TOUCHSTONE APPLIED SCIENCE ASSOCIATES INC /NY/, PRE 14A, 2000-02-11

TOUCHSTONE APPLIED SCIENCE ASSOCIATES INC /NY/
PRE 14A, 2000-02-11
EDUCATIONAL SERVICES

Previous: TRIBUNE CO, SC 13G, 2000-02-11

Next: CASEYS GENERAL STORES INC, SC 13G/A, 2000-02-11

SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934

Filed by the Registrant
Filed by a Party other than the Registrant
Check the appropriate box:
[X] Preliminary Proxy Statement
Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
Definitive Proxy Statement
Definitive Additional Materials
Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
- ------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)

- ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

1. Title of each class of securities to which transaction
applies:

- ------------------------------------------------------------------------------

2. Aggregate number of securities to which transaction applies:

- ------------------------------------------------------------------------------

3. Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:

- ------------------------------------------------------------------------------

4. Proposed maximum aggregate value of transaction:

- ------------------------------------------------------------------------------

5. Total fee paid:

[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.

1. Amount previously paid:

- ------------------------------------------------------------------------------

2. Form, Schedule or Registration Statement No.:

- ------------------------------------------------------------------------------

3. Filing Party:

- ------------------------------------------------------------------------------

4. Date Filed:

- ------------------------------------------------------------------------------
<PAGE>

TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
4 Hardscrabble Heights, P.O. Box 382
Brewster, New York 10509

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be held on March 31, 2000

To the Stockholders of Touchstone Applied Science Associates, Inc.:

NOTICE IS HEREBY GIVEN that the Annual Meeting of
Stockholders (the "Meeting") of TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC., a Delaware corporation (the "Company"), will be
held at the Company's headquarters at 4 Hardscrabble Heights,
Brewster, New York 10509 on Thursday, March 31, 2000 at the hour
of 10:00 a.m. local time for the following purposes:

(1) To elect Directors of the Company;

(2) To consider and vote upon a proposal to approve
the Company's 2000 Stock Incentive Plan;

(3) To consider and vote upon a proposal to approve
the Company's Amended and Restated Directors
Stock Option Plan;

(4) To consider and vote upon a proposal to approve
the issuance of shares of Common Stock, par value
$.0001 per share (the "Common Stock"), in excess
of 19.99% of the outstanding shares, if required
in connection with the exercise of certain
Warrants to purchase shares of Common Stock;

(5) To ratify the appointment of independent auditors; and

(6) To transact such other business as may properly
come before the Meeting.

Only stockholders of record at the close of business on
February 15, 2000 are entitled to notice of and to vote at the
Meeting or any adjournment thereof.

By Order of the Board of Directors,

LINDA G. STRALEY
Vice President and Secretary

Brewster, New York
February __, 2000

IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING
REGARDLESS OF THE NUMBER OF SHARES YOU HOLD. YOU ARE INVITED TO
ATTEND THE MEETING IN PERSON, BUT WHETHER OR NOT YOU PLAN TO
ATTEND, PLEASE COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED ENVELOPE. IF YOU DO ATTEND
THE MEETING, YOU MAY, IF YOU PREFER, REVOKE YOUR PROXY AND VOTE
YOUR SHARES IN PERSON.

<PAGE>

TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
4 Hardscrabble Heights, P.O. Box 382
Brewster, New York 10509

ANNUAL MEETING OF STOCKHOLDERS

PROXY STATEMENT

This Proxy Statement and the accompanying proxy are
furnished by the Board of Directors of Touchstone Applied Science
Associates, Inc., a Delaware corporation (the "Company"), in
connection with the solicitation of proxies for use at the Annual
Meeting of Stockholders (the "Meeting") referred to in the
foregoing notice. It is contemplated that this Proxy Statement,
together with the accompanying form of proxy and the Company's
Annual Report for the fiscal year ended October 31, 1999 ("Fiscal
1999"), will be mailed together to stockholders on or about
February __, 2000.

Stockholders of record at the close of business on
February 15, 2000 are entitled to notice of, and to vote at, the
Meeting. On that date, there were issued and outstanding
[2,559,453] shares of Common Stock, par value $0.0001 per share
(the "Common Stock"). Each share of Common Stock is entitled to
one vote.

The presence, in person or by proxy, of the holders of
a majority of the shares of Common Stock outstanding and entitled
to vote at the Meeting is necessary to constitute a quorum. In
deciding all questions, a holder of Common Stock shall be
entitled to one vote in person or by proxy, for each share held
in his, her or its name on the record date. Directors will be
elected by a plurality of the votes cast at the Meeting. The
ratification or approval of all other proposals will be decided
by a majority of the votes cast at the Meeting. Shares
represented by proxies marked to withhold authority to vote, and
shares represented by proxies that indicate that the broker or
nominee stockholder thereof does not have discretionary authority
to vote them will be counted to determine the existence of a
quorum at the Meeting but will not affect the plurality or
majority vote required. However, because abstentions with
respect to any matter are treated as shares present in person or
represented by proxy and entitled to vote for the purposes of
determining whether that matter has been approved by the
stockholders, abstentions have the same effect as negative votes
for Proposals 2, 3, 4, and 5 in this Proxy Statement.

All proxies received pursuant to this solicitation will
be voted (unless revoked) at the Meeting or any adjournment
thereof in the manner directed by a stockholder and, if no
direction is made, will be voted FOR the election of each of the
management nominees for director in Proposal No. 1, FOR the
approval of the adoption of the 2000 Stock Incentive Plan in
Proposal No. 2, FOR approval of the Amended and Restated Directors
Stock Option Plan in Proposal No. 3, FOR approval of the issuance
of shares of Common Stock in excess of 19.99% of the outstanding
shares, if required in connection with the exercise of certain
Warrants to purchase shares of Common Stock in Proposal No. 4 and
FOR the ratification of the independent auditors in Proposal No.
5. If any other matters are properly presented at the Meeting
for action, which is not presently anticipated, the proxy holders
will vote the proxies (which confer authority to such holders to
vote on such matters) in accordance with their best judgment. A
proxy given by a stockholder may nevertheless be revoked at any
time before it is voted by communicating such revocation in
writing to the transfer agent, American Stock Transfer & Trust
Company, at 40 Wall Street, New York, New York 10005 or by
executing and delivering a later-dated proxy. Furthermore, any
person who has executed a proxy but is present at the Meeting may
vote in person instead of by proxy, thereby canceling any proxy
previously given, whether or not written revocation of such proxy
has been given.

As of the date of this Proxy Statement, the Board of
Directors knows of no matters other than the foregoing which will
be presented at the Meeting. If any other business should
properly come before the Meeting, the accompanying form of proxy
will be voted in accordance with the judgment of the persons
named therein, and discretionary authority to do so is included
in the proxy. All expenses in connection with the solicitation
of proxies will be paid by the Company. In addition to
solicitation by mail, officers, directors and regular employees
of the Company who will receive no extra compensation for their
services may solicit proxies by telephone, telecopier, telegraph
or personal calls. Management does not intend to use specially
engaged employees or paid solicitors for such solicitation.
Management intends to solicit proxies which are held of record by
brokers, dealers, banks, or voting trustees, or their nominees,
and may pay the reasonable expenses of such record holders for
completing the mailing of solicitation materials to persons for
whom they hold the shares.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT

The following table sets forth certain information
regarding the beneficial ownership of the Company's Common Stock,
as of February 15, 2000, 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 February 15, 2000, there were [2,559,453] shares
of Common Stock outstanding. Each share of Common Stock is
entitled to one vote per share.

All of the shares of Common Stock owned by Andrew L.
Simon, Stephen H. Ivens and Linda G. 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 listed opposite his or her name, even
though the Voting Trust has the sole rights to vote such shares.
Because the Voting Trust has the sole and exclusive power to
exercise all voting rights with respect to the shares of Common
Stock deposited in the Voting Trust, the Voting Trust has sole
voting and dispositive power with respect to 273,593.5 shares of
Common Stock. Accordingly, the Voting Trust has the power to
exercise 273,593.5 votes, or 10.7% of all eligible votes.

Name and Address of
Beneficial Owners and Shares of Common Stock Percent of Common Stock
Directors and Officers Beneficially Owned Beneficially Owned
- ------------------------------------------------------------------------------
<S> <C> <C>

5% Beneficial Owners:
- --------------------
Cahill, Warnock Strategic 523,194(a),(b) 19.5%
Partners Fund, L.P.
c/o Cahill, Warnock & Co.,
LLC
1 South Street, Suite 2150
Baltimore, MD 21202

- ------------------------------------------------------------------------------

Voting Trust, u/a dated 273,593.5 10.7%
August 19, 1992,
as amended, Julius
Ostreicher,
Andrew L. Simon and Eileen
West, Voting Trustees
c/o Touchstone Applied
Science Associates, Inc.,
4 Hardscrabble Heights,
Brewster, NY 10509

- ------------------------------------------------------------------------------

Estate of Bertram L. Koslin 110,167.5 4.3%
c/o Ostreicher & Ennis
225 Mamaroneck Avenue
White Plains, NY 10605

- ------------------------------------------------------------------------------

Eileen West 5,375(c) 0.2%
56 Harrison Street
New Rochelle, NY 10801

- ------------------------------------------------------------------------------

Officers and Directors:
- ----------------------
Walter B. Barbe 66,250(d) 2.5%
910 Church Street
Honesdale, PA 18431

- ------------------------------------------------------------------------------

Michael D. Beck 113,875(e) 4.4%
4 Hardscrabble Heights
Brewster, NY 10509

- ------------------------------------------------------------------------------

Steven R. Berger 3,125(f) 0.1%
620 Fifth Avenue
New York, NY 10020

- ------------------------------------------------------------------------------

Peter Duhamel 0(g) 0.0%
4 Hardscrabble Heights
Brewster, NY 10509

- ------------------------------------------------------------------------------

Joseph A. Fernandez 2,775.5(h) 0.1%
4392 Live Oak Boulevard
Palm Harbor, FL 34685

- ------------------------------------------------------------------------------

Andrew L. Simon 202,113(i) 7.5%
4 Hardscrabble Heights
Brewster, NY 10509

- ------------------------------------------------------------------------------

Denise M. Stefano 0(j) 0.0%
4 Hardscrabble Heights
Brewster, NY 10509

- ------------------------------------------------------------------------------

Linda G. Straley 96,944.25(k) 3.7%
4 Hardscrabble Heights
Brewster, NY 10509

- ------------------------------------------------------------------------------

Faith Takes 37,500(l) 1.4%
4 Hardscrabble Heights
Brewster, NY 10509

- ------------------------------------------------------------------------------

David L. Warnock 554,058.5(m) 20.5%
1 South Street, Suite 2150
Baltimore, Maryland 21202

- ------------------------------------------------------------------------------

Officers and Directors as a 1,350,234.75(n) 44.5%
Group (10 persons)
- ------------------------------------------------------------------------------

<FN>
- --------------
(a) Includes 127,469 shares which Cahill, Warnock
Strategic Partners Fund, L.P. (the "Fund") has the right
to acquire upon the exercise of a currently exercisable
warrant (the "Fund Warrant"). Excludes (i) 130,798.5
shares with respect to which the Fund's right to purchase,
granted pursuant to the Fund Warrant, is not currently
exercisable, (ii) 14,310 shares which are the subject of a
separate warrant (the "Strategic Warrant"; together with
the Fund Warrant, the "Warrants") granted to Strategic
Associates, L.P. ("Strategic Associates"; together, with
the Fund, the "Investors"), an affiliate of the Fund, but
as to which the Fund disclaims beneficial ownership, and
(iii) 21,927 shares which are owned by Strategic Associates,
but as to which the Fund disclaims beneficial ownership.
Pursuant to the Investor Rights Agreement (the "Investor
Rights Agreement") between the Company and the Investors,
the Company has agreed that so long as the Investors own at
least 50% of the Warrants (or if the Warrants have been
exercised, the shares issuable pursuant thereto), the
Investors have the right to nominate two directors to the
Board of Directors of the Company. David L. Warnock and
Joseph A. Fernandez are the two current directors who were
nominated by the Investors. Pursuant to the Investor Rights
Agreement, the directors and executive officers of the
Company have agreed, at each meeting of stockholders for the
purpose of electing directors, to cast their eligible votes
in favor of the nominees of the Investors. In addition, for
a period of 29 months from the Purchase Closing Date, at
each meeting of stockholders for the purpose of electing
directors, the Investors have agreed to cast all of their
eligible votes in favor of the directors nominated by the
Company.

(b) Edward L. Cahill is a general partner of Cahill,
Warnock Strategic Partners, L.P. ("Cahill, Warnock
Partners"), the Fund's sole general partner. David L.
Warnock is also a general partner of Cahill, Warnock
Partners and is a director of the Company (see footnote (m)
to this table). Messrs. Cahill and Warnock are also the
sole members of Cahill, Warnock & Company, LLC, which is the
sole general partner of Strategic Associates, which holds the
shares of Common Stock owned by it and the Strategic Warrant.

(c) Includes 5,375 shares which Ms. West has the right
to acquire upon the exercise of currently exercisable stock
options; excludes the shares of Common Stock held in the
Voting Trust for the benefit of all members thereof, which
Voting Trust is listed separately as a 5% stockholder in
this Table. Ms. West is one of three Voting Trustees of the
Voting Trust.

(d) Includes 56,250 shares which Dr. Barbe has the
right to acquire upon the exercise of currently exercisable
stock options.

(e) Includes (i) 27,000 shares which are owned jointly
with Mr. Beck's wife, (ii) 9,375 shares owned by Mr. Beck's
daughter, and (iii) 58,750 shares which Mr. Beck has the
right to acquire upon the exercise of currently exercisable
stock options; excludes 9,375 shares owned by Mr. Beck's
wife, as to which Mr. Beck disclaims beneficial ownership.

(f) Includes 3,125 shares which Mr. Berger has the
right to acquire upon the exercise of currently exercisable
stock options or stock options which become exercisable
within 60 days.

(g) Excludes 40,000 shares which are the subject of
options granted to Mr. Duhamel which are not currently
exercisable.

(h) Includes 1,875 shares which Mr. Fernandez has the
right to acquire upon the exercise of currently exercisable
stock options or stock options which become exercisable
within 60 days.

(i) Includes 121,875 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) 375 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 held in the Voting Trust for the benefit of all
of the members thereof, which Voting Trust is listed
separately as a 5% stockholder in this table. Mr. Simon is
one of three Voting Trustees of the Voting Trust.

(j) Excludes 15,000 which are the subject of options
granted to Ms. Stefano which are not currently exercisable.

(k) Includes 51,250 shares which Ms. Straley has the
right to acquire upon the exercise of currently exercisable
stock options.

(l) Includes 37,500 shares which Ms. Takes has the
right to acquire upon the exercise of currently exercisable
stock options.

(m) Includes (i) 1,875 shares which Mr. Warnock has
the right to acquire upon the exercise of currently
exercisable stock options or stock options which become
exercisable within 60 days; (ii) 395,725 shares which are
owned by the Fund; (iii) 21,927 shares which are owned by
Strategic Associates; (iv) 127,469 shares which the Fund has
the right to acquire upon the exercise of the Fund Warrant;
and (v) 14,310 shares which are Strategic Associates has the
right to acquire upon the exercise of the Strategic Warrant
(see footnotes a and b to this table). Excludes (a)
130,798.5 shares with respect to which the Fund's right to
purchase, granted pursuant to the Fund Warrant, is not
currently exercisable and (b) 7,247.5 shares with respect to
which Strategic Associates' right to purchase, granted
pursuant to the Strategic Warrant, is not currently
exercisable. Mr. Warnock disclaims beneficial ownership of
all shares except those listed in clause (i) above.

(n) Includes shares held in the Voting Trust for the
benefit of the Estate of Bertram L. Koslin, Eileen West and
certain employees of the Company. Andrew L. Simon, Chairman
of the Board of Directors and President of the Company, is
one of three Voting Trustees of the Voting Trust. Includes
an aggregate of 474,279 shares which are the subject of
currently exercisable options and warrants which are held or
deemed held by officers and directors of the Company, but
are not included in the Voting Trust. Excludes an aggregate
of 193,046 shares which are the subject of options and
warrants which are held or deemed held by officers and
directors of the Company which are not currently exercisable
and are not included in the Voting Trust.

</FN>
</TABLE>

PROPOSAL NO. 1

ELECTION OF DIRECTORS

MANAGEMENT RECOMMENDS THAT YOU VOTE IN FAVOR OF
THE NOMINEES NAMED TO THE BOARD OF DIRECTORS.

Six directors are to be elected at the Meeting for
terms of one year each and until their successors shall be
elected and qualified. It is intended that votes will be cast
pursuant to the enclosed proxy for the election of the six
persons whose names are first set forth below unless authority to
vote for one or more of the nominees is withheld by the enclosed
proxy, in which case it is intended that votes will be cast for
those nominees, if any, with respect to whom authority has not
been withheld. All nominees are currently members of the Board of
Directors. In the event that any of the nominees should become
unable or unwilling to serve as a director, a contingency which
the management has no reason to expect, it is intended that the
proxy be voted, unless authority is withheld, for the election of
such person, if any, as shall be designated by the Board of
Directors. Dr. Walter Barbe has chosen not to stand for re-election
to the Board of Directors in order to pursue other interests.

DIRECTORS WILL BE ELECTED BY A PLURALITY OF THE VOTES
CAST AT THE MEETING. THE VOTING TRUST INTENDS TO VOTE IN FAVOR
OF THE PROPOSAL.

The following table sets forth information concerning
each person nominated to serve as a director of the Company:

First Became
Name Age Director Position
---- --- -------- --------

Michael D. Beck 53 1997 Director; Vice President,
TASA; President and Chief
Executive Officer, Beck
Evaluation & Testing
Associates, Inc. ("BETA")

Steven R. Berger 44(2)(3) 1996 Director

Joseph A. Fernandez, Ed.D. 64(2)(3) 1998 Director

Andrew L. Simon 57 1995(1) Chairman of the Board of
Directors; Chief Executive
Officer, TASA; President,
TASA

Linda G. Straley 44 1994 Director; Vice President,
Operations, TASA;
Secretary, TASA

David L. Warnock 42(2)(3) 1998 Director

(1) Also served as a director of the Company from 1976 to 1991.
(2) Member of the Compensation Committee
(3) Member of the Audit Committee

MICHAEL D. BECK was elected as a Director of the
Company in March 1997 and has been Vice President of the Company
since January 1997. Mr. Beck is also a Director and President
and Chief Executive Officer of BETA and is a Director of MLP.
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", below. Mr.
Beck has also provided consulting services on matters of
educational research and assessment for various military,
governmental and commercial organizations. 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 in March 1996 and he also serves on each of the Company's
Compensation and Audit Committees. Mr. Berger has been a partner
in the law firm of Salans Hertzfeld Heilbronn Christy & Viener
(formerly Christy & Viener) in New York City since January 1989.
Mr. Berger received an A.B. and a J.D. from Harvard University.
Salans Hertzfeld Heilbronn Christy & Viener has acted as special
securities counsel to the Company since January 1995.

JOSEPH A. FERNANDEZ was elected as a Director of the
Company in December 1998 and, since that date, he has also served
on each of the Company's Audit and Compensation Committees. Dr.
Fernandez is also a director of BETA and TESC. Dr. Fernandez is
President of Joseph A. Fernandez & Associates, Inc., an education
consulting firm. From June 1993 until June 1996, Dr. Fernandez
served as President and Chief Executive Officer of School
Improvement Services, Inc., an organization in Winter Park,
Florida which provides consulting services related to school
improvement at the state, district or school level. From June
1993 until July 1994, Dr. Fernandez also served as the President
of the Council of Great City Schools, a Washington, D.C. based
organization representing fifty of the largest urban school
districts in the United States. Prior to assuming such positions
in 1993, Dr. Fernandez served as Chancellor of the New York City
Public Schools from 1990 to 1993 and as Superintendent of the
Dade County Public Schools in Miami, Florida from 1987 to 1990.
Dr. Fernandez also serves on the Board of Directors of Children's
Comprehensive Services, Inc. Dr. Fernandez holds a B.A. from the
University of Miami, a M.A. in Education from Florida Atlantic
University and an Ed.D. from Nova University.

ANDREW L. SIMON was elected as Director and as
President and Chief Financial Officer of the Company in March
1995. Mr. Simon is also a Director of MLP, a Director and
President and Treasurer of TESC, a Director and Treasurer of MESI
and a Director and Secretary of BETA. He served as Interim
President of TASA from June 1994 through March 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 1995, she was Chairman of the
Board of Directors. She has been Secretary since August 1992
and, from 1984 to 1994, she served as director of DRP Services
for the Company. Ms. Straley is also a Director of MESI and a
Director and Secretary of TESC. Ms. Straley received a B.A. in
Education from Bethany College and an M.S. in Educational
Psychology and Statistics from the State University of New York.

DAVID L. WARNOCK was elected as a Director of the
Company in October 1998 and, since that time, he has also served
on each of the Company's Audit and Compensation Committees. Mr.
Warnock is also a Director of TESC. Mr. Warnock is a founding
partner of Cahill, Warnock & Company, LLC, an asset management
firm established in 1995 to invest in small public companies.
From 1983 to 1995, Mr. Warnock was with T. Rowe Price Associates
in senior management positions, including President of the
corporate general partner of T. Rowe Price Strategic Partners I
and T. Rowe Price Strategic Partners II, and as the Executive
Vice President of T. Rowe Price New Horizons fund. Mr. Warnock
also serves on the Boards of Directors of Children's
Comprehensive Services, Inc., Concorde Career Colleges, Inc.,
Environmental Safeguards, Inc., and The School Company. Mr.
Warnock received a B.A. in History from the University of
Delaware and a Masters in Finance from the University of
Wisconsin.

Pursuant to the Investor Rights Agreement, the Company
has agreed that so long as Cahill, Warnock Strategic Partners
Fund, L.P. and Strategic Associates, L.P. (collectively, the
"Investors") own at least 50% of the warrants (the "Warrants")
issued in connection with a certain Securities Purchase Agreement
(the "Securities Purchase Agreement") (or, if the Warrants have
been exercised, the shares issuable pursuant thereto), the
Investors shall have the right to nominate two directors to the
Board of Directors of the Company. David L. Warnock and Joseph
A. Fernandez are the two current directors who were nominated by
the Investors. Pursuant to a certain Investor Rights Agreement
executed simultaneously with the Securities Purchase Agreement,
the directors and executive officers of the Company have agreed,
at each meeting of stockholders for the purpose of electing
directors, to cast their eligible votes in favor of the nominees
of the Investors. In addition, for a period of 29 months from
the Purchase Closing Date, at each meeting of stockholders for
the purpose of electing directors, the Investors have agreed to
cast all of their eligible votes in favor of the directors
nominated by the Company. See "Proposal No. 4" and "Certain
Relationships and Related Transactions", below.

COMMITTEES AND MEETINGS

The Board of Directors had seven meetings during Fiscal
1999, of which four were regularly scheduled and three were
special meetings, and otherwise acted by unanimous written
consent.

The Company does not presently have any standing
nominating committee of the Board of Directors or committee
performing similar functions. The Compensation Committee, which,
among other things, sets compensation for the employees of the
Company and administers the Company's Amended and Restated 1991
Stock Option Incentive Plan had two meetings during Fiscal 1999
and otherwise acted by unanimous written consent. The Audit
Committee, which, among other things, reviews the financial
statements with the Company's independent auditors, had one
meeting during Fiscal 1999 and otherwise acted by unanimous
written consent.

During Fiscal 1999, all members of the Board of
Directors attended at least 75% of the total number of (i) Board
of Directors meetings, and (ii) meetings held by the committees
of which each is a member.

EXECUTIVE COMPENSATION

The following table shows compensation for services
rendered to the Company during the fiscal year ended October 31,
1999, 1998 and 1997, respectively ("Fiscal 1999", "Fiscal 1998",
"Fiscal 1997"), by the Chief Executive Officer, the President of
BETA, the Vice President, DRP Services, and the Executive Vice
President of TESC. 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 Fiscal 1998. Therefore, pursuant to Item 402 of
Regulation S-B, only compensation for each of the Chief Executive
Officer, the President of BETA, the Vice President, DRP Services,
and the Executive Vice President of TESC is shown in the Summary
Compensation Table below.

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 ($) Bonus ($) ($) Award(s) ($) (#) ($) ($)
- --------------------------------------------------------------------------------------------------------------------------

Andrew L. Simon, 1999 $200,000 0 $35,473(3) 0 21,875/0 0 0
President and 1998 $180,000 0 $41,663(3) 0 19,625/0 0 0
Chief Executive 1997 $135,000 0 $39,025(3) 0 59,750(2)/0 0 0
Officer

Michael D. Beck, 1999 $120,000 $26,811 $32,864(4) 0 13,750/0 0 0
Vice President, 1998 $110,000 $5,000 $32,864(4) 0 13,750/0 0 0
TASA; President and 1997 $83,333 0 $24,622(4) 0 31,250(6)/0 0 0
Chief Executive
Officer, BETA

Stephen H. Ivens, 1999 $116,500 0 $30,212(5) 0 6,250/0 0 0
Vice President, 1998 $112,000 0 $35,362(5) 0 6,250/0 0 0
DRP Services* 1997 $112,000 0 $35,210(5) 0 25,625(2)/0 0 0

Faith Takes, 1999 $150,000 $33,990 $10,700(7) 0 37,500/0 0 0
Executive Vice 1998 0 0 0 0 0/0 0 0
President, TESC; 1997 0 0 0 0 0/0 0 0
President and
Chief Executive
Officer, MESI

<FN>
- -----------
* As of November 1, 1999, Dr. Ivens retired as a full-time
employee of the Company, but is continuing to perform
services for the Company on a part-time, at-will basis.
(1) To date, the Company has issued no SARs.
(2) Granted in connection with the rejuvenation of certain
options held by all employees of the Company, pursuant
to which certain severely out-of-the-money options were
canceled and new options to purchase an equal number of
shares were granted, each with a new expiration date
and a new exercise price equal to the fair market value
of the Company's Common Stock on March 28, 1997.
(3) Includes: a contribution of $16,000 to the Company's
Money Purchase Pension Plan (the "Pension Plan") in
Fiscal 1999; contributions of $24,000, and $20,250 to
the Company's qualified 401(k) Profit Sharing Plan (the
"401(k)") and Pension Plan in Fiscal 1998, and 1997,
respectively; and $10,167, $8,250 and $8,250 for a
company car in Fiscal 1999, 1998, and 1997
respectively.
(4) Includes: a contribution of $12,000 to the Company's
Pension Plan in Fiscal 1999; contributions of $17,250
and $12,500 to the Company's 401(k) and Pension Plan in
Fiscal 1998 and 1997, respectively; and $7,176, $7,176
and $4,460 for a company car in Fiscal 1999, 1998 and
1997, respectively.
(5) Includes: a contribution of $11,650 to the Company's
Pension Plan in Fiscal 1999; contributions of $16,800
and $16,800 to the Company's 401(k) and Pension Plan in
Fiscal 1998 and 1997, respectively; and $7,250, $7,250,
and $6,100 for a company car, in Fiscal 1999, 1998, and
1997, respectively.
(6) Granted as part of the purchase price for the
acquisition of BETA by the Company.
(7) Includes: $7,200 for a company car in Fiscal 1999.

</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.
During Fiscal 1999, Mr. Ivens gave notice of voluntary
termination of his employment agreement, in accordance with the
terms thereof, and, accordingly, his employment agreement
terminated on October 31, 1999. Consequently, as of November 1,
1999, Mr. Ivens has retired as a full-time employee of the
Company, but he is continuing to perform services for the Company
on a part-time, at-will basis.

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.

In November 1998, the Company, through MESI, acquired
substantially all of the assets of Mildred Elley. MESI entered
into an employment agreement with Faith Takes, pursuant to which
Ms. Takes agreed to remain as the President and Chief Executive
Officer of MESI and to become the Executive Vice President of
TESC, a wholly-owned subsidiary of the Company and the parent
company of MESI. Ms. Takes' employment agreement has a term of
three years, subject to automatic yearly extensions and certain
rights of termination as provided in such agreement. The
employment agreement contains a non-competition clause for two
years following termination of the executive's employment.

On March 26, 1999, the Company entered into an
employment agreement with Denise M. Stefano, pursuant to which,
effective as of May 3, 1999, the Company agreed to employ Ms.
Stefano, and Ms. Stefano agreed to remain, as the Chief Financial
Officer of TASA, for a term of one year, subject to automatic
yearly extensions and certain rights of termination as provided
in such agreement. The agreement contains a non-competition
clause for one year following termination of the executive's
employment.

On December 1, 1999, the Company entered into an
employment agreement with Peter Duhamel, pursuant to which,
effective as of January 10, 2000, the Company agreed to employ
Mr. Duhamel, and Mr. Duhamel agreed to remain, as the Chief
Operating Officer of TASA and MLP and as a Vice President of
TASA, for a term of one year. After the expiration of six months
of the initial term, the Company can determine whether to extend
the term for an additional one-year period from the date of the
extension. Thereafter, provided the Company elects to extend the
term of the agreement as provided in the preceding sentence, the
agreement is subject to automatic yearly extensions and certain
right s of termination as provided in such agreement. The
agree ment contains a non-competition clause for one year
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 625,000 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 50,000 shares.

In Fiscal 1997, the Company granted a total of
254,5 62.5 options under the Amended Option Plan, of which
178,937.5 options were granted in connection with the
rejuvenation of options previously granted; in Fiscal 1998, the
Company granted a total of 90,875 options under the Amended
Option Plan; and in Fiscal 1999, the Company granted a total of
125,625 options under the Amended Option Plan. In Fiscal 1997,
178,937.5 options under the Amended Option Plan were canceled; in
Fiscal 1998, 29,225 options under the Amended Option Plan were
canceled; and in Fiscal 1999, 12,750 options under the Amended
Option Plan were canceled. As of December 31, 1999, there were
461,112.5 options in the aggregate outstanding under the Amended
Option Plan.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

Individual Grants
- -----------------------------------------------------------------------------------------------------

Number of Securities Percent of Total
Underlying Options/SARs Granted Exercise or
Options/SARs(1) to Employees in Base Price
Name Granted (#) Fiscal Year(4) ($/Sh) Expiration Date
- -----------------------------------------------------------------------------------------------------

<S> <C> <C> <C> <C>
Andrew L. Simon, 21,875(2) 17.2% $2.88 November 2, 2008
President and
Chief Executive
Officer
- -----------------------------------------------------------------------------------------------------

Michael D. Beck, 13,375(2) 10.5% $2.88 November 2, 2008
Vice President,
TASA; President
and Chief
Executive
Officer, BETA
- -----------------------------------------------------------------------------------------------------

Stephen H. Ivens, 6,250(2) 4.9% $2.88 November 2, 2008
Vice President, DRP
Services
- -----------------------------------------------------------------------------------------------------

Faith Takes, 37,500(3) 29.4% $2.88 November 8, 2008
Executive Vice
President, TESC;
President and
Chief Executive
Officer, MESI
- -----------------------------------------------------------------------------------------------------

<FN>
- -------------
(1) To date, the Company has issued no SARs.
(2) These options became exercisable on November 4, 1999.
(3) These options became exercisable on November 9, 1999.
(4) 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
1999.
</FN>
</TABLE>
<PAGE>

<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES

Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options/SARs(1) Options/SARs(1)
at FY-End (#) at FY-End ($)
------------------------------------------

Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>

Andrew L. Simon, 0 0 121,875/0 0/0(2)
President and
Chief Executive
Officer
- --------------------------------------------------------------------------------------------

Michael D. Beck, 0 0 58,750/0 0/0(2)
Vice President,
TASA; President
and Chief
Executive
Officer, BETA
- --------------------------------------------------------------------------------------------

Stephen H. Ivens, 0 0 51,250/0 0/0(2)
Vice President,
DRP Services
- --------------------------------------------------------------------------------------------

Faith Takes, 0 0 37,500/0 0/0(2)
Executive Vice
President, TESC;
President and
Chief Executive
Officer, MESI
- --------------------------------------------------------------------------------------------

<FN>
- ------------
(1) To date, the Company has issued no SARs.
(2) Based on the closing price of the Company's Common
Stock on NASDAQ on October 29, 1999, or $1.25.
</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 25,000 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 1,250 options on the day he (she)
first is elected to the Board of Directors, and 625 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. On December 15, 1999, the Board of Directors of the
Company approved an increase in the number of shares to be
granted to directors to 5,000 shares upon election to the board
and 2,500 shares upon each re-election, which amendment is
subject to the approval of the stockholders of the Company. 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 28, 1997, the Company granted
1,250 options; on March 27, 1998, the Company granted 1,250
options; on October 28, 1998, the Company granted 1,250 options;
on December 15, 1998, the Company granted 1,250 options; and on
March 4, 1999, the Company granted 1,875 options.

Directors receive no compensation, other than the
options pursuant to the Directors Plan, for services in such
capacity.

OTHER PLANS

Consultants Stock Incentive Plan. In March 1997, the
--------------------------------
Board of Directors of the Company adopted the Consultants Plan,
pursuant to which options to purchase up to 50,000 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, 12,500 options
were granted under the Consultants Plan; in Fiscal 1998, 27,500
options were granted under the Consultants Plan; in Fiscal 1999,
no options were granted under the Consultants Plan, and 35,000
options were canceled or forfeited.

Profit Sharing Plan. The Company has a qualified 401(k)
-------------------
Profit Sharing Plan. The 401(k) Plan allows eligible employees
to contribute up to 15 percent (15%) of income through Company
contributions and a salary reduction mechanism. Company
contributions to the 401(k) Plan are optional and accrue at the
discretion of the Board of Directors. For Fiscal 1998 and Fiscal
1997, 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. In Fiscal 1999, the Board of
Directors of the Company elected not to make its customary
contribution of five percent (5%) of each eligible employee's
compensation in order to retain such amount for working capital;
accordingly, each eligible employee is permitted to contribute up
to fifteen percent (15%) of compensation.

Net assets for the 401(k) Plan, as estimated by the
Massachusetts Mutual Life Insurance Company which maintains such
plan's records, were $1,684,666 and $1,656,023 at October 31,
1999 and 1998, respectively.

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, were $964,539 and $741,928
at October 31, 1999 and 1998, respectively.

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 1999.

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 stockholders.

In November 1998, the Company, through MESI, acquired
substantially all of the assets of Mildred Elley. The Company
financed the acquisition through the issuance of the Debentures,
with the Warrants attached, pursuant to a Securities Purchase
Agreement (the "Securities Purchase Agreement"), with
the Investors. Pursuant to the Securities Purchase Agreement,
the Company: (i) issued and sold to the Investors 8%
Debentures due 2003 (the "Debentures"), dated October 28,
1998 (the "Purchase Closing Date"), in the aggregate
principal amount of $4,000,000, (ii) issued and sold to
the Investors, as additional consideration for purchasing
the Debentures, the Warrants to acquire an aggregate of
690,229.5 shares of the Company's Common Stock, which, on the
Purchase Closing Date, constituted 20% of the Company's issued
and outstanding common stock on a fully diluted basis, after
giving effect to the transactions contemplated in the Securities
Purchase Agreement and (iii) authorized the issuance and sale in
the future to the Investors of additional shares of the
Company's Common Stock upon the Company's exercise of a
put option, the terms and conditions of which are set forth in
the Securities Purchase Agreement. Of the Warrants issued, 80%
are immediately exercisable, and 20% will become exercisable 18
months after the Purchase Closing Date if the Company shall not
have repaid the Debentures in full by such date or upon the
occurrence of an Event of Default (as defined in the Securities
Purchase Agreement). The exercise price of the Warrants upon
issuance was $1.40 per share of Common Stock, subject to certain
antidilution adjustments set forth in the Warrants. On December
3, 1999, in exchange for the Investors' consent, among other
things, to subordinate the Debentures to certain financing
the Company is seeking to obtain in connection with the
implementation of the Company's strategic plan and pursuant to a
Consent, Agreement and Amendment, dated as of December 3, 1999,
among the Company and the Investors, the Board of Directors of
the Company approved a repricing of the Warrants to an exercise
price of $1.125 per share of Common Stock, subject to the
same antidilution adjustments referred to above. Pursuant to
the Registration Rights Agreement between the Company and the
Investors, the Company has agreed to register the shares of
Common Stock underlying the Warrants with the Securities
and Exchange Commission.

Pursuant to the Investor Rights Agreement between the
Company and the Investors, the Company has agreed that so
long as the Investors own at least 50% of the Warrants
(or if the Warrants have been exercised, the shares
issuable pursuant thereto), the Investors shall
have the right to nominate two directors to the Board of
Directors of the Company. David L. Warnock and Joseph A.
Fernandez are the current directors who were nominated by the
Investors. Pursuant to the Investor Rights Agreement, the
directors and executive officers have agreed, at each
meeting of stockholders for the purpose of electing
directors, to cast their eligible votes in favor of the
nominees of the Investors. In addition, for a period of 29
months from the Purchase Closing Date, at each meeting of
stockholders for the purpose of electing directors, the
Investors, have agreed to cast all of their eligible votes
in favor of the directors nominated by the Company.

As of January 2, 1997, 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 (the "Notes"), bearing interest at
the rate of 8.25% and maturing on January 2, 1999, and (iii)
150,000 shares of the Company's Common Stock. The Notes were
paid in December 1998. 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 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.

In November 1998, the Company, through MESI, purchased
substantially all of the assets of Mildred Elley for an aggregate
purchase price of $3,000,000, paid as follows: (i) $2,000,000 in
cash at the closing and (ii) $1,000,000 by a five-year promissory
note of MESI, payable in equal quarterly installments of
principal and interest and bearing interest at a rate equal to
8.5% per annum. In addition, MESI assumed certain liabilities of
Mildred Elley related to the acquired business (the "Assumed
Liabilities"). The aggregate amount of the Assumed Liabilities
is approximately $1,000,000. Simultaneous with the closing of
such purchase, MESI entered into an employment agreement with
Faith Takes, pursuant to which Ms. Takes agreed to remain as the
President and Chief Executive Officer of MESI and to become the
Executive Vice President of TESC, a wholly-owned subsidiary of
the Company and the parent company of MESI.

One of the Company's directors, Steven R. Berger, is a
partner in Salans Hertzfeld Heilbronn Christy & Viener (formerly
Christy & Viener), which acts as special securities counsel to
the Company. The Company paid legal fees of $217,093, $143,375
and $124,864 to Salans Hertzfeld Heilbronn Christy & Viener for
Fiscal 1999, 1998 and 1997, respectively.

PROPOSAL NO. 2

APPROVAL OF THE 2000 STOCK INCENTIVE PLAN

MANAGEMENT RECOMMENDS THAT YOU VOTE TO APPROVE
THE 2000 STOCK INCENTIVE PLAN

In February 2000, the Board of Directors of the Company
adopted the 2000 Stock Incentive Plan (the "2000 Plan"), subject
to the approval of the stockholders. The purpose of the 2000
Plan is to aid the Company in attracting, retaining and
motivating officers, key employees, consultants and directors by
providing them with incentives to make significant contributions
to the growth and profitability of the Company. The 2000 Plan is
designed to accomplish this goal by giving participants a
proprietary interest in the success of the Company, through the
grant of stock options and other stock-based incentive awards.

The Board of Directors recommends approval of the 2000
Plan by the stockholders for the reasons set forth below. If
approved by the stockholders, the 2000 Plan will replace the
Company's existing 1991 Plan (under which approximately [2,157]
shares remained available for the grant of options or other
awards as of February 15, 2000). The 1991 Plan is scheduled to
expire by its terms in 2001. Accordingly, no new awards would be
granted under the 1991 Plan if the 2000 Plan is approved; awards
then outstanding under the 1991 Plan will remain in effect (see
"Option/SAR Grants in Last Fiscal Year" for a description of the
material terms of certain awards granted under the 1991 Plan)
until their exercise or expiration in accordance with their
terms. As of February 15, 2000, there were approximately
[574,387.5] shares subject to options that remain outstanding
under the 1991 Plan. These options are exercisable at prices
ranging from $11.00 to $1.688 per share. To the extent that any
outstanding options under the 1991 Plan are forfeited, canceled
or expire unexercised, the shares subject thereto will be added
to the total number of shares available for issuance under the
2000 Plan, as described below.

Set forth below is a brief description of the principal
features of the 2000 Plan (which is substantially similar to the
1991 Plan). Such description is qualified in its entirety by the
full text of the 2000 Plan, a copy of which is attached hereto as
Exhibit A. Reference to such exhibit should be made for a
complete description of the 2000 Plan.

General Terms
- -------------

The 2000 Plan authorizes the Company to grant awards in
the form of stock options, both incentive stock options (within
the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Internal Revenue Code")) and non-qualified stock
options, SARs and awards payable in stock, restricted stock or
cash. All of such awards may be granted singly, in combination
or in tandem, or in substitution for awards granted previously
under the 1991 Plan or any other plan of the Company. In
addition, the 2000 Plan permits the Company to extend dividend
equivalency rights to awards made thereunder. The payment or
exercise of any awards, including stock options, under the 2000
Plan may be conditioned on the satisfaction of various criteria,
such as the achievement of specific business objectives,
attainment of growth rates and other comparable measurements of
the Company's performance. While some or all of the other types
of awards referred to above may be made from time to time, the
Company has principally granted stock options under the 1991
Plan.

The 2000 Plan terminates in ten years from its date of
effectiveness, or in March 2010. The number of shares authorized
for issuance thereunder is 300,000 plus such additional number of
shares as becomes available under the 1991 Plan by reason of the
forfeiture of awards granted thereunder or their cancellation or
expiration without exercise. Shares related to awards (or
portions thereof) under the 2000 Plan that are forfeited,
canceled or terminated, expire unexercised, are surrendered in
exchange for other awards, or are settled in cash in lieu of
shares or in any other manner such that shares covered by an
award are not and will not be issued, will be restored to the
total number of shares available for issuance pursuant to awards
granted under the 2000 Plan. The aggregate number of shares
issuable pursuant to options, or which may be used as a basis for
SARs, granted to any individual participant under the 2000 Plan
is limited to 150,000 shares during any three fiscal-year period
beginning after November 1, 2000, subject to proportional
adjustments as described below.

The 2000 Plan provides that, in the event of a stock
split, stock dividend, combination or reclassification of shares,
recapitalization, merger, consolidation or similar event,
proportional adjustments will be made in (a) the number of shares
of the Company's Common Stock (i) reserved for issuance under the
2000 Plan, (ii) available for options or other awards and for
issuance pursuant to options, or upon which SARs may be based,
for individual participants, and (iii) covered by outstanding
awards; (b) the prices related to outstanding awards; and (c) the
appropriate fair market value and other price determinations for
such awards. In addition, equitable adjustments will be made in
the event of any other change affecting the Company's Common
Stock or any distribution (other than normal cash dividends) to
stockholders of the Company.

The 2000 Plan provides that it shall be administered by
a Committee designated by the Board of Directors (the
"Committee"), consisting of at least two directors who are not
officers or employees of the Company or any of its subsidiaries.
The Committee has the sole authority, among other things, to:
grant awards; determine the terms, conditions and limitations of
awards (including any applicable performance criteria); establish
rules, procedures, regulations and guidelines relating to the
2000 Plan generally; and to interpret the 2000 Plan and award
agreements entered into pursuant to the Plan.

Officers, key employees, consultants and directors who
are also officers or employees of the Company or its subsidiaries
or who have been designated by the Board of Directors of the
Company as eligible to receive awards under the 2000 Plan, are
eligible to participate in the 2000 Plan. Key employees are
those employees who hold positions of responsibility and/or whose
performance, in the judgment of the Committee, can have a
significant effect on the growth and profitability of the
Company. The number of persons who are currently eligible to
participate in the 2000 Plan is approximately 154.

Generally, a 2000 Plan participant may exercise or
receive payment of an award only while employed by or associated
with the Company or a subsidiary of the Company, except that,
under some circumstances, and subject to restrictions and
limitations imposed by the Committee, the Committee may permit
exercise by, or payment to, participants who have retired or
become disabled, or who otherwise have had their employment by or
association with the Company or a subsidiary thereof terminated.
In addition, if a participant dies while still employed by or
associated with the Company or a subsidiary thereof, the estate,
heirs or beneficiaries of the deceased participant may, subject
to restrictions and limitations imposed by the Committee, exer-
cise or receive payment in respect of awards held by the partici-
pant at the time of death. In general, awards granted under the
2000 Plan are not assignable or transferable by a participant,
except under the limited circumstances contemplated by the 2000
Plan.

The exercise price of an option granted under the 2000
Plan will be not less than the fair market value of the Company's
Common Stock on the date of grant, as defined in the 2000 Plan.
(The closing price of a share of the Company's Common Stock was
$1.69 on February 7, 2000, as reported by the Nasdaq Small
Capitalization Market ("Nasdaq").) The exercise price of an
option must be paid in full in cash, or arrangements,
satisfactory to the Committee, for payment in full in cash made,
at the time of exercise, or, if permitted by the Committee, may
be paid in whole or in part by (a) tendering shares of Common
Stock or surrendering another award granted under the Plan or
another benefit plan of the Company, (b) delivering a promissory
note issued by the participant to the Company pursuant to terms
and conditions determined by the Committee, or (c) any other
means acceptable to the Committee. In order to enable the
Company to satisfy any tax payment obligations resulting from any
exercise of, or other payment on, an award under the Plan, the
Company has the right, among other things, to withhold an
appropriate amount from such payment or to withhold an appro-
priate number of shares of the Company's Common Stock receivable
by the participant, for payment thereof.

The 2000 Plan may not, without the approval of the
stockholders as set forth therein, be amended to (i) increase
materially the aggregate number of shares of the Company's Common
Stock that may be issued under the 2000 Plan (except for
adjustments pursuant to the 2000 Plan in connection with a stock
split, stock dividend, combination or reclassification of shares,
recapitalization, merger, consolidation or similar event, as
described above), (ii) increase the aggregate number of shares
that may be issued to any individual participant during any
fiscal-year period pursuant to options, or which are used as a
basis of SARs, granted under the 2000 Plan, or (iii) modify
materially the eligibility requirements of the 2000 Plan. The
2000 Plan may not be changed in such a way as to alter, impair,
amend, modify, suspend or terminate any rights of a participant
or any obligations of the Company under any award theretofore
granted in any manner adverse to such participant without the
consent of such participant.

Federal Income Tax Consequences
- -------------------------------

Under current Federal tax laws and regulations and
judicial interpretations thereof, which are subject to change at
any time, the following are the Federal income tax consequences
generally arising with respect to awards granted under the 2000
Plan. The grant of a stock option or SAR will create no tax
consequences for the participant or the Company. The participant
will have no taxable income upon exercising an incentive stock
option (except that the alternative minimum tax may apply), and
the Company will not receive a deduction when an incentive stock
option is exercised. Upon exercising a SAR or a non-qualified
stock option, the participant must recognize ordinary income in
an amount equal to the difference between the exercise price and
the fair market value of the stock on the exercise date. At such
time, the Company will receive a deduction for the same amount
(assuming the applicable requirements of Section 162(m) of the
Internal Revenue Code have been met).

With respect to other awards granted under the 2000
Plan that are settled in cash or stock that is either transfer-
able or not subject to a substantial risk of forfeiture, the par-
ticipant must recognize ordinary income in an amount equal to the
cash or the fair market value of the shares received, when
received. The Company will receive a deduction for the same
amount, provided that, at the time the income is recognized, the
participant either is not a covered employee or does not have
total compensation in excess of $1,000,000 for the year of
recognition (other than compensation that otherwise meets the
requirements of Section 162(m) of the Internal Revenue Code).
With respect to other awards granted under the 2000 Plan that are
settled in stock that is subject to restrictions as to trans-
ferability and subject to a substantial risk of forfeiture, the
participant must recognize ordinary income in an amount equal to
the fair market value of the shares received on the date the
shares first become transferable or not subject to a substantial
risk of forfeiture, whichever occurs earlier. At such time, the
Company will receive a deduction for the same amount, subject to
the proviso set forth above in this paragraph.

The tax treatment upon disposition of shares acquired
under the 2000 Plan will depend on how long the shares have been
held. In the case of shares acquired through exercise of a stock
option, the tax treatment will also depend on whether or not the
shares were acquired by exercising an incentive stock option.
There will be no tax consequences to the Company upon the
disposition of shares acquired under the 2000 Plan except that
the Company may receive a deduction in the case of the
disposition of shares acquired under an incentive stock option
before the applicable incentive stock option holding period has
been satisfied.

Recommendation
- --------------

The Board of Directors of the Company believes that it
is in the best interests of the Company and its stockholders, in
the current competitive business environment, that the 2000 Plan
be approved, so that the Company can continue to attract, retain
and motivate key employees to make significant contributions to
the Company. The 2000 Plan will permit certain stock-based
incentive compensation to be tailored to support corporate and
business objectives and allow the Company to respond to
competitive compensation practices. Accordingly, the Board of
Directors has adopted, and recommends that the stockholders
approve, the 2000 Plan.

Approval requires the affirmative vote of a majority of
the votes cast at the meeting, in person or by proxy, on such
proposal, provided that the total vote cast represents over 50%
of all shares entitled to vote on the proposal.

THE VOTING TRUST INTENDS TO VOTE IN FAVOR OF THE
PROPOSAL. MANAGEMENT RECOMMENDS THAT YOU VOTE TO APPROVE THE
2000 PLAN.

PROPOSAL NO. 3

APPROVAL OF THE AMENDED AND RESTATED DIRECTORS STOCK OPTION PLAN

MANAGEMENT RECOMMENDS THAT YOU VOTE TO APPROVE THE
AMENDED AND RESTATED DIRECTORS STOCK OPTION PLAN

In fiscal 1996, the Company and its stockholders
approved the Directors Stock Option Plan (the "Directors Plan")
and authorized a total of 25,000 shares of Common Stock (after
adjustment for the one-for-four reverse stock split of the
Company's Common Stock effected on March 4, 1999) for issuance
pursuant to options granted thereunder. As of February 15, 2000,
18,125 shares remained available for issuance in connection with
the future grants under the Directors Plan. In February 2000,
the Board of Directors approved an amendment to the Directors
Plan, subject to the approval of the stockholders, to (i)
increase the number of shares of Common Stock of the Company that
may be issued under this Directors Plan by 50,000 shares, and
(ii) to increase the number of shares to be subject to the
automatic grants to be made to directors from 1,250 shares upon
first being elected to the Board of Directors of the Company and
625 shares upon each re-election to the Board of Directors to
5,000 and 2,500 shares, respectively. These amendments, in the
form of an amended and restated Directors Plan, are now being
submitted to the stockholders for approval.

The Board of Directors recommends approval of the
amendments. The purpose of the Directors Plan is to aid the
Company in attracting, retaining and motivating its directors by
providing them with incentives to make significant contributions
to the growth and profitability of the Company. The Directors
Plan is designated to accomplish this goal by the granting of
stock options, thereby providing participants with a proprietary
interest in the growth, profitability and success of the Company.
The Board of Directors believes that the additional share reserve
and the increase in the amount of shares subject to the automatic
grants are necessary to permit the Company to attract and retain
the caliber of directors that has traditionally comprised the
Company's Board of Directors and thereby create stockholder
value.

Set forth below is a brief description of the principal
features of the Directors Plan. Such description is qualified in
its entirety by the full text of the Directors Plan, as proposed
to be amended and restated, a copy of which is attached hereto as
Exhibit B. Reference to such exhibit should be made for a
complete description of the Directors Plan.

General Terms
- -------------

The following persons ("Eligible Directors") are
eligible to receive grants of stock options pursuant to the
Directors Plan: (a) directors of the Company who are members of
the Committee of the Board designated to administer discretionary
stock incentive plans from time to time adopted and implemented
by the Company (any, a "Discretionary Plan") and (b) directors of
the Company who are not officers or employees of the Company or
any subsidiary thereof (a "Non-employee Director") and who (i)
have not been designated by the Company's Board of Directors
within 30 days after becoming a director of the Company as being
eligible to receive awards under a Discretionary Plan or (ii)
having been eligible to participate in a Discretionary Plan, have
ceased to be so eligible as a result of a determination by the
Board of Directors. The eligibility of any such director to
participate in the Directors Plan shall cease if such director is
subsequently designated as being eligible to receive awards under
a Discretionary Plan for as long as he or she remains so
eligible. Messrs. Berger and Warnock and Dr. Fernandez are
currently participants in the Directors Plan.

The amendment, if approved, would increase the total
number of shares of the Company's Common Stock available for
issuance pursuant to stock options granted under the Directors
Plan by 50,000, to a total of 75,000. Shares related to options
(or portions thereof) that are forfeited, canceled or terminated,
expire unexercised, are surrendered in exchange for other options
or are otherwise settled in such a manner that all or some of the
shares covered by an option are not and will not be issued will
be restored to the total number of shares available for issuance
pursuant to options granted under the Directors Plan. In the
event of any change in the number of shares of outstanding Common
Stock of the Company by reason of a stock split, stock dividend,
combination or reclassification of shares, recapitalization,
merger, consolidation or similar event, proportional adjustments
will be made in the number of shares of the Company's Common
Stock (a) reserved for issuance pursuant to the Directors Plan,
(b) for which stock options shall be granted, and (c) covered by
outstanding stock options, as well as in the exercise price of
such outstanding options. In addition, equitable adjustments
will be made in the event of any other change affecting the
Company's Common Stock or any distribution (other than normal
cash dividends) to stockholders of the Company.

Under the Directors Plan, non-qualified stock options
to purchase shares of the Company's Common Stock are granted
automatically to Eligible Directors at the times specified in the
Directors Plan. In general, unless an Eligible Director has
received a previous grant of a stock option (under the Directors
Plan, a Discretionary Plan or otherwise), he will receive an
initial option to purchase 1,250 shares of the Company's Common
Stock on the date on which he first becomes eligible to
participate in the Directors Plan. Thereafter, as long as the
Eligible Director (including any Eligible Director who received a
previous grant) remains eligible to participate in the Directors
Plan, he will receive annually, on the date of the Annual Meeting
of Stockholders, an option to purchase 625 shares of the
Company's Common Stock, beginning on the date specified in the
Directors Plan. Notwithstanding the foregoing, no stock option
shall be granted to any person whose service as a director of the
Company ends on the date on which the option would otherwise be
granted. The amendment submitted for approval pursuant to this
Proposal 3 would increase the number of shares subject to these
automatic grants to 5,000 and 2,500, respectively.

The Directors Plan is administered by the Company'
Board of Directors or a committee composed of not less than two
members thereof as may be designated from time to time by all
such members. The Board or such committee administers the
Directors Plan, but has no discretion regarding the grant,
amount, timing, terms and conditions of stock options granted
under the Directors Plan.

The exercise price of any stock option granted pursuant
to the Directors Plan is the fair market value of the Company's
Common Stock on date of grant. Each stock option becomes
exercisable in full after the first anniversary of the date of
grant. Each option is exercisable for a period of ten years from
the date of grant.

The price at which shares of the Company's Common Stock
may be purchased upon exercise of an option must be paid in full
in cash at the time of exercise or by (i) tendering shares of the
Company's Common Stock or surrendering another stock option, (ii)
delivering a promissory note issued by the participant to the
Company pursuant to terms and conditions determined by the Board
or the committee, or (iii) any other means acceptable to the
Board or the committee.

In order to enable the Company to satisfy any tax
payment obligations resulting from any exercise of a stock option
under the Directors Plan, the Company has the right, among other
things, to withhold from the shares of the Company's Common Stock
receivable by a participant an appropriate number of shares for
payment thereof. In addition, participants may elect to have the
Company deduct applicable taxes by withholding an appropriate
number of shares of the Company's Common Stock or to elect to
tender to the Company other shares of the Company's Common Stock
held by the participant for the purpose of satisfying tax payment
obligations.

Except as described below, if a participant's
association with the Company terminates, any unexercised stock
option (or portion thereof) shall, to the extent it is
exercisable pursuant to the terms of such option on the date of
such termination, remain exercisable for a period of three months
following the date of termination or until the stated expiration
of the stock option, if earlier. If a participant dies, or
ceases to be associated with the Company because he (i) is
disabled, (ii) retires at age 62 or thereafter or (iii) assumes a
position with a governmental, charitable or educational agency or
institution, any stock option granted under the Directors Plan
then held by such participant shall become fully exercisable as
of the date on which such participant dies or ceases to be
associated with the Company, and shall be exercisable through the
expiration date specified in the applicable option agreement.

In general, awards granted under the Directors Plan are
not assignable or transferable by a participant, except under the
limited circumstances contemplated by the Directors Plan.

The Board or the committee may amend, modify, suspend
or terminate the Directors Plan for the purpose of meeting or
addressing any changes in any applicable tax, securities or other
law. In addition, the Directors Plan may not, without the
approval of the stockholders, as set forth therein, be amended to
(i) increase materially the aggregate number of shares of the
Company's Common Stock that may be issued under the Directors
Plan (except for adjustments pursuant to Sections 7(l) and 8 of
the Directors Plan), (ii) materially increase the benefits
accruing to participants, or (iii) modify materially the
eligibility requirements for participation in the Directors Plan.
Nor may the Directors Plan be changed in such a way as to alter,
impair, amend, modify, suspend or terminate any rights of a
participant or any obligations of the Company under any stock
options theretofore granted in any manner adverse to such
participant, without the consent of such participant. The
Directors Plan terminates in March 2006.

Federal Income Tax Consequences
- -------------------------------

The Federal income tax consequences to the participants
and the Company of the issuance and exercise of stock options
that would be granted pursuant to the Directors Plan are the same
as for the issuance and exercise of stock options that would be
granted under the 2000 Plan. See "Proposal to Approve the 2000
Stock Incentive Plan -- Federal Income Tax Consequences" above.

Recommendation
- --------------

The Board of Directors of the Company believes that it
is in the best interests of the Company and its stockholders to
continue to offer the long-term incentives available under the
Directors Plan to directors of the Company. The Board of
Directors believes that, in the current competitive business
environment, the future success of the Company will depend in
large part on its ability to attract, retain and motivate
directors through, among other things, such incentive programs.
Accordingly, the Board of Directors has adopted, and recommends
that the stockholders approve, the amendments to the Directors
Plan increasing (i) the total number of shares that may be issued
thereunder by 50,000 shares, and (ii) the formula grants to be
made to Non-employee Directors to 5,000 shares and 2,500 shares.

Approval requires the affirmative vote of a majority of
the votes cast at the meeting in person or by proxy on such
proposal, provided that the total votes cast represent over 50%
of all shares entitled to vote on the proposal.

THE VOTING TRUST INTENDS TO VOTE FOR THE PROPOSAL. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE
THE AMENDED AND RESTATED DIRECTORS STOCK OPTION PLAN.

PROPOSAL NO. 4

RATIFICATION OF THE ISSUANCE OF WARRANTS

MANAGEMENT RECOMMENDS THAT YOU VOTE TO APPROVE THE ISSUANCE OF SHARES
OF COMMON STOCK IN EXCESS OF 19.99% OF THE OUTSTANDING SHARES, IF
REQUIRED IN CONNECTION WITH THE EXERCISE OF CERTAIN WARRANTS
TO PURCHASE SHARES OF COMMON STOCK

The Company is seeking the approval of the stockholders
of the issuance shares of Common Stock in excess of 19.99% of the
outstanding shares, if required in connection with the exercise
of certain Warrants to purchase shares of Common Stock (the
"Warrants"). The Warrants entitle the holders thereof to
purchase an aggregate of 690,229.5 shares of Common Stock of the
Company (after giving effect to the one-for-four reverse stock
split of the Company's Common Stock). The Warrants were issued
in a private financing transaction on October 28, 1998. Such
approval would have the effect of removing certain limitations
under rules of the National Association of Securities Dealers,
Inc. (the "NASD"), which would limit the exercise rights of the
Investors to exercising such Warrants as would cause
approximately 417,652 shares of Common Stock to be issued. The
terms of the private financing transaction in which the Company
sold the Warrants require the Company to seek this approval.

Background
- ----------

In October 1998, the Company entered into a Securities
Purchase Agreement (the "Securities Purchase Agreement"), with
Cahill Warnock Strategic Partners Fund, L.P. (the "Fund") and
Strategic Associates, L.P. ("Strategic", collectively, with the
Fund, the "Investors), institutional investors. Pursuant to the
Securities Purchase Agreement, the Company: (i) issued and sold
to the Investors 8% Debentures due 2003 (the "Debentures"), dated
October 28, 1998 (the "Purchase Closing Date"), in the aggregate
principal amount of $4,000,000, and (ii) issued and sold to the
Investors, as additional consideration for purchasing the
Debentures, the Warrants to acquire an aggregate of 690,229.5
shares of the Company's Common Stock, which, on the Purchase
Closing Date, constituted 20% of the Company's issued and
outstanding common stock on a fully diluted basis, after giving
effect to the transactions contemplated in the Securities
Purchase Agreement. Of the Warrants issued, 80% are immediately
exercisable, and 20% will become exercisable 18 months after the
Purchase Closing Date if the Company shall not have repaid the
Debentures in full by such date or upon the occurrence of an
Event of Default (as defined in the Securities Purchase
Agreement).

The Warrants are exercisable for five years from the
date they becomes exercisable, and provide antidilution
protection in the event of the issuance or deemed issuance of
shares Common Stock at a price less than the exercise price of
the Warrants subject to certain exceptions. The exercise price
of the Warrants upon issuance was $1.40 per share of Common
Stock, subject to certain antidilution adjustments set forth in
the Warrants. The Debentures constitute senior indebtedness of
the Company. On December 3, 1999, in exchange for the Investors'
consent, among other things, to subordinate the Debentures to
certain financing the Company is seeking to obtain in connection
with the implementation of the Company's strategic plan and
pursuant to a Consent, Agreement and Amendment, dated as of
December 3, 1999 (the "Consent"), among the Company and the
Investors, the Board of Directors of the Company approved a
repricing of the Warrants to an exercise price of $1.125 per
share of Common Stock, subject to the same antidilution
adjustments referred to above. On February 8, 2000, the Fund
exercised its Warrant to acquire a total of 395,725 shares of
Common Stock and Strategic exercised its Warrants to acquire a
total of 21,927 shares of Common Stock, resulting in the
Investors acquiring a total of 417,652 shares of Common Stock, or
19.5% of the number of shares outstanding on the Purchase Closing
Date. The Company received exercise proceeds totaling
$469,858.51 as a result of such exercises.

Pursuant to the Registration Rights Agreement between
the Company and the Investors, the Company has agreed to register
the shares of Common Stock underlying the Warrants with the
Securities and Exchange Commission, which the Company intends to
do once it has received the stockholder approval requested in
this Proposal 4.

Pursuant to the Investor Rights Agreement (the
"Investor Rights Agreement") between the Company and the
Investors, the Company has agreed that so long as the Investors
own at least 50% of the Warrants (or, if the Warrants have been
exercised, the shares issuable pursuant thereto), the Investors
shall have the right to nominate two directors to the Board of
Directors of the Company. David L. Warnock and Joseph A.
Fernandez are the current directors who were nominated by the
Investors. Pursuant to the Investor Rights Agreement, the
directors and executive officers have agreed, at each meeting of
stockholders for the purpose of electing directors, to cast their
eligible votes in favor of the nominees of the Investors. In
addition, for a period of 29 months from the Purchase Closing
Date, at each meeting of stockholders for the purpose of electing
directors, the Investors have agreed to cast all of their
eligible votes in favor of the directors nominated by the
Company. David L. Warnock, a director of the Company, is also a
general partner of the Fund's general partner, and is a member of
Strategic's general partner. See "Security Ownership of Certain
Beneficial Owners and Management", above.

In connection with the issuance of the Warrants, the
Company granted to the Investors certain rights to have the
Company register for resale the shares of Common Stock issuable
upon exercise thereof under the Securities Act of 1933, as
amended. The Company intends to register the shares of Common
Stock issuable upon the exercise of the Warrants with the
Securities and Exchange Commission, on Form S-3 Registration
Statement upon obtaining the stockholder approval requested in
this Proposal 4.

The Company used a portion of the funds raised in the
private financing to purchase substantially all of the operating
assets of The Mildred Elley Schools, Inc. The Company intends to
use the remaining funds, including the proceeds from the exercise
of the Warrants, to further implement its strategic plan,
including the repayment of outstanding debt, and to effect future
acquisitions of educational delivery institutions.

Further Information
- -------------------

The terms of the Debentures and Warrants are complex
and are only briefly summarized in this Proxy Statement.
Stockholders wishing further information concerning the rights,
preferences and terms of the Series D Stock and Warrants are
referred to the full description thereof contained in (i) the
Company's Current Report on Form 8-K and exhibits thereto filed
with the Securities and Exchange Commission on November 23, 1998
(the "Initial Report"), (ii) the amendment to the Company's
Current Report on Form 8-K/A and exhibits thereto filed with the
Securities and Exchange Commission on January 12, 1999 (the
"Report Amendment"), and (iii) the Company's Annual Report on
Form 10-KSB, as amended, for the fiscal year ended October 31,
1999 (collectively with the Initial Report and the Report
Amendment, the "Public Documents"), which can be inspected and
copied at the public reference facility maintained by the
Securities and Exchange Commission located at 450 Fifth Street,
NW, Washington, DC. The Public Documents may also be viewed on
the web site maintained by the Securities and Exchange Commission
at http://www.sec.gov. The description of terms and rights of
the Company and the Investors with respect to the outstanding
Debentures and of the Warrants contained herein is qualified in
its entirety by reference to the complete description of these
terms and rights in such documents.

Stockholder Approval
- --------------------

The issuance of the Company's shares of Common Stock
upon exercise of all the Warrants issued in excess of 417,652
shares is subject to stockholder approval pursuant to the Rules
of the Nasdaq SmallCap Market. Rule 4460(i)(1)(D) of the NASD
(the "20% Rule") sets forth designation criteria for continued
inclusion of the Common Stock on the Nasdaq SmallCap Market. The
20% Rule requires companies that are listed on the Nasdaq
SmallCap Market to obtain stockholder approval prior, among other
things, to issuing common stock (or securities convertible into
or exercisable for common stock) in a private financing at a
price less than the market value of the common stock, where the
amount of common stock to be issued exceeds 20% of the common
stock or voting power of the company outstanding prior to the
issuance. In the event that the Investors exercise all of the
Warrants, the Company would be required to issue an aggregate of
690,229.5 shares of Common Stock, or approximately 32.2% of the
shares of Common Stock outstanding on the Purchase Closing Date.
To date, the Investors have exercised Warrants to acquire an
aggregate of 417,652 shares. Consequently, the Company is
requesting the stockholder approval required by the 20% Rule and
the Securities Purchase Agreement in this Proposal 4.

The Company entered into and consummated the sale of
the Debentures and the Warrants based on a determination by the
Board of Directors that the implementation of the Company's
strategic plan would require additional cash resources. While
the Board of Directors considered the disadvantages of the
potential issuance of a significant number of shares of Common
Stock upon the exercise of the Warrants, including the potential
dilution of the voting power per share of Common Stock and the
potential impact on earnings per share of Common Stock, the Board
determined that such disadvantages were outweighed by the
benefits of receiving a necessary infusion of cash. Accordingly,
the Board of Directors decided, on the basis of then prevailing
financial market conditions and the resources available to the
Company, that it was in the best interests of the Company and its
stockholders for the Company to proceed with the sale of the
Debentures and the accompanying issuance of the Warrants to the
Investors.

In the event that the stockholders do not approve the
issuance as they are being requested to do in this Proposal 4,
the Warrants will remain outstanding, but the Investors will not
be able to exercise the Warrants to the extent such exercise
would require the issuance of shares of Common Stock in excess of
19.99% of the shares of Common Stock. In addition, in
consideration for the Investors' agreement to purchase the
Debentures and the Warrants, the Company agreed to use its best
efforts to obtain stockholder approval of the exercise of the
Warrants. Therefore, if this Proposal 4 is not approved, that
agreement could require the Company to continue to seek
stockholder approval of the exercise of the Warrants, which could
be expensive for the Company.

Recommendation
- --------------

The Board of Directors of the Company believes that it
is in the best interests of the Company and its stockholders vote
to approve the issuance of shares of Common Stock in excess of
19.99% of the outstanding shares, if required in connection with
the exercise of certain Warrants to purchase shares of Common
Stock. The Board of Directors believes that the future success
of the Company will depend in large part on its ability to grow
the Company by effecting acquisitions. The proceeds from this
private financing provided, in part, the funding for the
acquisition of Mildred Elley. The exercise of the remaining
outstanding Warrants will provide the Company with additional
proceeds totaling approximately $306,650, which the Company will
use for further implementing its strategic plan.

In the event that the stockholders do not approve this
Proposal 4, the Company will be forced to forfeit approximately
$306,650 which the Company would have received upon the exercise
of the Warrants in excess of 19.99%, which could place the
Company at a competitive disadvantage in the event it locates a
suitable acquisition candidate. Accordingly, the Board of
Directors has approved, and recommends that the stockholders
approve, the issuance of shares of Common Stock in excess of
19.99% of the outstanding Common Stock in the event that the
Warrants are exercised.

THE VOTING TRUST INTENDS TO VOTE FOR THE PROPOSAL. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE PROPOSAL TO APPROVE
THE ISSUANCE OF SHARES OF COMMON STOCK IN EXCESS OF 19.99% OF THE
OUTSTANDING SHARES, IF REQUIRED IN CONNECTION WITH THE EXERCISE
OF CERTAIN WARRANTS TO PURCHASE SHARES OF COMMON STOCK.

PROPOSAL NO. 5

RATIFICATION OF INDEPENDENT AUDITORS

MANAGEMENT RECOMMENDS THAT YOU VOTE TO RATIFY
THE APPOINTMENT OF THE INDEPENDENT AUDITORS.

The Board of Directors of the Company has appointed the
firm of Lazar, Levine & Felix LLP ("Lazar") as its independent
auditors for the 2000 fiscal year. While it is not required to
do so, the Company is submitting the appointment of Lazar to the
stockholders for ratification. Lazar has been serving the
Company in this capacity since September 1995. A representative
from Lazar will be present at the Meeting and will be given the
opportunity to make a statement if the representative desires to
do so. The representative is expected to be available to respond
to appropriate questions. If the appointment of Lazar is not
ratified by the stockholders of the Company, the Board of
Directors will reconsider the appointment of Lazar.

THE BOARD OF DIRECTORS INTENDS THAT THE APPOINTMENT OF
THE INDEPENDENT AUDITORS BE RATIFIED BY A MAJORITY OF THE VOTES
CAST. THE VOTING TRUST INTENDS TO VOTE IN FAVOR OF THE PROPOSAL.

OTHER INFORMATION

Accompanying this Proxy Statement and the notice of
meeting which is the first page of this Proxy Statement is the
Company's Proxy and Annual Report for its fiscal year ended
October 31, 1999.

PROPOSALS OF SECURITY HOLDERS

Proposals of security holders intended to be presented
at the next Annual Meeting must be received by the Company for
inclusion in the Company's Proxy Statement and form of proxy
relating to that meeting no later than November __, 2000.

AVAILABILITY OF ANNUAL REPORT

COPIES OF THE COMPANY'S ANNUAL REPORT ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999, AS FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WILL BE PROVIDED FREE OF
CHARGE TO ANY STOCKHOLDER UPON WRITTEN REQUEST TO:

Ms. Linda G. Straley, Vice President and Secretary,
Touchstone Applied Science Associates, Inc., P.O. Box 382,
4 Hardscrabble Heights, Brewster, New York 10509.

LINDA G. STRALEY
Vice President and Secretary

Brewster, New York
February __, 2000

<PAGE>

Exhibit A
---------

TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.

2000 STOCK INCENTIVE PLAN
-------------------------

1. Purpose. The purpose of the 2000 Stock Incentive
-------
Plan (the "Plan") is to aid the Company in attracting, retaining
and motivating officers, key employees, consultants and directors
by providing them with incentives for making significant contri-
butions to the growth and profitability of the Company. The Plan
is designed to accomplish this goal by offering stock options and
other incentive awards, thereby providing Participants with a
proprietary interest in the growth, profitability and success of
the Company.

2. Definitions.
-----------

(a) Award. Any form of stock option, stock appreciation
-----
right, stock or cash award granted under the Plan, whether granted
singly, in combination or in tandem, pursuant to such terms,
conditions and limitations as the Committee may establish in order
to fulfill the objectives, and in accordance with the terms and
conditions, of the Plan.

(b) Award Agreement. An agreement between the Company
---------------
and a Participant setting forth the terms, conditions and
limitations applicable to an Award.

(d) Code. The Internal Revenue Code of 1986, as amended
----
from time to time.

(e) Committee. Such committee of the Board as may be
---------
designated from time to time by the Board to administer the Plan or
any subplan under the Plan. Any such committee shall consist of
not less than two members of the Board who are not officers or
employees of the Company.

(f) Company. Touchstone Applied Science Associates,
-------
Inc. and its direct and indirect subsidiaries.

(g) Exchange Act. The Securities Exchange Act of 1934,
------------
as amended.

(h) 1991 Plan. The Company's Amended and Restated 1991
---------
Stock Option Incentive Plan, as amended.

(i) Fair Market Value. If the Stock is listed on the
-----------------
New York Stock Exchange (or other national exchange), the average
of the high and low sale prices as reported on the New York Stock
Exchange (or such other exchange) or, if the Stock is not listed on
a national exchange, the closing price of the Stock in the over-the-
counter market, as reported by the National Association of
Securities Dealers through its Automated Quotation System or
otherwise, in either case for the date in question, provided that
--------
if no transactions in the Stock are reported for that date, the
average of the high and low sale prices or the closing price, as
appropriate, as so reported for the preceding day on which
transactions in the Stock were effected.

(j) Participant. An officer, director or employee of
-----------
the Company to whom an Award has been granted.

(k) Touchstone. Touchstone Applied Science Associates, Inc.
----------

(l) Stock. Authorized and issued or unissued shares of
-----
Common Stock, par value $.0001 per share, of Touchstone or any
security issued in exchange or substitution therefor.

3. Eligibility. Only officers, key employees,
-----------
consultants and directors who are also officers or employees of the
Company or who have been designated by the Board as eligible to
receive Awards are eligible to receive Awards under the Plan. Key
employees are those employees who hold positions of responsibility
or whose performance, in the judgment of the Committee, can have a
significant effect on the growth and profitability of the Company.

4. Stock Available for Awards. Subject to Section 14
--------------------------
hereof, a total of 300,000 shares of Stock, plus such additional
number of shares as becomes available under the 1991 Plan by reason
of the forfeiture of awards granted thereunder or their
cancellation or expiration without exercise shall be available for
issuance pursuant to Awards granted under the Plan, provided,
--------
however, that the aggregate number of shares of Stock subject to
- -------
options and upon which stock appreciation rights are based pursuant
to Awards hereunder shall not exceed 150,000 for any Participant
during any three consecutive fiscal-year periods beginning on or
after November 1, 2000. From time to time, the Board and
appropriate officers of Touchstone shall file such documents with
governmental authorities and, if the Stock is listed on the New
York Stock Exchange (or other national exchange), with such stock
exchange, as are required to make shares of Stock available for
issuance pursuant to Awards and publicly tradeable. Shares of
Stock related to Awards, or portions of Awards, that are forfeited,
canceled or terminated, expire unexercised, are surrendered in
exchange for other Awards, or are settled in cash in lieu of Stock
or in any other manner such that all or some of the shares of Stock
covered by an Award are not and will not be issued to a Par-
ticipant, shall be restored to the total number of shares of Stock
available for issuance pursuant to Awards, unless such Awards, or
portions thereof, are canceled in connection with an exchange for
options issued at a lower price or the holders of a majority of the
shares of Stock voting on such matter approve such exchange.

5. Administration.
--------------

(a) General. The Plan shall be administered by the
-------
Committee, which shall have full and exclusive power to (i) autho-
rize and grant Awards to persons eligible to receive Awards under
the Plan; (ii) establish the terms, conditions and limitations of
each Award or class of Awards, including terms, conditions and
limitations governing the extent (if any) to which the Award may be
assigned or transferred; provided that, Awards shall not be
--------
assignable or transferable to any person who is not at the time of
transfer a member of the Participant's immediate family or to any
entity that is not established for the benefit of, or wholly-owned
by, the Participant or a member or members of the Participant's
immediate family; (iii) construe and interpret the Plan and all
Award Agreements; (iv) grant waivers of Plan restrictions; (v)
adopt and amend such rules, procedures, regulations and guidelines
for carrying out the Plan as it may deem necessary or desirable;
and (vi) take any other action necessary for the proper operation
and administration of the Plan, all of which powers shall be
exercised in a manner consistent with the objectives, and in
accordance with the terms and conditions, of the Plan. The
Committee's powers shall include, but shall not be limited to, the
authority to (A) adopt such subplans as may be necessary or appro-
priate (1) to provide for the authorization and granting of Awards
to promote specific goals or for the benefit of specific classes of
Participants, (2) to provide for grants of Awards by means of for-
mulae, standardized criteria or otherwise, or (3) for any other
purposes as are consistent with the objectives of the Plan, and to
segregate shares of Stock available for issuance under the Plan
generally as being available specifically for the purposes of one
or more subplans, and (B) subject to Section 11 hereof, adopt
modifications, amendments, rules, procedures, regulations, subplans
and the like as may be necessary or appropriate (1) to comply with
provisions of the laws of other countries in which the Company may
operate in order to assure the effectiveness of Awards granted
under the Plan and to enable Participants employed in such other
countries to receive advantages and benefits under the Plan and
such laws, (2) to effect the continuation, acceleration or
modification of Awards under certain circumstances, including
events which might constitute a Change in Control (as set forth in
Section 7 hereof) of Touchstone, or (3) for any other purposes as
are consistent with the objectives of the Plan. All such
modifications, amendments, rules, procedures, regulations and
subplans shall be deemed to be a part of the Plan as if stated
herein.

(b) Committee Actions. All actions of the Committee
-----------------
with respect to the Plan shall require the vote of a majority of
its members or, if there are only two members, by the vote of both.
Any action of the Committee may be taken by a written instrument
signed by a majority (or both members) of the Committee, and any
action so taken shall be as effective as if it had been taken by a
vote at a meeting. All determinations and acts of the Committee as
to any matters concerning the Plan, including interpretations or
constructions of the Plan and any Award Agreement, shall be
conclusive and binding on all Participants and on any parties
validly claiming through any Participants.

6. Delegation of Authority. The Committee may delegate
-----------------------
to the Chief Executive Officer of Touchstone and to other executive
officers of the Company certain of its administrative duties under
the Plan, pursuant to such conditions or limitations as the Commit-
tee may establish, except that the Committee may not delegate its
authority with respect to (a) the selection of eligible persons as
Participants in the Plan, (b) the granting or timing of Awards,
(c) establishing the amount, terms and conditions of any such
Award, (d) interpreting the Plan, any subplan or any Award
Agreement or (e) amending or otherwise modifying the terms or
provisions of the Plan, any subplan or any Award Agreement.

7. Awards. Subject to Section 4, the Committee shall
------
determine the types and timing of Awards to be made to each
Participant and shall set forth in the related Award Agreement the
terms, conditions and limitations applicable to each Award. Awards
may include, but are not limited to, those listed below in this
Section 7. Awards may be granted singly, in combination or in
tandem, or in substitution for Awards previously granted under the
Plan. Awards may also be made in combination or in tandem with, in
substitution for, or as alternatives to, grants or rights under any
other benefit plan of the Company, including any such plan of any
entity acquired by, or merged with or into, the Company. Any such
Awards made in substitution for, or as alternatives to, grants or
rights under a benefit plan of an entity acquired by, or merged
with or into, the Company in order to give effect to the
transaction shall be deemed to be issued in accordance with the
terms and conditions of the Plan. Awards shall be effected through
Award Agreements executed by the Company in such forms as are ap-
proved by the Committee from time to time.

All or part of any Award may be subject to conditions
established by the Committee, and set forth in the Award Agreement,
which conditions may include, without limitation, achievement of
specific business objectives, increases in specified indices,
attainment of growth rates and other measurements of Company
performance.

The Committee may determine to make any or all of the
following Awards:

(a) Stock options. A grant of a right to purchase a
-------------
specified number of shares of Stock at an exercise price not less
than 100% of the Fair Market Value of the Stock on the date of
grant, during a specified period, all as determined by the
Committee. Without limitation, a stock option may be in the form
of (i) an incentive stock option which, in addition to being
subject to such terms, conditions and limitations as are es-
tablished by the Committee, complies with Section 422 of the Code,
provided that, no more than 300,000 shares of Stock in the
aggregate may be subject to options granted hereunder as incentive
stock options, or (ii) a non-qualified stock option subject to such
terms, conditions and limitations as are established by the Commit-
tee.

(b) Stock Appreciation Rights. A right to receive a
-------------------------
payment, in cash or Stock, equal to the excess of the Fair Market
Value (or other specified valuation) of a specified number of
shares of Stock on the date the stock appreciation right ("SAR") is
exercised over the Fair Market Value (or other specified valuation)
on the date of grant of the SAR, except that if a SAR is granted in
tandem with a stock option, valuations on the grant and exercise
dates shall be no less than as determined on the basis of Fair
Market Value. The eventual amount, vesting or issuance of an SAR
may be subject to future service, performance standards and such
other restrictions and conditions as may be established by the
Committee.

(c) Stock Awards. An Award made in Stock or denominated
------------
in units of Stock. The eventual amount, vesting or issuance of a
Stock Award may be subject to future service, performance standards
and such other restrictions and conditions as may be established by
the Committee. Stock Awards may be based on Fair Market Value or
another specified valuation.

(d) Cash Awards. An Award made or denominated in cash.
-----------
The eventual amount of a cash Award may be subject to future
service, performance standards and such other restrictions and
conditions as may be established by the Committee.

Dividend equivalency rights, on a current or deferred
basis, may be extended to and be made part of any Award denominated
in whole or in part in Stock or units of Stock, subject to such
terms, conditions and restrictions as the Committee may establish.

Notwithstanding the provisions of the paragraphs of this
Section 7, Awards may be subject to acceleration of exercisability
or vesting in the event of a Change in Control of Touchstone (i) as
set forth in agreements between Touchstone and certain of its
officers, directors and key employees which provide for certain
protections and benefits in the event of a change in control (as
defined in such agreements) or (ii) as may otherwise be determined
by the Committee under and in accordance with the terms and
conditions of the Plan. "Change in Control" for purposes of the
Plan shall mean a change in control of Touchstone under such
circumstances as shall be specified by (x) the Committee or (y)
where applicable to any Awards granted under the Plan by such
agreements between Touchstone and a Participant as (1) may have
been entered into prior to the effective date of the Plan or (2)
shall be entered into after the effective date of the Plan with, to
the extent such an agreement is applicable to an Award, the ap-
proval of the Committee. A "Change in Control" may, without
limitation, be deemed to have occurred if (A) any "person" or
"group" of persons (as the terms "person" and "group" are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended, and the rules thereunder) is or becomes the beneficial
owner, directly or indirectly, of securities of Touchstone
representing 30% or more of the combined voting power of the then
outstanding securities of Touchstone, or (B) a change of more than
25% in the composition of the Board occurs within a two-year
period, unless such change in composition was approved in advance
by at least two-thirds of the previous directors.

8. Payment under Awards. Payment by the Company
--------------------
pursuant to Awards may be made in the form of cash, Stock or
combinations thereof and may be subject to such restrictions as the
Committee determines, including, in the case of Stock, restrictions
on transfer and forfeiture provisions. Stock subject to transfer
restrictions or forfeiture provisions is referred to herein as
"Restricted Stock". The Committee may provide for payments to be
deferred, such future payments to be made in installments or by
lump-sum payment. The Committee may permit selected Participants
to elect to defer payments of some or all types of Awards in
accordance with procedures established by the Committee to assure
that such deferrals comply with applicable requirements of the
Code.

The Committee may also establish rules and procedures for
the crediting of interest on deferred cash payments and of dividend
equivalencies on deferred payments to be made in Stock or units of
Stock.

At the discretion of the Committee, a Participant may be
offered an election to substitute an Award for another Award or
Awards, or for awards made under any other benefit plan of the
Company, of the same or different type.

9. Stock Option Exercise. The price at which shares of
---------------------
Stock may be purchased upon exercise of a stock option shall be
paid in full, or arrangements acceptable to the Committee for
payment in full shall be made, at the time of the exercise, in cash
or, if permitted by the Committee, by (a) tendering Stock or
surrendering another Award, including Restricted Stock, or an
option or other award granted under another benefit plan of the
Company, in each case valued at, or on the basis of, Fair Market
Value on the date of exercise, (b) delivery of a promissory note
issued by a Participant to the Company pursuant to the terms and
conditions as determined by the Committee, or (c) any other means
acceptable to the Committee. The Committee shall determine
acceptable methods for tendering Stock or surrendering other Awards
or grants and may impose such conditions on the use of Stock or
other Awards or grants to exercise a stock option as it deems
appropriate. If shares of Restricted Stock are tendered as consid-
eration for the exercise of a stock option, the Committee may
require that the number of shares issued upon exercise of the stock
option equal to the number of shares of Restricted Stock used as
consideration therefor be subject to the same restrictions as the
Restricted Stock so surrendered and any other restrictions as may
be imposed by the Committee. The Committee may also permit
Participants to exercise stock options and simultaneously sell some
or all of the shares of Stock so acquired pursuant to a brokerage
or similar arrangement which provides for the payment of the
exercise price substantially concurrently with the delivery of such
shares.

10. Tax Withholding. The Company shall have the right
---------------
to deduct applicable taxes from any Award payment or shares of
Stock receivable under an Award and to withhold an appropriate
number of shares of Stock for payment of taxes required by law or
to take such other action as may be necessary in the opinion of the
Company to satisfy all tax withholding obligations. In addition,
the Committee may permit Participants to elect to (a) have the
Company deduct applicable taxes resulting from any Award payment
to, or exercise of an Award by, such Participant by withholding an
appropriate number of shares of Stock for payment of tax obli-
gations or (b) tender to the Company for the purpose of satisfying
tax payment obligations other Stock held by the Participant. If
the Company withholds shares of Stock to satisfy tax payment
obligations, the value of such Stock in general shall be its Fair
Market Value on the date of the Award payment or the date of
exercise of an Award, as the case may be. If a Participant tenders
shares of Stock pursuant to clause (b) above to satisfy tax payment
obligations, the value of such Stock shall be the Fair Market Value
on the date the Participant tenders such Stock to the Company.

11. Amendment, Modification, Suspension or Termination
--------------------------------------------------
of the Plan. The Board may amend, modify, suspend or terminate the
- -----------
Plan, or adopt subplans under the Plan, (a) for the purpose of
meeting or addressing any changes in any applicable tax, securities
or other laws, rules or regulations, or (b) for any other purpose
permitted by law. Subject to changes in law or other legal
requirements that would permit otherwise, the Plan may not be
amended without the approval of the stockholders to (i) increase
materially the aggregate number of shares of Stock that may be
issued under the Plan (except for any increase resulting from
adjustments pursuant to Section 14 hereof), (ii) increase the
aggregate number of shares that may be issued to any individual
Participant pursuant to options, or which are used as a basis of
SARs granted under the Plan, or (iii) modify materially the
requirements as to eligibility for participation in the Plan.
Further, the Plan may not be amended in a manner that would alter,
impair, amend, modify, suspend or terminate any rights of a Parti-
cipant or obligation of the Company under any Awards theretofore
granted, in any manner adverse to any such affected Participant,
without the consent of such affected Participant.

12. Termination of Employment. Except as otherwise set
-------------------------
forth in an applicable Award Agreement or determined by the
Committee, or as otherwise provided in paragraph (a) or (b) of this
Section 12, if a Participant's employment by or association with
the Company terminates, all unexercised, deferred and unpaid Awards
(or portions of Awards) shall be canceled immediately.

(a) Retirement, Resignation or Other Termination. If a
--------------------------------------------
Participant's employment or association with the Company terminates
by reason of the Participant's retirement or resignation, or for
any other reason (other than the Participant's death or
disability), the Committee may, under circumstances in which it
deems an exception from the provisions of the first sentence of
this Section 12 to be appropriate to carry out the objectives of
the Plan and to be consistent with the best interests of the
Company, permit Awards to continue in effect and be exercisable or
payable beyond the date of such termination, up until the
expiration date specified in the applicable Award Agreement and
otherwise in accordance with the terms of the applicable Award
Agreement, and may accelerate the exercisability or vesting of any
Award, in either case, in whole or in part.

(b) Death or Disability.
-------------------

(i) In the event of a Participant's death, the
Participant's estate or beneficiaries shall have a period, not
extending beyond the expiration date specified in the
applicable Award Agreement (except as otherwise provided in
such Award Agreement), within which to exercise any
outstanding Award held by the Participant, as may be specified
in the Award Agreement or as may otherwise be determined by
the Committee. All rights in respect of any such outstanding
Awards shall pass in the following order: (A) to beneficiaries
so designated in writing by the Participant; or if none, then
(B) to the legal representative of the Participant; or if
none, then (C) to the persons entitled thereto as determined
by a court of competent jurisdiction. Awards so passing shall
be exercised or paid at such times and in such manner as if
the Participant were living, except as otherwise provided in
the applicable Award Agreement or as determined by the
Committee.

(ii) If a Participant ceases to be employed by or
associated with the Company because the Participant is deemed
by the Company to be disabled, outstanding Awards held by the
Participant may be paid to or exercised by the Participant, if
legally competent, or by a committee or other legally
designated guardian or representative if the Participant is
legally incompetent, for a period, not extending beyond the
expiration date specified in the applicable Award Agreement
(except as otherwise provided in such Award Agreement),
following the termination of his or her employment by or
association with the Company, as may be specified in the Award
Agreement or as may otherwise be determined by the Committee.

(iii) After the death or disability of a Participant,
the Committee may at any time (A) terminate restrictions with
respect to Awards held by the Participant, (B) accelerate the
vesting or exercisability of any or all installments and
rights of the Participant in respect of Awards held by the
Participant, and (C) instruct the Company to pay the total of
any accelerated payments under the Awards in a lump sum to the
Participant or to the Participant's estate, beneficiaries or
representatives, notwithstanding that, in the absence of such
termination of restrictions or acceleration of payments, any
or all of the payments due under the Awards might ultimately
have become payable to other beneficiaries.

(iv) In the event of uncertainty as to the in-
terpretation of, or controversies concerning, paragraph (b) of
this Section 12, the Committee's determinations shall be
binding and conclusive on all Participants and any parties
validly claiming through them.

13. Nonassignability.
----------------

(a) Except as the Committee may expressly provide
otherwise in or with respect to an Award Agreement, in each case in
accordance with paragraph (a)(ii) of Section 5 hereof, and except
as provided in paragraphs (a) and (b) of Section 12 hereof and
paragraph (b) of this Section 13, no Award or any other benefit
under the Plan, or any right with respect thereto, shall be assign-
able or transferable, or payable to or exercisable by, anyone other
than the Participant to whom it is granted.

(b) If a Participant's employment by or association with
the Company terminates in order for such Participant to assume a
position with a governmental, charitable or educational agency or
institution, and the Participant retains Awards pursuant to
paragraph (a) of Section 12 hereof, the Committee, in its
discretion and to the extent permitted by law, may authorize a
third party (including, without limitation, the trustee of a
"blind" trust), acceptable to the applicable authorities, the
Participant and the Committee, to act on behalf of the Participant
with respect to such Awards.

14. Adjustments. In the event of any change in the
-----------
outstanding Stock by reason of a stock split, stock dividend,
combination or reclassification of shares, recapitalization,
merger, consolidation or similar event, the Committee shall adjust
proportionally (a) the number of shares of Stock (i) reserved under
the Plan, (ii) available for options or other Awards and available
for issuance pursuant to options, or upon which SARs may be based,
for individual Participants and (iii) covered by outstanding Awards
denominated in Stock or units of Stock; (b) the prices related to
outstanding Awards; and (c) the appropriate Fair Market Value and
other price determinations for such Awards. In the event of any
other change affecting the Stock or any distribution (other than
normal cash dividends) to holders of Stock, such adjustments as may
be deemed equitable by the Committee, including adjustments to
avoid fractional shares, shall be made to give proper effect to
such event. In the event of a corporate merger, consolidation,
acquisition of property or stock, separation, reorganization or
liquidation, the Committee shall be authorized to issue or assume
stock options or other awards, whether or not in a transaction to
which Section 424(a) of the Code applies, by means of substitution
of new stock options or Awards for previously issued stock options
or awards or an assumption of previously issued stock options or
awards.

15. Notice. Any written notice to Touchstone required
------
by any of the provisions of the Plan shall be addressed to the
Committee, c/o the Secretary of Touchstone, and shall become
effective when received by the Secretary.

16. Unfunded Plan. Insofar as the Plan provides for
-------------
Awards of cash or Stock, the Plan shall be unfunded unless and
until the Board or the Committee otherwise determines. Although
bookkeeping accounts may be established with respect to
Participants who are entitled to cash, Stock or rights thereto
under the Plan, any such accounts shall be used merely as a
bookkeeping convenience. Unless the Board otherwise determines,
(a) the Company shall not be required to segregate any assets that
may at any time be represented by cash, Stock or rights thereto,
nor shall the Plan be construed as providing for such segregation,
nor shall the Company, the Board or the Committee be deemed to be
a trustee of any cash, Stock or rights thereto to be granted under
the Plan; (b) any liability of the Company to any Participant with
respect to a grant of cash, Stock or rights thereto under the Plan
shall be based solely upon any contractual obligations that may be
created by the Plan and an Award Agreement; (c) no such obligation
of the Company shall be deemed to be secured by any pledge or other
encumbrance on any property of the Company; and (d) neither the
Company, the Board nor the Committee shall be required to give any
security or bond for the performance of any obligation that may be
created by or pursuant to the Plan.

17. Payments to Trust. Notwithstanding the provisions
-----------------
of Section 16 hereof, the Board or the Committee may cause to be
established one or more trust agreements pursuant to which the
Committee may make payments of cash, or deposit shares of Stock,
due or to become due under the Plan to Participants.

18. No Right to Employment. Neither the adoption of the
----------------------
Plan nor the granting of any Award shall confer on any Participant
any right to continued employment by or association with the
Company or in any way interfere with the Company's right to
terminate the employment or association of any Participant at any
time, with or without cause, and without liability therefor.
Awards, payments and other benefits received by a Participant under
the Plan shall not be deemed a part of the Participant's regular,
recurring compensation for any purpose, including, without
limitation, for the purposes of any termination indemnity or sever-
ance pay law of any jurisdiction.

19. Governing Law. The Plan and all determinations made
-------------
and actions taken pursuant hereto, to the extent not otherwise
governed by the Code or the securities laws of the United States,
shall be governed by and construed under the laws of the State of
Delaware.

20. Effective and Termination Dates. The Plan, and any
-------------------------------
amendment hereof requiring stockholder approval, shall become
effective as of the date of its approval by the stockholders of
Touchstone by the affirmative vote of a majority of the votes cast
at a stockholders' meeting at which the approval of the Plan (or
any such amendment) is considered, provided that the total vote
--------
cast represents over 50% of all shares entitled to vote on the
proposal. The Plan shall terminate ten years after its initial
effective date, subject to earlier termination by the Board
pursuant to Section 11 hereof, except as to Awards then
outstanding.

<PAGE>

Exhibit B
---------

TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.

AMENDED AND RESTATED DIRECTORS STOCK OPTION PLAN
------------------------------------------------

1. Purpose. The purpose of the Directors Stock
-------
Option Plan (the "Plan") is to aid the Company in attracting,
retaining and motivating directors by providing them with
incentives for making significant contributions to the growth and
profitability of the Company. The Plan is designed to accomplish
this goal by the granting of stock options, thereby providing
Participants with a proprietary interest in the growth,
profitability and success of the Company.

2. Definitions.
-----------

(a) Board. The Board of Directors of the Company.
-----

(b) Code. The Internal Revenue Code of 1986, as
----
amended from time to time.

(c) Committee. The members of the Board who are not
---------
eligible to participate in the Plan, or a committee composed of
such members (consisting of not less than two persons) as may be
designated from time to time by all such members, who shall
administer the Plan.

(d) Company. Touchstone Applied Science Associates, Inc.
-------

(e) Fair Market Value. If the Stock is listed on the
-----------------
New York Stock Exchange (or other national exchange), the average
of the high and low sale prices as reported on the New York Stock
Exchange (or such other exchange) or, if the Stock is not listed
on a national exchange, the average of the high and low sale
prices of the Stock in the over-the-counter market, as reported
by the National Association of Securities Dealers through its
Automated Quotation System or otherwise, in either case for the
date in question, provided that if no transactions in the Stock
are reported for that date, the average of the high and low sale
prices as so reported for the preceding day on which transactions
in the Stock were effected.

(f) Non-Employee Directors. Directors of the Company
----------------------
who are not officers or employees of the Company or any direct or
indirect subsidiary of the Company.

(g) Option. A non-qualified stock option to purchase
------
shares of Stock granted pursuant to the terms and conditions of
the Plan.

(h) Option Agreement. An agreement between the
----------------
Company and a Participant setting forth the terms, conditions and
limitations applicable to an Option.

(i) Participant. A director of the Company to whom an
-----------
Option has been granted.

(j) Stock. Authorized and issued or unissued shares
-----
of Common Stock of the Company or any security issued in exchange
or substitution therefor.

(k) Stock Incentive Plan Committee. The committee
------------------------------
designated to administer each of the Amended and Restated 1991
Stock Option Incentive Plan and the 2000 Stock Incentive Plan.

3. Eligibility. Only the following persons are
-----------
eligible to participate in the Plan: (a) directors who are mem-
bers of the Stock Incentive Plan Committee and (b) Non-Employee
Directors who (i) have not been designated by the Board within
30 days after becoming a director as being eligible to receive
Awards under either of the Amended and Restated 1991 Stock Option
Incentive Plan or the 2000 Stock Option Incentive Plan, or
(ii) having been eligible to participate in either of the Amended
and Restated 1991 Stock Option Incentive Plan or the 2000 Stock
Incentive Plan, have ceased to be so eligible as a result of a
determination by the Board. The eligibility of any such director
to participate in the Plan shall cease if such director is
subsequently designated as being eligible to receive Awards (as
defined in each of the Amended and Restated 1991 Stock Option
Incentive Plan and the 2000 Stock Incentive Plan) under either of
the Amended and Restated 1991 Stock Option Incentive Plan or the
2000 Stock Incentive Plan.

4. Stock Available for Options. Subject to Section 8
---------------------------
hereof, a total of 75,000 shares of Stock shall be available for
issuance pursuant to options granted under the Plan. From time
to time, the Board and appropriate officers of the Company shall
file such documents with governmental authorities and, if the
Stock is listed on the New York Stock Exchange (or other national
exchange), with such stock exchange, as are required to make
shares of Stock available for issuance pursuant to Options and
publicly tradeable. Shares of Stock related to Options, or
portions of Options, that are forfeited, canceled or terminated,
expire unexercised, are surrendered in exchange for other
Options, or in such manner that all or some of the shares covered
by an Option are not and will not be issued to a Participant,
shall be restored to the total number of shares of Stock
available for issuance pursuant to Options.

5. Administration. The Plan shall be administered by
--------------
the Committee, which shall have full and exclusive power to
(a) construe and interpret the Plan and all Option Agreements,
(b) adopt and amend such rules, procedures, regulations and
guidelines for carrying out the Plan as it may deem necessary or
desirable and (c) take any other action necessary for the proper
operation and administration of the Plan, all of which powers
shall be exercised in a manner consistent with the objectives,
and in accordance with the terms and conditions, of the Plan;
provided, however, that no discretion regarding the grant,
- -------- -------
amount, timing, terms and conditions of Options granted under the
Plan (which are established by the Plan), shall be afforded to
the Committee. All actions of the Committee with respect to the
Plan shall require the vote of a majority of its members or, if
there are only two members, by the vote of both. Any action of
the Committee may be taken by a written instrument signed by a
majority (or both) of such members and any action so taken shall
be as effective as if it had been taken by a vote of such members
at a meeting. All determinations and acts of the Committee as to
any matters concerning the Plan, including interpretations or
constructions of the Plan and any Award Agreement, shall be
conclusive and binding on all Participants and on any parties
validly claiming through any Participants.

6. Granting of Options.
-------------------

(a) On the date the Plan becomes effective, each
director who at such date is eligible to participate in the Plan
shall automatically be granted an Option to purchase 5,000 shares
of Stock.

(b) On the date of the Annual Meeting of Stockholders
to be held in March 1996, and on the date of each succeeding
Annual Meeting of Stockholders, each director of the Company who
remains a director and eligible to participate in the Plan shall
automatically be granted an Option to purchase 2,500 shares of
Stock.

(c) On the date that any Non-Employee Director (other
than a director who received a grant pursuant to subparagraph (a)
of this Section 6) first becomes eligible to participate in the
Plan, such Non-Employee Director shall automatically be granted
an Option to purchase 5,000 shares of Stock.

(d) Commencing on the date of the Annual Meeting of
Stockholders of the Company (i) on or next preceding the second
anniversary of the date on which a Participant becomes eligible
to participate in the Plan, in the case of a Participant who is
granted an Option pursuant to subparagraph (c) of this Section 6,
or (ii) on or next preceding the first anniversary of the date on
which a Non-Employee Director becomes eligible to participate in
the Plan, in the case of a Non-Employee Director who is not
granted an Option pursuant to subparagraph (c) of this Section 6,
and, in each case, on the date of each succeeding Annual Meeting
of Stockholders, any such Participant, if remaining a director
and eligible to participate in the Plan, shall automatically be
granted an Option to purchase 2,500 shares of Stock.

(e) Notwithstanding the foregoing, no Option shall be
granted to any person whose service as a director ends at the
Annual Meeting of Stockholders on the date of which the Option
would otherwise be granted.

(f) The number of shares of Stock for which Options
shall be granted under this Section 6 is subject to adjustment as
set forth in Section 7(l) hereof.

7. Options. Each Option granted pursuant to, or
-------
otherwise to be governed by the terms and conditions of, the Plan
shall have the following terms and conditions:

(a) Each Option shall have an exercise price equal to
the Fair Market Value of a share of Stock on the date of
grant.

(b) The price at which shares of Stock may be pur-
chased upon exercise of an Option shall be paid in full at
the time of exercise, in cash or by (i) tendering Stock or
surrendering another stock option, valued at, or on the
basis of, the Fair Market Value of the Stock on the date of
exercise, (ii) delivery of a promissory note issued by a
Participant to the Company in a form determined by the
Committee, or (iii) other means acceptable to the Committee.
The Committee shall determine acceptable methods for
tendering Stock or surrendering other stock options. Par-
ticipants may also exercise Options and simultaneously sell
some or all of the shares of Stock so acquired pursuant to a
brokerage or similar arrangement which provides for the pay-
ment of the Option exercise price substantially concurrently
with the delivery of such shares.

(d) Each Option shall be exercisable after the first
anniversary of the date of grant.

(e) The Company shall have the right to deduct
applicable taxes resulting from any exercise of or other
payment on an Option and to withhold an appropriate number
of shares of Stock for payment of tax withholding
obligations, if any, or to take such other action as may be
necessary in the opinion of the Company to satisfy any tax
withholding obligations. In addition, Participants may
elect to (i) have the Company deduct applicable taxes by
withholding an appropriate number of shares of Stock for
payment of taxes required by law or (ii) tender to the Com-
pany for the purpose of satisfying tax payment obligations
other Stock held by the Participant. If the Company
withholds shares of Stock to satisfy tax payment
obligations, the value of such Stock shall be its Fair
Market Value on the date the Option is exercised. If a
Participant tenders shares of Stock pursuant to clause (ii)
above to satisfy tax payment obligations, the value of such
Stock shall be the Fair Market Value on the date the
Participant tenders such Stock to the Company.

(f) Except as otherwise set forth in the applicable
Option Agreement or as otherwise provided in paragraphs (g),
(h), (i) and (j) of this Section 7, if a Participant's
association with the Company terminates, any unexercised
Option (or portion thereof) shall, to the extent it is exer-
cisable pursuant to the terms of such Option on the date of
such termination, remain exercisable for a period of three
months following the date of termination or until the stated
expiration date of the Option, if earlier.

(g) If a Participant dies, any outstanding Option then
held by the Participant shall become fully exercisable as of
the date of the Participant's death. Any such Option shall
be exercisable by the Participant's estate or beneficiaries
following the Participant's death through the expiration
date specified in the applicable Option Agreement and in
such manner as if the Participant were living. Rights with
respect to any such Option shall pass in the following
order: (i) to beneficiaries so designated in writing by the
Participant; or if none, then (ii) to the Participant's
legal representatives; or if none, then (iii) to the persons
entitled thereto as determined by a court of competent
jurisdiction.

(h) If a Participant ceases to be associated with the
Company because the Participant is deemed by the Company to
be disabled, any Option held by the Participant may be
exercised by the Participant, if legally competent, or by a
committee or other legally designated guardian or
representative if the Participant is legally incompetent,
through the expiration date specified in the applicable
Option Agreement. Any such Option shall become fully
exercisable as of the date of the Participant's termination
of his or her association with the Company by virtue of such
disability.

(i) If a Participant's association with the Company
terminates in order that such Participant may assume a
position with a governmental, charitable or educational
agency or institution, such Participant's Options, to the
extent permitted by law, shall continue in effect and be
exercisable beyond the date of termination, up until the ex-
piration date specified in the applicable Option Agreement.
Any such Option shall become fully exercisable as of the
date of the Participant's termination. To the extent
permitted by law, the Participant may authorize a third
party (including, without limitation, the trustee of a
"blind" trust), acceptable to the applicable authorities,
the Participant and the Committee, to act on behalf of the
Participant with respect to such Options.

(j) If a Participant's association with the Company
terminates by reason of the Participant's retirement at
62 years of age or thereafter, any outstanding Option then
held by the Participant shall become fully exercisable as of
the date of the Participant's retirement. Any such Option
shall be exercisable through the expiration date specified
in the applicable Option Agreement.

(k) No Option shall be assignable or transferable to,
or exercisable by, anyone other than the Participant to whom
it is granted, except as provided in subparagraphs (g), (h),
(i) and (j) of this Section 7.

(l) In the event of any change in the number of shares
of outstanding Stock by reason of a stock split, stock
dividend, combination or reclassification of shares,
recapitalization, merger, consolidation or similar event,
the Committee shall adjust proportionally the number of
shares of Stock covered by each outstanding Option and the
exercise price thereof. In the event of any other change
affecting the Stock or any distribution (other than normal
cash dividends) to holders of Stock, such adjustments as may
be deemed equitable by the Committee, including adjustments
to avoid fractional shares, shall be made to give proper
effect to such event.

(m) Notwithstanding the provisions of paragraph (d) of
this Section 7, Options shall be subject to acceleration of
exercisability in the event of a Change in Control of the
Company, as provided in agreements between the Company and
certain of its officers and directors which provide for
certain protections and benefits in the event of a Change in
Control (as defined in such agreements), or as shall be
provided in applicable Option Agreements. "Change in
Control" for purposes of the Plan and any Options shall mean
a change in control of the Company under such circumstances
as shall be specified (i) where applicable to any Options by
any such agreement between the Company and a Participant as
(A) may have been entered into prior to the effective date
of the Plan or (B) shall be entered into after the effective
date of the Plan upon such terms and conditions, to the
extent applicable to any Options, as are substantially the
same as those contained in earlier prior agreements with
certain officers and directors, or (ii) in the applicable
Option Agreement. For the purposes of the Plan or any
Option, a "Change in Control" may, without limitation, be
deemed to have occurred if (x) any "person" or "group" of
persons (as the terms "person" and "group" are used in
Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended, and the rules thereunder) is or becomes
the beneficial owner, directly or indirectly, of securities
of the Company representing 30% or more of the combined
voting power of the then outstanding securities of the
Company or (y) a change of more than 25% in the composition
of the Board occurs within a two-year period, unless such
change in the Board composition was approved in advance by
at least two-thirds of the previous directors.

8. Adjustments. In the event of any change in the
-----------
outstanding Stock by reason of a stock split, stock dividend,
combination or reclassification of shares, recapitalization,
merger, consolidation or similar event, the Committee shall
adjust proportionally the number of shares of Stock (a) reserved
for issuance pursuant to the Plan and (b) available for Options.

9. Amendment or Termination. The Committee may
------------------------
amend, modify, suspend or terminate the Plan for the purpose of
(a) meeting or addressing any changes in any applicable tax,
securities or other laws, rules or regulations or (b) for any
other purpose permitted by law; provided, however, that the
-------- -------
provisions of the Plan fixing the selection of Participants, the
granting and timing of Options and the terms and conditions of
such Options shall not be amended (other than to comport with
changes in the Code or the Employee Retirement Income Security
Act, as amended, or the rules thereunder), more than once every
six months. Further, subject to changes in law or other legal
requirements which would permit otherwise, the Plan may not be
amended without stockholder approval to (i) materially increase
the aggregate number of shares of Stock that may be issued under
the Plan (except for any increase resulting from adjustments pur-
suant to Section 7(l) or 8 hereof) or (ii) materially increase
the benefits accruing to Participants or (iii) materially modify
the requirements as to eligibility for participation in the Plan.
Further, the Plan may not be amended in a manner that would al-
ter, impair, amend, modify, suspend or terminate any rights of a
Participant or obligation of the Company under any Options
theretofore granted, in any manner adverse to such affected
Participant, without the consent of such affected Participant.

10. Notice. Any written notice to the Company
------
required by any of the provisions of the Plan shall be addressed
to the Committee, c/o the Secretary of the Company, and shall
become effective when received by the Secretary.

11. Governing Law. The Plan and all determinations
-------------
made and actions taken pursuant hereto, to the extent not
otherwise governed by the Code or the securities laws of the
United States, shall be governed by and construed under the laws
of the State of Delaware.

12. Effective and Termination Dates. The Plan, and
-------------------------------
any amendment hereof requiring stockholder approval, shall become
effective as of the date of its approval by the stockholders of
the Company by the affirmative vote of a majority of the votes
cast at a stockholders' meeting at which the approval of the Plan
(or any such amendment) is considered, provided that the total
--------
vote cast represents over 50% of all shares entitled to vote on
the proposal. The Plan shall terminate ten years after its
initial effective date, subject to earlier termination by the
Board pursuant to Section 9 hereof, except as to Options then
outstanding.

<PAGE>

TOUCHSTONE APPLIED SCIENCE ASSOCIATES, INC.
PROXY--Annual Meeting of Stockholders--March 31, 2000
PROXY SOLICITED BY THE BOARD OF DIRECTORS

The undersigned, a stockholder of TOUCHSTONE APPLIED SCIENCE
ASSOCIATES, INC., a Delaware corporation (the "Company"), does
hereby appoint ANDREW L. SIMON and LINDA G. STRALEY, and each of
them, the true and lawful attorneys and proxies, with full power
of substitution, for and in the name, place and stead of the
undersigned, to vote, as designated below, all of the shares of
stock of the Company which the undersigned would be entitled to
vote if personally present at the Annual Meeting of Stockholders
of the Company to be held at the headquarters of the Company at 4
Hardscrabble Heights, Brewster, New York 10509, on March 31,
2000, at 10:00 a.m., local time, and at any adjournment or
adjournments thereof.

Please mark
[X] votes as in
this example

UNLESS OTHERWISE DIRECTED, THIS PROXY WILL BE VOTED IN ACCORDANCE
WITH THE RECOMMENDATIONS OF THE BOARD OF DIRECTORS.

1. Election of Directors

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE NOMINEES.

Nominees: Michael D. Beck, Steven R. Berger, Joseph A.
Fernandez, Andrew L. Simon, Linda G. Straley and
David L. Warnock

WITHHELD
FOR ALL [ ] FROM ALL [ ]
NOMINEES NOMINEES

For, except vote withheld from the following nominee(s):

[ ] ____________________________________________________

2. Approval of the 2000 Stock Incentive Plan

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

3. Approval of the Amended and Restated Directors Stock Option Plan

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

4. Approval of the issuance of shares of Common Stock in excess
of 19.99% of the outstanding shares, if required in
connection with the exercise of certain Warrants to purchase
shares of Common Stock

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

5. Ratification of the Company's Independent Auditors

THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

6. To vote with discretionary authority with respect to all
other matters which may come before the meeting.

The undersigned hereby revokes any proxy or proxies heretofore
given and ratifies and confirms all that the proxies appointed
hereby, or either one of them, or their substitutes, may lawfully
do or cause to be done by virtue hereof. Both of said proxies or
their substitutes who shall be present and act at the meeting, or
if only one is present and acts, then that one, shall have and
may exercise all of the powers hereby granted to such proxies.
The undersigned hereby acknowledges receipt of a copy of the
Notice of Annual Meeting and Proxy Statement, both dated February
__, 2000, and a copy of the Annual Report for the fiscal year
ended October 31, 1999.

[ ] MARK HERE FOR ADDRESS CHANGE AND INDICATE CHANGE:

Signature: Date
---------------------------------------- -----------------

NOTE: Your signature should appear the same as your name
appears hereon. In signing as attorney, executor,
administrator, trustee or guardian, please indicate the
capacity in which signing. When signing as joint
tenants, all parties in the joint tenancy must sign.
When a proxy is given by a corporation, it should be
signed by an authorized officer and the corporate seal
affixed. No postage is required if returned in the
enclosed envelope and mailed in the United States.