U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended April 30, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Exchange
Act
For the transition period from to
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Commission file number 0-20303
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TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
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(Exact name of small business issuer as specified in its charter)
Delaware 13-2846796
- ----------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 382, Fields Lane, Brewster, New York 10509
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(Address of principal executive offices)
(914) 277-8100
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(Issuer's telephone number)
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(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes____X____ No___________
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act
after the distribution of securities under a plan confirmed by court.
Yes_________ No___________
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date: As of
May 20, 1997: 8,139,322 shares of Common Stock, par value $.0001 per
share.
Transitional Small Business Disclosure Format (check one):
Yes_________ No_____X____
<PAGE>
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
The consolidated financial statements for the Company's
fiscal quarter ended April 30, 1997 are attached to this Report,
commencing at page F-1.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Until January 1997, the Company's revenues were derived
solely from the sale of its Degrees of Reading Power Tests and Degrees
of Word Meaning Tests, the sales of ancillary materials, and test
scoring and reporting services. Tests are sold pursuant to specific
contracts with state and local governments and through catalog sales.
With the acquisition of Beck Evaluation & Testing Associates, Inc.
("BETA") as of January 2, 1997, revenues are now also derived from the
provision of consulting services to schools and publishers. BETA is a
wholly-owned subsidiary of the Company.
RESULTS OF OPERATIONS
REVENUES. For the three-month period ended April 30, 1997,
the Company's total net revenues increased 28.5% versus the comparable
1996 period ($654,656 in 1997 versus $509,470 in 1996). Of this
$145,186 increase in revenues, $99,453 is attributable to revenue
generated by BETA and $45,733 is attributable to the Company's core
products.
For the six-month period ended April 30, 1997, the Company's
total net revenues increased 23.9% versus the comparable 1996 period
($1,592,167 in 1997 versus $1,285,086 in 1996). Of this $307,081
increase in revenues, $147,890 is attributable to revenues generated
by BETA and $159,191 is attributable to the Company's core products.
For the three-month period ended April 30, 1997, contract
income increased 21.8% versus the comparable 1996 period ($73,106 in
1997 versus $60,000 in 1996). For the six-month period ended April
30, 1997, contract income increased 2.2% versus the comparable 1996
period ($539,154 in 1997 versus $527,480 in 1996). Contract income now
represents 33.9% of six-month revenues versus 41.1% in the comparable
1996 period. With the acquisition of BETA and the increase in catalog
sales for the Company's core products, the Company has become less
dependent upon any one major source for its income.
For the three-month period ended April 30, 1997, catalog
sales for shelf tests and associated products increased 7.3% versus
the comparable 1996 period ($482,097 in 1997 versus $449,470 in 1996).
For the six-month period ended April 30, 1997, catalog sales increased
19.5% versus the comparable 1996 period ($905,123 in 1997 versus
$757,606 in 1996). Catalog sales now represent 56.9% of six-month
revenues versus 59.0% in the comparable 1996 period. Management
believes that this significant increase in catalog sales is
attributable to the continued emphasis by the Company on the marketing
and sales effort in this area and the new software products that the
Company introduced into the market during the second half of the
Company's 1996 fiscal year.
For the three-month period ended April 30, 1997, consulting
revenues of $99,453 were attributable to BETA, which represented 15.2%
of second quarter revenues. For the six-month period ended April 30,
1997, consulting revenues were $147,890 or 9.3% of total revenues.
There were no comparable revenues in the comparable 1996 periods.
COSTS AND EXPENSES. For the three-month period ended April
30, 1997, cost of goods sold increased 89.4% versus the comparable
1996 period ($304,124 in 1997 versus $160,615 in 1996). For the
six-month period ended April 30, 1997, cost of goods sold increased 55.0%
versus the comparable 1996 period ($564,236 in 1997 versus $363,961 in
1996). Cost of goods sold as a percentage of sales for the three-
month period ended April 30, 1997 increased 15.0% versus the
comparable 1996 period (46.5% in 1997 versus 31.5% in 1996). This
increase is due to an overall change in product mix between catalog
sales, contract income and consulting income and the costs associated
with marketing each of these product types.
For the three-month period ended April 30, 1997, selling
expenses increased 24.1% versus the comparable 1996 period ($205,747
in 1997 versus $165,792 in 1996). For the six-month period ended
April 30, 1997, selling expenses increased 29.8% versus the
comparable 1996 period ($414,979 in 1997 versus $319,820 in 1996).
This increase is primarily attributable to the Company's addition of
three educational consultants in the second half of the Company's 1996
fiscal year.
For the three-month period ended April 30, 1997, general and
administrative expenses increased 22.9% versus the comparable 1996
period ($276,896 in 1997 versus $225,254 in 1996). For the six-month
period ended April 30, 1997, general and administrative expenses
increased by 31.7% versus the comparable 1996 period ($531,748 in 1997
versus $403,724 in 1996). This increase in spending is primarily
attributable to professional fees associated with the review of
potential acquisition candidates and fees associated with deferred
offering expenses in the comparable 1996 period.
In fiscal year 1996, the Company had product development
costs relating to a consumer product which was in development. In
late 1996, the product achieved feasibility. Therefore, in accordance
with generally accepted accounting principles, the Company is now
capitalizing the costs associated with the product prior to its
introduction into the marketplace. Accordingly, there is no
comparable 1997 expenditure.
For the three-month period ended April 30, 1997, interest
expense increased 41.9% versus the comparable 1996 period ($18,812 in
1997 versus $13,260 in 1996). For the six-month period ended April
30, 1997, interest expense increased by 16.1% ($36,059 in 1997 versus
$31,060 in 1996). This increase is attributable to the Company's
financing of the BETA acquisition. For the three-month period ended
April 30, 1997, investment income decreased 25.0% versus the comparable
1996 period ($34,580 in 1997 versus $46,104 in 1996). For the six-month
period ended April 30, 1997, investment income decreased 8.9%
($74,635 in 1997 versus $81,900 in 1996). This decline is due to the
maturity of certain investment and the reinvestment of those funds in
lower yield instruments. For the three- and six-month periods ended
April 30, 1997, the Company experienced a loss on the sale of assets
of $3,383 and $15,083, respectively. There were no comparable
expenses in the comparable 1996 period.
NET INCOME AND EARNINGS PER SHARE. For the three-month
period ended April 30, 1997, net after-tax loss was ($60,265) versus
($6,438) in the comparable 1996 period. For the six-month period
ended April 30, 1997, earnings were 43.1% lower than in the comparable
1996 period ($91,177 in 1997 versus $160,111 in 1996). This decrease
is primarily attributable to increased selling and general and
administrative expenses.
For the three-month period ended April 30, 1997, earnings
per share were ($0.01) versus $0.00 in 1996. For the six-month period
ended April 30, 1997, earnings per share were $.01 in 1997 versus $.02
in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working capital, which consists principally of cash, cash
equivalents, marketable securities and accounts receivable, was
$3,832,762 on April 30, 1997 versus $4,116,202 on October 31, 1996.
The decrease in working capital is primarily attributable to the
payment of the purchase price of BETA.
For the six-month period ended April 30, 1997, net cash
flows from operating activities were $388,984 (versus $422,095 in the
comparable 1996 period). Additionally, for the six-month period ended
April 30, 1997, the Company invested $238,261 to increase the size of
its Test Passage Bank (versus $166,168 in the comparable 1996 period),
$52,191 in property, plant and equipment (versus $28,835 in the
comparable 1996 period), $106,837 readying its new DRP->BookLink
software and BookMatch products for market (versus $56,023 in the
comparable 1996 period), $29,900 to purchase the MACULAITIS TEST
SERIES (versus no comparable expenditures in the comparable 1996
period) and $143,975 to purchase BETA (versus no comparable
expenditures in the comparable 1996 period).
For the six-month period ended April 30, 1997, the Company
had a net cash outflow from financing activities of ($65,026) versus a
net cash inflow from financing activities of $412,485 in the
comparable 1996 period. The change was primarily due to the
acquisitions of BETA and the MACULAITIS TEST SERIES.
In November 1996, the Company refinanced its second mortgage
for the addition to its facility which was completed in 1991. Both
the first and second mortgages are due in 2001. The Company has
certain debt obligations in connection with the acquisition of BETA
which management believes can be financed from the cash flow from
operations. The Company has no other material commitments for capital
or other capital expenditures and is not party to any arrangement that
would adversely impact the Company's liquidity.
On March 27, 1997, the Company entered into a letter of
intent to purchase the assets of Programs for Education, Inc. for an
aggregate purchase price of $3,200,000. The purchase price is to be
paid $2,200,000 at the closing and $1,000,000 over five years, payable
quarterly, with interest accruing at 9.0% per annum. The Company will
finance the acquisition out of available cash and short-term
borrowings, and is in the process of negotiating long-term financing.
The Company consummated the acquisition on May 30, 1997.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Statements made in this Quarterly Report on Form 10-QSB,
including, without limitation, descriptions of the Company's targets
or goals and management's views concerning the Company's pending and
proposed projects, prospects and future financial performance
contained in this discussion and analysis and elsewhere, constitute
forward-looking statements made pursuant to the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 and involve
known and unknown risks and uncertainties which may cause the
Company's actual results in future periods to differ materially from
forecasts. These risks include, among others: risks and uncertainties
relating to government regulation in the educational testing area;
increased competition; the ability of the Company to accommodate
changes in policy and technology; as well as risks generally
associated with educational testing. Many of such factors are beyond
the Company's ability to control or predict. Readers are cautioned
not to put undue reliance on forward-looking statements. The Company
disclaims any intent or obligation to update publicly these forward-looking
statements, whether as a result of new information, future
events or otherwise.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
(a) On March 28, 1997, at the Company's Annual Meeting of
Stockholders, the stockholders approved the adoption of various
amendments to the Company's By-Laws. The text of the Amendments and a
discussion of the effects thereof are set forth in the Company's Proxy
Statement, dated March 3, 1997. The Amended and Restated By-Laws have
been filed as Exhibit 4.3 to the Company's Registration Statement on
Form S-3, File No. 333-27659.
(b) None.
(c) As of February 24, 1997, the Company entered into a
consulting agreement with Meyers Pollock Robbins, Inc. ("MPR")
pursuant to which MPR agreed to perform services to the Company for a
term of two years in exchange for 100,000 shares of the Company's
Common Stock, par value $0.0001 per share (the "Common Stock") and
warrants to purchase up to 250,000 shares of Common Stock at a
purchase price equal to the fair market value of the Common Stock on
February 24, 1997, or $0.489, which warrants will remain exercisable
for a period of five years.
As of March 6, 1997, the Company entered into a consulting
agreement with Jericho State Capital Corp. of Florida ("JSCCF")
pursuant to which JSCCF agreed to render assistance and advice to the
Company on matters relating to the growth and financing goals of the
Company for a term of one year (subject to automatic renewals for
additional one-year terms) in exchange for warrants to purchase up to
250,000 shares of Common Stock at a purchase price equal to the fair
market value of the Common Stock on March 6, 1997, or $0.50, which
warrants will remain exercisable for a period of five years.
The Company relied on the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended, in
effecting these transactions, as the Company believes each of MPR and
JSSCF to be sophisticated investors and there was no general
solicitation or advertising.
The Company is in the process of registering these shares of
Common Stock on the Company's Registration Statement on Form S-3 (File
No. 333-27659).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company held its annual meeting of stockholders on March
28, 1997. At the meeting, the stockholders:
(i) elected Michael D. Beck as a director of the Company by a
vote of 12,093,690 votes in favor of his election, with
34,000 votes against and no abstentions and broker non-votes, to
serve until the next annual meeting of stockholders;
(ii) elected Steven R. Berger as a director of the Company by a
vote of 12,056,190 votes in favor of his election, with
71,500 votes against and no abstentions and broker non-votes, to
serve until the next annual meeting of stockholders;
(iii) elected Stephen H. Ivens as a director of the Company
was approved by a vote of 12,056,190 votes in favor of
his election, with 71,500 votes against and no
abstentions and broker non-votes, to serve until the
next annual meeting of stockholders;
(iv) elected Michael Milone as a director of the Company by a
vote of 12,093,690 votes in favor of his election, with
34,000 votes against and no abstentions and broker non-votes, to
serve until the next annual meeting of stockholders;
(v) elected Andrew L. Simon as a director of the Company by a
vote of 12,093,690 votes in favor of his election, with
34,000 votes against and no abstentions and broker non-votes, to
serve until the next annual meeting of stockholders;
(vi) elected Linda G. Straley as a director of the Company by a
vote of 12,093,690 votes in favor of her election, with
34,000 votes against and no abstentions and broker non-votes,
each to serve until the next annual meeting of stockholders;
(vii) approved the adoption of the Amendment of Provisions of
the By-Laws relating to Stockholder Meetings by a vote
of 11,766,983 votes in favor of the proposal, with
204,527 votes against, 22,600 votes abstaining and
133,580 broker non-votes;
(viii) approved the adoption of the Amendment of Provisions of
the By-Laws relating to the Board of Directors by a
vote of 7,577,552 votes in favor of the proposal, with
67,419 votes against, 23,600 votes abstaining and
4,459,119 broker non-votes;
(ix) approved the adoption of the Amendment of Provisions of the
By-Laws relating to Officers and Other Corporate Matters by
a vote of 7,324,372 votes in favor of the proposal, with
80,899 votes against, 183,200 votes abstaining and 4,539,219
broker non-votes;
(x) approved the adoption of the Amendment of Provisions of the
By-Laws relating to Indemnification of Officers and
Directors of the Company by a vote of 11,559,111 votes in
favor of the proposal, with 243,249 votes against, 191,750
votes abstaining and 133,580 broker non-votes;
(xi) approved the adoption of the Amendment of Provisions of the
By-Laws relating to the Further Amendment of the By-Laws by
a vote of 7,124,564 votes in favor of the proposal, with
292,627 votes against, 68,880 votes abstaining and 4,641,619
broker non-votes;
(xii) ratified the appointment of Lazar, Levine & Company LLP
as the independent auditors of the Company by a vote of
12,076,640 votes in favor of the proposal, with 20,150
votes against, 30,900 votes abstaining and no broker
non-votes.
ITEM 5. OTHER INFORMATION
As of March 10, 1997, the Company adopted a Consultants
Stock Incentive Plan (the "Plan"), pursuant to which the Company may
grant stock options to purchase up to an aggregate of 200,000 shares
of Common Stock to consultants or advisors of the Company who are
designated as eligible to receive awards under the Plan.
As of March 11, 1997, the Company entered into a consulting
agreement with Michael Milone ("Milone") pursuant to which Milone
agreed to perform consulting services to the Company until October 31,
1997 (subject to automatic renewal for successive one-year terms), in
exchange for options to purchase up to 30,000 shares of Common Stock
at an exercise price equal to the fair market value of the Common
Stock on March 11, 1997, which options shall remain exercisable for a
period of ten years.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.1 -- Agreement, dated as of February 24,
1997, between the Company and
Meyers Pollock Robbins, Inc.
Exhibit 10.2 -- Agreement, dated as of March 6,
1997, between Jericho State Capital
Corp. of Florida and the Company
Exhibit 10.3 -- Consultants Stock Incentive Plan
Exhibit 10.4 -- Consulting Agreement, dated as of
March 11, 1997, between Michael Milone
and the Company
Exhibit 11 -- Computation of Earnings per Common Share
Exhibit 27 -- Financial Data Schedule
(b) Reports on Form 8-K
Current Report on Form 8-K, filed April 15, 1997
(reporting the entrance by the Company into a letter of
intent to purchase all of the assets of Programs for
Education, Inc.).
<PAGE>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE FISCAL QUARTER ENDED APRIL 30, 1997
Consolidated Balance Sheets F-1
Consolidated Statements of Income F-3
Consolidated Statements of Cash Flows F-4
Notes to Consolidated Financial Statements F-6
<PAGE> F - 1
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARY
Page 1 of 2
CONSOLIDATED BALANCE SHEETS
April 30, October 31,
1 9 9 7 1 9 9 6
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<S> <C> <C>
ASSETS
------
Current assets:
Cash and temporary investments $1,454,896 $1,049,819
Marketable securities 1,454,325 2,076,158
Accounts receivable 351,066 567,374
Inventories 216,255 242,081
Loan receivable 400,000 400,000
Prepaid expenses and other current assets 259,363 123,106
--------- ---------
Total current assets 4,135,905 4,458,538
Property, plant and equipment - net of
accumulated depreciation of $961,248 and
$909,607, respectively 1,762,698 1,795,195
Other assets:
Test passage bank, net of accumulated
amortization of $1,041,144 and $907,053,
respectively 2,667,456 2,563,286
Software development costs, net of
accumulated amortization of $17,972
and $5,427, respectively 231,220 136,928
Goodwill, net of accumulated amortization
of $20,780 353,287 --
Other assets 50,856 21,595
---------- ----------
Total assets $9,201,422 $8,975,542
========== ==========
<FN>
See notes to consolidated financial statements.
</FN>
F - 1
</TABLE
<PAGE> F - 2
</TABLE>
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARY
Page 2 of 2
CONSOLIDATED BALANCE SHEETS
April 30, October 31,
1 9 9 7 1 9 9 6
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 158,623 $ 95,500
Accounts payable and accrued expenses 144,520 246,270
Corporation taxes payable -- 566
---------- ----------
Total current liabilities 303,143 342,336
Long-term debt:
Long-term debt less current portion 755,675 728,250
Deferred income taxes 473,842 521,221
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Total liabilities 1,532,660 1,591,807
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Stockholders' equity:
Preferred stock, $.0001 par value, 5,000,000
authorized, 1,500 issued and outstanding -- --
Common stock, $.0001 par value, 20,000,000
authorized, 8,139,322 and 7,789,322 shares issued and
outstanding 814 779
Additional paid-in capital 4,251,299 4,077,935
Stock subscription receivable (14,350) (14,350)
Unrealized holding gain (loss) 377 (20,073)
Retained earnings 3,430,622 3,339,444
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Total stockholders' equity 7,668,762 7,383,735
---------- ----------
Total liabilities & stockholders' equity $9,201,422 $8,975,542
========== ==========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F - 2
<PAGE> F - 3
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Six Months Ended Three Months Ended
April 30, April 30,
1 9 9 7 1 9 9 6 1 9 9 7 1 9 9 6
------- ------- ------- -------
<S> <C> <C> <C> <C>
Contract income $ 539,154 $ 527,480 $ 73,106 $ 60,000
Catalog sales 905,123 757,606 482,097 449,470
Consulting income 147,890 -- 99,453 --
---------- ---------- ---------- ----------
Total net revenue 1,592,167 1,285,086 654,656 509,470
Cost of goods sold 564,236 363,961 304,124 160,615
---------- ---------- ---------- ----------
Gross profit 1,027,931 921,125 350,532 348,855
---------- ---------- ---------- ----------
Operating expenses:
Selling expenses 414,979 319,820 205,747 165,792
General and administrative expenses 531,748 403,724 276,896 225,254
Product development -- 21,180 -- 21,180
---------- ---------- ---------- ----------
Total operating expenses 946,727 744,724 482,643 412,226
---------- ---------- ---------- ----------
Income (loss) from operations 81,204 176,401 (132,111) (63,371)
Other income (expense):
Interest expense (36,059) (31,060) (18,812) (13,260)
Loss on sale of assets (15,083) -- (3,383) --
Investment income 74,635 81,900 34,580 46,104
--------- ---------- ---------- ---------
Income (loss) before income taxes 104,697 227,241 (119,726) (30,527)
Income taxes (benefit) 13,520 67,130 (59,461) (24,089)
--------- ---------- ---------- ---------
Net income (loss) $ 91,177 $ 160,111 $ (60,265) $ (6,438)
========== ========== =========== ===========
Weighted average shares outstanding
Primary 8,072,618 7,827,429 8,113,186 7,604,322
Fully diluted 8,072,618 7,827,429 8,113,186 7,604,322
Earnings per share
Primary $ .01 $ .02 $ (.01) $ --
Fully diluted $ .01 $ .02 $ (.01) $ --
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F - 3
<PAGE> F - 4
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
April 30,
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 91,177 $ 160,111
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 236,618 190,192
Deferred income taxes (47,379) (40,470)
Financial advisory services 2,344 52,750
Loss on sale of auto 11,700 --
Changes in operating assets and liabilities:
Accounts receivable 216,308 51,502
Inventories 25,826 (46,942)
Other current assets (44,851) 119,439
Accounts payable (102,759) (64,487)
----------- ----------
NET CASH FLOWS FROM OPERATING ACTIVITIES 388,984 422,095
----------- ----------
INVESTING ACTIVITIES
Acquisition of property, plant and equipment (52,191) (28,835)
Test passage bank (238,261) (166,168)
Software development costs (106,837) (56,023)
Purchase of marketable securities (3,797) (106,102)
Proceeds from sale of marketable securities 646,080 --
Proceeds from sale of auto 10,000 --
Acquisition of subsidiary (143,975) --
Acquisition of test (29,900) --
----------- ----------
NET CASH FLOWS FROM INVESTING ACTIVITIES 81,119 (357,128)
----------- ----------
FINANCING ACTIVITIES
Principal payments on industrial revenue
bond obligation (42,014) (37,500)
Proceeds from exercise of options -- 542,167
Deferred offering costs -- (144,182)
Proceeds from exercise of warrants -- 52,000
Principal payments on long-term debt (17,438) --
Mortgage costs (4,374) --
Organizational expenses of subsidiary (1,200) --
----------- ----------
NET CASH FLOWS FROM FINANCING ACTIVITIES (65,026) 412,485
----------- ----------
NET CHANGE IN CASH AND TEMPORARY
INVESTMENTS 405,077 477,452
Cash and temporary investments
at beginning of period 1,049,819 617,305
---------- ----------
CASH AND TEMPORARY INVESTMENTS
AT END OF PERIOD $1,454,896 $1,094,757
========== ==========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F - 4
<PAGE> F - 5
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended
April 30,
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 32,092 $ 31,557
============ ==========
Income taxes paid $ 55,167 $ 25,000
============ ==========
Stock issued for prepaid consulting costs (Note B) $ 93,750 $ --
============ ==========
SUMMARY OF ACQUIRED SUBSIDIARY:
Assets acquired consisting primarily of Goodwill $ 374,067 $ --
Liabilities assumed, including cash payment to
prior shareholders (294,417) --
------------ ----------
Fair value of common stock issued $ 79,650 $ --
============ ==========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F - 5
<PAGE> F - 6
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------------
In the opinion of management, the accompanying financial
statements of Touchstone Applied Science Associates, Inc. contain
all adjustments necessary to present fairly the Company's
financial position as of April 30, 1997 and October 31, 1996 and
the results of operations for the six and three months ended
April 30, 1997 and 1996 and cash flows for the six months ended
April 30, 1997 and 1996.
The results of operations for the six and three months ended
April 30, 1997 and 1996 are not necessarily indicative of the
results to be expected for the full year.
Except as follows, the accounting policies followed by the
Company are set forth in Note A to the Company's financial
statements included in its Annual Report on Form 10-KSB for the
fiscal year ended October 31, 1996 (as amended by amendment
number 1 on Form 10-KSB/A-1).
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Beck Evaluation &
Testing Associates, Inc. All material intercompany transactions
have been eliminated in consolidation.
Goodwill
- --------
Included in the purchase of the Company's subsidiary is goodwill
totaling $374,067. This goodwill is being amortized over a
period of six years. The Company will continue to evaluate
goodwill for potential impairment.
F - 6
<PAGE> F - 7
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - CONSULTING AGREEMENTS
- ------------------------------
In February 1997, the Company entered into a written consulting
agreement with a financial consulting firm. The consultant is to
receive 100,000 shares of the Company's common stock and a
warrant to purchase 250,000 shares of the Company's common stock
for $0.469 per share for a period of five years, in exchange for
consulting services. The cost of these services has been valued
at $46,900, the market value for the 100,000 shares on the date
of issuance and will be expensed over a period of two years.
In March 1997, the Company entered into a written consulting
agreement with a financial consulting firm. The consultant is to
receive a warrant to purchase 250,000 shares of the Company's
common stock in exchange for consulting services. The warrants
are exercisable for $.50 per share for a period of five years.
NOTE C - CONSULTANTS STOCK INCENTIVE PLAN
- -----------------------------------------
The Company has adopted a Consultants Stock Incentive Plan (the
"Plan") whereby options to purchase up to 200,000 shares of the
Company's common stock may be granted to consultants or advisors
of the Company. Subject to the terms of the Plan, a committee of
the Board of Directors is authorized to select participants and
determine the number of shares covered by each option, its
exercise price and other terms. The exercise price, however, may
not be less than the fair market value of the Company's common
stock on the date of the grant.
In March 1997, the Company entered into a consulting agreement
with a director of the Company. In exchange for certain
consulting services, the Company granted options, under the Plan
to purchase 30,000 shares of the Company's common stock. The
options are exercisable at $.44 per share.
NOTE D - DIRECTORS' STOCK OPTION
- --------------------------------
In March 1997, the Company granted an aggregate of 5,000 options
to two nonemployee directors pursuant to its Directors Stock
Option Plan. The options are exercisable at $.719 per share.
F - 7
<PAGE> F - 8
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E - ACQUISITION OF ASSETS
- ------------------------------
In May 1997, a newly formed wholly owned subsidiary of the
Company (the "Subsidiary") purchased certain assets of Programs
for Education, Inc. In addition to assuming certain liabilities,
the Subsidiary purchased the assets for $3,200,000. The purchase
price to be paid by the Subsidiary consists of $2,200,000 in cash
and a secured promissory note for $1,000,000 bearing interest at
a rate of 9% per annum and payable in equal quarterly
installments over a five year period. The promissory note is
guaranteed by the Company.
NOTE F - EARNINGS PER SHARE
- ---------------------------
In February 1997, the Financial Accounting Standards Board issued
SFAS No. 128 - Earnings Per Share which changes the method for
calculating earnings per share. SFAS No. 128 requires
presentation of "basic" and "diluted" earnings per share, as
opposed to "primary" and "fully diluted" earnings per share and
is effective for periods ending after December 15, 1997. Early
adoption is not permitted. Management does not believe that
earnings per share reported in accordance with SFAS No. 128 will
materially differ from earnings per share as currently reported.
F - 8
<PAGE>
SIGNATURE
In accordance with the requirements of the Securities
Exchange Act of 1934, the registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By /s/ ANDREW L. SIMON
----------------------------------------
Andrew L. Simon
President, Chief Executive Officer and Treasurer
(principal financial officer)
Date: June 11, 1997
Exhibit 10.1
------------
AGREEMENT
This agreement (the "Agreement") is made as of the 24th
day of February, 1997 ("Effective Date") by and between
Touchstone Applied Science Associates, Inc., a Delaware
corporation (the "Company"), and Meyers Pollock Robbins, Inc., a
New York corporation ("MPR").
WHEREAS, the Company desires that MPR provide certain
services as set forth and more fully described in Section 2 of
this Agreement; and
WHEREAS, MPR wishes to provide the services to the
Company; and
WHEREAS, MPR is organized to provide investment banking
and financial consulting services.
NOW, THEREFORE, in consideration of the mutual
agreements herein, the Company and MPR do hereby agree as
follows:
1. Recitals. The above recitals are true, correct,
--------
and are herein incorporated by reference.
2. Services Rendered by MPR. MPR agrees to perform
------------------------
services including, but not limited to, (1) advice to and
consulting with the Company's management concerning investor
profile information, method of expanding investor support and
increasing investor awareness of the Company and services; (ii)
securities broker and research analyst relations, assisting in
preparation and formation of due diligence meeting, and
attendance at conventions and trade shows; (iii) making itself
available for financial public relations and marketing consult-
ing; and (iv) making itself available for personal consultations
with officers, directors and key employees of the Company, as
well as the Company's principal financial, sales and/or operating
officers. MPR and the Company shall agree on the scope and
extent of the services to be performed by MPR. MPR shall perform
such services subject to Federal and state securities laws and
regulations, and applicable rules, regulations and policies of
the National Association of Securities Dealers, Inc. (the
"NASD"), and the Securities and Exchange Commission (the
"Commission").
The Company acknowledges that neither MPR nor any of
its affiliates is an officer, director or agent of the Company,
that in rendering advice or recommendations to the Company MPR is
not and will not be responsible for any management decisions on
behalf of the Company and that MPR is not authorized or empowered
to commit or bind the Company to any recommendation, agreement or
course of action. The Company has the sole right, in the
exercise of its business judgment and discretion, to approve or
disapprove of any agreement, transaction or commitment introduced
by MPR.
MPR shall devote such of its time and efforts as it
determines is necessary to discharge its duties hereunder. The
Company acknowledges that MPR is engaged in other business
activities and that they will continue such activities during the
term of the Agreement. MPR shall not be restricted from engaging
in other business activities during the term of this Agreement,
but shall not agree to represent any direct competitor of the
Company.
3. Responsibilities of the Company. The Company
-------------------------------
shall provide MPR with appropriate financial and business
information about the Company as requested by MPR. In addition,
executive officers and directors of the Company shall make
themselves available for personal consultations with MPR and
certain third parties, subject to reasonable prior notice,
pursuant to the request to MPR.
4. Compensation. For the services rendered by MPR to
------------
the Company under the terms of this Agreement, at any time, in
consideration of the execution of this Agreement by MPR,, the
Company shall compensate MPR as follows:
(a) The Company shall issue, within 60 days, a total
of 100,000 shares of the Company's common stock which will
be registered by the Company pursuant to the federal
securities laws within six months of the date hereof. The
shares shall be restricted shares and bear a legend in
substantially the following form:
"The Shares evidenced by this Certificate
have not been registered under the Securities Act
of 1933, as amended, or applicable state securi-
ties laws, and may not be sold, transferred or
encumbered except pursuant an effective
registration statement under the Securities Act of
1933, as amended, and such state securities laws,
or unless an exemption from such registration is
then available".
(b) The Company shall issue one or more Warrants to
MPR providing for the purchase of up to Two Hundred Fifty
Thousand (250,000) shares of the Company's common stock at a
purchase price per share equal to the closing bid price of
the Company's Common Stock on the date of this Agreement.
Such Warrants shall be exercisable for a period of five (5)
years from the date first written above (the "MPR
Warrants").
(c) The Warrants may be exercised from time to time,
in whole or in part, by the Warrantholder by giving written
notice of exercise to the Company. Such notice shall
specify the number of shares of common stock with respect to
which the Warrants are then being exercised. Payment for
such shares shall be made by cash or check payable to the
Company either (A) accompanying the notice of exercise, or
(B) against delivery by the Company of the certificate(s)
representing the shares pursuant to the exercise.
(d) If at any time commencing after the date hereof
and expiring five (5) years thereafter, the Company proposes
to register any of its securities under the Securities Act
of 1933, as amended, it will give written notice by
registered mail, at least thirty (30) days prior to the
filing each of such registration statements, to MPR and its
counsel named in Section 9 hereof of its intention to do so.
If MPR or other holders of at least 50% of the outstanding
MPR Warrants and/or securities underlying such MPR Warrants
notify the Company within twenty (20) business days after
receipt of any such notice of its or their desire to include
any such securities in such proposed registration statement,
the Company shall afford MPR and such holders of the MPR
Warrants and/or shares underlying such MPR Warrants the
opportunity to have any such securities registered under
such registration statement; provided, however, that the
-----------------
Company shall not be obligated to do so more than twice; and
provided, further, that if any such registration relates to
-----------------
a firmly underwritten offering for the account of the
Company and if the managing underwriter of such offering
advises the Company in writing that, in its opinion,
inclusion of such shares as requested by MPR or the other
holders of the MPR Warrants would adversely affect such
offering, then such shares shall, to such extent, be
excluded from such registration, on such basis as the
Company shall determine to be fair and equitable.
(e) In the event that the Company receives equity or
debt financing, acquires or merges with another entity, as a
result of MPR's efforts and/or introductions, the Company
will pay MPR the following finders fee: 5% of the first
$1,000,000; 4% of the second $1,000,000; 3% of the third
$1,000,000; 2% of the fourth $1,000,000 and 1% of any
remuneration received in excess of $4,000,000, whether
received in cash or in kind. The Company's obligation to
pay compensation pursuant to this paragraph (e) shall apply
to any transaction resulting from MPR's efforts or
introductions which is consummated during the term of this
Agreement or within twelve (12) months following the
termination of this Agreement. The Company shall not be
obligated to compensate MPR in accordance with this
paragraph (e) which is not consummated because of a default
by the other party thereto prior to consummation, the
failure of any conditions precedent to consummation which
conditions are not within the Company's control, the failure
of the Board of Directors of the Company to approve such
transaction or unsatisfactory results of a due diligence
investigation by the Company. MPR shall not be entitled to
compensation with respect to introductions to individuals,
companies or other entities with whom the Company has had
previous contacts or discussions.
(f) MPR will be reimbursed for all documented
reasonable out-of-pocket expenses incurred in the
performance of its responsibilities outlined above. All
expenses over $500 will be pre-approved by the Company.
5. Term. The term of this Agreement shall be for a
----
period beginning on the date hereof and ending two (2) years
thereafter. Notwithstanding the foregoing, the Company or MPR
may terminate this Agreement at any time after one year upon
thirty (30) days prior notice. The Company shall have issued all
of the stock and MPR Warrants pursuant to paragraph 3 of this
agreement prior to any termination by it.
6. Relationship of the Parties. Nothing in this
---------------------------
Agreement shall be construed as establishing a partnership or
joint venture between the parties hereto. The Company specifi-
cally understands that MPR is acting hereunder as an independent
contractor. MPR's services hereunder are not exclusive and MPR
at all times shall be free to perform the same or similar
services for others which shall not be deemed a conflict of
interest nor a breach of this Agreement, however MPR agrees not
to perform the same or similar services for any company which is
in direct competition with the Company.
7. Indemnification.
---------------
(a) The Company shall indemnify MPR and its affiliates
and their respective directors, officers, employees, agents and
controlling persons (MPR and each such other person and entity
being an "Indemnified Party" for purposes of this Section) from
and against any and all losses, claims, damages and liabilities,
jointly or severally, to which such Indemnified Party may become
subject under any applicable federal or state law, or otherwise
related to or arising out of any transaction contemplated by this
Agreement and the performance by MPR of the services contemplated
by this Agreement, and shall reimburse each Indemnified Party for
all reasonable expenses (including reasonable counsel fees and
expenses) as they are incurred in connection with the
investigation of, preparation for or defense of, any pending or
threatened claim or any action or proceeding arising therefrom,
whether or not such Indemnified Party is a party thereto provided
that the Company shall not be liable for any of the foregoing to
the extent they arise from the gross negligence or willful
misconduct of the Indemnified Party and further provided that
such Indemnified Party agrees to refund such reimbursed expenses
if and to the extent it is finally judicially determined that
such Indemnified Party is not entitled to indemnification. In
the event that the foregoing indemnity is unavailable or
insufficient to hold any Indemnified Party harmless, then the
Company shall contribute to amounts paid or payable by such
Indemnified Party in respect of such losses, claims, damages and
liabilities in such proportion as approximately reflects the
relative benefits received by, in fault of, the Company and such
Indemnified Party in connection with the matters as to which such
losses, claims, damages and liabilities relate and other
equitable considerations, provided however that nothing in this
sentence shall be construed as altering or limiting in any way
the effect of the proviso contained in the immediately preceding
sentence.
(b) MPR shall indemnify the Company and its affiliates
and their respective directors, officers, employees, agents and
controlling persons (the Company and each such other person and
entity being an "Indemnified Party" for purposes of this Section)
from and against any and all losses, claims, damages and
liabilities, jointly or severally, to which such Indemnified
Party may become subject under any applicable federal or state
law, or otherwise related to or arising out of any transaction
contemplated by this Agreement and the performance by the Company
of its obligations contemplated by this Agreement, and shall
reimburse each Indemnified Party for all reasonable expenses
(including reasonable counsel fees and expenses) as they are
incurred in connection with the investigation, preparation for or
defense of any pending or threatened claim or any action or
proceeding arising therefrom, whether or not such Indemnified
Party is a party thereto provided that MPR shall not be liable
for any of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Indemnified Party and
further provided that such Indemnified Party agrees to refund
such reimbursed expenses if and to the extent it is finally
judicially determined that such Indemnified Party is not entitled
to indemnification. In the event that the foregoing indemnity is
unavailable or insufficient to hold any Indemnified Party
harmless, then MPR shall contribute to amounts paid or payable by
such Indemnified Party in respect of such losses, claims, damages
and liabilities in such proportion as approximately reflects the
relative benefits received by, in fault of, MPR and such
Indemnified Party in connection with the matters as to which such
losses, claims, damages and liabilities relate and other
equitable considerations, provided however that nothing in this
sentence shall be construed as altering or limiting in any way
the effect of the proviso contained in the immediately preceding
sentence.
8. Disclosure. Any financial advice rendered by MPR
----------
pursuant to this Agreement may not be disclosed publicly in any
manner without the prior written approval of MPR. All non-public
information given to MPR by the Company will be treated by MPR as
confidential information, and MPR agrees not to make use of such
information other than in connection with its performance of this
Agreement, provided, however, that any such information may be
disclosed if required by any court or governmental or regulatory
authority, board or agency. "Non-public information" shall not
include any information which (i) is or becomes generally
available to the public other than as a result of a disclosure by
MPR; (ii) was available to MPR prior to its disclosure to MPR by
the Company, provided that such information is not known by MPR
to be subject to another confidentiality agreement with another
party; or (iii) becomes available to MPR on a non-confidential
basis from a source other than the Company, provided that such
source is not bound by a confidentiality agreement with the
Company.
9. Notice. Any or all notices, designations,
------
consents, offers, acceptances or other communications provided
for herein shall be given in writing and delivered in person or
by registered or certified mail, return receipt requested,
directed to the address shown below unless notice of a change of
address is furnished:
If to MPR:
Meyers Pollock Robbins, Inc.
One World Trade Center
Suite 9151
New York, New York 10048
Attn: Michael Ploshnick
With a copy to:
Leon B. Lipkin, Esq.
Two Grand Central Tower
140 East 45th Street
New York, New York 10017
If to the Company:
Touchstone Applied Sciences Associates, Inc.
Fields Lane
P.O. Box 382
Brewster, New York 10509
Attn: Andrew L. Simon, President
With a copy to:
Christy & Viener
620 Fifth Avenue
New York, New York 10020
Attn: Steven R. Berger, Esq.
10. Waiver. Unless agreed to in writing, the failure
------
of either party at any time to require performance by the other
of any provisions hereunder shall not affect its rights there-
after to enforce the same, nor shall a waiver by either party of
any breach of any provision hereof, be taken or held in by a
waiver of any other proceeding or succeeding breach of any term
or provision of this Agreement. No extension of time for the
performance of any obligation or act shall be deemed to be in
extension of time for the performance of other obligations or
acts hereunder.
11. Complete Agreement. This Agreement contains the
------------------
entire Agreement between the parties with respect to the contents
hereof and supersedes all prior agreements and understandings
between the parties with respect to such matters, whether written
or oral. Neither this Agreement, nor any term or provision
hereof may be changed, waived, discharged or amended in any
manner other than by an instrument in writing, signed by the
party against which the enforcement of the change, waiver,
discharge or amendment is sought.
12. Counterparts. This Agreement may be executed in
------------
two or more counterparts, each of which shall be an original but
all of which shall constitute but one agreement.
13. Binding Effect/Assignment. This Agreement shall
-------------------------
be binding upon the parties hereto, their heirs, legal
representatives, successors, and assigns and shall not be assign-
able by either party, except upon prior written consent by both
parties to this Agreement.
14. Headings. The headings of the sections are for
--------
convenience only and shall not control or affect the meaning or
construction or limit the scope or intent of any of the provi-
sions of this Agreement.
15. Survival. Any termination of this Agreement shall
--------
not, however, affect the on-going provisions of this Agreement
which shall survive such termination in accordance with their
terms.
16. Severability. Whenever possible, each provision
------------
of this Agreement will 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 invalid, illegal or unenforceable
in any respect under any applicable law or rule, such invalidity,
illegality or unenforceability will not affect any other
provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been con-
tained herein. If any court determines that any provision of
Section 4 or 5 hereof is unenforceable because of the duration or
scope of such provision, such courts shall have the power to
reduce the scope for the duration of such provision, as the case
may be, and, in its reduced form, such provision shall then be
enforceable.
17. Choice of Law. This Agreement shall be governed
-------------
by, construed, interpreted and the rights of the parties
determined in accordance with the laws of the State of New York,
without reference to the principles of conflicts of law.
IN WITNESS WHEREOF, the parties executed this Agreement
as of the effective date of this Agreement.
TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC.
By /s/ ANDREW L. SIMON
----------------------------
Andrew L. Simon, President
MEYERS POLLOCK ROBBINS, INC.
By /s/ MICHAEL PLOSHNICK
----------------------------
Michael Ploshnick, President
Exhibit 10.2
------------
AGREEMENT
AGREEMENT, dated as of March 6, 1997, between JERICHO
STATE CAPITAL CORP. OF FLORIDA ("JSCCF"), a Florida corporation,
and TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. ("TASA"), a
Delaware corporation.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, TASA agrees to retain JSCCF to act as its
investment banker and financial consultant in connection with
TASA's business affairs and JSCCF is willing to undertake to
provide such services as hereinafter fully set forth.
NOW, THEREFORE, in consideration of the premises
contained herein, the parties agree as follows:
1. Term.
----
The term of this Agreement shall be for one (1) year
from the date first written above, which term shall be renewed
automatically for additional one-year terms, unless written
notice to terminate service is received by one party from the
other not less than 30 days before the then expiration of then
applicable term. This Agreement may be canceled at any time for
any reason whatsoever, by either party, by the giving of at least
30 days' prior written notice.
2. Nature of Services.
------------------
JSCCF will render assistance and advice to TASA on
matters relating to the growth and financing goals of TASA and in
connection therewith, JSCCF shall:
(a) seek to find strategic partners and/or financing
entities to assist TASA in its projects;
(b) attend meetings of TASA's Board of Directors and
other such meetings when so requested by TASA;
(c) make itself available for financial public
relations and marketing consulting;
(d) arrange introductions to various broker/dealers
who may be interested in knowing more about TASA,
including its goals and aspirations;
(e) attend with TASA whenever possible, all meetings
with proposed major investors or lenders; and
(f) an understanding that JSCCF's work will not
include any services that constitute the rendering
of any legal opinions or performance of work that
is in the ordinary purview of a certified public
accountant.
3. Responsibilities of TASA.
------------------------
TASA shall provide JSCCF with appropriate financial and
business information about TASA as requested by JSCCF. In
addition, executive officers and directors of TASA shall make
themselves available for personal consultations with JSCCF and
certain third parties, subject to reasonable prior notice,
pursuant to the request of JSCCF.
4. Compensation.
------------
JSCCF's fees for the above described services will be
as follows:
(a) TASA shall issue one or more Warrants to JSCCF
providing for the purchase of up to Two Hundred
Fifty Thousand (250,000) shares of TASA's common
stock at a purchase price per share equal to the
closing bid price of TASA's common stock on the
date of this Agreement. Such Warrants shall be
exercisable for a period of five (5) years from
the date first written above (the "JSCCF
Warrants").
(b) The Warrants may be exercised from time to time,
in whole or in part, by the Warrant holder by
giving written notice to TASA. Such notice shall
specify the number of shares of common stock with
respect to which the Warrants are then being
exercised. Payment of such shares shall be made
by cash or check payable to TASA either (A)
accompanying the notice of exercise, or (B)
against delivery by TASA of the certificate(s)
representing the shares pursuant to the exercise.
(c) If at any time commencing after the date hereof
and expiring five (5) years thereafter, TASA
proposes to register any of its securities under
the Securities Act of 1933, as amended, it will
give written notice by registered mail, at least
thirty (30) days prior to the filing each of such
registration statements, to JSCCF and its counsel.
If JSCCF or other holders of at least 50% of the
outstanding JSCCF Warrants and/or securities
underlying JSCCF Warrants notify TASA within
twenty (20) days after receipt of any such notice
of its or their desire to include any such
securities in such proposed registration
statement, TASA shall afford JSCCF and such
holders of JSCCF Warrants and/o shares underlying
such JSCCF Warrants the opportunity to have any
such securities registered under such registration
statement; provided, however, that TASA shall not
-----------------
be obligated to do so more than twice; and
provided, further, that if any such registration
-----------------
relates to a firmly underwritten offering for the
account of TASA and if the managing underwriter of
such offering advises TASA in writing that, in its
opinion, inclusion of such shares as requested by
JSCCF or the other holders of the JSCCF Warrants
would adversely affect such offering, then such
shares shall, to such extent, be excluded from
such registration, on such basis as TASA shall
determine to be fair and equitable.
(d) In the event that TASA receives equity or debt
financing, acquires or merges with another entity,
as a result of JSCCF's efforts and/or
introductions, TASA will pay JSCCF the following
finders fee: 5% of the first $1,000,000; 4% of the
second $1,000,000; 3% of the third $1,000,000; 2%
of the fourth $1,000,000 and 1% of any
remuneration received in excess of $4,000,000,
whether received in cash or in kind. TASA's
obligation to pay compensation pursuant to this
paragraph (d) shall apply to any transaction
resulting from JSCCF's efforts or introductions
which is consummated during the term of this
Agreement or within twelve (12) months following
the termination of this Agreement. TASA shall not
be obligated to compensate JSCCF in accordance
with this paragraph (d) which is not consummated
because of default by the other party thereto
prior to consummation, the failure of any
conditions precedent to consummation which
conditions are not within TASA's control, the
failure of the Board of Directors of TASA to
approve such transaction or unsatisfactory results
of a due diligence investigation by TASA. JSCCF
shall not be entitled to compensation with respect
to introductions to individuals, companies or
other entities with whom TASA has had previous
contacts or discussions. JSCCF acknowledges and
agrees that if TASA receives equity or debt
financing, acquires or merges with another entity
as a result of joint efforts between JSCCF and
Meyers Pollock Robbins, Inc., then TASA shall not
be required to pay duplicative fees to JSCCF and
Meyers Pollock Robbins, Inc., and any fees payable
by TASA pursuant to this Section shall be shared
by JSCCF and Meyers Pollock Robbins, Inc. in such
proportions as JSCCF and Meyers Pollock Robbins,
Inc. shall agree and shall direct TASA in writing.
(e) JSCCF will be reimbursed for all documented
reasonable out-of-pocket expenses incurred in the
performance of its responsibilities outlined
above. All expenses over $500.00 will be pre-approved
by TASA.
5. Indemnification.
---------------
(a) TASA shall indemnify JSCCF and its affiliates and
their respective directors, officers, employees, agents and
controlling persons (JSCCF and each such other person and
entity being an "Indemnified Party" for purposes of this
Section) from and against any and all losses, claims,
damages and liabilities, jointly or severally, to which such
Indemnified Party may become subject under any applicable
federal or state law, or otherwise related to or arising out
of any transaction contemplated by this Agreement and the
performance by JSCCF of the services contemplated by this
Agreement, and shall reimburse each Indemnified Party for
all reasonable expenses (including reasonable counsel fees
and expenses) as they are incurred in connection with the
investigation of, preparation for or defense of, any pending
or threatened claim or any action or proceeding arising
therefrom, whether or not such Indemnified Party is a party
thereto provided that TASA shall not be liable for any of
the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Indemnified Party
and further provided that such Indemnified Party agrees to
refund such reimbursed expenses if and to the extent it is
finally judicially determined that such Indemnified Party is
not entitled to indemnification. In the event that the
foregoing indemnity is unavailable or insufficient to hold
any Indemnified Party harmless, then TASA shall contribute
to amounts paid or payable by such Indemnified Party in
respect of such losses, claims, damages and liabilities in
such proportion as approximately reflects the relative
benefits received by, in fault of, TASA and such Indemnified
Party in connection with the matters as to which such
losses, claims, damages and liabilities relate and other
equitable considerations, provided however that nothing in
this sentence shall be construed as altering or limiting in
any way the effect of the proviso contained in the
immediately preceding sentence.
(b) JSCCF shall indemnify TASA and its affiliates and
their respective directors, officers, employees, agents and
controlling persons (TASA and each such other person and
entity being an "Indemnified Party" for purposes of this
Section) from and against any and all losses, claims,
damages and liabilities, jointly or severally, to which such
Indemnified Party may become subject under any applicable
federal or state law, or otherwise related to or arising out
of any transaction contemplated by this Agreement and the
performance by TASA of its obligations contemplated by this
Agreement, and shall reimburse each Indemnified Party for
all reasonable expenses (including reasonable counsel fees
and expenses) as they are incurred in connection with the
investigation, preparation for or defense of any pending or
threatened claim or any action or proceeding arising
therefrom, whether or not such Indemnified Party is a party
thereto provided that JSCCF shall not be liable for any of
the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Indemnified Party
and further provided that such Indemnified Party agrees to
refund such reimbursed expenses if and to the extent it is
finally judicially determined that such Indemnified Party is
not entitled to indemnification. In the event that the
foregoing indemnity is unavailable or insufficient to hold
any Indemnified Party harmless, then JSCCF shall contribute
to amounts paid or payable by such Indemnified Party in
respect of such losses, claims, damages and liabilities in
such proportion as approximately reflects the relative
benefits received by, in fault of, JSCCF and such
Indemnified Party in connection with the matters as to which
such losses, claims, damages and liabilities relate and
other equitable considerations, provided however that
nothing in this sentence shall be construed as altering or
limiting in any way the effect of the proviso contained in
the immediately preceding sentence.
6. Complete Agreement. This Agreement contains the
------------------
entire Agreement between the parties with respect to the contents
hereof and supersedes all prior agreements and understandings
between the parties with respect to such matters, whether written
or oral. Neither this Agreement, nor any term or provision
hereof may be changed, waived, discharged or amended in any
manner other than by an instrument in writing, signed by the
party against which the enforcement of the change, waiver,
discharge or amendment is sought.
7. Binding Effect; Assignment. This Agreement shall
--------------------------
be binding upon the parties hereto, their heirs, legal
representatives, successors, and assigns and shall not be
assignable by either party, except under prior written consent by
both parties to this Agreement
8. Relationship of the Parties.
----------------------------
(a) Nothing in this Agreement shall be construed as
establishing a partnership or joint venture between the
parties hereto. TASA specifically understands that JSCCF is
acting hereunder as an independent contractor. JSCCF's
services hereunder are not exclusive and JSCCF at all times
shall be free to perform the same or similar services for
others which shall not be deemed a conflict of interest nor
a breach of this Agreement, however JSCCF agrees not to
perform the same or similar services for any company which
is in direct competition with TASA.
(b) TASA acknowledges that neither JSCCF nor any of
its affiliates is an officer, director or agent of TASA,
that in rendering advice or recommendations to TASA, JSCCF
is not and will not be responsible for any management
decisions on behalf of TASA. JSCCF acknowledges and agrees
that JSCCF is not authorized or empowered to commit or bind
TASA to any recommendation, agreement or course of action.
TASA has the sole right, in the exercise of its business
judgment and discretion, to approve or disapprove of any
agreement, transaction or commitment introduced by JSCCF.
9. Disclosure. Any financial advice rendered by JSCCF
----------
pursuant to this Agreement may not be disclosed publicly in any
manner without the prior written approval of JSCCF. All non-public
information given to JSCCF by TASA will be treated by
JSCCF as confidential information, and JSCCF agrees not to make
use of such information other than in connection with its
performance of this Agreement, provided, however, that any such
information may be disclosed if required by any court or
governmental or regulatory authority, board or agency. "Non-public
information" shall not include any information which (i)
is or becomes generally available to the public other than as a
result of a disclosure by JSCCF; (ii) was available to JSCCF
prior to its disclosure to JSCCF by TASA, provided that such
information is not known by JSCCF to be subject to another
confidentiality agreement with another party; or (iii) becomes
available to JSCCF on a non-confidential basis from a source
other than TASA, provided that such source is not bound by a
confidentiality agreement with TASA.
10. Miscellaneous.
-------------
(a) All final decisions with respect to consultation,
advice and services rendered by JSCCF to TASA shall rest
exclusively with TASA and JSCCF shall not have any right or
authority to bind TASA to any obligation or commitment.
(b) This Agreement shall be governed in accordance
with the State of New York.
(c) Any controversy or claim arising out of or related
to this Agreement shall be settled by arbitration in
accordance with the rules and under the auspices of the
American Arbitration Association; and any arbitration shall
be conducted in the County of New York in the State of New
York.
TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC.
By: /s/ ANDREW L. SIMON
-------------------------
Andrew L. Simon
President
JERICHO STATE CAPITAL CORP.
OF FLORIDA
By: /s/ RICHARD CHWATT
-------------------------
Richard Chwatt
President
Exhibit 10.3
------------
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
CONSULTANTS STOCK INCENTIVE PLAN
--------------------------------
1. Purpose. The purpose of the Consultants Stock
-------
Incentive Plan (the "Plan") is to aid the Company in
attracting, retaining and motivating consultants and advisors
by providing them with incentives for making significant con-
tributions to the success of the Company. The Plan is
designed to accomplish this goal by offering stock options and
other incentive awards, thereby providing Participants with a
proprietary interest in the growth, profitability and success
of the Company.
2. Definitions.
-----------
(a) Award. Any form of stock option, stock
-----
appreciation right, stock or cash award granted under the
Plan, or any such award granted to an eligible Person by the
Board prior to its adoption of the Plan, whether granted
singly, in combination or in tandem, pursuant to such terms,
conditions and limitations as the Committee may establish in
order to fulfill the objectives, and in accordance with the
terms and conditions, of the Plan.
(b) Award Agreement. An agreement between the
---------------
Company and a Participant setting forth the terms, conditions
and limitations applicable to an Award.
(c) Board. The Board of Directors of Touchstone
-----
Applied Science Associates, Inc.
(d) Code. The Internal Revenue Code of 1986, as
----
from time to time amended.
(e) Committee. A committee of the Board comprising
---------
all members thereof who are not eligible to participate in the
Plan, as from time to time constituted.
(f) Company. Touchstone Applied Science
-------
Associates, Inc. and its direct and indirect subsidiaries from
time to time.
(g) Fair Market Value. If the Stock is listed on a
-----------------
national exchange, the average of the high and low sale prices
as reported on such exchange or, if the Stock is not listed on
a national exchange, the average of the high and low sale
prices of the Stock in the over-the-counter market, as
reported by the National Association of Securities Dealers
through its Automated Quotation System or otherwise, in either
case for the date in question, provided that if no
transactions in the Stock are reported for that date, the average
of the high and low sale prices as so reported for the preceding
day on which transactions in the Stock were effected.
(h) Participant. A Person to whom an Award has been
-----------
granted.
(i) Person. Any individual, corporation, limited
------
liability company, partnership or other entity or organization.
(j) Stock. Authorized and issued or unissued shares
-----
of Common Stock of the Company or any security issued in exchange
or substitution therefor.
3. Eligibility. Only those Persons who are acting as
-----------
consultants or advisors to the Company are eligible to receive
Awards under the Plan.
4. Stock Available for Awards. Subject to Section
--------------------------
14, a total of 200,000 shares of Stock shall be available for
issuance pursuant to Awards granted under the Plan. From time to
time, the Board and appropriate officers of the Company shall
file such documents with governmental authorities and, if the
Stock is listed on a national exchange, with such stock exchange,
as are required to make shares of Stock available for issuance
pursuant to Awards and publicly tradeable. Shares of Stock
related to Awards, or portions of Awards, that are forfeited,
canceled or terminated, expire unexercised, are surrendered in
exchange for other Awards, or are settled in cash in lieu of
Stock or in such manner that all or some of the shares of Stock
covered by an Award are not and will not be issued to a Par-
ticipant, shall be restored to the total number of shares of
Stock available for issuance pursuant to Awards.
5. Administration.
--------------
(a) General. The Plan shall be administered by the
-------
Committee, which shall have full and exclusive power to (i)
authorize and grant Awards to Persons eligible to receive Awards
under the Plan; (ii) establish the terms, conditions and
limitations of each Award or class of Awards; (iii) construe and
interpret the Plan and all Award Agreements; (iv) grant waivers
of Plan restrictions; (v) adopt and amend such rules, procedures,
regulations and guidelines for carrying out the Plan as it may
deem necessary or desirable; and (vi) take any other action
necessary for the proper operation and administration of the
Plan, all of which powers shall be exercised in a manner
consistent with the objectives, and in accordance with the terms
and conditions, of the Plan. The Committee's powers shall
include, but shall not be limited to, the authority to (A) adopt
such subplans as may be necessary or appropriate (1) to provide
for the authorization and granting of Awards to promote specific
goals or for the benefit of specific classes of Participants, (2)
to provide for grants of Awards by means of formulae,
standardized criteria or otherwise, or (3) for any other purposes
as are consistent with the objectives of the Plan, and to
segregate shares of Stock available for issuance under the Plan
generally as being available specifically for the purposes of one
or more subplans, and (B) subject to Section 11, adopt modifica-
tions, amendments, rules, procedures, regulations, subplans and
the like as may be necessary or appropriate (1) to comply with
provisions of the laws of other countries in which the Company
may operate in order to assure the effectiveness of Awards
granted under the Plan and to enable Participants employed in
such other countries to receive advantages and benefits under the
Plan and such laws, or (2) for any other purposes as are
consistent with the objectives of the Plan. All such
modifications, amendments, rules, procedures, regulations and
subplans shall be deemed to be a part of the Plan as if stated
herein.
(b) Committee Actions. All actions of the Committee
-----------------
with respect to the Plan shall require the vote of a majority of
its members or, if there are only two members, by the vote of
both. Any action of the Committee may be taken by a written
instrument signed by a majority (or both members) of the
Committee, and any action so taken shall be as effective as if it
had been taken by a vote at a meeting. All determinations and
acts of the Committee as to any matters concerning the Plan, in-
cluding interpretations or constructions of the Plan and any
Award Agreement, shall be conclusive and binding on all Par-
ticipants and on any parties validly claiming through any
Participants.
6. Delegation of Authority. The Committee may
-----------------------
delegate to any executive officer of the Company certain of its
administrative duties under the Plan, pursuant to such conditions
or limitations as the Committee may establish, except that the
Committee may not delegate its authority with respect to (a) the
granting or timing of Awards, (b) establishing the amount, terms
and conditions of any such Award, (c) interpreting the Plan, any
subplan or any Award Agreement or (d) amending or otherwise
modifying the terms or provisions of the Plan, any subplan or any
Award Agreement.
7. Awards. Subject to Section 4, the Committee shall
------
determine the types and timing of Awards to be made to each
Participant and shall set forth in the related Award Agreement
the terms, conditions and limitations applicable to each Award.
Awards may include, but are not limited to, those listed below in
this Section 7. Awards may be granted singly, in combination or
in tandem, or in substitution for Awards previously granted under
the Plan. Awards may also be made in combination or in tandem
with, in substitution for, or as alternatives to, grants or
rights under any other benefit plan of the Company, including any
such plan of any entity acquired by, or merged with or into, the
Company. Any such Awards made in substitution for, or as
alternatives to, grants or rights under a benefit plan of an
entity acquired by, or merged with or into, the Company in order
to give effect to the transaction shall be deemed to be issued in
accordance with the terms and conditions of the Plan. Awards
shall be effected through Award Agreements executed by the
Company in such forms as are approved by the Committee from time
to time.
All or part of any Award may be subject to conditions
established by the Committee, and set forth in the Award
Agreement, which conditions may include, without limitation,
achievement of specific business objectives, increases in
specified indices, attainment of growth rates and other measure-
ments of Company performance.
The Committee may determine to make any or all of the
following Awards:
(a) Stock options. A grant of a right to purchase a
-------------
specified number of shares of Stock at an exercise price not less
than 100% of the Fair Market Value of the Stock on the date of
grant, during a specified period, all as determined by the
Committee.
(b) Stock Appreciation Rights. A right to receive a
-------------------------
payment, in cash or Stock, equal to the excess of the Fair Market
Value (or other specified valuation) of a specified number of
shares of Stock on the date the stock appreciation right ("SAR")
is exercised over the Fair Market Value (or other specified
valuation) on the date of grant of the SAR, except that if an SAR
is granted in tandem with a stock option, valuations on the grant
and exercise dates shall be no less than as determined on the
basis of Fair Market Value. The eventual amount, vesting or
issuance of an SAR may be subject to future service, performance
standards and such other restrictions and conditions as may be
established by the Committee.
(c) Stock Awards. An Award made in Stock or denom-
------------
inated in units of Stock. The eventual amount, vesting or
issuance of a Stock Award may be subject to future service,
performance standards and such other restrictions and conditions
as may be established by the Committee. Stock Awards may be
based on Fair Market Value or another specified valuation.
(d) Cash Awards. An Award made or denominated in
-----------
cash. The eventual amount of a cash Award may be subject to
future service, performance standards and such other restrictions
and conditions as may be established by the Committee.
Dividend equivalency rights, on a current or deferred
basis, may be extended to and be made part of any Award de-
nominated in whole or in part in Stock or units of Stock, subject
to such terms, conditions and restrictions as the Committee may
establish.
8. Payment under Awards. Payment by the Company
--------------------
pursuant to Awards may be made in the form of cash, Stock or
combinations thereof and may be subject to such restrictions as
the Committee determines, including, in the case of Stock, re-
strictions on transfer and forfeiture provisions. Stock subject
to transfer restrictions or forfeiture provisions is referred to
herein as "Restricted Stock". The Committee may provide for
payments to be deferred, such future payments to be made in
installments or by lump-sum payment.
The Committee may also establish rules and procedures
for the crediting of interest on deferred cash payments and of
dividend equivalencies on deferred payments to be made in Stock
or units of Stock.
At the discretion of the Committee, a Participant may
be offered an election to substitute an Award for another Award
or Awards, or for awards made under any other benefit plan of the
Company, of the same or different type.
9. Stock Option Exercise. The price at which shares
---------------------
of Stock may be purchased upon exercise of a stock option shall
be paid in full at the time of the exercise, in cash or, if
permitted by the Committee, by (a) tendering Stock or
surrendering another Award, including Restricted Stock, or an
option or other award granted under another benefit plan of the
Company, in each case valued at, or on the basis of, Fair Market
Value on the date of exercise or (b) any other means acceptable
to the Committee. The Committee shall determine acceptable meth-
ods for tendering Stock or surrendering other Awards or grants
and may impose such conditions on the use of Stock or other
Awards or grants to exercise a stock option as it deems appro-
priate. If shares of Restricted Stock are tendered as consid-
eration for the exercise of a stock option, the Committee may
require that the number of shares issued upon exercise of the
stock option equal to the number of shares of Restricted Stock
used as consideration therefor be subject to the same restric-
tions as the Restricted Stock so surrendered and any other
restrictions as may be imposed by the Committee. The Committee
may also permit Participants to exercise stock options and simul-
taneously sell some or all of the shares of Stock so acquired
pursuant to a brokerage or similar arrangement which provides for
the payment of the exercise price substantially concurrently with
the delivery of such shares.
10. Tax Withholding. The Company shall have the right
---------------
to deduct applicable taxes from any Award payment or shares of
Stock receivable under an Award and to withhold an appropriate
number of shares of Stock for payment of taxes required by law or
to take such other action as may be necessary in the opinion of
the Company to satisfy all tax withholding obligations. If the
Company withholds shares of Stock to satisfy tax payment
obligations, the value of such Stock in general shall be its Fair
Market Value on the date of the Award payment or the date of
exercise of an Award, as the case may be.
11. Amendment, Modification, Suspension or Termination
--------------------------------------------------
of the Plan. The Board or the Committee may amend, modify,
- -----------
suspend or terminate the Plan, or adopt subplans under the Plan,
(a) for the purpose of meeting or addressing any changes in any
applicable tax, securities or other laws, rules or regulations or
(b) for any other purpose permitted by law. The Plan may not be
amended in a manner that would alter, impair, amend, modify, sus-
pend or terminate any rights of a Participant or obligation of
the Company under any Awards theretofore granted, in any manner
adverse to any such affected Participant, without the consent of
such affected Participant.
12. Termination of Association with the Company.
-------------------------------------------
Except as otherwise set forth in an applicable Award Agreement or
determined by the Committee, or as otherwise provided in para-
graph (a) or (b) of this Section 12, if a Participant's
association with the Company terminates before the end of its
agreed term, all unexercised, deferred and unpaid Awards (or
portions of Awards) shall be canceled immediately. An Award
shall otherwise remain in place for its entire term
notwithstanding the expiration of the term of the Participant's
association with the Company.
(a) Resignation or Other Termination. Except as
--------------------------------
otherwise set forth in an applicable Award Agreement, if a
Participant's association with the Company terminates prior to
the end of its agreed term for any reason other than the
Participant's death or disability, the Committee may, under
circumstances in which it deems an exception from the provisions
of the first sentence of this Section 12 to be appropriate to
carry out the objectives of the Plan and to be consistent with
the best interests of the Company, permit Awards to continue in
effect and be exercisable or payable beyond the date of such
termination, up until the expiration date specified in the
applicable Award Agreement and otherwise in accordance with the
terms of the applicable Award Agreement, and may accelerate the
exercisability or vesting of any Award, in either case, in whole
or in part.
(b) Death.
-----
(i) In the event of a Participant's death before
the termination date of the Award Agreement, the
Participant's estate or beneficiaries shall have a one-year
period, but not extending beyond the expiration date
specified in the applicable Award Agreement (except as
otherwise provided in such Award Agreement), following the
date of death within which to exercise any outstanding Award
held by the Participant, as may be specified in the Award
Agreement or as may otherwise be determined by the Com-
mittee. All rights in respect of any such outstanding
Awards shall pass in the following order: (A) to benefi-
ciaries so designated in writing by the Participant; or if
none, then (B) to the legal representative of the Par-
ticipant; or if none, then (C) to the persons entitled
thereto as determined by a court of competent jurisdiction.
Awards so passing shall be exercised or paid at such times
and in such manner as if the Participant were living, except
as otherwise provided in the applicable Award Agreement or
as determined by the Committee.
(ii) After the death of a Participant, the
Committee may at any time, as provided in the applicable
Award Agreement or otherwise, (A) terminate restrictions
with respect to Awards held by the Participant,
(B) accelerate the vesting or exercisability of any or all
installments and rights of the Participant in respect of
Awards held by the Participant and (C) instruct the Company
to pay the total of any accelerated payments under the
Awards in a lump sum to the Participant or to the
Participant's estate, beneficiaries or representatives,
notwithstanding that, in the absence of such termination of
restrictions or acceleration of payments, any or all of the
payments due under the Awards might ultimately have become
payable to other beneficiaries.
(iii) In the event of uncertainty as to the in-
terpretation of, or controversies concerning, paragraph (b)
of this Section 12, the Committee's determinations shall be
binding and conclusive on all Participants and any parties
validly claiming through them.
13. Nonassignability. Except as provided for in
----------------
paragraphs (a) and (b) of Section 12, and except as otherwise
determined by the Committee in connection with specific Awards,
no Award or any other benefit under the Plan, or any right with
respect thereto, shall be assignable or transferable, or payable
to or exercisable by, anyone other than the Participant to whom
it is granted.
14. Adjustments. In the event of any change in the
-----------
outstanding Stock by reason of a stock split, stock dividend,
combination or reclassification of shares, recapitalization,
merger or similar event, the Committee shall adjust proportion-
ally (a) the number of shares of Stock (i) reserved under the
Plan, (ii) available for options or other Awards and available
for issuance pursuant to options, or upon which SARs may be
based, for individual Participants and (iii) covered by
outstanding Awards denominated in Stock or units of Stock; (b)
the prices related to outstanding Awards; and (c) the appropriate
Fair Market Value and other price determinations for such Awards.
In the event of any other change affecting the Stock or any
distribution (other than normal cash dividends) to holders of
Stock, such adjustments as may be deemed equitable by the
Committee, including adjustments to avoid fractional shares,
shall be made to give proper effect to such event. In the event
of a corporate merger, consolidation, acquisition of property or
stock, separation, reorganization or liquidation, the Committee
shall be authorized to issue or assume stock options or other
awards, whether or not in a transaction to which Section 424(a)
of the Code applies, by means of substitution of new stock
options or Awards for previously issued options or awards or an
assumption of previously issued stock options or awards.
15. Notice. Any written notice to The Company
------
required by any of the provisions of the Plan shall be addressed
to the Committee, c/o the Secretary of the Company, and shall
become effective when received by the Secretary.
16. Unfunded Plan. Insofar as the Plan provides for
-------------
Awards of cash or Stock, the Plan shall be unfunded unless and
until the Board or the Committee otherwise determines. Although
bookkeeping accounts may be established with respect to
Participants who are entitled to cash, Stock or rights thereto
under the Plan, any such accounts shall be used merely as a
bookkeeping convenience. Unless the Board otherwise determines,
(a) the Company shall not be required to segregate any assets
that may at any time be represented by cash, Stock or rights
thereto, nor shall the Plan be construed as providing for such
segregation, nor shall the Company, the Board or the Committee be
deemed to be a trustee of any cash, Stock or rights thereto to be
granted under the Plan; (b) any liability of the Company to any
Participant with respect to a grant of cash, Stock or rights
thereto under the Plan shall be based solely upon any contractual
obligations that may be created by the Plan and an Award
Agreement; (c) no such obligation of the Company shall be deemed
to be secured by any pledge or other encumbrance on any property
of the Company; and (d) neither the Company, the Board nor the
Committee shall be required to give any security or bond for the
performance of any obligation that may be created by or pursuant
to the Plan.
17. No Right to Continued Association. Neither the
---------------------------------
adoption of the Plan nor the granting of any Award shall confer
on any Participant any right to continued association or any
employment with the Company or in any way interfere with or alter
the Company's right to terminate any agreement or arrangement
with any Participant at any time, with or without cause, and
without liability therefor, in accordance with such agreement or
arrangement.
18. Governing Law. The Plan, and all determinations
-------------
made and actions taken pursuant hereto, to the extent not
otherwise governed by the Code or the securities laws of the
United States, shall be governed by and construed under the laws
of the State of Delaware.
19. Effective and Termination Dates. The Plan, and
-------------------------------
any amendment thereof, shall become effective as of the date of
its approval by a majority of the members of the Board. The Plan
shall terminate ten years after its initial effective date,
subject to earlier termination by the Board or the Committee
pursuant to Section 11, except as to Awards then outstanding.
Exhibit 10.4
------------
CONSULTING AGREEMENT
AGREEMENT, dated as of March 11, 1997, by and between
Michael Milone ("Consultant") and TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC., a Delaware corporation (the "Company").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company wishes to retain the Consultant,
and the Consultant wishes to serve the Company, as a consultant
with respect to the Company's business;
NOW, THEREFORE, in consideration of the foregoing and
of the mutual covenants and agreements set forth herein, the
parties hereto agree as follows:
1. General.
-------
(a) The Company hereby retains the Consultant, and
the Consultant hereby agrees to serve the Company, as a
consultant in connection with the Company's business and the
business of any subsidiary of the Company that the Board of
Directors of the Company shall reasonably designate. The
Consultant may be asked to provide such advice as the Board of
Directors may from time to time reasonably request.
(b) The Consultant agrees that, during the term of
this Agreement, the Consultant shall devote sufficient time and
effort on behalf of the Company as shall be necessary to effect
the intents and purposes of this Agreement. The Consultant will,
at all times, faithfully and to the best of the Consultant's
experience and abilities, perform all duties that may be required
of the Consultant pursuant to the terms of this Agreement. The
Company expressly acknowledges and agrees that the Consultant's
efforts shall be on a "best-efforts" basis and the Consultant has
not, cannot and does not, guarantee that the Consultant's efforts
will have any impact on the Company's business.
(c) The Consultant agrees that the Consultant, in his
capacity pursuant to this Agreement, is not the agent of the
Company and has no power or authority to bind the Company to any
agreement, transaction or other commitment. The Company has the
sole right, in the exercise of its business judgment and
discretion, to approve or disapprove of any agreement,
transaction or commitment introduced by the Consultant.
2. Term. The term of this Agreement shall commence
----
on the date hereof and shall continue until October 31, 1997, and
shall be automatically renewed for successive one-year terms
thereafter, unless at least 30 days prior to the then scheduled
termination date, either party shall give written notice to the
other party of the non-renewal hereof.
3. Compensation; Expenses.
----------------------
(a) For the initial term of this Agreement, the
Company shall cause to be issued to the Consultant options to
acquire 30,000 shares of the Company's Common Stock, par value
$0.0001 per share, pursuant to the Company's Consultants Stock
Incentive Plan (the "Plan"), subject to the vesting requirements
and other conditions set forth in the Plan. For terms subsequent
to the initial term of this Agreement, the Board of Directors
shall determine such number of options as shall be awarded to the
Consultant with respect to such subsequent term in accordance
with the services to be performed by the Consultant for such
subsequent term.
(b) At least 45 days prior to the expiration of the
term of this Agreement (including any renewal thereof), the
Consultant shall notify the Company in writing if the Consultant
does not wish to be compensated through the receipt of stock
options, and thereafter, the Board of Directors of the Company
shall determine, at least 30 days prior to the then expiration of
the term of this Agreement, a level of cash compensation to be
paid to the Consultant for his services hereunder. Upon receipt
of such determination from the Company, the Consultant may either
accept or decline such offer of compensation, and in the event of
his decline of such offer of cash compensation, this Agreement
shall terminate on the next scheduled expiration date.
(c) The Company shall reimburse the Consultant for all
reasonable out-of-pocket expenses incurred by the Consultant in
the performance of his duties hereunder. The Consultant shall
provide the Company with reasonable documentary detail of the
incurrence of such expenses. The Consultant shall not incur any
such expenses in excess of $1,000 without the prior approval of
an officer of the Company.
4. Non-Exclusive Services; Confidentiality.
---------------------------------------
(a) The Company understands that the Consultant is
currently providing certain advisory consulting services to other
individuals and companies and agrees that the Consultant is not
prevented or barred from rendering such services to such other
entities, subject to paragraph (b) hereof. In addition, the
Consultant understands and agrees that the Company shall not be
prevented or barred from retaining other persons or entities to
provide services of the same or similar nature as those provided
by the Consultant.
(b) The Consultant acknowledges that during the term
of this Agreement, the Consultant shall have access to
information, materials and/or processes confidential and
proprietary to the Company and the Consultant and its employees,
agents, attorneys and accountants shall at all times during the
term of this Agreement and thereafter, maintain the secrecy and
confidentiality of all such information, materials and/or
processes acquired or revealed to them under, pursuant or in
connection with this Agreement, except as to such information
which enters the public domain other than through the actions or
omissions of the Consultant, pursuant to requests from
governmental authorities with applicable jurisdiction, or
pursuant to judicial subpoena. Upon termination of this
Agreement, the Consultant will promptly return to the Company all
non-public, proprietary information of the Company, and all
copies thereof.
5. Governing Law. This Agreement shall in all
-------------
respects be governed by and construed under the laws of the State
of New York applicable to agreements made and fully to be
performed in such state, without giving effect to conflicts of
law principles.
6. Entire Agreement. This Agreement sets forth the
----------------
entire understanding of the parties hereto with respect to its
subject matter, merges and supersedes all prior and
contemporaneous understandings with respect to its subject matter
and may not be waived or modified, in whole or in part, except by
a writing signed by each of the parties thereto. No waiver of
any provision of this Agreement in any instance shall be deemed
to be a waiver of the same or any other provision in any other
instance.
7. Construction. Headings contained in this
------------
Agreement are for convenience only and shall not be used in the
interpretation of this Agreement. As used herein, the singular
includes the plural and the masculine, feminine and neuter gender
each includes the others where the context so indicates.
8. Successors and Assigns. This Agreement shall be
----------------------
binding upon, enforceable against, and inure to the benefit of,
the Company and the Consultant and their respective heirs,
personal representatives, executors, administrators, successors
and assigns, and nothing herein is intended to confer any right,
remedy or benefit upon any other person. The rights, duties and
obligations of the Consultant hereunder may not be assigned.
9. Severability. If any provision of this Agreement
------------
is held to be invalid or unenforceable by a court of competent
jurisdiction, this Agreement shall be interpreted and enforceable
as if such provision were severed or limited, but only to the
extent necessary to render such provision and this Agreement
enforceable.
10. Notice. All communications, notices, requests,
------
consents or demands given under this Agreement shall be in
writing and shall be deemed to have been duly given when
delivered to, sent by facsimile or by recognized overnight
courier to, or mailed by prepaid registered or certified mail
addressed to, the party for whom intended, as follows, or to such
other address as may be furnished by such party by notice in the
manner provided herein:
If to Consultant:
Mr. Michael Milone
64 Calle del Norte
Placitas, New Mexico 87043
If to the Company:
Touchstone Applied Science Associates, Inc.
P.O. Box 382
Fields Lane
Brewster, New York 10509
Attention: President
11. Counterparts. This Agreement may be executed in
------------
two or more counterparts, each of which shall be an original, but
all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, each of the parties hereto has
executed this Agreement as of the date first set forth above.
/s/ MICHAEL MILONE
-------------------------------
Michael Milone
TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC.
By: /s/ ANDREW L. SIMON
------------------------------
Andrew L. Simon
President
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARY
EXHIBIT II
COMPUTATION OF EARNINGS PER COMMON SHARE
----------------------------------------
Six Months Ended Three Months Ended
April 30, April 30,
1 9 9 7 1 9 9 6 1 9 9 7 1 9 9 6
------- ------- ------- -------
<S> <C> <C>
Primary earnings:
Net income (loss) $ 91,177 $ 160,111 $ (60,265) $ (6,438)
Shares:
Weighted common shares outstanding 8,000,433 7,604,322 8,113,186 7,604,322
Harriman options -- 107,042 -- --
Warrants to consultants 61,320 -- -- --
Employee stock options 4,774 -- -- --
Consultant stock options 6,091 -- -- --
B warrants -- 14,491 -- --
Underwriter options -- 101,574 -- --
------------ ----------- ----------- ----------
Total weighted shares outstanding 8,072,618 7,827,429 8,113,186 7,604,322
------------ ----------- ----------- ----------
Primary earnings per common share $ .01 $ .02 $ (.01) $ --
============ =========== =========== ==========
Fully diluted earnings:
Net income (loss) $ 91,177 $ 160,111 $ (60,265) $ (6,438)
Shares:
Weighted common shares outstanding 8,000,433 7,604,322 8,113,186 7,604,322
Harriman options -- 107,042 -- --
Warrants to consultants 61,320 -- -- --
Employee stock options 4,774 -- -- --
Consultant stock options 6,091 -- -- --
B warrants -- 14,491 -- --
Underwriter options -- 101,574 -- --
------------ ----------- ----------- ----------
Total weighted shares outstanding 8,072,618 7,827,429 8,113,186 7,604,322
------------ ----------- ----------- ----------
Fully diluted earnings per common share $ .01 $ .02 $ (.01) $ --
============ =========== =========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted
from the consolidated balance sheet and statements of income
filed as part of the report on form 10QSB and is qualified in
its entirety by reference to such report on form 10QSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> APR-30-1997
<CASH> 1,454,896
<SECURITIES> 1,454,325
<RECEIVABLES> 351,066
<ALLOWANCES> 0
<INVENTORY> 216,255
<CURRENT-ASSETS> 4,135,905
<PP&E> 2,723,946
<DEPRECIATION> 961,248
<TOTAL-ASSETS> 9,201,422
<CURRENT-LIABILITIES> 303,143
<BONDS> 0
0
0
<COMMON> 814
<OTHER-SE> 7,667,948
<TOTAL-LIABILITY-AND-EQUITY> 9,201,422
<SALES> 1,592,167
<TOTAL-REVENUES> 1,666,802
<CGS> 564,236
<TOTAL-COSTS> 946,727
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,059
<INCOME-PRETAX> 104,697
<INCOME-TAX> 13,520
<INCOME-CONTINUING> 91,177
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 91,177
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
