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As filed with the Securities and Exchange Commission on December 29, 1997
REGISTRATION NO.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SWISSRAY INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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NEW YORK [ ] 16-0950197
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Number) Identification Number)
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SWISSRAY INTERNATIONAL, INC.
200 EAST 32ND STREET, SUITE 34-B
NEW YORK, NEW YORK 10016
UNITED STATES: (212) 545-0095
SWITZERLAND: 011-4141-919-9050
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
RUEDI G. LAUPPER,
CHAIRMAN OF THE BOARD AND PRESIDENT
SWISSRAY INTERNATIONAL, INC.
200 EAST 32ND STREET, SUITE 34-B
NEW YORK, NEW YORK 10016
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
ROBERT G. ROBISON, ESQ. DANIEL A. WUERSCH, ESQ.
MORGAN LEWIS & BOCKIUS LLP WUERSCH & GERING LLP
101 PARK AVENUE 330 MADISON AVE, 17TH FLOOR
NEW YORK, NEW YORK 10178 NEW YORK, NEW YORK 10017
(212) 309-6000 (212) 856-0610
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: At the
discretion of the converting shareholders after the effective date of the
Registration Statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ___________
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / / ___________
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED
MAXIMUM PROPOSED
AMOUNT TO OFFERING MAXIMUM
TITLE OF EACH CLASS OF BE PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED PER SHARE OFFERING REGISTRATION
REGISTERED (1) (2) PRICE(1)(2) FEE
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Common Stock ($.01 par value per share)..... 6,221,580 $1.467 $9,127,057.86 $2,765.78
====================================================================================================================================
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(1) Includes 6,221,580 shares which are reserved for issuance pursuant to
currently issued and outstanding Convertible Debentures which will be
offered for resale by certain Selling Holders.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 promulgated under the Securities Act of 1933. In
accordance with Rule 457(c) of Regulation C, the estimated price for
the Securities was based on the average of the high and low reported
prices on the Nasdaq SmallCap Market on December 19, 1997.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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SWISSRAY INTERNATIONAL, INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K.
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Registration Statement Item and Heading Prospectus Caption
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1. Forepart of the Registration Statement and Outside
Front Cover Page of the Prospectus......................... Cover Page of Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus................................................. Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges.................................. Prospectus Summary; Risk Factors; The Company
4. Use of Proceeds............................................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price............................ Outside Front Cover Page of Prospectus
6. Dilution................................................... Risk Factors; Dilution
7. Selling Security Holders................................... Selling Holders and Plan of Distribution
8. Plan of Distribution....................................... Outside Front Cover Page of Prospectus;
Selling Holders and Plan of Distribution
9. Description of Securities to be Registered................. Description of Capital Stock
10. Interests of Named Experts and Counsel..................... Legal Matters; Independent Auditors
11. Information with Respect to Registrant.....................
(a) (1) Description of Business......................... Prospectus Summary; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business; The Company
(2) Description of Property......................... Business -- Property
(3) Legal Proceedings............................... Business -- Legal Proceedings
(4) Control of Registrant........................... Not Applicable
(5) Nature of Trading Market ....................... Risk Factors; Selling Holders and Plan of
Distribution
(6) Exchange Controls and Other Limitations
Affecting Security Holders...................... Risk Factors; Description of Capital Stock
(7) Taxation........................................ Risk Factors
(8) Selected Financial Data......................... Prospectus Summary; Selected Consolidated
Financial Data
(9) Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................... Management's Discussion and Analysis of
Financial Condition and Results of Operations
(10) Directors and Officers of Registrant............ Management
(11) Compensation of Directors and Officers.......... Management
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(12) Options to Purchase Securities from
Registrant or Subsidiaries..................... Management
(13) Interest of Management in Certain
Transactions................................... Certain Transactions
(b) Financial Statements.................................. Financial Statements
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities............................ Information Not Required In Prospectus
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR
AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE
SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO
BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
DATED DECEMBER 29, 1997
PROSPECTUS
SWISSRAY INTERNATIONAL, INC.
6,221,580 Shares of Common Stock
This prospectus ("Prospectus") relates to the offer and sale of up to
6,221,580 shares of common stock, $.01 par value per share (the "Common Stock"),
of Swissray International, Inc., a New York corporation ("Swissray
International, Inc." or the "Registrant"), which shares consist of (i) up to
6,221,580 shares of Common Stock which are issuable to certain persons (the
"Selling Holders") upon conversion of previously-issued convertible debentures
(the "Convertible Debentures") and which shares are being registered hereby
pursuant to Registration Rights Agreements between the Registrant and the
Selling Holders named in this Prospectus. The up to 6,221,580 shares of Common
Stock offered hereby are herein referred to as the "Securities."
The Securities may be offered and sold from time to time by the Selling
Holders named herein or by their transferees, pledgees, donees or their
successors pursuant to the Prospectus. The Securities may be sold by the Selling
Holders from time to time directly to purchasers or through agents, underwriters
or dealers who may receive compensation in the form of discounts, concessions or
commissions from the Selling Holders or the purchasers of the Securities for
whom such agents, underwriters or dealers may act. See "Selling Holders and Plan
of Distribution." If required, the names of any such agents or underwriters
involved in the sale of the Securities and the applicable agent's commission,
dealer's purchase price or underwriter's discount, if any, will be set forth in
an accompanying supplement to this Prospectus. The Registrant will not receive
any of the proceeds from the sale of the Securities by the Selling Holders.
The Selling Holders will receive all of the net proceeds from the sale
of the Securities and will pay all underwriting discounts and selling
commissions, if any, applicable to any such sale. The Registrant is responsible
for payment of all other expenses incident to the offer and sale of the
Securities. The Selling Holders and any broker-dealers, agents or underwriters
that participate in the distribution of the Securities may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933, as amended (the
"Act"), and any profit on the sale of the Securities by the Selling Holders and
any commissions received by any such underwriters may be deemed to be
underwriting commissions or discounts under the Act. See "Selling Holders and
Plan of Distribution" for a description of indemnification arrangements.
All references herein to the "Company" refer to Swissray International,
Inc. and its subsidiaries. The executive offices of the Company are located at
Swissray International, Inc., 200 East 32nd Street, Suite 34-B, New York, New
York 10016. The telephone number is 212-545-0095 and the fax number is
212-545-7912. The address in Switzerland is Industriestrasse 6, CH-6285
Hitzkirch, Switzerland and the telephone number in Switzerland is
011-4141-919-9050.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE
AND INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
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The Registrant has not taken any action to register or qualify the
Securities for offer and sale under the securities or "blue sky" laws of any
state of the United States. However, pursuant to the Registration Rights
Agreements among the Registrant and the Selling Holders (the "Registration
Rights Agreements"), the Registrant will use reasonable efforts to (i) register
and qualify the Securities covered by the Registration Statement under such
other securities or blue sky laws of such jurisdictions as the investors who
hold a majority in interest of the Securities being offered reasonably request
and in which significant volumes of shares of Common Stock are traded, (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 until
the earliest (the "Registration Period") of (A) the date that is two years
after the Closing Date, (B) the date when the Selling Holders may sell all
Securities under Rule 144 or (C) the date the Selling Holders no longer own any
of the Securities; (iii) take such other actions as may be necessary to
maintain such registrations and qualification in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Securities for sale in such jurisdictions; provided,
however, that the Registrant shall not be required in connection therewith or
as a condition thereto to (A) qualify to do business in any jurisdiction where
it would not otherwise be required to qualify, (B) subject itself to general
taxation in any such jurisdiction, (C) file a general consent to service of
process in any such jurisdiction, (D) provide any undertakings that cause more
than nominal expense or burden to the Registrant or (E) make any change in its
articles of incorporation or by-laws or any then existing contracts, which in
each case the Board of Directors of the Registrant determines to be contrary to
the best interests of the Registrant and its stockholders. Unless and until
such times as offers and sales of the Securities by Selling Holders are
registered or qualified under applicable state securities or "blue sky" laws,
or are otherwise entitled to an exemption therefrom, initial resales by Selling
Holders will be materially restricted. Selling Holders are advised to consult
with their respective legal counsel prior to offering or selling any of their
Securities.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE COMMISSION PASSED ON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER 29, 1997.
AVAILABLE INFORMATION
The Registrant is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed with the Commission can be inspected and
copied at the public reference facilities of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549. Copies of this material can also be obtained at
prescribed rates from the Public Reference Section of the Commission at its
principal office at 450 Fifth Street, NW., Washington, D.C. 20549. The
Commission maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission, such as the Registrant. The address of such
site is http:\\www.sec.gov.
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PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the
detailed information and financial information incorporated by reference herein
appearing elsewhere in this Prospectus. This Prospectus contains certain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act") and Section 21E of the Exchange
Act. When used in this Prospectus, the words "believes," "expects," "intends,"
"anticipates" and similar expressions are intended to identify forward-looking
statements. Such statements are subject to certain uncertainties that could
cause actual results to differ materially from those projected. Such risks and
uncertainties include the timing and acceptance of new product introductions,
the actions of the Company's competitors, and those discussed under the caption
"Risk Factors."
THE COMPANY
The Registrant was incorporated under the laws of the State of New York
on January 2, 1968 under the name CGS Units Incorporated. On June 15, 1994, the
Registrant merged with Direct Marketing Services, Inc. and changed its name to
DMS Industries, Inc. In May of 1995 the Registrant discontinued the operations
then being conducted by DMS Industries, Inc. and acquired all of the outstanding
securities of SR-Medical AG, a Swiss corporation engaged in the business of
manufacturing and selling X-ray equipment, components and accessories. On June
5, 1995 the Registrant changed its name to Swissray International, Inc. The
Registrant's operations are being conducted principally through its wholly owned
subsidiaries, SR-Medical AG, the latter's wholly owned subsidiaries, Teleray AG,
a Swiss corporation, and Swissray Deutschland (Rontgentechnik) GmbH (formerly
known as SR-Medical GmbH), a German limited liability company, as well as
through the Company's wholly owned subsidiaries, SR Management AG (formerly SR
Finance AG), a Swiss corporation, Swissray Medical Systems, Inc. (formerly
Swissray Corporation), a Delaware corporation, Swissray Healthcare, Inc., a
Delaware corporation, and Empower, Inc., a New York corporation (d/b/a Swissray
Empower, Inc.). Unless otherwise specifically indicated, all references
hereinafter to the "Company" refer to the Registrant and its subsidiaries.
The Company is active in the markets for diagnostic imaging devices for
the health care industry. The Company's products include a full range of
conventional X-ray equipment for all diagnostic purposes other than mammography
and dentistry, a direct digital multi-functional X-ray system, the
AddOn-Multi-System, and the SwissVision(TM) line of DICOM 3.0 compatible
postprocessing workstations operating on a Windows NT platform for the
processing of digital image data. In addition, the Company is in the business of
selling computer tomography systems, magnetic resonance systems and nuclear
medicine systems and components and accessories for X-ray equipment manufactured
by third parties and providing services related to imaging systems. The Company
is also offering products and services related to networking, archiving and
electronic distribution of digital X-ray images, including Picture Archiving and
Communications Systems ("PACS").
The services offered by the Company include the installation and
after-sales servicing of imaging equipment sold by the Company, consulting
services and application training of radiographers. In the United States, the
Company plans to offer consulting services to hospital imaging departments and
imaging centers, including maintenance management, capital planning services and
after sales-services of products manufactured by the Company and third parties
(multi-vendor services).
The Company and its predecessors have been in the business of
manufacturing and selling X-ray equipment in Switzerland and Germany since 1988.
Beginning in 1991, the Company's predecessors began to expand into other markets
in Europe, the Middle East and Asia. In 1992, the Company entered into a first
Original Equipment Manufacturing ("OEM") Agreement with Philips Medical Systems
GmbH ("Philips Medical Systems") providing for the manufacturing by the Company
of a Multi-Radiography System ("MRS"). Simultaneously, the Company developed the
first SwissVision(TM) image post-processing system, which was able to convert
analog images obtained in fluoroscopy into digital information. In 1993, the
Company won the innovation award of the Chamber of Commerce of Central
Switzerland for this post-processing system. Beginning in 1993, the Company
began the development of direct digital X-ray technology for medical diagnostic
purposes. On April
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1, 1997, the Company acquired Empower, Inc. ("Empower"). Since its incorporation
in 1985, Empower has been engaged in distributing and servicing diagnostic X-ray
equipment and accessories in the New York/New Jersey/Connecticut area. On
October 17, 1997, the Company acquired substantially all of the assets of
Service Support Group LLC ("SSG"), located in Gig Harbor, Washington. SSG has
been in the business of selling diagnostic imaging equipment and providing
services related thereto in the markets on the West Coast of the United States
since it was formed on October 16, 1996.
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THE OFFERING
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Common Stock Offered(1)..... Up to 6,221,580 shares of Common Stock.
Common Stock Outstanding
Before the Offering(2)(3)... 27,303,296
Common Stock Outstanding
After the Offering(4) ......
Use of Proceeds............. The Registrant will not receive any of the
proceeds from the sale of any of the Securities.
Risk Factors................ The Securities offered hereby involve a high
degree of risk. See "Risk Factors" commencing on
page 7 hereof.
Nasdaq SmallCap
Market Symbol .............. SRMI
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(1) Includes an aggregate of up to 6,221,580 shares of Common Stock
reserved for issuance upon the conversion of the Convertible
Debentures. See "Selling Holders and Plan of Distribution" and
"Description of Capital Stock."
(2) Does not include (i) up to 6,221,580 shares of Common Stock to be
issued to holders of Convertible Debentures upon conversion of such
Convertible Debentures (assumes conversion based on a 25% discount to
the closing price on the Nasdaq SmallCap Market on December 19, 1997);
(ii) an aggregate of 925,000 shares of Common Stock reserved for
issuance upon the conversion of certain convertible debentures issued
by the Registrant on August 19, 1997 (assumes conversion based on a
20% discount to the closing price on the Nasdaq SmallCap Market on
December 19, 1997); (iii) 1,455,000 shares of Common Stock which may
be issued upon the exercise of outstanding options under the
Registrant's 1996 Non-Statutory Stock Option Plan (the "Plan") and
(iv) 155,000 shares of Common Stock reserved for issuance upon the
exercise of options available for future grant under the Plan. See
"Management--Stock Option Plan" and "Description of Capital Stock."
(3) As of the close of business on December 19, 1997 there were 27,303,296
shares issued and outstanding held by 678 stockholders of the
Registrant's Common Stock (as certified by its transfer agent).
(4) Since the Common Stock registered hereunder is being offered on a
delayed or continuous basis pursuant to Rule 415 under the Act, the
Registrant cannot include herein information about the Common Stock
outstanding after the Offering.
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SUMMARY FINANCIAL DATA
The summary information below represents financial information of the
Registrant for the (i) fiscal quarters ended September 30, 1997 and September
30, 1996, which information was derived from the unaudited consolidated
financial statements of the Registrant and the (ii)fiscal years ended June 30,
1997, June 30, 1996, June 30, 1995 (six-month period), December 31, 1994 and
December 31, 1993, which information was derived from the audited consolidated
financial statements of the Registrant.
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SWISSRAY INTERNATIONAL, INC.
YEARS ENDED
QUARTER ENDED (IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------------ -------------------------------------------------------------
(UNAUDITED) (SIX MONTHS)
9/30/97 9/30/96 6/30/97 6/30/96 6/30/95(1) 12/31/94 12/31/93
----------- --------- --------- --------- ---------- ---------- ----------
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INCOME STATEMENT DATA:
Net sales ........................... 5,259 2,467 13,151 10,899 3,806 8,618 5,989
Cost of goods sold .................. 3,313 1,189 8,445 5,793 2,484 5,363 4,181
---------- --------- -------- ------- ------- ------- -----
Gross profit ........................ 1,946 1,278 4,706 5,106 1,322 3,255 1,808
Gross profit margin (%) ............. 37% 52% 36% 47% 35% 38% 30%
Selling, general and
administrative expenses ........... 2,186 2,108 15,166 8,592 2,307 3,175 2,094
Unusual charges ..................... -- -- -- -- -- -- --
---------- --------- -------- ------- ------- ------- -----
Operating (loss) income ............. (240) (830) (10,460) (3,486) (985) 80 (286)
Debt related fees ................... -- --
Other expense (income), net ......... (98) (17) (314) (1,004) 3,054 15 (7)
Interest expense .................... 50 27 246 194 122 237 215
(Loss) income from continuing
operations before income
taxes ............................. (192) (840) (10,392) (2,676) (4,161) (172) (494)
Income taxes ........................ 1 -- 110 (365) (339) 24 --
---------- --------- -------- ------- ------- ------- -----
(Loss) income from continuing
operations ........................ (193) (840) (10,502) (2,311) (3,822) (196) (494)
========== ========= ======== ======= ======= ======= =====
(Loss) income per share from
continuing operations ............. (.01) (.06) (.67) (.18) (.48) (.03) (.06)
========== ========= ======== ======= ======= ======= =====
BALANCE SHEET DATA:
Working capital (deficit) ........... 7,504 2,580 2,833 3,433 11,851 (1,236) (875)
Total assets ........................ 27,015 17,342 24,353 18,793 13,027 3,899 3,517
Short-term debt, including
current portion, long-term debt ... 9,436 7,520 4,211 2,737 2,954 2,843 2,145
Long-term debt .................... 10,867 -- 6,524 -- 705 420 337
Stockholders' (deficit) equity ...... 6,711 9,821 6,568 10,655 6,377 (798) (429
Total shares outstanding at
year end ............................ 20,621 14,185 19,694 14,185 12,035 7,850 7,850
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(1) In 1995, the Registrant changed its fiscal year end from December 31 to
June 30. As a result, the Company had a fiscal year beginning on
January 1, 1995 and ending on June 30, 1995. Accordingly, the Summary
Financial Data for the period ended June 30, 1995 is for a six-month
period.
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RISK FACTORS
Investors should carefully consider the factors set forth below as well
as the other information set forth in this Prospectus before purchasing the
Securities.
HISTORY OF LOSSES; PROFITABILITY UNCERTAIN
As of June 30, 1995 the Registrant had accumulated losses on a
consolidated basis of approximately $6,000,000. A substantial part of such
losses resulted from activities unrelated to the Company's present operations.
Since June 30, 1995, the Company has incurred additional net losses aggregating
approximately $12,990,000. Such additional losses resulted from the significant
expenses associated with the development of the Company's products, primarily
its direct digital X-ray system, the AddOn-Multi-System, the building of the
Company's organization and market position and the absence of a significant
increase in sales as a result of the delay in the market introduction of certain
of the Company's products. The likelihood of the success of the Company must be
considered in light of the problems, expenses, difficulties, complications and
delays frequently encountered in connection with the development of new products
and the competitive environment in which the Company operates. Although the
Company is deriving operating revenue from its current operations, such revenue
has not been sufficient to make the Company's operations profitable. There can
be no assurance that the Company will be able to develop significant additional
sources of revenue or that it will become profitable. Results of operations may
fluctuate significantly and will depend upon successful introduction of the
AddOn-Multi-System, market acceptance of new product introductions in the future
and competition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Products," "-- Research
and Development" and "-- Competition."
NEED FOR MARKET ACCEPTANCE OF THE ADDON-MULTI-SYSTEM
The Company's future performance will depend to a substantial degree
upon the market introduction and acceptance of the AddOn-Multi-System. The
Company's marketing efforts to date have generated considerable awareness about
the AddOn-Multi-System among radiologists. However, the extent of, and rate at
which, the market introduction, acceptance and penetration can be achieved by
the AddOn-Multi-System are functions of many variables, including, but not
limited to, obtaining the necessary governmental approvals, price,
effectiveness, acceptance by potential customers and manufacturing, training
capacity and marketing and sales efforts. There can be no assurance that the
AddOn-Multi-System will achieve or maintain acceptance in its target markets.
Similar risks may confront other products developed by the Company in the
future. See "Business -- Products" and "-- Regulatory Matters."
RELIANCE ON A SINGLE PRODUCT
The Company has concentrated its efforts primarily on the development
of the AddOn-Multi-System and will be dependent to a significant extent upon
acceptance of that product to generate additional revenues. There can be no
assurance that the AddOn-Multi-System will be successfully commercialized. There
can be no assurance that the Company's competitors will not succeed in
developing or marketing technologies and products that are more commercially
attractive than the AddOn-Multi-System. See "Business -- Products" and "--
Competition."
RELIANCE ON LARGE CUSTOMERS
In the past, the Company has made a significant amount of sales to a
few large customers. Historically, the identity of the Company's largest
customers and the volumes purchased by them has varied. The loss of one or more
of the Company's current two largest customers or a reduction of the volume
purchased by either of them would have an adverse effect upon the Company's
sales until such time, if ever, as significant sales to other customers can be
made. See Note 27 to the Consolidated Financial Statements June 30, 1997 and
1996 and "Business -- Sales and Marketing."
RISK OF CURRENCY FLUCTUATIONS
The Company is subject to risks and uncertainties resulting from
changes in currency exchange rates. Future currency fluctuations, to the extent
not adequately hedged, could have an adverse effect on the Company's business,
financial condition and results of operations. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Effect of Currency
on Results of Operations."
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NO REGISTRATION UNDER "BLUE SKY" LAWS
The Registrant has not taken any action to register or qualify the
Securities for offer and sale under the securities or "blue sky" laws of any
state of the United States. However, pursuant to the Registration Rights
Agreements, the Registrant will use reasonable efforts to (i) register and
qualify the Securities covered by the Registration Statement under such other
securities or blue sky laws of such jurisdictions as the investors who hold a
majority in interest of the Securities being offered reasonably request and in
which significant volumes of shares of Common Stock are traded, (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 until the earliest
(the "Registration Period") of (A) the date that is two years after the Closing
Date (B) the date when the Selling Holders may sell all Securities under Rule
144 or (C) the date the Selling Holders no longer own any of the Securities;
(iii) take such other actions as may be necessary to maintain such
registration s and qualification in effect at all times during the Registration
Period and (iv) take all other actions reasonably necessary or advisable to
qualify the Securities for sale in such jurisdictions; provided, however, that
the Registrant shall not be required in connection therewith or as a condition
thereto to (A) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify, (B) subject itself to general taxation in any
such jurisdiction, (C) file a general consent to service of process in any such
jurisdiction, (D) provide any undertakings that cause more than nominal expense
or burden to the Registrant or (E) make any change in its articles of
incorporation or by-laws or any then existing contracts, which in each case the
Board of Directors of the Registrant determines to be contrary to the best
interests of the Registrant and its stockholders. Unless and until such times
as offers and sales of the Securities by Selling Holders are registered or
qualified under applicable state securities or "blue sky" laws, or are
otherwise entitled to an exemption therefrom, initial resales by Selling
Holders will be materially restricted. Selling Holders are advised to consult
with their respective legal counsel prior to offering or selling any of their
Securities.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company does business in numerous countries, including the United
States, Switzerland and Germany. In addition to the currency risks discussed
above, the Company's international operations are subject to the risk of new and
different legal and regulatory requirements in local jurisdictions, tariffs and
trade barriers, potential difficulties in staffing and managing local
operations, credit risk of local customers and distributors, potential inability
to obtain regulatory approvals, different requirements as to product standards,
potential difficulties in protecting intellectual property, risk of
nationalization of private enterprises, potential imposition of restrictions on
investments or transfer of funds, potentially adverse tax consequences,
including imposition or increase of withholding and other taxes on remittances
and other payments by subsidiaries, and local economic, political and social
conditions, including the possibility of hyper-inflationary conditions, in
certain countries. Any adverse change in any of these conditions could have a
material adverse effect on the Company's business or financial condition. See
"-- Risk of Currency Fluctuations," "-- Government Regulation," "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Taxes,"
"-- Effect of Currency on Results of Operations" and "Business -- Regulatory
Matters."
COMPETITION; IMPROVEMENTS IN TECHNOLOGY
The highly competitive markets in which the Company operates are
characterized by rapid and significant technological change, evolving industry
standards and new product introductions. The Company competes with numerous
competitors, many of which are well-established in the Company's markets. Most
competitors are divisions of larger companies with potentially greater financial
and other resources than the Company.
The Company's competitors can be expected to continue to improve the
design and performance of their products and to introduce new products with
competitive price and performance characteristics. Although the Company believes
that it has certain technological and other advantages over its competitors,
realizing and maintaining these advantages will require continued investment by
the Company in research and development, sales and marketing and customer
service and support. There can be no assurance that the Company will have
sufficient resources to continue to make such investments or that the Company
will be successful in maintaining such advantages. If the Company's products or
technologies become uncompetitive or obsolete, it will have a material adverse
effect on the Company. See "Business -- Competition."
-8-
<PAGE> 12
DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY
The Company has patented certain aspects of its proprietary technology
in certain markets and has filed patent applications for its direct digital
technology in key markets, including the United States. However, there can be no
assurance that such applications will be granted. There can be no assurance that
the Company's issued patents or other patents issued in the future will afford
protection from material infringement or that such patents will not be
challenged. The Company also relies on trade secrets and proprietary and
licensed know-how, which it protects, in part, through confidentiality
agreements with employees, consultants and other parties. There can be no
assurance that these agreements will not be breached, that the Company would
have adequate remedies for any breach or that the Company's trade secrets will
not otherwise become known to, or independently developed by, competitors.
There also can be no assurance that the Company's technology will not
infringe upon the patents of others. In the event that any such infringement
claim is successful, there can be no assurance that the Company would be able to
negotiate with the patent holder for a license, in which case the Company could
be prevented from practicing the subject matter claimed by such patent. In
addition, there can be no assurance that the Company would be able to redesign
its products to avoid infringement. The inability of the Company to practice the
subject matter of patents claimed by others or to redesign its products to avoid
infringement could have a material adverse effect on the Company.
The Company has obtained a non-exclusive license for a term of two
years to use certain software for its line of SwissVision(TM) postprocessing
systems. There can be no assurance that this license will not be granted to a
competitor of the company or that such license will be renewed on favorable
terms with the Company or at all. See "Business -- Intellectual Property."
GOVERNMENT REGULATION
The Company's services, products and manufacturing activities are
subject to extensive and rigorous government regulation, including the
provisions of the Federal Food, Drug and Cosmetic Act. Commercial distribution
in certain foreign countries is also subject to government regulations. The
process of obtaining required regulatory approvals can be lengthy, expensive and
uncertain. Moreover, regulatory approvals, if granted, may include significant
limitations on the indicated uses for which a product may be marketed. The
Food and Drug Administration (the "FDA") actively enforces regulations
prohibiting marketing without compliance with the pre-market approval provisions
of medical devices. A Section 510(k) application is required in order to market
a new or modified medical device. If specifically required by the FDA, a pre-
market approval may be necessary. The FDA review process typically requires
extended proceedings pertaining to the safety and efficacy of new products,
which may delay or hinder a product's timely entry into the marketplace. On
November 21, 1997, the AddOn Bucky(TM), the direct digital detector of the AddOn
- -Multi-System received FDA approval. While the Company has submitted the AddOn-
Multi-System for Section 510(k) approval with the FDA, there can be no assurance
that such approval will be obtained and that the AddOn-Multi-System may be
marketed in the United States.
The FDA also regulates the content of advertising and marketing
materials relating to medical devices. There can be no assurance that the
Company's advertising and marketing materials regarding its products are and
will be in compliance with such regulations. The Company is also subject to
other federal, state, local and foreign laws, regulations and recommendations
relating to safe working conditions, laboratory and manufacturing practices.
Failure to comply with applicable regulatory requirements can result in, among
other things, fines, suspensions of approvals, seizures or recalls of products,
operating restrictions and criminal prosecutions. Furthermore, changes in
existing regulations or adoption of new regulations could affect the timing of,
or prevent the Company from obtaining, future regulatory approvals. The effect
of government regulation may be to delay for a considerable period of time or to
prevent the marketing and full commercialization of future products or services
that the Company may develop and/or to impose costly requirements on the
Company. There can also be no assurance that additional regulations will not be
adopted or current regulations amended in such a manner as will materially
adversely affect the Company. See "-- Risks Associated With International
Operations," "Business -- Markets" and "-- Regulatory Matters."
-9-
<PAGE> 13
SALES TO HEALTH CARE INDUSTRY
The Company's products are used exclusively in the health care
industry, which is highly regulated. The health care industry in certain markets
for the Company's products, including the United States, has experienced a
significant pressure to reduce costs, which has led in some jurisdictions to
substantial reorganizations and consolidations of health care providers or
payors. Cost reduction efforts by the Company's customers may adversely affect
the potential markets for the Company's products and services. It is also
possible that legislation could be adopted in any of these jurisdictions which
could increase such pressures or which could otherwise result in a modification
of the private or public health care system or both or impose limitations on the
ability of the Company to market its products in any such jurisdiction. Any such
event or condition could have an adverse impact on the Company's business,
financial condition or results of operations. See "Business -- Markets."
RELIANCE ON KEY MANAGEMENT
The Company's business is highly dependent on the principal members of
its management, marketing, research and development and technical staffs, and
the loss of their services might impede the achievement of the Company's
business objectives. In addition, the Company's future success will depend in
part upon its ability to retain highly qualified management, scientific,
technical and marketing personnel. There can be no assurance that the Company
will be successful in retaining such qualified personnel or hiring additional
qualified personnel. Losses of key personnel could have a material adverse
effect on the Company's business. The Company has no key man life insurance
policies with respect to any of its senior executives. See "Business -- Research
and Development" and "Management -- Directors and Executive Officers of the
Company."
LIMITED MANUFACTURING HISTORY WITH RESPECT TO ADDON-MULTI-SYSTEM; DEPENDENCE ON
SOLE SOURCE SUPPLIERS
The Company has limited experience with the manufacture and assembly of
the AddOn-Multi-System in the volumes that will be necessary for the Company to
generate significant revenues from the sale of the AddOn- Multi-System. The
Company may encounter difficulties in scaling up its production or in hiring and
training additional personnel to manufacture the AddOn-Multi-System. Future
interruptions in supply or other production problems could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, the Company has only single sources for certain
essential components of the AddOn-Multi-System. Interruptions in the supply of
such components might result in production delays, each of which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "-- Reliance on A Single Product" and "Business --
Products."
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FINANCING
There can be no assurance that the Company will not be required to seek
additional equity or debt capital to finance its operations in the future. In
addition, there can be no assurance that any such financings, if needed, will be
available to the Company or that adequate funds for the Company's operations,
whether from the Company's revenues, financial markets, collaborative or other
arrangements with corporate partners or from other sources, will be available
when needed or on terms attractive to the Company. The inability to obtain
sufficient funds may require the Company to delay, scale back or eliminate some
or all of its research and product development programs, sales and marketing
efforts, manufacturing and slide processing operations, clinical studies and/or
regulatory activities or to grant licenses to third parties to commercialize
products or technologies that the Company would otherwise seek to market and
sell itself.
POTENTIAL RECALLS AND PRODUCT LIABILITY
Any of the Company's products may be subject to recall for unforeseen
reasons. The medical device industry has been characterized by significant
malpractice litigation. As a result, the Company faces a risk of exposure to
product liability, errors and omissions or other claims in the event that the
use of its X-ray equipment, components, accessories or related services or other
future potential products is alleged to have resulted in a false diagnosis and
there can be no assurance that the Company will avoid significant liability.
There also can be no assurance that the Company will be able to obtain adequate
insurance coverage or that, if obtained, such coverage will continue to be
available at an acceptable cost, if at all. Consequently, such claims could have
a material adverse effect on the business or financial condition of the Company.
-10-
<PAGE> 14
DILUTION; EFFECT OF OUTSTANDING CONVERTIBLE DEBENTURES ON CERTAIN SHARES
The Registrant has outstanding convertible debentures and options to
purchase Common Stock at prices that may be below the per share price to
purchasers of the Registrant's Common Stock in the market. The exercise of such
convertible debentures or options may have a dilutive effect on the investment
of a holder of the Registrant's Common Stock. The market price of the
Registrant's Common Stock may also be adversely affected by sales of substantial
amounts of Common Stock in the public market, including sales of Common Stock
under Rule 144 or after the expiration of the applicable holding period under
Regulation S. The sale of such stock could also adversely affect the ability of
the Registrant to sell Common Stock for its own account. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Management -- Compensation of Directors and Executive Officers," "Selling
Holders and Plan of Distribution" and "Description of Capital Stock."
LIMITED PUBLIC MARKET; LIQUIDITY; POSSIBLE VOLATILITY OF STOCK PRICE
The Common Stock is quoted on the Nasdaq SmallCap Market System under
the symbol "SRMI." There can be no assurance that an active public market for
the Common Stock can be sustained. The market price of the Common Stock could
fluctuate significantly as a result of the Company's financial results,
regulatory approval filings, clinical studies, technological innovations or new
commercial products introduced by the Company or its competitors, developments
concerning patents or proprietary rights, trends in the health care industry or
in health care generally, litigation, the adoption of new laws or regulations or
new interpretations of existing laws or regulations and other factors.
PROPOSED NEW LISTING STANDARDS FOR NASDAQ SECURITIES
The Nasdaq Stock Market recently adopted certain changes to the
standards for issuers with securities listed on Nasdaq. One of the changes
included increasing the quantitative maintenance requirements for continued
listing in the Nasdaq SmallCap Market, on which the Company's Common Stock is
currently listed. While the Company currently is in compliance with the new
qualitative maintenance requirements, it could cease to be in compliance in the
future if it continues to incur substantial losses from operations. In this
event, it is possible that the Common Stock would be delisted from the Nasdaq
SmallCap Market.
ENVIRONMENTAL MATTERS
The Company is subject to various environmental laws and regulations in
the jurisdiction in which it operates. Although the Company believes that it is
in substantial compliance with applicable environmental requirements and the
Company to date has not incurred material expenditures in connection with
environmental matters, it is possible that the Company could become subject to
additional environmental liabilities in the future that could result in an
adverse effect on the Company's financial condition or results of operations.
See "-- Environmental Matters" and "Business -- Environmental Matters."
-11-
<PAGE> 15
THE COMPANY
The Registrant was incorporated under the laws of the State of New York
on January 2, 1968 under the name CGS Units Incorporated. On June 15, 1994, the
Registrant merged with Direct Marketing Services, Inc. and changed its name to
DMS Industries, Inc. In May of 1995 the Registrant discontinued the operations
then being conducted by DMS Industries, Inc. and acquired all of the outstanding
securities of SR-Medical AG, a Swiss corporation engaged in the business of
manufacturing and selling X-ray equipment, components and accessories. On June
5, 1995, the Registrant changed its name to Swissray International, Inc. The
Registrant's operations are being conducted principally through its wholly owned
subsidiaries, SR-Medical AG, the latter's wholly owned subsidiaries, Teleray AG,
a Swiss corporation, and Swissray Deutschland (Rontgentechnik) GmbH (formerly
known as SR-Medical GmbH), a German limited liability company, as well as
through the Company's wholly owned subsidiaries, SR Management AG (formerly SR
Finance AG), a Swiss corporation, Swissray Medical Systems, Inc. (formerly
Swissray Corporation), a Delaware corporation, Swissray Healthcare, Inc., a
Delaware corporation, and Empower, Inc., a New York corporation (d/b/a Swissray
Empower, Inc.). See Note 1 to the Consolidated Financial Statements June 30,
1995 and December 31, 1994 and 1993 and June 30, 1997 and 1996.
The Company and its predecessors have been in the business of
manufacturing and selling X-ray equipment in Switzerland and Germany since 1988.
Beginning in 1991, the Company's predecessors began to expand into other markets
in Europe, the Middle East and Asia. In 1992, SR Medical AG entered into a first
Original Equipment Manufacturing ("OEM") Agreement with Philips Medical Systems
GmbH ("Philips Medical Systems") providing for the manufacturing of a
multi-radiography system ("MRS"). In 1996, this agreement was replaced with a
new OEM Agreement ("Philips OEM Agreement") which provides for the manufacturing
of the Bucky Diagnost TS bucky table in addition to the MRS System.
Simultaneously, the Company developed the first SwissVision(TM) post-processing
system which was able to convert analog images obtained in fluoroscopy into
digital information. Beginning in 1993, the Company began the development of
direct digital X-ray technology for medical diagnostic purposes.
On November 6, 1996, the Company formed Swissray Corporation (which has
since been renamed Swissray Medical Systems, Inc.), a Delaware corporation
located in Azusa, California, as the Company's principal authorizing division in
the United States. On April 1, 1997, the Company acquired a controlling interest
in Empower, Inc. ("Empower"), located in Glen Cove, New York. Since its
incorporation in 1985, Empower has been engaged in distributing and servicing
diagnostic X-ray equipment and accessories in the New York/New
Jersey/Connecticut area. During the fiscal year ended June 30, 1997, the Company
created a new Information Solution Division which is engaged in services related
to Picture Archiving and Communications Systems ("PACS") as well as consulting
activities. This division is located in Gig Harbor, Washington and headed by
Michael J. Baker, who has more than 20 years experience in radiology, most
recently as head of Lockheed Martin's Medical Imaging Systems division. On
October 17, 1997, the Company acquired substantially all of the assets of
Service Support Group LLC ("SSG") located in Gig Harbor, Washington. Since its
formation on October 16, 1996, SSG has been in the business of selling
diagnostic imaging equipment and providing services related thereto in the
markets on the West Coast of the United States. On October 17, 1997, SSG's three
co-owners, Kenneth Montler, Michael Harle and Gary Durday signed three year
employment agreements with the Company. Kenneth Montler has been appointed Chief
Executive Officer of Swissray Medical Systems, Inc. Gary Durday has been
appointed Chief Financial Officer of Swissray Medical Systems, Inc. and Michael
Harle has been appointed Chief Executive Officer of Swissray Healthcare, Inc.,
which is intended to be engaged in providing maintenance management, capital
planning and other services to hospital imaging departments and imaging centers.
See "Prospectus Summary," "Business -- Research and Development."
DETERMINATION OF OFFERING PRICE
Since the Common Stock registered hereunder is being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Act"), the Registrant cannot include herein information
about the price to the public of the Common Stock.
-12-
<PAGE> 16
USE OF PROCEEDS
The Registrant will not receive any of the proceeds from the sale of
the Securities. All of the proceeds will be received by the Selling Holders. See
"Selling Holders and Plan of Distribution."
-13-
<PAGE> 17
MARKET PRICES AND DIVIDEND POLICY
The Registrant's common stock, $.01 par value (the "Common Stock") is
listed on the Nasdaq SmallCap Market and traded under the symbol SRMI. The
following table sets forth, for the periods indicated, the range of high and low
bid prices on the dates indicated for the Registrant's securities indicated
below for each full quarterly period within the two most recent fiscal years (if
applicable) and any subsequent interim period for which financial statements are
included and/or required to be included.
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1996 Quarterly Common Stock Price
By Quarter Ranges (1)
------------------------------- ----------------------------
Quarter Date High Low
- ------- ---- ---- ---
<S> <C> <C> <C>
1st September 30, 1995(1) $6.8125 $6.00
2nd December 31, 1995(1) $7.875 $5.50
3rd March 31, 1996(1) $7.25 $4.4375
4th June 30, 1996 $6.50 $5.25
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1997 Quarterly Common Stock Price
By Quarter Ranges
------------------------------- ----------------------------
Quarter Date High Low
- ------- ---- ---- ---
<S> <C> <C> <C>
1st September 30, 1996 $5.0625 $3.6875
2nd December 31, 1996 $4.00 $2.375
3rd March 31, 1997 $3.5625 $1.6875
4th June 30, 1997 $3.250 $1.4063
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1998 Quarterly Common Stock Price
By Quarter Ranges
------------------------------- ----------------------------
Quarter Date High Low
- ------- ---- ---- ---
<S> <C> <C> <C>
1st September 30, 1997 $1.6375 $1.5625
</TABLE>
(1) The Registrant's Common Stock began trading on the Nasdaq SmallCap
market on March 20, 1996 with an opening bid of $4.75. The following
statement specifically refers to the Common Stock activity, if any,
prior to March 20, 1996. The existence of limited or sporadic
quotations should not of itself be deemed to constitute an "established
public trading market." To the extent that limited trading in the
Registrants's Common Stock took place, such transactions have been
limited to the over-the-counter market. Until March 20, 1996, all
prices indicated are as reported to the Registrant by broker-dealer(s)
making a market in its common stock in the National Quotation Data
Service ("pink sheets") and in the Electronic Over-the-Counter Bulletin
Board. Through such date the Registrant's Common Stock was not traded
or quoted on any automated quotation system other than as indicated
herein. The over-the-counter market and other quotes indicated reflect
inter-dealer prices without retail mark-up, mark-down or commission and
do not necessarily represent actual transactions.
As of the close of business on December 19, 1997 there were 678
stockholders of the Registrant's Common Stock and 27,303,296 shares issued and
outstanding (as certified by its transfer agent).
The payment by the Registrant of dividends, if any, in the future rests
within the discretion of its Board of Directors and will depend, among other
things, upon the Company's earnings, its capital requirements and its financial
condition, as well as other relevant factors. The Registrant has not paid or
declared any dividends upon its Common Stock since its inception and, by reason
of its present financial status and its contemplated financial requirements,
does not contemplate or anticipate paying any dividends upon its Common Stock
in the foreseeable future.
-14-
<PAGE> 18
CAPITALIZATION
The following table sets forth (i) the current liabilities and capitalization of
the Company as of June 30, 1997 and (ii) the pro forma liabilities and
capitalization as of June 30, 1997, adjusted to reflect the conversion of the
Convertible Debentures (assuming a conversion price of $2.0525 per share(1)).
<TABLE>
<CAPTION>
June 30, 1997
-------------
Actual As Adjusted
------ -----------
<S> <C> <C>
Current liabilities 11,259,798 11,259,798
Long-term liabilities, net of current 6,524,689 6,524,689
portion
Total liabilities 17,784,487 17,784,487
Stockholders' equity:
Common Stock, $.01 par value, 26,805,538 29,805,538
30,000,000 shares authorized,
19,694,433 issued and outstanding;
22,130,487 as adjusted (1)
Accumulated (deficit) (20,237,110) (20,237,110)
Total stockholders' equity 6,568,428 9,568,428
Total liabilities and stockholders' equity 24,352,915 27,352,915
</TABLE>
(1) Based on a conversion price of 80% of the average closing price of
the Registrant's Common Stock during the five trading days prior to
June 30, 1997
DILUTION
As of June 30, 1997 the Company's net tangible book value per share of Common
Stock was $0.08. "Net tangible book value per share" represents total tangible
assets minus total liabilities divided by the number of shares of Common Stock
outstanding. After giving effect to the funds received for the issuance of the
Convertible Debenture (after deducting underwriting discounts, commissions and
escrow fees) but without taking into account any other changes in such tangible
book value after June 30, 1997, the net tangible book value per share would
increase to $0.25, assuming a conversion price of $1.475. This represents an
immediate increase in net tangible book value of $0.17 and an immediate dilution
of $1.225 per share to purchasers of shares purchasing at the conversion price.
<TABLE>
<S> <C> <C>
$ $
Offering price per share 1.475
Net tangible book value per Share before Offering 0.08
Increase in net tangible book value per share
attributable to cash payments by purchaser 0.17
-----
Pro forma net tangible book value per Share
after Offering 0.25
-----
Dilution from Offering price which will be
absorbed by purchaser 1.225
=====
</TABLE>
-15-
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
The selected consolidated financial data presented below should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and related
notes thereto included elsewhere in this Prospectus. The selected consolidated
financial data as of and for the fiscal years ended December 31, 1993, December
31, 1994, June 30, 1995 (six-month period), June 30, 1996 and June 30, 1997 and
the quarters ended September 30, 1996 and September 30, 1997 are derived from
the consolidated financial statements of the Company.
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL, INC.
YEARS ENDED
QUARTER ENDED (IN THOUSANDS, EXCEPT PER SHARE DATA)
------------------- -------------------------------------------------------------
(UNAUDITED) (SIX MONTHS)
9/30/97 9/30/96 6/30/97 6/30/96 6/30/95(1) 12/31/94 12/31/93
------- ------- --------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales .............................. 5,259 2,467 13,151 10,899 3,806 8,618 5,989
Cost of goods sold ..................... 3,313 1,189 8,445 5,793 2,484 5,363 4,181
----- ----- -------- ------- ------- ------- -----
Gross profit ........................... 1,916 1,278 4,706 5,106 1,322 3,255 1,808
Gross profit margin (%) ................ 37% 52% 36% 47% 35% 38% 30%
Selling, general and
administrative expenses .............. 2,186 2,108 15,166 8,592 2,307 3,175 2,094
Unusual charges ........................ -- -- -- -- -- -- --
----- ----- -------- ------- ------- ------- -----
Operating (loss) income ................ (240) (830) (10,460) (3,486) (985) 80 (286)
Debt related fees ...................... -- --
Other expense (income), net ............ (98) (17) (314) (1,004) 3,054 15 (7)
Interest expense ....................... 50 27 246 194 122 237 215
(Loss) income from continuing
operations before income
taxes ................................ (192) (840) (10,392) (2,676) (4,161) (172) (494)
Income taxes ........................... 1 -- 110 (365) (339) 24 --
----- ------ -------- ------- ------- ------- -----
(Loss) income from continuing
operations ........................... (193) (840) (10,502) (2,311) (3,822) (196) (494)
====== ====== ======== ======= ======= ======= =====
(Loss) income per share from
continuing operations ................ (.01) (.06) (.67) (.18) (.48) (.03) (.06)
====== ====== ======== ======= ======= ======= =====
BALANCE SHEET DATA:
Working capital (deficit) .............. 7,504 2,580 2,833 3,433 11,851 (1,236) (875)
Total assets ........................... 27,015 17,342 24,353 18,793 13,027 3,899 3,517
Short-term debt, including
current portion, long-term debt....... 9,436 7,520 4,211 2,737 2,954 2,843 2,145
Long-term debt ....................... 10,867 -- 6,524 -- 705 420 337
Stockholders' (deficit) equity.......... 6,711 9,821 6,568 10,655 6,377 (798) (429)
Total shares outstanding at
year end ............................... 20,621 14,185 19,694 14,185 12,035 7,850 7,850
OTHER DATA:
Ratio of Earnings to Fixed
Charges ............................. .04 .25 .44 .16 .80 .02 .08
</TABLE>
- ------------------
(1) In 1995, the Registrant changed its fiscal year end from December 31 to
June 30. As a result, the Company had a fiscal year beginning on
January 1, 1995 and ending on June 30, 1995. Accordingly, the Summary
Financial Data for the period ended June 30, 1995 is for a six-month
period.
-16-
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company is active in the markets for products and services related
to diagnostic imaging devices for the health care industry. Diagnostic imaging
devices include X-ray equipment, computer tomography ("CT") systems and magnetic
resonance imaging ("MRI") systems for three dimensional projections, nuclear
medicine ("NM") imaging devices and ultrasound devices. The Company is primarily
engaged in the business of manufacturing and selling diagnostic X-ray equipment
for all radiological applications other than mammography and dentistry. In
addition, the Company is in the business of selling imaging systems and
components and accessories for X-ray equipment manufactured by third parties and
providing services related to diagnostic imaging. See "The Company" and
"Business -- Products."
The Company's marketing strategy is to offer to its customers a
complete package of products and services in the field of radiology, including
equipment, accessories and related services. The Company's products include a
full range of conventional X-ray equipment for all diagnostic purposes other
than mammography and dentistry, a multi-functional direct digital X-ray system,
the AddOn-Multi-System and the SwissVision(TM) line of DICOM 3.0 compatible work
stations operating on a Windows NT platform for the processing of digital image
data. Currently, most of the Company's X-ray equipment is manufactured and
developed in Switzerland. On July 26, 1996, SR Medical AG, the Company's Swiss
marketing subsidiary, was ISO 9002 and EN 46002 certified.
The services offered by the Company include the installation and
after-sales servicing of imaging equipment sold by the Company, consulting
services and application training of radiographers. In the United States, the
Company plans to offer consulting services to hospital imaging departments and
imaging centers, including maintenance management, capital planning services and
after-sales services of products manufactured by the Company and third parties
(multi-vendor services). The Company is also offering products and services
related to networking, archiving and electronic distribution of digital X-ray
images, including Picture Archiving and Communications Systems ("PACS").
The Company and its predecessors have been in the business of
manufacturing and selling X-ray equipment in Switzerland and Germany since 1988.
Beginning in 1991, the Company's predecessors began to expand into other markets
in Europe, the Middle East and Asia. In 1992, the Company entered into a first
OEM Agreement with Philips Medical Systems providing for the manufacturing by
the Company of an MRS. In 1996, this agreement was replaced with a new OEM
Agreement which provides for the manufacturing of the Bucky Diagnost TS bucky
table in addition to the MRS system. See "The Company" and "Business --
Products."
On November 6, 1996, the Company formed Swissray Corporation (which has
since been renamed Swissray Medical Systems, Inc.), a Delaware corporation
located in Azusa, California, as the Company's principal marketing division in
the United States. On April 1, 1997 the Company acquired a controlling interest
in Empower, Inc. ("Empower"), located in Glen Cove, New York. Since its
incorporation in 1985, Empower has been engaged in distributing and servicing
diagnostic X-ray equipment and accessories in the New York/New
Jersey/Connecticut area. During the fiscal year ended June 30, 1997, the Company
also created a new Information Solution Division which is engaged in the
business of providing services related to Picture Archiving and Communications
Systems ("PACS") as well as consulting activities. This division is located in
Gig Harbor, Washington and headed by Michael J. Baker, who has more than 20
years experience in radiology, most recently as head of Lockheed Martin's
Medical Imaging Systems division. On October 17, 1997, the Company acquired
substantially all of the assets of Service Support Group LLC ("SSG") located in
Gig Harbor, Washington. Since its formation on October 16, 1996, SSG has been in
the business of selling diagnostic imaging equipment and providing services
related thereto in the markets on the West Coast of the United States. On
October 17, 1997, SSG's three co-owners, Kenneth Montler, Michael Harle and Gary
Durday signed three year employment agreements with the Company. Kenneth Montler
has been appointed Chief Executive Officer of Swissray Medical Systems, Inc.
Gary Durday has been appointed Chief Financial Officer of Swissray Medical
Systems, Inc. and Michael Harle has been appointed Chief Executive Officer of
Swissray Healthcare, Inc., which is intended to be
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<PAGE> 21
engaged in providing maintenance management, capital planning and other services
to hospital imaging departments and imaging centers. See "The Company" and
"Business -- Introduction."
In 1993, the Company began to develop technologies related to direct
digital radiography ("ddR"). It developed a post-processing system which was
able to convert analog images obtained in fluoroscopy into digital information.
This first of the line of SwissVision(TM) postprocessing systems won the
innovation award of the Chamber of Commerce of Central Switzerland in 1993.
Simultaneously, the Company began the development of a direct digital detector
using CCD technology to replace the film or phosphor plate bucky used in
conventional and Computed Radiology systems.
Originally, the Company intended to offer its digital detector, the
AddOn Bucky(TM) as a retrofit product for conventional X-ray equipment. During
the fiscal year ended June 30, 1997, however, the Company decided to change its
strategy and to offer a complete multi-functional direct digital X-ray system
which combines the functions of a conventional bucky table and a bucky wall
stand and which is able to perform all examinations necessary in orthopedics,
traumatology and chest examination rooms. The primary reason for the Company's
new strategy was management's belief that potential customers can achieve cost
benefits with a multi-functional direct digital X-ray system compared to
retrofitting existing equipment. These cost benefits result primarily from the
fact that a multi-functional direct digital X-ray system only requires one
detector, the most expensive part of a direct digital X-ray system, to replace
the two bucky devices used in a typical conventional bucky room. In addition,
because of an upcoming regulatory change in Europe, CE qualification will be
required for all elements in an X-ray system if any components are exchanged.
The Company was also concerned that the high quality of its product could not
be guaranteed in a retrofitted X-ray system. Finally, a complete system offers
significant advantages for potential customers and the Company in the
after-sales market because suppliers of X-ray equipment typically are reluctant
to extend product warranties and services to a product that is retrofitted with
third party products. As a result, the Company believes that market acceptance
of a complete system would be greater than that of the AddOn Bucky(TM) alone.
The Company's new strategy with respect to the Company's direct digital
technology required the incurrence of significant additional research and
development expenses. Due to this effort, the AddOn-Multi-System could be
developed during the fiscal year ended June 30, 1997 and the first product has
been delivered to a customer during the first quarter of the 1997/98 fiscal year
with additional deliveries scheduled for the second quarter of the 1997/98
fiscal year. See "Business -- Products," "-- Research and Development" and
"--Regulatory Matters."
RESULTS OF OPERATION
In 1995, the Company changed its fiscal year end from December 31 to
June 30. As a result, the Company had a fiscal period beginning on January 1,
1995 and ending on June 30, 1995. In order to make the comparison with the
period ended June 30, 1995 more meaningful, the discussion contained herein
compares the results of operations for the six-month period ended June 30, 1996
rather than the full fiscal year ended June 30, 1996 with the fiscal year ended
June 30, 1995.
<TABLE>
Quarter Ended
<CAPTION> (Unaudited) Years Ended
----------------- -----------------------------------------------
Six Months
9/30/97 9/30/96 6/30/97 6/30/96 6/30/95 12/31/94 12/31/93
------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold 63.0% 48.2% 64.2% 53.2% 65.3% 62.2% 69.8%
Gross profit 37.0% 51.8% 35.8% 46.8% 34.7% 37.8% 30.2%
Selling, general and 41.5% 85.4% 115.3% 78.8% 60.6% 36.9% 35.0%
administrative
Operating (Loss) Income (4.6%) (33.6%) (79.5%) (32.0%) (25.9%) 0.9% (4.8%)
Other expenses (Income) (1.9%) (0.7%) (2.4%) (9.2%) 80.2% 0.2% (0.1%)
Interest expense 0.9% 1.1% 1.9% 1.8% 3.2% 2.8% 3.6%
(Loss) Income from
Continuing Operations
before Income Taxes (3.7%) (34.0%) (79.0%) (24.6%) (109.3%) (2.1%) (8.3%)
Income Taxes -- -- 0.8% (3.3%) (8.9%) 0.3% --
(Loss) Income from
Continuing Operations (3.7%) (34.0%) (79.8%) (21.3%) (100.4%) (2.4%) (8.3%)
</TABLE>
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<PAGE> 22
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED TO
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1996
Net sales amounted to $5,258,903 for the three-month period ended
September 30, 1997 compared to $2,467,175, an increase of $2,791,728, or
113.15%, from the three-month period ended September 30, 1996. The increase in
net sales was partially due to the acquisition of Empower on April 1, 1997. The
Company also increased sales in Swiss Francs made under the Philips OEM
Agreement by approximately 252%.
Gross profit increased by $667,894, or 52.3%, to $1,945,812, for the
three-month period ended September 30, 1997 from $1,277,918 for the three-month
period ended September 30, 1996. Gross profit as a percentage of net revenues
decreased to 37.0% for the three-month period ended September 30, 1997 from
51.8% for the three-month period ended September 30, 1996. The decrease in gross
profits as a percentage of net revenues is attributable to the fact that the
Company's Swiss subsidiaries consistently allocated direct labor and
manufacturing overhead expenses to costs of goods sold. For the three-month
period ended September 30, 1996, consistent with Swiss accounting practice such
subsidiaries only allocated cost of material to cost of goods sold, whereas
labor and overhead expenses were allocated to operating expenses.
Operating expenses increased by $78,505, or 3.7% to $2,186,097, or 41.5%
of net revenues, for the three-month period ended September 30, 1997, from
$2,107, 592, or 85.4% of net revenues for the three-month period ended September
30, 1996. The single largest items of operating expenses continued to be
officers and directors compensation and salaries of $717,412 or 13.6% of net
sales for the three-month period ended September 30, 1997 compared to $629,375
or 25.5% of net sales for the three-month period ended September 1996. Selling
expenses were $488,031 or 9.3% for the three-month period ended September 30,
1997 compared to $194,379 or 7.8% for the three-month period ended September 30,
1996. The increase in selling expenses was partially due to the selling expenses
attributable to Empower, Inc. and Swissray Medical Systems, Inc., both of which
were not subsidiaries of the Company during the three-month period ended
September 30, 1996. Research and development expenses decreased $25,683 to
$473,839 or 9.0% of net sales for the three-month period ended September 30,
1997 compared to $499,522 or 20.2% of net sales for the three-month period ended
September 30, 1996. Research and development expenses were partially
attributable to the development of a new floating table.
FISCAL YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Net sales for the fiscal year ended June 30, 1997 were $13,151,701
compared to $10,899,222 for the fiscal year ended June 30, 1996.
The 21% increase in net sales was partially due to the acquisition of
Empower on April 1, 1997. The sale of conventional X-ray equipment, accessories
and imaging equipment manufactured by third parties to customers in Europe and
other markets outside the United States also increased by approximately 21%.
Contributing factors to this increase were sales made under the Philips OEM
Agreement and an order to deliver X-ray equipment to 21 hospitals located in
Eastern Europe, which was filled in part during the fiscal year ended June 30,
1997. The Company made no sales of the AddOn-Multi-System during the fiscal
year ended June 30, 1997. See "Business -- Products."
Gross profits amounted to $4,706,287 or 36% of net sales for the fiscal
year ended June 30, 1997 compared to $5,105,916 or 46.9% for the fiscal year
ended June 30, 1996.
The decrease in gross profits is attributable to a number of factors.
During the fourth quarter of the fiscal year ended June 30, 1997, the Company's
Swiss subsidiaries began to consistently allocate direct labor and manufacturing
overhead expenses to costs of goods sold. Previously, consistent with Swiss
accounting practice, such subsidiaries only allocated cost of material to cost
of goods sold, whereas labor and overhead expenses were allocated to operating
expenses. In addition, sales of low-margin products increased substantially.
This is mainly attributable to increased sales of accessories, which are
generally low-margin products, during the fourth quarter as a result of the
acquisition of Empower and increased sales of CT systems from Elscint Ltd., a
leading Israeli manufacturer of diagnostic imaging systems and other
technologically advanced products ("Elscint"). Each of the foregoing contributed
approximately 15% to the Company's net sales. See "Business -- Products."
Operating expenses for the fiscal year ended June 30, 1997 were
$15,165,898 or 115.3% of net sales compared to $8,591,679 or 78.8% of net sales
for the fiscal year ended June 30, 1996. The principal items were research and
development expenses of $5,786,158 or 46% of net sales for the fiscal year ended
June 30, 1996 compared to $1,731,502 or 15.9% of net sales for the fiscal year
ended June 30, 1997 and salaries (net of directors and officers compensation),
which amounted to $2,059,396 or 15.6% of net sales for the fiscal year ended
June 30, 1997 compared to $1,829,535 or 16.8% of net sales for the fiscal year
ended June 30, 1996.
Research and development expenses increased by 234% mainly due to the
significant additional research necessary to implement the Company's new
strategy with respect to its direct digital technology. Additional research and
development expenses have also been incurred to develop the Bucky Diagnost TS
system for Philips Medical Systems and to maintain the technological advantages
of the Company's conventional X-ray equipment. Management considers the relative
size of the research and development expenses for the fiscal year ended June 30,
1997 as extraordinarily high and expects a reduction of their relative size in
the near future. However, significant research and development expenses will
continue to be incurred for the development of new technologically advanced
products and the continuing improvement of existing products. The increase of
64% in selling expenses is the result of the continuing strong efforts of the
Company to build its market position in key markets (including the United States
and Germany), develop new markets and lay the groundwork for a successful market
introduction of the Company's direct digital AddOn-Multi-System. In addition,
the Company has incurred expenses to develop products which are complementary to
its AddOn-Multi-System (such as a digital C-arm system and a digital remote
controlled fluoroscopy system). This will allow the Company to offer a full line
of digital X-ray equipment. See "Business -- Research and Development."
The Company's operating loss increased to $10,459,611 for the fiscal
year ended June 30, 1997 from $3,485,763 for the fiscal year ended June 30,
1996. The increase in the Company's operating loss is due to the significant
expenses associated with the development of the Company's products and the
building of the Company's organization and market position on the one hand and
the absence of a significant increase in sales as a result of the delay in the
market introduction of certain of the Company's products, in particular the
AddOn-Multi-System and the Bucky Diagnost TS on the other hand. After taking
into account income tax benefits and extraordinary items of income (loss) the
resulting net loss of the Company for the fiscal year ended June 30, 1997
increased to $10,889,628 from $1,891,612 for the fiscal year ended June 30,
1996. Extraordinary expenses include the write off of inventory and clean-up
costs as a consequence of a fire which affected the Company's previous
manufacturing facility. However, management of the Company expects to be able to
recover such expenses at least in part under applicable insurance policies.
-19-
<PAGE> 23
SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND JUNE 30, 1995
Net sales for the six-month period ended June 30, 1996 were $4,963,537
compared to $3,806,313 for the six-month period ended June 30, 1995.
The 30% increase in net sales was due to a major increase in sales in
Germany and the first sales of CT systems under the agreement with Elscint. In
addition, service and spare part sales under the Philips OEM Agreement and in
Switzerland increased materially. The Company also increased its sales in Swiss
Francs by approximately 37% for the above-mentioned reasons as well as an
increase in sales to Eastern Europe and the Far East.
Gross profits amounted to $2,236,616 or 45% of net sales for the
six-month period ended June 30, 1996 compared to $1,322,060 or 34.7% for the
six-month period ended June 30, 1995. The 69% increase in gross profits is
primarily attributable to the major increase in service and spare part sales
which sales have a much higher gross margin than equipment sales.
Operating expenses for the six-month period ended June 30, 1996 were
$4,831,228 or 97.3% of net sales compared to $2,307,231 or 60.6% of net sales
for the six-month period ended June 30, 1995. The principal items were salaries
(net of officers' compensation) expenses of $734,389 or 19% of net sales for the
six-month period ended June 30, 1995 compared to $696,812 or 14.0 % of net sales
for the six-month period ended June 30, 1996 and research and development
expenses, which amounted to $1,211,653 or 24.4% of net sales for the six-month
period ended June 30, 1996 compared to $233,084 or 6.1% of net sales for the
six-month period ended June 30, 1995.
Research and development expenses increased by 419.8%. This significant
increase in research and development expenses resulted primarily from increased
expenses associated with the development of the AddOn Bucky(TM). Selling
expenses decreased by 14.9%. See "Business -- Research and Development."
The Company's operating loss decreased to $1,908,271 for the six-month
period ended June 30, 1996 from $4,160,815 for the six-month period ended June
30, 1995. The decrease in the Company's operating loss was due to the fact that
the Company paid consulting fees of $3,050,000 toward the acquisition of SR
Medical AG and subsidiaries in June 1995. Without taking into account the
expenses paid for such consulting services, the Company would have had an
increase of $797,456 in operating losses for the six-month period ended June 30,
1996 compared with the six-month period ended June 30, 1995, mainly due to an
increase in research and development expenses. After taking into account income
tax benefits and extraordinary items of income (loss), the resulting net loss of
the Company for the six-month period ended June 30, 1996 decreased to $1,124,123
from $3,406,145 for the six-month period ended June 30, 1995. Extraordinary
items included a gain on the sale of marketable securities of $419,500, net of
income taxes of approximately $343,000.
FISCAL YEAR 1994
Net sales for the fiscal year ended December 31, 1994 were $8,617,604.
Gross profits amounted to $3,254,906 or 37.8% of net sales for the
fiscal year ended December 31, 1994.
Operating expenses for the fiscal year ended December 31, 1994 were
$3,175,269 or 36.8% of net sales. The principal items were salaries (net of
officers' compensation) expenses of $1,127,474 or 13% of net sales for the
fiscal year ended December 31, 1994 and other operating expenses, which amounted
to $748,157 or 8.7% of net sales for the fiscal year ended December 31, 1994.
Research and development expenses were $103,675 for the fiscal year
ended December 31, 1994. During the fiscal year 1994, research and development
costs consisted primarily of expenses related to the development of the AddOn
Bucky(TM).
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<PAGE> 24
The Company's operating loss was $172,480 for the fiscal year ended
December 31, 1994. After taking into account income tax provisions, the
resulting net loss of the Company for the fiscal year ended December 31, 1994
was $196,592. There were no extraordinary expenses recorded for the fiscal year
ended December 31, 1994.
FINANCIAL CONDITION
SEPTEMBER 30, 1997 COMPARED TO
JUNE 30, 1997
Total assets of the Company on September 30, 1997 increased by $2,661,902
to $27,014,817 from $24,352,915 on June 30, 1997, primarily due to the
increase of current assets. Current assets increased $2,846,847 to $16,940,193
on September 30, 1997 from $14,093,346 on June 30, 1997. The increase in
current assets is primarily attributable to the increase in cash. Other assets
decreased $236,792 to $5,686,160 on September 30, 1997 from $5,922,952 on June
30, 1997.
On September 30, 1997, the Company had total liabilities of $20,303,373
compared to $17,784,487 on June 30, 1997. On September 30, 1997, current
liabilities were $9,436,328 compared to $11,259,798 on June 30, 1997. The
decrease in current liabilities is primarily due to the decrease of notes
payable to banks and accrued expenses. Working capital at September 30, 1997
was $7,504,226 compared to $2,833,548 at June 30, 1997.
JUNE 30, 1997 COMPARED TO JUNE 30, 1996
Total assets of the Company on June 30, 1997 increased by $5,559,477 to
$24,352,915 from $18,793,438 on June 30, 1996, primarily due to the acquisition
of Empower and a new office and production facility in Hochdorf, Switzerland.
Current assets increased $2,522,432 to $14,093,346 on June 30, 1997 from
$11,570,914 on June 30, 1996. The increase in current assets is primarily
attributable to the increase of accounts receivable as a consequence of the
acquisition of Empower and the increase in inventory due to an increased amount
of orders to be filled within the first quarter of the fiscal year ending June
30, 1998. Other assets decreased $161,290 to $5,922,952 on June 30, 1997 from
$6,084,242 on June 30, 1996. The decrease of other assets was primarily due to a
decrease in long-term accounts receivable, which was partially offset by an
increase in intangible assets.
On June 30, 1997, the Company had total liabilities of $17,784,487
compared to $8,138,182 on June 30, 1996. On June 30, 1997, current liabilities
were $11,259,798 compared to $8,138,182 on June 30, 1996. The increase in
current liabilities was primarily due to the incurrence of a mortgage to finance
in part the acquisition of the new Hochdorf facility. Management currently
intends to refinance this mortgage, which may be terminated on three months
notice, with a long-term mortgage. In addition, as a result of the acquisition
of Empower, there was an increase in accounts payable. On June 30, 1997, the
Company also had $6,000,000 principal amount of convertible subordinated
debentures. Such debentures bore interest at 6% per annum and were repayable at
maturity in Common Stock of the Registrant. As of June 30, 1997, all of such
convertible debentures could be converted into Common Stock of the Registrant at
a price equal to 80% of the average closing price during the five trading days
preceding the date of conversion, subject, with respect to $2 million principal
amount of debentures with a maturity date of April 28, 1998, to a minimum
conversion price of $2.50. $2 million principal amount of the remaining
debentures with a maturity date of May 15, 2000 and $2 million principal amount
of such debentures with a maturity date of June 13, 2000 were refinanced on July
31, 1997 with the proceeds of the issuance of $4,262,500 principal amount of
convertible debentures. Such debentures may have a dilutive effect on the
investment of stockholders of the Registrant upon conversion or payment of the
principal at maturity, but no funds of the Company are expected to be used for
their repayment. See "Risk Factors -- Dilution; Effect of Outstanding
Convertible Debentures and Certain Shares."
At June 30, 1997, long-term debt net of the current portion thereof
amounted to $524,689 compared to $0 at June 30, 1996. The increase in long-term
debt resulted from the incurrence of new debt obligations and the
reclassification of certain existing debt as long-term debt.
Working capital at June 30, 1997 was $2,833,548 compared to $3,432,732
at June 30, 1996.
JUNE 30, 1996 COMPARED TO JUNE 30, 1995
Total assets of the Company on June 30, 1996 increased by $5,766,082 to
$18,793,438 from $13,027,356 on June 30, 1995, primarily due to the increase in
current assets and property and equipment. Current assets increased $4,440,278
to $11,570,914 on June 30, 1996 from $7,130,636 on June 30, 1995. The increase
in current assets was attributable to an increase in cash, accounts receivable,
inventories and prepaid expenses as a result of the significant growth of the
Company's overall activities. Other assets increased $535,221 to $6,084,242 on
June 30, 1996 from $5,549,021 on June 30, 1995. The increase of other assets was
primarily due to the increase in long-term accounts receivable.
On June 30, 1996, the Company had total liabilities of $8,138,182
compared to $6,650,523 on June 30, 1995. On June 30, 1996, current liabilities
were $8,138,182 compared to $5,945,488 on June 30, 1995. The
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<PAGE> 25
increase in current liabilities is primarily due to the increase in accounts
payable and accrued expenses as a result of the growth of the Company's
activities.
At June 30, 1996, long-term debt net of the current portion thereof
amounted to $0 compared to $705,035 at June 30, 1995. Long-term debt has been
repaid in full amount.
Working capital at June 30, 1996 was $3,432,732 compared to $1,185,148
at June 30, 1995.
DECEMBER 31, 1994
Total assets of the Company on December 31, 1994 were $3,898,787.
Current assets were $3,040,982 on December 31, 1994. Other assets were $566,476
on December 31, 1994.
On December 31, 1994, the Company had total liabilities of $4,697,286.
On December 31, 1994, current liabilities were $4,276,866.
At December 31, 1994, long-term debt net of the current portion thereof
amounted to $420,420.
Working capital at December 31, 1994 was $(1,235,884).
CASH FLOW AND CAPITAL EXPENDITURES
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1997 COMPARED TO
THREE-MONTH PERIOD ENDED SEPTEMBER 30, 1996
Cash used by operating activities for the quarter ended September 30, 1997
increased to $1,186,004 from $1,021,480 for the quarter ended September 30, 1996
and cash used by investing activities decreased to $200,760 for the quarter
ended September 30, 1997 from $233,213 for the quarter ended September 30,
1996. Cash flow from financing activities for the quarter ended September 30,
1997 was $3,589,938 compared to $570,094 for the quarter ended September 30,
1996.
The Company anticipates that its use of cash will be substantial for the
foreseeable future. In particular, management of the Company expects substantial
expenditures in connection with the improvement of the new Hochdorf facility,
the continuation of the strengthening and expansion of the Company's marketing
organization and, to a lesser degree, ongoing research and development projects.
The availability of the necessary funds to finance these expenditures depends on
the Company's ability to obtain (i) equity or debt financing to the extent
necessary and (ii) a sufficient future cash flow which in turn depends on the
marketability of the Company's AddOn-Multi-System. There can be no assurance
whether or not such financing or sufficient future cash flow will be available.
See "Risk Factors -- Future Capital Needs and Uncertainty of Additional
Financing."
On August 19, 1997, the Company issued $5,000,000 aggregate principal
amount of 6% convertible debentures (the "Convertible Debentures"), convertible
into Common Stock of the Company. Placement Agent for such convertible debenture
was Rolcan Finance Ltd. The aggregate offering price of the Convertible
Debentures was $5,000,000. After deducting underwriting discounts, commissions
and escrow fees in the aggregate amount of $681,250 the Company received a net
amount of $4,318,750. All Convertible Debentures were issued to accredited
investors as defined in Rule 501(a) of Regulation D promulgated under the Act
("Regulation D") and the Company has received written representations from each
investor to that effect. Fifty percent of the face amount of the Convertible
Debentures are convertible into shares of Common Stock of the Company at any
time after November 3, 1997 and the remaining 50% of the face value of the
Convertible Debentures are convertible into shares of Common Stock of the
Company after December 3, 1997, in each case at a conversion price equal to 80%
of the average closing bid price for the five trading days preceding the date of
conversion. Any Convertible Debentures not so converted are subject to mandatory
conversion by the Company on the 36th monthly anniversary of the date of
issuance of the Convertible Debentures.
FISCAL YEARS ENDED JUNE 30, 1997 AND JUNE 30, 1996
Cash used by operating activities for the fiscal year ended June 30,
1997 increased to $10,684,988 from $3,658,665 for the fiscal year ended June 30,
1996 and cash used by investing activities increased to $3,668,196 for the
fiscal year ended June 30, 1997 from $1,171,120 for the fiscal year ended June
30, 1996. Cash flow from financing activities for the fiscal year ended June 30,
1997 was $14,752,928 compared to $5,788,694 for the fiscal year ended June 30,
1996.
The Company's capital expenditures totaled $3,431,375 for the fiscal
year ended June 30, 1997 compared to $932,066 for the fiscal year ended June 30,
1996. Capital expenditures were primarily incurred for the purchase of the
Hochdorf facility and equipment. The increased financing needs resulted
primarily from the significant research and development expenses necessary in
connection with the development of the AddOn-Multi-System, the purchase of the
Hochdorf facility and the initiation and expansion of the Company's sales
organization in Europe and in the United States. See "Business -- Products,"
"-- Sales and Marketing" and "-- Research and Development."
The Company financed its liquidity needs during the fiscal year ended
June 30, 1997 primarily with the issuance of $13,300,000 principal amount of
convertible debentures and the issuance of Common Stock for a consideration of
$2 million in the aggregate.
SIX-MONTH PERIODS ENDED JUNE 30, 1996 AND JUNE 30, 1995
Cash used by operating activities for the six-month period ended June
30, 1996 increased to $2,511,188
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<PAGE> 26
from $1,165,279 for the six-month period ended June 30, 1995 and cash used by
investing activities decreased to $789,792 for the six-month period ended June
30, 1996 from $961,379 for the six-month period ended June 30, 1995. Cash flow
from financing activities for the six-month period ended June 30, 1996 was
$983,129 compared to $4,850,310 for the six-month period ended June 30, 1995.
The Company's capital expenditures totaled $572,783 for the six-month
period ended June 30, 1996 compared to $80,714 for the six-month period ended
June 30, 1995. Capital expenditures were primarily for the purchase of
equipment. The increased financing needs resulted primarily from the increase in
research and development expenses and the increased inventory level of June 30,
1996.
FISCAL YEAR 1994
Cash used by operating activities for the fiscal year ended December
31, 1994 was $728,865 and cash used by investing activities was $32,007 for the
fiscal year ended December 31, 1994. Cash flow from financing activities for
the fiscal year ended December 31, 1994 was $697,519.
The Company's capital expenditures totaled $88,600 for the fiscal year
ended December 31, 1994. Capital expenditures were primarily for the purchase of
equipment.
EFFECT OF CURRENCY ON RESULTS OF OPERATIONS
The result of operations and the financial position of the Company's
subsidiaries outside of the United States is reported in the relevant foreign
currency (primarily in Swiss Francs) and then translated into U.S. dollars at
the applicable foreign exchange rate for inclusion in the Company's consolidated
financial statements. Accordingly, the results of operations of such
subsidiaries as reported in U.S. dollars can vary significantly as a result of
changes in currency exchange rates (in particular the exchange rate between the
Swiss Franc and the U.S. dollar). For the fiscal year ended June 30, 1996 the
Swiss Franc depreciated by approximately 11% against the U.S. dollar compared to
the rate in effect during the fiscal year ended June 30, 1996. If such exchange
rate had remained in effect, the Company's net sales and net loss would have
been higher by approximately $2,788,209 and $2,335,548, respectively. See "Risk
Factors -- Risk of Currency Fluctuation."
TAXES
The Company is subject to taxation in many jurisdictions throughout the
world. The Company's effective tax rate and tax liability is affected by a
number of factors, such as the amount of taxable income in particular
jurisdictions, the tax rates in such jurisdictions, tax treaties between
jurisdictions, the extent to which the Company transfers funds between
jurisdictions and income is repatriated, and future changes in law. Generally,
the tax liability for each legal entity is determined either (i) on a
non-consolidated basis or (ii) on a consolidated basis only with other entities
incorporated in the same jurisdiction, in either case without regard to the
taxable losses of non-consolidated affiliated entities. As a result, the Company
may pay income taxes in certain jurisdictions even though the Company on an
overall basis incurs a net loss for the period.
ENVIRONMENTAL MATTERS
The Company is subject to various environmental laws and regulations in
the jurisdictions in which it operates. The Company, like many of its
competitors, has incurred, and will continue to incur, capital and operating
expenditures and other costs in complying with such laws and regulations. The
Company does not currently anticipate any material capital expenditures for
environmental control technology. Some risk of environmental liability is
inherent in the Company's business, and there can be no assurance that material
environmental costs will not arise in the future. However, the Company does not
anticipate any material adverse effect on its results of operations or financial
condition as a result of future costs of environmental compliance. See "Risk
Factors -- Environmental Matters" and "Business -- Environmental Matters."
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INFLATION
Inflation can affect the costs of goods and services used by the
Company. The competitive environment in which the Company operates limits
somewhat the Company's ability to recover higher costs through increased selling
prices. Moreover, there may be differences in inflation rates between countries
in which the Company incurs the major portion of its costs and other countries
in which the Company sells its products, which may limit the Company's ability
to recover increased costs, if not offset by future increases of selling prices.
To date, the Company's sales to high-inflation countries have either been made
in Swiss Francs or U.S. dollars. Accordingly, inflationary conditions have not
had a material effect on the Company's operating results.
SEASONALITY
The Company's business has historically experienced a slight amount of
seasonal variation with sales in the first fiscal quarter slightly lower than
sales in the other fiscal quarters due to the fact that the Company's first
quarter coincides with the summer vacations in certain of the Company's markets.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
On November 7, 1997 the Board of Directors selected Coopers & Lybrand
L.L.P. as the Registrant's auditors for the fiscal year ending June 30, 1998 and
this action was ratified by the stockholders at the Annual Meeting held on
December 23, 1997.
Bederson & Company LLP ("Bederson") audited the books, records and
accounts of the Registrant for the fiscal year ended June 30, 1997. Bederson was
dismissed on November 7, 1997.
BUSINESS
OVERVIEW
The Company is active in the markets for diagnostic imaging devices for
the health care industry. Diagnostic imaging devices include X-ray equipment,
computer tomography ("CT") systems and magnetic resonance imaging ("MRI")
systems for three dimensional projections, nuclear medicine ("NM") imaging
devices and ultrasound devices. The Company is primarily engaged in the business
of manufacturing and selling diagnostic X-ray equipment for all radiological
applications other than mammography and dentistry. In addition, the Company is
in the business of selling imaging systems and components and accessories for
X-ray equipment manufactured by third parties and providing services related to
diagnostic imaging.
X-rays were discovered in 1895 by Wilhelm Konrad Rontgen. Shortly
thereafter, X-ray imaging found numerous applications for medical diagnostic and
non-medical purposes. Today, medical X-ray imaging is a fundamental tool in bone
and soft tissue diagnosis. X-ray diagnosis is primarily used in orthopedics,
traumatology, gastro-enterology, angiography, urology, pulmology, mammography
and dentistry. The principal elements of a diagnostic X-ray system are the X-ray
generator, the X-ray tube and the bucky device. The generator generates high
tension, which is converted into X-rays in the X-ray tube. The X-rays so created
are then penetrating a patient's body and subsequently expose a film contained
in the bucky device. Following exposure, the film is chemically processed and
dried in a dark room. A typical room used for general X-ray examinations (bucky
room) contains an X-ray system which includes a table with a bucky device for
examinations of recumbent patients (bucky table) and a wall stand with a second
bucky device for examinations of sitting and standing patients (bucky wall
stand).
The film used in conventional X-ray systems has certain inherent
disadvantages, including the significant amount of time and operating expenses
associated with the handling, processing and storage thereof, the need for
chemicals to develop films and the environmental concerns related to their
disposal. Additional expenses and inconveniences arise in connection with the
storage, duplication and transportation of conventional films. The following
X-ray systems have been developed to overcome these disadvantages: scanning
devices, phosphor plate or Computed Radiography(TM) ("CR") systems and direct
digital radiography ("ddR") systems. Scanning devices are
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used to convert existing X-ray images into a digital form. While the use of
scanning devices permits the electronic storage, retrieval and transmission of
X-ray images, they do not eliminate the other inconveniences of conventional
films and add time and expenses associated with the scanning process. In a CR
system the film cassette is replaced with a phosophor plate which is
electrically charged by X-rays. The electrical charges on this phosphor plate
are then converted into digital information by a laser scanner. Although this
system has the advantage that the phosphor plates are reusable and the
inconveniences related to the development of X-ray films are eliminated, it does
not achieve instant images and a significant amount of time and operating
expenses are required in connection with the handling and scanning of the
phosphor plates. Additional expenses arise due to the fact that phosphor plates
have a limited lifespan.
DdR technology is designed to eliminate the disadvantages and
significant operating costs associated with conventional X-ray systems and CR
systems. With ddR technology digital information can be made available for
diagnostic purposes within a few seconds after an X-ray image is taken without
any additional steps, thereby reducing processing time and related operating
expenses. Direct digital X-ray technology uses either charge coupled devices
("CCD") arrays, amorphous silicon panels or silicium drums to convert X-rays
into digital information. To the Company's knowledge, no silicon or
silicium-based technology is currently available for purposes of general X-ray
diagnosis. To the Company's knowledge, the only CCD based direct digital
technology available for general diagnostic purposes is the Company's AddOn
Bucky(TM). While other CCD based direct digital X-ray systems are used for
dental X- ray imaging and chest examinations, the Company believes that neither
such technologies nor the silicium based technology used in a chest examination
system offered by one of the Company's competitors can easily be adapted for
general diagnostic purposes because none of them is capable of providing the
resolution necessary to obtain digital information with sufficient diagnostic
value on a standard 14' by 17' X-ray image.
PRODUCTS
The Company's marketing strategy is to offer to its customers a
complete package of products and services in the field of radiology, including
equipment, accessories and related services such as consulting and after-sales
services. The Company's products include a full range of conventional X-ray
equipment for all diagnostic purposes other than mammography and dentistry, the
direct digital AddOn-Multi-System and the SwissVision(TM) line of DICOM 3.0
compatible postprocessing work stations operating on a Windows NT platform.
Currently, most of the Company's X-ray equipment is manufactured and developed
in Switzerland. On July 26, 1996, SR Medical AG, the Company's Swiss marketing
subsidiary, was ISO 9002 and EN 46002 certified.
DIGITAL ADDON-MULTI-SYSTEM/SWISSVISION
The AddOn-Multi-System, which includes a SwissVision(TM) workstation
for the postprocessing of digital image data and the transfer of such data
through central networks or via telecommunications systems, is a complete multi-
functional direct digital X-ray system which combines the functions of a
conventional bucky table and a bucky wall stand. It is the first direct digital
radiography system available which allows all plane X-ray examinations on the
recumbent, upright and sitting patient necessary in orthopedics, traumatology
and chest examination rooms. The AddOn-Multi-System uses the Company's AddOn
Bucky(TM) as the digital detector. The AddOn Bucky(TM) is able to make available
an X-ray image in a direct digital way for diagnostic study within 16 to 20
seconds. As a consequence, the efficiency and the throughput of the bucky room
can be increased. The Company believes that a significant advantage of the
Company's AddOn-Multi-System is the fact that a variety of X-ray examinations
can be made with the use of only one digital detector, the most expensive part
of an X-ray system using direct digital technology.
During the 100 years in which X-ray imaging has been used for medical
purposes, there has been a continuous trend to improve image quality, to reduce
the radiation dose and to improve the ergonomic features of X-ray equipment.
Management believes that the ddR technology developed by the Company will take
this development to the next level because the ergonomically advanced
AddOn-Multi-System provides excellent image
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quality with minimal radiation doses and at the same time reduces operating
expenses through the elimination of films, phosphor plates or cassettes and the
handling, development and storage thereof.
The Company's line of SwissVision(TM) postprocessing workstations
permit the postprocessing of digital X-ray images, including section, zooming,
enlargement, soft tissue and bone structure imaging, accentuation of the
limitation of the joints, noise suppression, presentation of different fields of
interest within an area and archiving and transferring the data through central
networks and telecommunication systems. In addition, the SwissVision(TM)
post-processing workstations are able to analyze data stored with respect to a
particular patient. As a result, consistent image quality of different images of
the same patient can be achieved. The workstations operate on a Windows NT
platform and are DICOM 3.0 compatible. The Company is also offering products and
services related to networking, archiving and electronic distribution of digital
X-ray images, including PACS.
CONVENTIONAL X-RAY EQUIPMENT, IMAGING SYSTEMS, COMPONENTS AND
ACCESSORIES
The Company manufactures and sells conventional diagnostic X-ray
equipment for all radiological applications other than mammography and
dentistry. The conventional X-ray equipment manufactured by the Company includes
X- ray generators, basic X-ray equipment, bucky table systems, mobile X-ray
systems, mobile C-arm systems, fluoroscopy systems, urology systems and remote
controlled examination systems. In addition, the Company sells components and
accessories for X-ray systems. In general, the components and accessories for
X-ray equipment sold by the Company are manufactured by third parties. In
Switzerland, the Company is the exclusive distributor of CT systems, MRI systems
and NM systems manufactured by Elscint.
ORIGINAL EQUIPMENT MANUFACTURING (OEM)
On June 11, 1996, the Company entered into a new OEM Agreement (the
"Philips OEM Agreement") with Philips Medical Systems which replaced the
previous OEM Agreement with Philips Medical Systems, dated July 29, 1992. The
Philips OEM Agreement provides for the production of two conventional X-ray
systems, the Bucky Diagnost TS bucky table and a Multi Radiography System
("MRS"), which is approved by the World Health Organization ("WHO") as a World
Health Imaging System for Radiology ("WHIS-RAD"). As a result, the Company's MRS
system may be tendered in projects financed by the World Bank. Under the Philips
OEM Agreement these two products are marketed worldwide by Philips Medical
Systems through its existing distribution network. The initial term of the
Philips OEM Agreement expires on December 31, 2000 and may be extended for
additional periods of 12 months.
SERVICES
The services offered by the Company include the installation and
after-sales servicing of imaging equipment sold by the Company, consulting
services and application training of radiographers. In the United States, the
Company plans to offer consulting services to hospital imaging departments and
imaging centers, including maintenance management, capital planning services and
after-sales services of products manufactured by the Company and third parties.
Maintenance management (or asset management) services for imaging equipment
include the management of after-sales services with respect to different kinds
and brands of imaging equipment (multi-vendor services). Capital planning
services include consulting services in connection with the acquisition,
disposition or refurbishment of imaging equipment.
MARKETS
PRODUCT MARKETS
The Company estimates that the global market for X-ray equipment and
accessories is approximately $5 billion, 45% of which is in the United States,
26% in Western Europe, 19% in Japan and 10% in the rest of the world (Sources:
National Electrical Manufacturers Association; Market Line). The Company's
principal markets
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for its X-ray equipment, components and accessories by country are Switzerland,
the United States and Germany constituting 17%, 15% and 11% of the Company's
sales during the fiscal year ended June 30, 1997 respectively. For the fiscal
year ended June 30, 1997, 22% of the Company's sales were made in Eastern
Europe, primarily attributable to the delivery of conventional X-ray equipment
to hospitals located in Eastern Europe under a contract financed by the Swiss
government. The Company believes that because of the need to bring medical
services to Western standards, Eastern Europe continues to offer interesting
opportunities as a market for the Company's conventional X-ray equipment and
accessories. The Company has also been able to gain access to markets in Asia,
the Middle East and Africa. See "-- Sales and Marketing."
The Company believes that the principal markets for its direct digital
X-ray equipment are located in North America and Western Europe, where the first
sales of the AddOn-Multi-System have been made. The Company submitted both its
AddOn Bucky(TM) and the AddOn-Multi-System to the FDA for Section 510(k)
clearance. On November 21, 1997, the Company's AddOn Bucky(TM), the direct
digital detector of the AddOn-Multi-System, received FDA approval. The Company
expects that the authorization to market the AddOn-Multi-System in the United
States should be forthcoming. However, no assurance can be given as to when or
if at all such authorization will be obtained. Upon obtaining the required
approval from the FDA, the Company intends to sell the AddOn-Multi-System in the
United States through its subsidiaries and other channels. See "Risk Factors --
Government Regulation" and "Business -- Regulatory Matters."
SERVICE MARKETS
The Company estimates that the worldwide market for services related to
X-ray equipment, including maintenance management and capital planning, is
approximately $44 billion, of which approximately $40.5 billion (or 92%) relate
to after-sales services. The markets for maintenance management and capital
planning amount to $3.4 billion or 8% of the total market for services related
to X-ray equipment. The principal markets for after-sales services are the
United States (45%), Western Europe (26%) and Japan (19%). The Company expects
that as the installed base of X-ray equipment grows, the market for after-sales
services will also expand. Additional growth may result from a general increase
in the demand for such services. To date, a significant market for maintenance
management and capital planning has only developed in the United States as a
result of the impact of managed care plans and health maintenance organizations
("HMOs") on the health care industry. The Company expects that in the future
there will be a similar trend in Europe, which may lead to the development of a
market for such services in Europe. See "-- Products" and "-- Sales and
Marketing."
SALES AND MARKETING
The Company's customers are hospitals, clinics, radiology centers and
physicians generally. The Company is marketing its products and services
primarily through its own sales force in Switzerland, Germany and Eastern Europe
and through resellers in these and other markets in Europe, the Middle East,
Africa, Asia, Canada and Latin America. In the United States, the Company plans
to market its products and services primarily through subsidiaries on the East
Coast and West Coast and through resellers in other markets in the United
States. In the United States, the Company plans to also enter the markets for
maintenance management and capital planning services for imaging equipment. The
Company plans to offer such services through its recently created Swissray
Healthcare, Inc located in Gig Harbor, Washington. The Company is also offering
products and services related to networking, electronic archiving and
distribution, including PACs, through the Swissray Information Solution
division.
Two of the Company's products, the MRS system and the Bucky Diagnost TS
system, are distributed worldwide through Philips Medical Systems.
The Company believes that in the foreseeable future there will be a
continuous world-wide growth in the markets for complete X-ray systems,
components, accessories and related services because of the improvement of
health care services in developing countries and Eastern Europe and the
necessity to meet increasingly stricter regulations with respect to radiation
dosage and other safety features and environmental hazards in many
jurisdictions. With the transition from conventional to digital X-ray systems,
the demand for products and services related to networking, archiving and
electronic distribution of digital X-ray images will grow in industrialized
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countries. In these markets the demand for conventional X-ray equipment,
accessories and related services will decrease over time. As a result of the
continuing cost pressure on health-care providers in the United States, the
Company expects the demand for maintenance management and capital services to
grow in the near future. See "-- Markets."
In the past, the Company has made a significant amount of sales of
conventional X-ray equipment to a few large customers. For the fiscal year ended
June 30, 1997 sales to the Company's two largest customers accounted for
approximately 33% of all revenues while sales to the Company's single largest
customer during such period accounted for approximately 18% of all revenues.
During the fiscal year ended June 30, 1997, 15% of the Company's sales were made
to Philips Medical Systems and 18% of the Company's sales were made to
Gesellschaft fur Elektronische Rohren Comet Bern, as general contractor for the
sale of conventional X-ray equipment to hospitals in Eastern Europe financed by
the Swiss government.
The Company considers the relationship with its largest customers to
be satisfactory. Historically, the identity of the Company's largest customers
and the volumes purchased by them has varied. The loss of one or more of the
Company's current two largest customers or a reduction of the volume purchased
by either of them would have an adverse effect upon the Company's sales until
such time, if ever, as significant sales to other customers can be made. The
Company expects that as sales of its AddOn-Multi-System increase, the Company's
revenue will be less dependent on a few large customers. See "Risk Factors --
Reliance on Large Customers" and Note 27 to the Company's Consolidated Financial
Statements.
RESEARCH AND DEVELOPMENT
During the fiscal year ended June 30, 1997, the Company incurred
expenses related to research and development of $5,786,158 (accounting for 38%
of the Company's operating expenses), compared to $1,700,000 (accounting for 20%
of the Company's operating expenses) during the previous fiscal year and
$1,211.653 (or 10.1% of the Company's operating expenses) during the 6-month
period ended June 30, 1995. The increase of the Company's research and
development expenses by 234% from the fiscal year ended June 30, 1995 to the
fiscal year ended June 30, 1996 resulted primarily from the Company's decision
not to market the AddOn Bucky(TM) as a retrofit product for existing
conventional bucky table X-ray systems, but rather to offer a complete
multi-functional direct digital X-ray system which combines a conventional bucky
table and a bucky wall stand and includes a postprocessing system. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
The Company will continue to have significant research and development
expenses associated with the development of new products (including diagnostic
hardware and software products and new digital X-ray products) and improvements
to existing products manufactured by the Company. New products currently being
developed by or on behalf of the Company include a new digital C-arm system, a
digital remote controlled fluoroscopy system, a conventional bucky-table system
and a multi-functional floating table.
As of June 30, 1997, the Company employed six people in research and
development. The number of people employed in research and development has
increased by 50% since June 30, 1996. The Company is outsourcing certain
research and development activities (such as the development of the Company's
mobile units, C-arm systems and fluoroscopy tables) and intends to continue this
policy in the future. On April 1, 1997, Dr. med. Felix Riedel, a well-known
specialist in radiology and nuclear medicine with twenty years of clinical and
scientific experience in the United States and Europe joined the Company as head
of the Company's research and development department. Dr. Riedel has received
numerous awards for his achievements in diagnostic radiology from scientific and
academic institutions. He is a member of the Swiss Society of Radiology, a full
voting member of the International Society of Magnetic Resonance Imaging and a
corresponding member of the North American Society of Radiology. See
"-- Employees."
The Company has established a scientific board to support its research
and development projects and to enable the Company to develop technologically
advanced products. The Company believes that the integration of academic
institutions and hospitals will allow the Company to save research and
development expenses and will provide it with access to clinical and scientific
experience and know-how. Currently, the following individuals have
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been appointed to this scientific board: Dr. med. Felix Riedel, Chairman, Prof.
Dr. med. Michael Meves, head of the Central Radiology Department at the
Northeast Hospital in Frankfurt/Main, Germany, Prof. Dr. med. Hanfried Weigand,
head of the Central Radiology Department of the Horst-Schmidt-Clinic in
Wiesbaden, Germany, Dr. med. Paul Jegge, Co-head of the Radiology Department at
the Regional Hospital, Langenthal, Switzerland, Hans Behrendt, General Manager
of Elscint GmbH, and Michael L. Baker, head of the Company's Information
Solution division.
RAW MATERIALS AND SUPPLIERS
The Company has a policy of outsourcing the manufacturing of components
for its X-ray equipment whenever such outsourcing is more efficient and cost
effective than in-house production. In particular, components for which serial
production is available are produced by third-party manufacturers according to
Company specifications. Generally, the X-ray accessories sold by the Company are
manufactured by third parties.
There is virtually no stock of finished X-ray equipment on the
Company's premises for any extended period of time since X-ray equipment is
generally manufactured at a customer's request. The Company stocks such
components and accessories as it deems necessary. At June 30, 1997 finished
products accounted for approximately 21% of inventory while raw material, parts
and supplies accounted for approximately 67% of inventory and work in process
for approximately 12%.
In general, key components for the Company's X-ray equipment can be
obtained from several sources and the Company has entered into supply agreements
with certain of its suppliers. The CCD camera, a key component of the AddOn
Bucky(TM), has been developed on the Company's behalf by the Philips Components
division of Philips GmbH, Hamburg. Philips Components has entered into an
exclusive supply agreement with the Company (which is currently being restated)
and the Company considers its relationship with Philips Components to be
satisfactory. While other suppliers of CCD cameras are available, a significant
amount of time would be required to integrate a CCD camera of another supplier
into the Company's AddOn-Multi-System and there can be no assurance that such
integration could be achieved in a timely manner. The Company believes that
there is no anticipated shortage in the supply of key components for its X-ray
equipment. See "Risk Factors -- Limited Manufacturing History with Respect to
AddOn-Multi-System; Dependence on Sole Source Suppliers."
BACKLOG
Management estimates that as of the end of the fiscal year ended June
30, 1997, the Company had an order backlog of $10,500,000 for conventional X-ray
equipment as compared to $25,000,000 as of June 30, 1996 and $30,000,000 for
digital X-ray equipment compared to $30,000,000 as of June 30, 1996. The Company
believes that substantially the entire order backlog for conventional X-ray
equipment (which consists primarily of orders under the Philips OEM Agreement)
will be filled during the current fiscal year. With respect to the backlog for
digital X-ray equipment, the Company expects to fill such orders (which
primarily relate to one customer) within 12 to 18 months. However, due to
political circumstances beyond the Company's control in the countries to which
certain of such equipment is expected to be sold no assurance can be given that
all of such orders will be filled during such time period or at all. While the
Company expects to continue to have a certain order backlog for conventional
X-ray equipment in the future because of the Philips OEM Agreement, the order
backlog for digital X-ray equipment is likely to be substantially reduced in the
future as the Company estimates that orders for such equipment will typically be
filled within three months.
COMPETITION
X-RAY EQUIPMENT MARKET
The markets in which the Company operates are highly competitive. Most
of the Company's competitors are significantly larger than the Company and have
access to greater financial and other resources than the Company. The principal
competitors for the Company's X-ray equipment are General Electric, Siemens,
Toshiba,
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Trex Medical, Shimatsu, Picker and Philips. In general, it is the Company's
strategy to compete primarily based on the quality of its products. In the
market for conventional X-ray equipment, the Company's strategy is to focus on
niche products and standard equipment.
To the Company's knowledge the only direct digital X-ray systems for
medical diagnostic purposes other than the AddOn-Multi-System currently
available are chest examination systems offered by Philips and IMIX, a Finnish
manufacturer. In addition, there are several direct digital X-ray systems
available for dental purposes. None of these systems is able to perform bone
examinations on extremities. The Company's AddOn-Multi-System is the only multi-
functional direct digital X-ray system currently available which allows all
plane X-ray examinations on the recumbent, upright and sitting patient without
the use of cassettes, films, chemicals or phosphor plates. A number of
companies, including certain of the Company's competitors in the markets for
conventional X-ray equipment, are currently developing direct digital X-ray
detectors or direct digital X-ray systems for specific applications (including
mammography). To the Company's knowledge there is no competing multi-functional
X-ray system currently being developed. See "-- Products," "-- Markets," "Risk
Factors -- Competition."
SERVICE MARKET
In the markets for services related to imaging equipment the Company's
competitors are equipment manufacturers (including certain of the Company's
competitors in the X-ray equipment market) and independent service
organizations. In the service markets, it is the Company's strategy to build a
market position based on the confidence of its customers in the quality of its
products and service personnel. See "-- Products," "-- Markets," "Risk Factors
- -- Competition."
INTELLECTUAL PROPERTY
The Company has obtained patent protection for certain aspects of its
conventional X-ray technology. The Company has filed patent applications
covering certain aspects of its direct digital technology in key markets in
Europe, North-America and Asia, including the United States, Canada, Switzerland
and Germany. There can be no assurance, however, as to the breadth or degree of
protection which such patents may afford the Company, that any patent
applications will result in issued patents or that patents will not be
circumvented or invalidated. Although the Company believes that its products do
not infringe patents or violate proprietary rights of others, it is possible
that infringement of proprietary rights of others has occurred or may occur. In
the event the Company's products infringe patents or proprietary rights of
others, the Company may be required to modify the design of its products or
obtain a license. There can be no assurance that the Company will be able to do
so in a timely manner, upon acceptable terms and conditions or at all. The
failure to do any of the foregoing could have a material adverse effect upon the
Company. In addition, there can be no assurance that the Company will have the
financial or other resources necessary to enforce or defend a patent
infringement action and the Company could, under certain circumstances, become
liable for damages, which also could have a material adverse effect on the
Company.
The Company also relies on proprietary know-how and employs various
methods to protect its concepts, ideas and technology. However, such methods may
not afford complete protection and there can be no assurance that others will
not independently develop such technology or obtain access to the Company's
proprietary know-how or ideas. Furthermore, although the Company has generally
entered into confidentiality agreements with its employees, consultants and
other parties, there can be no assurance that such arrangements will adequately
protect the Company. The Company has obtained licenses to use certain technology
which is essential for certain of the Company's products, including certain
software used for its line of SwissVision(TM) postprocessing systems. The
software license is a worldwide, non-exclusive, non-transferable license for a
term of two years to use and distribute the Agfa software in combination with
the Add-On Bucky.
The Company considers the Swissray name as material to its business and
has obtained, or is in the process of obtaining, trademark protection in key
markets. The Company is not aware of any claims or infringement or other
challenges to the Company's rights to use this or any other trademarks used by
the Company. See "Risk Factors -- Dependence on Patents and Proprietary
Technology."
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REGULATORY MATTERS
The Company's X-ray equipment, components and related accessories are
subject to regulation by national or regional authorities in the markets in
which the Company operates. Pursuant to the Federal Food, Drug and Cosmetic Act,
X-ray equipment is a class II medical device which may not be marketed in the
United States without prior approval from the FDA.
The FDA review process typically requires extended proceedings
pertaining to the safety and efficacy of new products. A 510(k) application is
required in order to market a new or modified medical device. If specifically
required by the FDA, a pre-market approval ("PMA")may be necessary. Such
proceedings, which must be completed prior to marketing a new medical device,
are potentially expensive and time consuming. They may delay or hinder a
product's timely entry into the marketplace. Moreover, there can be no assurance
that the review or approval process for these products by the FDA or any other
applicable governmental authorities will occur in a timely fashion, if at all,
or that additional regulations will not be adopted or current regulations
amended in such a manner as will adversely affect the Company. Moreover, such
pre-marketing clearance, if obtained, may be subject to conditions on the
marketing or manufacturing of the AddOn-Multi-System which could impede the
Company's ability to manufacture and/or market the product. The Company
submitted both its AddOn-Bucky(TM) and the AddOn-Multi-System for Section 510(k)
clearance with the FDA. On November 21, 1997, the Company's AddOn Bucky(TM), the
direct digital detector of the AddOn-Multi-System, received FDA approval. The
Company expects that the authorization to market the AddOn-Multi-System in the
United States should be forthcoming. However, no assurance can be given as to
when or if at all such authorization will be obtained. The FDA also regulates
the content of advertising and marketing materials relating to medical devices.
There can be no assurance that the Company's advertising and marketing materials
regarding its products are and will be in compliance with such regulations.
The Company is also subject to other federal, state, local and foreign
laws, regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices. The electrical components of the
Company's products are subject to electrical safety standards in many
jurisdictions, including Switzerland, EU, Germany and the United States. The
Company believes that it is in compliance in all material respects with
applicable regulations. Failure to comply with applicable regulatory
requirements can result in, among other things, fines, suspensions of approvals,
seizures or recalls of products, operating restrictions and criminal
prosecutions. The effect of government regulation may be to delay for a
considerable period of time or to prevent the marketing and full
commercialization of future products or services that the Company may develop
and/or to impose costly requirements on the Company. There can also be no
assurance that additional regulations will not be adopted or current regulations
amended in such a manner as will materially adversely affect the Company. See
"Risk Factors -- Risks Associated With International Operations," "-- Government
Regulations," "Business -- Markets" and "-- Regulatory Matters."
ENVIRONMENTAL MATTERS
The Company is subject to various environmental laws and regulations in
the jurisdictions in which it operates, including those relating to air
emissions, wastewater discharges, the handling and disposal of solid and
hazardous wastes and the remediation of contamination associated with the use
and disposal of hazardous substances. The Company owns or leases properties and
manufacturing facilities in Switzerland, the United States and Germany. The
Company, like its competitors, has incurred, and will continue to incur, capital
and operating expenditures and other costs in complying with such laws and
regulations in both the United States and abroad. As a result of the operation
of the Company's business, the Company may have potential liability with respect
to the remediation of past contamination in certain of its presently and
formerly owned or leased facilities in both the United States and abroad. In
addition, certain of the Company's facilities may have used substances or
generated and disposed of wastes which are or may be considered hazardous. It is
possible that such sites, as well as disposal sites owned by third parties to
which the Company has sent wastes, may in the future be identified and become
the subject of remediation. Accordingly, although the Company believes that it
is in substantial compliance with applicable environmental requirements and the
Company to date has not incurred material expenditures in
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<PAGE> 35
connection with environmental matters, it is possible that the Company could
become subject to additional environmental liabilities in the future that could
result in an adverse effect on the Company's financial condition or results of
operations. See "Risk Factors -- Environmental Matters."
EMPLOYEES
As of October 23, 1997, the Company had 145 employees worldwide, of
which 69 were employed by subsidiaries in the United States, 66 in Switzerland,
and 10 in European countries other than Switzerland. The Company believes that
its relationship with employees is satisfactory. The Company has not suffered
any significant labor problems during the last five years.
DESCRIPTION OF PROPERTY
The Company leases approximately 13,000 square feet of office and
showroom space in Hitzkirch, Switzerland. On April 12, 1997, the production
facility rented by the Company in Hochdorf, Switzerland was affected by a fire
in an adjacent facility. On May 15, 1997, the Company purchased a new office and
production facility of approximately 43,000 square feet and moved its entire
production to this facility. The Company plans to move the offices and other
facilities located in its Hitzkirch facility to the new Hochdorf facility during
the third quarter of the fiscal year ending June 30, 1998. The Company believes
that its new Hochdorf facility provides it with sufficient production and office
space to meet its demand in Switzerland in the foreseeable future.
The Company also leases approximately 9,000 square feet of office and
warehouse space in Glen Cove, New York. In addition, the Company leases office
space in New York City, Azusa, California, Gig Harbor, Washington and Wiesbaden,
Germany.
LEGAL PROCEEDINGS
On or about July 7, 1995, the Company commenced litigation against a
former officer and director of a corporate predecessor alleging certain
improprieties on the part of such officer and seeking monetary compensation as a
result thereof. Such defendant responded (in September 1995) by filing certain
affirmative defenses and counterclaims against the Company and others and
subsequently brought (together with certain of his family members) an action
against the Company in the same court which action raised issues and claims
substantially similar to those raised in the aforesaid counterclaims. The two
actions were assigned to the same judge and the Company moved successfully to
dismiss both the counterclaims and the second action. Leave to replead both
claims was granted and amended counterclaims and an amended complaint were
served and filed and the Company again successfully moved to dismiss both
pleadings. Following the most recent dismissal, counsel for the Company and the
aforesaid former officer entered into settlement discussions. Both the Company
and defendant have agreed to dismiss all claims and counterclaims against each
other, and are awaiting for formal written releases to be exchanged. See Note 24
to the Consolidated Financial Statements June 30, 1995 and December 31, 1994 and
1993 and Note 29 to the Consolidated Financial Statements June 30, 1997 and
1996.
On or about October 15, 1997, the Registrant and Swissray Healthcare,
Inc. were served with a complaint by a company engaged in the business of
providing services related to imaging equipment alleging benefit from breach of
fiduciary and contractual duties and misappropriation of trade secrets by
certain former employees of such competitor. Such company also obtained a
preliminary injunction and a temporary restraining order against the Registrant
and Swissray Healthcare, Inc. On November 10, 1997, the preliminary injunction
and the temporary restraining order were vacated. The Company denies the
allegations, intends to vigorously defend the litigation, and believes the
ultimate outcome thereof will not have a material adverse effect upon the
Company's results of operations or financial position. The Company believes that
the complaint is without merit.
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<PAGE> 36
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Set forth below is certain information concerning each director and
executive officer of the Registrant, including age, position(s) with the
Registrant, present principal occupation and business experience during the past
five years.
<TABLE>
<CAPTION>
Name Age Position(s) Held
---- --- ----------------
<S> <C> <C>
Ruedi G. Laupper 47 Chairman of the Board of Directors,
President and Chief Executive Officer,
Josef Laupper 52 Secretary, Treasurer and Director
Herbert Laubscher 31 Chief Financial Officer
Ueli Laupper 27 Vice President International Sales and Director
Dr. Erwin Zimmerli 50 Director
Akbar Seddigh 54 Director
Daniel A. Wuersch 37 Director
</TABLE>
Directors are elected to serve until the next annual meeting of
stockholders and until their successors have been elected and have qualified.
Officers are appointed to serve until the meeting of the Board of Directors
following the next annual meeting of stockholders and until their successors
have been elected and have qualified.
Ruedi G. Laupper has been President, Chief Executive Officer and a
director of the Registrant since May 1995 and Chairman of the Board of Directors
since March 1997. In addition, he is Chairman of the Board of Directors of the
Company's principal operating subsidiaries. Ruedi G. Laupper is the founder of
the predecessors of the Company and was Chief Executive Officer of SR-Medical AG
until May 1995. He has approximately 22 years of experience in the field of
radiology. Ruedi G. Laupper is the brother of Josef Laupper and the father of
Ueli Laupper.
Josef Laupper is the brother of Ruedi G. Laupper and the uncle of Ueli
Laupper and has been Secretary, Treasurer and a director of the Registrant since
May 1995. He has held comparable positions with SR-Medical AG, Teleray AG and
their respective predecessors since 1990. He is principally in charge of the
Company's administration. Josef Laupper has approximately 18 years of experience
within the medical device business.
Herbert Laubscher joined the Company as a manager responsible for
finance and controlling on August 2, 1996. He was appointed Chief Financial
Officer of the Registrant on September 15, 1997. Herbert Laubscher obtained his
graduate degree in business administration from the University of St. Gall,
Switzerland in October 1992. From October 1992 until June 1995 he was an
accountant with Price Waterhouse in Zurich. Prior to joining the Company he
served as group financial officer of AZ Zibatra Holding GmbH in Leipzig,
Germany.
Ueli Laupper is the son of the Registrant's President and the nephew of
Josef Laupper. Ueli Laupper has overall Company responsibilities in the area of
international marketing and sales with approximately seven years of experience
within the international X-ray market. He has been Vice President of
International Sales since March 1997 and a director of the Registrant since
March 1997. He was Chief Executive Officer of SR Medical AG from July 1995 until
June 30, 1997.
Erwin Zimmerli has been a director of the Registrant since May 1995.
Since receiving his Ph.D. degree in law and economics from the University of St.
Gall, Switzerland in 1979, Zimmerli has served as head of the White Collar Crime
Department of the Zurich State Police (1980-86), an expert of a Swiss
Parliamentary Commission for penal law and Lecturer at the Universities of St.
Gall and Zurich (1980-87), Vice President of an accounting firm (1987-1990) and
Executive Vice President of a multinational aviation company (1990-92). Since
1992 he has been actively engaged in various independent consulting capacities
primarily within the Swiss legal community.
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<PAGE> 37
Akbar Seddigh has been a Director of the Registrant since December 23,
1997. He has served as Chief Executive Officer of a subsidiary of The Swedish
Atomic Energy (1976-1981) and Chief Executive Officer of Scanning AB, a
subsidiary of Volvo AB (1981-1985). Mr. Seddigh founded Ortivus AB (formerly
Medical Invest Svenska AB) in 1985 and was its Chief Executive Officer until
August, 1997 at which time he was elected Vice Chairman. Ortivus AB, which has
been listed on the Stockholm Stock Exchange since January, 1997, brought the new
medical concepts of MIDA (Myocardial Ischemia Dynamic Analysis) and telemedicine
(Mobimed) to the market. Mr. Seddigh serves as a member on the following boards:
Chairman of Analytica AB, Director of Nordbanken Taby, Goseberg Bruk AB,
Artimplant AB, Cellavision AB and Chemel AB. He obtained a masters degree in
analytical chemistry in 1968 from the Institute of Technology in Stockholm and a
BA in market economics in 1973 from the Stockholm Business School.
Daniel A. Wuersch has been a Director of the Registrant since December
23, 1997. Mr. Wuersch obtained a graduate degree in law from the University of
Zurich, Switzerland in 1986. In addition, he holds a Ph.D degree in law from the
University of Zurich and an L.L.M. degree from the Georgetown University Law
Center, Washington, D.C. He was associated with the law firms of Morgan, Lewis &
Bockius LLP in New York from September 1996 through December 1997, Fried, Frank,
Harris, Shriver & Jacobson in New York from April 1993 through August 1996 and
prior thereto with the Homburger law firm in Zurich, Switzerland.
THE BOARD OF DIRECTORS
The Board of Directors has responsibility for establishing broad
corporate policies and for overseeing the performance of the Registrant. Members
of the Board of Directors are kept informed of the Registrant's business by
various reports and documents sent to them in anticipation of Board meetings as
well as by operating and financial reports presented at Board meetings. The
Registrant pays its directors fees or compensation for services rendered in
their capacity as directors. The current Board of Directors was elected and
assumed office as of December 23, 1997.
The Board does not currently have a standing audit, nominating or
compensation committee or any committee or committees performing similar
functions, but acts, as a whole, in performing the functions of such committees.
At the first meeting of the new Board of Directors to be held in January, 1998,
the Board of Directors will form (i) an audit committee to comply with recently
amended quantitative maintenance standards for the Nasdaq SmallCap Market on
which the Common Stock is quoted and (ii) a compensation committee (the
"Compensation Committee").
EMPLOYMENT AGREEMENTS
Ruedi G. Laupper has entered into a five-year employment agreement with
Swissray Management AG, a wholly owned subsidiary of the Registrant, on
December 18, 1997, which agreement will be automatically renewed for another
five years unless terminated by either party no later than December 31, 2001.
Such agreement provides for (i) an annual salary of 276,000 Swiss francs (or
$192,683, based on an exchange rate of 1.4324), (ii) a fixed annual bonus of
23,000 Swiss francs (or $16,057), and (iii) a performance based bonus, based on
the audited consolidated financial statements of the Company as of the end of
the fiscal year. The bonus shall be 25% of EBIT (earnings before interest and
taxes) payable in stock of Swissray International, Inc. valued at the average
of the closing prices during the five business days following the filing of the
10-K. In addition, the agreement entitles Mr. Laupper to a car allowance, five
weeks of vacation, $698 per month for expenses and a "Bel Etage" insurance
which provides certain pension benefits not mandated by Swiss law. If such
employment agreement is terminated for reasons beyond the employee's control,
Ruedi Laupper will receive 2 million Swiss francs (or $1,396,258) including
any bonus. The Registrant guarantees the obligation of Swissray Management AG
in the event of a default.
Ueli Laupper and Josef Laupper have entered into three-year employment
agreements with Swissray Management AG on December 18, 1997, which agreements
will be automatically renewed for another three years unless notice is given six
months prior to the expiration date. Such agreements provide for salaries of
$84,924 and 119,700 Swiss francs (or $83,566) respectively with annual bonuses
of $7,077 and 9975 Swiss francs (or $6,964) respectively, $1,500 and 1000 Swiss
francs (or $698) per month for expenses respectively and 20 days and 25 days of
vacation respectively. The employment agreements of each of Ueli Laupper and
Josef Laupper also provide for a car allowance. If either of such employees is
terminated for reasons beyond the employees control he will receive 500,000
Swiss francs (or $349,065).
Herbert Laubscher has entered into an employment agreement with
Swissray Management AG for an indefinite term, with termination upon one month
notice during the first year of employment, two months notice after two years of
employment and three months notice after ten years of employment. Such agreement
provides for (i) an annual salary of 102,000 Swiss francs (or $71,209), (ii) an
annual bonus of 8,500 Swiss francs (or $5,934), (iii) 500 Swiss francs (or $349)
per month for expenses and (v) 20 days vacation. All of these employment
agreement are governed by closing holder.
All of these employment agreements are covered by Swiss law.
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
(A) The following Summary Compensation Table sets forth certain
information for the years ended June 30, 1995, 1996 and 1997 concerning the cash
and non-cash compensation earned by or awarded to the Chief Executive Officer of
the Registrant, the three other most highly compensated executive officers of
the Registrant and the former Chairman of the Board of Directors (the "Named
Executive Officers") as of June 30, 1997:
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<PAGE> 38
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
-------------------------------------------- ------------------------
FISCAL OTHER ANNUAL STOCK ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
--------------------------- ---- ------ ----- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ruedi G. Laupper 1997 $146,983 -- $15,000(2) 120,000(6) --
President and Chief Executive Officer 1996 $161,085 -- $15,000(2) -- --
Chairman of the Board of Directors 1995 $ 50,555(1) -- -- -- --
Josef Laupper 1997 $ 96,861 -- $12,000(2) -- --
Secretary, Treasurer 1996 $106,229 -- $12,000(2) -- --
1995 $ 50,555(1) -- -- -- --
Ueli Laupper 1997 -- -- -- -- --
Vice President International Sales(3) 1996 -- -- -- -- --
1995 -- -- -- -- --
Herbert Laubscher 1997 -- -- -- -- --
Chief Financial Officer(3)(4) 1996 -- -- -- -- --
1995 -- -- -- -- --
Ulrich R. Ernst(5) 1997 $ 96,979 -- $10,000(2) -- --
1996 $ 98,197 -- $15,000(2) -- --
1995 -- -- -- -- --
</TABLE>
- ----------------
(1) In 1995, the Registrant changed its fiscal year end from December 31 to
June 30. As a result, the Registrant had a fiscal year beginning on
January 1, 1995 and ending on June 30, 1995. Accordingly, the salaries
listed for fiscal year 1995 were for a six-month period. The salaries
for each of Ruedi G. Laupper and Josef Laupper for the twelve-month
period ending June 30, 1995 were $101,110 and $101,110,
respectively.
(2) Fees for service on the Board of Directors of the Registrant.
(3) Compensation did not exceed $100,000 in any fiscal year.
(4) Herbert Laubscher joined the Registrant on August 2, 1996.
(5) Ulrich R. Ernst was Chairman of the Board of Directors from May, 1995
until March 18, 1997.
(6) The options, which were fully vested on date of grant (6/13/97), were
issued in exchange for services to the Registrant as Chairman of the
Board of Directors.
STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
The following tables set forth certain information concerning the grant
of options to purchase shares of the Common Stock to each of the executive
officers of the Registrant, as well as certain information concerning the
exercise and value of such stock options for each of such individuals. Options
generally become exercisable upon issuance and expire no later than ten years
from the date of grant.
<TABLE>
<CAPTION>
STOCK OPTIONS GRANTED IN FISCAL YEAR ENDED JUNE 30, 1997(1)
PERCENT OF
TOTAL POTENTIAL REALIZATION VALUE AT
NUMBER OF OPTIONS ASSUMED ANNUAL RATES OF STOCK
SECURITIES GRANTED TO MARKET APPRECIATION FOR OPTION TERM
UNDERLYING EMPLOYEES EXERCISE OR PRICE ON
OPTIONS IN FISCAL BASE PRICE DATE OF EXPIRATION
NAME GRANTED YEAR PER SHARE GRANT DATE 0% 5% 10%
---- ------- ---- --------- -------- ---- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ruedi G. Laupper 120,000(2) 30.4% $0.73(3) $2.94(4) 6/13/02 265,200 282,840 300,480
Josef Laupper(5) -- -- -- -- -- -- -- --
Ueli Laupper(5) -- -- -- -- -- -- -- --
Herbert Laubscher(5) -- -- -- -- -- -- -- --
Ulrich Ernst(5)(6) -- -- -- -- -- -- -- --
</TABLE>
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<PAGE> 39
- -----------------
(1) The options to purchase the Registrant's Common Stock were granted
under the Swissray International, Inc. 1996 Non-Statutory Stock Option
Plan.
(2) These options were owned indirectly through SR Medical Equipment Ltd.,
a corporation wholly owned by Mr. Laupper. They were immediately
exercisable on the date of grant.
(3) The exercise price per share is contingent on purchase of the entire
amount of securities.
(4) The market price on date of grant was based on the average of the
high and low reported prices on the Nasdaq SmallCap Market on
June 13, 1997.
(5) These individuals own no stock options of the Registrant.
(6) Mr. Ernst was Chairman of the Board of Directors from May 1995
until March 18, 1997.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END
OPTION VALUES(1)
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
NAME AT FISCAL YEAR-END(#) AT FISCAL YEAR-END($)
(A) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE(2)
- ---------------------------------------- -------------------------------- -------------------------------
<S> <C> <C>
Ruedi G. Laupper 120,000/0(3) $1.79/0
Josef Laupper(4) 0/0 0/0
Ueli Laupper(4) 0/0 0/0
Herbert Laubscher(4) 0/0 0/0
Ulrich R. Ernst(4)(5) 0/0 0/0
</TABLE>
- ----------------
(1) No options were exercised by a Named Executive Officer during the
fiscal year ended June 30, 1997.
(2) Options are in-the-money if the fair market value of the underlying
securities exceeds the exercise price of the option.
(3) Includes 120,000 options which are owned indirectly by Mr. Laupper
through SR Medical Equipment Ltd., a corporation which is wholly owned
by Mr. Laupper.
(4) These individuals own no stock options of the Registrant.
(5) Mr. Ernst was Chairman of the Board of Directors from May 1995 until
March 18, 1997.
STOCK OPTION PLAN
On January 30, 1996, the Board of Directors adopted the Company's 1996
Non-Statutory Stock Option Plan (the "Plan"). Substantially all of the options
under such plan have been granted. Consequently, the Board of Directors and the
Registrant's stockholders approved the Swissray International, Inc. 1997 Stock
Option Plan (the "Stock Option Plan").
The purpose of the Stock Option Plan is to provide directors, officers
and employees of, and consultants to the Company and its subsidiaries with
additional incentives by increasing their ownership interests in the Company.
Directors, officers and other employees of the Company and its subsidiaries are
eligible to participate in the Stock Option Plan. Options may also be granted
to directors who are not employed by the Company and consultants providing
valuable services to the Company and its subsidiaries. In addition, individuals
who have agreed to become an employee of, director of or a consultant to the
Company and its subsidiaries are eligible for option grants, conditional in
each case on actual employment, directorship or consultant status. Awards of
options to purchase Common Stock may include incentive stock options under
Section 422 of the Internal Revenue Code ("ISOs") and/or non-qualified stock
options ("NQSOs"). Grantees who are not employees of the Company or a
subsidiary shall only receive NQSOs.
The maximum number of options that may be granted under this plan shall be
options to purchase 2,000,000 shares of Common Stock.
The Compensation Committee will administer the Stock Option Plan. The
Compensation Committee generally will have discretion to determine the terms of
any option grant, including the number of option shares, exercise price, term,
vesting schedule, the post-termination exercise period, and whether the grant
will be an ISO or NQSO. Notwithstanding this discretion: (i) the number of
shares subject to options granted to any individual in any calendar year may not
exceed 200,000; (ii) the term of any option may not exceed 10 years (unless
granted as an ISO to an individual or entity who possesses more than 10% of the
voting power of the Company, which term may not exceed five years); (iii) an
option will terminate as follows: (a) if such termination is on account of
permanent and total disability (as determined by the Compensation Committee),
such options shall terminate one year thereafter; (b) if such termination is on
account of death, such options shall terminate six months thereafter; (c) if
such termination is for cause (as determined by the Compensation Committee),
such options shall terminate immediately; (d) if such termination is for any
other reason, such options shall terminate three months thereafter; and (iv)
the exercise price of each share subject to an ISO shall be not less than 100%,
or, in the case of an ISO granted to an individual described in Section
422(b)(6) of the Code, 110% of the fair market value (determined in accordance
with Section 422 of the Code) of a share of the Stock on the date such option is
granted. Unless otherwise determined by the Compensation Committee, (i) the
exercise price per share of Common Stock subject to an option shall be equal to
the fair market value of the Common Stock on the date such option is granted;
(ii) all outstanding options become exercisable immediately prior to a "change
in control" of the Company (as defined in the Stock Option Plan) and (iii) each
option shall become exercisable in three equal installments on each of the
first, second and third anniversary of the date such option is granted.
The Stock Option Plan may be amended, altered, suspended, discontinued or
terminated by the Board of Directors without further stockholder approval,
unless such approval is required by law or regulation or under the rules of the
stock exchange or automated quotation system on which the Common Stock is then
listed or quoted. Thus, stockholder approval will not necessarily be required
for amendments which might increase the cost of the Stock Option Plan or
broaden eligibility. The Stock Option Plan will remain in effect until
terminated by the Board of Directors. No ISO may be granted more than ten years
after such date.
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<PAGE> 40
The Registrant currently has outstanding non-statutory stock options to
purchase an aggregate of 1,455,000 shares of Common Stock. See "Management --
Compensation of Directors and Executive Officers" and Note 26 to the
Consolidated Financial Statements June 30, 1997 and 1996.
RETIREMENT AND LONG-TERM INCENTIVE PLANS
The Swiss and German Subsidiaries, mandated by government regulations,
are required to contribute approximately five (5%) percent of eligible, as
defined, employees' salaries into a government pension plan. The subsidiaries
also contribute approximately five (5%) percent of eligible employee salaries
into a private pension plan. Total contributions charged to operations for the
years ended June 30, 1997 and 1996, were $274,009 and $198,722, respectively.
Effective March 1, 1992, Empower adopted a qualified 401(k) retirement
plan for the benefit of substantially all its employees. Under the plan,
employees can contribute and defer taxes on compensation contributed. Empower
matches, within prescribed limits, the contributions of the employees. Empower
also has the option to make an additional contribution to the plan. Empower's
contribution to the plan for the period April 1, 1997 (date of the Registrant's
acquisition of Empower) to June 30, 1997 was $4,185.
Effective April 3, 1992, Empower adopted a "Section 125" employee
benefits plan, which is also referred to as a "Cafeteria" plan. Empower pays for
approximately 85% of the employees' health coverage and the employee pays
approximately 15% of the cost of the coverage. With the implementation of the
Cafeteria plan, the employees' payments for coverage are on a pre-tax basis. A
new employee has only a ninety (90) day waiting period before he or she becomes
eligible to participate in the group insurance plan and the Cafeteria plan. See
Note 21 to the Consolidated Financial Statements June 30, 1997 and 1996.
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<PAGE> 41
DIRECTOR COMPENSATION
Directors of the Registrant receive $10,000 annually for serving as
directors except for Josef Laupper, who receives $12,000 and Ruedi Laupper, the
Chairman of the Board of Directors, who receives $15,000. Ruedi Laupper also
received options to acquire 120,000 shares of the Registrant's Common Stock on
June 13, 1997 in exchange for services to the Registrant as Chairman of the
Board of Directors. The exercise price for such options is $.73 per share. The
options were fully vested on the date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Registrant had no Compensation Committee during the last completed
fiscal year. The Registrant's executive compensation was supervised by all
members of the Registrant's Board of Directors and the following directors were
concurrently officers of the Registrant in the following capacities: Ruedi G.
Laupper (Chairman of the Board of Directors, President and Chief Executive
Officer); Josef Laupper (Secretary and Treasurer), Ueli Laupper (Vice President
International Sales) and Ulrich R. Ernst (Chairman of the Board of Directors
from May 1995 until March 18, 1997). No executive officer of the Registrant
served as a member of the board of directors or compensation committee of any
entity which has one or more executive officers who serve on the Registrant's
Board of Directors.
The Registrant issued 482,590 shares of Common Stock to a company
controlled by Ruedi G. Laupper pursuant to an agreement between Mr. Laupper and
the Registrant, dated as of June 30, 1997, in consideration of Mr. Laupper's
agreement to the temporary cancellation of 1,608,633 shares of Common Stock held
by Mr. Laupper or companies controlled by him to enable the Registrant to
maintain a sufficient number of shares of Common Stock to meet certain
obligations of the Registrant to issue Common Stock and to permit certain
financings prior to the increase of the number of authorized shares of Common
Stock from 15,000,000 to 30,000,000.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of December 19, 1997 (except where otherwise
noted) with respect to (a) each person known by the Registrant to be the
beneficial owner of more than five percent of the outstanding shares of Common
Stock, (b) each director of the Registrant, (c) the Registrant's executive
officers and (d) all officers and directors of the Registrant as a group (except
as indicated in the footnotes to the table, all of such shares of Common Stock
are owned with sole voting and investment power):
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<PAGE> 42
<TABLE>
<CAPTION>
NO. OF SHARES
BENEFICIALLY PERCENTAGE OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED(2) BENEFICIALLY OWNED
- ----------------------------------------- ------------- --------------------
<S> <C> <C>
Ruedi G. Laupper (3) 4,102,590 15.00%
Josef Laupper (4) 500,000 1.83%
Ulrich R. Ernst(5)(6) 500,000 1.83%
Erwin Zimmerli (7) 50,000 *
Ueli Laupper 0 --
Herbert Laubscher 0 --
Akbar Seddigh 5,000 *
Daniel A. Wuersh 0 --
---------- ----
All Officers and Directors as a Group (6 persons) 5,152,590 18.86%
</TABLE>
- ------------------
* Represents less than 1%.
(1) Unless otherwise indicated, the address of each named individual is in
care of Swissray International Inc., 200 East 32nd Street, Suite 34-B,
New York, NY 10016.
(2) Unless otherwise indicated, the Company believes that all persons named
in the table have sole voting and investment power with respect to all
shares of the Common Stock beneficially owned by them. A person is
deemed to be the beneficial owner of securities which may be acquired
by such person within 60 days from the date of this Proxy Statement
upon the exercise of options, warrants or convertible securities. Each
beneficial owner's percentage ownership is determined by assuming that
options that are held by such person (but not those held by any other
person) and which are exercisable within 60 days of the date of this
Proxy Statement, have been exercised.
(3) Includes (i) 300,000 shares owned indirectly by Mr. Laupper through SR
Medical Equipment Ltd., a corporation which is wholly owned by Mr.
Laupper; (ii) 3,682,590 shares owned indirectly by Mr. Laupper through
Tomlinson Holding, Inc., a corporation which is wholly owned by Mr.
Laupper and (iii) 120,000 shares which may be acquired upon exercise of
immediately exercisable options, which options are owned indirectly by
Mr. Laupper through SR Medical Equipment Ltd., a corporation which is
wholly owned by Mr. Laupper.
(4) Includes 500,000 shares owned indirectly by Mr. Laupper through Lairy
Investment Inc., a corporation of which Mr. Laupper is a majority
shareholder.
(5) Includes 500,000 shares owned indirectly by Mr. Ernst through a
corporation of which Mr. Ernst is a majority shareholder.
(6) Mr. Ernst was Chairman of the Board of Directors from May 1995 until
March 18, 1997.
(7) Includes 50,000 shares which may be acquired upon exercise of
immediately exercisable options.
CERTAIN TRANSACTIONS
The Registrant issued 482,590 shares of Common Stock to a company
controlled by Ruedi G. Laupper pursuant to an agreement between Mr. Laupper and
the Registrant, dated as of June 30, 1997, in consideration of Mr. Laupper's
agreement to the temporary cancellation of 1,608,633 shares of Common Stock held
by Mr. Laupper or companies controlled by him to enable the Registrant to
maintain a sufficient number of shares of Common Stock to meet certain
obligations of the Registrant to issue Common Stock and to permit certain
financings prior to the increase of the number of authorized shares of Common
Stock from 15,000,000 to 30,000,000.
The Company made unsecured advances to its former Chairman of the
Board of Directors (a principal stockholder) during the fiscal year ended June
30, 1997 requiring interest at 6% per annum. The balance at June 30, 1997 was
$69,587. Interest charged to the stockholder for the fiscal year ended June 30,
1997 was $3,460. See Note 9 to the Consolidated Financial Statements June 30,
1997 and 1996.
SELLING HOLDERS AND PLAN OF DISTRIBUTION
The Securities offered hereby may be sold from time to time to
purchasers directly by the Selling Holders (which term includes their
transferees, pledgees, donees or their successors). Any such transferee,
pledgee, donee or their successors may not offer the Securities pursuant to this
Prospectus until such holder is included as a Selling Holder in a supplement to
this Prospectus. The Securities consist of shares of Common Stock which are
issuable to Selling Holders upon conversion of the Convertible Debentures. The
Registrant has agreed to register the public offering of the Securities by the
Selling Holders under the Securities Act. The Registrant will not receive any of
the proceeds from the sale of the shares by the Selling Holders.
-39-
<PAGE> 43
The following table sets forth as of December 19, 1997, certain
information with respect to the Selling Holders, including the number of shares
that may be offered by them, which represents all the Securities beneficially
owned by each Selling Holder. The number of shares which may actually be sold by
the Selling Holders will be determined from time to time by them and will depend
upon a number of factors, including, with respect to the shares underlying the
Convertible Debentures, the price of the Registrant's Common Stock from time to
time. Because the Selling Holders may offer all or none of the Securities that
they hold and because the offering contemplated by the Prospectus is not being
underwritten, no estimate can be given as to the number of Securities that will
be held by the Selling Holders upon termination of such offering. None of the
Selling Holders have had any material relationship with the Registrant. See
"Plan of Distribution."
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON STOCK
OWNED AND OFFERED BY SELLING HOLDERS ------------------
NAME OF SELLING HOLDER SHARES(1) % OF CLASS
---------------------- --------- ----------
<S> <C> <C>
Otato Limited Partnership 155,286 .57%
Cefeo Investments Ltd. 620,883 2.27%
Thomson Kernaghan & Co. Ltd. 1,517,751 5.56%
Dominion Capital Fund Ltd. 2,329,787 8.53%
Sovereign Partners Ltd. Partnership 1,063,829 3.90%
Canadian Advantage Ltd. Partnership 531,915 1.95%
</TABLE>
- --------------
(1) Assumes conversion of the Convertible Debentures held by such Selling
Holders based on the reported closing prices on the Nasdaq SmallCap
Market on December 19, 1997 at a 25% discount.
The Selling Holders of the Securities identified above may have sold,
transferred or otherwise disposed of, in transactions exempt from the
registration requirements of the Securities Act, all or a portion of the
Convertible Debentures or Securities since the date on which the information in
the preceding table is presented. Information concerning the Selling Holders may
change from time to time and any such changed information will be set forth in
supplements to this Prospectus if and when necessary.
The sale of the Securities by the Selling Holders may be effected from
time to time in transactions on the Nasdaq SmallCap Market System, in the
over-the-counter market, in negotiated transactions, or through a combination of
such methods of sale (a) at fixed prices, which may be changed, (b) at market
prices prevailing at the time of sale, (c) at prices related to such prevailing
market prices or (d) at negotiated prices. The Selling Holders may effect such
transactions by selling the Securities directly to purchasers or to or through
broker-dealers. Such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Holders and/or the
purchasers of the Securities for whom such broker-dealers may act as agents or
to whom they sell as principals, or both (which compensation as to a particular
broker-dealer may be in excess of customary commissions). The Selling Holders
and any broker-dealers who act in connection with the sale of the Securities
hereunder may be deemed to be "underwriters" within the meaning of Section 2(11)
of the Securities Act, and any commissions received by them and profit on any
resale of the Securities as principals might be deemed to be underwriting
discounts and commissions under the Securities Act.
At the time a particular offering of the Securities is made, a
Prospectus Supplement, if required, will be distributed, which will set forth
the aggregate amount and type of Securities being offered and the terms of the
-40-
<PAGE> 44
offering, including the name or names of any underwriters, broker/dealers or
agents, any discounts, commissions and other terms constituting compensation
from the Selling Holders and any discounts, commissions or concessions allowed
or reallowed or paid to broker/dealers.
To comply with the securities laws of certain jurisdictions, if
applicable, the Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Securities may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or any exemption from
registration or qualification is available and is complied with. The Registrant
has not taken any action to register or qualify the Securities for offer and
sale under the securities or "blue sky" laws of any state of the United States.
However, pursuant to the Registration Rights Agreements among the Registrant and
the Selling Holders (the "Registration Rights Agreements"), the Registrant will
use reasonable efforts to (i) register and qualify the Securities covered by
the Registration Statement under such other securities or blue sky laws of such
jurisdictions as the Selling Holders who hold a majority in interest of the
Securities being offered reasonably request and in which significant volumes of
shares of Common Stock are traded, (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 until the earliest (the "Registration
Period") of (A) the date that is two years after the Closing Date, (B) the date
when the Selling Holders may sell all Securities under Rule 144 or (C) the date
the Selling Holders no longer own any of the Securities, (iii) take such other
actions as may be necessary to maintain such registrations and qualification
in effect at all times during the Registration Period and (iv) take all other
actions reasonably necessary or advisable to qualify the Securities for sale in
such jurisdictions; provided, however, that the Registrant shall not be
required in connection therewith or as a condition thereto to (A) qualify to do
business in any jurisdiction where it would not otherwise be required to
qualify, (B) subject itself to general taxation in any such jurisdiction, (C)
file a general consent to service of process in any such jurisdiction, (D)
provide any undertakings that cause more than nominal expense or burden to the
Company or (E) make any change in its articles of incorporation or by-laws or
any then existing contracts, which in each case the Board of Directors of the
Registrant determines to be contrary to the best interests of the Company and
its stockholders. Unless and until such times as offers and sales of the
Securities by Selling Holders are registered or qualified under applicable
state securities or "blue sky" laws, or are otherwise entitled to an exemption
therefrom, initial resales by Selling Holders will be materially restricted.
Selling Holders are advised to consult with their respective legal counsel
prior to offering or selling any of their Securities.
The Selling Holders will be subject to applicable provisions of the
Exchange Act and the rules and regulations thereunder, which provisions may
limit the timing of purchases and sales of any of the Securities by the Selling
Holders. The foregoing may affect the marketability of the Securities.
Pursuant to the Registration Rights Agreements between the Registrant
and each of the Selling Holders all expenses of the registration of the
Securities will be paid by the Registrant, including, without limitation,
Commission filing fees and expenses of compliance with state securities or "blue
sky" laws; provided, however, that the Selling Holders will pay all underwriting
discounts and selling commissions, if any. The Selling Holders will be
indemnified by the Registrant against certain civil liabilities, including
certain liabilities under the Securities Act or will be entitled to contribution
in connection therewith.
DESCRIPTION OF CAPITAL STOCK
The following statements do not purport to be complete and are
qualified in their entirety by reference to the detailed provisions of the
Registrant's Certificate of Incorporation, as amended and By-Laws, copies of
which are incorporated by reference as exhibits to this Registration Statement.
COMMON STOCK
On December 26, an amendment to the Certificate of Incorporation with
respect to an increase of the number of shares of Common Stock the Registrant is
authorized to issue from 30,000,000 to 50,000,000 was filed with the Department
of State of the State of New York. Accordingly, the Registrant is authorized to
issue up to 50,000,000 shares of Common Stock, par value $.01 per share. The
amount of shares of Common Stock of the Registrant issued and outstanding at
the close of business on December 19, 1997 was 27,303,296 (as certified by its
transfer agent). In addition, the Registrant currently has reserved (i) up to
925,000 shares of Common Stock (assumes conversion based on the reported closing
price on the Nasdaq SmallCap Market on December 19, 1997 at a 20% discount) for
issuance upon the conversion of certain convertible debentures issued by the
Registrant on August 19, 1997 (as required by the terms of such debentures);
(ii) up to 6,221,580 shares of Common Stock for issuance upon the conversion of
the Convertible Debentures (assumes conversion based on the reported closing
price on the Nasdaq SmallCap Market on December 19, 1997 at a 25% discount)(as
required by the terms of such debentures); (iii) 1,455,000 shares of Common
Stock for issuance upon the exercise of outstanding options under the Plan and
(iv) 155,000 shares of Common Stock for issuance upon the exercise of options
available for future grant under the Plan.
-41-
<PAGE> 45
All of the issued and outstanding shares of Common Stock are fully paid
and non-assessable. The holders of Common Stock are entitled to one vote per
share for the election of directors and with respect to all other matters
submitted to a vote of stockholders. Shares of Common Stock do not have
cumulative voting rights, which means that the holders of more than 50% of such
shares voting for the election of directors can elect 100% of the directors if
they choose to do so and, in such event, the holders of the remaining shares so
voting will not be able to elect any directors. There is no classification of
the Board of Directors. The payment by the Registrant of dividends, if any, in
the future rests within the discretion of its Board of Directors and will
depend, among other things, upon the Registrant's earnings, its capital
requirements and its financial condition, as well as other relevant factors. The
Registrant has not paid or declared any dividends upon its Common Stock since
its inception and, by reason of its present financial status and its
contemplated financial requirements, does not contemplate or anticipate paying
any dividends upon its Common Stock in the foreseeable future. The holders of
the Common Stock have no preemptive or conversion rights, and there are no
redemption or sinking fund rights with respect to the Common Stock. See "Market
Prices and Dividend Policy."
REGISTRATION RIGHTS
THE CONVERTIBLE DEBENTURES
The Registrant issued $5,848,285 aggregate principal amount of
Convertible Debentures between November 26, 1997 and December 11, 1997.
Twenty-five percent of the face amount of such Convertible Debentures are
convertible into shares of Common Stock of the Registrant at the earlier of the
effective date of a registration statement covering the underlying shares of
Common Stock or March 21, 1998. An additional twenty-five percent of the face
amount of the Convertible Debentures may be converted each 30 days thereafter,
in each case at a conversion price equal to 75% of the average closing bid price
for the five trading days preceding the date of conversion. Any Convertible
Debentures not so converted are subject to mandatory conversion by the
Registrant on the 24th monthly anniversary of the date of issuance of the
Convertible Debentures. Other than on the date of such mandatory conversion
provision, the Selling Holder shall not be entitled to convert any amount of
Convertible Debentures in excess of that amount upon conversion of which the sum
of (i) the number of shares of Common Stock beneficially owned by the Selling
Holder and its affiliates (other than the unconverted Convertible Debentures)
and (ii) the number of shares of Common Stock issuable upon conversion of the
Convertible Debentures would result in beneficial ownership by the Selling
Holder and its affiliates of more than 4.9% of the outstanding shares of Common
Stock of the Registrant.
If at any time the number of shares of Common Stock into which the
Convertible Debentures may be converted exceeds the aggregate number of shares
of Common Stock then registered, the Registrant shall, within ten (10) business
days after receipt of written notice from any investor, either (i) amend the
registration statement filed by the Registrant, if such registration statement
has not been declared effective by the SEC at that time, to register all shares
of Common Stock into which the Debenture may be converted, or (ii) if such
registration statement has been declared effective by the Securities and
Exchange Commission (the "SEC") at that time, file with the SEC an additional
registration statement on Form S-1 to register the shares of Common Stock into
which the Convertible Debentures may be converted that exceed the aggregate
number of shares of Common Stock already registered.
Pursuant to the Registration Rights Agreements between the Registrant
and the Selling Holders, the Registrant shall file with the SEC, no later than
thirty calendar days after the respective closing date, an amendment to the
Form S-1 Registration Statement, or a new Registration Statement if required,
covering a sufficient number of shares of Common Stock for the Selling Holders
into which the Convertible Debentures would be convertible. Consequently, the
Registrant has filed with the Commission a Registration Statement on Form S-1
(the "Registration Statement"), of which this prospectus is a part, to cover
the sale of the Common Stock issuable to the Selling Holders upon conversion of
the Convertible Debentures. The Registration Rights Agreements provide that the
Registrant shall keep the Registration Statement effective at all times until
the earliest (the "Registration Period") of (i) the date that is two years
after the Closing Date, (ii) the date when the Investors may sell all
Securities under Rule 144 or (iii) the
-42-
<PAGE> 46
date the Investors no longer own any of the Securities.
If the registration statement covering the Securities required to be
filed by the Registrant pursuant to the Registration Rights Agreements is not
filed within 30 days following the respective closing date or if such
registration statement is not declared effective by February 20, 1998 (the
"Initial Date"), the Registrant shall make payments to the Selling Holders in
such amounts and at such times as shall be determined pursuant to the
Registration Rights Agreements. In the event a timely filing is not made, the
Registrant shall pay the Selling Holder 2% of the face amount of the Convertible
Debenture for each 30 day period, or portion thereof after 30 days following the
Closing Date that the Registration Statement is not filed. The amount to be paid
by the Registrant to the Selling Holders in the event the registration statement
is not declared effective by February 20, 1998 shall be determined as of each
Computation Date, and such amount shall be equal to two percent (2%) of the
purchase price paid by the Selling Holders for the Convertible Debentures
pursuant to the Registration Rights Agreements for the period from the Initial
Date to the first Computation Date, and two percent (2%) of the purchase price
for each Computation Date thereafter, to the date the Registration Statement is
declared effective by the SEC (the "Periodic Amount"). The full Periodic Amount
shall be paid by the Registrant in immediately available funds within five
business days after each Computation Date. Notwithstanding the foregoing, the
amounts payable by the Registrant pursuant to the Registration Rights Agreements
shall not be payable to the extent any delay in the effectiveness of the
Registration Statement occurs because of an act of, or a failure to act or to
act timely by the Selling Holders or their respective counsel.
"Computation Date" means the date which is the earlier of (i) 35 days
after the Registrant is notified by the SEC that the Registration Statement may
be declared effective or (ii) one hundred twenty (120) days after the Closing
Date and, if the Registration Statement required to be filed by the Registrant
pursuant to the Registration Rights Agreements has not therefore been declared
effective by the SEC, each date which is thirty (30) days after the previous
Computation Date until such Registration Statement is so declared effective.
The Registrant may redeem any percentage of the balance of the
Convertible Debentures during the 210 day period following the Closing Date. If
the Registrant exercises such right of redemption, it shall pay 130% of the
face amount of the Convertible Debentures so redeemed. If, after the Closing
Date, but prior to the Selling Holder's conversion of the Convertible
Debentures the Registrant raises money under either Regulation D or Regulation
S on terms more favorable than the terms set forth in the Subscription
Agreement of the Selling Holders, then the Selling Holder may replace the terms
of the Subscription Agreement of the Selling Holders with the terms of the more
beneficial Subscription Agreement as to the balance of the Convertible
Debentures held by such Selling Holders, including accrued interest or any
accumulated liquidated damages.
The number of shares of Common Stock issuable upon conversion of the
Convertible Debentures depends on several factors, including the conversion
ratio and the date on which such shares are converted. As of December 19, 1997
if all of the Convertible Debentures were converted based on a 25% discount to
the reported closing price on the Nasdaq SmallCap Market on December 19, 1997,
the Registrant would be required to issue 6,221,580 shares of Common Stock.
Except for the total number of shares to which this Prospectus relates
as set forth above, references in this Prospectus to the "number of Shares
covered by this Prospectus," or similar statements, and information in this
Prospectus regarding the number of Securities issuable to or held by the Selling
Holders and percentage information relating to the Securities of the outstanding
capital stock of the Registrant, are based, with respect to the Convertible
Debentures, upon the fixed conversion ratio set forth in the instruments
establishing the rights of the Convertible Debentures and assume that a total of
6,221,580 Securities are issued upon conversion of all Convertible Debentures.
See "Selling Holders," "Plan of Distribution" and "Description of Capital
Stock." The Securities offered hereby represent approximately 22.79% of the
Registrant's currently outstanding shares of Common Stock assuming conversion of
all shares of Convertible Debentures.
The Securities are being offered on a continuous basis pursuant to Rule
415 under the Securities Act of 1933, as amended (the "Securities Act"). No
underwriting discounts, commissions or expenses are payable or applicable in
connection with the sale of the Securities by the Selling Holders. The Common
Stock of the Registrant is quoted on the Nasdaq SmallCap Market ("Nasdaq") under
the symbol "SRMI". The Securities offered hereby will be sold from time to time
at the then prevailing market prices, at prices relating to prevailing market
prices or at negotiated prices. On December 19, 1997, the last reported sale
price of the Common Stock on Nasdaq was $1.25 per share. This Prospectus may be
used by the Selling Holders or any broker-dealer who may participate in sales of
the Securities covered hereby.
COMMON STOCK RESERVED
The Registrant shall reserve and keep available out of its authorized
but unissued Common Stock such number of shares of Common Stock as shall from
time to time be sufficient to effect conversion of all of the then outstanding
Convertible Debentures and exercise of options.
-43-
<PAGE> 47
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Registrant's Common Stock is
Continental Stock Transfer & Trust Company, New York, New York.
LEGAL MATTERS
The validity of the Securities will be passed upon for the Registrant
by Wuersch & Gering LLP, counsel to the Company.
INDEPENDENT AUDITORS
The consolidated financial statements of the Registrant and its
subsidiaries for each of the three years included herein have been included in
reliance upon the report of Bederson & Company LLP, independent accountants,
appearing elsewhere herein and upon the authority of said firm as experts in
accounting and auditing. As set forth in the report of Bederson & Company LLP,
the financial statements of one of the Registrant's subsidiaries for the year
ended June 30, 1997 were audited by other auditors whose report was furnished to
Bederson & Company LLP. The opinion of Bederson & Company LLP set forth in such
report, insofar as it relates to amounts included for that subsidiary, is based
solely on the report of the other auditors.
-44-
<PAGE> 48
CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C>
Financial Statements for Fiscal Years Ended June 30, 1995 and
December 31, 1994 and 1993
Independent Auditors' Report . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations . . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity . . . . . . . . F-4
Consolidated Statements of Cash Flows . . . . . . . . . . . . . F-5
Notes to Consolidated Financial Statements . . . . . . . . . . . F-6 - F-17
Financial Statements for Fiscal Years Ended June 30, 1997 and 1996
Independent Auditors' Report . . . . . . . . . . . . . . . . . . F-18
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . F-19
Consolidated Statements of Operations . . . . . . . . . . . . . F-20
Consolidated Statements of Stockholders' Equity . . . . . . . . F-21
Consolidated Statements of Cash Flows . . . . . . . . . . . . . F-22
Notes to Consolidated Financial Statements . . . . . . . . . . . F-23 - F-38
Financial Statements for Quarter Ended September 30, 1997
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . F-39
Consolidated Statement of Operations . . . . . . . . . . . . . . F-40
Consolidated Statements of Cash Flows . . . . . . . . . . . . . F-41
Consolidated Statements of Stockholder's Equity . . . . . . . . F-42
Notes to Consolidated Financial Statements . . . . . . . . . . . F-43
</TABLE>
45
<PAGE> 49
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Swissray International, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Swissray
International, Inc., and its subsidiaries, as of June 30, 1995 and December 31,
1994 and 1993, and the related consolidated statements of operations,
stockholders' equity and cash flows for the six months ended June 30, 1995 and
the years ended December 31, 1994 and 1993. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the 1995, 1994 and 1993 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Swissray International, Inc., and its subsidiaries, at June 30, 1995
and December 31, 1994 and 1993 and the results of their operations and their
cash flows for the six months ended June 30, 1995 and years ended December 31,
1994 and 1993, in conformity with generally accepted accounting principles.
BEDERSON & COMPANY LLP
West Orange, New Jersey
September 8, 1995, except for
Note 24, as to which the date is
September 20, 1995
F-1
<PAGE> 50
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
June 30, ---------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 2,676,826 $ 92,415 $ 134,940
Accounts receivable, net of allowance
for doubtful accounts of $73,137
for June 1995, $31,673
for 1994 and $26,936 for 1993 2,840,212 672,046 1,100,761
Receivables - other 22,138 764,400 136,084
Inventories 1,492,443 1,453,637 1,247,101
Prepaid expenses and sundry
receivables 99,017 58,484 115,079
------------ ------------ ------------
TOTAL CURRENT ASSETS 7,130,636 3,040,982 2,733,965
------------ ------------ ------------
PROPERTY AND EQUIPMENT 347,699 291,329 243,252
------------ ------------ ------------
OTHER ASSETS:
Due from stockholders 154,114 137,592 53,872
Due from officers 4,354 -- --
Due from affiliates 221,268 226,174 258,778
Investments -- -- 23,989
Licensing agreement 4,966,575 -- --
Patents and trademarks 202,710 202,710 202,710
------------ ------------ ------------
TOTAL OTHER ASSETS 5,549,021 566,476 539,349
------------ ------------ ------------
TOTAL ASSETS $ 13,027,356 $ 3,898,787 $ 3,516,566
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Current maturities of
long-term debt $ 87,070 $ -- $ --
Notes payable, banks 2,709,965 2,706,088 2,030,574
Loan payable 157,375 136,442 114,437
Accounts payable 2,671,627 1,310,365 1,285,865
Accrued expenses 280,652 123,971 178,347
Customer deposits 38,799 -- --
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 5,945,488 4,276,866 3,609,223
------------ ------------ ------------
LONG-TERM DEBT, less
current maturities 705,035 420,420 336,700
------------ ------------ ------------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Common stock 120,351 78,501 78,501
Additional paid-in capital 12,719,998 1,911,848 1,911,848
Accumulated deficit (6,027,336) (2,621,191) (2,424,599)
Cumulative foreign currency
translation adjustment (436,180) (167,657) 4,893
------------ ------------ ------------
TOTAL STOCKHOLDERS'
EQUITY (DEFICIENCY) 6,376,833 (798,499) (429,357)
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $ 13,027,356 $ 3,898,787 $ 3,516,566
============ ============ ============
The accompanying notes are an integral part of these
financial statements.
</TABLE>
F-2
<PAGE> 51
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Years Ended
Ended December 31,
June 30, -------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES $ 3,806,313 $ 8,617,604 $ 5,989,680
COST OF SALES 2,484,253 5,362,698 4,181,393
----------- ----------- -----------
GROSS PROFIT 1,322,060 3,254,906 1,808,287
----------- ----------- -----------
OPERATING EXPENSES:
Salaries - officers 155,214 275,512 246,563
Salaries 734,389 1,127,474 581,902
Selling 619,735 507,783 330,772
Research and development 233,084 103,675 409,939
General and administrative 55,684 149,061 115,465
Other operating expenses 453,934 748,157 390,023
Bad debts 30,847 223,084 --
Depreciation and amortization 24,344 40,523 19,414
----------- ----------- -----------
TOTAL OPERATING EXPENSES 2,307,231 3,175,269 2,094,078
----------- ----------- -----------
INCOME (LOSS) BEFORE OTHER INCOME
(EXPENSES) AND INCOME TAXES (985,171) 79,637 (285,791)
OTHER INCOME (EXPENSES) (3,175,644) (252,117) (207,912)
----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND
EXTRAORDINARY ITEM (4,160,815) (172,480) (493,703)
INCOME TAX PROVISION (BENEFIT) (338,975) 24,112 --
----------- ----------- -----------
LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEM (3,821,840) (196,592) (493,703)
EXTRAORDINARY ITEM - gain on
extinguishment of debt, net of
income tax of approximately $340,000 415,695 -- --
----------- ----------- -----------
NET LOSS $(3,406,145) $ (196,592) $ (493,703)
=========== =========== ===========
LOSS PER COMMON SHARE:
Loss from continuing operations $ (.48) $ (.03) $ (.06)
Extraordinary item .05 -- --
----------- ----------- -----------
NET LOSS $ (.43) $ (.03) $ (.06)
=========== =========== ===========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 8,017,242 7,850,064 7,850,064
=========== =========== ===========
The accompanying notes are an integral part of these
financial statements.
</TABLE>
F-3
<PAGE> 52
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Cumulative
Foreign
Common Stock Additional Currency
------------------------ Paid-in Accumulated Translation
Shares Amount Capital Deficit Adjustment Total
---------- --------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE - January 1, 1993, as previously 1,000 $ 673,850 $- $ (614,397) $- $ 59,453
reported
Adjustment for pooling of interest with
DMS Industries Inc. 850,064 8,501 1,307,998 (1,316,499) -- --
Adjustment for pooling of interest with
SR Medical AG 6,999,000 (603,850) 603,850 -- -- --
---------- --------- ----------- ----------- --------- -----------
BALANCE - January 1, 1993, as restated 7,850,064 78,501 1,911,848 (1,930,896) -- 59,453
For year ended December 31, 1993:
Foreign currency translation adjustment -- -- -- -- 4,893 4,893
Net loss for the year -- -- -- (493,703) -- (493,703)
---------- --------- ----------- ----------- --------- -----------
BALANCE - December 31, 1993 7,850,064 78,501 1,911,848 (2,424,599) 4,893 (429,357)
For year ended December 31, 1994:
Foreign currency translation adjustment -- -- -- -- (172,550) (172,550)
Net loss for the year -- -- -- (196,592) -- (196,592)
---------- --------- ----------- ----------- --------- -----------
BALANCE - December 31, 1994 7,850,064 78,501 1,911,848 (2,621,191) (167,657) (798,499)
For the six months ended June 30, 1995:
Issuance of common stock for services 1,525,000 15,250 3,034,750 -- -- 3,050,000
Issuance of common stock for licensing 660,000 6,600 3,793,400 -- -- 3,800,000
agreement
Issuance of common stock for cash 2,000,000 20,000 3,980,000 -- -- 4,000,000
Foreign currency translation adjustment -- -- -- -- (268,523) (268,523)
Net loss of the period -- -- -- (3,406,145) -- (3,406,145)
---------- --------- ----------- ----------- --------- -----------
BALANCE - June 30, 1995 12,035,064 $ 120,351 $12,719,998 $(6,027,336) $(436,180) $ 6,376,833
========== ========= =========== =========== ========= ===========
The accompanying notes are an integral part of these
financial statements.
</TABLE>
F-4
<PAGE> 53
<TABLE>
<CAPTION>
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Years Ended
Ended December 31,
June 30, -------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,406,145) $ (196,592) $ (493,703)
Adjustments to reconcile net loss
to net cash from operating activities:
Depreciation and amortization 24,344 40,523 19,414
Provision for bad debts 30,847 223,084 --
Gain on extinguishment of debt (755,695) -- --
Income from investment recorded on
equity method -- -- (2,931)
Foreign currency translation (129,282) (193,378) 8,092
Operating expenses through issuance
of common stock 3,050,000 -- --
(Increase) decrease in operating assets:
Accounts receivable (2,199,013) 205,631 (137,308)
Receivables - other 742,262 (628,316) (21,097)
Inventories (38,806) (206,536) (424,072)
Prepaid expenses and
sundry receivables (40,533) 56,595 (57,842)
Increase (decrease) in operating liabilities:
Accounts payable 1,361,262 24,500 993,250
Accrued expenses 156,681 (54,376) (99,480)
Customer deposits 38,799 -- --
----------- ----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (1,165,279) (728,865) (215,677)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (80,714) (88,600) (81,898)
Licensing agreement (885,571) -- --
Investments in affiliates -- 23,989 --
Advances to affiliates 4,906 32,604 (118,239)
----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (961,379) (32,007) (200,137)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowing 2,730,898 2,728,093 2,145,011
Proceeds from long-term borrowing 90,681 83,720 700
Principal payments of short-term borrowing (1,950,393) (2,030,574) (1,646,879)
Issuance of stock for cash 4,000,000 -- --
Repayments from (advances to) stockholder (16,522) (83,720) (53,872)
Repayments from (advances to) officer (4,354) -- --
----------- ----------- -----------
NET CASH PROVIDED BY (USED BY)
FINANCING ACTIVITIES 4,850,310 697,519 444,960
----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (139,241) 20,828 (3,199)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 2,584,411 (42,525) 25,947
CASH - beginning of period 92,415 134,940 108,993
----------- ----------- -----------
CASH - end of period $ 2,676,826 $ 92,415 $ 134,940
=========== =========== ===========
The accompanying notes are an integral part of these
financial statements.
</TABLE>
F-5
<PAGE> 54
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND DECEMBER 31, 1994 AND 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company was incorporated under the laws of the State of New
York on January 2, 1968 under the name "C.G.S. Units, Inc." On May
23, 1994, the Company acquired 100% of the outstanding securities
of Direct Marketing Services, Inc., a company incorporated in the
State of Delaware on June 3, 1993. On June 6, 1994, the Company
merged with Direct Marketing Services, Inc. and the surviving
corporation changed its' name to DMS Industries, Inc. DMS
Industries, Inc. was principally engaged in the promotion and sales
of its proprietary brand of cigarettes on a commission basis. In
May of 1995 the Company discontinued its' operations and changed
its' name to Swissray International, Inc.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Swissray International, Inc. (Parent), and its' wholly
owned subsidiary SR Medical AG (a Swiss corporation) and the
latter's wholly owned subsidiaries Teleray AG (a Swiss Corporation)
and SR Medical GmbH (a German corporation). All substantial
intercompany transactions and balances have been eliminated in
consolidation.
SR Medical GmbH is not included in the 1993 consolidated financial
statements since the Company did not have a majority interest.
BUSINESS COMBINATION AND RESTATEMENT
On June 6, 1995, Swissray International, Inc. exchanged 7,000,000
shares of common stock for all of the outstanding shares of SR
Medical AG. The merger between Swissray International Inc. and SR
Medical AG is considered for accounting purposes to be a
recapitalization of SR Medical AG with SR Medical AG as the
acquirer. The consolidated financial statements for all periods
presented include the accounts of Swissray International, Inc.
(from June 6, 1995 thru June 30, 1995), SR Medical AG, Teleray AG
and SR Medical GmbH. The stockholders' equity of SR Medical AG has
been retroactively restated for the equivalent number of shares
received in the merger.
SR Medical AG (a Swiss corporation) was organized in 1988 and
develops, assembles and markets diagnostic x-ray medical equipment.
Teleray AG (a Swiss corporation) was organized in 1994 and is
engaged in research and development activities related to
diagnostic x-ray equipment and accessories.
SR Medical GmbH (a German corporation) is engaged in sales and
marketing of diagnostic x-ray medical equipment and accessories.
F-6
<PAGE> 55
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND DECEMBER 31, 1994 AND 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF ACCOUNTING
The Company maintains its records on the accrual basis of
accounting. Revenues are recognized when the products are delivered
and expenses are recorded when incurred.
INVENTORIES
Inventories are stated at lower of cost or market, with cost being
determined on the first-in, first-out (FIFO) method. Inventory cost
include material, labor, and manufacturing overhead.
PROPERTY AND EQUIPMENT
Property and equipment including significant betterments, are
recorded at cost. Upon retirement or disposal of properties, the
cost and accumulated depreciation are removed from the accounts,
and any gain or loss is included in income. Maintenance and repair
costs are charged to expense as incurred.
DEPRECIATION
Depreciation of property and equipment is provided for over the
estimated useful lives of the respective assets. Depreciation is
recorded on the declining balance method. The estimated useful
lives of each asset category are as follows:
Years
-----
Equipment 5
Office furniture and equipment 5 - 8
Leasehold improvements 8
INTANGIBLE ASSETS
Patents and trademarks are stated at cost less accumulated
amortization. Amortization will commence on July 1, 1995 and will
be computed by the straight line method over its estimated economic
life of 10 years. No amortization expense has been provided for the
years ended December 31, 1994 and 1993 and for the six months ended
June 30, 1995.
Licensing agreement is stated at fair value (cost less imputed
interest) net of accumulated amortization. Amortization will
commence upon the initial sale of the Company's products within the
defined territories of the agreement and will be computed by the
straight-line method over its estimated economic life of 10 years.
No amortization expense has been provided for the for the six
months ended June 30, 1995.
RESEARCH AND DEVELOPMENT
Cost associated with research, new product development, and product
cost improvements are treated as expense when incurred. Research
and development cost expended for the for the six months ended June
30, 1995 was $233,084 and for the years ended December 31, 1994 and
1993 were $103,675 and $409,939, respectively.
F-7
<PAGE> 56
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND DECEMBER 31, 1994 AND 1993
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EXPENSES RELATED TO SALES AND ISSUANCE OF SECURITIES
All costs incurred in connection with the sale of the Company's
common stock have been capitalized and charged to additional
paid-in capital.
NET LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss by the
weighted average number of shares of common stock outstanding
during the periods.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of subsidiaries operating in foreign
countries are translated into U.S. dollars using the exchange rate
in effect at the balance sheet date. Results of operations are
translated using the average exchange rates prevailing throughout
the year. The effects of exchange rate fluctuations on translating
foreign currency assets and liabilities into U.S. dollars are
included in stockholders' equity, while gains and losses resulting
from foreign currency transactions are included in operations.
NOTE 2 - CONCENTRATION OF CREDIT RISK AND RISK ARISING FROM CASH DEPOSITS IN
EXCESS OF INSURED LIMITS
The Company sells its products to various customers primarily in
Europe, Asia and Africa. The Company performs ongoing credit
evaluations on its customers and generally does not require
collateral. The Company maintains reserves for potential credit
losses and such losses have been within management's expectations.
The Company maintains its cash balances with major Swiss financial
institutions. The cash balances are not insured.
NOTE 3 - RECEIVABLES - OTHER
Receivables due to the Company from transactions from other than
operations are as follows:
<TABLE>
<CAPTION>
December 31,
June 30, ------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Dr. P. Dragonat $ 22,138 $ -- $ --
Interfinance Investment Co. -- 764,400 --
Kehrli Medipriy -- -- 136,084
-------- -------- --------
$ 22,138 $764,400 $136,084
======== ======== ========
</TABLE>
F-8
<PAGE> 57
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND DECEMBER 31, 1994 AND 1993
NOTE 4 - INVENTORIES
Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>
December 31,
June 30, ----------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Raw materials, parts and
supplies $ 945,257 $ 908,476 $ 808,044
Work-in process 130,605 114,660 101,010
Finished goods 416,581 430,501 338,047
---------- ---------- ----------
$1,492,443 $1,453,637 $1,247,101
========== ========== ==========
</TABLE>
NOTE 5 - PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
June 30, ----------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Equipment $140,407 $130,180 $ 80,716
Office furniture and
equipment 145,840 143,424 138,376
Leasehold improvement 153,964 84,642 51,805
-------- -------- --------
440,211 358,246 270,897
Less: Accumulated
depreciation
and amortization 92,512 66,917 27,645
-------- -------- --------
$347,699 $291,329 $243,252
======== ======== ========
</TABLE>
Depreciation and amortization expense for the six months ended June
30, 1995 was $24,344 and for the years ended December 31, 1994 and
1993 were $40,523 and $19,414, respectively.
NOTE 6 - DUE FROM STOCKHOLDER
The Company has made unsecured advances to its' President (a
principal stockholder) requiring interest only payments at 6% per
annum. These advances are not expected to be repaid within one
year. The balance at June 30, 1995 was $154,114, and at December
31, 1994 and 1993 were $137,592 and $53,872, respectively. Interest
charged the stockholder for the six months ended June 30, 1995 was
$4,376, and for the years ended December 31, 1994 and 1993 were
$5,744 and $1,616, respectively.
NOTE 7 - DUE FROM OFFICER
In June of 1995, the Company made an unsecured advance to an
officer in the amount of $4,354 requiring interest only payments at
6% per annum.
F-9
<PAGE> 58
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND DECEMBER 31, 1994 AND 1993
NOTE 8 - DUE FROM AFFILIATES
The Company has made non-interest bearing advances to affiliated
sales companies as follows:
<TABLE>
<CAPTION>
December 31,
June 30, ---------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Swissray SR Medical GmbH,
Willich $181,519 $159,358 $202,020
Swissray Medical s.r.o
Bratislaua 4,353 54,802 48,194
Swissray Medical s.r.o
Brno 17,784 -- --
Teleray s.r.o
Bratislaua 11,073 9,721 8,564
Teleray s.r.o. Brno 6,539 2,293 --
-------- -------- --------
$221,268 $226,174 $258,778
======== ======== ========
</TABLE>
These unsecured advances are due and payable on demand. However,
the Company does not anticipate repayment within one year.
NOTE 9 - INVESTMENTS
The Company owned a 49% interest in Swissray SR Medical GmbH in
1993, and subsequently acquired 100% interest in 1994. The
investment was recorded on the equity method in 1993 and for all
subsequent periods included in the consolidated financial
statements of the Company.
The Company has made various other investments which are recorded
on the equity method. These entities have operated at a loss in
excess of equity, therefore the Company is carrying these
investments as follows:
<TABLE>
<CAPTION>
Cost
Ownership June 30, Carrying
% 1995 Value
--------- --------- ---------
<S> <C> <C> <C>
Swissray SR Medical GmbH,
Willich 34% $16,892 $-0-
Swissray Medical s.r.o.,
Bratislaua 34% 6,757 -0-
Swissray Medical s.r.o.,
Brno 34% 6,757 -0-
Teleray s.r.o., Willich 49% 28,362 -0-
Teleray s.r.o. Brno 34% 6,757 -0-
Digitec GmbH, Neuss 20% 11,484 -0-
------- ----
TOTAL $77,009 $-0-
======= ====
</TABLE>
F-10
<PAGE> 59
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND DECEMBER 31, 1994 AND 1993
NOTE 10 - LICENSING AGREEMENT
The Company entered into a licensing agreement in June of 1995
with an unaffiliated individual. The agreement is for an
exclusive field-of-use license within the United States and
Canada to use the proprietary information, including the patent
rights, for certain technology regarding the integration of
computer technology with diagnostic x-ray and radiology medical
equipment through digital imaging systems. The agreement
required a fee of $5,000,000 consisting of $1,200,000 in cash
and 660,000 shares of the Company's common stock. The cash
payment requirement consisted of $900,000 upon the signing of
the agreement and the $300,000 balance due on December 31,
1996. The fee has been discounted at 7.5% for imputed interest
of $33,425 resulting in a net capitalized cost of $4,966,575.
This agreement is for an indefinite term or until all of the
proprietary information becomes public knowledge and the patent
rights expire.
NOTE 11 - NOTES PAYABLE - BANK
The Company has line-of-credit agreements with various Swiss
banks aggregating $2,777,575 at June 30, 1995. The
line-of-credits are secured by accounts receivable.
Lines-of-credit are summarized as follows:
<TABLE>
<S> <C>
Credit Suisse Bank $ 905,570
Union Bank 1,741,400
Cantonal Bank of Lucerne 130,605
----------
$2,777,575
==========
</TABLE>
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
December 31,
June 30, ----------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Credit Suisse Bank, due on
demand, with interest at 8%
per annum, collateralized
by accounts receivable $ 905,570 $1,127,515 $ 829,517
Union Bank, due on demand,
with interest at 8% per
annum, collateralized by
accounts receivable 1,711,255 -- --
Cantonal Bank of Lucerne,
due on demand, with
interest at 8% per annum,
collateralized by accounts
receivable 93,140 1,578,573 1,201,057
---------- ---------- ----------
$2,709,965 $2,706,088 $2,030,574
========== ========== ==========
</TABLE>
F-11
<PAGE> 60
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND DECEMBER 31, 1994 AND 1993
NOTE 12 - LOAN PAYABLE
The Company has negotiated a 5% demand loan from a private
foundation fund. The balance at and June 30, 1995 was and
$157,375, and at December 31, 1994 and 1993 was $136,442 and
$114,437, respectively.
NOTE 13 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
June 30, ------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Note payable - licensing agreement, due December 31, 1996,
bearing interest at 7-1/2% per annum (See Note 10.) $281,004 $ -- $ --
Note payable - Carba, AG, due July 1, 1996, requiring interest
only payments at 6% per annum with no current amortization required 293,426 229,320 202,020
Note payable - Carbamed-Ruegge Reduktion, due July 1, 1996,
requiring interest only payments at 6% per annum with no current
amortization required 130,605 114,660 134,680
Note payable - Dr. Zeman-Wiegand Helga, due May 15, 1996,
requires interest only payments at 7% per annum with no current
amortization required 87,070 76,440 --
-------- -------- --------
792,105 420,420 336,700
Less: Current portion 87,070 -- --
-------- -------- --------
$705,035 $420,420 $336,700
======== ======== ========
</TABLE>
Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
Year Ending
June 30,
-----------
<S> <C>
1996 $ 87,070
1997 705,035
----------
$ 792,105
==========
</TABLE>
F-12
<PAGE> 61
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND DECEMBER 31, 1994 AND 1993
NOTE 14 - COMMON STOCK
On June 6, 1994, by consent of the majority stockholders, the
Company amended its certificate of incorporation to change the
number of authorized common shares from 50,000,000 to 15,000,000
of $.01 par value common stock.
The Company's outstanding shares of common stock of $.01 par value
at June 30, 1995 was 12,035,064, and at December 31, 1994 and 1993
were 7,850,064 shares. The outstanding shares include the
retroactive effect given to the June 6, 1995 merger between
Swissray International Inc. and SR Medical AG which was recorded
as a recapitalization of SR Medical A.G.
NOTE 15 - ISSUANCE OF COMMON STOCK FOR CASH
The Company issued 2,000,000 shares of common stock for $4,000,000
during the six month period ending June 30, 1995.
NOTE 16 - PENSION PLAN
The Company, mandated by government regulations, is required to
contribute approximately five (5%) percent of eligible, as
defined, employees' salaries into a government pension plan. The
Company also contributes approximately five (5%) percent of
eligible employee salaries into a private pension plan. Total
contributions charged to operations for the years ended December
31, 1994 and 1993 were $194,837 and $165,968, respectively, and
for the six months ended June 30, 1995 were $96,718.
NOTE 17 - OTHER INCOME (EXPENSES)
<TABLE>
<CAPTION>
December 31,
June 30, -------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Miscellaneous income $ 4,544 $ 320 $ 5,141
Interest income -
stockholder 4,376 5,744 1,616
Foreign currency income 16,158 10,948 4,091
Income (loss) from
investments (16,909) (28,652) 2,931
Consulting fees -
related party (3,050,000) -- --
Interest expense (121,987) (237,013) (214,631)
Miscellaneous expenses (11,826) (3,464) (7,060)
----------- ----------- -----------
TOTAL OTHER INCOME
(EXPENSES) $(3,175,644) $ (252,117) $ (207,912)
=========== =========== ===========
</TABLE>
F-13
<PAGE> 62
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND DECEMBER 31, 1994 AND 1993
NOTE 18 - INCOME TAXES
The Company adopted Statement of Financial Accounting Standard 109
("SFAS"). SFAS 109 provides for an asset and liability approach to
accounting for income taxes that require the recognition of
deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's
financial statements or tax returns.
In estimating future consequences, SFAS 109 generally considers
all expected future events other than proposed changes in the tax
law or rates prior to enactment.
For the six months ended June 30, 1995, and for the years ended
December 31, 1994 and 1993, there was no provision for deferred
federal, state or foreign income taxes because all net operating
loss carryforwards are no longer available due to the change in
ownership of the Company.
A reconciliation between the statutory federal income tax rate
(34%) and the effective income tax rates based on continuing
operations is as follows:
<TABLE>
<CAPTION>
December 31,
June 30, -------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal income
tax (benefit) $(1,414,600) $ (58,600) $ (167,800)
State income tax -- -- --
Foreign income tax in
excess of (less than)
domestic rate (457,760) (18,973) (54,307)
Benefit not recognized on
operating loss 1,533,385 101,685 222,107
Valuation allowance -- -- --
----------- ----------- -----------
$ (338,975) $ 24,112 $ --
=========== =========== ===========
</TABLE>
The income tax related to the extraordinary gain on extinguishment
of debt was approximately $340,000 for the six months ended June
30, 1995.
F-14
<PAGE> 63
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND DECEMBER 31, 1994 AND 1993
NOTE 19 - EXTRAORDINARY GAIN - EXTINGUISHMENT OF DEBT
During 1995, the Company extinguished, at a discount, a $1,659,497
note obligation. The transaction resulted in an extraordinary gain
of $415,695 ($.05 per share), net of income taxes of approximately
$340,000.
NOTE 20 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for the six months ended June 30, 1995 and for the
years ended December 31, 1994 and 1993 include interest of
$121,987, $237,013 and $214,631, respectively, and income taxes of
$1,025, $24,112 and $-0-, respectively.
Non-cash operating activities consisted of issuance of common
stock for services for the six months ended June 30, 1995 in the
amount of $3,050,000.
Non-cash investing and finance activities for the six months ended
June 30, 1995 consisted of the acquisition of a licensing
agreement for $4,966,575 for $885,571 in cash, and a note
obligation for $281,004 and the issuance of common stock for
$3,800,000. Total cash paid was $885,571.
NOTE 21 - SIGNIFICANT CUSTOMER AND GEOGRAPHIC AREAS
The Company presently has no domestic operations and derives all
of its' revenues from its subsidiaries located in Switzerland and
Germany. Domestic (Switzerland and Germany) and export sales were
as follows:
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, ----------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Switzerland $1,980,606 $1,165,730 $1,488,839
Germany 1,029,413 2,334,265 2,127,050
Other export sales 796,294 5,117,609 2,373,791
---------- ---------- ----------
$3,806,313 $8,617,604 $5,989,680
========== ========== ==========
</TABLE>
The following summarizes customers sales in excess of 10% or more
of the total revenues:
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, ----------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
OEM/Phillips $ 166,660 $3,232,206 $ 708,852
SR Medical, GmbH,
Bubenreuth 340,572 748,495 1,505,051
Belmedtechnika, Minsk -- -- --
Rodiay, Solothurn 1,431,705 -- --
Carbamed, Dattwic -- 913,500 1,350,634
</TABLE>
F-15
<PAGE> 64
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND DECEMBER 31, 1994 AND 1993
NOTE 21 - SIGNIFICANT CUSTOMER AND GEOGRAPHIC AREAS (CONTINUED)
Sales to the Company's three largest customers for the six months
ended June 30, 1995 and years ended December 31, 1994 and 1993
accounted for approximately 51%, 57% and 60% of all revenues,
respectively. Sales to the Company's single largest customer for
the six months ended June 30, 1995 and years ended December 31,
1994 and 1993 accounted for approximately 38%, 38% and 23% of all
revenues, respectively.
The following summarizes operating profit or (losses) by
geographic area:
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, ----------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Switzerland $(4,095,783) $ (295,805) $ (493,703)
Germany (65,032) 123,325 --
----------- ----------- -----------
NET LOSS BEFORE
INCOME TAX $(4,160,815) $ (172,480) $ (493,703)
=========== =========== ===========
</TABLE>
The following summarizes identifiable assets by geographic area:
<TABLE>
<CAPTION>
Six Months Year Ended
Ended December 31,
June 30, -----------------------------
1995 1994 1993
----------- ----------- ---------
<S> <C> <C> <C>
Switzerland $12,513,262 $ 3,651,518 $ 3,516,566
Germany 514,094 247,269 --
----------- ----------- -----------
TOTAL $13,027,356 $ 3,898,787 $ 3,516,566
=========== =========== ===========
</TABLE>
F-16
<PAGE> 65
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995 AND DECEMBER 31, 1994 AND 1993
NOTE 22 - COMMITMENTS
The Company leases various facilities and vehicles under operating
lease agreements expiring through November 6, 2002. The facilities
lease agreements provide for a base monthly payment of $15,847 per
month. Rent expense for the six months ended June 30, 1995 was
$148,818 and for the years ended December 31, 1994 and 1993 were
$185,459 and $143,140, respectively.
Minimum annual lease payments under the facilities lease
agreements are as follows:
Year Ending
June 30,
-----------
1996 $190,160
1997 190,160
1998 190,160
1999 141,575
2000 125,380
Thereafter 229,864
NOTE 23 - RELATED PARTY TRANSACTIONS
The Company entered into agreements with Berkshire Capital
Management Ltd., (Berkshire), a stockholder, whereby Berkshire
would render consulting and related services towards and in
regards with the acquisition of SR Medical AG and subsidiaries.
Berkshire received 1,525,000 shares of the Company's restricted
common stock in full payment of service rendered in June of 1995
which were valued at $3,050,000 ($2 per share).
NOTE 24 - SUBSEQUENT EVENT
On July 7, 1995 the Board of Directors approved the changing of
the Company's accounting year from December 31 to a June 30 fiscal
year end. All necessary documents have been filed with proper
governmental taxing agencies.
On or about July 7, 1995, the Company commenced litigation against
a former officer and director alleging certain misconduct on the
part of such officer and seeking monetary compensation as a result
thereof. On or about September 15, 1995 such defendant has
responded by filing certain affirmative defenses and
counter-claims against the Company and others. The time within
which to respond to such counter-claims has not expired although
it is expected that all material allegations of wrongdoing
contained in such counter-claims will be denied in their entirety.
Owing to the fact that the litigation has only recently commenced
and further owing to the fact that discovery proceedings
have not even been scheduled as yet, it is virtually impossible to
determine, with any degree of certainty, the final outcome of this
litigation although the Company fully expects to prevail on all
material aspects of this lawsuit.
Pursuant to the terms and conditions of an August 31, 1995
Investment Letter for Restricted Securities, the Company sold and
issued 200,000 shares of its common stock during September 1995
for $700,000. The Company received $300,000 in September 1995 and
the balance of $400,000 due in October 1995.
F-17
<PAGE> 66
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Swissray International, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of Swissray
International, Inc., and its subsidiaries, as of June 30, 1997 and 1996, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We did
not audit the financial statements of Swissray (Deutschland) Rontgentechnik
GmbH, a wholly owned subsidiary, which statements reflect total assets of
$437,021 as of June 30, 1997 and total revenues of $1,255,140 for the year then
ended. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it related to the amounts included
for Swissray (Deutschland) Rontgentechnick GmbH, is based solely on the report
of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Swissray International, Inc., and
its subsidiaries, at June 30, 1997 and 1996 and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
BEDERSON & COMPANY LLP
West Orange, New Jersey
September 16, 1997
F-18
<PAGE> 67
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,091,307 $ 3,252,685
Accounts receivable, net of allowance for doubtful
accounts of $148,390 and $109,843 5,154,794 3,335,679
Accounts receivable - affiliates -- 31,533
Note receivable -- 962,500
Inventories 3,911,107 2,912,836
Prepaid expenses and sundry receivables 1,936,138 1,075,681
------------ -----------
TOTAL CURRENT ASSETS 14,093,346 11,570,914
------------ -----------
PROPERTY AND EQUIPMENT, net 4,336,617 1,138,282
------------ -----------
OTHER ASSETS:
Due from stockholders 69,587 17,414
Due from affiliate -- 166,384
Loan receivable 17,396 20,292
Accounts receivable - long-term, net of allowance
for doubtful account of $814,178 and $300,000 240,912 1,038,693
Licensing agreement, net of accumulated amortization
of $869,151 and $372,493 4,097,424 4,594,082
Patents and trademarks, net of accumulated amortization
of $54,941 and $28,001 206,003 220,018
Capitalized computer software, net of accumulated
amortization of $34,512 317,524 --
Organization cost, net of accumulated amortization of $2,464 and $978 5,921 7,407
Security deposits 43,728 19,952
Note receivable - long-term 513,643 --
Goodwill, net of accumulated amortization of $9,023 410,814 --
------------ -----------
TOTAL OTHER ASSETS 5,922,952 6,084,242
------------ -----------
TOTAL ASSETS $ 24,352,915 $18,793,438
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt $ 243,135 $ 511,101
Notes payable - banks 3,834,706 2,069,828
Loan payable 133,008 156,254
Accounts payable 5,336,749 4,186,092
Accounts payable - affiliates -- 1,541
Accrued expenses 1,401,938 1,135,693
Customer deposits 170,436 77,673
Due to stockholders and officers 139,826 --
------------ -----------
TOTAL CURRENT LIABILITIES 11,259,798 8,138,182
------------ -----------
CONVERTIBLE DEBENTURES 6,000,000 --
------------ -----------
LONG-TERM DEBT, less current maturities 524,689 --
------------ -----------
STOCKHOLDERS' EQUITY:
Common stock 196,944 141,851
Additional paid-in capital 26,608,594 19,268,400
Accumulated deficit (18,808,576) (7,918,948)
Accumulated other comprehensive loss (1,428,534) (836,047)
------------ -----------
TOTAL STOCKHOLDERS' EQUITY 6,568,428 10,655,256
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,352,915 $18,793,438
============ ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-19
<PAGE> 68
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
NET SALES $ 13,151,701 $ 10,899,222
COST OF SALES 8,445,414 5,793,306
------------ ------------
GROSS PROFIT 4,706,287 5,105,916
------------ ------------
OPERATING EXPENSES:
Officers and directors compensation 693,906 612,776
Salaries 2,059,396 1,829,535
Selling 1,873,389 1,140,604
Research and development 5,786,158 1,731,502
General and administrative 1,717,795 1,161,291
Other operating expenses 1,645,800 1,098,346
Bad debts 619,160 491,487
Depreciation and amortization 770,294 526,138
------------ ------------
TOTAL OPERATING EXPENSES 15,165,898 8,591,679
------------ ------------
LOSS BEFORE OTHER INCOME (EXPENSES)
AND INCOME TAXES (10,459,611) (3,485,763)
OTHER INCOME (EXPENSES) 67,720 810,003
------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS (10,391,891) (2,675,760)
INCOME TAX PROVISION (BENEFIT) 110,223 (364,648)
------------ ------------
LOSS FROM CONTINUING OPERATIONS
BEFORE EXTRAORDINARY ITEMS (10,502,114) (2,311,112)
EXTRAORDINARY ITEMS, net of income tax
of approximately $-0- and $343,000 (387,514) 419,500
------------ ------------
NET LOSS $(10,889,628) $(1,891,612)
============ ============
LOSS PER COMMON SHARE:
Loss from continuing operations $ (.67) $ (.18)
Extraordinary items (.02) .03
------------ ------------
NET LOSS $ (.69) $ (.15)
============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 15,817,571 12,974,749
============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-20
<PAGE> 69
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
Accumulated
Common Stock Additional Other
---------------------- Paid-in Accumulated Comprehensive
Shares Amount Capital Deficit Loss
---------- -------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE - July 1, 1995 12,035,064 $120,351 $12,719,998 $ (6,027,336) $ (436,180)
COMPREHENSIVE LOSS:
Net loss for the year -- -- -- (1,891,612) --
Other comprehensive loss net of taxes $-0-
foreign currency translation adjustments -- -- -- -- (399,867)
TOTAL COMPREHENSIVE LOSS -- -- -- -- --
Issuance of common stock for cash 1,100,000 11,000 5,189,000 -- --
Stock options exercised for cash 1,050,000 10,500 2,039,500 -- --
Public offering expenses -- -- (680,098) -- --
---------- -------- ----------- ------------ -----------
BALANCE - June 30, 1996 14,185,064 141,851 19,268,400 (7,918,948) (836,047)
COMPREHENSIVE LOSS:
Net loss for year -- -- -- (10,889,628) --
Other comprehensive loss net of taxes $-0-
foreign currency translation adjustments -- -- -- -- (592,487)
TOTAL COMPREHENSIVE LOSS -- -- -- -- --
Issuance of common stock for cash 5,197,759 51,977 6,947,830 -- --
Issuance of common stock in lieu of interest payment 70,610 706 132,244 -- --
Stock options exercised for cash 161,000 1,610 115,920 -- --
Stock option granted as compensation -- -- 25,000 -- --
Purchase of subsidiary for stock 80,000 800 119,200 -- --
---------- -------- ----------- ------------ -----------
BALANCE - June 30, 1997 19,694,433 $196,944 $26,608,594 $(18,808,576) $(1,428,534)
========== ======== =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
Total
------------
<S> <C>
BALANCE - July 1, 1995 $ 6,376,833
------------
COMPREHENSIVE LOSS:
Net loss for the year (1,891,612)
Other comprehensive loss net of taxes $-0-
foreign currency translation adjustments (399,867)
------------
TOTAL COMPREHENSIVE LOSS (2,291,479)
------------
Issuance of common stock for cash 5,200,000
Stock options exercised for cash 2,050,000
Public offering expenses (680,098)
------------
BALANCE - June 30, 1996 10,655,256
------------
COMPREHENSIVE LOSS:
Net loss for year (10,889,628)
Other comprehensive loss net of taxes $-0-
foreign currency translation adjustments (592,487)
------------
TOTAL COMPREHENSIVE LOSS (11,482,115)
------------
Issuance of common stock for cash 6,999,807
Issuance of common stock in lieu of interest payment 132,950
Stock options exercised for cash 117,530
Stock option granted as compensation 25,000
Purchase of subsidiary for stock 120,000
------------
BALANCE - June 30, 1997 $ 6,568,428
============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-21
<PAGE> 70
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,889,628) $(1,891,612)
Adjustment to reconcile net loss to net
cash from operating activities:
Depreciation and amortization 770,294 526,138
Provision for bad debts 552,725 336,706
Write off of affiliate receivable 166,384 --
Operating expenses through issuance of stock options 157,950 --
Gain on sale of marketable securities -- (762,500)
(Increase) decrease in operating assets:
Accounts receivable (1,857,662) (1,870,866)
Accounts receivable - affiliates 31,533 (31,533)
Accounts receivable - other 283,603 22,138
Inventories (998,271) (1,420,393)
Prepaid expenses and sundry receivables (860,457) (976,664)
Increase(decrease) in operating liabilities:
Accounts payable 1,601,074 1,514,465
Accounts payable - affiliates (1,541) 1,541
Accrued expenses 266,245 855,041
Customer deposits 92,763 38,874
------------ -----------
NET CASH USED BY OPERATING ACTIVITIES (10,684,988) (3,658,665)
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (3,431,375) (932,066)
Licensing agreement (352,036) --
Purchase of marketable securities -- (200,000)
Patents and trademarks (12,925) (45,309)
Goodwill (299,837) --
Organization cost -- (8,385)
Collection of note receivable 448,857 --
Security deposits (23,776) (19,952)
Repayments from affiliates -- 34,592
Repayment of loans receivable 2,896 --
------------ -----------
NET CASH USED BY INVESTING ACTIVITIES (3,668,196) (1,171,120)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowing 9,834,706 2,069,828
Proceeds from long-term borrowing 248,987 --
Principal payment of short-term borrowings (2,093,074) (2,711,086)
Principal payments of long-term borrowing (442,681) (281,004)
Issuance of common stock for cash 7,117,337 7,250,000
Repayment from (advances to) stockholder and officers 87,653 141,054
Public offering expenses -- (680,098)
------------ -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,752,928 5,788,694
------------ -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (561,122) (383,050)
------------ -----------
NET INCREASE (DECREASE) IN CASH (161,378) 575,859
CASH AND CASH EQUIVALENTS - beginning of period 3,252,685 2,676,826
------------ -----------
CASH AND CASH EQUIVALENTS - end of period $ 3,091,307 $ 3,252,685
============ ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
F-22
<PAGE> 71
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
The Company was incorporated under the laws of the State of New York on
January 2, 1968 under the name "C.G.S. Units, Inc." On May 23, 1994,
the Company acquired 100% of the outstanding securities of Direct
Marketing Services, Inc., a company incorporated in the State of
Delaware on June 3, 1993. On June 6, 1994, the Company merged with
Direct Marketing Services, Inc. and the surviving corporation changed
its' name to DMS Industries, Inc. DMS Industries, Inc. was principally
engaged in the promotion and sales of its proprietary brand of
cigarettes on a commission basis. In May of 1995 the Company
discontinued its' operations and changed its' name to Swissray
International, Inc.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts
of Swissray International, Inc. (Parent), and its' wholly owned
subsidiaries SR Medical AG and SR Management AG (both Swiss
corporations), Swissray Corporation and Swissray Empower, Inc. (both
U.S. corporations) and SR Medical AG's wholly owned subsidiaries
Teleray AG (a Swiss Corporation) and Swissray (Deutschland)
Rontgentechnik GmbH (a German corporation). All material intercompany
transactions and balances have been eliminated in consolidation.
SR Medical AG (a Swiss corporation) was organized in 1988 and markets
and services diagnostic x-ray medical equipment.
Teleray AG (a Swiss corporation) was organized in 1994 and is engaged
in research, development and assembly activities related to diagnostic
x-ray medical equipment and accessories.
Swissray (Deutschland) Rontgentechnik GmbH (a German corporation) was
organized in 1988 and is engaged in sales and marketing of diagnostic
x-ray medical equipment and accessories. The Company in 1997 changed
its name from SR Medical GmbH to Swissray (Deutschland) Rontgentechnik
GmbH.
SR Management AG (a Swiss corporation) was organized in December of
1995 as a service oriented company serving only the other companies
within the consolidated group in the areas of consultation,
bookkeeping, logistics, and employment services. The Company in 1997
changed its name from SR Finance AG to SR Management AG.
Swissray Corporation (a U.S. corporation) was organized in November of
1996 and is engaged in sales and marketing of diagnostic x-ray medical
equipment and accessories.
Swissray Empower, Inc. (a U.S. corporation) was organized in 1985 and
was acquired by Swissray International, Inc. on April 1, 1997. The
Company is engaged in the sale of diagnostic x-ray supplies.
BUSINESS ACQUISITION
On April 1, 1997, Swissray International, Inc. exchanged 80,000 shares
of common stock at the then quoted market price of $120,000 ($1.50 per
share) for all the outstanding shares of Empower, Inc. The consolidated
financial statements presented include the accounts of Swissray
Empower, Inc., formerly Empower, Inc., from April 1, 1997 (date of
acquisition) to June 30, 1997. The acquisition has been accounted for
as a purchase. The contract requires the Company to repurchase the
shares at $4 per share for a period of one year commencing two years
from the date of the contract at option of the stockholder.
F-23
<PAGE> 72
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
BASIS OF ACCOUNTING
The Company maintains its records on the accrual basis of accounting.
Revenues are recognized when the products are delivered and expenses
are recorded when incurred.
CERTAIN SIGNIFICANT RISK AND UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that effect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during this period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at lower of cost or market, with cost being
determined on the first-in, first-out (FIFO) method. Inventory cost
include material, labor, and overhead.
PROPERTY AND EQUIPMENT
Property and equipment including significant betterments, are recorded
at cost. Upon retirement or disposal of properties, the cost and
accumulated depreciation are removed from the accounts, and any gain or
loss is included in income. Maintenance and repair costs are charged to
expense as incurred.
DEPRECIATION
Depreciation of property and equipment is provided for over the
estimated useful lives of the respective assets. Depreciation is
recorded on the straight-line method. The estimated useful lives of
each asset category are as follows:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Automobiles 3
Equipment 5 - 10
Office furniture and equipment 5 - 10
Office and leasehold improvements 10
Building 40
</TABLE>
INTANGIBLE ASSETS
Licensing agreement is stated at cost less imputed interest net of
accumulated amortization computed on the straight-line method over its
estimated economic life of 10 years. Amortization commenced on October
1, 1995 upon the initial sale of the Company's products within the
defined territories of the agreement. Amortization expense, for the
licensing agreement, for the years ended June 30, 1997 and 1996 was
$465,293 and $372,493, respectively.
Patents and trademarks are stated at cost less accumulated amortization
computed on the straight-line method over their estimated economic life
of 10 years. Amortization expense, for patents and trademarks, for the
years ended June 30, 1997 and 1996 was $26,940 and $28,001,
respectively.
Capitalized computer software is stated at cost less accumulated
amortization computed on the straight-line method over its estimated
useful lives of 5 to 8 years. Amortization commenced on January 1,
1997, therefore no amortization expense has been provided for the year
ended June 30, 1996. Amortization expense, for capitalized computer
software, for the year ended June 30, 1997 was $34,512.
F-24
<PAGE> 73
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
All cost incurred by the Company in connection with incorporation of
subsidiaries have been capitalized and are being amortized over a
period of sixty (60) months. Amortization expense, for organization
cost, for the years ended June 30, 1997 and 1996 was $1,486 and $978,
respectively.
Goodwill has been recorded for the amount of cost in excess of fair
value of the net assets of Empower, Inc. which was acquired in a
purchase transaction on April 1, 1997. The goodwill is being amortized
on a straight-line method over 10 years. Amortization charged to
operations amounted to $9,023 for the year ended June 30, 1997. No
amortization was charged during the year ended June 30, 1996.
The Company reevaluates intangible assets based on expectations of cash
flows and operating income to determine whether any potential
impairment exists. If necessary, the Company writes down the recorded
cost of the intangible asset to the fair value when recorded costs,
prior to impairment, are higher.
ADVERTISING AND PROMOTION
Advertising and promotion cost are expensed as incurred and included in
"Selling Expenses". Advertising and promotion expenses for the years
ended June 30, 1997 and 1996 were $781,189 and $740,044, respectively.
RESEARCH AND DEVELOPMENT
Cost associated with research, new product development, and product
cost improvements are treated as expenses when incurred. Research and
development costs expended for the years ended June 30, 1997 and 1996
were $5,786,158 and $1,731,502, respectively.
DEFERRED INCOME TAXES
Deferred income taxes are provided on a liability method whereby
deferred income tax assets are recognized for deductible temporary
differences and operating loss carryforwards and deferred income tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets
and liabilities and their tax bases. Deferred income tax assets are
reduced by a valuation allowance when, in the opinion of management, it
is more likely than not that some portion or all deferred tax assets
will not be realized. Deferred income tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date
of enactment.
EXPENSES RELATED TO SALES AND ISSUANCE OF SECURITIES
All costs incurred in connection with the sale of the Company's common
stock have been capitalized and charged to additional paid-in capital.
NET LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss by the
weighted average number of shares of common stock outstanding during
the periods. Convertible Debentures, a common stock equivalent, were
not included due to them being anti-dilutive.
RECLASSIFICATIONS
Certain reclassifications have been made to prior year's financial
statements to conform to the June 30, 1997 presentation.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of subsidiaries operating in foreign countries
are translated into U.S. dollars using both the exchange rate in effect
at the balance sheet date or the historical rate, as applicable.
Results of operations are translated using the average exchange rates
prevailing throughout the year. The effects of exchange rate
fluctuations on translating foreign currency assets and liabilities
into U.S. dollars are included in stockholders' equity, while gains and
losses resulting from foreign currency transactions are included in
operations.
F-25
<PAGE> 74
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 2 - CONCENTRATION OF CREDIT RISK AND RISK ARISING FROM CASH DEPOSITS IN
EXCESS OF INSURED LIMITS
The Company sells its products to various customers primarily in
Europe, Asia and Africa. The Company performs ongoing credit
evaluations on its customers and generally does not require collateral.
Export sales are usually made under letter of credit agreements. The
Company maintains reserves for potential credit losses and such losses
have been within management's expectations.
The Company maintains its cash balances with major United States, Swiss
and German financial institutions. Funds on deposit with financial
institutions in the United States are insured by the Federal Deposit
Insurance Corporation ("FDIC") up to $100,000. At June 30, 1997, all
funds on deposit in the United States are insured. The cash balances at
Swiss and German financial institutions are not insured. At June 30,
1997 and 1996, cash in the amount of $3,021,843 and $3,252,685,
respectively, was not insured.
NOTE 3 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company measures its financial assets and liabilities in accordance
with generally accepted accounting principles. For certain of the
Company's financial instruments, including cash and cash equivalents,
trade and other accounts receivable, notes receivable, accounts
payable, accrued expenses, notes and loans payable, the carrying
amounts approximate fair value due to their short term maturities. The
amount shown for long-term receivables also approximate fair value.
Investments in affiliated companies for which there is no quoted market
price are accounted for by the equity method resulting in no carrying
value which the Company considers a fair value.
NOTE 4 - ACCOUNTS RECEIVABLE - AFFILIATES
The Company sells merchandise to affiliated sales companies in the
normal course of business. No amounts were due to the Company at June
30, 1997 whereas at June 30, 1996 the amounts due to the Company were
$31,533.
NOTE 5 - NOTE RECEIVABLE
On June 20, 1996 the Company sold marketable securities for a 5%
promissory note in the amount of $962,500 originally due on October 20,
1996 of which $100,000 was paid on December 10, 1996. On January 15,
1997, the Company renegotiated the terms of the unpaid balance. A new
note in the amount of $862,500 was renegotiated, with interest at 6%
cumulative and payable when the note matures on January 1, 2000. At
June 30, 1997, principal payments of $348,857 were received leaving a
balance due of $513,643. Interest payments were also paid to June 30,
1997.
NOTE 6 - INVENTORIES
Inventories are summarized by major classification as follows:
<TABLE>
<CAPTION>
June 30,
--------------------------
1997 1996
---------- ----------
<S> <C> <C>
Raw materials, parts and supplies $2,632,256 $1,854,322
Work in process 468,204 853,657
Finished goods 810,647 204,857
---------- ----------
$3,911,107 $2,912,836
========== ==========
</TABLE>
F-26
<PAGE> 75
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 7 - PREPAID EXPENSES AND SUNDRY RECEIVABLES
Prepaid expenses and sundry receivables consist of the following:
<TABLE>
<CAPTION>
June 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Prepaid expenses, deposits and advance payments $ 681,742 $ 258,373
Insurance claim for fire damage 352,996 --
Prepaid and refundable taxes 888,169 806,138
Employee loans 13,231 1,378
Interest receivable -- 9,792
---------- ----------
$1,936,138 $1,075,681
========== ==========
</TABLE>
NOTE 8 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
------------------------
1997 1996
---------- ----------
<S> <C> <C>
Land and building $ 3,022,77 $ --
Equipment 1,223,572 1,031,849
Office furniture and equipment 161,223 121,404
Office and leasehold improvements 249,160 219,024
---------- ----------
4,656,727 1,372,277
Less: Accumulated depreciation and amortization 320,110 233,995
---------- ----------
$4,336,617 $1,138,282
========== ==========
</TABLE>
Depreciation and amortization expense, for property and equipment, for
the years ended June 30, 1997 and 1996 were $233,040 and $103,176,
respectively.
NOTE 9 - DUE FROM STOCKHOLDER
The Company has made unsecured advances to its' President (a principal
stockholder) requiring interest only payments at 6% per annum. The
balance at June 30, 1996 was $17,414 and by June 30, 1997 has been
repaid. Interest charged the stockholder for the years ended June 30,
1997 and 1996, was $891 and $12,530, respectively.
The Company also made unsecured advances to its former Chairman of the
Board of Directors (a principal stockholder) during the year ended June
30, 1997 requiring interest at 6% per annum. The balance at June 30,
1997 was $69,587. Interest charged to the stockholder for the year
ended June 30, 1997 was $3,460.
NOTE 10 - DUE FROM AFFILIATES
The Company has made non-interest bearing advances to Swissray Medical
GmbH, Willich, an affiliated sales company. The balance due to the
Company at June 30, 1996 was $166,384, which was written off in 1997.
F-27
<PAGE> 76
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 11 - ACCOUNTS RECEIVABLE - LONG-TERM
The Company sold merchandise to a customer in 1995. In June 1996, the
Company renegotiated payment terms with the customer and agreed that
the customer would pay the Company approximately $5,000 to $30,000 per
month based on usage of the merchandise for a period of 5 years. The
amount due the Company at June 30, 1997 and 1996 was $240,912 and
$1,038,693, respectively, after applying a discount for imputed
interest and a provision for doubtful collection in the total amount
of $814,178 and $300,000, respectively.
NOTE 12 - LICENSING AGREEMENT
The Company entered into a licensing agreement in June of 1995 with an
unaffiliated individual. The agreement is for an exclusive
field-of-use license within the United States and Canada to use the
proprietary information, including the patent rights, for certain
technology regarding the integration of computer technology with
diagnostic x-ray and radiology medical equipment through digital
imaging systems. The agreement required a fee of $5,000,000 consisting
of $1,200,000 in cash and 660,000 shares of the Company's common
stock. The cash payment requirement consisted of $900,000 upon the
signing of the agreement and the $300,000 balance due on December 31,
1996. The fee has been discounted at 7.5% for imputed interest of
$33,425 resulting in a net capitalized cost of $4,966,575. This
agreement is for an indefinite term or until all of the proprietary
information becomes public knowledge and the patent rights expire.
NOTE 13 - INVESTMENTS
The Company has made various investments which are recorded on the
equity method. These entities have operated at a loss in excess of
equity, therefore, the Company is carrying these investments as
follows:
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
---------------------- -------------------
Ownership Carrying Carrying
% Cost Value Cost Value
--------- -------- -------- ------- -----
<S> <C> <C> <C> <C> <C>
Swissray SR Medical GmbH, Willich 34% $ 16,892 $-- $16,892 $--
Swissray Medical, s.r.o., Bratislaua 34% 6,757 -- 6,757 --
Swissray Medical s.r.o., Brno 34% 6,757 -- 6,757 --
Teleray s.r.o., Willich 49% 38,403 -- 28,362 --
Teleray s.r.o., Brno 34% 6,757 -- 6,757 --
Digitec GmbH, Neuss 20% 59,641 -- 11,484 --
-------- --- ------- ---
Total $135,207 $-- $77,009 $--
======== === ======= ===
</TABLE>
NOTE 14 - NOTES PAYABLE - BANK
The Company has negotiated a line-of-credit agreement with the Union
Bank of Switzerland dated July 16, 1996 for $376,310, based on the
exchange rate in effect on June 30, 1997, for borrowing availability
in excess of cash balances on deposit with the bank. Pending
renegotiation of the agreement, the bank is reducing the amount
available in excess of the cash on deposit with the bank by $102,630
per month until October of 1997.
The Company has also negotiated a line-of-credit agreement with the
Swiss Bank Corporation for $1,505,240, based on the exchange rate in
effect on June 30, 1997.
Swissray Empower, Inc., a subsidiary, has negotiated a line-of-credit
agreement with the State Bank of Long Island dated October 21, 1996
with a maximum borrowing base of $450,000 as of June 30, 1997. The
maximum borrowing base is reduced in the future by $25,000 per quarter
terminating on December 31, 2001.
F-28
<PAGE> 77
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 14 - NOTES PAYABLE - BANK (CONTINUED)
Notes payable are summarized as follows:
<TABLE>
<CAPTION>
June 30,
-----------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Union Bank of Switzerland, due on
demand, with interest at 8% per annum,
collateralized by the cash on deposit at
Union Bank of Switzerland and accounts
receivable. Cash balances on deposit at
Union Bank of Switzerland at June 30,
1997 and 1996 were $2,805,747 and
$1,596,200, respectively. $1,421,075 $2,069,828
Swiss Bank Corporation, due on demand,
with interest at 5.25% per annum,
collaterized by the cash on deposit at
Swiss Bank Corporation and accounts
receivable. Cash balances on deposit at
Swiss Bank Corporation at June 30, 1997
were $106,007. 695,231 --
State Bank of Long Island, due on
demand, with interest at prime plus
2.25%, collateralized by the assets of
Swissray Empower, Inc. and guaranteed by
the Company. Total assets of Swissray
Empower, Inc. were $1,983,502 at June
30, 1997. 350,000 --
Cantonal Bank of Lucerne, on demand with
three months notice, with interest at
5.25% payable quarterly, collateralized
by the land and building. 1,368,400 --
---------- ----------
$3,834,706 $2,069,828
========== ==========
</TABLE>
NOTE 15 - LOAN PAYABLE
The Company has negotiated a 5% demand loan from a private foundation
fund. The loan balance payable at June 30, 1997 and 1996 was $133,008
and $156,254, respectively.
NOTE 16 - DUE TO STOCKHOLDERS AND OFFICERS
In June 1997, the President of the Company (a principal stockholder)
made non-interest bearing advances to the Company in the amount of
$5,862.
Prior to the acquisition of Empower, Inc., the president of Empower,
Inc. advanced that company funds for operating expenses at 8.25%
interest. As part of the acquisition, the Company agreed to continue
to pay this obligation. The balance due the stockholder of the Company
at June 30, 1997 was $112,013 including unpaid interest of $25,695.
Interest payable to the stockholder for the period from April 1, 1997
(date of acquisition) to June 30, 1997 was $2,315.
An officer of Swissray Corporation made non-interest bearing advances
to the subsidiary for operating expenses during 1997. The balance due
at June 30, 1997 was $21,951.
F-29
<PAGE> 78
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 17 - CONVERTIBLE DEBENTURES
Convertible debentures consist of the following:
<TABLE>
<CAPTION>
June 30,
---------------------------------
1997 1996
---------- ----------
<S> <C> <C>
Convertible promissory note dated April
28, 1997 and due April 28, 1998 with
interest at 6% per annum. The principle
shall be convertible into common shares
one year from the issue date of the note
at the lessor of eighty (80%) percent of
bid price or $2.50 per share on the date
of conversion. Interest due on the note
shall similarly be paid in common stock
at the time of conversion. $2,000,000 $--
Convertible promissory debenture dated
May 15, 1997 and due May 15, 2000 with
interest at 6% per annum. The debentures
are convertible into common shares at
any time after June 29, 1997 at a price
equal to 80% of the average closing bid
price for the five (5) trading days
preceding the date of conversion. Any
debenture not so converted is subject to
mandatory conversion on May 15, 2000. 2,000,000 --
Convertible promissory debenture dated
June 13, 1997 and due June 13, 2000 with
interest at 6% per annum. The debentures
are convertible into common shares at
any time after July 28, 1997 at a price
equal to 80% of the average closing bid
price for the five (5) trading days
preceding the date of conversion. Any
debenture not so converted is subject to
mandatory conversion on June 13, 2000. 2,000,000 --
---------- ---
$6,000,000 $--
========== ===
</TABLE>
F-30
<PAGE> 79
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 18 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
June 30,
--------------------
1997 1996
-------- --------
<S> <C> <C>
Note payable - Edward Coyne, in weekly
installments of $817, including
principal and interest at 8% per annum,
maturing on October 9, 2002 $182,617 $ --
Note payable - Thatcher Company of New
York, in monthly installments of $855,
including principal interest at 10.25%
per annum, maturing on October 3, 2001,
secured by various x-ray chemical mixing
machines 35,623 --
Note payable - Union Bank of
Switzerland, related to the acquisition
of equipment sold to a customer (see
Accounts Receivable - Long-Term), in
monthly installments of $12,589 with
imputed interest at 6.0%, expiring on
September 30, 2000 450,417 --
Capitalized leases related to the
acquisition of various computer and
office equipment in monthly installments
over periods ranging up to June 4, 2001
with interest imputed at rates ranging
from 9.1% to 28.3%. These leases are
secured by the specific equipment
leased 30,747 --
Note payable - Dr. Zeman-Wiegand Helga,
due on demand, requires interest only
payments at 7% per annum with no current
amortization required 68,420 87,070
Note payable - Carba, AG, due July 1,
1996, requiring interest only payments
at 6% per annum with no current
amortization required -- 293,426
Note payable - Carbamed-Ruegge
Reduktion, due July 1, 1996, requiring
interest only payments at 6% per annum
with no current amortization required -- 130,605
-------- --------
767,824 511,101
Less: Current portion 243,135 511,101
-------- --------
$524,689 $ --
======== ========
</TABLE>
F-31
<PAGE> 80
NOTE 18 - LONG-TERM DEBT (CONTINUED)
The aggregate long-term debt payment are as follows:
<TABLE>
<CAPTION>
Years Ending
June 30,
------------
<S> <C>
1998 $ 243,135
1999 180,834
2000 190,321
2001 99,889
2002 43,134
Thereafter 10,511
-----------
$ 767,824
===========
</TABLE>
NOTE 19 - COMMON STOCK
On March 12, 1997, the Company amended its certificate of
incorporation to change the number of authorized common shares from
15,000,000 to 30,000,000 of $.01 par value common shares.
The Company's outstanding shares of common stock of $.01 par value at
June 30, 1997 and 1996 were 19,694,433 and 14,185,064, respectively.
NOTE 20 - ISSUANCE OF COMMON STOCK FOR CASH
The Company issued 2,150,000 shares for $7,250,000 (includes 1,050,000
shares for $2,050,000 issued under stock option plan) for the year
ended June 30, 1996 and 5,358,759 shares for $7,117,337 (including
161,000 shares for $117,530 issued under stock option plan) for the
year ended June 30, 1997.
NOTE 21 - PENSION AND EMPLOYEE BENEFIT PLANS
The Swiss and Germany Subsidiaries, mandated by government
regulations, are required to contribute approximately five (5%)
percent of eligible, as defined, employees' salaries into a government
pension plan. The subsidiaries also contribute approximately five (5%)
percent of eligible employee salaries into a private pension plan.
Total contributions charged to operations for the years ended June 30,
1997 and 1996, were $274,009 and $198,722, respectively.
Effective March 1, 1992, Swissray Empower, Inc. (formerly Empower,
Inc.), a U.S. subsidiary, adopted a qualified 401(k) retirement plan
for the benefit of substantially all its employees. Under the plan,
employees can contribute and defer taxes on compensation contributed.
The subsidiary matches, within prescribed limits, the contributions of
the employees. The subsidiary also has the option to make an
additional contribution to the plan. The subsidiary's contribution to
the plan for the period April 1, 1997 (date of acquisition) to June
30, 1997 was $4,185.
Effective April 3, 1992, Swissray Empower, Inc. (formerly Empower,
Inc.), a U.S. subsidiary, adopted a "Section 125" employee benefits
plan, which is also referred to as a "Cafeteria" plan. The subsidiary
pays for approximately 85% of the employees' health coverage and the
employee pays approximately 15% of the cost of coverage. With the
implementation of the Cafeteria plan, the employees' payments for
coverage are on a pre-tax basis. A new employee has only a ninety (90)
day waiting period before he or she becomes eligible to participate in
the group insurance plan and the Cafeteria plan.
F-32
<PAGE> 81
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 22 - OTHER INCOME (EXPENSES)
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------
1997 1996
------------ -----------
<S> <C> <C>
Interest income $ 68,950 $ 131,166
Interest income - stockholder and officer 4,351 12,530
Foreign currency income 484,846 377,587
Miscellaneous income 6,833 512
Loss from investments (246,217) --
Interest expense (248,728) (193,930)
Interest expense - stockholder (2,315) --
Licensing income -- 482,138
------------ -----------
TOTAL OTHER INCOME (EXPENSES) $ 67,720 $ 810,003
============ ===========
</TABLE>
NOTE 23 - INCOME TAXES
Deferred income tax assets as of June 30, 1997 and 1996 of $6,020,961
and $2,947,792, respectively, as a result of net operating losses,
have been fully offset by a valuation allowance. The valuation
allowances have been established equal to the full amounts of the
deferred tax assets, as the Company is not assured that it is more
likely than not that these benefits will be realized.
A reconciliation between the statutory federal income tax rate (34%)
and the effective income tax rates based on continuing operations is
as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Statutory federal income tax (benefit) $(3,665,678) $(1,067,008)
State and foreign income tax 79,296 --
Foreign income tax (benefit) in
excess of domestic rate 509,203 (325,715)
Benefit not recognized on operating loss 114,233 --
Valuation allowance 3,073,169 1,028,075
------------ ------------
$ 110,223 $ (364,648)
============ ============
</TABLE>
Net operating loss carryforwards at June 30, 1997 were approximately
as follows:
<TABLE>
<S> <C> <C> <C>
United States (expiring through June 30, 2012) $ 9,100,000
Switzerland (expiring through June 30, 2007) 15,200,000
-----------
$24,300,000
===========
</TABLE>
The income tax related to the extraordinary gain on sale of marketable
securities was approximately $343,000 for the year ended June 30,
1996.
No income tax benefit has been recognized related to the extraordinary
loss incurred as a result of fire damage for the year ended June 30,
1997.
F-33
<PAGE> 82
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 24 - EXTRAORDINARY ITEMS
In June of 1996, the Company sold marketable securities for $962,500,
at a cost of $200,000, resulting in an extraordinary gain of $419,500
($.03 per share), net of income taxes of approximately $343,000.
On April 12, 1997, the Company sustained significant fire damage at a
leased production and office facility in Hochdorf, Switzerland,
resulting in an extraordinary loss, net of insurance proceeds, of
$387,514, net of income taxes of $-0-.
NOTE 25 - SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments for the years ended June 30, 1997 and 1996, include
interest of $122,427 and $193,930, respectively, and income taxes of
$56,562 and $-0-, respectively.
For the year ended June 30, 1996 the Company received a note
receivable for $962,500 from the sale of marketable securities. No
cash was received.
NON-CASH OPERATING ACTIVITIES
In April of 1997, the Company issued options to an officer under the
1996 non-compensation stock option plan. The excess of the then quoted
market price over the option price has been recorded as additional
compensation amounting to $25,000.
The Company issued 70,610 shares of common stock in lieu of interest
payments due on convertible notes in the amount of $132,950.
NON-CASH INVESTING ACTIVITIES
On April 1, 1997, the Company acquired a subsidiary through the
issuance of 80,000 shares of common stock at the then quoted market
price of $120,000 ($1.50 per share). This transaction was accounted
for as a purchase.
NOTE 26 - STOCK OPTIONS
The Board of Directors, on January 30, 1996, adopted a non-statutory
stock option plan and reserved 3,000,000 shares for issuance to
eligible full and part-time employees, officers, directors and
consultants. Options are non-transferrable and are exercisable during
a term of not more than ten (10) years from the grant date. The
options are issuable in such amounts and at such prices as determined
by the Board of Directors, except that each option price of each grant
will not be less than twenty (20%) percent of the fair market value of
such shares on the date the options are granted.
The following table summarizes the non-statutory stock options
outstanding as of June 30, 1997.
<TABLE>
<CAPTION>
Price Per Options Options Options
Date Granted Share Granted Exercised Outstanding
------------ --------- -------- --------- -----------
<S> <C> <C> <C> <C>
March 11, 1996 $1.00 50,000 50,000 --
March 11, 1996 2.00 2,000,000 1,000,000 1,000,000
July 22, 1996 .73 200,000 151,000 49,000
January 24, 1997 4.00 125,000 -- 125,000
January 24, 1997 3.50 150,000 -- 150,000
April 4, 1997 1.00 50,000 -- 50,000
June 13, 1997 .73 270,000 10,000 260,000
--------- --------- ---------
2,845,000 1,211,000 1,634,000
========= ========= =========
</TABLE>
F-34
<PAGE> 83
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 26 - STOCK OPTIONS (CONTINUED)
The Company has also issued other stock options as follows:
<TABLE>
<CAPTION>
Price Per Options Options Options
Date Granted Share Granted Exercised Outstanding
------------ --------- ------- --------- -----------
<S> <C> <C> <C> <C>
September 20, 1995 $6.50 200,000 -- 200,000
June 8, 1996 5.00 100,000 -- 100,000
May 16, 1996 4.75 35,000 -- 35,000
-------- --------- -----------
335,000 -- 335,000
======== ========= ===========
</TABLE>
NOTE 27 - SIGNIFICANT CUSTOMER AND GEOGRAPHIC AREAS
The Company derives all of its' revenues from its subsidiaries located
in the United States, Switzerland and Germany. Sales by geographic
areas for the years ended June 30, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
----------- ------------
<S> <C> <C>
United States $ 2,000,608 $ --
Switzerland 2,184,161 2,002,374
Germany 1,393,072 4,976,503
Other export sales 7,573,860 3,920,345
----------- -----------
$13,151,701 $10,899,222
=========== ===========
</TABLE>
The following summarizes customers sales in excess of 10% or more of
the total revenues for the years ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
Largest customers:
<S> <C> <C>
Sales $ 4,288,697 $ 4,499,893
Percentage 33% 41%
Number of customers 2 3
Single largest customer:
Sales $2,389,613 $1,603,631
Percentage 18% 15%
</TABLE>
The accounts receivable balance at June 30, 1997 from the two largest
customers amounted to approximately $1,150,800 representing
approximately 22% of total trade accounts receivable with the single
largest customer balance of approximately $835,700 representing
approximately 16% of total trade receivables. The accounts receivable
balance at June 30, 1996 from the three largest customers amounted to
approximately $1,650,000 representing approximately 48% of total trade
accounts receivable with the single largest customer balance of
approximately $1,500,000 representing approximately 44% of total trade
accounts receivable.
F-35
<PAGE> 84
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 27 - SIGNIFICANT CUSTOMER AND GEOGRAPHIC AREAS (CONTINUED)
The following summarizes operating profit (losses) before provision
for income tax by geographic areas for the years ended June 30, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
United States $ (175,254) $ --
Switzerland (9,883,240) (2,612,087)
Germany (333,397) (63,673)
------------ -----------
$(10,391,891) $(2,675,760)
============ ===========
</TABLE>
The following summarizes identifiable assets by geographic area:
<TABLE>
<CAPTION>
June 30,
------------------------------
1997 1996
----------- -----------
<S> <C> <C>
United States $ 2,028,307 $ --
Switzerland 21,576,069 18,129,362
Germany 748,539 664,076
----------- -----------
$24,352,915 $18,793,438
=========== ===========
</TABLE>
NOTE 28 - COMMITMENTS
The Company leases various facilities and vehicles under operating
lease agreements expiring through September 2002. The Company has
excluded all vehicle leases in the schedule below because they are
deemed to be immaterial. The facilities lease agreements provide for a
base monthly payment of $20,767 per month. Rent expense for the years
ended June 30, 1997 and 1996 was $297,926 and $242,658, respectively.
Future minimum annual lease payments, based on the exchange rate in
effect on June 30, 1997, under the facilities lease agreements are as
follows:
<TABLE>
<CAPTION>
Year Ended
June 30,
----------
<S> <C>
1998 $249,212
1999 179,612
2000 165,512
2001 110,869
2002 98,525
Thereafter 24,631
</TABLE>
F-36
<PAGE> 85
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 28 - COMMITMENTS (CONTINUED)
On January 1, 1996, the Company entered into a long-term purchase
agreement with a major vendor to supply the camera module for a
product the Company sells. At June 30, 1997, future minimum payments
under this contract, which is cancelable with four months notice, are
as follows:
<TABLE>
<CAPTION>
Years Ending
June 30,
------------
<S> <C>
1998 $ 4,337,130
1999 5,250,210
2000 1,902,250
-----------
Total minimum contract payments $11,489,590
===========
</TABLE>
The Company's total purchases under this agreement was $1,534,646 for
the year ended June 30, 1997.
NOTE 29 - LITIGATION
On or about July 7, 1995, the Company commenced litigation against a
former officer and director of a corporate predecessor alleging
certain improprieties on the part of such officer and seeking monetary
compensation as a result thereof. Such defendant responded (in
September 1995) by filing certain affirmative defenses and
counterclaims against the Company and others and subsequently brought
(together with certain of his family members) an action against the
Company in the same court which action raised issues and claims
substantially similar to those raised in the aforesaid counterclaims.
The two actions were assigned to the same judge and the Company moved
successfully to dismiss both the counterclaims and the second action.
Leave to replead both claims were granted and amended counterclaims
and an amended complaint were served and filed and the Company again
successfully moved to dismiss both pleadings. Following the most
recent dismissal, counsel for the Company and the aforesaid former
officer entered into settlement discussions. Both the Company and
defendant have agreed to dismiss all claims and counter claims against
each other, and are awaiting for formal written releases to be
executed.
NOTE 30 - SUBSEQUENT EVENTS
In July, 1997, 110,000 non-statutory stock options were exercised for
$80,300 ($.73 per share).
On July 31, 1997, the Company issued $4,262,500 of 7% convertible
debentures in exchange for $4,262,500 (including interest of $262,500)
of 6% convertible debentures dated May 15, 1997 and June 13, 1997.
(See Convertible Debentures.) The Company did not receive any cash
proceeds from this transaction. The debentures, due July 31, 2000, are
convertible into common shares at any time after September 14, 1997 at
a price equal to 80% of the average closing bid price for the five (5)
trading days preceding the date of conversion. Any debenture not so
converted is subject to mandatory conversion on July 31, 2000.
In August, 1997, the Company issued $5,000,000 of convertible
debentures due August 2000 with interest at 6% per annum. The
debentures are convertible into common shares at any time after 45
days from the date of issuance at a price equal to 80% of the average
closing bid price for the five (5) trading days preceding the date of
conversion. Any debenture not so converted is subject to mandatory
conversion in August, 2000. The Company received cash proceeds of
$4,293,750, net of related costs of $706,250.
F-37
<PAGE> 86
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
NOTE 31 - UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
The following unaudited proforma condensed combined statements of
operations for the years ended June 30, 1997 and 1996 give retroactive
effect of the acquisition of Empower, Inc. on April 1, 1997, which has
been accounted for as a purchase. The unaudited proforma condensed
combined statements of operations give retroactive effect to the
foregoing transaction as if it had occurred at the beginning of each
year presented. The proforma statements do not purport to represent
what the Company's results of operations would actually have been if
the foregoing transactions had actually been consummated on such dates
or project the Company's results of operations for any future period
or date.
The proforma statements should be read in conjunction with the
historical financial statements and notes thereto.
SWISSRAY INTERNATIONAL, INC.
UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Swissray Proforma
International, Inc. Empower, Inc. Adjustments As Adjusted
------------------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $10,899,222 $8,813,949 $ -- $ 9,903,871
Income (loss) before
extraordinary
items $(2,311,112) $ 30,536 $(36,000)(1) $(2,244,576)
Net income (loss) $(1,891,612) $ 30,536 $(36,000)(1) $(1,897,076)
Loss per share $(.15)
Weighted average number
of shares outstanding 13,054,749
</TABLE>
SWISSRAY INTERNATIONAL, INC
UNAUDITED PROFORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Revenues $11,133,745 $8,071,824 $ -- $ 19,205,569
Loss before
extraordinary
items $(10,434,180) $ (235,736) $(36,000)(1) $(10,705,916)
Net loss $(10,821,694) $ (235,736) $(36,000)(1) $(11,093,430)
Loss per share $(.69)
Weighted average number
of shares 15,877,571
</TABLE>
(1) Adjustment to record amortization of goodwill
F-38
<PAGE> 87
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
September 30, June 30,
1997 1997
(Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,181,359 $ 3,091,307
Accounts receivable, net of allowance for doubtful
accounts of $ 107,553 (September 1997) and $ 148,390 (June 1997) 5,029,070 5,154,794
Accounts receivable - affiliates 0 0
Note receivable 0
Inventories 4,678,372 3,911,107
Prepaid expenses and sundry receivables 2,051,392 1,936,138
Total Current Assets 16,940,193 14,093,346
PROPERTY AND EQUIPMENT, at cost, net of accumulated depreciation
of $ 396,881 (September 1997) and $ 320,110 (June 1997) 4,388,463 4,336,617
OTHER ASSETS
Due from stockholders 351 69,587
Loan receivable 20,917 17,396
Accounts receivable - long-term, net of allowance of $ 818,105
(September 1997) and $ 814,178 (June 1997) for doubtful account 159,574 240,912
Licensing agreement, net of accumulated amortization of 3,973,260 4,097,424
$ 993,315 (September 1997) and $ 869,151 (June 1997)
Patents and trademarks, net of accumulated amortization of 220,899 206,003
$ 61,468 (September 1997) and $ 54,941 (June 1997)
Capitalized computer software, net of accumulated amortization of 351,958 317,524
$ 51,348 (September 1997) and $ 34,512 (June 1997)
Organisation cost, net of accumulated amortization of 5,584 5,921
$ 2,801 (September 1997) and $ 2,464 (June 1997)
Security deposits 39,656 43,728
Note receivable - long-term 513,643 513,643
Goodwill, net of accumulated amortization of $ 19,519 (September
1997) and $ 9,023 (June 1997) 400,318 410,814
TOTAL OTHER ASSETS 5,686,160 5,922,952
Total Assets $ 27,014,817 $ 24,352,915
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 158,441 $ 243,135
Notes payable - banks 2,960,478 3,834,706
Notes payable - short-term 36,291 0
Loan payable 133,099 133,008
Accounts payable 5,221,685 5,336,749
Accrued expenses 705,312 1,401,938
Customer deposits 181,431 170,436
Due to stockholders and officers 0 139,826
Due to Employees 39,590 0
TOTAL CURRENT LIABILITIES 9,436,328 11,259,798
CONVERTIBLE DEBENTURES 9,873,000 6,000,000
LONG-TERM DEBT, less current maturities 993,995 524,689
STOCKHOLDERS' EQUITY
Common stock 206,212 196,944
Additional paid-in capital 27,001,098 26,608,594
Accumulated deficit (19,001,765) (18,808,576)
Accumulated other comprehensive loss (1,494,052) (1,428,534)
TOTAL STOCKHOLDERS' EQUITY 6,711,494 6,568,428
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 27,014,817 $ 24,352,915
</TABLE>
F-39
<PAGE> 88
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, September 30,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
NET SALES $ 5,258,903 $ 2,467,175
COST OF SALES 3,313,091 1,189,257
GROSS PROFIT 1,945,812 1,277,918
OPERATING EXPENSES
Officers and directors compensation 95,735 127,211
Salaries 621,677 502,164
Selling 488,031 194,379
Research and development 473,839 499,522
General and administrative 212,180 279,456
Other operating expenses 135,877 331,902
Bad debts (39,964)
Depreciation and amortization 198,723 172,958
TOTAL OPERATING EXPENSES 2,186,097 2,107,592
LOSS BEFORE OTHER INCOME (EXPENSES)
AND INCOME TAXES (240,285) (829,674)
OTHER INCOME (EXPENSES) 47,972 (10,084)
LOSS FROM CONTINUING OPERATIONS (192,313) (839,758)
Income Tax Provision (Benefit) 876 --
NET LOSS $ 193,189 $ 839,758
LOSS PER COMMON SHARE $ (.01) $ (.06)
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 20,076,311 14,185,064
</TABLE>
F-40
<PAGE> 89
SWISSRAY INTERNATIONAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 30, September 30,
1997 1996
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (193,189) $ (839,758)
Adjustment to reconcile net loss to net
cash from operating activities
Depreciation and amortization 198,723 172,958
Provision for bad debts (36,910) (9,968)
Financing costs incurred 91,425 0
(Increase) decrease in operating assets:
Accounts receivable 166,561 1,303,848
Accounts receivable - others 77,411 --
Inventories (767,265) (843,472)
Prepaid expenses and sundry receivables (115,254) (457,291)
Increase (decrease) in operating liabilities
Accounts payable (115,064) (1,499,529)
Accounts payable - affiliates 0 (1,541)
Accrued expenses (696,626) 338,796
Customers deposits 10,995 (25,281)
NET CASH USED BY OPERATING ACTIVITIES (1,186,004) (1,021,480)
CASH FLOW FROM INVESTING ACTIVITIES
Acquisition of property and equipment (179,888) (82,334)
Patents and trademarks (21,423) (1,626)
Security deposits 4,072 (31)
Loans receivable (3,521) --
Repayments from (advances to) affiliates -- (149,222)
NET CASH USED BY INVESTING ACTIVITIES (200,760) (233,213)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from short-term borrowings 36,382 3,151,023
Proceeds from long-term borrowings 469,306 --
Principal payment of short-term borrowings (958,923) (2,069,828)
Principal payment of long-term borrowings -- (511,101)
Issuance of common stock for cash 3,873,000 --
Repayment from (advances to) stockholders
and officers 170,173 --
CASH PROVIDED BY FINANCING ACTIVITIES 3,589,938 570,094
EFFECT OF EXCHANGE RATE ON CASH 80,067 845
NET INCREASE (DECREASE) IN CASH 2,283,241 (683,754)
CASH AND CASH EQUIVALENT - beginning of period 3,091,307 3,252,658
CASH AND CASH EQUIVALENTS - end of period $ 5,181,359 $ 1,729,173
</TABLE>
F-41
<PAGE> 90
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Cumulative
Common Stock Additional Foreign
Paid-in Accumulated Currency
Shares Amount Capital Deficit Adjustment Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE JULY 1, 1997 19,694,433 $ 196,944 $26,608,594 $ (18,808,576) $ (1,428,534) $ 6,568,428
Issuance of common stock for cash 818,814 8,188 309,638 317,826
Issuance of common stock in lieu of
interest payments 7,974 80 10,867 10,947
Stock options exercised for cash 100,000 1,000 72,000 73,000
Foreign currency translation adjustment (65,518) (65,518)
Net loss (193,189) (193,189)
20,621,221 $ 206,212 $27,001,099 $ (19,001,765) $ (1,494,052) $(6,711,494)
</TABLE>
F-42
<PAGE> 91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(1)The financial statements included herein have been prepared by the
Registrant, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Registrant believes that the disclosures are
adequate to make the information presented not misleading. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the financial statements and notes thereto included in this Registration
Statement.
(2)In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting of only a normal and
recurring nature, necessary to present fairly the financial position of the
Registrant as of September 30, 1997 and the results of operations and cash flows
for the interim period presented. Operating results for the three months ended
September 30, 1997 are not necessarily indicative of the results to be expected
for the full year ending June 30, 1998.
(3)INVENTORIES
<TABLE>
<CAPTION>
Inventories are summarized by major classification as follows:
September 30, June 30,
-----------------------------------
1997 1997
------------ -----------
<S> <C> <C>
Raw materials, parts and supplies $3,862,229 $2,632,256
Work in process 277,652 468,204
Finished goods 538,491 810,647
---------- ----------
$4,678,372 $3,911,107
========== ==========
</TABLE>
Inventories are stated at lower of cost or market, with cost being determined on
the first-in, first-out (FIFO) method. Inventory cost include material,
labor, and overhead.
F-43
<PAGE> 92
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information............................................................................................ 2
Prospectus Summary............................................................................................... 3
Risk Factors..................................................................................................... 7
The Company......................................................................................................12
Determination of Offering Price..................................................................................12
Use of Proceeds..................................................................................................13
Market Prices and Dividend Policy................................................................................14
Capitalization...................................................................................................15
Dilution.........................................................................................................15
Selected Consolidated Financial Data.............................................................................16
Management's Discussion and Analysis Of Financial Condition and Results of Operations............................17
Business.........................................................................................................24
Management.......................................................................................................33
Stock Options Granted in 1997....................................................................................35
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values.................................36
Principal Stockholders...........................................................................................38
Certain Transactions.............................................................................................39
Selling Holders and Plan of Distribution.........................................................................39
Description of Capital Stock.....................................................................................41
Legal Matters....................................................................................................44
Independent Auditors.............................................................................................44
Index to Consolidated Financial Statements.......................................................................45
</TABLE>
------------------
46
<PAGE> 93
_______________________________________________________________________________
SWISSRAY INTERNATIONAL, INC.
6,221,580 SHARES OF
COMMON STOCK
________________________________________________________________________________
PROSPECTUS
________________________________________________________________________________
December 29, 1997
-47-
<PAGE> 94
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<S> <C>
SECURITIES AND EXCHANGE COMMISSION REGISTRATION
FEE $ *
PRINTING EXPENSES......................................... *
ACCOUNTING FEES AND EXPENSES.............................. *
LEGAL FEES AND EXPENSES................................... *
TRANSFER AGENT AND REGISTRATION FEES...................... *
BLUE SKY FEES AND EXPENSES................................ *
MISCELLANEOUS EXPENSES.................................... *
---------------------------------------------------------- -----------
===========
</TABLE>
- ------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 721 of the New York Business Corporation Law provides that the
indemnification and advancement of expenses of directors and officers may be
provided by the certificate of incorporation or by-laws of a corporation, or
when authorized by the certificate of incorporation or by-laws, a resolution of
shareholders, a resolution of directors or an agreement providing for
indemnification (except in cases where a judgment or other final adjudication
establishes that such acts were committed in bad faith or were the result of
active or deliberate dishonesty and were material to the cause of action so
adjudicated or that a person personally gained in fact a financial profit or
other advantage to which he was not legally entitled).
Section 722 of the New York Business Corporation Law provides that a
corporation may indemnify any person made, or threatened to be made, a party of
an action or proceeding other than one by or in the right of the corporation to
procure a judgment in its favor, whether civil or criminal, including an action
by or in the right of any other corporation, partnership, joint venture, trust,
employee benefit plan or other entity which any director or officer of the
corporation served in any capacity at the request of the corporation, by reason
of the fact that he was a director or officer of the corporation or served such
other corporation, partnership, joint venture, trust, employee benefit plan or
other entity in any other capacity, against judgments, fines, amounts paid in
settlement and reasonable expenses if such director or officer acted, in good
faith, for a purpose which he reasonably believed to be in, or in the case of
service for any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, not opposed to, the best interests of the
corporation and, in criminal acts or proceedings, in addition, had no reasonable
cause to believe that his conduct was unlawful.
Section 722 of the New York Business Corporation Law also states that a
corporation may indemnify any person made, or threatened to be made, a party to
an action by or in the right of the corporation to procure a judgment in its
favor by reason of the fact that he is or was a director or officer of the
corporation or any other corporation, partnership, joint venture, trust,
employee benefit plan or other entity at the request of the corporation,
II- 1
<PAGE> 95
against amounts paid in settlement and reasonable expenses actually and
necessarily incurred by him in connection with the defense or settlement of such
action, or in connection with an appeal therein if such director or officer
acted, in good faith, for a purpose which he reasonably believed to be in, or in
the case of service for any other corporation, partnership, joint venture,
employee benefit plan or other entity, not opposed to, the best interests of the
corporation, except that no indemnification shall be made in respect to a
threatened or pending action which is settled or otherwise disposed of, or any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation, unless the court determines the person is fairly and
reasonably entitled to indemnity for such portion of the settlement amount and
expenses as the court deems proper.
Section 726 of the New York Business Corporation Law provides that a
corporation shall have the power to purchase and maintain insurance for
indemnification of directors and officers. However, no insurance may provide for
any payment, other than cost of defense, to or on behalf of any director or
officer for a judgment or a final adjudication adverse to the insured director
or officer if (i) a judgment or other final adjudication establishes that his
acts of active and deliberate dishonesty were material to the cause of action
adjudicated or that he personally gained a financial profit or other advantage
to which he was not legally entitled or (ii) if prohibited under the insurance
law of New York.
Section 724 of the New York Business Corporation Law provides that
indemnification shall be awarded by a court to the extent authorized under
Sections 722 and 723 (a) of the New York Business Corporation Law
notwithstanding the failure of a corporation to provide indemnification, and
despite any contrary resolution of the board or of the shareholders.
The By-Laws of the Registrant provide for indemnification as follows:
(a) Any person made a party to any action, suit or proceeding, by
reason of the fact that he, his testator or intestate representative is or was a
director, officer or employee of the Corporation, or of any Corporation in which
he served as such at the request of the Corporation, shall be indemnified by the
Corporation against the reasonable expenses, including attorney's fees, actually
and necessarily incurred by him in connection with the defense of such action,
suit or proceedings, or in connection with any appeal therein, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding, or in connection with any appeal therein that such officer, director
or employee is liable for negligence or misconduct in the performance of his
duties.
(b) The foregoing right of indemnification shall not be deemed
exclusive of any other rights to which any officer or director or employee may
be entitled apart from the provisions of this section.
(c) The amount of indemnity to which any officer or any director may be
entitled shall be fixed by the Board of Directors except that in any case where
there is no disinterested majority of the Board available, the amount shall be
fixed by arbitration pursuant to the then existing rules of the American
Arbitration Association.
The Certificate of Incorporation of the Registrant, as amended,
provides for indemnification as follows:
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for damages for any breach of duty in such
capacity, provided that nothing contained in this Article shall eliminate or
limit the liability of any director if a judgment or final adjudication adverse
to him establishes that his acts or omissions were in bad faith or involved
intentional misconduct or a knowing violation of law to which he was not legally
entitled or that his acts violated Section 719 of the New York Business
Corporation Law.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On May 20, 1995, the Registrant issued 1,000,000 shares of Common
Stock to non-U.S. persons in reliance on Regulation S promulgated under the
Securities Act for an aggregate consideration of $4,250,000. Placement agents
were Interfinance Investment Co., Ltd., Berkshire Capital Management Corp. and
Rolcan Finance Ltd. Net proceeds received by the Company after costs related to
the financing were $4,000,000.
On December 10, 1995, the Registrant issued 1,000,000 shares of Common
Stock to non-U.S. persons in reliance on Regulation S. Placement agent was
Berkshire Capital Management Corp. Net proceeds received by the Company were
$4,500,000.
On December 13, 1996, the Registrant issued $3,800,000 aggregate
principal amount of convertible debentures to non-U.S. persons in reliance on
Regulation S. The convertible debentures were all converted into shares of
Common Stock at a conversion price equal to 81% of the average closing bid price
for the five trading days preceding the date of conversion. The Registrant
received net proceeds of $2,774,000.
On January 10, 1997, the Registrant issued $3,500,000 aggregate
principal amount of convertible debentures to non-U.S. persons in reliance on
Regulation S. Placement agent was IS-Targas Trading Ltd. Such convertible
debentures were all converted into shares of Common Stock at a conversion price
equal to 81% of the average closing bid price for the five trading days
preceding the date of conversion. Any convertible debentures not so converted
are subject to mandatory conversion by the Registrant on the 36th monthly
anniversary of the date of issuance of the convertible debentures. Net proceeds
received by the Registrant were $3,085,000.
On March 5, 1997, the Registrant issued 1,000,000 shares of Common
Stock for an aggregate price of $2,000,000 to non-U.S. persons in reliance on
Regulation S under the Securities Act. The placement agent for such shares was
Rolcan Finance Ltd. The Registrant received net proceeds of $1,925,000.
On April 28, 1997, the Registrant issued $2,000,000 aggregate principal
amount of convertible debentures, which were all converted into shares of Common
Stock of the Registrant at a conversion price equal to the higher of 80% of the
average closing bid price on the date of conversion or $2.50 per share. The
Registrant received net proceeds of $1,822,500.
On each of May 15, 1997 and June 15, 1997, the Registrant issued
$2,000,000 principal amount of 6% convertible debentures convertible into Common
Stock on terms similar to those of the April 28, 1997 issuance to accredited
investors as defined in Rule 501(a) of Regulation D. Placement agent for such
convertible debentures was Rolcan Finance Ltd. The aggregate offering price for
such convertible debentures was $4,000,000. After deducting underwriting
discounts, commissions and escrow fees in the aggregate amount of $528,610, the
Registrant received an aggregate net amount of $3,458,890. Such convertible
debentures were refinanced on July 31, 1997, with the proceeds of $4,262,500
principal amount of convertible debentures issued to non-U.S. persons under
Regulation S.
On July 31, 1997, the Registrant issued $4,262,500 of 7% convertible
debentures. The proceeds of such issuance were used to refinance $4,000,000
principal amount of 6% convertible debentures dated May 15, 1997 and
II- 2
<PAGE> 96
June 13, 1997 plus interest. The Registrant did not receive any cash proceeds
from this transaction. Such convertible debentures, due July 31, 2000, were all
converted into shares of Common Stock at a price equal to 80% of the average
closing bid price for the five (5) trading days preceding the date of
conversion.
On August 19, 1997, the Registrant issued $5,000,000 aggregate
principal amount of 6% convertible debentures, convertible into Common Stock of
the Registrant. Placement Agent for such convertible debentures was Rolcan
Finance Ltd. The aggregate offering price of such convertible debentures was
$5,000,000. After deducting underwriting discounts, commissions and escrow fees
in the aggregate amount of $681,250 the Registrant received a net amount of
$4,318,750. All such convertible debentures were issued to accredited investors
as defined in Rule 501(a) of Regulation D promulgated under the Act ("Regulation
D") and the Registrant has received written representations from each investor
to that effect. Fifty percent of the face amount of such convertible debentures
were convertible into shares of Common Stock of the Registrant at any time after
November 3, 1997 and the remaining 50% of the face value of such convertible
debentures were convertible into shares of Common Stock of the Registrant after
December 3, 1997, in each case at a conversion price equal to 80% of the average
closing bid price for the five trading days preceding the date of conversion.
Any such convertible debentures not so converted are subject to mandatory
conversion by the Registrant on the 36th monthly anniversary of the date of
issuance of such convertible debentures. As of December 5, 1997, $2,225,000
aggregate principal amount of such convertible debentures had been converted
into 2,492,450 shares of Common Stock. An additional $1,850,000 aggregate
principal amount of such convertible debentures were exchanged for Convertible
Debentures.
Between November 26, 1997 and December 11, 1997, the Registrant issued
$5,848,285 aggregate principal amount of 8% convertible debentures convertible
into Common Stock of the Registrant. Placement Agent for the Convertible
Debentures was Net Financial International, Ltd. The aggregate offering price
of the Convertible Debentures was $5,848,285. Underwriting discounts,
commissions, consultant fees and escrow fees aggregated $690,000. The
Registrant received a net amount of $3,000,000. All the Convertible Debentures
were issued to accredited investors as defined in Rule 501(a) of Regulation D
promulgated under the Act and the Registrant has received written
representations from each investor to that effect. Twenty-five percent of the
Convertible Debentures are convertible at the earlier of the effective date of
a registration statement covering the underlying shares of Common Stock or
March 21, 1998. An additional twenty-five percent of the face amount of the
Convertible Debentures may be converted each 30 days thereafter, in each case
at a conversion price equal to 75% of the average closing bid price for the
five trading days preceding the date of conversion. Any of the Convertible
Debentures not so converted are subject to a mandatory conversion by the
Registrant on the 24th monthly anniversary of the date of issuance of the
Convertible Debentures.
Item 16. Exhibits and Financial Statement Schedules
Exhibit No. Description
- ----------- -----------
2.1 Acquisition Agreement, dated May 1995, by and between
Registrant, a New York corporation (now Swissray
International, Inc.); Berkshire International Finance,
Inc., SR-Medical AG (a Swiss corporation), Teleray AG (a
Swiss corporation) and others (Incorporated by reference to
Exhibit 6(a) of the Registrant's Registration Statement on
Form 10SB, Registration No . 0-26972, effective February
14, 1996).
2.2 Exchange Agreement, dated as of November 22, 1996 by and
between the Registrant and Douglas Maxwell ("Maxwell");
Registration Rights Agreement, dated as of March 13, 1997,
between the Registrant and Maxwell; Assignment and
Assumption Agreement, dated March 13, 1997, between the
Registrant and Maxwell; Option Agreement, dated January
24, 1997, granting options for 125,000 shares of the
Registrant to Maxwell (Incorporated by reference to
Exhibit 2.2 of the Registrant's Annual Report for the
fiscal year ended June 30, 1997 on Form 10-KSB filed on
September 30, 1997).
3.1 Registrant's Certificate of Incorporation, dated December
20, 1967 (Incorporated by reference to Exhibit 2(a) of the
Registrant's Registration Statement on Form 10SB,
Registration No. 0- 26972, effective February 14, 1996).
3.2 Amendment to Registrant's Certificate of Incorporation,
dated September 19, 1968 (Incorporated by reference to
Exhibit 2(b) of the Registrant's Registration Statement on
Form 10SB, Registration No. 0-26972, effective February 14,
1996).
3.3 Amendment to Registrant's Certificate of Incorporation,
dated September 8, 1972 (Incorporated by reference to
Exhibit 2(c) of the Registrant's Registration Statement on
Form 10SB, Registration No. 0-26972, effective February 14,
1996).
3.4 Amendment to Registrant's Certificate of Incorporation,
dated October 30, 1981 (Incorporated by reference to
Exhibit 2(d) of the Registrant's Registration Statement on
Form 10SB, Registration No. 0-26972, effective February 14,
1996).
II- 3
<PAGE> 97
3.5 Certificate of Merger of Direct Marketing Services, Inc.
and CGS Units Incorporated into CGS Units Incorporated,
dated June 16, 1994 (Incorporated by reference to Exhibit
2(e) of the Registrant's Registration Statement on Form
10SB, Registration No. 0-26972, effective February 14,
1996).
3.6 Amendment to Registrant's Certificate of Incorporation,
dated August 10, 1994 (Incorporated by reference to Exhibit
3.6 of Registrant's Annual Report for the fiscal year ended
June 30, 1997 on Form 10-KSB, filed September 30, 1997).
3.7 Certificate of Correction of Certificate of Merger of
Direct Marketing Services, Inc. and CGS Units Incorporated
into CGS Units Incorporated, filed August 5, 1994
(Incorporated by reference to Exhibit 2(f) of the
Registrant's Registration Statement on Form 10SB,
Registration No. 0-26972, effective February 14, 1996).
3.8 Amendment to Registrant's Certificate of Incorporation,
dated May 24, 1995 (Incorporated by reference to Exhibit
2(g) of the Registrant's Registration Statement on Form
10SB, Registration No. 0-26972, effective February 14,
1996)
3.9 Amendment to Registrant's Certificate of Incorporation,
dated August 29, 1996 (Incorporated by reference to Exhibit
3.9 of Registrant's Annual Report for the fiscal year ended
June 30, 1997 on Form 10-KSB, filed September 30, 1997).
3.10 Amendment to Registrant's Certificate of Incorporation,
dated December 13, 1996 (Incorporated by reference to
Exhibit 3.10 of Registrant's Annual Report for the fiscal
year ended June 30, 1997 on Form 10-KSB, filed September
30, 1997).
3.11 Amendment to Registrant's Certificate of Incorporation,
dated March 12, 1997 (Incorporated by reference to Exhibit
3.11 of Registrant's Annual Report for the fiscal year
ended June 30, 1997 on Form 10-KSB, filed September 30,
1997).
3.12 Registrant's By-Laws (Incorporated by reference to Exhibit
2 (h) of the Registrant's Registration Statement on Form
10SB, Registration No. 0-26972, effective February 14,
1996).
3.13 Amendment to Registrant's Certificate of Incorporation,
dated December 26, 1997.*
5.1 Opinion of Wuersch & Gering LLP, counsel to the
Registrant*
10.1 License Agreement, dated June 24, 1995, by and between the
Registrant and Hans-Jurgen Behrendt (Incorporated by
reference to Exhibit 6(b) of Registrant's Registration
Statement on Form 10SB, Registration No. 0-26972, effective
February 14, 1996)
10.2 1996 Swissray International Corporation, Inc. Non-Statutory
Stock Option Plan. (Incorporated by reference to Exhibit
10.2 of Registrant's Amendment No. 1 to Form S-1
Registration Statement, Registration No. 333-38229, filed
December 17, 1997).
10.3 Agreement, dated June 11, 1996 between the Registrant and
Philips Medical Systems (Incorporated by reference to
Exhibit 10.3 of Registrant's Annual Report for the fiscal
year ended June 30, 1997 on Form 10-KSB, filed September
30, 1997).
- --------
* To be filed by amendment.
II- 4
<PAGE> 98
10.4 License Agreement, dated as of July 18, 1997, by and
between the Registrant and Agfa-Gevaert N.V., certain
portions of which are filed under a request for
confidential treatment pursuant to Rule 24b-2 promulgated
pursuant to the Securities Exchange Act of 1934, as
amended, and Rule 80(b)(4) of Organization; Conduct and
Ethics; and Information and Requests adopted under the
Freedom of Information Act, under Rule 406 of the
Securities Act of 1933, as amended, and the Freedom of
Information Act (Incorporated by reference to Exhibit 10.4
of Registrant's Annual Report for the fiscal year ended
June 30, 1997 on Form 10-KSB/A2, filed December 3, 1997).
10.5 Agreement, dated July 14, 1995, by and between Teleray AG
and Optische Werke G. Roderstock, certain portions of which
are filed under a request for confidential treatment
pursuant to Rule 24b-2 promulgated pursuant to the
Securities Exchange Act of 1934, as amended, and Rule
80(b)(4) of Organization; Conduct and Ethics; and
Information and Requests adopted under the Freedom of
Information Act, under Rule 406 of the Securities Act of
1933, as amended, and the Freedom of Information Act
(Incorporated by reference to Exhibit 10.5 of Registrant's
Annual Report for the fiscal year ended June 30, 1997 on
Form 10-KSB/A2, filed December 3, 1997).
10.6 Agreement, dated as of June 30, 1997, between the
Registrant and Ruedi G. Laupper. (Incorporated by reference
to Exhibit 10.2 of Registrant's Amendment No. 1 to Form S-1
Registration Statement, Registration No. 333-38229, filed
December 17, 1997).
10.7 Form of Registration Rights Agreement, dated as of August
, 1997, by and between Swissray International, Inc. and the
person named on the signature page hereto. (Incorporated by
reference to Exhibit 10.2 of Registrant's Amendment No. 1
to Form S-1 Registration Statement, Registration No.
333-38229, filed December 17, 1997).
10.8 Form of Debenture of Swissray International, Inc.
(Incorporated by reference to Exhibit 10.2 of Registrant's
Amendment No. 1 to Form S-1 Registration Statement,
Registration No. 333-38229, filed December 17, 1997).
10.9 Asset Purchase Agreement, dated as of October 17, 1997 by
and among Swissray Medical Systems, Inc., Swissray
International, Inc., Service Support Group LLC, Gary
Durday, Michael Harle and Kenneth Montler (Incorporated by
reference to Exhibit 2.1 of the Registrant's Current
Report on Form 8-K, filed October 17, 1997).
10.10 Registration Rights Agreement, dated as of October 17,
1997, by and among Swissray International, Inc., Service
Support Group, LLC, Gary Durday, Michael Harle and
Kenneth Montler (Incorporated by reference to Exhibit 2.2
of the Registrant's Current Report on Form 8-K, filed
October 17, 1997).
10.11 Employment Agreement between the Registrant and Ruedi G.
Laupper, dated as of December , 1997.
10.12 Employment Agreement between the Registrant and Josef
Laupper, dated as of December , 1997.
10.13 Employment Agreement between the Registrant and Herbert
Laubscher, dated as of December , 1997.
10.14 Employment Agreement between the Registrant and Ueli
Laupper, dated as of December , 1997.
10.15 Form of Registration Rights Agreement, dated as of
November , 1997.
10.16 Form of Debenture of Swissray International, Inc., dated
November , 1997.
10.17 Form of Subscription Agreement, dated November , 1997.
10.18 Form of Registration Rights Agreement (rollover), dated
as of November , 1997.
10.19 Form of Debenture of Swissray International, Inc.
(rollover), dated November , 1997.
10.20 Form of Subscription Agreement (rollover), dated
November , 1997.
10.21 Agreement Regarding August, 1997 Regulation D offering.
21.1 List of Subsidiaries (Incorporated by reference to Exhibit
21 of Registrant's Annual Report for the fiscal year ended
June 30, 1997 on Form 10-KSB, filed September 30, 1997).
23.1 Consent of Bederson & Company LLP
23.2 Consent of Wuersch & Gering LLP (included in
Exhibit 5.1)*
27 FINANCIAL DATA SCHEDULES
- ----------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to the Registration
Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
II- 5
<PAGE> 99
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
if, in the aggregate, the changes in volume and price
represent no more than 20 percent change in the maximum
aggregate offering price, set forth in the "Calculation of
Registration Fee" table in the effective registration
statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the Act,
each such post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-offering amendment
any of the securities being registered which remain unsold at the termination of
the offering.
1. SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of New York, State of New York, on December 29, 1997.
SWISSRAY INTERNATIONAL, INC.
By: /s/ Ruedi G. Laupper
----------------------
Name: Ruedi G. Laupper
Title: Chairman of the Board of
Directors, President &
Chief Executive Officer
II- 6
<PAGE> 100
Pursuant to the requirements of the Securities Act of 1933, as amended
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Ruedi G. Laupper Chairman of the Board of Dated: December 29, 1997
- -------------------- Directors, President & Chief
Reudi G. Laupper Executive Officer
/s/ Josef Laupper Secretary, Treasurer and a Director Dated: December 29, 1997
- -----------------
Josef Laupper
/s/ Herbert Laubscher Chief Financial Officer Dated: December 29, 1997
- ---------------------
Herbert Laubscher
/s/ Ueli Laupper Vice President and a Director Dated: December 29, 1997
- ----------------
Ueli Laupper
/s/ Dr. Erwin Zimmerli Director Dated: December 29, 1997
- ----------------------
Dr. Erwin Zimmerli
/s/ Akbar Seddigh Director Dated: December 29, 1997
- ----------------------
Akbar Seddigh
/s/ Daniel A. Wuersch Director Dated: December 29, 1997
- ----------------------
Daniel A. Wuersch
</TABLE>
II- 7
<PAGE> 101
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
2.1 Acquisition Agreement, dated May 1995, by and between
Registrant, a New York corporation (now Swissray
International, Inc.); Berkshire International Finance,
Inc., SR-Medical AG (a Swiss corporation), Teleray AG (a
Swiss corporation) and others (Incorporated by reference to
Exhibit 6(a) of the Registrant's Registration Statement on
Form 10SB, Registration No . 0-26972, effective February
14, 1996).
2.2 Exchange Agreement, dated as of November 22, 1996 by and
between the Registrant and Maxwell; Registration Rights
Agreement, dated as of March 13, 1997, between the
Registrant and Maxwell; Assignment and Assumption
Agreement, dated March 13, 1997, between the Registrant and
Maxwell; Option Agreement, dated January 24, 1997, granting
options for 125,000 shares of the Registrant to Maxwell
(Incorporated by reference to Exhibit 2.2 of the
Registrant's Annual Report for the fiscal year ended June
30, 1997 on Form 10-KSB filed on September 30, 1997).
3.1 Registrant's Certificate of Incorporation, dated December
20, 1967 (Incorporated by reference to Exhibit 2(a) of the
Registrant's Registration Statement on Form 10SB,
Registration No. 0- 26972, effective February 14, 1996).
3.2 Amendment to Registrant's Certificate of Incorporation,
dated September 19, 1968 (Incorporated by reference to
Exhibit 2(b) of the Registrant's Registration Statement on
Form 10SB, Registration No. 0-26972, effective February 14,
1996).
3.3 Amendment to Registrant's Certificate of Incorporation,
dated September 8, 1972 (Incorporated by reference to
Exhibit 2(c) of the Registrant's Registration Statement on
Form 10SB, Registration No. 0-26972, effective February 14,
1996).
3.4 Amendment to Registrant's Certificate of Incorporation,
dated October 30, 1981 (Incorporated by reference to
Exhibit 2(d) of the Registrant's Registration Statement on
Form 10SB, Registration No. 0-26972, effective February 14,
1996).
<PAGE> 102
3.5 Certificate of Merger of Direct Marketing Services, Inc.
and CGS Units Incorporated into CGS Units Incorporated,
dated June 16, 1994 (Incorporated by reference to Exhibit
2(e) of the Registrant's Registration Statement on Form
10SB, Registration No. 0-26972, effective February 14,
1996).
3.6 Amendment to Registrant's Certificate of Incorporation,
dated August 10, 1994 (Incorporated by reference to Exhibit
3.6 of Registrant's Annual Report for the fiscal year ended
June 30, 1997 on Form 10-KSB, filed September 30, 1997).
3.7 Certificate of Correction of Certificate of Merger of
Direct Marketing Services, Inc. and CGS Units Incorporated
into CGS Units Incorporated, filed August 5, 1994
(Incorporated by reference to Exhibit 2(f) of the
Registrant's Registration Statement on Form 10SB,
Registration No. 0-26972, effective February 14, 1996).
3.8 Amendment to Registrant's Certificate of Incorporation,
dated May 24, 1995 (Incorporated by reference to Exhibit
2(g) of the Registrant's Registration Statement on Form
10SB, Registration No. 0-26972, effective February 14,
1996)
3.9 Amendment to Registrant's Certificate of Incorporation,
dated August 29, 1996 (Incorporated by reference to Exhibit
3.9 of Registrant's Annual Report for the fiscal year ended
June 30, 1997 on Form 10-KSB, filed September 30, 1997).
3.10 Amendment to Registrant's Certificate of Incorporation,
dated December 13, 1996 (Incorporated by reference to
Exhibit 3.10 of Registrant's Annual Report for the fiscal
year ended June 30, 1997 on Form 10-KSB, filed September
30, 1997).
3.11 Amendment to Registrant's Certificate of Incorporation,
dated March 12, 1997 (Incorporated by reference to Exhibit
3.11 of Registrant's Annual Report for the fiscal year
ended June 30, 1997 on Form 10-KSB, filed September 30,
1997).
3.12 Registrant's By-Laws (Incorporated by reference to Exhibit
2 (h) of the Registrant's Registration Statement on Form
10SB, Registration No. 0-26972, effective February 14,
1996).
3.13 Amendment to Registrant's Certificate of Incorporation,
dated December 26, 1997.*
5.1 Opinion of Wuersch & Gering LLP, counsel to the Registrant*
10.1 License Agreement, dated June 24, 1995, by and between the
Registrant and Hans-Jurgen Behrendt (Incorporated by
reference to Exhibit 6(b) of Registrant's Registration
Statement on Form 10SB, Registration No. 0-26972, effective
February 14, 1996)
10.2 1996 Swissray International Corporation, Inc. Non-Statutory
Stock Option Plan. (Incorporated by reference to Exhibit
10.2 of Registrant's Amendment No. 1 to Form S-1
Registration Statement, Registration No. 333-38229, filed
December 17, 1997).
10.3 Agreement, dated June 11, 1996 between the Registrant and
Philips Medical Systems (Incorporated by reference to
Exhibit 10.3 of Registrant's Annual Report for the fiscal
year ended June 30, 1997 on Form 10-KSB, filed September
30, 1997).
- --------
* To be filed by amendment
<PAGE> 103
10.4 License Agreement, dated as of July 18, 1997, by and
between the Registrant and Agfa-Gevaert N.V., certain
portions of which are filed under a request for
confidential treatment pursuant to Rule 24b-2 promulgated
pursuant to the Securities Exchange Act of 1934, as
amended, and Rule 80(b)(4) of Organization; Conduct and
Ethics; and Information and Requests adopted under the
Freedom of Information Act, under Rule 406 of the
Securities Act of 1933, as amended, and the Freedom of
Information Act (Incorporated by reference to Exhibit 10.4
of Registrant's Annual Report for the fiscal year ended
June 30, 1997 on Form 10-KSB/A2, filed December 3, 1997).
10.5 Agreement, dated July 14, 1995, by and between Teleray AG
and Optische Werke G. Roderstock, certain portions of which
are filed under a request for confidential treatment
pursuant to Rule 24b-2 promulgated pursuant to the
Securities Exchange Act of 1934, as amended, and Rule
80(b)(4) of Organization; Conduct and Ethics; and
Information and Requests adopted under the Freedom of
Information Act, under Rule 406 of the Securities Act of
1933, as amended, and the Freedom of Information Act
(Incorporated by reference to Exhibit 10.5 of Registrant's
Annual Report for the fiscal year ended June 30, 1997 on
Form 10-KSB/A2, filed December 3, 1997).
10.6 Agreement, dated as of June 30, 1997, between the
Registrant and Ruedi G. Laupper (Incorporated by reference
to Exhibit 10.6 of Registrant's Amendment No. 1 to Form S-1
Registration Statement, Registration No. 333-38229, filed
December 17, 1997).
10.7 Form of Registration Rights Agreement, dated as of August
__, 1997, by and between Swissray International Inc. and
the person named on the signature page hereto (Incorporated
by reference to Exhibit 10.7 of Registrant's Amendment No.
1 to Form S-1 Registration Statement, Registration No.
333-38229, filed December 17, 1997).
10.8 Form of Debenture of Swissray International, Inc.
(Incorporated by reference to Exhibit 10.8 of Registrant's
Amendment No. 1 to Form S-1 Registration Statement,
Registration No. 333-38229, filed December 17, 1997).
10.9 Asset Purchase Agreement, dated as of October 17, 1997 by
and among Swissray Medical Systems, Inc., Swissray
International, Inc., Service Support Group LLC, Gary
Durday, Michael Harle and Kenneth Montler (Incorporated by
reference to Exhibit 2.1 of the Registrant's Current
Report on Form 8-K, filed October 17, 1997).
10.10 Registration Rights Agreement, dated as of October 17,
1997, by and among Swissray International, Inc., Service
Support Group, LLC, Gary Durday, Michael Harle and
Kenneth Montler (Incorporated by reference to Exhibit 2.2
of the Registrant's Current Report on Form 8-K, filed
October 17, 1997).
10.11 Employment Agreement between the Registrant and Ruedi G.
Laupper, dated as of December , 1997.
10.12 Employment Agreement between the Registrant and Josef
Laupper, dated as of December , 1997.
10.13 Employment Agreement between the Registrant and Herbert
Laubscher, dated as of December __, 1997.
10.14 Employment Agreement between the Registrant and Ueli
Laupper, dated as of December , 1997.
10.15 Form of Registration Rights Agreement, dated as of
November , 1997.
10.16 Form of Debenture of Swissray International, Inc., dated
November , 1997.
10.17 Form of Subscription Agreement, dated November , 1997.
10.18 Form of Registration Rights Agreement (rollover), dated
as of November , 1997.
10.19 Form of Debenture of Swissray International, Inc.
(rollover), dated November , 1997.
10.20 Form of Subscription Agreement (rollover), dated
November , 1997.
10.21 Agreement Regarding August, 1997 Regulation D offering.
21.1 List of Subsidiaries (Incorporated by reference to Exhibit
21 of Registrant's Annual Report for the fiscal year ended
June 30, 1997 on Form 10-KSB, filed September 30, 1997).
23.1 Consent of Bederson & Company LLP
23.2 Consent of Wuersch & Gering LLP (included in Exhibit 5.1)*
27 FINANCIAL DATA SCHEDULES
- ----------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT CONTRACT
between
SR MANAGEMENT AG
INDUSTRIESTRASSE 6
6285 HITZKIRCH EMPLOYER
and
RUEDI G. LAUPPER
SCHOENEGGRAIN 6
6285 HITZKIRCH EMPLOYEE
---------------------------------
The parties hereby enter into an employment contract of unlimited duration
pursuant to the articles 319 et seq. of the Swiss Code of Obligations.
<PAGE> 2
1. BEGIN
This contract is to commence on 12/18, 1997.
2. AREA OF RESPONSIBILITY
The employee is responsible for the overall management of the Swissray
group (Chief Executive Officer CEO) ( Exhibit 1: job description).
3. LOCATION
The job is to be performed at the place of business of the employer.
4. WORKING HOURS, OVERTIME
The normal weekly working hours are 42,5 hours. No overtime shall be
paid for additional compensation.
5. SALARY, EXPENSES, BONUS
The employer shall pay the employee a monthly salary of CHF 23,000.00
payable at the end of each month. The employee shall receive a 13th
salary payment. This payment will be made on a pro rata basis should
this contract start or be terminated during the course of the year.
The employee shall receive CHF 1,000.00 each month to cover expenses.
The employer will also provide the employee with a luxury car.
The employee shall receive a bonus depending on the success of the
Swissray Group. The bonus is to be determined according to Exhibit 2.
6. VACATIONS
The employee is entitled to 5 weeks of vacations per calendar year.
2
<PAGE> 3
7. ILLNESS/ACCIDENT
In case of illness or accident the employee will be compensated with
100% of the monthly salary paid at the time the illness or accident
occurred during a maximum of 720 days.
8. MANDATORY PENSION FUND
The employee is insured by the mandatory pension fund. The employer and
the employee will each pay 50% of the required contributions, which are
based on the age of the employee. In addition to the mandatory portion
a `Bel Etage' Insurance policy has been purchased for the employee. The
regulations thereof shall deemed to be part of this employment
contract.
9. PROFESSIONAL SECRECY
The employee agrees to hold in secrecy all business transactions which
are not required to be made public during the employment but also after
its termination.
10. DURATION OF EMPLOYMENT
This contract shall remain in force for 5 years. After the expiration
of such 5 year period, the contract will be automatically renewed for
another 5 years, unless terminated by either party not later than
December 31, 2001.
11. COMPENSATION AT TERMINATION/ COMPENSATION IN CASE OF DEATH
Should the contract be terminated for reasons beyond the employee's
control, he will be paid a compensation of CHF 2 million, which shall
include any bonus. This compensation shall not be offset against claims
of any kind or against payments of the employer into the pension fund.
Should the contract be terminated because of death of the employee, the
employer agrees to continue to make monthly salary payments for another
year starting with the date of death. This will only take place if the
employee leaves behind a spouse, under age children or other persons he
has to provide financial support.
3
<PAGE> 4
12. APPLICABLE LAW
Unless otherwise set forth the provisions of the Swiss Code of
Obligations shall apply to the relationship between the employer and
the employee. The courts of Hochdorf shall have jurisdiction for
disputes thereunder.
This contract has been executed in two counterparts and each party
shall receive one counterpart of this contract.
This contract shall replace all earlier contracts or agreements.
Hitzkirch, December 18, 1997
THE EMPLOYER: THE EMPLOYEE:
SR MANAGEMENT AG RUEDI G. LAUPPER
J. LAUPPER/H. LAUBSCHER
- ----------------------------------- ------------------------
Exhibits:
Exhibit 1 Area of responsibility
Exhibit 2 Determination and Calculation of Bonus
Exhibit 3 Regulations I and II of pension fund
GUARANTEE BY SWISSRAY INTERNATIONAL, INC. NEW YORK, N.Y.
Swissray International, Inc. hereby acknowledges the terms of this contract and
agrees to assume all of the obligations of its subsidiary SR Management AG,
CH-6285 Hitzkirch in the event of a default hereunder by such subsidiary.
New York/ Hitzkirch
SWISSRAY INTERNATIONAL INC.
J. LAUPPER/ E. ZIMMERLI
4
<PAGE> 5
EXHIBIT 2 TO THE EMPLOYMENT CONTRACT SR MANAGEMENT AG/ RUEDI G. LAUPPER OF
DECEMBER 18, 1997
The bonus shall be determined and calculated as follows:
The basis shall be the audited consolidated financial statements of the
Swissray Group as of the end of the fiscal year. The bonus shall be 25% of EBIT
(earnings before interest and taxes) payable in stock of Swissray
International, Inc. valued at the average of the closing prices during the five
business days following the filing of the 10-K.
Such shares shall be issued to employee out of the shares reserved for
employees.
The foregoing is a fair and accurate English translation of the original.
December 24, 1997
SWISSRAY INTERNATIONAL, INC.
By: /s/ Joseph Laupper
----------------------------
Title: Secretary
5
<PAGE> 1
EXHIBIT 10.12
CONTRACT OF EMPLOYMENT
Between the Company Swissray
SR Management AG, CH-6285 Hitzkirch
and Swissray International, Inc.
and Laupper Josef
Schlusselrain 18
6024 Hildisrieden
Tel. 041 460 13 36
Date of birth: 07-22-1945
Nationality: Swiss
Social Insurance No. 583.45.322.222
POSITION AND AREA OF RESPONSIBILITY
CLAUSE 1 POSITION
The employer takes on the employee as
Director
Public Relations and Personnel Administration
CLAUSE 2 AREA OF RESPONSIBILITY
According to separate job description.
BEGIN, DURATION AND TERMINATION OF EMPLOYMENT CONTRACT
CLAUSE 3 START OF EMPLOYMENT CONTRACT
1
<PAGE> 2
The position is to be taken up on December 18, 1997.
CLAUSE 4 PROBATION
Without any probationary period.
CLAUSE 5 DURATION AND TERMINATION OF EMPLOYMENT CONTRACT
This contract has been finalised for a three years period of time. It prolongs
automatically for an other three years provided there is not given notice 6
months before expiry date of this agreement.
The deadline for termination of employment is the last day of the month. Written
notice terminating the employment contract must be in possession of the other
contract partner by the last working day of the month.
Should this agreement be disolved before the expiry date on grounds of which the
employee is not responsible for the company pays to the employee a compensation
of CHF 500'000.00.
On reaching retirement age, this employment contract automatically terminates on
the last day of the birth month.
CLAUSE 6 TERMINATION OF EMPLOYMENT WITHOUT NOTICE
Under extentuating circumstances and in accordance with Clause 337 of the Code
of Obligations, this contract of employment may be terminated without notice by
both parties.
CLAUSE 7 PROTECTION AGAINST WRONGFUL DISMISSAL
Applicable for the protection of wrongful dismissal is Clause 336 of the Code of
Obligations. In the case of obligatory military service, illness, accident,
pregnancy, childbirth or overseas relief action services, Clause 336c is
applicable for the protection of wrongful dismissal.
2
<PAGE> 3
GENERAL RIGHTS AND DUTIES OF THE EMPLOYEE
CLAUSE 8 FURTHERING OF CAREER ORIENTATED EDUCATION
Private courses for further education attended by the employee will
fundamentally be supported by means of a company contribution, on the basis that
the imparted knowledge is beneficial to the employee's business activities.
Company contributions of this nature will be awarded according to Chapter 6 of
the personnel regulations.
CLAUSE 9 RESPONSIBILITIES AND ALLEGIANCE
The employee is charged with the responsibility of carrying out the delegated
duties in a conscientious manner and according to the best interests of the
employer. For the duration of the employment contract, the employee may not
compete against the employer. The employee is bound to safeguard the fabrication
and company secrets of the employer.
CLAUSE 10 FURTHER RIGHTS AND DUTIES
It is the duty of the employee to inform the Personnel Department timeously of
any alterations to personal circumstances, i.e. change of address, civilian
status, childbirth, military committments/promotions etc. On the birth of a
child, the birth certificate is to be shown. Inconveniences caused to the
employee as a result of failure to carry out these duties, are the sole
responsibility of the person affected.
Every employee actively exposed to sources of radiation as a part of their work
is bound to wear a radiation measuring device and to undertake the regular
control examinations according to SUVA. The results of the regular control
examinations are to be entered in the employee's personal radiation dosage book.
WORKING HOURS, OVERTIME, HOLIDAY
CLAUSE 11 WORKING HOURS
3
<PAGE> 4
The normal weekly working hours comprise 42,5 hours. The Management holds itself
to the normal Swiss Trade and Industry practice for the allocation of working
hours.
The company maintains the right to request the employee to work overtime, within
the bounds of reason and within the framework provided by law.
Under normal circumstances the overtime will NOT be paid out. A written request
providing a plausible reason for monetary payment may be given to the
Management. The final decision rests with the Personnel Department and the
President. On leaving the company, an employee's overtime will normally be paid
out.
Should monetary payment be agreed to in an exceptional case, the following
regulation applies:
( Monday to Friday Between 20h00 and 06h00 An additional 25%
Saturday Between 05h00 and 22h00 An additional 25%
( Sundays & Public Holidays An additional 50%
Further particulars are contained in Chapter 3 of the Regulations governing
overtime.
CLAUSE 12 HOLIDAYS
Holiday entitlement per calendar year: (Calendar year is to mean the year in
which the respective age is reached).
- - from 21 years of age until 49 years of age 20 working days
- - from 50 years of age 25 working days
- - from 60 years of age 30 working days
Employees either beginning or leaving their employment are entitlement to
holiday on a pro rata basis. As a calculation medium, until 15 days will be
regarded as half a month and more than 15 calendar days as a full month.
Holidays are to be taken during the relevant current calendar year, at latest
until end April the following year.
With the agreement of the Departmental Manager, the employee may have a free
choice as to when to take holiday. As early as possible, and latest until end
4
<PAGE> 5
January of the relevant current calendar year, a completed Absence Form in
respect of the desired holiday is to be handed to the Department Manager. The
employer maintains the right to request an alteration to holiday plans under
exceptional circumstances.
Public holidays which occur during the holidays do not count as vacation days.
CLAUSE 13 ALLOWABLE FREE DAYS WITH NO REDUCTION OF SALARY
Insofar as the following events take place on working days, the following free
days will be allowed with no salary reduction and without having to compensate
holiday:
a) Change of residence, as long as this does
not include a change of employment 1 day
b) Own wedding 3 days
c) Wedding of a family dependant 1 day
d) Childbirth 1 day
e) Death of partner, own child or parents 3 days
f) Death of family relative 1 day
g) Military call-up, Inspection (AVB 7) 1 day
h) Any other personal matter, including job- following discussion with
hunting following termination of employment Management & Personnel
SALARY / BENEFITS
CLAUSE 14 SALARY
The employer agrees to pay the employee a monthy salary of CHF 9'975.00 payable
on the 26th of each month. Should this date occur on a weekend or public
holiday, salary will be paid out on the previous work day. The monthly salary
agreed upon is gross.
CLAUSE 15 COST OF LIVING EQUALISATION
5
<PAGE> 6
In principle the employer agrees to equalisation of the cost of living, however
still maintains the right to pay in part or not at all depending on ecomonic
situation.
CLAUSE 13 13TH SALARY
The employee receives a 13th monthly salary at the end of the year. Social
insurance is to be paid on the 13th salary. The 13th salary includes a MABS
component ranging between -25% and +25%. Employees either beginning or leaving
their employment during the year will be compensated on a pro rata basis.
CLAUSE 17 CHILD BENEFIT
The employee receives a monthly child benefit for each child under the age of
17, or - if the child is still receiving an education, latest until attaining
the age of 26 years. The child benefit will be paid according to the regulations
governing Canton Luzern and may only be awarded to one gainfully employed person
per family.
CLAUSE 18 EXCEPTIONAL REIMBURSEMENTS (EXPENSES, LONG-SERVICE BONUS,
SHARES)
Expenses incurred by employees when carrying out a business brief, will be
effectively compensated. The expenditure must, however, be in keeping with the
function. In the interests of the company frugality should be taken into
consideration during planning stages.
Further has been agreed a monthly compensation of CHF 1'000.00 for
representation costs.
Supplementary the Company places a car (upper middle class) at the employee's
disposal.
Detailled conditions are contained in Chapter 5 of the Personnel Regulations,
under the heading "Expenses".
CLAUSE 19 OCCUPATIONAL AND NON-OCCUPATIONAL ACCIDENT INSURANCE
(BU/NBU)
6
<PAGE> 7
The employee is insured by the company through SUVA for occupational and
non-occupational accident. The premium for occupational accident is paid by the
company.
The non-occupational insurance is deducted from the employee's salary.
The accident insurance is valid from the beginning of the first working day
according to the contract and covers the costs of general, non-private, medical
care. It remains the choice of the employee to insure him/herself for
half-private or private care.
CONTINUED PAYMENT OF SALARY IN CASE OF HINDERANCE
CLAUSE 20 ILLNESS, ACCIDENT
In case of illness the employee maintains the following rights:
100% salary for 3 months.
Should the employee still be unable to resume his/her post, 80% of the salary
will be paid monthly until such time as he/she is able to return, or for a
maximum of 24 months. Miscellaneous benefits will be settled by the Swiss
invalid insurance. The premium for the sickness benefit insurance is to be paid
by the employee. The employer carries the full risk for the first 30 days and
part-risk until 90 days.
Salary payment in case of accident:
Salary payment, as well as subsequent continuance of 80%, as for illness.
Miscellaneous benefits will be settled by the Swiss invalid insurance, SUVA
and/or the military insurance.
Pregnancy and childbirth:
Maternity leave and benefits are awarded according to the regulations set down
in the Code of Obligations.
ARTICLE 21 MILITARY SERVICE
The obligatory Swiss military service maintains equal status:
a) Civil protection
b) Fire Brigade
7
<PAGE> 8
Upcoming service duties (type and duration) are to be reported to the Department
Manager.
In cases of obligatory service duties, as above, employees have the right to
expect following salary payments:
- - WK, KVK 100% for a maximum of 3 months
- - Military recruitment, inspection 100% for 1 day
- - RS no compensation
- - Transportation service individual
Immediately the service period is completed, the Military Allowance Form is to
be handed to the Personnel Department. Should the service period be longer than
20 days, the MAF should be handed in after each calculation period.
PENSION / PROVISION
CLAUSE 22 PERSONAL PROVISION
It is obligatory that all insurable employees be included into the Pension Fund.
The Swissray Group is affiliated to the Rentenanstalt Pension Fund. The
regulations thereof are an integrated part of this Contract of Employment.
CLAUSE 23 COMPENSATION IN CASE OF DEATH
Should the duration of employment end in the death of the employee, and the
deceased had either marriage partner or under-age children, the employer will
make a single capital payment. The amount of the sum in question will correspond
to the total of the gross monthly salary and the applicable notice period.
CONCLUDING REGULATIONS
CLAUSE 24 LEGAL FUNDAMENTALS
8
<PAGE> 9
Should no other special conditions for the employee be agreed upon, the
regulations set down in the Code of Obligations (Contract of Employment Rights)
and the Laws governing Employment, as well as further appropriate confederate
and canton statutes will be considered applicable.
CLAUSE 25 GENERAL TERMS AND CONDITIONS
Complete and detailled Terms and Conditions relating to the above mentioned
Clauses are contained in the Swissray Group Personnel Regulations, a copy of
which will be handed out together with this Contract of Employment.
This contract is established under Swiss Law.
Each party is to receive a copy of this Contract.
Employer Employee
SR Management AG
/Ruedi G. Laupper/ /H. Laubscher/ /Josef Laupper/
Signed at Hitzkirch Signed at Hitzkirch
on December 18, 1997 on December 18, 1997
Swissray International, Inc.
/Ruedi G. Laupper/ / U. Laupper /
9
<PAGE> 1
EXHIBIT 10.13
CONTRACT OF EMPLOYMENT
Between the Company Swissray
SR Management AG, CH-6285 Hitzkirch
and Swissray International, Inc.
and Laubscher Herbert
Friedaustrasse 8
8033 Zurich
Tel.
Date of birth: 04-05-1966
Nationality: Swiss
Social Insurance No. 582.66.205.110
POSITION AND AREA OF RESPONSIBILITY
CLAUSE 1 POSITION
The employer takes on the employee as
Chief Financial Officer (CFO)
Swissray Group
CLAUSE 2 AREA OF RESPONSIBILITY
According to separate job description.
BEGIN, DURATION AND TERMINATION OF EMPLOYMENT CONTRACT
CLAUSE 3 START OF EMPLOYMENT CONTRACT
1
<PAGE> 2
The position is to be taken up on December 18, 1997.
CLAUSE 4 PROBATION
Without any probationary period.
CLAUSE 5 DURATION AND TERMINATION OF EMPLOYMENT CONTRACT
This contract has been finalised for an indefinite period of time. After the
probationary period, the following terms of notice are applicable for both
contract partners:
1 month in the first year of employment
2 months after the second year of employment
3 months after ten year of employment
The deadline for termination of employment is the last day of the month. Written
notice terminating the employment contract must be in possession of the other
contract partner by the last working day of the month.
On reaching retirement age, this employment contract automatically terminates on
the last day of the birth month.
In the absence of any other written agreement, this contract has been drawn up
for an indefinite period of time.
CLAUSE 6 TERMINATION OF EMPLOYMENT WITHOUT NOTICE
Under extentuating circumstances and in accordance with Clause 337 of the Code
of Obligations, this contract of employment may be terminated without notice by
both parties.
CLAUSE 7 PROTECTION AGAINST WRONGFUL DISMISSAL
Applicable for the protection of wrongful dismissal is Clause 336 of the Code of
Obligations. In the case of obligatory military service, illness, accident,
pregnancy, childbirth or overseas relief action services, Clause 336c is
applicable for the protection of wrongful dismissal.
2
<PAGE> 3
GENERAL RIGHTS AND DUTIES OF THE EMPLOYEE
CLAUSE 8 FURTHERING OF CAREER ORIENTATED EDUCATION
Private courses for further education attended by the employee will
fundamentally be supported by means of a company contribution, on the basis that
the imparted knowledge is beneficial to the employee's business activities.
Company contributions of this nature will be awarded according to Chapter 6 of
the personnel regulations.
CLAUSE 9 RESPONSIBILITIES AND ALLEGIANCE
The employee is charged with the responsibility of carrying out the delegated
duties in a conscientious manner and according to the best interests of the
employer. For the duration of the employment contract, the employee may not
compete against the employer. The employee is bound to safeguard the fabrication
and company secrets of the employer.
CLAUSE 10 FURTHER RIGHTS AND DUTIES
It is the duty of the employee to inform the Personnel Department timeously of
any alterations to personal circumstances, i.e. change of address, civilian
status, childbirth, military committments/promotions etc. On the birth of a
child, the birth certificate is to be shown. Inconveniences caused to the
employee as a result of failure to carry out these duties, are the sole
responsibility of the person affected.
Every employee actively exposed to sources of radiation as a part of their work
is bound to wear a radiation measuring device and to undertake the regular
control examinations according to SUVA. The results of the regular control
examinations are to be entered in the employee's personal radiation dosage book.
WORKING HOURS, OVERTIME, HOLIDAY
CLAUSE 11 WORKING HOURS
The normal weekly working hours comprise 42,5 hours. The Management holds
3
<PAGE> 4
itself to the normal Swiss Trade and Industry practice for the allocation of
working hours.
The company maintains the right to request the employee to work overtime, within
the bounds of reason and within the framework provided by law.
Under normal circumstances the overtime will NOT be paid out. A written request
providing a plausible reason for monetary payment may be given to the
Management. The final decision rests with the Personnel Department and the
President. On leaving the company, an employee's overtime will normally be paid
out.
Should monetary payment be agreed to in an exceptional case, the following
regulation applies:
( Monday to Friday Between 20h00 and 06h00 An additional 25%
Saturday Between 05h00 and 22h00 An additional 25%
( Sundays & Public Holidays An additional 50%
Further particulars are contained in Chapter 3 of the Regulations governing
overtime.
CLAUSE 12 HOLIDAYS
Holiday entitlement per calendar year : (Calendar year is to mean the year in
which the respective age is reached).
- - from 21 years of age until 49 years of age 20 working days
- - from 50 years of age 25 working days
- - from 60 years of age 30 working days
Employees either beginning or leaving their employment are entitlement to
holiday on a pro rata basis. As a calculation medium, until 15 days will be
regarded as half a month and more than 15 calendar days as a full month.
Holidays are to be taken during the relevant current calendar year, at latest
until end April the following year.
With the agreement of the Departmental Manager, the employee may have a free
choice as to when to take holiday. As early as possible, and latest until end
4
<PAGE> 5
January of the relevant current calendar year, a completed Absence Form in
respect of the desired holiday is to be handed to the Department Manager. The
employer maintains the right to request an alteration to holiday plans under
exceptional circumstances.
Public holidays which occur during the holidays do not count as vacation days.
CLAUSE 13 ALLOWABLE FREE DAYS WITH NO REDUCTION OF SALARY
Insofar as the following events take place on working days, the following free
days will be allowed with no salary reduction and without having to compensate
holiday:
a) Change of residence, as long as this does
not include a change of employment 1 day
b) Own wedding 3 days
c) Wedding of a family dependant 1 day
d) Childbirth 1 day
e) Death of partner, own child or parents 3 days
f) Death of family relative 1 day
g) Military call-up, Inspection (AVB 7) 1 day
h) Any other personal matter, including job- following discussion with
hunting following termination of employment Management & Personnel
SALARY / BENEFITS
CLAUSE 14 SALARY
The employer agrees to pay the employee a monthy salary of CHF 8'500.00 payable
on the 26th of each month. Should this date occur on a weekend or public
holiday, salary will be paid out on the previous work day. The monthly salary
agreed upon is gross.
CLAUSE 15 COST OF LIVING EQUALISATION
5
<PAGE> 6
In principle the employer agrees to equalisation of the cost of living, however
still maintains the right to pay in part or not at all depending on ecomonic
situation.
CLAUSE 13 13TH SALARY
The employee receives a 13th monthly salary at the end of the year. Social
insurance is to be paid on the 13th salary. The 13th salary includes a MABS
component ranging between -25% and +25%. Employees either beginning or leaving
their employment during the year will be compensated on a pro rata basis.
CLAUSE 17 CHILD BENEFIT
The employee receives a monthly child benefit for each child under the age of
17, or - if the child is still receiving an education, latest until attaining
the age of 26 years. The child benefit will be paid according to the regulations
governing Canton Luzern and may only be awarded to one gainfully employed person
per family.
CLAUSE 18 EXCEPTIONAL REIMBURSEMENTS (EXPENSES, LONG-SERVICE BONUS,
SHARES)
Expenses incurred by employees when carrying out a business brief, will be
effectively compensated. The expenditure must, however, be in keeping with the
function. In the interests of the company frugality should be taken into
consideration during planning stages.
Further has been agreed a monthly compensation of CHF 500.00 for representation
costs.
Detailled conditions are contained in Chapter 5 of the Personnel Regulations,
under the heading "Expenses".
CLAUSE 19 OCCUPATIONAL AND NON-OCCUPATIONAL ACCIDENT INSURANCE (BU/NBU)
The employee is insured by the company through SUVA for occupational and
non-occupational accident. The premium for occupational accident is paid by the
6
<PAGE> 7
company.
The non-occupational insurance is deducted from the employee's salary. The
accident insurance is valid from the beginning of the first working day
according to the contract and covers the costs of general, non-private, medical
care. It remains the choice of the employee to insure him/herself for
half-private or private care.
- --------------------------------------------------------------------------------
CONTINUED PAYMENT OF SALARY IN CASE OF HINDERANCE
- --------------------------------------------------------------------------------
CLAUSE 20 ILLNESS, ACCIDENT
In case of illness the employee maintains the following rights:
100% salary for 3 months.
Should the employee still be unable to resume his/her post, 80% of the salary
will be paid monthly until such time as he/she is able to return, or for a
maximum of 24 months. Miscellaneous benefits will be settled by the Swiss
invalid insurance. The premium for the sickness benefit insurance is to be paid
by the employee. The employer carries the full risk for the first 30 days and
part-risk until 90 days.
Salary payment in case of accident:
Salary payment, as well as subsequent continuance of 80%, as for illness.
Miscellaneous benefits will be settled by the Swiss invalid insurance, SUVA
and/or the military insurance.
Pregnancy and childbirth:
Maternity leave and benefits are awarded according to the regulations set down
in the Code of Obligations.
ARTICLE 21 MILITARY SERVICE
The obligatory Swiss military service maintains equal status:
a) Civil protection
b) Fire Brigade
7
<PAGE> 8
Upcoming service duties (type and duration) are to be reported to the Department
Manager.
In cases of obligatory service duties, as above, employees have the right to
expect following salary payments:
- - WK, KVK 100% for a maximum of 3 months
- - Military recruitment, inspection 100% for 1 day
- - RS no compensation
- - Transportation service individual
Immediately the service period is completed, the Military Allowance Form is to
be handed to the Personnel Department. Should the service period be longer than
20 days, the MAF should be handed in after each calculation period.
- --------------------------------------------------------------------------------
PENSION/PROVISION
- --------------------------------------------------------------------------------
CLAUSE 22 PERSONAL PROVISION
It is obligatory that all insurable employees be included into the Pension Fund.
The Swissray Group is affiliated to the Rentenanstalt Pension Fund. The
regulations thereof are an integrated part of this Contract of Employment.
CLAUSE 23 COMPENSATION IN CASE OF DEATH
Should the duration of employment end in the death of the employee, and the
deceased had either marriage partner or under-age children, the employer will
make a single capital payment. The amount of the sum in question will correspond
to the total of the gross monthly salary and the applicable notice period.
- --------------------------------------------------------------------------------
CONCLUDING REGULATIONS
- --------------------------------------------------------------------------------
CLAUSE 24 LEGAL FUNDAMENTALS
8
<PAGE> 9
Should no other special conditions for the employee be agreed upon, the
regulations set down in the Code of Obligations (Contract of Employment Rights)
and the Laws governing Employment, as well as further appropriate confederate
and canton statutes will be considered applicable.
CLAUSE 25 GENERAL TERMS AND CONDITIONS
Complete and detailled Terms and Conditions relating to the abovementioned
Clauses are contained in the Swissray Group Personnel Regulations, a copy of
which will be handed out together with this Contract of Employment.
This contract is established under Swiss Law.
Each party is to receive a copy of this Contract.
Employer Employee
SR Management AG
/Ruedi G. Laupper/ /J. Laupper/ /Herbert Laubscher/
Signed at Hitzkirch Signed at Hitzkirch
on 12-18-1997 on 12-18-1997
Swissray International, Inc.
/Ruedi G. Laupper/ /J. Laupper/
9
<PAGE> 1
EXHIBIT 10.14
CONTRACT OF EMPLOYMENT
Between the Company Swissray
SR Management AG, CH-6285 Hitzkirch
and Swissray International, Inc.
and Laupper Ueli
200 East 32nd Street
Apartment 34-B
New York, NY 10016
Tel.
Date of birth: 04-04-1970
Nationality: Swiss
Social Insurance No. 583.70.204.118
- --------------------------------------------------------------------------------
POSITION AND AREA OF RESPONSIBILITY
- --------------------------------------------------------------------------------
CLAUSE 1 POSITION
The employer takes on the employee as
Marketing and Sales Director
CLAUSE 2 AREA OF RESPONSIBILITY
According to separate job description.
- --------------------------------------------------------------------------------
BEGIN, DURATION AND TERMINATION OF EMPLOYMENT CONTRACT
- --------------------------------------------------------------------------------
CLAUSE 3 START OF EMPLOYMENT CONTRACT
1
<PAGE> 2
The position is to be taken up on December 18, 1997.
CLAUSE 4 PROBATION
Without any probationary period.
CLAUSE 5 DURATION AND TERMINATION OF EMPLOYMENT CONTRACT
This contract has been finalised for a three years period of time. It prolongs
automatically for an other three years provided there is not given notice 6
months before expiry date of this agreement.
The deadline for termination of employment is the last day of the month. Written
notice terminating the employment contract must be in possession of the other
contract partner by the last working day of the month.
Should this agreement be disolved before the expiry date on grounds of which the
employee is not responsible for the company pays to the employee a compensation
of CHF 500'000.
On reaching retirement age, this employment contract automatically terminates on
the last day of the birth month.
CLAUSE 6 TERMINATION OF EMPLOYMENT WITHOUT NOTICE
Under extentuating circumstances and in accordance with Clause 337 of the Code
of Obligations, this contract of employment may be terminated without notice by
both parties.
CLAUSE 7 PROTECTION AGAINST WRONGFUL DISMISSAL
Applicable for the protection of wrongful dismissal is Clause 336 of the Code of
Obligations. In the case of obligatory military service, illness, accident,
pregnancy, childbirth or overseas relief action services, Clause 336c is
applicable for the protection of wrongful dismissal.
2
<PAGE> 3
- --------------------------------------------------------------------------------
GENERAL RIGHTS AND DUTIES OF THE EMPLOYEE
- --------------------------------------------------------------------------------
CLAUSE 8 FURTHERING OF CAREER ORIENTATED EDUCATION
Private courses for further education attended by the employee will
fundamentally be supported by means of a company contribution, on the basis that
the imparted knowledge is beneficial to the employee's business activities.
Company contributions of this nature will be awarded according to Chapter 6 of
the personnel regulations.
CLAUSE 9 RESPONSIBILITIES AND ALLEGIANCE
The employee is charged with the responsibility of carrying out the delegated
duties in a conscientious manner and according to the best interests of the
employer. For the duration of the employment contract, the employee may not
compete against the employer. The employee is bound to safeguard the fabrication
and company secrets of the employer.
CLAUSE 10 FURTHER RIGHTS AND DUTIES
It is the duty of the employee to inform the Personnel Department timeously of
any alterations to personal circumstances, i.e. change of address, civilian
status, childbirth, military committments/promotions etc. On the birth of a
child, the birth certificate is to be shown. Inconveniences caused to the
employee as a result of failure to carry out these duties, are the sole
responsibility of the person affected.
Every employee actively exposed to sources of radiation as a part of their work
is bound to wear a radiation measuring device and to undertake the regular
control examinations according to SUVA. The results of the regular control
examinations are to be entered in the employee's personal radiation dosage book.
- --------------------------------------------------------------------------------
WORKING HOURS, OVERTIME, HOLIDAY
- --------------------------------------------------------------------------------
3
<PAGE> 4
CLAUSE 11 WORKING HOURS
The normal weekly working hours comprise 42,5 hours. The Management holds itself
to the normal Swiss Trade and Industry practice for the allocation of working
hours.
The company maintains the right to request the employee to work overtime, within
the bounds of reason and within the framework provided by law.
Under normal circumstances the overtime will NOT be paid out. A written request
providing a plausible reason for monetary payment may be given to the
Management. The final decision rests with the Personnel Department and the
President. On leaving the company, an employee's overtime will normally be paid
out.
Should monetary payment be agreed to in an exceptional case, the following
regulation applies:
( Monday to Friday Between 20h00 and 06h00 An additional 25%
Saturday Between 05h00 and 22h00 An additional 25%
( Sundays & Public Holidays An additional 50%
Further particulars are contained in Chapter 3 of the Regulations governing
overtime.
CLAUSE 12 HOLIDAYS
Holiday entitlement per calendar year: (Calendar year is to mean the year in
which the respective age is reached).
- - from 21 years of age until 49 years of age 20 working days
- - from 50 years of age 25 working days
- - from 60 years of age 30 working days
Employees either beginning or leaving their employment are entitlement to
holiday on a pro rata basis. As a calculation medium, until 15 days will be
regarded as half a month and more than 15 calendar days as a full month.
Holidays are to be taken during the relevant current calendar year, at latest
until end April the following year.
4
<PAGE> 5
With the agreement of the Departmental Manager, the employee may have a free
choice as to when to take holiday. As early as possible, and latest until end
January of the relevant current calendar year, a completed Absence Form in
respect of the desired holiday is to be handed to the Department Manager. The
employer maintains the right to request an alteration to holiday plans under
exceptional circumstances.
Public holidays which occur during the holidays do not count as vacation days.
CLAUSE 13 ALLOWABLE FREE DAYS WITH NO REDUCTION OF SALARY
Insofar as the following events take place on working days, the following free
days will be allowed with no salary reduction and without having to compensate
holiday:
a) Change of residence, as long as this does
not include a change of employment 1 day
b) Own wedding 3 days
c) Wedding of a family dependant 1 day
d) Childbirth 1 day
e) Death of partner, own child or parents 3 days
f) Death of family relative 1 day
g) Military call-up, Inspection (AVB 7) 1 day
h) Any other personal matter, including job- following discussion with
hunting following termination of employment Management & Personnel
- --------------------------------------------------------------------------------
SALARY/BENEFITS
- --------------------------------------------------------------------------------
CLAUSE 14 SALARY
The employer agrees to pay the employee a monthy salary of USD 7,077.00 payable
on the 26th of each month. Should this date occur on a weekend or public
holiday, salary will be paid out on the previous work day. The monthly salary
agreed upon is gross.
5
<PAGE> 6
CLAUSE 15 COST OF LIVING EQUALISATION
In principle the employer agrees to equalisation of the cost of living, however
still maintains the right to pay in part or not at all depending on ecomonic
situation.
CLAUSE 13 13TH SALARY
The employee receives a 13th monthly salary at the end of the year. Social
insurance is to be paid on the 13th salary. The 13th salary includes a MABS
component ranging between -25% and +25%.
Employees either beginning or leaving their employment during the year will be
compensated on a pro rata basis.
CLAUSE 17 CHILD BENEFIT
The employee receives a monthly child benefit for each child under the age of
17, or - if the child is still receiving an education, latest until attaining
the age of 26 years. The child benefit will be paid according to the regulations
governing Canton Luzern and may only be awarded to one gainfully employed person
per family.
CLAUSE 18 EXCEPTIONAL REIMBURSEMENTS (EXPENSES, LONG-SERVICE BONUS,
SHARES)
Expenses incurred by employees when carrying out a business brief, will be
effectively compensated. The expenditure must, however, be in keeping with the
function. In the interests of the company frugality should be taken into
consideration during planning stages.
Further has been agreed a monthly compensation of USD 1,500.00 for
representation costs.
Supplementary the Company places a car (upper middle class) at the employee's
disposal.
Detailled conditions are contained in Chapter 5 of the Personnel Regulations,
under the heading "Expenses".
CLAUSE 19 OCCUPATIONAL AND NON-OCCUPATIONAL ACCIDENT INSURANCE
(BU/NBU)
6
<PAGE> 7
The employee is insured by the company through SUVA for occupational and
non-occupational accident. The premium for occupational accident is paid by the
company.
The non-occupational insurance is deducted from the employee's salary.
The accident insurance is valid from the beginning of the first working day
according to the contract and covers the costs of general, non-private, medical
care. It remains the choice of the employee to insure him/herself for
half-private or private care.
- --------------------------------------------------------------------------------
CONTINUED PAYMENT OF SALARY IN CASE OF HINDERANCE
- --------------------------------------------------------------------------------
CLAUSE 20 ILLNESS, ACCIDENT
In case of illness the employee maintains the following rights:
100% salary for 3 months.
Should the employee still be unable to resume his/her post, 80% of the salary
will be paid monthly until such time as he/she is able to return, or for a
maximum of 24 months. Miscellaneous benefits will be settled by the Swiss
invalid insurance. The premium for the sickness benefit insurance is to be paid
by the employee. The employer carries the full risk for the first 30 days and
part-risk until 90 days.
Salary payment in case of accident:
Salary payment, as well as subsequent continuance of 80%, as for illness.
Miscellaneous benefits will be settled by the Swiss invalid insurance, SUVA
and/or the military insurance.
Pregnancy and childbirth:
Maternity leave and benefits are awarded according to the regulations set down
in the Code of Obligations.
ARTICLE 21 MILITARY SERVICE
The obligatory Swiss military service maintains equal status:
a) Civil protection
b) Fire Brigade
7
<PAGE> 8
Upcoming service duties (type and duration) are to be reported to the Department
Manager.
In cases of obligatory service duties, as above, employees have the right to
expect following salary payments:
- - WK, KVK 100% for a maximum of 3 months
- - Military recruitment, inspection 100% for 1 day
- - RS no compensation
- - Transportation service individual
Immediately the service period is completed, the Military Allowance Form is to
be handed to the Personnel Department. Should the service period be longer than
20 days, the MAF should be handed in after each calculation period.
- --------------------------------------------------------------------------------
PENSION/PROVISION
- --------------------------------------------------------------------------------
CLAUSE 22 PERSONAL PROVISION
It is obligatory that all insurable employees be included into the Pension Fund.
The Swissray Group is affiliated to the Rentenanstalt Pension Fund. The
regulations thereof are an integrated part of this Contract of Employment.
CLAUSE 23 COMPENSATION IN CASE OF DEATH
Should the duration of employment end in the death of the employee, and the
deceased had either marriage partner or under-age children, the employer will
make a single capital payment. The amount of the sum in question will correspond
to the total of the gross monthly salary and the applicable notice period.
- --------------------------------------------------------------------------------
CONCLUDING REGULATIONS
- --------------------------------------------------------------------------------
CLAUSE 24 LEGAL FUNDAMENTALS
8
<PAGE> 9
Should no other special conditions for the employee be agreed upon, the
regulations set down in the Code of Obligations (Contract of Employment Rights)
and the Laws governing Employment, as well as further appropriate confederate
and canton statutes will be considered applicable.
CLAUSE 25 GENERAL TERMS AND CONDITIONS
Complete and detailled Terms and Conditions relating to the abovementioned
Clauses are contained in the Swissray Group Personnel Regulations, a copy of
which will be handed out together with this Contract of Employment.
This contract is established under Swiss Law.
Each party is to receive a copy of this Contract.
Employer Employee
SR Management AG
/J. Laupper/ /H. Laubscher/ /Ueli Laupper/
Signed at Hitzkirch Signed at Hitzkirch
on 12-18-1997 on 12-18-1997
Swissray International, Inc.
/Ruedi G. Laupper/
9
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REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of November ___, 1997,
("this Agreement"), is made by and between SWISSRAY INTERNATIONAL, INC. a New
York corporation (the "Company"), and the person named on the signature page
hereto (the "Initial Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Subscription Agreement, dated as of November ___, 1997, between the Initial
Investor and the Company (the "Subscription Agreement"), the Company has agreed
to issue and sell to the Initial Investor 8% Convertible Debentures of the
Company (the "Debentures"), which will be convertible into shares of the common
stock, $.01 par value (the "Common Stock"), of the Company (the "Conversion
Shares") upon the terms and subject to the conditions of such Debentures; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
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 the
Initial Investor hereby agrees as follows:
I. Definitions.
(a) As used in this Agreement, the following terms shall have the
following meaning:
(i) "Closing Date" means the date funds are received by the Company or
its designated attorney pursuant to the Subscription Agreement.
(ii) "Investor" means the Initial Investor and any transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(iii) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration
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Statement by the United States Securities and Exchange Commission (the "SEC").
(iv) "Registrable Securities" means the Conversion Shares.
(v) "Registration Statement" means a registration statement of the
Company under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each
Investor (as defined above) and (ii) each person who is a permitted transferee
or assignee of the Registrable Securities pursuant to Section 9 of this
Agreement.
(c) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Subscription Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare and file with the
SEC, no later than thirty (30) calendar days after the Closing Date, an
amendment to the Form S-1 Registration Statement, or a new Registration
Statement if required, covering a sufficient number of shares of Common Stock
for the Initial Investors into which is not more than $3,800,000 of Debentures
in the total offering would be convertible. In the event the amendment is not
filed within thirty (30) calendar days after the Closing Date, then in such
event the Company shall pay the Investor 2% of the face amount of each Debenture
for each 30 day period, or portion thereof, after 30 days following the Closing
Date that the Registration Statement is not filed. The Investor is also granted
additional Piggyback registration rights on any other Registration Statement
filings made by the Company. Such Registration Statement shall state that, in
accordance with the Securities Act, it also covers such indeterminate number of
additional shares of Common Stock as may become issuable to prevent dilution
resulting from Stock splits, or stock dividends). If at any time the number of
shares of Common Stock into which the Debenture may be converted exceeds the
aggregate number of shares of Common Stock then registered, the Company shall,
within ten (10) business days after receipt of written notice from any Investor,
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 SEC at that time, to register all shares of Common Stock into
which the Debenture may be converted, or (ii) if such Registration Statement has
been declared effective by the SEC at that time, file with the SEC an additional
Registration Statement on Form S- 1 to register the shares of Common Stock into
which the Debenture may be converted that exceed the aggregate number of shares
of Common Stock already registered. The above damages shall continue until the
obligation is fulfilled and shall be paid within 5 business days after each 30
day period, or portion thereof, until the Registration Statement is filed.
Failure of the Company to make payment within said 5 business days shall be
considered a default.
The Company acknowledges that its failure to file with the SEC, said
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Registration Statement no later than thirty (30) days after the Closing Date
will cause the Initial Investor to suffer damages in an amount that will be
difficult to ascertain. Accordingly, the parties agree that it is appropriate to
include in this Agreement a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set forth in this
section represents the parties' good faith effort to qualify such damages and,
as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to register the Common Stock
and deliver the Common Stock pursuant to the terms of this Agreement, the
Subscription Agreement and the Debenture.
(b) UNDERWRITTEN OFFERING. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors acting by majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select one legal counsel
to represent their interests, and an investment banker or bankers and manager or
managers to administer the offering, which investment banker or bankers or
manager or managers shall be reasonably satisfactory to the Company. The
Investors who hold the Registrable Securities to be included in such
underwriting shall pay all underwriting discounts and commissions and other fees
and expenses of such investment banker or bankers and manager or managers so
selected in accordance with this Section 2(b) (other than fees and expenses
relating to registration of Registrable Securities under federal or state
securities laws, which are payable by the Company pursuant to Section 5 hereof)
with respect to their Registrable Securities and the fees and expenses of such
legal counsel so selected by the Investors.
(c) PAYMENT BY THE COMPANY. If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not declared effective by February 20, 1998, (the "Initial
Date"), then the Company will make payments to the Initial Investor in such
amounts and at such times as shall be determined pursuant to this Section 2(c).
The amount to be paid by the Company to the Initial Investor shall be determined
as of each Computation Date, as defined below in this Section 2(c), and such
amount shall be equal to two (2%) percent of the purchase price paid by the
Initial Investor for the Debenture pursuant to the Subscription Agreement for
the period from the Initial Date to the first Computation Date, and two (2%)
percent of the purchase price for each Computation Date thereafter, to the date
the Registration Statement is declared effective by the SEC (the "Periodic
Amount"). The full Periodic Amount shall be paid by the Company in immediately
available funds within five business days after each Computation Date.
Notwithstanding the foregoing, the amounts payable by the Company pursuant to
this provision shall not be payable to the extent any delay in the effectiveness
of the Registration Statement occurs because of an act of, or a failure to act
or to act timely by the Initial Investor or its counsel. The above damages shall
continue until the obligation is fulfilled and shall be paid within 5
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business days after each 30 day period, or portion thereof, until the
Registration Statement is filed. Failure of the Company to make payment within
said 5 business days shall be considered a default.
The Company acknowledges that its failure to file with the SEC, said
Registration Statement no later than thirty (30) days after the Closing Date
will cause the Initial Investor to suffer damages in an amount that will be
difficult to ascertain. Accordingly, the parties agree that it is appropriate to
include in this Agreement a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set forth in this
section represents the parties' good faith effort to qualify such damages and,
as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to register the Common Stock
and deliver the Common Stock pursuant to the terms of this Agreement, the
Subscription Agreement and the Debenture.
As used in this Section 2(c), the following terms shall have the
following meanings:
"Computation Date" means the date which is the earlier of (a) 35 days
after the Company is notified by the SEC that the Registration Statement may be
declared effective or (b) one hundred twenty (120) days after the Closing Date
and, if the Registration Statement required to be filed by the Company pursuant
to Section 2(a) has not therefore been declared effective by the SEC, each date
which is thirty (30) days after the previous Computation Date until such
Registration Statement is so declared effective.
3. OBLIGATION OF THE COMPANY. In connection with the registration of
the Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC within thirty (30) days of
the Closing Date, an amendment to the Form S-1 Registration Statement, or a new
Registration Statement if required, with respect to not less than the number of
Registrable Securities provided in Section 2(a), above, and thereafter use its
best efforts to cause each Registration Statement relating to Registrable
Securities to become effective the earlier of (i) five business days after
notice from the Securities and Exchange Commission that the Registration
Statement may be declared effective, or (b) ninety (90) days after the Closing
Date, and keep the Registration Statement effective at all times until the
earliest (the "Registration Period") of (i) the date that is two years after the
Closing Date (ii) the date when the Investors may sell all Registrable
Securities under Rule 144 or (iii) the date the Investors no longer own any of
the Registrable Securities, which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
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(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of 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;
(c) Furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel identified to the Company,
(i) promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other documents,
as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor;
(d) Use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request and in
which significant volumes of shares of Common Stock are traded, (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 qualification in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions:
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction,
(C) file a general consent to service of process in any such jurisdiction, (D)
provide any undertakings that cause more than nominal expense or burden to the
Company or (E) make any change in its articles of incorporation or by-laws or
any then existing contracts, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company and its
stockholders;
(e) As promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then
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in effect, includes any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and uses its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of any notice of effectiveness or any stop order or other suspension of
the effectiveness of the Registration Statement at the earliest possible time;
(g) Use its commercially reasonable efforts, if eligible, either to (i)
cause all the Registrable Securities covered by the Registration Statement to be
listed on a national securities exchange and on each additional national
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation of all the Registrable Securities covered by the Registration
Statement as a National Association of Securities Dealers Automated Quotations
System ("NASDAQ") "Small Capitalization" within the meaning of Rule 11Aa2-1 of
the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the quotation of the Registrable Securities on the NASDAQ Small Cap
Market; or if, despite the Company's commercially reasonable efforts to satisfy
the preceding clause (i) or (ii), the Company is unsuccessful in doing so, to
secure NASD authorization and quotation for such Registrable Securities on the
over-the-counter bulletin board and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such registrable securities;
(h) Provide a transfer agent for the Registrable Securities not later
than the effective date of the Registration Statement;
(i) Cooperate with the Investors 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 enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request and registration in such names as the Investors may request; and, within
five (5) business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, 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 Investors whose Registrable
Securities
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are included in such Registration/statement) an appropriate instruction and
opinion of such counsel; and
(j) Take all other reasonable actions necessary to expedite and
facilitate distribution to the Investor of the Registrable Securities pursuant
to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the registration of
the Registrable Securities, the Investors shall have the following obligations;
(a) It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall timely
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities and shall timely 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 each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's 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 an Investor (a "Non-Responsive Investor"), then the Company may
file the Registration Statement without including Registrable Securities of such
Non-Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e) or
3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
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5. EXPENSES OF REGISTRATION. All reasonable expenses, other than
underwriting discounts and commissions incurred in connection with
registrations, filing or qualifications pursuant to Section 3, but including,
without limitations, all registration, listing, and qualifications fees,
printers and accounting fees, the fees and disbursements of counsel for the
Company, shall be borne by the Company.
6. INDEMNIFICATION. In the event any 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 Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor 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 any of the following statements, omissions or violations of the
Registration Statement or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or any prospectus included therein: (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 to make the statements therein 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 SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation under the Securities Act, the Exchange
Act or any state securities law (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). The Company shall reimburse
the Investors, promptly as such expenses are incurred and are due and payable,
for any reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (i) apply to a 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
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or supplement thereto, if such prospectus was timely made available by the
Company pursuant to Section 3(b) hereof; (ii) with respect to any preliminary
prospectus, inure to the benefit of any such person from whom the person
asserting any such Claim purchased the Registrable Securities that are the
subject thereof (or to the benefit of any person controlling such person) if the
untrue statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or supplemented, if
such prospectus was timely made available by the Company pursuant to Section
3(b) hereof; (iii) be available to the extent such Claim is based on a failure
of the Investor to deliver or cause to be delivered the prospectus made
available by the Company; 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. Each Investor will
indemnify the Company, its officers, directors and agents (including Counsel)
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 Investor, expressly for use in connection with
the preparation of the Registration Statement, subject to such limitations and
conditions as are applicable to the Indemnification provided by the Company to
this Section 6. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9.
(b) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party 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 the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the reasonable 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 or Indemnified Party and the indemnifying party would
be inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party 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 Investors; such legal counsel shall be selected
by the Investors 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 the indemnifying party within a reasonable time of
the commencement of
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any such action shall not relieve such indemnifying party of any liability to
the Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is 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.
7. CONTRIBUTION. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty or
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to use its reasonable best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC 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 Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly 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
Investors to sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of in excess of fifty
(50%) percent or more of the Registrable Securities (or all or any portion of
any Debenture of the Company which is convertible into such securities) only if:
(a) the Investor
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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)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, and (d) at or before the time the
Company received 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. In the event of any delay in filing or
effectiveness of the Registration Statement as a result of such assignment, the
Company shall not be liable for any damages arising from such delay, or the
payments set forth in Section 2(c) hereof.
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 investors 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 Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company received conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission, receipt
confirmed, or other means) or sent by certified mail, return receipt requested,
properly addressed and with proper postage pre-paid (i) if to the Company, C/O
Gary B. Wolff, Esq., 747 Third Avenue, 25th Floor, New York, NY 10017; (ii) if
to the Initial Investor, at the address set forth under its name in the
Subscription Agreement, with a copy to its designated attorney and (iii) if to
any other Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 11(b), and shall be effective, when
personally delivered, upon receipt and, when so sent by certified mail, four (4)
business days after deposit with the United States Postal
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Service.
(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 the interpreted in accordance
with the laws of the State of Delaware. Each of the parties consents to the
jurisdiction of the state and federal courts of the State of Delaware 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 coveniens, to the bringing of any such proceeding in such
jurisdictions. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto. 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 invalidity or
unenforceability shall not effect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. 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. 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 headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
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<PAGE> 13
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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<PAGE> 14
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
SWISSRAY INTERNATIONAL, INC.
By: ____________________________________
Name: Ruedi G. Laupper
Title: Chairman and President
_______________________________________
(Name of Initial Investor)
By: ____________________________________
Name:
Title:
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<PAGE> 1
Exhibit 10.16
FORM OF DEBENTURE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
CONVERTIBLE DEBENTURE DUE November 24 ,1999
November 24 ,1997
$
Number NOV-1997-
FOR VALUE RECEIVED, SWISSRAY INTERNATIONAL, INC., a New York
corporation (the "Company"), hereby promises to pay to ____________ or
registered assigns (the "Holder") on November 24, 1999, (the "Maturity
Date"), the principal amount of __________________ Dollars ($000,000)
U.S., and to pay interest on the principal amount hereof, in such
amounts, at such times and on such terms and conditions as are
specified herein.
Article 1. Interest
The Company shall pay interest on the unpaid principal amount of this
Debenture (the "Debenture") at the rate of Eight Percent (8.0%) per year,
payable at the time of each conversion until the principal amount hereof is paid
in full or has been converted. Interest shall be computed on the basis of a 360
day year of 12, 30 day months. Each payment shall be paid in cash or in freely
trading Common Stock of the Company, at the Company's option. If paid in Common
Stock, the number of shares of the Company's Common Stock to be received shall
be
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<PAGE> 2
determined by dividing the dollar amount of the interest by the then applicable
Market Price as of the interest payment date. "Market Price" shall mean 75% of
the average of the 5 day closing bid prices, as reported by Nasdaq, or whatever
primary exchange the Company's Common Stock may be traded on, for the 5 trading
days immediately preceding the date of conversion. If the interest is to be paid
in cash, the Company shall make such payment within 5 business days of the date
of conversion. If the interest is to be paid in Common Stock, said Common Stock
shall be delivered to the Holder, or per Holder's instructions, within 8
business days of the date of conversion. The Debentures are subject to automatic
conversion at the end of two years from the date of issuance at which time all
Debentures outstanding will be automatically converted based upon the formula
set forth in Section 3.2. The closing shall be deemed to have occurred on the
date the funds are received by the Company or its Counsel (the "Closing Date").
Article 2. Method of Payment
This Debenture must be surrendered to the Company in order for the
Holder to receive payment of the principal amount hereof. The Company shall have
the option of paying the interest on this Debenture in United States dollars or
in common stock upon conversion pursuant to Article 1 hereof. The Company may
draw a check for the payment of interest to the order of the Holder of this
Debenture and mail it to the Holder's address as shown on the Register (as
defined in Section 7.2 below). Interest and principal payments shall be subject
to withholding under applicable United States Federal Internal Revenue Service
Regulations.
Article 3. Conversion
Section 3.1. Conversion Privilege
(a) The Holder of this Debenture shall have the right, at its option,
to convert it into shares of common stock, par value $0.01 per share, of the
Company ("Common Stock") at any time which is before the close of business on
the Maturity Date, except as set forth in Section 3.1(c) below. The number of
shares of Common Stock issuable upon the conversion of this Debenture is
determined pursuant to Section 3.2 and rounding the result to the nearest whole
share.
(b) Less than all of the principal amount of this Debenture may be
converted into Common Stock if the portion converted is $5,000 or a whole
multiple of $5,000 and the provisions of this Article 3 that apply to the
conversion of all of the Debenture shall also apply to the conversion of a
portion of it. This Debenture may not be converted, whether in whole or in part,
except in accordance with Article 3.
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<PAGE> 3
(c) In the event all or any portion of this Debenture remains
outstanding on the second anniversary of the date hereof, the unconverted
portion of such Debenture will automatically be converted into shares of Common
Stock on such date in the manner set forth in Section 3.2.
Section 3.2. Conversion Procedure.
(a) Debentures. Upon receipt by the Company or its designated attorney
of a facsimile or original of Holder's signed Notice of Conversion and the
original Debenture to be converted in whole or in part, the Company shall
instruct its transfer agent to issue one or more Certificates representing that
number of shares of Common Stock into which the Debenture is convertible in
accordance with the provisions regarding conversion set forth in Exhibit D
hereto. The Seller's transfer agent or attorney shall act as Registrar and shall
maintain an appropriate ledger containing the necessary information with respect
to each Debenture.
(b) Conversion Procedures. Twenty-five percent (25%) of the face amount
of this Debenture may be converted at the earlier of the effective date of the
Registration Statement or March 21, 1998. Such conversion shall be effectuated
by surrendering to the Company, or its attorney, this Debenture to be converted
together with a facsimile or original of the signed Notice of Conversion which
evidences Holder's intention to convert the Debenture indicated. An additional
twenty-five percent (25%) of the face amount of the Debentures, fifty percent
(50%) cumulatively, may be converted after the earlier of 30 days after the
effective date of the Registration Statement or April 20, 1998. An additional
twenty-five percent (25%), seventy-five percent (75%) cumulatively, may be
converted after the earlier of 60 days after the effective date of the
Registration Statement or May 20, 1998. An additional twenty-five percent (25%),
one hundred percent (100%) cumulatively, may be converted after the earlier of
90 days after the effective date of the Registration Statement or June 19, 1998.
The date on which the Notice of Conversion is effective ("Conversion Date")
shall be deemed to be the date on which the Holder has delivered to the Company
or its designated attorney a facsimile or original of the signed Notice of
Conversion, as long as the original Debenture(s) to be converted are received by
the Company or its designated attorney within 5 business days thereafter. Unless
otherwise notified by the Company in writing via facsimile the Company's
designated attorney is Gary B. Wolff, Esq., 474 Third Avenue, 25th Floor, New
York, New York 10017, (P) 212-644-6446, (F) 212-644-6498.
(c) Common Stock to be Issued Without Restrictive Legend. Upon the
conversion of any Debentures and upon receipt by the Company or its attorney of
a
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<PAGE> 4
facsimile or original of Holder's signed Notice of Conversion (see Exhibit D)
Seller shall instruct Seller's transfer agent to issue Stock Certificates
without restrictive legend or stop transfer instructions, if at that time the
Registration Statement has been deemed effective (or with proper restrictive
legend if the Registration Statement has not as yet been declared effective), in
the name of Holder (or its nominee) and in such denominations to be specified at
conversion representing the number of shares of Common Stock issuable upon such
conversion, as applicable. Seller warrants that no instructions, other than
these instructions, have been given or will be given to the transfer agent and
that the Common Stock shall otherwise be freely transferable on the books and
records of Seller, except as may be set forth herein.
(d) (i) Conversion Rate. Holder is entitled, at its option to convert
twenty-five percent (25%) of the face amount of this Debenture, plus accrued
interest, at the earlier of the effective date of the Registration Statement or
March 21, 1998, at 75% of the 5 day average closing bid price, as reported by
Nasdaq, or whatever primary exchange the Company's Common Stock may be traded
on, for the 5 trading days immediately preceding the applicable Conversion Date
(the "Conversion Price"). Holder is entitled, at its option to convert an
additional twenty-five percent (25%), fifty percent (50%) cumulatively, of the
face amount of this Debenture, plus accrued interest at the earlier of 30 days
after the effective date of the Registration Statement or April 20, 1998, at 75%
of the 5 day average closing bid price, as reported by Nasdaq, or whatever
primary exchange the Company's Common Stock may be traded on, for the 5 trading
days immediately preceding the applicable Conversion Date. Holder is entitled,
at its option, to convert an additional twenty-five percent (25%), seventy-five
percent (75%) cumulatively, of the face amount of this Debenture, plus accrued
interest at the earlier of 60 days after the effective date of the Registration
Statement or May 20, 1998, at 75% of the 5 day average closing bid price, as
reported by Nasdaq, or whatever primary exchange the Company's Common Stock may
be traded on, for the 5 trading days immediately preceding the applicable
Conversion Date. Holder is entitled, at its option, to convert an additional
twenty-five percent (25%), one hundred percent (100%) cumulatively, of the face
amount of this Debenture, plus accrued interest at the earlier of 90 days after
the effective date of the Registration Statement or June 19, 1998, at 75% of the
5 day average closing bid price, as reported by Nasdaq, or whatever primary
exchange the Company's Common Stock may be traded on, for the 5 trading days
immediately preceding the applicable Conversion Date. No fractional shares or
scrip representing fractions of shares will be issued on conversion, but the
number of shares issuable shall be rounded up or down, as the case may be, to
the nearest whole share.
(ii) Redemption Terms. The Company reserves the right, at its sole
option, to call a mandatory redemption of any percentage of the balance on the
4
<PAGE> 5
Debentures during the two hundred ten (210) day period following the Closing
Date. In the event the Company exercises such right of redemption up to and
including the two hundred tenth (130th) day following the Closing Date it shall
pay the Holder, in U.S. currency One Hundred Thirty Percent (130%) of the face
amount of the Debentures redeemed. Mandatory redemption by the Company shall be
effected by the Company notifying the Holder by facsimile at the number listed
in the Subscription Agreement of the Company's intention to exercise its right
of mandatory redemption. The Company shall state in such notice the dollar
amount of the Debentures it intends to redeem, the amount that it will pay to
effectuate such redemption and the date by which the Holder must deliver the
Debentures to Joseph B. LaRocco, Escrow Agent (including the Escrow Agent's
address) unless the Company is already in receipt of those Debentures to be
redeemed. The date by which the Debentures must be delivered to the Escrow Agent
shall not be later than 10 business days following the date the Company notifies
the Holder by facsimile of the redemption. The Company shall give the Holder at
least 2 business day's notice of the above information. On or before the date by
which the Holder is to deliver the original Debentures to the Escrow Agent, the
Company shall wire to the Escrow Agent that amount necessary to pay the Holder
to effectuate the mandatory redemption. Once the Escrow Agent is in receipt of
the original Debentures and those funds necessary to effectuate the mandatory
conversion he shall wire those funds to the Holder and deliver to the Company
the original Debentures via overnight courier. The Holder shall not be entitled
to send a Conversion Notice to the Company with respect to the Debentures being
redeemed during such period.
(iii) Most Favored Financing. If after the Closing Date, but prior to the
Holder's conversion of all the Debentures, the Company raises money under either
Regulation D or Regulation S on terms that are more favorable than those terms
set forth in this Debenture, then in such event, the Holder at its sole option
shall be entitled to completely replace the terms of this Debenture with the
terms of the more beneficial Debenture as to that balance, including accrued
interest and any accumulated liquidated damages, remaining on Holder's original
investment. The Debentures are subject to a mandatory, 24 month conversion
feature at the end of which all Debentures outstanding will be automatically
converted, upon the terms set forth in this section ("Mandatory Conversion
Date").
(e) Nothing contained in this Debenture shall be deemed to establish or require
the payment of interest to the Holder at a rate in excess of the maximum rate
permitted by governing law. In the event that the rate of interest required to
be paid exceeds the maximum rate permitted by governing law, the rate of
interest required to be paid thereunder shall be automatically reduced to the
maximum rate permitted
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<PAGE> 6
under the governing law and such excess shall be returned with reasonable
promptness by the Holder to the Company.
(f) It shall be the Company's responsibility to take all necessary actions and
to bear all such costs to issue the Certificate of Common Stock as provided
herein, including the responsibility and cost for delivery of an opinion letter
to the transfer agent, if so required. The person in whose name the certificate
of Common Stock is to be registered shall be treated as a shareholder of record
on and after the conversion date. Upon surrender of any Debentures that are to
be converted in part, the Company shall issue to the Holder a new Debenture
equal to the unconverted amount, if so requested in writing by Holder.
(g) Within five (5) business days after receipt of the documentation referred to
above in Section 3.2(b), the Company shall deliver a certificate, without stop
transfer instructions, for the number of shares of Common Stock issuable upon
the conversion. It shall be the Company's responsibility to take all necessary
actions and to bear all such costs to issue the Common Stock as provided herein,
including the cost for delivery of an opinion letter to the transfer agent, if
so required. The person in whose name the certificate of Common Stock is to be
registered shall be treated as a shareholder of record on and after the
conversion date. Upon surrender of any Debentures that are to be converted in
part, the Company shall issue to the Holder a new Debenture equal to the
unconverted amount, if so requested in writing by Holder.
In the event the Company does not make delivery of the Common Stock, as
instructed by Holder, within 8 business days after delivery of this original
Debenture, then in such event the Company shall pay to Holder an amount, in cash
in accordance with the following schedule, wherein "No. Business Days Late" is
defined as the number of business days beyond the 8 business days delivery
period.
<TABLE>
<CAPTION>
Late Payment for Each
$10,000 of Debenture
No. Business Days Late Amount Being Converted
- ---------------------- ----------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
</TABLE>
6
<PAGE> 7
<TABLE>
<S> <C>
9 $900
10 $1,000
(greater than) 10 $1,000 + $200 for each
Business Day Beyond 10
</TABLE>
The Company acknowledges that its failure to deliver the Common Stock
within 8 business days after the Conversion Date will cause the Holder to suffer
damages in an amount that will be difficult to ascertain. Accordingly, the
parties agree that it is appropriate to include in this Debenture a provision
for liquidated damages. The parties acknowledge and agree that the liquidated
damages provision set forth in this section represents the parties' good faith
effort to qualify such damages and, as such, agree that the form and amount of
such liquidated damages are reasonable and will not constitute a penalty. The
payment of liquidated damages shall not relieve the Company from its obligations
to deliver the Common Stock pursuant to the terms of this Debenture.
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 3.2(g) is due to the unavailability of authorized but
unissued shares of Common Stock, the provisions of this Section 3.2(g) shall not
apply but instead the provisions of Section 3.2(h) shall apply. The Company
shall make any payments incurred under this Section 3.2(g) in immediately
available funds within five (5) business days from the Conversion Date if late.
Nothing herein shall limit a Holder's right to pursue actual damages or cancel
the conversion for the Company's failure to issue and deliver Common Stock to
the Holder within 8 business days after the Conversion Date.
(h) The Company shall at all times reserve and have available all
Common Stock necessary to meet conversion of the Debentures by all Holders of
the entire amount of Debentures then outstanding. If, at any time Holder submits
a Notice of Conversion and the Company does not have sufficient authorized but
unissued shares of Common Stock available to effect, in full, a conversion of
the Debentures (a "Conversion Default", the date of such default being referred
to herein as the "Conversion Default Date"), the Company shall issue to the
Holder all of the shares of Common Stock which are available, and the Notice of
Conversion as to any Debentures requested to be converted but not converted (the
"Unconverted Debentures"), upon Holder's sole option, may be deemed null and
void. The Company shall provide notice of such Conversion Default ("Notice of
Conversion Default") to all existing Holders of outstanding Debentures, by
facsimile, within three (3) business day of such default (with the original
delivered by overnight or two day courier), and the Holder shall give notice to
the Company by facsimile within five business days of receipt of the original
Notice of Conversion
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<PAGE> 8
Default (with the original delivered by overnight or two day courier) of its
election to either nullify or confirm the Notice of Conversion.
The Company agrees to pay to all Holders of outstanding Debentures
payments for a Conversion Default ("Conversion Default Payments") in the amount
of (N/365) x (.24) x the initial issuance price of the outstanding and/or
tendered but not converted Debentures held by each Holder where N = the number
of days from the Conversion Default Date to the date (the "Authorization Date")
that the Company authorizes a sufficient number of shares of Common Stock to
effect conversion of all remaining Debentures. The Company shall send notice
("Authorization Notice") to each Holder of outstanding Debentures that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of Holder's accrued Conversion Default Payments. The accrued
Conversion Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, at the Holder's option, payable as follows: (i) in
the event Holder elects to take such payment in cash, cash payments shall be
made to such Holder of outstanding Debentures by the fifth day of the following
calendar month, or (ii) in the event Holder elects to take such payment in
stock, the Holder may convert such payment amount into Common Stock at the
conversion rate set forth in section 4(d) at anytime after the 5th day of the
calendar month following the month in which the Authorization Notice was
received, until the expiration of the mandatory 24 month conversion period.
The company acknowledges that its failure to maintain a sufficient
number of authorized but unissued shares of Common Stock to effect in full a
conversion of the Debentures will cause the Holder to suffer damages in an
amount that will be difficult to ascertain. Accordingly, the parties agree that
it is appropriate to include in this Agreement a provision for liquidated
damages. The parties acknowledge and agree that the liquidated damages provision
set forth in this section represents the parties' good faith effort to quantify
such damages and, as such, agree that the form and amount of such liquidated
damages are reasonable and will not constitute a penalty. The payment of
liquidated damages shall not relieve the Company from its obligations to deliver
the Common Stock pursuant to the terms of this Agreement.
Nothing herein shall limit the Holder's right to pursue actual damages for the
Company's failure to maintain a sufficient number of authorized shares of Common
Stock.
(i) The Company shall furnish to Holder such number of prospectuses and other
documents incidental to the registration of the shares of Common Stock
underlying
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<PAGE> 9
the Debentures, including any amendment of or supplements thereto.
(j) The Holder is limited in the amount of this Debenture it may convert and
own. Other than the Mandatory Conversion provisions contained in this Debenture
which are not limited by the following, in no other event shall the Holder be
entitled to convert any amount of Debentures in excess of that amount upon
conversion of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Debenture, and (2) the number of shares of Common
Stock issuable upon the conversion of the Debentures with respect to which the
determination of this provision is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.9% of the outstanding
shares of Common Stock of the Company. For purposes of this provision to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13 D-G thereunder, except as otherwise provided in
clause (1) of such provision.
Section 3.3. Fractional Shares. The Company shall not issue fractional
shares of Common Stock, or scrip representing fractions of such shares, upon the
conversion of this Debenture. Instead, the Company shall round up or down, as
the case may be, to the nearest whole share.
Section 3.4. Taxes on Conversion. The Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of shares
of Common Stock upon the conversion of this Debenture. However, the Holder shall
pay any such tax which is due because the shares are issued in a name other than
its name.
Section 3.5. Company to Reserve Stock. The Company shall reserve the
number of shares of Common Stock required pursuant to and upon the terms set
forth in Section 3(a) of the Subscription Agreement dated November of 1997, to
permit the conversion of this Debenture. All shares of Common Stock which may be
issued upon the conversion hereof shall upon issuance be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issuance thereof.
Section 3.6. Restrictions on Transfer. This Debenture has not been
registered under the Securities Act of 1933, as amended, (the "Act") and is
being issued under Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. This Debenture and the Common Stock issuable upon the
conversion thereof may only be offered or sold pursuant to registration under or
an
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<PAGE> 10
exemption from the Act.
Section 3.7. Mergers, Etc. If the Company merges or consolidates with
another corporation or sells or transfers all or substantially all of its assets
to another person and the holders of the Common Stock are entitled to receive
stock, securities or property in respect of or in exchange for Common Stock,
then as a condition of such merger, consolidation, sale or transfer, the Company
and any such successor, purchaser or transferee shall amend this Debenture to
provide that it may thereafter be converted on the terms and subject to the
conditions set forth above into the kind and amount of stock, securities or
property receivable upon such merger, consolidation, sale or transfer by a
holder of the number of shares of Common Stock into which this Debenture might
have been converted immediately before such merger, consolidation, sale or
transfer, subject to adjustments which shall be as nearly equivalent as may be
practicable to adjustments provided for in this Article 3.
Article 4. Mergers
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person assumes in
writing the obligations of the Company under this Debenture and immediately
after such transaction no Event of Default exists. Any reference herein to the
Company shall refer to such surviving or transferee corporation and the
obligations of the Company shall terminate upon such written assumption. Article
5. Reports
The Company will mail to the Holder hereof at its address as shown on
the Register a copy of any annual, quarterly or current report that it files
with the Securities and Exchange Commission promptly after the filing thereof
and a copy of any annual, quarterly or other report or proxy statement that it
gives to its shareholders generally at the time such report or statement is sent
to shareholders. Article 6. Defaults and Remedies
Section 6.1. Events of Default. An "Event of Default" occurs if (a) the
Company does not make the payment of the principal of this Debenture when the
same becomes due and payable at maturity, upon redemption or otherwise, (b) the
Company does not make a payment, other than a payment of principal, for a period
of 5 business days thereafter, (c) the Company fails to comply with any of its
other agreements in this Debenture and such failure continues for the period and
after the notice specified below, (d) the Company pursuant to or within the
meaning of any Bankruptcy Law (as hereinafter defined): (i) commences a
voluntary case; (ii) consents to the entry of an order for relief against it in
an involuntary case; (iii) consents to the appointment of a Custodian (as
hereinafter defined) of it or for all or substantially all of its property or
(iv) makes a general assignment for the benefit of its creditors or (v) a court
of competent jurisdiction enters an order or decree
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<PAGE> 11
under any Bankruptcy Law that: (A) is for relief against the Company in an
involuntary case; (B) appoints a Custodian of the Company or for all or
substantially all of its property or (C) orders the liquidation of the Company,
and the order or decree remains unstayed and in effect for 60 days, (e) the
Company's Common Stock is no longer listed on any recognized exchange including
electronic over-the-counter bulletin board. As used in this Section 6.1, the
term "Bankruptcy Law" means Title 11 of the United States Code or any similar
federal or state law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law. A default under clause (c) above is not an Event of Default until the
holders of at least 25% of the aggregate principal amount of the Debentures
outstanding notify the Company of such default and the Company does not cure it
within five (5) business days after the receipt of such notice, which must
specify the default, demand that it be remedied and state that it is a "Notice
of Default".
Section 6.2. Acceleration. If an Event of Default occurs and is
continuing, the Holder hereof by notice to the Company, may declare the
remaining principal amount of this Debenture to be due and payable. Upon such
declaration, the remaining principal amount shall be due and payable immediately
Article 7. Registered Debentures
Section 7.1. Series. This Debenture is one of a numbered series of
Debentures having an aggregate principal amount of not more than $3,800,000
which are identical except as to the principal amount and date of issuance
thereof and as to any restriction on the transfer thereof in order to comply
with the Securities Act of 1933 and the regulations of the Securities and
Exchange Commission promulgated thereunder. Such Debentures are referred to
herein collectively as the "Debentures". The Debentures shall be issued in whole
multiples of $5,000.
Section 7.2. Record Ownership. The Company, or its attorney, shall
maintain a register of the holders of the Debentures (the "Register") showing
their names and addresses and the serial numbers and principal amounts of
Debentures issued to or transferred of record by them from time to time. The
Register may be maintained in electronic, magnetic or other computerized form.
The Company may treat the person named as the Holder of this Debenture in the
Register as the sole owner of this Debenture. The Holder of this Debenture is
the person exclusively entitled to receive payments of interest on this
Debenture, receive notifications with respect to this Debenture, convert it into
Common Stock and otherwise exercise all of the rights and powers as the absolute
owner hereof.
Section 7.3. Registration of Transfer. Transfers of this Debenture may
be registered on the books of the Company maintained for such purpose pursuant
to Section 7.2 above (i.e., the Register). Transfers shall be registered when
this Debenture is presented to the Company with a request to register the
transfer
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<PAGE> 12
hereof and the Debenture is duly endorsed by the appropriate person, reasonable
assurances are given that the endorsements are genuine and effective, and the
Company has received evidence satisfactory to it that such transfer is rightful
and in compliance with all applicable laws, including tax laws and state and
federal securities laws. When this Debenture is presented for transfer and duly
transferred hereunder, it shall be canceled and a new Debenture showing the name
of the transferee as the record holder thereof shall be issued in lieu hereof.
When this Debenture is presented to the Company with a reasonable request to
exchange it for an equal principal amount of Debentures of other denominations,
the Company shall make such exchange and shall cancel this Debenture and issue
in lieu thereof Debentures having a total principal amount equal to this
Debenture in such denominations as agreed to by the Company and Holder.
Section 7.4. Worn or Lost Debentures. If this Debenture becomes worn,
defaced or mutilated but is still substantially intact and recognizable, the
Company or its agent may issue a new Debenture in lieu hereof upon its
surrender. Where the Holder of this Debenture claims that the Debenture has been
lost, destroyed or wrongfully taken, the Company shall issue a new Debenture in
place of the original Debenture if the Holder so requests by written notice to
the Company actually received by the Company before it is notified that the
Debenture has been acquired by a bona fide purchaser and the Holder has
delivered to the Company an indemnity bond in such amount and issued by such
surety as the Company deems satisfactory together with an affidavit of the
Holder setting forth the facts concerning such loss, destruction or wrongful
taking and such other information in such form with such proof or verification
as the Company may request.
Article 8. Notices
Any notice which is required or convenient under the terms of this
Debenture shall be duly given if it is in writing and delivered in person or
mailed by first class mail, postage prepaid and directed to the Holder of the
Debenture at its address as it appears on the Register or if to the Company to
its principal executive offices, with a copy by fax to Gary B. Wolff, Esq. 747
Third Avenue, New York, NY 10017. The time when such notice is sent shall be the
time of the giving of the notice.
Article 9. Time
Where this Debenture authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
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<PAGE> 13
performed in accordance with the terms of this Debenture. A "business day" shall
mean a day on which the banks in New York are not required or allowed to be
closed.
Article 10. Waivers
The holders of a majority in principal amount of the Debentures may
waive a default or rescind the declaration of an Event of Default and its
consequences except for a default in the payment of principal or conversion into
Common Stock.
Article 11. Rules of Construction
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in the Debenture are inserted for
convenience of reference only, and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation hereof. Wherever,
in this Debenture, a determination of the Company is required or allowed, such
determination shall be made by a majority of the Board of Directors of the
Company and if it is made in good faith, it shall be conclusive and binding upon
the Company and the Holder of this Debenture.
Article 12. Governing Law
The validity, terms, performance and enforcement of this Debenture
shall be governed and construed by the provisions hereof and in accordance with
the laws of the State of Delaware applicable to agreements that are negotiated,
executed, delivered and performed solely in the State of Delaware.
Article 13. Litigation
(a) Forum Selection and Consent to Jurisdiction. Any litigation based
thereon, or arising out of, under, or in connection with, this agreement or any
course of conduct, course of dealing, statements (whether oral or written) or
actions of the Company or Holder shall be brought and maintained exclusively in
the courts of the State of Delaware. The Company hereby expressly and
irrevocably submits to the jurisdiction of the state and federal courts of the
State of Delaware for the purpose of any such litigation as set forth above and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Company further irrevocably consents to the
service of process by registered mail, postage prepaid, or by personal service
within or without the State of Delaware. The Company hereby expressly and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may have or hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any such
litigation has been brought in any inconvenient forum. To the
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<PAGE> 14
extent that the Company has or hereafter may acquire any immunity from
jurisdiction of any court or from any legal process (whether through service or
notice, attachment prior to judgment, attachment in aid of execution or
otherwise) with respect to itself or its property. The Company hereby
irrevocably waives such immunity in respect of its obligations under this
agreement and the other loan documents.
(b) Waiver of Jury Trial. The Holder and the Company hereby knowingly,
voluntarily and intentionally waive any rights they may have to a trial by jury
in respect of any litigation based hereon, or arising out of, under, or in
connection with, this agreement, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Holder or the Company.
The Company acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Holder entering into this agreement.
(c) Submission To Jurisdiction . Any legal action or proceeding in
connection with this Agreement or the performance hereof may be brought in the
state and federal courts located in the State of Delaware and the parties hereby
irrevocably submit to the non-exclusive jurisdiction of such courts for the
purpose of any such action or proceeding.
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of
the date first written above.
SWISSRAY INTERNATIONAL, INC.
By
Name: Ruedi G. Laupper
Title: Chairman and President
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<PAGE> 15
Exhibit A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Debentures.)
The undersigned hereby irrevocably elects, as of ______________, 199_
to convert $_________________ of the Debentures into Shares of Common Stock (the
"Shares") of SWISSRAY INTERNATIONAL, INC. (the "Company") according to the
conditions set forth in the Subscription Agreement dated November ____, 1997.
Date of Conversion__________________________________________
Applicable Conversion Price_________________________________
Number of Shares Issuable upon this conversion______________
Signature___________________________________________________
[Name]
Address_____________________________________________________
____________________________________________________________
Phone______________________ Fax___________________________
15
<PAGE> 16
Assignment of Debenture
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
(name, address and SSN or EIN of assignee)
Dollars ($ )
-------
(principal amount of Debenture, $10,000 or integral multiples of $10,000)
of principal amount of this Debenture together with all accrued and unpaid
interest hereon.
Date: Signed:
(Signature must conform in all
respects to name of Holder shown
of face of Debenture)
Signature Guaranteed:
16
<PAGE> 1
----------------------------------
SWISSRAY INTERNATIONAL, INC.
----------------------------------
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BE APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Maximum Offering: $3,800,000
This offering consists of $3,800,000 of Convertible Debentures of
Swissray International, Inc.
--------------------
SUBSCRIPTION AGREEMENT
--------------------
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<PAGE> 2
SUBSCRIPTION PROCEDURES
Convertible Debentures of SWISSRAY INTERNATIONAL, INC.. (the "Company")
are being offered in an aggregate amount not to exceed $3,800,000. The
Debentures will be transferable to the extent that any such transfer is
permitted by law. This offering is being made in accordance with the exemption
from registration under Section 4(2) of the Securities Act of 1933, as amended
(the "Act") and Rule 506 of Regulation D promulgated under the Act (the
"Regulation D Offering").
The Investor Questionnaire is designed to enable the Investor
to demonstrate the minimum legal requirements under federal and state
securities laws to purchase the Debentures. The Signature Page for the
Investor Questionnaire and the Subscription Agreement contain
representations relating to the subscription.
Also included is an Internal Revenue Service Form W-9:
"Request for Taxpayer Identification Number and Certification"
for U.S. citizens or residents of the U.S. for U.S. federal
income tax purposes only. (Foreign investors should consult
their tax advisors regarding the need to complete Internal
Revenue Service Form W-9 and any other forms that may be
required).
If you are a foreign person or foreign entity, you may be subject to a
withholding tax equal to 30% of any dividends paid by the Company. In order to
eliminate or reduce such withholding tax you may submit a properly executed
I.R.S. Form 4224 (Exemption from Withholding of Tax on Income Effectively
Connected with the Conduct of a Trade or Business in the United States) or
I.R.S. Form 1001 (Ownership Exemption or Reduced Trade Certificate), claiming
exemption from withholding or eligibility for treaty benefits in the form of a
lower rate of withholding tax on interest or dividends.
Payment must be made by wire transfer as provided below:
Immediately available funds should be sent via wire transfer to the escrow
account stated below and the completed subscription documents should be
forwarded to the Escrow Agent. Your subscription funds will be deposited into a
non-interest bearing escrow account of Joseph B. LaRocco, Esq., Escrow Agent, at
First Union Bank of Connecticut, Stamford, Connecticut. In the event of a
termination of the Regulation D Offering or the rejection of this subscription,
all subscription funds will be returned without interest. The wire instructions
are as follows:
2
<PAGE> 3
ABA #:
Swift #:
Account #:
Acct.Name: Joseph B. LaRocco, Esq. Trustee Account
3
<PAGE> 4
SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BE APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
To: SWISSRAY INTERNATIONAL, INC.
This Subscription Agreement is made between Swissray International,
Inc., ("Company" or "Seller") a New York corporation, and the undersigned
prospective purchaser ("Purchaser") who is subscribing hereby for the Company's
Convertible Debentures (the "Debentures"). The Debentures being offered will be
separately transferable, to the extent that any such transfer is permitted by
law. The conversion terms of the Debentures are set forth in Section 4. This
subscription is submitted to you in accordance with and subject to the terms and
conditions described in this Subscription Agreement dated November __, 1997,
together with any Exhibits thereto, relating to an offering (the "Offering") of
up to $3,800,000 of Debentures. This Offering is comprised of an offering of the
Debentures to accredited investors (the "Regulation D Offering") in accordance
with the exemption from registration under Section 4(2) of the Securities Act of
1933, as amended (the "Act"), and Rule 506 of Regulation D promulgated under the
Act ("Regulation D").
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<PAGE> 5
1. SUBSCRIPTION.
(a) The undersigned hereby irrevocably subscribes for and agrees to
purchase $________________ of the Company's Debentures. The Debentures shall pay
an 8% cumulative interest payable annually, in cash or in freely trading Common
Stock of the Company, at the Company's option, at the time of each conversion.
If paid in Common Stock, the number of shares of the Company's Common Stock to
be received shall be determined by dividing the dollar amount of the dividend by
the then applicable Market Price, as of the interest payment date. "Market
Price" shall mean 75% of the average of the 5 day closing bid prices, as
reported by Nasdaq, or whatever primary exchange the Company's Common Stock may
be traded on, for the five trading days immediately preceding the date of
conversion. If the interest is to be paid in cash, the Company shall make such
payment within 5 business days of the date of conversion. If the interest is to
be paid in Common Stock, said Common Stock shall be delivered to the Purchaser,
or per Purchaser's instructions, within 5 business days of the date of
conversion. The Debentures are subject to automatic conversion at the end of two
years from the date of issuance at which time all Debentures outstanding will be
automatically converted based upon the formula set forth in Section 4(c). The
closing shall be deemed to have occurred on the date the funds are received by
the Company or its designated attorney (the "Closing Date").
(b) Upon receipt by the Company of the requisite payment for the
Debentures being purchased the Debentures so purchased will be forwarded by the
Escrow Agent, Joseph B. LaRocco, to the Purchaser and the name of such Purchaser
will be registered on the Debenture transfer books of the Company as the record
owner of such Debentures. The Escrow Agent shall not be liable for any action
taken or omitted by him in good faith and in no event shall the Escrow Agent be
liable or responsible except for the Escrow Agent's own gross negligence or
willful misconduct. The Escrow Agent has made no representations or warranties
in connection with this transaction and has not been involved in the negotiation
of the terms of this Agreement or any matters relative thereto. Seller and
Purchaser each agree to indemnify and hold harmless the Escrow Agent from and
with respect to any suits, claims, actions or liabilities arising in any way out
of this transaction including the obligation to defend any legal action brought
which in any way arises out of or is related to this Agreement. The Escrow Agent
is not rendering securities advice to anyone with respect to this proposed
transaction; nor is the Escrow Agent opining on the compliance of the proposed
transaction under applicable securities law.
2. REPRESENTATIONS AND WARRANTIES.
The undersigned hereby represents and warrants to, and agrees with, the
Company as follows:
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<PAGE> 6
(a) The undersigned has been furnished with, and has carefully
read the applicable form of Debenture included herein as Exhibit A and
the form of Registration Rights Agreement annexed hereto as Exhibit B
(the "Registration Rights Agreement"), and is familiar with and
understands the terms of the Offering. With respect to tax and other
economic considerations involved in his investment, the undersigned is
not relying on the Company. The undersigned has carefully considered
and has, to the extent the undersigned believes such discussion
necessary, discussed with the undersigned's professional legal, tax,
accounting and financial advisors the suitability of an investment in
the Company, by purchasing the Debentures, for the undersigned's
particular tax and financial situation and has determined that the
investment being made by the undersigned is a suitable investment for
the undersigned.
(b) The undersigned acknowledges that all documents, records,
and books pertaining to this investment which the undersigned has
requested including Form 10-KSB for the fiscal year ended June 30, 1997
and Form 10-Q for the quarter ended September 30, 1997 (the "Disclosure
Documents") have been made available for inspection by the undersigned
or the undersigned has had access to the Disclosure Documents.
(c) The undersigned has had a reasonable opportunity to ask
questions of and receive answers from a person or persons acting on
behalf of the Company concerning the Offering and all such questions
have been answered to the full satisfaction of the undersigned.
(d) The undersigned will not sell or otherwise transfer the
Debentures without registration under the Act or applicable state
securities laws or an exemption therefrom. The Debentures have not been
registered under the Act or under the securities laws of any states.
The Common Stock underlying the Debentures is to be registered by the
Company pursuant to the terms of the Registration Rights Agreement
attached hereto as Exhibit B and incorporated herein and made a part
hereof. Without limiting the right to convert the Debentures and sell
the Common Stock pursuant to the Registration Rights Agreement, the
undersigned represents that the undersigned is purchasing the
Debentures for the undersigned's own account, for investment and not
with a view to resale or distribution except in compliance with the
Act. The undersigned has not offered or sold any portion of the
Debentures being acquired nor does the undersigned have any present
intention of dividing the Debentures with others or of selling,
distributing or otherwise disposing of any portion of the Debentures
either currently or after the passage of a fixed or determinable period
of time or upon the occurrence or non-occurrence of any predetermined
event or
6
<PAGE> 7
circumstance in violation of the Act. Except as provided in the
Registration Rights Agreement, the Company has no obligation to
register the Common Stock issuable upon conversion of the Debentures.
(e) The undersigned recognizes that an investment in the
Debentures involves substantial risks, including loss of the entire
amount of such investment. Further, the undersigned has carefully read
and considered the schedule entitled Pending Litigation matters
attached hereto as Exhibit C.
Legends.
(i) The undersigned acknowledges that each
certificate representing the Debentures unless registered
pursuant to the Registration Rights Agreement, shall be
stamped or otherwise imprinted with a legend substantially in
the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE
OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT
(OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES), OR (iii) IF AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
NOTWITHSTANDING THE FOREGOING, THE COMMON STOCK INTO WHICH THE
SECURITIES EVIDENCED BY THIS CERTIFICATE ARE CONVERTIBLE ARE
ALSO SUBJECT TO THE REGISTRATION RIGHTS SET FORTH IN EACH OF
THAT CERTAIN SUBSCRIPTION AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT BY AND BETWEEN THE HOLDER HEREOF AND THE COMPANY, A
COPY OF EACH IS ON FILE AT THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICE.
(ii) The Common Stock issued upon conversion shall
contain the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN INCLUDED IN THE
COMPANY'S REGISTRATION
7
<PAGE> 8
STATEMENT INITIALLY FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON __________, 1997, AND MAY BE SOLD IN ACCORDANCE
WITH THE COMPANY'S PROSPECTUS DATED ___________, 1997, WHICH
FORMS A PART OF SUCH REGISTRATION STATEMENT, OR AN OPINION OF
COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
(g) If this Subscription Agreement is executed and delivered
on behalf of a corporation, (i) such corporation has the full legal
right and power and all authority and approval required (a) to execute
and deliver, or authorize execution and delivery of, this Subscription
Agreement and all other instruments (including, without limitation, the
Registration Rights Agreement) executed and delivered by or on behalf
of such corporation in connection with the purchase of the Debentures
and (b) to purchase and hold the Debentures: (ii) the signature of the
party signing on behalf of such corporation is binding upon such
corporation; and (iii) such corporation has not been formed for the
specific purpose of acquiring the Debentures, unless each beneficial
owner of such entity is qualified as an accredited investor within the
meaning of Rule 501(a) of Regulation D and has submitted information
substantiating such individual qualification.
(h) The undersigned shall indemnify and hold harmless the
Company and each stockholder, executive, employee, representative,
affiliate, officer, director, agent (including Counsel) or control
person of the Company, who is or may be a party or is or may be
threatened to be made a party to any threatened, pending or
contemplated action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of or arising from any
actual or alleged misrepresentation or misstatement of facts or
omission to represent or state facts made or alleged to have been made
by the undersigned to the Company or omitted or alleged to have been
omitted by the undersigned, concerning the undersigned or the
undersigned's subscription for and purchase of the Debentures or the
undersigned's authority to invest or financial position in connection
with the Offering, including, without limitation, any such
misrepresentation, misstatement or omission contained in this
Subscription Agreement, the Questionnaire or any other document
submitted by the undersigned, against losses, liabilities and expenses
for which the Company, or any stockholder, executive, employee,
representative, affiliate, officer, director, agent (including Counsel)
or control person of the Company has not otherwise been reimbursed
(including attorneys' fees and disbursements, judgments, fines and
amounts paid in settlement) actually and reasonably incurred by the
Company, or such officer, director stockholder, executive, employee,
8
<PAGE> 9
agent (including Counsel), representative, affiliate or control person
in connection with such action, suit or proceeding.
(i) The undersigned is not subscribing for the Debentures as a
result of, or pursuant to, any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or
meeting.
(j) The undersigned or the undersigned's representatives, as
the case may be, has such knowledge and experience in financial, tax
and business matters so as to enable the undersigned to utilize the
information made available to the undersigned in connection with the
Offering to evaluate the merits and risks of an investment in the
Debentures and to make an informed investment decision with respect
thereto.
(k) The Purchaser is purchasing the Debentures for its own
account for investment, and not with a view toward the resale or
distribution thereof. Purchaser is neither an underwriter of, nor a
dealer in, the Debentures or the Common Stock issuable upon conversion
thereof and is not participating in the distribution or resale of the
Debentures or the Common Stock issuable upon conversion thereof.
(l) There has never been represented, guaranteed, or warranted
to the undersigned by any broker, the Company, its officers, directors
or agents, or employees or any other person, expressly or by
implication (i) the percentage of profits and/or amount of or type of
consideration, profit or loss to be realized, if any, as a result of
the Company's operations; and (ii) that the past performance or
experience on the part of the management of the Company, or of any
other person, will in any way result in the overall profitable
operations of the Company.
3. SELLER REPRESENTATIONS.
(a) Concerning the Securities. The issuance, sale and delivery
of the Debentures have been duly authorized by all required corporate action on
the part of Seller, and when issued, sold and delivered in accordance with the
terms hereof and thereof for the consideration expressed herein and therein,
will be duly and validly issued and enforceable in accordance with their terms,
subject to the laws of bankruptcy and creditors' rights generally. 1,500,000
shares of Common Stock issuable upon conversion of all the Debentures issued
pursuant to this offering have been duly and validly reserved for issuance, or
alternative arrangements agreed to in writing to cover the contingency of their
being insufficient reserved shares and, upon issuance shall be duly and validly
issued, fully paid, and non-assessable (the "Reserved Shares"). From time to
time, the Company shall keep such additional shares of Common Stock reserved so
as to allow for the conversion of all the Debentures issued pursuant to this
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<PAGE> 10
offering. Upon an increase in the number of authorized shares of Common Stock of
the Company to 50,000,000, the Company shall reserve a total of at least
5,000,000 shares to cover conversion of all the Debentures issued in this
offering.
Prior to conversion of all the Debentures, if at anytime the conversion
of all the Debentures outstanding would result in an insufficient number of
authorized shares of Common Stock being available to cover all the conversions,
then in such event, the Company will move to call and hold a shareholder's
meeting within 60 days of such event for the purpose of authorizing additional
shares of Common Stock to facilitate the conversions. In such an event the
Company shall recommend to all shareholders to vote their shares in favor of
increasing the authorized number of shares of Common Stock . Seller represents
and warrants that under no circumstances will it deny or prevent Purchaser's
right to convert the Debentures as permitted under the terms of this
Subscription Agreement or the Registration Rights Agreement. Nothing in this
Section shall limit the obligation of the Company to make the payments set forth
in Section 4(h).
(ii) In anticipation of the potential need for additional
Reserved Shares, the Company has forwarded (to the S.E.C.) a Proxy Statement for
an annual meeting currently scheduled to be held on December 23, 1997, whereat
the Company proposes to increase its authorized shares to 50,000,000 shares of
Common Stock.
(b) Authority to Enter Agreement. This Agreement has been duly
authorized, validly executed and delivered on behalf of Seller and is a valid
and binding agreement in accordance with its terms, subject to general
principals of equity and to bankruptcy or other laws affecting the enforcement
of creditors' rights generally.
(c) Non-contravention. The execution and delivery of this
Agreement and the consummation of the issuance of the Debentures, and the
transactions contemplated by this Agreement do not and will not conflict with or
result in a breach by Seller of any of the terms or provisions of, or constitute
a default under, the articles of incorporation or by-laws of Seller, or any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which Seller is a party or by which it or any of its properties or assets are
bound, or any existing applicable law, rule, or regulation of the United States
or any State thereof or any applicable decree, judgment, or order of any Federal
or State court, Federal or State regulatory body, administrative agency or other
United States governmental body having jurisdiction over Seller or any of its
properties or assets.
(d) Company Compliance. The Company represents and warrants
that the Company and its subsidiaries are: (i) in full compliance, to the extent
applicable, with all reporting obligations under either Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; (ii) not in violation of any term or
provision of its Certificate of Incorporation or by-laws; (iii) not in default
in the performance or observance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of indebtedness or
in any mortgage, deed of trust, indenture or other instrument or agreement to
which they are a party, either singly or jointly, by which it or any of its
property is bound or subject except at set forth in Exhibit D.
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<PAGE> 11
Furthermore, the Company is not aware of any other facts, which it has not
disclosed which could have a material adverse effect on the business, condition,
(financial or otherwise), operations, earnings, performance, properties or
prospects of the Company and its subsidiaries taken as a whole.
(e) Pending Litigation. Except as otherwise disclosed in Exhibit C,
there is (i) no action, suit or proceeding before or by any court, arbitrator or
governmental body now pending or, to the knowledge of the Company, threatened or
contemplated to which the Company or any of its subsidiaries is or may be a
party or to which the business or property of the Company or any of its
subsidiaries is or may be bound or subject, (ii) no law, statute, rule,
regulation, order or ordinance that has been enacted, adopted or issued by any
Governmental Body or that, to the knowledge of the Company, has been proposed by
any Governmental Body adversely affecting the Company or any of its
subsidiaries, (iii) no injunction, restraining order or order of any nature by a
federal, state or foreign court or Governmental Body of competent jurisdiction
to which the Company or any of its subsidiaries is subject issued that, in the
case of clauses (i), (ii) and (iii) above, (x) is reasonably likely, singly or
in the aggregate, to result in a material adverse effect on the business,
condition, (financial or otherwise), operations, earnings, performance,
properties or prospects of the Company, and its subsidiaries taken as a whole or
(y) would interfere with or adversely affect the issuance of the Debentures or
would be reasonably likely to render this Subscription Agreement or the
Debentures, or any portion thereof, invalid or unenforceable.
(f) Issuance of the Debentures. No action has been taken and no law,
statute, rule, regulation, order or ordinance has been enacted, adopted or
issued by any Governmental Body that prevents the issuance of the Debentures or
the Common Stock issuable upon conversion or exercise thereof; no injunction,
restraining order or order of any nature by a federal or state court of
competent jurisdiction has been issued that prevents the issuance of the
Debentures or the Common Stock issuable upon conversion or exercise thereof or
suspends the sale of the Debentures or the Common Stock issuable upon conversion
thereof in any jurisdiction; and no action, suit or proceeding is pending
against or, to the best knowledge of the Company, threatened against or
affecting, the Company, any of its subsidiaries or, to the best knowledge of the
Company, before any court or arbitrator or any Governmental Body that, if
adversely determined, would prohibit, materially interfere with or adversely
affect the issuance or marketability of the Debentures or the Common Stock
issuable upon conversion or exercise thereof or render the Subscription
Agreement or the Debentures, or any portion thereof, invalid or unenforceable.
(g) The Company shall indemnify and hold harmless the Purchaser and
each stockholder, executive, employee, representative, affiliate, officer,
director or control person of the Purchaser, who is or may be a party or is or
may be threatened to be made a party to any threatened, pending or contemplated
action,
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<PAGE> 12
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of or arising from any actual or alleged misrepresentation or
misstatement of facts or omission to represent or state facts made or alleged to
have been made by the Company to the Purchaser or omitted or alleged to have
been omitted by the Company, concerning the Purchaser or the Purchaser's
subscription for and purchase of the Debentures or the Purchaser 's authority to
invest or financial position in connection with the Offering, including, without
limitation, any such misrepresentation, misstatement or omission contained in
this Subscription Agreement, the Questionnaire or any other document submitted
by the Company, against losses, liabilities and expenses for which the
Purchaser, or any stockholder, executive, employee, representative, affiliate,
officer, director or control person of the Purchaser has not otherwise been
reimbursed (including attorneys' fees and disbursements, judgments, fines and
amounts paid in settlement) actually and reasonably incurred by the Purchaser,
or such officer, director, stockholder, executive, employee, representative,
affiliate or control person in connection with such action, suit or proceeding.
(h) No Change. Other than filings required by the Blue Sky or federal
securities law, no consent, approval or authorization of or designation,
declaration or filing with any governmental or other regulatory authority on the
part of the Company is required in connection with the valid execution, delivery
and performance of this Agreement. Any required qualification or notification
under applicable federal securities laws and state Blue Sky laws of the offer,
sale and issuance of the Debentures, has been obtained on or before the date
hereof or will have been obtained within the allowable period thereafter, and a
copy thereof will be forwarded to Counsel for the Purchaser.
(i) True Statements. Neither this Agreement nor any of the "Disclosure
Documents", as hereinafter defined, contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements contained herein or therein not misleading in the light of the
circumstances under which such statements are made. There exists no fact or
circumstances which, to the knowledge of the Company, materially and adversely
affects the business, properties or assets, or conditions, financial or
otherwise, of the Company, which has not been set forth in this Subscription
Agreement or disclosed in such documents.
(j) The Purchaser has been advised that the Company has not retained
any independent professionals to review or comment on this Offering or otherwise
protect the interests of the Purchaser. Although the Company has retained its
own counsel, neither such counsel nor any other firm, including Joseph B.
LaRocco, Esq., has acted on behalf of the Purchaser, and the Purchaser should
not rely on the Company's legal counsel or Joseph B. LaRocco, Esq. with respect
to any matters herein described.
12
<PAGE> 13
(k) Prior Shares Issued Under Regulation S or Regulation D. In the past
six months the Company raised $4,265,500 in Regulation S offerings. The Company
has raised $5,000,000 in Regulation D offerings in the past six months.
(l) Current Authorized Shares. As of November 20, 1997, there were
30,000,000 authorized shares of Common Stock of which approximately 28,443,403
shares of Common Stock were deemed issued and outstanding on a fully diluted
basis.
(m) Disclosure Documents. The Disclosure Documents are all the
documents (other than preliminary materials) that the Company has been required
to file with the SEC from June 30, 1997, to the date hereof. As of their
respective dates, none of the Disclosure Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading, and no material
event has occurred since the Company's filing on Form 10-KSB for the year ended
June 30, 1997, which could make any of the disclosures contained therein
misleading. The financial statements of the Company included in the Disclosure
Documents have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto or, in the case of unaudited financial
statements, only to normal recurring year-end audit adjustments) the
consolidated financial position of the Company and its consolidated subsidiaries
as at the dates thereof and the consolidated results of their operations and
changes in financial position for the periods then ended.
(n) Information Supplied. The information supplied by the Company to
Purchaser in connection with the offering of the Debentures does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements, in the light of the circumstances in which they were
made, not misleading. There exists no fact or circumstances which, to the
knowledge of the Company, materially and adversely affects the business,
properties, assets, or conditions, financial or otherwise, of the Company, which
has not been set forth in this Agreement or disclosed in such documents.
(o) Delivery Instructions. On the Closing Date the Debentures being
purchased hereunder shall be delivered to Joseph B. LaRocco, Esq. as Escrow
Agent, who will simultaneously wire to the Company the funds being held in
escrow, less placement fees, at which time the Escrow Agent shall then have the
Debentures delivered to the Purchaser, per the Purchaser's instructions.
13
<PAGE> 14
(p) Non-contravention. The execution and delivery of this Agreement by
the Company, the issuance of the Debentures, and the consummation by the Company
of the other transactions contemplated by this Agreement, and the Debentures do
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 (i) certificate
of incorporation or by-laws of the Company, (ii) any indenture, mortgage, deed
of trust, or other material agreement or instrument to which the Company is a
party or by which it or any of its properties or assets are bound, (iii) any
material existing applicable law, rule, or regulation or any applicable decree,
judgment, or (iv) order of any court, United States federal or state regulatory
body, administrative agency, or other governmental body having jurisdiction over
the Company or any of its properties or assets, except such conflict, breach or
default which would not have a material adverse effect on the transactions
contemplated herein.
(q) No Default. Except as may be set forth in the Company's report on
form 10-KSB for the fiscal year ending June 30, 1997, the Company is not in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of trust or
other material instrument or agreement to which it is a party or by which it or
its property is bound, and neither the execution of, nor the delivery by the
Company of, nor the performance by the Company of its obligations under, this
Agreement or the Debentures, other than the conversion provision thereof, will
conflict with or result in the breach or violation of any of the terms or
provisions of, or constitute a default or result in the creation or imposition
of any lien or charge on any assets or properties of the Company under, (i) any
material indenture, mortgage, deed of trust or other material agreement
applicable to the Company or instrument to which the Company is a party or by
which it is bound, (ii) any statute applicable to the Company or its property,
(iii) the Certificate of Incorporation or By-Laws of the Company, (iv) any
decree , judgment, order, rule or regulation of any court or governmental agency
or body having jurisdiction over the Company regulation of any court or
governmental agency or body having jurisdiction over the Company or its
properties, or (v) the Company's listing agreement for its Common Stock.
(r) Use of Proceeds. The Company represents that the net proceeds of
this offering will be used for working capital.
(s) The Purchaser has been advised that the Company has entered into a
consulting agreement with Net Financial International, Ltd. pursuant to which it
will pay a fee of 10% of the gross proceeds of this offering.
4. TERMS OF CONVERSION.
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<PAGE> 15
(a) Debentures. Upon receipt by the Company or its designated
attorney of a facsimile or original of Purchaser's signed Notice of Conversion
and the original Debenture to be converted in whole or in part, the Company
shall instruct its transfer agent to issue one or more Certificates representing
that number of shares of Common Stock into which the Debenture is convertible in
accordance with the provisions regarding conversion set forth in Exhibit D
hereto. The Seller's transfer agent or attorney shall act as Registrar and shall
maintain an appropriate ledger containing the necessary information with respect
to each Debenture.
(b) Conversion Procedures. Twenty-five percent (25%) of the
face amount of the Debentures may be converted at the earlier of the effective
date of the Registration Statement or March 21, 1998. Such conversion shall be
effectuated by surrendering to the Company, or its attorney, the Debentures to
be converted together with a facsimile or original of the signed Notice of
Conversion which evidences Purchaser's intention to convert those Debentures
indicated. An additional twenty-five percent (25%) of the face amount of the
Debentures, fifty percent 50% cumulatively, may be converted after the earlier
of 30 days following the effective date of the Registration Statement or April
20, 1998. An additional twenty-five percent (25%), seventy-five percent (75%)
cumulatively, may be converted after the earlier of 60 days following the
effective date of the Registration Statement or May 20, 1998. An additional
twenty-five percent (25%), one hundred percent (100%) cumulatively, may be
converted after the earlier of 90 days following the effective date of the
Registration Statement or June 19, 1998. The date on which the Notice of
Conversion is effective ("Conversion Date") shall be deemed to be the date on
which the Purchaser has delivered to the Company a facsimile or original of the
signed Notice of Conversion, as long as the original Debentures to be converted
are received by the Company or its designated attorney within 5 business days
thereafter. Unless otherwise notified by the Company in writing via facsimile,
the Company's designated attorney is Gary B. Wolff, Esq., 747 Third Avenue, New
York, NY 10017 (P) 212-644-6446 (f) 212-644-6498.
(c) Common Stock to be Issued Without Restrictive Legend. Upon
the conversion of any Debentures and upon receipt by the Company or its
designated attorney of a facsimile or original of Purchaser's signed Notice of
Conversion (see Exhibit D) Seller shall instruct Seller's transfer agent to
issue Stock Certificates without restrictive legend or stop transfer
instructions, if at that time the Registration Statement has been deemed
effective (or with proper restrictive legend if the Registration Statement has
not as yet been declared effective), in the name of Purchaser (or its nominee)
and in such denominations to be specified at conversion representing the number
of shares of Common Stock issuable upon such conversion, as applicable. Seller
warrants that no instructions, other than these instructions, have been given or
will be given to the transfer agent and that the Common Stock shall otherwise be
freely transferable on the books and records of Seller, except as may be set
forth herein.
15
<PAGE> 16
(d) (i) Conversion Rate. Purchaser is entitled, at its option to
convert twenty-five percent (25%) of the face amount of the Debentures, plus
accrued interest, at the earlier of the effective date of the Registration
Statement or March 21, 1998, at 75% of the 5 day average closing bid price, as
reported by Nasdaq, or whatever primary exchange the Company's Common Stock may
be traded on, for the 5 trading days immediately preceding the applicable
Conversion Date (the "Conversion Price"). Purchaser is entitled, at its option
to convert an additional twenty-five percent (25%), fifty percent (50%)
cumulatively, of the face amount of the Debentures, plus accrued interest, at
the earlier of 30 days after the effective date of the Registration Statement or
April 20, 1998, at 75% of the 5 day average closing bid price, as reported by
Nasdaq, or whatever primary exchange the Company's Common Stock may be traded
on, for the 5 trading days immediately preceding the applicable Conversion Date.
Purchaser is entitled, at its option, to convert an additional twenty-five
percent (25%), seventy-five percent (75%) cumulatively, of the face amount of
the Debentures, plus accrued interest at the earlier of 60 days after the
effective date of the Registration Statement or May 20, 1998, at 75% of the 5
day average closing bid price, as reported by Nasdaq, or whatever primary
exchange the Company's Common Stock may be traded on, for the 5 trading days
immediately preceding the applicable Conversion Date. Purchaser is entitled, at
its option, to convert an additional twenty-five percent (25%), one hundred
percent (100%) cumulatively, of the face amount of the Debentures, plus accrued
interest at the earlier of 90 days after the effective date of the Registration
Statement or June 19, 1998, at 75% of the 5 day average closing bid price, as
reported by Nasdaq, or whatever primary exchange the Company's Common Stock may
be traded on, for the 5 trading days immediately preceding the applicable
Conversion Date. No fractional shares or scrip representing fractions of shares
will be issued on conversion, but the number of shares issuable shall be rounded
up or down, as the case may be, to the nearest whole share.
(ii) Redemption Terms. The Company reserves the right, at its sole
option, to call a mandatory redemption of any percentage of the balance on the
Debentures during the two hundred ten (210) day period following the Closing
Date. In the event the Company exercises such right of redemption up to and
including the two hundred tenth (210th) day following the Closing Date it shall
pay the Purchaser, in U.S. currency One Hundred Thirty Percent (130%) of the
face amount of the Debentures redeemed. Mandatory redemption by the Company
shall be effected by the Company notifying the Purchaser by facsimile at the
number listed in this Agreement of the Company's intention to exercise its right
of mandatory redemption. The Company shall state in such notice the dollar
amount of the Debentures it intends to redeem, the amount that it will pay to
effectuate such redemption and the date by which the Purchaser must deliver the
Debentures to Joseph B. LaRocco, Escrow Agent (including the Escrow Agent's
address) unless the Company is already in receipt of those Debentures to be
redeemed. The date by which the Debentures must be delivered to the Escrow Agent
shall not be later
16
<PAGE> 17
than 10 business days following the date the Company notifies the Purchaser by
facsimile of the redemption. The Company shall give the Purchaser at least 2
business day's notice of the above information. On or before the date by which
the Purchaser is to deliver the original Debentures to the Escrow Agent, the
Company shall wire to the Escrow Agent that amount necessary to pay the
Purchaser to effectuate the mandatory redemption. Once the Escrow Agent is in
receipt of the original Debentures and those funds necessary to effectuate the
mandatory conversion he shall wire those funds to the Purchaser and deliver to
the Company the original Debentures via overnight courier. The Purchaser shall
not be entitled to send a Conversion Notice to the Company with respect to the
Debentures being redeemed during such period.
(iii) Most Favored Financing. If after the Closing Date, but
prior to the Purchaser's conversion of all the Debentures, the Company raises
money under either Regulation D or Regulation S on terms that are more favorable
than those terms set forth in this Subscription Agreement, then in such event,
the Purchaser at its sole option shall be entitled to completely replace the
terms of this Subscription Agreement with the terms of the more beneficial
Subscription Agreement as to that balance, including accrued interest and any
accumulated liquidated damages, remaining on Purchaser's original investment.
The Debentures are subject to a mandatory, 24 month conversion feature at the
end of which all Debentures outstanding will be automatically converted, upon
the terms set forth in this section ("Mandatory Conversion Date").
(e) Nothing contained in this Subscription Agreement shall be
deemed to establish or require the payment of interest to the Purchaser at a
rate in excess of the maximum rate permitted by governing law. In the event that
the rate of interest required to be paid exceeds the maximum rate permitted by
governing law, the rate of interest required to be paid thereunder shall be
automatically reduced to the maximum rate permitted under the governing law and
such excess shall be returned with reasonable promptness by the Purchaser to the
Company.
(f) It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the Certificate of Common
Stock as provided herein, including the responsibility and cost for delivery of
an opinion letter to the transfer agent, if so required. The person in whose
name the certificate of Common Stock is to be registered shall be treated as a
shareholder of record on and after the conversion date. Upon surrender of any
Debentures that are to be converted in part, the Company shall issue to the
Purchaser a new Debenture equal to the unconverted amount, if so requested in
writing by Purchaser.
(g) Within five (5) business days after receipt of the
documentation referred to above in Section 4(b), the Company shall deliver a
certificate, without
17
<PAGE> 18
stop transfer instructions, for the number of shares of Common Stock issuable
upon the conversion. It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the Common Stock as
provided herein, including the cost for delivery of an opinion letter to the
transfer agent, if so required. The person in whose name the certificate of
Common Stock is to be registered shall be treated as a shareholder of record on
and after the conversion date. Upon surrender of any Debentures that are to be
converted in part, the Company shall issue to the Purchaser a new Debenture
equal to the unconverted amount, if so requested in writing by Purchaser.
In the event the Company does not make delivery of the Common Stock, as
instructed by Purchaser, within 8 business days after delivery of the original
Debenture, then in such event the Company shall pay to Purchaser an amount, in
cash in accordance with the following schedule, wherein "No. Business Days Late"
is defined as the number of business days beyond the 8 business days delivery
period.
<TABLE>
<CAPTION>
Late Payment for Each
$10,000 of Debenture
No. Business Days Late Amount Being Converted
- ---------------------- ----------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each
Business Day Beyond 10
</TABLE>
The Company acknowledges that its failure to deliver the Common Stock
within 8 business days after the Conversion Date will cause the Purchaser to
suffer damages in an amount that will be difficult to ascertain. Accordingly,
the parties agree that it is appropriate to include in this Agreement a
provision for liquidated damages. The parties acknowledge and agree that the
liquidated damages provision set forth in this section represents the parties'
good faith effort to qualify such damages and, as such, agree that the form and
amount of such liquidated damages are reasonable and will not constitute a
penalty. The payment of liquidated damages shall not relieve the Company from
its obligations to deliver the Common Stock pursuant to the terms of this
Agreement.
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 4(g) is due to the unavailability of authorized but
unissued
18
<PAGE> 19
shares of Common Stock, the provisions of this Section 4(g) shall not apply but
instead the provisions of Section 4(h) shall apply.
The Company shall make any payments incurred under this Section 4(g) in
immediately available funds within five (5) business days from the Conversion
Date if late. Nothing herein shall limit a Purchaser's right to pursue actual
damages or cancel the conversion for the Company's failure to issue and deliver
Common Stock to the Holder within 8 business days after the Conversion Date.
(h) The Company shall at all times reserve and have available all
Common Stock necessary to meet conversion of the Debentures by all Purchasers of
the entire amount of Debentures then outstanding. If, at any time Purchaser
submits a Notice of Conversion and the Company does not have sufficient
authorized but unissued shares of Common Stock available to effect, in full, a
conversion of the Debentures (a "Conversion Default", the date of such default
being referred to herein as the "Conversion Default Date"), the Company shall
issue to the Purchaser all of the shares of Common Stock which are available,
and the Notice of Conversion as to any Debentures requested to be converted but
not converted (the "Unconverted Debentures"), upon Purchaser's sole option, may
be deemed null and void. The Company shall provide notice of such Conversion
Default ("Notice of Conversion Default") to all existing Purchasers of
outstanding Debentures, by facsimile, within three (3) business day of such
default (with the original delivered by overnight or two day courier), and the
Purchaser shall give notice to the Company by facsimile within five business
days of receipt of the original Notice of Conversion Default (with the original
delivered by overnight or two day courier) of its election to either nullify or
confirm the Notice of Conversion. The Company agrees to pay to all Purchasers of
outstanding Debentures payments for a Conversion Default ("Conversion Default
Payments") in the amount of (N/365) x (.24) x the initial issuance price of the
outstanding and/or tendered but not converted Debentures held by each Purchaser
where N = the number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Company authorizes a sufficient number of shares
of Common Stock to effect conversion of all remaining Debentures. The Company
shall send notice ("Authorization Notice") to each Purchaser of outstanding
Debentures that additional shares of Common Stock have been authorized, the
Authorization Date and the amount of Purchaser's accrued Conversion Default
Payments. The accrued Conversion Default shall be paid in cash or shall be
convertible into Common Stock at the Conversion Rate, at the Purchaser's option,
payable as follows: (i) in the event Purchaser elects to take such payment in
cash, cash payments shall be made to such Purchaser of outstanding Debentures by
the fifth day of the following calendar month, or (ii) in the event Purchaser
elects to take such payment in stock, the Purchaser may convert such payment
amount into Common Stock at the conversion rate set forth in section 4(d) at
anytime after the 5th day of the calendar month following the month in which the
Authorization Notice was received, until the expiration of the mandatory 24
month conversion period.
19
<PAGE> 20
The company acknowledges that its failure to maintain a sufficient number
of authorized but unissued shares of Common Stock to effect in full a
conversion of the Debentures will cause the Purchaser to suffer damages in an
amount that will be difficult to ascertain. Accordingly, the parties agree
that it is appropriate to include in this Agreement a provision for liquidated
damages. The parties acknowledge and agree that the liquidated damages
provision set forth in this section represents the parties' good faith effort
to quantify such damages and, as such, agree that the form and amount of such
liquidated damages are reasonable and will not constitute a penalty. The
payment of liquidated damages shall not relieve the Company from its
obligations to deliver the Common Stock pursuant to the terms of this
Agreement.
Nothing herein shall limit the Purchaser's right to pursue actual damages
for the Company's failure to maintain a sufficient number of authorized shares
of Common Stock.
(i) The Company shall furnish to Purchaser such number of prospectuses and
other documents incidental to the registration of the shares of Common Stock
underlying the Debentures, including any amendment of or supplements thereto.
5. LIMITS ON AMOUNT OF CONVERSION AND OWNERSHIP.
Other than the Mandatory Conversion provisions contained in this Agreement
which are not limited by the following, in no other event shall the Purchaser
be entitled to convert that amount of Debentures in excess of that amount upon
conversion of which the sum of (1) the number of shares of Common Stock
beneficially owned by the Purchaser and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of
the unconverted portion of the Debentures), and (2) the number of shares of
Common Stock issuable upon the conversion of the Debentures with respect to
which the determination of this proviso is being made, would result in
beneficial ownership by the Purchaser and its affiliates of more than 4.9% of
the outstanding shares of Common Stock of the Company. For purposes of this
provision to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13 (d) of the Securities Exchange Act of
1934, as amended, and Regulation 13 D-G thereunder, except as otherwise
provided in clause (1) of such provision.
6. DELIVERY INSTRUCTIONS.
Prior to or on the Closing Date the Company shall deliver to the Escrow
Agent an opinion letter signed by counsel for the Company in the form attached
hereto as Exhibit E. Also, prior to or on the Closing Date the Company shall
deliver to the Escrow Agent a signed Registration Rights Agreement in the form
attached
<PAGE> 21
hereto as Exhibit B. The Debentures being purchased hereunder shall be
delivered to Joseph B. LaRocco, Esq. as Escrow Agent, who will hold them in
escrow until funds have been wired to the Company or its Counsel at which time
the Escrow Agent shall then have the Debentures delivered to the Purchaser, per
the Purchaser's instructions.
7. UNDERSTANDINGS.
The undersigned understands, acknowledges and agrees with the Company as
follows:
FOR ALL SUBSCRIBERS:
(a) This Subscription may be rejected, in whole or in part, by the Company
in its sole and absolute discretion at any time before the date set for closing
unless the Company has given notice of acceptance of the undersigned's
subscription by signing this Subscription Agreement.
(b) No U.S. federal or state agency or any agency of any other
jurisdiction has made any finding or determination as to the fairness of the
terms of the Offering for investment nor any recommendation or endorsement of
the Debentures.
(c) The representations, warranties and agreements of the undersigned and
the Company contained herein and in any other writing delivered in connection
with the transactions contemplated hereby shall be true and correct in all
material respects on and as of the date of the sale of the Debentures, and as
of the date of the conversion and exercise thereof, as if made on and as of
such date and shall survive the execution and delivery of this Subscription
Agreement and the purchase of the Debentures.
(d) IN MAKING AN INVESTMENT DECISION, PURCHASERS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THE DEBENTURES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL
OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE
ADEQUACY OF ANY MEMORANDUM OR THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
(e) The Regulation D Offering is intended to be exempt from registration
under the Securities Act by virtue of Section 4(2) of the Securities Act and
the provisions of Regulation D thereunder, which is in part dependent upon the
truth,
<PAGE> 22
completeness and accuracy of the statements made by the undersigned herein and
in the Questionnaire.
(f) It is understood that in order not to jeopardize the Offering's exempt
status under Section 4(2) of the Securities Act and Regulation D, any
transferee may, at a minimum, be required to fulfill the investor suitability
requirements thereunder.
(g) THE DEBENTURES MAY NOT BE TRANSFERRED, RESOLD OR OTHERWISE DISPOSED OF
EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. PURCHASERS SHOULD BE
AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME.
(h) NASAA UNIFORM LEGEND
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF
THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE
NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR
REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT
CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE
SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE
TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933 AND
THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION
THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE
FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
9. LITIGATION.
(a) Forum Selection and Consent to Jurisdiction. Any litigation based
thereon, or arising out of, under, or in connection with, this agreement or any
course of conduct, course of dealing, statements (whether oral or written) or
actions of the Company or Holder shall be brought and maintained exclusively in
the courts of the State of Delaware. The Company hereby expressly and
irrevocably submits to the jurisdiction of the state and federal courts of the
State of Delaware for the purpose of any such litigation as set forth above and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Company
<PAGE> 23
further irrevocably consents to the service of process by registered mail,
postage prepaid, or by personal service within or without the State of
Delaware. The Company hereby expressly and irrevocably waives, to the fullest
extent permitted by law, any objection which it may have or hereafter may have
to the laying of venue of any such litigation brought in any such court
referred to above and any claim that any such litigation has been brought in
any inconvenient forum. To the extent that the Company has or hereafter may
acquire any immunity from jurisdiction of any court or from any legal process
(whether through service or notice, attachment prior to judgment, attachment in
aid of execution or otherwise) with respect to itself or its property. The
Company hereby irrevocably waives such immunity in respect of its obligations
under this agreement and the other loan documents.
(b) Waiver of Jury Trial. The Holder and the Company hereby knowingly,
voluntarily and intentionally waive any rights they may have to a trial by jury
in respect of any litigation based hereon, or arising out of, under, or in
connection with, this agreement, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Holder or the Company.
The Company acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Holder entering into this agreement.
(c) Submission To Jurisdiction . Any legal action or proceeding in
connection with this Agreement or the performance hereof may be brought in the
state and federal courts located in the State of Delaware and the parties
hereby irrevocably submit to the non-exclusive jurisdiction of such courts for
the purpose of any such action or proceeding.
10. MISCELLANEOUS.
(a) All pronouns and any variations thereof used herein shall be deemed to
refer to the masculine, feminine, impersonal, singular or plural, as the
identity of the person or persons may require.
(b) Neither this Subscription Agreement nor any provision hereof shall be
waived, modified, changed, discharged, terminated, revoked or canceled, except
by an instrument in writing signed by the party effecting the same against whom
any change, discharge or termination is sought.
(c) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
or sent by registered mail, return receipt requested, addressed: (i) if to the
Company, at Swissray International, Inc. C/O Gary B. Wolff, Esq., 747 Third
Avenue, 25th Floor, New York, NY 10017(ii) if to the undersigned, at the
address for correspondence set
<PAGE> 24
forth in the Questionnaire, or at such other address as may have been specified
by written notice given in accordance with this paragraph 9(c).
(d) This Subscription Agreement shall be enforced, governed and construed
in all respects in accordance with the laws of the State of Delaware, as such
laws are applied by Delaware courts to agreements entered into, and to be
performed in, Delaware by and between residents of Delaware, and shall be
binding upon the undersigned, the undersigned's heirs, estate, legal
representatives, successors and assigns and shall inure to the benefit of the
Company, its successors and assigns. If any provision of this Subscription
Agreement is invalid or unenforceable under any applicable statue or rule of
law, then such provisions shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof that may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other
provision hereof.
(e) This Subscription Agreement, together with Exhibits A, B, C, D and E
attached hereto and made a part hereof, constitute the entire agreement between
the parties hereto with respect to the subject matter hereof and may be amended
only by a writing executed by both parties hereto. An executed facsimile copy
of the Subscription Agreement shall be effective as an original.
11. SIGNATURE.
The signature of this Subscription Agreement is contained as part of the
applicable Subscription Package, entitled "Signature Page."
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
SWISSRAY INTERNATIONAL, INC.
CORPORATION QUESTIONNAIRE
INVESTOR NAME: _______________
The information contained in this Questionnaire is being furnished in
order to determine whether the undersigned CORPORATION'S Subscription to
purchase the Debentures described in the Subscription Agreement may be
accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned CORPORATION understands, however, that the
Company may present this Questionnaire to such parties as it deems appropriate
if called upon to establish that the proposed offer and sale of the Debentures
is exempt from registration under the Securities Act of 1933, as amended.
Further, the undersigned CORPORATION understands that the offering
<PAGE> 25
is required to be reported to the Securities and Exchange Commission and to
various state securities and "blue sky" regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE, THE UNDERSIGNED CORPORATION
MUST COMPLETE FORM W-9 ATTACHED HERETO.
I. PLEASE CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES TO THE CORPORATION.
1. The undersigned CORPORATION: (a) has total assets in excess of
$5,000,000; (b) was not formed for the specific purpose of
acquiring the Debentures and (c) has its principal place of
business in ___________.
2. Each of the shareholders of the undersigned CORPORATION is able
to certify that such shareholder meets at least one of the
following three conditions:
the shareholder is a natural person whose individual net
worth* or joint net worth with his or her spouse
exceeds $1,000,000; or
the shareholder is a natural person who had an individual
income* in excess of $200,000 in each of 1995 and 1996
and who reasonably expects an individual income in
excess of $200,000 in 1997; or
Each of the shareholders of the undersigned CORPORATION is
able to certify that such shareholder is a natural
person who, together with his or her spouse, has had a
joint income in excess of $300,000 in each of 1995 and
1996 and who reasonably expects a joint income in
excess of $300,000 during 1997; and the undersigned
CORPORATION has its principal place of business in
___________________.
* For purposes of this Questionnaire, the term "net worth" means the excess of
total assets over total liabilities. In determining income, an investor should
add to his or her adjusted gross income any amounts attributable to tax-exempt
income received, losses claimed as a limited partner in any limited
partnership, deductions claimed for depletion, contributions to IRA or Keogh
retirement plan, alimony payments and any amount by which income from long-term
capital gains has been
<PAGE> 26
reduced in arriving at adjusted gross income.
3. The undersigned CORPORATION is:
(a) a bank as defined in Section 3(a)(2) of the Securities
Act; or
(b) a savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Securities Act whether
acting in its individual or fiduciary capacity; or
(c) a broker or dealer registered pursuant to Section 15 of
the Securities Exchange Act of 1934; or
(d) an insurance company as defined in Section 2(13) of the
Securities Act; or
(e) An investment company registered under the Investment
Company Act of 1940 or a business development company as
defined in Section 2(a)(48) of the Investment Company Act
of 1940; or
(f) a small business investment company licensed by the
U.S. Small Business Administration under Section 301 (c) or
(d) of the Small Business Investment Act of 1958; or
(g) a private business development company as defined in
Section 202(a) (22) of the Investment Advisors Act of 1940.
II. OTHER CERTIFICATIONS.
By signing the Signature Page, the undersigned certifies the following:
(A) That the CORPORATION'S purchase of the Debentures will be solely for
the CORPORATION'S own account and not for the account of any other person
or entity; and
(B) that the CORPORATION'S name, address of principal place of business,
place of incorporation and taxpayer identification number as set forth in
this Questionnaire are true, correct and complete.
III. GENERAL INFORMATION
(A) PROSPECTIVE PURCHASER (THE CORPORATION)
<PAGE> 27
Name:
Principal Place of Business: ________________________________________
______________________________________________________________________
Address for Correspondence (if different): SAME
----------------------------
___________________________________________________ (Number and Street)
______________________________________________________________________
(City) (State) (Zip Code)
Telephone Number:_____________________________________________________
(Area Code) (Number)
Jurisdiction of Incorporation:________________________________________
Date of Formation:____________________________________________________
Taypayer Identification Number:_______________________________________
Number of Shareholders:_______________________________________________
(b) INDIVIDUAL WHO IS EXECUTING THIS QUESTIONNAIRE ON BEHALF OF THE
CORPORATION.
Name:_________________________________________________________________
Position or Title:____________________________________________________
<PAGE> 28
SWISSRAY INTERNATIONAL, INC.
CORPORATION SIGNATURE PAGE
Your signature on this Corporation Signature Page evidences the agreement
by the Purchaser to be bound by the QUESTIONNAIRE and the SUBSCRIPTION
AGREEMENT.
1. The undersigned hereby represents that (a) the information contained in
the Questionnaire is complete and accurate and (b) the Purchaser will notify
SWISSRAY INTERNATIONAL, INC. immediately if any material change in any of the
information occurs prior to the acceptance of the undersigned Purchaser's
subscription and will promptly send SWISSRAY INTERNATIONAL, INC. written
confirmation of such change.
2. The undersigned officer of the Purchaser hereby certifies that he has
read and understands this Subscription Agreement.
3. The undersigned officer of the Purchaser hereby represents and warrants
that he has been duly authorized by all requisite action on the part of the
Corporation to acquire the Debentures and sign this Subscription Agreement on
behalf of _______________ and, further, that ____________________ has all
requisite authority to purchase the Debentures and enter into this Subscription
Agreement.
__________________________ __________________________
Amount of Debentures subscribed for Date
___________________________
(Purchaser)
By: _______________________
(Signature)
Name: ____________________
(Please Type or Print)
Title: _____________________
(Please Type or Print)
THE DEBENTURES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS SUCH SECURITIES ARE INCLUDED IN AN EFFECTIVE REGISTRATION STATEMENT
<PAGE> 29
UNDER THE ACT.
COMPANY ACCEPTANCE PAGE
This Subscription Agreement accepted
and agreed to this ____ day of November, 1997
SWISSRAY INTERNATIONAL, INC.
BY______________________________________
Ruedi G. Laupper, its Chairman and President
duly authorized
<PAGE> 30
EXHIBIT D
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED OWNER IN ORDER TO CONVERT
THE DEBENTURES
THE UNDERSIGNED HEREBY IRREVOCABLY ELECTS, AS OF ______________, 199_ TO
CONVERT $__________ OF CONVERTIBLE DEBENTURES INTO COMMON STOCK OF SWISSRAY
INTERNATIONAL, INC.(THE "COMPANY") ACCORDING TO THE CONDITIONS SET FORTH IN THE
SUBSCRIPTION AGREEMENT DATED NOVEMBER ____, 1997.
DATE OF CONVERSION_________________________________________
APPLICABLE CONVERSION PRICE_________________________________
NUMBER OF SHARES ISSUABLE UPON THIS CONVERSION______________
SIGNATURE___________________________________________________
[NAME]
ADDRESS_____________________________________________________
____________________________________________________________
PHONE______________________ FAX___________________________
<PAGE> 31
Exhibit E
_______________, 1997
Purchasers of [Company] [Describe Securities]
Re:[Company]
Ladies and Gentlemen:
We have acted as counsel to [Company], a corporation incorporated under
the laws of the State of _________ (the "Company"), in connection with the
proposed issuance and sale of convertible debentures (the "Securities")
pursuant to the Distribution Agreement and the related Subscription Agreement
(including all Exhibits and Appendices thereto) (collectively the
"Agreements").
In connection with rendering the opinions set forth herein, we have
examined drafts of the Agreement, the Company's Certificate of Incorporation,
and its Bylaws, as amended to date [other documents - describe], the
proceedings of the Company's Board of Directors taken in connection with
entering into the Agreements, and such other documents, agreements and records
as we deemed necessary to render the opinions set forth below.
In conducting our examination, we have assumed the following: (i) that
each of the Agreements has been executed by each of the parties thereto in the
same form as the forms which we have examined, (ii) the genuineness of all
signatures, the legal capacity of natural persons, the authenticity and
accuracy of all documents submitted to us as originals, and the conformity to
originals of all documents submitted to us as copies, (iii) that each of the
Agreements has been duly and validly authorized, executed and delivered by the
party or parties thereto other than the Company, and (iv) that each of the
Agreements constitutes the valid and binding agreement of the party or parties
thereto other than the Company, enforceable against such party or parties in
accordance with the Agreements' terms.
Based upon the subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as
<PAGE> 32
a corporation in good standing under the laws of the State of __________, is
duly qualified to do business as a foreign corporation and is in good standing
in all jurisdictions where the Company owns or leases properties, maintains
employees or conducts business, except for jurisdictions in which the failure
to so qualify would not have a material adverse effect on the Company, and has
all requisite corporate power and authority to own its properties and conduct
its business.
2. The authorized capital stock of the Company consists of _______ shares
of Common Stock, ________ par value per share, ("Common Stock") and
______________ Preferred Stock, par value $________ per share; [describe
classes if applicable]
3. The Common Stock is registered pursuant to Section 12(b) or Section
12(g) of the Securities Exchange Act of 1934, as amended and the Company has
timely filed all the material required to be filed pursuant to Sections 13(a)
or 15(d) of such Act for a period of at least twelve months preceding the date
hereof;
4. When duly countersigned by the Company's transfer agent and registrar,
and delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of the Agreements, the
Securities [and any Common Stock to be issued upon the conversion of the
Securities] as described in the Agreements represented thereby will be duly
authorized and validly issued, fully paid and nonassessable;
5. The Company has the requisite corporate power and authority to enter
into the Agreements and to sell and deliver the Securities and the Common Stock
to be issued upon the conversion of the Securities as described in the
Agreements; each of the Agreements has been duly and validly authorized by all
necessary corporate action by the Company to our knowledge, no approval of any
governmental or other body is required for the execution and delivery of each
of the Agreements by the Company or the consummation of the transactions
contemplated thereby; each of the Agreements has been duly and validly executed
and delivered by and on behalf of the Company, and is a valid and binding
agreement of the Company, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other laws
affecting creditors rights generally, and except as to compliance with federal,
state, and foreign securities laws, as to which no opinion is expressed;
6. To the best of our knowledge, after due inquiry, the execution,
delivery and performance of the Agreements by the Company and the performance
of its obligations thereunder do not and will not constitute a breach or
violation of any of the terms and provisions of, or constitute a default under
or conflict with or violate any provision of (i) the Company's Certificate of
Incorporation or By-Laws, (ii) any
<PAGE> 33
indenture, mortgage, deed of trust, agreement or other instrument to which the
Company is party or by which it or any of its property is bound, (iii) any
applicable statute or regulation or as other, (iv) or any judgment, decree or
order of any court or governmental body having jurisdiction over the Company or
any of its property.
7. The issuance of Common Stock upon conversion of the debentures in
accordance with the terms and conditions of the Agreements, will not violate
the applicable listing agreement between the Company and any securities
exchange or market on which the Company's securities are listed.
8. To the best of our knowledge, after due inquiry, there is no pending or
threatened litigation, investigation or other proceedings against the Company
[except as described in Exhibit A hereto].
9. The Company complies with the eligibility requirements for the use of
Form S-3, under the Securities Act of 1933, as amended.
Note: Use this where Registration Rights were included in the offering and the
Company is S-3 eligible.
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred. This opinion is based solely upon the laws of the United States and
the State of _____________ and does not include an interpretation or statement
concerning the laws of any other state or jurisdiction. Insofar as the
enforceability of the Agreements may be governed by the laws of other states,
we have assumed that such laws are identical in all respects to the laws of the
State of ___________.
The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Agreements and may not be
relied upon by any other person or entity or for any other purpose without our
prior consent.
Very truly yours,
By: _____________________
<PAGE> 1
Exhibit 10.18
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of December ___, 1997,
("this Agreement"), is made by and between SWISSRAY INTERNATIONAL, INC. a New
York corporation (the "Company"), and the person named on the signature page
hereto (the "Initial Investor").
WITNESSETH:
WHEREAS, upon the terms and subject to the conditions of the
Subscription Agreement, dated as of December ___, 1997, between the Initial
Investor and the Company (the "Subscription Agreement"), the Company has agreed
to issue and sell to the Initial Investor 8% Convertible Debentures of the
Company (the "Debentures"), which will be convertible into shares of the common
stock, $.01 par value (the "Common Stock"), of the Company (the "Conversion
Shares") upon the terms and subject to the conditions of such Debentures; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Subscription Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"Securities Act"), and applicable state securities laws with respect to the
Conversion Shares;
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 the
Initial Investor hereby agrees as follows:
I. Definitions.
(a) As used in this Agreement, the following terms shall have the
following meaning:
(i) "Closing Date" means the date funds are received by the Company
or its designated attorney pursuant to the Subscription Agreement.
(ii) "Investor" means the Initial Investor and any transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(iii) "Register." "Registered." and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act or any successor rule providing for offering securities on a
continuous basis ("Rule 415"), and the declaration or ordering of effectiveness
of such Registration
<PAGE> 2
Statement by the United States Securities and Exchange Commission (the "SEC").
(iv) "Registrable Securities" means the Conversion Shares.
(v) "Registration Statement" means a registration statement of the
Company under the Securities Act.
(b) As used in this Agreement, the term Investor includes (i) each
Investor (as defined above) and (ii) each person who is a permitted transferee
or assignee of the Registrable Securities pursuant to Section 9 of this
Agreement.
(c) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Subscription Agreement.
2. REGISTRATION.
(a) MANDATORY REGISTRATION. The Company shall prepare and file with the
SEC, no later than thirty (30) calendar days after the Closing Date, an
amendment to the Form S-1 Registration Statement, or a new Registration
Statement if required, covering a sufficient number of shares of Common Stock
for the Initial Investors into which is not more than $3,800,000 of Debentures
in the total offering would be convertible. In the event the amendment is not
filed within thirty (30) calendar days after the Closing Date, then in such
event the Company shall pay the Investor 2% of the face amount of each Debenture
for each 30 day period, or portion thereof, after 30 days following the Closing
Date that the Registration Statement is not filed. The Investor is also granted
additional Piggyback registration rights on any other Registration Statement
filings made by the Company. Such Registration Statement shall state that, in
accordance with the Securities Act, it also covers such indeterminate number of
additional shares of Common Stock as may become issuable to prevent dilution
resulting from Stock splits, or stock dividends). If at any time the number of
shares of Common Stock into which the Debenture may be converted exceeds the
aggregate number of shares of Common Stock then registered, the Company shall,
within ten (10) business days after receipt of written notice from any Investor,
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 SEC at that time, to register all shares of Common Stock into
which the Debenture may be converted, or (ii) if such Registration Statement has
been declared effective by the SEC at that time, file with the SEC an additional
Registration Statement on Form S-1 to register the shares of Common Stock into
which the Debenture may be converted that exceed the aggregate number of shares
of Common Stock already registered. The above damages shall continue until the
obligation is fulfilled and shall be paid within 5 business days after each 30
day period, or portion thereof, until the Registration Statement is filed.
Failure of the Company to make payment within said 5 business days shall be
considered a default.
The Company acknowledges that its failure to file with the SEC, said
2
<PAGE> 3
Registration Statement no later than thirty (30) days after the Closing Date
will cause the Initial Investor to suffer damages in an amount that will be
difficult to ascertain. Accordingly, the parties agree that it is appropriate to
include in this Agreement a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set forth in this
section represents the parties' good faith effort to qualify such damages and,
as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to register the Common Stock
and deliver the Common Stock pursuant to the terms of this Agreement, the
Subscription Agreement and the Debenture.
(b) UNDERWRITTEN OFFERING. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors acting by majority in interest of the Registrable Securities subject
to such underwritten offering shall have the right to select one legal counsel
to represent their interests, and an investment banker or bankers and manager or
managers to administer the offering, which investment banker or bankers or
manager or managers shall be reasonably satisfactory to the Company. The
Investors who hold the Registrable Securities to be included in such
underwriting shall pay all underwriting discounts and commissions and other fees
and expenses of such investment banker or bankers and manager or managers so
selected in accordance with this Section 2(b) (other than fees and expenses
relating to registration of Registrable Securities under federal or state
securities laws, which are payable by the Company pursuant to Section 5 hereof)
with respect to their Registrable Securities and the fees and expenses of such
legal counsel so selected by the Investors.
(c) PAYMENT BY THE COMPANY. If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a) hereof is not declared effective by February 20, 1998, (the "Initial
Date"), then the Company will make payments to the Initial Investor in such
amounts and at such times as shall be determined pursuant to this Section 2(c).
The amount to be paid by the Company to the Initial Investor shall be determined
as of each Computation Date, as defined below in this Section 2(c), and such
amount shall be equal to two (2%) percent of the purchase price paid by the
Initial Investor for the Debenture pursuant to the Subscription Agreement for
the period from the Initial Date to the first Computation Date, and two (2%)
percent of the purchase price for each Computation Date thereafter, to the date
the Registration Statement is declared effective by the SEC (the "Periodic
Amount"). The full Periodic Amount shall be paid by the Company in immediately
available funds within five business days after each Computation Date.
Notwithstanding the foregoing, the amounts payable by the Company pursuant to
this provision shall not be payable to the extent any delay in the effectiveness
of the Registration Statement occurs because of an act of, or a failure to act
or to act timely by the Initial Investor or its counsel. The above damages shall
continue until the obligation is fulfilled and shall be paid within 5
3
<PAGE> 4
business days after each 30 day period, or portion thereof, until the
Registration Statement is filed. Failure of the Company to make payment within
said 5 business days shall be considered a default.
The Company acknowledges that its failure to file with the SEC, said
Registration Statement no later than thirty (30) days after the Closing Date
will cause the Initial Investor to suffer damages in an amount that will be
difficult to ascertain. Accordingly, the parties agree that it is appropriate to
include in this Agreement a provision for liquidated damages. The parties
acknowledge and agree that the liquidated damages provision set forth in this
section represents the parties' good faith effort to qualify such damages and,
as such, agree that the form and amount of such liquidated damages are
reasonable and will not constitute a penalty. The payment of liquidated damages
shall not relieve the Company from its obligations to register the Common Stock
and deliver the Common Stock pursuant to the terms of this Agreement, the
Subscription Agreement and the Debenture.
As used in this Section 2(c), the following terms shall have the
following meanings:
"Computation Date" means the date which is the earlier of (a) 35 days
after the Company is notified by the SEC that the Registration Statement may be
declared effective or (b) one hundred twenty (120) days after the Closing Date
and, if the Registration Statement required to be filed by the Company pursuant
to Section 2(a) has not therefore been declared effective by the SEC, each date
which is thirty (30) days after the previous Computation Date until such
Registration Statement is so declared effective.
3. OBLIGATION OF THE COMPANY. In connection with the registration of
the Registrable Securities, the Company shall do each of the following:
(a) Prepare promptly, and file with the SEC within thirty (30) days of
the Closing Date, an amendment to the Form S-1 Registration Statement, or a new
Registration Statement if required, with respect to not less than the number of
Registrable Securities provided in Section 2(a), above, and thereafter use its
best efforts to cause each Registration Statement relating to Registrable
Securities to become effective the earlier of (i) five business days after
notice from the Securities and Exchange Commission that the Registration
Statement may be declared effective, or (b) ninety (90) days after the Closing
Date, and keep the Registration Statement effective at all times until the
earliest (the "Registration Period") of (i) the date that is two years after the
Closing Date (ii) the date when the Investors may sell all Registrable
Securities under Rule 144 or (iii) the date the Investors no longer own any of
the Registrable Securities, which Registration Statement (including any
amendments or supplements thereto and prospectuses contained therein) shall not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
4
<PAGE> 5
(b) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statement
until such time as all of 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;
(c) Furnish to each Investor whose Registrable Securities are included
in the Registration Statement and its legal counsel identified to the Company,
(i) promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one (1) copy of the Registration Statement,
each preliminary prospectus and prospectus, and each amendment or supplement
thereto, and (ii) such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto and such other documents,
as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor;
(d) Use reasonable efforts to (i) register and qualify the Registrable
Securities covered by the Registration Statement under such other securities or
blue sky laws of such jurisdictions as the Investors who hold a majority in
interest of the Registrable Securities being offered reasonably request and in
which significant volumes of shares of Common Stock are traded, (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 qualification in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions:
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction,
(C) file a general consent to service of process in any such jurisdiction, (D)
provide any undertakings that cause more than nominal expense or burden to the
Company or (E) make any change in its articles of incorporation or by-laws or
any then existing contracts, which in each case the Board of Directors of the
Company determines to be contrary to the best interests of the Company and its
stockholders;
(e) As promptly as practicable after becoming aware of such event,
notify each Investor of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the Registration
Statement, as then
5
<PAGE> 6
in effect, includes any untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and uses its best efforts promptly to prepare a supplement or
amendment to the Registration Statement or other appropriate filing with the SEC
to correct such untrue statement or omission, and deliver a number of copies of
such supplement or amendment to each Investor as such Investor may reasonably
request;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the SEC of any notice of effectiveness or any stop order or other suspension of
the effectiveness of the Registration Statement at the earliest possible time;
(g) Use its commercially reasonable efforts, if eligible, either to (i)
cause all the Registrable Securities covered by the Registration Statement to be
listed on a national securities exchange and on each additional national
securities exchange on which securities of the same class or series issued by
the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation of all the Registrable Securities covered by the Registration
Statement as a National Association of Securities Dealers Automated Quotations
System ("NASDAQ") "Small Capitalization" within the meaning of Rule 11Aa2-1 of
the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the quotation of the Registrable Securities on the NASDAQ Small Cap
Market; or if, despite the Company's commercially reasonable efforts to satisfy
the preceding clause (i) or (ii), the Company is unsuccessful in doing so, to
secure NASD authorization and quotation for such Registrable Securities on the
over-the-counter bulletin board and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such registrable securities;
(h) Provide a transfer agent for the Registrable Securities not later
than the effective date of the Registration Statement;
(i) Cooperate with the Investors 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 enable such certificates for the Registrable Securities to be in such
denominations or amounts as the case may be, as the Investors may reasonably
request and registration in such names as the Investors may request; and, within
five (5) business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, 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 Investors whose Registrable
Securities
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<PAGE> 7
are included in such Registration /statement) an appropriate instruction and
opinion of such counsel; and
(j) Take all other reasonable actions necessary to expedite and
facilitate distribution to the Investor of the Registrable Securities pursuant
to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the registration
of the Registrable Securities, the Investors shall have the following
obligations;
(a) It shall be a condition precedent to the obligations of the Company
to complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall timely
furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of the Registrable
Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities and shall timely 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 each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's 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 an Investor (a "Non-Responsive Investor"), then the Company may
file the Registration Statement without including Registrable Securities of such
Non- Responsive Investor;
(b) Each Investor by such Investor's acceptance of the Registrable
Securities agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(e) or
3(f), above, such Investor will immediately discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if
so directed by the Company, such investor shall deliver to the Company (at the
expense of the Company) or destroy (and deliver to the Company a certificate of
destruction) all copies in such Investor's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice.
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<PAGE> 8
5. EXPENSES OF REGISTRATION. All reasonable expenses, other than
underwriting discounts and commissions incurred in connection with
registrations, filing or qualifications pursuant to Section 3, but including,
without limitations, all registration, listing, and qualifications fees,
printers and accounting fees, the fees and disbursements of counsel for the
Company, shall be borne by the Company.
6. INDEMNIFICATION. In the event any 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 Investor who holds such Registrable Securities, the directors, if
any, of such Investor, the officers, if any, of such Investor, each person, if
any, who controls any Investor 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 any of the following statements, omissions or violations of the
Registration Statement or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or any prospectus included therein: (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 to make the statements therein 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 SEC) or
the omission or alleged omission to state therein any material fact necessary to
make the statements made therein, in light of the circumstances under which the
statements therein were made, not misleading or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation under the Securities Act, the Exchange
Act or any state securities law (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). The Company shall reimburse
the Investors, promptly as such expenses are incurred and are due and payable,
for any reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a) shall not (i) apply to a 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
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<PAGE> 9
or supplement thereto, if such prospectus was timely made available by the
Company pursuant to Section 3(b) hereof; (ii) with respect to any preliminary
prospectus, inure to the benefit of any such person from whom the person
asserting any such Claim purchased the Registrable Securities that are the
subject thereof (or to the benefit of any person controlling such person) if the
untrue statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or supplemented, if
such prospectus was timely made available by the Company pursuant to Section
3(b) hereof; (iii) be available to the extent such Claim is based on a failure
of the Investor to deliver or cause to be delivered the prospectus made
available by the Company; 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. Each Investor will
indemnify the Company, its officers, directors and agents (including Counsel)
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 Investor, expressly for use in connection with
the preparation of the Registration Statement, subject to such limitations and
conditions as are applicable to the Indemnification provided by the Company to
this Section 6. Such indemnity shall remain in full force and effect regardless
of any investigation made by or on behalf of the Indemnified Person and shall
survive the transfer of the Registrable Securities by the Investors pursuant to
Section 9.
(b) Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party 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 the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the reasonable 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 or Indemnified Party and the indemnifying party would
be inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party 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 Investors; such legal counsel shall be selected
by the Investors 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 the indemnifying party within a reasonable time of
the commencement of
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<PAGE> 10
any such action shall not relieve such indemnifying party of any liability to
the Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is 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.
7. CONTRIBUTION. To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party agrees to make the
maximum contribution with respect to any amounts for which it would otherwise be
liable under Section 6 to the fullest extent permitted by law; provided,
however, that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault standards
set forth in Section 6; (b) no seller of Registrable Securities guilty or
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation; and (c)
contribution by any seller of Registrable Securities shall be limited in amount
to the net amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to the
Investors the benefits of Rule 144 promulgated under the Securities Act or any
other similar rule or regulation of the SEC that may at any time permit the
Investors to sell securities of the Company to the public without registration
("Rule 144"), the Company agrees to use its reasonable best efforts to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC 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 Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the reporting requirements of Rule 144, the Securities Act
and the Exchange Act, (ii) a copy of the most recent annual or quarterly 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
Investors to sell such securities pursuant to Rule 144 without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have the
Company register Registrable Securities pursuant to this Agreement shall be
automatically assigned by the Investors to any transferee of in excess of fifty
(50%) percent or more of the Registrable Securities (or all or any portion of
any Debenture of the Company which is convertible into such securities) only if:
(a) the Investor
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<PAGE> 11
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)
immediately following such transfer or assignment the further disposition of
such securities by the transferee or assignee is restricted under the Securities
Act and applicable state securities laws, and (d) at or before the time the
Company received 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. In the event of any delay in filing or
effectiveness of the Registration Statement as a result of such assignment, the
Company shall not be liable for any damages arising from such delay, or the
payments set forth in Section 2(c) hereof.
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 investors 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 Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company received conflicting instructions, notices or
elections
from two or more persons or entities with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions, notice or
election received from the registered owner of such Registrable Securities.
(b) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
(by hand, by courier, by telephone line facsimile transmission, receipt
confirmed, or other means) or sent by certified mail, return receipt requested,
properly addressed and with proper postage pre-paid (i) if to the Company, C/O
Gary B. Wolff, Esq., 747 Third Avenue, 25th Floor, New York, NY 10017; (ii) if
to the Initial Investor, at the address set forth under its name in the
Subscription Agreement, with a copy to its designated attorney and (iii) if to
any other Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 11(b), and shall be effective, when
personally delivered, upon receipt and, when so sent by certified mail, four (4)
business days after deposit with the United States Postal
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<PAGE> 12
Service.
(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 the interpreted in accordance
with the laws of the State of Delaware. Each of the parties consents to the
jurisdiction of the state and federal courts of the State of Delaware 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 coveniens, to the bringing of any such proceeding in such
jurisdictions. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto. 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 invalidity or
unenforceability shall not effect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. 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. 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 headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original but all of which shall constitute one and the
same agreement. This Agreement, once executed by a party, may be delivered to
the other party hereto by telephone line facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
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<PAGE> 13
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
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<PAGE> 14
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
SWISSRAY INTERNATIONAL, INC.
By: ____________________________________
Name: Ruedi G. Laupper
Title: President and Chairman of the Board
_______________________________________
(Name of Initial Investor)
By: ____________________________________
Name:
Title:
14
<PAGE> 1
FORM OF DEBENTURE
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
CONVERTIBLE DEBENTURE DUE November , 1999
November , 1997
Number DEC-1997-RLV-1
FOR VALUE RECEIVED, SWISSRAY INTERNATIONAL, INC., a New York
corporation (the "Company"), hereby promises to pay to or
registered assigns (the "Holder") on November , 1999, (the
"Maturity Date"), the principal amount of U.S., and to
pay interest on the principal amount hereof, in such amounts, at such
times and on such terms and conditions as are specified herein.
Article 1. Interest
The Company shall pay interest on the unpaid principal amount of this
Debenture (the "Debenture") at the rate of Eight Percent (8.0%) per year,
payable at the time of each conversion until the principal amount hereof is paid
in full or has been converted. Interest shall be computed on the basis of a 360
day year of 12, 30 day months. Each payment shall be paid in cash or in freely
trading Common Stock of the Company, at the Company's option. If paid in Common
Stock, the number of shares of the Company's Common Stock to be received shall
be determined by dividing the dollar amount of the interest by the then
applicable Market Price as of the interest payment date. "Market Price" shall
mean 75% of the average of the 5 day closing bid prices, as reported by Nasdaq,
or whatever primary
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<PAGE> 2
exchange the Company's Common Stock may be traded on, for the 5 trading days
immediately preceding the date of conversion. If the interest is to be paid in
cash, the Company shall make such payment within 5 business days of the date of
conversion. If the interest is to be paid in Common Stock, said Common Stock
shall be delivered to the Holder, or per Holder's instructions, within 8
business days of the date of conversion. The Debentures are subject to automatic
conversion at the end of two years from the date of issuance at which time all
Debentures outstanding will be automatically converted based upon the formula
set forth in Section 3.2. The closing shall be deemed to have occurred on the
date the funds are received by the Company or its Counsel (the "Closing Date").
Article 2. Method of Payment
This Debenture must be surrendered to the Company in order for the
Holder to receive payment of the principal amount hereof. The Company shall have
the option of paying the interest on this Debenture in United States dollars or
in common stock upon conversion pursuant to Article 1 hereof. The Company may
draw a check for the payment of interest to the order of the Holder of this
Debenture and mail it to the Holder's address as shown on the Register (as
defined in Section 7.2 below). Interest and principal payments shall be subject
to withholding under applicable United States Federal Internal Revenue Service
Regulations.
Article 3. Conversion
Section 3.1. Conversion Privilege
(a) The Holder of this Debenture shall have the right, at its option,
to convert it into shares of common stock, par value $0.01 per share, of the
Company ("Common Stock") at any time which is before the close of business on
the Maturity Date, except as set forth in Section 3.1(c) below. The number of
shares of Common Stock issuable upon the conversion of this Debenture is
determined pursuant to Section 3.2 and rounding the result to the nearest whole
share.
(b) Less than all of the principal amount of this Debenture may be
converted into Common Stock if the portion converted is $5,000 or a whole
multiple of $5,000 and the provisions of this Article 3 that apply to the
conversion of all of the Debenture shall also apply to the conversion of a
portion of it. This Debenture may not be converted, whether in whole or in part,
except in accordance with Article 3.
(c) In the event all or any portion of this Debenture remains
outstanding on the second anniversary of the date hereof, the unconverted
portion of such Debenture will automatically be converted into shares of Common
Stock on such date in the manner set forth in Section 3.2.
Section 3.2. Conversion Procedure.
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<PAGE> 3
(a) Debentures. Upon receipt by the Company or its designated attorney
of a facsimile or original of Holder's signed Notice of Conversion and the
original Debenture to be converted in whole or in part, the Company shall
instruct its transfer agent to issue one or more Certificates representing that
number of shares of Common Stock into which the Debenture is convertible in
accordance with the provisions regarding conversion set forth in Exhibit D
hereto. The Seller's transfer agent or attorney shall act as Registrar and shall
maintain an appropriate ledger containing the necessary information with respect
to each Debenture.
(b) Conversion Procedures. Twenty-five percent (25%) of the face amount
of this Debenture may be converted at the earlier of the effective date of the
Registration Statement or March 21, 1998. Such conversion shall be effectuated
by surrendering to the Company, or its attorney, this Debenture to be converted
together with a facsimile or original of the signed Notice of Conversion which
evidences Holder's intention to convert the Debenture indicated. An additional
twenty-five percent (25%) of the face amount of the Debentures, fifty percent
(50%) cumulatively, may be converted after the earlier of 30 days after the
effective date of the Registration Statement or April 20, 1998. An additional
twenty-five percent (25%), seventy-five percent (75%) cumulatively, may be
converted after the earlier of 60 days after the effective date of the
Registration Statement or May 20, 1998. An additional twenty-five percent (25%),
one hundred percent (100%) cumulatively, may be converted after the earlier of
90 days after the effective date of the Registration Statement or June 19, 1998.
The date on which the Notice of Conversion is effective ("Conversion Date")
shall be deemed to be the date on which the Holder has delivered to the Company
or its designated attorney a facsimile or original of the signed Notice of
Conversion, as long as the original Debenture(s) to be converted are received by
the Company or its designated attorney within 5 business days thereafter. Unless
otherwise notified by the Company in writing via facsimile the Company's
designated attorney is Gary B. Wolff, Esq., 474 Third Avenue, 25th Floor, New
York, New York 10017, (P) 212-644-6446, (F) 212-644-6498.
(c) Common Stock to be Issued Without Restrictive Legend. Upon the
conversion of any Debentures and upon receipt by the Company or its attorney of
a facsimile or original of Holder's signed Notice of Conversion (see Exhibit D)
Seller shall instruct Seller's transfer agent to issue Stock Certificates
without restrictive legend or stop transfer instructions, if at that time the
Registration Statement has been deemed effective (or with proper restrictive
legend if the Registration Statement has not as yet been declared effective), in
the name of Holder (or its nominee) and in such denominations to be specified at
conversion representing the number of shares of Common Stock issuable upon such
conversion, as applicable. Seller warrants that no instructions, other than
these instructions, have been given or will be given to the transfer agent and
that the Common Stock shall otherwise be freely transferable on the books and
records of Seller, except as may be set forth herein.
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<PAGE> 4
(d) (i) Conversion Rate. Holder is entitled, at its option to convert
twenty-five percent (25%) of the face amount of this Debenture, plus accrued
interest, at the earlier of the effective date of the Registration Statement or
March 21, 1998, at 75% of the 5 day average closing bid price, as reported by
Nasdaq, or whatever primary exchange the Company's Common Stock may be traded
on, for the 5 trading days immediately preceding the applicable Conversion Date
(the "Conversion Price"). Holder is entitled, at its option to convert an
additional twenty-five percent (25%), fifty percent (50%) cumulatively, of the
face amount of this Debenture, plus accrued interest at the earlier of 30 days
after the effective date of the Registration Statement or April 20, 1998, at 75%
of the 5 day average closing bid price, as reported by Nasdaq, or whatever
primary exchange the Company's Common Stock may be traded on, for the 5 trading
days immediately preceding the applicable Conversion Date. Holder is entitled,
at its option, to convert an additional twenty-five percent (25%), seventy-five
percent (75%) cumulatively, of the face amount of this Debenture, plus accrued
interest at the earlier of 60 days after the effective date of the Registration
Statement or May 20, 1998, at 75% of the 5 day average closing bid price, as
reported by Nasdaq, or whatever primary exchange the Company's Common Stock may
be traded on, for the 5 trading days immediately preceding the applicable
Conversion Date. Holder is entitled, at its option, to convert an additional
twenty-five percent (25%), one hundred percent (100%) cumulatively, of the face
amount of this Debenture, plus accrued interest at the earlier of 90 days after
the effective date of the Registration Statement or June 19, 1998, at 75% of the
5 day average closing bid price, as reported by Nasdaq, or whatever primary
exchange the Company's Common Stock may be traded on, for the 5 trading days
immediately preceding the applicable Conversion Date. No fractional shares or
scrip representing fractions of shares will be issued on conversion, but the
number of shares issuable shall be rounded up or down, as the case may be, to
the nearest whole share.
(ii) Redemption Terms. The Company reserves the right, at its sole
option, to call a mandatory redemption of any percentage of the balance on the
Debentures during the two hundred ten (210) day period following the Closing
Date. In the event the Company exercises such right of redemption up to and
including the two hundred tenth (130th) day following the Closing Date it shall
pay the Holder, in U.S. currency One Hundred Thirty Percent (130%) of the face
amount of the Debentures redeemed. Mandatory redemption by the Company shall be
effected by the Company notifying the Holder by facsimile at the number listed
in the Subscription Agreement of the Company's intention to exercise its right
of mandatory redemption. The Company shall state in such notice the dollar
amount of the Debentures it intends to redeem, the amount that it will pay to
effectuate such redemption and the date by which the Holder must deliver the
Debentures to Joseph B. LaRocco, Escrow Agent (including the Escrow Agent's
address) unless the Company is already in receipt of those Debentures to be
redeemed. The date by which the Debentures must be delivered to the Escrow Agent
shall not be later than 10 business days following the date the Company notifies
the Holder by
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<PAGE> 5
facsimile of the redemption. The Company shall give the Holder at least 2
business day's notice of the above information. On or before the date by which
the Holder is to deliver the original Debentures to the Escrow Agent, the
Company shall wire to the Escrow Agent that amount necessary to pay the Holder
to effectuate the mandatory redemption. Once the Escrow Agent is in receipt of
the original Debentures and those funds necessary to effectuate the mandatory
conversion he shall wire those funds to the Holder and deliver to the Company
the original Debentures via overnight courier. The Holder shall not be entitled
to send a Conversion Notice to the Company with respect to the Debentures being
redeemed during such period.
(iii) Most Favored Financing. If after the Closing Date, but prior to
the Holder's conversion of all the Debentures, the Company raises money under
either Regulation D or Regulation S on terms that are more favorable than those
terms set forth in this Debenture, then in such event, the Holder at its sole
option shall be entitled to completely replace the terms of this Debenture with
the terms of the more beneficial Debenture as to that balance, including accrued
interest and any accumulated liquidated damages, remaining on Holder's original
investment. The Debentures are subject to a mandatory, 24 month conversion
feature at the end of which all Debentures outstanding will be automatically
converted, upon the terms set forth in this section ("Mandatory Conversion
Date").
(e) Nothing contained in this Debenture shall be deemed to establish or
require the payment of interest to the Holder at a rate in excess of the maximum
rate permitted by governing law. In the event that the rate of interest required
to be paid exceeds the maximum rate permitted by governing law, the rate of
interest required to be paid thereunder shall be automatically reduced to the
maximum rate permitted under the governing law and such excess shall be returned
with reasonable promptness by the Holder to the Company.
(f) It shall be the Company's responsibility to take all necessary
actions and to bear all such costs to issue the Certificate of Common Stock as
provided herein, including the responsibility and cost for delivery of an
opinion letter to the transfer agent, if so required. The person in whose name
the certificate of Common Stock is to be registered shall be treated as a
shareholder of record on and after the conversion date. Upon surrender of any
Debentures that are to be converted in part, the Company shall issue to the
Holder a new Debenture equal to the unconverted amount, if so requested in
writing by Holder.
(g) Within five (5) business days after receipt of the documentation
referred to above in Section 3.2(b), the Company shall deliver a certificate,
without stop transfer instructions, for the number of shares of Common Stock
issuable upon the conversion. It shall be the Company's responsibility to take
all necessary actions and to bear all such costs to issue the Common Stock as
provided herein,
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<PAGE> 6
including the cost for delivery of an opinion letter to the transfer agent, if
so required. The person in whose name the certificate of Common Stock is to be
registered shall be treated as a shareholder of record on and after the
conversion date. Upon surrender of any Debentures that are to be converted in
part, the Company shall issue to the Holder a new Debenture equal to the
unconverted amount, if so requested in writing by Holder.
In the event the Company does not make delivery of the Common Stock, as
instructed by Holder, within 8 business days after delivery of this original
Debenture, then in such event the Company shall pay to Holder an amount, in cash
in accordance with the following schedule, wherein "No. Business Days Late" is
defined as the number of business days beyond the 8 business days delivery
period.
<TABLE>
<CAPTION>
Late Payment for Each
$10,000 of Debenture
No. Business Days Late Amount Being Converted
- ---------------------- ----------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each
Business Day Beyond 10
</TABLE>
The Company acknowledges that its failure to deliver the Common Stock
within 8 business days after the Conversion Date will cause the Holder to suffer
damages in an amount that will be difficult to ascertain. Accordingly, the
parties agree that it is appropriate to include in this Debenture a provision
for liquidated damages. The parties acknowledge and agree that the liquidated
damages provision set forth in this section represents the parties' good faith
effort to qualify such damages and, as such, agree that the form and amount of
such liquidated damages are reasonable and will not constitute a penalty. The
payment of liquidated damages shall not relieve the Company from its obligations
to deliver the Common Stock pursuant to the terms of this Debenture.
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 3.2(g) is due to the unavailability of authorized but
unissued shares of Common Stock, the provisions of this Section 3.2(g) shall not
apply but instead the provisions of Section 3.2(h) shall apply.
The Company shall make any payments incurred under this Section 3.2(g)
in immediately available funds within five (5) business days from the Conversion
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<PAGE> 7
Date if late. Nothing herein shall limit a Holder's right to pursue actual
damages or cancel the conversion for the Company's failure to issue and deliver
Common Stock to the Holder within 8 business days after the Conversion Date.
(h) The Company shall at all times reserve and have available all
Common Stock necessary to meet conversion of the Debentures by all Holders of
the entire amount of Debentures then outstanding. If, at any time Holder submits
a Notice of Conversion and the Company does not have sufficient authorized but
unissued shares of Common Stock available to effect, in full, a conversion of
the Debentures (a "Conversion Default", the date of such default being referred
to herein as the "Conversion Default Date"), the Company shall issue to the
Holder all of the shares of Common Stock which are available, and the Notice of
Conversion as to any Debentures requested to be converted but not converted (the
"Unconverted Debentures"), upon Holder's sole option, may be deemed null and
void. The Company shall provide notice of such Conversion Default ("Notice of
Conversion Default") to all existing Holders of outstanding Debentures, by
facsimile, within three (3) business day of such default (with the original
delivered by overnight or two day courier), and the Holder shall give notice to
the Company by facsimile within five business days of receipt of the original
Notice of Conversion Default (with the original delivered by overnight or two
day courier) of its election to either nullify or confirm the Notice of
Conversion.
The Company agrees to pay to all Holders of outstanding Debentures
payments for a Conversion Default ("Conversion Default Payments") in the amount
of (N/365) x (.24) x the initial issuance price of the outstanding and/or
tendered but not converted Debentures held by each Holder where N = the number
of days from the Conversion Default Date to the date (the "Authorization Date")
that the Company authorizes a sufficient number of shares of Common Stock to
effect conversion of all remaining Debentures. The Company shall send notice
("Authorization Notice") to each Holder of outstanding Debentures that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of Holder's accrued Conversion Default Payments. The accrued
Conversion Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, at the Holder's option, payable as follows: (i) in
the event Holder elects to take such payment in cash, cash payments shall be
made to such Holder of outstanding Debentures by the fifth day of the following
calendar month, or (ii) in the event Holder elects to take such payment in
stock, the Holder may convert such payment amount into Common Stock at the
conversion rate set forth in section 4(d) at anytime after the 5th day of the
calendar month following the month in which the Authorization Notice was
received, until the expiration of the mandatory 24 month conversion period.
The company acknowledges that its failure to maintain a sufficient
number of authorized but unissued shares of Common Stock to effect in full a
conversion of the Debentures will cause the Holder to suffer damages in an
amount that will be difficult to ascertain. Accordingly, the parties agree that
it is appropriate to include
7
<PAGE> 8
in this Agreement a provision for liquidated damages. The parties acknowledge
and agree that the liquidated damages provision set forth in this section
represents the parties' good faith effort to quantify such damages and, as such,
agree that the form and amount of such liquidated damages are reasonable and
will not constitute a penalty. The payment of liquidated damages shall not
relieve the Company from its obligations to deliver the Common Stock pursuant to
the terms of this Agreement.
Nothing herein shall limit the Holder's right to pursue actual damages
for the Company's failure to maintain a sufficient number of authorized shares
of Common Stock.
(i) The Company shall furnish to Holder such number of
prospectuses and other documents incidental to the registration of the shares of
Common Stock underlying the Debentures, including any amendment of or
supplements thereto.
(j) The Holder is limited in the amount of this Debenture it
may convert and own. Other than the Mandatory Conversion provisions contained in
this Debenture which are not limited by the following, in no other event shall
the Holder be entitled to convert any amount of Debentures in excess of that
amount upon conversion of which the sum of (1) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the Debenture, and (2) the number of shares of Common
Stock issuable upon the conversion of the Debentures with respect to which the
determination of this provision is being made, would result in beneficial
ownership by the Holder and its affiliates of more than 4.9% of the outstanding
shares of Common Stock of the Company. For purposes of this provision to the
immediately preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13 D-G thereunder, except as otherwise provided in
clause (1) of such provision.
Section 3.3. Fractional Shares. The Company shall not issue fractional
shares of Common Stock, or scrip representing fractions of such shares, upon the
conversion of this Debenture. Instead, the Company shall round up or down, as
the case may be, to the nearest whole share.
Section 3.4. Taxes on Conversion. The Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of shares
of Common Stock upon the conversion of this Debenture. However, the Holder shall
pay any such tax which is due because the shares are issued in a name other than
its name.
8
<PAGE> 9
Section 3.5. Company to Reserve Stock. The Company shall reserve the
number of shares of Common Stock required pursuant to and upon the terms set
forth in Section 3(a) of the Subscription Agreement dated November of 1997, to
permit the conversion of this Debenture. All shares of Common Stock which may be
issued upon the conversion hereof shall upon issuance be validly issued, fully
paid and nonassessable and free from all taxes, liens and charges with respect
to the issuance thereof.
Section 3.6. Restrictions on Transfer. This Debenture has not been
registered under the Securities Act of 1933, as amended, (the "Act") and is
being issued under Section 4(2) of the Act and Rule 506 of Regulation D
promulgated under the Act. This Debenture and the Common Stock issuable upon the
conversion thereof may only be offered or sold pursuant to registration under or
an exemption from the Act.
Section 3.7. Mergers, Etc. If the Company merges or consolidates with
another corporation or sells or transfers all or substantially all of its assets
to another person and the holders of the Common Stock are entitled to receive
stock, securities or property in respect of or in exchange for Common Stock,
then as a condition of such merger, consolidation, sale or transfer, the Company
and any such successor, purchaser or transferee shall amend this Debenture to
provide that it may thereafter be converted on the terms and subject to the
conditions set forth above into the kind and amount of stock, securities or
property receivable upon such merger, consolidation, sale or transfer by a
holder of the number of shares of Common Stock into which this Debenture might
have been converted immediately before such merger, consolidation, sale or
transfer, subject to adjustments which shall be as nearly equivalent as may be
practicable to adjustments provided for in this Article 3.
Article 4. Mergers
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, any person, unless such person assumes in
writing the obligations of the Company under this Debenture and immediately
after such transaction no Event of Default exists. Any reference herein to the
Company shall refer to such surviving or transferee corporation and the
obligations of the Company shall terminate upon such written assumption.
Article 5. Reports
The Company will mail to the Holder hereof at its address as shown on
the Register a copy of any annual, quarterly or current report that it files
with the Securities and Exchange Commission promptly after the filing thereof
and a copy of any annual, quarterly or other report or proxy statement that it
gives to its shareholders generally at the time such report or statement is sent
to shareholders.
9
<PAGE> 10
Article 6. Defaults and Remedies
Section 6.1. Events of Default. An "Event of Default" occurs if (a) the
Company does not make the payment of the principal of this Debenture when the
same becomes due and payable at maturity, upon redemption or otherwise, (b) the
Company does not make a payment, other than a payment of principal, for a period
of 5 business days thereafter, (c) the Company fails to comply with any of its
other agreements in this Debenture and such failure continues for the period and
after the notice specified below, (d) the Company pursuant to or within the
meaning of any Bankruptcy Law (as hereinafter defined): (i) commences a
voluntary case; (ii) consents to the entry of an order for relief against it in
an involuntary case; (iii) consents to the appointment of a Custodian (as
hereinafter defined) of it or for all or substantially all of its property or
(iv) makes a general assignment for the benefit of its creditors or (v) a court
of competent jurisdiction enters an order or decree under any Bankruptcy Law
that: (A) is for relief against the Company in an involuntary case; (B) appoints
a Custodian of the Company or for all or substantially all of its property or
(C) orders the liquidation of the Company, and the order or decree remains
unstayed and in effect for 60 days, (e) the Company's Common Stock is no longer
listed on any recognized exchange including electronic over-the-counter bulletin
board. As used in this Section 6.1, the term "Bankruptcy Law" means Title 11 of
the United States Code or any similar federal or state law for the relief of
debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law. A default under clause (c) above
is not an Event of Default until the holders of at least 25% of the aggregate
principal amount of the Debentures outstanding notify the Company of such
default and the Company does not cure it within five (5) business days after the
receipt of such notice, which must specify the default, demand that it be
remedied and state that it is a "Notice of Default".
Section 6.2. Acceleration. If an Event of Default occurs and is
continuing, the Holder hereof by notice to the Company, may declare the
remaining principal amount of this Debenture to be due and payable. Upon such
declaration, the remaining principal amount shall be due and payable
immediately.
Article 7. Registered Debentures
Section 7.1. Series. This Debenture is one of a numbered series of
Debentures having an aggregate principal amount of not more than $3,800,000
which are identical except as to the principal amount and date of issuance
thereof and as to any restriction on the transfer thereof in order to comply
with the Securities Act of 1933 and the regulations of the Securities and
Exchange Commission promulgated thereunder. Such Debentures are referred to
herein collectively as the "Debentures". The Debentures shall be issued in whole
multiples of $5,000.
10
<PAGE> 11
Section 7.2. Record Ownership. The Company, or its attorney, shall
maintain a register of the holders of the Debentures (the "Register") showing
their names and addresses and the serial numbers and principal amounts of
Debentures issued to or transferred of record by them from time to time. The
Register may be maintained in electronic, magnetic or other computerized form.
The Company may treat the person named as the Holder of this Debenture in the
Register as the sole owner of this Debenture. The Holder of this Debenture is
the person exclusively entitled to receive payments of interest on this
Debenture, receive notifications with respect to this Debenture, convert it into
Common Stock and otherwise exercise all of the rights and powers as the absolute
owner hereof.
Section 7.3. Registration of Transfer. Transfers of this Debenture may
be registered on the books of the Company maintained for such purpose pursuant
to Section 7.2 above (i.e., the Register). Transfers shall be registered when
this Debenture is presented to the Company with a request to register the
transfer hereof and the Debenture is duly endorsed by the appropriate person,
reasonable assurances are given that the endorsements are genuine and effective,
and the Company has received evidence satisfactory to it that such transfer is
rightful and in compliance with all applicable laws, including tax laws and
state and federal securities laws. When this Debenture is presented for transfer
and duly transferred hereunder, it shall be canceled and a new Debenture showing
the name of the transferee as the record holder thereof shall be issued in lieu
hereof. When this Debenture is presented to the Company with a reasonable
request to exchange it for an equal principal amount of Debentures of other
denominations, the Company shall make such exchange and shall cancel this
Debenture and issue in lieu thereof Debentures having a total principal amount
equal to this Debenture in such denominations as agreed to by the Company and
Holder.
Section 7.4. Worn or Lost Debentures. If this Debenture becomes worn,
defaced or mutilated but is still substantially intact and recognizable, the
Company or its agent may issue a new Debenture in lieu hereof upon its
surrender. Where the Holder of this Debenture claims that the Debenture has been
lost, destroyed or wrongfully taken, the Company shall issue a new Debenture in
place of the original Debenture if the Holder so requests by written notice to
the Company actually received by the Company before it is notified that the
Debenture has been acquired by a bona fide purchaser and the Holder has
delivered to the Company an indemnity bond in such amount and issued by such
surety as the Company deems satisfactory together with an affidavit of the
Holder setting forth the facts concerning such loss, destruction or wrongful
taking and such other information in such form with such proof or verification
as the Company may request.
Article 8. Notices
Any notice which is required or convenient under the terms of this
Debenture shall be duly given if it is in writing and delivered in person or
mailed by first class
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<PAGE> 12
mail, postage prepaid and directed to the Holder of the Debenture at its address
as it appears on the Register or if to the Company to its principal executive
offices, with a copy by fax to Gary B. Wolff, Esq. 747 Third Avenue, New York,
NY 10017. The time when such notice is sent shall be the time of the giving of
the notice.
Article 9. Time
Where this Debenture authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of this Debenture. A "business day" shall
mean a day on which the banks in New York are not required or allowed to be
closed.
Article 10. Waivers
The holders of a majority in principal amount of the Debentures may
waive a default or rescind the declaration of an Event of Default and its
consequences except for a default in the payment of principal or conversion into
Common Stock.
Article 11. Rules of Construction
In this Debenture, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in the Debenture are inserted for
convenience of reference only, and they neither form a part of this Debenture
nor are they to be used in the construction or interpretation hereof. Wherever,
in this Debenture, a determination of the Company is required or allowed, such
determination shall be made by a majority of the Board of Directors of the
Company and if it is made in good faith, it shall be conclusive and binding upon
the Company and the Holder of this Debenture.
Article 12. Governing Law
The validity, terms, performance and enforcement of this Debenture
shall be governed and construed by the provisions hereof and in accordance with
the laws of the State of Delaware applicable to agreements that are negotiated,
executed, delivered and performed solely in the State of Delaware.
12
<PAGE> 13
Article 13. Litigation
(a) Forum Selection and Consent to Jurisdiction. Any litigation based
thereon, or arising out of, under, or in connection with, this agreement or any
course of conduct, course of dealing, statements (whether oral or written) or
actions of the Company or Holder shall be brought and maintained exclusively in
the courts of the State of Delaware. The Company hereby expressly and
irrevocably submits to the jurisdiction of the state and federal courts of the
State of Delaware for the purpose of any such litigation as set forth above and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Company further irrevocably consents to the
service of process by registered mail, postage prepaid, or by personal service
within or without the State of Delaware. The Company hereby expressly and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may have or hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any such
litigation has been brought in any inconvenient forum. To the extent that the
Company has or hereafter may acquire any immunity from jurisdiction of any court
or from any legal process (whether through service or notice, attachment prior
to judgment, attachment in aid of execution or otherwise) with respect to itself
or its property. The Company hereby irrevocably waives such immunity in respect
of its obligations under this agreement and the other loan documents.
(b) Waiver of Jury Trial. The Holder and the Company hereby knowingly,
voluntarily and intentionally waive any rights they may have to a trial by jury
in respect of any litigation based hereon, or arising out of, under, or in
connection with, this agreement, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Holder or the Company.
The Company acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Holder entering into this agreement.
(c) Submission To Jurisdiction . Any legal action or proceeding in
connection with this Agreement or the performance hereof may be brought in the
state and federal courts located in the State of Delaware and the parties hereby
irrevocably submit to the non-exclusive jurisdiction of such courts for the
purpose of any such action or proceeding.
IN WITNESS WHEREOF, the Company has duly executed this Debenture as of
the date first written above.
SWISSRAY INTERNATIONAL, INC.
13
<PAGE> 14
By__________________________________________
Name: Ruedi G. Laupper
Title: Chairman and President
14
<PAGE> 15
Exhibit A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the
Debentures.)
The undersigned hereby irrevocably elects, as of ______________, 199_
to convert $_________________ of the Debentures into Shares of Common Stock (the
"Shares") of SWISSRAY INTERNATIONAL, INC. (the "Company") according to the
conditions set forth in the Subscription Agreement dated November ____, 1997.
Date of Conversion_________________________________________
Applicable Conversion Price_________________________________
Number of Shares Issuable upon this conversion______________
Signature___________________________________________________
[Name]
Address_____________________________________________________
____________________________________________________________
Phone______________________ Fax___________________________
15
<PAGE> 16
Assignment of Debenture
The undersigned hereby sell(s) and assign(s) and transfer(s) unto
________________________________________________________________________________
(name, address and SSN or EIN of assignee)
Dollars ($ )
________________________________________________________________________________
(principal amount of Debenture, $10,000 or integral multiples of $10,000)
of principal amount of this Debenture together with all accrued and unpaid
interest hereon.
Date:_____________________ Signed:______________________________________________
(Signature must conform in all
respects to name of Holder shown
of face of Debenture)
Signature Guaranteed:
16
<PAGE> 1
EXHIBIT 10.20
----------------------------------
SWISSRAY INTERNATIONAL, INC.
----------------------------------
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BE APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
Maximum Offering: $3,250,000
This offering consists of not more than $3,250,000 of Convertible Debentures
of Swissray International, Inc.
--------------------
SUBSCRIPTION AGREEMENT
-------------------
1
<PAGE> 2
SUBSCRIPTION PROCEDURES
Convertible Debentures of SWISSRAY INTERNATIONAL, INC.. (the "Company")
are being offered in an aggregate amount not to exceed $3,250,000. The
Debentures will be transferable to the extent that any such transfer is
permitted by law. This offering is being made in accordance with the exemption
from registration under Section 4(2) of the Securities Act of 1933, as amended
(the "Act") and Rule 506 of Regulation D promulgated under the Act (the
"Regulation D Offering").
The Investor Questionnaire is designed to enable the Investor
to demonstrate the minimum legal requirements under federal and state
securities laws to purchase the Debentures. The Signature Page for the
Investor Questionnaire and the Subscription Agreement contain
representations relating to the subscription.
Also included is an Internal Revenue Service Form W-9:
"Request for Taxpayer Identification Number and Certification"
for U.S. citizens or residents of the U.S. for U.S. federal
income tax purposes only. (Foreign investors should consult
their tax advisors regarding the need to complete Internal
Revenue Service Form W-9 and any other forms that may be
required).
If you are a foreign person or foreign entity, you may be subject to a
withholding tax equal to 30% of any dividends paid by the Company. In order to
eliminate or reduce such withholding tax you may submit a properly executed
I.R.S. Form 4224 (Exemption from Withholding of Tax on Income Effectively
Connected with the Conduct of a Trade or Business in the United States) or
I.R.S. Form 1001 (Ownership Exemption or Reduced Trade Certificate), claiming
exemption from withholding or eligibility for treaty benefits in the form of a
lower rate of withholding tax on interest or dividends.
Payment must be made by wire transfer as provided below:
Immediately available funds should be sent via wire transfer to the escrow
account stated below and the completed subscription documents should be
forwarded to the Escrow Agent. Your subscription funds will be deposited into a
non-interest bearing escrow account of Joseph B. LaRocco, Esq., Escrow Agent, at
First Union Bank of Connecticut, Stamford, Connecticut. In the event of a
termination of the Regulation D Offering or the rejection of this subscription,
all subscription funds will be returned without interest. The wire instructions
are as follows:
2
<PAGE> 3
ABA #:
Swift #:
Account #:
Acct.Name: Joseph B. LaRocco, Esq. Trustee Account
3
<PAGE> 4
SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND ARE BEING OFFERED AND SOLD
IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SUCH LAWS. THE
SECURITIES ARE SUBJECT TO RESTRICTIONS OF TRANSFERABILITY AND RESALE AND MAY NOT
BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH LAWS PURSUANT TO
REGISTRATION OR AN EXEMPTION THEREFROM. THE SECURITIES HAVE NOT BE APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER REGULATORY
AUTHORITY, NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE
MERITS OF THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THE OFFERING MATERIALS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
To: SWISSRAY INTERNATIONAL, INC.
This Subscription Agreement is made between Swissray International,
Inc., ("Company" or "Seller") a New York corporation, and the undersigned
prospective purchaser ("Purchaser") who is subscribing hereby for the Company's
Convertible Debentures (the "Debentures"). The Debentures being offered will be
separately transferable, to the extent that any such transfer is permitted by
law. The conversion terms of the Debentures are set forth in Section 4. This
subscription is submitted to you in accordance with and subject to the terms and
conditions described in this Subscription Agreement dated __________ __, 1997,
together with any Exhibits thereto, relating to an offering (the "Offering") of
up to $3,250,000 of Debentures. This Offering is comprised of an offering of the
Debentures to accredited investors (the "Regulation D Offering") in accordance
with the exemption from registration under Section 4(2) of the Securities Act of
1933, as amended (the "Act"), and Rule 506 of Regulation D promulgated under the
Act ("Regulation D").
1. SUBSCRIPTION.
(a) The undersigned hereby irrevocably subscribes for and agrees to
purchase $________ of the Company's Debentures, which amount represents the
unconverted portion of Purchaser's investment, with agreed upon interest, in the
Company's August, 1997, Regulation D offering. The Debentures shall pay an 8%
cumulative interest payable annually, in cash or in freely trading Common Stock
of the Company, at the Company's option, at the time of each conversion. If paid
in Common Stock, the number of shares of the Company's Common Stock to be
received shall be determined by dividing the dollar amount of the dividend by
the then applicable Market Price, as of the interest payment date.
4
<PAGE> 5
"Market Price" shall mean 75% of the average of the 5 day closing bid prices, as
reported by Nasdaq, or whatever primary exchange the Company's Common Stock may
be traded on, for the five trading days immediately preceding the date of
conversion. If the interest is to be paid in cash, the Company shall make such
payment within 5 business days of the date of conversion. If the interest is to
be paid in Common Stock, said Common Stock shall be delivered to the Purchaser,
or per Purchaser's instructions, within 5 business days of the date of
conversion. The Debentures are subject to automatic conversion at the end of two
years from the date of issuance at which time all Debentures outstanding will be
automatically converted based upon the formula set forth in Section 4(c). The
closing shall be deemed to have occurred on the date the funds are received by
the Company or its designated attorney (the "Closing Date").
(b) Upon receipt by the Company of the requisite payment for the
Debentures being purchased the Debentures so purchased will be forwarded by the
Escrow Agent, Joseph B. LaRocco, to the Purchaser and the name of such Purchaser
will be registered on the Debenture transfer books of the Company as the record
owner of such Debentures. The Escrow Agent shall not be liable for any action
taken or omitted by him in good faith and in no event shall the Escrow Agent be
liable or responsible except for the Escrow Agent's own gross negligence or
willful misconduct. The Escrow Agent has made no representations or warranties
in connection with this transaction and has not been involved in the negotiation
of the terms of this Agreement or any matters relative thereto. Seller and
Purchaser each agree to indemnify and hold harmless the Escrow Agent from and
with respect to any suits, claims, actions or liabilities arising in any way out
of this transaction including the obligation to defend any legal action brought
which in any way arises out of or is related to this Agreement. The Escrow Agent
is not rendering securities advice to anyone with respect to this proposed
transaction; nor is the Escrow Agent opining on the compliance of the proposed
transaction under applicable securities law.
2. REPRESENTATIONS AND WARRANTIES.
The undersigned hereby represents and warrants to, and agrees with, the
Company as follows:
(a) The undersigned has been furnished with, and has carefully
read the applicable form of Debenture included herein as Exhibit A and
the form of Registration Rights Agreement annexed hereto as Exhibit B
(the "Registration Rights Agreement"), and is familiar with and
understands the terms of the Offering. With respect to tax and other
economic considerations involved in his investment, the undersigned is
not relying on the Company. The undersigned has carefully considered
and has, to the extent the undersigned believes such discussion
necessary, discussed with the undersigned's professional legal, tax,
accounting and financial advisors the suitability of an investment in
the
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<PAGE> 6
Company, by purchasing the Debentures, for the undersigned's particular
tax and financial situation and has determined that the investment
being made by the undersigned is a suitable investment for the
undersigned.
(b) The undersigned acknowledges that all documents, records,
and books pertaining to this investment which the undersigned has
requested including Form 10-KSB for the fiscal year ended June 30, 1997
and Form 10-Q for the quarter ended September 30, 1997 (the "Disclosure
Documents") have been made available for inspection by the undersigned
or the undersigned has had access to the Disclosure Documents.
(c) The undersigned has had a reasonable opportunity to ask
questions of and receive answers from a person or persons acting on
behalf of the Company concerning the Offering and all such questions
have been answered to the full satisfaction of the undersigned.
(d) The undersigned will not sell or otherwise transfer the
Debentures without registration under the Act or applicable state
securities laws or an exemption therefrom. The Debentures have not been
registered under the Act or under the securities laws of any states.
The Common Stock underlying the Debentures is to be registered by the
Company pursuant to the terms of the Registration Rights Agreement
attached hereto as Exhibit B and incorporated herein and made a part
hereof. Without limiting the right to convert the Debentures and sell
the Common Stock pursuant to the Registration Rights Agreement, the
undersigned represents that the undersigned is purchasing the
Debentures for the undersigned's own account, for investment and not
with a view to resale or distribution except in compliance with the
Act. The undersigned has not offered or sold any portion of the
Debentures being acquired nor does the undersigned have any present
intention of dividing the Debentures with others or of selling,
distributing or otherwise disposing of any portion of the Debentures
either currently or after the passage of a fixed or determinable period
of time or upon the occurrence or non-occurrence of any predetermined
event or circumstance in violation of the Act. Except as provided in
the Registration Rights Agreement, the Company has no obligation to
register the Common Stock issuable upon conversion of the Debentures.
(e) The undersigned recognizes that an investment in the
Debentures involves substantial risks, including loss of the entire
amount of such investment. Further, the undersigned has carefully read
and considered the schedule entitled Pending Litigation matters
attached hereto as Exhibit C.
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<PAGE> 7
(f) Legends.
(i) The undersigned acknowledges that each
certificate representing the Debentures unless registered
pursuant to the Registration Rights Agreement, shall be
stamped or otherwise imprinted with a legend substantially in
the following form:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE MAY NOT BE
OFFERED OR SOLD, TRANSFERRED, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT (i) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, (ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT
(OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES), OR (iii) IF AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
NOTWITHSTANDING THE FOREGOING, THE COMMON STOCK INTO WHICH THE
SECURITIES EVIDENCED BY THIS CERTIFICATE ARE CONVERTIBLE ARE
ALSO SUBJECT TO THE REGISTRATION RIGHTS SET FORTH IN EACH OF
THAT CERTAIN SUBSCRIPTION AGREEMENT AND REGISTRATION RIGHTS
AGREEMENT BY AND BETWEEN THE HOLDER HEREOF AND THE COMPANY, A
COPY OF EACH IS ON FILE AT THE COMPANY'S PRINCIPAL EXECUTIVE
OFFICE.
(ii) The Common Stock issued upon conversion shall
contain the following legend:
THE SECURITIES REPRESENTED HEREBY HAVE BEEN INCLUDED IN THE
COMPANY'S REGISTRATION STATEMENT INITIALLY FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON __________, 1997, AND
MAY BE SOLD IN ACCORDANCE WITH THE COMPANY'S PROSPECTUS DATED
___________, 1997, WHICH FORMS A PART OF SUCH REGISTRATION
STATEMENT, OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
(g) If this Subscription Agreement is executed and delivered
on behalf of a corporation, (i) such corporation has the full legal
right and power and all authority and approval required (a) to execute
and deliver,
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<PAGE> 8
or authorize execution and delivery of, this Subscription Agreement and
all other instruments (including, without limitation, the Registration
Rights Agreement) executed and delivered by or on behalf of such
corporation in connection with the purchase of the Debentures and (b)
to purchase and hold the Debentures: (ii) the signature of the party
signing on behalf of such corporation is binding upon such corporation;
and (iii) such corporation has not been formed for the specific purpose
of acquiring the Debentures, unless each beneficial owner of such
entity is qualified as an accredited investor within the meaning of
Rule 501(a) of Regulation D and has submitted information
substantiating such individual qualification.
(h) The undersigned shall indemnify and hold harmless the
Company and each stockholder, executive, employee, representative,
affiliate, officer, director, agent (including Counsel) or control
person of the Company, who is or may be a party or is or may be
threatened to be made a party to any threatened, pending or
contemplated action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of or arising from any
actual or alleged misrepresentation or misstatement of facts or
omission to represent or state facts made or alleged to have been made
by the undersigned to the Company or omitted or alleged to have been
omitted by the undersigned, concerning the undersigned or the
undersigned's subscription for and purchase of the Debentures or the
undersigned's authority to invest or financial position in connection
with the Offering, including, without limitation, any such
misrepresentation, misstatement or omission contained in this
Subscription Agreement, the Questionnaire or any other document
submitted by the undersigned, against losses, liabilities and expenses
for which the Company, or any stockholder, executive, employee,
representative, affiliate, officer, director, agent (including Counsel)
or control person of the Company has not otherwise been reimbursed
(including attorneys' fees and disbursements, judgments, fines and
amounts paid in settlement) actually and reasonably incurred by the
Company, or such officer, director stockholder, executive, employee,
agent (including Counsel), representative, affiliate or control person
in connection with such action, suit or proceeding.
(i) The undersigned is not subscribing for the Debentures as a
result of, or pursuant to, any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio or presented at any seminar or
meeting.
(j) The undersigned or the undersigned's representatives, as
the case may be, has such knowledge and experience in financial, tax
and business matters so as to enable the undersigned to utilize the
information made available to the undersigned in connection with the
Offering to
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<PAGE> 9
evaluate the merits and risks of an investment in the Debentures and to
make an informed investment decision with respect thereto.
(k) The Purchaser is purchasing the Debentures for its own
account for investment, and not with a view toward the resale or
distribution thereof. Purchaser is neither an underwriter of, nor a
dealer in, the Debentures or the Common Stock issuable upon conversion
thereof and is not participating in the distribution or resale of the
Debentures or the Common Stock issuable upon conversion thereof.
(l) There has never been represented, guaranteed, or warranted
to the undersigned by any broker, the Company, its officers, directors
or agents, or employees or any other person, expressly or by
implication (i) the percentage of profits and/or amount of or type of
consideration, profit or loss to be realized, if any, as a result of
the Company's operations; and (ii) that the past performance or
experience on the part of the management of the Company, or of any
other person, will in any way result in the overall profitable
operations of the Company.
3. SELLER REPRESENTATIONS.
(a) Concerning the Securities. The issuance, sale and delivery
of the Debentures have been duly authorized by all required corporate action on
the part of Seller, and when issued, sold and delivered in accordance with the
terms hereof and thereof for the consideration expressed herein and therein,
will be duly and validly issued and enforceable in accordance with their terms,
subject to the laws of bankruptcy and creditors' rights generally. 1,500,000
shares of Common Stock issuable upon conversion of all the Debentures issued
pursuant to this offering have been duly and validly reserved for issuance, or
alternative arrangements agreed to in writing to cover the contingency of their
being insufficient reserved shares and, upon issuance shall be duly and validly
issued, fully paid, and non-assessable (the "Reserved Shares"). From time to
time, the Company shall keep such additional shares of Common Stock reserved so
as to allow for the conversion of all the Debentures issued pursuant to this
offering. Upon an increase in the number of authorized shares of Common Stock of
the Company to 50,000,000, the Company shall reserve a total of at least
5,000,000 shares to cover conversion of all the Debentures issued in this
offering.
Prior to conversion of all the Debentures, if at anytime the conversion
of all the Debentures outstanding would result in an insufficient number of
authorized shares of Common Stock being available to cover all the conversions,
then in such event, the Company will move to call and hold a shareholder's
meeting within 60 days of such event for the purpose of authorizing additional
shares of Common Stock to facilitate the conversions. In such an event the
Company shall recommend to all shareholders to vote their shares in favor of
increasing the authorized number of shares of Common Stock . Seller represents
and warrants that under no circumstances will it deny or prevent Purchaser's
right to convert the Debentures as permitted under the terms of this
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<PAGE> 10
Subscription Agreement or the Registration Rights Agreement. Nothing in this
Section shall limit the obligation of the Company to make the payments set forth
in Section 4(h).
(ii) In anticipation of the potential need for additional
Reserved Shares, the Company has forwarded (to the S.E.C.) a Proxy Statement for
an annual meeting currently scheduled to be held on December 23, 1997, whereat
the Company proposes to increase its authorized shares to 50,000,000 shares of
Common Stock.
(b) Authority to Enter Agreement. This Agreement has been duly
authorized, validly executed and delivered on behalf of Seller and is a valid
and binding agreement in accordance with its terms, subject to general
principals of equity and to bankruptcy or other laws affecting the enforcement
of creditors' rights generally.
(c) Non-contravention. The execution and delivery of this
Agreement and the consummation of the issuance of the Debentures, and the
transactions contemplated by this Agreement do not and will not conflict with or
result in a breach by Seller of any of the terms or provisions of, or constitute
a default under, the articles of incorporation or by-laws of Seller, or any
indenture, mortgage, deed of trust, or other material agreement or instrument to
which Seller is a party or by which it or any of its properties or assets are
bound, or any existing applicable law, rule, or regulation of the United States
or any State thereof or any applicable decree, judgment, or order of any Federal
or State court, Federal or State regulatory body, administrative agency or other
United States governmental body having jurisdiction over Seller or any of its
properties or assets.
(d) Company Compliance. The Company represents and warrants
that the Company and its subsidiaries are: (i) in full compliance, to the extent
applicable, with all reporting obligations under either Section 13(a) or 15(d)
of the Securities Exchange Act of 1934; (ii) not in violation of any term or
provision of its Certificate of Incorporation or by-laws; (iii) not in default
in the performance or observance of any obligation, agreement or condition
contained in any bond, debenture, note or any other evidence of indebtedness or
in any mortgage, deed of trust, indenture or other instrument or agreement to
which they are a party, either singly or jointly, by which it or any of its
property is bound or subject except at set forth in Exhibit D. Furthermore, the
Company is not aware of any other facts, which it has not disclosed which could
have a material adverse effect on the business, condition, (financial or
otherwise), operations, earnings, performance, properties or prospects of the
Company and its subsidiaries taken as a whole.
(e) Pending Litigation. Except as otherwise disclosed in
Exhibit C, there is (i) no action, suit or proceeding before or by any court,
arbitrator or governmental body now pending or, to the knowledge of the Company,
threatened or contemplated to which the Company or any of its subsidiaries is or
may be a party or to which the business or property of the Company or any of its
subsidiaries is or may be bound or subject, (ii) no law, statute, rule,
regulation, order or ordinance that has been enacted, adopted or issued by any
Governmental Body or that, to the knowledge of the Company, has been proposed by
any Governmental Body adversely affecting the Company or any of
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<PAGE> 11
its subsidiaries, (iii) no injunction, restraining order or order of any nature
by a federal, state or foreign court or Governmental Body of competent
jurisdiction to which the Company or any of its subsidiaries is subject issued
that, in the case of clauses (i), (ii) and (iii) above, (x) is reasonably
likely, singly or in the aggregate, to result in a material adverse effect on
the business, condition, (financial or otherwise), operations, earnings,
performance, properties or prospects of the Company, and its subsidiaries taken
as a whole or (y) would interfere with or adversely affect the issuance of the
Debentures or would be reasonably likely to render this Subscription Agreement
or the Debentures, or any portion thereof, invalid or unenforceable.
(f) Issuance of the Debentures. No action has been taken and
no law, statute, rule, regulation, order or ordinance has been enacted, adopted
or issued by any Governmental Body that prevents the issuance of the Debentures
or the Common Stock issuable upon conversion or exercise thereof; no injunction,
restraining order or order of any nature by a federal or state court of
competent jurisdiction has been issued that prevents the issuance of the
Debentures or the Common Stock issuable upon conversion or exercise thereof or
suspends the sale of the Debentures or the Common Stock issuable upon conversion
thereof in any jurisdiction; and no action, suit or proceeding is pending
against or, to the best knowledge of the Company, threatened against or
affecting, the Company, any of its subsidiaries or, to the best knowledge of the
Company, before any court or arbitrator or any Governmental Body that, if
adversely determined, would prohibit, materially interfere with or adversely
affect the issuance or marketability of the Debentures or the Common Stock
issuable upon conversion or exercise thereof or render the Subscription
Agreement or the Debentures, or any portion thereof, invalid or unenforceable.
(g) The Company shall indemnify and hold harmless the Purchaser and
each stockholder, executive, employee, representative, affiliate, officer,
director or control person of the Purchaser, who is or may be a party or is or
may be threatened to be made a party to any threatened, pending or contemplated
action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of or arising from any actual or alleged
misrepresentation or misstatement of facts or omission to represent or state
facts made or alleged to have been made by the Company to the Purchaser or
omitted or alleged to have been omitted by the Company, concerning the Purchaser
or the Purchaser's subscription for and purchase of the Debentures or the
Purchaser 's authority to invest or financial position in connection with the
Offering, including, without limitation, any such misrepresentation,
misstatement or omission contained in this Subscription Agreement, the
Questionnaire or any other document submitted by the Company, against losses,
liabilities and expenses for which the Purchaser, or any stockholder, executive,
employee, representative, affiliate, officer, director or control person of the
Purchaser has not otherwise been reimbursed (including attorneys' fees and
disbursements, judgments, fines and amounts paid in settlement) actually and
reasonably incurred by the Purchaser,
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<PAGE> 12
or such officer, director, stockholder, executive, employee, representative,
affiliate or control person in connection with such action, suit or proceeding.
(h) No Change. Other than filings required by the Blue Sky or federal
securities law, no consent, approval or authorization of or designation,
declaration or filing with any governmental or other regulatory authority on the
part of the Company is required in connection with the valid execution, delivery
and performance of this Agreement. Any required qualification or notification
under applicable federal securities laws and state Blue Sky laws of the offer,
sale and issuance of the Debentures, has been obtained on or before the date
hereof or will have been obtained within the allowable period thereafter, and a
copy thereof will be forwarded to Counsel for the Purchaser.
(i) True Statements. Neither this Agreement nor any of the "Disclosure
Documents", as hereinafter defined, contains any untrue statement of a material
fact or omits to state any material fact necessary in order to make the
statements contained herein or therein not misleading in the light of the
circumstances under which such statements are made. There exists no fact or
circumstances which, to the knowledge of the Company, materially and adversely
affects the business, properties or assets, or conditions, financial or
otherwise, of the Company, which has not been set forth in this Subscription
Agreement or disclosed in such documents.
(j) The Purchaser has been advised that the Company has not retained
any independent professionals to review or comment on this Offering or otherwise
protect the interests of the Purchaser. Although the Company has retained its
own counsel, neither such counsel nor any other firm, including Joseph B.
LaRocco, Esq., has acted on behalf of the Purchaser, and the Purchaser should
not rely on the Company's legal counsel or Joseph B. LaRocco, Esq. with respect
to any matters herein described.
(k) Prior Shares Issued Under Regulation S or Regulation D. In the past
six months the Company raised $4,265,500 in Regulation S offerings. The Company
has raised $5,000,000 in Regulation D offerings in August of 1997 a portion of
which is being rolled-over. Also, the Company is in the process of raising up to
an additional $3,800,000 in Regulation D financing.
(l) Current Authorized Shares. As of November 20, 1997, there were
30,000,000 authorized shares of Common Stock of which approximately 28,443,403
shares of Common Stock were deemed issued and outstanding on a fully diluted
basis.
(m) Disclosure Documents. The Disclosure Documents are all the
documents (other than preliminary materials) that the Company has been required
to file with the SEC from June 30, 1997, to the date hereof. As of their
respective dates, none of the Disclosure Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or
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<PAGE> 13
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, and no material event has occurred
since the Company's filing on Form 10-KSB for the year ended June 30, 1997,
which could make any of the disclosures contained therein misleading. The
financial statements of the Company included in the Disclosure Documents have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of unaudited financial
statements, only to normal recurring year-end audit adjustments) the
consolidated financial position of the Company and its consolidated subsidiaries
as at the dates thereof and the consolidated results of their operations and
changes in financial position for the periods then ended.
(n) Information Supplied. The information supplied by the Company to
Purchaser in connection with the offering of the Debentures does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements, in the light of the circumstances in which they were
made, not misleading. There exists no fact or circumstances which, to the
knowledge of the Company, materially and adversely affects the business,
properties, assets, or conditions, financial or otherwise, of the Company, which
has not been set forth in this Agreement or disclosed in such documents.
(o) Delivery Instructions. On the Closing Date the Debentures being
purchased hereunder shall be delivered to Joseph B. LaRocco, Esq. as Escrow
Agent, who will simultaneously wire to the Company the funds being held in
escrow, less placement fees, at which time the Escrow Agent shall then have the
Debentures delivered to the Purchaser, per the Purchaser's instructions.
(p) Non-contravention. The execution and delivery of this Agreement by
the Company, the issuance of the Debentures, and the consummation by the Company
of the other transactions contemplated by this Agreement, and the Debentures do
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 (i) certificate
of incorporation or by-laws of the Company, (ii) any indenture, mortgage, deed
of trust, or other material agreement or instrument to which the Company is a
party or by which it or any of its properties or assets are bound, (iii) any
material existing applicable law, rule, or regulation or any applicable decree,
judgment, or (iv) order of any court, United States federal or state regulatory
body, administrative agency, or other governmental body having jurisdiction over
the Company or any of its properties or assets, except such conflict, breach or
default which would not have a material adverse effect on the transactions
contemplated herein.
(q) No Default. Except as may be set forth in the Company's report on
form 10-KSB for the fiscal year ending June 30, 1997, the Company is not in
default in the performance or observance of any material obligation, agreement,
covenant or
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<PAGE> 14
condition contained in any indenture, mortgage, deed of trust or other material
instrument or agreement to which it is a party or by which it or its property is
bound, and neither the execution of, nor the delivery by the Company of, nor the
performance by the Company of its obligations under, this Agreement or the
Debentures, other than the conversion provision thereof, will conflict with or
result in the breach or violation of any of the terms or provisions of, or
constitute a default or result in the creation or imposition of any lien or
charge on any assets or properties of the Company under, (i) any material
indenture, mortgage, deed of trust or other material agreement applicable to the
Company or instrument to which the Company is a party or by which it is bound,
(ii) any statute applicable to the Company or its property, (iii) the
Certificate of Incorporation or By-Laws of the Company, (iv) any decree ,
judgment, order, rule or regulation of any court or governmental agency or body
having jurisdiction over the Company regulation of any court or governmental
agency or body having jurisdiction over the Company or its properties, or (v)
the Company's listing agreement for its Common Stock.
(r) Use of Proceeds. The Company represents that the net proceeds of
this offering will be used for working capital.
(s) The Purchaser has been advised that the Company has entered into a
consulting agreement with Net Financial International, Ltd. pursuant to which it
will pay a fee of 10% of the gross proceeds of this offering.
4. TERMS OF CONVERSION.
(a) Debentures. Upon receipt by the Company or its designated
attorney of a facsimile or original of Purchaser's signed Notice of Conversion
and the original Debenture to be converted in whole or in part, the Company
shall instruct its transfer agent to issue one or more Certificates representing
that number of shares of Common Stock into which the Debenture is convertible in
accordance with the provisions regarding conversion set forth in Exhibit D
hereto. The Seller's transfer agent or attorney shall act as Registrar and shall
maintain an appropriate ledger containing the necessary information with respect
to each Debenture.
(b) Conversion Procedures. Twenty-five percent (25%) of the
face amount of the Debentures may be converted at the earlier of the effective
date of the Registration Statement or March 21, 1998. Such conversion shall be
effectuated by surrendering to the Company, or its attorney, the Debentures to
be converted together with a facsimile or original of the signed Notice of
Conversion which evidences Purchaser's intention to convert those Debentures
indicated. An additional twenty-five percent (25%) of the face amount of the
Debentures, fifty percent 50% cumulatively, may be converted after the earlier
of 30 days following the effective date of the Registration Statement or April
20, 1998. An additional
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twenty-five percent (25%), seventy-five percent (75%) cumulatively, may be
converted after the earlier of 60 days following the effective date of the
Registration Statement or May 20, 1998. An additional twenty-five percent (25%),
one hundred percent (100%) cumulatively, may be converted after the earlier of
90 days following the effective date of the Registration Statement or June 19,
1998. The date on which the Notice of Conversion is effective ("Conversion
Date") shall be deemed to be the date on which the Purchaser has delivered to
the Company a facsimile or original of the signed Notice of Conversion, as long
as the original Debentures to be converted are received by the Company or its
designated attorney within 5 business days thereafter. Unless otherwise notified
by the Company in writing via facsimile, the Company's designated attorney is
Gary B. Wolff, Esq., 747 Third Avenue, New York, NY 10017 (P) 212-644-6446 (f)
212-644-6498.
(c) Common Stock to be Issued Without Restrictive Legend. Upon
the conversion of any Debentures and upon receipt by the Company or its
designated attorney of a facsimile or original of Purchaser's signed Notice of
Conversion (see Exhibit D) Seller shall instruct Seller's transfer agent to
issue Stock Certificates without restrictive legend or stop transfer
instructions, if at that time the Registration Statement has been deemed
effective (or with proper restrictive legend if the Registration Statement has
not as yet been declared effective), in the name of Purchaser (or its nominee)
and in such denominations to be specified at conversion representing the number
of shares of Common Stock issuable upon such conversion, as applicable. Seller
warrants that no instructions, other than these instructions, have been given or
will be given to the transfer agent and that the Common Stock shall otherwise be
freely transferable on the books and records of Seller, except as may be set
forth herein.
(d) (i) Conversion Rate. Purchaser is entitled, at its option
to convert twenty-five percent (25%) of the face amount of the Debentures, plus
accrued interest, at the earlier of the effective date of the Registration
Statement or March 21, 1998, at 75% of the 5 day average closing bid price, as
reported by Nasdaq, or whatever primary exchange the Company's Common Stock may
be traded on, for the 5 trading days immediately preceding the applicable
Conversion Date (the "Conversion Price"). Purchaser is entitled, at its option
to convert an additional twenty-five percent (25%), fifty percent (50%)
cumulatively, of the face amount of the Debentures, plus accrued interest, at
the earlier of 30 days after the effective date of the Registration Statement or
April 20, 1998, at 75% of the 5 day average closing bid price, as reported by
Nasdaq, or whatever primary exchange the Company's Common Stock may be traded
on, for the 5 trading days immediately preceding the applicable Conversion Date.
Purchaser is entitled, at its option, to convert an additional twenty-five
percent (25%), seventy-five percent (75%) cumulatively, of the face amount of
the Debentures, plus accrued interest at the earlier of 60 days after the
effective date of the Registration Statement or May 20, 1998, at 75% of the 5
day average closing bid price, as reported by Nasdaq, or whatever primary
exchange the Company's Common Stock may be traded on, for the 5 trading days
immediately preceding the applicable Conversion Date. Purchaser is entitled, at
its option, to convert an additional twenty-five percent (25%), one hundred
percent (100%) cumulatively, of the face amount of the
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<PAGE> 16
Debentures, plus accrued interest at the earlier of 90 days after the effective
date of the Registration Statement or June 19, 1998, at 75% of the 5 day average
closing bid price, as reported by Nasdaq, or whatever primary exchange the
Company's Common Stock may be traded on, for the 5 trading days immediately
preceding the applicable Conversion Date. No fractional shares or scrip
representing fractions of shares will be issued on conversion, but the number of
shares issuable shall be rounded up or down, as the case may be, to the nearest
whole share.
(ii) Redemption Terms. The Company reserves the right, at its sole
option, to call a mandatory redemption of any percentage of the balance on the
Debentures during the two hundred ten (210) day period following the Closing
Date. In the event the Company exercises such right of redemption up to and
including the two hundred tenth (210th) day following the Closing Date it shall
pay the Purchaser, in U.S. currency One Hundred Thirty Percent (130%) of the
face amount of the Debentures redeemed. Mandatory redemption by the Company
shall be effected by the Company notifying the Purchaser by facsimile at the
number listed in this Agreement of the Company's intention to exercise its right
of mandatory redemption. The Company shall state in such notice the dollar
amount of the Debentures it intends to redeem, the amount that it will pay to
effectuate such redemption and the date by which the Purchaser must deliver the
Debentures to Joseph B. LaRocco, Escrow Agent (including the Escrow Agent's
address) unless the Company is already in receipt of those Debentures to be
redeemed. The date by which the Debentures must be delivered to the Escrow Agent
shall not be later than 10 business days following the date the Company notifies
the Purchaser by facsimile of the redemption. The Company shall give the
Purchaser at least 2 business day's notice of the above information. On or
before the date by which the Purchaser is to deliver the original Debentures to
the Escrow Agent, the Company shall wire to the Escrow Agent that amount
necessary to pay the Purchaser to effectuate the mandatory redemption. Once the
Escrow Agent is in receipt of the original Debentures and those funds necessary
to effectuate the mandatory conversion he shall wire those funds to the
Purchaser and deliver to the Company the original Debentures via overnight
courier. The Purchaser shall not be entitled to send a Conversion Notice to the
Company with respect to the Debentures being redeemed during such period.
(iii) Most Favored Financing. If after the Closing Date, but
prior to the Purchaser's conversion of all the Debentures, the Company raises
money under either Regulation D or Regulation S on terms that are more favorable
than those terms set forth in this Subscription Agreement, then in such event,
the Purchaser at its sole option shall be entitled to completely replace the
terms of this Subscription Agreement with the terms of the more beneficial
Subscription Agreement as to that balance, including accrued interest and any
accumulated liquidated damages, remaining on Purchaser's original investment.
The Debentures are subject to a mandatory, 24 month conversion feature at the
end of which all Debentures outstanding will be automatically converted, upon
the terms set forth in this section ("Mandatory Conversion Date").
16
<PAGE> 17
(e) Nothing contained in this Subscription Agreement shall be
deemed to establish or require the payment of interest to the Purchaser at a
rate in excess of the maximum rate permitted by governing law. In the event that
the rate of interest required to be paid exceeds the maximum rate permitted by
governing law, the rate of interest required to be paid thereunder shall be
automatically reduced to the maximum rate permitted under the governing law and
such excess shall be returned with reasonable promptness by the Purchaser to the
Company.
(f) It shall be the Company's responsibility to take all
necessary actions and to bear all such costs to issue the Certificate of Common
Stock as provided herein, including the responsibility and cost for delivery of
an opinion letter to the transfer agent, if so required. The person in whose
name the certificate of Common Stock is to be registered shall be treated as a
shareholder of record on and after the conversion date. Upon surrender of any
Debentures that are to be converted in part, the Company shall issue to the
Purchaser a new Debenture equal to the unconverted amount, if so requested in
writing by Purchaser.
(g) Within five (5) business days after receipt of the
documentation referred to above in Section 4(b), the Company shall deliver a
certificate, without stop transfer instructions, for the number of shares of
Common Stock issuable upon the conversion. It shall be the Company's
responsibility to take all necessary actions and to bear all such costs to issue
the Common Stock as provided herein, including the cost for delivery of an
opinion letter to the transfer agent, if so required. The person in whose name
the certificate of Common Stock is to be registered shall be treated as a
shareholder of record on and after the conversion date. Upon surrender of any
Debentures that are to be converted in part, the Company shall issue to the
Purchaser a new Debenture equal to the unconverted amount, if so requested in
writing by Purchaser.
In the event the Company does not make delivery of the Common Stock, as
instructed by Purchaser, within 8 business days after delivery of the original
Debenture, then in such event the Company shall pay to Purchaser an amount, in
cash in accordance with the following schedule, wherein "No. Business Days Late"
is defined as the number of business days beyond the 8 business days delivery
period.
<TABLE>
<CAPTION>
Late Payment for Each
$10,000 of Debenture
No. Business Days Late Amount Being Converted
- ---------------------- ----------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C>
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each
Business Day Beyond 10
</TABLE>
The Company acknowledges that its failure to deliver the Common Stock
within 8 business days after the Conversion Date will cause the Purchaser to
suffer damages in an amount that will be difficult to ascertain. Accordingly,
the parties agree that it is appropriate to include in this Agreement a
provision for liquidated damages. The parties acknowledge and agree that the
liquidated damages provision set forth in this section represents the parties'
good faith effort to qualify such damages and, as such, agree that the form and
amount of such liquidated damages are reasonable and will not constitute a
penalty. The payment of liquidated damages shall not relieve the Company from
its obligations to deliver the Common Stock pursuant to the terms of this
Agreement.
To the extent that the failure of the Company to issue the Common Stock
pursuant to this Section 4(g) is due to the unavailability of authorized but
unissued shares of Common Stock, the provisions of this Section 4(g) shall not
apply but instead the provisions of Section 4(h) shall apply.
The Company shall make any payments incurred under this Section 4(g) in
immediately available funds within five (5) business days from the Conversion
Date if late. Nothing herein shall limit a Purchaser's right to pursue actual
damages or cancel the conversion for the Company's failure to issue and deliver
Common Stock to the Holder within 8 business days after the Conversion Date.
(h) The Company shall at all times reserve and have available
all Common Stock necessary to meet conversion of the Debentures by all
Purchasers of the entire amount of Debentures then outstanding. If, at any time
Purchaser submits a Notice of Conversion and the Company does not have
sufficient authorized but unissued shares of Common Stock available to effect,
in full, a conversion of the Debentures (a "Conversion Default", the date of
such default being referred to herein as the "Conversion Default Date"), the
Company shall issue to the Purchaser all of the shares of Common Stock which are
available, and the Notice of Conversion as to any Debentures requested to be
converted but not converted (the "Unconverted Debentures"), upon Purchaser's
sole option, may be deemed null and void. The Company shall provide notice of
such Conversion Default ("Notice of Conversion Default") to all existing
Purchasers of outstanding Debentures, by facsimile, within three (3) business
day of such default (with the original delivered by overnight or two day
courier), and the Purchaser shall give notice to the Company by facsimile within
five business days of receipt of the original Notice of Conversion Default (with
the original delivered by overnight or two day courier) of its election to
either nullify or confirm the Notice of Conversion.
18
<PAGE> 19
The Company agrees to pay to all Purchasers of outstanding Debentures
payments for a Conversion Default ("Conversion Default Payments") in the amount
of (N/365) x (.24) x the initial issuance price of the outstanding and/or
tendered but not converted Debentures held by each Purchaser where N = the
number of days from the Conversion Default Date to the date (the "Authorization
Date") that the Company authorizes a sufficient number of shares of Common Stock
to effect conversion of all remaining Debentures. The Company shall send notice
("Authorization Notice") to each Purchaser of outstanding Debentures that
additional shares of Common Stock have been authorized, the Authorization Date
and the amount of Purchaser's accrued Conversion Default Payments. The accrued
Conversion Default shall be paid in cash or shall be convertible into Common
Stock at the Conversion Rate, at the Purchaser's option, payable as follows: (i)
in the event Purchaser elects to take such payment in cash, cash payments shall
be made to such Purchaser of outstanding Debentures by the fifth day of the
following calendar month, or (ii) in the event Purchaser elects to take such
payment in stock, the Purchaser may convert such payment amount into Common
Stock at the conversion rate set forth in section 4(d) at anytime after the 5th
day of the calendar month following the month in which the Authorization Notice
was received, until the expiration of the mandatory 24 month conversion period.
The company acknowledges that its failure to maintain a sufficient
number of authorized but unissued shares of Common Stock to effect in full a
conversion of the Debentures will cause the Purchaser to suffer damages in an
amount that will be difficult to ascertain. Accordingly, the parties agree that
it is appropriate to include in this Agreement a provision for liquidated
damages. The parties acknowledge and agree that the liquidated damages provision
set forth in this section represents the parties' good faith effort to quantify
such damages and, as such, agree that the form and amount of such liquidated
damages are reasonable and will not constitute a penalty. The payment of
liquidated damages shall not relieve the Company from its obligations to deliver
the Common Stock pursuant to the terms of this Agreement.
Nothing herein shall limit the Purchaser's right to pursue actual
damages for the Company's failure to maintain a sufficient number of authorized
shares of Common Stock.
(i) The Company shall furnish to Purchaser such number of
prospectuses and other documents incidental to the registration of the shares of
Common Stock underlying the Debentures, including any amendment of or
supplements thereto.
5. LIMITS ON AMOUNT OF CONVERSION AND OWNERSHIP.
Other than the Mandatory Conversion provisions contained in this
Agreement which are not limited by the following, in no other event shall the
19
<PAGE> 20
Purchaser be entitled to convert that amount of Debentures in excess of that
amount upon conversion of which the sum of (1) the number of shares of Common
Stock beneficially owned by the Purchaser and its affiliates (other than shares
of Common Stock which may be deemed beneficially owned through the ownership of
the unconverted portion of the Debentures), and (2) the number of shares of
Common Stock issuable upon the conversion of the Debentures with respect to
which the determination of this proviso is being made, would result in
beneficial ownership by the Purchaser and its affiliates of more than 4.9% of
the outstanding shares of Common Stock of the Company. For purposes of this
provision to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13 (d) of the Securities Exchange Act of
1934, as amended, and Regulation 13 D-G thereunder, except as otherwise provided
in clause (1) of such provision.
6. DELIVERY INSTRUCTIONS.
Prior to or on the Closing Date the Company shall deliver to the Escrow
Agent an opinion letter signed by counsel for the Company in the form attached
hereto as Exhibit E. Also, prior to or on the Closing Date the Company shall
deliver to the Escrow Agent a signed Registration Rights Agreement in the form
attached hereto as Exhibit B. The Debentures being purchased hereunder shall be
delivered to Joseph B. LaRocco, Esq. as Escrow Agent, who will hold them in
escrow until funds have been wired to the Company or its Counsel at which time
the Escrow Agent shall then have the Debentures delivered to the Purchaser, per
the Purchaser's instructions.
7. UNDERSTANDINGS.
The undersigned understands, acknowledges and agrees with the Company
as follows:
FOR ALL SUBSCRIBERS:
(a) This Subscription may be rejected, in whole or in part, by the
Company in its sole and absolute discretion at any time before the date set for
closing unless the Company has given notice of acceptance of the undersigned's
subscription by signing this Subscription Agreement.
(b) No U.S. federal or state agency or any agency of any other
jurisdiction has made any finding or determination as to the fairness of the
terms of the Offering for investment nor any recommendation or endorsement of
the Debentures.
(c) The representations, warranties and agreements of the undersigned
and the Company contained herein and in any other writing
20
<PAGE> 21
delivered in connection with the transactions contemplated hereby shall be true
and correct in all material respects on and as of the date of the sale of the
Debentures, and as of the date of the conversion and exercise thereof, as if
made on and as of such date and shall survive the execution and delivery of this
Subscription Agreement and the purchase of the Debentures.
(d) IN MAKING AN INVESTMENT DECISION, PURCHASERS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THE DEBENTURES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR
STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF ANY
MEMORANDUM OR THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
(e) The Regulation D Offering is intended to be exempt from
registration under the Securities Act by virtue of Section 4(2) of the
Securities Act and the provisions of Regulation D thereunder, which is in part
dependent upon the truth, completeness and accuracy of the statements made by
the undersigned herein and in the Questionnaire.
(f) It is understood that in order not to jeopardize the Offering's
exempt status under Section 4(2) of the Securities Act and Regulation D, any
transferee may, at a minimum, be required to fulfill the investor suitability
requirements thereunder.
(g) THE DEBENTURES MAY NOT BE TRANSFERRED, RESOLD OR OTHERWISE DISPOSED
OF EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. PURCHASERS SHOULD BE
AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT
FOR AN INDEFINITE PERIOD OF TIME.
(h) NASAA UNIFORM LEGEND
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE PERSON OR ENTITY CREATING THE SECURITIES AND THE TERMS OF THE
OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT
BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE
ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT
21
<PAGE> 22
TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR
RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT OF 1933 AND THE APPLICABLE
STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS
OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.
9. LITIGATION.
(a) Forum Selection and Consent to Jurisdiction. Any litigation based
thereon, or arising out of, under, or in connection with, this agreement or any
course of conduct, course of dealing, statements (whether oral or written) or
actions of the Company or Holder shall be brought and maintained exclusively in
the courts of the State of Delaware. The Company hereby expressly and
irrevocably submits to the jurisdiction of the state and federal courts of the
State of Delaware for the purpose of any such litigation as set forth above and
irrevocably agrees to be bound by any final judgment rendered thereby in
connection with such litigation. The Company further irrevocably consents to the
service of process by registered mail, postage prepaid, or by personal service
within or without the State of Delaware. The Company hereby expressly and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may have or hereafter may have to the laying of venue of any such litigation
brought in any such court referred to above and any claim that any such
litigation has been brought in any inconvenient forum. To the extent that the
Company has or hereafter may acquire any immunity from jurisdiction of any court
or from any legal process (whether through service or notice, attachment prior
to judgment, attachment in aid of execution or otherwise) with respect to itself
or its property. The Company hereby irrevocably waives such immunity in respect
of its obligations under this agreement and the other loan documents.
(b) Waiver of Jury Trial. The Holder and the Company hereby knowingly,
voluntarily and intentionally waive any rights they may have to a trial by jury
in respect of any litigation based hereon, or arising out of, under, or in
connection with, this agreement, or any course of conduct, course of dealing,
statements (whether oral or written) or actions of the Holder or the Company.
The Company acknowledges and agrees that it has received full and sufficient
consideration for this provision and that this provision is a material
inducement for the Holder entering into this agreement.
(c) Submission To Jurisdiction. Any legal action or proceeding in
connection with this Agreement or the performance hereof may be brought in the
state and federal courts located in the State of Delaware and the parties hereby
irrevocably submit to the non-exclusive jurisdiction of such courts for the
purpose of any such action or proceeding.
22
<PAGE> 23
10. MISCELLANEOUS.
(a) All pronouns and any variations thereof used herein shall be deemed
to refer to the masculine, feminine, impersonal, singular or plural, as the
identity of the person or persons may require.
(b) Neither this Subscription Agreement nor any provision hereof shall
be waived, modified, changed, discharged, terminated, revoked or canceled,
except by an instrument in writing signed by the party effecting the same
against whom any change, discharge or termination is sought.
(c) Notices required or permitted to be given hereunder shall be in
writing and shall be deemed to be sufficiently given when personally delivered
or sent by registered mail, return receipt requested, addressed: (i) if to the
Company, at Swissray International, Inc. C/O Gary B. Wolff, Esq., 747 Third
Avenue, 25th Floor, New York, NY 10017(ii) if to the undersigned, at the address
for correspondence set forth in the Questionnaire, or at such other address as
may have been specified by written notice given in accordance with this
paragraph 9(c).
(d) This Subscription Agreement shall be enforced, governed and
construed in all respects in accordance with the laws of the State of Delaware,
as such laws are applied by Delaware courts to agreements entered into, and to
be performed in, Delaware by and between residents of Delaware, and shall be
binding upon the undersigned, the undersigned's heirs, estate, legal
representatives, successors and assigns and shall inure to the benefit of the
Company, its successors and assigns. If any provision of this Subscription
Agreement is invalid or unenforceable under any applicable statue or rule of
law, then such provisions shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof that may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof.
(e) This Subscription Agreement, together with Exhibits A, B, C, D and
E attached hereto and made a part hereof, constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and may be
amended only by a writing executed by both parties hereto. An executed facsimile
copy of the Subscription Agreement shall be effective as an original.
11. SIGNATURE.
The signature of this Subscription Agreement is contained as part of
the applicable Subscription Package, entitled "Signature Page."
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK)
23
<PAGE> 24
SWISSRAY INTERNATIONAL, INC.
CORPORATION QUESTIONNAIRE
INVESTOR NAME: _______________
The information contained in this Questionnaire is being furnished in
order to determine whether the undersigned CORPORATION'S Subscription to
purchase the Debentures described in the Subscription Agreement may be accepted.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. The undersigned CORPORATION understands, however, that the
Company may present this Questionnaire to such parties as it deems appropriate
if called upon to establish that the proposed offer and sale of the Debentures
is exempt from registration under the Securities Act of 1933, as amended.
Further, the undersigned CORPORATION understands that the offering is required
to be reported to the Securities and Exchange Commission and to various state
securities and "blue sky" regulators.
IN ADDITION TO SIGNING THE SIGNATURE PAGE, THE UNDERSIGNED CORPORATION
MUST COMPLETE FORM W-9 ATTACHED HERETO.
I. PLEASE CHECK EACH OF THE STATEMENTS BELOW THAT APPLIES TO THE
CORPORATION.
/ /
1. The undersigned CORPORATION: (a) has total assets in excess
of $5,000,000; (b) was not formed for the specific purpose of
acquiring the Debentures and (c) has its principal place of
business in ___________.
/ /
2. Each of the shareholders of the undersigned CORPORATION is
able to certify that such shareholder meets at least one of
the following three conditions:
(a) the shareholder is a natural person whose
individual net worth* or joint net worth
with his or her spouse exceeds $1,000,000;
or
(b) the shareholder is a natural person who had
an individual income* in excess of $200,000
in each of 1995 and 1996 and who reasonably
expects an individual income in excess of
$200,000 in 1997; or
24
<PAGE> 25
(c) Each of the shareholders of the undersigned
CORPORATION is able to certify that such
shareholder is a natural person who,
together with his or her spouse, has had a
joint income in excess of $300,000 in each
of 1995 and 1996 and who reasonably expects
a joint income in excess of $300,000 during
1997; and the undersigned CORPORATION has
its principal place of business in
_________________.
* For purposes of this Questionnaire, the term "net worth"
means the excess of total assets over total liabilities. In
determining income, an investor should add to his or her
adjusted gross income any amounts attributable to tax-exempt
income received, losses claimed as a limited partner in any
limited partnership, deductions claimed for depletion,
contributions to IRA or Keogh retirement plan, alimony
payments and any amount by which income from long-term capital
gains has been reduced in arriving at adjusted gross income.
/ /
3. The undersigned CORPORATION is:
(a) a bank as defined in Section 3(a)(2) of the
Securities Act; or
(b) a savings and loan association or other
institution as defined in Section 3(a)(5)(A)
of the Securities Act whether acting in its
individual or fiduciary capacity; or
(c) a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of
1934; or
(d) an insurance company as defined in Section
2(13) of the Securities Act; or
(e) An investment company registered under the
Investment Company Act of 1940 or a business
development company as defined in Section
2(a)(48) of the Investment Company Act of
1940; or
(f) a small business investment company licensed
by the U.S. Small Business Administration
under Section 301 (c) or (d) of the Small
Business Investment Act of 1958; or
(g) a private business development company as
defined in Section 202(a) (22) of the
Investment Advisors Act of 1940.
25
<PAGE> 26
II. OTHER CERTIFICATIONS.
By signing the Signature Page, the undersigned certifies the following:
(a) That the CORPORATION'S purchase of the Debentures will be solely
for the CORPORATION'S own account and not for the account of any other
person or entity; and
(b) that the CORPORATION'S name, address of principal place of
business, place of incorporation and taxpayer identification number as
set forth in this Questionnaire are true, correct and complete.
III. GENERAL INFORMATION
(a) PROSPECTIVE PURCHASER (THE CORPORATION)
Name:
Principal Place of Business: __________________________________________________
________________________________________________________________________________
Address for Correspondence (if different):_____________SAME_____________________
(Number and Street)
________________________________________________________________________________
(City) (State) (Zip Code)
Telephone Number:_________________________________________________________
(Area Code) (Number)
Jurisdiction of Incorporation:__________________________________________________
Date of Formation:______________________________________________________________
Taxpayer Identification Number:_________________________________________________
Number of Shareholders:_________________________________________________________
(b) INDIVIDUAL WHO IS EXECUTING THIS QUESTIONNAIRE ON BEHALF OF
THE CORPORATION.
Name:___________________________________________________________________________
Position or Title:______________________________________________________________
26
<PAGE> 27
SWISSRAY INTERNATIONAL, INC.
CORPORATION SIGNATURE PAGE
Your signature on this Corporation Signature Page evidences the
agreement by the Purchaser to be bound by the QUESTIONNAIRE and the SUBSCRIPTION
AGREEMENT.
1. The undersigned hereby represents that (a) the information contained
in the Questionnaire is complete and accurate and (b) the Purchaser will notify
SWISSRAY INTERNATIONAL, INC. immediately if any material change in any of the
information occurs prior to the acceptance of the undersigned Purchaser's
subscription and will promptly send SWISSRAY INTERNATIONAL, INC. written
confirmation of such change.
2. The undersigned officer of the Purchaser hereby certifies that he
has read and understands this Subscription Agreement.
3. The undersigned officer of the Purchaser hereby represents and
warrants that he has been duly authorized by all requisite action on the part of
the Corporation to acquire the Debentures and sign this Subscription Agreement
on behalf of _______________ and, further, that ____________________ has all
requisite authority to purchase the Debentures and enter into this Subscription
Agreement.
________________________________ __________________________________
Amount of Debentures subscribed for Date
__________________________________
(Purchaser)
By: ______________________________
(Signature)
Name: ____________________________
(Please Type or Print)
Title: ___________________________
(Please Type or Print)
THE DEBENTURES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED UNLESS SUCH SECURITIES ARE INCLUDED IN AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT.
27
<PAGE> 28
COMPANY ACCEPTANCE PAGE
This Subscription Agreement accepted
and agreed to this ____ day of November, 1997
SWISSRAY INTERNATIONAL, INC.
BY___________________________________________________
Ruedi G. Laupper, its Chairman and President
duly authorized
28
<PAGE> 29
EXHIBIT D
NOTICE OF CONVERSION
(TO BE EXECUTED BY THE REGISTERED OWNER IN ORDER TO CONVERT
THE DEBENTURES
THE UNDERSIGNED HEREBY IRREVOCABLY ELECTS, AS OF ______________, 199_
TO CONVERT $__________ OF CONVERTIBLE DEBENTURES INTO COMMON STOCK OF SWISSRAY
INTERNATIONAL, INC.(THE "COMPANY") ACCORDING TO THE CONDITIONS SET FORTH IN THE
SUBSCRIPTION AGREEMENT DATED NOVEMBER ____, 1997.
DATE OF CONVERSION__________________________________________
APPLICABLE CONVERSION PRICE_________________________________
NUMBER OF SHARES ISSUABLE UPON THIS CONVERSION______________
SIGNATURE___________________________________________________
[NAME]
ADDRESS_____________________________________________________
____________________________________________________________
PHONE______________________ FAX___________________________
29
<PAGE> 30
EXHIBIT E
_______________, 1997
Purchasers of [Company] [Describe Securities]
Re: [Company]
Ladies and Gentlemen:
We have acted as counsel to [Company], a corporation incorporated under
the laws of the State of _________ (the "Company"), in connection with the
proposed issuance and sale of convertible debentures (the "Securities") pursuant
to the Distribution Agreement and the related Subscription Agreement (including
all Exhibits and Appendices thereto) (collectively the "Agreements").
In connection with rendering the opinions set forth herein, we have
examined drafts of the Agreement, the Company's Certificate of Incorporation,
and its Bylaws, as amended to date [other documents - describe], the proceedings
of the Company's Board of Directors taken in connection with entering into the
Agreements, and such other documents, agreements and records as we deemed
necessary to render the opinions set forth below.
In conducting our examination, we have assumed the following: (i) that
each of the Agreements has been executed by each of the parties thereto in the
same form as the forms which we have examined, (ii) the genuineness of all
signatures, the legal capacity of natural persons, the authenticity and accuracy
of all documents submitted to us as originals, and the conformity to originals
of all documents submitted to us as copies, (iii) that each of the Agreements
has been duly and validly authorized, executed and delivered by the party or
parties thereto other than the Company, and (iv) that each of the Agreements
constitutes the valid and binding agreement of the party or parties thereto
other than the Company, enforceable against such party or parties in accordance
with the Agreements' terms.
Based upon the subject to the foregoing, we are of the opinion that:
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of __________, is duly
30
<PAGE> 31
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions where the Company owns or leases properties, maintains employees
or conducts business, except for jurisdictions in which the failure to so
qualify would not have a material adverse effect on the Company, and has all
requisite corporate power and authority to own its properties and conduct its
business.
2. The authorized capital stock of the Company consists of _______
shares of Common Stock, ________ par value per share, ("Common Stock") and
______________ Preferred Stock, par value $________ per share; [describe classes
if applicable]
3. The Common Stock is registered pursuant to Section 12(b) or Section
12(g) of the Securities Exchange Act of 1934, as amended and the Company has
timely filed all the material required to be filed pursuant to Sections 13(a) or
15(d) of such Act for a period of at least twelve months preceding the date
hereof;
4. When duly countersigned by the Company's transfer agent and
registrar, and delivered to you or upon your order against payment of the agreed
consideration therefor in accordance with the provisions of the Agreements, the
Securities [and any Common Stock to be issued upon the conversion of the
Securities] as described in the Agreements represented thereby will be duly
authorized and validly issued, fully paid and nonassessable;
5 The Company has the requisite corporate power and authority to enter
into the Agreements and to sell and deliver the Securities and the Common Stock
to be issued upon the conversion of the Securities as described in the
Agreements; each of the Agreements has been duly and validly authorized by all
necessary corporate action by the Company to our knowledge, no approval of any
governmental or other body is required for the execution and delivery of each of
the Agreements by the Company or the consummation of the transactions
contemplated thereby; each of the Agreements has been duly and validly executed
and delivered by and on behalf of the Company, and is a valid and binding
agreement of the Company, enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other laws
affecting creditors rights generally, and except as to compliance with federal,
state, and foreign securities laws, as to which no opinion is expressed;
6. To the best of our knowledge, after due inquiry, the execution,
delivery and performance of the Agreements by the Company and the performance of
its obligations thereunder do not and will not constitute a breach or violation
of any of the terms and provisions of, or constitute a default under or conflict
with or violate any provision of (i) the Company's Certificate of Incorporation
or By-Laws, (ii) any indenture, mortgage, deed of trust, agreement
31
<PAGE> 32
or other instrument to which the Company is party or by which it or any of its
property is bound, (iii) any applicable statute or regulation or as other, (iv)
or any judgment, decree or order of any court or governmental body having
jurisdiction over the Company or any of its property.
7. The issuance of Common Stock upon conversion of the debentures in
accordance with the terms and conditions of the Agreements, will not violate the
applicable listing agreement between the Company and any securities exchange or
market on which the Company's securities are listed.
8. To the best of our knowledge, after due inquiry, there is no pending
or threatened litigation, investigation or other proceedings against the Company
[except as described in Exhibit A hereto].
9. The Company complies with the eligibility requirements for the use
of Form S-3, under the Securities Act of 1933, as amended.
Note: Use this where Registration Rights were included in the offering and the
Company is S-3 eligible.
This opinion is rendered only with regard to the matters set out in the
numbered paragraphs above. No other opinions are intended nor should they be
inferred. This opinion is based solely upon the laws of the United States and
the State of _____________ and does not include an interpretation or statement
concerning the laws of any other state or jurisdiction. Insofar as the
enforceability of the Agreements may be governed by the laws of other states, we
have assumed that such laws are identical in all respects to the laws of the
State of __________.
The opinions expressed herein are given to you solely for your use in
connection with the transaction contemplated by the Agreements and may not be
relied upon by any other person or entity or for any other purpose without our
prior consent.
Very truly yours,
By: ____________________________
32
<PAGE> 1
SWISSRAY INTERNATIONAL, INC.
SUBSCRIPTION AGREEMENT AND RELATED DOCUMENTS
REGARDING AUGUST, 1997, REGULATION D OFFERING
Swissray International, Inc. and the undersigned (collectively "the
parties") warrant, represent and agree as follows:
1. In August of 1997, the undersigned participated in a financing with
Swissray International, Inc. ("SRMI") in accordance with various terms
and conditions contained in a subscription agreement and exhibits
thereto, which consisted of an offering of SRMI's securities pursuant
to Regulation D promulgated under the Securities Act of 1933, as
amended, (the "Act").
2. The undersigned exercised its rights in order to purchase a debenture
convertible into SRMI's common stock.
3. The parties understand that while the terms in the above referenced
subscription agreement and related documents pertained to an offering
conducted in August, 1997, of SRMI's debentures pursuant to Regulation
D, such terms are being wholly replaced with new terms and conditions
pertaining to an offering being conducted in December, 1997, pursuant
to Regulation D. The undersigned will be entitled to substantially the
same rights in the December, 1997, Regulation D offering that it would
have been entitled pursuant to the August, 1997, Regulation D offering.
4. The parties acknowledge, agree and understand that upon execution of
the December, 1997, Regulation D subscription agreement and issuance of
the new convertible debenture that all of the undersigned's rights
pursuant to the August, 1997, Regulation D offering will be replaced
and the undersigned authorizes SRMI to treat the August, 1997,
Regulation D documents as a nullity.
5. The parties further acknowledge, agree and understand that upon
execution of the December, 1997, Regulation D subscription agreement
and issuance of the new convertible debenture that SRMI shall treat all
monies received from the undersigned pursuant to the August, 1997,
Regulation D offering as part of the December, 1997, Regulation D
offering.
SWISSRAY INTERNATIONAL, INC.
By:______________________ By:___________________________
Ruedi G. Laupper, its Chairman
and President
<PAGE> 1
Exhibit 23.1
[BEDERSON & COMPANY LLP LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of both our reports (1) dated September 16, 1997 on
our audits of the financial statement of Swissray International, Inc. for the
years ended June 30, 1997 and 1996 (2) dated September 8, 1995, except for note
24, as to which the date is September 20, 1995 on our audits of the financial
statement of Swissray International, Inc. for the six months ended June 20,
1995 and the years ended December 31, 1994 and 1993 in Swissray International,
Inc.'s Form S-1 filed December 29, 1997.
/s/ Bederson & Company LLP
-----------------------------
BEDERSON & COMPANY LLP
West Orange, New Jersey
December 29, 1997
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