-----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, O2jjxl3jVFNFMQLpyT2ohK0/k/lcItWLuA8qDVPfN+EOGs2BKfaQr2znoJoPYwLJ 4GBjo57DjrTilCsOPGm0BQ== 0000950120-98-000217.txt : 19980608 0000950120-98-000217.hdr.sgml : 19980608 ACCESSION NUMBER: 0000950120-98-000217 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19980505 ITEM INFORMATION: ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980605 SROS: NONE 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: 98643475 BUSINESS ADDRESS: STREET 1: 13 COLUMBIA DR STE 18 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) - May 5, 1998 ----------- AMERICAN ELECTROMEDICS CORP. ------------------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 0-9922 04-2608713 --------------- ---------------- ------------------- (State or other (Commission File (IRS Employer jurisdiction of Number) 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 -------------- 13 Columbia Drive, Suite 13, Amherst, New Hampshire 03031 ------------------------------------------------------------------ (Former Name or Former Address, if changed since last report) ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. ------------------------------------ On May 5, 1998, American Electromedics Corp. (the "Company" or "AEC") acquired Dynamic Dental Systems, Inc., a Delaware corporation ("DDS"), in exchange for 750,000 shares of the Company's Common Stock, $.10 par value (the "Common Stock"), and $225,000, pursuant to an Agreement and Plan of Merger, dated as of April 30, 1998, by and among the Company, DDS Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of the Company, DDS, and Henry J. Rhodes, Charles S. Aviles and Barry A. Hochstadt, the sole stockholders of DDS. Upon the merger (the "DDS Merger"), DDS became a wholly-owned subsidiary of the Company. Upon the closing of the DDS Merger, DDS entered into an Employment Agreement with Mr. Rhodes pursuant to which he will serve as President of DDS for an initial term of three years at an annual base salary of $125,000. Mr. Rhodes was also granted stock options to purchase up to 100,000 shares of the Company's Common Stock at an exercise price of $1.00 per share, vested as of May 1, 1998, and stock options to purchase up to 100,000 shares of the Company's Common Stock at an exercise price of $3.00 per share, vested as of November 1, 2000. All such stock options expire five years from the date of grant. DDS is based in Gainesville, Georgia and is a distributor of digital operator hardware, cosmetic imaging software, and intraoral dental cameras. On May 12, 1998, AEC acquired Equidyne Systems, Inc., a California corporation ("ESI"), in exchange for 600,000 shares of the Company's Common Stock, pursuant to an Agreement and Plan of Merger, dated as of March 27, 1998, among the Company, ESI Acquisition Corporation, a California corporation and a wholly- owned subsidiary of the Company, and ESI. Upon the merger (the "ESI Merger"), ESI became a wholly-owned subsidiary of the Company. Upon the closing of the ESI Merger, ESI entered into Employment Agreements with Lawrence Petersen and Richard Battelle. Mr. Petersen is to serve as President of ESI for an initial term of three and one-half years at an annual salary of $125,000. Mr. Petersen was also granted stock options to purchase an aggregate of 100,000 shares of the Company's Common Stock, 50,000 of such options at an exercise price of $1.00 per share, with 5,000 of such options immediately vested and 45,000 of such options to vest ratably over the term of the Employment Agreement, and the remaining 50,000 of such options at an exercise price of $3.00 per share, with 5,000 of such options immediately vested and 45,000 of such options to vest ratably over the term of the Employment Agreement. Mr. Battelle is to serve as Director of Finance and Administration for an initial term of one year at an annual salary of $60,000, and was also granted stock options to purchase an aggregate of 40,000 shares of the Company's Common Stock, 20,000 of such options at -2- an exercise price of $1.00 per share to vest ratably over the term of the Employment Agreement, and the remaining 20,000 of such options at an exercise price of $3.00 per share to vest ratably over the term of the Employment Agreement. All such stock options granted to Mr. Petersen and Mr. Battelle expire five years from the date of grant. ESI is based in San Diego, California. It is engaged in the development of the INJEX(TM) needle-free drug injection system, which is designed to eliminate the risks of contaminated needle stick accidents and the resulting cross contamination of hepatitis, HIV and other diseases. ESI holds two patents for the features of the injection system and has received FDA 510(k) clearance to market the product in the United States. ESI anticipates commencing the marketing of the system in late calendar 1998. These acquisitions are part of management s strategic plan to expand the scope of the medical products to be offered by the Company. ITEM 5. OTHER EVENTS. ------------ On May 5, 1998, AEC closed the placement of 1,000 shares of Series A Convertible Preferred Stock, $.01 par value (the "Series A Preferred Stock"), to one purchaser (the "Purchaser") at a purchase price of $1,000 per share or an aggregate purchase price of $1 million, pursuant to a Securities Purchase Agreement, dated as of May 5, 1998 (the "Purchase Agreement"), among AEC, West End Capital LLC ("West End") and the Purchaser. The Purchase Agreement also provided that the Purchaser would purchase a second tranche of 1,000 shares of Series A Preferred Stock for $1 million upon AEC acquiring DDS on or prior to May 15, 1998, and a third tranche of 1,000 shares of Series A Preferred Stock for $1 million upon AEC acquiring ESI on or prior to May 25, 1998. As part of its entry into the Purchase Agreement, the Company entered into a Registration Rights Agreement (the "Registration Agreement") and a Warrant Agreement. Concurrently with the closing for the first tranche of Series A Preferred Stock, AEC issued warrants under the Warrant Agreement (the "Warrants") to West End for the purchase of 50,000 shares of the Company's Common Stock at an exercise price of $4.80 per share, subject to customary anti-dilution provisions, expiring on May 5, 2001. AEC also issued warrants for the purchase of 30,000 shares of Common Stock to the placement agent, exercisable at $4.40 per share for three years. The Registration Agreement requires AEC to file a registration statement (the "Registration Statement") under the Securities Act of 1933, as amended, for the Warrants and shares of the Company's Common Stock underlying the Series A Preferred Stock and the Warrants. On May 8, 1998, AEC closed the second tranche of the Series A Preferred Stock. See Item 2 of this Report for information regarding the DDS Merger. On May 13, AEC closed the third tranche of the Series A Preferred Stock. See Item 2 of this Report and the Company's Form 8-K for an event of March 27, 1998 -3- for information regarding the ESI Merger. The net proceeds from the sale of the 3,000 shares of Series A Preferred Stock was $2,665,000 (after placement fees and other related costs), of which $225,000 was used as the cash portion of the purchase price for the DDS Merger, $600,000 was used to repay the outstanding indebtedness to Citizens Bank New Hampshire, and the balance will be used for possible future acquisitions and working capital. The Series A Preferred Stock is immediately convertible into shares of Common Stock at a conversion rate equal to $1,000 divided by the lower of (i) $4.00 or (ii) 75% of the average closing bid price for the Common Stock for the five trading days immediately preceding the conversion date. AEC may force conversion of all (and not less than all) of the outstanding shares of Series A Preferred Stock at any time after the first anniversary of the effective date of the Registration Statement. There is no minimum conversion price. Should the bid price of the Common Stock fall substantially prior to conversion, the holders of the Series A Preferred Stock could obtain a significant portion of the Common Stock upon conversion, to the detriment of the then holders of the Common Stock. The Series A Preferred Stock has a liquidation preference of $1,000 per share, plus any accrued and unpaid dividends. AEC is to pay an annual dividend equal to 5% the liquidation preference, which may be paid at the election of AEC in cash or shares of its Common Stock. The dividend rate would be increased to 12% if AEC fails to file the Registration Statement covering the Common Stock underlying the Series A Preferred Stock within 30 days of the initial closing or the Registration Statement is not declared effective within 90 days of the initial closing, and such rate would increase up to 18% by reason of further delays in the effective date of the Registration Statement, until the effective date thereof. AEC may redeem up to $1 million face amount of Series A Preferred Stock at a redemption price equal to 120% of the liquidation preference if the closing bid price of the AEC Common Stock is below $2.75 per share for five consecutive trading dates. AEC may redeem an additional $1 million face amount of Series A Preferred Stock at a redemption price equal to 120% of the liquidation preference if the closing bid price of the AEC Common Stock is below $2.50 per share for five consecutive trading dates. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION ----------------------------------------------------- AND EXHIBITS. ------------ (a) and (b) Pursuant to paragraph (a)(4), the Company will file all requisite financial statements and pro forma financial information within 60 days of May 20, 1998, the day that this report was due to be filed. (c) 2.1 Certificate of Amendment to Certificate of Incorporation of AEC, filed with the Secretary of State of Delaware on May 4, 1998. -4- 2.2 Certificate of Designations of Series A Convertible Preferred Stock of AEC, filed with the Secretary of State of Delaware on May 5, 1998. 2.3 Agreement and Plan of Merger, dated as of April 30, 1998, among AEC, DDS Acquisition Corporation, DDS and others (without Exhibits or Schedules thereto). 2.4 Certificate of Merger between DDS Acquisition Corporation and DDS, filed with the Secretary of State of Delaware on May 5, 1998. 2.5 Agreement and Plan of Merger, dated as of March 27, 1998, among AEC, ESI Acquisition Corporation and ESI (incorporated by reference to Exhibit 2 to the Company's Form 8-K for an event of March 27, 1998). 2.6 Officers Certificate of ESI filed with the Secretary of State of California on June 1, 1998. 2.7 Officers Certificate of ESI Acquisition Corporation filed with the Secretary of State of California on June 1, 1998. 2.8 Employment Agreement, dated as of April 30, 1998, by and between Dental Dynamic Systems, Inc. and Henry J. Rhodes. 2.9 Employment Agreement, dated as of May 11, 1998, by and between Equidyne Systems, Incorporated and Lawrence Petersen. 10.1 Securities Purchase Agreement, dated as of May 5, 1998, among AEC, West End Capital LLC and the Purchaser listed therein. 10.2 Form of Warrant issued to West End Capital LLC. 10.3 Registration Rights Agreement, dated as of May 5, 1998, among AEC, West End Capital LLC and the Purchaser listed therein. 99. Press Release dated May 13, 1998. -5- 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 June 4, 1998 -6- Exhibit Index Number Exhibit ------ ------- 2.1 Certificate of Amendment to Certificate of Incorporation of AEC, filed with the Secretary of State of Delaware on May 4, 1998. 2.2 Certificate of Designations of Series A Convertible Preferred Stock of AEC, filed with the Secretary of State of Delaware on May 5, 1998. 2.3 Agreement and Plan of Merger, dated as of April 30, 1998, among AEC, DDS Acquisition Corporation, DDS and others (without Exhibits or Schedules thereto). 2.4 Certificate of Merger between DDS Acquisition Corporation and DDS, filed with the Secretary of State of Delaware on May 5, 1998. 2.5 Agreement and Plan of Merger, dated as of March 27, 1998, among AEC, ESI Acquisition Corporation and ESI (incorporated by reference to Exhibit 2 to the Company's Form 8-K for an event of March 27, 1998). 2.6 Officers Certificate of ESI filed with the Secretary of State of California on June 1, 1998. 2.7 Officers Certificate of ESI Acquisition Corporation filed with the Secretary of State of California on June 1, 1998. 2.8 Employment Agreement, dated as of April 30, 1998, by and between Dental Dynamic Systems, Inc. and Henry J. Rhodes. 2.9 Employment Agreement, dated as of May 11, 1998, by and between Equidyne Systems, Incorporated and Lawrence Petersen. 10.1 Securities Purchase Agreement, dated as of May 5, 1998, among AEC, West End Capital LLC and the Purchaser listed therein. 10.2 Form of Warrant issued to West End Capital LLC 10.3 Registration Rights Agreement, dated as of May 5, 1998, among AEC, West End Capital LLC and the Purchaser listed therein. 99. Press Release dated May 13, 1998. -7- EX-2 2 EXHIBIT 2.1 CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF AMERICAN ELECTROMEDICS CORP. (PURSUANT TO SECTION 242 OF THE DELAWARE GENERAL CORPORATION LAW) AMERICAN ELECTROMEDICS CORP, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: The Board of Directors of the Corporation duly adopted resolutions at a special meeting of the Board of Directors held in accordance with Section 141 of the General Corporation Law of the State of Delaware (the "DGCL"), setting forth a proposed amendment (the "Amendment") to the Certificate of Incorporation of the Corporation, declaring the Amendment to be advisable and calling for submission of the Amendment to the stockholders of the Corporation pursuant to Section 242(b)(1) of the DGCL, and stating that the Amendments would be effective only after approval thereof by the Holders of a majority of the outstanding shares of stock of the Corporation entitled to vote thereon. SECOND: The Certificate of Incorporation of the Corporation is hereby amended by adding to the end of Article 4 the following language: "Shares of Preferred Stock may be issued from time to time in series, and the Board of Directors of the Corporation is hereby authorized, subject to the limitations provided by law, to establish and designate one or more series of the Preferred Stock, to fix the number of shares constituting each series, and to fix the designations, powers, preferences and relative, participating, optional or other special rights, and qualifications, limitations or restrictions thereof, of each series and the variations and the relative rights, preferences and limitations as between series, and to increase and to decrease the number of shares constituting each series. The authority of the Board of Directors of the Corporation with respect to each series shall include, but shall not be limited to, the authority to determine the following: 1. The designation of such series. 2. The number of shares initially constituting such series. 3. The increase, and the decrease to a number not less than the number of the outstanding shares of such series, of the number of shares constituting such series theretofore fixed. 4. The rate or rates, and the conditions upon and the times at which dividends on the shares of such series shall be paid, the preference or relation which such dividends shall bear to the dividends payable on any other class or classes or on any other series of stock of the Corporation, and whether or not such dividends shall be cumulative, and, if such dividends shall be cumulative, the date or dates from and after which they shall accumulate. 5. Whether or not the shares of such series shall be redeemable, and, if such shares shall be redeemable, the terms and conditions of such redemption, including, but not limited to, the date or dates upon or after which such shares shall be redeemable and the amount per share which shall be payable upon such redemption, which amount may vary under different conditions and at different redemption dates. 6. The rights to which the holders of the shares of such series shall be entitled upon the voluntary or involuntary liquidation, dissolution or winding up of, or upon any distribution of the assets of, the Corporation, which rights may be different in the case of a voluntary liquidation, dissolution or winding up than in the case of such an involuntary event. 7. Whether or not the shares of such series shall have voting rights, in addition to the voting rights provided by law, and, if such shares shall have such voting rights, the terms and conditions thereof, including, but not limited to, the right of the holders of such shares to vote as a separate class either alone or with the holders of shares of one or more other series of Preferred Stock and the right to have more than one vote per share. 8. Whether or not a sinking fund or a purchase fund shall be provided for the redemption or purchase of the shares of such series, and, if such a sinking fund or purchase fund shall be provided, the terms and conditions thereof. 9. Whether or not the shares of such series shall be convertible into, or exchangeable for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation, and, if provision be made for conversion or exchange, the terms and conditions of conversion or exchange, including, but not limited to, any provision for the adjustment of the conversion or exchange rate or the conversion or exchange price. 10. Any other relative rights, preferences and limitations." THIRD: The Amendment has been duly adopted by the stockholders of the Corporation, at an annual meeting of stockholders of the Corporation held on April 25, 1990 in accordance with Section 211 of the DGCL. FOURTH: The Amendment was duly adopted in accordance with the applicable provisions of Sections 242 and 141 of the General Corporation Law of the DGCL. IN WITNESS WHEREOF, American Electromedics Corp has caused this Certificate to be signed by its President as of the 4th day of May, 1998. /s/ Michael T. Pieniazek ------------------------ Michael T. Pieniazek President EX-2 3 EXHIBIT 2.2 CERTIFICATE OF DESIGNATION OF SERIES AND DETERMINATION OF RIGHTS AND PREFERENCES OF CONVERTIBLE PREFERRED STOCK, SERIES A OF AMERICAN ELECTROMEDICS CORP. American Electromedics Corp., a Delaware corporation (the "Company"), acting pursuant to
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 Convertible Preferred Stock, Series A. FIRST: The name of the Company is American Electromedics Corp. SECOND: By unanimous consent of the Board of Directors of the Company dated May 4, 1998, the following resolutions were duly adopted: 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 3,150 shares of convertible preferred stock of the Company (the "Series A 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. --------- The holders of the Series A Preferred Stock shall be entitled to receive, out of funds legally available therefor, dividends at a rate equal to 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 other than the Series A Preferred Stock or other class or series of stock ranking junior to the Series A Preferred Stock in respect of dividends (such Common Stock and other inferior stock being collectively referred to as "Junior Stock"), when and as declared by the Board of Directors of the Company; provided, -------- however, that in the event the Registration Statement (as ------- hereinafter defined) is not (i) filed within 30 days of the Initial Closing Date (as defined in the Securities Purchase Agreement, between the Company, the purchasers named therein and West End Capital LLC (the "Securities Purchase Agreement")) or (ii) declared effective by the Securities and Exchange Commission (the "Commission") by the day which is 90 days from the Initial Closing Date (as hereinafter defined), then the Dividend Rate shall increase to 12% until the Registration Statement is so filed or declared effective, as the case may be; in addition, in the event the Registration Statement is not declared effective by the Commission by 120 days from the Initial Closing Date, the Dividend Rate shall increase to 18% until the Registration Statement is declared effective. Notwithstanding the foregoing, if the Commission conducts a review of the Registration Statement, the Dividend Rate shall not increase unless it is not declared effective by the Commission by 120 days from the Initial Closing Date, at which time the Dividend Rate shall increase to 14% until the Registration Statement is declared effective; in addition, if the Commission conducts a review of the Registration Statement and the Registration Statement is not declared effective by 150 days from the Initial Closing Date, the Dividend Rate shall increase to 18% until the Registration Statement is declared effective. Such dividends shall accrue with respect to each share of Series A 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 A 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: (1) the redemption or conversion of the Series A Preferred Stock or (2) 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 A Preferred Stock. No accumulation of dividends on the Series A Preferred Stock shall bear interest. At the election of the Company, each dividend may be paid either in additional shares of Series A Preferred Stock or in cash. Dividends paid in additional shares of Series A Preferred Stock shall be paid (based on an assumed value of $1,000 per share) 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 A 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. Holders of Series A Preferred Stock will receive written notification from the Company or the transfer agent if a dividend is paid in kind, which notification will specify the number of shares of Series A Preferred Stock paid as a dividend and the recipient's aggregate holdings of Series A Preferred Stock as of that dividend payment date and after giving effect to the dividend. All shares of Series A Preferred Stock issued as dividends shall be entitled to all of the rights and benefits as the shares of Series A Preferred Stock issued on the Initial Closing Date, including the Conversion Rights set forth in Section 4 hereof. 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 A 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 on liquidation prior and in preference to the Series A Preferred Stock (collectively referred to as "Senior Preferred Stock"), 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 A 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 A Preferred Stock (and the holders of any other series of Preferred Stock with a Liquidation Preference equal to the Liquidation Preference of the Series A Preferred Stock) the full amount to which they shall be entitled, the holders of shares of Series A Preferred Stock (and the holders of any other series of Preferred Stock with a Liquidation Preference equal to the Liquidation Preference of the Series A 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 Senior 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 and the Common Stock, with each share of Series A 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 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 50 percent 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 purposes of this Section, unless the holders of 66-2/3 percent of the Series A Preferred Stock then outstanding vote otherwise. The amount deemed distributed to the holders of Series A 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 Company shall not amend, alter or repeal preferences, rights, powers or other terms of the Series A Preferred Stock so as to affect adversely the Series A Preferred Stock, without the written consent or affirmative vote of the holders of at least sixty-six and two-thirds percent (66.6%) of the then outstanding shares of Series A Preferred Stock, given in writing or by vote at a meeting, consenting or voting (as the case may be) separately as a class. 4. Optional Conversion. ------------------- The holders of the Series A Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Series A ---------------- Preferred Stock shall be convertible, at the option of the holder thereof, at any time and from time to time, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $1,000 (plus the amount of any accrued and unpaid dividends) by the Conversion Price (as defined below) in effect at the time of conversion. The Conversion Price at which shares of Common Stock shall be deliverable upon conversion of Series A Preferred Stock without the payment of additional consideration by the holder thereof (the "Conversion Price") shall be the lower of (i) $4.00 or (ii) 75% of the average Closing Bid Price of the shares of Common Stock for the five (5) trading days prior to the Conversion Date (as hereinafter defined). For purposes of this Certificate of Designations, the term "Closing Bid Price" means, for any security 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 can not 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 A 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. In the event of a liquidation of the Company, the Conversion Rights shall terminate at the close of business on the first full day preceding the date fixed for the payment of any amounts distributable on liquidation to the holders of Series A Preferred Stock. (b) Fractional Shares. No fractional shares of Common ----------------- Stock shall be issued upon conversion of the Series A 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 will permit each holder of Series A Preferred Stock to exercise its right to convert the Series A Preferred Stock by faxing an executed and completed Notice of Conversion to the Company, and delivering within three (3) business days thereafter, the original Notice of Conversion (and the certificates representing the related shares of Series A 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 will transmit the certificates representing the Common Stock issuable upon conversion of the Series A Preferred Stock (together with certificates representing the related shares of Series A Preferred Stock not so converted) to such holder via express courier as soon as practicable, but in all events no later than the later to occur of (the "Delivery Date") (i) four (4) business days after the Conversion Date and (ii) four (4) business days after receipt by the Company of the original Notice of Conversion (and the certificates representing the related shares of Series A Preferred Stock). For purposes of this Agreement, such conversion of the Series A Preferred Stock shall be deemed to have been made immediately prior to the close of business on the Conversion Date. The Company shall pay cash in lieu of any fraction of a share. (ii) In lieu of delivering physical certificates representing the Common Stock issuable upon the conversion of the Series A Preferred Stock, provided that the Company's transfer agent is participating in the Depositary Trust Company ("DTC") Fast Automated Securities Transfer program, on the written request of a holder of Series A Preferred Stock who shall have previously instructed such holder'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 such holder by crediting the account of the holder's prime broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system no later than the applicable Delivery Date. (iii) 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 Convertible Preferred Stock. The Company will use its best efforts at all times to maintain a number of shares of Common Stock so reserved for issuance that is no less than one and one- half (1.5) times the number that is then actually issuable upon the conversion of the Series A Preferred Stock or the exercise of the Warrants issued to West End Capital LLC pursuant to the Securities Purchase Agreement. Before taking any action which would cause an adjustment reducing the Conversion Price below the then par value of the shares of Common Stock issuable upon conversion of the Series A Preferred Stock, the Company will take any corporate action which may, in the opinion of its counsel, be necessary in order that the Company may validly and legally issue fully paid and nonassessable shares of Common Stock at such adjusted Conversion Price. (iv) All shares of Series A 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 A Preferred Stock so converted shall be retired and cancelled 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 A Preferred Stock accordingly. (v) If the conversion is in connection with an underwritten offer of securities registered pursuant to the Securities Act of 1933, as amended, the conversion may at the option of any holder tendering Series A 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 A Preferred Stock shall not be deemed to have converted such Series A Preferred Stock until immediately prior to the closing of the sale of securities. (d) 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 A Preferred Stock against impairment. (e) 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), or of any consolidation or merger of the Company into or with another corporation, or of the sale of all or substantially all of the assets of the Company; or (iv) of the involuntary or voluntary dissolution, liquidation or winding up of the Company; then the Company shall cause to be filed at its principal office or at the office of the transfer agent of the Series A Preferred Stock, and shall cause to be mailed to the holders of the Series A Preferred Stock at their last addresses as shown on the records of the Company or such transfer agent, at least ten days prior to the record date specified in (A) below or twenty 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. (f) Quantity Limitations on Conversions. At no time ------------------------------------ shall any holder of the Series A Preferred Stock convert such amount of Series A Preferred Stock as shall result in such Purchaser's ownership, after such conversion, exceeding 9.9% of the Company's outstanding Common Stock. 5. Mandatory Conversion. -------------------- (a) The Company may, at its option, require all (and not less than all) holders of shares of Series A Preferred Stock then outstanding to convert their shares of Series A Preferred Stock into shares of Common Stock, at the then effective conversion rate pursuant to Section 4, at any time on or after the first anniversary of the date the registration statement filed under the Securities Act of 1933 relating to the shares of Common Stock into which the Series A Preferred Stock is then convertible (the "Registration Statement") was declared effective by the Securities and Exchange Commission. (b) All holders of record of shares of Series A Preferred Stock then outstanding will be given at least 10 days' prior written notice of the date fixed and the place designated for mandatory or special conversion of all such shares of Series A Preferred Stock pursuant to this Section 5. Such notice will be sent by first class or registered mail, postage prepaid, to each record holder of Series A Preferred Stock at such holder's address last shown on the records of the transfer agent for the Series A Preferred Stock (or the records of the Company, if it serves as its own transfer agent). 6. Optional Redemption of the Series A Preferred Stock. --------------------------------------------------- (a) Optional Redemption Event. ------------------------- (i) Upon the occurrence of an Optional Redemption Event (as hereinafter defined) the Company may, by notice given to each holder of Series A Preferred Stock, redeem the shares of Series A Preferred Stock then owned by such holder (up to an amount with an aggregate Liquidation Preference of $1 million) at a price equal to 120% of the Liquidation Preference, plus all accrued but unpaid dividends. (ii) Upon receipt of a notice given pursuant to Section 6(a)(i), each holder of Series A Preferred Stock shall accept its ratable portion (based on its holdings of Series A Preferred Stock as compared to the aggregate number of shares of Series A 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 15th day following the mailing of such notice (the "Redemption Date"). On the Redemption Date, the Company shall remit the applicable redemption price, calculated pursuant to Section 6(a)(i) hereof, by check to each holder of the Series A Preferred Stock, to the most recent address of each holder, as set forth in the Company's books and records. (iii) An Optional Redemption Event shall occur (a) if, subsequent to the Initial Closing Date, the Closing Bid Price for the shares of Common Stock shall have been less than $2.50 per share for at least five (5) consecutive trading days immediately prior to the date of the Optional Redemption Event and (b) if (I) the Second Additional Closing Date (as defined in the Securities Purchase Agreement) is held and (II) the Closing Bid Price for the shares of Common Stock shall have been less than $2.75 per share for at least five (5) consecutive trading days immediately prior to the date of the Optional Redemption Date. No more than one Optional Redemption Date may be deemed to occur, unless the Second Additional Closing Date is held under the Securities Purchase Agreement, in which case up to two (2) Optional Redemption Dates may be deemed to occur. Notwithstanding the foregoing, an Optional Redemption Event shall not occur from the time a holder of Series A Preferred Stock has submitted notice of conversion to the Company pursuant to Section 4(c) herein, until such time as the Company has issued and delivered all shares of Common Stock to which such holder shall be entitled. (b) Cancellation of Redeemed Stock. Any shares of Series A Preferred Stock redeemed pursuant to this Section 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. (c) The Company will not, and will not permit any subsidiary of the Company to, purchase or acquire any shares of Series A Preferred Stock otherwise than pursuant to (1) the terms of this Section, or (2) an offer made on the same terms to all holders of Series A Preferred Stock at the time outstanding. (d) Anything contained in this Section 6 to the contrary notwithstanding, the holders of shares of Series A 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 applicable 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 3 hereof. 7. Sinking Fund. ------------ There shall be no sinking fund for the payment of dividends, or liquidation preferences on the Series A Preferred Stock or the redemption of any shares thereof. 8. Amendment. --------- This Certificate of Designation constitutes an agreement between the Company and the holders of the Series A Preferred Stock. It may be amended by vote of the Board of Directors of the Company and the holders of a majority of the outstanding shares of Series A Preferred Stock. IN WITNESS WHEREOF, the Company has caused this Certificate to be executed by its President this 5th day of May, 1998. By: /s/ Michael Pieniazek --------------------- President EX-2 4 EXHIBIT 2.3 AGREEMENT AND PLAN OF MERGER AMONG AMERICAN ELECTROMEDICS CORP. A DELAWARE CORPORATION, DDS ACQUISITION CORPORATION A DELAWARE CORPORATION, AND DYNAMIC DENTAL SYSTEMS, INC., A DELAWARE CORPORATION, HENRY J. RHODES, CHARLES S. AVILES, JR. AND BARRY A. HOCHSTADT TABLE OF CONTENTS PAGE ---- ARTICLE I ADOPTION OF AGREEMENT AND PLAN OF MERGER 1.1 The Merger . . . . . . . . . . . . . . . . . . 1 1.2 Effective Date of the Merger . . . . . . . . . 2 1.3 Surviving Corporation; Articles of Incorporation of Surviving Corporation . . . . . . 2 1.4 Merger Consideration; Conversion of DDS Common Stock; Cancellation of Acquisition Corp. Common Stock. . . . . . . . . . . . . . . . . . . . . . . 2 1.5 No Fractional Shares . . . . . . . . . . . . . 3 ARTICLE II CLOSING 2.1 Closing Date . . . . . . . . . . . . . . . . . 3 2.2 Deliveries at the Closing . . . . . . . . . . 3 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS AND DDS 3.1 Due Incorporation . . . . . . . . . . . . . . 4 3.2 Due Approval And Authorization . . . . . . . . 4 3.3 Non-Contravention; Consents and Approvals . . 5 3.4 Capitalization . . . . . . . . . . . . . . . . 5 3.5 Financial Statements; Undisclosed Liabilities; Other Documents . . . . . . . . . . . . . . . 6 3.6 No Material Adverse Effects or Changes . . . . 6 3.7 Tax Returns and Audits . . . . . . . . . . . . 7 3.8 Litigation . . . . . . . . . . . . . . . . . . 8 3.9 Compliance with Applicable Laws . . . . . . . 9 3.10 Contracts . . . . . . . . . . . . . . . . . . 9 3.11 Property . . . . . . . . . . . . . . . . . . 10 3.12 Product Warranty Claims . . . . . . . . . . . 10 3.13 Employees . . . . . . . . . . . . . . . . . . 11 3.14 Insurance . . . . . . . . . . . . . . . . . . 11 3.15 Inventories . . . . . . . . . . . . . . . . . 12 3.16 Accounts Receivable. . . . . . . . . . . . . 12 3.17 Intellectual Property . . . . . . . . . . . . 12 3.18 Environmental Matters . . . . . . . . . . . . 12 3.19 Books and Records . . . . . . . . . . . . . . 13 3.20 Status of the Stockholders . . . . . . . . . 13 3.21 Waiver of Appraisal Rights . . . . . . . . . 13 3.22 Related Party Transactions . . . . . . . . . 13 3.23 Fees of Brokers, Consultants and Financial Advisors . . . . . . . . . . . . . 14 3.24 General Representation and Warranty . . . . . 14 3.25 Investment Due Diligence. . . . . . . . . . . 14 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUISITION CORP. AND AEC 4.1 Due Incorporation . . . . . . . . . . . . . . 14 4.2 Due Authorization . . . . . . . . . . . . . . 14 4.3 Non-Contravention; Consents and Approvals . . 15 4.4 Capitalization . . . . . . . . . . . . . . . . 16 4.5 Financial Statements; Undisclosed Liabilities; Other Documents . . . . . . . . . . . . . . . 16 4.6 Securities Law Filings . . . . . . . . . . . . 17 4.7 No Material Adverse Effects or Changes . . . . 17 4.8 Insurance. . . . . . . . . . . . . . . . . . . 17 4.9 Labor Matters . . . . . . . . . . . . . . . . 17 4.10 Tax Returns and Audits. . . . . . . . . . . . 18 4.11 Litigation . . . . . . . . . . . . . . . . . 19 4.12 Compliance with Applicable Laws . . . . . . . 19 4.13 Contracts; No Defaults . . . . . . . . . . . 19 4.14 Environmental Matters . . . . . . . . . . . . 19 4.15 Fees of Brokers, Finders and Investment Bankers . . . . . . . . . . . . . 20 4.16 General Representation and Warranty . . . . . 20 4.17 Investment Due Diligence. . . . . . . . . . . 20 ARTICLE V COVENANTS 5.1 Implementing Agreement . . . . . . . . . . . . 20 5.2 Access to Information and Facilities; Confidentiality . . . . . . . . . . . . . . . 20 5.3 Preservation of Business . . . . . . . . . . . 21 5.4 Consents and Approvals . . . . . . . . . . . . 23 5.5 Periodic Reports . . . . . . . . . . . . . . . 23 5.6 Publicity . . . . . . . . . . . . . . . . . . 24 5.7 No Negotiation. . . . . . . . . . . . . . . . 24 5.8 Blue Sky Approvals . . . . . . . . . . . . . . 24 5.9 Registration Rights . . . . . . . . . . . . . 24 5.10 Removal of Guaranties . . . . . . . . . . . . 26 ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUISITION CORP. AND AEC 6.1 Warranties True as of Closing Date . . . . . . 27 6.2 Compliance With Agreements and Covenants . . . 27 6.3 Stockholders' Certificate . . . . . . . . . . 27 6.4 Secretary's Certificate . . . . . . . . . . . 27 6.5 Good Standing Certificates . . . . . . . . . . 27 6.6 Employment Agreement . . . . . . . . . . . . . 28 6.7 Escrow Agreement . . . . . . . . . . . . . . . 28 6.8 Opinion of Counsel . . . . . . . . . . . . . . 28 6.9 Approval of Merger . . . . . . . . . . . . . . 28 6.10 Consents and Approvals . . . . . . . . . . . 28 6.11 Resignations . . . . . . . . . . . . . . . . 28 6.12 Actions or Proceedings . . . . . . . . . . . 28 6.13 Other Closing Documents . . . . . . . . . . . 28 ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS 7.1 Warranties True as of Closing Date . . . . . . 29 7.2 Compliance with Agreements and Covenants . . . 29 7.3 AEC Certificate . . . . . . . . . . . . . . . 29 7.4 Opinion of Counsel . . . . . . . . . . . . . . 29 7.5 Consents and Approvals . . . . . . . . . . . . 29 7.6 Actions or Proceedings . . . . . . . . . . . . 29 7.7 Funds Delivered at Closing and Other Closing Documents. . . . . . . . . . . . . . . . . . . 29 ARTICLE VIII TERMINATION 8.1 Termination . . . . . . . . . . . . . . . . . 30 8.2 Effect of Termination and Abandonment . . . . 31 ARTICLE IX INDEMNIFICATION 9.1 Indemnification by the Stockholders . . . . . 31 9.2 Indemnification by AEC . . . . . . . . . . . . 32 9.3 Procedure . . . . . . . . . . . . . . . . . . 33 9.4 Remedies . . . . . . . . . . . . . . . . . . . 33 ARTICLE X MISCELLANEOUS 10.1 Expenses . . . . . . . . . . . . . . . . . . 34 10.2 Amendment . . . . . . . . . . . . . . . . . . 34 10.3 Notices . . . . . . . . . . . . . . . . . . . 34 10.4 Waivers . . . . . . . . . . . . . . . . . . . 35 10.5 Interpretation . . . . . . . . . . . . . . . 35 10.6 Applicable Law . . . . . . . . . . . . . . . 35 10.7 Assignment . . . . . . . . . . . . . . . . . 35 10.8 No Third Party Beneficiaries . . . . . . . . 35 10.9 Enforcement of the Agreement. . . . . . . . . 36 10.10 Severability . . . . . . . . . . . . . . . . 36 10.11 Remedies Cumulative . . . . . . . . . . . . 36 10.12 Entire Understanding . . . . . . . . . . . . 36 10.13 Waiver of Jury Trial . . . . . . . . . . . . 36 10.15 Counterparts . . . . . . . . . . . . . . . . 36 SCHEDULES --------- NUMBER DESCRIPTION. 3.1 DDS Due Incorporation. 3.3 DDS Non-Contravention; Consents and Approvals. 3.4 DDS Capitalization. 3.6 DDS Material Changes. 3.7 DDS Tax Powers of Attorney. 3.9 DDS Permits. 3.10 DDS Contracts and Largest Customers. 3.11 DDS Personal property valued over $5,000. 3.12 Product Warranty Claims. 3.13 DDS Employees. 3.14 DDS Insurance. 3.16 DDS Accounts Receivable. 3.17 DDS Intellectual Property. 3.19 DDS Books and Records. 3.22 DDS Related Party Transactions. 4.4 AEC Capitalization. 4.7 Changes to AEC since January 31, 1998. 4.9 AEC Tax Returns. 4.10 AEC Tax Power of Attorney. 5.10 Stockholder Guaranties EXHIBITS A. Certificate of Merger B. Escrow Agreement C. Stockholder Representation Letter D. Selling Stockholder Agreement AGREEMENT AND PLAN OF MERGER AGREEMENT AND PLAN OF MERGER dated as of April 30, 1998 (the "Agreement"), among AMERICAN ELECTROMEDICS CORP., a Delaware corporation ("AEC"), DDS ACQUISITION CORPORATION, a Delaware corporation ("Acquisition Corp.") and DYNAMIC DENTAL SYSTEMS, INC., a Delaware corporation ("DDS"), and HENRY J. RHODES, CHARLES S. AVILES, JR. and BARRY A. HOCHSTADT (individually, a "Stockholder" and, collectively, the "Stockholders"). W I T N E S S E T H : - - - - - - - - - - - WHEREAS, Acquisition Corp. is a newly-formed wholly- owned subsidiary of AEC; WHEREAS, AEC desires to acquire all of the issued and outstanding shares of common stock, no par value per share, of DDS (the "DDS Common Stock"), through the merger (the "Merger") of Acquisition Corp. with and into DDS, pursuant to the terms hereinafter set forth; WHEREAS, the respective Boards of Directors of AEC and Acquisition Corp. deem it advisable and in the best interests of AEC and Acquisition Corp. that Acquisition Corp. be merged with and into DDS upon the terms and conditions hereinafter specified; WHEREAS, the Board of Directors of DDS deems it advisable and in the best interests of DDS that Acquisition Corp. be merged with and into DDS upon the terms and conditions hereinafter specified; WHEREAS, the Stockholders, who in the aggregate are the record and beneficial owners of all of the outstanding capital stock of DDS, individually and collectively, find it advisable and in their best interest that Acquisition Corp. be merged with and into DDS upon the terms and conditions hereinafter specified; NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE I ADOPTION OF AGREEMENT AND PLAN OF MERGER 1.1 The Merger. At the Effective Time (as defined in ---------- Section 1.2 hereof), in accordance with this Agreement and the ----------- relevant provisions of the Delaware General Corporation Law (the "DGCL"), Acquisition Corp. shall be merged with and into DDS. DDS shall be the surviving corporation of the Merger and DDS shall continue, and be deemed to continue, for all purposes after the Merger, and the existence of Acquisition Corp. shall cease at the Effective Time. 1.2 Effective Date of the Merger. Unless this ---------------------------- Agreement is terminated in accordance with its terms, the consummation of the of the transactions contemplated by this Agreement shall take place as soon as practicable after the satisfaction or waiver of the conditions precedent to the obligations of the parties set forth herein, or on such other date as may be agreed by the parties. A Certificate of Merger, substantially in the form annexed hereto as Exhibit A (the "Certificate of Merger"), shall be executed in accordance with Section 103 of the DGCL and delivered to the Secretary of State of Delaware for filing (the time of such filing being the "Effective Time" and the date of such filing being the "Effective Date"). 1.3 Surviving Corporation; Articles of Incorporation ------------------------------------------------ of Surviving Corporation. Following the Merger, DDS shall ------------------------- continue to exist under, and be governed by, the laws of the State of Delaware, and AEC will own all of the issued and outstanding DDS Common Stock. The Certificate of Incorporation and By-Laws of DDS, as in effect as of the Effective Time, shall continue in full force and effect as the Certificate of Incorporation and By-Laws of DDS. 1.4 Merger Consideration; Conversion of DDS Common ---------------------------------------------- Stock; Cancellation of Acquisition Corp. Common Stock. (a) At ------------------------------------------------------ the Effective Time, by virtue of the Merger and without any action on the part of Acquisition Corp., DDS or the Stockholders, the Stockholders shall receive an aggregate of $225,000 and 750,000 shares of common stock, $.10 par value per share, of AEC ("AEC Common Stock"), all of which shall be the "Merger Consideration" subject to adjustment as provided in this Section 1.4 and subject to the Escrow Agreement, as described in ----------- Section 6.7 hereof. Each Stockholder shall be entitled to ----------- receive Two Hundred Fifty Thousand (250,000) shares of AEC Common Stock, and Seventy Five Thousand Dollars ($75,000) (the "Cash Consideration"). Until surrendered in accordance with the provisions of Section 1.5 hereof, each certificate of DDS Common ----------- Stock shall represent, for all purposes, only the right to receive the Merger Consideration or appraisal rights under Section 1.8 hereof. ----------- (b) If between the date of this Agreement and the Effective Time the outstanding shares of AEC Common Stock shall have been changed into a different number of shares or a different class by reason of a stock dividend, subdivision, reclassification, recapitalization, split-up or combination, the number of AEC shares constituting the Share Consideration shall be appropriately adjusted. (c) At the Effective Time, all shares of DDS Common Stock which are owned by DDS as treasury stock shall be canceled and retired and cease to exist. (d) At the Effective Time, each share of Acquisition Corp. Common Stock issued and outstanding immediately prior to the Effective Time shall, by virtue of the Merger and without any action on the part of AEC, be canceled and cease to exist. 1.5 No Fractional Shares. No certificates or scrip -------------------- for fractional shares of AEC Common Stock will be issued. In lieu of issuing any such fractional shares to which a Stockholder would otherwise be entitled to receive, the Exchange Agent shall round up or down to the nearest whole share of AEC Common Stock. ARTICLE II CLOSING 2.1 Closing Date. The closing of the Merger (the ------------ "Closing") shall take place at the offices of DDS, 427 Green Street, N.W., Gainesville, Georgia 30501, at 11:00 a.m., local time, on that day on which the last of the conditions set forth in Articles VI and VII shall have been satisfied or, if permissible, waived (other than those conditions which by their terms are to occur only at the Closing), or on and at such other date, time and place as AEC, Acquisition Corp. and the Stockholders may agree (the date of the Closing hereinafter being referred to as the "Closing Date"). 2.2 Deliveries at the Closing. At the Closing ------------------------- Stockholders and/or DDS will deliver to AEC certificates representing all then outstanding shares of DDS Common Stock, and the various certificates, instruments and document referred to in Article VI, and AEC and Acquisition Corp. will deliver to ---------- Stockholders and/or DDS certificates representing the Share Considerations and funds representing the Cash Consideration, and the various certificates, instruments and documents referred to in Article VII. ----------- ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS AND DDS The Stockholders, jointly and severally, and DDS hereby represent and warrant to AEC and Acquisition Corp. as follows: 3.1 Due Incorporation. DDS is a corporation duly ----------------- organized, validly existing and in good standing under the laws of the State of Delaware, with all requisite power and authority to own, lease and operate its properties and to carry on its business as it is now being owned, leased, operated and conducted. Each jurisdiction in which DDS is qualified to transact business as a foreign corporation is listed on Schedule 3.1 hereto. Except for the jurisdictions listed on ------------ Schedule 3.1 hereto, the nature of the properties owned, leased ------------ or operated by it and the business transacted by DDS do not require it to qualify as a foreign corporation in any other jurisdiction. DDS does not have (i) any record or beneficial interest in any corporation, proprietorship, firm, partnership, limited partnership, limited liability company, trust, association or other entity, (ii) any direct or indirect subsidiaries, either wholly or partially owned, (iii) any voting or management interest in any corporation, proprietorship, firm, partnership, limited partnership, limited liability company, trust, association, individual or other entity (a "Person") or own any security issued by any Person. 3.2 Due Approval And Authorization. (a) The ------------------------------ execution by the Stockholders of this Agreement or any other paper or document or the doing by any one of them of any act in connection with the Merger shall conclusively establish their approval thereof and the approval and ratification by DDS of the papers and documents so executed and the actions so taken. (b) Each Stockholder to the extent of and in his capacity as a stockholder of DDS has full power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by the Stockholders and the consummation by them of the transactions contemplated hereby have been duly and validly authorized. This Agreement constitutes the legal, valid and binding obligation of the Stockholders enforceable against the Stockholders in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization or other laws from time to time in effect which affect creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (c) DDS has full power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement by DDS and the consummation of the transactions contemplated hereby have been fully and validly authorized by all requisite corporate action. This Agreement constitutes the legal, valid and binding obligation of DDS enforceable against DDS in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization or other laws from time to time in effect which affect creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 3.3 Non-Contravention; Consents and Approvals. ----------------------------------------- (a) Except to the extent set forth on Schedule 3.3, the ------------ execution and delivery of this Agreement by the Stockholders and DDS does not, and the performance by the Stockholders and DDS of their respective obligations hereunder and the consummation of the transactions contemplated hereby will not, conflict with, result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, result in or give to any person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, or result in the creation or imposition of any lien upon any of the assets or properties of DDS under, any of the terms, conditions or provisions of (i) the Certificate of Incorporation or By-Laws of DDS, or (ii) subject to obtaining the necessary approval of this Agreement and the Merger by the Stockholders and the taking of the actions described in paragraph (b) of this Section 3.3 (x) any statute, law, rule, regulation or ordinance (together, "Laws"), or any judgment, decree, order, writ, permit or license, of any Governmental Entity (as defined in paragraph (b) below), applicable to DDS or any of its assets or properties, or (y) any contract, agreement or commitment to which DDS or a Stockholder is a party or by which DDS or any of its assets or properties is bound. (b) No consent, approval, order or authorization of, or registration, declaration or filing with any court, admini- strative agency or commission or other governmental authority or instrumentality, domestic or foreign (a "Governmental Entity"), or any other Person, is required by DDS or the Stockholders in connection with the execution and delivery of this Agreement or the consummation by DDS and the Stockholders of the transactions contemplated hereby, except for the filing of Certificate of Merger with the Secretary of State of the State of Delaware in accordance with the requirements of the DGCL. 3.4 Capitalization. The authorized capital stock of -------------- DDS consists of 3,000 shares of Common Stock, no par value per share, of which 3,000 shares are issued and outstanding and owned beneficially and of record by the Stockholders in the amounts set forth on Schedule 3.4 hereto. All of the issued and outstanding ------------ shares of DDS Common Stock are validly issued, fully paid and nonassessable and the issuance thereof was not subject to preemptive rights. At the Effective Time there will be no outstanding DDS options, warrants or other rights to purchase or convert into shares of DDS Common Stock. 3.5 Financial Statements; Undisclosed Liabilities; --------------------------------------------- Other Documents. (a) For purposes of this Agreement, "DDS ---------------- Financial Statements" shall mean (x) the unaudited financial statements of DDS as of December 31, 1997 and the fiscal year then ended (including all notes thereto), consisting of the balance sheet at such date and the related statements of income, stockholders' equity and cash flows for the year then ended and (y) the unaudited financial statements of DDS as of March 31, 1998 (including all notes thereto), consisting of the balance sheet at such date and the results of operations for the three months then ended (the "DDS Interim Financial Statements"). The DDS Financial Statements have been prepared in accordance with GAAP consistently applied, present fairly the financial position of DDS as at the dates thereof and the results of operations, stockholders' equity and cash flows of DDS for the periods covered thereby, and are substantially in accordance with the financial books and records of DDS, subject to normal year end adjustments with respect to the Interim Financial Statements. (b) DDS does not have any liabilities or obligations of any nature, whether accrued, absolute, contingent or otherwise, which individually or in the aggregate could be reasonably expected to have a DDS Material Adverse Effect (as defined below) except (i) as set forth on or reflected in the balance sheet at March 31, 1998 (the "DDS Interim Balance Sheet") included in the DDS Interim Financial Statements or (ii) liabilities and obligations incurred since March 31, 1998 in the ordinary and usual course of its business. 3.6 No Material Adverse Effects or Changes. A "DDS -------------------------------------- Material Adverse Effect" shall mean an effect on or circumstances involving the business, operations, assets, liabilities, results of operations, cash flows or condition (financial or otherwise) which is materially adverse to DDS, except as set forth on Schedule 3.6. Since December 31, 1997, DDS has not (i) declared, ------------ set aside or paid any dividend or other distribution in respect of its capital stock; (ii) made any direct or indirect redemption, purchase or other acquisition of any shares of its capital stock or made any payment to any of its stockholders (in their capacity as stockholders); (iii) issued or sold any shares of its capital stock or any options, warrants or other rights to purchase any such shares or any securities convertible into or exchangeable for such shares or taken any action to reclassify or recapitalize or split up its capital stock; (iv) mortgaged, pledged or subjected to any lien, lease, security interest, encumbrance or other restriction, any of its material properties or assets except in the ordinary and usual course of its business and consistent with past practice; (v) entered into any acquisition or merger agreement, license, commitment or other material agreement, (vi) except in the ordinary and usual course of its business and consistent with its past practices forgiven or canceled any material debt or claim, waived any material right; or (vii) adopted or amended any plan or arrangement (other than amendments that are not material or that were made to comply with laws or regulations) for the benefit of any director, officer or employee or changed the compensation (including bonuses) to be paid to any director, officer or employee, except for changes made consistent with the prior practice of DDS. 3.7 Tax Returns and Audits. "Taxes", as used in this ---------------------- ----- Agreement, means any federal, state, county, local or foreign taxes, charges, fees, levies, or other assessments, including all net income, gross income, sales and use, ad valorem, transfer, gains, profits, excise, franchise, real and personal property, gross receipt, capital stock, production, business and occupation, disability, employment, payroll, license, estimated, stamp, custom duties, severance or withholding taxes or charges imposed by any Governmental Entity, and includes any interest and penalties (civil or criminal) on or additions to any such taxes and any expenses incurred in connection with the determination, settlement or litigation of any tax liability. "Tax Return", as used in this Agreement, means a report, return or other information required to be supplied to a Governmental Entity with respect to Taxes, including where permitted or required, combined or consolidated returns for any group or entities. (a) Filing of Timely Tax Returns. DDS has duly filed ---------------------------- all Tax Returns required to be filed by it under applicable law and will file all Tax Returns required to be filed by it at or prior to the Effective Date under applicable law except where the failure to so file would not have a DDS Material Adverse Effect. All Tax Returns were in all material respects (and, as to Tax Returns not filed as of the date hereof, will be) complete and correct and filed on a timely basis. DDS has not requested any extension of time within which to file any Tax Return, which Tax Return has not since been filed. (b) Payment of Taxes. DDS has, within the time and in ---------------- the manner prescribed by law, paid (and until the Effective Date will pay within the time and in the manner prescribed by law) all Taxes that are currently due and payable except for those contested in good faith and for which adequate reserves have been taken. (c) Tax Liens. There are no Tax liens upon the assets --------- of DDS except liens for Taxes not yet due. (d) Withholding Taxes. DDS has complied (and until ----------------- the Effective Date will comply) in all respects with the provisions of the Internal Revenue Code of 1986, as amended (the "Code"), relating to the payment and withholding of Taxes, including, without limitation, the withholding and reporting requirements under Sections 1441 through 1464, 3401 through 3606, and 6041 and 6049 of the Code, as well as similar provisions under any other laws, and has, within the time and in the manner prescribed by law, withheld from employee wages and paid over to the proper governmental authorities all amounts required. (e) Statute of Limitations. Neither the Stockholders ---------------------- nor DDS has executed any outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Tax Returns. The statute of limitations for the assessment of all Taxes has expired for all applicable Tax Returns of DDS or those Tax Returns have been examined by the appropriate taxing authorities for all periods through the date hereof, and no deficiency for any Taxes has been proposed, asserted or assessed against DDS that has not been resolved and paid in full. (f) Audit, Administrative and Court Proceedings. No ------------------------------------------- audits or other administrative proceedings or court proceedings are presently pending or, to the knowledge of the Stockholders or DDS, threatened with regard to any Taxes or Tax Returns of DDS. Except as disclosed in Schedule 3.7, no power of attorney ------------ currently in force has been granted by the Stockholders or DDS concerning any Tax matter. To the knowledge of the Stockholders and DDS, no facts exist or have existed which would constitute grounds for the assessment of Taxes on DDS with respect to periods which have not been audited by the Internal Revenue Service (the "IRS") or other taxing authorities. (g) Code Section 341(f). DDS has not filed (and will ------------------- not file prior to the Closing) a consent pursuant to Code Section 341(f) and has not agreed to have Code Section 341(f)(2) apply to any disposition of a subsection (f) asset (as that term is defined in Code Section 341(f)(4)) owned by DDS. (h) Code Section 168. No property of DDS is property ---------------- that DDS or any party to this transaction is or will be required to treat as being owned by another person pursuant to the provisions of Code Section 168(f)(8) (as in effect prior to its amendment by the Tax Reform Act of 1986) or is "tax-exempt use property" within the meaning of Code Section 168. 3.8 Litigation. There are no actions, suits, ---------- arbitrations, regulatory proceedings or other litigation, proceedings or governmental investigations pending or, to DDS's or the Stockholders' knowledge, threatened against or affecting DDS or any of its officers or directors in their capacity as such, or any of its property or business which could reasonably be expected to have a DDS Material Adverse Effect. No event has occurred or circumstance exists that may give rise or serve as a basis for the commencement of any such proceeding. DDS is not subject to any order, judgment, decree, injunction, stipulation or consent order of or with any court or other Governmental Entity, other than orders of general applicability. 3.9 Compliance with Applicable Laws. DDS holds all ------------------------------- permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities which are required in the operation of its business (the "DDS Permits"), except for those the failure of which to hold would not have a DDS Material Adverse Effect. DDS is in compliance with the terms of the DDS Permits, except where the failure so to comply would not have a DDS Material Adverse Effect. Schedule 3.9 is a complete and correct list of all DDS ------------ Permits. The entry into and consummation of this Agreement and the Merger will not require any modification, re-application, approval or other consent as to any DDS Permit. DDS is not in violation of any law, ordinance or regulation of any Governmental Entity, including environmental and labor laws and regulations, except for possible violations which individually and in the aggregate do not, and, insofar as reasonably can be foreseen by DDS or the Stockholders, will not in the future have a DDS Material Adverse Effect. 3.10 Contracts. (a) Except for the contracts, --------- agreements, commitments, instruments, bids and proposals to which DDS is a party listed on Schedule 3.10, DDS is not a party to or ------------- otherwise bound by any written or oral (i) mortgage, indenture, note, installment obligation or other instrument relating to the borrowing of money, (ii) guarantee of any obligation (excluding endorsements of instruments for collection in the ordinary course of business of DDS), (iii) letter of credit, bond or other indemnity, (iv) joint venture, partnership or other agreement involving the sharing of profits and losses, (v) performance of services or delivery of goods in an amount exceeding $5,000 or which would not be completed within three (3) months, (vi) agreement for the sale or lease by DDS to any person of any material amount of its assets other than the retirement or other disposition of assets no longer useful to DDS or the sale of assets in the ordinary course of the operation of DDS, (vi) agreement requiring the payment by DDS of more than $5,000 in any 12-month period for the purchase or lease of any machinery, equipment or other capital assets, (viii) agreement providing for the lease or sublease by DDS (as lessor, sublessor, lessee or sublessee) of any real property, (ix) distributor, sales representative, broker or agent agreement, (x) collective bargaining agreement, employment or consulting agreement or agreement providing for severance payments or other additional rights or benefits (whether or not optional) in the event of the sale of DDS, (xi) agreement requiring the payment by DDS to any person of more than $5,000 in any 12-month period for the purchase of goods or services, (xii) material warranties relating to products distributed or services provided by DDS, (xiii) license or sublicense agreement (whether as licensor, licensee, sublicensor or sublicensee) with respect to any item of Intellectual Property, as defined in Section 3.17, owned or ------------ licensed by DDS, and (xiv) agreement imposing non-competition, confidentiality or exclusive dealing obligations on DDS. (b) The Stockholders or DDS has delivered or made available to AEC complete and correct copies of each written agreement listed on Schedule 3.10 each as amended to date and a ------------- summary of the terms of each oral agreement listed on Schedule 3.10. Each agreement listed on Schedule 3.10 is a ------------- ------------- valid, binding and enforceable obligation of DDS and, to the Stockholders' knowledge, the other party or parties thereto (subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar Laws affecting creditors' rights and remedies generally and subject as to enforceability to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing) and is in full force and effect. Except as set forth on Schedule 3.10 (i) neither DDS nor, to the Stockholders' ------------- knowledge, any other party thereto is in material breach of any material term of any such agreement or has repudiated any material term of any such agreement, (ii) no event, occurrence or condition exists (including the transactions contemplated under this Agreement) which, with the lapse of time or the giving of notice or both, would become a default under any such agreement by DDS or, to DDS's or the Stockholders' knowledge, any other party thereto, and (iii) DDS has not released or waived any material right under any contract. DDS is not required to give any notice to any other person who is a party to an agreement listed on Schedule 3.10 regarding this Agreement or the Merger. ------------- (c) Schedule 3.10 sets forth a correct and complete ------------- list of the ten largest customers of DDS in terms of net revenues during the 1997 fiscal year and the first three months of fiscal 1998, showing the approximate total net revenue received in each such period from each such customer. Except to the extent set forth on Schedule 3.10, since December 31, 1997, there has not ------------- been any adverse change in the business relationship between DDS and any customer listed on such Schedule. 3.11 Property. Schedule 3.11 is a complete and -------- ------------- correct list of all personal property of DDS (other than inventory) not reflected on any other Schedule hereto and having a book value exceeding $5,000. Except as set forth on Schedule 3.11 DDS now has and on the Closing Date will have good ------------- and marketable title to all personal property purported to be owned by it, free and clear of all Liens. The material, tangible assets of DDS taken as a whole, including all machinery and equipment, are, in all material respects, in good condition and repair, reasonable wear and tear excepted and have been well maintained. DDS does not own, nor have any right to acquire, any real property. 3.12 Product Warranty Claims. To Stockholders' and ----------------------- DDS' best knowledge, there are no claims, whether undisputed or disputed in whole or in part, existing, pending or anticipated or otherwise known to DDS or the Stockholders under any warranty, or guaranty, express or implied, on or otherwise issued in connection with any product or device manufactured, made, assembled or otherwise produced by DDS. Schedule 3.12 sets forth ------------- DDS's warranty policy and warranty experience. 3.13 Employees. Schedule 3.13 contains a complete --------- ------------- and correct list of (i) all full-time and part-time employees of DDS, including their respective salaries, dates of hire, positions and last salary adjustment and (ii) all bonus, deferred compensation, severance or termination pay, insurance, medical, dental, drug, profit sharing, pension, retirement, stock option, stock purchase, hospitalization insurance or other material plans or arrangements providing employee benefits to any current or former director, officer, employee or consultant of DDS and all relevant vacation policies. DDS is not a party to any union, collective bargaining or similar agreement, and there are no controversies pending or, to the Stockholder' knowledge, threatened between DDS and any current or former employee or any labor or other collective bargaining unit representing any current or former employee of DDS that could reasonably be expected to result in a material labor strike, dispute, slow-down or work stoppage or otherwise have a DDS Material Adverse Effect. The Stockholders are not aware of any organizational effort presently being made or threatened by or on behalf of any labor union with respect to employees of DDS. DDS has paid or accrued in full all wages, salaries, commissions, bonuses and other compensation (including severance pay and vacation benefits) for all services performed by its employees and former employees, and has withheld such amounts as were required to be withheld therefrom and has paid the withheld amounts to the proper tax and other receiving officers within the time required under applicable law. DDS does not have any benefit plan subject to the reporting requirements of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the Code and other applicable Laws, nor has had such a plan since January 24, 1997. 3.14 Insurance. Schedule 3.14 contains a complete --------- ------------- and correct schedule of coverage and list of all policies of insurance owned by DDS under which DDS assets, properties, operations or employees are insured (including amount of coverage, type of insurance, amount of deductible, if any, the policy number and expiration date), and all claims made under any of such policies or prior policies since January 24, 1997. Since January 24, 1997, DDS has given due and timely notice of any claim and of any occurrence known to DDS which may be covered by any of such policies or prior policies. All scheduled policies are in full force and effect and are in amounts and coverage sufficient for compliance by DDS with all applicable requirements of Law and all agreements to which DDS is a party or subject and customary in its industry. All premiums in connection with such policies are fully paid to Stockholders' and DDS' best knowledge. No event has occurred which, with notice or lapse of time, would constitute a breach or default thereunder or permit termination, modification or acceleration of any policy, and no party to any policy has repudiated any provisions thereof. 3.15 Inventories. The amounts at which the ----------- inventories are carried on the DDS Interim Balance Sheet and on the books of DDS reflect the normal valuation policy of DDS in accordance with GAAP. The amount of repair parts and supplies maintained by DDS is consistent with its prior practices. The reserves estimated for obsolescence as of the Closing Date will be adequate to cover the diminution in value of inventories due to obsolescence. 3.16 Accounts Receivable. Schedule 3.16 sets forth a ------------------- ------------- complete and correct list of the work-in-process and accounts receivable of DDS as set forth on the DDS Interim Balance Sheet, including the degree of completion for each project and the amounts expended thereon. All accounts receivable which have arisen subsequent to the DDS Interim Balance Sheet represent sales or work performed in the ordinary course of business, are current and collectible and, to the Stockholders' or DDS's knowledge, the same will be collected in full (net of reserve for bad debts) in the ordinary course of business and are not subject to any claims, offsets, allowances or adjustments. 3.17 Intellectual Property. Schedule 3.17 is a --------------------- ------------- complete and correct list of all of the trademarks, tradenames, service marks, trade dress, and patents (including any registrations of or pending applications for any of the foregoing), know-how, databases, trade secrets and confidentiality information (collectively, "Intellectual Property") used by DDS in the conduct of its business. Except as set forth on Schedule 3.17, all of such Intellectual Property is owned by DDS free and clear of all liens, and is not subject to any license, royalty or other agreement. None of such Intellectual Property has been or is the subject of any pending or, to the best of DDS's or the Stockholders' knowledge, threatened litigation or claim of infringement. No license or royalty agreement to which DDS is a party is in breach or default by any party thereto except where such breach or default would not have a DDS Material Adverse Effect or is the subject of any notice of termination given or, to the Stockholders' or DDS's knowledge, threatened. To DDS's or the Stockholders' knowledge, DDS is not breaching or infringing any Intellectual Property of third parties. The Intellectual Property is sufficient for the conduct of the business of DDS as presently conducted. 3.18 Environmental Matters. The business and --------------------- operations of DDS, including the transportation, treatment, storage, handling, transfer, disposition, recycling or receipt of materials, complies with all applicable environmental statutes, regulations and decrees, whether federal, state or municipal (the "Environmental Laws"). Neither the Stockholders nor DDS has received any notices to the effect that the business carried on by DDS or the operation of any equipment or facilities of DDS (including the transportation, handling, treatment or storage of hazardous materials thereon) is not in compliance with the requirements of applicable Environmental Laws or is subject to any remedial control or action or any investigation or evaluation as to whether any remedial action is required to respond to a release or threatened which forms part of or is adjacent to any premises at which DDS's business is conducted. DDS has performed its services for customers in material compliance with all applicable Environmental Laws. 3.19 Books and Records. DDS has maintained and ----------------- preserved complete and accurate books and records for its material transactions. The minute books of DDS include complete and correct minutes of all meetings of its directors committees and stockholders. The DDS Certificate of Incorporation and By- laws previously delivered to AEC are current and complete. At the Closing Date, all of those books and records will be in the possession of DDS. Schedule 3.19 sets forth a complete and ------------- correct list of (i) all officers and directors of DDS and (ii) the name and address of each bank, trust company or other financial institution in which DDS has an account and the names of all persons authorized to draw thereon as well as all powers of attorney granted by DDS. 3.20 Status of the Stockholders. Each Stockholder -------------------------- shall sign and deliver a Stockholder Representation Letter dated as of the Closing Date with respect to the Stockholder's receipt of certain information and financial reports of AEC, the extent of his or his advisor's familiarity and understanding of the terms of the Merger, the tax consequences of the Merger with respect to the Stockholder and the risks involved, and his awareness of the restrictions on the transferability of the Share Consideration. 3.21 Waiver of Appraisal Rights. In connection with -------------------------- the Merger, each Stockholder hereby waives any right or rights of appraisal, under the DGCL or otherwise, of his shares of DDS common stock and agrees not to seek any such appraisal rights. 3.22 Related Party Transactions. Schedule 3.22 sets -------------------------- ------------- forth a complete and correct list of all transactions, loans, claims, or agreements between or involving the Stockholders, DDS and an officer, director, employee, consultant or Stockholder of DDS (or an affiliate of any such person) since January 24, 1997 (excluding employment agreements included on another DDS Schedule to this Agreement and benefits given to all employees of DDS). All transactions and agreements listed on Schedule 3.22 were on ------------- terms to DDS no less favorable than what DDS would have had with unrelated third parties. 3.23 Fees of Brokers, Consultants and Financial ------------------------------------------ Advisors. Neither DDS, the Stockholders nor any officer, --------- director, or employee of DDS, has employed any broker, finder, consultant or investment banker or incurred any liability for any brokerage or investment banking fees, commissions or finders' fees in connection with the transactions contemplated by this Agreement. 3.24 General Representation and Warranty. Neither ----------------------------------- this Agreement nor any schedule attached hereto or other documents and written information furnished by or on behalf of DDS, the Stockholders, its attorneys, auditors or insurance agents to AEC in connection with this Agreement contains any untrue statement of material fact or omits to state any material fact necessary to make the statements contained herein or therein not misleading. 3.25 Investment Due Diligence. The Stockholders and ------------------------ DDS have undertaken all due diligence of AEC regarding the business and corporate affairs of AEC which the Stockholders and DDS believe is appropriate for this transaction. In evaluating the suitability of the transaction contemplated by this Agreement, the Stockholders and DDS have not relied upon any representations or other information (whether verbal or written), other than as contained in this Agreement or in any documents or written responses to questions furnished to DDS or the Stockholders by AEC. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUISITION CORP. AND AEC Acquisition Corp. and AEC, jointly and severally, hereby represent and warrant to the Stockholders as follows: 4.1 Due Incorporation. Each of AEC and Acquisition ----------------- Corp. is a corporation duly organized, validly existing and in good standing under the laws of Delaware, and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. AEC is qualified to do business and is in good standing as a foreign corporation in each jurisdiction where the nature of the properties owned, leased or operated by it and the business transacted by it require such qualification, except where the failure to be so qualified would not have an AEC Material Adverse Effect (as defined in Section 4.7 herein). ----------- 4.2 Due Authorization. Each of AEC and Acquisition ----------------- Corp. has full power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance by AEC of this Agreement will be duly and validly approved by the Board of Directors of AEC, and no other actions or proceedings on the part of AEC will be necessary to authorize this Agreement. The execution, delivery and performance by Acquisition Corp. of this Agreement will be duly and validly approved by the Board of Directors and the sole stockholder of Acquisition Corp., and no other actions or proceedings on the part of Acquisition Corp. or its stockholder are necessary to authorize this Agreement. Each of AEC and Acquisition Corp. has duly and validly executed and delivered this Agreement, subject to the above mentioned Board and shareholder approvals. Subject to the above mentioned Board and shareholder approvals, this Agreement constitutes the legal, valid and binding obligations of each of AEC and Acquisition Corp., enforceable in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization or other laws from time to time in effect which affect creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4.3 Non-Contravention; Consents and Approvals. ----------------------------------------- (a) The execution and delivery of this Agreement by AEC and Acquisition Corp. does not, and the performance by AEC and Acquisition Corp. of their obligations hereunder and the consummation of the transactions contemplated hereby will not, conflict with, result in a violation or breach of, constitute (with or without notice or lapse of time or both) a default under, result in or give to any person any right of payment or reimbursement, termination, cancellation, modification or acceleration of, or result in the creation or imposition of any lien upon any of the assets or properties of any of the AEC Companies (as defined in Section 4.7 hereof) under, any of the ----------- terms, conditions or provisions of (i) the charter documents or bylaws of each of the AEC Companies, or (ii) subject to the taking of the actions described in paragraph (b) of this Section, (x) any statute, law, rule, regulation or ordinance, or any judgment, decree, order, writ, permit or license, of any Governmental Entity, or (y) any contract, agreement or commitment to which any AEC Company is a party or by which any AEC Company or any of their respective assets or properties is bound. (b) No consent, approval, order or authorization of, or registration, declaration or filing with any Governmental Entity is required by AEC or Acquisition Corp. in connection with the execution and delivery of this Agreement or the consummation by each of AEC and Acquisition Corp. of the transactions contemplated hereby and thereby, except for: (i) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware in accordance with the requirements of the DGCL; and (ii) filings with various state securities "blue sky" authorities. 4.4 Capitalization. The authorized capital stock of -------------- AEC consists of 1,000,000 shares of Preferred Stock, $.01 par value per share ("AEC Preferred Stock"), and 20,000,000 shares of AEC Common Stock. On the date hereof, no shares of AEC Preferred Stock are issued and outstanding and 5,663,036 shares of AEC Common Stock are issued and outstanding. The authorized capital stock of Acquisition Corp. consists of 1,000 shares of Acquisition Corp. Common Stock, of which 1,000 shares are issued and outstanding. All of the issued and outstanding shares of AEC and Acquisition Corp. Common Stock are, and all shares of AEC Common Stock constituting the Share Consideration portion of the Merger Consideration to be issued to the Stockholders in the Merger will be, validly issued, fully paid and nonassessable and the issuances thereof were not and will not be subject to preemptive rights. Schedule 4.4 sets forth a complete and ------------ correct list of all options, warrants or other rights to purchase any shares of AEC capital stock or any securities convertible into or exchangeable for such shares and all agreements or current efforts to offer or sell any such capital stock. 4.5 Financial Statements; Undisclosed Liabilities; ---------------------------------------------- Other Documents. (a) For purposes of this Agreement, "AEC ---------------- Financial Statements" shall mean (x) the audited consolidated financial statements of AEC as of July 31, 1997 and July 27, 1996 and for the fiscal years then ended (including all notes thereto) and (y) the unaudited consolidated financial statements of AEC as of January 31, 1998 and January 25, 1997 and for the six months then ended consisting of the consolidated balance sheets at such dates and the related consolidated statements of operations, stockholders' equity and cash flows for the periods then ended which are included in the AEC SEC Documents (as defined in Section 4.6). The AEC Financial Statements have been prepared in ------------ accordance with GAAP consistently applied, present fairly the financial position, of AEC as at the dates thereof and the results of operations and cash flows of AEC for the periods covered thereby (subject, in the case of any unaudited interim financial statements, to normal year-end adjustments), and are substantially in accordance with the financial books and records of AEC. (b) AEC does not have any liabilities or obligations of any nature, whether accrued, contingent, absolute or otherwise, which individually or in the aggregate could be reasonably expected to have an AEC Material Adverse Effect (as defined below) except (i) as set forth in the January 31, 1998 balance sheet (the "AEC Interim Balance Sheet") or (ii) liabilities or obligations incurred since January 31, 1998 in the ordinary and usual course of its business. 4.6 Securities Law Filings. AEC is a subject to the ---------------------- reporting requirements of Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and has filed all required forms, reports and other documents with the U.S. Securities and Exchange Commission (the "SEC") since July 28, 1996. AEC has heretofore delivered to the Stockholders and DDS complete and correct copies of (i) its Annual Report on Form 10- KSB for the year ended July 31, 1997, (ii) its Form 10-QSB for the quarter ended January 31, 1998, and (iii) its current reports on Form 8-K filed with the SEC for an event of November 26, 1997 and March 27, 1998 (together, the "AEC SEC Documents"). 4.7 No Material Adverse Effects or Changes. Except -------------------------------------- as listed on Schedule 4.7, or as disclosed in or reflected in the ------------ AEC Financial Statements included in the AEC SEC Documents, or as contemplated by this Agreement, since January 31, 1998, neither AEC nor any of its wholly-owned subsidiaries (AEC and such subsidiaries sometimes collectively, the "AEC Companies") has suffered any damage or destruction to any of its assets or properties (whether or not covered by insurance) which is having or could be expected to have an AEC Material Adverse Effect. An "AEC Material Adverse Effect" shall mean an effect on or circumstances involving the business, operations, assets, liabilities, results of operations, cash flows or condition (financial or otherwise) which is materially adverse to the AEC Companies, taken as a whole. 4.8 Insurance. The AEC Companies are adequately --------- insured with reputable insurers against all risks and in such amounts normally insured against by companies of the same type and in the same line of business as the AEC Companies. 4.9 Labor Matters. Each of the AEC Companies has ------------- conducted and currently is conducting, its respective business in full compliance with all laws relating to employment and employment practices, terms and conditions of employment, wages and hours and nondiscrimination in employment except where such failure to be in compliance would not have an AEC Material Adverse Effect. The relationship of the AEC Companies with their respective employees is generally satisfactory, and there is, and during the past three years there has been, no labor strike, dispute, slow-down, work stoppage or other labor difficulty pending or, to AEC's knowledge, threatened against or involving the AEC Companies. None of the employees of the AEC Companies is covered by any collective bargaining agreement, no collective bargaining agreement is currently being negotiated by the AEC Companies and to AEC's knowledge, no attempt is currently being made or during the past three years has been made to organize any employees of the AEC Companies to form or enter a labor union or similar organization. 4.10 Tax Returns and Audits. ---------------------- (a) Filing of Timely Returns. AEC has duly filed all ------------------------ Tax Returns required to be filed by it under applicable law and will file all Tax Returns required to be filed by it at or prior to the Effective Date under applicable law except where the failure to so file would not have an AEC Material Adverse Effect. All Tax Returns were in all material respects (and, as to Tax Returns not filed as of the date hereof, will be) complete and correct and filed on a timely basis. AEC has not requested any extension of time within which to file any Tax Return, which Tax Return has not since been filed. (b) Payment of Taxes. AEC has, within the time and in ---------------- the manner prescribed by law, paid (and until the Effective Date will pay within the time and in the manner prescribed by law) all Taxes that are currently due and payable except for those contested in good faith and for which adequate reserves have been taken. (c) Tax Liens. There are no Tax liens upon the assets --------- of AEC except liens for Taxes not yet due. (d) Withholding Taxes. AEC has complied (and until ----------------- the Effective Date will comply) in all respects with the provisions of the Code, relating to the payment and withholding of Taxes, including, without limitation, the withholding and reporting requirements under Sections 1441 through 1464, 3401 through 3606, and 6041 and 6049 of the Code, as well as similar provisions under any other laws, and has, within the time and in the manner prescribed by law, withheld from employee wages and paid over to the proper governmental authorities all amounts required. (e) Statute of Limitations. AEC has not executed any ---------------------- outstanding waivers or comparable consents regarding the application of the statute of limitations with respect to any Taxes or Tax Returns. The statute of limitations for the assessment of all Taxes has expired for all applicable Tax Returns of AEC or those Tax Returns have been examined by the appropriate taxing authorities for all periods through the date hereof, and no deficiency for any Taxes has been proposed, asserted or assessed against AEC that has not been resolved and paid in full. (f) Audit, Administrative and Court Proceedings. No ------------------------------------------- audits or other administrative proceedings or court proceedings are presently pending or, to the knowledge of AEC, threatened with regard to any Taxes or Tax Returns of AEC. Except as disclosed in Schedule 4.10, no power of attorney currently in ------------- force has been granted by AEC concerning any Tax matter. To the knowledge of AEC, no facts exist or have existed which could constitute grounds for the assessment of Taxes on AEC with respect to periods which have not been audited by the Internal Revenue Service (the "IRS") or other taxing authorities. 4.11 Litigation. There are no actions, suits, ---------- arbitrations, regulatory proceedings or other litigation, proceedings or governmental investigations pending or, to AEC's knowledge, threatened against or affecting any of the AEC Companies or any of their respective officers or directors in their capacity as such, or any of their respective properties or businesses which could reasonably be expected to have an AEC Material Adverse Effect. No AEC Company is subject to any order, judgment, decree, injunction, stipulation or consent order of or with any court or other Governmental Entity, other than orders of general applicability. There are no claims, actions, suits, proceedings, or investigations pending or, to AEC's knowledge, threatened by or against any of the AEC Companies with respect to this Agreement, or in connection with the transactions contemplated hereby or thereby. 4.12 Compliance with Applicable Laws. Each of the AEC ------------------------------- Companies holds all permits, licenses, variances, exemptions, orders and approvals of all Governmental Entities which are required in the operation of its respective business (the "AEC Permits") except for those the failure of which to hold would not have an AEC Material Adverse Effect. The AEC Companies are in compliance with the terms of the AEC Permits, except where the failure so to comply would not have an AEC Material Adverse Effect. None of the AEC Companies is in violation of any law, ordinance or regulation of any Governmental Authority, including environmental laws and regulations, except for possible violations which individually and in the aggregate do not, and, insofar as reasonably can be foreseen by AEC, will not in the future have an AEC Material Adverse Effect. 4.13 Contracts; No Defaults. Neither any AEC Company, ---------------------- nor to AEC's knowledge any other party thereto is in breach or violation of, or in default in the performance or observance of any term or provision of, and no event has occurred or by reason of this Agreement or the Merger would occur which, with notice or lapse of time or both, could be reasonably expected to result in a default under, any contract, agreement or commitment to which any AEC Company is a party or by which any AEC Company or any of its assets or properties is bound, except for breaches, violations and defaults which are not having and could not be reasonably expected to have an AEC Material Adverse Effect. None of the AEC Companies is required to give any notice to any person regarding this Agreement or the transactions contemplated hereby or thereby. 4.14 Environmental Matters. The business and --------------------- operations of AEC, including the transportation, treatment, storage, handling, transfer, disposition, recycling or receipt of materials, complies with all applicable environmental statutes, regulations and decrees, whether federal, state or municipal (the "Environmental Laws"). AEC has not received any notices to the effect that the business carried on by AEC or the operation of any equipment or facilities of AEC (including the transportation, handling, treatment or storage of hazardous materials thereon) is not in compliance with the requirements of applicable Environmental Laws or is subject to any remedial control or action or any investigation or evaluation as to whether any remedial action is required to respond to a release or threatened which forms part of or is adjacent to any premises at which AEC's business is conducted. AEC has performed its services for customers in material compliance with all applicable Environmental Laws. 4.15 Fees of Brokers, Finders and Investment Bankers. ----------------------------------------------- Neither AEC nor any officer, director, or employee of AEC has employed any brokers, finder or investment banker or incurred any liability for any brokerage or investment banking fees, commissions or finders' fees in connection with the transactions contemplated by this Agreement. 4.16 General Representation and Warranty. Neither this ----------------------------------- Agreement nor any schedule attached hereto or other documents and written information furnished by or on behalf of AEC, its attorneys, auditors or insurance agents to DDS in connection with this Agreement contains any untrue statement of material fact or omits to state any material fact necessary to make the statements contained herein or therein not misleading. 4.17 Investment Due Diligence. AEC has undertaken all ------------------------ due diligence of DDS regarding the business and corporate affairs of DDS which AEC believes is appropriate for this transaction. In evaluating the suitability of the transaction contemplated by this Agreement, AEC has not relied upon any representations or other information (whether verbal or written), other than as contained in this Agreement or in any documents or written responses to questions furnished to AEC by DDS or the Stockholders. ARTICLE V COVENANTS 5.1 Implementing Agreement. Subject to the terms and ---------------------- conditions hereof, each of the parties hereto shall use its best efforts to take all action required of it to fulfill its obligations under the terms of this Agreement and to facilitate the consummation of the transactions contemplated hereby. 5.2 Access to Information and Facilities; ------------------------------------- Confidentiality. (a) From and after the date of this Agreement, --------------- DDS and the Stockholders shall give AEC and Acquisition Corp. and their representatives access during normal business hours and upon reasonable notice to all of the facilities, properties, books, contracts, commitments and records of DDS and shall make the officers and employees of DDS available to AEC and Acquisition Corp. and their representatives as AEC or Acquisition Corp. or their representatives shall from time to time reasonably request. AEC and Acquisition Corp. and their representatives will be furnished with any and all information concerning DDS which AEC or Acquisition Corp. or their representatives reasonably request. The obligations set forth in this Section 5.2 shall also apply to AEC and Acquisition Corp., ----------- mutatis mutandis. The investigation by and knowledge of DDS or AEC and the furnishing of information to each other shall not affect the right of such party to rely on the representations, warranties, covenants and agreements of the other party hereto. (b) Each of the Stockholders and DDS, on one hand, and AEC and Acquisition Corp., on the other hand, agrees for itself, and its respective representatives, to keep confidential all information furnished to it pursuant to this Section 5.2, except for information which is public or which is disclosed other than by a person subject to this Section 5.2(b). -------------- 5.3 Preservation of Business. (a) From the date of ------------------------ this Agreement until the Closing Date, DDS shall operate only in the ordinary and usual course of business consistent with past practice, and shall use reasonable commercial efforts to (i) preserve intact its business organization, (ii) preserve the goodwill and advantageous relationships with customers, suppliers, independent contractors, employees and other persons material to the operation of its business, and (iii) not permit any action or omission which would cause any of the representations or warranties contained herein to become materially inaccurate or any of the covenants to be breached in any material respect. (b) DDS and the Stockholders further covenant that prior to the Closing Date DDS shall not without the prior written consent of AEC (which shall not be unreasonably withheld): (i) take any action, incur any obligation or enter into or authorize any contract or transaction other than in the ordinary course of business; (ii) issue, sell, deliver or agree or commit to issue, sell or deliver (whether through the issuance or granting or options, warrants, convertible or exchangeable securities, commitments, subscriptions, rights to purchase or otherwise) any shares of its capital stock or any other securities, or amend any of their terms of any such securities; (iii) split, combine, or reclassify any shares of its capital stock, declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof) in respect of its capital stock, or redeem or otherwise acquire any of its securities; (iv) make any changes in its accounting systems, policies, principles or practices except as may be required by law or GAAP; (v) make any amendments to its Articles of Incorporation or By-Laws or call or hold any meeting of stockholders except as required under this Agreement; (vi) make any material Tax election or settle or compromise any material federal, state, local or foreign income Tax liability, or waive or extend the statute of limitations in respect of any such Taxes; or (vii) terminate, or modify, amend or otherwise alter or change in any material respect, any of the terms or provisions of any material Contract. (viii) voluntarily sell, transfer, surrender, abandon or dispose of any of its assets or property rights (tangible or intangible), other than non-material dispositions in the ordinary course of business consistent with past practices, which could not have a DDS Material Adverse Effect; (ix) grant or make any mortgage or pledge or subject itself or any of its properties or assets to any lien, charge or encumbrance of any kind, except liens for taxes not currently due or liens not exceeding $25,000 in the aggregate; (x) create, incur or assume any liability or any indebtedness, except in the ordinary course of business consistent with past practices, but in no event in an aggregate amount exceeding $50,000 more than is shown on DDS's March 31, 1998 Interim Finance Statements or cancel any debts or waive any claims or rights in an aggregate amount in excess of $20,000; (xi) make or commit to any capital expenditures in excess of $25,000 in the aggregate; (xii) grant any increase in the compensation payable or to become payable to directors, officers or employees in excess of $10,000 in the aggregate; (xiii) enter into any written or oral agreement, lease (whether capitalized or otherwise), arrangement or commitment to which DDS is a party or by which it or any of the assets it owns, leases or utilizes is bound which is expected to result in the receipt or payment of $20,000 or more by DDS or by which is material to the financial position, results of operations or prospects of DDS or to the ability of DDS to consummate the transactions contemplated hereby; (xiv) take or omit to take any action which would render any of DDS's representations or warranties materially untrue or misleading or which would breach any of its covenants; (xv) write off the value of any inventory or accounts receivable or increase the reserve for collectable receivables or obsolete, damaged or otherwise unsalable inventory, except as required by GAAP or by law, or discount, factor, sell or otherwise transfer any account receivable; (xvi) take any action which could have a DDS Material Adverse Effect on employee, customer or supplier relations or hinder DDS in consummating the transactions contemplated hereby, or reduce or downsize its operations; (xvii) make any contract, agreement or understanding pursuant to which DDS guarantees the indebtedness, liabilities or obligations of others, directly or indirectly, in any manner, including agreements to purchase such indebtedness, liabilities or obligations, or to supply funds or in any manner to invest in others, or to otherwise assure the holder of such indebtedness, liabilities or obligations against loss; (c) The Stockholders and DDS will promptly notify AEC in writing upon becoming aware of any fact or condition which would constitute a breach or non-compliance of this covenant. 5.4 Consents and Approvals. Subject to the terms and ---------------------- conditions provided herein, each of the parties hereto shall use reasonable commercial efforts to obtain all consents, approvals, certificates and other documents required in connection with the performance by it of this Agreement and the consummation of the transactions contemplated hereby. As soon as practicable after the date hereof, each of the parties hereto shall make all filings, applications, statements and reports to all Governmental Entities and other Persons which are required to be made prior to the Closing Date pursuant to any applicable law or contract in connection with this Agreement and the transactions contemplated hereby. 5.5 Periodic Reports. Until the Effective Time, AEC ---------------- will, subject to the requirements of applicable laws, furnish to DDS all filings to be made with the SEC and will solicit comments with respect thereto, in each case at least two business days (or as soon prior thereto as is practicable) prior to the time of such filings and the time of such mailings of reports which refer to DDS or this Agreement. 5.6 Publicity. Prior to issuing any public --------- announcement or statement with respect to the transactions contemplated hereby and prior to making any filing with any federal or state governmental or regulatory agency with respect thereto, AEC on one hand, and the Stockholders and DDS on the other hand, will, subject to their respective legal obligations, consult with each other and will allow each other to review the contents of any such public announcement or statement and any such filing. Subject to the preceding sentence, AEC on one hand, and the Stockholders and DDS on the other hand, each agree to furnish to the other copies of all other public announcements they may make concerning their respective business and operations promptly after such public announcements are made. 5.7 No Negotiation. The Stockholders agree that -------------- neither they nor DDS shall, after the date hereof and prior to the Effective Time, (A) seek, directly or through agents, representatives or affiliates (as defined in the Exchange Act), or permit any of DDS's officers or directors to seek (whether in their capacities as officers or directors or in their individual capacities) any person or persons (other than AEC) to acquire or purchase all or substantially all of its assets or to purchase or exchange for any of its capital stock, or DDS to acquire or purchase in one or more related transactions the capital stock or related assets of persons (other than AEC or its affiliates) or to effect a consolidation or merger (other than the Merger) or other business combination or recapitalization, or to enter into any discussions or agreements with respect to any of the foregoing transactions ("Acquisition Transactions"), and shall cease any such discussions held with third parties (other than AEC) as of the date hereof; or (B) make inquiry as to, or solicit the invitation of, discussions with respect to any Acquisition Transaction (other than the Merger). The Stockholders shall not seek (other than in connection with the Merger) any sale or other transfer of their shares of DDS Common Stock or grant to any other individual or entity any option or right to purchase such shares of DDS Common Stock. Notwithstanding anything in this Agreement to the contrary, if the Effective Time shall not have occurred on or before June 30, 1998, the restrictions under this Section 5.7, at the option of DDS, shall terminate upon notice from DDS to AEC. 5.8 Blue Sky Approvals. AEC and either the ------------------ Stockholders or DDS shall obtain all necessary state securities law or "blue sky" permits and approvals required to carry out the transactions contemplated by this Agreement and the Merger. 5.9 Registration Rights. (a) Registration. AEC will ------------------- ------------ use its best efforts, within sixty (60) days from the Effective Date, to file a registration statement (the "Registration Statement") on Form SB-2 or such other applicable form under the Securities Act with the Securities and Exchange Commission (the "Commission") to register the AEC Shares constituting the Share Consideration (the "Registered Shares"), for sale and use its best efforts to cause the Registration Statement to be declared effective within such six (6) months and to maintain the Registration Statement under the Securities Act from its effective date until the earlier of (A) one (1) year after the Effective Date or (B) all Registered Shares included therein have been sold. AEC may include the Registered Shares in a registration statement being filed by AEC with respect to other securities of AEC. AEC shall give written notice to each Stockholder at least twenty (20) days prior to filing the Registration Statement asking such Stockholder how many of his shares of AEC Common Stock he wants to include in the Registration Statement. If a Stockholder fails to timely advise AEC in writing of the number of shares of AEC Common Stock he wants to include in the Registration Statement, he shall have no further rights to have his shares of AEC Common Stock included therein. The obligation of AEC under this provision shall be limited to one Registration Statement which becomes effective under the Securities Act. (b) Registration Procedures. (i) AEC shall pay all ----------------------- expenses of the Registration Statement filed pursuant to this Section, including, without limitation, all registration, filing and qualification fees, printing expenses, fees and disbursements of counsel for AEC, accounting fees incidental to or required by such registration; provided, however, that each Stockholder shall -------- ------- pay all underwriting discounts and commissions applicable to his Registered Shares and fees and disbursements of his own attorney. AEC shall furnish the Stockholders such number of copies of a prospectus, including a preliminary prospectus, to the Registration Statement as such Stockholders may reasonably request and, provided further, that each Stockholder shall have -------- ------- the right to sell his Registered Shares in the market through his own broker. (ii) In connection with any Registration Statement filed pursuant to this Section, AEC shall file any post-effective amendment or amendments to the Registration Statement which may be required under the Securities Act during the period reasonably required to effect the distribution contemplated thereby. A form of selling stockholders agreement, which is substantially the form of agreement to be entered into by each Stockholder, is annexed as Exhibit D. (iii) Each Stockholder who desires to include his shares of AEC Common Stock in the Registration Statement must enter into a Selling Stockholders Agreement with AEC regarding the relative rights and duties of the Selling Stockholders and AEC, including customary indemnification provisions. A form of Selling Stockholders Agreement, which is substantially the form of agreement to be entered into by each Stockholder, is annexed as Exhibit D. (iv) AEC shall not be required to include in any Registration Statement any Registered Shares if in the opinion of counsel to AEC, registration of the Registered Shares proposed to be included is not required under the Securities Act if such Registered Shares may then be publicly sold in accordance with Section 4(1) thereof and Rule 144 thereunder. To better assure the availability of sales under Rule 144, AEC shall at all times while any Stockholder holds Share Consideration, remain in full compliance with all reporting requirements referenced in Rule 144(c). (c) State Securities Laws. In connection with the --------------------- offering of any Registered Common Stock pursuant to this Section, AEC shall use its best efforts without charge to the Stockholders to qualify or register the Registered Shares under the securities or "blue sky" laws of such jurisdictions as may be reasonably requested by the Stockholders. (d) The Stockholders shall sell Registered Shares at a rate no faster than the percentages set forth below of total Registered Shares which they receive as the Merger Consideration prior to the dates set forth below: % OF REGISTERED SHARES WHICH MAY BE SOLD LIMITATION DATE ----------------------- --------------- Up to 5% July 15, 1998 Up to 10% July 31, 1998 Up to 15% August 31, 1998 Up to 20% September 30, 1998 Up to 25% October 31, 1998 Up to 30% November 30, 1998 Up to 35% December 31, 1998 Up to 50% January 31, 1999 Up to 65% February 28, 1999 Up to 80% March 31, 1999 Up to 95% April 30, 1999 Up to 100% May 31, 1999 5.10 Removal of Guaranties. From and after the date of --------------------- this Agreement, AEC shall use its best efforts to obtain as soon as possible after the Closing the cancellation and release of each and every personal guaranty of a Stockholder which guarantees any payment or other obligation of the DDS as indicated on Schedule 5.10 (a "Stockholder Guaranty"). In ------------- addition, AEC agrees to defend, indemnify and hold harmless all Stockholders, and their heirs, representatives, successors, and assigns, from and against any and all loss, liability, and expense (including, but not limited to, reasonable costs of investigation and defense and reasonable fees and expenses of attorneys and legal assistants) arising from or in connection with any such Stockholder Guaranty, unless such loss, liability, or expense is due to the willful or grossly negligent act or failure to act of the applicable Stockholder seeking indemnification. ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUISITION CORP. AND AEC The obligations of Acquisition Corp. and AEC to consummate the Merger are subject to the fulfillment at or before the Closing of each of the following conditions: 6.1 Warranties True as of Closing Date. Each of the ---------------------------------- representations and warranties of the Stockholders and DDS contained herein shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though made on and as of the Closing Date, without giving effect to any notification pursuant to Section 5.3(c) hereof. -------------- 6.2 Compliance With Agreements and Covenants. The ---------------------------------------- Stockholders and DDS shall have performed and complied with in all material respects all of their covenants, obligations and agreements contained in this Agreement to be performed and complied with by the Stockholders and DDS on or prior to the Closing Date, without giving effect to any notification pursuant to Section 5.3(c) hereof. -------------- 6.3 Stockholders' Certificate. The Stockholders and ------------------------- the Chief Executive Officer of DDS shall have delivered to AEC a certificate, dated the Closing Date certifying that each of the conditions specified in Section 6.1 and Section 6.2 hereof are ----------- ----------- satisfied in all respects. 6.4 Secretary's Certificate. DDS will have delivered ----------------------- to AEC a certificate of the duly authorized Secretary of DDS, dated the Closing Date, certifying resolutions of DDS Board of Directors and Stockholders authorizing the execution, delivery and performance of this Agreement and the Merger. 6.5 Good Standing Certificates. DDS will have -------------------------- delivered to AEC at the Closing certificate of good standing and tax status from the State of Delaware and Georgia, as to DDS, which Certificates shall be dated a date not more than five (5) business days prior to the Closing Date. 6.6 Employment Agreement. The Stockholders will have -------------------- delivered to AEC a fully executed employment agreement between DDS and Henry J. Rhodes, in form satisfactory to AEC. 6.7 Escrow Agreement. The Stockholders will have ---------------- delivered to AEC the Escrow Agreement executed by the Escrow Agent and a person acceptable to the parties hereto, as the agent of the Stockholders, as provided for in Section 1.4(a) hereof. -------------- The Escrow Agreement shall be substantially in the form of Exhibit B attached hereto. --------- 6.8 Opinion of Counsel. DDS will have delivered to ------------------ AEC a legal opinion of Schnader Harrison Segal & Lewis LLP in form and substance reasonably satisfactory to AEC and its counsel. 6.9 Approval of Merger. The execution, delivery and ------------------ performance of this Agreement and the Merger contemplated hereby have been duly authorized by all requisite corporate action. 6.10 Consents and Approvals. AEC shall have received ---------------------- written evidence satisfactory to it that all consents and approvals required for the consummation of the transactions contemplated hereby have been obtained, and all required filings have been made, except where the failure to obtain any such consent or approval or to make any such filing would not have an DDS Material Adverse Effect or an AEC Material Adverse Effect. 6.11 Resignations. Such officers and directors of DDS ------------ as requested by AEC shall have delivered letters of resignation of their positions with DDS. 6.12 Actions or Proceedings. No preliminary or ---------------------- permanent injunction or other order by any federal or state court preventing consummation of the Merger shall have been issued and shall be continuing in effect, and the Merger and the other transactions contemplated hereby shall not be prohibited under any applicable federal or state law or regulation. 6.13 Other Closing Documents. AEC shall have received ----------------------- from the Stockholders the certificates for their shares of DDS Common Stock, duly endorsed, the executed Certificate of Merger and such other agreements and instruments as AEC shall reasonably request, in each case in form and substance reasonably satisfactory to AEC. ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDERS The obligations of the Stockholders to consummate the Merger are subject to the satisfaction or waiver by AEC of the following conditions precedent on or before the Closing Date: 7.1 Warranties True as of Closing Date. Each of the ---------------------------------- representations and warranties of Acquisition Corp. and AEC contained herein shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though made by Acquisition Corp. and AEC on and as of the Closing Date, without giving effect to any notification pursuant to Section 5.3(c) hereof. -------------- 7.2 Compliance with Agreements and Covenants. ---------------------------------------- Acquisition Corp. and AEC shall have performed and complied with in all material respects all of their covenants, obligations and agreements contained in this Agreement, to be performed and complied with by them on or prior to the Closing Date, without giving effect to any notification pursuant to Section 5.3(c) -------------- hereof. 7.3 AEC Certificate. AEC shall have delivered to DDS --------------- a certificate, dated the Closing Date, from its Chief Executive Officer certifying that each of the conditions specified in Section 7.1 and Section 7.2 hereof are satisfied in all respects. ----------- ----------- 7.4 Opinion of Counsel. AEC shall have delivered to ------------------ DDS a legal opinion of Reid & Priest LLP in form and substance reasonably satisfactory to DDS. 7.5 Consents and Approvals. DDS shall have received ---------------------- written evidence satisfactory to it that all consents and approvals required for the consummation of the transactions contemplated hereby have been obtained, and all required filings have been made, except where the failure to obtain any such consent or approval or to make any such filing would not have an DDS Material Adverse Effect or an AEC Material Adverse Effect. 7.6 Actions or Proceedings. No preliminary or ---------------------- permanent injunction or other order by any federal or state court preventing consummation of the Merger shall have been issued and shall be continuing in effect, and the Merger and the other transactions contemplated hereby shall not be prohibited under any applicable federal or state law or regulation. 7.7 Funds Delivered at Closing and Other Closin -------------------------------------------- Documents. The Stockholders and DDS shall have received the --------- Share Consideration and the Cash Consideration except to the extent a portion of which is held under the Escrow Agreement as provided in Section 1.4 hereof, the Escrow Agreement and such other agreements and instruments as the Stockholders and DDS shall reasonably request, in each case in form and substance reasonably satisfactory to the Stockholders. ARTICLE VIII TERMINATION 8.1 Termination. This Agreement may be terminated and ----------- the Merger may be abandoned at any time prior to the Effective Time, whether before or after approval by the Stockholders: (a) by mutual written consent of the Board of Directors of AEC and the Stockholders; (b) by either AEC or the Stockholders, by written notice to the other, if (i) the Effective Time shall not have occurred on or before July 31, 1998, or (ii) any court of competent jurisdiction in the United States or any state shall have issued an order, judgment or decree (other than a temporary restraining order) restraining, enjoining or otherwise prohibiting the Merger and such order, judgment or decree shall have become final and non-appealable; provided, however, that the right to terminate this Agreement (X) under clause (i) shall not be available to any party whose failure to fulfill any obligation under this Agreement has been the cause of, or resulted in, the failure of the Effective Time to occur on or before such date or (Y) under clause (ii) shall not be available to any party unless such party shall have used all reasonable efforts to remove such order, judgment or decree; (c) by AEC, by written notice to the Stockholders, if: (i) there shall have been any breach of any representation, warranty, covenant or agreement of the Stockholders or DDS hereunder which, if not remedied prior to the Closing Date, would have an DDS Material Adverse Effect and such breach shall not have been remedied, or the Stockholders and DDS shall not have provided AEC with reasonable assurance that such breach will be remedied prior to the Closing Date, within five (5) business days after receipt by the Stockholders of notice in writing from AEC, specifying the nature of such breach and requesting that it be remedied; or (ii) the Stockholders shall withdraw or modify in any manner adverse to AEC its approval or recommendation of this Agreement or the Merger. (d) by the Stockholders, by written notice to AEC, if: (i) there shall have been any breach of any representation, warranty, covenant or agreement of AEC hereunder which, if not remedied prior to the Closing Date, would have an AEC Material Adverse Effect and such breach shall not have been remedied or AEC shall not have provided the Stockholders with reasonable assurance that such breach will be remedied prior to the Closing Date, within five (5) business days after receipt by AEC of notice in writing from the Stockholders, specifying the nature of such breach and requesting that it be remedied; or (ii) the Board of Directors of AEC shall withdraw or modify in any manner adverse to the Stockholders its approval or recommendation of this Agreement or the Merger. 8.2 Effect of Termination and Abandonment. In the ------------------------------------- event of termination of this Agreement and abandonment of the Merger pursuant to this Article VIII, this Agreement shall ------------ forthwith become void and no party hereto (or any of its directors, officers or stockholders) shall have any liability or further obligation to any other party to this Agreement, except that nothing herein will relieve any party from liability for any breach of any of its representations or warranties under this Agreement or its failure to comply with one of its covenants, agreements or obligations under this Agreement, except if the termination is by reason of a breach by either the Stockholders or DDS of its covenants under Section 5.7 hereof, the ----------- Stockholders shall pay to AEC a non-refundable fee equal to $200,000 as exclusive remedy. ARTICLE IX INDEMNIFICATION 9.1 Indemnification by the Stockholders. ----------------------------------- (a) In consideration of the receipt of the Merger Consideration, the Stockholders and DDS shall indemnify and hold harmless AEC from and against any claims, demands, debts, suits, actions, obligations, proceedings, losses, damages, liabilities, deficiencies, costs and expenses (including without limitation, all reasonable legal and other professional fees and disbursements, interest, penalties and amounts paid in settlement) (collectively, "Claims") arising out of, based upon or by reason of (A) any breach of any representation or warranty of the Stockholders or DDS contained in this Agreement or in any Schedule or certificate delivered pursuant to this Agreement or (B) any breach or non-fulfillment of, or failure to perform, any of the covenants, agreements or understandings of DDS or the Stockholders which are contained in or made pursuant to this Agreement. (b) Notwithstanding anything to the contrary herein, any claim by AEC against the Stockholders under this Section 9.1 ----------- shall be payable by the Stockholders only to the extent that AEC's damages (the "Damages") shall exceed in the aggregate $25,000 (the "Threshold Amount"). Subject to the limitation contained in the last sentence of this Section 9.1(b), at such time as the aggregate amount of AEC Damages exceed the Threshold Amount, the Stockholders shall be jointly and severally liable on a dollar-for-dollar basis for the full amount of all AEC Damages, including the Threshold Amount. Any payments to be made by the Stockholders under this Section 9.1 shall be first from the Cash ----------- Consideration and then from the Share Consideration held under the Escrow Agreement, and shall be pro-rata based upon their respective ownership of DDS Common stock as of immediately prior to the Effective Time. Notwithstanding anything in this Section 9.1 to the contrary, in no event shall the aggregate liability of the Stockholders under this Section 9.1 exceed the aggregate of ----------- the value of the portion of the Share Consideration then held under the Escrow Agreement (which shares shall be valued at the Average Closing Price per share for the five (5) trading days immediately prior to the payment date) and the then amount of Cash Consideration held under the Escrow Agreement. 9.2 Indemnification by AEC. ---------------------- (a) AEC shall indemnify and hold harmless the Stockholders (under this Section 9.2, the "Indemnified ----------- Stockholders") from and against any claims, demands, debts, suits, actions, obligations, proceedings, losses, damages, liabilities, deficiencies, costs and expenses (including without limitation, all reasonable legal and other professional fees and disbursements, interest, penalties and amounts paid in settlement) (collectively, "Claims") arising out of, based upon or by reason of (A) any breach by AEC of any representation or warranty by AEC contained in this Agreement or (B) any breach or non-fulfillment of, or failure to perform, any of the covenants, agreements or undertakings of AEC which are contained in or made pursuant to this Agreement. It is acknowledged that the person who is acting as the agent of the Indemnified Stockholders pursuant to the Escrow Agreement shall also act as agent on behalf of the Indemnified Stockholders pursuant to this Section 9.2 (the "Stockholders' Agent"). ----------- (b) Notwithstanding anything to the contrary herein, any claim by the Indemnified Stockholders against AEC under this Section 9.2 shall be payable by AEC only to the extent that the ----------- Indemnified Stockholders' damages ("Damages") shall exceed the Threshold Amount. At such time as the aggregate amount of the Indemnified Stockholders Damages exceed the Threshold Amount, AEC shall thereafter be liable on a dollar-for-dollar basis for the full amount of all Indemnified Stockholders Damages, including the Threshold Amount. AEC may make payments of amounts payable under this Section 9.2 in U.S. currency and/or shares of AEC Common Stock, which shares be valued at the Average Closing Price per share for the five trading days immediately prior to the payment date, as provided in the Escrow Agreement. In no event shall the aggregate liability of AEC under this Section 9.2 exceed $350,000. 9.3 Procedure. (a) Any Claim brought by AEC or the --------- Stockholders under this ARTICLE IX must be in writing, specifying the nature of the Claim and the estimated amount of damages, and be received by the party against whom indemnification is being sought within one year after the Effective Date (the "Indemnity Termination Date"). (b) In the event that subsequent to the Effective Time, and prior to the Indemnity Termination Date, AEC receives written notice of the assertion of a claim or the commencement of any action or proceeding by any person who is not a party to this Agreement (including any Governmental Entity) (a "Third Party Claim"), against AEC, the Stockholders, DDS or one of their affiliates against which AEC may be entitled to indemnification hereunder, AEC shall give written notice of the Third Party Claim to the Stockholders' Agent. AEC shall have the right to conduct the defense of the Third Party Claim, and the cost of such defense shall be part of AEC Damages. If an offer is made to settle a Third Party Claim and AEC desires to accept such offer, AEC shall give written notice of the offer of settlement to the Stockholders' Agent who shall have fifteen (15) days from receipt thereof to accept or reject the offer, which rejection must be on a reasonable basis. The failure of the Stockholders Agent to respond to a desired offer of settlement shall be deemed acceptance thereof. 9.4 Remedies. Each of AEC and Acquisition Corp, on -------- one hand, and the Stockholders and DDS (until the Effective Time) and the Stockholders (after the Effective Time), on the other hand, shall not be liable or responsible in any manner whatsoever to the other, whether for indemnification or otherwise, with respect to any matter arising out of the representations, warranties or covenants of this Agreement or any Schedule hereto or any certificate delivered in connection herewith except for (i) equitable relief, (ii) pursuant to remedies expressly provided for elsewhere in this Agreement and (iii) indemnity as expressly provided in this ARTICLE IX, all of which provide the exclusive remedy of the parties hereto. ARTICLE X MISCELLANEOUS 10.1 Expenses. Each party hereto shall bear its own -------- expenses with respect to the transactions contemplated hereby. 10.2 Amendment. This Agreement may not be amended, --------- modified or supplemented except by a writing executed by Acquisition Corp., AEC, DDS and the Stockholders. 10.3 Notices. Any notice, request, instruction or ------- other document to be given hereunder by a party hereto shall be in writing and shall be deemed to have been given, (a) when received if given in person, (b) on the date of transmission if sent by telex, facsimile or other wire transmission (with receipt confirmed) or (c) three business days after being deposited in the U.S. mail, certified or registered mail, postage prepaid: (a) If to DDS or the Stockholders: Dynamic Dental Systems, Inc. 427 Green Street, NW Gainesville, Georgia 30501 Attn: Henry J. Rhodes, President Facsimile No.: 770-534-0883 with a copy to: Schnader Harrison Segal & Lewis LLP Suite 2800, SunTrust Plaza 303 Peachtree Street, N.E. Atlanta, Georgia 30308 Attn: Allen C. Bradley, Esq. Facsimile No.: 404-223-5164 (b) If to AEC or Acquisition Corp.: American Electromedics Corp. 13 Columbia Drive, Suite 18 Amherst, New Hampshire 03031 Attention: Michael T. Pieniazek, President Facsimile No.: (603) 880-8977 with a copy to: Reid & Priest LLP 40 West 57th Street New York, New York 10019 Attn: Bruce A. Rich, Esq. Facsimile No.: (212) 603-2001 or to such other individual or address as a party hereto may designate for itself by notice given as herein provided. 10.4 Waivers. The failure of a party hereto at any ------- time or times to require performance of any provision hereof shall in no manner affect its right at a later time to enforce the same. No waiver by a party of any condition or of any breach of any term, covenant, representation or warranty contained in this Agreement shall be effective unless in writing, and no waiver in any one or more instances shall be deemed to be a further or continuing waiver of any such condition or breach in other instances or a waiver of any other condition or breach of any other term, covenant, representation or warranty. 10.5 Interpretation. The headings preceding the text -------------- of Articles and Sections included in this Agreement and the headings to Schedules attached to this Agreement are for convenience only and shall not be deemed part of this Agreement or be given any effect in interpreting this Agreement. The use of the masculine, feminine or neuter gender herein shall not limit any provision of this Agreement. The use of the terms "including" or "include" shall in all cases herein mean "including, without limitation" or "include, without limitation," respectively. Underscored references to Articles, Sections, Paragraphs, Subsections, Subparagraphs, Schedules or Exhibits shall refer to those portions of this Agreement. Prior drafts of this Agreement shall not be considered in interpreting the rights and obligations of the parties hereunder. 10.6 Applicable Law. This Agreement shall be governed -------------- by and construed and enforced in accordance with the internal laws of the State of Delaware without giving effect to the principles of conflicts of law thereof. 10.7 Assignment. This Agreement shall be binding upon ---------- and inure to the benefit of the parties hereto and their respective successors and assigns; provided, however, that no assignment of any rights or obligations shall be made by any party without the prior written consent of all the other parties hereto. 10.8 No Third Party Beneficiaries. This Agreement is ---------------------------- solely for the benefit of the parties hereto and, to the extent provided herein, and their respective directors, officers, employees, agents and representatives, and no provision of this Agreement shall be deemed to confer upon other third parties any remedy, claim, liability, reimbursement, cause of action or other right. 10.9 Enforcement of the Agreement. The parties hereto ---------------------------- agree that irreparable damage would result in the event that any provision of this Agreement is not performed in accordance with specific terms or is otherwise breached. It is accordingly agreed that the parties hereto will be entitled to equitable relief including an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof. 10.10 Severability. If any provision of this Agreement ------------ shall be held invalid, illegal or unenforceable, the validity, legality or enforceability of the other provisions hereof shall not be affected thereby, and there shall be deemed substituted for the provision at issue a valid, legal and enforceable provision as similar as possible to the provision at issue. 10.11 Remedies Cumulative. The remedies provided in ------------------- this Agreement shall be cumulative and shall not preclude the assertion or exercise of any other rights or remedies available by law, in equity or otherwise. 10.12 Entire Understanding. This Agreement sets forth -------------------- the entire agreement and understanding of the parties hereto, and supersedes, all prior agreements, arrangements and understandings (written or oral) among the parties hereto with respect to the subject matter herein. 10.13 Waiver of Jury Trial. Each party hereto waives -------------------- the right to a trial by jury in any dispute in connection with the transactions contemplated by this Agreement, and agrees to take any and all action necessary or appropriate to effect such waiver. 10.14 Governing Law. All matters concerning the ------------- validity and interpretation and performance under this Agreement shall be governed by the laws of the State of Delaware without regard to the conflicts of law principals thereof. 10.15 Counterparts. This Agreement may be executed in ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered on the date first above written. AMERICAN ELECTROMEDICS CORP. By: /s/ Thomas A. Slamecka ----------------------------- Thomas A. Slamecka, Chairman DDS ACQUISITION CORPORATION By: /s/ Thomas A. Slamecka ----------------------------- Thomas A. Slamecka, President DYNAMIC DENTAL SYSTEMS, INC. By: /s/ Henry J. Rhodes ----------------------------- Henry J. Rhodes, President /s/ Henry J. James ----------------------------- HENRY J. RHODES /s/ Charles S. Aviles, Jr. ----------------------------- CHARLES S. AVILES, JR. /s/ Barry H. Hochstadt ----------------------------- BARRY H. HOCHSTADT EX-2 5 EXHIBIT 2.4 CERTIFICATE OF MERGER Pursuant to Section 251 of the Delaware General Corporation Law The undersigned corporation organized and existing under and by virtue of the Delaware General Corporation Law (the "GCL"), DOES HEREBY CERTIFY: 1. The name and state of incorporation of each of the constituent corporations (the "Constituent Corporations") to the merger (the "Merger") is as follows: Dynamic Dental Systems, Inc., a Delaware corporation, and DDS Acquisition Corporation, a Delaware corporation. 2. An Agreement and Plan of Merger, dated as of April 30, 1998, among the Constituent Corporations and other parties thereto has been approved, adopted, certified, executed and acknowledged by each of the Constituent Corporations in accordance with Section 251 of the GCL. 3. The name of the surviving corporation of the Merger is Dynamic Dental Systems, Inc. (the "Surviving Corporation"). 4. The Certificate of Incorporation of the Surviving Corporation shall be its Certificate of Incorporation. 5. The executed Agreement and Plan of Merger is on file at the principal place of business of the Surviving Corporation. The address of the principal place of business of the Surviving Corporation is 427 Green Street, N.W., Gainesville, Georgia 30501. 6. A copy of the Agreement and Plan of Merger will be furnished by the Surviving Corporation, on request and without cost to any stockholder of either Constituent Corporation. IN WITNESS WHEREOF, this Certificate of Merger has been executed by Henry J. Rhodes, President of Dynamic Dental Systems, Inc. as of this 30th day of April, 1998. DYNAMIC DENTAL SYSTEMS, INC. BY: /s/ Henry J. Rhodes -------------------------- Henry J. Rhodes President EX-2 6 EXHIBIT 2.6 CERTIFICATE OF EQUIDYNE SYSTEMS, INCORPORATED PURSUANT TO SECTION 1103 OF THE CALIFORNIA GENERAL CORPORATION LAW In connection with the merger (the "Merger") of ESI Acquisition Corporation, a California corporation (the "Corporation"), with and into Equidyne Systems, Incorporated, a California corporation and surviving corporation of the Merger ("ESI"), pursuant to an Agreement and Plan of Merger, dated as of March 27, 1998, by and among American Electromedics Corp., a Delaware corporation ("AEC"), the Corporation and ESI, Lawrence A. Petersen, President of ESI, and Paul A. Ghizzone, Secretary of ESI, hereby certify that: 1. One Million Six Hundred Twelve Thousand Five Hundred Sixty (1,612,560) shares of Common Stock, no par value per share, of ESI ("Voting Shares") were entitled to vote on the Merger. 2. The ESI shareholders approved the principal terms of the Merger by majority vote of the Voting Shares. 3. The percentage vote required for approval of the merger by the Voting Shares is over fifty percent. IN WITNESS WHEREOF, the undersigned have executed this certificate in their capacities as President and Secretary of ESI on this 12th day of May, 1998. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. /s/ Lawrence A. Petersen ------------------------------- Lawrence A. Petersen, President /s/ Paul A. Ghizzone ------------------------------- Paul A. Ghizzone, Secretary EX-2 7 EXHIBIT 2.7 OFFICERS CERTIFICATE of ESI ACQUISITION CORPORATION Pursuant to Section 1103 of the California General Corporation Law In connection with the merger (the "Merger") of ESI Acquisition Corporation, a California corporation (the "Corporation"), with and into Equidyne Systems, Incorporated, a California corporation and surviving corporation of the Merger ("ESI"), pursuant to an Agreement and Plan of Merger, dated as of March 27, 1998, by and among American Electromedics Corp., a Delaware corporation ("AEC"), the Corporation and ESI, Thomas A. Slamecka, President of the Corporation, and Michael T. Pieniazek, Secretary of the Corporation, hereby certify that: 1. One Thousand (1,000) shares of Common Stock, $.10 par value per share, of the Corporation ("Voting Shares") were entitled to vote on the Merger. 2. The vote of a majority of the shares of the Corporation was required for the approval of the Merger. 3. AEC, the sole stockholder of the Corporation, approved the principal terms of the Merger by unanimous vote of the Voting Shares. 4. No vote of the stockholders of AEC was required in connection with the Merger. IN WITNESS WHEREOF, the undersigned has executed this certificate in his capacity as President of the Corporation on this 28th day of May, 1998. /s/ Thomas A. Slamecka ---------------------------- Thomas A. Slamecka, President /s/ Michael T. Pieniazek ---------------------------- Michael T. Pieniazek, Secretary The above-named officers certify, under penalty of perjury, that the statements contained in this certificate are, to the best of their knowledge true, complete and correct. This Certificate was executed in several counterparts in Mossy Pointe, Georgia and Amherst, New Hampshire. /s/ Thomas A. Slamecka ---------------------------- Thomas A. Slamecka /s/ Michael T. Pieniazek ---------------------------- Michael T. Pieniazek EX-2 8 EXHIBIT 2.8 EMPLOYMENT AGREEMENT -------------------- AGREEMENT, dated as of the 30th day of April, 1998' by and between DYNAMIC DENTAL SYSTEMS INC., a Delaware corporation (the "Company"), and HENRY J. RHODES (the "Executive"). W I T N E S S E T H: -------------------- WHEREAS, the Executive has been employed by the Company, and the Company was acquired by and has become a wholly-owned subsidiary of American Electromedics Corp. ("AEC"); and WHEREAS, this Agreement is a condition to the closing of the merger of ESI Acquisition Corporation, a wholly-owned subsidiary of AEC, with and into the Company; and WHEREAS, the Company and the Executive desire to assure continuity of the Executive's services upon the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements hereinafter set forth, the parties hereto, intending to be legally bound, agree as follows: 1. Retention of Employment. The Company hereby employs ----------------------- the Executive as President of the Company, and the Executive hereby accepts such employment, all upon and subject to the terms and conditions hereinafter set forth. 2. Term. The term (the "Term") of the employment under ---- this Agreement shall be for an initial period which commences on April 30, 1998, and shall terminate on April 30, 2001, and be automatically renewed for additional one (1) year periods thereafter, unless either party gives the other written notice of termination not less than sixty (60) days prior to the end of the initial Term or any renewal Term. 3. Position, Duties and representations. ------------------------------------ 3.01 Service With the Company. The Executive shall ------------------------ serve as President of the Company. The Executive agrees to perform such executive employment duties for the Company consistent with such position specified above, and as the Chairman of The Board or The Executive Committee shall assign to him from time to time consistent with his position with the Company. 3.02 Scope of Services. The Executive agrees to serve ----------------- the Company faithfully and to the best of his ability and to devote his full business time, attention and efforts necessary to advance the business and affairs of the Company during the Term of this Agreement. If requested, the Executive shall serve as a director of the Company and as Officer and/or Director of any subsidiary of the Company, without any additional compensation hereunder. 4. Compensation ------------ 4.01 Annual Salary. The Executive shall receive an ------------- annual base salary ("Base Salary") of $125,000, payable in accordance with the Company's normal payroll practices. In addition, commencing within six (6) months after the commencement of employment hereunder, and on an annual basis thereafter the Board of Directors or a compensation committee thereof (the "Compensation Committee") shall review the Executive's compensation to determine if an increase in the compensation package is warranted, based on the Executives performance during the preceding six (6) months or year, as the case may be, or pursuant to guidelines established by the Compensation Committee of AEC. 4.02 Stock Options. The Company shall cause AEC to ------------- grant to the Executive stock options (the "Options") to purchase up to 100,000 shares of the Company's common stock, par value $.10 per share (the "Common Stock"), exercisable at a purchase price of $1.00 per share, vested as of May 1, 1998. In addition, the Company shall cause AEC to grant to the Executive stock options to purchase up to 100,000 shares of common stock, exercisable at a purchase price of $3.00 per share, vested as of November 1, 2000. All Options not so vested at the termination of employment of the Executive pursuant to Section 6.02 or 6.04 thereof, shall be cancelled simultaneously to such termination of employment and have no further force or effect. The Options, to the maximum extent possible, shall be "incentive" stock options as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The Options granted herein are upon the terms and conditions set forth in the Stock Option Agreement between the Company and the Executive, dated as of the date hereof (the "Stock Option Agreement"), and attached hereto as Exhibit A. 4.03 Participation in Benefit Plans. The Executive ------------------------------ shall also be entitled, to the extent that his position, title, tenure, salary, age, health and other qualifications make him eligible, to participate in all employee benefit plans or programs (including, but not limited to, medical/dental insurance, disability, stock option, retirement and pension plans and vacation time, sick leave and holidays) of the Company currently in existence on the date hereof or as may hereafter be instituted from time to time. The Executive's participation in any such plan or program shall be subject to the provisions, rules and regulations applicable thereto. 4.04 Automobile. The Company shall provide the ---------- Executive with (1) the use of an automobile or (2) an allowance or reimbursement for the use by the Executive of his personal automobile for Company purposes, provided that the cost to the Company does not exceed $500 a month. 4.05 Expenses. In accordance with the Company's -------- policies established from time to time, the Company shall pay or reimburse the Executive for all reasonable and necessary out-of- pocket expenses incurred by him in the performance of his duties under this Agreement, subject to the presentment of appropriate vouchers and receipts. 4.06 Insurance. The Executive acknowledges and agrees --------- that the Company may obtain a life insurance policy on the life of the Executive in the amount of at least $2,000,000 with the Company named as the beneficiary. The Executive shall cooperate fully with the Company's efforts to obtain such insurance policy, including making himself available for physical examinations. 5. Non-Disclosure of Confidential Information: Non- ------------------------------------------------ Competition. ----------- 5.01 Confidentiality. Except as may be in furtherance --------------- of the Executive's performance of his functions as a senior executive officer of the Company, the Executive shall not, throughout the Term of this Agreement and thereafter, disclose to any third party or use or authorize any third party to use, any information relating to the business, business plans, trade secrets or other interests of the Company (including customers and clients of the Company) which is confidential and valuable to the Company or AEC or any of their subsidiaries or any third party (including customers and clients of the Company) and which is not known to the public (the "Confidential Information"). The Confidential Information is and will remain the sole and exclusive property of the Company, and during the Term of this Agreement, the Confidential Information, when entrusted to the Executive's custody, shall be deemed to remain at all times in the Company's sole possession and control. Notwithstanding the foregoing, the Executive may, after prior written notice to the Company (to the extent such notice is possible under the circumstances) disclose such Confidential Information pursuant to subpoena or other legal process, and promptly thereafter shall advise the Company in writing as to the Confidential Information which was disclosed and the circumstances of such disclosure. 5.02 Return of Documents. The Executive agrees that, ------------------- upon the expiration of his employment with the Company for any reason, he shall forthwith deliver up to the Company any and all documents and other material, recorded or stored in any medium or by any method, and all copies thereof, in his possession or under his control relating to any Confidential Information which is otherwise the property of the Company. 5.03 Non-Competition. The Executive recognizes that --------------- the services to be performed by him for the Company are special and unique. The Executive further recognizes that the nature of the Company's business is such that the Executive will have full knowledge of the Company's business plans and practices. The parties therefore confirm that, in order to protect the Company's goodwill, and in consideration of the Company entering into this Agreement, providing for a fixed term of employment of the Executive, the Executive does hereby agree that he will not in the United States of America and/or the Federal Republic of Germany for a period of two (2) years after he ceases to be employed by the Company, become employed by, a consultant or a Director of or hold any equity interest as a partner, member or shareholder (to the extent of 5% or more of the equity interest thereof), of any sole proprietorship, partnership, joint venture, corporation, or other business entity which engages in a business directly competitive to any business that the Company is engaged (or has formulated plans to engage) in at the time of termination of this Agreement. This Section shall not be applicable if the Executive terminates this Agreement pursuant to Section 6.04 hereof or if the Company terminates this Agreement pursuant to Section 6.03 hereof. 5.04 Remedies. The Executive agrees that any breach -------- or threatened breach by him of any provision of this Section 5 shall entitle the Company, in addition to any other legal remedies available to it, to apply to any court of competent jurisdiction to enjoin such breach or threatened breach. The parties understand and intend that each restriction agreed to by the Executive hereinabove shall be construed as separable and divisible from every other restriction, and that the unenforceability, in whole or in part, of any restriction, will not affect the enforceability of remaining restrictions, and that one or more or all of such restrictions my be enforced in whole or in part as the circumstances warrant. No waiver of any one breach of the restrictions contained in this Section 5 shall be deemed a waiver of any future breach. 6. Termination. ----------- 6.01 Disability. (a) The Executive shall be ---------- considered disabled if, due to illness or injury, either physical or mental, he is unable to perform his customary duties and responsibilities as required by this Agreement for more than (2) months in the aggregate out of six (6) months. The determination that the Executive is disabled shall be made by the Board of Directors of the Company (with the Executive abstaining from the decision if he is then a member the Board), based upon an examination and certification by a physician selected by the Company subject to the Executive's approval, which approval shall not be unreasonably withheld. The Executive agrees to submit timely to any required medical or other examination, provided that such examination shall be conducted at a location convenient to the Executive and that if the examining physician is other than the Executive's personal physician, the Executive shall have the right to have such personal physician present at such examination. (b) If the Executive is determined to be disabled pursuant to this Section 6.01, the Company shall have the option to terminate this Agreement by written notice to Executive stating the date of termination, which date may be any time subsequent to the date of such determination. 6.02 Death. If the Executive shall die during the ----- Term of this Agreement, this Agreement and the Executive's employment hereunder shall terminate immediately upon the Executive's death. 6.03 By the Company for Cause. The Company may ------------------------ terminate this Agreement for "cause" at any time. For the purposes of this Section 6.03, the term "cause" shall be limited to (1) conviction of a felony or equivalent crime under the laws of the United States or any state, (2) conviction of a felony or equivalent crime under the laws of any other country or political subdivision thereof involving moral turpitude (3) action involving gross negligence having a material adverse effect on the Company, including willfully aiding the competition, (4) willful misrepresentation at any time during the Term hereof by the Executive to the Board of Directors of the Company of any material information, (5) the Executive's failure or refusal to perform specific directives of the Company and the Board of Directors or the Chairman of the Board, which directives are consistent with the scope and nature of the Executive's duties and responsibilities, and which are not remedied by the Executive within ten (10) days after receipt of written notice thereof. Upon termination of employment by the Company pursuant to this Section, the executive shall receive any accrued Base Salary through the termination date, less any amounts by reason of claims the Company may have against the Executive. 6.04 By the Executive for Cause. The Executive may -------------------------- terminate this Agreement for "cause" at any time. For purposes of this Section 6.04, the term "cause" shall be the failure of the Company to perform in a material respect of its material obligation under this Agreement without proper justification after notice thereof from the Executive and, if curable, the opportunity to cure, within ten (10) days after receipt of written notice thereof to the Company. 6.05 Termination Benefit. Upon termination of ------------------- employment (1) by the Company other than pursuant to Section 6.03 hereof, (2) upon the disability of the Executive pursuant to Section 6.01 hereof, (3) by the Executive's death pursuant to Section 6.02 hereof, or (4) by the Executive pursuant to Section 6.04 hereof, the Executive (or his estate or representative) shall receive a severance payment equal to 50% of the amount of the then current annual Base Salary for the remaining portion of the current Term. 6.06 Change of Control of the Company. (a) If, at -------------------------------- anytime during the Term hereof, a change in control of the Company (as defined in Subsection (b) below) occurs, then within sixty (60) days after receipt of written notice of such change in control of the Company, the Executive may, by written notice to the Company (or its successor), terminate this Agreement. In the event of said termination. (1) the Executive shall receive a lump sum payment equal two(2) times his then Base Salary, payable within thirty (30) days after termination of this Agreement, (2) the Company (or its successor) shall maintain, at its expense, the health plan coverage of the Executive for a period of twelve (12) months after such termination, subject to termination of such health plan benefits upon the Executive becoming covered by a comparable plan offered by a subsequent employer and also subject to any changes in such plan as applicable to other executive officers and (3) all stock options and other equity based awards granted to the Executive by the Company shall become fully vested and exercisable subject to their respective terms; provided, however, if the amount to be paid or distributed to the -------- ------- Executive pursuant to this Section 6.06 (taken together with any amounts otherwise to be paid or distributed to the Executive by the Company) (such amounts collectively the "Section 6.06 Payment") would result in the application of an excise tax under Section 4999 of the Code, or any successor or similar provision thereto, the Section 6.06 Payment shall not be paid or distributed in the amounts or at the times otherwise required by this Agreement, but shall instead be paid or distributed annually, beginning within thirty (30) days after the termination date and thereafter on each anniversary thereof, in the maximum substantially equal amounts and over the minimum number of years that are determined to be required to reduce the aggregate present value of Section 6.06 Payment to an amount that will not cause any Section 6.06 Payment to be non-deductible under Section 280G of the Code. For purposes of this Section 6.06, present value shall be determined in accordance with Section 280G(d)(4) of the Code. (b) "Change of control of the Company" shall be deemed to have occurred if: (i) any "person" or "group" (as "person" and "group" are defined in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than (A) the Executive or a person controlled by him, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company, (C) a person or group by reason of a transaction with the Company approved by the Company Board of Directors as constituted in accordance with Paragraph (ii) below, or (D) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; or (ii) individuals who on the commencement date of this Agreement constitute members of the Board of Directors, or successors chosen by such individuals, shall cease for any reason to constitute a majority of the whole Board of Directors. 7. Notices. All notices, requests, demands or other ------- communications hereunder shall be deemed to have been given if delivered in writing personally or by registered mail to each party at the address set forth below, or at such other address as each party may designate in writing to the other: If to the Company: American Electromedics Corp. 13 Columbia Drive Amherst, New Hampshire 03031 Attn: Michael T. Pieniazek, President If to Executive: Henry J. Rhodes 427 Green Street NW Gainesville, Georgia 30501 Fax: (770) 534-0883 8. Entire Agreement. This Agreement contains the entire ---------------- understanding of the parties with respect to the subject matter hereof, supersedes any prior written or oral agreement between the parties. No change, termination or attempted waiver of any of the provisions hereof shall be binding unless in writing and signed by the party against whom the same is sought to be enforced. 9. Successors and Assigns; Binding Effect. This Agreement -------------------------------------- will be binding upon and inure to the benefit of the Company and its successors and assigns, and the Executive, and his heirs and administrators. The Company may assign this Agreement to any corporation which is in a consolidated group with the Company. 10. Waiver and Severability. The waiver by either party of ----------------------- a breach of any terms or conditions of this Agreement shall not operate or be construed as a waiver of any subsequent breach by such party. In the event that any one or more of the provisions of this Agreement shall be declared to be illegal or unenforceable under any law, rule or regulation of any government having jurisdiction over the parties hereto, such illegality or unenforceability shall not affect the validity and enforceability of the other provisions of this Agreement. 11. Heading, Interpretations. The headings and captions ------------------------ used in this Agreement are for convenience only and shall not be construed in interpreting this Agreement. 12. Governing Law. All matters concerning the validity and ------------- interpretation of and performance under this Agreement shall be governed by the laws of the State of Delaware without regard to the conflicts of law principles thereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. DYNAMIC DENTAL SYSTEMS, INC. By: AMERICAN ELECTROMEDICS CORP. By: /s/ Thomas A. Slamecka ---------------------------- Thomas A. Slamecka Chairman /s/ Henry J. Rhodes -------------------------------- Henry J. Rhodes EX-2 9 EXHIBIT 2.9 EMPLOYMENT AGREEMENT -------------------- AGREEMENT, dated as of May 11, 1998, by and between EQUIDYNE SYSTEMS, INC., a California corporation (the "Company"), and LAWRENCE A. PETERSEN (the "Executive"). W I T N E S S E T H: - - - - - - - - - - WHEREAS, the Executive has been employed by the Company, and the Company was acquired by and has become a wholly-owned subsidiary of American Electromedics Corp. ("AEC"); and WHEREAS, this Agreement is a condition to the closing of the merger of ESI Acquisition Corporation, a wholly-owned subsidiary of AEC, with and into the Company; and WHEREAS, the Company and the Executive desire to assure continuity of the Executive's services upon the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the foregoing and the covenants and agreements hereinafter set forth, the parties hereto, intending to be legally bound, agree as follows: 1. Retention of Employment. The Company hereby employs ----------------------- the Executive as President of the Company, and the Executive hereby accepts such employment, all upon and subject to the terms and conditions hereinafter set forth. 2. Term. The term (the "Term") of the employment under ---- this Agreement shall be for an initial period commencing on May 11, 1998 and terminating on November 30, 2001 and automatically renewed for additional one (1) year periods thereafter unless either party gives the other written notice of termination not less than sixty (60) days prior to the end of the initial Term or any renewal Term. 3. Position, Duties and Representations. ------------------------------------ 3.01 Service with the Company. The Executive shall ------------------------ serve as President of the Company. The Executive agrees to perform such executive employment duties for the Company consistent with such position, and as the Board of Directors, the Executive Committee or the Chairman of the Board shall assign to him from time to time consistent with his position with the Company. 3.02 Scope of Services. The Executive agrees to serve ----------------- the Company faithfully and to the best of his ability and to devote his full business time, attention and efforts necessary to advance the business and affairs of the Company during the Term of this Agreement. If requested, the Executive shall serve as a director of the Company and an officer and/or director of any subsidiary of the Company, without any additional compensation hereunder. 4. Compensation. ------------ 4.01 Annual Salary. The Executive shall receive an ------------- annual base salary ("Base Salary") of One Hundred Twenty Five Thousand Dollars ($125,000) per year, payable in accordance with the Company's normal payroll practices. In addition, on an annual basis the Board of Directors or the Compensation Committee shall review the Executive's compensation with a view toward increases in the Base Salary, and/or payment of a bonus, based upon the Executive's performance during the preceding year or pursuant to guidelines established by the Compensation Committee of AEC. Payment of a bonus shall be entirely at the discretion of the Board of Directors. 4.02 Participation in Benefit Plans. The Executive ------------------------------ shall also be entitled, to the extent that his position, title, tenure, salary, age, health and other qualifications make him eligible, to participate in all employee benefit plans or programs (including, but not limited to, medical/dental insurance, disability, stock option, retirement and pension plans and vacation time, sick leave and holidays) of the Company currently in existence on the date hereof or as may hereafter be instituted from time to time. The Executive's participation in any such plan or program shall be subject to the provisions, rules and regulations applicable thereto. 4.03 Stock Options. The Company shall cause AEC to ------------- grant to the Executive stock options (the "Options") under AEC's 1996 Stock Option Plan for the purchase of an aggregate of One Hundred Thousand (100,000) shares AEC's Common Stock, Fifty Thousand (50,000) Options of which at an exercise price of One Dollar ($1.00) per share, with Five Thousand (5,000) of such Options to vest immediately and Forty Five Thousand (45,000) of such Options to vest ratably over the term of this Agreement, and the remaining Fifty Thousand (50,000) Options of which at an exercise price of Three Dollars ($3.00) per share, with Five Thousand (5,000) of such Options to vest immediately and Forty Five Thousand (45,000) of such Options to vest ratably over the term of this Agreement. All Options not so vested at the termination of employment of the Executive pursuant to Section 6.0 hereof, shall be canceled simultaneous to such termination of employment and have no further force or effect. The Options, to the maximum extent possible, shall be "incentive" stock options, as defined in Section 422 of the Internal Revenue Code of 1986, as amended and shall be evidenced by a separate option agreement which shall govern. 4.04 Expenses. In accordance with the Company's -------- policies established from time to time, the Company shall pay or reimburse the Executive for all reasonable and necessary out-of- pocket expenses incurred by him in the performance of his duties under this Agreement, subject to the presentment of appropriate vouchers and receipts. 5. Non-Disclosure of Confidential Information; Non- ------------------------------------------------ Competition. ----------- 5.01 Confidentiality. Except as may be in furtherance --------------- of the Executive's performance of his functions as a senior executive officer of the Company, the Executive shall not, throughout the Term of this Agreement and thereafter, disclose to any third party or use or authorize any third party to use, any information relating to the business, business plans, trade secrets or other interests of the Company (including customers and clients of the Company) which is confidential and valuable to the Company or AEC or any of their subsidiaries or any third party (including customers and clients of the Company) and which is not known to the public (the "Confidential Information"). The Confidential Information is and will remain the sole and exclusive property of the Company, and during the Term of this Agreement, the Confidential Information, when entrusted to the Executive's custody, shall be deemed to remain at all times in the Company's sole possession and control. Notwithstanding the foregoing, the Executive may, after prior written notice to the Company (to the extent such notice is possible under the circumstances) disclose such Confidential Information pursuant to subpoena or other legal process, and promptly thereafter shall advise the Company in writing as to the Confidential Information which was disclosed and the circumstances of such disclosure. 5.02 Return of Documents. The Executive agrees that, ------------------- upon the termination of his employment with the Company for any reason, he shall forthwith deliver to the Company any and all documents and other material however recorded or stored in any medium or by any method, and all copies thereof, in his possession or under his control relating to any Confidential Information which is otherwise the property of the Company. 5.03 Non-Competition. The Executive recognizes that --------------- the services to be performed by him for the Company are special and unique. The Executive further recognizes that the nature of the Company's business is such that the Executive will have full knowledge of the Company's business plans and practices. The parties therefore confirm that, in order to protect the Company's goodwill, and in consideration of the Company entering into this Agreement providing for a fixed term of employment of the Executive, it is necessary that the Executive agree, and the Executive hereby does agree that he will not in the United States of America and/or the Federal Republic of Germany, for a period of two (2) years after the termination of this Agreement, become employed by, a consultant to or a director of, or hold any equity interest as a partner, member or shareholder (to the extent of 5 % or more of the equity interest thereof), of any sole proprietorship, partnership, joint venture, corporation or other business entity which engages in a business directly competitive to any business that the Company is engaged (or has formulated plans to engage) in at the time of termination of this Agreement. This Section shall not be applicable if the Executive terminates this Agreement pursuant to Section 6.03 hereof or if the Company terminates this Agreement pursuant to Section 6.04 hereof. 5.04 Remedies. The Executive agrees that any breach or -------- threatened breach by him of any provision of this Section 5 shall entitle the Company, in addition to any other legal remedies available to it, to apply to any court of competent jurisdiction to enjoin such breach or threatened breach. The parties understand and intend that each restriction agreed to by the Executive hereinabove shall be construed as separable and divisible from every other restriction, and that the unenforceability, in whole or in part, of any restriction, will not affect the enforceability of the remaining restrictions and that one or more or all of such restrictions may be enforced in whole or in part as the circumstances warrant. No waiver of any breach of the restrictions contained in this Section 5 shall be deemed a waiver of any future breach. 6. Termination. ----------- 6.01 Disability. If the Executive is determined to be ---------- disabled (as defined below), the Company shall have the option to terminate this Agreement by written notice to the Executive stating the date of termination, which date may be any time subsequent to the date of such determination. The Executive shall be considered disabled if, due to illness or injury, either physical or mental, he is unable to perform his customary duties and responsibilities as required by this Agreement for more than two (2) months in the aggregate out of any period of six (6) consecutive months. The determination that the Executive is disabled shall be made by the Board of Directors of the Company (with the Executive abstaining from the decision if he is then a member of the Board), based upon an examination and certification by a physician selected by the Company subject to the Executive's approval, which approval shall not be unreasonably withheld. The Executive agrees to submit timely to any required medical or other examination, provided that such examination shall be conducted at a location convenient to the Executive and that if the examining physician is other than the Executive's personal physician, the Executive shall have the right to have such personal physician present at such examination. 6.02 Death. If the Executive shall die during the Term ----- of this Agreement, this Agreement and the Executive's employment hereunder shall terminate immediately upon the Executive's death. 6.03 By the Executive for Cause. The Executive may -------------------------- terminate this Agreement for "cause" at any time. For purposes of this Section 6.03, the term "cause" shall be the failure of the Company to perform in a material respect of its material obligations under this Agreement without proper justification after notice thereof from the Executive and, if curable, the opportunity to cure, within ten (10) days after the receipt of written notice thereof to the Company. 6.04 By the Company for Cause. The Company may ------------------------ terminate this Agreement for "cause" at any time. For purposes of this Section 6.04, the term "cause" shall be limited to (i) conviction of a felony or equivalent crime under the laws of the United States or any state, (ii) conviction of a felony or equivalent crime under the laws of any other country or political subdivision thereof involving moral turpitude, (iii) action involving gross negligence having a material adverse effect on the Company, including wilfully aiding the competition, (iv) willful misrepresentation at any time during the term hereof by the Executive to the Board of Directors of the Company of any material information, (v) the Executive's failure or refusal to perform specific directives of the Company's Board of Directors or Chairman of the Board, which directives are consistent with the scope and nature of the Executive's duties and responsibilities, and which are not remedied by the Executive within ten (10) days after the receipt of written notice thereof, or (vi) the breach by the Executive of any of his material obligations under this Agreement without proper justification, which breach is not cured within ten (10) days after receipt of written notice thereof. Upon termination of employment by the Company pursuant to this Section, the Executive shall receive any accrued Base Salary through the termination date, less any amounts by reason of claims the Company may have against the Executive. 6.05 Termination Benefit. Upon termination of ------------------- employment (i) upon the disability of the Executive pursuant to Section 6.01 hereof, (ii) by the Executive's death pursuant to Section 6.02 hereof, or (iii) by the Executive, pursuant to Section 6.03 hereof, the Executive (or his estate or representative) shall receive (A) a severance payment equal to the greater of (i) the amount of the then current annual Base Salary or (ii) the continuation of the Base Salary for the balance of the current Term, (B) other than in connection with termination upon the death of the Executive, the continuation of his health benefits for a period of one (1) year from the date of such termination, at the Company's expense, subject to discontinuance of health benefits upon the Executive becoming covered by a comparable plan offered by a subsequent employer, and (C) all outstanding unvested stock options granted to the Executive by the Company for the purchase of shares of its Common Stock shall automatically vest and become exercisable, subject to their respective terms. 6.06 Change in Control of the Company. (a) If, at -------------------------------- anytime during the Term hereof, a change in control of the Company (as defined in Subsection (b) below) occurs, then within sixty (60) days after receipt of written notice of such change in control of the Company, the Executive may, by written notice to the Company (or its successor), terminate this Agreement. In the event of said termination, (i) the Executive shall receive a lump sum payment equal to two (2) times his then current Base Salary, payable within thirty (30) days after termination of this Agreement, (ii) the Company (or its successor) shall maintain, at its expense, the health plan coverage of the Executive for a period of twelve (12) months after such termination, subject to termination of such health plan benefits upon the Executive becoming covered by a comparable plan offered by a subsequent employer and also subject to any changes in such plan as applicable to other executive officers and (iii) all outstanding unvested stock options granted to the Executive under a plan of the Company for the purchase of shares of its Common Stock shall automatically vest and become exercisable subject to their respective terms; provided, however, if the amount to be paid or -------- ------- distributed to the Executive pursuant to this Section 6.06 (taken together with any amounts otherwise to be paid or distributed to the Executive by the Company) (such amounts collectively the "Section 6.06 Payment") would result in the application of an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), or any successor or similar provision thereto, the Section 6.06 Payment shall not be paid or distributed in the amounts or at the times otherwise required by this Agreement, but shall instead be paid or distributed annually, beginning within thirty (30) days after the termination date and thereafter on each anniversary thereof, in the maximum substantially equal amounts and over the minimum number of years that are determined to be required to reduce the aggregate present value of Section 6.06 Payment to an amount that will not cause any Section 6.06 Payment to be non-deductible under Section 280G of the Code. For purposes of this Section 6.06, present value shall be determined in accordance with Section 280G(d)(4) of the Code. (b) "Change of control of the Company" shall be deemed to have occurred if: (i) any "person" or "group" (as "person" and "group" are defined in Sections 13(d) and 14(d) of Securities Exchange Act of 1934 (the "Exchange Act"), other than (A) the Executive or a person controlled by him, (B) a trustee or other fiduciary holding securities under an employee benefit plan of the Company, (C) a person or group by reason of a transaction with the Company approved by the Company Board of Directors as constituted in accordance with Paragraph (ii) below, or (D) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions, is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; or (ii) individuals who on the commencement date of this Agreement constitute members of the Board of Directors, or successors chosen by such individuals, shall cease for any reason to constitute a majority of the whole Board of Directors. 7. Notices. All notices, requests, demands or other ------- communications hereunder shall be deemed to have been given if delivered in writing personally or by registered mail to each party at the address set forth below, or at such other address as each party may designate in writing to the other: If to the Company: American Electromedics Corp. 13 Columbia Drive Amherst, New Hampshire 03031 Attn: Michael T. Pieniazek, President If to Executive: Lawrence A. Petersen Equidyne Systems, Inc. 11696 Sorrento Valley Road, Suite J San Diego, California 92121 8. Entire Agreement. This Agreement contains the entire ---------------- understanding of the parties with respect to the subject matter hereof, supersedes any prior agreement (oral or written) between the parties. No change, termination or attempted waiver of any of the provisions hereof shall be binding unless in writing and signed by the party against whom the same is sought to be enforced. 9. Successors and Assigns; Binding Effect. This Agreement -------------------------------------- will be binding upon and inure to the benefit of the Company and its successors and assigns, and the Executive, and his heirs and administrators. The Company may assign this Agreement to any corporation which is in a consolidated group with the Company, provided that the Company shall remain liable hereunder. 10. Waiver and Severability. The waiver by either party of ----------------------- a breach of any terms or conditions of this Agreement shall not operate or be construed as a waiver of any subsequent breach by such party. In the event that any one or more of the provisions of this Agreement shall be declared to be illegal or unenforceable under any law, rule or regulation of any government having jurisdiction over the parties hereto, such illegality or unenforceability shall not affect the validity and enforceability of the other provisions of this Agreement. 11. Heading; Interpretations. The headings and captions ------------------------ used in this Agreement are for convenience only and shall not be construed in interpreting this Agreement. 12. Governing Law. All matters concerning the validity and ------------- interpretation of and performance under this Agreement shall be governed by the laws of the State of California without regard to the conflicts of law principles thereof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. EQUIDYNE SYSTEMS, INC. by: AMERICAN ELECTROMEDICS CORP. by: /s/ Thomas A. Slamecka -------------------------- Thomas A. Slamecka /s/ Lawrence A. Petersen ------------------------------- Lawrence A. Petersen EX-10 10 EXHIBIT 10.1 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT, dated as of May 5, 1998 (this "Agreement"), is entered into by and between AMERICAN ELECTROMEDICS CORP., a Delaware corporation, with headquarters located at 13 Columbia Drive, Suite 18, Amherst, New Hampshire 03031 (the "Company"), the purchasers listed on Exhibit A attached hereto (each, a "Purchaser," and collectively, the "Purchasers") and West End Capital LLC ("West End"). W I T N E S S E T H: WHEREAS, the Company, the Purchasers and West End are executing and delivering this Agreement in reliance upon the exemptions from registration provided by Regulation D ("Regulation D") promulgated by the United States Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"), and/or Section 4(2) of the Securities Act; and WHEREAS, the Purchasers wish to purchase, and the Company wishes to issue, upon the terms and subject to the conditions of this Agreement, up to 3,000 shares of Convertible Preferred Stock, Series A, par value $.01 per share ("Series A Preferred Stock"), having the rights, privileges and preferences set forth in the Certificate of Designations, the form of which is attached hereto as Exhibit B (the "Certificate of Designations"), the Company has agreed to sell the number of Warrants (the "Warrants") set forth in Exhibit A to West End which, for the purposes of the rights conveyed to holders of Warrants pursuant to this Agreement, shall be deemed to be a Purchaser. The Series A Preferred Stock is convertible into shares of the Company's common stock, par value $.10 per share (the "Common Stock"), on the terms set forth in the Certificate of Designations, and the Warrants may be exercised for the purchase of the Company's Common Stock, on the terms set forth therein. The Series A Preferred Stock and the Warrants are referred to herein as the "Securities." NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. AGREEMENT TO PURCHASE; PURCHASE PRICE A. PURCHASE. Each of the Purchasers hereby agrees to purchase from the Company up to the number of shares of Series A Preferred Stock set forth next to its name on Exhibit A hereto, and West End agrees to purchase the number of Warrants set forth next to its name on Exhibit A hereto. The Certificate of Designations, in substantially the form attached hereto as Exhibit B, shall be filed with the Secretary of State of the State of Delaware on or prior to the Initial Closing Date (as defined herein), and the Warrants shall be issued in substantially the form attached hereto as Exhibit C. The purchase price for the Series A Preferred Stock and the Warrants shall be as set forth on Exhibit A hereto and shall be payable in next day funds. B. CLOSINGS. 1,000 shares of the Series A Preferred Stock to be purchased by the Purchasers hereunder, in definitive form, and in such denominations and registered in such names as the Purchasers or their representative, if any, may request upon at least forty-eight hours' prior notice to the Company, shall be delivered by or on behalf of the Company for the account of each such Purchaser, against payment by such Purchaser or on its behalf of the purchase price of $1,000,000 therefor by wire transfer to an account of the Company, all at the offices of Morrison & Foerster LLP, 1290 Avenue of the Americas, New York, New York 10104, New York time on May 5, 1998, or at such other time and date as the Purchasers or their representative, if any, and the Company may agree upon in writing, such date being referred to herein as the "Initial Closing Date." In addition, if the Company purchases all or substantially all of the issued and outstanding capital stock, or the assets of, Dynamic Dental Systems, Inc. ("Dynamic") on or prior to May 15, 1998, the Purchasers shall purchase an additional 1,000 shares of the Company's Series A Preferred Stock for the aggregate purchase price of $1,000,000 (the "First Additional Closing Date"). Furthermore, if the Company purchases all or substantially all of the issued and outstanding capital stock, or the assets of, Equidyne Systems, Inc. ("Equidyne") on or prior to May 25, 1998, the Purchasers shall purchase an additional 1,000 shares of the Company's Series A Preferred Stock for the aggregate purchase price of $1,000,000 (the "Second Additional Closing Date"). The closing of the purchase of such shares shall occur within forty-eight (48) hours after the closing of each of the Dynamic and Equidyne transactions, respectively, or at such other times as the parties shall agree (the Initial Closing Date and each of the First Additional Closing Date and the Second Additional Closing Date are referred to herein as a "Closing Date"). 2. PURCHASER REPRESENTATIONS AND WARRANTIES; ACCESS TO INFORMATION; INDEPENDENT INVESTIGATION. Each Purchaser represents and warrants to, and covenants and agrees with, the Company as follows: A. The Purchaser is purchasing the Securities and for investment purposes only and not with a view towards the public sale or distribution thereof and not with a view to or for sale in connection with any distribution thereof; B. The Purchaser and each of its equity owners is (i) an "accredited investor," as that term is defined in Rule 501 of the General Rules and Regulations under the Securities Act by reason of Rule 501(a), (ii) experienced in making investments of the kind described in this Agreement and the related documents, (iii) able, by reason of the business and financial experience of its officers (if an entity) and professional advisors, to protect its own interests in connection with the transactions described in this Agreement and the related documents, and (iv) able to afford the entire loss of its investment in the Series A Preferred Stock; C. All subsequent offers and sales of the Series A Preferred Stock and the Common Stock issuable upon conversion or exercise of, or in lieu of dividend payments on, the Series A Preferred Stock, or upon exercise of the Warrants shall be made pursuant to an effective registration statement under the Securities Act or pursuant to an applicable exemption from registration; D. The Purchaser understands that the Series A Preferred Stock is being offered and sold to it in reliance upon exemptions from the registration requirements of the United States federal and state securities laws, and that the Company is relying upon the truth and accuracy of the Purchaser's representations and warranties, and the Purchaser's compliance with its agreements, each as set forth herein, in order to determine the availability of such exemptions and the eligibility of the Purchaser to acquire the Series A Preferred Stock; E. The Purchaser acknowledges that in making its decision to purchase the Series A Preferred Stock, it has relied upon independent investigations made by it and its representatives, if any, and the Purchaser and such representatives, if any, have been provided access and the opportunity to examine all material, publicly available books and records of the Company, all material contracts and documents relating to this offering and have had an opportunity to ask questions of, and to receive answers from the Company or persons acting on its behalf concerning the terms and conditions of this offering. The Purchaser and its advisors, if any, have been furnished with access to all publicly available materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Series A Preferred Stock which have been requested. The Purchaser and its advisors, if any, have received answers to any such inquiries which they have deemed to be satisfactory. F. This Agreement has been duly and validly authorized, executed and delivered on behalf of the Purchaser and is a valid and binding agreement of the Purchaser, enforceable in accordance with its terms, except to the extent that enforcement of this Agreement may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally and to general principles of equity. 3. REPRESENTATIONS OF THE COMPANY The Company represents and warrants to each Purchaser that, except as set forth in the Disclosure Schedule attached hereto: A. ORGANIZATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of the Company's subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of its respective jurisdiction. Each of the Company and its subsidiaries is duly qualified as a foreign corporation in all jurisdictions in which the failure to so qualify would have a material adverse effect on the Company and its subsidiaries taken as a whole. B. CAPITALIZATION. On the date hereof, the authorized capital of the Company shall consist of 20,000,000 Shares of Common Stock, par value $.10 per share, of which 5,663,136 are issued and outstanding. Schedule 1 hereto sets forth the options, warrants and convertible securities of the Company (the "Derivative Securities") which are outstanding on the date hereof, including in each case (i) the name and class of such Derivative Securities, (ii) the issue date of such Derivative Securities, (iii) the number of Shares of Common Stock of the Company into which such Derivative Securities are convertible as of the date hereof, (iv) the conversion or exercise price or prices of such Derivative Securities as of the date hereof and (v) the expiration date of any conversion or exercise rights held by the owners of such Derivative Securities. C. CONCERNING THE PREFERRED STOCK. On each Closing Date, the shares of Series A Preferred Stock to be issued to the Purchasers, upon payment of the purchase price therefore, shall be duly and validly issued, fully paid and non-assessable, and will not subject the holder thereof to personal liability by reason of being such a holder. There are no preemptive rights of any stockholder of the Company, as such, to acquire the Securities issuable to the Purchasers hereunder. D. CONCERNING THE COMMON STOCK. The Common Stock issuable upon conversion of, or in lieu of dividend payments on, the Series A Preferred Stock, and upon exercise of the Warrants, when so issued, shall be duly and validly issued, fully paid and non-assessable, and will not subject the holder thereof to personal liability by reason of being such a holder. There are no preemptive rights of any stockholder of the Company, as such, to acquire the Common Stock issuable to the Purchasers pursuant to the terms of the Series A Stock or the Warrants. E. REPORTING COMPANY STATUS. The Company's Common Stock are registered under Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). F. AUTHORIZED SHARES. The Company has legally available a sufficient number of authorized and unissued Common Stock as may be reasonably necessary to effect the conversion of the Series A Preferred Stock and the exercise of the Warrants. G. LEGALITY. The Company has the requisite corporate power and authority to enter into this Agreement and to issue and deliver the Series A Preferred Stock and the Warrants. The issuance of the Series A Preferred Stock and the Warrants (and the Common Stock issuable upon conversion of, or in lieu of dividend payments on, the Series A Preferred Stock and exercise of the Warrants) have been duly and validly authorized by all necessary corporate action by the Company. H. TRANSACTION AGREEMENTS. This Agreement, the Registration Rights Agreement, the form of which is attached hereto as Exhibit D (the "Registration Rights Agreement," and together with this Agreement, and the Warrants, the "Primary Documents"), and the transactions contemplated thereby (including the filing of the Certificate of Designations with the Secretary of State of the State of Delaware), have been duly and validly authorized by the Company; this Agreement has been duly executed and delivered by the Company and this Agreement is, and the Primary Documents, when executed and delivered by the Company, will each be, a valid and binding agreement of the Company, enforceable in accordance with their respective terms, except to the extent that enforcement of each of the Primary Documents may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or other similar laws now or hereafter in effect relating to creditors' rights generally and to general principles of equity. I. NON-CONTRAVENTION. The execution and delivery of this Agreement, and each of the other Primary Documents, and the consummation by the Company of the other transactions contemplated by this Agreement and each of the other Primary Documents, does not and will not conflict with or result in a breach by the Company of any of the terms or provisions of, or constitute a default under, the Certificate of Incorporation of the Company, or any indenture, mortgage, deed of trust or other material agreement or instrument to which the Company or any of its subsidiaries is a party or by which they or any of their properties or assets are bound, or any material existing applicable law, rule, or regulation or any applicable decree, judgment or order of any court, or United States federal or state regulatory body, administrative agency, or any other governmental body having jurisdiction over the Company, its subsidiaries, or any of their properties or assets, except such conflict, breach or default which would not have a material adverse effect on the transactions contemplated by this Agreement or by the other Primary Documents. J. APPROVALS. No authorization, approval or consent of any court, governmental body, regulatory agency, self- regulatory organization, stock exchange or market or the shareholders of the Company is required to be obtained by the Company for the entry into or the performance of this Agreement and the other Primary Documents, except (i) such authorizations, approvals and consents that have been obtained, copies of which have been furnished to the Purchasers and, (ii) authorizations, approvals, consents or orders of the Commission with respect to the Registration Statements referred to in the Registration Rights Agreement, which approvals and orders are not required to be obtained as of the Initial Closing Date and will be timely obtained when required. K. SEC FILINGS. None of the reports or documents filed by the Company with the Commission since January 1, 1995 contained, at the time they were filed, any untrue statement of a material fact or omitted to state any material fact required to be stated therein, or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. L. ABSENCE OF CERTAIN CHANGES. Since July 31, 1997, except as disclosed in the Company's reports on Form 10-QSB, there has been no material adverse change and no material adverse development in the business properties, operations, financial condition, outstanding securities or results of operations of the Company. M. FULL DISCLOSURE. There is no fact known to the Company (other than general economic conditions known to the public generally) that has not been disclosed to the Purchasers that (i) could reasonably be expected to have a material adverse effect upon the condition (financial or otherwise) or the earnings, business affairs, properties or assets of the Company or (ii) could reasonably be expected to materially and adversely affect the ability of the Company to perform its obligations pursuant to the Primary Documents. N. TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. The Company has good and marketable title to all of its properties and assets, both real and personal, and has good title to all its leasehold interests, in each case subject only to mortgages, pledges, liens, security interests, conditional sale agreements, encumbrances or charges created in the ordinary course of business. O. PATENTS AND OTHER PROPRIETARY RIGHTS. The Company has sufficient title and ownership of all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes necessary for the conduct of its business as now conducted, and such business does not conflict with or constitute an infringement on the rights of others. P. PERMITS. The Company has all franchises, permits, licenses and any similar authority necessary for the conduct of its business as now conducted, the lack of which would materially and adversely affect the business or financial condition of the Company. The Company is not in default in any material respect under any of such franchises, permits, licenses or similar authority. Q. ABSENCE OF LITIGATION. Except as set forth in the Company's annual report on Form 10-KSB for the year ended July 31, 1997 (the "1997 Annual Report") and in the Company's reports on Form 10-QSB, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened against or affecting the Company or any of its subsidiaries, in which an unfavorable decision, ruling or finding would have a material adverse effect on the properties, business, condition (financial or other) or results of operations of the Company and its subsidiaries, taken as a whole, or the transactions contemplated by the Primary Documents, or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, the Primary Documents. R. NO DEFAULT. Each of the Company and its subsidiaries is not in default in the performance or observance of any material obligation, covenant or condition contained in any material indenture, mortgage, deed of trust or other instrument or agreement to which it is a party or by which it or its property may be bound. S. TRANSACTIONS WITH AFFILIATES. Except as disclosed in the 1997 Annual Report and in the Company's reports on Form 10-QSB, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors or affiliates that, had they existed on July 31, 1997, would have been required to be disclosed in the 1997 Annual Report. T. TAXES. All applicable tax returns required to be filed by the Company and each of its subsidiaries have been filed, or if not yet filed have been granted extensions of the filing dates which extensions have not expired, and all taxes, assessments, fees and other governmental charges upon the Company, its subsidiaries, or upon any of their respective properties, income or franchises, shown in such returns and on assessments received by the Company or its subsidiaries to be due and payable have been paid, or adequate reserves therefor have been set up if any of such taxes are being contested in good faith; or if any of such tax returns have not been filed or if any such taxes have not been paid or so reserved for, the failure to so file or to pay would not in the aggregate have a material adverse effect on the business or financial condition of the Company and its subsidiaries, taken as a whole. U. INVESTMENT COMPANY ACT. The Company is not conducting, and does not intend to conduct its business in a manner which it would become, an "investment company" as defined in Section 3(a) of the Investment Company Act of 1940, as amended. V. AGENT FEES. Except for such payments as may be owed to Cohig & Associates, Inc., the Company has not incurred any liability for any finder's or brokerage fees or agent's commissions in connection with the offer and sale of the Series A Preferred Stock hereunder. W. PRIVATE OFFERING. Subject to the accuracy of the Purchaser's representations and warranties set forth in Section 2 hereof, the offer, sale and issuance of the Series A Preferred Stock as contemplated by this Agreement are exempt from the registration requirements of the Securities Act. The Company agrees that neither the Company nor anyone acting on its behalf will offer any of the Series A Preferred Stock or the Warrants or any similar securities for issuance or sale, or solicit any offer to acquire any of the same from anyone so as to render the issuance and sale of the Securities subject to the registration requirements of the Securities Act. The Company has not offered or sold the Securities by any form of general solicitation or general advertising, as such terms are used in Rule 502(c) under the Securities Act. X. FULL DISCLOSURE. The representations and warranties of the Company set forth in this Agreement do not contain any untrue statement of a material fact or omit any material fact necessary to make the statements contained herein, in light of the circumstances under which they were made, not misleading. 4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS. A. TRANSFER RESTRICTIONS. Each Purchaser acknowledges that (1) neither the Series A Preferred Stock, Common Stock nor the Warrants have been, and are not being, registered under the Securities Act and, except as provided in the Registration Rights Agreement, the Common Stock issuable upon conversion of the Series A Preferred Stock, or in lieu of dividend payments on, the Series A Preferred Stock, and upon exercise of the Warrants, have not been and are not being registered under the Securities Act, and may not be transferred unless (A) subsequently registered thereunder or (B) the Purchaser shall have delivered to the Company an opinion of counsel, reasonably satisfactory in form and substance to the Company, to the effect that the Series A Preferred Stock, Warrants or Common Stock (collectively, the "Securities"), to be sold or transferred may be sold or transferred pursuant to an exemption from such registration; (2) any sale of the Securities made in reliance upon Rule 144 under the Securities Act may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any resale of the Securities under circumstances in which the seller, or the person through whom the sale is made, may be deemed to be an underwriter, as that term is used in the Securities Act, may require compliance with another exemption under the Securities Act and the rules and regulations of the Commission thereunder; and (3) neither the Company nor any other person is under any obligation to register the Securities (other than pursuant to the Registration Rights Agreement) under the Securities Act or to comply with the terms and conditions of any exemption thereunder. The provisions of Section 4(a) and 4(b) hereof shall be binding upon any subsequent transferee of the Series A Preferred Stock or Warrants. B. RESTRICTIVE LEGEND. Each Purchaser acknowledges and agrees that the Series A Preferred Stock or the Warrants, and, until such time as the Common Stock issuable upon conversion of the Series A Preferred Stock or upon exercise of the Warrants shall have been registered under the Securities Act as contemplated by the Registration Rights Agreement and sold in accordance with such Registration Statement, such securities may be subject to a stop-transfer order placed against the transfer of such Securities, and such shares shall bear a restrictive legend in substantially the following form: THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. C. FILINGS. The Company undertakes and agrees to make all necessary filings in connection with the sale of the Series A Preferred Stock to each Purchaser as required by United States laws and regulations, or by any domestic securities exchange or trading market, including, if applicable, the filing of a notice on Form D (at such time and in such manner as required by the Rules and Regulations of the Commission), and to provide copies thereof to the Purchaser promptly after such filing or filings. D. STOCK EXCHANGE LISTING. Within ten (10) business days after the Initial Closing Date, the Company shall use its best efforts to file an application for its Common Stock to become listed on the NASDAQ Small Capitalization market or the American Stock Exchange. Notwithstanding the foregoing, if the Company makes a good faith determination that it cannot satisfy the official listing requirements of such exchanges, it shall not be obligated to file such application within such period and will set forth such determination in writing to West End, and will use its best efforts to effect such listing as promptly as possible after it shall satisfy such requirements. The Company agrees that it will not seek to have the trading of its Common Stock through such exchange suspended or terminated, will use its commercially reasonable best efforts to maintain its eligibility for trading through such exchange and, if the trading of its Common Stock is suspended or terminated, will use its commercially reasonable best efforts to requalify its Common Stock or otherwise cause such trading to resume. E. REPORTING STATUS. So long as any of the Purchasers beneficially owns any of the Securities, the Company shall file all reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act, and, except in connection with an acquisition transaction in which at least 50% of the Company's voting equity securities or substantially all of the assets of the Company are acquired by another entity, the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination. F. STATE SECURITIES FILINGS. The Company shall from time to time promptly take such action as the Purchasers or any of their representatives, if applicable, may reasonably request to qualify the Securities for offering and sale under the securities laws (other than United States federal securities laws) of such jurisdictions in the United States as shall be so identified to the Company, and to comply with such laws so as to permit the continuance of sales therein, provided that in connection therewith, the Company shall not be required to qualify as a foreign corporation or to file a general consent to the service of process in any jurisdiction. G. USE OF PROCEEDS. The Company will use the proceeds from the issuance of the Series A Preferred Stock (excluding amounts paid by the Company for legal fees and finder's fees in connection with the sale of the Series A Preferred Stock) towards the commercialization of products developed with the technologies acquired by the Company in connection with its purchase of all of the issued and outstanding shares of capital stock of (a) Equidyne Systems, Inc. and, (b) the purchase price of all of the issued and outstanding shares of capital stock of Dynamic Dental Systems, Inc. and (c) to repay $600,000 of indebtedness to Citizens Bank New Hampshire, a guaranty savings bank organized under the laws of the State of New Hampshire. To the extent that any of the proceeds from the issuance of the Series A Preferred Stock shall remain, the Company shall use such proceeds for general corporate purposes and working capital. H. RESERVATION OF ORDINARY SHARES. The Company will at all times have authorized and reserved for the purpose of issuance a sufficient number of shares of Common Stock to provide for the conversion of the Series A Preferred Stock and the exercise of the Warrants. The Company will use its best efforts at all times to maintain a number of shares of Common Stock so reserved for issuance that is no less than one and one-half (1.5) times the number that is then actually issuable upon the conversion of the Series A Preferred Stock or the exercise of the Warrants. The number of Common Stock reserved for issuance by the Company upon conversion of the Series A Preferred Stock or upon exercise of the Warrants shall at all times be allocated pro rata among the Purchasers based upon the aggregate purchase price of the Series A Preferred Stock purchased by each Purchaser, and no Purchaser may at any time convert its Series A Preferred Stock or exercise Warrants so as to obtain a greater number of Common Stock than its pro rata allocation of the Company's reserved Common Stock. In the event that a Purchaser shall sell or otherwise transfer, in whole or in part, any of its Securities (except for Common Stock of the Company subject to an effective registration statement under the Securities Act or otherwise freely tradable by such Purchaser), each transferee shall, for purposes of determining such transferee's allocation of the Company's reserved Common Stock, be allocated a pro rata portion of the initial purchase price paid by such Transferor upon its purchase of the Series A Preferred Stock. I. SALES OF ADDITIONAL SHARES. The Company shall not, directly or indirectly, without the prior written consent of West End, offer, sell, offer to sell, contract to sell or otherwise dispose of any shares of its capital stock for a period of two hundred seventy (270) days after the date of this Agreement (the "Lock-Up Period"), except that the Company may (i) issue securities for the aggregate consideration of at least $15.0 million in connection with a bona fide, firm commitment, underwritten public offering under the Securities Act; (ii) may issue shares of Common Stock or securities convertible into, or exercisable for, shares of Common Stock which are issued in connection with a transaction involving the acquisition of another business entity or segment of any such entity by the Company by merger, asset purchase, stock purchase or otherwise; (iii) may issue securities to directors, officers, employees or consultants of the Company for the primary purpose of soliciting or retaining their services; (iv) may issue shares of Common Stock upon the exercise or conversion of currently outstanding options, warrants and other convertible securities; (v) may issue options to purchase shares of its Common Stock to its directors, officers and employees in connection with its existing stock option plans; and (vi) may issue Common Stock in connection with a stock split, stock dividend or similar recapitalization of the Company which affects all holders of the Company's Common Stock on an equivalent basis, in each case, without the prior written consent of West End. Notwithstanding the forgoing, a transaction may only be effected pursuant to clause (ii) above during the Lock-up Period without the prior written consent of West End if the proceeds to the Company from such a transaction are immediately used by the Company to effect an acquisition transaction of the type contemplated by such clause. In addition, the Company agrees that it will not cause any shares of its capital stock that are issued in connection with a transaction of the type contemplated by such clause (or upon the conversion or exercise of other securities that are issued in connection with such transaction) to be covered by a registration statement that is declared effective by the Commission until the earlier to occur of (y) the expiration of the Lock-Up Period or (z) the registration statement filed by the Company pursuant to its obligations under the Registration Rights Agreement has been effective under the Securities Act for a period of at least ninety (90) days. 5. TRANSFER AGENT INSTRUCTIONS. A. The Company warrants that no instruction other than the instructions referred to in this Section 5 and stop transfer instructions to give effect to Sections 4(a) and 4(b) hereof prior to the registration and sale of the Common Stock issuable upon conversion of the Series A Preferred Stock, or in lieu of dividend payments on, the Series A Preferred Stock, or upon exercise of the Warrants under the Securities Act, will be given by the Company to the transfer agent and that such Common Stock shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement, the Registration Rights Agreement, and applicable law. Nothing in this Section shall affect in any way the Purchaser's obligations and agreement to comply with all applicable securities laws upon resale of the Securities. If a Purchaser provides the Company with an opinion of counsel reasonably satisfactory (as to both the identity of such counsel and the content of such opinion) to the Company that registration of a resale by the Purchaser of any of the Securities in accordance with clause (1)(B) of Section 4(a) of this Agreement is not required under the Securities Act, the Company shall (except as provided in clause (2) of Section 4(a) of this Agreement) permit the transfer of the Securities and, in the case of the Common Stock, promptly instruct the Company's transfer agent to issue one or more certificates for Common Stock without legend in such names and in such denominations as specified by the Purchaser. B. The Company will permit each Purchaser to exercise its right to convert the Series A Preferred Stock or to exercise the Warrants by faxing an executed and completed Notice of Conversion or Form of Election to Purchase, as applicable, to the Company, and delivering within three (3) business days thereafter, the original Notice of Conversion (and the related original Series A Preferred Stock) or Form of Election to Purchase (and the related original Warrants) to the Company by hand delivery or by express courier, duly endorsed. Each date on which a Notice of Conversion or Form of Election to Purchase is faxed to and received in accordance with the provisions hereof shall be deemed a "Conversion Date." The Company (or its transfer agent) will transmit the certificates representing the Common Stock issuable upon conversion of the Series A Preferred Stock or upon exercise of any Warrants (together with the Series A Preferred Stock not so converted, or the Warrants not so exercised) to such Purchaser via express courier as soon as practicable, but in all events no later than the later to occur of (the "Delivery Date") (i) four (4) business days after the Conversion Date and (ii) four (4) business days after receipt by the Company of the original Notice of Conversion (and the related original Series A Preferred Stock) or Form of Election to Purchase (and the related original Warrants), as applicable. For purposes of this Agreement, such conversion of the Series A Preferred Stock or exercise of the Warrants shall be deemed to have been made immediately prior to the close of business on the Conversion Date. C. In lieu of delivering physical certificates representing the Common Stock issuable upon the conversion of the Series A Preferred Stock or exercise of the Warrants, provided the Company's transfer agent is participating in the Depositary Trust Company ("DTC") Fast Automated Securities Transfer program, on the written request of a Purchaser who shall have previously instructed such Purchaser's prime broker to confirm such request to the Company's transfer agent, the Company shall use commercially reasonable efforts to cause its transfer agent to electronically transmit such Common Stock to the Purchaser by crediting the account of the Purchaser's prime broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system no later than the applicable Delivery Date. D. The Company understands that a delay in the issuance of Common Stock beyond the applicable Delivery Date could result in an economic loss to the applicable Purchaser. As compensation to such Purchaser for such loss, the Company agrees to pay to such Purchaser for late issuance of Common Stock upon conversion of the Series A Preferred Stock or upon exercise of the Warrants the sum of $5,000 per day for each $100,000 in aggregate principal amount of Series A Preferred Stock that are being converted, or for each 25,000 shares of Common Stock purchased upon the exercise of the Warrants. The Company shall pay any payments incurred under this Section 5 in immediately available funds upon demand. Nothing herein shall limit a Purchaser's right to pursue actual damages for the Company's failure to issue and deliver shares of Common Stock to such Purchaser. Furthermore, in addition to any other remedies which may be available to such Purchaser, in the event that the Company fails for any reason to effect delivery of such Common Stock within five (5) business days after the relevant Delivery Date, the Purchaser will be entitled to revoke the relevant Notice of Conversion or Form of Election to Purchase by delivering a notice to such effect to the Company, whereupon the Company and such Purchaser shall each be restored to their respective positions immediately prior to delivery of such Notice of Conversion or Form of Election to Purchase. For purposes of this Section 5, "business day" shall mean any day in which the financial markets of New York are officially open for the conduct of business therein. E. At no time shall any of the Purchasers of the Series A Preferred Stock or the Warrants convert or exercise such amount of the Series A Preferred Stock or the Warrants as shall result in such Purchaser's beneficial ownership, after such conversion, exceeding 9.9% of the Company's outstanding Common Stock, and the parties agree that no Purchaser shall have the right to effect such a conversion or exercise. 6. RIGHT OF FIRST OFFER A. Subject to the terms and conditions specified in this Agreement, the Company hereby grants to West End a right of first offer with respect to future sales by the Company of shares of any class of its capital stock ("Shares"). West End shall be entitled to apportion the right of first offer hereby granted to it among itself and its affiliates in such proportions as it deems appropriate. B. Each time the Company proposes to, prior to the first anniversary of the Initial Closing Date, offer any shares of, or securities convertible into or exercisable for any shares of, any Shares, (except in connection with a bona fide, firm commitment, underwritten public offering), the Company shall first make an offer of such Shares to West End in accordance with the following provisions: (i) The Company shall deliver a notice (the "Notice") to West End stating (A) its bona fide intention to offer such Shares, (B) the number of such Shares to be offered and (C) the price and terms, if any, upon which it proposes to offer such Shares. (ii) Within twenty (20) days after receipt of the Notice, West End may elect to purchase or obtain, at the price and on the terms specified in the Notice of such Shares. West End shall purchase such Shares within ten (10) days after making such election. If all of the Shares are not elected to be obtained as provided in subsection (2), the Company may, during the thirty (30) day period following the expiration of the period provided in subsection (2) hereof, offer the remaining unsubscribed portion of such Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within thirty (30) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to West End in accordance herewith. 7. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE SECURITIES. The Purchaser understands that the Company's obligation to issue the Securities on each Closing Date to the Purchasers pursuant to this Agreement is conditioned upon: A. The accuracy on the applicable Closing Date of the representations and warranties of the applicable Purchaser contained in this Agreement as if made on such Closing Date and the performance by the Purchasers on or before such Closing Date of all covenants and agreements of the applicable Purchasers required to be performed on or before such Closing Date; B. The absence or inapplicability of any and all laws, rules or regulations prohibiting or restricting the transactions contemplated hereby, or requiring any consent or approval which shall not have been obtained. 8. CONDITIONS TO THE PURCHASERS' OBLIGATION TO PURCHASE THE SECURITIES. The Company understands that each Purchaser's obligation to purchase the Securities on any Closing Date is conditioned upon: A. The accuracy on the Closing Date of the representations and warranties of the Company contained in this Agreement as if made on the Closing Date, and the performance by the Company on or before the Closing Date of all covenants and agreements of the Company required to be performed on or before the Closing Date; B. The Company shall have duly filed the Certificate of Designations, in substantially the form attached hereto as Exhibit B, with the offices of the Secretary of State of the State of Delaware in accordance with the Delaware General Corporation Law. C. On the Closing Date, the Purchaser shall have received an opinion of counsel for the Company, dated the Closing Date, in form, scope and substance reasonably satisfactory to each Purchaser, to the effect set forth in Exhibit E attached hereto; D. The Company shall have executed and delivered a signed counterpart to the Registration Rights Agreement; E. On the Closing Date, the Purchasers shall have received a certificate executed by the (i) the President or the Chairman of the Company and (ii) the Chief Financial Officer of the Company, stating that all of the representations and warranties of the Company set forth in this Agreement are accurate as of the Closing Date and that the Company has performed all of its covenants and agreements required to be performed under this Agreement on or before the Closing Date. F. On the Closing Date, the Purchasers shall have received from the Company such other certificates and documents as they or their representative, if applicable, shall reasonably request, and all proceedings taken by the Company in connection with the Primary Documents contemplated by this Agreement and the other Primary Documents and all documents and papers relating to such Primary Documents shall be satisfactory to the Purchasers. G. On or prior to the Closing Date, there shall not have occurred any of the following: (i) a suspension or material limitation in the trading of securities generally on the New York Stock Exchange or Nasdaq; (ii) a general moratorium on commercial banking activities in New York declared by the applicable banking authorities; (iii) the outbreak or escalation of hostilities involving the United States, or the declaration by the United States of a national emergency or war; or (iv) a change in international, political, financial or economic conditions, if the effect of any such event, in the reasonable judgment of the Purchasers, makes it impracticable or inadvisable to proceed with the purchase of the Securities on the terms and in the manner contemplated in this Agreement and in the other Primary Documents. 9. EXPENSES. The Company covenants and agrees with the Purchasers that the Company will pay or cause to be paid the following: (a) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the issuance of the Securities, (b) all expenses in connection with the qualification of the Securities for offering and sale under state securities laws as provided in Section 4(f) hereof, and (c) all other costs and expenses incident to the performance of its obligations hereunder which are not otherwise specifically provided for in this Section 8, including but not limited to the legal fees of the Purchasers in the aggregate amount of $20,000. If the Company fails to satisfy its obligations or to satisfy any condition set forth in this Agreement, as a result of which the Series A Preferred Stock is not delivered to any of the Purchasers on the terms and conditions set forth herein, the Company shall reimburse such Purchasers for any actual, documented, out-of- pocket expenses reasonably incurred by such in making preparations for the purchase, sale and delivery of the Series A Preferred Stock not so delivered. 10. GOVERNING LAW; MISCELLANEOUS This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York. Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City of New York in connection with any dispute arising under this Agreement or any of the Primary Documents, and hereby waives, to the maximum extent permitted by law, any objection, including any objections based on forum non conveniens, to the bringing of any such proceeding in such jurisdictions. This Agreement may be signed in one or more counterparts, each of which shall be deemed an original. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of this Agreement. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or enforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. This Agreement shall inure to the benefit of, and be binding upon the successors and assigns of each of the parties hereto, including any transferees of the Securities. Any Purchaser of Series A Preferred Stock in a closing taking place following the Initial Closing Date may become a party to this Agreement by executing a counterpart to this Agreement on the applicable Closing Date. This Agreement may be amended only by an instrument in writing signed by the party to be charged with enforcement. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. 11. NOTICES. Any notice required or permitted hereunder shall be given in writing (unless otherwise specified herein) and shall be effective upon personal delivery, via facsimile (upon receipt of confirmation of error-free transmission) or two business days following deposit of such notice with an internationally recognized courier service, with postage prepaid and addressed to each of the other parties thereunto entitled at the following addresses, or at such other addresses as a party may designate by ten days advance written notice to each of the other parties hereto. COMPANY: AMERICAN ELECTROMEDICS CORP. 13 Columbia Drive Suite 18 Amherst, New Hampshire 03031 ATT.: Michael Pieniazek Tel.: (603) 880-6300 Fax: (603) 880-8977 WITH COPIES TO: REID & PRIEST LLP 40 West 57th Street New York, NY 10019 ATT.: Bruce Rich Tel.: 212-603-6780 Fax: 212-603-2001 PURCHASERS: At the addresses set forth on the signature page of this Agreement, as such addresses may be updated from time to time by each of the Purchasers. WITH COPIES TO: WEST END CAPITAL LLC One World Trade Center Suite 4563 New York, New York 10048 ATT.: Daniel Saks Tel.: 212-775-9299 Fax: 212-775-9311 MORRISON & FOERSTER LLP 1290 Avenue of the Americas New York, New York 10104 ATT.: Ira Greenstein Tel.: 212-468-8000 Fax: 212-468-7900 12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Company and each of the Purchasers shall survive the execution and delivery of this Agreement and the delivery of the Series A Preferred Stock. 13. CONFIDENTIALITY. Each of the Company and the Purchaser agrees to keep confidential, and not to disclose (except as required pursuant to the Securities Act or the Exchange Act or the rules promulgated thereunder) to or use for the benefit of any third party, the terms of this Agreement, any of the other Primary Documents or any other information which at any time is designated in writing by the other party as confidential without the prior written approval of the other party; provided, however, that this -------- -------- provision shall not apply to information which, at the time of disclosure, is already part of the public domain (except by breach of this Agreement) and information which is required to be disclosed by law. IN WITNESS WHEREOF, this Agreement has been duly executed by each of the undersigned. "COMPANY" AMERICAN ELECTROMEDICS CORP. By: /s/ Michael T. Pieniazek ------------------------------ Name: Michael T. Pieniazek Title: President IN WITNESS WHEREOF, this Agreement has been duly executed by each of the undersigned. "PURCHASERS" JUBILEE INVESTORS LLC By: WEST END CAPITAL LLC, Manager By: /s/ Daniel Saks ------------------------------- Name: Daniel Saks Title: Managing Director WEST END CAPITAL LLC By: /s/ Daniel Saks ------------------------------- Name: Daniel Saks Title: Managing Director EXHIBIT A PURCHASERS EXHIBIT B FORM OF CERTIFICATE OF DESIGNATIONS EXHIBIT C FORM OF WARRANT EXHIBIT D REGISTRATION RIGHTS AGREEMENT EXHIBIT E OPINION OF REID & PRIEST LLP SCHEDULE 1 DISCLOSURE SCHEDULE EXHIBIT A TO SECURITIES PURCHASE AGREEMENT ------------------------------------------ PURCHASERS INITIAL CLOSING: MAY 4, 1998 --------------------------------------------------------------------- NUMBER OF SHARES OF SERIES A NUMBER OF PURCHASER PREFERRED STOCK TO WARRANTS PURCHASE BE PURCHASED PURCHASED PRICE --------------------------------------------------------------------- Jubilee Investors Initial closing: N/A $1,000.00 per LLC 1,000 shares. share c/o One World Trade First Additional Center Suite 4563 Closing: 1,000 New York, New York shares. 10048 Second Additional Closing: 1,000 shares -------------------------------------------------------------------- West End Capital N/A 50,000 $.01 per LLC warrant One World Trade Center Suite 4563 New York, New York 10048 ------------------------------------------------------------------- SCHEDULE 1 TO SECURITIES PURCHASE AGREEMENT DISCLOSURE SCHEDULE EX-10 11 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 May 5, 2001 Right to Purchase 50,000 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, WEST END CAPITAL LLC, whose address is One World Trade Center, Suite 4563, New York, New York 10048, 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 May 5, 2001 (such time, the "Expiration Time"), 50,000 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 $4.80 (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 May 5, 1998, 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. 2.1. 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 $.02 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 $.02 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 $.02 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 shares of Common Stock at any time outstanding into a greater or lesser number of shares of Common Stock shall not be deemed to be a reclassification of the shares of Common Stock of the Company for the purposes of this Subsection 5.3. 5.4. Whenever the Purchase Price is adjusted as herein provided, the Company shall compute 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 6.1, upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) referred to in this Section 6, this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable on the exercise of this Warrant after the consummation of such reorganization, consolidation 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 assets of the Company, whether or not such person shall have expressly assumed the terms of 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 any 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 May 5, 2001. IN WITNESS WHEREOF, the undersigned has executed this Warrant as of May 5, 1998. AMERICAN ELECTROMEDICS CORP. By: ------------------------------ Name: Title: Attest: By: ---------------------------- Name: Title: 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 Warrant.) -------------------------------- (Insert Social Security or Other Identifying Number of Assignee). EX-10 12 EXHIBIT 10.3 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of May 5, 1998 (this "Agreement"), is made by and among AMERICAN ELECTROMEDICS CORP., a Delaware corporation, with headquarters located at 13 Columbia Drive, Suite 18, Amherst, New Hampshire 03031 (the "Company"), the purchasers listed on Exhibit A attached hereto (each, a "Purchaser," and collectively, the "Purchasers") and West End Capital LLC ("West End"). W I T N E S S E T H: WHEREAS, pursuant to a Securities Purchase Agreement, dated as of May 5, 1998, among the Purchasers and the Company (the "Securities Purchase Agreement"), the Company has agreed to issue and sell to the Purchasers, shares of 5% convertible preferred stock, par value $0.01 per share (the "Series A Preferred Stock"), and has agreed to issue 50,000 three-year warrants (the "Warrants") to West End (which for the purposes of the rights conveyed to holders of Warrants pursuant to this Agreement shall be deemed to be a Purchaser); WHEREAS, pursuant to the terms of the Series A Preferred Stock and the Warrants, (i) upon the conversion of the Series A Preferred Stock and (ii) upon exercise of the Warrants, the Company will issue to the Purchasers shares of common stock, par value $.10 per share (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. (a) As used in this Agreement, the following terms shall have the following meanings: (i) "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. (ii) "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"). (iii) "Registrable Securities" means the Shares. (iv) "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. (a) MANDATORY REGISTRATION. Within thirty (30) days of the Initial Closing Date, the Company shall file with the Commission a Registration Statement on Form SB-2 covering (a) resales of the Warrants and (b) at least one and one-half (1.5) times the sum of: (i) the number of Shares that are issuable upon conversion of the Series A Preferred Stock on the date of filing, without regard to any limitation on any holder's ability to convert the Series A Preferred Stock, and (ii) 50,000 Shares issuable upon exercise of the Warrants, or an amendment to any pending Registration Statement on Form SB-2 of the Company, and such Registration Statement or amended Registration Statement, as the case may be, shall state that, in accordance with Rule 416 under the Securities Act, it also covers such indeterminate number of additional Shares as may become issuable upon conversion of the Series A Preferred Stock or the Warrants resulting from any adjustment in the applicable Conversion Price of the Series A Preferred Stock or the Exercise Price of the Warrants, as the case may be, or to prevent dilution resulting from stock splits or stock dividends. If at any time one and one-half (1.5) times the number of Shares into which the Series A Preferred Stock may be converted exceeds the difference between the total number of Shares registered and 50,000 (as adjusted in accordance with the terms of the Warrants), the Company shall, within ten (10) business days after receipt of a written notice from any Purchaser, either (i) amend the Registration Statement filed by the Company pursuant to the preceding sentence, if such Registration Statement has not been declared effective by the Commission at that time, to register all Ordinary Shares into which the Series A Preferred Stock may be converted, or (ii) if such Registration Statement has been declared effective by the Commission at that time, file with the Commission an additional Registration Statement on Form SB-2 to register the number of Shares into which the Series A Preferred Stock may be converted that exceed the number of Shares already registered. The Company shall use its best efforts to cause such Registration Statement or amended Registration Statement, as the case may be, to become effective within ninety (90) days following the Initial Closing Date (or, if the Commission elects to conduct a review of such Registration Statement, one hundred twenty (120) days following the Initial Closing Date). The failure of the Company to cause such Registration Statement to become effective during such respective time periods shall have the effect set forth in the Certificate of Designation relating to the Series A Preferred Stock. 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"). (b) PIGGYBACK REGISTRATION. (i) If at any time or from time to time, the Company shall determine to register any of its securities, for its own account or the account of any of its shareholders, other than a Registration relating solely to employee share option plans or pursuant to an acquisition transaction on Form S-4, the Company will: (A) provide to the Purchasers written notice thereof as soon as practicable prior to filing the Registration Statement; and (B) include in such Registration and in any underwriting involved therein, all of the Registrable Securities specified in a written request by the Purchasers made within fifteen (15) days after receipt of such written notice from the Company. (ii) If the Registration is for a registered public offering involving an underwriting, the Company shall so advise the Purchasers as a part of the written notice given pursuant to this Section. In such event, the rights of the Purchasers hereunder shall include participation in such underwriting and the inclusion of the Registrable Securities in the underwriting to the extent provided herein. To the extent that a Purchaser proposes to distribute its securities through such underwriting, such Purchaser shall (together with the Company and any other securityholders of the Company distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company. Notwithstanding any other provision of this Section, if the managing underwriter of such underwriting determines that marketing factors require a limitation of the number of shares to be offered in connection with such underwriting, the managing underwriter may limit the number of Registrable Securities to be included in the Registration and underwriting. If any Purchaser disapproves of the terms of any such underwriting, it may elect to withdraw therefrom by written notice to the Company. Any Registrable Securities so excluded or withdrawn from such underwriting shall be withdrawn from such Registration. (c) 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 Purchaser 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. (d) PRIORITY IN FILING. The Company covenants that beginning on the Closing Date and until such time as a Registration Statement pursuant to Section 2(a) of this agreement has been filed and become effective, the Company will not file any other registration statement without the written consent of the Purchasers or their representative. 3. OBLIGATIONS OF THE COMPANY. In connection with the registration of the Registrable Securities, the Company shall do each of the following: (a) Prepare and file with the Commission such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectuses 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 of the Warrants and all of the Registrable Securities of the Company covered by the Registration Statement until such time as all of the Warrants and such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in the Registration Statement; (b) Furnish to Purchaser whose Registrable Securities are included in the Registration Statement, and its legal counsel identified to the Company, promptly after the same is prepared and publicly distributed, filed with the Commission, or received by the Company, a copy of the Registration Statement, each preliminary prospectus, each final prospectus, and all amendments and supplements thereto and such other documents, as such Purchaser may reasonably request in order to facilitate the disposition of the Warrants and its Registrable Securities; (c) Use reasonable efforts to (i) register and qualify the Warrants and the Registrable Securities covered by the Registration Statement under such other securities or blue sky laws of such jurisdictions as the Purchasers who hold a majority in interest of the Registrable Securities being offered may reasonably request, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof at all times during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period and (iv) take all other actions reasonably necessary or advisable to qualify the Warrants and the Registrable Securities for sale in such jurisdictions, 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. (d) As promptly as practicable after becoming aware of such event, notify each Purchaser of the occurrence 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 in order to make the statements therein, in light of the circumstances under which they were made, not misleading, and to use its best efforts to promptly prepare a supplement or amendment to the Registration Statement or other appropriate filing with the Commission to correct such untrue statement of omission, and to deliver a number of copies of such supplement or amendment to each Purchaser as such Purchaser may reasonably request; (e) As promptly as practicable after becoming aware of such event, notify each Purchaser who holds Warrants or Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance by the Commission or any stop order or other suspension of the effectiveness of the Registration Statement at the earliest possible time, and to use its best efforts to promptly obtain the withdrawal of such stop order or other suspension of effectiveness; (f) If the offering is underwritten, at the request of a Purchaser, to furnish on the date that Registrable Securities are delivered to the underwriters for sale pursuant to such registration: (i) an opinion dated such date of counsel representing the Company for the purposes of such registration, addressed to the underwriters and to any Purchaser selling Registrable Securities in connection with such underwriting, stating that such registration statement has become effective under the Securities Act and that (A) to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act and (B) the registration statement, the related prospectus and each amendment or supplement thereof comply as to form in all material respects with the requirements of the Securities Act (except that such counsel need not express any opinion as to financial statements or other financial data contained therein) and (ii) a letter dated such date from the Company's independent public accountants addressed to the underwriters and to such Purchasers, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or the prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five (5) business days prior to the date of such letter) with respect to such registration as such underwriters may reasonably request. (g) Cooperate with the Purchasers who hold Registrable Securities being offered to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the Registration Statement and to enable such certificates for the Registrable Securities to be in such denominations or amounts, as the case may be, as the Purchasers may reasonably request, and registered in such names as the Purchasers may request; and, within three (3) business days after a Registration Statement which includes Registrable Securities is ordered effective by the Commission, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the transfer agent for the Registrable Securities (with copies to the Purchasers whose Registrable Securities are included in such Registration Statement) an appropriate instruction and opinion of such counsel; and 4. OBLIGATIONS OF THE PURCHASERS. In connection with the registration of the Registrable Securities, the Purchasers shall have the following obligations: (a) Take all other reasonable actions necessary to expedite and facilitate the disposition by the Purchasers of the Warrants and the Registrable Securities pursuant to the Registration Statement. (b) It shall be a condition precedent to the obligations of the Company to complete the registration pursuant to this Agreement of the Warrants and the Registrable Securities of each Purchaser that such Purchaser shall furnish to the Company such information regarding itself, the Warrants and 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 Warrants and 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 Warrants and 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 Warrants and the Registrable Securities of such Purchaser; (c) The Purchaser, by such Purchaser's acceptance of the Warrants or 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 Warrants or Registrable Securities from such Registration Statement; and (d) 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(d) or 3(e) above, such Purchaser will immediately discontinue disposition of its Warrants or Registrable Securities pursuant to the Registration Statement covering such Warrants or Registrable Securities until such copies of the supplemented or amended prospectus contemplated by Section 3(d) or 3(e) shall be furnished to such Purchaser. (e) If the offering is 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) 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 and holders of at least one percent (1%) of the Company's voting securities enter into similar agreements. The obligations described in this Section 4(e) shall not apply to a Registration relating solely to employee share option plans or an acquisition transaction registered on Form S-4. 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, incurred in connection with registrations, filings or qualifications pursuant to Section 3, but including, without limitation, all registration, listing, and qualifications fees, printing and accounting fees, and the fees and disbursements of counsel for the Company, and the fees of one counsel to the holders of Warrants and Registrable Securities not exceeding $2,500, shall be borne by the Company. 6. INDEMNIFICATION. In the event any Warrants or Registrable Securities are included in a Registration Statement under this Agreement: (a) To the extent permitted by law, the Company will indemnify and hold harmless each Purchaser who holds such Warrants or 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(b) below, reimburse each 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(a) 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; (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 Warrants or 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(b) hereof; (iii) be available to the extent that such Claim is based upon a failure of the 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(b) hereof; 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 Warrants or Registrable Securities by the Purchaser pursuant to Section 9. 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. (b) 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 Purchasers, and such legal counsel shall be selected by the Purchasers 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. (c) 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. (d) 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 Purchasers 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; provided, however, that if, as a -------- ------- result of this Section 6(d), any Purchaser, its officers, directors, partners or any person controlling such Purchaser is held liable for an amount which exceeds the aggregate proceeds received by such Purchaser from the sale of Registrable Securities included in a registration, pursuant to such underwriting agreement (the "Excess Liability"), the Company shall reimburse such Purchaser for such Excess Liability. 7. CONTRIBUTION. To the extent any indemnification 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, (b) no seller of Warrants or 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 Warrants or Registrable Securities who was not guilty of such fraudulent misrepresentation and (c) contribution by any seller of Warrants or Registrable Securities shall be limited in amount to the net proceeds received by such seller from the sale of such Warrants or 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 Purchasers 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 in a timely manner 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 Warrants or 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 Warrants or Registrable Securities pursuant to this Agreement shall be automatically assigned by each Purchaser to any transferee (other than entities that are specifically identified as the Company's competitors under the caption "Competition" in the Company's 1997 Annual Report) of all or any portion of the shares of Series A Preferred Stock or the Warrants 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. (a) A person or entity is deemed to be a holder of Warrants or Registrable Securities whenever such person or entity owns of record such Warrants or Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Warrants or Registrable Securities, the Company shall act upon the basis of the instructions, notice or election received from the registered owner of such Warrants or Registrable Securities. (b) 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. Amherst, New Hampshire 03031 ATT: Michael Pieniazek Tel.: (603) 880-6300 Fax: (603) 880-8977 WITH COPIES TO: REID & PRIEST LLP 40 West 57th Street New York, New York 10019 ATT.: Bruce Rich Tel.: 212-603-6780 Fax: 212-603-2001 PURCHASERS: At the addresses set forth on the signature page of this Agreement, as such addresses may be updated from time to time by each of the Purchasers. WITH COPIES TO: WEST END CAPITAL LLC One World Trade Center Suite 4563 New York, New York 10048 ATT.: Daniel Saks Tel.: 212-775-9299 Fax.: 212-775-9311 MORRISON & FOERSTER LLP 1290 Avenue of the Americas New York, New York 10104 ATT.: Ira Greenstein Tel.: 212-468-8000 Fax: 212-468-7900 (c) 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. (d) This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York, 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. Each of the parties consents to the jurisdiction of the federal courts whose districts encompass any part of the City of New York or the state courts of the State of New York sitting in the City of New York in connection with any dispute arising under this Agreement 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. 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 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 validity or unenforceability 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. Subject to the provisions of Section 10 hereof, 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. (e) 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. (f) 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. (g) All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. (h) The Company acknowledges that any failure by the Company to perform its obligations under Section 2(a), or any delay in such performance could result in direct damages to the Purchaser, and the Company agrees that, in addition to any other liability the Company may have by reason of any such failure or delay, the Company shall be liable for all direct damages caused by any such failure or delay, unless same is the result of force majeure. Neither party shall be liable for consequential damages. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed. "COMPANY" AMERICAN ELECTROMEDICS CORP. By: /s/ Michael T. Pieniazek --------------------------- Name: Michael T. Pieniazek Title: President IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed. "PURCHASERS" JUBILEE INVESTORS LLC By: WEST END CAPITAL LLC, Manager By: /s/ Daniel Saks ------------------------- Name: Daniel Saks Title: Managing Director WEST END CAPITAL LLC By: /s/ Daniel Saks ------------------------- Name: Daniel Saks Title: Managing Director EXHIBIT A TO REGISTRATION RIGHTS AGREEMENT ------------------------------------------ PURCHASERS ----------------------------------------------------- SHARES OF SERIES A PREFERRED NUMBER OF STOCK WARRANTS PURCHASER PURCHASED PURCHASED --------- --------- --------- ----------------------------------------------------- Jubilee Investors LLC 3,000 shares N/A c/o West End Capital LLC One World Trade Center, Suite 4563 New York, New York 10048 ------------------------------------------------------ West End Capital LLC N/A $50,000 One World Trade Center, Suite 4563 New York, New York 10048 ------------------------------------------------------- EX-99 13 EXHIBIT 99 AMERICAN ELECTROMEDICS COMPLETES MERGER WITH EQUIDYNE SYSTEMS INC., DEVELOPER OF NEW "NEEDLE-FREE INJECTOR" DRUG DELIVERY TECHNOLOGY MAY 13, 1998 08:03 AM AMHERST, N.H.--(BUSINESS WIRE)--May 13, 1998--AMERICAN ELECTROMEDICS CORP AMER, and its president, Michael T. Pieniazek, ---- announced today that it has acquired by merger EQUIDYNE SYSTEMS INC. ("Equidyne"), a developer of proprietary medical products based in San Diego, Calif. The transaction was completed for a purchase price of 600,000 shares of AMER common stock. Equidyne has developed a unique and patented needle-free drug injection system. The INJEX(TM) system is a painless, cost competitive product for drug injection featuring a low-cost, convenient, disposable medication ampule. Equidyne has obtained FDA 510(k) clearance to market the product in the United States, and in addition, two U.S. patents have been issued for the features of the injector and the entire INJEX(TM) system. Equidyne's product competes with the standard needle syringe, a worldwide market in excess of $2 billion. INJEX(TM) is designed to eliminate the risks of contaminated needle stick accidents and the resulting cross contamination of Hepatitis and HIV. A regular needle syringe can easily puncture the skin after injection and during the controlled disposal process. In 1995, there were 1,000,000 accidental needle stick injections reported. Pieniazek stated, "The INJEX(TM) system offers many advantages which have completely changed the concept of drug injection. Previous attempts at developing needleless jet injectors have failed to compete with needle syringes due to their high cost, awkward design and difficulty of use. Equidyne offers a low- cost, practical, safe and painless needle-free injection system with broad market application. The Liquid Needle(TM) addresses an enormous market in a time when infectious disease and inadvertent contamination are major issues. Equidyne's core technology can be used for many different drug delivery regimens and allows for needle-free injection into either subcutaneous or intra-muscular tissue. We are extremely confident and optimistic about the potential of the INJEX(TM) system, which we expect to be able to deliver to the market in commercial quantities by late 1998." AMER currently develops, manufactures and markets intraoral dental cameras, related dental products, needle-free drug delivery systems and diagnostic audiometric medical devices in the United States and worldwide. The company is committed to bringing to the medical community products for innovation and superiority. The remarks contained in this press release and presented elsewhere by management from time to time contain forward-looking statements which are based largely on the company's expectations and are subject to various business risks and uncertainties, certain of which are beyond the company's control. Actual results may differ materially from the results discussed in this press release or in other forward-looking statements presented by management as a result of such risks. In light of these risks and uncertainties, there can be no assurance that the forward- looking statements contained herein will in fact transpire or prove to be accurate. Among the factors that could cause actual results to differ materially include failure of revenue on new products to develop as estimated, regulatory delays, loss of existing customers, the ability to raise additional funds on terms favorable to the company, general downward trends in the company's industry, changes in foreign economic conditions or currently fluctuations and other risk factors detailed from time to time in the company's reports filed with the SEC. -----END PRIVACY-ENHANCED MESSAGE-----