U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended October 31, 1997
[ ] Transition report under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission file number 0-20303
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TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
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(Name of small business issuer in its charter)
Delaware 13-2846796
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4 Hardscrabble Heights, P.O. Box 382, Brewster, NY 10509
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(Address of principal executive offices) (Zip Code)
(914) 277-8100
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(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None.
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Securities registered under Section 12(g) of the Exchange Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, $.0001 par value NASDAQ
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Check whether the issuer: (1) filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for past 90 days.
Yes X No
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B is not contained in this
form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal
year: $4,587,633 for the fiscal year ended October 31, 1997.
State the aggregate market value of the voting and non-
voting common equity held by non-affiliates computed by reference
to the price at which the common equity was sold, or the average
bid and asked price of such common equity, as of a specified date
within the past 60 days: $6,877,267 as of December 31, 1997.
The aggregate market value was based upon the closing price for
the Common Stock, par value $.0001 per share, as quoted by the
NASDAQ for such date.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDING
DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the
Exchange Act after the distribution of securities under a plan
confirmed by a court. Yes No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the
issuer's classes of common equity, as of the latest practicable
date: As of December 31, 1997, 8,489,322 shares of Common Stock,
par value $.0001 per share.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by
reference, briefly describe them and identify the part of the
Form 10-KSB (e.g., Part I, Part II, etc.) into which the document
is incorporated: (1) any annual report to security holders; (2)
any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933
("Securities Act"). None.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
OVERVIEW
Touchstone Applied Science Associates, Inc. (the
"Company" or "TASA") provides the educational market with selected
learning, assessment and evaluation tools. The Company develops,
publishes, and distributes a highly regarded, proprietary line of
reading tests, and also designs tests specifically to meet clients'
measurement specifications. Through its wholly-owned subsidiary,
Modern Learning Press, Inc., a Delaware corporation ("MLP"), the
Company designs, publishes and distributes affordable "consumable"
student workbooks for grades K-4, and creates and publishes books
and pamphlets for elementary school teachers and parents. In
conjunction with Yale University's Gesell Institute, MLP has
published a line of books on the Gesell child development scales,
a predictor of a young child's readiness to start kindergarten.
The Company's wholly-owned subsidiary, Beck Evaluation & Testing
Associates, Inc., a New York corporation ("BETA"), designs tests
and evaluates assessment needs for schools, school districts and
test and textbook publishers.
The Company's reading comprehension tests are based on
its internally developed assessment methodology called the Degrees
of Reading Power(R) ("DRP"). It publishes and sells its DRP(R) tests
to over 3,400 elementary and secondary schools, colleges and
universities throughout the United States and Canada. The Company
was initially founded to perform research for other organizations
under contract. The College Board marketed many of the Company-
developed products, including the Company's DRP test products,
until July 1988, at which time the Company acquired the
intellectual property rights to the DRP test products.
Based on its proprietary Degrees of Reading Power
methodology, the Company's products measure an individual student's
reading ability in a non-culturally biased manner and allow
tracking of an individual's reading development over time. TASA's
DRP tests have been adopted by the New York State Board of Regents
and by the educational departments of each of Connecticut and
Virginia. Numerous individual school districts in the United
States and Canada have also adopted these tests either to be given
in certain grades or as a general measurement of a student's
progress. In 1997, management estimates that over 4 million DRP
tests were administered in the United States and Canada in either
the test's secure form or in "shelf" form from the Company's
catalogs. Management anticipates that the Company will introduce
a computer-based DRP test product in the first half of the 1998
calendar year, which the Company believes will be of substantial
interest to schools, as well as to a new market made up of private-
sector and governmental clients.
Prior to the fiscal year ended October 31, 1997 ("Fiscal
1997"), substantially all of the Company's revenues were derived
from the publishing and sale of DRP test products and the provision
of related services, such as test scoring. Effective as of January
2, 1997, the Company purchased all of the outstanding capital stock
of BETA, and, effective as of May 30, 1997, MLP purchased
substantially all of the operating assets of Programs for
Education, Inc. In addition, during Fiscal 1997, the Company
purchased the Maculaitis test series, a test designed to evaluate
comprehension of English as a second language ("ESL"). TASA has
also developed and introduced computerized and Internet-based
products and services, such as DRP-->BOOKLINK(TP) and BookMatch(TP),
which are available to schools and subscribers either by floppy
disks or through the Company's Internet website.
The Company was incorporated in the State of New York in
1976 and, in 1991, changed its corporate domicile to Delaware. It
became a public company in 1992. TASA's corporate headquarters are
located at 4 Hardscrabble Heights, P.O. Box 382, Brewster, New York
10509. The Company's telephone number is (914) 277-8100 and its
facsimile number is (914) 277-3548. The Company maintains a
website at www.tasa.com. As used in this Report, the terms
"Company" and "TASA" refer to Touchstone Applied Science
Associates, Inc. and its subsidiaries, unless the context otherwise
indicates.
Except for historical information, the material contained
in this Description of Business is forward-looking. For the
purposes of the safe harbor protection for forward-looking
statements provided by the Private Securities Litigation Reform Act
of 1995, readers are urged to review the list of certain important
factors set forth in "Cautionary Statement for Purposes of the
"Safe Harbor" Provisions of the Private Securities Litigation
Reform Act of 1995" below, which may cause actual results to differ
materially from those described.
PRODUCTS AND SERVICES
TASA designs, develops, calibrates, publishes, markets
and sells educational assessment tests, instructional materials and
computer software to elementary and secondary schools, colleges and
universities throughout the United States and Canada.
Additionally, over the course of Fiscal 1997, the Company has
entered several related markets, adding publishing of consumable
workbooks and teacher/parent aids and educational consulting to its
list of products and services.
DRP(R) and DWM(R) Test Products
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The DRP testing program is published in three distinct
versions: Primary, Standard and Advanced DRP tests. The Company
also publishes the Degrees of Word Meaning(R) ("DWM") tests. The
Company's tests assess student progress in the following
interrelated components of reading:
. the ability to comprehend the surface meaning of
increasingly more difficult textual material;
. the ability to reason with--that is, analyze, evaluate
and extend--the ideas that are presented in increasingly
more difficult textual material; and
. the size of students' reading vocabularies by measuring
their understanding of the meaning of words appearing in
naturally occurring contexts.
Management believes that Degrees of Reading Power and
Degrees of Word Meaning tests are widely recognized as being
advanced state-of-the-art in educational assessment. Based on
descriptions contained in Tests in Print published by the Buros
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Institute of Mental Measurements (which endeavors to cover all
tests published in the United States), it is management's belief
that:
. DRP tests are the first, and remain the only, commercial
standardized tests whose results can be directly
interpreted with respect to the textual materials that
students can read; and that
. DRP tests are the only existing instruments that can
measure progress toward one or more standards or
requirements that are established by examining how well
prose in books or other sources must be comprehended for
particular purposes. Consequently,
. the DRP tests are especially useful in accountability
assessments of a school's teaching performance and in
measuring an individual's reading level.
Management further believes, based upon descriptions found in Tests
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in Print, that its DWM tests are the first and only tests to
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measure the size of a student's reading vocabulary in a textual
context.
DRP TESTS GENERALLY. DRP tests measure how well students
understand the meaning of whole text. These tests determine, as
much as is possible in a testing situation, how well a student
reads under real-life conditions, both in and out of school.
Primary and Standard DRP tests are "single-objective tests",
measuring how well students understand the surface meaning of what
they read. As such, they measure the process of reading (rather
than the main idea and author purpose). Advanced DRP tests were
developed to extend further the definition of comprehension
employed in the Primary and Standard DRP tests. Advanced DRP test
items engage those cognitive processes required to remember, think
about, analyze, derive, combine or evaluate propositions in text.
Management believes that approximately 4 million DRP tests, for
which the Company is the sole source proprietor and publisher, were
administered in 1997 in states, school districts, college and
university testing programs.
DRP tests consist of nonfiction paragraphs and/or
passages on a variety of topics, each written, edited, and
calibrated by the Company. The individual test passages are stored
in the Company's "Test Passage Bank", and each test is created by
selecting the appropriate test passages from the Test Passage Bank
to satisfy the criteria set for a particular test. Within these
paragraphs and passages, words have been deleted and the student is
asked to select the correct word for each deletion in text from a
set of multiple-choice options. The Company invested approximately
$214,472 and $226,222 in each of the fiscal years ended October 31,
1997 and 1996, respectively, in developing new DRP test passages
for its Test Passage Bank, and management anticipates continuing to
spend more than $200,000 annually to develop and calibrate new DRP
test passages. Each passage undergoes a two-year process of
development and calibration and has an estimated useful life of 11
years; a passage is introduced initially in a "secure" form of test
after which it is available in "shelf" form in the Company's test
catalogs and then in practice tests.
TYPES OF DRP TESTS. Specially prepared "secure" forms of
the Company's DRP tests are licensed for one-time or limited use by
states while other "shelf" forms listed in the Company's catalogs
are licensed for an indefinite period of time to school districts
throughout the United States and Canada. Secure test forms, in
accordance with the United States Copyright Office's definition,
are composed of text and test items that have never before been
administered and are typically used in only one test administration
as a secure test. The Company provides secure tests annually for
administration in certain grades by the states of Connecticut, New
York, and Virginia.
DRP tests are one component of the Connecticut Mastery
Testing Program in grades 4, 6 and 8. In New York State, DRP tests
constitute the reading component of the Regents Competency Testing
program (RCT) and Pupil Evaluation Program (PEP). Students who
entered high school in New York before the 1997 school year must
obtain a certain score on the RCT to be awarded a local high school
diploma. In Virginia, DRP tests make up part of the Literacy
Passport Testing Program in grade 6. In each of these instances,
DRP tests serve as an indicator of whether valued educational
outcomes have been achieved (accountability assessments). Because
it is not certain how New York high school graduation requirements
may change in the future and because New York State is considering
revisions to its PEP testing, the amount of RCT and PEP contract
revenues is uncertain beyond the 1998 fiscal year, although the
master contract with New York State includes two-year wind down
provisions for DRP testing. No notices under this master contract
have been issued to date. In Fiscal 1997, the New York contract
accounted for $405,451, which is 51% of all contract revenues and
9% of the Company's revenues. Statewide programs are a highly
competitive market, and many of the Company's competitors marketing
more "traditional" tests have substantially larger budgets for
state level sales, marketing and lobbying. Management has
instituted several programs to increase exposure for the DRP test,
including presentations at professional conferences and increased
publication of articles in professional journals, and management
expects that this increased awareness will provide increased
opportunities for contract sales. See "Cautionary Statement for
Purposes of the "Safe Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995", below.
DRP tests have been adopted by a wide variety of
educational institutions and agencies including state departments
of education, colleges and universities, schools and school
districts. While the desire to improve the quality of instruction
in reading may be the ultimate reason DRP tests are administered in
educational settings, other reasons play an important part. DRP
tests are used in education to determine eligibility for
graduation, to allocate resources to districts, to document school
accountability, to set and maintain promotion standards, to place
students into adult basic education and GED (Graduate Equivalency
Degree) programs of study and to evaluate student progress in adult
reading programs.
DRP test scores are utilized for placement of students in
both four- and two-year institutions. DRP tests are used to
screen, identify, place and evaluate the progress made by such
students at, for example, such four-year institutions as the
University of Cincinnati, Bowling Green State University and the
University of Northeastern Missouri. Among two-year institutions,
the Oregon System of Community Colleges uses DRP test results to
place students in ABE (Adult Basic Education) and GED programs of
study, while the College of Lake County (Illinois), Tarrant
Community College (Texas) and Triton College (Illinois) use DRP
tests to monitor student progress and maintain exit standards in
reading.
ADVANTAGES OF DEGREES OF READING POWER TESTS OVER
TRADITIONAL TESTS. The primary purpose of traditional,
standardized tests is to distinguish students from each other.
This purpose contrasts with the objective of DRP tests, which
measure how well individual students understand the meaning of
whole text.
Traditional, norm-referenced or criterion-referenced
tests typically present several problems, both in the preparation
and administration of the test and the analysis of the test
results. Firstly, when traditional tests are required or
legislated, they tend to prescribe the nature of instruction in the
classroom. Because such tests typically contain specific items
that measure discrete skills, teachers often drill students on the
skills that are tested. There is little or no evidence that such
drill and practice leads to improvement in the desired educational
outcome--reading. Such drill and practice may only raise the test
scores on traditional tests. Secondly, because traditional reading
tests are timed, inherent problems are created, resulting in an
inability to distinguish between slow, competent readers and fast,
careless readers. Both types of students can earn identical scores
even though their development and instructional needs are markedly
different. More importantly, traditional tests often penalize
those students who tend to become overly anxious when asked to work
under tight deadlines. Thirdly, items for such tests are selected
more on the basis of their difficulty than on what the items
actually assess. Finally, student performance on traditional,
standardized tests is generally reported on one or more norm-
referenced scales--grade equivalents, percentiles, and/or
standings. While norm-referenced scales may be used to assess the
relative performance of a student vis a vis other students, these
normative grades are not adequate for reporting what students can
read or how much growth in reading has occurred over time.
There are many advantages to a score scale that permits
a "functional" interpretation of student performance in reading
(i.e., one that interprets what students are able to read and how
well they are able to do so). A primary advantage is the setting
of expectations or standards in reading--i.e., expected standards
set in terms of the actual capability of students to function on
"real world" reading tasks. DRP tests provide a functionally-
referenced score scale that has real world adaptability. The score
scale has the ability to assess a person's reading performance
level and, alternatively, to assess difficulty of the reading
material expected to be utilized by a person in terms of its DRP
scale as well. This provides schools with the ability to determine
if its students can read and comprehend common material found in
life, such as newspapers, drivers' manuals or a company's job
description or production manual. This compatibility between
evaluating both student and material in terms of the DRP scale will
serve as the basis for the Company's entrance into commercial
markets, particularly for human resources and corporate material
assessment.
For example, the DRP level of this "Description of
Business" section of TASA's Annual Report on Form 10-KSB has a DRP
level of 78. This compares with an average DRP level of 68 for the
front page articles of The Wall Street Journal. The editorial
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pages of several of the leading newspapers in the United States
have a DRP level of between 68-71, while their corresponding sports
sections range between a DRP level of 58-64. A TASA study of a
sampling of high school seniors in 1994 showed that the average
senior had only a reading ability of 60 and that only 31% could
read independently and fully comprehend materials at a level of 69
or better. As is apparent, an evaluation of a person's ability to
comprehend and complete a given task can be made by evaluating and
ranking both reading material and a person's reading ability on the
DRP scale.
DEGREES OF WORD MEANING TESTS. The Company also
developed Degrees of Word Meaning tests, which are the first
measures of the size of a student's reading vocabulary. Unlike
conventional standardized vocabulary tests, which only rank or
order students by such normative statistics as percentile ranks,
DWM tests measure growth toward adult proficiency levels. Revenues
in Fiscal 1997 from the sale of DWM tests were not significant.
TextSense(TM) SUMMARY WRITING
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In Fiscal 1997, the Company launched its new TextSense(TM)
Summary Writing program ("TextSense"). The unique characteristics
of summary writing have led to its widespread acceptance as an
educational outcome, a status that is reflected in its prominence
as a benchmark task in the Language Arts standards of a number of
states. TextSense uses instruction and assessment in summary
writing to promote better reading, better writing, and better
thinking about text. The TextSense Summary Writing program
complements DRP technology and, with its emphasis on both
instruction and assessment in summary writing, adds another
dimension to the Company's offerings. The revenues derived to date
from TextSense have been immaterial. While the Company has not yet
devoted any significant resources to marketing TextSense, there can
be no assurance that TextSense will become a significant contributor
to the Company's revenues.
The Maculaitis Test
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In the early part of Fiscal 1997, TASA acquired the
Maculaitis Assessment of Competencies, which is a comprehensive
English language assessment and evaluation program. It is intended
for use in ESL, Bilingual Education and Limited English Proficiency
programs. In addition, and because the entire test is in English,
it can also be used with any native speaker of English who is in
the early to middle stages of acquiring language proficiency.
After acquiring the test series, the Company began and has
completed a series of revisions aimed at improving the overall ease
of use and marketability of the test. Management believes that
these revisions should give the test wider appeal and enable entry
into previously untapped markets. Long range plans are currently
underway to make a set of more substantive revisions that
management believes will further enhance marketability.
The Maculaitis test is currently mandated for use in the
State of New Jersey, which uses the scores on the test to set entry
criteria and graduation requirements in the state. As a result of
this mandated use, current sales of the test are concentrated in
New Jersey. The test is also used in a number of other states, and
the Company believes that its current adoption by the State of New
Jersey can be leveraged to promote more widespread acceptance
within states with large ESL populations.
Computer Based and Internet Products and Other Services
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SOFTWARE PRODUCTS. The Company designs and markets
computer software products that are sold as instructional aids or
analytical tools for reading development. Among the products are
MicRA-->DRP II, which allows the user to estimate the DRP
difficulty rating of instructional materials, and DRP-->EZ
Converter(TP), which permits those who score DRP tests by hand to
easily convert raw scores to criterion-referenced DRP scores and
DRP norms.
In 1996, the Company introduced DRP-->BOOKLINK(TP) and
Browzer-->BOOKLINK(TP), which allow teachers to find appropriate books
for each student based upon interest categories and reading
ability. Browzer-->BOOKLINK was the winner of a 1997 Educational
Press Award.
INTERNET PRODUCTS. In December 1997, TASA introduced its
BookMatch(TP) website, a new on-line reading encouragement program for
children ages 8-12. BookMatch prepares and recommends a
personalized reading list from its database of over 4000 titles for
each participating child based upon his or her ability and
interests. Together with their parents, registered users establish
reading goals, agreeing to read a number of books over a three-month
period. When reading goals are met, the children are
rewarded with prizes that they may select with the approval of
their parents. BookMatch can be found at www.bookmatchonline.com.
The Company has not yet earned any significant revenues from this
new product.
It is management's expectation that the demand for
computerized educational materials will continue to grow, and the
Company will seek to keep pace with the requirements of the
education market. Consequently, the Company anticipates that
computer-based products will become a more important component of
its business. See "Cautionary Statement for Purposes of the "Safe
Harbor" Provisions of the Private Securities Litigation Reform Act
of 1995", below.
Test Scoring and Related Reporting Services
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The Company provides scanning, scoring, and reporting
services to schools and districts. Company-copyrighted test answer
sheets or licensed answer sheets are required for the
administration of all of the Company's tests. Answer marks on
these sheets are interpreted by scanner-computer systems that use
Company-proprietary software. For example, Company-copyrighted
conversion tables are used to convert the total number of right
answers on a given DRP test form into a DRP score that indicates
how well a student can comprehend a text of given difficulty
(readability). These DRP scores are also interpreted normatively
(e.g., in terms of national percentiles) using the Company's
proprietary data. Primary, Standard and Advanced DRP and DWM norms
indicate a student's percentile rank in relation to students
nationally in his or her grade.
All District, School and Class Level Reports of the
Company's test results are copyrighted by the Company, as are
various Parent and Individual Reports that may be ordered by school
systems. Schools may also order score reports on Company-copyrighted
pressure-sensitive labels for inclusion in permanent
records.
State education departments and other educational
institutions may purchase a license to score the Company's tests.
Third-party firms that provide scanning and scoring services to
schools may also be licensed to score the Company's tests.
MODERN LEARNING PRESS, INC.
Effective May 30, 1997, the Company's wholly-owned
subsidiary, MLP, acquired substantially all of the operating assets
of Programs for Education, Inc. MLP publishes books and other
materials used in the enhancement of the reading skills of
elementary school students, as well as books in other subject
areas. MLP primarily develops, publishes and distributes
affordable "consumable" student workbooks (called "learning books")
for grades K-4, and creates and publishes a collection of books and
pamphlets for elementary school teachers and parents. In
conjunction with Yale University's Gesell Institute, MLP has for
many years published a line of books of the Gesell child
development scales that management believes are considered the best
predictor of a young child's readiness to start kindergarten.
Additionally, MLP has expanded its product line into the
basic skills areas of handwriting and phonics, and publishes a
series of consumable books for beginner/emergent level ESL
students.
Of benefit to MLP is the growing pressure for cost-
effective purchasing by school districts. MLP's growing line of
affordable "consumable" workbooks or learning books for students in
grades K-4 allows schools to purchase high quality workbooks at a
decreased acquisition cost per pupil. MLP provides elementary
schools with a large library of books and pamphlets that help
elementary schools achieve their teacher and parent information
objectives. MLP's expanding series of titles for teachers provide
affordable quality books on professional subjects written by
recognized educational experts. Its pamphlet series, generally
purchased by schools for distribution to parents, provide guidance
to parents on topical issues.
Management believes that growth opportunities exist for
MLP in the elementary school market. Many states, as well as the
Federal government, are currently discussing expansion and changes
in elementary education, including additional new programs to
increase funding. These changes will provide new and expanded
opportunities for the development of new workbook and professional
education book series. Further, for new MLP and TASA customers,
management expects to take advantage of only a 5% overlap of
customers existing between MLP and TASA at the time of the
acquisition. Management believes that MLP is well-positioned to
benefit from the changes expected to occur in elementary education.
BETA
Effective January 2, 1997, the Company acquired all of
the outstanding capital stock of BETA. BETA provides consulting
services to schools and publishers. For its clients, BETA sets
initial test standards, and then designs, writes, edits, validates,
and evaluates tests for states and school districts to meet
specific testing goals. Primarily, BETA uses non-DRP methodology.
In the first quarter of the Company's 1998 fiscal year, the Company
announced that BETA has been awarded multi-year test assessment,
writing, and editing contracts for state educational authorities in
a total of five states. The new states are Minnesota, Delaware and
Michigan, in addition to BETA's similar current contracts with
Virginia and Rhode Island. With TASA's financial and professional
support, BETA intends to bid broadly on business that it believes
is available with other states. Consequently, management believes
that BETA will grow at or above the rate of the Company as a whole.
Further, BETA's state contracts now provide TASA with significantly
broadened exposure to the North American testing market.
MARKETING
The Company markets its products and services as follows:
(a) Sales of secure tests to large-scale users such
as state education departments are conducted directly by the
Company's staff. This includes making presentations and
negotiating contracts and license agreements.
(b) Sales of the Company's products and services as
described in the Company's catalogs are made primarily through
direct mail campaigns to elementary school, secondary school
and college markets. The Company also exhibits its products
at educational trade shows and advertises in trade journals.
(c) In addition, the Company's staff and its independent
consultants provide presentations and in-service workshops
supporting the Company's products.
(d) Sales of custom-designed testing and consulting are
accomplished via bidding processes and attendance at
professional meetings.
The Company sells its products on a contract or purchase
order basis in accordance with a published price list. Depending
upon the contract or the purchase order, the Company sells its
product on a net 30-day or other contractual terms. The Company
does not offer extended credit terms to its customers.
Historically, bad debts have not been material.
COMPETITION
Success in the educational industry will be based on
scientific and technological superiority, service, product support,
the availability of patent protection, access to adequate capital,
the ability to successfully develop and market products and
processes and the ability to obtain government approvals. Although
there is intense competition in the industry and there are both
domestic and foreign companies which may be deemed dominant
competitors, the Company believes that the features of its products
coupled with its ability to provide quality services will permit
the Company to compete successfully in its designated marketplace.
EDUCATIONAL TESTING. The Company is subject to
competition from various sources. The Company's principal
competition comes from established for-profit and non-profit
companies in the testing business and testing departments within
certain states and school districts, all of which are considerably
larger and have greater financial and human resources and marketing
capabilities.
Although there are a number of for-profit firms that
develop, publish, market, and distribute educational tests, the
market is dominated by three: CTB/McGraw-Hill, Lake Forest,
Illinois, and Monterey, California; Harcourt Brace Educational
Measurement, San Antonio, Texas; and The Riverside Publishing
Company, Chicago, Illinois. As large, well-established publishers
of educational tests and related products and services, these firms
are considered strong competitors of the Company.
There are a number of non-profit organizations that
develop, publish and distribute educational tests. For example,
the American College Testing Program (ACT), Iowa City, Iowa;
American Council on Education (ACE), Washington, DC; and
Educational Testing Service (ETS), Princeton, New Jersey. In
addition, there are various organizations that sponsor educational
tests even though they do not have the technical capability to
produce tests. For example, The College Board, New York, New York,
sponsors the Scholastic Assessment Test (SAT) which is developed
for The College Board by ETS. All of these non-profit
organizations have, or have access to, the capability to develop,
publish and distribute tests to schools. Currently, ACT, The
College Board, and ETS publish one or more educational tests for
the school market.
A number of states, and some school districts, have their
own test development and publishing capabilities. It is
management's belief that the largest developer of educational tests
for its own use is the New York State Education Department, which
produces a variety of tests, including the New York State Regents
examinations. Although the Company's DRP tests are licensed for
specific use over fixed periods of time by three states that
develop other tests for their own use--Connecticut, New York and
Virginia--this does not necessarily mean that the Company's tests
will be licensed to other states that develop their own statewide
tests. In contracts between the Company and states, as in purchase
orders executed with the Company by any educational institution,
the Company--which is the sole-source proprietor of DRP tests--
retains copyright ownership of all tests, items and other
materials. This ownership is acknowledged on the inside cover of
the test booklets or in some other prominent place in cases where
DRP tests are part of a testing program that carries a state name.
There are a number of for-profit and non-profit firms
that provide test design, production and consulting services to
states under contract. For example, Advanced Systems in
Measurement and Evaluation, Inc., Dover, New Hampshire; IOX
Assessment Associates, Los Angeles, California; National Evaluation
Systems (NES), Amherst, Massachusetts; and National Computer
Systems (NCS), Iowa City, Iowa; are among the for-profit firms that
supply test development, printing, distribution, and scoring
services to individual states under contract. Among the non-profit
organizations, ACT and ETS have conducted such contract work for
states and ETS is the current contractor for the National
Assessment of Educational Progress. By enabling states to have
tests developed and administered to their own specifications, these
for-profit and non-profit firms compete indirectly with the
Company. In terms of size alone, these firms have greater
marketing capability and resources than does the Company.
THE MACULAITIS TEST. The Maculaitis test exists in a
competitive market; however, several of the non-profit and for-
profit testing companies do not have a product that is in direct
competition with the test. The major source of direct competition
is a set of products published by CTB/McGraw-Hill known as the
Language Assessment System series (the LAS-O, the LAS-R and the
LAS-W), and the Language Assessment Battery (the LAB) which is a
test that was developed by the New York City Board of Education.
Both of these test series are designed to assess a student's
current level of knowledge of the English language and are
administered in English. A number of other test series produced by
other for-profit publishers, such as Harcourt Brace and Riverside,
are designed exclusively for the Spanish language market and are
administered primarily in Spanish.
MLP. The elementary school market for consumable books
is both huge and highly competitive, with every major publisher and
numerous smaller publishers providing material. MLP's disadvantage
is that its marketing resources are significantly smaller than those
of the major publishers. MLP's advantage is that, with its smaller
corporate structure, decisions can be made rapidly so that new
products can be available in a fraction of the time required by the
major publishers. MLP's other competitive advantage is a much
lower selling price than other consumable books. MLP has developed
a unique position through direct market mail sale.
EMPLOYEES
As of October 31, 1997, the Company employed thirty-three
full-time employees and nine part-time employees or independent
consultants, of whom seven are engaged in research and/or test
development, fourteen are in operations, five are in executive
capacities and sixteen are in marketing.
GOVERNMENT REGULATIONS
The degree of government regulations to be imposed upon
the Company and the field in which the Company engages is uncertain
at this time.
Under Title I of the 1994 Improving America's Schools Act
(IASA), schools that serve large numbers of children from low-
income families receive financial assistance from the Federal
government to expand and improve their educational programs to meet
the needs of educationally deprived students. Title I regulations
include a requirement that schools receiving Title I funds must
evaluate student growth or progress in reading. It is management's
belief that State Education Authorities (SEAs) find DRP test
results to be in accord with the regulations for Title I, as DRP
tests are used by schools to evaluate Federally-supported Title I
programs.
Management believes it may be necessary to obtain other
governmental approvals for its products. If necessary, a portion
of the revenues of the Company may be directed toward obtaining
such approvals, and any such expenditures will occur without the
assurance that approvals will be achieved. Additionally, the extent
of potentially adverse government regulations which might arise
from future legislative or administrative action cannot be
predicted.
PATENTS, COPYRIGHTS, TRADEMARKS, TRADE SECRETS AND ROYALTIES
The United States Patent Office issued a patent (No.
4,943,239) to Bertram L. Koslin, the Company's former President, on
July 24, 1990, for the Test Answer and Score Sheet Device.
Pursuant to an agreement between the Company and Mr. Koslin, all
rights, title and interest to the Test Answer and Score Sheet were
assigned to the Company. There is no assurance that the patent
assigned to the Company is enforceable and there is no assurance
that the Company will derive any competitive advantage therefrom.
While the patent is deemed important to the Company, it is not
considered essential to the success of the Company's business. The
issuance of the patent for the Test Answer and Score Sheet Device
may be insufficient to prevent competitors from essentially
duplicating the product by designing around the patented aspects.
In addition, there is no assurance the Company's product will not
infringe on patents owned by others, licenses which may not be
available to the Company or that competitors will not develop
functionally similar products outside the protection of the patent.
Moreover, there is no assurance that the validity of the patent
issued for the Test Answer and Score Sheet Device or any other
Company product in the future will be sustained if judicially
tested.
As of October 31, 1997, the United States Copyright
Office has issued 66 copyrights to TASA for shelf-secure test
booklets, annually secure test booklets, reports and manuals and 12
copyrights to MLP for its various publications. The Company
regularly asserts copyrights to all of its test and instructional
materials.
The following are registered trademarks of the Company:
TASA, the TASA logo, Degrees of Literacy Power, DLP, Degrees of
Reading Power, DRP, Degrees of Word Meaning, DWM, Traveling
Classroom Library, TCL, MicRA-->DRP, Browzer, Booklore, and DRP-->BOOKLINK
(pending) and Browzer-->BOOKLINK (pending), DRP-->EZ
Converter (pending), The Readability Standard (pending), We've Done
the Research For You (pending), Reading Partner (pending), TextSense
(pending), BookMatch (pending), BookMatch designs (pending).
Additionally, the following are registered trademarks of MLP:
Linking Learning (pending) and Change-A-Print Frame.
Trade secrets are maintained by licenses for software and
certain proprietary data. In addition, all employees execute
nondisclosure agreements as a condition of employment.
In connection with the purchase by MLP of substantially
all the operating assets of Programs for Education, Inc. and
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 on sales of certain titles for a term of
seven years following the closing of the acquisition in an amount
equal to a minimum of $80,000 annually, with a maximum of $120,000
in the first year, which increases each year to a maximum of
$240,000 in the seventh year.
ITEM 2. DESCRIPTION OF PROPERTY
The Company owns a 30,000 square foot building in
Brewster, New York. The building was constructed in 1987, with the
second phase completed in 1991. In Fiscal 1997, the Company retired
the first and second mortgages on the property and remortgaged the
facility with MSB Bank. See "Management's Discussion and Analysis
or Plan of Operation".
MLP rents its editorial offices in Honesdale,
Pennsylvania, and has its service and order fulfillment center in
Rosemont, New Jersey, each on a month-to-month basis.
Collectively, MLP rents approximately 5,000 square feet of space.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) The Company's Common Stock is traded in the
NASDAQ small-capitalization over-the-counter market under the
symbol TASA. As quoted in the Monthly Statistical Reports of the
National Association of Securities Dealers, Inc., the approximate
high and low closing prices for each fiscal quarter in the two
fiscal years ended October 31, 1996 and October 31, 1997 were as
follows:
Common Stock Prices
-------------------
Fiscal Quarter: High Low
1st Qtr 96 3.125 2.00
2nd Qtr 96 2.56 1.67
3rd Qtr 96 1.97 0.94
4th Qtr 96 1.44 0.50
1st Qtr 97 1.00 0.375
2nd Qtr 97 1.00 0.438
3rd Qtr 97 0.75 0.344
4th Qtr 97 1.00 0.281
During the first quarter of fiscal 1998 (through January
15, 1998), the Company's Common Stock had a high price of $1.344
and a low of $0.813.
These quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commission and may not represent
actual transactions.
As of January 1, 1998, there were 63 holders of record of
the Company's Common Stock. This number of holders of record does
not include beneficial owners of the Company's Common Stock, which
shares are held in the names of various security holders, dealers
and clearing agencies. The Company believes that the number of
beneficial owners of its Common Stock held by others or in nominee
names exceeds 1,040 in number. The Company has not paid any cash
dividends, and does not anticipate doing so in the immediate future
as it intends to invest any earnings in the development of the
Company's business.
As of August 19, 1997, the Company entered into two
consulting agreements with each of Comprehensive Capital, Theodore
P. Allocca, Theodore Allocca and Steven Kevorkian (the
"Comprehensive Group"), and Barry M. Goldstein ("Goldstein"),
pursuant to which each of the Comprehensive Group and Goldstein
agreed to perform services to the Company for a term of one year in
exchange for 50,000 shares of the Company's Common Stock and
warrants to purchase up to 125,000 shares of Common Stock at a
purchase price equal to the fair market value of the Common Stock
on August 19, 1997, or $0.469, which warrants will remain
exercisable for a period of five years.
The Company relied on the exemption from registration
provided by Section 4(2) of the Securities Act of 1933, as amended,
in effecting these transactions, as the Company believes each of
the Comprehensive Group and Goldstein to be sophisticated investors
and there was no general solicitation or advertising.
The Company intends to register these shares of Common
Stock.
(b) Not applicable.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
Except for historical information, the material contained
in this Management's Discussion and Analysis or Plan of Operation
is forward-looking. For the purposes of the safe harbor protection
for forward-looking statements provided by the Private Securities
Litigation Reform Act of 1995, readers are urged to review the list
of certain important factors set forth in "Cautionary Statement for
Purposes of the "Safe Harbor" Provisions of the Private Securities
Litigation Reform Act of 1995" below, which may cause actual
results to differ materially from those described.
COMPANY BACKGROUND
Touchstone Applied Science Associates, Inc. provides the
educational market with selected learning, assessment and
evaluation tools. The Company develops, publishes, and distributes
a highly regarded, proprietary line of reading tests, and also
designs tests specifically to meet clients' measurement
specifications. Through its wholly-owned subsidiary, Modern
Learning Press, Inc., a Delaware corporation ("MLP"), the Company
designs, publishes and distributes affordable "consumable" student
workbooks for grades K-4, and creates and publishes books and
pamphlets for elementary school teachers and parents. In
conjunction with Yale University's Gesell Institute, MLP has
published a line of books on the Gesell child development scales,
a predictor of a young child's readiness to start kindergarten.
The Company's wholly-owned subsidiary, Beck Evaluation & Testing
Associates, Inc., a New York corporation ("BETA"), designs tests
and evaluates assessment needs for school districts and test and
textbook publishers.
The Company's reading comprehension tests are based on
its internally developed assessment methodology called the Degrees
of Reading Power(R) ("DRP"). It publishes and sells its DRP(R) tests
to over 3,400 elementary and secondary schools, colleges and
universities throughout the United States and Canada.
Based on its proprietary Degrees of Reading Power
methodology, the Company's products measure an individual student's
reading ability in a non-culturally biased manner and allow
tracking of an individual's reading development over time. TASA's
DRP tests have been adopted by the New York State Board of Regents
and by the educational departments of each of Connecticut and
Virginia. Numerous individual school districts in the United
States and Canada have also adopted these tests either to be given
in certain grades or as a general measurement of a student's
progress. In 1997, management estimates that over 4 million DRP
tests were administered in the United States and Canada in either
the test's secure form or in "shelf" form from the Company's
catalogs. Management anticipates that the Company will introduce
a computer-based DRP test product in the first half of the 1998
calendar year, which the Company believes will be of substantial
interest to schools, as well as to a new market made up of private-sector
and governmental clients.
Prior to Fiscal 1997, substantially all of the Company's
revenues were derived from the publishing and sale of DRP test
products and the provision of related services, such as test
scoring. Effective as of January 2, 1997, the Company purchased
all of the outstanding capital stock of BETA, and, effective as of
May 30, 1997, MLP purchased substantially all of the operating
assets of Programs for Education, Inc. In addition, during Fiscal
1997, the Company purchased the Maculaitis test, a test designed to
evaluate comprehension of English as a second language ("ESL").
TASA has also developed and introduced computerized and Internet-
based products and services, such as DRP-->BOOKLINK and BookMatch,
which are available to schools and subscribers either by floppy
disks or through the Company's Internet website.
In January 1997, the Company purchased 100% of the
outstanding capital stock of BETA for an aggregate net purchase
price of $360,000, which included goodwill of $374,000 and a cash
overdraft balance of $14,000. The consideration consisted of cash
of $130,000, the issuance of three 8 1/4% promissory notes due January
2, 1999 aggregating $150,000, and the issuance of an aggregate of
150,000 shares of the Company's Common Stock. The goodwill is
being amortized over six years. See "Management's Discussion and
Analysis or Plan of Operations--Liquidity and Capital Resources",
below.
In May 1997, the Company's wholly-owned subsidiary, MLP,
acquired substantially all of the operating assets of Programs for
Education, Inc. for $3,200,000. The consideration consisted of
$2,200,000 in cash and a $1,000,000 five-year secured note, which
bears interest at the higher of the prime rate plus 1% or 9% and is
payable in equal quarterly installments over five years. The
acquisition included $2,500,000 of goodwill, of which the Company
wrote off $2,002,674 due to impairment primarily in the third
quarter of Fiscal 1997. The balance is being amortized over six
years. Additional royalties are to be paid based on revenues for
a period of 7 years. See "Management's Discussion and Analysis or
Plan of Operations--Liquidity and Capital Resources", below.
TASA's corporate headquarters are located at 4
Hardscrabble Heights, P.O. Box 382, Brewster, New York 10509. The
Company's telephone number is (914) 277-8100 and its facsimile
number is (914) 277-3548. The Company maintains a website at
www.tasa.com. The terms "Company" and "TASA" refer to Touchstone
Applied Science Associates, Inc. and its subsidiaries, unless the
context otherwise indicates. See "Description of Business", in
Part I above.
RESULTS OF OPERATIONS
The following table sets forth, for the periods
indicated, certain financial data as a percentage of total
revenues. The percentages presented are prepared on an EBITDA(1)
format.
Fiscal year ended October 31,
-----------------------------
1997 1996 1995
Revenue 100% 100% 100%
---- ---- ----
Gross Profit 72 81 68
Operating Expenses
Selling expenses 25 28 26
General and administrative expenses 29 31 26
Product development expenses 0 2 0
-----------------------------
Total operating expenses 54 61 52
-----------------------------
EBITDA(1) 18 20 16
Depreciation/amortization 12 15 15
Write-off of Goodwill 44 0 0
Bad Debt Write-Off 9 0 0
Net Interest Expense (Income) 1 (4) (4)
-----------------------------
Pre Tax Income (loss) (48) 9 5
-----------------------------
Net Income (loss) (30) 8 7
=============================
- ------------------
(1) Earnings before interest, taxes and depreciation/amortization.
Depreciation and amortization are reported as expenses in cost of
sales and general and administrative. The relative expenses above
have had depreciation and amortization removed from cost of sales
and general and administrative expenses and presented as a
specific line item.
The following table sets forth the breakdown of the
Company's revenues for the fiscal years ended October 31, 1997,
1996 and 1995.
Fiscal year ended October 31,
---------------------------------------------
1997 1996 1995
(thousands of dollars)
Contract Sales - TASA $ 796.9 17% $ 875.6 35% $ 956.8 41%
Catalog Sales - TASA 2,042.0 45% 1,644.3 65% 1,357.8 59%
MLP 1,461.4 32% -- -- -- --
BETA 287.3 6% -- -- -- --
-----------------------------------------------------
Total: $ 4,587.6 100% $2,519.9 100% $2,314.6 100%
-----------------------------------------------------
Year to Year Change: +82% +9% +14%
=====================================================
Fiscal 1997 As Compared to Fiscal 1996
--------------------------------------
REVENUES. In Fiscal 1997, revenues of $4,587,633
increased 82%, or $2,067,725, over revenues of $2,519,908 in the
fiscal year ended October 31, 1996 ("Fiscal 1996"). Of the
$2,067,725 increase, 15%, or $318,993, was attributable to a 12%
net internal growth of the Company's traditional DRP test business.
The balance of $1,748,732, or 85%, of the revenue increase resulted
from the inclusion of the two businesses acquired during Fiscal
1997, BETA and MLP, since their respective acquisition dates. MLP
accounted for $1,461,377 for five months, or 84% of the Fiscal 1997
revenue increase attributable to new business and BETA accounted
for $287,355, or 16%, of such Fiscal 1997 revenue gain. Since
1994, the Company's revenues have increased 126%, of which internal
growth accounts for approximately 40% and acquisitions effected in
Fiscal 1997 accounts for the remaining 60%.
The Company's 23% internal growth in total sales since
the fiscal year ended October 31, 1995 ("Fiscal 1995") has been
from catalog sales, or sales of DRP tests directly to individual
schools and universities. Since Fiscal 1995, catalog sales have
grown 50%, from $1,357,791 in Fiscal 1995 to $2,042,043 in Fiscal
1997, including 24% in Fiscal 1997 and 21% in Fiscal 1996.
Management believes that this growth is derived from specific sales
and marketing programs undertaken by the new management team since
1995. In 1995, as a result of a new sales and distribution
program, the Company acquired 273 new school, college, and
university customers. In Fiscal 1996, the Company acquired an
additional 318 new customers, which increased to a total of 339 new
customers in Fiscal 1997. In 1994, the year before commencement of
the marketing initiatives, the Company added only 149 new
customers.
In contrast, contract sales, which are sales of DRP tests
directly under long-term contracts to three states, have declined
in absolute dollar amounts since 1994. Sales under contracts to
states declined 9% in Fiscal 1997 ($796,858 in Fiscal 1997 versus
$875,608 in Fiscal 1996), and 17% since Fiscal 1995. Students who
entered high school in New York before the 1997 school year must
obtain a certain score on the RCT to be awarded a local high school
diploma. Because it is not certain how these high school
graduation requirements may change in the future and because New
York State is considering revisions to its PEP testing, the amount
of RCT and PEP contract revenues is uncertain beyond the 1998
fiscal year, although the master contract with New York State
includes two-year wind down provisions for DRP testing. No notices
under this master contract have been issued to date. In Fiscal
1997, the New York contract accounted for $405,451, which is 51% of
all contract revenues and 9% of the Company's revenues. Statewide
programs are a highly competitive market, and many of the Company's
competitors marketing more "traditional" tests have substantially
larger budgets for state level sales, marketing and lobbying.
Management has instituted several programs to increase exposure for
the DRP test, including presentations at professional conferences
and increased publication of articles in professional journals and
management expects that this increased awareness will provide
increased opportunities for contract sales. Management believes
that the decline in contract income as a percentage of total
revenues is a positive development, as it makes the Company much
less dependent on any single customer.
Sales by MLP for the five months since the acquisition of
the assets of Programs for Education, Inc. were $1,461,377. The
sales of MLP are highly seasonal. Approximately 50% of the year's
sales occur in July through September when budgets for most schools
are funded and purchases made for the new school year.
Sales of BETA since its acquisition in January 1997 were
$287,355. Revenues during Fiscal 1997 reflect the commencement of
initial work on new testing and evaluation service contracts with
five major states. Substantial portions of BETA sales are
subcontracts from the major traditional test and textbook
publishers.
COST OF GOODS SOLD. Cost of goods sold in Fiscal 1997
increased 122% from Fiscal 1996 ($1,578,749 in Fiscal 1997 versus
$711,564 in Fiscal 1996). Cost of goods sold represented 34% of
revenues in Fiscal 1997 versus 28% of revenues in Fiscal 1996.
This increase is due to the change in product mix from acquisitions
made over the course of Fiscal 1997.
The Company's gross profit margins decreased in Fiscal
1997 as compared to Fiscal 1996, due to the inclusion of two
acquisitions that have lower margins than TASA's DRP and other core
business. BETA had a 25% gross profit margin and MLP had a 70%
gross profit margin, while TASA's core business (without BETA and
MLP) had a gross profit margin of 74% (EBITDA format), in Fiscal
1997. As a result, gross profit margins for Fiscal 1997, excluding
amortization of the Test Passage Bank (EBITDA format), declined to
72% from 81% in Fiscal 1996. Additional royalty costs, a factor in
the decline of the Fiscal 1997 gross margins, will be present for
seven years as a portion of the consideration paid for the
acquisition of Programs for Education, Inc. See "Management's
Discussion and Analysis or Plan of Operations--Liquidity and
Capital Resources", below. On a reported basis (non-EBITDA), the
Company includes amortization of the Test Passage Bank in its
reported cost of sales and, thus, the Company's reported gross
profit margins are lower. Management believes that as its DRP test
and MLP sales continue to grow, gross profit margins should
continue at least at current levels.
SELLING EXPENSES. Selling expenses for Fiscal 1997
decreased to 25% of revenues as compared to 28% of revenues in
Fiscal 1996 ($1,128,604 in Fiscal 1997 versus $703,214 in Fiscal
1996). A substantial portion of this decline is due to the fact
that Fiscal 1997 sales and marketing costs at MLP, which are
seasonal, were incurred substantially preceding the date of the
acquisition of the assets of Programs for Education, Inc. by MLP.
GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses decreased in Fiscal 1997 to 29% of revenues
as compared to 31% in Fiscal 1996 (EBITDA format). The primary
reasons for this decline were higher corporate sales volume
combined with cost controls instituted by management in Fiscal
1997. The cost control programs and overhead efficiency efforts
were instituted during Fiscal 1995 and Fiscal 1996, which efforts
management continues to sustain.
PRODUCT DEVELOPMENT EXPENSES. In Fiscal 1996, the
Company expended 2% of its revenues ($60,238) for product
development expenses related to BookMatch. In late Fiscal 1996,
the product achieved feasibility. Therefore, in accordance with
generally accepted accounting principles, the Company began
capitalizing costs associated with the product until it was
launched in December 1997. There are no product development
expenses in Fiscal 1997.
TOTAL OPERATING EXPENSES. Total operating expenses for
Fiscal 1997 exclusive of bad debts declined to 59% of revenues as
compared to 67% in Fiscal 1996 ($2,730,368 in Fiscal 1997 versus
$1,699,914 in Fiscal 1996). However, due to the year-to-year
decline of the Company's gross profit margin, EBITDA declined
slightly to 18% in Fiscal 1997 from 20% in Fiscal 1996.
Depreciation and amortization expenses for Fiscal 1997
increased 44% over Fiscal 1996 but decreased as a percentage of
revenues to 12% from 15% in Fiscal 1996 ($560,389 in Fiscal 1997
versus $389,767 in Fiscal 1996). In addition to depreciation of
the Company's facilities and equipment, amortization of the
Company's Test Passage Bank and goodwill associated with the
acquisition of substantially all the operating assets of Programs
for Education, Inc. constitutes a substantial portion of the annual
provision. This depreciation/amortization provision is expected to
continue to decline modestly as a percentage of revenues in future
years.
In Fiscal 1997, the Company took a one-time $2,002,674
charge for impairment of the goodwill arising from the purchase by
MLP of substantially all the assets of Programs for Education, Inc.
This one-time charge equaled 44% of the Company's revenues for
Fiscal 1997. The remaining $500,000 of goodwill from the
acquisition is being amortized over six years.
Bad debt expenses rose substantially in Fiscal 1997 due
to the one-time write-off of a note receivable. Prior to Fiscal
1995, the Company (under previous management) lent $400,000 to HGI,
Inc. (formerly The Harriman Group, Inc.) on an unsecured,
subordinated note. During Fiscal 1997, HGI, Inc. was declared
insolvent and management wrote-off the note receivable, which
equaled 9% of revenues. The Company has instituted legal action
for recovery; however, there can be no assurance that there will be
any recovery.
INTEREST EXPENSE. The Company had net interest expense
(interest income less interest expense) in Fiscal 1997 of $34,083
or 1% of revenues. This compared to net interest income of
$102,827 in Fiscal 1996 equaling 4% of revenues. The higher net
interest cost in Fiscal 1997 resulted from (i) higher interest
expenses resulting from the notes issued in the two acquisitions
effected in Fiscal 1997, (ii) a decrease in the overall earnings on
the Company's cash and short-term investments due to lower interest
rates, (iii) a lower average balance of cash during Fiscal 1997 due
to the two acquisitions, and (iv) a fixed interest cost of the
financing on the Company's headquarters building. Management
expects the net interest cost to continue into the 1998 fiscal
year.
NET INCOME AND EARNINGS PER SHARE. Before taxes, the
losses in Fiscal 1997 equaled a negative (48%) of revenues,
including the write-downs of goodwill and bad debt expenses which
aggregated 52% of revenues in Fiscal 1997. Pre-tax income was 8%
in Fiscal 1996 ($211,257 in Fiscal 1996).
Based on the Company's loss in Fiscal 1997 and its tax
position from prior years, the Company claimed a tax benefit of
$829,969 for Fiscal 1997 as compared to a tax expense of $19,209
for Fiscal 1996.
Net income (loss) for Fiscal 1997 was ($1,363,811) as
compared to a profit of $192,048 in Fiscal 1996.
Shares outstanding on which earnings per share were
calculated in Fiscal 1997 were 8,213,089. In Fiscal 1996, both
primary and fully diluted shares outstanding on which earnings per
share were calculated were 7,640,867. The increase is primarily
attributable to the issuance and subsequent exercise of warrants
during the year.
Earnings (loss) per share were ($0.17) in Fiscal 1997
versus $0.03 in Fiscal 1996.
1996 as Compared to 1995
------------------------
REVENUES. In Fiscal 1996, all Company revenues were
derived from the sale of test products and services. Total
revenues increased 9% versus Fiscal 1995 ($2,519,908 in Fiscal 1996
versus $2,314,594 in Fiscal 1995). The overall increase in
revenues for this period represents the net of a significant
increase in catalog sales over a decrease in contract sales.
Contract income for the period decreased 8% versus Fiscal
1995 ($875,608 in Fiscal 1996 versus $956,803 in Fiscal 1995).
Catalog sales for shelf tests and associated products
increased dramatically during Fiscal 1996. In Fiscal 1996, catalog
sales increased 21% versus Fiscal 1995 ($1,644,300 in Fiscal 1996
versus $1,357,791 in Fiscal 1995). Since Fiscal 1995, the Company
has invested heavily in marketing and sales initiatives.
COST OF GOODS SOLD. Cost of goods sold as reported for
Fiscal 1996 decreased 25% versus Fiscal 1995 ($711,564 in Fiscal
1996 versus $954,907 in Fiscal 1995). On an EBITDA format, gross
profit margins in Fiscal 1996 were 81% as compared to 67% in Fiscal
1995. The costs decreased in Fiscal 1996, both as a total dollar
value and as a percentage of revenues because, in Fiscal 1995, the
Company wrote off significant obsolete inventory.
SELLING EXPENSES. Selling expenses in Fiscal 1996
increased by 18% over Fiscal 1995 ($703,214 in Fiscal 1996 versus
$593,959 in Fiscal 1995). Consequently, selling expenses rose to
28% of revenues in Fiscal 1996 as compared to 26% in Fiscal 1995.
These increases represent management's decision to support the
Company's activities with significant advertising and direct mail
efforts. Based upon these activities, the Company has essentially
doubled its acquisition of new customers each year. In 1994, prior
to commencement of the marketing initiatives, the Company added 149
new customers; in Fiscal 1995, with the start of marketing
initiatives, the Company acquired 273 new customers; and as the
Company increased such initiatives in Fiscal 1996, the Company
acquired an additional 318 new customers.
GENERAL AND ADMINISTRATIVE EXPENSES. General and
administrative expenses increased 26% versus Fiscal 1995 ($936,462
in Fiscal 1996 versus $740,861 in Fiscal 1995). Excluding
depreciation, Fiscal 1996 levels were 31% of revenues as compared
to 26% in Fiscal 1995. These increases are due to management's
decision to re-focus the Company in late 1994 as well as the need
to add additional manpower to support increased revenue and product
development activities.
PRODUCT DEVELOPMENT ACTIVITIES. In Fiscal 1996, the
Company spent $60,238 on product development expenses related to
BookMatch. There were no comparable expenditures in Fiscal 1995.
TOTAL OPERATING EXPENSES. Total operating expenses for
Fiscal 1996 increased to 67% from 58% in Fiscal 1995 ($1,699,914 in
Fiscal 1996 versus $1,334,820 in Fiscal 1995).
INTEREST INCOME. Net interest income remained
essentially flat between Fiscal 1996 and Fiscal 1995. Investment
income from money market accounts and intermediate bonds was
essentially the same in Fiscal 1996 and Fiscal 1995. This income
was a direct result of the completion of the Company's public
offering in 1992 and the investment of the proceeds that were not
required for the Company's working capital. Interest expenses
increased 9% versus Fiscal 1995.
NET INCOME AND EARNINGS PER SHARE. Net after-tax income
increased 24% in Fiscal 1996 versus Fiscal 1995 ($192,048 in Fiscal
1996 versus $155,146 in Fiscal 1995). The increase over the period
is due to increased revenues as well as a stabilization of the
Company's expense base.
Both primary and fully diluted shares outstanding on
which earnings per share were calculated in Fiscal 1996 were
7,640,867. In Fiscal 1995, primary shares outstanding on which
earnings per share were calculated were 7,665,511 and fully diluted
shares outstanding were 7,738,324.
Earnings per share were $.03 in Fiscal 1996 versus $.02
in Fiscal 1995.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL. Primarily as a result of the
acquisitions completed during Fiscal 1997, the Company's working
capital decreased to $2,244,488 at October 31, 1997 as compared to
$4,116,202 at October 31, 1996. The Company's current ratio at the
end of Fiscal 1997 was 3.7 to 1 as compared to 13.0 to 1 at the end
of Fiscal 1996. Approximately 50% of the Company's current assets
at year-end consisted of cash, short-term investments and
marketable securities, while accounts receivable, inventories and
prepaid expenses comprised the balance.
OPERATING ACTIVITIES. Cash flow from operating
activities increased 50% in Fiscal 1997 over Fiscal 1996 ($641,303
in Fiscal 1997 versus $428,388 in Fiscal 1996). This increase was
the result of the Company's ($1,363,811) net loss for the year
being offset by the non-cash charges of impairment of goodwill
($2,002,674) and bad debt expense ($405,000). Fiscal control
programs for operating assets and liabilities instituted by
management during Fiscal 1996 and Fiscal 1997 were also a
significant contributor to these Fiscal 1997 cash flow results.
INVESTING ACTIVITIES. For Fiscal 1997, the Company had
a $1,890,708 net cash outflow from investing activities as compared
to a $518,193 net cash outflow from investing activities in Fiscal
1996. The primary component of this increase in net cash outflow
in Fiscal 1997 was cash of $2,270,864 spent for the acquisitions of
BETA and substantially all the operating assets of Programs for
Education, Inc. There were no acquisition expenditures in Fiscal
1996. The Company continues to invest in the development and
calibration of DRP and other textual test items to be added to its
Test Passage Bank, which expenditures amounted to $448,749 in
Fiscal 1997 versus $361,225 in Fiscal 1996. For the three years
ending October 31, 1997, expenditures for additions to the
Company's Test Passage Bank totaled $1,128,207. Software
development expenditures in Fiscal 1997, which were capitalized,
totaled $229,092, as compared to $142,356 in Fiscal 1996. Capital
expenditures for property, plant and equipment totaled $116,754 in
Fiscal 1997 versus $73,448 in Fiscal 1996, and totaled $365,255
during the past three fiscal years.
FINANCING ACTIVITIES. Financing activities during Fiscal
1997 generated cash of $1,356,250 in Fiscal 1997, an increase from
the $522,319 raised in Fiscal 1996. The Company remortgaged its
facility in the amount of $1,800,000, which refinancing was closed
on August 28, 1997. Proceeds from this transaction were used to
retire the Company's first and second mortgages and retire certain
short-term debt associated with the acquisition of MLP.
In connection with the purchase by the Company of all of
the outstanding capital stock of BETA, the Company issued three
8 1/4% promissory notes due January 2, 1999 aggregating $150,000. In
connection with the purchase of substantially all the operating
assets of Programs for Education, Inc., MLP issued a $1,000,000
five-year secured note, which bears interest at the higher of the
prime rate plus 1% or 9% and is payable in equal quarterly
installments over five years. This note is guaranteed by TASA.
Additionally, in connection with the acquisition by MLP and
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 on sales of certain titles for a term of
seven years following the closing of the acquisition in an amount
equal to a minimum of $80,000 annually, with a maximum of $120,000
in the first year, which increases each year to a maximum of
$240,000 in the seventh year. Management believes these
obligations can be financed from the cash flow from operations.
The Company has no other material commitments for capital or other
expenditures and is not party to any arrangement that would
adversely impact the Company's liquidity.
SELECTED FINANCIAL DATA
The following tables summarize certain financial data for
the Company for the fiscal years ended October 31, 1997, 1996, and
1995, respectively. See "Financial Statements" in Item 7 below.
Fiscal Year Ended October 31,
-------------------------------------
1997 1996 1995
---- ---- ----
INCOME STATEMENT DATA:
Operating revenues $4,587,633 $2,519,908 $2,314,594
Net sales 4,587,633 2,519,908 2,314,594
Gross profit 3,008,884 1,808,344 1,359,687
Income (loss) from operations (2,129,158) 108,430 24,867
Income (loss) before income taxes (2,193,780) 211,257 129,642
Net income (loss) (1,363,811) 192,048 155,146
Earnings (loss) per share (.17) .03 .02
BALANCE SHEETS:
Current assets $3,078,853 $4,458,538 $3,449,356
Total assets 9,592,885 8,975,542 8,416,732
Long-term obligations 2,528,968 1,249,471 1,173,412
Total liabilities 3,363,333 1,591,807 1,699,492
Working capital 2,244,488 4,116,202 2,923,276
Stockholders' equity 6,229,552 7,383,735 6,717,240
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Certain statements contained in this Report contain
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. These are statements
that do not relate strictly to historical or current facts. Such
forward-looking statements involve known and unknown risks and
uncertainties. The Company's actual actions or results may differ
materially from those discussed in the forward-looking statements.
These risk factors include, without limitation:
. Rapid changes in (i) the technology used to administer
standardized tests generally or market educational
materials or (ii) in the policy considerations which
determine which test will be administered;
. Non-renewal of certain annual contracts with various
states;
. The loss of any significant customer;
. The ability of the Company to compete successfully with
the other providers of standardized tests (see
"Description of Business--Competition", above);
. The ability of the Company to accommodate any changes in
government regulation which may impact the marketability
of its tests (see "Description of Business--Government
Regulation", above);
. The ability of the Company to secure additional financing
as and when necessary;
. The ability of the Company to retain the services of its
key management, and to attract new members of the
management team;
. The ability of the Company to effect and retain
appropriate patent, copyright and trademark protection
of its products;
. Any decrease in the market for educational consulting
services; and
. Increased competition in the field of publishing.
The Company undertakes no obligation to release publicly
any revisions to the forward-looking statements or to reflect
events or circumstances after the date of this Report.
ITEM 7. FINANCIAL STATEMENTS
Financial information required by this item appears in
the pages marked F-1 through F-28 at the end of this Report and are
incorporated herein by reference as if fully set forth herein.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report F-2
Consolidated Financial Statements:
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-5
Consolidated Statement of Changes in Stockholders' Equity F-6
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-9
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF
THE EXCHANGE ACT
As of October 31, 1997, the directors and executive
officers of the Company, were as follows:
Name Age Position
---- --- --------
Walter B. Barbe 71 Director; and President, Modern
Learning Press, Inc.
Michael D. Beck 51 Director; Vice President; and
President, Chief Executive
Officer, BETA
Steven R. Berger 42 Director
Stephen H. Ivens 56 Director; and Vice President,
DRP Services
Michael Milone 52 Director
Andrew L. Simon 55 Chairman of the Board of
Directors; President; Chief
Executive Officer; and Chief
Financial Officer
Linda G. Straley 41 Director; Vice President,
Operations; and Secretary
Each director shall hold office until the next annual
meeting of the Company's stockholders and until a successor is
selected and qualified.
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.
STEPHEN H. IVENS was elected as a Director of the Company
on March 31, 1995, and has been Vice President, DRP Services since
June 1997. Prior to serving as Vice President, DRP Services, Mr.
Ivens was Vice President of Research and Development from June 1994
and, prior to that, was Executive Director of DRP Services of the
Company from August 1989. Mr. Ivens received a B.S. in Mathematics
and M.S. in Guidance from Illinois State University and a Ph.D. in
Educational Research from Florida State University. From 1970 to
1989 he was an Executive Director at the College Entrance
Examination Board.
MICHAEL MILONE 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. Dr. Milone is also a Director of
each of MLP and BETA. Dr. Milone has been an educational writer
and independent consultant to publishers and school districts since
1984. Dr. Milone received an M.A. from Gallaudet University and a
Ph.D. from The Ohio State University, where he has served as an
adjunct assistant professor in the Department of Educational
Services and Research.
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.
ITEM 10. EXECUTIVE COMPENSATION
The following table shows compensation for services
rendered to the Company during the fiscal years ended October 31,
1997, 1996 and 1995, respectively, by the Chief Executive Officer,
the Vice President, DRP Services, the Vice President, Operations
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 $100,000
during the fiscal years ended October 31, 1997, 1996 and 1995.
Therefore, pursuant to Item 402 of Regulation S-B, only
compensation for each of the Chief Executive Officer, the Vice
President, DRP Services, Vice President, Operations and President
of BETA is shown in the Summary Compensation Table below.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
---------------------------------------------------------------
Awards Payouts
--------------------------
Securities All Other
Other Annual Restricted Underlying LTIP Compen-
Name and Principal Compensation Stock Options/SARs(1) Payouts sation
Position Year Salary($) Bonus($) ($) Award(s)($) (#) ($) ($)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Andrew L. Simon, 1997 $135,000 0 $39,025(3) 0 239,000(2) 0 0
President, Chief Executive 1996 109,568 0 33.707(3) 0 82,500 0 0
Officer and Chief Financial 1995 99,112 $2,500 32,271(3) 0 0 0 0
Officer
Stephen H. Ivens, Vice 1997 $112,000 0 $35,210(4) 0 102,500(2) 0 0
President, DRP Services 1996 107,068 0 34,163(4) 0 52,500 0 0
1995 102,498 $2,500 32,811(4) 0 0 0 0
Linda G. Straley, Vice 1997 $ 91,500 0 $23,635(5) 0 102,700(2) 0 0
President, Operations, 1996 88,125 0 25,951(5) 0 52,500 0 0
and Secretary 1995 72,500 $2,500 23,982(5) 0 0 0 0
Michael D. Beck, Vice 1997 $83,333(8) 0 $24,622(6) 0 125,000(7) 0 0
President, TASA; 1996 0 0 0 0 0 0 0
President and Chief 1995 0 0 0 0 0 0 0
Executive Officer, BETA
<FN>
- ---------------
(1) To date, the Company has issued no SARs
(2) Granted in connection with the rejuvenation (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, the date of the Rejuvenation.
(3) Includes: contributions of $20,250, $16,435, and $15,242
to the Company's qualified 401(k) Profit Sharing Plan
(the "401(k)"), in the fiscal years ended October 31,
1997, 1996, 1995, respectively; and $8,250 annually for
a company car.
(4) Includes: contributions of $16,800, $16,060 and $15,750
to the Company's 401(k) in the fiscal years ended October
31, 1997, 1996, 1995, respectively; and $6,100, $7,250,
and $7,250 for a company car, in the fiscal years ended
October 31, 1997, 1996, 1995, respectively.
(5) Includes: contributions of $10,980, $13,219 and $11,250
to the Company's 401(k) in the fiscal years ended October
31, 1997, 1996, 1995, respectively; and $3,100, $7,250,
and $7,250 for a company car, in the fiscal years ended
October 31, 1997, 1996, 1995, respectively.
(6) Includes: a contribution of $12,500 to the Company's
401(k) in Fiscal 1997; and $4,460 for a company car in
Fiscal 1997.
(7) Granted as part of the purchase price for the acquisition
of BETA by the Company.
(8) Represents salary paid since the commencement of Mr.
Beck's employment by the Company on January 2, 1997.
</FN>
</TABLE>
EMPLOYMENT CONTRACTS
On March 1, 1996, the Company entered into an employment
agreement with each of Andrew L. Simon, Linda G. Straley and
Stephen H. Ivens, pursuant to which the Company agreed to employ
Mr. Simon, Ms. Straley and Mr. Ivens, and each of Mr. Simon, Ms.
Straley and Mr. Ivens agreed to remain, as the Company's President
and Chief Executive Officer, Vice President, Operations 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 and Ms. Straley, 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.
Each employment agreement contains a non-competition
clause for two 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 1995, the Company granted a total 72,500
options under the Option Plan; in Fiscal 1996, the Company granted
a total of 233,000 options under the Amended Option Plan; and 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. In Fiscal 1995,
18,900 options under the Option Plan were forfeited; in
Fiscal 1996, 637,678 options under the Amended Option Plan were
canceled or forfeited; and in Fiscal 1997, 715,750 options under
the Amended Option Plan were canceled. As of December 15, 1997,
there were 1,355,250 options in the aggregate outstanding under the
Amended Option Plan.
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
- ----------------------------------------------------------------------------------------------------------------
Number of Securities Percent of Total Exercise or
Underlying Options/SARs(1) Options/SARs Granted to Base Price
Name Granted (#) Employees in Fiscal Year(3) ($/Sh) Expiration Date
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Andrew L. Simon, President, 239,000(2)(5) 26.6% $0.719 March 27, 2007
Chief Executive Officer and
Chief Financial Officer
- ----------------------------------------------------------------------------------------------------------------
Stephen H. Ivens, Vice 102,500(2)(5) 11.4% $0.719 March 27, 2007
President, DRP Services
- ----------------------------------------------------------------------------------------------------------------
Linda G. Straley, Vice 102,700(2)(5) 11.4% $0.719 March 27, 2007
President, Operations,
and Secretary
- ----------------------------------------------------------------------------------------------------------------
Michael D. Beck, Vice 125,000(4) 13.9% $0.531 January 2, 2002
President, TASA;
President and Chief
Executive Officer, BETA
- ----------------------------------------------------------------------------------------------------------------
<FN>
(1) To date, the Company has issued no SARs.
(2) These options became exercisable on September 29, 1997.
(3) Includes all options granted to employees and directors
under the Amended Option Plan, the Directors Stock Option
Plan and the Consultants Stock Incentive Plan in Fiscal
1997.
(4) These options became exercisable on January 3, 1998.
(5) Granted in connection with the Rejuvenation.
</FN>
</TABLE>
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options/SARs(1) Options/SARs(1)
at FY-End (#) at FY-End ($)
---------------------------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Andrew L. Simon, President, Chief 0 0 321,500/0 $30,580/$0.00(2)
Executive Officer and
Chief Financial Officer
- -----------------------------------------------------------------------------------------------------------
Stephen H. Ivens, Vice 0 0 155,000/0 $13,542/$0.00(2)
President, DRP Services
- -----------------------------------------------------------------------------------------------------------
Linda G. Straley, Vice President, 0 0 155,200/0 $13,517/$0.00(2)
Operations, and Secretary
- -----------------------------------------------------------------------------------------------------------
Michael D. Beck, Vice President, 0 0 0/125,000(3) $0.00/$39,125(2)(3)
TASA; President and Chief
Executive Officer, BETA
- -----------------------------------------------------------------------------------------------------------
<FN>
(1) To date, the Company has issued no SARs.
(2) Based on the closing bid price of the Company's Common
Stock on NASDAQ on October 31, 1997, or $0.844.
(3) Became exercisable on January 3, 1998.
</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; and on March
28, 1997, the Company granted 5,000 options.
On March 11, 1997, the Company entered into a consulting
contract with Michael Milone, pursuant to which Dr. Milone would
provide consulting services to the Company in exchange for the
grant of options to purchase 30,000 shares of the Company's Common
Stock pursuant to the Consultants Stock Incentive Plan (the
"Consultants Plan"). The agreement has a term until October 31,
1997, subject to automatic renewal for successive one-year terms
thereafter, unless at least 30 days prior to the then scheduled
termination date, either party shall give written notice to the
other party of the non-renewal thereof.
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.
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 1997, Fiscal 1996 and Fiscal 1995, 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 $1,523,346 at October 31, 1997.
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 $742,342 at October 31, 1997.
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 1997.
ITEM 11. 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
and Series A Preferred Stock, as of December 31, 1997, 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 December 31, 1997, there were 8,489,322 shares of
Common Stock outstanding, and 1,500 shares of Series A Preferred
Stock outstanding. Each share of Common Stock is entitled to one
vote per share and each share of Series A Preferred Stock is
entitled to 3,000 votes per share. Consequently, there are an
aggregate of 12,989,322 eligible votes for the Company's
outstanding capital stock.
All of the shares of Common Stock and Preferred 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 of such
officers are listed as beneficially owning the shares of Common
Stock and Preferred 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 and Preferred 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 (and, therefore, 1,441,055 votes)
and with respect to 1,500 shares of Preferred Stock (and,
therefore, 4,500,000 votes). Accordingly, the Voting Trust has the
power to exercise 5,941,055 votes, or 45.7% of all eligible votes.
<TABLE>
<CAPTION>
Shares of Percent of Shares of Percent of
Name and Address of Common Stock Common Stock Preferred Stock Preferred Stock Percent of all
Beneficial Owners and Beneficially Beneficially Beneficially Beneficially Outstanding
Directors and Officers Owned Owned Owned Owned Votes
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
5% Beneficial Owners:
- --------------------
Voting Trust, u/a dated August 19, 1,441,055 17.0% 1,500.0 100.0% 45.7%
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 5.4% 948.68 63.2% 25.4%
1640 Hunterbrook Road
Yorktown Heights, NY 10598
- -----------------------------------------------------------------------------------------------------------------
Eileen West 21,500(a) 0.1% 10.74 0.72% 0.1%
56 Harrison Street
New Rochelle, NY 10801
- -----------------------------------------------------------------------------------------------------------------
Officers and Directors:
- ----------------------
Andrew L. Simon 649,902(b) 7.4% 179.0 11.9% 8.9%
1905 Hunterbrook Road
Yorktown Heights, NY 10598
- -----------------------------------------------------------------------------------------------------------------
Stephen H. Ivens 304,976(c) 3.5% 89.5 6.0% 4.4%
272 River Drive
River Vale, NJ 07675
- -----------------------------------------------------------------------------------------------------------------
Linda G. Straley 337,977(d) 3.9% 89.5 6.0% 4.6%
2 Circle Drive East
Ridgefield, CT 06877
- -----------------------------------------------------------------------------------------------------------------
Steven R. Berger 5,000(e) 0.1% 0 0.0% --(f)
3 Castle View Court
Rye Brook, NY 10573
- -----------------------------------------------------------------------------------------------------------------
Michael Milone 83,000(g) 0.1% 0 0.0% 0.6%
64 Calle del Norte
Placitas, NM 87043
- -----------------------------------------------------------------------------------------------------------------
Michael D. Beck 284,500(h) 3.3% 0 0.0% 2.2%
35 Guion Street
Pleasantville, NY 10570
- -----------------------------------------------------------------------------------------------------------------
Walter B. Barbe 10,000(i) 0.1% 0 0.0% --(f)
910 Church Street
Honesdale, PA 18431
- -----------------------------------------------------------------------------------------------------------------
Officers and Directors as a 2,455,255(j),(k) 26.5% 1,500(j) 100.0% 50.6%
Group (7 persons)
- -----------------------------------------------------------------------------------------------------------------
<FN>
a 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 and Preferred Stock held in the Voting Trusts 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.
b 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) 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 (ii) the shares of Common
Stock and Preferred Stock held in the Voting Trust for the benefit of all
of the members thereof, which Voting Trust is listed separately as a 5%
shareholder in this table. Mr. Simon is one of three Voting Trustees
of the Voting Trust.
c Includes 155,000 shares which Mr. Ivens has the right to acquire upon
the exercise of currently exercisable stock options.
d Includes 155,200 shares which Ms. Straley has the right to acquire upon
the exercise of currently exercisable stock options.
e Includes 5,000 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.
f Less than 0.1%.
g Includes (i) 78,000 shares which are held in a Custodial SEP, of which
Dr. Milone is the beneficiary, and (ii) 5,000 shares which Dr. Milone
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 Dr. Milone which are not currently exercisable.
h 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 37,500 shares owned
by Mr. Beck's wife, as to which Mr. Beck disclaims beneficial
ownership.
i Excludes 125,000 shares which are the subject of options granted to Dr.
Barbe which are not currently exercisable.
j 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.
k Includes an aggregate of 766,700 currently exercisable options which
are held by officers and directors of the Company, but are not included
in the Voting Trust. Excludes an aggregate of 130,000 options held by
officers and directors of the Company which are not currently exercisable
and are not included in the Voting Trust.
</FN>
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is authorized to issue 5,000,000 shares, par
value $.0001 per share, of preferred stock. The stock may be issued
by the Board of Directors of the Company in one or more series and
with such preferences, conversion or other rights, voting powers
and other provisions as may be fixed by the Board of Directors in
the resolution authorizing its issuance without any further action
of the shareholders.
On November 16, 1992, the Company issued 1,500 shares of
$.0001 par value convertible preferred shares to the Voting Trust.
The beneficiaries of the Voting Trust consist of, among others,
Messrs. Simon and Ivens and Ms. Straley and the Estate of Bertram
L. Koslin. The shares are entitled to 3,000 votes per share. The
holders of the shares are entitled to a non-cumulative dividend of
$.01 per share. In September 1994, with the consent of the Voting
Trust and the beneficiaries thereof, the Company exchanged the
1,500 outstanding $.0001 par value convertible preferred shares for
1,500 par value $.0001 preferred shares. Such preferred shares
possess all the rights of the original issue but for the conversion
privilege.
Accordingly, the Voting Trust has sole voting and
dispositive power with respect to the preferred shares, as well as
the shares of Common Stock held in the Voting Trust. See "Security
Ownership of Certain Beneficial Owners and Management".
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 1/4% 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 $124,864,
$112,458 and $84,362 to Christy & Viener for the fiscal years ended
October 31, 1997, 1996 and 1995, respectively.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following Exhibits are filed as part of this Report:
3.1 Certificate of Incorporation, dated August 22,
1991 filed with the Secretary of State of the
State of Delaware (incorporated herein by
reference to the exhibit contained in the
Company's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended,
filed with the Securities and Exchange Commission
on July 7, 1993)
3.2 Certificate of Merger dated August 26, 1992,
filed with the Secretary of State of the State of
Delaware (incorporated herein by reference to the
exhibit contained in the Company's Registration
Statement on Form SB-2 under the Securities Act
of 1933, as amended, filed with the Securities
and Exchange Commission on July 7, 1993)
3.3 Certificate of Designations for Series A
Preferred Stock of the Company (incorporated
herein by reference to the exhibit contained in
the Company's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended,
filed with the Securities and Exchange Commission
on July 7, 1993)
3.4 Amended and Restated By-Laws (incorporated by
reference to the exhibit contained in the
Company's Registration Statement on Form S-3
(File No. 333-27659) under the Securities Act of
1933, as amended, filed with the Securities and
Exchange Commission on May 22, 1997)
4.1 Specimen Certificate evidencing shares of Common
Stock (incorporated herein by reference to the
exhibit contained in the Company's Registration
Statement on Form SB-2 under the Securities Act
of 1933, as amended, filed with the Securities
and Exchange Commission on July 7, 1993)
4.2 Form of Warrant (incorporated by reference to the
exhibit contained in the Company's Registration
Statement on Form S-3 (File No. 333-27659) under
the Securities Act of 1933, as amended, filed
with the Securities and Exchange Commission on
May 22, 1997)
9.1 Voting Trust Agreement, dated August 19, 1992
(incorporated herein by reference to the exhibit
contained in Amendment No. 1 to the Company's
Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, filed with
the Securities and Exchange Commission on March
16, 1994)
9.2 Amendment of Voting Trust Agreement and
Appointment of Successor Trustee, dated March 30,
1995 (incorporated herein by reference to the
exhibit contained in Amendment No. 1 to the
Company's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended,
filed with the Securities and Exchange Commission
on March 16, 1994)
10.1 Lease Agreement between the Town of Southeast
Industrial Development Agency/Industrial
Development Reserve Bonds and the Company;
Mortgage and Security Agreement between the
Company and the Town of Southeast Industrial
Development Agency to Barclays Bank of New York,
N.A., now The Bank of New York, as mortgagee;
Note between the Company and Barclays Bank of New
York, N.A., now The Bank of New York; Lease
Guarantee Agreement from the Company as guarantor
and Barclays Bank of New York, N.A., now The Bank
of New York, as Trustee; Amendment to Lease
between the Town of Southeast Industrial
Development Agency and the Company (incorporated
herein by reference to the exhibit contained in
the Company's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended,
filed with the Securities and Exchange Commission
on July 7, 1993)
10.2 Extension and Modification Agreement, dated as of
October 31, 1996, between the Company and the
Town of Southeast Industrial Development Agency,
and the Bank of New York (incorporated herein by
reference to the exhibit contained in the
Company's Annual Report on Form 10-KSB for the
fiscal year ended October 31, 1996)
10.3 Agreements between the Company and the
Commissioner of Education of the State of New
York and Chief Executive Officer of the Board of
Regents of the University of the State of New
York (incorporated herein by reference to the
exhibit contained in the Company's Registration
Statement on Form SB-2 under the Securities Act
of 1933, as amended, filed with the Securities
and Exchange Commission on July 7, 1993)
10.4 Agreement between the Company and the State of
Connecticut and a Purchase Order between the
Company and the Commonwealth of Virginia
(incorporated herein by reference to the exhibit
contained in the Company's Registration Statement
on Form SB-2 under the Securities Act of 1933, as
amended, filed with the Securities and Exchange
Commission on July 7, 1993)
10.5 401(k) Plan (incorporated herein by reference to
the exhibit contained in the Company's
Registration Statement on Form SB-2 under the
Securities Act of 1933, as amended, filed with
the Securities and Exchange Commission on July 7,
1993)
10.6 Notice of Grant Award (incorporated herein by
reference to the exhibit contained in the
Company's Registration Statement on Form SB-2
under the Securities Act of 1933, as amended,
filed with the Securities and Exchange Commission
on July 7, 1993)
10.7 Patent Assignment by Bertram Koslin to the
Company (incorporated herein by reference to the
exhibit contained in the Company's Registration
Statement on Form SB-2 (File No. 33-65766) under
the Securities Act of 1933, as amended, filed
with the Securities and Exchange Commission on
July 7, 1993)
10.8 Amended and Restated 1991 Stock Option Incentive
Plan (incorporated herein by reference to the
exhibit contained in the Company's Quarterly
Report on Form 10-QSB for the fiscal quarter
ended April 30, 1996)
10.9 Directors Stock Option Plan (incorporated herein
by reference to the exhibit contained in the
Company's Quarterly Report on Form 10-QSB for the
fiscal quarter ended April 30, 1996)
10.10 Employment Agreement with Andrew L. Simon
(incorporated herein by reference to the
exhibit contained in the Company's Quarterly
Report on Form 10-QSB for the fiscal quarter
ended April 30, 1996)
10.11 Employment Agreement with Linda G. Straley
(incorporated herein by reference to the
exhibit contained in the Company's Quarterly
Report on Form 10-QSB for the fiscal quarter
ended April 30, 1996)
10.12 Employment Agreement with Stephen H. Ivens
(incorporated herein by reference to the
exhibit contained in the Company's Quarterly
Report on Form 10-QSB for the fiscal quarter
ended April 30, 1996)
10.13 Stock Purchase Agreement, dated as of
January 2, 1997, between Beck Evaluation &
Testing Associates, Inc., Connie K. Beck,
Michael D. Beck, Amanda P. Beck and the
Company, together with all schedules and
exhibits thereto (incorporated by reference
to the exhibit contained in the Company's
Quarterly Report on Form 10-QSB for the
fiscal quarter ended January 31, 1997)
10.14 Employment Agreement, dated as of January 2,
1997, between the Company and Michael D.
Beck (incorporated by reference to the
exhibit contained in the Company's Quarterly
Report on Form 10-QSB for the fiscal quarter
ended January 31, 1997)
10.15 Assignment, Assumption and Sale Agreement,
dated as of December 30, 1996, between
Steck-Vaughn Company and the Company
(incorporated by reference to the exhibit
contained in the Company's Quarterly Report
on Form 10-QSB for the fiscal quarter ended
January 31, 1997)
10.16 Consulting Agreement, dated as of December
13, 1996, between the Company and Paris
Group, Ltd., as amended by Amendment No. 1
to Consulting Agreement, dated as of January
31, 1997, between the Company and Paris
Group, Ltd. (incorporated by reference to
the exhibit contained in the Company's
Quarterly Report on Form 10-QSB for the
fiscal quarter ended January 31, 1997)
10.17 Agreement, dated as of March 6, 1997,
between Jericho State Capital Corp. of
Florida and the Company (incorporated by
reference to the exhibit contained in the
Company's Quarterly Report on Form 10-QSB
for the fiscal quarter ended April 30, 1997)
10.18 Consultants Stock Incentive Plan
(incorporated by reference to the exhibit
contained in the Company's Quarterly Report
on Form 10-QSB for the fiscal quarter ended
April 30, 1997)
10.19 Consulting Agreement, dated as of March 11,
1997, between Michael Milone and the Company
(incorporated by reference to the exhibit
contained in the Company's Quarterly Report
on Form 10-QSB for the fiscal quarter ended
April 30, 1997)
10.20 Asset Purchase Agreement, dated as of May
30, 1997, by and between Programs for
Education, Inc., Bernard B. Shapiro, Modern
Learning Press, Inc. and the Company
(incorporated by reference to the exhibit
contained in the Company's Current Report
on Form 8-K, which was filed with the
Securities and Exchange Commission on
June 16, 1997)
10.21 Secured Promissory Note, dated May 30, 1997,
of Modern Learning Press, Inc. (incorporated
by reference to the exhibit contained in the
Company's Current Report on Form 8-K, which
was filed with the Securities and Exchange
Commission on June 16, 1997)
10.22 Security Agreement, dated May 30, 1997, by
and between Programs for Education, Inc.,
Bernard B. Shapiro and Modern Learning
Press, Inc. (incorporated by reference to
the exhibit contained in the Company's
Current Report on Form 8-K, which was filed
with the Securities and Exchange Commission
on June 16, 1997)
10.23 Stock Pledge Agreement with Escrow Provisions,
dated May 30, 1997, by and among the Company,
Programs for Education, Inc. and Pluese,
Lihotz, Incollingo & Leone (incorporated by
reference to the exhibit contained in the
Company's Current Report on Form 8-K, which
was filed with the Securities and Exchange
Commission on June 16, 1997)
10.24 Guaranty Agreement, dated May 30, 1997, by
the Company in favor of Programs for Education,
Inc. and Bernard B. Shapiro (incorporated by
reference to the exhibit contained in the
Company's Current Report on Form 8-K, which
was filed with the Securities and Exchange
Commission on June 16, 1997)
10.25 Royalty Agreement, dated May 30, 1997, by
and between Modern Learning Press, Inc. and
Bernard B. Shapiro (incorporated by
reference to the exhibit contained in the
Company's Current Report on Form 8-K, which
was filed with the Securities and Exchange
Commission on June 16, 1997)
10.26 Employment Agreement, dated as of May 1,
1997, between Modern Learning Press, Inc.
and Walter B. Barbe (filed herewith)
10.27 Mortgage Modification and Extension
Agreement, dated as of August 28, 1997,
between MSB Bank and the Company (filed
herewith)
10.28 Amended and Restated Mortgage Note, dated
August 28, 1997, of the Company in favor of
MSB Bank (filed herewith)
10.29 Term Loan Agreement, dated August 28, 1997,
between the Company and MSB Bank (filed
herewith)
10.30 Note, dated August 28, 1997, of the Company
in favor of MSB Bank (filed herewith)
10.31 Security Agreement between the Company and
MSB Bank (filed herewith)
10.32 Environmental Guaranty, dated August 28,
1997, of the Company (filed herewith)
10.33 Agreement, dated as of August 19, 1997,
among Comprehensive Capital, Theodore P.
Allocca, Theodore Allocca, Steven Kevorkian,
and the Company (filed herewith)
10.34 Agreement, dated as of August 19, 1997,
between Barry M. Goldstein and the Company
(filed herewith)
11 Computation of Earnings Per Share (filed
herewith)
21 Subsidiaries of the Registrant (filed
herewith)
23 Consent of Lazar, Levine & Felix LLP (filed
herewith)
27 Financial Data Schedule (filed herewith;
electronic filing only)
(b) Reports on Form 8-K
None.
<PAGE> F-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
PAGE
----
INDEPENDENT AUDITORS' REPORT F - 2
CONSOLIDATED BALANCE SHEETS F - 3
CONSOLIDATED STATEMENTS OF OPERATIONS F - 5
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY F - 6
CONSOLIDATED STATEMENTS OF CASH FLOWS F - 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F - 9
F - 1
<PAGE> F-2
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors
Touchstone Applied Science Associates, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets
of Touchstone Applied Science Associates, Inc. and
Subsidiaries as of October 31, 1997 and 1996, and the
related consolidated statements of operations, changes in
stockholders' equity and cash flows for the three years
ended October 31, 1997. These consolidated financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these 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 consolidated financial statements
referred to above present fairly, in all material respects,
the financial position of Touchstone Applied Science
Associates, Inc. and Subsidiaries as of October 31, 1997 and
1996 and the results of its operations and its cash flows
for the three years ended October 31, 1997 in conformity
with generally accepted accounting principles.
Lazar, Levine & Felix LLP
Certified Public Accountants
New York, New York
December 11, 1997
F - 2
<PAGE> F-3
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
Page 1 of 2
CONSOLIDATED BALANCE SHEETS
October 31,
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
ASSETS
------
Current assets:
Cash and temporary investments $1,156,664 $1,049,819
Marketable securities 377,560 2,076,158
Accounts receivable 803,021 567,374
Inventories 360,227 242,081
Loan receivable (Note E) -- 400,000
Prepaid expenses and other current assets 381,381 123,106
--------- ---------
Total current assets 3,078,853 4,458,538
Property, plant and equipment - net of
accumulated depreciation of $1,029,417
and $909,607, respectively
(Notes C, F and G) 1,739,947 1,795,195
Other assets:
Test passage bank, net of accumulated
amortization of $1,175,235 and $907,053
respectively (Note D) 2,743,853 2,563,286
Software development costs, net of
accumulated amortization of $30,517 and $5,427,
respectively 340,930 136,928
Goodwill, net of accumulated amortization of
$65,511 796,746 --
Noncompete agreements, net of accumulated amortization
of $29,762 (Note B) 470,238 --
Deferred income taxes (Note J) 335,722 --
Other assets 86,596 21,595
--------- ---------
Total assets $9,592,885 $8,975,542
========== ==========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F - 3
<PAGE> F-4
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
Page 2 of 2
CONSOLIDATED BALANCE SHEETS
October 31,
1 9 9 7 1 9 9 6
------- -------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt (Notes F and G) $ 314,217 $ 95,500
Accounts payable and accrued expenses 520,148 246,270
Corporation taxes payable -- 566
--------- ---------
Total current liabilities 834,365 342,336
Long-term debt:
Long-term debt less current portion (Notes F and G) 2,528,968 728,250
Deferred income taxes (Note J) -- 521,221
--------- ---------
Total liabilities 3,363,333 1,591,807
--------- ---------
Commitments and contingencies (Notes B, H, K, L, M and N)
Stockholders' equity (Note I):
Preferred stock, $.0001 par value, 5,000,000
authorized, 1,500 issued and outstanding -- --
Common stock, $.0001 par value, 20,000,000
authorized, 8,389,322 and 7,789,322 shares issued and
outstanding, respectively 839 779
Additional paid-in capital 4,365,875 4,077,935
Stock subscription receivable (14,350) (14,350)
Unrealized holding gain (loss) 8,601 (20,073)
Unearned compensatory stock (107,046) --
Retained earnings 1,975,633 3,339,444
--------- ---------
Total stockholders' equity 6,229,552 7,383,735
--------- ---------
Total liabilities & stockholders' equity $9,592,885 $8,975,542
========== ==========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F - 4
<PAGE> F-5
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended October 31,
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
<S> <C> <C> <C>
Contract income $ 796,858 $ 875,608 $ 956,803
Catalog sales 2,042,043 1,644,300 1,357,791
Consulting income 287,355 -- --
Catalog sales - MLP 1,461,377 -- --
--------- --------- ---------
Total net revenue (Note L) 4,587,633 2,519,908 2,314,594
Cost of goods sold (Note M) 1,578,749 711,564 954,907
--------- --------- ---------
Gross profit 3,008,884 1,808,344 1,359,687
--------- --------- ---------
Operating expenses:
Selling expenses 1,128,604 703,214 593,959
General and administrative expenses 1,601,764 936,462 740,861
Bad debt expense (Note E) 405,000 -- --
Product development -- 60,238 --
Impairment of goodwill 2,002,674 -- --
--------- --------- ---------
Total operating expenses 5,138,042 1,699,914 1,334,820
--------- --------- ---------
(Loss) income from operations (2,129,158) 108,430 24,867
Other income (expense):
Loss on sale of assets (30,539) -- --
Interest expense (145,748) (64,154) (58,939)
Investment income 111,665 166,981 163,714
--------- --------- ---------
(Loss) income before income taxes (2,193,780) 211,257 129,642
Income taxes (benefit) (Note J) (829,969) 19,209 (25,504)
--------- --------- ---------
(Loss) net income $(1,363,811) $ 192,048 $ 155,146
=========== =========== ===========
Weighted average shares outstanding
Primary 8,213,089 7,640,867 7,665,511
Fully diluted 8,213,089 7,640,867 7,738,324
(Loss) earnings per share
Primary $ (.17) $ .03 $ .02
Fully diluted $ (.17) $ .03 $ .02
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F - 5
<PAGE> F-6
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Additional Stock Unrealized Unearned Total
Preferred Stock Common Stock Paid-in Subscriptions Holding Compensatory Retained Stockholders'
Shares Amount Shares Amount Capital Receivable Loss Stock Earnings Equity
------ ------ ------ ------ ------- ---------- ---- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
November 1, 1994 1,500 $ -- 6,899,400 $690 $3,504,478 $ -- $ (105,486) $ -- $2,992,250 $6,391,932
Financial advisory
services -- -- -- -- 105,500 -- -- -- -- 105,500
Net unrealized gain
in marketable
securities -- -- -- -- -- -- 64,662 -- -- 64,662
Net income -- -- -- -- -- -- -- -- 155,146 155,146
----- ---- --------- --- ---------- ------ ---------- ----- ---------- ----------
Balance at
October 31, 1995 1,500 -- 6,899,400 690 3,609,978 -- (40,824) -- 3,147,396 6,717,240
Proceeds from
exercise
of options -- -- 865,922 87 310,459 (14,350) -- -- -- 296,196
Proceeds from
exercise
of warrants -- -- 24,000 2 51,998 -- -- -- -- 52,000
Financial advisory
services -- -- -- -- 105,500 -- -- -- -- 105,500
Net unrealized
gain in
marketable
securities -- -- -- -- -- -- 20,751 -- -- 20,751
Net income -- -- -- -- -- -- -- -- 192,048 192,048
---- ---- --------- --- --------- ------ ------ ----- --------- ---------
Balance at
October 31, 1996 1,500 -- 7,789,322 779 4,077,935 (14,350) (20,073) -- 3,339,444 7,383,735
Purchase of
subsidiary
- Beta -- -- 150,000 15 79,635 -- -- -- -- 79,650
Proceeds from
exercise of
warrants -- -- 150,000 15 67,710 -- -- -- -- 67,725
Stock issued
for services -- -- 300,000 30 140,595 -- -- (107,046) -- 33,579
Net unrealized
gain in
marketable
securities -- -- -- -- -- -- 28,674 -- -- 28,674
Net loss -- -- -- -- -- -- -- -- (1,363,811) (1,363,811)
---- ---- --------- --- --------- ------ ------ ----- --------- ---------
Balance at
October 31, 1997 1,500 $ -- 8,389,322 $839 $4,365,875 $(14,350) $ 8,601 $(107,046) $1,975,633 $6,229,552
===== ==== ========= === ========== ======== ========= ======== ========== ==========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F - 6
<PAGE> F-7
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Page 1 of 2
Year Ended October 31,
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net (loss) income $(1,363,811) $ 192,048 $ 155,146
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 560,389 389,767 343,740
Deferred income taxes (856,943) (80,941) (176,999)
Financial advisory services 33,580 105,500 105,500
Impairment of goodwill 2,002,674 -- --
Bad debt expense 405,000 -- --
Loss on sale of assets 30,539 1,009 --
Changes in operating assets and liabilities:
Accounts receivable (129,486) (215,883) (65,629)
Inventories 7,824 (89,785) (4,518)
Prepaid expenses 11,360 90,915 82,730
Other assets (16,031) -- --
Accounts payable and accrued expenses (43,792) 35,758 43,236
---------- -------- -------
NET CASH FLOWS FROM OPERATING ACTIVITIES 641,303 428,388 483,206
---------- -------- -------
INVESTING ACTIVITIES
Test passage bank (448,749) (361,225) (318,233)
Software development costs (229,092) (142,356) --
Purchase of marketable debt securities (3,797) (111,164) (82,435)
Proceeds from sale of marketable securities 1,193,148 170,000 --
Proceeds from sale of assets 15,300 -- --
Acquisition of subsidiaries (2,270,864) -- --
Acquisition of test rights (29,900) -- --
Acquisition of fixed assets (116,754) (73,448) (175,053)
---------- -------- -------
NET CASH FLOWS FROM INVESTING ACTIVITIES (1,890,708) (518,193) (575,721)
---------- -------- --------
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F - 7
<PAGE> F-8
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
Page 2 of 2
Year Ended October 31,
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Mortgage costs (44,633) -- --
Deferred offering costs -- (151,343) (199,615)
Proceeds from exercise of warrants -- 52,000 --
Proceeds from exercise of options -- 684,162 --
Net proceeds from loan payable 531,446 -- --
Proceeds from long-term debt 1,800,000 -- --
Repayment of long-term debt (930,563) (62,500) (75,000)
--------- -------- --------
NET CASH FLOWS FROM FINANCING ACTIVITIES 1,356,250 522,319 (274,615)
--------- -------- --------
NET CHANGE IN CASH AND TEMPORARY INVESTMENTS 106,845 432,514 (367,130)
CASH AND TEMPORARY INVESTMENTS
AT BEGINNING OF PERIOD 1,049,819 617,305 984,435
--------- -------- ---------
CASH AND TEMPORARY INVESTMENTS
AT END OF PERIOD $1,156,664 $1,049,819 $ 617,305
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ 144,262 $ 67,858 $ 67,392
========= ========= =========
Income taxes paid $ 137,612 $ 30,690 $ 47,522
========= ========= =========
Stock issued for prepaid consulting costs $ 140,625 $ -- $ --
========= ========= =========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
F - 8
<PAGE> F-9
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------------
Organization
- ------------
Touchstone Applied Science Associates, Inc. (the "Company"),
was originally incorporated in the State of New York in
1976. In August 1991, the Company changed its corporate
domicile to Delaware by merger into a Delaware corporation
created exclusively for that purpose. The Company develops,
publishes and distributes a proprietary line of reading
tests specifically to meet clients' measurement
specifications to elementary and secondary schools,
colleges and universities throughout the United States. In
January 1997, the Company purchased the outstanding capital
stock of Beck Evaluation & Testing Associates, Inc.
("BETA"), a company which designs tests and evaluates
assessment needs for schools, school districts and test and
textbook publishers throughout the United States (Note B).
In May 1997, the Company formed a wholly-owned subsidiary,
Modern Learning Press, Inc. ("MLP"), which purchased certain
assets of Programs for Education, Inc., a company which
designs, publishes and distributes "consumable" student
workbooks for grades K-4 and creates and publishes books and
pamphlets for elementary school teachers and parents
throughout the United States (Note B). In July 1995, RTA-
USA Inc., the Company's former subsidiary, which was
substantially inactive, was merged into the Company.
Principles of Consolidation
- ---------------------------
The consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries, BETA and
MLP. All material intercompany transactions have been
eliminated in consolidation.
Goodwill
- --------
Included in the purchase of the Company's subsidiaries was
goodwill totaling $374,067 for BETA and $2,490,864 for MLP.
This goodwill is being amortized over a period of six years.
In July 1997, the Company deemed goodwill purchased in the
MLP transaction totaling $2,002,674 to be impaired based
upon the provisions of SFAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of". Accordingly, goodwill was reduced to fair
value. The Company will continue to evaluate goodwill for
potential impairment.
F - 9
<PAGE> F-10
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ---------------------------------------------------------
Temporary Investments
- ---------------------
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be
temporary investments. These investments consist primarily
of money market mutual funds which make monthly tax-free
dividend payments.
Inventories
- -----------
Inventories, which based on the nature of the Company's
operations consist solely of finished goods, are stated at
the lower of cost (first-in, first-out method) or market.
Marketable Securities
- ---------------------
Effective November 1, 1993, the Company adopted Financial
Accounting Standards Board (FASB) Statement of Financial
Accounting Standards (SFAS) Number 115, "Accounting for
Certain Investments in Debt, and Equity Securities". Under
this standard, certain investments in debt and equity
securities will be reported at fair value. The Company's
marketable securities, which consist primarily of investment
grade bonds, are being reported as available for sale
securities. The market value of these securities at October
31, 1997 and 1996 is as follows:
October 31,
1 9 9 7 1 9 9 6
------- -------
Aggregate cost $ 900,405 $2,096,231
Gross unrealized gain 8,601 1,850
Gross unrealized loss -- (21,923)
Loans collateralized by securities (531,446) --
--------- -----------
$ 377,560 $2,076,158
========= ===========
All of these securities mature within one through five
years. Cost of the securities used in the computation of
realized gains and losses is determined using the specific
identification method. During 1996, a bond with a face
value of $170,000 matured. There was no realized gain or
loss on this security. During 1997, bonds with an aggregate
face value of $1,199,623 matured or were sold. Losses
totaling $6,475 were realized on these securities.
F - 10
<PAGE> F-11
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ---------------------------------------------------------
Marketable Securities (Continued)
- ---------------------------------
In May 1997, the Company borrowed $989,716 by margining its
investment account. Borrowings on this account, which
totaled $531,446 at October 31, 1997, incurred interest at
the rate of 7-5/8% per annum and were collateralized by the
bonds held in the brokerage account.
Property, Plant and Equipment
- -----------------------------
Property, plant and equipment are stated at cost. The
Company provides for depreciation generally on an
accelerated method (double-declining balance) for personal
property purchased after 1988 and on the straight-line
method for real property and personal property purchased
prior to 1989, by charges to income at rates based upon
estimated recovery periods as follows:
Building 31-1/2 years
Building improvements 15 to 31-1/2 years
Furniture and computer equipment 5 to 7 years
Automobiles 5 years
Income Taxes
- ------------
The Company has elected to file a consolidated federal
income tax return with its subsidiaries. The Company's
deferred income taxes arise principally from the differences
in the recording of expenses relating to the test passage
bank (See Note E), and differences relating to the reporting
of goodwill by the Company's subsidiaries. Income taxes are
reported based upon the Company's adoption of Statement of
Financial Accounting Standards (SFAS) Number 109,
"Accounting for Income Taxes".
Software Development
- --------------------
The Company accounts for costs associated with the
development of software products pursuant to SFAS Number 86,
"Accounting for the Costs of Computer Software to be Sold,
Leased or Otherwise Marketed". Pursuant to these rules for
product development, the work performed prior to the
determination of technological feasibility, is treated as
research and development costs and is expensed as incurred.
From the point a project obtains technological feasibility
until it is ready for sale, the payroll and payroll related
charges and any direct material costs are capitalized.
Capitalization of computer software costs is discontinued
when the product is available to be sold.
F - 11
<PAGE> F-12
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ---------------------------------------------------------
Amortization
- ------------
IDA bond origination fees and mortgage costs (see Note G)
are amortized using the straight-line method over the term
of the indebtedness. Other capitalized costs are amortized
using the straight-line method over a period of five (5)
years for software development, seven (7) years for non-
compete agreements and eleven (11) years for the test
passage bank.
Reserve for Bad Debts
- ---------------------
The Company, due to its customer base, has experienced
virtually no trade bad debts. As a result, no reserve has
been provided for. (See also Note E)
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 maintains
substantially all its cash balances in two financial
institutions. The balances are insured by the Federal
Deposit Insurance Corporation up to $100,000. At October
31, 1997 and 1996, the Company's uninsured cash balances
totaled $848,314 and $386,737, respectively. The Company
performs periodic reviews of the relative credit rating of
its bank to lower its risk. The Company believes that
concentration with regards to accounts receivable is limited
due to its large customer base.
Revenue Recognition
- -------------------
Catalog and contract sales are recognized when product is
shipped from the Company's warehouse. Consulting income is
recognized as consulting services are rendered.
There is a right of return on test booklets, answer sheets
and certain software products. Upon return within a
specified period, a credit is issued, with certain
chargeoffs, or the item is replaced, if a software product.
In the past, the Company's returns have been insignificant.
As a result, no reserve has been provided for.
F - 12
<PAGE> F-13
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
- ---------------------------------------------------------
Estimates
- ---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that effect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
Fair Value
- ----------
The Company has a number of financial instruments, none of
which is held for trading purposes. The Company estimates
that the fair value of all financial instruments at October
31, 1997 and 1996, does not differ materially from the
aggregate carrying values of these financial instruments
recorded in the accompanying balance sheets. The estimated
fair value amounts have been determined by the Company using
available market information and appropriate valuation
methodologies. Considerable judgment is necessarily
required in interpreting market data to develop the
estimates of fair value, and, accordingly, the estimates are
not necessarily indicative of the amounts that the Company
could realize in a current market exchange.
Earnings (loss) per Share
- -------------------------
Earnings (loss) per share for the years ended October 31,
1997, 1996 and 1995 were computed by dividing net income by
the weighted average number of common and common equivalent
shares outstanding and is adjusted for the assumed
conversion of shares issuable upon exercise of options and
warrants. The Company had a net loss for the year ended
October 31, 1997 and, accordingly, common stock equivalents
are excluded as the effect would be anti-dilutive.
In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128 - "Earnings Per Share", which changes
the method for calculating earnings per share. SFAS No. 128
requires presentation of "basic" and "diluted" earnings per
share, as opposed to "primary" and "fully diluted" earnings
per share and is effective for periods ending after December
15, 1997. Early adoption is not permitted. Management does
not believe that earnings per share reported in accordance
with SFAS No. 128 will materially differ from earnings per
share as currently reported.
F - 13
<PAGE> F-14
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - BUSINESS ACQUISITIONS
- ------------------------------
Beck Evaluation and Testing Associates, Inc.
- --------------------------------------------
In January 1997, the Company acquired all the outstanding
capital stock of Beck Evaluation & Testing Associates, Inc.,
("BETA"). The purchase price consisted of $130,000 paid in
cash, $150,000 payable in promissory notes, bearing interest
at the rate of 8 1/4% per annum and maturing on January 2,
1999 and 150,000 shares of the Company's common stock.
Additionally, the former stockholder and officer of BETA has
the option to repurchase all of the outstanding capital
stock of BETA from the Company for a period of six years,
but may not exercise the option in the first three years
unless certain conditions relating to his termination of
employment are met. The acquisition is being accounted for
using the purchase method of accounting and, accordingly,
the Company's financial statements include the operations of
BETA from the date of acquisition.
Modern Learning Press, Inc.
- ---------------------------
In May 1997, a newly-formed wholly-owned subsidiary of the
Company, Modern Learning Press, Inc. ("MLP") purchased
certain assets of Programs for Education, Inc. In addition
to assuming certain liabilities, MLP purchased the assets
for $3,200,000. The purchase price paid by MLP consisted of
$2,200,000 in cash and a secured promissory note for
$1,000,000 bearing interest at a rate of one percent (1%)
above prime rate but in no event less than nine percent (9%)
per annum and payable in equal quarterly installments over a
five year period. The promissory note is guaranteed by the
Company. Among other provisions, the purchase includes a
noncompete agreement with the previous owner prohibiting him
or any party related to him from competing with the Company
for a period of seven (7) years. Included in the purchase
price were consulting fees to the former owner for a period
of one year. In addition, the Company was required to pay a
deferred bonus totaling approximately $254,000 to the
previous owner payable on or before September 30, 1997 and
has agreed to pay this former owner royalties on sales of
certain of MLP's products, for a term of seven (7) years
following the closing of the acquisition in an amount equal
to a minimum of $80,000 annually, with a maximum of $120,000
in the first year, with increases each year to a maximum of
$240,000 in the seventh year. The acquisition is being
accounted for using the purchase method of accounting.
F - 14
<PAGE> F-15
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - BUSINESS ACQUISITIONS (Continued)
- ------------------------------------------
Pro forma Information
- ---------------------
The following unaudited pro forma consolidated income
statement data presents the consolidated results of
operations of the Company had the transactions involving
BETA and MLP occurred at the beginning of the years
presented:
Year Ended October 31,
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
Net sales $5,485,058 $4,380,337 $4,134,277
Net income (1,341,716) 175,311 212,636
Primary earnings per share (.16) .02 .03
Fully diluted earnings per share (.16) .02 .03
The above pro forma information does not purport to be
indicative of what would have occurred had the acquisitions
been made as of such date or of the results which may occur
in the future.
NOTE C - PROPERTY, PLANT AND EQUIPMENT
- --------------------------------------
Property, plant and equipment are summarized as follows:
October 31,
1 9 9 7 1 9 9 6
------- -------
Land $ 161,367 $ 161,367
Building 1,807,591 1,807,591
Building improvements 260,638 252,492
Furniture and computer equipment 406,311 347,651
Automobiles 133,457 135,701
--------- ---------
2,769,364 2,704,802
Less: accumulated depreciation 1,029,417 909,607
--------- ---------
$1,739,947 $1,795,195
========== ==========
Depreciation expense for the years ended October 31, 1997, 1996 and
1995 was $143,482, $143,860 and $136,682, respectively.
F - 15
<PAGE> F-16
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D - TEST PASSAGE BANK
- --------------------------
The creation and production of test passages to become part
of the Test Passage Bank is the production of an asset which
is used in the creation of all forms of the Company's tests.
This asset is principally comprised of payroll and payroll
related costs incurred in the writing and calibration of
test passages. The process of writing and calibrating a test
passage takes approximately two years and all costs
associated with this process are capitalized. Beginning
with year three, these costs are amortized over the test
passage's useful life, which is estimated to be eleven
years.
NOTE E - LOAN RECEIVABLE
- ------------------------
On September 25, 1992, the Company, through a subordinated,
unsecured demand loan agreement, loaned $300,000 to The
Harriman Group, Inc. ("HGI"), a market maker in the
Company's stock. The note bears interest at a rate of eight
percent (8%) per annum, payable annually, and was originally
due on November 1, 2002.
On November 30, 1992, the Company made an additional
subordinated, unsecured demand loan of $100,000 to HGI.
This note also bears interest at a rate of eight percent
(8%) per annum, payable annually, and was originally due on
December 1, 2002.
On February 1, 1994, the Company consolidated the two
outstanding subordinated, unsecured demand loans outstanding
to HGI. The new note bears interest at a rate of ten
percent (10%) per annum, payable annually, and was
originally due on February 1, 2002.
On November 5, 1996, the Company notified the HGI of its
intention to accelerate the outstanding obligations in
accordance with the above agreements. Pursuant to this
notification, the entire principal balance plus accrued
interest to date of payment was due by May 5, 1997.
In May 1997, HGI defaulted on its loan to the Company. Upon
review of the financial condition of HGI in June 1997, the
Company determined the remaining principal and accrued
interest totaling $405,000 was uncollectible and,
accordingly, has been written off as a bad debt.
F - 16
<PAGE> F-17
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F - INDUSTRIAL DEVELOPMENT AUTHORITY BOND
- ----------------------------------------------
On August 1, 1986, the Town of Southeast Industrial
Development Agency issued revenue bonds to finance
construction of a facility, which the Company leases from
the Agency. Minimum lease payments sufficient to cover the
Agency's debt service and other expenses must be made by the
Company over the fifteen-year term, which includes a final
payment in 2001 of $350,000. The bond indenture incurs
interest at ninety-two percent (92%) of the Bank's prime
rate (7.45% at October 31, 1996) and contains covenants
requiring the Company to maintain specified levels of
working capital and tangible net worth. The lease agreement
contains a one dollar ($1) purchase option at the end of the
lease term. The bond is secured by the lease and is
guaranteed by the Company and its principal stockholders.
The Company owed $571,250 on the bond as of October 31,
1996.
On May 15, 1991, the Company secured an additional mortgage
for $400,000 from the Bank of New York, to finance the
17,000 square foot addition to its facilities. The mortgage
incurs interest at the rate of three-fourths of one percent
(.75%) over the Bank's prime rate (9.00% at October 31,
1996). A $250,000 balloon payment was due in 1996. On June
1, 1996, the Company refinanced the mortgage for an
additional five years, maturing on June 1, 2001 at the same
rate of interest. The Company owed $252,500 on the
additional mortgage as of October 31, 1996.
In August 1997, the Company remortgaged its facilities for
$1,800,000. Borrowings on the mortgage incur interest at
the rate of 8 1/8% per annum. The mortgage is to be repaid
through monthly payments with the balance of the mortgage
due in 2007. Proceeds from the mortgage, were used to
retire the first and second mortgages held by the Bank of
New York and certain short-term debt (Note A) associated
with the acquisition of MLP. In addition, there is a
provision for a $300,000 working capital line of credit.
Borrowings under the line of credit incur interest at the
rate of one-half of one percent (1/2%) over prime.
F - 17
<PAGE> F-18
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G - LONG-TERM DEBT
- -----------------------
Long-term debt consists of the following:
Interest Due October 31,
Description Rate Date 1 9 9 7 1 9 9 6
- ----------- -------- ---- ------- -------
Mortgage payable to bank in
monthly installments of $15,196
including interest (Note F) 8 1/8% 2007 $1,796,585 $ --
Note payable to former stockholders
of BETA in quarterly installments of
$20,532 including interest (Note B) 8 1/4% 1999 96,600 --
Note payable to shareholder of Programs
for Education, Inc. in quarterly
installments of $50,000
plus interest (Note B) 9% 2002 950,000 --
Industrial development agency
bond (Note H) -- 823,750
---------- ---------
2,843,185 823,750
Less: current maturities 314,217 95,500
---------- ---------
Non-current portion $2,528,968 $728,250
========== =========
Long-term debt matures as follows:
Year Ending October 31:
1998 $314,217
1999 261,033
2000 244,368
2001 248,110
2002 202,168
Later years 1,573,289
----------
Principal payments remaining $2,843,185
==========
F - 18
<PAGE> F-19
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H - RETIREMENT PLANS
- -------------------------
The Company has a qualified 401(k) Profit Sharing Plan for
all employees who are eighteen years of age and have
completed either six months or one thousand hours of
employment. The Plan allows total contributions of up to
fifteen percent (15%) of the eligible employee's salary
through Company contributions and a salary reduction
mechanism. Company contributions to the Plan are optional
and accrue at the discretion of the Board of Directors. For
the years ended October 31, 1997, 1996 and 1995, the Company
made a contribution to the profit sharing plan 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 Profit Sharing Plan, as estimated by the
Massachusetts Mutual Life Insurance Company which maintains
the plan's records, are $1,523,346 at October 31, 1997.
In October 1991, the Company adopted a Money Purchase
Pension Plan for all employees who are eighteen years of age
and have completed either six months or one thousand hours
employment, which plan has been qualified by the Internal
Revenue Service. Under this Plan, which was first effective
for the year ended October 31, 1991, 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 the plan's records, are $742,342 at October 31,
1997.
Pension and profit sharing costs were $190,680, $149,290,
and $143,565 for the years ended October 31, 1997, 1996 and
1995, respectively.
F - 19
<PAGE> F-20
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - STOCKHOLDERS' EQUITY
- -----------------------------
Preferred Stock
- ---------------
The Company is authorized to issue 5,000,000 shares of
$.0001 par value preferred stock. The stock may be issued
by the Board of Directors of the Company in one or more
series and with such preferences, conversion or other
rights, voting powers and other provisions as may be fixed
by the Board of Directors in the resolution authorizing
their issuance without any further action of the
stockholders.
On November 16, 1992, the Company issued 1,500 shares of
$.0001 par value convertible preferred shares to a voting
trust, controlled by management, dated August 1992. The
shares are entitled to 1,000 votes per share (3,000 votes
per share after giving effect to the 3 for 1 stock split on
September 22, 1993). The holders of the shares are also
entitled to a non-cumulative dividend of $.01 per share.
The shares could be converted to common stock, at a rate of
1,000 common shares (3,000 common shares after giving effect
to the 3 for 1 stock split on September 22, 1993) for each
preferred share, on a pro rata basis over ten years, upon
the attainment of certain performance goals. In September
1994, the Company exchanged the 1,500 outstanding $.0001 par
value convertible preferred shares for 1,500 shares of
$.0001 par value preferred shares. The new preferred shares
possess all the rights of the original issue but for the
conversion privilege.
The Company has designated 1,500 of its 5,000,000 authorized
preferred shares as $.0001 par value Series A preferred
stock. The remaining 4,998,500 authorized preferred shares
have not been designated.
F - 20
<PAGE> F-21
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - STOCKHOLDERS' EQUITY (Continued)
- -----------------------------
Stock Option Incentive Plan
- ---------------------------
The Company has adopted an Amended and Restated 1991 Stock
Option Incentive Plan (the "Plan") whereby options to
purchase up to an aggregate of 2,500,000 shares of common
stock, may be granted to officers, key employees, directors,
and consultants of the Company. Subject to the terms of the
Plan, the Board of Directors is authorized to select
optionees and determine the number of shares covered by each
option, its exercise price and certain of its other terms.
No one participant may receive an award in excess of 200,000
shares in any one fiscal year. The exercise price of an
option granted under the Plan may not be less than the fair
market value of the Company's common stock on the date of
the grant.
Stock option incentive plan activity is summarized as
follows:
Option Price
Shares Per Share
------ ---------
Options outstanding November 1, 1995 1,573,350 $1.42 - $2.75
Granted 233,000 $ .75 - $1.09
Canceled (673,028) $1.42 - $2.625
Exercised (80,572) $1.42
---------
Options outstanding October 31, 1996 1,052,750 $ .75 - $2.75
Granted 1,018,250 $ .53 - $ .72
Canceled (715,750) $1.42 - $2.75
Exercised -- --
---------
Options outstanding October 31, 1997 1,355,250 $ .53 - $2.75
=========
Options exercisable October 31, 1997 1,052,750
=========
F - 21
<PAGE> F-22
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - STOCKHOLDERS' EQUITY (Continued)
- -----------------------------
Directors Stock Option Plan
- ---------------------------
In 1996, the Company adopted a Directors Stock Option Plan
whereby options may be granted to purchase up to an
aggregate of 100,000 shares of the Company's common stock to
directors of the Company who are not officers or employees
of the Company or otherwise eligible to receive awards under
the Amended and Restated 1991 Stock Option Incentive Plan.
Pursuant to the plan, eligible directors would receive an
option to purchase 5,000 shares of the Company's common
stock on the date the director first becomes eligible. The
eligible director would subsequently receive an option to
purchase 2,500 shares of the Company's common stock on the
date of each succeeding annual meeting of the stockholders,
unless the director's term ends on that date. Each option
granted is exercisable at the fair market value of the
Company's common stock on the date granted, and may be
exercised for a nine-year period commencing one year from
the date of the grant.
On March 29, 1996, the Company granted an aggregate of
10,000 options to two non-employee directors. The options
are exercisable at $2.1875 per share.
On March 28, 1997, the Company granted an aggregate of 5,000
options to two nonemployee directors. The options are
exercisable at $.719 per share.
Consultants Stock Incentive Plan
- --------------------------------
The Company has adopted a Consultants Stock Incentive Plan
whereby options to purchase up to 200,000 shares of the
Company's common stock may be granted to consultants or
advisors of the Company. Subject to the terms of the Plan,
a committee of the Board of Directors is authorized to
select participants and determine the number of shares
covered by each option, its exercise price and other terms.
The exercise price, however, may not be less than the fair
market value of the Company's common stock on the date of
the grant.
In March 1997, the Company entered into a consulting
agreement with a director of the Company. In exchange for
certain consulting services, the Company granted options to
this director, under the Plan to purchase 30,000 shares of
the Company's common stock. The options are exercisable at
$.44 per share.
F - 22
<PAGE> F-23
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - STOCKHOLDERS' EQUITY (Continued)
- -----------------------------
Consultants Stock Incentive Plan (Continued)
- --------------------------------------------
In July 1997, the Company entered into a consulting
agreement with a consultant. In exchange for certain
consulting services, the Company granted options, under the
plan to purchase 10,000 shares of the Company's common
stock. The options are exercisable at $.438 per share.
Option Agreement
- ----------------
On September 25, 1992, the Company issued an Option
Certificate for 250,000 options to The Harriman Group, Inc.
("HGI"), a market maker in the Company's stock, for $2,500,
that allows them to purchase 250,000 shares of the Company's
restricted common stock (750,000 shares after giving effect
to the 3 for 1 stock split on September 22, 1993) at $2.14
per share ($.71 per share after giving effect to the 3 for 1
stock split on September 22, 1993), the fair market value of
restricted shares on the date of the certificate.
The Option Certificate also identifies certain financial
advisory tasks to be performed by HGI for a five-year (5)
period beginning September 25, 1992. These tasks are to be
performed at the Company's request and are in exchange for
the Company's registering the options or shares. The
Company has reflected the cost of these services, the
difference between fair market value of restricted shares
and fair market value of freely trading shares, as a charge
to operations on a pro rata basis over the term of the
agreement.
In November 1995, HGI exercised 600,000 options. In
October 1996, HGI exercised the remaining options.
F - 23
<PAGE> F-24
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - STOCKHOLDERS' EQUITY (Continued)
- -----------------------------
Public Offering
- ---------------
On June 12, 1992, the Company grossed $1,560,000 and netted
$1,340,625 from the completion of an initial public stock
offering under the Securities Act of 1933, as amended. The
offering consisted of 300,000 units, at a selling price of
$5.20 per unit. Each unit consisted of one (1) share of
Common Stock, $.0001 par value ("common stock"), one (1)
Class A Redeemable Common Stock Purchase Warrant ("A
Warrant") and one (1) detachable Class B Redeemable Common
Stock Purchase Warrant ("B Warrant"). Each Class A Warrant
entitled the holder to purchase one (1) share of Common
Stock for a period of eighteen months from the effective
date of the offering at a price of $6.50. Each Class B
Warrant entitled the holder to purchase one (1) share of
Common Stock (3 shares after giving effect to the 3 for 1
stock split September 22, 1993) for a period of thirty-six
months from the effective date of the offering at a price of
$8.00. On September 13, 1993, the A Warrants expired with
299,800 shares (899,400 shares after giving effect to the 3
for 1 stock split on September 22, 1993) having been
exercised. In March 1996, 8,000 B Warrants were exercised
into 24,000 shares of common stock for $6.50 per warrant.
The remaining 292,000 B Warrants expired in March 1996.
Unearned Compensatory Stock
- ---------------------------
In December 1996, the Company entered into a written
consulting agreement with a financial consulting firm. The
consultant is to receive 100,000 shares of the Company's
common stock in exchange for consulting services. The cost
of these services has been valued at $46,875, the market
value for such shares on the date of issuance and will be
expensed over a period of five years.
In February 1997, the Company entered into a written
consulting agreement with a financial consulting firm. The
consultant is to receive 100,000 shares of the Company's
common stock and a warrant to purchase 250,000 shares of the
Company's common stock for $0.469 per share for a period of
five years, in exchange for consulting services. The cost
of these services has been valued at $46,875, the market
value for the 100,000 shares on the date of issuance and
will be expensed over a period of two years.
In March 1997, the Company entered into a written consulting
agreement with a financial consulting firm. The consultant
is to receive a warrant to purchase 250,000 shares of the
Company's common stock in exchange for consulting services.
The warrants are exercisable for $.50 per share for a period
of five years.
F - 24
<PAGE> F-25
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I - STOCKHOLDERS' EQUITY (Continued)
- -----------------------------
Unearned Compensatory Stock (Continued)
- ---------------------------------------
In August 1997, the Company entered into a written
consulting agreement with a financial consulting firm. The
consultant is to receive 50,000 shares of the Company's
common stock and a warrant to purchase 125,000 shares of the
Company's common stock for $0.469 per share for a period of
five years, in exchange for consulting services. The cost of
these services has been valued at $23,438, the market value
for such shares on the date of issuance and will be expensed
over a period of one year.
In August 1997, the Company entered into a written
consulting agreement with a financial consultant. The
consultant is to receive 50,000 shares of the Company's
common stock and a warrant to purchase 125,000 shares of the
Company's common stock for $0.469 per share for a period of
five years, in exchange for consulting services. The cost of
these services has been valued at $23,438, the market value
for such shares on the date of issuance and will be expensed
over a period of one year.
Due to the fact that the compensation for these shares has
not yet been earned, this amount is being reflected as a
reduction to stockholders' equity in 1997.
Stock Option Incentive Plan
- ---------------------------
In October 1995, the FASB issued SFAS No. 123, "Accounting
for Stock-Based Compensation". The Company currently
accounts for its stock-based compensation plans using the
accounting prescribed by Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees". As the
Company is not required to adopt the fair value based
recognition provisions prescribed under SFAS No. 123, it has
elected only to comply with the disclosure requirements set
forth in the statement which includes disclosing pro forma
net income and earnings per share as if the fair value based
method of accounting had been applied. The pro forma net
income and earnings per share for the years ended October
31, 1997 and 1996 would have been $(1,590,055) and $(.19)
and $54,413 and $.01, respectively had the new method been
applied.
The fair value of each option grant was estimated on the
date of the grant using the Black-Scholes option-pricing
model with the following weighted average assumptions for
1997 and 1996, respectively: expected volatility of 73% and
83%, respectively; risk free interest rate of 6.75%; and
expected lives of 5 to 10 years.
The effects of applying SFAS 123 in the above pro forma
disclosures are not indicative of future amounts as they do
not include the effects of awards granted prior to 1996.
Additionally, future amounts are likely to be affected by
the number of grants awarded since additional awards are
generally expected to be made at varying amounts.
F - 25
<PAGE> F-26
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - INCOME TAXES
- ----------------------
Deferred income taxes reflect the net tax effects of
temporary differences between the carrying amount of assets
and liabilities for financial reporting purposes and the
amounts used for income tax purposes using the enacted tax
rates in effect in the years in which the differences are
expected to reverse. Deferred income tax liabilities and
assets are comprised as follows:
October 31,
1 9 9 7 1 9 9 6
------- -------
Deferred tax asset:
Goodwill $ 790,460 $ --
Deferred tax liability:
Test passage bank $(454,738) $ (521,221)
--------- ----------
Net deferred tax asset (liability) $ 335,722 $ (521,221)
========= ==========
The Company believes it is more likely than not that this
net deferred tax asset will be realized in future periods
and, accordingly, no valuation allowance has been recorded.
The Company's income tax expense consists of the following:
October 31,
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
Current:
Federal $ 22,834 $ 74,345 $ 108,736
State 4,140 25,805 42,759
--------- --------- ---------
$ 26,974 $ 100,150 $ 151,495
--------- --------- ---------
Deferred:
Federal $(651,166) $ (57,059) $(146,407)
State (205,777) (23,882) (30,592)
--------- --------- ---------
$(856,943) $ (80,941) $(176,999)
--------- --------- ---------
Provision (benefit) for income taxes $(829,969) $ 19,209 $ (25,504)
========= ========= =========
The Company's former subsidiary (See Note A) had net
operating losses totaling approximately $80,000 at October
31, 1994. The net operating loss carryforwards were used to
offset taxable income for the year ended October, 31, 1995.
F - 26
<PAGE> F-27
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J - INCOME TAXES (Continued)
- ---------------------
A reconciliation of the difference between the expected
income tax rate using the statutory federal tax rate and the
Company's effective rate is as follows:
Year Ended October 31,
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
U.S. Federal income tax statutory rate (34)% 34% 34%
State income tax, net of Federal income tax benefit (7) 7 7
Other - including tax free income, Goodwill
and net operating losses 3 (32) (61)
--- --- ---
Effective tax rate (38)% 9% (20)%
==== === ===
NOTE K - EMPLOYMENT AGREEMENTS
- ------------------------------
In March 1996, the Company entered into employment
agreements with three of its key employees. The agreements
are for a three-year term and are automatically extended
each year unless the Company notifies the employee, in
writing at least 60 days prior to the anniversary date, that
the agreement will not be extended.
Each agreement calls for a base salary plus eligibility in
the Company's benefit plans and key man insurance.
Additionally, the employee may be entitled to bonuses at the
discretion of the Company's Board of Directors. In the
event there is a change in control of the Company, the
employees' employment agreements are in effect for a three
year term commencing on the date of change of control. In
addition, they would be entitled to a bonus at least equal
to the average annual bonus payable with respect to two of
the last three fiscal years immediately preceding the date
of change of control. Among other provisions, the agreements
include a non-compete clause for a two-year period following
termination of employment.
F - 27
<PAGE> F-28
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K - EMPLOYMENT AGREEMENTS (Continued)
- ------------------------------------------
As part of the acquisition of BETA (Note B), the Company
entered into an employment agreement with a former
stockholder and officer of BETA. The agreement names this
former officer as a Vice President of the Company and the
President and Chief Executive officer of BETA. In addition
to other terms and conditions, the agreement is for a three-
year period, renewing annually unless terminated in writing,
and provides for compensation of $100,000 per year plus a
bonus based upon meeting certain sales goals. The Company
granted an option pursuant to the Company's Amended &
Restated 1991 Stock Option Incentive Plan, to an officer of
BETA to purchase 125,000 shares of the Company's common
stock at $.531 per share, the fair market value of the
Company's common stock on the date of the grant. The option
may be exercised for a four-year period commencing one year
from the date of the grant.
As of May 1, 1997, MLP entered into an employment agreement
with a key employee, pursuant to which the employee 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.
NOTE L - MAJOR CUSTOMERS
- ------------------------
Revenues to single customers that exceed 10% of total
revenues were as follows:
Year Ended October 31,
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
Customer A $ -- $479,530 $390,958
Customer B -- -- 258,063
NOTE M - MAJOR SUPPLIERS
- ------------------------
Substantially all of the Company's printing costs, totaling
$44,411, $33,715, and $57,170 for the years ended October
31, 1997, 1996 and 1995, respectively, were attributable to
a single vendor.
NOTE N - SUBSEQUENT EVENTS
- --------------------------
In November 1997, the Company entered into a written
consulting agreement with a financial consultant. The
consultant will be paid for the ensuing three consecutive
months and has an option to purchase 5,000 shares of the
Company's common stock for $.813 per share in exchange for
consulting services. The cost of these services has been
valued at $15,000 and will be expensed over three
consecutive months.
F - 28
<PAGE> F-29
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange
Act, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
January 29, 1998 By: /s/ ANDREW L. SIMON
----------------------------------
Andrew L. Simon
President, Chief Executive Officer and
Chief Financial Officer (principal executive
officer and principal financial officer)
In accordance with the Exchange Act, this report has
been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ ANDREW L. SIMON
- ---------------------
Andrew L. Simon Director and Chairman
of the Board January 29, 1998
/s/ LINDA G. STRALEY
- ---------------------
Linda G. Straley Director January 29, 1998
/s/ STEPHEN H. IVENS
- ---------------------
Stephen H. Ivens Director January 29, 1998
/s/ STEVEN R. BERGER
- ---------------------
Steven R. Berger Director January 29, 1998
/s/ MICHAEL MILONE
- ---------------------
Michael Milone Director January 29, 1998
/s/ WALTER B. BARBE
- ---------------------
Walter B. Barbe Director January 29, 1998
/s/ MICHAEL D. BECK
- ---------------------
Michael D. Beck Director January 29, 1998
Exhibit 10.26
-------------
EMPLOYMENT AGREEMENT
AGREEMENT dated as of the 1st day of May, 1997 by and among
MODERN LEARNING PRESS, INC., a Delaware corporation with its
principal place of business at 910 Church Street, Honesdale,
Pennsylvania, (the "Corporation") and WALTER B. BARBE, an
individual residing at ______________________________________
____________________________________________, Pennsylvania ("Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Corporation desires to employ Executive and
Executive desires to accept such employment, all on the terms and
conditions as set forth below; and
WHEREAS, the Board of Directors (the "Board") of the
Corporation has caused the Corporation to enter into this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements set forth herein, the parties hereto, intending
to be legally bound, agree as follows:
1. Employment and Term. Subject to the terms and conditions
-------------------
of this Agreement, the Corporation agrees to employ Executive, and
Executive hereby accepts employment by the Corporation, for a term
beginning as of the date hereof (the "Effective Date") and ending
on the second anniversary of the Effective Date; provided, however,
------------------
that commencing on the date one year after the Effective Date, and
on each annual anniversary of such date (such date and each annual
anniversary thereof is hereinafter referred to as the "Renewal
Date"), the term of this Agreement shall be automatically extended
so as to terminate one year from such Renewal Date, unless at least
60 days prior to the Renewal Date the Corporation shall give
written notice that the term of the Agreement shall not be so
extended (the "Employment Term").
2. Certain Definitions.
-------------------
(a) A reference herein to a section of the Internal
Revenue Code of 1986, as amended (the "Code") or a subdivision
thereof shall be construed to incorporate reference to any section
or subdivision of the Code enacted as a successor thereto, any
applicable proposed, temporary or final regulations promulgated
pursuant to such sections and any applicable interpretation thereof
by the Internal Revenue Service.
(b) A reference herein to a section of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), or any rule
or regulation promulgated thereunder shall be construed to
incorporate reference to any section of the Exchange Act or any
rule or regulation enacted or promulgated as a successor thereto.
3. Duties. During the Employment Term, Executive shall
------
serve the Corporation in a dual capacity, as its President and
Publisher, or in such other capacity or capacities as may be
determined by the Board (provided that his authority, duties and
responsibilities shall be at least commensurate in all material
respects with his office, status and titles at the time of such
change). Executive shall also serve as a member of the Board of
Directors of Touchstone Applied Science Associates, Inc. ("TASA"),
which owns one hundred (100%) percent of the issued and outstanding
capital stock of the Corporation. Executive shall perform such
executive, administrative, publishing, development, production,
marketing and other services and duties for the Corporation at the
present location of the Corporation or any other office or location
of the Corporation as requested by the Board. During the
Employment Term, and excluding any periods of vacation and sick
leave, Executive agrees to devote a minimum of three days per week
during normal business hours to the business and affairs of the
Corporation and to discharge the responsibilities assigned to
Executive hereunder. During the Employment Term it shall not be a
violation of this Agreement for Executive to (A) serve on
corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational
institutions, and (C) manage personal investments, so long as
Executive's duties in connection therewith do not unreasonably
interfere with Executive's duties under this Agreement. Activities
of Executive consistent with this Section 3 shall not permit the
Corporation to terminate Executive's employment for "Cause", as
defined below.
4. Compensation.
------------
(a) BASE SALARY. During the Employment Term, the
Corporation shall pay to Executive, in equal installments no less
frequently than twice per month (or at such other intervals as are
in effect from time to time for other executive officers of the
Corporation), an annual base salary (the "Base Salary") of
$72,000.00 during the term of this Agreement. Base Salary to be
paid by the Corporation to Executive shall be reviewed by the Board
of Directors at least once annually prior to each anniversary of
the Effective Date for the purposes of determining whether any
increases to such salary would be appropriate. Any increase in
Base Salary shall not serve to limit or reduce any other obligation
to Executive under this Agreement. Base Salary shall not be
reduced after any such increase.
(b) INCENTIVE, SAVINGS, WELFARE BENEFIT PLANS AND
RETIREMENT PLANS. Except as specifically provided in Paragraphs 6
and 15 below, Executive and Executive's family shall not be
eligible and shall not claim entitlement, to participate in or
benefit from, such medical insurance, life insurance, disability
insurance, pension, bonus, profit-sharing, stock option, stock
purchase and any other fringe benefit plans, practices, programs or
policies provided by the Corporation to executive employees.
(c) KEY MAN INSURANCE. Executive agrees that the
Corporation may obtain key man life insurance with respect to
Executive, and in connection therewith, agrees to submit to all
reasonable and customary examinations by the provider of such life
insurance.
(d) EXPENSES. Executive shall be entitled to
reimbursement for all normal and reasonable travel, entertainment
and other expenses necessarily incurred by him in the performance
of his duties hereunder in accordance with the policies, practices
and procedures of the Corporation in effect with respect to other
key employees of the Corporation.
(e) FRINGE BENEFITS. During the Employment Term, unless
specifically set forth herein, Executive shall not be entitled to,
nor claim entitlement to fringe benefits in accordance with the
plans, practices, policies and programs of the Corporation in
effect with respect to other key employees of the Corporation.
(f) DISABILITY. Except as hereinafter provided, the
Corporation shall pay Executive for any period, up to a maximum of
two months, during the Employment Term in which he is unable fully
to perform his duties because of physical or mental disability or
incapacity, an amount equal to the Base Salary due him for such
period pursuant to Section 5(a), less the aggregate amount of all
income disability benefits which for such period he may receive by
reason of (i) any group health insurance plan, or disability
insurance plan paid for by the Corporation, in each case which is
intended to function as a salary replacement plan, (ii) any
applicable compulsory state disability law, (iii) the Federal
Social Security Act, (iv) any applicable workmen's compensation law
or similar law and (v) any plan towards which the Corporation or
any subsidiary or affiliate of the Corporation (including any
predecessor of any thereof) has contributed or for which it has
made payroll deductions, such as group accident or health policies,
other than those which reimburse for actual medical expenses.
(h) VACATION. During the Employment Term, Executive
shall be entitled to a paid vacation in accordance with the plans,
practices, policies and programs of the Corporation as in effect
with respect to other employees of the Corporation.
5. Stock Options.
-------------
(a) As part of the consideration to be paid to Executive
for his services hereunder, Executive shall be eligible to
participate in any stock incentive plan adopted by the Corporation
or TASA (the "Plan") for which Executive, as an executive level
employee, may participate.
(b) The Corporation or TASA, as the case may be, hereby
agrees that it shall cause to be filed with the Securities and
Exchange Commission a registration statement on Form S-8 (or
equivalent form as may be in effect at such time) with respect to
all options theretofore granted to Executive under the Plan. The
Corporation or TASA, as the case may be, covenants that it will
keep such registration statement current until Executive is no
longer employed by the Corporation. TASA or the Corporation, as
the case may be, agrees that, for so long as either the Corporation
or TASA does not have an effective registration statement on Form
S-8 or the Corporation or TASA has an effective registration
statement on Form S-8 but Executive is restricted in his ability to
resell shares acquired pursuant to the exercise of options because
of the provisions of General Instruction C.2(b) to Form S-8,
Executive shall have "piggyback" registration rights with respect
to the options granted to Executive under the Plan and the shares
underlying such options.
(c) As an incentive to enter into this Agreement, TASA,
as of May 30, 1997 shall deliver to Executive a Stock Option
Agreement pursuant to its Amended and Restated 1991 Stock Option
Incentive Plan, granting to Executive options for One Hundred and
Twenty-Five Thousand (125,000) shares of the common stock of the
Corporation at fair market value as of the date granted,
exercisable over a five year period.
6. Rights of Termination.
---------------------
(a) CAUSE. During the Employment Term, the Corporation
shall have the right, at any time effective upon notice by either
to Executive, to terminate Executive's employment for "Cause" (as
hereinafter defined). For purposes of this Agreement, "Cause"
shall mean (i) an act or acts of personal dishonesty engaged in by
Executive and intended to result in personal enrichment of
Executive at the expense of the Corporation, (ii) repeated
violations by Executive of Executive's obligations under Section 3
of this Agreement which are not remedied within thirty (30) days
after receipt of written notice from the Corporation; (iii)
commission by Executive of a felony or any act of embezzlement or
misappropriation of funds, and (iv) willful fraud or gross
negligence in the performance of his duties hereunder.
(b) DISABILITY; DEATH. In the event that Executive, due
to physical or mental disability or incapacity, is unable to
substantially perform his duties hereunder for a period of two or
more successive months, the Corporation or Executive shall have the
right to terminate this Agreement and Executive's employment
hereunder upon 30 days' prior written notice and termination shall
be effective on the 30th day after receipt of such notice by the
Executive (the "Disability effective date"). In the event that
Executive is able to and recommences rendering services and
performing his duties hereunder within such 30-day notice period,
Executive shall be reinstated and such notice shall be without
further force or effect. If Executive dies during the Term, this
Agreement shall terminate immediately upon his death.
(c) VOLUNTARY TERMINATION. Executive may terminate this
Agreement on six months written notice to the Corporation at any
time.
(d) NOTICE OF TERMINATION. Any termination of
Executive's employment by the Corporation for Cause, or by
Executive for Voluntary Termination, shall be communicated by
Notice of Termination to the other party hereto given in accordance
with Section 16 of this Agreement.
(e) DATE OF TERMINATION. "Date of Termination" means
the date of receipt of the Notice of Termination or any later date
specified therein, as the case may be; provided, however, that if
Executive's employment is terminated by reason of death or
Disability, or voluntary withdrawal, the Date of Termination shall
be the date of death or Executive or the Disability effective date,
or the last date of employment, as the case may be.
7. Effects of Termination. In the event that Executive's
----------------------
employment is terminated pursuant to Section 6 hereof, Executive's
employment hereunder shall terminate without further obligations to
Executive, other than those obligations accrued or earned and
vested (if applicable) by Executive through the Date of
Termination, including for this purpose all "Accrued Obligations",
defined as those obligations accrued or earned and vested (if
applicable) by Executive as of the Date of Termination, including,
for this purpose (i) Executive's pro rata Base Salary accrued but
unpaid as of the Date of Termination, (ii) any compensation
previously deferred by Executive (together with any accrued earning
thereon) and not yet paid by the Corporation and any accrued
vacation pay not yet paid by the Company and (iii) if applicable,
all amounts payable to the estate or designated beneficiaries of
Executive under any pension, savings, life insurance or other
plans, practices, policies and programs of the Corporation, and/or
all other amounts payable pursuant to Section 4 hereof. In
addition:
(i) the Corporation shall pay to Executive all
Accrued Obligations such that the Accrued Obligations specified in
Section 4 hereof, shall be paid to Executive in a lump sum in cash
within 30 days of the Date of Termination, and the other Accrued
Obligations shall be paid in accordance with Executive's specific
elections pursuant to, and otherwise in accordance with the terms
of, any plan, practice, policy or program providing benefits
forming a part of the Accrued Obligations;
(ii) all then non-exercisable options shall
immediately and automatically terminate, and
(iii) any registration rights theretofore
granted which have not been invoked with respect to shares of
Common Stock of the Corporation or TASA either acquired by
Executive pursuant to the exercise of stock options or underlying
vested options shall immediately and automatically terminate.
8. Confidentiality.
---------------
(a) Executive understands and acknowledges that as a
result of Executive's employment with the Corporation, he is or
shall necessarily become informed of, and have access to,
confidential information of the Corporation including, without
limitation, inventions, copyrights, trade secrets, technical
information, marketing plans and information, pricing information,
identity of authors, customers and prospective customers and
identity of suppliers, and that such information, even though it
may have been or may be developed or otherwise acquired by
Executive, is the exclusive property of the Corporation to be held
by Executive in trust and solely for the Corporation's benefit.
Executive shall not at any time, either during or subsequent to his
employment hereunder, reveal, report, publish, transfer or
otherwise disclose to any person, corporation or other entity, or
use, any of the Corporation's confidential information, without the
written consent of the Board, except for use on behalf of the
Corporation in connection with the Corporation's business, and
except for such information which legally and legitimately is or
becomes of general public knowledge from authorized sources other
than Executive.
(b) Upon the termination of his employment with the
Corporation for any reason, Executive shall promptly deliver to the
Corporation all drawings, manuals, letters, notes, notebooks,
reports, tapes or discs, and copies thereof and all other
materials, including, without limitation, those of a secret or
confidential nature, relating to the Corporation's business which
are in Executive's possession or control.
(c) For purposes of this Section 8 and Section 9, the
term "Corporation" includes the Corporation and any other
predecessor corporation, and affiliates (including, without
limitation, TASA, subsidiaries and joint ventures).
9. Non-Competition. (a) Executive agrees that, for a period
---------------
commencing on the date hereof and ending two years after the
termination of his employment with the Corporation for any reason,
he shall not, anywhere in the United States (or for such lesser
area or such lesser period as may be determined by a court of
competent jurisdiction to be a reasonable limitation on the
competitive activity of Executive) directly or indirectly:
(i) solicit or attempt to solicit business of any
customers of the Corporation (including prospective customers
solicited by the Corporation during the term of his employment) for
products or services the same or similar to those offered, sold,
produced or under development by the Corporation during the term of
his employment therewith or dealt in by Executive during his
employment with the Corporation;
(ii) solicit or attempt to solicit for any business
endeavor any employee of the Corporation;
(iii) interfere with any business relationship
between the Corporation and any other person or entity;
(iv) use the name of the Corporation or a name similar
thereto; or
(v) render any services as an officer, director,
employee, partner, consultant or otherwise to, or have any interest
as a stockholder, partner, lender or otherwise in, any person which
is engaged in activities which, if performed by Executive would
violate this Section 9.
10. Remedies and Survival. Because the Corporation does not
---------------------
have an adequate remedy at law to protect its interest in its trade
secrets, privileged, proprietary or confidential information and
similar commercial assets, or its business from Executive's
competition, the Corporation shall be entitled to injunctive
relief, in addition to such other remedies and relief that would,
in the event of a breach of the provisions of Sections 8 or 9, be
available to the Corporation. The provisions of Sections 8 and 9
and this Section 10 shall survive any termination of Executive's
employment with the Corporation for any reason whatsoever. In no
event shall an asserted violation of the provisions of Sections 8
or 9 of this Agreement constitute a basis for deferring or
withholding any amounts otherwise payable to Executive under this
Agreement.
11. Set-off. The payments and performance by the Corporation
-------
as provided for in this Agreement shall be subject to any set-off,
counterclaim, recoupment, defense or other claim, right or action
which the Corporation may have against Executive.
12. Non-exclusivity of Rights. Except as specifically
-------------------------
provided in this Agreement, it is intended that Executive's present
and future participation in any benefit, bonus, incentive or other
plans, practices, policies or programs provided by the Corporation
and for which Executive or Executive's family may otherwise qualify
and be eligible be limited or unavailable. Nothing contained in
this Agreement, however, shall limit or otherwise affect such
rights as Executive may have under any stock option agreements with
the Corporation. Amounts which are vested benefits or which
Executive is otherwise entitled to receive at or subsequent to the
Date of Termination shall be payable in accordance with the plan,
practice, policy or program of the Corporation under which
Executive has such entitlement, if any.
13. Entire Agreement. This Agreement sets forth the entire
----------------
understanding of the parties hereto with respect to its subject
matter, merges and supersedes any prior or contemporaneous
agreements or understandings with respect to its subject matter,
and shall not be modified or terminated except by another agreement
in writing executed by the Corporation and Executive. Failure of
a party to enforce one or more of the provisions of this Agreement
or to require at any time performance of any of the obligations
hereof shall not be construed to be a waiver of such provisions by
such party nor to in any way affect the validity of this Agreement
or such party's right thereafter to enforce any provision of this
Agreement.
14. Severability. If any provision of this Agreement is held
------------
to be invalid or unenforceable by any court or tribunal of
competent jurisdiction, the remainder of this Agreement shall not
be affected by such judgement and such provision shall be carried
out as nearly as possible according to its original terms and
intent to eliminate such invalidity or unenforceability.
15. Successors and Assigns. This Agreement is personal to
----------------------
Executive and without the prior written consent of the Corporation
shall not be assignable by Executive otherwise than by will or the
laws of descent and distribution. This Agreement shall inure to
the benefit of and be enforceable by the parties' legal
representatives, successors and assigns. As used in the Agreement,
"Corporation" shall mean the Corporation as hereinbefore defined
and any successor to its business and/or assets as aforesaid with
assumes and agrees to perform this Agreement by operation of law or
otherwise.
16. Communications and Notices. All notices and other
--------------------------
communications under this Agreement shall be in writing and shall
be deemed to have been duly given three (3) business days after
they are mailed in any United States post office enclosed in a
registered or certified postage-paid envelope and addressed as set
forth at the beginning of this Agreement, or to such other address
as any party may specify by notice to the other parties, or
delivered by Federal Express or a similar overnight courier to such
address, with evidence of delivery to such address; provided,
however, that any notice of change of address shall be effective
only upon receipt.
17. Construction; Counterparts. The headings contained in
--------------------------
this Agreement are for convenience only and shall in no way
restrict or otherwise affect the construction of the provisions
hereof. This Agreement may be executed in multiple counterparts,
each of which shall be an original and all of which together shall
constitute one and the same instrument.
18. Validity. The invalidity or unenforceability of any
--------
provision of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement. A party's
failure to insist upon strict compliance with any provision hereof
shall not be deemed to be a waiver of such provision. This
Agreement contains the entire understanding of the Corporation and
Executive with respect to the subject matter hereof but does not
supersede or override the provisions of any stock option, employee
benefit or other plan, program, policy or practice in which
Executive is a participant or under which Executive is a
beneficiary.
19. Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the State of New York.
20. Prior Operations of the Corporation. It is understood
-----------------------------------
and acknowledged that Executive was not employed by, or consultant
to, the Corporation at any time prior to April 16, 1997. Executive
shall, therefore, under no circumstances be responsible personally
for any circumstances, terms or conditions created by the previous
publisher. This does not preclude responsibility of the
Corporation itself for such circumstances, terms or conditions.
IN WITNESS WHEREOF, the undersigned parties have executed and
delivered this Agreement as of the date first above written.
MODERN LEARNING PRESS, INC.
By: /s/ WALTER B. BARBE
-------------------------
Name: Walter B. Barbe
Title: President
Executive:
/s/ WALTER B. BARBE
-------------------------
Walter B. Barbe
Exhibit 10.27
-------------
MORTGAGE MODIFICATION AND EXTENSION AGREEMENT
AGREEMENT, made the 28th day of August, 1997 between MSB BANK,
a federally chartered savings bank having its principal office at
35 Matthews Street, Goshen, New York 10924, hereinafter designated
as the party of the first part and as Mortgagee, and TOUCHSTONE
APPLIED SCIENCE ASSOCIATES, INC., a Delaware corporation with its
office for doing business at Fields Lane, PO Box 382, Brewster, New
York 10509-0382 hereinafter designated as the party of the second
part and as Mortgagor.
WITNESSETH, that the party of the first part, the holder of
the following Mortgages and of the Notes executed thereby:
(a) Mortgage dated May 15, 1991 made by Touchstone Applied
Science Associates, Inc. and Town of Southeast Industrial
Development Agency, Mortgagors to Barclay s Bank of New York, N.A.,
Mortgagee in the original principal sum of $400,000.00 and recorded
in the Putnam County Clerk s Office on May 16, 1991 in Liber 1391
MP 57, upon which there remains an outstanding principal balance of
$219,160.97 with interest thereon, payment for which has been
assumed by the party of the second part, which mortgage was
assigned by the Mortgagee, Barclay s Bank of New York N.A. to the
Bank of New York, Assignee by instrument of assignment dated March
31, 1993 and recorded March 1, 1994 in Liber 1886, MP 113 in the
Putnam County Clerk s Office;
(b) Gap Mortgage dated August 28, 1997 in the principal
amount of $1,580,839.03 plus interest thereon, intended to be
recorded in the Putnam County Clerk s Office simultaneously
herewith.
The Mortgagor herein has assumed the Mortgage recited in
Clause (a) above by agreement of assumption contained in the Deed
from Town of Southeast Industrial Development Agency to Touchstone
Applied Science Associates, Inc. dated August 26, 1997 and intended
to be recorded simultaneously herewith. The liens of the prior
Mortgage and the Gap Mortgage executed simultaneously herewith are
hereby consolidated and coordinated so that together they shall
hereinafter constitute in law a valid and enforceable first lien
upon the mortgaged property securing the consolidated indebtedness
in the amount of $1,800,000.00, together with interest accrued and
to accrue thereon and all other sums secured thereby and the
Mortgagor hereby assumes and agrees to pay the consolidated
indebtedness and interest thereon at the rate of interest on the
terms provided for in that certain Amended and Restated Mortgage
Note dated the date hereof and made by the Mortgagor to the
Mortgagee (the "Amended and Restated Mortgage Note").
The payment of this consolidated indebtedness of
$1,800,000.00, together with interest at the rate of EIGHT AND ONE
HUNDRED TWENTY FIVE ONE THOUSANDTHS (8.125%) PER CENT per annum
shall be paid, interest only, on the fifteenth (15th) day of
September, 1997 and thereafter, constant payments of principal and
interest on the 15th day of October, 1997 and on the 15th day of
each month thereafter until September 15, 2007, when the entire
remaining principal balance, plus accrued interest, shall become
fully due and payable, all in accordance with the Amended and
Restated Mortgage Note executed simultaneously herewith and
incorporated by reference herein.
If the Amended and Restated Mortgage Note or any installment
of principal or interest becomes payable on a Saturday, Sunday or
public holiday under the laws of the State of New York, such
payment shall be extended to the next succeeding business day and
(except for interest payments) interest thereon shall be payable at
the rate herein specified during such extension.
The whole of the principal sum of any part thereof, and of any
other sums of money secured by the Mortgage given to secure the
Note shall forthwith or thereafter, at the option of the party of
the first part, become due and payable if default be made in any
payment under this Agreement, or upon the happening of any default
which, by the terms of the Mortgage extended by this Agreement,
shall entitle the party of the first part to declare the same or
any part thereof to be due and payable; and all of the covenants,
agreements, terms and conditions of said Mortgage are hereby
incorporated herein with the same force and effect as if herein set
forth at length, excepting as herein modified.
AND the party of the second part further covenants with the
party of the first part as follows:
1. That the party of the second part will pay the
indebtedness in full as hereinbefore provided.
2. In order more fully to protect the security of this
Mortgage together with, and in addition to, the monthly
installments of principal and interest payable under the terms of
the Note secured hereby, the Mortgagee, at its option, may demand
on ten (10) days written notice to the Mortgagors that the
Mortgagors will pay to the Mortgagee, as Trustee (under the terms
of this Trust as hereinafter stated), on the 1st day of each month
until the amount is fully paid, the following sums:
(a) a sum equal to 1/12th of the taxes and special
assessments next due on the premises covered by this Mortgage, plus
the premiums that will next become due and payable on policies of
fire and other hazard insurance on the premises covered hereby (all
as estimated by the Mortgagee as Trustee) less all sums already
paid therefor divided by the number of months to elapse before one
month prior to the date when such taxes, assessments and premiums
will become first payable, such sums to be held by the Mortgagee in
trust to pay such taxes, special assessments and premiums before
the same become delinquent;
(b) all payments mentioned in the preceding subdivision
of this Paragraph and all payments to be made on the Note secured
hereby shall be added together and the aggregate amount thereof
shall be paid by the Mortgagor each month in a single payment to be
applied by the Mortgagee to the following items in order named:
1. Taxes, assessments, water rates, fire and other
hazard insurance premiums if the Mortgagee has made a written
demand for monthly payments of taxes and/or insurance;
2. Interest on the Note secured hereby; and
3. Amortization of the principal of the Note;
(c) Any deficiency in the amount of such aggregate
monthly installment shall, unless made good by the Mortgagor prior
to the due date of the next such payment, constitute a default
under this Mortgage. In the event that any installment shall
become overdue for a period in excess of ten (10) days, a "late
charge" of five ($.05) cents for each dollar ($1.00) so overdue may
be charged by the holder hereof for the purpose of defraying the
expense incident to handling such delinquent payment.
3. If the total of the payments made by the Mortgagor under
Subdivision (b) of the preceding Paragraph shall exceed the amount
of payments actually made by the Mortgagee as Trustee or its
assigns for taxes, assessments, water rates or insurance premiums,
as the case may be, such excess shall be credited by the Mortgagee
as Trustee or its assigns on subsequent payments to be made by the
Mortgagor. If, however, the estimated monthly payments made by the
Mortgagor under Subdivision (b) of the preceding Paragraph shall
not be sufficient to pay the taxes, assessments, water rates and
insurance premiums when the same shall become due and payable, then
the Mortgagor shall pay to the Mortgagee as Trustee or its assigns
any amount necessary to make up the existing deficiency according
to a revised estimated budget before the due date of the next
monthly payment. If there shall be default under any provision of
this Mortgage and Mortgagee shall elect to declare the unpaid
principal immediately due and payable, Mortgagee as Trustee may
apply the amount then remaining to the credit of Mortgagor on
account of the unpaid interest and unpaid principal.
4. That the party of the second part will pay all taxes,
assessments, water rates and other governmental or municipal
charges, fines or impositions, for which provision has not been
made as hereinbefore stated and in default thereof the party of the
first part may pay the same; and that the party of the second part
will promptly deliver the official receipts therefor to the party
of the first part.
5. That no building on the premises shall be removed,
altered or demolished and no fixtures or personal property covered
by this Agreement shall be removed or demolished, without the
written consent of the party of the first part. The party of the
second part, for himself, his heirs, and all subsequent owners of
said premises, covenants and agrees with the party of the first
part and the successors and assigns of the party of the first part,
that he will keep and maintain the mortgaged premises in a good and
complete state of repair and will promptly comply with all the
requirements of the Federal, State and Municipal governments or of
any departs or bureaus thereof having jurisdiction; and in default
thereof the party of the first part may enter said premises and
make such repairs as may be necessary or for the purpose of
complying with any governmental or departmental regulations or
requirements and the cost thereof shall be a lien on said premises
secured by this Agreement and shall be payable on demand with
interest at the maximum legal rate per annum then prevailing that
neither the value of the mortgaged premises nor the lien of the
Mortgage extended by this Agreement will be diminished or impaired
in any way by any act or omission of the party of the second part,
his heirs, or by any subsequent owner of said premises, and that he
will not do or permit to be done to, in, upon or about said
premises or any part thereof, anything that may in any wise
substantially impair the value thereof, or substantially weaken,
diminish or impair the security of the Mortgage extended by this
Agreement.
6. That the party of the second part warrants the title to
the premises.
7. That in the event of a foreclosure of this Mortgage said
premises may be sold in one parcel, any provision of law to the
contrary notwithstanding.
8. That the party of the second part will keep the buildings
now erected and hereafter erected on said premises insured as may
be required by the party of the first part from time to time
against loss by fire and other hazards, casualties and
contingencies, in such amounts and in such companies, and for such
periods as the party of the first part shall require, and upon
failure to so insure the party of the first part may have such
insurance written and pay the premium thereon, and the principal
sum, together with the amount paid for such insurance, shall, at
the option of the party of the first part, immediately become due
and payable. That the party of the second part will give immediate
notice by mail to the party of the first part of any fire, damage
or other casualty to the premises or of any conveyance, transfer or
change of ownership of the premises. If the premises covered
hereby, or any part thereof, shall be damaged by fire or other
hazard against which insurance is held as hereinbefore provided,
the amounts paid by any insurance company pursuant to the contract
of insurance shall to the extent of the indebtedness then remaining
unpaid, be paid to the party of the first part, and, at its option,
may be applied to the debt or released for the repairing or
rebuilding of the premises.
9. That the whole of the said principal sum and of any other
sums of money secured by this Mortgage, extended by this Agreement
shall, forthwith or thereafter, at the option of the party of the
first part, become due and payable upon the happening of either of
the following events, irrespective of whether or not the same be
remedied by the party of the second part:
(a) Failure to pay in full any aggregate monthly payment
as required by the Amended and Restated Mortgage Note.
(b) Failure of the party of the second part to perform
or comply with any other covenant, agreement, term or condition of
the Mortgage, extended by this Agreement, or of the Note also
secured thereby in accordance with the terms hereof and thereof.
(c) Default in any payment of principal or interest of
any obligation for borrowed money other than the Amended and
Restated Mortgage Note, including but not limited to the term loan
of $300,000.00 executed contemporaneously herewith; or in the
performance of any other term, condition or covenant contained in
any agreement under which any such obligation is created, the
effect of which default is to cause or permit the holder of such
obligation to cause such obligation to become due and payable prior
to its stated maturity date.
(d) The default of any of the terms and conditions of
any of the Loan Documents executed by the party of the second part
and the expiration of any applicable cure periods contained
therein.
(e) Any event of default shall be automatically deemed
to be a demand for payment by the Obligee and the entire remaining
principal balance plus accrued interest shall become fully due and
payable. Failure of the Bank to exercise said right of
acceleration on the due date of payment on the indebtedness
evidenced by, or indulgence granted by the holder to the Obligor
from time to time shall in no event be considered or otherwise
construed as a waiver of such right of acceleration or in any
manner prohibit holder from exercising such right.
10. In the event of the passage after the date of the
Mortgage, extended by this Agreement of any law of the State of New
York, deducting from the value of land for the purpose of taxation
any lien thereon, or changing in any way the laws for the taxation
of mortgages or debts secured by mortgage for State or local
purposes, or the manner of the collection of any such taxes, so as
to affect the Mortgage, extended by this Agreement, and the debt
secured by this Agreement, the party of the first part shall have
the right to give thirty (30) days written notice to the owner of
the mortgaged premises requiring the payment of the mortgage debt.
If such notice be given the said debt shall become due, payable and
collectible at the expiration of said thirty (30) days.
11. That in the event of any default hereunder, the rents and
profits of said premises and all leases existing at the time of
such default are hereby assigned to the party of the first part as
further security for the payment of said indebtedness and the party
of the first part is hereby empowered upon such default to enter
upon and take possession of said premises and to let the said
premises and collect all the rents therefrom which are due or to
become due and to apply the same after payment of all necessary
charges and expenses, on account of said indebtedness. A notice of
default and of the entry and taking possession of said premises by
the party of the first part, served upon the record owner of said
premises personally, or by mail addressed to such owner at his last
known address, shall be deemed to place the party of the first part
in possession of said premises. The party of the second part, for
himself, his heirs and all subsequent owners of said premises,
further covenants and agrees that if the party of the second part
or any subsequent owner of said premises occupies the same when an
action or proceeding is commenced to foreclose the Mortgage
extended by this Agreement, such occupant shall be deemed to be the
tenant of the party of the first part and the party of the second
part or such subsequent owner agrees to pay in advance upon demand
to the holder of this Mortgage as a reasonable monthly rental for
the premises an amount equivalent to one-twelfth of the aggregate
of the twelve monthly installments payable in the then current
year, plus the actual amount of the taxes, assessments, water rates
and insurance premiums for such year not covered by the aforesaid
monthly payments and in default of so doing such party of the
second part or subsequent owner agrees to vacate and surrender the
possession of said premises and the party of the first part shall
be empowered upon such default to dispossess the party of the
second part or any subsequent owner of said premises by the usual
summary proceedings. This covenant shall become effective
immediately after the happening of any such default, solely on the
determination of the then holder of this Mortgage, who shall give
notice of such determination to the party of the second part or
subsequent owner of the mortgaged premises. In case of foreclosure
and the appointment of a receiver of the rents, this covenant shall
inure to the benefit of such receiver.
12. That the party of the first part, its successors or
assigns, in any action to foreclose the Mortgage extended by this
Agreement, shall be entitled as a matter of right and without
regard to the value of the premises above described or the solvency
of the Mortgagor or of any owner of said premises, upon application
to any court having jurisdiction, to the appointment of a receiver
of the rents and profits of said premises and of the rental value
of the portions, if any, of said premises occupied by the owner at
the time being, which is to be fixed and which the owner agrees to
pay, without notice to the party of the second part, his heirs,
executors, administrators or assigns; and in such event the said
rents and profits and rental value are hereby assigned to the
holder of the Mortgage extended by this Agreement as further
security for the payment of the said indebtedness. Upon the
appointment of such receiver and the fixing by the Court of rent
for the said premises and upon subsequent defaults by the Mortgagor
or any owner in possession, said receiver shall have the right to
institute and consummate proceedings to evict the said Mortgagor or
any owner in possession, and upon obtaining a warrant from the
Court of dispossession, he shall have the right to direct the
Sheriff to evict said Mortgagor or any owner in possession.
13. If any action or proceeding be commenced (including an
action or proceeding to foreclose the Mortgage extended by this
Agreement or to collect the debt secured thereby), to which action
or proceeding the holder of this Mortgage is made a party, or in
which it becomes necessary to defend or uphold the lien of this
Mortgage, all sums paid by the holder of this Mortgage for the
expense of any litigation to prosecute or defend the rights and
lien created by this Mortgage (including reasonable counsel fees),
shall be paid by the party of the second part, together with
interest at the highest permissible rate (as more particularly set
forth in the Amended and Restated Mortgage Note) and any such sum
and the interest thereon shall be a lien on said premises, prior to
any right, or title to, interest in or claim upon said premises
attaching or accruing subsequent to the lien of this Mortgage and
shall be deemed to be secured by the Mortgage extended by this
Agreement and by the Note which it secures.
14. That the party of the second part will not assign the
rents or any part of the rents of the mortgaged premises to any
third party without first obtaining the written consent of the
party of the first part to such assignment.
15. That the party of the second part will receive the
advances secured by the Mortgage extended by this Agreement and
will hold the right to receive such advances, as a trust fund to be
applied first for the purpose of paying the cost of improvement and
that he will apply the same first to the payment of the cost of
improvement before using any part of the total of the same for any
other purpose.
16. That the party of the second part within five days upon
request in person or within ten days upon request by mail will
furnish a statement of the amount due on this Mortgage.
17. That notice and demand or request may be in writing and
may be served in person or by mail, to be effective upon personal
delivery or if by mail, three (3) business days after deposit of
such notice and demand in the United States mail.
18. That any and all awards heretofore made and hereafter to
be made to the present and all subsequent owners of said premises,
including any award and awards for change of grade of any street
affecting said premises, which said award or awards are hereby
assigned to the party of the first part who is hereby authorized
and empowered to collect and receive such award and awards and to
give proper receipts and acquittances therefor and to apply the
same toward the payment of the amount owing on the Mortgage
extended by this Agreement, notwithstanding the fact that the
amount owing on the Mortgage extended by this Agreement, may not
then be due and payable; and the party of the second part for
himself, his heirs and all subsequent owners of said premises,
covenants and agrees with the party of the first part, its
successors and assigns, upon request by the holder of this Mortgage
extended by this Agreement, to make, execute and deliver any and
all assignments and other instruments sufficient for the purpose of
assigning said award and awards to the holder of the Mortgage,
extended by this Agreement, free, clear and discharged of any
encumbrances of any kind or nature whatsoever.
19. That all fixtures and articles of personal property, now
or hereafter attached to, or used in connection with the premises
shall be deemed to be and form a part of the realty and are covered
by the lien of the Mortgage, extended by this Agreement.
20. That the Mortgage extended by this Agreement, is and will
be maintained as a valid first lien on the premises.
21. This Agreement may not be changed or modified orally, but
only by an agreement in writing and signed by the party against
whom enforcement of any waiver, change, modification or discharge
is sought.
22. If more than one person joins in the execution of this
Mortgage, and if any be of the feminine sex, the relative words
herein shall be read as if written in the plural, or in the
feminine gender, as the case may be, and the words "party of the
second part" shall include their heirs, executors, administrators,
successors and assigns.
23. This Agreement shall be binding upon the heirs,
executors, administrators, distributees, successors and assigns of
the respective parties hereto.
24. That the party of the second part, in consideration of
the sum of one dollar paid, and in order to obtain this extension,
does hereby covenant and declare to the party of the first part and
to any subsequent holder of said Mortgage that said Mortgage is a
valid first lien on the premises therein described for the amount
of ONE MILLION EIGHT HUNDRED THOUSAND AND 00/100 ($1,800,000.00)
DOLLARS, with interest at the rate of EIGHT AND ONE HUNDRED TWENTY
FIVE ONE THOUSANDTHS (8.125%) PER CENT per annum and that there are
no defenses or offsets to said Mortgage, nor to the Note which it
secures, but all the provisions of said Note and Mortgage are
unmodified and in force except as the same are modified by this
Agreement; and the said party of the second part makes this
covenant and declaration to induce any subsequent holder of said
Bond and Mortgage to purchase the same in reliance thereon and
represents that said TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
now own the premises described in said Mortgage.
25. If the Mortgagor shall sell, transfer or otherwise
dispose of the mortgaged premises, or any part thereof, without the
prior consent in writing of the Mortgagee, the Mortgagee may, at
its election, declare the entire indebtedness hereby secured to be
immediately due and payable, without notice to the Mortgagor (which
notice the Mortgagor hereby expressly waives) and upon such
declaration the entire indebtedness hereby secured shall be
immediately due and payable, anything herein or in any Bond, Note
or obligation of the Mortgagor to the contrary notwithstanding.
26. Mortgagee shall have the right, from time to time, to
take action to recover any sum or sums which constitute a part of
the Debt as the same become due, without regard to whether or not
the balance of the Debt shall be due, and without prejudice to the
right of Mortgagee thereafter to bring an action of foreclosure, or
any other action, for a default or defaults by Mortgagor existing
at the time such earlier action was commenced.
27. Mortgagor hereby waives, to the extent permitted by law,
the benefit of all appraisement, valuation, stay, extension,
reinstatement and redemption laws now or hereafter in force and all
rights of marshaling in the event of any sale hereunder of the
Mortgaged Property or any part thereof or any interest therein.
Further, Mortgagor hereby expressly waives any and all rights of
redemption from sale under any order or decree of foreclosure of
this Mortgage on behalf of Mortgagor, and on behalf of each and
every person acquiring any interest in or title to the Mortgaged
Property subsequent to the date of this Mortgage and on behalf of
all persons to the extent permitted by applicable law.
28. Mortgagor hereby represents and warrants to Mortgagee
that, to the best of Mortgagor s knowledge, after due inquiry and
investigation: (a) the Mortgaged Property is not in direct or
indirect violation of any local, state, federal or other
governmental authority, statute, ordinance, code, order, decree,
law, rule or regulation pertaining to or imposing liability or
standards of conduct concerning environmental regulation,
contamination, or clean-up including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability
Act, as amended ("CERCLA"), the Resource Conservation and Recovery
Act, as amended ("RCRA"), the Emergency Planning and Community
Right-to-Know Act of 1986, as amended, the Hazardous Substances
Transportation Act, as amended, the Solid Waste Disposal Act, as
amended, the Clean Water Act, as amended, the Clean Air Act, as
amended, the Toxic Substance Control Act, as amended, the Safe
Drinking Water Act, as amended, the Occupational Safety and Health
Act, as amended, any state super-lien and environmental clean-up
statutes and all regulations adopted in respect to the foregoing
laws (collectively, "Environmental Laws"); (b) the Mortgaged
Property is not subject to any private or governmental lien or
judicial or administrative notice or action or inquiry,
investigation or claim relating to hazardous and/or toxic,
dangerous and/or regulated, substances, wastes, materials, raw
materials, which include hazardous constituents, pollutants or
contaminants, including without limitation, petroleum, tremolite,
anthlophylie, actinolite or polychlorinated piphenyls and any other
substances or materials which are included under or regulated by
Environmental Laws or which are considered by scientific opinion to
be otherwise dangerous in terms of the health, safety and welfare
of humans (collectively "Hazardous Substances"); (c) no Hazardous
Substances are or have been (including the period prior to
Mortgagor s acquisition of the Mortgaged Property), discharged,
generated, treated, disposed of or stored on, incorporated in, or
removed or transported from the Mortgaged Property other than in
compliance with all Environmental Laws; (d) no Hazardous Substances
are present in, on or under any nearby real property which could
migrate to or otherwise affect the Mortgaged Property; and (e) no
underground storage tanks exist on any of the Mortgaged Property.
So long as Mortgagor owns or is in possession of the Mortgaged
Property, Mortgagor (i) shall keep or cause the Mortgaged Property
to be kept free from Hazardous Substances and in compliance with
all Environmental Laws, (ii) shall promptly notify Mortgagee if
Mortgagor shall become aware of any Hazardous Substances on or near
the Mortgaged Property and/or if Mortgagor shall become aware that
the Mortgaged Property is in direct or indirect violation of any
Environmental Laws and/or if Mortgagor shall become aware of any
condition on or near the Mortgaged Property which shall pose a
threat to the health, safety or welfare of humans, (iii) shall
remove such Hazardous Substances and/or cure such violations and/or
remove such threats, as applicable, as required by law (or as shall
be required by Mortgagee in the case of removal which is not
required by law, but in response to the opinion of a licensed
hydrogeologist, licensed environmental engineer or other qualified
consultant engaged by Mortgagee ("Mortgagee s Consultant)),
promptly after Mortgagor becomes aware of same, at Mortgagor s sole
expense and (iv) shall comply with all of the recommendations
contained in the environmental report which was delivered to
Mortgagee in connection with the origination of the Loan. Nothing
herein shall prevent Mortgagor from recovering such expenses from
any other party that may be liable for such removal or cure. The
obligations and liabilities of Mortgagor under this Paragraph 28 shall
survive any termination, satisfaction or assignment of this
Mortgage and the exercise by Mortgagee of any of its rights or
remedies hereunder, including, without limitation, the acquisition
of the Mortgaged Property by foreclosure or a conveyance in lieu of
foreclosure.
29. Mortgagor represents and warrants that, to the best of
Mortgagor s knowledge, after due inquiry and investigation, no
asbestos or any substance or material containing asbestos
("Asbestos") is located on the Mortgaged Property except as may have
been disclosed in an environmental report delivered to Mortgagee
prior to the date of this Mortgage. Mortgagor shall not install in
the Mortgaged Property, nor permit to be installed in the Mortgaged
Property, Asbestos and shall remove any Asbestos promptly upon
discovery to the satisfaction of Mortgagee, at Mortgagor s sole
expense. Mortgagor shall, in all instances, comply with, and
ensure compliance by all occupants of the Mortgaged Property with,
all applicable federal, state, and local laws, ordinance, rules and
regulations with respect to Asbestos, and shall keep the Mortgaged
Property free and clear of any liens imposed pursuant to such laws,
ordinances, rules or regulations. In the event that Mortgagor
receives any notice or advice from any governmental agency or any
source whatsoever with respect to Asbestos on, affecting or
installed on the Mortgaged Property, Mortgagor shall immediately
notify Mortgagee. The obligations and liabilities of Mortgagor
under this Paragraph 29 shall survive any termination, satisfaction or
assignment of this Mortgage and the exercise by Mortgagee of any of
its rights or remedies hereunder, including but not limited to, the
acquisition of the Mortgaged Property by foreclosure or a
conveyance in lieu of foreclosure.
30. Mortgagor shall give prompt written notices to Mortgagee
of (a) any proceeding or inquiry by any party with respect to the
presence of any Hazardous Substance or Asbestos on, under, from or
about the Mortgaged Property; (b) all claims made or threatened by
any third party against Mortgagor or the Mortgaged Property
relating to any loss or injury resulting from any Hazardous
Substance or Asbestos; and (c) Mortgagor s discovery of any
occurrence or condition on any real property adjoining or in the
vicinity of the Mortgaged Property that could cause the Mortgaged
Property to be subject to any investigation or cleanup pursuant to
any Environmental Law. Mortgagor shall permit Mortgagee to join
and participate in, as a party if it so elects, any legal
proceedings or actions initiated with respect to the Mortgaged
Property in connection with any Environmental Law or Hazardous
Substance, and Mortgagor shall pay all attorneys fees and
disbursements incurred by Mortgagee in connection therewith. Upon
Mortgagee s request, at any time and from time to time while this
Mortgage is in effect, Mortgagor shall provide (i) an inspection or
audit of the Mortgaged Property prepared by a licensed
hydrogeologist or licensed environmental engineer approved by
Mortgagee indicating the presence or absence of Hazardous
Substances on, in or near the Mortgaged Property, and (ii) an
inspection or audit of the Mortgaged Property prepared by a duly
qualified engineering or consulting firm approved by Mortgagee,
indicating the presence or absence of Asbestos on the Mortgaged
Property. The cost and expense of such audit or inspection shall
be paid by Mortgagor not more frequently than once every five (5)
calendar years after the occurrence of a Secondary Market
Transaction unless Mortgagee, in its good faith judgment,
determines that reasonable cause exists for the performance of an
environmental inspection or audit of the Mortgaged Property, then
such inspections or audits described in the preceding sentence
shall be at Mortgagor s sold expense. If Mortgagor fails to
provide any inspection or audit required pursuant to this Paragraph 30
within thirty (30) days after such request, Mortgagee may order
same, and Mortgagor hereby grants to Mortgagee and its employees
and agents access to the Mortgaged Property and a license to
undertake such inspection or audit. The cost of such inspection or
audit may be added to the Debt and shall bear interest thereafter
until paid at the Default Rate. In the event that any
environmental site assessment report prepared in connection with
such inspection or audit recommends that an operations and
maintenance plan be implemented for Asbestos or any Hazardous
Substance, Mortgagor shall cause such operations and maintenance
plan to be prepared and implemented at Mortgagor s expense upon
request of Mortgagee. In the event that any investigation, site
monitoring, containment cleanup, removal, restoration or other work
of any kind is reasonably necessary or desirable under an
applicable Environmental Law (the "Remedial Work"), Mortgagor shall
commence and thereafter diligently prosecute to completion all such
Remedial Work within thirty (30) days after written demand by
Mortgagee for performance thereof (or such shorter period of time
as may be required under applicable law). All Remedial Work shall
be performed by contractors approved in advance by Mortgagee, and
under the supervision of a consulting engineer approved by
Mortgagee. All costs and expenses of such Remedial Work shall be
paid by Mortgagor including, without limitation, Mortgagee s
reasonable attorneys fees and disbursements incurred in connection
with monitoring or review of such Remedial Work. In the event
Mortgagor shall fail to timely commence, or cause to be commenced,
or fail to diligently prosecute to completion, such Remedial Work,
Mortgagee may, but shall not be required to, cause such Remedial
Work to be performed and all costs and expenses thereof, or
incurred in connection therewith, may be added to the Debt and
shall bear interest thereafter until paid at the Default Rate.
31. Handicapped Access:
(a) Mortgagor agrees that the Mortgaged Property shall
at all times strictly comply to the extent applicable with the
requirements of the Americans with Disabilities Act of 1990, the
Fair Housing Amendments Act of 1988, if applicable, all State and
local laws and ordinances related to handicapped access and all
rules, regulations, and orders issued pursuant thereto including,
without limitation, the Americans with Disabilities Act
Accessibility Guidelines for Buildings and Facilities (collectively
"Access Laws").
(b) Notwithstanding any provisions set forth herein or
in any other document regarding Mortgagee s approval of alterations
of the Mortgaged Property, Mortgagor shall not alter the Mortgaged
Property in any manner which would increase Mortgagor s
responsibilities for compliance with the applicable Access Laws
without the prior written approval of Mortgagee. The foregoing
shall apply to tenant improvements constructed by Mortgagor or by
any of its tenants. Mortgagee may condition any such approval upon
receipt of a certificate of Access Law compliance from an
architect, engineer or other person acceptable to Mortgagee.
(c) Mortgagor agrees to give prompt notice to Mortgagee
of the receipt by Mortgagor of any complaints related to violation
of any Access Laws and of the commencement of any proceedings or
investigations which relate to compliance with applicable Access
Laws.
32. In addition to any other indemnifications provided herein
or in the other Loan Documents, Mortgagor shall protect, defend,
indemnify and save harmless Mortgagee from and against all
liabilities, obligations, claims, demands, damages, penalties,
causes of action, losses, fines, costs and expenses (including,
without limitation, reasonable attorneys fees and disbursements),
imposed upon or incurred by or asserted against Mortgagee by reason
of (a) ownership of this Mortgage, the Mortgaged Property or any
interest therein or receipt of any Rents; (b) any accident, injury
to or death of persons or loss of or damage to property occurring
in, on or about the Mortgaged Property or any part thereof or on
the adjoining sidewalks, curbs, adjacent property or adjacent
parking areas, streets or ways; (c) any use, non-use or condition
in, on or about the mortgaged property or any part thereof or on
adjoining sidewalks, curbs, adjacent property or adjacent parking
areas, streets or ways; (d) any failure on the part of Mortgagor to
perform or comply with any of the terms of this Mortgage; (e)
performance of any labor or services or the furnishing of any
materials or other property in respect of the Mortgaged Property or
any part thereof; (f) the presence, disposal, escape, seepage,
leakage, spillage, discharge, emission, release, or threatened
release of any Hazardous Substance or Asbestos on, from, or
affecting the Mortgaged Property; (g) any personal injury
(including wrongful death) or property damage (real or personal)
arising out of or related to such Hazardous Substance or Asbestos;
(h) any lawsuit brought or threatened, settlement reached, or
government order relating to such Hazardous Substance or Asbestos;
(i) any violation of the Environmental Laws, which are based upon
or in any way related to such Hazardous Substance or Asbestos
including, without limitation, the costs and expenses of any
Remedial Work, attorney and consultant fees and disbursements,
investigation and laboratory fees, court costs and litigation
expenses; (j) any failure of the Mortgaged Property to comply with
any Access Laws; (k) any representation or warranty made in the
Note, this Mortgage or any of the other Loan Documents being false
or misleading in any material respect as of the date such
representation or warranty was made; (l) any claim by brokers,
finders or similar persons claiming to be entitled to a commission
in connection with any Lease or other transaction involving the
Mortgaged Property or any part thereof under any legal requirement
or any liability asserted against Mortgagee with respect thereto;
and (m) the claims of any lessee of any or any portion of the
Mortgaged Property for any person acting through or under any
lessee or otherwise arising under or as a consequence of any Lease.
Any amounts payable to Mortgagee by reason of the application of
this paragraph shall be secured by this Mortgage and shall become
immediately due and payable and shall bear interest at the Default
Rate from the date of loss or damage is sustained by Mortgagee
until paid. The obligations and liabilities of mortgagor under
this Paragraph 32 shall survive the termination, satisfaction, or
assignment of this Mortgage and the exercise by Mortgagee of any of
its rights or remedies hereunder, including, but not limited to,
the acquisition of the Mortgaged Property by foreclosure or a
conveyance in lieu of foreclosure.
33. That if the mortgaged premises shall be abandoned or
vacated by the Mortgagors or any successors in title, the Mortgagee
shall be entitled to take possession of the same to protect and
conserve its security.
34. The Obligor may prepay the obligation secured by this
Agreement at any time provided that it notifies the Mortgagee
within thirty (30) days of its intent to do so and pays the
following prepayment fees:
(a) Prepayment for years 1 through 3 of the Mortgage (up
to 36 months from the execution of the Note) the Mortgagor shall be
required to pay a prepayment fee of three (3%) percent of the
principal prepayment made on the mortgage at the time of
prepayment.
(b) Any prepayment after the third anniversary date of
the Mortgage until the maturity date of the Mortgage shall require
the Obligor to pay a prepayment fee of one (1%) percent of the
principal prepayment made on the Mortgage at the time of payment.
35. The Mortgagee by its duly authorized agent or agents
shall have the right to enter into and upon said premises or any
part thereof at all reasonable hours for the purpose of examining
same and if denied or refused the right to enter into such premises
or any part thereof for the purposes herein provided by the
Mortgagors, its agents, servants, employees or licensees or if
interfered with upon making said examination, the whole of said
principal sum shall become due at the option of the Mortgagee.
36. It is agreed that all additions or replacements of any
chattel, fixture or article of personal property presently
installed or to be installed in the future on the mortgaged
premises in connection with the operation of the business as
presently operated on the premises are intended to be and shall be
deemed to be permanently installed and integrated onto the premises
as real property now covered by the lien of this Mortgage. The
Mortgagors hereby authorize the Mortgagee to file any financing
statements necessary under the Uniform Commercial Code in order to
protect its security interest without requiring the signature of
the Mortgagors herein.
37. Upon payment in full of the indebtedness secured by this
Mortgage, the Mortgagors shall be entitled to a Satisfaction of
Mortgage which shall be prepared by the attorneys for the
Mortgagee, at the sole cost and expense of the Mortgagors.
38. The Mortgagor agrees that it shall not further mortgage,
pledge, transfer, assign or otherwise encumber the property covered
by the lien of this mortgage without the prior written approval of
the Mortgagee.
39. The Mortgagor shall submit to the Mortgagee its quarterly
10K report, which it is required to file pursuant to the Rules of
the Securities and Exchange Commission as a public company.
Mortgagor shall also submit, annually, its annual required 10K
report and all reports shall be delivered within ninety (90) days
from the close of the Mortgagor s fiscal quarter or fiscal year.
In the event the Mortgagor is no longer required to file these 10K
reports, Mortgagor shall be obligated to provide such quarterly and
annual reports as required by the Mortgagee.
40. Mortgagor agrees that it shall maintain a bank account
with the Mortgagee and maintain sufficient funds in said account so
that all payments due under this Consolidated and Extended Mortgage
and the Amended and Restated Mortgage Note shall be automatically
debited from the account on its due date. A failure by the
Mortgagor to maintain an account with sufficient funds to pay the
amount due under this obligation on its due date shall be deemed an
Event of Default.
41. This Mortgage agreement and all Loan Documents pertaining
hereto shall be construed in accordance with the Laws of the State
of New York.
42. The Mortgagor hereby mortgages unto the Mortgagee all
that certain plot, piece or parcel of land situate, lying and being
in the Town of Southeast, County of Putnam and State of New York as
more accurately bound and described on Schedule "A" annexed hereto
and made a part hereof.
IN WITNESS WHEREOF, this Agreement has been duly executed by
the parties hereto.
IN PRESENCE OF: TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC.
BY: /s/ ANDREW L. SIMON
---------------------------
ANDREW L. SIMON, PRESIDENT
MSB BANK
BY: /s/ SALVATORE BELFIGLIO
---------------------------
SALVATORE BELFIGLIO
ASSISTANT VICE PRESIDENT
STATE OF NEW YORK )
) ss.:
COUNTY OF ORANGE )
On the 28 day of August, 1997 before me personally came ANDREW
L. SIMON, to me known, who, being by me duly sworn, did depose and
say that he resides at No. Hunterbrook Rd, Yorktown Hts, NY 10598
that he is the President of TOUCHSTONE APPLIED SCIENCE ASSOCIATES,
INC., the corporation described in and which executed the foregoing
instrument; and that he signed his name thereto by order of the
Board of Directors.
/s/ MAUREEN CRUSH
---------------------------
Notary Public
MAUREEN CRUSH
Notary Public, State of New York
No. 4892935
Qualified in Greene County
Commission Expires 4/13/99
STATE OF NEW YORK )
) ss.:
COUNTY OF ORANGE )
On the 28 day of August, 1997 before me personally came
SALVATORE BELFIGLIO to me known, who, being by me duly sworn, did
depose and say that he has offices at No. 35 Matthews Street,
Goshen, New York that he is the Assistant Vice President of MSB
BANK, the corporation described in and which executed the foregoing
instrument; and that he signed his name thereto by order of the
Board of Directors.
/s/ LINDA J. BERTHIAUME
--------------------------
Notary Public
LINDA J. BERTHIAUME
Notary Public, State of New York
No. 01DI5024690
Qualified in Orange County
Commission Expires 3-14-98
P - 15960
E - 190627
SCHEDULE A
ALL that certain plot, piece or parcel of land, situate, lying and
being in the Town of Southeast, County of Putnam and State of New
York, known and designated as Lot NO. 4 as shown on a certain map
entitled, 'SUBDIVISION PLAT OF HARDSCRABBLE HEIGHTS SITUATE IN THE
TOWN OF SOUTHEAST, COUNTY OF PUTNAM, STATE OF NEW YORK', dated July
9, 1985, revised August 6, 1985 and revised October 3, 1985, filed
October 22, 1985 in the Putnam County Clerk's Office, as Map No.
2088, being bounded and described as follows:
BEGINNING at a point in the southerly line of Field's Lane being
the northwesterly corner of Lot No. 4 herein described and the
northeasterly corner of Lot No. 5 as shown on the above referenced
map;
Thence following the southerly line of Field's Lane, North 84o
48' 00" East a distance of 44.76 feet to a point of curvature, said
point being the intersection of the line of Lot No. 4 and the
southwesterly line of Hardscrabble Heights Drive;
Thence following the southwesterly line of Hardscrabble Heights
Drive on a curve to the right having a radius of 52.58 feet, a
distance of 74.20 feet to a point of reverse curvature;
Thence along a curve to the left having a radius of 225.00 feet a
distance of 186.50 feet to a point of tangency;
Thence South 61o 50' 00" East a distance of 157.20 feet to a point
being the northeasterly corner of Lot No. 4 and the northwesterly
corner of Lot No. 6;
Thence along the line of Lot No. 6 and leaving the southwesterly
line of Lot No. 6 and leaving the southwesterly line of
Hardscrabble Heights Drive, South 04o 40' 00" West a distance of
241.88 feet to a point in the line of Lot No. 9;
Thence along Lot No. 9, North 85o 20' 00" West a distance of 370.00
feet to a point in the line of Lot No. 5;
Thence along Lot No. 5 North 04o 40' 00" East a distance of 464.63
to the point and place of BEGINNING.
Exhibit 10.28
-------------
AMENDED AND RESTATED MORTGAGE NOTE
$1,800,000.00 August 28, 1997
For value received, TOUCHSTONE APPLIED SCIENCE ASSOCIATES,
INC., a Delaware corporation with its office for doing business at
Fields Lane, PO Box 382, Brewster, New York 10509-0382 (hereinafter
referred to as "Obligor"), promises to pay to the order of MSB BANK,
a federally chartered savings bank with its principal office at 35
Matthews Street, Goshen, New York 10924 (hereinafter referred to as
"Obligee"), or at such place as the holder hereof may from time to
time designate in writing, the principal sum of ONE MILLION EIGHT
HUNDRED THOUSAND and 00/100 ($1,800,000.00) DOLLARS, in lawful
money of the United States of America, with interest thereon to be
computed at the rate of 8.125% per annum to be paid as follows:
(a) Payment of interest only on September 15, 1997;
(b) A constant payment of $15,196.25 on the 15th day of
October, 1997 and on the fifteenth day of each calendar month
thereafter until September 15, 2007, when the entire remaining
principal balance, plus accrued interest, shall become fully
due and payable.
Interest on the principal sum of this Note shall be calculated
on the basis of the actual number of days elapsed in a three
hundred sixty (360) day year. The constant payment required
hereunder is based on an amortization schedule of two hundred forty
(240) months. All amounts due under this Note shall be payable
without setoff, counterclaim or any other deduction whatsoever.
1. This Amended and Restated Mortgage Note (hereinafter the
"Note") is evidence of that certain loan made by Obligor to Obligee
contemporaneously herewith (the "Loan"). This Note is secured by
(a) a Mortgage Consolidation and Modification Agreement of even
date herewith in the amount of this Note executed between Obligor
and Obligee covering the fee estate of Obligor in certain premises
as more particularly described therein (the "Mortgage"), (b) the
other Loan Documents (as hereinafter defined). The term "Loan
Documents" as used in this Note relates collectively to this Note,
the Mortgage, and any and all other documents securing, evidencing,
or guaranteeing all or any portion of the Loan or otherwise
executed and/or delivered in connection with this Note and the
Loan.
THIS NOTE IS INTENDED TO AMEND AND RESTATE IN THEIR ENTIRETY
ALL OF THE EXISTING NOTES, BONDS AND OTHER EVIDENCES OF THE LOAN
(COLLECTIVELY, THE "ORIGINAL NOTES") SECURED BY THE MORTGAGE,
HOWEVER, THIS NOTE IS NOT INTENDED TO CREATE ANY NEW INDEBTEDNESS
NOR TO CONSTITUTE A NOVATION AS TO MORTGAGOR S OBLIGATIONS UNDER
THE ORIGINAL NOTES.
2. If any sum payable under this Note is not paid within ten
(10) days of its due date, Obligor shall pay to Obligee an amount
equal to five percent (5%) of such unpaid sum in order to defray a
portion of the expenses incurred by Obligee in handling and
processing such delinquent payment and to compensate Obligee for
the loss of the use of such delinquent payment. If the day the
grace period expires is not a Business Day (as hereinafter
defined), then payment shall be due on the first Business Day
thereafter. The term "Business Day" shall mean a day other than (i)
a Saturday or Sunday, or (ii) any day on which banking and savings
and loan institutions in New York are authorized or obligated by
law or executive order to be closed.
3. The whole of the principal sum of this Note, together
with all interest accrued and unpaid thereon and all other sums due
under the Loan Documents (all such sums hereinafter collectively
referred to as the "Debt"), or any portion thereof, shall without
notice become immediately due and payable at the option of the
Obligee if any payment required in this note is not paid within the
applicable grace period after it is due or upon the happening of
any other Event of Default (as defined in the Mortgage). In the
event that it should become necessary to employ counsel to collect
or enforce the Debt or to protect or foreclose the security
therefor, Obligor also shall pay on demand all costs of collection
incurred by Obligee, including attorneys fees and costs reasonably
incurred for the services of counsel whether or not suit be
brought.
4. Obligor does hereby agree that upon the occurrence of an
Event of Default (including upon the failure of Obligor to pay the
Debt in full on the Maturity Date), Obligee shall be entitled to
receive and Obligor shall pay interest on the entire unpaid
principal sum and any other amounts due at a rate (the "Default
Rate") equal to the lesser of (a) the maximum rate permitted by
applicable law, or (b) five percent (5%) above the interest rate
set forth in this Note. The Default Rate shall be computed from
the occurrence of the Event of Default until the actual receipt and
collection of the Debt (or that portion thereof that is then due).
This charge shall be added to the Debt and shall be secured by the
Mortgage. This paragraph, however, shall not be construed as an
agreement or privilege to extend the date of the payment of the
Debt, nor as a waiver of any other right or remedy accruing to
Obligee by reason of the occurrence of any Event of Default.
5. The Obligor may prepay this Note at any time provided
that it notifies the Obligee within thirty (30) days of its intent
to do so and pays the following prepayment fees:
(a) Prepayment for years 1 through 3 of the Note (up to
36 months from the execution of the Note) the Obligor shall be
required to pay a prepayment fee of three (3%) percent of the
principal amount prepaid on the mortgage at the time of prepayment.
(b) Any prepayment after the third anniversary date of
the Mortgage until the maturity date of the Mortgage shall require
the Obligor to pay a prepayment fee of one (1%) percent of the
principal amount prepaid on the Mortgage at the time of pre-payment.
6. It is expressly stipulated and agreed to be the intent of
the Obligor and Obligee at all times to comply with applicable
state law or applicable United States federal law (to the extent
that it permits Obligee to contract for, charge, take, reserve, or
receive a greater amount of interest than under state law) and that
this paragraph shall control every other covenant and agreement in
this Note and the other Loan Documents. If the applicable law
(state or federal) is ever judicially interpreted so as to render
usurious any amount called for under this Note or under any of the
other Loan Documents, or contracted for, charged, taken, reserved,
or received with respect to the Debt, or of Obligee s exercise of
the option to accelerate the Maturity Date, then it is Obligee s
express intent that all excess amounts theretofore collected by
Obligee shall be credited on the principal balance of this Note and
all other Debt and the provisions of this Note and the other Loan
Documents immediately be deemed reformed and the amounts thereafter
collectible hereunder and thereunder reduced, without the necessity
of the execution of any new documents, so as to comply with the
applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder or thereunder. All sums paid
or agreed to be paid to Obligee for the use, forbearance, or
detention of the Debt shall, to the extent permitted by applicable
law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Debt until payment in full so that the rate
or amount of interest on account of the Debt does not exceed the
maximum lawful rate from time to time in effect and applicable to
the Debt for so long as the Debt is outstanding. Notwithstanding
anything to the contrary contained herein or in any of the other
Loan Documents, it is not the intention of Obligee to accelerate
the maturity of any interest that has not accrued at the time of
such acceleration or to collect unearned interest at the time of
such acceleration.
7. This Note may not be modified, amended, waived, extended,
changed, discharged or terminated orally or by any act or failure
to act on the part of the Obligor or Obligee, but only by an
agreement in writing signed by the party against whom enforcement
of any modification, amendment, waiver, extension, change,
discharge or termination is sought. Whenever used, the singular
number shall include the plural, the plural the singular, and the
words "Obligee" and "Obligor" shall include their respective
successors, assigns, heirs, executors and administrators. If
Obligor consists of more than one person or party, the obligations
and liabilities of each such person or party shall be joint and
several.
8. Obligor and all others who may become liable for the
payment of all or any part of the Debt do hereby severally waive
presentment and demand for payment, notice of dishonor, protest,
notice of protest, notice of nonpayment, notice of intent to
accelerate the maturity hereof and of acceleration. No release of
any security for the Debt or any person liable for payment of the
Debt, no extension of time for payment of this Note or any
installment hereof, and no alteration, amendment or waiver of any
provision of the Loan Documents made by agreement between Obligee
and any other person or party shall release, modify, amend, waive,
extend, change, discharge, terminate or affect the liability of
Obligor and any other person or party who may become liable under
the Loan Documents for the payment of all or any part of the Debt.
9. Obligor (and the undersigned representative of Obligor,
if any) represents that Obligor has full power, authority and legal
right to execute, deliver and perform its obligations pursuant to
this Note, the Mortgage and the other Loan Documents and that this
Note, the Mortgage and the other Loan Documents constitute valid
and binding obligations of Obligor.
10. All notices or other communications required or permitted
to be given pursuant hereto shall be given in the manner specified
in the Mortgage directed to the parties at their respective
addresses as provided herein.
11. Events of Default:
(a) Failure of Obligor to make any payment of interest
or principal on the day after it becomes due as herein provided.
(b) Failure of Obligor to comply with or the
occurrence of an event of default under the terms, conditions and
requirements of this note for the repayment of the indebtedness
evidenced hereby and the expiration of any applicable grace period
contained therein; or
(c) The default of any of the terms and conditions
of the term loan agreement executed by Obligor to the Holder to be
executed contemporaneously herewith and the expiration of any
applicable cure periods contained therein.
(d) Any event of default shall be automatically
deemed to be a demand for payment by the Obligee and the entire
remaining principal balance plus accrued interest shall become
dully due and payable. Failure of the Holder to exercise said
right of acceleration on the due date of payment on the
indebtedness evidenced by, or indulgence granted by the Holder to
the Obligor from time to time shall in no event be considered or
otherwise construed as a waiver of such right of acceleration or in
any manner prohibit Holder from exercising such right.
(e) If Obligor shall be in default on any other loan or
obligation outstanding with the Obligee, including but not limited
to a certain loan in the sum of Three Hundred Thousand and 00/100
($300,000.00) Dollars executed simultaneously herewith and if the
Obligor shall make an assignment for the benefit of creditors or if
the Obligor shall generally not be paying its debts when they
become due.
(f) If Obligor shall continue to be in default under any
term, covenant or provision of this Note or any of the other Loan
Documents or other loan facilities granted by the Obligor to the
Obligee beyond applicable cure periods contained in those
documents.
(g) Time is of the essence in this note and in the event
this note is collected by law through an attorney at law or under
advice therefrom, Obligor agrees to pay all costs of collection
including reasonable attorneys fees.
12. OBLIGOR HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY
ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY
JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER
EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM
OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY
OBLIGOR, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE
AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD
OTHERWISE ACCRUE. OBLIGEE IS HEREBY AUTHORIZED TO FILE A COPY OF
THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS
WAIVER BY OBLIGOR.
13. This Note shall be governed by and construed in
accordance with the laws of the State of New York in which the
Mortgaged Property is located and the applicable laws of the United
States of America.
Obligor has duly executed this Note the day and year first
above written.
OBLIGOR:
TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC.
BY: /s/ ANDREW L. SIMON
---------------------
ANDREW L. SIMON, PRESIDENT
Exhibit 10.29
-------------
TERM LOAN AGREEMENT
AGREEMENT made this 28th day of August, 1997 between
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC., a Delaware corporation
with its office for doing business at Fields Lane, PO Box 382,
Brewster, New York 10509-0382 (hereinafter referred to as the
Borrower) and MSB BANK, a federally chartered savings bank with
its principal office at 35 Matthews Street, Goshen, New York 10924
(hereinafter referred to as the Bank);
WITNESSETH:
WHEREAS, the Borrower has agreed to borrow from the Bank and
the Bank has agreed to a revolving credit loan to Borrower up to
the sum of THREE HUNDRED THOUSAND and 00/100 ($300,000.00) DOLLARS
(hereinafter referred to as the Loan) subject to the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements herein contained, the parties
hereby agree as follows:
1. THE LOAN: Subject to the terms and conditions stated
--------
herein the Borrower agrees to borrow from the Bank and the Bank
agrees to make available to the Borrower a loan facility for a
revolving credit loan not to exceed the sum of THREE HUNDRED
THOUSAND and 00/100 ($300,000.00) DOLLARS at any one time. This
Loan is being made simultaneously with the execution of this
Agreement.
2. PROMISSORY NOTE: The obligation to repay the Loan shall
---------------
be evidenced by the Borrower's Promissory Notes dated the date of
the making of this Loan Agreement to be paid at MSB Bank at 35
Matthews Street, Goshen, New York 10924 or at such other place as
the holder of this Note may from time to time designate. The
outstanding remaining principal balance plus accrued interest on
the obligation contained in the Note for up to THREE HUNDRED
THOUSAND and 00/100 ($300,000.00) DOLLARS shall be paid on February
28, 1998, together with interest on the outstanding principal
balance at the rate of one-half (1/2%) percent per annum over the
highest Prime Rate published in the New York Times, provided such
bank is a bank doing business in the State of New York and/or is a
federally chartered bank (Prime Plus .50%) freely floating with the
changes in interest rate to be made simultaneously with any change
in the Prime Rate indicator set forth above. Interest at the rate
set forth above shall be payable monthly on the unpaid principal
balance commencing on the fifteenth day of September, 1997 and on
the fifteenth day of each and every month thereafter until he
principal balance shall be paid in full on February 28, 1998. This
loan facility shall require an annual thirty (30) day clean-up
prior to maturity.
3. REPRESENTATIONS OF THE BORROWER: The Borrower represents
-------------------------------
and warrants to the Bank:
(a) Place of Business: The Borrower maintains his
-----------------
principal office for the transaction of business at Fields Lane, PO
Box 382, Brewster, New York 10509-0382.
(b) Binding Agreement: This Agreement constitutes, and
-----------------
the Note, Security Agreements and any other documents when issued
and delivered pursuant hereto for value received will constitute,
the legal valid and binding obligations of the Borrower in
accordance with their terms.
(c) There are no proceedings pending or so far as the
officers and the board of directors of the Borrower knows,
threatened before any Court or administrative agency which in the
opinion of the stockholders and directors of the Borrower may or
will materially adversely affect the financial condition or
operations of the Borrower.
(d) No Conflicting Agreements: There is no provision of
-------------------------
any existing mortgage, indenture, contract or agreement binding
upon the Borrower affecting its property which would conflict or in
any way prevent the execution, delivery or carrying out of the
terms of this Agreement or the Note.
(e) Financial Condition: The Borrower shall deliver to
-------------------
the Bank, within thirty (30) days after their preparation, the
quarterly 10K reports and the annual 10K report, which the Borrower
represents will be complete and correct and fairly present the
financial condition of the Borrower as of the date and for the
period referred to and have been prepared in accordance with sound
accounting practices consistently maintained by the Borrower for
the period involved. There are no liabilities, direct or indirect,
fixed or contingent, of the Borrower as of the date of such balance
sheet and profit and loss statement which are material and not
reflecting therein the financial condition or operations of the
Borrower since the date of said financial reports. If Borrower is
no longer required to file 10K reports, the Bank may require the
Borrower, at the Bank s sole discretion, to provide such financial
reports as the Bank may require on a quarterly and annual basis.
(f) Good Title: The Borrower has good and marketable
----------
title to all of its assets, none of which is subject to any
mortgage, indenture, pledge, lien, conditional sales contract,
security interest, encumbrance, claim, trust or charge, except as
may be otherwise permitted pursuant to the terms of this Agreement.
(g) No Consent or Filing: No consent, license,
--------------------
approval, authorization of or registration, declaration or filing
with any Court, governmental body or authority or other person or
entity is required in connection with the valid execution, delivery
and performance of this Agreement or any documents required by this
Agreement or in connection with any of the transactions
contemplated by this Agreement.
(h) No Violations: The Borrower is not in violation of
-------------
any mortgage, borrowing agreement, other instrument or agreement
pertaining to indebtedness for borrowed money. The Borrower is not
in violation of any term of any other indenture, instrument, demand
or agreement to which it is a part or by which it may be bound,
resulting, or which might reasonably be expected to result, in a
material and adverse effect upon its business or assets. The
Borrower is not in violation of any order, writ, judgment,
injunction or decree of any Court of competent jurisdiction or of
any statute, rule or regulation of any competent governmental
authority. The execution and delivery of this Agreement, and the
other documents required by this Agreement and the performance of
all of the same is and will be in compliance with the foregoing and
will not result in any violation or result in the creation of any
mortgage, lien, security interest, charge or encumbrance upon any
properties or assets of the Borrower except in favor of the Bank.
There exists no fact or circumstance not disclosed in this
Agreement or in the documents furnished in connection herewith
which materially adversely affect or in the future, so far as the
Borrower can now foresee, may materially adversely affect the
condition, business or operations of the Borrower.
(i) No Negative Covenants To Others: None of its assets
-------------------------------
are subject to any negative covenant or negative pledge agreement
other than those specifically set forth herein.
4. CONDITIONS PRECEDENT TO LOAN: The obligation of the Bank
----------------------------
to make the loan is subject to the following conditions precedent:
(a) Approval of Bank Counsel: All legal matters,
------------------------
including the form, substance and manner of execution of documents
incident to the Loan shall be satisfactory to counsel for the Bank.
(b) Compliance: The Bank shall have received a
----------
statement dated the date of the Loan and signed by an officer of
the corporation having authority to do so, to the effect that: (i)
The Borrower has complied and is then in compliance with all the
terms and covenants of this Agreement which are binding upon it;
(ii) there exists no event of default as defined in this Agreement
and no event, which, with the giving of notice or the lapse of
time, or both, would constitute such an event of default; and (iii)
the representations and warranties contained in Paragraph "3" are
true with the same effect as through such representations and
warranties had been made at the time of the Loan.
(c) Opinion of Borrower's Counsel: The Bank shall have
-----------------------------
received a favorable written opinion of counsel for the Borrower,
dated the date of the Loan and satisfactory in form and substance
to the Bank.
(d) Loan Security: A. This loan shall be secured by a
-------------
first security interest pursuant to the Uniform Commercial Code,
and the Borrower shall execute and deliver to the Bank: (i)
security agreements in form, content and legal effect satisfactory
to the Bank, granting to the Bank a first security interest in all
of the Borrower's machinery, furniture, fixtures and equipment,
accounts receivable, inventory, causes in action, intangibles and
any and all personal property now or hereafter acquired by the
Borrower and any and all replacements thereof, as continuing
collateral security for the payment of any and all indebtedness and
liabilities of Borrower to the Bank, whether now or hereafter
existing; and (ii) appropriately executed financing statements
(Form UCC-1) to perfect the security interests, which security
shall on the date of execution of this Agreement be superior to all
others. Notwithstanding anything to the contrary contained above,
this security interest shall not apply to the $1,800,000.00
mortgage loan executed between the Borrower and the Bank
simultaneously herewith, when, as and if the mortgage indebtedness
is paid down to a sum less than $1,650,000.00.
5. AFFIRMATIVE COVENANTS: Until payment in full of the Note
---------------------
and performance of all the obligations of the Borrower hereunder,
the Borrower will:
(a) Financial Statements: Furnish to the Bank quarterly
--------------------
no later than ninety (90) days following the end of each quarter
the Borrower's 10K and, within thirty (30) days after the end of
the Borrower's fiscal year, its annual 10K. The financial reports
shall be in reasonably detailed and satisfactory in form and
substance to the Bank relating to the Borrower and signed by an
authorized officer of the Borrower. In the event the Bank shall
deem said reports to be insufficient to adequately reflect the
financial affairs of the Borrower, or if the Borrower is no longer
required to file those reports, the Bank may request, and the
Borrower shall provide such other financial reports and statements
as the Bank may, from time to time, request.
(b) Inspection of Books and Records: Permit the Bank
-------------------------------
and its duly authorized representatives at all reasonable times,
without prior notice, and at the Bank's expense, to examine and
audit the books, records and properties of the Borrower at the
Bank's expense, for the purpose of verifying the accuracy of the
reports delivered by the Borrower, whether pursuant to this
Agreement or otherwise, and ascertaining compliance by the Borrower
with this Agreement.
(c) Taxes: Pay and discharge all taxes, assessments and
-----
governmental charges upon it, its income and its properties prior
to the date on which penalties are attached thereto, unless and to
the extent only that such taxes are contested in good faith and by
appropriate proceedings by the Borrower.
(d) Insurance: Maintain adequate liability and hazard
---------
insurance upon all of its tangible assets against such risk as it
customarily maintained by similar businesses, and filed with the
Bank upon its request a detailed list of the insurance then in
effect and stating the names of the insurance companies, the
amounts and rates of the insurances, dates of the expiration
thereof and the properties and risks covered thereby, and, within
thirty (30) days after notice in writing from the Bank, obtain such
additional insurance as the Bank may reasonably request. Said
insurance coverage is to name the Bank as first mortgagee on the
real property and loss payee of personal property.
(e) Litigation: Promptly and fully notify the Bank in
----------
writing of any proceedings commenced or threatened before any Court
or administrative agency which may materially adversely affect the
financial condition or operations of the Borrower, or may affect
the ability of Borrower to meet its obligations hereunder, or which
questions the validity of this Agreement or the collateral
documents required to be furnished to the Bank hereunder.
(f) Other Acts: Execute and deliver, or cause to be
----------
executed and delivered, to the Bank all further documents and
perform all other acts and things which the Bank deems necessary or
appropriate to protect or perfect its security interests in any
property directly or indirectly securing payment of any
indebtedness of the Borrower to the Bank.
(g) Payments: Do and punctually pay the principal of
--------
and all interest on all indebtedness incurred by it pursuant to
this Agreement in the manner set forth in this Agreement according
to the true intent and meaning thereof.
6. NEGATIVE COVENANTS: During the term of this Agreement,
------------------
and so long thereafter as any of the indebtedness of the Borrower
to the Bank (including any indebtedness for fees and expenses)
shall remain unpaid, and until performance of all other obligations
of the Borrower hereunder shall be completed, and until payment in
full of the Notes, the Borrower, without the prior written consent
of the Bank, will not:
(a) Borrowed Money: Create, incur, assume or suffer to
--------------
exist any liability for borrowed money except: (i) indebtedness to
the Bank; (ii) indebtedness to others which shall be subordinated
by a written agreement satisfactory in form and substance to the
Bank, to all indebtedness of the Borrower to the Bank; or (iii)
purchase money security interests in personal property acquired by
the Borrower for use by the Borrower in the operation of its
business.
(b) Mortgages, Pledges and Encumbrances: Create, incur,
-----------------------------------
assume or suffer to exist any mortgage, pledge, lien or encumbrance
upon any of its presently owned personal property or any
replacement thereof, except (i) those in favor of the Bank; (ii)
liens for taxes, governmental charges or claims not delinquent or
being contested in good faith and by appropriate proceedings, (iii)
purchase money security interests in personal property acquired by
the Borrower for use by the Borrower in the operation of its
business.
(c) Merger, Sale or Acquisition of Assets: Enter into
-------------------------------------
any merger or consolidation with, or acquire all or substantially
all of the assets of any person, firm or corporation, or sell,
lease, assign, transfer, or otherwise dispose of all or any
substantial part of its assets, without prior written consent of
the Bank.
(d) Sale and Leaseback: Directly or indirectly enter
------------------
into any arrangements whereby the Borrower shall sell or transfer
all or any substantial part of its assets then owned by it and
shall thereafter or thereupon rent or lease such property.
(e) Loans: Make or suffer to exist any loans or
-----
advances to any person, firm or corporation, except as may be
specifically permitted pursuant to this Agreement, provided,
however, it shall not be an Event of Default hereunder and prior
consent of the Bank shall not be required if the aggregate of such
loans and this Note do not exceed $600,000.00
(f) Investments: Make or suffer to exist any investment
-----------
in, or purchase or acquire the obligations or stocks of, or any
other interest or investment in, any persons, firm, corporation or
other enterprise whatsoever, except (i) direct obligations of the
United States of America; (ii) prime commercial paper or the
certificate of deposit issued by a Bank or Banks, or (iii) such
investments of the grade made by Borrower and presently reported in
its financial statements, e.g. municipal investments.
(g) Contingent Liabilities: Assume, guarantee, endorse,
----------------------
contingently agree to purchase or otherwise become liable upon the
outstanding obligation of any person, firm or corporation, except
as otherwise permitted herein and except (i) by the endorsement of
negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business; and (ii)
obligations to the Bank.
(h) Change of Business: Materially change the nature of
------------------
its business as it exists as of the date of this Agreement.
(i) Books and Records: Move the location where the
-----------------
books and records of the Borrower are kept on the date of this
Agreement or prevent the Bank from examining, inspecting and
auditing the books and records of the Borrower and making extracts
from or copies of such books and records at any reasonable time and
from time to time without prior notice to the Borrower.
(j) Negative Covenants to Others: Enter into any
----------------------------
negative covenant or negative pledge agreement with any person,
firm or entity other than the Bank without the prior written
consent of the Bank.
7. EVENTS OF DEFAULT: The occurrence of any one or more of
-----------------
the following events by or with respect to the Borrower shall
constitute an event of default and, if one or more of the following
events of default shall occur:
(a) Nonpayment: Nonpayment of any installment of
----------
principal and interest upon the Note after it shall have become due
and payable, whether at maturity, by acceleration, by notice of
intention to prepay, or otherwise; or
(b) Negative Covenants: Default in the observance of
------------------
any of the covenants or agreements contained in Paragraph "6"
(Negative Covenants) of this Agreement; or
(c) Other Covenants: Default in the due observance or
---------------
performance of any term, covenant or agreement (other than the
covenant of payment) contained in this Agreement, or in any other
agreement between the Borrower and the Bank, and such default shall
have continued unremedied for a period of thirty (30) days or which
is not remedied now or hereafter in effect, or if there is
commenced against the Borrower any such proceedings which remain
undismissed for a period of thirty (30) days, or the Borrower by
any act indicates its consent to, approval of, or acquiescence in,
any such proceeding or the appointment of any receiver of, or any
trustee for, the Borrower or any substantial part of its property,
or suffers any receivership or trusteeship to continue and
undischarged for a period of thirty (30) days;
(d) Representations: If any certificate, statement,
---------------
representation, warranty or financial statement heretofore or
hereafter, furnished by or on behalf of the Borrower pursuant to or
in connection with this Agreement (including, without limitation,
representations and warranties contained herein) or as an
inducement to the Bank to enter into this Agreement or any other
lending agreement with the Borrower, or any material fact required
to be stated therein or necessary to make the statements therein
not misleading, proves to have been false in any material respect
at the time of which the facts therein set forth were stated or
certified, or to have omitted any substantial liability or claim
against the Borrower, or if on the date of execution of this
Agreement there shall have been any materially adverse change in
any of the facts disclosed by any such certificate, statement,
representation, warranty, or financial statement, which change
shall not have been disclosed to the bank at or prior to the time
of such execution; or
(e) Other Borrowings: Default in the payment, when due,
----------------
of any other indebtedness for borrowed money owed by the Borrower
to the Bank or any other person or entity, or any obligation of the
Borrower for payment of borrowed money when it becomes, or is
declared to be due and payable prior to the expressed maturity
thereof; or
(f) Voluntary or Involuntary Insolvency Proceedings:
-----------------------------------------------
The Borrower makes an assignment for the benefit of creditors,
files a petition in bankruptcy, is adjudicated insolvent or
bankrupt, petitions or applies to any tribunal for any receiver or
any trustee of the Borrower on any substantial part of its
property, commences any proceeding under any reorganization,
arrangement, or readjustment of debt, or applies for dissolution or
liquidation under any law or statute of any jurisdiction.
(g) Judgments: Any judgment or penalty against the
---------
Borrower or any lien or attachment against its property for any
amount in excess of FIFTY THOUSAND and 00/100 ($50,000.00) DOLLARS
remains unpaid, unstayed on appeal, unbonded or undismissed for a
period of thirty (30) days;
THEN, upon the happening of any one or more of the foregoing
events of default which shall be continuing, the Bank may declare
the entire Loan granted hereunder to be canceled and the Notes
shall become and be immediately due and payable upon declaration to
that effect delivered by the Bank to the Borrower; and the Borrower
hereby expressly waives any presentment, demand, protest or other
or further notice of any kind.
8. EXPENSES: The Borrower will, on demand, reimburse the Bank
--------
for any and all expenses incurred, which may hereafter be incurred,
by the Bank from time to time in connection with or by reason of
Borrower's application for, in the making and administration of
this Loan, including reasonable attorney s fees incurred by the
Bank in pursuing any of its rights and remedies pursuant to this
Agreement.
9. MISCELLANEOUS:
-------------
(a) No Waiver: No failure on the part of the Bank to
---------
exercise, and no delay in exercising, any right, power or privilege
within ten (10) days after notice thereof shall have been given to
the Borrower by the Bank; or
(b) Properties To Be Kept In Good Condition: The
---------------------------------------
Borrower shall keep its properties in good repair, working order
and condition and from time to time, make all needed and proper
repairs, renewals, replacements, additions and improvements thereto
so that the business carried on may be properly and advantageously
conducted at all times in accordance with prudent business
management.
(c) Lender's Inspection: The Borrower shall allow any
-------------------
representative of the MSB Bank or any other holder of the Note, to
visit and inspect any of the properties of the corporation, to
examine the books of account and other records and files of the
corporation, to make copies thereof and to discuss the affairs of
business, finances and accounts of the corporation with its
officers and employees, at all such reasonable times and as often
as the Bank may require.
(d) Applicable Law: This Agreement and the rights and
--------------
obligations of the parties hereunder shall be construed and
interpreted in accordance with the laws of the State of New York
except as to any specific documents or agreements which by their
terms are controlled by federal law.
(e) Notices: Notices under this Agreement shall be
-------
given by postpaid first class mail, addressed as follows:
To the Borrower at Fields Lane, PO Box 382, Brewster, New York
10509-0382.
To the Bank at 35 Matthews Street, Goshen, New York 10924.
(f) Suits for Enforcement: In case any one or more
---------------------
events of default shall occur and be continuing, the Bank may
proceed to protect and enforce its rights or remedies, either by
suit in equity or by action at law, or both, whether for the
specific performance of any covenant, agreement or other provision
contained herein, in the Note or in any document or instrument
delivered in connection with or pursuant to this Agreement, or to
enforce the payment of the Note or any other legal or equitable
right or remedy. No right or remedy herein conferred upon the Bank
is intended to be exclusive of any other right or remedy contained
herein, in the Note or any instrument or document delivered in
connection with or pursuant to this Agreement, and every such right
or remedy shall be cumulative and shall be in addition to every
other such right or remedy contained herein and therein, and now or
hereafter existing at law in equity or by statute or otherwise. No
course of dealing between the Borrower and the Bank for any failure
or delay on the part of the Bank in exercising any rights or
remedies hereunder shall operate as a waiver of any rights or
remedies of the Bank, and no single or partial exercise of any
rights or remedies hereunder shall operate as a waiver or preclude
the exercise of any other rights and remedies hereunder.
(g) Collection Costs: In the event that the Bank shall
----------------
retain or engage an attorney or attorneys to collect or enforce or
protect its interests with respect to this Agreement, or the Note,
or any instrument or document delivered pursuant tot his Agreement,
or to protect the rights of any holder or holders with respect
thereto, the Borrower shall pay all of the costs and expenses of
such collection, enforcement or protection including reasonable
attorneys' fees and the Bank or the holder of such notes, as the
case may be, may take judgment for all such amounts in addition to
the unpaid principal balance of the Notes and accrued interest
thereon.
(h) Entire Agreement: This Agreement represents the
----------------
entire understanding and agreement between the parties hereto with
respect to the subject matter hereof, supersedes all prior
negotiations between the parties with respect to the subject matter
hereof and cannot be amended or supplemented except in writing.
(i) Successors and Assigns: The Borrower and the Bank,
----------------------
as used herein, shall include the legal representatives or assigns
of those parties. The Borrower's rights under this Agreement may
not be assigned without the prior written consent of the Bank.
(j) Counterparts: This Agreement may be executed in any
------------
number of counterparts and by the Bank and the Borrower on separate
counterparts, each of which when so executed and delivered, shall
be an original, but all such counterparts shall together constitute
one and the same Agreement.
(k) Titles: Titles to the sections and subparagraphs of
------
this Agreement are solely for the convenience of the Bank and the
Borrower and are not an aid in the interpretation of this Agreement
or any part thereof.
(l) In the interpretation of this Agreement, the
singular shall include the plural and the masculine gender shall
include the feminine gender as the context shall indicate.
(M) This Agreement shall be interpreted in accordance
with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be dully executed and signed as to the date first
above written.
IN PRESENCE OF: TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC.
BY: /s/ ANDREW L. SIMON
--------------------------
ANDREW L. SIMON, PRESIDENT
MSB BANK
BY: /s/ SALVATORE BELFIGLIO
-----------------------
SALVATORE BELFIGLIO
ASSISTANT VICE PRESIDENT
STATE OF NEW YORK )
) ss.:
COUNTY OF ORANGE )
On the 28 day of August, 1997 before me personally came ANDREW
L. SIMON, to me known, who, being by me duly sworn, did depose and
say that he resides at No. Hunterbrook Rd, Yorktown Hts., NY that
he is the President of TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.,
the corporation described in and which executed the foregoing
instrument; and that he signed his name thereto by order of the
Board of Directors.
/s/ MAUREEN CRUSH
--------------------------
Notary Public
MAUREEN CRUSH
Notary Public, State of New York
No. 4892935
Qualified in Greene County
Commission Expires 4/13/99
STATE OF NEW YORK )
) ss.:
COUNTY OF ORANGE )
On the 28th day of August, 1997 before me personally came
SALVATORE BELFIGLIO to me known, who, being by me duly sworn, did
depose and say that he has offices at No. 35 Matthews Street,
Goshen, New York that he is the Assistant Vice President of MSB
BANK, the corporation described in and which executed the foregoing
instrument; and that he signed his name thereto by order of the
Board of Directors.
/s/ LINDA J. BERTHIAUME
--------------------------
Notary Public
LINDA J. BERTHIAUME
Notary Public, State of New York
No. 01DI5024690
Qualified in Orange County
Commission Expires 3-14-98
Exhibit 10.30
-------------
NOTE
----
$300,000.00 August 28, 1997
FOR VALUE RECEIVED, the undersigned, TOUCHSTONE APPLIED
SCIENCE ASSOCIATES, INC., a Delaware Corporation with its office
for doing business at Fields Lane, PO Box 382, Brewster, New York
10509-0382 (hereinafter referred to as the "Borrower" or "Obligor),
promises to pay to the order of MSB BANK, a federally chartered
savings bank with its principal office at 35 Matthews Street,
Goshen, New York 10924 (hereinafter referred to as "Obligee" or
"Holder"), in such coin or currency as shall be legal tender of the
United States of America at the aforementioned address or at such
other place as Holder may from time to time designate in writing,
the principal sum of THREE HUNDRED THOUSAND AND 00/100
($300,000.00) DOLLARS payable on February 28, 1998 ("Maturity Date")
in the manner set forth below:
[X ] A. INTEREST ONLY. Interest only payable monthly
commencing on September 15, 1997 and on the fifteenth day of each
and every month thereafter until the Maturity Date set forth above,
when the entire remaining indebtedness, principal and interest,
shall become fully due and payable. Interest shall be calculated
at the rate of one-half percent (1/2%) per annum over the Prime
Rate (the highest Prime Rate published in the New York Times,
provided such bank is a bank doing business in the State of New
York and/or is a federally chartered bank (Prime Plus .50%) freely
floating with the changes in interest rate to be made
simultaneously with any change in the Prime Rate indicator set
forth above). This is a note for a revolving line of credit and
the interest payable shall be calculated on the actual amount that
may be advanced by the Obligee or Holder from time to time to the
Obligor. The procedures for drawing on this line of credit shall
follow those that are established from time to time by the Obligee
or Holder.
[ ] B. FIXED INTEREST RATE WITH LEVEL PAYMENTS. Interest
shall be calculated at the rate of ____ per cent (___%) per annum.
Principal and interest payments in the sum of ____________________
Dollars ($ ) commencing on the ___ day of _________________
199__ and on the _____________ day of each and every month
thereafter until the Maturity Date set forth above, with each
payment first to be applied toward payment of accrued interest and
second toward the reduction of the principal indebtedness.
[ ] C. ADJUSTABLE RATE. Monthly payments of principal plus
interest at the rate of ______ per cent ( %) per annum over the
highest Prime Rate published in the New York Times, provided such
bank is a bank doing business in the State of New York and/or is a
federally chartered bank (Prime Plus .50%) freely floating with the
changes in interest rate to be made simultaneously with any change
in the Prime Rate indicator set forth above together with monthly
installments of principal in the sum of ___________ ($ )
Dollars plus interest payable monthly commencing on the ____ day
of ____________ 1997 until the Maturity Date set forth above when
the entire remaining principal balance, plus accrued interest,
shall become fully due and payable.
Interest shall be payable and calculated on the basis of a
three hundred sixty (360) day year on the unpaid principal amount.
The interest rate set forth herein shall not exceed the
maximum interest rate permitted by law.
1. PREPAYMENT. This Note may be prepaid at any time without
----------
penalty, such prepayment to be applied to the installments hereof
in the inverse order of maturity where applicable.
2. LATE CHARGES. Any payment not paid within ten (10) days
------------
from its due date shall accrue a late charge of five (5%) per cent
of the amount of the payment then due.
3. EVENTS OF DEFAULT. At the option of the Holder, the
-----------------
happening of any one or more of the events hereinafter set forth,
the indebtedness of the Obligor to the Holder whether as principal,
endorser, surety, guarantor or otherwise shall become immediately
due and payable and may be collected forthwith, and holder shall
thereupon be immediately entitled to exercise any and all rights
and remedies for collection of any and all such indebtedness
available to holder, at law, in equity or by virtue of any
instrument, contract or agreement securing repayment thereof:
EVENTS OF DEFAULT
(a) Nonpayment: Nonpayment of any installment of
----------
principal and interest upon the Note after it shall have become due
and payable, whether at maturity, by acceleration, by notice of
intention to prepay, or otherwise; or
(b) Negative Covenants: Default in the observance of
------------------
any of the covenants or agreements contained in Paragraph "6"
(Negative Covenants) of the Term Loan Agreement executed
simultaneously herewith; or
(c) Other Covenants: Default in the due observance or
---------------
performance of any term, covenant or agreement (other than the
covenant of payment) contained in this Note, the Term Loan
Agreement executed simultaneously herewith, or in any other
agreement between the Borrower and the Bank, and such default shall
have continued unremedied for a period of thirty (30) days or if
there is commenced against the Borrower any such proceedings which
remain undismissed for a period of thirty (30) days, or the
Borrower by any act indicates its consent to, approval of, or
acquiescence in, any such proceeding or the appointment of any
receiver of, or any trustee for, the Borrower or any substantial
part of its property, or suffers any receivership or trusteeship to
continue and undischarged for a period of thirty (30) days;
(d) Representations: If any certificate, statement,
---------------
representation, warranty or financial statement heretofore or
hereafter, furnished by or on behalf of the Borrower pursuant to or
in connection with this Agreement (including, without limitation,
representations and warranties contained herein) or as an
inducement to the Bank to enter into this Agreement or any other
lending agreement with the Borrower, or any material fact required
to be stated therein or necessary to make the statements therein
not misleading, proves to have been false in any material respect
at the time of which the facts therein set forth were stated or
certified, or to have omitted any substantial liability or claim
against the Borrower, or if on the date of execution of this
Agreement there shall have been any materially adverse change in
any of the facts disclosed by any such certificate, statement,
representation, warranty, or financial statement, which change
shall not have been disclosed to the bank at or prior to the time
of such execution; or
(e) CROSS DEFAULTS. In the event the Obligor defaults in
--------------
any payment of principal or interest on any other obligation for
borrowed money beyond any grace period provided with respect
thereto and with respect to any other or further indebtedness with
the Bank or the Holder of this Note or in the performance of any
other term, condition or covenant contained in any agreement under
which any such obligation or obligations are created, the effect of
which causes a default or which permits the holder of such
obligation to cause such obligation to become due and payable prior
to its date of maturity shall be deemed an Event of Default
pursuant to this obligation; or
(f) Voluntary or Involuntary Insolvency Proceedings:
-----------------------------------------------
The Borrower makes an assignment for the benefit of creditors,
files a petition in bankruptcy, is adjudicated insolvent or
bankrupt, petitions or applies to any tribunal for any receiver or
any trustee of the Borrower on any substantial part of its
property, commences any proceeding under any reorganization,
arrangement, or readjustment of debt, or applies for dissolution or
liquidation under any law or statute of any jurisdiction.
(g) Judgments: Any judgment or penalty against the
---------
Borrower or any lien or attachment against its property for any
amount in excess of FIFTY THOUSAND and 00/100 ($50,000.00) DOLLARS
remains unpaid, unstayed on appeal, unbonded or undismissed for a
period of thirty (30) days;
THEN, upon the happening of any one or more of the foregoing
events of default which shall be continuing, the Bank may declare
the entire Loan granted hereunder to be cancelled and the Notes
shall become and be immediately due and payable upon declaration to
that effect delivered by the Bank to the Borrower; and the Borrower
hereby expressly waives any presentment, demand, protest or other
or further notice of any kind.
4. SECURED TRANSACTION. The Obligor acknowledges that this
-------------------
is a secured transaction within the meaning of and governed by
Article 9 of the Uniform Commercial Code of the State of New York.
The Obligor further acknowledges that there is executed, along with
the Note, a Term Loan Agreement and Security Agreement in order to
secure the indebtedness created herein. This Note, the Term Loan
Agreement and Security Agreement together set forth the terms and
conditions of the obligation of the Borrower/Obligor to the
Bank/Obligee and each separate instrument incorporates by reference
the other instruments. Notwithstanding the foregoing, in the event
of default, the Bank (Holder) shall be free to elect any one or a
combination of all of the remedies available to it pursuant to the
provisions of the Loan Documents and the election of any one remedy
shall not preclude the holder from thereafter pursuing any and all
other remedies available to it under law or pursuant to the Loan
Documents. It is further intended that the terms and conditions of
the commitment letter issued by the Bank dated the 15th day of July
1997 are intended to survive the execution of this Note and Loan
Documents and are incorporated by reference herein.
5. None of the rights and remedies of the Holder hereunder
shall be waived or affected by holder's failure or delay if any, to
exercise them. All remedies conferred on Holder by law, or by this
note or by any other instrument or agreement, shall be cumulative
and none is exclusive. Such remedies may be exercised concurrently
or consecutively at Holders' option.
6. Obligor hereby agrees not to demand a trial by jury of
any issue triable of right by jury, and waives any right to trial
by jury fully to the extent that any such right shall now or
hereafter exist with regard to the loan documents, or any claim,
counterclaim or other action arising in connection therewith. This
waiver of right to trial by jury is given knowingly and voluntarily
by obligor, and is intended to encompass individually each instance
and each issue as to which the right to a trial by jury would
otherwise accrue. Obligee is hereby authorized to file a copy of
this paragraph in any proceeding as conclusive evidence of this
waiver by obligor.
7. The term Obligor as used in this note shall mean and have
reference to collectively all parties and each of them directly or
indirectly obligated for the indebtedness evidenced by this note,
whether as principal, maker, endorser, surety, guarantor or
otherwise together with the respective heirs, administrators,
executors, legal representatives, successors and assigns of each of
the foregoing.
8. All notices permitted as required hereunder shall be in
writing and shall be deemed to have been duly and properly given as
of the date and time the said are deposited with the United States
Postal Service, postage prepaid, to be sent certified mail, return
receipt requested and addressed to the Obligor or holder as the
case may be at their addresses as hereinabove set forth or at any
such other addresses as the Obligor or holder may at any time and
from time to time specify to the other by notice as herein
provided.
9. This note shall be governed as to its validity,
interpretation, and construction and in all other respects by law
and decisions of the State of New York. Any dispute that shall
arise with respect to the enforcement or interpretation of the Loan
Documents shall be heard only in the Supreme Court of the State of
New York, County of Orange or Putnam, which shall be deemed the
designated venue for any such actions.
10. Obligor does hereby agree that upon the occurrence of an
Event of Default (including upon the failure of Obligor to pay the
Debt in full on the Maturity Date), Obligee shall be entitled to
receive and Obligor shall pay interest on the entire unpaid
principal sum and any other amounts due at a rate (the "Default
Rate") equal to the lesser of (a) the maximum rate permitted by
applicable law, or (b) five percent (5%) above the interest rate
set forth in this Note. The Default Rate shall be computed from
the occurrence of the Event of Default until the actual receipt and
collection of the Debt (or that portion thereof that is then due).
This charge shall be added to the Debt and shall be secured by the
Mortgage. This paragraph, however, shall not be construed as an
agreement or privilege to extend the date of the payment of the
Debt, nor as a waiver of any other right or remedy accruing to
Obligee by reason of the occurrence of any Event of Default.
IN WITNESS WHEREOF, the undersigned has executed this note as
of the date and year first above written.
TOUCHSTONE APPLIED
SCIENCE ASSOCIATES, INC.
/s/ ANDREW L. SIMON
--------------------------
ANDREW L. SIMON, PRESIDENT
Exhibit 10.31
-------------
SECURITY AGREEMENT
------------------
A. PARTIES
1. Touchstone Applied Science Associates, Inc.,
Fields Lane, P.O. Box 382
Brewster, New York 10509
("Debtor" hereafter)
2. MSB Bank
35 Matthews Street
Goshen, New York 10924
("Bank" hereafter)
B. AGREEMENT
Subject to the applicable terms of this security agreement,
Debtor grants to Bank a security interest in the Collateral to
secure the payment of the Obligation.
C. OBLIGATION
The following is "the Obligation" secured by this agreement:
1. Promissory note dated August 28, 1997, in the amount of
$300,000.00.
2. All past, present, and future advances, of whatever type,
by Bank to Debtor, and extension and renewals thereof,
whatever or not of the nature contemplated at the date
hereof.
3. All existing and future liabilities, of whatever type, of
Debtor to Bank and including (but not limited to)
liability for overdrafts and as endorser and surety.
4. All costs incurred by Bank to obtain, preserve, and
enforce this security interest, collect the Obligation,
and maintain and preserve the Collateral, and including
(but not limited to) taxes, assessments, insurance
premiums, repairs, reasonable attorneys fees and legal
expenses, rent, storage costs, and expenses of sale.
5. Interest on the above amounts, as agreed between Bank and
Debtor, or if no such agreement, at the maximum rate
permitted by law.
D. COLLATERAL
1. The security interest is granted in the following,
hereinafter called the "Collateral":
(a) all machinery, equipment, fixtures, appliances and
furniture now owned or hereafter acquired by Debtor and
wherever located.
(b) all inventory now owned or hereafter acquired and
products and proceeds thereof.
(c) all accounts, contract rights, and accounts
receivable, now or hereafter in existence and all
proceeds thereof, and all returned or repossessed goods
arising from or relating to any of said accounts or
rights.
(d) all substitutes and replacements for, accessions,
attachments, and other additions to, and tools, parts,
and equipment used in connection with any of the above.
(e) all property similar to the above hereafter acquired
by Debtor.
(f) all general intangibles, now or hereafter acquired
of arising.
(g) all cash or non-cash proceeds of any of the
foregoing, including insurance proceeds.
(h) all ledger sheets, files, records, documents, and
instruments (including, but not limited to, computer
programs, tapes and related electronic data processing
software) evidencing an interest in or relating to the
above.
2. The location of the office where records concerning
rights are kept is Debtor s address above stated.
E. AGREEMENTS OF DEBTOR
1. Debtor will: take adequate care of the Collateral;
insure the Collateral for such hazards and in such
amounts as Bank directs, policies to be satisfactory to
Bank; pay all costs necessary to obtain, preserve, and
enforce this security interest, collect the Obligation,
and preserve, and enforce this security interest, collect
the Obligation, and preserve the Collateral, including
(but not limited to) taxes, assessments, insurance
premiums, repairs, reasonable attorneys fees and legal
expenses, rent, storage costs, and expenses of sale;
furnish Bank with any information on the Collateral
requested by Bank; allow Bank to inspect the Collateral,
and inspect and copy all records relating to the
Collateral and the Obligation; sign any papers furnished
by Bank which are necessary to obtain and maintain this
security interest; assist Bank in complying with the
Federal Assignment of Claims Act, where necessary to
enable Bank to become an assignee under that Act; take
necessary steps to preserve the liability of account
debtors, obligors, and secondary parties whose
obligations are part of the Collateral; transfer
possession of all instruments, documents, and chattel
paper which are part of the Collateral to Bank
immediately, or to those hereafter acquired, immediately
following acquisition; perfect a security interest (using
a method satisfactory to Bank) in goods covered by
chattel paper which is part of the Collateral; notify
Bank of any change occurring in or to the Collateral, or
in any fact or circumstance warranted or represented by
Debtor in this agreement or furnished to Bank, or if any
event of default occurs.
2. Debtor will not (without Bank s consent): remove the
Collateral from the locations specified herein; allow the
Collateral to become an accession to other goods,; sell,
lease, otherwise transfer, manufacture, process,
assemble, or furnish under contracts of service, the
Collateral to be affixed to real estate, except goods
identified herein as fixtures.
3. Debtor warrants: no financing statement has been filed
with respect to the Collateral, which remains in effect,
other than relating to this security interest; Debtor is
absolute owner of the Collateral, and it is not
encumbered other than by this security interest (and the
same will be true of the Collateral acquired hereafter
when acquired); all account debtors and obligors, whose
obligations are part of the Collateral, are to the extent
permitted by law prevented from asserting against Bank
any claims or defenses they have against sellers.
F. RIGHTS OF BANK
Bank may, in its discretion, before or after
default: terminate, on notice to Debtor, Debtor s
authority to sell, lease, otherwise transfer,
manufacture, process or assemble, or furnish under
contracts of service, inventory Collateral, or any other
Collateral as to which such permission has been given;
require Debtor to give possession or control of the
Collateral to Bank; endorse as Debtor s agent any
instruments or chattel paper in the Collateral; notify
account debtors and obligors on instruments to make
payment directly to Bank; contact account debtors
directly to verify information furnished by Debtor; take
control of proceeds and use cash proceeds to reduce any
part of the Obligation; take any action Debtor is
required to take or otherwise necessary to obtain,
preserve, and enforce this security interest, and
maintain and preserve the Collateral, without notice to
Debtor, and add costs of same to the Obligation (but Bank
is under no duty to take any such action); release
Collateral in its possession to Debtor, temporarily or
otherwise; take control of funds generated by the
Collateral, such as dividends, interest, proceeds or
refunds from insurance, and use same to reduce any part
of the Obligation; waive any of its rights hereunder
without such waiver prohibiting the later exercise of
the same or similar rights; revoke any permission or
waiver previously granted to Debtor.
G. MISCELLANEOUS
The rights and privileges of Bank shall inure to its
successors and assigns. All representations, warranties,
and agreements of Debtor shall bind Debtors s successors
and assigns. Definitions in the Uniform Commercial Code
apply to words and phrases in this agreement. Debtor
waives presentment, demand, notice of dishonor, protest,
and extension of time without notice as to any
instruments and chattel paper in the Collateral. Notice
mailed to Debtor's address in A, or to Debtors, or to
Debtors most recent changed address on file with Bank, at
least five days prior to the related action (or, if the
Uniform Commercial Code specified a longer period, such
longer period prior to the related action), shall be
deemed reasonable. A photographic or other reproduction
of this agreement, or any financing statement signed by
Debtor, is sufficient as a financing statement.
H. DEFAULT
1. Any of the following is an event of default: failure of
Debtor to pay note in the Obligation in accordance with
its terms, or any other liability in the Obligation when
due, or if a demand obligation, on demand, or to perform
any act or duty required by this agreement or any other
provision of the Note or Term Loan Agreement; falsity of
any warranty or representation in this agreement when
made; substantial change in any fact warranted or
represented in this agreement; involvement of Debtor in
bankruptcy or insolvency proceedings;, dissolution, or
other termination of Debtor s existence; merger or
consolidation of Debtor with another; substantial loss,
theft, destruction, sale, reduction in value, encumbrance
of, damage to, or change in the Collateral; modification
of any contract, the rights to which are part of the
Collateral; levy on, seizure, or attachment of the
Collateral; judgment against Debtor which is not paid or
discharged pursuant to the provisions of the Term Loan
Agreement; filing any financing statement with regard to
the Collateral, other than relating to this security
interest and other than purchase money financed
equipment; Bank s belief that the prospect of any payment
of any part of the Obligation or the performance of any
part of this agreement, is materially impaired; default
on the payment when due of any other indebtedness for
borrowed money owed by the borrower to the bank any other
person or entity and the expiration of applicable cure
periods, or any obligation of the borrower for payment of
borrowed money when it becomes or is declared to be due
and payable prior to the expressed maturity thereof.
2. When an event of default occurs, the entire Obligation
becomes immediately due and payable at Bank s option
without notice to Debtor, and bank may proceed to enforce
payment of same and exercise any and all of the rights
and remedies. When Debtor is in default, Debtor upon
demand by Bank, shall assemble the Collateral and make it
available to Bank at a place reasonably convenient to
both parties. Debtor is entitled to any surplus and
shall be liable to Bank for any deficiency, arising from
accounts, contract rights, or chattel paper included in
the Collateral through sale thereof to Bank.
I. FIRST AND PROPER LIEN
This security agreement grants to Bank a first and prior
lien to secure the payment of the Obligation listed
herein, and extensions and renewals thereof. If Bank
disposes of the Collateral following default, the
proceeds of such disposition available to satisfy the
Obligation shall be applied first to the notes included
therein, and thereafter to all remaining indebtedness
secured hereby, as well as any other indebtedness owed to
the bank, in the order in which such remaining
indebtedness was executed or contracted. For purposes of
this paragraph, an extended or renewed note will be
considered executed on the date of the original note.
Touchstone Applied Science Associates, Inc.
By: /s/ ANDREW L. SIMON
-------------------
President
Attest:
/s/ MAUREEN CRUSH
- ------------------
Attorney
Exhibit 10.32
-------------
ENVIRONMENTAL GUARANTY
Goshen, New York
August 28, 1997
WHEREAS, TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC., a
Delaware corporation with its office for doing business at Fields
Lane, PO Box 382, Brewster, New York 10509-0382 (the "Borrower"),
has applied to MSB BANK, a federally chartered savings bank with
its principal office at 35 Matthews Street, Goshen, New York 10924,
(hereinafter called the "Lender"), for a loan in the principal sum
of ONE MILLION EIGHT HUNDRED THOUSAND AND 00/100 ($1,800,000.00)
DOLLARS (the "Loan"), which Loan will be (i) evidenced by a certain
Amended and Restated Mortgage Note dated the date hereof in the
principal sum of ONE MILLION EIGHT HUNDRED THOUSAND AND 00/100
($1,800,000.00) DOLLARS given by Borrower to Lender (the "Note");
(ii) secured by certain mortgages as consolidated by Agreement
dated the date hereof in the principal sum of ONE MILLION EIGHT
HUNDRED THOUSAND AND 00/100 ($1,800,000.00) DOLLARS given by
Borrower to Lender and intended to be duly recorded in the Office
of the Clerk of Putnam County, New York (the "Mortgage") covering
that certain parcel of land located in the Town of Southeast,
County of Putnam, State of New York, and more particularly
described in the Mortgage (the "Premises"); and (iii) further
secured by other documents executed in connection therewith (the
"Other Security Documents").
WHEREAS Lender is willing to make the Loan to Borrower only if
the undersigned executes and deliver this guaranty;
NOW, THEREFORE, in consideration of the Premises and of other
valuable consideration and to induce Lender to make the Loan and to
accept the Note, the Mortgage and the Other Security Documents, the
undersigned agrees with Lender as follows:
1. The undersigned absolutely, unconditionally and
irrespective of any lack of validity or enforceability of the Note,
the Mortgage and the Other Security Documents, or any other
agreement or instrument relating thereto and irrespective of any
other circumstance which may constitute a defense to this guaranty,
guarantees that:
(a) The undersigned shall cause the timely and diligent
clean up or removal and disposal of all asbestos or material
containing asbestos from the Mortgaged Property in accordance with
all applicable laws, rules, regulations and guidelines, in no event
later than required by any valid governmental or court order to
remediate, and assumes the cost, expense and any fines, liabilities
or charges levied in connection therewith.
(b) In the event Borrower or Lender is obligated by any
applicable federal, state or local law, ordinance or regulation or
otherwise directed by any governmental agency or authority, to
clean up, remove or encapsulate or cause the cleanup, removal, or
encapsulation of any Hazardous Materials (hereinafter defined) or
asbestos or material containing asbestos ("Asbestos") from the
Mortgaged Property (as defined in the Mortgage), the undersigned
hereby guarantees to Lender that the undersigned (i) shall promptly
undertake to arrange for such cleanup, removal and disposal in
accordance with all applicable laws, rules, regulations and
guidelines, (ii) shall exercise its best efforts to insure that
such cleanup, and removal shall be conducted in a timely and
diligent manner, and (iii) hereby assumes the cost and expense of
such cleanup and removal. The term "Hazardous Materials" as used
herein shall include, without limitation, gasoline, petroleum,
petroleum products, explosives, radioactive materials,
polychlorinated biphenyls or related or similar materials, or any
other substance or material now or hereafter defined as a hazardous
or toxic substance or material by any federal, state or local law,
ordinance, rule, or regulation, but excluding Asbestos.
(c) In the event that any lien is recorded or filed
against the Premises pursuant to any federal, state or local law,
ordinance, rule or regulation regarding Hazardous Materials or
Asbestos, the undersigned hereby guarantee to Lender that the
undersigned shall, not later than thirty (30) days following the
filing of such lien, satisfy the claim and cause the lien
thereunder to be discharged of record (whether by payment, bonding
or otherwise).
(d) In addition to the foregoing, the undersigned shall
protect, defend, indemnify and save harmless Lender and its
respective officers, directors, shareholders, agents and employees
from and against all loss (including diminution in the value of the
Premises), cost damage, liability, obligation, causes of action,
fine, penalty or expense (including attorney's fees and expenses
for investigation, removal, cleanup, and remedial costs incurred to
permit continued or resume normal operation of the Mortgaged
Property), imposed upon or incurred by or asserted against Lender
by reason of (i) the presence, disposal, escape, seepage, leakage,
spillage, discharge, emission, release, or threatened release of
any Hazardous Materials on, from, or affecting the Mortgaged
Property or any other property or the presence of Asbestos on the
Mortgage Property; (ii) any personal injury (including wrongful
death) or property damage (real or personal) arising out of or
related to such Hazardous Materials or Asbestos; (iii) any lawsuit
brought or threatened, settlement reached, or government order
relating to such Hazardous Materials or Asbestos; or (iv) any
violation of laws, orders, regulations, requirement, or demands of
government authorities, which are based upon or in any way related
to such Hazardous Materials or Asbestos including, without
limitation, the costs and expenses of any remedial action, attorney
and consultant fees, investigation and laboratory fees, court
costs, and litigation expenses.
2. Each reference herein to Lender shall be deemed to
include its successors and assigns, and any other entity or person
who is an obligee secured by the Mortgaged Property, to whose favor
the provisions of the Guaranty shall also inure. Each reference
herein to Guarantor shall be deemed to include the heirs,
executors, administrators, legal representatives, successors and
assigns of Guarantor, all of whom shall be bound by the provisions
of this Guaranty.
3. The undersigned (and its representative, executing below,
if any) has full power, authority and legal right to execute this
Guaranty and to perform all its obligations under this Guaranty.
4. This Guaranty incorporates, by reference, each and every
provision concerning environmental obligations and responsibilities
of the Mortgagor contained in a certain Mortgage Modification and
Extension Agreement executed simultaneously herewith and this
Guaranty is not meant to supersede the provisions contained in that
Mortgage, but is deemed to be supplemental thereto and shall be
construed as a promise independent of the mortgage to meet the
obligations contained herein, as well as set forth in the Mortgage.
IN PRESENCE OF: TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC.
BY: /s/ ANDREW L. SIMON
--------------------------
ANDREW L. SIMON, PRESIDENT
STATE OF NEW YORK )
) ss.:
COUNTY OF ORANGE )
On the 28 day of August, 1997 before me personally came ANDREW
L. SIMON, to me known, who, being by me duly sworn, did depose and
say that he resides at No. Hunterbrook Rd, Yorktown Heights NY,
that he is the President of TOUCHSTONE APPLIED SCIENCE ASSOCIATES,
INC., the corporation described in and which executed the foregoing
instrument; and that he signed his name thereto by order of the
Board of Directors.
/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 10.33
-------------
AGREEMENT
AGREEMENT, dated as of August 19, 1997, among
COMPREHENSIVE CAPITAL ("Comprehensive"), a New York corporation,
THEODORE P. ALLOCCA, THEODORE ALLOCCA and STEVEN KEVORKIAN
(Comprehensive, Theodore P. Allocca, Theodore Allocca and Steven
Kevorkian are collectively referred to hereinafter as
"Consultant"), and TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
("TASA"), a Delaware corporation.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, TASA agrees to retain Consultant to act as its
investment banker and financial consultant in connection with
TASA's business affairs and Consultant is willing to undertake to
provide such services as hereinafter fully set forth.
NOW, THEREFORE, in consideration of the premises
contained herein, the parties agree as follows:
1. Term.
----
The term of this Agreement shall be for one (1) year
from the date first written above, which term shall be renewed
automatically for additional one-year terms, unless written
notice to terminate service is received by one party from the
other not less than 30 days before the then expiration of then
applicable term. This Agreement may be canceled at any time for
any reason whatsoever, by either party, by the giving of at least
30 days' prior written notice.
2. Nature of Services.
------------------
Consultant will render assistance and advice to TASA on
matters relating to the growth and financing goals of TASA and in
connection therewith, Consultant shall:
(a) seek to find strategic partners and/or financing
entities to assist TASA in its projects;
(b) attend meetings of TASA's Board of Directors and
other such meetings when so requested by TASA;
(c) make itself available for financial public
relations and marketing consulting;
(d) arrange introductions to various broker/dealers
who may be interested in knowing more about TASA,
including its goals and aspirations;
(e) attend with TASA whenever possible, all meetings
with proposed major investors or lenders; and
(f) an understanding that Consultant's work will not
include any services that constitute the rendering
of any legal opinions or performance of work that
is in the ordinary purview of a certified public
accountant.
Consultant shall devote such of its time and efforts as it, in
its sole discretion, determines is necessary to discharge its
duties hereunder.
3. Responsibilities of TASA.
------------------------
TASA shall provide Consultant with appropriate
financial and business information about TASA as requested by
Consultant. In addition, executive officers and directors of
TASA shall make themselves available for personal consultations
with Consultant and certain third parties, subject to reasonable
prior notice, pursuant to the request of Consultant.
4. Compensation.
------------
For the services rendered by the Consultant to TASA
hereunder, TASA shall compensate the Consultant as follows:
(a) TASA shall issue, within 60 days, a total of
50,000 shares (the "Shares") of its Common Stock,
par value $0.001 per share ("Common Stock"), which
will be registered by TASA pursuant to the Federal
securities laws within six months from the date
hereof. The Shares, until so registered, shall be
restricted shares and shall bear a legend in
substantially the following form:
"The Shares evidenced by this Certificate
have not been registered under the Securities Act
of 1933, as amended, or applicable state
securities laws, and may not be sold, transferred
or encumbered except pursuant to an effective
registration statement under the Securities Act of
1933, as amended, and such state securities laws,
or unless an exemption from such registration is
then available."
TASA and the Consultant agree that the Shares shall be allocated
as follows: Steven Kevorkian--20,000 Shares; Theodore P.
Allocca--15,000 Shares; and Theodore Allocca--15,000 Shares.
(b) TASA shall issue one or more Warrants to
Consultant providing for the purchase of up to One
Hundred Twenty-five Thousand (125,000) shares of
TASA's common stock at a purchase price per share
equal to the closing bid price of TASA's common
stock on the date of this Agreement. Such
Warrants shall be exercisable for a period of five
(5) years from the date first written above (the
"Warrants"). TASA and the Consultant agree that
the Warrants shall be allocated as follows:
Steven Kevorkian--50,000 Warrants; Theodore P.
Allocca--37,500 Warrants; and Theodore Allocca--
37,500 Warrants.
(c) The Warrants may be exercised from time to time,
in whole or in part, by the Warrant holder by
giving written notice to TASA. Such notice shall
specify the number of shares of common stock with
respect to which the Warrants are then being
exercised. Payment of such shares shall be made
by cash or check payable to TASA either (A)
accompanying the notice of exercise, or (B)
against delivery by TASA of the certificate(s)
representing the shares pursuant to the exercise.
(d) If at any time commencing after the date hereof
and expiring five (5) years thereafter, TASA
proposes to register any of its securities under
the Securities Act of 1933, as amended, it will
give written notice by registered mail, at least
thirty (30) days prior to the filing each of such
registration statements, to Consultant and its
counsel. If Consultant or other holders of at
least 50% of the outstanding Warrants and/or
securities underlying Consultant Warrants notify
TASA within twenty (20) days after receipt of any
such notice of its or their desire to include any
such securities in such proposed registration
statement, TASA shall afford Consultant and such
holders of Warrants and/or shares underlying such
Warrants the opportunity to have any such
securities registered under such registration
statement; provided, however, that TASA shall not
be obligated to do so more than twice; and
provided, further, that if any such registration
relates to a firmly underwritten offering for the
account of TASA and if the managing underwriter of
such offering advises TASA in writing that, in its
opinion, inclusion of such shares as requested by
Consultant or the other holders of the Warrants
would adversely affect such offering, then such
shares shall, to such extent, be excluded from
such registration, on such basis as TASA shall
determine to be fair and equitable.
(e) In the event that TASA receives equity or debt
financing, acquires or merges with another entity,
as a result of Consultant's efforts and/or
introductions, TASA will pay Consultant the
following finders fee: 5% of the first $1,000,000;
4% of the second $1,000,000; 3% of the third
$1,000,000; 2% of the fourth $1,000,000 and 1% of
any remuneration received in excess of $4,000,000,
whether received in cash or in kind. TASA's
obligation to pay compensation pursuant to this
paragraph (d) shall apply to any transaction
resulting from Consultant's efforts or
introductions which is consummated during the term
of this Agreement or within twelve (12) months
following the termination of this Agreement. TASA
shall not be obligated to compensate Consultant in
accordance with this paragraph (d) which is not
consummated because of default by the other party
thereto prior to consummation, the failure of any
conditions precedent to consummation which
conditions are not within TASA's control, the
failure of the Board of Directors of TASA to
approve such transaction or unsatisfactory results
of a due diligence investigation by TASA.
Consultant shall not be entitled to compensation
with respect to introductions to individuals,
companies or other entities with whom TASA has had
previous contacts or discussions. Consultant
acknowledges and agrees that if TASA receives
equity or debt financing, acquires or merges with
another entity as a result of joint efforts
between Consultant and Barry M. Goldstein (or any
of their respective affiliates), then TASA shall
not be required to pay duplicative fees to
Consultant and Barry M. Goldstein (or any such
affiliates), and any fees payable by TASA pursuant
to this Section shall be shared by Consultant and
Barry M. Goldstein (or such affiliates) in such
proportions as Consultant and Barry M. Goldstein
shall agree and shall direct TASA in writing.
(f) Consultant will be reimbursed for all documented
reasonable out-of-pocket expenses incurred in the
performance of its responsibilities outlined
above. All expenses over $500.00 will be pre-approved
by TASA.
5. Indemnification.
---------------
(a) TASA shall indemnify Consultant and its affiliates
and their respective directors, officers, employees, agents
and controlling persons (Consultant and each such other
person and entity being an "Indemnified Party" for purposes
of this Section) from and against any and all losses,
claims, damages and liabilities, jointly or severally, to
which such Indemnified Party may become subject under any
applicable federal or state law, or otherwise related to or
arising out of any transaction contemplated by this
Agreement and the performance by Consultant of the services
contemplated by this Agreement, and shall reimburse each
Indemnified Party for all reasonable expenses (including
reasonable counsel fees and expenses) as they are incurred
in connection with the investigation of, preparation for or
defense of, any pending or threatened claim or any action or
proceeding arising therefrom, whether or not such
Indemnified Party is a party thereto provided that TASA
shall not be liable for any of the foregoing to the extent
they arise from the gross negligence or willful misconduct
of the Indemnified Party and further provided that such
Indemnified Party agrees to refund such reimbursed expenses
if and to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnifi-
cation. In the event that the foregoing indemnity is
unavailable or insufficient to hold any Indemnified Party
harmless, then TASA shall contribute to amounts paid or
payable by such Indemnified Party in respect of such losses,
claims, damages and liabilities in such proportion as
approximately reflects the relative benefits received by, in
fault of, TASA and such Indemnified Party in connection with
the matters as to which such losses, claims, damages and
liabilities relate and other equitable considerations,
provided however that nothing in this sentence shall be
construed as altering or limiting in any way the effect of
the proviso contained in the immediately preceding sentence.
(b) Consultant shall, jointly and severally, indemnify
TASA and its affiliates and their respective directors,
officers, employees, agents and controlling persons (TASA
and each such other person and entity being an "Indemnified
Party" for purposes of this Section) from and against any
and all losses, claims, damages and liabilities, jointly or
severally, to which such Indemnified Party may become
subject under any applicable federal or state law, or
otherwise related to or arising out of any of the services
rendered by Consultant pursuant to this Agreement and the
performance by Consultant of its obligations contemplated by
this Agreement, and shall reimburse each Indemnified Party
for all reasonable expenses (including reasonable counsel
fees and expenses) as they are incurred in connection with
the investigation, preparation for or defense of any pending
or threatened claim or any action or proceeding arising
therefrom, whether or not such Indemnified Party is a party
thereto provided that Consultant shall not be liable for any
of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Indemnified Party
and further provided that such Indemnified Party agrees to
refund such reimbursed expenses if and to the extent it is
finally judicially determined that such Indemnified Party is
not entitled to indemnification. In the event that the
foregoing indemnity is unavailable or insufficient to hold
any Indemnified Party harmless, then Consultant shall
contribute to amounts paid or payable by such Indemnified
Party in respect of such losses, claims, damages and
liabilities in such proportion as approximately reflects the
relative benefits received by, in fault of, Consultant and
such Indemnified Party in connection with the matters as to
which such losses, claims, damages and liabilities relate
and other equitable considerations, provided however that
nothing in this sentence shall be construed as altering or
limiting in any way the effect of the proviso contained in
the immediately preceding sentence.
6. Complete Agreement. This Agreement contains the
------------------
entire Agreement between the parties with respect to the contents
hereof and supersedes all prior agreements and understandings
between the parties with respect to such matters, whether written
or oral. Neither this Agreement, nor any term or provision
hereof may be changed, waived, discharged or amended in any
manner other than by an instrument in writing, signed by the
party against which the enforcement of the change, waiver,
discharge or amendment is sought.
7. Binding Effect; Assignment. This Agreement shall
--------------------------
be binding upon the parties hereto, their heirs, legal
representatives, successors, and assigns and shall not be
assignable by either party, except under prior written consent by
both parties to this Agreement
8. Relationship of the Parties.
----------------------------
(a) Nothing in this Agreement shall be construed as
establishing a partnership or joint venture between the
parties hereto. TASA specifically understands that
Consultant is acting hereunder as an independent contractor.
Consultant's services hereunder are not exclusive and
Consultant at all times shall be free to perform the same or
similar services for others which shall not be deemed a
conflict of interest nor a breach of this Agreement, however
Consultant agrees not to perform the same or similar
services for any company which is in direct competition with
TASA.
(b) TASA acknowledges that neither Consultant nor any
of its affiliates is an officer, director or agent of TASA,
that in rendering advice or recommendations to TASA,
Consultant is not and will not be responsible for any
management decisions on behalf of TASA. Consultant
acknowledges and agrees that Consultant is not authorized or
empowered to commit or bind TASA to any recommendation,
agreement or course of action. TASA has the sole right, in
the exercise of its business judgment and discretion, to
approve or disapprove of any agreement, transaction or
commitment introduced by Consultant.
9. Disclosure. Any financial advice rendered by
----------
Consultant pursuant to this Agreement may not be disclosed
publicly in any manner without the prior written approval of
Consultant. All non-public information given to Consultant by
TASA will be treated by Consultant as confidential information,
and Consultant agrees not to make use of such information other
than in connection with its performance of this Agreement,
provided, however, that any such information may be disclosed if
required by any court or governmental or regulatory authority,
board or agency. "Non-public information" shall not include any
information which (i) is or becomes generally available to the
public other than as a result of a disclosure by Consultant; (ii)
was available to Consultant prior to its disclosure to Consultant
by TASA, provided that such information is not known by
Consultant to be subject to another confidentiality agreement
with another party; or (iii) becomes available to Consultant on a
non-confidential basis from a source other than TASA, provided
that such source is not bound by a confidentiality agreement with
TASA.
10. Miscellaneous.
-------------
(a) All final decisions with respect to consultation,
advice and services rendered by Consultant to TASA shall
rest exclusively with TASA and Consultant shall not have any
right or authority to bind TASA to any obligation or
commitment.
(b) This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
(c) Any controversy or claim arising out of or related
to this Agreement shall be settled by arbitration in
accordance with the rules and under the auspices of the
American Arbitration Association; and any arbitration shall
be conducted in the County of New York in the State of New
York.
TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC.
By: /s/ ANDREW L. SIMON
---------------------
Andrew L. Simon
President
COMPREHENSIVE CAPITAL CORPORATION
By: /s/ OLGA SCOPPA
---------------
Olga Scoppa
President
/s/ THEODORE P. ALLOCCA
--------------------------
THEODORE P. ALLOCCA
/s/ THEODORE ALLOCCA
--------------------------
THEODORE ALLOCCA
/s/ STEVEN KEVORKIAN
--------------------------
STEVEN KEVORKIAN
Exhibit 10.34
-------------
AGREEMENT
AGREEMENT, dated as of August 19, 1997, between BARRY
M. GOLDSTEIN ("Consultant"), and TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC. ("TASA"), a Delaware corporation.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, TASA agrees to retain Consultant to act as its
investment banker and financial consultant in connection with
TASA's business affairs and Consultant is willing to undertake to
provide such services as hereinafter fully set forth.
NOW, THEREFORE, in consideration of the premises
contained herein, the parties agree as follows:
1. Term.
----
The term of this Agreement shall be for one (1) year
from the date first written above, which term shall be renewed
automatically for additional one-year terms, unless written
notice to terminate service is received by one party from the
other not less than 30 days before the then expiration of then
applicable term. This Agreement may be canceled at any time for
any reason whatsoever, by either party, by the giving of at least
30 days' prior written notice.
2. Nature of Services.
------------------
Consultant will render assistance and advice to TASA on
matters relating to the growth and financing goals of TASA and in
connection therewith, Consultant shall:
(a) seek to find strategic partners and/or financing
entities to assist TASA in its projects;
(b) attend meetings of TASA's Board of Directors and
other such meetings when so requested by TASA;
(c) make itself available for financial public
relations and marketing consulting;
(d) arrange introductions to various broker/dealers
who may be interested in knowing more about TASA,
including its goals and aspirations;
(e) attend with TASA whenever possible, all meetings
with proposed major investors or lenders; and
(f) an understanding that Consultant's work will not
include any services that constitute the rendering
of any legal opinions or performance of work that
is in the ordinary purview of a certified public
accountant.
Consultant shall devote such of its time and efforts as it, in
its sole discretion, determines is necessary to discharge its
duties hereunder.
3. Responsibilities of TASA.
------------------------
TASA shall provide Consultant with appropriate
financial and business information about TASA as requested by
Consultant. In addition, executive officers and directors of
TASA shall make themselves available for personal consultations
with Consultant and certain third parties, subject to reasonable
prior notice, pursuant to the request of Consultant.
4. Compensation.
------------
For the services rendered by the Consultant to TASA
hereunder, TASA shall compensate the Consultant as follows:
(a) TASA shall issue, within 60 days, a total of
50,000 shares (the "Shares") of its Common Stock,
par value $0.001 per share (the "Common Stock"),
which will be registered by TASA pursuant to the
Federal securities laws within six months from the
date hereof. The Shares, until so registered,
shall be restricted shares and shall bear a legend
in substantially the following form:
"The Shares evidenced by this Certificate
have not been registered under the Securities Act
of 1933, as amended, or applicable state
securities laws, and may not be sold, transferred
or encumbered except pursuant to an effective
registration statement under the Securities Act of
1933, as amended, and such state securities laws,
or unless an exemption from such registration is
then available."
(b) TASA shall issue one or more Warrants to
Consultant providing for the purchase of up to One
Hundred Twenty-five Thousand (125,000) shares of
TASA's common stock at a purchase price per share
equal to the closing bid price of TASA's common
stock on the date of this Agreement. Such
Warrants shall be exercisable for a period of five
(5) years from the date first written above (the
"Warrants").
(c) The Warrants may be exercised from time to time,
in whole or in part, by the Warrant holder by
giving written notice to TASA. Such notice shall
specify the number of shares of common stock with
respect to which the Warrants are then being
exercised. Payment of such shares shall be made
by cash or check payable to TASA either (A)
accompanying the notice of exercise, or (B)
against delivery by TASA of the certificate(s)
representing the shares pursuant to the exercise.
(d) If at any time commencing after the date hereof
and expiring five (5) years thereafter, TASA
proposes to register any of its securities under
the Securities Act of 1933, as amended, it will
give written notice by registered mail, at least
thirty (30) days prior to the filing each of such
registration statements, to Consultant and its
counsel. If Consultant or other holders of at
least 50% of the outstanding Warrants and/or
securities underlying Consultant Warrants notify
TASA within twenty (20) days after receipt of any
such notice of its or their desire to include any
such securities in such proposed registration
statement, TASA shall afford Consultant and such
holders of Warrants and/or shares underlying such
Warrants the opportunity to have any such
securities registered under such registration
statement; provided, however, that TASA shall not
be obligated to do so more than twice; and
provided, further, that if any such registration
relates to a firmly underwritten offering for the
account of TASA and if the managing underwriter of
such offering advises TASA in writing that, in its
opinion, inclusion of such shares as requested by
Consultant or the other holders of the Warrants
would adversely affect such offering, then such
shares shall, to such extent, be excluded from
such registration, on such basis as TASA shall
determine to be fair and equitable.
(e) In the event that TASA receives equity or debt
financing, acquires or merges with another entity,
as a result of Consultant's efforts and/or
introductions, TASA will pay Consultant the
following finders fee: 5% of the first $1,000,000;
4% of the second $1,000,000; 3% of the third
$1,000,000; 2% of the fourth $1,000,000 and 1% of
any remuneration received in excess of $4,000,000,
whether received in cash or in kind. TASA's
obligation to pay compensation pursuant to this
paragraph (d) shall apply to any transaction
resulting from Consultant's efforts or
introductions which is consummated during the term
of this Agreement or within twelve (12) months
following the termination of this Agreement. TASA
shall not be obligated to compensate Consultant in
accordance with this paragraph (d) which is not
consummated because of default by the other party
thereto prior to consummation, the failure of any
conditions precedent to consummation which
conditions are not within TASA's control, the
failure of the Board of Directors of TASA to
approve such transaction or unsatisfactory results
of a due diligence investigation by TASA.
Consultant shall not be entitled to compensation
with respect to introductions to individuals,
companies or other entities with whom TASA has had
previous contacts or discussions. Consultant
acknowledges and agrees that if TASA receives
equity or debt financing, acquires or merges with
another entity as a result of joint efforts
between Consultant and Comprehensive Capital,
Theodore P. Allocca or Theodore Allocca (or any of
their respective affiliates) (collectively,
"Comprehensive"), then TASA shall not be required
to pay duplicative fees to Consultant and
Comprehensive (or any such affiliates), and any
fees payable by TASA pursuant to this Section
shall be shared by Consultant and Comprehensive
(or such affiliates) in such proportions as
Consultant and Comprehensive shall agree and shall
direct TASA in writing.
(f) Consultant will be reimbursed for all documented
reasonable out-of-pocket expenses incurred in the
performance of its responsibilities outlined
above. All expenses over $500.00 will be pre-approved
by TASA.
5. Indemnification.
---------------
(a) TASA shall indemnify Consultant and its affiliates
and their respective directors, officers, employees, agents
and controlling persons (Consultant and each such other
person and entity being an "Indemnified Party" for purposes
of this Section) from and against any and all losses,
claims, damages and liabilities, jointly or severally, to
which such Indemnified Party may become subject under any
applicable federal or state law, or otherwise related to or
arising out of any transaction contemplated by this
Agreement and the performance by Consultant of the services
contemplated by this Agreement, and shall reimburse each
Indemnified Party for all reasonable expenses (including
reasonable counsel fees and expenses) as they are incurred
in connection with the investigation of, preparation for or
defense of, any pending or threatened claim or any action or
proceeding arising therefrom, whether or not such
Indemnified Party is a party thereto provided that TASA
shall not be liable for any of the foregoing to the extent
they arise from the gross negligence or willful misconduct
of the Indemnified Party and further provided that such
Indemnified Party agrees to refund such reimbursed expenses
if and to the extent it is finally judicially determined
that such Indemnified Party is not entitled to indemnifi-
cation. In the event that the foregoing indemnity is
unavailable or insufficient to hold any Indemnified Party
harmless, then TASA shall contribute to amounts paid or
payable by such Indemnified Party in respect of such losses,
claims, damages and liabilities in such proportion as
approximately reflects the relative benefits received by, in
fault of, TASA and such Indemnified Party in connection with
the matters as to which such losses, claims, damages and
liabilities relate and other equitable considerations,
provided however that nothing in this sentence shall be
construed as altering or limiting in any way the effect of
the proviso contained in the immediately preceding sentence.
(b) Consultant shall, jointly and severally, indemnify
TASA and its affiliates and their respective directors,
officers, employees, agents and controlling persons (TASA
and each such other person and entity being an "Indemnified
Party" for purposes of this Section) from and against any
and all losses, claims, damages and liabilities, jointly or
severally, to which such Indemnified Party may become
subject under any applicable federal or state law, or
otherwise related to or arising out of any of the services
rendered by Consultant pursuant to this Agreement and the
performance by Consultant of its obligations contemplated by
this Agreement, and shall reimburse each Indemnified Party
for all reasonable expenses (including reasonable counsel
fees and expenses) as they are incurred in connection with
the investigation, preparation for or defense of any pending
or threatened claim or any action or proceeding arising
therefrom, whether or not such Indemnified Party is a party
thereto provided that Consultant shall not be liable for any
of the foregoing to the extent they arise from the gross
negligence or willful misconduct of the Indemnified Party
and further provided that such Indemnified Party agrees to
refund such reimbursed expenses if and to the extent it is
finally judicially determined that such Indemnified Party is
not entitled to indemnification. In the event that the
foregoing indemnity is unavailable or insufficient to hold
any Indemnified Party harmless, then Consultant shall
contribute to amounts paid or payable by such Indemnified
Party in respect of such losses, claims, damages and
liabilities in such proportion as approximately reflects the
relative benefits received by, in fault of, Consultant and
such Indemnified Party in connection with the matters as to
which such losses, claims, damages and liabilities relate
and other equitable considerations, provided however that
nothing in this sentence shall be construed as altering or
limiting in any way the effect of the proviso contained in
the immediately preceding sentence.
6. Complete Agreement. This Agreement contains the
------------------
entire Agreement between the parties with respect to the contents
hereof and supersedes all prior agreements and understandings
between the parties with respect to such matters, whether written
or oral. Neither this Agreement, nor any term or provision
hereof may be changed, waived, discharged or amended in any
manner other than by an instrument in writing, signed by the
party against which the enforcement of the change, waiver,
discharge or amendment is sought.
7. Binding Effect; Assignment. This Agreement shall
--------------------------
be binding upon the parties hereto, their heirs, legal
representatives, successors, and assigns and shall not be
assignable by either party, except under prior written consent by
both parties to this Agreement
8. Relationship of the Parties.
---------------------------
(a) Nothing in this Agreement shall be construed as
establishing a partnership or joint venture between the
parties hereto. TASA specifically understands that
Consultant is acting hereunder as an independent contractor.
Consultant's services hereunder are not exclusive and
Consultant at all times shall be free to perform the same or
similar services for others which shall not be deemed a
conflict of interest nor a breach of this Agreement, however
Consultant agrees not to perform the same or similar
services for any company which is in direct competition with
TASA.
(b) TASA acknowledges that neither Consultant nor any
of its affiliates is an officer, director or agent of TASA,
that in rendering advice or recommendations to TASA,
Consultant is not and will not be responsible for any
management decisions on behalf of TASA. Consultant
acknowledges and agrees that Consultant is not authorized or
empowered to commit or bind TASA to any recommendation,
agreement or course of action. TASA has the sole right, in
the exercise of its business judgment and discretion, to
approve or disapprove of any agreement, transaction or
commitment introduced by Consultant.
9. Disclosure. Any financial advice rendered by
----------
Consultant pursuant to this Agreement may not be disclosed
publicly in any manner without the prior written approval of
Consultant. All non-public information given to Consultant by
TASA will be treated by Consultant as confidential information,
and Consultant agrees not to make use of such information other
than in connection with its performance of this Agreement,
provided, however, that any such information may be disclosed if
required by any court or governmental or regulatory authority,
board or agency. "Non-public information" shall not include any
information which (i) is or becomes generally available to the
public other than as a result of a disclosure by Consultant; (ii)
was available to Consultant prior to its disclosure to Consultant
by TASA, provided that such information is not known by
Consultant to be subject to another confidentiality agreement
with another party; or (iii) becomes available to Consultant on a
non-confidential basis from a source other than TASA, provided
that such source is not bound by a confidentiality agreement with
TASA.
10. Miscellaneous.
-------------
(a) All final decisions with respect to consultation,
advice and services rendered by Consultant to TASA shall
rest exclusively with TASA and Consultant shall not have any
right or authority to bind TASA to any obligation or
commitment.
(b) This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
(c) Any controversy or claim arising out of or related
to this Agreement shall be settled by arbitration in
accordance with the rules and under the auspices of the
American Arbitration Association; and any arbitration shall
be conducted in the County of New York in the State of New
York.
TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC.
By: /s/ ANDREW L. SIMON
--------------------------
Andrew L. Simon
President
/s/ BARRY M. GOLDSTEIN
--------------------------
BARRY M. GOLDSTEIN
<TABLE>
<CAPTION>
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
AND SUBSIDIARIES
EXHIBIT II
----------
COMPUTATION OF EARNINGS PER COMMON SHARE
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
<S> <C> <C> <C>
Primary earnings:
Net income (loss) $(1,363,811) $ 192,048 $ 155,146
----------- ---------- ----------
Shares:
Weighted common shares outstanding 8,213,089 7,524,539 6,899,400
Employees stock options -- 116,328 255,842
Options to The Harriman Group -- -- 506,035
B warrants -- -- --
Underwriter options -- -- 4,234
----------- ---------- ----------
Total weighted shares outstanding 8,213,089 7,640,867 7,665,511
----------- ---------- ----------
Primary earnings per share $ (.17) $ .03 $ .02
=========== ========== ==========
Fully diluted earnings:
Net income (loss) $(1,363,811) $ 192,048 $ 155,146
----------- ---------- ----------
Shares:
Weighted common shares outstanding 8,213,089 7,524,539 6,899,400
Employee stock options -- 116,328 301,956
Options to The Harriman Group -- -- 525,789
B warrants -- -- --
Underwriter options -- -- 11,179
----------- ---------- ----------
Total weighted shares outstanding 8,213,089 7,640,867 7,738,324
----------- ---------- ----------
Fully diluted earnings per common share $ (.17) $ .03 $ .02
=========== ========== ==========
</TABLE>
Exhibit 21
----------
LIST OF SUBSIDIARIES OF
TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
Name of Subsidiary Jurisdiction of Name Under Which Subsidiary
Incorporation does Business
Beck Evaluation & Testing New York Beck Evaluation & Testing
Associates, Inc. Associates; BETA
Modern Learning Press, Inc. Delaware Modern Learning Press
Exhibit 23
----------
CONSENT OF LAZAR, LEVINE & FELIX LLP
We consent to the incorporation by reference of our
report dated December 11, 1997 with respect to the consolidated
financial statements and notes thereto of Touchstone Applied
Science Associates, Inc. included in its Annual Report (Form 10-KSB)
for the fiscal year ended October 31, 1997 filed with the
Securities and Exchange Commission into (i) the Company's
Registration Statement on Form S-3 (SEC File No. 333-27659), and
(ii) the Company's Registration Statement on Form S-8 (SEC File
No. 333-424).
LAZAR, LEVINE & FELIX LLP
New York, New York
January 29, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the consolidated balance sheet and statements of income
filed as part of the report on form 10KSB for the year ended
October 31, 1997 and is qualified in its entirety by
reference to such report on form 10KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-END> OCT-31-1997
<CASH> 1,156,664
<SECURITIES> 377,560
<RECEIVABLES> 803,021
<ALLOWANCES> 0
<INVENTORY> 360,227
<CURRENT-ASSETS> 3,078,853
<PP&E> 2,769,364
<DEPRECIATION> 1,029,417
<TOTAL-ASSETS> 9,592,885
<CURRENT-LIABILITIES> 834,365
<BONDS> 2,528,968
0
0
<COMMON> 839
<OTHER-SE> 6,228,713
<TOTAL-LIABILITY-AND-EQUITY> 9,592,885
<SALES> 4,587,633
<TOTAL-REVENUES> 4,699,298
<CGS> 1,578,749
<TOTAL-COSTS> 5,138,042
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 145,748
<INCOME-PRETAX> (2,193,780)
<INCOME-TAX> (829,969)
<INCOME-CONTINUING> (1,363,811)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,363,811)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
