SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended Commission File Number
APRIL 30, 1999 0-9922
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AMERICAN ELECTROMEDICS CORP.
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(Exact Name of Small Business Issuer as Specified in its Charter)
DELAWARE 04-2608713
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(State or Other Jurisdiction (IRS Employer ID No.)
of Incorporation or Organization)
13 COLUMBIA DRIVE, SUITE 5, AMHERST, NEW HAMPSHIRE 03031
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(Address and Zip Code of Principal Executive Offices)
Issuer's telephone number, including area code: 603-880-6300
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Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
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Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.10 PER SHARE
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(Title of Class)
Indicate by check mark whether the Issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months,
and (2) has been subject to such filing requirements for the past 90 days.
YES X NO
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As of June 10, 1999, there were outstanding 8,765,220 shares of the Issuer's
Common Stock, $.10 par value.
<PAGE>
AMERICAN ELECTROMEDICS CORP.
Index
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Page
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets, April 30, 1999 and
July 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the Three and
Nine Months Ended April 30, 1999 and April 30, 1998. . . . . . . . 4
Consolidated Statements of Cash Flows for the Nine
Months Ended April 30, 1999 and April 30, 1998 . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis or Plan
of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II - OTHER INFORMATION
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . 12
Item 5. Other information . . . . . . . . . . . . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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PART I - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN ELECTROMEDICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 30, JULY 31,
1999 1998
----------- -----------
(Unaudited)
ASSETS (Thousands)
Current Assets:
Cash and cash equivalents . . . . . . . $ 391 $ 396
Accounts receivable . . . . . . . . . . 1,486 1,169
Inventories . . . . . . . . . . . . . . 1,778 1,951
Prepaid and other current assets . . . 223 223
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Total current assets . . . . . . . . 3,878 3,739
Property and equipment . . . . . . . . 586 794
Accumulated depreciation . . . . . . . (81) (436)
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505 358
Goodwill . . . . . . . . . . . . . . . 722 4,298
Patents . . . . . . . . . . . . . . . 2,881 3,027
Other . . . . . . . . . . . . . . . . 30 36
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$ 8,016 $11,458
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank debt . . . . . . . . . . . . . . . $1,143 $1,033
Loans from related parties. . . . . . . 230 -
Accounts payable . . . . . . . . . . . 2,169 1,118
Accrued liabilities . . . . . . . . . . 501 723
Dividends payable . . . . . . . . . . . 363 72
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Total current liabilities . . . . . . 4,406 2,946
Stockholders' equity:
Preferred Stock, $.01 par value;
Authorized - 1,000,000 shares;
Series A Convertible Preferred-
Outstanding - 2,830 shares
at April 30, 1999 and 3,000 at
July 31, 1998 . . . . . . . . . . . . 2,251 2,387
Series B Convertible Preferred-
Outstanding - 1,600 shares
at April 30, 1999 and -0- at
July 31, 1998 . . . . . . . . . . . . 965 -
Common stock, $.10 par value;
Authorized - 20,000,000 shares;
Outstanding -8,692,854 shares at
April 30, 1999 and 7,058,136
at July 31, 1998 . . . . . . . . . . . 869 705
Additional paid-in capital . . . . . . 13,537 12,643
Retained deficit . . . . . . . . . . . (13,255) (5,680)
Accumulated other comprehensive loss. . (239) (249)
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4,128 9,806
Deferred compensation . . . . . . . . . (518) (1,294)
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Total stockholders' equity . . . . 3,610 8,512
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$ 8,016 $11,458
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See accompanying notes.
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AMERICAN ELECTROMEDICS CORP.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
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APRIL 30, APRIL 30, APRIL 30, APRIL 30,
1999 1998 1999 1998
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(Thousands, except per share amounts)
Net sales . . . . . . . . . $1,756 $1,495 $6,132 $5,095
Cost of goods sold. . . . . 1,343 1,134 4,024 2,979
------ ------ ------ ------
Gross profit. . . . . . . . 413 361 2,108 2,116
Selling, general and
administrative . . . . . . 1,765 1,048 5,616 2,637
Research and development. . 78 - 283 -
Write-down of goodwill. . . 3,196 - 3,196 -
------ ------ ------ ------
Total operating expenses . 5,039 1,048 9,095 2,637
------ ------ ------ ------
Operating loss. . . . . . . (4,626) (687) (6,987) (521)
Other income (expenses):
Loss on sale of
audiometrics assets . . . (98) - (98) -
Undistributed earnings
of affiliate. . . . . . . - (21) - 56
Interest, net . . . . . . (114) (19) (197) (137)
Minority interest in
affiliate . . . . . . . . - - - (85)
Other . . . . . . . . . . (95) (64) (293) (58)
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(307) (104) (588) (224)
Loss before provision for
income taxes . . . . . . (4,933) (791) (7,575) (745)
Provision for income taxes. - - - (2)
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Net loss. . . . . . . . . .$(4,933) $ (791) $(7,575) $(747)
======= ======= ======= ======
Net loss attributable to
common stockholders* . . .$(5,001) $ (791) $(7,898) $(747)
======= ======= ======= ======
Weighted average number
of common and
common equivalent
shares outstanding 7,806,813 5,404,146 7,413,750 4,002,804
========= ========= ========= =========
Loss per common and
common equivalent share:
Basic $ (.64) $ (.15) $(1.07) $ (.19)
====== ====== ====== ======
Diluted $ (.64) $ (.15) $(1.07) $ (.19)
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See accompanying notes.
* The three and nine months ended April 30,1999 includes the impact of
$68,000 and $323,000, respectively, of dividends on Preferred Stock.
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<PAGE>
AMERICAN ELECTROMEDICS CORP.AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
NINE MONTHS ENDED
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APRIL 30, APRIL 30,
1999 1998
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(Thousands)
OPERATING ACTIVITIES:
Net loss $ (7,575) $(747)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 435 265
Deferred compensation 964 -
Undistributed earnings of affiliate - (56)
Loss on sale of audiometrics assets 98 -
Write-down of goodwill 3,196 -
Minority interest in affiliate - 85
Changes in operating assets and liabilities:
Accounts receivable (381) 189
Inventories, prepaid and other current assets (209) (775)
Accounts payable and accrued liabilities 694 (233)
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Net cash used in operating activities (2,778) (1,272)
INVESTING ACTIVITIES:
Purchase of property and equipment, net (246) (267)
Proceeds from sale of audiometrics assets 625 -
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Net cash provided by (used in)
investing activities 379 (267)
FINANCING ACTIVITIES:
Principal payments on long-term debt - (265)
Proceeds from long-term debt and bank
line of credit - 236
Proceeds from issuance of common stock, net - 994
Net proceeds from bank debt 157 -
Net proceeds from related party debt 231 -
Dividends paid (15) -
Issuance of common stock, net 485 -
Issuance of preferred stock, net 1,498 -
Proceeds from exercise of stock options 22 150
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Net cash provided by financing activities 2,378 1,115
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Effect of exchange rate changes on
cash and cash equivalents 16 1
Decrease in cash and cash equivalents (5) (423)
Cash and cash equivalents, beginning of period 396 533
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Cash and cash equivalents, end of period $ 391 $ 110
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NON-CASH ACTIVITIES:
Common stock issued in connection with
consulting agreement $ 188 $1,000
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Conversion of convertible subordinated
debt into common stock $ - $ 720
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Common Stock issued in connection
with acquisitions $ - $ 210
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Common stock issued under
conversion provision of warrants $ 59 $ -
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Conversion of convertible preferred
stock into common stock $ 135 $ -
======= =======
See accompanying notes.
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AMERICAN ELECTROMEDICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1999
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included.
Operating results for the three and nine month periods ended April
30, 1999 are not necessarily indicative of the results that may be
expected for the year ending July 31, 1999. For further information,
refer to the financial statements and footnotes thereto included in
the Company's annual report on Form 10-KSB for the year ended July 31,
1998.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiary have been
translated into U.S. dollars in accordance with Statement of Financial
Accounting Standards No. 52, Foreign Currency Translation. All balance
sheet amounts have been translated using the exchange rates in effect
at the balance sheet date. Statement of Operations amounts have been
translated using average exchange rates. The gains and losses
resulting from changes in exchange rates from the date of acquisition
of Rosch GmbH to April 30, 1999 have been reported separately as a
component of stockholders' equity. The aggregate transaction gains and
losses are insignificant.
Comprehensive Income (Loss)
Effective August 1, 1998, the Company adopted Statement of Financial
Accounting Standard No. 130, Reporting Comprehensive Income (SFAS
130). SFAS 130 establishes new rules for the reporting and display of
comprehensive income or loss and its components, however, the adoption
of this statement had no impact on the Company's net income or
shareholders' equity. For the three and nine months ended April 30,
1999, the Company's only item of other comprehensive income was the
foreign currency translation adjustment recognized in consolidation of
its wholly-owned German subsidiary, Rosch GmbH. SFAS 130 requires such
adjustments, which prior to adoption were reported separately in
shareholders' equity, to be included in other comprehensive income.
Prior year financial statements have been reclassified to conform to
the requirements of SFAS 130.
The foreign currency translation adjustment and comprehensive loss for
the three months ended April 30, 1999 was $(49,000) and ($4,982,000),
respectively. For the nine months ended April 30, 1999, the foreign
currency translation adjustment and comprehensive loss was $10,000 and
($7,565,000), respectively. As of April 30, 1999, the cumulative
translation adjustment and accumulated other comprehensive loss was
($239,000).
Going Concern
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown
in the financial statements, the Company has incurred net losses of
$4,933,000 and $7,575,000 for the three and nine month periods ended
April 30, 1999, respectively. This and other factors indicate that the
Company may be unable to continue as a going concern for a reasonable
period of time.
The financial statements do not include any adjustments relating to
the recoverability of assets and classification of liabilities that
might be necessary should the Company be unable to continue as a going
concern. The Company's continuation as a going concern is dependent
upon its ability to generate sufficient cash flow to meet its
obligations on a timely basis, to obtain additional financing and
ultimately to attain profitability. The Company continues to pursue
strategies to improve the profitability of its current product lines,
and is actively pursuing additional debt and equity financing.
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<PAGE>
2. DEBT
In September 1998, the Company entered into a $505,000 line-of-credit
with Guardian Financial Services, Inc. (owned by an officer of the
Company). This line-of-credit is due on demand and bears an interest
rate of 10% per annum. As of April 30, 1999, $230,000 was outstanding
under this line-of-credit, which expired on February 28, 1999, and
remains outstanding as a demand loan, secured by substantially all
tangible and intangible assets of the Company.
3. PROFORMA FINANCIAL INFORMATION
On May 5, 1998, the Company acquired all of the issued and outstanding
capital stock of Dynamic Dental Systems, Inc. ("DDS"), for a total
cost of approximately $3.2 million consisting primarily of 750,000
shares of the Company's Common Stock, valued at an aggregate price of
$3,000,000 and $225,000 in cash.
On May 12, 1998, the Company acquired all of the issued and
outstanding capital stock of Equidine Systems, Inc. ("ESI") for a
total cost of approximately $2.6 million consisting of 600,000 shares
of the Company's Common Stock.
The acquisitions were accounted for as purchases and, accordingly, the
operating results of DDS and ESI have been included in the Company's
consolidated financial statements since the date of acquisition.
The following unaudited proforma consolidated financial results of
operations for the three and nine months ended April 30, 1998 assume
the acquisitions of DDS and ESI occurred as of August 1, 1997.
Three months ended Nine months ended
April 30, 1998 April 30, 1998
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Net sales. . . . . . . . . . . . $2,207,000 $6,888,000
Net loss . . . . . . . . . . . . (1,014,000) (1,247,000)
Loss per share; basic and diluted (.15) (.23)
4. EQUITY
During the three month period ended April 30, 1999, the holder of
Series A Convertible Preferred Stock exercised its option and
converted 170 shares of the preferred stock into 234,390 shares of the
Company's common stock.
In April 1999, the Company retained American Financial Communications
("AFC") as a corporate communications and financial consultant. The
consulting agreement expires in November 1999 and provides a total fee
for AFC's services of 200,000 shares of the Company's common stock.
The Company has valued the shares at the fair market value on the
effective date of the agreement, which was $.94 per share, and has
recorded deferred compensation totaling $188,000 to be amortized over
the term of the agreement.
In April 1999, the Company closed two private placements for a total
of 590,000 shares of Common Stock for aggregate net proceeds of
$565,000, to two "accredited investors", as such term is defined in
Regulation D under the Securities Act.
On February 3, 1999, the Company sold 1,600 shares of Series B
Preferred Stock to three purchasers for $1,000 per share or an
aggregate purchase price of $1.6 million, together with Warrants to
purchase up to 25,000 shares of the Company's Common Stock at an
exercise price of $3.00 per share and exercisable until January 31,
2002.
The Series B Preferred Stock is convertible at any time after April
30, 1999 into shares of common stock at a conversion rate equal to
$1,000 divided by the lower of (i) $2.00 or (ii) 75% of the average
closing bid price for the common stock for the five trading days
immediately preceding the conversion date. The Company may force
conversion of all ( and not less than all) of the outstanding shares
of Series B Preferred Stock at any time after the first anniversary of
the effective date of a registration statement covering the underlying
shares of Common Stock. There is no minimum conversion price. Should
the bid price of the Common Stock fall substantially prior to
conversion, the holders of the Series B Preferred Stock could obtain a
significant portion of the Common Stock upon conversion, to the
detriment of the then holders of the Common Stock.
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<PAGE>
The Series B Preferred Stock has a liquidation preference of $1,000
per share, plus any accrued and unpaid dividends, and provides for an
annual dividend equal to 5% of the liquidation preference, which may
be paid at the election of the Company in cash or shares of its common
stock.
The conversion discount of the Series B Preferred Stock is considered
to be an additional preferred stock dividend. The maximum discount
available of $533,000 has been recorded as a reduction of preferred
stock and an increase to additional paid-in capital. As the preferred
stock was not convertible until May 1, 1999, the Company will fully
recognize the additional dividends at that date by recording a charge
to income available to common stockholders.
In December 1998, certain holders of oustanding warrants to purchase
an aggregate of 1 million shares of the Company's Common Stock at
$1.00 per share, exercised their rights under the related warrant
agreements to execute a cashless exercise. Upon exercise of these
warrants, the Company issued 589,828 shares of its Common Stock, par
value $.10.
5. DIVESTITURES
In January 1999, the Company announced its intention to focus its
resources on the needleless injection system being developed by its
wholly-owned subsidiary, ESI, and hired an investment banking firm to
assist in the marketing and selling of the Company's audiometric
business and Dynamic Dental Systems, Inc. (U.S. dental business).
In April 1999, the Company sold certain assets of its audiometrics
business for $625,000. The sale was made pursuant to an Assets
Purchase Agreement whereby the purchaser obtained all of the Company's
domestic audiometric inventory, as well as all trademarks, patents and
other rights associated with the audiometrics business, including the
name "American Electromedics". As a result, the Company intends to
effect a change in the name of the Corporation in the near future. The
sale resulted in the recognition of a net loss of $98,000.
To date, the Company's efforts to sell DDS have been unsuccessful, and
based upon these results, the Company has revised its estimates as to
the ultimate sale price which could be obtained for DDS. In addition,
since its acquisition in April 1998, DDS has experienced a significant
downturn in its gross revenues, as well as gross profit margins, and
has incurred net losses totaling $1.2 million, including a net loss
for the quarter ended April 30, 1999 of $535,000. These results are
due to a variety of factors including changes within the dental camera
industry and DDS' competitors, the adverse affects of which became
evident during the quarter ended April 30, 1999.
Based primarily upon the factors described above, management has
reviewed the continuing value of the goodwill associated with DDS,
taking into consideration the revised estimates as to the expected
sale price which could be obtained by selling the outstanding DDS
common stock, as well as the expectation that DDS' net operating
results and cash flows during the period prior to such a sale will not
likely be positive. Based upon this review, the Company has
written-off the goodwill, which had a book value net of accumulated
amortization of $3.2 million, as a charge against operations during
the fiscal quarter ended April 30, 1999.
6. YEAR 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any
of the Company's computer programs or hardware that have
date-sensitive software embedded chips may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business
activities.
Based on recent assessments, the Company determined that it will be
required to modify or replace significant portions of its software and
certain hardware so that those systems will properly utilize dates
beyond December 31, 1999. The Company presently believes that with
modifications or replacements of existing software and certain
hardware, the Year 2000 Issue can be mitigated. However, if such
modifications and replacements are not made, or are not completed
timely, the Year 2000 Issue could have a material impact on the
operations of the Company.
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<PAGE>
The Company's plan to resolve the Year 2000 Issue involves the
following four phases: assessment, remediation, testing and
implementation. To date, the Company has substantially completed its
assessment of all systems that could be significantly affected by the
Year 2000. The assessment indicated that most of the Company's
significant information technology systems will be affected, including
its financial information system which includes its general ledger,
accounts payable, billing and inventory systems. The assessment was
also undertaken on the Company's products, which are also at risk, as
they utilize software and hardware (embedded chips) as well. However,
based on its review of its product line, the Company has determined
that most of the products it has sold and will continue to sell do not
require remediation to be Year 2000 compliant. Accordingly, the
Company does not believe that the Year 2000 presents a material
exposure as it relates to the Company's products. The Company's
manufacturing processes consist principally of unautomated assembly of
components manufactured by outside third-parties. The Company has
begun to gather information about the Year 2000 compliance status of
its significant suppliers, and will take appropriate steps to monitor
their compliance on an ongoing basis.
Regarding its information technology exposures, the Company utilizes
an unmodified off-the-shelf software package, which is not year 2000
compliant. The Company has purchased a year 2000-compliant upgrade
from its software vendor, which will provide full year 2000 compliance
upon installation. As the upgrade is also an unmodified off-the-shelf
package, testing to ensure Year 2000 compliance will not be necessary.
Implementation will take place as early as possible, no later than
July 31, 1999.
The Company does not presently maintain direct interfaces with any
third-party vendors. The Company has made various queries of its
significant suppliers that do not share information systems with the
Company (external agents). To date, the Company is not aware of any
external agent with a Year 2000 issue that would materially impact the
Company's results of operations, liquidity, or capital resources.
However, the Company has no means of assuring that external agents
will be Year 2000 ready. The inability of external agents to complete
their Year 2000 resolution process in a timely fashion could
materially impact the Company. The effect of non-compliance by
external agents is not determinable.
The total cost of the Company's Year 2000 project is estimated at less
than $5,000, which will be funded through operating cash flows. To
date, the Company has incurred approximately $3,000 of direct costs
related to its Year 2000 project. The project costs will consist
principally of the cost of new software, which will be capitalized.
Management of the Company believes it has an effective plan in place
to resolve the Year 2000 Issue in a timely manner. As noted above, the
Company has not yet completed all necessary phases of its Year 2000
project. In the event that the Company does not complete any
additional phases, the Company could be unable to take customer
orders, manufacture and ship products, invoice customers or collect
payments. In addition, disruptions in the economy generally resulting
from Year 2000 issues could also materially adversely affect the
Company.
The Company currently has no contingency plans in place in the event
it does not complete all phases of its Year 2000 project. The Company
plans to evaluate the status of completion in July 1999 and determine
whether such a plan is necessary.
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<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Report contains or refers to forward-looking information made
pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995. That information covers future
revenues, products and income and is based upon current expectations
that involve a number of business risks and uncertainties. Among the
factors that could cause actual results to differ materially from
those expressed or implied in any forward-looking statement include,
but are not limited to, technological innovations of competitors,
delays in product introductions, changes in health care regulations
and reimbursements, changes in foreign economic conditions or currency
translation, product acceptance or changes in government regulation of
the Company's products, as well as other factors discussed in other
Securities and Exchange Commission filings for the Company.
RESULTS OF OPERATIONS
Net sales for the three and nine month periods ended April 30, 1999
were $1,756,000 and $6,132,000, respectively, compared to $1,495,000
and $5,095,000 for the three and nine month periods ended April 30,
1998. The increase in sales in fiscal 1999 was attributable to the
acquisitions of DDS and ESI in May 1998, partially offset by the loss
of sales from the audiometrics business unit whose assets were sold in
April 1999.
Cost of sales for the three and nine month periods ended April 30,
1999 were 76.5% and 65.6%, compared to 75.9% and 58.5% of net sales
during the same periods in the prior year. The increase in cost as a
percentage of sales can be attributed to changes in the product mix
which included sales from DDS in fiscal 1999. The intraoral dental
camera and related product lines in the U.S. generally produce lower
gross margins than the Company's other product lines.
Total operating expenses for the three and nine month periods ended
April 30, 1999 were $5,039,000 and $9,095,000, respectively, compared
to $1,048,000 and $2,637,000 for the comparable prior year periods.
The 1999 amounts include a non-cash charge of approximately $3.2
million representing a write-off of the unamortized goodwill
associated with DDS. As discussed in Note 5 to the consolidated
financial statements, this write-off was based primarily upon revised
estimates as to the expected sale price which could be obtained by
selling the outstanding DDS common stock, as well as the expected
financial results of DDS for the period prior to such a sale. These
revised estimates were based upon the Company's efforts to sell DDS
during the three month period ended April 30, 1999, as well as DDS'
recent operating results. The 1999 amounts also reflect increased
marketing, promotional, and development activity, as a result of
including the selling, general and administrative expenses of DDS and
ESI, acquired in May 1998. The increase also includes $132,000 and
$964,000 for the three and nine month periods ended April 30, 1999,
respectively, for amortization of deferred compensation for
consultants and for options granted in connection with the
acquisitions of DDS and ESI. This amortization for the nine months
ended April 30, 1999 relates primarily to the deferred compensation
recognized in connection with the Company's consulting agreement with
Liviakis Financial Communications, which is fully recognized as of
March 15, 1999.
Net loss for the three and nine month periods ended April 30, 1999
were $4,933,000, or $.64 per common share, and $7,575,000, or $1.07
per common share, compared to net loss of $791,000, or $.15 per share,
and $747,000, or $.19 per share for the same periods in the prior
fiscal year. The decrease in net results is primarily attributable to
the $3.2 million write-off of goodwill and the $98,000 net loss
recognized on the sale of the audiometrics business during the quarter
ended April 30, 1999, as well as increased selling,general and
administrative costs and decreased gross margins.
LIQUIDITY AND CAPITAL RESOURCES
Working capital (deficit) of the Company at April 30, 1999 was
$(528,000), compared to $793,000 at fiscal year ended July 31, 1998.
The $1,321,000 decrease in working capital primarily reflects the
effect of operating losses, partially offset by the proceeds received
from the private placements of Series B Convertible Preferred Stock
and common stock (see Note 4) and the proceeds received from the sale
of the audiometrics business unit (see Note 3) during the quarter
ended April 30, 1999.
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<PAGE>
The Company has incurred net losses of $4,933,000 and $7,575,000,
respectively, for the three and nine month periods ended April 30,
1999, as well as a net loss of $3,674,000 for the year ended July 31,
1998. This and other factors, such as working capital needed for the
Company's operations, requires additional funding beyond that which
the Company currently has available. The Company therefore must
immediately raise additional capital.
On January 5, 1999, the Company announced its intention to change the
Company's business strategy and direction in order to focus all of its
resources on ESI, and the continued development of the
INJEX(TM)System. To affect this change, the Company has sold certain
assets of its audiometrics business unit, and plans to sell its U.S.
dental business unit (DDS). These sales will likely provide a
reduction in the Company's expected short-term working capital needs
as a result of eliminating the operating losses those business units
have been incurring. In addition, the Company continues to seek other
sources of additional working capital through equity and/or debt
placements or secured financing. No assurance can be given that the
Company's plans to sell its U.S. dental business unit will be
successfully achieved, or that such other financing arrangements will
be obtained. Further, no assurance can be given that such sales or
financing arrangements would be successfully completed within the
necessary time frame and, if so, on terms not dilutive to existing
stockholders.
As a result of the foregoing, substantial doubt exists about the
ability of the Company to continue as a going concern. The
accompanying financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might
result should the Company be unable to continue as a going concern.
-11-
<PAGE>
PART II. - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES
During the three months ended April 30, 1999, the holder of Series A
Convertible Preferred Stock exercised its conversion rights,
converting an aggregate of 170 shares of the preferred stock to
234,390 shares of the Company's Common Stock.
In February 1999, the Company closed a private placement of 1,600
shares of Series B Convertible Preferred Stock to three purchasers at
a purchase price of $1,000 per share, or an aggregate purchase price
of $1.6 million, together with Warrants to purchase up to 25,000
shares of the Company's Common Stock at an execise price of $3.00 per
share.
In April 1999, the Company issued 200,000 shares of its common stock
as a fee for the retention of a financial consultant. Also in April
1999, the Company closed two private placements of a total of 590,000
shares of the Common Stock with two "accredited investors".
The issuance of the foregoing shares of Common and Preferred Stock was
claimed exempt from the registration requirements of the Securities
Act of 1933, as amended, by reason of Section 4(2) thereof.
Item 5. OTHER INFORMATION
On April 8, 1999, the Company sold certain assets of its audiometric
business to Maico Diagnostic GmbH ("Maico"), a German company, for
$640,000. The sale was in furtherance of the Company's intention,
announced on January 5, 1999, to focus all of its business resources
on the development, manufacture and marketing of the needle-free drug
injection system of its wholly-owned subsidiary, Equidyne Systems,
Inc., and was made pursuant to an Assets Purchase Agreement, dated
April 8, 1999, by and between the Company, the Company's wholly-owned
subsidiary, Rosch Medizintechnik GmbH ("Rosch GmbH") and Maico.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company filed a report on Form 8-K for an event on February 3,
1999 to report that the Company sold 1,600 shares of Series B
Convertible Preferred Stock, in a private plavement to three
purchasers, for $1,000 per share or an aggregate purchase price of
$1.6 million, together with Warrants to purchase up to 25,000 shares
of the Company's Common Stock at an exercise price of $3.00 per share.
Exhibits -
10.1 Assets Purchase Agreement, dated April 8, 1999, by and between
the Company, Rosch GmbH and Maico Diagnostic GmbH
27. Financial Data Schedule
-12-
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN ELECTROMEDICS CORP.
Dated: June 15, 1999 /s/ Thomas A. Slamecka
--------------------
Thomas A. Slamecka
Chairman (Principle
Executive Officer)
Dated: June 15, 1999 /s/ Michael T. Pieniazek
---------------------
Michael T. Pieniazek
Chief Financial Officer
(Principle Financial Officer)
-13-
<PAGE>
EXHIBIT INDEX
Exhibit Description
- ------- -----------
10.1 Assets Purchase Agreement, dated April 8, 1999, by and
between the Company, Rosch GmbH and Maico Diagnostic GmbH
27 Financial Data Schedule
EXHIBIT 10.1
------------
ASSETS PURCHASE AGREEMENT
by and between
AMERICAN ELECTROMEDICS CORPORATION
and
RSCH GMBH MEDIZINTECHNIK
on the one side
and
MAICO DIAGNOSTIC GMBH
on the other side
------------------------------------------
April 1999
<PAGE>
CONTENTS:
ARTICLE 1: DEFINITIONS
ARTICLE 2: SALE AND PURCHASE OF THE ASSETS
ARTICLE 3: PRODUCT RIGHTS
ARTICLE 4: TRADE NAME, SERVICE MARKS AND TRADE MARKS
ARTICLE 5: OPERATING ASSETS
ARTICLE 6: STOCK IN TRADE
ARTICLE 7: CUSTOMER INFORMATION AND GOODWILL
ARTICLE 8: LIABILITIES
ARTICLE 9: PURCHASE PRICE
ARTICLE 10: PAYMENT OF THE PURCHASE PRICE
ARTICLE 11: REPRESENTATIONS AND WARRANTIES OF THE VENDOR
ARTICLE 12: REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
ARTICLE 13: COVENANTS OF THE VENDOR
ARTICLE 14: COVENANTS OF THE PURCHASER
ARTICLE 15: CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER
ARTICLE 16: CONDITIONS PRECEDENT TO OBLIGATIONS OF THE VENDOR
ARTICLE 17: CLOSING
ARTICLE 18: TERMINATION
ARTICLE 19: SURVIVAL AND REMEDY; INDEMNIFICATION
ARTICLE 20: USE OF NAME
ARTICLE 21: NON-COMPETITION AND CONFIDENTIALITY
ARTICLE 22: MISCELLEANOUS
<PAGE>
IN CONSIDERATION OF THE FACT THAT American Electromedics Corporation, who for
several years has been engaged in developing,
manufacturing and selling proprietary medical
and dental products, wishes to sell certain
tangible and intangible assets which hitherto
have been utilized exclusively in the
Company's Audiometrics Division or otherwise
relate to the development, manufacture,
distribution, marketing or sale by the
company of certain products, and;
WHEREAS Maico Diagnostic GmbH, wishes to purchase
these assets and to continue the
development, manufacturing, distribution,
marketing and sale of these products;
THEN THIS
ASSETS PURCHASE AGREEMENT
HAS BEEN MADE BY AND BETWEEN ON THE ONE SIDE
AMERICAN ELECTROMEDICS CORPORATION
13 Columbia Drive, Suite 18
Amherst, New Hampshire 03031
United States of America
and
it's 100% owned affiliate
Rosch GmbH Medizintechnik
Alt-Buckow 6
D-12349 Berlin, Germany
(hereinafter collectively referred to as the "Vendor")
AND
<PAGE>
MAICO DIAGNOSTIC GMBH
Rohrdamm 7
Siemensstadt
D-13629 Berlin, Germany
(hereinafter referred to as the "Purchaser")
ON THE OTHER SIDE.
IN CONSIDERATION OF THE COVENANTS, REPRESENTATIONS AND WARRANTIES CONTAINED
HEREIN, THE PARTIES HAVE AGREED AS FOLLOWS:
ARTICLE 1
DEFINITIONS
1.1. Agreement: "Agreement" means this Assets Purchase Agreement between
the parties named in the opening statement above together with all schedules and
exhibits hereto, as it may be amended from time to time in accordance with its
terms.
1.2. Acquired Assets: "Acquired Assets" shall have the meaning given to it
in Clause 2.1. hereof.
1.3. Closing: "Closing" shall mean the consummation of the transactions
contemplated herein in accordance with Article 17 hereof.
1.4. Closing Date: "Closing Date" means the date where the Vendor shall
sell, assign, transfer and deliver the Acquired Assets to the Purchaser and the
Purchaser shall purchase, acquire, take assignment and delivery of the Acquired
Assets from the Vendor; the Closing Date being determined in Clause 17.1.
hereof.
1.5. Customer Information: "Customer Information" shall have the meaning
given to it in Clause 7.1. hereof.
1.6. Execution Date: "Execution Date" means the date on which the Agreement
is duly signed by both parties.
1.7. Governmental Authority: "Governmental Authority" shall mean the
Government of the United States or any other country or any state or political
subdivision thereof and any entity exercising executive, legislative, judicial,
regulatory or administrative functions or pertaining to government and other
quasi-governmental entities established to perform such functions.
<PAGE>
1.8. Laws: "Laws" shall mean any law, statute, regulation, ordinance, rule,
order, decree, judgement, consent decree, settlement, agreement or governmental
requirement enacted, promulgated, entered into, agreed or imposed by any
Governmental Authority.
1.9. Material Adverse Change: "Material Adverse Change" shall mean a
material adverse change in the conditions of the Acquired Assets, or in the
ability of the Purchaser to own the Acquired Assets, or to continue the
development, manufacturing, distribution, marketing or sale of the New Products
or other products manufactured by the Purchaser on basis of the Product Rights
following the Closing.
1.10. Material Adverse Effect. "Material Adverse Effect" shall mean a
material adverse effect on the conditions of the Acquired Assets, or on the
ability of the Purchaser to own the Acquired Assets or to continue the
development, manufacturing, distribution, marketing or sale of the New Products
or other products manufactured by the Purchaser on basis of the Product Rights
following the Closing.
1.11. New Products: "New Products" shall have the meaning given to it in
Clause 6.1.(i) hereof.
1.12. Operating Assets: "Operating Assets" shall have the meaning given to
it in Article 5 hereof.
1.13. Product Rights: "Product Rights" shall have the meaning given to it
in Article 3 hereof.
1.14. Purchase Price: "Purchase Price" shall mean the amount of
consideration payable by the Purchaser in exchange for the Acquired Assets and
shall be US$ 600,000.00.
1.15. Service Marks: "Service Marks" shall have the meaning given to it in
Clause 4.2. hereof.
1.16. Spare Parts: "Spare Parts" shall have the meaning given to it in
Clause 6.1. (ii) hereof.
1.17. Trade Marks: "Trade Marks" shall have the meaning given to it in
Clause 4.2. hereof.
1.18. Trade Name: "Trade Name" shall have the meaning given to it in Clause
4.1. hereof.
<PAGE>
ARTICLE 2
SALE AND PURCHASE OF THE ASSETS
2.1. Subject to the terms and conditions of this Agreement, on the Closing
Date the Vendor shall sell, assign, transfer and deliver to the Purchaser and
the Purchaser shall purchase, acquire, take assignment and delivery of, certain
tangible and intangible assets owned by the Vendor, which hitherto have been
utilised in the Vendor's Audiometrics Division or which otherwise relate to
certain products which hitherto have been developed, manufactured, distributed,
market or sold by the Vendor on basis of the Product Rights specified in Article
3 hereof. The assets sold, assigned, transferred and delivered to the Purchaser
hereunder include only those assets specified in Article 3 through Article 7
hereof (collectively referred to as the "Acquired Assets").
2.2. All the Vendor's rights, title and interest in and to the Acquired
Assets shall pass to the Purchaser on the Closing Date, as of which date also
the risk of the Acquired Assets shall pass to the Purchaser.
ARTICLE 3
PRODUCT RIGHTS
3.1. The Vendor shall sell, assign and transfer to the Purchaser all the
Vendor's rights, title and interest in and to
(i) the "Quik Tymp 1 Tympanometer";
(ii) the "Quik Tymp 2 Tympanometer/Audiometer";
(iii) the "Pilot-Audiometer" (also known as the "Pilot Hearing Test"
and to include the embedded model as well as the CD-model);
(iv) the "Racecar Tympanometer"
(v) the "Hear Man" hearing tester
(hereinafter collectively referred to as the "Product Rights").
<PAGE>
3.2. The Product Rights, subject to sale hereunder, shall include, without
limitation, all the Vendor's rights, title and interest in and to
(i) all product designs and models, including prototypes;
(ii) all product accessories and built-in fixtures, such as, but
not limited to, interfaces, boards, printers, eartips,
microchips, CD's, tapes and software, including all source
codes and other source materials;
(iii) all intellectual property rights, know-how, patents, technical
specifications, drawings, manuals, instructions, user guides,
and research and development materials; and
(iv) all displays, brochures and other marketing materials assoc-
iated therewith( except marketing material printed by Rosch
GmbH Medizintechnik);
to the extent such designs, models, accessories, fixtures, intellectual property
and marketing materials either have been especially designed, developed or
manufactured by, or on behalf of, or for the use of the Vendor's Audiometrics
Division or otherwise relate to the Product Rights.
3.3. The Vendor shall assign, transfer and deliver to the Purchaser all
original specimens and copies of the designs, models, prototypes, drawings,
technical specifications, manuals, instructions, user guides, research and
development materials, software, source codes and all other source materials,
displays, brochures and other marketing materials as referred to in Clause 3.2.
hereof whether such materials are stored electronically or available in hard
copy formats.
ARTICLE 4
TRADE NAME, SERVICE MARKS AND TRADE MARKS
4.1. The Vendor shall sell, assign and transfer to the Purchaser all the
Vendor's rights, title and interest in and to the trade name "American
Electromedics" and any logos relating to such trade name (hereinafter referred
to as the "Trade Name").
<PAGE>
4.2. The Vendor shall sell, assign and transfer to the Purchaser all the
Vendor's rights, title and interest in and to the trade marks and service marks
"TympanometerTM", "Quick Tymp(" and "Pilot(" and any logos and goodwill relating
to or associated with such trade marks and service marks (hereinafter
collectively referred to as the "Trade Marks" or the "Service Marks" as the case
may be). The Vendor has recently applied for a registration of the trade mark
"TympanometerTM" and the Vendor undertakes with the Purchaser to finalize the
registration as soon as possible.
4.3. The Vendor shall execute and deliver to the Purchaser, or to agencies
designated by the Purchaser, separate documents of assignment in a form
reasonably requested by the Purchaser to give effect to the assignment of the
Trade Name, Service Marks and Trade Marks and of any registration of such Trade
Name, Service Marks and Trade Marks.
ARTICLE 5
OPERATING ASSETS
5.1. The Vendor shall sell, assign, transfer and deliver to the Purchaser
at the address of the Vendor all the Vendor's rights, title and interest in and
to all operating assets, such as, but not limited to, machinery, equipment,
tools and fixtures, which hitherto have been utilised in the Vendor's
Audiometric Division and which to a large degree are specified in Schedule 1
which is attached hereto and incorporated by reference as if fully set forth
herein (hereinafter referred to as the "Operating Assets").
ARTICLE 6
STOCK IN TRADE
6.1. The Vendor shall sell, assign, transfer and deliver to the Purchaser
at the address of the Vendor:
(i) all new products which have been manufactured by the Vendor on
basis of the Product Rights and which are physically existing
in the inventory of the Vendor on the Closing Date (herein-
after referred to as the "New Products"); and
(ii) all accessories and fixtures to the New Products which are
physically existing in the inventory of the Vendor on the
Closing Date (hereinafter referred to as the "Spare Parts").
<PAGE>
6.2. The Vendor and the Purchaser have carried out a joint physical
stock-taking prior to the Closing Date for purpose of determining and
identifying the total stock of New Products and Spare Parts to be taken over by
the Purchaser. All New Products and Spare Parts have been packed in sealed boxes
by the Vendor and the Purchaser at the address of the Vendor.
6.3. The stock of New Products and the stock of Spare Parts have, on an
item by item basis, been finally priced in accordance with the calculation made
as of March 31st, 1999 together with the list showing items on the way from AMER
to Rsch; the result of which is shown in Schedule 2 which is attached hereto and
incorporated by reference as if fully set forth herein.
6.4. The parties agree that as a general rule the New Products have been
priced at net book value, whereas the Spare Parts have been priced at ten to
fifty (10 - 50) percent of net book value. A reserve for obsolete and slow
moving items already has been reflected. Not withstanding the aforementioned the
parties agree that the Vendor shall deliver ten (10) product items of the "Hear
Man" hearing tester and thirty (30) product items of the "Hear Man" hearing
tester with light mechanical defects to the Purchaser free of charge.
6.5. If the number of products making up the stock of the New Products
exceeds the number of similar products actually sold by the Vendor during the
last twelve (12) calendar months prior to the Closing Date, then a reserve of
ninety (90) percent of the net book value of such surplus stock shall be taken.
ARTICLE 7
CUSTOMER INFORMATION AND GOODWILL
7.1. The Vendor shall sell and deliver to the Purchaser the Vendor's
complete customer files (except files on German customers) and other
documentation about former, existing and potential customers of the Vendor's
Audiometric Division; such customer files and other documentation to include,
but not being limited to, copies of all existing customer correspondence,
internal memos, customer contact information, sales figures and sales
statistics, discounts and rebates, special customer arrangements, contracts and
all such other information which in the reasonable opinion of the Purchaser is
relevant to the Purchaser's ability to maintain, secure and develop the business
relationship with the customers (the "Customer Information"); a transcript of
the Vendor's customer database being attached hereto as Schedule 3 and
incorporated by reference as if fully set forth herein. All Customer Information
stored electronically in the Vendor's "Goldmine" software database system or
other database systems of the Vendor shall be delivered to the Purchaser on
tape, CD or in such other electronic readable format as the Purchaser shall
reasonably request.
<PAGE>
7.2. The Vendor shall assign, transfer and deliver to the Purchaser all
customer purchase orders for the supply of New Products or Spare Parts which the
Vendor has received from customers on or prior to the Closing Date and which
have not been fulfilled by the Vendor as of the Closing Date.
7.3. The Vendor and the Purchaser agree that the consideration payable by
the Purchaser in return for taking over the Customer Information and pending
customer purchase orders, cf. Clause 7.2. hereof, reflects, on the Closing Date,
the fair market value of the goodwill attached to the business activity of the
Vendor, which is subject to the sale and purchase under this Agreement.
ARTICLE 8
LIABILITIES
8.1. Neither the Purchaser nor any of its affiliates shall assume or
otherwise be liable in respect of, or be deemed to have assumed, or otherwise be
liable in respect of, any debt, claim, obligation or other liability of the
Vendor or any of its affiliates whatsoever, such as liabilities under rebate or
bonus arrangements prior to the Closing, product guarantees, customer claims or
the like, relating to products manufactured, distributed, market or sold by the
Vendor, or relating to other activities or services carried out by the Vendor,
prior to the Closing.
8.2. The Purchaser shall not assume or otherwise take over from the Vendor
any obligations or liabilities towards any of the Vendor's employees.
<PAGE>
ARTICLE 9
PURCHASE PRICE
9.1. In consideration of the transfer by the Vendor of all rights, title
and interest in and to - and delivery of - the Acquired Assets the Purchaser
shall pay - in United States Dollars - $ 600,000.00 (i.e. Sixhundredthousand
00/100 United States Dollars) to the Vendor (the "Purchase Price"); the Purchase
Price being specified as follows:
(a) Product Rights, Trade Name, Service
Marks, Trade Marks, Operating Assets
and Goodwill, cf. Article 3, Article 4,
Article 5 and Article 7 hereof $ 460,000.00
(b) Stock in Trade, re. Article 6 hereof $ 140,000.00
-------------
The Purchase Price in total $ 600,000.00
=============
9.2. The parties agree that the Purchase Price of the Acquired Assets
reflects the fair market value as of the Closing Date, having taking into
consideration, on an item by item basis, the original cost price, the estimated
remaining useful lifetime and the actual condition of the individual asset.
ARTICLE 10
PAYMENT OF THE PURCHASE PRICE
10.1. The Purchase Price shall be paid to the Vendor as follows:
(a) On the Closing Date the Purchaser shall pay to the Vendor in cash
- by wire transfer or banker's check - an amount of US$ 500,000.00;
provided, however, that all the conditions precedent set forth in Article
15 hereof shall have been satisfied on or prior to the Closing Date;
(b) On the eight (8) calendar day following the Closing Date the
Purchaser shall pay in cash - by wire transfer or banker's check - the
balancing amount of US$ 100,000.00 to the Vendor; provided, however, that
all the conditions precedent set forth in Article 15 hereof shall have been
satisfied prior to the execution of such payment.
<PAGE>
ARTICLE 11
REPRESENTATIONS AND WARRANTIES OF THE VENDOR
11.1. The Vendor represents and warrants to the Purchaser as follows:
(a) Due Incorporation. The Vendor is a public company limited by
shares, duly organised and validly existing under the Laws of the State of
Delaware (USA) and is operating in accordance with all applicable legal
requirements, permits and consents. The Vendor is not insolvent, bankrupt
or subject to any insolvency procedure.
(b) Due Authorisation. The Vendor has full corporate power and
authority to enter into this Agreement and to perform its obligations
hereunder. The execution, delivery and performance of this Agreement by the
Vendor have been duly and validly approved by the Vendor's Board of
Directors and shall not violate any provision of its Certificate of
Incorporation.
(c) No Default. The execution, delivery and performance by the Vendor
of this Agreement and all other instruments, agreements, certificates and
documents contemplated hereby do not and will not violate, or result in a
breach or default of, or cause an event of default under, any mortgage,
lease, agreement, license, instrument, order, judgement or decree to which
the Vendor is a party.
(d) Title to Properties. The Vendor has good and marketable title to,
is the lawful owner of, and has the full right to sell, convey, transfer,
assign and deliver all of the Acquired Assets. The Acquired Assets are free
and clear of any encumbrance or restriction whatsoever. At the end of the
Closing the Vendor will convey the Acquired Assets to the Purchaser by
deeds, bill of sale, certificates of title and instruments of assignment
and transfer effective to vest in the Purchaser, and the Purchaser shall
have good and valid record and marketable title to all of the Acquired
Assets, free and clear of any encumbrance or restriction whatsoever created
by the Vendor.
(e) Condition of Source Materials and other Property. All technical
specifications, manuals, instructions, user guides, software, source codes
and all other source materials referred to in Clause 3.3. hereof are
up-to-date and have been developed and maintained in compliance with
applicable standards of good practice. All New Products and Spare Parts are
<PAGE>
free from defects (except for the thirty (30) defect product items referred
to in Clause 6.4., third sentence), and the Operating Assets are in good
operating condition and repair (with the exception of normal wear and
tear), and are free from defects other than such minor defects as do not
interfere with the continued use thereof or materially adversely affect the
resale value thereof.
(f) Accurate Descriptions. The description in Clause 3.1. of the
Product Rights and the description of the Trade Name, Service Marks and
Trade Marks in Clause 4.1. and Clause 4.2 is a true and accurate
description of the Product Rights and of the Trade Name, Service Marks and
Trade Marks.
(g) Intellectual Property. All of the Product Rights, Trade Name,
Service Marks and Trade Marks is owned by the Vendor, free and clear of any
encumbrances or restrictions, whatsoever. To the best knowledge of the
Vendor all the Trade Marks, the Service Marks and the Trade Name have been
properly registered with the relevant authorities. The New Products and any
other products manufactured by the Vendor on basis of the Product Rights,
and any process, method, design or material it employs, or the marketing,
sale and use of any such product or any service associated herewith, do not
infringe any trade mark, service mark, trade name, patent, copyright or
confidential or proprietary rights of another, and the Vendor has not
received any notice contesting its rights to use or utilize the Product
Rights, the Trade Marks, the Service Marks or the Trade Name. The Vendor
has not granted any license in respect of the Product Rights, the Trade
Marks, the Service Marks or the Trade Name. None of the Product Rights,
Trade Name, Service Marks or Trade Marks is the subject of any pending
adverse claim or, to the best knowledge of the Vendor, any threatened
litigation or claim of infringement and there is no pending or (to the best
of the Vendor's knowledge) threatened claim, action, suit, investigation or
proceeding of any kind challenging, alleging or asserting that any
registration was improperly or invalidly granted or is otherwise invalid.
(h) Sufficiency of Assets. The Purchaser's use of the Acquired Assets
after the Closing Date will not be dependent upon any intellectual property
rights owned by the Vendor and not assigned to the Purchaser by virtue of
this Agreement, neither will any such use be dependent upon any license
granted by any third party.
(i) No other Agreement. Except for sales of New Products and Spare
Parts in the ordinary course of business, neither the Vendor nor any of its
wholly owned subsidiaries has any agreement or arrangement with respect to
the sale or other disposition of any of the Acquired Assets.
<PAGE>
(j) Brokers. Neither the Purchaser or any affiliate of the Purchaser
has or shall have any liability or otherwise suffer or incur any loss as a
result of or in connection with any brokerage or finder's fee or other
commission of any third party retained by the Vendor in connection with any
of the transactions contemplated by this Agreement.
ARTICLE 12
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
12.1. The Purchaser hereby represents and warrants to the Vendor as
follows:
(a) Due Incorporation. The Purchaser is a "Gesellschaft mit
beschrnkter Haftung", i.e. a company limited by shares, duly organised and
validly existing under the Laws of Germany and is operating in accordance
with all applicable legal requirements, permits and consents. The Purchaser
is not insolvent, bankrupt or subject to any insolvency procedure.
(b) Due Authorisation. The Purchaser has full corporate power and
authority to enter into this Agreement and to perform its obligations
hereunder. The execution, delivery and performance of this Agreement by the
Purchaser have been duly and validly approved by the Purchaser's Board of
Directors and shall not violate any provision of its Articles of
Association.
(c) No Default. The execution, delivery and performance by the
Purchaser of this Agreement and all other instruments, agreements,
certificates and documents contemplated hereby do not and will not violate,
or result in a breach or default of, or cause an event of default under,
any mortgage, lease, agreement, license, instrument, order, judgement or
decree to which the Purchaser is a party.
(d) Brokers. Neither the Vendor or any affiliate of the Vendor has or
shall have any liability or otherwise suffer or incur any loss as a result
of or in connection with any brokerage or finder's fee or other commission
of any third party retained by the Purchaser in connection with any of the
transactions contemplated by this Agreement.
<PAGE>
(e) Litigation. The Purchaser is not subject to any litigation,
decree, etc. which would prevent it from entering into this Agreement or
purchasing the Acquired Assets.
ARTICLE 13
COVENANTS OF THE VENDOR
13.1. The Vendor agrees that, except as otherwise required by this
Agreement, from the Execution Date to the Closing Date:
(a) Implementing Agreement. Subject to the terms and conditions
hereof, the Vendor shall take all action required of it to fulfil its
obligations under the terms of this Agreement and shall use its best
efforts to facilitate the consummation of the transactions contemplated
hereby.
(b) Access to Information and Facilities. The Vendor shall give the
Purchaser and the Purchaser's representatives access during normal business
hours to all of the facilities, properties, books, contracts, commitments
and records of the Vendor and shall make the Vendor's officers and
employees available to the Purchaser and its representatives as the
Purchaser and its representatives shall from time to time reasonably
request. The Purchaser and its representatives shall be furnished the
information and documentation concerning the Vendor's Audiometric Division
and the Acquired Assets which the Purchaser or its representatives
reasonably request.
(c) Preservation of Relationships. The Vendor shall use its best
efforts to preserve the present good will and advantageous relationships of
the Vendor with customers, suppliers, independent contractors and others
material to the continued operation of the business activity subject to
transfer hereunder.
(d) Consents and Approvals. The Vendor shall use its best efforts to
obtain all consents, approvals, certificates and other documents required
in connection with the performance by the Vendor of this Agreement and the
consummation of the transactions contemplated hereby. The Vendor shall make
all filings, applications, statements and reports to all Governmental
Authorities which are required to be made prior to the Closing Date by or
on behalf of the Vendor or any of its affiliates pursuant to any applicable
Law in connection with this Agreement and the transactions contemplated
hereby.
<PAGE>
(e) Preservation of Acquired Assets. Except in the usual and ordinary
course of business the Vendor shall not sell, lease, abandon or dispose of,
or agree to sell, lease, abandon or dispose of, any of the Acquired Assets,
or suffer or permit the creation of any lien.
(f) Compliance with Laws. The Vendor shall duly comply with all
material Laws applicable to the Acquired Assets or as may be required for
the valid and effective transfer and assignment of the Acquired Assets.
13.2. The Vendor agrees that, except as otherwise required by this
Agreement, following the Closing Date:
(a) On-site Training of Personnel. The Vendor shall - free of charge -
provide qualified on-site product training to the Purchaser's personnel on
locations in Minneapolis, the United States, and in Berlin, Germany, to an
extent reasonable requested by the Purchaser; that being understood that
such free on-site training shall be provided by the Vendor within a period
of two (2) months from the Closing Date and shall not in the aggregate
exceed a maximum of forty (40) hours of training.
ARTICLE 14
COVENANTS OF THE PURCHASER
14.1. The Purchaser agrees that, except as otherwise required by this
Agreement, from the Execution Date to the Closing Date:
(a) Implementing Agreement. Subject to the terms and conditions
hereof, the Purchaser shall take all action required of it to fulfil its
obligations under the terms of this Agreement and shall use its best
efforts to facilitate the consummation of the transactions contemplated
hereby.
(b) Consents and Approvals. The Purchaser shall use its best efforts
to obtain all consents, approvals, certificates and other documents
required in connection with the performance by the Purchaser of this
Agreement and the consummation of the transactions contemplated hereby. The
Purchaser shall make all filings, applications, statements and reports to
all Governmental Authorities which are required to be made prior to the
Closing Date by or on behalf of the Purchaser or any of its affiliates
pursuant to any applicable Law in connection with this Agreement and the
transactions contemplated hereby.
<PAGE>
(c) Confidentiality. Except as required by Law or by any Governmental
Authority, all non-public information supplied by the Vendor or its
representatives to the Purchaser pursuant to Clause 13.1.(b) or otherwise
shall be maintained in strict confidence by the Purchaser in accordance
with the procedures which the Purchaser uses to protect its own information
of a similar nature, and in the event that this Agreement is terminated,
upon the Vendor's written request, all written materials provided by the
Vendor and its representatives to the Purchaser shall be returned to the
Vendor, and the Purchaser shall make no further use of such information
whatsoever.
ARTICLE 15
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER
15.1. The obligations of the Purchaser under this Agreement are
subject to the satisfaction or waiver by the Purchaser of the following
conditions precedent on or before the Closing Date:
(a) Warranties True as of Both Execution Date and Closing Date. The
representations and warranties of the Vendor made in Article 11 hereof
shall be true and accurate in all material respects on and as of the
Execution Date, and shall also be true in all material respects (except for
such changes as are contemplated by the terms of this Agreement) on and as
of the Closing Date with the same force and effect as though made on and as
of the Closing Date.
(b) Compliance with Agreements and Covenants. The Vendor shall, in all
material respects, have performed all of its obligations and agreements and
complied with all of its covenants contained in this Agreement to be
performed and complied with by it on or prior to the Closing Date.
(c) Agreements. The Purchaser shall have entered into, signed and
received all of the following agreements on or prior to the Closing Date:
(i) An OEM-agreement with the Vendor (acting by and through Rsch GmbH
Medizintechnik) satisfactory to both parties and substantially in a form
similar to the draft OEM-agreement which is attached hereto as Exhibit A
and incorporated by reference as if fully set forth herein, whereby the
Purchaser - for a term of three (3) years - is granted a world-wide
exclusive right to market, distribute and sell the Vendor's Video-Otoscope
System to the hearing aid and the ENT markets.
<PAGE>
(ii) A supply-agreement with Entomed AB, being the Vendor's current
supplier of the screening audiometers known as the "K12", "K15" and "K20"
(hereinafter referred to as the "K-Audiometers"), satisfactory to both
parties and substantially in a form similar to the wording in the letter to
Entomed AB which is attached hereto as Exhibit B and incorporated by
reference as if fully set forth herein, providing for the exclusive supply
of K-Audiometers from Entomed AB to the Purchaser.
(iii) An agreement with the Vendor (acting by and through Rsch GmbH
Medizintechnik) satisfactory to both parties, whereby the Vendor assigns
and transfers to the Purchaser - free of charge - all the Vendor's rights
and existing regulatory documents concerning the current supply of
K-Audiometers from Entomed AB to the Vendor. Said agreement is attached as
a part of Exhibit B.
(d) Documents. The Purchaser shall have received all of the documents
and items specified in Clause 17.2 hereof.
(e) No Material Adverse Change. No Material Adverse Change shall have
occurred and no event shall have occurred which in the reasonable judgement
of the Purchaser may have a Material Adverse Effect.
(f) Actions and Proceedings. No action or proceeding by any
Governmental Authority or other third party shall have been instituted or
threatened which (i) might have a Material Adverse Effect, or (ii) would
enjoin, restraint or prohibit, or might result in a substantial damage in
respect of, this Agreement or the complete consummation of the transactions
as contemplated hereby, and which would, in the reasonable judgement of the
Purchaser, make it inadvisable to consummate such transactions, and (iii)
no court order shall have been entered in any action or proceeding
instituted by any third party which enjoins, restrains or prohibits, this
Agreement or the complete consummation of the transactions contemplated
hereby.
<PAGE>
ARTICLE 16
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE VENDOR
16.1. The obligations of the Vendor under this Agreement are subject
to the satisfaction or waiver by the Vendor of the following conditions
precedent on or before the Closing Date:
(a) Warranties True as of Both Execution Date and Closing Date. The
representations and warranties of the Purchaser made in Article 12 hereof
shall be true and accurate in all material respects on and as of the
Execution Date, and shall also be true in all material respects (except for
such changes as are contemplated by the terms of this Agreement) on and as
of the Closing Date with the same force and effect as though made on and as
of the Closing Date.
(b) Compliance with Agreements and Covenants. The Purchaser shall, in
all material respects, have performed all of its obligations and agreements
and complied with all of its covenants contained in this Agreement to be
performed and complied with by it on or prior to the Closing Date.
(c) Agreements. The Vendor shall have received a copy all of the
following agreements on or prior to the Closing Date:
(i) A distributor agreement by and between the Purchaser and the
Vendor (acting by and through Rsch GmbH Medizintechnik), satisfactory to
both parties and substantially in a form similar to the draft distributor
agreement which is attached hereto as Exhibit C and incorporated by
reference as if fully set forth herein, whereby Rsch GmbH Medizintechnik is
appointed non-exclusive distributor of certain of the Purchaser's products
on the German Market.
(ii) An agreement by and between the Purchaser and the Vendor (acting
by and through Rsch GmbH Medizintechnik), satisfactory to both parties and
substantially in a form similar to the draft agreement which is attached
hereto as Exhibit D and incorporated by reference as if fully set forth
herein, whereby the Purchaser assumes an obligation from Rsch GmbH
Medizintechnik to purchase a total of 240 items of the Pilot Hearing Test
from Meracus GmbH before April 1st, 2000.
<PAGE>
(d) Documents. The Vendor shall have received all of the documents and
items specified in Clause 17.3. hereof.
(e) Actions and Proceedings. No action or proceeding by any
Governmental Authority or other third party shall have been instituted or
threatened which (i) might have a Material Adverse Effect, or (ii) would
enjoin, restraint or prohibit, or might result in a substantial damage in
respect of, this Agreement or the complete consummation of the transactions
as contemplated hereby, and which would, in the reasonable judgement of the
Vendor, make it inadvisable to consummate such transactions, and (iii) no
court order shall have been entered in any action or proceeding instituted
by any third party which enjoins, restrains or prohibits, this Agreement or
the complete consummation of the transactions contemplated hereby.
ARTICLE 17
CLOSING
17.1. The Closing shall take place in the offices of William Demant
Holding A/S, at 58 Strandvejen, 2900 Hellerup, Copenhagen, Denmark at 10:00
a.m. on the latest of: (a) April 8th, 1999, (b) such later date to which
the parties hereto shall agree, but in no event later than April 15th,
1999.
17.2. Deliveries by the Vendor. At the Closing, the Vendor shall
deliver to the Purchaser the following:
(a) A bill of sale
(b) Originals, and duly executed agreements as referred to in Clause
15.1.(c),(i) and (iii) and in Clause 16.1.(c) hereof;
(c) Originals, and duly executed assignments of the customer purchase
orders as referred to in Clause 7.2. hereof;
(d) Any instruments of transfer reasonably required by the Purchaser
to evidence the transfer of the Acquired Assets to the Purchaser, including
assignments with respect to the Property Rights, the Trade Name, the
Service Marks and the Trade Marks, registered, recorded or filed with any
Governmental Authority, in a form suitable for registration, recordation or
filing with such Governmental Authority, in each case duly executed by the
Vendor;
<PAGE>
(e) A certificate dated the Closing Date, of an executive officer of
the Vendor certifying as to the compliance by the Vendor with Clause
15.1.(a) and (b);
(f) A certificate of the Vendor's secretary certifying (i) resolutions
of the board of directors of the Vendor approving this Agreement and the
transactions contemplated hereby, and (ii) the authority of the officer(s)
signing on behalf of the Vendor;
(g) A copy of the Vendor's charter, certified by the Secretary of
State in the Vendor's state of incorporation;
(h) A copy of the Vendor's charter reflecting the amendment of such
charter to change the Vendor's name to a name dissimilar to, and which is
not susceptible to confusion with, "American Electromedics", together with
all filings required to effectuate such amendment in each country in which
the Vendor is qualified to do business as a foreign corporation, all of
which shall be certified by the secretary of the Vendor. However the
Purchaser has to respect a grace period until the Vendors 1999 Annual
Meeting of Shareholders to be held within four (4) months after Closing
Date.
17.3. Deliveries by the Purchaser. At the Closing, the Purchaser shall
deliver to the Vendor the following:
(a) The payment of US$ 500,000.00, cf. Clause 10.3. (a) hereof, to the
Vendor;
(b) Originals, and duly executed agreements as referred to in Clause
15.1.(c),(i) and (iii) and in Clause 16.1.(c) hereof;
(c) A certificate dated the Closing Date, of an executive officer of
the Purchaser certifying as to the compliance by the Purchaser with Clause
16.1. (a) and (b);
(d) A certificate of the Purchaser's secretary certifying (i)
resolutions of the board of directors of the Purchaser approving this
Agreement and the transactions contemplated hereby, and (ii) the authority
of the officer(s) signing on behalf of the Purchaser;
(e) A copy of the Purchaser's charter, certified by the Companies
Registry in the Purchaser's state of incorporation;
<PAGE>
ARTICLE 18
TERMINATION
18.1. In entering into this Agreement, the Purchaser and the Vendor
have relied fully upon the representations, warranties and covenants made
and given by the Purchaser and by the Vendor in this Agreement, including
in the Schedules and Exhibits hereto. The representations and warranties of
the Vendor set forth in Article 11 and of the Purchaser in Article 12 are
made both as of the Execution Date and as of the Closing Date and shall be
true and accurate on the Closing Date and on the Execution Date; it being
understood that, where a representation and warranty is given by reference
to a particularly specified date, the representation and warranty shall be
deemed to have been given on the Execution Date and on the Closing Date but
only by reference to such particularly specified date.
18.2. This Agreement may be terminated at any time on or prior to the
Closing Date:
(a) With the mutual consent of the Vendor and the Purchaser; or
(b) By the Purchaser, if any of the conditions provided in Article 15
shall not have been satisfied on or prior to the date specified for
fulfilment thereof, and the Purchaser shall not have waived such failure of
satisfaction; or
(c) By the Vendor, if any of the conditions provided in Article 16
shall not have been satisfied on or prior to the date specified for
fulfilment thereof, and the Vendor shall not have waived such failure of
satisfaction; or
(d) By the Vendor or the Purchaser, if the Closing shall not have
taken place on or before May 1, 1999 or such other later date as may be
mutually approved in writing by the Vendor and by the Purchaser.
18.3. In the event of any termination pursuant to Clause 18.2. hereof
(other than pursuant to Clause 18.2. (a) hereof), written notice setting
forth the reasons thereof shall forthwith be given by the terminating party
to the other party.
<PAGE>
ARTICLE 19
SURVIVAL AND REMEDY; INDEMNIFICATION
19.1. Survival. The representations and warranties of the parties
hereto contained herein or in any other certificate or other writing
delivered pursuant hereto shall survive the Closing and shall expire on the
first (1) anniversary date of the Closing Date (except for matters as to
which any indemnified party has made a claim for indemnification under this
Article 19 on or prior to such date).
19.2. Indemnification by the Vendor. The Vendor agrees to indemnify
the Purchaser and each of its affiliates and officers, directors, employees
and agents against, and agrees to hold each of them harmless from, any and
all losses, damages or expenses, including reasonable attorney's fees,
suffered or incurred by them arising out of or relating to any of the
following:
(a) Any breach of or any inaccuracy in any representation or warranty
made by the Vendor pursuant to this Agreement;
(b) Any breach of or failure by the Vendor to perform any covenant or
obligation of the Vendor set out or contemplated in this Agreement;
(c) Any products, including the New Products, produced or services
performed by the Vendor on or before the Closing Date (and, in the case of
products, including the New Products, produced by the Vendor, whether sold
by the Vendor on or prior to the Closing Date or by the Purchaser on or
after the Closing Date);
(d) The use, operation or ownership of any of the Acquired Assets on
or prior to the Closing Date; and
(e) Any claims by or liabilities with respect to any employee of the
Vendor with respect to his or her employment or termination of employment
on or prior to the Closing Date by the Vendor, including any and all group
insurance claims, worker's compensation claims or liabilities arising out
of any accidents, illness or other event which occurred on or prior to the
Closing Date.
<PAGE>
19.3. Indemnification by the Purchaser. The Purchaser agrees to
indemnify the Vendor and each of its affiliates and officers, directors,
employees and agents against, and agrees to hold each of them harmless
from, any and all losses, damages or expenses, including reasonable
attorney's fees, suffered or incurred by them arising out of or relating to
any of the following:
(a) Any breach of or any inaccuracy in any representation or warranty
made by the Purchaser pursuant to this Agreement;
(b) Any breach of or failure by the Purchaser to perform any covenant
or obligation of the Purchaser set out or contemplated in this Agreement;
and
(c) Any products produced or services performed by the Purchaser on or
after the Closing Date.
19.4. Notice of Claims. Procedure for Indemnification. Upon becoming
aware of a claim for indemnification hereunder, the indemnified party shall
promptly give notice of such claim to the indemnifying party, providing
reasonable details of how the claim has arisen and an estimate of the
amount the indemnified party reasonably anticipates that it will be
entitled to on account of indemnification by the indemnifying party. If the
indemnifying party does not object to such indemnification claim within
thirty (30) calendar days of receiving notice thereof, the indemnified
party shall be entitle to recover promptly the amount of such claim (but
such recovery shall not limit the amount of any additional indemnification
to which the indemnified party may be entitled to pursuant to Clause 19.2.
or Clause 19.3.). If, however, the indemnifying party advises the
indemnified party that it disagrees with the indemnified party's claim, the
parties shall, for a period of thirty (30) calendar days after the
indemnifying party advised the indemnified party of such disagreement,
attempt to resolve the difference and, failing to do so in such time,
either party may unilaterally submit the matter to arbitration pursuant to
Clause 22.4. hereof.
19.5. Third Party's Claims: Claims asserted by a third party, which
the Vendor or the Purchaser has determined may give rise to claim
indemnification pursuant to Clause 19.2 or Clause 19.3., shall be subject
to the following additional procedure and conditions:
<PAGE>
(a) The indemnified party shall give notice to the indemnifying party
of the occurrence of any event or the institution of any claim, action,
investigation, suit or proceeding asserted by a third party which the
indemnified party has determined has given, or may give, rise to claim
indemnification under Clause 19.2. or Clause 19.3. hereof. Such notice
shall be given promptly after the indemnified party becomes aware of the
event or claim so as to allow the indemnifying party to present to the
indemnified party any argument that the indemnifying party may wish to
raise in connection with the defence of such claim; provided, however, that
where a defence or answer to the asserted claim must be submitted within a
specified period, failing which shall preclude the indemnified party from
asserting such defence or giving such answer, notice of the claim shall be
given to the indemnifying party no later than at the expiration of one half
(1/2) of such specified period.
(b) The indemnifying party shall, upon receipt of the notice referred
to in Clause 19.5.(a), be entitled to conduct the defence, appeal or
settlement of such claim, with counsel elected by it, by giving notice to
the indemnified party of its election to do so within thirty (30) calendar
days following receipt by it of the notice of the claim or, where a defence
or answer to the asserted claim must be submitted within a specified
period, failing which shall preclude the indemnifying party from asserting
such defence or giving such answer, no later than at the expiration of
three quarter (3/4) of such specified period, and the indemnified party
shall thereupon provide the indemnifying party access to the documents
relevant to such defence, appeal or settlement. In the event that the
indemnifying party elects not to conduct the defence, appeal or settlement
of such claim, the indemnified party shall have the right to conduct the
defence thereof or reach a settlement in connection therewith on behalf of
and on the account and risk of the indemnifying party.
(c) Notwithstanding Clause 19.5.(b) above, in the event that there is
a reasonable likelihood that a claim may have a Material Adverse Effect on
the interests of the indemnified party (other than as a result of money
damages with respect to which the indemnified party will be entitled to
indemnification pursuant to Clause 19.2. or Clause 19.3. as the case may
be), the indemnified party shall be entitled to conduct the defence, appeal
or settlement of the claim and the indemnifying party shall be regularly
and fully informed of the progress of the proceedings and shall be entitled
to participate in such defence, appeal or settlement and to employ counsel
to assist it in connection therewith.
19.6. Limitations: The amount of any indemnity shall be subject to the
following limitations:
<PAGE>
(a) The amount of any indemnity due by the indemnifying party to the
indemnified party pursuant to Clause 19.2. or Clause 19.3. hereof shall be
reduced by:
(i) the amount of any insurance payment which the indemnified party
effectively is entitled to receive with respect to the event giving rise to
the indemnification claim by that party;
(ii) the amount of any tax savings effectively obtained by the
indemnified party resulting from deductibility of the loss giving rise to
indemnification; provided, however, that such tax savings are not
neutralised by a corresponding tax liability levied on the indemnification
received.
(b) Nothwithstanding any provision of this Agreement to the contrary,
(i) a party shall not be liable for indemnification to the other party
until the aggregate of all losses, liabilities and damages (including
expenses) incurred by such other party exceed US$ 50,000;
(ii) the Vendor shall not be liable to indemnify the Purchaser for any
loss, liability or damage (excluding expenses) which in the aggregate
exceeds US$ 300,000.
ARTICLE 20
USE OF NAME
20.1. With effect from the Closing Date the Vendor shall not use the
name "American Electromedics Corporation" or any other name incorporating
the words "American Electromedics", nor shall the Vendor participate in or
acquire, directly or indirectly, an interest in any business, which
involves the use of the name "American Electromedics" or other names
incorporating the name "Electromedics". Notwithstanding the aforementioned
the Vendor shall be entitled to make minimal use of the name for a period
of four (4) months following the Closing Date; provided, however, that such
use of the name by the Vendor shall serve certain formal and legal matters
only and shall not in any way, whatsoever, be used in connection with any
competitive commercial activities of the Vendor.
<PAGE>
ARTICLE 21
NON-COMPETITION AND CONFIDENTIALITY
21.1. The Vendor agrees not to undertake any activity or to hold,
directly or indirectly, any interest in any business, wherever located,
which in crucial and important respects must be regarded as competitive to
the business activity subject to sale and purchase under this Agreement;
such business activity being identified as the purchase from producers and
the sale of products, which in their function are equal to the audiometers
and hearing testers covered by this Agreement and are impedance-meters on
pressure basis.Not withstanding the aforementioned the Purchaser
acknowledges and accepts that American Electromedics Corporation maintains
its current investment in Rsch GmbH Medizintechnik, Berlin, Germany,
provided, however, that Rsch GmbH Medizintechnik shall not undertake any
new business activities, which in a broad sense is competitive to the
business activity subject to sale and purchase under this Agreement. This
non-competition covenant is made for a term of 3 (three) years from the
Closing Date.
21.2. Notwithstanding Clause 21.1. above the parties agree that for a
term of six (6) calendar months from the Closing Date the Vendor shall have
the right to distribute and sell the following product items of the New
Products outside the United States through the Vendor's own sales
organisation:
(i) Racecar Tymp RC QT1 (cf. Schedule B, pos. No. 1)
(ii) Racecar Tymp/Audio QT2 (cf. Schedule B, pos. No. 2)
(iii) QT1 Tymp (cf. Schedule B, pos. No. 4)
(iv) QT2 Tymp/Audio (cf. Schedule B, pos. No. 6)
(v) QT2 Tymp/Audio German (cf. Schedule B, pos. No. 7)
21.3. The right of the Vendor to distribute and sell the product items
listed in Clause 21.2. above shall be subject to the condition that the
Vendor shall repurchase the product items from the Purchaser at the same
unit prices, which the parties have agreed to in connection with the sale
and purchase of the specific product items under this Agreement as long as
the items originally have been purchased from the Vendor.
<PAGE>
21.4. Notwithstanding Clause 21.1. the Parties agree that Rsch GmbH
Medizintechnik has the right to market under it's own responsibility the
CD-Hearing Tester and the K-series product items which Rsch GmbH
Medizintechnik may have in stock on December 31st, 1999. After Closing Date
and before January 1st, 2000 Rsch GmbH Medizintechnik will at the maximum
from Meracus GmbH purchase 240 units of the CD-Hearing Tester and 315 units
of the K-series from Entomed AB.
21.5. The Vendor agrees to take all necessary steps to maintain a
profound and complete secrecy of all matters concerning the Acquired
Assets, which is transferred to the Purchaser under this Agreement and of
all matters which the Vendor, besides that, may have become acquainted with
and which by nature should not be brought to the knowledge of a third party
except to the extent required by law. This covenant is made for a term of
three (3) years from the Closing Date.
ARTICLE 22
MISCELLEANOUS
22.1. Expenses. Each party hereto shall bear its own expenses,
including fees and expenses incurred by them and/or their respective
advisers, in connection with the drafting, negotiating and completion of
this Agreement. Each Party shall each pay own expenses regarding all use,
stamp, transfer, service, recording and like taxes or fees, if any, imposed
by any Governmental Authority in connection with the transfer and
assignment of the Acquired Assets. If sales taxes apply to this transaction
the Parties agree to split such taxes equally to the extend said taxes
shall be non-refundable.
22.2. Taxes. Any consequences in terms of taxation levied on income or
capital gains which shall arise out of the transactions contemplated by
this Agreement shall be for the account of the party only to whom such
consequences have arisen.
22.3. Notices. All notices to be given hereunder shall be given in
writing and shall be deemed to have been given (a) when sent by telefax,
facsimile or other wire transmission with a confirmation copy sent by
registered mail or (b) three (3) business days after being deposited in the
post office, certified or registered mail, postage prepaid and addressed as
follows (or to such other address as one party may notify to the other):
<PAGE>
(a) If to the Vendor: American Electromedics Corporation
13 Columbia Drive
Suite 18
Amherst, New Hampshire 03031
U.S.A.
Telefax No. +1 603 880 6390
For the attention of the "President"
(b) If to the Purchaser: Maico Diagnostic GmbH
Rohrdamm 7
Siemensstadt
D-13629 Berlin
Germany
Telefax No. +49 30 386 29490
For the attention of the "Geschftsfhrer"
22.4. Arbitration. Any dispute regarding the understanding,
interpretation and supplementation of this Agreement, cannot be brought
before the Ordinary Courts of Law but shall be settled finally by
arbitration in Copenhagen in accordance with the provisions laid down in
Act No. 181 of the 24th of May, 1972 regarding Arbitration, including
subsequent amendments hereto. The party, who requests for arbitration,
shall in writing and by registered letter inform the other party of the
request for arbitration, indicating the issues to be settled and the
grounds for actions to be relied on and the name of the arbitrator decided
for. Within thirty (30) calendar days from receipt of the written request
for arbitration the other party shall by registered letter inform the first
party about the name of the arbitrator chosen as well as the claims and
objections to be relied on. In the event that the time limit is exceeded
this arbitrator shall be nominated by the President of the Maritime and
Commercial Court in Copenhagen. The arbitrators chosen by the parties shall
jointly appoint a third arbitrator as Chairman of the Arbitration Court.
The third arbitrator shall be a jurist, who is skilled in Danish contract
Law. In the event that the arbitrators chosen by the parties are unable to
agree on the nomination of the third arbitrator within a period of thirty
(30) calendar days from the date that the first party was notified of the
other party's choice of arbitrator, the third arbitrator shall be nominated
by the President of the Maritime and Commercial Court in Copenhagen. The
Arbitration Court solely decides for all rules and procedures to be
followed with respect to the hearing of the case. The decision of the
<PAGE>
Arbitration Court shall be final, binding and liable to execution for both
parties. The Arbitration Court shall be entitled to decide on the costs of
the Arbitration Court, including fees to the arbitrators. The parties shall
be obliged to deposit in advance an amount fixed by the Arbitration Court
as security for the costs of the Arbitration Court. The hearing of the case
and the decision of the Arbitration Court shall not be available to the
general public. The arbitration proceedings shall be conducted in the
English language.
22.5. Limitation of Other Proceedings. The Purchaser and the Vendor
each agrees that it will not file (nor will it cause any party to) file any
suit, motion, petition or otherwise commence any legal action or proceeding
which may be submitted to arbitration pursuant to this Agreement (but which
neither party has theretofore elected to so submit to arbitration, or which
has been or currently is being arbitrated pursuant to this Agreement),
except in the Maritime and Commercial Court in Copenhagen, Denmark.
22.6. Applicable Law. This Agreement shall be governed by and
construed and enforced in accordance with the Laws of the Kingdom of
Denmark without giving effect to the principles of conflicts of law
thereof.
22.7. Interpretation. Article headings used in this Agreement are for
convenience only and shall not affect the meaning or construction of this
Agreement. Schedules and Exhibits to this Agreement shall be considered to
form part of this Agreement as if fully set forth herein. Any information
disclosed in one Schedule or Exhibit shall be deemed to be disclosed for
all purposes of this Agreement and shall pertain to all Articles hereof.
The use of the term "including" or "include" shall in all cases herein mean
"including, without limitation" or "include, without limitation"
respectively.
22.8. 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
rights 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 other condition or breach of any other term,
covenant, representation or warranty.
<PAGE>
22.9. Effect of Investigations. Any due diligence review, audit or
other investigation or inquiry undertaken or performed by or on behalf of
the Purchaser shall not limit, qualify, modify or amend the
representations, warranties and covenants of, and indemnities by, the
Vendor made or undertaken pursuant to this Agreement, irrespective of the
knowledge and information received (or which should have been received)
therefrom by the Purchaser.
22.10. Further Assurances. Upon the reasonable request of the
Purchaser, the Vendor will on or after the Closing Date execute and deliver
to the Purchaser such other documents, releases, assignments or other
instruments as may be required to effectuate completely the transfer and
assignment to the Purchaser of, and to vest fully in the Purchaser title
to, each of the Acquired Assets.
22.11. 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 the Vendor shall not assign any of its
rights or obligations without the written consent of the Purchaser. The
Purchaser may designate any company within the Purchaser's group as its
Assignee to perform all or part of its obligations and to benefit from all
or part of its rights under this Agreement on or prior to the Closing Date
or at any time thereafter upon written notice to the Vendor. Performance by
such Assignee of all or part of the Purchaser's obligations shall
constitute such designation, and, in such event, the parties agree that all
references herein to "the Purchaser" shall be deemed to be amended, where
applicable, to refer also or exclusively, as the case may be, to such
Assignee; provided, however, that the Purchaser shall remain liable for the
performance of such Assignee hereunder.
22.12. Entire Understanding. This Agreement sets forth the entire
agreement and understanding of the parties hereto in respect to the
transactions contemplated hereby and supersedes all prior agreements,
arrangements and understandings relating to the subject matter hereof.
There has been no representations or statements, oral or written, that have
been relied on by any party hereto, except those expressly set forth in
this Agreement.
22.13. Amendment. This Agreement may be amended, modified or
supplemented but only in writing signed by all of the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the parties have hereunder to affix their
signatures and execute this Agreement in two (2) counterparts, each of
which shall be deemed an original, on the dates written hereunder.
THE PURCHASER:
Date:
______________________________
For and on behalf of Maico Diagnostic GmbH
THE VENDOR:
Date:
______________________________
For and on behalf of
American Electromedics Corporation
_____________________________
For and on behalf of
Rosch GmbH Medizintechnik
m:\legal\1228\13040\000008.doc\cs
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from American
Electromedics Corp. Form 10-QSB for the period ended April 30, 1999 and is
qualified in its entirety by refernce to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-END> APR-30-1999
<CASH> 391
<SECURITIES> 0
<RECEIVABLES> 1,486
<ALLOWANCES> 0
<INVENTORY> 1,778
<CURRENT-ASSETS> 223
<PP&E> 586
<DEPRECIATION> (81)
<TOTAL-ASSETS> 8,016
<CURRENT-LIABILITIES> 4,406
<BONDS> 0
0
3,216
<COMMON> 869
<OTHER-SE> (475)
<TOTAL-LIABILITY-AND-EQUITY> 8,016
<SALES> 1,756
<TOTAL-REVENUES> 1,756
<CGS> 1,343
<TOTAL-COSTS> 1,343
<OTHER-EXPENSES> 5,232
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 114
<INCOME-PRETAX> (4,933)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,933)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,933)
<EPS-BASIC> (.64)
<EPS-DILUTED> (.64)
</TABLE>
