SCHEDULE 14A
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. ______)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
The American Education Corporation
(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required
[ ] Fee computed on table below per Exchange Act Rules 14a-
6(i)(4) and 0-11.
1) Title of each class of securities to which transaction
applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the amount
on which the filing fee is calculated and state how it was
determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid.
[ ] Fee paid previously with preliminary material.
[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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THE AMERICAN EDUCATION CORPORATION
7506 North Broadway Extension, Suite 505
Oklahoma City, Oklahoma 73116
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
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To Be Held Friday, May 29, 1998
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To the Shareholders of The American Education Corporation:
The 1998 Annual Meeting of Shareholders of The American Education
Corporation ("AEC" or the "Company") will be held on May 29, 1998
at 10 A.M. (Oklahoma City time), at the Fifth Season Inn located
at 6200 N. Robinson, Oklahoma City, Oklahoma, for the following
purposes:
1. To elect four directors to serve until their successors are
duly elected and qualified;
2. To amend the Company's Articles of Incorporation to
increase the Company's authorized Common Stock from 15,000,000
shares to 30,000,000 shares;
3. To ratify the selection of Steakley, Gilbert & Bozalis,
P.C. as the independent accountants for the Company for the
fiscal year ending December 31, 1998;
4. To approve the Company's Directors' Stock Option Plan;
5. To approve the Company's Stock Option Plan for employees;
and
6. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The names of the nominees for director are set forth in the
accompanying Proxy Statement.
The close of business on April 20, 1998 (the "Record Date") has
been fixed by the Board of Directors as the record date for the
determination of the holders entitled to notice of and to vote at
the Annual Meeting. Only holders of record of the Company's
Common Stock as of the close of business on the Record Date will
be entitled to notice of and to vote at the Annual Meeting and
any adjournment thereof.
A complete list of shareholders of record entitled to vote at the
Annual Meeting will be open and available for examination by any
shareholder of the Company during ordinary business hours at the
Company's principal executive office at 7506 North Broadway
Extension, Suite 505, Oklahoma City, Oklahoma 73116, from April
24, 1998 to May 29, 1998 and at the time and place of the Annual
Meeting.
A copy of the Company's Annual Report for 1997, which contains
audited financial statements and other information of interest
with respect to the Company and its shareholders, is enclosed.
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE
MEETING, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND
MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE TO ASSURE
REPRESENTATION OF YOUR SHARES. NO POSTAGE IS REQUIRED IF MAILED
WITHIN THE UNITED STATES. SHOULD YOU ATTEND, YOU MAY, IF YOU
WISH, WITHDRAW YOUR PROXY AND VOTE YOUR SHARES IN PERSON. THE
PROXY MUST BE SIGNED AND RETURN IN ORDER TO BE COUNTED.
By Order of the Board of Directors
/s/Jeffrey E. Butler
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President and Chief Executive Officer
Oklahoma City, Oklahoma
April 20, 1998
THE AMERICAN EDUCATION CORPORATION
7506 North Broadway Extension, Suite 505
Oklahoma City, Oklahoma 73116
PROXY STATEMENT
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For Annual Meeting of Shareholders
To Be Held Friday, May 29, 1998
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Introduction
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This Proxy Statement is furnished in connection with the
solicitation of proxies by the Board of Directors of The American
Education Corporation ("AEC" or the "Company") to be voted at the
1998 Annual Meeting of Shareholders of the Company on May 29,
1998, at 10 A.M. (Oklahoma City time), which meeting will be held
at the Fifth Season Inn located at 6200 N. Robinson, Oklahoma
City, Oklahoma. Information in this Proxy Statement is as of
April 20, 1998 unless otherwise stated. The approximate date on
which the Proxy Statement and enclosed form of proxy have been
mailed to shareholders is April 22, 1998.
The Company will bear the cost of the solicitation of proxies,
including the charges and expenses of forwarding solicitation
materials to beneficial owners of the Company's Common Stock.
The Company has arranged for American Securities Transfer & Trust
to serve as its agent to mail the proxy materials and coordinate
and oversee the return of proxy cards. The anticipated cost of
the services of American Securities Transfer & Trust total
approximately $9,000. In addition to soliciting proxies by mail,
directors, executive officers and employees of the Company,
without receiving extra compensation therefor, may solicit
proxies by telephone, by telegram, by telefacsimile or in person.
Voting Rights and Outstanding Shares
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Only holders of record of Common Stock at the close of business
on April 20, 1998 (the "Record Date") will be entitled to vote
at the Annual Meeting. On the Record Date, there were 12,399,079
shares of Common Stock, par value $0.025 per share (the "Common
Stock"), issued and outstanding. Each share of Common Stock is
entitled to one vote on all matters on which shareholders may
vote. There is no cumulative voting in the election of
directors. Shares of Common Stock are the only securities of the
Company entitled to vote at the Annual Meeting.
Votes cast by proxy or in person at the Annual Meeting will be
tabulated by the inspectors of election appointed for the Annual
Meeting. The inspectors of election will determine whether or
not a quorum is present. The presence in person or by proxy of
the holders of one-third of the outstanding shares of Common
Stock entitled to vote will constitute a quorum for the
transaction of business at the Annual Meeting. As to each
matter submitted to the shareholders at the Annual Meeting, the
inspectors of election will treat abstentions as shares that are
present and entitled to vote for purposes of determining the
presence of a quorum
Mr. Garber, who beneficially owns approximately 49% of the shares
of Common Stock of the Company, has advised the Company that he
intends to vote for each of the nominees named herein, as well as
for all of the other proposals described below.
Revocability of Proxies
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Any shareholder giving a proxy has the power to revoke the proxy
at any time before it is voted. It may be revoked by: (i) filing
with American Securities Transfer & Trust in its capacity as
transfer agent for the Company's Common Stock ("Transfer Agent")
before the Annual Meeting, a written notice of revocation bearing
a later date than the proxy; (ii) duly executing a subsequent
proxy relating to the same shares of Common Stock and delivering
it to the Transfer Agent before the Annual Meeting; or (iii)
attending the Annual Meeting and voting in person (although
attendance at the Annual Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice revoking
a proxy should be sent to American Securities Transfer & Trust,
Attention: Proxy Department 938 Quail Street, Suite 101,
Lakewood, Colorado 80215-5513.
Summary of Proposals
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Shareholders will be asked to vote upon the following proposals
at the Annual Meeting:
1. Election of the following four (4) persons to the Board of
Directors: Jeffrey E. Butler, Monty C. McCurry, Newton Fink, and
Stephen E. Prust. General information concerning these persons
is found beginning on page 10 of this Proxy Statement.
2. Approval of an increase of the Company's authorized Common
Stock from 15,000,000 shares to 30,000,000 shares. This proposal
is described on page 11.
3. Ratification of the selection of Steakley, Gilbert &
Bozalis, P.C., as independent accountants for the Company for
1998. This proposal is described on page 12 of this Proxy
Statement.
4. Approval of the Company's Directors' Stock Option Plan.
This proposal is described on pages 13 through 17 of this
Proxy Statement.
5. Approval of the Company's Stock Option Plan for employees.
This proposal is described on pages 17 through 21 of this
Proxy Statement.
INFORMATION CONCERNING DIRECTORS AND NOMINEES
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The names, ages (as of April 1, 1998), positions with the Company
and business experience over the past five years of each of the
Board of Directors nominees is set forth below (the four current
directors of the Company are the same four persons nominated to
serve on the Board of Directors). Each director has served
continuously with the Company since his or her first election as
indicated below. There are no family relationships among the
directors, executive officers, and Board of Directors nominees.
Name Age Current Position Director Since
with Company
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Jeffrey E. Butler 56 Chief Executive Officer, 1989
President, Chief Financial
Officer, and Chairman
of the Board of Directors
Monty C. McCurry 52 Director 1989
Newton Fink 61 Director 1991
Stephen E. Prust 53 Director 1992
Jeffrey E. Butler became a director of the Company in August 1989
and was elected Chief Executive Officer and President of the
Company in April 1990. From 1985 to 1990, Mr. Butler was a
management consultant to businesses in the biotechnology,
computer science, software, educational and entertainment video
industries. Mr. Butler served as a director of Video Professor
Industries, Inc., a publicly held corporation, from February 1,
1989 to October 31, 1990. Prior to establishing his management
consulting business, Mr. Butler was the Chief Executive Officer
and President of the Infomed Corporation, which provided computer
diagnostic equipment and management services to hospitals,
corporations and physicians. Prior to 1985, Mr. Butler was
employed by Sandoz, Ltd., Corning, Inc. and Becton Dickinson
Corporation in middle and senior management positions.
Monty C. McCurry was elected to the Board of Directors in April
1989. Since 1985, Mr. McCurry has been the President of
Executive Resource Management, an executive search firm
headquartered in Aurora, Colorado. From 1969 to 1985, Mr.
McCurry was employed by Paul M. Riggins and Associates, an
executive search firm, where, until his resignation in 1985, he
was associate general manager.
Newton W. Fink, Ed.D. was elected to the Board of Directors in
January 1991. Since 1984, Dr. Fink has been the President of
Computer Instructional Services, Inc., a privately-held
corporation providing computer educational services to
individuals, schools, corporations and institutions. Prior to
founding Computer Instructional Services, Dr. Fink was the
Superintendents of Schools in Fort Lupton, Colorado and Hillside,
Illinois. Additionally, he has been employed as a teacher and an
elementary/middle school principal earlier in his career. Dr.
Fink has also published and lectured extensively on the use of
computers in education.
Stephen E. Prust was elected to the Board of Directors in April
1992. Mr. Prust owns a business that acts as a broker for retail
media products. From 1990 to 1992, Mr. Prust was the President
of AVID Home Entertainment, Inc., a division of LIVE
Entertainment, Inc. From 1981 to 1990, Mr. Prust was a
consultant to companies in the entertainment industry. In 1975,
Mr. Prust founded Dominion Music, Inc., a joint venture with K-
Tel Records, Inc. He served as President of Dominion Music until
1981.
Board of Directors Meetings And Committees
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During 1997, the Board of Directors held six meetings of which
four were held by conference call and two by written consent.
All directors attended at least 75% of the meetings of the Board
of Directors. The Board of Directors does not have standing
audit, nominating or compensation committees or committees
performing similar functions.
Director Compensation
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The Company's directors do not receive any cash or other
pecuniary compensation for service on the Board of Directors.
However, the three non-employee members of the Board of
Directors (namly, Monty C. McCurry, Newton Fink and Stephen E.
Prust) were each granted in January 1998 (i) 1,000 shares of
Common Stock and (ii) 10,000 stock options. The options were
granted at an exercise price of $0.75 per share and were fully
vested on the date of the grant. The options were granted
pursuant to the Company's Nonqualified Director Stock Option
Plan. No options were granted to the Company's directors in 1997.
The Company will terminate its Nonqualified Director Stock Option
Plan if the Directors' Stock Plan that is being submitted to the
shareholders for approval at the Annual Meeting is approved.
Directors may be reimbursed for certain out-of-pocket expenses
incurred in connection with attendance at Board of Directors
meetings.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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As of the Record Date, there were 12,399,079 shares of Common
Stock issued and outstanding. The following table sets forth
certain information regarding the Company's Common Stock owned by
(i) each shareholder of the Company who is known by the Company
to beneficially own more than 5% of the Company's outstanding
voting securities; (ii) each of the Company's four directors;
(iii) the one executive officer of the Company named in the
Summary Compensation Table; and (iv) all directors and executive
officers of the Company as a group, as of March 31, 1998:
Name and Address of Number of Shares and Percent of
Beneficial Owner Nature of Beneficial Common Stock
Ownership(1)
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John D. and Clare C. Garber 6,205,461(2) 48.6%
78252 Bonanza Drive
Palm Desert, CA 92211
Robert M. Schoolfield 1,536,517(3) 12.4%
5 Pleasant Cove
Austin, Texas 78746
Jeffrey E. Butler 991,904(4) 7.8%
4217 Old Farm Road
Oklahoma City, Oklahoma 73120
Monty C. McCurry 119,400(5) 1.0%
2134 South Eagle Court
Aurora, Colorado 80014
Newton Fink 87,400 (6) 0.7%
921 Broadway
Fort Lupton, CO 80021
Stephen E. Prust 431,768(7) 3.4%
9025 East Kenyon
Denver, Colorado 80237
Frederick C. Weiss 662,897 5.3%
Rural Route 2 Box 280
Careyville, Florida 32427
All directors and executive
officers as a group 2,429,055 18.0%
(1) All shares of Common Stock are held directly unless
indicated otherwise.
(2) Includes 5,428,288 shares of Common Stock held by John D.
Garber and Clare C. Garber as trustees of the John D. Garber and
Clare C. Garber Trust (the "Trust") for which Mr. Garber is the
beneficiary; 400,000 shares of Common Stock held by John D.
Garber and Clare C. Garber, as trustees of the John D. Garber
and Clare C. Garber defined benefit plan; and 5,702 shares of
Common Stock owned individually and options for 371,471 shares
of Common Stock exercisable at $0.1346 per share within sixty
(60) days of the Record Date by the Trust upon conversion of
long-term debt.
(3) Includes 737,528 shares of Common Stock owned by the
Schoolfield 1994 Charitable Unitrust for which Mr. Schoolfield
is the trustee; 614,607 shares of Common Stock owned by Mr.
Schoolfield individually; and 184,382 shares of Common Stock
owned by the Schoolfield Grandchildren's Trust for which Mr.
Schoolfield is the trustee.
(4) Includes 639,904 shares of Common Stock owned by Mr. Butler
individually and options for 352,000 shares of Common Stock
exercisable at $0.50 per share within sixty (60) days of the
Record Date. Exclusive of 263,919 shares of Common Stock
beneficially owned by Mr. Butler's son, Jeffrey E. Butler, Jr.
(5) Includes options for 80,000 shares of Common Stock, 40,000
of which are exercisable at $0.20 per share and 30,000 of which
are exercisable at $0.50 per share, 10,000 of which are
exercisable at $0.75 per share, all within 60 days of the
Record Date.
(6) Includes options for 80,000 shares of Common Stock, 70,000
of which are exercisable at $0.50 per share and 10,000 of which
are exercisable at $0.75 per share, all within 60 days of the
Record Date.
(7) Includes options for 130,000 shares of Common Stock, 120,000
of which are exercisable at $0.50 per share and 10,000 of which
are exercisable at $0.75 per share, all within 60 days of the
Record Date.
EXECUTIVE OFFICERS AND EXECUTIVE COMPENSATION
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A biographical description of the Company's Chief Executive
Officer, Jeffrey E. Butler, including age and business experience
during each of the past five years, is set forth above under the
heading "Information Concerning Directors and Nominees." There
are no other executive officers of the Company whose total annual
salary and bonus compensation exceeded $100,000 in 1997. Set
forth below is the applicable table prescribed by the proxy rules
of the Securities and Exchange Commission which present
compensation for the Company's Chief Executive Officer, Jeffrey
E. Butler.
Summary Compensation Table
Annual Compensation Long-Term
Compensation
Awards
Name All
and Other Other
Principal Annual Stock Compensation
Position Year Salary Bonus Compensation Options
(Shares)
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Jeffrey E. 1997 $83,878 $0 (1) 0 $0
Butler 1996 $60,570 $0 (1) 0 $0
Chairman 1995 $94,349 $0 (1) 0 $0
of the
Board,
Chief
Executive
Officer,
President,
and Chief
Financial
Officer
1) Mr. Butler did not receive any perquisites or other benefits,
the aggregate amount of which exceeded the lesser of $50,000 or
10% of the total of Mr. Butler's annual salary and bonus.
There were no options or stock appreciation rights (SARs) granted
to Mr. Butler in 1997. Mr. Butler did not exercise any options
in 1997.
Employment Agreement
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On or about January 3, 1991, the Company entered into an
Employment Agreement with Jeffrey E. Butler. The Employment
Agreement is automatically renewed annually unless it is
terminated by either Mr. Butler or the Company. The Employment
Agreement provides for the employment of Mr. Butler as President
and Chief Executive Officer at a base salary of not less than
$72,000.00 per year. Mr. Butler is also eligible to participate
in such programs for incentive and/or bonus compensation as may
be approved by the Board of Directors from time to time based on
financial objectives set by the Board of Directors, which
include, but are not limited to, increases from one fiscal year
to the next in net revenues, net earnings and shareholder value.
The Employment Agreement contains a provision which provides
that, if Mr. Butler is terminated for any reason other than a
willful act of fraud or the failure to devote the necessary time
and attention in the performance of his duties, he shall receive
a severance payment equal to 50% of his annual salary.
PROPOSAL 1
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Election of Directors
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The Bylaws of the Company provide that the Board of
Directors shall consist of not less than three persons and,
subject to such limitation, that the number of directors be fixed
by resolution of the Board of Directors. The current number of
directors is four (each director is serving until his successor
is duly elected and qualified). Four directors, constituting the
entire Board of Directors of the Company, are to be elected at
the Annual Meeting. Management will present as nominees and
recommend to the shareholders that Jeffrey E. Butler, Monty C.
McCurry, Newton Fink, and Stephen E. Prust, who are the current
directors of the Company, be re-elected to serve on the Board of
Directors until their successors are duly elected and qualified.
Shares represented by the Company proxy will be voted for the
election of Messrs. Butler, McCurry, Fink, and Prust, unless
otherwise indicated on the proxy.
Each holder of Common Stock has the right to vote all of
that shareholder's shares for as many persons as there are
directors to be elected. The nominees receiving the most votes
cast will be elected, so that, since there are four director
slots to be filled, the four nominees receiving the most votes
will be elected, even if any one of such persons did not receive
a majority vote. Consequently, any shares not voted (whether by
abstention, broker non-vote or otherwise) have no impact in the
election of directors except to the extent the failure to vote
for an individual results in another individual receiving a
larger number of votes. "Broker non-votes" are proxies with
respect to shares held in record name by brokers or nominees, as
to which (i) instructions have not been received from the
beneficial owners or persons entitled to vote and (ii) the broker
or nominee does not have discretionary voting power under the
instrument under which it serves in such capacity.
Should any of these nominees become unable to serve for any
reason, which is not anticipated, the Board of Directors will
designate substitute nominees, in which event the person named in
the enclosed proxy will vote for the election of such substitute
nominee or nominees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION
OF THE NOMINEES NAMED HEREIN.
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PROPOSAL 2
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Amendment of the Company's Articles of
Incorporation to Increase Authorized Common Stock
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The Company's Articles of Incorporation, as currently in
effect, provide that the authorized stock shall consist of
fifteen million (15,000,000) shares of Common Stock, $0.025 par
value, and 50,000,000 shares of preferred stock, $0.01 par value.
On March 27, 1998, the Company's Board of Directors approved an
amendment to the Articles of Incorporation to increase the number
of shares of Common Stock authorized for issuance by fifteen
million (15,000,000) shares to a total of thirty million
(30,000,000) shares. The text of the amendment to the Articles
of Incorporation is set forth on Exhibit "A" attached hereto.
There will be no increase in the authorized shares of preferred
stock.
The proposal to increase the number of authorized shares of
Common Stock to thirty million (30,000,000) shares is being made
to enable the Board of Directors to issue additional shares from
time to time without further shareholder action (except as
required by law). Among the possible purposes for which these
additional shares would be available are the declaration and
issuance of stock dividends, issuance in connection with
acquisitions of other companies or properties, issuance under
stock option plans that may be adopted in the future (such as the
Directors' Stock Option Plan and the Stock Option Plan for
employees discussed at Proposals 4 and 5 below), issuance in
public or private offerings to raise additional capital, and
issuance under convertible debenture offerings to raise
additional capital. The Board of Directors has no present
intention to issue shares of Common Stock, other than
in connection with the Directors' and employees stock option
plans mentioned above.
The Board of Directors' ability to approve the issuance of
the increased number of authorized shares of Common Stock might
discourage a takeover attempt because the issuance of additional
shares could dilute the voting power of the Common Stock then
outstanding. The Company is not aware of any effort to
accumulate Common Stock or to obtain control of the Company by
tender offer or proxy fight, and the Company has no present
intention to use the increased number of shares of authorized
Common Stock for anti-takeover purposes. However, the Board of
Directors retains the right to use the newly authorized shares
for such purpose, and there can be no assurance that the Board of
Directors will not do so. The Board of Directors will, however,
consider any proposal to acquire control of the Company that may
arise in the future in accordance with its fiduciary duties and
its judgment as to the best interests of the shareholders of the
Company at that time.
The affirmative vote of a majority of the outstanding shares of
Common Stock issued and outstanding at the Annual Meeting is
required to approve the amendment to the Articles of
Incorporation to increase the authorized shares of Common Stock.
Abstentions and broker non-votes will have the same effect as
negative votes.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO
THE ARTICLES OF INCORPORATION TO INCREASE THE AUTHORIZED SHARES
OF COMMON STOCK.
PROPOSAL 3
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Ratification of Selection of Independent Public Accountants
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The independent public accounting firm utilized by the
Company during the years ended December 31, 1996 and 1997 was
Steakley, Gilbert & Bozalis, P.C. Management recommends that the
accountants be retained as the principal public accounting firm
to be utilized by the Company throughout the year ending December
31, 1998. The Company anticipates that a representative of the
accountants will attend the Annual Meeting for the purpose of
responding to appropriate questions. At the Annual Meeting, a
representative of the accountants will be afforded an opportunity
to make a statement if the accountants so desire.
Ratification of the selection of the accountants requires
the affirmative vote of a majority of the outstanding shares of
Common Stock, present in person or by proxy, and entitled to vote
at the Annual Meeting. An abstention will have the same effect
as a negative vote but, because shares of Common Stock held by
brokers will not be considered entitled to vote on matters as to
which such brokers withhold authority, a broker non-vote will not
have the same effect as a negative vote.
Shareholder ratification of the selection of Steakley,
Gilbert & Bozalis, P.C. is not required by the Company's bylaws
or otherwise. The Board of Directors, however, is submitting the
selection of Steakley, Gilbert & Bozalis, P.C. to the
shareholders as a matter of good corporate practice. If the
shareholders fail to ratify the selection, the Board of Directors
will reconsider whether or not to retain such firm. Even if the
selection is ratified, the Board of Directors, in their
discretion, may direct the engagement of a different independent
public accounting firm at any time during the year if it
determines that such a change would be in the best interests of
the Company and its shareholders.
Beginning in March 1994 and continuing through November 1996,
the Company experienced a disagreement with its then independent
auditing firm, Lehman Butterwick & Company, P.C., regarding the
cost and timeliness of the Company's audits for the December 31,
1993 fiscal year. That disagreement was resolved on or about
October 31, 1996, and, upon the withdrawal of Lehman Butterwick &
Company, P.C. as the Company's independent accounting firm, the
Company retained Steakley, Gilbert & Bozalis, P.C. Steakley,
Gilbert & Bozalis, P.C. has audited the Company's financial
statements for the years ending December 31, 1994, 1995, 1996 and
1997. There are no disputes with the previous or current
independent accountants regarding matters of accounting or
reporting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE
RATIFICATION OF THE SELECTION OF STEAKLEY, GILBERT & BOZALIS,
P.C. AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS FOR 1998.
PROPOSAL 4
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Approval of the Directors' Stock Option Plan
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Background
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On March 27, 1998, the Board of Directors of the Company
adopted, subject to shareholder approval, the Directors' Stock
Option Plan (the "Director Plan"). The purpose of the Director
Plan is to enable the Company to attract, retain and motivate
independent directors who are not employees of the Company or its
subsidiary ("Outside Directors"), and to enable such directors to
participate in the long-term growth of the Company by providing
for or increasing the propriety interests of such persons in the
Company, thereby assisting the Company in achieving its long-
range goals.
Summary of the Director Plan
- ----------------------------
A copy of the Director Plan is included in this Proxy
Statement as Exhibit "B", and the following description is
qualified in its entirety by reference to the Director Plan.
Administration
- --------------
The Director Plan will be administered by the entire Board
of Directors. Under the Director Plan, stock options for a
maximum of 100,000 shares of the Company's Common Stock may be
granted, such number of shares being subject to adjustment in the
event of a merger, consolidation, stock dividend, split-up,
combination, exchange of shares, recapitalization, or a change in
capitalization with respect to the shares of Common Stock. The
shares of stock issuable under the Director Plan may consist in
whole or in part of unissued shares or reacquired shares. If a
grant expires or is canceled, any shares which were not issued or
fully vested under the grant at the time of expiration or
cancellation will again be available for grant.
Eligibility
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Participation in the Director Plan is limited to directors
of the Company who are not, and were not during the preceding
twelve (12) months, employees of the Company.
During the term of the Director Plan, each Outside Director
will be granted the option to purchase 5,000 shares of Common
Stock when he or she is first elected or appointed to serve on
the Board of Directors. The Director Plan provides that,
commencing with calendar year 1999, and continuing for each
calendar year thereafter while the Director Plan is in effect,
each Outside Director is automatically granted an option to
purchase 3,000 shares of Common Stock as of January 1 of such
calendar year (there are currently three Outside Directors who
would be eligible to receive options under the Director Plan,
commencing January 1, 1999).
Terms and Conditions
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The exercise price for all stock options granted under the
Director Plan will not be less than 100% of the fair market value
of the underlying Common Stock on the date of the grant. All
stock options granted under the Director Plan will be fully
exercisable on the date of grant. However, no option may be
exercisable more than three years after the date the stock option
is granted or, if earlier, 30 days after the date the Outside
Director ceases to be a director of the Company. Further, if an
Outside Director ceases to be a director because he or she is
removed as a director of the Company for cause (as determined by
the Board of Directors or the shareholders at the time of such
removal), then all options held by the Outside Director will
immediately lapse and will no longer be exercisable.
Stock options granted under the Director Plan cannot be
transferred by an Outside Director. However, if the director
dies, his or her heirs can receive and exercise options for a
period of one year after the director's death.
Except as provided otherwise by the Board of Directors,
payment for shares of Common Stock purchased upon exercise of an
option granted under the Director Plan must be made in full at
the time of such exercise, whether in cash, shares of the
Company's Common Stock, the relinquishment of options to purchase
shares of Common Stock, or any combination of cash, shares of
stock, or options.
Amendment of the Director Plan
- ------------------------------
The Board of Directors may at any time amend, suspend or
terminate the Director Plan, subject to the following:
No amendment may alter or impair the number of shares,
exercise price or duration of any option previously granted
to an Outside Director without the consent of the affected
Outside Director.
No amendment may become effective without the prior
approval of the shareholders of the Company if such approval
would be required for continued compliance with Rule 16b-3 of the
Securities Exchange Act of 1934.
In addition, the Board of Directors may not, without further
approval of the shareholders of the Company, amend the Plan to:
Materially increase the total number of shares of Common Stock
which may be made the subject of options to be granted;
change the manner of determination of the exercise price;
extend the maximum period during which options may be granted or
exercised; or
materially modify the requirements as to eligibility for
participation in the Director Plan.
Term of the Director Plan
- -------------------------
Stock options may not be granted under the Director Plan after
March 31, 2008, but then outstanding stock options may be
exercised beyond such date in accordance with their respective
terms.
Federal Income Tax Consequences
- -------------------------------
All stock options granted under the Director Plan will be
"Nonstatutory Options" not entitled to special tax treatment
under Section 422 of the Internal Revenue Code of 1986 (the
"Code") (which is applicable only to "Incentive Stock Options" as
defined in that Section). An Outside Director will not recognize
taxable income upon the grant of a nonstatutory stock option.
However, an Outside Director who exercises a nonstatutory stock
option generally will recognize ordinary income in an amount
equal to the excess of (i) the fair market value of the Common
Stock acquired ("Nonstatutory Option stock") on the exercise date
over (ii) the exercise price.
With respect to any Nonstatutory Option, an Outside Director
will have a tax basis equal to the exercise price plus any income
recognized upon the exercise of the option. Upon selling
Nonstatutory Option stock, an Outside Director generally will
recognize capital gain or loss in an amount equal to the excess
of the sale price of the Nonstatutory Option stock over that
director's tax basis in such stock. Whether the gain or loss
will be a long-term gain or loss will depend on how long the
director has held the Nonstatutory Option stock after the date of
the exercise.
The grant of a stock option under the Director Plan will have
no tax consequences to the Company. However, the Company
generally will be entitled to a business-expense deduction with
respect to any ordinary income recognized by an Outside Director
upon exercise of an option granted under the Director Plan,
provided that, among other things, the income meets the test of
reasonableness, is an ordinary and necessary business expense,
and is not an "excess parachute payment" within the meaning of
Section 280G of the Code.
Vote Required
- -------------
The affirmative vote of a majority of the outstanding shares of
Common Stock present, in person or by proxy, and entitled to vote
at the Annual Meeting, is required to approve the Directors'
Stock Option Plan. An abstention will have the same effect as a
negative vote but, because shares of Common Stock held by brokers
will not be considered entitled to vote on matters as to which
such brokers withhold authority, a broker non-vote will not have
the same effect as a negative vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL
OF THE DIRECTORS' STOCK OPTION PLAN.
PROPOSAL 5
- ----------
Approval of the Stock Option Plan for Employees
- -----------------------------------------------
Background
- ----------
On March 27, 1998, the Board of Directors of the Company
adopted, subject to shareholder approval, the Stock Option Plan
for employees (the "Option Plan"). The purpose of the Option
Plan is to enhance the performance of key employees of the
Company. By encouraging ownership of the Common Stock of the
Company among those employees who have significant roles in the
Company's success, the Option Plan more closely aligns the
interests of the Company's key employees with those of its
shareholders, which the Company believes benefits its
shareholders. Moreover, the Company believes that the
Option Plan has a positive effect on the Company's ability to
attract, motivate and retain employees of outstanding skill and
ability.
Summary of the Option Plan
- --------------------------
A copy of the Option Plan is included in this Proxy
Statement as Exhibit "C", and the following description is
qualified in its entirety by reference to the Option Plan.
The Option Plan permits the granting of stock options, including
incentive stock options.
Administration
- --------------
The Option Plan will be administered by either a Committee
(the "Stock Option Committee") of the Board of Directors
comprised of at least two members of the Board of Directors or
the entire Board of Directors may serve as the committee. An
aggregate of 750,000 shares of Common Stock will be authorized
for issuance pursuant to the Option Plan, such number of shares
being subject to adjustment in the event of a merger,
consolidation, stock dividend, split-up, combination, exchange of
shares, recapitalization, or change in capitalization with
respect to the shares of Common Stock. The shares of stock
issuable under the Option Plan may consist in whole or in part of
unissued shares or reacquired shares. If a grant expires or is
canceled, any shares which were not issued or fully vested under
the grant at the time of expiration or cancellation will again be
available for grants.
The Stock Option Committee has the authority to:
* Make grants and determine their terms, subject to the
provisions of the Option Plan;
* interpret the provisions of the Option Plan;
* adopt any rules, procedures and forms necessary for
the operation and administration of the Option Plan; and
* determine all questions relating to the eligibility
and other rights of all persons under the Option Plan.
Eligibility
- -----------
All key employees of the Company are eligible to be participants
(there are currently approximately ten employees of the Company
who would be eligible to receive options under the Option Plan).
Types of Options
- ----------------
Options which are issuable under the Option Plan may be either
"Incentive Stock Options," as defined in Section 422 of the Code,
or options not intended to be so qualified ("Nonstatutory
Options"). The Stock Option Committee may grant more than one
option to an employee during the term of the Option Plan, and
such option may be in addition to an option or options previously
granted; provided, however, that the aggregate fair market value
of Common Stock with respect to which Incentive Stock Options are
exercisable for the first time by such employee during any
calendar year (under all stock option plans of the Company and
any subsidiaries) may not exceed $100,000. All options (both
Incentive Stock Options and Nonstatutory Options) are exercisable
at not less than 100% of the fair market value of the underlying
Common Stock on the date of grant. However, the exercise price
for an Incentive Stock Options granted to an employee who owns
more than 10% of the total combined voting power of all classes
of stock of the Company, actually or constructively under Section
425(d) of the Code, is at 110% of the fair market value of the
Common Stock subject to the option.
Terms and Conditions
- --------------------
The term during which each option may be exercised will be
determined by the Stock Option Committee, but in no event may an
option be exercisable after the expiration of ten years from the
date such option was granted (this period is reduced to five
years in the case of Incentive Stock Options granted to an
employee owning more than 10% of the combined voting power of all
classes of stock of the Company). In addition, if the person to
whom options are granted under the Stock Option Plan ceases to be
an employee of the Company for any reason, options which are not
then exercisable shall terminate. Options that are exercisable at
the date of termination will generally be exercisable for a
period of 30 days following such termination, subject to the
following two exceptions:
1. If the termination is due to the death or disability
of the employee, the options then exercisable by the employee may
be exercised for a period of one year following the employee's
death or disability.
2. If the employee is terminated for "cause", all
options will immediately terminate and will not be exercisable.
For purposes of the Option Plan, "cause" means that the
employee has:
i. Committed an act of malfeasance or wrongdoing
affecting the Company or its subsidiaries;
ii. breached any covenant not to compete or employment
contract with the Company or a subsidiary; or
iii. engaged in any other conduct that would warrant the
employee's discharge for cause.
Like options granted under the Director Plan, options
granted under the Option Plan cannot be transferred by an
optionee. However, if the optionee dies, his or her heirs can
receive and exercise options for a period of one year after the
optionee's death.
Except as provided otherwise by the Stock Option Committee,
payment for shares of Common Stock purchased upon exercise of an
option granted under the Option Plan must be made in full at the
time of such exercise, whether in cash, shares of the Company's
Common Stock, the relinquishment of options to purchase shares of
Common Stock, or any combination of cash, shares of stock, or
options.
Amendment of the Option Plan
- ----------------------------
The Board of Directors may at any time amend, suspend or
terminate the Option Plan, subject to the following:
* No amendment may alter or impair any of the rights or
obligations under any option previously granted to an
employee under the Option Plan without the consent of the
affected employee; and
* no amendment may become effective without the prior approval
of the shareholders of the Company if such approval would be
required for continued compliance with Section 422 of the
Code.
In addition, the Board of Directors may not, without the
further approval of the shareholders of the Company, amend the
Option Plan to:
* Materially increase the total number of shares of Common
Stock which may be made the subject of options to be granted
under the Option Plan; or
* materially modify the requirements as to eligibility
for participation in the Option Plan.
Term of the Option Plan
- -----------------------
Stock options may not be granted under the Option Plan after
March 31, 2008, but then outstanding stock options may be
exercised beyond such date in accordance with their respective
terms.
Federal Income Tax Consequences
- -------------------------------
The following is a brief description of the federal income tax
treatment that will generally apply to options issued under the
Option Plan, based on federal income tax laws in effect on the
date hereof. The exact federal income tax treatment of an option
will depend on the specific nature of the option. Recipients of
options should not rely on this discussion for individual tax
advice, as each recipient's situation and tax consequences of any
particular option will vary depending upon the specific facts and
circumstances involved. Each recipient is advised to consult with
his or her own tax advisor for particular federal, as well as
state and local, income and other tax advice.
The granting of Incentive Stock Options or Nonstatutory Options
does not result in immediate taxable income to the optionee.
The exercise of a Nonstatutory Option will result in ordinary
income to the optionee in the amount by which the market price of
the shares acquired exceeds the exercise price. Income tax
withholding may be met either through cash payment at the time of
exercise or through share withholding. The Company will receive a
tax deduction in an amount that corresponds to the optionee's
ordinary income.
The exercise of an Incentive Stock Option will not result in
taxable income to the optionee if the optionee does not dispose
of the stock acquired through such exercise within two years of
the date the option was granted or one year after the option is
exercised. However, the difference between the fair market value
of the shares upon exercise and the exercise price is an item of
tax preference subject to the possible application of the
alternative minimum tax. If the exercise and disposition
requirements are met, any gain realized by the optionee when such
shares are sold will be taxed as capital gain. The Company will
not receive a tax deduction for the resulting gain. If these
holding periods are not met, the option will be treated generally
as a Nonstatutory Option for tax purposes.
Vote Required
- -------------
The affirmative vote of a majority of the outstanding
shares of Common Stock present, in person or by proxy, and
entitled to vote at the Annual Meeting, is required to approve
the Incentive Stock Option Plan for employees. An abstention
will have the same effect as a negative vote but, because shares
of Common Stock held by brokers will not be considered entitled
to vote on matters as to which such brokers withhold authority, a
broker non-vote will not have the same effect as a negative vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL
OF THE STOCK OPTION PLAN FOR EMPLOYEES.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ----------------------------------------------
In March 1995, the Company entered into an agreement with
a corporate affiliate of John D. Garber, who beneficially owns
approximately 49% of the Common Stock, to finance the Company's
accounts receivable. This financing was performed through a
corporation controlled by Mr. Garber, AmEd Financing Company.
Under the terms of this agreement, AmEd Financing Company made
advances to the Company during 1996 and 1997 (total interest
expense and factoring costs in 1997 were $5,000.00). Unpaid
advances under this financing arrangement were convertible into
Common Stock of the Company, at the option of the holder, at a
conversion price of $.50 per share. All tangible assets of the
Company are pledged to AmEd Financing Company as security for
advances under the terms of this agreement. Effective June 30,
1996, AmEd Financing Company converted unpaid advances made to
the Company by AmEd Financing Company in the amount of $290,000,
plus accrued interest of $34,481, into 648,962 shares of Common
Stock. There are currently no amounts owed by the Company to AmEd
Financing Company under the financing arrangement. However, the
Company is currently indebted to Mr. Garber in the principal
amount, as of December 31, 1997, of $58,000.00. This loan is
convertible into Common Stock of the Company at the option of Mr.
Garber at a conversion rate of $0.1346 per share. The Company
has pledged all of its assets to secure this loan.
The Company reimbursed Jeffrey E. Butler $11,557 for relocation
expenses in 1997.
The Company paid $1,733 to Executive Resource Management in
1997 for recruiting services rendered by that entity to the
Company. Monty C. McCurry, who is a director of the Company (and
a director nominee), is an executive officer of, and owns more
than 10% of the equity ownership interest in, Executive Resource
Management.
In years prior to 1997, Stephen E. Prust, who is a director
(and a director nominee) of the Company, rendered consulting
services to the Company. Mr. Prust did not receive any
remuneration from the Company in 1997 in any capacity other than
as a director.
DEADLINE FOR SHAREHOLDER PROPOSALS
- ----------------------------------
Proposals of shareholders for consideration at the 1999 Annual
Meeting of Shareholders must be received by the Company on or
before December 15, 1998 for inclusion in the proxy materials
relating to that meeting. Any such proposals must adhere to the
requirements of the Securities Exchange Act of 1934, as amended,
and should be sent to Jeffrey E. Butler, Chief Executive Officer,
The American Education Corporation, 7506 N. Broadway Extension,
Suite 505, Oklahoma City, Oklahoma 73116.
COMPLIANCE WITH SECTION 16(A)
- -----------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, executive officers and holders
of more than 10% of the Common Stock to file with the Securities
and Exchange Commission initial reports of ownership and reports
of changes in ownership of the Common Stock. Based solely upon a
review of Forms 3, 4 and 5 furnished to the Company with respect
to the year ended December 31, 1997, to the best of the Company's
knowledge, the Company's directors, executive officers and
holders of more than 10% of its Common Stock timely filed the
reports required by Section 16(a).
OTHER ITEMS
- -----------
The Board of Directors does not intend to present further
items of business at the Annual Meeting and knows of no such
items which will or may at presented by others. However, if any
other matter properly comes before the meeting, the persons named
in the enclosed proxy form will vote thereon in such manner as
they may in their discretion determine.
FORM 10-KSB AND ANNUAL REPORT TO SHAREHOLDERS
- ---------------------------------------------
A copy of the Company's Annual Report on Form 10-KSB for
its latest fiscal year is available without charge to any
shareholder of the Company who requests a copy in writing from
Jeffrey E. Butler, The American Education Corporation, 7506 North
Broadway Extension, Suite 505, Oklahoma City, Oklahoma 73116.
The 1997 Annual Report of the Company, as filed with the
Commission, is being mailed to the shareholders with this Proxy
Statement. The 1997 Annual Report is not to be considered part
of the soliciting material.
By Order of the Board of Directors
/s/Jeffrey E. Butler
- ----------------------------------
President and Chief Executive Officer
Oklahoma City, Oklahoma
April 20, 1998
YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, DATE, AND SIGN THE
ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ACCOMPANYING
POSTAGE-PAID ENVELOPE.
EXHIBIT "A"
- -----------
Forth: The aggregate number of shares of common stock, which the
Corporation shall have authority to issue is 30,000,000, each
share to have a par value of $0.025. The aggregate number of
shares of preferred stock which the Corporation shall have
authority to issue is 50,000,000, each share to have a par value
of $0.001. The Corporation may issue the preferred shares in
series. Shares of each such series when issued shall be
designated to distinguish them from shares of all other series.
The Board of Directors of the Corporation if hereby expressly
authorized, by resolution or by resolutions, to provide out of
the unissued preferred shares, for the issuance of one or more
series of preferred shares and to fix the number of shares
included in any or all series of preferred shares and any and all
of the designations, relative rights, preferences, and
limitations of any or all such series.
PROXY
- -----
THE AMERICAN EDUCATION CORPORATION FOR ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD MAY 29, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Thomas Shively and Jeffrey
E. Butler, or either of them, as proxies, each with full power to
appoint his substitute, and hereby authorizes them to represent
and to vote, as designated below, all of the shares of Common
Stock of The American Education Corporation held of record by the
undersigned on April 20, 1998, at the Annual Meeting of
Shareholders to be held on May 29, 1998 or any adjournment
thereof.
1. Election of Directors.
For all nominees listed below (except as marked to the contrary
below).
Withhold authority to vote for all nominees listed below.
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST
BELOW.)
Jeffrey E. Butler
Monty C. McCurry
Newton Fink
Stephen E. Prust
2. Approval of amendment to the Articles of Incorporation to
increase the authorized shares of Common Stock.
[ ] For [ ] Against [ ] Abstain
3. Ratification of Selection of Steakley, Gilbert & Bozalis,
P.C.
[ ] For [ ] Against [ ] Abstain
4. Approval of the Directors' Stock Option Plan.
[ ] For [ ] Against [ ] Abstain
5. Approval of the Stock Option Plan for Employees.
[ ] For [ ] Against [ ] Abstain
6. In their discretion, the proxies are authorized to
vote upon such other business as may properly come before the
meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION
IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL
NOMINEES LISTED ABOVE, FOR THE AMENDMENT TO THE COMPANY'S
ARTICLES OF INCORPORATION FOR THE RATIFICATION OF THE SELECTION
OF STEAKLEY, GILBERT & BOZALIS, P.C. AS THE COMPANY'S INDEPENDENT
PUBLIC ACCOUNTANTS FOR 1998, FOR THE APPROVAL OF THE DIRECTORS'
STOCK OPTION PLAN, AND FOR THE APPROVAL OF THE STOCK OPTION PLAN
FOR EMPLOYEES. YOU MAY REVOKE THIS PROXY AT ANY TIME PRIOR TO
THE VOTE THEREOF.
The undersigned hereby acknowledges receipt of the Proxy
Statement and hereby expressly revokes any and all proxies
heretofore given or executed by him with respect to the shares
represented by the proxy.
Please sign exactly as your name appears on your stock
certificate. When shares are held by joint tenants, both should
sign. When signing as attorney, executor, administrator, trustee
or guardian, please give full title as such. If a corporation,
please sign in full corporate name by President or other
authorized officer. If a partnership or limited liability
company, please sign in the name of the legal entity by
authorized person.
Dated this ____ day of _____________________, 1998.
- ---------------------------------------------------
Signature
- ---------------------------------------------------
Signature
Please sign, date and return promptly using the enclosed
envelope.
April 6, 1998
THE AMERICAN EDUCATION CORPORATION
Directors' Stock Option Plan
I. Purpose
- -----------
The purpose of this Directors' Stock Option Plan is to promote
the long-term growth and profitability of The American Education
Corporation, a Colorado corporation (the "Company"), and the
value of its Common Stock by providing recognition and
compensation to the Outside Directors of the Company for their
time, effort and participation in the growth and protection
of the Company's business and for their substantial contributions
to the success of its business.
II. Definitions
- ----------------
Whenever used herein, the following terms shall have the meanings
set forth below:
(a) "Board" or "Board of Directors" means the board of directors
of the Company.
(b) "Code" means the Internal Revenue Code of 1986, as amended.
(c) "Committee" means a committee which administers the Plan.
(d) "Common Stock" shall mean the Common Stock, par value
$0.025 per share, of the Company.
(e) "Company" means The American Education Corporation.
(f) "Disability" means a permanent and total disability as
defined in Section 22(e)(3) of the Code or, if designated by the
Committee, any long-term disability plan adopted by the Company
for the benefit of its employees.
(g) "Effective Date" means March 27, 1998.
(h) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(i) "Fair Market Value", as of a particular date, means (i) if
the shares of Common Stock are then listed or admitted for
trading on a national securities exchange or quoted on the
National Association of Securities Dealers Automated Quotation
System, the last reported sales price or, if no such sale
occurred, the average of the closing bid and ask prices, as
applicable, of the Common Stock on the last trading day before
such date, or (ii) if the shares of Common Stock are not then
listed or admitted for trading on a national securities exchange
or quoted on the National Association of Securities Dealers
Automated Quotation System, such value as the Committee, in its
absolute discretion, may determine in good faith.
(j) "Option" means a right or rights granted by the Committee
to purchase shares of Common Stock under the Plan.
(k) "Option Shares" means any shares of Common Stock issuable
upon exercise of an Option.
(l) "Outside Director" means a member of the Board who is
eligible to be granted options hereunder as described in Article
V.
(m) "Participant" means an individual to whom an Option is
granted under the Plan.
(n) "Plan" - this Directors' Stock Option Plan, as it may be
amended and modified from time to time.
(o) "Subsidiary" means a corporation, partnership or other
business entity at least 50 percent of whose voting securities
are owned, directly or indirectly, by the Company.
III. Administration
- --------------------
(a) Appointment of Committee. The Committee shall consist of
all of members of the Board of Directors.
(b) Duties and Powers of Committee. The Committee shall
administer the Plan in strict accordance with the terms of the
Plan and shall not have the discretion to vary, add to or take
from the terms of the Plan. Subject to the terms, provisions and
conditions of the Plan, the Committee shall have full and final
authority in its sole discretion to determine such rules and
regulations as the Committee may deem advisable in the
administration of the Plan and the procedures and methods for
construing and interpreting the Plan as well as the construction
of the terms of the Plan. Actions approved by a majority of all
members of the Committee at any meeting at which a quorum is
present, or actions approved in writing by all of the members of
the Committee without a meeting, shall be valid acts of the
Committee. Decisions of the Committee on all matters relating to
the Plan shall be in the Committee's sole discretion and shall be
conclusive and binding on all parties, including the Company, its
stockholders, and the Participants in the Plan.
IV. Shares Available for the Plan
- ----------------------------------
Subject to adjustment as provided in Article VIII, the maximum
number of shares of Common Stock that may be issued under this
Plan shall be 100,000 shares. In the event that any outstanding
Option for any reason expires or is terminated, the Option Shares
allocable to the unexercised portion of such Option may again be
subject to an Option under the Plan.
V. Participation
- -----------------
Participation in the Plan shall be limited to Directors of the
Company who are not, and were not during the preceding twelve
(12) months, common law employees of the Company.
VI. Options
- ------------
Each Option shall be evidenced by a written option agreement,
signed by an authorized officer of the Company, which shall
contain such terms and conditions not inconsistent with the Plan
as the Committee shall determine. All option agreements need not
be identical, but shall comply with or incorporate by reference
the terms set forth in this Article VI and shall be subject to
all other terms and conditions of the Plan. In the event any
option agreement is inconsistent with the Plan, the terms of the
Plan shall govern the issue in question.
(a) Grant of Options. Each Outside Director initially elected
or appointed after the Effective Date shall be granted an Option
to purchase 5,000 shares of Common Stock at the time of his or
her initial election or appointment to the Board of Directors.
Commencing with calendar year 1999, and each calendar year
thereafter during the term of this Plan, each Outside
Director shall automatically be granted an option to purchase
3,000 shares of Common Stock as of January 1 of such calendar
year.
(b) Price. The price per share payable upon the exercise of
each Option (the "Exercise Price") shall not be less than 100% of
the Fair Market Value of a share of Common Stock on the date the
Option is granted.
(c) Exercise of Options. Options shall be exercisable only by
the Participant to whom the Options were granted, or by the
Participant's legal guardian or personal representative, if any,
in the case of exercise following the death or Disability of the
Participant. Options shall be exercised by delivery to the
Company of a written notification specifying the number of
Option Shares which the Participant then desires to purchase,
together with payment for such Option Shares. Payment may be
made in the form of (i) cash, certified check or other
immediately available funds for the aggregate Exercise Price for
such Option Shares, (ii) the exchange of a number of shares
of Common Stock owned by the Participant, free and clear of all
liens or encumbrances, the Fair Market Value of which at the time
of exercise is equal to the aggregate Exercise Price of such
shares, and accompanied by executed stock powers and any other
documents of transfer requested by the Committee, (iii) the
relinquishment of Options to purchase Option Shares which shall
be deemed to have a value equal to the aggregate Fair Market
Value of the Option Shares issuable upon exercise thereof less
the aggregate Exercise Price for those Option Shares, or (iv) a
combination of (i), (ii), and (iii). No fractional shares may be
issued or accepted by the Company with respect to the exercise of
an Option.
(d) Terms of Options. Options granted to Participants shall be
immediately exercisable and may be exercised at any time from
time to time from the date of grant to the date which is three
years after the date of grant or, if earlier, thirty days after
the date when the Participant ceases to be a director of the
Company; provided, however, that if a Participant is removed
as a director of the Company for cause (as determined by the
Board or the stockholders at the time of such removal), then all
Options held by the Participant shall immediately lapse and no
longer be exercisable.
(e) Restrictions on Transfer. Options granted under the Plan
shall not be transferable or assignable or capable of being
pledged or otherwise hypothecated in any way, and shall not be
subject to execution, attachment or similar process, other than
by will or the laws of descent and distribution as specifically
permitted hereunder. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of an Option contrary to the
provisions hereof shall result in the termination of such Option,
which termination shall be effective immediately before the
attempted assignment, transfer, pledge, hypothecation or other
disposition of the Option. Shares delivered upon exercise of an
Option shall be subject to such resale restrictions as may be
provided by the Committee in the option agreement pertaining to
such Option.
VII. Withholding Taxes.
- ------------------------
The Company may require, as a condition to any grant under the
Plan or to the delivery of certificates for Common Stock issued
upon the exercise of an Option, that the Participant pay to the
Company, in cash, any federal, state or local taxes of any kind
required by law to be withheld with respect to any grant of an
Option or any delivery of Common Stock upon exercise of an
Option. The Company, to the extent permitted or required by law,
shall have the right to deduct from any payment of any kind
(including salary or bonus) otherwise due to a Participant any
federal, state or local taxes of any kind required by law to be
withheld with respect to any grant of an Option or to the
delivery of Common Stock upon exercise of an Option under the
Plan.
Subject to Committee approval, a Participant may elect to deliver
shares of Common Stock (or have the Company withhold shares
acquired upon exercise of an Option) to satisfy, in whole or in
part, the amount the Company is required to withhold for taxes in
connection with a grant under the Plan. Such election must be
made on or before the date the amount of tax to be withheld is
determined and, if applicable, subject to rules, regulations and
interpretations of the Securities and Exchange Commission under
Section 16(b) of the Exchange Act. Once made, the election shall
be irrevocable. The withholding tax obligation that may be paid
by the withholding or delivery of shares may not exceed the
Participant's minimum federal, state and local income tax
obligations in connection with the grant. The Fair Market Value
of the shares to be withheld or delivered will be determined on
the date last preceding the date as of which the amount of tax to
be withheld is determined.
VIII. Changes in Capital Structure, Reorganizations, Merger,
Etc.
- -------------------------------------------------------------
(a) Company's Power to Change Structure, Reorganize, Merge,
etc. The existence of outstanding Options shall not affect in
any way the right or power of the Company or its stockholders to
declare or distribute any stock dividend or to make or authorize
any recapitalization, reorganization, merger, split-up,
combination or other change in the Company's capital structure or
its business, or the dissolution or liquidation of the Company or
any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding whether of a
similar character or otherwise. Except as expressly provided
herein, no such corporate act or the issuance of securities by
the Company shall affect any Options outstanding under the Plan.
(b) Effect of Recapitalization or Similar Transaction. In the
event of any change in the total number of outstanding shares of
equity securities of the Company by reason of any stock dividend,
stock split, recapitalization, or similar transaction in which
there is a distribution of equity securities of the Company for
substantially below their Fair Market Value, then (i) the number,
class and per share price of shares of Common Stock subject to
outstanding Options shall be appropriately adjusted in such
manner as to entitle a Participant to receive upon exercise of an
Option, for the same aggregate Exercise Price, the same total
number and class of equity securities as he would have received
had he exercised his Option in full immediately prior to the
event requiring the adjustment; and (ii) the number and class of
equity securities then reserved for issuance under the Plan shall
be adjusted by substituting, for the total number and class of
shares of Common Stock then reserved for issuance under the Plan,
that number and class of shares of equity securities that would
have been received by the owner of the number of shares of Common
Stock then available to be issued under the Plan.
(c) Effect of Dissolution, Liquidation, Reorganization or other
Transaction in which the Company is not the Survivor. Upon the
dissolution or liquidation of the Company, the sale of all or
substantially all of the Company's assets, or the occurrence of
any merger, consolidation, reorganization, or other transaction
in which the Company is not the surviving corporation, then in
the absolute discretion of the Committee, (i) all Options
outstanding under the Plan shall be assumed by the successor,
remaining, or surviving corporation, or new options shall be
substituted for such Options, all as provided in Section 424(a)
of the Code and to the extent permitted by Section 424(a) of the
Code, in which event such assumption shall be made on a full and
equivalent basis in accordance with Section 424(a) of the Code in
order to preclude any modification of such Options which would be
considered to be the grant of new options, or (ii) all Options
which are then exercisable, or all Options outstanding under the
Plan, regardless of whether such Options otherwise would be
exercisable, shall be exercisable for a period of 15 days
immediately prior to such event and, after the Participant has
been afforded the opportunity to exercise such Options as
aforesaid and to the extent that such Options are not timely
exercised during such period, the terms and provisions of this
Plan and any option agreement entered into hereunder will
terminate and the related Options will terminate.
IX. Compliance with Law and Approval of Regulatory Bodies.
- -----------------------------------------------------------
Notwithstanding any other provision of this Plan or of any
option agreement, the Company shall be under no obligation and
shall not issue shares or, in the case of treasury shares,
transfer shares under this Plan, except in compliance with all
applicable federal and state laws and regulations and in
compliance with rules of any stock exchanges or listing
organizations with which the Company's shares may be listed. The
determination as to whether the issuance or transfer of shares
under this Plan is in compliance with applicable federal and
state laws and regulations and rules of stock exchanges and
listing organizations shall be made solely by the Committee.
(a) Use of Restrictive Legends. Any certificate issued to
evidence shares issued upon the exercise of an Option may bear
such legends and statements as the Committee shall deem
advisable to assure compliance with federal and state laws and
regulations.
(b) Representation of Investment Intent. Any Participant
receiving an Option and any Participant or other person
exercising an Option may be required by the Committee to give a
written representation that the Option and the shares subject to
the Option will be acquired for investment and not with a view to
public distribution; provided, however, that the Committee, in
its sole discretion, may release any person receiving an Option
from any such representations either prior to or subsequent to
the exercise of an Option granted pursuant to this Plan.
(c) Representation of Ownership. In the case of the exercise of
an Option by a person or estate acquiring the right to exercise
such Option by bequest or inheritance or by reason of the death
or Disability of a Participant, the Committee may require
reasonable evidence as to the ownership of such Option or the
authority of such person and may require such consents and
releases of taxing authorities as the Committee may deem
advisable.
X. Rights as a Stockholder.
- ----------------------------
The holder of an Option shall have no rights as a stockholder
with respect to any Option Shares until the date a stock
certificate is issued to him or her after the exercise of the
Option. No adjustment shall be made for dividends (ordinary or
extraordinary) whether in cash, securities or other property, or
distributions, or other rights for which the record date is prior
to the date such stock certificate is issued, except as provided
in Article VIII.
XI. Amendment, Suspension or Termination of Plan.
- --------------------------------------------------
The Board of Directors may at any time terminate or from time to
time amend or suspend this Plan; provided, however, that (i) no
such amendment shall alter or impair the number of shares,
exercise price or duration of any Option theretofore granted to a
Participant under this Plan without the consent of the affected
Participant, and (ii) no amendment shall become effective without
prior approval of the stockholders of the Company if such
approval would be required for continued compliance with Rule
16b-3 promulgated under the Exchange Act. Notwithstanding the
foregoing, the Board of Directors may not, without further
approval of the stockholders of the Company, amend the Plan to:
(a) materially increase the total number of shares of
Common Stock which may be made the subject of Options to be
granted under the Plan, either in the aggregate or to an
individual Participant, except as provided in Article VIII;
(b) change the manner of determination of the Exercise
Price;
(c) extend the maximum period during which Options may
be granted or exercised; or
(d) materially modify the requirements as to eligibility for
participation in the Plan.
XII. Commencement Date; Termination Date.
- ------------------------------------------
The date of commencement of this Plan shall be March 27, 1998.
No Options shall be issued under the Plan after the close of
business on March 31, 2008. The Plan was adopted by the Board on
March 27, 1998 and was approved by the Company's stockholders on
May 29, 1998. The terms set forth herein constitute all of the
terms and provisions of the Plan until further amended pursuant
to Article XI.
THE AMERICAN EDUCATION CORPORATION
Stock Option Plan
- ----------------------------------
I. Purpose
- -----------
The purpose of this Plan is to promote the long-term growth and
profitability of The American Education Corporation ("AEC") and
its Subsidiaries and the value of its Common Stock by (i)
providing employees of AEC with increased incentive to contribute
to the success of AEC and (ii) enabling AEC to attract, retain
and reward persons of exceptional skill for positions of
substantial responsibility.
II. Definitions
- ----------------
Whenever used herein, the following terms shall have the meanings
set forth below:
"Board" or "Board of Directors" means the board of directors of
AEC.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means a committee of at least two members of the
Board of Directors designated by the Board to administer this
Plan.
"Common Stock" shall mean the Common Stock, par value $0.025 per
share, of AEC.
"Disability" means a permanent and total disability as defined in
Section 22(e)(3) of the Code or as otherwise defined by the
Committee.
"Fair Market Value", as of a particular date, means (i) if the
shares of Common Stock are then listed or admitted for trading on
a national securities exchange or quoted on the National
Association of Securities Dealers Automated Quotation
System, the last reported sales price of the Common Stock on such
date or, if no such sale occurred, the average of the closing bid
and ask prices, as applicable, of the Common Stock on the last
trading day before such date, or (ii) if the shares of Common
Stock are not then listed or admitted for trading on a national
securities exchange or quoted on the National Association of
Securities Dealers Automated Quotation System, such value as the
Committee, in its discretion, may determine in good faith.
"Incentive Stock Option" means an Option conforming to the
requirement of Section 422 of the Code.
"Nonqualified Stock Option" means any Option other than an
Incentive Stock Option.
"Option" means a right or rights granted by the Committee to
purchase shares of Common Stock under the Plan.
"Option Agreement" means an agreement approved by the Committee
pursuant to which an Option is granted under this Plan.
"Option Shares" means any shares of Common Stock issuable upon
exercise of an Option.
"Participant" means an individual to whom an Option is granted
under the Plan.
"Plan" means this The American Education Corporation Stock Option
Plan as it may be amended from time to time.
"Retirement" means termination of a Participant's employment with
AEC because of the Participant's retirement at or after such
Participant's earliest permissible retirement date pursuant to
and in accordance with the regular retirement plan or practice of
AEC.
"Subsidiary" means a corporation, partnership or other business
entity at least 50 percent of whose voting securities are owned,
directly or indirectly, by AEC.
III. Administration
- --------------------
3.1 Appointment of Committee. The Board of Directors may
appoint any two or more of its members to serve as the Committee
to administer the Plan; provided, however, that in its sole
discretion, the Board of Directors may act as the Committee.
3.2 Duties and Powers of Committee. Subject to the terms,
provisions and conditions of the Plan, the Committee shall have
full and final authority in its discretion to, among other
things, determine
(i) the persons to whom Options are to be granted;
(ii) the number of shares subject to Options;
(iii) the time or times at which Options will be granted;
(iv) the exercise price of shares subject to Options;
(v) the time or times at which Options become exercisable and the
duration of the exercise period;
(vi) the provisions and forms of any Option Agreement or other
instrument evidencing an Option granted under the Plan;
(vii) whether shares of Common Stock which are subject to Options
will be subject to any restrictions on transfer after the
exercise of the Options;
(viii) such rules and regulations as the Committee may deem
advisable in the administration of the Plan; and
(ix) the procedures and methods for construing and interpreting
the Plan.
Actions approved by a majority of all members of the Committee at
any meeting at which a quorum is present, or actions approved in
writing by all of the members of the Committee without a meeting,
shall be valid acts of the Committee. Decisions of the Committee
on all matters relating to the Plan shall be in the Committee's
sole discretion and shall be conclusive and binding on all
parties, including AEC, its stockholders, and the Participants in
the Plan.
IV. Shares Available for the Plan
- ----------------------------------
4.1 Total Shares Available. Subject to the provisions of
Article VIII hereof, the maximum number of shares of Common Stock
which may be issued pursuant to the exercise of Options under
this Plan initially shall be 750,000 shares. If any Option for
shares of Common Stock granted to a Participant lapses, expires
or is cancelled, surrendered or exchanged, or is otherwise
terminated without having been fully exercised, the Committee
may, subject to the overall limitations stated above, again make
such Options available for grant hereunder (to the same or to a
different Participant). For purposes of calculating the maximum
number of shares of Common Stock which may be issued under the
Plan:
(1) All shares issued (including shares, if any, withheld for
tax withholding requirements) shall be counted when cash is used
as full payment for shares issued upon the exercise of an Option;
(2) Only the net shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted when
shares of Common Stock are used as full or partial payment for
shares issued upon the exercise of an Option.
4.2 Source of Shares Available to be Issued. The shares of
Common Stock to be delivered upon the exercise of Options shall
be made available either from the authorized but unissued shares
of Common Stock or from shares of Common Stock held by AEC as
treasury shares. Shares of Common Stock with respect to which an
Option is exercised shall not again be available for grant as an
Option under this Plan.
V. Participation
- -----------------
Participation in the Plan shall be limited to those employees of
AEC who are believed by the Committee to be in a position to make
a substantial contribution to the success of AEC.
Options may be granted to such persons and for such number of
shares as the Committee shall determine. The grant of any type
of Option hereunder in any one year to an eligible person shall
neither guarantee nor preclude a further grant of an Option to
such person in that year or in any subsequent year.
VI. Options
- ------------
Subject to the provisions hereof, the Committee may from time to
time grant Incentive Stock Options, Nonqualified Stock Options,
or any combination thereof to persons eligible to participate in
the Plan. Each Option shall be evidenced by a written Option
Agreement, signed by an authorized officer of AEC, which shall
contain such terms and conditions not inconsistent with the
Plan as the Committee shall determine. All Option Agreements
need not be identical, but shall comply with or incorporate by
reference the terms set forth in this Article VI and shall be
subject to all other terms and conditions of the Plan. In the
event any Option Agreement is inconsistent with the Plan, the
terms of the Plan shall govern the issue in question.
6.1 Price. The price per share deliverable upon the exercise
of each Option ("exercise price") shall not be less than 100% of
the Fair Market Value on the date the Option is granted.
6.2 Exercise of Options. Options shall be exercisable only by
the Participant to whom the Options were granted, or by the
Participant's legal guardian or personal representative, if any,
in the case of exercise following the death or Disability of the
Participant as provided in Section
11.3. Options shall be exercised by delivery to AEC of a written
notification specifying the number of Option Shares which the
Participant then desires to purchase, together with payment for
such Option Shares. Payment may be made in the form of (i) cash,
certified check or other immediately available funds for the
aggregate exercise price for such Option Shares, (ii) the
exchange of a number of shares of Common Stock owned by the
Participant, free and clear of all liens or encumbrances, the
Fair Market Value of which at the time of exercise is equal to
the aggregate exercise price of such Option Shares, and
accompanied by executed stock powers and any other documents of
transfer requested by the Committee; (iii) the relinquishment of
Options to purchase Option Shares which shall be deemed to have a
value equal to the aggregate Fair Market Value of the Option
Shares issuable upon exercise of such relinquished Options less
the aggregate exercise price for such Option Shares; or (iv) a
combination of (i), (ii) or (iii). No fractional shares may be
issued or accepted by AEC with respect to the exercise of an
Option. Options may be exercisable in installments (which may be
cumulative or noncumulative or subject to acceleration) during
the terms of an Option as may be determined by the Committee at
the date of grant.
6.3 Form of Option. Each option agreement shall specify
whether the Option evidenced by such Option agreement is an
Incentive Stock Option or a Nonqualified Stock Option.
Notwithstanding such designation in an option agreement, in the
event an Option which is designated as an Incentive Stock
Option fails to qualify as an Incentive Stock Option under
Section 422 of the Code, then such Option shall be deemed to be a
Nonqualified Stock Option.
6.4 Terms of Options. The term during which each Option may be
exercised shall be determined by the Committee, but in no event
shall an Option be exercisable in whole or in part more than ten
years from the date it is granted.
All rights to purchase Option Shares pursuant to an Option shall,
unless sooner terminated as set forth herein or in an Option
Agreement, expire at the date or dates designated by the
Committee. The Committee shall determine the date on which each
Option shall become exercisable and may provide that an Option
shall become exercisable in installments. The shares
constituting each installment may be purchased in whole or
in part at any time after such installment becomes exercisable,
subject to such minimum exercise requirement as may be designated
by the Committee.
6.5 Restrictions on Transfer. Options granted under the Plan
shall not be transferable or assignable or capable of being
pledged or otherwise hypothecated in any way, and shall not be
subject to execution, attachment or similar process, other than
by will or the laws of descent and distribution as specifically
permitted hereunder. Any attempted assignment, transfer, pledge,
hypothecation or other disposition of an Option contrary to the
provisions hereof shall result in the termination of such Option,
which termination shall be effective immediately before the
attempted assignment, transfer, pledge, hypothecation or other
disposition of the Option. Option Shares delivered upon exercise
of an Option shall be subject to such resale restrictions as may
be provided by the Committee in the Option Agreement pertaining
to such Option.
6.6 Provisions Applicable to Ten Percent Stockholders.
Notwithstanding any other provision of this Plan, no Incentive
Stock Option shall be granted under this Plan to a person who, at
the time such Incentive Stock Option is granted, is the owner of
more than 10 percent of the total combined voting power of all
classes of stock of AEC, unless at the time such Incentive Stock
Option is granted, the exercise price is at least 110 percent
of the Fair Market Value of the Common Stock subject to the
Incentive Stock Option, and such Incentive Stock Option by its
terms is not exercisable more than five (5) years after the date
it is granted.
6.7 Limitations on Grants. If required by the Code at the time
of grant, to the extent that the aggregate Fair Market Value of
Common Stock (determined as of the grant date) with respect to
which Incentive Stock Options are exercisable for the first time
by a Participant during any calendar year (under all plans of
AEC) exceeds $100,000, such Options shall be treated as
Nonqualified Stock Options. The foregoing sentence shall be
applied by taking Incentive Stock Options into account in the
order in which they were granted.
VII. Withholding Taxes
- -----------------------
AEC may require, as a condition to any Option under the Plan or
to the delivery of certificates for Common Stock issued
hereunder, that the Participant pay to AEC, in cash, any federal,
state or local taxes of any kind required by law to be withheld
with respect to the award of any Option or any delivery of Common
Stock upon exercise of an Option. AEC, to the extent permitted
or required by law, shall have the right to deduct from any
payment of any kind (including salary or bonus) otherwise due to
a Participant any federal, state or local taxes of any kind
required by law to be withheld with respect to any grant of an
Option or to the delivery of Common Stock upon exercise of an
Option under the Plan.
Subject to Committee approval, a Participant may elect to deliver
shares of Common Stock (or have AEC withhold shares acquired upon
exercise of an Option) to satisfy, in whole or in part, the
amount AEC is required to withhold for taxes in connection with
award of an Option under the Plan. Such election must be made on
or before the date the amount of tax to be withheld is determined
and, once made, the election shall be irrevocable. The
withholding tax obligation that may be paid by the withholding or
delivery of shares may not exceed the Participant's minimum
federal, state and local income tax obligations in connection
with the exercise of the Option. The Fair Market Value of the
Common Stock to be withheld or delivered will be the Fair Market
Value on the date last preceding the date the amount of tax to be
withheld is determined.
VIII. Changes in Capital Structure, Reorganizations, Merger,
Etc.
- -------------------------------------------------------------
8.1 AEC's Power to Change Structure, Reorganize, Merge, etc.
The existence of outstanding Options shall not affect in any way
the right or power of AEC or its stockholders to declare or
distribute any stock dividend or to make or authorize any
recapitalization, reorganization, merger, split-up,
combination or other change in AEC's capital structure or its
business, or the dissolution or liquidation of AEC or any sale or
transfer of all or any part of its assets or business, or any
other corporate act or proceeding whether of a similar character
or otherwise. Except as expressly provided herein, no such
corporate act or the issuance of securities by AEC shall affect
any Options outstanding under the Plan.
8.2 Effect of Recapitalization or Similar Transaction. In the
event of any change in the total number of outstanding shares of
equity securities of AEC by reason of any stock dividend, stock
split, recapitalization, or similar transaction in which there is
a distribution of equity securities of AEC for substantially
below their Fair Market Value, then (i) the number, class and per
share price of shares of Common Stock subject to outstanding
Options shall be appropriately adjusted in such manner as to
entitle a Participant to receive upon exercise of an Option, for
the same aggregate exercise price, the same total number and
class of equity securities as the Participant would have received
had the Participant exercised his or her Option in full
immediately prior to the event requiring the adjustment; and (ii)
the number and class of equity securities then reserved for
issuance under the Plan shall be adjusted by substituting for the
total number and class of shares of Common Stock then reserved
that number and class of shares of equity securities that would
have been received by the owner of an equal number of outstanding
shares of Common Stock as a result of the event requiring the
adjustment.
8.3 Effect of Dissolution, Liquidation, Reorganization or other
Transaction in which AEC is not the Survivor. Upon the
dissolution or liquidation of AEC, the sale of all or
substantially all of AEC' assets, or the occurrence of any
merger, consolidation, reorganization, or other transaction
in which AEC is not the surviving corporation, then in the
absolute discretion of the Committee, (i) new Options shall be
substituted for outstanding Options in accordance with and to the
extent permitted by Section 424(a) of the Code in order to
preclude any modification of such Options which would be
considered to be the grant of new Options, or (ii) all Options
which are then outstanding under the Plan, regardless of whether
such Options otherwise would be exercisable, shall be exercisable
for a period of 15 days immediately prior to such event and,
after the Participants have been afforded the opportunity to
exercise such Options as aforesaid and to the extent that such
Options are not timely exercised during such period, the terms
and provisions of this Plan and any Option agreement granted
hereunder will no longer continue in effect, and the Options
shall terminate.
IX. Compliance with Law and Approval of Regulatory Bodies
- ----------------------------------------------------------
Notwithstanding any other provision of this Plan or of any
Option agreement, AEC shall be under no obligation and shall not
issue shares or, in the case of treasury shares, transfer shares
under this Plan, except in compliance with all applicable federal
and state laws and regulations and in compliance with rules of
any stock exchanges or listing organizations with which AEC's
shares may be listed. The determination as to whether the
issuance or transfer of shares under this Plan is in compliance
with applicable federal and state laws and regulations and rules
of stock exchanges and listing organizations shall be made solely
by the Committee.
9.1 Use of Restrictive Legends. Any certificate issued to
evidence shares issued upon the exercise of an Option may bear
such legends and statements as the Committee shall deem advisable
to assure compliance with federal and state laws and regulations.
9.2 Representation of Investment Intent. Any Participant
receiving an Option and any Participant or other person
exercising an Option may be required by the Committee to give a
written representation that the Option and the Option Shares will
be acquired for investment and not with a view to public
distribution; provided, however, that the Committee, in its sole
discretion, may release any person receiving an Option from any
such representations either prior to or subsequent to the
exercise of an Option granted pursuant to this Plan.
9.3 Representation of Ownership. In the case of the exercise
of an Option by a person or estate acquiring the right to
exercise such Option by bequest or inheritance or by reason of
the death or Disability of a Participant, the Committee may
require reasonable evidence as to the ownership of such
Option or the authority of such person and may require such
consents and releases of taxing authorities as the Committee may
deem advisable.
X. Rights as a Stockholder
- ---------------------------
The holder of an Option shall have no rights as a stockholder
with respect to any shares covered by the Option until the date a
stock certificate is issued to him or her after the exercise of
the Option. No adjustment shall be made for dividends (ordinary
or extraordinary) whether in cash, securities or other property,
or distributions, or other rights for which the record date is
prior to the date such stock certificate is issued, except as
provided in Article VIII. Any Option Shares shall be subject to
such restrictions, including, without limitation, restrictions on
transfer that the Committee deems to be appropriate.
XI. Termination of Employment
- ------------------------------
11.1 Change of Employment Status. No Option shall be affected
by any change of duties or position of a Participant (including
transfer to or from a Subsidiary) so long as such Participant
continues to be an employee of AEC or a Subsidiary. Nothing in
this Plan or in any Option granted hereunder shall confer upon
any Participant any right to continue in the employ of AEC or any
Subsidiary, and AEC's right to terminate the employment of a
Participant at any time for any reason shall not be diminished or
affected because an Option was granted to the Participant.
11.2 Termination other than Because of Death, Disability or
Cause. If a Participant who is an employee of AEC or a
Subsidiary ceases to be an employee for any reason, other than by
reason of the death or Disability of the Participant, then all
Options held by such Participant which are not exercisable
when the Participant ceases to be an employee shall terminate.
All Options which are exercisable when the Participant ceases to
be an employee must be exercised prior to the earlier of (i) the
expiration date of the Option, or (ii) the date occurring 30 days
after the date on which the Participant ceases to be an employee
of AEC or a Subsidiary.
11.3 Termination Because of Death or Disability. If a
Participant dies or suffers a Disability while he or she is an
employee of AEC or a Subsidiary, Options which are not
exercisable at the date of death or termination due to
Disability shall terminate and Options which are exercisable on
the date of death or termination due to Disability of such
Participant may be exercised by the Participant, by his or her
personal representative or by his or her other lawful successor
to the extent that such Options could have been exercised by
the deceased or disabled Optionee immediately prior to his or her
death or Disability. Notwithstanding the foregoing, upon
termination of an Optionee's employment by reason of death or
disability, the following provisions shall apply:
(i) In the event the Optionee's termination of employment is
due to death, the Option to the extent exercisable upon the date
of the Optionee's death, shall be exercisable for a period of one
(1) year following the date of death.
(ii) In the case the Optionee's employment is terminated due to
Disability, the Option to the extent exercisable as of the date
of termination due to Disability, shall be exercisable for a
period of one (1) year from the date of termination.
Notwithstanding the foregoing, in no event shall any such period
extend beyond the Option Term.
11.4 Termination for Cause. Notwithstanding any other
provisions set forth herein, if an Optionee shall (a) commit any
act of malfeasance or wrongdoing affecting AEC or any Subsidiary
of AEC, (b) breach any covenant not to compete or employment
contract with AEC or any Subsidiary of AEC or (c) engage in
conduct that would warrant the Optionee's discharge for cause
(excluding the general dissatisfaction with the performance of
the Optionee's duties but including any act of disloyalty or any
conduct clearly tending to bring discredit upon AEC or any
Subsidiary of AEC) any unexercised portion of an Option granted
to such Optionee shall immediately terminate and become void.
XII. Amendment, Suspension or Termination of Plan
- --------------------------------------------------
The Board of Directors may at any time terminate or from time to
time amend or suspend this Plan; provided, however, that (i) no
such amendment shall alter or impair any of the rights or
obligations under any Option theretofore granted to a Participant
under this Plan without the consent of the affected Participant,
and (ii) no amendment shall become effective without prior
approval of the stockholders of AEC if such approval would
be required for continued compliance with Section 422 of the
Code. Notwithstanding the foregoing, the Board of Directors may
not, without further approval of the stockholders of AEC, amend
the Plan to:
(1) materially increase the total number of shares of Common
Stock which may be made the subject of Options to be granted
under the Plan, either in the aggregate or to an individual
Participant, except as provided in Article VIII;
(2) materially modify the requirements as to eligibility for
participation in the Plan.
XIII. Termination Date
- -----------------------
The date of commencement of the Plan shall be March 27, 1998.
Unless previously terminated, no Options shall be issued under
the Plan after the close of business on March 31, 2008. The Plan
was adopted by the Board on March 27, 1998 and approved by AEC's
stockholders on May 29, 1998. The terms set forth herein
constitute all of the terms and provisions of the Plan
until further amended pursuant to Article XII.
