Exhibit 4.1
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INVESTOR RIGHTS AGREEMENT
DATED AS OF SEPTEMBER 4, 1998
BY AND AMONG
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.,
as the Company
AND
XXXXXX, XXXXXXX STRATEGIC PARTNERS FUND, L.P.,
and
STRATEGIC ASSOCIATES, L.P.
as the Purchasers
AND
THE INDIVIDUAL SHAREHOLDERS IDENTIFIED HEREIN
TABLE OF CONTENTS
Page
SECTION 1 Definitions 1
1.1. Defined Terms 1
1.2. Other Defined Terms 3
1.3. Other Definitional Provisions 4
SECTION 2 Representations by the Company 4
SECTION 3 Representations of the Investors 4
SECTION 4 Representations and Warranties of the Individual Shareholders 5
4.1. Authority; Validity 5
4.2. No Conflicts 5
4.3. Consents and Approvals 5
4.4. Stock Ownership 5
SECTION 5 Covenants of the Company 5
5.1. Information 5
5.2. Regulatory Matters 7
5.3. Access 8
5.4. Directors' and Officers' Insurance 8
5.5. Confidentiality 8
5.6. Restrictive Covenants 8
5.7. Publicity 9
5.8. Nasdaq Filings 9
5.9. Redemption of Preferred Stock 10
5.10. Use of Proceeds 10
5.11. Dealings with Affiliates 10
5.12. Maintenance of Properties, etc. 10
5.13. Maintenance of Board Representation 10
5.14. Payment of Taxes 10
5.15. Maintenance of Insurance 10
5.16. Preservation of Corporate Existence 11
5.17. Compliance with Laws 11
5.18. Keeping of Records and Books of Account 11
SECTION 6 Election of Directors 11
6.1. Board of Directors 11
6.2. Nomination and Election of Directors 12
6.4. Vacancy 12
6.5. Termination 13
SECTION 7 Miscellaneous 13
7.1. Amendment; Waiver 13
7.2. Restriction on Transfer of Voting Securities 13
7.3. Voting 13
7.4. Notices 13
7.5. Severability 14
7.6. Successors and Assigns 15
7.7. Survival of Representations, Warranties and Covenants 15
7.8. Entire Agreement 15
7.9. Choice of Law 15
7.10. Counterparts 15
7.11. Costs and Expenses 15
7.12. No Third-Party Beneficiaries 15
7.13. Indemnification 16
7.14. Specific Performance 17
INVESTOR RIGHTS AGREEMENT SIGNATURE PAGE 18
Exhibit A Individual Shareholders 19
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
INVESTOR RIGHTS AGREEMENT
INVESTOR RIGHTS AGREEMENT dated as of September 4, 1998
(this "Agreement"), is entered into by and among TOUCHSTONE
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APPLIED SCIENCE ASSOCIATES, INC., a Delaware corporation (the
"Company"), 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 an
"Investor" and collectively the "Investors"), and the individual
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shareholders identified on Exhibit A hereto (each an "Individual
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Shareholder" and collectively the "Individual Shareholders").
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W I T N E S S E T H
WHEREAS, the Company and the Investors have entered
into a Securities Purchase Agreement, dated as of September 4,
1998 (the "Securities Purchase Agreement") pursuant to which the
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Investors have acquired debentures (the "Debentures") and
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warrants (the "Warrants") of the Company; and
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WHEREAS, as a condition precedent to closing under the
Securities Purchase Agreement, the Company and the Individual
Shareholders have agreed to grant the Investors the rights set
forth herein in order to induce the Investors into entering into
the Securities Purchase Agreement.
NOW, THEREFORE, in consideration of the foregoing and
of the mutual covenants and agreements set forth herein, the
parties hereto agree as follows:
SECTION 1
Definitions
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1.1. Defined Terms. The following terms are defined as follows:
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"Affiliate" means, with respect to any Person, (i) any
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Person that holds direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Exchange Act) of voting
securities or other voting interests representing at least 5% of
the outstanding voting power of a Person or equity securities or
other equity interests representing at least 5% of the
outstanding equity securities or equity interests in a Person,
(ii) any brother, sister, parent, child or spouse of such Person
or any Person described in clause (i), and (iii) any Person that
directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with,
such entity.
"Code" means the Internal Revenue Code of 1986 (or any
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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.
"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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"Indebtedness" shall mean, as to any Person, all items
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that would, in conformity with generally accepted accounting
principles, be classified as liabilities or contingent
liabilities of such Person, but in any event including without
limitation (a) all obligations under leases that have been, or
under generally accepted accounting principles are required to
be, capitalized, (b) all indebtedness endorsed (other than for
collection or deposit in the ordinary course of business) or
discounted with recourse, and (c) all indebtedness in effect
guaranteed, directly or indirectly, by such Person.
"Knowledge" or derivations thereof shall mean the
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knowledge of the officers of the Company and each Subsidiary,
and, with respect to Sections 4.19 and 4.21, each person who
conducts human resource and employee benefits management
functions for the Company or any Subsidiary, whether or not an
officer of the Company or such Subsidiary.
"Permits" means any approvals, authorizations,
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consents, licenses, permits or certificates.
"Person" means an individual, partnership, limited
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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.
"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.
"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.
"Voting Securities" means any share of Common Stock
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and/or other voting security in the Company.
"Warrant Shares" means the shares of Common Stock
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issued or issuable upon exercise of the Warrants.
1.2. Other Defined Terms. The following terms shall have the
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meanings assigned to them in the identified Sections of this
Agreement.
"Agreement" as defined in the recitals to this Agreement.
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"Closing Date" as defined in Section 5.1.
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"Company" as defined in the recitals to this Agreement.
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"Company Director" as defined in Section 6.2(b).
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"Company SEC Reports" as defined in Securities Purchase Agreement.
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"Debentures" as defined in Section 2.
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"Director" as defined in Section 6.1(a).
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"Event of Default" as defined in Section 10.1 of the
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Securities Purchase Agreement.
"Indemnified Party" as defined in Section 7.13(a).
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"Individual Shareholder" and "Individual Shareholders"
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as defined in the recitals to this Agreement.
"Investor" and "Investors" as defined in the recitals to
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this Agreement.
"Investor Director" as defined in Section 6.2(a).
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"Investor Rights Agreement" as defined in the recitals
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to this Agreement.
"Loss" as defined in Section 7.13(a).
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"One Million Dollar Debt Basket" as defined in Section 5.6(h).
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"Investors" as defined in the recitals to this Agreement.
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"Qualified Public Offering" as defined in Section 6.5(b).
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"Registration Rights Agreement" as defined in the
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recitals to this Agreement.
"Warrants" as defined in the recitals to this Agreement.
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1.3. Other Definitional Provisions. Any additional capitalized
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terms shall have the meanings assigned to them in the
Securities Purchase Agreement unless otherwise defined in
text of this Agreement. Terms defined in the singular shall
have a comparable meaning when used in the plural and vice
versa.
SECTION 2
Representations by the Company
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The Company represents and warrants to the Investors
that: (a) the execution, delivery and performance by the Company
of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary
corporate action; (b) this Agreement has been duly executed and
delivered by the Company, and constitutes the legal, valid and
binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium and other laws affecting
creditors' rights generally and to general principles of equity;
(c) the execution, delivery and performance of this Agreement do
not conflict with, violate, breach or constitute a default under,
the Company's Certificate of Incorporation or By-Laws or any
indenture, lease, agreement or other instrument to which the
Company is a party or by which it or any of its assets is bound,
or any decree, judgment, order, statute, rule or regulation
applicable to the Company.
SECTION 3
Representations of the Investors
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Each Investor, jointly and severally, represents and
warrants to the Company that: (a) the execution, delivery and
performance by each Investor of this Agreement and the
consummation of the transactions contemplated hereby have been
duly authorized by all necessary action; (b) this Agreement has
been duly executed and delivered by each Investor, and
constitutes the legal, valid and binding obligation of each
Investor, enforceable against such Investor in accordance with
its terms, subject to applicable bankruptcy, insolvency,
moratorium and other laws affecting creditors' rights generally
and to general principles of equity; (c) the execution, delivery
and performance of this Agreement do not conflict with, violate,
breach or constitute a default under, the organizational
documents of either Investor or any indenture, lease, agreement
or other instrument to which either Investor is a party or by
which either Investor or any of its assets is bound, or any
decree, judgment, order, statute, rule or regulation applicable
to either Investor.
SECTION 4
Representations and Warranties of the Individual Shareholders
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Each of the Individual Shareholders (severally and not
jointly), hereby represents and warrants to and agrees with the
Investors, as follows:
4.1. Authority; Validity. Such Individual Shareholder has the
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full legal right, power, authority and capacity to enter
into this Agreement and to vote its shares of capital stock
in accordance with the terms of this Agreement. This
Agreement has been duly and validly executed by such
Individual Shareholder and this Agreement constitutes a
legal, valid and binding obligation of such Individual
Shareholder, enforceable in accordance with its terms.
4.2. No Conflicts. The execution, delivery and performance of
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this Agreement and the consummation of the transactions by
such Individual Shareholder contemplated hereby will not
conflict with, violate or result in a breach or constitute a
default under any order, decree, statute, ordinance,
regulation or other law applicable to such Individual
Shareholder.
4.3. Consents and Approvals. No consent, approval, order or
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authorization of, or registration, declaration or filing
with, any governmental authority or any third party is
required in connection with the execution, delivery and
performance of this Agreement by such Individual Shareholder
and the consummation of the transactions by such Individual
Shareholder hereunder.
4.4. Stock Ownership. That such Individual Shareholder is the
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beneficial owner and has the right to vote all of the shares
of capital stock set forth on Exhibit A hereto.
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SECTION 5
Covenants of the Company
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5.1. Information. Commencing on the date on which the
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transactions under the Securities Purchase Agreement are
consummated (the "Closing Date") and so long as the
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Debenture or any Warrant is outstanding and held by the
Investors, the Company shall deliver to the Investors the
information specified in this Section 5.1 unless any such
Investor at any time specifically requests that such
information not be delivered to it:
(a) Monthly Financial Statements. As soon as
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available, but in any event not later than forty-five (45) days
after the end of each fiscal month the unaudited consolidated
balance sheet of the Company and its Subsidiaries as at the end
of each such period and the related unaudited consolidated
statements of income and cash flows of the Company and its
Subsidiaries for such period and for the elapsed period in such
fiscal year, all in reasonable detail and stating in comparative
form (i) the figures as of the end of and for the comparable
periods of the preceding fiscal year and (ii) if available, the
figures reflected in any operating budget for such period. All
such financial statements shall be prepared in accordance with
GAAP applied on a consistent basis throughout the periods
reflected therein except as stated therein and shall be
accompanied by a certificate of the Company's president or chief
financial officer to such effect.
(b) Quarterly Financial Statements. As soon as
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available, but in any event not later than forty-five (45) days
after the end of each fiscal quarter the unaudited consolidated
balance sheet of the Company and its Subsidiaries as at the end
of each such period and the related unaudited consolidated
statements of income and cash flows of the Company and its
Subsidiaries for such period and for the elapsed period in such
fiscal year, all in reasonable detail and stating in comparative
form (i) the figures as of the end of and for the comparable
periods of the preceding fiscal year and (ii) if available, the
figures reflected in any operating budget for such period. All
such financial statements shall be prepared in accordance with
GAAP applied on a consistent basis throughout the periods
reflected therein except as stated therein and shall be
accompanied by a certificate of the Company's president or chief
financial officer to such effect.
(c) Annual Financial Statements. As soon as
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available, but in any event within one hundred twenty days (120)
days after the end of each fiscal year of the Company, a copy of
the audited consolidated balance sheets of the Company and its
Subsidiaries as at the end of such fiscal year and the related
audited consolidated statements of operations, stockholders'
equity and cash flows of the Company and its Subsidiaries for
such fiscal year, all in reasonable detail and stating in
comparative form the figures as at the end of and for the
immediately preceding fiscal year, accompanied (in the case of
the audited consolidated financial statements) by an opinion of
an accounting firm of recognized national standing selected by
the Company, which opinion shall state that such accounting
firm's audit was conducted in accordance with generally accepted
auditing standards. All such financial statements shall be
prepared in accordance with GAAP applied on a consistent basis
throughout the periods reflected therein except as stated
therein.
(d) Material Litigation. Within ten (10) days after
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the Company learns of the commencement or receives a written
threat of commencement of any litigation or proceeding against
the Company or any of its Subsidiaries or any of their respective
assets that could reasonably be expected to have a material
adverse effect on the Company and its Subsidiaries taken as a
whole, written notice of the nature and extent of such litigation
or proceeding.
(e) Material Agreements. Within ten (10) days after
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the receipt by the Company of written notice of a default by the
Company or any of its Subsidiaries under any material contract,
agreement or document to which it is a party or by which it is
bound, written notice of the nature and extent of such default.
(f) Other Reports and Statements. Promptly upon any
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distribution to its stockholders generally or to the financial
community of an annual report, quarterly report, proxy statement,
registration statement or other similar report or communication,
a copy of each such annual report, quarterly report, proxy
statement, registration statement or other similar report or
communication and promptly upon filing by the Company with the
SEC or with The Nasdaq Stock Market, the National Association of
Securities Dealers, Inc. or any national securities exchange or
other market system of any all regular and other reports or
applications (including without limitation listing applications),
a copy of each such report or application; and a copy of such
report or statement and copies of all press releases and other
statements made available generally by the Company to the public
concerning material developments in the Company.
(g) Accountants' Management Letters, Etc. Promptly
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after receipt by the Company, copies of all accountants'
management letters and all management and board responses to such
letters, and copies of all certificates as to compliance,
defaults, material adverse changes, material litigation or
similar matters relating to the Company and its Subsidiaries,
which shall be prepared by the Company or its officers and
delivered to the third parties.
(h) Stockholders' Lists. Unless otherwise provided at
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an earlier date during each fiscal year, within sixty (60) days
after the end of each fiscal year, a list of all stockholders of
record, showing the authorized and outstanding shares by class
(including the Common Stock equivalents of any convertible
security), the holders of all outstanding shares and all
outstanding options, warrants and convertible securities, and
detailing all options and warrants granted, exercised or lapsed
(including in each case, without limitation, all option and
warrant exercise prices, stock issuance prices' and other terms)
and all shares issued or sold (whether to directors or managers,
in connection with financing or otherwise).
(i) Annual Budget. As soon as available, but in any
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event not later than thirty (30) days prior to the beginning of
each fiscal year of the Company, the financial plan of the
Company for such fiscal year, including without limitation, a
cash flow projection and operating budget, calculated quarterly,
as contained in its operating plan approved by the Company's
Board of Directors as well as any updates or revisions to such
plan as soon as available.
(j) Other Information. From time to time, and
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promptly, such additional information regarding results of
operations, financial condition or business of the Company and
its Subsidiaries, including without limitation, cash flow
analysis, projections and minutes of any meetings of the Board of
Directors, as the Investors may reasonably request.
5.2. Regulatory Matters. Each of the Company and Purchasers will
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(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.
5.3. Access. From time to time and subject to the provisions of
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Section 5.5 hereof, upon the reasonable prior written
request of the Investors, the Company shall promptly afford
the Investors and its accountants, counsel and other
representatives, full access during normal business hours to
all of its properties, books, contracts, commitments and
records, permit them to copy or make extracts therefrom and,
the Company shall furnish promptly to Investors all
information concerning its business, properties and
personnel as Investors may reasonably request; provided,
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however, that no investigation pursuant to this Section 5.3
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shall affect any representations or warranties of either
party hereunder.
5.4. Directors' and Officers' Insurance. The Company shall
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maintain a directors' and officers' liability insurance
policy providing coverage in the amount of not less than
$2.0 million and having such other terms as are reasonably
acceptable to Investors.
5.5. Confidentiality. From and after the date of this Agreement,
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each of the Company and Investors agree to hold, and will
cause its respective employees, agents and representatives
to hold, in confidence, unless compelled to disclose by
judicial or administrative process or, in the written
opinion of their counsel, by other requirements of law,
information furnished by the Company, on the one hand, to
Investors and information furnished by Investors, on the
other hand, to the Company in connection with the
transactions contemplated by this Agreement, and each of
such persons agree that they shall not release or disclose
such information to any other person, except their
respective officers, directors, partners, employees,
auditors, attorneys, financial advisors and other
consultants, advisors and representatives who need to know
such information and who have been informed of the
confidential nature of such information and have been
directed to treat such information as confidential. The
foregoing provisions of this Section 8.5 shall not apply to
any such information which (i) becomes generally available
to the public other than as a result of a disclosure by any
person bound hereunder, (ii) was available to a person bound
hereunder on a non-confidential basis prior to its
disclosure hereunder, or (iii) becomes available to any
person bound hereunder on a non-confidential basis by virtue
of the disclosure thereof by a source other than the party
providing such information in reliance upon the protection
of confidentiality reposed hereby.
5.6. Restrictive Covenants. Without the written consent of the
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Investors, the Company and its Subsidiaries shall not:
(a) issue any class or series of equity securities as
to payment of dividends or as to payments on dissolution,
liquidation or winding-up of the Company or a Subsidiary;
(b) enter into any agreement or arrangement of any
kind that would restrict the Company's ability to perform under
this Agreement or the Transaction Documents;
(c) amend the certificate of incorporation or by-laws
of the Company (or any such analogous formation document of any
Subsidiary) in any manner that would impair, reduce or affect the
rights of the Investors;
(d) increase the size of the Company's Board of
Directors, except as contemplated by the Transaction Documents;
(e) merge or consolidate with any other entity such
that the Company or, if a transaction by a Subsidiary, such
Subsidiary is not the surviving entity or sell all or
substantially all of its assets;
(f) enter into any transaction with any of its
officers, directors, employees (or relative of any of the
foregoing), or Affiliates, other than transactions in the
ordinary course of its business and on terms and conditions at
least as favorable as could be negotiated with an unrelated third
party;
(g) liquidate, dissolve or wind-up (including without
limitation through the filing of a voluntary bankruptcy
petition); or
(h) incur, issue, guarantee or assume any
Indebtedness (excluding (x) the $4 million of Debentures acquired
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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
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Debt Basket"); provided, however, that any Indebtedness ranking
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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
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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.
5.7. Publicity. Except as may be required by law or applicable
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regulations, the Company shall not use the name of, or make
reference to, any Investor or any of its Affiliates in any
press release or in any public manner without such
Investor's prior written consent.
5.8. Nasdaq Filings. As soon as possible, but in any case not
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later than 20 days after the Closing, the Company shall file
all necessary documents and information with the Nasdaq
Stock Market in order to maintain listing thereon of the
Company's Common Stock; provided, however, that failure of
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the Company's Common Stock to sustain a minimum trading
price shall not constitute a default hereunder. The Company
also shall use its best efforts to qualify for listing on
the Nasdaq National Stock Market and shall file all
necessary documents and information with Nasdaq not later
than 20 days after qualifying for listing thereon, although
the foregoing does not constitute a representation that the
Company is currently eligible for listing on the Nasdaq
National Stock Market or that it will be able to maintain
its listing on the Nasdaq SmallCap Market.
5.9. Redemption of Preferred Stock. By no later than the 31st
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day after the Closing Date, the Company shall redeem all
shares of the Series A Preferred Stock.
5.10. Use of Proceeds. The Company shall apply the proceeds
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received as a result of the transactions contemplated
under the Securities Purchase Agreement as set forth
therein.
5.11. Dealings with Affiliates. Except for employee or
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director compensation, stock bonus, stock option or
similar plans or arrangements approved by the Board of
Directors, the Company will not enter or permit any
Subsidiary to enter into any transaction with any
holder of five percent (5%) or more of any class of
capital stock of the Company, or any member of their
families or any corporation or other entity in which
any one or more of such stockholders or members of
their immediate families directly or indirectly holds
five percent (5%) or more of any class of capital stock
except in the ordinary course of business and on terms
not less favorable to the Company or the Subsidiary
than it would obtain in a transaction between unrelated
parties.
5.12. Maintenance of Properties, etc. The Company shall
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maintain and preserve, and cause each Subsidiary to
maintain and preserve, all of its properties, necessary
or useful in the proper conduct of its business, in
good repair, working order and condition, ordinary wear
and tear excepted, except as otherwise determined by
the Board of Directors.
5.13. Maintenance of Board Representation. The Company shall
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use its best efforts to nominate and recommend that
Xxxxx Xxxxxxx, or a replacement designated by him,
shall be a member of the Company's Board of Directors.
5.14. Payment of Taxes. The Company shall pay and discharge,
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and cause each Subsidiary to pay and discharge, all
material taxes, assessments and governmental charges or
levies imposed on it or upon its income or profits or
business, or upon any properties belonging to it, prior
to the date on which penalties attach thereto, and all
lawful claims which, if unpaid, is reasonably likely
(in the Company's good faith opinion) to become a lien
or charge upon any properties of the Company or any
Subsidiary, provided that neither the Company nor the
Subsidiary shall be required to pay any such tax,
assessment, charge, levy or claim which is being
contested and/or negotiated in good faith and by
appropriate proceedings if the Company or Subsidiary
concerned shall have set aside on its books adequate
(in the Company's opinion) reserves with respect
thereto. The Company shall pay, when due, or in
conformity with customary trade terms, all material
lease obligations, all material trade debt, and all
other material indebtedness incident to the operations
of the Company, except such as are being contested in
good faith and by appropriate proceedings if the
Company shall have set aside on its books adequate
reserves with respect thereto.
5.15. Maintenance of Insurance. The Company shall maintain,
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and cause each Subsidiary to maintain, insurance with
responsible and reputable insurance companies or
associations in such amounts and covering such risks as
is usually carried by companies engaged in similar
businesses and owning similar properties in the same
general areas in which the Company or such Subsidiary
operates.
5.16. Preservation of Corporate Existence. The Company shall
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preserve and maintain, and cause each Subsidiary to
preserve and maintain, its corporate existence, rights,
franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified, and
cause each Subsidiary to qualify and remain qualified,
as a foreign corporation in each jurisdiction in which
such qualification is necessary or desirable in view of
its business and operations or the ownership of its
properties; the Company shall preserve and maintain,
and cause each Subsidiary to preserve and maintain, all
licenses and other rights to use patents, processes,
licenses, trademarks, trade names, inventions,
intellectual property rights or copyrights owned or
used by and necessary to the conduct of its business;
provided, however, that the Company shall not be
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required to preserve any such Subsidiary, license or
right if the Board of Directors shall reasonably
determine that the preservation is no longer desirable
in the conduct of the Company's business and that the
loss thereof is not likely to cause a material adverse
effect on the Company and its Subsidiaries taken as a
whole.
5.17. Compliance with Laws. The Company shall comply, and
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cause each Subsidiary to comply, with all applicable
laws, rules, regulations and orders of any governmental
authority, noncompliance with which could materially
adversely affect the Company's business or condition,
financial or otherwise of the Company and its
Subsidiaries taken as a whole. The Company shall file
all reports and other information and documents which
it is required to file with the SEC pursuant to Section
13 or 15(d) of the Exchange Act.
5.18. Keeping of Records and Books of Account. The Company
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shall keep, and cause each Subsidiary to keep, adequate
records and books of account, in which complete entries
shall be made in accordance with generally accepted
accounting principles consistently applied, reflecting
all financial transactions of the Company and such
Subsidiary, and in which, for each fiscal year, all
proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
SECTION 6
Election of Directors
---------------------
6.1. Board of Directors.
------------------
(a) The Company shall be governed by a Board of
Directors consisting, as of the date hereof, of nine members
(each a "Director"). Without the consent of the Investor
--------
Directors (as hereinafter defined), the number of Directors
constituting the full Board of Directors shall not be increased
beyond nine; without the consent of the Company Directors (as
hereinafter defined), the number of Directors constituting the
full Board of Directors shall not be reduced below six. Regular
meetings of the Board shall be held at least two times per year,
on a semi-annual basis.
6.2. Nomination and Election of Directors.
------------------------------------
(a) The Investors shall have the right to nominate two
Directors (each, an "Investor Director").
-----------------
(b) The Company agrees that it shall cause the Board
of Directors in office immediately prior to the execution and
delivery of this Agreement to increase the size of the Board of
Directors by two, and to elect the nominees designated by the
Investors as Directors, to serve as Directors until their
respective successors are elected and qualified. The Board of
Directors (other than the Investor Directors) shall have the
right to nominate no less than four nor more than seven Directors
(each a "Company Director"), to serve until their respective
----------------
successors are elected and qualified. The initial Company
Directors shall be the incumbent Board of Directors as of the
date of execution and delivery of this Agreement.
(c) On the date hereof and at each annual meeting of
stockholders of the Company or any special meeting called for the
purpose of electing directors of the Company or at such other
time or times as directors may be elected in accordance with the
Company's By-Laws and the General Corporation Law of the State of
Delaware, the Investors agree to cast all of their eligible votes
in favor of the nominees for Directors nominated pursuant to
paragraphs (a) and (b) hereof, and for no other persons.
6.3. Removal. The Investor Directors shall at all times
-------
have the right to recommend the removal, with or without
cause, of an Investor Director only, and the Company
Directors shall at all time have the right to recommend the
removal, with or without cause, of a Company Director only.
If a Director's removal shall have been recommended in
accordance with the preceding sentence, then the Board of
Directors shall take such corporate actions as may be
required under the Company's By-Laws and the General
Corporation Law of the State of Delaware to effect such
removal.
6.4. Vacancy. If any vacancy occurs in the Board of Directors
-------
because of the death, disability, resignation, retirement or
removal of an Investor Director, then the Investors shall
nominate a successor, and the Board of Directors shall vote
to elect such successor to the Board, or if a vote of the
stockholders of the Company is held, the Board of Directors
shall recommend to the stockholders that such successor be
elected to the Board of Directors. If any vacancy occurs in
the Board of Directors because of the death, disability,
resignation, retirement or removal of a Company Director,
then the Company Directors shall either (i) nominate a
successor, and the Board of Directors shall vote to elect
such successor to the Board, or if a vote of the
stockholders of the Company is held, the Board of Directors
shall recommend to the stockholders that such successor be
elected to the Board of Directors, or (ii) decide expressly
not to fill such vacancy at such time.
6.5. Termination. Article 6 shall terminate and thereafter be of
-----------
no force and effect, except as set forth below, upon the
earlier to occur of the following:
(a) Investors shall cease to own of record at
least 50% of the aggregate of: (i) after the exercise of the
Warrants, the Warrant Shares, and (ii) if the Company exercises
the Company Put Option, the Option Shares; or
(b) the closing of a public offering of the
Common Stock of the Company which results in net proceeds to the
Company of at least $25,000,000 with an offering price of at
least $5.00 per share (a "Qualified Public Offering"); or
-------------------------
(c) the twenty-nine (29) month anniversary
date of the Closing Date; provided, however, that nothing in this
-------- -------
provision shall terminate the Investors' right to nominate two
Directors to the Company's Board of Directors so long as the
Investors continue to own of record at least 50% of the aggregate
of: (i) after the exercise of the Warrants, the Warrant Shares,
and (ii) if the Company exercises the Company Put Option, the
Option Shares.
SECTION 7
Miscellaneous
-------------
7.1. Amendment; Waiver. Neither this Agreement nor any provision
-----------------
hereof may be amended, modified, supplemented or waived,
except by a written instrument executed by all of the
parties hereto.
7.2. Restriction on Transfer of Voting Securities. Each
--------------------------------------------
Individual Shareholder agrees and acknowledges that it shall
be a condition precedent to any transfer of a Voting
Security held by such Individual Shareholder that the
transferee become a party to this Agreement and failure to
comply with this condition shall render the transfer void AB
INITIO.
7.3. Voting. Each Individual Shareholder agrees to vote all of
------
its Voting Securities in such a manner as to cause the
Company to comply with the covenants set forth in Section 5
of this Agreement.
7.4. Notices. Any notices or other communications required or
-------
permitted hereunder shall be sufficiently given if in
writing and delivered in Person, transmitted by facsimile
transmission (fax) or sent by registered or certified mail
(return receipt requested) or recognized overnight delivery
service, postage pre-paid, addressed as follows, or to such
other address has such party may notify to the other parties
in writing:
(a) if to the Company or any of the Individual Shareholders:
Touchstone Applied Science Associates, Inc.
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 Investors:
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.
7.5. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any
provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be
ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of this
Agreement.
7.6. Successors and Assigns. Except as otherwise provided
----------------------
herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors and permitted assigns of
the parties hereto. The Company shall not have the right to
assign its rights or delegate its obligations under this
Agreement without the prior written consent of the
Investors. Each Investor may assign its rights hereunder to
any transferee(s) of the Debentures and Warrants without the
consent of any other party hereto.
7.7. Survival of Representations, Warranties and Covenants. All
-----------------------------------------------------
representations and warranties made in, pursuant to or in
connection with this Agreement shall survive the execution
and delivery of this Agreement. Unless otherwise provided
in this Agreement, the covenants and agreements set forth in
Sections 5 and 6 shall survive and remain in force so long
as the Investors and any of their transferees hold in the
aggregate Warrants and/or Common Stock representing 10% of
the Company's capital stock on a fully diluted basis or upon
a Qualified Public Offering.
7.8. Entire Agreement. This Agreement and the other documents
----------------
delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard
to the subject matter hereof and thereof and supersede and
cancel all prior representations, alleged warranties,
statements, negotiations, undertakings, letters,
acceptances, understandings, contracts and communications,
whether verbal or written, among the parties hereto and
thereto or their respective agents with respect to or in
connection with the subject matter hereof.
7.9. Choice of Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the State of New
York, without regard to principles of conflict of laws.
7.10. Counterparts. This Agreement may be executed in any
------------
number of counterparts and by different parties hereto
in separate counterparts, with the same effect as if
all parties had signed the same document. All such
counterparts shall be deemed an original, shall be
construed together and shall constitute one and the
same instrument.
7.11. Costs and Expenses. Promptly after the Closing, the
------------------
Company shall pay the reasonable fees and disbursements
incurred by the Investors (including without limitation
reasonable attorneys' and consultants' fees) in
connection with the due diligence review and Closing
under this Agreement and the transactions contemplated
hereby (including without limitation the due diligence
review and attorneys' fees incurred in preparation for
the transactions as previously contemplated); provided,
--------
however, that the parties shall bear their own costs
-------
and expenses if the Closing hereunder fails to take
place.
7.12. No Third-Party Beneficiaries. Nothing in this
----------------------------
Agreement will confer any third party beneficiary or
other rights upon any Person (specifically including
any employees of the Company and its Subsidiaries) or
entity that is not a party to this Agreement.
7.13. Indemnification.
---------------
(a) The Company [and each Individual Shareholder]
agree to indemnify and hold harmless the Investors and their
Affiliates, and their respective partners, co-investors,
officers, directors, employees, agents, consultants, attorneys
and advisers (each, an "Indemnified Party"), from and against any
-----------------
and all actual losses, claims, damages, liabilities, costs and
expenses (including, without limitation, environmental
liabilities, costs and expenses and all reasonable fees, expenses
and disbursements of counsel), joint or several (hereinafter
collectively referred to as a "Loss"), which may be incurred by
----
or asserted or awarded against any Indemnified Party in
connection with or in any manner arising out of or relating to
any investigation, litigation or proceeding or the preparation of
any defense with respect thereto, arising out of or in connection
with or relating to this Agreement, the other Transaction
Documents or the transactions contemplated hereby or thereby or
any use made or proposal to be made with the proceeds of the
Investors' purchase of the Debentures, Warrants, Common Stock and
Conversion Shares pursuant to this Agreement, whether or not such
investigation, litigation or proceeding is brought by the
Company, any of its Subsidiaries, shareholders or creditors,
whether or not any of the transactions contemplated by this
Agreement or the other Transaction Documents are consummated,
except to the extent such Loss is found in a final judgment by a
court of competent jurisdiction to have resulted from such
Indemnified Party's gross negligence or willful misconduct.
(b) An Indemnified Party shall give written notice to
the Company of any claim with respect to which it seeks indemni-
fication within ten (10) days after the discovery by such parties
of any matters giving arise to a claim for indemnification
pursuant to Section 7.13(a); provided that the failure of any
Indemnified Party to give notice as provided herein shall not
relieve the Company of its obligations under this Section 7.13,
except to the extent that the Company is actually prejudiced by
such failure to give notice. In case any such action or claim is
brought against any Indemnified Party, the Company shall be
entitled to participate in and, unless in the reasonable good
faith judgment of the Indemnified Party a conflict of interest
between such Indemnified Party and the Company may exist in
respect of such action or claim, to assume the defense thereof,
with counsel satisfactory to the Indemnified Party and after
notice from the Company to the Indemnified Party of its election
so to assume the defense thereof, the Company shall not be liable
to such Indemnified Party for any legal or other expenses
subsequently incurred by the latter in connection with the
defense thereof other than reasonable costs of investigation. In
any event, unless and until the Company elects in writing to
assume and does so assume the defense of any such action or claim
the Indemnified Party's costs and expenses arising out of the
defense, settlement or compromise of any such action or claim
shall be Losses subject to indemnification hereunder. If the
Company elects to defend any such action or claim, then the
Indemnified Party shall be entitled to participate in such
defense with counsel of its choice at its sole cost and expense.
The Company shall not be liable for any settlement of any action
or claim effected without its written consent. Anything in this
Section 7.13 to the contrary notwithstanding, the Company shall
not, without the Indemnified Party's prior written consent,
settle or compromise any claim or consent to entry of any
judgment in respect thereof that imposes any future obligation on
the Indemnified Party or that does not include, as an
unconditional term thereof, the giving by the claimant or the
plaintiff to the Indemnified Party, a release from all liability
in respect of such claim.
(c) The Company agrees that no Indemnified Party shall
have any liability (whether direct or indirect, in contract, tort
or otherwise) to the Company or any of its Subsidiaries,
shareholders or creditors for or in connection with the
transactions contemplated by this Agreement or the other
Transaction Documents, except to the extent such liability is
found in a final judgment by a court of competent jurisdiction to
have resulted from such Indemnified Party's gross negligence or
willful misconduct or the misrepresentations of the Indemnified
Party, but in no event shall an Indemnified Party be liable for
punitive, exemplary or consequential damages.
7.14. Specific Performance. The parties hereto hereby
--------------------
declare that it is impossible to measure in money the
damages which will accrue to a party hereto by reason
of a failure to perform any of the obligations under
this Agreement. Therefore, if any party hereto shall
institute any action or proceeding to enforce the
provisions hereof, any person (including the Company)
against whom such action or proceeding is brought
hereby waives all claims or defenses therein that such
party has an adequate remedy at law and such person
shall not urge in any such action or proceeding the
claim or defense that such remedy at law exists.
[Remainder of Page Intentionally Left Blank]
INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the Company and the Investors have
caused this Agreement to be executed effective as of the date
first above written.
THE COMPANY:
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By:/S/ XXXXXX X. XXXXX
--------------------------------------------
Name: Xxxxxx X. Xxxxx
Title: President and Chief Executive Officer
INVESTORS:
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
INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
INDIVIDUAL SHAREHOLDERS:
/S/ XXXXXX X. XXXXX
---------------------------------
Xxxxxx X. Xxxxx
/S/ XXXXX X. XXXXXXX
---------------------------------
Xxxxx X. Xxxxxxx
/S/ XXXXXXX X. XXXXX
---------------------------------
Xxxxxxx X. Xxxxx
/S/ XXXXXXX X. XXXX
---------------------------------
Xxxxxxx X. Xxxx
/S/ XXXXXX XXXXX
---------------------------------
Xxxxxx Xxxxx
/S/ XXXXXX X. XXXXXX
---------------------------------
Xxxxxx X. Xxxxxx
Exhibit A
Individual Shareholders
Name of Individual Number of Shares and Type of
Shareholder Voting Security
----------- ---------------
