EXHIBIT 4
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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
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ STRATEGIC PARTNERS FUND, L.P.,
AND
STRATEGIC ASSOCIATES, L.P.
AS THE PURCHASERS
AND
THE INDIVIDUAL SHAREHOLDERS IDENTIFIED HEREIN
TABLE OF CONTENTS
Page
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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"),
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is entered into by and among TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC., a
Delaware corporation (the "Company"), ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ STRATEGIC PARTNERS FUND,
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L.P., a limited partnership organized under the laws of the State of Delaware,
and STRATEGIC ASSOCIATES, L.P., a limited partnership organized under the laws
of the State of Delaware (each an "Investor" and collectively the "Investors"),
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and the individual shareholders identified on Exhibit A hereto (each an
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"Individual 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
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Agreement") pursuant to which the Investors have acquired debentures (the
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"Debentures") and 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 Person that holds
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direct or indirect beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act) of voting securities or other voting interests representing at
least 5% of the outstanding voting power of a Person or equity securities or
other equity interests representing at least 5% of the outstanding equity
securities or equity interests in a Person, (ii) any brother, sister, parent,
child or spouse of such Person or any Person described in clause (i), and (iii)
any Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such entity.
"Code" means the Internal Revenue Code of 1986 (or any successor thereto),
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as amended from time to time.
"Common Stock" means the Common Stock, par value $.0001 per share, of the
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Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"GAAP" means generally accepted accounting principles.
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"Indebtedness" shall mean, as to any Person, all items that would, in
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conformity with generally accepted accounting principles, be classified as
liabilities or contingent liabilities of such Person, but in any event including
without limitation (a) all obligations under leases that have been, or under
generally accepted accounting principles are required to be, capitalized, (b)
all indebtedness endorsed (other than for collection or deposit in the ordinary
course of business) or discounted with recourse, and (c) all indebtedness in
effect guaranteed, directly or indirectly, by such Person.
"Knowledge" or derivations thereof shall mean the knowledge of the officers
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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, consents, licenses, permits
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or certificates.
"Person" means an individual, partnership, limited liability company,
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corporation, joint stock company, trust, unincorporated association, joint
venture or other entity, or a government or any political subdivision or agency
thereof.
"SEC" means the United States Securities and Exchange Commission.
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"Securities Act" means the Securities Act of 1933, as amended.
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"Subsidiaries" means each corporation in which the Company owns or
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controls, directly or indirectly, capital stock or other equity interests
representing at least 50% of the outstanding voting stock or other equity
interests, including without limitation ▇▇▇▇ Evaluation & Testing Associates,
Inc., a New York corporation, and Modern Learning Press, Inc., a Delaware
corporation.
"Voting Securities" means any share of Common Stock and/or other voting
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security in the Company.
"Warrant Shares" means the shares of Common Stock issued or issuable upon
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exercise of the Warrants.
1.2 Other Defined Terms. The following terms shall have the meanings
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assigned to them in the identified Sections of this Agreement.
"Agreement" as defined in the recitals to this Agreement.
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"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 Securities Purchase
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Agreement.
"Indemnified Party" as defined in Section 7.13(a).
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"Individual Shareholder" and "Individual Shareholders" as defined in the
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recitals to this Agreement.
"Investor" and "Investors" as defined in the recitals to this Agreement.
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"Investor Director" as defined in Section 6.2(a).
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"Investor Rights Agreement" as defined in the recitals to this Agreement.
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"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 recitals to this
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Agreement.
"Warrants" as defined in the recitals to this Agreement.
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1.3 Other Definitional Provisions. Any additional capitalized terms shall
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have the meanings assigned to them in the 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 full legal
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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 this
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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 authorization
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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 beneficial
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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 transactions under
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the Securities Purchase Agreement are consummated (the "Closing Date") and so
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long as the 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 available, but in any
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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 available, but in any
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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 available, but in any
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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 the Company
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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 the receipt by
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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 distribution to
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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 after receipt by
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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 an earlier
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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 event not later
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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 it's 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 promptly, such
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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 (i) make
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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 ▇▇▇▇-▇▇▇▇▇-
▇▇▇▇▇▇ 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 Section
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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, however, that no investigation pursuant to this
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Section 5.3 shall affect any representations or warranties of either party
hereunder.
5.4 Directors' and Officers' Insurance. The Company shall maintain a
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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, each of
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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 Investors,
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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)
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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 ▇▇▇▇▇▇▇ ▇▇▇▇▇ Business School) in an
aggregate amount in excess of $1,000,000 (the "One Million Dollar Debt Basket");
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provided, however, that any Indebtedness ranking senior to or pari passu with
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the Debentures incurred pursuant to the acquisition of the ▇▇▇▇▇▇▇ ▇▇▇▇▇
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
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junior to the Debentures incurred pursuant to the acquisition of the ▇▇▇▇▇▇▇
▇▇▇▇▇ 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 later than
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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 the Company's
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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 day after
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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 received as a
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result of the transactions contemplated under the Securities Purchase Agreement
as set forth therein.
5.11 Dealings with Affiliates. Except for employee or director
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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 maintain and
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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.
5.14 Maintenance of Board Representation. The Company shall use its best
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efforts to nominate and recommend that ▇▇▇▇▇ ▇▇▇▇▇▇▇, or a replacement
designated by him, shall be a member of the Company's Board of Directors.
5.15 Payment of Taxes. The Company shall pay and discharge, and cause each
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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.
5.16 Maintenance of Insurance. The Company shall maintain, and cause each
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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.
5.17 Preservation of Corporate Existence. The Company shall preserve and
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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
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shall not be 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.
5.18 Compliance with Laws. The Company shall comply, and cause each
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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.
5.19 Keeping of Records and Books of Account. The Company shall keep, and
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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
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6.1 Board of Directors.
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(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
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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
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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
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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
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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'
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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
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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.
▇.▇. ▇▇▇ ▇▇▇
▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
(b) if to the Investors:
c/▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & Company, L.L.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Telephone No.: ▇▇▇-▇▇▇-▇▇▇▇
Facsimile No.: ▇▇▇-▇▇▇-▇▇▇▇
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 indemnification 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:________________________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President and Chief Executive Officer
INVESTORS:
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ STRATEGIC PARTNERS FUND, L.P.
By: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ STRATEGIC PARTNERS, L.P.,
its General Partner
By:________________________________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: a General Partner
STRATEGIC ASSOCIATES, L.P.
By: ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & COMPANY, LLC, its
General Partner
By:________________________________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Managing Member
INDIVIDUAL SHAREHOLDERS:
[ADD SIGNATURE LINES]
EXHIBIT A
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Individual Shareholders
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Name of Individual Number of Shares and Type of
Shareholder Voting Security
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