-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NbAVLybbs0hirj1dNozQKb4cFRSaWXY/1KUdBjnlOoSTR+BkJmKT8/pWuV5f3Grt rb4GIIvnk/5ubJ0SjQsrpA== 0000950120-99-000054.txt : 19990210 0000950120-99-000054.hdr.sgml : 19990210 ACCESSION NUMBER: 0000950120-99-000054 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990203 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990209 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN ELECTROMEDICS CORP CENTRAL INDEX KEY: 0000352281 STANDARD INDUSTRIAL CLASSIFICATION: ELECTROMEDICAL & ELECTROTHERAPEUTIC APPARATUS [3845] IRS NUMBER: 042608713 STATE OF INCORPORATION: DE FISCAL YEAR END: 0727 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-09922 FILM NUMBER: 99526323 BUSINESS ADDRESS: STREET 1: 13 COLUMBIA DR STE 5 CITY: AMHERST STATE: NH ZIP: 03031 BUSINESS PHONE: 6038806300 MAIL ADDRESS: STREET 1: 13 COLUMBIA DR STREET 2: STE 18 CITY: AMHERST STATE: NH ZIP: 03031 8-K 1 FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of Earliest Event Reported) February 3, 1999 ---------------- AMERICAN ELECTROMEDICS CORP. ---------------------------- (Exact name of registrant as specified in its charter) Delaware 0-9922 04-2608713 ---------- -------- ------------- (State or other (Commission File Number) (IRS Employer jurisdiction of Identification No.) Incorporation) 13 Columbia Drive, Suite 5, Amherst, New Hampshire 03031 ----------------------------------------------------------------- (Address of principal executive offices) (zip code) Registrant's telephone number, including area code (603) 880-6300 -------------- Not Applicable ----------------------------------------------------------------- (Former Name or Former Address, if changed since last report) ITEM 5. OTHER EVENTS. ------------ On February 3, 1999, American Electromedics Corp. (the "Company") entered into a Securities Purchase Agreement with three purchasers (the "Purchasers") to issue up to 2,000 shares of Series B 5% Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), together with Warrants (the "Warrants") to purchase up to 25,000 shares of the Company's Common Stock, par value $.10 per share (the "Common Stock"), pro rata with the purchase of the Series B Preferred Stock. On February 3, 1999, the Company issued and the Purchasers privately purchased 1,600 shares of Series B Preferred Stock at a purchase price of $1,000 per share, or an aggregate purchase price of $1,600,000, together with the Warrants for 25,000 shares of Common Stock at an exercise price per share of $3.00 and exercisable until January 31, 2002. The Company may issue and sell the remaining 400 shares of Series B Preferred Stock. The holders of the Series A Convertible Preferred Stock consented to the sale of the Series B Preferred Stock. The Series B Preferred Stock is convertible into shares of the Company's Common Stock at any time after April 30, 1999 at a conversion ratio equal to $1,000 divided by the lessor of (i) $2.00 or (ii) 75% of the average closing bid price of the Common Stock for the five trading days immediately prior to the notice of conversion. The Company has the right to force conversion of all outstanding shares of Series B Preferred Stock at any time on or after the first anniversary of the date the registration statement filed relating to the shares of Common Stock underlying the Series B Preferred Stock is declared effective by the Securities and Exchange Commission (the "SEC") at the then effective conversion ratio. The Series B Preferred Stock, the Warrants and the shares underlying the Series B Preferred Stock were not registered under the Securities Act of 1933 (the "Securities Act") in reliance upon the exemptions provided by Regulation D under the Securities Act. As a condition to the closing of the placement of the Series B Preferred Stock, the Company entered into a Registration Rights Agreement with the Purchasers agreeing to file a registration statement under the Securities Act with the SEC covering the Common Stock underlying the Series B Preferred Stock and the Warrants. The Company is to file such registration statement no later than the later of (i) March 5, 1999 or (ii) thirty days after the date the Company's Registration Statement on Form SB-2 (File No. 333-58937) becomes effective, and to use its best efforts to cause such registration statement to become effective within 90 days after it is filed. If the registration statement is not declared effective by the SEC within the specified time period, the Company would pay the Purchasers for each thirty day period following such date during which the registration statment remains ineffective, liquidated damages in the amount of 2% of the face amount of the Series B Preferred Stock, provided that such total amount of liquidated damages shall not exceed $100,000. -2- The Company shall use the net proceeds of $1,500,000 (after offering expenses) for repayment of $650,000 principal amount of notes and general working corporate purposes, primarily relating to developing its INJEX TM needle-free injector system. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS --------------------------------- (c) Exhibits. 3.1 Certificate of Designation for Series B 5% Convertible Preferred Stock, filed with the Secretary of State of Delaware on February 3, 1999. 10.1 Form of Securities Purchase Agreement for the sale of Series B Preferred Stock (without exhibits) 10.2 Form of Warrant Agreement 10.3 Form of Registration Rights Agreement -3- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. American Electromedics Corp. ---------------------------- (Registrant) By: /s/ Michael T. Pieniazek -------------------------- Michael T. Pieniazek, President February 4, 1999 -4- EXHIBIT INDEX EXHIBIT DESCRIPTION 3.1 Certificate of Designation for Series B 5% Convertible Preferred Stock, filed with the Secretary of State of Delaware on February 3, 1999. 10.1 Form of Securities Purchase Agreement for the sale of Series B Preferred Stock (without exhibits) 10.2 Form of Warrant Agreement 10.3 Form of Registration Rights Agreement EX-3 2 EXHIBIT 3.1 EXHIBIT 3.1 CERTIFICATE OF DESIGNATION OF SERIES AND DETERMINATION OF RIGHTS AND PREFERENCES OF SERIES B 5% CONVERTIBLE PREFERRED STOCK OF AMERICAN ELECTROMEDICS CORP. American Electromedics Corp., a Delaware corporation (the "Company"), acting pursuant to S 151 of the General Corporation Law of Delaware, does hereby submit the following Certificate of Designation of Series and Determination of Rights and Preferences of its Series B Convertible Preferred Stock. FIRST: The name of the Company is American Electromedics Corp. SECOND: The Board of Directors of the Company pursuant to a unanimous written consent in lieu of a meeting, dated as January 25, 1999, adopted the following resolutions: WHEREAS the Certificate of Incorporation of the Company authorizes Preferred Stock consisting of 1,000,000 shares, par value $.01 per share, issuable from time to time in one or more series; and WHEREAS the Board of Directors of the Company is authorized, subject to limitations prescribed by law and by the provisions of Article FOUR (4) of the Company's Certificate of Incorporation, as amended, to establish and fix the number of shares to be included in any series of Preferred Stock and the designation, rights, preferences, powers, restrictions and limitations of the shares of such series; and WHEREAS it is the desire of the Board of Directors to establish and fix the number of shares to be included in a new series of Preferred Stock and the designation, rights, preferences and limitations of the shares of such new series; NOW, THEREFORE, BE IT RESOLVED that pursuant to Article FOUR (4) of the Company's Certificate of Incorporation, as amended, there is hereby established a new series of 2,000 shares of Series B 5% Convertible Preferred Stock of the Company (the "Series B Preferred Stock") to have the designation, rights, preferences, powers, restrictions and limitations set forth in a supplement of Article FOUR (4) as follows: 1. Dividends. --------- (a) The holders of the Series B Preferred Stock shall be entitled to receive, out of funds legally available therefor, dividends at an annual rate equal to five percent (5%) (the "Dividend Rate") of the Liquidation Preference (as hereinafter defined) (subject to appropriate adjustments in the event of any stock dividend, stock split, combination or other similar recapitalization affecting such shares) per share per annum, and no more, payable in preference and priority to any payment of any cash dividend on Common Stock or any other shares of capital stock of the Company ranking junior to the Series B Preferred Stock in respect of dividends (such Common Stock and other inferior stock being collectively referred to as "Junior Stock"), at a date no earlier than the Conversion Date (as hereinafter defined). No dividends shall be declared or paid on the Series B Preferred Stock other than a dividend payable on shares of Series B Preferred Stock then being converted in accordance with Section 4 hereof unless a dividend is also declared and/or paid as may then be required on the Company's Series A Convertible Preferred Stock (the "Series A Preferred Stock"). (b) Dividends shall accrue with respect to each share of Series B Preferred Stock from the date on which such share is issued and outstanding and thereafter shall be deemed to accrue from day to day whether or not earned or declared and whether or not there exists profits, surplus or other funds legally available for the payment of dividends, and shall be cumulative so that if such dividends on the Series B Preferred Stock shall not have been paid, or declared and set apart for payment, the deficiency shall be fully paid or declared and set apart for payment before any dividend shall be paid or declared or set apart for any Junior Stock and before any purchase or acquisition of any Junior Stock is made by the Company, except the repurchase of Junior Stock from employees of the Company upon termination of employment. At the earlier of: (i) the redemption or conversion of the Series B Preferred Stock or (ii) the liquidation, sale or merger of the Company, any accrued but undeclared dividends shall be paid to the holders of record of outstanding shares of Series B Preferred Stock. No accumulation of dividends on the Series B Preferred Stock shall bear interest. (c) At the election of the Company, each dividend may be paid either in shares of Common Stock or in cash. If dividends are paid in shares of Common Stock, the number of shares to be distributed shall be determined based on the average Closing Bid Price of the shares of Common Stock for the five (5) Trading Days immediately preceding the date such dividends are declared and the shares of Common Stock issued in payment of the dividend must either be subject to an effective registration statement filed under the Securities Act of 1933, as amended (the "Securities Act"), or be presently saleable pursuant to an exemption from registration thereunder. For purposes of this Certificate of Designations, the term "Closing Bid Price" means, for the Common Stock as of any date, the closing bid price on the principal securities exchange or trading market where the Company's Common Stock is listed or traded as reported by Bloomberg, L.P. ("Bloomberg"), or, if applicable, the closing bid price of the Common Stock in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price is reported for the Common Stock by Bloomberg, then the average of the bid prices of any market makers for such security as reported in the "pink sheets" by the National Quotation Bureau, Inc. If the Closing Bid Price of the Common Stock cannot be calculated on such date on any of the foregoing bases, the Closing Bid Price of the Common Stock on such date shall be the fair market value as mutually determined by the Company and the holders of a majority of the outstanding shares of Series B Preferred Stock being converted for which the calculation of the Closing Bid Price is required in order to determine the Conversion Price of such shares. "Trading Day" shall mean any day on which the Company's Common Stock is traded for any period on the principal securities exchange or other securities market on which the Common Stock is then being traded. Dividends paid in shares of Common Stock shall be paid in full shares only, with a cash payment equal to the value of any fractional shares. Each dividend paid in cash shall be mailed to the holders of record of the Series B Preferred Stock as their names and addresses appear on the share register of the Company or at the office of the transfer agent on the corresponding dividend payment date. 2. Liquidation, Dissolution or Winding Up. -------------------------------------- (a) In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, the holders of shares of Series B Preferred Stock then outstanding shall be entitled to be paid out of the assets of the Company available for distribution to its stockholders, after and subject to the payment in full of all amounts required to be distributed to the holders of any other class or series of stock of the Company ranking in liquidation prior and in preference to the Series B Preferred Stock (collectively referred to as "Senior Preferred Stock"), in pari passu with the holders of the Series A Preferred Stock and any other class or series of stock of the Company, but before any payment shall be made to the holders of Junior Stock by reason of their ownership thereof, an amount equal to $1,000 per share of Series B Preferred Stock (the "Liquidation Preference") plus any accrued but unpaid dividends (whether or not declared). If upon any such liquidation, dissolution or winding up of the Company the remaining assets of the Company available for distribution to its stockholders shall be insufficient to pay the holders of shares of Series B Preferred Stock (and the holders of any other series of Preferred Stock with a Liquidation Preference equal to the Liquidation Preference of the Series B Preferred Stock, including, without limitation, the holders of the Series A Preferred Stock) the full amount to which they shall be entitled, the holders of shares of Series B Preferred Stock (and the holders of any other series of Preferred Stock with a Liquidation Preference equal to the Liquidation Preference of the Series B Preferred Stock) shall share ratably in any distribution of the remaining assets and funds of the Company in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. (b) After the payment of all preferential amounts required to be paid to the holders of Preferred Stock upon the dissolution, liquidation or winding up of the Company, all of the remaining assets and funds of the Company available for distribution to its stockholders shall be distributed ratably among the holders of the Series A Preferred Stock, the Series B Preferred Stock and the Common Stock, with each share of Series A Preferred Stock and Series B Preferred Stock being deemed, for such purpose, to be equal to the number of shares of Common Stock, including fractions of a share, into which such share of Series A Preferred Stock and Series B Preferred Stock is convertible immediately prior to the close of business on the business day fixed for such distribution. (c) The merger or consolidation of the Company into or with another corporation which results in the exchange of outstanding shares of the Company for securities or other consideration issued or paid or caused to be issued or paid by such other corporation or an affiliate thereof (except if such merger or consolidation does not result in the transfer of more than fifty percent (50%) of the voting securities of the Company), or the sale of all or substantially all the assets of the Company, shall be deemed to be a liquidation, dissolution or winding up of the Company for the purposes of this Section 2, unless the holders of sixty-six and two-thirds percent (66-2/3%) of the Series B Preferred Stock then outstanding vote otherwise. The amount deemed distributed to the holders of Series B Preferred Stock upon any such merger or consolidation shall be the cash or the value of the property, rights and/or securities distributed to such holders by the acquiring person, firm or other entity. The value of such property, rights or other securities shall be determined in good faith by the Board of Directors of the Company. 3. Voting. ------ (a) The holders of the Series B Preferred Stock shall not have any voting rights except (i) as required by law and (ii) as provided in Section 4(b) below. (b) The Company shall not amend, alter or repeal preferences, rights, powers or other terms of the Series B Preferred Stock so as to affect adversely the Series B Preferred Stock, without the written consent or affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the then outstanding shares of Series B Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class. 4. Conversion. ---------- The holders of the Series B Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. At any time and from time to ---------------- time after April 30, 1999, each share of Series B Preferred Stock shall be convertible, at the option of the holder thereof, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing one thousand dollars ($1,000) by the Conversion Price (as defined below) in effect at the time of conversion, provided the conversion must be for not less than an aggregate $25,000 Liquidation Preference of the Series B Preferred Stock, or the balance of the holder's certificates for Series B Preferred Stock if less than $25,000 aggregate Liquidation Preference. The Conversion Price at which shares of Common Stock shall be deliverable upon conversion of Series B Preferred Stock without the payment of additional consideration by the holder thereof (the "Conversion Price") shall be the lower of (i) $2.00 or (ii) seventy-five percent (75%) of the average Closing Bid Price of the shares of Common Stock for the five (5) Trading Days prior immediately to the Conversion Date (as hereinafter defined). In the event of a liquidation of the Company, the Conversion Rights shall terminate at the close of business on the first full trading day preceding the date fixed for the payment of any amounts distributable on liquidation to the holders of Series B Preferred Stock. (b) Fractional Shares. No fractional shares of Common ----------------- Stock shall be issued upon conversion of the Series B Preferred Stock. In lieu of fractional shares, the Company shall pay cash equal to such fraction multiplied by the then effective Conversion Price. (c) Mechanics of Conversion. ----------------------- (i) The Company shall permit each holder of Series B Preferred Stock to exercise its right to convert the Series B Preferred Stock by delivering an executed and completed notice of conversion (a "Notice of Conversion") to the Company by facsimile to (603) 880-6390 or such other facsimile number as designated by the Company, and delivering within five (5) business days thereafter, the original Notice of Conversion, together with the certificates representing the related shares of Series B Preferred Stock, to the Company by hand delivery or by express courier, duly endorsed. Each date on which a Notice of Conversion is faxed to and received in accordance with the provisions hereof shall be deemed a "Conversion Date." The Company shall, at its expense, transmit the certificates representing the Common Stock issuable upon conversion of the Series B Preferred Stock (together with certificates representing the related shares of Series B Preferred Stock not so converted) to such holder via express courier, by electronic transfer or otherwise, within three (3) business days after receipt by the Company of the date the certificates representing the shares of Series B Preferred Stock to be converted are duly received by the Company (the "Delivery Date"). For purposes of this Certificate of Designations, such conversion of the Series B Preferred Stock shall be deemed to have been made immediately prior to the close of business on the Conversion Date. (ii) The Company shall 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 B Preferred Stock. The Company shall 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 two (2) times the number that is then actually issuable upon the conversion of the Series B Preferred Stock. (iii) All shares of Series B Preferred Stock which shall have been surrendered for conversion as herein provided shall no longer be deemed to be outstanding and all rights with respect to such shares, including the rights, if any, to receive dividends, notices and to vote, shall immediately cease and terminate on the Conversion Date, except only the right of the holders thereof to receive shares of Common Stock in exchange therefor. Any shares of Series B Preferred Stock so converted shall be retired and canceled and shall not be reissued, and the Company may from time to time take such appropriate action as may be necessary to reduce the number of shares of authorized Series B Preferred Stock accordingly. (iv) If the conversion is in connection with an underwritten offer of securities registered pursuant to the Securities Act, the conversion may at the option of any holder tendering Series B Preferred Stock for conversion be conditioned upon the closing with the underwriter of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock issuable upon such conversion of the Series B Preferred Stock shall not be deemed to have converted such Series B Preferred Stock until immediately prior to the closing of the sale of securities. (v) The Company understands that a delay in the issuance of the Shares of Common Stock beyond the Delivery Date could result in economic loss to the holder of the Series B Preferred Stock being converted (the "Converting Holder"). As compensation to the Converting Holder for such loss, the Company agrees to pay late payments to the Converting Holder in the event that due entirely to the Company's direct or indirect actions or to its failure to act (the "Company's Actions"). The Company shall issue and deliver the shares of Common Stock upon conversion in accordance with the following schedule (where "No. Business Days Late" is defined as the number of business days beyond five (5) business days from the Delivery Date): No. Business Days Late Late Payment for Each $10,000 ---------------------- of Preferred Stock Liquidation Amount Being Converted ---------------------- 1 $100 2 $200 3 $300 4 $400 5 $500 >5 $500 +$200 for each Business Day Late beyond 5 days from The Delivery Date The Company shall pay any payments incurred under this Subsection (c)(v) in immediately available funds upon demand. Nothing herein shall limit the Converting Holder's right to pursue actual damages for the Company's Actions resulting in the transfer agent's failure to issue and deliver the Common Stock to the Converting Holder. Furthermore, in addition to any other remedies which may be available to the addition to any other remedies which may be available to the Converting Holder, in the event that due to the Company's Actions, the transfer agent fails to deliver such shares of Common Stock within five (5) business days after the Delivery Date, the Converting Holder will be entitled to revoke the relevant Notice of Conversion by delivering a notice to such effect to the Company whereupon the Company and the Converting Holder shall be restored to its position immediately prior to delivery of such Notice of Conversion. (vi) If, by the relevant Delivery Date, due to the Company's Actions, and the transfer agent fails for any reason to deliver the Shares to be issued upon conversion of Series B Preferred Stock and after such Delivery Date, the Converting Holder purchases, in an open market transaction or otherwise, shares of Common Stock (the "Covering Shares") solely in order to make deliver in satisfaction of a sale of Common Stock by the Converting Holder (the "Sold Shares"), which delivery such Converting Holder anticipated to make using the shares of Common Stock to be issued upon such conversion (a "Buy-In"), the Company shall pay to the Converting Holder, in addition to all other amounts contemplated in other provisions of the Securities Purchase Agreement and related Agreements pursuant to which the Series B Preferred Stock was sold by the Company to the initial holders, and not in lieu thereof, the Buy-In Adjustment Amount (as defined below). The "Buy In Adjustment Amount" is the amount equal to the excess, if any, of (x) the Converting Holder's total purchase price (including brokerage commissions, if any) for the Covered Shares over (y) the net proceeds (after brokerage commissions, if any) received by the Converting Holder from the sale of the Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the Converting Holder in immediately available funds immediately upon demand by the Converting Holder. By way of illustration and not in limitation of the foregoing, if the Converting Holder purchases shares of Common Stock having a total purchase price (including brokerage commissions) of $11,000 to cover a Buy-In with respect to shares of Common Stock it sold for net proceeds of $10,000, the Buy-In Adjustment Amount which Company will be required to pay to the Converting Holder will be $1,000. (vii) Subject to the completeness and accuracy of the Converting Holder's representations and warranties herein and in the Securities Purchase Agreement pursuant to which the Company sold the Series B Preferred Stock, upon the conversion of any Series B Preferred Stock by a person who is a non-U.S. Person, and following the expiration of any applicable Restricted Period (as those terms are defined in Regulation S under the Securities Act), the Company, shall at its expense, take all necessary action (including the issuance of an opinion of counsel) to assure that the Company's transfer agent shall issue stock certificates without restrictive legend or stop orders in the name of the Converting Holder (or its nominee (being a non- U.S. Person) or such non-U.S. persons as may be designated by the Converting Holder) and in such denominations to be specified at conversion representing the number of shares of Common Stock issuable upon such conversion, as applicable. Nothing in this Section 4, however, shall affect in any way the Converting Holder's or such nominee's obligations and agreement to comply with all applicable securities laws upon resale of the Common Stock. (d) Quantity Limitations on Conversion. ---------------------------------- Notwithstanding anything herein to the contrary, no holder of Series B Preferred Stock shall have the right, and the Company shall not have the obligation, to convert all or any portion of the Series B Preferred Stock (and the Company shall not have the right to pay dividends on the Series B Preferred Stock in shares of Common Stock) if and to, the extent that the issuance to such holder of shares of Common Stock upon such conversion (or payment of dividends) would result in such holder being deemed the beneficial owner of more than nine and nine-tenths percent (9.9%) of the then outstanding shares of Common Stock within the meaning of Section 13 (d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules promulgated thereunder. (e) No Impairment. The Company will not, by amendment ------------- of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series B Preferred Stock against impairment. (f) Notice of Record Date. In the event: --------------------- (i) that the Company declares a dividend (or any other distribution) on its Common Stock payable in Common Stock or other securities of the Company; (ii) that the Company subdivides or combines its outstanding shares of Common Stock; (iii) of any reclassification of the Common Stock of the Company (other than a subdivision or combination of its outstanding shares of Common Stock or a stock dividend or stock distribution thereon); (iv) of any consolidation or merger of the Company into or with another corporation, or any exchange of shares, recapitalization, reorganization or other similar event, as a result of which shares of Common Stock of the Company shall be changed into the same or a different number of shares of the same or another class or classes of stock or securities of the Company or another entity; or (v) of the involuntary or voluntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be filed at its principal executive offices or at the office of the transfer agent of the Series B Preferred Stock, and shall cause notice thereof to be mailed to the holders of the Series B Preferred Stock at least ten (10) days prior to the record date specified in (A) below or twenty (20) days before the date specified in (B) below, a notice stating: (A) the record date of such dividend, distribution, subdivision or combination, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution, subdivision or combination are to be determined, or (B) the date on which such reclassification, consolidation, merger, sale, dissolution, liquidation or winding up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reclassification, consolidation, merger, sale, dissolution or winding up. (g) Adjustment to Conversion Price. ------------------------------ (i) If, prior to the conversion of all shares of Series B Preferred Stock, any of the events specified in Section 4(f)(i) through (iii) hereof occurs, the Board of Directors of the Company shall make an equitable adjustment in the Conversion Price, if necessary, to reflect such event in order to preserve substantially the Conversion Rights of the holders of Series B Preferred Stock. The Company shall send to each holder of Series B Preferred Stock written notice of each change in the Conversion Price. (ii) If, prior to the conversion of all shares of Series B Preferred Stock, any of the events specified in Section 4(f)(iv) hereof occurs, then the holders of Series B Preferred Stock shall thereafter have the right to receive upon conversion of shares of Series B Preferred Stock, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such shares of stock and/or securities as may be issued or payable with respect to or in exchange for the number of shares of Common Stock immediately theretofore receivable upon the conversion of shares of Series B Preferred Stock held by such holders had such merger, consolidation, exchange of shares, recapitalization or reorganization not taken place. In any case subject to this Subsection (g) (ii) appropriate provisions shall be made with respect to the rights and interests of the holders of the Series B Preferred Stock to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number or type of shares issuable upon conversion of the Series B Preferred Stock) shall thereafter be applicable, as nearly as may be practicable in relation to any shares of stock or securities thereafter deliverable upon the exercise hereof. The Company shall not effect any transaction described in this Subsection (g) (ii) unless the resulting successor or acquiring entity (if not the Company) assumes by written instrument the obligation to deliver to the holders of the Series B Preferred Stock such shares of stock and/or securities as, in accordance with the foregoing provisions, the holders of the Series B Preferred Stock may be entitled to purchase upon conversion, provided that such resulting successor or acquiring entity has a class of securities registered under Section 12 of the Exchange Act. (h) Mandatory Conversion. -------------------- (i) The Company may, at its option, require all (and not less than all) holders of shares of Series B Preferred Stock then outstanding to convert their shares of Series B Preferred Stock into shares of Common Stock at the then effective Conversion Price pursuant to this Section 4, at any time on or after the first anniversary of the date the registration statement filed under the Securities Act relating to the shares of Common Stock into which the Series B Preferred Stock is then convertible was declared effective by the Securities and Exchange Commission. (ii) All holders of record of shares of Series B Preferred Stock then outstanding will be given at least ten (10) days' prior written notice of the date fixed and the place designated for mandatory conversion of all such shares of Series B Preferred Stock pursuant to this Section 4(h). Such notice will be sent by first class or registered mail, postage prepaid, to each record holder of Series B Preferred Stock at such holder's address last shown on the records of the transfer agent for the Series B Preferred Stock (or the records of the Company, if it serves as its own transfer agent). 5. Optional Redemption. ------------------- (a) Redemption Price. At any time, and from time to ---------------- time, the Company may, at its option, redeem any number of shares of Series B Preferred Stock by paying cash to the holders thereof equal to: (i) during the first thirty (30) days following the date the shares are first issued (the "Issue Date"), one hundred and five percent (105%) of the sum of (A) Liquidation Preference for such shares plus (B) any accrued but unpaid dividends (such sum being the "Redemption Amount"), (ii) during the second thirty (30) day period following the Issue Date at one hundred and ten percent (110%) of the Redemption Amount, (iii) during the third thirty (30) day period following the Issue Date at one hundred and fifteen percent (115%) of the Redemption Amount, (iv) during the fourth thirty (30) day period following the Issue Date at one hundred and twenty percent (120%) of the Redemption Amount, and (v) thereafter at the greater of (X) one hundred and twenty percent (120%) of the Redemption Amount or (Y) the market price on an as converted basis of the shares of Series B Preferred Stock (based on the average Closing Bid Price of the Common Stock for the five (5) Trading Days immediately preceding the date of the Company's notice of redemption) plus all accrued and unpaid dividends. Notwithstanding anything to the contrary contained herein, so long as any shares of the Series A Preferred Stock remain outstanding, the Company shall not redeem any shares of Series B Preferred Stock without the prior written consent of the holders of sixty-six and two-thirds percent (66 %) of the outstanding shares of Series A Preferred Stock. (b) Redemption Procedure. Upon receipt of notice of -------------------- the Company's election to exercise its redemption rights under Section 5(a) thereof, each holder of Series B Preferred Stock shall accept its ratable portion (based on its holdings of Series B Preferred Stock as compared to the aggregate number of shares of Series B Preferred Stock then outstanding) of such offer by tendering such holder's shares to the Company for redemption, at an address to be set forth in such notice, at any time prior to 5:00 p.m. New York time on the fifth Trading Day (the "Redemption Date") following receipt of such notice. Within five (5) Trading Days of the Redemption Date, if notice is sent, the Company shall remit fifty percent (50%) of the applicable redemption price and within ten (10) Trading Days of the Redemption Date, if notice is sent, the Company shall remit the remaining fifty percent (50%) of the applicable redemption price, calculated pursuant to Section 5(a) hereof, by check to each holder of the Series B Preferred Stock, to the most recent address of each holder, as set forth in the Company's books and records. The failure of the Company to remit the redemption price within the applicable time period shall render the Company's notice of redemption void, and the Company shall thereafter have no right to redeem any shares of Series B Preferred Stock pursuant to this Section 5. (c) Cancellation of Redeemed Stock. Any shares of ------------------------------ Series B Preferred Stock redeemed pursuant to this Section 5 or otherwise acquired by the Company in any manner whatsoever shall be canceled and shall not under any circumstances be reissued. The Company may from time to time take such appropriate corporate action as may be necessary to reduce accordingly the number of authorized shares of the Company's capital stock. (d) Restrictions on Purchases. The Company will not, ------------------------- and will not permit any subsidiary of the Company to, purchase or acquire any shares of Series B Preferred Stock otherwise than pursuant to an offer made on the same terms to all holders of Series B Preferred Stock at the time outstanding. (e) Conversion Right. Anything contained in this ---------------- Section 5 to the contrary notwithstanding, the holders of shares of Series B Preferred Stock to be redeemed in accordance with this Section shall have the right, exercisable at any time up to the close of business on the Redemption Date (unless the Company is legally prohibited from redeeming such shares on such date, in which event such right shall be exercisable until the removal of such legal disability), to convert all or any part of such shares to be redeemed as herein provided into shares of Common Stock pursuant to Section 4 hereof. 6. Sinking Fund. The Company shall not be required to ------------ establish or maintain any sinking fund for the payment of dividends or liquidation preferences on the Series B Preferred Stock or the redemption of any shares thereof. 7. Notices. Except as otherwise specifically provided ------- herein, all notices to be provided hereunder shall be sent by first class or registered mail, postage prepaid, in the case of the Company to its principal executive offices, or in the case each record holder of Series B Preferred Stock, at such holder's address last shown on the records of the transfer agent for the Series B Preferred Stock (or the records of the Company, if it serves as its own transfer agent). IN WITNESS WHEREOF, the Company has caused this Certificate to be executed by its President this 2nd day of February, 1999. By: /s/ Michael T. Pieniazek ------------------------ Michael T. Pieniazek President EX-10 3 EXHIBIT 10.1 EXHIBIT 10.1 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT, dated as of February 2, 1999 (this "Agreement"), is entered into by and between AMERICAN ELECTROMEDICS CORP., a Delaware corporation, with headquarters located at 13 Columbia Drive, Suite 5, Amherst, New Hampshire 03031 (the "Company"), and the purchasers listed on Exhibit A attached hereto (each, a "Purchaser," and collectively, the "Purchasers"). W I T N E S S E T H: WHEREAS, the Company and the Purchasers 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 2,000 shares of Series B Convertible Preferred Stock, par value $.01 per share (the"Series B 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"), together with Warrants (the "Warrants") to purchase up to 25,000 shares of the Company's Common Stock, par value $.10 per share (the "Common Stock"), pro rata with the purchase of the Series B Preferred Stock. The Series B Preferred Stock is convertible into shares of the Company's 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 B Preferred Stock and the Warrants are collectively 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 B Preferred Stock, together with the number of Warrants set forth next to its name on Exhibit A hereto (the Series B Preferred Stock and the Warrants sometimes collectively, the "Securities"). 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 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 Securities shall be as set forth on Exhibit A hereto. B. CLOSING. Up to 2,000 shares of the Series B Preferred Stock and associated Warrants 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 $2,000,000 therefor by wire transfer to a separate escrow account maintained by Thelen Reid & Priest LLP for the benefit of the Company, all at the offices of Thelen Reid & Priest LLP, 40 West 57th Street, New York, New York 10019 on February 2, 1999 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 "Closing Date." 2. PURCHASER REPRESENTATIONS AND WARRANTIES. Each Purchaser represents and warrants to, and covenants and agrees with, the Company as follows: A. INVESTMENT PURPOSES. The Purchaser is purchasing the Securities for investment purposes only for its own account, 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, except to the extent contemplated in the Registration Rights Agreement which is Exhibit D to this Agreement. B. STATUS. 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, (iv) able to afford the entire loss of its investment in the Series B Preferred Stock, and (v) is fully aware of the risks of any investment in the Company, including those set forth in "Risk Factors" in Amendment No. 2, dated January 19, 1999, to the Company's Registration Statement on Form SB-2, (Registration No. 333-58937) (the "Form SB-2"). C. RESALES. All subsequent offers and sales of the Series B Preferred Stock and the Common Stock issuable upon conversion or exercise of, or in lieu of dividend payments on, the Series B 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. RELIANCE. The Purchaser understands that the Series B 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 B Preferred Stock. E. INVESTIGATION. The Purchaser acknowledges that in making its decision to purchase the Series B 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 (including, without limitation, the Form SB-2, the Company's Form 10-KSB for the year ended July 31, 1998 (the "1998 Annual Report") and the Company's Form 10-QSB for the quarter ended October 31, 1998 ("Form 10-QSB"), and other materials relating to the offer and sale of the Securities 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. AUTHORITY. 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. G. PRIOR TRANSACTIONS. The Purchaser acknowledges that during the ten (10) business days immediately preceding its execution of this Agreement neither the Purchaser nor any of its affiliates has purchased or sold any securities of the Company, including entered into or closing any puts, calls, future transactions, short sales or other hedging or arbitrage transactions involving the securities of the Company. 3. REPRESENTATIONS OF THE COMPANY The Company represents and warrants to each Purchaser that: 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 consists of 20,000,000 shares of Common Stock, par value $.10 per share and 1,000,000 shares of Preferred Stock, par value $.01 per share, of which as of December 31, 1998, 7,071,136 shares of Common Stock were issued and outstanding and of which 3,000 shares designated as Series A Convertible Preferred Stock were issued and outstanding. Schedule 1 hereto sets forth the options, warrants and ---------- convertible securities of the Company (the "Derivative Securities") 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 the Closing Date, the shares of Series B 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 which have not been waived as of the date hereof. D. CONCERNING THE COMMON STOCK. The Common Stock issuable upon conversion of, or in lieu of dividend payments on, the Series B 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 B Stock or the Warrants. E. REPORTING COMPANY STATUS. The Company's Common Stock is 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 B 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 B Preferred Stock and the Warrants. The issuance of the Series B Preferred Stock and the Warrants (and the Common Stock issuable upon conversion of, or in lieu of dividend payments on, the Series B 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 stockholders 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, 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 Closing Date and will be obtained when required. K. SEC FILINGS. Except to the extent disclosed to the Purchasers, none of the reports or documents (including amendments thereto) filed by the Company with the Commission since July 31, 1996 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 October 31, 1998, 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 except as disclosed in the Form SB-2, press releases and discussions between management of the Company and the Purchasers or their representatives. M. 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 or to existing loan agreements. N. 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. O. 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. P. ABSENCE OF LITIGATION. Except as set forth in the Company's 1998 Annual Report, the Form 10-QSB and the Form SB-2, 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. Q. 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. R. TRANSACTIONS WITH AFFILIATES. Except as disclosed in the 1998 Annual Report and in the Company's reports on Form 10-QSB and the Form SB-2, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors or affiliates that, had they existed October 31, 1998, would have been required to be disclosed in the Form 10-QSB. S. 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. T. 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. U. AGENT FEES. 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 B Preferred Stock hereunder, except to the extent set forth in Section 4. j. hereof. V. 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 B 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 B 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. W. FULL DISCLOSURE. Neither the representations and warranties of the Company set forth in this Agreement nor any information supplied to the Purchasers by the Company contains 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 B 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 B Preferred Stock, or in lieu of dividend payments on, the Series B Preferred Stock, and upon exercise of the Warrants (the "Underlying Common Stock"), 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 Securities or the Underlying Common Stock to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; (2) any sale of the Securities or the Underlying Common Stock 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 or the Underlying Common Stock 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 or the Underlying Common Stock (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 B Preferred Stock or Warrants. B. RESTRICTIVE LEGEND. Each Purchaser acknowledges and agrees that the Series B Preferred Stock or the Warrants, and, until such time as the Common Stock issuable upon conversion of the Series B 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 B Preferred Stock to each Purchaser as required by United States Securities 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. 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. E. 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 (i) 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 (ii) the Underlying Common Stock on the Nasdaq OTC Bulletin Board or such other trading system or exchange on which the Common Stock is then traded or listed, 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. F. USE OF PROCEEDS. The Company will use the proceeds from the issuance of the Series B Preferred Stock (excluding amounts paid by the Company for legal fees and $90,000 in finder's fees in connection with the sale of the Series B Preferred Stock and $10,000 in legal fees for counsel to the Purchasers) for general corporate purposes, repayment of $650,000 principal amount of notes from Sovereign Partners LP, and working capital. G. RESERVATION OF COMMON STOCK. 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 B 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 the sum of (i) two (2) times the number that is then actually issuable upon the conversion of the Series B Preferred Stock and (ii) the number issuable upon exercise of the Warrants. The number of shares of Common Stock reserved for issuance by the Company upon conversion of the Series B 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 Securities purchased by each Purchaser, and no Purchaser may at any time convert its Series B 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 B Preferred Stock. H. DILUTION. The number of shares of Common Stock issuable upon conversion of the Series B Preferred Stock may increase substantially in certain circumstances, including, but not necessarily limited to, the circumstance wherein the trading price of the Common Stock declines prior to the conversion of the Series B Preferred Stock. The Company's executive officers and directors have studied and fully understand the nature of the Securities being sold hereby and recognize that they have a potential dilutive effect. The Board of Directors of the Company has concluded, in its good faith business judgment, that such issuance is in the best interests of the Company. The Company specifically acknowledges that its obligation to issue the shares of Common Stock upon conversion of the Series B Preferred Stock is binding upon the Company and enforceable regardless of the dilutions such issuance may have on the ownership interests of other stockholders of the Company. I. REIMBURSEMENT. If (i) any Purchaser, other than by reason of its gross negligence or willful misconduct, becomes involved in any capacity in any action, proceeding or investigation brought by any stockholder of the Company, in connection with or as a result of the consummation of the transactions contemplated by Primary Documents, or if such Purchaser impleaded in any such action, proceeding or investigation by any person, or (ii) any Purchaser, other than by reason of its gross negligence or willful misconduct or by reason of its trading of the Common Stock in a manner that is illegal under the federal securities laws, becomes involved in any capacity in any action, proceeding or investigation brought by the Commission against the Company or as a result of the consummation of the transactions contemplated by the Primary Documents, or is such Purchaser is impleaded in any such action, proceeding or investigation by any person, then in any such case, the Company will reimburse such Purchaser for its reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith, as such expenses are incurred. In addition, other than with respect to any matter in which such Purchaser is a named party, the Company will pay such Purchaser the reasonable charges for the time of any officers or employees of such Purchaser devoted to appearing and preparing to appear as witnesses, assisting in preparation for hearings, trials or pretrial matters, or other otherwise with respect to inquiries, hearing, trials and other proceedings relating to the subject matter of this Agreement. The reimbursement obligations of the Company under this Section shall be in addition to any liability which the Company under this Section shall be in addition to any liability which the Company may otherwise have, shall extend upon the same terms and conditions to any affiliates of the Purchasers who are actually named in such action, proceeding or investigation, and partners, directors, agents, employees and controlling persons (if any), as the case may be, of the Purchasers and any such affiliate, and shall be binding upon and inure to the benefit of any successors, assigns, heirs and personal representatives of the Company, the Purchasers and any such affiliate and any such person. The Company, also agrees that neither any Purchaser nor any such affiliate, partners, directors, agents, employees or controlling persons shall have any liability to the Company or any person asserting claims on behalf of or in right of the Company in connection with or as a result of the consummation of the Primary Documents except to the extent that any losses, claims, damages, liabilities or expenses incurred by the Company result from the gross negligence or willful misconduct of such Purchaser, or from the misstatement of any representations or warranties by the Purchaser in this Agreement. 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 Underlying Common Stock 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 or the Underlying Common Stock. 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 or Underlying Common Stock 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 or the Underlying Common Stock 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 B 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 five (5) business days thereafter, the original Notice of Conversion (and the related original Series B 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 B Preferred Stock or upon exercise of any Warrants (together with the Series B 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) seven (7) business days after the Conversion Date and (ii) five (5) business days after receipt by the Company of the original Notice of Conversion (and the related original Series B 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 B 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 B 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 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. 6. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE SECURITIES. The Purchaser understands that the Company's obligation to issue the Securities on the Closing Date to the Purchasers pursuant to this Agreement is conditioned upon: A. The accuracy on the Closing Date of the representations and warranties of the applicable Purchaser contained in this Agreement 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. 7. CONDITIONS TO THE PURCHASERS' OBLIGATION TO PURCHASE THE SECURITIES. The Company understands that each Purchaser's obligation to purchase the Securities on the Closing Date is conditioned upon: A. The accuracy on the Closing Date of the representations and warranties of the Company contained in this Agreement, 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. The Company shall have executed and delivered a signed counterpart to the Registration Rights Agreement. D. 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. E. On the Closing Date or Additional Closing Date, as the case may be, the Purchaser shall have received an opinion of counsel for the Company, dated the Closing Date or Additional Date, in form, scope, and substance reasonably satisfactory to the Purchaser, to the effect set forth in Exhibit E attached hereto. 8. 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(e) hereof, and (c) all other costs and expenses incident to the performance of the Company's obligations hereunder which are not otherwise specifically provided for in this Section 8. 9. GOVERNING LAW; MISCELLANEOUS. This Agreement shall be governed by and interpreted in accordance with the laws of the State of Delaware. Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of Wilmington or the state courts of the State of Delaware sitting in the City of Wilmington 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 B 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. 10. 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 5 Amherst, New Hampshire 03031 ATT: Michael T. Pieniazek, President Tel: (603) 880-6300 Fax: (603) 880-6390 WITH COPIES TO: THELEN REID & PRIEST LLP 40 West 57th Street New York, NY 10019 ATT.: Bruce A. Rich, Esq. 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: Krieger & Prager, Esqs. 319 Fifth Avenue New York, New York 10016 Tel: 212-689-3322 Fax: 212-213-2077 11. 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 B Preferred Stock for a period of two (2) years. IN WITNESS WHEREOF, this Agreement has been duly executed by each of the undersigned. AMERICAN ELECTROMEDICS CORP. By: ------------------------ Michael T. Pieniazek President "PURCHASERS" By:____________________________ Name: Title: EXHIBIT A PURCHASERS EXHIBIT B FORM OF CERTIFICATE OF DESIGNATIONS EXHIBIT C FORM OF WARRANT EXHIBIT D REGISTRATION RIGHTS AGREEMENT EXHIBIT E FORM OF OPINION OF COUNSEL EX-10 4 EXHIBIT 10.2 EXHIBIT 10.2 AMERICAN ELECTROMEDICS CORP. WARRANT TO PURCHASE COMMON STOCK The Transferability of this Warrant is Restricted as Provided in Section 2. Void after January 31, 2002 Right to Purchase [ ] shares of Common Stock (subject to adjustment) No. 1 PREAMBLE American Electromedics Corp. ("AEC" or the "Company"), a Delaware corporation, hereby certifies that, for value received, ____________________________________, whose address is __________________________________, or its registered assigns (hereinafter, the "Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company at any time or from time to time before 5:00 P.M. New York time, on January 31, 2002 (such time, the "Expiration Time"), 25,000 of the Company's fully paid and nonassessable shares of common stock, par value $0.10 per share (the "Common Stock") of the Company, at the purchase price per share (the "Purchase Price") of $3.00 (the "Initial Purchase Price"). The number and character of such Common Stock and the Purchase Price are subject to adjustment as provided herein. This Warrant is one of the Warrants to Purchase Common Stock (the "Warrants"), evidencing the right to purchase Common Stock of the Company, issued pursuant to a Securities Purchase Agreement (the "Securities Purchase Agreement"), dated February 2, 1999, between the Company and the Purchasers identified therein. The Securities Purchase Agreement contains certain additional terms that are binding upon the Company and each Registered Holder of the Warrants. A copy of the Securities Purchase Agreement may be obtained by any Registered Holder of the Warrants from the Company upon written request. Capitalized terms used but not defined herein shall have the meanings set forth in the Securities Purchase Agreement. As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" includes any corporation which shall succeed to or assume the obligations of the Company hereunder. (b) The term "Common Stock" includes all shares of any class or classes (however designated) of the Company, authorized on or after the date hereof, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the holders of which shall ordinarily be entitled to vote for the election of directors of the Company (even though the right so to vote has been suspended by the happening of a contingency). (c) The term "Other Securities" refers to any class of shares (other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holders of the Warrants at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to Section 6 or otherwise. (d) The term "Shares" means the Common Stock issued or issuable upon exercise of the Warrants. 1. REGISTRATION RIGHTS. The rights of the holders of Warrants to register Warrants or Shares shall be as stated in the Registration Rights Agreement of even date herewith. 2. RESTRICTED STOCK. If, at the time of any transfer or exchange (other than a transfer or exchange not involving a change in the beneficial ownership of such Warrant or Shares) of a Warrant or Shares, such Warrant or Shares shall not be registered under the Securities Act, the Company's obligation to transfer such Warrant or Shares shall be subject to the provisions of Section 5 of the Securities Purchase Agreement. 3. EXERCISE OF WARRANT. 3.1. Exercise in Full. The holder of this Warrant may ---------------- exercise it in full prior to the Expiration Time by surrendering this Warrant, with the form of Election to Purchase at the end hereof duly executed by such holder, to the Company in the manner set forth in Section 5 of the Securities Purchase Agreement. The surrendered Warrant shall be accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of shares of Common Stock called for on the face of this Warrant (without giving effect to any adjustment therein) by the Initial Purchase Price. 3.2. Partial Exercise. This Warrant may be exercised in ---------------- part by surrender of this Warrant in the manner provided in Subsection 3.1, except that the exercise price shall be calculated by multiplying (a) the number of shares of Common Stock as shall be designated by the holder in the subscription at the end hereof by (b) the Initial Purchase Price. On any such partial exercise, subject to the provisions of Section 2 hereof, the Company, at its expense will forthwith issue and deliver to or upon the order of the Registered Holder hereof a new Warrant or Warrants of like tenor, in the name of the Registered Holder hereof or as such Registered Holder may request, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock (without giving effect to any adjustment therein) equal to the number of such shares called for on the face of this Warrant minus the number of such shares designated by the Registered Holder in the applicable Election to Purchase. 3.3. Company Acknowledgment. The Company will, at the time ---------------------- of the exercise, exchange or transfer of this Warrant, upon the request of the Registered Holder hereof, acknowledge in writing its continuing obligation to afford to such Registered Holder or transferee any rights (including, without limitation, any right to registration of the Company's shares of Common Stock) to which such Registered Holder or transferee shall continue to be entitled after such exercise, exchange or transfer in accordance with the provisions of this Warrant, provided that if the Registered Holder of this Warrant shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford to such Registered Holder or transferee any such rights. 4. DELIVERY OF SHARE CERTIFICATES UPON EXERCISE. Following the exercise of this Warrant in full or in part, within the time periods and in the manner provided by Section 5(b) of the Securities Purchase Agreement, the Company, at its expense (including the payment by it of any applicable issue taxes), will cause to be issued in the name of and delivered to the Registered Holder hereof, or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, a certificate or certificates for the number of fully paid and nonassessable Common Stock to which such Registered Holder shall be entitled on such exercise, plus, in lieu of any fractional Share to which such Registered Holder would otherwise be entitled, cash equal to such fraction multiplied by the then current market value of one full share of Common Stock (as computed in accordance with Subsection 5.1(d) hereof). 5. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES OF COMMON STOCK. 5.1. The Purchase Price hereof shall be subject to adjustment from time to time as follows: (a) In case the Company shall (i) pay a dividend on its shares of Common Stock in Common Stock, (ii) subdivide its outstanding shares of Common Stock or (iii) combine its outstanding shares of Common Stock into a smaller number of shares, then, in such an event, the Purchase Price in effect immediately prior thereto shall be adjusted proportionately so that the adjusted Purchase Price will bear the same relation to the Purchase Price in effect immediately prior to any such event as the total number of shares of Common Stock outstanding immediately prior any such event shall bear to the total number of shares of Common Stock outstanding immediately after to such event. An adjustment made pursuant to this Section 5.1(a) shall, (i) become effective retroactively immediately after the record date in the case of a dividend and shall (ii) become effective immediately after the effective date in the case of a subdivision or combination. The Purchase Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein. (b) In case the Company shall distribute to all holders of its shares of Common Stock, Other Securities, evidences of its indebtedness or assets (excluding cash dividends or distributions) or purchase rights, options or warrants to subscribe for or purchase other Securities, then in each such case, the Purchase Price in effect thereafter shall be determined by multiplying the Purchase Price in effect immediately prior thereto by a fraction, of which the numerator shall be the total number of outstanding shares of Common Stock multiplied by the current market price per share of Common Stock (as determined in accordance with the provisions of subdivision (c) below) on the record date mentioned below, less the fair market value as determined by the Board of Directors (whose determination shall be conclusive) of the Other Securities, assets or evidences of indebtedness so distributed or of such rights or warrants, and of which the denominator shall be the total number of outstanding shares of Common Stock multiplied by such current market price per share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective retroactively immediately after the record date for the determination of shareholders entitled to receive such distribution. (c) For the purpose of any computation under subdivision (b) above, the current market price per share of Common Stock shall be deemed to be the closing price of the Company's shares of Common Stock on the date that the computation is made. (d) No adjustment of the Purchase Price shall be made if the amount of such adjustment shall be less than $.05 per share, but in such case, any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment, which, together with any adjustment so carried forward, shall amount to not less than $.05 per share. In case the Company shall at any time issue shares of Common Stock by way of dividend on any class of stock of the Company or subdivide or combine the outstanding shares of Common Stock, said amount of $.05 per share (as theretofore increased or decreased, if the same amount shall have been adjusted in accordance with the provisions of this subparagraph) shall forthwith be proportionately increased in the case of a combination or decreased in the case of such a subdivision or stock dividend so as to appropriately reflect the same. 5.2. Upon each adjustment of the Purchase Price pursuant to subdivisions (a) and (b) of Section 5.1, the number of shares of Common Stock purchasable upon exercise of this Warrant shall be adjusted to the number of shares of Common Stock, calculated to the nearest one hundredth of a share, obtained by multiplying the number of shares of Common Stock purchasable immediately prior to such adjustment upon the exercise of this Warrant Certificate by the Purchase Price in effect prior to such adjustment and dividing the product so obtained by the new Purchase Price. 5.3. In the event of any capital reorganization of the Company, or of any reclassification of the shares of Common Stock, this Warrant shall be exercisable after such capital reorganization or reclassification upon the terms and conditions specified in this Warrant, for the number of shares of stock or other securities which the shares of Common Stock issuable (at the time of such capital reorganization or reclassification) upon exercise of this Warrant would have been entitled to receive upon such capital reorganization or reclassification if such exercise had taken place immediately prior to such action. The subdivision or combination of Common Stock at any time outstanding into a greater or lesser number of shares of Stock shall not be deemed to be a reclassification of the shares of Common Stock of any for the purposes of this Subsection 5.3. 5.4 Whenever the Purchase Price is adjusted as herein provided, the Company shall the adjusted Purchase Price in accordance with Subsection 5.1 and shall prepare a certificate signed by its Chief Financial Officer and any other executive officer setting forth the adjusted Purchase Price, and showing in reasonable detail the method of such adjustment and the fact requiring the adjustment and upon which such calculation is based, and such certificate shall forthwith be forwarded to the Registered Holder. 5.5. The form of this Warrant need not be changed because of any change in the purchase Price pursuant to this Section 5 and any Warrant issued after such change may state the same Purchase Price and the same number of shares of Common Stock as are stated in this Warrant as initially issued. 6. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC. 6.1. Merger, Etc. In case at any time or from time to time ----------- after the date of issuance of this Warrant, the Company shall (a) effect a reorganization, (b) consolidate with or merge into any other person or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company within three (3) years from the date of such transfer (any such transaction being hereinafter sometimes referred to as a "Reorganization"), then, in each such case, the Registered Holder of this Warrant, upon the exercise hereof as provided in Section 3 at any time after the consummation or effective date of such Reorganization (the "Effective Date"), shall receive, in lieu of the shares of Common Stock issuable on such exercise prior to such consummation or such Effective Date, the stock and other securities and property (including cash) to which such Registered Holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such Registered Holder had so exercised this Warrant, immediately prior thereto (all subject to further adjustment thereafter as provided in Section 5). The Company shall not effect a transaction of the type described in clause (b) or (c) above unless upon or prior to the consummation thereof, the Company's successor corporation, or if the Company shall be the surviving company in any such Reorganization but is not the issuer of the shares of stock, securities or other property to be delivered to the holders of the Company's outstanding shares of Common Stock at the effective time thereof, then such issuer, shall assume in writing the obligation hereunder to deliver to the Registered Holder of this Warrant such shares of stock, securities, cash or other property as such holder shall be entitled to purchase in accordance with the provisions hereof. 6.2. Dissolution. Except as otherwise expressly provided in ----------- Subsection 6. 1, in the event of any dissolution of the Company following the transfer of all or substantially all of its Properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the holders of the Warrants after the effective date of such dissolution pursuant to this Section 6 to a bank or trust company having its principal office in New York City, as trustee for the holder or holders of the Warrants. 6.3. Continuation of Terms. Except as otherwise expressly --------------------- provided in Subsection 1, upon any reorganization, consolidation, merger or transfer (and any dissolution following transfer) referred to in this Section 6, this Warrant shall continue in full force and effect and hereof shall be applicable to the shares of stock and other securities and property on the exercise of this Warrant after the consummation of such reorganization, on or merger or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or of the Corn any, whether or not such person shall have expressly assumed the terms of assets this Warrant. 7. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its Certificate of Incorporation or By-laws, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Warrants, as specified herein and in the Securities Purchase Agreement, against dilution (to the extent specifically provided herein) or other impairment. Without limiting the generality of the foregoing, the Company (a) will not increase the par value of any shares of stock receivable on the exercise of the Warrants above the amount payable therefor on such exercise, and (b) will not effect a subdivision or split up of shares or similar transaction with respect to any class of the Common Stock without effecting an equivalent transaction with respect to all other classes of Common Stock. 8. ACCOUNTANT'S CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment or readjustment in the Common Stock issuable on the exercise of the Warrants, the Company, at its expense, will promptly cause the independent certified public accountants of the Company to compute such adjustment or readjustment in accordance with the terms of the Warrants and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Purchase Price in effect and number and type of Shares for which the Warrants were exercisable immediately prior to such issue or sale and as each is adjusted and readjusted on account thereof. The Company will forthwith mail a copy of each such certificate to each holder of a Warrant, and will, on the written request at any time of any holder of a Warrant, furnish to such holder a like certificate setting forth the Purchase Price and the number and type of Shares at the time in effect and showing how it was calculated. 9. NOTICE OF RECORD DATE. In case of (a) any taking by the Company of a record of the holders of any class of its securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive y other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or any voluntary or involuntary dissolution, liquidation or winding up of the Company, or (c) events shall have occurred resulting in the voluntary or involuntary dissolution, liquidation or winding up of the Company then and in each such event the Company will mail or cause to be mailed to each holder of a Warrant a notice specifying (i) the date on which any record is to be taken for the purpose of any such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or Other Securities) shall be entitled to exchange their Common Stock (or Other Securities) for securities or other property deliverable on such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding up, and (iii) the amount and character of any stock or other securities, or rights or options with respect thereto, proposed to be issued or granted, the date of such proposed issue or grant and the persons or class of persons to whom such proposed issue or grant is to be offered or made. Such notice shall be mailed at least thirty (30) days prior to the date specified in such notice on which any such action is to be taken. 10. EXCHANGE OF WARRANTS. On surrender for exchange of any Warrant, properly endorsed, to the Company, the Company, at its expense, will issue and deliver to or (subject to Section 2) on the order of the holder thereof a new Warrant or Warrants of like tenor, in the name of such holder or as such holder (on payment by such holder or any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 11. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction of any Warrant, on delivery of an indemnity agreement or security reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, on surrender and cancellation of such Warrant, the Company, at its expense, will execute and deliver, in lieu thereof, a new Warrant of like tenor. 12. WARRANT AGENT. The Company may, by written notice to each holder of a Warrant, appoint an agent having an office in New York, New York, for the purpose of issuing shares of Common Stock on the exercise of the Warrants pursuant to Section 3, exchanging Warrants pursuant to Section 10, and replacing Warrants pursuant to Section 11, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 13. REMEDIES. The Company stipulates that the remedies at law of the holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 14. NEGOTIABILITY, ETC. This Warrant is issued upon the following terms, to all of which each Registered Holder or owner hereof by the taking hereof consents and agrees: (a) subject to the terms of Section 4 of the Securities Purchase Agreement, title to this Warrant may be transferred by endorsement (by the Registered Holder hereof executing the form of assignment at the end hereof) and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery; (b) any person in possession of this Warrant properly endorsed is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of each such bona fide purchaser, and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby; and (c) until this Warrant is transferred on the books of the Company, the Company may treat the Registered Holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 15. NOTICES. All notices and other communications from the - Company to the Registered Holder of this Warrant shall be given in writing (unless otherwise specified herein) and shall be effective upon personal delivery, via facsimile (upon receipt of confirmation of error-free transmission) or two business days following deposit of such notice with an internationally recognized courier service, with postage prepaid and addressed, to such address as may have been furnished to the Company in writing by such Registered Holder or, until any such Registered Holder furnishes to the Company an address, then to, and at the address of, the last Registered Holder of this Warrant who has so furnished an address to the Company. 16. MISCELLANEOUS. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant is being delivered in the State of New York and, except for provisions with respect to internal corporate matters of the Company which shall be governed by the corporate laws of the State of Delaware, shall be construed and enforced in accordance with and governed by the laws of the State of New York, without regard to principles of conflict of laws. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. All nouns and pronouns used herein shall be deemed to refer to the masculine, feminine or neuter, as the identity of the person or persons to whom reference is made herein may require. 17. EXPIRATION. The right to exercise this Warrant shall expire at 5:00 P.M., New York time, on January 31, 2002. IN WITNESS WHEREOF, the undersigned has executed this Warrant as of February 2, 1999. AMERICAN ELECTROMEDICS CORP. By: -------------------------- Name: Michael T. Pieniazek Title: President Annex A ------- FORM OF ELECTION TO PURCHASE The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant, to purchase ------------ shares of Common Stock and herewith tenders in payment for such securities a certified or official bank check payable in New York Clearing House Funds to the order of AMERICAN ELECTROMEDICS CORP., in the amount of $ all in accordance with the ------------- terms hereof. The undersigned requests that a certificate for such shares of Common Stock be registered in the name of ---------------, whose address is ------------------------------ and that such Certificate be delivered to ---------------------, whose address is ----------------------------------------------- Dated: Name: ------------------------- Signature: ----------------------- (Signature must conform in all respects to the name of the Registered Holder, as specified on the face of the Warrant.) ------------------------------- (Insert Social Security or Other Identifying Number of Holder) Annex B ------- FORM OF ASSIGNMENT (To be executed by the Registered Holder if such Holder desires to transfer the Warrant.) FOR VALUE RECEIVED, -------------- hereby sells, assigns and transfers unto ---------------------------------------------- Please print name and address of transferee) this Warrant, together with all right, title and interest therein, and does so hereby irrevocably Constitute and appoint ----------------------------------------------- Attorney, to transfer the within Warrant on the books of the within-named Company, with full power of substitution. Dated: Name: --------------------------- Signature: -------------------------- (Signature must conform in all respects to the name of the Registered Holder, as specified on the face of the Warrant.) ------------------------------ (Insert Social Security or Other Identifying Number of Assignee). EX-10 5 EXHIBIT 10.3 EXHIBIT 10.3 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 2, 1999 (this "Agreement"), is made by and among AMERICAN ELECTROMEDICS CORP., a Delaware corporation, with headquarters located at 13 Columbia Drive, Suite 5, Amherst, New Hampshire 03031 (the "Company"), and the purchasers listed on Exhibit A attached hereto (each, a "Purchaser," and collectively, the "Purchasers"). W I T N E S S E T H: WHEREAS, pursuant to a Securities Purchase Agreement, dated as of February 2, 1999, among the Purchasers and the Company (the "Securities Purchase Agreement"), the Company has agreed to issue and sell to the Purchasers up to 2,000 shares of its Series B Convertible Preferred Stock, par value $.01 per share (the "Series B Preferred Stock"), at an aggregate purchase price of $2,000,000, which Series B Preferred Stock is convertible into shares of Common Stock, $.10 par value per share (the "Common Stock"), of the Company, together with warrants to purchase 25,000 shares of Common Stock (the "Warrants"); WHEREAS, pursuant to the terms of the Certificate of Designations (as defined in the Securities Purchase Agreement) and the Warrants, upon the conversion of the Series B Preferred Stock and upon exercise of the Warrants, the Company will issue to the Purchasers shares of Common Stock (such shares are referred to herein as the "Shares"); and WHEREAS, to induce the Purchasers to execute and deliver the Securities Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended (the "Securities Act"), and applicable state securities laws. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and each of the Purchasers hereby agrees as follows: 1. Definitions. As used in this Agreement, the following ----------- terms shall have the following meanings: (i) "Holders" means Purchasers whose Registrable Securities are included in a Registration Statement filed pursuant to this Agreement. (ii) "Purchaser" means the Purchasers identified on Exhibit A hereto, or any transferee or assignee who agrees to become bound by the provisions of this Agreement in accordance with Section 9 hereof. (iii) "Register," "Registered," and "Registration" refer to a registration effected by preparing and filing a Registration Statement or Statements in compliance with the Securities Act and pursuant to Rule 415 under the Securities Act or any successor rule providing for offering securities on a continuous basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement by the United States Securities and Exchange Commission (the "Commission"). (iv) "Registrable Securities" means the Shares. (v) "Registration Statement" means a registration statement of the Company under the Securities Act. Capitalized terms used herein and not otherwise defined herein shall have the meanings set forth in the Securities Purchase Agreement. 2. Registration. ------------ 2.01 Mandatory Registration. By no later than the ---------------------- later of (i) thirty (30) days after the Closing Date and (ii) thirty (30) days after the date the Company's Registration Statement on Form SB-2 (File No. 333-58937) becomes effective (the "Required Filing Date"), the Company shall file with the Commission a Registration Statement on Form SB-2, or any other applicable form which the Company is eligible to use to register its securities, covering at least two (2) times the sum of: (i) the number of Shares that are issuable upon conversion of the Series B Preferred Stock on the date of filing, without regard to any limitation on any holder's ability to convert the Series B Preferred Stock, and (ii) the 25,000 Shares issuable upon exercise of the Warrants, or to prevent dilution resulting from stock splits or stock dividends. The Company shall use its best efforts to cause such Registration Statement to become effective within ninety (90) days of the Required Filing Date (or, if the Commission elects to conduct a review of such Registration Statement, one hundred and twenty (120) days of the Required Filing Date) but not later than five (5) business days after the Commission indicates there are no additional comments to the Registration Statement (such later date being the "Unrestricted Date"). If the Registration Statement is not declared effective by the Commission by the Unrestricted Date, the Company shall pay the Holders for each full thirty (30) day period following such date during which the Registration Statement remains ineffective, liquidated damages in the amount of two percent (2%) of the face amount of the Series B Preferred Stock, provided, however, that in no event shall the total amount of liquidated damages paid by the Company to the Purchasers exceed one hundred thousand dollars ($100,000). No payment shall be due for any portion of any such period which is less than a full thirty (30) days. All such payments shall be made, at the Company's election, in cash or shares of its Common Stock at Closing Bid Price calculated in accordance with Section 1(c) of the Certificate of Designation within ten (10) days of the date the Company receives from a Holder a written request for such payment. The Company shall keep the Registration Statement effective pursuant to Rule 415 at all times until such date as is the earlier of (i) the date on which all of the Registrable Securities have been sold and (ii) the date on which the Registrable Securities (in the opinion of counsel to the Purchasers) may be immediately sold without restriction (including without limitation as to volume by each holder thereof) without registration under the Securities Act (the "Registration Period"). The Company shall not include in any Registration Statement filed under this Agreement securities to be offered and sold by the Company or any holders other than the Purchasers without the prior consent of the Purchasers holding a majority in interest of the Registrable Securities. 2.02 Eligibility for Form SB-2. The Company represents ------------------------- and warrants that it meets all of the requirements for the use of Form SB-2 for the Registration of the sale by the Purchasers and any transferee who purchases the Registrable Securities, and the Company shall file all reports required to be filed by the Company with the Commission in a timely manner, and shall take such other actions as may be necessary to maintain such eligibility for the use of Form SB-2. 3. Obligations of the Company. In connection with the -------------------------- registration of the Registrable Securities, the Company shall do each of the following: 3.01 Filing. Prepare promptly, and file with the ------ Commission by the Required Filing Date, a Registration Statement with respect to not less than the number of Registrable Securities provided in Section 2.01 above, and thereafter use its reasonable best efforts to cause the Registration Statement relating to Registrable Securities to become effective by the Unrestricted Date and keep the Registration Statement effective at all times until the earliest (the "Registration Period") of (i) the date that is two (2) years after the Closing Date, (ii) the date when the Holders may sell all Registrable Securities under Rule 144 or (iii) the date the Purchasers no longer own any of the Registrable Securities. 3.02 Amendments. Prepare and file with the Commission ---------- such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus (the "Prospectus") used in connection with the Registration Statement as may be necessary to keep the registration effective at all times during the Registration Period, and, during the Registration Period, comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement until such time as the Company has no further obligation under Section 3.01 hereof to cause the Registration Statement to remain effective. 3.03 Purchasers' Counsel. The Company shall permit a ------------------- single firm of counsel designated by the Purchasers to review the Registration Statement and all amendments and supplements thereto a reasonable period of time (but not less than three (3) business days) prior to their filing with the Commission, and not file any document in a form to which such counsel reasonably objects. 3.04 Notification. Notify the Holders of Registrable ------------ Securities to be sold, their counsel and any managing underwriters immediately (and, in the case of (i)(A) below, not less than five (5) days prior to such filing) and (if request by any such Person) confirm such notice in writing no later than one (1) business day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is proposed to be filed; (B) whenever the Commission notifies the Company whether there will be a review of such Registration Statement; (C) whenever the Company receives (or representatives of the Company receive on its behalf) any oral or written comments from the Commission respect of a Registration Statement (copies or, in the case of oral comments, summaries of such comments shall be promptly furnished by the Company to the Holders); and (D) with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iv) if at any time any of the representations or warranties of the Company contained in any agreement (including any underwriting agreement) contemplated hereby ceases to be true and correct in all material respects; (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose; and (vi) of the occurrence of any event that to the best knowledge of the Company makes any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. In addition, the Company shall furnish the Holders with copies of all intended written responses to the comments contemplated in clause (C) of this Section 3.04 not later than one (1) business day in advance of the filing of such responses with the Commission so that the Holders shall have the opportunity to comment thereon. 3.05 Furnish Copies. Furnish to each Holder and its -------------- legal counsel identified to the Company, (i) promptly after the same is prepared and publicly distributed, filed with the Commission, or received by the Company, one (1) copy of the Registration Statement, each preliminary Prospectus and Prospectus, and each amendment or supplement thereto, and (ii) such number of copies of a Prospectus, and all amendments and supplements thereto and such other documents, as such Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder. 3.06 Future Amendments. As promptly as practicable ----------------- after becoming aware of such event, notify each Holder of the happening of any event of which the Company has knowledge, as a result of which the Prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and use its best efforts promptly to prepare a supplement or amendment to the Registration Statement or other appropriate filing with the Commission to correct such untrue statement or omission, and deliver a number of copies of such supplement or amendment to each Holder as such Holder may reasonably request. 3.07 Stop Orders. As promptly as practicable after ----------- becoming aware of such event, notify each Holder who holds Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the Commission of a Notice of Effectiveness or any notice of effectiveness or any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time. 3.08 Suspend Sales. Notwithstanding the foregoing, if ------------- at any time or from time to time after the date of effectiveness of the Registration Statement, the Company notifies the Holders in writing of the existence of a potential material event, the Holders shall not offer or sell any Registrable Securities, or engage in any other transaction involving or relating to the Registrable Securities, from the time of the giving of notice with respect to a potential material event until such Holder receives written notice from the Company that such potential material event either has been disclosed to the public or no longer constitutes a potential material event; provided, however, -------- ------- that the Company may not so suspend the right to such Holders of Registrable Securities for more than two twenty (20) day periods in the aggregate during any 12-month period (Suspension Period) with at least a ten (10) business day interval between such periods, during the Registration Period. 3.09 Transfer Agent. Provide a transfer agent and -------------- registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement. 4. Obligations of the Purchasers. In connection with the ----------------------------- registration of the Registrable Securities, the Purchasers shall have the following obligations: 4.01 Take Actions. Take all other reasonable actions ------------ necessary to expedite and facilitate the disposition by the Purchasers of the Registrable Securities pursuant to the Registration Statement. 4.02 Furnish Information. It shall be a condition ------------------- precedent to the obligations of the Company to complete the registration pursuant to this Agreement of the Registrable Securities of each Purchaser that such Purchaser shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably required to effect the registration of such Registrable Securities, and such Purchaser shall execute such documents in connection with such registration as the Company may reasonably request. At least five (5) days prior to the first anticipated filing date of the Registration Statement, the Company shall notify such Purchaser of the information the Company requires from such Purchaser (the "Requested Information") if such Purchaser elects to have any of its Registrable Securities included in the Registration Statement. If, at least two (2) business days prior to the filing date, the Company has not received the Requested Information from a Purchaser, then the Company may file the Registration Statement without including the Registrable Securities of such Purchaser. 4.03 Cooperation. The Purchaser, by such Purchaser's ----------- acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of any Registration Statement hereunder, unless such Purchaser has notified the Company in writing of such Purchaser's election to exclude all of such Purchaser's Registrable Securities from such Registration Statement. 4.04 Suspend Sales. Each Purchaser agrees that, upon ------------- receipt of any notice from the Company of the happening of any event of the kind described in Section 3.06 or 3.08 hereof, such Purchaser will immediately discontinue disposition of its Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such copies of the supplemented or amended Prospectus contemplated by Section 3.06 or 3.08 hereof shall be furnished to such Purchaser. 4.05 Underwritten Offering. If the offering covered by --------------------- the Registration Statement to be underwritten, at the request of the managing underwriters, each Purchaser or his permitted assignee holding more than one percent (1%) of the Company's voting securities shall agree not to sell or otherwise transfer or dispose of any Registrable Securities of the Company held by such Purchaser (other than those included in the Registration Statement) for a period specified by the underwriters not to exceed ninety (90) days following the effective date of the Registration Statement, provided that all officers and directors of the Company enter into similar agreements. 5. Expenses of Registration. All expenses, other than ------------------------ underwriting discounts and commissions and other fees and expenses of investment bankers and other than brokerage commissions and counsel of the Holders (to the extent such fees exceed the amount to be paid by the Company), incurred in connection with the registration, filings or qualifications pursuant to Section 3 hereof but including, without limitation, all registration, listing, and qualifications fees, printing and accounting fees, the fees and disbursements of counsel and auditors for the Company, and the fees of counsel to the Holders not in excess of $2,500, shall be borne by the Company. 6. Indemnification. In the event any Registrable --------------- Securities are included in a Registration Statement under this Agreement: 6.01 By the Company. To the extent permitted by law, -------------- the Company will indemnify and hold harmless each Purchaser who holds such Registrable Securities, the directors, if any, of such Purchaser, the officers, if any, of such Purchaser, each person, if any, who controls any Purchaser within the meaning of the Securities Act or the Exchange Act (each, an "Indemnified Person"), against any losses, claims, damages, liabilities or expenses (joint or several) incurred (collectively, "Claims") to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances in which they were made, not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary Prospectus if used prior to the effective date of such Registration Statement, or contained in the final Prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the Commission) or the omission or alleged omission to state therein any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state or foreign securities law or any rule or regulation under the Securities Act, the Exchange Act or any state or foreign securities law (the matters in foregoing clauses (i) through (iii) being, collectively, "Violations"). The Company shall, subject to the provisions of Section 6.02 hereof, reimburse each Purchaser or Holder if other than a Purchaser, promptly as such expenses are incurred and are due and payable, for any reasonable legal and other costs, expenses and disbursements in giving testimony or furnishing documents in response to a subpoena or otherwise, including without limitation, the reasonable costs, expenses and disbursements, as and when incurred, of investigating, preparing or defending any such action, suit, proceeding or investigation (whether or not in connection with litigation in which such Purchaser is a party), incurred by it in connection with the investigation or defense of any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6.01 shall not (i) apply to any Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by or on behalf of any Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof supplement thereto, and the Purchaser or Holder if other than a Purchaser, furnishing such information shall indemnify and hold harmless the Company against any such Claims; (ii) with respect to any preliminary Prospectus, inure to the benefit of any such person from whom the person asserting any such Claim purchased the Registrable Securities that are the subject thereof (or to the benefit of any person controlling such person) if the untrue statement or omission of material fact contained in the preliminary Prospectus was corrected in the final Prospectus, as then amended or supplemented, if such final Prospectus was timely made available by the Company pursuant to Section 3.02 hereof, and the Purchaser or Holder if other than a Purchaser, failing to make such delivery shall indemnify and hold harmless the Company against any such claim; (iii) be available to the extent that such Claim is based upon a failure of the Purchaser or Holder if other than a Purchaser, to deliver or to cause to be delivered the prospectus made available by the Company, if such prospectus was timely made available by the Company pursuant to Section 3.02 hereof and the Purchaser or Holder if other than a Purchaser, failing to make such delivery shall indemnify and hold harmless the Company against any such claim; or (iv) apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Person and shall survive the transfer of the Registrable Securities by the Purchaser pursuant to Section 9. 6.02 By the Purchaser. Each Purchaser will indemnify ---------------- the Company and its officers and directors against any Claims arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company, by or on behalf of such Purchaser, expressly for use in connection with the preparation of the Registration Statement, subject to such limitations and conditions are applicable to the Indemnification provided by the Company to this Section 6. 6.03 Notice of Claim. Promptly after receipt by an --------------- Indemnified Person under this Section 6 of notice of the commencement of any action (including any governmental action), such Indemnified Person shall, if a Claim in respect thereof is to be made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof, and the indemnifying party shall have the right to participate in, and to the extent that the indemnifying party so desires, jointly with any other indemnifying party similarly notified, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying party and the Indemnified Person, provided, however, that an Indemnified Person -------- ------- shall have the right to retain its own counsel with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person and any other party represented by such counsel in such proceeding. In such event, the Company shall pay for only one separate legal counsel for the Holders, and such legal counsel shall be selected by the Holders holding a majority in interest of the Registrable Securities included in the Registration Statement to which the Claim relates. The failure to deliver written notice to an indemnifying party within a reasonable time after the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person under this Section 6, except to the extent that the indemnifying party is materially prejudiced in its ability to defend such action. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. 6.04 No Consent. No indemnifying party, in the defense ---------- of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Person of an unconditional and irrevocable release from all liability in respect of such claim or litigation. 6.05 Underwriting Agreement. Notwithstanding the ---------------------- foregoing, to the extent that any provisions relating to indemnification or contribution contained in the underwriting agreements entered into among the Company, the underwriters and any Holders in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in such underwriting agreements shall be controlling as to the Registrable Securities included in the public offering. 7. Contribution. To the extent any indemnification under ------------ Section 6 hereof by an indemnifying party is prohibited or limited under applicable law, the indemnifying party agrees to contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage, liability or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the Indemnified Person on the other hand in connection with the statements or omissions which resulted in such Claim, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and the Indemnified Person shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the Indemnified Person, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. Notwithstanding the forgoing, (a) no contribution shall be made under circumstances where the payor would not have been liable for indemnification under the fault standards set forth in Section 6 hereof, (b) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of such fraudulent misrepresentation and (c) contribution by any seller of Registrable Securities shall be limited in amount to the net proceeds received by such seller from the sale of such Registrable Securities. The Company and each Purchaser agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro --- rata allocation (even if the Holders and any underwriters were ---- treated as one entity for such purpose) or by any other method of allocation that does not take account of the equitable considerations referred to in this Section. 8. Reports Under Exchange Act. With a view to making -------------------------- available to the Purchasers the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the Commission that may at any time permit the Purchasers to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144; (b) file with the Commission all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) furnish to each Purchaser, so long as such Purchaser owns Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of the Securities Act and the Exchange Act, (ii) a copy of the most recent annual or periodic report of the Company and such other reports and documents so filed by the Company and (iii) such other information as may be reasonably requested to permit the Purchasers to sell such securities pursuant to Rule 144 without registration. 9. Assignment of the Registration Rights. The rights to ------------------------------------- have the Company register Registrable Securities pursuant to this Agreement shall be automatically assigned by each Purchaser to any transferee of all or any portion of the Series B Preferred Stock, Warrants or Registrable Securities held by such Purchaser if: (a) such Purchaser agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (b) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (i) the name and address of such transferee or assignee and (ii) the Securities with respect to which such registration rights are being transferred or assigned; (c) at or before the time the Company receives the written notice contemplated by clause (b) of this sentence, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein; and (d) the transfer of the relevant Securities complies with the restrictions set forth in Section 4 of the Securities Purchase Agreement. In the event of any delay in filing the Registration Statement as a result of such assignment, the Company shall not be liable for any damages arising from such delay. 10. Amendment of Registration Rights. Any provision of -------------------------------- this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Purchasers who hold a majority in interest of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Purchaser and the Company. 11. Miscellaneous. ------------- 11.01 Deemed Holder. A person or entity is deemed ------------- to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of the instructions, notice or election received from the registered owner of such Registrable Securities. 11.02 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 (10) days advance written notice to each of the other parties hereto. COMPANY: AMERICAN ELECTROMEDICS CORP. 13 Columbia Drive, Suite 5 Amherst, New Hampshire 03031 ATT: Michael T. Pieniazek, President Tel: (603) 880-6300 Fax: (603) 880-6390 WITH COPIES TO: THELEN REID & PRIEST LLP 40 West 57th Street New York, New York 10019 ATT: Bruce A. Rich, Esq. 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: KRIEGER & PRAGER, ESQS. 319 Fifth Avenue New York, New York 10016 Tel: 212-689-3322 Fax: 212-213-2077 11.03 No Waiver. Failure of any party to exercise --------- any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. 11.04 Governing Law. This Agreement shall be ------------- governed by and interpreted in accordance with the laws of the State of Delaware. Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of Wilmington or the state courts of the State of Delaware sitting in the City of Wilmington in connection with any dispute arising under this Agreement and hereby waives, to the maximum extent permitted by law, any objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions. 11.05 Validity. If any provision of this Agreement -------- shall be invalid, illegal or unenforceable in any jurisdiction, such validity, legality or unenforceability shall not affect the validity, legality or enforceability of the remainder of this Agreement or the validity, legality or enforceability of this Agreement in any other jurisdiction. 11.06 Entire Agreement. This Agreement constitutes ---------------- the entire agreement among the parties hereto with respect to the subject matter hereof. There are no restrictions, promises, warranties or undertakings, other than those set forth, or referred to herein and in the other Primary Documents. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. 11.07 Benefit. Subject to the requirements of ------- Section 9 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. 11.08 Construction. All pronouns and any ------------ variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. 11.09 Damages. No party to this Agreement shall be ------- liable to any other for any consequential damages as a result of any failure or delay in the performance of its obligations hereunder. 11.10 Counterparts. This Agreement may be executed ------------ in counterparts, any one of which need not contain the signature of more than one party, and all of which together shall for all purposes constitute one and the same agreement. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed. AMERICAN ELECTROMEDICS CORP. By: ------------------------ Michael T. Pieniazek President "PURCHASERS" ____________________________ ____________________________ ____________________________ ____________________________ -----END PRIVACY-ENHANCED MESSAGE-----