Exhibit 10.3
PROMISSORY NOTE AND
SECURITY AGREEMENT
$1,050,000.00 November 17, 1999
FOR VALUE RECEIVED, AMERICAN ELECTROMEDICS CORP., a Delaware
corporation ("Maker"), hereby promises to pay to the order of
JUBILEE INVESTORS LLC, a Delaware limited liability company
(hereinafter called "Payee"), the principal sum of ONE MILLION
FIFTY THOUSAND DOLLARS ($1,050,000) (the "Principal Amount") in
lawful money of the United States of America.
The Principal Amount shall be payable in full on the earlier
to occur of (i) within five business days of the closing date of
the initial public offering of the Maker's German subsidiary,
Rosch GmbH Medizintechnik ("Rosch"), out of proceeds raised in
such financing or (ii) April 30, 2000 (the "Maturity Date"). If
the average Closing Bid Price for the shares of common stock of
the Maker exceeds $3.00 per share for the five (5) trading days
prior to the Maturity Date, then the Principal Amount payable
hereunder shall be reduced to $700,000. The term "Closing Bid
Price" means, for the Maker's common stock as of any date, the
closing bid price on the principal securities exchange or trading
market where the Maker's common stock is listed or traded as
reported by Bloomberg, L.P. ("Bloomberg"), or, if applicable, the
closing bid price of the Maker's common stock in the over-the-
counter market on the electronic bulletin board for such security
as reported by Bloomberg, or, if no closing bid price is reported
for the Maker's common stock by Bloomberg, then the average of
the bid prices of any market makers for such security as reported
in the "pink sheets" by the National Quotation Bureau, Inc. If
the Closing Bid Price of the Maker's common stock cannot be
calculated on such date on any of the foregoing bases, the
Closing Bid Price of the Maker's common stock on such date shall
be the fair market value as mutually determined by the Maker and
Payee. "Trading day" shall mean any day on which the Maker's
common stock is traded for any period on the principal securities
exchange or other securities market on which the common stock is
then being traded.
The following additional terms shall govern this Promissory
Note and Security Agreement (this "Note"):
1. This Note is executed and delivered to Payee by Maker
in exchange for 350 shares of Convertible Preferred Stock, Series
A of the Maker held by Payee as more fully set forth in the
Securities Exchange Agreement, dated November 17, 1999, between
Maker and Payee (the "Securities Exchange Agreement").
2. This Note may be prepaid in part from time to time or
in full at any time in cash without penalty. All prepayments
shall be applied to the reduction of principal. The parties
agree that imputed interest is included in the principal amount
of this Note.
3. All cash distributions, license fees, royalties and
other revenue or consideration received in respect of, or cash
proceeds received on the sale or license of, the Collateral (as
hereinafter defined) shall be applied, at the option of the
Payee, to the prepayment of the entire unpaid Principal Amount of
this Note and Maker shall deliver to Payee all such amounts
promptly upon receipt thereof, provided, however, that for every
$2 of the Principal Amount that is repaid pursuant to this
section there shall be a reduction to the Principal Amount of an
additional $ 1.
4. Principal shall be paid in lawful currency of the
United States, in immediately available funds via wire transfer
to an account designated by Payee, or at such other place or to
such other person as Payee may designate in a written notice to
Maker.
5. As security for the full, prompt and complete payment
of all principal on this Note, Maker hereby pledges, assigns and
grants to Payee a continuing first priority security interest
valid throughout the world, except as expressly limited, in the
intellectual property listed on Schedule A (the "Collateral").
Until all amounts secured thereby shall have been repaid in full,
the Maker shall execute such further documents and instruments
and take such further steps as may be required by Payee to
perfect and protect such security interest. Maker shall bear any
costs related to the perfection and protection of such security
interest.
6. Each of the following shall constitute an "Event of
Default" within the meaning of this Note:
(a) Maker shall fail or refuse to make payment in full of the
Principal Amount due hereunder on the Maturity Date;
(b) Maker or any subsidiary of Maker (as principal,
guarantor or other surety) shall default in the payment when due
of any debt or obligation when due or within any applicable
period of grace of any amount of principal, premium or interest
on a debt or obligation that is outstanding in a principal amount
in the aggregate of at least $250,000;
(c) Maker shall default in the performance of any
material covenant in this Note or in the Securities Exchange
Agreement or if any material representation or warranty made in
this Note or in the Securities Exchange Agreement shall have
proved to have been false or incorrect in any respect on the date
as of which made or shall omit to state any material fact
necessary to make the representation and warranty not misleading;
provided that before any such event shall become an Event of
Default, the Payee shall give written notice to the Maker and the
Maker shall have ten (10) days from the receipt of such notice to
cure any such event or condition; or
(d) (i) Maker or any of its subsidiaries shall make a
general assignment for the benefit of its creditors, (ii) entry
of a final order adjudicating Maker or any of its subsidiaries
bankrupt, (iii) the filing of a voluntary petition by Maker or
any of its subsidiaries under any of the provisions of the United
States bankruptcy code or similar laws of any jurisdiction, (iv)
the filing of any answer or other pleading admitting the material
allegations of any petition filed against Maker or any of its
subsidiaries in any bankruptcy, insolvency or other such
proceeding, (v) the filing of a petition against Maker or any of
its subsidiaries under any of the provisions of any bankruptcy
laws of the United States or similar laws of any jurisdiction and
the failure of such petition to be dismissed within sixty (60)
calendar days, (vi) the petition for, or the appointment of, or
possession by, a custodian, receiver, liquidator, trustee or
sequestrator (or other similar official) of Maker or any of its
subsidiaries or any substantial part of its or any such
subsidiary's properties or assets, (vii) Maker or any of its
subsidiaries shall take any corporate action in furtherance of
any of the foregoing, (viii) Maker or any of its subsidiaries
shall be generally unable to pay its debts as they mature; or
(ix) a final judgment shall be rendered against Maker or any of
its subsidiaries for the payment of money at least $250,000 in
the aggregate and such judgment shall not be discharged or
execution thereon stayed pending appeal within 60 calendar days
of entry of such judgment, or, in the event of such a stay, such
judgment shall not be discharged within 60 calendar days after
such stay expires.
7. Upon the occurrence and during the continuance of an
Event of Default, the unpaid Principal Amount of this Note shall
automatically, without any action on the part of Payee, become
immediately due and payable, in each case without presentment,
demand, protest or any notice of any kind, all of which are
hereby waived. Upon the occurrence of an Event of Default,
Payee, in addition to any other rights it may have, shall have
the right at any time and from time to time to sell, resell,
assign, license, sublicense and deliver, in its discretion, all
or any of the Collateral in one or more parcels at the same or
different times, and all right, title and interest, claim and
demand therein. Payee may purchase all or any of the Collateral
being sold. Payee shall give Maker at least ten (10) calendar
days' prior notice of the time and place of any public or private
sale and of the time after which any private sale or other
disposition is to be made, which notice Maker agrees is
reasonable. Payee may, without notice or publication, adjourn
any public or private sale or cause the same to be adjourned from
time to time by announcement at the time and place fixed for
sale, and such sale may, without further notice, be made at the
time and place to which the same was so adjourned. Maker shall
pay all reasonable out-of-pocket costs and expenses of every kind
for sale or delivery, including reasonable attorneys' fees, and
after deducting such costs and expenses from the proceeds of
sale, Payee shall apply any remainder to the payment of the
indebtedness or obligations of Maker under or in respect of this
Note. The balance, if any, remaining after payment in full of
all of such expenses and indebtedness shall be paid to Maker,
subject to any duty of Payee imposed by law to the holder of any
subordinate security interest in the Collateral known to Payee.
Payee, in addition to all other rights or remedies which it may
have, shall have all of the rights and remedies of a secured
party upon default under the Uniform Commercial Code of the State
of New Hampshire and under any other applicable law. Payee may
exercise any or all of the rights which it may have in the
Collateral in any order, from time to time, and shall not be
obligated to exercise any of such rights. No failure to exercise
any right shall operate as a waiver and no waiver, consent or
agreement given in any instance shall adversely affect the rights
of Payee in any other instance.
8. Maker shall pay to Payee all costs and expenses
incurred by Payee (including reasonable attorney's fees and
expenses) in connection with the enforcement hereof. The payment
of all such amounts shall constitute additional indebtedness of
Maker hereunder, and payment thereof shall be secured by the
Collateral.
9. The remedies provided herein in favor of Payee shall
not be deemed exclusive, but shall be cumulative, and shall be in
addition to all other remedies in favor of Payee existing at law
or in equity. Payee shall have no duty as to the collection or
protection of the Collateral or any income thereon or as to the
preservation of any rights pertaining thereto, beyond the safe
custody thereof of any securities representing such Collateral
that are actually in its possession.
10. Upon payment in full of all indebtedness of Maker
hereunder, Maker shall be entitled to the return of all of the
Collateral which has not been used or applied as provided herein
and Payee shall return this Note to Maker.
11. This Note shall be governed by the laws of the State of
New York applicable to contracts made and to be performed
entirely in such State , except to the extent that the laws of
the State of New Hampshire shall govern the security interest
created hereby, and any proceeding relating to this Note or any
other indebtedness secured may be brought only in the federal or
state courts sitting in New York, to the jurisdiction and venue
of which the parties hereby submit. The parties waive trial by
jury in any such proceeding. This Note may not be altered or
amended, except by a writing duly signed by the party against
whom such alteration or amendment is sought to be enforced.
12. Maker hereby waives presentment for payment, demand,
notice of dishonor, notice of protest and protest and diligence
in taking any action to collect amounts due hereunder.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, this Promissory Note and Security
Agreement is executed by the parties as of the date first
appearing above.
AMERICAN ELECTROMEDICS CORP.
By /s/ Michael T. Pieniazek
--------------------------
Name: Michael T. Pieniazek
Title: President
EQUIDYNE SYSTEMS, INC.
By /s/ Michael T. Pieniazek
--------------------------
Name: Michael T. Pieniazek
Time: Secretary
ACKNOWLEDGED AND AGREED:
------------------------
JUBILEE INVESTORS LLC
By: WEC ASSET MANAGEMENT LLC, Manager
By /s/ Daniel Saks
---------------------------------
Name: Daniel Saks
Time: Managing Director
SCHEDULE A
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The security interest granted herein shall extend to all
intellectual property of the Maker and its subsidiaries,
excluding Rosch GmbH Medizintechnik, but otherwise including
without limitation the following:
1. PATENTS
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(a) United States Patent No. 5,704,91 1, "Needleless
Hypodermic Injection System" and any other related existing or
future letters patent and applications for letters patent,
including all patent applications in preparation for filing
anywhere in the world owned by or assigned to the Maker or its
subsidiaries throughout the world
(b) United States Patent No. 5,569,189, "Needleless
Hypodermic Injector" and any other related existing or future
letters patent and applications for letters patent, including all
patent applications in preparation for filing anywhere in the
world owned by or assigned to the Maker or its subsidiaries
throughout the world.
(c) Any other existing or future letters patent and
applications for letters patent, including all patent
applications in preparation for filing anywhere in the world
owned by or assigned to the Maker or its subsidiaries throughout
the world.
(d) All patent licenses.
(e) All reissues, divisions, continuations, continuations-
in-part, extensions, renewals, and reexaminations of any of the
items described in items (c) and (d) above.
(f) All proceeds of, and rights associated with, the
foregoing (including license royalties and proceeds of
infringement suits), the right to sue third parties for past,
present or future infringements of any patent or patent
application, including any patent or patent application referred
to above and for breach or enforcement of any patent license.
II. TRADEMARKS, SERVICE MARKS AND TRADENAMES
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(a) INJEX SYSTEM (unregistered trademark)
DYNACAM (unregistered trademark)
(b) All trademarks, trade names, corporate names, company
names, business names, fictitious business names, trade styles,
service marks or logos (collectively, "Trademarks") now existing
anywhere in the world or hereafter adopted or acquired, whether
currently in use or not, all registrations and recordings
thereof, and all applications in connection therewith, whether
pending or in preparation for filing, including registrations,
recordings and applications in the United States Patent and
Trademark Office or in any office or agency of the United States
of America or any State thereof or any foreign country.
(c) All licenses of Trademarks to or by Maker or its
subsidiaries.
(d) All reissues, extensions or renewals of any of the
items described in clauses (b) or (c) above
(e) All goodwill of the business connected with the use of,
and symbolized by the items described in, clauses (a), (b) and
(c) above.
(f) All proceeds of, and rights associated with, the
foregoing, including any claim by the Maker or its subsidiaries
against third parties for past, present or future infringement or
dilution of any Trademark, including for registrations and
licenses in connection with any Trademark or for injury to the
goodwill associated with the use of any such Trademark or for
breach or enforcement of any Trademark license.
III COPYRIGHTS
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All of the Maker's or the Maker's subsidiaries' right title
and interest in and to the following: all copyrights, whether
statutory or common law, registered or unregistered, now or
hereafter in force throughout the world, including all of the
Maker's or the Maker's subsidiaries' right, title and interest in
any United States Copyrights registered in the United States
Copyright Office or any other registered copyrights registered
anywhere else in the world and including all applications for
registration of, whether pending or in preparation, all copyright
licenses, including all rights to sue for past, present and
future infringements of any such license, all rights
corresponding thereto throughout the world, all extensions and
renewals of any thereof and all proceeds of the foregoing,
including licenses, royalties, income, payments, claims, damages
and proceeds of any suits related to the above.
IV. TRADE SECRETS
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All of the Maker's or the Maker's subsidiaries' right, title
and interest in and to the following: common law and statutory
trade secrets and all other confidential or proprietary
information and know-how, now or hereafter owned or licensed or
used in or contemplated at any time for use in the business of
the Maker or the Maker's subsidiaries (collectively, "Trade
Secrets"), whether or not such Trade Secret has been reduced to a
writing or other tangible form, including all documents and
things embodying, incorporating, or referring in any way to such
Trade Secret, all Trade Secret licenses, and the right to collect
damages for the actual or threatened misappropriation of any
Trade Secret and for the breach or enforcement of any such Trade
Secret license.