SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number
OCTOBER 31, 1997 0-9922
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AMERICAN ELECTROMEDICS CORP.
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(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 04-2608713
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(State or Other Jurisdiction of Incorporation (IRS Employer ID No.)
or Organization)
13 COLUMBIA DRIVE, SUITE 18, AMHERST, NEW HAMPSHIRE 03031
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(Address and Zip Code of Principal Executive Offices)
Issuer's telephone number, including area code: 603-880-6300
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
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(Title of Class)
Indicate by check mark whether the Issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
As of December 17, 1997, there were outstanding 4,303,136 shares of
the Issuer's Common Stock, $.10 par value.
<PAGE>
AMERICAN ELECTROMEDICS CORP.
Index
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, October 31, 1997 and July 31, 1997............. 3
Statements of Operations for the Three Months Ended
October 31, 1997 and October 26, 1996........................ 4
Statements of Cash Flows for the Three Months Ended
October 31, 1997 and October 26, 1996........................ 5
Notes to Financial Statements.................................. 6
Item 2. Management's Discussion and Analysis or Plan of Operation.... 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 7
Item 6. Exhibits and Reports on Form 8-K............................... 7
SIGNATURES............................................................ 8
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<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
AMERICAN ELECTROMEDICS CORP.
BALANCE SHEETS
OCTOBER 31, JULY 31,
1997 1997
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(Unaudited)
(Thousands)
Assets
Current Assets:
Cash and cash equivalents ....................... $ 289 $ 471
Accounts receivable
Trade ......................................... 1,291 283
Affiliate ..................................... -- 379
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1,291 662
Inventories ..................................... 1,471 475
Prepaid and other current assets ................ 580 244
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Total current assets .......................... 3,631 1,852
Property and equipment .......................... 667 449
Accumulated depreciation ........................ (404) (396)
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263 53
Deferred financing costs ........................ 115 128
Investment in affiliate ......................... -- 819
Goodwill ........................................ 864 208
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$ 4,873 $ 3,060
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ................................ $ 1,014 $ 187
Bank line of credit ............................. 300 300
Accrued liabilities ............................. 266 153
Current portion of long-term debt ............... 167 152
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Total current liabilities ..................... 1,747 729
Minority interest in affiliate .................. 148 --
Long-term debt .................................. 1,087 380
Convertible subordinated debentures ............. 720 720
Stockholders' equity:
Preferred stock, $.01 par value; Authorized
- 1,000,000 shares; Outstanding - none ......... -- --
Common stock, $.10 par value; Authorized
- 20,000,000 shares; Outstanding - 2,553,136
shares at October 31, 1997 and at July 31,1997 255 255
Additional paid-in capital ...................... 2,919 2,919
Retained deficit ................................ (2,007) (2,006)
Foreign currency translation adjustment ......... 4 --
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Total stockholders' equity .................... 1,167 1,168
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$ 4,873 $ 3,060
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SEE ACCOMPANYING NOTES.
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<PAGE>
AMERICAN ELECTROMEDICS CORP.
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED
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OCTOBER 31, OCTOBER 26,
1997 1997
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(Thousands, except per share amounts)
Net sales ...................................... $ 1,830 $ 540
Cost of goods sold ............................. 1,058 312
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Gross profit ................................... 772 228
Selling, general and administrative ............ 687 315
Research and development ....................... -- 34
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Total operating expenses ..................... 687 349
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Operating income (loss) ........................ 85 (121)
Other income (expenses):
Undistributed earnings of affiliate .......... -- (30)
Interest, net ................................ (78) (9)
Minority interest in affiliate ............... (85) --
Other ........................................ 58 --
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(105) (39)
Loss before provision for income taxes ......... (20) (160)
Provision for income taxes ..................... -- --
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Net loss ....................................... $ (20) $ (160)
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Weighted average number of common and
common equivalent shares outstanding ......... 2,553,136 2,456,064
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Loss per common and common equivalent share .... $ (.01) $ (.07)
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See accompanying notes.
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<PAGE>
AMERICAN ELECTROMEDICS CORP.
STATEMENTS OF CASH FLOWS
(Unaudited)
THREE MONTHS ENDED
OCTOBER 31, OCTOBER 26,
1997 1997
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(THOUSANDS)
OPERATING ACTIVITIES:
Net loss ............................................. $ (20) $ (160)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization ...................... 49 10
Undistributed earnings of affiliate ................ -- 30
Minority interest in affiliate ..................... 85 --
Changes in operating assets and liabilities:
Accounts receivable .............................. 187 64
Inventories, prepaid and other current assets .... (88) (47)
Accounts payable and accrued liabilities ......... (385) 72
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Net cash used in operating activities .............. (172) (31)
INVESTING ACTIVITIES:
Purchase of property and equipment, net .............. (13) (6)
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Net cash used in investing activities ................ (13) (6)
FINANCING ACTIVITIES:
Principal payments on long-term debt ................. (62) (17)
Proceeds from long-term debt and bank line of credit.. -- 500
Issuance of common stock, net ........................ -- 146
Issuance of convertible subordinated debt ............ -- 720
Deferred financing costs ............................. -- (166)
Proceeds from exercise of stock options .............. -- 2
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Net cash provided by (used in) financing activities. (62) 1,185
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Effect of exchange rate changes on cash and cash
equivalents .......................................... 3 --
Increase (decrease) in cash and cash equivalents ..... (244) 1,148
Cash and cash equivalents, beginning of period ....... 533 317
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Cash and cash equivalents, end of period ............. $ 289 $ 1,465
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See accompanying notes.
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<PAGE>
AMERICAN ELECTROMEDICS CORP.
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
The Company changed its method from the equity method of accounting
for its 50%-owned affiliate Rosch GmbH Medizintechnik ("Rosch GmbH")
to a consolidated basis on August 11, 1997 based upon the Company's
determination that it had reached the definition of control of Rosch
GmbH as of August 11, 1997 under generally accepted accounting
principles.
The Company's determination of control of Rosch GmbH on August 11,
1997 was based primarily upon the successful completion of
negotiations to acquire effective voting control. Subsequently, the
Company closed on the acquisition of the remaining 50% of Rosch
GmbH (see Note 3. Subsequent Events below).
The following proforma information is presented for comparative
purposes to disclose information on the financial position and result
of operations of American Electromedics Corp. and Rosch GmbH
had they been consolidated for all periods presented.
(in 000's)
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Three Months Three Months
Ended Ended
10/31/97 10/26/96
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Sales $1,830 $1,076
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Gross profit 772 394
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Net loss (20) (255)
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Current assets 3,258 3,405
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Non-current assets 1,659 1,432
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Current liabilities 1,733 755
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Non-current liabilities 1,969 2,157
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Operating results for the three month period ended October 31, 1997
are not necessarily indicative of the results that may be expected for
the year ending July 31, 1998. For further information, refer to the
financial statements and footnotes thereto included in the Company's
annual report on Form 10-KSB for the year ended July 31, 1997.
2. DEBT
The Company entered into a Forbearance and Workout Agreement with its
bank on October 28, 1997 as a result of the Company not being in
compliance with certain financial covenants under its loan agreement
as of July 31, 1997. The bank has waived the non-compliance and the
Company agreed to, among other things, raise an additional $250,000 of
equity capital and to apply $150,000 of such amount against outstanding
term loans. Additionally, as part of this Agreement, the Company's
revolving line of credit was reduced to $300,000. Certain of the loan
agreement financial covenants were also amended to more reasonably
reflect the Company's current financial position.
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<PAGE>
3. SUBSEQUENT EVENTS
In connection with the October 1997 amendments to its bank
arrangements and efforts to obtain additional equity capital, the
Company reduced the conversion price of its outstanding 14%
Convertible Subordinated Debentures (the "Debentures") from $3.75 to
$1.00 per share. As of November 3, 1997, the holders of all outstanding
$720,000 principal amount of Debentures elected to convert. As a result
of these conversions, the Company also reduced its long-term debt by
$720,000 and issued 720,000 shares of Common Stock. The Company also
will record a charge of approximately $100,000 to write-off deferred
financing costs capitalized upon initial issuance of the Debentures.
As of November 26, 1997, the Company closed a private placement of
1,030,000 shares of Common Stock at a price of $1.00 per share to a
group of "accredited investors." The Company used $150,000 of the
placement proceeds to repay portions of its bank indebtedness.
On December 18, 1997, the Company closed on the purchase of the
remaining 50% of the outstanding capital stock of Rosch GmbH
along with 45% of the outstanding shares of Meditronic Medizinelektronik
GmbH for $200,000 plus 210,000 shares of the Company's Common Stock,
pursuant to a Stock Purchase Option Agreement, dated as of November 1,
1997.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Net sales for the three month period ended October 31, 1997 were
$1,830,000, compared to $540,000 for the three month period ended
October 26, 1996. The increase in sales in fiscal 1998 was attributable
to accounting for sales of Rosch GmbH on a consolidated basis as well
as sales of the new intraoral dental camera system, which sales commenced
subsequent to the first quarter of fiscal 1997.
Cost of sales for the three month periods ended October 31, 1997 and
October 26, 1996 were 57.8% of net sales.
Selling, general and administrative expenses for the three month
period ended October 31, 1997 were $687,000, compared to $315,000
for the comparable prior year period. The increase reflects accounting
for the selling, general and administrative expenses on a consolidated
basis.
Net loss for the three month period ended October 31, 1997 was $20,000,
or $.01 per share, compared to a net loss of $160,000, or $.07 per share,
for the same period in the prior fiscal year. The decrease in net loss
is the result of increased sales offset by higher interest costs.
LIQUIDITY AND CAPITAL RESOURCES
Working capital of the Company at October 31, 1997 was $1,525,000,
compared to $1,060,000 at fiscal year ended July 31, 1997. The
increase of $465,000 reflects primarily the accounting for Rosch
GmbH on a consolidated basis.
Subsequent to October 31, 1997, the Company increased its working
capital upon the conversion of the $720,000 principal amount of
Debentures to Common Stock and the gross proceeds of $1,030,000 upon a
placement of 1,030,000 shares of Common Stock. As mentioned in Note 3
to the financial statements to this Report, the Company applied
$150,000 to repay portions of its bank indebtedness and $200,000 as
the cash portion of the purchase price of its acquisition of the remaining
50% of Rosch GmbH. A copy of such purchase agreement is filed as an
exhibit to this Report.
Currently, the Company expects that available cash and its existing
bank line of credit will be sufficient to meet its normal operating
requirements, including research and development expenditures, over
the near term. Further, the conversion of the Debentures shall reduce
the annual interest expense by $100,000.
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. There is no assurance that management will find suitable
acquisition candidates or effect the necessary financial arrangements
for such acquisitions.
PART II. - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
In December 1997, the Company and Noel Wren settled the action,
instituted by Mr. Wren in May 1997, against the Company upon payment
by the Company of $62,500 and the exchange of mutual releases. For
additional information, see Item 3 "Legal Proceedings" in the Company's
Form 10-KSB for the fiscal year ended July 31, 1997
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
There were no reports on Form 8-K filed during the quarterly period
ended October 31, 1997.
Exhibits -
10.1 Stock Purchase Option Agreement, dated as of November 1, 1997,
between American Electromedics Corp. and Andy Rosch (without exhibits).
27. Financial Data Schedule
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<PAGE>
AMERICAN ELECTROMEDICS CORP.
SIGNATURES
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In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN ELECTROMEDICS CORP.
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/s/ Thomas A. Slamecka Dated: December 24, 1997
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Thomas A. Slamecka
Chairman
/s/ Michael T. Pieniazek Dated: December 24, 1997
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Michael T. Pieniazek
President and
Chief Financial Officer
-8-
<PAGE>
EXHIBIT INDEX
Exhibit Description
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10.1 Stock Purchase Option Agreement, dated as
of November 1, 1997, between American
Electromedics Corp. aand Andy Rosch (without
exhibits).
27 Financial Data Schedule
Exhibit 10.1
STOCK PURCHASE OPTION AGREEMENT
by and between
AMERICAN ELECTROMEDICS CORP.
and
ANDY ROSCH
Dated as of November 1, 1997
<PAGE>
STOCK PURCHASE OPTION AGREEMENT
STOCK PURCHASE OPTION AGREEMENT dated as of the 1st day
of November, 1997 by and between AMERICAN ELECTROMEDICS CORP., a
Delaware corporation (the "Purchaser" or "AEC"), and ANDY ROSCH,
a German citizen (the "Seller").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Seller owns 25,000 shares (the "Rosch Shares")
of the issued and outstanding capital stock (the "Rosch Capital
Stock") of Rosch GmbH Medizintechnik, a German corporation
("Rosch") which comprises fifty percent (50%) of the issued and
outstanding Rosch Capital Stock;
WHEREAS, Seller owns 45,000 shares (the "Meditronic
Shares") of the issued and outstanding capital stock (the
"Meditronic Capital Stock") of Meditronic Medizinelektronik GmbH,
a German corporation ("Meditronic") (Rosch and Meditronic
sometimes collectively referred to as the "Companies" or
individually as a "Company") which comprises forty-five percent
(45%) of the issued and outstanding Meditronic Capital Stock; and
WHEREAS, upon the terms and subject to the conditions
herein, the Seller desires to sell to the Purchaser, and the
Purchaser desires to have the right to purchase from the Seller,
the Rosch Shares of Capital Stock owned by Seller and the
Meditronic Shares (collectively the "Purchased Shares");
NOW, THEREFORE, in consideration of the covenants and
agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound,
hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 Purchase and Sale of Capital Stock. Upon the terms
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and subject to the conditions herein, at the Closing (as defined
in Section 1.2 hereof), the Seller shall sell and deliver to the
Purchaser, and the Purchaser shall have the right to purchase
from the Seller, the Purchased Shares for a purchase price (the
"Purchase Price") equal to (a) US$ 200,000 and (b) 210,000 shares
of AEC Common Stock, $.10 par value (the "AEC Shares").
1.2 Closing. The closing of the transactions
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contemplated herein (the "Closing") shall take place at the
offices of Rosch, Alt Buckow 6, Berlin, Germany, at 10:00 A.M.
local time on not less than three (3) days notice from the
Purchaser to the Seller exercising its right to purchase, which
closing date may not be later than December 31, 1997 (the
"Closing Date"), unless the parties hereto otherwise agree.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE SELLER
In order to induce the Purchaser to enter into this
Agreement, the Seller hereby represents and warrants to the
Purchaser as follows:
2.1 Authorization. The Seller has full legal capacity
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to enter into this Agreement and has taken all action necessary
to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Seller and
constitutes the legal, valid and binding obligation of the
Seller, enforceable against him in accordance with its terms.
2.2 Ownership of Capital Stock and Purchased Shares.
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The Seller owns beneficially and of record the Rosch Shares,
which constitute fifty percent (50%) of the issued and
outstanding shares of the Rosch Capital Stock, free and clear of
any claim, lien, pledge, option, security interest, restriction
or other rights of third parties. The Seller owns beneficially
and of record the Meditronic Shares, which constitute forty-five
percent (45%) of the issued and outstanding shares of the
Meditronic Capital Stock, free and clear of any claim, lien,
pledge, option, security interest, restriction or other rights of
third parties. Upon delivery to the Purchaser at the Closing of
certificates representing the Purchased Shares, together with all
necessary instruments of transfer and payment of taxes by the
Seller, and upon the Seller's receipt of the consideration, the
Purchaser will have valid and marketable title to the Purchased
Shares free of any adverse claims arising in respect of the
Seller.
2.3 No Violation. Neither the execution and delivery by
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the Seller of this Agreement or any of the instruments or
agreements herein referred to, the consummation by him of the
transactions contemplated hereby or thereby, nor the compliance
by him with any of the terms or provisions of any such
instruments or agreements will: (a) constitute or result in a
breach of any provision of the certificate of incorporation or
by-laws of either Company or any agreement to which the Seller or
either Company is a party or by which any of them or any of their
assets or properties is bound, (b) contravene any federal,
regional or local law, rule or regulation, (c) contravene any
judgment, order or decree applicable to or binding upon either
Company or any of their respective assets, or (d) result in the
creation of any lien, security interest, charge or encumbrance
upon any property or assets of either Company. No consent,
approval or authorization of, and no filing or registration with,
any governmental or regulatory official, body or authority is
required in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated
hereby.
2.4 Securities Compliance. The Seller acknowledges and
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understands that the AEC Shares will not be registered under the
United States Securities Act of 1933, as amended (the "Securities
Act"), or the securities laws of any other country, and that the
AEC Shares may not be offered or sold in the United States unless
either registered under the Securities Act or in compliance with
any exemption from such registration. The Seller is acquiring
the AEC Shares for his own account, for investment purposes and
has no current intention to sell the AEC Shares. The Seller is
familiar with the business and operations of AEC, has received
the Form 10-KSB of AEC for the fiscal year ended July 29, 1996
and the Forms 10-QSB for the three fiscal quarters in fiscal
1997, and has had the opportunity to discuss AEC and the AEC
Shares with officers of AEC.
2.5 Incorporation. Each Company is a corporation duly
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organized, validly existing and in good standing under the laws
of the Republic of Germany, and is duly qualified in each
jurisdiction where the nature of its business requires such
qualification. Each Company has full corporate power and
authority to own, lease and operate its properties and assets and
to conduct its business as currently conducted. Neither Company
has any direct or indirect subsidiaries, is a partner in any
partnership or joint venture, and neither Company owns any
capital stock interests or other equity interests, or rights or
options to acquire any equity or other interests, in any
entities.
2.6 Capitalization. The authorized Capital Stock of
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Rosch consists of 50,000 shares, all of which are owned by either
AEC or Seller. The authorized Capital Stock of the Meditronic
consists of 100,000 shares. All of the outstanding shares of
each the Companies' Capital Stock have been duly authorized and
validly issued and are fully paid and nonassessable. There are
no outstanding options, warrants, subscriptions, calls,
unsatisfied preemptive or contractual rights, voting agreements,
registration rights agreements or other rights for the purchase
of or receipt of, and no securities or obligations of any kind
convertible into or exchangeable for, any Capital Stock of either
Company.
2.7 Contracts.
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2.7.1 Contracts of Rosch. The Seller has delivered or
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caused to be delivered to the Purchaser true and complete copies
of all contracts, leases, licenses, loan agreements and other
arrangements, together with all amendments and supplements
thereto and all waivers of any terms thereof, whether oral or
written, to which Rosch is a party or by which any of its assets
or properties is subject or bound (collectively, the "Rosch
Contracts"). The Rosch Contracts are valid and in full force and
effect and constitute the respective legal, valid and binding
obligations of Rosch and the other parties thereto, enforceable
against Rosch and such other parties in accordance with their
respective terms, and there are no existing violations or
defaults by Rosch or, to the Seller's knowledge, by any other
party thereto and no event, act or omission has occurred which
(with or without notice, lapse of time and/or the happening or
occurrence of any other event) would result in a violation or
default thereunder. No other party to any Rosch Contract has in
writing or otherwise asserted the right, and no basis exists for
the assertion of any enforceable right to renegotiate, cancel or
terminate prior to the full term thereof any term or condition of
any Rosch Contract, nor does the Seller or Rosch have any
knowledge that any party to any Rosch Contract intends to not
renew any Rosch Contract upon termination of its current term.
Set forth on Schedule 2.7.1 to this Agreement is a true and
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complete list of all of the Rosch Contracts.
2.7.2 Contracts of Meditronic. The Seller has delivered
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or caused to be delivered to the Purchaser true and complete
copies of all contracts, leases, licenses, loan agreements and
other arrangements, together with all amendments and supplements
thereto and all waivers of any terms thereof, whether oral or
written, to which Meditronic is a party or by which any of its
assets or properties is subject or bound (collectively, the
"Meditronic Contracts"). The Meditronic Contracts are valid and
in full force and effect and constitute the respective legal,
valid and binding obligations of Meditronic and the other parties
thereto, enforceable against Meditronic and such other parties in
accordance with their respective terms, and there are no existing
violations or defaults by Meditronic or, to the Seller's
knowledge, by any other party thereto and no event, act or
omission has occurred which (with or without notice, lapse of
time and/or the happening or occurrence of any other event) would
result in a violation or default thereunder. No other party to
any Meditronic Contract has in writing or otherwise asserted the
right, and no basis exists for the assertion of any enforceable
right to renegotiate, cancel or terminate prior to the full term
thereof any term or condition of any Meditronic Contract, nor
does the Seller or Meditronic have any knowledge that any party
to any Meditronic Contract intends to not renew any Meditronic
Contract upon termination of its current term. Set forth on
Schedule 2.7.2 to this Agreement is a true and complete list of
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all of the Meditronic Contracts.
2.8 Litigation. There is no action, claim, suit,
----------
proceeding, arbitral action or governmental investigation or
audit pending or threatened against or relating to either Company
which would, individually or in the aggregate, materially
adversely affect the business or the financial condition of
either Company or the consummation of the transactions
contemplated by this Agreement. The Seller is not aware of any
facts or circumstances which may give rise to any of the
foregoing. There is no order, writ, injunction, stipulation,
judgment or decree outstanding against either Company.
2.9 Compliance with Laws. Each Company has in all
--------------------
material respects complied with all applicable federal, state,
local and international laws, statutes, ordinances, regulations,
judgments, orders and other legal requirements (including those
relating to employment and employment practices, terms and
conditions of employment, wages and hours and nondiscrimination
in employment) affecting such Company's respective business or
financial conditions. Neither Company has received any written
notice to the effect that, or otherwise been advised that, it is
not in compliance with any of such laws, statutes, ordinances,
regulations, judgments, orders and other legal requirements.
Each Company holds and is in compliance in all material respects
with all permits, licenses, franchises, orders, certificates and
approvals of any federal, state or local regulatory or
governmental authority necessary for or relating to its
respective business.
2.10 Taxes. (a) All taxes, including income, net
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proceeds, sales, property, personal property (tangible and
intangible), use, excise, duty, franchise, transfer, withholding,
payroll, employment and other charges, including interest and
penalties thereon, (collectively, "Taxes") of each Company due to
the date hereof to all federal, state, foreign or local
authorities (collectively, "Taxing Authorities") have been duly
paid or are adequately provided on the Financial Statements (as
defined in Section 2.11 below). In addition, all tax reports,
returns, information returns and other documents in respect of
all relevant Taxes (collectively, "Tax Reports") to be filed by
either Company on or prior to the Closing Date shall have been
filed by such Company on or prior to the Closing Date.
(b) There are no agreements, waivers or other
arrangements providing for extension of time with respect to the
assessment or collection of any Tax of either Company nor, to the
best knowledge of the Seller, are there any actions, suits,
proceedings, investigations or claims now pending against either
Company in respect of any Tax, or any matters under discussion
with any Taxing Authority relating to any amount of any Tax. The
respective Tax Reports of each Company have not been audited and
are not in the process of being audited by the applicable taxing
authorities, and there is no tax deficiency with respect to any
Tax outstanding, proposed or assessed against either Company.
2.11 Financial Information. The Seller has delivered to
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the Purchaser true, correct and complete copies of (i) the
financial statements of each Company for each of the years ended
December 31, 1995 and 1996, (ii) the financial statements of each
Company for the interim period ended July 31, 1997, which shall
be audited in the case of Rosch and unaudited in the case of
Meditronic, and (iii) prior to Closing, Seller shall deliver to
Purchaser unaudited financial statements of each Company as of
October 31, 1997 (collectively, the "Financial Statements). The
Financial Statements present and will present fairly the
financial position, assets and liabilities of each Company as of
the dates thereof and the revenues, expenses, results of
operations and cash flows of each Company for the periods covered
thereby. The Financial Statements are in accordance with the
respective books and records of each Company, do not reflect any
transactions which are not bona fide transactions and do not
contain any untrue statement of a material fact or omit to state
any material fact necessary to make the statements contained
therein, in light of the circumstances in which they were made,
not misleading. The respective Financial Statements of each of
the Companies make full and adequate disclosure of, and provision
for, all of the respective obligations and liabilities of each
Company as of the dates thereof. Neither Company has made any
distributions of cash or assets, other than in the normal course
of business, since December 31, 1996. Neither Company has any
liabilities or obligations, whether accrued, absolute, contingent
or otherwise, which are material to such Company except for the
liabilities and obligations disclosed in their respective
Financial Statements or incurred since July 31, 1997 in the
ordinary course of business.
2.12 Absence of Changes. Since December 31, 1996 there
------------------
has not been any material adverse change, or any event or
development which, individually or together with other such
events, could reasonably be expected to result in a material
adverse change, in the business or financial condition of either
Company, nor has there been the declaration of or the payment of
any dividend or other distribution by either Company to its
respective stockholders.
2.13 Intellectual Property. Schedule 2.13 lists all
--------------------- -------------
trademarks, registered copyrights, trade names, service marks,
patents and similar intangible rights, and all applications
therefor ("Intellectual Property") owned by either Company or used
------------ --------
at any time in the past two years in their respective businesses.
Except as set forth in Schedule 2.13, each Company is the sole
-------------
owner of all its respective Intellectual Property, free and clear
of all liens, security interests, charges or encumbrances. Each
Company is the beneficial and record owner of all Intellectual
Property necessary or desirable to the conduct of its respective
business as heretofore conducted. Except as set forth in Schedule
--------
2.13, no proceedings have been instituted, are pending or, to the
----
knowledge of the Seller after due inquiry, threatened, which
challenge or would affect the rights of either Company in respect
to any of the aforesaid or the validity thereof. Neither the use
by the Companies anywhere of the names and trademarks set forth
in Schedule 2.13 (the "Trademarks") infringes upon or otherwise
-------------
violates the rights of others. Except as set forth in Schedule
2.13, none of the other Intellectual Property infringes upon or
otherwise violates the rights of others. Except as set forth in
Schedule 2.13, none of the Intellectual Property is being infringed
-------------
by others and none of the Intellectual Property is subject to any
outstanding order, decree, judgment, stipulation or charge. No
licenses, sublicenses, or agreements pertaining to any of the
Intellectual Property have been granted by either Company and,
except as set forth in Schedule 2.13, neither Company has received
-------------
any charge of interference or infringement of any Intellectual
Property. Schedule 2.13 also sets forth a complete and correct
-------------
list of all trademark, service mark, trade name and copyright
registrations, issued patents and applications for the foregoing,
filed by either Company with respect to any Intellectual
Property. All such registrations are valid and in full force and
effect and all such applications were duly and properly filed
and, except as set forth in Schedule 2.13, neither Company has
-------------
received notice to the contrary or of any opposition or other
adverse proceeding with respect to such registrations or applications.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
In order to induce the Seller to enter into this
Agreement, the Purchaser hereby represents and warrants to the
Seller as follows:
3.1 Incorporation. The Purchaser is a corporation duly
-------------
organized, validly existing and in good standing under the laws
of the State of Delaware.
3.2 Authorization. The Purchaser has all necessary
-------------
corporate power and authority to enter into this Agreement and
has taken all corporate action to consummate the transactions
contemplated hereby. This Agreement has been duly executed and
delivered by the Purchaser and constitutes the legal, valid and
binding obligation of the Purchaser, enforceable against it in
accordance with its terms.
3.3 No Violation. The execution, delivery and
------------
performance of this Agreement by the Purchaser and the
consummation of the transactions contemplated hereby will not,
with or without the giving of notice or the passage of time, or
both, result in (i) a violation of or a conflict with any
provision of the Purchaser's Certificate of Incorporation or By-
Laws; (ii) a breach or violation of or constitute a default under
any term or provision of any contract, agreement, license,
permit, indenture, instrument, mortgage, lease, right or other
obligation or restriction to which the Purchaser is a party or by
which any asset or property of the Purchaser is or may be bound;
or (iii) a violation by the Purchaser of any law, which violation
would materially adversely affect the consummation of the
transactions contemplated by this Agreement.
3.4 Capitalization. The authorized capital stock of the
--------------
Purchaser consists of 1,000,000 shares of Preferred Stock, $.01
par value, none of which is outstanding, and 20,000,000 shares of
Common Stock, $.10 par value, of which 2,553,136 shares are
outstanding, excluding shares reserved for issuance upon the
exercise of options, warrants and convertible debentures. The
AEC Shares, when issued in accordance with this Agreement, will
be duly authorized, validly issued, fully paid and nonassessable.
3.5 Consents and Approvals. No approval, consent,
----------------------
waiver, order or authorization of, or registration,
qualification, declaration, or filing with, or notice to, any
federal, state, local or foreign governmental authority or other
third party is required that has not been obtained on the part of
the Purchaser in connection with the execution, delivery and
performance of this Agreement and the consummation of the
transactions contemplated hereby.
3.6 Reporting Requirements. The Purchaser is subject to
----------------------
periodic reporting under the United States Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and has filed all
financial reports required thereunder with the U.S. Securities
and Exchange Commission since August 1, 1995. The AEC Common
Stock is traded on the OTC Bulletin Board. When available the
Purchaser shall deliver to the Seller the Purchaser's Form 10-KSB
for the fiscal year ended July 31, 1997.
ARTICLE 4
CONDITIONS TO OBLIGATIONS OF THE PURCHASER
The obligations of the Purchaser to consummate the
transactions contemplated hereby are subject to the fulfillment,
at or before the Closing, of each of the following conditions
(all or any of which may be waived in whole or in part by the
Purchaser at its sole discretion):
4.1 Representations, Warranties and Obligations. All
-------------------------------------------
representations and warranties of the Seller contained in this
Agreement shall be true and correct in all material respects at
and as of the date of this Agreement and at and as of the Closing
Date as if such representations and warranties were made at and
as of the Closing Date. The Seller shall have performed in all
material respects all of his agreements, covenants and
obligations required hereby to be performed prior to or at the
Closing Date.
4.2 Stock Certificates. The Seller shall deliver to the
------------------
Purchaser the certificates evidencing the Purchased Shares,
together with the requisite instruments of transfer.
4.3 Good Standing Certificate. Each Company shall
-------------------------
deliver to the Purchaser a certificate as of a recent date as to
the good standing of such Company from each jurisdiction in which
that Company is incorporated, qualified or licensed to do
business.
4.4 Consents and Approvals. The Seller shall have
----------------------
obtained and delivered to the Purchaser all approvals, consents,
waivers, orders and authorizations of governmental authorities or
other third parties necessary to permit the Seller to the
consummate the transactions contemplated by this Agreement and
the Stockholders Agreement. The Seller and each Company shall
also have made, and delivered to the Purchaser copies of, all
registrations, qualifications, declarations, or filings with, or
notices to, any federal, state or local governmental authority
necessary to permit the Seller and each of the Companies to
consummate the transactions contemplated by this Agreement.
4.5 Retention. The Seller shall enter into an agreement
---------
to be a General Manager of Rosch for a term of not less than
three years, and with the Seller agreeing not to compete with
Rosch for a period of two years after termination of such
retention, upon terms satisfactory to AEC.
ARTICLE 5
CONDITIONS TO OBLIGATIONS OF THE SELLER
The obligations of the Seller to consummate the
transactions contemplated hereby are subject to the fulfillment,
at or before the Closing, of each of the following conditions
(all or any of which may be waived in whole or in part by the
Seller at his sole discretion):
5.1 Representations, Warranties and Obligations. All
-------------------------------------------
representations and warranties of the Purchaser contained in this
Agreement shall be true and correct in all material respects at
and as of the date of this Agreement and at and as of the Closing
Date as if such representations and warranties were made at and
as of the Closing Date. The Purchaser shall have performed in
all material respects all of its agreements, covenants and
obligations required hereby to be performed prior to or at the
Closing Date.
5.2 Consents and Approvals. The Purchaser shall have
----------------------
obtained and delivered to the Seller all approvals, consents,
waivers, orders and authorizations of governmental authorities or
other third parties necessary to permit the Purchaser to
consummate the transactions contemplated by this Agreement.
5.3 Stock Certificates. The Purchaser shall deliver the
------------------
certificates evidencing the AEC Shares, registered in the name of
the Seller, which certificate shall have set forth thereon a
legend referring to the restrictions on sale or transfer imposed
under the Securities Act. In addition, the Purchaser shall
deliver a "lock-up" letter agreeing that for a period of one year
from the Closing Date he will not sell or transfer 200,000 of the
210,000 AEC Shares.
5.4 Payment. The Purchaser shall deliver a certified
-------
check or arrange a wire transfer to the account of the Seller in
the amount of US$ 200,000.
5.5 Good Standing Certificates. The Purchaser shall
--------------------------
deliver to the Seller a certificate of good standing from the
Secretary of State of the State of Delaware.
5.6 General Manager. The Purchaser shall cause Rosch to
---------------
enter into an agreement with the Seller retaining him as a
General Manager for a term of not less than three years, and with
the Seller agreeing not to compete with Rosch for a period of two
years after termination of such retention, upon terms
satisfactory to the Seller.
ARTICLE 6
INDEMNIFICATION
6.1 Indemnification by the Seller. The Seller agrees to
-----------------------------
defend, indemnify and hold the Purchaser and its successors and
assigns (the "Indemnified Purchaser Group") harmless from and
against any and all losses, liabilities, damages, costs or
expenses (including reasonable attorneys' fees, penalties and
interest) payable to or for the benefit of, or asserted by, any
party, resulting from, arising out of, or incurred as a result of
the breach of any representation, warranty or covenant made by
the Seller herein.
6.2 Indemnification by the Purchaser. The Purchaser
--------------------------------
agrees to defend, indemnify and hold the Seller harmless from and
against any and all losses, liabilities, damages, costs, or
expenses (including reasonable attorneys' fees, penalties and
interest) payable to or for the benefit of, or asserted by, any
party, resulting from, arising out of, or incurred as a result of
the breach of any representation, warranty or covenant made by
the Purchaser herein.
6.3 Survival of Representations and Warranties. The
------------------------------------------
representations, warranties, covenants and agreements made by the
Seller, on the one hand, and the Purchaser, on the other hand,
shall survive the Closing Date for a period of one (1) year.
6.4 Notice of Claims. Each of the Purchaser and the
----------------
Seller agrees to give prompt written notice to the other of any
claim against the party giving notice which might give rise to a
claim by it against the other party hereto based upon the
indemnification provisions contained herein, stating the nature
and basis of the claim and the actual or estimated amount
thereof; provided, however, that failure to give such notice will
-------- -------
not affect the obligation of the indemnifying party to provide
indemnification in accordance with the provisions of this Article
6 unless, and only to the extent that, such indemnifying party is
actually prejudiced thereby. In the event that any action, suit
or proceeding is brought against the Seller or any member of the
Indemnified Purchaser Group with respect to which any party
hereto may have liability under the indemnification provisions
contained herein, the indemnifying party shall have the right, at
its sole cost and expense, to defend such action in the name or
on behalf of the indemnified party and, in connection with any
such action, suit or proceeding, the parties hereto agree to
render to each other such assistance as may reasonably be
required in order to ensure the proper and adequate defense of
any such action, suit or proceeding; provided, however, that an
-------- -------
indemnified party shall have the right to retain its own counsel,
with the fees and expenses to be paid by the indemnifying party,
if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate because
of actual or potential differing interests between such indemnified
party and any other party represented by such counsel. Neither party
hereto shall make any settlement of any claim which might give rise
to liability of the other party under the indemnification provisions
contained herein without the written consent of such other party,
which consent such other party covenants shall not be
unreasonably withheld.
ARTICLE 7
CONDUCT OF BUSINESS
7.1 Carry on Business, etc. From the date hereof until
----------------------
the Closing, except as permitted by this Agreement or as
otherwise consented to by the Purchaser in writing, the Seller
shall cause each Company to:
(A) carry on their business in the ordinary
course in substantially the same manner in which it
previously has been conducted and use reasonable
efforts to preserve intact its present business
organization and to preserve its relationships with
customers, suppliers and others having business
dealings with it, keep available the service of its
present officers and employees and preserve its
goodwill;
(B) maintain its properties in good working
repair, order and condition, in accordance with its
standard maintenance policies, and in any event in at
least as good repair, order and condition as on the
date hereof (ordinary wear and tear excepted) and so as
to permit the continued operation of the business after
the Closing Date;
(C) maintain its corporate existence;
(D) duly comply in all material respects with all
laws applicable to it and to the conduct of its
business;
(E) neither (a) amend or change its Articles of
Association or Memorandum of Association; nor (b) merge
with or into, consolidate with, or acquire all or
substantially all of the stock or assets of any other
corporation, partnership, limited partnership, joint
venture, association, or other entity; nor (c) sell,
lease, transfer or otherwise convey any significant
part of its assets (other than inventory sold in the
ordinary course of business); nor (d) change the
character of its business; nor (e) enter into
negotiations or any agreement with respect to any such
transactions;
(F) neither declare, pay or make any dividend or
other distribution or payment in respect of the
outstanding shares of its stock, nor purchase, redeem,
or otherwise acquire any shares of its stock; and
(G) neither (a) enter into any loan agreement,
whether or not secured by the Company's assets, except
in the ordinary course of business; (b) acquire or
dispose of any material asset or property, whether by
sale, lease or license, except in the ordinary course
of business; (c) acquire or dispose of, or enter any
lease, commitment or other transaction in respect of,
any real estate; (d) make any new commitment to pay any
severance or termination pay to any agent, consultant
or employee of the Company other than in the ordinary
course of business or to any person who is or was an
officer, director or stockholder of the Company or its
subsidiary; (e) make any change in its accounting
methods or practices; (f) terminate or modify any
material license, permit or Commitment other than in
the ordinary course of business; (g) do or omit to do
any act which may cause a material breach of or default
under any Commitment or a breach of any representation,
warranty, covenant or agreement made herein by either
Company or the Seller; nor (h) incur any obligation
(fixed, contingent or otherwise) or enter into any
lease, commitment or other transaction, other than the
sale of each companies products in the ordinary course
of business, consistent with past practice, which will
bind either Company after the Closing Date to an
expenditure in excess of US$ 75,000; and
(H) maintain its books of account and records in
its usual, regular and ordinary manner, consistent with
its past practice.
ARTICLE 8
POST-CLOSING COVENANTS
8.1 Board of Directors. Upon the closing of this
------------------
Agreement, the Board of Directors shall elect the Seller a
director of AEC to fill a current vacancy in the Board of
Directors and shall include the Seller on the management slate of
directors for the election of directors at the 1998 annual
meeting of AEC stockholders.
8.2 Guarantees. The Purchaser shall arrange for the
----------
release and discharge of the Seller no later than six (6) months
after the Closing Date, from each personal guarantee set forth on
Schedule 8.2 to this Agreement of the indebtedness, obligations and
------------
liabilities of the Companies given by the Seller in connection
with the Companies' respective bank loans.
ARTICLE 9
GENERAL PROVISIONS
9.1 Expenses. Each party to this Agreement shall pay
--------
its own costs and expenses (including, without limitation, the
fees and expenses of its agents, representatives, counsel and
accountants) incidental to the negotiation, drafting, and
performance of this Agreement.
9.2 Successors and Assigns. This Agreement shall be
----------------------
binding upon and inure to the benefit of the Seller and the
Purchaser, and their respective heirs, successors, legal
representatives and assigns.
9.3 Waiver. Any term or condition of this Agreement may
------
be waived, to the extent permitted by law, at any time by the
party that is entitled to the benefit thereof, but no such waiver
shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or
condition. No waiver by any party of any term or condition of
this Agreement, in any one or more instances, shall be deemed to
be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All
remedies, either under this Agreement or by law or otherwise
afforded, will be cumulative and not alternative.
9.4 Brokers and Finders. Neither the Seller nor the
-------------------
Purchaser has entered into, nor will enter into, any agreement,
arrangement or understanding with any person or firm which will
result in the obligation of such party to pay any finder's fee,
brokerage commission or similar payment in connection with the
transactions contemplated by this Agreement.
9.5 Entire Agreement. This Agreement (including the
----------------
Schedules and Exhibits hereto) constitutes the entire agreement
by the parties and supersedes any other agreement, whether
written or oral, that may have been made or entered into by them
as to the subject matter herein. This Agreement may be amended
or supplemented only by a written instrument executed by the
parties hereto which states specifically that it is intended to
amend or supplement this Agreement.
9.6 Notices. All notices, demands, requests, and other
-------
communications hereunder shall be in writing in the English
language and shall be deemed to have been duly given and shall be
effective upon receipt if delivered by hand or facsimile, or sent
by certified or registered mail, postage prepaid and return
receipt requested, or by prepaid overnight express service.
Notices shall be sent to the parties at the following addresses
(or at such other addresses for a party as shall be specified by
like notice; provided that such notice shall be effective only
upon receipt thereof):
(a) If to the Seller:
Andy Rosch
c/o Rosch GmbH Medizintechnik
Alt Buckow 6
12349 Berlin Germany
Tel: 49-30-667-91514
Fax: 49-30-604-2881
(b) If to the Purchaser:
American Electromedics Corp.
13 Columbia Drive, Suite 18
Amherst, New Hampshire 03031
Attention: Mr. Michael T. Pieniazek,
President
Tel: (603) 880-6300
Fax: (603) 880-8977
9.7 Specific Performance. The Seller agrees that money
--------------------
damages would not be a sufficient remedy to the Purchaser for any
breach of this Agreement by the Seller, and therefor the
Purchaser shall be entitled to specific performance and
injunctive relief as remedies for any such breach or threatened
breach. Such remedies shall not be deemed the exclusive remedies
of the Purchaser for a breach of this Agreement by the Seller,
but shall be in addition to all other remedies available at law
or equity.
9.8 Severability. In the event that any provision
------------
contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any
other provision hereof and this Agreement shall be construed as
if such invalid, illegal or unenforceable provisions had never
been contained herein and, in lieu of each such illegal, invalid
or unenforceable provision, there shall be added automatically as
a part of this Agreement a provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible
but still be legal, valid and enforceable.
9.9 Applicable Law. This Agreement and the legal
--------------
relations between the parties hereto shall be governed by and
construed in accordance with the substantive laws of the Republic
of Germany, without giving effect to the principles of conflicts
of law thereof, except as to the AEC Shares which shall be
governed by the laws of the State of Delaware.
9.10 Titles and Headings. Titles and headings to
-------------------
sections hereof are inserted for convenience of reference only
and are not intended to be a part of, or to affect the meaning or
interpretation of, this Agreement.
9.11 Counterparts. This Agreement may be executed in one
------------
or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
AMERICAN ELECTROMEDICS CORP.
By: /s/ Michael T. Pieniazek
----------------------------
Name: Michael T. Pieniazek
Title: President
/s/ Andy Rosch
--------------------------------
ANDY ROSCH
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM AMERICAN ELECTROMEDICS CORP. FORM 10-QSB FOR THE PERIOD ENDED
OCTOBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 289
<SECURITIES> 0
<RECEIVABLES> 1,291
<ALLOWANCES> 10
<INVENTORY> 1,471
<CURRENT-ASSETS> 3,631
<PP&E> 667
<DEPRECIATION> (404)
<TOTAL-ASSETS> 4,873
<CURRENT-LIABILITIES> 1,747
<BONDS> 720
0
0
<COMMON> 255
<OTHER-SE> 912
<TOTAL-LIABILITY-AND-EQUITY> 4,873
<SALES> 1,830
<TOTAL-REVENUES> 1,830
<CGS> 1,058
<TOTAL-COSTS> 1,058
<OTHER-EXPENSES> 687
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78
<INCOME-PRETAX> (20)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20)
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<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
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