SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
Filed by the Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
--------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
- -----------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- -----------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
- -----------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- -----------------------------------------------------------------------------
(5) Total fee paid:
- -----------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
by registration statement number, or the Form or Schedule and the
date of its filing.
(1) Amount previously paid:
- -----------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- -----------------------------------------------------------------------------
(3) Filing Party:
- -----------------------------------------------------------------------------
(4) Date Filed:
- -----------------------------------------------------------------------------
<PAGE>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
4 Hardscrabble Heights, P.O. Box 382
Brewster, New York 10509
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on March__, 1999
To the Stockholders of Touchstone Applied Science Associates, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of
Stockholders (the "Meeting") of TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC., a Delaware corporation (the "Company"), will be
held at the Company's headquarters at 4 Hardscrabble Heights,
Brewster, New York 10509 on ______, March __, 1999 at the hour of
9:00 a.m. local time for the following purposes:
(1) To elect Directors of the Company;
(2) To consider and vote upon a proposal to amend the
Company's Certificate of Incorporation to effect a
one-for-four reverse stock split of the Company's
outstanding common stock, $0.0001 par value (the
"Common Stock") (the "Reverse Stock Split");
(3) To ratify the appointment of independent auditors;
and
(4) To transact such other business as may properly
come before the Meeting.
Only stockholders of record at the close of business on
January __, 1999 are entitled to notice of and to vote at the
Meeting or any adjournment thereof.
By Order of the Board of Directors,
LINDA G. STRALEY
Vice President and Secretary
Brewster, New York
January __, 1999
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING
REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. YOU ARE INVITED TO
ATTEND THE MEETING IN PERSON, BUT WHETHER OR NOT YOU PLAN TO
ATTEND, PLEASE COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE. IF YOU DO ATTEND
THE MEETING, YOU MAY, IF YOU PREFER, REVOKE YOUR PROXY AND VOTE
YOUR SHARES IN PERSON.
<PAGE>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
4 Hardscrabble Heights, P.O. Box 382
Brewster, New York 10509
ANNUAL MEETING OF STOCKHOLDERS
PROXY STATEMENT
This Proxy Statement and the accompanying proxy are
furnished by the Board of Directors of Touchstone Applied Science
Associates, Inc., a Delaware corporation (the "Company"), in
connection with the solicitation of proxies for use at the Annual
Meeting of Stockholders (the "Meeting") referred to in the
foregoing notice. It is contemplated that this Proxy Statement,
together with the accompanying form of proxy and the Company's
Annual Report for the fiscal year ended October 31, 1998, will be
mailed together to stockholders on or about January __, 1999.
Stockholders of record at the close of business on
January __, 1999 are entitled to notice of, and to vote at, the
Meeting. On that date, there were issued and outstanding
[8,567,222] shares of Common Stock, par value $0.0001 per share
(the "Common Stock"). Each share of Common Stock is entitled to
one vote.
The presence, in person or by proxy, of the holders of
a majority of the shares of Common Stock outstanding and entitled
to vote at the meeting is necessary to constitute a quorum. In
deciding all questions, a holder of Common Stock shall be
entitled to one vote in person or by proxy, for each share held
in his, her or its name on the record date. Directors will be
elected by a plurality of the votes cast at the Meeting.
Approval of the amendment of the Certificate of Incorporation to
effect the Reverse Stock Split will require the affirmative vote
of a majority of the outstanding shares of the Common Stock. The
ratification or approval of all other proposals will be decided
by a majority of the votes cast at the Meeting. Shares
represented by proxies marked to withhold authority to vote, and
shares represented by proxies that indicate that the broker or
nominee stockholder thereof does not have discretionary authority
to vote them will be counted to determine the existence of a
quorum at the Meeting but will not affect the plurality or
majority vote required.
All proxies received pursuant to this solicitation will
be voted (unless revoked) at the Meeting or any adjournment
thereof in the manner directed by a stockholder and, if no
direction is made, will be voted FOR the election of each of the
management nominees for director in Proposal No. 1, FOR the
Reverse Stock Split in Proposal No. 2 and FOR the ratification of
the independent auditors in Proposal No. 3. If any other matters
are properly presented at the meeting for action, which is not
presently anticipated, the proxy holders will vote the proxies
(which confer authority to such holders to vote on such matters)
in accordance with their best judgment. A proxy given by a
stockholder may nevertheless be revoked at any time before it is
voted by communicating such revocation in writing to the transfer
agent, American Stock Transfer & Trust Company, at 40 Wall
Street, New York, New York 10005 or by executing and delivering a
later-dated proxy. Furthermore, any person who has executed a
proxy but is present at the Meeting may vote in person instead of
by proxy, thereby canceling any proxy previously given, whether
or not written revocation of such proxy has been given.
As of the date of this Proxy Statement, the Board of
Directors knows of no matters other than the foregoing which will
be presented at the Meeting. If any other business should
properly come before the Meeting, the accompanying form of proxy
will be voted in accordance with the judgment of the persons
named therein, and discretionary authority to do so is included
in the proxy. All expenses in connection with the solicitation
of proxies will be paid by the Company. In addition to
solicitation by mail, officers, directors and regular employees
of the Company who will receive no extra compensation for their
services may solicit proxies by telephone, telecopier, telegraph
or personal calls. Management does not intend to use specially
engaged employees or paid solicitors for such solicitation.
Management intends to solicit proxies which are held of record by
brokers, dealers, banks, or voting trustees, or their nominees,
and may pay the reasonable expenses of such record holders for
completing the mailing of solicitation materials to persons for
whom they hold the shares.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The following table sets forth certain information
regarding the beneficial ownership of the Company's Common Stock,
as of January __, 1999, by (i) each person who is known by the
Company to own beneficially more than 5% of the Company's
outstanding Common Stock; (ii) each of the Company's officers and
directors; and (iii) all officers and directors as a group.
As of January __, 1999, there were [8,567,222] shares of
Common Stock outstanding. Each share of Common Stock is entitled
to one vote per share.
All of the shares of Common Stock owned by Messrs.
Simon and Ivens and Ms. Straley, other than shares deemed to be
owned beneficially by such officers because they may be acquired
through the exercise of currently exercisable stock options, are
held in a voting trust (the "Voting Trust"), pursuant to a Voting
Trust Agreement, dated as of August 19, 1992, as amended. Until
his death, Bertram L. Koslin had been sole Voting Trustee.
Julius Ostreicher, the attorney for the Estate of Bertram L.
Koslin, Andrew L. Simon, the Chairman of the Board of Directors
and the President of the Company, and Eileen West, a former
director of the Company, have been appointed as successor Voting
Trustees. For purposes of the table set forth below, each such
person is listed as beneficially owning the shares of Common
Stock listed opposite his or her name, even though the Voting
Trust has the sole rights to vote such shares. Because the Voting
Trust has the sole and exclusive power to exercise all voting
rights with respect to the shares of Common Stock deposited in
the Voting Trust, the Voting Trust has sole voting and
dispositive power with respect to 1,441,055 shares of Common
Stock. Accordingly, the Voting Trust has the power to exercise
1,441,055 votes, or 16.8% of all eligible votes.
<PAGE>
<TABLE>
<CAPTION>
Name and Address of
Beneficial Owners and Shares of Common Stock Percent of Common Stock
Directors and Officers Beneficially Owned Beneficially Owned
- ------------------------------------------------------------------------------
<S> <C> <C>
5% Beneficial Owners:
- ---------------------
Cahill, Warnock Strategic
Partners Fund, L.P. 2,092,776(a)(b) 19.6%
c/o Cahill, Warnock &
Co., LLC
1 South Street, Suite 2150
Baltimore, MD 21202
- ------------------------------------------------------------------------------
Voting Trust, u/a 1,441,055 16.8%
dated August 19, 1992,
as amended, Julius
Ostreicher, Andrew L.
Simon and Eileen West,
Voting Trustees c/o
Touchstone Applied
Science Associates,
Inc., 4 Hardscrabble
Heights, Brewster, NY
10509
- ------------------------------------------------------------------------------
Estate of Bertram L. Koslin 454,170 5.3%
c/o Ostreicher & Ennis
225 Mamaroneck Avenue
White Plains, NY 10605
- ------------------------------------------------------------------------------
Eileen West 21,500(c) 0.3%
56 Harrison Street
New Rochelle, NY 10801
- ------------------------------------------------------------------------------
Officers and Directors:
- -----------------------
Walter B. Barbe 135,000(d) 1.6%
910 Church Street
Honesdale, PA 18431
- ------------------------------------------------------------------------------
Michael D. Beck 284,500(e) 3.2%
4 Hardscrabble Heights
Brewster, NY 10509
- ------------------------------------------------------------------------------
Steven R. Berger 7,500(f) --(g)
620 Fifth Avenue
New York, NY 10020
- ------------------------------------------------------------------------------
Joseph A. Fernandez 0(h) 0
4392 Live Oak
Boulevard
Palm Harbor, FL 34685
- ------------------------------------------------------------------------------
Stephen H. Ivens 304,976(i) 3.5%
4 Hardscrabble Heights
Brewster, NY 10509
- ------------------------------------------------------------------------------
Andrew L. Simon 649,902(j) 7.3%
4 Hardscrabble Heights
Brewster, NY 10509
- ------------------------------------------------------------------------------
Linda G. Straley 337,977(k) 3.9%
4 Hardscrabble Heights
Brewster, NY 10509
- ------------------------------------------------------------------------------
David L. Warnock 2,208,734(l) 20.5%
1 South Street, Suite
2150
Baltimore, Maryland 21202
- ------------------------------------------------------------------------------
Officers and Directors 5,369,644(m) 46.0%
as a Group (8 persons)
- ------------------------------------------------------------------------------
<FN>
- --------------
(a) Cahill, Warnock Strategic Partners Fund, L.P. (the "Fund")
has the right to acquire such shares pursuant to a currently
exercisable warrant (the "Fund Warrant"). Excludes (i)
523,194 shares with respect to which the Fund's right to
purchase, granted pursuant to the Fund Warrant, is not
currently exercisable and (ii) 144,948 shares which are the
subject of a separate warrant (the "Strategic Warrant";
together with the Fund Warrant, the "Warrants") granted to
Strategic Associates, L.P. ("Strategic Associates";
together, with the Fund, the "Cahill, Warnock Entities"),
an affiliate of the Fund, but as to which the Fund
disclaims beneficial ownership. Pursuant to an Investor
Rights Agreement between the Company and the Cahill, Warnock
Entities, the Company has agreed that so long as the Cahill,
Warnock Entities own at least 50% of the Warrants (or if the
Warrants have been exercised, the shares issuable pursuant
thereto), the Cahill, Warnock Entities have the right to
nominate two directors to the Board of Directors of the
Company. David L. Warnock and Joseph A. Fernandez are the
two current directors who were nominated by the Cahill,
Warnock Entities. Pursuant to the Investor Rights
Agreement, the directors and executive officers have agreed,
at each meeting of stockholders for the purpose of electing
directors, to cast their eligible votes in favor of the
nominees of the Cahill, Warnock Entities. In addition, for
a period of 29 months from October 28, 1998, at each meeting
of stockholders for the purpose of electing directors, the
Cahill, Warnock Entities have agreed to cast all of their
eligible votes in favor of the directors nominated by the
Company.
(b) Edward L. Cahill is a general partner of Cahill, Warnock
Strategic Partners, L.P. ("Cahill, Warnock Partners"), the
Fund's sole general partner. David L. Warnock is also a
general partner of Cahill, Warnock Partners and is a
director of the Company (see footnote (l) to this table).
Messrs. Cahill and Warnock are also the sole members of
Cahill, Warnock & Company, LLC, which is the sole general
partner of Strategic Associates, which holds the Strategic
Warrant.
(c) Includes 21,500 shares which Ms. West has the right to
acquire upon the exercise of currently exercisable stock
options; excludes the shares of Common Stock held in the
Voting Trust for the benefit of all members thereof, which
Voting Trust is listed separately as a 5% stockholder in
this Table. Ms. West is one of three Voting Trustees of the
Voting Trust.
(d) Includes 125,000 shares which Dr. Barbe has the right to
acquire upon the exercise of currently exercisable stock
options; excludes 117,000 shares which are the subject of
options granted to Dr. Barbe which are not currently
exercisable.
(e) Includes (i) 47,000 shares which are owned jointly with Mr.
Beck's wife, (ii) 37,500 shares owned by Mr. Beck's minor
daughter, and (iii) 125,000 shares which Mr. Beck has the
right to acquire upon the exercise of currently exercisable
stock options; excludes (i) 165,000 shares which are the
subject of options granted to Mr. Beck which are not
currently exercisable and (ii) 37,500 shares owned by Mr.
Beck's wife, as to which Mr. Beck disclaims beneficial
ownership.
(f) Includes 7,500 shares which Mr. Berger has the right to
acquire upon the exercise of currently exercisable stock
options; excludes 2,500 shares which are the subject of
options granted to Mr. Berger which are not currently
exercisable.
(g) Less than 0.1%.
(h) Excludes 5,000 shares which are the subject of options
granted to Dr. Fernandez which are not currently
exercisable.
(i) Includes 155,000 shares which Dr. Ivens has the right to
acquire upon the exercise of currently exercisable stock
options; excludes 137,000 shares which are the subject of
options granted to Dr. Ivens which are not currently
exercisable.
(j) Includes 321,500 shares which Mr. Simon has the right to
acquire upon the exercise of currently exercisable stock
options, which options are not included in the Voting Trust;
excludes (i) 258,500 shares which are the subject of options
granted to Mr. Simon which are not currently exercisable,
(ii) 1,500 shares of Common Stock owned by the retirement
account of Mr. Simon's wife, as to which Mr. Simon disclaims
beneficial ownership, and (iii) the shares of Common Stock
held in the Voting Trust for the benefit of all of the
members thereof, which Voting Trust is listed separately as
a 5% stockholder in this table. Mr. Simon is one of three
Voting Trustees of the Voting Trust.
(k) Includes 155,200 shares which Ms. Straley has the right to
acquire upon the exercise of currently exercisable stock
options; excludes 82,600 shares which are the subject of
options granted to Ms. Straley which are not currently
exercisable.
(l) Includes (i) 2,092,776 shares which Cahill, Warnock
Strategic Partners Fund, L.P. (the "Fund") has the right to
acquire pursuant to a currently exercisable warrant (the
"Fund Warrant") and (ii) 115,958 shares which Strategic
Associates, L.P. ("Strategic Associates") has the right to
acquire pursuant to a currently exercisable warrant (the
"Strategic Warrant") (see footnotes (a) and (b) to this
table). Excludes (i) 5,000 shares which are the subject of
options granted to Mr. Warnock which are not currently
exercisable, (ii) 523,194 shares with respect to which the
Fund's right to purchase, granted pursuant to the Fund
Warrant, is not currently exercisable and (iii) 28,990
shares with respect to which Strategic Associates' right to
purchase, granted pursuant to the Strategic Warrant, is not
currently exercisable.
(m) Includes shares held in the Voting Trust for the benefit of
the Estate of Bertram L. Koslin, Eileen West and certain
employees of the Company. Andrew L. Simon, Chairman of the
Board of Directors and President of the Company, is one of
three Voting Trustees of the Voting Trust. Includes an
aggregate of 3,097,934 currently exercisable options and
warrants which are held or deemed held by officers and
directors of the Company, but are not included in the Voting
Trust. Excludes an aggregate of 1,324,784 options and
warrants which are held or deemed held by officers and
directors of the Company which are not currently exercisable
and are not included in the Voting Trust.
</FN>
</TABLE>
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
MANAGEMENT RECOMMENDS THAT YOU VOTE IN FAVOR OF
THE NOMINEES NAMED TO THE BOARD OF DIRECTORS.
Seven directors are to be elected at the Meeting for
terms of one year each and until their successors shall be
elected and qualified. It is intended that votes will be cast
pursuant to the enclosed proxy for the election of the seven persons
whose names are first set forth below unless authority to vote
for one or more of the nominees is withheld by the enclosed
proxy, in which case it is intended that votes will be cast for
those nominees, if any, with respect to whom authority has not
been withheld. All nominees are currently members of the Board of
Directors. In the event that any of the nominees should become
unable or unwilling to serve as a director, a contingency which
the management has no reason to expect, it is intended that the
proxy be voted, unless authority is withheld, for the election of
such person, if any, as shall be designated by the Board of
Directors.
DIRECTORS WILL BE ELECTED BY A PLURALITY OF THE VOTES
CAST AT THE MEETING. THE VOTING TRUST INTENDS TO VOTE IN FAVOR
OF THE PROPOSAL.
The following table sets forth information concerning
each person nominated to serve as a director of the Company:
First
Became
Name Age Director Position
- ---- --- -------- ---------
Walter B. Barbe, Ph.D. 72 1997 Director; President,
Modern Learning Press, Inc.
Michael D. Beck 52 1997 Director; Vice President;
President and Chief
Executive Officer, Beck
Evaluation & Testing
Associates, Inc.
Steven R. Berger 43 1996 Director
Joseph A. Fernandez, Ed.D. 63 1998 Director
Andrew L. Simon 56 1995(1) Chairman of the Board of
Directors; Chief Executive Officer;
President; Chief Financial Officer
Linda G. Straley 42 1994 Director; Vice President,
Operations; Secretary
David L. Warnock 40 1998 Director
(1) Also served as a director of the Company from 1976 to 1991.
WALTER B. BARBE was elected as a Director of the
Company on May 30, 1997 and has been President and Publisher of
Modern Learning Press, Inc. ("MLP"), the Company's wholly-owned
subsidiary, since May 1, 1997. Dr. Barbe is also a Director of
MLP. From 1990 until he joined MLP, Dr. Barbe was a Vice
President of Universal Publishing. Prior to 1990, Dr. Barbe was
the Editor in Chief of Highlights for Children, a children's
-----------------------
magazine publication. Additionally, Dr. Barbe was a professor
and chairman of the Department of Special Education at Kent State
University and has lectured extensively on various topics. Dr.
Barbe received a B.S., an M.A. and a Ph.D. from Northwestern
University and is a licensed psychologist, a publisher and a
college professor.
MICHAEL D. BECK was elected as a Director of the
Company on March 28, 1997 and has been Vice President of the
Company since January 2, 1997. Mr. Beck is also a Director of
BETA. Since 1983, Mr. Beck has been President of BETA, which
provides consulting and contractual services to school districts,
state education departments and test and textbook publishers. As
of January 2, 1997, BETA became a wholly-owned subsidiary of the
Company and Mr. Beck continues to serve as the President of BETA.
See "Certain Relationships and Related Transactions". Mr. Beck
has also provided consulting services on matters of educational
research and assessment for various organizations, including the
U.S. Army Training Support Center and Pitney Bowes Corporation.
Mr. Beck received an A.B. from John Carroll University and an
M.A. from Fordham University.
STEVEN R. BERGER was elected as a Director of the
Company on March 29, 1996 and he also serves on the Company's
Compensation Committee and Audit Committee. Mr. Berger has been
a partner in the law firm of Christy & Viener in New York City
since January 1989. Mr. Berger received an A.B. and a J.D. from
Harvard University. Christy & Viener has acted as special
securities counsel to the Company since January 1995.
JOSEPH A. FERNANDEZ was elected as a Director of the
Company on December 15, 1998 and, since that date, he has also
served on the Company's Compensation Committee. Dr. Fernandez is
President of Joseph A. Fernandez & Associates, Inc., an education
consulting firm. From June 1993 until June 1996, Dr. Fernandez
served as President and Chief Executive Officer of School
Improvement Services, Inc., an organization in Winter Park,
Florida which provides consulting services related to school
improvement at the state, district or school level. From June
1993 until July 1994, Dr. Fernandez also served as the President
of the Council of Great City Schools, a Washington, D.C. based
organization representing fifty of the largest urban school
districts in the United States. Prior to assuming such positions
in 1993, Dr. Fernandez served as Chancellor of the New York City
Public Schools from 1990 to 1993 and as Superintendent of the
Dade County Public Schools in Miami, Florida from 1987 to 1990.
Dr. Fernandez also serves on the Board of Directors of Children's
Comprehensive Services, Inc. Dr. Fernandez holds a B.A. from the
University of Miami, a Masters in Education from Florida Atlantic
University and an Ed.D. from Nova University.
ANDREW L. SIMON was elected as Director and as
President and Treasurer of the Company on March 31, 1995. Mr.
Simon is also a Director of MLP and is a Director and Secretary
of BETA. He served as Interim President of TASA from June 1994
through March 31, 1995. He was a founder of the Company and
previously served as a Director from 1976 to 1991 and has acted
as a financial consultant to the Company since its inception in
1976. From 1983 to 1986, he was a Vice President/Marketing
Division Head in the Private Clients Group at Bankers Trust
Company. He was a Vice President at Citibank, NA, where he held
a number of senior marketing and sales positions, from 1980 to
1983. Prior to 1980, Mr. Simon served as Marketing Director for
several consumer package goods companies including Norcliff-
Thayer and Lederle Laboratories. He holds an M.B.A. from
Columbia University and a B.A. from Washington University.
Mr. Simon is a trustee of the Harvey School and previously served
as a director of the City of Poughkeepsie Partnership.
LINDA G. STRALEY was elected as a Director of the
Company and has been Vice President of Operations since June
1994. From June 1994 through March 31, 1995, she was Chairman of
the Board of Directors. She has been Secretary since August 1992
and, since 1984, she has served as director of DRP Services for
the Company. Ms. Straley received a B.A. in Education from
Bethany College and an M.S. in Psychology and Statistics from the
State University of New York.
DAVID L. WARNOCK was elected as a Director of the
Company on October 28, 1998 and, since that date, he has also
served on the Company's Audit Committee. Mr. Warnock is a
founding partner of Cahill, Warnock & Company, LLC, an asset
management firm established in 1995 to invest in small public
companies. From 1983 to 1995, Mr. Warnock was with T. Rowe Price
Associates in senior management positions, including President of
the corporate general partner of T. Rowe Price Strategic Partners
I and T. Rowe Price Strategic Partners II, and as the Executive
Vice President of T. Rowe Price New Horizons fund. Mr. Warnock
also serves on the Boards of Directors of ALLIANCE National Inc.,
Children's Comprehensive Services, Inc., Concorde Career
Colleges, Inc., Environmental Safeguards, Inc., and SRB
Corporation. Mr. Warnock received a B.A. in History from the
University of Delaware and a Masters in Finance from the
University of Wisconsin.
Pursuant to an Investor Rights Agreement between the
Company, Cahill, Warnock Strategic Partners Fund, L.P. (the
"Fund") and Strategic Associates, L.P. (together, with the Fund,
the "Cahill, Warnock Entities"), the Company has agreed that so
long as the Cahill, Warnock Entities own at least 50% of the
Warrants (as defined in footnote (a) to the table in "Security
Ownership of Certain Beneficial Owners and Management" herein), or
if the Warrants have been exercised, the shares issuable pursuant
thereto, the Cahill, Warnock Entities have the right to nominate
two directors to the Board of Directors of the Company. David L.
Warnock and Joseph A. Fernandez are the two current directors who
were nominated by the Cahill, Warnock Entities. Pursuant to the
Investor Rights Agreement, the directors and executive officers
have agreed, at each meeting of stockholders for the purpose of
electing directors, to cast their eligible votes in favor of the
nominees of the Cahill, Warnock Entities. In addition, for a
period of 29 months from October 28, 1998, at each meeting of
stockholders for the purpose of electing directors, the Cahill,
Warnock Entities have agreed to cast all of their eligible votes
in favor of the directors nominated by the Company. See "Certain
Relationships and Related Transactions".
COMMITTEES AND MEETINGS
The Company does not presently have any standing
nominating committee of the Board of Directors or committee
performing similar functions.
The Board of Directors had six meetings during the
fiscal year ended October 31, 1998 ("Fiscal 1998") and otherwise
acted by unanimous written consent.
The Compensation Committee, which, until August 1998,
consisted of Mr. Berger and Dr. Michael Milone, had three
meetings during Fiscal 1998 and otherwise acted by unanimous
written consent. Dr. Milone resigned from the Board of Directors
to pursue other interests, effective August 19, 1998. Dr.
Fernandez, who was elected as a director on December 15, 1998,
now serves on the Compensation Committee with Mr. Berger. The
Compensation Committee, among other things, sets compensation for
the employees of the Company and administers the Company's
Amended and Restated 1991 Stock Option Incentive Plan.
The Audit Committee, which, until August 1998,
consisted of Mr. Berger and Dr. Milone, had one meeting during
Fiscal 1998 and otherwise acted by unanimous written consent.
Dr. Milone resigned from the Board of Directors to pursue other
interests, effective August 19, 1998. Mr. Warnock, who was
elected as a director on October 28, 1998, now serves on the
Audit Committee with Mr. Berger. The Audit Committee, among
other things, reviews the financial statements with the Company's
independent auditors.
EXECUTIVE COMPENSATION
The following table shows compensation for services
rendered to the Company during the fiscal years ended October 31,
1998, 1997 and 1996 respectively, by the Chief Executive Officer,
the Vice President, DRP Services and the President of BETA. Each
executive officer serves under the authority of the Board of
Directors. No other executive officer of the Company received
cash compensation that exceeded $100,000 during the fiscal year
ended October 31, 1998. Therefore, pursuant to Item 402 of
Regulation S-B, only compensation for each of the Chief Executive
Officer, the Vice President, DRP Services and the President of
BETA is shown in the Summary Compensation Table below.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
-------------------------------------------------------------------------------
Awards Payouts
-------------------------------------
Other Annual Securities All Other
Compen- Restricted Underlying LTIP Compen-
sation Stock Options/SARs(1) Payouts sation
Name and Principal Year Salary($) Bonus($) ($) Award(s)($) (#) ($) ($)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Andrew L. Simon, 1998 $180,000 0 $41,663(3) 0 78,500/0 0 0
President, Chief 1997 135,000 0 39,025(3) 0 239,000/0 0 0
Executive Officer 1996 109,568 0 33,707(3) 0 82,500/0 0 0
and Chief Financial
Officer
- ------------------------------------------------------------------------------------------------------------------
Stephen H. Ivens, 1998 $112,000 0 $35,362(4) 0 25,000/0 0 0
Vice President, 1997 112,000 0 35,210(4) 0 102,500(2)/0 0 0
DRP Services 1996 107,068 0 34,163(4) 0 52,500/0 0 0
- ------------------------------------------------------------------------------------------------------------------
Michael D. Beck, 1998 $110,000 0 $32,864(5) 0 55,000/0 0 0
Vice President, 1997 83,333 0 24,622(5) 0 125,000(6)/0 0 0
TASA; President 1996 0 0 0 0 0/0 0 0
and Chief Executive
Officer, BETA
- ------------------------------------------------------------------------------------------------------------------
<FN>
- -------------
(1) To date, the Company has issued no SARs.
(2) Granted in connection with the rejuvenation of certain
options held by all employees of the Company, pursuant
to which certain severely out-of-the-money options were
canceled and new options to purchase an equal number of
shares were granted, each with a new expiration date
and a new exercise price equal to the fair market value
of the Company's Common Stock on March 28, 1997.
(3) Includes: contributions of $24,000, $20,250 and $16,435
to the Company's qualified 401(k) Profit Sharing Plan
(the "401(k)"), in the fiscal years ended October 31,
1998, 1997, 1996, respectively; and $8,250 annually for
a company car.
(4) Includes: contributions of $16,800, $16,800 and $16,060
to the Company's 401(k) in the fiscal years ended
October 31, 1998, 1997, 1996, respectively; and $7,250,
$6,100 and $7,250 for a company car, in the fiscal
years ended October 31, 1998, 1997, 1996, respectively.
(5) Includes: a contribution of $17,250 and $12,500 to the
Company's 401(k) in Fiscal 1998 and 1997, respectively;
and $7,176 and $4,460 for a company car in Fiscal 1998
and 1997, respectively.
(6) Granted as part of the purchase price for the
acquisition of BETA by the Company.
</FN>
</TABLE>
EMPLOYMENT CONTRACTS
On March 1, 1996, the Company entered into an
employment agreement with each of Andrew L. Simon and Stephen H.
Ivens, pursuant to which the Company agreed to employ Mr. Simon
and Dr. Ivens, and each of Mr. Simon and Dr. Ivens agreed to
remain, as the Company's President and Chief Executive Officer
and Vice President, DRP Services, respectively, for a term of
three years, subject to automatic yearly extensions and certain
rights of termination as provided in each such agreement.
As of January 2, 1997, the Company entered into an
employment agreement with Michael D. Beck, pursuant to which the
Company agreed to employ Mr. Beck, and Mr. Beck agreed to remain,
as a vice president of TASA and President and Chief Executive
Officer of BETA, for a term of three years, subject to automatic
yearly extensions and certain rights of termination as provided
in such agreement.
In the employment agreements with each of Messrs.
Simon, Ivens and Beck, the Company has agreed to provide for
certain benefits and protections for such executive officers in
connection with a change of control of the Company. Such
agreements provide that upon the occurrence of a change of
control (as defined in each agreement), such executive's
employment agreement would continue until the earlier of three
years from the date of such change of control or the date all of
the Company's obligations under the employment agreement are
satisfied. In addition, in the event of a change of control,
each executive officer would be awarded for each fiscal year
during the employment term, an annual bonus in cash at least
equal to the average annual bonus payable to such executive in
respect of two of the last three fiscal years immediately
preceding the date of the change of control in which bonuses paid
were higher. In addition, Mr. Beck's employment agreement
provides that, in the event of a change of control, he would be
entitled to receive a bonus equal to the average annual bonus
payable to Mr. Beck from the Company in respect of two of the
last three fiscal years immediately preceding the date of any
change of control in which the bonuses paid were higher.
As of May 1, 1997, MLP entered into an employment
agreement with Walter B. Barbe, pursuant to which MLP agreed to
employ Dr. Barbe, and Dr. Barbe agreed to remain, as MLP's
President and Publisher for a term of one year, subject to
automatic yearly extensions and certain rights of termination as
provided in each such agreement. Pursuant to its terms, Dr.
Barbe's employment contract was automatically extended through
May 1, 1999.
As of November 2, 1998, the Company acquired
substantially all of the assets of Mildred Elley School, Inc.
("MESI"). MESI entered into an employment agreement with Faith
Takes, pursuant to which, Ms. Takes agreed to remain as the
President and Chief Executive Officer of MESI and to become the
Executive Vice President of TASA Educational Services
Corporation, a wholly-owned subsidiary of the Company and the
parent company of MESI. Ms. Takes' employment agreement has a
term of three years, subject to automatic yearly extensions and
certain rights of termination as provided in such agreement.
Each employment agreement contains a non-competition
clause for two to three years following termination of the
executive's employment.
Generally, each employee of the Company has agreed to
the assignment to the Company of the employee's rights to any
inventions relating to the Company's business or interest which
were conceived both prior to and during the period of employment
and, except under certain specified conditions, the Company's
employees are prohibited from competing for one year with the
Company in areas in which he or she was employed.
STOCK INCENTIVE PLAN
The Board of Directors of the Company adopted the 1991
Stock Option Incentive Plan (the "Option Plan") on August 25,
1991 in order to attract and retain qualified personnel, which
Option Plan was approved by the stockholders on August 25, 1991.
The Board of Directors adopted the Amended and Restated 1991
Stock Option Incentive Plan (the "Amended Option Plan") in
February 1996, which Amended Option Plan amended and restated the
Option Plan and was approved by the stockholders of the Company
on March 29, 1996. Under the Amended Option Plan, options to
purchase up to 2,500,000 shares of Common Stock may be granted to
employees, officers, directors and consultants of the Company.
The Amended Option Plan is administered by the Compensation
Committee of the Board of Directors (the "Committee"). Subject to
the terms of the Amended Option Plan, the Committee is authorized
to select optionees and determine the number of shares covered by
each option and certain of its other terms. The exercise price
of stock options granted under the Amended Option Plan may not be
less than the fair market value of the Company's Common Stock on
the date of the grant. In general, options become exercisable
after the first anniversary of the date of grant. The period
within which any stock option may be exercised cannot exceed ten
years from the date of grant. Options held by a terminated
employee expire three months after termination except in the
event of death, disability or termination for cause. No one
participant may receive, in any one fiscal year, awards under the
Amended Option Plan which would entitle the Participant to
receive more than 200,000 shares.
In Fiscal 1996, the Company granted a total of 233,000
options under the Amended Option Plan; in Fiscal 1997, the
Company granted a total of 1,018,250 options under the Amended
Option Plan of which 715,750 options were granted in connection with
the Rejuvenation; and in Fiscal 1998 the Company granted a total
of 363,500 options under the Amended Option Plan. In Fiscal
1996, 637,678 options under the Amended Option Plan were canceled
or forfeited; in Fiscal 1997, 715,750 options under the
Amended Option Plan were canceled; and in Fiscal 1998, 88,400
options under the Amended Option Plan were canceled. As of
December 31, 1998, there were 2,220,550 options in the aggregate
outstanding under the Amended Option Plan.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
- -----------------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Percent of Total Exercise or
Options/SARs(1) Granted Options/SARs Granted to Base Price
Name (#) Employees in Fiscal Year(3) ($/Sh) Expiration Date
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Andrew L. Simon, 78,500(2) 16.4% $1.063 March 26, 2008
President, Chief
Executive Officer
and Chief Financial
Officer
- -----------------------------------------------------------------------------------------------------------------
Stephen H. Ivens, 25,000(2) 5.2% $1.063 March 26, 2008
Vice President,
DRP Services
- -----------------------------------------------------------------------------------------------------------------
Michael D. Beck, 55,000(2) 11.5% $1.063 March 26, 2008
Vice President,
TASA; President and
Chief Executive
Officer, BETA
- -----------------------------------------------------------------------------------------------------------------
<FN>
- -------------
(1) To date, the Company has issued no SARs.
(2) These options become exercisable on March 28, 1999.
(3) Includes all options granted to employees and directors
under the Amended Option Plan, the Directors Stock Option
Plan and the Consultants Stock Incentive Plan in Fiscal 1998.
</FN>
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options/SARs(1) Options/SARs(1)
at FY-End(#) at FY-End ($)
----------------------------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Andrew L. Simon, 0 0 321,500/78,500 0/0(2)
President, Chief
Executive Officer
and Chief
Financial Officer
- -----------------------------------------------------------------------------------------------------
Stephen H. Ivens, 0 0 155,000/25,000 0/0(2)
Vice President,
DRP Services
- -----------------------------------------------------------------------------------------------------
Michael D. Beck, 0 0 125,000/55,000 $23,500/0(2)
Vice President,
TASA; President and
Chief Executive
Officer, BETA
- -----------------------------------------------------------------------------------------------------
<FN>
- -------------
(1) To date, the Company has issued no SARs.
(2) Based on the closing price of the Company's Common
Stock on NASDAQ on October 30, 1998, or $0.719.
</FN>
</TABLE>
DIRECTORS COMPENSATION
The Board of Directors of the Company adopted the
Directors Plan in February 1996 in order to aid the Company in
attracting, retaining and motivating independent directors, which
Directors Plan was approved by the stockholders of the Company on
March 29, 1996. Under the Directors Plan, non-qualified stock
options to purchase up to 100,000 shares of Common Stock may be
granted to non-employee directors of the Company, which options
are granted automatically at the times and in the manner stated
in the Directors Plan.
Subject to the terms of the Directors Plan, each non-
employee director receives 5,000 options on the day he (she)
first is elected to the Board of Directors, and 2,500 options on
the date of each annual meeting of the stockholders of the
Company, provided he (she) is re-elected to the Board of
Directors. The exercise price of stock options granted under the
Directors Plan is the fair market value of the Company's Common
Stock on the date of grant. The options become exercisable after
the first anniversary of the date of grant and the term of the
option cannot exceed ten years. On March 29, 1996, the Company
granted 10,000 options; on March 28, 1997, the Company granted
5,000 options; on March 27, 1998, the Company granted 5,000
options; and on October 28, 1998, the Company granted 5,000
options.
Directors receive no compensation, other than the
options pursuant to the Directors Plan, for services in such
capacity.
OTHER PLANS
Consultants Stock Incentive Plan. In March 1997, the
--------------------------------
Board of Directors of the Company adopted the Consultants Plan,
pursuant to which options to purchase up to 200,000 shares of
Common Stock may be granted to consultants to the Company. The
Consultants Plan is administered by the Board of Directors of the
Company. Subject to the terms of the Consultants Plan, the Board
is authorized to select optionees and determine the number of
shares covered by each option and certain of its other terms. In
general, the exercise price of stock options granted under the
Consultants Plan is the fair market value of the Company's Common
Stock on the date of the grant, however, the Board has the
discretion to use another method of valuation if it determines
that such other valuation is warranted. In general, options
become exercisable six months from the date of grant, although
the Board has discretion to set either longer or shorter vesting
periods. The period within which any stock option may be
exercised cannot exceed ten years from the date of grant. If a
consultant's association with the Company is terminated prior to
the end of its agreed term, all unexercised, deferred and unpaid
awards shall be canceled immediately, except in the event of the
Consultant's death or disability. In Fiscal 1997, 50,000 options
were granted under the Consultants Plan. In Fiscal 1998, 105,000
options were granted under the Consultants Plan.
Profit Sharing Plan. The Company has a qualified 401(k)
-------------------
Profit Sharing Plan. The 401(k) Plan allows employees to
contribute up to 15 percent of income through Company
contributions and a salary reduction mechanism. Company
contributions to the 401(k) Plan are optional and accrue at the
discretion of the Board of Directors. For Fiscal 1998, Fiscal
1997 and Fiscal 1996, the Company made a contribution to profit
sharing equal to five percent (5%) of each eligible employee's
compensation, thereby limiting each eligible employee to
contribute up to ten percent (10%) of compensation.
Net assets for the 401(k) Plan, as estimated by the
Massachusetts Mutual Life Insurance Company which maintains such
plan's records, are $1,656,023 at October 31, 1998.
Money Purchase Pension Plan. In October 1991, the
---------------------------
Company adopted a Money Purchase Pension Plan, which has been
qualified by the Internal Revenue Service. Under this Plan, the
Company makes an annual contribution to the Plan equal to ten
percent (10%) of each eligible employee's compensation.
Net assets for the Money Purchase Pension Plan, as
estimated by the Massachusetts Mutual Life Insurance Company
which maintains such plan's records, are $741,928 at October 31,
1998.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934
requires the Company's directors, executive officers and persons
who own beneficially more than ten percent of the Company's
outstanding common stock to file with the SEC initial reports of
beneficial ownership and reports of changes in beneficial
ownership of common stock and other securities of the Company on
Forms 3, 4 and 5, and to furnish the Company with copies of all
such forms they file. Based on a review of copies of such
reports received by the Company, all of the Company's directors
and officers timely filed all reports required with respect to
Fiscal 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As of November 2, 1998, the Company acquired substantially
all of the assets of Mildred Elley Schools, Inc. (the "Acquisition").
The Company financed the Acquisition through the issuance of debentures,
with warrants attached, pursuant to a Securities Purchase Agreement
with Cahill, Warnock Strategic Partners Fund, L.P. and Strategic
Associates, L.P. (collectively, the "Cahill, Warnock Entities").
Pursuant to the Securities Purchase Agreement, the Company:
(i) issued and sold to the Purchasers 8% Debentures due 2003 (the
"Debentures") in the aggregate principal amount of $4,000,000,
(ii) issued and sold to the Cahill Warnock Entities, as additional
consideration for purchasing the Debentures, warrants (the "Warrants")
to acquire 2,760,918 shares of the Company's Common Stock, which, on
the date of issuance of the Debentures, constituted 20% of the Company's
issued and outstanding common stock on a fully diluted basis, after
giving effect to the transactions contemplated in the Securities
Purchase Agreement and (iii) authorized the issuance and sale in the
future to the Cahill Warnock Entities of additional shares of the
Company's Common Stock upon the Company's exercise of a put option,
the terms and conditions of which are set forth in the Securities
Purchase Agreement. Of the Warrants issued, 80% are immediately
exercisable, and 20% will become exercisable 18 months after the
issuance thereof if the Company shall not have repaid the Debentures
in full by such date. Pursuant to a Registration Rights Agreement
between the Company and the Cahill Warnock Entities, the Company
has agreed to register with the Securities and Exchange
Commission the shares of Common Stock underlying the Warrants.
Pursuant to an Investor Rights Agreement between the
Company and the Cahill Warnock Entities, the Company has agreed
that so long as the Cahill Warnock Entities own at least 50% of
the Warrants (or if the Warrants have been exercised, the shares
issuable pursuant thereto), the Purchasers shall have the right to
nominate two directors to the Board of Directors of the Company.
David L. Warnock and Joseph A. Fernandez are the current directors
who were nominated by the Cahill, Warnock Entities. Pursuant to the
Investor Rights Agreement, the directors and executive officers have
agreed, at each meeting of stockholders for the purpose of
electing directors, to cast their eligible votes in favor of the
nominees of the Cahill Warnock Entities. In addition, for a
period of 29 months from October 28, 1998, at each meeting of
stockholders for the purpose of electing directors, the Cahill
Warnock Entities have agreed to cast all of their eligible votes
in favor of the directors nominated by the Company.
As of January 2, 1997 (the "Agreement Date"), the
Company purchased all of the outstanding capital stock of BETA
from the holders of such shares for a purchase price equal to (i)
$130,000 in cash, (ii) $150,000 payable in promissory notes,
bearing interest at the rate of 8.25% and maturing on January 2,
1999, and (iii) 150,000 shares of the Company's Common Stock, par
value $.0001 per share. Michael D. Beck, Vice President and
Director of the Company and President and Chief Executive Officer
of BETA, Connie Beck, Mr. Beck's wife, and Amanda Beck, Mr.
Beck's minor daughter, were the shareholders of BETA at the time
of its acquisition. Pursuant to the Stock Purchase Agreement,
Mr. Beck has the option to repurchase all of the outstanding
capital stock of BETA from the Company for a period of six years
from the Agreement Date, provided that Mr. Beck may not exercise
the option prior to the third anniversary of the Agreement Date
unless his employment with the Company and BETA is not renewed at
the expiration of the initial three-year term or has been
terminated for "cause" or "disability" or he leaves after a
change of control for "good reason" (as contemplated by his
employment agreement). The option exercise price is subject to a
formula and varies based upon the reason for, and timing of,
exercise.
One of the Company's directors, Steven R. Berger, is a
partner in Christy & Viener, which acts as special securities
counsel to the Company. The Company paid legal fees of $143,375,
$124,864 and $112,458 to Christy & Viener for the fiscal years
ended October 31, 1998, 1997 and 1996, respectively.
PROPOSAL NO. 2
REVERSE STOCK SPLIT
MANAGEMENT RECOMMENDS THAT YOU VOTE TO APPROVE
THE REVERSE STOCK SPLIT PROPOSAL
The Board of Directors of the Company has approved the
proposal for the one-for-four reverse stock split of the
Company's Common Stock (the "Reverse Stock Split"), subject to
the approval by the stockholders of the Company. The proposal for
the Reverse Stock Split is referred to herein as the "Reverse
Stock Split Proposal".
Except for an adjustment which may result from the
rounding up of fractional shares as described below, each
stockholder will hold the same percentage of Common Stock
outstanding immediately following the Reverse Stock Split as each
stockholder did immediately prior to the Reverse Stock Split. If
approved by the stockholders of the Company as provided herein,
the Reverse Stock Split will be effected by an amendment to the
Company's Certificate of Incorporation in substantially the form
attached to this Proxy Statement as Appendix A (the "Reverse
Stock Split Amendment"), and will become effective upon the
filing of the Reverse Stock Split Amendment with the Secretary of
State of Delaware (the "Effective Date"). The following
discussion is qualified in its entirety by the full text of the
Reverse Stock Split Amendment, which is hereby incorporated by
reference herein.
At the Effective Date, each four shares of Common Stock
issued and outstanding will automatically be reclassified and
converted into one share of Common Stock. Fractional
shares of Common Stock will not be issued as a result of the
Reverse Stock Split, but instead, any fractional shares will be
rounded up to the nearest whole share. Each stockholder
immediately before the Reverse Stock Split will continue to be a
stockholder immediately after the Reverse Stock Split.
The Company expects that, if the Reverse Stock Split
Proposal is approved by the stockholders at the Meeting, the
Reverse Stock Split Amendment will be filed promptly. However,
notwithstanding approval of the Reverse Stock Split Proposal by
the stockholders of the Company, the Board of Directors of the
Company may elect not to file, or to delay the filing of, the
Reverse Stock Split Amendment, if the Board of Directors
determines that filing the Reverse Stock Split Amendment would
not be in the best interest of the Company and its stockholders.
In addition, the Board of Directors may make any and all changes
to the Reverse Stock Split Amendment that it deems necessary to
give effect to the intents and purposes of the Reverse Stock Split.
REASONS FOR THE REVERSE STOCK SPLIT
The primary purpose of the Reverse Stock Split is to
combine the outstanding shares of Common Stock so that the Common
Stock outstanding after giving effect to the Reverse Stock Split
trades at a significantly higher price per share than the Common
Stock outstanding before giving effect to the Reverse Stock
Split. The Company believes that the Reverse Stock Split will aid
the Company in remaining eligible for listing on the Nasdaq
SmallCap Market of The Nasdaq Stock Market, Inc. (the "Nasdaq
SmallCap Market").
In response to action taken by the staff of the Nasdaq
Stock Market, Inc. (the "Staff"), the Company has proposed to
effect the Reverse Stock Split in order to comply with the
minimum bid price requirement of $1.00 per share required for
continued inclusion of the Common Stock on the Nasdaq SmallCap
Market, pursuant to the Nasdaq SmallCap continued Listing
requirements (the "Nasdaq Listing Requirements"). On August 14,
1998, the Staff advised the Company that the bid price for the
Common Stock had been below $1.00 for a period of thirty
consecutive days. The Staff provided the Company ninety days
to comply with such requirement for a period of ten consecutive
days in order to continue listing of the Common Stock on the
Nasdaq SmallCap Market. The Company was unable to meet this
requirement during the ninety-day period, but requested, and has
been granted, an oral hearing by the Staff on January 21, 1999.
In the meantime, the Staff's delisting action is stayed pending
resolution of the Nasdaq hearing or subsequent appeals. The
Company believes, but cannot assure, that the Reverse Stock
Split will enable the Common Stock to trade above the minimum bid
price established by the Nasdaq Listing Requirements, however,
there can be no assurance that the Company will succeed in
convincing Nasdaq that it will be able to meet or continue to
meet the Nasdaq Listing Requirements. If, as a result of the
Reverse Stock Split and the Company's hearing with the Staff,
the Company's Common Stock remains eligible for listing on the
Nasdaq SmallCap Market, there can be no assurance that the
Common Stock will continue to trade above the minimum bid price
or that the Company will continue to meet each of the other
Nasdaq Listing Requirements. See "--Other Nasdaq Requirements."
The Company believes that maintaining the listing of
the Common Stock on the Nasdaq SmallCap Market is in the best
interests of the Company and its stockholders. Inclusion in the
Nasdaq SmallCap Market increases liquidity and may potentially
minimize the spread between the "bid" and "asked" prices quoted
by market makers. Further, a Nasdaq SmallCap Market listing may
enhance the Company's access to capital and increase the
Company's flexibility in responding to anticipated capital
requirements. The Company believes that prospective investors
will view an investment in the Company more favorably if its
shares qualify for listing on the Nasdaq SmallCap Market.
The Company also believes that the current per share
price level of the Company's Common Stock has reduced the
effective marketability of the Company's shares because of the
reluctance of many leading brokerage firms to recommend low
priced stock to their clients. Certain investors view low-priced
stock as unattractive, although certain other investors may be
attracted to low-priced stock because of the greater trading
volatility sometimes associated with such securities. In
addition, a variety of brokerage house policies and practices
tend to discourage individual brokers within those firms from
dealing in low-priced stock. Some of those policies and practices
pertain to the payment of brokers commissions and to time-
consuming procedures that function to make the handling of low-
priced stocks unattractive to brokers from an economic
standpoint.
In addition, since brokerage commissions on low-priced
stock generally represent a higher percentage of the stock price
than commissions on higher priced stock, the current share price
of the Common Stock can result in individual stockholders paying
transaction costs (commissions, markups, or markdowns) which are
a higher percentage of their total share value than would be the
case if the share price were substantially higher. This factor
also may limit the willingness of institutions to purchase the
Common Stock at its current low share price. The Board of
Directors believes that the Reverse Stock Split will enhance the
Company's flexibility in the future for financing and
capitalization needs. There can, however, be no assurance that
the Reverse Stock Split will have any of the foregoing effects.
In the event that the Company's Common Stock is
delisted from the Nasdaq SmallCap Market, sales of the Company's
Common Stock would likely only be conducted in the over-the-
counter market or potentially in regional exchanges. This may
have a negative impact on the liquidity and price of the Common
Stock and investors may find it more difficult to purchase or
dispose of, or to obtain accurate quotations as to the market
value of, the Company's Common Stock.
In addition, if the Common Stock is not listed on the
Nasdaq SmallCap Market and the trading price of the Common Stock
were to remain below $5.00 per share, trading in the Company's
Common Stock would also be subject to the requirements of certain
rules promulgated under the Securities Exchange Act of 1934, as
amended, which require additional disclosure by broker-dealers in
connection with any trades involving a stock defined as a penny
stock (generally, any non-Nasdaq equity security that has a
market price of less than $5.00 per share, subject to certain
exceptions). The additional burdens imposed upon broker-dealers
from effecting transactions in the Common Stock could limit the
market liquidity of the Common Stock and the ability of investors
to trade the Company's Common Stock.
For all the above reasons, the Company believes that
the Reverse Stock Split is in the best interests of the Company
and its stockholders. However, there can be no assurances that
the Reverse Stock Split will have the desired consequences. The
Company anticipates that, following the consummation of the
Reverse Stock Split, the Common Stock will trade at a price per
share that is significantly higher than the current market price
of the Common Stock. THERE CAN BE NO ASSURANCE THAT THE TOTAL
MARKET CAPITALIZATION OF THE COMMON STOCK AFTER THE PROPOSED
REVERSE STOCK SPLIT WILL BE EQUAL TO THE TOTAL MARKET
CAPITALIZATION BEFORE THE PROPOSED REVERSE STOCK SPLIT OR THAT
THE MARKET PRICE FOLLOWING THE REVERSE STOCK SPLIT WILL EITHER
EXCEED OR REMAIN IN EXCESS OF THE CURRENT MARKET PRICE.
EFFECT OF THE REVERSE STOCK SPLIT PROPOSAL
Although the Company expects to file the Reverse Stock
Split Amendment with the Delaware Secretary of State's office
promptly following approval of the Reverse Stock Split Proposal
at the Meeting, the actual timing of such filing (and whether
such filing is made) will be determined by the Board of Directors
based upon their evaluation as to when such action will be most
advantageous to the Company and its stockholders.
Notwithstanding approval of the Reverse Stock Split Proposal by
the stockholders of the Company, the Board of Directors may elect
not to file, or to delay the filing of, the Reverse Stock Split
Amendment, if the Board of Directors determines that filing the
Reverse Stock Split Amendment would not be in the best interest
of the Company and its stockholders.
After the Reverse Stock Split, each stockholder shall
own one-fourth as many shares (but the same percentage of the
outstanding shares) as such stockholder owned before the Reverse
Stock Split; provided, however, that any fractional share shall
be rounded upward to the nearest whole share. Each stockholder of
the Company immediately before the Reverse Stock Split will
continue to be a stockholder immeidately after the Reverse Stock
Split. The number of shares of Common Stock that may be purchased
upon the exercise of outstanding options, warrants, and other
securities convertible into, or exercisable or exchangeable for,
shares of Common Stock, (collectively, "Convertible Securities")
and the per share exercise or conversion prices thereof, will be
adjusted appropriately as of the Effective Date, so that the
aggregate number of shares of Common Stock issuable in respect of
Convertible Securities immediately following the Effective Date
will be one-fourth of the number issuable in respect thereof
immediately prior to the Effective Date, and the aggregate
exercise or conversion prices thereunder shall remain unchanged.
The Reverse Stock Split may also result in some
stockholders owning "odd lots" of less than 100 shares of Common
Stock received as a result of the Reverse Stock Split. Brokerage
commissions and other costs of transactions in odd lots may be
higher, particularly on a per-share basis, than the cost of
transactions in even multiples of 100 shares.
The par value of the Common Stock will remain at
$0.0001 per share following the Reverse Stock Split, and the
number of shares of the Common Stock outstanding will be reduced.
As a consequence, the aggregate par value of the outstanding
Common Stock will be reduced, while the aggregate capital in
excess of par value attributable to the outstanding Common Stock
for statutory and accounting purposes will be correspondingly
increased. The Reverse Stock Split will not affect the Company's
total stockholders' equity. If the Reverse Stock Split is
effected, all share and per share information would be
retroactively adjusted following the Effective Date to reflect
the Reverse Stock Split for all periods presented in future
filings.
The Board considered reducing the number of shares of
authorized Common Stock in connection with the Reverse Stock
Split but determined that the availability of additional shares
may be beneficial to the Company in the future. The availability
of additional authorized shares will allow the Board to issue
shares for corporate purposes, if appropriate opportunities
should arise, without further action by stockholders or the time
delay involved in obtaining stockholder approval (unless approval
is required by law or regulation). Such purposes could include
effecting future acquisitions of other businesses or meeting
requirements for working capital or capital expenditures through
the issuance of shares. To the extent that any additional shares
(or securities convertible into common stock) may be issued on
other than a pro rata basis to current stockholders, the present
ownership position of current stockholders may be diluted. The
Common Stock has no preemptive rights. In addition, if another
party should seek to acquire or take over control of the Company,
and the Board does not believe such transaction is in the best
interest of the Company and its stockholders, some or all of the
authorized shares could be issued to another party to try to
block such transaction.
EXCHANGE OF STOCK CERTIFICATES; NO FRACTIONAL SHARES
The combination and reclassification of shares of
Common Stock pursuant to the Reverse Stock Split will occur
automatically on the Effective Date without any action on the
part of stockholders of the Company and without regard to the
date certificates representing shares of Common Stock prior to
the Reverse Stock Split are physically surrendered for new
certificates. Every four (4) shares of issued Common Stock would
be converted and reclassified into one (1) share of post-Split
Common Stock, and any fractional interests resulting from such
reclassification would be rounded upward to the nearest whole
share. For example, a holder of one hundred (100) shares prior to
the Effective Date would be the holder of twenty-five (25) shares
at the Effective Date, and the holder of one thousand (1000)
shares prior to the Effective Date would be the holder of two
hundred and fifty (250) shares at the Effective Date.
As soon as practicable after the Effective Date,
transmittal forms will be mailed to each holder of record of
certificates for shares of Common Stock to be used in forwarding
such certificates for surrender and exchange for certificates
representing the number of shares of Common Stock such
stockholder is entitled to receive as a consequence of the
Reverse Stock Split. The transmittal forms will be accompanied by
instructions specifying other details of the exchange. Upon
receipt of such transmittal form, each stockholder should
surrender the certificates representing shares of Common Stock
prior to the Reverse Stock Split, in accordance with the
applicable instructions. Each holder who surrenders certificates
will receive new certificates representing the whole number of
shares of Common Stock that such stockholder holds as a result of
the Reverse Stock Split including shares resulting from the
rounding up of any fractional shares. Stockholders will not be
required to pay any transfer fee or other fee in connection with
the exchange of certificates.
STOCKHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES
UNTIL THEY RECEIVE A TRANSMITTAL FORM.
As of the Effective Date, each certificate representing
shares of Common Stock outstanding prior to the Effective Date
(an "old certificate") will be deemed canceled and, for all
corporate purposes, will be deemed only to evidence ownership
of the number of shares of Common Stock into which the shares
of Common Stock evidenced by such certificate have been converted
by the Reverse Stock Split.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion of material federal income tax
consequences of the Reverse Stock Split is based upon the
Internal Revenue Code of 1986 (the "Code"), Treasury regulations
thereunder, judicial decisions, and current administrative
rulings and practices, all as in effect on the date hereof and
all of which could be repealed, overruled, or modified at any
time, possibly with retroactive effect. No ruling from the
Internal Revenue Service (the "IRS") with respect to the matters
discussed herein has been requested, and there is no assurance
that the IRS would agree with the conclusions set forth in this
discussion.
This discussion may not address certain federal income
tax consequences that may be relevant to particular stockholders
in light of their personal circumstances or to certain types of
stockholders (such as dealers in securities, insurance companies,
foreign individuals and entities, financial institutions, and
tax-exempt entities) who may be subject to special treatment
under the federal income tax laws. This discussion also does not
address any tax consequences under state, local, or foreign laws.
STOCKHOLDERS ARE URGED TO CONSULT THEIR TAX ADVISERS AS
TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE REVERSE STOCK
SPLIT.
Except as discussed below, no gain or loss should be
recognized by a stockholder who receives only Common Stock upon
the Reverse Stock Split. The aggregate tax basis of the shares of
Common Stock held by a stockholder following the Reverse Stock
Split will equal the stockholder's aggregate basis in the Common
Stock held immediately prior to the Reverse Stock Split and
generally will be allocated among the shares of Common Stock held
following the Reverse Stock Split on a pro-rata basis.
Stockholders who have used the specific identification method to
identify their basis in shares of Common Stock combined in the
Reverse Stock Split should consult their own tax advisors to
determine their basis in the post-Reverse Stock Split shares of
Common Stock received in exchange therefor. Shares of Common
Stock received should have the same holding period as the Common
Stock surrendered. Although not free from doubt, the results
described above should apply to a stockholder who receives a
portion of his or her Common Stock as a result of the rounding up
of a fractional share to a whole share. However, it is possible
that the receipt of additional Common Stock due to rounding could
be wholly or partly taxable.
OTHER NASDAQ REQUIREMENTS
In addition to the minimum bid price per share
requirement described above, the Common Stock's continued listing
on the Nasdaq SmallCap Market is subject to the maintenance of
other quantitative and non-quantitative requirements, as set
forth in the Nasdaq Listing Requirements. In particular, the
Nasdaq Listing Requirements require that a company currently
included in the Nasdaq SmallCap Market meet each of the following
standards to maintain its continued listing: (i) either (A) net
tangible assets of $2 million, (B) market capitalization of $35
million, or (C) net income (in the latest fiscal year or two of
the last three fiscal years) of $500,000; (ii) public float of at
least 500,000 shares, with a market value of at least $1 million;
(iii) minimum bid price of $1; (iv) at least 300 round lot
beneficial shareholders; (v) at least two market makers; and (vi)
compliance with certain corporate governance requirements.
Although the Company believes that it will meet such requirements
on the first full trading day after the Reverse Stock Split has
become effective, there can be no assurances that such will be
the case, or that other factors will not cause the Company to
fail to meet such requirements.
THE REVERSE STOCK SPLIT PROPOSAL MUST BE APPROVED BY A
MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK. THE VOTING
TRUST INTENDS TO VOTE IN FAVOR OF THE PROPOSAL. MANAGEMENT
RECOMMENDS THAT YOU VOTE TO APPROVE THE REVERSE STOCK SPLIT
PROPOSAL.
PROPOSAL NO. 3
RATIFICATION OF INDEPENDENT AUDITORS
MANAGEMENT RECOMMENDS THAT YOU VOTE TO RATIFY
THE APPOINTMENT OF THE INDEPENDENT AUDITORS.
The Board of Directors of the Company has appointed the
firm of Lazar, Levine & Felix LLP ("Lazar") as its independent
auditors for the 1999 fiscal year. While it is not required to
do so, the Company is submitting the appointment of Lazar to the
stockholders for ratification. Lazar has been serving the
Company in this capacity since September 1995. A representative
from Lazar will be present at the Meeting and will be given the
opportunity to make a statement if the representative desires to
do so. The representative is expected to be available to respond
to appropriate questions. If the appointment of Lazar is not
ratified by the stockholders of the Company, the Board of
Directors will reconsider the appointment of Lazar.
THE BOARD OF DIRECTORS INTENDS THAT THE APPOINTMENT OF
THE INDEPENDENT AUDITORS BE RATIFIED BY A MAJORITY OF THE VOTES
CAST. THE VOTING TRUST INTENDS TO VOTE IN FAVOR OF THE PROPOSAL.
OTHER INFORMATION
Accompanying this Proxy Statement and the notice of
meeting which is the first page of this Proxy Statement is the
Company's Proxy and Annual Report for its fiscal year ended
October 31, 1998.
PROPOSALS OF SECURITY HOLDERS
Proposals of security holders intended to be presented
at the next Annual Meeting must be received by the Company for
inclusion in the Company's Proxy Statement and form of proxy
relating to that meeting no later than October 29, 1999.
AVAILABILITY OF ANNUAL REPORT
COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WILL BE PROVIDED FREE OF
CHARGE TO ANY STOCKHOLDER UPON WRITTEN REQUEST TO:
Ms. Linda G. Straley, Vice President and Secretary,
Touchstone Applied Science Associates, Inc., P.O. Box 382,
4 Hardscrabble Heights, Brewster, New York 10509.
LINDA G. STRALEY
Vice President and Secretary
Brewster, New York
January __, 1999
<PAGE>
APPENDIX A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
-------------------
Pursuant to Section 242 of the
General Corporation Law of the State of Delaware
-------------------
The undersigned, the President and Secretary of
Touchstone Applied Science Associates, Inc., a Delaware
corporation (the "Corporation"), do hereby certify as follows:
1. The name of the Corporation is Touchstone Applied
Science Associates, Inc.
2. Article [4] of the Certificate of Incorporation is
hereby amended by adding at the end thereof, the following:
"Simultaneously with the effective date of this
Certificate of Amendment (the "Effective Date"), all issued
and outstanding shares of Common Stock ("Existing Common
Stock") shall be and hereby are automatically combined and
reclassified as follows: each four shares of Existing
Common Stock shall be combined and reclassified (the
"Reverse Split") as one share of issued and outstanding
Common Stock ("New Common Stock"), provided, that there
shall be no fractional shares of New Common Stock. In the
case of any holder of fewer than four (4) shares of Existing
Common Stock or any number of shares of Existing Common
Stock which, when divided by four (4), does not result in a
whole number (a "Fractional Share Holder"), the fractional
share interest of New Common Stock held by any Fractional
Share Holder as a result of the Reverse Split shall be
rounded up to the nearest whole share of New Common Stock.
The Corporation shall, through its transfer agent,
provide certificates representing New Common Stock to
holders of Existing Common Stock in exchange for
certificates representing Existing Common Stock. From and
after the Effective Date, certificates representing shares
of Existing Common Stock are hereby canceled and shall
represent only the right of the holders thereof to receive
New Common Stock.
From and after the Effective Date, the term "New
Common Stock" as used in this Article [4] shall mean
Common Stock as provided in this Certificate of
Incorporation. The par value of the Common Stock shall
remain as otherwise provided in Article [4] of this
Certificate of Incorporation."
3. The foregoing Amendment was duly approved and
adopted in accordance with the provisions of Section 242 of the
General Corporation Law of the State of Delaware and the By-laws
of the Corporation at a meeting of the Board of Directors of the
Corporation on December 15, 1998, at which a quorum was present
and acting throughout. The Board of Directors declared the
advisability of the Amendment and directed that the Amendment be
submitted to the stockholders of the Corporation for approval.
4. At the Annual Meeting of Stockholders of the
Corporation held on ________ __, 1999, duly called and held in
accordance with the provisions of Section 222 of the General
Corporation Law of the State of Delaware, a majority of the
shares of the outstanding Common Stock entitled to vote thereon
were voted in favor of the Amendment in accordance with Section
242 of the General Corporation Law of the State of Delaware.
5. This Amendment shall be effective on the date this
Certificate of Amendment is filed and accepted by the Secretary
of State of the State of Delaware.
The undersigned, being the President of the
Corporation, for the purpose of amending its Certificate of
Incorporation pursuant to the General Corporation Law of the
State of Delaware, acknowledges that it is his act and deed and
that the facts stated herein are true, and has signed this
instrument on __________________, 1999.
TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC.
By: ________________________________
Andrew L. Simon, Chairman, President
and Chief Executive Officer
ATTEST:
_____________________________
Linda G. Straley
Vice President and Secretary
<PAGE>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
PROXY--Annual Meeting of Stockholders-- _______ __, 1999
PROXY SOLICITED BY THE BOARD OF DIRECTORS
The undersigned, a stockholder of TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC., a Delaware corporation (the "Company"), does
hereby appoint ANDREW L. SIMON and LINDA G. STRALEY, and each of
them, the true and lawful attorneys and proxies, with full power
of substitution, for and in the name, place and stead of the
undersigned, to vote, as designated below, all of the shares of
stock of the Company which the undersigned would be entitled to
vote if personally present at the Annual Meeting of Stockholders
of the Company to be held at the headquarters of the Company at 4
Hardscrabble Heights, Brewster, New York 10509, on _____ __, 1999,
at 9:00 a.m., local time, and at any adjournment or adjournments thereof.
Please mark
[X] votes as in
this example
UNLESS OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED IN ACCORDANCE
WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
1. Election of Directors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES.
Nominees: Walter B. Barbe, Michael D. Beck, Steven R. Berger,
Joseph A. Fernandez, Andrew L. Simon, Linda Straley
and David L. Warnock
WITHHELD
FOR ALL [ ] FROM ALL [ ]
NOMINEES NOMINEES
For, except vote withheld from the following nominee(s):
[ ]------------------------------------------------------------------
2. Approval of the Reverse Stock Split Proposal
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. Ratification of the Company's Independent Auditors
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. To vote with discretionary authority with respect to all
other matters which may come before the meeting.
The undersigned hereby revokes any proxy or proxies heretofore
given and ratifies and confirms all that the proxies appointed
hereby, or either one of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof. Both of said proxies or
their substitutes who shall be present and act at the meeting, or
if only one is present and acts, then that one, shall have and may
exercise all of the powers hereby granted to such proxies. The
undersigned hereby acknowledges receipt of a copy of the Notice
of Annual Meeting and Proxy Statement, both dated January __, 1999,
and a copy of the Annual Report for the fiscal year ended
October 31, 1998.
[ ] MARK HERE FOR ADDRESS CHANGE AND INDICATE CHANGE:
Signature: Date
------------------------------------------- -----------------
Signature: Date
------------------------------------------- -----------------
NOTE: Your signature should appear the same as your name
appears hereon. In signing as attorney, executor,
administrator, trustee or guardian, please indicate the
capacity in which signing. When signing as joint
tenants, all parties in the joint tenancy must sign.
When a proxy is given by a corporation, it should be
signed by an authorized officer and the corporate seal
affixed. No postage is required if returned in the
enclosed envelope and mailed in the United States.
