 Act ("Rule
----
144") and any other rule or regulation of the SEC that may
---
at any time permit a Holder to sell securities of the
Company to the public without registration, and with a view
to making it possible for Holders to register the
Registrable Securities pursuant to a registration on Form S-3,
the Company agrees to:
(i) use its best efforts to make and keep public
information available, as those terms are understood
and defined in Rule 144, at all times;
(ii) take such action, including the voluntary
registration of its Common Stock under Section 12 of
the 1934 Act or compliance with the reporting
requirements of Section 15(d) of the 1934 Act, as is
necessary to enable the Holders to utilize Form S-3 for
the sale of their Registrable Securities, for the
offering of its securities to the general public is
declared effective;
(iii) use its best efforts to file with the
SEC in a timely manner all reports and other documents
required of the Company under the 1933 Act and the 1934
Act; and
(iv) furnish to any Holder, so long as such Holder
owns any Registrable Securities, forthwith upon request
(A) a written statement by the Company as to its
compliance with the reporting requirements of Rule 144,
the 1933 Act and the 1934 Act, or as to its
qualification as a registrant whose securities may be
resold pursuant to Form S-3, (B) a copy of the most
recent annual or quarterly report of the Company and
such other reports and documents so filed by the
Company and (C) such other information as may be
reasonably requested in availing any Holder of any rule
or regulation of the SEC which permits the selling of
any such securities without registration or pursuant to
such form.
(b) The Company agrees that, at all times during which
the Company is neither subject to the reporting requirement
of Sections 13 or 15(d) of the 1934 Act, nor exempt from
reporting pursuant to Rule 12g3-2(b) under the 1934 Act, it
will provide in written form, upon the written request of
any Holder, or a prospective purchaser of securities of the
Company from such Holder, all information required by Rule
144A(d)(4)(i) of the General Regulations promulgated by the
SEC under the 1933 Act (the "Rule 144A Information"). The
---------------------
Company further agrees, upon written request, to cooperate
with and assist any Holder or any member of the National
Association of Securities Dealers, Inc. system for Private
Offerings Resales and Trading through Automated Linkages
("PORTAL") in applying to designate and thereafter
------
maintaining the eligibility of the Company's securities for
trading through PORTAL. With respect to each Holder, the
Company's obligations under this Section 2.9(b) shall at all
times be contingent upon such Holder's obtaining from a
prospective purchaser an agreement to take all reasonable
precautions to safeguard the Rule 144A Information from
disclosure to anyone other than employees of the prospective
purchaser who require access to the Rule 144A Information
for the sole purpose of evaluating its purchase of the
Company's securities.
2.10. Form S-3 Registration; Shelf Registration.
-----------------------------------------
(a) In case the Company shall receive from Holders of
at least 50% of the Registrable Securities a written request
that the Company effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder, the
Company will:
(i) promptly give written notice of the proposed
registration, and any related qualification or
compliance, to all other Holders; and
(ii) use its best efforts to effect, as soon as
practicable, such registration, qualification or
compliance as may be so requested and as would permit
or facilitate the sale and distribution of all or such
portion of such Holder's Registrable Securities as are
specified in such request, together with all or such
portion of the Registrable Securities of any other
Holder joining in such request as are specified in a
written request given within 20 days after receipt of
such written notice from the Company; provided,
--------
however, that the Company shall not be obligated to
-------
effect any such registration, qualification or
compliance, pursuant to this Section 2.10 if: (A) Form
S-3 is not available for such offering by the Holders;
(B) the Company has already effected one registration
on Form S-3 or pursuant to Section 2.1 within the
previous twelve-month period; or (C) the Company shall
furnish to the Holders a certificate signed by the
president of the Company stating that, in the good
faith judgment of the Board of Directors, it would not
be in the best interests of the Company and its
stockholders for such Form S-3 registration to be
effected at such time, in which event the Company shall
have the right to defer the filing of such Form S-3
registration for a period of not more than 90 days
after receipt of the request of the Holder or Holders
under this Section 2.10; provided, however, that the
-------- -------
Company shall not utilize this right more than once in
any 12-month period and that any demand under this
Section 2.10 shall count as a demand under Section 2.1.
(b) As soon as practicable after Closing, and in any
event not more than 45 days from the date of this Agreement, the
Company shall prepare and file with the SEC a Shelf Registration
registering the resale from time to time of all of the
Registrable Securities (the "Initial Shelf Registration") held by
--------------------------
the Holders. The registration statement for any Shelf
Registration shall be on Form S-3 or another appropriate form
permitting registration of such Registrable Securities for resale
by the Holders in the manner or manners designated by them, from
time to time, which may include an underwritten offering, subject
to the underwriter being reasonably acceptable to the Company.
The Company shall use its best efforts to cause the Initial Shelf
Registration to become effective under the 1933 Act as promptly
as is practicable and to keep the Initial Shelf Registration
continuously effective under the Securities Act until the end of
the Effective Period. The following provisions shall also apply
with respect to a Shelf Registration:
(i) From and after the exercise of any Warrant, in
whole or in part, within 45 days after receipt of written notice
from the Holder, the Company shall effect a Shelf Registration
for all or a portion of the Conversion Shares which have been
theretofore issued to Holder; provided, however, that (A) the
-------- -------
number of Conversion Shares sought to be included in any Shelf
Registration shall not be less than 50% of the shares of Common
Stock or other securities for which the Warrant is exercisable
and (B) in no event shall the Company be obligated to effect a
Shelf Registration pursuant to this paragraph on more than one
occasion in any 12-month period.
(ii) If the Initial Shelf Registration or any
Subsequent Shelf Registration (as defined below) ceases to be
effective for any reason at any time during the Effectiveness
Period (other than because all Registrable Securities shall have
been sold or shall have ceased to be Registrable Securities), the
Company shall use its best efforts to obtain the prompt
withdrawal of any order suspending the effectiveness thereof, and
in any event shall within thirty (30) days of such cessation of
effectiveness amend the Shelf Registration in a manner reasonably
expected to obtain the withdrawal of the order suspending the
effectiveness thereof, or file an additional Shelf Registration
covering all of the Registrable Securities then outstanding (a
"Subsequent Shelf Registration"). If a Subsequent Shelf
-----------------------------
Registration is filed, the Company shall use all reasonable
efforts to cause the Subsequent Shelf Registration to become
effective as promptly as is practicable after such filing and to
keep such registration statement continuously effective until the
end of the Effectiveness Period.
(iii) The Company shall supplement and amend the Shelf
Registration if required by the rules, regulations or
instructions applicable to the registration form used by the
Company for such Shelf Registration, if required by the 1933 Act
or the SEC, or if reasonably requested by the majority of Holders
or by any managing underwriter, if any, of such Registrable
Securities with respect to the offer and sale or other
disposition of the Registrable Securities during the Effective
Period.
(iv) From time to time, the Company shall (A) prepare and
file with the SEC a post-effective amendment to the Shelf
Registration or a supplement to the related prospectus or a
supplement or amendment to any document incorporated therein by
reference or any other required document, so that such
registration statement will not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, so that, as thereafter delivered to purchasers of the
Registrable Securities being sold thereunder, such prospectus
will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; (B)
provide the Holders with copies of any registration statement,
prospectus, document incorporated by reference therein, or such
other documents filed with the SEC in such numbers as the
Holders shall reasonably request; and (C) inform the Holders that
the Company has complied with its obligations and that the
registration statement and related prospectus may be used for the
purpose of selling all or any of such Registrable Securities (or
that, if the Company has filed a post-effective amendment to the
Shelf Registration which has not yet been declared effective, the
Company will notify the Holders to that effect, will use its best
efforts to secure the effectiveness of such post-effective
amendment and will immediately so notify the Holders when the
amendment has become effective).
2.11. Lock-up Agreements. If reasonably requested by
------------------
the Company and the managing underwriter, the Holders agree to
enter into lock-up agreements pursuant to which they will not,
for a period of 180 days following the effective date of a
registration statement for a public offering of the Company's
securities, offer, sell or otherwise dispose of any Registrable
Securities (except Registrable Securities sold pursuant to such
registration statement) without the prior consent of the Company
and the underwriter, provided that the officers, directors and
all holders of more than 5% of the shares of Common Stock
(calculated for the purpose as if all securities convertible into
or exercisable for Common Stock, directly or indirectly, are so
converted or exercised) of the Company enter such lock-up
agreements for the same period and on the same terms.
2.12. Assignment of Registration Rights. The rights to
---------------------------------
cause the Company to register Registrable Securities pursuant to
this Section 2 may be assigned by any Holder to a permitted
transferee, and by such transferee to a subsequent permitted
transferee, but only if such rights are transferred (a) to an
affiliate, subsidiary, partner or stockholder of such Holder or
transferee or an account managed or advised by the manager or
adviser of such Holder or transferee or (b) in connection with
the sale or other transfer of not less than an aggregate of five
percent (5%) of the Registrable Securities held by such Holder or
some lesser number, if such lesser number represents all the
Registrable Securities then held by such Holder; provided,
--------
however, that such transfer does not constitute a "distribution"
- -------
within the meaning of the 1933 Act. Any transferee to which
rights under this Agreement are transferred shall: (i) 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 Holders under this Agreement to the same
extent as if such transferee were a Holder under this Agreement;
and (ii) be deemed to be a Holder hereunder.
2.13. Limitations on Subsequent Registration Rights.
---------------------------------------------
From and after the date of this Agreement, the Company shall not,
without the prior written consent of the Holders of a majority of
the Registrable Securities then outstanding, enter into any
agreement with any holder or prospective holder of any securities
of the Company relating to registration rights (other than
registration rights disclosed on Schedule 4.12 to the Securities
Purchase Agreement), unless such agreement includes (a) to the
extent such agreement would allow such holder or prospective
holder to include such securities in any registration filed under
Section 2.1, 2.2 or 2.10, a provision that such holder or
prospective holder may include such securities in any such
registration only to the extent that the inclusion of its
securities will not reduce the amount of the Registrable
Securities of the Holders which would otherwise be included and
(b) no provision which would allow such holder or prospective
holder to make a demand registration which could result in such
registration statement being declared effective prior to November
1, 2003.
3. Legend. Each certificate representing any Registrable
------
Security shall bear on its face substantially the following
legends:
(a) "THESE SECURITIES ARE SUBJECT TO THE PROVISIONS OF
A CERTAIN REGISTRATION RIGHTS AGREEMENT DATED AS OF
SEPTEMBER 4, 1998, AS AMENDED AND IN EFFECT FROM TIME TO
TIME, AMONG THE CORPORATION AND THE STOCKHOLDERS NAMED
THEREIN, A COPY OF WHICH IS ON FILE AT THE OFFICES OF THE
CORPORATION."
(b) Any legends required by (i) the Securities
Purchase Agreement or (ii) the laws of any applicable
jurisdiction.
4. Specific Performance. The parties recognizes that their
--------------------
respective rights under this Agreement are unique, and,
accordingly, each party shall, in addition to such other remedies
as may be available to it at law or in equity, have the right to
enforce its rights hereunder by actions for injunctive relief and
specific performance to the extent permitted by law. This
Agreement is not intended to limit or abridge any rights of
either party which may exist apart from this Agreement.
5. Notices. Any notices or other communications required or
-------
permitted hereunder shall be sufficiently given if in writing and
delivered in Person, transmitted by facsimile transmission (fax)
or sent by registered or certified mail (return receipt
requested) or recognized overnight delivery service, postage pre-paid,
addressed as follows, or to such other address has such
party may notify to the other parties in writing:
(a) if to the Company:
Touchstone Applied Science Associates, Inc.
P.O. Box 382
4 Hardscrabble Heights
Brewster, New York 10509
Attn: Andrew L. Simon
Telephone No.: 914-277-8100
Facsimile No.: 914-277-3548
with a copy to:
Christy & Viener
620 Fifth Avenue
New York, New York 10020
Attn: Steven R. Berger, Esq.
Telephone No.: 212-632-5500
Facsimile No.: 212-632-5555
(b) if to the Purchasers:
c/o Cahill, Warnock & Company, L.L.C.
One South Street, Suite 2150
Baltimore, MD 21202
Attn: David L. Warnock
Telephone No.: 410-895-3800
Facsimile No.: 410-895-3805
with a copy to:
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, MD 21202
Attn: George P. Stamas, Esq.
Telephone No.: 410-986-2800
Facsimile No.: 410-986-2828
A notice or communication will be effective (i) if delivered in
Person or by overnight courier, on the business day it is
delivered, (ii) if transmitted by telecopier, on the business day
of actual confirmed receipt by the addressee thereof, and (iii)
if sent by registered or certified mail, three (3) business days
after dispatch.
6. Binding Effect; Assignment. This Agreement shall be binding
--------------------------
upon, and inure to the benefit of, the parties and their
respective personal representatives, successors and permitted
assigns; provided, however, that the Company shall not have the
-------- -------
right to assign its rights and obligations hereunder, or any
interest herein, without the prior written consent of the holders
of a majority of the Registrable Securities then outstanding.
7. Course of Dealing; Amendments, Waivers and Consents. No
---------------------------------------------------
course of dealing between the parties shall operate as a waiver
of any party's rights under this Agreement. Each party
acknowledges that if any party, without being required to do so
by this Agreement, gives any notice or information to, or obtains
any consent from, the other party, such party shall not by
implication have amended, waived or modified any provision of
this Agreement, or created any duty to give any such notice or
information or to obtain any such consent on any future occasion.
No delay or omission on the part of any party in exercising any
right under this Agreement shall operate as a waiver of such
right or any other right hereunder or thereunder. A waiver on
any one occasion shall not be construed as a bar to or waiver of
any right or remedy on any future occasion. No amendment, waiver
or consent with respect to this Agreement shall be binding unless
it is in writing and signed by each of the Company and the
holders of a majority of the Registrable Securities then
outstanding.
8. Miscellaneous. If any provision of this Agreement shall be
-------------
found by any court of competent jurisdiction to be invalid or
unenforceable, the parties hereby waive such provision to the
extent that it is found to be invalid or unenforceable. Such
provision shall, to the maximum extent allowable by law, be
modified by such court so that it becomes enforceable, and, as
modified, shall be enforced as any other provision hereof, all
the other provisions hereof continuing in full force and effect.
The headings contained in this Agreement are for reference
purposes only and shall not in any way affect the meaning or
interpretation hereof. This Agreement constitutes the entire
understanding of the parties with respect to the subject matter
hereof and supersedes any and all prior understandings and
agreements, whether written or oral, with respect to such subject
matter. This Agreement may be executed in counterparts, which
together shall constitute one and the same instrument. This
Agreement shall be governed by and construed in accordance with
the laws (other than the conflict of laws rules) of the State of
New York.
[Remainder of page left blank intentionally --
signature page follows.]
<PAGE>
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the Company and the Investors
have caused this Agreement to be executed effective as of the
date first above written.
THE COMPANY:
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By: /S/ ANDREW L. SIMON
-----------------------------------------
Name: Andrew L. Simon
Title: President and Chief Executive Officer
INVESTORS:
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.
By: CAHILL WARNOCK STRATEGIC PARTNERS, L.P.,
its General Partner
By: /S/ DAVID L. WARNOCK
-----------------------------------------
Name: David L. Warnock
Title: a General Partner
STRATEGIC ASSOCIATES, L.P.
By: CAHILL, WARNOCK & COMPANY, LLC, its
General Partner
By: /S/ DAVID L. WARNOCK
-----------------------------------------
Name: David L. Warnock
Title: Managing Member
Exhibit 4.3
-----------
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR UNDER APPLICABLE STATE
SECURITIES LAWS. THIS DEBENTURE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS DEBENTURE UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO TOUCHSTONE APPLIED SCIENCE ASSOCIATES,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD
PURSUANT TO THE PROVISIONS OF RULE 144 OF THE ACT.
THIS DEBENTURE IS SUBJECT TO THE PROVISIONS OF A SECURITIES
PURCHASE AGREEMENT, DATED AS OF SEPTEMBER 4, 1998, AND MAY NOT BE
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT AS THEREIN
PROVIDED.
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
8% Debenture due _________, 2003 [to be dated the Closing Date]
$[4,000,000.00] ___________, 1998
FOR VALUE RECEIVED, TOUCHSTONE APPLIED SCIENCE ASSOCIATES,
INC., a Delaware corporation (the "Company"), hereby promises to
pay to CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P., or
permitted assigns ("Strategic Partners"or the "Holder"), the
------------------ ------
principal amount of [FOUR MILLION DOLLARS ($4,000,000.00)] on the
fifth anniversary date of this Debenture (the "Maturity Date"),
-------------
and to pay interest on the unpaid principal amount thereof, from
the date hereof until paid in full, at the annual rate of eight
percent (8.0%). Interest shall be computed on the basis of a 360
day year and the actual number of days elapsed. Accrued and
unpaid interest shall be due and payable quarterly in arrears on
the last day of each January, April, July and October from the
date hereof until the entire principal amount is paid. All
amounts due and owing hereunder shall be payable in lawful money
of the United States of America, in immediately available funds,
at the principal office of the Holder or at such other place as
the Holder may designate from time to time in writing to the
Company. Any payment on this Debenture coming due on a Saturday,
a Sunday or a day which is a legal holiday in the place at which
a payment is to be made hereunder shall be made on the next
succeeding day which is a business day in such place, and any
such extension of the time of payment shall be included in the
computation of interest hereunder. This Debenture is issued
pursuant and subject to and is entitled to the benefits of a
certain Securities Purchase Agreement dated as of September 4,
1998 by and between the Company and Strategic Partners (the
"Securities Purchase Agreement"). Capitalized words not defined
-----------------------------
herein shall have the meanings set forth in the Securities
Purchase Agreement. Except as set forth in Section 10.3 of the
Securities Purchase Agreement, the Debentures shall rank senior
to or pari passu to all other Indebtedness of the Company whether
now outstanding or hereafter incurred.
Subject to the terms of the Securities Purchase Agreement,
upon the occurrence or existence of an Event of Default (as
defined in the Securities Purchase Agreement) the Holder may, by
notice to the Company, declare the entire unpaid principal amount
of this Debenture, all interest accrued and unpaid hereon, and
all other amounts payable to the Holder hereunder or under the
Securities Purchase Agreement to be forthwith due and payable,
whereupon this Debenture, all such accrued interest and all such
amounts shall become and be forthwith due and payable, and in
addition thereto, and not in substitution therefor, the Holder
shall be entitled to exercise any one or more of the rights and
remedies provided by applicable law. Failure to exercise any
right or remedy under this Debenture or available under
applicable law shall not constitute a waiver of such option or
such other remedies or of the right to exercise any of the same
in the event of any subsequent Event of Default. The Company and
all makers, sureties, guarantors, endorsers and other persons
assuming obligations pursuant to this Debenture hereby waive
presentment, protest, demand, notice of dishonor and all other
notices and all defenses and pleas on the grounds of any
extension or extension of the time of payments or the due dates
hereof, in whole or in part, before or after maturity, with or
without notice. No renewal or extension of this Debenture, no
release of any obligor and no delay in enforcement of this
Debenture or in exercising any right or power hereunder shall
affect the liability of any obligor hereunder. The pleading of
any statute of limitations as a defense to any demand against any
obligor is expressly waived.
1. Warrants. As part of the consideration for the loan
--------
evidenced by this Debenture, the Company has authorized and
issued four non-detachable Warrants, attached to this Debenture
as Exhibit 1 through Exhibit 4, respectively (each a "Warrant"
--------- --------- -------
and collectively, the "Warrants"), to the Holder. The Warrants
--------
contain the following terms and conditions:
(a) Except as set forth below in Section 1(b), the
date on which the Holder may first exercise all or part of
each Warrant is:
(i) the Closing Date with respect to [Warrant No.
1/Warrant No. 2]; and
(ii) the eighteen (18) month anniversary date of
the Closing Date with respect to [Warrant No.
3/Warrant No. 4].
(b) Each of the Warrants shall become immediately
exercisable upon the occurrence or existence of an Event of
Default (the earlier of the applicable date in Section 1(a)
above and the date on which an Event of Default occurs shall
be referred to as the Warrant's "Effective Date").
--------------
(c) Each Warrant shall be exercisable in whole or in
part for a period of [five] years, subject to Section 2.6 of
the Warrant, from the Effective Date of that Warrant (such
period being referred to as the "Exercise Period") and
---------------
entitles the Holder to purchase an aggregate of [__________]
shares of the Company's Common Stock, which represents
______ percent (___%) of the Company's issued and
outstanding capital stock on a fully diluted basis at the
date of issuance, at an exercise price of $0.35 per share
("Exercise Price") subject to any adjustments as set forth
--------------
in Section 3.3 of the Warrant.
(d) If the Company satisfies all obligations under the
Securities Purchase Agreement and under this Debenture
(including without limitation paying in full all principal
and accrued interest) prior to the Effective Date of a
Warrant, then each such Warrant which is not yet effective
shall immediately and automatically terminate and thereafter
be null and void AB INITIO. Satisfaction of all obligations
under the Securities Purchase Agreement and hereunder by the
Company on or after the Effective Date of a Warrant shall
not affect such Warrant, which shall remain in full force
and effect until the earlier of the exercise of the Warrant
in full or the termination of the Exercise Period for such
Warrant.
(e) During each Warrant's Exercise Period, the
Warrant may be exercised in whole or in part by payment in
cash, bank cashier's check, certified check, or, at the
option of the Purchaser, by reduction in the principal
amount of this Debenture (or forgiveness of any accrued and
unpaid interest thereon), in an amount equal to the product
of (i) the Exercise Price multiplied by (ii) the number of
Conversion Shares being purchased.
2. Prepayment.
----------
(a) Voluntary Payment. The Company may prepay or
-----------------
redeem all, or part (in minimum denominations equal to one-
fourth of the principal amount), of this Debenture prior to
the Maturity Date, without penalty, with twenty-five (25)
days' prior written notice thereof to the Holder.
(b) Mandatory Prepayment. Unless agreed to in writing
--------------------
by the Holder, the Company shall be required to prepay the
Debenture upon (i) the occurrence or existence of an Event
of Default (as defined in the Securities Purchase
Agreement); or (ii) the consummation of a Qualified Public
Offering.
3. No Impairment. The Company will not, by amendment of
-------------
its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, or any
other similar voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Debenture,
but will at all times in good faith assist in the carrying out of
all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the
Holder against impairment due to such event. Without limiting
the generality of the foregoing, the Company (a) will not
increase the par value of any shares of stock receivable on
exercise of the Warrants attached hereto above the Exercise Price
then in effect, (b) will take all action that may be necessary or
appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of stock, free from all
taxes, liens and charges with respect to the issue thereof, on
the exercise of the Warrants attached hereto from time to time
and (c) will not consolidate with or merge into any other person
or permit any such person to consolidate with or merge into the
Company, unless such other person (or, in the case of a merger or
consolidation in which the Company is the surviving entity, the
person issuing the securities involved in such merger or
consolidation) shall expressly assume in writing and will be
bound by all the terms of this Debenture and the Warrants
attached hereto.
4. Chief Financial Officer's Certificate as Adjustments.
----------------------------------------------------
In each case of any adjustment or readjustment in the Conversion
Shares issuable on the exercise of the Warrants attached hereto,
the Chief Financial Officer of the Company will promptly compute
such adjustment or readjustment in accordance with the terms of
the Warrants and prepare a certificate setting forth such
adjustment or readjustment, the Exercise Price resulting
therefrom, and the increase or decrease, if any, of the number of
shares purchasable at such price upon exercise of the Warrants
showing in detail the facts and computation upon which such
adjustment or readjustment is based. The Company will forthwith
mail a copy of each such certificate to the registered holder of
this Debenture, and will, on the written request at any time of
the holder of this Debenture, furnish to such holder a like
certificate setting forth the Exercise Price of the Debenture at
the time in effect and showing how it was calculated.
5. Notices of Record Date, etc. In the event the Company
---------------------------
(a) takes a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled
to receive any dividend on, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right,
or (b) consolidates or merges into, or transfers all or
substantially all of its assets to, another entity, or (c)
dissolves or liquidates (each of the events described in the
foregoing clauses (b) and (c) being hereinafter referred to as a
"Fundamental Change"), then and in each such event the Company
------------------
will mail or cause to be mailed to the registered holder of this
Debenture a notice specifying (i) the date on which any such
record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of
such dividend, distribution or right, (ii) the date on which any
such Fundamental Change is to be effected, and the time, if any
to be fixed, as of which the holders of record of Common Stock
shall be entitled to exchange their shares of Common Stock for
securities or other property, if any, deliverable on any
Fundamental Change and (iii) the amount and character of any
stock or other securities, or rights or options with respect
thereto, proposed to be issued or granted, the date of such
proposed issue or grant and the persons or class of persons to
whom such proposed issue or grant is to be offered or made. Such
notice shall also state that the action in question or the record
date is subject to the effectiveness of a registration statement
under the Securities Act of 1933, as amended (the "Securities
----------
Act"), or a favorable vote of stockholders, if either is
- ---
required. Such notice shall be mailed at least 15 days prior to
the date specified in such notice on which any such action is to
be taken or 15 days prior to the record date therefor, whichever
is earlier.
6. Reservation of Warrant Shares. The Company will at all
-----------------------------
times reserve and keep available, solely for issuance and
delivery on the exercise of the Warrants attached hereto, all
Warrant Shares from time to time issuable upon such exercise.
7. Transfer. Subject to applicable federal and state
--------
securities laws, the transfer of this Debenture and all rights
hereunder, in whole or in part, is registrable at the office or
agency of the Company by the registered holder hereof in person
or by his duly authorized attorney, upon surrender of this
Debenture properly endorsed; provided that this Debenture (and
any rights of the Holder hereunder) is non-transferable except to
a person or entity controlled by, or under common control with,
the Holder, except that upon the occurrence or existence of an
Event of Default, the Holder may transfer this Debenture and the
attached Warrants to any Person without the consent of the
Company. Each taker and holder of this Debenture, by taking or
holding the same, consents and agrees that this Debenture, when
endorsed in blank, shall be deemed negotiable, and that the
holder hereof, when this Debenture shall have been so endorsed,
may be treated by the Company and all other persons dealing with
this Debenture as the absolute owner and holder hereof for any
purpose and as the person entitled to exercise the rights
represented by this Debenture, or to the registration of transfer
hereof on the books of the Company; and until due presentment for
registration of transfer on such books the Company may treat the
registered holder hereof as the owner and holder for all
purposes, and the Company shall not be affected by notice to the
contrary.
8. Register. The Company shall maintain, at the principal
--------
office of the Company (or such other office as it may designate
by notice to the holder hereof), a register for the Debenture, in
which the Company shall record the name and address of the person
in whose name a Debenture has been issued, as well as the name
and address of each transferee and each prior owner of such
Debenture.
9. Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company of the loss, theft, destruction or
mutilation of any Debenture or Warrant and, in the case of any
such loss, theft or destruction, upon delivery of an indemnity
bond or other agreement or security reasonably satisfactory in
form and amount to the Company, or, in the case of any such
mutilation, upon surrender and cancellation of such Debenture or
Warrant, the Company will issue a new Debenture or Warrant, of
like tenor and amount, in lieu of such lost, stolen, destroyed or
mutilated Debenture or Warrant; provided, however, if any
-----------------
Debenture or Warrant of which the Purchaser, its affiliate, or
the registered holder is lost, stolen or destroyed, the affidavit
of such principal or general partner or any principal or
corporate officer of such holder setting forth the circumstances
with respect to such loss, theft or destruction, together with an
agreement to indemnify the Company with respect thereto shall be
accepted as satisfactory evidence thereof, and no indemnity bond
or other security shall be required as a condition to the
execution and delivery by the Company of a new Debenture or
Warrant in replacement of such lost, stolen or destroyed
Debenture or Warrant.
10. Remedies. The Company stipulates that the remedies at
--------
law of the holder of this Debenture in the event of any default
or threatened default by the Company in the performance of or
compliance with any of the terms of this Debenture are not and
will not be adequate, and that such terms may be specifically
enforced pursuant to a decree for the specific performance of any
agreement contained herein or by an injunction against a
violation of any of the terms hereof or otherwise.
11. No Sinking Fund; Payment Unsecured. No sinking fund or
----------------------------------
similar provision shall be required to fund payment of principal
or interest under this Debenture. Payment of principal and
interest on this Debenture is unsecured.
12. Subordination.
-------------
(a) The Company agrees, and Purchaser by its
acceptance hereof likewise agrees, that the payment of the
principal of and interest on the Debentures is hereby expressly
made subordinate and junior in right of payment to the prior
payment in full of all principal of and interest on all Senior
Indebtedness (as defined below) whether now outstanding or
hereafter incurred, created or assumed.
(b) The term "Senior Indebtedness," as used in this
-------------------
Agreement, shall mean: (i) the principal, interest and other
amounts outstanding at the date of execution of this Agreement as
set forth and identified as "Senior Debt" on Schedule 4.29 of the
-------------
Securities Purchase Agreement (the "Existing Indebtedness") or
---------------------
(ii) the principal, interest and other amounts incurred, created,
assumed, modified, renewed or extended after the Closing Date on
the following: (w) secured indebtedness of the Company for money
borrowed (including any bank loan or credit facility) approved by
the Board of Directors; (x) obligations of the Company as lessee
under any lease of property which is reflected on the Company's
balance sheet as a capitalized lease in accordance with GAAP;
(y) guarantees by the Company of indebtedness for money borrowed
by a Subsidiary or of any obligations of a Subsidiary under any
lease of property which is reflected on the Subsidiary's balance
sheet as a capitalized lease in accordance with GAAP; and (z)
unsecured indebtedness of the Company approved by the Company's
Board of Directors and which is issued following the Purchasers'
execution of a subordination agreement on terms and conditions
acceptable to the Purchasers.
(c) Notwithstanding the foregoing provisions, the total
aggregate amount of Senior Indebtedness shall not, at any time,
without the written consent of the Purchaser, exceed the sum of
the Existing Indebtedness plus $1,000,000. Failure to comply
with this Section 12 shall constitute an Event of Default.
13. Notices. All notices, demands, requests, or other
-------
communications which may be or are required to be given, served,
or sent pursuant to this Debenture shall be given, served and
sent in accordance with the provisions of the Securities Purchase
Agreement.
14. Miscellaneous. This Debenture and the Warrants
-------------
attached hereto and any term hereof or therein may be changed,
waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change,
waiver, discharge or termination is sought. Any amendment,
modification or addition to this Debenture is subject to the
provisions governing same in the Securities Purchase Agreement.
This Debenture and the Warrants attached hereto shall be
construed and enforced in accordance with and governed by the
laws of the State of New York (excluding the choice of law rules
thereof). The headings in this Debenture and the Warrants
attached hereto are for purposes of reference only, and shall not
limit or otherwise affect any of the terms hereof. The
invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other
provision.
[Balance of Page Left Blank Intentionally -- Signature Page
Follows]
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this
Debenture to be duly executed on its behalf as of the date first
hereinabove set forth.
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By:__________________________________
Name: Andrew L. Simon
Title: President and Chief Executive Officer
ATTEST:
[SEAL]
______________________________
Name:
Title: Secretary
<PAGE>
Exhibit 1
---------
Warrant No. 1
<PAGE>
Exhibit 2
---------
Warrant No. 2
<PAGE>
Exhibit 3
---------
Warrant No. 3
<PAGE>
Exhibit 4
---------
Warrant No. 4
Exhibit 4.4
-----------
THIS WARRANT AND THE SHARES OF COMMON STOCK UNDERLYING THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), OR UNDER APPLICABLE STATE
SECURITIES LAWS. THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO TOUCHSTONE APPLIED SCIENCE ASSOCIATES,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED OR UNLESS SOLD
PURSUANT TO THE PROVISIONS OF RULE 144 OF THE ACT.
THIS WARRANT IS SUBJECT TO THE PROVISIONS OF A SECURITIES
PURCHASE AGREEMENT, DATED AS OF SEPTEMBER 4, 1998, AND MAY NOT BE
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT AS THEREIN
PROVIDED.
[FORM OF]
WARRANT TO ACQUIRE SHARES OF
COMMON STOCK OF
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
Warrant No. __ ____________, 1998
THIS CERTIFIES THAT CAHILL, WARNOCK STRATEGIC PARTNERS FUND,
L.P. (the "Holder"), for value received, or its registered
assigns, is entitled to purchase, on the terms and subject to the
conditions hereinafter set forth, from TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC., a Delaware corporation (the "Company"), at any
-------
time after the Effective Date (as defined below in Section 2.3)
of this Warrant and on or before the Termination Date (as defined
below in Section 2.7) of this Warrant (the "Exercise Period"),
---------------
that number of shares (the "Warrant Shares") of common stock, par
--------------
value $.0001 per share, of the Company (the "Common Stock"), as
------------
set forth in Section 2.1 hereof. The Company issued this Warrant
with three other Warrants (each, along with this Warrant, a
"Warrant" and, collectively, the "Warrants") and a debenture (the
------- --------
"Debenture"), to the Holder pursuant to a Securities Purchase
---------
Agreement, dated as of September 4, 1998, by and between the
Company and the Holder (the "Securities Purchase Agreement").
-----------------------------
Capitalized words not defined herein shall have the meanings set
forth in the Securities Purchase Agreement.
SECTION 1
Exercise Price
--------------
The exercise price at which this Warrant may be exercised
shall be $0.35 per share of Common Stock (the "Exercise Price"),
--------------
subject to any adjustment pursuant to Section 3.3.
SECTION 2
Exercise of Warrant, Etc.
------------------------
2.1 Number of Shares for Which Warrant is Exercisable.
-------------------------------------------------
This Warrant shall be exercisable to purchase [________] shares
of Common Stock, which represents [______] percent (__%) of the
Company's issued and outstanding capital stock on a fully diluted
basis at the date of issuance, subject to any adjustment pursuant
to Section 3.3.
2.2 Procedure for Exercise of Warrant. The Warrant may be
---------------------------------
exercised in whole or in part during the Exercise Period by
surrendering this Warrant, with the purchase form provided for
herein duly executed by the Holder or by the Holder's duly
authorized attorney-in-fact, at the principal office of the
Company or at such other office or agency in the United States as
the Company may designate by notice in writing to the Holder
accompanied by payment in full, in cash, bank cashier's check or
certified check payable to the order of the Company, in an amount
equal to the product of (i) the Exercise Price multiplied by (ii)
the number of Warrant Shares being purchased. In addition to
payments of the Exercise Price by cash or said checks, payment of
the Exercise Price with respect to the Warrant(s) being exercised
may be made, at the option of the Holder, by the reduction in the
principal amount of the Debenture issued to the Holder pursuant
to the Securities Purchase Agreement (or forgiveness of any
accrued and unpaid interest thereon, even during a period in
which an Event of Default (as defined in the Securities Purchase
Agreement) has occurred and is continuing under such Debenture,
in an amount equal to the Exercise Price with respect to the
number of Warrant Shares being purchased; and in such a case,
this Warrant shall be accompanied by said Debenture (with the
purchase form duly executed) which shall be substituted and
replaced by a new Debenture identical in form and content to the
original Debenture except that principal amount shall be
appropriately reduced to reflect the reduction in the principal
amount applicable to the payment of the Exercise Price with
respect to the Warrant being exercised. If fewer than all of the
Warrant Shares are being exercised, the Company shall, upon
exercise prior to the end of the Expiration Period, execute and
deliver to the Holder a new certificate (dated the date hereof)
evidencing the balance of the Warrant Shares that remain
exercisable.
2.3 Effective Date; Conversion.
--------------------------
(a) The "Effective Date" of this Warrant shall be the
--------------
earlier of:
(i) [the date hereof / the eighteen (18)
month anniversary date of the Closing Date]; or
(ii) upon the occurrence or existence of an Event
of Default (as defined in the Securities Purchase
Agreement).
(b) Beginning on the Effective Date, this Warrant
shall immediately become exercisable for that number of
shares of Common Stock issuable upon exercise of this
Warrant (subject to adjustment under Section 3.3) and this
Warrant shall remain exercisable for such number of shares
(subject to adjustment under Section 3.3) until the
Termination Date.
(c) If prior to the Effective Date, the Company
satisfies all obligations under the Securities Purchase
Agreement and the Debenture (including without limitation
paying in full all principal and interest thereunder), this
Warrant shall terminate and be null and void AB INITIO.
Satisfaction of all obligations under the Debenture and
Securities Purchase Agreement by the Company on or after the
Effective Date shall not affect this Warrant, which shall
remain in full force and effect until the Termination Date
2.4 Transfer Restriction Legend. Each certificate for
---------------------------
Warrant Shares initially issued upon exercise of this Warrant,
unless at the time of exercise such Warrant Shares are registered
under the Act, shall bear the following legend (and any
additional legend required by any securities exchange upon which
such Warrant Shares may, at the time of such exercise, be listed)
on the face thereof:
"These securities have not been registered under the
Securities Act of 1933, as amended, or under any state
securities laws and may be offered, sold or transferred
only if registered pursuant to the provisions of such
laws, or if in the opinion of counsel satisfactory to
the Company, an exemption from such registration is
available."
2.5 Acknowledgment of Continuing Obligation. The Company
---------------------------------------
will, if the Holder exercises this Warrant in part, upon request
of the Holder, acknowledge in writing the Company's continuing
obligation to the Holder in respect of any rights to which the
Holder shall continue to be entitled after such exercise in
accordance with this Warrant, provided, that the failure of the
Holder to make any such request shall not affect the continuing
obligation of the Company to the Holder in respect of such
rights.
2.6 Termination of Warrant. Unless the parties otherwise
----------------------
agree in writing to extend or modify the Exercise Period, this
Warrant, or the unexercised portion of this Warrant, shall
terminate and be null and void on the date five years from the
Effective Date (the "Termination Date").
----------------
SECTION 3
Ownership of this Warrant
-------------------------
3.1 Deemed Holder. The Company may deem and treat the
-------------
person in whose name this Warrant is registered as the Holder and
owner hereof (notwithstanding any notations of ownership or
writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary,
until presentation of this Warrant for registration of transfer
as provided in this Section 3.
3.2 Exchange, Transfer and Replacement. This Warrant is
----------------------------------
non-detachable from the Debenture and may not be transferred,
assigned, sold, pledged or otherwise hypothecated ("Transferred")
-----------
except with the Debenture, and if so Transferred, then only as
permitted under the terms and conditions of the Debenture and the
Securities Purchase Agreement. This Warrant and all rights
hereunder are transferable in whole or in part upon the books of
the Company by the Holder in person or by duly authorized
attorney, and a new Warrant shall be made and delivered by the
Company, of the same tenor as this Warrant but registered in the
name of the transferee, upon surrender of this Warrant duly
endorsed at said office or agency of the Company. Upon receipt
by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of this Warrant, and, in
case of loss, theft or destruction, or indemnity or security
reasonably satisfactory to it, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will make
and deliver a new Warrant of like tenor, in lieu of this Warrant,
provided, however, that if the Holder of this Warrant is the
- -----------------
original Holder, an affidavit of lost Warrant shall be sufficient
for all purposes of this Section 3.2. This Warrant shall be
promptly canceled by the Company upon the surrender hereof in
connection with any exchange, transfer or replacement. The
Company shall pay all reasonable expenses, taxes (other than
stock transfer taxes and income taxes) and other charges payable
by it in connection with the preparation, execution and delivery
of Warrant Shares pursuant to this Section 3.2.
3.3 Antidilution.
------------
(a) If at any time while all or any portion of this
Warrant remains outstanding all or any portion of this
Warrant shall be exercised subsequent to (i) any sales of
shares of Common Stock of the Company at a price per share
less than the Exercise Price per share then applicable to
this Warrant, or (ii) any issuance of any security
convertible into shares of Common Stock of the Company with
a conversion price per share less than the Exercise Price
per share then applicable to this Warrant, or (iii) any
issuance of any option, warrant or other right to purchase
shares of Common Stock of the Company at any exercise price
per share less than the Exercise Price per share then
applicable to this Warrant (except, in each case, pursuant
to an employee or director stock option plan or similar
compensation plan approved by the Board of Directors); then
in any and every such event the Exercise Price per share for
this Warrant shall be reduced and shall be equal to such
lower sales, conversion or exercise price per share.
(b) If all or any portion of this Warrant shall be
exercised subsequent to any stock dividend, split-up,
recapitalization, merger, consolidation, combination or
exchange of shares, reorganization or liquidation of the
Company occurring after the date hereof, as a result of
which such shares of any class shall be issued in respect of
outstanding shares of Common Stock of the Company (or shall
be issuable in respect of securities convertible into shares
of Common Stock) or upon exercise of rights (other than this
Warrant) to purchase shares of Common Stock or shares of
such Common Stock shall be changed into the same or a
different number of shares of the same or another class or
classes, the Holder exercising this Warrant shall receive
the aggregate number and class of shares which such Holder
would have received if this Warrant had been exercised
immediately before such stock dividend, split-up,
recapitalization, merger, consolidation, combination or
exchange of shares, reorganization or liquidation.
SECTION 4
Special Agreements of the Company
---------------------------------
The Company covenants and agrees that:
4.1 The Company will reserve and set apart and have at all
times, free from preemptive rights, a number of shares of
authorized but unissued Common Stock deliverable upon the
exercise of this Warrant or of any other rights or privileges
provided for herein sufficient to enable the Company at any time
to fulfill all its obligations hereunder.
4.2 This Warrant shall be binding upon any corporation or
entity succeeding to the Company by merger, consolidation or
acquisition of all or substantially all of the Company's assets.
SECTION 5
Notices
-------
Any notice or other document required or permitted to be
given or delivered to the Holder or the Company shall be
delivered, or sent by certified or registered mail, to the Holder
or the Company at the address as set forth in the Securities
Purchase Agreement.
SECTION 6
Governing Law
-------------
This Warrant shall be governed by, and construed and
enforced in accordance with, the internal laws of the State of
New York, without giving effect to its conflicts of laws
provisions.
SECTION 7
Assignment
----------
Notwithstanding any provision of this Warrant which may be
construed to the contrary, this Warrant and any rights hereunder
shall not be assignable by the Holder except in accordance with
the provisions governing assignments hereof set forth in the
Securities Purchase Agreement and any attempt by the Holder to
assign this Warrant or any rights hereunder other than in
accordance therewith shall be void and of no force and effect.
This Warrant is non-detachable from the Debenture and may not be
transferred except with the Debenture.
[Balance of Page Left Blank Intentionally -- Signature Page
Follows]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to
be signed by its duly authorized officer under its corporate
seal, attested by its duly authorized officer, and to be dated as
of the date first hereinabove set forth.
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By: _____________________________________
Name: Andrew L. Simon
Title: President and Chief Executive Officer
ATTEST:
______________________________ [SEAL]
Name:
Title: Secretary
<PAGE>
ASSIGNMENT
TO BE EXECUTED BY THE REGISTERED HOLDER IF IT DESIRES AND IS
PERMITTED TO TRANSFER THE WARRANT OF
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
FOR VALUE RECEIVED ___________________________________
hereby sells, assigns and transfers unto
__________________________ the right to purchase [______%] of the
number of shares of Common Stock covered by the within Warrant,
and does hereby irrevocably constitute and appoint
__________________________________________________ Attorney to
transfer the said Warrant on the books of the Company (as defined
in said Warrant) with full power of substitution.
The undersigned represents and warrants to the Company that
this assignment has been effected in compliance with all
applicable provisions of said Warrant and any applicable
provisions of the Securities Purchase Agreement referred to in
such Warrant.
Signature: __________________________(SEAL)
Address: ________________________________
Dated: ___________________199__
In the presence of
______________________________ By: ___________________________________
NOTICE
The signature to the foregoing Assignment must correspond to
the name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatsoever.
<PAGE>
WARRANT CERTIFICATE
TO BE EXECUTED BY THE REGISTERED HOLDER
IF IT DESIRES TO EXERCISE THE WARRANT OF
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
The undersigned hereby exercises the right to purchase
shares of Common Stock obtainable by exercise of [_____%] of the
within Warrant, according to the conditions thereof and makes
payment of the Exercise Price for such shares in full by the
enclosed payment and/or by reduction in the principal amount of
the Debenture (as defined in the Warrant) as more specifically
set forth below:
Signature: __________________________(SEAL)
Address: ________________________________
Exhibit 10.1
------------
ASSET PURCHASE AGREEMENT
AGREEMENT made as of this 2nd day of November, 1998 by and
between MILDRED ELLEY SCHOOL, INC., a New York corporation, having
its principal place of business at 800 New Loudon Road, Suite 5120,
Latham, New York 12110 ("Seller") and MESI ACQUISITION CORP., a
New York corporation having its principal place of business at c/o
TASA Educational Services Corporation, 4 Hardscrabble Heights,
Brewster, New York 10509 ("Purchaser").
W I T N E S S E T H:
WHEREAS, the Seller is engaged in the business of maintaining
and operating a post-secondary, degree granting proprietary school
in the State of New York and branch of such school in the
Commonwealth of Massachusetts (the "Business"); and
WHEREAS, Purchaser desires to purchase from the Seller and the
Seller desires to sell to the Purchaser, the Business and
substantially all of its assets, upon the terms and conditions
stated herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in this Agreement, the parties hereby
agree as follows:
1. SALE AND TRANSFER OF ASSETS.
----------------------------
(a) On the terms and subject to the conditions of this
Agreement and in reliance on the representations and warranties set
forth herein, except as set forth in subparagraph (b) below, the
Seller shall sell, assign, transfer and deliver to the Purchaser on
the Closing Date, as defined in Paragraph "14" hereof, and the
Purchaser shall purchase from Seller, free of liens and
encumbrances, all of the operating assets, properties and rights of
Seller of every kind and description existing at the Closing Date
(such assets, properties and rights to be sold herein shall be
hereinafter referred to as the "Assets"). Without limiting the
foregoing, the Assets shall include cash on hand; accounts;
accounts receivable; prepaid expenses; furniture and fixtures;
machinery and equipment; catalogs (including but not limited to all
advertising and marketing materials); student records and lists;
mailing list; leases; inventory in all forms (including but not
limited to print and video); curriculum; all intellectual property
and proprietary rights and interests (including but not limited to
curriculum, licenses, trademarks, tradenames, servicemarks,
copyrights, and patents whether registered or applied for or at
common law); and any and all contracts and contract rights, and the
names of Seller "Mildred Elley School, Inc.", "Mildred Elley
Business School," and all variations and derivatives thereof.
(b) Seller shall provide such bills of sale, assignments
and other transfer documents necessary to sell, assign and transfer
the Assets and vest all rights to same in Purchaser, including but
not limited to assignments of all contracts and intellectual
property and proprietary interests in forms acceptable to counsel
for Purchaser and suitable for filing and registration of same by
Purchaser.
2. ASSUMPTION OF CERTAIN LIABILITIES.
----------------------------------
(a) Seller shall assign and Purchaser will assume
certain liabilities of Seller as set forth on Schedule 2(a) (the
"Assumed Liabilities"). Assumed Liabilities shall include, but not
be limited to, the accounts payable in the ordinary course of
business and the shareholder loan by Faith Takes to Seller in the
approximate amount as of 7/31/98 of $86,600 (the "Takes Loan"), the
obligations under the Capital Bank Trust/SBA loan, the obligations
under the TFC Credit Corporation loan, the obligations under the
Ballston Spa bridge loan, accrued expenses, payroll taxes and other
liabilities arising in the ordinary course of business, provided
all such liabilities are disclosed to Purchaser on the Closing
Balance Sheet delivered pursuant to Paragraph "11" hereof.
Notwithstanding anything to the contrary contained above, Assumed
Liabilities shall not include any obligation or liability of Seller
with respect to income taxes, penalties and interest thereon
(except as set forth in (b) below); pension, profit-sharing or
other similar obligations of Seller whether or not arising from
ERISA qualified or approved plans; any liabilities for items
outside the ordinary course of business which are not disclosed to
Purchaser and approved in writing by Purchaser; any liabilities for
material acts or omissions of Seller, its officers, directors or
employees through the Closing Date which are not disclosed on the
Closing Balance Sheet and approved in writing by Purchaser
(including but not limited to contingent liabilities, and any
pending or threatened claims, proceedings, actions, or
investigations, whether or not asserted before Closing).
(b) Purchaser and Seller agree that Purchaser shall
accept on the Closing Balance Sheet as an Assumed Liability an
accrual for income taxes equal to thirty-five (35%) percent of
Federal taxable income of Seller as of the Closing Date as
calculated by the certified public accountants for Seller to be
distributed to the Shareholders in such amounts as determined by
such accountants.
3. CONSIDERATION. On the Closing Date, in consideration
--------------
of the sale and purchase of the Assets hereunder, assumption of the
Assumed Liabilities, and the restrictive covenant of Seller as set
forth in Paragraph "15" hereof, Purchaser shall pay Seller the
aggregate sum of Three Million Dollars ($3,000,000.00) as total
purchase price ("Purchase Price"). The parties agree to cooperate
and complete Internal Revenue Service Form 8594 promptly upon the
receipt, review and acceptance by Purchaser of the Closing
Financial Statements.
4. PAYMENT OF PURCHASE PRICE. Purchase Price shall be
--------------------------
paid as follows:
(a) TWO MILLION AND 00/100 ($2,000,000.00) DOLLARS
payable at Closing by wire transfer to the account of Seller.
(b) ONE MILLION AND 00/100 ($1,000,000.00) DOLLARS by
promissory note of Purchaser, substantially in the form of Exhibit
"A" hereto (the "Note"), payable in equal quarterly installments of
principal and interest for five years from the date of Closing,
with interest at 8.5% per annum (the "Interest Rate"). The Interest
Rate and resultant payment shall be adjusted quarterly at the beginning
of each quarter following Closing.
5. BULK SALE COMPLIANCE. Intentionally Excluded.
---------------------
6. SALES TAX. Purchaser and Seller agree to cooperate in
----------
complying with the requirements of New York law with respect to the
transfer of assets contemplated hereunder, including but not
limited to notice of Seller to the State of New York and payment by
Purchaser at Closing of any amount required by the State in
connection with the sales tax obligations of Purchaser.
7. REPRESENTATIONS OF SELLER. Seller represents and
--------------------------
warrants to Purchaser as follows:
(a) Seller is a corporation duly organized and
existing and in good standing under the laws of the State of New
York and is duly qualified to transact business in the State of New
York. Seller is a corporation duly qualified to do business and in
good standing as a foreign corporation under the laws of the
Commonwealth of Massachusetts. The operation of the Business does
not require Seller to be qualified to transact business in any
other jurisdiction. Seller has full power and authority to perform
its obligations as provided in this Agreement. The execution and
delivery by Seller of this Agreement and the consummation of the
transactions contemplated herein have been duly authorized by all
requisite corporate action, and will not conflict with or breach
any provision of any agreement to which Seller is a party or by
which it may be bound, the Certificate of Incorporation or By-Laws
of Seller. The copies of the Certificate of Incorporation of
Seller and amendments thereto and the Bylaws of Seller, heretofore
delivered to Purchaser, are true, correct and complete copies
thereof as now in effect.
(b) Except as set forth on Schedule "7(b)", Seller
owns and holds and shall own and hold as of the Closing Date, good
and merchantable title, free and clear of any liens, encumbrances,
charges or assessments, to all of the assets shown on its Audited
Financial Statements as of December 31, 1997 except (i) assets
disposed of since the date thereof in the ordinary course of
business, (ii) liens set forth on such financial statements and
(iii) liens or other encumbrances securing taxes which are not yet
due and payable and arising out of or incurred in the ordinary
course of business.
(c) Except as disclosed on Schedule "7(c)", Seller is
not a party to any "Material Contract" as defined hereinafter.
True and correct copies of all Material Contracts described on
Schedule "6(c)" have been delivered to Purchaser and are in full
force and effect. Seller is not in material breach of any Material
Contract, and no event which with notice or lapse of time, or both,
would constitute a material breach thereof has occurred and is
continuing. "Material Contract" as used in this Agreement,
includes all material contracts and commitments, all indentures,
mortgages, security agreements, leases, loans and credit
agreements, and all other material agreements (including any
employment contracts or deferred compensation, pension, profit
sharing or retirement plans, supply contracts or contracts for the
purchase or sale of products or services), imposing any obligation
on Seller or to which any of its Assets are subject. A contract,
commitment or agreement shall be deemed to be material if it either
(i) involves or may involve the payment of more than Five Thousand
Dollars ($5,000.00) over the life of the contract or commitment, or
(ii) regardless of the amount involved, if it is not terminable
without penalty solely at the will of Seller, upon notice of thirty
(30) days or less. Such list is true and complete in all material
respects; and, except as shown thereon, Seller is not a party to or
bound by any Material Contract.
(d) There are no actions, suits or proceedings
pending, and Seller has no knowledge of any actions, suits or
proceedings threatened, against Seller affecting Seller, or the
Business or any of the Assets to be transferred under this
Agreement, or which would prevent or substantially hinder the
consummation of the transactions contemplated by this Agreement.
Seller is not in default with respect to any order or decree of any
federal, state or municipal court or of any such governmental
agency or instrumentality.
(e) Except as disclosed on Schedule "7(e)" hereto,
there are no existing options, warrants, subscription rights,
convertible securities or similar rights granted by either Seller
or any of the shareholders of Seller (the "Shareholders"), or any
commitments or agreements of any character to which Seller or any
of the Shareholders is a party, relating to the authorized or
issued capital stock of Seller.
(f) All of the financial records and books of account
of Seller are true, correct and complete and have been maintained
in accordance with generally accepted accounting principles
consistently applied. Seller has delivered to Purchaser:
(i) audited Financial Statements for the Years
Ended December 31, 1996 and 1997 with the Independent Auditors
Report (the "Audited Financial Statements") and
(ii) management prepared Financial Statements
dated September 30, 1998 for the Nine Months Ended September 30,
1998 (the "Management Financial Statements");
(i) and (ii) being known hereinafter as the "Financial Statements".
The Audited Financial Statements were prepared by LCS&Z Glickman
Lutz, L.L.P., certified public accountants of Seller. The Audited
Financial Statements (A) are true and correct in all material
respects, and (B) fairly present the financial positions and
results of operations and cash flows of Seller in accordance with
generally accepted accounting principles consistently applied, as
at such dates and for the years or periods then ended. The
Management Financial Statements (A) are true and correct in all
materials respects, and (B) fairly present the financial position
and results of operations as at September 30, 1998 and for the nine
months then ended in accordance with generally accepted accounting
principals consistently applied through the periods covered
thereby, subject to normal year-end adjustments.
(g) Seller has incurred no liabilities or obligations
of any nature (whether known or unknown, and whether absolute,
accrued, contingent or otherwise) other than (A) liabilities or
obligations reflected or reserved against in the balance sheet of
Seller as at September 30, 1998 (the "Balance Sheet Date"), (B)
current liabilities incurred in the ordinary course of business
since the Balance Sheet Date, (C) taxes incurred in the ordinary
course of business since the Balance Sheet Date, any of which
liabilities or obligations included within the foregoing exceptions
(A-C) do not or would not in the aggregate have a material adverse
effect on the Business or financial condition of Seller. The
accounts receivable accrued on or through the Closing Date were,
and to the best knowledge of Seller, will be, created in the
ordinary course and do and will reflect BONA FIDE sales to students
and will be collectible in the amount thereof as reflected in the
records of Seller. A schedule of such receivables shall be
delivered to Purchaser within five (5) business days of the date of
this Agreement.
(h) Except as disclosed on Schedule "7(h)", Seller
does not own or hold in fee or under lease, or otherwise in any
manner uses or occupies any real property except that office space
described in the leases true and complete copies of which have been
delivered to Purchaser and which are described on such Schedule
"7(h)" (the "Leases"). Each Lease is in full force and effect, and
except as disclosed on Schedule "7(h)", neither the landlord nor
Seller is in breach of any Lease, and no event which with notice or
lapse of time, or both, would constitute a material breach thereof,
has occurred and is continuing. Seller has obtained the consents
of each landlord to the assignment of the Leases where such consent
is required thereunder except as provided on Schedule "6(h)"
attached.
(i) Seller carries insurance with reputable insurers
in respect of its Assets and the Business. A true and complete
schedule of all insurance maintained by Seller is disclosed on
Schedule "6(i)". There has been no lapse in coverage under such
policies.
(j) From December 31, 1997 to the date of this
Agreement, (i) there has been no material adverse change in the
Assets or the financial condition of Seller from that shown in the
Audited Financial Statements and (ii) no business, properties or
assets owned or leased by the Seller shall have suffered any
destruction or damage or have been adversely affected in any manner
which singularly, or in the aggregate would have a material adverse
effect on the Assets or the financial condition of Seller,
regardless of whether or not the loss suffered from any such
incident shall have been insured; and (iii) the Business has been
conducted in the ordinary course.
(k) Annexed hereto as Schedule "7(k)", is a list and
description, true and correct in all material respects, of all
United States and foreign patent, trademark and trade name
registrations, unexpired as of the date hereof, all material United
States and foreign applications pending on said date for any
patent, trademark, trade name, or copyright registrations and all
material trademarks, trade names, label and other trade rights in
use on the date hereof, all of the foregoing being owned, in whole
or in part on said date by Seller and all licenses granted by or to
Seller, and all other agreements to which it is a party and which
are in force as of the date hereof and relate in whole or in part
to any items of the categories mentioned in this subparagraph or to
inventories, discoveries, improvements, processes, formulae,
proprietary rights, trade secrets, ideas or other know-how, whether
owned by Seller or otherwise.
(l) Annexed hereto as Schedule "7(l)" is a true and
correct copy of lists of all furniture, fixtures and equipment
maintained by Seller. These assets are situated in the offices or
other premises of Seller as set forth on Schedule "7(l)" hereto.
The furniture, fixtures and equipment of Seller listed on Schedule
"7(l)" constitute all such assets of Seller.
(m) Except as disclosed on Schedule "7(m)", all
United States, foreign, state, county, local and other taxes,
including, without limitation, income taxes, corporate franchise
taxes, AD VALOREM taxes, sales and other federal, state and local
taxes under any law, rule or regulation imposed by any governmental
authority with jurisdiction over Seller, its Business and Assets,
due and payable by Seller on or before the date of this Agreement
(including any penalties and interest thereon) have been paid, and
all tax returns and reports required to be filed by each of them
with all such taxing authorities have been filed when due (the
"Returns"). The provisions for taxes included in the Audited
Financial Statements are adequate for the payment of all accrued
and unpaid taxes of Seller whether or not disputed, and Seller has
withheld and collected all taxes and assessments it is or has been
required by law to withhold or collect, and all of the same are
duly reflected in the Audited Financial Statements. Seller has no
outstanding or unsatisfied deficiency assessments with respect to
any taxes. All such returns are true, complete and correct and in
material compliance with all applicable laws, rules and
regulations.
(n) Seller is not a party to any collective
bargaining agreement.
(o) No representation or warranty by Seller contained
in this Agreement (including the Schedules and Exhibits) nor any
written representation, statement or certificate made or furnished,
or to be made or furnished, or to be made or furnished hereafter,
by Seller pursuant hereto or in connection with the transactions
contemplated hereby, contains or will contain any material error or
misstatement or omits or will omit to state any material fact
necessary to make the representations or statements contained
herein or therein not misleading.
(p) Except as disclosed on Schedule "7(p)", no
consent or approval, notice to or waiver of any lien, filing or
other action is required for the due execution, delivery and
performance by Seller, or the validity, enforcement or priority of
this Agreement, except for consents which have been duly and
validly obtained and are now in full force and effect or the
obtaining of which has been waived in writing by Purchaser.
(q) Seller has not granted any power of attorney to
any person.
(r) Seller has undertaken due and diligent inquiry
and to the best of its knowledge:
(i) no real property leased by Seller (the
"Premises") is being or has been used by Seller for the storage,
treatment, generation, transportation, processing, handling,
production or disposal of any Hazardous Substance (as defined
below).
(ii) all environmental permits and licenses
required by the operations of Seller on the Premises have been
obtained and are in full force and effect.
"Hazardous Substance" means, without limitation, any flammables,
-------------------
explosives, radon, radioactive materials, asbestos, urea
formaldehyde foam insulation, polychlorinated-biphenyl, petroleum
and petroleum based products or by-products, methane, hazardous
materials, medical waste, hazardous wastes, hazardous or toxic
substances or related materials, as defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials
------
Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.),
------
the Toxic Substances Control Act, as amended (15 U.S.C. Sections
2601, et seq.), Articles 15 and 27 of the New York State
------
Environmental Conservation Law and in the regulations promulgated
thereunder. The term "Hazardous Substance" does not include
consumer products which are packaged for, stored, and used by a
consumer with reasonable care and for their intended use.
(s) Except as disclosed on Schedule "7(s)", Seller
has and never has had any employee pension benefit plan or trust
which is covered by Title IV of ERISA or subject to the minimum
funding standards under Section 4.12 of the Internal Revenue Code
in connection with which there could arise a direct or contingent
liability of Seller to the Pension Benefit Group Corporation, the
Department of Labor or the Internal Revenue Service. Seller is not
a participating employer in any Plan under which more than one
employer makes contributions or any multi-employer plan as defined
in ERISA. Each pension plan or trust covered by Title IV of ERISA
in which Seller participates either as sponsor or trustee, is in
compliance with the plan documents related thereto and all federal
and state laws, rules and regulations applicable thereto.
(t) Seller has the common law right in New York State
to use the name "Mildred Elley" in connection with its business and
operations in New York State and the Commonwealth of Massachusetts.
(u) This Agreement and each of the Exhibits thereto
to which Seller is a party have been duly executed and delivered by
Seller are legal, valid and binding obligations of Seller and
enforceable against Seller in accordance with their respective
terms, except as may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter
in effect affecting the enforcement of creditors rights generally
and (ii) general principals of equity (regardless of whether
considered in the proceeding in equity or in law).
(v) Other than the contracts being transferred
hereunder and listed on Schedule "7(c)" annexed hereto and made a
part hereof, Seller is not a party to any written or oral Material
Contract, license, lease or other agreement other than as set forth
on Schedule "7(c)". Seller has obtained the consent of each
landlord or lessor of each contract transferred hereunder to the
assignment of such contract to Purchaser. Seller has not received
a notice of any default nor is it in material default under any
document, agreement, contract, license, lease or other commitment
to which it is or may be a party. Seller has not received notice
that any party to any such agreement intends to cancel or terminate
the same, whether by reason of the transactions contemplated hereby
or otherwise. All such agreements are valid and enforceable in
accordance with their respective terms for the periods stated
therein.
(w) Accreditation and State Licensure/Approval:
(i) Schedule "7(w)" contains a complete and
accurate statement of the accreditation granted to Seller's school
and its additional locations, the date that accreditation was last
granted, and the current term of accreditation. Neither the school
nor its additional locations are on probation or warning, have been
directed to show cause why accreditation should not be revoked, or
are subject to an action by an accrediting agency to withdraw or
deny accreditation. To the knowledge of Seller, there are no
facts, circumstances, or omissions concerning its schools that
could lead to such actions by an accrediting agency.
(ii) Seller, its school and its additional
location have complied with all stipulations, conditions and other
requirements imposed by their accrediting agency at the time of, or
since, the last grant of accreditations, including but not limited
to timely filing of all required reports and responses.
(iii) Seller, its school and its additional
location have secured all requisite approvals from its
institutional accrediting agency for their educational and training
programs currently offered.
(iv) Seller, its school and its additional
location have secured all requisite licenses to operate in the
states in which they are located and all requisite approvals from
such states for the educational and training programs currently
offered. Seller, its school and its additional location have
complied with all conditions and requirements upon which such
licenses and approvals are based and are in substantial compliance
with the rules and regulations of the State Education Department of
New York and the Commonwealth of Massachusetts. There are no
actions or proceedings pending in either state to limit, suspend or
terminate such licenses or approvals or which could result in the
imposition of a material fine.
(x) U.S. Department of Educational Certification and
Eligibility:
(i) Schedule "7(x)" contains a complete and
accurate statement of the U.S. Department of Education
certification and eligibility status for Seller's school and its
additional location, including the date that certification was
last granted and the current term of certification. The School and
its additional location listed on Schedule "7(x)" are certified by
the U.S. Department of Education to participate in the programs
authorized by Title IV of the Higher Education Act of 1965, as
amended. Neither the school nor its additional location are
subject to limitation, suspension or termination proceedings, or
subject to any other action or proceeding by the U.S. Department of
Education that could result in the loss of certification or
eligibility or a material liability or fine. To the knowledge of
the Seller, there are no facts, circumstances, or omissions
concerning the schools that could lead to such an action by the
U.S. Department of Education.
(ii) Seller's school and its additional
location owned by Seller are in material compliance with all
rules, regulations and requirements established by the U.S.
Department of Education pertaining to their eligibility to
participate in the programs authorized by Title IV of the Higher
Education Act of 1965, as amended, and other federal student
financial aid funding programs set forth at 34 C.F.R. Sections 600
et seq. The Seller is aware of no facts, circumstances, or
- ------
omissions concerning the school and its additional location that
might result in a finding of material non-compliance with such
rules, regulations and requirements. Without limiting the
foregoing, the Seller also represents that:
(A) The school and its additional
location satisfy the standards of financial responsibility and
administrative capability, as established by the U.S. Department of
Education and as set forth at 34 C.F.R. Sections 668.15-668.16 and
each program offered by the school and its additional location is
an eligible program in accordance with the requirements of 34
C.F.R. Section 668.8.
(B) The school and its additional
location receive no greater than eighty-five percent (85%) of
their revenues from programs authorized by Title IV of the Higher
Education Act of 1965, as amended, or other federal student
financial aid funds, and satisfies the requirements regarding
tuition revenue established by the Department of Education as set
forth at 34 C.F.R. Section 600.5. Schedule "6(x)" contains a
correct statement of each school's percentage of revenue from such
federal funding sources.
(C) The school and its additional
location disburse federal Pell Grant payments in accordance with
procedures that comply with 34 C.F.R. Section 690.63.
(iii) U.S. Department of Education program
reviews and compliance audits conducted at the school and its
additional location since 1992 have not materially adversely
affected the Seller, its school or its additional location, nor has
any program review or compliance audit resulted in the imposition
of any material liability, financial or otherwise, affecting the
Seller, its school or its additional location. The Seller, its
school and its additional location have complied with all the
findings and conditions arising from the program reviews and
compliance audits. To the extent that any program review or audit
remains pending or unresolved, there are no issues of findings of
non-compliance which to the knowledge of the Seller, its school and
its additional location could result in the loss of certification
or eligibility or a material liability or fine.
(y) This Agreement constitutes the valid and binding
obligation of Seller, enforceable against Seller in accordance with
its terms.
(z) The Bill of Sale and instruments of assignment,
when executed and delivered to Purchaser will transfer to Purchaser
all of the Assets, free of all mortgages, liens, charges and
encumbrances except as provided on Schedule "7(b)" hereto.
(aa) Since December 31, 1997:
(i) Seller has conducted and shall continue to
conduct its business in the ordinary course of business.
(ii) Seller has kept and shall continue to keep
the insurance now maintained with respect to the Assets in full
force and effect.
8. REPRESENTATIONS AND WARRANTIES BY PURCHASER AND TESC.
-----------------------------------------------------
Each of Purchaser and TESC make the following representations
and warranties to Seller:
(a) Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State
of New York and is duly qualified to transact business in the other
jurisdictions in which the business of Purchaser would require such
qualification, except that Purchaser has filed applications for
qualification in the Commonwealth of Massachusetts, which
qualifications have not yet issued. TESC is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Delaware and is duly qualified to transact business in
the other jurisdictions in which the business of TESC would require
such qualification. Each of Purchaser and TESC has full corporate
power and authority to enter into this Agreement and to consummate
the transactions contemplated by this Agreement.
(b) The execution and delivery by each of Purchaser
and TESC of this Agreement and the consummation of the transactions
contemplated hereby do not and will not conflict with or violate
any contract or agreement to which Purchaser or TESC is a party or
by which it may be bound, are not contrary to the certificate of
incorporation or by-laws of either Purchaser or TESC and are not
contrary to any order of any court to which either Purchaser or
TESC is subject.
(c) Purchaser has good and marketable title to all of
its properties.
(d) The execution, delivery and performance by
Purchaser of this Agreement have been duly authorized by all
requisite corporate action. This Agreement constitutes a legal,
valid and binding obligation of Purchaser enforceable in accordance
with its terms.
(e) There are no actions, suits or proceedings
pending, and each of Purchaser and TESC has no knowledge of any
actions, suits or proceedings threatened, against either Purchaser
or TESC which would materially affect either Purchaser or TESC or
which would prevent or substantially hinder the consummation of the
transactions contemplated by this Agreement.
(f) Neither Purchaser nor TESC is in default under
any commitment, contract, agreement, lease or other document to
which it is a party or to which it may be bound, and which would
have a material effect on either corporation's abilities to
consummate the transactions contemplated hereunder. No event has
occurred which, with the lapse of time, would constitute such a
material default thereunder.
(g) All of the financial records and books of account
of Purchaser and its affiliated entities are materially true,
correct and complete and have been maintained in accordance with
generally accepted accounting principles consistently applied.
Purchaser has delivered to Seller audited Financial Statements for
Touchstone Applied Science Associates, Inc. ("TASA") for the Years
Ended October 31, 1996 and 1997 with the Independent Auditors
Report (the "Audited Financial Statements"). The Audited Financial
Statements (A) are true and correct in all material respects, and
(B) fairly present the financial positions and results of
operations and cash flows of TASA in accordance with generally
accepted accounting principles consistently applied, as at such
dates and for the years or periods then ended.
(h) Except as set forth on Schedule 8(h) hereto, TASA
has not incurred liabilities or obligations of any nature (whether
absolute, accrued, contingent or otherwise) other than (A)
liabilities or obligations reflected or reserved against in the
balance sheet of TASA as at October 31, 1997 (the "Balance Sheet
Date"), (B) current liabilities incurred in the ordinary course of
business since the Balance Sheet Date, (C) taxes incurred in the
ordinary course of business since the Balance Sheet Date, any of
which liabilities or obligations included within the foregoing
exceptions (A-C) do not or would not in the aggregate have a
material adverse effect on the financial condition of TASA.
(i) From October 31, 1997 to the date of this
Agreement and except as disclosed on Schedule 8(i), (i) there has
been no material adverse change in the financial condition of TASA
from that shown in the Audited Financial Statements and (ii) no
business, properties or assets owned or leased by the TASA shall
have suffered any destruction or damage or have been adversely
affected in any manner which singularly, or in the aggregate would
have a material adverse effect on the financial condition of
Seller, regardless of whether or not the loss suffered from any
such incident shall have been insured; and (iii) the business of
TASA has been conducted in the ordinary course.
(j) All United States, foreign, state, county, local
and other taxes, including, without limitation, income taxes,
corporate franchise taxes, AD VALOREM Taxes, sales and other
federal, state and local taxes under any law, rule or regulation
imposed by any governmental authority with jurisdiction over TASA,
due and payable by TASA on or before the date of this Agreement
(including any penalties and interest thereon) have been paid, and
all tax returns and reports required to be filed by each of them
with all such taxing authorities have been filed when due (the
"Returns"). The provisions for taxes included in the Audited
Financial Statements are adequate for the payment of all accrued
and unpaid taxes of TASA whether or not disputed, and TASA has
withheld and collected all taxes and assessments it is or has been
required by law to withhold or collect, and all of the same are
duly reflected in the Audited Financial Statements. TASA has no
outstanding or unsatisfied deficiency assessments with respect to
any taxes. All such returns are true, complete and correct and in
material compliance with all applicable laws, rules and
regulations.
9. EMPLOYMENT CONTRACTS. At the Closing, in
---------------------
consideration of the transactions contemplated hereunder, Faith
Takes, Joseph Moltzen, Lynne Francey and Michelle Murphy each shall
enter into an employment agreement with Purchaser substantially in
the forms of Exhibits "B", "C", "D" and "E", with such changes
thereto as the parties shall agree, pursuant to which each said
person shall provide the services set forth therein to Purchaser.
10. CAPITALIZATION OF PURCHASER. On or before the Closing
----------------------------
Date, TESC shall capitalize Purchaser with a minimum of
$2,000,000.00 required for Purchaser to make payment of the
$2,000,000.00 cash portion of the Purchase Price at Closing.
11. CLOSING BALANCE SHEET AND AUDITED FINANCIAL STATEMENTS.
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(a) Seller shall deliver to Purchaser audited
financial statements prepared in accordance with generally accepted
accounting principals consistently applied for the fiscal period
ended October 31, 1998 (the "Closing Financial Statements").
Seller shall make best efforts to deliver the Closing Financial
Statements within thirty (30) days of Closing, but in no event
later than forty-five (45) days after Closing. The Closing
Financial Statements shall reflect such adjustments as have been
requested by Purchaser's Accountants and delivered to the
accountants for the Seller prior to the date hereof. The Closing
Financial Statements shall consist at a minimum of Closing Balance
Sheet, Income Statement, and Statement of Cash Flows, with foot
notes. The Financial Statements and Closing Financial Statements
shall be collectively known as the "ME Financial Statements". The
ME Financial Statements shall also be certified by an officer of
Seller that, to the best knowledge of Seller such ME Financial
Statements are true, correct and complete in all material respects.
12. GUARANTY. Purchaser shall deliver on or before
---------
Closing the guaranty by TASA of the Note in the form annexed hereto
as Exhibit "F" (the "Guaranty").
13. RELEASE OF GUARANTEES. Upon the Closing, Purchaser
----------------------
shall make good faith efforts to effect a release of any and all
personal guarantees and other personal obligations given or
undertaken by either Faith Takes or Joseph Moltzen in connection
with the Assumed Liabilities, and shall indemnify and hold each of
Faith Takes and Joseph Moltzen harmless from all obligations
arising under any of such guarantees or obligations which remain
unreleased. If such releases cannot be secured within six months of
the Closing Date with any lending institution, Purchaser agrees to
refinance obligations to that lending institution in order to
obtain any release which remains at such time.
14. CLOSING. The Closing shall take place at the offices
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of Purchaser's counsel, Rider, Weiner, Frankel & Calhelha, P.C.,
655 Little Britain Road, New Windsor, New York 12550 on or about
November 2, 1998 at 10:00 A.M. or such other date and time as shall
be mutually agreed (the "Closing" or otherwise referred to herein
as the "Closing Date"). At the Closing, all steps shall have been
taken and documents and instruments shall be delivered, in form
reasonably acceptable to counsel which are necessary or appropriate
to consummate the transactions provided for herein.
15. RESTRICTIVE COVENANT.
---------------------
(a) As used in this paragraph:
(i) "Company" means TESC and MESI, their
successors and assigns, and any of their present or future
subsidiaries, or organizations controlled by, controlling, or under
common control with any of them.
(ii) "Conflicting Organization" means any person
or entity which provides or is engaged in the provision of a
Conflicting Service.
(iii) "Conflicting Service" means any services
to or for any person, entity or organization (other than the
Company) within the State of New York, Commonwealth of
Massachusetts, State of New Jersey, State of Connecticut, State of
Vermont, or within fifty (50) miles of any school location of the
Company or any affiliated entity of the Company in any other state,
which services are similar to the services which the Company sells
or provides and which are more particularly described as follows:
owning, operating or investing in, or management or development of,
one or more post-secondary proprietary schools or the educational
instruction and curriculum related thereto.
(b) For a period of two (2) years after the Closing
Date, Seller shall not, without the prior written consent of
Purchaser:
(i) render a Conflicting Service to, or
solicit in any manner, a Conflicting Organization, and shall not,
directly or indirectly, engage, individually or as a partner,
shareholder, owner, employee, independent contractor, investor,
agent, member or principal in any business which is providing a
Conflicting Service;
(ii) solicit any customer, teacher,
administrator or student of the Company for the purpose of selling
or rendering or attempting to sell or render any Conflicting
Service,
(iii) solicit any employee, officer,
director, or agent of the Company for the purpose of offering
employment, or work for hire, to any such person with Seller any
entity owned or operated by Seller, or any Conflicting
Organization, or in connection with the sale or provision of any
Conflicting Service,
(iv) interfere with, disrupt or attempt to
disrupt the relationship between the Company and any customer,
teacher, administrator, student supplier, vendor or employee,
officer or director, or agent of the Company.
(c) Seller agrees that a breach or threatened breach
on its part of any covenant in this Paragraph 15 will cause such
damage to the Company as will be irreparable and the exact amount
of which will be impossible to ascertain. Accordingly, in the
event of my breach or threatened breach of such Paragraph, in
addition to, and not in limitation of all and any other remedies
available to it, the Company will be entitled to institute and
prosecute proceedings, in any court of competent jurisdiction, for
an injunction restraining and enjoining Seller in such manner as
the court shall determine, from breaching or continuing to breach
the terms of this Agreement. This Agreement shall not be construed
to prohibit the Company from pursuing any other remedies available
to the Company under applicable law for such breach or threatened
breach, including the recovery of damages. Seller further agrees
that the covenants contained in this Agreement are necessary and
reasonable for the protection of the Company's legitimate business
interests and are reasonable in scope and content.
16. CONDITIONS TO CLOSING.
----------------------
(a) Seller shall, in addition to other documents as
may be reasonably required by counsel to the parties hereunder,
execute and deliver, or provide for the execution and delivery to
Purchaser at the Closing the following:
(i) a certificate of an officer of Seller
certifying that all representations and warranties of Seller in
this Agreement are true and correct as of the Closing as though
such representations and warranties were made as of such date.
(ii) a Bill of Sale transferring all of the
Assets, and assignments of all contracts, leases and intellectual
property and proprietary interests.
(iii) the Employment Agreements.
(iv) an officers certificate certified by the
President of Seller as to: true and correct copies of (A) all
corporate action of the Seller authorizing and approving this
Agreement and the performance of the transactions contemplated
hereby; (B) certificate of incorporation and by-laws and all
amendments thereto; (C) signatures of duly elected and acting
officers authorized to execute documents hereunder.
(v) Any and all other documents and instruments
as shall be required to have been performed by or complied with on
or prior to or at the Closing by Seller pursuant to the terms of
this Agreement.
(vi) Opinion of counsel of Seller in form and
substance reasonably acceptable to counsel for Purchaser.
(b) Purchaser shall, in addition to other documents
as may be reasonably required by counsel to the parties hereunder,
execute and deliver or provide for the execution and delivery to
Seller at the Closing the following:
(i) a certificate of an officer of each of
Purchaser, TESC and TASA certifying that all representations and
warranties of Purchaser, TESC and TASA in this Agreement are true
and correct as of the Closing as though such representations and
warranties were made as of such date.
(ii) Note.
(iii) an officers certificate of each of TESC
and Purchaser certified by an officer of each as to: true and
correct copies of (A) all corporate action of Purchaser and TESC
authorizing and approving this Agreement and the performance of the
transactions contemplated hereby; (B) certificate of incorporation
and by-laws and all amendments thereto; (C) signatures of duly
elected and acting officers authorized to execute documents
hereunder.
(iv) Guaranty.
(v) Any and all other documents and instruments as
shall be required to have been performed by or complied with on or
prior to or at the Closing by either TESC or Purchaser pursuant to
the terms of this Agreement.
(vi) Opinion of counsel of Purchaser in form and
substance reasonably acceptable to counsel for Seller.
17. BROKER. Each of Purchaser, Seller and TESC represent
-------
each to the other that there was no broker who rendered services to
it in connection with this transaction and each agrees to hold the
other parties harmless from any and all claims arising by reason of
any such services.
18. INDEMNIFICATION.
----------------
Purchaser's Indemnity. Purchaser agrees to indemnify
----------------------
and save Seller harmless from and against all expenses, taxes,
claims, losses, damages, fines, liabilities, obligations or
penalties incurred or suffered by Seller, including, without
limitation, reasonable attorneys' fees incurred in defending or
resisting any claims, actions or proceedings or in enforcing this
indemnity that Seller may suffer, sustain, incur or become subject
to, whether directly or indirectly, arising out of, based upon,
resulting from or in connection with (a) any breach, inaccuracy,
failure to perform or violation of any representations, warranties,
obligations or covenants of Purchaser contained, disclosed or set
forth in this Agreement (including information contained on any
Schedule or Exhibit annexed hereto);or (b) the failure of
Purchaser to pay its share of any New York State sales or transfer
taxes due in connection with the sale of any part of the assets.
Seller's Indemnity. Seller agrees to indemnify and save
-------------------
Purchaser harmless from and against all expenses, taxes, claims,
losses, damages, fines, liabilities, obligations or penalties
incurred or suffered by Purchaser, including, without limitation,
reasonable attorneys' fees incurred in defending or resisting any
claims, actions or proceedings or in enforcing this indemnity that
Purchaser may suffer, sustain, incur, or become subject to, whether
directly or indirectly, arising out of, based upon, resulting from
or in connection with (a) any breach, inaccuracy, failure to
perform or violation of any representations, warranties,
obligations or covenants of Seller contained, disclosed or set
forth in this Agreement (including information contained on any
Schedule or Exhibit annexed hereto); or (b) the failure of Seller
to pay its share of any New York State sales or transfer taxes due
in connection with the sale of any part of the assets.
Procedure and Participation. (a) If there shall arise any
----------------------------
matter covered by an obligation by either party to indemnify and
hold harmless, the party seeking indemnification shall give written
notice thereof to the other party promptly (in no event more than
45 days or such shorter period as shall enable the party from whom
indemnification is sought to timely answer any process) after its
learns of the existence of such matter, but delay in giving such
notice shall not abrogate or diminish the indemnifying party's
obligation to indemnify if such failure does not prejudice the
indem nifying party's ability to defend such claim. A party shall
not be entitled to indemnification if it fails to give notice of a
request for indemnification within 120 days after it learns of the
existence of a matter with respect to which it is entitled to
indemnification.
(b) A failure to respond to a claim for indemnification
within 30 days shall be deemed an acquiescence to the claim for
indemnification.
(c) If a request for indemnification is not based upon an
action or proceeding brought or initiated by a third party against
the party seeking indemnification, no action or procreeding may be
commenced for indemnification until 30 days after the written
notice required to be given has been given.
(d) If the claim for indemnification arises out of a claim
or action by a third party against the party seeking
indemnification, the party from whom indemnification is sought
shall have the opportunity to participate in action appropriate to
the matter, including, but not limited to the right to select
counsel reasonably acceptable to the indemnified party and assume
the defense of any claims or demands. Unless the party from whom
indemnification is sought elects to assume the defense of such
claim or action, the indemnified party shall have the right, but
not the obligation, to undertake the defense of such claim or
action and such defense shall be conducted by counsel reasonably
satisfactory to the indemnified party against whom such claim was
asserted or who may be a defendant in such action. If a claim or
action is resisted, denied or defended the parties will fully
cooperate in any such action making available to each other such
books or records as are reasonably informed of the progress of such
action If a party from whom indemnification is sought does not
deliver notice to the party requesting indemnification that it
intends to defend against or resist such claim or action within 15
days of the notice or claim from the party seeking indemnification
(or such shorter time specified in the notice as the circumstances
of the matter may indicate) the party seeking indemnification shall
be free to dispose of the matter in any way which it deems in its
best interest and the party from whom indemnification is sought
shall be deemed to have acquiesced to the claim for
indemnification. At such point if the Purchaser is the party
entitled to indemnification, Purchaser shall be entitled to offset
the amount of any indemnification (including reasonably attorneys
fees)against any payments due to Seller under this Agreement or any
document executed in connection therewith, including, but not
limited to the Note.
(e) This indemnity shall survive the Closing, but shall
expire upon the satisfaction in full of all of Purchaser's
obligations under the Note, and in no event shall the amount of
indemnity of TASA, TESC and Purchaser in the aggregate, or Seller,
exceed in the aggregate, the Purchase Price.
19. FURTHER ASSURANCES. Each of the parties hereto agrees
-------------------
that each will, whenever and as often as it shall be reasonably
requested to do so by any other party hereto, execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered,
any and all further instruments as may be necessary or expedient in
order to consummate the transactions provided for in, or
contemplated by, this Agreement and do any and all further acts and
things as may be necessary or expedient in order to carry out the
purpose and intent of this Agreement and of the documents and
instruments delivered in connection therewith. This obligation
shall survive closing and shall remain in force and effect until
the obligations of the parties to each other have been fully
satisfied.
20. POST-CLOSING ADJUSTMENTS. Purchaser acknowledges
-------------------------
that the purchase of Seller's business was initially intended to
be effected through a purchase of Seller's stock and that the
structure of this transaction was modified at an asset purchase to
accommodate Purchaser. Accordingly, Purchaser covenants that in the
event Seller or Seller's shareholders (x) incur any federal or
state tax cost, including penalties and interest thereon, if any,
in excess of such costs which would have been incurred if this
purchase had been structured as a stock purchase rather than an
asset purchase, or (y) receive a lesser amount due to such federal
or state tax costs, that they would have received had the sale been
so structured, Purchaser shall compensate Seller in any amount
equal to such difference, such amount to be paid within ninety (90)
days of written notification by Seller of the amount due with
evidence of such tax increase certified by the certified public
accountant of Seller. Seller agrees to take such actions as may be
necessary to liquidate within the year of sale i.e. not later than
December 31, 1998. Seller represents and warrants to Purchase that
Seller is an "S" corporation since its incorporation in 1985.
21. MISCELLANEOUS.
--------------
(a) Benefits. All of the terms and provisions of
---------
this Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and assigns. Each
party to this Agreement expressly agrees that the provisions of
this Agreement (including without limitation the representations,
warranties and agreements of Seller) are also intended to be for
the benefit of and enforceable by Cahill, Warnock Strategic
Partners Fund, L.P., a Delaware limited partnership, and Strategic
Associates, L.P., a Delaware limited partnership.
(b) Entire Agreement. This Agreement and the
-----------------
Exhibits hereto contain the entire agreement among the parties with
respect to the transactions contemplated herein; and no party shall
be bound by nor shall be deemed to have made any representations,
warranties or covenants except those contained herein. This
Agreement cannot be modified, changed, discharged or terminated
except by an instrument in writing, signed by the party against
whom the enforcement or any modification, change, discharge or
termination is sought.
(c) Captions. The captions of the paragraphs and
---------
subparagraphs of this Agreement are for convenience and reference
only, and are not to be considered in construing this Agreement.
(d) Survival. All covenants, representations and
---------
warranties contained in this Agreement, and in the documents and
instruments executed and delivered in connection therewith, and any
certificates furnished under any provision of this Agreement and
the indemnity provisions of Paragraph "16" shall survive the
execution and delivery of this Agreement and the transactions
contemplated by this Agreement.
(e) Notices. Any notices, request, instrument or
--------
other document to be given hereunder shall be in writing and,
except as otherwise provided for herein, shall be delivered
personally or sent by certified mail, return receipt requested, as
follows:
(i) If to Purchaser: MESI Acquisition Corp.
c/o TASA Educational Services Corporation
4 Hardscrabble Heights
Brewster, NY 10509
Att: Andrew L. Simon, President
Fax: (914) 277-8115
(ii) If to TESC: TASA Educational Services Corporation
4 Hardscrabble Heights
Brewster, NY 10509
Att: Andrew L. Simon, President
Fax: (914) 277-8115
with copy to Maureen Crush, Esq., Rider, Weiner, Frankel &
Calhelha, P.C., 655 Little Britain Road, New Windsor, New York
12553, Fax: (914) 562-9126 and
(iii) If to Seller: Mildred Elley School, Inc.
820 North Loudon Road, Suite 5120
Latham, NY 12110
Att: Faith Takes, President
Fax: (518) 786-0898
with copy to Patrick K. Greene, Esq., Crane, Greene & Parente (518) 432-0086,
90 State Street, Albany, New York 12207 Fax: (518) 432-0086, or to
such other address or addresses as any party may hereafter designate in
writing to the other. Such notices may be sent by facsimile, U.S.
mail, overnight courier or hand delivery. If sent by facsimile,
such notice shall be deemed delivered when sent with evidence of
effective transmission; if mailed, three (3) business days after
deposit in the United States mail, properly addressed with postage
affixed and sent certified mail, return receipt requested; if by
overnight courier, upon delivery with evidence of same; or
personally, upon by handing a copy of same to the person to be so
notified.
(f) Severability. In case any one or more of the
-------------
provisions or parts of a provision contained in this Agreement
shall for any reason be held to be invalid, illegal or
unenforceable in any respect in any jurisdiction, such invalidity,
illegality or unenforceability shall not effect any other provision
or part of a provision of this Agreement.
(g) Governing Law. This Agreement shall be governed
--------------
by and construed in accordance with the laws of the State of New
York as applicable to contracts entered into and to be performed
wholly within the State. Any action arising out of or related to
this Agreement shall be brought in the state or federal courts
located in Albany county, New York and the parties hereby submit to
the exclusive jurisdiction of and to the laying of venue in such
courts.
(h) Expenses. Each of the parties shall pay its
---------
respective legal, accounting and other fees in connection with this
Agreement, except as otherwise required pursuant to the Letter of
Intent.
(i) Assignment. This Agreement may not be assigned
-----------
by any party hereto without the consent of the other parties.
(j) Waiver. No failure on the part of any party to
-------
exercise, and no delay in exercising, any right hereunder or under
any Exhibit hereto shall operate as a waiver thereof, nor shall any
single or partial exercise of any right preclude any other or
future exercise thereof or the exercise of any other right.
(k) Confidentiality. The terms and provisions of
----------------
that certain Confidentiality and Non-disclosure Agreement made on
the25th day of August, 1998, by and among Touchstone Applied
Science Associates, Inc., a Delaware corporation, ("TASA"), TESC
and Seller, are incorporated herein by reference and shall survive
the execution and delivery of this Agreement and the closing of the
transactions contemplated herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the day and year first above written.
MESI ACQUISITION CORP.
By:/s/ANDREW L. SIMON
---------------------------------------
Name: Andrew L. Simon
Title: President
MILDRED ELLEY SCHOOL, INC.
By:/s/FAITH A. TAKES
---------------------------------------
Name: Faith A. Takes
Title: President
(More signatures on additional page)
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By:/s/ANDREW L. SIMON
--------------------------------------
Name: Andrew L. Simon
Title: President
TASA EDUCATIONAL SERVICES CORPORATION
By:/s/ANDREW L. SIMON
--------------------------------------
Name: Andrew L. Simon
Title: President
<PAGE>
SCHEDULE 2(a)
ASSUMED LIABILITIES
-------------------
Those liabilities set forth on the September 30, 1998
Financial Statements of Seller as provided to Purchaser and any and
all transactions in the ordinary course of business since such
date.
<PAGE>
SCHEDULE 7(b)
LIENS AND ENCUMBRANCES
----------------------
CAPITAL BANK & TRUST COMPANY: First security interest in all
machinery, equipment, fixtures and furniture now owned, and
hereafter acquired. First security interest in all inventories and
accounts receivable now owned, held and hereafter acquired. The SBA
Loan is also personally guaranteed by Faith Ann Takes.
TFC CREDIT CORPORATION: Security interest in all instruments
negotiable instruments, accounts, accounts receivable, contracts,
executory contracts, executory contract rights, documents, chattel
paper, promissory notes and general intangibles (and all proceeds
thereof and all proceeds of proceeds) now owned or hereafter
acquired by the debtor and pledged as collateral to secured party
or purchased by secured party. This loan is also personally
guaranteed by Faith Ann Takes and Joseph Moltzen.
BALLSTON SPA BANK: Security interest in all machinery,
equipment, fixtures and furniture now owned, and hereafter
acquired. Security interest in all inventories and accounts
receivable now owned, held and hereafter acquired. This loan is
also personally guaranteed by Faith Ann Takes.
NEW YORK JOB AUTHORITY (ALTECH): Second lien on all now owned and
hereafter acquired and arising, wherever located:
machinery, equipment, furniture, fixtures, accounts receivable,
inventory, goods, instruments, contract rights, general
intangibles, chattel paper and choses in action pursuant to a
security agreement.
<PAGE>
SCHEDULE 7(c)
MATERIAL CONTRACTS
------------------
Conley & Associates. Mildred Elley previously carried on its
--------------------
books approximately $26,000 representing an obligation to Conley &
Associates, Ltd. Conley & Associates acted as Mildred Elley's
tenant's broker in securing the School's previous location on
Computer Drive South in the Town of Colonie. The owner of Conley &
Associates, Mr. Tim Conley, acted as the principal broker in this
transaction. In addition to receiving a broker's fee for
percentages of concessions he alleged he had obtained in connection
with the fit-up for the property. When Mildred Elley sought a new
location approximately one year ago, he began working with the
school, again in the capacity of a tenant's broker. Crane, Greene
& Parente represented Mildred Elley at the time and subsequently
became aware of certain facts regarding Mr. Conley's actions in
connection with the securing of the original lease on Computer
Drive South, as well as certain actions in connection with his
actions as a tenant's broker while attempting to secure new space
in 1997. These facts resulted in Crane, Greene & Parente and
Mildred Elley concluding that Mr. Conley and Conley & Associates
had materially breached their contract with Mildred Elley. Upon the
advice of counsel, the relationship with Conley was promptly
terminated. Crane, Greene & Parente advised Mildred Elley to cease
any further payments to Conley & Associates. Mr. Conley was advised
that Mildred Elley was considering commencing an action against
Conley & Associates and him individually. Shortly thereafter,
Mildred Elley received a letter from Mr. Conley confirming that no
$26,000 obligation from Mildred Elley to his firm existed. It is
Crane, Greene & Parente's opinion that if Mr. Conley or Conley &
Associates, Ltd., were to seek to collect the $26,000 obligation,
a defense for Mildred Elley's non-payment would exist. Further,
counter-claims against Mr. Conley and Conley & Associates, Ltd.
would be asserted. If Mr. Conley and Conley & Associates, Ltd.
attempted to recover any amount, the likelihood of success in
achieving recovery would, in the opinion of Crane, Greene &
Parente, be highly unlikely.
12/18/95 Paul J. Benedetti Balloon payment commercial purchase
money Promissory Note in the principal amount of $210,000
12/31/97 Capital Bank & Trust Company Note in the principal
amount of $100,000 to MES
12/31/97 Capital Bank & Trust Company Note in the principal
amount of $200,000 to MES
4/13/98 Capital Bank & Trust Company Note in the principal
amount of $200,000 to MES
4/13/98 Capital Bank & Trust Company security agreement with MES
7/16/98 MES approval of term loan in the principal amount of
$150,000 from NY Job Development Authority d/b/a Empire State
Development Authority
7/28/98 Ballston Spa National Bank Promissory Note in the
principal amount of $150,014 to MES
<PAGE>
SCHEDULE 7(e)
WARRANTS, SUBSCRIPTIONS, STOCK RIGHTS
-------------------------------------
None.
<PAGE>
SCHEDULE 7(h)
REAL PROPERTY INTERESTS, LEASES
-------------------------------
Pittsfield Lease.
- ----------------
6/7/95 lease between Schupp-Zorn Nominee Trust and MES for 7
Whipple Street, Pittsfield, MA.
7/18/97 Addendum to Lease between Schupp-Zorn Realty and MES
for 505 East Street, Pittsfield, MA
South Pearl Lease.
- -----------------
7/15/98 Lease between Myron Serling and MES for 1st Floor, 52
South Pearl Street, Albany, NY.
Latham Mall Lease.
- -----------------
6/5/98 Lease between Plaza at Latham, LLC and MES for upper
level of mall known as Latham Circle Mall, Latham, NY.
7/1/97 Lease between Don Greene Enterprises, Inc. and MES together
with extension for 26E Congress Plaza, Saratoga Springs, NY
12/18/95 Lease between Paul J. Benedetti and MES for 227-229
Quail Street, Albany, NY
<PAGE>
SCHEDULE 7(i)
INSURANCE
---------
<PAGE>
SCHEDULE 7(k)
PATENTS, TRADEMARKS, SERVICEMARKS
---------------------------------
Mildred Elley or Mildred Elley School, Inc. or any variance of the
above mentioned name.
<PAGE>
SCHEDULE 7(l)
FURNITURE, FIXTURES AND EQUIPMENT
---------------------------------
All furniture, fixtures and equipment used in the administrative
offices as well as in the school, except for any personal items of
each individual employee.
Line item schedule of furniture, fixtures and equipment
intentionally omitted.
Line item Schedule Totals:
Book Depreciation
-----------------
Book Cost Month YTD LTD Net Book Value
--------- ----- --- --- --------------
327,623 865 9,740 49,969 277,654
GRAND TOTALS: 1,114,015 7,585 94,252 707,846 406,169
LESS
DISPOSITIONS: 0 0 0 0 0
NET TOTALS: 1,114,015 7,585 94,252 707,846 406,169
<PAGE>
SCHEDULE 7(m)
TAXES
-----
1) 12/31/97 New York State Franchise Tax due in the amount of $2,577.00.
(Due to balance due with the 1997 NYS Franchise Tax Return not
submitted. The return was submitted 11/9/98)
2) 1996 New York State Unemployment Tax due in the amount of $11,885.99.
(Due to 1996 Amended return not filed per NYS DOL. The matter
is being researched for determination of any liability owed.)
<PAGE>
SCHEDULE 7(p)
CONSENTS
--------
1. Schupp-Zorn Nominee Trust
2. TFC Credit Corporation
3. South Pearl Street
4. Saratoga Springs, NY with Don Greene Enterprises, Inc.
<PAGE>
SCHEDULE 7(s)
PENSION AND OTHER BENEFIT PLANS
-------------------------------
Mildred Elley School has a noncontributory 401(k) plan in full
force. We attest that we are current on our plan and that all the
appropriate deposits have been made.
<PAGE>
SCHEDULE 7(w)
ACCREDITATIONS
--------------
<PAGE>
SCHEDULE 7(x)
CERTIFICATION AND ELIGIBILITY STATUS
------------------------------------
Mildred Elley, Albany main and Pittsfield branch (OPE ID
No. 02219500), are certified by the United States Department of
Education. A copy of the certification is attached to this
schedule.
The date of certification is October 9, 1998; the period
of certification is until June 30, 2000.
The type of certification is provisional. The first date
of certification was July, 1985.
The seller is unaware of any facts, circumstances or
omissions concerning the schools which might results in a finding
of material non-compliance.
The attached Eligibility and Certification Report (ECAR)
demonstrates that the programs offered by the schools are eligible
programs in accordance with 34 C.F.R. Section 668.8.
The attached certified financial audit demonstrates that
the school satisfies the standards of financial responsibility and
administrative capability (page 9) and that the school receives no
greater than 85% of its revenues from programs authorized by Title
IV of the Higher Education Act (page 9).
The final Cohort Default Rates published by the U.S.
Department of Education are as follows:
1993 25.5% 1995 30.4%
1994 27.5% 1996 15.9%
The seller further represents that the school disburses
Federal Pell Grant payments in accordance with procedures that
comply with 34 C.F.R. Section 690.63.
Also, that the U.S. Department of Education program
reviews and compliance audits conducted at each of the schools
since 1992 have not materially affected the seller or its schools
nor has any program review of compliance audit resulted in the
imposition of any material liability, financial or otherwise.
There are no program reviews or audits which are
unresolved or pending.
The school does not represent that it has an approved
Default Reduction Plan as it is no longer in the loan program, and
has not been in the loan program since 1996.
<PAGE>
SCHEDULE 8(h)
LIABILITIES OR OBLIGATIONS
--------------------------
SECURITIES PURCHASE AGREEMENT
Dated as of September 4, 1998
by and among
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.,
as the Company
AND
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.,
and
STRATEGIC ASSOCIATES, L.P.
as the Purchasers
<PAGE>
SCHEDULE 8(i)
MATERIAL ADVERSE CHANGES
SECURITIES PURCHASE AGREEMENT
Dated as of September 4, 1998
by and among
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.,
as the Company
AND
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.,
and
STRATEGIC ASSOCIATES, L.P.
as the Purchasers
<PAGE>
LIST OF EXHIBITS
EXHIBITS HAVE BEEN INTENTIONALLY OMITTED
SEE CLOSING LIST FOR EXECUTED VERSIONS OF THE DOCUMENTS
LISTED BELOW AS EXHIBITS
A Note
B Employment Agreement - Faith A. Takes
C Employment Agreement - Joseph Moltzen
D Employment Agreement - Lynne Francey
E Employment Agreement - Michelle Murphy
F TASA Guaranty
Exhibit 10.2
------------
PROMISSORY NOTE
---------------
$1,000,000.00 Newburgh, New York
As of November 2, 1998
FOR VALUE RECEIVED, the undersigned, MESI ACQUISITION
CORP., a New York corporation with its principal office at c/o TASA
Educational Services Corporation, 4 Hardscrabble Heights, Brewster,
New York 10509 ("Maker") promises to pay to the order of Mildred
Elley School, Inc. at 800 New Loudon Road, Suite 5120, Latham, New
York 12110 ("Holder") the principal amount of ONE MILLION AND
00/100 ($1,000,000.00) DOLLARS with interest at the Interest Rate
(as hereinafter defined) payable quarterly on the unpaid principal
balance of such amount from the date of this Note until the
Maturity Date. This Note evidences a debt (the "Debt") owed to
Holder by Maker, in the principal amount hereof, pursuant to the
terms of that certain Asset Purchase Agreement between Maker,
Holder and TASA Educational Services Corporation ("TESC") dated as
of the date hereof (the "Asset Purchase Agreement"). All terms
used herein and not otherwise defined herein are used as defined in
the Asset Purchase Agreement.
ARTICLE I
Definitions
-----------
(a) "Interest Rate" shall mean the rate of interest to
be paid by Maker on any outstanding principal due under this Note
and shall be determined in accordance with Article II hereof.
(b) "Maturity Date" shall mean the earlier of the fifth
(5th) year anniversary of the date hereof, and the date the full
principal balance of the Note plus interest thereon becomes due and
payable as a result of acceleration or otherwise.
(c) "Obligor" shall mean Maker and all other persons
liable, whether solely, jointly or severally, absolutely or
contingently on this Note, including all endorsers, sureties and
guarantors.
(d) "Other Documents" shall mean any document evidencing
or securing the Debt, or any other document executed and delivered
in connection with the Debt, including but not limited to the Asset
Purchase Agreement.
ARTICLE II
Computation of Interest and Determination of Interest Rate
----------------------------------------------------------
(a) Computation of Interest. Interest on the
------------------------
outstanding principal balance of this Note shall be computed on the
basis of a 360 day year for the actual number of days elapsed.
Interest shall accrue until the date of receipt of payment by
Holder. Interest shall be paid quarterly in arrears.
(b) Determination of Interest Rate. The Interest Rate
-------------------------------
shall equal Eight and One-Half (8.5%) percent per annum.
ARTICLE III
Payment of Principal and Interest
---------------------------------
Periodic Payments. Payments shall be made to the order
------------------
of "[Newco]" at the address set forth above, or at such other place
as Holder may from time to time designate in writing. Payments of
principal and interest, subject to the provisions for prepayment
and described below, shall be payable quarterly, commencing on
February 1, 1999 and continuing on the last day of each succeeding
quarter thereafter to and including January 1, 2004 in equal
quarterly installments. On the Maturity Date the balance of
principal outstanding plus accrued interest and any Late Payment
Charges as hereinafter defined, if any, shall be due and payable.
ARTICLE IV
General Conditions
------------------
(a) Application of Payments Received. Except as
---------------------------------
otherwise provided in this Note, all payments received by Holder on
this Note shall be applied by Holder as follows:
First, to any unpaid Late Payment Charges; and
Second, to accrued and unpaid interest then due and
owing; and
Third, to the reduction of principal of this Note.
(b) Late Payment Charges. If Maker fails to pay any
---------------------
amount of principal and/or interest on the Note for ten (10) days
after such payment becomes due, whether by acceleration or
otherwise, Holder may, at its option, impose a late payment charge
(the "Late Payment Charge") of five percent (5%) of the payment
due. Until any and all Late Payment Charges are paid in full, the
amount thereof shall be added to the indebtedness herein. The Late
Payment Charge is not a penalty and is deemed to be liquidated
damages for the purposes of compensating Holder for computing the
actual amount of damages incurred by Holder as a result of the late
payment by Maker.
(c) Excess Cash Flow and Prepayment. The Debt may be
--------------------------------
prepaid at any time and from time to time, without penalty. Maker
agrees that it shall make prepayments of principal to the extent of
"Quarterly Excess Cash from Operations" on a quarterly basis in
addition to the note payments otherwise due hereunder. "Quarterly
Excess Cash from Operations" shall mean Net Income after Taxes,
plus Acquisition Interest and Depreciation and Amortization of
- ----
Intangibles, less Return on Investment at 25% = Excess Cash Flow,
----
times 25% = Quarterly Excess Cash from Operations. Quarterly
- -----
Excess Cash from Operations shall be calculated by the certified
public accountants regularly servicing the Maker.
(d) Events of Default. Each of the following shall
------------------
constitute an Event of Default under this Note:
(i) Maker shall fail to pay when due any
amount of principal, interest or fees payable by Maker under this
Note; or
(ii) Any Obligor shall fail to perform or
observe any other term, condition, obligation or other covenant on
its part to be performed or observed under this Note or any Other
Document for thirty (30) days after Holder has given written notice
to Maker; or
(iii) Any Obligor shall (A) commence any
voluntary case or other proceeding seeking liquidation,
reorganization or other relief with respect to a voluntary case
under any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, or (B) consent to the entry of any
order for relief in an involuntary case under any such law or to
the appointment of or the taking possession by a receiver,
liquidator, assignee, custodian (or other similar official) of
their respective property or of any substantial part thereof, or
(C) make any general assignment for the benefits of creditors; or
(iv) If any involuntary case or other
proceeding shall, at any time be commenced against any Obligor
seeking liquidation, reorganization or other relief under any
applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or seeking the appointment of or the taking
possession by a receiver, liquidator, assignee (or other similar
official) of its respective property, or at any time, any Obligor
shall suffer or permit, while insolvent any creditor or obtain any
lien upon any of its property through legal proceedings or
distraint, in such case, proceedings or writ is not withdrawn,
dismissed, vacated or fully bonded within sixty (60) days;
(v) An "Event of Default", as said term
is defined in any other document executed and delivered in
connection herewith, shall have occurred and continue unremedied
beyond the expiration of any applicable cure;
(vi) The dissolution of any Obligor, or merger,
consolidation or reorganization of Maker, without the prior written
consent of Holder, which consent shall not be unreasonably
withheld;
then, and in any such event, Holder may, at its option, declare the
entire unpaid balance of this Note together with interest accrued
thereon and any other sums due hereunder, to be immediately due and
payable and Holder may proceed to exercise any rights or remedies
that it may have under this Note and any other legal or equitable
remedy available to Holder.
(e) Costs and Expenses on Default. After default, in
------------------------------
addition to principal, interest and any Late Payment Charge, Holder
shall be entitled to costs of collection, including, but not
limited to, reasonable attorneys' fees.
(f) No Waiver. No failure on the part of Holder or
----------
other holder hereof to exercise any right or remedy hereunder,
whether before or after the happening of a default, shall
constitute a waiver thereof and no waiver of any past default shall
constitute waiver of any future default or any defaults. This Note
may not be changed orally but only by an agreement in writing
signed by the party against whom such agreement is sought to be
enforced.
(g) Waiver by Maker. Maker hereby waives presentment,
----------------
protest, demand, notice of dishonor and of nonpayment, against the
enforcement and collection of the obligations evidenced by this
Note.
(h) Governing Law. This Note shall be governed by and
--------------
construed in accordance with the laws of the State of New York as
applicable to contracts entered into and to be performed wholly
within the State. Any action arising out of or related to this
Agreement shall be brought in the state or federal courts located
in Albany County, New York and the parties hereby submit to the
exclusive jurisdiction of and to the laying of venue in such
courts.
(i) Notices. Any notices required or permitted to be
--------
given hereunder shall be given by registered or certified mail,
postage prepaid, return receipt requested to the addresses set
forth below or by facsimile to:
If to Maker: MESI Acquisition Corp.
c/o TASA Educational Services Corporation
4 Hardscrabble Heights
Brewster, NY 10509
Att: Andrew L. Simon
Fax: (914) 277-8115
with a copy to: Rider, Weiner, Frankel & Calhelha, P.C.
655 Little Britain Road
New Windsor, NY 12553
Att: David L. Rider, Esq.
Fax: (914) 562-9126
If to Holder: Mildred Elley School, Inc.
800 New Loudon Road, Suite 5120
Latham, NY 12110
Att: Faith Takes, President
Fax: (518) 786-0898
with a copy to: Crane, Greene & Parente
90 State Street
Albany, NY 12207
Att: Patrick K. Greene, Esq.
Fax: (518) 432-0086
or such other addresses or facsimile numbers as the parties may
designate in writing to the other party. All notices shall be
deemed given three (3) business days after deposit in the U.S.
mails, or in the case of facsimile notice, when sent with evidence
of successful transmission.
(j) This Note may be assigned or transferred by the
Holder at any time, and the transferee(s) shall thereupon become
vested with all the rights and powers herein given to the Holder,
with respect thereto.
IN WITNESS WHEREOF, the undersigned, by its duly
appointed and acting officer, has executed this instrument as of
the date first above written.
MESI ACQUISITION CORP.
By:/s/ANDREW L. SIMON
-------------------------------
Name: Andrew L. Simon
Title: President
Exhibit 10.3
------------
GUARANTY
Guaranty Agreement made as of the 2nd day of November,
1998, by TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC., a Delaware
corporation with a principal place of business at 4 Hardscrabble
Heights, Brewster, New York 10509 (the "Guarantor"), in favor of
MILDRED ELLEY SCHOOL, INC., with an address at 800 New Loudon
Road, Latham, New York 12210 (the "Seller").
W I T N E S S E T H:
WHEREAS, the Seller is a party to an Asset Purchase
Agreement dated as of November 2, 1998, relating to the sale of
substantially all of the assets of Seller to MESI ACQUISITION
CORP. ("Purchaser") (the "Asset Purchase Agreement"); and
WHEREAS, it is a condition to the Asset Purchase
Agreement that Guarantor shall have executed and delivered to
Seller this Guaranty Agreement.
NOW, THEREFORE, in consideration of the premises and
the agreements herein and in order to induce Seller to execute
the Asset Purchase Agreement, Guarantor, hereby agrees with
Seller as follows:
Section 1. Incorporation of Agreements and
---------- -------------------------------
Definitions. The premises set forth above are incorporated into
- ------------
this Guaranty Agreement by this reference thereto and are made a
part hereof. All terms used in this Guaranty Agreement not
otherwise defined herein are used as defined in the Asset
Purchase Agreement.
Section 2. Guaranty. Guarantor, hereby
---------- ---------
irrevocably, absolutely and unconditionally, guarantees the due
and punctual payment of all liabilities and obligations owing to
Seller from the Purchaser, pursuant to the Asset Purchase
Agreement and any document executed in connection therewith and
herewith (collectively, the "Other Documents"), (all such
obligations being hereinafter referred to as the "Secured
Obligations").
Section 3. Guarantor's Obligations Unconditional;
---------- --------------------------------------
Subordination. The liability of the Guarantor hereunder shall be
- --------------
absolute and unconditional. This Agreement is a continuing
guaranty and shall remain in full force and effect until the
satisfaction in full of the Secured Obligations and the payment
of the other expenses to be paid by Guarantor pursuant hereto;
and shall continue to be effective or shall be reinstated, as the
case may be, if at any time any payment of any of the Secured
Obligations is rescinded or must otherwise be returned by Seller
upon the insolvency, bankruptcy or reorganization of the
Purchaser or otherwise, all as though such payments have not been
made.
Section 4. Waivers. Except as specifically
---------- --------
required by this Agreement, Guarantor hereby waives notice of
acceptance, presentment and demand for payment and any
requirement that Seller exhaust any right to take any action
against the Purchaser any other person including any other
guarantor.
Section 5. Representations and Warranties.
---------- -------------------------------
Guarantor hereby represents and warrants as follows:
(a) Guarantor is a corporation duly
organized and existing and in good standing under the laws of the
State of Delaware and is duly qualified to transact business in
the State of New York. Guarantor has full power and authority to
carry out and perform undertakings and obligations as provided
herein. The execution and delivery by Guarantor of this Guaranty
and the consummation of the transactions contemplated in this
Guaranty have been duly authorized by all proper or requisite
corporate proceedings and will not conflict with or breach any
provision of any agreement to which Guarantor is a party or by
which it may be bound, the Articles of Incorporation or By-Laws
of Guarantor.
(b) The execution, delivery and performance
by Guarantor of this Guaranty Agreement do not and will not
contravene any contractual restriction or, any law binding on or
effecting Guarantor or any of its properties.
(c) No consent or approval is required for
the due execution, delivery and
performance by Guarantor of this Guaranty Agreement.
(d) This Guaranty Agreement is a legal,
valid and binding obligation of Guarantor, enforceable against
Guarantor in accordance with its terms, except as may be limited
by (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect affecting the
enforcement of creditor's rights generally and (ii) general
principals of equity (regardless of whether considered in a
proceeding in equity or in law).
(e) There is no action, suit or proceeding
pending, or to the best of Guarantor's knowledge, threatened
against or otherwise affecting Guarantor or any guarantor before
any court or any government body or any arbitrator which may
materially adversely affect Guarantor's or any guarantor's
ability to perform its obligations hereunder.
(f) All representations and warranties
herein shall survive the execution and
delivery by Guarantor of this Guaranty Agreement and any Other
Documents in connection with the Asset Purchase Agreement to
which it is a party and the closing of the transaction described
herein or therein or related thereto until all Secured
Obligations are paid in full.
Section 6. Covenants. So long as any of the
---------- ----------
Secured Obligations shall remain outstanding, Guarantor agrees to
promptly to pay and perform all of Guarantor's obligations
hereunder.
Section 7. Expenses. Guarantor will pay to Seller
---------- ---------
the amount of any and all reasonable costs and expenses,
including the reasonable fees and disbursements of his counsel,
which Seller incurs in connection with the enforcement of this
Guaranty Agreement.
Section 8. Modifications, Waivers, Extensions and
---------- --------------------------------------
Releases. No modification or amendment of or waiver with respect
- ---------
to any provision of this Guaranty Agreement, shall in any event
be effective unless it shall be in writing and signed by the
parties hereto.
Section 9. Entire Agreement. This Guaranty
---------- -----------------
Agreement and documents executed in connection therewith
(together with the Asset Purchase Agreement and each of the Other
Documents) contains the entire agreement and understanding
between the Purchaser, Seller and Guarantor and supersedes all
prior agreements and understanding related to the subject matter
hereof.
Section 10. Remedies Cumulative. Each and every
----------- --------------------
right granted to Seller or allowed by law or equity, shall be
cumulative and may be exercised from time to time. No failure on
part of Seller to exercise any right shall operate as a waiver
thereof.
Section 11. Severability. Any provision of this
----------- -------------
Agreement that is prohibited or unenforceable in any jurisdiction
shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the
remaining provisions hereof.
Section 12. Notices. All notices and other
----------- --------
communications shall be in writing, sent by facsimile or
certified mail, return receipt requested, postage prepaid,
addressed as follows (or to such other address as the recipient
shall have previously notified the sender of in writing):
If to Guarantor: Touchstone Applied Science Associates, Inc.
4 Hardscrabble Heights
Brewster, NY 10509
Att: Mr. Andrew L. Simon
Fax: (914) 277-8115
with a copy to: Rider, Weiner, Frankel & Calhelha, P.C.
655 Little Britain Road
Newburgh, NY 12550
Att: Maureen Crush, Esq.
Fax: (914) 562-9126
If to Seller: Mildred Elley School, Inc.
800 New Loudon Road
Latham, New York 12210
Att: Faith A. Takes
Fax: (518) 786-0898
with a copy to: Crane, Greene & Parente
90 State Street
Albany, New York 12207
Att: Patrick K. Greene, Esq.
Fax: (518) 432-0086
Any notice or communication hereunder shall be deemed to have
been given 3 business days after the day on which it is deposited
in the United States mails, or if sent by facsimile when sent
with evidence of successful transmission.
Section 13. Governing Law. This Agreement shall be
----------- --------------
governed by and construed in accordance with the laws of the
State of New York as applicable to contracts entered into and to
be performed wholly within the State. Any action arising out of
or related to this Agreement shall be brought in the state or
federal courts located in Albany County, New York and the parties
hereby submit to the exclusive jurisdiction of and to the laying
of venue in such courts.
Section 14. Consent to Jurisdiction. Guarantor
----------- ------------------------
irrevocably accepts the jurisdiction of the federal or state
courts of competent jurisdiction located in the County of Albany
and any related appellate court.
Section 15. Waiver of Jury Trial. EXCEPT AS PROHIBITED
----------- ---------------------
BY STATUTE, GUARANTOR SHALL AND DOES HEREBY IRREVOCABLY WAIVE
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT
BY SELLER AGAINST ANY GUARANTOR ON ANY MATTER WHATSOEVER ARISING
OUT OF OR IN ANY WAY CONNECTED WITH THIS GUARANTY AGREEMENT, OR
THE RELATIONSHIP CREATED HEREBY AND WITH RESPECT TO ANY MATTER
FOR WHICH A JURY TRIAL CANNOT BE WAIVED, GUARANTOR AGREES NOT TO
ASSERT ANY SUCH CLAIM AS A COUNTERCLAIM IN OR MOVE TO CONSOLIDATE
SAME WITH ANY ACTION OR PROCEEDING IN WHICH A JURY TRIAL IS
WAIVED.
Section 16. Binding Effect. This Agreement shall be
----------- ---------------
binding upon and inure to the benefit of the parties hereto,
their successors and assigns.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty
Agreement to be duly executed to be effective as of the date
first above written.
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By:/s/ANDREW L. SIMON
----------------------------------
Andrew L. Simon, President
STATE OF NEW YORK )
) ss.:
COUNTY OF ORANGE )
On the 9th day of November, 1998, before me, the
undersigned, a Notary Public in and for said State, personally
appeared Andrew L. Simon, personally known to me or proved to me
on the basis of satisfactory evidence to be the individual whose
name is subscribed to the within instrument and acknowledged to
me that he executed the same in his capacity, and that by his
signature on the instrument, the individual, or person upon
behalf of which the individual acted, executed the instrument.
_________________________________
Notary Public
Exhibit 10.4
------------
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 2nd day of November, 1998 by and
among MILDRED ELLEY SCHOOL, INC., a New York corporation with its
principal place of business at 800 New Loudon Road, Suite 5120,
Latham Circle Mall, Latham, NY 12110 (the "Corporation"), and FAITH
A. TAKES, an individual residing at 6139 Nott Road, Guilderland, NY
12084 ("Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Corporation desires to employ Executive and
Executive desires to accept such employment, all on the terms and
conditions as set forth below; and
WHEREAS, the Board of Directors (the "Board") of the
Corporation has caused the Corporation to enter into this
Agreement.
NOW, THEREFORE, in consideration of the premises and of
the mutual agreements set forth herein, the parties hereto,
intending to be legally bound, agree as follows:
1. Employment and Term. Subject to the terms
-------------------
and conditions of this Agreement, the Corporation agrees to employ
Executive, and Executive hereby accepts employment by the
Corporation. The term of this Agreement shall begin as of the date
of Closing of the acquisition of Corporation by Touchstone Applied
Science Associates, Inc. ("TASA") or any Subsidiary thereof (the
"Effective Date") and shall end on the third anniversary of the
Effective Date; provided, however, that commencing on the date one
-----------------
year after the Effective Date, and on each annual anniversary of
such date (such date and each annual anniversary thereof is
hereinafter referred to as the "Renewal Date"), the term of this
Agreement shall be automatically extended so as to terminate three
years from such Renewal Date, unless at least six (6) months prior
to the Renewal Date the Corporation shall give written notice that
the term of the Agreement shall not be so extended (the "Employment
Term").
2. Certain Definitions.
--------------------
(a) A reference herein to a section of
the Internal Revenue Code of 1986, as amended (the "Code") or a
subdivision thereof shall be construed to incorporate reference to
any section or subdivision of the Code enacted as a successor
thereto, any applicable proposed, temporary or final regulations
promulgated pursuant to such sections and any applicable
interpretation thereof by the Internal Revenue Service.
(b) A reference herein to a section of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any rule or regulation promulgated thereunder shall be
construed to incorporate reference to any section of the Exchange
Act or any rule or regulation enacted or promulgated as a successor
thereto.
(c) "Subsidiary(ies)" means a company
50% or more of the voting securities of which are owned by a
corporation.
(d) "Executive Benefit Plan" means any
written plan providing benefits for employees of the Corporation or
any Subsidiary.
3. Duties. During the Employment Term,
-------
Executive shall serve the Corporation as its President and Chief
Executive Officer, or in such other capacity or capacities as may
be determined by the Board (provided that Executive's authority,
duties and responsibilities shall be at least commensurate in all
material respects with her office, status and titles at the time of
such change). Executive shall also serve as Executive Vice
President of TASA Educational Services Corporation, a wholly-owned
Subsidiary of TASA ("TESC"). Executive shall perform such
executive, administrative, development, production, marketing and
other services and duties for the Corporation at the present
location of the Corporation or any other office or location of the
Corporation as requested by the Board. Executive shall report in
all instances to the President of TESC and TASA. Executive agrees
to devote full time, best efforts during the Employment Term hours
to the business and affairs of the Corporation and, to the extent
necessary, to discharge the responsibilities assigned to Executive
hereunder, and to use Executive's best efforts to perform
faithfully and efficiently such responsibilities. During the
Employment Term it shall not be a violation of this Agreement for
Executive to (A) serve on corporate, civic or charitable boards or
committees, or (B) manage personal investments, so long as
Executive's duties in connection therewith do not unreasonably
interfere with Executive's duties under this Agreement.
4. Compensation.
-------------
(a) BASE SALARY. During the
Employment Term, the Corporation shall pay to Executive, in equal
installments no less frequently than twice per month (or at such
other intervals as are in effect from time to time for other
executive officers of the Corporation), an annual base salary (the
"Base Salary") of $150,000.00 during the term of this Agreement.
Base Salary to be paid by the Corporation to Executive shall be
reviewed by the Board of Directors at least once annually prior to
each anniversary of the Effective Date for the purposes of
determining whether any increases to such salary would be
appropriate. Any increase in Base Salary shall not serve to limit
or reduce any other obligation to Executive under this Agreement.
Base Salary shall not be reduced after any such increase.
(b) BONUS. In addition to Base
Salary, Executive shall be awarded, for each fiscal year of the
Corporation ending during the Employment Term beginning with the
first fiscal year of the Corporation during this Agreement, an
annual bonus ("Annual Bonus") in cash equal to six (6%) percent of
earnings of the Corporation before interest and taxes ("EBIT") in
excess of (10%) percent of the purchase price of the acquisition of
the Corporation (inclusive of all forms of allocation of such
price) by TASA or its Subsidiary. For example, with respect to the
acquisition of Mildred Elley School, Inc. ten (10%) percent would
equal $300,000.00. "Interest" shall include interest related to
the acquisition debt and financing costs allocated to the
Corporation in connection with the acquisition of the Corporation
by TASA or its Subsidiary.
(c) INCENTIVE, SAVINGS, WELFARE
BENEFIT PLANS AND RETIREMENT PLANS. In addition to Base Salary and
Bonus, Executive and/or Executive's family, as the case may be,
shall be eligible to participate in or benefit from, such medical
insurance, life insurance, disability insurance, pension, bonus,
profit-sharing, stock option, stock purchase and any other fringe
benefit plans, practices, programs or policies provided by the
Corporation to executive employees in accordance with the terms of
such plans, practices, programs and policies. Notwithstanding the
prior sentence, it is specifically agreed that either (i) family
medical insurance coverage, or (ii) additional compensation in lieu
of premiums of the Corporation for such coverage, shall be provided
to Executive as the Corporation and Executive shall agree from time
to time.
(d) KEY MAN INSURANCE. Executive
agrees that the Corporation may obtain key man life insurance with
respect to Executive, and in connection therewith, agrees to submit
to all reasonable and customary examinations by the provider of
such life insurance.
(e) EXPENSES. Executive shall be
entitled to reimbursement for all normal and reasonable travel,
entertainment and other expenses necessarily incurred by her in the
performance of her duties hereunder in accordance with the
policies, practices and procedures of the Corporation in effect
with respect to other key employees of the Corporation.
(f) FRINGE BENEFITS. During the
Employment Term, Executive shall be entitled to fringe benefits,
including but not limited to the use of a leased automobile, in
accordance with the plans, practices, policies and programs of the
Corporation and its Subsidiaries in effect with respect to other
key employees of the Corporation.
(g) DISABILITY. Except as hereinafter
provided, the Corporation shall pay Executive for any period, up to
a maximum of three months, during the Employment Term in which she
is unable fully to perform her duties because of physical or mental
disability or incapacity, an amount equal to the Base Salary due
her for such period pursuant to Section 5(a), less the aggregate
amount of all income disability benefits which for such period he
may receive by reason of (i) any group health insurance plan or
disability insurance plan, which is intended to function as a
salary replacement plan, (ii) any applicable compulsory state
disability law, (iii) the Federal Social Security Act, (iv) any
applicable workmen's compensation law or similar law and (v) any
plan towards which the Corporation (including any predecessor of
the Corporation thereof) has contributed or for which it has made
payroll deductions, such as group accident or health policies,
other than those which reimburse for actual medical expenses.
(h) VACATION. During the Employment
Term, Executive shall be entitled to paid vacation in accordance
with the plans, practices, policies and programs of the Corporation
as in effect with respect to other key employees of the
Corporation.
5. Stock Options.
--------------
(a) As part of the consideration to be
paid to Executive for her services hereunder, Executive shall be
eligible to participate in any stock incentive plan adopted by TASA
(the "Plan") for which an executive level employee may participate.
(b) TASA hereby agrees that it shall
cause to be filed with the Securities and Exchange Commission a
registration statement on Form S-8 (or equivalent form as may be in
effect at such time) with respect to all options theretofore
granted to Executive under the Plan. TASA covenants that it will
keep such registration statement current until Executive is no
longer employed by the Corporation; provided, however, that if
------------------
Executive's employment is terminated hereunder other than pursuant
to Sections 6(a), 6(b) or 6(c), then Executive shall have until 90
days following the termination of his employment to exercise any
such vested options which he owned at the time of such termination,
and TASA shall maintain the effectiveness of such registration
statement for such period. TASA also hereby agrees that, for so
long as either it does not have an effective registration statement
on Form S-8 or it has an effective registration statement on Form
S-8 but Executive is restricted in her ability to resell shares
acquired pursuant to the exercise of options because of the
provisions of General Instruction C.2(b) to Form S-8, Executive
shall have "piggyback" registration rights with respect to the
options granted to Executive under the Plan and the shares
underlying such options.
(c) As an incentive to enter into this
Agreement, TASA, as of the Effective Date shall deliver to
Executive a Stock Option Agreement pursuant to its Amended and
Restated 1991 Stock Option Incentive Plan, granting to Executive
options for One Hundred and Fifty Thousand (150,000) shares of the
common stock of the Corporation at fair market value as of the date
granted, which shall vest one year from the date hereof,
exercisable over a five year period.
6. Rights of Termination.
----------------------
(a) CAUSE. During the Employment
Term, the Corporation shall have the right, at any time effective
upon notice to Executive, to terminate Executive's employment for
"Cause" (as hereinafter defined). For purposes of this Agreement,
"Cause" shall mean (i) an act or acts of personal dishonesty
engaged in by Executive which does or is intended to result in
personal enrichment of Executive at the expense of the Corporation;
(ii) violations by Executive of Executive's obligations under
Section 3 of this Agreement which are not remedied within thirty
(30) days after receipt of written notice from the Corporation;
(iii) commission by Executive of a felony or any act of
embezzlement or misappropriation of funds, and (iv) willful fraud
or gross negligence in the performance of her duties hereunder.
(b) DISABILITY; DEATH. In the event
that Executive, due to physical or mental disability or incapacity,
is unable to substantially perform her duties hereunder for a
period of two or more successive months, the Corporation or
Executive shall have the right to terminate this Agreement and
Executive's employment hereunder upon 30 days' prior written notice
and termination shall be effective on the 30th day after receipt of
such notice by the Executive (the "Disability effective date").
Determination of disability shall be as set forth in the terms of
any disability policy in effect at such time or barring such
policy, by a physician jointly selected by the Corporation and
Employee. In the event that Executive is able to and recommences
rendering services and performing his duties hereunder within such
30-day notice period, Executive shall be reinstated and such notice
shall be without further force or effect. If Executive dies during
the Term, this Agreement shall terminate immediately upon his
death.
(c) VOLUNTARY TERMINATION. Executive may
terminate this Agreement on six months written notice to the
Corporation at any time.
(d) NOTICE OF TERMINATION. Any termination of
Executive's employment by the Corporation for Cause, or by Executive
for Voluntary Termination, shall be communicated by Notice of
Termination to the other party hereto given in accordance with
Section 16 of this Agreement.
(e) DATE OF TERMINATION. "Date of
Termination" means the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be; provided,
however, that if Executive's employment is terminated by reason of
death or Disability, or voluntary withdrawal, the Date of
Termination shall be the date of death or Executive or the
Disability effective date, or the last date of employment, as the
case may be.
7. Effects of Termination. (a) In the event
-----------------------
that Executive's employment is terminated pursuant to Section 6
hereof, Executive's employment hereunder shall terminate without
further obligations to Executive, other than those obligations
accrued or earned and vested (if applicable) by Executive through
the Date of Termination, including for this purpose all "Accrued
Obligations", defined as those obligations accrued or earned and
vested (if applicable) by Executive as of the Date of Termination,
including, for this purpose (i) Executive's pro rata Base Salary
accrued but unpaid as of the Date of Termination, (ii) any
compensation previously deferred by Executive (together with any
accrued earning thereon) and not yet paid by the Corporation and
any accrued vacation pay not yet paid by the Company and (iii) if
applicable, all amounts payable to the estate or designated
beneficiaries of Executive under any pension, savings, life
insurance or other plans, practices, policies and programs of the
Corporation, and/or all other amounts payable pursuant to Section
4 hereof. In addition:
(i) the Corporation shall pay to Executive all
Accrued Obligations such that the Accrued Obligations specified in
Section 4 hereof, shall be paid to Executive in a lump sum in cash
within 30 days of the Date of Termination, and the other Accrued
Obligations shall be paid in accordance with Executive's specific
elections pursuant to, and otherwise in accordance with the terms
of, any plan, practice, policy or program providing benefits forming
a part of the Accrued Obligations;
(ii) all then non-exercisable options shall
immediately and automatically terminate; and
(iii) any registration rights theretofore granted
which have not been invoked with respect to shares of Common Stock of
TASA either acquired by Executive pursuant to the exercise of stock
options or underlying vested options shall immediately and automatically
terminate.
(b) If Executive is terminated without cause,
Employee shall be entitled to all Compensation as set forth in
Paragraph 4 for the balance of the Employment Term.
8. Confidentiality.
----------------
(a) Executive understands and acknowledges that as a
result of Executive's employment with the Corporation, she is or shall
necessarily become informed of, and have access to, confidential information
of the Corporation including, without limitation, business plans, trade
secrets, technical information, regulatory information, marketing plans
and information, pricing information, identity of students, teachers,
and prospective students and teachers and business partners, and
identity of suppliers and representatives (the "Confidential
Information"); and that the Confidential Information, even though
it may have been or may be developed or otherwise acquired by
Executive, is the exclusive property of the Corporation to be held
by Executive in trust and solely for the Corporation's benefit.
Executive shall not at any time, either during or subsequent to her
employment hereunder, reveal, report, publish, transfer or
otherwise disclose to any person, corporation or other entity, or
use, any of the Corporation's Confidential Information, without the
written consent of the Board, except for use on behalf of the
Corporation in connection with the Corporation's business, and
except for such information which legally and legitimately is or
becomes of general public knowledge from authorized sources other
than Executive.
(b) Upon the termination of her employment with the
Corporation for any reason, Executive shall promptly deliver to the
Corporation all drawings, manuals, letters, notes, notebooks, reports,
tapes or discs, and copies thereof and all other materials relating to
the business of the Corporation, including, without limitation, those
considered Confidential Information, which are in Executive's
possession or control.
(c) For purposes of this Section 8, the term "Corporation"
includes the Corporation and any other predecessor corporation, and
affiliates (including, without limitation, TASA its Subsidiaries and
joint ventures).
9. Non-Competition.
----------------
(a) Executive agrees that, for a period
commencing on the date hereof and ending three years after the
termination of her employment with the Corporation for any reason,
she shall not (or for such lesser period as may be determined by a
court of competent jurisdiction to be a reasonable limitation on
the competitive activity of Executive) directly or indirectly:
(i) solicit or attempt to solicit business
of any customers of the Corporation (including prospective
customers solicited by the Corporation during the Employment Term)
for products or services the same or similar to those offered,
sold, produced or under development by the Corporation during the
term of her employment therewith or dealt in by Executive during
her employment with the Corporation;
(ii) solicit or attempt to solicit for
any business endeavor any employee of the Corporation;
(iii) tortiously interfere with any
business relationship between the Corporation and any other person
or entity;
(iv) use the name of the Corporation
or a name similar thereto; or
(v) within a seventy-five (75) mile
radius of the principal location of the Corporation at such time
(i.e., presently Latham, New York) or for such lesser distance as
shall be determined by a court of competent jurisdiction to be a
reasonable limitation on the competitive activity of Employee)
directly or indirectly, render any services as an officer,
director, employee, partner, consultant or otherwise to, or have
any interest as a stockholder, partner, member, lender or otherwise
in, any person or entity which is engaged in post-secondary,
proprietary school activities.
The foregoing shall not prevent Executive from purchasing
or owning up to five percent of the voting securities of any
corporation, the securities of which are publicly-traded.
10. Remedies and Survival. Because the Corporation
----------------------
does not have an adequate remedy at law to protect its
interest in its trade secrets, privileged, proprietary or
confidential information and similar commercial assets, or its
business from Executive's competition, the Corporation shall be
entitled to injunctive relief, in addition to such other remedies
and relief that would, in the event of a breach of the provisions
of Sections 8 or 9, be available to the Corporation. The
provisions of Sections 8 and 9 and this Section 10 shall survive
any termination of Executive's employment with the Corporation for
any reason whatsoever.
11. Set-off. The payments and performance by
--------
the Corporation as provided for in this Agreement shall be subject
to any set-off, counterclaim, recoupment, defense or other claim,
right or action which the Corporation may have against Executive.
12. Non-exclusivity of Rights. Nothing in this
--------------------------
Agreement shall prevent or limit Executive's continuing or future
participation in any benefit, bonus, incentive or other plans,
practices, policies or programs provided by the Corporation and for
which Executive may qualify, nor shall anything herein limit or
otherwise affect such rights as Executive may have under any stock
option or other agreements with the Corporation. Amounts which are
vested benefits or which Executive is otherwise entitled to receive
at or subsequent to the Date of Termination shall be payable in
accordance with the plan, practice, policy or program of the
Corporation under which Executive has such entitlement.
13. Entire Agreement. This Agreement sets forth
-----------------
the entire understanding of the parties hereto with respect to its
subject matter, merges and supersedes any prior or contemporaneous
agreements or understandings with respect to its subject matter,
and shall not be modified or terminated except by another agreement
in writing executed by the Corporation and Executive. Failure of
a party to enforce one or more of the provisions of this Agreement
or to require at any time performance of any of the obligations
hereof shall not be construed to be a waiver of such provisions by
such party nor to in any way affect the validity of this Agreement
or such party's right thereafter to enforce any provision of this
Agreement.
14. Severability. If any provision of this
-------------
Agreement is held to be invalid or unenforceable by any court or
tribunal of competent jurisdiction, the remainder of this Agreement
shall not be affected by such judgement and such provision shall be
carried out as nearly as possible according to its original terms
and intent to eliminate such invalidity or unenforceability.
15. Successors and Assigns. This Agreement is
-----------------------
personal to Executive and without the prior written consent of the
Corporation shall not be assignable by Executive otherwise than by
will or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the parties' legal
representatives, successors and assigns. As used in the Agreement,
"Corporation" shall mean the Corporation as hereinbefore defined
and any successor to its business and/or assets as aforesaid with
assumes and agrees to perform this Agreement by operation of law or
otherwise.
16. Communications and Notices. All notices and
---------------------------
other communications under this Agreement shall be in writing and
shall be deemed to have been duly given three (3) business days
after they are mailed in any United States post office enclosed in
a registered or certified postage-paid envelope and addressed as
set forth at the beginning of this Agreement, or to such other
address as any party may specify by notice to the other parties, or
delivered by Federal Express or a similar overnight courier to such
address, with evidence of delivery to such address; provided,
---------
however, that any notice of change of address shall be effective
- --------
only upon receipt.
17. Construction; Counterparts. The headings
---------------------------
contained in this Agreement are for convenience only and shall in
no way restrict or otherwise affect the construction of the
provisions hereof. This Agreement may be executed in multiple
counterparts, each of which shall be an original and all of which
together shall constitute one and the same instrument.
18. Validity. The invalidity or unenforceability
---------
of any provision of this Agreement shall not affect the
validity or enforceability of any other provision of this
Agreement. A party's failure to insist upon strict compliance
with any provision hereof shall not be deemed to be a waiver of
such provision. This Agreement contains the entire understanding
of the Corporation and Executive with respect to the subject matter
hereof but does not supersede or override the provisions of any
stock option, employee benefit or other plan, program, policy or
practice in which Executive is a participant or under which
Executive is a beneficiary.
19. Governing Law. This Agreement shall be
--------------
governed by and construed in accordance with the laws of the State
of New York as applicable to contracts entered into and to be
performed wholly within the State. Any action arising out of or
related to this Agreement shall be brought in the state or federal
courts located in Albany County, New York and the parties hereby
submit to the exclusive jurisdiction of and to the laying of venue
in such courts.
IN WITNESS WHEREOF, the undersigned parties have executed
and delivered this Agreement as of the date first above written.
MILDRED ELLEY SCHOOL, INC.
By:/s/FAITH A. TAKES
---------------------------------
Name: Faith A. Takes
Title: President
EXECUTIVE
/S/FAITH A. TAKES
---------------------------------
Faith A. Takes
Accepted and Agreed with
respect to Paragraph 5:
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By:/s/ ANDREW L. SIMON
-------------------------------------
Name: Andrew L. Simon
Title: President
Exhibit 10.5
------------
EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
DATED AS OF SEPTEMBER 4, 1998
BY AND AMONG
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.,
as the Company
AND
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.,
and
STRATEGIC ASSOCIATES, L.P.
as the Purchasers
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 Definitions 1
1.1. Defined Terms 1
1.2. Other Defined Terms 5
1.3. Other Definitional Provisions 6
SECTION 2 Authorization and Sale of the Company's Securities 7
2.1. Authorization and Certain Terms of the Debentures 7
2.2. Authorization and Certain Terms of the Warrants 7
2.3. Authorization of the Common Stock 8
2.4. Sale and Purchase of the Debentures 8
2.5. Sale and Purchase of the Warrants 9
2.6. Use of Proceeds 9
SECTION 3 Closing Date; Delivery 9
3.1. Closing Date 9
3.2. Delivery 9
SECTION 4 Representations and Warranties of the Company 10
4.1. Organization, Good Standing and Qualification 10
4.2. Capitalization 10
4.3. Subsidiaries. Schedule 4.3 11
4.4. Partnerships, Joint Ventures 12
4.5. Authorization 12
4.6. Governmental Consents 12
4.7. Conformity with Law; Absence of Litigation 12
4.8. Insurance 13
4.9. Patents and Trademarks 13
4.10. Compliance with Other Instruments and Legal Requirements 13
4.11. Material Agreements; Action 14
4.12. Registration Rights 14
4.13. Corporate Documents 15
4.14. Real Property 15
4.15. Tangible Personal Property 16
4.16. Environmental Matters 16
4.17. Company SEC Reports and Financial Statements 17
4.18. Changes 18
4.19. Employee Benefit Plans 19
4.20. Taxes 22
4.21. Labor and Employment Matters 22
4.22. No Pending Transactions 23
4.23. Disclosure 23
4.24. Minute Books 23
4.25. Brokers' Fees 23
4.26. Not an Investment Company 23
4.27. Real Property Holding Company 24
4.28. Litigation 24
4.29. Indebtedness 24
SECTION 5 Representations and Warranties of the Purchasers 24
5.1. Accredited Investor; Experience; Risk 24
5.2. Authorization 25
5.3. Governmental Consents 25
5.4. Organization, Good Standing and Qualification 25
SECTION 6 Conditions to Closing of Purchasers 26
6.1. Debenture and Warrant Closing 26
6.2. Company Put Option Closing 28
SECTION 7 Conditions to Closing of the Company 30
7.1. Representations 30
7.2. Purchase Price 30
7.3. Certificate 30
7.4. State Securities Laws 30
SECTION 8 Covenants of the Company 30
8.1. Regulatory Matters 30
8.2. Accreditation and Certification in Future Acquisitions 31
8.3. Replacement of Debenture or Warrant 31
8.4. Registration, etc. 31
8.5. Notice to Purchasers Upon an Event of Default 32
8.6. Proceeds from Qualified Public Offering 32
8.7. Issuance of Warrant Shares 32
8.8. Use of Proceeds 32
8.9. Restrictive Covenants 32
SECTION 9 Company Put Option 33
9.1. Company Put Option 33
9.2. Exercise of Company Put Option 33
SECTION 10 Events of Default; Subordination 34
10.1. Events of Default 34
10.2. Annulment of Defaults 36
10.3. Subordinate to Senior Indebtedness 36
SECTION 11 Miscellaneous 37
11.1. Amendment; Waiver 37
11.2. Notices 37
11.3. Severability 38
11.4. Successors and Assigns 38
11.5. Survival of Representations, Warranties and Covenants 39
11.6. Entire Agreement 39
11.7. Choice of Law 39
11.8. Counterparts 39
11.9. Costs and Expenses 39
11.10. No Third-Party Beneficiaries 39
11.11. Indemnification 40
SECURITIES PURCHASE AGREEMENT SIGNATURE PAGE 42
Exhibit A Initial Investment 43
Exhibit B Registration Rights Agreement 44
Exhibit C Investor Rights Agreement 45
Exhibit D Form of Debenture 46
Exhibit E Form of Warrant 47
Exhibit F Accreditation and State Licensure/Approval 48
<PAGE>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT dated as of September 4,
1998 (this "Agreement"), is entered into by and among TOUCHSTONE
---------
APPLIED SCIENCE ASSOCIATES, INC., a Delaware corporation (the
"Company"), CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P., a
-------
limited partnership organized under the laws of the State of
Delaware, and STRATEGIC ASSOCIATES, L.P., a limited partnership
organized under the laws of the State of Delaware (each a
"Purchaser" and collectively the "Purchasers").
--------- ----------
W I T N E S S E T H
WHEREAS, the Company has issued and outstanding the
shares of capital stock described in Section 4.2 hereof and the
Company has reserved for issuance additional shares of capital
stock upon the exercise of the outstanding convertible
securities, including rights, options and warrants, identified in
Section 4.2; and
WHEREAS, the Company proposes to issue and sell, and
the Purchasers desire to purchase from the Company, severally and
in the amounts set forth on Exhibit A hereto, debentures and
---------
warrants of the Company and, upon exercise of the Company Put
Option (as defined herein), shares of the Company's common stock,
par value $.0001 per share, all on the terms and conditions set
forth herein; and
WHEREAS, as a condition precedent to closing under this
Agreement and to induce the Purchasers into entering into this
Agreement, the Company and the Purchasers shall have entered into
(i) a registration rights agreement (the "Registration Rights
-------------------
Agreement") in the form attached hereto as Exhibit B and (ii) an
- --------- ---------
investor rights agreement (the "Investor Rights Agreement") in
-------------------------
the form attached hereto as Exhibit C.
---------
NOW, THEREFORE, in consideration of the foregoing and
of the mutual covenants and agreements set forth herein, the
parties hereto agree as follows:
SECTION 1
Definitions
-----------
1.1. Defined Terms. The following terms are defined as follows:
-------------
"Affiliate" means, with respect to any Person, (i) any
---------
Person that holds direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act) of voting
securities or other voting interests representing at least 5% of
the outstanding voting power of a Person or equity securities or
other equity interests representing at least 5% of the
outstanding equity securities or equity interests in a Person,
(ii) any brother, sister, parent, child or spouse of such Person
or any Person described in clause (i), and (iii) any Person that
directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with,
such entity.
"Benefit Arrangement" means any benefit arrangement,
-------------------
obligation, custom, or practice, whether or not legally
enforceable, to provide benefits, other than salary, as
compensation for services rendered, to present or former
directors, employees, agents, or independent contractors, other
than any obligation, arrangement, custom or practice that is an
Employee Benefit Plan, including, without limitation, employment
agreements, severance agreements, executive compensation
arrangements, incentive programs or arrangements, sick leave,
vacation pay, severance pay policies, plant closing benefits,
salary continuation for disability, consulting, or other
compensation arrangements, workers' compensation, retirement,
deferred compensation, bonus, stock option or purchase,
hospitalization, medical insurance, life insurance, tuition
reimbursement or scholarship programs, employee discounts, any
plans subject to Section 125 of the Code, and any plans providing
benefits or payments in the event of a change of control, change
in ownership, or sale of a substantial portion (including all or
substantially all) of the assets of any business or portion
thereof, in each case with respect to any present or former
employees, directors, or agents.
"Company Put Option Percentage" shall mean the
-----------------------------
percentage set forth on Exhibit A for each Purchaser which will
---------
be multiplied by the number of Option Shares to determine such
Purchaser's obligation with respect to the Company Put Option.
"Code" means the Internal Revenue Code of 1986 (or any
----
successor thereto), as amended from time to time.
"Common Stock" means the Common Stock, par value $.0001
------------
per share, of the Company.
"Company Benefit Arrangement" means any Benefit
---------------------------
Arrangement sponsored or maintained by the Company or its
Subsidiaries or with respect to which the Company or a Subsidiary
has or may have any liability (whether actual, contingent, with
respect to any of its assets or otherwise) as of the Closing
Date, in each case with respect to any present or former
directors, employees, or agents of the Company or the
Subsidiaries.
"Company Plan" means, as of the Closing Date, any
------------
Employee Benefit Plan for which the Company or any Subsidiary is
the "plan sponsor" (as defined in Section 3(16)(B) of ERISA) or
any Employee Benefit Plan maintained by the Company or any
Subsidiary or to which the Company or any Subsidiary is obligated
to make payments, in each case with respect to any present or
former employees of the Company or the Subsidiaries.
"Employee Benefit Plan" has the meaning given in
---------------------
Section 3(3) of ERISA.
"Environmental Law" means any applicable foreign,
-----------------
federal, state or local statute, regulation, ordinance or rule of
common law as now in effect in any way relating to the protection
of human health and the environment including, without
limitation, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. 9601 et seq.), the
-------
Hazardous Materials Transportation Act (49 U.S.C. App. 1801 et
--
seq.), the Resource Conservation and Recovery Act (42 U.S.C.
- ----
6901 et seq.), the Clean Water Act (33 U.S.C. 1251 et
--
seq.), the Clean Air Act (42 U.S.C. 7401 et seq.), the Toxic
-------
- ----
Substances Control Act (15 U.S.C. 2601 et seq.), the Federal
-------
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. 136 et
--
seq.), and the Occupational Safety and Health Act (29 U.S.C.
- ---
651 et seq.), regulations promulgated pursuant to these
-------
statutes, and common law principles of tort liability.
"ERISA" means the Employee Retirement Income Security
-----
Act of 1974, as amended from time to time, and any regulation or
rule issued thereunder.
"ERISA Affiliate" means any Person that together with
---------------
the Company, would be or was at any time treated as a single
employer under Section 414 of the Code or Section 4001 of ERISA
and any general partnership of which the Company is or has been a
general partner.
"Exchange Act" means the Securities Exchange Act of
------------
1934, as amended.
"GAAP" means generally accepted accounting principles.
----
"Hazardous Material" means any substance, material or
------------------
waste that is regulated by the United States, the foreign
jurisdictions in which the Company or its Subsidiaries conducts
business, or any applicable state or local governmental authority
including, without limitation, petroleum and its by-products,
asbestos, and any material or substance that is defined as a
"hazardous waste," "hazardous substance," "hazardous material,"
"restricted hazardous waste," "industrial waste," "solid waste,"
"contaminant," "pollutant," "toxic waste" or "toxic substance" under
any provision of Environmental Law.
"Indebtedness" shall mean, as to any Person, all items
------------
that would, in conformity with generally accepted accounting
principles, be classified as liabilities or contingent
liabilities of such Person, but in any event including without
limitation (a) all obligations under leases that have been, or
under generally accepted accounting principles are required to
be, capitalized, (b) all indebtedness endorsed (other than for
collection or deposit in the ordinary course of business) or
discounted with recourse, and (c) all indebtedness in effect
guaranteed, directly or indirectly, by such Person.
"Knowledge" or derivations thereof shall mean
---------
information known or should have been known by the officers of
the Company and each Subsidiary, and, with respect to Sections
4.19 and 4.21, each person who conducts human resource and
employee benefits management functions for the Company or any
Subsidiary, whether or not an officer of the Company or such
Subsidiary.
"Lien" means any lien, pledge, mortgage, deed of trust,
----
security interest, claim, lease, charge, option, right of first
refusal, easement, servitude, transfer restriction under any
shareholder or similar agreement, encumbrance or any other
restriction or limitation whatsoever.
"Mildred Elley Business School" means the company which
-----------------------------
operates the two proprietary post-secondary schools in Albany,
New York and Pittsfield, Massachusetts.
"Multiemployer Plan" means any Employee Benefit Plan
------------------
described in Section 3(37) of ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation
----
or any entity succeeding to any or all of its functions under
ERISA.
"Permits" means any approvals, authorizations,
-------
consents, licenses, permits or certificates.
"Person" means an individual, partnership, limited
------
liability company, corporation, joint stock company, trust,
unincorporated association, joint venture or other entity, or a
government or any political subdivision or agency thereof.
"Qualified Plan" means any Employee Benefit Plan that
--------------
meets, purports to meet, or is intended to meet the requirements
of Section 401(a) of the Code.
"Release" means any release, spill, emission, leaking,
-------
pumping, injection, deposit, disposal, discharge, dispersal or
leaching into the indoor or outdoor environment, or into or out
of any property;
"Remedial Action" means all actions to (x) clean up,
---------------
remove, treat or in any other way address any Hazardous Material;
(y) prevent the Release of any Hazardous Material so it does not
endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment; or (z) perform pre-remedial
studies and investigations or post-remedial monitoring and care.
"SEC" means the United States Securities and Exchange
---
Commission.
"Securities Act" means the Securities Act of 1933, as
--------------
amended.
"Series A Preferred Stock" means the 1,500 shares of
------------------------
preferred stock, par value $.0001 per share, designated by the
Company as Series A Preferred Stock in the Series A Certificate
of Designation.
"Series A Certificate of Designation" means the
-----------------------------------
certificate of designation filed by the Company with the State of
Delaware, Office of the Secretary of State, on March 24, 1995
setting forth the rights and preferences of the Series A
Preferred Stock.
"Subsidiaries" means each corporation in which the
------------
Company owns or controls, directly or indirectly, capital stock
or other equity interests representing at least 50% of the
outstanding voting stock or other equity interests, including
without limitation Beck Evaluation & Testing Associates, Inc., a
New York corporation, and Modern Learning Press, Inc., a Delaware
corporation.
"Warrant Shares" means the shares of Common Stock
--------------
issued or issuable upon exercise of the Warrants.
"Welfare Plan" means any Employee Benefit Plan
------------
described in Section 3(1) of ERISA.
1.2. Other Defined Terms. The following terms shall have the
-------------------
meanings assigned to them in the identified Sections of this
Agreement.
"Agreement" as defined in the recitals to this Agreement.
---------
"Balance Sheet" as defined in Section 4.17.
-------------
"Balance Sheet Date" as defined in Section 4.17.
------------------
"Change of Control" as defined in Section 10.1(g).
-----------------
"Closing" as defined in Section 3.1.
-------
"Closing Date" as defined in Section 3.1.
------------
"Company" as defined in the recitals to this Agreement.
-------
"Company Property" as defined in Section 4.14.
----------------
"Company Put Option" as defined in Section 9.1.
------------------
"Company SEC Reports" as defined in Section 4.17.
-------------------
"Debentures" as defined in Section 2.1(a).
----------
"Existing Indebtedness" as defined in Section 10.3.
---------------------
"Event of Default" as defined in Section 10.1.
----------------
"Exercise Price" as defined in Section 2.2(b)(iii).
--------------
"Indemnified Party" as defined in Section 11.11(a).
-----------------
"Intellectual Property" as defined in Section 4.9.
---------------------
"Investor Rights Agreement" as defined in the recitals
-------------------------
to this Agreement.
"IRS" as defined in Section 4.19(b)(i).
---
"Leased Properties" as defined in Section 4.14.
-----------------
"Loss" as defined in Section 11.11(a).
----
"One Million Dollar Debt Basket" as defined in Section 10.1(i).
------------------------------
"One Million Dollar Senior Debt Basket" as defined in
-------------------------------------
Section 10.3(c).
"Option Notice" as defined in Section 9.2(a).
-------------
"Option Purchase Price" as defined in Section 9.1.
---------------------
"Option Share Price" as defined in Section 9.1.
------------------
"Option Shares" as defined in Section 9.1.
-------------
"Owned Properties" as defined in Section 4.14.
----------------
"Personal Property Leases" as defined in Section 4.15.
------------------------
"Purchasers" as defined in the recitals to this Agreement.
----------
"Qualified Public Offering" as defined in Section 8.6.
-------------------------
"Real Property Leases" as defined in Section 4.14.
--------------------
"Registration Rights Agreement" as defined in the
-----------------------------
recitals to this Agreement.
"Title II" as defined in Section 10.1(e).
--------
"Transaction Documents" as defined in Section 4.5.
---------------------
"Warrants" as defined in Section 2.2.
--------
1.3. Other Definitional Provisions. Any additional capitalized
-----------------------------
terms shall have the meanings assigned to them in the text
of this Agreement. Terms defined in the singular shall have
a comparable meaning when used in the plural and vice versa.
SECTION 2
Authorization and Sale of the Company's Securities
--------------------------------------------------
2.1. Authorization and Certain Terms of the Debentures.
-------------------------------------------------
(a) At Closing, the Company will have authorized the
issuance and sale to the Purchasers of debentures in the form
attached hereto as Exhibit D (the "Debentures") in the aggregate
--------- ----------
original principal amount of Four Million Dollars ($4,000,000).
The Debentures shall be repayable at the times and under the
terms and conditions specified herein and therein.
(b) All principal, interest and amounts outstanding
under the Debentures shall be due and payable in full on the
fifth (5th) anniversary date of the Closing Date (the "Maturity
--------
Date"). The Debentures shall bear interest at an annual rate of
- ----
eight percent (8%). Accrued and unpaid interest shall be due and
payable quarterly in arrears on the last day of each January,
April, July and October until repaid in full. The Debentures may
be prepaid or redeemed, in whole or in part (in minimum
denominations equal to one-fourth of the original principal
amount), by the Company prior to maturity, without penalty, with
twenty-five (25) days prior written notice thereof to the
Purchaser. The Debentures must be prepaid in full upon: (i) the
occurrence or existence of an Event of Default or (ii) the
consummation of a Qualified Public Offering. Payments of
principal and interest on the Debentures shall be made in U.S.
dollars directly by wire transfer to an account designated by the
Purchaser in immediately available funds by written notice to the
Company or by check duly mailed or delivered to the Purchaser at
its address set forth in Section 11.2 of this Agreement. Except
as set forth in Section 11.4, the Debentures (and any rights of
the Purchaser hereunder or related thereto) are non-transferable
except to a person or entity controlled by, or under common
control with, the Purchaser. No sinking fund or similar
provision shall be required to fund payment of principal or
interest under the Debentures. Except as set forth in Section
10.3, the Debentures shall rank senior to or PARI PASSU to all
other Indebtedness of the Company whether now outstanding or
hereafter incurred.
2.2. Authorization and Certain Terms of the Warrants.
-----------------------------------------------
(a) At Closing, the Company will have authorized the
issuance and sale to the Purchasers of warrants, substantially in
the form of Exhibit E hereto (the "Warrants"), which in the
--------- --------
aggregate entitle the Purchasers to acquire 2,760,918 shares of
the Company's Common Stock, which constitutes on the Closing Date
and giving effect to the transactions contemplated hereby, twenty
percent (20%) of the Company's issued and outstanding capital
stock on a fully diluted basis. The Company has reserved a
sufficient number of shares of Common Stock for issuance upon
exercise of the Warrants.
(b) The Warrants contain the following terms and
conditions:
(i) Except as set forth below in Section 2.2(b)(ii),
the date on which the registered holder of the Warrant (the "Holder")
------
may first elect to exercise all or part of each Warrant is:
(A) the Closing Date with respect to Warrant No. 1;
(B) the Closing Date with respect to Warrant No. 2;
(C) the eighteen (18) month anniversary date of the
Closing Date with respect to Warrant No. 3; and
(D) the eighteen (18) month anniversary date of the
Closing Date with respect to Warrant No. 4.
(ii) Each of the Warrants shall become immediately
exercisable upon the occurrence or existence of an Event of
Default (the earlier of the applicable date in Paragraph (i)
above and the date of the occurrence or existence of an
Event of Default shall be referred to as such Warrant's
"Effective Date").
--------------
(iii) Each Warrant shall be exercisable, in
whole or in part, for a period of five (5) years, subject to
Section 2.6 of the Warrant, from the Effective Date of that
Warrant (such period being referred to as the "Exercise
--------
Period") and entitles the Holder to purchase the number of
------
shares of the Company's Common Stock indicated in such
Warrant at an exercise price of $0.35 per share, as adjusted
pursuant to Section 3.3 of the Warrant (the "Exercise
--------
Price").
-----
(c) If the Company satisfies all obligations under the
Debentures and hereunder (including without limitation paying in
full all principal and accrued interest) prior to the Effective
Date of a Warrant, then each such Warrant which is not yet
effective shall immediately and automatically terminate and
thereafter be null and void AB INITIO. Satisfaction of all
obligations under the Debentures and hereunder by the Company on
or after the Effective Date of a Warrant shall not affect such
Warrant, which shall remain in full force and effect until the
earlier of the exercise of the Warrant in full or the termination
of the Exercise Period.
(d) During each Warrant's Exercise Period, such
Warrant may be exercised in whole or in part by payment in cash,
bank cashier's check, certified check, or, at the option of the
Purchaser, by reduction in the principal amount of the Debenture
(or forgiveness of any accrued and unpaid interest thereon), in
an amount equal to the product of (i) the Exercise Price
multiplied by (ii) the number of Warrant Shares being purchased.
2.3. Authorization of the Common Stock. At Closing, the Company
---------------------------------
will have authorized: (i) the issuance and sale to the
Purchasers of Common Stock upon the exercise of the Company
Put Option as set forth in Section 9; and (ii) the issuance
to the Purchasers of the Warrant Shares.
2.4. Sale and Purchase of the Debentures. In reliance on the
-----------------------------------
representations and warranties of the Company contained
herein and subject to the terms and conditions hereof, at
the Closing, the Purchasers agree to purchase from the
Company, severally and in the amounts set forth on Exhibit A
---------
hereto, and the Company agrees to sell to the Purchasers
Debentures in an aggregate original principal amount of
FOUR MILLION DOLLARS ($4,000,000).
2.5. Sale and Purchase of the Warrants. As additional
---------------------------------
consideration for purchasing the Debentures, the Company
agrees to issue to the Purchasers, severally and in the
amounts set forth on Exhibit A hereto, Warrants to acquire
---------
an aggregate of 2,760,918 shares of the Company's Common
Stock, which represents 20% of the issued and outstanding
capital stock of the Company at the Closing Date on a fully
diluted basis (assuming, without limitation, the exercise of
all warrants and options held by and distributed to the
Company's agents and management, and after giving effect to
the transactions contemplated by this Agreement).
2.6. Use of Proceeds. The Company agrees to use the proceeds
---------------
from the sale of the Debentures to acquire the Mildred Elley
Business School. With the prior written consent of the
Purchasers, the Company may use a portion of the proceeds
hereunder solely for other acquisitions of comparable
educational institutions or entities which have been
approved by the Purchasers.
SECTION 3
Closing Date; Delivery
----------------------
3.1. Closing Date.
------------
(a) The closing of the purchase and sale of the
Debentures and Warrants (the "Closing") shall be held at the
-------
offices of Christy & Viener, 620 Fifth Avenue, New York City, on
such date and at such place as the Purchasers and the Company
shall mutually agree (the date of the Closing being referred to
herein as the "Closing Date").
------------
(b) The closing of the purchase and sale of the Common
Stock pursuant to the Company Put Option set forth in Section 9
shall be at such time, date and location as agreed to by the
parties.
3.2. Delivery.
--------
(a) At the Closing, the Company shall deliver to each
Purchaser certificates evidencing the Debentures and Warrants
being purchased by it registered in such Purchaser's name against
delivery to the Company of payment in an amount equal to the full
purchase price of the Debentures and Warrants being purchased by
such Purchaser in U.S. Dollars by wire transfer to an account
designated by the Company. The parties shall also deliver the
other documents, certificates and instruments required under this
Agreement.
(b) At the closing of the Company Put Option, the
Company shall deliver to each Purchaser a certificate or
certificates evidencing the Option Shares being purchased by it
registered in such Purchaser's name against delivery to the
Company of payment in an amount equal to the full purchase price
of the Option Shares being purchased by such Purchaser in
U.S. Dollars by wire transfer to an account designated by the
Company. The parties shall also deliver the other documents,
certificates and instruments required under this Agreement.
SECTION 4
Representations and Warranties of the Company
---------------------------------------------
The Company hereby represents and warrants to, and
agrees with, the Purchasers as follows:
4.1. Organization, Good Standing and Qualification. Each of the
---------------------------------------------
Company and its Subsidiaries (i) is an entity duly
organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, (ii) has all
requisite power and authority to carry on its business,
(iii) is duly qualified to transact business and is in good
standing in all jurisdictions where its ownership, lease or
operation of property or the conduct of its business
requires such qualification, except where the failure to do
so would not have a material adverse effect on the business
or financial condition of the Company and its Subsidiaries
taken as a whole. The Company and its Subsidiaries have the
corporate power and authority and are in possession of all
material franchises, grants, authorizations, licenses,
permits, easements, consents, certificates, approvals and
orders to (i) own, lease and operate its properties and to
carry on its business as now being conducted, and (ii) with
respect to the Company, execute and deliver this Agreement
and the documents and instruments contemplated hereby and to
consummate the transactions contemplated hereby, except to
the extent of additional approvals required in connection
with the acquisition of the Mildred Elley Business School.
4.2. Capitalization.
--------------
(a) The authorized capital stock of the Company
consists of 25,000,000 shares, of which 20,000,000 shares are
common stock, par value $.0001 per share ("Common Stock"). There
------------
are 8,567,222 shares of Common Stock issued and outstanding. No
shares of Common Stock are held in treasury. There are
authorized 5,000,000 shares of Preferred Stock, par value $.0001
per share (the "Preferred Stock"), of which 1,500 shares have
---------------
been designated as Series A Preferred Stock. There are 1,500
shares of Series A Preferred Stock issued and outstanding. In
connection with the transactions set forth herein, the Company
intends to issue to management options to acquire an aggregate of
277,500 shares of Common Stock at an exercise price per share
equal to the closing market price per share on the date of
issuance, which shall be the later of November 1, 1998 or the
Closing Date. Except as set forth above, there are no shares of
capital stock of the Company authorized or, as of the date
hereof, issued or outstanding. The issued and outstanding shares
of capital stock of the Company are duly authorized, validly
issued, fully paid and non-assessable.
(b) Except as listed on Schedule 4.2, there are
------------
outstanding (a) no shares of capital stock or other voting stock
of the Company, (b) no securities of the Company, any Subsidiary
or any Person convertible into or exchangeable for shares of
capital stock or voting securities of the Company, (c) no
options, warrants or other rights to acquire from the Company or
any Subsidiary (including any rights issuable or issued under any
shareholder rights plan or similar arrangement), and no
obligations, contingent or otherwise, of the Company or any
Subsidiary to issue any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or
voting securities of the Company or any Subsidiary, (d) no equity
equivalent in the earnings or ownership of the Company, any
Subsidiary or any Person or any similar rights to share earnings
or ownership and (e) no outstanding obligations of the Company to
repurchase, redeem or otherwise acquire any of its securities or
to make any investment (by loan, capital contribution or
otherwise) in any entity or Person. Except as set forth on
Schedule 4.2, the Company has no employee stock purchase plans,
- ------------
stock option plans or other form of company benefit plan which
provides for the issuance, exchange or distribution of capital
stock. All outstanding options, rights and warrants have been
duly and validly issued and are in full force and effect. All
shares of capital stock subject to issuance upon exercise of any
options, rights or warrants or otherwise, upon issuance pursuant
to the instruments under which they are issuable, shall be duly
authorized, validly issued, fully paid and non-assessable and
free of all preemptive rights. No outstanding options, warrants
or other securities exercisable for or convertible into shares of
capital stock of the Company require anti-dilution adjustments by
reason of the consummation of the transactions contemplated
hereby.
(c) The Company has reserved for issuance 2,760,918
shares of Common Stock upon exercise of the Warrants. The shares
of Common Stock to be issued pursuant to Section 9 of this
Agreement, upon delivery to the Purchasers of certificates
therefor against payment in accordance with the terms of this
Agreement and the Warrant Shares (i) will be validly issued,
fully paid and non-assessable, (ii) will be free and clear of all
Liens, except for restrictions on transfer under federal and
applicable state securities laws, and (iii) assuming that the
representations of the Purchasers in Section 5 hereof are true
and correct, will be issued in compliance with all applicable
federal and state securities laws.
4.3. Subsidiaries. Schedule 4.3 sets forth a complete and
------------ ------------
accurate list of all Subsidiaries of the Company, showing
(as to each such Subsidiary) the date of its incorporation,
the jurisdiction of its incorporation, the number of shares
of its authorized capital stock, the number and class of
shares thereof duly issued and outstanding, the names of all
stockholders of such Subsidiaries and the number and
percentage of the outstanding shares of each such class
owned, directly or indirectly, by all such stockholders,
including the Company. At Closing, all of the outstanding
capital stock of, or other ownership interests in, each
Subsidiary, is owned by the Company, directly or indirectly,
free and clear of any Lien or any other limitation or
restriction (including restrictions on the right to vote),
except as disclosed on Schedule 4.3. All outstanding shares
------------
of the capital stock of the Company and any Subsidiary have
been duly authorized and validly issued and are fully paid
and non-assessable and are free of any preemptive rights.
There are no outstanding securities of any Subsidiary
convertible into or evidencing the right to purchase or
subscribe for any shares of capital stock of any Subsidiary,
there are no outstanding or authorized options, warrants,
calls, subscriptions, rights, commitments or any other
agreements of any character obligating any Subsidiary to
issue any shares of its capital stock or any securities
convertible into or evidencing the right to purchase or
subscribe for any shares of such stock, and there are no
agreements or understandings with respect to the voting,
sale, transfer or registration of any shares of capital
stock of any Subsidiary, except as disclosed on Schedule 4.3.
------------
4.4. Partnerships, Joint Ventures. Schedule 4.4 sets forth a
---------------------------- ------------
complete and accurate list of all partnerships, limited
partnerships, limited liability companies or joint venture
of any kind in which the Company or any Subsidiary holds any
interests, showing the date of its incorporation, the
jurisdiction of its incorporation, the number of shares of
its authorized capital stock, the number and class of shares
thereof duly issued and outstanding, the names of all
stockholders (or other equity interest holders) of such
entity and the number and percentage of the outstanding
shares or interests of each such class owned, directly or
indirectly, by all such stockholders, including the Company.
At Closing, such capital stock of, or other ownership
interests in, each entity as set forth in Schedule 4.4 is
------------
owned by the Company, directly or indirectly, free and clear
of any Lien or any other limitation or restriction
(including restrictions on the right to vote). Except as
set forth on Schedule 4.4, the Company is not a party to,
and does not hold, any equity interests in any partnership,
limited partnership, limited liability company or other
joint venture of any kind.
4.5. Authorization. The Company has all requisite corporate
-------------
power and authority to execute and deliver this Agreement
and each agreement, document or instrument adopted, entered
into or delivered by it as contemplated herewith (the
"Transaction Documents") and to perform its obligations
---------------------
hereunder and thereunder. The execution, delivery and
performance of the Agreement and the transactions
contemplated hereby have been duly authorized by all
necessary corporate, including stockholder (if required),
action on the part of the Company. Each Transaction
Document to which the Company is a party has been duly and
validly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the
Company, enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies
generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial
reasonableness, good faith and fair dealing (regardless of
whether enforcement is sought in a proceeding at law or in
equity).
4.6. Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state,
or local governmental authority on the part of the Company
is required in connection with the valid execution and
delivery by the Company of the Transaction Documents to
which it is a party, or the consummation by the Company of
the transactions contemplated by the Transaction Documents
to which it is a party, except for (i) filings pursuant to
federal or state securities laws, and (ii) the filing of
registration statements with the SEC and any applicable
state securities commission.
4.7. Conformity with Law; Absence of Litigation. To the
------------------------------------------
Company's Knowledge, none of the Company or its Subsidiaries
has violated any law or regulation or any order of any court
or federal, state, municipal or other governmental
department, commission, board, bureau, agency or
instrumentality having jurisdiction over it which would have
a material adverse effect on the business or financial
condition of the Company and its Subsidiaries taken as a
whole. Except as set forth on Schedule 4.7, there are no
------------
claims, actions, suits, proceedings or investigations
pending or, to the Knowledge of the Company, threatened
against the Company or any of its Subsidiaries, or any
properties or rights of the Company or its Subsidiaries,
before any court, arbitrator or administrative, governmental
or regulatory authority or body, domestic or foreign.
4.8. Insurance. Schedule 4.8 sets forth a complete and
--------- ------------
accurate list of all material policies of insurance covering
the Company, its Subsidiaries and any of their respective
employees, properties or assets, including, without
limitation, policies of life, disability, fire, theft,
workers compensation, employee fidelity and other casualty
and liability insurance. All such policies are in full
force and effect and are of a nature and provide such
coverage as is sufficient and as is customarily carried by
companies of the size and character of the Company and its
Subsidiaries. None of the Company or any of its
Subsidiaries is in default of any policies of insurance.
None of the Company or any of its Subsidiaries has been
refused insurance or had any policy of insurance terminated
(other than at its request).
4.9. Patents and Trademarks. The Company and its Subsidiaries
----------------------
have sufficient title and ownership of (or rights under
license agreements to use) all patents, trademarks, service
marks, trade names, copyrights, trade secrets, proprietary
rights and processes ("Intellectual Property") necessary for
---------------------
their businesses. Except as set forth on Schedule 4.9,
------------
there are no outstanding options, licenses or agreements of
any kind relating to the foregoing, nor is the Company or
any of its Subsidiaries bound by or a party to any options,
licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights,
trade secrets, proprietary rights and processes of any other
Person. A list of all patents, patent applications,
registered trademarks, trademark applications, registered
copyrights and copyright applications owned by the Company
or any of its Subsidiaries is set forth on Schedule 4.9.
------------
Within the past five years, the Company has not received any
communications alleging that the Company or any of its
Subsidiaries has violated or, by conducting its business as
proposed, would violate any of the patents, trademarks,
service marks, trade names, copyrights, trade secrets,
proprietary rights and processes of any other Person, nor
does the Company have Knowledge of any such violations.
4.10. Compliance with Other Instruments and Legal Requirements.
--------------------------------------------------------
(a) None of the Company or any of its Subsidiaries is
in violation or default of any provisions of its certificate of
incorporation, by-laws, or comparable organizational documents.
None of the Company or any of its Subsidiaries is in violation or
default in any respect under any provision, instrument, judgment,
order, writ, decree, contract or agreement to which it is a party
or by which it is bound or of any provision of any federal, state
or local statute, rule or regulation applicable to the Company or
any of its Subsidiaries (including, without limitation, any law,
rule or regulation relating to protection of the environment and
the maintenance of safe and sanitary premises) that would have a
material adverse effect on the Company and its Subsidiaries taken
as a whole. The execution, delivery and performance by the
Company of each Transaction Document and the consummation of the
transactions contemplated hereby and thereby will not result in
any such violation or be in conflict with or constitute, with or
without the passage of time or giving of notice, either a default
under or give rise to any obligations under, the certificate of
incorporation or by-laws of the Company, or any note, bond,
mortgage, indenture, lease, license, permit, contract, agreement
or other instrument or obligation, decree or order to which the
Company or any Subsidiary is a party or by which the Company or
any Subsidiary or its properties or assets is or may be bound, or
to the Knowledge of the Company violate any law, order, rule or
regulation applicable to the Company or any Subsidiary, and does
not require any consent, waiver or approval thereunder, or
constitute an event that results in the creation of any Lien upon
any assets of the Company or any of its Subsidiaries.
(b) The Company and its Subsidiaries have all material
Permits of all governmental entities required to conduct their
respective businesses as currently conducted.
(c) The transactions contemplated by this Agreement
and the Transaction Documents will not constitute a change of
control under any Employee Benefit Plan, rights plan, contract or
agreement to which it is a party.
4.11. Material Agreements; Action. Except as set forth on
---------------------------
Schedule 4.11, there are no material contracts,
-------------
agreements, commitments, understandings or proposed
transactions, whether written or oral, to which the
Company or any of its Subsidiaries is a party or by
which it is bound that involve or relate to: (i) any
of their respective officers, directors, stockholders
(or other equity interest holder) or partners or any
Affiliate thereof; (ii) the sale of any of the assets
of the Company or any of its Subsidiaries other than in
the ordinary course of business; (iii) covenants of the
Company or any of its Subsidiaries not to compete in
any line of business or with any Person in any
geographical area or covenants of any other Person not
to compete with the Company or any of its Subsidiaries
in any line of business or in any geographical area;
(iv) the acquisition by the Company or any of its
Subsidiaries of any operating business or the capital
stock of any other Person; (v) the borrowing of money;
(vi) the expenditure of more than $50,000 in the
aggregate or the performance by the Company or any
Subsidiary extending for a period more of than one year
from the date hereof, other than in the ordinary course
of business, or (vii) the license of any Intellectual
Property or other material proprietary right to or from
the Company or any of its Subsidiaries. There have
been made available to the Purchasers and its
representatives true and complete copies of all such
agreements. All such agreements are in full force and
effect and are the legal, valid and binding obligation
of the Company or its Subsidiaries, enforceable against
them in accordance with their terms, subject to
applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights
and remedies generally and subject, as to
enforceability, to general principles of equity
(regardless of whether enforcement is sought in a
proceeding at law or in equity). None of the Company
or any of its Subsidiaries is in default under any such
agreements nor, to the Knowledge of the Company, is any
other party to any such agreements in default
thereunder in any material respect.
4.12. Registration Rights. Except as set forth in the
-------------------
Registration Rights Agreement and except as set forth
on Schedule 4.12, the Company has not granted or agreed
-------------
to grant any registration rights, including piggyback
registration rights, to any Person.
4.13. Corporate Documents. True and correct copies of the
-------------------
certificate of incorporation and the by-laws of the
Company, as amended and as are currently in effect,
have been delivered to the Purchasers.
4.14. Real Property.
-------------
(a) Schedule 4.14(a) sets forth a complete list of all
----------------
real property and interests in real property owned (the "Owned
-----
Properties") or leased (the "Leased Properties") by the Company
- ---------- -----------------
and its Subsidiaries as lessee or lessor (the Leased Properties
together with the Owned Properties, being referred to herein
individually as a "Company Property" and collectively as the
----------------
"Company Properties"). The Company Property constitutes all
------------------
interests in real property currently used or currently held for
use in connection with the businesses of the Company and its
Subsidiaries and which are necessary for the continued operation
of the businesses of the Company and its Subsidiaries as such
businesses are currently conducted. The Company and its
Subsidiaries have a valid and enforceable leasehold interest
under each of the leases for Leased Property (the "Real Property
-------------
Leases"), and none of the Company or any of its Subsidiaries has
- ------
received any written notice of any default or event which, with
notice or lapse of time, or both, would constitute a default by
the Company or any of its Subsidiaries under any of the Real
Property Leases. All of the Company Property, buildings,
fixtures and improvements thereon owned or leased by the Company
and its Subsidiaries are in good operating condition and repair
(subject to normal wear and tear). The Company has delivered or
otherwise made available to the Purchasers true, correct and
complete copies of the Real Property Leases, together with all
amendments, modifications or supplements, if any, thereto.
(b) The Company and its Subsidiaries have all
certificates of occupancy and Permits of any governmental body
necessary or useful for the current use and operation of each
Company Property, and the Company and its Subsidiaries have fully
complied with all conditions of the Permits applicable to them.
No default or violation, or event which, with the lapse of time
or giving of notice or both would become a default or violation,
has occurred in the due observance of any such Permit.
(c) There does not exist any actual, or to the
Knowledge of the Company, threatened or contemplated,
condemnation or eminent domain proceedings that affect any
Company Property or any part thereof, and none of the Company or
any of its Subsidiaries has received any notice, oral or written,
of the intention of any governmental body or other Person to take
or use all or any part thereof.
(d) None of the Company or any of its Subsidiaries has
received any written notice from any insurance company that has
issued a policy with respect to any Company Property requiring
performance of any structural or other repairs or alterations to
such Company Property.
(e) None of the Company or any of its Subsidiaries
owns or holds, and is obligated under or a party to, any option,
right of first refusal or other contractual right to purchase,
acquire, sell, assign or dispose of any real estate or any
portion thereof or interest therein.
4.15. Tangible Personal Property.
--------------------------
(a) Schedule 4.15(a) sets forth all leases of tangible
----------------
personal property ("Personal Property Leases") involving annual
------------------------
payments in excess of $15,000 relating to tangible personal
property used in the business of the Company and its Subsidiaries
or to which the Company or any of its Subsidiaries is a party or
by which the properties or assets of the Company or any of its
Subsidiaries is bound. The Company has delivered or otherwise
made available to the Purchasers true, correct and complete
copies of the Personal Property Leases, together with all
amendments, modifications or supplements, if any, thereto.
(b) Each of the Company and its Subsidiaries has a
valid leasehold interest under each of the Personal Property
Leases under which it is a lessee, and there is no default under
any Personal Property Lease by the Company or any of its
Subsidiaries, by any other party thereto, and no event has
occurred which, with the lapse of time or the giving of notice or
both would constitute a default thereunder.
(c) Except as set forth on Schedule 4.15(c), each of
----------------
the Company and its Subsidiaries has good and marketable title to
all of the items of tangible personal property reflected in the
balance sheets referred to in Section 4.17 (except as sold or
disposed of subsequent to the date thereof in the ordinary course
of business consistent with past practice), free and clear of any
and all Liens. All such items of tangible personal property
that, individually or in the aggregate, are material to the
operation of the business of the Company and its Subsidiaries are
in good condition and in a state of good maintenance and repair
(ordinary wear and tear excepted) and are suitable for the
purposes used.
(d) All of the items of tangible personal property
used by the Company and its Subsidiaries under the Personal
Property Leases are in good condition and repair (ordinary wear
and tear excepted) and are suitable for the purposes used.
4.16. Environmental Matters.
---------------------
Except as set forth on Schedule 4.16:
-------------
(a) The operations of each of the Company and its
Subsidiaries are in material compliance with all applicable
Environmental Laws and all Permits issued pursuant to
Environmental Laws or otherwise;
(b) Each of the Company and its Subsidiaries has
obtained all Permits required under all applicable Environmental
Laws necessary to operate its business;
(c) None of the Company or any of its Subsidiaries is
the subject of any outstanding written order, agreement or
arrangement with any governmental authority or Person respecting
(i) Environmental Laws, (ii) Remedial Action or (iii) any Release
or threatened Release of a Hazardous Material;
(d) None of the Company or any of its Subsidiaries has
received any written communication alleging either or both that
the Company or any of its Subsidiaries may be in violation of any
Environmental Law, or any Permit issued pursuant to Environmental
Law, or may have any liability under any Environmental Law;
(e) At Closing, none of the Company or any of its
Subsidiaries has any current contingent liability in connection
with any Release of any Hazardous Materials into the indoor or
outdoor environment (whether on-site or off-site) and has no
reason to believe that such contingent liability exists;
(f) The Company has no Knowledge of any investigations
of the business, operations, or currently or previously owned,
operated or leased property of the Company or any of its
Subsidiaries pending or, to its Knowledge, threatened that could
lead to the imposition of any liability pursuant to Environmental
Law;
(g) There is not located at any of the properties
owned or operated, or to the knowledge of the Company, leased by
the Company or any of its Subsidiaries any (i) underground
storage tanks, (ii) asbestos-containing material, (iii) equipment
containing polychlorinated biphenyls, (iv) Hazardous Materials
located at any Company Property (other than for Hazardous
Materials used or stored by the Company or any Subsidiary in the
ordinary course of business and in material compliance with
applicable Environmental Laws and Permits); and
(h) The Company has provided to the Purchasers all
environmentally related audits, studies, reports, analyses and
results of investigations, if any, that have been performed with
respect to the currently or previously owned, leased or operated
properties of the Company or any of its Subsidiaries.
4.17. Company SEC Reports and Financial Statements.
--------------------------------------------
(a) The Company has made available to Purchasers true
and complete copies of all periodic reports, statements and other
documents that the Company has filed with the SEC under the
Exchange Act since January 1, 1996 (collectively, the "Company
-------
SEC Reports"), each in the form (including exhibits and any
- -----------
amendments thereto) required to be filed with the SEC. As of
their respective dates, each of the Company's SEC Reports (i)
complied in all respects with all applicable requirements of the
Securities Act and the Exchange Act, and the rules and
regulations promulgated thereunder, respectively, (ii) were filed
in a timely manner, and (iii) did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading. None of the Subsidiaries is
required to file any forms, reports or other documents with the
SEC.
(b) The audited consolidated financial statements of
the Company (including any related notes and schedules thereto)
included in its Annual Report on Form 10-KSB for the fiscal year
ended October 31, 1997 (the "Balance Sheet Date"), are accurate
------------------
and complete and present fairly, in conformity with GAAP applied
on a consistent basis throughout the periods involved (except as
may be noted therein), and in conformity with the SEC's
Regulation S-X, the consolidated financial position of the
Company and its consolidated subsidiaries as of its date and the
consolidated results of operations and changes in financial
position for the period then ended.
(c) None of the Company or any of its Subsidiaries
has incurred any liability or obligation of any nature whatsoever
(whether due or to become due, accrued, fixed, contingent,
liquidated, unliquidated or otherwise) that would be required by
GAAP to be accrued on, reflected on, or reserved against it, on a
consolidated balance sheet (the "Balance Sheet") (or in the
-------------
applicable notes thereto) of the Company or any of its
Subsidiaries prepared in accordance with GAAP consistently
applied as of the date and for the period required.
4.18. Changes. Except as set forth on Schedule 4.18, since
------- -------------
October 31, 1997, there has not been:
(a) any change, by itself or together with other
changes, that has affected adversely, or is likely to affect
adversely, the assets, liabilities, financial condition or
operating results of the Company or any of its Subsidiaries,
except changes in the ordinary course of business;
(b) any material damage, destruction or loss, whether
or not covered by insurance;
(c) any waiver by the Company or any of its
Subsidiaries of a valuable right or of a debt owed to it outside
of the ordinary course of business;
(d) any satisfaction or discharge of any Lien or
prepayment of any obligation by the Company or any of its
Subsidiaries, other than in the ordinary course of business;
(e) any change or amendment to a contract or
arrangement by which the Company or any of its Subsidiaries or
any of their respective assets or properties is bound or subject;
(f) other than in the ordinary course of business, any
material increase in excess of $35,000 annually in any
compensation arrangement or agreement with any employee of the
Company or any of its Subsidiaries receiving compensation;
(g) any events or circumstances that otherwise could
reasonably be expected, individually or in the aggregate, to have
a material adverse effect on the Company and its Subsidiaries
taken as a whole; and
(h) none of the Company or any of its Subsidiaries has
(i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its
capital stock or equity interests, (ii) incurred any Indebtedness
for money borrowed in excess of $15,000, excluding trade payables
incurred in the ordinary course of business, (iii) made any loans
or advances to any Person, other than ordinary advances for
travel expenses not exceeding $15,000, or (iv) sold, exchanged or
otherwise disposed of any of its assets or rights for
consideration in excess of $15,000 in any one transaction or
series of related transactions other than in the ordinary course
of business.
4.19. Employee Benefit Plans.
----------------------
(a) Schedule 4.19(a) contains a complete and accurate
----------------
list of all Company Plans and Company Benefit Arrangements.
Schedule 4.19(a) specifically identifies all Company Plans (if
- ----------------
any) that are Qualified Plans.
(b) With respect, as applicable, to Employee Benefit
Plans and Benefit Arrangements:
(i) true, correct, and complete copies of all
of the following documents with respect to each Company Plan
and Company Benefit Arrangement, to the extent applicable,
have been delivered to the Purchasers: (A) all documents
constituting the Company Plans and Company Benefit
Arrangements, including, but not limited to, trust
agreements, insurance policies, service agreements, and
formal and informal amendments thereto; (B) the most recent
Forms 5500 or 5500 C/R and any financial statements attached
thereto for the prior three years; (C) the most recent
Internal Revenue Service (the "IRS") determination letter
---
and the latest IRS determination letter that covered the
qualification of the entire Company Plan (if different), and
copies of the materials submitted by the Company to obtain
those letters; (D) the most recent summary plan descriptions
; (E) the most recent written descriptions of all
non-written agreements relating to any such plan or
arrangement (if such documents or writings exist), (F) all
reports submitted within the four years preceding the date
of this Agreement by third-party administrators, actuaries,
investment managers, consultants, or other independent
contractors; (G) all notices that were given to the Company
within the three years preceding the date of this Agreement
by the IRS, Department of Labor, or any other governmental
agency or entity with respect to any plan or arrangement;
and (H) employee manuals or handbooks containing personnel
or employee relations policies;
(ii) neither the Company nor any Subsidiary has
ever maintained, contributed to, or been obligated to
contribute to any Qualified Plan.
(iii) the Company and the Subsidiaries have
never sponsored or maintained, had any obligation to sponsor
or maintain, or had any liability (whether actual or
contingent, with respect to any of its assets or otherwise)
with respect to any Employee Benefit Plan subject to
Section 302 of ERISA or Section 412 of the Code or Title IV
of ERISA (including any Multiemployer Plan);
(iv) each Company Plan and each Company Benefit
Arrangement has been operated in material compliance with
its constituent documents and with all applicable provisions
of the Code, ERISA and other laws, including federal and
state securities laws;
(v) there are no pending claims or lawsuits
by, against, or relating to any Employee Benefit Plans or
Benefit Arrangements that are Company Plans or Company
Benefit Arrangements that would, if successful, result in
material liability of the Company, and no claims or lawsuits
have been asserted, instituted or to the Company's Knowledge
threatened by, against, or relating to any Company Plan or
Company Benefit Arrangement, against the assets of any trust
or other funding arrangement under any such Company Plan, by
or against the Company or the Subsidiaries with respect to
any Company Plan or Company Benefit Arrangement, or by or
against the plan administrator or any fiduciary of any
Company Plan or Company Benefit Arrangement, and the Company
and the Subsidiaries do not have Knowledge that could form
the basis for any such claim or lawsuit. The Company Plans
and Company Benefit Arrangements are not presently under
audit or examination (nor has notice been received of a
potential audit or examination) by the IRS, Department of
Labor, or any other governmental agency or entity;
(vi) no Company Plan or Company Benefit
Arrangement contains any provision or is subject to any law
that would prohibit the transactions contemplated by this
Agreement or that would give rise to any vesting of
benefits, severance, termination, or other payments or
liabilities as a result of the transactions contemplated by
this Agreement;
(vii) with respect to each Company Plan, there
has occurred no non-exempt "prohibited transaction" (within
the meaning of Section 4975 of the Code) or transaction
prohibited by Section 406 of ERISA or breach of any
fiduciary duty described in Section 404 of ERISA that would,
if successful, result in any liability for the Company or
any officer, director, or employee of the Company;
(viii) all reporting, disclosure, and notice
requirements of ERISA and the Code have been fully and
completely satisfied with respect to each Company Plan and
each Company Benefit Arrangement;
(ix) all amendments and actions required to
bring the Company Benefit Plans into conformity with the
applicable provisions of ERISA, the Code, and other
applicable laws have been made or taken except to the extent
such amendments or actions (A) are not required by law to be
made or taken until after the Closing Date and (B) are
disclosed on Schedule 4.19(b)(ix);
--------------------
(x) payment has been made of all amounts that
the Company and each Subsidiary is required to pay as
contributions to the Company Benefit Plans as of the last
day of the most recent fiscal year of each of the plans
ended before the date of this Agreement; all benefits
accrued under any unfunded Company Plan or Company Benefit
Arrangement will have been paid, accrued, or otherwise
adequately reserved in accordance with GAAP as of the
Balance Sheet Date; and all monies withheld from employee
paychecks with respect to Company Plans have been
transferred to the appropriate plan within 30 days of such
withholding;
(xi) except as disclosed on Schedule
--------
4.19(b)(xi), the Company and the Subsidiaries have not
-----------
prepaid or prefunded any Welfare Plan through a trust,
reserve, premium stabilization, or similar account, nor do
they provide benefits through a voluntary employee
beneficiary association as defined in Section 501(c)(9);
(xii) no statement, either written or oral, has
been made by the Company or any Subsidiaries to any Person
with regard to any Company Plan or Company Benefit
Arrangement that was not in accordance with the Company Plan
or Company Benefit Arrangement and that would result in a
material adverse economic consequence to the Company or the
Subsidiaries;
(xiii) the Company and the Subsidiaries have
no liability (whether actual, contingent, with
respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan or Benefit Arrangement that is not a
Company Benefit Arrangement or with respect to any Employee
Benefit Plan sponsored or maintained (or which has been or should
have been sponsored or maintained) by any ERISA Affiliate;
(xiii) all group health plans of the Company and
its ERISA Affiliates have been operated in material
compliance with the requirements of Sections 4980B (and its
predecessor) and 5000 of the Code; and
(xiv) no employee or former employee of the
Company or beneficiary of any such employee or former
employee is, by reason of such employee's or former
employee's employment, entitled to receive any benefits,
including, without limitation, death or medical benefits
(whether or not insured) beyond retirement or other
termination of employment as described in Statement of
Financial Accounting Standards No. 106, other than (i) death
or retirement benefits under a Qualified Plan, (ii) deferred
compensation benefits accrued as liabilities on the Closing
Statement or (iii) continuation coverage mandated under
Section 4980B of the Code or other applicable law.
(c) Schedule 4.19(c) hereto sets forth an accurate
----------------
list, as of the date hereof, of all officers, directors, and key
employees of the Company and lists all employment agreements with
such officers, directors, and key employees and the rate of
compensation (and the portions thereof attributable to salary,
bonus, and other compensation respectively) of each such Person
as of (a) October 31, 1997 and (b) the date hereof.
(d) Except as set forth in Schedule 4.19(d), the
----------------
Company has not declared or paid any bonus compensation in
contemplation of the transactions contemplated by this Agreement.
4.20. Taxes. All federal, state and local and foreign tax
-----
returns, reports and statements required to be filed by
the Company and its Subsidiaries have been filed or
have been caused to be filed with the appropriate
governmental agencies in all jurisdictions in which
such returns, reports and statements are required to be
filed and all such returns, reports and statements are
true, complete and correct in all respects. All taxes,
charges and other impositions due and payable by the
Company and its Subsidiaries have been paid in full on
a timely basis except where contested in good faith and
by appropriate proceedings if adequate reserves
therefor have been established on the books and records
of the Company or Subsidiary in accordance with GAAP.
The provision for taxes of each of the Company and its
Subsidiaries is sufficient for all unpaid taxes,
charges and other impositions of any nature due or
accrued as of the date thereof, whether or not assessed
or disputed. Proper and accurate amounts have been
withheld by the Company and its Subsidiaries from their
respective employees for all periods in full and
complete compliance with the tax, social security and
unemployment withholding provisions of applicable
federal, state, local and foreign law and such
withholdings have been timely paid to the respective
governmental agencies. Except as set forth on Schedule
--------
4.20, the Company has not received notice of any audit
----
or of any proposed deficiencies from any governmental
authority, and no controversy with respect to taxes of
any type is pending or to its Knowledge threatened.
Except for routine filing extensions granted as a
matter of right under applicable law, none of the
Company or any of its Subsidiaries has executed or
filed with the IRS or any other governmental authority
any agreement or other document extending, or having
the effect of extending, the period of assessment or
collection of any taxes, charges or other impositions.
None of the Company or any of its Subsidiaries has
agreed or is required to make any adjustment under
Section 481(a) of the Code by reason of a change in
accounting method or otherwise. Further, none of the
Company or any of its Subsidiaries has any obligation
under any tax-sharing agreement.
4.21. Labor and Employment Matters. With respect to
----------------------------
employees of and service providers to the Company and
the Subsidiaries: (a) the Company and the Subsidiaries
are and have been in compliance in all material
respects with all applicable laws respecting employment
and employment practices, terms and conditions of
employment and wages and hours, including without
limitation any such laws respecting employment
discrimination, workers' compensation, family and
medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and
have not and are not engaged in any unfair labor
practice; (b) there is not now, nor within the past
three years has there been, any unfair labor practice
complaint against the Company or any Subsidiary pending
or, to the Company's or any Subsidiary's Knowledge,
threatened before the National Labor Relations Board or
any other comparable authority; (c) there is not now,
nor within the past three years has there been, any
labor strike, slowdown or stoppage actually pending or,
to the Company's or any Subsidiary's Knowledge,
threatened against or directly affecting the Company or
any Subsidiary; (d) to the Company's or any
Subsidiary's Knowledge, no labor representation
organization effort exists nor has there been any such
activity within the past three years; (e) no grievance
or arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the
Company's or any Subsidiary's Knowledge, no claims
therefor exist or have been threatened; (f) the
employees of the Company and the Subsidiaries are not
and have never been represented by any labor union, and
no collective bargaining agreement is binding and in
force against the Company or any Subsidiary or
currently being negotiated by the Company or any
Subsidiary; and (g) all Persons classified by the
Company or its Subsidiaries as independent contractors
do satisfy and have satisfied the requirements of law
to be so classified, and the Company and its
Subsidiaries have fully and accurately reported their
compensation on IRS Forms 1099 when required to do so.
4.22. No Pending Transactions. Except for the transactions
-----------------------
contemplated by this Agreement, neither the Company nor
any Subsidiary is a party to or bound by or the subject
of any agreement, undertaking, commitment or
discussions or negotiations with any Person that could
result in (i) the sale, merger, consolidation or
recapitalization of the Company or any Subsidiary,
(ii) the sale of all or substantially all of the assets
of the Company or any Subsidiary, or (iii) a change of
control of more than five percent of the outstanding
capital stock of the Company or any Subsidiary.
4.23. Disclosure. All written agreements, lists, schedules,
----------
instruments, exhibits, documents, certificates,
reports, statements and other writings furnished to the
Purchasers pursuant hereto or in connection with this
Agreement or the transactions contemplated hereby, are
and will be complete and accurate in all material
respects. No representation or warranty by the Company
contained in this Agreement, in the schedules attached
hereto or in any certificate furnished or to be
furnished by the Company to the Purchasers in
connection herewith or pursuant hereto contains or will
contain any untrue statement or a material fact or
omits or will omit to state any material fact necessary
in order to make any statement contained herein or
therein not misleading in any material respect. There
is no fact known to the officers and directors of the
Company that has specific application to the Company
(other than general economic or industry conditions)
and that materially adversely affects or, as far as
such officers and directors can reasonably foresee,
materially threatens, the assets, business, prospects,
financial condition, or results of operations of the
Company that has not been set forth in this Agreement
or any schedule hereto.
4.24. Minute Books. The minute books of the Company and each
------------
of its Subsidiaries contain a complete summary of all
material actions by their respective directors and
stockholders since the date of their respective
incorporation and reflect all transactions referred to
in such minutes accurately in all material respects.
4.25. Brokers' Fees. Except as set forth on Schedule 4.25, no
------------- -------------
broker, finder, investment banker or other Person is
entitled to any brokerage fee, finder's fee or other
commission in connection with the transactions
contemplated by this Agreement based upon arrangements
made by the Company.
4.26. Not an Investment Company. The Company is not an
-------------------------
Investment Company within the meaning of the Investment
Company Act of 1940, as amended.
4.27. Real Property Holding Company. The Company is not a
-----------------------------
United States Real Property Holding Corporation within
the meaning of Section 897(c)(2) of the Code.
4.28. Litigation. All pending claims, suits, or proceedings
----------
against the Company, its Subsidiaries, and its schools
are set forth in Schedule 4.28. None of the pending
-------------
claims, suits, or proceedings listed in Schedule 4.28
-------------
will hinder the consummation of this Agreement or
related agreements, nor will any pending claims, suits
or proceedings adversely affect the operation or
financial condition of, or result in the payment of
substantial damages by, the Company, its Subsidiaries
or any of the schools. The payment of any liabilities
or damages resulting from such claims, suits and
proceedings will be covered by adequate insurance
proceeds. The Company, its Subsidiaries, and the
schools represent that each of the claims, suits, and
proceedings or litigation contained in Schedule 4.28 is
-------------
without merit and agree to vigorously defend the
Company, the affected Subsidiary or the affected school
in all matters pertaining to such claims, suits or
proceedings. Except as set forth in Schedule 4.28,
-------------
there are no other pending or threatened claims, suits
or proceedings against the Company, its Subsidiaries or
its schools. Moreover, there is no investigation by
any governmental agency pending or threatened against
the Company, its Subsidiaries, or its Schools which
might result in any such suit, action or other
proceeding.
4.29. Indebtedness. The Company and its Subsidiaries have no
------------
Indebtedness of any type except as set forth on
Schedule 4.29 and Indebtedness with the Purchasers
-------------
pursuant to this Agreement. Upon consummation of the
transactions hereunder, except as set forth on Schedule
--------
4.29 and except as permitted pursuant to Section 10.3,
----
the Debentures will rank senior to, or PARI PASSU with,
all other Indebtedness of the Company and its
Subsidiaries.
SECTION 5
Representations and Warranties of the Purchasers
------------------------------------------------
Each of the Purchasers (severally and not jointly),
hereby represents and warrants to and agrees with the Company, as
follows:
5.1. Accredited Investor; Experience; Risk.
-------------------------------------
(a) Such Purchaser is an "accredited investor" (as
such term is defined in Rule 501 promulgated under the Securities
Act) and has been advised and understands that the Debentures,
Warrants, Common Stock and Warrant Shares have not been
registered under the Securities Act, on the basis that no public
offering of the Debentures, Warrants, Common Stock and the
Warrant Shares is to be effected, except in compliance with the
applicable securities laws and regulations or pursuant to an
exemption therefrom; provided, however, that nothing in this
-----------------
Section 5.1 shall limit the Purchasers' right to convert the
Warrants for Warrant Shares as set forth in this Agreement or the
Warrants.
(b) Such Purchaser is purchasing the Debentures,
Warrants and Warrant Shares for investment purposes, for its own
account and not with a view to, or for sale in violation of
federal or state securities laws.
(c) Such Purchaser has such knowledge and experience
in financial and business matters that it is capable of
evaluating the merits and risks of the purchase of the
Debentures, Warrants, Common Stock and the Warrant Shares
pursuant to this Agreement.
(d) The certificates representing the Debentures,
Warrants, Warrant Shares and any Common Stock shall bear a legend
evidencing such restriction on transfer substantially in the
following form:
"The securities represented by this certificate have
been acquired for investment and have not been registered under
the Securities Act of 1933, as amended (the "Act") or the
---
securities laws of any state and may not be sold or transferred
except pursuant to registration under the Act or an exemption
therefrom."
(e) Each Purchaser has received information regarding
the Company and its Subsidiaries to enable it to make a
meaningful investment decision with respect to the purchase of
the Debentures, Warrants, the Common Stock and the Warrant
Shares.
5.2. Authorization. Such Purchaser has all requisite power and
-------------
authority to execute and deliver this Agreement and each of
the Transaction Documents to which it is a party and to
perform its obligations hereunder and thereunder. The
execution, delivery and performance of the Agreement and the
transactions contemplated hereby have been duly authorized
by all necessary, action on the part of such Purchaser.
Each Transaction Document to which such Purchaser is a party
has been duly and validly executed and delivered by such
Purchaser and constitutes the legal, valid and binding
obligation of such Purchaser, enforceable against it in
accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding
at law or in equity).
5.3. Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state,
or local governmental authority on the part of such
Purchaser is required in connection with the valid execution
and delivery by such Purchaser of the Transaction Documents
to which it is a party, or the consummation by such
Purchaser of the transactions contemplated by the
Transaction Documents to which it is a party, except for
such filings as have been made prior to the Closing.
5.4. Organization, Good Standing and Qualification. Such
---------------------------------------------
Purchaser (i) is a limited partnership duly organized,
validly existing and in good standing under the laws of the
State of Delaware, (ii) has all requisite power and
authority to carry on its business, (iii) is duly qualified
to transact business and is in good standing in all
jurisdictions where its ownership, lease or operation of
property or the conduct of its business requires such
qualification, except where the failure to do so would not
be material to the Purchaser. Such Purchaser has the power
and authority and is in possession of all material
franchises, grants, authorizations, licenses, permits,
easements, consents, certificates, approvals and orders to
(i) own, lease and operate its properties and to carry on
its business as now being conducted and (ii) execute and
deliver this Agreement and the documents and instruments
contemplated hereby and to consummate the transactions
contemplated hereby. The principal place of business for
such Purchaser is in Baltimore, Maryland.
SECTION 6
Conditions to Closing of Purchasers
-----------------------------------
6.1. Debenture and Warrant Closing. Each Purchaser's obligation
-----------------------------
to purchase the Debentures and Warrants at the Closing is,
at the option of such Purchaser, subject to the fulfillment
on or prior to the applicable Closing Date of the following
conditions:
(a) Representations and Warranties Correct. The
--------------------------------------
representations and warranties made by the Company in Section 4
hereof shall be true and correct when made, and shall be true and
correct on the Closing Date with the same force and effect as if
they had been made on and as of such date, and any litigation
disclosed pursuant to Section 4.7 shall have been settled to the
reasonable satisfaction of the Purchasers.
(b) Covenants. All covenants, agreements and
---------
conditions contained in this Agreement to be performed by the
Company on or prior to the Closing Date shall have been performed
or complied with in all respects.
(c) Opinion of Company's Counsel. The Purchasers
----------------------------
shall have received from Christy & Viener, counsel to the
Company, an opinion addressed to the Purchasers, dated the
Closing Date, that is customary for a transaction of this type.
(d) No Material Adverse Change. Since October 31,
--------------------------
1997, there shall not have occurred any events or circumstances
that has had, individually or in the aggregate, a material
adverse effect on the Company and its Subsidiaries taken as a
whole, except as otherwise disclosed on Schedule 4.18.
(e) Series A Preferred Stock Redemption Notice. The
------------------------------------------
Company shall mail all required notices of redemption to the
holders of Series A Preferred Stock pursuant to the Series A
Certificate of Designation, setting the redemption date no later
than the 31st day after the Closing Date.
(f) State Securities Laws. All registrations,
---------------------
qualifications and Permits required under applicable state
securities laws, if any, shall have been obtained for the lawful
execution, delivery and performance of this Agreement (other than
those required to be obtained after the closing of the
acquisition of the Mildred Elley Business School).
(g) Issuance of Debentures and Warrants. The Company
-----------------------------------
shall have: (i) issued the Debentures and Warrants at the Closing
pursuant to this Agreement, and shall have delivered to each
Purchaser instruments representing such Purchaser's Debenture and
Warrants; and (ii) upon exercise of the Company Put Option in
Section 9, issued the shares of Common Stock and delivered to
each Purchaser a stock certificate representing such Purchasers
shares of Common Stock.
(h) Officer's Certificate. Each of the Purchasers
---------------------
shall have received a certificate of the President or a Vice
President of the Company to the effect set forth in Sections
6.1(a), 6.1(b), 6.1(d) and 6.1(f).
(i) Due Diligence. Purchasers shall have completed
-------------
their due diligence review of the Company and Mildred Elley
Business School (including without limitation the audited
financial data of Mildred Elley Business School for fiscal year
1997) and determined in Purchasers' sole discretion to proceed
with the Closing hereunder.
(j) Registration Rights Agreement. The Company and
-----------------------------
any other parties thereto shall have executed and delivered the
Registration Rights Agreement in the form of Exhibit B hereto to
Purchasers.
(k) Corporate Documents. The Company shall have
-------------------
delivered or caused to be delivered to each Purchaser:
(i) a certificate of the Secretary of State of
the Company's state of incorporation dated not earlier than
the tenth (10th) day preceding the Closing Date, to the
effect that the Company is a corporation validly existing
and in good standing under the laws of such state as of such
date;
(ii) a certificate of the Secretary of State of
each state where the Company is required to qualify to do
business dated not earlier than the tenth (10th) day
preceding the Closing Date, to the effect that the Company
is a corporation duly licensed or qualified to do business
in such state and is in good standing as a foreign
corporation under the laws of such state as of such date;
and
(iii) certificates of the Secretary or Assistant
Secretary, or such other authorized officer, of the Company
including (A) copies of the certificate of incorporation,
bylaws and other governing documents of the Company as then
in effect or a certification that there has been no change
in such instruments since the last such certification
delivered to the Purchasers pursuant to this Agreement, (B)
duly enacted resolutions of the Company's board of directors
in form and substance satisfactory to the Purchasers
approving the Transaction Documents and authorizing officers
of the Company to execute and deliver instruments required
to be delivered hereunder as a condition precedent to the
Closing, and (C) specimen signatures of the officers of the
Company authorized to sign such instruments to the extent
such specimen signatures have not previously been delivered
to the Purchasers.
(l) Consent and Waiver Letter from Beck. The
-----------------------------------
Purchasers shall have received a validly executed consent and
waiver letter from Michael D. Beck ("Beck") stating that the
----
transactions contemplated in the Transaction Documents shall not
constitute a "change of control" of Beck Evaluation & Testing
Associates, Inc. ("BETA") or otherwise trigger Beck's rights to
----
repurchase BETA.
(m) Consent and Waiver Letters from Employees. The
-----------------------------------------
Purchasers shall have received a validly executed consent and
waiver letter from each of the Company's employees who has
entered into an employment agreement with the Company stating
that the transactions contemplated in the Transaction Documents
shall not constitute a "change of control" of the Company.
(n) Appointment of Directors. David Warnock and an
------------------------
individual designated by the Purchasers shall each have been duly
appointed and elected as a member of the Company's Board of
Directors; provided, however, that the failure of the Purchasers
-----------------
to designate another individual shall not constitute a failure of
this condition precedent.
(o) No Event of Default. No Event of Default shall
-------------------
have occurred or then exist.
(p) Investor Rights Agreement. The Company and the
-------------------------
other parties thereto shall have executed and delivered the
Investor Rights Agreement in the form of Exhibit C hereto to
---------
Purchasers.
6.2. Company Put Option Closing. Each Purchaser's obligation to
--------------------------
purchase the Common Stock pursuant to Section 9 at a
subsequent closing, is, at the option of such Purchaser,
subject to the fulfillment on or prior to the applicable
closing of the sale of the Option Shares (the "Option
------
Closing Date") of the following conditions:
------------
(a) Representations and Warranties Correct. The
--------------------------------------
representations and warranties made by the Company in Section 4
hereof shall be true and correct when made, and shall be true and
correct on the Option Closing Date with the same force and effect
as if they had been made on and as of such date (except to the
extent of developments in the Company's business which have
occurred in the ordinary course of business and except that in
Sections 4.17 and 4.18, the reference date shall be "October 31,
1998" instead of "October 31, 1997"), and any litigation
disclosed pursuant to Section 4.7 shall have been settled to the
satisfaction of the Purchasers.
(b) Covenants. All covenants, agreements and
---------
conditions contained in this Agreement to be performed by the
Company on or prior to the Option Closing Date shall have been
performed or complied with in all respects.
(c) Opinion of Company's Counsel. The Purchasers
----------------------------
shall have received from Christy & Viener, counsel to the
Company, an opinion addressed to the Purchasers, dated the Option
Closing Date, that is customary for a transaction of this type.
(d) No Material Adverse Change. Since October 31,
--------------------------
1998, there shall not have occurred any events or circumstances
that has had, individually or in the aggregate, a material
adverse effect on the Company and its Subsidiaries taken as a
whole, except as otherwise disclosed on Schedule 4.18.
(e) State Securities Laws. All registrations,
---------------------
qualifications and Permits required under applicable state
securities laws, if any, shall have been obtained for the lawful
execution, delivery and performance of this Agreement.
(f) Issuance of Common Stock. The Company shall have
------------------------
issued the shares of Common Stock and delivered to each Purchaser
a stock certificate representing such Purchasers shares of Common
Stock.
(g) Officer's Certificate. Each of the Purchasers
---------------------
shall have received a certificate of the President or a Vice
President of the Company to the effect set forth in Sections
6.2(a), 6.2(b), 6.2(d) and 6.2(f).
(h) Corporate Documents. The Company shall have
-------------------
delivered or caused to be delivered to each Purchaser:
(i) a certificate of the Secretary of State of
the Company's state of incorporation dated not earlier than
the tenth (10th) day preceding the Option Closing Date, to
the effect that the Company is a corporation validly
existing and in good standing under the laws of such state
as of such date;
(ii) a certificate of the Secretary of State of
each state where the Company is required to qualify to do
business dated not earlier than the tenth (10th) day
preceding the Option Closing Date, to the effect that the
Company is a corporation duly licensed or qualified to do
business in such state and is in good standing as a foreign
corporation under the laws of such state as of such date;
and
(iii) certificates of the Secretary or Assistant
Secretary, or such other authorized officer, of the Company
including (A) copies of the certificate of incorporation,
bylaws and other governing documents of the Company as then
in effect or a certification that there has been no change
in such instruments since the last such certification
delivered to the Purchasers pursuant to this Agreement, (B)
duly enacted resolutions of the Company's board of directors
in form and substance satisfactory to the Purchasers
approving the Transaction Documents and authorizing officers
of the Company to execute and deliver instruments required
to be delivered hereunder as a condition precedent to the
Closing, and (C) specimen signatures of the officers of the
Company authorized to sign such instruments to the extent
such specimen signatures have not previously been delivered
to the Purchasers.
(i) No Event of Default. No Event of Default shall
-------------------
have occurred or then exist.
SECTION 7
Conditions to Closing of the Company
------------------------------------
The Company's obligation to issue and sell the
Debentures and Warrants at the Closing, and the shares of Common
Stock pursuant to Section 9, is, at the option of the Company,
subject to the fulfillment of the following conditions prior to
the applicable Closing Date:
7.1. Representations. The representations and warranties made by
---------------
the Purchasers in Section 5 hereof shall be true and correct
when made, and shall be true and correct on the Closing Date
with the same force and effect as if they had been made on
and as of such date.
7.2. Purchase Price. The Purchasers shall have tendered the
--------------
purchase price for the Debentures and Warrants of Four
Million Dollars ($4,000,000), and pursuant to Section 9,
upon exercise of the Company Put Option for the Common
Stock, shall have tendered the purchase price of Two Million
Dollars ($2,000,000).
7.3. Certificate. The Company shall have received a certificate
-----------
from the Purchasers to the effect set forth in Section 7.1.
7.4. State Securities Laws. All registrations, qualifications
---------------------
and Permits required under applicable state securities laws,
if any, shall have been obtained for the lawful execution,
delivery and performance of this Agreement.
SECTION 8
Covenants of the Company
------------------------
8.1. Regulatory Matters. Each of the Company and Purchasers will
------------------
(i) make on a prompt and timely basis all governmental or
regulatory notifications, filings or submissions, as
necessary for the consummation of the transactions
contemplated hereby, including any filings required pursuant
to the Hart-Scott-Rodino Antitrust Act, if required, (ii)
use all reasonable efforts to cooperate with the other and
its representatives in (A) determining which notifications,
filings and submissions are required to be made prior to the
Closing Date with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the
Closing Date from, any governmental authority in connection
with the execution, delivery and performance of this
Agreement and the transactions contemplated hereby, and (B)
timely making of all such notifications, filings or
submissions and timely seeking all such consents, approvals,
permits or authorizations, and (iii) use all reasonable
efforts to take, or cause to be taken, all other action and
do, or cause to be done, all other reasonable things
necessary or appropriate to consummate the transactions
contemplated by this Agreement. The Purchasers shall have
no obligation to expend any funds in connection with the
action to be taken by the Company pursuant to this section.
8.2. Accreditation and Certification in Future Acquisitions. The
------------------------------------------------------
Company shall include in all material respects (and except
as otherwise approved by Purchasers) the representations and
warranties set forth in Exhibit F in all acquisition
documents of educational entities, including, but not
limited to, the acquisition of Mildred Elley Business
School, and shall use its best efforts to make Purchasers a
third-party beneficiary of each such agreement with respect
to these representations and warranties.
8.3. Replacement of Debenture or Warrant. Upon receipt of
-----------------------------------
evidence reasonably satisfactory to the Company of the loss,
theft, destruction or mutilation of any Debenture or Warrant
and, in the case of any such loss, theft or destruction,
upon delivery of an indemnity bond or other agreement or
security reasonably satisfactory in form and amount to the
Company, or, in the case of any such mutilation, upon
surrender and cancellation of such Debenture or Warrant, the
Company will issue a new Debenture or Warrant, of like tenor
and amount, in lieu of such lost, stolen, destroyed or
mutilated Debenture or Warrant; provided, however, if any
-----------------
Debenture or Warrant held by the Purchaser, its affiliate,
or the registered holder is lost, stolen or destroyed, the
affidavit of such principal or general partner or any
principal or corporate officer of such holder setting forth
the circumstances with respect to such loss, theft or
destruction, together with an agreement to indemnify the
Company with respect thereto shall be accepted as
satisfactory evidence thereof, and no indemnity bond or
other security shall be required as a condition to the
execution and delivery by the Company of a new Debenture or
Warrant in replacement of such lost, stolen or destroyed
Debenture or Warrant.
8.4. Registration, etc. The Company shall maintain at its
-----------------
principal office a register with respect to the Debentures
and Warrants and shall record therein the name(s) and
address(es) of the respective registered holder(s) thereof,
to which notices are to be sent and the address(es) to which
payments (in the case of the Debentures) are to be made as
designated by the registered holder if other than the
address of such holder, and the particulars of all permitted
transfers, exchanges and replacements of the Debentures and
Warrants. Provided that such transfer is permitted herein,
the Company shall record on such register any and all
transfers of the Debentures and Warrants by or for the
registered holder or such holder's executors or
administrators or their duly appointed attorney, in form
reasonably satisfactory to the Company, in order to maintain
an accurate record of the holder(s) thereof. Each Debenture
and Warrant issued hereunder, whether originally or upon
transfer, exchange or replacement, shall be registered on
the date of execution thereof by the Company. The
registered holder of Debentures and Warrants issued
hereunder shall be that individual, corporation,
partnership, joint venture, trust or unincorporated
organization or other entity (a "Person") in whose name the
------
Debentures and Warrants has been so registered by the
Company. A registered holder shall be deemed the owner of a
Debenture or Warrant for all purposes of this Agreement and,
subject to the provisions hereof, shall be entitled to all
of the benefits thereof and rights thereunder free from all
equities or rights of set off or counterclaim between the
Company and the transferor of such registered holder or any
previous registered holder of such Debenture or Warrant.
8.5. Notice to Purchasers Upon an Event of Default. Upon the
---------------------------------------------
occurrence or existence of an Event of Default (including
without limitation an event of default with respect to any
other Indebtedness) and prior to the expiration of any
applicable cure period, the Company shall provide prompt
notice of such Event of Default to the Purchaser pursuant to
Section 11.2 hereof.
8.6. Proceeds from Qualified Public Offering. The Company will
---------------------------------------
apply, at the request of the Purchaser, the proceeds of a
Qualified Public Offering to prepay the unpaid principal
amount and outstanding interest on the Debentures.
"Qualified Public Offering" means a registered underwritten
-------------------------
public offering pursuant to an effective registration
statement under the Securities Act covering the offer and
sale of Common Stock to the public for the account of the
Company in which net proceeds to the Company of the public
offering equals or exceeds $25 million and the offering
price per share is at least $5.00.
8.7. Issuance of Warrant Shares. The Company shall issue Warrant
--------------------------
Shares to the Purchaser immediately upon payment by the
Purchaser for such Warrant Shares. The Warrant Shares shall
be duly authorized, validly issued, fully paid and non-assessable;
will be free and clear of all Liens; and assuming that the
representations of the Purchasers in Section 5 hereof are true and
correct, will be issued in compliance with all applicable federal
and state securities laws.
8.8. Use of Proceeds. The Company shall apply the proceeds
---------------
received as a result of the transactions contemplated
hereunder as set forth in Section 2.6.
8.9. Restrictive Covenants. From the date hereof through the
---------------------
Closing Date (except for the Warrant Share adjustment in
clause (a) below which shall survive the Closing), without
the prior written consent of the Purchasers, the Company and
its Subsidiaries shall not:
(a) issue any equity securities of the Company (other
than securities issued pursuant to outstanding options) or any
Subsidiary or any securities convertible into equity securities
of the Company (other than the Warrants), or any Subsidiary;
provided, however, that the Company may issue employee stock
- -----------------
options pursuant to the Company's acquisition of the Mildred
Elley Business School so long as the Company adjusts the number
of Warrant Shares so that the aggregate number of Warrant Shares
held by the Purchasers shall constitute twenty percent (20%) of
the Company's issued and outstanding capital stock on a fully
diluted basis after giving effect to all such employee stock
options;
(b) operate the business of the Company and each
Subsidiary in any manner not in the ordinary course of business;
or
(c) take any of the actions set forth in Section 5.6
of the Investor Rights Agreement attached hereto as Exhibit C,
---------
which Section is expressly incorporated herein by reference.
SECTION 9
Company Put Option
------------------
9.1. Company Put Option. Subject to the terms and conditions
------------------
hereunder, in the event that the Company has achieved the
projections set forth in the operating budget as delivered
to the Purchasers no later than thirty (30) days following
the closing of the Mildred Elley Business School acquisition
and agreed to by the Purchasers for its acquisitions and
base business for the Company's fiscal year 1999, the
Company shall have the right to sell (the "Company Put
-----------
Option") to the Purchasers, and the Purchasers agree to
------
purchase, severally and not jointly, the number of shares of
Common Stock equal to the aggregate purchase price of TWO
MILLION DOLLARS ($2,000,000) (the "Option Purchase Price")
---------------------
divided by the Option Share Price (the "Option Shares")
-------------
multiplied by the applicable Company Put Option Percentage
for such Purchaser set forth on Exhibit A. The "Option
--------- ------
Share Price" shall be the greater of (i) $1 per share or
-----------
(ii) an amount equal to the average closing price as
reported on Nasdaq per share for the preceding thirty days
discounted by twenty percent (20%).
9.2. Exercise of Company Put Option.
------------------------------
(a) The Company Put Option may be exercised by the
Company by delivering a written notice ("Option Notice") to each
-------------
of the Purchasers at its address set forth in Section 11.2. Such
notice must be signed by the Company and shall constitute an
irrevocable obligation on the part of the Company to sell the
Option Shares against payment therefor. The Option Notice shall
set forth the date of the sale, which date shall be (i) no more
than sixty (60) days after the date of the Option Notice and (ii)
no less than forty-five (45) days after the date of the Option
Notice. The Company Put Option Notice shall also set forth the
Option Share Price, number of Option Shares to be sold and data
supporting such calculations.
(b) At the closing of the sale of the Option Shares,
the Company shall deliver to each Purchaser a stock certificate
or certificates representing the number of Option Shares
purchased by each Purchaser determined by multiplying the total
number of Option Shares by such Purchaser's Company Put Option
Percentage as set forth on Exhibit A free and clear of any Liens,
---------
and any other documents, instruments, or certificates (including
without limitation a bring-down certificate with respect to the
representations, warranties and covenants hereunder) requested by
the Purchasers in order to satisfy the conditions set forth in
Section 6.
(c) At the closing of the sale of the Option Shares,
each Purchaser shall pay to the Company the purchase price for
such Option Shares as set forth on Exhibit A hereto.
---------
(d) The Company shall be responsible for the payment
of all expenses incurred by the Purchasers with respect to the
sale of the Option Shares, including without limitation any
reasonable attorneys' fees, transfer taxes, notarial fees or
other similar costs and expenses.
(e) Unless otherwise agreed to in writing by the
Purchasers, the Company may exercise the Company Put Option on
only one occasion and the Company Put Option must be exercised in
its full amount. If the Company Put Option has not been
exercised by the Company within one hundred thirty-five (135)
days after the first anniversary date of the Closing Date, the
Company Put Option shall immediately expire in its entirety
without any further action by the parties.
SECTION 10
Events of Default; Subordination
--------------------------------
10.1. Events of Default. For so long as any indebtedness
-----------------
under the Debentures shall be outstanding, each of the
following events shall constitute an event of default
hereunder (each an "Event of Default"):
----------------
(a) The Company shall fail to pay any installment of
principal of or interest on the Debentures when due and any such
failure shall not be cured by full performance thereof within
five (5) days after written notice thereof shall have been given
to the Company by a Purchaser; or
(b) The Company shall default in the performance of
any covenant contained in Section 8 of this Agreement (including
without limitation Section 8.8 regarding application of the use
of proceeds) any covenant in any other loan agreement or any
covenant in the Registration Rights Agreement, and any such
failure shall not be cured by full performance thereof within ten
(10) days after written notice thereof shall have been given to
the Company by either Purchaser; or
(c) Any representation or warranty made by the Company
or any Subsidiary in this Agreement or by the Company or any
Subsidiary (or any officers of the Company or any Subsidiary) in
any certificate, instrument or written statement contemplated by
or made or delivered pursuant to or in connection with this
Agreement, or the Registration Rights Agreement, shall prove to
have been incorrect when made in any material respect; or
(d) The Company or any Subsidiary shall fail to
perform or observe any other term, covenant or agreement
contained in the Investor Rights Agreement, the Registration
Rights Agreement, the Debentures, or the Warrants on its part to
be performed or observed and any such failure shall not be cured
or by full performance thereof within ten (10) days after written
notice thereof shall have been given to the Company by a
Purchaser; or
(e) The Company or any Subsidiary shall (i) admit in
writing its inability to pay its debts generally as they become
due; (ii) commence a voluntary case under Title 11 of the United
States Code as from time to time in effect ("Title 11"), or
--------
authorize, by appropriate proceedings of its Board of Directors
or other governing body, the commencement of such a voluntary
case; (iii) file an answer or other pleading omitting or failing
to deny the material allegations of a petition filed against it
commencing an involuntary case under such Title 11, or seek,
consent to or acquiesce in the relief therein provided, or fail
to controvert timely the material allegations of any such
petition; (iv) suffer the entry of an order for relief in any
involuntary case commenced under said Title 11; (v) seek relief
as a debtor under any applicable law, other than said Title 11,
of any jurisdiction relating to the liquidation or reorganization
of debtors or to the modification or alteration of the rights of
creditors, or consent to or acquiesce in such relief; (vi) suffer
the entry of an order by a court of competent jurisdiction
(A) finding it to be bankrupt or insolvent, (B) ordering or
approving its liquidation, reorganization or any modification or
alteration of the rights of its creditors, or (C) assuming
custody of, or appointing a receiver or other custodian for, all
or a substantial part of its property (not otherwise covered by
subsection (g) below); or (vii) make an assignment for the
benefit of, or enter into a composition with, its creditors, or
appoint or consent to the appointment of a receiver or other
custodian for all or a substantial part of its property; or
(f) Any judgment, writ, warrant of attachment or
execution or similar process shall be issued or levied against
the property of the Company or any Subsidiary in an aggregate
amount which exceeds $250,000 and such judgment, writ, or similar
process shall not be released, vacated or fully bonded or stayed
pending appeal within sixty (60) days after its issue or levy; or
(g) Upon a Change of Control (as defined below) of the
Company not involving the Purchaser and/or an Affiliate of the
Purchaser. "Change of Control" means any event or series of
-----------------
events by which (A) any Person or group obtains a majority (by
voting or otherwise) of the securities of the Company ordinarily
having the right to vote in the election of directors; (B) during
any two year period, individuals who at the beginning of any such
two year period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of
Directors or whose nomination for election by the stockholders of
the Company was approved by a vote of the majority of the
directors then still in office who were either directors at the
beginning of such period or whose election, recommendation, or
nomination for election was previously so approved) cease for any
reason to constitute a majority of the Board of Directors of the
Company then in office; (C) the merger, consolidation,
reorganization, recapitalization, dissolution or liquidation of
the Company if, as a result, the current stockholders no longer
own more than 50% of the voting securities of the Company; (D)
any sale, lease, exchange or other transfer of all, or
substantially all, of the assets of the Company; or (E) the
adoption of a plan leading to the liquidation or dissolution of
the Company; or
(h) Upon the existence or occurrence of an event of
default, which is not cured or waived, with respect to any
Indebtedness (other than the Debentures) of the Company or any
Subsidiary, which event of default has resulted in the
acceleration of such other Indebtedness; or
(i) If the Company and/or any of its Subsidiaries,
without the prior consent of the Purchasers, incur, issue,
guarantee or assume any Indebtedness (excluding (x) the $4
---------
million of Debentures acquired hereunder, (y) trade payables
incurred in the ordinary course of business, and (z) up to $1
million of assumed liability pursuant to the acquisition of the
Mildred Elley Business School) in an aggregate amount in excess
of $1,000,000 (the "One Million Dollar Debt Basket"); provided,
------------------------------ --------
however, that any Indebtedness ranking senior to or PARI PASSU
- -------
with the Debentures incurred pursuant to the acquisition of the
Mildred Elley Business School shall be included in the
calculation of the One Million Dollar Debt Basket; and provided
--------
further that any Indebtedness up to $1 million ranking junior to
- -------
the Debentures incurred pursuant to the acquisition of the
Mildred Elley Business School shall not be included in the
calculation of the One Million Dollar Debt Basket; or
(j) Upon the removal of David Warnock or the other
member of the Board of Directors who was designated by the
Purchasers, or any replacement designated by the Purchasers, from
the Company's Board of Directors, except as contemplated by the
Transaction Documents.
Upon the occurrence or existence of any Event of Default, and in
any such event, the Purchaser or any other holder of at least 25%
of the outstanding principal amount of all Debentures may, by
notice to the Company, declare the entire unpaid principal amount
of such Debenture, all interest accrued and unpaid thereon and
all other amounts payable to such holder under such Debenture or
this Agreement to be forthwith due and payable, whereupon such
Debenture, all such accrued interest and all such amounts shall
become and be forthwith due and payable (unless there shall have
occurred an Event of Default under Section 10.1(e) in which case
all such accounts shall automatically become due and payable
without such declaration), without presentment, demand, protest
or further notice of any kind, all of which are hereby expressly
waived by the Company with respect to itself and its
Subsidiaries. Upon the occurrence or existence of any Event of
Default, the Warrants shall all immediately become exercisable,
in whole or in part, at the option of the Holder, for that number
of shares of Common Stock issuable upon exercise of the Warrants.
10.2. Annulment of Defaults. Section 10.1 is subject to the
---------------------
condition that, if at any time after the principal of
the Debentures shall have become due and payable, and
before any judgment or decree for the payment of the
moneys so due shall have been entered, all arrears of
interest upon such Debentures and all other sums
payable to the holder of the Debentures under or the
Debentures and under this Agreement (except the
principal amount which by such declaration shall have
become payable) shall have been duly paid, and every
other default and Event of Default shall have been made
good or cured, then and in every such case the holder
of the Debentures, by written instrument delivered to
the Company, may rescind and annul such declaration and
its consequences; provided, however, that no such
-----------------
rescission or annulment shall extend to or affect any
other or subsequent default or Event of Default or
impair any right of the holders of any other Debentures
consequent thereon; and provided further that once an
----------------
Event of Default occurs or exists, all of the Warrants
shall become immediately exercisable in whole or in
part and the Warrants shall remain in full force and
effect until the end of the respective Exercise Period
regardless of whether the Event of Default is cured or
waived.
10.3. Subordinate to Senior Indebtedness.
----------------------------------
(a) The Company agrees, and each Purchaser by its
acceptance hereof likewise agrees, that the payment of the
principal of and interest on the Debentures is hereby expressly
made subordinate and junior in right of payment to the prior
payment in full of all principal of and interest on all Senior
Indebtedness (as defined below) whether now outstanding or
hereafter incurred, created or assumed.
(b) The term "Senior Indebtedness," as used in this
-------------------
Agreement, shall mean: (i) the principal, interest and other
amounts outstanding at the date of execution of this Agreement as
set forth and identified as "Senior Debt" on Schedule 4.29 (the
-------------
"Existing Indebtedness") or (ii) the principal, interest and
---------------------
other amounts incurred, created, assumed, modified, renewed or
extended after the Closing Date on the following: (w) secured
indebtedness of the Company for money borrowed (including any
bank loan or credit facility) approved by the Board of Directors;
(x) obligations of the Company as lessee under any lease of
property which is reflected on the Company's balance sheet as a
capitalized lease in accordance with GAAP; (y) guarantees by the
Company of indebtedness for money borrowed by a Subsidiary or of
any obligations of a Subsidiary under any lease of property which
is reflected on the Subsidiary's balance sheet as a capitalized
lease in accordance with GAAP; and (z) unsecured indebtedness of
the Company approved by the Company's Board of Directors and
which is issued following the Purchasers' execution of a
subordination agreement on terms and conditions acceptable to the
Purchasers.
(c) Notwithstanding the foregoing provisions, the
total aggregate amount of Senior Indebtedness shall not, at any
time, without the written consent of the Purchasers, exceed the
sum of the Existing Indebtedness plus $1,000,000 (the "One
---
Million Dollar Senior Debt Basket"); provided, however, that any
- --------------------------------- -----------------
Indebtedness ranking senior to the Debentures issued, incurred or
guaranteed by the Company or any Subsidiary pursuant to the
acquisition of the Mildred Elley Business School shall be
included in the calculation of the One Million Dollar Senior Debt
Basket and shall also be included in the calculation of the One
Million Dollar Debt Basket. Failure to comply with this Section
10.3 shall constitute an Event of Default.
SECTION 11
Miscellaneous
-------------
11.1. Amendment; Waiver. Neither this Agreement nor any
-----------------
provision hereof may be amended, modified, supplemented
or waived, except by a written instrument executed by
(i) the Company and (ii) the Purchasers;
11.2. Notices. Any notices or other communications required
-------
or permitted hereunder shall be sufficiently given if
in writing and delivered in Person, transmitted by
facsimile transmission (fax) or sent by registered or
certified mail (return receipt requested) or recognized
overnight delivery service, postage pre-paid, addressed
as follows, or to such other address as such party may
notify to the other parties in writing:
(a) if to the Company:
Touchstone Applied Science Associates, Inc.
P.O. Box 382
4 Hardscrabble Heights
Brewster, New York 10509
Attn: Andrew L. Simon
Telephone No.: 914-277-8100
Facsimile No.: 914-277-3548
with a copy to:
Christy & Viener
620 Fifth Avenue
New York, New York 10020
Attn: Steven R. Berger, Esq.
Telephone No.: 212-632-5500
Facsimile No.: 212-632-5555
(b) if to the Purchasers:
c/o Cahill, Warnock & Company, L.L.C.
One South Street, Suite 2150
Baltimore, MD 21202
Attn: David L. Warnock
Telephone No.: 410-895-3800
Facsimile No.: 410-895-3805
with a copy to:
Wilmer, Cutler & Pickering
100 Light Street
Baltimore, MD 21202
Attn: George P. Stamas, Esq.
Telephone No.: 410-986-2800
Facsimile No.: 410-986-2828
A notice or communication will be effective (i) if delivered in
Person or by overnight courier, on the business day it is
delivered, (ii) if transmitted by telecopier, on the business day
of actual confirmed receipt by the addressee thereof, and (iii)
if sent by registered or certified mail, three (3) business days
after dispatch.
11.3. 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 is held to be
prohibited by or invalid under applicable law, such
provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating
the remainder of this Agreement.
11.4. Successors and Assigns. Except as otherwise provided
----------------------
herein, the provisions hereof shall inure to the
benefit of, and be binding upon, the successors and
permitted assigns of the parties hereto. The Company
shall not have the right to assign its rights or
delegate its obligations under this Agreement without
the prior written consent of the Purchasers. Each
Purchaser may assign its rights only to one or more of
its Affiliates; provided, however, that this Agreement,
-----------------
the Debentures, and the Warrants and all rights
hereunder and thereunder shall be freely assignable
(subject to applicable state and federal securities
laws) to any Person by the Purchaser upon the
occurrence of an Event of Default without the consent
of the Company. The parties hereto agree that the
Warrants are attached to the Debentures and may not be
assigned separately from the Debentures.
11.5. Survival of Representations, Warranties and Covenants.
-----------------------------------------------------
All representations and warranties made in, pursuant to
or in connection with this Agreement shall survive the
execution and delivery of this Agreement, any
investigation at any time made by or on behalf of any
Purchaser, and the sale and purchase of the Debentures,
Warrants and any Common Stock, and payment therefor for
a period of two (2) years; provided, however, that the
-----------------
representations and warranties made in Sections 4.16
(Environmental), 4.19 (Benefits) and 4.20 (Taxes) shall
survive the applicable statutory period of limitations
with respect to any liabilities covered thereby.
Unless otherwise provided in this Agreement, the
covenants and agreements set forth in Sections 8, 9 and
10 shall survive and remain in force so long as any
Debenture or Warrant remains issued and outstanding.
11.6. Entire Agreement. This Agreement and the other
----------------
documents delivered pursuant hereto constitute the full
and entire understanding and agreement between the
parties with regard to the subject matter hereof and
thereof and supersede and cancel all prior
representations, alleged warranties, statements,
negotiations, undertakings, letters, acceptances,
understandings, contracts and communications, whether
verbal or written, among the parties hereto and thereto
or their respective agents with respect to or in
connection with the subject matter hereof.
11.7. Choice of Law. This Agreement shall be governed by,
-------------
and construed in accordance with, the laws of the State
of New York, without regard to principles of conflict
of laws.
11.8. Counterparts. This Agreement may be executed in any
------------
number of counterparts and by different parties hereto
in separate counterparts, with the same effect as if
all parties had signed the same document. All such
counterparts shall be deemed an original, shall be
construed together and shall constitute one and the
same instrument.
11.9. Costs and Expenses. Promptly after the Closing, the
------------------
Company shall pay the reasonable fees and disbursements
incurred by the Purchasers (including without
limitation reasonable attorneys' and consultants' fees)
in connection with the due diligence review and Closing
under this Agreement and the transactions contemplated
hereby (including without limitation the due diligence
review and attorneys' fees incurred in preparation for
the transactions in connection with the Drake Business
School as previously contemplated); provided, however,
-----------------
that the parties shall bear their own costs and
expenses if the Closing hereunder fails to take place.
11.10. No Third-Party Beneficiaries. Nothing in this
----------------------------
Agreement will confer any third party beneficiary or
other rights upon any Person (specifically including
any employees of the Company and its Subsidiaries) or
entity that is not a party to this Agreement.
11.11. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless
the Purchasers and their Affiliates, and their respective
partners, co-investors, officers, directors, employees, agents,
consultants, attorneys and advisers (each, an "Indemnified
-----------
Party"), from and against any and all actual losses, claims,
- -----
damages, liabilities, costs and expenses (including, without
limitation, environmental liabilities, costs and expenses and all
reasonable fees, expenses and disbursements of counsel), joint or
several (hereinafter collectively referred to as a "Loss"), which
----
may be incurred by or asserted or awarded against any Indemnified
Party in connection with or in any manner arising out of or
relating to any investigation, litigation or proceeding or the
preparation of any defense with respect thereto, arising out of
or in connection with or relating to this Agreement, the other
Transaction Documents or the transactions contemplated hereby or
thereby or any use made or proposal to be made with the proceeds
of the Purchasers' purchase of the Debentures, Warrants, Common
Stock and Warrant Shares pursuant to this Agreement, whether or
not such investigation, litigation or proceeding is brought by
the Company, any of its Subsidiaries, shareholders or creditors,
whether or not any of the transactions contemplated by this
Agreement or the other Transaction Documents are consummated,
except to the extent such Loss is found in a final judgment by a
court of competent jurisdiction to have resulted from such
Indemnified Party's gross negligence or willful misconduct.
(b) An Indemnified Party shall give written notice to
the Company of any claim with respect to which it seeks indemni-
fication within ten (10) days after the discovery by such parties
of any matters giving arise to a claim for indemnification
pursuant to Section 11.11(a); provided that the failure of any
--------
Indemnified Party to give notice as provided herein shall not
relieve the Company of its obligations under this Section 11.11,
except to the extent that the Company is actually prejudiced by
such failure to give notice. In case any such action or claim is
brought against any Indemnified Party, the Company shall be
entitled to participate in and, unless in the reasonable good
faith judgment of the Indemnified Party a conflict of interest
between such Indemnified Party and the Company may exist in
respect of such action or claim, to assume the defense thereof,
with counsel satisfactory to the Indemnified Party and after
notice from the Company to the Indemnified Party of its election
so to assume the defense thereof, the Company shall not be liable
to such Indemnified Party for any legal or other expenses
subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. In
any event, unless and until the Company elects in writing to
assume and does so assume the defense of any such action or claim
the Indemnified Party's costs and expenses arising out of the
defense, settlement or compromise of any such action or claim
shall be Losses subject to indemnification hereunder. If the
Company elects to defend any such action or claim, then the
Indemnified Party shall be entitled to participate in such
defense with counsel of its choice at its sole cost and expense.
The Company shall not be liable for any settlement of any action
or claim effected without its written consent. Anything in this
Section 11.11 to the contrary notwithstanding, the Company shall
not, without the Indemnified Party's prior written consent,
settle or compromise any claim or consent to entry of any
judgment in respect thereof that imposes any future obligation on
the Indemnified Party or that does not include, as an
unconditional term thereof, the giving by the claimant or the
plaintiff to the Indemnified Party, a release from all liability
in respect of such claim.
(c) The Company agrees that no Indemnified Party shall
have any liability (whether direct or indirect, in contract, tort
or otherwise) to the Company or any of its Subsidiaries,
shareholders or creditors for or in connection with the
transactions contemplated by this Agreement or the other
Transaction Documents, except to the extent such liability is
found in a final judgment by a court of competent jurisdiction to
have resulted from such Indemnified Party's gross negligence or
willful misconduct or the misrepresentations of the Indemnified
Party, but in no event shall an Indemnified Party be liable for
punitive, exemplary or consequential damages.
(Signature Page Follows)
<PAGE>
SECURITIES PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the Company and the Purchasers have
caused this Agreement to be executed effective as of the date
first above written.
THE COMPANY:
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By:/S/ ANDREW L. SIMON
--------------------------------------------
Name: Andrew L. Simon
Title: President and Chief Executive Officer
PURCHASERS:
CAHILL, WARNOCK STRATEGIC PARTNERS FUND, L.P.
By: CAHILL WARNOCK STRATEGIC PARTNERS, L.P.,
its General Partner
By:/S/ DAVID L. WARNOCK
--------------------------------------------
Name: David L. Warnock
Title: a General Partner
STRATEGIC ASSOCIATES, L.P.
By: CAHILL, WARNOCK & COMPANY, LLC, its
General Partner
By:/S/ DAVID L. WARNOCK
--------------------------------------------
Name: David L. Warnock
Title: Managing Member
<PAGE>
Exhibit A
---------
Initial Investment
------------------
Original Principal Amount Number Of
Purchaser of Debentures Warrant Shares
- --------- ------------- --------------
Cahill, Warnock
Strategic Partners
Fund, L.P. $3,790,000 2,615,970
Strategic Associates, L.P. $210,000 144,948
Company Put Option
------------------
Purchaser Company Put Option Percentage Total Cost
- --------- ----------------------------- ----------
Cahill, Warnock
Strategic Partners
Fund, L.P. 94.75% $1,895,000
Strategic
Associates, L.P. 5.25% $105,000
<PAGE>
Exhibit B
---------
Registration Rights Agreement
<PAGE>
Exhibit C
---------
Investor Rights Agreement
<PAGE>
Exhibit D
---------
Form of Debenture
<PAGE>
Exhibit E
---------
Form of Warrant
<PAGE>
Exhibit F
---------
Accreditation and State Licensure/Approval.
- ------------------------------------------
(a) Schedule 4.28 contains a complete and accurate
-------------
statement of the accreditation granted to each of the schools of
the Company and its Subsidiaries, the date that accreditation was
last granted, and the current term of accreditation. None of the
schools or educational and training programs of the Company and
its Subsidiaries are on probation or warning, have been directed
to show cause why accreditation should not be revoked, or are
subject to an action by an accrediting agency to withdraw or deny
accreditation. To the knowledge of the Company and its
Subsidiaries, there are no facts, circumstances, or omissions
concerning their schools that could lead to such actions by an
accrediting agency.
(b) The Company, its Subsidiaries, and its schools have
complied with all stipulations, conditions and other requirements
imposed by the schools' accrediting agencies at the time of, or
since, the last grant of accreditation, including but not limited
to the timely filing of all required reports and responses.
(c) The Company, its Subsidiaries, and its schools have
secured all requisite approvals from its institutional
accrediting agencies for the educational and training programs
currently offered.
(d) The Company, its Subsidiaries, and its schools have
secured all requisite licenses to operate in the states in which
they are located and all requisite approvals from such states for
the educational and training programs currently offered.
U.S. Department of Educational Certification and Eligibility.
- ------------------------------------------------------------
(a) Schedule 4.29 contains a complete and accurate
-------------
statement of the U.S. Department of Education certification and
eligibility status for each of the schools owned by the Company
and its Subsidiaries, including the date that certification was
last granted and the current term of certification. Each of the
schools listed in Schedule 4.29 is certified by the U.S.
-------------
Department of Education to participate in the programs authorized
by Title IV of the Higher Education Act of 1965, as amended.
None of the schools are subject to limitation, suspension or
termination proceedings, or subject to any other action or
proceeding by the U.S. Department of Education that could result
in the loss of certification or eligibility or a material
liability or fine. To the Knowledge of the Company and its
Subsidiaries, there are no facts, circumstances, or omissions
concerning the schools that could lead to such an action by the
U.S. Department of Education.
(b) Each of the schools owned by the Company and its
Subsidiaries is in material compliance with all rules,
regulations and requirements established by the U.S. Department
of Education pertaining to each school's eligibility to
participate in the programs authorized by Title IV of the Higher
Education Act of 1965, as amended, and other federal student
financial aid funding programs set forth at 34 C.F.R. 600 et
--
seq. The Company and its Subsidiaries are aware of no facts,
- ---
circumstances, or omissions concerning the schools that might
result in a finding of material non-compliance with regard to
such rules, regulations and requirements. Without limiting the
foregoing, the Company, its Subsidiaries also represent that:
(i) Each of the schools satisfies the standards
of financial responsibility and administrative capability,
as established by the U.S. Department of Education and as
set forth at 34 C.F.R. 668.15-668.16, and each program
offered by the schools is an eligible program in accordance
with the requirements of 34 C.F.R. 668.8.
(ii) Each of the schools receives no greater than
eighty-five percent (85%) of its revenues from programs
authorized by Title IV of the Higher Education Act of 1965,
as amended, or other federal student financial aid funds,
and satisfies the requirements regarding tuition revenue
established by the Department of Education as set forth at
34 C.F.R. 600.5. Schedule 4.29 contains a correct
-------------
statement of each school's percentage of revenue from such
federal funding sources.
(iii) The final cohort default rates published
by the U.S. Department of Education for fiscal years 1992
through 1995 for the schools of the Company and its
Subsidiaries are listed in Schedule 4.29.
-------------
(iv) Each of the schools has established a default
reduction plan and submitted such plans to the U.S.
Department of Education in accordance with 34 C.F.R.
674.6.
(v) Each of the schools disburses federal Pell
Grant payments in accordance with procedures that comply
with 34 C.F.R. 690.63.
(c) U.S. Department of Education program reviews and
compliance audits conducted at each of the schools since 1992
have not materially adversely affected the Company, its
Subsidiaries or its schools nor has any program review or
compliance audit resulted in the imposition of any material
liability, financial or otherwise, affecting the Company, its
Subsidiaries or its schools. The Company, its Subsidiaries, and
its schools have complied with all the findings and conditions
arising from the program reviews and compliance audits. To the
extent that any program review or audit remains pending or
unresolved, there are no issues or findings of non-compliance
which, to the knowledge of the Company, its Subsidiaries, or its
schools, could result in the loss of certification or eligibility
or a material liability or fine.
