SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 30, 1997
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
-------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Delaware 0-20303 13-2846796
-------- ------- ----------
(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
P.O. Box 382, Fields Lane, Brewster, New York 10509
--------------------------------------------- -----
(Address of Principal Executive Offices) Zip Code
Registrant's telephone number, including area code: (914) 277-8100
--------------
-----------------------------------------------------------
Former name or former address, if changed since last report
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Acquisition of Assets of Programs for Education,
------------------------------------------------
Inc. On May 30, 1997, Touchstone Applied Science Associates,
----
Inc. (the "Company"), through its wholly-owned subsidiary,
Modern Learning Press, Inc. ("MLP"), purchased substantially
all of the operating assets of Programs for Education, Inc.
Such assets include: (i) all accounts receivable, (ii) cash
and cash equivalents, (iii) inventory, furniture and fixtures,
machinery and equipment, (iv) manuscripts, (v) all
intellectual property and proprietary rights and interests
(including, without limitation, author/publisher contracts,
licenses, trademarks, tradenames, copyrights and patents)
including "Modern Learning Press", "Programs for Education"
and "Change A Print Frame", and (vi) any and all contracts and
contract rights (including, without limitation, distribution
and publishing rights and agreements with Gesell Institute,
the "Words I Use When I Write", "My Word Book", "Word Power"
and "Parent Pages" series) (collectively, the "Assets"). The
purchase price for the Assets was $3,200,000 payable
$2,200,000 in cash at the closing, and the balance of
$1,000,000 by a five-year promissory note of MLP, bearing
interest at a rate equal to the higher of 9.0% per annum or
the prime rate of the Bank of New York plus 1% per annum, and
requiring equal quarterly amortization payments. In addition,
MLP assumed trade payables and accounts payable related to the
acquired business in an approximate amount of $100,000,
subject to post-closing verification. The acquisition was
financed through available cash and short-term borrowings.
The portion of the purchase price evidenced by MLP's
promissory note is secured by a lien on the titles purchased.
The Company has guaranteed the obligations of MLP under the
promissory note and the other agreements referred to below,
and has secured such guarantee with a pledge of the
outstanding shares of MLP which are owned by the Company.
In addition, pursuant to a Royalty Agreement between
MLP and Bernard Shapiro, the founder of Programs for
Education, Inc., MLP agreed to pay to Mr. Shapiro a royalty
equal to the greater of either (i) $80,000, or (ii) 8% on all
net sales of certain of the titles purchased by MLP, for a
term of seven years following the closing. Pursuant to the
Asset Purchase Agreement, MLP has also agreed to pay to Mr.
Shapiro a deferred bonus in a maximum amount of $293,776,
payable at the end of the 1997 fiscal year upon the
achievement of specified milestones by MLP. The Company's
guaranty extends to the foregoing obligations of MLP to Mr.
Shapiro.
Simultaneously with the closing, MLP entered into a
one-year consulting agreement with Mr. Shapiro. The
consulting fee of $200,000, provided for in the consulting
agreement, was included as part of the aggregate purchase
price paid by MLP. Also, each of the stockholders of Programs
for Education, Inc. and Programs for Education, Inc. entered
into non-competition agreements with MLP, the consideration
for which was included in the aggregate purchase price paid by
MLP.
Through the acquisition of the assets of Programs
for Education, the Company expects to expand its core products
to include publishing of books and other materials used in the
enhancement of the reading skills of elementary school
students, as well as books in other subject areas.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Independent Auditor's Report F - 1
Balance Sheets F - 2
Statements of Operations F - 3
Statements of Retained Earnings F - 4
Statements of Cash Flows F - 5
Notes to Financial Statements F - 6
(b) PRO FORMA FINANCIAL INFORMATION
Introduction to Pro Forma Consolidated
Financial Statements F - 12
PRO FORMA Consolidated Balance Sheet F - 13
PRO FORMA Consolidated Statement of Operations
for the Six Months Ended F - 14
PRO FORMA Consolidated Statement of Operations
for the Year Ended F - 15
Notes to PRO FORMA Consolidated Financial Statements F - 16
(c) EXHIBITS
1. Asset Purchase Agreement, dated as of May
30, 1997, by and between Programs for
Education, Inc., Bernard B. Shapiro,
Modern Learning Press, Inc. and Touchstone
Applied Science Associates, Inc.
2. Secured Promissory Note, dated May 30,
1997, of Modern Learning Press, Inc.
3. Security Agreement, dated May 30, 1997,
by and between Programs for Education,
Inc., Bernard B. Shapiro and Modern
Learning Press, Inc.
4. Stock Pledge Agreement with Escrow
Provisions, dated May 30, 1997, by and
among Touchstone Applied Science
Associates, Inc., Programs for Education,
Inc. and Pluese, Lihotz, Incollingo &
Leone.
5. Guaranty Agreement, dated May 30, 1997, by
Touchstone Applied Science Associates,
Inc. in favor of Programs for Education,
Inc. and Bernard B. Shapiro.
6. Royalty Agreement, dated May 30, 1997, by
and between Modern Learning Press, Inc.
and Bernard B. Shapiro.
<PAGE> F - 1
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Shareholders
Programs For Education, Inc.
Rosemont, New Jersey
We have audited the accompanying balance sheets of Programs For Education,
Inc. as of September 30, 1996 and 1995, and the related statements of
operations, retained earnings and cash flows for the years then ended.
These financial statements are the responsibility of the management of
Programs For Education, Inc. Our responsibility is to express an opinion
on the financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects the financial position of Programs For Education,
Inc. as of September 30, 1996 and 1995 and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
/s/ LAZAR, LEVINE & COMPANY LLP
---------------------------
LAZAR, LEVINE & COMPANY LLP
New York, New York
May 16, 1997
F - 1
<PAGE> F - 2
<TABLE>
<CAPTION>
PROGRAMS FOR EDUCATION, INC.
----------------------------
BALANCE SHEETS
--------------
AS OF SEPTEMBER 30, 1996 AND 1995
---------------------------------
- ASSETS -
1996 1995
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash (Note 2f) $ 113,441 $ 101,208
Accounts receivable (Notes 2f and 3) 250,765 236,531
Inventory (Note 2b) 106,290 165,181
Loan receivable - shareholder (Note 4) - 28,371
Prepaid expenses and other current assets 1,012 23,400
Deferred tax asset (Note 2d) 3,500 -
---------- ----------
TOTAL CURRENT ASSETS 475,008 554,691
---------- ----------
PROPERTY AND EQUIPMENT (Note 2c):
Leasehold improvements 2,292 2,292
Furniture, fixtures and office equipment 115,925 113,304
Vehicles - 14,150
---------- ----------
118,217 129,746
Less: accumulated depreciation (102,329) (109,174)
---------- ----------
15,888 20,572
---------- ----------
OTHER ASSETS:
Security deposit 800 800
---------- ---------
$ 491,696 $ 576,063
========== ==========
- LIABILITIES AND STOCKHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable $ 51,883 $ 58,845
Royalties payable (Note 2h) 58,853 45,560
Payroll taxes payable 16,790 41,496
Income taxes payable (Note 2d) 1,527 75,055
Accrued litigation settlement (Note 8a) 14,000 -
----------- ---------
TOTAL CURRENT LIABILITIES 143,053 220,956
----------- ---------
DEFERRED TAX LIABILITY (Note 2d) 5,516 7,416
----------- ---------
COMMITMENTS AND CONTINGENCIES (Notes 5, 7 and 8)
STOCKHOLDERS' EQUITY:
Common stock, no par value, 100 shares issued and outstanding 1,000 1,000
Retained earnings 342,127 346,691
----------- ---------
TOTAL STOCKHOLDERS' EQUITY 343,127 347,691
----------- ---------
$ 491,696 $ 576,063
=========== ==========
<FN>
See accompanying notes and accountants' report.
</FN>
</TABLE>
F - 2
<PAGE> F - 3
<TABLE>
<CAPTION>
PROGRAMS FOR EDUCATION, INC.
----------------------------
STATEMENTS OF OPERATIONS
------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
-----------------------------------------------
1996 1995
---- ----
<S> <C> <C>
NET SALES (Note 7) $ 1,709,061 $ 1,420,941
----------- ---------
COST OF SALES:
Beginning inventory 165,181 184,853
Purchases (Note 7) 248,733 200,872
Direct costs (Schedule 1) 118,086 107,265
----------- ---------
532,000 492,990
Less: Ending inventory 106,290 165,181
----------- ---------
TOTAL COST OF SALES 425,710 327,809
----------- ---------
GROSS PROFIT 1,283,351 1,093,132
Selling, general and administrative expenses (Schedule 2) 1,307,059 956,042
----------- ---------
(LOSS) INCOME FROM OPERATIONS (23,708) 137,090
----------- ---------
OTHER INCOME (EXPENSE):
Interest income 12,370 6,287
Interest expense (5,004) -
Other income (expense) 4,885 (5,133)
----------- ---------
TOTAL OTHER INCOME 12,251 1,154
----------- ---------
(LOSS) INCOME BEFORE PROVISION (CREDIT) FOR
INCOME TAXES (11,457) 138,244
Provision (credit) for income taxes (Note 2d) (6,893) 48,026
----------- ---------
(LOSS) INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (4,564) 90,218
Cumulative effect of accounting change (net of income
tax of $7,866) (Note 2c) - 11,800
----------- ---------
NET (LOSS) INCOME $ (4,564) $ 102,018
=========== ===========
<FN>
See accompanying notes and accountants' report.
</FN>
</TABLE>
F - 3
<PAGE> F - 4
<TABLE>
<CAPTION>
PROGRAMS FOR EDUCATION, INC.
----------------------------
STATEMENTS OF RETAINED EARNINGS
-------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
-----------------------------------------------
1996 1995
---- ----
<S> <C> <C>
RETAINED EARNINGS, BEGINNING OF YEAR $ 346,691 $ 244,673
Net (loss) income (4,564) 102,018
----------- ---------
RETAINED EARNINGS, END OF YEAR $ 342,127 $ 346,691
=========== =========
<FN>
See accompanying notes and accountants' report.
</FN>
</TABLE>
F - 4
<PAGE> F - 5
<TABLE>
<CAPTION>
PROGRAMS FOR EDUCATION, INC.
----------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
-----------------------------------------------
1996 1995
---- ----
<S> <C> <C>
INCREASE IN CASH AND CASH EQUIVALENTS:
RECONCILIATION OF NET INCOME TO NET CASH (USED)
PROVIDED BY OPERATING ACTIVITIES:
Net (loss) income $ (4,564) $ 102,018
Adjustments to reconcile net (loss) income to net cash
(used) provided by operating activities:
Depreciation 7,306 6,630
Write-off of bad debts 73 377
Deferred tax benefit (5,400) (450)
Cumulative effect of accounting change (Note 2c) - (11,800)
Changes in assets and liabilities:
(Increase) in employee advances (1,012) -
(Increase) decrease in tax refund receivable (22,892) 973
(Increase) in accounts receivable (14,308) (99,037)
Decrease in inventory 58,891 19,672
Decrease (increase) in prepaid expenses 23,400 (16,000)
(Decrease) in accounts payable (6,962) (1,036)
Increase in accrued royalties 13,293 13,654
Increase in accrued litigation costs 14,000 -
(Decrease) increase in accrued payroll taxes (28,243) 40,326
(Decrease) increase in accrued income taxes (47,099) 34,191
(Decrease) in accrued pension plan contribution - (5,668)
----------- ---------
Net cash (used) provided by operating activities (13,517) 83,850
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payment of loan to shareholder 28,371 -
Acquisition of fixed assets (2,621) (5,502)
----------- ---------
Net cash provided (used) by investing activities 25,750 (5,502)
----------- ---------
NET INCREASE IN CASH 12,233 78,348
Cash, at beginning of year 101,208 22,860
----------- ---------
CASH, AT END OF YEAR $ 113,441 $ 101,208
=========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 5,004 $ -
Income taxes paid 72,084 14,000
<FN>
See accompanying notes and accountants' report.
</FN>
</TABLE>
F - 5
<PAGE> F - 6
PROGRAMS FOR EDUCATION, INC.
----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1996 AND 1995
---------------------------
NOTE 1 - NATURE OF BUSINESS:
Programs For Education, Inc. (the "Company") was formed
in 1964 and incorporated in 1979 in the State of New
Jersey. The Company is a publisher of materials for
educators and parents of young children. Publications
are provided to schools, educators, and parents
nationwide. The Company uses the trade name of Modern
Learning Press in its operations.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) CASH EQUIVALENTS:
Securities with maturities of three months or less when
purchased are treated as cash equivalents in presenting
the statement of cash flows.
(B) INVENTORY:
The Company's inventory is valued at the lower of cost
(first-in, first-out method) or market. Inventories
consist almost entirely of finished products.
(C) FIXED ASSETS, DEPRECIATION AND ACCOUNTING CHANGE:
Fixed assets are reflected at cost. Depreciation is
provided using the straight-line method over the
following useful lives:
Office equipment 5 years
Furniture and fixtures 7 years
Vehicles 3 years
Leasehold improvements are amortized over the estimated
useful lives of the improvements.
Prior to September 30, 1995, the Company recorded
depreciation for financial statement purposes using tax
depreciation methods which are not in accordance with
generally accepted accounting principles. Effective
October 1, 1994, the Company began depreciating its fixed
assets over the estimated useful lives on a straight-line
basis. The cumulative effect of the change in prior years
of $11,800, (net of income taxes), which is reflected on
the September 30, 1995 statement of operations, is a one
time credit to income.
(D) INCOME TAXES:
The Company has adopted Statement No. 109, "Accounting for
Income Taxes" ("SFAS No. 109"). SFAS 109 requires use of
the asset and liability approach of providing for income
taxes. The implementation of this standard had no
material effect on the financial statements of the
Company.
F - 7
<PAGE> F - 8
PROGRAMS FOR EDUCATION, INC.
----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1996 AND 1995
---------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(D) INCOME TAXES (CONTINUED):
Deferred income taxes are provided for temporary
differences in reporting income and expenses for financial
statement purposes versus tax reporting purposes. The
differences exist because different depreciation methods
are utilized for financial reporting purposes and for tax
purposes, and accrued litigation settlement costs are
expensed for tax purposes only when paid. Deferred income
taxes are classified as current or non-current depending
on the classification of the assets and liabilities to
which they relate.
The deferred tax asset and liability are comprised of the
following at September 30:
1996 1995
---- ----
Deferred tax asset:
Litigation settlement costs $3,500 $ -
====== ======
Deferred tax liability:
Depreciation $5,516 $7,416
====== ======
(E) RECLASSIFICATIONS:
Certain reclassifications have been made to the 1995
financial statements to conform to the presentation used
in 1996.
(F) CONCENTRATION OF CREDIT RISK:
Financial instruments that potentially subject the Company
to concentrations of credit risk consist principally of
cash and accounts receivable.
The Company, from time to time, maintains cash balances
which exceed the federal depository insurance coverage
limit. Management attempts to monitor the soundness of
its financial institution and feels the Company's risk is
negligible.
The Company believes that concentration with regards to
accounts receivable is limited due to its large customer
base.
(G) USE OF ESTIMATES:
In preparing financial statements in accordance with
generally accepted accounting principles, management makes
certain estimates and assumptions, where applicable, that
effect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the
date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting
period. While actual results could differ from those
estimates, management does not expect such variances, if
any, to have a material effect on the financial
statements.
F - 8
<PAGE> F - 9
PROGRAMS FOR EDUCATION, INC.
----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1996 AND 1995
---------------------------
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued):
(H) ROYALTIES PAYABLE:
The Company pays, as part of its operations, royalties
attributable to the sales of various products. Those
costs are payable primarily to third party authors of the
related products.
NOTE 3 - ACCOUNTS RECEIVABLE:
The Company does not provide for an allowance for doubtful
accounts. Based upon the past collection history of
accounts receivable, management of the Company feels that
an allowance for doubtful accounts is not necessary.
NOTE 4 - RELATED PARTY TRANSACTIONS:
An outstanding loan to an officer and majority shareholder
of the Company in the principal amount of $28,371 at
September 30, 1995, was paid in full during the fiscal
year ended September 30, 1996. Interest received on the
loan was $1,833 and $1,875 for the fiscal years ended
September 30, 1996 and 1995, respectively.
NOTE 5 - COMMITMENTS:
The Company rents its office and warehouse in Rosemont,
New Jersey on a month-to-month basis. Rent expense for
the years ended September 30, 1996 and 1995 aggregated
$12,420 and $13,148, respectively.
NOTE 6 - PENSION PLAN TERMINATION:
The Company's pension plan was terminated effective April
1, 1995 and all pension trust assets were distributed to
vested participants. A favorable determination letter was
issued by the Internal Revenue Service.
NOTE 7 - ECONOMIC DEPENDENCY:
For the year ended September 30, 1996 purchases from two
vendors aggregated approximately 37% and 17% of total
purchases for the year. There were no amounts due to
these two vendors at September 30, 1996.
F - 9
<PAGE> F - 10
PROGRAMS FOR EDUCATION, INC.
----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SEPTEMBER 30, 1996 AND 1995
---------------------------
NOTE 7 - ECONOMIC DEPENDENCY (Continued):
For the year ended September 30, 1995 purchases from one
vendor aggregated approximately 68% of total purchases for
the year. There was no amount due to this vendor at
September 30, 1995.
Approximately 80% of the Company's sales are from its
"Words I Use" series of books, for each of the years ended
September 30, 1996 and 1995.
NOTE 8 - SUBSEQUENT EVENTS:
(A) LITIGATION SETTLEMENT:
During May 1997, subsequent to the balance sheet date, the
Company settled a lawsuit with a former employee. The
Company denied any wrongdoing but agreed to an out of
court settlement rather than incurring the expense of
vigorously contesting this case. The amount of the out of
court settlement was $14,000. This settlement cost was
accrued at September 30, 1996.
(B) LETTER OF INTENT:
On March 27, 1997, the Company entered into a letter of
intent agreement to sell substantially all of its assets
subject to its liabilities, to a newly formed subsidiary
of Touchstone Applied Science Associates, Inc., for a
purchase price of $3,200,000.
F - 10
<PAGE> F - 11
INDEPENDENT AUDITORS' REPORT ON SUPPLEMENTAL INFORMATION
--------------------------------------------------------
To The Shareholders'
Programs For Education, Inc.
Rosemont, New Jersey
Our report on our audits of Programs For Education, Inc. for the years ended
September 30, 1996 and 1995, appears on page 1. The audits were made for
the purpose of forming an opinion on the basic financial statements taken as
a whole. The schedules supporting the statements of operations, presented
hereinafter, are presented for purposes of additional analysis and are not
a required part of the basic financial statements. Such information has not
been subjected to the auditing procedures applied in the audit of the basic
financial statements, and accordingly, we express no opinion on it.
/s/ LAZAR, LEVINE & COMPANY LLP
---------------------------
LAZAR, LEVINE & COMPANY LLP
New York, New York
May 16, 1997
F - 10
<PAGE> F - 11
<TABLE>
<CAPTION>
PROGRAMS FOR EDUCATION, INC.
----------------------------
SCHEDULES SUPPORTING STATEMENTS OF OPERATIONS
---------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
-----------------------------------------------
(See Independent Auditors' Report on Supplemental Information)
1996 1995
---- ----
<S> <C> <C>
DIRECT COSTS (Schedule 1):
Assembly costs $ - $ 1,259
Editing, printing, art and design 4,220 10,939
Royalties 110,360 85,838
Spoilage and obsolescence - 2,724
Freight-in 3,506 6,505
----------- ---------
TOTAL DIRECT COSTS $ 118,086 $ 107,265
=========== =========
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Schedule 2):
Officer's salary $ 590,000 $ 276,500
Office salaries 104,443 85,182
Payroll taxes 29,377 15,714
Pension expense (Note 6) - 46,572
Advertising and promotion 184,033 162,121
Freight-out and shipping supplies 107,256 107,903
Consultant fees 98,988 99,595
Credit card fees 5,362 4,159
Professional fees 76,613 36,525
Rent (Note 5) 12,420 13,148
Telephone 15,558 16,775
Travel and entertainment 16,596 20,228
Auto expenses 4,938 7,582
Utilities 3,001 3,634
Insurance 7,738 6,783
Postage 14,507 13,969
Office supplies and expenses 5,651 5,803
Conventions and conferences 1,529 4,372
Subcontractors 1,405 5,900
Contributions 4,398 4,702
Depreciation 7,306 6,630
Bad debts 73 377
Litigation settlement costs 14,000 -
Miscellaneous 1,867 11,868
---------- ---------
TOTAL SELLING, GENERAL AND ADMINISTRATIVE EXPENSES $1,307,059 $ 956,042
========== =========
<FN>
See accompanying notes and accountants' report.
</FN>
</TABLE>
F - 11
<PAGE> F - 12
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. AND SUBSIDIARIES
------------------------------------------------------------
INTRODUCTION TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
-----------------------------------------------------------
(Unaudited)
The following unaudited pro forma financial consolidated statements
have been prepared based upon certain pro forma adjustments to the
historical financial statements of Touchstone Applied Science
Associates, Inc. and Subsidiaries (collectively called the Company),
set forth elsewhere in this report. The pro forma financial
statements should be read in conjunction with the notes thereto and
the historical financial statements of the Company.
The accompanying pro forma consolidated balance sheet has been
presented as if the combination described below occurred at the
Company's balance sheet date. The accompanying pro forma
consolidated statements of operations have been prepared as if the
combinations occurred at the beginning of each period presented.
These pro forma consolidated financial statements do not purport to be
indicative of future results or of the results which would actually
have been obtained had the pro forma transactions been completed as of
the beginning of the periods indicated.
The pro forma transaction is as follows:
The purchase of the net assets of Programs For Education, Inc.
for $3,200,000, consisting of cash and notes, on May 31, 1997
(see notes to pro forma financial statements).
F - 12
<PAGE> F - 13
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. AND SUBSIDIARIES
------------------------------------------------------------
PRO FORMA CONSOLIDATED BALANCE SHEET
------------------------------------
(Unaudited)
- ASSETS -
- Historical -
Touchstone
Applied - Historical -
Science Associates Programs For Pro Forma
and Subsidiaries Education, Inc. Adjustments Pro Forma
-------------------
April 30, 1997 March 31, 1997 Debit Credit Consolidated
-------------- -------------- ----- ------ ------------
<S> <C> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $2,909,221 $260,625 $2,200,000(a) $ 969,846
Accounts receivable 351,066 90,132 441,198
Inventories 216,255 117,370 333,625
Loan receivable 400,000 400,000
Prepaid expenses and other
current assets 259,363 29,299 $ 200,000(b) 488,662
---------- -------- ----------
TOTAL CURRENT ASSETS 4,135,905 497,426 2,633,331
INVESTMENT IN SUBSIDIARY - - 3,200,000(a) 3,200,000(b) -
FIXED ASSETS - NET 1,762,698 12,104 1,774,802
OTHER ASSETS:
Test passage bank - net 2,667,456 - 2,667,456
Software development costs - net 231,220 - 231,220
Other assets 50,856 2,800 53,656
Costs in excess of net assets
acquired - net 353,287 - 2,111,967(b) 2,465,254
Covenant not to compete - - 500,000(b) 500,000
---------- -------- -----------
$9,201,422 $512,330 $10,325,719
========== ======== ===========
- LIABILITIES AND SHAREHOLDERS' EQUITY -
CURRENT LIABILITIES:
Accounts payable and accrued expenses $ 144,520 $119,781 $ 264,301
Current portion of long-term debt 158,623 - $ 165,187(a) 323,810
---------- -------- -----------
TOTAL CURRENT LIABILITIES 303,143 119,781 588,111
---------- -------- -----------
NON-CURRENT LIABILITIES:
Deferred income taxes 473,842 4,516 478,358
Long-term debt 755,675 - 834,813(a) 1,590,488
---------- -------- -----------
1,229,517 4,516 2,068,846
---------- -------- -----------
SHAREHOLDERS' EQUITY:
Preferred stock - - -
Common stock 814 1,000 $1,000(b) 814
Additional paid-in capital 4,251,299 - 4,251,299
Stock subscription receivable (14,350) - (14,350)
Unrealized holding loss 377 - 377
Retained earnings 3,430,622 387,033 387,033(b) 3,430,622
---------- -------- -----------
7,668,762 388,033 7,668,762
--------- -------- -----------
$9,201,422 $512,330 $10,325,719
========== ======== ===========
<FN>
See notes to pro forma consolidated financial statements.
</FN>
</TABLE>
F - 13
<PAGE> F - 14
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. AND SUBSIDIARIES
------------------------------------------------------------
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
----------------------------------------------
FOR THE SIX MONTHS ENDED
------------------------
(Unaudited)
- Historical -
Touchstone
Applied - Historical -
Science Associates Programs For Pro Forma
and Subsidiaries Education, Inc. Adjustments Pro Forma
-------------------
April 30, 1997 March 31, 1997 Debit Credit Consolidated
-------------- -------------- ----- ------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUE $1,592,167 $511,038 $ 2,103,205
COST OF GOODS SOLD 564,236 130,535 $ 26,960(c) 721,731
---------- -------- -----------
GROSS PROFIT 1,027,931 380,503 1,381,474
OPERATING EXPENSES 946,727 330,865 70,399(d) 1,630,593
---------- -------- -----------
35,714(e)
100,000(f)
146,888(g)
INCOME (LOSS) FROM
OPERATIONS 81,204 49,638 (249,119)
OTHER EXPENSES (INCOME) (23,493) (5,558) 45,328(h) 16,277
---------- -------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES 104,697 55,196 (265,396)
INCOME TAXES 13,520 10,290 $23,810(i) -
---------- -------- -----------
NET INCOME (LOSS) $ 91,177 $ 44,906 $ (265,396)
============ ======== ===========
EARNINGS (LOSS) PER SHARE $ (.03)
===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 8,072,618
===========
<FN>
See notes to pro forma consolidated financial statements.
</FN>
</TABLE>
F - 14
<PAGE> F - 15
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. AND SUBSIDIARIES
------------------------------------------------------------
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
----------------------------------------------
FOR THE YEAR ENDED
------------------
(Unaudited)
- Historical -
Touchstone
Applied - Historical -
Science Associates Programs For Pro Forma
and Subsidiaries Education, Inc. Adjustments Pro Forma
-------------------
October 31, 1996 September 30, 1996 Debit Credit Consolidated
---------------- ------------------ ----- ------ ------------
<S> <C> <C> <C> <C> <C>
NET REVENUE $2,519,908 $1,709,061 $ 4,228,969
COST OF GOODS SOLD 711,564 425,710 $ 91,150(c) 1,228,424
---------- ---------- -----------
GROSS PROFIT 1,808,344 1,283,351 3,000,545
OPERATING EXPENSES 1,699,914 1,307,059 140,798(d) 3,419,199
---------- ---------- -----------
71,428(e)
200,000(f)
INCOME (LOSS) FROM
OPERATIONS 108,430 (23,708) (418,654)
OTHER EXPENSES (INCOME) (102,827) (12,251) 86,879(h) (28,199)
---------- ---------- -----------
INCOME (LOSS) BEFORE INCOME
TAXES 211,257 (11,457) (390,455)
INCOME TAXES (BENEFIT) 19,209 (6,893) $12,316(i) -
---------- ---------- -----------
NET INCOME (LOSS) $ 192,048 $ (4,564) $ (390,455)
========== ========== ===========
EARNINGS (LOSS) PER SHARE $ (.05)
===========
WEIGHTED AVERAGE SHARES
OUTSTANDING 7,640,867
===========
<FN>
See notes to pro forma consolidated financial statements.
</FN>
</TABLE>
F - 15
<PAGE> F - 16
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC. AND SUBSIDIARIES
------------------------------------------------------------
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
----------------------------------------------------
(Unaudited)
NOTE (A) Reflects the acquisition of the net assets of Programs For
Education, Inc. for a purchase price of $3,200,000, of which
$2,200,000 was paid in cash with the balance in the form of a
$1,000,000 note payable in equal quarterly installments of
principal and interest, at the higher of 9% or prime plus one
percent per annum, over a five year period.
NOTE (B) The acquisition price of $3,200,000 was allocated as follows:
(1) $2,111,967 to goodwill
(2) $500,000 to covenant not to compete
(3) $200,000 to prepaid consulting fees
(4) $388,033 to net assets
NOTE (C) Reflects an 8% royalty payable to the shareholder of Programs
For Education, Inc. based upon the sales of a particular
group of products for the periods indicated.
NOTE (D) Reflects the straight-line amortization of goodwill arising
from the acquisition based upon a fifteen-year period.
NOTE (E) Reflects the straight-line amortization of non-compete
agreements arising from the acquisition based upon a seven-year
period.
NOTE (F) Reflects the recognition of the expense associated with the
$200,000 paid at closing for prepaid consulting fees. The
consulting agreement is for a one-year period.
NOTE (G) Reflects a deferred salary bonus of $293,776 due to a
shareholder of Programs For Education, Inc. based upon sales,
pro rated for the six month period ended March 31, 1997. The
twelve month period ended September 30, 1996 already reflects
the officer salary in full.
NOTE (H) Reflects the interest expense on the $1,000,000 note payable
which arose from the acquisition.
NOTE (I) Results of pro forma entries (C) - (H) above result in a
consolidated loss, accordingly, the prior net tax provisions
have been eliminated.
F - 16
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned,
thereunto duly authorized.
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By: /s/ LINDA G. STRALEY
--------------------------------------
Linda G. Straley
Vice President and Secretary
Date: June 16, 1997
Exhibit 10.1
------------
ASSET PURCHASE AGREEMENT
AGREEMENT made as of this 30th day of May, 1997, by and
between PROGRAMS FOR EDUCATION, INC., a New Jersey corporation,
having its principal place of business at Building #6, Cane Farm,
Rosemont, New Jersey 08556 ("Seller"), BERNARD B. SHAPIRO, an
individual with his principal residence at 186 Cafferty Road,
Pipersville, Pennsylvania 18947 ("Mr. Shapiro"), MODERN LEARNING
PRESS, INC., a Delaware corporation having its principal place of
business at 910 Church Street, Honesdale, Pennsylvania 18437
("Purchaser") and TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC., a
Delaware corporation, having its principal place of business at
Fields Lane, Brewster, New York 10509 ("TASA").
W I T N E S S E T H:
WHEREAS, the Seller is engaged in the business of publishing
educational materials for educators and parents of young children
(the "Business"), and
WHEREAS, Purchaser desires to purchase from the Seller and the
Seller desires to sell to the Purchaser, the Business and
substantially all of its assets, upon the terms and conditions
stated herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained in this Agreement, the parties hereby
agree as follows:
1. SALE AND TRANSFER OF ASSETS.
----------------------------
(a) On the terms and subject to the conditions of this
Agreement and in reliance on the representations and warranties set
forth herein, except as set forth in subparagraph (b) below, the
Seller shall sell, assign, transfer and deliver to the Purchaser on
the Closing Date, as defined in Paragraph 15 hereof, and the
Purchaser shall purchase from Seller, free of liens and
encumbrances, all of the operating assets, properties and rights of
Seller of every kind and description existing at the Closing Date
(such assets, properties and rights to be sold herein shall be
hereinafter referred to as the "Assets"). Without limiting the
foregoing, the Assets shall include cash on hand; accounts;
accounts receivable; prepaid expenses; furniture and fixtures;
machinery and equipment; catalogs (including but not limited to all
advertising and marketing materials); customer list; mailing list;
leases; inventory in all forms (including but not limited to print
and video); manuscripts; all intellectual property and proprietary
rights and interests (including but not limited to author/publisher
contracts, licenses, trademarks, tradenames, servicemarks,
copyrights, and patents whether registered or applied for or at
common law, e.g. "Modern Learning Press", "Programs for Education",
"Change A Print Frame" and any other tradenames, trademarks or
servicemarks used in connection with the Business); any and all
contracts and contract rights (including but not limited to
distribution and publishing rights and agreements, e.g. with Gesell
Institute, "Words I Use When I Write", "Palabras Que Yo Uso Cuando
Escribo", "My Word Book", "Word Power" and "Parent Pages" series,
any materials relating to prior seminar and training workshops,
author contracts - both existing and under development, license
agreements with publishers, and export contracts) and Seller's
names "Programs for Education, Inc." and "Modern Learning Press."
Seller shall provide such bills of sale, assignments and
other transfer documents necessary to sell, assign and transfer the
Assets and vest all rights to same in Purchaser, including but not
limited to assignments of all contracts and intellectual property
and proprietary interests in forms acceptable to counsel for
Purchaser and suitable for filing and registration of same by
Purchaser.
(b) Notwithstanding subparagraph (a) above, Seller shall
not include in Assets transferred hereunder its Zeos computers and
two tape decks, a Panasonic video monitor, a video camera and video
lights, external hard drives and all related software used in video
editing; provided that (i) (other than personal information of Mr.
Shapiro), all information on any tapes, discs or drives of such
items shall be removed and transferred to a tape, disc or drive of
a computer and tape deck included in the Assets being sold
hereunder, and (ii) none of the equipment is used in creating or
manufacturing the products of Seller being sold hereunder.
2. ASSUMPTION OF CERTAIN LIABILITIES. Seller shall assign
----------------------------------
and Purchaser will assume certain liabilities of Seller as set
forth on the Closing Balance Sheet of Seller which shall be one of
the Closing Financial Statements (as defined hereinafter), and as
approved by Purchaser (the "Assumed Liabilities"). Assumed
Liabilities shall include accounts payable, "Bonus Accrual" as
defined in Paragraph 14 hereof (upon which Purchaser shall withhold
all applicable federal, state and local taxes as required by law),
accrued expenses, payroll taxes and other liabilities arising in
the ordinary course of business, provided all such liabilities are
disclosed to Purchaser on the Closing Balance Sheet delivered
pursuant to Paragraph 14 hereof.
Notwithstanding anything to the contrary contained above,
Assumed Liabilities shall not include any obligation or liability
of Seller with respect to income taxes, penalties and interest thereon;
loans or other credit granted to Seller or its officers, directors or
employees; pension, profit-sharing or other similar obligations
of Seller whether or not arising from ERISA qualified or approved plans;
any liabilities for items outside the ordinary course of business, any
liabilities for acts or omissions of Seller, its officers, directors or
employees through the Closing Date which are not disclosed on the Closing
Balance Sheet and approved in writing by Purchaser (including but
not limited to contingent liabilities, and any pending or
threatened claims, proceedings, actions, or investigations, whether
or not asserted before Closing).
Purchaser will advise Seller promptly upon receipt of the
Closing Balance Sheet of any liabilities disclosed thereon which
Purchaser will not accept as an Assumed Liability. Seller shall
have five (5) days thereafter to dispute same in writing and, if
disputed, the accountants for Purchaser and Seller shall make best
faith efforts to resolve same. Notwithstanding, Seller shall
remain liable therefore pending resolution of the dispute.
Purchaser may, in its discretion, pay any disputed liability, and
shall be entitled to offset the amount paid against any payments
due under the Note and Royalty Agreement upon resolution of the
dispute in its favor. Seller will indemnify Purchaser for any
liability other than Assumed Liabilities which are asserted against
Purchaser in connection with the transaction or the Assets acquired
hereby, including reasonable attorneys fees. Purchaser shall give
prompt written notice to Seller of any such asserted liabilities
and Seller shall have a reasonable opportunity to defend. In the
event such liability is not paid by Seller, or the claim against
Purchaser dismissed within sixty (60) days of the date of notice to
Seller, or adequate security or bond provided to Purchaser and
acceptable to Purchaser's counsel, Purchaser may offset the amount
of such liabilities (and its reasonable attorneys fees) against any
payments due to Seller or Mr. Shapiro under this Agreement or any
document executed in connection herewith, including, but not
limited to the Note and Royalty Agreement (as hereinafter defined).
3. CONSIDERATION. On the Closing Date, in consideration of
--------------
the sale and purchase of the Assets hereunder, assumption of the
Assumed Liabilities, and the payments to be made pursuant to the
Consulting Agreement and Non-competition Agreement (defined
hereinafter), Purchaser shall pay Seller the aggregate sum of Three
Million Two Hundred Thousand Dollars ($3,200,000.00) as total
purchase price ("Purchase Price"), which Purchaser and Seller agree
shall be allocated as follows:
Net Assets $2,500,000.00
Restrictive Covenant of Shareholders $400,000.00
Restrictive Covenant of Seller $100,000.00
Consulting Agreement $200,000.00
The parties agree to cooperate and complete Internal Revenue
Service Form 8594 promptly upon the receipt, review and acceptance
by Purchaser of the Closing Financial Statements.
4. PAYMENT OF PURCHASE PRICE. Purchase Price shall be paid
--------------------------
as follows:
(a) Two Million Two Hundred Thousand Dollars
($2,200,000.00) payable at Closing by wire transfer to the account
of Seller and its shareholders.
(b) One Million Dollars ($1,000,000.00) by secured
promissory note of Purchaser, substantially in the form of Exhibit
"A" hereto (the "Note"), payable in equal quarterly installments of
principal and interest so as to be self-liquidating at the end of
five years from the date of Closing, with interest at the prime
rate of The Bank of New York, plus one percent per annum, but in no
event less than nine (9%) percent per annum (the "Interest Rate").
The Interest Rate and resultant payment shall be adjusted quarterly
at the beginning of each quarter following Closing. The Note may
be prepaid at any time, and from time to time, without penalty.
5. COLLATERAL AND SECURITY.
------------------------
(a) As security for the payment and performance by
Purchaser of its obligations under the Note and the Royalty
Agreement, Purchaser shall provide to Seller a security agreement,
substantially in the form of Exhibit "B" hereto (the "Security
Agreement"), and appropriate UCC-1 financing statements (the
"Financing Statements") granting to Seller a first position
security interest in the titles sold hereunder by Seller as listed
on Schedule 5.1 hereof, and provided no Event of Default has
occurred and is continuing under the Royalty Agreement at such
time, the Security Agreement and related Financing Statements shall
terminate and not be renewed or continued after payment in full of
the Note; and
(b) As security for the payment and performance of the
obligations of TASA and Purchaser, as the case may be, under the
terms of this Agreement, the Note, the Royalty Agreement and the
Guaranty (hereinafter defined), TASA shall provide to Seller (i) a
stock pledge agreement, substantially in the form of Exhibit "C"
hereto (the "Stock Pledge Agreement"), pursuant to which TASA shall
pledge to Seller one hundred (100%) percent of the issued and
outstanding capital stock of Purchaser; and (ii) guaranty of TASA,
substantially in the form of Exhibit "D" hereto (the "Guaranty").
6. BULK SALE COMPLIANCE. Except for Assumed Liabilities,
---------------------
Seller shall pay all of its creditors from the proceeds of this
sale and save and hold Purchaser harmless, and indemnify and defend
Purchaser from any and all claims, demands and expenses arising by
reason of any such indebtedness (including reasonable attorneys
fees). At the Closing, Seller shall furnish Purchaser with a Bill
of Sale and Affidavit in lieu of compliance with the bulk transfer
provisions of the Uniform Commercial Code as in effect in the State
of New Jersey in form acceptable to counsel for Purchaser selling
and transferring such the Assets free and clear of liens, charges
and encumbrances and rights of creditors.
7. SALES TAX. Purchaser and Seller agree to cooperate in
----------
complying with the requirements of New Jersey law with respect to
the transfer of assets contemplated hereunder, including but not
limited to Seller's notice to the State of New Jersey and payment
by Seller in escrow of any amount required by the State in
connection with Seller's sales tax obligations.
8. REPRESENTATIONS OF SELLER. Seller represents and
--------------------------
warrants to Purchaser as follows:
(a) Seller is a corporation duly organized and existing and in
good standing under the laws of the State of New Jersey and is duly
qualified to transact business in the State of New Jersey. The operation
of its business does not require Seller to be qualified to transact
business in any other jurisdiction. Seller has full power and
authority to perform its obligations as provided in this Agreement.
The execution and delivery by Seller of this Agreement and the
consummation of the transactions contemplated herein have been duly
authorized by all requisite corporate action, and will not conflict
with or breach any provision of any agreement to which Seller is a
party or by which it may be bound, the Certificate of Incorporation
or By-Laws of Seller.
(b) Seller has good and marketable title to, all of the
Assets free and clear of all mortgages, charges, liens and
encumbrances. A list of all material contracts is annexed as
Schedule 8.1 hereto.
(c) Except for the workers compensation claim of Ms.
Candace Coe, there are no actions, suits or proceedings pending,
and Seller has no knowledge of any actions, suits or proceedings
threatened, against Seller affecting Seller, or any of the Assets
to be transferred under this Agreement, or which would prevent or
substantially hinder the consummation of the transactions
contemplated by this Agreement.
(d) The accounts receivable accrued on or through the
Closing Date were, and to the best knowledge of Seller, will be,
created in the ordinary course and do and will reflect bona fide
sales to customers and will be collectible in the amount thereof as
reflected in the records of Seller. A schedule of such receivables
shall be delivered to Purchaser within five (5) business days of
the date of this Agreement.
(e) From October 1, 1996 to the date of this Agreement,
(i) there has been no material adverse change in the Assets or the
financial condition of Seller from that shown in the Financial
Statements (as defined in Paragraph 14(a) hereof, and (ii) no
business, properties or assets owned or leased by the Seller shall
have suffered any material destruction of damage or have been
materially adversely affected in any manner which singularly, or in
the aggregate would have a material adverse effect on the Assets or
the financial condition of the Seller, regardless of whether or not
the loss suffered from any such incident shall have been insured;
and (iii) the business of Seller has been conducted in the ordinary
course.
(f) The conduct of the business of Seller, and its sale
of products, does not infringe upon the patents, trademarks,
tradenames or copyrights of any person or entity and Seller has not
received any notice of conflict with the asserted rights of others
with respect to the conduct of its business.
(g) Seller is not a party to any collective bargaining
agreement, nor is Seller a party to any agreement with any of its
employees which is not by its terms terminable at will at the
election of Seller.
(h) Seller has no pension plan, profit-sharing plan or
employee benefit plan with respect to its employees.
(i) Other than the contracts being transferred hereunder
and listed on Schedule 8.1 annexed hereto and made a part hereof,
and the oral lease of Seller for its office space in Rosemont, New
Jersey. Seller is not a party to any written or oral contract,
license, lease or other agreement. Seller has contacted the
landlord to discuss the assignment and assumption by Purchaser of
the lease of Seller's office site and Purchaser shall complete such
negotiations. Seller has not received a notice of any default nor
is it in material default under any document, agreement, contract,
license, lease or other commitment to which it is or may be a
party. Seller has not received notice that any party to any such
agreement intends to cancel or terminate the same, whether by
reason of the transactions contemplated hereby or otherwise. All
such agreements are valid and enforceable in accordance with their
respective terms for the periods stated therein.
(j) Seller is in compliance with all laws, rules,
regulations, ordinances, decrees and orders applicable to its
operation as currently conducted or to its owned or leased
properties.
(k) This Agreement constitutes the valid and binding
obligation of Seller, enforceable against Seller in accordance with
its terms.
(l) The Bill of Sale and instruments of assignment, when
executed and delivered to Purchaser will transfer to Purchaser all
of the Assets, free of all mortgages, liens, charges and
encumbrances.
(m) Seller has filed when due, including all lawful
extensions thereof, all income, franchise, sales and other federal,
state and local tax returns required to be filed by Seller under
any law, rule or regulation imposed by any governmental authority
with jurisdiction over Seller, the Business and the Assets. All
such returns are true, complete and correct and in full compliance
with all applicable laws, rules and regulations. All amounts
payable pursuant to such returns, including any penalties and
interest assessed thereon, if any, have been paid in full. All
such amounts, whether or not evidenced by a return or filing which
have accrued with respect to any period through and including the
date hereof have been paid or will be paid by Seller, unless
explicitly assumed by Purchaser hereunder as an Assumed Liability.
(n) The machinery, equipment, furniture and fixtures
listed on Schedule 8.2 hereof constitute all such assets of Seller
and are, and will be on the Closing Date, in good working order and
repair, reasonable wear and tear excepted.
(o) Since October 1, 1996:
(i) Seller has and shall continue to conduct its
business in the ordinary course.
(ii) Seller has and shall continue to meet the
contractual obligations and to pay its obligations as they mature
in the ordinary course of business.
(iii) Seller has and shall continue to use its
best efforts to preserve intact the business organization and the
goodwill of Seller, its current staff, both independent contractors
and employees, its customers, suppliers, publishers, authors and
others having business relations with it.
(iv) Seller has kept and shall continue to keep the
insurance now maintained with respect to the Assets in full force
and effect.
(v) Seller has not and shall not, nor has nor shall any
agent of Seller, directly or indirectly (A) solicit or accept offers to
sell the capital stock of Seller or Assets of business of Seller or enter
into negotiations concerning any unsolicited offers so received; or
(B) provide information to any other party to assist the other
party in evaluating a potential purchase of, or investment in, the
capital stock of Seller or Assets or Business of Seller.
9. REPRESENTATIONS AND WARRANTIES BY PURCHASER AND TASA.
-----------------------------------------------------
Each of Purchaser and TASA make the following representations
and warranties to Seller:
(a) Each of Purchaser and TASA is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Delaware and each is duly qualified to transact
business in the other jurisdictions in which the business of each
would require such qualification, except that Purchaser has filed
applications for qualification in New Jersey and Pennsylvania,
which qualifications have not yet issued. Each of Purchaser and
TASA has full corporate power and authority to enter into this
Agreement and to consummate the transactions contemplated by this
Agreement.
(b) The execution and delivery by each of Purchaser and
TASA of this Agreement and the consummation of the transactions
contemplated hereby do not and will not conflict with or violate
any contract or agreement to which Purchaser or TASA is a party or
by which it may be bound, are not contrary to the certificate of
incorporation or by-laws of either Purchaser or TASA and are not
contrary to any order of any court to which either Purchaser or
TASA is subject.
(c) Each of Purchaser and TASA have good and marketable
title to all of their respective properties.
(d) The execution, delivery and performance by Purchaser
and TASA of this Agreement have been duly authorized by all
requisite corporate action. This Agreement constitutes a legal,
valid and binding obligation of Purchaser and TASA enforceable in
accordance with its terms.
(e) There are no actions, suits or proceedings pending,
and each of Purchaser and TASA has no knowledge of any actions,
suits or proceedings threatened, against either Purchaser or TASA
which would materially affect either Purchaser or TASA or which
would prevent or substantially hinder the consummation of the
transactions contemplated by this Agreement.
(f) Neither Purchaser nor TASA is in default under any
commitment, contract, agreement, lease or other document to which
it is a party or to which it may be bound, and which would have a
material effect on either corporation's abilities to consummate the
transactions contemplated hereunder. No event has occurred which,
with the lapse of time, would constitute such a material default
thereunder.
10. COVENANTS NOT TO COMPETE. At the Closing, in
-------------------------
consideration of the transactions contemplated hereunder, Seller
and each of Mr. Shapiro, Charlotte Freeman Shapiro and Peter
Freeman Shapiro (the "Shareholders") shall enter into a non-competition
agreement with Purchaser and TASA, pursuant to which
they shall not compete with, nor solicit customers of, nor
interfere with the business of Purchaser and TASA on such terms and
conditions as are set forth in the Non-Competition Agreement to be
executed and delivered at Closing, substantially in the form of
Exhibit "E" hereto.
11. CONSULTING CONTRACT. At the Closing, in consideration
--------------------
of the transactions contemplated hereunder, Mr. Shapiro shall enter
into a consulting agreement pursuant to which he shall, under
supervision of the President of Purchaser, provide consulting
services to Purchaser for a period not to exceed one year after the
Closing to enable an effective transition of Seller's business to
Purchaser with the terms and conditions of such agreement as set
forth in the Consulting Agreement to be executed and delivered at
Closing, substantially in the form of Exhibit "F" hereto.
12. ROYALTY AGREEMENT. At the Closing, in consideration of
------------------
the transactions contemplated herein, Purchaser and Seller shall
enter into a royalty agreement pursuant to which Mr. Shapiro,
individually, or his legal representatives upon his death, shall be
paid a royalty by Purchaser (the "Royalty") on sales of the "Words
I Use" title series as such series is constituted at Closing
(anticipated to be approximately 19 titles) as set forth in a
Royalty Agreement to be executed and delivered at Closing
substantially in the form of Exhibit "G" hereto.
13. CAPITALIZATION OF PURCHASER. On or before the Closing
----------------------------
Date, TASA shall capitalize Purchaser with $2,400,000.00 required
for Purchaser to make payment of the $2,200,000.00 cash portion of
the Purchase Price at Closing, and $200,000 additional capital.
Purchaser agrees that the $200,000.00 additional capital shall
remain as capital of Purchaser until payment in full is received by
Mr. Shapiro of all obligations of Purchaser pursuant to the terms
of the Note and the Royalty Agreement.
14. FINANCIAL STATEMENTS AND COVENANTS.
-----------------------------------
(a) Regular Financial Statements - Seller has
delivered to Purchaser audited financial statements prepared in
accordance with generally accepted accounting principals
consistently applied for the fiscal year ended September 30, 1996
(the "Financial Statements") which Seller represents to the best of
its knowledge are true, correct and complete in all material
respects as of the date thereof. Seller has not delivered to
Purchaser the "reviewed" financial statements as required pursuant
to the Letter of Intent between the parties, for the period October
1, 1996 through and including March 31, 1997, nor the statements
for April 1997. Purchaser agrees with Seller to accept in their
place and stead, final "reviewed" financial statement for the
period October 1, 1996 through and including May 31, 1997 (the
"Closing Financial Statements"). Seller shall make best efforts to
deliver the Closing Financial Statements within thirty (30) days of
Closing, but in no event later than forty-five (45) days after
Closing. The Closing Financial Statements shall reflect such
adjustments as have been requested by Purchaser's Accountants and
delivered to the accountants for the Seller prior to the date
hereof. The Closing Financial Statements shall consist at a
minimum of Closing Balance Sheet, Income Statement, and Statement
of Cash Flows, with foot notes and with comparative figures for the
same period for Fiscal Year 1996. The Financial Statements and
Closing Financial Statements shall be collectively known as the
"Program Financial Statements". Program Financial Statements shall
also be certified by an officer of Seller that, to the best
knowledge of Seller such Program Financial Statements are true,
correct and complete in all material respects.
(b) Deferred Bonus Accrual - Seller and Purchaser agree
that provided aggregate expenses and disbursements of Seller
incurred in the ordinary course of business (excluding professional
fees as described below) and cost of goods sold as a percentage of
revenues, each as reported by Seller, and reviewed and agreed to by
Purchaser's Accountants, on the Closing Financial Statements, are
equal to or less than a ten (10%) percent variance from such
numbers for Fiscal 1996 for the same period, Purchaser, subject to
(c) below, shall pay a bonus to Mr. Mr. Shapiro on the following
terms and according to the following scale:
Annual Gross Sales for FY 1997 Bonus
------------------------------ -----
$1,355,000 $200,000 (minimum salary)
$1,355,001 thru $1,449,999 $200,000 + 21% of sales
over $1,355,000
$1,450,000 thru $1,549,999 $220,000 + 26% of sales
over $1,450,000
$1,550,000 thru $1,649,999 $246,000 + 30% of sales
over $1,550,000
$1,650,000 thru $1,768,999 $276,000 + 14.9% of sales
over $1,650,000
$1,769,000 and over $293,776 (maximum salary)
Gross Sales shall be defined as sales, net of returns, allowances,
and credits. Seller shall maintain expenses within the ten (10%)
percent variance from Fiscal 1996 expenses as described above. If
Closing occurs, a minimum bonus of $200,000 will be due to Mr.
Shapiro by Purchaser on the date determined in (c) below. To the
extent any compensation has been paid by Seller to any Shareholder
in Fiscal 1997, such compensation shall be deducted from the bonus
compensation amount otherwise payable hereunder to Mr. Shapiro by
Purchaser as Deferred Bonus Accrual (defined hereafter).
If overhead and cost of goods sold as a percentage of revenues
exceed the ten (10%) percent permitted variance, compensation to
Mr. Shapiro shall be reduced dollar for dollar for each dollar of
such excess. Notwithstanding the above, Seller may expense the
costs of professional fees in connection with the Closing (other
than the audit expenses provided in Paragraph 13 of the Letter of
Intent). If such charges exceed $44,000 in the aggregate
(representing 7/12 of Fiscal Year 1996 professional expenses of
$76,000), compensation payable to Mr. Shapiro shall be reduced
dollar for dollar for each dollar of professional fee expenses
exceeding such $44,000.
(c) Purchaser shall accept as an Assumed Liability on
the Closing Date, the aggregate sum of "salary for Stockholders and
Officers" accrued from October 1, 1996 through the Closing Date, at
an amount determined pursuant to the scale set forth in (b) above
and agreed by Purchaser and Seller's Accountants (the "Deferred
Bonus Accrual"). Payment of the Deferred Bonus Accrual is subject
to and contingent upon no material discrepancies, including
expenses outside the ordinary course of business, upon reasonable
review and audit by Purchaser and its representatives of the books
and records of Seller and the Closing Financial Statements.
Payment of the bonus to the extent of sales figures available,
shall be made, as cash flow permits, on or before September 30,
1997, subject to a final adjusted payment after actual year end
sales results are available. Any further monies due to Mr. Shapiro
as a result of actual year end sales shall be paid within forty-five
(45) days of the end of the fiscal year. Any monies due to
Purchaser as a result of overpayment to Mr. Shapiro, may be offset
by Purchaser against payments due to him under either the Note or
Royalty Agreement. Calculation of the Bonus shall be made by the
accountants regularly servicing the Purchaser. Mr. Shapiro shall
be given a copy of the Bonus calculation and unless the Purchaser
receives written notice within thirty (30) days of any objection
thereto, the Purchaser shall make such payment or offset, as the
case may be, as shall be required hereunder. Within such thirty
(30) day period, Mr. Shapiro shall have a right to examine and
audit the calculation of sales and determination of the amount to
be offset during normal business hours, at his sole cost and
expense. Any continuing disputes shall be settled by an
independent third party chosen jointly by Purchaser and Seller.
Purchaser shall make appropriate withholdings from such bonus as
are required by Federal, State and local law.
15. CLOSING. The Closing shall take place at the offices of
--------
Purchaser's counsel, Rider, Weiner, Frankel & Calhelha, P.C., 655
Little Britain Road, New Windsor, New York 12550 on or about May
30, 1997 at 10:00 A.M. or such other date and time as shall be
mutually agreed (the "Closing" or otherwise referred to herein as
the "Closing Date"). At the Closing, all steps shall have been
taken and documents and instruments shall be delivered, in form
reasonably acceptable to counsel which are necessary or appropriate
to consummate the transactions provided for herein.
16. CONDITIONS TO CLOSING.
----------------------
(a) Seller shall, in addition to other documents as may
be reasonably required by counsel to the parties hereunder, deliver
to Purchaser at the Closing the following:
(i) a certificate of an officer of Seller
certifying that all representations and warranties of Seller in
this Agreement are true and correct as of the Closing as though
such representations and warranties were made as of such date.
(ii) a Bill of Sale transferring all of the Assets,
and assignments of all intellectual property and proprietary
interests.
(iii) the Non-Competition Agreement.
(iv) the Consulting Agreement.
(v) the Royalty Agreement.
(vi) officers certificate certified by the President
of Seller as to: true and correct copies of (A) all corporate
action of the Seller authorizing and approving this Agreement and
the performance of the transactions contemplated hereby; (B)
certificate of incorporation and by-laws and all amendments
thereto; (C) signatures of duly elected and acting officers
authorized to execute documents hereunder.
(vii) Seller shall have performed and complied
with all agreements and conditions required by this Agreement to be
performed or complied with by Seller on or prior to or at the
Closing.
(viii) Opinion of counsel of Seller in form and
substance acceptable to Purchaser's counsel.
(b) Purchaser shall, in addition to other documents as
may be reasonably required by counsel to the parties hereunder,
deliver to Seller at the Closing the following:
(i) a certificate of an officer of each of
Purchaser and TASA certifying that all representations and
warranties of Purchaser and TASA in this Agreement are true and
correct as of the Closing as though such representations and
warranties were made as of such date.
(ii) Note.
(iii) Security Agreement and Financing Statements.
(iv) Royalty Agreement.
(v) Non-competition Agreement.
(vi) Consulting Agreement.
(vii) Guaranty.
(viii) officers certificate of each of TASA and
Purchaser certified by an officer of each as to: true and correct
copies of (A) all corporate action of Purchaser and TASA
authorizing and approving this Agreement and the performance of the
transactions contemplated hereby; (B) certificate of incorporation
and by-laws and all amendments thereto; (C) signatures of duly
elected and acting officers authorized to execute documents
hereunder.
(ix) Each of Purchaser and TASA shall have performed
and complied with their respective agreements and conditions
required by this Agreement to be performed or complied with by them
on or prior to or at the Closing.
17. BROKER. Each of Purchaser, Seller and TASA represent
-------
each to the other that there was no broker who rendered services to
it in connection with this transaction and each agrees to hold the
other parties harmless from any and all claims arising by reason of
any such services.
18. INDEMNIFICATION.
----------------
(a) TASA and Purchaser, jointly as the "TASA Entities" and
Seller (both the TASA Entities and Seller being the "Indemnifying
Party") hereby agrees to indemnify, defend and hold harmless the
other (such party being the "Indemnified Party") from and against
any and all claims, damages, liabilities, losses and expenses
(including reasonable attorneys' fees) of any kind or nature
whatsoever incurred or sustained by the Indemnified Part(ies)
arising from or in connection with a breach by any Indemnifying
Party of any representation, warranty or covenant made by such
Indemnifying Party in this Agreement (including information
contained on any Schedule or Exhibit annexed hereto), or by reason
of any claim, action or proceeding asserted or instituted growing
out of any matter or thing covered by such representations,
warranties or covenants. This indemnity shall survive the Closing,
but shall expire simultaneously upon the later of satisfaction in
full of all of Purchaser's obligations under the (a) Note or (b)
the Royalty Agreement, and in no event shall the amount of the
indemnity of the TASA Entities, in the aggregate, or Seller,
exceed, in the aggregate, the Purchase Price plus the amount of any
and all royalty payments made or to be made under the Royalty
Agreement.
(b) In the event that at any time or from time to time,
any party shall determine that it is entitled to indemnification
under Paragraph 18 (a) hereof, the Indemnified Part(ies) shall give
written notice to the Indemnifying Part(ies) specifying the basis
on which indemnification is sought, the amount of the asserted
loss, damage or expense, as the case may be, and requesting
indemnification. In the event indemnification is required under
this Agreement, it is contemplated by the parties hereto that
payment shall be made to the Indemnified Party at or before the
time the Indemnified Party(ies) shall be required to make payment
with respect to the claim, unless there shall be a dispute as to
the Indemnified Party(ies)' entitlement to indemnification, in
which case adjustment will be made upon resolution of said dispute.
The TASA Entities shall be entitled to offset any payment or
liability for which it is to be indemnified by Seller against any
payments due by either TASA Entity to Seller or Mr. Shapiro under
this Agreement or any document executed in connection herewith,
including, but not limited to the Note and Royalty Agreement. Upon
receipt of any request for indemnification, the Indemnifying
Part(ies) may object thereto by delivering written notice of such
objection to the Indemnified Party(ies) specifying in reasonable
detail the basis on which such objection is made. Such objection
shall be made within be made within twenty (20) days of notice from
the Indemnified Party requesting payment unless the Indemnifying
Party shall have earlier agreed to such liability.
19. FURTHER ASSURANCES. Each of the parties hereto agrees
-------------------
that each will, whenever and as often as it shall be reasonably
requested to do so by any other party hereto, execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered,
any and all further instruments as may be necessary or expedient in
order to consummate the transactions provided for in, or
contemplated by, this Agreement and do any and all further acts and
things as may be necessary or expedient in order to carry out the
purpose and intent of this Agreement and of the documents and
instruments delivered in connection therewith. This obligation
shall survive closing and shall remain in force and effect until
the obligations of the parties to each other have been fully
satisfied.
20. MISCELLANEOUS.
--------------
(a) Benefits. All of the terms and provisions of this
--------
Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns.
(b) Entire Agreement. This Agreement and the Exhibits
----------------
hereto contain the entire agreement among the parties with respect
to the transactions contemplated herein; and no party shall be
bound by nor shall be deemed to have made any representations,
warranties or covenants except those contained herein. This
Agreement cannot be modified, changed, discharged or terminated
except by an instrument in writing, signed by the party against
whom the enforcement or any modification, change, discharge or
termination is sought.
(c) Captions. The captions of the paragraphs and
--------
subparagraphs of this Agreement are for convenience and reference
only, and are not to be considered in construing this Agreement.
(d) Survival. All covenants, representations and
--------
warranties contained in this Agreement, and in the documents and
instruments executed and delivered in connection therewith, and any
certificates furnished under any provision of this Agreement, and
the indemnification provisions of Paragraphs 2 and 18 shall survive
the execution and delivery of this Agreement and the transactions
contemplated by this Agreement.
(e) Notices. Any notices, request, instrument or other
-------
document to be given hereunder shall be in writing and, except as
otherwise provided for herein, shall be delivered personally or
sent by certified mail, return receipt requested, as follows:
(i) If to Purchaser: Modern Learning Press, Inc.
910 Church Street
Honesdale, Pennsylvania 18437
Att: Walter Barbe, President
Fax: (717) 253-9423
(ii) If to TASA: Touchstone Applied Science
Associates, Inc.
P.O. Box 382
Fields Lane
Brewster, New York 10509
Att: Andrew L. Simon, President
Fax: (914) 277-3548
with copy to Maureen Crush, Esq., Rider, Weiner, Frankel &
Calhelha, P.C., 655 Little Britain Road, New Windsor, New York 12553,
Fax: (914) 562-9100 and
(iii) If to Seller: Programs for Education, Inc.
186 Cafferty Road
Pipersville, PA 18947
Att: Bernard Shapiro, President
Fax: (215) 297-8795
with copy to Helene Leone, Esq., Pluese, Lihotz, Incollingo &
Leone, 21 East Euclid Avenue, Haddonfield, New Jersey 08033, Fax:
(609) 354-0491, or to such other address or addresses as any party
may hereafter designate in writing to the other. Such notices may
be sent by facsimile, U.S. mail, overnight courier or hand
delivery. If sent by facsimile, such notice shall be deemed
delivered when sent with evidence of effective transmission; if
mailed, three (3) business days after deposit in the United States
mail, properly addressed with postage affixed and sent certified
mail, return receipt requested; if by overnight courier, upon
delivery with evidence of same; or personally, upon by handing a
copy of same to the person to be so notified.
(f) Severability. In case any one or more of the
------------
provisions or parts of a provision contained in this Agreement
shall for any reason be held to be invalid, illegal or
unenforceable in any respect in any jurisdiction, such invalidity,
illegality or unenforceability shall not effect any other provision
or part of a provision of this Agreement.
(g) Governing Law. This Agreement shall be governed by
-------------
and construed in accordance with the laws of the State of New
Jersey.
(h) Expenses. Each of the parties shall pay its
--------
respective legal, accounting and other fees in connection with this
Agreement, except as otherwise required pursuant to the Letter of
Intent.
(i) Assignment. This Agreement may not be assigned by
----------
any party hereto without the consent of the other parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed as of the day and year first above written.
MODERN LEARNING PRESS, INC.
By: /s/ WALTER BARBE
----------------------------
Walter Barbe, President
PROGRAMS FOR EDUCATION, INC.
By: /s/ BERNARD SHAPIRO
----------------------------
Bernard Shapiro, President
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By: /s/ ANDREW L. SIMON
----------------------------
Andrew L. Simon, President
/s/ BERNARD B. SHAPIRO
-------------------------------
Bernard B. Shapiro
<PAGE>
SCHEDULE 5.1
TO
ASSET PURCHASE AGREEMENT
LIST OF TITLES SOLD
All author/publisher contracts and other contracts and
agreements, all as listed below, and any and all right, title and
interest of Modern Learning Press, Inc. therein, including, but
not limited to all intellectual property rights and goodwill
(such collateral being collectively known as the "Intellectual
Property"), which Intellectual Property was acquired by Modern
Learning Press, Inc. from Programs for Education, Inc. in
connection with that certain Asset Purchase Agreement dated the
30th of May, 1997 by and between the parties:
Amman, Janet Art Prints and Their Use Letter Agreement, 4/29/91
With Whole Language (1)
Ames, Louise Raising Good Kids (2) Letter Agreement, 7/18/90
Why Am I So Noisy? Letter Agreement, 3/15/90
Why Is She So Shy?
Why Am I So Difficult? Letter Agreement, 4/28/86
Is Your Child In the Wrong Letter Agreement, 6/27/79
Grade?
What Am I Doing In This Grade? Letter Agreement, 4/30/85
Stop School Failure Letter Agreement, 8/8/79
Bluestein, Jane Parents In A Pressure Cooker Agreement, 10/14/88
Brooks, Susan See The Painting Letter Agreement, 10/7/87
Buros, Jay Why Whole Language Contract, 7/26/90
Coletta, Anthony J. Managing Difficult Behavior Letter Agreement, 7/18/91
in Children (3)
Loss of Innocence Letter Agreement, 2/7/95
Developmental Parenting Letter Agreement, 9/29/88
What's Best for Kids Letter Agreement, 3/28/88
Einstein, Carol Be Your Own Reading Letter Agreement, 9/25/95
Specialist
Elkind, David Parenting Your Teenager in Letter Agreement, 9/30/92
the 1990's (4)
Reinventing Childhood Letter Agreement, 11/13/95
Grandparenting Letter Agreement, 12/20/90
Gesell Institute Gesell Preschool Test Agreement, 2/25/80
Materials
School Readiness Test (5) Letter, 7/7/67
School Readiness Video (6) Agreement, 3/24/83
Grant, James Every Parent's Owner's Contract, 9/9/86
Manual - 3, 4, 5, 6,
7 year old
Parents Pages Letter Contract, 5/18/87
Parent/Teacher Observations Contract, 4/26/89
of Young Children
Developmental Education in Contract, 6/1/91
the 1990's
Childhood Should Be a Contract, 4/24/89
Precious Time
Childhood Should Be a Letter Agreement, 10/26/87
(Pressure) Precious Time
Poster
Worth Repeating Video (5) Agreement, 7/14/87
Retention & Its Prevention Letter Agreement, 4/23/96
I Hate School Letter Agreement, 9/20/93
Do You Know Where Your Agreement, 5/9/85
Child Is? (Video)
School Readiness and Worth
Repeating
The Readiness Bill of Letter Agreement, 5/6/86
Rights Poster
Hoffman, Carol Reaching and Teaching Kids Letter Contract, 7/1/94
Today
Johnson, Robert L. Implementing a Developmental Letter Agreement, 9/29/88
Program Audiotape
Keshner, Judy A Parent's Guide to Letter Contract, 5/31/91
Kindergarten
Kindergarten Student Letter Agreement, 9/1/94
Observation and Assessment
(Forms & Booklet)
Lamb & Logsdon Kindergarten: an Intuitive Letter Contract, 6/12/90
Approach
Positively Garten (6)
Linerode, Darla Let's Look at Art Together Letter Contract, 8/15/90
Nichols, Elisabeth Preschoolers at Work Letter Agreement, 6/8/88
Trisler & Cardiel Managing your Child Letter Agreement, 6/3/91
Centered Classroom (7, 8)
Words I Use When I Write Letter Agreement, 5/31/89
Help At Home Guide - Words Addendum, 10/31/90
I Use
Palabras Que Yo Uso Cuando Letter Agreement, 6/27/94
Escribo
Gua Para Los Padres - Help
at Home Guide-
More Words I Use When I Addendum, 6/13/90
Write
Help At Home Guide - More Addendum, 10/31/90
Words I Use
My Word Book Addendum, 6/18/93
Help At Home Guide - My Addendum, 6/16/93
Word Book
My Word Book - Teacher Guide
Mi Libro de Palabras Letter Agreement, 7/15/96
Guia Para Los Padres - Help
at Home Guide - Mi Libro de
Palabras
Word Power! Letter Agreement, 8/1/94
Word Power! - Teacher Guide
My Word Works Letter Contract, 9/4/96
Help at Home Guide - My Letter Contract, 9/4/96
Word Works
My Word Works - Teacher Guide Letter Contract, 9/4/96
More Word Works Letter Contract, 9/4/96
Help at Home Guide - More Letter Contract, 9/4/96
Word Works
More Word Works - Teacher Guide Letter Contract, 9/4/96
Uphoff, James Real Facts from Real Schools Letter Contract, 10/4/90
Vail, Priscilla Common Ground (8) Letter Contract, 6/21/95
Emotion: The On/Off Switch Letter Contract, 5/24/96
About Dyslexia (8) Letter Contract, 7/14/89
Learning Styles (8, 9) Letter Contract, 3/22/92
Gifted, Precocious or Just Letter Contract, 5/30/86
Plain Smart 8
Words Fail Me Letter Contract, 6/14/91
1. See also, Agreement, 3/22/93, with Newbridge Communications, Inc.
--------
2. See also Contract, 6/11/92, with Dell Publishing
--------
3. See also Contract, 6/3/92, with Discovery International
--------
4. See also Contract, 10/14/93, with Ballantine Books
--------
5. See also Contract, 12/23/92, with Discovery International
--------
6. See also Agreement, 1/8/93, with Newbridge Communications, Inc.
--------
7. See also Contract, 8/26/92, with Newbridge Communications, Inc.
--------
8. See also Contract, 2/4/93, with Hawker Brownlow Education Pty., Ltd.
--------
9. See also Agreement, 1/13/93, with Newbridge Communications, Inc.
--------
<PAGE>
Ballantine Books Softcover publication, Contract, 10/14/93
Parenting your Teenager in
--------------------------
the 1990's (Elkind)
----------
Dell Publishing Subsidiary Publication, Agreement, 6/11/92
Raising Good Kids (Ames)
-----------------
Discovery Foreign Licensing, Managing Agreement, 6/3/92
--------
International Difficult Children video
------------------
(Coletta)
Foreign Licensing, School Agreement, 12/23/92
------
Readiness (Gesell
---------
Institute), Worth
-----
Repeating (Grant)
---------
Fitzhenry & Canadian Distribution, all Letter Agreement, 1/1/92
Whiteside titles not already subject
to distribution agreement
Hawker Brownlow Foreign Licensing, Common Agreement, 2/4/93
------
Education, Ground, Learning Styles,
------ ---------------
Pty, Ltd. Gifted..., About Dyslexia
------ --------------
(Vail); Managing Your...
----------------
Classroom (Trisler &
---------
Cardiel)
Newbridge Softcover Publication, Agreement, 8/26/92
Communications, Managing Your...
----------------
Inc. Classroom (Trisler &
---------
Cordiel)
Softcover Publication, Agreement, 1/13/93
Learning Styles (Vail)
---------------
Softcover Publication, Art Agreement, 3/22/93
---
Prints... With Whole
--------------------
Language (Amann)
--------
Softcover Publication, Agreement, 1/8/93
Positively Kindergarten
-----------------------
(Lamb & Logsdon)
Buros, Jay Consulting Services Letter Agreement, 6/12/91
Mann, Jean Consulting Services Letter Agreement, 3/23/96
Seisedos, Dorcas Consulting Services Letter Contract, 7/5/96
<PAGE>
SCHEDULE 8.1
TO
ASSET PURCHASE AGREEMENT
LIST OF MATERIAL CONTRACTS, AGREEMENTS, LICENSES & LEASES
Cane, ___________ Oral Lease, month-to-month,
with respect to the Seller's
place of business located
at Cane Farm, Building #6,
Rosemont, New Jersey
Amman, Janet Art Prints and Their Use Letter Agreement, 4/29/91
With Whole Language (1)
Ames, Louise Raising Good Kids (2) Letter Agreement, 7/18/90
Why Am I So Noisy? Why Is Letter Agreement, 3/15/90
She So Shy?
Why Am I So Difficult? Letter Agreement, 4/28/86
Is Your Child In the Wrong Letter Agreement, 6/27/79
Grade?
What Am I Doing In This Letter Agreement, 4/30/85
Grade?
Stop School Failure Letter Agreement, 8/8/79
Bluestein, Jane Parents In A Pressure Agreement, 10/14/88
Cooker
Brooks, Susan See The Painting Letter Agreement, 10/7/87
Buros, Jay Why Whole Language Contract, 7/26/90
Coletta, Anthony J. Managing Difficult Behavior Letter Agreement, 7/18/91
in Children (3)
Loss of Innocence Letter Agreement, 2/7/95
Developmental Parenting Letter Agreement, 9/29/88
What's Best for Kids Letter Agreement, 3/28/88
Einstein, Carol Be Your Own Reading Specialist Letter Agreement, 9/25/95
Elkind, David Parenting Your Teenager in Letter Agreement, 4/30/92
the 1990's (4)
Reinventing Childhood Letter Agreement, 11/13/95
Grandparenting Letter Agreement, 12/20/90
Gesell Institute Gesell Preschool Test Agreement, 2/25/80
Materials
School Readiness Test (5) Letter, 7/7/67
School Readiness Video (5) Agreement, 3/24/83
Grant, James Every Parent's Owner's Contract, 9/9/86
Manual - 3, 4, 5, 6,
7 year old
Parents Pages Letter Contract, 5/18/87
Parent/Teacher Observations Contract, 4/26/89
of Young Children
Developmental Education in Contract, 6/1/91
the 1990's
Childhood Should Be a Contract, 4/24/89
Precious Time
Childhood Should Be a Letter Agreement, 10/26/87
(Pressure) Precious Time
Poster
Worth Repeating Video (5) Agreement, 7/14/87
Retention & Its Prevention Letter Agreement, 4/23/96
I Hate School Letter Agreement, 9/20/93
Do You Know Where Your Agreement, 5/9/85
Child Is? (Video)
School Readiness and Worth
Repeating
The Readiness Bill of Letter Agreement, 9/29/88
Rights Poster
Hoffman, Carol Reaching and Teaching Kids Letter Contract, 7/1/94
Today
Johnson, Robert L. Implementing a Developmental Letter Agreement, 9/29/88
Program Audiotape
Keshner, Judy A Parent's Guide to Kindergarten Letter Contract, 5/31/91
Kindergarten Student Letter Agreement, 9/1/94
Observation and
Assessment (Forms &
Booklet)
Lamb & Logsdon Kindergarten: an Intuitive Letter Contract, 6/12/90
Approach
Positively Kindergarten (6)
Linerode, Darla Let's Look at Art Together Letter Contract, 8/15/90
Nichols, Elisabeth Preschoolers at Work Letter Agreement, 6/8/88
Trisler & Cardiel Managing your Child Letter Agreement, 6/3/91
Centered Classroom(7, 8)
Words I Use When I Write Letter Agreement, 5/31/89
Help At Home Guide - Words Addendum, 10/31/90
I Use
Palabras Que Yo Uso Cuando Letter Agreement, 6/27/94
Escribo
Guia Para Los Padres - Help
at Home Guide - Palabras
More Words I Use When I Write Addendum, 6/13/90
Help At Home Guide - More Addendum, 10/31/90
Words I Use
My Word Book Addendum, 6/18/93
Help At Home Guide - My
Word Book
Mi Libro de Palabras Letter Agreement, 7/15/96
Guia Para Los Padres - Help
at Home Guide - Mi Libro
de Palabras
Word Power! Letter Agreement, 8/1/94
Word Power! - Teacher Guide
My Word Works Letter Contract, 9/4/96
Help at Home Guide - My
Word Works Letter Contract, 9/4/96
My Word Works - Teacher Guide Letter Contract, 9/4/96
More Word Works Letter Contract, 9/4/96
Help at Home Guide - More
Word Works Letter Contract, 9/4/96
More Word Works - Teacher Guide Letter Contract, 9/4/96
Uphoff, James Real Facts from Real Schools Letter Contract, 10/4/90
Vail, Priscilla Common Ground (8) Letter Contract, 6/21/95
Emotion: The On/Off Switch Letter Contract, 5/24/96
About Dyslexia (8) Letter Contract, 7/14/89
Learning Styles (8, 9) Letter Contract, 3/22/92
Gifted, Precocious or Just
Plain Smart (8) Letter Contract, 5/30/86
Words Fail Me Letter Contract, 6/14/91
1. See also, Agreement, 3/22/93, with Newbridge Communications, Inc.
--------
2. See also Contract, 6/11/92, with Dell Publishing
--------
3. See also Contract, 6/3/92, with Discovery International
--------
4. See also Contract, 10/14/93, with Ballantine Books
--------
5. See also Contract, 12/23/92, with Discovery International
--------
6. See also Agreement, 1/8/93, with Newbridge Communications, Inc.
--------
7. See also Contract, 8/26/92, with Newbridge Communications, Inc.
--------
8. See also Contract, 2/4/93, with Hawker Brownlow Education Pty., Ltd.
--------
9. See also Agreement, 1/13/93, with Newbridge Communications, Inc.
--------
<PAGE>
Ballantine Books Softcover publication, Contract, 10/14/93
Parenting your Teenager in
--------------------------
the 1990's (Elkind)
----------
Dell Publishing Subsidiary Publication, Agreement, 6/11/92
Raising Good Kids (Ames)
-----------------
Discovery Foreign Licensing, Managing Agreement, 6/3/92
--------
International Difficult Children video
------------------
(Coletta)
Foreign Licensing, School Agreement, 12/23/92
------
Readiness (Gesell Institute),
---------
Worth Repeating (Grant)
---------------
Fitzhenry & Canadian Distribution, all Letter Agreement, 1/1/92
Whiteside titles not already subject
to distribution agreement
Hawker Brownlow Foreign LICENSING, Common Agreement, 2/4/93
------
Education, Ground, Learning Styles,
------ ---------------
Pty, Ltd. Gifted..., About Dyslexia
--------- --------------
(Vail); Managing Your...
----------------
Classroom (Trisler & Cardiel)
---------
Newbridge Softcover Publication, Agreement, 8/26/92
Communications, Managing Your...
----------------
Inc. Classroom (Trisler & Cordiel)
---------
Softcover Publication, Agreement, 1/13/93
Learning Styles (Vail)
---------------
Softcover Publication, Art Agreement, 3/22/93
---
Prints... With Whole
--------- ----------
Language (Amann)
--------
Softcover Publication, Agreement, 1/8/93
Positively Kindergarten
-----------------------
(Lamb & Logsdon)
Buros, Jay Consulting Services Letter Agreement, 6/12/91
Mann, Jean Consulting Services Letter Agreement, 3/23/96
Seisedos, Dorcas Consulting Services Letter Contract, 7/5/96
<PAGE>
SCHEDULE 8.2
TO
ASSET PURCHASE AGREEMENT
EQUIPMENT OWNED BY PROGRAMS FOR EDUCATION, INC.
ITEM BRAND MODEL SERIAL #
---- ----- ----- --------
Fax Sharp UX-104 37105493
Computer Gateway 2000 486 DX2/66 1679088
Computer Gateway 2000 486 DX2/66 1479088
Monitor Princeton Graphics 15" Monitor TW00910207
Printer Hewlett-Packard LaserJet 4 USBC18425
Printer Hewlett-Packard LaserJet 3 3022A16157
Computer Zeos 486 DX2/66 10077447
Dot Matrix Printer Epson LQ-570+ 1F8E611893
Color Ink Jet Printer Epson P2 1S011161138
Copier Canon PC-11 NTB15884
Scanner Hewlett-Packard ScanJet IIC 3265A42930
Monitor Mitsubishi DS20 20908550
Tape Backup Drive Irwin Accutrack 120 M00011257
UPS APC UPS-450 B94063021901
UPS APC UPS-400 B94052797684
Zip Drive Iomega Zip 100 RABG2861JX
Typewriter Sharp PA3110 II 98294052K
Adding Machine Texas Instruments 5045SV 129988T-0196D
Answering Machine AT&T 1332 951064
Telephones AT&T Spirit System n/a
20" Monitor Nanao Flexscan 750i n/a
VCR Sharp DA-2 Head n/a
Computer Gateway 2000 486 DX2/50 n/a
Scanner Hewlett-Packard ScanJet Plus 2812J66088
Printer Hewlett-Packard LaserJet 4 JFBGD50895
UPS APC UPS 89404200470
CD-ROM NEC MultiSpin 3804277GC
Tape Backup Drive Irwin Accutrack 120 M00010789
Fax Canon Faxphone 16 UMA27521
Computer Gateway 2000 386 76364
Fax Sharp UX103 27140764
Printer Hewlett-Packard LaserJet II n/a
Computer IBM XT 13718615150
Computer IBM PC 5160-212722
Printer Sanyo FR5500 15006083
Typewriter Sharp PA3110 II n/a
Computer Eagle n/a n/a
<PAGE>
LIST OF EXHIBITS
EXHIBITS HAVE BEEN INTENTIONALLY OMITTED
SEE CLOSING LIST FOR EXECUTED VERSIONS OF THE DOCUMENTS
LISTED BELOW AS EXHIBITS
A Note
B Security Agreement
C Stock Pledge Agreement
D Guaranty
E Non-competition Agreements
F Consulting Agreement
G Royalty Agreement
Exhibit 10.2
------------
SECURED PROMISSORY NOTE
-----------------------
$1,000,000.00 Newburgh, New York
May 30, 1997
FOR VALUE RECEIVED, the undersigned, MODERN LEARNING PRESS,
INC., a Delaware corporation with its principal office at 910
Church Street, Honesdale, Pennsylvania 18431 ("Maker") promises to
pay to the order of PHEASANT'S EYE PRODUCTIONS, INC. (f/k/a
PROGRAMS FOR EDUCATION, INC.) at 186 Cafferty Road, Pipersville, PA
18947 ("Holder") the principal amount of ONE MILLION AND 00/100
($1,000,000.00) DOLLARS with interest at the Interest Rate (as
hereinafter defined) payable quarterly on the unpaid principal
balance of such amount from the date of this Note until the
Maturity Date. This Note evidences a debt (the "Debt") owed to
Holder by Maker, in the principal amount hereof, pursuant to the
terms of that certain Asset Purchase Agreement between Maker,
Holder and Touchstone Applied Science Associates, Inc. ("TASA")
dated as of the date hereof (the "Asset Purchase Agreement"). All
terms used herein and not otherwise defined herein are used as
defined in the Asset Purchase Agreement.
ARTICLE I.
Definitions
-----------
(a) "Interest Rate" shall mean the rate of interest to be
paid by Maker on any outstanding principal due under this Note and
shall be determined in accordance with Article II hereof.
(b) "Maturity Date" shall mean the earlier of the fifth (5th)
year anniversary of the date hereof, and the date the full
principal balance of the Note plus interest thereon becomes due and
payable as a result of acceleration or otherwise.
(c) "Obligor" shall mean Maker and all other persons liable,
whether solely, jointly or severally, absolutely or contingently on
this Note, including all endorsers, sureties and guarantors.
(d) "Other Documents" shall mean any document evidencing or
securing the Debt, or any other document executed and delivered in
connection with the Debt, including but not limited to the Asset
Purchase Agreement the Stock Pledge Agreement, the Royalty
Agreement, the Security Agreement or the Guaranty.
(f) "Prime Rate" shall mean the prime rate of The Bank of New
York published in one week prior to any quarterly adjustment
required under this Note.
ARTICLE II
Computation of Interest and Determination of Interest Rate
----------------------------------------------------------
(a) Computation of Interest. Interest on the outstanding
-----------------------
principal balance of this Note shall be computed on the basis of a
360 day year for the actual number of days elapsed. Interest shall
accrue until the date of receipt of payment by Holder. Interest
shall be paid quarterly in arrears.
(b) Determination of Interest Rate. The Interest Rate shall
------------------------------
equal the Prime Rate plus one percent per annum, but in no event
less than nine (9%) percent per annum. The Interest Rate and
resultant payment will be adjusted quarterly at the beginning of
each quarter.
(c) Compliance with Usury Laws. It is the intention of the
--------------------------
Maker and Holder to conform strictly to the usury laws from time to
time in force and all agreements between Maker and Holder, whether
now existing or hereafter arising and whether oral or written, are
hereby expressly limited so that in no contingency or event
whatsoever whether by acceleration or maturity or otherwise, shall
the amount paid or agreed to be paid to Holder, or collected by
Holder, for the use, forbearance or detention of money to be loaned
hereunder or otherwise, or for the payment or performance of any
covenant or obligation contained herein or in any Other Document,
exceed the maximum amount permissible under applicable usury laws.
If under any circumstances whatsoever fulfillment of any provision
hereof or of any Other Document, at the time performance of such
provision shall be due, shall involve transcending the limit of
validity prescribed by law, then ipso facto, the obligation to be
fulfilled shall be reduced to the limit of such validity; and if
under any circumstances Holder shall ever receive an amount deemed
interest, by applicable law, which would exceed the highest lawful
rate, such amount that would be excessive interest under applicable
usury laws shall be applied to the reduction of the principal
amount or other sums owing hereunder and not to the payment of
interest, or if such excessive interest exceeds the unpaid balance
of principal and other indebtedness, the excess shall be deemed to
have been a payment by mistake and shall be refunded to Maker or to
any other person making such payment on Maker's behalf. All sums
paid or agreed to be paid to the Holder for the use, forbearance or
detention of the indebtedness of Maker evidenced hereby,
outstanding from time to time shall, to the extent permitted by
applicable law, be amortized, prorated, allocated and spread from
date of disbursement of the proceeds hereof until payment in full
of such indebtedness so that the actual rate of interest on account
of such indebtedness is uniform throughout the term hereof. The
terms and provisions of this paragraph shall control and supersede
every other provision of all agreements between Holder and Maker
and any endorser or guarantor of the Note.
ARTICLE III
Payment of Principal and Interest
---------------------------------
(a) Periodic Payments. Payments shall be made to the order
-----------------
of "Pheasant's Eye Productions, Inc." at 186 Cafferty Road,
Pipersville, PA 18947, or at such other place as Holder may from
time to time designate in writing. Payments of principal and
interest, subject to the provisions for prepayment described below,
shall be payable quarterly, commencing on August 31, 1997 and
continuing on the last day of each succeeding quarter thereafter to
and including May 31, 2002 in equal quarterly installments. On the
Maturity Date the balance of principal outstanding plus accrued
interest and any Late Payment Charges as hereinafter defined, if
any, shall be due and payable.
ARTICLE IV
Security
--------
(a) Security. The Maker hereunder has delivered as security
--------
for this instrument
(i) a first lien security interest in all titles sold
pursuant to the Asset Purchase Agreement and as listed on Schedule
A to the Security Agreement thereto, which liens shall be perfected
by the filing of appropriate instruments, including Financing
Statements with the appropriate Secretary of State's office(s)
and/or county register of deeds/clerk's offices as necessary;
(ii) a Stock Pledge Agreement pursuant to which TASA, as
sole shareholder of Maker, shall pledge to Holder one hundred
percent (100%) of the issued and outstanding principal stock of
Maker;
(iii) the corporate guaranty by TASA, guaranteeing
all obligations of Maker to Holder; and substitutions to the above
and proceeds of the foregoing.
ARTICLE V
General Conditions
------------------
(a) Application of Payments Received. Except as otherwise
--------------------------------
provided in this Note, all payments received by Holder on this Note
shall be applied by Holder as follows:
First, to any unpaid Late Payment Charges; and
Second, to accrued and unpaid interest then due and owing; and
Third, to the reduction of principal of this Note.
(b) Late Payment Charges. If Maker fails to pay any amount
--------------------
of principal and/or interest on the Note for fifteen (15) days
after such payment becomes due, whether by acceleration or
otherwise, Holder may, at its option, impose a late payment charge
(the "Late Payment Charge") of five percent (5%) of the payment
due. Until any and all Late Payment Charges are paid in full, the
amount thereof shall be added to the indebtedness herein. The Late
Payment Charge is not a penalty and is deemed to be liquidated
damages for the purposes of compensating Holder for computing the
actual amount of damages incurred by Holder as a result of the late
payment by Maker.
(c) Prepayment. The Debt may be prepaid at any time and from
----------
time to time, without penalty.
(d) Events of Default. Each of the following shall constitute
-----------------
an Event of Default under this Note:
(i) Maker shall fail to pay when due any amount of
principal, interest or fees payable by Maker under this Note; or
(ii) Any Obligor shall fail to perform or observe any
other term, condition, obligation or other covenant on its part to
be performed or observed under this Note or any Other Document for
thirty (30) days after Holder has given written notice to Maker; or
(iii) Any Obligor shall (A) commence any voluntary case
or other proceeding seeking liquidation, reorganization or other
relief with respect to a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in
effect, or (B) consent to the entry of any order for relief in an
involuntary case under any such law or to the appointment of or the
taking possession by a receiver, liquidator, assignee, custodian
(or other similar official) of their respective property or of any
substantial part thereof, or (C) make any general assignment for
the benefits of creditors; or
(iv) If any involuntary case or other proceeding shall,
at any time be commenced against any Obligor seeking liquidation,
reorganization or other relief under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or
seeking the appointment of or the taking possession by a receiver,
liquidator, assignee (or other similar official) of its respective
property, or at any time, any Obligor shall suffer or permit, while
insolvent any creditor or obtain any lien upon any of its property
through legal proceedings or distraint, in such case, proceedings
or writ is not withdrawn, dismissed, vacated or fully bonded within
sixty (60) days;
(v) An "Event of Default", as said term is defined
in any other document executed and delivered in connection
herewith, shall have occurred and continue unremedied beyond the
expiration of any applicable cure;
(vi) Any representation made to Holder by any Obligor in
connection with this Note or the Other Documents was materially
false or incorrect when made;
(vii) The dissolution of any Obligor, or merger,
consolidation or reorganization of Maker, without the prior written
consent of Holder, which consent shall not be unreasonably withheld;
then, and in any such event, Holder may, at its option, declare the
entire unpaid balance of this Note together with interest accrued
thereon and any other sums due hereunder, to be immediately due and
payable and Holder may proceed to exercise any rights or remedies
that it may have under this Note and the Other Documents and any
other legal or equitable remedy available to Holder.
(e) Costs and Expenses on Default. After default, in
-----------------------------
addition to principal, interest and any Late Payment Charge, Holder
shall be entitled to costs of collection, including, but not
limited to, reasonable attorneys' fees.
(f) No Waiver. No failure on the part of Holder or other
---------
holder hereof to exercise any right or remedy hereunder, whether
before or after the happening of a default, shall constitute a
waiver thereof and no waiver of any past default shall constitute
waiver of any future default or any defaults. This Note may not be
changed orally but only by an agreement in writing signed by the
party against whom such agreement is sought to be enforced.
(g) Waiver by Maker. Maker hereby waives presentment,
---------------
protest, demand, notice of dishonor and of nonpayment, against the
enforcement and collection of the obligations evidenced by this
Note.
(h) Governing Law. This Note shall be governed and construed
-------------
under the laws of the State of New Jersey.
(i) Notices. Any notices required or permitted to be given
-------
hereunder shall be given by registered or certified mail, postage
prepaid, return receipt requested to the addresses set forth below
or by facsimile to:
If to Maker: Modern Learning Press, Inc.
910 Church Street
Honesdale, PA 18431
Att: Walter Barbe, President
Fax: (717) 253-9536
with a copy to: Rider, Weiner, Frankel &
Calhelha, P.C.
655 Little Britain Road
Newburgh, NY 12550
Att: David L. Rider, Esq.
Fax: (914) 562-9126
If to Holder: Pheasant's Eye Productions, Inc.
186 Cafferty Road
Pipersville, PA 18947
Att: Bernard B. Shapiro, President
Fax: (215) 297-8795
with a copy to: Pluese, Lihotz, Incollingo & Leone
21 East Euclid Avenue
Haddonfield, NJ 08033
Att: Helene Leone, Esq.
Fax: (609) 354-0491
or such other addresses or facsimile numbers as the parties may
designate in writing to the other party. All notices shall be
deemed given three (3) business days after deposit in the U.S.
mails, or in the case of facsimile notice, when sent with evidence
of successful transmission.
IN WITNESS WHEREOF, the undersigned, by its duly appointed and
acting officer, has executed this instrument as of the date first
above written.
MODERN LEARNING PRESS, INC.
By:/s/ WALTER BARBE
------------------------
Walter Barbe, President
Exhibit 10.3
------------
SECURITY AGREEMENT
AGREEMENT made this 30th day of May, 1997 by and between
PROGRAMS FOR EDUCATION, INC., a New Jersey corporation with its
principal place of business at Building #6 Cane Farm, Rosemont, New
Jersey 08556 ("Programs"), BERNARD B. SHAPIRO, an individual with
his principal residence at 186 Cafferty Road, Pipersville, PA
18947 ("Shapiro", with Programs and Shapiro hereinafter referred to
as the "Secured Party"), and MODERN LEARNING PRESS, INC., a
Delaware corporation with its principal place of business at 910
Church Street, Honesdale, Pennsylvania 18437 ("Debtor").
Debtor and Secured Party hereby agree as follows:
1. Grant of Security Interest. To secure the punctual
---------------------------
payment and performance by Debtor of its obligations to Secured
Party pursuant to (i) that certain promissory note of Debtor in
favor of Programs in the original principal amount of One Million
and 00/100 Dollars ($1,000,000.00) and dated the date hereof (the
"Note"), and (ii) that certain Royalty Agreement between Shapiro
and the Debtor and dated the date hereof (the "Royalty Agreement",
the Note and Royalty Agreement collectively, the "Debt"), Debtor
hereby grants to Secured Party a continuing first priority security
interest in the Collateral (defined hereinafter). Capitalized
terms used herein but not otherwise defined herein shall have the
meanings ascribed thereto in the Asset Purchase Agreement.
2. Collateral. The "Collateral" in which a security
-----------
interest in favor of the Secured Party is hereby granted is
described in Schedule "A" annexed hereto and made a part hereof.
3. Debtor's Representations and Warranties. Debtor
----------------------------------------
warrants, represents and covenants to the Secured Party that:
(a) The chief executive office and other places of
business of Debtor, and its books and records relating to the
Collateral and the Collateral are and have been since the date of
Closing located at the address(es) set forth below:
Building #6
Cane Farm
Rosemont, NJ 08556
910 Church Street
Honesdale, PA 18437
(b) Debtor agrees that during the term of the Debt, it
shall not transfer, assign or otherwise dispose of the Collateral.
(c) Debtor will not merge or consolidate with any
entity, other than Touchstone Applied Science Associates, Inc.,
without prior written notice to and consent of the Secured Party.
(d) Debtor will use the Collateral with all reasonable
care and caution and in conformity with all applicable laws,
ordinances, rules and regulations.
(e) The Secured Party shall at agreed dates and times,
upon reasonable notice, but in no event more than once each year of
the Debt, have the right to inspect the Collateral and any records
pertaining thereto.
(f) The Collateral is now and shall remain personal
property, consisting of general intangibles and contract rights.
(g) Debtor will perform all acts and execute all
necessary documents reasonably requested by the Secured Party from
time to time to evidence, maintain or enforce the Secured Party's
first priority security interest granted herein, except that no
continuation of this security interest shall be filed or effective
upon payment in full of the Note;
(h) At any time and from time to time, Debtor shall
execute and deliver to the Secured Party such financing statements
or other instruments or documents pursuant to the Uniform
Commercial Code ("UCC") of the State of New Jersey, or Uniform
Commercial Code of any other State affecting the Collateral (the
"UCC"), as may be requested by the Secured Party in connection with
this Security Agreement. Notwithstanding the prior sentence, no
financing statement or other instruments or documents shall be
executed by Debtor which shall continue the security interest of
the Secured Party after payment in full of the Note, it being the
intention of the parties that unless an Event of Default has
occurred and is continuing under the Royalty Agreement at such
time,this Security Agreement terminate upon payment in full of the
Note regardless of any payment or performance obligations remaining
under the Royalty Agreement at such time;
(i) In its discretion, Secured Party may, at any time
and from time to time, for the account of Debtor, pay any amount or
do any act required of Debtor hereunder, which Debtor fails to do
or pay, and any such payment shall be deemed an advance by Secured
Party to Debtor payable on demand together with interest at the
highest rate then payable on the Debt;
(j) Debtor will pay the Secured Party for all sums,
costs, and expenses which Secured Party may pay or incur pursuant
to the provisions of this Security Agreement or in executing,
defending, or protecting the security interest granted herein or in
enforcing payment of the Debt, including but not limited to
reasonable attorneys fees, all of which, together with interest at
the highest rate then payable on the Debt, shall be part of the
Debt, be payable on demand and be secured hereby;
(k) Except as otherwise specifically provided in any
agreement between the Secured Party and the Debtor, all proceeds of
any Collateral received by Debtor after the occurrence of a default
thereunder and the expiation of applicable cure periods, shall not
be commingled with other property of Debtor, but shall be
segregated, held by Debtor in trust for the Secured Party, and
immediately delivered to the Secured Party in the form received,
duly endorsed in blank where appropriate to effectuate the
provisions hereof, the same to be held by the Secured Party as
additional Collateral hereunder or, at Secured Party's option, to
be applied to payment of the Debt, whether or not due and in any
order the Secured Party may elect.
4. Default. Any of the following events or occurrences
--------
shall constitute a "Default" under this Agreement and the Debt:
(a) The default in the payment when due of any sum
payable (i) hereunder, if not paid within ten (10) days after
written notice thereof is given to Debtor by Secured Party; and
(ii) with respect to the Debt after the expiration of any
applicable cure period;
(b) The failure of the Debtor to perform any
other obligations to be performed by it hereunder or under the Note
or Royalty Agreement which are not performed within thirty (30)
days after written notice thereof is given to Debtor by Secured
Party;
(c) The occurrence of a default and expiration of any
applicable cure period by any Guarantor of the Debt pursuant to its
agreements with Secured Party;
(d) Dissolution, insolvency, assignment for the benefits
of creditors; commencement of a voluntary bankruptcy proceeding, or
involuntary proceeding which is not withdrawn within sixty (60)
days of filing thereof, under any Federal or State bankruptcy law
now or hereinafter in existence; application for the appointment of
a receiver or liquidating agent; issuance of an order of attachment
against the Collateral;
(e) Any representation made by Debtor in this Agreement
proves to have been materially misleading when it was made.
5. Rights Upon Default. Upon the occurrence of any Default
--------------------
and at any time thereafter, the Secured Party shall have the right
to declare the Note immediately due and payable without notice,
demand or protest, all of which are hereby waived, and shall have
all rights and remedies of a secured party under the UCC or federal
copyright law or available to the Secured Party under the Debt;
provided, however, that no costs or liabilities arising in
connection with obtaining or protecting any federal copyright for
any or all of the titles constituting the Collateral shall be
chargeable to or reimbursable by, Debtor other than to the extent
such federal copyrights were in existence at the date of this
Agreement and assigned to Debtor. Debtor agrees to provide
reasonable cooperation to Secured Party to obtain or protect such
federal copyrights at Secured Party's cost and expense. All of the
rights and remedies of Secured Party hereunder shall be cumulative,
not exclusive and enforceable alternatively, successively or
concurrently, including, but not limited to the following:
(a) The right to enter at any time and from time to
time, with or without judicial process or the aid and assistance of
others, any premises where any Collateral may be located;
(b) The right without resistance or interference by
Debtor, to take possession of the Collateral; and/or dispose of any
Collateral where located; and/or require Debtor to assemble and
make available to the Secured Party at the expense of Debtor any
Collateral at a place designated by the Secured Party which is
reasonably convenient to both parties;
(c) The right to remove any Collateral from where it is
located for the purpose of effecting sale or other disposition
thereof;
(d) The right to sell, resell, license, assign and
deliver, or otherwise dispose of any Collateral in its then
condition, at the public or private sale or proceedings or
otherwise, by one or more contracts, at the same or different
times, with or without having the Collateral at the place of sale
or other disposition, for cash and/or credit, and upon any terms,
at such place(s) and time(s) and to such person(s) as the Secured
Party deems best, all without demand, but subject to the provisions
of the UCC, including, but not limited to, notice of sale or other
disposition as set forth in the UCC. If any Collateral is sold by
the Secured Party upon credit or for future delivery, the Secured
Party shall not be liable for the failure of the purchaser to pay
for same and in such event the Secured Party may resell such
Collateral. The Secured Party may buy any Collateral at any public
sale.
6. Application of Proceeds Received. The Secured Party may
---------------------------------
apply the sale proceeds actually received from any sale or other
disposition to the reasonable expenses of retaking, holding,
preparing for sale, selling, leasing and the like, to reasonable
attorneys fees and other expenses which may be incurred by Secured
Party to collect the Debt or enforce this Security Agreement or in
the prosecution or defense of any action or proceeding related to
the subject matter of this Security Agreement; and then to the Debt
in such order and as to principal, or interest or other charges as
the Secured Party may desire; and Debtor shall remain liable and
will pay the Secured Party, on demand, any deficiency remaining,
together with interest thereon at the highest rate then payable on
the Debt and the balance of any expenses unpaid, with any surplus
to be paid to Debtor, subject to any duty of the Secured Party,
imposed by law, to the holder of any subordinate interest in the
Collateral actually known to the Secured Party.
7. Miscellaneous.
--------------
(a) The Secured Party shall not be deemed, by its
acceptance of this Security Agreement, to have assumed any
responsibility, or obligation or duty with respect to, any of the
Collateral or its use, or any matter or proceeding arising out of
or relating thereto, including, without limitation, any obligation
or duty to take action to collect, preserve or protect its or
Debtor's rights in the Collateral.
(b) Debtor hereby releases the Secured Party from any
claims, causes of action and demands at any time arising out of or
with respect to this Security Agreement, the Debt, the Collateral
or its use or disposition and Debtor hereby agrees to hold the
Secured Party harmless from and with respect to any and such
claims, causes of action and demands relating thereto; provided,
--------
however, this provision shall not require Debtor to indemnify
- -------
Secured Party nor shall it release Secured Party from its
obligations and liabilities as set forth in the Asset Purchase
Agreement and the exhibits and schedules annexed thereto and
executed and delivered in connection therewith.
(c) The Secured Party's prior recourse to any Collateral
shall not constitute a condition of any demand, suit or proceeding
for payment or collection of the Debt. No act, omission or delay by
the Secured Party shall constitute a waiver of its rights and
remedies hereunder or otherwise. No single or partial waiver by the
Secured Party of any Default or right or remedy which it may have
shall operate as a waiver of any other Default, right or remedy or
of the same Default, right or remedy on a future occasion.
(d) Debtor hereby waives presentment, notice of dishonor
and protest of all instruments included in or evidencing the Debt
of the Collateral, and all other notices and demands whatsoever
(except as expressly otherwise provided herein).
(e) All terms herein shall have the meanings as defined
in the UCC, unless the context otherwise requires.
(f) No provision hereof shall be modified, altered or
limited except by a written instrument expressly referring to this
Security Agreement and to such provision, and executed by the party
to be charged. This Security Agreement and all Debt shall be
binding upon the successors, or assigns of Debtor and shall,
together with the rights and remedies of the Secured Party
hereunder, inure to the benefit of the Secured Party and its
successors, endorsees and assigns. Notwithstanding the prior
sentence, this Security Agreement may not be assigned by either
party without the written consent of the other.
(g) This Security Agreement and the Debt shall be
governed, enforced and controlled by and in accordance with the
laws of the State of New Jersey. If any term of this Security
Agreement shall be held to be invalid, illegal or unenforceable,
the validity of all other terms hereof shall in no way be affected
thereby.
(h) Debtor acknowledges receipt of a copy of this
Security Agreement.
(i) If the provisions of this Security Agreement should
conflict with the terms and provisions of the Asset Purchase
Agreement entered into by the Debtor with the Secured Party in
connection with the Debt, the terms and provisions of the Asset
Purchase Agreement shall control any conflicting terms and
provisions herein contained.
IN WITNESS WHEREOF, the undersigned, by their duly authorized
officers, have executed and delivered this Security Agreement in
the State of New York as of the date first above written.
MODERN LEARNING PRESS, INC.
By: /s/ WALTER BARBE
-------------------------
Walter Barbe, President
PROGRAMS FOR EDUCATION, INC.
By: /s/ BERNARD B. SHAPIRO
-------------------------------
Bernard B. Shapiro, President
/s/ BERNARD B. SHAPIRO
-----------------------------
Bernard B. Shapiro
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF ORANGE )
On the 30th day of May, 1997, before me personally came WALTER
BARBE, to me known, who, by me duly sworn, did depose and say that
deponent resides at Honesdale, Pennsylvania that deponent is the
President of MODERN LEARNING PRESS, INC. the corporation described
in, and which executed the foregoing instrument by order of the
board of directors of the corporation; and that deponent signed
deponent's name by like order.
/s/ MAUREEN CRUSH
---------------------------------
Notary Public
Maureen Crush
Notary Public, State of New York
No. 4892935
Qualified in Greene County
Commission Expires 4/13/99
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF ORANGE )
On the 30th day of May, 1997, before me personally came
BERNARD B. SHAPIRO, to me known, who, by me duly sworn, did depose
and say that deponent resides at 186 Cafferty Road, Pipersville, PA
18947 that deponent is the President of PROGRAMS FOR EDUCATION,
INC. the corporation described in, and which executed the foregoing
instrument by order of the board of directors of the corporation;
and that deponent signed deponent's name by like order.
/s/ MAUREEN CRUSH
--------------------------------
Notary Public
Maureen Crush
Notary Public, State of New York
No. 4892935
Qualified in Greene County
Commission Expires 4/13/99
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF ORANGE )
On the 30th day of May, 1997, before me personally came
BERNARD B. SHAPIRO, to me known and known to me to be the
individual described in and who executed the foregoing instrument
and acknowledged to me that he executed the same.
/s/ MAUREEN CRUSH
--------------------------------
Notary Public
Maureen Crush
Notary Public, State of New York
No. 4892935
Qualified in Greene County
Commission Expires 4/13/99
<PAGE>
SCHEDULE "A"
TO SECURITY AGREEMENT DATED AS OF MAY 30, 1997
BETWEEN MODERN LEARNING PRESS, INC., AS DEBTOR,
AND
PROGRAMS FOR EDUCATION, INC., AND BERNARD B. SHAPIRO,
COLLECTIVELY, AS SECURED PARTY
All author/publisher contracts and other contracts and
agreements, all as listed below, and any and all right, title and
interest of Modern Learning Press, Inc. therein, including, but not
limited to all intellectual property rights and goodwill (such
collateral being collectively known as the "Intellectual
Property"), which Intellectual Property was acquired by Modern
Learning Press, Inc. from Programs for Education, Inc. in
connection with that certain Asset Purchase Agreement dated the
30th day of May, 1997 by and between the parties.
Exhibit 10.4
------------
STOCK PLEDGE AGREEMENT
WITH ESCROW PROVISIONS
AGREEMENT, made the 30th day of May, 1997, by and among
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC., a Delaware corporation
with its principal place of business at Fields Lane, Brewster, New
York 10509 ("Pledgor"), PROGRAMS FOR EDUCATION, INC., a New Jersey
corporation with its principal place of business at Building #6
Cane Farm, Rosemont, New Jersey 88556 ("Pledgee"), and PLUESE,
LIHOTZ, INCOLLINGO & LEONE, 21 East Euclid Avenue, Haddonfield, New
Jersey 08033 ("Escrow Agent").
W I T N E S S E T H :
WHEREAS, Pledgor is the owner of one hundred (100%) percent of
the issued and outstanding common shares of MODERN LEARNING PRESS,
INC., a Delaware corporation with its principal place of business
at 910 Church Street, Honesdale, Pennsylvania, (the "Corporation);
and
WHEREAS, Pledgor in connection with the purchase by the
Corporation of substantially all of the assets of Pledgee pursuant
to an Asset Purchase Agreement dated the 30th day of May, 1997
among the Pledgor, the Corporation and Pledgee (the "Asset Purchase
Agreement") acknowledges the indebtedness and other obligations of
the Corporation to Pledgee under the Asset Purchase Agreement, Note
and Royalty Agreement (as defined in the Asset Purchase Agreement)
and of the guaranty of such indebtedness and obligations by
Pledgor; and
WHEREAS, as security for such indebtedness and obligations and
to induce Pledgee to enter into the Asset Purchase Agreement and to
accept the Note and Royalty Agreement, Pledgor shall deliver to the
Escrow Agent, in escrow, TEN (10) SHARES of the capital stock of
the Corporation or such greater number as shall represent one
hundred (100%) percent of the issued and outstanding stock of the
Corporation (the "Shares"); and
WHEREAS, Pledgee desires to accept the Note and Royalty
Agreement and the pledge of the Shares as security therefor, all
according to the terms and conditions contained herein and therein.
NOW, THEREFORE, it is agreed as follows:
1. PLEDGE. As security for the performance of the
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Corporation's and Pledgor's obligations under the Asset Purchase
Agreement, the Corporation's payment and performance under the
terms of the Note and Royalty Agreement, the Pledgor's obligations
under that certain guaranty in favor of and delivered to Pledgee of
even date hereof (the "Guaranty"), and all other obligations of the
Corporation and Pledgor to the Pledgee in connection with the
purchase by the Corporation of substantially all the assets and
business of Pledgee, Pledgor hereby delivers, pledges, and assigns
and grants to Pledgee a security interest in instruments of the
following description: ten (10) common shares of MODERN LEARNING
PRESS, INC. represented by Certificate No. 1 duly indorsed in
blank, or with appropriate stock powers, in blank, and herewith
delivered to the Escrow Agent (the "Pledged Shares"). The Escrow
Agent shall hold the Pledged Shares, in escrow, as security for the
performance and payment of all obligations of the Corporation and
the Pledgee as described herein, and the Pledged Shares shall not
be delivered to Pledgee, nor encumbered or disposed of by the
Pledgee except in accordance with the provisions of paragraphs "4"
and "5" of this Agreement.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PLEDGOR.
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(a) Pledgor hereby represents and warrants (i) that it
is the record and beneficial owner of, and has good and marketable
title to the Pledged Shares, (ii) such shares are validly issued,
fully paid and non-assessable and are free and clear of all
pledges, liens, security interests, and other encumbrances and
restrictions on the transfer and assignment thereof, except as
affected by or arising pursuant to this Agreement, (iii) the
Pledged Shares constitute one hundred (100%) percent of the issued
and outstanding capital stock of the Corporation, and (iv) this
Pledge creates a valid first lien on and security interest in the
Pledged Shares.
(b) Pledgor will not (i) sell, convey, or otherwise
dispose of the Pledged Shares, (ii) permit any person to acquire a
lien or security interest therein, and (iii) vote or consent with
respect to the Pledged Shares so as to authorize any change in the
authorized shares or stated capital of the Corporation or a
dissolution or liquidation of the Corporation, without, in each of
the above instances, the prior written consent of Pledgee which
consent shall not be unreasonably withheld. As sole shareholder of
the Corporation, Pledgor shall not authorize the Corporation to
take any such action without such written consent.
3. PAYMENT OF PURCHASE PRICE. The Corporation hereby
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delivers to Pledgee the Note. Upon payment in full and performance
of all other obligations of the Corporation and the Pledgor, as the
case may be, under the Note, the Royalty Agreement, and the
Guaranty, and further provided that no "Event of Default", as
defined below, has occurred and is continuing, the Escrow Agent
shall transfer and redeliver to the Pledgor all the Pledged Shares
and the stock power, and upon such redelivery, this Agreement shall
terminate and be of no further force and effect.
4. DEFAULT. In the event that the Corporation or the
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Pledgor, as the case may be, defaults in the performance of any of
the terms of this Agreement, or in the payment or performance of
their respective obligations under the Asset Purchase Agreement,
the Note, Royalty Agreement, or Guaranty, and in each case upon the
expiration of any applicable cure periods (each an "Event of
Default"), Pledgee shall have the rights and remedies provided in
the Uniform Commercial Code in force in the State of New Jersey at
the date of this Agreement (the "UCC"), and Pledgee shall, subject
to the conditions contained in Paragraph 5 hereof, be entitled,
without limitation to (i) cause the Pledged Shares to be titled in
the name of Pledgee or its designated nominee, (ii) vote any or all
of the Pledged Shares, give all consents, waivers and ratifications
in respect thereto as though it were the absolute owner thereof;
and (iii) receive or obtain any dividend or other distribution on
account of such shares, and (iv) require any or all of the officers
and directors of the Corporation to resign. Further, in the event
of any Event of Default, the Escrow Agent shall, subject to the
conditions contained in Paragraph 5 hereof, deliver the Pledged
Shares to the Pledgee, or its successors or assigns. Pledgee may,
upon thirty (30) days' notice to the Pledgor, sent by registered
mail, and without liability for any diminution in price which may
have occurred, purchase or sell all or any part of the Pledged
Shares at such price and in such manner as required by the UCC as
the Pledgee may determine. Out of the proceeds of any sale the
Pledgee may retain an amount equal to the principal, interest and
late charges, if any, and all other amounts then due, on the Note,
plus the amount of the expenses of the sale, plus the amount of any
other obligation of Pledgor to Pledgee, including under the Royalty
Agreement, and shall pay any balance of such proceeds to the
Pledgor as provided by law.
5. Escrow.
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(a) Pledgor and Pledgee hereby appoint Pluese, Lihotz,
Incollingo & Leone ("PLIL") the Escrow Agent hereunder, and PLIL
hereby agrees to accept the appointment as Escrow Agent for all
purposes of this Agreement.
(b) Escrow Agent hereby acknowledges the receipt from
Pledgor of the Pledged Shares.
(c) Upon an Event of Default as defined in Paragraph 4
hereof, Pledgee shall send written notice to Escrow Agent, with
proof of delivery of same to the Pledgor, and to Pledgor and its
counsel in accordance with the notice provision contained in
Paragraph 10 hereof. Escrow Agent shall be authorized to release
the Pledged Shares to the Pledgee thirty (30) days after receipt of
such written notice unless Escrow Agent receives within such thirty
(30) days (i) written objection by the Pledgor, stating the basis
for its objection, or (ii) proof of cure of such default.
(d) Upon receipt by Escrow Agent of written notice of
objection from Pledgor as set forth in (c) above, Escrow Agent
shall continue to hold such Pledged Shares until the earlier of:
i. Written notice to release same signed by
Pledgor and Pledgee or
ii. Receipt of a non-appealable decision of a
Court of competent jurisdiction, or award of
binding arbitration, setting forth the party to
which the Pledged Shares should be released.
(e) The Escrow Agent shall not be liable to any of the
parties for any act or omission, except for bad faith or gross
negligence, and the parties hereby agree to indemnify the Escrow
Agent and hold the Escrow Agent harmless from any claims, damages,
losses or expenses (including reasonable attorneys' fees) arising
in connection herewith. The parties acknowledge that the Escrow
Agent is acting solely as a stakeholder for their convenience. In
the event of a dispute between the parties, the Escrow Agent shall
not be bound to release and deliver the Pledged Shares to either
party but may either continue to hold the Pledged Shares as set
forth in (d) above, or Escrow Agent may deposit the Pledged Shares
with the clerk of any court of competent jurisdiction. Upon such
deposit, the Escrow Agent will be released from all duties and
responsibilities hereunder.
(f) The Escrow Agent shall not be required to defend any
legal proceedings which may be instituted against it in respect to
the subject matter of this Paragraph 5 unless requested to do so by
Pledgor or Pledgee and indemnified to its satisfaction against the
cost and expense of such defense (including attorneys' fees). The
Escrow Agent shall not be required to institute legal proceedings
of any kind and shall have no responsibility for the genuineness or
validity of any document or other item deposited with it in
connection with this Paragraph 5.
(g) The parties agree that, notwithstanding the role of
PLIL as Escrow Agent, PLIL may and does represent Pledgee as legal
counsel in connection with the subject matter of this Agreement and
the Asset Purchase Agreement and otherwise. The foregoing shall
not be deemed to be nor create a conflict of interest that will
prevent PLIL from acting as counsel for Pledgee with respect to
this or any other matter.
6. VOTING. Provided no Event of Default has occurred and is
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continuing and subject to the limitations set forth in this
Agreement, at all meetings of shareholders or in connection with
any rights of shareholders of the Corporation, at any time while
Pledgor is indebted to Pledgee under the Note or Royalty Agreement,
the Pledged Shares shall continue to be voted by the Pledgor, and
the Pledgee shall execute at any time, if required, any instruments
requested by the Pledgor necessary to evidence such rights,
including without limitation, an appointment of Pledgor as proxy.
7. DIVIDENDS. Provided no Event of Default has occurred and
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is continuing, all dividends and other amounts declared on the
Pledged Shares during the term of this pledge and received by the
Pledgor as a result of its record ownership of the Pledged Shares
shall be retained by Pledgor. Upon the occurrence of an Event of
Default such dividends and other amounts shall be paid to Pledgee
and applied against such obligations of Pledgor to Pledgee as
Pledgee shall in its sole discretion determine.
8. ADJUSTMENTS. In the event that, during the term of this
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pledge, any share dividend, reclassification, readjustment, or
other change is declared or made in the capital structure of the
Corporation, all new substituted, or additional shares, or other
securities, issued by reason of any such change shall be deposited
with and held by the Escrow Agent under the terms of this Agreement
in the same manner as the Pledged Shares.
9. BENEFIT. This Agreement shall bind and inure to the
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benefit of the parties, their legal representatives and assigns.
10. NOTICE. Whenever under this Agreement notice is required
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to be given, it shall be given in writing and shall be deemed to
have been given three (3) business days after the date such notice
is deposited in the United States mails, postage prepaid, by
certified or registered mailing and addressed as follows:
If to the Pledgor: Touchstone Applied Science
Associates, Inc.
c/o Mr. Andrew L. Simon, President
Fields Lane
Brewster, NY 10509
with a copy to Maureen Crush, Esq., Rider, Weiner, Frankel &
Calhelha, P.C., 655 Little Britain Road, New Windsor, NY 12553,
If to the Pledgee: Mr. Bernard B. Shapiro
186 Cafferty Road
Pipersville, PA 18947
with a copy to Helene Leone, Esq., Pluese, Lihotz, Incollingo &
Leone, 21 East Euclid Avenue, Haddonfield, NJ 08033.
If to Escrow Agent: Pluese, Lihotz, Incollingo & Leone
c/o Helene Leone, Esq.
21 East Euclid Avenue
Haddonfield, NJ 08033
11. GOVERNING LAW. This Agreement shall be governed by and
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construed under the laws of the State of New Jersey.
12. ASSIGNMENT/AMENDMENT. This Agreement and the rights and
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obligations thereunder cannot be assigned by either party without
the written consent of the others. No amendment or waiver under
this Agreement shall be effective unless in writing and signed by
the parties hereto.
IN WITNESS WHEREOF, the undersigned have set their hands and
seals as of the date first above written.
PLEDGEE:
PROGRAMS FOR EDUCATION, INC.
/s/ BERNARD B. SHAPIRO
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Bernard B. Shapiro, President
PLEDGOR:
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
/s/ ANDREW L. SIMON
------------------------------------------
Andrew L. Simon, President
ESCROW AGENT:
PLUESE, LIHOTZ, INCOLLINGO & LEONE
/s/ HELENE LEONE
------------------------------------------
Helene Leone, Esq.
Exhibit 10.5
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GUARANTY
GUARANTY AGREEMENT made May 30, 1997 by TOUCHSTONE APPLIED
SCIENCE ASSOCIATES, INC., a Delaware corporation with a principal
place of business at Fields Lane, Brewster, New York 10509 (the
"Guarantor"), in favor of PROGRAMS FOR EDUCATION, INC., a New
Jersey corporation with its principal place of business at Building
#6 Cane Farm, Rosemont, New Jersey (the "Corporation") and BERNARD
B. SHAPIRO ("Shapiro"), an individual with an address at 186
Cafferty Road, Pipersville, Pennsylvania 18947 (Corporation and
Shapiro collectively, "Seller").
W I T N E S S E T H:
WHEREAS, the Corporation is a party to an Asset Purchase
Agreement dated as of May 30, 1997 relating to the sale of
substantially all of the assets of the Corporation to Modern
Learning Press, Inc., a Delaware corporation ("Purchaser") (the
"Asset Purchase Agreement"); and
WHEREAS, it is a condition to the Asset Purchase Agreement
that Guarantor shall have executed and delivered to Seller this
Guaranty Agreement.
NOW, THEREFORE, in consideration of the premises and the
agreements herein and in order to induce Seller to execute the
Asset Purchase Agreement, Guarantor, hereby agrees with Seller as
follows:
Section 1. Incorporation of Agreements and Definitions. The
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premises set forth above are incorporated into this Guaranty
Agreement by this reference thereto and are made a part hereof.
All terms used in this Guaranty Agreement not otherwise defined
herein are used as defined in the Asset Purchase Agreement.
Section 2. Guaranty. Guarantor, hereby irrevocably,
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absolutely and unconditionally, guarantees the due and punctual
payment of all liabilities and obligations owing to Seller from the
Purchaser (all such obligations being hereinafter referred to as
the "Secured Obligations"), pursuant to the Asset Purchase
Agreement and the documents executed in connection therewith,
including the Note, Non-Competition Agreement, Consulting Agreement
and Royalty Agreement (collectively, the "Other Documents").
Section 3. Guarantor's Obligations Unconditional. The
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liability of the Guarantor hereunder shall be absolute and
unconditional. This Agreement is a continuing guaranty and shall
remain in full force and effect until the satisfaction in full of
the Secured Obligations and the payment of the other expenses to be
paid by Guarantor pursuant hereto; and shall continue to be
effective or shall be reinstated, as the case may be, if at any
time any payment of any of the Secured Obligations is rescinded or
must otherwise be returned by Seller upon the insolvency,
bankruptcy or reorganization of the Purchaser or otherwise, all as
though such payments have not been made.
Section 4. Guaranty Not Affected. Without limiting the
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generality of the prior paragraphs, the Guarantor hereby consents
and agrees that, at any time, and from time to time, without notice
to Guarantor:
(a) the time, manner, place and terms of payment of any
of the Secured Obligations may be renewed, extended or modified;
(b) any collateral, or any other guaranty, for any of
the Secured Obligations may be exchanged, released, surrendered or
otherwise disposed of;
(c) any action may be taken under or in respect of any
Other Document in the exercise of any remedy, power or privilege
therein contained or otherwise with respect thereto, or such
remedy, power or privilege may be waived, omitted, or not enforced;
(d) the time for performance by Purchaser or compliance
with any term, covenant or agreement on the part of Purchaser to be
performed or observed under any Other Document may be extended, or
such performance or compliance waived, or failure in or departure
from such performance or compliance consented to;
(e) any Other Document, or any term thereof, may be
amended or modified in any respect (including, without limitation,
with respect to interest rates); and
(f) the liability of Purchaser or any other guarantor to
pay any Secured Obligation may be settled or compromised;
Any or all of the foregoing may be done in such manner and
upon such terms as Seller determines, without notice to or further
assent from the Guarantor, and without affecting this Guaranty or
the obligations of the Guarantor hereunder, which shall continue in
full force and effect until the Secured Obligations and all
obligations of the Guarantor hereunder shall have been fully paid
and performed and the Seller has determined not to extend further
credit to Purchaser.
Section 5. Waivers. Except as specifically required by this
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Agreement, Guarantor hereby waives presentment, demand for payment,
protest and notice of any kind whatsoever with respect to the
Secured Obligations, including without limitation, notice of
acceptance of the guaranty, notice of default and any requirement
that Seller exhaust any right to take any action against the
Purchaser any other person including any other guarantor.
Section 6. Representations and Warranties. Guarantor hereby
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represents and warrants as follows:
(a) Guarantor is a corporation duly organized and
existing and in good standing under the laws of the State of
Delaware and is in the process of applying for qualification in the
Commonwealth of Pennsylvania and State of New Jersey. Guarantor
has full power and authority to carry out and perform undertakings
and obligations as provided herein. The execution and delivery by
Guarantor of this Guaranty and the consummation of the transactions
contemplated in this Guaranty have been duly authorized by all
proper or requisite corporate proceedings and will not conflict
with or breach any provision of any agreement to which Guarantor is
a party or by which it may be bound, the Articles of Incorporation
or By-Laws of Guarantor.
(b) The execution, delivery and performance by Guarantor
of this Guaranty Agreement do not and will not contravene any
contractual restriction or, any law binding on or effecting
Guarantor or any of its properties.
(c) No consent or approval is required for the due
execution, delivery and performance by Guarantor of this Guaranty
Agreement.
(d) This Guaranty Agreement is a legal, valid and
binding obligation of Guarantor, enforceable against Guarantor in
accordance with its terms, except as may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect affecting the enforcement of
creditor's rights generally and (ii) general principals of equity
(regardless of whether considered in a proceeding in equity or in
law).
(e) There is no action, suit or proceeding pending, or
to the best of Guarantor's knowledge, threatened against or
otherwise affecting Guarantor or any guarantor before any court or
any government body or any arbitrator which may materially
adversely affect Guarantor's or any guarantor's ability to perform
its obligations hereunder.
(f) All representations and warranties herein shall
survive the execution and delivery by Guarantor of this Guaranty
Agreement and any Other Document in connection with the Asset
Purchase Agreement to which it is a party and the closing of the
transaction described herein or therein or related thereto until
all Secured Obligations are paid in full.
Section 7. Covenants. So long as any of the Secured
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Obligations shall remain outstanding, Guarantor agrees:
(a) Promptly to pay and perform all of Guarantor's
obligations hereunder; and
(b) Promptly notify Seller of any material adverse
changes in the financial condition of Guarantor and Purchaser.
Section 8. Expenses. Guarantor will pay to Seller the amount
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of any and all reasonable costs and expenses, including the
reasonable fees and disbursements of his counsel, which Seller
incurs in connection with the enforcement of this Guaranty
Agreement.
Section 9. Modifications, Waivers, Extensions and Releases.
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No modification or amendment of or waiver with respect to any
provision of this Guaranty Agreement, shall in any event be
effective unless it shall be in writing and signed by the parties
hereto.
Section 10. Entire Agreement. This Guaranty Agreement and
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documents executed in connection therewith contains the entire
agreement and understanding between the Purchaser, Seller and
Guarantor and supersedes all prior agreements and understanding
related to the subject matter hereof.
Section 11. Remedies Cumulative. Each and every right
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granted to Seller or allowed by law or equity, shall be cumulative
and may be exercised from time to time. No failure on part of
Seller to exercise any right shall operate as a waiver thereof.
Section 12. Severability. Any provision of this Agreement
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that is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining
provisions hereof.
Section 13. Notices. All notices and other communications
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shall be in writing, sent by facsimile or certified mail, return
receipt requested, postage prepaid, addressed as follows (or to
such other address as the recipient shall have previously notified
the sender of in writing):
If to Guarantor: Touchstone Applied Science Associates, Inc.
Att: Mr. Andrew L. Simon
Fields Lane
Brewster, NY 10509
Fax: (914) 277-3548
with a copy to: Rider, Weiner, Frankel & Calhelha, P.C.
Att: Maureen Crush, Esq.
655 Little Britain Road
Newburgh, NY 12550
Fax: (914) 562-9126
If to Seller: Bernard B. Shapiro
186 Cafferty Road
Pipersville, PA 18947
Fax: (215) 297-8795
with a copy to: Pluese, Lihotz, Incollingo & Leone
Att: Helene Leone, Esq.
21 East Euclid Avenue
Haddonfield, NJ 08033
Fax: (609) 354-0491
Any notice or communication hereunder shall be deemed to have been
given 3 business days after the day on which it is deposited in the
United States mails, or if sent by facsimile when sent with
evidence of successful transmission.
Section 14. Governing Law. This Guaranty Agreement and the
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rights of the parties hereto shall be construed and enforced in
accordance with the laws of the State of New Jersey.
Section 15. Waiver of Jury Trial. EXCEPT AS PROHIBITED BY
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STATUTE, GUARANTOR SHALL AND DOES HEREBY IRREVOCABLY WAIVE TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY SHAPIRO
AGAINST ANY GUARANTOR ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN
ANY WAY CONNECTED WITH THIS GUARANTY AGREEMENT, OR THE RELATIONSHIP
CREATED HEREBY AND WITH RESPECT TO ANY MATTER FOR WHICH A JURY
TRIAL CANNOT BE WAIVED, GUARANTOR AGREES NOT TO ASSERT ANY SUCH
CLAIM AS A COUNTERCLAIM IN OR MOVE TO CONSOLIDATE SAME WITH ANY
ACTION OR PROCEEDING IN WHICH A JURY TRIAL IS WAIVED.
Section 16. Binding Effect. This Agreement shall be binding
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upon and inure to the benefit of the parties hereto, their
successors and assigns.
IN WITNESS WHEREOF, Guarantor has caused this Guaranty
Agreement to be duly executed to be effective as of the date first
above written.
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
By: /s/ ANDREW L. SIMON
---------------------------------------
Andrew L. Simon, President
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF ORANGE )
On the 30th day of May, 1997, before me personally came Andrew
L. Simon, to me known, who, by me duly sworn, did depose and say
that deponent resides at 1905 Hunterbrook Road, Yorktown Heights,
NY 10598 that deponent is the President of Touchstone Applied
Science Associates, Inc. the corporation described in, and which
executed the foregoing instrument by order of the board of
directors of the corporation; and that deponent signed deponent's
name by like order.
/s/ MAUREEN CRUSH
--------------------------------
Notary Public
Maureen Crush
Notary Public, State of New York
No. 4892935
Qualified in Greene County
Commission Expires 4/13/99
Exhibit 10.6
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ROYALTY AGREEMENT
AGREEMENT made this 30th day of May, 1997, by and between
MODERN LEARNING PRESS, INC., a Delaware corporation with its
principal place of business at 910 Church Street, Honesdale,
Pennsylvania 18437 ("Modern Learning") and BERNARD B. SHAPIRO, an
individual with his principal residence at 186 Cafferty Road,
Pipersville, Pennsylvania 18947 ("Shapiro").
WHEREAS, pursuant to an Asset Purchase Agreement and the
exhibits and schedules thereto (collectively, the "Asset Purchase
Agreement") entered into on the date hereof between Modern Learning
and Programs for Education, Inc., a New Jersey corporation
("Programs"), the assets of Programs were sold and assigned to
Modern Learning;
WHEREAS, Shapiro was employed by Programs and was instrumental
in the development of several recent author/publisher contracts and
the resulting successful publications which are now assets of
Modern Learning.
NOW THEREFORE, the parties hereto agree as follows:
1. Definitions
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1.1 Products
"Products" means the publications of Modern Learning identified on
Exhibit A hereto.
1.2 Product Sales
"Product Sales" means the sale or distribution of the Products
directly to or for public and private educational institutions,
retail outlets, wholesalers to retailers, and mail order or
catalogs.
1.3 Net Sales
"Net Sales" means the gross amount of Product Sales of Products
made by Modern Learning in the Territory at the invoiced selling
price (in U.S. dollars), net normal and reasonable quantity and
cash discounts and returns for credit, uncollectible accounts and
allowances. No deductions shall be made for costs incurred in
manufacturing, selling, distributing and advertising. For purposes
of this Agreement, Net Sales resulting from sales to any affiliated
entity of Modern Learning shall be computed utilizing publisher's
discounts standard in the industry.
1.4 Territory
"Territory" means the world.
2. Term
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The term of this Agreement shall commence as of the date hereof and
continue for seven (7) years, whereupon the Agreement shall expire.
3. Royalties
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3.1 Modern Learning agrees to pay to Shapiro a Royalty of eight
(8%) percent of annual Net Sales, subject to the limitations set
forth in Exhibit B hereto.
3.2 No Royalties shall be owed or paid with respect to copies of
the Product distributed as "free," "complementary," or "no charge,"
provided that the total number of such copies distributed in any
quarter shall not exceed one percent (1%) of the total number of
copies sold by Modern Learning for such quarter.
3.3 On or before the forty-fifth (45th) day following each quarter
of the Term (the first such quarter ending August 31, 1997), Modern
Learning shall submit to Shapiro a full and accurate statement
showing, the quantity, description and Net Sales of each of the
Products sold or distributed during such quarter. The first
quarter shall be prorated from the Closing Date as defined in the
Asset Purchase Agreement. Unless subject to the setoff provisions
of the Asset Purchase Agreement, Modern Learning shall remit with
the quarterly statement all Royalties due on Net Sales for each
such quarter (or pro rata portion thereof) by check or electronic
funds delivered directly to Shapiro or in accordance with written
instructions given to Modern Learning by Shapiro.
3.4 The final quarterly payment for each year of the Term shall be
adjusted for actual annual Net Sales.
4. Guaranteed Minimum Royalty; Security
------------------------------------
4.1 In no event shall the Royalty paid to Shapiro in each year of
this Agreement be less than Eighty Thousand Dollars ($80,000.00)
per year, regardless of the amount of annual Net Sales.
4.2 To secure the prompt payment and performance by Modern
Learning of its obligations to Shapiro pursuant to this Agreement,
Modern Learning has executed and delivered to Shapiro a Security
Agreement dated the date hereof and Touchstone Applied Science
Associates, Inc. ("TASA") has executed and delivered a Stock Pledge
Agreement and Guaranty, each dated the date hereof. Such
capitalized terms are defined as set forth in the Asset Purchase
Agreement.
5. Quality Control
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Modern Learning shall maintain high quality and standards
commensurate with the quality and standards of Programs in
connection with the production of the Product including the minimum
quality production specifications currently utilized by Programs.
6. Proprietary Rights
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6.1 Shapiro acknowledges that Modern Learning has acquired all
right, title and interest to the Products and is the exclusive
owner of the Products, including any and all intellectual property
rights therein, except as may have been reserved to the author of
such work pursuant to separate agreement with such author.
6.2 If Shapiro becomes aware of the manufacture or sale by anyone
other than Modern Learning of the Products or of such products as
would be confusingly similar in the minds of the public, Shapiro
shall promptly notify Modern Learning thereof in writing. Modern
Learning shall, in its sole discretion, take steps to enjoin any
such manufacture or sale, in its own name.
7. Product Orders
--------------
Modern Learning shall produce and distribute the Products pursuant
to purchase orders therefor approved by the President of Modern
Learning or his agent, in their sole discretion, and shall have no
obligation to produce and distribute in the absence of such an
approved purchase order.
8. Goodwill
--------
Shapiro recognizes the great value of the reputation and goodwill
associated with the Product, and, in such connection, acknowledges
that such goodwill exclusively belongs to Modern Learning.
9. Representations and Warranties of Shapiro; Injunction
-----------------------------------------------------
9.1 Shapiro hereby represents and warrants to Modern Learning
that:
(i) he has the power and authority to enter into this
Agreement and to perform his obligations hereunder and, upon
execution and delivery hereof, this Agreement shall constitute the
valid and binding obligations of Shapiro enforceable in accordance
with its terms.
(ii) he shall not solicit any author or authors of the
Products with the intent of or result of interference with the
relationship of any such author or authors with Modern Learning;
nor shall he interfere with, disrupt or attempt to disrupt the
relationship between the Company and any author or authors of the
Product.
9.2 Shapiro acknowledges and agrees that any breach or threatened
breach by Shapiro of the representations and warranties of
Paragraph 9.1(ii) will cause such damage to the Company as will be
irreparable and the exact amount of which will be impossible to
ascertain, and for that reason further agrees that the Company
shall be entitled to apply to any Court of competent jurisdiction
to enjoin or restrain such breach or threatened breach of such
representations and warranties. Nothing contained herein shall be
construed as prohibiting the Company from pursuing any other remedy
available to it for such breach or threatened breach. This
covenant shall terminate upon the occurrence and continuance of an
Event of Default and the exercise of rights of Shapiro to foreclose
the security granted him pursuant to the Security Agreement between
Shapiro, Modern Learning and Programs executed the date hereof.
10. Representations and Warranties of Modern Learning
-------------------------------------------------
Modern Learning hereby represents and warrants to Shapiro that
Modern Learning has the power and authority to enter into this
Agreement and to perform its obligations hereunder and, upon
execution and delivery hereof this Agreement shall constitute the
valid and binding obligations of Modern Learning enforceable in
accordance with its terms.
11. Audits
------
Modern Learning shall keep accurate books of account and records
covering all transactions relating to the Products. The amount of
annual Net Sales shall be determined by the regular accountants of
Modern Learning. Shapiro and his authorized representatives shall
have the right, at reasonable, and agreed dates and times and upon
reasonable prior notice to examine and audit such books of account
and records of sales of Product which relate to this Agreement.
Such audits shall not be conducted more than once annually. All
such books of account and records shall be kept available for at
least three (3) years after the termination of this Agreement.
12. Notices
-------
All notices and other communications hereunder shall be in writing
and shall be deemed to have been given when personally delivered by
courier or overnight mail service, with signed receipt, or three
(3) business days after deposited in the United States mail and
sent postage prepaid by registered or certified mail, return
receipt requested, addressed to the following addresses, or to such
other address which any party shall have given to the other parties
for such purpose by notice hereunder:
If to Modern Learning: Modern Learning Press, Inc.
910 Church Street
Honesdale, Pennsylvania 18437
Att: Walter Barbe, Publisher
with copy to Maureen Crush, Esq., Rider, Weiner, Frankel &
Calhelha, P.C., 655 Little Britain Road, New Windsor, New York
12553,
If to Shapiro: Mr. Bernard B. Shapiro
186 Cafferty Road
Pipersville, Pennsylvania 18947
with copy to Helene Leone, Esq., Pluese, Lihotz, Incollingo &
Leone, 21 East Euclid Avenue, Haddonfield, New Jersey 08033.
13. No Assignment, Pledge or Encumbrance
------------------------------------
This Agreement is personal to Shapiro and Shapiro shall not assign,
transfer or sell any or all of the rights granted herein to any
third party without the prior written consent of Modern Learning.
Notwithstanding the prior sentence, Shapiro, shall have the right
to transfer all rights hereunder to such family member or members,
or trust for the benefit of such family member or members, as
Shapiro may by written notice to Modern Learning direct, or, in the
event of his death, by his Last Will and Testament shall direct, or
the laws of intestacy shall provide. Shapiro shall not pledge or
encumber his rights hereunder as security or collateral for any
obligation of Shapiro.
14. No Partnership or Joint Venture
-------------------------------
This Agreement does not constitute and shall not be construed as
constituting a partnership, joint venture or agency between Shapiro
and Modern Learning. Neither party shall have any right to
obligate or bind the other party in any manner whatsoever, and
nothing herein contained shall give, or is intended to give, any
rights of any kind to any third persons.
15. Entire Agreement; Modification
------------------------------
This Agreement and the Asset Purchase Agreement with its exhibits
and schedules, represents the entire agreement and understanding of
the parties hereto with respect to the subject matter hereof and
supersedes all previous representations, understandings or
agreements between the parties hereto. No waiver, modification or
cancellation of any term or condition of this Agreement shall be
effective unless executed in writing by the party charged
therewith.
16. Binding Effect
--------------
Subject to the limitations herein before expressed, this Agreement
will inure to the benefit of and be binding upon the parties their
successors and permitted assigns.
17. Governing Law; Attorneys' Fees
------------------------------
17.1 This Agreement shall be governed by and construed under
the laws of the State of New Jersey.
17.2 If either party employs attorneys to enforce any rights
arising out of or relating to this Agreement, the prevailing party
shall be entitled to recover reasonable attorneys' fees and costs.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the dates indicated below.
MODERN LEARNING PRESS, INC.
By: /s/ WALTER BARBE
----------------------------------
Walter Barbe, President
/s/ BERNARD B. SHAPIRO
----------------------------------
Bernard B. Shapiro
<PAGE>
EXHIBIT "A"
TO
ROYALTY AGREEMENT
The Products covered by this Agreement are all
publications in the "Words I Use" series, listed below:
WORDS I USE WHEN I WRITE
- ------------------------
WORDS I USE WHEN I WRITE - Student Book for Grades 1 and 2
WORDS I USE WHEN I WRITE - Help at Home Guide for Parents -
Grades 1 and 2
Set of three (3) Classroom Posters
PALABRAS QUE YO USO CUANDO ESCRIBO - Spanish version of Words I
Use When I Write
GUIA PARA LOS PADRES - Help at Home Guides for Parents - Grades 1
and 2
MORE WORDS I USE WHEN I WRITE
- -----------------------------
MORE WORDS I USE WHEN I WRITE - Student Book for Grades 3 and 4
- ----
MORE WORDS I USE WHEN I WRITE - Help at Home Guide for Parents
- ----
MY WORD BOOK
MY WORD BOOK - Student Book for Kindergarten
MY WORD BOOK - Help at Home Guides for Parents
TEACHER GUIDE
MI LIBRO DE PALABRAs - Spanish version of My Word Book
GUIA PARA LOS PADRES - Help at Home Guides for Parents in Spanish
- - Kindergarten
WORD POWER
WORD POWER! - Student Book or Grades 3-5
Teacher Guide
MY WORD WORKS
MY WORD WORKS
MORE WORD WORKS
Teacher Guides
Posters
Black-Line Masters
Help at Home Guides
Training Film/Video
<PAGE>
EXHIBIT "B"
ROYALTY SCHEDULE
The Royalty paid shall be not less than $80,000 each year and not
more than the following sum for the year indicated:
Year 1 $120,000
Year 2 $140,000
Year 3 $160,000
Year 4 $180,000
Year 5 $200,000
Year 6 $220,000
Year 7 $240,000
