U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended July 27, 1996
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from to
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Commission file number 0-9922
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AMERICAN ELECTROMEDICS CORP.
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(Name of Small Business Issuer in Its Charter)
Delaware 04-2608713
------------------------- -------------------------
(State of Incorporation (I.R.S. Employer
or Organization) Identification No.)
13 Columbia Drive, Suite 18, Amherst, New Hampshire 03031
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(Address of principal executive offices) (Zip Code)
(603) 880-6300
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(Issuer's telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.10 PAR VALUE
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Title of Class
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months, and (2) has been subject to such filing requirements for the past
90 days. [X] YES [ ] NO
Check if there is no disclosure of delinquent filers in response to item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X]
As of October 22, 1996, there were 12,291,333 shares of Common Stock
outstanding and the aggregate market value of such Common Stock (based upon
the closing bid price on such date) of the Registrant held by non-
affiliates was approximately $6,060,000.
Revenues for the fiscal year ended July 27, 1996 totaled $3,337,000.
Documents incorporated by reference: None.
<PAGE>
ITEM 1. DESCRIPTION OF BUSINESS
-----------------------
THE COMPANY
-----------
American Electromedics Corp. (the "Company") is principally
engaged in the manufacture and sale of medical testing equipment. A major
part of the business is currently based on the manufacture and sale of
Tympanometers(R). The name Tympanometer(R) is a registered trademark of
the Company. The Tympanometer(R), an automatic impedance audiometer, is a
medical diagnostic instrument which, by applying a combination of air
pressure and sound to the ear drum, identifies diseases and disorders of
the middle ear which are not revealed by standard hearing tests. The
Company also manufactures and sells audiometers which use sound at
descending decibel levels to screen for hearing loss.
In August 1994, the Company completed the design process and
began production of the Pilot(TM) Audiometer. In September 1995, the
Company presented its newest product, the Race Car(TM) Tympanometer, which
is directed for use in screening pre-school children for hearing disorders.
In the Fall of 1995 the Company decided to increase its presence
in the European market. Efforts were made to identify opportunities which
would result in greater market penetration for its current product line as
well as increased exposure to potential manufacturing partners or joint
ventures.
In January 1996, the Company purchased a fifty (50%) percent
interest in Rosch GmbH Medizintechnik, a German corporation ("Rosch GmbH").
Rosch GmbH is a marketing and distribution company based in Berlin, Germany
specializing in the distribution of healthcare products, including the
Company's products, to primary care physicians in Europe. This
relationship resulted in a 50% increase in exports to Europe and an overall
37% increase in fiscal 1996 revenues.
TYMPANOMETRY
------------
The impedance audiometer is used to perform a series of
diagnostic tests of the hearing process. The instrument tests the response
of the middle ear muscle to sound stimulus, the functioning of the nerve
endings which transmit the hearing message to the brain, and the
functioning of the middle ear to determine the presence of any disease.
The test of the middle ear to detect disease is called "tympanometry."
Tympanometry detects middle ear diseases regardless of whether such
diseases result in a hearing loss. Certain types of middle ear diseases
may not initially cause hearing loss and, consequently, cannot be
discovered or diagnosed in their early stages by standard hearing tests.
By the time those diseases cause discernible hearing loss, the damage to
the ear may be extensive and often irreparable. Early detection through
the use of tympanometry permits treatment which, in many cases, can reverse
or ameliorate the effects of the disease.
TYMPANOMETER(R)
------------
The Company recognized that tympanometry had applications beyond
the use of the ear specialists and could be used in the recognition and
diagnosis of ear disorders by other practitioners if an instrument was
developed which was fully automated and produced results which were easily
interpreted. Consequently, in 1977, the Company introduced a Company-
designed impedance audiometer called the Tympanometer(R). The
Tympanometer(R) has a rubber tipped probe which is placed against the ear
canal for a three second procedure that applies sound and air pressure to
the ear drum and produces a graphic (hard copy) representation of the
middle ear function. Family practitioners, pediatricians and allergists
confront, on a daily basis, problems affecting the middle ear. The
principal method of determining the nature of the middle ear problem is
through a visual impression obtained with the assistance of a hand-held
instrument that is placed in the patient's ear. The graphic result
provided by the Tympanometer(R) eliminates the uncertainties which may
result from visual examination. The person administering the
Tympanometer(R) test, who may be a physician, school nurse or other health
care professional, can determine from the graph whether the ear condition
is caused by an infection, a perforation of the ear drum, a retraction of
the ear drum or other pathological condition, and can treat the condition
or refer the patient to the appropriate specialist.
The Company manufactures and sells four different models of
Tympanometers(R).
PILOT(R) AUDIOMETER
-------------------
In August 1994, the Company completed the design process and
began production of an audiometer which facilitates the testing for hearing
loss in very young children. The Pilot(TM) Audiometer performs "select
picture" and puretone audiometry and is particularly useful in screening
young children for hearing loss because it is as simple as identifying
pictures. A test board with twelve easily identifiable pictures is
displayed within reach of the child, who is outfitted with a headset
connected to an audiometer. The child is then asked, through the headset,
to identify ten pictures presented at eight descending decibel levels.
Select picture audiometry is a technique developed by the Mayo Clinic in
the 1960s and has been used by audiologists for decades. Using new digital
voice chip technology, the Company has automated the procedure so that it
can be used simply and efficiently in a primary care or screening
environment. Since its introduction, the Pilot(TM) Audiometer has
continued to receive favorable response from the market. Sales increased
in fiscal 1996 as a result of continued market penetration.
RACE CAR TYMPANOMETER(R)
---------------------
In fiscal 1996, the Company introduced the Race Car
Tympanometer(R) to the marketplace. The Race Car Tympanometer(R) is
designed to test for middle ear disease in young children using up-dated
graphics for visual distraction of the child during testing.
QUIK TYMP(TM) TYMPANOMETER
--------------------------
In September 1996, the Company presented the new Quik Tymp(TM)
Tympanometer line at the Health Industry Distributors Association (HIDA)
Meeting. The Quik Tymp(TM) Tympanometer tests for middle ear disease in
children and adults. This easy to use unit features the Company's "Little
Car" visual distraction for testing children and the traditional graph
display for adults. The Quik Tymp(TM) can include the option of a built-in
pure tone audiometer. Marketing is to commence in the second quarter of
fiscal 1997.
MARKETING
---------
The market for the Company's products includes physicians,
particularly those in medical specialties such as pediatrics, allergy
medicine, family practice, otolaryngology and otology (the latter two
specialties deal with diseases of the ear).
The Company's products are marketed mainly through independent
regional dealers both domestically and internationally who sell principally
hearing related health care products. These dealers are retained on a non-
exclusive, best efforts basis. The Company also distributes its products
throughout Europe using its new 50%-owned affiliate Rosch GmbH. For fiscal
1996, Rosch GmbH accounted for 41% of the Company's total sales, having
accounted for 15% and 21% of the total sales for the prior two fiscal
years.
The Company participates in exhibitions at major medical,
educational and public health conventions. It also advertises its products
domestically and internationally in journals for pediatricians, allergists,
otolaryngologists, otologists and family practitioners and also for
schools, public health clinics and HMOs.
PRODUCT WARRANTY
----------------
All Company products are sold with a one year warranty against
defects in parts and workmanship. The Company repairs, at no charge,
defects covered by the warranty if the instrument is returned to the
Company's factory in Amherst, New Hampshire or to an authorized factory
service station. If the repair is performed at the customer's office,
there is no charge for warranty work. The Company believes that it has no
warranty problem with its products.
MATERIALS
---------
The principal materials purchased by the Company in the manufacture of
Tympanometers are electronic components, pumps and metal stamped parts.
All of these materials are readily available from a number of sources in
the quantities required. The graph paper and accessories sold for use with
the Company's instruments are purchased by the Company from suppliers and
resold to the Company's customers.
BACKLOG
-------
The Company's total backlog as of July 27, 1996 was $270,000 as
compared to total backlog as of July 29, 1995 of $323,000
PRODUCT DEVELOPMENT
-------------------
The Company is continually engaged in product development. As
mentioned, the Quik Tymp(TM) Tympanometer was introduced in fiscal 1997.
The Company is currently exploring new product opportunities both in
audiometrics and also in other lines. In fiscal 1996, the Company expended
$215,000 for research and development. It expects to continue to incur
research and development costs in fiscal 1997 dependent upon the success of
the development activities and available funds.
GOVERNMENT REGULATION
---------------------
Amendments enacted in 1976 to the Federal Food, Drug, and Cosmetic
Act, and regulations issued or proposed thereunder, provide for regulation
by the Food and Drug Administration ("FDA") of the marketing, manufacture,
labeling, packaging and distribution of medical devices, including the
Company's products. Among those regulations are requirements that medical
device manufacturers register with the FDA, list devices manufactured by
them and file various reports. The Company believes it is in substantial
compliance with applicable regulations. Certain requirements must be met
prior to the initial marketing of medical devices. These range from a
minimum obligation to wait 90 days after notification to the FDA before
introduction of medical devices substantially similar to devices already on
the market to a maximum obligation to comply with the potentially expensive
and time consuming process of testing necessary to obtain FDA clearance
prior to the commercial marketing of new medical devices. The Company has
not experienced any significant difficulty or expense in complying with the
requirements imposed on it by the FDA or other government agencies. In
addition, the Company believes that the manufacturing and quality control
procedures it employs conform to requirements of the FDA's "Good
Manufacturing Practice for Medical Devices" regulation and does not
anticipate having to make any material expenditures as a result of these
requirements.
The Company believes that any future products it may introduce will be
substantially similar to medical devices already in the marketplace.
Therefore, these products would require no more than 90 days prior notice
to the FDA.
The various environmental laws are not material to the Company's
business.
COMPETITION
-----------
There has been some recent consolidation among the Company s major
competitors, which has resulted in some price erosion. The major
competitive factors are price, utilization of latest technology and ease of
use. In fiscal year 1996, the Company completed the redesign of its
Tympanometer(R) line to take advantage of more cost effective technology
and to address customer needs.
PATENTS
-------
The Company does not hold any patents. It has registered trademarks
and copyrights for names which it believes are important to its business.
EMPLOYEES
---------
At July 27, 1996, the Company had 13 employees, of which 4 were
management or administrative personnel, 4 were engaged in sales activities,
and 5 were engaged in manufacturing and service related activities. In
addition, when necessary, the Company uses independent engineering
consultants for design support and new product development.
None of the Company's employees are covered by collective bargaining
agreements. The Company considers its employee relations to be
satisfactory.
ITEM 2. PROPERTIES
----------
All of the Company's operations are located in Amherst, New Hampshire
in facilities containing 4,000 square feet leased to the Company for a term
which expires in March 1997, at an annual net rental of $13,500. The
Company believes that these facilities are adequate for its current
business needs.
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no pending material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
----------------------------------
SECURITY HOLDERS
----------------
None.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY
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AND RELATED STOCKHOLDER MATTERS
-------------------------------
PRINCIPAL MARKET AND SALES PRICES FOR COMPANY'S COMMON STOCK
------------------------------------------------------------
The Common Stock of the Company is traded in the over-the-counter
market on the Electronic Bulletin Board under the symbol AECO. The
following table sets forth for the indicated periods the high and low bid
prices of the Common Stock for the two fiscal years ended July 27, 1996.
FISCAL PERIOD FISCAL YEAR ENDED FISCAL YEAR ENDED
------------- ----------------- -----------------
HIGH LOW HIGH LOW
---- --- ---- ---
First Quarter $ 3/4 $17/32 $ 5/16 $ 3/16
Second Quarter 13/16 15/32 1/4 1/8
Third Quarter 11/16 17/32 11/32 1/8
Fourth Quarter 1-13/16 27/32 11/16 5/32
At the annual meeting of stockholders held on October 8, 1996, the
stockholders authorized the Board of Directors to effect a reverse stock
split (any one falling within a range between and including a one-for-one
and one-half and a one-for-five) of the outstanding Common Stock and also
authorized an increase in the number of authorized shares of Common Stock
to 30,000,000 in the event the Board of Directors cannot or determines that
it will not effect a reverse stock split. Should the Board of Directors
determine to effect a reverse stock split, the market prices for the Common
Stock would be adjusted.
APPROXIMATE NUMBER OF HOLDERS OF COMPANY'S COMMON STOCK
-------------------------------------------------------
As of October 22, 1996, there were approximately 110 stockholders of
record of the Company's Common Stock. The Company believes that a
substantial amount of shares are held in nominee name for beneficial
owners.
DIVIDENDS
---------
The Company has never paid any cash dividends on its Common Stock and
its Board of Directors has no present intention of declaring any cash
dividends in the foreseeable future.
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
---------------------------------------------------------
RESULTS OF OPERATIONS
Net sales were $3,337,000 for the fiscal year ended July 27, 1996
("Fiscal 1996") compared to $2,443,000 during fiscal year ended July 29,
1995 ("Fiscal 1995"). The $894,000 increase in sales is a result of the
Company's aggressive marketing efforts for its new Race Car Tympanometer(R)
along with the continued market penetration of the Company's other product
lines, including the Pilot(R) Audiometer introduced in 1995. The Company
is also selling its products throughout the European Community using its
new 50%-owned German medical products distribution affiliate, Rosch GmbH.
This strategic investment was made in January 1996.
Net income for Fiscal 1996 was $442,000, or $.04 per share, compared
to $172,000, or $.02 per share, for Fiscal 1995. The overall increase in
profits in Fiscal 1996 was primarily the result of a 37% increase in net
sales along with a more favorable sales mix due to the introduction of the
Race Car Tympanometer(R).
Cost of sales, as a percentage of net sales, for Fiscal 1996 was 49.5%
versus 56.1% for Fiscal 1995. The decrease in cost as a percentage of
sales can be attributed to favorable product mix.
Selling, general and administrative (SG&A) expenses along with
research and development (R&D) expense increased. The Company attributes
the increase in SG&A expenses to increased sales and promotional activity
and corporate development expense during Fiscal 1996. The Company
increased R&D expenditures in Fiscal 1996 to $215,000 compared to $182,000
in Fiscal 1995 in preparation for the release of its new Quik Tymp(TM)
Tympanometer along with other products under development.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Working capital of the Company at July 27, 1996 was $906,000, compared
to $915,000 at July 29, 1995. The decrease of $9,000 during 1996 was due
primarily to the Company's investment in the Rosch GmbH and offset by
proceeds from the term loan and line of credit.
The Company has a revolving bank line of credit in the amount of
$300,000 with interest payable monthly at Wall Street Journal Prime Rate
plus .5%. Borrowings are collateralized by essentially all the assets of
the Company. As of July 27, 1996, there was $300,000 outstanding under the
revolving line of credit. In October 1996, this bank facility was amended
to increase the line of credit to $400,000 and to provide a $500,000 term
loan upon the Company raising an additional $700,000 in equity and/or
subordinated debentures.
During Fiscal 1996, the Company invested its working capital in
further enhancement and redesign of its Tympanometer line, in the
introduction and marketing of its new products and in its sales, marketing
and service programs.
Currently, the Company has sufficient working capital from cash and
profits to fund its present operations. The Company is considering future
growth through acquisitions of companies or business segments in related
lines of business or other lines of business, as well as through expansion
of the existing line of business. In this connection, the Company is
seeking to raise additional capital through the issuance of convertible
debt and sale of capital stock in a private placement. There is no
assurance that management will find suitable acquisition candidates or
effect the necessary financial arrangements, or that a private placement
would not be dilutive to existing stockholders.
SELECTED FINANCIAL DATA
-----------------------
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SUMMARY OF OPERATIONS 7/27/96 7/29/95 7/30/94 7/31/93
--------------------- ------- ------- ------- -------
Net sales $3,337 $2,443 $1,965 $2,358
Income (loss) before
provision for taxes &
extraordinary items 467 184 61 203
Net income (loss) 442 172 57 399
Net income (loss) per share .04 .02 .01 .05
Weighted average
common & equivalent
shares 12,469,273 11,192,419 9,168,333 7,973,258
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------------------------------------------
SUMMARY OF OPERATIONS 8/01/92
--------------------------- -------
Net sales $1,635
Income (loss) before
provision for taxes &
extraordinary item (421)
Net income (loss) (421)
Net income (loss) per share (.06)
Weighted average
common & equivalent
shares 7,464,261
---------------------------------------------
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Financial Position 7/27/96 7/29/95 7/30/94 7/31/93 8/01/92
------------------ ------- ------- ------- ------- -------
Total assets $2,771 $1,513 $899 $1,023 $981
Working capital 906 915 485 402 (47)
Long-term debt 94 0 4 0 111
Stockholders' equity 1,948 1,196 771 704 179
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Note: In thousands, except for share and per share amounts.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
--------------------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Page
Reports of Independent Auditors . . . . . . . . . . . . . . . . . . . . 10
Balance Sheets, July 27, 1996 and July 29, 1995 . . . . . . . . . . . . 12
Statements of Income for the Years Ended
July 27, 1996, July 29, 1995 and July 30, 1994. . . . . . . . . . . . 13
Statements of Changes in Stockholders Equity
for the Years Ended July 27, 1996, July 29, 1995
and July 30, 1994. . . . . . . . . . . . . . . . . . . . . . . . . . 14
Statements of Cash Flows for the Years Ended
July 27, 1996, July 29, 1995 and July 30, 1994. . . . . . . . . . . . 15
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP]
Report of Independent Auditors
To the Board of Directors and Stockholders
American Electromedics Corp.
We have audited the accompanying balance sheets of American Electromedics
Corp., as of July 27, 1996 and July 29, 1995, and the related statements of
income, stockholders' equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Electromedics
Corp. at July 27, 1996 and July 29, 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles
/s/ Ernst & Young LLP
October 7, 1996
<PAGE>
INDEPENDENT AUDITORS'S REPORT
The Stockholders
American Electromedics Corp.
We have audited the accompanying balance sheet of American Electromedics
Corp. as of July 30, 1994, and the related statements of operations,
stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of American Electromedics
Corp. as of July 30, 1994, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ Smith, Batchelder & Rugg
Manchester, New Hampshire
September 28, 1994
<PAGE>
AMERICAN ELECTROMEDICS CORP.
BALANCE SHEETS
July 27, 1996 July 29, 1995
------------- -------------
(Thousands)
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . $ 317 $ 505
Accounts receivable, net of allowance of
$11,000:
Trade. . . . . . . . . . . . . . . . 303 431
Affiliate. . . . . . . . . . . . . . . 402 -
------- -------
705 431
Inventories . . . . . . . . . . . . . . . 480 267
Prepaid and other current assets . . . . 133 29
------- -------
Total current assets 1,635 1,232
Property and Equipment:
Machinery and equipment . . . . . . . . . 318 302
Furniture and fixtures . . . . . . . . . 79 78
Leasehold improvements . . . . . . . . . 9 9
------- -------
406 389
Accumulated depreciation . . . . . . . . (365) (338)
------- -------
41 51
Investment in affiliate . . . . . . . . . 876 -
Goodwill . . . . . . . . . . . . . . . . 219 230
------- -------
$ 2,771 $ 1,513
======= =======
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable . . . . . . . . . . . . $ 324 $ 290
Bank line of credit . . . . . . . . . . . 300 -
Accrued liabilities . . . . . . . . . . . 38 23
Current portion of long-term debt . . . . 67 4
------- -------
Total current liabilities . . 729 317
Long-term debt . . . . . . . . . . . . . 94 -
Stockholders' Equity:
Preferred stock, $.01 par value;
Authorized- 1,000,000 shares;
Outstanding-none . . . . . . . . . . . - -
Common stock, $.10 par value; Authorized-
20,000,000 shares; Outstanding -
12,273,333 and 11,718,333 shares in
1996 and 1995, respectively . . . . . 1,227 1,172
Additional paid-in capital . . . . . . . 1,801 1,546
Retained deficit . . . . . . . . . . . . (1,080) (1,522)
------- -------
Total stockholders' equity 1,948 1,196
------- -------
$ 2,771 $ 1,513
======= =======
See accompanying notes.
<PAGE>
AMERICAN ELECTROMEDICS CORP.
STATEMENTS OF INCOME
Years Ended
-------------------------------------
July 27, July 29, July 30,
1996 1995 1994
-------- -------- --------
(Thousands, except per share amounts)
Net sales . . . . . . . . . . . . $3,337 $2,443 $1,965
Cost of goods sold . . . . . . . 1,652 1,371 1,249
----- ------ ------
Gross profit . . . . . . . . . 1,685 1,072 716
Selling, general and
administrative . . . . . . . . . 1,039 719 539
Research and development . . . . 215 182 114
------ ------ ------
Total operating expenses . . . 1,254 901 653
------ ------ ------
Operating income . . . . . . . . . 431 171 63
------ ------ ------
Other income (expenses):
Undistributed earnings of
affiliate . . . . . . . . . 52 - -
Interest, net . . . . . . . . (16) 9 2
Other . . . . . . . . . . . . - 4 (4)
------ ------ ------
36 13 (2)
Income before provision for
income taxes . . . . . . . . . 467 184 61
Provision for income taxes . . . . 25 12 4
------ ------ ------
Net Income . . . . . . . . . . . $ 442 $ 172 $ 57
====== ====== ======
Earnings per common and $ .04 $ .02 $ .01
common equivalent share . . . ====== ====== ======
See accompanying notes.
<PAGE>
AMERICAN ELECTROMEDICS CORP.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 27, 1996, JULY 29, 1995 AND JULY 30, 1994
Total
Common Stock Additional Stock-
-------------- Paid-in Retained holders'
Shares Amount Capital Deficit Equity
------ ------ ---------- -------- --------
(Thousands)
Balance at
July 31, 1993 9,093 $ 909 $1,546 $(1,751) $ 704
Conversion of
convertible
debentures . . 100 10 - - 10
Net income . . . - - 57 57
------ ------ ------ ------ ------
Balance at
July 30, 1994 9,193 919 1,546 (1,694) 771
Exercise of stock
options . . . 2,525 253 - - 253
Net income . . . - - 172 172
------ ------ ------ ------ ------
Balance at
July 29, 1995 11,718 1,172 1,546 (1,522) 1,196
Investment in
affiliate . . 500 50 250 - 300
Exercise of
stock options 55 5 5 - 10
Net income . . . - - 442 442
------ ------ ------ ------ ------
Balance at
July 27, 1996 12,273 $1,227 $1,801 $(1,080) $1,948
====== ====== ====== ======= ======
See accompanying notes.
<PAGE>
AMERICAN ELECTROMEDICS CORP.
STATEMENTS OF CASH FLOWS
Years Ended
__________________________________________
July 27, 1996 July 29, 1995 July 30, 1994
_____________ _____________ ____________
(Thousands)
OPERATING ACTIVITIES:
Net income . . . . . . . . $442 $172 $057
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation and
amortization . . . . . . . 38 35 41
Provision for doubtful
accounts . . . . . . . . . - 8 (10)
Undistributed earnings of
affiliate . . . . . . . . . (52) - -
Changes in operating
assets and liabilities:
Accounts receivable . . (274) (277) 136
Inventories prepaid and other
current assets . . . . . . (317) (114) 19
Accounts payable and
accrued liabilities . . . 49 195 (194)
____ ____ ____
Net cash provided by (used
in) operating activities . (114) 19 49
INVESTING ACTIVITIES:
Investment in affiliate . . (519) - -
Purchase of property and
equipment, net . . . . . . (22) (26) (25)
____ ____ ____
Net cash used in
investing activities. . . (541) (26) (25)
FINANCING ACTIVITIES:
Principla payments on long-
term debt . . . . . . . . . . (43) (6) (4)
Proceeds from long-term debt and
bank line of credit . . . . 500 - 11
Proceed from exercise of stock
options . . . . . . 10 253 -
____ ____ ____
Net cash provided by
financing activities. . . 467 247 7
____ ____ ____
Increase (decrease) in cash
and cash equivalents . . . . (188) 240 31
Cash and cash equivalents,
beginning of year. . . . . 505 265 234
____ ____ ____
Cash and cash equivalents,
end of year . . . . . . . . $317 $505 $265
==== ==== ====
NONCASH TRANSACTION:
Stock issued for investment
in affiliate . . . . . . $300 - -
==== ==== ====
See accompanying notes.
<PAGE>
AMERICAN ELECTROMEDICS CORP.
NOTES TO FINANCIAL STATEMENTS
JULY 27, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
Business Description
--------------------
American Electromedics Corp. (the Company ) is engaged in the
manufacture and sale of medical testing equipment principally to the United
States and European medical community. The Company currently produces two
devices designed for audiological testing purposes: Tympanometers(R), which
apply a combination of pressure and sound to the ear drum to detect
diseases of the middle ear, and Audiometers,which use sound at descending
decibel levels to screen for hearing loss.
Cash and Cash Equivalents
-------------------------
For the purpose of reporting cash flows, cash and cash equivalents
include all highly liquid debt instruments with original maturities of
three months or less. The carrying amount reported in the balance sheets
for cash and cash equivalents approximates its fair value.
Inventories
-----------
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Depreciation
------------
Property and equipment is stated at cost. The Company provides for
depreciation using the straight-line method over the various estimated
useful lives of the assets. Leasehold improvements are amortized over the
life of the lease agreement. Repairs and maintenance costs are expensed as
incurred and betterments are capitalized.
Goodwill
--------
Goodwill is the purchase price in excess of the fair value of net
assets acquired at the Company s date of acquisition. Goodwill is being
amortized on a straight-line basis over 40 years. Amortization expense for
each of the years ended 1996, 1995, and 1994 was $11,000. Accumulated
amortization at July 27, 1996 and July 29, 1995 is $231,000 and $220,000,
respectively.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company's management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Income Taxes
------------
Deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that
will be in effect when the differences are expected to reverse.
The Company's deferred tax assets, net of deferred tax liabilities,
(which result primarily from net operating loss carry forwards, accrued
book expenses and excess tax depreciation over book depreciation) as of
July 27, 1996 and July 29, 1995 are $248,000 and $370,000, respectively.
SFAS No. 109 requires a valuation allowance against deferred tax assets if
it is more likely than not that some or all of the deferred tax assets will
not be realized. The Company believes that some uncertainty exists and
therefore has maintained a valuation allowance of $248,000 and $370,000 as
of July 27, 1996 and July 29, 1995, respectively. As of July 27, 1996, the
Company has net operating loss carryforwards for Federal income tax
purposes of $539,000 that expire from 2004 to 2007.
The net provision for income taxes for the years ended July 27, 1996,
July 29, 1995 and July 30, 1994 of $25,000, $12,000, and $4,000,
respectively, are comprised entirely of currently payable state income
taxes. There was no current Federal income tax provision due to the
utilization of net operating loss carryforwards. Approximately $511,000
and $190,000 of the Federal net operating loss carryforward was utilized
during the years ended July 27, 1996 and July 29, 1995, respectively.
Recent Accounting Pronouncement
-------------------------------
In October 1995, the FASB issued Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation," (SFAS 123)
which prescribes the accounting and reporting standards for all stock-based
compensation plans. Under SFAS 123, companies are encouraged, but not
required, to adopt the fair value method of accounting for such plans.
Companies can elect to continue to follow the intrinsic value method of
accounting under Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB25). If APB 25 is followed, companies
are required to disclose pro forma information regarding net income as if
the company had accounted for its stock-based compensation plans under the
fair value method under SFAS 123. The Company will be required to adopt
SFAS 123 in 1997. The Company has not yet determined which method of
accounting it will apply under SFAS 123, and, therefore, the impact on the
Company's financial position or results of operations, if any, has not been
determined.
2. INVENTORIES:
-----------
Inventories consist of the following at:
July 27, July 29,
1996 1995
-------- --------
Raw materials $339,000 $183,000
Work in-process 51,000 35,000
Finished goods 90,000 49,000
-------- --------
$480,000 $267,000
======== ========
3. INVESTMENT IN AFFILIATE:
-----------------------
In January 1996, the Company invested $519,000 of cash and issued
500,000 shares of its common stock for a fifty percent interest in Rosch
GmbH Medizintechnik ("Rosch GmbH"). This investment is being accounted for
by the Company under the equity method of accounting. Rosch GmbH is a
marketing and distribution company based in Berlin, Germany specializing in
the distribution of healthcare products, including American Electromedics
products, to primary care physicians throughout Europe. In January 1996,
Rosch GmbH sold its exclusive distributorship rights for a manufacturer's
ear, nose, and throat ("ENT") line of products in order to concentrate on
the Company's products as well as other healthcare products. At July 27,
1996, the investment in Rosch GmbH exceeded the Company's share of the
underlying net assets by approximately $690,000. This amount is being
amortized over twenty-five years. Amortization expense for the year ended
July 27, 1996 was $16,000.
For the seven-month period ended July 27, 1996, Rosch GmbH results of
operations were as follows: sales -$1,893,000, which includes $333,000
from the sale of the ENT distributorship rights discussed above; gross
profit -$853,000; and net income - $136,000. At July 27, 1996, Rosch GmbH
had total assets of $1,544,000 and total liabilities of $1,140,000.
4. LONG-TERM DEBT:
--------------
In 1996, the Company entered into a term loan agreement with a bank.
The loan is payable in equal monthly installments through December 1998.
Interest is based on the Wall Street Journal Prime Rate plus .5% (8.75% as
of July 27, 1996). There remains outstanding, under this loan, $161,000 as
of July 27, 1996.
The Company also has a revolving line of credit from the same bank in
the amount of $300,000. Interest is payable monthly and is based on the
Wall Street Journal Prime Rate plus .5% (8.75% as of July 27, 1996). As of
July 27, 1996, there was $300,000 outstanding under the revolving line of
credit.
Borrowings under these loans are collateralized by essentially all of
the assets of the Company.
Long-term debt due in each of the next three years is as follows:
1997 $67,000
1998 67,000
1999 27,000
--------
$161,000
========
The carrying value of long-term debt approximates fair market value at
July 27, 1996.
On October 4, 1996 the Company amended its bank facility to increase
the line of credit to $400,000 and to provide a $500,000 term loan upon the
Company raising an additional $700,000 in equity and/or subordinated
debentures.
5. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE:
-----------------------------------------------
Earnings per common and common equivalent share is computed using the
weighted average number of common stock and common stock equivalents
outstanding. Common stock equivalents consist primarily of dilutive
outstanding stock options computed under the treasury stock method.
Earnings per common and common equivalent share for the years ended July
27, 1996, July 29, 1995 and July 30, 1994 were computed using weighted
average shares outstanding of 12,469,273, 11,192,419 and 9,168,333,
respectively. Earnings per common share -- assuming full dilution is the
same amount as earnings per common and common equivalent share.
6. STOCK OPTIONS:
-------------
In 1988, the Company adopted the 1987 Nonqualified Stock Option Plan
providing for the issuance of up to 1,000,000 shares of the Company s
common stock. The plan is administered by the Board of Directors and
expires in 1997. Options are exercisable over the one-year period
following the date of grant and expire no later than two years from the
date of grant. Options to purchase the Company s common stock are at
prices not less than fair market value at the date of grant. During 1995
the Company granted options to purchase 350,000 shares of the Company's
common stock. As of July 27, 1996, there remains 50,000 shares available
for future grants.
In 1995, the Company granted certain officers options to purchase a
total of 250,000 shares of the Company s common stock. The options are
exercisable over a one to two year period and expire no later than two to
four years from the date of grant.
In 1996, the Company granted to a consultant an option to purchase a
total of 67,000 shares of the Company's common stock. The option is
exercisable over a one-year period and expires no later than three years
from the date of grant.
A summary of all stock option transactions for the years ended July
27, 1996, July 29, 1995 and July 30, 1994 is as follows (in thousands,
except per share amounts):
1996 1995 1994
---- ---- ----
Options outstanding at
beginning of period 655 2,923 4.138
Granted ($.13 - $1.50 per share) 67 600 -
Exercised ($.10 - $.19 per share) (55) (2,525) -
Canceled ($.10 - $.19 per share) - (343) (1,215)
------ ------------ --------
Options outstanding at end of period 667 655 2,923
====== ========= ========
Price range per share at end of period $.13 $.13 $.10
to $1.50 to $.28 to $.19
Options exercisable at end of period 536 55 2,907
===== ===== =======
7. COMMITMENTS:
-----------
The Company leases its principal offices and manufacturing facility
under an operating lease which expires in March 1997. Rent expense for
the year ended 1996 was $13,500 and for each of the years ended 1995 and
1994 was $12,000.
8. CONCENTRATION OF CREDIT RISK AND MAJOR CUSTOMERS:
------------------------------------------------
The Company's primary customers are in the medical field. At July 27,
1996 and July 29, 1995, substantially all accounts receivable balances are
concentrated in this industry. The Company sells products and extends
credit based on an evaluation of the customer's financial condition,
generally without regard to collateral. Exposure to losses on receivables
is principally dependent on each customer's financial condition. The
Company monitors its exposure for credit losses and maintains allowances
for anticipated losses.
A major customer of the Company accounted for 41%, 15% and 21% of the
Company's net sales for the years ended July 27, 1996, July 29, 1995 and
July 30, 1994, respectively.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
---------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
In July 1995, the Company's Board of Directors engaged Ernst & Young
LLP as the principal accountants for the Company because the Company deemed
it beneficial to retain a larger accounting firm. Berry, Dunn, McNeil &
Parker (known as Smith, Batchelder & Rugg prior to a recent merger) had
acted as the principal accountants for the Company for the fiscal year
ended July 30, 1994. There was no disagreement between the Company and
Berry, Dunn, McNeil & Parker on any matter of accounting principles or
practices or financial statement disclosures, nor did their reports contain
an adverse opinion, disclaimer of opinion or any modification as to
uncertainty, audit scope or accounting principles. After receiving
competitive bids from several firms, the Company selected Ernst & Young
LLP.
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
--------------------------------------------
CONTROL PERSONS; COMPLIANCE WITH SECTION
----------------------------------------
16(a) OF THE EXCHANGE ACT
-------------------------
The following table sets forth certain information concerning the
directors and executive officers of the Company as of October 22, 1996.
Year Became
Name Age Position with the Company Director
---- --- ------------------------- ------------
Noel A. Wren 47 President, Chief
Executive Officer, 1989
and Director
Michael T. Pieniazek 38 Chief Financial Officer N/A
and Secretary
Alan Gelband 51 Director 1996
Kenneth Levy 50 Director 1995
Thomas A. Slamecka 55 Director 1996
Joseph Wear 62 Director 1995
The terms of the Board of Directors will expire at the next annual
meeting of stockholders. The Company's officers are elected by the Board
of Directors and hold office at the will of the Board.
Noel A. Wren has been President and Chief Executive Officer of the
Company since November 1988 and October 1992, respectively, having served
as Chief Operating Officer and Chief Financial Officer of the Company from
November 1988 to October 1992. He had been founder and President of Red
Line Research Laboratories, Inc., manufacturer of rechargeable battery
packs for the consumer electronics industry, from 1982 to 1988. Prior to
founding Red Line, Mr. Wren was an executive with Fidelitone, Inc.
Michael T. Pieniazek has been Chief Financial Officer of the Company
since July 1995. From 1987 to 1995, Mr. Pieniazek served in various
executive positions, the last having been Executive Vice President and
Chief Financial Officer, for Organogenesis Inc., a Massachusetts-based,
biotechnology company. From 1980 to 1987, Mr. Pieniazek was an auditor
with Coopers & Lybrand LLP.
Alan Gelband has been a director of the Company since October 1996.
For more than the past ten years Mr. Gelband has been the sole shareholder,
officer and director of Alan Gelband Company, Inc., a New York company
engaged in financial and management consulting and investments.
Kenneth Levy has been a director of the Company since March 1995.
Since 1993 he has been an investment banker for Marshall, Alexander &
Marshall, Inc. In 1990, Mr.Levy founded MR International Enterprises,
which owned various Russian companies, and served as its President from
1990 to 1994.
Thomas A. Slamecka has been a director of the Company since October
1996. Mr. Slamecka has been President of the ConAgra Poultry Company,
Inc., Duluth, Georgia, since 1995. From 1990 to 1994, he was President and
Chief Executive Officer of GEEC Poultry Inc., Atlanta, Georgia.
Joseph Wear has been a director of the Company since March 1995.
Since 1987, he has been a partner in Philadelphia Entrepreneurial Partners
which is engaged in management consulting to small and medium business.
From 1970 to 1987, Mr. Wear was President and Chief Executive Officer of
Summit Airlines.
The Company pays $1,000 a quarter to Mr. Wear for serving as a
director. Upon becoming a director in March 1995, Mr. Wear was granted an
option to purchase 50,000 shares of the Company's Common Stock at an
exercise price of $.125 per share for two years, exercisable as to 50% of
the options after six months and the balance after 12 months. The exercise
price was equal to the fair market value of the Common Stock at the date of
grant.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
The following table sets forth all cash compensation for the fiscal
year ended July 27, 1996 of the executive officers whose compensation
exceeded $100,000 and of all executive officers as a group for services
rendered to the Company.
CASH COMPENSATION TABLE
--------------------- ---------------------------------------------------
Name and # Options Long Term
Principal Position Year Salary Bonus Granted Awards
--------------------- ---------------------------------------------------
Noel A. Wren,
President & 1996 $105,000 $10,700 -- --
Chief Executive 1995 97,500 --- -- --
Officer 1994 95,000 3,500 -- --
--------------------- -------------------------------------------------
Mr. Wren is furnished with an automobile for business and personal
use. The compensation specified in the preceding table does not include
the value of non-business use as the amounts were not material.
As of July 31, 1995, the Company entered
into an Employment Agreement with Noel Wren to serve as President and Chief
Executive Officer of the Company for a term of three years terminating on
July 31, 1998. Under the Agreement, Mr. Wren receives an annual base
salary of $105,000, reviewable each year by the Board of Directors with a
view toward increases, plus cash bonuses ranging from three percent to ten
percent of the Company's annual net pre-tax profits for each fiscal year
above $180,000, as well as additional bonuses awarded by the Compensation
Committee of the Board of Directors based upon factors other than the
Company's profits. Mr. Wren has a severance package which includes his
then annual base salary payable for 12 months accrued bonus and
continuation of all health benefits for one year from the date of his
termination. The Employment Agreement includes a "Change of Control"
provision which provides that Mr. Wren shall receive the above described
severance package in the event of a material change in the composition of
the Board of Directors.
AGGREGATED OPTION EXERCISES FOR THE FISCAL YEAR ENDED JULY 27, 1996
AND FY-END OPTION VALUES
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT FY-
FY-END (#) END ($)
SHARES
ACQUIRED
ON VALUE
EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
Noel A. Wren 50,000 $5,000 -0- -0-
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
______________________________________________________________
The following table sets forth information
as of October 22, 1996 concerning (i) persons known to the Company to be
the beneficial owners of more than 5% of the Company's Common Stock, (ii)
the ownership interest of each director and officer of the Company and
(iii) by all directors and officers as a group. Note: Stock options are
considered presently exercisable if exercisable within 60 days of October
22, 1996.
AMOUNT &
NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENT
BENEFICIAL OWNER (1) STATUS OWNERSHIP OF CLASS
--------------------- ------------------- ------------ --------
Alan Gelband Beneficial owner
30 Lincoln Plaza of more than 5%
New York, NY 10023 of the Common
Stock and 2,745,000
Director shs(2) 22.1%
Noel A. Wren Director, Chief
Executive Officer
& President 1,075,000 shs 8.8%
Kenneth Levy Director 434,000
shs (3) 3.5%
Thomas A. Slamecka Director -0- --
Joseph Wear Director 300,000
shs (4) 2.4%
All Officers and
Directors as a
Group (6 persons) 4,639,000 shs 36.5%
-----------------------------------------------------------------
Footnotes:
1. The addresses of the officers and directors may be directed in care of
the Company.
2. Includes (i) presently exercisable options for 150,000 shares, and
(ii) the indirect beneficial ownership of 500,000 shares owned by the
Alan Gelband Company Inc. Defined Contribution Plan and 215,000 owned
by the Alden Foundation.
3. Includes (i) 42,600 shares owned by Mr. Levy's wife and his minor
children as to which shares he disclaims beneficial ownership and (ii)
presently exercisable options for 132,000 shares.
4. Includes presently exercisable options for 50,000 shares.
5. Includes presently exercisable options for 407,000 shares.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
On March 24, 1995, Alan Gelband Company, Inc., which is owned by Alan
Gelband, a principal stockholder of the Company, entered into an Agreement
with the Company to provide general advice regarding the Company's
finances, including assistance in the raising of capital and evaluation of
potential acquisitions. Under the terms of the Agreement, the Company pays
to Mr. Gelband a base fee of $2,500 per month. Mr. Gelband is also
entitled to a finder's fee in the event that he brings a potential
acquisition to the Company and such acquisition is ultimately consummated.
The finder's fee is a percentage of the aggregate amount of consideration
paid by the Company for such acquisition, and would be reduced by the
amount of the base fee previously paid. The Agreement is on a month-to-
month basis, terminable on 15 days notice.
On March 24, 1995, Kenneth Levy, a director of the Company, entered
into an Agreement with the Company to provide general advice regarding the
Company's finances, including assistance in the raising of capital and
evaluation of potential acquisitions. Under the terms of the Agreement,
the Company pays to Mr. Levy a base fee of $2,500 per month. The
Agreement is on a month-to-month basis, terminable on 15 days notice.
Upon entry into the Agreements with Messrs. Gelband and Levy, the
Company granted options to each of them for 150,000 shares of the Company's
Common Stock at an exercise price of $.125 per share for a period of two
years, exercisable as to 50% of the options after six months and the
balance after 12 months. The exercise price was equal to the fair market
value of the Common Stock at the date of grant.
Item 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(A) EXHIBITS:
3.1.1 Certificate of Incorporation of Registrant (filed as Exhibit
3(a)(1) to Registration No. 2-71775, and incorporated herein by
reference)
3.1.2 Certificate of Amendment to Certificate of Incorporation of
Registrant filed with the Secretary of State of the State of
Delaware on January 27, 1987 (filed as Exhibit 3(a)(2)
Registrant's Form 10-Q for the fiscal quarter ended January 31,
1987, and incorporated herein by reference)
3.1.3 Certificate of Amendment to Certificate of Incorporation of
Registrant filed with the Secretary of State of the State of
Delaware on October 9, 1990 (filed as Exhibit 3(a)(3) to
Registrant's Form 10-K for the fiscal year ended July 28, 1990,
and incorporated herein by reference)
3.2 By-Laws of Registrant (filed as Exhibit 3(b) to Registration No.
2-71775, and incorporated herein by reference)
3.3 Amendments to the By-Laws of Registrant (filed as Exhibit 3(c) to
Registrant's 1990 Form 10-K and incorporated herein by reference)
10.1.1 Lease of Premises at Amherst, New Hampshire, dated December 10,
1991, between Registrant and Norwich Associates (filed as Exhibit
10.1.1 to Registrant's Form 10-KSB for the fiscal year ended July
29, 1995 (the "1995 Form 10-KSB") and incorporated herein by
reference)
10.1.2 Letters, dated February 14, 1995 and March 13, 1995, between
Registrant and H.J. Stabile & Son, Inc., for lease extension
(filed as Exhibit 10.1.2 to Registrant's 1995 Form 10-KSB and
incorporated herein by reference)
10.2.1 1983 Incentive Stock Option Plan (filed as Exhibit A to
Registrant's 1983 Information Statement, and incorporated herein
by reference)
10.2.2 Form of 1983 Incentive Stock Option Certificate (filed as Exhibit
(10)-12 to Registrant's Form 10-K for the fiscal year ended July
28, 1984 ["1984 Form 10-K"] and incorporated herein by reference)
10.3.1 1983 Non-Qualified Stock Option Plan (filed as Exhibit B to
Registrant's 1983 Information Statement, and incorporated herein
by reference)
10.3.2 Form of 1983 Non-Qualified Stock Option Certificate (filed as
Exhibit (10)-13 to Registrant's 1984 Form 10-K, and incorporated
herein by reference)
10.4 1996 Stock Option Plan (filed as Exhibit A to Registrant's 1996
Proxy Statement, and incorporated herein by reference)
10.5 Form of Employment Agreement, dated as of July, 31, 1995, between
Registrant and Noel A. Wren (filed as Exhibit 10.5 to
Registrant's 1995 Form 10-KSB, and incorporated herein by
reference)
10.6 Consulting Agreement, dated as of March 24, 1995, between
Registrant and Alan Gelband Company, Inc. (filed as Exhibit 10.6
to Registrant's 1995 Form 10-KSB, and incorporated herein by
reference)
10.7 Consulting Agreement, dated as of March 24, 1995, between
Registrant and Kenneth Levy (filed as Exhibit 10.7 to
Registrant's 1995 Form 10-KSB, and incorporated herein by
reference)
10.8 Stock Purchase Agreement, dated January 11, 1996, between
Registrant and Andy Rosch (filed as Exhibit 1 to Registrant's
Form 8-K for an event of January 11, 1996, and incorporated
herein by reference)
10.9.1* Loan Agreement, dated October 4, 1996, between Registrant and
Citizens Bank New Hampshire (the "Bank")
10.9.2* Security Agreement, dated October 4, 1996, between Registrant and
the Bank
10.9.3* Revolving Line of Credit Promissory Note, dated October 4, 1996,
from Registrant to the Bank
10.9.4* Term Promissory Note, dated October 4, 1996, from Registrant to
the Bank
* Filed herewith.
(B) REPORTS ON FORM 8-K: None
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15 (d) 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.
AMERICAN ELECTROMEDICS CORP.
----------------------------
(Registrant)
By: /s/ Noel A. Wren
Dated: October 23, 1996 _______________________________
Noel A. Wren, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Title Date
(1) Principal Executive Officer
/s/ Noel A. Wren President and Chief October 23, 1996
----------------- Executive Officer
(2) Principal Financial and
Accounting Officer
/s/ Michael T. Pieniazek Chief Financial October 23, 1996
Michael T. Pieniazek Officer
(3) A majority of the
Board of Directors
/a/ Alan Gelband Director October 23, 1996
Alan Gelband
/s/ Kenneth Levy Director October 23, 1996
Kenneth Levy
________________________________ Director October ___, 1996
Thomas A. Slamecka
/s/ Joseph Wear Director October 23, 1996
Joseph Wear
/s/ Noel A. Wren Director October 23, 1996
Noel A. Wren
<PAGE>
AMERICAN ELECTROMEDICS CORP.
FORM 10-KSB FOR FISCAL YEAR ENDED JULY 27, 1996
EXHIBITS
---------
AMERICAN ELECTROMEDICS CORP.
FORM 10-KSB
EXHIBIT INDEX
Exhibits filed herewith: Page
----------------------- ----
10.9.1 Loan Agreement, dated October 4, 1996, between Registrant and
Citizens Bank New Hampshire (the "Bank")
10.9.2 Security Agreement, dated October 4, 1996, between Registrant
and the Bank
10.9.3 Revolving Line of Credit Promissory Note, dated October 4, 1996
from Registrant to the Bank
10.9.4 Term Promissory Note, dated October 4, 1996 from Registrant to
the Bank
Exhibit 10.9.1
CITIZENS BANK NEW HAMPSHIRE
LOAN AGREEMENT
______________
THIS LOAN AGREEMENT (the "Agreement"), is made as of this 4th
day of October, 1996, by and between AMERICAN ELECTROMEDICS
CORP., a Delaware corporation with a principal place of business
at 13 Columbia Drive, Amherst, New Hampshire 03031 (the
"BORROWER"), and CITIZENS BANK NEW HAMPSHIRE, a guaranty savings
bank organized under the laws of the State of New Hampshire with
an address of One Trafalgar Square, Nashua, New Hampshire 03063
(the "BANK").
RECITALS:
_________
The BORROWER has requested and the BANK has agreed to
provide certain credit facilities to the BORROWER, all upon the
terms and conditions set forth in this Agreement and the Loan
Documents (as defined hereinbelow). Each loan which BANK may from
time to time extend to BORROWER is individually referred to
herein as a "Loan" and collectively as the "Loans". All of the
Loans are, together with all other debts, liabilities and
obligations of BORROWER to the BANK, direct or indirect, absolute
or contingent, now existing or hereafter arising, hereinafter
sometimes collectively referred to as the "Obligations". Each
Loan is or shall be evidenced by a promissory note (individually
a "Note" and collectively the "Notes") and each Loan and all of
the other Obligations are secured pursuant to a Security
Agreement of even date between the BANK and the BORROWER (the
"Security Agreement") and the other Loan Documents. In
connection with the Loans, the BORROWER has and may hereafter
execute certain other documents, certificates and agreements, all
of which are, together with this Agreement, the Notes, and the
Security Agreement and as all of the same may be hereafter
amended, modified, revised, renewed, or extended, sometimes
collectively referred to herein as the "Loan Documents". Each
Loan shall be made upon and subject to the terms and conditions
set forth in the Note evidencing such Loan, the Security
Agreement, the other Loan Documents, and this Agreement. The
terms, conditions, representations, warranties, and covenants set
forth in this Agreement are in addition to, and not in limitation
of, the terms, conditions, representations, warranties, and
covenants set forth in the other Loan Documents. In the event of
any conflict between the terms, conditions, representations,
warranties, and covenants contained in the Loan Documents, the
term, condition, representation, warranty, or covenant which
confers the greatest benefit upon the BANK shall control. The
determination as to which term, condition, representation,
warranty, or covenant is more beneficial shall be made by the
BANK in its sole discretion and shall be binding upon the
BORROWER.
NOW, THEREFORE, in consideration of the BANK extending the
Loans to the BORROWER as described hereinbelow, the BANK and the
BORROWER hereby agree as follows:
I. REVOLVING LINE OF CREDIT. The BANK shall make available to
the BORROWER a revolving line of credit loan in the maximum
principal amount of up to Four Hundred Thousand Dollars
($400,000.00) (the "Revolving Line of Credit Loan"), as evidenced
by the Revolving Line of Credit Promissory Note made by the
BORROWER payable to the order of the BANK in the maximum
principal amount of up to Four Hundred Thousand Dollars
($400,000.00) of even date herewith (the "Revolving Line of
Credit Note"). The Revolving Line of Credit Loan shall be upon
and subject to the terms and conditions set forth in the
Revolving Line of Credit Note, the other Loan Documents, and this
Agreement. Upon the initial advance under the Revolving Line of
Credit Loan, the Revolving Line of Credit Loan shall replace a
prior credit facility by BANK to BORROWER in the original
principal amount of up to Three Hundred Thousand Dollars
($300,000.00) in its entirety and all indebtedness thereunder.
A. Maximum Available Amount. The maximum amount available to
------------------------
the BORROWER from time to time under the Revolving Line of Credit
Loan shall be the LESSER of (i) Four Hundred Thousand Dollars
------
($400,000.00) or (ii) an amount equal to the aggregate of (a) the
applicable percentage of the sum of BORROWER's Acceptable
Accounts AND (b) the applicable percentage of the value of
---
BORROWER's Acceptable Inventory, all as set forth and defined on
Schedule A attached hereto. The maximum amount available to
----------
BORROWER under the Revolving Line of Credit Loan as determined
from time to time under the formula set forth in clauses (ii) (a)
and (b) above is hereinafter referred to as the BORROWER's
"Borrowing Base". The BORROWER agrees that the BANK may, at any
time or times, lower the applicable percentages of Acceptable
Accounts and Acceptable Inventory for purposes of determining the
Borrowing Base to such percentages as the BANK may determine in a
commercially reasonable manner to be appropriate based upon any
material deterioration of the BORROWER's condition, financial or
otherwise, and/or of the value, condition or quality of the
Collateral (as hereinafter defined).
B. Advances. The Revolving Line of Credit Loan shall be
---------
disbursed, advanced, readvanced, and repaid as provided in the
Revolving Line of Credit Note and this Agreement. BORROWER may
request advances orally or in writing from time to time in
accordance with such procedures as the BANK may from time to time
specify in an amount such that the aggregate amounts outstanding
under the Revolving Line of Credit Loan do not exceed the maximum
available amount as determined under Section I. A. above. The
BANK shall be under no obligation to make any advance (automatic
or otherwise) at any time or times during which an Event of
Default has occurred or is existing under this Agreement or the
Loan Documents, or if any condition exists which, if not cured,
would with the passage of time or the giving of notice, or both,
constitute such an Event of Default. At the time of each advance
and readvance under the Revolving Line of Credit Loan, BORROWER
shall immediately become indebted to the BANK for the amount
thereof. Each such advance or readvance may be credited by the
BANK to any deposit account of BORROWER with the BANK, be paid to
BORROWER, or applied to any Obligation, as the BANK may in each
instance elect. BORROWER authorizes the BANK to charge any
account which BORROWER maintains with the BANK for any payments
which BORROWER may or must make, or customarily makes, to the
BANK from time to time.
C. Demand, Review, and Repayment. The Revolving Line of Credit
-----------------------------
Loan is a demand obligation of the BORROWER. Pending sooner
demand or the occurrence of an Event of Default, the Revolving
Line of Credit Loan shall be subject to review and, at the sole
option and discretion of the BANK, renewal on January 31, 1997,
and, if renewed, thereafter on each subsequent anniversary of
such date (January 31, 1997, and each anniversary thereof to
which the Revolving Line of Credit Loan is renewed, being a
"Review Date"). IF THE REVOLVING LINE OF CREDIT LOAN IS NOT
RENEWED BY THE BANK AS AFORESAID ON ANY REVIEW DATE, THE ENTIRE
AMOUNT OF OUTSTANDING PRINCIPAL, ACCRUED INTEREST AND OTHER
CHARGES PAYABLE THEREUNDER SHALL BE DUE AND PAYABLE BY BORROWER
ON SUCH REVIEW DATE. BORROWER ACKNOWLEDGES AND AGREES THAT THE
BANK HAS NO OBLIGATION OR COMMITMENT TO RENEW THE REVOLVING LINE
OF CREDIT LOAN ON ANY REVIEW DATE. NOTWITHSTANDING THE
FOREGOING, OR ANY PROVISION OF THE REVOLVING LINE OF CREDIT NOTE,
ANY OF LOAN DOCUMENTS OR HEREIN TO THE CONTRARY, THE REVOLVING
LINE OF CREDIT LOAN IS AND SHALL BE A DEMAND OBLIGATION OF
BORROWER.
D. Interest Rate. Except as provided hereinbelow, the principal
--------------
balance outstanding from time to time under the Revolving Line of
Credit Loan, shall bear interest at a variable annual rate equal
to the Prime Rate (as hereinafter defined) plus one-half of one
percent (.5%). As used herein, the term "Prime Rate" shall mean
the rate published by The Wall Street Journal from time to time
-----------------------
under the category "Prime Rate: The Base Rate of Corporate Loans
posted by at least 75% of the Nation's 30 Largest Banks" (the
lowest of the rates so published if more than one rate is
published under this category at any given time) or such other
comparable index rate selected by the BANK in its sole
discretion if The Wall Street Journal ceases to publish such
-----------------------
rate. The BORROWER acknowledges that the Prime Rate is used for
reference purposes only as an index and is not necessarily the
lowest interest rate charged by the BANK on commercial loans.
Each time the Prime Rate changes the interest rate under the
Revolving Line of Credit Loan shall change contemporaneously with
such change in the Prime Rate. Interest shall be calculated and
charged daily on the basis of actual days elapsed over a three
hundred sixty (360) day banking year.
E. Purposes. Amounts advanced to BORROWER under the Revolving
--------
Line of Credit Loan shall be used solely initially for repayment
of BORROWER's existing bank debt and thereafter for BORROWER's
ordinary working capital requirements and general corporate
purposes.
II. TERM LOAN.
A. Maximum Principal Amount. The BANK shall extend to the
------------------------
BORROWER a term loan in the maximum principal amount of Five
Hundred Thousand Dollars ($500,000.00) (the "Term Loan"), upon
and subject to the terms and conditions set forth in the Term
Promissory Note of even date evidencing the Term Loan, the other
Loan Documents and this Agreement. The Term Loan shall be
guaranteed by the Business Finance Authority pursuant to the so-
called "BFA CAP loan program" pursuant to New Hampshire RSA
Chapter 162-A. Notwithstanding any other provisions of this Loan
Agreement or the Loan Documents to the contrary, the BANK shall
have no obligation to make an advance under the Term Loan until
such time as the BORROWER has received net proceeds in the
aggregate amount of not less than Seven Hundred Thousand Dollars
($700,000.00) from the issuance of fully subordinated debentures
in the form attached hereto as Exhibit A and/or the sale of
---------
capital stock of BORROWER.
B. Repayment. The Term Loan shall be repaid as provided in the
---------
Term Promissory Note of even date evidencing the Term Loan and in
this Agreement.
C. Interest. The interest rate applicable to principal
---------
outstanding from time to time under the Term Loan shall be as
follows:
Except as provided hereinbelow, the outstanding principal
balance of this Note shall bear interest at a variable rate equal
to Prime Rate (as hereinafter defined), plus one-half of one
percent (.5%) per annum. As used herein, the term "Prime Rate"
shall mean the rate published by The Wall Street Journal from
-----------------------
time to time under the category "Prime Rate: The Base Rate of
Corporate Loans posted by at least 75% of the Nation's 30 Largest
Banks" (the lowest of the rates so published if more than one
rate is published under this category at any given time) or such
other comparable index rate selected by the Bank in its sole
discretion if The Wall Street Journal ceases to publish such
-----------------------
rate. The Borrower acknowledges that the Prime Rate is used for
reference purposes only as an index and is not necessarily the
lowest interest rate charged by the Bank on commercial loans.
Each time the Prime Rate changes the interest rate hereunder
shall change contemporaneously with such change in the Prime
Rate. Interest shall be calculated and charged daily on the
basis of actual days elapsed over a three hundred sixty (360) day
banking year.
D. Purposes. Amounts advanced to BORROWER under the Term Loan
--------
shall be used solely for BORROWER's ordinary working capital
requirements and general corporate purposes.
III. FEES. In addition to such other fees as are provided in
this Agreement and in the other Loan Documents, BORROWER agrees
to pay the BANK the fees set forth on Schedule B attached hereto.
----------
IV. PAYMENTS. All payments made by the BORROWER of principal
and interest on the Loans, and other sums and charges payable
under the Loan Documents, shall be made to the BANK in accordance
with the terms of the respective Loan Documents in lawful United
States of America currency at its office set forth above, or by
the debiting by the BANK of the demand deposit account(s) in the
name of the BORROWER at the BANK, or in such other reasonable
manner as may be designated by the BANK in writing to the
BORROWER. The BORROWER authorizes the BANK automatically to
debit the BORROWER's demand deposit account as described above
and in accordance with the Cash Management provisions set forth
herein below.
V. SECURITY. Each of the Loans and all other Obligations of
the BORROWER to the BANK, whether now existing or hereafter
arising, shall at all times be secured by perfected first
security interests in and liens on the Collateral (as hereinafter
defined), which security interests and liens shall continue until
payment in full of all amounts outstanding under said Loans and
the other Obligations. The term "Collateral" as used herein
shall be deemed to include all property and assets of the
BORROWER secured, mortgaged, pledged, assigned, or otherwise
encumbered or covered by any of the Loan Documents, including,
but not limited to the Security Agreements. The BORROWER
covenants and agrees to take such further actions and to execute
such additional documents as may be necessary from time to time
to enable the BANK to obtain and maintain the security interests
and liens arising under the Loan Documents. If the Collateral
includes accounts and account receivables of BORROWER, then, in
addition to such other rights and remedies as are provided the
BANK under the Loan Documents, the BORROWER agrees that BANK may
communicate with account debtors in order to verify the
existence, amount, and terms of any such accounts and accounts
receivable. BANK may notify account debtors of the BANK's
security interest and require that payments on accounts and
account receivables be made directly to BANK, and upon the
request of BANK, BORROWER shall notify account debtors and
indicate on all billings that payments and returns are to be made
directly to BANK. In furtherance of the foregoing, BORROWER
hereby appoints BANK as attorney irrevocable with full power to
collect, compromise, endorse, sell, or otherwise deal with the
BORROWER's accounts and account receivables or proceeds thereof
and to perform the terms of any contract in order to create
accounts and account receivables in BANK's name or in the name of
BORROWER.
BORROWER shall maintain insurance policies in form acceptable to
BANK on the life of Noel Wren and Michael Pieniazek in the
respective face amounts of Five Hundred Thousand Dollars
($500,000.00) each, the proceeds of which shall be payable to
BORROWER. BORROWER shall assign said insurance policies to BANK.
VI. SUBORDINATION AND STANDBY OF DEBT. The BORROWER covenants
and agrees that all existing debt of BORROWER (i) to any officer,
director, or shareholder of BORROWER, and all future debt if
permitted hereunder of BORROWER to any officer, director, or
shareholder of BORROWER, and (ii) to the Holder pursuant to a
certain Convertible Debenture of BORROWER in the minimum
principal amount of Six Hundred Thousand Dollars ($600,000.00) in
the form attached hereto as Exhibit A (collectively, the
----------
"Subordinated Debt") shall be and hereby is, without need for
further writing, made subject and subordinate to the prior
payment and performance of all the Loans and other Obligations of
BORROWER. In furtherance of the foregoing, the BORROWER shall
provide such subordinations, certificates, and other documents,
and shall mark its corporate books, records, stock certificates,
and ledgers, as the BANK may reasonably request from time to
time, in form and substance satisfactory to BANK and BANK's
counsel, evidencing the subordination of all debt of BORROWER to
any officer, director, or shareholder of BORROWER, or to any
third party, including but not limited to said Holder, whether
now existing or hereafter arising, in accordance with the
covenants of BORROWER hereunder.
VII. CONTINUING REPRESENTATIONS AND WARRANTIES. BORROWER
warrants and represents to the BANK that so long as any of the
Obligations are outstanding:
A. Good Standing. BORROWER is duly organized, validly existing,
-------------
and in good standing under the laws of its state of organization
and is qualified to do business in all other jurisdictions where
the nature of the business conducted or property owned by
BORROWER require it to be so qualified. BORROWER has the power
to own its properties and to carry on its business as now being
conducted.
B. Authority. BORROWER has full power and authority to enter
----------
into this Agreement and to borrow under the Loan Documents, to
execute and deliver the Loan Documents and to incur the
obligations provided for herein and in the Loan Documents, all of
which have been duly authorized by all proper and necessary
corporate or other action. The persons executing the Loan
Documents on behalf of the BORROWER have been duly authorized to
do so.
C. Binding Agreement. This Agreement and the Loan Documents
-----------------
constitute the valid and legally binding obligations of the
BORROWER, enforceable in accordance with their terms.
D. Litigation. There are no suits or proceedings of any kind or
-----------
nature pending or, to the knowledge of the BORROWER, threatened
against or affecting the BORROWER or its assets which, if
adversely determined, would have a material adverse affect on the
financial condition or business of the BORROWER or the guarantor
and which have not been disclosed in writing to the BANK.
E. Conflicting Agreements; Consents. There is no charter,
--------------------------------
bylaw, preference stock, or trust provision of the BORROWER, and
no provision(s) of any existing mortgage, indenture, contract or
agreement binding on the BORROWER or affecting its property,
which would conflict with, have a material adverse affect upon,
or in any way prevent the execution, delivery, or performance of
the terms of this Agreement or the Loan Documents. BORROWER is
not required to obtain any order, consent, approval,
authorization of any person, entity, or governmental authority in
connection with or as a condition to the execution, delivery, and
performance of this Agreement or the Loan Documents or the
granting of the security interests and liens in the Collateral.
F. Financial Condition. The financial statements delivered to
-------------------
the BANK by the BORROWER have been and shall be prepared in
accordance with generally accepted accounting principles,
consistently applied, are and will be complete and correct, and
fairly present the financial condition and results of the
BORROWER. Other than those liabilities disclosed in writing to
the BANK, there are no liabilities, direct or indirect, fixed or
contingent, of the BORROWER which are not reflected in the
financial statements or in the notes thereto which would be
required to be disclosed therein and there has been no material
adverse change in the financial condition or operations of the
BORROWER since the date of such financial statements.
G. Taxes. BORROWER has filed all federal, state and local tax
-----
returns required to be filed by them and have paid all taxes
shown by such returns to be due and payable on or before the due
dates thereof.
H. Solvency. The present fair saleable value of the BORROWER's
--------
assets is greater than the amount required to pay its total
liabilities; the amount of the BORROWER's capital is adequate in
view of the type of business in which it is engaged.
I. Full Disclosure. None of the information with respect to the
---------------
BORROWER which has been furnished to the BANK in connection with
the transactions contemplated hereby is false or misleading with
respect to any material fact, or omits to state any material fact
necessary in order to make the statements therein not misleading.
Notwithstanding the foregoing, the BANK acknowledges that the
future budgets and financial projections provided by the BORROWER
are based upon good faith assumptions and the best estimate of
the BORROWER. BORROWER cannot warrant that the same will be true
and accurate in all respects.
J. Employee Benefit Plans. To BORROWER's knowledge, all Plans
----------------------
(as hereinafter defined) which are pension plans as defined in
Section 3(2) of the Employment Retirement Income Security Act of
1974, as amended ("ERISA"), qualify under Section 401 of the
Internal Revenue Code of 1986 (as amended, the "IRC"), and all
Plans are in compliance with the provisions of the IRC and ERISA,
and have been administered in accordance with their terms. The
term "Plan" means any pension plan, as defined in Section 3(2) of
ERISA and any welfare plan, as defined in Section 3(1) of ERISA,
which is sponsored, maintained or contributed to by BORROWER or
any commonly controlled entity, or in respect of which BORROWER
or a commonly controlled entity is an "employer" as defined in
Section 3(5) of ERISA. To BORROWER's knowledge, and except with
respect to events which would not have a material adverse affect
on BORROWER's business or financial condition:
(i) Prohibited Transactions. None of the Plans has
-----------------------
participated in, engaged in or been a party to any non-exempt
"prohibited transaction" as defined in ERISA or the IRC, and no
officer, director or employee of BORROWER has committed a breach
of any of the responsibilities or obligations imposed upon
fiduciaries by Title I or ERISA.
(ii) Claims. There are no contested claims, pending or
-------
threatened, involving any Plan which is a pension plan by a
current or former employee (or beneficiary thereof) of BORROWER,
nor is there any reasonable basis to anticipate any claims
involving any such Plan.
(iii) Reporting and Disclosure Requirements. There have
--------------------------------------
been no violations of any reporting or disclosure requirements
with respect to any Plan and no such Plan has violated applicable
law, including but not limited to ERISA and the IRC.
(iv) "Accumulated Funding Deficiency"; Reportable
______________________________
Event. No Plan which is a defined benefit pension plan has (a)
_____
incurred an "accumulated funding deficiency" (within the meaning
of Section 412(a) of the IRC), whether or not waived, (b) been a
plan with respect to which a Reportable Event (to the extent that
the reporting of such events to the Pension Benefit Guaranty
Corporation (the "PBGC") within thirty (30) days of the
occurrence has not been waived) has occurred and is continuing,
or (c) been a Plan with respect to which there exists conditions
or events which have occurred presenting a risk of termination by
PBGC.
(v) Multiemployer Plan. No Plan which is a multiemployer
__________________
pension plan (as defined in Section 414(f) of the IRC) to which
BORROWER contributes has been a plan with respect to which
BORROWER has received any notification that such Multiemployer
Plan is in reorganization or has been terminated within the
meaning of Title IV of ERISA and no such Multiemployer Plan is
reasonably expected to be in reorganization or to be terminated
within the meaning of Title IV of ERISA. BORROWER has not
withdrawn from, or incurred any withdrawal liability to, any
multiemployer plan.
(vi) COBRA. There has been no violation of the
_____
applicable requirements of Section 4980B of the IRC pertaining to
COBRA continuation coverage with respect to any Plan.
(vii) Employee Welfare Benefit Plans. No Plan which is
______________________________
a medical, dental, health, disability, insurance or other plan or
arrangement, whether oral or written, which constitutes an
"employee welfare benefit plan" as defined in Section 3(1) of
ERISA, has any unfunded accrued liability or provides benefits to
former employees or retirees (except as may be required by
COBRA).
K. Location of Records. All of the books and records or true
--------------------
and complete copies thereof relating to the accounts and
contracts of the BORROWER are and will be kept at BORROWER's
principal place of business located at the address first set
forth above (the "Premises").
L. Compliance with Laws. The BORROWER is in compliance in all
____________________
material respects with all laws and governmental rules and
regulations applicable to the Collateral and to its business,
properties and assets.
M. Hazardous Waste. No Hazardous Waste (as hereinafter defined)
_______________
has been generated, stored or treated on any of the premises
occupied by BORROWER, except in compliance with all applicable
laws. No Hazardous Waste has ever been, is being, is intended to
be, or is threatened to be spilled, released, discharged,
disposed, placed or otherwise caused to be found in the soil or
water in, under, or upon any of the premises occupied by the
BORROWER. The BORROWER agrees to indemnify and hold the BANK
harmless from and against any claims, damages, liabilities
(whether joint or several), losses and expenses (including,
without limitation, attorneys' fees) incurred by the BANK as a
result of the breach of these representations. For the purpose
of this Agreement, the term "Hazardous Waste" means "hazardous
waste", "hazardous material", "hazardous substance", and "oil"
as presently defined in the Resource Conservation and Recovery
Act, the Comprehensive Environmental Response, Compensation and
Liability Act, the Hazardous Material Transportation Act, the
Federal Water Pollution Control Act, and corresponding state and
local statutes, ordinances, and regulations, as such statutes,
ordinances and regulations may be amended, or as defined in any
federal or state regulation adopted pursuant to such acts.
N. Title to Collateral. BORROWER has and will at all times have
___________________
good and marketable title to the Collateral, free and clear from
any liens, security interests, mortgages, encumbrances, pledges
or other right, title or interest of any other person or entity,
except those arising under the Loan Documents or disclosed to the
BANK in the Security Agreement ("Permitted Encumbrances").
O. Employees. BORROWER has complied with all laws relating to
_________
the employment of labor, including any provisions thereof
relating to ERISA, wages, hours, collective bargaining, the
payment of social security and similar taxes, equal employment
opportunity, employment discrimination and occupational safety
and health, and is not liable for any arrears of wages or any
taxes or penalties for failure to comply with any of the
foregoing.
VIII. AFFIRMATIVE COVENANTS. Until payment in full of all
indebtedness under the Loans and the other Obligations, BORROWER,
agrees that, unless the BANK shall otherwise consent in writing,
they will:
A. Prompt Payment. Pay promptly, subject to any applicable cure
______________
or grace period, when due all amounts due and owing to the BANK.
B. Use of Proceeds. Use the proceeds of the Loans only for
_______________
business purposes and will furnish the BANK with such evidence as
it may reasonably require with respect to such use.
C. Financial Statements. Furnish the BANK with such financial
____________________
statements of BORROWER as are described on Schedule B attached
__________
hereto. All such statements shall be prepared on a consistent
basis in a format reasonably acceptable to the BANK.
D. Maintenance of Existence. Take all necessary action to
________________________
maintain BORROWER's legal existence.
E. Maintenance of Business. Do or cause to be done all things
_______________________
necessary to maintain and preserve BORROWER's business.
F. Maintenance of Insurance. Keep all of BORROWER's properties
________________________
(specifically including, but not limited to, the Collateral)
adequately insured against loss or damage by fire and such other
casualties and hazards as the BANK may specify from time to time;
maintain adequate Workman's Compensation Insurance under
applicable laws, Comprehensive General Public Liability
Insurance, and products liability insurance; and maintain
adequate insurance covering such other risks as the BANK may
reasonably specify from time to time hereafter. All insurance
required hereunder shall be effected by valid and enforceable
policies issued by insurers of recognized responsibility
authorized to transact business within the states of New
Hampshire or Kansas, as the case may be, and shall, inter alia,
_____ ____
(1) name the BANK as an additional insured and/or loss payee, (2)
provide that no action of the BORROWER shall void any such policy
as to the BANK, and (3) provide that the BANK shall be notified
in writing of any proposed cancellation of such policy at least
thirty (30) days in advance thereof and will have the opportunity
to correct any deficiencies justifying such proposed
cancellation. For the purposes of this Paragraph, an insurance
policy shall be deemed to be "adequate" if it provides coverage
against such risks and in such amounts as is customarily carried
by owners of similar businesses and properties.
G. Inspection by the BANK. Upon prior reasonable notice (other
______________________
than in emergencies when no notice shall be required) and during
normal business hours, permit any person designated by the BANK
to inspect any of its properties, including its books, records,
and accounts (and including the making of copies thereof and
extracts therefrom) during normal business hours.
H. Prompt Payment of Taxes. Accrue its tax liability (including
_______________________
withholdings for employee taxes and social security) in
accordance with usual accounting practice and pay or discharge
(or cause to be paid or discharged) as they become due all taxes,
assessments, and government charges upon its property,
operations, income and products (as well as all claims for labor,
materials or supplies), which, if unpaid might become a lien upon
any of its property; provided, that the BORROWER shall, prior to
payment thereof, have the right to contest such taxes,
assessments and charges in good faith by appropriate proceedings
so long as the BANK's interests are protected by bond, letter of
credit, escrowed funds or other appropriate security.
I. Notification of Default Under This and Other Loan or
____________________________________________________
Financing Arrangements. Promptly notify the BANK in writing of
______________________
the occurrence of any Event of Default under this Agreement or
any other loan or financing arrangement to which the BORROWER is
a party.
J. Notification of Litigation. Promptly notify the BANK in
__________________________
writing of any litigation that has been instituted or is pending
or threatened which might have a material adverse affect on its
continued operations or financial condition.
K. Notification of Governmental Action. Promptly notify the
___________________________________
BANK in writing of any governmental investigation or proceeding
that has been instituted or is pending or threatened, including
without limitation, matters relating to the federal or state tax
returns of the BORROWER or the guarantor, compliance with the
Occupational Safety and Health Act, or proceedings by the
Treasury Department, Labor Department, or Pension Benefit
Guaranty Corporation with respect to matters affecting employee
welfare, benefit or retirement programs.
L. Preservation of the Collateral. Take all reasonably
______________________________
necessary steps to preserve, protect and defend the Collateral
and keep it in good operating condition and repair (reasonable
wear and tear excepted) and free of unpermitted liens and give
BANK access to and permit it to inspect the Collateral during all
business hours and other reasonable times.
M. Maintenance of Records. Keep adequate records and books of
______________________
account, in which complete entries will be made in a manner
reasonably acceptable to the BANK and consistently applied,
reflecting all financial transactions of the BORROWER.
N. Compliance With Laws. Comply in all material respects with
____________________
all applicable laws, rules, regulations, and orders, such
compliance to include, without limitation, paying before the same
become delinquent all taxes, assessments, and governmental
charges imposed upon it or upon its property; provided, however,
________ _______
that BORROWER shall be entitled to contest the same in good faith
so long as such action, in the BANK's sole opinion, does not have
an adverse affect upon the BANK's rights hereunder or the
Collateral.
O. Accounts, Deposits, and Balances. BORROWER shall maintain
________________________________
its primary operating and deposit accounts with the BANK.
P. Notification of Material Adverse Changes. Promptly notify
________________________________________
the BANK in writing of any conditions or circumstances which
might have a material adverse effect on BORROWER's continued
operations or financial condition.
Q. Additional Financial and Other Covenants. Comply with the
________________________________________
additional financial and other covenants set forth on Schedule B
__________
attached hereto.
IX. NEGATIVE COVENANTS. Until payment in full of all
indebtedness under the Loans and the other Obligations, BORROWER,
jointly and severally, covenants that the BORROWER will not,
without the express prior written consent of the BANK, which
consent shall not be unreasonably withheld:
A. Nature and Scope of Business. Enter into any type of
____________________________
business other than that in which it is presently engaged, or
otherwise significantly change the scope or nature of its
business.
B. Additional Indebtedness. Incur indebtedness for borrowed
_______________________
money (or issue or sell any of its bonds, debentures, notes or
similar obligations) except: (1) borrowings under the Loans; (2)
other Obligations to the BANK; (3) borrowings used to prepay in
full the Obligations; (4) ordinary unsecured trade account
payables; (5) borrowings up to the aggregate maximum principal
amount of Two Hundred Fifty Thousand Dollars ($250,000.00) in
each fiscal year to be used by the BORROWER in the ordinary
course of its business; and, (6) the Subordinated Debt.
C. Liens and Mortgages. Incur, create, assume or suffer to
___________________
exist any mortgage, pledge, lien, attachment, charge or other
encumbrance of any nature whatsoever on any of the properties or
assets of BORROWER, including, but not limited to, the
Collateral, now or hereafter owned, other than (1) the security
interests or liens granted to the BANK pursuant to the Loan
Documents; (2) deposits under Workmen's Compensation,
Unemployment Insurance and Social Security laws; (3) liens
imposed by law, such as carriers, warehousemen's or mechanic's
liens incurred in good faith in the ordinary course of business,
and which do not in the aggregate have a material adverse effect
on the BORROWER's financial condition or the Collateral; (4) the
Permitted Encumbrances; and (5) purchase money security interests
securing only borrowings permitted under clause (5) of Paragraph
B of this Section IX above.
D. Acquisition of Stock. Purchase, redeem or otherwise acquire
---------------------
for value any of the outstanding capital stock of the BORROWER.
E. Merger. Enter into any merger or acquisition in excess of
------
the aggregate amount of Two Hundred Fifty Thousand Dollars
($250,000.00) per annum, or any consolidation, reorganization, or
liquidation.
F. Management. Change the current executive management of the
----------
BORROWER.
G. Loans. Loan money or make advances to officers to officers,
-----
stockholders, subsidiaries, or affiliates of BORROWER in excess
of Two Hundred Fifty Thousand Dollars ($250,000.00).
H. Places of Business; Location of Collateral. Maintain or
------------------------------------------
relocate to, open or close, any other place of business or move
any of the Collateral from the Premises, except upon thirty (30)
days prior written notice to the BANK.
X. CONDITIONS PRECEDENT TO MAKING OF LOANS. The obligation of
the BANK to make any Loan and make disbursements and advances of
the proceeds of the same to the BORROWER is subject to the
satisfaction by the BORROWER or its representatives of the
following conditions precedent with respect to such Loan: (1)
BORROWER has executed and delivered all of the Loan Documents
deemed appropriate and necessary by the BANK, in form and
substance satisfactory to the BANK, including, but not limited
to, the documents described on the Closing Agenda attached hereto
as Schedule C; (2) the BORROWER's warranties and representations
----------
as contained herein and in the Loan Documents shall be accurate
and complete and BANK has received satisfactory evidence of the
same, including, at BANK's option, an opinion of BORROWER's legal
counsel to that effect; and (3) the BORROWER shall not be in
default under any of the covenants, warranties, representations,
terms, or conditions contained in this Agreement or in the Loan
Documents as of the date of entering into such Loan and as of the
date of each disbursement and advance thereunder.
XI. EVENTS OF DEFAULT; ACCELERATION. The occurrence of any one
or more of the following events shall constitute a default under
this Agreement, each of the Loan Documents, and each of the
Obligations (individually, an "Event of Default", and
collectively, "Events of Default"): (1) if any statement,
representation or warranty made by the BORROWER in this Agreement
or in any of the Loan Documents, or in connection with any of the
same, or if any financial statement, report, schedule, or
certificate furnished by the BORROWER or any of its officers or
accountants to the BANK, shall prove to have been false or
misleading when made, or subsequently becomes false or
misleading, in any material respect (as determined in the BANK's
sole discretion); (2) default by the BORROWER in payment on its
due date of any principal or interest called for under any of the
Loans or the Loan Documents, or of other amounts due under any
other of the Obligations, or other event of default under the
Loan Documents or the other Obligations, provided such default is
not cured within any applicable grace period thereunder; (3)
default by the BORROWER in payment on its due date of any
principal or interest called for under any of the Subordinated
Debt; (4) default by the BORROWER in the performance or
observance of any of the provisions, terms, conditions,
warranties or covenants of this Agreement, the Loan Documents, or
any other of the Obligations; (5) the dissolution, termination of
existence, merger or consolidation of any BORROWER or a sale of
BORROWER's business or the Collateral not in the ordinary course
of business; (6) BORROWER shall (a) apply for or consent to the
appointment of a receiver, trustee or liquidator of it or any of
its property, (b) make a general assignment for the benefit of
creditors, (c) be adjudicated as bankrupt or insolvent, (d) file
a voluntary petition in bankruptcy, or a petition or an answer
seeking reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation under any law or statute, or an
answer admitting the material allegations of a petition filed
against it in any proceeding under any such law or statute, or
(e) offer or enter into any composition, extension or arrangement
seeking relief or extension of its debts; (7) proceedings shall
be commenced or an order, judgment or decree shall be entered,
without the application, approval or consent of any BORROWER, in
or by any court of competent jurisdiction, relating to the
bankruptcy, dissolution, liquidation, reorganization or the
appointment of a receiver, trustee or liquidator of BORROWER, or
of all or a substantial part of its assets, and such proceedings,
order, judgment or decree shall continue undischarged or unstayed
for a period of sixty (60) days; (8) BORROWER's inability to pay
its debts as they mature or other act of insolvency, however
defined and determined by the BANK in its sole discretion; (9) a
judgment for the payment of money shall be rendered against
BORROWER and the same shall remain undischarged for a period of
thirty (30) days, during which period execution shall not be
effectively stayed; or (9) if BANK otherwise deems itself
insecure within the meaning of New Hampshire RSA 382-A:1-208 (as
amended).
Upon the occurrence of any Event of Default, the BANK's
commitment to make further Loans under the Loan Documents or any
other agreement with the BORROWER, and to make any advances or
disbursements under any Loan, shall immediately cease and
terminate and, at the election of the BANK, all of the
Obligations of the BORROWER to the BANK, either under this
Agreement, the Loan Documents, or otherwise, will immediately
become due and payable without further demand, notice or protest,
all of which are hereby expressly waived. Thereafter, the BANK
may proceed to protect and enforce its rights, at law, in equity,
or otherwise, against the BORROWER, and any other endorser or
guarantor of the BORROWER's Obligations, either jointly or
severally, and may proceed to liquidate and realize upon any of
its Collateral in accordance with the rights of a secured party
under the Uniform Commercial Code, under any other applicable
law, under any Loan Documents, under any other agreement between
the BORROWER and the BANK, or under any agreement between any
guarantor or endorser of the BORROWER's Obligations to the BANK,
and to apply the proceeds thereof to payment of the Obligations
of the BORROWER to the BANK in such order and in such manner as
the BANK, in its sole discretion, deems appropriate.
XII. MISCELLANEOUS PROVISIONS.
A. Entire Agreement; Waivers. This Agreement, the Schedules
_________________________
hereto, and the Loan Documents together constitute the entire
agreement between the BORROWER and the BANK and no covenant,
term, condition or other provision thereof nor any default in
connection therewith may be waived except by an instrument in
writing, signed by the BANK and delivered to the BORROWER. The
BANK's failure to exercise or enforce any of its rights, powers
or privileges under this Agreement or the Loan Documents shall
not operate as a waiver thereof. In the event of any conflict
between the terms, covenants, conditions and restrictions
contained in the Loan Documents, the term, covenant, condition or
restriction which confers the greatest benefit upon the BANK
shall control. The determination as to which term, covenant,
condition or restriction is more beneficial shall be made by the
BANK in its sole discretion.
B. Remedies Cumulative. All remedies provided under this
___________________
Agreement and the Loan Documents or afforded by law shall be
cumulative and available to the BANK until all of the BORROWER's
Obligations to the BANK have been paid in full.
C. Survival of Covenants. All covenants, agreements,
_____________________
representations and warranties made in this Agreement and in the
Loan Documents shall be deemed to be material and to have been
relied on by the BANK, notwithstanding any investigation made by
the BANK or in its behalf, and shall survive the execution and
delivery of this Agreement and the Loan Documents. All such
covenants, agreements, representations and warranties shall bind
and inure to the benefit of the BORROWER's and the BANK's
successors and assigns, whether so expressed or not.
D. Governing Law; Jurisdiction. This Agreement and the Loan
___________________________
Documents shall be construed and their provisions interpreted
under and in accordance with the laws of the State of New
Hampshire. The BORROWER, to the extent they may legally do so,
hereby consents to the jurisdiction of the courts of the State of
New Hampshire and the United States District Court for the State
of New Hampshire for the purpose of any suit, action or other
proceeding arising out of any of their obligations hereunder or
with respect to the transactions contemplated hereby, and
expressly waive any and all objections they may have to venue in
any such courts.
E. Assurance of Execution and Delivery of Additional
_________________________________________________
Instruments. The BORROWER agrees to execute and deliver, or to
___________
cause to be executed and delivered, to the BANK all such further
instruments, and to do or cause to be done all such further acts
and things, as the BANK may reasonably request or as may be
necessary or desirable to effect further the purposes of this
Agreement and the Loan Documents.
F. Waivers and Assents. The BORROWER, and any guarantor or
___________________
endorser of the BORROWER's Obligations to the BANK, hereby waive,
to the fullest extent permitted by law, all rights to marshalling
of assets and all rights to demand, notice, protest, notice of
acceptance of this Agreement and the Loan Documents, notice of
Loans made, credit extended, Collateral received or delivered or
other action taken in reliance hereon and all other demands and
notices of any description with respect both to the Loan
Documents and the Collateral. The BORROWER assents to any
extension or postponement of the time of payment or any other
indulgence, to any substitution, exchange or release of
Collateral, to the addition or release of any party or person
primarily or secondarily liable, to the acceptance of partial
payments thereon and the settlement, compromising or adjusting of
any thereof, all in such manner and at such time or times as the
BANK may deem advisable.
G. No Duty of the BANK With Respect to the Collateral. Except
__________________________________________________
as may otherwise be specifically required under the Uniform
Commercial Code, the BANK shall have no duty as to the collection
or protection of Collateral or any income thereon, nor as to the
preservation of rights against prior parties, nor as to the
preservation of any rights pertaining thereto, beyond the safe
custody thereof.
H. Election of the BANK. The BANK may exercise its rights with
____________________
respect to Collateral without resorting or regard to other
collateral or sources of reimbursement for the Obligations of
BORROWER to the BANK.
I. Assignment. If at any time, by assignment or otherwise, the
__________
BANK transfers its rights in any of the BORROWER's Obligations
and its rights in Collateral therefor, in whole or in part, such
transfer shall carry with it the powers and rights of the BANK
under this Agreement, the Loan Documents, and the Collateral so
transferred and the transferee shall become vested with such
powers and rights whether or not they are specifically referred
to in the instrument evidencing the transfer. The BANK agrees to
notify BORROWER of any such transfer by assignment or otherwise.
If, and to the extent that the BANK retains such rights and
Collateral, the BANK shall continue to have the rights and powers
herein set forth with respect thereto. This Agreement and the
Loan Documents shall be binding upon and inure to the benefit of
the BANK, the BORROWER and the guarantor, their successors,
assigns, heirs and personal representatives; provided, however,
the rights and obligations of the BORROWER are not assignable,
delegable or transferable without the consent of the BANK. All
of the rights of the BANK under this Agreement and the Loan
Documents shall inure to the benefit of any participating BANK or
BANKS and its or their successors and assigns.
J. Expenses; Proceeds of Collateral. The BORROWER covenants and
________________________________
agrees that it shall pay to the BANK, on demand, any and all
reasonable out-of-pocket expenses, including reasonable
attorneys' fees, court costs, sheriffs' fees, and other expenses
incurred or paid by the BANK in protecting and enforcing its
rights under this Agreement, the Loan Documents, and the other
Obligations, including the costs of preparation of any
amendments, modifications, consents, or waivers in respect of the
Loan Agreements or the Loan Documents, and all filing, auditing,
accounting, and appraisal fees. After deducting all of said
expenses and the reasonable expenses of retaking, holding,
preparing for sale, selling and the like, the residue of any
proceeds of collections or sale of Collateral shall be applied to
the payment of principal of or interest on Obligations of the
BORROWER to the BANK in such order or preference as the BANK may
determine, and any excess shall be returned to the BORROWER
(subject to the provisions of the Uniform Commercial Code) and
the BORROWER shall remain liable for any deficiency.
K. The BANK's Right of Offset. The BORROWER hereby grants to
__________________________
the BANK a continuing security interest in, and the right to set
off against, any deposits or other sums at any time credited or
due from the BANK to the BORROWER, and any securities or other
property of the BORROWER which at any time are in the possession
of the BANK, for the payment of any Obligations due the BANK.
The BANK may apply or set off such deposits or other sums against
the BORROWER's Obligations whether or not the Collateral is
considered by the BANK to be adequate. The BORROWER expressly
grants to the BANK the right to set off and apply such deposits
and sums without having to resort to recourse to any other
Collateral in which the BANK has a security interest.
L. Notices. All notices, requests, demands and other
_______
communications provided for hereunder shall be in writing
(including telegraphic communication) and shall be either mailed
by certified mail, return receipt requested, or delivered by
overnight courier service, to the applicable party at the
addresses set forth in this Agreement.
M. Savings Clause. Any provision of this Agreement or any of
______________
the Loan Documents which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or thereof or
affecting the validity or enforceability of such provision in any
other jurisdiction.
N. Term of this Agreement and the Loan Documents. This
_____________________________________________
Agreement and the Loan Documents shall remain in full force and
effect until all of the Obligations have been paid in full, all
of the terms, conditions and covenants under the Loan Documents
have been performed, and all commitments of the BANK advance
funds under any of the Loans have terminated.
O. Interest Rate Provisions. The interest rate provisions of
________________________
each of the Obligations are subject to the condition that in no
event shall the amount paid or agreed to be paid to the holder of
such Obligation which is deemed interest under applicable law
exceed the maximum rate of interest on the unpaid principal
balance of such Obligation allowed by applicable law, if any,
(the "Maximum Allowable Rate"). For purposes hereof, "applicable
law" shall mean the law in effect on the date hereof, except that
if there is a change in such law which results in a higher
Maximum Allowable Rate being applicable to the Obligation subject
thereto, then such Obligation shall be governed by such amended
law from and after its effective date. In the event that
fulfillment of any provisions of any Obligation results in the
interest rate thereunder being in excess of the Maximum Allowable
Rate, then amount to be paid thereunder resulting in an excessive
interest rate shall automatically be reduced to eliminate such
excess. If notwithstanding the foregoing, the holder of such
Obligation receives an amount which under applicable law would
cause the interest rate thereunder to exceed the Maximum
Allowable Rate, the portion thereof which would be excessive
shall automatically be applied to and deemed a prepayment of the
unpaid principal balance under such Obligation and not a payment
of interest.
P. Waiver of Jury Trial. THE BORROWER WAIVES ANY RIGHTS IT MAY
____________________
HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATING
TO THIS AGREEMENT OR ANY OF THE LOAN DOCUMENTS, AND AGREES THAT
ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A
JURY.
IN WITNESS WHEREOF, the BANK and the BORROWER have executed this
Agreement all as of the day and year first above written.
CITIZENS BANK NEW HAMPSHIRE
/s/ Vasiliki M. Canotas By: /s/ Philip J. Morrilly, Assistant VP
----------------------- -------------------------------------
Witness Phillip J. Morrilly, Assistant Vice
President
AMERICAN ELECTROMEDICS CORP.
/s/ Vasiliki M. Canotas By: /s/ Michael T. Pieniazek, Chief
------------------------ ----------------------------------
Witness Financial Officer
-----------------
Signature and Title/Duly Authorized
<PAGE>
CITIZENS BANK NEW HAMPSHIRE
LOAN AGREEMENT
SCHEDULE A
__________
BORROWING BASE AND CASH MANAGEMENT PROVISIONS
I. PERCENTAGES AND DEFINITIONS FOR DETERMINATION OF BORROWER'S
REVOLVING LINE OF CREDIT BORROWING BASE UNDER SECTION I. A.
APPLICABLE PERCENTAGE OF ACCEPTABLE ACCOUNTS: 80%
APPLICABLE PERCENTAGE OF ACCEPTABLE INVENTORY: 50%
DEFINITION OF ACCEPTABLE ACCOUNTS: The term "Acceptable
Accounts" means those accounts and accounts receivable of
BORROWER as the BANK determines to be satisfactory, in the BANK's
sole discretion. Subject to the foregoing, "Acceptable Accounts"
shall be accounts of the BORROWER: (i) which arise in the
ordinary course of BORROWER's business from BORROWER's
performance of services or sale of goods which have been
performed or sold; (ii) which are not more than ninety (90) days
old from the date of the invoice (in the event that more than
fifty percent (50%) of the accounts of any one account debtor are
more than ninety (90) days old from the date of the invoice then
all accounts of such account debtor shall be excluded from
Acceptable Accounts); (iii) which are not evidenced by a
promissory note or other instrument; (iv) which are payable in
U.S. Dollars; (v) which are owed by any customer whose principal
place of business is within the United States or any foreign
accounts which are FCIA-insured or secured by a letter of credit
acceptable to the BANK; (vi) which are owed by any corporation or
other entity other than one which is related to the BORROWER, or
is of common ownership with the BORROWER, or could be treated as
a member of the same controlled group of corporations of which
the BORROWER is a member; (vii) which constitute valid, binding,
and enforceable obligations of account debtors which are not
subject to any claim, counterclaim, set off, credit, allowance,
or chargeback; (viii) as to which the BORROWER has received no
notice and has no knowledge as to whether the account debtor (or
any guarantor or endorser thereof) is bankrupt or insolvent, or
any other facts which make the collection of the account
doubtful; (ix) which are not owed by any person employed by, or
salesman of, the BORROWER; (x) which do not arise out of the sale
by the BORROWER of goods consigned or delivered to the BORROWER
on "sell or return" terms (whether or not compliance has been
made with Section 2-326 of the UCC); and (xi) which do not arise
out of any sale made on a "bill and hold", dating, or delayed
shipping basis. Accounts payable by BORROWER to any account
debtor shall be netted against accounts due from such debtor.
DEFINITION OF ACCEPTABLE INVENTORY: The term "Acceptable
Inventory" shall mean inventory of BORROWER. Inventory shall be
valued at the lower of cost on a "first-in/first-out" basis or
fair market value and shall be inventory which is owned for sale
in the ordinary course of BORROWER's business as presently
conducted by it and held by BORROWER at its principal place of
business in Amherst, New Hampshire, and, in all cases, which is
subject to a valid and prior, fully perfected security interest
of BANK, free of all security interests or liens of any other
person.
The following inventory will not, in any event, constitute
----
Acceptable Inventory:
(a) inventory which is obsolete, not in good
condition, not of merchantable quality or saleable in the
ordinary course of business or which is subject to defects
which would affect its market value;
(b) work in process;
(c) supplies and packaging materials and labels;
(d) inventory which BANK, in its sole discretion
exercised in good faith, determines to be ineligible because
of age, type, category, or quantity; and
(e) inventory in the possession of any person other
than BORROWER, except to the extent that the BANK has a
valid and prior, fully perfected security interest in
inventory held by any person other than the BORROWER.
BORROWING BASE CERTIFICATE. BORROWER, shall furnish the
BANK on a monthly basis with a Borrowing Base Certificate
substantially in the form attached hereto as Exhibit A-1, which
___________
shall be accompanied by aging reports and inventory summary
reports by location and product, all in a form reasonably
acceptable to the BANK. The acceptance of or characterization by
the BANK of any account as an Acceptable Account or inventory as
Acceptable Inventory shall not be deemed a determination by the
BANK as to its actual value nor in any way obligate BANK to
accept any account arising subsequently from such debtor to be,
or to continue to deem such account to be, an Acceptable Account.
All accounts and inventory of BORROWER whether Acceptable
Accounts, Acceptable Inventory, or not, shall constitute
Collateral under the Security Agreement.
<PAGE>
CITIZENS BANK NEW HAMPSHIRE
LOAN AGREEMENT
SCHEDULE A
EXHIBIT A-1
BORROWING BASE CERTIFICATE
The undersigned hereby certifies to Citizens Bank New
Hampshire (the "BANK) pursuant to Schedule A of the Loan
__________
Agreement (the "Agreement") dated October ___, 1996, as follows:
Calculation of Borrowing Base:
_____________________________
1. Total Accounts Receivable as of
, 199__, as per
_________________
attached Aging Report ("Certified
Accounts") $
______________
2. Disqualified Accounts:
Accounts over 90 days from
invoice due date $
_____________
Intercompany accounts $
_____________
Other non-qualifying accounts $
_____________
Total Disqualified Accounts $
_____________
3. Item 1 minus item 2 ("Acceptable
Accounts") $
______________
4. Advance Rate on Acceptable
Accounts per Agreement 80%
______________
5. Item 3 times item 4 $
______________
6. Total Acceptable Inventory as of
, 199 , as per attached
________ __
Inventory Statement $
______________
7. Advance Rate on Acceptable Inventory 50%
______________
8. Item 6 times Item 7 $
______________
AVAILABLE COMMITMENT:
9. Available Commitment under Revolving
Line of Credit (Lesser of Item 5 plus
Item 8 or $400,000.00) $
__ ______________
Based upon the foregoing calculation made as of the close of
business on the date indicated below, the undersigned hereby
requests that the BANK make advances to BORROWER under the
Revolving Line of Credit Loan in accordance with the provisions
of Section I of Schedule A of the Loan Agreement, which advances,
__________
when added to the outstanding principal amount of all other
advances under the Revolving Line of Credit Loan, do not exceed
the Available Commitment. Except as set forth in the
accompanying letter, the undersigned hereby reasserts and
restates all representations and warranties set forth in the
Agreement as of the date hereof and certifies that no Event of
Default under the Agreement, or any event which with the passage
of time or the giving of notice, or both, would constitute an
Event of Default, has occurred and is continuing. Each
capitalized term used, but not defined herein, shall have the
respective meaning set forth in the Agreement.
WITNESS the execution hereof on the day of
____
, 199 .
______________ __
AMERICAN ELECTROMEDICS CORP.
By:
____________________ ____________________________________
Witness Signature and Title/Duly Authorized
<PAGE>
CITIZENS BANK NEW HAMPSHIRE
LOAN AGREEMENT
SCHEDULE B
__________
ADDITIONAL TERMS AND CONDITIONS
I. Fees Payable by BORROWER
________________________
A. Revolving Line of Credit Loan
Origination Fee: $2,000.00
Annual Renewal Fee: $500.00<PAGE>
B. Term Loan
Business Finance Authority Origination Fee: $20,000.00
II. Description of Financial Statements to be Delivered:
___________________________________________________
A. Annual financial statements of BORROWER within one hundred
twenty (120) days after the end of each fiscal year, including
balance sheets and statements of income, retained earnings and
surplus, and a statement of cash flow, together with supporting
schedules, setting forth in each case comparative figures for the
preceding fiscal year, and in each case audited by an independent
certified public accountant reasonably acceptable to Bank.
B. Quarterly financial statements of BORROWER within forty-five
(45) days after the end of each fiscal quarter, including balance
sheets and statements of income and cash flow, together with
supporting schedules, all as prepared by BORROWER.
D. United States Securities and Exchange Commission Annual
Report on Form 10K of BORROWER within one hundred twenty (120)
days after the end of each fiscal year.
E. Annual financial statements of BORROWER's affiliate, Rosch,
GMBH, within one hundred twenty (120) days after the end of each
fiscal year, including balance sheets and statements of income,
retained earnings and surplus, and a statement of cash flow,
together with supporting schedules, setting forth in each case
comparative figures for the preceding fiscal year, and in each
case reviewed by an independent certified public accountant
reasonably acceptable to Bank.
F. Full accounts receivable aging reports of BORROWER to be
prepared and delivered within fifteen (15) days of the end of
each month.
III. Minimum Balance in Demand Deposit Account to be Maintained:
----------------------------------------------------------
Minimum Federal Reserve requirement.
IV. Description of Additional Financial and other Covenants:
-------------------------------------------------------
A. BORROWER shall have a Tangible Capital Base (as
hereinafter defined) (i) as at October 31, 1996 and through July
30, 1997, equal to at least One Million Six Hundred Thousand
Dollars ($1,600,000.00); and (ii) as at July 31, 1997 and as at
each July 31st thereafter, the foregoing Tangible Capital Base of
BORROWER shall be increased by an additional Two Hundred Thousand
Dollars ($200,000.00) (i.e.., $1,800,000.00 as at July 31, 1997,
$2,000,000 as at July 31, 1998, etc.). "Tangible Capital Base"
___
means total shareholders' equity less intangible assets less
____
Subordinated Debt, all as determined in accordance with generally
accepted accounting principles from BORROWER'S financial
statements delivered to the BANK in accordance with the covenants
of the BORROWER hereinabove (the "Financial Statements").
B. BORROWER shall have "Debt Service Coverage" (as
hereinafter defined) of not less than 1.25:1 as at each fiscal
year end. For purposes hereof, "Debt Service Coverage" shall
mean the ratio of BORROWER'S net income for the prior twelve (12)
months ending on the date of determination, before reduction for
interest, depreciation, taxes, and amortization expense, plus
shareholders' equity injections or increases in Subordinated
Debt, less capital expenditures not financed by the BANK or third
parties, to the aggregate amount of interest and current
maturities on long term indebtedness, capital lease payments, and
other similar fixed charges payable by BORROWER for such period,
all as determined in accordance with generally accepted
accounting principals from the Financial Statements.
C. BORROWER shall have a ratio of Total Senior Debt (as
hereinafter defined) to Tangible Capital Base (i) not greater
than 1:1 as at October 31, 1996; (ii) not greater than .75:1 as
at July 31, 1997 and (iv) less than .50:1 as at July 31, 1998..
"Total Senior Debt" means total liabilities (including capital
leases), other than Subordinated Debt, all as determined in
accordance with generally accepted accounting principles from the
Financial Statements.
D. BORROWER shall report and certify to BANK compliance
with the financial covenants hereinabove within fifteen (15) days
of the end of each month on such form or forms as may from time
to time be specified by the BANK.
EXHIBIT 10.9.2
SECURITY AGREEMENT
------------------------
SECURITY AGREEMENT (the "Agreement"), made this 4th day of
October, 1996, by and between AMERICAN ELECTROMEDICS CORP., a
Delaware corporation, with a principal place of business at 13
Columbia Drive, Amherst, New Hampshire 03031 (the "Debtor"), and
CITIZENS BANK NEW HAMPSHIRE, a guaranty savings bank organized
under the laws of the State of New Hampshire with an address of
One Trafalgar Square, Nashua, New Hampshire 03063(the "Secured
Party").
WITNESSETH:
-------------------
WHEREAS, pursuant to a Loan Agreement of even date (the
"Loan Agreement"), Secured Party has granted to Debtor certain
credit facilities including a revolving line of credit loan in
the principal amount of up to Four Hundred Thousand Dollars
($400,000.00) (the "Revolving Line of Credit Loan"), and a term
loan in the principal amount of Five Hundred Thousand Dollars
($500,000.00) (the "Term Loan") (collectively, the Revolving Line
of Credit Loan and the Term Loan are sometimes hereinafter
referred to as the "Loan"), all as set forth and described in the
Loan Agreement; and
WHEREAS, the obligation of the Secured Party to make the
Loan to the Debtor is subject to the condition, among others,
that the Debtor shall execute and deliver this Agreement and
grant the security interests hereinafter described. Terms not
otherwise defined herein shall have the meanings ascribed to them
in the Loan Agreement.
NOW, THEREFORE, in consideration of the willingness of the
Secured Party to make the Loan to the Debtor and for other good
and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
1. Security Interest. As security for the Secured
-----------------
Obligations described in Section 2 hereof, Debtor hereby grants
to the Secured Party a first priority security interest in and
lien on all of the property and assets of each Debtor, including,
but not limited to the property of the types described below
(hereinafter referred to collectively as the "Collateral"):
(a) All equipment, including machinery, motor
vehicles, office equipment, furniture, fixtures, along with
all other parts, tools, trade-ins, repairs, accessories,
accessions, modifications, and replacements, whether now
owned or subsequently acquired, constructed, or attached or
added to, or placed in, the foregoing (collectively, the
"Equipment");
(b) All inventory, wherever located, including goods,
merchandise and other personal property, held for sale or
lease or furnished or to be furnished under a contract of
service, or constituting raw materials, work in process or
materials used or consumed in the Debtor's business, or
consigned to others or held by others for return to the
Debtor, whether now owned or subsequently acquired or
manufactured and wherever located (collectively, the
"Inventory");
(c) All accounts receivable, including, without
limitation, accounts, contracts, contract rights, chattel
paper, instruments, rents, deposits, general intangibles,
and any other obligations of any kind whether now existing
or hereafter arising out of or in connection with the sale
or lease of goods or the rendering of services, and all
rights now or hereafter existing in and to all security
agreements, notes, leases, licenses, franchises, supply
agreements, and other contracts securing or otherwise
relating to any such accounts, contracts, contract rights,
chattel paper, instruments, rents, deposits, general
intangibles, or obligations (any and all such accounts,
contracts, contract rights, chattel paper, instruments,
rents, deposits, general intangibles, and obligations being
the "Receivables", and any and all such security agreements,
notes, leases, licenses, franchises, supply agreements, and
other contracts being the "Related Contracts");
(d) All general intangibles, including, but not
limited to, corporate names, trade names, trademarks, trade
secrets, patents, proprietary rights, intellectual property,
books and records, customer lists, blue prints and plans,
computer programs, tapes and related electronic data,
processing software, and all corporate ledgers;
(e) Any and all additions, accessions, substitutions
or replacements to or for any of the foregoing;
(f) Any and all products and proceeds of any or all of
the foregoing, including, without limitation, cash, cash
equivalents, tax refunds and the proceeds of insurance
policies providing coverage against the loss or destruction
of or damage to any of the Collateral, or any indemnity,
warranty, or guarantee payable by reason of loss or damage
to or otherwise with respect to any of the Collateral
(whether or not the Secured Party is the loss payee
thereof);
(g) All of the Debtor's after-acquired property of the
kinds and types described in paragraphs (a) (f) herein;
(h) All records and data relating to any of the
property described above, whether in the form of a writing,
photograph, microfilm, microfiche, or electronic media,
together with all of the Debtor's right, title, and interest
in and to all computer software required to utilize, create,
maintain and process any of such records or data or
electronic media; and
also in (1) all checks, money, securities, bank accounts, deposit
accounts, and other accounts in the possession of or held by the
Secured Party whether in the name of the Debtor or in the name of
the Secured Party, and (2) all other property given by the Debtor
to the Secured Party pursuant to this Agreement. Additionally,
Debtor shall deliver to Secured Party assignment(s) of all United
States registered trademark(s) of Debtor now or hereafter
obtained. Upon an Event of Default hereunder and in connection
with disposition of the Collateral, the Secured Party or its
assignee may file such assignment(s) with the United States
Patent and Trademark Office, pursuant to an exercise of its
security interest hereunder, to effect a transfer of said
trademark(s). Prior to such time as Secured Party is entitled to
exercise its rights hereunder, the Secured Party shall hold all
assignments of trademarks hereunder in escrow.
2. Secured Obligations. The security interest hereby
--------------------
granted shall secure the following (the "Secured Obligations"):
(a) The Debtor's repayment of the principal amount of
up to Nine Hundred Thousand Dollars ($900,000.00), together
with interest, late charges, and any other applicable
charges, to the Secured Party pursuant to the Loan;
(b) The Debtor's payment or performance of its
obligations under the Loan Agreement and under the other
Loan Documents (as defined, described and identified in the
Loan Agreement, hereinafter the "Loan Documents"), as the
same may be amended, modified, extended, renewed, replaced
or restated;
(c) The payment of all other sums with interest and
charges thereon advanced in accordance herewith to protect
the validity, security, and priority of this Agreement, the
Loan Agreement, or the Loan Documents; and
(d) Any and all other indebtedness of Debtor to
Secured Party of every kind and description, direct or
indirect, absolute or contingent, due or to become due,
regardless of how they arose or were acquired, now existing
or hereafter arising.
3. Warranties and Representations of the Debtor. Debtor
--------------------------------------------
hereby makes the following representations and warranties which
shall survive the execution and delivery of this Agreement and
shall be continuing representations and warranties as long as any
Secured Obligation remains outstanding:
(a) All representations and warranties made in the
Loan Agreement and the Loan Documents relating to the Debtor
and the Collateral are true, accurate and complete in all
material respects;
(b) The Debtor's principal place of business is
located at the address first set forth above; the Debtor's
executive offices and the office where its books and records
are kept and are to be kept concerning the Receivables,
Related Contracts, and other Collateral are at the aforesaid
address; and the Debtor has no other places of business
except those set forth on Schedule I hereto;
----------
(c) The Debtor conducts business only under and
through the corporate, business and trade names first set
forth above.
(d) No material authorization, approval or other
action by, and no notice to or filing with, any governmental
authority or other person is required either (i) for the
grant by the Debtor of the security interests granted hereby
or for the execution, delivery or performance of this
Agreement by the Debtor, or (ii) for the perfection of or
the exercise by the Secured Party of its respective rights
and remedies hereunder, except the filing of financing
statements;
(e) The Debtor has good and marketable title to all of
the Collateral pledged by it hereunder, free and clear of
any liens, security interests, encumbrances or interests or
claims of any other person or entity, except those set forth
on Schedule II hereto, and there are no sums owed with
-----------
respect to the Collateral other than as disclosed on the
Debtor's financial statements delivered to the Secured
Party;
(f) Upon the filing of UCC-1 financing statements
being delivered at or prior to the execution hereof, the
Secured Party will have a valid, perfected first security
interest in all of the Collateral which may be perfected by
filing of financing statements.;
(g) The Debtor has not performed any acts which might
prevent the Secured Party from enforcing any of the material
terms and conditions of this Agreement or which would limit
any of them in any such enforcement;
(h) Schedule III attached hereto sets forth the
-----------
description and location of all Collateral not located at
the Debtor's principal place of business, together with a
list of the record owners of and record holders of liens
against the real estate on which such Collateral is located;
and
(i) No effective financing statements or other similar
instrument in effect covering all or any part of the
Collateral is on file in any recording office, except as may
have been filed in favor of Secured Party relating to this
Agreement.
4. Affirmative Covenants of the Debtor.
-------------------------------------
(a) The Debtor shall promptly notify and provide the
Secured Party with a complete description of the opening of
any new places of business, the closing of any existing
places of business, the conduct of business under any names
or through any entities other than those set forth herein,
the relocation of any of the Collateral to any new place of
business or any other act which would affect the financing
statements filed by the Secured Party;
(b) The Debtor shall continuously take all steps that
are necessary or prudent to protect the security interests
of the Secured Party in the Collateral;
(c) The Debtor shall defend the Collateral against the
claims and demands of all persons;
(d) The Debtor shall deliver and pledge to the Secured
Party, endorsed or accompanied by instruments of assignment
or transfer satisfactory to the Secured Party, any
instruments, documents, and chattel paper which the Secured
Party may reasonably specify;
(e) The Debtor shall comply, in all material respects,
with all governmental regulations applicable to the
Collateral or any part thereof or to the operation of the
Debtor's business; provided, however, that the Debtor may
contest any governmental regulation in any reasonable manner
which shall not in the reasonable opinion of the Secured
Party adversely affect the Secured Party's rights or the
first priority of its security interest in the Collateral;
(f) The Debtor shall pay promptly when due, all taxes,
assessments and governmental charges or levies imposed upon
the Collateral or in respect of its income or profits
therefrom, as well as all claims of any kind, except that no
such charge need be paid if (i) the validity thereof is
being contested in good faith by appropriate proceedings,
(ii) such proceedings do not involve any danger of the sale,
forfeiture or loss of any of the Collateral or any interest
therein; and (iii) such charge is adequately reserved
against in accordance with the generally accepted accounting
principles;
(g) The Debtor shall cause the Equipment to be
maintained and preserved in the same condition, repair and
working order as when new, and shall make all repairs,
replacements, additions, and other improvements necessary to
maintain the Equipment in such good condition;
(h) The Debtor shall maintain Inventory sufficient to
meet the needs of its business;
(i) The Debtor shall preserve all beneficial Related
Contracts;
(j) The Debtor shall take all commercially reasonable
steps necessary to collect the Receivables;
(k) The Debtor shall assure that (i) no Receivable is
or shall be subject to any defense, offset, counterclaim,
discount, or allowance, (ii) no agreement under which any
deduction, discount, credit or allowance of any kind may be
granted or allowed shall have been or shall thereafter be
made by Debtor with any account party without the consent of
Secured Party, (iii) all statements made and all unpaid
balances appearing in the invoices, documents, agreements
relating to each Receivable are and shall be true, genuine,
and correct in all respects, and (iv) no Receivable shall be
converted to a note or other instrument unless the same
shall be delivered to the possession of the Secured Party
within ten (10) days of the date of execution of such note
or instrument;
(l) The Debtor shall, with respect to any Collateral
which consists of trucks, automobiles, or other motor
vehicles, or any other Collateral required to be titled,
deliver all titles thereto to the Secured Party to be held
by the Secured Party and Debtor shall make, execute, and
deliver any and all applications, and take such other action
to assure that the Secured Party is listed of record as the
first priority and sole lienholder on all title
certificates;
(m) Debtor shall keep accurate and complete records
listing and describing the Collateral, and when requested by
Secured Party, Debtor shall give Secured Party a certificate
listing and describing the Collateral and setting forth the
total value of the Inventory, the total value of the
Equipment, the amount of the Receivables designating how
many days the Receivables are from the date of invoice, the
face value of any instruments, and any other information
Secured Party may request. Secured Party shall have the
right at any time to inspect the Collateral and to audit and
make copies of any records or other writings which relate to
the Collateral or the general financial condition of Debtor.
Secured Party may remove such records and writings for the
purpose of having copies made thereof;
(n) The Debtor shall advise the Secured Party
promptly, in reasonable detail, (i) of any lien, security
interest, encumbrance, or claim made or asserted against any
of the Collateral, (ii) of any material change, substantial
loss or depreciation in the composition of the Collateral,
and (iii) of the occurrence of any other material adverse
effect on the aggregate value, enforceability or
collectibility of the Collateral or on the security
interests created hereunder;
(o) The Debtor shall give, execute, deliver and file
or record in the proper governmental offices, any
instrument, paper or document, including, but not limited
to, one or more financing statements under the Uniform
Commercial Code, reasonably satisfactory to the Secured
Party, or take any action which the Secured Party may deem
necessary or desirable in order to create, preserve,
perfect, extend, continue, modify, terminate or otherwise
effect any security interest granted pursuant hereto, or to
enable the Secured Party to exercise or enforce any of its
rights hereunder; and
(p) The Debtor shall keep, and stamp or otherwise
mark, any of its documents, instruments and chattel paper
and its books and records relating to any of the Collateral
in such manner as the Secured Party may reasonably require.
5. Covenants of the Debtor. Except as otherwise provided
------------------------
in the Loan Agreement or in this Agreement, without the prior
written consent of the Secured Party, the Debtor shall not:
(a) Transfer, sell or assign any of the Collateral
other than in the ordinary course of business;
(b) Allow or permit any other security interest or
lien to attach to any of the Collateral;
(c) File, authorize, or permit to be filed in any
jurisdiction any financing statement relating to any of the
Collateral unless the Secured Party is named as sole secured
party;
(d) Permit any of the Collateral to be levied upon
under any legal process;
(e) Permit anything to be done that may materially
impair the value of any of the Collateral or the security
therein intended to be afforded hereby; or
(f) Use the Collateral in violation of any law or in
any manner inconsistent with any policy of insurance
thereon.
6. Fixtures. It is the intention of the parties hereto
--------
that none of the Collateral shall become fixtures. Without
limiting the generality of the foregoing, the Debtor will, if
requested by the Secured Party, obtain waivers of lien, in form
satisfactory to the Secured Party, from each mortgagee or lessor
of real property (other than the Secured Party) on which any of
the Collateral is or is to be located.
7. Insurance. Debtor shall, at its own expense, maintain
---------
insurance covering the Collateral against such risks, with such
insurers, in such form, and in such amounts as shall from time to
time be required by Secured Party, but in any event, in such
amounts and with such coverage as is customary in Debtor's type
of business. All insurance policies shall be written so as to be
payable in the event of loss to Secured Party and shall provide
for thirty (30) days' written notice to Secured Party of
cancellation or modification. At the request of Secured Party,
all insurance policies shall be furnished to and held by Secured
Party. Debtor hereby assigns to Secured Party return premiums,
dividends and other amounts which may be or become due upon
cancellation of any such policies for any reason whatsoever and
directs the insurers to pay Secured Party any sums so due.
Secured Party is hereby appointed as attorney irrevocable to
collect return premiums, dividends and other amounts due on any
insurance policy and the proceeds of such insurance, to settle
any claims with the insurers in the event of loss or damage, to
endorse settlement drafts and, upon the occurrence of an Event of
Default (as defined hereinbelow), to cancel, assign, or surrender
any insurance policies. If, while any Secured Obligations are
outstanding, any return premiums, dividends, other amounts or
proceeds are paid to Secured Party under such policies, Secured
Party may, at Secured Party's option, take either or both of the
following actions: (i) apply such return premiums, dividends,
other amounts and proceeds in whole or in part to the payment or
satisfaction of any of the Secured Obligations in whatever order
Secured Party determines; or (ii) pay over such return premiums,
dividends, other amounts and proceeds in whole or in part to
Debtor for the purpose of repairing or replacing the Collateral
destroyed or damaged, any return premiums, dividends, other
amounts and proceeds so paid over by Secured Party to be secured
by this Agreement.
8. Receivables. Debtor agrees that Secured Party may
------------
communicate with account debtors in order to verify the
existence, amount, and terms of any Receivables. Secured Party
may notify account debtors of the security interests established
herein and require that payments on Receivables be made directly
to Secured Party, and upon the request of Secured Party, Debtor
shall notify account debtors and indicate on all billings that
payments and returns are to be made directly to Secured Party.
In furtherance of the foregoing, Debtor hereby appoints Secured
Party attorney irrevocable with full power to collect,
compromise, endorse, sell, or otherwise deal with the Receivables
or proceeds thereof and to perform the terms of any contract in
order to create Receivables in Secured Party's name or in the
name of Debtor. This Agreement may be, but need not be,
supplemented by separate assignments of Receivables and contract
rights and, if such assignments are given, the rights and
security interests given thereby shall be in addition to and not
in limitation of the rights and security interests granted by
this Agreement.
9. Events of Default. The following events shall be
------------------
deemed "Events of Default" hereunder:
(a) An Event of Default under the Loan Agreement or
any of the Loan Documents;
(b) Any representation or warranty or statement of
fact made to Secured Party at any time by Debtor is false or
misleading or becomes false or misleading in any material
respect;
(c) Debtor fails to observe or perform any covenant,
warranty, or agreement required to be observed or performed
by it under this Agreement;
(d) Debtor shall be in default under any obligation
undertaken by Debtor which default has a material adverse
effect on the financial condition of Debtor or on the value
of the Collateral;
(e) Uninsured loss, theft, damage, or destruction of
any substantial portion of any of the Collateral; or (f)
Any Debtor or any guarantor of any of the Secured
Obligations is or becomes insolvent or is involved in any
financial difficulty as evidenced by (i) an assignment,
composition, or similar device for the benefit of creditors,
(ii) general failure to pay debts when due, (iii) attachment
or receivership of assets not dissolved within thirty (30)
days, (iv)the appointment of a custodian, trustee, or
receiver for a substantial portion of any of their
respective properties, (v) the liquidation or sale of all or
substantially all of their respective properties, (vi) the
filing by any Debtor or any guarantor of a petition under
any Chapter of the United States Bankruptcy Code or the
institution of any other proceeding under any law relating
to bankruptcy, bankruptcy reorganization, insolvency or
relief of Debtors, or (vii) the filing against any Debtor or
any guarantor of an involuntary petition under any Chapter
of the United States Bankruptcy Code or the institution of
any other proceeding under any law relating to bankruptcy,
bankruptcy reorganization, insolvency or relief of debtors
where such proceeding is not dismissed within sixty (60)
days from the date on which it is filed or instituted.
10. Rights and Remedies of Secured Party on Default. Upon
-----------------------------------------------
the occurrence of any Event of Default, Secured Party shall have,
by way of example and not of limitation, the following rights and
remedies:
(a) Secured Party may declare the Secured Obligations,
or any of them, to be immediately due and payable without
presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived;
(b) In addition to all other rights and remedies
contained in this Agreement, the Loan Agreement, and in the
Loan Documents, Secured Party may exercise the rights and
remedies accorded Secured Party by the Uniform Commercial
Code or by any other applicable law, all of which rights and
remedies shall be cumulative and non-exclusive to the extent
permitted by law;
(c) Secured Party shall have the right to enter and/or
remain upon the Premises of Debtor, or any other place or
places where any of the Collateral is located and kept,
without any obligation to pay rent to Debtor or others, and
remove Collateral therefrom to the premises of the Secured
Party or any agent of Secured Party for such time as Secured
Party may desire in order to maintain, collect, sell and/or
prepare the Collateral for sale, liquidation or collection;
(d) Secured Party may require the Debtor at Debtor's
cost to assemble the Collateral and make it available to
Secured Party at a place designated by Secured Party;
(e) Secured Party may take possession of and use and
operate the Collateral in the manner and for the purposes as
set forth in Section 11 hereinbelow;
(f) Secured Party may sell, lease, or otherwise
dispose of the Collateral as set forth in Section 12
hereinbelow;
(g) Secured Party shall have the right to set-off,
without notice to the Debtor, any and all deposits or other
sums at any time or times credited or due from Secured Party
to Debtor, whether in a special account or other account or
represented by a certificate of deposit (whether or not
matured); which deposit and other sums shall at all times
constitute additional security for the Secured Obligations;
(h) Secured Party may perform any warranty, covenant
or agreement which Debtor has failed to perform under this
Agreement; and
(i) Secured Party may take any other action which
Secured Party deems necessary or desirable to protect the
Collateral or the security interests granted herein.
11. Rights of Secured Party to Use and Operate Collateral.
------------------------------------------------------
Upon the occurrence of any Event of Default, but subject to the
provisions of the Uniform Commercial Code or other applicable
law, the Secured Party shall have the right and power to take
possession of all or any part of the Collateral, and to exclude
the Debtor and all persons claiming under the Debtor wholly or
partly therefrom, and thereafter to hold, store, and/or use,
operate, manage and control the same. Upon any such taking of
possession, the Secured Party may, from time to time, at the
expense of the Debtor, make all such repairs, replacements,
alterations, additions and improvements to and of the Collateral
as the Secured Party may reasonably deem proper. In any such
case, subject as aforesaid, the Secured Party shall have the
right to manage and control the Collateral and to carry on the
business and to exercise all rights and powers of the Debtor in
respect thereto as the Secured Party shall deem best, including
the right to enter into any and all such agreements with respect
to the leasing and/or operation of the Collateral or any part
thereof as the Secured Party may see fit; and the Secured Party
shall be entitled to collect and receive all rents, issues,
profits, fees, revenues and other income of the same and every
part thereof. Such rents, issues, profits, fees, revenues and
other income shall be applied to pay the expenses of holding and
operating the Collateral and of conducting the business thereof,
and of all maintenance, repairs, replacements, alterations,
additions and repairs, replacements, alterations, additions and
improvements, and to make all payments which the Secured Party
may be required or may elect to make, if any, for taxes,
assessments, insurance and other charges upon the Collateral or
any part thereof, and all other payments which the Secured Party
may be required or authorized to make under any provision of this
Agreement (including reasonable legal costs and attorneys' fees).
The remainder of such rents, issues, profits, fees, revenues and
other income shall be applied to the payment of the Secured
Obligations in such order of priority as the Secured Party may
determine in its sole discretion and any surplus shall be
returned to the Debtor. Without limiting the generality of the
foregoing, the Secured Party shall have the right to apply for
and have a receiver appointed by a court of competent
jurisdiction in any action taken by the Secured Party to enforce
their rights and remedies hereunder in order to manage, protect
and preserve the Collateral and continue the operation of the
business of the Debtor and to collect all revenues and profits
thereof and apply the same to the payment of all expenses and
other charges of such receivership including the compensation of
the receiver and to the payment of the Secured Obligations as
aforesaid until a sale or other disposition of such Collateral
shall be finally made and consummated.
12. Rights of Secured Party to Sell Collateral. Upon (10)
------------------------------------------
days prior written notice by registered or certified mail by
Secured Party to Debtor at the address of the Debtor set forth
above (or at such other address or addresses as the Debtor shall
specify in writing by like notice to the Secured Party) of the
time and place of any intended disposition of Collateral, then
Secured Party shall have the right and power to sell, assign,
lease, or otherwise dispose of the Collateral from any business
premises of the Debtor, either at public auction or private sale,
by liquidation sale or other disposition, or as if the sale was
being made in the ordinary course of Debtor's business, with or
without notice to the public that the said sale or disposition is
for the benefit of the Secured Party; provided, however, that if
the Collateral is perishable or threatens to decline speedily in
value or is of a type customarily sold on a recognized market,
then Secured Party shall have the right and power to dispose of
the Collateral without prior notice to Debtor and Debtor
expressly waives any rights to notice under such circumstances.
The notices described above shall be deemed to meet any
requirement hereunder or under any applicable law (including the
Uniform Commercial Code) that reasonable notification be given of
the time and place of such sale or other disposition. After
deducting all costs and expenses of collection, storage, custody,
sale or other disposition and delivery (including reasonable
legal costs and attorneys' fees) and all other charges against
the Collateral, the residue of the proceeds of any such sale or
disposition shall be applied to the payment of the Secured
Obligations in such order of priority as the Secured Party may
determine in its sole discretion and any surplus shall be
returned to the Debtor. In the event the proceeds of any sale,
lease or other disposition of the Collateral hereunder are
insufficient to pay all of the Secured Obligations in full, the
Debtor will be liable for the deficiency, together with interest
thereon at the maximum rate provided in the Loan Agreement and
the cost and expenses of collection of such deficiency,
including, without limitation, reasonable fees of attorneys,
experts, and agents, expenses and disbursements.
13. Attorney-in-Fact. The Secured Party is hereby
----------------
appointed the attorney-in-fact, with full power of substitution,
of the Debtor for the purpose of carrying out the provisions of
this Agreement and taking any action and executing any
instruments (including, without limitation, financing or
continuation statements, conveyances, assignments, and transfers)
which the Secured Party may deem necessary or advisable to
accomplish the purposes hereof, which appointment as attorney-in-
fact is coupled with an interest and is irrevocable. The Debtor
shall indemnify and hold harmless the Secured Party from and
against any liability or damage which it may incur in the
exercise and performance, in good faith, of the Secured Party's
powers and duties as such attorney-in-fact.
14. Waiver, etc. The Debtor hereby waives presentment,
-----------
demand, notice, protest and, except as is otherwise provided
herein, all other demands and notices in connection with this
Agreement or the enforcement of the Secured Party's rights
hereunder or in connection with any Secured Obligations or any
Collateral. The Debtor further consents to and waives notice of
the granting of renewals, extensions of time for payment or other
indulgences to the Debtor or to any account debtor in respect of
any Receivable, substitution, release or surrender of any
Collateral, addition or release of persons primarily or
secondarily liable on any Secured Obligation or on any Receivable
or other Collateral, or the acceptance of partial payments on any
Secured Obligation or on any account receivable or other
Collateral and/or the settlement or compromise thereof. No delay
or omission on the part of the Secured Party in exercising any
right hereunder shall operate as a waiver of such right or of any
other right hereunder. Any waiver of any such right on any one
occasion shall not be construed as a bar to or waiver of any such
right on any such future occasion.
15. Termination; Assignments, etc. This Agreement and the
------------------------------
security interest in the Collateral created hereby shall
terminate when all of the Secured Obligations have been paid,
performed, and finally discharged in full. In the event of a
sale or assignment by the Secured Party of all or any of the
Secured Obligations held by it, such Secured Party may assign or
transfer its rights and interests under this Agreement in whole
or in part to the purchaser or purchasers of such Secured
Obligations, whereupon such purchaser or purchasers shall become
vested with all of the powers and rights of such Secured Party
hereunder, and such Secured Party shall thereafter be forever
released and fully discharged from any liability or
responsibility hereunder, with respect to the rights and
interests so assigned.
16. Notices. All notices, requests, demands and other
-------
communications provided for hereunder shall be in writing
(including telegraphic communication) and shall be either mailed
by certified mail, return receipt requested, or delivered by
overnight courier service, to the applicable party at the
addresses first set forth above, or, as to each party, at such
other address as shall be designated by such parties in a written
notice to the other party complying as to delivery with the terms
of this Section. All such notices, requests, demands and other
communication shall be effective on the date of first attempted
delivery.
17. Miscellaneous.
-------------
(a) The powers conferred on the Secured Party
hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise
any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for monies
actually received by it hereunder, the Secured Party shall
not have any duty as to any Collateral or as to the taking
of any necessary steps to preserve any right of it or of the
Debtor against other parties pertaining to any Collateral;
(b) No provision hereof shall be amended except by a
writing signed by the Secured Party and the Debtor;
(c) Any provision of this Agreement which is
prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof;
(d) This Agreement shall be binding upon and shall
inure to the benefit of the successors and assigns of the
Secured Party and the Debtor;
(e) No delay, failure to enforce, or single or partial
exercise on the part of the Secured Party in connection with
any of its rights hereunder shall constitute an estoppel or
waiver thereof, or preclude other or further exercises or
enforcement thereof and no waiver of any default hereunder
shall be a waiver of any subsequent default; and
(f) This Agreement shall be governed as to its
validity, interpretation and effect in accordance with the
laws of the State of New Hampshire.
IN WITNESS WHEREOF, the undersigned have set their hands and
seals to this Agreement all as of the day and year first above
written.
DEBTOR
------
AMERICAN ELECTROMEDICS CORP.
/s/ Vasiliki M. Canotas By: /s/ Michael T. Pieniazek,
------------------------ ----------------------------
Witness Chief Financial Officer
----------------------------------
Signature and Title/Duly Authorized
SECURED PARTY
-------------
CITIZENS BANK NEW HAMPSHIRE
/s/ Vasilike M. Canotas By: /s/Phillip J. Morrilly, Asst. VP
------------------------ ---------------------------------
Signature and Title/Duly Authorized
<PAGE>
SECURITY AGREEMENT
SCHEDULE I
-----------
List of Other Business Locations
-------------------------------------
<PAGE>
SECURITY AGREEMENT
SCHEDULE II
------------------
List of Other Liens and Encumbrances, etc.
----------------------------------------------------
NONE
<PAGE>
SECURITY AGREEMENT
SCHEDULE III
-----------------
Other Collateral Location
-----------------------------
EXHIBIT 10.9.3
REVOLVING LINE OF CREDIT PROMISSORY NOTE
$400,000.00 U.S. Nashua, NH October 4, 1996
FOR VALUE RECEIVED, AMERICAN ELECTROMEDICS CORP., a Delaware
corporation with a principal place of business at 13 Columbia
Drive, Amherst, New Hampshire 03031 (the "Borrower"), promises to
pay, ON DEMAND, to the order of CITIZENS BANK NEW HAMPSHIRE, a
guaranty savings bank organized under the laws of the State of
New Hampshire with an address of One Trafalgar Square, Nashua,
New Hampshire 03063 (the "Bank"), at such address, or such other
place or places as the holder hereof may designate in writing
from time to time hereafter, the maximum principal sum of FOUR
HUNDRED THOUSAND DOLLARS ($400,000.00), or so much thereof as may
be advanced or readvanced by the Bank to the Borrower from time
to time hereafter (such amounts defined as the "Debit Balance"
below), together with interest as provided for hereinbelow, in
lawful money of the United States of America.
The Borrower's "Debit Balance" shall mean the debit balance
in an account on the books of the Bank, maintained in the form of
a ledger card, computer records or otherwise in accordance with
the Bank's customary practice and appropriate accounting
procedures wherein there shall be recorded the principal amount
of all advances made by the Bank to the Borrower, all principal
payments made by the Borrower to the Bank hereunder, and all
other appropriate debits and credits.
Under the Revolving Line of Credit Loan evidenced by this
Note (the "Line of Credit"), the Bank agrees to lend to the
Borrower, and the Borrower may borrow, up to the lesser of (a)
------
the maximum principal sum provided for in this Note or (b) the
Borrower's Borrowing Base, all in accordance with and subject to
the terms, conditions, and limitations of this Note and the Loan
Agreement of even date herewith by and between the Borrower and
the Bank, as the same may be further amended from time to time
(the "Loan Agreement"). The holder of this Note is entitled to
all of the benefits and rights of the Bank under the Loan
Agreement. However, neither this reference to the Loan Agreement
nor any provision thereof shall impair the absolute and
unconditional obligation of the Borrower to pay, ON DEMAND, the
principal and interest of this Note as herein provided. Terms
not otherwise defined herein shall have the meanings ascribed to
them in the Loan Agreement.
The Borrower shall make requests for advances under this
Note as provided in the Loan Agreement. The Borrower agrees that
the Bank may make all advances under this Note by direct deposit
to any demand account of the Borrower with the Bank or in such
other manner as may be provided in the Loan Agreement, and that
all such advances shall represent binding obligations of the
Borrower.
The Borrower acknowledges that this Note is to evidence the
Borrower's obligation to pay its Debit Balance, plus interest and
any other applicable charges as determined from time to time, and
that it shall continue to do so despite the occurrence of
intervals when no Debit Balance exists because the Borrower has
paid the previously existing Debit Balance in full.
Interest shall be calculated and charged daily, based on the
actual days elapsed over a three hundred sixty (360) day banking
year, on the unpaid principal balance outstanding from time to
time at a variable rate equal to Prime Rate (as hereinafter
defined), plus one-half of one percent (.50%) per annum. As used
herein, the term Prime Rate shall mean the rate published by
The Wall Street Journal from time to time under the category
----------------------
"Prime Rate: The Base Rate of Corporate Loans posted by at least
75% of the Nation s 30 Largest Banks" (the lowest of the rates so
published if more than one rate is published under this category
at any given time) or such other comparable index rate selected
by the BANK in its sole discretion if The Wall Street Journal
------------------------
ceases to publish such rate. The BORROWER acknowledges that the
Prime Rate is used for reference purposes only as an index and is
not necessarily the lowest interest rate charged by the BANK on
commercial loans. Each time the Prime Rate changes the interest
rate hereunder shall change contemporaneously with such change in
the Prime Rate.
This Note is payable on demand. Pending demand, the Bank
shall extend the Line of Credit through and until January 31,
1997, and, if the Line of Credit is renewed and extended by the
Bank pursuant to the Loan Agreement, through and until each
anniversary of such date with respect to which the Line of Credit
is renewed and extended (January 31, 1997, and each anniversary
thereof with respect to which the Line of Credit is renewed and
extended, being a "Review Date"). The Borrower shall (i) make
payments of principal from time to time as provided in the Loan
Agreement and (ii) make payments of interest monthly in arrears
commencing thirty (30) days from the date hereof (or on any day
within 30 days of the date hereof agreed to by the Borrower and
the Bank to provide for a convenient payment date) and continuing
on the same date of each month thereafter through and until the
earlier of demand of this Note or any Review Date with respect to
which the Line of Credit is not renewed by the Bank, whereupon
all principal, accrued and unpaid interest, and any other charges
provided for hereunder, shall be due and payable in full. In the
event that the Line of Credit is renewed pursuant to the Loan
Agreement as of any Review Date, this Note shall thereafter
continue to evidence amounts advanced and due under the Line of
Credit as renewed.
This Note is being executed and delivered in accordance with
the terms of the Loan Agreement and the documents defined therein
as the "Loan Documents". The payment and performance of the
obligations contained in the Loan Documents are secured by the
collateral granted to the Bank therein (the "Collateral") and the
security granted to the Bank in the Loan Documents.
The holder may impose upon the Borrower a delinquency charge
of the greater of Thirty Five Dollars ($35.00) or five percent
(5%) of the amount of interest not paid on or before the tenth
(10th) day after such installment is due. The entire principal
balance hereof, together with accrued interest, shall after
maturity, whether by demand, acceleration or otherwise, bear
interest at the contract rate of this Note plus an additional
five percent (5%) per annum.
The Borrower agrees that any other property upon or in which
the Borrower has granted or hereafter grants the holder a
mortgage or security interest, securing the payment and
performance of any other liability of the Borrower to the holder,
shall also constitute Collateral. As additional Collateral, the
Borrower grants (1) a security interest in, or pledges, assigns
and delivers to the holder, as appropriate, all deposits, credits
and other property now or hereafter due from the holder to the
Borrower; and (2) the right to set off and apply (and a security
interest in said right), from time to time hereafter and without
demand or notice of any nature, all, or any portion, of such
deposits, credits and other property, against the indebtedness
evidenced by this Note whether the other Collateral, if any, is
deemed adequate or not.
The Borrower, and every maker, endorser, or guarantor of
this Note, jointly and severally, agree to pay on demand all
reasonable out-of-pocket costs of collection hereof, including
reasonable attorneys' fees, whether or not any foreclosure or
other action is instituted by the holder in its discretion.
No delay or omission on the part of the holder in exercising
any right, privilege or remedy shall impair such right, privilege
or remedy or be construed as a waiver thereof or of any other
right, privilege or remedy. No waiver of any right, privilege or
remedy or any amendment to this Note shall be effective unless
made in writing and signed by the holder. Under no circumstances
shall an effective waiver of any right, privilege or remedy on
any one occasion constitute or be construed as a bar to the
exercise of or a waiver of such right, privilege or remedy on any
future occasion.
The acceptance by the holder hereof of any payment after any
default hereunder shall not operate to extend the time of payment
of any amount then remaining unpaid hereunder or constitute a
waiver of any rights of the holder hereof under this Note.
All rights and remedies of the holder, whether granted
herein or otherwise, shall be cumulative and may be exercised
singularly or concurrently, and the holder shall have, in
addition to all other rights and remedies, the rights and
remedies of a secured party under the Uniform Commercial Code of
New Hampshire. The holder shall have no duty as to the
collection or protection of the Collateral or of any income
thereon, or as to the preservation of any rights pertaining
thereto beyond the safe custody thereof. Surrender of this Note,
upon payment or otherwise, shall not affect the right of the
holder to retain the Collateral as security for the payment and
performance of any other liability of the Borrower to the holder.
The Borrower, and every maker, endorser, or guarantor of
this Note, hereby jointly waive, to the fullest extent permitted
by law, presentment, notice, protest and all other demands and
notices and assents (1) to any extension of the time of payment
or any other indulgence, (2) to any substitution, exchange or
release of Collateral, and (3) to the release of any other person
primarily or secondarily liable for the obligations evidenced
hereby.
This Note and the provisions hereof shall be binding upon
the Borrower and the Borrower's heirs, administrators, executors,
successors, legal representatives and assigns and shall inure to
the benefit of the holder, the holder's heirs, administrators,
executors, successors, legal representatives and assigns.
The word "holder" as used herein shall mean the payee or
endorsee of this Note who is in possession of it, or the bearer,
if this Note is at the time payable to the bearer.
This Note may not be amended, changed or modified in any
respect except by a written document which has been executed by
each party. This Note constitutes a New Hampshire contract to be
governed by the laws of such state and to be paid and performed
therein.
The provisions of this Note are expressly subject to the
condition that in no event shall the amount paid or agreed to be
paid to the holder hereunder and deemed interest under applicable
law exceed the maximum rate of interest on the unpaid principal
balance hereunder allowed by applicable law, if any, (the
"Maximum Allowable Rate"), which shall mean the law in effect on
the date hereof, except that if there is a change in such law
which results in a higher Maximum Allowable Rate being applicable
to this Note, then this Note shall be governed by such amended
law from and after its effective date. In the event that
fulfillment of any provisions of this Note results in the
interest rate hereunder being in excess of the Maximum Allowable
Rate, the obligation to be fulfilled shall automatically be
reduced to eliminate such excess. If notwithstanding the
foregoing, the holder receives an amount which under applicable
law would cause the interest rate hereunder to exceed the Maximum
Allowable Rate, the portion thereof which would be excessive
shall automatically be applied to and deemed a prepayment of the
unpaid principal balance hereunder and not a payment of interest.
Executed and delivered this 4th day of October, 1996.
AMERICAN ELECTROMEDICS CORP.
/s/ Vasiliki M. Canotas By: /s/ Michael T. Pienazek
------------------------ -------------------------
Witness Name: Micahel T. Pieniazek
Title: Chief Financial Officer
<PAGE>
STATE OF NEW HAMPSHIRE
COUNTY OF HILLSBOROUGH, SS.
On this the 4th day of October, 1996, before me, the
undersigned notary or justice, personally appeared Michael T.
Pieniazek, who acknowledged himself to be the Chief Financial
Officer of American Electromedics Corp., a corporation, and that
he, as such authorized officer, being authorized so to do,
executed the foregoing instrument for the purposes therein
contained, by signing the name of the corporation by himself as
such authorized officer.
/s/ Vasiliki M. Canotas
----------------------------------
Justice of the Peace/Notary Public
EXHIBIT 10.9.4
TERM PROMISSORY NOTE
--------------------
$500,000.00 Nashua, NH October 4, 1996
FOR VALUE RECEIVED, the undersigned, AMERICAN ELECTROMEDICS
CORP., a corporation organized under the laws of the State of
Delaware with a principal place of business at 13 Columbia Drive,
Amherst, New Hampshire 03031 (the "Borrower"), hereby promises to
pay to the order of CITIZENS BANK NEW HAMPSHIRE, a guaranty
savings bank organized under the laws of the State of New
Hampshire with an address of One Trafalgar Square, Nashua, New
Hampshire 03063 (the "Bank"), at such address, or such other
place or places as the holder hereof may designate in writing
from time to time hereafter, the principal sum of FIVE HUNDRED
THOUSAND DOLLARS ($500,000.00), or so much thereof as has been
advanced by Bank to Borrower, together with interest as
hereinafter provided, in lawful money of the United States of
America.
This Note shall have a term of five (5) years from the date
hereof. Commencing on ______________, 1996, and continuing on
the last day of each month thereafter, the Borrower shall make
sixty (60) consecutive monthly payments of principal, each such
monthly installment to be in an amount sufficient to fully
amortize the then outstanding principal amount hereunder in equal
monthly installments over the remaining term of this Note;
together with monthly payments of accrued and unpaid interest on
the outstanding principal balance at the rate provided
hereinbelow. All remaining outstanding principal and accrued and
unpaid interest shall be due and payable in full on ___________,
2001.
Except as provided hereinbelow, the outstanding principal
balance of this Note shall bear interest at a variable rate equal
to Prime Rate (as hereinafter defined), plus one-half of one
percent (.50%) per annum. As used herein, the term Prime Rate
shall mean the rate published by The Wall Street Journal from
-----------------------
time to time under the category Prime Rate: The Base Rate of
Corporate Loans posted by at least 75% of the Nation s 30 Largest
Banks (the lowest of the rates so published if more than one
rate is published under this category at any given time) or such
other comparable index rate selected by the Bank in its sole
discretion if The Wall Street Journal ceases to publish such
-----------------------
rate. The Borrower acknowledges that the Prime Rate is used for
reference purposes only as an index and is not necessarily the
lowest interest rate charged by the Bank on commercial loans.
Each time the Prime Rate changes the interest rate hereunder
shall change contemporaneously with such change in the Prime
Rate. Interest shall be calculated and charged daily on the
basis of actual days elapsed over a three hundred sixty (360) day
banking year.
This Note is issued under and subject to the terms,
conditions, and limitations of the Loan Agreement of even date
herewith, entered into by and between the Borrower and the Bank,
and as said agreement may be further amended from time to time
(collectively, as amended, the "Loan Agreement"). The holder of
this Note is entitled to all of the benefits and rights of the
Bank under the Loan Agreement. However, neither this reference
to the Loan Agreement nor any provision thereof shall impair the
absolute and unconditional obligation of the undersigned to pay
the principal and interest on this Note as herein provided. Any
capitalized term used in this Note which is not otherwise
expressly defined herein shall have the meaning ascribed thereto
in the Loan Agreement.
Upon the occurrence and during the continuance of an Event
of Default specified in the Loan Agreement, or if any monthly
installment of principal or interest under this Note is not paid
when due, or within the applicable grace period, if any, the
principal hereof and all interest accrued and accruing hereon may
be declared to be forthwith due and payable.
The holder may impose upon the undersigned a delinquency
charge of the greater of Thirty Five Dollars ($35.00) or five
percent (5%) of the amount of any installment of principal and/or
interest not paid on or before the tenth (10th) day after such
installment is due. The entire principal balance hereof,
together with accrued interest, shall after the occurrence and
during the continuance of an Event of Default under the Loan
Agreement and after maturity hereof, whether by demand,
acceleration or otherwise, bear interest at the then contract
rate of this Note plus an additional five percent (5%) per annum.
The undersigned agrees to pay on demand all reasonable out-
of-pocket costs of collection hereof, including court costs,
service fees, and reasonable attorneys' fees, whether or not any
foreclosure or other action is instituted by the holder in its
discretion.
The word "holder", as used in this Note, shall mean the
payee or endorsee of this Note who is in possession of it, or the
bearer, if this Note is at the time payable to the bearer.
The indebtedness evidenced by this Note is secured by the
Loan Documents as defined in the Loan Agreement.
No delay or omission on the part of the holder in exercising
any right, privilege or remedy shall impair such right, privilege
or remedy or be construed as a waiver thereof or of any other
right, privilege or remedy. No waiver of any right, privilege or
remedy or any amendment to this Note shall be effective unless
made in writing and signed by the holder. Under no circumstances
shall an effective waiver of any right, privilege or remedy on
any one occasion constitute or be construed as a bar to the
exercise of or a waiver of such right, privilege or remedy on any
future occasion. The acceptance by the holder hereof of any
payment after any default hereunder shall not operate to extend
the time of payment of any amount then remaining unpaid hereunder
or constitute a waiver of any rights of the holder hereof under
this Note.
All rights and remedies of the holder, whether granted
herein or otherwise, shall be cumulative and may be exercised
singularly or concurrently, and the holder shall have, in
addition to all other rights and remedies, the rights and
remedies of a secured party under the Uniform Commercial Code of
New Hampshire. The holder shall have no duty as to the collection
or protection of the Collateral or of any income thereon, or as
to the preservation of any rights pertaining thereto beyond the
safe custody thereof. Surrender of this Note, upon payment or
otherwise, shall not affect the right of the holder to retain the
Collateral as security for the payment and performance of any
other liability of the undersigned to the holder in accordance
with the provisions of the Loan Documents.
Every maker, endorser, or guarantor of this Note, or the
obligations represented by this Note, waives all presentment,
protest and demand, demand for payment, notice of dishonor and
protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this
Note, and assents to any extension or postponement of the time of
payment or any other indulgence, to any substitution, exchange or
release of Collateral, and/or to the addition or release of any
other party or person primarily or secondarily liable.
This Note and the provisions hereof shall be binding upon
the undersigned and the undersigned's heirs, administrators,
executors, successors, legal representatives and assigns and
shall inure to the benefit of the holder, the holder's heirs,
administrators, executors, successors, legal representatives and
assigns.
This Note may not be amended, changed or modified in any
respect except by a written document which has been executed by
each party. This Note constitutes a New Hampshire contract to be
governed by the laws of such state and to be paid and performed
therein.
The provisions of this Note are expressly subject to the
condition that in no event shall the amount paid or agreed to be
paid to the holder hereunder and deemed interest under applicable
law exceed the maximum rate of interest on the unpaid principal
balance hereunder allowed by applicable law, if any, (the
"Maximum Allowable Rate"), which shall mean the law in effect on
the date hereof, except that if there is a change in such law
which results in a higher Maximum Allowable Rate being applicable
to this Note, then this Note shall be governed by such amended
law from and after its effective date. In the event that
fulfillment of any provisions of this Note results in the
interest rate hereunder being in excess of the Maximum Allowable
Rate, the obligation to be fulfilled shall automatically be
reduced to eliminate such excess. If notwithstanding the
foregoing, the holder receives an amount which under applicable
law would cause the interest rate hereunder to exceed the Maximum
Allowable Rate, the portion thereof which would be excessive
shall automatically be applied to and deemed a prepayment of the
unpaid principal balance hereunder and not a payment of interest.
Executed and delivered this 4th day of October, 1996.
AMERICAN ELECTROMEDICS CORP.
/s/ Vasiliki M. Canotas By: /s/ Michael T. Pieniazek
-------------------------- --------------------------
Witness Name: Michael T.Pieniazek
Title: Chief Financial Officer
<PAGE>
STATE OF NEW HAMPSHIRE
COUNTY OF HILLSBOROUGH, SS.
On this the 4th day of October, 1996, before me, the
undersigned notary or justice, personally appeared Michael T.
Pieniazek, who acknowledged himself to be the Chief Financial
Officer of American Electromedics Corp., a corporation, and that
he, as such authorized officer, being authorized so to do,
executed the foregoing instrument for the purposes therein
contained, by signing the name of the corporation by himself as
such authorized officer.
/s/ Vasilik M. Canotas
----------------------------------
Justice of the Peace/Notary Public
