EXHIBIT 3
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EXECUTION COPY
SECURITIES PURCHASE AGREEMENT
DATED AS OF SEPTEMBER 4, 1998
BY AND AMONG
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.,
AS THE COMPANY
AND
XXXXXX, XXXXXXX STRATEGIC PARTNERS FUND, L.P.,
AND
STRATEGIC ASSOCIATES, L.P.
AS THE PURCHASERS
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
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
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ASSOCIATES, INC., a Delaware corporation (the "Company"), XXXXXX, XXXXXXX
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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
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collectively the "Purchasers").
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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
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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
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(ii) an investor rights agreement (the "Investor Rights Agreement") in the form
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attached hereto as Exhibit C.
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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 Person that holds
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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
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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
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Exhibit A for each Purchaser which will be multiplied by the number of Option
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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),
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as amended from time to time.
"Common Stock" means the Common Stock, par value $.0001 per share, of the
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Company.
"Company Benefit Arrangement" means any Benefit Arrangement sponsored or
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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
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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.
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"Environmental Law" means any applicable foreign, federal, state or local
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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. (S)(S) 9601 et seq.), the Hazardous Materials
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Transportation Act (49 U.S.C. App. (S)(S) 1801 et seq.), the Resource
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Conservation and Recovery Act (42 U.S.C. (S)(S) 6901 et seq.), the Clean Water
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Act (33 U.S.C. (S)(S) 1251 et seq.), the Clean Air Act (42 U.S.C. (S)(S) 7401 et
-- ---- --
seq.), the Toxic Substances Control Act (15 U.S.C. (S)(S) 2601 et seq.), the
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Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. (S)(S) 136 et
--
seq.), and the Occupational Safety and Health Act (29 U.S.C. (S)(S) 651 et
---- --
seq.), regulations promulgated pursuant to these statutes, and common law
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principles of tort liability.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
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amended from time to time, and any regulation or rule issued thereunder.
"ERISA Affiliate" means any Person that together with the Company, would be
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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.
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"GAAP" means generally accepted accounting principles.
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"Hazardous Material" means any substance, material or waste that is
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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
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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
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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,
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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.
"Xxxxxxx Xxxxx Business School" means the company which operates the two
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proprietary post-secondary schools in Albany, New York and Pittsfield,
Massachusetts.
"Multiemployer Plan" means any Employee Benefit Plan described in Section
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3(37) of ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
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succeeding to any or all of its functions under ERISA.
"Permits" means any approvals, authorizations, consents, licenses, permits
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or certificates.
"Person" means an individual, partnership, limited liability company,
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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
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meet, or is intended to meet the requirements of Section 401(a) of the Code.
"Release" means any release, spill, emission, leaking, pumping, injection,
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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
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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.
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"Securities Act" means the Securities Act of 1933, as amended.
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"Series A Preferred Stock" means the 1,500 shares of preferred stock, par
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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
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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
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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 Xxxx 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
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exercise of the Warrants.
"Welfare Plan" means any Employee Benefit Plan described in Section 3(1) of
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ERISA.
1.2 Other Defined Terms. The following terms shall have the meanings
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assigned to them in the identified Sections of this Agreement.
"Agreement" as defined in the recitals to this Agreement.
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"Balance Sheet" as defined in Section 4.17.
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"Balance Sheet Date" as defined in Section 4.17.
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"Change of Control" as defined in Section 10.1(g).
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"Closing" as defined in Section 3.1.
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"Closing Date" as defined in Section 3.1.
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"Company" as defined in the recitals to this Agreement.
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"Company Property" as defined in Section 4.14.
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"Company Put Option" as defined in Section 9.1.
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"Company SEC Reports" as defined in Section 4.17.
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"Debentures" as defined in Section 2.1(a).
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"Existing Indebtedness" as defined in Section 10.3.
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"Event of Default" as defined in Section 10.1.
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"Exercise Price" as defined in Section 2.2(b)(iii).
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"Indemnified Party" as defined in Section 11.11(a).
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"Intellectual Property" as defined in Section 4.9.
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"Investor Rights Agreement" as defined in the recitals to this Agreement.
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"IRS" as defined in Section 4.19(b)(i).
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"Leased Properties" as defined in Section 4.14.
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"Loss" as defined in Section 11.11(a).
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"One Million Dollar Debt Basket" as defined in Section 10.1(i).
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"One Million Dollar Senior Debt Basket" as defined in Section 10.3(c).
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"Option Notice" as defined in Section 9.2(a).
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"Option Purchase Price" as defined in Section 9.1.
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"Option Share Price" as defined in Section 9.1.
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"Option Shares" as defined in Section 9.1.
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"Owned Properties" as defined in Section 4.14.
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"Personal Property Leases" as defined in Section 4.15.
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"Purchasers" as defined in the recitals to this Agreement.
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"Qualified Public Offering" as defined in Section 8.6.
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"Real Property Leases" as defined in Section 4.14.
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"Registration Rights Agreement" as defined in the recitals to this
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Agreement.
"Title II" as defined in Section 10.1(e).
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"Transaction Documents" as defined in Section 4.5.
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"Warrants" as defined in Section 2.2.
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1.3 Other Definitional Provisions. Any additional capitalized terms shall
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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
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2.1 Authorization and Certain Terms of the Debentures.
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(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
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"Debentures") in the aggregate original principal amount of Four Million Dollars
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($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
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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.
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(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
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(the "Warrants"), which in the aggregate entitle the Purchasers to acquire
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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
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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").
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(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
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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").
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(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
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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
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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
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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
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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
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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
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of the Debentures to acquire the Xxxxxxx Xxxxx 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
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3.1 Closing Date.
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(a) The closing of the purchase and sale of the Debentures and
Warrants (the "Closing") shall be held at the offices of Xxxxxxx & Xxxxxx, 620
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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").
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(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.
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(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
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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
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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 Xxxxxxx Xxxxx Business School.
4.2 Capitalization.
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(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
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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
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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
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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
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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;
(xiv) 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
(xv) 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.
1
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 Xxxxxxx & Xxxxxx, 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 Xxxxxxx Xxxxx 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 Xxxxxxx Xxxxx Business School (including
without limitation the audited financial data of Xxxxxxx Xxxxx 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 Xxxx. The Purchasers shall have
-----------------------------------
received a validly executed consent and waiver letter from Xxxxxxx X. Xxxx
("Xxxx") stating that the transactions contemplated in the Transaction Documents
----
shall not constitute a "change of control" of Xxxx Evaluation & Testing
Associates, Inc. ("BETA") or otherwise trigger Xxxx'x 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. Xxxxx Xxxxxxx 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 Xxxxxxx & Xxxxxx, 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.
(j) 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 Xxxx-Xxxxx-
Xxxxxx 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 Xxxxxxx Xxxxx 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 acquisitions of the
Xxxxxxx Xxxxx Business School so long as the Company sdjusts the number of
Warrants 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 Xxxxxxx Xxxxx 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 Xxxxxxx Xxxxx 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
Xxxxxxx Xxxxx 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 Xxxxxxx Xxxxx Business School shall not be included in the calculation of
the One Million Dollar Debt Basket; or
(j) Upon the removal of Xxxxx Xxxxxxx 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 Xxxxxxx Xxxxx 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.
X.X. Xxx 000
0 Xxxxxxxxxxxx Xxxxxxx
Xxxxxxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxx
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
with a copy to:
Xxxxxxx & Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
(b) if to the Purchasers:
c/x Xxxxxx, Xxxxxxx & Company, L.L.C.
Xxx Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000
Attn: Xxxxx X. Xxxxxxx
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
with a copy to:
Xxxxxx, Xxxxxx & Xxxxxxxxx
000 Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx, Esq.
Telephone No.: 000-000-0000
Facsimile No.: 000-000-0000
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 indemnification 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)
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:
Name: Xxxxxx X. Xxxxx
Title: President and Chief Executive Officer
PURCHASERS:
XXXXXX, XXXXXXX STRATEGIC PARTNERS FUND, L.P.
By: XXXXXX XXXXXXX STRATEGIC PARTNERS, L.P.,
its General Partner
By:________________________________
Name: Xxxxx X. Xxxxxxx
Title: a General Partner
STRATEGIC ASSOCIATES, L.P.
By: XXXXXX, XXXXXXX & COMPANY, LLC,
By:________________________________
Name: Xxxxx X. Xxxxxxx
Title: Managing Member
EXHIBIT A
---------
Initial Investment
------------------
Original Principal Amount Number of
Purchaser of Debentures Warrant Shares
--------- -------------- --------------
Xxxxxx, Xxxxxxx 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
--------- ----------------------------- ----------
Xxxxxx, Xxxxxxx Strategic
Partners Fund, L.P. 94.75% $1,895,000
Strategic Associates, L.P. 5.25% $ 105,000
EXHIBIT B
---------
Registration Rights Agreement
EXHIBIT C
---------
Investor Rights Agreement
EXHIBIT D
---------
Form of Debenture
EXHIBIT E
---------
Form of Warrant
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.
(S)(S) 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. (S)(S) 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. (S) 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. (S) 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. (S) 674.6.
(v) Each of the schools disburses federal Pell Grant payments
in accordance with procedures that comply with 34 C.F.R. (S) 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.
