EXHIBIT 10.3
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LOAN AGREEMENT
LOAN AGREEMENT dated July 1, 2005 (together with any
amendments or modifications hereto in effect from time to time,
the "Agreement"), between XXXXXX UNITED BANK, a New Jersey state
chartered commercial bank (the "Bank") and TOUCHSTONE APPLIED
SCIENCE ASSOCIATES, INC. a Delaware corporation (the
"Borrower").
Bank has agreed to make a term loan (the "Loan") to
Borrower in the amount of ONE MILLION TWO HUNDRED THOUSAND AND
00/100 DOLLARS ($1,200,000.00). The Loan shall be repaid on the
terms set forth in the Term Loan Note of even date herewith from
Borrower to Bank (the "Note").
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, and
intending to be legally bound hereby, Bank and Borrower agree as
follows:
1. DEFINITIONS.
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1.1 "COMMITMENT LETTER" means the commitment letter
dated June 6, 2005 pursuant to which Bank committed to make the
Loan to Borrower.
1.2 "GUARANTOR" or "GUARANTORS" means Xxxx
Evaluation & Testing Associates, Inc. and Assessment and
Evaluation Concepts Inc.
1.3 "LIABILITIES" means, collectively: (i) the
repayment of all sums due under the Note (and all extensions,
renewals, replacements, substitutions, amendments and
modifications thereof) and the other Loan Documents; (ii) the
performance of all terms, conditions and covenants set forth in
the Loan Documents; and (iii) all obligations and indebtedness
of every kind and description of Borrower to Bank, whether
primary or secondary, absolute or contingent, direct or
indirect, sole, joint or several, secured or unsecured, due or
to become due, contractual or tortious, arising by operation of
law or otherwise, or now or hereafter existing, and whether
incurred by Borrower as principal, surety, endorser, guarantor,
accommodation party or otherwise, including, without limitation,
principal, interest, fees, late charges and expenses, including
attorneys' fees and/or allocated fees of Bank's in-house legal
counsel.
1.4 "LOAN DOCUMENTS" means, collectively, this
Agreement, the Note and any other guaranty, document,
certificate or instrument executed by Borrower, Guarantor or any
other obligated party in connection with the Loan, together with
all amendments, modifications, renewals or extensions thereof.
Capitalized terms used herein shall have the meaning
assigned to them herein and those not defined herein shall have
the meanings assigned to them in the other Loan Documents.
2. THE LOAN.
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2.1 TERM OF THE LOAN. Bank agrees to make the Loan
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to Borrower on the terms set forth in the Note from the date
hereof until July 1, 2011 (the "Maturity Date").
2.2 ADVANCE SCHEDULE. At the closing of the Loan,
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the sum of $1,200,000.00 shall be made available to the Borrower
to assist in the acquisition of Achievement Data, Inc.
2.3 INCORPORATION. All of the Loan Documents are
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hereby made a part of this Agreement to the extent and with the
same effect as if fully set forth herein.
3. CONDITIONS PRECEDENT. Bank's obligations hereunder
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are conditioned upon the satisfaction of each of the following
conditions precedent:
3.1 Borrower shall have delivered or caused to be
delivered to Bank each of the Loan Documents, in form and
substance satisfactory to Bank, duly executed by Borrower;
3.2 Borrower shall have delivered or caused to be
delivered to Bank each of the other documents, certificates and
instruments required by the Commitment Letter within the
applicable time periods specified therein, each in form and
substance satisfactory to Bank; and
3.3 Each of the other conditions applicable to the
Loan contained in the Commitment Letter shall have been
satisfied.
4. REPRESENTATIONS AND WARRANTIES. Borrower represents
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and warrants as of the date hereof and, unless otherwise
indicated, at all times hereafter until the Liabilities are
fully paid and performed, as follows:
4.1 ORGANIZATION, POWERS. Borrower (i) is (a) an
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adult individual and is sui juris, or (b) a corporation, general
partnership, limited partnership, limited liability partnership
or limited liability company (as indicated below), duly
organized, validly existing and in good standing under the laws
of the state of its organization, and is authorized to do
business in each other jurisdiction wherein its ownership of
property or conduct of business legally requires such
authorization; (ii) has the power and authority to own its
properties and assets and to carry on its business as now being
conducted and as now contemplated; and (iii) has the power and
authority to execute, deliver and perform all of its obligations
under each Loan Document to which it is a party.
4.2 EXECUTION OF LOAN DOCUMENTS. Each of the Loan
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Documents to which Borrower is a party have been duly executed
and delivered by Borrower. Execution, delivery and performance
of each of the Loan Documents to which Borrower is a party will
not: (i) violate any of its organizational documents, provision
of law, order of any court, agency or instrumentality of
government, or any provision of any indenture, agreement or
other instrument to which it is a party or by which it or any of
its properties is bound; (ii) result in the creation or
imposition of any lien, charge or encumbrance of any nature,
other than the liens created by the Loan Documents; and
(iii) require any authorization, consent, approval, license,
exemption of, or filing (except for filing with the Securities
and Exchange Commission) or registration with, any court,
governmental or other authority.
4.3 OBLIGATIONS OF BORROWER. Each of the Loan
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Documents to which Borrower is a party are the legal, valid and
binding obligations of Borrower, enforceable against it in
accordance with their terms, except as the same may be limited
by bankruptcy, insolvency, reorganization or other laws or
equitable principles relating to or affecting the enforcement of
creditors' rights generally. Borrower is obtaining the Loan for
commercial purposes.
4.4 LITIGATION; COMPLIANCE WITH LAWS. There is no
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action, suit, or proceeding at law or in equity or by or before
any governmental authority, agency or other instrumentality now
pending or, to the knowledge of Borrower, threatened against or
affecting Borrower or any of its properties or rights which, if
adversely determined, would materially impair or affect:
(i) the value of any collateral securing the Liabilities;
(ii) Borrower's right to carry on its business substantially as
now conducted (and as now contemplated); (iii) its financial
condition; or (iv) its capacity to consummate and perform its
obligations under the Loan Documents to which Borrower is a
party. Borrower is in compliance with all laws, ordinances,
rules, regulations and requirements which affect Borrower, its
assets or the operation of its business, and is not in violation
of or in default with respect to any order, writ, injunction,
decree or demand of any court, governmental or other authority.
4.5 PAYMENT OF TAXES. Borrower has filed or caused
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to be filed all federal, state and local tax returns which are
required to be filed, and has paid or caused to be paid all
taxes as shown on said returns or on any assessment received by
it, to the extent that such taxes or assessments have become
due, except such that are contested in good faith by Borrower by
appropriate proceedings and for which adequate reserves have
been established. Borrower is not aware of any material
unasserted claims for prior taxes against it for which adequate
reserves satisfactory to Bank have not been established.
4.6 NO DEFAULTS. Borrower is not in default in the
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performance, observance or fulfillment of any of the
obligations, covenants or conditions contained herein or in any
material agreement or instrument to which it is a party or by
which it or any of its properties is bound.
4.7 FINANCIAL STATEMENTS. All financial statements
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delivered by Borrower to Bank, are true, correct and complete in
all material respects, fairly represent Borrower's financial
condition as of the date hereof and thereof, and no information
has been omitted which would make the information previously
furnished misleading or incorrect in any material respect.
4.8 NO MATERIAL ADVERSE CHANGE. As of the date
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hereof, there has been no material adverse change in the
financial condition, operations, affairs, prospects, or business
of Borrower from the date of the most recent financial
statements provided by Borrower to Bank.
4.9 NO UNTRUE STATEMENTS. No Loan Document or other
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document, certificate or statement furnished to Bank by or on
behalf of Borrower contains any untrue statement of a material
fact or omits to state a material fact necessary in order to
make the statements contained herein and therein not misleading.
It is specifically understood by Borrower that all such
statements, representations and warranties shall be deemed to
have been relied upon by Bank as an inducement to make the Loan
to Borrower.
4.10 TITLE TO PROPERTY. Borrower has good and
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marketable title to all of its properties and assets listed in
the most recent financial statements delivered to he Bank on or
prior to the date hereof, except as otherwise expressly
described in said financial statements, and except those
properties and assets disposed of since the date of said
financial statements in the ordinary course of business.
5. COVENANTS.
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5.1 FINANCIAL COVENANTS. For purposes of calculating
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all ratios within this Section 5.1, the annual certified
financial statements of the Borrower shall be used each year,
and the asset listed under "Other" as "Test passage bank and
test development" shall be includable as an asset and not
excludable as an intangible in all calculations
5.1.1 DEBT SERVICE COVERAGE. The Borrower shall
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exhibit annually to the Lender satisfactory evidence that
Borrower meets "Debt Service Coverage" equal to or greater
than 1.25x. "DEBT SERVICE COVERAGE" is defined as net
income, interest, depreciation and amortization divided by
current portion of long term debt and interest.
5.1.2 CURRENT RATIO. The Borrower shall exhibit a
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Current Ratio of 1.0:1 during the term of the Loan.
Current Ratio is defined as current assets divided by
current liabilities.
5.1.3 DEBT TO EFFECTIVE TANGIBLE NET WORTH RATIO.
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The Borrower shall exhibit a Debt to Effective Tangible Net
Worth Ratio ("ETNW") of less than 1.0x during the term of
the Loan. The Debt/ETNW is defined as total liabilities
less subordinated debt divided by ETNW. ETNW is defined as
total assets less intangible assets less due from
affiliates, officers/shareholders less total liabilities
plus subordinated debt.
5.2 FINANCIAL STATEMENTS.
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5.2.1 Borrower shall furnish to Bank the following
financial information, in each instance prepared in
accordance with generally accepted accounting principles
consistently applied:
(a) Not later than one hundred twenty (120)
days after the end of each fiscal year, annual
financial statements for Borrower, which statements
shall be prepared by a Certified Public Accountant
reasonably acceptable to Bank and within thirty (30)
days of filing, income tax returns for Borrower.
(b) Such other information respecting the
operations of Borrower as Bank may from time to time
reasonably request.
5.3 TAXES AND OTHER CHARGES. Borrower shall prepare
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and timely file all federal, state and local tax returns
required to be filed by Borrower and promptly pay and discharge
all taxes, assessments, water and sewer rents, and other
governmental charges, imposed upon Borrower or on any of
Borrower's property when due, but in no event after interest or
penalties commence to accrue thereon or become a lien upon such
property, except for those taxes, assessments, water and sewer
rents, and other governmental charges then being contested in
good faith by Borrower by appropriate proceedings and for which
Borrower has established on its books or by deposit of cash with
Bank at the option of Bank, a reserve for the payment thereof in
such amount as Bank may require, and so long as such contest:
(i) operates to prevent collection, stay any proceedings which
may be instituted to enforce payment of such item, and prevent a
sale of Borrower's property to pay such item; (ii) is maintained
and prosecuted with due diligence; and (iii) shall not have been
terminated or discontinued adversely to Borrower. Borrower
shall submit to Bank, upon request, an affidavit signed by
Borrower certifying that all federal, state and local income tax
returns have been filed to date and all real property taxes,
assessments and other governmental charges with respect to
Borrower's properties have been paid to date.
5.4 INDEMNIFICATION.
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5.4.1 Borrower hereby indemnifies and agrees to
protect, defend and hold harmless Bank, any entity which
"controls" Bank within the meaning of Section 15 of the
Securities Act of 1933, as amended, or is under common
control with Bank, and any member, officer, director,
official, agent, employee or attorney of Bank, and their
respective heirs, administrators, executors, successors and
assigns (collectively, the "INDEMNIFIED PARTIES"), from and
against any and all losses, damages, expenses or
liabilities of any kind or nature and from any suits,
claims or demands, including reasonable attorneys' fees
incurred in investigating or defending such claim, suffered
by any of them and caused by, relating to, arising out of,
resulting from, or in any way connected with the Loan
Documents or the transactions contemplated therein (unless
determined by a final judgment of a court of competent
jurisdiction to have been caused solely by the gross
negligence or willful misconduct of the Indemnified
Parties) including, without limitation: (i) losses,
damages (including consequential damages), expenses or
liabilities sustained by Bank in connection with any
environmental inspection, monitoring, sampling or cleanup
of any real property owned by Borrower required or mandated
by any applicable environmental law; (iii) any untrue
statement of a material fact contained in information
submitted to Bank by the Borrower or the omission of any
material fact necessary to be stated therein in order to
make such statement not misleading or incomplete; and
(iv) the failure of Borrower to perform any obligations
herein required to be performed by Borrower.
5.4.2 In case any action shall be brought against
Bank or any other Indemnified Party in respect to which
indemnity may be sought against the Borrower, Bank or such
other Indemnified Party shall promptly notify Borrower and
Borrower shall assume the defense thereof, including the
employment of counsel selected by Borrower and satisfactory
to Bank, the payment of all costs and expenses and the
right to negotiate and consent to settlement. The failure
of Bank to so notify the Borrower shall not relieve the
Borrower of any liability it may have under the foregoing
indemnification provisions or from any liability which it
may otherwise have to Bank or any of the other Indemnified
Parties. Bank shall have the right, at its sole option, to
employ separate counsel in any such action and to
participate in the defense thereof, all at Borrower's sole
cost and expense. Borrower shall not be liable for any
settlement of any such action effected without its consent
(unless Borrower fails to defend such claim), but if
settled with Borrower's consent, or if there be a final
judgment for the claimant in any such action, Borrower
agrees to indemnify and save harmless Bank from and against
any loss or liability by reason of such settlement or
judgment.
5.4.3 The provisions of this Section 5.4 shall
survive the repayment or other satisfaction of the
Liabilities.
5.5 Borrower shall comply with each of the following:
5.5.1 Borrower shall maintain its primary
operating accounts at Bank.
5.5.2 Borrower shall not pledge, grant a security
interest in, mortgage, assign, encumber or otherwise create
a lien on any of its property (whether real or personal,
tangible or intangible, and now owned or hereafter
acquired) in favor of any person or entity other than Bank,
except for those liens, security interests and encumbrances
existing on the date hereof and previously disclosed in
writing to and approved by Bank.
6. EVENTS OF DEFAULT AND REMEDIES.
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6.1 Each of the following shall constitute a default
(each, an "EVENT OF DEFAULT") hereunder:
6.1.1 Non-payment when due of any sum required to
be paid to Bank under any of the Loan Documents, which non-
payment continues for a period of fifteen (15) days;
6.1.2 A breach of the covenants contained in
Sections 5, hereof;
6.1.3 A breach by Borrower of any other term,
covenant, condition, obligation or agreement under this
Agreement, and the continuance of such breach for a period
of fifteen (15) days after written notice thereof shall
have been given to Borrower;
6.1.4 Any representation or warranty made by
Borrower in this Agreement shall prove to be false,
incorrect or misleading in any material respect as of the
date when made; or
6.1.5 An Event of Default occurs under any of the
other Loan Documents.
6.2 If an Event of Default shall have occurred and be
continuing, then Bank may exercise any one or more of the
following rights and remedies, any other remedies provided for
in the Loan Documents or any such other rights or remedies as
may be provided by law or in equity, as Bank in its sole
discretion, may deem necessary or appropriate: (a) terminate
Bank's commitment to lend hereunder, (b) declare the principal
of, and all interest then accrued on, the Loan and any other
liabilities hereunder to be forthwith due and payable, and
unless otherwise provided herein without demand, protest, notice
of default, notice of acceleration or of intention to accelerate
or other notice of any kind, all of which Borrower hereby
expressly waives, (c) reduce any claim to judgment, and/or
(d) without notice of default or demand, pursue any of Bank's
rights and remedies under the Loan Documents, or otherwise
provided, under or pursuant to any applicable law or agreement.
7. CONTINUING ENFORCEMENT OF AGREEMENT. If, after
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receipt of any payment of all or any part of the Liabilities,
Bank is compelled or agrees, for settlement purposes, to
surrender such payment to any person or entity for any reason
(including, without limitation, a determination that such
payment is void or voidable as a preference or fraudulent
conveyance, an impermissible setoff, or a diversion of trust
funds), then this Agreement and the other Loan Documents shall
continue in full force and effect, and Borrower shall be liable
for, and shall indemnify, defend and hold harmless Bank with
respect to the full amount so surrendered. The provisions of
this Section shall survive the termination of this Agreement and
the other Loan Documents and shall remain effective
notwithstanding the payment of the Liabilities, the cancellation
of the Note or any other Loan Document, the release of any
security interest, lien or encumbrance securing the Liabilities
or any other action which Bank may have taken in reliance upon
its receipt of such payment. Any cancellation, release or other
such action by Bank shall be deemed to have been conditioned
upon any payment of the Liabilities having become final and
irrevocable.
8. MISCELLANEOUS.
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8.1 INTEGRATION. This Agreement and the other Loan
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Documents constitute the sole agreement of the parties with
respect to the transaction contemplated hereby and supersede all
oral negotiations and prior writings with respect thereto.
8.2 ATTORNEYS' FEES AND EXPENSES. If Bank retains
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the services of counsel by reason of a claim of a default or an
Event of Default hereunder or under any of the other Loan
Documents, or on account of any matter involving this Agreement,
or for examination of matters subject to Bank's approval under
the Loan Documents, all costs of suit and collection and all
reasonable attorneys' fees (and/or allocated fees of Bank's in-
house legal counsel) and such other reasonable expenses so
incurred by Bank shall forthwith, on demand, become due and
payable and shall be secured hereby.
8.3 NO IMPLIED WAIVER. Bank shall not be deemed to
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have modified or waived any of its rights or remedies hereunder
unless such modification or waiver is in writing and signed by
Bank, and then only to the extent specifically set forth
therein. A waiver in one event shall not be construed as
continuing or as a waiver of or bar to such right or remedy on a
subsequent event.
8.4 PARTIAL INVALIDITY. The invalidity or
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unenforceability of any one or more provisions of this Agreement
shall not render any other provisions herein contained invalid
or unenforceable. In lieu of any invalid or unenforceable
provision, there shall be added automatically a valid and
enforceable provision as similar in terms to such invalid or
unenforceable provision as may be possible.
8.5 BINDING EFFECT. The covenants, conditions,
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waivers, releases and agreements contained in this Agreement
shall bind, and the benefits thereof shall inure to, the parties
hereto and their respective heirs, executors, administrators,
successors and assigns; provided, however, that this Agreement
cannot be assigned by Borrower without the prior written consent
of Bank, and any such assignment or attempted assignment by
Borrower shall be void and of no effect with respect to Bank.
8.6 MODIFICATIONS. This Agreement may not be
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supplemented, extended, modified or terminated except by an
agreement in writing signed by the party against whom
enforcement of any waiver, change, modification or discharge is
sought.
8.7 JURISDICTION. Borrower hereby consents that any
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action or proceeding against it may be commenced and maintained
in any court within the State of New York or in the United
States District Court for the Southern District of New York by
service of process on any such owner, partner and/or officer;
and Borrower agrees that the courts of the State of New York and
the United States District Court for the Southern District of
New York shall have jurisdiction with respect to the subject
matter hereof and the person of Borrower and all collateral
securing the obligations of Borrower. Borrower agrees not to
assert any defense to any proceeding initiated by Bank based
upon improper venue or inconvenient forum. Borrower agrees that
any action brought by Borrower shall be commenced and maintained
only in a court in the federal judicial district or county in
which Bank has its principal place of business in New York.
8.8 NOTICES. All notices and communications under
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this Agreement shall be in writing and shall be given by either
(a) hand-delivery, (b) first class mail (postage prepaid), or
(c) reliable overnight commercial courier (charges prepaid) to
the addresses listed in this Agreement. Notice shall be deemed
to have been given and received: (i) if by hand delivery, upon
delivery; (ii) if by mail, three (3) calendar days after the
date first deposited in the United States mail; and (iii) if by
overnight courier, on the date scheduled for delivery. A party
may change its address by giving written notice to the other
party as specified herein.
8.9 GOVERNING LAW. This Agreement shall be governed
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by and construed in accordance with the substantive laws of the
State of New York, or the laws of any State in which the Loan
was made or is repayable, or the laws of any State in which any
collateral for the Loan is located, at the sole discretion of
Bank.
8.10 WAIVER OF JURY TRIAL. THE BORROWER AND BANK
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AGREE THAT ANY SUIT, ACTION OR PROCEEDING, WHETHER CLAIM OR
COUNTERCLAIM, BROUGHT BY BANK OR BORROWER ON OR WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE DEALINGS OF THE
PARTIES WITH RESPECT HERETO OR THERETO, SHALL BE TRIED ONLY BY A
COURT AND NOT BY A JURY. BANK AND BORROWER EACH HEREBY
KNOWINGLY, VOLUNTARILY, INTENTIONALLY AND INTELLIGENTLY, AND
WITHOUT THE ADVICE OF THEIR RESPECTIVE COUNSEL, WAIVE ANY RIGHT
TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING.
FURTHER, THE BORROWER WAIVES ANY RIGHT IT MAY HAVE TO CLAIM OR
RECOVER, IN ANY SUCH SUIT, ACTION OR PROCEEDING, ANY SPECIAL,
EXEMPLARY, PUNITIVE, CONSEQUENTIAL OR OTHER DAMAGES OTHER THAN,
OR IN ADDITION TO, ACTUAL DAMAGES. THE BORROWER ACKNOWLEDGES
AND AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL ASPECT
OF THIS AGREEMENT AND THAT Bank WOULD NOT EXTEND CREDIT TO THE
BORROWER IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT A
PART OF THIS AGREEMENT.
IN WITNESS WHEREOF, the Borrower and Bank, intending to be
legally bound, have duly executed and delivered this Loan
Agreement as of the day and year first above written.
BORROWER:
TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC.
By:________________________
Xxxxxx X. Xxxxx
President
Address: 0 Xxxxxxxxxxxx Xxxxxxx
Xxxxxxxx, Xxx Xxxx 00000
BANK:
XXXXXX UNITED BANK
By:_____________________________
Xxxxxxx X. Xxxxxxx
Vice President
Address: 000 Xxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attn.: Commercial Lending
