SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported) - May 5, 1998
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AMERICAN ELECTROMEDICS CORP.
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(Exact name of registrant as specified in its charter)
Delaware 0-9922 04-2608713
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(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
Incorporation)
13 Columbia Drive, Suite 5, Amherst, New Hampshire 03031
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code - (603) 880-6300
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13 Columbia Drive, Suite 13, Amherst, New Hampshire 03031
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(Former Name or Former Address, if changed since last report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
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On May 5, 1998, American Electromedics Corp. (the "Company"
or "AEC") acquired Dynamic Dental Systems, Inc., a Delaware
corporation ("DDS"), in exchange for 750,000 shares of the
Company's Common Stock, $.10 par value (the "Common Stock"), and
$225,000, pursuant to an Agreement and Plan of Merger, dated as
of April 30, 1998, by and among the Company, DDS Acquisition
Corporation, a Delaware corporation and wholly-owned subsidiary
of the Company, DDS, and Henry J. Rhodes, Charles S. Aviles and
Barry A. Hochstadt, the sole stockholders of DDS. Upon the
merger (the "DDS Merger"), DDS became a wholly-owned subsidiary
of the Company.
Upon the closing of the DDS Merger, DDS entered into an
Employment Agreement with Mr. Rhodes pursuant to which he will
serve as President of DDS for an initial term of three years at
an annual base salary of $125,000. Mr. Rhodes was also granted
stock options to purchase up to 100,000 shares of the Company's
Common Stock at an exercise price of $1.00 per share, vested as
of May 1, 1998, and stock options to purchase up to 100,000
shares of the Company's Common Stock at an exercise price of
$3.00 per share, vested as of November 1, 2000. All such stock
options expire five years from the date of grant.
DDS is based in Gainesville, Georgia and is a distributor of
digital operator hardware, cosmetic imaging software, and
intraoral dental cameras.
On May 12, 1998, AEC acquired Equidyne Systems, Inc., a
California corporation ("ESI"), in exchange for 600,000 shares of
the Company's Common Stock, pursuant to an Agreement and Plan of
Merger, dated as of March 27, 1998, among the Company, ESI
Acquisition Corporation, a California corporation and a wholly-
owned subsidiary of the Company, and ESI. Upon the merger (the
"ESI Merger"), ESI became a wholly-owned subsidiary of the
Company.
Upon the closing of the ESI Merger, ESI entered into
Employment Agreements with Lawrence Petersen and Richard
Battelle. Mr. Petersen is to serve as President of ESI for an
initial term of three and one-half years at an annual salary of
$125,000. Mr. Petersen was also granted stock options to
purchase an aggregate of 100,000 shares of the Company's
Common Stock, 50,000 of such options at an exercise price of
$1.00 per share, with 5,000 of such options immediately vested
and 45,000 of such options to vest ratably over the term of the
Employment Agreement, and the remaining 50,000 of such options at
an exercise price of $3.00 per share, with 5,000 of such options
immediately vested and 45,000 of such options to vest ratably
over the term of the Employment Agreement. Mr. Battelle is to
serve as Director of Finance and Administration for an initial
term of one year at an annual salary of $60,000, and was also
granted stock options to purchase an aggregate of 40,000
shares of the Company's Common Stock, 20,000 of such options at
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an exercise price of $1.00 per share to vest ratably over the
term of the Employment Agreement, and the remaining 20,000 of
such options at an exercise price of $3.00 per share to vest
ratably over the term of the Employment Agreement. All such
stock options granted to Mr. Petersen and Mr. Battelle expire
five years from the date of grant.
ESI is based in San Diego, California. It is engaged in the
development of the INJEX(TM) needle-free drug injection system,
which is designed to eliminate the risks of contaminated needle
stick accidents and the resulting cross contamination of
hepatitis, HIV and other diseases. ESI holds two patents for the
features of the injection system and has received FDA 510(k)
clearance to market the product in the United States. ESI
anticipates commencing the marketing of the system in late
calendar 1998.
These acquisitions are part of management s strategic plan
to expand the scope of the medical products to be offered by the
Company.
ITEM 5. OTHER EVENTS.
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On May 5, 1998, AEC closed the placement of 1,000 shares of
Series A Convertible Preferred Stock, $.01 par value (the "Series
A Preferred Stock"), to one purchaser (the "Purchaser") at a
purchase price of $1,000 per share or an aggregate purchase price
of $1 million, pursuant to a Securities Purchase Agreement, dated
as of May 5, 1998 (the "Purchase Agreement"), among AEC, West End
Capital LLC ("West End") and the Purchaser. The Purchase
Agreement also provided that the Purchaser would purchase a
second tranche of 1,000 shares of Series A Preferred Stock for $1
million upon AEC acquiring DDS on or prior to May 15, 1998, and a
third tranche of 1,000 shares of Series A Preferred Stock for $1
million upon AEC acquiring ESI on or prior to May 25, 1998. As
part of its entry into the Purchase Agreement, the Company
entered into a Registration Rights Agreement (the "Registration
Agreement") and a Warrant Agreement. Concurrently with the
closing for the first tranche of Series A Preferred Stock, AEC
issued warrants under the Warrant Agreement (the "Warrants") to
West End for the purchase of 50,000 shares of the Company's
Common Stock at an exercise price of $4.80 per share, subject to
customary anti-dilution provisions, expiring on May 5, 2001. AEC
also issued warrants for the purchase of 30,000 shares of Common
Stock to the placement agent, exercisable at $4.40 per share for
three years.
The Registration Agreement requires AEC to file a
registration statement (the "Registration Statement") under the
Securities Act of 1933, as amended, for the Warrants and shares
of the Company's Common Stock underlying the Series A Preferred
Stock and the Warrants.
On May 8, 1998, AEC closed the second tranche of the Series
A Preferred Stock. See Item 2 of this Report for information
regarding the DDS Merger. On May 13, AEC closed the third
tranche of the Series A Preferred Stock. See Item 2 of this
Report and the Company's Form 8-K for an event of March 27, 1998
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for information regarding the ESI Merger. The net proceeds from
the sale of the 3,000 shares of Series A Preferred Stock was
$2,665,000 (after placement fees and other related costs), of
which $225,000 was used as the cash portion of the purchase price
for the DDS Merger, $600,000 was used to repay the outstanding
indebtedness to Citizens Bank New Hampshire, and the balance will
be used for possible future acquisitions and working capital.
The Series A Preferred Stock is immediately convertible into
shares of Common Stock at a conversion rate equal to $1,000
divided by the lower of (i) $4.00 or (ii) 75% of the average
closing bid price for the Common Stock for the five trading days
immediately preceding the conversion date. AEC may force
conversion of all (and not less than all) of the outstanding
shares of Series A Preferred Stock at any time after the first
anniversary of the effective date of the Registration Statement.
There is no minimum conversion price. Should the bid price of
the Common Stock fall substantially prior to conversion, the
holders of the Series A Preferred Stock could obtain a
significant portion of the Common Stock upon conversion, to the
detriment of the then holders of the Common Stock.
The Series A Preferred Stock has a liquidation preference of
$1,000 per share, plus any accrued and unpaid dividends. AEC is
to pay an annual dividend equal to 5% the liquidation preference,
which may be paid at the election of AEC in cash or shares of its
Common Stock. The dividend rate would be increased to 12% if AEC
fails to file the Registration Statement covering the Common
Stock underlying the Series A Preferred Stock within 30 days of
the initial closing or the Registration Statement is not declared
effective within 90 days of the initial closing, and such rate
would increase up to 18% by reason of further delays in the
effective date of the Registration Statement, until the effective
date thereof.
AEC may redeem up to $1 million face amount of Series A
Preferred Stock at a redemption price equal to 120% of the
liquidation preference if the closing bid price of the AEC Common
Stock is below $2.75 per share for five consecutive trading
dates.
AEC may redeem an additional $1 million face amount of
Series A Preferred Stock at a redemption price equal to 120%
of the liquidation preference if the closing bid price of the
AEC Common Stock is below $2.50 per share for five consecutive
trading dates.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION
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AND EXHIBITS.
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(a) and (b) Pursuant to paragraph (a)(4), the Company
will file all requisite financial statements
and pro forma financial information within 60
days of May 20, 1998, the day that this
report was due to be filed.
(c) 2.1 Certificate of Amendment to Certificate of
Incorporation of AEC, filed with the
Secretary of State of Delaware on May 4,
1998.
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2.2 Certificate of Designations of Series A
Convertible Preferred Stock of AEC,
filed with the Secretary of State of Delaware
on May 5, 1998.
2.3 Agreement and Plan of Merger, dated as of
April 30, 1998, among AEC, DDS Acquisition
Corporation, DDS and others (without Exhibits
or Schedules thereto).
2.4 Certificate of Merger between DDS Acquisition
Corporation and DDS, filed with the Secretary
of State of Delaware on May 5, 1998.
2.5 Agreement and Plan of Merger, dated as of
March 27, 1998, among AEC, ESI Acquisition
Corporation and ESI (incorporated by
reference to Exhibit 2 to the Company's Form
8-K for an event of March 27, 1998).
2.6 Officers Certificate of ESI filed with the
Secretary of State of California on June 1,
1998.
2.7 Officers Certificate of ESI Acquisition
Corporation filed with the Secretary of
State of California on June 1, 1998.
2.8 Employment Agreement, dated as of April 30,
1998, by and between Dental Dynamic Systems,
Inc. and Henry J. Rhodes.
2.9 Employment Agreement, dated as of May 11,
1998, by and between Equidyne Systems,
Incorporated and Lawrence Petersen.
10.1 Securities Purchase Agreement, dated as of
May 5, 1998, among AEC, West End Capital LLC
and the Purchaser listed therein.
10.2 Form of Warrant issued to West End Capital
LLC.
10.3 Registration Rights Agreement, dated as of
May 5, 1998, among AEC, West End Capital LLC
and the Purchaser listed therein.
99. Press Release dated May 13, 1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
American Electromedics Corp.
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(Registrant)
By: /s/ Michael T. Pieniazek
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Michael T. Pieniazek,
President
June 4, 1998
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<PAGE>
Exhibit Index
Number Exhibit
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2.1 Certificate of Amendment to Certificate of
Incorporation of AEC, filed with the Secretary of State
of Delaware on May 4, 1998.
2.2 Certificate of Designations of Series A Convertible
Preferred Stock of AEC, filed with the Secretary of
State of Delaware on May 5, 1998.
2.3 Agreement and Plan of Merger, dated as of April 30,
1998, among AEC, DDS Acquisition Corporation, DDS and
others (without Exhibits or Schedules thereto).
2.4 Certificate of Merger between DDS Acquisition
Corporation and DDS, filed with the Secretary of State
of Delaware on May 5, 1998.
2.5 Agreement and Plan of Merger, dated as of March 27,
1998, among AEC, ESI Acquisition Corporation and ESI
(incorporated by reference to Exhibit 2 to the
Company's Form 8-K for an event of March 27, 1998).
2.6 Officers Certificate of ESI filed with the Secretary of
State of California on June 1, 1998.
2.7 Officers Certificate of ESI Acquisition Corporation
filed with the Secretary of State of California on
June 1, 1998.
2.8 Employment Agreement, dated as of April 30, 1998, by
and between Dental Dynamic Systems, Inc. and Henry J.
Rhodes.
2.9 Employment Agreement, dated as of May 11, 1998, by and
between Equidyne Systems, Incorporated and Lawrence
Petersen.
10.1 Securities Purchase Agreement, dated as of May 5, 1998,
among AEC, West End Capital LLC and the Purchaser
listed therein.
10.2 Form of Warrant issued to West End Capital LLC
10.3 Registration Rights Agreement, dated as of May 5, 1998,
among AEC, West End Capital LLC and the Purchaser
listed therein.
99. Press Release dated May 13, 1998.
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
AMERICAN ELECTROMEDICS CORP.
(PURSUANT TO SECTION 242 OF THE
DELAWARE GENERAL CORPORATION LAW)
AMERICAN ELECTROMEDICS CORP, a corporation organized
and existing under and by virtue of the General Corporation Law
of the State of Delaware (the "Corporation"), DOES HEREBY
CERTIFY:
FIRST: The Board of Directors of the Corporation duly
adopted resolutions at a special meeting of the Board of
Directors held in accordance with Section 141 of the General
Corporation Law of the State of Delaware (the "DGCL"),
setting forth a proposed amendment (the "Amendment") to the
Certificate of Incorporation of the Corporation, declaring
the Amendment to be advisable and calling for submission of
the Amendment to the stockholders of the Corporation
pursuant to Section 242(b)(1) of the DGCL, and stating that
the Amendments would be effective only after approval
thereof by the Holders of a majority of the outstanding
shares of stock of the Corporation entitled to vote thereon.
SECOND: The Certificate of Incorporation of the
Corporation is hereby amended by adding to the end of
Article 4 the following language:
"Shares of Preferred Stock may be issued from time to
time in series, and the Board of Directors of the Corporation is
hereby authorized, subject to the limitations provided by law, to
establish and designate one or more series of the Preferred
Stock, to fix the number of shares constituting each series, and
to fix the designations, powers, preferences and relative,
participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, of each
series and the variations and the relative rights, preferences
and limitations as between series, and to increase and to
decrease the number of shares constituting each series. The
authority of the Board of Directors of the Corporation with
respect to each series shall include, but shall not be limited
to, the authority to determine the following:
1. The designation of such series.
2. The number of shares initially constituting
such series.
3. The increase, and the decrease to a number
not less than the number of the outstanding shares of such
series, of the number of shares constituting such series
theretofore fixed.
4. The rate or rates, and the conditions upon
and the times at which dividends on the shares of such series
shall be paid, the preference or relation which such dividends
shall bear to the dividends payable on any other class or classes
or on any other series of stock of the Corporation, and whether
or not such dividends shall be cumulative, and, if such dividends
shall be cumulative, the date or dates from and after which they
shall accumulate.
5. Whether or not the shares of such series
shall be redeemable, and, if such shares shall be redeemable, the
terms and conditions of such redemption, including, but not
limited to, the date or dates upon or after which such shares
shall be redeemable and the amount per share which shall be
payable upon such redemption, which amount may vary under
different conditions and at different redemption dates.
6. The rights to which the holders of the
shares of such series shall be entitled upon the voluntary or
involuntary liquidation, dissolution or winding up of, or upon
any distribution of the assets of, the Corporation, which rights
may be different in the case of a voluntary liquidation,
dissolution or winding up than in the case of such an involuntary
event.
7. Whether or not the shares of such series
shall have voting rights, in addition to the voting rights
provided by law, and, if such shares shall have such voting
rights, the terms and conditions thereof, including, but not
limited to, the right of the holders of such shares to vote as a
separate class either alone or with the holders of shares of one
or more other series of Preferred Stock and the right to have
more than one vote per share.
8. Whether or not a sinking fund or a purchase
fund shall be provided for the redemption or purchase of the
shares of such series, and, if such a sinking fund or purchase
fund shall be provided, the terms and conditions thereof.
9. Whether or not the shares of such series
shall be convertible into, or exchangeable for, shares of any
other class or classes or any other series of the same or any
other class or classes of stock of the corporation, and, if
provision be made for conversion or exchange, the terms and
conditions of conversion or exchange, including, but not limited
to, any provision for the adjustment of the conversion or
exchange rate or the conversion or exchange price.
10. Any other relative rights, preferences and
limitations."
THIRD: The Amendment has been duly adopted by the
stockholders of the Corporation, at an annual meeting of
stockholders of the Corporation held on April 25, 1990 in
accordance with Section 211 of the DGCL.
FOURTH: The Amendment was duly adopted in
accordance with the applicable provisions of Sections 242
and 141 of the General Corporation Law of the DGCL.
IN WITNESS WHEREOF, American Electromedics Corp
has caused this Certificate to be signed by its President as of
the 4th day of May, 1998.
/s/ Michael T. Pieniazek
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Michael T. Pieniazek
President
CERTIFICATE OF DESIGNATION OF SERIES
AND DETERMINATION OF RIGHTS AND PREFERENCES
OF
CONVERTIBLE PREFERRED STOCK, SERIES A
OF
AMERICAN ELECTROMEDICS CORP.
American Electromedics Corp., a Delaware corporation
(the "Company"), acting pursuant to <Section> 151 of the General
Corporation Law of Delaware, does hereby submit the following
Certificate of Designation of Series and Determination of Rights
and Preferences of its Convertible Preferred Stock, Series A.
FIRST: The name of the Company is American Electromedics Corp.
SECOND: By unanimous consent of the Board of Directors of the
Company dated May 4, 1998, the following resolutions
were duly adopted:
WHEREAS the Certificate of Incorporation of the Company
authorizes Preferred Stock consisting of 1,000,000 shares, par
value $.01 per share, issuable from time to time in one or more
series; and
WHEREAS the Board of Directors of the Company is authorized,
subject to limitations prescribed by law and by the provisions of
Article FOUR (4) of the Company's Certificate of Incorporation,
as amended, to establish and fix the number of shares to be
included in any series of Preferred Stock and the designation,
rights, preferences, powers, restrictions and limitations of the
shares of such series; and
WHEREAS it is the desire of the Board of Directors to
establish and fix the number of shares to be included in a new
series of Preferred Stock and the designation, rights,
preferences and limitations of the shares of such new series;
NOW, THEREFORE, BE IT RESOLVED that pursuant to Article FOUR
(4) of the Company's Certificate of Incorporation, as amended,
there is hereby established a new series of 3,150 shares of
convertible preferred stock of the Company (the "Series A
Preferred Stock") to have the designation, rights, preferences,
powers, restrictions and limitations set forth in a supplement of
Article FOUR (4) as follows:
1. Dividends.
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The holders of the Series A Preferred Stock shall be
entitled to receive, out of funds legally available therefor,
dividends at a rate equal to 5% (the "Dividend Rate") of the
Liquidation Preference (as hereinafter defined) (subject to
appropriate adjustments in the event of any stock dividend, stock
split, combination or other similar recapitalization affecting
such shares) per share per annum, and no more, payable in
preference and priority to any payment of any cash dividend on
Common Stock or any other shares of capital stock of the Company
other than the Series A Preferred Stock or other class or series
of stock ranking junior to the Series A Preferred Stock in
respect of dividends (such Common Stock and other inferior stock
being collectively referred to as "Junior Stock"), when and as
declared by the Board of Directors of the Company; provided,
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however, that in the event the Registration Statement (as
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hereinafter defined) is not (i) filed within 30 days of the
Initial Closing Date (as defined in the Securities Purchase
Agreement, between the Company, the purchasers named therein and
West End Capital LLC (the "Securities Purchase Agreement")) or
(ii) declared effective by the Securities and Exchange Commission
(the "Commission") by the day which is 90 days from the Initial
Closing Date (as hereinafter defined), then the Dividend Rate
shall increase to 12% until the Registration Statement is so
filed or declared effective, as the case may be; in addition, in
the event the Registration Statement is not declared effective by
the Commission by 120 days from the Initial Closing Date, the
Dividend Rate shall increase to 18% until the Registration
Statement is declared effective. Notwithstanding the foregoing,
if the Commission conducts a review of the Registration
Statement, the Dividend Rate shall not increase unless it is not
declared effective by the Commission by 120 days from the Initial
Closing Date, at which time the Dividend Rate shall increase to
14% until the Registration Statement is declared effective; in
addition, if the Commission conducts a review of the Registration
Statement and the Registration Statement is not declared
effective by 150 days from the Initial Closing Date, the Dividend
Rate shall increase to 18% until the Registration Statement is
declared effective.
Such dividends shall accrue with respect to each share of
Series A Preferred Stock from the date on which such share is
issued and outstanding and thereafter shall be deemed to accrue
from day to day whether or not earned or declared and whether or
not there exists profits, surplus or other funds legally
available for the payment of dividends, and shall be cumulative
so that if such dividends on the Series A Preferred Stock shall
not have been paid, or declared and set apart for payment, the
deficiency shall be fully paid or declared and set apart for
payment before any dividend shall be paid or declared or set
apart for any Junior Stock and before any purchase or acquisition
of any Junior Stock is made by the Company, except the repurchase
of Junior Stock from employees of the Company upon termination of
employment. At the earlier of: (1) the redemption or conversion
of the Series A Preferred Stock or (2) the liquidation, sale or
merger of the Company, any accrued but undeclared dividends shall
be paid to the holders of record of outstanding shares of
Series A Preferred Stock. No accumulation of dividends on the
Series A Preferred Stock shall bear interest.
At the election of the Company, each dividend may be paid
either in additional shares of Series A Preferred Stock or in
cash. Dividends paid in additional shares of Series A Preferred
Stock shall be paid (based on an assumed value of $1,000 per
share) in full shares only, with a cash payment equal to the
value of any fractional shares. Each dividend paid in cash shall
be mailed to the holders of record of the Series A Preferred
Stock as their names and addresses appear on the share register
of the Company or at the office of the transfer agent on the
corresponding dividend payment date. Holders of Series A
Preferred Stock will receive written notification from the
Company or the transfer agent if a dividend is paid in kind,
which notification will specify the number of shares of Series A
Preferred Stock paid as a dividend and the recipient's aggregate
holdings of Series A Preferred Stock as of that dividend payment
date and after giving effect to the dividend. All shares of
Series A Preferred Stock issued as dividends shall be entitled to
all of the rights and benefits as the shares of Series A
Preferred Stock issued on the Initial Closing Date, including the
Conversion Rights set forth in Section 4 hereof.
2. Liquidation, Dissolution or Winding Up.
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(a) In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Company, the
holders of shares of Series A Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Company
available for distribution to its stockholders, after and subject
to the payment in full of all amounts required to be distributed
to the holders of any other class or series of stock of the
Company ranking on liquidation prior and in preference to the
Series A Preferred Stock (collectively referred to as "Senior
Preferred Stock"), but before any payment shall be made to the
holders of Junior Stock by reason of their ownership thereof, an
amount equal to $1,000 per share of Series A Preferred Stock (the
"Liquidation Preference") plus any accrued but unpaid dividends
(whether or not declared). If upon any such liquidation,
dissolution or winding up of the Company the remaining assets of
the Company available for distribution to its stockholders shall
be insufficient to pay the holders of shares of Series A
Preferred Stock (and the holders of any other series of Preferred
Stock with a Liquidation Preference equal to the Liquidation
Preference of the Series A Preferred Stock) the full amount to
which they shall be entitled, the holders of shares of Series A
Preferred Stock (and the holders of any other series of Preferred
Stock with a Liquidation Preference equal to the Liquidation
Preference of the Series A Preferred Stock) shall share ratably
in any distribution of the remaining assets and funds of the
Company in proportion to the respective amounts which would
otherwise be payable in respect of the shares held by them upon
such distribution if all amounts payable on or with respect to
such shares were paid in full.
(b) After the payment of all preferential amounts required
to be paid to the holders of Senior Preferred Stock upon the
dissolution, liquidation, or winding up of the Company, all of
the remaining assets and funds of the Company available for
distribution to its stockholders shall be distributed ratably
among the holders of the Series A Preferred Stock and the Common
Stock, with each share of Series A Preferred Stock being deemed,
for such purpose, to be equal to the number of shares of Common
Stock, including fractions of a share, into which such share of
Series A Preferred Stock is convertible immediately prior to the
close of business on the business day fixed for such
distribution.
(c) The merger or consolidation of the Company into or with
another corporation which results in the exchange of outstanding
shares of the Company for securities or other consideration
issued or paid or caused to be issued or paid by such other
corporation or an affiliate thereof (except if such merger or
consolidation does not result in the transfer of more than 50
percent of the voting securities of the Company), or the sale of
all or substantially all the assets of the Company, shall be
deemed to be a liquidation, dissolution or winding up of the
Company for purposes of this Section, unless the holders of
66-2/3 percent of the Series A Preferred Stock then outstanding
vote otherwise. The amount deemed distributed to the holders of
Series A Preferred Stock upon any such merger or consolidation
shall be the cash or the value of the property, rights and/or
securities distributed to such holders by the acquiring person,
firm or other entity. The value of such property, rights or
other securities shall be determined in good faith by the Board
of Directors of the Company.
3. Voting.
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(a) The Company shall not amend, alter or repeal
preferences, rights, powers or other terms of the Series A
Preferred Stock so as to affect adversely the Series A Preferred
Stock, without the written consent or affirmative vote of the
holders of at least sixty-six and two-thirds percent (66.6%) of
the then outstanding shares of Series A Preferred Stock, given in
writing or by vote at a meeting, consenting or voting (as the
case may be) separately as a class.
4. Optional Conversion.
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The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series A
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Preferred Stock shall be convertible, at the option of the holder
thereof, at any time and from time to time, into such number of
fully paid and nonassessable shares of Common Stock as is
determined by dividing $1,000 (plus the amount of any accrued and
unpaid dividends) by the Conversion Price (as defined below) in
effect at the time of conversion. The Conversion Price at which
shares of Common Stock shall be deliverable upon conversion of
Series A Preferred Stock without the payment of additional
consideration by the holder thereof (the "Conversion Price")
shall be the lower of (i) $4.00 or (ii) 75% of the average
Closing Bid Price of the shares of Common Stock for the five (5)
trading days prior to the Conversion Date (as hereinafter
defined). For purposes of this Certificate of Designations, the
term "Closing Bid Price" means, for any security as of any date,
the closing bid price on the principal securities exchange or
trading market where the Company's Common Stock is listed or
traded as reported by Bloomberg, L.P. ("Bloomberg"), or, if
applicable, the closing bid price of the Common Stock in the
over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no closing bid price is
reported for the Common Stock by Bloomberg, then the average of
the bid prices of any market makers for such security as reported
in the "pink sheets" by the National Quotation Bureau, Inc. If
the Closing Bid Price of the Common Stock can not be calculated
on such date on any of the foregoing bases, the Closing Bid Price
of the Common Stock on such date shall be the fair market value
as mutually determined by the Company and the holders of a
majority of the outstanding shares of Series A Preferred Stock
being converted for which the calculation of the Closing Bid
Price is required in order to determine the Conversion Price of
such shares. "Trading day" shall mean any day on which the
Company's Common Stock is traded for any period on the principal
securities exchange or other securities market on which the
Common Stock is then being traded.
In the event of a liquidation of the Company, the Conversion
Rights shall terminate at the close of business on the first full
day preceding the date fixed for the payment of any amounts
distributable on liquidation to the holders of Series A Preferred
Stock.
(b) Fractional Shares. No fractional shares of Common
-----------------
Stock shall be issued upon conversion of the Series A Preferred
Stock. In lieu of fractional shares, the Company shall pay cash
equal to such fraction multiplied by the then effective
Conversion Price.
(c) Mechanics of Conversion.
-----------------------
(i) The Company will permit each holder of Series A
Preferred Stock to exercise its right to convert the Series A
Preferred Stock by faxing an executed and completed Notice of
Conversion to the Company, and delivering within three (3)
business days thereafter, the original Notice of Conversion (and
the certificates representing the related shares of Series A
Preferred Stock) to the Company by hand delivery or by express
courier, duly endorsed. Each date on which a Notice of
Conversion is faxed to and received in accordance with the
provisions hereof shall be deemed a "Conversion Date." The
Company will transmit the certificates representing the Common
Stock issuable upon conversion of the Series A Preferred Stock
(together with certificates representing the related shares of
Series A Preferred Stock not so converted) to such holder via
express courier as soon as practicable, but in all events no
later than the later to occur of (the "Delivery Date") (i) four
(4) business days after the Conversion Date and (ii) four (4)
business days after receipt by the Company of the original Notice
of Conversion (and the certificates representing the related
shares of Series A Preferred Stock). For purposes of this
Agreement, such conversion of the Series A Preferred Stock shall
be deemed to have been made immediately prior to the close of
business on the Conversion Date. The Company shall pay cash in
lieu of any fraction of a share.
(ii) In lieu of delivering physical certificates
representing the Common Stock issuable upon the conversion of the
Series A Preferred Stock, provided that the Company's transfer
agent is participating in the Depositary Trust Company ("DTC")
Fast Automated Securities Transfer program, on the written
request of a holder of Series A Preferred Stock who shall have
previously instructed such holder's prime broker to confirm such
request to the Company's transfer agent, the Company shall use
commercially reasonable efforts to cause its transfer agent to
electronically transmit such Common Stock to such holder by
crediting the account of the holder's prime broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system
no later than the applicable Delivery Date.
(iii) The Company will at all times have authorized
and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the conversion of the
Convertible Preferred Stock. The Company will use its best
efforts at all times to maintain a number of shares of Common
Stock so reserved for issuance that is no less than one and one-
half (1.5) times the number that is then actually issuable upon
the conversion of the Series A Preferred Stock or the exercise of
the Warrants issued to West End Capital LLC pursuant to the
Securities Purchase Agreement. Before taking any action which
would cause an adjustment reducing the Conversion Price below the
then par value of the shares of Common Stock issuable upon
conversion of the Series A Preferred Stock, the Company will take
any corporate action which may, in the opinion of its counsel, be
necessary in order that the Company may validly and legally issue
fully paid and nonassessable shares of Common Stock at such
adjusted Conversion Price.
(iv) All shares of Series A Preferred Stock, which
shall have been surrendered for conversion as herein provided
shall no longer be deemed to be outstanding and all rights with
respect to such shares, including the rights, if any, to receive
dividends, notices and to vote, shall immediately cease and
terminate on the Conversion Date, except only the right of the
holders thereof to receive shares of Common Stock in exchange
therefor. Any shares of Series A Preferred Stock so converted
shall be retired and cancelled and shall not be reissued, and the
Company may from time to time take such appropriate action as may
be necessary to reduce the number of shares of authorized
Series A Preferred Stock accordingly.
(v) If the conversion is in connection with an
underwritten offer of securities registered pursuant to the
Securities Act of 1933, as amended, the conversion may at the
option of any holder tendering Series A Preferred Stock for
conversion be conditioned upon the closing with the underwriter
of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive the Common Stock issuable
upon such conversion of the Series A Preferred Stock shall not be
deemed to have converted such Series A Preferred Stock until
immediately prior to the closing of the sale of securities.
(d) No Impairment. The Company will not, by amendment
-------------
of its Certificate of Incorporation or through any
reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the
taking of all such action as may be necessary or appropriate in
order to protect the Conversion Rights of the holders of the
Series A Preferred Stock against impairment.
(e) Notice of Record Date. In the event:
---------------------
(i) that the Company declares a dividend (or any
other distribution) on its Common Stock payable in Common Stock
or other securities of the Company;
(ii) that the Company subdivides or combines its
outstanding shares of Common Stock;
(iii) of any reclassification of the Common
Stock of the Company (other than a subdivision or combination of
its outstanding shares of Common Stock or a stock dividend or
stock distribution thereon), or of any consolidation or merger of
the Company into or with another corporation, or of the sale of
all or substantially all of the assets of the Company; or
(iv) of the involuntary or voluntary dissolution,
liquidation or winding up of the Company;
then the Company shall cause to be filed at its principal office
or at the office of the transfer agent of the Series A Preferred
Stock, and shall cause to be mailed to the holders of the
Series A Preferred Stock at their last addresses as shown on the
records of the Company or such transfer agent, at least ten days
prior to the record date specified in (A) below or twenty days
before the date specified in (B) below, a notice stating
(A) the record date of such dividend,
distribution, subdivision or combination, or, if a record is
not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend, distribution,
subdivision or combination are to be determined, or
(B) the date on which such reclassification,
consolidation, merger, sale, dissolution, liquidation or
winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, consolidation, merger, sale, dissolution or
winding up.
(f) Quantity Limitations on Conversions. At no time
------------------------------------
shall any holder of the Series A Preferred Stock convert such
amount of Series A Preferred Stock as shall result in such
Purchaser's ownership, after such conversion, exceeding 9.9% of
the Company's outstanding Common Stock.
5. Mandatory Conversion.
--------------------
(a) The Company may, at its option, require all (and
not less than all) holders of shares of Series A Preferred Stock
then outstanding to convert their shares of Series A Preferred
Stock into shares of Common Stock, at the then effective
conversion rate pursuant to Section 4, at any time on or after
the first anniversary of the date the registration statement
filed under the Securities Act of 1933 relating to the shares of
Common Stock into which the Series A Preferred Stock is then
convertible (the "Registration Statement") was declared effective
by the Securities and Exchange Commission.
(b) All holders of record of shares of Series A
Preferred Stock then outstanding will be given at least 10 days'
prior written notice of the date fixed and the place designated
for mandatory or special conversion of all such shares of
Series A Preferred Stock pursuant to this Section 5. Such notice
will be sent by first class or registered mail, postage prepaid,
to each record holder of Series A Preferred Stock at such
holder's address last shown on the records of the transfer agent
for the Series A Preferred Stock (or the records of the Company,
if it serves as its own transfer agent).
6. Optional Redemption of the Series A Preferred Stock.
---------------------------------------------------
(a) Optional Redemption Event.
-------------------------
(i) Upon the occurrence of an Optional Redemption
Event (as hereinafter defined) the Company may, by notice given
to each holder of Series A Preferred Stock, redeem the shares of
Series A Preferred Stock then owned by such holder (up to an
amount with an aggregate Liquidation Preference of $1 million) at
a price equal to 120% of the Liquidation Preference, plus all
accrued but unpaid dividends.
(ii) Upon receipt of a notice given pursuant to
Section 6(a)(i), each holder of Series A Preferred Stock shall
accept its ratable portion (based on its holdings of Series A
Preferred Stock as compared to the aggregate number of shares of
Series A Preferred Stock then outstanding) of such offer by
tendering such holder's shares to the Company for redemption, at
an address to be set forth in such notice, at any time prior to
5:00 p.m. New York time on the 15th day following the mailing of
such notice (the "Redemption Date"). On the Redemption Date, the
Company shall remit the applicable redemption price, calculated
pursuant to Section 6(a)(i) hereof, by check to each holder of
the Series A Preferred Stock, to the most recent address of each
holder, as set forth in the Company's books and records.
(iii) An Optional Redemption Event shall occur
(a) if, subsequent to the Initial Closing Date, the Closing Bid
Price for the shares of Common Stock shall have been less than
$2.50 per share for at least five (5) consecutive trading days
immediately prior to the date of the Optional Redemption Event
and (b) if (I) the Second Additional Closing Date (as defined in
the Securities Purchase Agreement) is held and (II) the Closing
Bid Price for the shares of Common Stock shall have been less
than $2.75 per share for at least five (5) consecutive trading
days immediately prior to the date of the Optional Redemption
Date. No more than one Optional Redemption Date may be deemed to
occur, unless the Second Additional Closing Date is held under
the Securities Purchase Agreement, in which case up to two (2)
Optional Redemption Dates may be deemed to occur.
Notwithstanding the foregoing, an Optional Redemption Event shall
not occur from the time a holder of Series A Preferred Stock has
submitted notice of conversion to the Company pursuant to Section
4(c) herein, until such time as the Company has issued and
delivered all shares of Common Stock to which such holder shall
be entitled.
(b) Cancellation of Redeemed Stock. Any shares of
Series A Preferred Stock redeemed pursuant to this Section or
otherwise acquired by the Company in any manner whatsoever shall
be canceled and shall not under any circumstances be reissued;
the Company may from time to time take such appropriate corporate
action as may be necessary to reduce accordingly the number of
authorized shares of the Company's capital stock.
(c) The Company will not, and will not permit any
subsidiary of the Company to, purchase or acquire any shares of
Series A Preferred Stock otherwise than pursuant to (1) the terms
of this Section, or (2) an offer made on the same terms to all
holders of Series A Preferred Stock at the time outstanding.
(d) Anything contained in this Section 6 to the
contrary notwithstanding, the holders of shares of Series A
Preferred Stock to be redeemed in accordance with this Section
shall have the right, exercisable at any time up to the close of
business on the applicable redemption date (unless the Company is
legally prohibited from redeeming such shares on such date, in
which event such right shall be exercisable until the removal of
such legal disability), to convert all or any part of such shares
to be redeemed as herein provided into shares of Common Stock
pursuant to Section 3 hereof.
7. Sinking Fund.
------------
There shall be no sinking fund for the payment of
dividends, or liquidation preferences on the Series A Preferred
Stock or the redemption of any shares thereof.
8. Amendment.
---------
This Certificate of Designation constitutes an
agreement between the Company and the holders of the Series A
Preferred Stock. It may be amended by vote of the Board of
Directors of the Company and the holders of a majority of the
outstanding shares of Series A Preferred Stock.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Certificate
to be executed by its President this 5th day of May, 1998.
By: /s/ Michael Pieniazek
---------------------
President
AGREEMENT AND PLAN OF MERGER
AMONG
AMERICAN ELECTROMEDICS CORP.
A DELAWARE CORPORATION,
DDS ACQUISITION CORPORATION
A DELAWARE CORPORATION,
AND
DYNAMIC DENTAL SYSTEMS, INC.,
A DELAWARE CORPORATION,
HENRY J. RHODES,
CHARLES S. AVILES, JR.
AND
BARRY A. HOCHSTADT
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE I
ADOPTION OF AGREEMENT AND PLAN OF MERGER
1.1 The Merger . . . . . . . . . . . . . . . . . . 1
1.2 Effective Date of the Merger . . . . . . . . . 2
1.3 Surviving Corporation; Articles of
Incorporation of Surviving Corporation . . . . . . 2
1.4 Merger Consideration; Conversion of DDS Common
Stock; Cancellation of Acquisition Corp. Common
Stock. . . . . . . . . . . . . . . . . . . . . . . 2
1.5 No Fractional Shares . . . . . . . . . . . . . 3
ARTICLE II
CLOSING
2.1 Closing Date . . . . . . . . . . . . . . . . . 3
2.2 Deliveries at the Closing . . . . . . . . . . 3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS AND DDS
3.1 Due Incorporation . . . . . . . . . . . . . . 4
3.2 Due Approval And Authorization . . . . . . . . 4
3.3 Non-Contravention; Consents and Approvals . . 5
3.4 Capitalization . . . . . . . . . . . . . . . . 5
3.5 Financial Statements; Undisclosed Liabilities;
Other Documents . . . . . . . . . . . . . . . 6
3.6 No Material Adverse Effects or Changes . . . . 6
3.7 Tax Returns and Audits . . . . . . . . . . . . 7
3.8 Litigation . . . . . . . . . . . . . . . . . . 8
3.9 Compliance with Applicable Laws . . . . . . . 9
3.10 Contracts . . . . . . . . . . . . . . . . . . 9
3.11 Property . . . . . . . . . . . . . . . . . . 10
3.12 Product Warranty Claims . . . . . . . . . . . 10
3.13 Employees . . . . . . . . . . . . . . . . . . 11
3.14 Insurance . . . . . . . . . . . . . . . . . . 11
3.15 Inventories . . . . . . . . . . . . . . . . . 12
3.16 Accounts Receivable. . . . . . . . . . . . . 12
3.17 Intellectual Property . . . . . . . . . . . . 12
3.18 Environmental Matters . . . . . . . . . . . . 12
3.19 Books and Records . . . . . . . . . . . . . . 13
3.20 Status of the Stockholders . . . . . . . . . 13
3.21 Waiver of Appraisal Rights . . . . . . . . . 13
3.22 Related Party Transactions . . . . . . . . . 13
3.23 Fees of Brokers, Consultants and
Financial Advisors . . . . . . . . . . . . . 14
3.24 General Representation and Warranty . . . . . 14
3.25 Investment Due Diligence. . . . . . . . . . . 14
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
ACQUISITION CORP. AND AEC
4.1 Due Incorporation . . . . . . . . . . . . . . 14
4.2 Due Authorization . . . . . . . . . . . . . . 14
4.3 Non-Contravention; Consents and Approvals . . 15
4.4 Capitalization . . . . . . . . . . . . . . . . 16
4.5 Financial Statements; Undisclosed Liabilities;
Other Documents . . . . . . . . . . . . . . . 16
4.6 Securities Law Filings . . . . . . . . . . . . 17
4.7 No Material Adverse Effects or Changes . . . . 17
4.8 Insurance. . . . . . . . . . . . . . . . . . . 17
4.9 Labor Matters . . . . . . . . . . . . . . . . 17
4.10 Tax Returns and Audits. . . . . . . . . . . . 18
4.11 Litigation . . . . . . . . . . . . . . . . . 19
4.12 Compliance with Applicable Laws . . . . . . . 19
4.13 Contracts; No Defaults . . . . . . . . . . . 19
4.14 Environmental Matters . . . . . . . . . . . . 19
4.15 Fees of Brokers, Finders and
Investment Bankers . . . . . . . . . . . . . 20
4.16 General Representation and Warranty . . . . . 20
4.17 Investment Due Diligence. . . . . . . . . . . 20
ARTICLE V
COVENANTS
5.1 Implementing Agreement . . . . . . . . . . . . 20
5.2 Access to Information and Facilities;
Confidentiality . . . . . . . . . . . . . . . 20
5.3 Preservation of Business . . . . . . . . . . . 21
5.4 Consents and Approvals . . . . . . . . . . . . 23
5.5 Periodic Reports . . . . . . . . . . . . . . . 23
5.6 Publicity . . . . . . . . . . . . . . . . . . 24
5.7 No Negotiation. . . . . . . . . . . . . . . . 24
5.8 Blue Sky Approvals . . . . . . . . . . . . . . 24
5.9 Registration Rights . . . . . . . . . . . . . 24
5.10 Removal of Guaranties . . . . . . . . . . . . 26
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS
OF ACQUISITION CORP. AND AEC
6.1 Warranties True as of Closing Date . . . . . . 27
6.2 Compliance With Agreements and Covenants . . . 27
6.3 Stockholders' Certificate . . . . . . . . . . 27
6.4 Secretary's Certificate . . . . . . . . . . . 27
6.5 Good Standing Certificates . . . . . . . . . . 27
6.6 Employment Agreement . . . . . . . . . . . . . 28
6.7 Escrow Agreement . . . . . . . . . . . . . . . 28
6.8 Opinion of Counsel . . . . . . . . . . . . . . 28
6.9 Approval of Merger . . . . . . . . . . . . . . 28
6.10 Consents and Approvals . . . . . . . . . . . 28
6.11 Resignations . . . . . . . . . . . . . . . . 28
6.12 Actions or Proceedings . . . . . . . . . . . 28
6.13 Other Closing Documents . . . . . . . . . . . 28
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
7.1 Warranties True as of Closing Date . . . . . . 29
7.2 Compliance with Agreements and Covenants . . . 29
7.3 AEC Certificate . . . . . . . . . . . . . . . 29
7.4 Opinion of Counsel . . . . . . . . . . . . . . 29
7.5 Consents and Approvals . . . . . . . . . . . . 29
7.6 Actions or Proceedings . . . . . . . . . . . . 29
7.7 Funds Delivered at Closing and Other Closing
Documents. . . . . . . . . . . . . . . . . . . 29
ARTICLE VIII
TERMINATION
8.1 Termination . . . . . . . . . . . . . . . . . 30
8.2 Effect of Termination and Abandonment . . . . 31
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by the Stockholders . . . . . 31
9.2 Indemnification by AEC . . . . . . . . . . . . 32
9.3 Procedure . . . . . . . . . . . . . . . . . . 33
9.4 Remedies . . . . . . . . . . . . . . . . . . . 33
ARTICLE X
MISCELLANEOUS
10.1 Expenses . . . . . . . . . . . . . . . . . . 34
10.2 Amendment . . . . . . . . . . . . . . . . . . 34
10.3 Notices . . . . . . . . . . . . . . . . . . . 34
10.4 Waivers . . . . . . . . . . . . . . . . . . . 35
10.5 Interpretation . . . . . . . . . . . . . . . 35
10.6 Applicable Law . . . . . . . . . . . . . . . 35
10.7 Assignment . . . . . . . . . . . . . . . . . 35
10.8 No Third Party Beneficiaries . . . . . . . . 35
10.9 Enforcement of the Agreement. . . . . . . . . 36
10.10 Severability . . . . . . . . . . . . . . . . 36
10.11 Remedies Cumulative . . . . . . . . . . . . 36
10.12 Entire Understanding . . . . . . . . . . . . 36
10.13 Waiver of Jury Trial . . . . . . . . . . . . 36
10.15 Counterparts . . . . . . . . . . . . . . . . 36
<PAGE>
SCHEDULES
---------
NUMBER DESCRIPTION.
3.1 DDS Due Incorporation.
3.3 DDS Non-Contravention; Consents and Approvals.
3.4 DDS Capitalization.
3.6 DDS Material Changes.
3.7 DDS Tax Powers of Attorney.
3.9 DDS Permits.
3.10 DDS Contracts and Largest Customers.
3.11 DDS Personal property valued over $5,000.
3.12 Product Warranty Claims.
3.13 DDS Employees.
3.14 DDS Insurance.
3.16 DDS Accounts Receivable.
3.17 DDS Intellectual Property.
3.19 DDS Books and Records.
3.22 DDS Related Party Transactions.
4.4 AEC Capitalization.
4.7 Changes to AEC since January 31, 1998.
4.9 AEC Tax Returns.
4.10 AEC Tax Power of Attorney.
5.10 Stockholder Guaranties
EXHIBITS
A. Certificate of Merger
B. Escrow Agreement
C. Stockholder Representation Letter
D. Selling Stockholder Agreement
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of April 30,
1998 (the "Agreement"), among AMERICAN ELECTROMEDICS CORP., a
Delaware corporation ("AEC"), DDS ACQUISITION CORPORATION, a
Delaware corporation ("Acquisition Corp.") and DYNAMIC DENTAL
SYSTEMS, INC., a Delaware corporation ("DDS"), and HENRY J.
RHODES, CHARLES S. AVILES, JR. and BARRY A. HOCHSTADT
(individually, a "Stockholder" and, collectively, the
"Stockholders").
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, Acquisition Corp. is a newly-formed wholly-
owned subsidiary of AEC;
WHEREAS, AEC desires to acquire all of the issued and
outstanding shares of common stock, no par value per share, of
DDS (the "DDS Common Stock"), through the merger (the "Merger")
of Acquisition Corp. with and into DDS, pursuant to the terms
hereinafter set forth;
WHEREAS, the respective Boards of Directors of AEC and
Acquisition Corp. deem it advisable and in the best interests of
AEC and Acquisition Corp. that Acquisition Corp. be merged with
and into DDS upon the terms and conditions hereinafter specified;
WHEREAS, the Board of Directors of DDS deems it
advisable and in the best interests of DDS that Acquisition Corp.
be merged with and into DDS upon the terms and conditions
hereinafter specified;
WHEREAS, the Stockholders, who in the aggregate are
the record and beneficial owners of all of the outstanding
capital stock of DDS, individually and collectively, find it
advisable and in their best interest that Acquisition Corp. be
merged with and into DDS upon the terms and conditions
hereinafter specified;
NOW, THEREFORE, in consideration of the mutual
covenants and agreements hereinafter contained, the parties
hereto, intending to be legally bound hereby, agree as follows:
ARTICLE I
ADOPTION OF AGREEMENT AND PLAN OF MERGER
1.1 The Merger. At the Effective Time (as defined in
----------
Section 1.2 hereof), in accordance with this Agreement and the
-----------
relevant provisions of the Delaware General Corporation Law (the
"DGCL"), Acquisition Corp. shall be merged with and into DDS.
DDS shall be the surviving corporation of the Merger and DDS
shall continue, and be deemed to continue, for all purposes after
the Merger, and the existence of Acquisition Corp. shall cease at
the Effective Time.
1.2 Effective Date of the Merger. Unless this
----------------------------
Agreement is terminated in accordance with its terms, the
consummation of the of the transactions contemplated by this
Agreement shall take place as soon as practicable after the
satisfaction or waiver of the conditions precedent to the
obligations of the parties set forth herein, or on such other
date as may be agreed by the parties. A Certificate of Merger,
substantially in the form annexed hereto as Exhibit A (the
"Certificate of Merger"), shall be executed in accordance with
Section 103 of the DGCL and delivered to the Secretary of State
of Delaware for filing (the time of such filing being the
"Effective Time" and the date of such filing being the "Effective
Date").
1.3 Surviving Corporation; Articles of Incorporation
------------------------------------------------
of Surviving Corporation. Following the Merger, DDS shall
-------------------------
continue to exist under, and be governed by, the laws of the
State of Delaware, and AEC will own all of the issued and
outstanding DDS Common Stock. The Certificate of Incorporation
and By-Laws of DDS, as in effect as of the Effective Time, shall
continue in full force and effect as the Certificate of
Incorporation and By-Laws of DDS.
1.4 Merger Consideration; Conversion of DDS Common
----------------------------------------------
Stock; Cancellation of Acquisition Corp. Common Stock. (a) At
------------------------------------------------------
the Effective Time, by virtue of the Merger and without any
action on the part of Acquisition Corp., DDS or the Stockholders,
the Stockholders shall receive an aggregate of $225,000 and
750,000 shares of common stock, $.10 par value per share, of AEC
("AEC Common Stock"), all of which shall be the "Merger
Consideration" subject to adjustment as provided in this
Section 1.4 and subject to the Escrow Agreement, as described in
-----------
Section 6.7 hereof. Each Stockholder shall be entitled to
-----------
receive Two Hundred Fifty Thousand (250,000) shares of AEC Common
Stock, and Seventy Five Thousand Dollars ($75,000) (the "Cash
Consideration"). Until surrendered in accordance with the
provisions of Section 1.5 hereof, each certificate of DDS Common
-----------
Stock shall represent, for all purposes, only the right to
receive the Merger Consideration or appraisal rights under
Section 1.8 hereof.
-----------
(b) If between the date of this Agreement and the
Effective Time the outstanding shares of AEC Common Stock shall
have been changed into a different number of shares or a
different class by reason of a stock dividend, subdivision,
reclassification, recapitalization, split-up or combination, the
number of AEC shares constituting the Share Consideration shall
be appropriately adjusted.
(c) At the Effective Time, all shares of DDS Common
Stock which are owned by DDS as treasury stock shall be canceled
and retired and cease to exist.
(d) At the Effective Time, each share of Acquisition
Corp. Common Stock issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any
action on the part of AEC, be canceled and cease to exist.
1.5 No Fractional Shares. No certificates or scrip
--------------------
for fractional shares of AEC Common Stock will be issued. In
lieu of issuing any such fractional shares to which a Stockholder
would otherwise be entitled to receive, the Exchange Agent shall
round up or down to the nearest whole share of AEC Common Stock.
ARTICLE II
CLOSING
2.1 Closing Date. The closing of the Merger (the
------------
"Closing") shall take place at the offices of DDS, 427 Green
Street, N.W., Gainesville, Georgia 30501, at 11:00 a.m., local
time, on that day on which the last of the conditions set forth
in Articles VI and VII shall have been satisfied or, if
permissible, waived (other than those conditions which by their
terms are to occur only at the Closing), or on and at such other
date, time and place as AEC, Acquisition Corp. and the
Stockholders may agree (the date of the Closing hereinafter being
referred to as the "Closing Date").
2.2 Deliveries at the Closing. At the Closing
-------------------------
Stockholders and/or DDS will deliver to AEC certificates
representing all then outstanding shares of DDS Common Stock, and
the various certificates, instruments and document referred to in
Article VI, and AEC and Acquisition Corp. will deliver to
----------
Stockholders and/or DDS certificates representing the Share
Considerations and funds representing the Cash Consideration, and
the various certificates, instruments and documents referred to
in Article VII.
-----------
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS AND DDS
The Stockholders, jointly and severally, and DDS
hereby represent and warrant to AEC and Acquisition Corp. as
follows:
3.1 Due Incorporation. DDS is a corporation duly
-----------------
organized, validly existing and in good standing under the laws
of the State of Delaware, with all requisite power and authority
to own, lease and operate its properties and to carry on its
business as it is now being owned, leased, operated and
conducted. Each jurisdiction in which DDS is qualified to
transact business as a foreign corporation is listed on
Schedule 3.1 hereto. Except for the jurisdictions listed on
------------
Schedule 3.1 hereto, the nature of the properties owned, leased
------------
or operated by it and the business transacted by DDS do not
require it to qualify as a foreign corporation in any other
jurisdiction. DDS does not have (i) any record or beneficial
interest in any corporation, proprietorship, firm, partnership,
limited partnership, limited liability company, trust,
association or other entity, (ii) any direct or indirect
subsidiaries, either wholly or partially owned, (iii) any voting
or management interest in any corporation, proprietorship, firm,
partnership, limited partnership, limited liability company,
trust, association, individual or other entity (a "Person") or
own any security issued by any Person.
3.2 Due Approval And Authorization. (a) The
------------------------------
execution by the Stockholders of this Agreement or any other
paper or document or the doing by any one of them of any act in
connection with the Merger shall conclusively establish their
approval thereof and the approval and ratification by DDS of the
papers and documents so executed and the actions so taken.
(b) Each Stockholder to the extent of and in his
capacity as a stockholder of DDS has full power and authority to
enter into this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of
this Agreement by the Stockholders and the consummation by them
of the transactions contemplated hereby have been duly and
validly authorized. This Agreement constitutes the legal, valid
and binding obligation of the Stockholders enforceable against
the Stockholders in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent transfer, moratorium, reorganization or
other laws from time to time in effect which affect creditors'
rights generally and by general principles of equity (regardless
of whether such enforceability is considered in a proceeding in
equity or at law).
(c) DDS has full power and authority to enter into
this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this
Agreement by DDS and the consummation of the transactions
contemplated hereby have been fully and validly authorized by all
requisite corporate action. This Agreement constitutes the
legal, valid and binding obligation of DDS enforceable against
DDS in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, fraudulent
transfer, moratorium, reorganization or other laws from time to
time in effect which affect creditors' rights generally and by
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
3.3 Non-Contravention; Consents and Approvals.
-----------------------------------------
(a) Except to the extent set forth on Schedule 3.3, the
------------
execution and delivery of this Agreement by the Stockholders and
DDS does not, and the performance by the Stockholders and DDS of
their respective obligations hereunder and the consummation of
the transactions contemplated hereby will not, conflict with,
result in a violation or breach of, constitute (with or without
notice or lapse of time or both) a default under, result in or
give to any person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or
result in the creation or imposition of any lien upon any of the
assets or properties of DDS under, any of the terms, conditions
or provisions of (i) the Certificate of Incorporation or By-Laws
of DDS, or (ii) subject to obtaining the necessary approval of
this Agreement and the Merger by the Stockholders and the taking
of the actions described in paragraph (b) of this Section 3.3 (x)
any statute, law, rule, regulation or ordinance (together,
"Laws"), or any judgment, decree, order, writ, permit or license,
of any Governmental Entity (as defined in paragraph (b) below),
applicable to DDS or any of its assets or properties, or (y) any
contract, agreement or commitment to which DDS or a Stockholder
is a party or by which DDS or any of its assets or properties is
bound.
(b) No consent, approval, order or authorization of,
or registration, declaration or filing with any court, admini-
strative agency or commission or other governmental authority or
instrumentality, domestic or foreign (a "Governmental Entity"),
or any other Person, is required by DDS or the Stockholders in
connection with the execution and delivery of this Agreement or
the consummation by DDS and the Stockholders of the transactions
contemplated hereby, except for the filing of Certificate of
Merger with the Secretary of State of the State of Delaware in
accordance with the requirements of the DGCL.
3.4 Capitalization. The authorized capital stock of
--------------
DDS consists of 3,000 shares of Common Stock, no par value per
share, of which 3,000 shares are issued and outstanding and owned
beneficially and of record by the Stockholders in the amounts set
forth on Schedule 3.4 hereto. All of the issued and outstanding
------------
shares of DDS Common Stock are validly issued, fully paid and
nonassessable and the issuance thereof was not subject to
preemptive rights. At the Effective Time there will be no
outstanding DDS options, warrants or other rights to purchase or
convert into shares of DDS Common Stock.
3.5 Financial Statements; Undisclosed Liabilities;
---------------------------------------------
Other Documents. (a) For purposes of this Agreement, "DDS
----------------
Financial Statements" shall mean (x) the unaudited financial
statements of DDS as of December 31, 1997 and the fiscal year
then ended (including all notes thereto), consisting of the
balance sheet at such date and the related statements of income,
stockholders' equity and cash flows for the year then ended and
(y) the unaudited financial statements of DDS as of March 31,
1998 (including all notes thereto), consisting of the balance
sheet at such date and the results of operations for the three
months then ended (the "DDS Interim Financial Statements"). The
DDS Financial Statements have been prepared in accordance with
GAAP consistently applied, present fairly the financial position
of DDS as at the dates thereof and the results of operations,
stockholders' equity and cash flows of DDS for the periods
covered thereby, and are substantially in accordance with the
financial books and records of DDS, subject to normal year end
adjustments with respect to the Interim Financial Statements.
(b) DDS does not have any liabilities or obligations
of any nature, whether accrued, absolute, contingent or
otherwise, which individually or in the aggregate could be
reasonably expected to have a DDS Material Adverse Effect (as
defined below) except (i) as set forth on or reflected in the
balance sheet at March 31, 1998 (the "DDS Interim Balance Sheet")
included in the DDS Interim Financial Statements or
(ii) liabilities and obligations incurred since March 31, 1998 in
the ordinary and usual course of its business.
3.6 No Material Adverse Effects or Changes. A "DDS
--------------------------------------
Material Adverse Effect" shall mean an effect on or circumstances
involving the business, operations, assets, liabilities, results
of operations, cash flows or condition (financial or otherwise)
which is materially adverse to DDS, except as set forth on
Schedule 3.6. Since December 31, 1997, DDS has not (i) declared,
------------
set aside or paid any dividend or other distribution in respect
of its capital stock; (ii) made any direct or indirect
redemption, purchase or other acquisition of any shares of its
capital stock or made any payment to any of its stockholders (in
their capacity as stockholders); (iii) issued or sold any shares
of its capital stock or any options, warrants or other rights to
purchase any such shares or any securities convertible into or
exchangeable for such shares or taken any action to reclassify or
recapitalize or split up its capital stock; (iv) mortgaged,
pledged or subjected to any lien, lease, security interest,
encumbrance or other restriction, any of its material properties
or assets except in the ordinary and usual course of its business
and consistent with past practice; (v) entered into any
acquisition or merger agreement, license, commitment or other
material agreement, (vi) except in the ordinary and usual course
of its business and consistent with its past practices forgiven
or canceled any material debt or claim, waived any material
right; or (vii) adopted or amended any plan or arrangement (other
than amendments that are not material or that were made to comply
with laws or regulations) for the benefit of any director,
officer or employee or changed the compensation (including
bonuses) to be paid to any director, officer or employee, except
for changes made consistent with the prior practice of DDS.
3.7 Tax Returns and Audits. "Taxes", as used in this
---------------------- -----
Agreement, means any federal, state, county, local or foreign
taxes, charges, fees, levies, or other assessments, including all
net income, gross income, sales and use, ad valorem, transfer,
gains, profits, excise, franchise, real and personal property,
gross receipt, capital stock, production, business and
occupation, disability, employment, payroll, license, estimated,
stamp, custom duties, severance or withholding taxes or charges
imposed by any Governmental Entity, and includes any interest and
penalties (civil or criminal) on or additions to any such taxes
and any expenses incurred in connection with the determination,
settlement or litigation of any tax liability. "Tax Return", as
used in this Agreement, means a report, return or other
information required to be supplied to a Governmental Entity with
respect to Taxes, including where permitted or required, combined
or consolidated returns for any group or entities.
(a) Filing of Timely Tax Returns. DDS has duly filed
----------------------------
all Tax Returns required to be filed by it under applicable law
and will file all Tax Returns required to be filed by it at or
prior to the Effective Date under applicable law except where the
failure to so file would not have a DDS Material Adverse Effect.
All Tax Returns were in all material respects (and, as to Tax
Returns not filed as of the date hereof, will be) complete and
correct and filed on a timely basis. DDS has not requested any
extension of time within which to file any Tax Return, which Tax
Return has not since been filed.
(b) Payment of Taxes. DDS has, within the time and in
----------------
the manner prescribed by law, paid (and until the Effective Date
will pay within the time and in the manner prescribed by law) all
Taxes that are currently due and payable except for those
contested in good faith and for which adequate reserves have been
taken.
(c) Tax Liens. There are no Tax liens upon the assets
---------
of DDS except liens for Taxes not yet due.
(d) Withholding Taxes. DDS has complied (and until
-----------------
the Effective Date will comply) in all respects with the
provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), relating to the payment and withholding of Taxes,
including, without limitation, the withholding and reporting
requirements under Sections 1441 through 1464, 3401 through 3606,
and 6041 and 6049 of the Code, as well as similar provisions
under any other laws, and has, within the time and in the manner
prescribed by law, withheld from employee wages and paid over to
the proper governmental authorities all amounts required.
(e) Statute of Limitations. Neither the Stockholders
----------------------
nor DDS has executed any outstanding waivers or comparable
consents regarding the application of the statute of limitations
with respect to any Taxes or Tax Returns. The statute of
limitations for the assessment of all Taxes has expired for all
applicable Tax Returns of DDS or those Tax Returns have been
examined by the appropriate taxing authorities for all periods
through the date hereof, and no deficiency for any Taxes has been
proposed, asserted or assessed against DDS that has not been
resolved and paid in full.
(f) Audit, Administrative and Court Proceedings. No
-------------------------------------------
audits or other administrative proceedings or court proceedings
are presently pending or, to the knowledge of the Stockholders or
DDS, threatened with regard to any Taxes or Tax Returns of DDS.
Except as disclosed in Schedule 3.7, no power of attorney
------------
currently in force has been granted by the Stockholders or DDS
concerning any Tax matter. To the knowledge of the Stockholders
and DDS, no facts exist or have existed which would constitute
grounds for the assessment of Taxes on DDS with respect to
periods which have not been audited by the Internal Revenue
Service (the "IRS") or other taxing authorities.
(g) Code Section 341(f). DDS has not filed (and will
-------------------
not file prior to the Closing) a consent pursuant to Code Section
341(f) and has not agreed to have Code Section 341(f)(2) apply to
any disposition of a subsection (f) asset (as that term is
defined in Code Section 341(f)(4)) owned by DDS.
(h) Code Section 168. No property of DDS is property
----------------
that DDS or any party to this transaction is or will be required
to treat as being owned by another person pursuant to the
provisions of Code Section 168(f)(8) (as in effect prior to its
amendment by the Tax Reform Act of 1986) or is "tax-exempt use
property" within the meaning of Code Section 168.
3.8 Litigation. There are no actions, suits,
----------
arbitrations, regulatory proceedings or other litigation,
proceedings or governmental investigations pending or, to DDS's
or the Stockholders' knowledge, threatened against or affecting
DDS or any of its officers or directors in their capacity as
such, or any of its property or business which could reasonably
be expected to have a DDS Material Adverse Effect. No event has
occurred or circumstance exists that may give rise or serve as a
basis for the commencement of any such proceeding. DDS is not
subject to any order, judgment, decree, injunction, stipulation
or consent order of or with any court or other Governmental
Entity, other than orders of general applicability.
3.9 Compliance with Applicable Laws. DDS holds all
-------------------------------
permits, licenses, variances, exemptions, orders and approvals of
all Governmental Entities which are required in the operation of
its business (the "DDS Permits"), except for those the failure of
which to hold would not have a DDS Material Adverse Effect. DDS
is in compliance with the terms of the DDS Permits, except where
the failure so to comply would not have a DDS Material Adverse
Effect. Schedule 3.9 is a complete and correct list of all DDS
------------
Permits. The entry into and consummation of this Agreement and
the Merger will not require any modification, re-application,
approval or other consent as to any DDS Permit. DDS is not in
violation of any law, ordinance or regulation of any Governmental
Entity, including environmental and labor laws and regulations,
except for possible violations which individually and in the
aggregate do not, and, insofar as reasonably can be foreseen by
DDS or the Stockholders, will not in the future have a DDS
Material Adverse Effect.
3.10 Contracts. (a) Except for the contracts,
---------
agreements, commitments, instruments, bids and proposals to which
DDS is a party listed on Schedule 3.10, DDS is not a party to or
-------------
otherwise bound by any written or oral (i) mortgage, indenture,
note, installment obligation or other instrument relating to the
borrowing of money, (ii) guarantee of any obligation (excluding
endorsements of instruments for collection in the ordinary course
of business of DDS), (iii) letter of credit, bond or other
indemnity, (iv) joint venture, partnership or other agreement
involving the sharing of profits and losses, (v) performance of
services or delivery of goods in an amount exceeding $5,000 or
which would not be completed within three (3) months, (vi)
agreement for the sale or lease by DDS to any person of any
material amount of its assets other than the retirement or other
disposition of assets no longer useful to DDS or the sale of
assets in the ordinary course of the operation of DDS, (vi)
agreement requiring the payment by DDS of more than $5,000 in any
12-month period for the purchase or lease of any machinery,
equipment or other capital assets, (viii) agreement providing for
the lease or sublease by DDS (as lessor, sublessor, lessee or
sublessee) of any real property, (ix) distributor, sales
representative, broker or agent agreement, (x) collective
bargaining agreement, employment or consulting agreement or
agreement providing for severance payments or other additional
rights or benefits (whether or not optional) in the event of the
sale of DDS, (xi) agreement requiring the payment by DDS to any
person of more than $5,000 in any 12-month period for the
purchase of goods or services, (xii) material warranties relating
to products distributed or services provided by DDS, (xiii)
license or sublicense agreement (whether as licensor, licensee,
sublicensor or sublicensee) with respect to any item of
Intellectual Property, as defined in Section 3.17, owned or
------------
licensed by DDS, and (xiv) agreement imposing non-competition,
confidentiality or exclusive dealing obligations on DDS.
(b) The Stockholders or DDS has delivered or made
available to AEC complete and correct copies of each written
agreement listed on Schedule 3.10 each as amended to date and a
-------------
summary of the terms of each oral agreement listed on
Schedule 3.10. Each agreement listed on Schedule 3.10 is a
------------- -------------
valid, binding and enforceable obligation of DDS and, to the
Stockholders' knowledge, the other party or parties thereto
(subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar Laws affecting
creditors' rights and remedies generally and subject as to
enforceability to general principles of equity, including
principles of commercial reasonableness, good faith and fair
dealing) and is in full force and effect. Except as set forth on
Schedule 3.10 (i) neither DDS nor, to the Stockholders'
-------------
knowledge, any other party thereto is in material breach of any
material term of any such agreement or has repudiated any
material term of any such agreement, (ii) no event, occurrence or
condition exists (including the transactions contemplated under
this Agreement) which, with the lapse of time or the giving of
notice or both, would become a default under any such agreement
by DDS or, to DDS's or the Stockholders' knowledge, any other
party thereto, and (iii) DDS has not released or waived any
material right under any contract. DDS is not required to give
any notice to any other person who is a party to an agreement
listed on Schedule 3.10 regarding this Agreement or the Merger.
-------------
(c) Schedule 3.10 sets forth a correct and complete
-------------
list of the ten largest customers of DDS in terms of net revenues
during the 1997 fiscal year and the first three months of fiscal
1998, showing the approximate total net revenue received in each
such period from each such customer. Except to the extent set
forth on Schedule 3.10, since December 31, 1997, there has not
-------------
been any adverse change in the business relationship between DDS
and any customer listed on such Schedule.
3.11 Property. Schedule 3.11 is a complete and
-------- -------------
correct list of all personal property of DDS (other than
inventory) not reflected on any other Schedule hereto and having
a book value exceeding $5,000. Except as set forth on
Schedule 3.11 DDS now has and on the Closing Date will have good
-------------
and marketable title to all personal property purported to be
owned by it, free and clear of all Liens. The material, tangible
assets of DDS taken as a whole, including all machinery and
equipment, are, in all material respects, in good condition and
repair, reasonable wear and tear excepted and have been well
maintained. DDS does not own, nor have any right to acquire, any
real property.
3.12 Product Warranty Claims. To Stockholders' and
-----------------------
DDS' best knowledge, there are no claims, whether undisputed or
disputed in whole or in part, existing, pending or anticipated or
otherwise known to DDS or the Stockholders under any warranty, or
guaranty, express or implied, on or otherwise issued in
connection with any product or device manufactured, made,
assembled or otherwise produced by DDS. Schedule 3.12 sets forth
-------------
DDS's warranty policy and warranty experience.
3.13 Employees. Schedule 3.13 contains a complete
--------- -------------
and correct list of (i) all full-time and part-time employees of
DDS, including their respective salaries, dates of hire,
positions and last salary adjustment and (ii) all bonus, deferred
compensation, severance or termination pay, insurance, medical,
dental, drug, profit sharing, pension, retirement, stock option,
stock purchase, hospitalization insurance or other material plans
or arrangements providing employee benefits to any current or
former director, officer, employee or consultant of DDS and all
relevant vacation policies. DDS is not a party to any union,
collective bargaining or similar agreement, and there are no
controversies pending or, to the Stockholder' knowledge,
threatened between DDS and any current or former employee or any
labor or other collective bargaining unit representing any
current or former employee of DDS that could reasonably be
expected to result in a material labor strike, dispute, slow-down
or work stoppage or otherwise have a DDS Material Adverse Effect.
The Stockholders are not aware of any organizational effort
presently being made or threatened by or on behalf of any labor
union with respect to employees of DDS. DDS has paid or accrued
in full all wages, salaries, commissions, bonuses and other
compensation (including severance pay and vacation benefits) for
all services performed by its employees and former employees, and
has withheld such amounts as were required to be withheld
therefrom and has paid the withheld amounts to the proper tax and
other receiving officers within the time required under
applicable law. DDS does not have any benefit plan subject to the
reporting requirements of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), the Code and other applicable
Laws, nor has had such a plan since January 24, 1997.
3.14 Insurance. Schedule 3.14 contains a complete
--------- -------------
and correct schedule of coverage and list of all policies of
insurance owned by DDS under which DDS assets, properties,
operations or employees are insured (including amount of
coverage, type of insurance, amount of deductible, if any, the
policy number and expiration date), and all claims made under any
of such policies or prior policies since January 24, 1997. Since
January 24, 1997, DDS has given due and timely notice of any
claim and of any occurrence known to DDS which may be covered by
any of such policies or prior policies. All scheduled policies
are in full force and effect and are in amounts and coverage
sufficient for compliance by DDS with all applicable requirements
of Law and all agreements to which DDS is a party or subject and
customary in its industry. All premiums in connection with such
policies are fully paid to Stockholders' and DDS' best knowledge.
No event has occurred which, with notice or lapse of time, would
constitute a breach or default thereunder or permit termination,
modification or acceleration of any policy, and no party to any
policy has repudiated any provisions thereof.
3.15 Inventories. The amounts at which the
-----------
inventories are carried on the DDS Interim Balance Sheet and on
the books of DDS reflect the normal valuation policy of DDS in
accordance with GAAP. The amount of repair parts and supplies
maintained by DDS is consistent with its prior practices. The
reserves estimated for obsolescence as of the Closing Date will
be adequate to cover the diminution in value of inventories due
to obsolescence.
3.16 Accounts Receivable. Schedule 3.16 sets forth a
------------------- -------------
complete and correct list of the work-in-process and accounts
receivable of DDS as set forth on the DDS Interim Balance Sheet,
including the degree of completion for each project and the
amounts expended thereon. All accounts receivable which have
arisen subsequent to the DDS Interim Balance Sheet represent
sales or work performed in the ordinary course of business, are
current and collectible and, to the Stockholders' or DDS's
knowledge, the same will be collected in full (net of reserve for
bad debts) in the ordinary course of business and are not subject
to any claims, offsets, allowances or adjustments.
3.17 Intellectual Property. Schedule 3.17 is a
--------------------- -------------
complete and correct list of all of the trademarks, tradenames,
service marks, trade dress, and patents (including any
registrations of or pending applications for any of the
foregoing), know-how, databases, trade secrets and
confidentiality information (collectively, "Intellectual
Property") used by DDS in the conduct of its business. Except as
set forth on Schedule 3.17, all of such Intellectual Property is
owned by DDS free and clear of all liens, and is not subject to
any license, royalty or other agreement. None of such
Intellectual Property has been or is the subject of any pending
or, to the best of DDS's or the Stockholders' knowledge,
threatened litigation or claim of infringement. No license or
royalty agreement to which DDS is a party is in breach or default
by any party thereto except where such breach or default would
not have a DDS Material Adverse Effect or is the subject of any
notice of termination given or, to the Stockholders' or DDS's
knowledge, threatened. To DDS's or the Stockholders' knowledge,
DDS is not breaching or infringing any Intellectual Property of
third parties. The Intellectual Property is sufficient for the
conduct of the business of DDS as presently conducted.
3.18 Environmental Matters. The business and
---------------------
operations of DDS, including the transportation, treatment,
storage, handling, transfer, disposition, recycling or receipt of
materials, complies with all applicable environmental statutes,
regulations and decrees, whether federal, state or municipal (the
"Environmental Laws"). Neither the Stockholders nor DDS has
received any notices to the effect that the business carried on
by DDS or the operation of any equipment or facilities of DDS
(including the transportation, handling, treatment or storage of
hazardous materials thereon) is not in compliance with the
requirements of applicable Environmental Laws or is subject to
any remedial control or action or any investigation or evaluation
as to whether any remedial action is required to respond to a
release or threatened which forms part of or is adjacent to any
premises at which DDS's business is conducted. DDS has performed
its services for customers in material compliance with all
applicable Environmental Laws.
3.19 Books and Records. DDS has maintained and
-----------------
preserved complete and accurate books and records for its
material transactions. The minute books of DDS include complete
and correct minutes of all meetings of its directors committees
and stockholders. The DDS Certificate of Incorporation and By-
laws previously delivered to AEC are current and complete. At
the Closing Date, all of those books and records will be in the
possession of DDS. Schedule 3.19 sets forth a complete and
-------------
correct list of (i) all officers and directors of DDS and (ii)
the name and address of each bank, trust company or other
financial institution in which DDS has an account and the names
of all persons authorized to draw thereon as well as all powers
of attorney granted by DDS.
3.20 Status of the Stockholders. Each Stockholder
--------------------------
shall sign and deliver a Stockholder Representation Letter dated
as of the Closing Date with respect to the Stockholder's receipt
of certain information and financial reports of AEC, the extent
of his or his advisor's familiarity and understanding of the
terms of the Merger, the tax consequences of the Merger with
respect to the Stockholder and the risks involved, and his
awareness of the restrictions on the transferability of the Share
Consideration.
3.21 Waiver of Appraisal Rights. In connection with
--------------------------
the Merger, each Stockholder hereby waives any right or rights of
appraisal, under the DGCL or otherwise, of his shares of DDS
common stock and agrees not to seek any such appraisal rights.
3.22 Related Party Transactions. Schedule 3.22 sets
-------------------------- -------------
forth a complete and correct list of all transactions, loans,
claims, or agreements between or involving the Stockholders, DDS
and an officer, director, employee, consultant or Stockholder of
DDS (or an affiliate of any such person) since January 24, 1997
(excluding employment agreements included on another DDS Schedule
to this Agreement and benefits given to all employees of DDS).
All transactions and agreements listed on Schedule 3.22 were on
-------------
terms to DDS no less favorable than what DDS would have had with
unrelated third parties.
3.23 Fees of Brokers, Consultants and Financial
------------------------------------------
Advisors. Neither DDS, the Stockholders nor any officer,
---------
director, or employee of DDS, has employed any broker, finder,
consultant or investment banker or incurred any liability for any
brokerage or investment banking fees, commissions or finders'
fees in connection with the transactions contemplated by this
Agreement.
3.24 General Representation and Warranty. Neither
-----------------------------------
this Agreement nor any schedule attached hereto or other
documents and written information furnished by or on behalf of
DDS, the Stockholders, its attorneys, auditors or insurance
agents to AEC in connection with this Agreement contains any
untrue statement of material fact or omits to state any material
fact necessary to make the statements contained herein or therein
not misleading.
3.25 Investment Due Diligence. The Stockholders and
------------------------
DDS have undertaken all due diligence of AEC regarding the
business and corporate affairs of AEC which the Stockholders and
DDS believe is appropriate for this transaction. In evaluating
the suitability of the transaction contemplated by this
Agreement, the Stockholders and DDS have not relied upon any
representations or other information (whether verbal or written),
other than as contained in this Agreement or in any documents or
written responses to questions furnished to DDS or the
Stockholders by AEC.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
ACQUISITION CORP. AND AEC
Acquisition Corp. and AEC, jointly and severally,
hereby represent and warrant to the Stockholders as follows:
4.1 Due Incorporation. Each of AEC and Acquisition
-----------------
Corp. is a corporation duly organized, validly existing and in
good standing under the laws of Delaware, and has all requisite
power and authority to own, lease and operate its properties and
to carry on its business as now being conducted. AEC is
qualified to do business and is in good standing as a foreign
corporation in each jurisdiction where the nature of the
properties owned, leased or operated by it and the business
transacted by it require such qualification, except where the
failure to be so qualified would not have an AEC Material Adverse
Effect (as defined in Section 4.7 herein).
-----------
4.2 Due Authorization. Each of AEC and Acquisition
-----------------
Corp. has full power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. The
execution, delivery and performance by AEC of this Agreement will
be duly and validly approved by the Board of Directors of AEC,
and no other actions or proceedings on the part of AEC will be
necessary to authorize this Agreement. The execution, delivery
and performance by Acquisition Corp. of this Agreement will be
duly and validly approved by the Board of Directors and the sole
stockholder of Acquisition Corp., and no other actions or
proceedings on the part of Acquisition Corp. or its stockholder
are necessary to authorize this Agreement. Each of AEC and
Acquisition Corp. has duly and validly executed and delivered
this Agreement, subject to the above mentioned Board and
shareholder approvals. Subject to the above mentioned Board and
shareholder approvals, this Agreement constitutes the legal,
valid and binding obligations of each of AEC and Acquisition
Corp., enforceable in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy,
insolvency, fraudulent transfer, moratorium, reorganization or
other laws from time to time in effect which affect creditors'
rights generally and by general principles of equity (regardless
of whether such enforceability is considered in a proceeding in
equity or at law).
4.3 Non-Contravention; Consents and Approvals.
-----------------------------------------
(a) The execution and delivery of this Agreement by AEC and
Acquisition Corp. does not, and the performance by AEC and
Acquisition Corp. of their obligations hereunder and the
consummation of the transactions contemplated hereby will not,
conflict with, result in a violation or breach of, constitute
(with or without notice or lapse of time or both) a default
under, result in or give to any person any right of payment or
reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any
lien upon any of the assets or properties of any of the AEC
Companies (as defined in Section 4.7 hereof) under, any of the
-----------
terms, conditions or provisions of (i) the charter documents or
bylaws of each of the AEC Companies, or (ii) subject to the
taking of the actions described in paragraph (b) of this Section,
(x) any statute, law, rule, regulation or ordinance, or any
judgment, decree, order, writ, permit or license, of any
Governmental Entity, or (y) any contract, agreement or commitment
to which any AEC Company is a party or by which any AEC Company
or any of their respective assets or properties is bound.
(b) No consent, approval, order or authorization of,
or registration, declaration or filing with any Governmental
Entity is required by AEC or Acquisition Corp. in connection with
the execution and delivery of this Agreement or the consummation
by each of AEC and Acquisition Corp. of the transactions
contemplated hereby and thereby, except for:
(i) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware in accordance with
the requirements of the DGCL; and
(ii) filings with various state securities "blue sky"
authorities.
4.4 Capitalization. The authorized capital stock of
--------------
AEC consists of 1,000,000 shares of Preferred Stock, $.01 par
value per share ("AEC Preferred Stock"), and 20,000,000 shares of
AEC Common Stock. On the date hereof, no shares of AEC Preferred
Stock are issued and outstanding and 5,663,036 shares of AEC
Common Stock are issued and outstanding. The authorized capital
stock of Acquisition Corp. consists of 1,000 shares of
Acquisition Corp. Common Stock, of which 1,000 shares are issued
and outstanding. All of the issued and outstanding shares of AEC
and Acquisition Corp. Common Stock are, and all shares of AEC
Common Stock constituting the Share Consideration portion of the
Merger Consideration to be issued to the Stockholders in the
Merger will be, validly issued, fully paid and nonassessable and
the issuances thereof were not and will not be subject to
preemptive rights. Schedule 4.4 sets forth a complete and
------------
correct list of all options, warrants or other rights to purchase
any shares of AEC capital stock or any securities convertible
into or exchangeable for such shares and all agreements or
current efforts to offer or sell any such capital stock.
4.5 Financial Statements; Undisclosed Liabilities;
----------------------------------------------
Other Documents. (a) For purposes of this Agreement, "AEC
----------------
Financial Statements" shall mean (x) the audited consolidated
financial statements of AEC as of July 31, 1997 and July 27, 1996
and for the fiscal years then ended (including all notes thereto)
and (y) the unaudited consolidated financial statements of AEC as
of January 31, 1998 and January 25, 1997 and for the six months
then ended consisting of the consolidated balance sheets at such
dates and the related consolidated statements of operations,
stockholders' equity and cash flows for the periods then ended
which are included in the AEC SEC Documents (as defined in
Section 4.6). The AEC Financial Statements have been prepared in
------------
accordance with GAAP consistently applied, present fairly the
financial position, of AEC as at the dates thereof and the
results of operations and cash flows of AEC for the periods
covered thereby (subject, in the case of any unaudited interim
financial statements, to normal year-end adjustments), and are
substantially in accordance with the financial books and records
of AEC.
(b) AEC does not have any liabilities or
obligations of any nature, whether accrued, contingent, absolute
or otherwise, which individually or in the aggregate could be
reasonably expected to have an AEC Material Adverse Effect (as
defined below) except (i) as set forth in the January 31, 1998
balance sheet (the "AEC Interim Balance Sheet") or (ii)
liabilities or obligations incurred since January 31, 1998 in the
ordinary and usual course of its business.
4.6 Securities Law Filings. AEC is a subject to the
----------------------
reporting requirements of Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and has filed all
required forms, reports and other documents with the U.S.
Securities and Exchange Commission (the "SEC") since July 28,
1996. AEC has heretofore delivered to the Stockholders and DDS
complete and correct copies of (i) its Annual Report on Form 10-
KSB for the year ended July 31, 1997, (ii) its Form 10-QSB for
the quarter ended January 31, 1998, and (iii) its current reports
on Form 8-K filed with the SEC for an event of November 26, 1997
and March 27, 1998 (together, the "AEC SEC Documents").
4.7 No Material Adverse Effects or Changes. Except
--------------------------------------
as listed on Schedule 4.7, or as disclosed in or reflected in the
------------
AEC Financial Statements included in the AEC SEC Documents, or as
contemplated by this Agreement, since January 31, 1998, neither
AEC nor any of its wholly-owned subsidiaries (AEC and such
subsidiaries sometimes collectively, the "AEC Companies") has
suffered any damage or destruction to any of its assets or
properties (whether or not covered by insurance) which is having
or could be expected to have an AEC Material Adverse Effect. An
"AEC Material Adverse Effect" shall mean an effect on or
circumstances involving the business, operations, assets,
liabilities, results of operations, cash flows or condition
(financial or otherwise) which is materially adverse to the AEC
Companies, taken as a whole.
4.8 Insurance. The AEC Companies are adequately
---------
insured with reputable insurers against all risks and in such
amounts normally insured against by companies of the same type
and in the same line of business as the AEC Companies.
4.9 Labor Matters. Each of the AEC Companies has
-------------
conducted and currently is conducting, its respective business in
full compliance with all laws relating to employment and
employment practices, terms and conditions of employment, wages
and hours and nondiscrimination in employment except where such
failure to be in compliance would not have an AEC Material
Adverse Effect. The relationship of the AEC Companies with their
respective employees is generally satisfactory, and there is, and
during the past three years there has been, no labor strike,
dispute, slow-down, work stoppage or other labor difficulty
pending or, to AEC's knowledge, threatened against or involving
the AEC Companies. None of the employees of the AEC Companies is
covered by any collective bargaining agreement, no collective
bargaining agreement is currently being negotiated by the AEC
Companies and to AEC's knowledge, no attempt is currently being
made or during the past three years has been made to organize any
employees of the AEC Companies to form or enter a labor union or
similar organization.
4.10 Tax Returns and Audits.
----------------------
(a) Filing of Timely Returns. AEC has duly filed all
------------------------
Tax Returns required to be filed by it under applicable law and
will file all Tax Returns required to be filed by it at or prior
to the Effective Date under applicable law except where the
failure to so file would not have an AEC Material Adverse Effect.
All Tax Returns were in all material respects (and, as to Tax
Returns not filed as of the date hereof, will be) complete and
correct and filed on a timely basis. AEC has not requested any
extension of time within which to file any Tax Return, which Tax
Return has not since been filed.
(b) Payment of Taxes. AEC has, within the time and in
----------------
the manner prescribed by law, paid (and until the Effective Date
will pay within the time and in the manner prescribed by law) all
Taxes that are currently due and payable except for those
contested in good faith and for which adequate reserves have been
taken.
(c) Tax Liens. There are no Tax liens upon the assets
---------
of AEC except liens for Taxes not yet due.
(d) Withholding Taxes. AEC has complied (and until
-----------------
the Effective Date will comply) in all respects with the
provisions of the Code, relating to the payment and withholding
of Taxes, including, without limitation, the withholding and
reporting requirements under Sections 1441 through 1464, 3401
through 3606, and 6041 and 6049 of the Code, as well as similar
provisions under any other laws, and has, within the time and in
the manner prescribed by law, withheld from employee wages and
paid over to the proper governmental authorities all amounts
required.
(e) Statute of Limitations. AEC has not executed any
----------------------
outstanding waivers or comparable consents regarding the
application of the statute of limitations with respect to any
Taxes or Tax Returns. The statute of limitations for the
assessment of all Taxes has expired for all applicable Tax
Returns of AEC or those Tax Returns have been examined by the
appropriate taxing authorities for all periods through the date
hereof, and no deficiency for any Taxes has been proposed,
asserted or assessed against AEC that has not been resolved and
paid in full.
(f) Audit, Administrative and Court Proceedings. No
-------------------------------------------
audits or other administrative proceedings or court proceedings
are presently pending or, to the knowledge of AEC, threatened
with regard to any Taxes or Tax Returns of AEC. Except as
disclosed in Schedule 4.10, no power of attorney currently in
-------------
force has been granted by AEC concerning any Tax matter. To the
knowledge of AEC, no facts exist or have existed which could
constitute grounds for the assessment of Taxes on AEC with
respect to periods which have not been audited by the Internal
Revenue Service (the "IRS") or other taxing authorities.
4.11 Litigation. There are no actions, suits,
----------
arbitrations, regulatory proceedings or other litigation,
proceedings or governmental investigations pending or, to AEC's
knowledge, threatened against or affecting any of the AEC
Companies or any of their respective officers or directors in
their capacity as such, or any of their respective properties or
businesses which could reasonably be expected to have an AEC
Material Adverse Effect. No AEC Company is subject to any order,
judgment, decree, injunction, stipulation or consent order of or
with any court or other Governmental Entity, other than orders of
general applicability. There are no claims, actions, suits,
proceedings, or investigations pending or, to AEC's knowledge,
threatened by or against any of the AEC Companies with respect to
this Agreement, or in connection with the transactions
contemplated hereby or thereby.
4.12 Compliance with Applicable Laws. Each of the AEC
-------------------------------
Companies holds all permits, licenses, variances, exemptions,
orders and approvals of all Governmental Entities which are
required in the operation of its respective business (the "AEC
Permits") except for those the failure of which to hold would not
have an AEC Material Adverse Effect. The AEC Companies are in
compliance with the terms of the AEC Permits, except where the
failure so to comply would not have an AEC Material Adverse
Effect. None of the AEC Companies is in violation of any law,
ordinance or regulation of any Governmental Authority, including
environmental laws and regulations, except for possible
violations which individually and in the aggregate do not, and,
insofar as reasonably can be foreseen by AEC, will not in the
future have an AEC Material Adverse Effect.
4.13 Contracts; No Defaults. Neither any AEC Company,
----------------------
nor to AEC's knowledge any other party thereto is in breach or
violation of, or in default in the performance or observance of
any term or provision of, and no event has occurred or by reason
of this Agreement or the Merger would occur which, with notice or
lapse of time or both, could be reasonably expected to result in
a default under, any contract, agreement or commitment to which
any AEC Company is a party or by which any AEC Company or any of
its assets or properties is bound, except for breaches,
violations and defaults which are not having and could not be
reasonably expected to have an AEC Material Adverse Effect. None
of the AEC Companies is required to give any notice to any person
regarding this Agreement or the transactions contemplated hereby
or thereby.
4.14 Environmental Matters. The business and
---------------------
operations of AEC, including the transportation, treatment,
storage, handling, transfer, disposition, recycling or receipt of
materials, complies with all applicable environmental statutes,
regulations and decrees, whether federal, state or municipal (the
"Environmental Laws"). AEC has not received any notices to the
effect that the business carried on by AEC or the operation of
any equipment or facilities of AEC (including the transportation,
handling, treatment or storage of hazardous materials thereon) is
not in compliance with the requirements of applicable
Environmental Laws or is subject to any remedial control or
action or any investigation or evaluation as to whether any
remedial action is required to respond to a release or threatened
which forms part of or is adjacent to any premises at which AEC's
business is conducted. AEC has performed its services for
customers in material compliance with all applicable
Environmental Laws.
4.15 Fees of Brokers, Finders and Investment Bankers.
-----------------------------------------------
Neither AEC nor any officer, director, or employee of AEC has
employed any brokers, finder or investment banker or incurred any
liability for any brokerage or investment banking fees,
commissions or finders' fees in connection with the transactions
contemplated by this Agreement.
4.16 General Representation and Warranty. Neither this
-----------------------------------
Agreement nor any schedule attached hereto or other documents and
written information furnished by or on behalf of AEC, its
attorneys, auditors or insurance agents to DDS in connection with
this Agreement contains any untrue statement of material fact or
omits to state any material fact necessary to make the statements
contained herein or therein not misleading.
4.17 Investment Due Diligence. AEC has undertaken all
------------------------
due diligence of DDS regarding the business and corporate affairs
of DDS which AEC believes is appropriate for this transaction.
In evaluating the suitability of the transaction contemplated by
this Agreement, AEC has not relied upon any representations or
other information (whether verbal or written), other than as
contained in this Agreement or in any documents or written
responses to questions furnished to AEC by DDS or the
Stockholders.
ARTICLE V
COVENANTS
5.1 Implementing Agreement. Subject to the terms and
----------------------
conditions hereof, each of the parties hereto shall use its best
efforts to take all action required of it to fulfill its
obligations under the terms of this Agreement and to facilitate
the consummation of the transactions contemplated hereby.
5.2 Access to Information and Facilities;
-------------------------------------
Confidentiality. (a) From and after the date of this Agreement,
---------------
DDS and the Stockholders shall give AEC and Acquisition Corp. and
their representatives access during normal business hours and
upon reasonable notice to all of the facilities, properties,
books, contracts, commitments and records of DDS and shall make
the officers and employees of DDS available to AEC and
Acquisition Corp. and their representatives as AEC or Acquisition
Corp. or their representatives shall from time to time reasonably
request. AEC and Acquisition Corp. and their representatives
will be furnished with any and all information concerning DDS
which AEC or Acquisition Corp. or their representatives
reasonably request. The obligations set forth in this
Section 5.2 shall also apply to AEC and Acquisition Corp.,
-----------
mutatis mutandis. The investigation by and knowledge of DDS or
AEC and the furnishing of information to each other shall not
affect the right of such party to rely on the representations,
warranties, covenants and agreements of the other party hereto.
(b) Each of the Stockholders and DDS, on one hand, and
AEC and Acquisition Corp., on the other hand, agrees for itself,
and its respective representatives, to keep confidential all
information furnished to it pursuant to this Section 5.2, except
for information which is public or which is disclosed other than
by a person subject to this Section 5.2(b).
--------------
5.3 Preservation of Business. (a) From the date of
------------------------
this Agreement until the Closing Date, DDS shall operate only in
the ordinary and usual course of business consistent with past
practice, and shall use reasonable commercial efforts to (i)
preserve intact its business organization, (ii) preserve the
goodwill and advantageous relationships with customers,
suppliers, independent contractors, employees and other persons
material to the operation of its business, and (iii) not permit
any action or omission which would cause any of the
representations or warranties contained herein to become
materially inaccurate or any of the covenants to be breached in
any material respect.
(b) DDS and the Stockholders further covenant that
prior to the Closing Date DDS shall not without the prior written
consent of AEC (which shall not be unreasonably withheld):
(i) take any action, incur any obligation or enter
into or authorize any contract or transaction other than in the
ordinary course of business;
(ii) issue, sell, deliver or agree or commit to issue,
sell or deliver (whether through the issuance or granting or
options, warrants, convertible or exchangeable securities,
commitments, subscriptions, rights to purchase or otherwise) any
shares of its capital stock or any other securities, or amend any
of their terms of any such securities;
(iii) split, combine, or reclassify any shares of its
capital stock, declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any
combination thereof) in respect of its capital stock, or redeem
or otherwise acquire any of its securities;
(iv) make any changes in its accounting systems,
policies, principles or practices except as may be required by
law or GAAP;
(v) make any amendments to its Articles of
Incorporation or By-Laws or call or hold any meeting of
stockholders except as required under this Agreement;
(vi) make any material Tax election or settle or
compromise any material federal, state, local or foreign income
Tax liability, or waive or extend the statute of limitations in
respect of any such Taxes; or
(vii) terminate, or modify, amend or otherwise alter or
change in any material respect, any of the terms or provisions of
any material Contract.
(viii) voluntarily sell, transfer, surrender, abandon
or dispose of any of its assets or property rights (tangible or
intangible), other than non-material dispositions in the ordinary
course of business consistent with past practices, which could
not have a DDS Material Adverse Effect;
(ix) grant or make any mortgage or pledge or subject
itself or any of its properties or assets to any lien, charge or
encumbrance of any kind, except liens for taxes not currently due
or liens not exceeding $25,000 in the aggregate;
(x) create, incur or assume any liability or any
indebtedness, except in the ordinary course of business
consistent with past practices, but in no event in an aggregate
amount exceeding $50,000 more than is shown on DDS's March 31,
1998 Interim Finance Statements or cancel any debts or waive any
claims or rights in an aggregate amount in excess of $20,000;
(xi) make or commit to any capital expenditures in
excess of $25,000 in the aggregate;
(xii) grant any increase in the compensation payable
or to become payable to directors, officers or employees in
excess of $10,000 in the aggregate;
(xiii) enter into any written or oral agreement, lease
(whether capitalized or otherwise), arrangement or commitment to
which DDS is a party or by which it or any of the assets it owns,
leases or utilizes is bound which is expected to result in the
receipt or payment of $20,000 or more by DDS or by which is
material to the financial position, results of operations or
prospects of DDS or to the ability of DDS to consummate the
transactions contemplated hereby;
(xiv) take or omit to take any action which would
render any of DDS's representations or warranties materially
untrue or misleading or which would breach any of its covenants;
(xv) write off the value of any inventory or accounts
receivable or increase the reserve for collectable receivables or
obsolete, damaged or otherwise unsalable inventory, except as
required by GAAP or by law, or discount, factor, sell or
otherwise transfer any account receivable;
(xvi) take any action which could have a DDS Material
Adverse Effect on employee, customer or supplier relations or
hinder DDS in consummating the transactions contemplated hereby,
or reduce or downsize its operations;
(xvii) make any contract, agreement or understanding
pursuant to which DDS guarantees the indebtedness, liabilities or
obligations of others, directly or indirectly, in any manner,
including agreements to purchase such indebtedness, liabilities
or obligations, or to supply funds or in any manner to invest in
others, or to otherwise assure the holder of such indebtedness,
liabilities or obligations against loss;
(c) The Stockholders and DDS will promptly notify AEC
in writing upon becoming aware of any fact or condition which
would constitute a breach or non-compliance of this covenant.
5.4 Consents and Approvals. Subject to the terms and
----------------------
conditions provided herein, each of the parties hereto shall use
reasonable commercial efforts to obtain all consents, approvals,
certificates and other documents required in connection with the
performance by it of this Agreement and the consummation of the
transactions contemplated hereby. As soon as practicable after
the date hereof, each of the parties hereto shall make all
filings, applications, statements and reports to all Governmental
Entities and other Persons which are required to be made prior to
the Closing Date pursuant to any applicable law or contract in
connection with this Agreement and the transactions contemplated
hereby.
5.5 Periodic Reports. Until the Effective Time, AEC
----------------
will, subject to the requirements of applicable laws, furnish to
DDS all filings to be made with the SEC and will solicit comments
with respect thereto, in each case at least two business days (or
as soon prior thereto as is practicable) prior to the time of
such filings and the time of such mailings of reports which refer
to DDS or this Agreement.
5.6 Publicity. Prior to issuing any public
---------
announcement or statement with respect to the transactions
contemplated hereby and prior to making any filing with any
federal or state governmental or regulatory agency with respect
thereto, AEC on one hand, and the Stockholders and DDS on the
other hand, will, subject to their respective legal obligations,
consult with each other and will allow each other to review the
contents of any such public announcement or statement and any
such filing. Subject to the preceding sentence, AEC on one hand,
and the Stockholders and DDS on the other hand, each agree to
furnish to the other copies of all other public announcements
they may make concerning their respective business and operations
promptly after such public announcements are made.
5.7 No Negotiation. The Stockholders agree that
--------------
neither they nor DDS shall, after the date hereof and prior to
the Effective Time, (A) seek, directly or through agents,
representatives or affiliates (as defined in the Exchange Act),
or permit any of DDS's officers or directors to seek (whether in
their capacities as officers or directors or in their individual
capacities) any person or persons (other than AEC) to acquire or
purchase all or substantially all of its assets or to purchase or
exchange for any of its capital stock, or DDS to acquire or
purchase in one or more related transactions the capital stock or
related assets of persons (other than AEC or its affiliates) or
to effect a consolidation or merger (other than the Merger) or
other business combination or recapitalization, or to enter into
any discussions or agreements with respect to any of the
foregoing transactions ("Acquisition Transactions"), and shall
cease any such discussions held with third parties (other than
AEC) as of the date hereof; or (B) make inquiry as to, or solicit
the invitation of, discussions with respect to any Acquisition
Transaction (other than the Merger). The Stockholders shall not
seek (other than in connection with the Merger) any sale or other
transfer of their shares of DDS Common Stock or grant to any
other individual or entity any option or right to purchase such
shares of DDS Common Stock. Notwithstanding anything in this
Agreement to the contrary, if the Effective Time shall not have
occurred on or before June 30, 1998, the restrictions under this
Section 5.7, at the option of DDS, shall terminate upon notice
from DDS to AEC.
5.8 Blue Sky Approvals. AEC and either the
------------------
Stockholders or DDS shall obtain all necessary state securities
law or "blue sky" permits and approvals required to carry out the
transactions contemplated by this Agreement and the Merger.
5.9 Registration Rights. (a) Registration. AEC will
------------------- ------------
use its best efforts, within sixty (60) days from the Effective
Date, to file a registration statement (the "Registration
Statement") on Form SB-2 or such other applicable form under the
Securities Act with the Securities and Exchange Commission (the
"Commission") to register the AEC Shares constituting the Share
Consideration (the "Registered Shares"), for sale and use its
best efforts to cause the Registration Statement to be declared
effective within such six (6) months and to maintain the
Registration Statement under the Securities Act from its
effective date until the earlier of (A) one (1) year after the
Effective Date or (B) all Registered Shares included therein have
been sold. AEC may include the Registered Shares in a
registration statement being filed by AEC with respect to other
securities of AEC. AEC shall give written notice to each
Stockholder at least twenty (20) days prior to filing the
Registration Statement asking such Stockholder how many of his
shares of AEC Common Stock he wants to include in the
Registration Statement. If a Stockholder fails to timely advise
AEC in writing of the number of shares of AEC Common Stock he
wants to include in the Registration Statement, he shall have no
further rights to have his shares of AEC Common Stock included
therein. The obligation of AEC under this provision shall be
limited to one Registration Statement which becomes effective
under the Securities Act.
(b) Registration Procedures. (i) AEC shall pay all
-----------------------
expenses of the Registration Statement filed pursuant to this
Section, including, without limitation, all registration, filing
and qualification fees, printing expenses, fees and disbursements
of counsel for AEC, accounting fees incidental to or required by
such registration; provided, however, that each Stockholder shall
-------- -------
pay all underwriting discounts and commissions applicable to his
Registered Shares and fees and disbursements of his own attorney.
AEC shall furnish the Stockholders such number of copies of a
prospectus, including a preliminary prospectus, to the
Registration Statement as such Stockholders may reasonably
request and, provided further, that each Stockholder shall have
-------- -------
the right to sell his Registered Shares in the market through his
own broker.
(ii) In connection with any Registration Statement
filed pursuant to this Section, AEC shall file any post-effective
amendment or amendments to the Registration Statement which may
be required under the Securities Act during the period reasonably
required to effect the distribution contemplated thereby. A form
of selling stockholders agreement, which is substantially the
form of agreement to be entered into by each Stockholder, is
annexed as Exhibit D.
(iii) Each Stockholder who desires to include his
shares of AEC Common Stock in the Registration Statement must
enter into a Selling Stockholders Agreement with AEC regarding
the relative rights and duties of the Selling Stockholders and
AEC, including customary indemnification provisions. A form of
Selling Stockholders Agreement, which is substantially the form
of agreement to be entered into by each Stockholder, is annexed
as Exhibit D.
(iv) AEC shall not be required to include in any
Registration Statement any Registered Shares if in the opinion of
counsel to AEC, registration of the Registered Shares proposed
to be included is not required under the Securities Act if such
Registered Shares may then be publicly sold in accordance with
Section 4(1) thereof and Rule 144 thereunder. To better assure
the availability of sales under Rule 144, AEC shall at all times
while any Stockholder holds Share Consideration, remain in full
compliance with all reporting requirements referenced in Rule
144(c).
(c) State Securities Laws. In connection with the
---------------------
offering of any Registered Common Stock pursuant to this Section,
AEC shall use its best efforts without charge to the Stockholders
to qualify or register the Registered Shares under the securities
or "blue sky" laws of such jurisdictions as may be reasonably
requested by the Stockholders.
(d) The Stockholders shall sell Registered Shares at a
rate no faster than the percentages set forth below of total
Registered Shares which they receive as the Merger Consideration
prior to the dates set forth below:
% OF REGISTERED SHARES
WHICH MAY BE SOLD LIMITATION DATE
----------------------- ---------------
Up to 5% July 15, 1998
Up to 10% July 31, 1998
Up to 15% August 31, 1998
Up to 20% September 30, 1998
Up to 25% October 31, 1998
Up to 30% November 30, 1998
Up to 35% December 31, 1998
Up to 50% January 31, 1999
Up to 65% February 28, 1999
Up to 80% March 31, 1999
Up to 95% April 30, 1999
Up to 100% May 31, 1999
5.10 Removal of Guaranties. From and after the date of
---------------------
this Agreement, AEC shall use its best efforts to obtain as soon
as possible after the Closing the cancellation and release of
each and every personal guaranty of a Stockholder which
guarantees any payment or other obligation of the DDS as
indicated on Schedule 5.10 (a "Stockholder Guaranty"). In
-------------
addition, AEC agrees to defend, indemnify and hold harmless all
Stockholders, and their heirs, representatives, successors, and
assigns, from and against any and all loss, liability, and
expense (including, but not limited to, reasonable costs of
investigation and defense and reasonable fees and expenses of
attorneys and legal assistants) arising from or in connection
with any such Stockholder Guaranty, unless such loss, liability,
or expense is due to the willful or grossly negligent act or
failure to act of the applicable Stockholder seeking
indemnification.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS
OF ACQUISITION CORP. AND AEC
The obligations of Acquisition Corp. and AEC to
consummate the Merger are subject to the fulfillment at or before
the Closing of each of the following conditions:
6.1 Warranties True as of Closing Date. Each of the
----------------------------------
representations and warranties of the Stockholders and DDS
contained herein shall be true and correct in all material
respects on and as of the Closing Date with the same force and
effect as though made on and as of the Closing Date, without
giving effect to any notification pursuant to
Section 5.3(c) hereof.
--------------
6.2 Compliance With Agreements and Covenants. The
----------------------------------------
Stockholders and DDS shall have performed and complied with in
all material respects all of their covenants, obligations and
agreements contained in this Agreement to be performed and
complied with by the Stockholders and DDS on or prior to the
Closing Date, without giving effect to any notification pursuant
to Section 5.3(c) hereof.
--------------
6.3 Stockholders' Certificate. The Stockholders and
-------------------------
the Chief Executive Officer of DDS shall have delivered to AEC a
certificate, dated the Closing Date certifying that each of the
conditions specified in Section 6.1 and Section 6.2 hereof are
----------- -----------
satisfied in all respects.
6.4 Secretary's Certificate. DDS will have delivered
-----------------------
to AEC a certificate of the duly authorized Secretary of DDS,
dated the Closing Date, certifying resolutions of DDS Board of
Directors and Stockholders authorizing the execution, delivery
and performance of this Agreement and the Merger.
6.5 Good Standing Certificates. DDS will have
--------------------------
delivered to AEC at the Closing certificate of good standing and
tax status from the State of Delaware and Georgia, as to DDS,
which Certificates shall be dated a date not more than five (5)
business days prior to the Closing Date.
6.6 Employment Agreement. The Stockholders will have
--------------------
delivered to AEC a fully executed employment agreement between
DDS and Henry J. Rhodes, in form satisfactory to AEC.
6.7 Escrow Agreement. The Stockholders will have
----------------
delivered to AEC the Escrow Agreement executed by the Escrow
Agent and a person acceptable to the parties hereto, as the agent
of the Stockholders, as provided for in Section 1.4(a) hereof.
--------------
The Escrow Agreement shall be substantially in the form of
Exhibit B attached hereto.
---------
6.8 Opinion of Counsel. DDS will have delivered to
------------------
AEC a legal opinion of Schnader Harrison Segal & Lewis LLP in
form and substance reasonably satisfactory to AEC and its
counsel.
6.9 Approval of Merger. The execution, delivery and
------------------
performance of this Agreement and the Merger contemplated hereby
have been duly authorized by all requisite corporate action.
6.10 Consents and Approvals. AEC shall have received
----------------------
written evidence satisfactory to it that all consents and
approvals required for the consummation of the transactions
contemplated hereby have been obtained, and all required filings
have been made, except where the failure to obtain any such
consent or approval or to make any such filing would not have an
DDS Material Adverse Effect or an AEC Material Adverse Effect.
6.11 Resignations. Such officers and directors of DDS
------------
as requested by AEC shall have delivered letters of resignation
of their positions with DDS.
6.12 Actions or Proceedings. No preliminary or
----------------------
permanent injunction or other order by any federal or state court
preventing consummation of the Merger shall have been issued and
shall be continuing in effect, and the Merger and the other
transactions contemplated hereby shall not be prohibited under
any applicable federal or state law or regulation.
6.13 Other Closing Documents. AEC shall have received
-----------------------
from the Stockholders the certificates for their shares of DDS
Common Stock, duly endorsed, the executed Certificate of Merger
and such other agreements and instruments as AEC shall reasonably
request, in each case in form and substance reasonably
satisfactory to AEC.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS
The obligations of the Stockholders to consummate the
Merger are subject to the satisfaction or waiver by AEC of the
following conditions precedent on or before the Closing Date:
7.1 Warranties True as of Closing Date. Each of the
----------------------------------
representations and warranties of Acquisition Corp. and AEC
contained herein shall be true and correct in all material
respects on and as of the Closing Date with the same force and
effect as though made by Acquisition Corp. and AEC on and as of
the Closing Date, without giving effect to any notification
pursuant to Section 5.3(c) hereof.
--------------
7.2 Compliance with Agreements and Covenants.
----------------------------------------
Acquisition Corp. and AEC shall have performed and complied with
in all material respects all of their covenants, obligations and
agreements contained in this Agreement, to be performed and
complied with by them on or prior to the Closing Date, without
giving effect to any notification pursuant to Section 5.3(c)
--------------
hereof.
7.3 AEC Certificate. AEC shall have delivered to DDS
---------------
a certificate, dated the Closing Date, from its Chief Executive
Officer certifying that each of the conditions specified in
Section 7.1 and Section 7.2 hereof are satisfied in all respects.
----------- -----------
7.4 Opinion of Counsel. AEC shall have delivered to
------------------
DDS a legal opinion of Reid & Priest LLP in form and substance
reasonably satisfactory to DDS.
7.5 Consents and Approvals. DDS shall have received
----------------------
written evidence satisfactory to it that all consents and
approvals required for the consummation of the transactions
contemplated hereby have been obtained, and all required filings
have been made, except where the failure to obtain any such
consent or approval or to make any such filing would not have an
DDS Material Adverse Effect or an AEC Material Adverse Effect.
7.6 Actions or Proceedings. No preliminary or
----------------------
permanent injunction or other order by any federal or state court
preventing consummation of the Merger shall have been issued and
shall be continuing in effect, and the Merger and the other
transactions contemplated hereby shall not be prohibited under
any applicable federal or state law or regulation.
7.7 Funds Delivered at Closing and Other Closin
--------------------------------------------
Documents. The Stockholders and DDS shall have received the
---------
Share Consideration and the Cash Consideration except to the
extent a portion of which is held under the Escrow Agreement as
provided in Section 1.4 hereof, the Escrow Agreement and such
other agreements and instruments as the Stockholders and DDS
shall reasonably request, in each case in form and substance
reasonably satisfactory to the Stockholders.
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated and
-----------
the Merger may be abandoned at any time prior to the Effective
Time, whether before or after approval by the Stockholders:
(a) by mutual written consent of the Board of
Directors of AEC and the Stockholders;
(b) by either AEC or the Stockholders, by written
notice to the other, if (i) the Effective Time shall not have
occurred on or before July 31, 1998, or (ii) any court of
competent jurisdiction in the United States or any state shall
have issued an order, judgment or decree (other than a temporary
restraining order) restraining, enjoining or otherwise
prohibiting the Merger and such order, judgment or decree shall
have become final and non-appealable; provided, however, that the
right to terminate this Agreement (X) under clause (i) shall not
be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date or
(Y) under clause (ii) shall not be available to any party unless
such party shall have used all reasonable efforts to remove such
order, judgment or decree;
(c) by AEC, by written notice to the Stockholders, if:
(i) there shall have been any breach of any
representation, warranty, covenant or agreement of the
Stockholders or DDS hereunder which, if not remedied
prior to the Closing Date, would have an DDS Material
Adverse Effect and such breach shall not have been
remedied, or the Stockholders and DDS shall not have
provided AEC with reasonable assurance that such breach
will be remedied prior to the Closing Date, within five
(5) business days after receipt by the Stockholders of
notice in writing from AEC, specifying the nature of
such breach and requesting that it be remedied; or
(ii) the Stockholders shall withdraw or modify in
any manner adverse to AEC its approval or
recommendation of this Agreement or the Merger.
(d) by the Stockholders, by written notice to AEC, if:
(i) there shall have been any breach of any
representation, warranty, covenant or agreement of AEC
hereunder which, if not remedied prior to the Closing
Date, would have an AEC Material Adverse Effect and
such breach shall not have been remedied or AEC shall
not have provided the Stockholders with reasonable
assurance that such breach will be remedied prior to
the Closing Date, within five (5) business days after
receipt by AEC of notice in writing from the
Stockholders, specifying the nature of such breach and
requesting that it be remedied; or
(ii) the Board of Directors of AEC shall withdraw
or modify in any manner adverse to the Stockholders its
approval or recommendation of this Agreement or the
Merger.
8.2 Effect of Termination and Abandonment. In the
-------------------------------------
event of termination of this Agreement and abandonment of the
Merger pursuant to this Article VIII, this Agreement shall
------------
forthwith become void and no party hereto (or any of its
directors, officers or stockholders) shall have any liability or
further obligation to any other party to this Agreement, except
that nothing herein will relieve any party from liability for any
breach of any of its representations or warranties under this
Agreement or its failure to comply with one of its covenants,
agreements or obligations under this Agreement, except if the
termination is by reason of a breach by either the Stockholders
or DDS of its covenants under Section 5.7 hereof, the
-----------
Stockholders shall pay to AEC a non-refundable fee equal to
$200,000 as exclusive remedy.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by the Stockholders.
-----------------------------------
(a) In consideration of the receipt of the Merger
Consideration, the Stockholders and DDS shall indemnify and hold
harmless AEC from and against any claims, demands, debts, suits,
actions, obligations, proceedings, losses, damages, liabilities,
deficiencies, costs and expenses (including without limitation,
all reasonable legal and other professional fees and
disbursements, interest, penalties and amounts paid in
settlement) (collectively, "Claims") arising out of, based upon
or by reason of (A) any breach of any representation or warranty
of the Stockholders or DDS contained in this Agreement or in any
Schedule or certificate delivered pursuant to this Agreement or
(B) any breach or non-fulfillment of, or failure to perform, any
of the covenants, agreements or understandings of DDS or the
Stockholders which are contained in or made pursuant to this
Agreement.
(b) Notwithstanding anything to the contrary herein,
any claim by AEC against the Stockholders under this Section 9.1
-----------
shall be payable by the Stockholders only to the extent that
AEC's damages (the "Damages") shall exceed in the aggregate
$25,000 (the "Threshold Amount"). Subject to the limitation
contained in the last sentence of this Section 9.1(b), at such
time as the aggregate amount of AEC Damages exceed the Threshold
Amount, the Stockholders shall be jointly and severally liable on
a dollar-for-dollar basis for the full amount of all AEC Damages,
including the Threshold Amount. Any payments to be made by the
Stockholders under this Section 9.1 shall be first from the Cash
-----------
Consideration and then from the Share Consideration held under
the Escrow Agreement, and shall be pro-rata based upon their
respective ownership of DDS Common stock as of immediately prior
to the Effective Time. Notwithstanding anything in this Section
9.1 to the contrary, in no event shall the aggregate liability of
the Stockholders under this Section 9.1 exceed the aggregate of
-----------
the value of the portion of the Share Consideration then held
under the Escrow Agreement (which shares shall be valued at the
Average Closing Price per share for the five (5) trading days
immediately prior to the payment date) and the then amount of
Cash Consideration held under the Escrow Agreement.
9.2 Indemnification by AEC.
----------------------
(a) AEC shall indemnify and hold harmless the
Stockholders (under this Section 9.2, the "Indemnified
-----------
Stockholders") from and against any claims, demands, debts,
suits, actions, obligations, proceedings, losses, damages,
liabilities, deficiencies, costs and expenses (including without
limitation, all reasonable legal and other professional fees and
disbursements, interest, penalties and amounts paid in
settlement) (collectively, "Claims") arising out of, based upon
or by reason of (A) any breach by AEC of any representation or
warranty by AEC contained in this Agreement or (B) any breach or
non-fulfillment of, or failure to perform, any of the covenants,
agreements or undertakings of AEC which are contained in or made
pursuant to this Agreement. It is acknowledged that the person
who is acting as the agent of the Indemnified Stockholders
pursuant to the Escrow Agreement shall also act as agent on
behalf of the Indemnified Stockholders pursuant to this
Section 9.2 (the "Stockholders' Agent").
-----------
(b) Notwithstanding anything to the contrary herein,
any claim by the Indemnified Stockholders against AEC under this
Section 9.2 shall be payable by AEC only to the extent that the
-----------
Indemnified Stockholders' damages ("Damages") shall exceed the
Threshold Amount. At such time as the aggregate amount of the
Indemnified Stockholders Damages exceed the Threshold Amount, AEC
shall thereafter be liable on a dollar-for-dollar basis for the
full amount of all Indemnified Stockholders Damages, including
the Threshold Amount. AEC may make payments of amounts payable
under this Section 9.2 in U.S. currency and/or shares of AEC
Common Stock, which shares be valued at the Average Closing Price
per share for the five trading days immediately prior to the
payment date, as provided in the Escrow Agreement. In no event
shall the aggregate liability of AEC under this Section 9.2
exceed $350,000.
9.3 Procedure. (a) Any Claim brought by AEC or the
---------
Stockholders under this ARTICLE IX must be in writing, specifying
the nature of the Claim and the estimated amount of damages, and
be received by the party against whom indemnification is being
sought within one year after the Effective Date (the "Indemnity
Termination Date").
(b) In the event that subsequent to the Effective
Time, and prior to the Indemnity Termination Date, AEC receives
written notice of the assertion of a claim or the commencement of
any action or proceeding by any person who is not a party to this
Agreement (including any Governmental Entity) (a "Third Party
Claim"), against AEC, the Stockholders, DDS or one of their
affiliates against which AEC may be entitled to indemnification
hereunder, AEC shall give written notice of the Third Party Claim
to the Stockholders' Agent. AEC shall have the right to conduct
the defense of the Third Party Claim, and the cost of such
defense shall be part of AEC Damages. If an offer is made to
settle a Third Party Claim and AEC desires to accept such offer,
AEC shall give written notice of the offer of settlement to the
Stockholders' Agent who shall have fifteen (15) days from receipt
thereof to accept or reject the offer, which rejection must be on
a reasonable basis. The failure of the Stockholders Agent to
respond to a desired offer of settlement shall be deemed
acceptance thereof.
9.4 Remedies. Each of AEC and Acquisition Corp, on
--------
one hand, and the Stockholders and DDS (until the Effective Time)
and the Stockholders (after the Effective Time), on the other
hand, shall not be liable or responsible in any manner whatsoever
to the other, whether for indemnification or otherwise, with
respect to any matter arising out of the representations,
warranties or covenants of this Agreement or any Schedule hereto
or any certificate delivered in connection herewith except for
(i) equitable relief, (ii) pursuant to remedies expressly
provided for elsewhere in this Agreement and (iii) indemnity as
expressly provided in this ARTICLE IX, all of which provide the
exclusive remedy of the parties hereto.
ARTICLE X
MISCELLANEOUS
10.1 Expenses. Each party hereto shall bear its own
--------
expenses with respect to the transactions contemplated hereby.
10.2 Amendment. This Agreement may not be amended,
---------
modified or supplemented except by a writing executed by
Acquisition Corp., AEC, DDS and the Stockholders.
10.3 Notices. Any notice, request, instruction or
-------
other document to be given hereunder by a party hereto shall be
in writing and shall be deemed to have been given, (a) when
received if given in person, (b) on the date of transmission if
sent by telex, facsimile or other wire transmission (with receipt
confirmed) or (c) three business days after being deposited in
the U.S. mail, certified or registered mail, postage prepaid:
(a) If to DDS or the Stockholders:
Dynamic Dental Systems, Inc.
427 Green Street, NW
Gainesville, Georgia 30501
Attn: Henry J. Rhodes, President
Facsimile No.: 770-534-0883
with a copy to:
Schnader Harrison Segal & Lewis LLP
Suite 2800, SunTrust Plaza
303 Peachtree Street, N.E.
Atlanta, Georgia 30308
Attn: Allen C. Bradley, Esq.
Facsimile No.: 404-223-5164
(b) If to AEC or Acquisition Corp.:
American Electromedics Corp.
13 Columbia Drive, Suite 18
Amherst, New Hampshire 03031
Attention: Michael T. Pieniazek, President
Facsimile No.: (603) 880-8977
with a copy to:
Reid & Priest LLP
40 West 57th Street
New York, New York 10019
Attn: Bruce A. Rich, Esq.
Facsimile No.: (212) 603-2001
or to such other individual or address as a party hereto may
designate for itself by notice given as herein provided.
10.4 Waivers. The failure of a party hereto at any
-------
time or times to require performance of any provision hereof
shall in no manner affect its right at a later time to enforce
the same. No waiver by a party of any condition or of any breach
of any term, covenant, representation or warranty contained in
this Agreement shall be effective unless in writing, and no
waiver in any one or more instances shall be deemed to be a
further or continuing waiver of any such condition or breach in
other instances or a waiver of any other condition or breach of
any other term, covenant, representation or warranty.
10.5 Interpretation. The headings preceding the text
--------------
of Articles and Sections included in this Agreement and the
headings to Schedules attached to this Agreement are for
convenience only and shall not be deemed part of this Agreement
or be given any effect in interpreting this Agreement. The use
of the masculine, feminine or neuter gender herein shall not
limit any provision of this Agreement. The use of the terms
"including" or "include" shall in all cases herein mean
"including, without limitation" or "include, without limitation,"
respectively. Underscored references to Articles, Sections,
Paragraphs, Subsections, Subparagraphs, Schedules or Exhibits
shall refer to those portions of this Agreement. Prior drafts of
this Agreement shall not be considered in interpreting the rights
and obligations of the parties hereunder.
10.6 Applicable Law. This Agreement shall be governed
--------------
by and construed and enforced in accordance with the internal
laws of the State of Delaware without giving effect to the
principles of conflicts of law thereof.
10.7 Assignment. This Agreement shall be binding upon
----------
and inure to the benefit of the parties hereto and their
respective successors and assigns; provided, however, that no
assignment of any rights or obligations shall be made by any
party without the prior written consent of all the other parties
hereto.
10.8 No Third Party Beneficiaries. This Agreement is
----------------------------
solely for the benefit of the parties hereto and, to the extent
provided herein, and their respective directors, officers,
employees, agents and representatives, and no provision of this
Agreement shall be deemed to confer upon other third parties any
remedy, claim, liability, reimbursement, cause of action or other
right.
10.9 Enforcement of the Agreement. The parties hereto
----------------------------
agree that irreparable damage would result in the event that any
provision of this Agreement is not performed in accordance with
specific terms or is otherwise breached. It is accordingly
agreed that the parties hereto will be entitled to equitable
relief including an injunction or injunctions to prevent breaches
of this Agreement and to enforce specifically the terms and
provisions hereof.
10.10 Severability. If any provision of this Agreement
------------
shall be held invalid, illegal or unenforceable, the validity,
legality or enforceability of the other provisions hereof shall
not be affected thereby, and there shall be deemed substituted
for the provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
10.11 Remedies Cumulative. The remedies provided in
-------------------
this Agreement shall be cumulative and shall not preclude the
assertion or exercise of any other rights or remedies available
by law, in equity or otherwise.
10.12 Entire Understanding. This Agreement sets forth
--------------------
the entire agreement and understanding of the parties hereto, and
supersedes, all prior agreements, arrangements and understandings
(written or oral) among the parties hereto with respect to the
subject matter herein.
10.13 Waiver of Jury Trial. Each party hereto waives
--------------------
the right to a trial by jury in any dispute in connection with
the transactions contemplated by this Agreement, and agrees to
take any and all action necessary or appropriate to effect such
waiver.
10.14 Governing Law. All matters concerning the
-------------
validity and interpretation and performance under this Agreement
shall be governed by the laws of the State of Delaware without
regard to the conflicts of law principals thereof.
10.15 Counterparts. This Agreement may be executed in
------------
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered on the date first above
written.
AMERICAN ELECTROMEDICS CORP.
By: /s/ Thomas A. Slamecka
-----------------------------
Thomas A. Slamecka, Chairman
DDS ACQUISITION CORPORATION
By: /s/ Thomas A. Slamecka
-----------------------------
Thomas A. Slamecka, President
DYNAMIC DENTAL SYSTEMS, INC.
By: /s/ Henry J. Rhodes
-----------------------------
Henry J. Rhodes, President
/s/ Henry J. James
-----------------------------
HENRY J. RHODES
/s/ Charles S. Aviles, Jr.
-----------------------------
CHARLES S. AVILES, JR.
/s/ Barry H. Hochstadt
-----------------------------
BARRY H. HOCHSTADT
CERTIFICATE OF MERGER
Pursuant to Section 251 of the
Delaware General Corporation Law
The undersigned corporation organized and existing
under and by virtue of the Delaware General Corporation Law (the
"GCL"), DOES HEREBY CERTIFY:
1. The name and state of incorporation of each of the
constituent corporations (the "Constituent Corporations") to the
merger (the "Merger") is as follows: Dynamic Dental Systems,
Inc., a Delaware corporation, and DDS Acquisition Corporation, a
Delaware corporation.
2. An Agreement and Plan of Merger, dated as of April
30, 1998, among the Constituent Corporations and other parties
thereto has been approved, adopted, certified, executed and
acknowledged by each of the Constituent Corporations in
accordance with Section 251 of the GCL.
3. The name of the surviving corporation of the
Merger is Dynamic Dental Systems, Inc. (the "Surviving
Corporation").
4. The Certificate of Incorporation of the Surviving
Corporation shall be its Certificate of Incorporation.
5. The executed Agreement and Plan of Merger is on
file at the principal place of business of the Surviving
Corporation. The address of the principal place of business of
the Surviving Corporation is 427 Green Street, N.W., Gainesville,
Georgia 30501.
6. A copy of the Agreement and Plan of Merger will be
furnished by the Surviving Corporation, on request and without
cost to any stockholder of either Constituent Corporation.
IN WITNESS WHEREOF, this Certificate of Merger has been
executed by Henry J. Rhodes, President of Dynamic Dental Systems,
Inc. as of this 30th day of April, 1998.
DYNAMIC DENTAL SYSTEMS, INC.
BY: /s/ Henry J. Rhodes
--------------------------
Henry J. Rhodes
President
CERTIFICATE
OF
EQUIDYNE SYSTEMS, INCORPORATED
PURSUANT TO SECTION 1103 OF
THE CALIFORNIA GENERAL CORPORATION LAW
In connection with the merger (the "Merger") of ESI
Acquisition Corporation, a California corporation (the
"Corporation"), with and into Equidyne Systems, Incorporated, a
California corporation and surviving corporation of the Merger
("ESI"), pursuant to an Agreement and Plan of Merger, dated as of
March 27, 1998, by and among American Electromedics Corp., a
Delaware corporation ("AEC"), the Corporation and ESI, Lawrence
A. Petersen, President of ESI, and Paul A. Ghizzone, Secretary of
ESI, hereby certify that:
1. One Million Six Hundred Twelve Thousand Five Hundred Sixty
(1,612,560) shares of Common Stock, no par value per share, of
ESI ("Voting Shares") were entitled to vote on the Merger.
2. The ESI shareholders approved the principal terms of the
Merger by majority vote of the Voting Shares.
3. The percentage vote required for approval of the merger by
the Voting Shares is over fifty percent.
IN WITNESS WHEREOF, the undersigned have executed this
certificate in their capacities as President and Secretary of ESI
on this 12th day of May, 1998.
We further declare under penalty of perjury under the laws
of the State of California that the matters set forth in this
certificate are true and correct of our own knowledge.
/s/ Lawrence A. Petersen
-------------------------------
Lawrence A. Petersen, President
/s/ Paul A. Ghizzone
-------------------------------
Paul A. Ghizzone, Secretary
OFFICERS CERTIFICATE
of
ESI ACQUISITION CORPORATION
Pursuant to Section 1103
of the California General Corporation Law
In connection with the merger (the "Merger") of ESI
Acquisition Corporation, a California corporation (the
"Corporation"), with and into Equidyne Systems, Incorporated, a
California corporation and surviving corporation of the Merger
("ESI"), pursuant to an Agreement and Plan of Merger, dated as of
March 27, 1998, by and among American Electromedics Corp., a
Delaware corporation ("AEC"), the Corporation and ESI, Thomas A.
Slamecka, President of the Corporation, and Michael T. Pieniazek,
Secretary of the Corporation, hereby certify that:
1. One Thousand (1,000) shares of Common Stock, $.10 par value
per share, of the Corporation ("Voting Shares") were
entitled to vote on the Merger.
2. The vote of a majority of the shares of the Corporation was
required for the approval of the Merger.
3. AEC, the sole stockholder of the Corporation, approved the
principal terms of the Merger by unanimous vote of the
Voting Shares.
4. No vote of the stockholders of AEC was required in
connection with the Merger.
IN WITNESS WHEREOF, the undersigned has executed this
certificate in his capacity as President of the Corporation on
this 28th day of May, 1998.
/s/ Thomas A. Slamecka
----------------------------
Thomas A. Slamecka,
President
/s/ Michael T. Pieniazek
----------------------------
Michael T. Pieniazek,
Secretary
The above-named officers certify, under penalty of perjury, that
the statements contained in this certificate are, to the best of
their knowledge true, complete and correct. This Certificate was
executed in several counterparts in Mossy Pointe, Georgia and
Amherst, New Hampshire.
/s/ Thomas A. Slamecka
----------------------------
Thomas A. Slamecka
/s/ Michael T. Pieniazek
----------------------------
Michael T. Pieniazek
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated as of the 30th day of April, 1998' by and
between DYNAMIC DENTAL SYSTEMS INC., a Delaware corporation (the
"Company"), and HENRY J. RHODES (the "Executive").
W I T N E S S E T H:
--------------------
WHEREAS, the Executive has been employed by the Company, and
the Company was acquired by and has become a wholly-owned
subsidiary of American Electromedics Corp. ("AEC"); and
WHEREAS, this Agreement is a condition to the closing of the
merger of ESI Acquisition Corporation, a wholly-owned subsidiary
of AEC, with and into the Company; and
WHEREAS, the Company and the Executive desire to assure
continuity of the Executive's services upon the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
covenants and agreements hereinafter set forth, the parties
hereto, intending to be legally bound, agree as follows:
1. Retention of Employment. The Company hereby employs
-----------------------
the Executive as President of the Company, and the Executive
hereby accepts such employment, all upon and subject to the terms
and conditions hereinafter set forth.
2. Term. The term (the "Term") of the employment under
----
this Agreement shall be for an initial period which commences on
April 30, 1998, and shall terminate on April 30, 2001, and be
automatically renewed for additional one (1) year periods
thereafter, unless either party gives the other written notice of
termination not less than sixty (60) days prior to the end of the
initial Term or any renewal Term.
3. Position, Duties and representations.
------------------------------------
3.01 Service With the Company. The Executive shall
------------------------
serve as President of the Company. The Executive agrees to
perform such executive employment duties for the Company
consistent with such position specified above, and as the
Chairman of The Board or The Executive Committee shall assign to
him from time to time consistent with his position with the
Company.
3.02 Scope of Services. The Executive agrees to serve
-----------------
the Company faithfully and to the best of his ability and to
devote his full business time, attention and efforts necessary to
advance the business and affairs of the Company during the Term
of this Agreement. If requested, the Executive shall serve as a
director of the Company and as Officer and/or Director of any
subsidiary of the Company, without any additional compensation
hereunder.
4. Compensation
------------
4.01 Annual Salary. The Executive shall receive an
-------------
annual base salary ("Base Salary") of $125,000, payable in
accordance with the Company's normal payroll practices. In
addition, commencing within six (6) months after the commencement
of employment hereunder, and on an annual basis thereafter the
Board of Directors or a compensation committee thereof (the
"Compensation Committee") shall review the Executive's
compensation to determine if an increase in the compensation
package is warranted, based on the Executives performance during
the preceding six (6) months or year, as the case may be, or
pursuant to guidelines established by the Compensation Committee
of AEC.
4.02 Stock Options. The Company shall cause AEC to
-------------
grant to the Executive stock options (the "Options") to purchase
up to 100,000 shares of the Company's common stock, par value
$.10 per share (the "Common Stock"), exercisable at a purchase
price of $1.00 per share, vested as of May 1, 1998. In addition,
the Company shall cause AEC to grant to the Executive stock
options to purchase up to 100,000 shares of common stock,
exercisable at a purchase price of $3.00 per share, vested as of
November 1, 2000. All Options not so vested at the termination
of employment of the Executive pursuant to Section 6.02 or 6.04
thereof, shall be cancelled simultaneously to such termination of
employment and have no further force or effect. The Options, to
the maximum extent possible, shall be "incentive" stock options
as defined in Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). The Options granted herein are upon the
terms and conditions set forth in the Stock Option Agreement
between the Company and the Executive, dated as of the date
hereof (the "Stock Option Agreement"), and attached hereto as
Exhibit A.
4.03 Participation in Benefit Plans. The Executive
------------------------------
shall also be entitled, to the extent that his position, title,
tenure, salary, age, health and other qualifications make him
eligible, to participate in all employee benefit plans or
programs (including, but not limited to, medical/dental
insurance, disability, stock option, retirement and pension plans
and vacation time, sick leave and holidays) of the Company
currently in existence on the date hereof or as may hereafter be
instituted from time to time. The Executive's participation in
any such plan or program shall be subject to the provisions,
rules and regulations applicable thereto.
4.04 Automobile. The Company shall provide the
----------
Executive with (1) the use of an automobile or (2) an allowance
or reimbursement for the use by the Executive of his personal
automobile for Company purposes, provided that the cost to the
Company does not exceed $500 a month.
4.05 Expenses. In accordance with the Company's
--------
policies established from time to time, the Company shall pay or
reimburse the Executive for all reasonable and necessary out-of-
pocket expenses incurred by him in the performance of his duties
under this Agreement, subject to the presentment of appropriate
vouchers and receipts.
4.06 Insurance. The Executive acknowledges and agrees
---------
that the Company may obtain a life insurance policy on the life
of the Executive in the amount of at least $2,000,000 with the
Company named as the beneficiary. The Executive shall cooperate
fully with the Company's efforts to obtain such insurance policy,
including making himself available for physical examinations.
5. Non-Disclosure of Confidential Information: Non-
------------------------------------------------
Competition.
-----------
5.01 Confidentiality. Except as may be in furtherance
---------------
of the Executive's performance of his functions as a senior
executive officer of the Company, the Executive shall not,
throughout the Term of this Agreement and thereafter, disclose to
any third party or use or authorize any third party to use, any
information relating to the business, business plans, trade
secrets or other interests of the Company (including customers
and clients of the Company) which is confidential and valuable to
the Company or AEC or any of their subsidiaries or any third
party (including customers and clients of the Company) and which
is not known to the public (the "Confidential Information"). The
Confidential Information is and will remain the sole and
exclusive property of the Company, and during the Term of this
Agreement, the Confidential Information, when entrusted to the
Executive's custody, shall be deemed to remain at all times in
the Company's sole possession and control. Notwithstanding the
foregoing, the Executive may, after prior written notice to the
Company (to the extent such notice is possible under the
circumstances) disclose such Confidential Information pursuant to
subpoena or other legal process, and promptly thereafter shall
advise the Company in writing as to the Confidential Information
which was disclosed and the circumstances of such disclosure.
5.02 Return of Documents. The Executive agrees that,
-------------------
upon the expiration of his employment with the Company for any
reason, he shall forthwith deliver up to the Company any and all
documents and other material, recorded or stored in any medium or
by any method, and all copies thereof, in his possession or under
his control relating to any Confidential Information which is
otherwise the property of the Company.
5.03 Non-Competition. The Executive recognizes that
---------------
the services to be performed by him for the Company are special
and unique. The Executive further recognizes that the nature of
the Company's business is such that the Executive will have full
knowledge of the Company's business plans and practices. The
parties therefore confirm that, in order to protect the Company's
goodwill, and in consideration of the Company entering into this
Agreement, providing for a fixed term of employment of the
Executive, the Executive does hereby agree that he will not in
the United States of America and/or the Federal Republic of
Germany for a period of two (2) years after he ceases to be
employed by the Company, become employed by, a consultant or a
Director of or hold any equity interest as a partner, member or
shareholder (to the extent of 5% or more of the equity interest
thereof), of any sole proprietorship, partnership, joint venture,
corporation, or other business entity which engages in a business
directly competitive to any business that the Company is engaged
(or has formulated plans to engage) in at the time of termination
of this Agreement. This Section shall not be applicable if the
Executive terminates this Agreement pursuant to Section 6.04
hereof or if the Company terminates this Agreement pursuant to
Section 6.03 hereof.
5.04 Remedies. The Executive agrees that any breach
--------
or threatened breach by him of any provision of this Section 5
shall entitle the Company, in addition to any other legal
remedies available to it, to apply to any court of competent
jurisdiction to enjoin such breach or threatened breach. The
parties understand and intend that each restriction agreed to by
the Executive hereinabove shall be construed as separable and
divisible from every other restriction, and that the
unenforceability, in whole or in part, of any restriction, will
not affect the enforceability of remaining restrictions, and that
one or more or all of such restrictions my be enforced in whole
or in part as the circumstances warrant. No waiver of any one
breach of the restrictions contained in this Section 5 shall be
deemed a waiver of any future breach.
6. Termination.
-----------
6.01 Disability. (a) The Executive shall be
----------
considered disabled if, due to illness or injury, either physical
or mental, he is unable to perform his customary duties and
responsibilities as required by this Agreement for more than (2)
months in the aggregate out of six (6) months. The determination
that the Executive is disabled shall be made by the Board of
Directors of the Company (with the Executive abstaining from the
decision if he is then a member the Board), based upon an
examination and certification by a physician selected by the
Company subject to the Executive's approval, which approval shall
not be unreasonably withheld. The Executive agrees to submit
timely to any required medical or other examination, provided
that such examination shall be conducted at a location convenient
to the Executive and that if the examining physician is other
than the Executive's personal physician, the Executive shall have
the right to have such personal physician present at such
examination.
(b) If the Executive is determined to be disabled
pursuant to this Section 6.01, the Company shall have the option
to terminate this Agreement by written notice to Executive
stating the date of termination, which date may be any time
subsequent to the date of such determination.
6.02 Death. If the Executive shall die during the
-----
Term of this Agreement, this Agreement and the Executive's
employment hereunder shall terminate immediately upon the
Executive's death.
6.03 By the Company for Cause. The Company may
------------------------
terminate this Agreement for "cause" at any time. For the
purposes of this Section 6.03, the term "cause" shall be limited
to (1) conviction of a felony or equivalent crime under the laws
of the United States or any state, (2) conviction of a felony or
equivalent crime under the laws of any other country or political
subdivision thereof involving moral turpitude (3) action
involving gross negligence having a material adverse effect on
the Company, including willfully aiding the competition, (4)
willful misrepresentation at any time during the Term hereof by
the Executive to the Board of Directors of the Company of any
material information, (5) the Executive's failure or refusal to
perform specific directives of the Company and the Board of
Directors or the Chairman of the Board, which directives are
consistent with the scope and nature of the Executive's duties
and responsibilities, and which are not remedied by the Executive
within ten (10) days after receipt of written notice thereof.
Upon termination of employment by the Company pursuant to this
Section, the executive shall receive any accrued Base Salary
through the termination date, less any amounts by reason of
claims the Company may have against the Executive.
6.04 By the Executive for Cause. The Executive may
--------------------------
terminate this Agreement for "cause" at any time. For purposes
of this Section 6.04, the term "cause" shall be the failure of
the Company to perform in a material respect of its material
obligation under this Agreement without proper justification
after notice thereof from the Executive and, if curable, the
opportunity to cure, within ten (10) days after receipt of
written notice thereof to the Company.
6.05 Termination Benefit. Upon termination of
-------------------
employment (1) by the Company other than pursuant to Section 6.03
hereof, (2) upon the disability of the Executive pursuant to
Section 6.01 hereof, (3) by the Executive's death pursuant to
Section 6.02 hereof, or (4) by the Executive pursuant to Section
6.04 hereof, the Executive (or his estate or representative)
shall receive a severance payment equal to 50% of the amount of
the then current annual Base Salary for the remaining portion of
the current Term.
6.06 Change of Control of the Company. (a) If, at
--------------------------------
anytime during the Term hereof, a change in control of the
Company (as defined in Subsection (b) below) occurs, then within
sixty (60) days after receipt of written notice of such change in
control of the Company, the Executive may, by written notice to
the Company (or its successor), terminate this Agreement. In the
event of said termination. (1) the Executive shall receive a lump
sum payment equal two(2) times his then Base Salary, payable
within thirty (30) days after termination of this Agreement, (2)
the Company (or its successor) shall maintain, at its expense,
the health plan coverage of the Executive for a period of twelve
(12) months after such termination, subject to termination of
such health plan benefits upon the Executive becoming covered by
a comparable plan offered by a subsequent employer and also
subject to any changes in such plan as applicable to other
executive officers and (3) all stock options and other equity
based awards granted to the Executive by the Company shall become
fully vested and exercisable subject to their respective terms;
provided, however, if the amount to be paid or distributed to the
-------- -------
Executive pursuant to this Section 6.06 (taken together with any
amounts otherwise to be paid or distributed to the Executive by
the Company) (such amounts collectively the "Section 6.06
Payment") would result in the application of an excise tax under
Section 4999 of the Code, or any successor or similar provision
thereto, the Section 6.06 Payment shall not be paid or
distributed in the amounts or at the times otherwise required by
this Agreement, but shall instead be paid or distributed
annually, beginning within thirty (30) days after the termination
date and thereafter on each anniversary thereof, in the maximum
substantially equal amounts and over the minimum number of years
that are determined to be required to reduce the aggregate
present value of Section 6.06 Payment to an amount that will not
cause any Section 6.06 Payment to be non-deductible under Section
280G of the Code. For purposes of this Section 6.06, present
value shall be determined in accordance with Section 280G(d)(4)
of the Code.
(b) "Change of control of the Company" shall be deemed
to have occurred if:
(i) any "person" or "group" (as "person" and "group" are
defined in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")), other than (A) the
Executive or a person controlled by him, (B) a trustee or other
fiduciary holding securities under an employee benefit plan of
the Company, (C) a person or group by reason of a transaction
with the Company approved by the Company Board of Directors as
constituted in accordance with Paragraph (ii) below, or (D) a
corporation owned, directly or indirectly, by the stockholders of
the Company in substantially the same proportions, is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of
the Company's then outstanding securities; or
(ii) individuals who on the commencement date of this
Agreement constitute members of the Board of Directors, or
successors chosen by such individuals, shall cease for any reason
to constitute a majority of the whole Board of Directors.
7. Notices. All notices, requests, demands or other
-------
communications hereunder shall be deemed to have been given if
delivered in writing personally or by registered mail to each
party at the address set forth below, or at such other address as
each party may designate in writing to the other:
If to the Company:
American Electromedics Corp.
13 Columbia Drive
Amherst, New Hampshire 03031
Attn: Michael T. Pieniazek, President
If to Executive:
Henry J. Rhodes
427 Green Street NW
Gainesville, Georgia 30501
Fax: (770) 534-0883
8. Entire Agreement. This Agreement contains the entire
----------------
understanding of the parties with respect to the subject matter
hereof, supersedes any prior written or oral agreement between
the parties. No change, termination or attempted waiver of any
of the provisions hereof shall be binding unless in writing and
signed by the party against whom the same is sought to be
enforced.
9. Successors and Assigns; Binding Effect. This Agreement
--------------------------------------
will be binding upon and inure to the benefit of the Company and
its successors and assigns, and the Executive, and his heirs and
administrators. The Company may assign this Agreement to any
corporation which is in a consolidated group with the Company.
10. Waiver and Severability. The waiver by either party of
-----------------------
a breach of any terms or conditions of this Agreement shall not
operate or be construed as a waiver of any subsequent breach by
such party. In the event that any one or more of the provisions
of this Agreement shall be declared to be illegal or
unenforceable under any law, rule or regulation of any government
having jurisdiction over the parties hereto, such illegality or
unenforceability shall not affect the validity and enforceability
of the other provisions of this Agreement.
11. Heading, Interpretations. The headings and captions
------------------------
used in this Agreement are for convenience only and shall not be
construed in interpreting this Agreement.
12. Governing Law. All matters concerning the validity and
-------------
interpretation of and performance under this Agreement shall be
governed by the laws of the State of Delaware without regard to
the conflicts of law principles thereof.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
DYNAMIC DENTAL SYSTEMS, INC.
By: AMERICAN ELECTROMEDICS CORP.
By: /s/ Thomas A. Slamecka
----------------------------
Thomas A. Slamecka
Chairman
/s/ Henry J. Rhodes
--------------------------------
Henry J. Rhodes
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated as of May 11, 1998, by and between EQUIDYNE
SYSTEMS, INC., a California corporation (the "Company"), and
LAWRENCE A. PETERSEN (the "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Executive has been employed by the Company, and
the Company was acquired by and has become a wholly-owned
subsidiary of American Electromedics Corp. ("AEC"); and
WHEREAS, this Agreement is a condition to the closing of the
merger of ESI Acquisition Corporation, a wholly-owned subsidiary
of AEC, with and into the Company; and
WHEREAS, the Company and the Executive desire to assure
continuity of the Executive's services upon the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
covenants and agreements hereinafter set forth, the parties
hereto, intending to be legally bound, agree as follows:
1. Retention of Employment. The Company hereby employs
-----------------------
the Executive as President of the Company, and the Executive
hereby accepts such employment, all upon and subject to the terms
and conditions hereinafter set forth.
2. Term. The term (the "Term") of the employment under
----
this Agreement shall be for an initial period commencing on May
11, 1998 and terminating on November 30, 2001 and automatically
renewed for additional one (1) year periods thereafter unless
either party gives the other written notice of termination not
less than sixty (60) days prior to the end of the initial Term or
any renewal Term.
3. Position, Duties and Representations.
------------------------------------
3.01 Service with the Company. The Executive shall
------------------------
serve as President of the Company. The Executive agrees to
perform such executive employment duties for the Company
consistent with such position, and as the Board of Directors, the
Executive Committee or the Chairman of the Board shall assign to
him from time to time consistent with his position with the
Company.
3.02 Scope of Services. The Executive agrees to serve
-----------------
the Company faithfully and to the best of his ability and to
devote his full business time, attention and efforts necessary to
advance the business and affairs of the Company during the Term
of this Agreement. If requested, the Executive shall serve as a
director of the Company and an officer and/or director of any
subsidiary of the Company, without any additional compensation
hereunder.
4. Compensation.
------------
4.01 Annual Salary. The Executive shall receive an
-------------
annual base salary ("Base Salary") of One Hundred Twenty Five
Thousand Dollars ($125,000) per year, payable in accordance with
the Company's normal payroll practices. In addition, on an
annual basis the Board of Directors or the Compensation Committee
shall review the Executive's compensation with a view toward
increases in the Base Salary, and/or payment of a bonus, based
upon the Executive's performance during the preceding year or
pursuant to guidelines established by the Compensation Committee
of AEC. Payment of a bonus shall be entirely at the discretion
of the Board of Directors.
4.02 Participation in Benefit Plans. The Executive
------------------------------
shall also be entitled, to the extent that his position, title,
tenure, salary, age, health and other qualifications make him
eligible, to participate in all employee benefit plans or
programs (including, but not limited to, medical/dental
insurance, disability, stock option, retirement and pension plans
and vacation time, sick leave and holidays) of the Company
currently in existence on the date hereof or as may hereafter be
instituted from time to time. The Executive's participation in
any such plan or program shall be subject to the provisions,
rules and regulations applicable thereto.
4.03 Stock Options. The Company shall cause AEC to
-------------
grant to the Executive stock options (the "Options") under AEC's
1996 Stock Option Plan for the purchase of an aggregate of One
Hundred Thousand (100,000) shares AEC's Common Stock, Fifty
Thousand (50,000) Options of which at an exercise price of One
Dollar ($1.00) per share, with Five Thousand (5,000) of such
Options to vest immediately and Forty Five Thousand (45,000) of
such Options to vest ratably over the term of this Agreement, and
the remaining Fifty Thousand (50,000) Options of which at an
exercise price of Three Dollars ($3.00) per share, with Five
Thousand (5,000) of such Options to vest immediately and Forty
Five Thousand (45,000) of such Options to vest ratably over the
term of this Agreement. All Options not so vested at the
termination of employment of the Executive pursuant to Section
6.0 hereof, shall be canceled simultaneous to such termination of
employment and have no further force or effect. The Options, to
the maximum extent possible, shall be "incentive" stock options,
as defined in Section 422 of the Internal Revenue Code of 1986,
as amended and shall be evidenced by a separate option agreement
which shall govern.
4.04 Expenses. In accordance with the Company's
--------
policies established from time to time, the Company shall pay or
reimburse the Executive for all reasonable and necessary out-of-
pocket expenses incurred by him in the performance of his duties
under this Agreement, subject to the presentment of appropriate
vouchers and receipts.
5. Non-Disclosure of Confidential Information; Non-
------------------------------------------------
Competition.
-----------
5.01 Confidentiality. Except as may be in furtherance
---------------
of the Executive's performance of his functions as a senior
executive officer of the Company, the Executive shall not,
throughout the Term of this Agreement and thereafter, disclose to
any third party or use or authorize any third party to use, any
information relating to the business, business plans, trade
secrets or other interests of the Company (including customers
and clients of the Company) which is confidential and valuable to
the Company or AEC or any of their subsidiaries or any third
party (including customers and clients of the Company) and which
is not known to the public (the "Confidential Information"). The
Confidential Information is and will remain the sole and
exclusive property of the Company, and during the Term of this
Agreement, the Confidential Information, when entrusted to the
Executive's custody, shall be deemed to remain at all times in
the Company's sole possession and control. Notwithstanding the
foregoing, the Executive may, after prior written notice to the
Company (to the extent such notice is possible under the
circumstances) disclose such Confidential Information pursuant to
subpoena or other legal process, and promptly thereafter shall
advise the Company in writing as to the Confidential Information
which was disclosed and the circumstances of such disclosure.
5.02 Return of Documents. The Executive agrees that,
-------------------
upon the termination of his employment with the Company for any
reason, he shall forthwith deliver to the Company any and all
documents and other material however recorded or stored in any
medium or by any method, and all copies thereof, in his
possession or under his control relating to any Confidential
Information which is otherwise the property of the Company.
5.03 Non-Competition. The Executive recognizes that
---------------
the services to be performed by him for the Company are special
and unique. The Executive further recognizes that the nature of
the Company's business is such that the Executive will have full
knowledge of the Company's business plans and practices. The
parties therefore confirm that, in order to protect the Company's
goodwill, and in consideration of the Company entering into this
Agreement providing for a fixed term of employment of the
Executive, it is necessary that the Executive agree, and the
Executive hereby does agree that he will not in the United States
of America and/or the Federal Republic of Germany, for a period
of two (2) years after the termination of this Agreement, become
employed by, a consultant to or a director of, or hold any equity
interest as a partner, member or shareholder (to the extent of 5
% or more of the equity interest thereof), of any sole
proprietorship, partnership, joint venture, corporation or other
business entity which engages in a business directly competitive
to any business that the Company is engaged (or has formulated
plans to engage) in at the time of termination of this Agreement.
This Section shall not be applicable if the Executive terminates
this Agreement pursuant to Section 6.03 hereof or if the Company
terminates this Agreement pursuant to Section 6.04 hereof.
5.04 Remedies. The Executive agrees that any breach or
--------
threatened breach by him of any provision of this Section 5 shall
entitle the Company, in addition to any other legal remedies
available to it, to apply to any court of competent jurisdiction
to enjoin such breach or threatened breach. The parties
understand and intend that each restriction agreed to by the
Executive hereinabove shall be construed as separable and
divisible from every other restriction, and that the
unenforceability, in whole or in part, of any restriction, will
not affect the enforceability of the remaining restrictions and
that one or more or all of such restrictions may be enforced in
whole or in part as the circumstances warrant. No waiver of any
breach of the restrictions contained in this Section 5 shall be
deemed a waiver of any future breach.
6. Termination.
-----------
6.01 Disability. If the Executive is determined to be
----------
disabled (as defined below), the Company shall have the option to
terminate this Agreement by written notice to the Executive
stating the date of termination, which date may be any time
subsequent to the date of such determination. The Executive
shall be considered disabled if, due to illness or injury, either
physical or mental, he is unable to perform his customary duties
and responsibilities as required by this Agreement for more than
two (2) months in the aggregate out of any period of six (6)
consecutive months. The determination that the Executive is
disabled shall be made by the Board of Directors of the Company
(with the Executive abstaining from the decision if he is then a
member of the Board), based upon an examination and certification
by a physician selected by the Company subject to the Executive's
approval, which approval shall not be unreasonably withheld. The
Executive agrees to submit timely to any required medical or
other examination, provided that such examination shall be
conducted at a location convenient to the Executive and that if
the examining physician is other than the Executive's personal
physician, the Executive shall have the right to have such
personal physician present at such examination.
6.02 Death. If the Executive shall die during the Term
-----
of this Agreement, this Agreement and the Executive's employment
hereunder shall terminate immediately upon the Executive's death.
6.03 By the Executive for Cause. The Executive may
--------------------------
terminate this Agreement for "cause" at any time. For purposes
of this Section 6.03, the term "cause" shall be the failure of
the Company to perform in a material respect of its material
obligations under this Agreement without proper justification
after notice thereof from the Executive and, if curable, the
opportunity to cure, within ten (10) days after the receipt of
written notice thereof to the Company.
6.04 By the Company for Cause. The Company may
------------------------
terminate this Agreement for "cause" at any time. For purposes
of this Section 6.04, the term "cause" shall be limited to (i)
conviction of a felony or equivalent crime under the laws of the
United States or any state, (ii) conviction of a felony or
equivalent crime under the laws of any other country or political
subdivision thereof involving moral turpitude, (iii) action
involving gross negligence having a material adverse effect on
the Company, including wilfully aiding the competition, (iv)
willful misrepresentation at any time during the term hereof by
the Executive to the Board of Directors of the Company of any
material information, (v) the Executive's failure or refusal to
perform specific directives of the Company's Board of Directors
or Chairman of the Board, which directives are consistent with
the scope and nature of the Executive's duties and
responsibilities, and which are not remedied by the Executive
within ten (10) days after the receipt of written notice thereof,
or (vi) the breach by the Executive of any of his material
obligations under this Agreement without proper justification,
which breach is not cured within ten (10) days after receipt of
written notice thereof. Upon termination of employment by the
Company pursuant to this Section, the Executive shall receive any
accrued Base Salary through the termination date, less any
amounts by reason of claims the Company may have against the
Executive.
6.05 Termination Benefit. Upon termination of
-------------------
employment (i) upon the disability of the Executive pursuant to
Section 6.01 hereof, (ii) by the Executive's death pursuant to
Section 6.02 hereof, or (iii) by the Executive, pursuant to
Section 6.03 hereof, the Executive (or his estate or
representative) shall receive (A) a severance payment equal to
the greater of (i) the amount of the then current annual Base
Salary or (ii) the continuation of the Base Salary for the
balance of the current Term, (B) other than in connection with
termination upon the death of the Executive, the continuation of
his health benefits for a period of one (1) year from the date of
such termination, at the Company's expense, subject to
discontinuance of health benefits upon the Executive becoming
covered by a comparable plan offered by a subsequent employer,
and (C) all outstanding unvested stock options granted to the
Executive by the Company for the purchase of shares of its Common
Stock shall automatically vest and become exercisable, subject to
their respective terms.
6.06 Change in Control of the Company. (a) If, at
--------------------------------
anytime during the Term hereof, a change in control of the
Company (as defined in Subsection (b) below) occurs, then within
sixty (60) days after receipt of written notice of such change in
control of the Company, the Executive may, by written notice to
the Company (or its successor), terminate this Agreement. In the
event of said termination, (i) the Executive shall receive a lump
sum payment equal to two (2) times his then current Base Salary,
payable within thirty (30) days after termination of this
Agreement, (ii) the Company (or its successor) shall maintain, at
its expense, the health plan coverage of the Executive for a
period of twelve (12) months after such termination, subject to
termination of such health plan benefits upon the Executive
becoming covered by a comparable plan offered by a subsequent
employer and also subject to any changes in such plan as
applicable to other executive officers and (iii) all outstanding
unvested stock options granted to the Executive under a plan of
the Company for the purchase of shares of its Common Stock shall
automatically vest and become exercisable subject to their
respective terms; provided, however, if the amount to be paid or
-------- -------
distributed to the Executive pursuant to this Section 6.06 (taken
together with any amounts otherwise to be paid or distributed to
the Executive by the Company) (such amounts collectively the
"Section 6.06 Payment") would result in the application of an
excise tax under Section 4999 of the Internal Revenue Code of
1986, as amended (the "Code"), or any successor or similar
provision thereto, the Section 6.06 Payment shall not be paid or
distributed in the amounts or at the times otherwise required by
this Agreement, but shall instead be paid or distributed
annually, beginning within thirty (30) days after the termination
date and thereafter on each anniversary thereof, in the maximum
substantially equal amounts and over the minimum number of years
that are determined to be required to reduce the aggregate
present value of Section 6.06 Payment to an amount that will not
cause any Section 6.06 Payment to be non-deductible under Section
280G of the Code. For purposes of this Section 6.06, present
value shall be determined in accordance with Section 280G(d)(4)
of the Code.
(b) "Change of control of the Company" shall be
deemed to have occurred if:
(i) any "person" or "group" (as "person" and "group"
are defined in Sections 13(d) and 14(d) of Securities Exchange
Act of 1934 (the "Exchange Act"), other than (A) the Executive or
a person controlled by him, (B) a trustee or other fiduciary
holding securities under an employee benefit plan of the Company,
(C) a person or group by reason of a transaction with the Company
approved by the Company Board of Directors as constituted in
accordance with Paragraph (ii) below, or (D) a corporation owned,
directly or indirectly, by the stockholders of the Company in
substantially the same proportions, is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing
20% or more of the combined voting power of the Company's then
outstanding securities; or
(ii) individuals who on the commencement date of this
Agreement constitute members of the Board of Directors, or
successors chosen by such individuals, shall cease for any reason
to constitute a majority of the whole Board of Directors.
7. Notices. All notices, requests, demands or other
-------
communications hereunder shall be deemed to have been given if
delivered in writing personally or by registered mail to each
party at the address set forth below, or at such other address as
each party may designate in writing to the other:
If to the Company:
American Electromedics Corp.
13 Columbia Drive
Amherst, New Hampshire 03031
Attn: Michael T. Pieniazek, President
If to Executive:
Lawrence A. Petersen
Equidyne Systems, Inc.
11696 Sorrento Valley Road, Suite J
San Diego, California 92121
8. Entire Agreement. This Agreement contains the entire
----------------
understanding of the parties with respect to the subject matter
hereof, supersedes any prior agreement (oral or written) between
the parties. No change, termination or attempted waiver of any
of the provisions hereof shall be binding unless in writing and
signed by the party against whom the same is sought to be
enforced.
9. Successors and Assigns; Binding Effect. This Agreement
--------------------------------------
will be binding upon and inure to the benefit of the Company and
its successors and assigns, and the Executive, and his heirs and
administrators. The Company may assign this Agreement to any
corporation which is in a consolidated group with the Company,
provided that the Company shall remain liable hereunder.
10. Waiver and Severability. The waiver by either party of
-----------------------
a breach of any terms or conditions of this Agreement shall not
operate or be construed as a waiver of any subsequent breach by
such party. In the event that any one or more of the provisions
of this Agreement shall be declared to be illegal or
unenforceable under any law, rule or regulation of any government
having jurisdiction over the parties hereto, such illegality or
unenforceability shall not affect the validity and enforceability
of the other provisions of this Agreement.
11. Heading; Interpretations. The headings and captions
------------------------
used in this Agreement are for convenience only and shall not be
construed in interpreting this Agreement.
12. Governing Law. All matters concerning the validity and
-------------
interpretation of and performance under this Agreement shall be
governed by the laws of the State of California without regard to
the conflicts of law principles thereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
EQUIDYNE SYSTEMS, INC.
by: AMERICAN ELECTROMEDICS CORP.
by: /s/ Thomas A. Slamecka
--------------------------
Thomas A. Slamecka
/s/ Lawrence A. Petersen
-------------------------------
Lawrence A. Petersen
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of May 5, 1998
(this "Agreement"), is entered into by and between AMERICAN
ELECTROMEDICS CORP., a Delaware corporation, with headquarters
located at 13 Columbia Drive, Suite 18, Amherst, New Hampshire
03031 (the "Company"), the purchasers listed on Exhibit A
attached hereto (each, a "Purchaser," and collectively, the
"Purchasers") and West End Capital LLC ("West End").
W I T N E S S E T H:
WHEREAS, the Company, the Purchasers and West End are
executing and delivering this Agreement in reliance upon the
exemptions from registration provided by Regulation D
("Regulation D") promulgated by the United States Securities and
Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), and/or Section 4(2)
of the Securities Act; and
WHEREAS, the Purchasers wish to purchase, and the Company wishes
to issue, upon the terms and subject to the conditions of this
Agreement, up to 3,000 shares of Convertible Preferred Stock,
Series A, par value $.01 per share ("Series A Preferred Stock"),
having the rights, privileges and preferences set forth in the
Certificate of Designations, the form of which is attached hereto
as Exhibit B (the "Certificate of Designations"), the Company has
agreed to sell the number of Warrants (the "Warrants") set forth
in Exhibit A to West End which, for the purposes of the rights
conveyed to holders of Warrants pursuant to this Agreement, shall
be deemed to be a Purchaser. The Series A Preferred Stock is
convertible into shares of the Company's common stock, par value
$.10 per share (the "Common Stock"), on the terms set forth in
the Certificate of Designations, and the Warrants may be
exercised for the purchase of the Company's Common Stock, on the
terms set forth therein. The Series A Preferred Stock and the
Warrants are referred to herein as the "Securities."
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
A. PURCHASE. Each of the Purchasers hereby agrees to
purchase from the Company up to the number of shares of Series A
Preferred Stock set forth next to its name on Exhibit A hereto,
and West End agrees to purchase the number of Warrants set forth
next to its name on Exhibit A hereto. The Certificate of
Designations, in substantially the form attached hereto as
Exhibit B, shall be filed with the Secretary of State of the
State of Delaware on or prior to the Initial Closing Date (as
defined herein), and the Warrants shall be issued in
substantially the form attached hereto as Exhibit C. The
purchase price for the Series A Preferred Stock and the Warrants
shall be as set forth on Exhibit A hereto and shall be payable in
next day funds.
B. CLOSINGS. 1,000 shares of the Series A Preferred
Stock to be purchased by the Purchasers hereunder, in definitive
form, and in such denominations and registered in such names as
the Purchasers or their representative, if any, may request upon
at least forty-eight hours' prior notice to the Company, shall be
delivered by or on behalf of the Company for the account of each
such Purchaser, against payment by such Purchaser or on its
behalf of the purchase price of $1,000,000 therefor by wire
transfer to an account of the Company, all at the offices of
Morrison & Foerster LLP, 1290 Avenue of the Americas, New York,
New York 10104, New York time on May 5, 1998, or at such other
time and date as the Purchasers or their representative, if any,
and the Company may agree upon in writing, such date being
referred to herein as the "Initial Closing Date."
In addition, if the Company purchases all or substantially
all of the issued and outstanding capital stock, or the assets
of, Dynamic Dental Systems, Inc. ("Dynamic") on or prior to
May 15, 1998, the Purchasers shall purchase an additional 1,000
shares of the Company's Series A Preferred Stock for the
aggregate purchase price of $1,000,000 (the "First Additional
Closing Date"). Furthermore, if the Company purchases all or
substantially all of the issued and outstanding capital stock, or
the assets of, Equidyne Systems, Inc. ("Equidyne") on or prior to
May 25, 1998, the Purchasers shall purchase an additional 1,000
shares of the Company's Series A Preferred Stock for the
aggregate purchase price of $1,000,000 (the "Second Additional
Closing Date"). The closing of the purchase of such shares shall
occur within forty-eight (48) hours after the closing of each of
the Dynamic and Equidyne transactions, respectively, or at such
other times as the parties shall agree (the Initial Closing Date
and each of the First Additional Closing Date and the Second
Additional Closing Date are referred to herein as a "Closing
Date").
2. PURCHASER REPRESENTATIONS AND WARRANTIES; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
Each Purchaser represents and warrants to, and covenants and
agrees with, the Company as follows:
A. The Purchaser is purchasing the Securities and for
investment purposes only and not with a view towards the public
sale or distribution thereof and not with a view to or for sale
in connection with any distribution thereof;
B. The Purchaser and each of its equity owners is
(i) an "accredited investor," as that term is defined in Rule 501
of the General Rules and Regulations under the Securities Act by
reason of Rule 501(a), (ii) experienced in making investments of
the kind described in this Agreement and the related documents,
(iii) able, by reason of the business and financial experience of
its officers (if an entity) and professional advisors, to
protect its own interests in connection with the transactions
described in this Agreement and the related documents, and
(iv) able to afford the entire loss of its investment in the
Series A Preferred Stock;
C. All subsequent offers and sales of the Series A
Preferred Stock and the Common Stock issuable upon conversion or
exercise of, or in lieu of dividend payments on, the Series A
Preferred Stock, or upon exercise of the Warrants shall be made
pursuant to an effective registration statement under the
Securities Act or pursuant to an applicable exemption from
registration;
D. The Purchaser understands that the Series A
Preferred Stock is being offered and sold to it in reliance upon
exemptions from the registration requirements of the United
States federal and state securities laws, and that the Company is
relying upon the truth and accuracy of the Purchaser's
representations and warranties, and the Purchaser's compliance
with its agreements, each as set forth herein, in order to
determine the availability of such exemptions and the eligibility
of the Purchaser to acquire the Series A Preferred Stock;
E. The Purchaser acknowledges that in making its
decision to purchase the Series A Preferred Stock, it has relied
upon independent investigations made by it and its
representatives, if any, and the Purchaser and such
representatives, if any, have been provided access and the
opportunity to examine all material, publicly available books and
records of the Company, all material contracts and documents
relating to this offering and have had an opportunity to ask
questions of, and to receive answers from the Company or persons
acting on its behalf concerning the terms and conditions of this
offering. The Purchaser and its advisors, if any, have been
furnished with access to all publicly available materials
relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Series A
Preferred Stock which have been requested. The Purchaser and its
advisors, if any, have received answers to any such inquiries
which they have deemed to be satisfactory.
F. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Purchaser and
is a valid and binding agreement of the Purchaser, enforceable in
accordance with its terms, except to the extent that enforcement
of this Agreement may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other
similar laws now or hereafter in effect relating to creditors'
rights generally and to general principles of equity.
3. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to each Purchaser that,
except as set forth in the Disclosure Schedule attached hereto:
A. ORGANIZATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware. Each of the Company's subsidiaries is
a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction. Each of
the Company and its subsidiaries is duly qualified as a foreign
corporation in all jurisdictions in which the failure to so
qualify would have a material adverse effect on the Company and
its subsidiaries taken as a whole.
B. CAPITALIZATION. On the date hereof, the
authorized capital of the Company shall consist of 20,000,000
Shares of Common Stock, par value $.10 per share, of which
5,663,136 are issued and outstanding. Schedule 1 hereto sets
forth the options, warrants and convertible securities of the
Company (the "Derivative Securities") which are outstanding on
the date hereof, including in each case (i) the name and class of
such Derivative Securities, (ii) the issue date of such
Derivative Securities, (iii) the number of Shares of Common Stock
of the Company into which such Derivative Securities are
convertible as of the date hereof, (iv) the conversion or
exercise price or prices of such Derivative Securities as of the
date hereof and (v) the expiration date of any conversion or
exercise rights held by the owners of such Derivative Securities.
C. CONCERNING THE PREFERRED STOCK. On each Closing
Date, the shares of Series A Preferred Stock to be issued to the
Purchasers, upon payment of the purchase price therefore, shall
be duly and validly issued, fully paid and non-assessable, and
will not subject the holder thereof to personal liability by
reason of being such a holder. There are no preemptive rights of
any stockholder of the Company, as such, to acquire the
Securities issuable to the Purchasers hereunder.
D. CONCERNING THE COMMON STOCK. The Common Stock
issuable upon conversion of, or in lieu of dividend payments on,
the Series A Preferred Stock, and upon exercise of the Warrants,
when so issued, shall be duly and validly issued, fully paid and
non-assessable, and will not subject the holder thereof to
personal liability by reason of being such a holder. There are
no preemptive rights of any stockholder of the Company, as such,
to acquire the Common Stock issuable to the Purchasers pursuant
to the terms of the Series A Stock or the Warrants.
E. REPORTING COMPANY STATUS. The Company's Common
Stock are registered under Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
F. AUTHORIZED SHARES. The Company has legally
available a sufficient number of authorized and unissued Common
Stock as may be reasonably necessary to effect the conversion of
the Series A Preferred Stock and the exercise of the Warrants.
G. LEGALITY. The Company has the requisite corporate
power and authority to enter into this Agreement and to issue and
deliver the Series A Preferred Stock and the Warrants. The
issuance of the Series A Preferred Stock and the Warrants (and
the Common Stock issuable upon conversion of, or in lieu of
dividend payments on, the Series A Preferred Stock and exercise
of the Warrants) have been duly and validly authorized by all
necessary corporate action by the Company.
H. TRANSACTION AGREEMENTS. This Agreement, the
Registration Rights Agreement, the form of which is attached
hereto as Exhibit D (the "Registration Rights Agreement," and
together with this Agreement, and the Warrants, the "Primary
Documents"), and the transactions contemplated thereby (including
the filing of the Certificate of Designations with the Secretary
of State of the State of Delaware), have been duly and validly
authorized by the Company; this Agreement has been duly executed
and delivered by the Company and this Agreement is, and the
Primary Documents, when executed and delivered by the Company,
will each be, a valid and binding agreement of the Company,
enforceable in accordance with their respective terms, except to
the extent that enforcement of each of the Primary Documents may
be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in
effect relating to creditors' rights generally and to general
principles of equity.
I. NON-CONTRAVENTION. The execution and delivery of
this Agreement, and each of the other Primary Documents, and the
consummation by the Company of the other transactions
contemplated by this Agreement and each of the other Primary
Documents, does not and will not conflict with or result in a
breach by the Company of any of the terms or provisions of, or
constitute a default under, the Certificate of Incorporation of
the Company, or any indenture, mortgage, deed of trust or other
material agreement or instrument to which the Company or any of
its subsidiaries is a party or by which they or any of their
properties or assets are bound, or any material existing
applicable law, rule, or regulation or any applicable decree,
judgment or order of any court, or United States federal or state
regulatory body, administrative agency, or any other governmental
body having jurisdiction over the Company, its subsidiaries, or
any of their properties or assets, except such conflict, breach
or default which would not have a material adverse effect on the
transactions contemplated by this Agreement or by the other
Primary Documents.
J. APPROVALS. No authorization, approval or consent
of any court, governmental body, regulatory agency, self-
regulatory organization, stock exchange or market or the
shareholders of the Company is required to be obtained by the
Company for the entry into or the performance of this Agreement
and the other Primary Documents, except (i) such authorizations,
approvals and consents that have been obtained, copies of which
have been furnished to the Purchasers and, (ii) authorizations,
approvals, consents or orders of the Commission with respect to
the Registration Statements referred to in the Registration
Rights Agreement, which approvals and orders are not required to
be obtained as of the Initial Closing Date and will be timely
obtained when required.
K. SEC FILINGS. None of the reports or documents
filed by the Company with the Commission since January 1, 1995
contained, at the time they were filed, any untrue statement of a
material fact or omitted to state any material fact required to
be stated therein, or necessary to make the statements made
therein, in light of the circumstances under which they were
made, not misleading.
L. ABSENCE OF CERTAIN CHANGES. Since July 31, 1997,
except as disclosed in the Company's reports on Form 10-QSB,
there has been no material adverse change and no material adverse
development in the business properties, operations, financial
condition, outstanding securities or results of operations of the
Company.
M. FULL DISCLOSURE. There is no fact known to the
Company (other than general economic conditions known to the
public generally) that has not been disclosed to the Purchasers
that (i) could reasonably be expected to have a material adverse
effect upon the condition (financial or otherwise) or the
earnings, business affairs, properties or assets of the Company
or (ii) could reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations
pursuant to the Primary Documents.
N. TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. The
Company has good and marketable title to all of its properties
and assets, both real and personal, and has good title to all its
leasehold interests, in each case subject only to mortgages,
pledges, liens, security interests, conditional sale agreements,
encumbrances or charges created in the ordinary course of
business.
O. PATENTS AND OTHER PROPRIETARY RIGHTS. The Company
has sufficient title and ownership of all patents, trademarks,
service marks, trade names, copyrights, trade secrets,
information, proprietary rights and processes necessary for the
conduct of its business as now conducted, and such business does
not conflict with or constitute an infringement on the rights of
others.
P. PERMITS. The Company has all franchises, permits,
licenses and any similar authority necessary for the conduct of
its business as now conducted, the lack of which would materially
and adversely affect the business or financial condition of the
Company. The Company is not in default in any material respect
under any of such franchises, permits, licenses or similar
authority.
Q. ABSENCE OF LITIGATION. Except as set forth in the
Company's annual report on Form 10-KSB for the year ended
July 31, 1997 (the "1997 Annual Report") and in the Company's
reports on Form 10-QSB, there is no action, suit, proceeding,
inquiry or investigation before or by any court, public board or
body pending or, to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company or any
of its subsidiaries, in which an unfavorable decision, ruling or
finding would have a material adverse effect on the properties,
business, condition (financial or other) or results of operations
of the Company and its subsidiaries, taken as a whole, or the
transactions contemplated by the Primary Documents, or which
would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations
under, the Primary Documents.
R. NO DEFAULT. Each of the Company and its
subsidiaries is not in default in the performance or observance
of any material obligation, covenant or condition contained in
any material indenture, mortgage, deed of trust or other
instrument or agreement to which it is a party or by which it or
its property may be bound.
S. TRANSACTIONS WITH AFFILIATES. Except as disclosed
in the 1997 Annual Report and in the Company's reports on Form
10-QSB, there are no agreements, understandings or proposed
transactions between the Company and any of its officers,
directors or affiliates that, had they existed on July 31, 1997,
would have been required to be disclosed in the 1997 Annual
Report.
T. TAXES. All applicable tax returns required to be
filed by the Company and each of its subsidiaries have been
filed, or if not yet filed have been granted extensions of the
filing dates which extensions have not expired, and all taxes,
assessments, fees and other governmental charges upon the
Company, its subsidiaries, or upon any of their respective
properties, income or franchises, shown in such returns and on
assessments received by the Company or its subsidiaries to be due
and payable have been paid, or adequate reserves therefor have
been set up if any of such taxes are being contested in good
faith; or if any of such tax returns have not been filed or if
any such taxes have not been paid or so reserved for, the failure
to so file or to pay would not in the aggregate have a material
adverse effect on the business or financial condition of the
Company and its subsidiaries, taken as a whole.
U. INVESTMENT COMPANY ACT. The Company is not
conducting, and does not intend to conduct its business in a
manner which it would become, an "investment company" as defined
in Section 3(a) of the Investment Company Act of 1940, as
amended.
V. AGENT FEES. Except for such payments as may be
owed to Cohig & Associates, Inc., the Company has not incurred
any liability for any finder's or brokerage fees or agent's
commissions in connection with the offer and sale of the Series A
Preferred Stock hereunder.
W. PRIVATE OFFERING. Subject to the accuracy of the
Purchaser's representations and warranties set forth in Section 2
hereof, the offer, sale and issuance of the Series A Preferred
Stock as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act. The Company
agrees that neither the Company nor anyone acting on its behalf
will offer any of the Series A Preferred Stock or the Warrants or
any similar securities for issuance or sale, or solicit any offer
to acquire any of the same from anyone so as to render the
issuance and sale of the Securities subject to the registration
requirements of the Securities Act. The Company has not offered
or sold the Securities by any form of general solicitation or
general advertising, as such terms are used in Rule 502(c) under
the Securities Act.
X. FULL DISCLOSURE. The representations and
warranties of the Company set forth in this Agreement do not
contain any untrue statement of a material fact or omit any
material fact necessary to make the statements contained herein,
in light of the circumstances under which they were made, not
misleading.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. TRANSFER RESTRICTIONS. Each Purchaser
acknowledges that (1) neither the Series A Preferred Stock,
Common Stock nor the Warrants have been, and are not being,
registered under the Securities Act and, except as provided in
the Registration Rights Agreement, the Common Stock issuable upon
conversion of the Series A Preferred Stock, or in lieu of
dividend payments on, the Series A Preferred Stock, and upon
exercise of the Warrants, have not been and are not being
registered under the Securities Act, and may not be transferred
unless (A) subsequently registered thereunder or (B) the
Purchaser shall have delivered to the Company an opinion of
counsel, reasonably satisfactory in form and substance to the
Company, to the effect that the Series A Preferred Stock,
Warrants or Common Stock (collectively, the "Securities"), to be
sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities
made in reliance upon Rule 144 under the Securities Act may be
made only in accordance with the terms of said Rule and further,
if said Rule is not applicable, any resale of the Securities
under circumstances in which the seller, or the person through
whom the sale is made, may be deemed to be an underwriter, as
that term is used in the Securities Act, may require compliance
with another exemption under the Securities Act and the rules and
regulations of the Commission thereunder; and (3) neither the
Company nor any other person is under any obligation to register
the Securities (other than pursuant to the Registration Rights
Agreement) under the Securities Act or to comply with the terms
and conditions of any exemption thereunder. The provisions of
Section 4(a) and 4(b) hereof shall be binding upon any subsequent
transferee of the Series A Preferred Stock or Warrants.
B. RESTRICTIVE LEGEND. Each Purchaser acknowledges
and agrees that the Series A Preferred Stock or the Warrants,
and, until such time as the Common Stock issuable upon conversion
of the Series A Preferred Stock or upon exercise of the Warrants
shall have been registered under the Securities Act as
contemplated by the Registration Rights Agreement and sold in
accordance with such Registration Statement, such securities may
be subject to a stop-transfer order placed against the transfer
of such Securities, and such shares shall bear a restrictive
legend in substantially the following form:
THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED
OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER SAID ACT OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE
SATISFACTORY TO THE CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED.
C. FILINGS. The Company undertakes and agrees to
make all necessary filings in connection with the sale of the
Series A Preferred Stock to each Purchaser as required by United
States laws and regulations, or by any domestic securities
exchange or trading market, including, if applicable, the filing
of a notice on Form D (at such time and in such manner as
required by the Rules and Regulations of the Commission), and to
provide copies thereof to the Purchaser promptly after such
filing or filings.
D. STOCK EXCHANGE LISTING. Within ten (10) business
days after the Initial Closing Date, the Company shall use its
best efforts to file an application for its Common Stock to
become listed on the NASDAQ Small Capitalization market or the
American Stock Exchange. Notwithstanding the foregoing, if the
Company makes a good faith determination that it cannot satisfy
the official listing requirements of such exchanges, it shall not
be obligated to file such application within such period and will
set forth such determination in writing to West End, and will use
its best efforts to effect such listing as promptly as possible
after it shall satisfy such requirements. The Company agrees
that it will not seek to have the trading of its Common Stock
through such exchange suspended or terminated, will use its
commercially reasonable best efforts to maintain its eligibility
for trading through such exchange and, if the trading of its
Common Stock is suspended or terminated, will use its
commercially reasonable best efforts to requalify its Common
Stock or otherwise cause such trading to resume.
E. REPORTING STATUS. So long as any of the
Purchasers beneficially owns any of the Securities, the Company
shall file all reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act, and, except
in connection with an acquisition transaction in which at least
50% of the Company's voting equity securities or substantially
all of the assets of the Company are acquired by another entity,
the Company shall not terminate its status as an issuer required
to file reports under the Exchange Act even if the Exchange Act
or the rules and regulations thereunder would permit such
termination.
F. STATE SECURITIES FILINGS. The Company shall from
time to time promptly take such action as the Purchasers or any
of their representatives, if applicable, may reasonably request
to qualify the Securities for offering and sale under the
securities laws (other than United States federal securities
laws) of such jurisdictions in the United States as shall be so
identified to the Company, and to comply with such laws so as to
permit the continuance of sales therein, provided that in
connection therewith, the Company shall not be required to
qualify as a foreign corporation or to file a general consent to
the service of process in any jurisdiction.
G. USE OF PROCEEDS. The Company will use the
proceeds from the issuance of the Series A Preferred Stock
(excluding amounts paid by the Company for legal fees and
finder's fees in connection with the sale of the Series A
Preferred Stock) towards the commercialization of products
developed with the technologies acquired by the Company in
connection with its purchase of all of the issued and outstanding
shares of capital stock of (a) Equidyne Systems, Inc. and, (b)
the purchase price of all of the issued and outstanding shares of
capital stock of Dynamic Dental Systems, Inc. and (c) to repay
$600,000 of indebtedness to Citizens Bank New Hampshire, a
guaranty savings bank organized under the laws of the State of
New Hampshire. To the extent that any of the proceeds from the
issuance of the Series A Preferred Stock shall remain, the
Company shall use such proceeds for general corporate purposes
and working capital.
H. RESERVATION OF ORDINARY SHARES. The Company will
at all times have authorized and reserved for the purpose of
issuance a sufficient number of shares of Common Stock to provide
for the conversion of the Series A Preferred Stock and the
exercise of the Warrants. The Company will use its best efforts
at all times to maintain a number of shares of Common Stock so
reserved for issuance that is no less than one and one-half (1.5)
times the number that is then actually issuable upon the
conversion of the Series A Preferred Stock or the exercise of the
Warrants. The number of Common Stock reserved for issuance by
the Company upon conversion of the Series A Preferred Stock or
upon exercise of the Warrants shall at all times be allocated pro
rata among the Purchasers based upon the aggregate purchase price
of the Series A Preferred Stock purchased by each Purchaser, and
no Purchaser may at any time convert its Series A Preferred Stock
or exercise Warrants so as to obtain a greater number of Common
Stock than its pro rata allocation of the Company's reserved
Common Stock. In the event that a Purchaser shall sell or
otherwise transfer, in whole or in part, any of its Securities
(except for Common Stock of the Company subject to an effective
registration statement under the Securities Act or otherwise
freely tradable by such Purchaser), each transferee shall, for
purposes of determining such transferee's allocation of the
Company's reserved Common Stock, be allocated a pro rata portion
of the initial purchase price paid by such Transferor upon its
purchase of the Series A Preferred Stock.
I. SALES OF ADDITIONAL SHARES. The Company shall
not, directly or indirectly, without the prior written consent of
West End, offer, sell, offer to sell, contract to sell or
otherwise dispose of any shares of its capital stock for a period
of two hundred seventy (270) days after the date of this
Agreement (the "Lock-Up Period"), except that the Company may (i)
issue securities for the aggregate consideration of at least
$15.0 million in connection with a bona fide, firm commitment,
underwritten public offering under the Securities Act; (ii) may
issue shares of Common Stock or securities convertible into, or
exercisable for, shares of Common Stock which are issued in
connection with a transaction involving the acquisition of
another business entity or segment of any such entity by the
Company by merger, asset purchase, stock purchase or otherwise;
(iii) may issue securities to directors, officers, employees or
consultants of the Company for the primary purpose of soliciting
or retaining their services; (iv) may issue shares of Common
Stock upon the exercise or conversion of currently outstanding
options, warrants and other convertible securities; (v) may issue
options to purchase shares of its Common Stock to its directors,
officers and employees in connection with its existing stock
option plans; and (vi) may issue Common Stock in connection with
a stock split, stock dividend or similar recapitalization of the
Company which affects all holders of the Company's Common Stock
on an equivalent basis, in each case, without the prior written
consent of West End. Notwithstanding the forgoing, a transaction
may only be effected pursuant to clause (ii) above during the
Lock-up Period without the prior written consent of West End if
the proceeds to the Company from such a transaction are
immediately used by the Company to effect an acquisition
transaction of the type contemplated by such clause. In
addition, the Company agrees that it will not cause any shares of
its capital stock that are issued in connection with a
transaction of the type contemplated by such clause (or upon the
conversion or exercise of other securities that are issued in
connection with such transaction) to be covered by a registration
statement that is declared effective by the Commission until the
earlier to occur of (y) the expiration of the Lock-Up Period or
(z) the registration statement filed by the Company pursuant to
its obligations under the Registration Rights Agreement has been
effective under the Securities Act for a period of at least
ninety (90) days.
5. TRANSFER AGENT INSTRUCTIONS.
A. The Company warrants that no instruction other
than the instructions referred to in this Section 5 and stop
transfer instructions to give effect to Sections 4(a) and 4(b)
hereof prior to the registration and sale of the Common Stock
issuable upon conversion of the Series A Preferred Stock, or in
lieu of dividend payments on, the Series A Preferred Stock, or
upon exercise of the Warrants under the Securities Act, will be
given by the Company to the transfer agent and that such Common
Stock shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement, and applicable law.
Nothing in this Section shall affect in any way the Purchaser's
obligations and agreement to comply with all applicable
securities laws upon resale of the Securities. If a Purchaser
provides the Company with an opinion of counsel reasonably
satisfactory (as to both the identity of such counsel and the
content of such opinion) to the Company that registration of a
resale by the Purchaser of any of the Securities in accordance
with clause (1)(B) of Section 4(a) of this Agreement is not
required under the Securities Act, the Company shall (except as
provided in clause (2) of Section 4(a) of this Agreement) permit
the transfer of the Securities and, in the case of the Common
Stock, promptly instruct the Company's transfer agent to issue
one or more certificates for Common Stock without legend in such
names and in such denominations as specified by the Purchaser.
B. The Company will permit each Purchaser to exercise
its right to convert the Series A Preferred Stock or to exercise
the Warrants by faxing an executed and completed Notice of
Conversion or Form of Election to Purchase, as applicable, to the
Company, and delivering within three (3) business days
thereafter, the original Notice of Conversion (and the related
original Series A Preferred Stock) or Form of Election to
Purchase (and the related original Warrants) to the Company by
hand delivery or by express courier, duly endorsed. Each date on
which a Notice of Conversion or Form of Election to Purchase is
faxed to and received in accordance with the provisions hereof
shall be deemed a "Conversion Date." The Company (or its
transfer agent) will transmit the certificates representing the
Common Stock issuable upon conversion of the Series A Preferred
Stock or upon exercise of any Warrants (together with the Series
A Preferred Stock not so converted, or the Warrants not so
exercised) to such Purchaser via express courier as soon as
practicable, but in all events no later than the later to occur
of (the "Delivery Date") (i) four (4) business days after the
Conversion Date and (ii) four (4) business days after receipt by
the Company of the original Notice of Conversion (and the related
original Series A Preferred Stock) or Form of Election to
Purchase (and the related original Warrants), as applicable. For
purposes of this Agreement, such conversion of the Series A
Preferred Stock or exercise of the Warrants shall be deemed to
have been made immediately prior to the close of business on the
Conversion Date.
C. In lieu of delivering physical certificates
representing the Common Stock issuable upon the conversion of the
Series A Preferred Stock or exercise of the Warrants, provided
the Company's transfer agent is participating in the Depositary
Trust Company ("DTC") Fast Automated Securities Transfer program,
on the written request of a Purchaser who shall have previously
instructed such Purchaser's prime broker to confirm such request
to the Company's transfer agent, the Company shall use
commercially reasonable efforts to cause its transfer agent to
electronically transmit such Common Stock to the Purchaser by
crediting the account of the Purchaser's prime broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system
no later than the applicable Delivery Date.
D. The Company understands that a delay in the
issuance of Common Stock beyond the applicable Delivery Date
could result in an economic loss to the applicable Purchaser. As
compensation to such Purchaser for such loss, the Company agrees
to pay to such Purchaser for late issuance of Common Stock upon
conversion of the Series A Preferred Stock or upon exercise of
the Warrants the sum of $5,000 per day for each $100,000 in
aggregate principal amount of Series A Preferred Stock that are
being converted, or for each 25,000 shares of Common Stock
purchased upon the exercise of the Warrants.
The Company shall pay any payments incurred under this Section 5
in immediately available funds upon demand. Nothing herein shall
limit a Purchaser's right to pursue actual damages for the
Company's failure to issue and deliver shares of Common Stock to
such Purchaser. Furthermore, in addition to any other remedies
which may be available to such Purchaser, in the event that the
Company fails for any reason to effect delivery of such Common
Stock within five (5) business days after the relevant Delivery
Date, the Purchaser will be entitled to revoke the relevant
Notice of Conversion or Form of Election to Purchase by
delivering a notice to such effect to the Company, whereupon the
Company and such Purchaser shall each be restored to their
respective positions immediately prior to delivery of such Notice
of Conversion or Form of Election to Purchase. For purposes of
this Section 5, "business day" shall mean any day in which the
financial markets of New York are officially open for the conduct
of business therein.
E. At no time shall any of the Purchasers of the
Series A Preferred Stock or the Warrants convert or exercise such
amount of the Series A Preferred Stock or the Warrants as shall
result in such Purchaser's beneficial ownership, after such
conversion, exceeding 9.9% of the Company's outstanding Common
Stock, and the parties agree that no Purchaser shall have the
right to effect such a conversion or exercise.
6. RIGHT OF FIRST OFFER
A. Subject to the terms and conditions specified in
this Agreement, the Company hereby grants to West End a right of
first offer with respect to future sales by the Company of shares
of any class of its capital stock ("Shares"). West End shall be
entitled to apportion the right of first offer hereby granted to
it among itself and its affiliates in such proportions as it
deems appropriate.
B. Each time the Company proposes to, prior to the
first anniversary of the Initial Closing Date, offer any shares
of, or securities convertible into or exercisable for any shares
of, any Shares, (except in connection with a bona fide, firm
commitment, underwritten public offering), the Company shall
first make an offer of such Shares to West End in accordance with
the following provisions:
(i) The Company shall deliver a notice (the "Notice")
to West End stating (A) its bona fide intention to
offer such Shares, (B) the number of such Shares
to be offered and (C) the price and terms, if any,
upon which it proposes to offer such Shares.
(ii) Within twenty (20) days after receipt of the
Notice, West End may elect to purchase or obtain,
at the price and on the terms specified in the
Notice of such Shares. West End shall purchase
such Shares within ten (10) days after making such
election.
If all of the Shares are not elected to be obtained as provided
in subsection (2), the Company may, during the thirty (30) day
period following the expiration of the period provided in
subsection (2) hereof, offer the remaining unsubscribed portion
of such Shares to any person or persons at a price not less than,
and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an
agreement for the sale of the Shares within such period, or if
such agreement is not consummated within thirty (30) days of the
execution thereof, the right provided hereunder shall be deemed
to be revived and such Shares shall not be offered unless first
reoffered to West End in accordance herewith.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE
SECURITIES.
The Purchaser understands that the Company's obligation to
issue the Securities on each Closing Date to the Purchasers
pursuant to this Agreement is conditioned upon:
A. The accuracy on the applicable Closing Date of the
representations and warranties of the applicable Purchaser
contained in this Agreement as if made on such Closing Date and
the performance by the Purchasers on or before such Closing Date
of all covenants and agreements of the applicable Purchasers
required to be performed on or before such Closing Date;
B. The absence or inapplicability of any and all
laws, rules or regulations prohibiting or restricting the
transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.
8. CONDITIONS TO THE PURCHASERS' OBLIGATION TO PURCHASE
THE SECURITIES.
The Company understands that each Purchaser's obligation to
purchase the Securities on any Closing Date is conditioned upon:
A. The accuracy on the Closing Date of the
representations and warranties of the Company contained in this
Agreement as if made on the Closing Date, and the performance by
the Company on or before the Closing Date of all covenants and
agreements of the Company required to be performed on or before
the Closing Date;
B. The Company shall have duly filed the Certificate
of Designations, in substantially the form attached hereto as
Exhibit B, with the offices of the Secretary of State of the
State of Delaware in accordance with the Delaware General
Corporation Law.
C. On the Closing Date, the Purchaser shall have
received an opinion of counsel for the Company, dated the Closing
Date, in form, scope and substance reasonably satisfactory to
each Purchaser, to the effect set forth in Exhibit E attached
hereto;
D. The Company shall have executed and delivered a
signed counterpart to the Registration Rights Agreement;
E. On the Closing Date, the Purchasers shall have
received a certificate executed by the (i) the President or the
Chairman of the Company and (ii) the Chief Financial Officer of
the Company, stating that all of the representations and
warranties of the Company set forth in this Agreement are
accurate as of the Closing Date and that the Company has
performed all of its covenants and agreements required to be
performed under this Agreement on or before the Closing Date.
F. On the Closing Date, the Purchasers shall have
received from the Company such other certificates and documents
as they or their representative, if applicable, shall reasonably
request, and all proceedings taken by the Company in connection
with the Primary Documents contemplated by this Agreement and the
other Primary Documents and all documents and papers relating to
such Primary Documents shall be satisfactory to the Purchasers.
G. On or prior to the Closing Date, there shall not
have occurred any of the following: (i) a suspension or material
limitation in the trading of securities generally on the New York
Stock Exchange or Nasdaq; (ii) a general moratorium on commercial
banking activities in New York declared by the applicable banking
authorities; (iii) the outbreak or escalation of hostilities
involving the United States, or the declaration by the United
States of a national emergency or war; or (iv) a change in
international, political, financial or economic conditions, if
the effect of any such event, in the reasonable judgment of the
Purchasers, makes it impracticable or inadvisable to proceed with
the purchase of the Securities on the terms and in the manner
contemplated in this Agreement and in the other Primary
Documents.
9. EXPENSES.
The Company covenants and agrees with the Purchasers that
the Company will pay or cause to be paid the following: (a) the
fees, disbursements and expenses of the Company's counsel and
accountants in connection with the issuance of the Securities,
(b) all expenses in connection with the qualification of the
Securities for offering and sale under state securities laws as
provided in Section 4(f) hereof, and (c) all other costs and
expenses incident to the performance of its obligations hereunder
which are not otherwise specifically provided for in this
Section 8, including but not limited to the legal fees of the
Purchasers in the aggregate amount of $20,000. If the Company
fails to satisfy its obligations or to satisfy any condition set
forth in this Agreement, as a result of which the Series A
Preferred Stock is not delivered to any of the Purchasers on the
terms and conditions set forth herein, the Company shall
reimburse such Purchasers for any actual, documented, out-of-
pocket expenses reasonably incurred by such in making
preparations for the purchase, sale and delivery of the Series A
Preferred Stock not so delivered.
10. GOVERNING LAW; MISCELLANEOUS
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York. Each of the
parties consents to the jurisdiction of the federal courts whose
districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York
in connection with any dispute arising under this Agreement or
any of the Primary Documents, and hereby waives, to the maximum
extent permitted by law, any objection, including any objections
based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. This Agreement may be signed
in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the
interpretation of this Agreement. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction,
such invalidity or enforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other
jurisdiction. This Agreement shall inure to the benefit of, and
be binding upon the successors and assigns of each of the parties
hereto, including any transferees of the Securities. Any
Purchaser of Series A Preferred Stock in a closing taking place
following the Initial Closing Date may become a party to this
Agreement by executing a counterpart to this Agreement on the
applicable Closing Date. This Agreement may be amended only by
an instrument in writing signed by the party to be charged with
enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the
subject matter hereof.
11. NOTICES.
Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be
effective upon personal delivery, via facsimile (upon receipt of
confirmation of error-free transmission) or two business days
following deposit of such notice with an internationally
recognized courier service, with postage prepaid and addressed to
each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by
ten days advance written notice to each of the other parties
hereto.
COMPANY: AMERICAN ELECTROMEDICS CORP.
13 Columbia Drive
Suite 18
Amherst, New Hampshire 03031
ATT.: Michael Pieniazek
Tel.: (603) 880-6300
Fax: (603) 880-8977
WITH COPIES TO:
REID & PRIEST LLP
40 West 57th Street
New York, NY 10019
ATT.: Bruce Rich
Tel.: 212-603-6780
Fax: 212-603-2001
PURCHASERS: At the addresses set forth on the signature
page of this Agreement, as such addresses may
be updated from time to time by each of the
Purchasers.
WITH COPIES TO:
WEST END CAPITAL LLC
One World Trade Center
Suite 4563
New York, New York 10048
ATT.: Daniel Saks
Tel.: 212-775-9299
Fax: 212-775-9311
MORRISON & FOERSTER LLP
1290 Avenue of the Americas
New York, New York 10104
ATT.: Ira Greenstein
Tel.: 212-468-8000
Fax: 212-468-7900
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company and each
of the Purchasers shall survive the execution and delivery of
this Agreement and the delivery of the Series A Preferred Stock.
13. CONFIDENTIALITY.
Each of the Company and the Purchaser agrees to keep
confidential, and not to disclose (except as required pursuant to
the Securities Act or the Exchange Act or the rules promulgated
thereunder) to or use for the benefit of any third party, the
terms of this Agreement, any of the other Primary Documents or
any other information which at any time is designated in writing
by the other party as confidential without the prior written
approval of the other party; provided, however, that this
-------- --------
provision shall not apply to information which, at the time of
disclosure, is already part of the public domain (except by
breach of this Agreement) and information which is required to be
disclosed by law.
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by
each of the undersigned.
"COMPANY"
AMERICAN ELECTROMEDICS CORP.
By: /s/ Michael T. Pieniazek
------------------------------
Name: Michael T. Pieniazek
Title: President
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by
each of the undersigned.
"PURCHASERS"
JUBILEE INVESTORS LLC
By: WEST END CAPITAL LLC, Manager
By: /s/ Daniel Saks
-------------------------------
Name: Daniel Saks
Title: Managing Director
WEST END CAPITAL LLC
By: /s/ Daniel Saks
-------------------------------
Name: Daniel Saks
Title: Managing Director
<PAGE>
EXHIBIT A PURCHASERS
EXHIBIT B FORM OF CERTIFICATE OF
DESIGNATIONS
EXHIBIT C FORM OF WARRANT
EXHIBIT D REGISTRATION RIGHTS AGREEMENT
EXHIBIT E OPINION OF REID & PRIEST LLP
SCHEDULE 1 DISCLOSURE SCHEDULE
<PAGE>
EXHIBIT A TO SECURITIES PURCHASE AGREEMENT
------------------------------------------
PURCHASERS
INITIAL CLOSING: MAY 4, 1998
---------------------------------------------------------------------
NUMBER OF SHARES
OF SERIES A NUMBER OF
PURCHASER PREFERRED STOCK TO WARRANTS PURCHASE
BE PURCHASED PURCHASED PRICE
---------------------------------------------------------------------
Jubilee Investors Initial closing: N/A $1,000.00 per
LLC 1,000 shares. share
c/o One World Trade First Additional
Center Suite 4563 Closing: 1,000
New York, New York shares.
10048 Second Additional
Closing: 1,000
shares
--------------------------------------------------------------------
West End Capital N/A 50,000 $.01 per
LLC warrant
One World Trade
Center Suite 4563
New York, New York
10048
-------------------------------------------------------------------
<PAGE>
SCHEDULE 1 TO SECURITIES PURCHASE AGREEMENT
DISCLOSURE SCHEDULE
AMERICAN ELECTROMEDICS CORP.
WARRANT TO PURCHASE COMMON STOCK
The Transferability of this Warrant is
Restricted as Provided in Section 2.
Void after May 5, 2001 Right to Purchase 50,000 shares of Common Stock
(subject to adjustment)
No. 1
PREAMBLE
American Electromedics Corp. ("AEC" or the "Company"), a
Delaware corporation, hereby certifies that, for value received,
WEST END CAPITAL LLC, whose address is One World Trade Center,
Suite 4563, New York, New York 10048, or its registered assigns
(hereinafter, the "Registered Holder"), is entitled, subject to
the terms set forth below, to purchase from the Company at any
time or from time to time before 5:00 P.M. New York time, on
May 5, 2001 (such time, the "Expiration Time"), 50,000 of the
Company's fully paid and nonassessable shares of common stock,
par value $0.10 per share (the "Common Stock") of the Company, at
the purchase price per share (the "Purchase Price") of $4.80 (the
"Initial Purchase Price"). The number and character of such
Common Stock and the Purchase Price are subject to adjustment as
provided herein.
This Warrant is one of the Warrants to Purchase Common Stock
(the "Warrants"), evidencing the right to purchase Common Stock
of the Company, issued pursuant to a Securities Purchase
Agreement (the "Securities Purchase Agreement"), dated May 5,
1998, between the Company and the Purchasers identified therein.
The Securities Purchase Agreement contains certain additional
terms that are binding upon the Company and each Registered
Holder of the Warrants. A copy of the Securities Purchase
Agreement may be obtained by any Registered Holder of the
Warrants from the Company upon written request. Capitalized
terms used but not defined herein shall have the meanings set
forth in the Securities Purchase Agreement.
As used herein the following terms, unless the context
otherwise requires, have the following respective meanings:
(a) The term "Company" includes any corporation which
shall succeed to or assume the obligations of the Company
hereunder.
(b) The term "Common Stock" includes all shares of any
class or classes (however designated) of the Company, authorized
on or after the date hereof, the holders of which shall have the
right, without limitation as to amount, either to all or to a
share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall
ordinarily be entitled to vote for the election of directors of
the Company (even though the right so to vote has been suspended
by the happening of a contingency).
(c) The term "Other Securities" refers to any class of
shares (other than Common Stock) and other securities of the
Company or any other person (corporate or otherwise) which the
holders of the Warrants at any time shall be entitled to receive,
or shall have received, upon the exercise of the Warrants, in
lieu of or in addition to Common Stock, or which at any time
shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to
Section 6 or otherwise.
(d) The term "Shares" means the Common Stock issued or
issuable upon exercise of the Warrants.
1. REGISTRATION RIGHTS.
The rights of the holders of Warrants to register Warrants
or Shares shall be as stated in the Registration Rights Agreement
of even date herewith.
2. RESTRICTED STOCK.
2.1. If, at the time of any transfer or exchange (other than
a transfer or exchange not involving a change in the beneficial
ownership of such Warrant or Shares) of a Warrant or Shares, such
Warrant or Shares shall not be registered under the Securities
Act, the Company's obligation to transfer such Warrant or Shares
shall be subject to the provisions of Section 5 of the Securities
Purchase Agreement.
3. EXERCISE OF WARRANT.
3.1. Exercise in Full. The holder of this Warrant may
----------------
exercise it in full prior to the Expiration Time by surrendering
this Warrant, with the form of Election to Purchase at the end
hereof duly executed by such holder, to the Company in the manner
set forth in Section 5 of the Securities Purchase Agreement. The
surrendered Warrant shall be accompanied by payment, in cash or
by certified or official bank check payable to the order of the
Company, in the amount obtained by multiplying the number of
shares of Common Stock called for on the face of this Warrant
(without giving effect to any adjustment therein) by the Initial
Purchase Price.
3.2. Partial Exercise. This Warrant may be exercised in part
-----------------
by surrender of this Warrant in the manner provided in Subsection
3.1, except that the exercise price shall be calculated by
multiplying (a) the number of shares of Common Stock as shall be
designated by the holder in the subscription at the end hereof by
(b) the Initial Purchase Price. On any such partial exercise,
subject to the provisions of Section 2 hereof, the Company, at
its expense will forthwith issue and deliver to or upon the order
of the Registered Holder hereof a new Warrant or Warrants of like
tenor, in the name of the Registered Holder hereof or as such
Registered Holder may request, calling in the aggregate on the
face or faces thereof for the number of shares of Common Stock
(without giving effect to any adjustment therein) equal to the
number of such shares called for on the face of this Warrant
minus the number of such shares designated by the Registered
Holder in the applicable Election to Purchase.
3.3. Company Acknowledgment. The Company will, at the time of
----------------------
the exercise, exchange or transfer of this Warrant, upon the
request of the Registered Holder hereof, acknowledge in writing
its continuing obligation to afford to such Registered Holder or
transferee any rights (including, without limitation, any right
to registration of the Company's shares of Common Stock) to which
such Registered Holder or transferee shall continue to be
entitled after such exercise, exchange or transfer in accordance
with the provisions of this Warrant, provided that if the
Registered Holder of this Warrant shall fail to make any such
request, such failure shall not affect the continuing obligation
of the Company to afford to such Registered Holder or transferee
any such rights.
4. DELIVERY OF SHARE CERTIFICATES UPON EXERCISE. Following the
exercise of this Warrant in full or in part, within the time
periods and in the manner provided by Section 5(b) of the
Securities Purchase Agreement, the Company, at its expense
(including the payment by it of any applicable issue taxes), will
cause to be issued in the name of and delivered to the Registered
Holder hereof, or as such Registered Holder (upon payment by such
Registered Holder of any applicable transfer taxes) may direct, a
certificate or certificates for the number of fully paid and
nonassessable Common Stock to which such Registered Holder shall
be entitled on such exercise, plus, in lieu of any fractional
Share to which such Registered Holder would otherwise be
entitled, cash equal to such fraction multiplied by the then
current market value of one full share of Common Stock (as
computed in accordance with Subsection 5.1(d) hereof).
5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF COMMON
STOCK.
5.1 The Purchase Price hereof shall be subject to
adjustment from time to time as follows:
(a) In case the Company shall (i) pay a dividend on
its shares of Common Stock in Common Stock, (ii) subdivide its
outstanding shares of Common Stock or (iii) combine its
outstanding shares of Common Stock into a smaller number of
shares, then, in such an event, the Purchase Price in effect
immediately prior thereto shall be adjusted proportionately so
that the adjusted Purchase Price will bear the same relation to
the Purchase Price in effect immediately prior to any such event
as the total number of shares of Common Stock outstanding
immediately prior any such event shall bear to the total number
of shares of Common Stock outstanding immediately after to such
event. An adjustment made pursuant to this Section 5.1(a) shall,
(i) become effective retroactively immediately after the record
date in the case of a dividend and shall (ii) become effective
immediately after the effective date in the case of a subdivision
or combination. The Purchase Price, as so adjusted, shall be
readjusted in the same manner upon the happening of any
successive event or events described herein.
(b) In case the Company shall distribute to all
holders of its shares of Common Stock, Other Securities,
evidences of its indebtedness or assets (excluding cash dividends
or distributions) or purchase rights, options or warrants to
subscribe for or purchase Other Securities, then in each such
case, the Purchase Price in effect thereafter shall be determined
by multiplying the Purchase Price in effect immediately prior
thereto by a fraction, of which the numerator shall be the total
number of outstanding shares of Common Stock multiplied by the
current market price per share of Common Stock (as determined in
accordance with the provisions of subdivision (c) below) on the
record date mentioned below, less the fair market value as
determined by the Board of Directors (whose determination shall
be conclusive) of the Other Securities, assets or evidences of
indebtedness so distributed or of such rights or warrants, and of
which the denominator shall be the total number of outstanding
shares of Common Stock multiplied by such current market price
per share of Common Stock. Such adjustment shall be made
whenever any such distribution is made and shall become effective
retroactively immediately after the record date for the
determination of shareholders entitled to receive such
distribution.
(c) For the purpose of any computation under
subdivision (b) above, the current market price per share of
Common Stock shall be deemed to be the closing price of the
Company's shares of Common Stock on the date that the computation
is made.
(d) No adjustment of the Purchase Price shall be made
if the amount of such adjustment shall be less than $.02 per
share, but in such case, any adjustment that would otherwise be
required then to be made shall be carried forward and shall be
made at the time of and together with the next subsequent
adjustment, which, together with any adjustment so carried
forward, shall amount to not less than $.02 per share. In case
the Company shall at any time issue shares of Common Stock by way
of dividend on any class of stock of the Company or subdivide or
combine the outstanding shares of Common Stock, said amount of
$.02 per share (as theretofore increased or decreased, if the
same amount shall have been adjusted in accordance with the
provisions of this subparagraph) shall forthwith be
proportionately increased in the case of a combination or
decreased in the case of such a subdivision or stock dividend so
as to appropriately reflect the same.
5.2. Upon each adjustment of the Purchase Price pursuant to
subdivisions (a) and (b) of Section 5.1, the number of shares of
Common Stock purchasable upon exercise of this Warrant shall be
adjusted to the number of shares of Common Stock, calculated to
the nearest one hundredth of a share, obtained by multiplying the
number of shares of Common Stock purchasable immediately prior to
such adjustment upon the exercise of this Warrant Certificate by
the Purchase Price in effect prior to such adjustment and
dividing the product so obtained by the new Purchase Price.
5.3. In the event of any capital reorganization of the
Company, or of any reclassification of the shares of Common
Stock, this Warrant shall be exercisable after such capital
reorganization or reclassification upon the terms and conditions
specified in this Warrant, for the number of shares of stock or
other securities which the shares of Common Stock issuable (at
the time of such capital reorganization or reclassification) upon
exercise of this Warrant would have been entitled to receive upon
such capital reorganization or reclassification if such exercise
had taken place immediately prior to such action. The
subdivision or combination of shares of Common Stock at any time
outstanding into a greater or lesser number of shares of Common
Stock shall not be deemed to be a reclassification of the shares
of Common Stock of the Company for the purposes of this
Subsection 5.3.
5.4. Whenever the Purchase Price is adjusted as herein
provided, the Company shall compute the adjusted Purchase Price
in accordance with Subsection 5.1 and shall prepare a certificate
signed by its Chief Financial Officer and any other executive
officer setting forth the adjusted Purchase Price, and showing in
reasonable detail the method of such adjustment and the fact
requiring the adjustment and upon which such calculation is
based, and such certificate shall forthwith be forwarded to the
Registered Holder.
5.5. The form of this Warrant need not be changed because of
any change in the Purchase Price pursuant to this Section 5 and
any Warrant issued after such change may state the same Purchase
Price and the same number of shares of Common Stock as are stated
in this Warrant as initially issued.
6. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
6.1. Merger, Etc. In case at any time or from time to time
-----------
after the date of issuance of this Warrant, the Company shall (a)
effect a reorganization, (b) consolidate with or merge into any
other person or (c) transfer all or substantially all of its
properties or assets to any other person under any plan or
arrangement contemplating the dissolution of the Company within
three (3) years from the date of such transfer (any such
transaction being hereinafter sometimes referred to as a
"Reorganization"), then, in each such case, the Registered Holder
of this Warrant, upon the exercise hereof as provided in Section
3 at any time after the consummation or effective date of such
Reorganization (the "Effective Date"), shall receive, in lieu of
the shares of Common Stock issuable on such exercise prior to
such consummation or such Effective Date, the stock and other
securities and property (including cash) to which such Registered
Holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such
Registered Holder had so exercised this Warrant, immediately
prior thereto (all subject to further adjustment thereafter as
provided in Section 5). The Company shall not effect a
transaction of the type described in clause (b) or (c) above
unless upon or prior to the consummation thereof, the Company's
successor corporation, or if the Company shall be the surviving
company in any such Reorganization but is not the issuer of the
shares of stock, securities or other property to be delivered to
the holders of the Company's outstanding shares of Common Stock
at the effective time thereof, then such issuer, shall assume in
writing the obligation hereunder to deliver to the Registered
Holder of this Warrant such shares of stock, securities, cash or
other property as such holder shall be entitled to purchase in
accordance with the provisions hereof.
6.2 Dissolution. Except as otherwise expressly provided
-----------
in Subsection 6.1, in the event of any dissolution of the Company
following the transfer of all or substantially all of its
properties or assets, the Company, prior to such dissolution,
shall at its expense deliver or cause to be delivered the stock
and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants after the
effective date of such dissolution pursuant to this Section 6 to
a bank or trust company having its principal office in New York
City, as trustee for the holder or holders of the Warrants.
6.3 Continuation of Terms. Except as otherwise expressly
---------------------
provided in Subsection 6.1, upon any reorganization,
consolidation, merger or transfer (and any dissolution following
any transfer) referred to in this Section 6, this Warrant shall
continue in full force and effect and the terms hereof shall be
applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the
consummation of such reorganization, consolidation or merger or
the effective date of dissolution following any such transfer, as
the case may be, and shall be binding upon the issuer of any such
stock or other securities, including, in the case of any such
transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person
shall have expressly assumed the terms of this Warrant.
7. NO DILUTION OR IMPAIRMENT. The Company will not, by
amendment of its Certificate of Incorporation or By-laws, or
through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of the Warrants, but will at all
times in good faith assist in the carrying out of all such terms
and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the
Warrants, as specified herein and in the Securities Purchase
Agreement, against dilution (to the extent specifically provided
herein) or other impairment. Without limiting the generality of
the foregoing, the Company (a) will not increase the par value of
any shares of stock receivable on the exercise of the Warrants
above the amount payable therefor on such exercise, and (b) will
not effect a subdivision or split up of shares or similar
transaction with respect to any class of the Common Stock without
effecting an equivalent transaction with respect to all other
classes of Common Stock.
8. ACCOUNTANT'S CERTIFICATE AS TO ADJUSTMENTS. In each case of
any adjustment or readjustment in the Common Stock issuable on
the exercise of the Warrants, the Company, at its expense, will
promptly cause the independent certified public accountants of
the Company to compute such adjustment or readjustment in
accordance with the terms of the Warrants and prepare a
certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or
sold or deemed to have been issued or sold, (b) the number of
shares of Common Stock (or Other Securities) outstanding or
deemed to be outstanding, and (c) the Purchase Price in effect
and number and type of Shares for which the Warrants were
exercisable immediately prior to such issue or sale and as each
is adjusted and readjusted on account thereof. The Company will
forthwith mail a copy of each such certificate to each holder of
a Warrant, and will, on the written request at any time of any
holder of a Warrant, furnish to such holder a like certificate
setting forth the Purchase Price and the number and type of
Shares at the time in effect and showing how it was calculated.
9. NOTICE OF RECORD DATE. In case of
(a) any taking by the Company of a record of the
holders of any class of its securities for the purpose of
determining the holders thereof who are entitled to receive any
dividend or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right,
or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all the assets of
the Company to or consolidation or merger of the Company with or
any voluntary or involuntary dissolution, liquidation or winding
up of the Company, or
(c) events shall have occurred resulting in the
voluntary or involuntary dissolution, liquidation or winding up
of the Company
then and in each such event the Company will mail or cause to be
mailed to each holder of a Warrant a notice specifying (i) the
date on which any record is to be taken for the purpose of any
such dividend, distribution or right, and stating the amount and
character of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding up is to take place, and the time, if any
is to be fixed, as of which the holders of record of Common Stock
(or Other Securities) shall be entitled to exchange their Common
Stock (or Other Securities) for securities or other property
deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution,
liquidation or winding up, and (iii) the amount and character of
any stock or other securities, or rights or options with respect
thereto, proposed to be issued or granted, the date of such
proposed issue or grant and the persons or class of persons to
whom such proposed issue or grant is to be offered or made. Such
notice shall be mailed at least thirty (30) days prior to the
date specified in such notice on which any such action is to be
taken.
10. EXCHANGE OF WARRANTS. On surrender for exchange of any
Warrant, properly endorsed, to the Company, the Company, at its
expense, will issue and deliver to or (subject to Section 2) on
the order of the holder thereof a new Warrant or Warrants of like
tenor, in the name of such holder or as such holder (on payment
by such holder or any applicable transfer taxes) may direct,
calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock called for on the face or faces
of the Warrant or Warrants so surrendered.
11. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of any Warrant and, in the case of any such loss,
theft or destruction of any Warrant, on delivery of an indemnity
agreement or security reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on
surrender and cancellation of such Warrant, the Company, at its
expense, will execute and deliver, in lieu thereof, a new Warrant
of like tenor.
12. WARRANT AGENT. The Company may, by written notice to each
holder of a Warrant, appoint an agent having an office in New
York, New York, for the purpose of issuing shares of Common Stock
on the exercise of the Warrants pursuant to Section 3, exchanging
Warrants pursuant to Section 10, and replacing Warrants pursuant
to Section 11, or any of the foregoing, and thereafter any such
issuance, exchange or replacement, as the case may be, shall be
made at such office by such agent.
13. REMEDIES. The Company stipulates that the remedies at law
of the holder of this Warrant in the event of any default or
threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant are not and will
not be adequate, and that such terms may be specifically enforced
by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any
of the terms hereof or otherwise.
14. NEGOTIABILITY, ETC. This Warrant is issued upon the
following terms, to all of which each Registered Holder or owner
hereof by the taking hereof consents and agrees:
(a) subject to the terms of Section 4 of the
Securities Purchase Agreement, title to this Warrant may be
transferred by endorsement (by the Registered Holder hereof
executing the form of assignment at the end hereof) and delivery
in the same manner as in the case of a negotiable instrument
transferable by endorsement and delivery;
(b) any person in possession of this Warrant properly
endorsed is authorized to represent himself as absolute owner
hereof and is empowered to transfer absolute title hereto by
endorsement and delivery hereof to a bona fide purchaser hereof
for value; each prior taker or owner waives and renounces all of
his equities or rights in this Warrant in favor of each such bona
fide purchaser, and each such bona fide purchaser shall acquire
absolute title hereto and to all rights represented hereby; and
(c) until this Warrant is transferred on the books of
the Company, the Company may treat the Registered Holder hereof
as the absolute owner hereof for all purposes, notwithstanding
any notice to the contrary.
15. NOTICES. All notices and other communications from the
Company to the Registered Holder of this Warrant shall be given
in writing (unless otherwise specified herein) and shall be
effective upon personal delivery, via facsimile (upon receipt of
confirmation of error-free transmission) or two business days
following deposit of such notice with an internationally
recognized courier service, with postage prepaid and addressed,
to such address as may have been furnished to the Company in
writing by such Registered Holder or, until any such Registered
Holder furnishes to the Company an address, then to, and at the
address of, the last Registered Holder of this Warrant who has so
furnished an address to the Company.
16. MISCELLANEOUS. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument
in writing signed by the party against which enforcement of such
change, waiver, discharge or termination is sought. This Warrant
is being delivered in the State of New York and, except for
provisions with respect to internal corporate matters of the
Company which shall be governed by the corporate laws of the
State of Delaware, shall be construed and enforced in accordance
with and governed by the laws of the State of New York, without
regard to principles of conflict of laws. The headings in this
Warrant are for purposes of reference only, and shall not limit
or otherwise affect any of the terms hereof. All nouns and
pronouns used herein shall be deemed to refer to the masculine,
feminine or neuter, as the identity of the person or persons to
whom reference is made herein may require.
17. EXPIRATION. The right to exercise this Warrant shall expire
at 5:00 P.M., New York time, on May 5, 2001.
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
Warrant as of May 5, 1998.
AMERICAN ELECTROMEDICS CORP.
By:
------------------------------
Name:
Title:
Attest:
By:
----------------------------
Name:
Title:
<PAGE>
Annex A
-------
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the
right,represented by this Warrant, to purchase shares
------------
of Common Stock and herewith tenders in payment for such
securities a certified or official bank check payable in New York
Clearing House Funds to the order of AMERICAN ELECTROMEDICS
CORP., in the amount of $ , all in accordance with the
------------
terms hereof. The undersigned requests that a certificate for
such shares of Common Stock be registered in the name of ,
-------
whose address is and that such
------------------------------
Certificate be delivered to , whose address
----------------------
is .
-------------------
Dated:
Name:
---------------------------
Signature:
----------------------
(Signature must conform in all respects to the name of
the Registered Holder, as specified on the face of the
Warrant.)
-----------------------------
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
Annex B
-------
FORM OF ASSIGNMENT
(To be executed by the Registered Holder if such Holder
desires to transfer the Warrant.)
FOR VALUE RECEIVED,
----------------
hereby sells, assigns and transfers unto
-----------------------------------
(Please print name and address of transferee)
this Warrant, together with all right, title and interest
therein, and does so hereby irrevocably constitute and appoint
Attorney, to transfer the within Warrant
----------------------
on the books of the within-named Company, with full power of
substitution.
Dated:
Name:
---------------------------
Signature:
----------------------
(Signature must conform in all respects to the name of
the Registered Holder, as specified on the Warrant.)
--------------------------------
(Insert Social Security or Other Identifying Number of
Assignee).
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of May 5, 1998
(this "Agreement"), is made by and among AMERICAN ELECTROMEDICS
CORP., a Delaware corporation, with headquarters located at 13
Columbia Drive, Suite 18, Amherst, New Hampshire 03031 (the
"Company"), the purchasers listed on Exhibit A attached hereto
(each, a "Purchaser," and collectively, the "Purchasers") and
West End Capital LLC ("West End").
W I T N E S S E T H:
WHEREAS, pursuant to a Securities Purchase Agreement, dated
as of May 5, 1998, among the Purchasers and the Company (the
"Securities Purchase Agreement"), the Company has agreed to issue
and sell to the Purchasers, shares of 5% convertible preferred
stock, par value $0.01 per share (the "Series A Preferred
Stock"), and has agreed to issue 50,000 three-year warrants (the
"Warrants") to West End (which for the purposes of the rights
conveyed to holders of Warrants pursuant to this Agreement shall
be deemed to be a Purchaser);
WHEREAS, pursuant to the terms of the Series A Preferred
Stock and the Warrants, (i) upon the conversion of the Series A
Preferred Stock and (ii) upon exercise of the Warrants, the
Company will issue to the Purchasers shares of common stock, par
value $.10 per share (such shares are referred to herein as the
"Shares"); and
WHEREAS, to induce the Purchasers to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide
certain registration rights under the Securities Act of 1933, as
amended (the "Securities Act"), and applicable state securities
laws.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the Company and each of the Purchasers hereby
agrees as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms
shall have the following meanings:
(i) "Purchaser" means the Purchasers identified on
Exhibit A hereto, or any transferee or assignee who agrees to
become bound by the provisions of this Agreement in accordance
with Section 9 hereof.
(ii) "Register," "Registered," and "Registration" refer
to a registration effected by preparing and filing a Registration
Statement or Statements in compliance with the Securities Act and
pursuant to Rule 415 under the Securities Act or any successor
rule providing for offering securities on a continuous basis
("Rule 415"), and the declaration or ordering of effectiveness of
such Registration Statement by the United States Securities and
Exchange Commission (the "Commission").
(iii) "Registrable Securities" means the Shares.
(iv) "Registration Statement" means a registration
statement of the Company under the Securities Act.
Capitalized terms used herein and not otherwise defined
herein shall have the meanings set forth in the Securities
Purchase Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. Within thirty (30) days
of the Initial Closing Date, the Company shall file with the
Commission a Registration Statement on Form SB-2 covering (a)
resales of the Warrants and (b) at least one and one-half (1.5)
times the sum of: (i) the number of Shares that are issuable upon
conversion of the Series A Preferred Stock on the date of filing,
without regard to any limitation on any holder's ability to
convert the Series A Preferred Stock, and (ii) 50,000 Shares
issuable upon exercise of the Warrants, or an amendment to any
pending Registration Statement on Form SB-2 of the Company, and
such Registration Statement or amended Registration Statement, as
the case may be, shall state that, in accordance with Rule 416
under the Securities Act, it also covers such indeterminate
number of additional Shares as may become issuable upon
conversion of the Series A Preferred Stock or the Warrants
resulting from any adjustment in the applicable Conversion Price
of the Series A Preferred Stock or the Exercise Price of the
Warrants, as the case may be, or to prevent dilution resulting
from stock splits or stock dividends. If at any time one and
one-half (1.5) times the number of Shares into which the Series A
Preferred Stock may be converted exceeds the difference between
the total number of Shares registered and 50,000 (as adjusted in
accordance with the terms of the Warrants), the Company shall,
within ten (10) business days after receipt of a written notice
from any Purchaser, either (i) amend the Registration Statement
filed by the Company pursuant to the preceding sentence, if such
Registration Statement has not been declared effective by the
Commission at that time, to register all Ordinary Shares into
which the Series A Preferred Stock may be converted, or (ii) if
such Registration Statement has been declared effective by the
Commission at that time, file with the Commission an additional
Registration Statement on Form SB-2 to register the number of
Shares into which the Series A Preferred Stock may be converted
that exceed the number of Shares already registered. The Company
shall use its best efforts to cause such Registration Statement
or amended Registration Statement, as the case may be, to become
effective within ninety (90) days following the Initial Closing
Date (or, if the Commission elects to conduct a review of such
Registration Statement, one hundred twenty (120) days following
the Initial Closing Date). The failure of the Company to cause
such Registration Statement to become effective during such
respective time periods shall have the effect set forth in the
Certificate of Designation relating to the Series A Preferred
Stock. The Company shall keep the Registration Statement
effective pursuant to Rule 415 at all times until such date as is
the earlier of (i) the date on which all of the Registrable
Securities have been sold and (ii) the date on which the
Registrable Securities (in the opinion of counsel to the
Purchasers) may be immediately sold without restriction
(including without limitation as to volume by each holder
thereof) without registration under the Securities Act (the
"Registration Period").
(b) PIGGYBACK REGISTRATION. (i) If at any time or
from time to time, the Company shall determine to register any of
its securities, for its own account or the account of any of its
shareholders, other than a Registration relating solely to
employee share option plans or pursuant to an acquisition
transaction on Form S-4, the Company will:
(A) provide to the Purchasers written notice
thereof as soon as practicable prior to filing the Registration
Statement; and
(B) include in such Registration and in any
underwriting involved therein, all of the Registrable Securities
specified in a written request by the Purchasers made within
fifteen (15) days after receipt of such written notice from the
Company.
(ii) If the Registration is for a registered public
offering involving an underwriting, the Company shall so advise
the Purchasers as a part of the written notice given pursuant to
this Section. In such event, the rights of the Purchasers
hereunder shall include participation in such underwriting and
the inclusion of the Registrable Securities in the underwriting
to the extent provided herein. To the extent that a Purchaser
proposes to distribute its securities through such underwriting,
such Purchaser shall (together with the Company and any other
securityholders of the Company distributing their securities
through such underwriting) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected
for such underwriting by the Company. Notwithstanding any other
provision of this Section, if the managing underwriter of such
underwriting determines that marketing factors require a
limitation of the number of shares to be offered in connection
with such underwriting, the managing underwriter may limit the
number of Registrable Securities to be included in the
Registration and underwriting. If any Purchaser disapproves of
the terms of any such underwriting, it may elect to withdraw
therefrom by written notice to the Company. Any Registrable
Securities so excluded or withdrawn from such underwriting shall
be withdrawn from such Registration.
(c) ELIGIBILITY FOR FORM SB-2. The Company represents
and warrants that it meets all of the requirements for the use of
Form SB-2 for the Registration of the sale by the Purchaser and
any transferee who purchases the Registrable Securities, and the
Company shall file all reports required to be filed by the
Company with the Commission in a timely manner, and shall take
such other actions as may be necessary to maintain such
eligibility for the use of Form SB-2.
(d) PRIORITY IN FILING. The Company covenants that
beginning on the Closing Date and until such time as a
Registration Statement pursuant to Section 2(a) of this agreement
has been filed and become effective, the Company will not file
any other registration statement without the written consent of
the Purchasers or their representative.
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall do
each of the following:
(a) Prepare and file with the Commission such
amendments (including post-effective amendments) and supplements
to the Registration Statement and the prospectuses used in
connection with the Registration Statement as may be necessary to
keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply
with the provisions of the Securities Act with respect to the
disposition of all of the Warrants and all of the Registrable
Securities of the Company covered by the Registration Statement
until such time as all of the Warrants and such Registrable
Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set
forth in the Registration Statement;
(b) Furnish to Purchaser whose Registrable Securities
are included in the Registration Statement, and its legal counsel
identified to the Company, promptly after the same is prepared
and publicly distributed, filed with the Commission, or received
by the Company, a copy of the Registration Statement, each
preliminary prospectus, each final prospectus, and all amendments
and supplements thereto and such other documents, as such
Purchaser may reasonably request in order to facilitate the
disposition of the Warrants and its Registrable Securities;
(c) Use reasonable efforts to (i) register and qualify
the Warrants and the Registrable Securities covered by the
Registration Statement under such other securities or blue sky
laws of such jurisdictions as the Purchasers who hold a majority
in interest of the Registrable Securities being offered may
reasonably request, (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be
necessary to maintain the effectiveness thereof at all times
during the Registration Period, (iii) take such other actions as
may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration
Period and (iv) take all other actions reasonably necessary or
advisable to qualify the Warrants and the Registrable Securities
for sale in such jurisdictions, provided that in connection
therewith, the Company shall not be required to qualify as a
foreign corporation or to file a general consent to the service
of process in any jurisdiction.
(d) As promptly as practicable after becoming aware of
such event, notify each Purchaser of the occurrence of any event
of which the Company has knowledge, as a result of which the
prospectus included in the Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits
to state a material fact required to be stated therein in order
to make the statements therein, in light of the circumstances
under which they were made, not misleading, and to use its best
efforts to promptly prepare a supplement or amendment to the
Registration Statement or other appropriate filing with the
Commission to correct such untrue statement of omission, and to
deliver a number of copies of such supplement or amendment to
each Purchaser as such Purchaser may reasonably request;
(e) As promptly as practicable after becoming aware of
such event, notify each Purchaser who holds Warrants or
Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance
by the Commission or any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest
possible time, and to use its best efforts to promptly obtain the
withdrawal of such stop order or other suspension of
effectiveness;
(f) If the offering is underwritten, at the request of
a Purchaser, to furnish on the date that Registrable Securities
are delivered to the underwriters for sale pursuant to such
registration: (i) an opinion dated such date of counsel
representing the Company for the purposes of such registration,
addressed to the underwriters and to any Purchaser selling
Registrable Securities in connection with such underwriting,
stating that such registration statement has become effective
under the Securities Act and that (A) to the best knowledge of
such counsel, no stop order suspending the effectiveness thereof
has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Securities
Act and (B) the registration statement, the related prospectus
and each amendment or supplement thereof comply as to form in all
material respects with the requirements of the Securities Act
(except that such counsel need not express any opinion as to
financial statements or other financial data contained therein)
and (ii) a letter dated such date from the Company's independent
public accountants addressed to the underwriters and to such
Purchasers, stating that they are independent public accountants
within the meaning of the Securities Act and that, in the opinion
of such accountants, the financial statements of the Company
included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all
material respects with the applicable accounting requirements of
the Securities Act, and such letter shall additionally cover such
other financial matters (including information as to the period
ending no more than five (5) business days prior to the date of
such letter) with respect to such registration as such
underwriters may reasonably request.
(g) Cooperate with the Purchasers who hold Registrable
Securities being offered to facilitate the timely preparation and
delivery of certificates for the Registrable Securities to be
offered pursuant to the Registration Statement and to enable such
certificates for the Registrable Securities to be in such
denominations or amounts, as the case may be, as the Purchasers
may reasonably request, and registered in such names as the
Purchasers may request; and, within three (3) business days after
a Registration Statement which includes Registrable Securities is
ordered effective by the Commission, the Company shall deliver,
and shall cause legal counsel selected by the Company to deliver,
to the transfer agent for the Registrable Securities (with copies
to the Purchasers whose Registrable Securities are included in
such Registration Statement) an appropriate instruction and
opinion of such counsel; and
4. OBLIGATIONS OF THE PURCHASERS. In connection with the
registration of the Registrable Securities, the Purchasers shall
have the following obligations:
(a) Take all other reasonable actions necessary to
expedite and facilitate the disposition by the Purchasers of the
Warrants and the Registrable Securities pursuant to the
Registration Statement.
(b) It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant
to this Agreement of the Warrants and the Registrable Securities
of each Purchaser that such Purchaser shall furnish to the
Company such information regarding itself, the Warrants and the
Registrable Securities held by it, and the intended method of
disposition of the Registrable Securities held by it, as shall be
reasonably required to effect the registration of such Warrants
and such Registrable Securities, and such Purchaser shall execute
such documents in connection with such registration as the
Company may reasonably request. At least five (5) days prior to
the first anticipated filing date of the Registration Statement,
the Company shall notify such Purchaser of the information the
Company requires from such Purchaser (the "Requested
Information") if such Purchaser elects to have any of its
Warrants and its Registrable Securities included in the
Registration Statement. If, at least two (2) business days prior
to the filing date, the Company has not received the Requested
Information from a Purchaser, then the Company may file the
Registration Statement without including the Warrants and the
Registrable Securities of such Purchaser;
(c) The Purchaser, by such Purchaser's acceptance of
the Warrants or the Registrable Securities, agrees to cooperate
with the Company as reasonably requested by the Company in
connection with the preparation and filing of any Registration
Statement hereunder, unless such Purchaser has notified the
Company in writing of such Purchaser's election to exclude all of
such Purchaser's Warrants or Registrable Securities from such
Registration Statement; and
(d) Each Purchaser agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind
described in Section 3(d) or 3(e) above, such Purchaser will
immediately discontinue disposition of its Warrants or
Registrable Securities pursuant to the Registration Statement
covering such Warrants or Registrable Securities until such
copies of the supplemented or amended prospectus contemplated by
Section 3(d) or 3(e) shall be furnished to such Purchaser.
(e) If the offering is underwritten, at the request of
the managing underwriters, each Purchaser or his permitted
assignee holding more than one percent (1%) of the Company's
voting securities shall agree not to sell or otherwise transfer
or dispose of any Registrable Securities of the Company held by
such Purchaser (other than those included in the registration)
for a period specified by the underwriters not to exceed ninety
(90) days following the effective date of the Registration
Statement, provided that all officers and directors of the
Company and holders of at least one percent (1%) of the Company's
voting securities enter into similar agreements. The obligations
described in this Section 4(e) shall not apply to a Registration
relating solely to employee share option plans or an acquisition
transaction registered on Form S-4.
5. EXPENSES OF REGISTRATION. All expenses, other than
underwriting discounts and commissions and other fees and
expenses of investment bankers and other than brokerage
commissions, incurred in connection with registrations, filings
or qualifications pursuant to Section 3, but including, without
limitation, all registration, listing, and qualifications fees,
printing and accounting fees, and the fees and disbursements of
counsel for the Company, and the fees of one counsel to the
holders of Warrants and Registrable Securities not exceeding
$2,500, shall be borne by the Company.
6. INDEMNIFICATION. In the event any Warrants or
Registrable Securities are included in a Registration Statement
under this Agreement:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Purchaser who holds such
Warrants or Registrable Securities, the directors, if any, of
such Purchaser, the officers, if any, of such Purchaser, each
person, if any, who controls any Purchaser within the meaning of
the Securities Act or the Exchange Act (each, an "Indemnified
Person"), against any losses, claims, damages, liabilities or
expenses (joint or several) incurred (collectively, "Claims") to
which any of them may become subject under the Securities Act,
the Exchange Act or otherwise, insofar as such Claims (or actions
or proceedings, whether commenced or threatened, in respect
thereof) arise out of or are based upon: (i) any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement or any post-effective amendment thereof or
the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they
were made, not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary
prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as
amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the Commission) or the
omission or alleged omission to state therein any material fact
necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not misleading,
or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state or foreign securities
law or any rule or regulation under the Securities Act, the
Exchange Act or any state or foreign securities law (the matters
in foregoing clauses (i) through (iii) being, collectively,
"Violations"). The Company shall, subject to the provisions of
Section 6(b) below, reimburse each Purchaser, promptly as such
expenses are incurred and are due and payable, for any reasonable
legal and other costs, expenses and disbursements in giving
testimony or furnishing documents in response to a subpoena or
otherwise, including without limitation, the reasonable costs,
expenses and disbursements, as and when incurred, of
investigating, preparing or defending any such action, suit,
proceeding or investigation (whether or not in connection with
litigation in which such Purchaser is a party), incurred by it in
connection with the investigation or defense of any such Claim.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall
not (i) apply to any Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf
of any Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such
amendment thereof supplement thereto; (ii) with respect to any
preliminary prospectus, inure to the benefit of any such person
from whom the person asserting any such Claim purchased the
Warrants or Registrable Securities that are the subject thereof
(or to the benefit of any person controlling such person) if the
untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the final prospectus, as
then amended or supplemented, if such final prospectus was timely
made available by the Company pursuant to Section 3(b) hereof;
(iii) be available to the extent that such Claim is based upon a
failure of the Purchaser to deliver or to cause to be delivered
the prospectus made available by the Company, if such prospectus
was timely made available by the Company pursuant to Section 3(b)
hereof; or (iv) apply to amounts paid in settlement of any Claim
if such settlement is effected without the prior written consent
of the Company, which consent shall not be unreasonably withheld.
Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Warrants or
Registrable Securities by the Purchaser pursuant to Section 9.
Each Purchaser will indemnify the Company and its officers and
directors against any Claims arising out of or based upon a
Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company, by or on behalf
of such Purchaser, expressly for use in connection with the
preparation of the Registration Statement, subject to such
limitations and conditions are applicable to the Indemnification
provided by the Company to this Section 6.
(b) Promptly after receipt by an Indemnified Person
under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person
shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the
indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate
in, and to the extent that the indemnifying party so desires,
jointly with any other indemnifying party similarly notified, to
assume control of the defense thereof with counsel mutually
satisfactory to the indemnifying party and the Indemnified Person,
provided, however, that an Indemnified Person shall have the right
-------- -------
to retain its own counsel with the fees and expenses to be paid by
the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such
counsel of the Indemnified Person and the indemnifying party
would be inappropriate due to actual or potential differing
interests between such Indemnified Person and any other party
represented by such counsel in such proceeding. In such event,
the Company shall pay for only one separate legal counsel for the
Purchasers, and such legal counsel shall be selected by the
Purchasers holding a majority in interest of the Registrable
Securities included in the Registration Statement to which the
Claim relates. The failure to deliver written notice to an
indemnifying party within a reasonable time after the
commencement of any such action shall not relieve such
indemnifying party of any liability to the Indemnified Person
under this Section 6, except to the extent that the indemnifying
party is materially prejudiced in its ability to defend such
action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course
of the investigation or defense, as such expense, loss, damage or
liability is incurred and is due and payable.
(c) No indemnifying party, in the defense of any such
claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such
Indemnified Person of an unconditional and irrevocable release
from all liability in respect of such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that
any provisions relating to indemnification or contribution
contained in the underwriting agreements entered into among the
Company, the underwriters and any Purchasers in connection with
the underwritten public offering are in conflict with the
foregoing provisions, the provisions in such underwriting
agreements shall be controlling as to the Registrable Securities
included in the public offering; provided, however, that if, as a
-------- -------
result of this Section 6(d), any Purchaser, its officers, directors,
partners or any person controlling such Purchaser is held liable
for an amount which exceeds the aggregate proceeds received by such
Purchaser from the sale of Registrable Securities included in a
registration, pursuant to such underwriting agreement (the
"Excess Liability"), the Company shall reimburse such Purchaser
for such Excess Liability.
7. CONTRIBUTION. To the extent any indemnification by an
indemnifying party is prohibited or limited under applicable law,
the indemnifying party agrees to contribute to the amount paid or
payable by such indemnified party as a result of such loss,
claim, damage, liability or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying
party on the one hand and the Indemnified Person on the other
hand in connection with the statements or omissions which
resulted in such Claim, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and
the Indemnified Person shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the
Indemnified Person, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission. Notwithstanding the forgoing, (a) no
contribution shall be made under circumstances where the payor
would not have been liable for indemnification under the fault
standards set forth in Section 6, (b) no seller of Warrants or
Registrable Securities guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall
be entitled to contribution from any seller of Warrants or
Registrable Securities who was not guilty of such fraudulent
misrepresentation and (c) contribution by any seller of Warrants
or Registrable Securities shall be limited in amount to the net
proceeds received by such seller from the sale of such Warrants
or Registrable Securities. The Company and each Purchaser agree
that it would not be just and equitable if contribution pursuant
to this Section 7 were determined by pro rata allocation (even if
--- ----
the Purchasers and any underwriters were treated as one entity for
such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to
in this Section.
8. REPORTS UNDER EXCHANGE ACT. With a view to making
available to the Purchasers the benefits of Rule 144 promulgated
under the Securities Act or any other similar rule or regulation
of the Commission that may at any time permit the Purchasers to
sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to:
(a) make and keep public information available, as
those terms are understood and defined in Rule 144;
(b) file with the Commission in a timely manner all
reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each Purchaser, so long as such
Purchaser owns Warrants or Registrable Securities, promptly upon
request, (i) a written statement by the Company that it has
complied with the reporting requirements of the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or
periodic report of the Company and such other reports and
documents so filed by the Company and (iii) such other
information as may be reasonably requested to permit the
Purchasers to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to
have the Company register Warrants or Registrable Securities
pursuant to this Agreement shall be automatically assigned by
each Purchaser to any transferee (other than entities that are
specifically identified as the Company's competitors under the
caption "Competition" in the Company's 1997 Annual Report) of all
or any portion of the shares of Series A Preferred Stock or the
Warrants held by such Purchaser if: (a) such Purchaser agrees in
writing with the transferee or assignee to assign such rights,
and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment; (b) the Company is, within
a reasonable time after such transfer or assignment, furnished
with written notice of (i) the name and address of such
transferee or assignee and (ii) the Securities with respect to
which such registration rights are being transferred or assigned;
(c) at or before the time the Company receives the written notice
contemplated by clause (b) of this sentence, the transferee or
assignee agrees in writing with the Company to be bound by all of
the provisions contained herein; and (d) the transfer of the
relevant Securities complies with the restrictions set forth in
Section 4 of the Securities Purchase Agreement. In the event of
any delay in filing the Registration Statement as a result of
such assignment, the Company shall not be liable for any damages
arising from such delay.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of
this Agreement may be amended and the observance thereof may be
waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of
the Company and the Purchasers who hold a majority in interest of
the Registrable Securities. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each
Purchaser and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of
Warrants or Registrable Securities whenever such person or entity
owns of record such Warrants or Registrable Securities. If the
Company receives conflicting instructions, notices or elections
from two or more persons or entities with respect to the same
Warrants or Registrable Securities, the Company shall act upon
the basis of the instructions, notice or election received from
the registered owner of such Warrants or Registrable Securities.
(b) Any notice required or permitted hereunder shall
be given in writing (unless otherwise specified herein) and shall
be effective upon personal delivery, via facsimile (upon receipt
of confirmation of error-free transmission) or two business days
following deposit of such notice with an internationally
recognized courier service, with postage prepaid and addressed to
each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by
ten days advance written notice to each of the other parties
hereto.
COMPANY: AMERICAN ELECTROMEDICS CORP.
Amherst, New Hampshire 03031
ATT: Michael Pieniazek
Tel.: (603) 880-6300
Fax: (603) 880-8977
WITH COPIES TO:
REID & PRIEST LLP
40 West 57th Street
New York, New York 10019
ATT.: Bruce Rich
Tel.: 212-603-6780
Fax: 212-603-2001
PURCHASERS: At the addresses set forth on the signature
page of this Agreement, as such addresses may
be updated from time to time by each of the
Purchasers.
WITH COPIES TO:
WEST END CAPITAL LLC
One World Trade Center
Suite 4563
New York, New York 10048
ATT.: Daniel Saks
Tel.: 212-775-9299
Fax.: 212-775-9311
MORRISON & FOERSTER LLP
1290 Avenue of the Americas
New York, New York 10104
ATT.: Ira Greenstein
Tel.: 212-468-8000
Fax: 212-468-7900
(c) Failure of any party to exercise any right or
remedy under this Agreement or otherwise, or delay by a party in
exercising such right or remedy, shall not operate as a waiver
thereof.
(d) This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York,
except for provisions with respect to internal corporate matters
of the Company which shall be governed by the corporate laws of
the State of Delaware. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any
part of the City of New York or the state courts of the State of
New York sitting in the City of New York in connection with any
dispute arising under this Agreement and hereby waives, to the
maximum extent permitted by law, any objection, including any
objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions. This Agreement may be
signed in one or more counterparts, each of which shall be deemed
an original. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the
interpretation of, this Agreement. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction,
such validity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other
jurisdiction. Subject to the provisions of Section 10 hereof,
this Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement. This
Agreement supersedes all prior agreements and understandings
among the parties hereto with respect to the subject matter
hereof.
(e) This Agreement constitutes the entire agreement
among the parties hereto with respect to the subject matter
hereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth, or referred to herein
and in the other Primary Documents. This Agreement supersedes
all prior agreements and understandings among the parties hereto
with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof,
this Agreement shall inure to the benefit of and be binding upon
the successors and assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the
context may require.
(h) The Company acknowledges that any failure by the
Company to perform its obligations under Section 2(a), or any
delay in such performance could result in direct damages to the
Purchaser, and the Company agrees that, in addition to any other
liability the Company may have by reason of any such failure or
delay, the Company shall be liable for all direct damages caused
by any such failure or delay, unless same is the result of force
majeure. Neither party shall be liable for consequential
damages.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed.
"COMPANY"
AMERICAN ELECTROMEDICS CORP.
By: /s/ Michael T. Pieniazek
---------------------------
Name: Michael T. Pieniazek
Title: President
<PAGE>
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed.
"PURCHASERS"
JUBILEE INVESTORS LLC
By: WEST END CAPITAL LLC, Manager
By: /s/ Daniel Saks
-------------------------
Name: Daniel Saks
Title: Managing Director
WEST END CAPITAL LLC
By: /s/ Daniel Saks
-------------------------
Name: Daniel Saks
Title: Managing Director
<PAGE>
EXHIBIT A TO REGISTRATION RIGHTS AGREEMENT
------------------------------------------
PURCHASERS
-----------------------------------------------------
SHARES OF
SERIES A
PREFERRED NUMBER OF
STOCK WARRANTS
PURCHASER PURCHASED PURCHASED
--------- --------- ---------
-----------------------------------------------------
Jubilee Investors LLC 3,000 shares N/A
c/o West End Capital
LLC
One World Trade
Center, Suite 4563
New York, New York
10048
------------------------------------------------------
West End Capital LLC N/A $50,000
One World Trade
Center, Suite 4563
New York, New York
10048
-------------------------------------------------------
AMERICAN ELECTROMEDICS COMPLETES MERGER WITH EQUIDYNE SYSTEMS
INC., DEVELOPER OF NEW "NEEDLE-FREE INJECTOR" DRUG DELIVERY
TECHNOLOGY
MAY 13, 1998 08:03 AM
AMHERST, N.H.--(BUSINESS WIRE)--May 13, 1998--AMERICAN
ELECTROMEDICS CORP AMER, and its president, Michael T. Pieniazek,
----
announced today that it has acquired by merger EQUIDYNE SYSTEMS
INC. ("Equidyne"), a developer of proprietary medical products
based in San Diego, Calif. The transaction was completed for a
purchase price of 600,000 shares of AMER common stock.
Equidyne has developed a unique and patented needle-free drug
injection system. The INJEX(TM) system is a painless, cost
competitive product for drug injection featuring a low-cost,
convenient, disposable medication ampule. Equidyne has obtained
FDA 510(k) clearance to market the product in the United States,
and in addition, two U.S. patents have been issued for the
features of the injector and the entire INJEX(TM) system.
Equidyne's product competes with the standard needle syringe, a
worldwide market in excess of $2 billion. INJEX(TM) is designed
to eliminate the risks of contaminated needle stick accidents and
the resulting cross contamination of Hepatitis and HIV. A
regular needle syringe can easily puncture the skin after
injection and during the controlled disposal process. In 1995,
there were 1,000,000 accidental needle stick injections reported.
Pieniazek stated, "The INJEX(TM) system offers many advantages
which have completely changed the concept of drug injection.
Previous attempts at developing needleless jet injectors have
failed to compete with needle syringes due to their high cost,
awkward design and difficulty of use. Equidyne offers a low-
cost, practical, safe and painless needle-free injection system
with broad market application. The Liquid Needle(TM) addresses
an enormous market in a time when infectious disease and
inadvertent contamination are major issues. Equidyne's core
technology can be used for many different drug delivery regimens
and allows for needle-free injection into either subcutaneous or
intra-muscular tissue. We are extremely confident and optimistic
about the potential of the INJEX(TM) system, which we expect to
be able to deliver to the market in commercial quantities by late
1998."
AMER currently develops, manufactures and markets intraoral
dental cameras, related dental products, needle-free drug
delivery systems and diagnostic audiometric medical devices in
the United States and worldwide. The company is committed to
bringing to the medical community products for innovation and
superiority.
The remarks contained in this press release and presented
elsewhere by management from time to time contain forward-looking
statements which are based largely on the company's expectations
and are subject to various business risks and uncertainties,
certain of which are beyond the company's control. Actual
results may differ materially from the results discussed in this
press release or in other forward-looking statements presented by
management as a result of such risks. In light of these risks
and uncertainties, there can be no assurance that the forward-
looking statements contained herein will in fact transpire or
prove to be accurate. Among the factors that could cause actual
results to differ materially include failure of revenue on new
products to develop as estimated, regulatory delays, loss of
existing customers, the ability to raise additional funds on
terms favorable to the company, general downward trends in the
company's industry, changes in foreign economic conditions or
currently fluctuations and other risk factors detailed from time
to time in the company's reports filed with the SEC.
