EXHIBIT 4
NEITHER THIS DEBENTURE NOR THE UNDERLYING SHARES OF COMMON STOCK
HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
NOR UNDER ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, PLEDGED,
ASSIGNED OR TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT IS
EFFECTIVE UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW
OR (ii) THE COMPANY RECEIVES AN OPINION OF ITS COUNSEL THAT THE
DEBENTURE OR THE UNDERLYING SHARES MAY BE SOLD, PLEDGED, ASSIGNED
OR OTHERWISE TRANSFERRED WITHOUT REGISTRATION PURSUANT TO AN
APPLICABLE EXEMPTION UNDER SAID ACT.
AMERICAN ELECTROMEDICS CORP.
Form of 14% Convertible Subordinated Debenture,
Due October 31, 1999
No. __________, 1996
$
AMERICAN ELECTROMEDICS CORP., a Delaware corporation (the
"Company"), for value received, hereby promises to pay to the
order of (the "Holder"), in lawful moneys
of the United States of America, the principal sum of
________________________ Dollars, on October 31, 1999, with
interest on the unpaid balance thereof at the rate of fourteen
percent (14%) per annum from the date hereof until the entire
outstanding principal amount hereof shall be paid, payable,
quarterly, on the first days of February, May, August and
November in each year, beginning on February 1, 1997. Principal
and interest shall be paid at the office of the Company at 13
Columbia Drive, Suite 18, Amherst, New Hampshire, or at such
other location as the Company and the Holder may agree upon in
writing.
This Debenture is one of a series of duly authorized issue
of debentures of the Company designated as its 14% Convertible
Subordinated Debentures, due October 31, 1999 (hereinafter
referred to as the "Debentures"), all of like tenor except as to
principal amount, in an aggregate initial principal amount of up
to $720,000, issued under and pursuant to a Unit Purchase
Agreement (hereinafter referred to as the "Purchase Agreement"),
among the Company, the Holder and the holders of the other
Debentures pursuant to which the Company is selling the
Debentures and shares of its Common Stock, $.10 par value (the
"Common Stock"). This Debenture is issued upon the following
terms, to which the Holder assents and the Company, for itself
and it successors, agrees as follows:
1. Ranking.
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All Debentures shall rank equally and ratably without
priority over one another.
2. Senior Priority. 2.01 Senior Indebtedness.
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The Company hereby covenants and agrees that the
indebtedness evidenced by this Debenture shall be senior in right
of payment, to the extent and in the manner hereinafter provided,
to all indebtedness of the Company to present and future
creditors, but shall be subordinate and junior in right of
payment to the prior payment of the principal of, interest on and
costs, expenses and charges with respect to all existing or
future obligations of the Company for money borrowed from
Citizens Bank New Hampshire, or any substitute bank or other
financial institution, in an amount not to exceed $1,500,000 (the
"Senior Indebtedness"):
(a) In the event of any insolvency or bankruptcy
proceeding, and any receivership, liquidation, reorganization or
other similar proceeding in connection therewith, with respect to
the Company, its creditors, as such, or its property, or in the
event of any proceeding for voluntary liquidation, dissolution or
other winding up of the Company, whether or not involving
insolvency or bankruptcy, the holders of Senior Indebtedness
shall be entitled to receive payment in full of all principal of,
and premium, if any, and interest on, all Senior Indebtedness
before the Holder is entitled to receive any payment on account
of principal of, and premium, if any, or interest on, this
Debenture, and to that end (but subject to the power of a court
of competent jurisdiction to make other equitable provisions
reflecting the rights conferred in this Debenture upon the Senior
Indebtedness and the holders thereof with respect to the
subordinate indebtedness represented by the Debentures and the
holders thereof by a lawful plan of reorganization under
applicable bankruptcy law) the holders of Senior Indebtedness
shall be entitled to receive for application in payment on all
principal of, and premium, if any, and interest on, all Senior
Indebtedness any payment or distribution of any kind or
character, whether in cash or property or securities, which may
be payable or deliverable in any such proceeding in respect of
this Debenture, except securities which are subordinate and
junior in right of payment to the payment of all Senior
Indebtedness then outstanding, and the Holder irrevocably
authorizes, empowers and directs the Company and any receiver,
trustee or other person to effect any such payment or
distribution. The Holder irrevocably authorizes and empowers
(without imposing any obligation on) each holder of Senior
Indebtedness to demand, sue for, collect and receive the Holder's
share of all such payments and distributions, to file and prove
all claims therefor and to take all such other action, in the
name of the Holder or otherwise, as such holder of Senior
Indebtedness may determine to be necessary or appropriate for the
enforcement of the provisions of this Subsection 2.01(a). The
Holder will execute and deliver to each holder of Senior
Indebtedness all such further instruments confirming such
authorization, such powers of attorney, proofs of claim,
assignments of claim and other instruments, and shall take all
such other action, as may be requested by such holder in order to
enable such holder to enforce all claims upon or in respect of
such Holder's share of all such payments and distributions.
(b) In the event that this Debenture is declared payable
before its expressed maturity because of the occurrence of an
Event of Default (under circumstances when the provisions of
Subsection 2.01(a) hereof shall not be applicable), the holders
of the Senior Indebtedness outstanding at the time this Debenture
so becomes payable shall be entitled to receive payment in full
of all principal of, and premium, if any, and interest on, all
Senior Indebtedness before the Holder is entitled to receive any
payment on account of the principal of and interest on this
Debenture or to take any action to collect the same. Until an
Event of Default has occurred under this Debenture the Company
may pay any principal and interest when and as payable according
to the terms hereunder.
2.02 Subordination.
--------------
No present or future holder of Senior Indebtedness
shall be prejudiced in its right to enforce subordination of this
Debenture by any act or failure to act on the part of the
Company. The provisions of Section 2.01 hereof and this Section
2.02 with respect to subordination are solely for the purpose of
defining the relative rights of the holders of Senior
Indebtedness, on the one hand, and the Holder, on the other hand,
and nothing herein shall impair, as between the Company and the
Holder, the obligation of the Company, which is unconditional and
absolute, to pay to the Holder the principal of and interest on
this Debenture in accordance with its terms, nor shall anything
herein prevent the Holder from exercising all remedies otherwise
permitted by applicable law or hereunder upon the occurrence of
any Event of Default, subject to the rights, if any, under these
provisions, of holders of Senior Indebtedness to receive cash,
property or securities otherwise payable or deliverable to the
Holder.
2.03 Subrogation.
-----------
In the event cash, securities or other property
otherwise payable or deliverable to the Holder shall have been
applied pursuant to Section 2.01 hereof to the discharge of
Senior Indebtedness, then, and in such event, the Holder (i)
shall be entitled to receive from the holders of Senior
Indebtedness then outstanding any payments or distributions
received by such holders of Senior Indebtedness in excess of the
amount sufficient to discharge all Senior Indebtedness, and (ii)
shall be subrogated to any rights of any holders of Senior
Indebtedness to receive any further payments or distributions
then applicable to Senior Indebtedness until this Debenture shall
have been paid in full. No such payments or distributions
received by the Holder, by reason of such subrogation, of cash,
securities or other property which otherwise would be paid or
distributed to the holders of Senior Indebtedness shall, as
between the Company and its creditors other than the holders of
Senior Indebtedness, on the one hand, and the Holder, on the
other hand, be deemed to be a payment by the Company on account
of the Debenture.
2.04 Other Indebtedness.
-------------------
Nothing herein shall be construed to restrict or limit
the ability of the Company to incur indebtedness which shall be
(i) subordinate in right of payment to the indebtedness evidenced
by this Debenture and the other Debentures, (ii) Senior
Indebtedness as defined in Subsection 2.01(a) hereof or (iii)
secured by assets of the Company or any of its subsidiaries and
which assets were acquired as a result of or in connection with
such indebtedness and have a collateral value equal to at least
fifty (50%) percent of the outstanding principal amount thereof.
3. Redemption by the Company. 3.01 Optional Right of
------------------------- -----------------
Redemption. At any time after October 31, 1997 and upon notice to
-----------
the Holder as provided in Section 3.03 hereof, the Company, at
its option, may redeem the Debentures as a whole, or from time to
time in part, at a redemption price equal to one hundred (100%)
percent of the principal amount thereof, plus accrued interest to
the redemption date. Notwithstanding the foregoing, any such
redemption shall be subject to the right of the Holder to convert
this Debenture or any portion hereof into shares of Common Stock
of the Company pursuant to Section 6 hereof.
3.02 Allocation.
-----------
If the Company shall elect to redeem less than all of
the Debentures outstanding at any time pursuant to Section 3.01
hereof, the Company will allocate the principal amount to be
redeemed among the Holders in proportion, as nearly as may be
practicable, to the respective principal amounts of the
Debentures outstanding.
3.03 Notice and Place of Redemption.
--------------------------------
Notice of redemption shall be mailed to the Holders,
not less than twenty (20) days nor more than thirty (30) days
prior to the date fixed for redemption (the "Redemption Date"),
to their respective last addresses as they shall appear upon the
books of the Company. The place for redemption shall be the then
principal office of the Company. If less than all of the
outstanding Debentures are to be redeemed, the notice shall set
forth the principal amount of the Debentures to be redeemed from
each holder.
3.04 Redemption at Option of Holder.
--------------------------------
In the event of (i) a Change in Control (as defined
below) of the Company or (ii) the election by the Company to
permit redemption at the request of the Holder
pursuant to Subsection 6.05(c) hereof, the Holder shall have the
option to require the Company to redeem this Debenture, in whole
or in part, upon written request to the Company given within
thirty (30) days after notice of the occurrence of an event
specified in (i) or (ii) is first mailed to such Holder by the
Company at the address of the Holder as it shall appear on the
books of the Company. The Debenture or portion hereof so to be
redeemed shall be redeemed at the principal office of the Company
twenty (20) days after receipt of notice by the Holder of the
election to redeem.
A "Change in Control" shall be deemed to have occurred if:
(a) any "person" or "group" (as such terms are defined
in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act")), other than (i) a
trustee or other fiduciary holding securities under an
employee benefit plan of the Company, (ii) a person or group
by reason of a transaction with the Company approved by the
Company's Board of Directors as constituted in accordance
with clause (b) below, or (iii) a corporation owned,
directly or indirectly, by the stockholders of the Company
in substantially the same proportions, becomes the
"beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing twenty (20%) percent or more or the
combined voting power of the Company's then outstanding
securities; or
(b) individuals elected as members of the Board of
Directors at the Annual Meeting of Stockholders of the
Company held on October 8, 1996, or successors chosen by
such individuals, shall cease for any reason to constitute a
majority of the whole Board of Directors.
3.05 Notation of Redemption.
-----------------------
If this Debenture shall be redeemed in part, the
Holder shall surrender this Debenture, at the office of the
Company, on the date fixed for redemption and the Company shall,
at its option and without charge to the Holder, either (i)
execute and deliver to the Holder a Debenture (having the same
form and having the same terms as this Debenture) for the
unredeemed part of the original principal amount of this
Debenture or (ii) make note on this Debenture of the part of the
original principal amount of this Debenture so called for
redemption and redeemed. In such latter case, from and after
such redemption, for the purposes of this Debenture, the original
principal amount of this Debenture shall be deemed to be reduced
by the part of the original principal amount of this Debenture so
called for redemption and redeemed.
4. Registration of Debentures. 4.01 Registry Book and
-------------------------- -----------------
Right of Inspection.
--------------------
The Company shall permit any Holder, or his duly
authorized attorney, upon written request received by the Company
at least two (2) business days prior to the requested inspection
date, during ordinary business hours, to inspect and copy or make
extracts from its books showing the registered holders of the
Debentures. Such books shall be maintained at the then principal
office of the Company.
4.02 Transfer.
----------
This Debenture is transferable only upon the books of
the Company which it shall cause to be maintained for the
purpose, and the Company may treat the registered holder of this
Debenture as appears on such books at any time as the Holder for
all purposes. In order to transfer this Debenture, the Holder,
or his duly authorized attorney, shall surrender this Debenture
at the then principal office of the Company, with the Assignment
form at the end hereof (or accompanied by an assignment, in form
reasonably satisfactory to the Company) duly executed. Upon such
surrender, the Company, at its expense, shall execute and deliver
to or on the order of the person to whom this Debenture has been
assigned a Debenture for the same principal amount of this
Debenture, or such lesser amount as provided for in the
Assignment.
4.03 Exchange of Debentures.
------------------------
In order to exchange this Debenture, the Holder, or
his duly authorized attorney, shall surrender this Debenture for
exchange at the then principal office of the Company. Upon such
surrender, the Holder, without expense, shall be entitled to
receive in exchange Debentures, each in the principal amount of
$1,000 or a multiple thereof (except that, if this Debenture
shall not be in the principal amount of $1,000 or a multiple
thereof, one of the Debentures received in exchange thereof need
not be in the principal amount of $1,000 or a multiple thereof),
payable to the Holder for the same aggregate principal amount as
the then unpaid principal amount of this Debenture. All
Debentures issued pursuant to this Section 4.03 and Sections
3.04, 4.02, 4.03 and 6.04 hereof shall be dated the date of this
Debenture and shall in all other respects be in the same form and
have the same terms as this Debenture.
4.04 Loss, etc., of Debenture.
--------------------------
Upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of this Debenture,
and of indemnity bond or agreement satisfactory to the Company,
if lost, stolen or destroyed, and upon surrender and cancellation
of this Debenture, if mutilated, and upon reimbursement of the
Company's reasonable incidental expenses, the Company shall
execute and deliver to the Holder a new Debenture of like tenor
and denomination.
4.05 Debenture Holder Not Stockholder.
---------------------------------
This Debenture does not confer upon the Holder any
right to vote or to consent or to receive notice as a stockholder
of the Company, as such, in respect of any matters whatsoever, or
any other rights or liabilities as a stockholder, prior to the
conversion hereof.
5. Covenants.
---------
The Company agrees that until such time as this
Debenture is paid in full, the Company shall comply with the
following covenants:
5.01 Payment of Principal and Interest.
---------------------------------
Duly and punctually pay the principal of and interest
on this Debentures and the other Debentures in accordance with
the terms hereof and thereof.
5.02 Corporate Existence.
--------------------
Do all things necessary to preserve and keep in full
force and effect its corporate existence, franchises and rights;
provided, however, that nothing in this Section 5.02 shall
prevent a consolidation, merger, sale or transfer permitted by
Section 5.07 hereof;
5.03 Payment of Taxes and Other Claims.
----------------------------------
Pay and discharge, all sums which become payable by it
as taxes, assessments and governmental charges, for services and
materials and for any other reason prior to the date on which
penalties attach thereto; provided, however, that the Company
shall have the right, in good faith, to contest its obligation to
pay any such sum, and, pending such contest, to delay or refuse
payment, if it sets aside on its books an adequate reserve to
cover any such sum so contested.
5.04 Compliance With Law.
--------------------
Comply with all applicable laws, rules, regulations and
requirements of all governmental authorities, noncompliance with
which could materially adversely effect its business or
condition, financial or otherwise.
5.05 Maintenance of Properties.
-------------------------
Maintain its properties necessary or useful for the
proper conduct of its business in good working order and
condition, ordinary wear and tear excepted.
5.06 Insurance.
----------
Maintain, with insurance companies of recognized
standing, insurance against such risks and in such amounts as are
customarily insured by persons engaged in similar businesses and
owning similar properties in the same general area in which the
Company operates.
5.07 Consolidation, Merger and Sale.
-------------------------------
Shall not consolidate with or merge into any other
corporation or convey or transfer its properties and assets
substantially as an entirety to any person, unless:
(a) the corporation formed by such consolidation into
which the Company is merged or the person which acquires by
conveyance or transfer the properties and assets of the Company
substantially as an entirety shall be a corporation organized and
existing under the laws of the United States of America or any
state or the District of Columbia, and shall expressly assume the
due and punctual payment of the principal of and interest on this
Debenture and the other Debentures and the performance of every
covenant of the Purchase Agreement on the part of the Company to
be performed or observed; and
(b) immediately after giving effect to such
transaction, no Event of Default (as defined in Section 8), and
no event which, after notice or lapse of time, or both, would
become an Event of Default, shall have happened and be
continuing; provided that the foregoing shall not affect the
right, if any, of the Holder under Section 3.04 hereof.
5.08 1934 Act Reports.
----------------
File all reports and any definitive proxy or
information statements required to be filed by the Company with
the Securities and Exchange Commission (the "SEC") pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act.
5.09 Financial Statements and Information.
------------------------------------
Mail or deliver to the Holder:
(a) within fifty (50) days after the close of each of
the three interim quarterly accounting periods of the Company, a
copy of its Form 10-QSB (or Form 10-Q, if applicable) for such
fiscal quarter;
(b) within one-hundred (100) days after the close of
each fiscal year of the Company, a copy of its Form 10-KSB (or
Form 10-K, if applicable) for such fiscal year; and
(c) copies of all such other financial statements,
reports and proxy statements as the Company shall file with the
SEC or shall send to or make available to its stockholders.
5.10 Maintenance of Interest Coverage Ratios.
----------------------------------------
Maintain the interest coverage ratios in effect from
time to time in the agreements with holders of Senior
Indebtedness.
5.11 Access to Books and Records.
---------------------------
Upon the occurrence of an Event of Default specified in
Section 8 hereof, permit the Holders of an aggregate of at least
$400,000 principal amount then outstanding of Debentures access
to the books and records of the Company at reasonable times and
upon request of such Holders.
5.12 Use of Proceeds.
----------------
Use the proceeds from the sale of the Units for (i)
acquisitions, (ii) significant investments in other companies,
(iii) purchasing and licensing of technology and/or (iv) general
working capital purposes.
5.13 Distribution.
------------
Shall not declare or pay any dividends or purchase,
redeem, retire or otherwise acquire for value any of its capital
stock (or rights, options or warrants to purchase such shares)
now or hereafter outstanding, return any capital to its
stockholders as such, or make any distribution of assets to its
stockholders as such, or permit any subsidiary of the Company to
do any of the foregoing, except that the subsidiaries may declare
and make payment of cash and stock dividends, return capital and
make distribution of assets to the Company and except that
nothing herein contained shall prevent the Company from:
(i) effecting a stock split or declaring or paying any
dividend consisting of shares of any class of capital stock to
the holders of shares of such class of capital stock; or
(ii) purchasing, redeeming, retiring or otherwise
acquiring for value any of its capital stock (or rights, options
or warrants to purchase such shares) in an amount not exceeding
an aggregate of $50,000 in any twelve month period.
5.14 Dealings with Affiliates.
-------------------------
Shall not enter into any transaction with any officer
or director of the Company or any subsidiary or holder of more
than five (5%) percent of the outstanding shares of any class of
capital stock of the Company, or any member of their respective
immediate families or any corporation or other entity directly or
indirectly controlled by one or more such officers, directors or
stockholders or members of their immediate families, unless the
interest of such person is disclosed in advance to the Board of
Directors, such transaction is on arm's-length terms which are no
less favorable to the Company or any subsidiary as those which
could have been obtained from an unaffiliated third party, and
such transaction is approved by a disinterested majority of the
Board of Directors of the Company or such subsidiary.
6. Conversion of the Debentures. 6.01 Right of
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Conversion.
-----------
Subject to and upon compliance with the provisions of
this Section 6, at the option of the Holder, (i) at such time as
this Debenture shall be called for redemption pursuant to Section
3.01 hereof, and in lieu of such redemption, (ii) at such time
that a registration statement (the "Registration Statement")
filed by the Company which includes shares of Common Stock
beneficially owned, directly or indirectly, by the Holder has
been declared effective by the SEC under the Securities Act or
(iii) upon the stated maturity of the Debenture, and in lieu of
payment of principal upon maturity, all or any portion of the
unpaid principal amount of this Debenture may be converted into
fully paid and non-assessable shares of Common Stock, at the
conversion price, determined as hereinafter provided, in effect
at the time of conversion. Unpaid accrued interest on the
principal amount of this Debenture being converted shall not be
convertible into shares of Common Stock of the Company, and the
first $1,000 of any such unpaid accrued interest shall be deemed
waived by the Holder at the time of conversion, and the amount
remaining, if any, of unpaid accrued interest of the principal
amount being converted shall be paid in cash by the Company
within ten (10) days after its receipt of the Conversion Form.
6.02 Initial Conversion Price.
--------------------------
The price at which Common Stock shall be delivered upon
conversion (herein referred to as the "Conversion Price") shall
be initially Seventy-Five cents ($0.75) per share. The shares of
Common Stock issuable upon the conversion of this Debenture shall
be referred to as the "Conversion Shares". Upon any adjustment
of the Conversion Price as hereinafter provided, the number of
Conversion Shares shall equal the unpaid principal amount of this
Debenture presented for conversion divided by the Conversion
Price resulting from such adjustment.
6.03 Surrender for Conversion.
-------------------------
In order to exercise the conversion right referred to
in Section 6.01 hereof, the Holder shall surrender this Debenture
to the Company at its then principal office, with the Conversion
Form at the end hereof duly executed (a) within ten (10) days
after receipt of notice of such redemption, in the case of a
conversion pursuant to clause (i) of Section 6.01 hereof, (b) at
any time after receipt of notice that the Registration Statement
mentioned in clause (ii) of Section 6.01 hereof is to become
effective, or (c) at least ten (10) days prior to the stated
maturity of this Debenture, in the case of a conversion pursuant
to clause (iii) of Section 6.01 hereof. As promptly as shall be
practicable, but not more than twenty (20) days after such
surrender, the Company shall issue and deliver to the Holder, on
his written order, a certificate or certificates for the number
of whole shares of Common Stock issuable upon such conversion.
To the extent permitted by law, such conversion shall be deemed
to have been effected and the Conversion Price shall be
determined immediately prior to the close of business on the date
of such surrender, and at such time the rights of the Holder of
this Debenture (or, if only a part hereof shall be converted, of
such part) shall cease, and the person or persons in whose name
or names any certificate or certificates for Common Stock shall
be issuable upon such conversion shall be deemed to have become
the holder or holders or record of the shares represented
thereby.
6.04 No Fractional Shares; Partial Conversion.
------------------------------------------
No fractional shares shall be issuable upon conversion
of this Debenture. Instead of any fractional Common Shares which
would otherwise be issuable upon the conversion of this Debenture
or a specified portion hereof, the number of shares of Common
Stock issuable upon such conversion shall be rounded up or down
to the nearest whole share. In case this Debenture is converted
in part only, upon such conversion the Company shall execute and
deliver to the Holder, at the expense of the Company, a new
Debenture, dated the date of this Debenture, in the principal
amount equal to the unconverted portion of this Debenture in
accordance with Section 4.04 hereof.
6.05 Adjustment of Conversion Price; Special Provisions on
-----------------------------------------------------
Adjustment of Conversion Price.
-------------------------------
The above provisions of this Section 6 are subject to
the following provisions:
(a) If the Company at any time shall consolidate with or
merge into or sell or convey all or substantially all of its
assets to any other corporation, this Debenture shall thereafter
be convertible into such number and kind of securities and
property as would have been issuable or distributable on account
of such consolidation, merger, sale or conveyance upon or with
respect to the securities into which this Debenture would have
been convertible immediately prior to such consolidation, merger,
sale or conveyance. The foregoing provision shall similarly
apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the
foregoing, the anti-dilution provisions of this Debenture shall
apply to such securities of such successor or purchaser after any
such consolidation, merger, sale or conveyance.
(b) If the Company at any time shall, by subdivision,
combination or reclassification of securities or otherwise,
change any of the securities into which this Debenture is
convertible into the same or a different number of securities of
any class or classes, this Debenture shall thereafter be
convertible into such number and kind of securities as would have
been issuable as the result of such change with respect to the
securities into which this Debenture would have been convertible
immediately prior to such subdivision, combination,
reclassification or other change. If shares of Common Stock are
subdivided or combined into a greater or smaller number of shares
of Common Stock, the Conversion Price shall be proportionately
reduced in case of subdivision of shares or proportionately
increased in the case of combination of shares, in both cases by
the ratio which the total number of shares of Common Stock
outstanding immediately prior to such event bears to the total
number of shares of Common Stock to be outstanding immediately
after such event. If the Company at any time shall declare a
dividend or make a distribution on the outstanding shares of its
Common Stock, in shares of its Common Stock, the Conversion Price
in effect at the time of the record date for such dividend or
distribution shall be proportionately reduced by the ratio which
the total number of shares of Common Stock outstanding
immediately prior to such event bears to the total number of
shares of Common Stock to be outstanding immediately after such
event.
(c) Subject to the last sentence of this Subsection
6.05(c), if the Company shall at any time sell any Common Stock
(including upon the exercise of options [other than options
granted under a stock option plan of the Company], warrants or
other rights or upon the conversion of any instrument granted or
issued after August 31, 1996) for (A) a per share consideration
which is less than the Conversion Price in effect at the close of
business on the business day next preceding the day of such sale
and (B) more than eighty (80%) percent of the total consideration
shall consist of cash, then, at the option of the Company, either
(i) the Holder shall have the right to require the Company to
redeem this Debenture or any portion hereof or (ii)
notwithstanding Subsection 6.05(d), the Conversion Price in
effect at the close of business on such next preceding business
day shall be decreased to equal the per share consideration
received by the Company in connection with such sale of the
Common Stock. In the event that the Company elects to permit the
redemption specified in clause (i) above, it shall promptly
prepare and mail a notice to the Holder at the address of the
Holder as it shall appear on the books of the Company.
Notwithstanding anything in this Subsection 6.05(c) to the
contrary, the provisions of this Subsection 6.05(c) shall not
apply in connection with the issuance (the "Capital Issuance") by
the Company of shares of Common Stock for proceeds of up to
$300,000 required to meet the minimum capital requirements for
listing on NASDAQ; provided, however, that should the Company
desire to effect a Capital Issuance, it shall give the Holder the
right to participate therein in an amount equal to the dollar
amount of the Capital Issuance multiplied by a fraction, the
numerator of which shall be the principal amount of this
Debenture and the denominator of which shall be the aggregate
principal amount of all Debentures then outstanding. The Company
shall give the Holder written notice of a proposed Capital
Issuance and the amount which the Holder may purchase, and the
Holder shall have ten (10) days from the date the Company sends
the notice to accept the offer to participate. The failure of
the Holder to respond timely to any offer to participate in a
Capital Issuance shall be deemed a rejection of such offer.
(d) No adjustment of the Conversion Price pursuant to this
Section 6.05 shall be made if the amount of such adjustment would
be less than $.05, but in such case any adjustment that would
otherwise be required then to be made shall be carried forward
and shall be made at the time of and together with the next
subsequent adjustment, which, together with any adjustment or
adjustments so carried forward, shall amount to not less than
$.05.
(e) Whenever the Conversion Price is adjusted as provided
in this Section 6.05:
(i) The Company shall compute the adjusted Conversion
Price in accordance with this Section 6.05 and shall prepare
a certificate signed by the Treasurer of the Company setting
forth the adjusted Conversion Price and showing in
reasonable detail the facts upon which such adjustment is
based; and
(ii) As promptly as practicable, the Company shall
cause a copy of the certificate referred to in the foregoing
clause (i) to be mailed to the Holder at the address of the
Holder as it shall appear on the books of the Company.
(f) In case (i) the Company shall declare a dividend or any
other distribution on its Common Stock payable otherwise than in
cash out of its earned surplus or (ii) of any reclassification or
reorganization of the Common Stock of the Company other than a
subdivision or combination of the outstanding Common Stock, or of
any consolidation or merger to which the Company is a party and
for which approval of stockholders of the Company is required or
of the sale or transfer of all or substantially all of the assets
of the Company or (iii) of the voluntary or involuntary
dissolution, liquidation or winding upon of the Company, the
Company shall cause to be mailed to the Holder, at least ten (10)
days prior to the applicable record date hereinafter specified, a
notice stating (A) the date on which a record is to be taken for
the purpose of such dividend or distribution or, if a record is
not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend or distribution are to
be determined, or (B) the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer,
dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders
of Common Stock of record shall be entitled to exchange their
Common Stocks for securities or other property deliverable upon
such reclassification, reorganization, consolidation, merger,
sale, transfer, dissolution, liquidation or winding up.
6.06 Reservation of Shares.
---------------------
The Company will at all times reserve and keep
available out of its authorized Common Stock, solely for the
purpose of issue upon the conversion of the Debentures, such
number of shares of Common Stock (or other security) as shall
then be issuable upon the conversion of all outstanding
Debentures. The Company covenants that all shares of Common
Stock (or other security) which shall be so issuable shall, upon
issuance, be duly and validly issued and fully paid and non-
assessable.
6.07 Listing.
---------
The Company shall, at its expense, cause the Conversion
Shares before issuance, to be duly listed on any national
securities exchange or automated quotation system on which the
Common Stock of the Company is then listed.
7. Registration Rights. 7.01 Registration Statement.
-------------------- -----------------------
The rights of the Holder to have his Conversion Shares
included in a Registration Statement filed by the Company under
the Securities Act shall be as set forth in the Purchase
Agreement.
7.02 Compliance.
-----------
If, at the time of conversion of this Debenture a
Registration Statement is not in effect covering the Conversion
Shares issuable upon such conversion, the certificate for such
Conversion Shares shall bear a restrictive legend similar to the
legend set forth at the head of this Debenture and stop transfer
orders may be placed against such certificate, subject to the
then applicable provisions of the Securities Act and the rules
thereunder.
8. Default. 8.01 Event of Default.
-------- ----------------
The existence of any of the following conditions shall
constitute an event of default ("Event of Default"):
(a) If the Company defaults in the payment of any principal
of or interest on, this Debenture when the same becomes due and
payable, and the default continues for five (5) business days.
(b) If the Company defaults in complying with any other
provision of this Debenture and the default continues for thirty
(30) days after notice by the Holder to the Company, specifying
the default.
(c) If an Event of Default shall occur and be continuing
under any of the other Debentures or under any Senior
Indebtedness.
(d) If the Company makes an assignment for the benefit of
its creditors or admits in writing its inability to pay its debts
as they become due.
(e) If, under any bankruptcy or insolvency law or similar
law for the reorganization, arrangement, composition or other
relief or aid of debtors or creditors:
(i) the Company is adjudicated a bankrupt, or
takes or seeks to take or to have taken, or consents to
the taking of, any action with respect to it or a
substantial part of its property or affairs, or
(ii) without the consent of the Company, a court
or other governmental authority of competent
jurisdiction
(A) approves a petition seeking any such
relief or aid with respect to the Company,
(B) appoints a trustee, receiver or
liquidator of the Company or of a substantial part
of its property or affairs, or
(C) assumes custody or control of a
substantial part of the property or affairs of the
Company for operation to the exclusion of the
management,
and the approval or appointment is not vacated, or the
custody or control is not terminated, within 60 days or
stayed on appeal.
(f) a final judgment shall be rendered against the Company
for the payment of money with respect to which an amount in
excess of $250,000 is not covered by insurance and the same shall
remain undischarged for a period of thirty (30) consecutive days
during which execution shall not be effectively stayed.
8.02 Rights and Remedies.
--------------------
If an Event of Default occurs, then, and such Event of
Default is continuing and unless the same shall have been waived
by the Holder or by the holders of a majority of principal amount
then outstanding on the Debentures (including this Debenture) (a
"Majority of the Holders"), the Holder may, at any time, at his
election, and by notice to the Company, declare this Debenture
payable immediately, and thereupon this Debenture shall become
payable on the date to which payment has been accelerated
anything in this Debenture to the contrary notwithstanding, and,
at any time thereafter, but subject to the provisions of Section
2 of this Debenture, the Holder may proceed to collect the
principal of and interest on, this Debenture, together with the
costs and expenses (including reasonable attorneys' fees)
incurred by the Holder in connection with a default under, or the
enforcement of any provision of this Debenture.
8.03 Additional Rights and Remedies; Waivers.
-----------------------------------------
In addition to the rights and remedies provided in
Section 8.02 hereof, all other rights and remedies provided by
law shall be available to the Holder and all rights and remedies
shall be cumulative. A delay by the Holder in exercising any
right or remedy shall not constitute a waiver hereof.
9. Restrictions on Transfer.
------------------------
Any transfer or other distribution by the Holder of
this Debenture or by any holder of any or all of the Conversion
Shares (other than pursuant to an effective Registration
Statement pursuant to Section 7 hereof) may be made only if the
transferee of such Debentures or Conversion Shares (i) represents
and warrants to the Company that he is acquiring all of the
Debentures and Conversion Shares to be acquired by him for his
own account for the purposes of investment and not with a view
to, or for sale in connection with, any distribution thereof,
(ii) agrees that he will not at any time sell or otherwise
transfer, or permit the sale or other transfer of, such
Debentures and Conversion Shares other than in transactions which
are not in violation of the Securities Act, or the provisions of
any other applicable securities laws, rules or regulations and
(iii) agrees that he will indemnify the Company against any
liabilities or damages resulting from a resale of such Debentures
or Common Shares by him in violation of the Securities Act or the
provisions of any other applicable securities laws, rules or
regulations. Each certificate representing such Conversion
Shares and each certificate issued in exchange therefor may bear
an appropriate legend that such Conversion Shares are not
registered under the Securities Act.
10. Waiver of Covenants.
--------------------
Any act or thing which the Company does or omits to do
with the written consent of a Majority of the Holders, which
consent, whether given before or after the commission or omission
of any act or thing, shall be binding upon the Holders of all of
the Debentures and shall not constitute a violation of any of the
provisions of Sections 5 or 6 hereof or an Event of Default.
11. Amendments.
-----------
This Debenture may be amended by a written instrument
executed by the Company and the Holder; provided, however, that
except as set forth below, the written consent of a Majority of
Holders shall be binding upon the Holders of all of the
Debentures. Notwithstanding the foregoing, without the consent
of the Holder of this Debenture, no such amendment shall be
effective which will change the stated maturity of this
Debenture, or reduce the principal hereof or the rate of interest
hereon or otherwise modify the terms of payment of principal
hereof or interest hereon.
12. Communications.
---------------
No notice or other communication under this Debenture
shall be effective unless, but any notice or other communication
shall be effective and shall be deemed to have been given if, the
same is in writing and is mailed by first-class mail or express
courier, postage prepaid, addressed to
(a) the Company at 13 Columbia Drive, Suite 18, Amherst,
New Hampshire 03031 Attention: Noel Wren, President, or such
other address or person as the Company has designated in writing
to the Holder,
or
(b) the Holder at the address of the Holder as it appears
on the books of the Company.
13. Construction.
-------------
The headings of this Debenture have been inserted as a
matter of convenience, and shall not effect the construction
hereof. The use of a particular pronoun herein shall not be
restrictive as to gender or number but shall be interpreted in
all cases as the context may require.
14. Benefits.
---------
This Debenture shall be binding upon the Company and
its successors and assigns, and shall inure to the benefit of the
Holder and his heirs, administrators, successors and assigns.
15. Applicable Law.
---------------
This Debenture shall be governed by and construed in
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, AMERICAN ELECTROMEDICS CORP. has caused
this Debenture to be signed in its name by the signature of its
President and attested by the signature of its Secretary.
AMERICAN ELECTROMEDICS CORP.
By ________________________________
Noel A. Wren, President
ATTEST:
BY____________________________________
Michael T. Pieniazek, Secretary
[PAGE BREAK]
ASSIGNMENT
FOR VALUE RECEIVED hereby
sells, assigns and transfers unto ,
whose Social Security or Identification No. is ,
the within Debenture and all rights evidenced thereby and does
irrevocably constitute and appoint ,
attorney, to transfer said Debenture on the books of AMERICAN
ELECTROMEDICS CORP. with full powers of substitution in the
premises.
Dated:
Signature ______________________________
Address ______________________________
______________________________
[PAGE BREAK]
CONVERSION FORM
AMERICAN ELECTROMEDICS CORP.
The undersigned, ,
pursuant to the provisions of the within Debenture, hereby
irrevocably elects to convert $ principal amount of
the unpaid principal amount of said Debenture into the number of
shares of Common Stock of AMERICAN ELECTROMEDICS CORP. into which
such unpaid principal amount (or if this is a partial conversion,
the amount set forth above) is convertible.
I hereby acknowledge and agree that, unless a registration
statement with respect to the Conversion Shares has become
effective under the Securities Act of 1933, as amended (the
"Act"):
(i) the certificate for the Common Shares may bear an
appropriate legend that such shares are not registered under the
Securities Act of 1933, as amended (the "Act"),
(ii) the Company may place a stop order on such shares, and
(iii) that I will indemnify the Company against any
liabilities or damages resulting from a resale of such shares by
the holder in violation of the provisions of the Act or the
provisions of any other applicable securities laws, rules or
regulations.
Dated:
Signature ______________________________
Address ______________________________
______________________________
Social Security or
Identification No. ___________________
--------------------
1. This amount must be for $1,000 or multiples thereof.
[PAGE BREAK]
ENDORSEMENT FOR REDEMPTION
(No writing on the Debenture except by
an officer or agent of the Company)
-------------------------------------
Original
Principal
Original Amount
Principal of this
Amount Date of Debenture Authorized
Redeemed Redemption Unpaid Officer
---------- ------------ --------- --------
1.
2.
3.
4.
5.
6.
7.
8.