Exhibit 10.1
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ASSET PURCHASE AGREEMENT
AGREEMENT made as of this 2nd day of November, 1998 by and
between ▇▇▇▇▇▇▇ ▇▇▇▇▇ SCHOOL, INC., a New York corporation, having
its principal place of business at ▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ("Seller") and MESI ACQUISITION CORP., a
New York corporation having its principal place of business at c/o
TASA Educational Services Corporation, ▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ("Purchaser").
W I T N E S S E T H:
WHEREAS, the Seller is engaged in the business of maintaining
and operating a post-secondary, degree granting proprietary school
in the State of New York and branch of such school in the
Commonwealth of Massachusetts (the "Business"); and
WHEREAS, Purchaser desires to purchase from the Seller and the
Seller desires to sell to the Purchaser, the Business and
substantially all of its assets, upon the terms and conditions
stated herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in this Agreement, the parties hereby
agree as follows:
1. SALE AND TRANSFER OF ASSETS.
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(a) On the terms and subject to the conditions of this
Agreement and in reliance on the representations and warranties set
forth herein, except as set forth in subparagraph (b) below, the
Seller shall sell, assign, transfer and deliver to the Purchaser on
the Closing Date, as defined in Paragraph "14" hereof, and the
Purchaser shall purchase from Seller, free of liens and
encumbrances, all of the operating assets, properties and rights of
Seller of every kind and description existing at the Closing Date
(such assets, properties and rights to be sold herein shall be
hereinafter referred to as the "Assets"). Without limiting the
foregoing, the Assets shall include cash on hand; accounts;
accounts receivable; prepaid expenses; furniture and fixtures;
machinery and equipment; catalogs (including but not limited to all
advertising and marketing materials); student records and lists;
mailing list; leases; inventory in all forms (including but not
limited to print and video); curriculum; all intellectual property
and proprietary rights and interests (including but not limited to
curriculum, licenses, trademarks, tradenames, servicemarks,
copyrights, and patents whether registered or applied for or at
common law); and any and all contracts and contract rights, and the
names of Seller "▇▇▇▇▇▇▇ ▇▇▇▇▇ School, Inc.", "▇▇▇▇▇▇▇ ▇▇▇▇▇
Business School," and all variations and derivatives thereof.
(b) Seller shall provide such bills of sale, assignments
and other transfer documents necessary to sell, assign and transfer
the Assets and vest all rights to same in Purchaser, including but
not limited to assignments of all contracts and intellectual
property and proprietary interests in forms acceptable to counsel
for Purchaser and suitable for filing and registration of same by
Purchaser.
2. ASSUMPTION OF CERTAIN LIABILITIES.
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(a) Seller shall assign and Purchaser will assume
certain liabilities of Seller as set forth on Schedule 2(a) (the
"Assumed Liabilities"). Assumed Liabilities shall include, but not
be limited to, the accounts payable in the ordinary course of
business and the shareholder loan by Faith Takes to Seller in the
approximate amount as of 7/31/98 of $86,600 (the "Takes Loan"), the
obligations under the Capital Bank Trust/SBA loan, the obligations
under the TFC Credit Corporation loan, the obligations under the
Ballston Spa bridge loan, accrued expenses, payroll taxes and other
liabilities arising in the ordinary course of business, provided
all such liabilities are disclosed to Purchaser on the Closing
Balance Sheet delivered pursuant to Paragraph "11" hereof.
Notwithstanding anything to the contrary contained above, Assumed
Liabilities shall not include any obligation or liability of Seller
with respect to income taxes, penalties and interest thereon
(except as set forth in (b) below); pension, profit-sharing or
other similar obligations of Seller whether or not arising from
ERISA qualified or approved plans; any liabilities for items
outside the ordinary course of business which are not disclosed to
Purchaser and approved in writing by Purchaser; any liabilities for
material acts or omissions of Seller, its officers, directors or
employees through the Closing Date which are not disclosed on the
Closing Balance Sheet and approved in writing by Purchaser
(including but not limited to contingent liabilities, and any
pending or threatened claims, proceedings, actions, or
investigations, whether or not asserted before Closing).
(b) Purchaser and Seller agree that Purchaser shall
accept on the Closing Balance Sheet as an Assumed Liability an
accrual for income taxes equal to thirty-five (35%) percent of
Federal taxable income of Seller as of the Closing Date as
calculated by the certified public accountants for Seller to be
distributed to the Shareholders in such amounts as determined by
such accountants.
3. CONSIDERATION. On the Closing Date, in consideration
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of the sale and purchase of the Assets hereunder, assumption of the
Assumed Liabilities, and the restrictive covenant of Seller as set
forth in Paragraph "15" hereof, Purchaser shall pay Seller the
aggregate sum of Three Million Dollars ($3,000,000.00) as total
purchase price ("Purchase Price"). The parties agree to cooperate
and complete Internal Revenue Service Form 8594 promptly upon the
receipt, review and acceptance by Purchaser of the Closing
Financial Statements.
4. PAYMENT OF PURCHASE PRICE. Purchase Price shall be
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paid as follows:
(a) TWO MILLION AND 00/100 ($2,000,000.00) DOLLARS
payable at Closing by wire transfer to the account of Seller.
(b) ONE MILLION AND 00/100 ($1,000,000.00) DOLLARS by
promissory note of Purchaser, substantially in the form of Exhibit
"A" hereto (the "Note"), payable in equal quarterly installments of
principal and interest for five years from the date of Closing,
with interest at 8.5% per annum (the "Interest Rate"). The Interest
Rate and resultant payment shall be adjusted quarterly at the beginning
of each quarter following Closing.
5. BULK SALE COMPLIANCE. Intentionally Excluded.
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6. SALES TAX. Purchaser and Seller agree to cooperate in
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complying with the requirements of New York law with respect to the
transfer of assets contemplated hereunder, including but not
limited to notice of Seller to the State of New York and payment by
Purchaser at Closing of any amount required by the State in
connection with the sales tax obligations of Purchaser.
7. REPRESENTATIONS OF SELLER. Seller represents and
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warrants to Purchaser as follows:
(a) Seller is a corporation duly organized and
existing and in good standing under the laws of the State of New
York and is duly qualified to transact business in the State of New
York. Seller is a corporation duly qualified to do business and in
good standing as a foreign corporation under the laws of the
Commonwealth of Massachusetts. The operation of the Business does
not require Seller to be qualified to transact business in any
other jurisdiction. Seller has full power and authority to perform
its obligations as provided in this Agreement. The execution and
delivery by Seller of this Agreement and the consummation of the
transactions contemplated herein have been duly authorized by all
requisite corporate action, and will not conflict with or breach
any provision of any agreement to which Seller is a party or by
which it may be bound, the Certificate of Incorporation or By-Laws
of Seller. The copies of the Certificate of Incorporation of
Seller and amendments thereto and the Bylaws of Seller, heretofore
delivered to Purchaser, are true, correct and complete copies
thereof as now in effect.
(b) Except as set forth on Schedule "7(b)", Seller
owns and holds and shall own and hold as of the Closing Date, good
and merchantable title, free and clear of any liens, encumbrances,
charges or assessments, to all of the assets shown on its Audited
Financial Statements as of December 31, 1997 except (i) assets
disposed of since the date thereof in the ordinary course of
business, (ii) liens set forth on such financial statements and
(iii) liens or other encumbrances securing taxes which are not yet
due and payable and arising out of or incurred in the ordinary
course of business.
(c) Except as disclosed on Schedule "7(c)", Seller is
not a party to any "Material Contract" as defined hereinafter.
True and correct copies of all Material Contracts described on
Schedule "6(c)" have been delivered to Purchaser and are in full
force and effect. Seller is not in material breach of any Material
Contract, and no event which with notice or lapse of time, or both,
would constitute a material breach thereof has occurred and is
continuing. "Material Contract" as used in this Agreement,
includes all material contracts and commitments, all indentures,
mortgages, security agreements, leases, loans and credit
agreements, and all other material agreements (including any
employment contracts or deferred compensation, pension, profit
sharing or retirement plans, supply contracts or contracts for the
purchase or sale of products or services), imposing any obligation
on Seller or to which any of its Assets are subject. A contract,
commitment or agreement shall be deemed to be material if it either
(i) involves or may involve the payment of more than Five Thousand
Dollars ($5,000.00) over the life of the contract or commitment, or
(ii) regardless of the amount involved, if it is not terminable
without penalty solely at the will of Seller, upon notice of thirty
(30) days or less. Such list is true and complete in all material
respects; and, except as shown thereon, Seller is not a party to or
bound by any Material Contract.
(d) There are no actions, suits or proceedings
pending, and Seller has no knowledge of any actions, suits or
proceedings threatened, against Seller affecting Seller, or the
Business or any of the Assets to be transferred under this
Agreement, or which would prevent or substantially hinder the
consummation of the transactions contemplated by this Agreement.
Seller is not in default with respect to any order or decree of any
federal, state or municipal court or of any such governmental
agency or instrumentality.
(e) Except as disclosed on Schedule "7(e)" hereto,
there are no existing options, warrants, subscription rights,
convertible securities or similar rights granted by either Seller
or any of the shareholders of Seller (the "Shareholders"), or any
commitments or agreements of any character to which Seller or any
of the Shareholders is a party, relating to the authorized or
issued capital stock of Seller.
(f) All of the financial records and books of account
of Seller are true, correct and complete and have been maintained
in accordance with generally accepted accounting principles
consistently applied. Seller has delivered to Purchaser:
(i) audited Financial Statements for the Years
Ended December 31, 1996 and 1997 with the Independent Auditors
Report (the "Audited Financial Statements") and
(ii) management prepared Financial Statements
dated September 30, 1998 for the Nine Months Ended September 30,
1998 (the "Management Financial Statements");
(i) and (ii) being known hereinafter as the "Financial Statements".
The Audited Financial Statements were prepared by LCS&Z ▇▇▇▇▇▇▇▇
▇▇▇▇, L.L.P., certified public accountants of Seller. The Audited
Financial Statements (A) are true and correct in all material
respects, and (B) fairly present the financial positions and
results of operations and cash flows of Seller in accordance with
generally accepted accounting principles consistently applied, as
at such dates and for the years or periods then ended. The
Management Financial Statements (A) are true and correct in all
materials respects, and (B) fairly present the financial position
and results of operations as at September 30, 1998 and for the nine
months then ended in accordance with generally accepted accounting
principals consistently applied through the periods covered
thereby, subject to normal year-end adjustments.
(g) Seller has incurred no liabilities or obligations
of any nature (whether known or unknown, and whether absolute,
accrued, contingent or otherwise) other than (A) liabilities or
obligations reflected or reserved against in the balance sheet of
Seller as at September 30, 1998 (the "Balance Sheet Date"), (B)
current liabilities incurred in the ordinary course of business
since the Balance Sheet Date, (C) taxes incurred in the ordinary
course of business since the Balance Sheet Date, any of which
liabilities or obligations included within the foregoing exceptions
(A-C) do not or would not in the aggregate have a material adverse
effect on the Business or financial condition of Seller. The
accounts receivable accrued on or through the Closing Date were,
and to the best knowledge of Seller, will be, created in the
ordinary course and do and will reflect BONA FIDE sales to students
and will be collectible in the amount thereof as reflected in the
records of Seller. A schedule of such receivables shall be
delivered to Purchaser within five (5) business days of the date of
this Agreement.
(h) Except as disclosed on Schedule "7(h)", Seller
does not own or hold in fee or under lease, or otherwise in any
manner uses or occupies any real property except that office space
described in the leases true and complete copies of which have been
delivered to Purchaser and which are described on such Schedule
"7(h)" (the "Leases"). Each Lease is in full force and effect, and
except as disclosed on Schedule "7(h)", neither the landlord nor
Seller is in breach of any Lease, and no event which with notice or
lapse of time, or both, would constitute a material breach thereof,
has occurred and is continuing. Seller has obtained the consents
of each landlord to the assignment of the Leases where such consent
is required thereunder except as provided on Schedule "6(h)"
attached.
(i) Seller carries insurance with reputable insurers
in respect of its Assets and the Business. A true and complete
schedule of all insurance maintained by Seller is disclosed on
Schedule "6(i)". There has been no lapse in coverage under such
policies.
(j) From December 31, 1997 to the date of this
Agreement, (i) there has been no material adverse change in the
Assets or the financial condition of Seller from that shown in the
Audited Financial Statements and (ii) no business, properties or
assets owned or leased by the Seller shall have suffered any
destruction or damage or have been adversely affected in any manner
which singularly, or in the aggregate would have a material adverse
effect on the Assets or the financial condition of Seller,
regardless of whether or not the loss suffered from any such
incident shall have been insured; and (iii) the Business has been
conducted in the ordinary course.
(k) Annexed hereto as Schedule "7(k)", is a list and
description, true and correct in all material respects, of all
United States and foreign patent, trademark and trade name
registrations, unexpired as of the date hereof, all material United
States and foreign applications pending on said date for any
patent, trademark, trade name, or copyright registrations and all
material trademarks, trade names, label and other trade rights in
use on the date hereof, all of the foregoing being owned, in whole
or in part on said date by Seller and all licenses granted by or to
Seller, and all other agreements to which it is a party and which
are in force as of the date hereof and relate in whole or in part
to any items of the categories mentioned in this subparagraph or to
inventories, discoveries, improvements, processes, formulae,
proprietary rights, trade secrets, ideas or other know-how, whether
owned by Seller or otherwise.
(l) Annexed hereto as Schedule "7(l)" is a true and
correct copy of lists of all furniture, fixtures and equipment
maintained by Seller. These assets are situated in the offices or
other premises of Seller as set forth on Schedule "7(l)" hereto.
The furniture, fixtures and equipment of Seller listed on Schedule
"7(l)" constitute all such assets of Seller.
(m) Except as disclosed on Schedule "7(m)", all
United States, foreign, state, county, local and other taxes,
including, without limitation, income taxes, corporate franchise
taxes, AD VALOREM taxes, sales and other federal, state and local
taxes under any law, rule or regulation imposed by any governmental
authority with jurisdiction over Seller, its Business and Assets,
due and payable by Seller on or before the date of this Agreement
(including any penalties and interest thereon) have been paid, and
all tax returns and reports required to be filed by each of them
with all such taxing authorities have been filed when due (the
"Returns"). The provisions for taxes included in the Audited
Financial Statements are adequate for the payment of all accrued
and unpaid taxes of Seller whether or not disputed, and Seller has
withheld and collected all taxes and assessments it is or has been
required by law to withhold or collect, and all of the same are
duly reflected in the Audited Financial Statements. Seller has no
outstanding or unsatisfied deficiency assessments with respect to
any taxes. All such returns are true, complete and correct and in
material compliance with all applicable laws, rules and
regulations.
(n) Seller is not a party to any collective
bargaining agreement.
(o) No representation or warranty by Seller contained
in this Agreement (including the Schedules and Exhibits) nor any
written representation, statement or certificate made or furnished,
or to be made or furnished, or to be made or furnished hereafter,
by Seller pursuant hereto or in connection with the transactions
contemplated hereby, contains or will contain any material error or
misstatement or omits or will omit to state any material fact
necessary to make the representations or statements contained
herein or therein not misleading.
(p) Except as disclosed on Schedule "7(p)", no
consent or approval, notice to or waiver of any lien, filing or
other action is required for the due execution, delivery and
performance by Seller, or the validity, enforcement or priority of
this Agreement, except for consents which have been duly and
validly obtained and are now in full force and effect or the
obtaining of which has been waived in writing by Purchaser.
(q) Seller has not granted any power of attorney to
any person.
(r) Seller has undertaken due and diligent inquiry
and to the best of its knowledge:
(i) no real property leased by Seller (the
"Premises") is being or has been used by Seller for the storage,
treatment, generation, transportation, processing, handling,
production or disposal of any Hazardous Substance (as defined
below).
(ii) all environmental permits and licenses
required by the operations of Seller on the Premises have been
obtained and are in full force and effect.
"Hazardous Substance" means, without limitation, any flammables,
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explosives, radon, radioactive materials, asbestos, urea
formaldehyde foam insulation, polychlorinated-biphenyl, petroleum
and petroleum based products or by-products, methane, hazardous
materials, medical waste, hazardous wastes, hazardous or toxic
substances or related materials, as defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. Sections 9601, et seq.), the Hazardous Materials
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Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.),
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the Toxic Substances Control Act, as amended (15 U.S.C. Sections
2601, et seq.), Articles 15 and 27 of the New York State
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Environmental Conservation Law and in the regulations promulgated
thereunder. The term "Hazardous Substance" does not include
consumer products which are packaged for, stored, and used by a
consumer with reasonable care and for their intended use.
(s) Except as disclosed on Schedule "7(s)", Seller
has and never has had any employee pension benefit plan or trust
which is covered by Title IV of ERISA or subject to the minimum
funding standards under Section 4.12 of the Internal Revenue Code
in connection with which there could arise a direct or contingent
liability of Seller to the Pension Benefit Group Corporation, the
Department of Labor or the Internal Revenue Service. Seller is not
a participating employer in any Plan under which more than one
employer makes contributions or any multi-employer plan as defined
in ERISA. Each pension plan or trust covered by Title IV of ERISA
in which Seller participates either as sponsor or trustee, is in
compliance with the plan documents related thereto and all federal
and state laws, rules and regulations applicable thereto.
(t) Seller has the common law right in New York State
to use the name "▇▇▇▇▇▇▇ ▇▇▇▇▇" in connection with its business and
operations in New York State and the Commonwealth of Massachusetts.
(u) This Agreement and each of the Exhibits thereto
to which Seller is a party have been duly executed and delivered by
Seller are legal, valid and binding obligations of Seller and
enforceable against Seller in accordance with their respective
terms, except as may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter
in effect affecting the enforcement of creditors rights generally
and (ii) general principals of equity (regardless of whether
considered in the proceeding in equity or in law).
(v) Other than the contracts being transferred
hereunder and listed on Schedule "7(c)" annexed hereto and made a
part hereof, Seller is not a party to any written or oral Material
Contract, license, lease or other agreement other than as set forth
on Schedule "7(c)". Seller has obtained the consent of each
landlord or lessor of each contract transferred hereunder to the
assignment of such contract to Purchaser. Seller has not received
a notice of any default nor is it in material default under any
document, agreement, contract, license, lease or other commitment
to which it is or may be a party. Seller has not received notice
that any party to any such agreement intends to cancel or terminate
the same, whether by reason of the transactions contemplated hereby
or otherwise. All such agreements are valid and enforceable in
accordance with their respective terms for the periods stated
therein.
(w) Accreditation and State Licensure/Approval:
(i) Schedule "7(w)" contains a complete and
accurate statement of the accreditation granted to Seller's school
and its additional locations, the date that accreditation was last
granted, and the current term of accreditation. Neither the school
nor its additional locations are on probation or warning, have been
directed to show cause why accreditation should not be revoked, or
are subject to an action by an accrediting agency to withdraw or
deny accreditation. To the knowledge of Seller, there are no
facts, circumstances, or omissions concerning its schools that
could lead to such actions by an accrediting agency.
(ii) Seller, its school and its additional
location have complied with all stipulations, conditions and other
requirements imposed by their accrediting agency at the time of, or
since, the last grant of accreditations, including but not limited
to timely filing of all required reports and responses.
(iii) Seller, its school and its additional
location have secured all requisite approvals from its
institutional accrediting agency for their educational and training
programs currently offered.
(iv) Seller, its school and its additional
location have secured all requisite licenses to operate in the
states in which they are located and all requisite approvals from
such states for the educational and training programs currently
offered. Seller, its school and its additional location have
complied with all conditions and requirements upon which such
licenses and approvals are based and are in substantial compliance
with the rules and regulations of the State Education Department of
New York and the Commonwealth of Massachusetts. There are no
actions or proceedings pending in either state to limit, suspend or
terminate such licenses or approvals or which could result in the
imposition of a material fine.
(x) U.S. Department of Educational Certification and
Eligibility:
(i) Schedule "7(x)" contains a complete and
accurate statement of the U.S. Department of Education
certification and eligibility status for Seller's school and its
additional location, including the date that certification was
last granted and the current term of certification. The School and
its additional location listed on Schedule "7(x)" are certified by
the U.S. Department of Education to participate in the programs
authorized by Title IV of the Higher Education Act of 1965, as
amended. Neither the school nor its additional location are
subject to limitation, suspension or termination proceedings, or
subject to any other action or proceeding by the U.S. Department of
Education that could result in the loss of certification or
eligibility or a material liability or fine. To the knowledge of
the Seller, there are no facts, circumstances, or omissions
concerning the schools that could lead to such an action by the
U.S. Department of Education.
(ii) Seller's school and its additional
location owned by Seller are in material compliance with all
rules, regulations and requirements established by the U.S.
Department of Education pertaining to their eligibility to
participate in the programs authorized by Title IV of the Higher
Education Act of 1965, as amended, and other federal student
financial aid funding programs set forth at 34 C.F.R. Sections 600
et seq. The Seller is aware of no facts, circumstances, or
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omissions concerning the school and its additional location that
might result in a finding of material non-compliance with such
rules, regulations and requirements. Without limiting the
foregoing, the Seller also represents that:
(A) The school and its additional
location satisfy the standards of financial responsibility and
administrative capability, as established by the U.S. Department of
Education and as set forth at 34 C.F.R. Sections 668.15-668.16 and
each program offered by the school and its additional location is
an eligible program in accordance with the requirements of 34
C.F.R. Section 668.8.
(B) The school and its additional
location receive no greater than eighty-five percent (85%) of
their revenues from programs authorized by Title IV of the Higher
Education Act of 1965, as amended, or other federal student
financial aid funds, and satisfies the requirements regarding
tuition revenue established by the Department of Education as set
forth at 34 C.F.R. Section 600.5. Schedule "6(x)" contains a
correct statement of each school's percentage of revenue from such
federal funding sources.
(C) The school and its additional
location disburse federal Pell Grant payments in accordance with
procedures that comply with 34 C.F.R. Section 690.63.
(iii) U.S. Department of Education program
reviews and compliance audits conducted at the school and its
additional location since 1992 have not materially adversely
affected the Seller, its school or its additional location, nor has
any program review or compliance audit resulted in the imposition
of any material liability, financial or otherwise, affecting the
Seller, its school or its additional location. The Seller, its
school and its additional location have complied with all the
findings and conditions arising from the program reviews and
compliance audits. To the extent that any program review or audit
remains pending or unresolved, there are no issues of findings of
non-compliance which to the knowledge of the Seller, its school and
its additional location could result in the loss of certification
or eligibility or a material liability or fine.
(y) This Agreement constitutes the valid and binding
obligation of Seller, enforceable against Seller in accordance with
its terms.
(z) The ▇▇▇▇ of Sale and instruments of assignment,
when executed and delivered to Purchaser will transfer to Purchaser
all of the Assets, free of all mortgages, liens, charges and
encumbrances except as provided on Schedule "7(b)" hereto.
(aa) Since December 31, 1997:
(i) Seller has conducted and shall continue to
conduct its business in the ordinary course of business.
(ii) Seller has kept and shall continue to keep
the insurance now maintained with respect to the Assets in full
force and effect.
8. REPRESENTATIONS AND WARRANTIES BY PURCHASER AND TESC.
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Each of Purchaser and TESC make the following representations
and warranties to Seller:
(a) Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State
of New York and is duly qualified to transact business in the other
jurisdictions in which the business of Purchaser would require such
qualification, except that Purchaser has filed applications for
qualification in the Commonwealth of Massachusetts, which
qualifications have not yet issued. TESC is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Delaware and is duly qualified to transact business in
the other jurisdictions in which the business of TESC would require
such qualification. Each of Purchaser and TESC has full corporate
power and authority to enter into this Agreement and to consummate
the transactions contemplated by this Agreement.
(b) The execution and delivery by each of Purchaser
and TESC of this Agreement and the consummation of the transactions
contemplated hereby do not and will not conflict with or violate
any contract or agreement to which Purchaser or TESC is a party or
by which it may be bound, are not contrary to the certificate of
incorporation or by-laws of either Purchaser or TESC and are not
contrary to any order of any court to which either Purchaser or
TESC is subject.
(c) Purchaser has good and marketable title to all of
its properties.
(d) The execution, delivery and performance by
Purchaser of this Agreement have been duly authorized by all
requisite corporate action. This Agreement constitutes a legal,
valid and binding obligation of Purchaser enforceable in accordance
with its terms.
(e) There are no actions, suits or proceedings
pending, and each of Purchaser and TESC has no knowledge of any
actions, suits or proceedings threatened, against either Purchaser
or TESC which would materially affect either Purchaser or TESC or
which would prevent or substantially hinder the consummation of the
transactions contemplated by this Agreement.
(f) Neither Purchaser nor TESC is in default under
any commitment, contract, agreement, lease or other document to
which it is a party or to which it may be bound, and which would
have a material effect on either corporation's abilities to
consummate the transactions contemplated hereunder. No event has
occurred which, with the lapse of time, would constitute such a
material default thereunder.
(g) All of the financial records and books of account
of Purchaser and its affiliated entities are materially true,
correct and complete and have been maintained in accordance with
generally accepted accounting principles consistently applied.
Purchaser has delivered to Seller audited Financial Statements for
Touchstone Applied Science Associates, Inc. ("TASA") for the Years
Ended October 31, 1996 and 1997 with the Independent Auditors
Report (the "Audited Financial Statements"). The Audited Financial
Statements (A) are true and correct in all material respects, and
(B) fairly present the financial positions and results of
operations and cash flows of TASA in accordance with generally
accepted accounting principles consistently applied, as at such
dates and for the years or periods then ended.
(h) Except as set forth on Schedule 8(h) hereto, TASA
has not incurred liabilities or obligations of any nature (whether
absolute, accrued, contingent or otherwise) other than (A)
liabilities or obligations reflected or reserved against in the
balance sheet of TASA as at October 31, 1997 (the "Balance Sheet
Date"), (B) current liabilities incurred in the ordinary course of
business since the Balance Sheet Date, (C) taxes incurred in the
ordinary course of business since the Balance Sheet Date, any of
which liabilities or obligations included within the foregoing
exceptions (A-C) do not or would not in the aggregate have a
material adverse effect on the financial condition of TASA.
(i) From October 31, 1997 to the date of this
Agreement and except as disclosed on Schedule 8(i), (i) there has
been no material adverse change in the financial condition of TASA
from that shown in the Audited Financial Statements and (ii) no
business, properties or assets owned or leased by the TASA shall
have suffered any destruction or damage or have been adversely
affected in any manner which singularly, or in the aggregate would
have a material adverse effect on the financial condition of
Seller, regardless of whether or not the loss suffered from any
such incident shall have been insured; and (iii) the business of
TASA has been conducted in the ordinary course.
(j) All United States, foreign, state, county, local
and other taxes, including, without limitation, income taxes,
corporate franchise taxes, AD VALOREM Taxes, sales and other
federal, state and local taxes under any law, rule or regulation
imposed by any governmental authority with jurisdiction over TASA,
due and payable by TASA on or before the date of this Agreement
(including any penalties and interest thereon) have been paid, and
all tax returns and reports required to be filed by each of them
with all such taxing authorities have been filed when due (the
"Returns"). The provisions for taxes included in the Audited
Financial Statements are adequate for the payment of all accrued
and unpaid taxes of TASA whether or not disputed, and TASA has
withheld and collected all taxes and assessments it is or has been
required by law to withhold or collect, and all of the same are
duly reflected in the Audited Financial Statements. TASA has no
outstanding or unsatisfied deficiency assessments with respect to
any taxes. All such returns are true, complete and correct and in
material compliance with all applicable laws, rules and
regulations.
9. EMPLOYMENT CONTRACTS. At the Closing, in
---------------------
consideration of the transactions contemplated hereunder, Faith
Takes, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ each shall
enter into an employment agreement with Purchaser substantially in
the forms of Exhibits "B", "C", "D" and "E", with such changes
thereto as the parties shall agree, pursuant to which each said
person shall provide the services set forth therein to Purchaser.
10. CAPITALIZATION OF PURCHASER. On or before the Closing
----------------------------
Date, TESC shall capitalize Purchaser with a minimum of
$2,000,000.00 required for Purchaser to make payment of the
$2,000,000.00 cash portion of the Purchase Price at Closing.
11. CLOSING BALANCE SHEET AND AUDITED FINANCIAL STATEMENTS.
-------------------------------------------------------
(a) Seller shall deliver to Purchaser audited
financial statements prepared in accordance with generally accepted
accounting principals consistently applied for the fiscal period
ended October 31, 1998 (the "Closing Financial Statements").
Seller shall make best efforts to deliver the Closing Financial
Statements within thirty (30) days of Closing, but in no event
later than forty-five (45) days after Closing. The Closing
Financial Statements shall reflect such adjustments as have been
requested by Purchaser's Accountants and delivered to the
accountants for the Seller prior to the date hereof. The Closing
Financial Statements shall consist at a minimum of Closing Balance
Sheet, Income Statement, and Statement of Cash Flows, with foot
notes. The Financial Statements and Closing Financial Statements
shall be collectively known as the "ME Financial Statements". The
ME Financial Statements shall also be certified by an officer of
Seller that, to the best knowledge of Seller such ME Financial
Statements are true, correct and complete in all material respects.
12. GUARANTY. Purchaser shall deliver on or before
---------
Closing the guaranty by TASA of the Note in the form annexed hereto
as Exhibit "F" (the "Guaranty").
13. RELEASE OF GUARANTEES. Upon the Closing, Purchaser
----------------------
shall make good faith efforts to effect a release of any and all
personal guarantees and other personal obligations given or
undertaken by either Faith Takes or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ in connection
with the Assumed Liabilities, and shall indemnify and hold each of
Faith Takes and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ harmless from all obligations
arising under any of such guarantees or obligations which remain
unreleased. If such releases cannot be secured within six months of
the Closing Date with any lending institution, Purchaser agrees to
refinance obligations to that lending institution in order to
obtain any release which remains at such time.
14. CLOSING. The Closing shall take place at the offices
--------
of Purchaser's counsel, Rider, Weiner, ▇▇▇▇▇▇▇ & Calhelha, P.C.,
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ on or about
November 2, 1998 at 10:00 A.M. or such other date and time as shall
be mutually agreed (the "Closing" or otherwise referred to herein
as the "Closing Date"). At the Closing, all steps shall have been
taken and documents and instruments shall be delivered, in form
reasonably acceptable to counsel which are necessary or appropriate
to consummate the transactions provided for herein.
15. RESTRICTIVE COVENANT.
---------------------
(a) As used in this paragraph:
(i) "Company" means TESC and MESI, their
successors and assigns, and any of their present or future
subsidiaries, or organizations controlled by, controlling, or under
common control with any of them.
(ii) "Conflicting Organization" means any person
or entity which provides or is engaged in the provision of a
Conflicting Service.
(iii) "Conflicting Service" means any services
to or for any person, entity or organization (other than the
Company) within the State of New York, Commonwealth of
Massachusetts, State of New Jersey, State of Connecticut, State of
Vermont, or within fifty (50) miles of any school location of the
Company or any affiliated entity of the Company in any other state,
which services are similar to the services which the Company sells
or provides and which are more particularly described as follows:
owning, operating or investing in, or management or development of,
one or more post-secondary proprietary schools or the educational
instruction and curriculum related thereto.
(b) For a period of two (2) years after the Closing
Date, Seller shall not, without the prior written consent of
Purchaser:
(i) render a Conflicting Service to, or
solicit in any manner, a Conflicting Organization, and shall not,
directly or indirectly, engage, individually or as a partner,
shareholder, owner, employee, independent contractor, investor,
agent, member or principal in any business which is providing a
Conflicting Service;
(ii) solicit any customer, teacher,
administrator or student of the Company for the purpose of selling
or rendering or attempting to sell or render any Conflicting
Service,
(iii) solicit any employee, officer,
director, or agent of the Company for the purpose of offering
employment, or work for hire, to any such person with Seller any
entity owned or operated by Seller, or any Conflicting
Organization, or in connection with the sale or provision of any
Conflicting Service,
(iv) interfere with, disrupt or attempt to
disrupt the relationship between the Company and any customer,
teacher, administrator, student supplier, vendor or employee,
officer or director, or agent of the Company.
(c) Seller agrees that a breach or threatened breach
on its part of any covenant in this Paragraph 15 will cause such
damage to the Company as will be irreparable and the exact amount
of which will be impossible to ascertain. Accordingly, in the
event of my breach or threatened breach of such Paragraph, in
addition to, and not in limitation of all and any other remedies
available to it, the Company will be entitled to institute and
prosecute proceedings, in any court of competent jurisdiction, for
an injunction restraining and enjoining Seller in such manner as
the court shall determine, from breaching or continuing to breach
the terms of this Agreement. This Agreement shall not be construed
to prohibit the Company from pursuing any other remedies available
to the Company under applicable law for such breach or threatened
breach, including the recovery of damages. Seller further agrees
that the covenants contained in this Agreement are necessary and
reasonable for the protection of the Company's legitimate business
interests and are reasonable in scope and content.
16. CONDITIONS TO CLOSING.
----------------------
(a) Seller shall, in addition to other documents as
may be reasonably required by counsel to the parties hereunder,
execute and deliver, or provide for the execution and delivery to
Purchaser at the Closing the following:
(i) a certificate of an officer of Seller
certifying that all representations and warranties of Seller in
this Agreement are true and correct as of the Closing as though
such representations and warranties were made as of such date.
(ii) a ▇▇▇▇ of Sale transferring all of the
Assets, and assignments of all contracts, leases and intellectual
property and proprietary interests.
(iii) the Employment Agreements.
(iv) an officers certificate certified by the
President of Seller as to: true and correct copies of (A) all
corporate action of the Seller authorizing and approving this
Agreement and the performance of the transactions contemplated
hereby; (B) certificate of incorporation and by-laws and all
amendments thereto; (C) signatures of duly elected and acting
officers authorized to execute documents hereunder.
(v) Any and all other documents and instruments
as shall be required to have been performed by or complied with on
or prior to or at the Closing by Seller pursuant to the terms of
this Agreement.
(vi) Opinion of counsel of Seller in form and
substance reasonably acceptable to counsel for Purchaser.
(b) Purchaser shall, in addition to other documents
as may be reasonably required by counsel to the parties hereunder,
execute and deliver or provide for the execution and delivery to
Seller at the Closing the following:
(i) a certificate of an officer of each of
Purchaser, TESC and TASA certifying that all representations and
warranties of Purchaser, TESC and TASA in this Agreement are true
and correct as of the Closing as though such representations and
warranties were made as of such date.
(ii) Note.
(iii) an officers certificate of each of TESC
and Purchaser certified by an officer of each as to: true and
correct copies of (A) all corporate action of Purchaser and TESC
authorizing and approving this Agreement and the performance of the
transactions contemplated hereby; (B) certificate of incorporation
and by-laws and all amendments thereto; (C) signatures of duly
elected and acting officers authorized to execute documents
hereunder.
(iv) Guaranty.
(v) Any and all other documents and instruments as
shall be required to have been performed by or complied with on or
prior to or at the Closing by either TESC or Purchaser pursuant to
the terms of this Agreement.
(vi) Opinion of counsel of Purchaser in form and
substance reasonably acceptable to counsel for Seller.
17. BROKER. Each of Purchaser, Seller and TESC represent
-------
each to the other that there was no broker who rendered services to
it in connection with this transaction and each agrees to hold the
other parties harmless from any and all claims arising by reason of
any such services.
18. INDEMNIFICATION.
----------------
Purchaser's Indemnity. Purchaser agrees to indemnify
----------------------
and save Seller harmless from and against all expenses, taxes,
claims, losses, damages, fines, liabilities, obligations or
penalties incurred or suffered by Seller, including, without
limitation, reasonable attorneys' fees incurred in defending or
resisting any claims, actions or proceedings or in enforcing this
indemnity that Seller may suffer, sustain, incur or become subject
to, whether directly or indirectly, arising out of, based upon,
resulting from or in connection with (a) any breach, inaccuracy,
failure to perform or violation of any representations, warranties,
obligations or covenants of Purchaser contained, disclosed or set
forth in this Agreement (including information contained on any
Schedule or Exhibit annexed hereto);or (b) the failure of
Purchaser to pay its share of any New York State sales or transfer
taxes due in connection with the sale of any part of the assets.
Seller's Indemnity. Seller agrees to indemnify and save
-------------------
Purchaser harmless from and against all expenses, taxes, claims,
losses, damages, fines, liabilities, obligations or penalties
incurred or suffered by Purchaser, including, without limitation,
reasonable attorneys' fees incurred in defending or resisting any
claims, actions or proceedings or in enforcing this indemnity that
Purchaser may suffer, sustain, incur, or become subject to, whether
directly or indirectly, arising out of, based upon, resulting from
or in connection with (a) any breach, inaccuracy, failure to
perform or violation of any representations, warranties,
obligations or covenants of Seller contained, disclosed or set
forth in this Agreement (including information contained on any
Schedule or Exhibit annexed hereto); or (b) the failure of Seller
to pay its share of any New York State sales or transfer taxes due
in connection with the sale of any part of the assets.
Procedure and Participation. (a) If there shall arise any
----------------------------
matter covered by an obligation by either party to indemnify and
hold harmless, the party seeking indemnification shall give written
notice thereof to the other party promptly (in no event more than
45 days or such shorter period as shall enable the party from whom
indemnification is sought to timely answer any process) after its
learns of the existence of such matter, but delay in giving such
notice shall not abrogate or diminish the indemnifying party's
obligation to indemnify if such failure does not prejudice the
indem nifying party's ability to defend such claim. A party shall
not be entitled to indemnification if it fails to give notice of a
request for indemnification within 120 days after it learns of the
existence of a matter with respect to which it is entitled to
indemnification.
(b) A failure to respond to a claim for indemnification
within 30 days shall be deemed an acquiescence to the claim for
indemnification.
(c) If a request for indemnification is not based upon an
action or proceeding brought or initiated by a third party against
the party seeking indemnification, no action or procreeding may be
commenced for indemnification until 30 days after the written
notice required to be given has been given.
(d) If the claim for indemnification arises out of a claim
or action by a third party against the party seeking
indemnification, the party from whom indemnification is sought
shall have the opportunity to participate in action appropriate to
the matter, including, but not limited to the right to select
counsel reasonably acceptable to the indemnified party and assume
the defense of any claims or demands. Unless the party from whom
indemnification is sought elects to assume the defense of such
claim or action, the indemnified party shall have the right, but
not the obligation, to undertake the defense of such claim or
action and such defense shall be conducted by counsel reasonably
satisfactory to the indemnified party against whom such claim was
asserted or who may be a defendant in such action. If a claim or
action is resisted, denied or defended the parties will fully
cooperate in any such action making available to each other such
books or records as are reasonably informed of the progress of such
action If a party from whom indemnification is sought does not
deliver notice to the party requesting indemnification that it
intends to defend against or resist such claim or action within 15
days of the notice or claim from the party seeking indemnification
(or such shorter time specified in the notice as the circumstances
of the matter may indicate) the party seeking indemnification shall
be free to dispose of the matter in any way which it deems in its
best interest and the party from whom indemnification is sought
shall be deemed to have acquiesced to the claim for
indemnification. At such point if the Purchaser is the party
entitled to indemnification, Purchaser shall be entitled to offset
the amount of any indemnification (including reasonably attorneys
fees)against any payments due to Seller under this Agreement or any
document executed in connection therewith, including, but not
limited to the Note.
(e) This indemnity shall survive the Closing, but shall
expire upon the satisfaction in full of all of Purchaser's
obligations under the Note, and in no event shall the amount of
indemnity of TASA, TESC and Purchaser in the aggregate, or Seller,
exceed in the aggregate, the Purchase Price.
19. FURTHER ASSURANCES. Each of the parties hereto agrees
-------------------
that each will, whenever and as often as it shall be reasonably
requested to do so by any other party hereto, execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered,
any and all further instruments as may be necessary or expedient in
order to consummate the transactions provided for in, or
contemplated by, this Agreement and do any and all further acts and
things as may be necessary or expedient in order to carry out the
purpose and intent of this Agreement and of the documents and
instruments delivered in connection therewith. This obligation
shall survive closing and shall remain in force and effect until
the obligations of the parties to each other have been fully
satisfied.
20. POST-CLOSING ADJUSTMENTS. Purchaser acknowledges
-------------------------
that the purchase of Seller's business was initially intended to
be effected through a purchase of Seller's stock and that the
structure of this transaction was modified at an asset purchase to
accommodate Purchaser. Accordingly, Purchaser covenants that in the
event Seller or Seller's shareholders (x) incur any federal or
state tax cost, including penalties and interest thereon, if any,
in excess of such costs which would have been incurred if this
purchase had been structured as a stock purchase rather than an
asset purchase, or (y) receive a lesser amount due to such federal
or state tax costs, that they would have received had the sale been
so structured, Purchaser shall compensate Seller in any amount
equal to such difference, such amount to be paid within ninety (90)
days of written notification by Seller of the amount due with
evidence of such tax increase certified by the certified public
accountant of Seller. Seller agrees to take such actions as may be
necessary to liquidate within the year of sale i.e. not later than
December 31, 1998. Seller represents and warrants to Purchase that
Seller is an "S" corporation since its incorporation in 1985.
21. MISCELLANEOUS.
--------------
(a) Benefits. All of the terms and provisions of
---------
this Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and assigns. Each
party to this Agreement expressly agrees that the provisions of
this Agreement (including without limitation the representations,
warranties and agreements of Seller) are also intended to be for
the benefit of and enforceable by ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ Strategic
Partners Fund, L.P., a Delaware limited partnership, and Strategic
Associates, L.P., a Delaware limited partnership.
(b) Entire Agreement. This Agreement and the
-----------------
Exhibits hereto contain the entire agreement among the parties with
respect to the transactions contemplated herein; and no party shall
be bound by nor shall be deemed to have made any representations,
warranties or covenants except those contained herein. This
Agreement cannot be modified, changed, discharged or terminated
except by an instrument in writing, signed by the party against
whom the enforcement or any modification, change, discharge or
termination is sought.
(c) Captions. The captions of the paragraphs and
---------
subparagraphs of this Agreement are for convenience and reference
only, and are not to be considered in construing this Agreement.
(d) Survival. All covenants, representations and
---------
warranties contained in this Agreement, and in the documents and
instruments executed and delivered in connection therewith, and any
certificates furnished under any provision of this Agreement and
the indemnity provisions of Paragraph "16" shall survive the
execution and delivery of this Agreement and the transactions
contemplated by this Agreement.
(e) Notices. Any notices, request, instrument or
--------
other document to be given hereunder shall be in writing and,
except as otherwise provided for herein, shall be delivered
personally or sent by certified mail, return receipt requested, as
follows:
(i) If to Purchaser: MESI Acquisition Corp.
c/o TASA Educational Services Corporation
▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Att: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(ii) If to TESC: TASA Educational Services Corporation
▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Att: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with copy to ▇▇▇▇▇▇▇ Crush, Esq., Rider, Weiner, ▇▇▇▇▇▇▇ &
Calhelha, P.C., ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇
▇▇▇▇▇, Fax: (▇▇▇) ▇▇▇-▇▇▇▇ and
(iii) If to Seller: ▇▇▇▇▇▇▇ ▇▇▇▇▇ School, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Att: Faith Takes, President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with copy to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., Crane, ▇▇▇▇▇▇ & Parente (▇▇▇) ▇▇▇-▇▇▇▇,
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇, or to
such other address or addresses as any party may hereafter designate in
writing to the other. Such notices may be sent by facsimile, U.S.
mail, overnight courier or hand delivery. If sent by facsimile,
such notice shall be deemed delivered when sent with evidence of
effective transmission; if mailed, three (3) business days after
deposit in the United States mail, properly addressed with postage
affixed and sent certified mail, return receipt requested; if by
overnight courier, upon delivery with evidence of same; or
personally, upon by handing a copy of same to the person to be so
notified.
(f) Severability. In case any one or more of the
-------------
provisions or parts of a provision contained in this Agreement
shall for any reason be held to be invalid, illegal or
unenforceable in any respect in any jurisdiction, such invalidity,
illegality or unenforceability shall not effect any other provision
or part of a provision of this Agreement.
(g) Governing Law. This Agreement shall be governed
--------------
by and construed in accordance with the laws of the State of New
York as applicable to contracts entered into and to be performed
wholly within the State. Any action arising out of or related to
this Agreement shall be brought in the state or federal courts
located in Albany county, New York and the parties hereby submit to
the exclusive jurisdiction of and to the laying of venue in such
courts.
(h) Expenses. Each of the parties shall pay its
---------
respective legal, accounting and other fees in connection with this
Agreement, except as otherwise required pursuant to the Letter of
Intent.
(i) Assignment. This Agreement may not be assigned
-----------
by any party hereto without the consent of the other parties.
(j) Waiver. No failure on the part of any party to
-------
exercise, and no delay in exercising, any right hereunder or under
any Exhibit hereto shall operate as a waiver thereof, nor shall any
single or partial exercise of any right preclude any other or
future exercise thereof or the exercise of any other right.
(k) Confidentiality. The terms and provisions of
----------------
that certain Confidentiality and Non-disclosure Agreement made on
the25th day of August, 1998, by and among Touchstone Applied
Science Associates, Inc., a Delaware corporation, ("TASA"), TESC
and Seller, are incorporated herein by reference and shall survive
the execution and delivery of this Agreement and the closing of the
transactions contemplated herein.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the day and year first above written.
MESI ACQUISITION CORP.
By:/s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
▇▇▇▇▇▇▇ ▇▇▇▇▇ SCHOOL, INC.
By:/s/FAITH A. TAKES
---------------------------------------
Name: Faith A. Takes
Title: President
(More signatures on additional page)
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By:/s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
TASA EDUCATIONAL SERVICES CORPORATION
By:/s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇
--------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
SCHEDULE 2(a)
ASSUMED LIABILITIES
-------------------
Those liabilities set forth on the September 30, 1998
Financial Statements of Seller as provided to Purchaser and any and
all transactions in the ordinary course of business since such
date.
SCHEDULE 7(b)
LIENS AND ENCUMBRANCES
----------------------
CAPITAL BANK & TRUST COMPANY: First security interest in all
machinery, equipment, fixtures and furniture now owned, and
hereafter acquired. First security interest in all inventories and
accounts receivable now owned, held and hereafter acquired. The SBA
Loan is also personally guaranteed by Faith ▇▇▇ Takes.
TFC CREDIT CORPORATION: Security interest in all instruments
negotiable instruments, accounts, accounts receivable, contracts,
executory contracts, executory contract rights, documents, chattel
paper, promissory notes and general intangibles (and all proceeds
thereof and all proceeds of proceeds) now owned or hereafter
acquired by the debtor and pledged as collateral to secured party
or purchased by secured party. This loan is also personally
guaranteed by Faith ▇▇▇ Takes and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇.
BALLSTON SPA BANK: Security interest in all machinery,
equipment, fixtures and furniture now owned, and hereafter
acquired. Security interest in all inventories and accounts
receivable now owned, held and hereafter acquired. This loan is
also personally guaranteed by Faith ▇▇▇ Takes.
NEW YORK JOB AUTHORITY (ALTECH): Second lien on all now owned and
hereafter acquired and arising, wherever located:
machinery, equipment, furniture, fixtures, accounts receivable,
inventory, goods, instruments, contract rights, general
intangibles, chattel paper and choses in action pursuant to a
security agreement.
SCHEDULE 7(c)
MATERIAL CONTRACTS
------------------
▇▇▇▇▇▇ & Associates. ▇▇▇▇▇▇▇ ▇▇▇▇▇ previously carried on its
--------------------
books approximately $26,000 representing an obligation to ▇▇▇▇▇▇ &
Associates, Ltd. ▇▇▇▇▇▇ & Associates acted as ▇▇▇▇▇▇▇ ▇▇▇▇▇'▇
tenant's broker in securing the School's previous location on
Computer Drive South in the Town of Colonie. The owner of ▇▇▇▇▇▇ &
Associates, Mr. ▇▇▇ ▇▇▇▇▇▇, acted as the principal broker in this
transaction. In addition to receiving a broker's fee for
percentages of concessions he alleged he had obtained in connection
with the fit-up for the property. When ▇▇▇▇▇▇▇ ▇▇▇▇▇ sought a new
location approximately one year ago, he began working with the
school, again in the capacity of a tenant's broker. Crane, ▇▇▇▇▇▇
& Parente represented ▇▇▇▇▇▇▇ ▇▇▇▇▇ at the time and subsequently
became aware of certain facts regarding ▇▇. ▇▇▇▇▇▇'▇ actions in
connection with the securing of the original lease on Computer
Drive South, as well as certain actions in connection with his
actions as a tenant's broker while attempting to secure new space
in 1997. These facts resulted in Crane, ▇▇▇▇▇▇ & Parente and
▇▇▇▇▇▇▇ ▇▇▇▇▇ concluding that ▇▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇ & Associates
had materially breached their contract with ▇▇▇▇▇▇▇ ▇▇▇▇▇. Upon the
advice of counsel, the relationship with ▇▇▇▇▇▇ was promptly
terminated. Crane, ▇▇▇▇▇▇ & Parente advised ▇▇▇▇▇▇▇ ▇▇▇▇▇ to cease
any further payments to ▇▇▇▇▇▇ & Associates. ▇▇. ▇▇▇▇▇▇ was advised
that ▇▇▇▇▇▇▇ ▇▇▇▇▇ was considering commencing an action against
▇▇▇▇▇▇ & Associates and him individually. Shortly thereafter,
▇▇▇▇▇▇▇ ▇▇▇▇▇ received a letter from ▇▇. ▇▇▇▇▇▇ confirming that no
$26,000 obligation from ▇▇▇▇▇▇▇ ▇▇▇▇▇ to his firm existed. It is
Crane, ▇▇▇▇▇▇ & Parente's opinion that if ▇▇. ▇▇▇▇▇▇ or ▇▇▇▇▇▇ &
Associates, Ltd., were to seek to collect the $26,000 obligation,
a defense for ▇▇▇▇▇▇▇ ▇▇▇▇▇'▇ non-payment would exist. Further,
counter-claims against ▇▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇ & Associates, Ltd.
would be asserted. If ▇▇. ▇▇▇▇▇▇ and ▇▇▇▇▇▇ & Associates, Ltd.
attempted to recover any amount, the likelihood of success in
achieving recovery would, in the opinion of Crane, ▇▇▇▇▇▇ &
Parente, be highly unlikely.
12/18/95 ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ Balloon payment commercial purchase
money Promissory Note in the principal amount of $210,000
12/31/97 Capital Bank & Trust Company Note in the principal
amount of $100,000 to MES
12/31/97 Capital Bank & Trust Company Note in the principal
amount of $200,000 to MES
4/13/98 Capital Bank & Trust Company Note in the principal
amount of $200,000 to MES
4/13/98 Capital Bank & Trust Company security agreement with MES
7/16/98 MES approval of term loan in the principal amount of
$150,000 from NY Job Development Authority d/b/a Empire State
Development Authority
7/28/98 Ballston Spa National Bank Promissory Note in the
principal amount of $150,014 to MES
SCHEDULE 7(e)
WARRANTS, SUBSCRIPTIONS, STOCK RIGHTS
-------------------------------------
None.
SCHEDULE 7(h)
REAL PROPERTY INTERESTS, LEASES
-------------------------------
Pittsfield Lease.
----------------
6/7/95 lease between ▇▇▇▇▇▇-▇▇▇▇ Nominee Trust and MES for ▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇.
7/18/97 Addendum to Lease between ▇▇▇▇▇▇-▇▇▇▇ Realty and MES
for ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇
South Pearl Lease.
-----------------
7/15/98 Lease between ▇▇▇▇▇ ▇▇▇▇▇▇▇ and MES for 1st Floor, ▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇.
▇▇▇▇▇▇ Mall Lease.
-----------------
6/5/98 Lease between Plaza at Latham, LLC and MES for upper
level of mall known as ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇, ▇▇.
7/1/97 Lease between ▇▇▇ ▇▇▇▇▇▇ Enterprises, Inc. and MES together
with extension for ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇
12/18/95 Lease between ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and MES for ▇▇▇-▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇
SCHEDULE 7(i)
INSURANCE
---------
SCHEDULE 7(k)
PATENTS, TRADEMARKS, SERVICEMARKS
---------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ or ▇▇▇▇▇▇▇ ▇▇▇▇▇ School, Inc. or any variance of the
above mentioned name.
SCHEDULE 7(l)
FURNITURE, FIXTURES AND EQUIPMENT
---------------------------------
All furniture, fixtures and equipment used in the administrative
offices as well as in the school, except for any personal items of
each individual employee.
Line item schedule of furniture, fixtures and equipment
intentionally omitted.
Line item Schedule Totals:
Book Depreciation
-----------------
Book Cost Month YTD LTD Net Book Value
--------- ----- --- --- --------------
327,623 865 9,740 49,969 277,654
GRAND TOTALS: 1,114,015 7,585 94,252 707,846 406,169
LESS
DISPOSITIONS: 0 0 0 0 0
NET TOTALS: 1,114,015 7,585 94,252 707,846 406,169
SCHEDULE 7(m)
TAXES
-----
1) 12/31/97 New York State Franchise Tax due in the amount of $2,577.00.
(Due to balance due with the ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇ Tax Return not
submitted. The return was submitted 11/9/98)
2) ▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Unemployment Tax due in the amount of $11,885.99.
(Due to 1996 Amended return not filed per NYS DOL. The matter
is being researched for determination of any liability owed.)
SCHEDULE 7(p)
CONSENTS
--------
1. ▇▇▇▇▇▇-▇▇▇▇ Nominee Trust
2. TFC Credit Corporation
3. ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ with ▇▇▇ ▇▇▇▇▇▇ Enterprises, Inc.
SCHEDULE 7(s)
PENSION AND OTHER BENEFIT PLANS
-------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ School has a noncontributory 401(k) plan in full
force. We attest that we are current on our plan and that all the
appropriate deposits have been made.
SCHEDULE 7(w)
ACCREDITATIONS
--------------
SCHEDULE 7(x)
CERTIFICATION AND ELIGIBILITY STATUS
------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇, Albany main and Pittsfield branch (OPE ID
No. 02219500), are certified by the United States Department of
Education. A copy of the certification is attached to this
schedule.
The date of certification is October 9, 1998; the period
of certification is until June 30, 2000.
The type of certification is provisional. The first date
of certification was July, 1985.
The seller is unaware of any facts, circumstances or
omissions concerning the schools which might results in a finding
of material non-compliance.
The attached Eligibility and Certification Report (ECAR)
demonstrates that the programs offered by the schools are eligible
programs in accordance with 34 C.F.R. Section 668.8.
The attached certified financial audit demonstrates that
the school satisfies the standards of financial responsibility and
administrative capability (page 9) and that the school receives no
greater than 85% of its revenues from programs authorized by Title
IV of the Higher Education Act (page 9).
The final Cohort Default Rates published by the U.S.
Department of Education are as follows:
1993 25.5% 1995 30.4%
1994 27.5% 1996 15.9%
The seller further represents that the school disburses
Federal Pell Grant payments in accordance with procedures that
comply with 34 C.F.R. Section 690.63.
Also, that the U.S. Department of Education program
reviews and compliance audits conducted at each of the schools
since 1992 have not materially affected the seller or its schools
nor has any program review of compliance audit resulted in the
imposition of any material liability, financial or otherwise.
There are no program reviews or audits which are
unresolved or pending.
The school does not represent that it has an approved
Default Reduction Plan as it is no longer in the loan program, and
has not been in the loan program since 1996.
SCHEDULE 8(h)
LIABILITIES OR OBLIGATIONS
--------------------------
SECURITIES PURCHASE 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
SCHEDULE 8(i)
MATERIAL ADVERSE CHANGES
SECURITIES PURCHASE 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
LIST OF EXHIBITS
EXHIBITS HAVE BEEN INTENTIONALLY OMITTED
SEE CLOSING LIST FOR EXECUTED VERSIONS OF THE DOCUMENTS
LISTED BELOW AS EXHIBITS
A Note
B Employment Agreement - Faith A. Takes
C Employment Agreement - ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
D Employment Agreement - ▇▇▇▇▇ ▇▇▇▇▇▇▇
E Employment Agreement - ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
F TASA Guaranty