<PAGE>
As filed with the Securities and Exchange Commission on September 9, 1997.
Registration No. 333-________
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
SECURITIES ACT OF 1933
AMERICAN EDUCATIONAL PRODUCTS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED ON ITS CHARTER)
Colorado 84-1012129
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(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
5350 Manhattan Circle, Suite 210
Boulder, Colorado 80303
(303) 543-0123
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(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Clifford C. Thygesen
American Educational Products, Inc.
5350 Manhattan Circle, Suite 210
Boulder, Colorado 80303
(303) 543-0123
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(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER OF
AGENT FOR SERVICE OF PROCESS)
Copies to:
Clifford L. Neuman, Esq.
David H. Drennen, Esq.
Neuman & Drennen, LLC
1507 Pine Street
Boulder, Colorado 80302
(303) 449-2100
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the effective date of the Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [ ]
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [ X ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<PAGE>
<PAGE>
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
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Proposed Proposed
Title of Maximum Maximum
Each Class Offering Aggregate Amount of
of Securities Amount to be Price Per Offering Registration
Registered Registered Share (1) Price (1) Fee
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<S> <C> <C> <C> <C>
Common Stock
$.05 par value 916,298 (2) $10.00 (3) $9,162,980 $2,776.67
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Total: $9,162,980 $2,776.67
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) Reflects 916,298 shares of Common Stock issuable upon exercise of
outstanding Common Stock Purchase Warrants (the "Warrants" ) that
will be issued by the Company as a dividend to its Common
Stockholders of record on June 5, 1997. The Warrants will be issued
immediately after the effective date of this Registration Statement.
(3) Based upon the $10.00 per share exercise price of the Warrants.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC.
Item No. and Heading
In Form S-3 Location
Registration Statement In Prospectus
---------------------- --------------
1. Forepart of the Registration Statement Forepart of Registration
and outside front cover of Prospectus Statement outside front
cover page of Prospectus
2. Inside front and outside back cover Inside front and outside
pages of Prospectus back cover page of
Prospectus
3. Summary Information, Risk Factors and Risk Factors
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price Determination of Offering
Price
6. Dilution Dilution
7. Plan of Distribution Plan of Distribution
8. Description of Securities to be Description of Securities
Registered
9. Interest of Named Experts and Counsel Legal Matters
10. Material Changes Recent Developments
11. Incorporation of Certain Information Incorporation of Certain
by Reference Information by Reference
12. Disclosure of Commission Position on Indemnification
Indemnification for Securities Act
Liabilities
<PAGE>
<PAGE>
PROSPECTUS
AMERICAN EDUCATIONAL PRODUCTS, INC.
__________________
916,298 Shares
$.05 par value Common Stock
This Prospectus relates to the offer and sale by American Educational
Products, Inc., a Colorado corporation (the "Company"), of 916,298 shares of
its $.05 par value common stock (the "Common Stock") which are issuable by the
Company pursuant to the exercise of Common Stock Purchase Warrants (the
"Warrants") that will be issued by the Company as a dividend to its Common
Stockholders of record on June 5, 1997 (the "Warrantholders"). The Warrants
will be issued immediately after the effective date of this Registration
Statement. Upon exercise of the Warrants, the Warrantholders may offer all
916,298 shares of the Company's Common Stock in transactions in the over-the-
counter market at prices obtainable at the time of sale, or in privately
negotiated transactions at prices determined by negotiation. The
Warrantholders may effect such transactions by selling the shares to or
through securities broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions, or commissions from the
Warrantholders, and/or the purchasers of the shares for whom such broker-
dealers may act as agent or to whom they sell as principal, or both (which
compensation as to a particular broker-dealer may be in excess of customary
commissions). (See "PLAN OF DISTRIBUTION.")
Assuming the Warrantholders exercise all Warrants to purchase 916,298
shares, the Company will receive gross proceeds of $9,162,980. The Company
will not receive any of the proceeds from the resale of the shares by the
Warrantholders. The Company has agreed to pay all of the expenses incurred in
connection with the registration of the shares, which are estimated to be
$30,000.
The Company's Common Stock is traded on the Nasdaq SmallCap Market under
the symbol AMEP. On August 27, 1997, the closing price was $7.125 per share
as reported by Nasdaq.
------------------------
FOR DISCUSSION OF CERTAIN MATTERS THAT SHOULD BE CONSIDERED IN EVALUATING
AN INVESTMENT IN THE COMPANY, SEE "RISK FACTORS" COMMENCING AT PAGE 10 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSIONS, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<PAGE>
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Price to Underwriting Proceeds to
Warrantholders(1) Discount(2) Company(3)
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[S] [C] [C] [C]
Per Share: $10.00 * $10.00
Total $9,162,980 * $9,162,980
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The Date of This Prospectus is September ____, 1997.
(1) Reflects the exercise by the Warrantholders of all outstanding Warrants
to purchase an aggregate of 916,298 shares of Common Stock at an exercise
price of $10.00 per share. (see "DESCRIPTION OF SECURITIES-
Warrants.")
(2) The Warrantholders may reoffer their shares in transactions in the over-
the-counter market at prices obtainable at the time of sale or in
privately negotiated transactions at prices determined by negotiation.
The Warrantholders may effect transactions by selling to or through
securities broker-dealers and such broker-dealers may receive
compensation in the form of discounts, concessions, or commissions from
the Warrantholders. While it is impracticable to determine the precise
amount that the Warrantholders will incur, it is anticipated that any
such discounts, selling concessions or commissions will be consistent
with those customarily charged by broker-dealers who are members of the
National Association of Security Dealers, Inc. ("NASD").
(3) Consists of proceeds to the Company from the exercise by the
Warrantholders of all Warrants which are exercisable to purchase 916,298
shares of the Company's Common Stock at an exercise price of $10.00 per
share. Does not reflect deduction of expenses of the Offering for
printing, legal, accounting, transfer agent and miscellaneous expenses of
the Offering, the total of which is estimated at $30,000, which the
Company has agreed to pay. See "USE OF PROCEEDS."
No dealer, salesman or other person has been authorized to give any
information or to make any representation other than those contained in this
Prospectus, and, if given or made, such information or representation must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any of
the securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction, or in any jurisdiction in
which the person making such offer or solicitation is not qualified to do so.
<PAGE>
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance with
the Exchange Act files periodic reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy statements and other information concerning the Company can be
inspected and copied (at prescribed rates) at the Commission's Public
Reference Section, Room 1024, 450 Fifth Street, N.W. Judiciary Plaza,
Washington, D.C. 20549, as well as at the following Regional Offices:
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such material also may be obtained at prescribed rates from
the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. In addition, the Company's Common
Stock is traded in the over-the-counter market on the NASDAQ system, and
reports, proxy statements and other information concerning the Company can be
inspected and copied at the Office of the National Association of Securities
Dealers, Inc., 1735 "K" Street, N.W., Washington, D.C. 20006.
The Company has filed a Registration Statement on Form S-3 with the
Commission, Washington, D.C., in accordance with the provisions of the Act.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information pertaining to the shares of Common Stock offered hereby and the
Company, reference is made to the Registration Statement, including the
exhibits and financial statement schedules filed as a part thereof. Reference
also should be made to the Annual Report to Shareholders and Annual Report on
Form 10-KSB for the year ended December 31, 1996, the Company's definitive
Proxy Statement, and the Company's Quarterly Reports on Form 10-QSB for the
quarters ended March 31, 1997 and June 30, 1997, incorporated by reference
into this Prospectus. Statements herein contained concerning the provisions of
any document are not necessarily complete and, in each instance, reference is
made to the copy of such document filed as an Exhibit to the Registration
Statement. Each such statement is qualified in its entirety by such reference.
The Registration Statement may be obtained from the Commission upon payment of
the fees prescribed therefor and may be examined at the principal office of
the Commission in Washington, D.C.
<PAGE>
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents which have been filed with the SEC pursuant to
the Securities Exchange Act of 1934, as amended, are incorporated herein by
reference:
(a) The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996.
(b) The Company's definitive Proxy Statement for the Annual Meeting of
Shareholders held on June 2, 1997.
(c) The Company's Quarterly Report on Form 10-QSB for the quarter ended
March 31, 1997 as filed with the Commission on May 15, 1997.
(d) The Company's Quarterly Report on Form 10-QSB for the quarter ended
June 30, 1997 as filed with the Commission on August 18, 1997.
All documents filed by the Company with the Commission pursuant to
Section 13a, 13c, 14 or 15d of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering covered by this
Prospectus will be deemed incorporated by reference into this Prospectus and
to be a part hereof from the date of filing of such documents.
Any statement contained in the above-referenced documents shall be deemed
to be modified or superseded for purposes of this Prospectus to the extent
that a statement contained in this Prospectus modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
A copy of the documents incorporated by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference to
this Prospectus), may be obtained at no charge by a written or oral request to
Clifford C. Thygesen, President, American Educational Products, Inc., 5350
Manhattan Circle, Suite 210, Boulder, Colorado 80303 (303) 543-0123. In
addition, such materials filed electronically by the Company with the
Commission are available at the Commission's World Wide Web site at
http://www.sec.gov/edgarhp/htm.
<PAGE>
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Prospectus are "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 and are thus prospective. Such statements are subject to risks,
uncertainties and other factors which could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. Such risks and uncertainties include, but are not limited to,
competitive pressures, changing economic conditions and other factors, some of
which will be outside of the control of the Company.
<PAGE>
<PAGE>
THE COMPANY
The Company is engaged in the manufacture, development, marketing and
distribution of both proprietary and non-proprietary supplemental educational
materials and instructional programs through its two (2) wholly-owned
subsidiaries: Scott Resources, Inc. ("Scott Resources"); and Hubbard
Scientific, Inc. ("Hubbard Scientific"). The executive offices of the Company
are located at 5350 Manhattan Circle, Suite 210, Boulder, Colorado 80303. Its
telephone number at that address is (303) 543-0123.
Scott Resources, a wholly-owned subsidiary, manufactures, develops and
markets both proprietary and non-proprietary supplemental educational
materials and instructional programs in the fields of science and mathematics
at its principal manufacturing facility located at 401 Hickory Street, Fort
Collins, Colorado 80524. Its telephone number at that address is (970) 484-
7445.
Hubbard Scientific, another wholly-owned subsidiary, manufactures,
develops and markets both proprietary and non-proprietary supplemental
educational and instructional materials in the field of science. Hubbard
Scientific maintains its principal manufacturing facility at 1120 Halbib Road,
Chippewa Falls, Wisconsin 54729.
<PAGE>
<PAGE>
RISK FACTORS
Prospective investors should review carefully the following investment
considerations in evaluating the Company and its business:
LIMITED LIQUIDITY AND CAPITAL RESOURCES. At June 30, 1997, the Company
had limited working capital of $935,000 based upon current assets of
$4,669,000 and current liabilities of $3,734,000. Of current liabilities,
$2,780,000 represented the principal balance under a revolving line of credit
pursuant to a loan agreement. Although the loan agreement has a scheduled
maturity date of April 30, 2000, it also contains a demand provision under
which the lender has the right to demand repayment of the entire balance at
any time. Even though the Company does not expect to repay the entire debt
within the next twelve months, it is required to classify the entire loan as a
current liability. If the lender did demand repayment in full during the next
twelve months, it would have significant adverse impact on the Company.
Furthermore, the Company experienced deficits during each of the three years
ended December 31, 1996. Those deficits significantly decreased the Company's
liquidity and capital resources. The Company's liquidity shortfall has
adversely affected operations during 1997. Actions were taken to mitigate the
impact of the liquidity shortfall and those actions were effective during the
first six months of 1997. Nevertheless, there are no guarantees that the
Company can continue to improve its liquidity.
LACK OF OPERATING PROFITS. For the year ended December 31, 1996, the
Company reported a net loss of $1,095,000. The Company also reported net
losses for each of the two preceding years. For the first six months of 1997,
the Company reported net income of $248,000, an improvement over the net loss
of $(931,000) reported for the first six months of 1996. The Company
attributes the improved results to an increased market demand for its
products, to a reorganization that significantly reduced operating costs, and
to the sale of an unprofitable division. There are no guarantees that the
Company can continue its profitable performance.
LIMITED FUNDS AVAILABLE FOR OPERATIONS. The Company's Common Stock is
currently trading in a range between $6.00 and $7.00 and per share. It is
unlikely that any of the Warrants will be exercised unless the share price
increases substantially. Accordingly, it is not likely that proceeds of any
warrant exercise will ameliorate the Company's working capital shortage in the
foreseeable future.
EXERCISE PRICE OF WARRANTS. The exercise price of the Warrants was
determined by the Company and bears no direct relationship to the Company's
assets, book value, net worth or operations. The $10.00 per share exercise
price of the Warrants is $5.48 per share greater than the $4.52 per share net
tangible book value of the Company at June 30, 1997.
NO ASSURANCE OF WARRANT EXERCISE. The Warrantholders are under no
obligation to exercise the warrants, and can be expected to do so only if it
is economically reasonable for them to do so. Typically, publicly traded
warrants are not exercised unless exercise is forced, either by the Company
calling them for redemption, or because they are scheduled to expire; and then
they will be exercised only if the exercise price is less than the market
price of the Common Stock. Accordingly, there is no assurance that the
Warrants will be exercised during the Exercise Period.
UNSPECIFIED USE OF PROCEEDS. The monies received by the Company upon
exercise of the Warrants have been allocated generally by the Company to
provide working capital for operations. As such, the Company will utilize
funds as they are received for such purposes and in such proportions as
management deems advisable. While management will apply the proceeds of the
Offering in a manner consistent with their fiduciary duty and in a manner
consistent with the best interests of the Company, there can be no assurance
that the monies received will result in any present or future improvement in
the Company's results of operations.
COMPETITION. The Company faces competition from businesses with greater
resources and larger current market shares. The development of new products
can give a competitor significant market advantage. There can be no assurance
that the Company will be able to acquire and develop new products or increase
its portfolio of products to the extent necessary to keep it competitive. Due
to the Company's lack of operating profits, the Company has been required to
reduce its spending on product development which could have a material adverse
impact upon the Company's future operations.
PRODUCT PROTECTION. The Company relies on copyrights, trademarks and
trade secrets for protection of its products. Although believed to be adequate
by the Company, this protection is limited, and it is possible for competitors
of the Company to imitate some of the Company's manipulatives and models, none
of which are patented. There can be no assurance that such limitations, if
significant in number and degree, would not have a material adverse effect on
the operations of the Company.
EDUCATIONAL FUNDING. The sale or distribution of the Company's products
is highly dependent upon public funding for elementary, middle and secondary
school systems. As a result, the continued viability of those markets for the
Company's products is dependent upon continued support and funding for public
education.
LIMITED LIQUIDITY IN TRADING MARKET OF SHARES. Prior to the Offering,
the Company's Common Stock has been thinly traded on the NASDAQ SmallCap
Market. Continuation of low volume trading may adversely affect the liquidity
of large holdings and may contribute to high volatility of the price of the
Company's Common Stock.
NASDAQ SYSTEM MAINTENANCE REQUIREMENTS; POSSIBLE DELISTING OF SECURITIES
FROM NASDAQ SYSTEM; RISKS OF LOW-PRICED STOCKS. The Securities and Exchange
Commission (the "Commission") has approved rules imposing more stringent
criteria for the listing of securities on NASDAQ, including standards for
maintenance of such listing. If the Company is unable to satisfy NASDAQ's
maintenance criteria in the future, its securities could be de-listed, and
trading, if any, would thereafter be conducted in the over-the-counter market
in the so-called "pink sheets" or the "Electronic Bulletin Board" of the
National Association of Securities Dealers, Inc. ("NASD"). As a consequence of
such de-listing, an investor could find it more difficult to dispose of, or to
obtain accurate quotations as to the price of, the Company's securities.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks, in connection
with trades in any stock defined as a penny stock. The Commission recently
adopted regulations that generally define a penny stock to be any equity
security that has a market price of less than Five Dollars ($5.00) per share,
subject to certain exceptions. Such exceptions include any equity security
listed on NASDAQ and any equity security issued by an issuer that has (i) net
tangible assets of at least Two Million Dollars ($2,000,000), if such issuer
has been in continuous operation for three (3) years, (ii) net tangible assets
of at least Five Million Dollars ($5,000,000), if such issuer has been in
continuous operation for less than three (3) years, or (iii) an average annual
revenue of at least Six Million Dollars ($6,000,000), if such issuer has been
in continuous operation for less than three (3) years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith.
If the Company's securities are not quoted on NASDAQ, or the Company does
not have Two Million Dollars ($2,000,000) in net tangible assets, trading in
the Company's securities would be covered by Rules 15g-1 through 15g-6
promulgated under the Exchange Act for non-NASDAQ and non-exchange listed
securities. Under such rules, broker-dealers who recommend such securities to
persons other than established customers and accredited investors must make a
special written suitability determination that the penny stock is a suitable
investment for the purchaser and receive a purchaser's written agreement to
the transaction. Securities are exempt from these rules if the market price of
the Common Stock is at least Five Dollars ($5.00) per share.
Although the Company's Common Stock will, as of the date of this
Prospectus, be outside the definitional scope of a penny stock, as it will be
listed on NASDAQ, in the event the Common Stock was subsequently to become
characterized as a penny stock, the market liquidity for the Company's
securities could be severely affected. In such an event, the regulations on
penny stocks could limit the ability of broker-dealers to sell the Company's
securities and adversely affect the ability of purchasers of the Company's
securities to sell their securities in the secondary market.
DIVIDEND. No dividend has been paid on the Company's Common Stock since
1990, nor, by reason of its present financial status, its contemplated
financial requirements and restrictive covenants in its revolving loan
agreement, does the Company contemplate or anticipate paying any dividends
upon its Common Stock in the foreseeable future. (See "DESCRIPTION OF
SECURITIES.")
SHARES ELIGIBLE FOR FUTURE SALE. As of June 30, 1997, 916,298 shares of
the Company's $.05 par value Common Stock, were issued and outstanding, 78,000
of which are "restricted securities" and under certain circumstances may, in
the future, be sold pursuant to a registration under the Securities Act or in
compliance with Rule 144 adopted under the Securities Act. In general, under
Rule 144, subject to the satisfaction of certain other conditions, a person,
including an affiliate of the Company, who has beneficially owned restrictive
shares of Common Stock for at least one (1) year is entitled to sell, within
any three-month (3-month) period, a number of shares that does not exceed the
greater of one percent (1%) of the total number of outstanding shares of the
same class, or if the Common Stock is quoted on NASDAQ or a stock exchange,
the average weekly trading volume during the four (4) calendar weeks
immediately preceding the sale. A person who presently is not and who has not
been an affiliate of the Company for at least three (3) months immediately
preceding a sale and who has beneficially owned the shares of Common Stock for
at least two (2) years is entitled to sell such shares under Rule 144 without
regard to any of the volume limitations described above. The Company also may
grant options to purchase an additional 87,600 shares of Common Stock pursuant
to the Incentive Stock Option Plan (the "Plan"). The Company plans to
register for sale under the Act all shares issuable upon exercise of the
options granted pursuant to the Plan, such that when the options are exercised
and the shares issued, they will be free-trading, except for certain
limitations imposed upon directors, officers and affiliates who exercise
options granted under such Plan. No prediction can be made as to the effect,
if any, that sales of shares of Common Stock or the availability of such
shares for sale will have on the market prices prevailing from time-to-time.
Nevertheless, the possibility that substantial amounts of Common Stock may be
sold in the public market may adversely effect prevailing prices for the
Common Stock and could impair the Company's ability to raise capital in the
future through the sale of equity securities. Actual sales or the prospect of
future sales of shares of Common Stock under Rule 144 may have a depressive
effect upon the price of the Common Stock and the market therefor.
FUTURE SALES OF PREFERRED STOCK. The Company's Articles of
Incorporation, as amended, authorize the issuance of up to 50,000,000 shares
of preferred stock. The Board of Directors has been granted the authority to
fix and determine the relative rights and preferences of preferred shares, as
well as the authority to issue such shares, without further stockholder
approval. As a result, the Board of Directors could authorize the issuance of
a series of preferred stock which would grant to holders preferred rights to
the assets of the Company upon liquidation, the right to receive dividend
coupons before dividends would be declared to common stockholders, and the
right to the redemption of such shares, together with a premium, prior to the
redemption of Common Stock. Common stockholders have no redemption rights.
In addition, the Board could issue large blocks of voting stocks to fend
against unwanted tender offers or hostile takeovers without further
shareholder approval. (See "DESCRIPTION OF SECURITIES.")
FUTURE SALES OF ADDITIONAL SHARES. The Company's Board of Directors has
the authority to issue additional shares of Common Stock and to issue options
and warrants to purchase shares of the Company's Common Stock without
shareholder approval. Future issuance of Common Stock could be at values
substantially below the exercise price of the Warrants, and therefore could
represent further substantial dilution to investors in this Offering. In
addition, the Board could issue large blocks of voting stock to fend off
unwanted tender offers or hostile takeovers without further shareholder
approval. The Company has outstanding options exercisable to purchase up to
153,100 shares of Common Stock at a weighted average exercise price of $4.29
per share; warrants exercisable to purchase up to 102,000 shares of Common
Stock at weighted average exercise price of $8.62 per share. Exercise of the
warrants and options could have a further dilutive effect on existing
stockholders and investors in this Offering. (See "DESCRIPTION OF
SECURITIES.")
DILUTION. As of June 30, 1997, the Company had sold or issued the
outstanding 916,298 shares of Common Stock at an average cost per share of
approximately $7.11, which is $2.89 per share less than the Warrant exercise
price. At June 30, 1997, the Company had a net tangible book value of
$4,141,000 or $4.52 per share of Common Stock outstanding, based on 916,298
shares issued and outstanding. If 100% of the Warrants are exercised, after
deduction of expenses of the Offering, the Company will have a net tangible
book value of approximately $7.24 per share. Under this scenario, investors
in this Offering exercising Warrants will sustain an immediate substantial
dilution of $2.76 or 28% of their exercise price per share.
NEED FOR CURRENT PROSPECTUS. The Warrants may not be exercised unless
the Company maintains with the Commission a current and effective Registration
Statement and Prospectus covering the shares of Common Stock issuable upon
their exercise. While the Company has undertaken to do so and plans to do so,
there can be no assurance that a current Registration Statement and Prospectus
will be in effect when any of the Warrants are attempted to be exercised.
MARKET OVERHANG FROM WARRANTS AND OPTIONS. Immediately prior to the
Offering, the Company had outstanding 255,100 warrants and options. To the
extent that such stock options or warrants are exercised, dilution to the
interests of the Company's stockholders may occur. Exercise of these options
or warrants, or even the potential of their exercise or conversion, may have
an adverse effect on the trading price and market for the Company's Common
Stock. The holders of the options or warrants are likely to exercise at times
when the market price for the shares of Common Stock exceeds the exercise
price of the options or warrants. Accordingly, the issuance of shares of
Common Stock upon exercise of the options or warrants may result in dilution
of the equity represented by the then outstanding shares of Common Stock held
by other shareholders. Holders of the options or warrants can be expected to
exercise them at a time when the Company, would, in all likelihood, be able to
obtain any needed capital on terms which are more favorable to the Company
than the exercise terms provided by such options or warrants. (See
"DESCRIPTION OF SECURITIES.")
<PAGE>
<PAGE>
DILUTION
The net tangible book value of the Company at June 30, 1997 was
$4,141,000, or $4.52 per share, based upon 916,298 shares outstanding. Net
tangible book value per share is determined by dividing the number of
outstanding shares of Common Stock into the net tangible book value of the
Company (total assets less total liabilities and intangible assets).
If any outstanding Warrants are exercised, the number of Common Shares
outstanding will increase and the Company's net tangible book value will
increase. The exercise of any Warrants will increase the net tangible book
value per share of shares held by current shareholders and decrease the net
tangible book value per share of the shares purchased pursuant to the Warrant
exercise. Dilution is the reduction of value of the purchaser's investment
measured by the difference between the Warrant exercise price and the net
tangible book value per share after the Offering. The dilution per share will
decrease with the exercise of each additional Warrant because the proceeds
from each such exercise will increase the Company's net tangible book value.
The following table sets forth the estimated dilution to be incurred by
the Warrantholders based upon the assumption that 100% of the outstanding
Warrants are exercised:
<TABLE>
<S> <C> <C>
Warrant Exercise Price $10.00
Net Tangible Book Value Before Offering
(Per Share)(2) $4.52
Number of Shares Outstanding After Offering (1) 1,832,596
Net Tangible Book Value After Offering
(Per Share)(3) $7.24
Increase Attributable to Exercise of
Warrants $2.72
Dilution to Warrantholders (Per Share) $2.76
Dilution as a Percent of Warrant
Exercise Price 28%
- --------------------------------
</TABLE>
(1) Assumes Warrants are exercised to purchase 916,298 shares at an exercise
price of $10.00 per share.
(2) Determined by dividing the number of shares of Common Stock outstanding
into the net tangible book value of the Company.
(3) After deduction of estimated offering expenses, and based on June 30, 1997
book value.
The following table summarizes, on a pro forma basis as of June 30, 1997,
the differences between the number of shares purchased from the Company, the
total consideration paid, and the average price per share paid by the existing
stockholders, and by the Warrantholders.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Percent Average
Percent Total of Total Price
Shares of Total Consideration Consideration Per
Owned Shares Paid Paid Share
--------- -------- ------------- ------------- ------
<S> <C> <C> <C> <C> <C>
Existing Shareholders(1) 916,298 50% $6,518,000 42% $7.11
Warrantholders(2) 916,298 50% $9,162,980 58% $10.00
- ----------------
</TABLE>
(1) Does not include a total of 255,100 shares of Common Stock issuable
upon exercise of outstanding options and warrants. Those options
and warrants have exercise prices ranging from $3.00 to $22.00 per
share. Accordingly, it can be expected that some or all of those
options and warrants would be exercised before the warrants are
exercised.
(2) Assumes the exercise by the Warrantholders of all outstanding
Warrants
to purchase a total of 916,298 additional shares of Common Stock for
an aggregate purchase price of $9,162,980. There can be no assurance
that all or any of the Warrants will be exercised.
<PAGE>
<PAGE>
USE OF PROCEEDS
If all of the 916,298 shares offered hereby are purchased upon exercise
of the Warrants, then the Company will receive gross proceeds of up to
$9,162,980, from which the Company will pay the expenses which will be
incurred in connection with the registration of the shares, which are
estimated to be $30,000. The Warrantholders will not pay any of the expenses
which are expected to be incurred in connection with the registration of the
shares, but will pay all commissions, discounts and other compensation to any
securities broker-dealers through whom they sell any of the shares.
The Company will utilize the net proceeds, if any, realized from the
exercise of the Warrants for working capital and for general corporate
purposes, at the discretion of management. Actual expenditures, however, may
vary substantially depending upon economic conditions and opportunities the
Company is able to identify. Due to an inability to precisely forecast events,
the Company is unable to predict the precise period for which this Offering
will provide financing.
DETERMINATION OF OFFERING PRICE
The Offering Price of the 916,298 shares offered pursuant to the exercise
of the Warrants is $10.00 per share. The exercise price per share was
determined by the Company and bears no relationship to the market price of the
Company's Common Stock, the prevailing market conditions, operating results of
the Company in recent periods, the book value of the Company, or other
recognized criteria of value.
PLAN OF DISTRIBUTION
The Warrants entitle the holders to acquire 916,298 shares of Common
Stock at an exercise price of $10.00 per share. The Company issued the
Warrants as a dividend to all of its shareholders of record on June 5, 1997.
The shares of Common Stock to be issued upon exercise of the Warrants are
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act.
The Company is offering shares of Common Stock underlying the
Warrants. No underwriter or placement agent has been engaged to assist the
Company in this regard and no commissions or similar compensation will be paid
to any person. The Warrantholders may resell the shares offered hereby in the
over-the-counter market at prices and on terms prevailing on the date of sale
or in negotiated transactions or otherwise. The Warrantholders also may pay
customary brokerage commissions on sales.
The Company has agreed to pay all expenses incurred in connection with
the registration of the shares offered hereby. The Warrantholders shall be
exclusively liable to pay any and all commissions, discounts and other
payments to broker-dealers incurred in connection with their sale of the
Shares.
INDEMNIFICATION
The By-Laws of the Company provide for the indemnification of Officers
and Directors to the maximum extent allowable under Colorado law. Insofar as
the indemnification for liabilities arising under the Securities Act of 1933,
as amended, may be permitted to Directors, Officers or persons controlling the
Company pursuant to such provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
<PAGE>
<PAGE>
DESCRIPTION OF SECURITIES
The Company's authorized capital consists of 100,000,000 shares of Common
Stock, $.05 par value per share, and 50,000,000 shares of preferred stock,$.01
par value per share.
The shares of Common Stock covered by this Prospectus will be fully paid
and nonassessable.
COMMON STOCK
Each holder of Common Stock of the Company is entitled to one vote for
each share held of record. Voting rights in the election of directors are not
cumulative, and, therefore, the holders of more than 50% of the Common Stock
of the Company could, if they chose to do so, elect all of the directors.
The shares of Common Stock are not entitled to preemptive rights and are
not subject to redemption or assessment. Subject to the preferences which may
be granted to holders of preferred stock, each share of Common Stock is
entitled to share ratably in distributions to shareholders and to receive
ratably such dividends as may be declared by the Board of Directors out of
funds legally available therefor. Upon liquidation, dissolution or winding up
of the Company, subject to prior liquidation or other preference rights of
holders of preferred stock, if any, the holders of Common Stock are entitled
to receive pro rata the assets of the Company which are legally available for
distribution to shareholders. The issued and outstanding shares of Common
Stock are validly issued, fully paid and nonassessable.
PREFERRED SHARES
The Articles of Incorporation of the Company authorize issuance of a
maximum of 50,000,000 Preferred Shares. The Articles of Incorporation vest the
Board of Directors of the Company with authority to divide the class of
Preferred Shares into series and to fix and determine the relative rights and
preferences of the shares of any such series so established to the full extent
permitted by the laws of the State of Colorado and the Articles of
Incorporation in respect of, among other things, (1) the number of Preferred
Shares to constitute such series, and the distinctive designations thereof;
(b) the rate and preference of dividends, if any, the time of payment of
dividends, whether dividends are cumulative and the date from which any
dividend shall accrue; (c) whether Preferred Shares may be redeemed and, if
so, the redemption price and the terms and conditions of redemption; (d) the
liquidation preferences payable on Preferred Shares in the event of
involuntary or voluntary liquidation; (e) sinking fund or other provisions, if
any, for redemption or purchase of Preferred Shares; (f) the terms and
conditions by which Preferred Shares may be converted, if the Preferred Shares
of any series are issued with the privilege of conversion; and (g) voting
rights, if any.
In the event of a proposed merger, tender offer, proxy contest or other
attempt to gain control of the Company not approved by the Board of Directors,
it would be possible for the Board of Directors, subject to any limitations
imposed by applicable law, the Company's Articles of Incorporation, the terms
and conditions of any outstanding class or series of preferred shares and the
applicable rules of any securities exchanges upon which securities of the
Company are at any time listed or of other markets in which securities of the
Company are at any time listed, to authorize the issuance of one or more
series of Preferred Stock with voting rights or other rights and preferences
which would impede the success of the proposed merger, tender offer, proxy
contest or other attempt to gain control of the Company. The issuance of
Preferred Stock may have an adverse effect on the rights (including voting
rights) of holders of Common Stock.
<PAGE>
WARRANTS
The shares of Common Stock offered hereby are issuable upon the exercise
of Common Stock Purchase Warrants that will be issued to the Warrantholders
immediately after the effectiveness of the Registration Statement of which
this Prospectus is a part. The Warrants entitle the holders thereof to
purchase 916,298 shares of Common Stock at an exercise price of $10.00 per
share. The Warrants are exercisable for a period commencing upon the effective
date of the Registration Statement of which this Prospectus forms a part and
ending three (3) years from the date of such effectiveness. In the event the
Warrants are not exercised within such three-year period, all unexercised
Warrants will expire and be void and of no further force or effect. The
Warrant exercise period may be extended by the Company at the sole discretion
of the Board of the Directors upon thirty (30) days' notice to the
Warrantholders. The Warrants will expire, become void and be of no further
force or effect upon conclusion of the applicable exercise period, or any
extension thereof.
The Warrants will be governed by the terms of a Warrant Agreement
between the Company and Corporate Stock Transfer, Inc., as Warrant Agent. The
Warrants are redeemable upon 30 days notice, at the option of the Company, at
a redemption price of $.01 per Warrant, if the last sale price for the
Company's Common Stock exceeds 110% of the then current warrant exercise price
for 20 consecutive trading days. The exercise price, number and kind of common
shares to be received upon exercise of the Warrants are subject to adjustment
on the occurrence of certain events, such as stock splits, stock dividends or
recapitalization of the Company. In the event of liquidation, dissolution or
winding up of the Company, the holders of the Warrants will not be entitled to
participate in the distribution of the assets of the Company. Additionally,
holders of the Warrants have no voting, pre-emptive, liquidation or other
rights of shareholders, and no dividends will be declared on the Warrants or
the shares underlying the Warrants.
The Warrants will be issued to the Warrantholders as a dividend to Common
Shareholders of the Company, and upon issuance will be freely tradeable in
reliance upon an exemption from the Registration Requirements of the
Securities Act. Prior to this Offering, there exists no public trading market
for the Warrants. The Company has applied to have the Warrants listed on the
NASDAQ SmallCap Market under the symbol "AMEPW." There can be no assurance
that a public trading market for the warrants will develop.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed on for the
Company by Neuman & Drennen, LLC, Temple-Bowron House, 1507 Pine Street,
Boulder, Colorado 80302, which has served as legal counsel to the Company
since its inception in 1986. For their services in connection with the
preparation of the Registration Statement and related Offering, and the
issuance of their legal opinion, the Company will pay the firm of Neuman &
Drennen, LLC a fee, estimated to be $10,000. Clifford L. Neuman, a member of
the firm, has been a member of the Company's Board of Directors since November
1990, and its Audit Committee since April, 1991, and is also the beneficial
owner of 13,000 shares of the Company's Common Stock and options exercisable
to purchase, in the aggregate, an additional 12,000 shares of Common Stock.
EXPERTS
The consolidated financial statements and schedules of the Company as of
December 31, 1996, 1995 and 1994 and for each of the years in the three-year
period ended December 31, 1996, have been incorporated by reference herein and
in the Registration Statement and Prospectus in reliance upon the report of
HEIN + ASSOCIATES, LLP, Independent Certified Public Accountants, incorporated
by reference and upon the authority of said firm as experts in accounting and
auditing.<PAGE>
<PAGE>
====================================== ===================================
No person is authorized to
give any information or to make any
representation other than those
contained in this Prospectus, and if
made such information or
representation must not be relied AMERICAN EDUCATIONAL PRODUCTS, INC.
upon as having been given or
authorized. This Prospectus does 916,298 Shares
not constitute an offer to sell or a
solicitation of an offer to buy any
securities other than the Securities
offered by this Prospectus or an
offer to sell or a solicitation of
an offer to buy the Securities in
any jurisdiction to any person to
whom it is unlawful to make such
offer or solicitation in such
jurisdiction.
The delivery of this
Prospectus shall not, under any
circumstances, create any
implication that there has been no
changes in the affairs of the
Company since the date of this
Prospectus. However, in the event
of a material change, this
Prospectus will be amended or
supplemented accordingly.
TABLE OF CONTENTS
Page
---- --------------------------------------
Available Information . . . . . . 3
Incorporation by Reference. . . . 4 PROSPECTUS
The Company . . . . . . . . . . . 5
Risk Factors. . . . . . . . . . . 6 --------------------------------------
Dilution. . . . . . . . . . . . . 11
Use of Proceeds . . . . . . . . . 13
Determination of Offering Price . 13
Plan of Distribution. . . . . . . 14
Indemnification . . . . . . . . . 14
Description of Securities . . . . 15
Legal Matters . . . . . . . . . . 16
Experts . . . . . . . . . . . . . 16
Financial Statements. . . . . . . F-1 ______________, 1997
====================================== ======================================
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the offering, all of which are to be borne
by the Company, are as follows:
SEC Filing Fee $ 2,776.67
NASDAQ Fees 7,500.00
Printing Expenses* 1,200.00
Accounting Fees and Expenses* 2,500.00
Legal Fees and Expenses* 10,000.00
Blue Sky Fees and Expenses* 1,500.00
Registrar and Transfer Agent Fee 1,500.00
Miscellaneous* 3,023.33
---------
Total* $30,000.00
______________________________
* Estimated
<PAGE>
<PAGE>
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The only statute, charter provision, bylaw, contract, or other
arrangement under which any controlling person, director or officers of the
Registrant is insured or indemnified in any manner against any liability which
he may incur in his capacity as such, is as follows:
a. Sections 7-109-101 through 7-109-110 of the Colorado Corporation
Code provide for the indemnification of a corporation's officers and directors
under certain circumstances.
* * *
b. Article XII of Registrant's Articles of Incorporation provide
that the corporation may indemnify each director, officer, and any employee or
agent of the corporation, his heirs, executors and administrators, against
expenses reasonably incurred or any amounts paid by him in connection with any
action, suit or proceeding to which he may be made a party by reason of his
being or having been a director, officer, employee or agent of the corporation
to the extent permitted by the law as recited above in subparagraph (a).
c. Article XII of Registrant's Articles of Incorporation provides,
in part:
"e. To the maximum extent permitted by law or by public policy,
directors of this Corporation are to have no personal liability
for monetary damages for breach of fiduciary duty as a director."
d. The Company currently pays for and maintains an insurance policy
in the amount of $1,000,000 that covers directors' and officers' liability.
Item 16. EXHIBITS.
a. The following Exhibits are filed as part of this Registration
Statement pursuant to Item 601 of Regulation SB:
Exhibit No. Title
- ----------- -----
4.1 Form of Warrant Agreement (including form of
warrant certificate)
5.1 Opinion of Neuman & Drennen, LLC
24.1 Consent of HEIN + ASSOCIATES LLP
24.2 Consent of Neuman & Drennen, LLC
<PAGE>
<PAGE>
Item 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel that the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or
the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination
of the offering.
4. To provide, upon effectiveness, certificates in such denominations
and registered in such names as are required to permit prompt delivery to each
purchaser.
The undersigned registrant hereby undertakes to deliver or to cause to
be delivered with the Prospectus to each person to whom the prospectus is sent
or given the latest annual report to securityholders that is incorporated by
reference in the Prospectus and furnish pursuant to and meeting the
requirements of Rule 14a-3 or 14c-3 under the Securities Exchange Act of 1934;
and where interim financial information required to be presented by Article 3
of Regulation S-X are not set forth in the Prospectus, to deliver or cause to
be delivered to each person to whom the Prospectus is sent or given, the
latest quarterly report that is specifically incorporated by reference in the
Prospectus to provide such interim financial information.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized. In the
City of Boulder, State of Colorado on the 8th of September, 1997.
AMERICAN EDUCATIONAL PRODUCTS, INC., a
Colorado corporation
By: /s/ Clifford C. Thygesen
----------------------------------
Clifford C. Thygesen, President
Pursuant to the requirements of the Securities Exchange Act of 1933,
this Registration Statement has been signed by the following persons in the
capacities with American Educational Products, Inc. and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/s/ Robert A. Scott Chairman of the Board, 9/8/97
- -------------------------- Director, Secretary
Robert A. Scott
/s/ Clifford C. Thygesen President, Director 9/8/97
- --------------------------
Clifford C. Thygesen
/s/ Frank L. Jennings Vice President, 9/8/97
- -------------------------- Chief Financial Officer
Frank L. Jennings
/s/ Steven B. Lapin Director 9/8/97
- --------------------------
Steven B. Lapin
/s/ Stephen G. Calandrella Director 9/8/97
- ----------------------------
Stephen G. Calandrella
/s/ Wayne R. Kirschling Director 9/8/97
- --------------------------
Wayne R. Kirschling
/s/ Clifford L. Neuman Director 9/8/97
- --------------------------
Clifford L. Neuman
<PAGE>
AMERICAN EDUCATIONAL PRODUCTS, INC.
AND
CORPORATE STOCK TRANSFER, INC.
Warrant Agent
WARRANT AGREEMENT
Dated as of _______________, 1997
<PAGE>
<PAGE>
TABLE OF CONTENTS
Section
Number Title Page
1 Definitions . . . . . . . . . . . . . . . . . . . . . . 2
2 Warrants and Issue of Warrant Certificates. . . . . . . 4
3 Form of Warrant Certificates. . . . . . . . . . . . . . 4
4 Term of Warrants; Exercise of Warrants. . . . . . . . . 5
5 Redemption. . . . . . . . . . . . . . . . . . . . . . . 6
6 Reservation of Warrant Shares . . . . . . . . . . . . . 7
7 Payment of Taxes. . . . . . . . . . . . . . . . . . . . 7
8 Warrant Shares to be Fully Paid . . . . . . . . . . . . 7
9 Limitation on Transfer. . . . . . . . . . . . . . . . . 7
10 Adjustment of Exercise Price and Number of Shares . . . 8
11 Merger or Consolidation of Company. . . . . . . . . . . 11
12 Modification of Agreement . . . . . . . . . . . . . . . 11
13 Notices to Warrant Holders. . . . . . . . . . . . . . . 12
14 No Rights as Shareholder. . . . . . . . . . . . . . . . 12
15 Warrant Agent . . . . . . . . . . . . . . . . . . . . . 13
16 Merger, Consolidation or Change of Name of
Warrant Agent . . . . . . . . . . . . . . . . . . . . 14
17 Change of Warrant Agent . . . . . . . . . . . . . . . . 14
18 Notices . . . . . . . . . . . . . . . . . . . . . . . . 15
19 Arbitration . . . . . . . . . . . . . . . . . . . . . . 15
20 Miscellaneous Provisions. . . . . . . . . . . . . . . . 16
<PAGE>
<PAGE>
THIS WARRANT AGREEMENT dated as of _______________, 1997, is between
AMERICAN EDUCATIONAL PRODUCTS, INC. (the "Company"), a Colorado corporation,
and CORPORATE STOCK TRANSFER, INC. (called, as well as any successor acting as
warrant agent under this Agreement, the "Warrant Agent").
RECITALS
1. The Company has declared a dividend to all stockholders
pursuant to which it will issue Warrants (evidenced by a "Warrant
Certificate") on the effective date of a registration statement (the
"Registration Statement') registering the shares of common stock with which
the warrants are exercisable; and
2. Each Warrant will entitle the Warrant Holder to purchase one
Warrant Share; and
3. The Company desires to enter into this agreement to establish
the terms and conditions of the Warrants, to set forth the rights of the
registered holders of the Warrants, and to provide for the issuance, transfer
and exercise of the Warrants and other matters; and
4. The Company desires the Warrant Agent to act on behalf of the
Company and the Warrant Agent is willing so to act under the terms of this
Agreement;
NOW THEREFORE, in consideration of the mutual agreements stated in
this Agreement, the Company and the Warrant Agent agree as follows:
TERMS OF WARRANTS
-----------------
SECTION 1. DEFINITIONS
The following terms used in this agreement shall have the
following meanings (unless otherwise expressly provided herein):
The "Act." The Securities Act of 1933, as amended.
The "Commission." The Securities and Exchange Commission.
The "Company." American Educational Products, Inc., a Colorado
corporation.
"Common Stock." The Common Stock, $0.05 par value per share, of
the Company, whether now or hereafter authorized, holders of which have the
right to participate in the distribution of earnings and assets of the Company
without limit as to the amount or percentage.
"Current Market Price." The Current Market Price shall be
determined as follows:
(a) if the security at issue is listed on a national
securities exchange or admitted to unlisted trading privileges on such an
exchange or quoted on either the NASDAQ National Market or on the NASDAQ Small
Cap Market, the Current Market Price shall be the last reported sale price of
that security on such exchange or system on the day for which the Current
Market Price is to be calculated; or, if no such sale is made on such day, the
average of the highest closing bid and lowest asked price for such day on such
exchange or system; or
(b) if the security at issue is not so listed or quoted
or admitted to unlisted trading privileges, the Current Market Price shall be
the last reported sale price of that security on the OTC Bulletin Board on the
day for which the Current Market Price is to be calculated; or if no such sale
is made on such day, the average of the last reported highest bid and lowest
asked prices quoted on the OTC Bulletin Board on such day; or
(c) if the security at issue is not so listed or quoted
or admitted to unlisted trading privileges and bid and asked prices are not
reported, the Current Market Price shall be determined in such reasonable
manner as may be prescribed from time to time by the Board of Directors of the
Company, subject to the objection and arbitration procedure as described in
Sections 10.9 and 19 below.
"Effective Date." __________ .
"Exercise Date." The date of surrender for exercise of any
Warrant Certificate, provided the exercise form on the back of the Warrant
Certificate or a form substantially similar thereto has been completed in full
by the Warrant Holder or a duly appointed attorney and the Warrant Certificate
is accompanied by payment in full of the Exercise Price.
"Exercise Period." The period commencing on the date the
Warrants are issued and extending to and through the Expiration Date.
"Exercise Price." $10.00 per Share, as modified in accordance
with Section 10, below.
"Expiration Date." 5:00 p.m. Denver, Colorado, local time on ,
2000, subject to the terms provided in Section 5 hereof for redemption;
provided, however, if such date shall be a holiday or a day on which banks are
authorized to close in the State of Colorado, the Expiration Date shall mean
5:00 p.m. Denver, Colorado, local time on the next following day which in the
State of Colorado is not a holiday or a day on which banks are authorized to
close. If the Company redeems the Warrants as provided in Section 5 of this
Agreement, the Expiration Date shall be the date fixed for redemption.
"Holder" or "Warrant Holder." The person to whom a Warrant
Certificate is issued, and any valid transferee thereof pursuant to Section 9
below.
"NASDAQ." The electronic inter-dealer quotation system operated
by The Nasdaq Stock Market, Inc.
"OTC Bulletin Board." An electronic quotation medium operated by
The Nasdaq Stock Market, Inc.
"Warrants." The Warrants issued in accordance with the terms of
this Agreement and any Warrants issued in substitution for or replacement of
such Warrants, or any Warrants into which such Warrants may be divided or
exchanged.
"Warrant Shares." The Common Stock receivable upon exercise or
conversion of a Warrant, and the Common Stock underlying the unexercised
portion of a Warrant.
"Termination of Business." Any sale, lease or exchange of all,
or substantially all, of the Company's assets or business or any dissolution,
liquidation or winding up of the Company.
<PAGE>
SECTION 2 WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES
2.1 DESCRIPTION OF WARRANTS. Each Warrant shall initially
entitle the Warrant Holder to purchase one share of Common Stock on exercise
thereof, subject to modification and adjustment as hereinafter provided in
Section 10. Warrant Certificates representing up to 916,200 Warrants and
evidencing the right to purchase an aggregate of up to 916,200 shares of
Common Stock of the Company shall be executed by the proper officers of the
Company. The Company shall deliver Warrant Certificates in required whole
number denominations to the person entitled thereto in connection with the
original issuance of Warrant Certificates or any transfer or exchange
permitted under this Agreement.
2.2 WARRANT SHARES. Except as provided in Section 3.4 hereof,
certificates representing the Warrant Shares shall be issued only on or after
the Exercise Date upon exercise of the Warrants or upon transfer or exchange
of the Warrant Shares following exercise of the Warrants.
SECTION 3 FORM OF WARRANT CERTIFICATE
3.1 FORM OF CERTIFICATES. The Warrant Certificates shall be
substantially in the form attached hereto as Exhibit A and may have such
letters, numbers or other marks of identification and such legends, summaries
or endorsements printed, lithographed or engraved thereon as the Company may
deem appropriate and as are not inconsistent with the provisions of this
Agreement. The Warrant Certificates shall be dated as of the date of
issuance, whether on initial issuance, transfer, exchange or in lieu of
mutilated, lost, stolen or destroyed Warrant Certificates.
3.2 EXECUTION OF CERTIFICATES. The Warrant Certificates shall
be executed on behalf of the Company by its President and Secretary, by manual
signatures or by facsimile signatures printed thereon, and shall have
imprinted thereon a facsimile of the Company's seal. If any person whose
facsimile signature has been placed upon any Warrant Certificate as the
signature of an officer of the Company shall have ceased to be such officer
before such Warrant Certificate is countersigned, issued and delivered, such
Warrant Certificate may be countersigned, issued and delivered with the same
effect as if such person had not ceased to be such officer. Any Warrant
Certificate may be signed by, or may bear the facsimile signature of, any
person who at the actual date of the preparation of such Warrant Certificate
shall be a proper officer of the Company to sign such Warrant Certificate even
though such person was not such an officer upon the date of this Agreement.
3.3 COUNTERSIGNATURES. Warrant Certificates shall be manually
countersigned by the Warrant Agent and shall not be valid for any purpose
unless so countersigned. The Warrant Agent is hereby authorized to
countersign and deliver to, or in accordance with the instructions of, any
Warrant Holder any Warrant Certificate which is properly issued under the
terms of this Agreement.
3.4 MUTILATED, LOST, STOLEN, OR DESTROYED CERTIFICATE. In
case the certificate or certificates evidencing the Warrants shall be
mutilated, lost, stolen or destroyed, the Company shall, at the request of the
Warrant Holder, issue and deliver in exchange and substitution for and upon
cancellation of the mutilated certificate or certificates, or in lieu of and
substitution for the certificate or certificates lost, stolen or destroyed, a
new Warrant Certificate or Certificates of like tenor and representing an
equivalent right or interest, but only upon receipt of evidence satisfactory
to the Company of such loss, theft or destruction of such Warrant and a bond
of indemnity, if requested, also satisfactory in form and amount, at the
applicant's cost. Applicants for such substitute Warrant Certificate shall
also comply with such other reasonable regulations and pay such other
reasonable charges as the Company may prescribe.
3.5 EXCHANGE OF CERTIFICATE. Any Warrant Certificate may be
exchanged for another certificate or certificates entitling the Warrant Holder
to purchase a like aggregate number of Shares as the certificate or
certificates surrendered then entitled such Warrant Holder to purchase. Any
Warrant Holder desiring to exchange a Warrant Certificate shall make such
request in writing delivered to the Company, and shall surrender, properly
endorsed, with signatures guaranteed, the certificate evidencing the Warrant
to be so exchanged. Thereupon, the Company shall execute and deliver to the
person entitled thereto a new Warrant Certificate as so requested.
SECTION 4 TERM OF WARRANTS; EXERCISE OF WARRANTS
4.1 EXERCISE OF WARRANT. Subject to the terms of this
Agreement, the Warrant Holder shall have the right, at any time during the
Exercise Period, to purchase from the Company up to the number of fully paid
and nonassessable Shares to which the Warrant Holder may at the time be
entitled to purchase pursuant to this Agreement, upon surrender to the
Company, at its principal office, of the certificate evidencing the Warrants
to be exercised, together with the purchase form on the reverse thereof, duly
filled in and signed, and upon payment to the Company of the Exercise Price
for the number of Shares in respect of which such Warrants are then exercised,
but in no event for less than 100 Shares (unless fewer than an aggregate of
100 shares are then purchasable under all outstanding Warrants held by a
Warrant Holder).
4.2 PAYMENT OF EXERCISE PRICE. Payment of the aggregate
Exercise Price shall be made in cash or by check, or any combination thereof.
4.3 DELIVERY OF SHARE CERTIFICATE. Subject to the provisions
of Section 9, upon receipt of a Warrant Certificate with the exercise form
thereon duly executed, together with payment in full of the Exercise Price for
the Warrant Shares being purchased by such exercise, the Warrant Agent shall
requisition from the Company's transfer agent (which transfer agent may be the
Warrant Agent pursuant to its appointment therefor separately from this
Agreement), certificates for Warrant Shares and upon receipt shall make
delivery of certificates evidencing the total number of whole Warrant Shares
for which Warrants are then being exercised, together with cash as provided in
Section 4.7 hereof in respect of any fractional Warrant Shares otherwise
issuable upon such surrender. The certificates shall be in such names and
denominations as are required for delivery to, or in accordance with the
instructions of the Warrant Holder; provided that if fewer than all Warrant
Shares issuable on exercise of a Warrant Certificate are purchased, the
Warrant Agent (if so requested) shall issue such balance Warrant Certificate
for the balance of the Warrant Shares. Such certificates for the Warrant
Shares shall be deemed to be issued, and the person to whom such Warrant
Shares are issued of record shall be deemed to have become a holder of record
of such Warrant Shares, as of the date of the surrender of such Warrant
Certificate and payment of the Exercise Price, whichever shall last occur;
provided further that if the books of the Company with respect to the Warrant
Shares shall be closed as of such date, the certificates for such Warrant
Shares shall be deemed to be issued, and the person to whom such Warrant
Shares are issued of record shall be deemed to have become a record holder of
such Warrant Shares, as of the date on which such books shall next be open
(whether before, on or after the applicable Expiration Date) but at the
Exercise Price and upon the other conditions in effect upon the date of
surrender of the Warrant Certificate and payment of the Exercise Price,
whichever shall have last occurred, to the Warrant Agent.
4.4 CANCELLATION OF CERTIFICATES. All Warrant Certificates
surrendered upon exercise of Warrants shall be canceled.
4.5 DELIVERY OF PROCEEDS OF EXERCISE. Within two days after
the receipt thereof in cleared funds, the Warrant Agent shall deliver to the
Company all proceeds received from Warrant Holders on exercise of the
Warrants.
4.6 REGISTRATION STATEMENT. If any Warrant Shares issuable
upon the exercise of Warrants require the maintenance of a current
registration statement under the Securities Act of 1933, as amended (the
"Act"), with respect to such Warrant Shares before such Warrant Shares may be
validly and lawfully issued, the Company will in good faith endeavor to
maintain such current registration statement under the Act, provided that in
no event shall such Warrant Shares be issued, and the Company shall have the
authority to suspend the exercise of any or all Warrants while such
registration statement is not current. Similarly, a Warrant Holder residing
in a state where a required registration or governmental approval of issuance
of the Warrant Shares is not in effect as of or has not been obtained within a
reasonable time after the surrender date of the Warrant Certificate for
exercise shall not be entitled to exercise Warrants unless in the opinion of
counsel such registration or approval in such state shall not be required, or
the Company authorizes issuance. In such event, the Warrant Holder shall be
entitled to transfer the Warrants to others, but only prior to the Expiration
Date for the Warrants being transferred.
4.7 FRACTIONAL SHARES. On exercise of the Warrants by the
Warrant Holders, the Company shall not be required to deliver fractions of
shares of Common Stock; provided, however, that the Company shall purchase
such fraction for an amount in cash equal to the Current Market Price of such
fraction, computed on the trading day immediately preceding the day upon which
such Warrant Certificate was surrendered for exercise. By accepting a Warrant
Certificate, the holder thereof expressly waives any right to receive a
Warrant Certificate evidencing any fraction of a Warrant or to receive any
fractional share of securities upon exercise of a Warrant, except as expressly
provided in this Section 4.7.
4.8 STATUS AS SHAREHOLDER. Upon receipt of the Warrant
Certificate by the Company as described in this Section, the Holder shall be
deemed to be the holder of record of the Warrant Shares issuable upon such
exercise, notwithstanding that the transfer books of the Company may then be
closed or that certificates representing such Warrant Shares may not have been
prepared or actually delivered to the holder.
SECTION 5 REDEMPTION
5.1 RIGHT TO REDEEM. The Company may, at its option, redeem
the Warrants in whole or in part on a pro rata basis for a redemption price of
$.01 per Warrant (the "Redemption Price") on 30 days prior written notice to
the Warrant Holders. The right to redeem the Warrants may be exercised by the
Company only in the event (i) the closing sale price, as the case may be, for
the Common Stock has exceeded the Exercise Price by at least 10% during a
period of 20 consecutive trading days preceding the date of mailing of the
notice of redemption, (ii) the Company has in effect a current registration
statement (or a post-effective amendment to an existing registration
statement) with the Commission registering the Warrant Shares, and (iii) the
expiration of the 30 days notice period is within the Exercise Period. In the
event the Company exercises its right to redeem the Warrants, the Expiration
Date will be deemed to be, and the Warrants will be exercisable until the
close of business on, the date fixed for redemption in such notice (the
"Redemption Date"). If any Warrant called for redemption is not exercised by
such time, it will cease to be exercisable and the Warrant Holder thereof will
be entitled only to the Redemption Price.
5.2 TERMINATION OF RIGHTS. From and after the Redemption
Date, all rights of the holders of record of redeemed Warrants (except the
right to receive the Redemption Price) shall terminate, but only if (i) no
later than one day prior to the Redemption Date the Company shall have
irrevocably deposited with the Warrant Agent, as paying agent, a sufficient
amount to pay on the Redemption Date the Redemption Price for all Warrants
called for redemption, and (ii) the notice of redemption shall have stated the
name and address of the Warrant Agent and the intention of the company to
deposit such amount with the Warrant Agent no later than one day prior to the
Redemption Date.
5.3 PAYMENT OF REDEMPTION PRICE. The Warrant Agent shall pay
to the holders of record of redeemed Warrants all amounts received by the
Warrant Agent for the redemption of warrants to which the holders of record
of such redeemed Warrants who shall have surrendered their Warrants are
entitled. Any amounts deposited by the Company with the Warrant Agent to pay
the Redemption Price for all Warrants called for redemption that are not
required for redemption of Warrants may be withdrawn by the Company. Any
amounts deposited by the Company with the Warrant Agent to pay the Redemption
Price for all Warrants called for redemption that shall be unclaimed six
months after the Redemption Date may be withdrawn by the Company, and
thereafter the holders of the Warrants called for redemption for which such
funds were deposited shall look solely to the Company for payment. The
Company shall be entitled to the interest, if any, on funds deposited with the
Warrant Agent, and the Warrant Holders of redeemed Warrants shall have no
right to any such interest.
5.4 FAILURE TO MAKE DEPOSIT. If the Company fails to make a
sufficient deposit with the Warrant Agent as provided above, the Warrant
Holder of any Warrants called for redemption may at the option of the holder
(i) by notice to the Company declare the notice of redemption a nullity as to
such holder, or (ii) maintain an action against the Company for the Redemption
Price. If the Warrant Holder brings such an action, the Company will pay the
reasonable attorney's fees of the Warrant Holder. If the Warrant Holder fails
to bring an action against the Company for the Redemption Price within 60 days
after the Redemption Date, the Warrant Holder shall be deemed to have elected
to declare the notice of redemption to be a nullity as to such holder and such
notice shall be without any force or effect as to such holder.
SECTION 6. RESERVATION OF WARRANT SHARES
There has been reserved, and the Company shall at all times keep
reserved so long as the Warrants remain outstanding, out of its authorized and
unissued Common Stock, such number of shares of Common Stock as shall be
subject to purchase under the Warrants. The Company covenants that all Warrant
Shares that may be issued and delivered to a Warrant Holder upon the exercise
of a Warrant and payment of the Exercise Price shall be validly issued, fully
paid and nonassessable, and free from all taxes, liens and charges with
respect to the issuance thereof. Every transfer agent for the Common Stock and
other securities of the Company issuable upon the exercise of the Warrants
will be irrevocably authorized and directed at all times to reserve such
number of authorized shares and other securities as shall be requisite for
such purpose. The Company will keep a copy of this Agreement on file with
every transfer agent for the Common Stock and other securities of the Company
issuable upon the exercise of the Warrants. The Company will supply every
such transfer agent with duly executed stock and other certificates, as
appropriate, for such purpose and will provide or otherwise make available any
cash which may be payable as provided in Sections 4.7 and 7 hereof.
SECTION 7 PAYMENT OF TAXES
The Company will pay all documentary stamp taxes, if any,
attributable to the initial issuance of the Warrants or the Warrant Shares and
any tax (except federal or state income tax) which may be payable in respect
of any transfer of the Warrants or the Warrant Shares.
SECTION 8 WARRANT SHARES TO BE FULLY PAID
The Company covenants that all Warrant Shares that may be issued
and delivered to a Holder of this Warrant upon the exercise of this Warrant
and payment of the Exercise Price, and all Converted Shares that may be issued
and delivered to a holder upon a conversion of a Warrant will be, upon such
delivery, validly and duly issued, fully paid and nonassessable.
SECTION 9 REGISTRATION OF TRANSFER
9.1. EXCHANGE OF CERTIFICATE. A Warrant Certificate may be
exchanged for another certificate or certificates entitling the Warrant Holder
to purchase a like aggregate number of Warrant Shares as the certificate or
certificates surrendered then entitled such Warrant Holder to purchase. Any
Warrant Holder desiring to exchange a Warrant Certificate shall make such
request in writing delivered to the Company, and shall surrender, properly
endorsed, with signatures guaranteed, the certificate evidencing the Warrant
to be so exchanged. Thereupon, the Company shall execute and deliver to the
person entitled thereto a new Warrant Certificate as so requested.
9.2 TRANSFER. The Warrants may be transferred in whole or in
part. Warrant Certificates representing the Warrants to be transferred shall
be surrendered to the Warrant Agent, properly endorsed, with signatures
guaranteed. Thereupon, the Company shall execute and deliver to the persons
entitled thereto the Warrant Certificate or Certificates to which the holder
making the transfer and the person to whom the transfer is made are entitled
and the Warrant Agent shall promptly cancel the surrendered Warrant
Certificate.
9.3 OWNERSHIP RECORDS. The Warrant Agent shall keep books for
registration of ownership and transfer of Warrant Certificates. Such books
shall show the names and addresses of the respective holders of the Warrant
Certificates and the number of Warrants evidenced by each such Warrant
Certificate. All Warrant Certificates presented for registration of transfer
shall be duly endorsed or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company and the Warrant
Agent. On due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall caused to be executed, issued
and delivered to the transferee or transferees a new Warrant Certificate or
Certificates representing an equal aggregate number of Warrants.
9.4 OWNERSHIP PRIOR TO PRESENTMENT. Prior to due presentment
for registration of transfer thereof, the Company may treat the Warrant Holder
as the absolute owner thereof (notwithstanding any notations of ownership or
writing thereon made by anyone other than the Company) and the parties hereto
shall not be affected by any notice to the contrary.
SECTION 10 ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES
The number and kind of securities purchasable upon the exercise
of the Warrants and the Warrant Price shall be subject to adjustment from time
to time upon the happening of certain events, as follows:
10.1 ADJUSTMENTS. The number of Warrant Shares purchasable
upon the exercise of the Warrants shall be subject to adjustments as follows:
(a) In case the Company shall (i) pay a dividend in
Common Stock or securities convertible into Common Stock or make a
distribution to its stockholders in Common Stock or securities convertible
into Common Stock; (ii) subdivide its outstanding Common Stock; (iii) combine
its outstanding Common Stock into a smaller number of shares of Common Stock;
or (iv) issue by reclassification of its Common Stock other securities of the
Company; then the number of Warrant Shares purchasable upon exercise of the
Warrants immediately prior thereto shall be adjusted so that the Warrant
Holder shall be entitled to receive the kind and number of Warrant Shares or
other securities of the Company which it would have owned or would have been
entitled to receive immediately after the happening of any of the events
described above, had such Warrants been exercised immediately prior to the
happening of such event or any record date with respect thereto. Any
adjustment made pursuant to this subsection 10.1(a) shall become effective
immediately after the effective date of such event retroactive to the record
date, if any, for such event.
(b) If, prior to the expiration of the Warrants by
exercise, by their terms, or by redemption, the Company shall be recapitalized
by reclassifying its outstanding shares of Common Stock into shares with a
different par value, or by changing its outstanding shares of Common Stock
into shares without par value or in the event of any other material change of
the capital structure of the Company or of any successor corporation by reason
of any reclassification, recapitalization or conveyance, prompt,
proportionate, equitable, lawful and adequate provision shall be made whereby
any Warrant Holder shall thereafter have the right to purchase, on the basis
and the terms and conditions specified in this Agreement, in lieu of the
Warrant Shares theretofore purchasable on the exercise of any Warrant, such
securities or assets as may be issued or payable with respect to or in
exchange for the number of Warrant Shares theretofore purchasable on exercise
of the Warrants had such reclassification, recapitalization or conveyance not
taken place; and in any such event, the rights of any Warrant Holder to any
adjustment in the number of Warrant Shares purchasable on exercise of such
Warrant, as set forth above, shall continue to be preserved in respect of any
stock, securities or assets which the Warrant Holder becomes entitled to
purchase.
(c) In case the Company shall issue rights, options,
warrants, or convertible securities to all or substantially all holders of its
Common Stock, without any charge to such holders, entitling them to subscribe
for or purchase Common Stock at a price per share which is lower at the record
date mentioned below than the then Current Market Price, the number of Shares
thereafter purchasable upon the exercise of each Option shall be determined by
multiplying the number of Shares theretofore purchasable upon exercise of the
Options by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of such rights,
options, warrants or convertible securities plus the number of additional
shares of Common Stock offered for subscription or purchase, and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately prior to the issuance of such rights, options, warrants, or
convertible securities plus the number of shares which the aggregate offering
price of the total number of shares offered would purchase at such Current
Market Price. Such adjustment shall be made whenever such rights, options,
warrants, or convertible securities are issued, and shall become effective
immediately and retroactively to the record date for the determination of
shareholders entitled to receive such rights, options, warrants, or
convertible securities.
(d) In case the Company shall distribute to all or
substantially all holders of its Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions out of earnings) or rights,
options, warrants, or convertible securities containing the right to subscribe
for or purchase Common Stock (excluding those referred to in subsection
10.1(b) above), then in each case the number of Warrant Shares thereafter
purchasable upon the exercise of the Warrants shall be determined by
multiplying the number of Warrant Shares theretofor purchasable upon exercise
of the Warrants by a fraction, of which the numerator shall be the then
Current Market Price on the date of such distribution, and of which the
denominator shall be such Current Market Price on such date minus the then
fair value (determined as provided in subsection 10.1(g)(y) below) of the
portion of the assets or evidences of indebtedness so distributed or of such
subscription rights, options, warrants, or convertible securities applicable
to one share. Such adjustment shall be made whenever any such distribution is
made and shall become effective on the date of distribution retroactive to the
record date for the determination of stockholders entitled to receive such
distribution.
(e) No adjustment in the number of Warrant Shares
purchasable pursuant to the Warrants shall be required unless such adjustment
would require an increase or decrease of at least one percent in the number of
Warrant Shares then purchasable upon the exercise of the Warrants or, if the
Warrants are not then exercisable, the number of Warrant Shares purchasable
upon the exercise of the Warrants on the first date thereafter that the
Warrants become exercisable; provided, however, that any adjustments which by
reason of this subsection 10.1(e) are not required to be made immediately
shall be carried forward and taken into account in any subsequent adjustment.
(f) Whenever the number of Warrant Shares purchasable
upon the exercise of the Warrant is adjusted, as herein provided, the Exercise
Price payable upon exercise of the Warrant shall be adjusted by multiplying
such Exercise Price immediately prior to such adjustment by a fraction, of
which the numerator shall be the number of Warrant Shares purchasable upon the
exercise of the Warrant immediately prior to such adjustment, and of which the
denominator shall be the number of Warrant Shares so purchasable immediately
thereafter.
(g) For the purpose of this subsection 10.1, the term
"Common Stock" shall mean (i) the class of stock designated as the Common
Stock of the Company at the date of this Agreement, or (ii) any other class of
stock resulting from successive changes or reclassifications of such Common
Stock consisting solely of changes in par value, or from par value to no par
value, or from no par value to par value. In the event that at any time, as a
result of an adjustment made pursuant to this Section 10, the Warrant Holder
shall become entitled to purchase any securities of the Company other than
Common Stock, (y) if the Warrant Holder's right to purchase is on any other
basis than that available to all holders of the Company's Common Stock, the
Company shall obtain an opinion of an independent investment banking firm
valuing such other securities; and (z) thereafter the number of such other
securities so purchasable upon exercise of the Warrants shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Warrant Shares contained in
this Section 10.
(h) Upon the expiration of any rights, options, warrants,
or conversion privileges, if such shall have not been exercised, the number of
Shares purchasable upon exercise of the Warrants, to the extent the Warrants
have not then been exercised, shall, upon such expiration, be readjusted and
shall thereafter be such as they would have been had they been originally
adjusted (or had the original adjustment not been required, as the case may
be) on the basis of (i) the fact that the only shares of Common Stock so
issued were the shares of Common Stock, if any, actually issued or sold upon
the exercise of such rights, options, warrants, or conversion privileges, and
(ii) the fact that such shares of Common Stock, if any, were issued or sold
for the consideration actually received by the Company upon such exercise plus
the consideration, if any, actually received by the Company for the issuance,
sale or grant of all such rights, options, warrants, or conversion privileges
whether or not exercised; provided, however, that no such readjustment shall
have the effect of decreasing the number of Shares purchasable upon exercise
of the Warrants by an amount in excess of the amount of the adjustment
initially made in respect of the issuance, sale, or grant of such rights,
options, warrants, or conversion rights.
10.2 NO ADJUSTMENT FOR DIVIDENDS. Except as provided in
subsection 10.1, no adjustment in respect of any dividends or distributions
out of earnings shall be made during the term of the Warrants or upon the
exercise of the Warrants.
10.3 NO ADJUSTMENT IN CERTAIN CASES. No adjustments shall be
made pursuant to this Section 10 in connection with the issuance of Warrant
Shares upon exercise of the Warrants. No adjustments shall be made pursuant
to this Section 10 in connection with the grant or exercise of presently
authorized or outstanding options to purchase, or the issuance of shares, of
Common Stock under the Company's director or employee benefit plans disclosed
in the Registration Statement.
10.4 PRESERVATION OF PURCHASE RIGHTS UPON RECLASSIFICATION,
CONSOLIDATION, ETC. In case of any consolidation of the Company with or
merger of the Company into another corporation, or in case of any sale or
conveyance to another corporation of the property, assets, or business of the
Company as an entirety or substantially as an entirety, the Company or such
successor or purchasing corporation, as the case may be, shall execute an
agreement that the Warrant Holder shall have the right thereafter upon payment
of the Exercise Price in effect immediately prior to such action to purchase,
upon exercise of the Warrants, the kind and amount of shares and other
securities and property which it would have owned or have been entitled to
receive after the happening of such consolidation, merger, sale, or conveyance
had the Warrants been exercised immediately prior to such action. In the
event of a merger described in Section 368(a)(2)(E) of the Internal Revenue
Code of 1986, in which the Company is the surviving corporation, the right to
purchase Warrant Shares under the Warrants shall terminate on the date of such
merger and thereupon the Warrants shall become null and void, but only if the
controlling corporation shall agree to substitute for the Warrants, its
Warrants which entitle the holder thereof to purchase upon their exercise the
kind and amount of shares and other securities and property which it would
have owned or been entitled to receive had the Warrants been exercised
immediately prior to such merger. Any such agreements referred to in this
subsection 10.4 shall provide for adjustments, which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this
Section 10. The provisions of this subsection 10.4 shall similarly apply to
successive consolidations, mergers, sales, or conveyances.
10.5 PAR VALUE OF SHARES OF COMMON STOCK. Before taking any
action which would cause an adjustment effectively reducing the portion of the
Exercise Price allocable to each Warrant Share below the par value per share
of the Common Stock issuable upon exercise of the Warrants, the Company will
take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue fully paid
and nonassessable Common Stock upon exercise of the Warrants.
10.6 INDEPENDENT PUBLIC ACCOUNTANTS. The Company may retain a
firm of independent public accountants of recognized national standing (which
may be any such firm regularly employed by the Company) to make any
computation required under this Section 10, and a certificate signed by such
firm shall be conclusive evidence of the correctness of any computation made
under this Section 10.
10.7 STATEMENT ON WARRANT CERTIFICATES. Irrespective of any
adjustments in the number of securities issuable upon exercise of the
Warrants, Warrant Certificates theretofore or thereafter issued may continue
to express the same number of securities as are stated in the similar Warrant
Certificates initially issuable pursuant to this Agreement. However, the
Company may, at any time in its sole discretion (which shall be conclusive),
make any change in the form of Warrant Certificate that it may deem
appropriate and that does not affect the substance thereof; and any Warrant
Certificate thereafter issued, whether upon registration of transfer of, or in
exchange or substitution for, an outstanding Warrant Certificate, may be in
the form so changed.
10.8 OFFICERS' CERTIFICATE. Whenever the Exercise Price or
that aggregate number of Warrant Securities purchasable pursuant to this
Warrant shall be adjusted as required by the provisions of this Section 10,
the Company shall promptly file with the Warrant Agent an officers'
certificate executed by the Company's President and Secretary or Assistant
Secretary, describing the adjustment and setting forth, in reasonable detail,
the facts requiring such adjustment and the basis for and calculation of such
adjustment in accordance with the provisions of this Warrant Agreement. Each
such officers' certificate shall be made available to the Holders for
inspection at all reasonable times, and the Company, after each such
adjustment, shall promptly deliver a copy of the officers' certificate
relating to that adjustment to the Holders. If the officers' certificate is
not accompanied by the Certificate described in Section 10.6, the officers'
certificate described in this Section 10.8 shall be deemed to be conclusive as
to the correctness of the adjustment reflected therein if, and only if, no
Holder delivers written notice to the Company of an objection to the
adjustment within 30 days after the officers' certificate is delivered to the
Holders. The Company will make its books and records available for inspection
and copying during normal business hours by the Holder so as to permit a
determination as to the correctness of the adjustment. If written notice of
an objection is delivered by a Holder to the Company and the parties cannot
reconcile the dispute, the Holder and the Company shall submit the dispute to
arbitration pursuant to the provisions of Section 19 below. Failure to
prepare or provide the officers' certificates shall not modify the parties'
rights hereunder.
SECTION 11 MERGER OR CONSOLIDATION OF THE COMPANY
The Company will not merge or consolidate with or into any other
corporation or sell all or substantially all of its property to another
corporation, unless the provisions of Section 10.4 are complied with.
SECTION 12 MODIFICATION OF AGREEMENT
The Company may by supplemental agreement make any changes or
corrections in this Agreement it shall deem appropriate to cure any ambiguity
or to correct any defective or inconsistent provision or mistake or error
herein contained. Additionally, the Company may make any changes or
corrections deemed necessary which shall not adversely affect the interests of
the Warrant Holders, including lowering the exercise price or extending the
Exercise Period of the Warrants; provided, however, this Agreement shall not
otherwise be modified, supplemented or altered in any respect except with the
consent in writing of the Warrant Holders who hold not less than a majority of
the Warrants then outstanding and provided further that no such amendment
shall accelerate the Warrant Expiration Date or increase the Exercise Price
without the approval of all the holders of all outstanding Warrants.
SECTION 13 NOTICES TO WARRANT HOLDERS
If, prior to the expiration of this Warrant either by its terms
or by its exercise in full, any of the following shall occur:
(i) the Company shall declare a dividend on its Common
Stock or authorize any other distribution on its Common Stock; or
(ii) the Company shall authorize the granting to the
stockholders of its Common Stock of rights to subscribe for or purchase any
securities or any other similar rights; or
(iii) any reclassification, reorganization or similar
change of the Common Stock, or any consolidation or merger to which the
Company is a party, or the sale, lease, or exchange of any significant portion
of the assets of the Company; or
(iv) the voluntary or involuntary dissolution, liquidation
or winding up of the Company; or
(v) any purchase, retirement or redemption by the Company
of its Common Stock;
then, and in any such case, the Company shall deliver to the
Holder or Holders written notice thereof at least 30 days prior to the
earliest applicable date specified below with respect to which notice is to be
given, which notice shall state the following:
(a) the purpose for which a record of stockholders is to
be taken;
(b) the number, amount, price, and nature of the shares
of Common Stock or other stock, securities, or assets which will be
deliverable on Warrant Shares following exercise of the Warrants if such
exercise occurs prior to the record date for such action;
(c) the date on which a record is to be taken for the
purpose of such dividend, distribution or rights, or, if a record is not to be
taken, the date as of which the stockholders of Common Stock of record to be
entitled to such dividend, distribution or rights are to be determined;
(d) the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, dissolution,
liquidation, winding up or purchase, retirement or redemption is expected to
become effective, and the date, if any, as of which the Company's stockholders
of Common Stock of record shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reclassification,
reorganization, consolidation, merger, sale, transfer, dissolution,
liquidation, winding up, purchase, retirement or redemption; and
(e) if any matters referred to in the foregoing clauses
(x) and (y) are to be voted upon by stockholders of Common Stock, the date as
of which those stockholders to be entitled to vote are to be determined.
SECTION 14 NO RIGHTS AS SHAREHOLDER
Nothing contained in this Agreement or in the Warrants shall be
construed as conferring upon the Warrant Holder or its transferees any rights
as a shareholder of the Company, including the right to vote, receive
dividends, consent or receive notices as a shareholder in respect to any
meeting of shareholders for the election of directors of the Company or any
other matter. The Company covenants, however, that for so long as this
Warrant is at least partially unexercised, it will furnish any Holder of this
Warrant with copies of all reports and communications furnished to the
shareholders of the Company.
SECTION 15 WARRANT AGENT
15.1. APPOINTMENT. The Company hereby appoints the Warrant
Agent to act as the agent of the Company in accordance with this Agreement and
Warrant Agent hereby accepts such appointment.
15.2 DUTIES. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions
by all of which the Company and every Warrant Holder by acceptance of any
Warrant Certificates, shall be bound:
(i) The statements contained in this Agreement and in the
Warrant Certificates shall be taken as statements of the Company and the
Warrant Agent assumes no responsibility for the correctness of any of the same
except such as described by the Warrant Agent or action taken or to be taken
by it.
(ii) The Warrant Agent shall not be responsible for any
failure of the Company to comply with any of the Company's covenants contained
in this Agreement or in the Warrant Certificates.
(iii) The Warrant Agent may consult at any time with
counsel satisfactory to it (who may be counsel for the Company) and the
Warrant Agent shall incur no liability or responsibility to the Company or to
any Warrant Holder in respect to any action taken, suffered or omitted by it
hereunder in good faith and in accordance with the opinion or the advice of
such counsel, provided the Warrant Agent shall have exercised reasonable care
in the selection and continued employment of such counsel.
(iv) The Warrant Agent shall incur no liability or
responsibility to the Company or to any Warrant Holder for any action taken in
reliance on any notice, resolution, waiver, consent, order, certificate, or
other paper, document or instrument believed by it to be genuine and to have
been signed, sent or presented by the property party or parties.
(v) The Company agrees to pay to the Warrant Agent the
Warrant Agent's standard published rates in effect on the date of this
Agreement, as the same may be changed from time to time upon thirty (30) days
prior written notice from the Warrant Agent to the Company, for all services
rendered by the Warrant Agent in the execution of this Agreement; to reimburse
the Warrant Agent for all expenses, taxes and governmental charges and other
charges of any kind and nature incurred by the Warrant Agent in the execution
of this Agreement; and to indemnify the Warrant Agent and save it harmless
against any and all liabilities, including judgments, costs and counsel fees,
for anything done or omitted by the Warrant Agent in the execution of this
Agreement except as a result of the Warrant Agent's negligence or bad faith.
(vi) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other action
likely to involve expense unless the Company or one or more Warrant Holders
shall furnish the Warrant Agent with reasonable security and indemnity for any
costs and expenses which may be incurred, but this provision shall not affect
the power of the Warrant Agent to take such action as the Warrant Agent may
consider proper, whether with or without any such security or indemnity. All
rights of action under this Agreement or under any of the Warrants may be
enforced by the Warrant Agent without the possession of any of the Warrant
Certificates or the production thereof at any trial or other proceeding
relative thereto, and any such action, suit or proceedings instituted by the
Warrant Agent shall be brought in its name as Warrant Agent, and any recovery
or judgment shall be for the ratable benefit of the Warrant Holders as their
respective rights or interests may appear.
(vii) The Warrant Agent and any stockholder, director,
officer or employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company or become pecuniarily interested
in any transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it
were not Warrant Agent under this Agreement. Nothing herein shall preclude
the Warrant Agent from acting in any other capacity for the Company or for any
other legal entity.
(viii) The Warrant Agent shall act hereunder solely as
agent for the Company, and its duties shall be determined solely by the
provisions hereof and those provisions of the Act, the Securities Exchange Act
of 1934, as amended, and those Rules and Regulations of the Commission
applicable to the duties of the Warrant Agent hereunder.
SECTION 16 MERGER, CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT
16.1. SUCCESSOR. Any corporation into which the Warrant Agent
may be merged or converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or consolidation to which
the Warrant Agent shall be a party, or any corporation succeeding to the
corporate trust business of the Warrant Agent, shall be the successor to the
Warrant Agent hereunder without the execution or filing of any paper or any
further act on the part of the parties hereto, provided that such corporation
would be eligible for appointment as a successor Warrant Agent under the
provisions of Section 17 of this Agreement. In case at the time such
successor to the Warrant Agent shall succeed to the agency created by this
Agreement, and in case at that time any of the Warrant Certificates shall have
been countersigned but not delivered, any such successor to the Warrant Agent
may adopt the countersignature of the original Warrant Agent; and in case at
the time any of the Warrant Certificates shall not have been countersigned,
any successor to the Warrant Agent may countersign such Warrant Certificates
either in the name of the predecessor Warrant Agent or in the name of the
successor Warrant Agent; and in all such cases such Warrant Certificates
shall have the full force provided in the Warrant Certificates and in this
Agreement.
16.2. CHANGE OF NAME. In case at any time the name of the
Warrant Agent shall be changed and at such time any of the Warrant
Certificates shall have been countersigned but not delivered, the Warrant
Agent may adopt the countersignature under its prior name; and in case at that
time any of the Warrant Certificates shall not have been countersigned, the
Warrant Agent may countersign such Warrant Certificates either in its prior
name or in its changed name; and in all such cases such Warrant Certificates
shall have the full force provided in the Warrant Certificates and in this
Agreement.
SECTION 17 CHANGE OF WARRANT AGENT
The Warrant Agent may resign and be discharged from its duties
under this Agreement by giving to the Company notice in writing, and by giving
notice in writing to each Warrant Holder at his address appearing in the
Warrant register, specifying a date when such resignation shall take effect,
which notice shall be sent at least 90 days prior to the date so specified.
If the Warrant Agent shall resign or shall otherwise become incapable of
acting, the Company shall appoint a successor to the Warrant Agent. If the
Company shall fail to make such appointment within a period of 90 days after
it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Warrant Agent or by any Warrant Holder, then any
Warrant Holder may apply to any court of competent jurisdiction for the
appointment of a successor to the Warrant Agent. Pending appointment of a
successor to the Warrant Agent, either by the Company or by such court, the
duties of the Warrant Agent shall be carried out by the Company. Any
successor Warrant Agent, whether appointed by the Company or by such court,
shall be a transfer agent, bank or trust company, in good standing, organized
under the laws of one of the states of the United States of America or under
the laws of the United States of America. After appointment, the successor
Warrant Agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named as Warrant Agent without
further act or deed and the former Warrant Agent shall deliver and transfer to
the successor Warrant Agent any property at the time held by it hereunder, and
execute and deliver any further assurance, conveyance, act or deed necessary
for the purpose. Failure to give any notice provided for in this Section,
however, or any defect therein, shall not affect the legality or validity of
the resignation or removal of the Warrant Agent or the appointment of the
successor Warrant Agent, as the case may be.
SECTION 18 NOTICES
18.1 THE COMPANY. All notices, demands, claims, elections,
opinions, requests or other communications hereunder (however characterized or
described) shall be in writing and shall be deemed duly given or made if (and
then two business days after) sent by registered or certified mail, return
receipt requested, postage prepaid and addressed to, in the case of the
Company as follows:
American Educational Products, Inc.
5350 Manhattan Circle, Suite 210
Boulder, CO 80303
Attention: Clifford D. Thygesen
18.2 THE WARRANT AGENT. All notices, demands, claims,
elections, opinions, requests or other communications hereunder (however
characterized or described) shall be in writing and shall be deemed duly given
or made if (and then two business days after) sent by registered or certified
mail, return receipt requested, postage prepaid and addressed to, in the case
of the Warrant Agent as follows:
Corporate Stock Transfer, Inc.
370 17th Street
Suite 2350
Denver, Colorado 80202-4614]
18.3 THE WARRANT HOLDERS. Any distribution, notice or demand
required or authorized by this Agreement to be given or made by the Company or
the Warrant Agent to or on the Warrant Holders shall be sufficiently given or
made if sent by mail, first class, certified or registered, postage prepaid,
addressed to the Warrant Holders at their last known addresses as they shall
appear on the registration books for the Warrant Certificates maintained by
the Warrant Agent.
18.4 EFFECTIVENESS OF NOTICE. The Company may send any notice,
demand, claim, election, opinion, request or communication hereunder to the
intended recipient at the address set forth above using any other means
(including personal delivery, expedited courier, messenger service, telecopy,
telex, ordinary mail or electronic mail), but no such notice, demand, claim,
election, opinion, request or other communication shall be deemed to have been
duly given or made unless and until it actually is received by the intended
recipient. The Company may change the address to which notices, demands,
claims, elections, opinions, requests and other communications hereunder are
to be delivered by giving the Warrant Holders notice in the manner herein set
forth.
SECTION 19 ARBITRATION
The Company and the Holder, and by receipt of a Warrant
Certificate or any Warrant Shares, all subsequent Holders or holders of
Warrant Shares, agree to submit all controversies, claims, disputes and
matters of difference with respect to this Agreement and the Warrant
Certificates, including, without limitation, the application of this Section
19, to arbitration in San Diego, California, according to the rules and
practices of the American Arbitration Association from time to time in force;
provided, however, that if such rules and practices conflict with the
applicable procedures of California courts of general jurisdiction or any
other provisions of California law then in force, those California rules and
provisions shall govern. This agreement to arbitrate shall be specifically
enforceable. Arbitration may proceed in the absence of any party if notice of
the proceeding has been given to that party. The parties agree to abide by
all awards rendered in any such proceeding. These awards shall be final and
binding on all parties to the extent and in the manner provided by the rules
of civil procedure enacted in California. All awards may be filed, as a basis
of judgment and of the issuance of execution for its collection, with the
clerk of one or more courts, state or federal, having jurisdiction over either
the party against whom that award is rendered or its property. No party shall
be considered in default hereunder during the pendency of arbitration
proceedings relating to that default.
SECTION 20 MISCELLANEOUS PROVISIONS
20.1 PERSONS BENEFITING. This Agreement shall be binding upon
and inure to the benefit of the Company, the Warrant Agent and their
respective successors and assigns and the Warrant Holders. By his acceptance
of a Warrant Certificate, the Holder accepts and agrees to comply with all of
the terms and provisions hereof. Nothing in this Agreement is intended or
shall be construed to confer on any other person any right, remedy or claim or
to impose on any other person any duty, liability or obligation.
20.2 SEVERABILITY. If any term contained herein shall be held,
declared or pronounced void, voidable, invalid, unenforceable or inoperative
for any reason by any court of competent jurisdiction, government authority or
otherwise, such holding, declaration or pronouncement shall not affect
adversely any other term, which shall otherwise remain in full force and
effect, and the effect of such holding, declaration or pronouncement shall be
limited to the territory or jurisdiction in which made.
20.3 TERMINATION. This Agreement shall terminate as of the
close of business on the Expiration Date, or such earlier date upon which all
Warrants shall have been exercised or redeemed; except that the exercise of a
Warrant in full or the Expiration Date shall not terminate the provisions of
this Agreement as it relates to holders of Warrant Securities.
20.4 GOVERNING LAW. These terms and each Warrant Certificate
issued hereunder shall be deemed to be a contract under the laws of the State
of Colorado and for all purposes shall be construed in accordance with the
laws of said state without giving effect to conflicts of laws provisions of
such state.
20.5 AGREEMENT AVAILABLE TO WARRANT HOLDERS. A copy of these
terms shall be available at all reasonable times at the office of the Warrant
Agent for inspection by any Warrant Holder. As a condition of such
inspection, the Company may require any Warrant Holder to submit a Warrant
Certificate held of record for inspection.
20.6 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of such counterparts shall for all purposes be
deemed to be an original and all such counterparts shall together constitute
but one and the same instrument.
20.7 FAILURE TO PERFORM. If the Company fails to perform any
of its obligations hereunder, it shall be liable to the Warrant Holder for all
damages, costs and expenses resulting from the failure, including, but not
limited to, all reasonable attorney's fees and disbursements.
20.8 PARAGRAPH HEADINGS. Paragraph headings used in this
Warrant are for convenience only and shall not be taken or construed to define
or limit any of the terms or provisions of this Warrant. Unless otherwise
provided, or unless the context shall otherwise require, the use of the
singular shall include the plural and the use of any gender shall include all
genders.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed, all as of the day and year first written above.
AMERICAN EDUCATIONAL PRODUCTS, INC.
By: __________________________________
Name: ________________________________
Title: ______________________________
Attest:
______________________________
Secretary
Corporate Stock Transfer, Inc.
By: _________________________________
Name: ________________________________
Title: ______________________________
Attest:
____________________________________
Secretary
<PAGE>
EXHIBIT A
---------
[FORM OF WARRANT CERTIFICATE]
Each Warrant entitles the Warrant Holder to purchase one share of
Common Stock. The Warrants may only be exercised when either (a) a current
registration statement under the Securities Act of 1933, as amended, is
effective or (b) an exemption from such registration is available to the
Company, in either case, without undue expense or hardship. Additionally,
Warrants are only exercisable when such exercise, and the issuance of the
underlying Common Stock, can be effected in compliance with applicable state
Blue Sky laws. The Warrants are subject to redemption and may not be
exercised after the redemption date.
W-______________ __________ Warrants
CUSIP ____________
WARRANT CERTIFICATE
American Educational Products, Inc.
This Warrant Certificate certifies that _______________ or
registered assigns (the "Warrant Holder"), is the registered owner of the
above-indicated number of Warrants ("Warrants") expiring at 5:00 p.m., Denver,
Colorado, local time, on _______________ (the "Expiration Date"). Each
Warrant entitles the Warrant Holder to purchase from American Educational
Products, Inc. (the "Company"), a Colorado corporation, at any time before the
Expiration Date, one fully paid and non-assessable share of Common Stock of
the Company at a purchase price of $__________ per share (the "Exercise
Price") upon surrender of this Warrant Certificate, with the exercise form
hereon duly completed and executed, with payment of the Exercise Price, at the
principal office of the Company, but only subject to the conditions set forth
herein and in the Warrant Agreement. In addition, the Warrant Holder has the
right to convert the Warrants evidenced by this Certificate into shares of
Common Stock as provided in Section 4.6 of the Warrant Agreement. All
unexercised Warrants may be redeemed by the Company (i) upon 30 calendar days
prior written notice to registered Warrant Holders and (ii) under certain
conditions set forth in the Agreement between the Company and Corporate Stock
Transfer, Inc.] as the Warrant Agent (the "Warrant Agreement"). No Warrant
may be exercised or converted after such 30-day period. The Exercise Price,
the number of shares purchasable upon exercise or conversion of each Warrant,
the number of Warrants outstanding and the Expiration Date are subject to
adjustments upon the occurrence of certain events set forth in the Warrant
Agreement. Reference is hereby made to the other provisions of this Warrant
Certificate and the provisions of the Warrant Agreement, all of which are
hereby incorporated by reference herein and made a part of this Warrant
Certificate and which shall for all purposes have the same effect as though
fully set forth at this place.
Upon due presentment for registration of transfer of this Warrant
Certificate at the office of the Company a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants, subject to any adjustments made in accordance with the Warrant
Terms, shall be issued to the transferee in exchange for this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement.
The Warrant Holder of the Warrants evidenced by this Warrant
Certificate may exercise all or any whole number of such Warrants in the
manner stated hereon and in the Warrant Agreement. The Exercise Price shall
be payable in lawful money of the United States of America in cash or by
certified or cashier's check or bank draft payable to the order of the
Company. Upon any exercise of any Warrants evidenced by this Warrant
Certificate in an amount less than the number of Warrants so evidenced, there
shall be issued to the Warrant Holder a new Warrant Certificate evidencing the
number of Warrants not so exercised. No adjustment shall be made for any
dividends on any shares issued upon exercise of this Warrant.
No Warrant may be exercised after 5:00 p.m., Colorado time, on the
Expiration Date, and any Warrant not exercised by such time shall become void.
COPIES OF THE WARRANT AGREEMENT, WHICH DEFINES THE RIGHTS,
RESPONSIBILITIES AND OBLIGATIONS OF THE COMPANY AND THE WARRANT HOLDERS, ARE
ON FILE WITH THE WARRANT AGENT. ANY WARRANT HOLDER MAY OBTAIN A COPY OF THE
WARRANT AGREEMENT, FREE OF CHARGE, BY A REQUEST TO THE PRINCIPAL OFFICE OF THE
WARRANT AGENT.
This Warrant Certificate, when surrendered to the Warrant Agent, in
person or by attorney duly authorized in writing, may be exchanged, in the
manner and subject to the limitations provided in the Warrant Agreement,
without payment of a charge, except for any tax or other governmental charge
imposed in connection with such exchange, for another Warrant Certificate or
Warrant Certificates of like tenor and evidencing a like number of Warrants,
subject to any adjustment made in accordance with the Warrant Agreement.
The Company may deem and treat the registered holder hereof as the
absolute owner of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone) for all purposes and the
Company shall not be affected by any notice to the contrary. No Warrant
Holder, as such, shall have the rights of a stockholder of the Company, either
at law or in equity, and the rights of the Warrant Holder, as such, are
limited to those rights expressly provided in the Warrant Agreement and in the
Warrant Certificates.
The Company shall not be required to issue fractions of Warrants
upon any such adjustment or to issue fractions of shares upon the exercise of
any Warrants after any such adjustment, but the Company, in lieu of issuing
any such fractional interest, shall pay an amount in cash equal to such
fraction times the current market value of one Warrant or one share, as the
case may be, determined in accordance with the Warrant Agreement.
Unless the amendment is able to be effected by the Company in
accordance with the Warrant Agreement, the Warrant Agreement is subject to
amendment only upon the approval of holders of not less than a majority of the
outstanding Warrants, except that no such amendment shall accelerate the
Expiration Date or increase the Exercise Price without the approval of all the
holders of all outstanding Warrants. A copy of the Warrant Agreement shall be
available at all reasonable times at the principal office of the Warrant Agent
for inspection for any Warrant Holder. As a condition of such inspection, the
Company may require any Warrant Holder to submit his Warrant Certificate for
inspection.
IMPORTANT: The Warrants represented by this Certificate may not be
exercised by a Warrant Holder unless at the time of exercise the underlying
shares of Common Stock are qualified for sale, by registration or otherwise,
in the state where the Warrant Holder resides or unless the issuance of the
shares of Common Stock would be exempt under the applicable state securities
laws. Although the underlying shares of Common Stock were qualified for sale
in the states in which the Warrants were originally sold, the Company may not
continue such qualifications for the life of the Warrants. Moreover, the
Company may not qualify the underlying shares of Common Stock in any other
states. Further, a registration statement under the Securities Act of 1933,
as amended, covering the exercise of the Warrants must be in effect and
current at the time of exercise unless the issuance of shares of Common Stock
upon any exercise is exempt from the registration requirements of the
Securities Act of 1933, as amended. Notwithstanding the provisions hereof,
unless such registration statement and qualification are in effect and current
at the time of exercise, or unless exemptions are available, the Company may
decline to permit the exercise of the Warrants and the holder hereof would
then only have the choice of either attempting to sell the Warrants, if a
market existed therefor, or letting the Warrants expire.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate
to be signed by its President and by its Secretary, each by a facsimile of
said officers' signatures, and has caused a facsimile of its corporate seal to
be imprinted hereon.
Dated: _____________________ AMERICAN EDUCATIONAL PRODUCTS, INC.
a Colorado corporation
By_____________________________ By: ________________________________
Secretary Clifford D. Thygesen, President
<PAGE>
ASSIGNMENT
(Form of Assignment to be Executed if the Warrant Holder
Desires to Transfer Warrants Evidenced Hereby)
FOR VALUE RECEIVED, ____________________________ hereby sells,
assigns and transfers to ___________________________________________________.
(Please print name and address including zip code)
Please insert social security, federal
tax ID number or other identifying
number:
____________________________________
____________________ Warrants represented by this Warrant Certificate and does
hereby irrevocably constitute and appoint ________________________________,
Attorney, to transfer said Warrants on the books of the Company with full
power of substitution.
Dated:__________________ ____________________________________
Signature
(Signature must conform in all
respects to name of holder as
specified on the face of this Warrant
Certificate.)
SIGNATURE GUARANTEED:
______________________________
Note: Any transfer or assignment of this Warrant Certificate is subject to
compliance with the restrictions on transfer imposed under the
Warrant Agreement.
<PAGE>
EXERCISE
(Form of Exercise to be Executed if the Warrant Holder
Desires to Exercise Warrants Evidenced Hereby)
TO THE COMPANY:
The undersigned hereby irrevocably elects to exercise ____________
Warrants represented by this Warrant Certificate and to purchase thereunder
the full number of shares of Common Stock issuable upon exercise of said
Warrants and enclose $__________ as the purchase price therefor, and requests
that certificates for such shares shall be issued in the name of, and cash for
any fractional shares shall be paid to,
Please insert Social Security Number
or other identifying number:
________________________________________
_____________________________________________________________________________
(Please print name and address, including zip code)
and, if said number of Warrants shall not be all the Warrants evidenced by
this Warrant Certificate, that a new Warrant Certificate for the unexercised
number of Warrants may be assigned under the form of Assignment appearing
hereon.
Dated:__________________ Signature: ____________________________
(Signature must conform in all
respects to name of holder as
specified on the face of this
Warrant Certificate)
SIGNATURE GUARANTEED:
______________________________
IMPORTANT: Signature guarantee must be made by a participant of STAMP or
another signature guarantee program acceptable to the Securities and Exchange
Commission, the Securities Transfer Association and the Transfer Agent of the
Company or the Company.
September 8, 1997
American Educational Product, Inc.
5350 Manhattan Circle, Suite 210
Boulder, Colorado 80303
Re: S.E.C. Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted as counsel to American Educational Products, Inc. (the
"Company") in connection with a Registration Statement to be filed with the
United Stated Securities and Exchange Commission, Washington, D.C., pursuant
to the Securities Act of 1933, as amended, covering the registration of an
aggregate of 916,298 shares of the Company's $0.05 par value common stock (the
"Common Stock") pursuant to the exercise of certain Warrants. In connection
with such representation of the Company, we have examined such corporate
records, and have made such inquiry of government officials and Company
officials and have made such examination of the law as we deemed appropriate
in connection with delivering this opinion.
Based upon the foregoing, we are of the opinion as follows:
1. The Company has been duly incorporated and organized under the laws
of the State of Colorado and is validly existing as a corporation in good
standing under the laws of that state.
2. The Company's authorized capital consists of one hundred million
(100,000,000) shares of Common Stock having a par value of $0.05 each and
fifty million (50,000,000) shares of Preferred Stock having a par value of
$.01 each.
3. The 916,298 shares of Common Stock being registered for sale and
offered by the Company will, upon the valid exercise of the Warrant and
payment of the Warrant exercise price, be lawfully and validly issued, fully
paid and non-assessable shares of the Company's Common Stock.
Sincerely,
/s/ Clifford L. Neuman
CLN:wdf
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference of our report dated February 6,
1997 accompanying the financial statements of American Educational Products,
Inc. and Subsidiaries in the Form S-3 Registration Statement of American
Educational Products, Inc. and to the use of our name and the statements with
respect to us, as appearing under the heading "Experts" in the Registration
Statement.
HEIN + ASSOCIATES LLP
Denver, Colorado
September 2, 1997
September 8, 1997
American Educational Products, Inc.
5350 Manhattan Circle, Suite 210
Boulder, Colorado 80303
Re: S.E.C. Registration Statement on Form S-3
Ladies and Gentlemen:
We hereby consent to the inclusion of our opinion regarding the legality
of the securities being registered by the Registration Statement to be filed
with the United Stated Securities and Exchange Commission, Washington, D.C.,
pursuant to the Securities Act of 1933, as amended, by American Educational
Products, Inc., a Colorado corporation, (the "Company") in connection with the
offering described therein of up to 916,298 shares of its Common Stock, $.05
par value, pursuant to the exercise of certain warrants, as proposed and more
fully described in such Registration Statement.
We further consent to the reference in such Registration Statement to our
having given such opinions.
Sincerely,
/s/ Clifford L. Neuman
CLN:wdf
