SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of May 5, 1998
(this "Agreement"), is entered into by and between AMERICAN
ELECTROMEDICS CORP., a Delaware corporation, with headquarters
located at 13 Columbia Drive, Suite 18, Amherst, New Hampshire
03031 (the "Company"), the purchasers listed on Exhibit A
attached hereto (each, a "Purchaser," and collectively, the
"Purchasers") and West End Capital LLC ("West End").
W I T N E S S E T H:
WHEREAS, the Company, the Purchasers and West End are
executing and delivering this Agreement in reliance upon the
exemptions from registration provided by Regulation D
("Regulation D") promulgated by the United States Securities and
Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended (the "Securities Act"), and/or Section 4(2)
of the Securities Act; and
WHEREAS, the Purchasers wish to purchase, and the Company wishes
to issue, upon the terms and subject to the conditions of this
Agreement, up to 3,000 shares of Convertible Preferred Stock,
Series A, par value $.01 per share ("Series A Preferred Stock"),
having the rights, privileges and preferences set forth in the
Certificate of Designations, the form of which is attached hereto
as Exhibit B (the "Certificate of Designations"), the Company has
agreed to sell the number of Warrants (the "Warrants") set forth
in Exhibit A to West End which, for the purposes of the rights
conveyed to holders of Warrants pursuant to this Agreement, shall
be deemed to be a Purchaser. The Series A Preferred Stock is
convertible into shares of the Company's common stock, par value
$.10 per share (the "Common Stock"), on the terms set forth in
the Certificate of Designations, and the Warrants may be
exercised for the purchase of the Company's Common Stock, on the
terms set forth therein. The Series A Preferred Stock and the
Warrants are referred to herein as the "Securities."
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
A. PURCHASE. Each of the Purchasers hereby agrees to
purchase from the Company up to the number of shares of Series A
Preferred Stock set forth next to its name on Exhibit A hereto,
and West End agrees to purchase the number of Warrants set forth
next to its name on Exhibit A hereto. The Certificate of
Designations, in substantially the form attached hereto as
Exhibit B, shall be filed with the Secretary of State of the
State of Delaware on or prior to the Initial Closing Date (as
defined herein), and the Warrants shall be issued in
substantially the form attached hereto as Exhibit C. The
purchase price for the Series A Preferred Stock and the Warrants
shall be as set forth on Exhibit A hereto and shall be payable in
next day funds.
B. CLOSINGS. 1,000 shares of the Series A Preferred
Stock to be purchased by the Purchasers hereunder, in definitive
form, and in such denominations and registered in such names as
the Purchasers or their representative, if any, may request upon
at least forty-eight hours' prior notice to the Company, shall be
delivered by or on behalf of the Company for the account of each
such Purchaser, against payment by such Purchaser or on its
behalf of the purchase price of $1,000,000 therefor by wire
transfer to an account of the Company, all at the offices of
Morrison & Foerster LLP, 1290 Avenue of the Americas, New York,
New York 10104, New York time on May 5, 1998, or at such other
time and date as the Purchasers or their representative, if any,
and the Company may agree upon in writing, such date being
referred to herein as the "Initial Closing Date."
In addition, if the Company purchases all or substantially
all of the issued and outstanding capital stock, or the assets
of, Dynamic Dental Systems, Inc. ("Dynamic") on or prior to
May 15, 1998, the Purchasers shall purchase an additional 1,000
shares of the Company's Series A Preferred Stock for the
aggregate purchase price of $1,000,000 (the "First Additional
Closing Date"). Furthermore, if the Company purchases all or
substantially all of the issued and outstanding capital stock, or
the assets of, Equidyne Systems, Inc. ("Equidyne") on or prior to
May 25, 1998, the Purchasers shall purchase an additional 1,000
shares of the Company's Series A Preferred Stock for the
aggregate purchase price of $1,000,000 (the "Second Additional
Closing Date"). The closing of the purchase of such shares shall
occur within forty-eight (48) hours after the closing of each of
the Dynamic and Equidyne transactions, respectively, or at such
other times as the parties shall agree (the Initial Closing Date
and each of the First Additional Closing Date and the Second
Additional Closing Date are referred to herein as a "Closing
Date").
2. PURCHASER REPRESENTATIONS AND WARRANTIES; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
Each Purchaser represents and warrants to, and covenants and
agrees with, the Company as follows:
A. The Purchaser is purchasing the Securities and for
investment purposes only and not with a view towards the public
sale or distribution thereof and not with a view to or for sale
in connection with any distribution thereof;
B. The Purchaser and each of its equity owners is
(i) an "accredited investor," as that term is defined in Rule 501
of the General Rules and Regulations under the Securities Act by
reason of Rule 501(a), (ii) experienced in making investments of
the kind described in this Agreement and the related documents,
(iii) able, by reason of the business and financial experience of
its officers (if an entity) and professional advisors, to
protect its own interests in connection with the transactions
described in this Agreement and the related documents, and
(iv) able to afford the entire loss of its investment in the
Series A Preferred Stock;
C. All subsequent offers and sales of the Series A
Preferred Stock and the Common Stock issuable upon conversion or
exercise of, or in lieu of dividend payments on, the Series A
Preferred Stock, or upon exercise of the Warrants shall be made
pursuant to an effective registration statement under the
Securities Act or pursuant to an applicable exemption from
registration;
D. The Purchaser understands that the Series A
Preferred Stock is being offered and sold to it in reliance upon
exemptions from the registration requirements of the United
States federal and state securities laws, and that the Company is
relying upon the truth and accuracy of the Purchaser's
representations and warranties, and the Purchaser's compliance
with its agreements, each as set forth herein, in order to
determine the availability of such exemptions and the eligibility
of the Purchaser to acquire the Series A Preferred Stock;
E. The Purchaser acknowledges that in making its
decision to purchase the Series A Preferred Stock, it has relied
upon independent investigations made by it and its
representatives, if any, and the Purchaser and such
representatives, if any, have been provided access and the
opportunity to examine all material, publicly available books and
records of the Company, all material contracts and documents
relating to this offering and have had an opportunity to ask
questions of, and to receive answers from the Company or persons
acting on its behalf concerning the terms and conditions of this
offering. The Purchaser and its advisors, if any, have been
furnished with access to all publicly available materials
relating to the business, finances and operations of the Company
and materials relating to the offer and sale of the Series A
Preferred Stock which have been requested. The Purchaser and its
advisors, if any, have received answers to any such inquiries
which they have deemed to be satisfactory.
F. This Agreement has been duly and validly
authorized, executed and delivered on behalf of the Purchaser and
is a valid and binding agreement of the Purchaser, enforceable in
accordance with its terms, except to the extent that enforcement
of this Agreement may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other
similar laws now or hereafter in effect relating to creditors'
rights generally and to general principles of equity.
3. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to each Purchaser that,
except as set forth in the Disclosure Schedule attached hereto:
A. ORGANIZATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws
of the State of Delaware. Each of the Company's subsidiaries is
a corporation duly organized, validly existing and in good
standing under the laws of its respective jurisdiction. Each of
the Company and its subsidiaries is duly qualified as a foreign
corporation in all jurisdictions in which the failure to so
qualify would have a material adverse effect on the Company and
its subsidiaries taken as a whole.
B. CAPITALIZATION. On the date hereof, the
authorized capital of the Company shall consist of 20,000,000
Shares of Common Stock, par value $.10 per share, of which
5,663,136 are issued and outstanding. Schedule 1 hereto sets
forth the options, warrants and convertible securities of the
Company (the "Derivative Securities") which are outstanding on
the date hereof, including in each case (i) the name and class of
such Derivative Securities, (ii) the issue date of such
Derivative Securities, (iii) the number of Shares of Common Stock
of the Company into which such Derivative Securities are
convertible as of the date hereof, (iv) the conversion or
exercise price or prices of such Derivative Securities as of the
date hereof and (v) the expiration date of any conversion or
exercise rights held by the owners of such Derivative Securities.
C. CONCERNING THE PREFERRED STOCK. On each Closing
Date, the shares of Series A Preferred Stock to be issued to the
Purchasers, upon payment of the purchase price therefore, shall
be duly and validly issued, fully paid and non-assessable, and
will not subject the holder thereof to personal liability by
reason of being such a holder. There are no preemptive rights of
any stockholder of the Company, as such, to acquire the
Securities issuable to the Purchasers hereunder.
D. CONCERNING THE COMMON STOCK. The Common Stock
issuable upon conversion of, or in lieu of dividend payments on,
the Series A Preferred Stock, and upon exercise of the Warrants,
when so issued, shall be duly and validly issued, fully paid and
non-assessable, and will not subject the holder thereof to
personal liability by reason of being such a holder. There are
no preemptive rights of any stockholder of the Company, as such,
to acquire the Common Stock issuable to the Purchasers pursuant
to the terms of the Series A Stock or the Warrants.
E. REPORTING COMPANY STATUS. The Company's Common
Stock are registered under Section 12 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
F. AUTHORIZED SHARES. The Company has legally
available a sufficient number of authorized and unissued Common
Stock as may be reasonably necessary to effect the conversion of
the Series A Preferred Stock and the exercise of the Warrants.
G. LEGALITY. The Company has the requisite corporate
power and authority to enter into this Agreement and to issue and
deliver the Series A Preferred Stock and the Warrants. The
issuance of the Series A Preferred Stock and the Warrants (and
the Common Stock issuable upon conversion of, or in lieu of
dividend payments on, the Series A Preferred Stock and exercise
of the Warrants) have been duly and validly authorized by all
necessary corporate action by the Company.
H. TRANSACTION AGREEMENTS. This Agreement, the
Registration Rights Agreement, the form of which is attached
hereto as Exhibit D (the "Registration Rights Agreement," and
together with this Agreement, and the Warrants, the "Primary
Documents"), and the transactions contemplated thereby (including
the filing of the Certificate of Designations with the Secretary
of State of the State of Delaware), have been duly and validly
authorized by the Company; this Agreement has been duly executed
and delivered by the Company and this Agreement is, and the
Primary Documents, when executed and delivered by the Company,
will each be, a valid and binding agreement of the Company,
enforceable in accordance with their respective terms, except to
the extent that enforcement of each of the Primary Documents may
be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in
effect relating to creditors' rights generally and to general
principles of equity.
I. NON-CONTRAVENTION. The execution and delivery of
this Agreement, and each of the other Primary Documents, and the
consummation by the Company of the other transactions
contemplated by this Agreement and each of the other Primary
Documents, does not and will not conflict with or result in a
breach by the Company of any of the terms or provisions of, or
constitute a default under, the Certificate of Incorporation of
the Company, or any indenture, mortgage, deed of trust or other
material agreement or instrument to which the Company or any of
its subsidiaries is a party or by which they or any of their
properties or assets are bound, or any material existing
applicable law, rule, or regulation or any applicable decree,
judgment or order of any court, or United States federal or state
regulatory body, administrative agency, or any other governmental
body having jurisdiction over the Company, its subsidiaries, or
any of their properties or assets, except such conflict, breach
or default which would not have a material adverse effect on the
transactions contemplated by this Agreement or by the other
Primary Documents.
J. APPROVALS. No authorization, approval or consent
of any court, governmental body, regulatory agency, self-
regulatory organization, stock exchange or market or the
shareholders of the Company is required to be obtained by the
Company for the entry into or the performance of this Agreement
and the other Primary Documents, except (i) such authorizations,
approvals and consents that have been obtained, copies of which
have been furnished to the Purchasers and, (ii) authorizations,
approvals, consents or orders of the Commission with respect to
the Registration Statements referred to in the Registration
Rights Agreement, which approvals and orders are not required to
be obtained as of the Initial Closing Date and will be timely
obtained when required.
K. SEC FILINGS. None of the reports or documents
filed by the Company with the Commission since January 1, 1995
contained, at the time they were filed, any untrue statement of a
material fact or omitted to state any material fact required to
be stated therein, or necessary to make the statements made
therein, in light of the circumstances under which they were
made, not misleading.
L. ABSENCE OF CERTAIN CHANGES. Since July 31, 1997,
except as disclosed in the Company's reports on Form 10-QSB,
there has been no material adverse change and no material adverse
development in the business properties, operations, financial
condition, outstanding securities or results of operations of the
Company.
M. FULL DISCLOSURE. There is no fact known to the
Company (other than general economic conditions known to the
public generally) that has not been disclosed to the Purchasers
that (i) could reasonably be expected to have a material adverse
effect upon the condition (financial or otherwise) or the
earnings, business affairs, properties or assets of the Company
or (ii) could reasonably be expected to materially and adversely
affect the ability of the Company to perform its obligations
pursuant to the Primary Documents.
N. TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. The
Company has good and marketable title to all of its properties
and assets, both real and personal, and has good title to all its
leasehold interests, in each case subject only to mortgages,
pledges, liens, security interests, conditional sale agreements,
encumbrances or charges created in the ordinary course of
business.
O. PATENTS AND OTHER PROPRIETARY RIGHTS. The Company
has sufficient title and ownership of all patents, trademarks,
service marks, trade names, copyrights, trade secrets,
information, proprietary rights and processes necessary for the
conduct of its business as now conducted, and such business does
not conflict with or constitute an infringement on the rights of
others.
P. PERMITS. The Company has all franchises, permits,
licenses and any similar authority necessary for the conduct of
its business as now conducted, the lack of which would materially
and adversely affect the business or financial condition of the
Company. The Company is not in default in any material respect
under any of such franchises, permits, licenses or similar
authority.
Q. ABSENCE OF LITIGATION. Except as set forth in the
Company's annual report on Form 10-KSB for the year ended
July 31, 1997 (the "1997 Annual Report") and in the Company's
reports on Form 10-QSB, there is no action, suit, proceeding,
inquiry or investigation before or by any court, public board or
body pending or, to the knowledge of the Company or any of its
subsidiaries, threatened against or affecting the Company or any
of its subsidiaries, in which an unfavorable decision, ruling or
finding would have a material adverse effect on the properties,
business, condition (financial or other) or results of operations
of the Company and its subsidiaries, taken as a whole, or the
transactions contemplated by the Primary Documents, or which
would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations
under, the Primary Documents.
R. NO DEFAULT. Each of the Company and its
subsidiaries is not in default in the performance or observance
of any material obligation, covenant or condition contained in
any material indenture, mortgage, deed of trust or other
instrument or agreement to which it is a party or by which it or
its property may be bound.
S. TRANSACTIONS WITH AFFILIATES. Except as disclosed
in the 1997 Annual Report and in the Company's reports on Form
10-QSB, there are no agreements, understandings or proposed
transactions between the Company and any of its officers,
directors or affiliates that, had they existed on July 31, 1997,
would have been required to be disclosed in the 1997 Annual
Report.
T. TAXES. All applicable tax returns required to be
filed by the Company and each of its subsidiaries have been
filed, or if not yet filed have been granted extensions of the
filing dates which extensions have not expired, and all taxes,
assessments, fees and other governmental charges upon the
Company, its subsidiaries, or upon any of their respective
properties, income or franchises, shown in such returns and on
assessments received by the Company or its subsidiaries to be due
and payable have been paid, or adequate reserves therefor have
been set up if any of such taxes are being contested in good
faith; or if any of such tax returns have not been filed or if
any such taxes have not been paid or so reserved for, the failure
to so file or to pay would not in the aggregate have a material
adverse effect on the business or financial condition of the
Company and its subsidiaries, taken as a whole.
U. INVESTMENT COMPANY ACT. The Company is not
conducting, and does not intend to conduct its business in a
manner which it would become, an "investment company" as defined
in Section 3(a) of the Investment Company Act of 1940, as
amended.
V. AGENT FEES. Except for such payments as may be
owed to Cohig & Associates, Inc., the Company has not incurred
any liability for any finder's or brokerage fees or agent's
commissions in connection with the offer and sale of the Series A
Preferred Stock hereunder.
W. PRIVATE OFFERING. Subject to the accuracy of the
Purchaser's representations and warranties set forth in Section 2
hereof, the offer, sale and issuance of the Series A Preferred
Stock as contemplated by this Agreement are exempt from the
registration requirements of the Securities Act. The Company
agrees that neither the Company nor anyone acting on its behalf
will offer any of the Series A Preferred Stock or the Warrants or
any similar securities for issuance or sale, or solicit any offer
to acquire any of the same from anyone so as to render the
issuance and sale of the Securities subject to the registration
requirements of the Securities Act. The Company has not offered
or sold the Securities by any form of general solicitation or
general advertising, as such terms are used in Rule 502(c) under
the Securities Act.
X. FULL DISCLOSURE. The representations and
warranties of the Company set forth in this Agreement do not
contain any untrue statement of a material fact or omit any
material fact necessary to make the statements contained herein,
in light of the circumstances under which they were made, not
misleading.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
A. TRANSFER RESTRICTIONS. Each Purchaser
acknowledges that (1) neither the Series A Preferred Stock,
Common Stock nor the Warrants have been, and are not being,
registered under the Securities Act and, except as provided in
the Registration Rights Agreement, the Common Stock issuable upon
conversion of the Series A Preferred Stock, or in lieu of
dividend payments on, the Series A Preferred Stock, and upon
exercise of the Warrants, have not been and are not being
registered under the Securities Act, and may not be transferred
unless (A) subsequently registered thereunder or (B) the
Purchaser shall have delivered to the Company an opinion of
counsel, reasonably satisfactory in form and substance to the
Company, to the effect that the Series A Preferred Stock,
Warrants or Common Stock (collectively, the "Securities"), to be
sold or transferred may be sold or transferred pursuant to an
exemption from such registration; (2) any sale of the Securities
made in reliance upon Rule 144 under the Securities Act may be
made only in accordance with the terms of said Rule and further,
if said Rule is not applicable, any resale of the Securities
under circumstances in which the seller, or the person through
whom the sale is made, may be deemed to be an underwriter, as
that term is used in the Securities Act, may require compliance
with another exemption under the Securities Act and the rules and
regulations of the Commission thereunder; and (3) neither the
Company nor any other person is under any obligation to register
the Securities (other than pursuant to the Registration Rights
Agreement) under the Securities Act or to comply with the terms
and conditions of any exemption thereunder. The provisions of
Section 4(a) and 4(b) hereof shall be binding upon any subsequent
transferee of the Series A Preferred Stock or Warrants.
B. RESTRICTIVE LEGEND. Each Purchaser acknowledges
and agrees that the Series A Preferred Stock or the Warrants,
and, until such time as the Common Stock issuable upon conversion
of the Series A Preferred Stock or upon exercise of the Warrants
shall have been registered under the Securities Act as
contemplated by the Registration Rights Agreement and sold in
accordance with such Registration Statement, such securities may
be subject to a stop-transfer order placed against the transfer
of such Securities, and such shares shall bear a restrictive
legend in substantially the following form:
THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED
OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT
AS TO THE SECURITIES UNDER SAID ACT OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE
SATISFACTORY TO THE CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED.
C. FILINGS. The Company undertakes and agrees to
make all necessary filings in connection with the sale of the
Series A Preferred Stock to each Purchaser as required by United
States laws and regulations, or by any domestic securities
exchange or trading market, including, if applicable, the filing
of a notice on Form D (at such time and in such manner as
required by the Rules and Regulations of the Commission), and to
provide copies thereof to the Purchaser promptly after such
filing or filings.
D. STOCK EXCHANGE LISTING. Within ten (10) business
days after the Initial Closing Date, the Company shall use its
best efforts to file an application for its Common Stock to
become listed on the NASDAQ Small Capitalization market or the
American Stock Exchange. Notwithstanding the foregoing, if the
Company makes a good faith determination that it cannot satisfy
the official listing requirements of such exchanges, it shall not
be obligated to file such application within such period and will
set forth such determination in writing to West End, and will use
its best efforts to effect such listing as promptly as possible
after it shall satisfy such requirements. The Company agrees
that it will not seek to have the trading of its Common Stock
through such exchange suspended or terminated, will use its
commercially reasonable best efforts to maintain its eligibility
for trading through such exchange and, if the trading of its
Common Stock is suspended or terminated, will use its
commercially reasonable best efforts to requalify its Common
Stock or otherwise cause such trading to resume.
E. REPORTING STATUS. So long as any of the
Purchasers beneficially owns any of the Securities, the Company
shall file all reports required to be filed with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act, and, except
in connection with an acquisition transaction in which at least
50% of the Company's voting equity securities or substantially
all of the assets of the Company are acquired by another entity,
the Company shall not terminate its status as an issuer required
to file reports under the Exchange Act even if the Exchange Act
or the rules and regulations thereunder would permit such
termination.
F. STATE SECURITIES FILINGS. The Company shall from
time to time promptly take such action as the Purchasers or any
of their representatives, if applicable, may reasonably request
to qualify the Securities for offering and sale under the
securities laws (other than United States federal securities
laws) of such jurisdictions in the United States as shall be so
identified to the Company, and to comply with such laws so as to
permit the continuance of sales therein, provided that in
connection therewith, the Company shall not be required to
qualify as a foreign corporation or to file a general consent to
the service of process in any jurisdiction.
G. USE OF PROCEEDS. The Company will use the
proceeds from the issuance of the Series A Preferred Stock
(excluding amounts paid by the Company for legal fees and
finder's fees in connection with the sale of the Series A
Preferred Stock) towards the commercialization of products
developed with the technologies acquired by the Company in
connection with its purchase of all of the issued and outstanding
shares of capital stock of (a) Equidyne Systems, Inc. and, (b)
the purchase price of all of the issued and outstanding shares of
capital stock of Dynamic Dental Systems, Inc. and (c) to repay
$600,000 of indebtedness to Citizens Bank New Hampshire, a
guaranty savings bank organized under the laws of the State of
New Hampshire. To the extent that any of the proceeds from the
issuance of the Series A Preferred Stock shall remain, the
Company shall use such proceeds for general corporate purposes
and working capital.
H. RESERVATION OF ORDINARY SHARES. The Company will
at all times have authorized and reserved for the purpose of
issuance a sufficient number of shares of Common Stock to provide
for the conversion of the Series A Preferred Stock and the
exercise of the Warrants. The Company will use its best efforts
at all times to maintain a number of shares of Common Stock so
reserved for issuance that is no less than one and one-half (1.5)
times the number that is then actually issuable upon the
conversion of the Series A Preferred Stock or the exercise of the
Warrants. The number of Common Stock reserved for issuance by
the Company upon conversion of the Series A Preferred Stock or
upon exercise of the Warrants shall at all times be allocated pro
rata among the Purchasers based upon the aggregate purchase price
of the Series A Preferred Stock purchased by each Purchaser, and
no Purchaser may at any time convert its Series A Preferred Stock
or exercise Warrants so as to obtain a greater number of Common
Stock than its pro rata allocation of the Company's reserved
Common Stock. In the event that a Purchaser shall sell or
otherwise transfer, in whole or in part, any of its Securities
(except for Common Stock of the Company subject to an effective
registration statement under the Securities Act or otherwise
freely tradable by such Purchaser), each transferee shall, for
purposes of determining such transferee's allocation of the
Company's reserved Common Stock, be allocated a pro rata portion
of the initial purchase price paid by such Transferor upon its
purchase of the Series A Preferred Stock.
I. SALES OF ADDITIONAL SHARES. The Company shall
not, directly or indirectly, without the prior written consent of
West End, offer, sell, offer to sell, contract to sell or
otherwise dispose of any shares of its capital stock for a period
of two hundred seventy (270) days after the date of this
Agreement (the "Lock-Up Period"), except that the Company may (i)
issue securities for the aggregate consideration of at least
$15.0 million in connection with a bona fide, firm commitment,
underwritten public offering under the Securities Act; (ii) may
issue shares of Common Stock or securities convertible into, or
exercisable for, shares of Common Stock which are issued in
connection with a transaction involving the acquisition of
another business entity or segment of any such entity by the
Company by merger, asset purchase, stock purchase or otherwise;
(iii) may issue securities to directors, officers, employees or
consultants of the Company for the primary purpose of soliciting
or retaining their services; (iv) may issue shares of Common
Stock upon the exercise or conversion of currently outstanding
options, warrants and other convertible securities; (v) may issue
options to purchase shares of its Common Stock to its directors,
officers and employees in connection with its existing stock
option plans; and (vi) may issue Common Stock in connection with
a stock split, stock dividend or similar recapitalization of the
Company which affects all holders of the Company's Common Stock
on an equivalent basis, in each case, without the prior written
consent of West End. Notwithstanding the forgoing, a transaction
may only be effected pursuant to clause (ii) above during the
Lock-up Period without the prior written consent of West End if
the proceeds to the Company from such a transaction are
immediately used by the Company to effect an acquisition
transaction of the type contemplated by such clause. In
addition, the Company agrees that it will not cause any shares of
its capital stock that are issued in connection with a
transaction of the type contemplated by such clause (or upon the
conversion or exercise of other securities that are issued in
connection with such transaction) to be covered by a registration
statement that is declared effective by the Commission until the
earlier to occur of (y) the expiration of the Lock-Up Period or
(z) the registration statement filed by the Company pursuant to
its obligations under the Registration Rights Agreement has been
effective under the Securities Act for a period of at least
ninety (90) days.
5. TRANSFER AGENT INSTRUCTIONS.
A. The Company warrants that no instruction other
than the instructions referred to in this Section 5 and stop
transfer instructions to give effect to Sections 4(a) and 4(b)
hereof prior to the registration and sale of the Common Stock
issuable upon conversion of the Series A Preferred Stock, or in
lieu of dividend payments on, the Series A Preferred Stock, or
upon exercise of the Warrants under the Securities Act, will be
given by the Company to the transfer agent and that such Common
Stock shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement, and applicable law.
Nothing in this Section shall affect in any way the Purchaser's
obligations and agreement to comply with all applicable
securities laws upon resale of the Securities. If a Purchaser
provides the Company with an opinion of counsel reasonably
satisfactory (as to both the identity of such counsel and the
content of such opinion) to the Company that registration of a
resale by the Purchaser of any of the Securities in accordance
with clause (1)(B) of Section 4(a) of this Agreement is not
required under the Securities Act, the Company shall (except as
provided in clause (2) of Section 4(a) of this Agreement) permit
the transfer of the Securities and, in the case of the Common
Stock, promptly instruct the Company's transfer agent to issue
one or more certificates for Common Stock without legend in such
names and in such denominations as specified by the Purchaser.
B. The Company will permit each Purchaser to exercise
its right to convert the Series A Preferred Stock or to exercise
the Warrants by faxing an executed and completed Notice of
Conversion or Form of Election to Purchase, as applicable, to the
Company, and delivering within three (3) business days
thereafter, the original Notice of Conversion (and the related
original Series A Preferred Stock) or Form of Election to
Purchase (and the related original Warrants) to the Company by
hand delivery or by express courier, duly endorsed. Each date on
which a Notice of Conversion or Form of Election to Purchase is
faxed to and received in accordance with the provisions hereof
shall be deemed a "Conversion Date." The Company (or its
transfer agent) will transmit the certificates representing the
Common Stock issuable upon conversion of the Series A Preferred
Stock or upon exercise of any Warrants (together with the Series
A Preferred Stock not so converted, or the Warrants not so
exercised) to such Purchaser via express courier as soon as
practicable, but in all events no later than the later to occur
of (the "Delivery Date") (i) four (4) business days after the
Conversion Date and (ii) four (4) business days after receipt by
the Company of the original Notice of Conversion (and the related
original Series A Preferred Stock) or Form of Election to
Purchase (and the related original Warrants), as applicable. For
purposes of this Agreement, such conversion of the Series A
Preferred Stock or exercise of the Warrants shall be deemed to
have been made immediately prior to the close of business on the
Conversion Date.
C. In lieu of delivering physical certificates
representing the Common Stock issuable upon the conversion of the
Series A Preferred Stock or exercise of the Warrants, provided
the Company's transfer agent is participating in the Depositary
Trust Company ("DTC") Fast Automated Securities Transfer program,
on the written request of a Purchaser who shall have previously
instructed such Purchaser's prime broker to confirm such request
to the Company's transfer agent, the Company shall use
commercially reasonable efforts to cause its transfer agent to
electronically transmit such Common Stock to the Purchaser by
crediting the account of the Purchaser's prime broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system
no later than the applicable Delivery Date.
D. The Company understands that a delay in the
issuance of Common Stock beyond the applicable Delivery Date
could result in an economic loss to the applicable Purchaser. As
compensation to such Purchaser for such loss, the Company agrees
to pay to such Purchaser for late issuance of Common Stock upon
conversion of the Series A Preferred Stock or upon exercise of
the Warrants the sum of $5,000 per day for each $100,000 in
aggregate principal amount of Series A Preferred Stock that are
being converted, or for each 25,000 shares of Common Stock
purchased upon the exercise of the Warrants.
The Company shall pay any payments incurred under this Section 5
in immediately available funds upon demand. Nothing herein shall
limit a Purchaser's right to pursue actual damages for the
Company's failure to issue and deliver shares of Common Stock to
such Purchaser. Furthermore, in addition to any other remedies
which may be available to such Purchaser, in the event that the
Company fails for any reason to effect delivery of such Common
Stock within five (5) business days after the relevant Delivery
Date, the Purchaser will be entitled to revoke the relevant
Notice of Conversion or Form of Election to Purchase by
delivering a notice to such effect to the Company, whereupon the
Company and such Purchaser shall each be restored to their
respective positions immediately prior to delivery of such Notice
of Conversion or Form of Election to Purchase. For purposes of
this Section 5, "business day" shall mean any day in which the
financial markets of New York are officially open for the conduct
of business therein.
E. At no time shall any of the Purchasers of the
Series A Preferred Stock or the Warrants convert or exercise such
amount of the Series A Preferred Stock or the Warrants as shall
result in such Purchaser's beneficial ownership, after such
conversion, exceeding 9.9% of the Company's outstanding Common
Stock, and the parties agree that no Purchaser shall have the
right to effect such a conversion or exercise.
6. RIGHT OF FIRST OFFER
A. Subject to the terms and conditions specified in
this Agreement, the Company hereby grants to West End a right of
first offer with respect to future sales by the Company of shares
of any class of its capital stock ("Shares"). West End shall be
entitled to apportion the right of first offer hereby granted to
it among itself and its affiliates in such proportions as it
deems appropriate.
B. Each time the Company proposes to, prior to the
first anniversary of the Initial Closing Date, offer any shares
of, or securities convertible into or exercisable for any shares
of, any Shares, (except in connection with a bona fide, firm
commitment, underwritten public offering), the Company shall
first make an offer of such Shares to West End in accordance with
the following provisions:
(i) The Company shall deliver a notice (the "Notice")
to West End stating (A) its bona fide intention to
offer such Shares, (B) the number of such Shares
to be offered and (C) the price and terms, if any,
upon which it proposes to offer such Shares.
(ii) Within twenty (20) days after receipt of the
Notice, West End may elect to purchase or obtain,
at the price and on the terms specified in the
Notice of such Shares. West End shall purchase
such Shares within ten (10) days after making such
election.
If all of the Shares are not elected to be obtained as provided
in subsection (2), the Company may, during the thirty (30) day
period following the expiration of the period provided in
subsection (2) hereof, offer the remaining unsubscribed portion
of such Shares to any person or persons at a price not less than,
and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an
agreement for the sale of the Shares within such period, or if
such agreement is not consummated within thirty (30) days of the
execution thereof, the right provided hereunder shall be deemed
to be revived and such Shares shall not be offered unless first
reoffered to West End in accordance herewith.
7. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE
SECURITIES.
The Purchaser understands that the Company's obligation to
issue the Securities on each Closing Date to the Purchasers
pursuant to this Agreement is conditioned upon:
A. The accuracy on the applicable Closing Date of the
representations and warranties of the applicable Purchaser
contained in this Agreement as if made on such Closing Date and
the performance by the Purchasers on or before such Closing Date
of all covenants and agreements of the applicable Purchasers
required to be performed on or before such Closing Date;
B. The absence or inapplicability of any and all
laws, rules or regulations prohibiting or restricting the
transactions contemplated hereby, or requiring any consent or
approval which shall not have been obtained.
8. CONDITIONS TO THE PURCHASERS' OBLIGATION TO PURCHASE
THE SECURITIES.
The Company understands that each Purchaser's obligation to
purchase the Securities on any Closing Date is conditioned upon:
A. The accuracy on the Closing Date of the
representations and warranties of the Company contained in this
Agreement as if made on the Closing Date, and the performance by
the Company on or before the Closing Date of all covenants and
agreements of the Company required to be performed on or before
the Closing Date;
B. The Company shall have duly filed the Certificate
of Designations, in substantially the form attached hereto as
Exhibit B, with the offices of the Secretary of State of the
State of Delaware in accordance with the Delaware General
Corporation Law.
C. On the Closing Date, the Purchaser shall have
received an opinion of counsel for the Company, dated the Closing
Date, in form, scope and substance reasonably satisfactory to
each Purchaser, to the effect set forth in Exhibit E attached
hereto;
D. The Company shall have executed and delivered a
signed counterpart to the Registration Rights Agreement;
E. On the Closing Date, the Purchasers shall have
received a certificate executed by the (i) the President or the
Chairman of the Company and (ii) the Chief Financial Officer of
the Company, stating that all of the representations and
warranties of the Company set forth in this Agreement are
accurate as of the Closing Date and that the Company has
performed all of its covenants and agreements required to be
performed under this Agreement on or before the Closing Date.
F. On the Closing Date, the Purchasers shall have
received from the Company such other certificates and documents
as they or their representative, if applicable, shall reasonably
request, and all proceedings taken by the Company in connection
with the Primary Documents contemplated by this Agreement and the
other Primary Documents and all documents and papers relating to
such Primary Documents shall be satisfactory to the Purchasers.
G. On or prior to the Closing Date, there shall not
have occurred any of the following: (i) a suspension or material
limitation in the trading of securities generally on the New York
Stock Exchange or Nasdaq; (ii) a general moratorium on commercial
banking activities in New York declared by the applicable banking
authorities; (iii) the outbreak or escalation of hostilities
involving the United States, or the declaration by the United
States of a national emergency or war; or (iv) a change in
international, political, financial or economic conditions, if
the effect of any such event, in the reasonable judgment of the
Purchasers, makes it impracticable or inadvisable to proceed with
the purchase of the Securities on the terms and in the manner
contemplated in this Agreement and in the other Primary
Documents.
9. EXPENSES.
The Company covenants and agrees with the Purchasers that
the Company will pay or cause to be paid the following: (a) the
fees, disbursements and expenses of the Company's counsel and
accountants in connection with the issuance of the Securities,
(b) all expenses in connection with the qualification of the
Securities for offering and sale under state securities laws as
provided in Section 4(f) hereof, and (c) all other costs and
expenses incident to the performance of its obligations hereunder
which are not otherwise specifically provided for in this
Section 8, including but not limited to the legal fees of the
Purchasers in the aggregate amount of $20,000. If the Company
fails to satisfy its obligations or to satisfy any condition set
forth in this Agreement, as a result of which the Series A
Preferred Stock is not delivered to any of the Purchasers on the
terms and conditions set forth herein, the Company shall
reimburse such Purchasers for any actual, documented, out-of-
pocket expenses reasonably incurred by such in making
preparations for the purchase, sale and delivery of the Series A
Preferred Stock not so delivered.
10. GOVERNING LAW; MISCELLANEOUS
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York. Each of the
parties consents to the jurisdiction of the federal courts whose
districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York
in connection with any dispute arising under this Agreement or
any of the Primary Documents, and hereby waives, to the maximum
extent permitted by law, any objection, including any objections
based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. This Agreement may be signed
in one or more counterparts, each of which shall be deemed an
original. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the
interpretation of this Agreement. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction,
such invalidity or enforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other
jurisdiction. This Agreement shall inure to the benefit of, and
be binding upon the successors and assigns of each of the parties
hereto, including any transferees of the Securities. Any
Purchaser of Series A Preferred Stock in a closing taking place
following the Initial Closing Date may become a party to this
Agreement by executing a counterpart to this Agreement on the
applicable Closing Date. This Agreement may be amended only by
an instrument in writing signed by the party to be charged with
enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the
subject matter hereof.
11. NOTICES.
Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be
effective upon personal delivery, via facsimile (upon receipt of
confirmation of error-free transmission) or two business days
following deposit of such notice with an internationally
recognized courier service, with postage prepaid and addressed to
each of the other parties thereunto entitled at the following
addresses, or at such other addresses as a party may designate by
ten days advance written notice to each of the other parties
hereto.
COMPANY: AMERICAN ELECTROMEDICS CORP.
13 Columbia Drive
Suite 18
Amherst, New Hampshire 03031
ATT.: Michael Pieniazek
Tel.: (603) 880-6300
Fax: (603) 880-8977
WITH COPIES TO:
REID & PRIEST LLP
40 West 57th Street
New York, NY 10019
ATT.: Bruce Rich
Tel.: 212-603-6780
Fax: 212-603-2001
PURCHASERS: At the addresses set forth on the signature
page of this Agreement, as such addresses may
be updated from time to time by each of the
Purchasers.
WITH COPIES TO:
WEST END CAPITAL LLC
One World Trade Center
Suite 4563
New York, New York 10048
ATT.: Daniel Saks
Tel.: 212-775-9299
Fax: 212-775-9311
MORRISON & FOERSTER LLP
1290 Avenue of the Americas
New York, New York 10104
ATT.: Ira Greenstein
Tel.: 212-468-8000
Fax: 212-468-7900
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company and each
of the Purchasers shall survive the execution and delivery of
this Agreement and the delivery of the Series A Preferred Stock.
13. CONFIDENTIALITY.
Each of the Company and the Purchaser agrees to keep
confidential, and not to disclose (except as required pursuant to
the Securities Act or the Exchange Act or the rules promulgated
thereunder) to or use for the benefit of any third party, the
terms of this Agreement, any of the other Primary Documents or
any other information which at any time is designated in writing
by the other party as confidential without the prior written
approval of the other party; provided, however, that this
-------- --------
provision shall not apply to information which, at the time of
disclosure, is already part of the public domain (except by
breach of this Agreement) and information which is required to be
disclosed by law.
IN WITNESS WHEREOF, this Agreement has been duly executed by
each of the undersigned.
"COMPANY"
AMERICAN ELECTROMEDICS CORP.
By: /s/ Michael T. Pieniazek
------------------------------
Name: Michael T. Pieniazek
Title: President
IN WITNESS WHEREOF, this Agreement has been duly executed by
each of the undersigned.
"PURCHASERS"
JUBILEE INVESTORS LLC
By: WEST END CAPITAL LLC, Manager
By: /s/ Daniel Saks
-------------------------------
Name: Daniel Saks
Title: Managing Director
WEST END CAPITAL LLC
By: /s/ Daniel Saks
-------------------------------
Name: Daniel Saks
Title: Managing Director
EXHIBIT A PURCHASERS
EXHIBIT B FORM OF CERTIFICATE OF
DESIGNATIONS
EXHIBIT C FORM OF WARRANT
EXHIBIT D REGISTRATION RIGHTS AGREEMENT
EXHIBIT E OPINION OF REID & PRIEST LLP
SCHEDULE 1 DISCLOSURE SCHEDULE
EXHIBIT A TO SECURITIES PURCHASE AGREEMENT
------------------------------------------
PURCHASERS
INITIAL CLOSING: MAY 4, 1998
---------------------------------------------------------------------
NUMBER OF SHARES
OF SERIES A NUMBER OF
PURCHASER PREFERRED STOCK TO WARRANTS PURCHASE
BE PURCHASED PURCHASED PRICE
---------------------------------------------------------------------
Jubilee Investors Initial closing: N/A $1,000.00 per
LLC 1,000 shares. share
c/o One World Trade First Additional
Center Suite 4563 Closing: 1,000
New York, New York shares.
10048 Second Additional
Closing: 1,000
shares
--------------------------------------------------------------------
West End Capital N/A 50,000 $.01 per
LLC warrant
One World Trade
Center Suite 4563
New York, New York
10048
-------------------------------------------------------------------
SCHEDULE 1 TO SECURITIES PURCHASE AGREEMENT
DISCLOSURE SCHEDULE