Exhibit 10.5
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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
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APPLIED SCIENCE ASSOCIATES, INC., a Delaware corporation (the
"Company"), XXXXXX, XXXXXXX STRATEGIC PARTNERS FUND, L.P., a
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limited partnership organized under the laws of the State of
Delaware, and STRATEGIC ASSOCIATES, L.P., a limited partnership
organized under the laws of the State of Delaware (each a
"Purchaser" and 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 A hereto, debentures and
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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
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Agreement") in the form attached hereto as Exhibit B and (ii) an
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investor rights agreement (the "Investor Rights Agreement") in
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the form 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
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Person that holds direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act) of voting
securities or other voting interests representing at least 5% of
the outstanding voting power of a Person or equity securities or
other equity interests representing at least 5% of the
outstanding equity securities or equity interests in a Person,
(ii) any brother, sister, parent, child or spouse of such Person
or any Person described in clause (i), and (iii) any Person that
directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with,
such entity.
"Benefit Arrangement" means any benefit arrangement,
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obligation, custom, or practice, whether or not legally
enforceable, to provide benefits, other than salary, as
compensation for services rendered, to present or former
directors, employees, agents, or independent contractors, other
than any obligation, arrangement, custom or practice that is an
Employee Benefit Plan, including, without limitation, employment
agreements, severance agreements, executive compensation
arrangements, incentive programs or arrangements, sick leave,
vacation pay, severance pay policies, plant closing benefits,
salary continuation for disability, consulting, or other
compensation arrangements, workers' compensation, retirement,
deferred compensation, bonus, stock option or purchase,
hospitalization, medical insurance, life insurance, tuition
reimbursement or scholarship programs, employee discounts, any
plans subject to Section 125 of the Code, and any plans providing
benefits or payments in the event of a change of control, change
in ownership, or sale of a substantial portion (including all or
substantially all) of the assets of any business or portion
thereof, in each case with respect to any present or former
employees, directors, or agents.
"Company Put Option Percentage" shall mean the
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percentage set forth on Exhibit A for each Purchaser which will
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be multiplied by the number of Option Shares to determine such
Purchaser's obligation with respect to the Company Put Option.
"Code" means the Internal Revenue Code of 1986 (or any
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successor thereto), as amended from time to time.
"Common Stock" means the Common Stock, par value $.0001
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per share, of the Company.
"Company Benefit Arrangement" means any Benefit
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Arrangement sponsored or maintained by the Company or its
Subsidiaries or with respect to which the Company or a Subsidiary
has or may have any liability (whether actual, contingent, with
respect to any of its assets or otherwise) as of the Closing
Date, in each case with respect to any present or former
directors, employees, or agents of the Company or the
Subsidiaries.
"Company Plan" means, as of the Closing Date, any
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Employee Benefit Plan for which the Company or any Subsidiary is
the "plan sponsor" (as defined in Section 3(16)(B) of ERISA) or
any Employee Benefit Plan maintained by the Company or any
Subsidiary or to which the Company or any Subsidiary is obligated
to make payments, in each case with respect to any present or
former employees of the Company or the Subsidiaries.
"Employee Benefit Plan" has the meaning given in
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Section 3(3) of ERISA.
"Environmental Law" means any applicable foreign,
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federal, state or local statute, regulation, ordinance or rule of
common law as now in effect in any way relating to the protection
of human health and the environment including, without
limitation, the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. 9601 et seq.), the
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Hazardous Materials Transportation Act (49 U.S.C. App. 1801 et
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seq.), the Resource Conservation and Recovery Act (42 U.S.C.
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6901 et seq.), the Clean Water Act (33 U.S.C. 1251 et
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seq.), the Clean Air Act (42 U.S.C. 7401 et seq.), the Toxic
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Substances Control Act (15 U.S.C. 2601 et seq.), the Federal
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Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. 136 et
--
seq.), and the Occupational Safety and Health Act (29 U.S.C.
---
651 et seq.), regulations promulgated pursuant to these
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statutes, and common law principles of tort liability.
"ERISA" means the Employee Retirement Income Security
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Act of 1974, as amended from time to time, and any regulation or
rule issued thereunder.
"ERISA Affiliate" means any Person that together with
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the Company, would be or was at any time treated as a single
employer under Section 414 of the Code or Section 4001 of ERISA
and any general partnership of which the Company is or has been a
general partner.
"Exchange Act" means the Securities Exchange Act of
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1934, as amended.
"GAAP" means generally accepted accounting principles.
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"Hazardous Material" means any substance, material or
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waste that is regulated by the United States, the foreign
jurisdictions in which the Company or its Subsidiaries conducts
business, or any applicable state or local governmental authority
including, without limitation, petroleum and its by-products,
asbestos, and any material or substance that is defined as a
"hazardous waste," "hazardous substance," "hazardous material,"
"restricted hazardous waste," "industrial waste," "solid waste,"
"contaminant," "pollutant," "toxic waste" or "toxic substance" under
any provision of Environmental Law.
"Indebtedness" shall mean, as to any Person, all items
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that would, in conformity with generally accepted accounting
principles, be classified as liabilities or contingent
liabilities of such Person, but in any event including without
limitation (a) all obligations under leases that have been, or
under generally accepted accounting principles are required to
be, capitalized, (b) all indebtedness endorsed (other than for
collection or deposit in the ordinary course of business) or
discounted with recourse, and (c) all indebtedness in effect
guaranteed, directly or indirectly, by such Person.
"Knowledge" or derivations thereof shall mean
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information known or should have been known by the officers of
the Company and each Subsidiary, and, with respect to Sections
4.19 and 4.21, each person who conducts human resource and
employee benefits management functions for the Company or any
Subsidiary, whether or not an officer of the Company or such
Subsidiary.
"Lien" means any lien, pledge, mortgage, deed of trust,
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security interest, claim, lease, charge, option, right of first
refusal, easement, servitude, transfer restriction under any
shareholder or similar agreement, encumbrance or any other
restriction or limitation whatsoever.
"Xxxxxxx Xxxxx Business School" means the company which
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operates the two proprietary post-secondary schools in Albany,
New York and Pittsfield, Massachusetts.
"Multiemployer Plan" means any Employee Benefit Plan
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described in Section 3(37) of ERISA.
"PBGC" means the Pension Benefit Guaranty Corporation
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or any entity succeeding to any or all of its functions under
ERISA.
"Permits" means any approvals, authorizations,
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consents, licenses, permits or certificates.
"Person" means an individual, partnership, limited
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liability company, corporation, joint stock company, trust,
unincorporated association, joint venture or other entity, or a
government or any political subdivision or agency thereof.
"Qualified Plan" means any Employee Benefit Plan that
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meets, purports to meet, or is intended to meet the requirements
of Section 401(a) of the Code.
"Release" means any release, spill, emission, leaking,
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pumping, injection, deposit, disposal, discharge, dispersal or
leaching into the indoor or outdoor environment, or into or out
of any property;
"Remedial Action" means all actions to (x) clean up,
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remove, treat or in any other way address any Hazardous Material;
(y) prevent the Release of any Hazardous Material so it does not
endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment; or (z) perform pre-remedial
studies and investigations or post-remedial monitoring and care.
"SEC" means the United States Securities and Exchange
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Commission.
"Securities Act" means the Securities Act of 1933, as
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amended.
"Series A Preferred Stock" means the 1,500 shares of
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preferred stock, par value $.0001 per share, designated by the
Company as Series A Preferred Stock in the Series A Certificate
of Designation.
"Series A Certificate of Designation" means the
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certificate of designation filed by the Company with the State of
Delaware, Office of the Secretary of State, on March 24, 1995
setting forth the rights and preferences of the Series A
Preferred Stock.
"Subsidiaries" means each corporation in which the
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Company owns or controls, directly or indirectly, capital stock
or other equity interests representing at least 50% of the
outstanding voting stock or other equity interests, including
without limitation 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
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issued or issuable upon exercise of the Warrants.
"Welfare Plan" means any Employee Benefit Plan
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described in Section 3(1) of ERISA.
1.2. Other Defined Terms. The following terms shall have the
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meanings assigned to them in the identified Sections of this
Agreement.
"Agreement" as defined in the recitals to this Agreement.
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"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
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to this Agreement.
"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
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Section 10.3(c).
"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
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recitals to this 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
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terms shall have the meanings assigned to them in the text
of this Agreement. Terms defined in the singular shall have
a comparable meaning when used in the plural and vice versa.
SECTION 2
Authorization and Sale of the Company's Securities
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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 "Debentures") in the aggregate
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original principal amount of Four Million Dollars ($4,000,000).
The Debentures shall be repayable at the times and under the
terms and conditions specified herein and therein.
(b) All principal, interest and amounts outstanding
under the Debentures shall be due and payable in full on the
fifth (5th) anniversary date of the Closing Date (the "Maturity
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Date"). The Debentures shall bear interest at an annual rate of
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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 (the "Warrants"), which in the
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aggregate entitle the Purchasers to acquire 2,760,918 shares of
the Company's Common Stock, which constitutes on the Closing Date
and giving effect to the transactions contemplated hereby, twenty
percent (20%) of the Company's issued and outstanding capital
stock on a fully diluted basis. The Company has reserved a
sufficient number of shares of Common Stock for issuance upon
exercise of the Warrants.
(b) The Warrants contain the following terms and
conditions:
(i) Except as set forth below in Section 2.2(b)(ii),
the date on which the registered holder of the Warrant (the "Holder")
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may first elect to exercise all or part of each Warrant is:
(A) the Closing Date with respect to Warrant No. 1;
(B) the Closing Date with respect to Warrant No. 2;
(C) the eighteen (18) month anniversary date of the
Closing Date with respect to Warrant No. 3; and
(D) the eighteen (18) month anniversary date of the
Closing Date with respect to Warrant No. 4.
(ii) Each of the Warrants shall become immediately
exercisable upon the occurrence or existence of an Event of
Default (the earlier of the applicable date in Paragraph (i)
above and the date of the occurrence or existence of an
Event of Default shall be referred to as such Warrant's
"Effective Date").
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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
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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
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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
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will have authorized: (i) the issuance and sale to the
Purchasers of Common Stock upon the exercise of the Company
Put Option as set forth in Section 9; and (ii) the issuance
to the Purchasers of the Warrant Shares.
2.4. Sale and Purchase of the Debentures. In reliance on the
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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
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consideration for purchasing the Debentures, the Company
agrees to issue to the Purchasers, severally and in the
amounts set forth on Exhibit A hereto, Warrants to acquire
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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
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from the sale 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
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offices of Xxxxxxx & Xxxxxx, 000 Xxxxx Xxxxxx, Xxx Xxxx Xxxx, xx
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
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Company and its Subsidiaries (i) is an entity duly
organized, validly existing and in good standing under the
laws of the jurisdiction of its organization, (ii) has all
requisite power and authority to carry on its business,
(iii) is duly qualified to transact business and is in good
standing in all jurisdictions where its ownership, lease or
operation of property or the conduct of its business
requires such qualification, except where the failure to do
so would not have a material adverse effect on the business
or financial condition of the Company and its Subsidiaries
taken as a whole. The Company and its Subsidiaries have the
corporate power and authority and are in possession of all
material franchises, grants, authorizations, licenses,
permits, easements, consents, certificates, approvals and
orders to (i) own, lease and operate its properties and to
carry on its business as now being conducted, and (ii) with
respect to the Company, execute and deliver this Agreement
and the documents and instruments contemplated hereby and to
consummate the transactions contemplated hereby, except to
the extent of additional approvals required in connection
with the acquisition of the 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
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are 8,567,222 shares of Common Stock issued and outstanding. No
shares of Common Stock are held in treasury. There are
authorized 5,000,000 shares of Preferred Stock, par value $.0001
per share (the "Preferred Stock"), of which 1,500 shares have
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been designated as Series A Preferred Stock. There are 1,500
shares of Series A Preferred Stock issued and outstanding. In
connection with the transactions set forth herein, the Company
intends to issue to management options to acquire an aggregate of
277,500 shares of Common Stock at an exercise price per share
equal to the closing market price per share on the date of
issuance, which shall be the later of November 1, 1998 or the
Closing Date. Except as set forth above, there are no shares of
capital stock of the Company authorized or, as of the date
hereof, issued or outstanding. The issued and outstanding shares
of capital stock of the Company are duly authorized, validly
issued, fully paid and non-assessable.
(b) Except as listed on Schedule 4.2, there are
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outstanding (a) no shares of capital stock or other voting stock
of the Company, (b) no securities of the Company, any Subsidiary
or any Person convertible into or exchangeable for shares of
capital stock or voting securities of the Company, (c) no
options, warrants or other rights to acquire from the Company or
any Subsidiary (including any rights issuable or issued under any
shareholder rights plan or similar arrangement), and no
obligations, contingent or otherwise, of the Company or any
Subsidiary to issue any capital stock, voting securities or
securities convertible into or exchangeable for capital stock or
voting securities of the Company or any Subsidiary, (d) no equity
equivalent in the earnings or ownership of the Company, any
Subsidiary or any Person or any similar rights to share earnings
or ownership and (e) no outstanding obligations of the Company to
repurchase, redeem or otherwise acquire any of its securities or
to make any investment (by loan, capital contribution or
otherwise) in any entity or Person. Except as set forth on
Schedule 4.2, the Company has no employee stock purchase plans,
------------
stock option plans or other form of company benefit plan which
provides for the issuance, exchange or distribution of capital
stock. All outstanding options, rights and warrants have been
duly and validly issued and are in full force and effect. All
shares of capital stock subject to issuance upon exercise of any
options, rights or warrants or otherwise, upon issuance pursuant
to the instruments under which they are issuable, shall be duly
authorized, validly issued, fully paid and non-assessable and
free of all preemptive rights. No outstanding options, warrants
or other securities exercisable for or convertible into shares of
capital stock of the Company require anti-dilution adjustments by
reason of the consummation of the transactions contemplated
hereby.
(c) The Company has reserved for issuance 2,760,918
shares of Common Stock upon exercise of the Warrants. The shares
of Common Stock to be issued pursuant to Section 9 of this
Agreement, upon delivery to the Purchasers of certificates
therefor against payment in accordance with the terms of this
Agreement and the Warrant Shares (i) will be validly issued,
fully paid and non-assessable, (ii) will be free and clear of all
Liens, except for restrictions on transfer under federal and
applicable state securities laws, and (iii) assuming that the
representations of the Purchasers in Section 5 hereof are true
and correct, will be issued in compliance with all applicable
federal and state securities laws.
4.3. Subsidiaries. Schedule 4.3 sets forth a complete and
------------ ------------
accurate list of all Subsidiaries of the Company, showing
(as to each such Subsidiary) the date of its incorporation,
the jurisdiction of its incorporation, the number of shares
of its authorized capital stock, the number and class of
shares thereof duly issued and outstanding, the names of all
stockholders of such Subsidiaries and the number and
percentage of the outstanding shares of each such class
owned, directly or indirectly, by all such stockholders,
including the Company. At Closing, all of the outstanding
capital stock of, or other ownership interests in, each
Subsidiary, is owned by the Company, directly or indirectly,
free and clear of any Lien or any other limitation or
restriction (including restrictions on the right to vote),
except as disclosed on Schedule 4.3. All outstanding shares
------------
of the capital stock of the Company and any Subsidiary have
been duly authorized and validly issued and are fully paid
and non-assessable and are free of any preemptive rights.
There are no outstanding securities of any Subsidiary
convertible into or evidencing the right to purchase or
subscribe for any shares of capital stock of any Subsidiary,
there are no outstanding or authorized options, warrants,
calls, subscriptions, rights, commitments or any other
agreements of any character obligating any Subsidiary to
issue any shares of its capital stock or any securities
convertible into or evidencing the right to purchase or
subscribe for any shares of such stock, and there are no
agreements or understandings with respect to the voting,
sale, transfer or registration of any shares of capital
stock of any Subsidiary, except as disclosed on Schedule 4.3.
------------
4.4. Partnerships, Joint Ventures. Schedule 4.4 sets forth a
---------------------------- ------------
complete and accurate list of all partnerships, limited
partnerships, limited liability companies or joint venture
of any kind in which the Company or any Subsidiary holds any
interests, showing the date of its incorporation, the
jurisdiction of its incorporation, the number of shares of
its authorized capital stock, the number and class of shares
thereof duly issued and outstanding, the names of all
stockholders (or other equity interest holders) of such
entity and the number and percentage of the outstanding
shares or interests of each such class owned, directly or
indirectly, by all such stockholders, including the Company.
At Closing, such capital stock of, or other ownership
interests in, each entity as set forth in Schedule 4.4 is
------------
owned by the Company, directly or indirectly, free and clear
of any Lien or any other limitation or restriction
(including restrictions on the right to vote). Except as
set forth on Schedule 4.4, the Company is not a party to,
and does not hold, any equity interests in any partnership,
limited partnership, limited liability company or other
joint venture of any kind.
4.5. Authorization. The Company has all requisite corporate
-------------
power and authority to execute and deliver this Agreement
and each agreement, document or instrument adopted, entered
into or delivered by it as contemplated herewith (the
"Transaction Documents") and to perform its obligations
---------------------
hereunder and thereunder. The execution, delivery and
performance of the Agreement and the transactions
contemplated hereby have been duly authorized by all
necessary corporate, including stockholder (if required),
action on the part of the Company. Each Transaction
Document to which the Company is a party has been duly and
validly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the
Company, enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies
generally, and subject, as to enforceability, to general
principles of equity, including principles of commercial
reasonableness, good faith and fair dealing (regardless of
whether enforcement is sought in a proceeding at law or in
equity).
4.6. Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state,
or local governmental authority on the part of the Company
is required in connection with the valid execution and
delivery by the Company of the Transaction Documents to
which it is a party, or the consummation by the Company of
the transactions contemplated by the Transaction Documents
to which it is a party, except for (i) filings pursuant to
federal or state securities laws, and (ii) the filing of
registration statements with the SEC and any applicable
state securities commission.
4.7. Conformity with Law; Absence of Litigation. To the
------------------------------------------
Company's Knowledge, none of the Company or its Subsidiaries
has violated any law or regulation or any order of any court
or federal, state, municipal or other governmental
department, commission, board, bureau, agency or
instrumentality having jurisdiction over it which would have
a material adverse effect on the business or financial
condition of the Company and its Subsidiaries taken as a
whole. Except as set forth on Schedule 4.7, there are no
------------
claims, actions, suits, proceedings or investigations
pending or, to the Knowledge of the Company, threatened
against the Company or any of its Subsidiaries, or any
properties or rights of the Company or its Subsidiaries,
before any court, arbitrator or administrative, governmental
or regulatory authority or body, domestic or foreign.
4.8. Insurance. Schedule 4.8 sets forth a complete and
--------- ------------
accurate list of all material policies of insurance covering
the Company, its Subsidiaries and any of their respective
employees, properties or assets, including, without
limitation, policies of life, disability, fire, theft,
workers compensation, employee fidelity and other casualty
and liability insurance. All such policies are in full
force and effect and are of a nature and provide such
coverage as is sufficient and as is customarily carried by
companies of the size and character of the Company and its
Subsidiaries. None of the Company or any of its
Subsidiaries is in default of any policies of insurance.
None of the Company or any of its Subsidiaries has been
refused insurance or had any policy of insurance terminated
(other than at its request).
4.9. Patents and Trademarks. The Company and its Subsidiaries
----------------------
have sufficient title and ownership of (or rights under
license agreements to use) all patents, trademarks, service
marks, trade names, copyrights, trade secrets, proprietary
rights and processes ("Intellectual Property") necessary for
---------------------
their businesses. Except as set forth on Schedule 4.9,
------------
there are no outstanding options, licenses or agreements of
any kind relating to the foregoing, nor is the Company or
any of its Subsidiaries bound by or a party to any options,
licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, copyrights,
trade secrets, proprietary rights and processes of any other
Person. A list of all patents, patent applications,
registered trademarks, trademark applications, registered
copyrights and copyright applications owned by the Company
or any of its Subsidiaries is set forth on Schedule 4.9.
------------
Within the past five years, the Company has not received any
communications alleging that the Company or any of its
Subsidiaries has violated or, by conducting its business as
proposed, would violate any of the patents, trademarks,
service marks, trade names, copyrights, trade secrets,
proprietary rights and processes of any other Person, nor
does the Company have Knowledge of any such violations.
4.10. Compliance with Other Instruments and Legal Requirements.
--------------------------------------------------------
(a) None of the Company or any of its Subsidiaries is
in violation or default of any provisions of its certificate of
incorporation, by-laws, or comparable organizational documents.
None of the Company or any of its Subsidiaries is in violation or
default in any respect under any provision, instrument, judgment,
order, writ, decree, contract or agreement to which it is a party
or by which it is bound or of any provision of any federal, state
or local statute, rule or regulation applicable to the Company or
any of its Subsidiaries (including, without limitation, any law,
rule or regulation relating to protection of the environment and
the maintenance of safe and sanitary premises) that would have a
material adverse effect on the Company and its Subsidiaries taken
as a whole. The execution, delivery and performance by the
Company of each Transaction Document and the consummation of the
transactions contemplated hereby and thereby will not result in
any such violation or be in conflict with or constitute, with or
without the passage of time or giving of notice, either a default
under or give rise to any obligations under, the certificate of
incorporation or by-laws of the Company, or any note, bond,
mortgage, indenture, lease, license, permit, contract, agreement
or other instrument or obligation, decree or order to which the
Company or any Subsidiary is a party or by which the Company or
any Subsidiary or its properties or assets is or may be bound, or
to the Knowledge of the Company violate any law, order, rule or
regulation applicable to the Company or any Subsidiary, and does
not require any consent, waiver or approval thereunder, or
constitute an event that results in the creation of any Lien upon
any assets of the Company or any of its Subsidiaries.
(b) The Company and its Subsidiaries have all material
Permits of all governmental entities required to conduct their
respective businesses as currently conducted.
(c) The transactions contemplated by this Agreement
and the Transaction Documents will not constitute a change of
control under any Employee Benefit Plan, rights plan, contract or
agreement to which it is a party.
4.11. Material Agreements; Action. Except as set forth on
---------------------------
Schedule 4.11, there are no material contracts,
-------------
agreements, commitments, understandings or proposed
transactions, whether written or oral, to which the
Company or any of its Subsidiaries is a party or by
which it is bound that involve or relate to: (i) any
of their respective officers, directors, stockholders
(or other equity interest holder) or partners or any
Affiliate thereof; (ii) the sale of any of the assets
of the Company or any of its Subsidiaries other than in
the ordinary course of business; (iii) covenants of the
Company or any of its Subsidiaries not to compete in
any line of business or with any Person in any
geographical area or covenants of any other Person not
to compete with the Company or any of its Subsidiaries
in any line of business or in any geographical area;
(iv) the acquisition by the Company or any of its
Subsidiaries of any operating business or the capital
stock of any other Person; (v) the borrowing of money;
(vi) the expenditure of more than $50,000 in the
aggregate or the performance by the Company or any
Subsidiary extending for a period more of than one year
from the date hereof, other than in the ordinary course
of business, or (vii) the license of any Intellectual
Property or other material proprietary right to or from
the Company or any of its Subsidiaries. There have
been made available to the Purchasers and its
representatives true and complete copies of all such
agreements. All such agreements are in full force and
effect and are the legal, valid and binding obligation
of the Company or its Subsidiaries, enforceable against
them in accordance with their terms, subject to
applicable bankruptcy, insolvency, reorganization,
moratorium and similar laws affecting creditors' rights
and remedies generally and subject, as to
enforceability, to general principles of equity
(regardless of whether enforcement is sought in a
proceeding at law or in equity). None of the Company
or any of its Subsidiaries is in default under any such
agreements nor, to the Knowledge of the Company, is any
other party to any such agreements in default
thereunder in any material respect.
4.12. Registration Rights. Except as set forth in the
-------------------
Registration Rights Agreement and except as set forth
on Schedule 4.12, the Company has not granted or agreed
-------------
to grant any registration rights, including piggyback
registration rights, to any Person.
4.13. Corporate Documents. True and correct copies of the
-------------------
certificate of incorporation and the by-laws of the
Company, as amended and as are currently in effect,
have been delivered to the Purchasers.
4.14. Real Property.
-------------
(a) Schedule 4.14(a) sets forth a complete list of all
----------------
real property and interests in real property owned (the "Owned
-----
Properties") or leased (the "Leased Properties") by the Company
---------- -----------------
and its Subsidiaries as lessee or lessor (the Leased Properties
together with the Owned Properties, being referred to herein
individually as a "Company Property" and collectively as the
----------------
"Company Properties"). The Company Property constitutes all
------------------
interests in real property currently used or currently held for
use in connection with the businesses of the Company and its
Subsidiaries and which are necessary for the continued operation
of the businesses of the Company and its Subsidiaries as such
businesses are currently conducted. The Company and its
Subsidiaries have a valid and enforceable leasehold interest
under each of the leases for Leased Property (the "Real Property
-------------
Leases"), and none of the Company or any of its Subsidiaries has
------
received any written notice of any default or event which, with
notice or lapse of time, or both, would constitute a default by
the Company or any of its Subsidiaries under any of the Real
Property Leases. All of the Company Property, buildings,
fixtures and improvements thereon owned or leased by the Company
and its Subsidiaries are in good operating condition and repair
(subject to normal wear and tear). The Company has delivered or
otherwise made available to the Purchasers true, correct and
complete copies of the Real Property Leases, together with all
amendments, modifications or supplements, if any, thereto.
(b) The Company and its Subsidiaries have all
certificates of occupancy and Permits of any governmental body
necessary or useful for the current use and operation of each
Company Property, and the Company and its Subsidiaries have fully
complied with all conditions of the Permits applicable to them.
No default or violation, or event which, with the lapse of time
or giving of notice or both would become a default or violation,
has occurred in the due observance of any such Permit.
(c) There does not exist any actual, or to the
Knowledge of the Company, threatened or contemplated,
condemnation or eminent domain proceedings that affect any
Company Property or any part thereof, and none of the Company or
any of its Subsidiaries has received any notice, oral or written,
of the intention of any governmental body or other Person to take
or use all or any part thereof.
(d) None of the Company or any of its Subsidiaries has
received any written notice from any insurance company that has
issued a policy with respect to any Company Property requiring
performance of any structural or other repairs or alterations to
such Company Property.
(e) None of the Company or any of its Subsidiaries
owns or holds, and is obligated under or a party to, any option,
right of first refusal or other contractual right to purchase,
acquire, sell, assign or dispose of any real estate or any
portion thereof or interest therein.
4.15. Tangible Personal Property.
--------------------------
(a) Schedule 4.15(a) sets forth all leases of tangible
----------------
personal property ("Personal Property Leases") involving annual
------------------------
payments in excess of $15,000 relating to tangible personal
property used in the business of the Company and its Subsidiaries
or to which the Company or any of its Subsidiaries is a party or
by which the properties or assets of the Company or any of its
Subsidiaries is bound. The Company has delivered or otherwise
made available to the Purchasers true, correct and complete
copies of the Personal Property Leases, together with all
amendments, modifications or supplements, if any, thereto.
(b) Each of the Company and its Subsidiaries has a
valid leasehold interest under each of the Personal Property
Leases under which it is a lessee, and there is no default under
any Personal Property Lease by the Company or any of its
Subsidiaries, by any other party thereto, and no event has
occurred which, with the lapse of time or the giving of notice or
both would constitute a default thereunder.
(c) Except as set forth on Schedule 4.15(c), each of
----------------
the Company and its Subsidiaries has good and marketable title to
all of the items of tangible personal property reflected in the
balance sheets referred to in Section 4.17 (except as sold or
disposed of subsequent to the date thereof in the ordinary course
of business consistent with past practice), free and clear of any
and all Liens. All such items of tangible personal property
that, individually or in the aggregate, are material to the
operation of the business of the Company and its Subsidiaries are
in good condition and in a state of good maintenance and repair
(ordinary wear and tear excepted) and are suitable for the
purposes used.
(d) All of the items of tangible personal property
used by the Company and its Subsidiaries under the Personal
Property Leases are in good condition and repair (ordinary wear
and tear excepted) and are suitable for the purposes used.
4.16. Environmental Matters.
---------------------
Except as set forth on Schedule 4.16:
-------------
(a) The operations of each of the Company and its
Subsidiaries are in material compliance with all applicable
Environmental Laws and all Permits issued pursuant to
Environmental Laws or otherwise;
(b) Each of the Company and its Subsidiaries has
obtained all Permits required under all applicable Environmental
Laws necessary to operate its business;
(c) None of the Company or any of its Subsidiaries is
the subject of any outstanding written order, agreement or
arrangement with any governmental authority or Person respecting
(i) Environmental Laws, (ii) Remedial Action or (iii) any Release
or threatened Release of a Hazardous Material;
(d) None of the Company or any of its Subsidiaries has
received any written communication alleging either or both that
the Company or any of its Subsidiaries may be in violation of any
Environmental Law, or any Permit issued pursuant to Environmental
Law, or may have any liability under any Environmental Law;
(e) At Closing, none of the Company or any of its
Subsidiaries has any current contingent liability in connection
with any Release of any Hazardous Materials into the indoor or
outdoor environment (whether on-site or off-site) and has no
reason to believe that such contingent liability exists;
(f) The Company has no Knowledge of any investigations
of the business, operations, or currently or previously owned,
operated or leased property of the Company or any of its
Subsidiaries pending or, to its Knowledge, threatened that could
lead to the imposition of any liability pursuant to Environmental
Law;
(g) There is not located at any of the properties
owned or operated, or to the knowledge of the Company, leased by
the Company or any of its Subsidiaries any (i) underground
storage tanks, (ii) asbestos-containing material, (iii) equipment
containing polychlorinated biphenyls, (iv) Hazardous Materials
located at any Company Property (other than for Hazardous
Materials used or stored by the Company or any Subsidiary in the
ordinary course of business and in material compliance with
applicable Environmental Laws and Permits); and
(h) The Company has provided to the Purchasers all
environmentally related audits, studies, reports, analyses and
results of investigations, if any, that have been performed with
respect to the currently or previously owned, leased or operated
properties of the Company or any of its Subsidiaries.
4.17. Company SEC Reports and Financial Statements.
--------------------------------------------
(a) The Company has made available to Purchasers true
and complete copies of all periodic reports, statements and other
documents that the Company has filed with the SEC under the
Exchange Act since January 1, 1996 (collectively, the "Company
-------
SEC Reports"), each in the form (including exhibits and any
-----------
amendments thereto) required to be filed with the SEC. As of
their respective dates, each of the Company's SEC Reports (i)
complied in all respects with all applicable requirements of the
Securities Act and the Exchange Act, and the rules and
regulations promulgated thereunder, respectively, (ii) were filed
in a timely manner, and (iii) did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which
they were made, not misleading. None of the Subsidiaries is
required to file any forms, reports or other documents with the
SEC.
(b) The audited consolidated financial statements of
the Company (including any related notes and schedules thereto)
included in its Annual Report on Form 10-KSB for the fiscal year
ended October 31, 1997 (the "Balance Sheet Date"), are accurate
------------------
and complete and present fairly, in conformity with GAAP applied
on a consistent basis throughout the periods involved (except as
may be noted therein), and in conformity with the SEC's
Regulation S-X, the consolidated financial position of the
Company and its consolidated subsidiaries as of its date and the
consolidated results of operations and changes in financial
position for the period then ended.
(c) None of the Company or any of its Subsidiaries
has incurred any liability or obligation of any nature whatsoever
(whether due or to become due, accrued, fixed, contingent,
liquidated, unliquidated or otherwise) that would be required by
GAAP to be accrued on, reflected on, or reserved against it, on a
consolidated balance sheet (the "Balance Sheet") (or in the
-------------
applicable notes thereto) of the Company or any of its
Subsidiaries prepared in accordance with GAAP consistently
applied as of the date and for the period required.
4.18. Changes. Except as set forth on Schedule 4.18, since
------- -------------
October 31, 1997, there has not been:
(a) any change, by itself or together with other
changes, that has affected adversely, or is likely to affect
adversely, the assets, liabilities, financial condition or
operating results of the Company or any of its Subsidiaries,
except changes in the ordinary course of business;
(b) any material damage, destruction or loss, whether
or not covered by insurance;
(c) any waiver by the Company or any of its
Subsidiaries of a valuable right or of a debt owed to it outside
of the ordinary course of business;
(d) any satisfaction or discharge of any Lien or
prepayment of any obligation by the Company or any of its
Subsidiaries, other than in the ordinary course of business;
(e) any change or amendment to a contract or
arrangement by which the Company or any of its Subsidiaries or
any of their respective assets or properties is bound or subject;
(f) other than in the ordinary course of business, any
material increase in excess of $35,000 annually in any
compensation arrangement or agreement with any employee of the
Company or any of its Subsidiaries receiving compensation;
(g) any events or circumstances that otherwise could
reasonably be expected, individually or in the aggregate, to have
a material adverse effect on the Company and its Subsidiaries
taken as a whole; and
(h) none of the Company or any of its Subsidiaries has
(i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its
capital stock or equity interests, (ii) incurred any Indebtedness
for money borrowed in excess of $15,000, excluding trade payables
incurred in the ordinary course of business, (iii) made any loans
or advances to any Person, other than ordinary advances for
travel expenses not exceeding $15,000, or (iv) sold, exchanged or
otherwise disposed of any of its assets or rights for
consideration in excess of $15,000 in any one transaction or
series of related transactions other than in the ordinary course
of business.
4.19. Employee Benefit Plans.
----------------------
(a) Schedule 4.19(a) contains a complete and accurate
----------------
list of all Company Plans and Company Benefit Arrangements.
Schedule 4.19(a) specifically identifies all Company Plans (if
----------------
any) that are Qualified Plans.
(b) With respect, as applicable, to Employee Benefit
Plans and Benefit Arrangements:
(i) true, correct, and complete copies of all
of the following documents with respect to each Company Plan
and Company Benefit Arrangement, to the extent applicable,
have been delivered to the Purchasers: (A) all documents
constituting the Company Plans and Company Benefit
Arrangements, including, but not limited to, trust
agreements, insurance policies, service agreements, and
formal and informal amendments thereto; (B) the most recent
Forms 5500 or 5500 C/R and any financial statements attached
thereto for the prior three years; (C) the most recent
Internal Revenue Service (the "IRS") determination letter
---
and the latest IRS determination letter that covered the
qualification of the entire Company Plan (if different), and
copies of the materials submitted by the Company to obtain
those letters; (D) the most recent summary plan descriptions
; (E) the most recent written descriptions of all
non-written agreements relating to any such plan or
arrangement (if such documents or writings exist), (F) all
reports submitted within the four years preceding the date
of this Agreement by third-party administrators, actuaries,
investment managers, consultants, or other independent
contractors; (G) all notices that were given to the Company
within the three years preceding the date of this Agreement
by the IRS, Department of Labor, or any other governmental
agency or entity with respect to any plan or arrangement;
and (H) employee manuals or handbooks containing personnel
or employee relations policies;
(ii) neither the Company nor any Subsidiary has
ever maintained, contributed to, or been obligated to
contribute to any Qualified Plan.
(iii) the Company and the Subsidiaries have
never sponsored or maintained, had any obligation to sponsor
or maintain, or had any liability (whether actual or
contingent, with respect to any of its assets or otherwise)
with respect to any Employee Benefit Plan subject to
Section 302 of ERISA or Section 412 of the Code or Title IV
of ERISA (including any Multiemployer Plan);
(iv) each Company Plan and each Company Benefit
Arrangement has been operated in material compliance with
its constituent documents and with all applicable provisions
of the Code, ERISA and other laws, including federal and
state securities laws;
(v) there are no pending claims or lawsuits
by, against, or relating to any Employee Benefit Plans or
Benefit Arrangements that are Company Plans or Company
Benefit Arrangements that would, if successful, result in
material liability of the Company, and no claims or lawsuits
have been asserted, instituted or to the Company's Knowledge
threatened by, against, or relating to any Company Plan or
Company Benefit Arrangement, against the assets of any trust
or other funding arrangement under any such Company Plan, by
or against the Company or the Subsidiaries with respect to
any Company Plan or Company Benefit Arrangement, or by or
against the plan administrator or any fiduciary of any
Company Plan or Company Benefit Arrangement, and the Company
and the Subsidiaries do not have Knowledge that could form
the basis for any such claim or lawsuit. The Company Plans
and Company Benefit Arrangements are not presently under
audit or examination (nor has notice been received of a
potential audit or examination) by the IRS, Department of
Labor, or any other governmental agency or entity;
(vi) no Company Plan or Company Benefit
Arrangement contains any provision or is subject to any law
that would prohibit the transactions contemplated by this
Agreement or that would give rise to any vesting of
benefits, severance, termination, or other payments or
liabilities as a result of the transactions contemplated by
this Agreement;
(vii) with respect to each Company Plan, there
has occurred no non-exempt "prohibited transaction" (within
the meaning of Section 4975 of the Code) or transaction
prohibited by Section 406 of ERISA or breach of any
fiduciary duty described in Section 404 of ERISA that would,
if successful, result in any liability for the Company or
any officer, director, or employee of the Company;
(viii) all reporting, disclosure, and notice
requirements of ERISA and the Code have been fully and
completely satisfied with respect to each Company Plan and
each Company Benefit Arrangement;
(ix) all amendments and actions required to
bring the Company Benefit Plans into conformity with the
applicable provisions of ERISA, the Code, and other
applicable laws have been made or taken except to the extent
such amendments or actions (A) are not required by law to be
made or taken until after the Closing Date and (B) are
disclosed on Schedule 4.19(b)(ix);
--------------------
(x) payment has been made of all amounts that
the Company and each Subsidiary is required to pay as
contributions to the Company Benefit Plans as of the last
day of the most recent fiscal year of each of the plans
ended before the date of this Agreement; all benefits
accrued under any unfunded Company Plan or Company Benefit
Arrangement will have been paid, accrued, or otherwise
adequately reserved in accordance with GAAP as of the
Balance Sheet Date; and all monies withheld from employee
paychecks with respect to Company Plans have been
transferred to the appropriate plan within 30 days of such
withholding;
(xi) except as disclosed on Schedule
--------
4.19(b)(xi), the Company and the Subsidiaries have not
-----------
prepaid or prefunded any Welfare Plan through a trust,
reserve, premium stabilization, or similar account, nor do
they provide benefits through a voluntary employee
beneficiary association as defined in Section 501(c)(9);
(xii) no statement, either written or oral, has
been made by the Company or any Subsidiaries to any Person
with regard to any Company Plan or Company Benefit
Arrangement that was not in accordance with the Company Plan
or Company Benefit Arrangement and that would result in a
material adverse economic consequence to the Company or the
Subsidiaries;
(xiii) the Company and the Subsidiaries have
no liability (whether actual, contingent, with
respect to any of its assets or otherwise) with respect to any
Employee Benefit Plan or Benefit Arrangement that is not a
Company Benefit Arrangement or with respect to any Employee
Benefit Plan sponsored or maintained (or which has been or should
have been sponsored or maintained) by any ERISA Affiliate;
(xiii) all group health plans of the Company and
its ERISA Affiliates have been operated in material
compliance with the requirements of Sections 4980B (and its
predecessor) and 5000 of the Code; and
(xiv) no employee or former employee of the
Company or beneficiary of any such employee or former
employee is, by reason of such employee's or former
employee's employment, entitled to receive any benefits,
including, without limitation, death or medical benefits
(whether or not insured) beyond retirement or other
termination of employment as described in Statement of
Financial Accounting Standards No. 106, other than (i) death
or retirement benefits under a Qualified Plan, (ii) deferred
compensation benefits accrued as liabilities on the Closing
Statement or (iii) continuation coverage mandated under
Section 4980B of the Code or other applicable law.
(c) Schedule 4.19(c) hereto sets forth an accurate
----------------
list, as of the date hereof, of all officers, directors, and key
employees of the Company and lists all employment agreements with
such officers, directors, and key employees and the rate of
compensation (and the portions thereof attributable to salary,
bonus, and other compensation respectively) of each such Person
as of (a) October 31, 1997 and (b) the date hereof.
(d) Except as set forth in Schedule 4.19(d), the
----------------
Company has not declared or paid any bonus compensation in
contemplation of the transactions contemplated by this Agreement.
4.20. Taxes. All federal, state and local and foreign tax
-----
returns, reports and statements required to be filed by
the Company and its Subsidiaries have been filed or
have been caused to be filed with the appropriate
governmental agencies in all jurisdictions in which
such returns, reports and statements are required to be
filed and all such returns, reports and statements are
true, complete and correct in all respects. All taxes,
charges and other impositions due and payable by the
Company and its Subsidiaries have been paid in full on
a timely basis except where contested in good faith and
by appropriate proceedings if adequate reserves
therefor have been established on the books and records
of the Company or Subsidiary in accordance with GAAP.
The provision for taxes of each of the Company and its
Subsidiaries is sufficient for all unpaid taxes,
charges and other impositions of any nature due or
accrued as of the date thereof, whether or not assessed
or disputed. Proper and accurate amounts have been
withheld by the Company and its Subsidiaries from their
respective employees for all periods in full and
complete compliance with the tax, social security and
unemployment withholding provisions of applicable
federal, state, local and foreign law and such
withholdings have been timely paid to the respective
governmental agencies. Except as set forth on Schedule
--------
4.20, the Company has not received notice of any audit
----
or of any proposed deficiencies from any governmental
authority, and no controversy with respect to taxes of
any type is pending or to its Knowledge threatened.
Except for routine filing extensions granted as a
matter of right under applicable law, none of the
Company or any of its Subsidiaries has executed or
filed with the IRS or any other governmental authority
any agreement or other document extending, or having
the effect of extending, the period of assessment or
collection of any taxes, charges or other impositions.
None of the Company or any of its Subsidiaries has
agreed or is required to make any adjustment under
Section 481(a) of the Code by reason of a change in
accounting method or otherwise. Further, none of the
Company or any of its Subsidiaries has any obligation
under any tax-sharing agreement.
4.21. Labor and Employment Matters. With respect to
----------------------------
employees of and service providers to the Company and
the Subsidiaries: (a) the Company and the Subsidiaries
are and have been in compliance in all material
respects with all applicable laws respecting employment
and employment practices, terms and conditions of
employment and wages and hours, including without
limitation any such laws respecting employment
discrimination, workers' compensation, family and
medical leave, the Immigration Reform and Control Act,
and occupational safety and health requirements, and
have not and are not engaged in any unfair labor
practice; (b) there is not now, nor within the past
three years has there been, any unfair labor practice
complaint against the Company or any Subsidiary pending
or, to the Company's or any Subsidiary's Knowledge,
threatened before the National Labor Relations Board or
any other comparable authority; (c) there is not now,
nor within the past three years has there been, any
labor strike, slowdown or stoppage actually pending or,
to the Company's or any Subsidiary's Knowledge,
threatened against or directly affecting the Company or
any Subsidiary; (d) to the Company's or any
Subsidiary's Knowledge, no labor representation
organization effort exists nor has there been any such
activity within the past three years; (e) no grievance
or arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the
Company's or any Subsidiary's Knowledge, no claims
therefor exist or have been threatened; (f) the
employees of the Company and the Subsidiaries are not
and have never been represented by any labor union, and
no collective bargaining agreement is binding and in
force against the Company or any Subsidiary or
currently being negotiated by the Company or any
Subsidiary; and (g) all Persons classified by the
Company or its Subsidiaries as independent contractors
do satisfy and have satisfied the requirements of law
to be so classified, and the Company and its
Subsidiaries have fully and accurately reported their
compensation on IRS Forms 1099 when required to do so.
4.22. No Pending Transactions. Except for the transactions
-----------------------
contemplated by this Agreement, neither the Company nor
any Subsidiary is a party to or bound by or the subject
of any agreement, undertaking, commitment or
discussions or negotiations with any Person that could
result in (i) the sale, merger, consolidation or
recapitalization of the Company or any Subsidiary,
(ii) the sale of all or substantially all of the assets
of the Company or any Subsidiary, or (iii) a change of
control of more than five percent of the outstanding
capital stock of the Company or any Subsidiary.
4.23. Disclosure. All written agreements, lists, schedules,
----------
instruments, exhibits, documents, certificates,
reports, statements and other writings furnished to the
Purchasers pursuant hereto or in connection with this
Agreement or the transactions contemplated hereby, are
and will be complete and accurate in all material
respects. No representation or warranty by the Company
contained in this Agreement, in the schedules attached
hereto or in any certificate furnished or to be
furnished by the Company to the Purchasers in
connection herewith or pursuant hereto contains or will
contain any untrue statement or a material fact or
omits or will omit to state any material fact necessary
in order to make any statement contained herein or
therein not misleading in any material respect. There
is no fact known to the officers and directors of the
Company that has specific application to the Company
(other than general economic or industry conditions)
and that materially adversely affects or, as far as
such officers and directors can reasonably foresee,
materially threatens, the assets, business, prospects,
financial condition, or results of operations of the
Company that has not been set forth in this Agreement
or any schedule hereto.
4.24. Minute Books. The minute books of the Company and each
------------
of its Subsidiaries contain a complete summary of all
material actions by their respective directors and
stockholders since the date of their respective
incorporation and reflect all transactions referred to
in such minutes accurately in all material respects.
4.25. Brokers' Fees. Except as set forth on Schedule 4.25, no
------------- -------------
broker, finder, investment banker or other Person is
entitled to any brokerage fee, finder's fee or other
commission in connection with the transactions
contemplated by this Agreement based upon arrangements
made by the Company.
4.26. Not an Investment Company. The Company is not an
-------------------------
Investment Company within the meaning of the Investment
Company Act of 1940, as amended.
4.27. Real Property Holding Company. The Company is not a
-----------------------------
United States Real Property Holding Corporation within
the meaning of Section 897(c)(2) of the Code.
4.28. Litigation. All pending claims, suits, or proceedings
----------
against the Company, its Subsidiaries, and its schools
are set forth in Schedule 4.28. None of the pending
-------------
claims, suits, or proceedings listed in Schedule 4.28
-------------
will hinder the consummation of this Agreement or
related agreements, nor will any pending claims, suits
or proceedings adversely affect the operation or
financial condition of, or result in the payment of
substantial damages by, the Company, its Subsidiaries
or any of the schools. The payment of any liabilities
or damages resulting from such claims, suits and
proceedings will be covered by adequate insurance
proceeds. The Company, its Subsidiaries, and the
schools represent that each of the claims, suits, and
proceedings or litigation contained in Schedule 4.28 is
-------------
without merit and agree to vigorously defend the
Company, the affected Subsidiary or the affected school
in all matters pertaining to such claims, suits or
proceedings. Except as set forth in Schedule 4.28,
-------------
there are no other pending or threatened claims, suits
or proceedings against the Company, its Subsidiaries or
its schools. Moreover, there is no investigation by
any governmental agency pending or threatened against
the Company, its Subsidiaries, or its Schools which
might result in any such suit, action or other
proceeding.
4.29. Indebtedness. The Company and its Subsidiaries have no
------------
Indebtedness of any type except as set forth on
Schedule 4.29 and Indebtedness with the Purchasers
-------------
pursuant to this Agreement. Upon consummation of the
transactions hereunder, except as set forth on Schedule
--------
4.29 and except as permitted pursuant to Section 10.3,
----
the Debentures will rank senior to, or PARI PASSU with,
all other Indebtedness of the Company and its
Subsidiaries.
SECTION 5
Representations and Warranties of the Purchasers
------------------------------------------------
Each of the Purchasers (severally and not jointly),
hereby represents and warrants to and agrees with the Company, as
follows:
5.1. Accredited Investor; Experience; Risk.
-------------------------------------
(a) Such Purchaser is an "accredited investor" (as
such term is defined in Rule 501 promulgated under the Securities
Act) and has been advised and understands that the Debentures,
Warrants, Common Stock and Warrant Shares have not been
registered under the Securities Act, on the basis that no public
offering of the Debentures, Warrants, Common Stock and the
Warrant Shares is to be effected, except in compliance with the
applicable securities laws and regulations or pursuant to an
exemption therefrom; provided, however, that nothing in this
-----------------
Section 5.1 shall limit the Purchasers' right to convert the
Warrants for Warrant Shares as set forth in this Agreement or the
Warrants.
(b) Such Purchaser is purchasing the Debentures,
Warrants and Warrant Shares for investment purposes, for its own
account and not with a view to, or for sale in violation of
federal or state securities laws.
(c) Such Purchaser has such knowledge and experience
in financial and business matters that it is capable of
evaluating the merits and risks of the purchase of the
Debentures, Warrants, Common Stock and the Warrant Shares
pursuant to this Agreement.
(d) The certificates representing the Debentures,
Warrants, Warrant Shares and any Common Stock shall bear a legend
evidencing such restriction on transfer substantially in the
following form:
"The securities represented by this certificate have
been acquired for investment and have not been registered under
the Securities Act of 1933, as amended (the "Act") or the
---
securities laws of any state and may not be sold or transferred
except pursuant to registration under the Act or an exemption
therefrom."
(e) Each Purchaser has received information regarding
the Company and its Subsidiaries to enable it to make a
meaningful investment decision with respect to the purchase of
the Debentures, Warrants, the Common Stock and the Warrant
Shares.
5.2. Authorization. Such Purchaser has all requisite power and
-------------
authority to execute and deliver this Agreement and each of
the Transaction Documents to which it is a party and to
perform its obligations hereunder and thereunder. The
execution, delivery and performance of the Agreement and the
transactions contemplated hereby have been duly authorized
by all necessary, action on the part of such Purchaser.
Each Transaction Document to which such Purchaser is a party
has been duly and validly executed and delivered by such
Purchaser and constitutes the legal, valid and binding
obligation of such Purchaser, enforceable against it in
accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and
remedies generally, and subject, as to enforceability, to
general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing
(regardless of whether enforcement is sought in a proceeding
at law or in equity).
5.3. Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification,
designation, declaration or filing with, any federal, state,
or local governmental authority on the part of such
Purchaser is required in connection with the valid execution
and delivery by such Purchaser of the Transaction Documents
to which it is a party, or the consummation by such
Purchaser of the transactions contemplated by the
Transaction Documents to which it is a party, except for
such filings as have been made prior to the Closing.
5.4. Organization, Good Standing and Qualification. Such
---------------------------------------------
Purchaser (i) is a limited partnership duly organized,
validly existing and in good standing under the laws of the
State of Delaware, (ii) has all requisite power and
authority to carry on its business, (iii) is duly qualified
to transact business and is in good standing in all
jurisdictions where its ownership, lease or operation of
property or the conduct of its business requires such
qualification, except where the failure to do so would not
be material to the Purchaser. Such Purchaser has the power
and authority and is in possession of all material
franchises, grants, authorizations, licenses, permits,
easements, consents, certificates, approvals and orders to
(i) own, lease and operate its properties and to carry on
its business as now being conducted and (ii) execute and
deliver this Agreement and the documents and instruments
contemplated hereby and to consummate the transactions
contemplated hereby. The principal place of business for
such Purchaser is in Baltimore, Maryland.
SECTION 6
Conditions to Closing of Purchasers
-----------------------------------
6.1. Debenture and Warrant Closing. Each Purchaser's obligation
-----------------------------
to purchase the Debentures and Warrants at the Closing is,
at the option of such Purchaser, subject to the fulfillment
on or prior to the applicable Closing Date of the following
conditions:
(a) Representations and Warranties Correct. The
--------------------------------------
representations and warranties made by the Company in Section 4
hereof shall be true and correct when made, and shall be true and
correct on the Closing Date with the same force and effect as if
they had been made on and as of such date, and any litigation
disclosed pursuant to Section 4.7 shall have been settled to the
reasonable satisfaction of the Purchasers.
(b) Covenants. All covenants, agreements and
---------
conditions contained in this Agreement to be performed by the
Company on or prior to the Closing Date shall have been performed
or complied with in all respects.
(c) Opinion of Company's Counsel. The Purchasers
----------------------------
shall have received from 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.
(i) No Event of Default. No Event of Default shall
-------------------
have occurred or then exist.
SECTION 7
Conditions to Closing of the Company
------------------------------------
The Company's obligation to issue and sell the
Debentures and Warrants at the Closing, and the shares of Common
Stock pursuant to Section 9, is, at the option of the Company,
subject to the fulfillment of the following conditions prior to
the applicable Closing Date:
7.1. Representations. The representations and warranties made by
---------------
the Purchasers in Section 5 hereof shall be true and correct
when made, and shall be true and correct on the Closing Date
with the same force and effect as if they had been made on
and as of such date.
7.2. Purchase Price. The Purchasers shall have tendered the
--------------
purchase price for the Debentures and Warrants of Four
Million Dollars ($4,000,000), and pursuant to Section 9,
upon exercise of the Company Put Option for the Common
Stock, shall have tendered the purchase price of Two Million
Dollars ($2,000,000).
7.3. Certificate. The Company shall have received a certificate
-----------
from the Purchasers to the effect set forth in Section 7.1.
7.4. State Securities Laws. All registrations, qualifications
---------------------
and Permits required under applicable state securities laws,
if any, shall have been obtained for the lawful execution,
delivery and performance of this Agreement.
SECTION 8
Covenants of the Company
------------------------
8.1. Regulatory Matters. Each of the Company and Purchasers will
------------------
(i) make on a prompt and timely basis all governmental or
regulatory notifications, filings or submissions, as
necessary for the consummation of the transactions
contemplated hereby, including any filings required pursuant
to the 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 acquisition of the Xxxxxxx
Xxxxx Business School so long as the Company adjusts the number
of Warrant Shares so that the aggregate number of Warrant Shares
held by the Purchasers shall constitute twenty percent (20%) of
the Company's issued and outstanding capital stock on a fully
diluted basis after giving effect to all such employee stock
options;
(b) operate the business of the Company and each
Subsidiary in any manner not in the ordinary course of business;
or
(c) take any of the actions set forth in Section 5.6
of the Investor Rights Agreement attached hereto as Exhibit C,
---------
which Section is expressly incorporated herein by reference.
SECTION 9
Company Put Option
------------------
9.1. Company Put Option. Subject to the terms and conditions
------------------
hereunder, in the event that the Company has achieved the
projections set forth in the operating budget as delivered
to the Purchasers no later than thirty (30) days following
the closing of the 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 indemni-
fication within ten (10) days after the discovery by such parties
of any matters giving arise to a claim for indemnification
pursuant to Section 11.11(a); provided that the failure of any
--------
Indemnified Party to give notice as provided herein shall not
relieve the Company of its obligations under this Section 11.11,
except to the extent that the Company is actually prejudiced by
such failure to give notice. In case any such action or claim is
brought against any Indemnified Party, the Company shall be
entitled to participate in and, unless in the reasonable good
faith judgment of the Indemnified Party a conflict of interest
between such Indemnified Party and the Company may exist in
respect of such action or claim, to assume the defense thereof,
with counsel satisfactory to the Indemnified Party and after
notice from the Company to the Indemnified Party of its election
so to assume the defense thereof, the Company shall not be liable
to such Indemnified Party for any legal or other expenses
subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. In
any event, unless and until the Company elects in writing to
assume and does so assume the defense of any such action or claim
the Indemnified Party's costs and expenses arising out of the
defense, settlement or compromise of any such action or claim
shall be Losses subject to indemnification hereunder. If the
Company elects to defend any such action or claim, then the
Indemnified Party shall be entitled to participate in such
defense with counsel of its choice at its sole cost and expense.
The Company shall not be liable for any settlement of any action
or claim effected without its written consent. Anything in this
Section 11.11 to the contrary notwithstanding, the Company shall
not, without the Indemnified Party's prior written consent,
settle or compromise any claim or consent to entry of any
judgment in respect thereof that imposes any future obligation on
the Indemnified Party or that does not include, as an
unconditional term thereof, the giving by the claimant or the
plaintiff to the Indemnified Party, a release from all liability
in respect of such claim.
(c) The Company agrees that no Indemnified Party shall
have any liability (whether direct or indirect, in contract, tort
or otherwise) to the Company or any of its Subsidiaries,
shareholders or creditors for or in connection with the
transactions contemplated by this Agreement or the other
Transaction Documents, except to the extent such liability is
found in a final judgment by a court of competent jurisdiction to
have resulted from such Indemnified Party's gross negligence or
willful misconduct or the misrepresentations of the Indemnified
Party, but in no event shall an Indemnified Party be liable for
punitive, exemplary or consequential damages.
(Signature Page Follows)
SECURITIES PURCHASE AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the Company and the Purchasers have
caused this Agreement to be executed effective as of the date
first above written.
THE COMPANY:
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By:/S/ XXXXXX X. XXXXX
--------------------------------------------
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:/S/ XXXXX X. XXXXXXX
--------------------------------------------
Name: Xxxxx X. Xxxxxxx
Title: a General Partner
STRATEGIC ASSOCIATES, L.P.
By: XXXXXX, XXXXXXX & COMPANY, LLC, its
General Partner
By:/S/ XXXXX X. XXXXXXX
--------------------------------------------
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.
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(a) Schedule 4.29 contains a complete and accurate
-------------
statement of the U.S. Department of Education certification and
eligibility status for each of the schools owned by the Company
and its Subsidiaries, including the date that certification was
last granted and the current term of certification. Each of the
schools listed in Schedule 4.29 is certified by the U.S.
-------------
Department of Education to participate in the programs authorized
by Title IV of the Higher Education Act of 1965, as amended.
None of the schools are subject to limitation, suspension or
termination proceedings, or subject to any other action or
proceeding by the U.S. Department of Education that could result
in the loss of certification or eligibility or a material
liability or fine. To the Knowledge of the Company and its
Subsidiaries, there are no facts, circumstances, or omissions
concerning the schools that could lead to such an action by the
U.S. Department of Education.
(b) Each of the schools owned by the Company and its
Subsidiaries is in material compliance with all rules,
regulations and requirements established by the U.S. Department
of Education pertaining to each school's eligibility to
participate in the programs authorized by Title IV of the Higher
Education Act of 1965, as amended, and other federal student
financial aid funding programs set forth at 34 C.F.R. 600 et
--
seq. The Company and its Subsidiaries are aware of no facts,
---
circumstances, or omissions concerning the schools that might
result in a finding of material non-compliance with regard to
such rules, regulations and requirements. Without limiting the
foregoing, the Company, its Subsidiaries also represent that:
(i) Each of the schools satisfies the standards
of financial responsibility and administrative capability,
as established by the U.S. Department of Education and as
set forth at 34 C.F.R. 668.15-668.16, and each program
offered by the schools is an eligible program in accordance
with the requirements of 34 C.F.R. 668.8.
(ii) Each of the schools receives no greater than
eighty-five percent (85%) of its revenues from programs
authorized by Title IV of the Higher Education Act of 1965,
as amended, or other federal student financial aid funds,
and satisfies the requirements regarding tuition revenue
established by the Department of Education as set forth at
34 C.F.R. 600.5. Schedule 4.29 contains a correct
-------------
statement of each school's percentage of revenue from such
federal funding sources.
(iii) The final cohort default rates published
by the U.S. Department of Education for fiscal years 1992
through 1995 for the schools of the Company and its
Subsidiaries are listed in Schedule 4.29.
-------------
(iv) Each of the schools has established a default
reduction plan and submitted such plans to the U.S.
Department of Education in accordance with 34 C.F.R.
674.6.
(v) Each of the schools disburses federal Pell
Grant payments in accordance with procedures that comply
with 34 C.F.R. 690.63.
(c) U.S. Department of Education program reviews and
compliance audits conducted at each of the schools since 1992
have not materially adversely affected the Company, its
Subsidiaries or its schools nor has any program review or
compliance audit resulted in the imposition of any material
liability, financial or otherwise, affecting the Company, its
Subsidiaries or its schools. The Company, its Subsidiaries, and
its schools have complied with all the findings and conditions
arising from the program reviews and compliance audits. To the
extent that any program review or audit remains pending or
unresolved, there are no issues or findings of non-compliance
which, to the knowledge of the Company, its Subsidiaries, or its
schools, could result in the loss of certification or eligibility
or a material liability or fine.
