EXHIBIT 10.3
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ESCROW AGREEMENT
This ESCROW AGREEMENT ("Agreement") is entered into as of
the 31st day of May, 2006, by and among TOUCHSTONE APPLIED
SCIENCE ASSOCIATES, INC., a Delaware corporation, (the
"Company"), with its principal place of business located at
0 Xxxxxxxxxxxx Xxxxxxx, Xxxxxxxx, XX 00000, and XXXX X.
XXXXX, XXXXX X. XXXX, XXXXXXXX XXXXXXX, XXXXX XXXXXXXX,
XXXX XXXXX, XXXXXXX XXXXXXXXX, XXXX XXXXXXXXX, and XXXXX
XXXXX (each a "Selling Shareholder" and collectively, the
"Selling Shareholders"), and RIDER, WEINER & XXXXXXX, P.C.,
a New York professional services corporation, with its
principal place of business at 000 Xxxxxx Xxxxxxx Xxxx, Xxx
Xxxxxxx, Xxx Xxxx 00000 (the "Escrow Agent"). For
purposes of this Agreement, the Company, each of the
Selling Shareholders and Escrow Agent is referred to,
severally, as a "Party" and, collectively, as the
"Parties." Capitalized terms used herein and not otherwise
defined herein shall have the meanings set forth in that
certain Stock Purchase Agreement dated as of the date
hereof, by and among the Company, Selling Shareholders and
Questar Educational Systems, Inc., a Minnesota corporation
("QES") (the "Stock Purchase Agreement").
This Agreement is based on the following facts and
conditions:
A. The Company has a contingent obligation to pay
Selling Shareholders the stock portion of the Earnout
Payment based upon the computation of Cumulative Earnout
Revenue on or before January 31, 2010, under the terms and
conditions of Section 2.2.2 of the Stock Purchase
Agreement;
B. The Company has, in connection with the Closing,
registered in the name of the Escrow Agent One Million One
Hundred Eleven Thousand One Hundred Eleven (1,111,111)
Shares of TASA Preferred Stock, representing the Stock
Portion of the Earnout Payment (the "Escrowed Preferred
Stock") which represents the number of shares necessary to
fully pay the stock portion of the Earnout Amount (other
than any Earnout Amount that may be payable pursuant to
Section 2.2.2.4 of the Stock Purchase Agreement) if it is
earned;
C. Each Selling Shareholder is the contingent
beneficial owner of a portion of the Escrowed Preferred
Stock, in such number of shares as is listed opposite his
or her name on Exhibit A to this Agreement;
D. As a condition to Closing on the transaction
described in the Stock Purchase Agreement, the Selling
Shareholders and the Company have agreed to deposit the
Escrowed Preferred Stock with the Escrow Agent to be held
in escrow in accordance with the terms and conditions of
this Agreement;
E. The Escrow Agent has agreed to hold the Escrowed
Preferred Stock, in escrow, in accordance with such same
terms and conditions; and
F. The Parties have agreed to be bound by the terms
of this Agreement.
NOW THEREFORE, in consideration of the premises and
other good and valuable consideration, the Parties agree as
follows:
1. DEPOSIT OF PREFERRED STOCK. Shares representing
the Escrowed Preferred Stock have been registered in the
name of Rider, Weiner & Xxxxxxx, P.C., as Escrow Agent,
(collectively, the "Escrow Documents") and have been
deposited into an escrow account ("Escrow") with the Escrow
Agent, and the Escrow Agent acknowledges receipt of the
Escrow Documents as of the date of this Agreement.
2. EXERCISE OR CONVERSION OF PREFERRED STOCK INTO
COMMON STOCK.
(a) If the Escrowed Preferred Stock has exercise
rights or conversion rights allowing it to be converted
into TASA Common Stock of the Company, the Escrow Agent
will, upon receipt of a written notice of conversion
jointly executed by a Selling Shareholder exercising his or
her conversion right and the Company, provide the
certificates and documents that evidence and/or which are
necessary to execute the exercise rights or conversion
rights. The converted Common Stock (the "Escrowed Common
Stock" and, together with the Escrowed Preferred Stock, the
"Escrowed Stock") will remain in Escrow subject to the
terms of this Agreement.
(b) If the Escrowed Preferred Stock becomes subject
to mandatory conversion prior to distribution to Selling
Shareholders pursuant to this Agreement (a "Conversion"),
the TASA Common Stock into which the Escrowed Preferred
Stock is converted shall be substituted for the Escrowed
Preferred Stock held under or distributed pursuant to the
Escrow Agreement. The Escrow Agent will provide the
documents and instruments that evidence or are necessary to
convert such stock. Any and all certificates representing
stock dividends and shares resulting from a Conversion that
are granted to or received by Selling Shareholders while
their Escrowed Preferred Stock is held in Escrow shall be
deposited with and held by the Escrow Agent subject to the
terms of this Agreement.
3. DIVIDENDS. Selling Shareholders shall be
entitled to any dividends that are declared with respect to
the Escrowed Stock after the date on which Selling
Shareholders are determined to be entitled to receive an
Earnout Payment (the "Vesting Date"). Selling Shareholders
shall not be entitled to any dividends declared prior to
the Vesting Date. Any dividends declared after the Vesting
Date shall be promptly deposited with and held by the
Escrow Agent subject to the terms of this Agreement, in the
event that the Escrowed Stock is held in escrow. If such
dividends are in the form of cash, the Escrow Agent will
deposit any such dividends in an interest-bearing account
bearing the taxpayer identification number(s) provided by
the Selling Shareholders (the "Escrowed Cash"). Such cash
dividends and any interest earned on the cash dividends
will be disbursed by the Escrow Agent in accordance with
paragraph 5 hereof in proportion to the number of shares
released from the Escrow as provided in Exhibit A hereto.
4. TERM. This Agreement and the Escrow begin on the
date this Agreement was entered into as indicated above.
The Escrow Agent will hold the Escrowed Stock until the
release conditions of paragraph 5 below are satisfied.
5. RELEASE OF ESCROWED STOCK. Subject to the
documentation requirements in paragraph 6, the Escrow Agent
will release to the Selling Shareholders the vested portion
of the Escrowed Stock and Escrowed Cash, if any, when it
receives a Release Instruction on or after January 1, 2010.
Escrow Agent shall take all necessary steps and cooperate
with the Company to effectuate the transfer and retitling
in the names of the Selling Shareholders such Escrowed
Stock and Escrowed Cash.
6. DOCUMENTATION REGARDING THE RELEASE OF TASA
PREFERRED STOCK.
(a) Following the computation of Cumulative Earnout
Revenue and the Earnout Payment, a written instruction
directing the release of the Escrowed Stock (the "Release
Instruction"), in the form of Exhibit B and executed by
each of the Selling Shareholders and the Company, shall be
forwarded to the Escrow Agent, accompanied by a written
certificate of the Company's then-current auditors as to
the computation of Cumulative Earned Revenue and the
Earnout Payment.
(b) Within three (3) business days of its receipt of
the Release Instruction described in subparagraph 6(a), the
Escrow Agent will release some or all of the Escrowed Stock
from Escrow as described in the Release Instruction, at
which time this Agreement will terminate.
(c) Any of the Escrowed Stock or Escrowed Cash that
is not released pursuant to the Release Instruction is
forfeited by the Selling Shareholders and shall be returned
by the Escrow Agent to the Company within three (3)
business days of the Escrow Agent's receipt of the Release
Instruction.
(d) The Escrow Agent will maintain all records
relating to the Agreement for a period of three (3) years
following the termination of the Agreement. The Escrow
Agent will forward copies of all records retained by it to
any Party promptly upon written request.
7. RESTRICTIONS ON THE TRANSFER, SALE OR DISPOSAL OF
ESCROWED STOCK. While this Agreement is in effect, no
Escrowed Stock, any interest therein or any right or title
thereto, may be sold, transferred, hypothecated, pledged or
otherwise disposed of ("transfer" or "transferred"), and
the Escrow Agent will not recognize any transfer that
violates the terms of this Agreement; provided, however,
that transfers by operation of law occasioned by the death
or incapacity of a Selling Shareholder shall be recorded
upon presentation to the Company by the personal
representative or guardian of a deceased or incapacitated
Selling Shareholder of appropriate documents regarding the
necessity for transfer and of which transfer the Company
has notified the Escrow Agent and the representative of
such Selling Shareholder (the "Representative").
During the Escrow Period all Selling Shareholders and
owners of the Escrowed Stock, certificates for which have
been deposited to the Escrow Account, shall remain subject
to the restrictions imposed hereby, including those
persons, if any, who become holders, by any means provided
herein, of the Escrowed Stock during the Escrow Period.
8. VOTING RIGHTS. On and after the Vesting Date,
the Selling Shareholders will have the same voting rights
as holders of non-escrowed TASA Stock. Prior to the
Vesting Date, the Escrowed Preferred Stock shall not be
entitled to any voting rights. In the event that the
Escrow Agent is in possession of TASA Common Stock prior to
the Vesting Date as a result of a mandatory conversion
described in paragraph 3(a) hereof, the Escrow Agent shall
vote such shares as directed by the Company.
9. ESCROW AGENT PROVISIONS.
(a) Escrow Agent acts hereunder as depositary only
and is not a party to or bound by any agreement or
undertaking which may be evidenced by or arise out of any
Escrow Documents deposited with it hereunder, is not
responsible or liable in any manner for the sufficiency,
correctness, genuineness, or validity of any of the Escrow
Documents and undertakes no responsibility or liability for
the form of execution of the Escrow Documents or the
identity, authority, title or rights of any person
executing or depositing any of the Escrow Documents.
(b) The Parties hereto acknowledge that Escrow Agent
is acting solely as a stakeholder at their request and for
their convenience, and that Escrow Agent shall not be
liable to the Parties hereto for any act or omission on its
part unless taken or suffered in bad faith, in willful
disregard of this Agreement, or involving its gross
negligence.
(c) Escrow Agent shall not be liable for any error of
judgment or for any act done or omitted by it in good faith
nor for any negligence other than its gross negligence, or
for anything which it may in good faith do or refrain from
doing in connection herewith. Escrow Agent shall have no
duty, responsibility or obligation to interpret or enforce
the terms of any agreement other than the Escrow Agent's
obligations hereunder, it being agreed that the sole duties
and responsibilities of the Escrow Agent shall be to accept
and hold the Escrow Documents. No liability will be
incurred by Escrow Agent if, in the event of any dispute or
question as to the release of the Escrow Documents, it acts
in accordance with the opinion of its legal counsel.
Escrow Agent shall have the right to rely upon the
genuineness of all certificates and documents delivered to
it pursuant hereto, and all the signatures thereto or to
any other writing received by Escrow Agent purporting to be
signed by the Parties and upon the truth of the contents
thereof. Before making delivery in accordance with the
provisions hereof or otherwise of any Escrow Documents,
Escrow Agent shall have the right but not the obligation to
require delivery to it of an executed and acknowledged
receipt for the subject matter of the delivery to be made
by it.
(d) In the event of any disagreement or the
presentation of adverse claims or demands in connection
with the Escrow Documents, Escrow Agent shall at its option
be entitled to refuse to comply with any such claims or
demands during the continuance of such disagreement and may
refrain from delivering any Escrow Documents affected
hereby until such conflict is resolved to its satisfaction
and in so doing Escrow Agent shall not become liable to the
Parties, or to any other person, due to its failure to
comply with any such adverse claim or demand. Escrow Agent
shall be entitled to continue, without liability, to
refrain and refuse to act:
(i) Until all the rights of the adverse
claimants have been finally adjudicated by a court
having jurisdiction of the Parties and the Escrow
Documents affected hereby, after which time Escrow
Agent shall be entitled to act in conformity with such
adjudication; or
(ii) Until all differences have been adjusted by
agreement and Escrow Agent shall have been notified
thereof and shall have been directed in a writing
signed jointly or in counterpart by the Parties and by
all persons making adverse claims or demands, at which
time Escrow Agent shall be protected in acting in
compliance therewith; or
In the event Escrow Agent files a suit in interpleader, it
shall thereupon be fully released and discharged from all
further obligations to perform any and all duties or
obligations imposed upon it by this Agreement.
(e) The Parties jointly and severally agree to pay
all costs, damages, judgments and expenses, including
reasonable attorneys' fees and disbursements to Escrow
Agent and its counsel, suffered or incurred by Escrow Agent
in connection with or arising out of this Agreement,
including, but without limiting the generality of the
foregoing, a suit in interpleader brought by Escrow Agent
and the costs and expenses of defending against any claim
or liability arising out of or related to this Agreement.
Escrow Agent shall have a first lien on all Escrow
Documents held by it herewith for its compensation and for
any costs, liability, expenses or fees it may incur.
(f) Escrow Agent has acknowledged acceptance of these
provisions by signing in the place indicated on the
signature page of this Agreement.
10. ESCROW AGENT'S INDEMNIFICATION. The Company and
the Selling Shareholders agree to hold the Escrow Agent
harmless from, and shall indemnify the Escrow Agent jointly
and severally for, any cost or liability regarding any
administrative proceeding, investigation, litigation,
interpretation, implementation or interpleading relating to
this Agreement, including the release of Escrowed Stock and
the disbursement of dividends, interest or proceeds, unless
the cost or liability arises from the Escrow Agent's act or
omission solely as described in paragraph 9(b).
11. ESCROW AGENT REPRESENTATION. The Selling
Shareholders acknowledge that Escrow Agent has acted as
counsel for the Company in connection with the transactions
contemplated by the Stock Purchase Agreement and that, in
the event of a dispute between the Parties, Escrow Agent
shall not be prevented from representing the Company in
such dispute by reason of having acted as escrow agent
hereunder, provided that Escrow Agent shall at such time
deposit the Escrow Documents with a court of competent
jurisdiction or as otherwise directed by the Parties.
12. SCOPE. This Agreement will be binding upon the
Selling Shareholders, their heirs and assigns, and upon the
Company, Escrow Agent, and their successors and assigns.
13. SUBSTITUTE ESCROW AGENT. The Escrow Agent may,
upon not less than sixty (60) days prior written notice to
the Company and the Selling Shareholders, resign as the
Escrow Agent. The Company and the Selling Shareholders
will, before the effective date of the Escrow Agent's
resignation, enter into a new identical Escrow Agreement
with a substitute Escrow Agent. If the Company and the
Selling Shareholders fail to enter into a new Escrow
Agreement and appoint a successor Escrow Agent within sixty
(60) days after the Escrow Agent has given notice of its
resignation, the Escrow Agent then serving under this
Agreement will retain the Escrowed Stock in escrow for a
reasonable time until either (i) a new, identical Escrow
Agreement has been executed and a successor Escrow Agent
has been appointed, or (ii) the proper disposition of those
shares has been determined.
14. TERMINATION. Except for the provisions of
paragraph 6(c) (which shall survive for three (3) years
following termination hereof) and paragraphs 9, 10 and 16
(which shall survive indefinitely), this Agreement will
terminate in its entirety when all of the Escrowed Stock
has been released, or the Company's capital stock,
including the Escrowed Stock, and/or assets has been
distributed as provided by paragraph 5.
15. NOTICES. All notices, instructions, requests or
other communications required to be given or which may be
given hereunder shall be in writing and shall be deemed to
have been duly given when sent by hand delivery, by
facsimile (when confirmed by return facsimile) followed by
first-class mail, by United States registered or certified
mail, return receipt requested, postage prepaid, or by
nationally recognized overnight courier service with
written receipt of delivery, to the addresses set forth
below.
If to Selling Shareholders:
Xxxx X. Xxxxx
00000 Xxxxxx Xxxx
Xxxxxxxxx, XX 00000
Xxxxx X. Xxxx
000 Xxxxxxx Xxx.
Xxxxxx, XX 00000
Xxxxxxxx Xxxxxxx
0000 Xxxx Xxxxxxx Xxxx
Xxxxx, XX 00000
Xxxxx Xxxxxxxx
0000 Xxxxxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Xxxx Xxxxx
00000 00xx Xxx X
Xxxxx Xxxxx, XX 00000
XxXxxxx Xxxxxxxxx
0000 000xx Xxxxxx X
Xxxxxx, XX 00000
Xxxxxxx Xxxxxxxxx
0000 Xxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Xxxxx Xxxxx
0000 Xxxxxx Xxx X.
Xxxxxxxxxxx, XX 00000
With a copy to:
Robins, Kaplan, Xxxxxx & Xxxxxx L.L.P.
0000 XxXxxxx Xxxxx
000 XxXxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attn: Xxxx X. Xxxxxx, Esq.
If to Company:
Touchstone Applied Science Associates, Inc.
X.X. Xxx 000
0 Xxxxxxxxxxxx Xxxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxx, President
With a copy to:
Rider, Weiner & Xxxxxxx, P.C.
000 Xxxxxx Xxxxxxx Xxxx
Xxx Xxxxxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Crush, Esq.
If to Escrow Agent:
Rider, Weiner & Xxxxxxx, P.C.
000 Xxxxxx Xxxxxxx Xxxx
Xxx Xxxxxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Crush, Esq.
16. GENERAL.
(a) This Agreement sets forth the entire agreement
and understanding of the Parties in respect to the matters
contained herein and supersedes all prior agreements,
arrangements and understandings relating thereto.
(b) All of the terms and conditions of this Agreement
shall be binding upon, and inure to the benefit of and be
enforceable by, the Parties hereto.
(c) This Agreement may be amended, superseded or
canceled, and any of the terms or conditions hereof may be
waived, only by a written instrument executed by each Party
hereto or, in the case of a waiver, by the Party waiving
compliance. The failure of any Party at any time or times
to require performance of any provision hereof shall in no
manner affect its right at a later time to enforce the
same. No waiver of any Party of any condition, or of the
breach of any term contained in this Agreement, whether by
conduct or otherwise, in any one or more instances shall be
deemed to be or construed as a further or continuing waiver
of any such condition or breach or a waiver of any other
condition or of the breach of any other term of this
Agreement. No Party may assign any rights, duties or
obligations hereunder unless all other Parties have given
their prior written consent.
(d) If any provision included in this Agreement shall
be determined by a court of competent jurisdiction to be
invalid or unenforceable, it shall not affect the validity
of the remaining provisions.
(e) This Agreement shall be construed in accordance
with and governed by the laws of the State of New York and
shall be binding on Escrow Agent and the Parties and their
respective successors and assigns; provided, however, that
any assignment or transfer by either of the Parties of
their respective rights and/or obligations under this
Agreement shall be void as against Escrow Agent unless (a)
a written notice thereof shall be given to Escrow Agent,
(b) the assignee or transferee shall agree in writing to be
bound by the provisions of this Agreement and (c) Escrow
Agent and the Parties shall have consented, in writing, to
such assignment or transfer.
(f) The Parties have entered into this Agreement,
which may be written in multiple counterparts and each of
which will be considered an original, and have signed this
Agreement in the capacities and on the dates indicated
below.
[Balance of Page Intentionally Blank]
IN WITNESS WHEREOF, the undersigned parties by their duly
authorized agents have executed and delivered this Escrow
Agreement as of the date first above written.
SELLING SHAREHOLDERS:
/s/ XXXX X. XXXXX
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Xxxx X. Xxxxx
/s/ XXXXX X. XXXX
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Xxxxx X. Xxxx
/s/ XXXXXXXX XXXXXXX
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Xxxxxxxx Xxxxxxx
/s/ XXXXX XXXXXXXX
---------------------------
Xxxxx Xxxxxxxx
/s/ XXXX XXXXX
---------------------------
Xxxx Xxxxx
/s/ XXXXXXX XXXXXXXXX
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XxXxxxx Xxxxxxxxx
/s/ XXXX XXXXXXXXX
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Xxxx Xxxxxxxxx
/s/ XXXXX XXXXX
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Xxxxx Xxxxx
XXXXXXXXXX APPLIED SCIENCE
ASSOCIATES, INC.
By: /s/ XXXXXX X. XXXXX
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Name: Xxxxxx X. Xxxxx
Title: President
ESCROW AGENT:
RIDER, WEINER & XXXXXXX, P.C.
By: /s/ XXXXXXX CRUSH
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Name: Xxxxxxx Crush
Title: Vice President
