FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2005
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE
ACT
For the Transition Period from ________ to ________
Commission File #0-11078
THE AMERICAN EDUCATION CORPORATION
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(Exact name of Small Business issuer as specified in its charter)
Nevada 73-1621446
- ------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7506 North Broadway Extension, Suite 505, Oklahoma City, OK 73116
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(Address of principal executive offices )
(405) 840-6031
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(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.025 per share
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file
such reports, and (2) has been subject to such filing requirements for
the past 90 days.
YES X NO
Number of shares of the issuer's common stock outstanding as of
August 11, 2005: 14,133,461
Transitional Small Business Disclosure Format YES NO X
THE AMERICAN EDUCATION CORPORATION
INDEX
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Page No.
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PART I - FINANCIAL INFORMATION
Item 1 Consolidated Balance Sheets
June 30, 2005 and December 31, 2004 3
Consolidated Statements of Income
For the Three Months Ended June 30, 2005
and for the Three Months Ended June 30, 2004 4
For the Six Months Ended June 30, 2005
and for the Six Months Ended June 30, 2004 5
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2005
and for the Six Months Ended June 30, 2004 6
Notes to Interim Consolidated Financial
Statements 7
Item 2 Management's Discussion and Analysis
Of Financial Condition and Results of
Operations 10
Item 3 Controls and Procedures 13
PART II - OTHER INFORMATION 15
SIGNATURE PAGES 17
PART I - FINANCIAL INFORMATION
ITEM 1 - CONSOLIDATED BALANCE SHEETS
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30 December 31
2005 2004
------------ -----------
(unaudited) (audited)
ASSETS
Current assets:
Cash and cash equivalents $ 534,039 $ 549,343
Accounts receivable, net of allowance
for returns and uncollectible accounts
of $250,000 and $200,000 3,175,660 2,146,264
Inventory 20,754 14,485
Prepaid expenses and deposits 340,976 305,897
Deferred tax asset 107,266 86,542
------------ -----------
Total current assets 4,178,695 3,102,531
Property and equipment, at cost 1,345,019 1,308,735
Less accumulated depreciation and
amortization (1,201,845) (1,164,389)
------------ -----------
Net property and equipment 143,174 144,346
Other assets:
Capitalized software costs, net of
accumulated amortization of $8,416,077
and $7,652,777 3,786,264 3,815,680
Goodwill, net of accumulated amortization
of $-0- and $369,097 -- 1,215,015
Deferred tax asset - long-term 63,868 --
------------ -----------
Total other assets 3,850,132 5,030,695
------------ -----------
Total assets $ 8,172,001 $ 8,277,572
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable trade $ 154,464 $ 285,261
Accrued liabilities 874,897 693,122
Deferred revenue 646,851 654,337
Notes payable and current portion of
long-term debt 606,674 371,862
------------ -----------
Total current liabilities 2,282,886 2,004,582
Other long-term accrued liabilities 611,475 470,475
Deferred income tax liability - Long-term -- 103,921
Long-term debt 305,880 305,880
------------ -----------
Total liabilities 3,200,241 2,884,858
------------ -----------
Commitments and contingencies -- --
Stockholders' Equity:
Preferred Stock, $.001 par value;
Authorized - 50,000,000 shares-issued
and outstanding-none -- --
Common Stock, $.025 par value
Authorized 30,000,000 shares
Issued and outstanding - 14,133,461
shares 359,186 359,186
Additional paid in capital 6,698,817 6,698,817
Treasury stock, at cost, 234,000 shares (319,125) (319,125)
Retained deficit (1,346,164) (1,346,164)
Year-to-date earnings (420,954) --
------------ -----------
Total stockholders' equity 4,971,760 5,392,714
------------ -----------
Total liabilities and stockholders'
equity $ 8,172,001 $ 8,277,572
============ ===========
The accompanying notes are an integral part of the financial
statements.
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED June 30, 2005 AND 2004
(unaudited)
2005 2004
----------- -----------
Sales $ 3,158,524 $ 2,741,795
Cost of goods sold 285,719 329,212
----------- -----------
Gross profit 2,872,805 2,412,583
Operating expenses:
Selling and marketing 1,039,485 807,607
Operations 126,987 138,769
General and administrative 705,652 449,901
Impairment of goodwill (Note 15) 1,215,015 --
Amortization of capitalized software
costs 390,592 346,458
----------- -----------
Total operating expenses 3,477,731 1,742,735
----------- -----------
Operating income (loss) from continuing
operations (604,926) 669,848
Other income (expense):
Interest expense (18,039) (15,143)
----------- -----------
Income (loss) from continuing operations
before income taxes (622,965) 654,705
Deferred income tax expense (204,925) 261,882
----------- -----------
Income (loss) from continuing operations (418,040) 392,823
Loss from discontinued operations (net of
tax benefits 2005 - $27,245; 2004 - $0 )
(Note 14) (68,401) (217,847)
----------- -----------
Net Income (loss) $ (486,441) $ 174,976
=========== ===========
Earnings per share:
Basic:
Continuing operations $ (.030) $ .028
Discontinued operations $ (.004) $ (.016)
Net income (loss) $ (.034) $ .012
Diluted:
Continuing operations $ (.025) $ .025
Discontinued operations $ (.004) $ (.014)
Net income (loss) $ (.029) $ .011
Weighted average common shares outstanding:
Basic 14,133,461 14,133,461
Diluted 16,596,726 15,427,021
The accompanying notes are an integral part of the financial
statements.
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED June 30, 2005 AND 2004
(unaudited)
2005 2004
----------- -----------
Sales $ 5,498,131 $ 5,272,061
Cost of goods sold 627,568 670,078
----------- -----------
Gross profit 4,870,563 4,601,983
Operating expenses:
Selling and marketing 1,773,005 1,943,781
Operations 285,458 247,727
General and administrative 1,231,133 878,185
Impairment of goodwill (Note 15) 1,215,015 --
Amortization of capitalized software
costs 763,300 678,529
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Total operating expenses 5,267,911 3,748,222
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Operating income (loss) from continuing
operations (397,348) 853,761
Other income (expense):
Interest expense (28,569) (30,424)
----------- -----------
Income (loss) from continuing operations
before income taxes (425,917) 823,337
Deferred income tax expense (126,106) 328,759
----------- -----------
Income (loss) from continuing operations (299,811) 494,578
Loss from discontinued operations (net of
tax benefits 2005 - $62,407; 2004 - $0 )
(Note 14) (121,143) (298,597)
----------- -----------
Net Income (loss) $ (420,954) $ 195,981
=========== ===========
Earnings per share:
Basic:
Continuing operations $ (.022) $ .035
Discontinued operations $ (.008) $ (.021)
Net income (loss) $ (.030) $ .014
Diluted:
Continuing operations $ (.018) $ .032
Discontinued operations $ (.007) $ (.019)
Net income (loss) $ (.025) $ .013
Weighted average common shares outstanding:
Basic 14,133,461 14,133,461
Diluted 16,596,726 15,427,021
The accompanying notes are an integral part of the financial
statements.
THE AMERICAN EDUCATION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2005 AND 2004
(unaudited)
2005 2004
----------- -----------
Cash flows from operating activities:
Net income (loss) $ (420,954) $ 195,981
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,015,771 820,999
Reserve for bad debts 50,000 46,300
Deferred compensation 141,000 93,000
Other -- 10,208
Changes in assets and liabilities:
Accounts receivable (1,079,396) (461,254)
Inventories (6,269) 4,796
Prepaid expenses and other (35,079) 51,120
Accounts payable and accrued liabilities 50,978 (192,940)
Deferred revenue (7,486) (236,164)
Deferred income taxes (188,513) 300,478
----------- -----------
Net cash provided by operating activities 520,052 632,524
----------- -----------
Cash flow from investing activities:
Software development costs capitalized (733,884) (612,454)
Purchase of property and equipment (36,284) (6,401)
----------- -----------
Net cash used in investing activities (770,168) (618,855)
----------- -----------
Cash flows from financing activities:
Proceeds received from issuance of debt 400,000 142,234
Principal payments on notes payable (165,188) (136,490)
----------- -----------
Net cash provided by financing activities 234,812 5,744
----------- -----------
Net increase (decrease) in cash (15,304) 19,413
Cash at beginning of the period 549,343 216,676
----------- -----------
Cash at end of the period $ 534,039 $ 236,089
=========== ===========
The accompanying notes are an integral part of the financial statements.
THE AMERICAN EDUCATION CORPORATION
Part I
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIODS ENDED JUNE 30, 2005 AND 2004
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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1. Description of Business:
-----------------------
The American Education Corporation's ("the Company") business is the
development and marketing of educational software to elementary, middle
and secondary schools, adult literacy centers and vocational, junior
and community colleges. In addition, the Company has two subsidiaries,
Learning Pathways, Ltd. ("LPL"), Derby, UK, and Dolphin, Inc.
("Dolphin"), Voorhees, NJ. LPL modifies the Company's U.S. curriculum
offering to conform to the UK's educational system and markets these
products directly to UK and other international markets. Dolphin is a
developer of educational software for many of the nation's leading
textbook and electronic publishers.
In December 2004, the Company determined that the assets of LPL were
impaired and its value was written down to zero. Subsequently, it has
been classified as an asset held for sale and therefore its operations
are shown as discontinued. Effective June 2005, the Company determined
that the goodwill of the Dolphin subsidiary was impaired and it was
written off. The Company is exiting the software development business
for outside customers and will be transferring certain Dolphin
employees to the Company's payroll to enhance internal development
efforts.
2. Basis of Presentation:
---------------------
The summary of significant accounting policies of the Company is
presented to assist in understanding the Company's financial
statements. These accounting policies conform to generally accepted
accounting principles and have been consistently applied in the
preparation of the financial statements.
The Company's consolidated financial statements include the Company and
its wholly owned subsidiaries. All material intercompany transactions
have been eliminated.
The interim consolidated financial statements at June 30, 2005, and for
the three and six month periods ended June 30, 2005 and 2004 are
unaudited, but include all adjustments that the Company considers
necessary for a fair presentation. The December 31, 2004 balance sheet
was derived from the Company's audited financial statements.
The accompanying unaudited financial statements are for the interim
periods and do not include all disclosures normally provided in annual
financial statements. They should be read in conjunction with the
Company's audited financial statements included in the Company's Form
10-KSB for the year ended December 31, 2004. The accompanying
unaudited interim financial statements for the three and six month
periods ending June 30, 2005 are not necessarily indicative of the
results that can be expected for the entire year.
The preparation of the financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3. Revenue Recognition:
-------------------
The Company recognizes revenue in accordance with the American
Institute of Certified Public Accountant's Statement of Position 97-2,
98-9 and modifications thereto on software revenue recognition. The
Company has also adopted revenue recognition policies regarding sales
with multiple deliverables which comply with Emerging Issues Task Force
Issue No. 00-21, "Revenue Arrangements with Multiple Deliverables," which
became effective July 1, 2003. Revenue for software design services at
Dolphin is recognized on the percentage-of-completion method.
4. Capitalized Software Costs:
--------------------------
Capitalized software costs consist of licenses for the rights to
produce and market computer software, salaries and other direct costs
incurred in the production of computer software. Costs incurred in
conjunction with product development are charged to research and
development expense until technological feasibility is established.
Thereafter, all software development costs are capitalized and
amortized on a straight-line basis over the product's estimated
economic life of between three and five years.
5. Goodwill:
--------
Goodwill represents the excess of the cost of purchased companies over
the fair value of their net assets at the date of acquisition. Goodwill
is reviewed for possible impairment at least annually or more
frequently upon the occurrence of an event or when circumstances
indicate that the carrying amount is greater than its fair value.
During 2005, the Company determined that the carrying amount of the
goodwill related to the acquisition of Dolphin exceeded its fair value
and an impairment loss of $1,215,015 has been recognized. (See Note
15.)
6. Inventories:
-----------
Inventories are stated at the lower of cost (first-in, first-out), or
market, and consist of packaging and educational software materials.
7. Property and Equipment:
----------------------
Property and equipment is stated at cost. Depreciation is provided on
the straight-line basis over the estimated useful life of the assets,
which is five years.
8. Debt:
----
The Company had the following indebtedness under notes and loan
agreements:
Current Long-term Total
--------- --------- --------
Line of credit with bank, matures
November 30, 2005; payments of
$24,000 per month plus interest at
the bank's prime rate plus 2%
(7.50% at June 30, 2005) $111,761 $ -- $111,761
Revolving line of credit with bank,
matures March 31, 2006; maximum line -
$450,000, interest at the bank's prime
rate plus 2% (7.50% at June 30, 2005) 94,913 -- 94,913
Subordinated debt due to unrelated
individual, originated March 30, 2005,
matures March 30, 2006 and may be renewed
for one year at the option of the holder;
interest at 8% payable at maturity;
convertible into the Company's common
stock at $.463 per share 400,000 -- 400,000
Subordinated debt due to shareholder
affiliates, originated April 1, 2003,
matures September 30, 2006; interest
at 8% payable quarterly, principal due
at maturity, convertible into the
Company's common stock at $.40 per share -- 305,880 305,880
--------- --------- --------
$606,674 $305,880 $912,554
========= ========= ========
9. Stock Options:
-------------
The Company has historically measured compensation from issuing
employee stock options under the accounting prescribed by APB Opinion
No. 25, "Accounting for Stock Issued to Employees" which is an
intrinsic value method. Accounting pronouncement SFAS No. 123(R),
"Share-based Payment," replaces SFAS No. 123 and supersedes APB Opinion
No. 25. SFAS 123 (R) establishes financial accounting and reporting
standards for transactions in which an entity exchanges its equity
instruments for goods or services. This Statement focuses primarily on
accounting for transactions in which an entity obtains employee
services in share-based payment transactions. SFAS 123(R) requires a
public entity to measure the cost of employee services received in an
exchange for an award of equity instruments based on the grant-date
fair value of the award. That cost will be recognized over the period
during which an employee is required to provide service in exchange for
the award (the vesting period). As a small business issuer the Company
is required to adopt SFAS No. 123(R) effective as of the beginning of
the first interim or annual reporting period that begins after December
15, 2005. This Statement applies to all awards granted after the
required effective date and to awards modified, repurchased, or
cancelled after that date. The cumulative effect of initially applying
this Statement, if any, will be recognized as of the required effective
date.
The following pro forma disclosures show the effect on net income as if
SFAS 123(R) had been applied prior to the required effective date. The
Company's pro forma income and earnings per share are as follows for
the six months ended June 30:
2005 2004
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Net income (loss) - as reported ($420,954) $195,981
Stock -based employee compensation expense -
pro forma 23,650 13,580
-------- --------
Net income (loss) - pro forma (444,604) 182,401
Basic earnings per common share-as reported ($.03) $.01
Diluted earnings per common share as reported .02 .01
Basic earnings per common share - pro forma ($.03) $.01
Diluted earnings per common share-pro forma (.03) .01
10. Statements of Cash Flows:
------------------------
In the Consolidated Statements of Cash Flows, cash and cash equivalents
may include currency on hand, demand deposits with banks or other
financial institutions, treasury bills, commercial paper, mutual funds
or other investments with original maturities of three months or less.
The carrying values of the Company's assets and liabilities approximate
fair value due to their short-term nature.
11. Income Taxes:
------------
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109"). SFAS 109 requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have
been included in the financial statements or tax returns, determined by
using the enacted tax rates in effect for the year in which the
differences are expected to reverse.
12. Computation of Earnings Per Share:
---------------------------------
The Company has adopted Statement of Financial Accounting Standards No.
128 "Earnings Per Share" ("SFAS 128"). SFAS 128 requires presentation
of basic and diluted earnings per share. Basic earnings per share are
calculated based only upon the weighted average number of common shares
outstanding during the period. Diluted earnings per share are
calculated based upon the weighted average number of common and, where
dilutive, potential common shares outstanding during the period,
utilizing the treasury stock method. Potential common shares include
conversion of convertible debt and options to purchase common stock.
The weighted average number of basic and diluted common shares
outstanding is as follows:
2005 2004
---------- ----------
Basic 14,133,461 14,133,461
Diluted 16,596,726 15,427,021
13. Commitments and Contingencies:
-----------------------------
The Company amortizes capitalized software costs over the product's
estimated useful life. Due to inherent technological changes in the
software development industry, the period over which such capitalized
software cost is being amortized may have to be accelerated.
14. Discontinued Operations:
-----------------------
Effective December 31, 2004 Learning Pathways, Ltd. was deemed to be an
asset held for sale and an impairment loss of $1,150,000 was
recognized. In 2005, its results of operations for this business unit
are presented as discontinued operations. The income statement for the
prior year has been restated to reflect the results as if LPL had been
discontinued as of the beginning of 2004. Assets and liabilities at
June 30, 2005 were not material, and therefore no separate balance
sheet disclosure is deemed necessary.
15. Impairment of Goodwill:
----------------------
Effective June 30, 2005 the Company determined that the goodwill
recorded on the balance sheet that resulted from the acquisition of
Dolphin was impaired and wrote off the entire amount of $1,215,015. The
Company is winding down Dolphin's software development business for
outside customers and will transfer certain Dolphin employees to the
Company's payroll to expand the internal software development staff.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- ------------------------------------------------------------------
Overview
- --------
The American Education Corporation is a developer of instructional
content, computer adaptive assessment testing software, and software
management technology specifically designed to manage the delivery of
and record the results of student progress in schools and other
institutions. Java-based technology, the A+nyWhere Learning System,
registered, ("A+LS") Versions 3.0 and 4.0 of educational software
products, provides a research-based, integrated curriculum offering of
software for grade levels 1-12 for Reading, Mathematics, Language Arts,
Science, Writing, History, Government, Economics and Geography. In
addition, the Company provides formative assessment testing and
formative instructional content for various segments of the primary,
secondary and post secondary educational markets. All company products
are designed to provide for LAN, WAN and Internet delivery options. The
Company has developed computer adaptive, formative assessment testing
tools to provide educators with the resources to more effectively use
the Company's curriculum content, which is aligned to important state
and national academic standards. Spanish-language versions are
available for Mathematics and Language Arts for grade levels 1-8.
The A+LS comprehensive family of educational software is now in use in
over 11,000 schools, centers of adult literacy, colleges and universities,
and correctional institutions in the U.S., UK and other international
locations. A+dvancer College Readiness Online, the Company's postsecondary
offering, identifies and assists students in attaining college entry-level
academic skills in Arithmetic, Elementary Algebra, Reading Comprehension,
and Sentence Skills. A+dvancer reduces demand on institutional admissions
and developmental departments, while providing students with both improved
skills assessment and the alignment to developmental and remedial coursework
in an online, self-paced learning environment.
The Company is a technology-based publishing enterprise. To remain
competitive it must constantly invest in the development of programming
technology to keep its product offering up-to-date and ensure that its
products maintain compatibility with the frequently changing and
revised database and operating system platforms sold to schools by
other developers. The Company must also update its content and
underwrite content revisions to realign its content with new or updated
state and national educational standards to remain competitive. To
accomplish this essential, ongoing corporate function requires the
retention and recruitment of a highly skilled professional workforce.
These investments are essential, recurring costs of doing business that
impact the Company's operating cost and margin structures.
The Company's business is subject to risks or uncertainties. Among
these uncertainties are a dependency on funding for school technology
purchases, lengthy sales cycles, seasonal demand cycles and a
dependency on retention of key personnel. Certain matters discussed
herein (including the documents incorporated herein by reference) may
contain forward-looking statements intended to qualify for the safe
harbors from liabilities established by the Private Securities
Litigation Reform Act of 1995. These forward-looking statements can
generally be identified as such because the context of the statement
will include words such as the Company "believes," "plans," "intends,"
"anticipates," "expects," or words of similar import. Similarly,
statements that describe the Company's future plans, objectives,
estimates, or goals are also forward-looking statements. Such
statements address future events and conditions concerning capital
expenditures, earnings, litigation, liquidity, capital resources and
accounting matters. Actual results in each case could differ materially
from those currently anticipated in such statements as a result of
factors such as future economic conditions, changes in customer
demands, future legislative, regulatory and competitive developments in
markets in which the Company operates and other circumstances affecting
anticipated revenues and costs. Accordingly, investors should be alert
to the possibility that factors beyond the control of management may
have impact on the short or long-term operations of the business. The
Company undertakes no duty to update forward-looking statements to
reflect the impact of events or circumstances that arise after the date
the forward-looking statement was made.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2005
AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2004
- --------------------------------------------------------
Effective December 31, 2004, the Company's UK subsidiary, Learning
Pathways, was deemed to be an asset held for sale and its value was
written down to zero as an impairment loss. Therefore, its operations
are shown as discontinued. The 2004 amounts have been restated to
reclassify the results of Learning Pathways as discontinued. Therefore,
the comparisons discussed here and for the six months ended June 30,
2005 below are only for the Company and its Dolphin, Inc. subsidiary.
Net consolidated sales for the three months ended June 30, 2005 totaled
$3,158,524 compared to $2,741,795 for the same period in 2004. This
represents an increase of 15% over the comparable 2004 quarter and is
attributable to increases in revenues at both AEC and Dolphin. The
Company believes that the increase at AEC is a result of increases in
state and federal governmental educational funding and as a result of
billing more schools directly as a condition of its credit policies
with its resellers. The increase at Dolphin is customer driven and
depends on the number of projects its customers decide to outsource and
their desired delivery dates. The Company has announced that Dolphin
will be exiting the contract software development business and will
begin to provide additional development resources for AEC in the latter
half of 2005. The Dolphin subsidiary's sales will decrease through the
third quarter and cease by the end of the 2005 fiscal year.
Cost of goods sold as a percentage of sales revenue for the three
months ending June 30, 2005 decreased to 9% from 12% of net revenues
for the same period in 2004. This improvement is attributed to a larger
portion of consolidated sales contributed by the core AEC operating
unit. The Company's principal product family, A+nyWhere Learning
System, registered, provided gross profit margins of 97% in the second
quarter of 2005, consistent with prior quarters. Cost of goods sold
represents the actual cost to produce the software products and
includes certain allocated overhead costs.
Total operating expenses for the three months ended June 30, 2005
(excluding the impairment of goodwill write-down), increased to
$2,262,716, compared to $1,742,735 for the same 2004 quarter, an
increase of 30%. As a percentage of sales revenue, operating expenses
increased from 64% in 2004 to 72% in 2005. The increase in total
operating expenses is a result of increases in marketing and selling
expenditures, general and administrative expenses and amortization of
product development costs. Selling and marketing costs increased by
29%, from $807,607 for the three months ended June 30, 2004, to
$1,039,485 for the current period. The increase in the second quarter
2005 selling expenses is largely attributable to changes in sales mix,
which resulted in increased sales commission expense because the
Company billed direct to school customers a higher percentage of
orders. General and administrative expenses increased by 57% from
$449,901 in 2004 to $705,652. This increase is due primarily to several
individual items. General and administrative salaries and benefits
increased approximately $45,000 due to the addition of personnel in
several areas. Deferred compensation payable upon executive officers' and
directors' retirement increased $24,000 because additional employees were
eligible for this benefit as compared to the prior year. Audit and legal
fees increased approximately $36,000 as a result of additional legal work
during the second quarter and the timing of the preparation of the Company's
tax returns earlier in fiscal 2005 as compared to 2004. Outside consulting
services increased approximately $31,000 due to fees paid for assistance in
incorporating Learning Letter Sounds into the product line and advice
regarding the future of Dolphin. Bad debt expense increased $85,000 over
the prior year because of an increase in the allowance for uncollectible
accounts based upon higher accounts receivable balances that generally
occur in the second and third quarters resulting from the buying patterns
of many schools.
Interest expense was $18,039 for the three months ended June 30, 2005
as compared to $15,143 for the same 2004 quarter, reflecting the lower
amount of bank debt outstanding on an average daily basis offset by the
additional interest cost of the increase in convertible debt issued by
the Company. There was a net loss of $486,441 for the three months
ended June 30, 2005 as a result of the impairment write-off for the
Dolphin subsidiary of $1,215,015, compared to net income of $174,976
for the same period in 2004.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2005
AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2004
- ------------------------------------------------------
Net sales for the six months ended June 30, 2005, totaled $5,498,131
compared to $5,272,061 for the same period in 2004. This represents an
increase of 4% over the comparable 2004 period. This increase is
attributable to increases in sales at AEC resulting from what the
Company believes are continued favorable market conditions as a result
of governmental educational funding at the federal and state level.
Dolphin's sales for the six-month period were virtually identical to
the same 2004 period.
Cost of goods sold as a percentage of sales revenue for the six months
ending June 30, 2005 decreased to 11% compared to 13% for the same
period in 2004. As noted for the quarterly results, this improvement
is attributed to the increase in the sales contributed by the core AEC
operating unit, which has lower cost of sales as a percentage of sales
than Dolphin. The Company's principal product families, A+dvanced
Learning System and the A+nyWhere Learning System, provided gross
profit margins of 97% in the first six months of 2005.
Total operating expenses for the six months ended June 30, 2005
(excluding the impairment of goodwill write-down), increased to
$4,052,896, compared to $3,748,222 for the same 2004 period, an
increase of 8%. As a percentage of sales revenue, operating expenses
increased from 71% in 2004 to 74% in 2005. The increase in total
operating expenses is a result of a decrease in marketing and selling
expenditures, an increase in general and administrative expenses as
well as an increase in amortization of product development charges for
the period.
Selling and marketing expenses decreased from $1,943,781 for the six
months ended June 30, 2004 to $1,773,005 for the same period in 2005
and is primarily the result of a decrease of in commission expense
because of changes in sales mix. Sales mix changes can occur when a
lower amount of the Company's sales are billed directly as a result of
credit policies and contributions to total revenues by different sales
channels which require the payment of varying commission rates.
Operations expense increased from $247,727 in 2004 to $285,458 for the
same period in 2005, or 15%. This increase is due to the addition of
staff in the department during the period. General and administrative
expenses increased from $878,185 to $1,231,133, or by 40%, and the
increases are due to reasons cited in management's discussion of the
second quarter results of operations. General and administrative
salaries and benefits increased approximately $77,000 due to the addition
of personnel in accounting and other departments. Deferred compensation
payable upon executive officers' and directors' retirement for the period
increased $48,000 as a result of additional employees who were eligible for
this program, compared to the prior year. Audit and legal fees increased
approximately $48,000 as a result of required additional legal costs
experienced during the first six months of 2005 and the preparation of the
Company's tax returns earlier in fiscal 2005 as compared to 2004. Outside
services increased approximately $57,000 due to consulting fees paid to
integrate the Learning Letter Sounds product line content into the Company's
product line and advice regarding the future of Dolphin. Royalty expense
increased approximately $33,000 over the prior year due to higher sales of
royalty products during the period. Bad debt expense increased $72,000 over
the prior year as a result of an increase in the allowance for uncollectible
accounts based upon higher accounts receivable balances due to the seasonal
nature of the Company's business.
Interest expense for the six months ended June 30, decreased from
$30,424 in 2004 to $28,569 in 2005 reflecting the reduction in average
daily bank debt levels in 2005 compared to the prior year offset by
higher interest due to the increase in convertible debt issued by the
Company in 2005. There was a net loss of $420,954 for the six months
ended June 30, 2005, as compared to a net income of $195,981 reported
for the same period in 2004. The decrease results from charges
recognized by the impairment of goodwill at Dolphin of $1,215,015 for
the period.
Liquidity and Capital Resources
- -------------------------------
The Company has invested significantly in the development of new
products and the acquisition and licensing of new products to improve
the ability of the organization and its published products to meet the
needs of the marketplace. These changes were required to update,
expand and keep current the Company's extensive curriculum product
offerings and to position the Company for long-term growth. To
finance the business, management has utilized secured bank revolving
credit lines, bank financed equipment loans, lease financing sources
and convertible debt from private individuals.
As of June 30, 2005 the Company's principal sources of liquidity
included cash and cash equivalents of $534,039, net accounts receivable
of $3,175,660 and inventory of $20,754. The Company's net cash provided
by operating activities during the six months was $520,052 in 2005
compared to $632,524 in 2004. Net cash used in investing activities for
the same period increased by 24% from $618,855 in 2004 to $770,168 in
2005, and was comprised primarily of investment in capitalized software
development costs. During the six months ended June 30, 2005 debt due
to financial institutions was reduced by $165,188 or 44%, reflecting
bank indebtedness of $206,674 at June 30, 2005.
In April 2003, the Company borrowed $305,880 from major shareholder
affiliates, which is subordinated to the debt owed to the Company's
senior lender. This debt matures in September of 2006 and is
convertible into the Company's common stock at $.40 per share. On March
30, 2005, the Company entered into a Convertible Note Purchase
Agreement with an unaffiliated individual. Pursuant to the terms of
the Convertible Note Purchase Agreement, the Company issued the note
purchaser an unsecured 8% Subordinated Convertible Note in the original
aggregate principal amount of $400,000. All principal and interest on
the Note is due and payable on March 30, 2006 (the "Initial Maturity
Date"), subject to the Note Purchaser's option to extend the Initial
Maturity Date twelve months to March 30, 2007 (the "Extended Maturity
Date"). The Company may not prepay principal or interest on the Note
prior to the Initial Maturity Date. The Note is convertible at any
time at the note purchaser's option into shares of the Company's
common stock at the initial conversion price of $0.463 per share,
subject to certain anti-dilution adjustments. Any shares of common
stock issued upon conversion of the Note will have "piggy-back"
registration rights. The proceeds from the subordinated convertible
debt were used to reduce accounts payable, bank debt and to support the
normal operations of the business.
At June 30, 2005, the Company had working capital of $1,895,809
compared to $1,097,949 at December 31, 2004. The Company has a $450,000
revolving line of credit that bears interest at a rate of 2.00% over
the prime rate (7.5% as of June 30, 2005) and matures on March 31,
2006. At June 30, 2005, the Company had borrowed $94,913 under this
line of credit. Additionally, the Company has a term loan with
an aggregate principal balance of $111,761 as of June 30, 2005. The
term loan bears interest at a rate of 2.00% over the prime rate (7.5%
as of June 30, 2005) and matures on November 30, 2005. The Company
is continuing to discuss future borrowing arrangements with its current
lender and several bank financing sources.
With the expansion of the Company's product lines, the addition of new
products and expanding market presences, as well as the favorable
trends in government school spending the Company expects to see in
2005 and subsequent years, combined with the elimination of losses from
the subsidiary business units, management believes that the Company
will return to a pattern of growth similar to the increases demonstrated
in prior years, which exceeded approximately 20%. Management believes that
the Company can support this expansion from its operating cash flows
and credit lines. If successful, the Company should be able to enhance
the overall financial performance of the business and continue to
improve the Company's balance sheet and financial position.
Additional working capital beyond that available to the Company from
its internally generated cash flows may be required to expand
operations as a result of anticipated continued growth of the business.
Management has and will consider options available to access such
funding, including expanded debt and additional equity financing as
dictated by the needs of the business.
Off-Balance Sheet Arrangements
- ------------------------------
The Company does not have any off-balance sheet arrangements.
Critical Accounting Policies
- ----------------------------
Management is responsible for the integrity of the financial
information presented herein. The Company's financial statements have
been prepared in accordance with accounting principles generally
accepted in the United States of America. Where necessary, they
reflect estimates based on management's judgment. Significant
accounting policies that are important to the portrayal of the
Company's financial condition and results, which in some cases require
management's judgment, are summarrized in the Notes to Interim
Consolidated Financial Statements, which are included herein.
ITEM 3 - CONTROLS AND PROCEDURES
- --------------------------------
It is the responsibility of the Chief Executive Officer and the Chief
Financial Officer to ensure that the Company maintains disclosure
controls and procedures designed to provide reasonable assurance that
material information, both financial and non-financial, and other
information required under the securities laws to be disclosed is
identified and communicated to senior management on a timely basis.
The Company's disclosure controls and procedures include controls and
other procedures of the Company that are designed to ensure that
information required to be disclosed by the Company in its reports that
it submits under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms.
As of June 30, 2005, management, including the Chief Executive Officer
and Chief Financial Officer, conducted an evaluation of disclosure
controls and procedures pursuant to Exchange Act Rule 13a-14 as
of the end of the period covered by this report. Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer
have concluded the disclosure controls and procedures currently in
place are adequate to ensure material information and other information
requiring disclosure are identified and communicated in a timely
fashion and that such disclosure controls and procedures were
effective. During the three months ended June 30, 2005, there have
been no changes in internal controls, or in factors that
have materially affected, or are reasonably likely to materially
affect, the Company's internal controls over financial reporting.
THE AMERICAN EDUCATION CORPORATION
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
-----------------
Management knows of no pending or threatened litigation involving the
Company that is considered material to the on-going operations and
viability of the Company.
Item 2. Changes in Securities
---------------------
None.
Item 3. Default Upon Senior Securities
------------------------------
Omitted from this report as inapplicable.
Item 4. Submission of Matters to Vote of Securities Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
Omitted from this report as inapplicable.
Item 6. Exhibits
--------
The following exhibits have been filed as a part of this report:
Exhibit
No. Description of Exhibits
- ------- ---------------------------------------------------------------
3.1 Articles of Incorporation of The American Education
Corporation (incorporated by reference Annex B to the
Definitive Proxy Statement filed with the Securities and
Exchange Commission on October 12, 2001)
3.2 Bylaws of The American Education Corporation (incorporated
by reference to Annex C to the Definitive Proxy Statement
filed with the Securities and Exchange Commission on
October 12, 2001)
4.1 Form of Stock Certificate (incorporated by reference to
Form 8-A12G/A filed with the Securities and Exchange
Commission on January 20, 2004)
4.2 Directors' Stock Option Plan (incorporated by reference to
Exhibit B to the Definitive Proxy Statement filed with the
Securities and Exchange Commission on April 24,
1998)
4.3 First Amendment to the Directors' Stock Option Plan
(incorporated by reference to the Company's registration
statement on Form S-8 filed with the Securities and
Exchange Commission on October 22, 1999)
4.4 Stock Option Plan for Employees (incorporated by reference
to Exhibit C to the Definitive Proxy Statement filed with
the Securities and Exchange Commission on April 24, 1998)
4.5 First Amendment to the Stock Option Plan for Employees
(incorporated by reference to the Company's registration
statement on Form S-8 filed with the Securities and
Exchange Commission on October 22, 1999)
4.6 Second Amendment to the Stock Option Plan for Employees
(incorporated by reference to Exhibit 4.7 to the Company's
registration statement on Form S-8 filed with the
Securities and Exchange Commission on September 29, 2000)
10.1 Purchase Agreement for the acquisition by the Company of
Learning Pathways, Limited (incorporated by reference to
the exhibit in the Current Report on Form 8-K filed with
the Securities and Exchange Commission on December 15,
1998)
10.2 Stock Purchase Agreement for the acquisition by the Company
of Dolphin, Inc. (incorporated by reference to the exhibit
in the Current Report on Form 8-K filed with the Securities
and Exchange Commission on January 10, 2000)
10.3 Convertible Note Purchase Agreement dated March 30, 2005 by
and between The American Education Corporation and David J.
Smith (incorporated by reference to the exhibit in the
Current Report on Form 8-K filed with the Securities and
Exchange Commission on April 11, 2005)
10.4 The American Education Corporation 8% Subordinated
Convertible Promissory Note dated March 30, 2005 in favor
of David J. Smith (incorporated by reference to the
exhibit in the Current Report on Form 8-K filed with the
Securities and Exchange Commission on April 11, 2005)
*10.5 Promissory Note dated March 31, 2004 from The American
Education Corporation in favor of UMB Bank, N.A.
*10.6 Promissory Note dated March 31, 2005 from The American
Education Corporation in favor of UMB Bank, N.A.
*10.7 Employment Agreement with Jeffrey E. Butler dated
December 5, 1998
*10.8 Employment Agreement with Thomas A. Shively dated
December 5, 1998
*10.9 Employment Agreement with Neil R. Johnson dated December 5,
1998
31.1 Certification of Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
The American Education Corporation
/s/ Jeffrey E. Butler
---------------------
Jeffrey E. Butler,
Chief Executive Officer
Chairman of the Board
Treasurer
/s/ Neil R. Johnson
-------------------
Chief Financial Officer
Chief Accounting Officer
Date: August 15, 2005
Exhibit 10.5
PROMISSORY NOTE DATED MARCH 31, 2004 FROM
THE AMERICAN EDUCATION CORPORATION IN FAVOR OF
UMB BANK, N.A.
UMB
---
B A N K
MEMBER FDIC
PROMISSORY NOTE
- ------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call/Coll Account Officer Initials
- ------------------------------------------------------------------------------
$471,761.06 03-31-2004 11-30-2005 0006 4A0 / 9205 0017232 ASH02
- ------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Any item above containing "***" has been omitted due to text length
limitations.
- ------------------------------------------------------------------------------
UMB BANK, n.a.
Borrower: THE AMERICAN EDUCATION Lender: DOWNTOWN OKLAHOMA CITY
CORPORATION BANKING CENTER
7506 N. BROADWAY, STE 505 204 NORTH ROBINSON
OKLAHOMA CITY, OK 73116 OKLAHOMA CITY, OK 73116
- ------------------------------------------------------------------------------
Principal Amount: $471,761.06 Initial Rate: 6.000% Date of Note: March 31,
2004
PROMISE TO PAY. THE AMERICAN EDUCATION CORPORATION ("Borrower") promises
to pay to UMB BANK, n.a. ("Lender"), or order, in lawful money of the
United States of America, the principal amount of Four Hundred Seventy-one
Thousand Seven Hundred Sixty-one & 06/100 Dollars ($471,761.06), together
with interest on the unpaid principal balance from March 31, 2004, until
paid in full.
PAYMENT. Subject to any payment changes resulting from changes in the
Index, Borrower will pay this loan in 19 principal payments of $24,000.00
each and one final principal and interest payment of $15,839.87.
Borrower's first principal payment is due April 30, 2004, and all
subsequent principal payments are due on the last day of each month after
that. In Addition, Borrower will pay regular monthly payments of all
accrued unpaid interest due as of each payment date, beginning April 30,
2004, with all subsequent interest payments to be due on the last day of
each month after that. Borrower's final payment due November 30, 2005,
will be for all principal and all accrued interest not yet paid. Unless
otherwise agreed or required by applicable law, payments will be applied
first to any accrued unpaid interest; than to principal; then to any late
charges: and then to any unpaid collection costs. The annual interest rate
for this Note is computed on a 365/360 basis; that is, by applying the
ratio of the annual interest rate over a year of 360 days, multiplied by
the outstanding principal balance, multiplied by the actual number of days
the principal balance is outstanding. Borrower will pay Lender at Lender's
address shown above or at such other place as Lender may designate in
writing.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to
change from time to time based on changes in an independent index which is
the UMB Bank, N.A. Prime Rate as the Index Rate. (the "Index"). The Index
is not necessarily the lowest rate charged by Lender on its loans. If the
Index becomes unavailable during the term of this loan, Lender may
designate a substitute index after notice to Borrower. Lender will tell
Borrower the current Index rate upon Borrower's request. The interest rate
change will not occur more often than each day. Borrower understands that
Lender may make loans based on other rates as well. The Index currently is
4.000% per annum. The interest rate to be applied to the unpaid principal
balance of this Note will be at a rate of 2.000 percentage points over the
Index, resulting in an initial rate of 6.000% per annum. NOTICE: Under no
circumstances will the interest rate on this Note be more than the maximum
rate allowed by applicable law.
PREPAYMENT. Borrower may pay without penalty all or a portion of the
amount owed earlier than it is due. Early payments will not, unless agreed
to by Lender in writing, relieve Borrower of Borrower's obligation to
continue to make payments under the payment schedule. Rather, early
payments will reduce the principal balance due and may result in
Borrower's making fewer payments. Borrower agrees not to send Lender
payments marked "paid in full", "without recourse", or similar language.
If Borrower sends such a payment, Lender may accept it without losing any
of Lender's rights under this Note, and Borrower will remain obligated to
pay any further amount owed to Lender. All written communications
concerning disputed amounts, including any check or other payment
instrument that indicates that the payment constitutes "payment in full"
of the amount owed or that is tendered with other conditions or
limitations or as full satisfaction of a disputed amount must be mailed or
delivered to: UMB BANK, n.a.; DOWNTOWN OKLAHOMA CITY BANKING CENTER;
204 NORTH ROBINSON; OKLAHOMA CITY, OK 73116.
LATE CHARGE. If a payment is 30 days or more late, Borrower will be
charged 10.000% of the regularly scheduled payment or 550.00, whichever is
less.
INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final
maturity, the total sum due under this Note will bear interest from the
date of acceleration or maturity at the variable interest rate on this
Note. The interest rate will not exceed the maximum rate permitted by
applicable law.
DEFAULT. Each of the following shall constitute an event of default
("Event of Default") under this Note:
Payment Default. Borrower fails to make any payment when due under this
Note.
Other Defaults. Borrower fails to comply with or to perform any other
term, obligation, covenant or condition contained in this Note or in any
of the related documents or to comply with or to perform any term,
obligation, covenant or condition contained in any other agreement between
Lender and Borrower.
False Statements. Any warranty, representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf under this Note or
the related documents is false or misleading in any material respect,
either now or at the time made or furnished or becomes false or misleading
at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure, or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower or by any
governmental agency against any collateral securing the loan. This
includes a garnishment of any of Borrower's accounts, including deposit
accounts, with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Borrower as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Borrower gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any guarantor, endorser, surety, or accommodation party of any
of the indebtedness or any guarantor, endorser, surety, or accommodation
party dies or becomes incompetent, or revokes or disputes the validity of,
or liability under, any guaranty of the indebtedness evidenced by this
Note.
Change In Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance
of this Note is impaired.
Insecurity. Lender in good faith believes itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid
principal balance on this Note and all accrued unpaid interest immediately
due, and then Borrower will pay that amount.
ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower will pay Lender
that amount. This includes, subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses, whether or not there
is a lawsuit, including without limitation all attorneys' fees and legal
expenses for bankruptcy proceedings (including efforts to modify or vacate
any automatic stay or injunction), and appeals. If not prohibited by
applicable law, Borrower also will pay any court costs, in addition to all
other sums provided by law.
JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial
in any action, proceeding, or counterclaim brought by either Lender or
Borrower against the other.
GOVERNING LAW. This Note will be governed by, construed and enforced in
accordance with federal law and the laws of the State of Oklahoma. This
Note has been accepted by Lender in the State of Oklahoma.
CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's
request to submit to the jurisdiction of the courts of Oklahoma
PROMISSORY NOTE
Loan No: 0006 (Continued) Page 2
County, State of Oklahoma.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if
Borrower makes a payment on Borrower's loan and the check or other payment
order including any preauthorized charge with which Borrower pays is later
dishonored.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender
reserves a right of setoff in all Borrower's accounts with Lender (whether
checking, savings, or some other account). This includes all accounts
Borrower holds jointly with someone else and all accounts Borrower may
open in the future. However, this does not include any IRA or Keogh
accounts, or any trust accounts for which setoff would be prohibited by
law. Borrower authorizes Lender, to the extent permitted by applicable
law, to charge or setoff all sums owing on the indebtedness against any
and all such accounts, and, at Lender's option, to administratively freeze
all such accounts to allow Lender to protect Lender's charge and setoff
rights provided in this paragraph.
COLLATERAL. Borrower acknowledges this Note is secured by all Accounts
Receivable and Inventory, Equipment, Furniture and Fixtures as further
described in Security Agreements dated 12-23-99. All stock certificates,
bond receipts, confirmations and other similar documents as further
described in Security Agreements dated 12-23-99, All Accounts Receivable,
Inventory and Equipment as further described in Security Agreement dated
March 31, 2004.
ADDITIONAL TERMS. Each and every advance made under this Note shall be at
Lender's sole discretion. Lender having made no commitment to make any
such advances.
Borrower shall not a) voluntarily transfer any assets into trust or, b} if
already owned in trust, shall not voluntarily transfer title to such trust
assets to any other person or entity, without giving Lender at least 30
days prior written notice thereof.
ADDITIONAL TERMS. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING
PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU
(BORROWER(S) AND US (LENDER) FROM MISUNDERSTANDING OR DISAPPOINTMENT. ANY
AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING,
WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US,
EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT.
SUCCESSOR INTERESTS. The terms of this Note shall be binding upon
Borrower, and upon Borrower's heirs, persona! representatives, successors
and assigns, and shall inure to the benefit of Lender and its successors
and assigns.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights
or remedies under this Note without losing them. Borrower and any other
person who signs, guarantees or endorses this Note, to the extent allowed
by law, waive presentment, demand for payment, and notice of dishonor.
Upon any change in the terms of this Note, and unless otherwise expressly
stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend
(repeatedly and for any length of time) this loan or release any party or
guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All
such parties also agree that Lender may modify this loan without the
consent of or notice to anyone other than the party with whom the
modification is made. The obligations under this Note are joint and
several.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS.
BORROWER AGREES TO THE TERMS OF THE NOTE.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
BORROWER:
THE AMERICAN EDUCATION CORPORATION
By: /s/ Neil R. Johnson By:
------------------------------- --------------------------------
Authorized Signer for Authorized Signer for
THE AMERICAN EDUCATION THE AMERICAN EDUCATION
CORPORATION NEIL R. JOHNSON CORPORATION
==========================================================================
Exhibit 10.6
PROMISSORY NOTE DATED MARCH 31, 2005 FROM
THE AMERICAN EDUCATION CORPORATION IN FAVOR OF
UMB BANK, N.A.
UMB
---
B A N K
MEMBER FDIC
PROMISSORY NOTE
- ------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No. Call/Coll Account Officer Initials
- ------------------------------------------------------------------------------
$450,000.00 03-31-2005 03-31-2006 0001 4A0/9205 0017232 MXW2
- ------------------------------------------------------------------------------
References in the shaded area are for Lender's use only and do not limit
the applicability of this document to any particular loan or item.
Any item above containing "***" has been omitted due to text length
limitations.
- ------------------------------------------------------------------------------
UMB BANK, n.a.
Borrower: THE AMERICAN EDUCATION Lender: DOWNTOWN OKLAHOMA CITY
CORPORATION BANKING CENTER
7506 N. BROADWAY, STE 505 204 NORTH ROBINSON
OKLAHOMA CITY, OK 73116 OKLAHOMA CITY, OK 73116
(405) 239-5800
- ------------------------------------------------------------------------------
Principal Amount: $450,000.00 Initial Rate 7.750% Date of Note: March 31,
2005
PROMISE TO PAY. THE AMERICAN EDUCATION CORPORATION ("Borrower") promises
to pay to UMB BANK, n.a. ("Lender"), or order, in lawful money of the
United States of America, the principal amount of Four Hundred Fifty
Thousand & 00/100 Dollars ($450,000.00) or so much as may be outstanding,
together with interest on the unpaid outstanding principal balance of each
advance. Interest shall be calculated from the date of each advance until
repayment of each advance.
PAYMENT. Borrower will pay this loan in one payment of all outstanding
principal plus all accrued unpaid interest on March 31, 2006. In addition,
Borrower will pay regular monthly payments of all accrued unpaid interest
due as of each payment date, beginning April 30, 2005, with all subsequent
interest payments to be due on the last day of each month after that.
Unless otherwise agreed or required by applicable law, payments will be
applied first to any accrued unpaid interest; then to principal; then to
any late charges; and then to any unpaid collection costs. The annual
interest rate for this Note is computed on a 365/360 basis; that is, by
applying the ratio of the annual interest rate over a year of 360 days,
multiplied by the outstanding principal balance, multiplied by the actual
number of days the principal balance is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender
may designate in writing.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to
change from time to time based on changes in an independent index which is
the UMB Bank, N.A. Prime Rate as the Index Rate. (the "Index"). The Index
is not necessarily the lowest rate charged by Lender on its loans. If the
Index becomes unavailable during the term of this loan, Lender may
designate a substitute index after notice to Borrower. Lender will tell
Borrower the current Index rate upon Borrower's request. The Interest rate
change will not occur more often than each day. Borrower understands that
Lender may make loans based on other rates as well. The Index currently
is 4.000% per annum. The interest rate to be applied to the unpaid
principal balance of this Note will be at a rate of 2.500 percentage
points over the Index, resulting in an initial rate of 6.500% per annum.
NOTICE: Under no circumstances will the interest rate on this Note be more
than the maximum rate allowed by applicable law.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid finance
charges are earned fully as of the data of the loan and will not be
subject to refund upon early payment (whether voluntary or as a result of
default), except as otherwise required by law. Except for the foregoing,
Borrower may pay without penalty all or a portion of the amount owed
earlier than it is due. Early payments will not, unless agreed to by
Lender in writing, relieve Borrower of Borrower's obligation to continue
to make payments of accrued unpaid interest. Rather, early payments will
reduce the principal balance due. Borrower agrees not to send Lender
payments marked "paid in full", "without recourse", or similar language.
If Borrower sends such a payment, Lender may accept it without losing any
of Lender's rights under this Note, and Borrower will remain obligated to
pay any further amount owed to Lender. All written communications
concerning disputed amounts, including any check or other payment
instrument that indicates that the payment constitutes "payment in full"
of the amount owed or that is tendered with other conditions or
limitations or as full satisfaction of a disputed amount must be mailed or
delivered to: UMB BANK, n.a.; DOWNTOWN OKLAHOMA CITY BANKING CENTER; 204
NORTH ROBINSON; OKLAHOMA CITY, OK 73116.
LATE CHARGE. If a payment is 30 days or more late, Borrower will be
charged 10.000% of the regularly scheduled payment or $50.00, whichever is
less.
INTEREST AFTER DEFAULT. Upon default, including failure to pay upon final
maturity, the total sum due under this Note will bear interest from the
date of acceleration or maturity at the variable interest rate on this
Note. The interest rate will not exceed the maximum rate permitted by
applicable law.
DEFAULT. Each of the following shall constitute an event of default
("Event of Default") under this Note:
Payment Default. Borrower fails to
make any payment when due under this Note.
Other Defaults. Borrower fails to comply with or to perform any other
term, obligation, covenant or condition contained in this Note or in any
of the related documents or to comply with or to perform any term,
obligation, covenant or condition contained in any other agreement between
Lender and Borrower.
False Statements. Any warranty, representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf under this Note or
the related documents is false or misleading in any material respect,
either now or at the time made or furnished or becomes false or misleading
at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any type of creditor workout, or the commencement of any
proceeding under any bankruptcy or insolvency laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower or by any
governmental agency against any collateral securing the loan. This
includes a garnishment of any of Borrower's accounts, including deposit
accounts, with Lender. However, this Event of Default shall not apply if
there is a good faith dispute by Borrower as to the validity or
reasonableness of the claim which is the basis of the creditor or
forfeiture proceeding and if Borrower gives Lender written notice of the
creditor or forfeiture proceeding and deposits with Lender monies or a
surety bond for the creditor or forfeiture proceeding, in an amount
determined by Lender, in its sole discretion, as being an adequate reserve
or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with
respect to any guarantor, endorser, surety, or accommodation party of any
of the indebtedness or any guarantor, endorser, surety, or accommodation
party dies or becomes incompetent, or revokes or disputes the validity of,
or liability under, any guaranty of the indebtedness evidenced by this
Note.
Change In Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of
this Note is impaired.
Insecurity. Lender in good faith believes itself insecure.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid
principal balance on this Note and all accrued unpaid interest immediately
due, and then Borrower will pay that amount.
ATTORNEYS' FEES; EXPENSES. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower will pay Lender that
amount. This includes, subject to any limits under applicable law,
Lender's attorneys' fees and Lender's legal expenses, whether or not there
is a lawsuit, including without limitation all attorneys' fees and legal
expenses for bankruptcy proceedings (including efforts to modify or vacate
any automatic stay or injunction), and appeals. If not prohibited by
applicable law, Borrower also will pay any court costs, in addition to all
other sums provided by law.
JURY WAIVER. Lender and Borrower hereby waive the right to any jury trial
in any action, proceeding, or counterclaim brought by either Lender or
Borrower against the other.
GOVERNING LAW. This Note will be governed by, construed and enforced in
accordance with federal law and the laws of the State of Oklahoma. This
Note has been accepted by Lender in the State of Oklahoma.
CHOICE OF VENUE. If there is a lawsuit, Borrower agrees upon Lender's
request to submit to the jurisdiction of the courts of Oklahoma.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $25.00 if
Borrower makes a payment on Borrower's loan and the check or other payment
order including any preauthorized charge with which Borrower pays is later
dishonored.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender
reserves a right of setoff in all Borrower's accounts with Lender (whether
checking, savings, or some other account). This includes all accounts
Borrower holds jointly with someone else and all accounts Borrower may
open in the future. However, this does not include any IRA or Keogh
accounts, or any trust accounts for which setoff would be prohibited by
law. Borrower authorizes Lender, to the extent permitted by applicable
law, to charge or setoff all sums owing on the indebtedness against any
and all such accounts, and, at Lender's option, to administratively freeze
all such accounts to allow Lender to protect Lender's charge and setoff
rights provided in this paragraph.
COLLATERAL. Borrower acknowledges this Note is secured by all Accounts
Receivable and Inventory, Equipment, Furniture and Fixtures as further
described in Security Agreements dated 12-23-99. All stock certificates,
bonds, receipts, confirmations and other similar documents as described in
Security Agreements dated 12-23-99 & 3-31-05. All Accounts Receivable,
Inventory and Equipment as further described in Security Agreement dated
March 31, 2004.
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances
under this Note, as well as directions for payment from Borrower's
accounts, may be requested orally or in writing by Borrower or by an
authorized person. Lender may, but need not, require that all oral
requests be confirmed in writing. Borrower agrees to be liable for all
sums either: (A) advanced in accordance with the instructions of an
authorized person or (B) credited to any of Borrower's accounts with
Lender. The unpaid principal balance owing on this Note at any time may be
evidenced by endorsements on this Note or by Lender's internal records,
including daily computer print-outs. Lender will have no obligation to
advance funds under this Note if: (A) Borrower or any guarantor is in
default under the terms of this Note or any agreement that Borrower or any
guarantor has with Lender, including any agreement made in connection with
the signing of this Note; (B) Borrower or any guarantor ceases doing
business or is insolvent; (C) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of this
Note or any other loan with Lender; (D) Borrower has applied funds
provided pursuant to this Note for purposes other than those authorized by
Lender; or (E) Lender in good faith believes itself insecure.
ADDITIONAL TERMS. Each and every advance made under this Note shall be at
Lender's sole discretion, Lender having made no commitment to make any
such advances.
Borrower shall not a) voluntarily transfer any assets into trust or, b) if
already owned in trust, shall not voluntarily transfer title to such trust
assets to any other person or entity, without giving Lender at least 30
days prior written notice thereof.
ADDITIONAL TERMS. ORAL AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND
CREDIT OR TO FOREBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING
PROMISES TO EXTEND OR RENEW SUCH DEBT ARE NOT ENFORCEABLE. TO PROTECT YOU
(BORROWER(S) AND US (LENDER) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY
AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING,
WHICH IS THE COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN US,
EXCEPT AS WE MAY LATER AGREE IN WRITING TO MODIFY IT.
SUCCESSOR INTERESTS. The terms of this Note shall be binding upon
Borrower, and upon Borrower's heirs, personal representatives, successors
and assigns, and shall inure to the benefit of Lender and its successors
and assigns.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights
or remedies under this Note without losing them. Borrower and any other
person who signs, guarantees endorses this Note, to the extent allowed by
law, waive presentment, demand for payment, and notice of dishonor. Upon
any change in the terms of this Note, and unless otherwise expressly
stated in writing, no party who signs this Note, whether as maker,
guarantor, accommodation maker or endorser, shall be released from
liability. All such parties agree that Lender may renew or extend
(repeatedly and for any length of time) this loan or release any party or
guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All
such parties also agree that Lender may modify this loan without the
consent of or notice to anyone other than the party with whom the
modification is made. The obligations under this Note are joint and
several.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS.
BORROWER AGREES TO THE TERMS OF THE NOTE.
BORROWER ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.
BORROWER:
THE AMERICAN EDUCATION CORPORATION
By: /s/ Neil R. Johnson By:
------------------------------- --------------------------------
Authorized Signer for Authorized Signer for
THE AMERICAN EDUCATION THE AMERICAN EDUCATION
CORPORATION NEIL R. JOHNSON CORPORATION
==========================================================================
Exhibit 10.7
EMPLOYMENT AGREEMENT WITH
JEFFREY E. BUTLER DATED DECEMBER 5, 1998
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement"), dated
effective as of the 5th day of December, 1998 (the "Effective
Date"), is entered into by and between The American Education
Corporation (the "Corporation"), a Colorado corporation, and
Jeffrey E. Butler, Sr. (the "Employee").
WITNESSETH:
WHEREAS, the Employee is currently employed as an at-will
employee by the Corporation;
WHEREAS, the Corporation desires to continue the employment of
the Employee upon the terms and conditions herein set forth; and
WHEREAS, the Employee desires to continue to be so employed
upon such terms and conditions:
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties agree as follows:
1. Employment and Responsibilities.
-------------------------------
1.1 The Corporation shall employ the Employee, and the
Employee shall serve, as Chief Executive Officer and President of
the Corporation on the terms set forth herein. In such capacity,
the Employee shall have overall responsibility for management of
the Corporation's affairs. The Employee shall report to the Board
of Directors of the Corporation and shall perform such duties as
the Board of Directors may direct and as are commensurate with his
position as Chief Executive Officer and President, provided that
the Employee shall not be required to perform any duty which would
constitute Cause within the meaning of Section 2.3(b) hereof, and
further provided that the Employee's duties shall at all times be
consistent with the Bylaws and Articles of Incorporation, as the
same may be amended from time to time, of the Corporation and the
policies established from time to time by the Corporation.
1.2 The Employee shall devote all of his business time to the
business and affairs of the Corporation and to the promotion of its
interests. Notwithstanding the foregoing, the Employee may engage
in other activities if such activities do not materially interfere
with the Employee's performance of his duties and obligations
hereunder, and may make and manage his personal investments,
provided that such activities and investments are not prohibited
hereby and do not violate the terms hereof. The Corporation shall
provide the Employee with adequate office facilities and staff
commensurate with his position to enable him to perform his duties
hereunder.
2. Term of Employment.
------------------
2.1 The term of the Employee's employment hereunder shall be
two (2) years, commencing on the Effective Date and ending on
December 5, 2000 (the "Termination Date"); provided, however, that
the Termination Date shall automatically be extended for additional
one-year renewal periods unless more than three hundred sixty
(360) days prior to the Termination Date (as it may be extended
from time to time), either party gives written notice that such
term shall not thereafter be so extended. If any such notice is
given, then the term hereof shall not be automatically extended
upon the future occurrence of any one-year anniversary date hereof.
2.2 Notwithstanding the provisions of Section 2.1 hereof, the
Corporation shall have the right, on written notice to the
Employee, to terminate the Employee's employment for Cause, as
defined in Section 2.3 below, such termination to be effective as
of the date on which notice is given or as of such later date
otherwise specified in the notice. If the Corporation terminates
the Employee's employment other than (i) for Cause or (ii) due to
the Employee's death ("Death") or illness or incapacity as defined
in Section 4.1 ("Disability"), then the Corporation shall be deemed
to have terminated the Employee's employment "Without Cause". In
such event, the Corporation shall pay to the Employee a lump sum
severance benefit in an amount equal to the Employee's salary for
the preceding twelve full calendar months. In addition, to the
extent permitted by applicable law, the Employee will be entitled
to receive, for twelve (12) full calendar months following the
effective date of the Employee's termination Without Cause, all
Executive Benefits, as defined in Section 3.2 and 3.3 below, which
the Employee was receiving or entitled to receive as of such
termination Without Cause. Further, all outstanding options to
purchase Common Stock of the Corporation which shall have been
granted to the Employee shall immediately become exercisable (if
not already exercisable in full) and shall continue in full force
and effect.
Without limiting Section 2.5, the Employee shall not be
entitled to any severance benefits or other benefits in the event
that the Employee terminates this Agreement without cause. Nothing
in this Agreement shall be construed to require that the
Corporation pay the Employee more than twelve (12) months salary
severance or provide the Employee with Executive Benefits for more
than twelve (12) months after the Employee is no longer employed by
the Corporation.
2.3 For purposes of this Agreement, the term "Cause" shall
mean any of the following by the Employee: (a) failure to comply
with any of the material terms of this Agreement, which failure is
curable and is not cured by the Employee within thirty (30) days
after the Employee has received written notice of such failure from
the Corporation; (b) intentional refusal to perform his duties,
responsibilities or obligations under this Agreement, which refusal
continues for not less than thirty (30) days after the Employee has
received written notice thereof from the Corporation; or (c) the
Employee's conviction of a felony involving moral turpitude or
which is otherwise materially injurious to the business or
reputation of the Corporation.
2.4 Notwithstanding the provisions of Section 2.1 hereof, the
Employee may terminate this Agreement upon the willful and material
breach of this Agreement by the Corporation or upon a material
change by the Corporation without the consent of the Employee in
the Employee's functions, duties or responsibilities which would
cause the Employee's position with the Corporation to become of
materially less dignity, responsibility, importance or scope. In
such event, the Employee shall be treated as if he had been
terminated by the Corporation Without Cause, and he shall be
entitled to the severance amount and benefits described in Section
2.2 and, upon a Change in Control, the put described in Section
3.6.
2.5 Notwithstanding the provisions of Section 2.1 hereof, the
Employee may terminate this Agreement at any time without cause
upon thirty (30) days prior written notice to the Corporation.
From the date of termination, the Employee shall have no further
rights to any compensation or benefits under this Agreement
(including but not limited to the severance payments or other
benefits described in Section 2.2 or the put described in Section
3.6). Upon receiving such notice of termination from the Employee,
the Corporation shall have the right to terminate the employment of
the Employee at any time prior to the expiration of the thirty-day
notice period, in which event the Employee shall have no rights to
any further compensation or benefits under this Agreement from and
after the date of termination.
3. Compensation
------------
3.1 The Corporation shall pay to the Employee for his
services hereunder a salary at the rate of $95,086 per annum,
payable in equal installments (subject to withholding) in
accordance with the Corporation's regular payroll schedule. Such
salary as in effect from time to time may be increased as
determined by the Board of Directors in its sole discretion. The
salary payable to the Employee any time hereunder shall not be
decreased. The Corporation may also pay to the Employee a cash
bonus from time to time as and when appropriate.
3.2 The Employee shall be entitled to participate in, and
receive benefits from, any insurance, medical, dental, health and
accident, hospitalization, disability, or other employee benefit
plan of the Corporation which may be in effect at any time during
the course of his employment by the Corporation and which is
generally available to executives of the Corporation (these
benefits, along with the benefits in Section 3.3, being referred to
as the Employee's "Executive Benefits").
3.3 The Employee shall be entitled to participate in any
stock purchase, pension, Section 401(k) plan (to the extent
permitted by applicable law), profit sharing, defined contribution,
deferred compensation, stock bonus, stock option, cash bonus or
other incentive compensation plan or plans (i) which may be in
effect from time to time during the course of his employment by the
Corporation and which are generally available to executives of the
Corporation or (ii) as the Board of Directors determines. In
addition, the Corporation shall provide an automobile or an
automobile allowance to the Employee upon such terms as determined
by the Board of Directors, and shall bear the cost of an annual
medical physical examination for the Employee each calendar year.
3.4 The Corporation shall reimburse the Employee for all
reasonable and necessary business expenses incurred by him on
behalf of the Corporation in the course of his duties hereunder
upon the presentation by the Employee of appropriate documentation
substantiating the amount of and purpose for which such expenses
were incurred.
3.5 The Employee shall be entitled to two (2) weeks paid
vacation in each calendar year, which vacation shall be taken at
times consistent with the performance by the Employee of his
obligations hereunder. Any vacation time not fully used by the
Employee in any one (1) calendar year may be carried over for one
(1) additional calendar year. If any such vacation time is carried
over to a subsequent calendar year, then any vacation time taken in
the subsequent calendar year shall be applied first against the
carryover vacation time from the prior calendar year.
3.6 (a) This Section 3.6 shall remain in effect so long as
the Employee remains employed hereunder by the Corporation and for
one year subsequent to the Employee's termination Without Cause,
but shall not be operative unless and until there has been a Change
in Control, as defined in Section 6.4 hereof. Upon such a Change
in Control, this Section 3.6 shall become operative immediately.
(b) If a Change in Control (as defined in Section 6.4)
occurs (i) while the Employee is employed by the Corporation
hereunder, or (ii) subsequent to the termination of the Employee's
employment hereunder by the Corporation Without Cause and prior to
the first anniversary of such termination, the Employee may, in his
sole discretion, within twelve (12) months after the date of the
Change in Control, give notice to the Corporation that he intends
to elect to exercise his rights under this Section 3.6, which
notice shall specify the number of shares of the Corporation's
common stock, par value $0.025 per share (the "Stock"), that the
Employee is electing to have the Corporation purchase pursuant to
Section 3.6(c), which number of shares of Stock shall in no event
exceed 50% of the shares of Stock beneficially owned by the
Employee (the "Notice of Intention"). Within thirty (30) days
after the Corporation's receipt of the Notice of Intention, the
Corporation shall provide written notice to the Employee setting
forth the Corporation's computation of the amount of the per share
Stock purchase price that would be payable pursuant to
subsection (c) of this Section 3.6, accompanied by the written
opinion of the Corporation's independent certified public
accountants confirming the Corporation's computation. If the
Employee takes exception to the Corporation's computation of such
amount, the Employee may (but shall not be prejudiced in his right
to later contest the amount actually paid by failing to do so) give
a further written notice to the Corporation setting forth in
reasonable detail the Employee's exceptions to the Corporation's
computation, accompanied by the written opinion of the Employee's
tax advisor confirming the basis for such exceptions. Exercise by
the Employee of his rights pursuant to this Section 3.6 shall only
be made by giving further notice thereof to the Corporation (the
"Notice of Exercise") within six (6) months from the date of the
Notice of Intention.
(c) If the Employee gives the Notice of Exercise
described in Section 3.6(b) to the Corporation, the Corporation
shall purchase from the Employee the number of shares of Stock
indicated in the Notice of Intention, provided that in no event
shall the Corporation be required to purchase more than fifty
percent (50%) of the shares of Stock beneficially owned by the
Employee (which amount shall be appropriately adjusted in the event
of a reclassification, recapitalization, split-up, combination,
exchange of shares, stock dividend, etc.), at a per share price
determined under Exhibit "A" hereto. The Corporation shall, within
five (5) business days after the date of the Notice of Exercise,
deliver to the Employee a certified or cashier's check in the
amount payable pursuant to this Section 3.6(c) in exchange for the
number of shares of Stock indicated in the Notice of Intention
(duly endorsed for transfer to the Corporation).
(d) Without limiting Section 2.5, the Employee shall not
be entitled to the put right described in this Section 3.6 in the
event that the Employee terminates this Agreement without cause.
4. Disability or Death.
-------------------
4.1 Notwithstanding Section 2.1, if, during the period of
employment hereunder, because of illness or other physical or
mental incapacity, the Employee shall fail for a period of one
hundred twenty (120) consecutive days to render the services
required hereunder, then the Corporation, at its option, may
terminate this Agreement by notice from the Corporation to the
Employee, effective on the giving of such notice. In the event of
such termination, the Corporation shall continue to pay to the
Employee his then current salary for a period of one hundred eighty
(180) days after such termination. In the event that the Employee's
disability prevents his return to full-time employment, the
Corporation shall pay to the Employee, following the 180 days,
seventy-five percent (75%) of his current salary (at the date of
his disability) for the following twelve (12) months, fifty percent
(50%) of his current salary (at the date of his disability) for the
ensuing twelve months, and twenty-five percent (25%) of his current
salary (at the date of his disablity)for a final twelve month
period, and, to the extent permitted by the applicable benefit
arrangement or plan, shall permit the Employee to retain for such
period the benefit arrangements, and to continue to participate for
such period in the benefit plans referred to in Section 3 hereof in
which he is participating at the time of such termination.
However, the Corporation shall not have the right to terminate the
employment of the Employee hereunder if, at the time the
Corporation gives notice of termination to the Employee, the
Employee has then again begun to render services for the
Corporation as required hereunder.
4.2 Notwithstanding Section 2.1, in the event of the Death of
the Employee during the term hereof, his employment hereunder shall
terminate on the date of Death, however, in the event the Employee
dies while on Corporation business or during business related
travel, the Corporation shall pay to his surviving spouse his then
current salary and medical benefits for a period of twelve (12)
months following the death of the Employee.
5. Other Activities During Employment.
----------------------------------
5.1 During the term of his employment by the Corporation,
neither the Employee nor any entity in which he may be interested
as a partner, member, manager, trustee, director, officer,
employee, shareholder, option holder, lender of money or guarantor,
shall engage directly or indirectly in any business competitive
with that of the Corporation; provided, however, that the foregoing
shall not be deemed to prevent the Employee from investing in
securities of any company having a class of securities which is
publicly traded, so long as such investment holdings do not, in the
aggregate, constitute more than 5% of any class of such company's
securities. Without limiting the generality of the foregoing, a
business or a company may be deemed to be competitive with the
Corporation if 10% or more of its gross revenues are derived,
directly or indirectly, from the design, marketing, sale,
licensing, or servicing of educational microcomputer software or
CD-ROM titles.
5.2 The Employee shall not at any time during the term of
this Agreement or after the termination hereof directly or
indirectly divulge, furnish, use, publish or make accessible to any
person or entity any Confidential Information (as hereinafter
defined). Any Confidential Information prepared by the Employee or
which come into the Employee's possession during this Agreement are
and remain the property of the Corporation and, upon termination of
the Employee's employment, all such records and copies thereof
shall be either left with or returned to the Corporation.
5.3 The term "Confidential Information" shall mean
information disclosed to the Employee or known, learned, created or
observed by him as a consequence of or through his employment by
the Corporation, not generally known in the relevant trade or
industry, about the Corporation's business activities, products,
customers, suppliers, services and procedures, including, but not
limited to, information concerning costs, product performance,
customer requirements, advertising, sales promotion, publicity,
sales data, research, finances, accounting, methods, procedures,
trade secrets, business plans, client, supplier or distributor
lists and records, potential client, supplier or distributor lists,
and client, supplier or distributor billings. Notwithstanding the
foregoing, "Confidential Information" shall not include information
publicly disclosed by the Corporation or known by the Employee
prior to the inception of the Corporation.
6. Post-Employment Activities.
--------------------------
6.1 For a period of one (1) year after termination of his
employment by the Corporation, except (i) a termination subsequent
to a Change in Control of the Corporation, as defined herein,
(ii) a termination by the Employee under Section 2.4 above, or
(iii) a termination by the Corporation Without Cause, neither the
Employee, nor any entity or business in which he may be interested
as a partner, member, manager, trustee, director, officer,
employee, shareholder, option holder, lender or guarantor, shall
engage directly or indirectly in any business competitive with that
of the Corporation; provided, however, that the foregoing shall not
be deemed to prevent the Employee from investing in securities
which are publicly traded, so long as such investment holdings do
not, in the aggregate, constitute more than 5% of any class of such
company's securities. Without limiting the generality of the
foregoing, a business or a company may be deemed to be competitive
with the Corporation if 10% or more of its gross revenues are
derived, directly or indirectly, from the design, marketing, sale,
licensing, or servicing of educational microcomputer software or
CD-ROM titles.
6.2 The Employee acknowledges that he has been employed for
his special talents and that his leaving the employ of the
Corporation would seriously and adversely affect the business of
the Corporation. In addition to all remedies permitted by law or
in equity and without limiting any injunctive or other relief to
which the Corporation may be entitled in respect of any obligation
of the Employee, the Corporation shall be entitled to injunctive
relief to enforce the provisions of Sections 5 and 6 hereof;
provided, that the Corporation shall not be entitled to injunctive
relief with respect to Section 6.1 hereof if at the time such
relief is sought the Corporation is failing to make payments to the
Employee which it is required to make pursuant to the terms hereof.
6.3 The Employee will not, during the period of one (1) year
after termination of his employment by the Corporation, except
(i) a termination subsequent to a Change in Control, as defined
below, (ii) a termination by the Employee under Section 2.4 above,
or (iii) a termination by the Corporation Without Cause, either in
the Employee's individual capacity or as agent for another, hire or
offer to hire or entice away any person who has been an officer,
employee, or agent of the Corporation at any time during the
immediately preceding year or in any other manner persuade or
attempt to persuade any of such persons to discontinue their
relationship with the Corporation nor divert or attempt to divert
from the Corporation any business whatsoever by influencing or
attempting to influence any customer, supplier or distributor of
the Corporation to diminish or discontinue his or its business with
the Corporation.
6.4 For the purposes of this Agreement, a Change in Control
shall be deemed to have occurred if (i) there shall be consummated
(a) any consolidation or merger of the Corporation in which the
Corporation is not the continuing or surviving corporation or
pursuant to which shares of the Corporation's capital stock are
converted into cash, securities or other property (other than a
merger in which the holders of the Corporation's capital stock
immediately prior to the merger have the same proportionate
ownership of capital stock of the surviving corporation immediately
after the merger), or (b) any sale, lease, exchange or other
transfer (whether in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the
Corporation, or (ii) any person (as such term is defined in Section
13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), other than John D. Garber or his
affiliates, shall become the beneficial owner (within the meaning
of Regulation 13D under the Exchange Act) of more than twenty-five
(25%) of the Corporation's then outstanding capital stock, or (iii)
a change of control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Exchange Act.
7. Assignment. This Agreement shall not be assignable by
the Corporation except (i) to a corporation or other entity
controlling, controlled by or under common control with the
Corporation, or (ii) to a successor to all or substantially all of
the business of the Corporation. This Agreement shall inure to the
benefit of and be binding upon the Corporation, its permitted
successors and permitted assigns, and upon the Employee and his
heirs, executors, administrators and legal representatives. This
Agreement shall not be assignable by the Employee.
8. Notices. All notices under this Agreement shall be in
writing and shall be deemed to have been given at the time when
mailed by registered or certified mail, addressed to the address
below of the party to which notice is given, or to such changed
address as such party may have fixed by notice:
To the Corporation: The American Education Corporation
------------------ 7506 North Broadway
Oklahoma City, Oklahoma 73116
To the Employee: Jeffrey E. Butler, Sr.
--------------- 4217 Old Farm Road
Oklahoma City, Oklahoma 73120
9. Entire Agreement. This Agreement contains and
constitutes the entire agreement between the parties herein and
supersedes all prior agreements and understandings between the
parties hereto relating to the subject matter hereof.
10. Applicable Law. This Agreement shall be construed,
enforced and governed in accordance with the laws of the State of
Oklahoma.
11. Invalidity. If any provision contained in this Agreement
shall for any reason be held to be invalid, illegal, void or
unenforceable in any respect, such provision shall be deemed
modified so as to constitute a provision conforming as nearly as
possible to such invalid, illegal, void or unenforceable provision
while still remaining valid and enforceable, and the remaining
terms or provisions contained herein shall not be affected thereby.
12. Dispute Resolution. Except with respect to the rights of
the Corporation to obtain equitable relief under Sections 5 and 6
hereof, any dispute arising in any way out of this Agreement and
which cannot be resolved by good faith negotiations between the
parties within thirty (30) days after either party shall have
notified the other party in writing of his or its desire to
arbitrate the dispute shall be submitted to and settled through
binding arbitration in accordance with the rules of the American
Arbitration Association as from time to time in effect. The
arbitration proceedings shall be conducted by a sole arbitrator who
shall be an attorney with not less than ten (10) years experience
in commercial law. All disputes or claims of the parties subject
to arbitration shall be consolidated into a single arbitration
proceeding. The arbitration proceedings shall be conducted in
Oklahoma City, Oklahoma. The award or determination of the
arbitrator shall be final and binding upon all parties and shall be
subject to enforcement in any court of competent jurisdiction. The
arbitrator shall have the authority to award costs and expenses of
arbitration to either party as the arbitrator sees fit.
13. Approvals and Consents Must Be in Writing. Whenever this
Agreement calls for the consent, vote, or approval of any person,
such consent, vote, or approval shall be effective only if it is in
writing and signed by or on behalf of the party who is granting
such consent, vote, or approval unless the circumstances clearly
indicate that a writing is not required to evidence such consent,
vote, or approval.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 5th day of December, 1998.
CORPORATION: THE AMERICAN EDUCATION CORPORATION
/s/ Thomas A. Shively
----------------------------------
Thomas A. Shively
Executive Vice President
EMPLOYEE: /s/ Jeffrey E. Butler, Sr.
----------------------------------
Jeffrey E. Butler, Sr.
EXHIBIT "A"
The per share price for purposes of Section 3.6(c) shall
be the greater of (i) the price per share paid that
caused the Change of Control or (ii) the average closing
price for the 90 consecutive trading days preceding the
date of the Notice of Intention .
Exhibit 10.8
EMPLOYMENT AGREEMENT WITH
THOMAS A. SHIVELY DATED DECEMBER 5, 1998
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement"), dated
effective as of the 5th day of December, 1998 (the "Effective
Date"), is entered into by and between The American Education
Corporation (the "Corporation"), a Colorado corporation, and Thomas
A. Shively (the "Employee").
WITNESSETH:
WHEREAS, the Employee is currently employed as an at-will
employee by the Corporation;
WHEREAS, the Corporation desires to continue the employment of
the Employee upon the terms and conditions herein set forth; and
WHEREAS, the Employee desires to continue to be so employed
upon such terms and conditions:
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties agree as follows:
1. Employment and Responsibilities.
-------------------------------
1.1 The Corporation shall employ the Employee, and the
Employee shall serve, as Executive Vice President and Chief
Operating Officer of the Corporation on the terms set forth herein.
In such capacity, the Employee shall have responsibility for
management of the Corporation's operations, including product
development. The Employee shall report to the President of the
Corporation and shall perform such duties as the President may
direct and as are commensurate with his position as Executive Vice
President and Chief Operating Officer provided that the Employee
shall not be required to perform any duty which would constitute
Cause within the meaning of Section 2.3(b) hereof, and further
provided that the Employee's duties shall at all times be
consistent with the Bylaws and Articles of Incorporation, as the
same may be amended from time to time, of the Corporation and the
policies established from time to time by the Corporation.
1.2 The Employee shall devote all of his business time to the
business and affairs of the Corporation and to the promotion of its
interests. Notwithstanding the foregoing, the Employee may engage
in other activities if such activities do not materially interfere
with the Employee's performance of his duties and obligations
hereunder, and may make and manage his personal investments,
provided that such activities and investments are not prohibited
hereby and do not violate the terms hereof. The Corporation shall
provide the Employee with adequate office facilities and staff
commensurate with his position to enable him to perform his duties
hereunder.
2. Term of Employment.
------------------
2.1 The term of the Employee's employment hereunder shall be
two (2) years, commencing on the Effective Date and ending on
December 5, 2000 (the "Termination Date"); provided, however, that
the Termination Date shall automatically be extended for additional
one-year renewal periods unless more than one hundred eighty (180)
days prior to the Termination Date (as it may be extended from time
to time), either party gives written notice that such term shall
not thereafter be so extended. If any such notice is given, then
the term hereof shall not be automatically extended upon the future
occurrence of any one-year anniversary date hereof.
2.2 Notwithstanding the provisions of Section 2.1 hereof, the
Corporation shall have the right, on written notice to the
Employee, to terminate the Employee's employment for Cause, as
defined in Section 2.3 below, such termination to be effective as
of the date on which notice is given or as of such later date
otherwise specified in the notice. If the Corporation terminates
the Employee's employment other than (i) for Cause or (ii) due to
the Employee's death ("Death") or illness or incapacity as defined
in Section 4.1 ("Disability"), then the Corporation shall be deemed
to have terminated the Employee's employment "Without Cause". In
such event, the Corporation shall pay to the Employee a lump sum
severance benefit in an amount equal to fifty percent (50%) of the
Employee's salary for the preceding twelve full calendar months.
In addition, to the extent permitted by applicable law, the
Employee will be entitled to receive, for six (6) full calendar
months following the effective date of the Employee's termination
Without Cause, all Executive Benefits, as defined in Sections 3.2
and 3.3 below, which the Employee was receiving or entitled to
receive as of such termination Without Cause. Further, all
outstanding options to purchase Common Stock of the Corporation
which shall have been granted to the Employee shall immediately
become exercisable (if not already exercisable in full) and shall
continue in full force and effect.
Without limiting Section 2.5, the Employee shall not be
entitled to any severance benefits or other benefits in the event
that the Employee terminates this Agreement without cause. Nothing
in this Agreement shall be construed to require that the
Corporation pay the Employee more than fifty percent (50%) of
twelve (12) months salary severance or provide the Employee with
Executive Benefits for more than six (6) months after the Employee
is no longer employed by the Corporation.
2.3 For purposes of this Agreement, the term "Cause" shall
mean any of the following by the Employee: (a) failure to comply
with any of the material terms of this Agreement, which failure is
curable and is not cured by the Employee within thirty (30) days
after the Employee has received written notice of such failure from
the Corporation; (b) intentional refusal to perform his duties,
responsibilities or obligations under this Agreement, which refusal
continues for not less than thirty (30) days after the Employee has
received written notice thereof from the Corporation; or (c) the
Employee's conviction of a felony involving moral turpitude or
which is otherwise materially injurious to the business or
reputation of the Corporation.
2.4 Notwithstanding the provisions of Section 2.1 hereof, the
Employee may terminate this Agreement upon the willful and material
breach of this Agreement by the Corporation or upon a material
change by the Corporation without the consent of the Employee in
the Employee's functions, duties or responsibilities which would
cause the Employee's position with the Corporation to become of
materially less dignity, responsibility, importance or scope. In
such event, the Employee shall be treated as if he had been
terminated by the Corporation Without Cause, and he shall be
entitled to the severance amount and benefits described in Section
2.2 and, upon a Change in Control, the put described in Section
3.6.
2.5 Notwithstanding the provisions of Section 2.1 hereof, the
Employee may terminate this Agreement at any time without cause
upon thirty (30) days prior written notice to the Corporation.
From the date of termination, the Employee shall have no further
rights to any compensation or benefits under this Agreement
(including but not limited to the severance payments or other
benefits described in Section 2.2 or the put described in Section
3.6). Upon receiving such notice of termination from the Employee,
the Corporation shall have the right to terminate the employment of
the Employee at any time prior to the expiration of the thirty-day
notice period, in which event the Employee shall have no rights to
any further compensation or benefits under this Agreement from and
after the date of termination.
3. Compensation
------------
3.1 The Corporation shall pay to the Employee for his
services hereunder a salary at the rate of $86,408 per annum,
payable in equal installments (subject to withholding) in
accordance with the Corporation's regular payroll schedule. Such
salary as in effect from time to time may be increased as
determined by the Board of Directors in its sole discretion. The
salary payable to the Employee any time hereunder shall not be
decreased. The Corporation may also pay to the Employee a cash
bonus from time to time as and when appropriate.
3.2 The Employee shall be entitled to participate in, and
receive benefits from, any insurance, medical, dental, health and
accident, hospitalization, disability, or other employee benefit
plan of the Corporation which may be in effect at any time during
the course of his employment by the Corporation and which is
generally available to executives of the Corporation (these
benefits, along with the benefits in Section 3.3, being referred to
as the Employee's "Executive Benefits").
3.3 The Employee shall be entitled to participate in any
stock purchase, pension, Section 401(k) plan (to the extent
permitted by applicable law), profit sharing, defined contribution,
deferred compensation, stock bonus, stock option, cash bonus or
other incentive compensation plan or plans (i) which may be in
effect from time to time during the course of his employment by the
Corporation and which are generally available to executives of the
Corporation or (ii) as the Board of Directors determines. In
addition, the Corporation shall provide an automobile or an
automobile allowance to the Employee upon such terms as determined
by the Board of Directors, and shall bear the cost of an annual
medical physical examination for the Employee each calendar year.
3.4 The Corporation shall reimburse the Employee for all
reasonable and necessary business expenses incurred by him on
behalf of the Corporation in the course of his duties hereunder
upon the presentation by the Employee of appropriate documentation
substantiating the amount of and purpose for which such expenses
were incurred.
3.5 The Employee shall be entitled to two (2) weeks paid
vacation in each calendar year, which vacation shall be taken at
times consistent with the performance by the Employee of his
obligations hereunder. Any vacation time not fully used by the
Employee in any one (1) calendar year may be carried over for one
(1) additional calendar year. If any such vacation time is carried
over to a subsequent calendar year, then any vacation time taken in
the subsequent calendar year shall be applied first against the
carryover vacation time from the prior calendar year.
3.6 (a) This Section 3.6 shall remain in effect so long as
the Employee remains employed hereunder by the Corporation and for
one year subsequent to the Employee's termination Without Cause,
but shall not be operative unless and until there has been a Change
in Control, as defined in Section 6.4 hereof. Upon such a Change
in Control, this Section 3.6 shall become operative immediately.
(b) If a Change in Control (as defined in Section 6.4)
occurs (i) while the Employee is employed by the Corporation
hereunder, or (ii) subsequent to the termination of the Employee's
employment hereunder by the Corporation Without Cause and prior to
the first anniversary of such termination, the Employee may, in his
sole discretion, within twelve (12) months after the date of the
Change in Control, give notice to the Corporation that he intends
to elect to exercise his rights under this Section 3.6, which
notice shall specify the number of shares of the Corporation's
common stock, par value $0.025 per share (the "Stock"), that the
Employee is electing to have the Corporation purchase pursuant to
Section 3.6(c), which number of shares of Stock shall in no event
exceed 50% of the shares of Stock beneficially owned by the
Employee (the "Notice of Intention"). Within thirty (30) days
after the Corporation's receipt of the Notice of Intention, the
Corporation shall provide written notice to the Employee setting
forth the Corporation's computation of the amount of the per share
Stock purchase price that would be payable pursuant to
subsection (c) of this Section 3.6, accompanied by the written
opinion of the Corporation's independent certified public
accountants confirming the Corporation's computation. If the
Employee takes exception to the Corporation's computation of such
amount, the Employee may (but shall not be prejudiced in his right
to later contest the amount actually paid by failing to do so) give
a further written notice to the Corporation setting forth in
reasonable detail the Employee's exceptions to the Corporation's
computation, accompanied by the written opinion of the Employee's
tax advisor confirming the basis for such exceptions. Exercise by
the Employee of his rights pursuant to this Section 3.6 shall only
be made by giving further notice thereof to the Corporation (the
"Notice of Exercise") within six (6) months from the date of the
Notice of Intention.
(c) If the Employee gives the Notice of Exercise
described in Section 3.6(b) to the Corporation, the Corporation
shall purchase from the Employee the number of shares of Stock
indicated in the Notice of Intention, provided that in no event
shall the Corporation be required to purchase more than fifty
percent (50%) of the shares of Stock beneficially owned by the
Employee (which amount shall be appropriately adjusted in the event
of a reclassification, recapitalization, split-up, combination,
exchange of shares, stock dividend, etc.), at a per share price
determined under Exhibit "A" hereto. The Corporation shall, within
five (5) business days after the date of the Notice of Exercise,
deliver to the Employee a certified or cashier's check in the
amount payable pursuant to this Section 3.6(c) in exchange for the
number of shares of Stock indicated in the Notice of Intention
(duly endorsed for transfer to the Corporation).
(d) Without limiting Section 2.5, the Employee shall not
be entitled to the put right described in this Section 3.6 in the
event that the Employee terminates this Agreement without cause.
4. Disability or Death.
-------------------
4.1 Notwithstanding Section 2.1, if, during the period of
employment hereunder, because of illness or other physical or
mental incapacity, the Employee shall fail for a period of one
hundred twenty (120) consecutive days to render the services
required hereunder, then the Corporation, at its option, may
terminate this Agreement by notice from the Corporation to the
Employee, effective on the giving of such notice. In the event of
such termination, the Corporation shall continue to pay to the
Employee his then current salary for a period of one hundred eighty
(180) days after such termination. In the event that the Employee's
disability prevents his return to full-time employment, the
Corporation shall pay to the Employee, following the 180 days,
seventy-five percent (75%) of his current salary (at the date of
his disability) for the following twelve (12) months, fifty percent
(50%) of his current salary (at the date of his disability) for the
ensuing twelve months, and twenty-five percent (25%) of his current
salary (at the date of his disablity)for a final twelve month
period, and, to the extent permitted by the applicable benefit
arrangement or plan, shall permit the Employee to retain for such
period the benefit arrangements, and to continue to participate for
such period in the benefit plans referred to in Section 3 hereof in
which he is participating at the time of such termination.
However, the Corporation shall not have the right to terminate the
employment of the Employee hereunder if, at the time the
Corporation gives notice of termination to the Employee, the
Employee has then again begun to render services for the
Corporation as required hereunder.
4.2 Notwithstanding Section 2.1, in the event of the Death of
the Employee during the term hereof, his employment hereunder shall
terminate on the date of Death, however, in the event the Employee
dies while on Corporation business or during business related
travel, the Corporation shall pay to his surviving spouse his then
current salary and medical benefits for a period of twelve (12)
months following the death of the Employee.
5. Other Activities During Employment.
----------------------------------
5.1 During the term of his employment by the Corporation,
neither the Employee nor any entity in which he may be interested
as a partner, member, manager, trustee, director, officer,
employee, shareholder, option holder, lender of money or guarantor,
shall engage directly or indirectly in any business competitive
with that of the Corporation; provided, however, that the foregoing
shall not be deemed to prevent the Employee from investing in
securities of any company having a class of securities which is
publicly traded, so long as such investment holdings do not, in the
aggregate, constitute more than 5% of any class of such company's
securities. Without limiting the generality of the foregoing, a
business or a company may be deemed to be competitive with the
Corporation if 10% or more of its gross revenues are derived,
directly or indirectly, from the design, marketing, sale,
licensing, or servicing of educational microcomputer software or
CD-ROM titles.
5.2 The Employee shall not at any time during the term of
this Agreement or after the termination hereof directly or
indirectly divulge, furnish, use, publish or make accessible to any
person or entity any Confidential Information (as hereinafter
defined). Any Confidential Information prepared by the Employee or
which come into the Employee's possession during this Agreement are
and remain the property of the Corporation and, upon termination of
the Employee's employment, all such records and copies thereof
shall be either left with or returned to the Corporation.
5.3 The term "Confidential Information" shall mean
information disclosed to the Employee or known, learned, created or
observed by him as a consequence of or through his employment by
the Corporation, not generally known in the relevant trade or
industry, about the Corporation's business activities, products,
customers, suppliers, services and procedures, including, but not
limited to, information concerning costs, product performance,
customer requirements, advertising, sales promotion, publicity,
sales data, research, finances, accounting, methods, procedures,
trade secrets, business plans, client, supplier or distributor
lists and records, potential client, supplier or distributor lists,
and client, supplier or distributor billings. Notwithstanding the
foregoing, "Confidential Information" shall not include information
publicly disclosed by the Corporation or known by the Employee
prior to the inception of the Corporation.
6. Post-Employment Activities.
--------------------------
6.1 For a period of six (6) months after termination of his
employment by the Corporation, except (i) a termination subsequent
to a Change in Control of the Corporation, as defined herein,
(ii) a termination by the Employee under Section 2.4 above, or
(iii) a termination by the Corporation Without Cause, neither the
Employee, nor any entity or business in which he may be interested
as a partner, member, manager, trustee, director, officer,
employee, shareholder, option holder, lender or guarantor, shall
engage directly or indirectly in any business competitive with that
of the Corporation; provided, however, that the foregoing shall not
be deemed to prevent the Employee from investing in securities
which are publicly traded, so long as such investment holdings do
not, in the aggregate, constitute more than 5% of any class of such
company's securities. Without limiting the generality of the
foregoing, a business or a company may be deemed to be competitive
with the Corporation if 10% or more of its gross revenues are
derived, directly or indirectly, from the design, marketing, sale,
licensing, or servicing of educational microcomputer software or
CD-ROM titles.
6.2 The Employee acknowledges that he has been employed for
his special talents and that his leaving the employ of the
Corporation would seriously and adversely affect the business of
the Corporation. In addition to all remedies permitted by law or
in equity and without limiting any injunctive or other relief to
which the Corporation may be entitled in respect of any obligation
of the Employee, the Corporation shall be entitled to injunctive
relief to enforce the provisions of Sections 5 and 6 hereof;
provided, that the Corporation shall not be entitled to injunctive
relief with respect to Section 6.1 hereof if at the time such
relief is sought the Corporation is failing to make payments to the
Employee which it is required to make pursuant to the terms hereof.
6.3 The Employee will not, during the period of six (6)
months after termination of his employment by the Corporation,
except (i) a termination subsequent to a Change in Control, as
defined below, (ii) a termination by the Employee under Section 2.4
above, or (iii) a termination by the Corporation Without Cause,
either in the Employee's individual capacity or as agent for
another, hire or offer to hire or entice away any person who has
been an officer, employee, or agent of the Corporation at any time
during the immediately preceding year or in any other manner
persuade or attempt to persuade any of such persons to discontinue
their relationship with the Corporation nor divert or attempt to
divert from the Corporation any business whatsoever by influencing
or attempting to influence any customer, supplier or distributor of
the Corporation to diminish or discontinue his or its business with
the Corporation.
6.4 For the purposes of this Agreement, a Change in Control
shall be deemed to have occurred if (i) there shall be consummated
(a) any consolidation or merger of the Corporation in which the
Corporation is not the continuing or surviving corporation or
pursuant to which shares of the Corporation's capital stock are
converted into cash, securities or other property (other than a
merger in which the holders of the Corporation's capital stock
immediately prior to the merger have the same proportionate
ownership of capital stock of the surviving corporation immediately
after the merger), or (b) any sale, lease, exchange or other
transfer (whether in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the
Corporation, or (ii) any person (as such term is defined in Section
13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), other than John D. Garber or his
affiliates, shall become the beneficial owner (within the meaning
of Regulation 13D under the Exchange Act) of more than twenty-five
(25%) of the Corporation's then outstanding capital stock, or (iii)
a change of control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Exchange Act.
7. Assignment. This Agreement shall not be assignable by
the Corporation except (i) to a corporation or other entity
controlling, controlled by or under common control with the
Corporation, or (ii) to a successor to all or substantially all of
the business of the Corporation. This Agreement shall inure to the
benefit of and be binding upon the Corporation, its permitted
successors and permitted assigns, and upon the Employee and his
heirs, executors, administrators and legal representatives. This
Agreement shall not be assignable by the Employee.
8. Notices. All notices under this Agreement shall be in
writing and shall be deemed to have been given at the time when
mailed by registered or certified mail, addressed to the address
below of the party to which notice is given, or to such changed
address as such party may have fixed by notice:
To the Corporation: The American Education Corporation
------------------ 7506 North Broadway
Oklahoma City, Oklahoma 73116
To the Employee: Thomas A. Shively
14431-C N. Pennsylvania
Oklahoma City, Oklahoma 73134
9. Entire Agreement. This Agreement contains and
constitutes the entire agreement between the parties herein and
supersedes all prior agreements and understandings between the
parties hereto relating to the subject matter hereof.
10. Applicable Law. This Agreement shall be construed,
enforced and governed in accordance with the laws of the State of
Oklahoma.
11. Invalidity. If any provision contained in this Agreement
shall for any reason be held to be invalid, illegal, void or
unenforceable in any respect, such provision shall be deemed
modified so as to constitute a provision conforming as nearly as
possible to such invalid, illegal, void or unenforceable provision
while still remaining valid and enforceable, and the remaining
terms or provisions contained herein shall not be affected thereby.
12. Dispute Resolution. Except with respect to the rights of
the Corporation to obtain equitable relief under Sections 5 and 6
hereof, any dispute arising in any way out of this Agreement and
which cannot be resolved by good faith negotiations between the
parties within thirty (30) days after either party shall have
notified the other party in writing of his or its desire to
arbitrate the dispute shall be submitted to and settled through
binding arbitration in accordance with the rules of the American
Arbitration Association as from time to time in effect. The
arbitration proceedings shall be conducted by a sole arbitrator who
shall be an attorney with not less than ten (10) years experience
in commercial law. All disputes or claims of the parties subject
to arbitration shall be consolidated into a single arbitration
proceeding. The arbitration proceedings shall be conducted in
Oklahoma City, Oklahoma. The award or determination of the
arbitrator shall be final and binding upon all parties and shall be
subject to enforcement in any court of competent jurisdiction. The
arbitrator shall have the authority to award costs and expenses of
arbitration to either party as the arbitrator sees fit.
13. Approvals and Consents Must Be in Writing. Whenever this
Agreement calls for the consent, vote, or approval of any person,
such consent, vote, or approval shall be effective only if it is in
writing and signed by or on behalf of the party who is granting
such consent, vote, or approval unless the circumstances clearly
indicate that a writing is not required to evidence such consent,
vote, or approval.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 5th day of December, 1998.
CORPORATION: THE AMERICAN EDUCATION CORPORATION
/s/ Jeffrey E. Butler
----------------------------------
Jeffrey E. Butler, President
EMPLOYEE: /s/ Thomas A. Shively
----------------------------
Thomas A. Shively
EXHIBIT "A"
The per share price for purposes of Section 3.6(c) shall
be the greater of (i) the price per share paid that
caused the Change of Control or (ii) the average closing
price for the 90 consecutive trading days preceding the
date of the Notice of Intention .
Exhibit 10.9
EMPLOYMENT AGREEMENT WITH
NEIL R. JOHNSON DATED DECEMBER 5, 1998
EXECUTIVE EMPLOYMENT AGREEMENT
------------------------------
This EXECUTIVE EMPLOYMENT AGREEMENT ("Agreement"), dated
effective as of the 5th day of December, 1998 (the "Effective
Date"), is entered into by and between The American Education
Corporation (the "Corporation"), a Colorado corporation, and Neil
R. Johnson (the "Employee").
WITNESSETH:
WHEREAS, the Employee is currently employed as an at-will
employee by the Corporation;
WHEREAS, the Corporation desires to continue the employment of
the Employee upon the terms and conditions herein set forth; and
WHEREAS, the Employee desires to continue to be so employed
upon such terms and conditions:
NOW, THEREFORE, in consideration of the mutual covenants
herein contained, the parties agree as follows:
1. Employment and Responsibilities.
-------------------------------
1.1 The Corporation shall employ the Employee, and the
Employee shall serve, as Vice President and Chief Financial Officer
of the Corporation on the terms set forth herein. In such
capacity, the Employee shall have responsibility for management of
the Corporation's financial, accounting and human resources
activities. The Employee shall report to the President of the
Corporation and shall perform such duties as the President may
direct and as are commensurate with his position as Vice President
and Chief Financial Officer provided that the Employee shall not be
required to perform any duty which would constitute Cause within
the meaning of Section 2.3(b) hereof, and further provided that the
Employee's duties shall at all times be consistent with the Bylaws
and Articles of Incorporation, as the same may be amended from time
to time, of the Corporation and the policies established from time
to time by the Corporation.
1.2 The Employee shall devote all of his business time to the
business and affairs of the Corporation and to the promotion of its
interests. Notwithstanding the foregoing, the Employee may engage
in other activities if such activities do not materially interfere
with the Employee's performance of his duties and obligations
hereunder, and may make and manage his personal investments,
provided that such activities and investments are not prohibited
hereby and do not violate the terms hereof. The Corporation shall
provide the Employee with adequate office facilities and staff
commensurate with his position to enable him to perform his duties
hereunder.
2. Term of Employment.
------------------
2.1 The term of the Employee's employment hereunder shall be
two (2) years, commencing on the Effective Date and ending on
December 5, 2000 (the "Termination Date"); provided, however, that
the Termination Date shall automatically be extended for additional
one-year renewal periods unless more than one hundred eighty (180)
days prior to the Termination Date (as it may be extended from time
to time), either party gives written notice that such term shall
not thereafter be so extended. If any such notice is given, then
the term hereof shall not be automatically extended upon the future
occurrence of any one-year anniversary date hereof.
2.2 Notwithstanding the provisions of Section 2.1 hereof, the
Corporation shall have the right, on written notice to the
Employee, to terminate the Employee's employment for Cause, as
defined in Section 2.3 below, such termination to be effective as
of the date on which notice is given or as of such later date
otherwise specified in the notice. If the Corporation terminates
the Employee's employment other than (i) for Cause or (ii) due to
the Employee's death ("Death") or illness or incapacity as defined
in Section 4.1 ("Disability"), then the Corporation shall be deemed
to have terminated the Employee's employment "Without Cause". In
such event, the Corporation shall pay to the Employee a lump sum
severance benefit in an amount equal to fifty percent (50%) of the
Employee's salary for the preceding twelve full calendar months.
In addition, to the extent permitted by applicable law, the
Employee will be entitled to receive, for six (6) full calendar
months following the effective date of the Employee's termination
Without Cause, all Executive Benefits, as defined in Sections 3.2
and 3.3 below, which the Employee was receiving or entitled to
receive as of such termination Without Cause. Further, all
outstanding options to purchase Common Stock of the Corporation
which shall have been granted to the Employee shall immediately
become exercisable (if not already exercisable in full) and shall
continue in full force and effect.
Without limiting Section 2.5, the Employee shall not be
entitled to any severance benefits or other benefits in the event
that the Employee terminates this Agreement without cause. Nothing
in this Agreement shall be construed to require that the
Corporation pay the Employee more than fifty percent (50%) of
twelve (12) months salary severance or provide the Employee with
Executive Benefits for more than six (6) months after the Employee
is no longer employed by the Corporation.
2.3 For purposes of this Agreement, the term "Cause" shall
mean any of the following by the Employee: (a) failure to comply
with any of the material terms of this Agreement, which failure is
curable and is not cured by the Employee within thirty (30) days
after the Employee has received written notice of such failure from
the Corporation; (b) intentional refusal to perform his duties,
responsibilities or obligations under this Agreement, which refusal
continues for not less than thirty (30) days after the Employee has
received written notice thereof from the Corporation; or (c) the
Employee's conviction of a felony involving moral turpitude or
which is otherwise materially injurious to the business or
reputation of the Corporation.
2.4 Notwithstanding the provisions of Section 2.1 hereof, the
Employee may terminate this Agreement upon the willful and material
breach of this Agreement by the Corporation or upon a material
change by the Corporation without the consent of the Employee in
the Employee's functions, duties or responsibilities which would
cause the Employee's position with the Corporation to become of
materially less dignity, responsibility, importance or scope. In
such event, the Employee shall be treated as if he had been
terminated by the Corporation Without Cause, and he shall be
entitled to the severance amount and benefits described in Section
2.2 and, upon a Change in Control, the put described in Section
3.6.
2.5 Notwithstanding the provisions of Section 2.1 hereof, the
Employee may terminate this Agreement at any time without cause
upon thirty (30) days prior written notice to the Corporation.
From the date of termination, the Employee shall have no further
rights to any compensation or benefits under this Agreement
(including but not limited to the severance payments or other
benefits described in Section 2.2 or the put described in Section
3.6). Upon receiving such notice of termination from the Employee,
the Corporation shall have the right to terminate the employment of
the Employee at any time prior to the expiration of the thirty-day
notice period, in which event the Employee shall have no rights to
any further compensation or benefits under this Agreement from and
after the date of termination.
3. Compensation
------------
3.1 The Corporation shall pay to the Employee for his
services hereunder a salary at the rate of $80,000 per annum,
payable in equal installments (subject to withholding) in
accordance with the Corporation's regular payroll schedule. Such
salary as in effect from time to time may be increased as
determined by the Board of Directors in its sole discretion. The
salary payable to the Employee any time hereunder shall not be
decreased. The Corporation may also pay to the Employee a cash
bonus from time to time as and when appropriate.
3.2 The Employee shall be entitled to participate in, and
receive benefits from, any insurance, medical, dental, health and
accident, hospitalization, disability, or other employee benefit
plan of the Corporation which may be in effect at any time during
the course of his employment by the Corporation and which is
generally available to executives of the Corporation (these
benefits, along with the benefits in Section 3.3, being referred to
as the Employee's "Executive Benefits").
3.3 The Employee shall be entitled to participate in any
stock purchase, pension, Section 401(k) plan (to the extent
permitted by applicable law), profit sharing, defined contribution,
deferred compensation, stock bonus, stock option, cash bonus or
other incentive compensation plan or plans (i) which may be in
effect from time to time during the course of his employment by the
Corporation and which are generally available to executives of the
Corporation or (ii) as the Board of Directors determines. In
addition, the Corporation may provide, in its sole discretion, an
automobile or an automobile allowance to the Employee upon such
terms as determined by the Board of Directors, and shall bear the
cost of an annual medical physical examination for the Employee
each calendar year.
3.4 The Corporation shall reimburse the Employee for all
reasonable and necessary business expenses incurred by him on
behalf of the Corporation in the course of his duties hereunder
upon the presentation by the Employee of appropriate documentation
substantiating the amount of and purpose for which such expenses
were incurred.
3.5 The Employee shall be entitled to two (2) weeks paid
vacation in each calendar year, which vacation shall be taken at
times consistent with the performance by the Employee of his
obligations hereunder. Any vacation time not fully used by the
Employee in any one (1) calendar year may be carried over for one
(1) additional calendar year. If any such vacation time is carried
over to a subsequent calendar year, then any vacation time taken in
the subsequent calendar year shall be applied first against the
carryover vacation time from the prior calendar year.
3.6 (a) This Section 3.6 shall remain in effect so long as
the Employee remains employed hereunder by the Corporation and for
one year subsequent to the Employee's termination Without Cause,
but shall not be operative unless and until there has been a Change
in Control, as defined in Section 6.4 hereof. Upon such a Change
in Control, this Section 3.6 shall become operative immediately.
(b) If a Change in Control (as defined in Section 6.4)
occurs (i) while the Employee is employed by the Corporation
hereunder, or (ii) subsequent to the termination of the Employee's
employment hereunder by the Corporation Without Cause and prior to
the first anniversary of such termination, the Employee may, in his
sole discretion, within twelve (12) months after the date of the
Change in Control, give notice to the Corporation that he intends
to elect to exercise his rights under this Section 3.6, which
notice shall specify the number of shares of the Corporation's
common stock, par value $0.025 per share (the "Stock"), that the
Employee is electing to have the Corporation purchase pursuant to
Section 3.6(c), which number of shares of Stock shall in no event
exceed 50% of the shares of Stock beneficially owned by the
Employee (the "Notice of Intention"). Within thirty (30) days
after the Corporation's receipt of the Notice of Intention, the
Corporation shall provide written notice to the Employee setting
forth the Corporation's computation of the amount of the per share
Stock purchase price that would be payable pursuant to
subsection (c) of this Section 3.6, accompanied by the written
opinion of the Corporation's independent certified public
accountants confirming the Corporation's computation. If the
Employee takes exception to the Corporation's computation of such
amount, the Employee may (but shall not be prejudiced in his right
to later contest the amount actually paid by failing to do so) give
a further written notice to the Corporation setting forth in
reasonable detail the Employee's exceptions to the Corporation's
computation, accompanied by the written opinion of the Employee's
tax advisor confirming the basis for such exceptions. Exercise by
the Employee of his rights pursuant to this Section 3.6 shall only
be made by giving further notice thereof to the Corporation (the
"Notice of Exercise") within six (6) months from the date of the
Notice of Intention.
(c) If the Employee gives the Notice of Exercise
described in Section 3.6(b) to the Corporation, the Corporation
shall purchase from the Employee the number of shares of Stock
indicated in the Notice of Intention, provided that in no event
shall the Corporation be required to purchase more than fifty
percent (50%) of the shares of Stock beneficially owned by the
Employee (which amount shall be appropriately adjusted in the event
of a reclassification, recapitalization, split-up, combination,
exchange of shares, stock dividend, etc.), at a per share price
determined under Exhibit "A" hereto. The Corporation shall, within
five (5) business days after the date of the Notice of Exercise,
deliver to the Employee a certified or cashier's check in the
amount payable pursuant to this Section 3.6(c) in exchange for the
number of shares of Stock indicated in the Notice of Intention
(duly endorsed for transfer to the Corporation).
(d) Without limiting Section 2.5, the Employee shall not
be entitled to the put right described in this Section 3.6 in the
event that the Employee terminates this Agreement without cause.
4. Disability or Death.
-------------------
4.1 Notwithstanding Section 2.1, if, during the period of
employment hereunder, because of illness or other physical or
mental incapacity, the Employee shall fail for a period of one
hundred twenty (120) consecutive days to render the services
required hereunder, then the Corporation, at its option, may
terminate this Agreement by notice from the Corporation to the
Employee, effective on the giving of such notice. In the event of
such termination, the Corporation shall continue to pay to the
Employee his then current salary for a period of ninety (90) days
after such termination. In the event that the Employee's disability
prevents his return to full-time employment, the Corporation shall
pay to the Employee, following the 90 days, seventy-five percent
(75%) of his current salary (at the date of his disability) for the
following six (6) months, fifty percent (50%) of his current salary
(at the date of his disability) for the ensuing six months, and
twenty-five percent (25%) of his current salary (at the date of his
disablity)for a final six month period, and, to the extent
permitted by the applicable benefit arrangement or plan, shall
permit the Employee to retain for such period the benefit
arrangements, and to continue to participate for such period in the
benefit plans referred to in Section 3 hereof in which he is
participating at the time of such termination. However, the
Corporation shall not have the right to terminate the employment of
the Employee hereunder if, at the time the Corporation gives notice
of termination to the Employee, the Employee has then again begun
to render services for the Corporation as required hereunder.
4.2 Notwithstanding Section 2.1, in the event of the Death of
the Employee during the term hereof, his employment hereunder shall
terminate on the date of Death, however, in the event the Employee
dies while on Corporation business or during business related
travel, the Corporation shall pay to his surviving spouse his then
current salary and medical benefits for a period of six (6) months
following the death of the Employee.
5. Other Activities During Employment.
----------------------------------
5.1 During the term of his employment by the Corporation,
neither the Employee nor any entity in which he may be interested
as a partner, member, manager, trustee, director, officer,
employee, shareholder, option holder, lender of money or guarantor,
shall engage directly or indirectly in any business competitive
with that of the Corporation; provided, however, that the foregoing
shall not be deemed to prevent the Employee from investing in
securities of any company having a class of securities which is
publicly traded, so long as such investment holdings do not, in the
aggregate, constitute more than 5% of any class of such company's
securities. Without limiting the generality of the foregoing, a
business or a company may be deemed to be competitive with the
Corporation if 10% or more of its gross revenues are derived,
directly or indirectly, from the design, marketing, sale,
licensing, or servicing of educational microcomputer software or
CD-ROM titles.
5.2 The Employee shall not at any time during the term of
this Agreement or after the termination hereof directly or
indirectly divulge, furnish, use, publish or make accessible to any
person or entity any Confidential Information (as hereinafter
defined). Any Confidential Information prepared by the Employee or
which come into the Employee's possession during this Agreement are
and remain the property of the Corporation and, upon termination of
the Employee's employment, all such records and copies thereof
shall be either left with or returned to the Corporation.
5.3 The term "Confidential Information" shall mean
information disclosed to the Employee or known, learned, created or
observed by him as a consequence of or through his employment by
the Corporation, not generally known in the relevant trade or
industry, about the Corporation's business activities, products,
customers, suppliers, services and procedures, including, but not
limited to, information concerning costs, product performance,
customer requirements, advertising, sales promotion, publicity,
sales data, research, finances, accounting, methods, procedures,
trade secrets, business plans, client, supplier or distributor
lists and records, potential client, supplier or distributor lists,
and client, supplier or distributor billings. Notwithstanding the
foregoing, "Confidential Information" shall not include information
publicly disclosed by the Corporation or known by the Employee
prior to the inception of the Corporation.
6. Post-Employment Activities.
--------------------------
6.1 For a period of six (6) months after termination of his
employment by the Corporation, except (i) a termination subsequent
to a Change in Control of the Corporation, as defined herein,
(ii) a termination by the Employee under Section 2.4 above, or
(iii) a termination by the Corporation Without Cause, neither the
Employee, nor any entity or business in which he may be interested
as a partner, member, manager, trustee, director, officer,
employee, shareholder, option holder, lender or guarantor, shall
engage directly or indirectly in any business competitive with that
of the Corporation; provided, however, that the foregoing shall not
be deemed to prevent the Employee from investing in securities
which are publicly traded, so long as such investment holdings do
not, in the aggregate, constitute more than 5% of any class of such
company's securities. Without limiting the generality of the
foregoing, a business or a company may be deemed to be competitive
with the Corporation if 10% or more of its gross revenues are
derived, directly or indirectly, from the design, marketing, sale,
licensing, or servicing of educational microcomputer software or
CD-ROM titles.
6.2 The Employee acknowledges that he has been employed for
his special talents and that his leaving the employ of the
Corporation would seriously and adversely affect the business of
the Corporation. In addition to all remedies permitted by law or
in equity and without limiting any injunctive or other relief to
which the Corporation may be entitled in respect of any obligation
of the Employee, the Corporation shall be entitled to injunctive
relief to enforce the provisions of Sections 5 and 6 hereof;
provided, that the Corporation shall not be entitled to injunctive
relief with respect to Section 6.1 hereof if at the time such
relief is sought the Corporation is failing to make payments to the
Employee which it is required to make pursuant to the terms hereof.
6.3 The Employee will not, during the period of six (6)
months after termination of his employment by the Corporation,
except (i) a termination subsequent to a Change in Control, as
defined below, (ii) a termination by the Employee under Section 2.4
above, or (iii) a termination by the Corporation Without Cause,
either in the Employee's individual capacity or as agent for
another, hire or offer to hire or entice away any person who has
been an officer, employee, or agent of the Corporation at any time
during the immediately preceding year or in any other manner
persuade or attempt to persuade any of such persons to discontinue
their relationship with the Corporation nor divert or attempt to
divert from the Corporation any business whatsoever by influencing
or attempting to influence any customer, supplier or distributor of
the Corporation to diminish or discontinue his or its business with
the Corporation.
6.4 For the purposes of this Agreement, a Change in Control
shall be deemed to have occurred if (i) there shall be consummated
(a) any consolidation or merger of the Corporation in which the
Corporation is not the continuing or surviving corporation or
pursuant to which shares of the Corporation's capital stock are
converted into cash, securities or other property (other than a
merger in which the holders of the Corporation's capital stock
immediately prior to the merger have the same proportionate
ownership of capital stock of the surviving corporation immediately
after the merger), or (b) any sale, lease, exchange or other
transfer (whether in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the
Corporation, or (ii) any person (as such term is defined in Section
13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), other than John D. Garber or his
affiliates, shall become the beneficial owner (within the meaning
of Regulation 13D under the Exchange Act) of more than twenty-five
(25%) of the Corporation's then outstanding capital stock, or (iii)
a change of control of a nature that would be required to be
reported in response to Item 6(e) of Schedule 14A of Regulation 14A
promulgated under the Exchange Act.
7. Assignment. This Agreement shall not be assignable by
the Corporation except (i) to a corporation or other entity
controlling, controlled by or under common control with the
Corporation, or (ii) to a successor to all or substantially all of
the business of the Corporation. This Agreement shall inure to the
benefit of and be binding upon the Corporation, its permitted
successors and permitted assigns, and upon the Employee and his
heirs, executors, administrators and legal representatives. This
Agreement shall not be assignable by the Employee.
8. Notices. All notices under this Agreement shall be in
writing and shall be deemed to have been given at the time when
mailed by registered or certified mail, addressed to the address
below of the party to which notice is given, or to such changed
address as such party may have fixed by notice:
To the Corporation: The American Education Corporation
------------------ 7506 North Broadway
Oklahoma City, Oklahoma 73116
To the Employee: Neil R. Johnson
--------------- 6500 N.W. Grand Blvd. #136
Oklahoma City, Oklahoma 73116
9. Entire Agreement. This Agreement contains and
constitutes the entire agreement between the parties herein and
supersedes all prior agreements and understandings between the
parties hereto relating to the subject matter hereof.
10. Applicable Law. This Agreement shall be construed,
enforced and governed in accordance with the laws of the State of
Oklahoma.
11. Invalidity. If any provision contained in this Agreement
shall for any reason be held to be invalid, illegal, void or
unenforceable in any respect, such provision shall be deemed
modified so as to constitute a provision conforming as nearly as
possible to such invalid, illegal, void or unenforceable provision
while still remaining valid and enforceable, and the remaining
terms or provisions contained herein shall not be affected thereby.
12. Dispute Resolution. Except with respect to the rights of
the Corporation to obtain equitable relief under Sections 5 and 6
hereof, any dispute arising in any way out of this Agreement and
which cannot be resolved by good faith negotiations between the
parties within thirty (30) days after either party shall have
notified the other party in writing of his or its desire to
arbitrate the dispute shall be submitted to and settled through
binding arbitration in accordance with the rules of the American
Arbitration Association as from time to time in effect. The
arbitration proceedings shall be conducted by a sole arbitrator who
shall be an attorney with not less than ten (10) years experience
in commercial law. All disputes or claims of the parties subject
to arbitration shall be consolidated into a single arbitration
proceeding. The arbitration proceedings shall be conducted in
Oklahoma City, Oklahoma. The award or determination of the
arbitrator shall be final and binding upon all parties and shall be
subject to enforcement in any court of competent jurisdiction. The
arbitrator shall have the authority to award costs and expenses of
arbitration to either party as the arbitrator sees fit.
13. Approvals and Consents Must Be in Writing. Whenever this
Agreement calls for the consent, vote, or approval of any person,
such consent, vote, or approval shall be effective only if it is in
writing and signed by or on behalf of the party who is granting
such consent, vote, or approval unless the circumstances clearly
indicate that a writing is not required to evidence such consent,
vote, or approval.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the 5th day of December, 1998.
CORPORATION: THE AMERICAN EDUCATION CORPORATION
/s/ Jeffrey E. Butler
----------------------------------
Jeffrey E. Butler, President
EMPLOYEE: /s/ Neil R. Johnson
----------------------------------
Neil R. Johnson
EXHIBIT "A"
The per share price for purposes of Section 3.6(c) shall
be the greater of (i) the price per share paid that
caused the Change of Control or (ii) the average closing
price for the 90 consecutive trading days preceding the
date of the Notice of Intention .
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Jeffrey E. Butler, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of The
American Education Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based upon such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls over financial reporting.
Date: August 15, 2005
/s/ Jeffrey E. Butler
- ----------------------
Signature
Title: Chief Executive Officer
Exhibit 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Neil R. Johnson, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of The
American Education Corporation;
2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this report;
4. The registrant's other certifying officers and I are responsible
for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made
known to us by others within those entities, particularly during
the period in which this report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based upon such evaluation; and
c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls over financial reporting.
Date: August 15, 2005
/s/ Neil R. Johnson
- --------------------
Signature
Title: Chief Financial Officer
Exhibit 32.1
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-QSB of The
American Education Corporation (the "Company") for the period ended
June 30, 2005 as filed with the Securities and Exchange Commission
on the date hereof (the "Report"), I, Jeffrey E. Butler, Chief
Executive Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to my knowledge:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of the operations
of the Company.
By: /s/ Jeffrey E. Butler
---------------------
Jeffrey E. Butler
Chief Executive Officer
August 15, 2005
Exhibit 32.2
CERTIFICATION BY CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-QSB of The
American Education Corporation (the "Company") for the period ended
June 30, 2005 as filed with the Securities and Exchange Commission
on the date hereof (the "Report"), I, Neil R. Johnson, Chief Financial
Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to my knowledge:
(1) The Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of the operations
of the Company.
By: /s/ Neil R. Johnson
-------------------
Neil R. Johnson
Chief Financial Officer
August 15, 2005