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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1997
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-26972
SWISSRAY INTERNATIONAL, INC.
(Name of Small Business Issuer in Its Charter)
New York 16-0950197
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
200 East 32nd Street, Suite 34-B, New York, New York 10016
(Address of Principal Executive Office) (Zip Code)
United States - 212-545-0095 Switzerland - 011 41 41 919 90 50
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of
the Exchange Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS)
Check whether the issuer; (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for past 90 days.
Yes xx No
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year - $13,151,701
The number of shares outstanding of each of the Registrant's classes of Common
Stock, as of September 10, 1997 is 20,857,051 shares, all of one class of common
stock, $.01 par value. Of this number a total of 16,304,461 shares having an
aggregate market value of $27,521,930, based on the closing price of the
Registrant's common stock of $1.688 on September 10, 1997 as quoted on the
NASDAQ Small Cap market, were held by non-affiliates* of the Registrant.
* Affiliates for the purpose of this item refers to the Registrant's officers
and directors and/or any persons or firms (excluding those brokerage firms
and/or clearing houses and/or depository companies holding Registrant's
securities as record holders only for their respective clienteles' beneficial
interest) owning 5% or more of the Registrant's Common Stock, both of record and
beneficially.
ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS
Check whether the issuer has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes No xx
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Not Applicable
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 20,857,051 shares as of September 10,
1997.
Transitional Small Business Disclosure Format: Yes No [x]
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them
and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into
which the document is incorporated: (1) any annual report to security-holders;
(2) any proxy or information statement; and (3) any prospectus filed pursuant to
Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
None
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TABLE OF CONTENTS
Page
Number
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PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market For Common Equity and Related Stockholder Matters
Item 6. Management's Discussion and Analysis or Plan of Operation
Item 7. Financial Statements F1-F23
Item 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and
Management
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits, List and Reports on Form 8-K
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
BACKGROUND SUMMARY
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, 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.
BUSINESS
The Company is active in the markets for diagnostic imaging devices for
the health care industry. Diagnostic imaging devices include X-ray equipment for
plane projections, 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. In addition, the Company is in the business of
selling imaging systems and components and accessories for X-ray equipment and
providing related services. In Switzerland, the Company is the exclusive
distributor of CT systems, MRI systems and NM systems manufactured by
Elscint Ltd., a leading Israeli manufacturer of diagnostic imaging systems and
other technologically advanced products.
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, mammography and
pulmology. 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 polyester based
film contained in the bucky device. Different types of diagnostic X-ray
equipment have been developed for different uses. A typical room used for
general
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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 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, 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. Instead of
using a bucky device which contains a cassette, a screen and a polyester-based
film as in a conventional X-ray system, the bucky of a direct digital X-ray
system contains a detector which directly converts the X-rays into digital
information. The AddOn-Multi-System, which uses the Company's AddOn Bucky(TM)
as a detector, for the first time makes possible all plane X-ray examinations
on the recumbent, upright and sitting patient without the use of cassettes,
films, chemicals or phosphor plates. The AddOn-Multi-System includes a
SwissVision(TM) workstation which permits the postprocessing of digital image
data and the transfer of such data through central networks or via
telecommunications systems.
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 direct digital radiography (ddR) technology
developed by the Company will take this development to the next level because
the ergonomically advanced AddOn-Multi-System provides an excellent image
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.
Based on the results of marketing and technical research undertaken by
the Company, the Company decided during the fiscal year ended June 30, 1997 not
to market the Company's direct digital detector, the AddOn Bucky(TM), as a
retrofit product for conventional X-ray systems, but rather 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. The primary reason for the
Company's new strategy was management's belief that potential customers can
achieve cost benefits with a multi-functional 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. Additional
reasons were an upcoming regulatory change in Europe, quality concerns and
potential problems in the after-sales market. As a result, management of the
Company came to the conclusion that market acceptance of a complete direct
digital system would be greater than that of a digital detector alone. The
Company's new strategy with respect to its direct digital technology required
the incurrence of significant additional research and development expenses. Due
to this effort, the AddOn-Multi-System was developed during the fiscal year
ended June 30, 1997. The first product has been delivered to a customer during
the first quarter
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of the 1997/98 fiscal year and additional deliveries are scheduled for the
second quarter. See Item 1 - "Research and Development" and Item 6 - "General".
Services provided by the Company include the installation of imaging
equipment, after-sales services for imaging equipment, consulting services and
application training of radiographers.
During the fiscal year ended June 30, 1997, the Company had aggregate
sales of $13,151,701 and a net loss of $10,889,628, compared with aggregate
sales of $10,899,222 and a net loss of $1,891,42 during 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.
The Company estimates that the global market for X-ray equipment,
accessories and related services 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 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.
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 United States Food and Drug
Administration ("FDA") for Section 510(k) clearance. The Company expects that
the necessary 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.
Consistent with the Company's marketing strategy, during the fiscal
year ended June 30, 1997 the Company has made a significant effort to build a
market position in the United States and Germany, the biggest European market.
On November 6, 1996 it formed Swissray Corporation (which has been renamed
Swissray Medical Systems, Inc.), a Delaware corporation located in Azusa,
California, to conduct market research in the United States, develop strategies
for the penetration of the US imaging and health care servicing market and
explore various strategic alternatives for the Company. On April 1, 1997 the
Company acquired a controlling interest in Empower, Inc. ("Empower"), located in
Glen Cove, New York. Empower is 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 significantly
increased its research and development capacities and created a new Information
Solution Division which will be engaged in
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developing imaging software and Picture Archiving and Communications Systems
(PACS), as well as consulting activities. This division will be 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 cd Lockheed Martin's Medical
Imaging Systems division. (see Item 1 - "Research and Development").
PRODUCTS
The Company's products include a full range of conventional X-ray
equipment, a multi-functional direct digital X-ray system, the 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 marketing subsidiary, was ISO
9002 and EN 46002 certified.
Conventional X-ray Equipment, Imaging Systems, Components and Accessories
The Company manufactures and sells conventional diagnostic X-ray
equipment for radiological applications. 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 is selling 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
Ltd., a leading Israeli manufacturer of diagnostic imaging systems and other
technologically advanced products.
Original Equipment Manufacturing (OEM)
On June 11, 1996, the Company entered into a new OEM Agreement (the
"Philips OEM Agreement") with Philips Medical Systems GmbH which replaced a
previous OEM Agreement with Philips, 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 by Philips 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.
Digital AddOn-Multi-System/SwissVision
The AddOn-Multi-System is the first multi-functional direct digital
radiography (ddR) system available which allows all plane X-ray examinations in
a direct digital way. The AddOn-Multi-System is able to perform on the
recumbent, upright and sitting patient all radiological examinations necessary
in orthopedics, traumatology, chest examination rooms and emergency
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rooms. The AddOn-Multi-System uses the Company's AddOn Bucky(TM) as the digital
detector, which is able to make available an X-ray image in a direct digital way
for diagnostic study within 16 to 20 seconds. The Company's direct digital
technology eliminates the handling, development and storage of cassettes, films,
chemicals or phosphor plates. As a consequence, operating costs are
significantly reduced and the efficiency and the throughput of the bucky room
can be increased. The Company believes that an additional advantage of the
Company's AddOn-Multi-System is the fact that all such 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. The AddOn-Multi-System includes a
SwissVision(TM) workstation for the postprocessing of the digital X-ray images.
See Part I, Item 1 - "Business" and "Competition".
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.
Services
The services offered by the Company include the installation and after
sales servicing of imaging equipment, consulting services and application
training of radiographers. In the future, the Company plans to also offer
products and services related to networking, archiving and electronic
distribution of digital X-ray images, including Picture Archiving and
Communications Systems (PACS).
CUSTOMERS AND DISTRIBUTION
The Company's customers are hospitals, clinics, radiology centers and
physicians generally. The Company is marketing its products and services
directly through its own sales force in Switzerland, Germany and the United
States and through resellers in these and other markets. The Company is
primarily active in the markets for complete X-ray systems, individual
components (retrofitting), X-ray accessories and related services. The Company
plans to also enter the markets for products and services related to
networking, archiving and electronic distribution of digital X-ray images. The
Company believes that in the foreseeable future there will be a continuous
growth world-wide 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 countries. In these markets
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the demand for conventional X-ray equipment, accessories and related services
will decrease over time.
In the past, the Company has made a significant amount of sales 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. 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 also note 27 to the Company's consolidated financial
statements for additional information with respect to both the Company's two
largest customers and single largest customer for the fiscal year ended June 30,
1997.
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. The
increase of the Company's research and development costs by 234% 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. 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.
On June 30, 1997, the Company employed six people in research and
development. The number of people employed in research and development has been
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. 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.
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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
been appointed to this scientific board: Dr. 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 Dr. 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.
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COMPETITION
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, Trex Medical, Shimatsu, Picker and Philips. In the market for
conventional X-ray equipment, the Company's strategy is to focus on niche
products and standard equipment.
The only direct digital X-ray systems other than the AddOn-Multi-System
currently available are chest examination systems offered by Philips and IMIX, a
Finnish manufacturer. 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 (such as mammography). To the
Company's knowledge there is no competing multi-functional X-ray system
currently being developed.
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, suppliers and
developers, 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.
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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.
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 Company submitted both
its AddOn-Bucky(TM) and the AddOn-Multi-System for Section 510(k) clearance with
the FDA. The Company expects that the necessary 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 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.
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 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.
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EMPLOYEES
As of June 30, 1997, the Company had approximately 110 employees. Of
these 53 were employed in Switzerland, 47 in the United States 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.
ACQUISITION OF EMPOWER
On April 1, 1997, the Company acquired from J. Douglas Maxwell a
controlling interest in Empower, and the right to acquire the remaining interest
in Empower, which is being held in escrow pending the payment in full of a
certain payment obligation to the former holder thereof, in exchange for a
consideration consisting of (i) 80,000 shares of Common Stock of the Registrant,
(ii) the right to receive an additional 30,000 shares of Common Stock of the
Registrant in the event Empower meets certain performance goals, (iii) options
to purchase 125,000 shares of Common Stock of the Registrant at an exercise
price of $4.00 under the Registrant's 1996 Non-Statutory Stock Option Plan, (iv)
a convertible debenture, due February 28, 2000, in the principal amount of
$62,266.49 and convertible into common stock of the Registrant at 80% of the
market price at the date of conversion and (v) the assumption of a payment
obligation in the aggregate amount of approximately $72,600 as of the date of
closing of the transaction to the holder of the remaining interest in Empower.
The last payment is scheduled to be made in April, 1998. In connection with this
transaction, the Company also issued 150,000 options to purchase shares of
Common Stock of the Registrant at an exercise price of $3.50 to 14 employees of
Empower under the Company's 1996 Stock Option Plan. During the nine-month period
ended March 31, 1997, Empower had net sales of $4,218,355 and a net loss of
$232,342. As of March 31, 1997, Empower had assets in an aggregate amount of
$2,043,330.
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<PAGE> 13
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The Directors and Executive Officers of the Company, as of September
28, 1997, were as follows:
<TABLE>
<CAPTION>
Name Position(s) Held Age
- ---- ---------------- ---
<S> <C> <C>
Ruedi G. Laupper Chairman of the Board of Directors, 47
President and Chief Executive Officer
Josef Laupper Secretary, Treasurer and a Director 52
Ueli Laupper Vice President International Sales and Director 27
Dr. Erwin Zimmerli Director 50
Herbert Laubscher Chief Financial Officer 31
</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 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 and President of the
Company's principal operating subsidiaries. Ruedi G. Laupper is the founder of
the predecessor of SR-Medical AG and was Chief Executive Officer of SR-Medical
AG until May 1995. He has approximately 22 years of experience in the field of
radiology.
Josef Laupper is the brother of Ruedi G. 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 in excess of 18 years of experience within
the medical device business.
Ueli Laupper, 27 years of age, is the son of the Company's President
with overall Company responsibilities in the area of international marketing and
sales with approximately seven years of experience within the international
X-ray market. He was Chief Executive Officer of SR Medical AG from July 1995
until June 30, 1997.
Dr. Erwin Zimmerli has been a director of the Company since May, 1995.
Since receiving his Ph.D. degree in law and economics from the University of St.
Gall, Switzerland in 1979, Dr. 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.
Herbert Laubscher joined the Company as a manager responsible for
finance and controlling
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<PAGE> 14
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.
ITEM 2. 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 also leases
office space in New York City, Azusa, California, Gig Harbor, Washington and
Wiesbaden, Germany.
ITEM 3. 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 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
(a) Market Information. The Registrant's 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 Company'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.
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<PAGE> 15
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1996 Quarterly Common Stock Price
By Quarter Ranges (1)
------------------------------- ----------------------------
Quarter Date High Low
- ------- ---- ---- ---
<C> <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 (1)
------------------------------- ----------------------------
Quarter Date High Low
- ------- ---- ---- ---
<C> <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>
(1) The Registrant's common stock, $.01 par value (the "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 Company 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.
(b) Holders. As of September 10, 1997 there were 748 stockholders of
the Registrant's Common Stock (as indicated on its transfer agent's certified
list of stockholders as of September 10, 1997).
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<PAGE> 16
(c) Dividends. 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.
RECENT SALES OF UNREGISTERED SECURITIES
(a) Title and Amount of Securities and Date of the Transaction. On
August 19, 1997, the Registrant issued $5,000,000 aggregate principal amount of
6% convertible debentures (the "Convertible Debentures"), convertible into
Common Stock of the Registrant in the manner described under (e) below.
(b) Name of the Placement Agent. Rolcan Finance Ltd., London, United
Kingdom.
(c) Consideration Received. 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 Registrant
received a net amount of $4,318,750.
(d) Persons or Classes of Persons to whom the Securities Were Sold and
Exemption from Registration Claimed. 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.
(e) Terms of Conversion. 50% of the face amount of the Convertible
Debentures are 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 the
Convertible Debentures are 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 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.
On each of May 15, 1997 and on 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 above mentioned 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-US persons under
Regulation S.
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<PAGE> 17
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
GENERAL
The fiscal year ended June 30, 1997 brought major changes to the
Company. Based on the results of marketing and technical research undertaken by
the Company, the Company decided not to market its direct digital detector, the
AddOn Bucky(TM), as a retrofit product for conventional X-ray systems as it
previously intended, but rather 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, chest examination rooms and emergency 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 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
and additional deliveries are scheduled for the second quarter.
During the fiscal year ended June 30, 1997, the Company also built up
its position in the United States because management of the Company believes
that the United States will be an important market for its AddOn-Multi-System.
RESULTS OF OPERATION
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 Company could also increase by approximately 21%
sales in Swiss Francs of its conventional X-ray equipment, accessories and
imaging equipment purchased from third parties to customers in Europe and other
markets outside the United States. Contributing factors to this increase were
sales made under the Philips OEM Agreement and an order to deliver X-ray
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<PAGE> 18
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.
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. Each of
the foregoing contributed approximately 15% to the Company's net sales.
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 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 to 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.
The Company's operating loss increased to $10,459,611 for the fiscal
year ended June 30, 1996 from $3,485,763 for the fiscal year ended June 30,
1996. The increase in the Company's
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<PAGE> 19
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 the fire which affected the Company's previous
manufacturing facility. However, the management expects to be able to recover
such expenses at least in part under applicable insurance policies.
FINANCIAL CONDITION
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 the new Hochdorf facility. 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 is 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 bear interest at 6% per annum and are 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.
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<PAGE> 20
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.
CASH FLOW AND CAPITAL EXPENDITURES
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 are primarily 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.
The Company financed its liquidity needs during the fiscal year ended
June 30, 1997 primarily through 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. 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 Company expects that funding for these
expenditures will be available out of the Company's cash reserves, future cash
flow and, with respect to the improvements of the Hochdorf facility, the
incurrence of mortgaged debt. However, the availability of a sufficient future
cash flow will depend to a significant extent on the marketability of the
Company's AddOn-Multi-System. Accordingly, the Company may be required to issue
additional convertible debentures or equity securities to finance such capital
expenditures and working capital requirements. There can be no assurance
whether or not such financing or the anticipated debt financing of the
improvements to the Hochdorf facility will be available.
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
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<PAGE> 21
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 US 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.
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 Part 1,
Item 1 -"Business-Environmental Matters."
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 increase of selling prices.
To date, the Company's sales to high-inflation countries have either been made
in Swiss Francs or US dollars. Accordingly, inflationary conditions have not had
a material effect on the Company's operating results.
SEASONALITY
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<PAGE> 22
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.
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 and $30,000,000 for digital X-ray equipment.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS
On occasion, the Company enters into currency forward contracts as a
hedge against anticipated foreign currency exposures and not for speculative
purposes. Such contracts, which are types of financial derivatives, limit the
Company's exposure to both favorable and unfavorable currency fluctuations. In
the past, the Company has used forward contracts exclusively in connection with
the purchase of material in currencies other than Swiss Francs or US dollars. In
the event of a default of the supplier under the purchase contract with respect
to which a forward contract has been concluded combined with an adverse currency
fluctuation, the Company may be exposed to a loss under the respective forward
contract. However, the Company believes that any such loss, should it occur,
would not have a material adverse effect on the results of the Company.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
Investment in the securities of the Company involves a high degree of
risk. In evaluating an investment in the Company's Common Stock, Company
stockholders and prospective investors should carefully consider the risk
factors discussed hereafter and the information detailed in this Annual Report
for the fiscal year ended June 30, 1997 on Form 10-KSB including, without
limitation, Item 1 "Business" and Item 6 "Management's Discussion and Analysis
of Financial Condition and Results of Operations", as well as information
contained in the Company's other filings with the Securities and Exchange
Commission.
This Form 10-KSB includes forward-looking statements that reflect the
Company's current views with respect to future events and financial performance,
including capital expenditures, strategic plans and future cash sources and
requirements. These forward-looking statements are subject to certain risks and
uncertainties, including those identified below, which could cause actual
results to differ materially from historical results or those anticipated. The
words, "believe," "expect," "anticipate," "estimate" and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of their
dates. The Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. The
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<PAGE> 23
following risks could cause actual results to differ materially from historical
results or those anticipated.
History of Losses; Profitability Uncertain
As of June 30, 1995 the Registrant has 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 $12,800,000. Such losses resulted from 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. 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 numerous factors, including regulatory
actions, market acceptance of the Company's products, efficient manufacturing,
new product introductions and competition.
Need for Market Acceptance of the AddOn-Multi-System
The Company's future performance will depend to a substantial degree
upon market 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, market acceptance and penetration can be achieved by the
AddOn-Multi-System are functions of many variables including, but not limited
to, 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.
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.
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.
-22-
<PAGE> 24
For a discussion of these risks, see Item 6, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" - "Effect of Currency
on Results of Operations."
Risks Associated with International Operations
The Company does business in numerous countries, including Switzerland,
the United States 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.
Competition; Improvements in Technology
The markets in which the Company operates are highly competitive. 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 sources 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.
Dependence on Patents and Proprietary Licensed Technology
The Company has patented certain aspects of its proprietary technology
in certain markets and has filed patent applications for the key technology of
the AddOn Bucky(TM) 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
-23-
<PAGE> 25
remedies for any breach or that the Company's trade secrets will not otherwise
become known to, or independently developed by, competitors.
Litigation, Potential Unavailability of Insurance
The medical device industry has been the subject of extensive
litigation regarding patents and other intellectual property rights, and the
Company may institute or otherwise be involved in such litigation to enforce its
patents, protect its trade secrets or know-how, challenge the validity of
proprietary rights of others or defend against alleged infringement by the
Company of proprietary rights of others. An adverse determination in any
litigation could limit the value of any patents awarded to the Company or result
in invalidation of those patents, subject the Company to significant liabilities
to third parties, require the Company to seek licenses from third parties or
prevent the Company from manufacturing and selling its products, any of which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
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 FDA
actively enforces regulations prohibiting marketing without compliance with the
premarket approval provisions of products. While the Company has submitted the
AddOn Bucky(TM) and 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. 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.
Sales to Health Care Industry
The Company's products are used exclusively in the health care
industry. The health care industry in key 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. 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
-24-
<PAGE> 26
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.
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.
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.
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.
-25-
<PAGE> 27
Potential Litigation; Potential Unavailability of Insurance
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.
Dilution; Effect of Outstanding Convertible Debentures, Warrants and Certain
Shares
The Company has outstanding convertible debentures, options and
warrants to purchase Common Stock at prices that may be below the per share
price to purchasers of the Company's Common Stock in the market. The exercise of
such convertible debentures, options and warrants may have a dilutive effect on
the investment of a holder of the Company's Common Stock. The market price of
the Company'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. In addition, the Company is required to file a
registration statement with respect to the Common Stock issuable upon conversion
of the convertible debentures issued on August 19, 1997, which could adversely
affect the ability of the Company to sell Common Stock for its own account, the
market price of the Company's Common Stock and could require the Company to
incur significant expenses.
Limited Public Market; Liquidity; Possible Volatility of Stock Price
The Common Stock is quoted on the Nasdaq National 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.
Environmental Matters
The Company is subject to various environmental laws and regulations in
the jurisdiction in which it operates. For a discussion of risks relating to
environmental matters, see "Environmental Matters" above and Item 1 -
"Business-Environmental Matters."
-26-
<PAGE> 28
ITEM 7. FINANCIAL STATEMENTS
The financial statements required by Item 310 of Regulation S-B are set
forth on pages F-1 through F-23 inclusive of this Form 10-KSB.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disagreements with accountants on accounting and financial
disclosure matters existed during the Company's fiscal year ended June 30, 1997.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The information required to be disclosed in Item 9 will be set forth
under the caption "Election of Directors" in the Company's Proxy Statement to be
filed within 120 days of the end of the Company's fiscal year ended June 30,
1997, and is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information required to be disclosed in Item 10 will be set forth
under the caption "Executive Compensation" in the Company's Proxy Statement to
be filed within 120 days of the end of the Company's fiscal year ended June 30,
1997, and is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be disclosed in Item 11 will be set forth
under the caption "Security Ownership of Certain Beneficial Owners and
Management" in the Company's Proxy Statement to be filed within 120 days of the
end of the Company's fiscal year ended June 30, 1997, and is incorporated herein
by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required to be disclosed in Item 12 will be set forth
under the caption "Certain Relationships and Related Transactions" in the
Company's Proxy Statement to be filed within 120 days of the end of the
Company's fiscal year ended June 30, 1997, and is incorporated herein by
reference.
-27-
<PAGE> 29
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) LIST OF EXHIBITS
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 1 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 Doug Maxwell; Registration Rights
Agreement, dated as of March 13, 1997, between the Registrant and
Doug Maxwell; Assignment and Assumption Agreement, dated March
13, 1997, between the Registrant and Doug Maxwell; Option
Agreement, dated January 24, 1997, granting options for 125,000
shares of the Registrant to Doug Maxwell.
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)
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)
-28-
<PAGE> 30
3.6 Amendment to Registrant's Certificate of Incorporation, dated
August 10, 1994.
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.
3.10 Amendment to Registrant's Certificate of Incorporation, dated
December 13, 1996.
3.11 Amendment to Registrant's Certificate of Incorporation, filed
March 12, 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)
10.1 License Agreement, dated June 24, 1995, by and between the
Registrant and Hans-Jurgen Behrendt (incorporated by reference to
Exhibit__ of Registrant's Registration Statement on Form 10SB,
Registration No. 0-26972, effective February 14, 1996)
10.2 1996 Non-Statutory Stock Option Plan (incorporated by reference
to Exhibit__ to the Registrant's Registration Statement on Form
S-8 (Registration No. ____), effective _____________)
10.3 Agreement dated June 11, 1996 between the Registrant and Philips
Medical System.
10.4 License Agreement, dated as of July 18, 1997, by and between the
Registrant and Agfa-Gevaer+ 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.
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.
21 List of Subsidiaries
23 Consent of Bederson & Company LLP
27 FINANCIAL DATA SCHEDULE
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<PAGE> 31
(b) REPORTS ON FORM 8-K
Form 8-K, dated July 31, 1997 (August 20, 1997) with respect to the
issuance by the Registrant of $4,262,500 of convertible debentures in
reliance upon Regulation S under the Securities Act of 1933.
-30-
<PAGE> 32
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SWISSRAY INTERNATIONAL, INC.
By /Ruedi G. Laupper/
-------------------------------
Ruedi G. Laupper, Chairman of
the Board of Directors,
President & Chief Executive
Officer
Date: September 29, 1997
In accordance with the Exchange act, This report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
<TABLE>
<S> <C> <C>
/Ruedi G. Laupper/ Chairman of the Board Dated: September 29, 1997
- ----------------------- of Directors, President & Chief Executive Officer
Ruedi G. Laupper
/Josef Laupper/ Secretary-Treasurer Dated: September 29, 1997
- ----------------------- and a Director
Josef Laupper
/Herbert Laubscher Chief Financial Officer Dated: September 29, 1997
- -----------------------
Herbert Laubscher
/Ueli Laupper/ Vice President and a Director Dated: September 29, 1997
- -----------------------
Ueli Laupper
/Dr. Erwin Zimmerli/ Director Dated: September 29, 1997
- -----------------------
Dr. Erwin Zimmerli
</TABLE>
-31-
<PAGE> 33
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.
2.2 Exchange Agreement, dated as of November 22, 1996 by and between
the Registrant and Doug Maxwell; [; Registration Rights
Agreement, dated as of March 13, 1997, between the Registrant and
Doug Maxwell; Assignment and Assumption Agreement, dated March
13, 1997, between the Registrant and Doug Maxwell; Option
Agreement, dated January 24, 1997, granting options for 125,000
shares of the Registrant to Doug Maxwell.]
3.1 Registrant's Certificate of Incorporation, filed January 2, 1968
(Incorporated by reference to Exhibit 2(a) of the Registrant's
Registration Statement (Incorporated by reference to Exhibit 1 of
the Registrant's Registration Statement on Form 10SB,
Registration No. 0-26972, effective February 14, 1996) on Form
10SB, Registration No. 0-26972, effective February 14, 1996)
3.2 Amendment to Registrant's Certificate of Incorporation, filed
October 1, 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, filed
September 19, 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, filed
January 5, 1982 (Incorporated by reference to Exhibit 2(d) of the
Registrant's Registration Statement on Form 10SB, Registration
No. 0-26972, effective February 14, 1996)
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<PAGE> 34
3.5 Certificate of Merger of Direct Marketing Services, Inc. and CGS
Units Incorporated into CGS Units Incorporated, filed June 15,
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, filed
August 19, 1994.
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, filed
June 5, 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, filed
August 30, 1996.
3.10 Amendment to Registrant's Certificate of Incorporation, filed
December 26, 1996.
3.11 Amendment to Registrant's Certificate of Incorporation, filed
March 12, 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)
10.1 License Agreement, dated June 24, 1995, by and between the
Registrant and Hans-Jurgen Behrendt
10.2 1996 Non-Statutory Stock Option Plan (incorporated by reference
to Exhibit__ to the Registrant's Registration Statement on Form
S-8 (Registration No. ____), effective _____________)
10.3 Agreement dated June 11, 1996 between the Registrant and Philips
Medical System.
10.4 License Agreement, dated as of July 18, 1997, by and between the
Registrant and Agfa-Gevaer N.V.
-33-
<PAGE> 35
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.
21 List of Subsidiaries
23 Financial Data Schedule
The following financial statements for the fiscal years ended June 30,
1997 and June 30, 1996 have been prepared in accordance with the requirements of
Regulation S-B and supplementary financial information included herein, if any,
has been prepared in accordance with Item 302 of Regulation S-K, such
information appears on pages F-1 through F-23 inclusive of this Form 10-KSB.
SWISSRAY INTERNATIONAL, INC.
JUNE 30, 1997 AND 1996
CONTENTS
Page
Index to Consolidated Financial Statements F-1
Independent Auditor's Report F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Stockholders' Equity F-5
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8 - F-23
-34-
<PAGE> 36
SWISSRAY INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Independent Auditors' Report................................................F-2
Consolidated Balance Sheets.................................................F-3
Consolidated Statements of Operations.......................................F-4
Consolidated Statements of Stockholders' Equity.............................F-5
Consolidated Statements of Cash Flows.......................................F-6
Notes to Consolidated Financial Statements......................... F-7 to F-23
F-1
<PAGE> 37
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, 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-2
<PAGE> 38
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-3
<PAGE> 39
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-4
<PAGE> 40
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 Total
------ ------ ---------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C> <C>
BALANCE - July 1, 1995 12,035,064 $120,351 $ 12,719,998 $(6,027,336) $ (436,180) $ 6,376,833
-----------
COMPREHENSIVE LOSS:
Net loss for the year -- -- -- (1,891,612) -- (1,891,612)
Other comprehensive loss net of
taxes $-0- foreign currency
translation adjustments -- -- -- -- (399,867) (399,867)
-----------
TOTAL COMPREHENSIVE LOSS -- -- -- -- -- (2,291,479)
-----------
Issuance of common stock for cash 1,100,000 11,000 5,189,000 -- -- 5,200,000
Stock options exercised for cash 1,050,000 10,500 2,039,500 -- -- 2,050,000
Public offering expenses -- -- (680,098) -- -- (680,098)
----------- -------- ------------ ----------- ------------ -----------
BALANCE - June 30, 1996 14,185,064 141,851 19,268,400 (7,918,948) (836,047) 10,655,256
-----------
</TABLE>
F-5
<PAGE> 41
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
COMPREHENSIVE LOSS:
Net loss for year -- -- -- (10,889,628) -- (10,889,628)
Other comprehensive loss net of
taxes $-0- foreign currency
translation adjustments -- -- -- -- (592,487) (592,487)
-----------
TOTAL COMPREHENSIVE LOSS -- -- -- -- -- (11,482,115)
-----------
Issuance of common stock for cash 5,197,759 51,977 6,947,830 -- -- 6,999,807
Issuance of common stock in lieu of
interest payment 70,610 706 132,244 -- -- 132,950
Stock options exercised for cash 161,000 1,610 115,920 -- -- 117,530
Stock option granted as compensation -- -- 25,000 -- -- 25,000
Purchase of subsidiary for stock 80,000 800 119,200 -- -- 120,000
---------- -------- ----------- ----------- ------------ -------------
BALANCE - June 30, 1997 19,694,433 $196,944 $26,608,594 (18,808,576) $(1,428,534) $ 6,568,428
=========== ======== =========== ============ ============ ============
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-6
<PAGE> 42
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-7
<PAGE> 43
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.
F-8
<PAGE> 44
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:
Years
Automobiles 3
Equipment 5 - 10
Office furniture and equipment 5 - 10
Office and leasehold improvements 10
Building 40
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-9
<PAGE> 45
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.
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-10
<PAGE> 46
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-11
<PAGE> 47
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 $3,022,772 $ --
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-12
<PAGE> 48
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-13
<PAGE> 49
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-14
<PAGE> 50
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-15
<PAGE> 51
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-16
<PAGE> 52
SWISSRAY INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 AND 1996
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-17
<PAGE> 53
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>
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-18
<PAGE> 54
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-19
<PAGE> 55
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
---------- ----------
<S> <C> <C>
Largest customers:
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-20
<PAGE> 56
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-21
<PAGE> 57
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-22
<PAGE> 58
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-23
<PAGE> 59
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 1 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 Doug Maxwell; Registration Rights Agreement, dated
as of March 13, 1997, between the Registrant and Doug Maxwell;
Assignment and Assumption Agreement, dated March 13, 1997, between
the Registrant and Doug Maxwell; Option Agreement, dated January 24,
1997, granting options for 125,000 shares of the Registrant to Doug
Maxwell.
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 18, 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)
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.
<PAGE> 60
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.
3.10 Amendment to Registrant's Certificate of Incorporation, dated
December 13, 1996.
3.11 Amendment to Registrant's Certificate of Incorporation, filed March
12, 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)
10.1 License Agreement, dated June 24, 1995, by and between the
Registrant and Hans-Jurgen Behrendt (Incorporated by reference to
Exhibit __ of the Registrant's Registration Statement on Form 10SB,
Registration No. 0-26972, effective February 14, 1996)
10.2 1996 Non-Statutory Stock Option Plan (incorporated by reference to
Exhibit__ to the Registrant's Registration Statement on Form S-8
(Registration No. ____), effective _____________)
10.3 Agreement dated June 11, 1996 between the Registrant and Philips
Medical System.
10.4 License Agreement, dated as of July 18, 1997, by and between the
Registrant and Agfa-Gevaer+ 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.
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.
21 List of Subsidiaries
23 Consent of Bederson of Company LLP
27 FINANCIAL DATA SCHEDULE
<PAGE> 1
EXHIBIT 2.2
EXCHANGE AGREEMENT
AMONG
SWISSRAY INTERNATIONAL INC.
AND
DOUG MAXWELL
AS OF NOVEMBER 22, 1996
<PAGE> 2
TABLE OF CONTENTS
Page
----
1. Definitions.................................................... 1
2. Purchase and Sale of Target Shares............................. 4
(a) Basic Transaction..................................... 4
(b) Exchange Consideration................................ 4
(c) Adjustment of Exchange Consideration.................. 4
(d) The Closing........................................... 5
(e) Deliveries at the Closing............................. 5
(f) ...................................................... 5
(g) ...................................................... 5
3. Representations and Warranties Concerning the Transaction...... 5
(a) Representations and Warranties of the Seller.......... 5
(b) Representations and Warranties of the Buyer........... 7
4. Representations and Warranties Concerning the Target........... 7
(a) Organization, Qualification, and Corporate Power...... 8
(b) Capitalization........................................ 8
(c) Noncontravention...................................... 8
(d) Brokers' Fees......................................... 9
(e) Title to Assets....................................... 9
(f) Subsidiaries.......................................... 9
(g) Undisclosed Liabilities............................... 9
(h) Legal Compliance...................................... 9
(i) Contracts............................................. 9
(j) Financial Statements.................................. 9
(k) Disclosure............................................ 9
5. Pre-Closing Covenants.......................................... 9
(a) General............................................... 10
(b) Notices and Consents.................................. 10
(c) Operation of Business................................. 10
(d) Preservation of Business.............................. 10
(e) Full Access........................................... 10
(f) Notice of Developments................................ 10
(g) Exclusivity........................................... 10
6. Post-Closing Covenants......................................... 11
(a) General............................................... 11
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(b) Litigation Support........................................ 11
(c) Transition................................................ 11
(d) Confidentiality........................................... 11
(e) Covenant Not to Compete................................... 12
(f) Certificates.............................................. 12
7. Conditions to Obligation to Close.................................. 13
(a) Conditions to Obligation of the Buyer..................... 13
(b) Conditions to Obligation of the Seller.................... 14
8. Remedies for Breaches of This Agreement............................ 15
(a) Survival of Representations and Warranties................ 15
(b) Indemnification Provisions for Benefit of the Buyer....... 15
(c) Indemnification Provisions for Benefit of the Seller...... 16
(d) Matters Involving Third Parties........................... 16
(e) Other Indemnification Provisions.......................... 17
9. Tax Matters........................................................ 17
(a) Tax Periods Ending on or Before the Closing Date.......... 17
(b) Tax Periods Beginning Before and Ending After
the Closing Date.......................................... 18
(c) Cooperation on Tax Matters................................ 18
(d) Tax Sharing Agreements.................................... 19
(e) Certain Taxes............................................. 19
10. Termination........................................................ 19
(a) Termination of Agreement.................................. 19
(b) Effect of Termination..................................... 20
11. Miscellaneous...................................................... 20
(a) Press Releases and Public Announcements................... 20
(b) No Third-Party Beneficiaries.............................. 20
(c) Entire Agreement.......................................... 20
(d) Succession and Assignment................................. 20
(e) Counterparts.............................................. 21
(f) Headings.................................................. 21
(g) Notices................................................... 21
(h) Governing Law............................................. 21
(i) Amendments and Waivers.................................... 21
(j) Severability.............................................. 21
(k) Expenses.................................................. 22
(l) Construction.............................................. 22
(m) Incorporation of Exhibits, Annexes, and Schedules......... 22
(n) Specific Performance...................................... 22
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(o) Submission to Jurisdiction.............................. 22
Exhibit A-- Registration Rights Agreement
Disclosure Schedule-- Exceptions to Representations and Warranties
Concerning the Target
Schedule 2(b)(ii) - Additional Consideration
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EXCHANGE AGREEMENT
Agreement entered into as of November 22, 1996, by and among Swissray
International Inc., a New York corporation (the "Buyer"), and Doug Maxwell, an
individual (the "Seller"). The Buyer and the Seller are referred to collectively
herein as the "Parties."
WHEREAS, the Seller owns 75 shares of the outstanding capital stock of
Empower Inc., a New York corporation (the "Target") (25 of which are currently
being held in escrow), and
WHEREAS, this Agreement contemplates a transaction in which the Buyer
will purchase from the Seller, and the Seller will sell to the Buyer, all of the
shares of capital stock of the Target owned by the Seller in return for the
Shares (as such term is hereinafter defined).
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
1. Definitions.
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Additional Shares" has the meaning set forth in Section 2(b)(ii)
below.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence.
"Buyer" has the meaning set forth in the preface above.
"Buyer Share" means any share of the Common Stock, par value $.01 per
share, of the Buyer.
"Closing" has the meaning set forth in Section 2(c) below.
<PAGE> 6
"Closing Date" has the meaning set forth in Section 2(c) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Confidential Information" means any information concerning the
businesses and affairs of the Target that is not already generally available to
the public.
"Disclosure Schedule" has the meaning set forth in the introductory
paragraph of Section 4 below.
"Escrow Agreement" means the escrow agreement dated April 15, 1996,
between the Seller and Nathaniel Armstead.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Indemnified Party" has the meaning set forth in Section 8(d) below.
"Indemnifying Party" has the meaning set forth in Section 8(d) below.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Options" has the meaning set forth in Section 2(b)(iii) below.
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<PAGE> 7
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof).
"Registration Rights Agreement" means the Registration Rights Agreement
between the Seller at the Buyer attached hereto as Exhibit A, with such
amendments or modifications as shall be mutually agreed to by the Parties.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for Taxes not yet due and payable or for Taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
"Shares" has the meaning set forth in Section 2(b)(I) below.
"Stipulation" means the Stipulation of Settlement dated April 15, 1996
between the Seller and Nathaniel Armstead.
"Subsidiary" means any corporation with respect to which a specified
Person (or a Subsidiary thereof) owns a majority of the common stock or has the
power to vote or direct the voting of sufficient securities to elect a majority
of the directors.
"Target" has the meaning set forth in the preface above.
"Target Financial Statements" has the meaning set forth in Section 4(j)
below.
"Target Share" means any share of the common stock of the Target.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental
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<PAGE> 8
(including taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
or information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 8(d) below.
2. Purchase and Sale of Target Shares.
(a) Basic Transaction. On and subject to the terms and
conditions of this Agreement, the Buyer agrees to exchange with the Seller, and
the Seller agrees to exchange with the Buyer, all of the Target Shares owned by
the Seller for the consideration specified below in this Section 2.
(b) Exchange Consideration. (I) The Buyer agrees to issue to
the Seller at the Closing 80,000 shares of the Buyer Shares (the "Shares").
(ii) As additional consideration, the Buyer will
issue an additional 30,000 shares of the Buyer Shares (the "Additional
Shares") on the dates set forth on Schedule 2(b)(ii) attached hereto if
the Target achieves the performance goals set forth on Schedule
2(b)(ii).
(iii) Additionally, on the Closing Date the Seller
will be granted options to purchase 125,000 shares of the Buyer Shares
under the Buyer's option plan, or otherwise (the "Options"). The
Options shall have an exercise price of $4.00 per share, will vest
immediately and shall be exercisable for a period of five years from
the date of grant.
(c) Adjustment of Exchange Consideration. If within 90 days of
the Closing Date the Buyer shall discover adverse variances in the Target
Financial Statements, in an aggregate amount in excess of $10,000, the Buyer
shall notify the Seller of such findings within such 90 day period. Upon notice
to the Seller, the Buyer shall cause an independent accounting firm to verify
such findings and upon such verification the Seller shall return one Share to
the Buyer for each $4.00 of adverse variance.
(d) The Closing. The closing of the transactions contemplated
by this Agreement (the "Closing") shall take place commencing at 9:00 a.m. local
time on the business day following the satisfaction or waiver of all conditions
to the obligations of the Parties to consummate the transactions contemplated
hereby (other than conditions with respect to actions
4
<PAGE> 9
the respective Parties will take at the Closing itself) or such other date as
the Buyer and the Seller may mutually determine (the "Closing Date").
(e) Deliveries at the Closing. At the Closing, (I) the Seller
will deliver to the Buyer the various certificates, instruments, and documents
referred to in Section 7(a) below, (ii) the Buyer will deliver to the Seller the
various certificates, instruments, and documents referred to in Section 7(b)
below, (iii) the Seller will deliver to the Buyer stock certificates
representing 50 of the Target Shares owned by the Seller, endorsed in blank or
accompanied by duly executed assignment documents and will present the Buyer
with evidence satisfactory to the Buyer that the 25 Target Shares held pursuant
to the Escrow Agreement have been transferred from the Seller's name into the
name of the Buyer, and (iv) the Buyer will deliver to the Seller the
consideration specified in Section 2(b) above.
(f) The Seller shall have the right to put all of the Shares
issued to the Seller, plus, if issued, the Additional Shares, to the Buyer at
$4.00 per Share for the 12-month period commencing on the date which is two
years from the Closing Date and ending on the date which is three years from the
Closing Date.
(g) In the event that either of the Buyer or the Target is
acquired by, or merged into, a third party prior to the date on which the Seller
is eligible to receive the Additional Shares and, as a result of such
acquisition or merger, the Seller and the Buyer are no longer Affiliated with
the Target, then, no later than 15 days prior to the effective closing of the
transaction, the Buyer will issue the Additional Shares to the Seller.
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Seller. The Seller
represents and warrants to the Buyer that the statements contained in this
Section 3(a) are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3(a)) with respect to the Seller.
(i) Authorization of Transaction. The Seller has full
power and authority to execute and deliver this Agreement and to
perform his obligations hereunder. This Agreement constitutes the valid
and legally binding obligation of the Seller, enforceable in accordance
with its terms and conditions. The Seller need not give any notice to,
make any filing with, or obtain any authorization, consent, or approval
of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
(ii) Noncontravention. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree,
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<PAGE> 10
ruling, charge, or other restriction of any government, governmental
agency, or court to which the Seller is subject or (B) conflict with,
result in a breach of, constitute a default under, result in the
acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement
to which the Seller is a party or by which he or it is bound or to
which any of his or its assets is subject.
(iii) Brokers' Fees. The Seller has no Liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement
for which the Buyer could become liable or obligated.
(iv) Investment. The Seller (A) understands that the
Shares have not been, and, if issued, the Additional Shares will not
be, registered under the Securities Act, or under any state securities
laws, and are being offered and sold in reliance upon federal and state
exemptions for transactions not involving any public offering, (B) is
acquiring the Shares, and, if issued, the Additional Shares, for his
own account for investment purposes, and not with a view to the
distribution thereof, (C) is a sophisticated investor with knowledge
and experience in business and financial matters, (D) has received
certain information concerning the Buyer and has had the opportunity to
obtain additional information as desired in order to evaluate the
merits and the risks inherent in holding the Shares, and if issued, the
Additional Shares, (E) is able to bear the economic risk and lack of
liquidity inherent in holding the Shares, and if issued, the Additional
Shares, and (F) is an Accredited Investor as such term is defined in
the Securities Act.
(v) Target Shares. The Seller holds of record and
owns beneficially 75 Target Shares (25 of which are held in escrow
pursuant to the Escrow Agreement) representing all of the issued and
outstanding equity of the Target, free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act, state
securities laws, Taxes, Security Interests, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands, except
as provided in the Escrow Agreement. The Seller is not a party to any
option, warrant, purchase right, or other contract or commitment (other
than this Agreement and the Escrow Agreement) that could require the
Seller to sell, transfer, or otherwise dispose of any capital stock of
the Target. The Seller is not a party to any voting trust, proxy, or
other agreement or understanding with respect to the voting of any
capital stock of the Target. The Target Shares owned by the Seller
constitute all shares of capital stock of the Target.
(b) Representations and Warranties of the Buyer. The Buyer
represents and warrants to the Seller that the statements contained in this
Section 3(b) are correct and complete as of the date of this Agreement and will
be correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Section 3(b)).
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<PAGE> 11
(i) Organization of the Buyer. The Buyer is a corporation
duly organized, validly existing, and in good standing under the laws
of the jurisdiction of its incorporation.
(ii) Authorization of Transaction. The Buyer has full
power and authority (including full corporate power and authority) to
execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement constitutes the valid and legally binding
obligation of the Buyer, enforceable in accordance with its terms and
conditions. The Buyer need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any
government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (A) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, charge,
or other restriction of any government, governmental agency, or court
to which the Buyer is subject or any provision of its charter or bylaws
or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under
any agreement, contract, lease, license, instrument, or other
arrangement to which the Buyer is a party or by which it is bound or to
which any of its assets is subject.
(iv) Brokers' Fees. The Buyer has no Liability or
obligation to pay any fees or commissions to any broker, finder, or
agent with respect to the transactions contemplated by this Agreement
for which any Seller could become liable or obligated.
(v) Investment. The Buyer is not acquiring the Target
Shares with a view to or for sale in connection with any distribution
thereof within the meaning of the Securities Act.
4. Representations and Warranties Concerning the Target. The Seller
represents and warrants to the Buyer that the statements contained in this
Section 4 are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as though
the Closing Date were substituted for the date of this Agreement throughout this
Section 4), except as set forth in the disclosure schedule delivered by the
Seller to the Buyer on the date hereof and initialed by the Parties (the
"Disclosure Schedule"). Nothing in the Disclosure Schedule shall be deemed
adequate to disclose an exception to a representation or warranty made herein,
however, unless the Disclosure Schedule identifies the exception with reasonable
particularity and describes the relevant facts in reasonable detail. Without
limiting the generality of the foregoing, the mere listing (or inclusion of a
copy) of a document or other item shall not be deemed adequate to disclose an
exception to a representation or warranty made herein (unless the representation
or warranty has to do with the existence of the document or other item itself).
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<PAGE> 12
The Disclosure Schedule will be arranged in paragraphs corresponding to the
lettered and numbered paragraphs contained in this Section 4.
(a) Organization, Qualification, and Corporate Power. The
Target is a corporation duly organized, validly existing, and in good standing
under the laws of the jurisdiction of its incorporation. The Target is duly
authorized to conduct business and is in good standing under the laws of each
jurisdiction where such qualification is required. The Target has full corporate
power and authority and all licenses, permits, and authorizations necessary to
carry on the businesses in which it is engaged and to own and use the properties
owned and used by it. Section 4(a) of the Disclosure Schedule lists the
directors and officers of the Target. The Seller has delivered to the Buyer
correct and complete copies of the charter and bylaws of the Target (as amended
to date). The minute books (containing the records of meetings of the
stockholders, the board of directors, and any committees of the board of
directors), the stock certificate books, and the stock record books of the
Target are correct and complete in all material respects. The Target is not in
default under or in violation of any provision of its charter or bylaws.
(b) Capitalization. The entire authorized capital stock of the
Target consists of 200 Target Shares of which 75 are issued and outstanding. All
of the issued and outstanding Target Shares have been duly authorized, are
validly issued, fully paid, and nonassessable, and are held of record and
beneficially by the Seller, with 25 of such Target Shares being held in escrow
pursuant to the terms of the Escrow Agreement. There are no outstanding or
authorized options, warrants, purchase rights, subscription rights, conversion
rights, exchange rights, or other contracts or commitments that could require
the Target to issue, sell, or otherwise cause to become outstanding any of its
capital stock. There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Target. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of the capital stock of the Target.
(c) Noncontravention. Neither the execution and the delivery
of this Agreement, nor the consummation of the transactions contemplated hereby,
will (I) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Target is subject or any provision of
the charter or bylaws of any of the Target or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Target is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). The Target does not need to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
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<PAGE> 13
(d) Brokers' Fees. The Target does not have any Liability or
obligation to pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement.
(e) Title to Assets. The Target has good and marketable title
to, or a valid leasehold interest in, the properties and assets used by them or
located on their premises, free and clear of all Security Interests.
(f) Subsidiaries. The Target has no Subsidiaries.
(g) Undisclosed Liabilities. The Target does not have any
Liability (and, to the best knowledge of the Seller, there is no Basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any Liability),
which has not been disclosed in writing to the Buyer.
(h) Legal Compliance. The Target and its predecessors and
Affiliates has complied with all applicable laws (including rules, regulations,
codes, plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all agencies
thereof), and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any of
them alleging any failure so to comply.
(i) Contracts. The Target has provided to the Buyer copies of
all material contracts of the Target dated prior to the date of this Agreement,
or given the Buyer the opportunity to review, all such material contracts. A
list of such contracts is contained in Section 4(I) of the Disclosed Schedule.
(j) Financial Statements. The Target's financial statements
for the period ended September 30, 1996 (the "Target Financial Statements") are
accurate in all material respects and fairly represent the financial condition
of the Target.
(k) Disclosure. The representations and warranties contained
in this Section 4 do not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements and
information contained in this Section 4 not misleading.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use his or its reasonable best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in Section 7 below).
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<PAGE> 14
(b) Notices and Consents. The Seller will cause the Target to give
any notices to third parties, and will cause the Target to use its reasonable
best efforts to obtain any third party consents, that the Buyer reasonably may
request in connection with the matters referred to in Section 4(c) above. Each
of the Parties will (and the Seller will cause the Target to) give any notices
to, make any filings with, and use its reasonable best efforts to obtain any
authorizations, consents, and approvals of governments and governmental agencies
in connection with the matters referred to in Section 3(a)(ii), Section
3(b)(ii), and Section 4(c) above.
(c) Operation of Business. The Seller will not cause or permit the
Target to engage in any practice, take any action, or enter into any transaction
outside the Ordinary Course of Business. Without limiting the generality of the
foregoing, the Seller will not cause or permit the Target to (I) declare, set
aside, or pay any dividend or make any distribution with respect to its capital
stock or redeem, purchase, or otherwise acquire any of its capital stock.
(d) Preservation of Business. The Seller will cause the Target to
keep its business and properties substantially intact, including its present
operations, physical facilities, working conditions, and relationships with
lessors, licensors, suppliers, customers, and employees.
(e) Full Access. The Seller will permit, and the Seller will cause
Target to permit, representatives of the Buyer to have full access at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Target, to all premises, properties, personnel,
books, records (including Tax records), contracts, and documents of or
pertaining to the Target.
(f) Notice of Developments. The Seller will give prompt written
notice to the Buyer of any material adverse development causing a breach of any
of the representations and warranties in Section 4 above. Each Party will give
prompt written notice to the others of any material adverse development causing
a breach of any of his or its own representations and warranties in Section 3
above. No disclosure by any Party pursuant to this Section 5(f), however, shall
be deemed to amend or supplement the Disclosure Schedule or to prevent or cure
any misrepresentation, breach of warranty, or breach of covenant.
(g) Exclusivity. The Seller will not (and the Seller will not cause
or permit the Target to) (I) solicit, initiate, or encourage the submission of
any proposal or offer from any Person relating to the acquisition of any capital
stock or other voting securities, or any substantial portion of the assets of,
the Target (including any acquisition structured as a merger, consolidation, or
share exchange) or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing. The Seller will not vote his Target Shares in favor of any
such acquisition structured as a merger, consolidation, or share exchange. The
Seller will notify the Buyer immediately if any Person makes any proposal,
offer, inquiry, or contact with respect to any of the foregoing.
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<PAGE> 15
6. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing.
(a) General. In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Section 8 below). The Seller acknowledges and agrees that from and after the
Closing the Buyer will be entitled to possession of all documents, books,
records (including Tax records), agreements, and financial data of any sort
relating to the Target.
(b) Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(I) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Target, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 8 below).
(c) Transition. The Seller will not take any action that is designed
or intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Target from maintaining the same
business relationships with the Target after the Closing as it maintained with
the Target prior to the Closing. The Seller will refer all customer inquiries
relating to the businesses of the Target to the Buyer from and after the
Closing.
(d) Confidentiality. The Seller will treat and hold as such all of
the Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly to
the Buyer or destroy, at the request and option of the Buyer, all tangible
embodiments (and all copies) of the Confidential Information which are in his or
its possession. In the event that the Seller is requested or required (by oral
question or request for information or documents in any legal proceeding,
interrogatory, subpoena, civil investigative demand, or similar process) to
disclose any Confidential Information, the Seller will notify the Buyer promptly
of the request or requirement so that the Buyer may seek an appropriate
protective order or waive compliance with the provisions of this Section 6(d).
If, in the absence of a protective order or the receipt of a waiver hereunder,
the Seller is, on the advice of counsel, compelled to disclose any Confidential
Information to any tribunal or else stand liable for contempt, that the Seller
may disclose the Confidential Information to the tribunal; provided, however,
that the Seller shall use his or its reasonable best efforts to obtain, at the
reasonable request of the Buyer, an order or other assurance that confidential
treatment will be accorded to such portion of the
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Confidential Information required to be disclosed as the Buyer shall designate.
The foregoing provisions shall not apply to any Confidential Information which
is generally available to the public immediately prior to the time of
disclosure.
(e) Covenant Not to Compete. While an Affiliate of the Buyer
or any of its Subsidiaries, other than as an employee of or on behalf of the
Buyer and any of its Subsidiaries, and for a period of two years after the
Closing Date the Seller shall not engage directly or indirectly in any business
that the Target conducts as of the Closing Date in any geographic area in which
the Target conducts that business as of the Closing Date; provided, however,
that ownership of less than 1% of the outstanding stock of any publicly traded
corporation shall not be deemed a violation. If the final judgment of a court of
competent jurisdiction declares that any term or provision of this Section 6(e)
is invalid or unenforceable, the Parties agree that the court making the
determination of invalidity or unenforceability shall have the power to reduce
the scope, duration, or area of the term or provision, to delete specific words
or phrases, or to replace any invalid or unenforceable term or provision with a
term or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or provision, and
this Agreement shall be enforceable as so modified after the expiration of the
time within which the judgment may be appealed.
(f) Certificates. Each certificate representing the Shares, and, if
issued, the Additional Shares, will be imprinted with a legend substantially in
the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THESE SECURITIES UNDER THE SECURITIES ACT OF 1933 OR
AN OPINION OF THE COMPANY'S COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT.
Each holder desiring to transfer any of the Shares, and, if issued, the
Additional Shares, first must furnish the Buyer with (I) a written opinion
reasonably satisfactory to the Buyer in form and substance from counsel
reasonably satisfactory to the Buyer by reason of experience to the effect that
the holder may transfer the Shares and, if issued, the Additional Shares as
desired without registration under the Securities Act and (ii) a written
undertaking executed by the desired transferee reasonably satisfactory to the
Buyer in form and substance agreeing to be bound by the recoupment provisions
and the restrictions on transfer contained herein.
7. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the
Buyer to consummate the transactions to be performed by it in connection with
the Closing is subject to satisfaction of the following conditions:
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(i) the representations and warranties set forth in Section 3(a)
and Section 4 above shall be true and correct in all material respects at
and as of the Closing Date;
(ii) the Seller shall have performed and complied with all of his
covenants hereunder in all material respects through the Closing;
(iii) the Target shall have procured all of the third party
consents specified in Section 5(b) above, including, without limitation,
the necessary consents of any bank or other lender;
(iv) the Seller shall have assigned all of the Seller's rights,
interests and obligations under the Stipulation to the Buyer and all issues
regarding any Target Shares held by the Target as treasury shares or in
escrow, and all issues regarding the Stipulations and the Escrow Agreement,
shall have been resolved to the Buyer's full satisfaction;
(v) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Buyer to own the Target Shares and to control the Target, or (D) affect
adversely the right of the Target to own its assets and to operate its
businesses (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(vi) the Buyer shall have received the resignations, effective as
of the Closing, of each director and officer of the Target other than those
whom the Buyer shall have specified in writing prior to the Closing;
(vii) The Registration Rights Agreement shall have been entered
into by the Parties; and
(viii) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the transactions
contemplated hereby will, unless otherwise set forth in this Agreement, be
reasonably satisfactory in form and substance to the Buyer.
The Buyer may waive any condition specified in this Section 7(a) if it executes
a writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller. The obligation of the
Seller to consummate the transactions to be performed by the Seller in
connection with the Closing is subject to satisfaction of the following
conditions:
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(i) the representations and warranties set forth in Section 3(b)
above shall be true and correct in all material respects at and as of the
Closing Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or threatened
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement or (B) cause any of the transactions contemplated by this
Agreement to be rescinded following consummation (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(iv) the Buyer shall have assumed all of the Seller's rights,
interests and obligations under the Stipulation;
(v) the loan from the Seller to the Target, in the principal amount
of approximately $180,000 as of September 30, 1996, shall be reduced by the
amount necessary to pay all amounts owed pursuant to the Stipulation as of
the Closing Date and the balance of such loan shall be converted into
either a term loan or into a loan convertible into Buyer Shares, in each
case acceptable to the Buyer and the Seller, and shall have also been
amended to provide that, at the Seller's option, the then outstanding
balance of such loan can be applied towards payment of the exercise price
of the Option;
(vi) The Registration Rights Agreement, shall have been entered
into by the Parties; and
(vii) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will, unless otherwise set
forth in this Agreement, be reasonably satisfactory in form and
substance to the Seller.
The Seller may waive any condition specified in this Section 7(b) if he executes
a writing so stating at or prior to the Closing.
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8. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties.
All of the representations and warranties of the Parties
contained in this Agreement shall survive the Closing hereunder (even if the
damaged Party knew or had reason to know of any misrepresentation or breach of
warranty or covenant at the time of Closing) and continue in full force and
effect forever thereafter, subject to the applicable statutes of limitations.
(b) Indemnification Provisions for Benefit of the Buyer. With
respect to any alleged breach as to which the Buyer gives the Seller notice and
asserts a claim prior to the end of the applicable survival period pursuant to
Section 8(a) above.
(i) In the event the Seller breaches (or in the event
any third party alleges facts that, if true, would mean the Seller has
breached) any of his representations, warranties, and covenants
contained herein, provided that the Buyer makes a written claim for
indemnification against the Seller during the applicable survival
period, then the Seller agrees to indemnify the Buyer from and against
the entirety of any material Adverse Consequences the Buyer may suffer
through and after the date of the claim for indemnification (including
any material Adverse Consequences the Buyer may suffer after the end of
any applicable survival period) resulting from, arising out of,
relating to, in the nature of, or caused by the breach (or the alleged
breach).
(ii) The Seller agrees to indemnify the Buyer from
and against the entirety of any material Adverse Consequences the Buyer
may suffer resulting from, arising out of, relating to, in the nature
of, or caused by any Liability of the Target (x) for any Taxes of the
Target with respect to any Tax year or portion thereof ending on or
before the Closing Date (or for any Tax year beginning before and
ending after the Closing Date to the extent allocable (determined in a
manner consistent with Section 9(c)) to the portion of such period
beginning before and ending on the Closing Date), to the extent such
Taxes are not reflected in the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) shown on the face of the
Targets most recent financial statements (rather than in any notes
thereto), as such reserve is adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of the
Target in filing its Tax Returns.
(c) Indemnification Provisions for Benefit of the Seller. In
the event the Buyer breaches (or in the event any third party alleges facts
that, if true, would mean the Buyer has breached) any of its representations,
warranties, and covenants contained herein, provided that the Seller makes a
written claim for indemnification against the Buyer during the applicable
survival period, then the Buyer agrees to indemnify the Seller from and against
the entirety of any Adverse Consequences the Seller may suffer through and after
the date of the claim for indemnification (including any Adverse Consequences
the Seller may suffer after the end of any
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applicable survival period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach).
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third Party Claim")
which may give rise to a claim for indemnification against any other
Party (the "Indemnifying Party") under this Section 8, then the
Indemnified Party shall promptly notify each Indemnifying Party thereof
in writing; provided, however, that no delay on the part of the
Indemnified Party in notifying any Indemnifying Party shall relieve the
Indemnifying Party from any obligation hereunder unless (and then
solely to the extent) the Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to
defend the Indemnified Party against the Third Party Claim with counsel
of its choice reasonably satisfactory to the Indemnified Party so long
as (A) the Indemnifying Party notifies the Indemnified Party in writing
within 15 days after the Indemnified Party has given notice of the
Third Party Claim that the Indemnifying Party will indemnify the
Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party
Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification obligations
hereunder, (C) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief, (D) settlement
of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (E) the
Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently.
(iii) So long as the Indemnifying Party is conducting
the defense of the Third Party Claim in accordance with Section
8(d)(ii) above, (A) the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate in the defense
of the Third Party Claim, (B) the Indemnified Party will not consent to
the entry of any judgment or enter into any settlement with respect to
the Third Party Claim without the prior written consent of the
Indemnifying Party (not to be withheld unreasonably), and (C) the
Indemnifying Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim without
the prior written consent of the Indemnified Party (not to be withheld
unreasonably).
(iv) In the event any of the conditions in
Section 8(d)(ii) above is or becomes unsatisfied, however, (A) the
Indemnified Party may defend against, and consent to the entry of any
judgment or enter into any settlement with respect to, the Third Party
Claim
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in any manner it reasonably may deem appropriate (and the Indemnified
Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (B) the Indemnifying
Parties will reimburse the Indemnified Party promptly and periodically
for the costs of defending against the Third Party Claim (including
reasonable attorneys' fees and expenses), and (C) the Indemnifying
Parties will remain responsible for any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this Section 8.
(e) Other Indemnification Provisions. The foregoing
indemnification provisions are in addition to, and not in derogation of, any
statutory, equitable, or common law remedy any Party may have for breach of
representation, warranty, or covenant. The Seller hereby agrees that he will not
make any claim for indemnification against the Target by reason of the fact that
he or it was a director, officer, employee, or agent of any such entity or was
serving at the request of any such entity as a partner, trustee, director,
officer, employee, or agent of another entity (whether such claim is for
judgments, damages, penalties, fines, costs, amounts paid in settlement, losses,
expenses, or otherwise and whether such claim is pursuant to any statute,
charter document, bylaw, agreement, or otherwise) with respect to any action,
suit, proceeding, complaint, claim, or demand brought by the Buyer against the
Seller (whether such action, suit, proceeding, complaint, claim, or demand is
pursuant to this Agreement, applicable law, or otherwise).
9. Tax Matters. The following provisions shall govern the
allocation of responsibility as between the Buyer and the Seller for certain tax
matters following the Closing Date:
(a) Tax Periods Ending on or Before the Closing Date. The
Buyer shall prepare or cause to be prepared and file or cause to be filed all
Tax Returns for the Target for all periods ending on or prior to the Closing
Date which are filed after the Closing Date other than income Tax Returns with
respect to periods for which a consolidated, unitary or combined income Tax
Return of Seller will include the operations of the Target. The Buyer shall
permit the Target to review and comment on each such Tax Return described in the
preceding sentence prior to filing. The Seller shall reimburse the Buyer for
Taxes of the Target with respect to such periods within fifteen (15) days after
payment by the Buyer or the Target of such Taxes to the extent such Taxes are
not reflected in the reserve for Tax Liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and Tax
income) shown on the face of the last balance sheet of the Target prepared prior
to the Closing Date.
(b) Tax Periods Beginning Before and Ending After the Closing
Date. The Buyer shall prepare or cause to be prepared and file or cause to be
filed any Tax Returns of the Target for Tax periods which begin before the
Closing Date and end after the Closing Date. The Seller shall pay to the Buyer
within fifteen (15) days after the date on which Taxes are paid with respect to
such periods an amount equal to the portion of such Taxes which relates to the
portion of such Taxable period ending on the Closing Date to the extent such
Taxes are not reflected in
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the reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the last balance sheet of the Target prepared prior to the Closing
Date. For purposes of this Section, in the case of any Taxes that are imposed on
a periodic basis and are payable for a Taxable period that includes (but does
not end on) the Closing Date, the portion of such Tax which relates to the
portion of such Taxable period ending on the Closing Date shall (x) in the case
of any Taxes other than Taxes based upon or related to income or receipts, be
deemed to be the amount of such Tax for the entire Taxable period multiplied by
a fraction the numerator of which is the number of days in the Taxable period
ending on the Closing Date and the denominator of which is the number of days in
the entire Taxable period, and (y) in the case of any Tax based upon or related
to income or receipts be deemed equal to the amount which would be payable if
the relevant Taxable period ended on the Closing Date. Any credits relating to a
Taxable period that begins before and ends after the Closing Date shall be taken
into account as though the relevant Taxable period ended on the Closing Date.
All determinations necessary to give effect to the foregoing allocations shall
be made in a manner consistent with prior practice of the Target.
(c) Cooperation on Tax Matters.
(i) The Buyer, the Target and the Seller shall
cooperate fully, as and to the extent reasonably requested by the other
party, in connection with the filing of Tax Returns pursuant to this
Section and any audit, litigation or other proceeding with respect to
Taxes. Such cooperation shall include the retention and (upon the other
party's request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding
and making employees available on a mutually convenient basis to
provide additional information and explanation of any material provided
hereunder. The Target and the Seller agree (A) to retain all books and
records with respect to Tax matters pertinent to the Target relating to
any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified
by the Buyer or the Seller, any extensions thereof) of the respective
taxable periods, and to abide by all record retention agreements
entered into with any taxing authority, and (B) to give the other party
reasonable written notice prior to transferring, destroying or
discarding any such books and records and, if the other party so
requests, the Target or the Seller, as the case may be, shall allow the
other party to take possession of such books and records.
(ii) Buyer and Seller further agree, upon request, to
use their best efforts to obtain any certificate or other document from
any governmental authority or any other Person as may be necessary to
mitigate, reduce or eliminate any Tax that could be imposed (including,
but not limited to, with respect to the transactions contemplated
hereby).
(iii) The Buyer and the Seller further agree, upon
request, to provide the other party with all information that either
party may be required to report pursuant to
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Section 6043 of the Code and all Treasury Department Regulations
promulgated thereunder.
(d) Tax Sharing Agreements. All tax sharing agreements or
similar agreements with respect to or involving the Target shall be terminated
as of the Closing Date and, after the Closing Date, the Target shall not be
bound thereby or have any liability thereunder.
(e) Certain Taxes. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any New York
State Gains Tax, New York City Transfer Tax and any similar tax imposed in other
states or subdivisions), shall be paid by the Seller when due, and the Seller
will, at their own expense, file all necessary Tax Returns and other
documentation with respect to all such transfer, documentary, sales, use, stamp,
registration and other Taxes and fees, and, if required by applicable law, the
Buyer will, and will cause its affiliates to, join in the execution of any such
Tax Returns and other documentation.
10. Termination.
(a) Termination of Agreement. The Parties may terminate
this Agreement as provided below:
(i) the Buyer and the Seller may terminate this
Agreement by mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving
written notice to the Seller at any time prior to the Closing (A) in
the event any of the Seller has breached any material representation,
warranty, or covenant contained in this Agreement in any material
respect, the Buyer has notified the Seller of the breach, and the
breach has continued without cure for a period of 30 days after the
notice of breach or (B) if the Closing shall not have occurred within
60 days of the date of this Agreement, by reason of the failure of any
condition precedent under Section 7(a) hereof (unless the failure
results primarily from the Buyer itself breaching any representation,
warranty, or covenant contained in this Agreement); and
(iii) the Seller may terminate this Agreement by
giving written notice to the Buyer at any time prior to the Closing (A)
in the event the Buyer has breached any material representation,
warranty, or covenant contained in this Agreement in any material
respect, the Seller has notified the Buyer of the breach, and the
breach has continued without cure for a period of 30 days after the
notice of breach or (B) if the Closing shall not have occurred within
60 days of the date of this Agreement, by reason of the failure of any
condition precedent under Section 7(b) hereof (unless the failure
results primarily from any of the Seller themselves breaching any
representation, warranty, or covenant contained in this Agreement).
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(b) Effect of Termination. If any Party terminates this
Agreement pursuant to Section 10(a) above, all rights and obligations of the
Parties hereunder shall terminate without any Liability of any Party to any
other Party (except for any Liability of any Party then in breach).
11. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written approval
of the Buyer and the Seller; provided, however, that any Party may make any
public disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
(b) No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or among
the Parties, written or oral, to the extent they related in any way to the
subject matter hereof.
(d) Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of his or its rights, interests, or obligations hereunder without the prior
written approval of the Buyer and the Seller; provided, however, that the Buyer
may (i) assign any or all of its rights and interests hereunder to one or more
of its Affiliates and (ii) designate one or more of its Affiliates to perform
its obligations hereunder (in any or all of which cases the Buyer nonetheless
shall remain responsible for the performance of all of its obligations
hereunder).
(e) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement
are inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered
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or certified mail, return receipt requested, postage prepaid, and addressed to
the intended recipient at the addresses set forth on the signature page hereto.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set on the signature page
hereto using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Parties notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York without
giving effect to any choice or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
(i) Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Seller. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) Severability. Any term or provision of this Agreement that
is invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision in
any other situation or in any other jurisdiction.
(k) Expenses. Each of the Parties, and the Target, will bear
his or its own costs and expenses (including legal fees and expenses) incurred
in connection with this Agreement and the transactions contemplated hereby. The
Seller agrees the Target has not borne or will not bear any of the Seller's
costs and expenses (including any of their legal fees and expenses) in
connection with this Agreement or any of the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or
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covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
(m) Incorporation of Exhibits, Annexes, and Schedules. The
Exhibits, Annexes, and Schedules identified in this Agreement are incorporated
herein by reference and made a part hereof.
(n) Specific Performance. Each of the Parties acknowledges and
agrees that the other Parties would be damaged irreparably in the event any of
the provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties shall be entitled to an injunction or injunctions
to prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the Parties and the matter (subject to the provisions set
forth in Section 10(o) below), in addition to any other remedy to which they may
be entitled, at law or in equity.
(o) Submission to Jurisdiction. Each of the Parties submits to
the jurisdiction of any state or federal court sitting in New York County, New
York in any action or proceeding arising out of or relating to this Agreement
and agrees that all claims in respect of the action or proceeding may be heard
and determined in any such court. Each Party also agrees not to bring any action
or proceeding arising out of or relating to this Agreement in any other court.
Each of the Parties waives any defense of inconvenient forum to the maintenance
of any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
BUYER: SWISSRAY INTERNATIONAL, INC.
By:/ Ulrich Ernst/
------------------------------
Name:
Title:
Address for notice:
Industriestrasse 6
CH-6285 Hitzkirch
Switzerland
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With a copy to:
Walter M. Epstein, Esq.
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
29th Floor
New York, New York 10112
SELLER: /Doug Maxwell
------------------------------------
Doug Maxwell
Address for notice:
Doug Maxwell
30 Cherry Lane
Glen Head, NY 11545
With a copy to:
Robert A. Melillo, Esq.
108 Forest Avenue
P.O. Box 447
Locust Valley, New York 11560
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SCHEDULE 2(b)(ii)
If the Target achieves "pre-tax profits" (as defined below) equal to at
least 2% of gross revenues calculated in the aggregate for the two year period
which includes the fiscal years ending September 30, 1997 and September 30, 1998
(the "Performance Target") then the Seller shall be entitled to receive the
Additional Shares as set forth below.
The term "pre-tax profit" means the pre-tax profit which would appear
on a profit and loss statement prepared for the Target as a standalone entity in
accordance with generally accepted accounting principles, consistently applied.
Such determination shall be made within 90 days after September 30, 1998 (the
"Determination Date"); provided, however, that "pre-tax profit" shall not
include expenses incurred by the Target in connection with the sale or marketing
of products of the Buyer and its Affiliates (other than the Target), to the
extent there is no revenue related to such expenses allocated to the Target.
The determination of pre-tax profits shall be made by the Buyer's
independent auditors and shall be binding on all parties. If the Performance
Target has been met based upon such determination, the Buyer shall issue the
Additional Shares to the Seller within 15 days following the Determination Date.
24
<PAGE> 29
$62,266.49 March 13, 1997
SWISSRAY INTERNATIONAL INC.
NON-NEGOTIABLE CONVERTIBLE DEBENTURE
DUE MARCH 13, 2000
(Convertible into Common Stock of
Swissray International Inc.)
Swissray International Inc., a Delaware corporation (hereinafter called
the "Company"), for value received, hereby promises to pay to DOUG MAXWELL, an
individual with an address at 30 Cherry Lane, Glen Head, New York 11545 (the
"Holder"), the principal sum of Sixty-Two Thousand, Two Hundred Sixty-Six
Dollars and Forty-Nine Cents ($62,266.49) on March 13, 2000 (the "Maturity
Date"), and to pay interest on said principal sum quarterly on December 31,
March 31, June 30 and September 30 of each year commencing March 31, 1997 at a
rate equal to the Interest Rate, (as hereinafter defined), from and including
the date hereof, until payment of said principal sum has been made. All cash
payments hereunder shall be made in such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts and shall be made at the offices of the Company at 747
Third Avenue, New York, New York 10017, or such other location as the Holder
shall designate from time to time in writing. Upon the occurrence and during the
continuance of an Event of Default, (as hereinafter defined), all amounts
outstanding under this Debenture (including past due interest, if any) shall
bear interest at a rate equal to the Interest Rate plus four (4%) percent.
Pursuant to the provisions of Article II hereof, the Holder is
entitled, at his option, at any time on and after the date hereof and prior to
the close of business on the date that is ten (10) Business Days prior to the
Maturity Date, to convert all, but not less than all, of the principal amount
hereof into that number of fully paid and non-assessable shares of Common Stock
of the Company as is equal to the then outstanding principal amount hereof
divided by the Conversion Price (as hereinafter defined),
<PAGE> 30
by deposit of this Debenture accompanied by written notice that the Holder
elects to convert this Debenture, at the office of the Company in New York, New
York. No payment or adjustment shall be made on account of interest accrued on
this Debenture after it has been so converted or on account of any dividends on
the Common Stock delivered upon such conversion. Pursuant to the provisions of
Article II hereof, the holder is entitled, at his option, at any time on and
after the date hereof and prior to the close of business on the date that is ten
(10) Business Days prior to the Maturity Date, to apply the then outstanding
principal amount of this Debenture towards the exercise price of the Options (as
hereinafter defined).
In case an Event of Default, (as hereinafter defined), shall have
occurred and be continuing, the principal hereof may be declared, and upon such
declaration shall become, due and payable in the manner, with the effect and
subject to the conditions provided in this Debenture.
The Company may prepay this Debenture, in whole but not in part, upon
ten (10) days written notice to the Holder in cash at any time without premium
or penalty, subject to the right of the Holder to convert the principal amount
hereof to Common Stock of the Company prior to the expiration of such ten (10)
day period. Any such prepayment shall include unpaid interest accrued to the
date of prepayment.
This Debenture is issued subject to, and shall be governed by, the
following terms and conditions:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
1.1 Definitions. For all purposes of this Debenture, except as
otherwise expressly provided or unless the context otherwise requires:
(1) all references in this instrument to designated "Articles",
"Sections" and other subdivisions are to the designated Articles, Sections and
other subdivisions of this instrument. The words "herein", "hereof" and
"hereunder" and other words of similar import refer to this Debenture as a whole
-2-
<PAGE> 31
and not to any particular Article, Section or other subdivision; and
(2) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular.
"Board of Directors" means the Board of Directors or the Executive
Committee or any other committee thereof duly authorized to act hereunder of the
Company.
"Business Day" means any day of the week other than Saturday, Sunday or
a day which shall be in The City of New York a legal holiday or a day on which
banking institutions are authorized by law to close.
"Common Stock" means the Company's common stock, $0.01 par
value.
"Conversion" means the exchange of this Debenture for Common Stock by
the Holder as provided in Article II.
"Dollars" and the symbol "$" means United States dollars.
"Event of Default" has the meaning specified in Section 4.1.
"Interest Rate" means, as determined on a daily basis, the rate per
annum established by the State Bank of Long Island from time to time as the
reference rate for short-term commercial loans in dollars to domestic corporate
borrowers plus one (1%) percent.
1.2 Headings. The Article and Section headings herein are for
convenience only and shall not affect the construction hereof.
1.3 Successors and Assigns. All covenants and agreements in this
Debenture by the Company shall bind its successors and assigns, whether so
expressed or not.
1.4 Severability. In case any provision in this Debenture shall be
invalid, illegal or unenforceable, the validity,
-3-
<PAGE> 32
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
1.5 No Third-Party Benefits. Nothing express or implied in this
Debenture shall give to any person, other than the Company, the Holder and their
successors hereunder any benefit or any legal or equitable right, remedy or
claim under this Debenture.
1.6 Notice. Any notice or demand which by any provision of this
Debenture is required or permitted to be given or served by the Holder to or on
the Company may be given or served by being deposited postage prepaid in a post
office letter box addressed as follows:
If to the Company:
Industriestr. 6
6285 Hitzkirch
Switzerland
Attn: Mr. Ulrich Ernst
With a copy to:
Walter M. Epstein, Esq.
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
29th Floor
New York, New York 10112
If to the Holder:
Mr. Doug Maxwell
30 Cherry Lane
Glen Head, NY 11545
With a copy to:
Bob Melillo, Esq.
108 Forest Avenue
P.O. Box 447
Locust Valley, NY 11560
-4-
<PAGE> 33
1.7 Legal Holidays. In any case where the date of maturity of principal
of or interest on this Debenture or the last date on which the Holder has the
right to convert or exchange this Debenture shall not be a Business Day at the
place of payment or conversion, then payment of the principal of, or interest
on, or conversion or exchange of, this Debenture need not be made on such date
but may be made on the next succeeding Business Day at the place of payment or
conversion or exchange, with the same force and effect as if made on the date of
maturity or such last date for conversion or exchange, and no interest shall
accrue for the period from and after such date.
1.8 Interest Basis. Interest on this Debenture shall be computed on the
basis of a 365-day year.
1.9 Governing Law. This Debenture shall be deemed to be a contract made
under the laws of the State of New York, and all rights and obligations
hereunder and thereunder shall for all purposes be governed by the laws of said
State.
ARTICLE II
CONVERSION OF DEBENTURE
2.1 Conversion. (a) Subject to, and upon compliance with, the
provisions of this Article II, at the option of the Holder, the principal amount
of this Debenture may, at any time on and after the date hereof and prior to the
close of business on the date that is ten (10) Business Days prior to the
Maturity Date, be converted into that number of shares (calculated to the
nearest 1/100th of a share) of Common Stock as is equal to the then outstanding
principal amount of this Debenture divided by the Conversion Price, determined
as hereinafter provided, in effect at the time of conversion. The rights of the
Holder under this Section 2.1(a) shall be referred to herein as the "Conversion
Privilege."
(b) Subject to, and in compliance with, the provisions of this
Article II, at the option of the Holder, any portion of the then outstanding
principal amount of this Debenture may, at any time on and after the date hereof
and prior to the close of business on the date that is ten (10) Business Days
prior to the Maturity Date, be applied toward the payment of the exercise
-5-
<PAGE> 34
price of the options (the "Options") to purchase up to 125,000 shares of Common
Stock which are being granted to the Holder by the Company on the date hereof
pursuant to an option agreement (the "Option Agreement") being entered into
between the Company and the Holder. The rights of the Holder pursuant to this
Section 2.1(c) may only be exercised (i) as to options that are at the time of
such exercise fully vested and exercisable, and are otherwise being exercised in
accordance with the terms of the Option Agreement and (ii) in amounts that are
not less than $10,000 and in increments of $5,000. The principal amount of this
Debenture shall be reduced by the amount of any exercise pursuant to this
section 2.1(c). The rights of the Holder under this Section 2.1(c) shall be
referred to herein as the "Exercise Privilege."
The Conversion Price shall mean the price per share of Common Stock at
which the principal amount of this Debenture is to be converted upon conversion
of this Debenture. The Conversion Price shall be equal to the market price per
share as of the date of conversion less twenty (20%) percent of such market
price per share. The current market price per share of Common Stock at any date
shall be deemed to be the average of the daily closing prices for five
consecutive business days commencing eight business days before such date. The
closing price for each day shall be the reported last sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported last bid and asked prices regular way, in either case on the principal
national securities exchange on which the Common Stock is admitted to trading or
listed or on the NASDAQ National Market System, or if not listed or admitted to
trading on such exchange or such National Market System, the average of the
reported highest bid and reported lowest asked prices as reported by NASDAQ, or
other similar organization if NASDAQ is no longer reporting such information, or
if not so available, the fair market price as determined by the Board of
Directors.
2.2 Fractional Shares. No fractional shares or scrip representing
fractional shares of Common Stock shall be issued upon conversion of this
Debenture. Instead of any fractional share of Common Stock which would otherwise
be issuable upon conversion of this Debenture, the Company shall pay a cash
adjustment in respect of such fraction in an amount equal to the
-6-
<PAGE> 35
same fraction of the market price per share of Common Stock at the close of
business on the day of conversion as determined in good faith by the Board of
Directors.
2.3 Exercise of Conversion or Exercise Privilege. In order to exercise
the Conversion Privilege or the Exercise Privilege, the Holder of this Debenture
shall surrender this Debenture to the Company at its principal office in New
York, New York or such other locations as the Company shall designate in writing
from time to time, accompanied by written notice to the Company that the Holder
elects to exercise its Conversion Privilege or Exercise Privilege as
appropriate, by exchanging it for Common Stock or exercising a number of the
Options. In the case of an exercise of the Conversion Privilege, such notice
shall also state the name or names of the person or persons (with address) in
which the certificate or certificates for Common Stock which shall be
deliverable on such conversion shall be registered and shall be accompanied (if
so required by the Company) by such instruments of transfer as may be
appropriate, in form satisfactory to the Company, duly executed by the Holder to
be converted or by his attorney duly authorized in writing. In the case of an
exercise of the Exercise Privilege, such notice shall also state the number of
Options to be exercised. As promptly as practicable after the receipt of such
notice and the delivery of this Debenture as aforesaid, the Company shall
deliver at such place to the Holder, or on his written order, a certificate or
certificates for the number of full shares of Common Stock deliverable upon the
conversion of this Debenture, and provision shall be made in respect of any
fraction of a share as provided in Section 2.2 or the procedures for the
exercise of the Options set forth in the Option Agreement shall be followed. No
payment or adjustment shall be made upon any conversion or exercise on account
of any interest accrued on the Debenture surrendered for conversion or exercise
or on account of any dividends on the Common Stock issued upon conversion or
exercise. Such conversion or exercise shall be deemed to have been effected
immediately prior to the close of business on the date on which such notice
shall have been received by the Company and this Debenture shall have been
delivered to it as aforesaid, and at such time upon a conversion or exercise for
the full principal amount hereof the rights of the Holder as such Holder shall
cease and the person or persons entitled to receive the Common Stock issuable
upon conversion shall be treated for all purposes as the Holder or the
-7-
<PAGE> 36
holder of record of such Common Stock at such time. Upon an exercise of the
Exercise Privilege for less than the full principal amount of this Debenture, a
replacement Debenture reflecting the remaining principal amount shall be
delivered to the Holder within a reasonable period of time following such
exercise.
The Holder understands that none of the shares of Common Stock issuable
upon exercise of the Conversion Privilege will be registered under the
Securities Act of 1933, as amended (the "Act") or any state securities laws, and
that none of such shares may be sold, hypothecated or otherwise disposed of
unless subsequently registered under the Act and applicable state securities
laws or an exemption from registration is available. Legends shall be placed on
certificates representing all shares of Common Stock so issued to the effect
that they have not been registered under the Act or applicable state securities
laws and appropriate notations thereof will be made in the Company's stock
books.
2.4 Reservation of Common Stock. The Company shall at all times reserve
and keep available, free from pre-emptive rights, out of its authorized but
unissued Common Stock, for the purpose of effecting the conversion of this
Debenture, the full number of shares of Common Stock then issuable upon such
conversion.
2.5 Taxes on Conversions. The Company will pay any and all documentary
or similar issue taxes that may be payable to the United States of America or
any State or political subdivision thereof in respect of the issue or delivery
of shares of Common Stock on conversion of this Debenture (or payment hereof by
the issuance of shares of Common Stock) or in respect of the delivery of this
Debenture to the Company upon conversion pursuant hereto. The Company shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of shares of Common Stock in a name
other than that of the Holder, and no such issue or delivery shall be made
unless and until the person requesting such issue has paid to the Company the
amount of any such tax, or has established, to the satisfaction of the Company,
that such tax has been paid. The Company does not extend any protection with
respect to any taxes imposed by any other government or any subdivision thereof,
and no delivery of shares of Common Stock on conversion of this
-8-
<PAGE> 37
Debenture need be made unless and until the person requesting such delivery has
paid to the Company the amount of any such tax imposed in connection with such
conversion or has established to the satisfaction of the Company, that such tax
has been paid, whether or not the tax shall be imposed upon or collectible from
the Company.
2.6 Effect of Consolidations, Mergers and Sales of Assets. In case of
any consolidation of the Company with, or merger of the Company into, any other
corporation (other than a consolidation or merger in which the Company is the
continuing corporation), or in case of any sale or transfer of all or
substantially all the assets of the Company, the corporation formed by such
consolidation or the corporation into which the Company shall have been merged
or the corporation which shall have acquired such assets, as the case may be,
shall execute and deliver to the Holder a supplement to this Debenture providing
that the Holder shall have the right thereafter to convert this Debenture into
the kind and amount of shares of stock and other securities and property
receivable upon such consolidation, merger, sale or transfer by a holder of the
number of shares of Common Stock of the Company into which this Debenture might
have been converted immediately prior to such consolidation, merger, sale or
transfer. Such supplement shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Article
II. The above provisions of this Section 2.6 shall similarly apply to successive
consolidations, mergers, sales or transfers.
ARTICLE III
COVENANTS
3.1 Payment of Principal and Interest. The Company will duly and
punctually pay the principal of and interest on this Debenture in accordance
with the terms of this Debenture.
ARTICLE IV
REMEDIES
4.1 Events of Default. "Event of Default", wherever used herein, means
any one of the following events (whatever the
-9-
<PAGE> 38
reason for such Event of Default and whether it shall be occasioned by the
provisions of Article II hereof or be voluntary or involuntary or be effected by
operation of law pursuant to any judgment, decree or order of any court or any
order, rule or regulation of any administrative or governmental body):
(1) default in the payment of any interest upon this Debenture
when the same becomes due and payable, and continuance of such default for a
period of ten (10) Business Days; or
(2) default in the payment of the principal of this Debenture
as and when the same shall become due and payable at maturity, by declaration or
otherwise; or
(3) default in the performance, or breach, of any covenant or
warranty of the Company or in this Debenture (other than a covenant or warranty
a default in whose performance or whose breach is elsewhere in this Section
specifically dealt with), and continuance of such default or breach for a period
of twenty (20) days after there has been given, by registered or certified mail,
to the Company by the Holder, a written notice specifying such default or breach
and requiring it to be remedied and stating that such notice is a "Notice of
Default" hereunder; or
(4) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of the Company under the Title 11 of
the United States Code or any other applicable federal or State law, or
appointing a receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or of any substantial part of its property, or
ordering the winding-up or liquidation of its affairs, and the continuance of
any such decree or order unstayed and in effect for a period of sixty (60)
consecutive days; or
(5) the institution by the Company of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by the Company to the
institution of bankruptcy or insolvency proceedings against it, or the filing by
the Company of a petition or answer or consent seeking reorganization or relief
under the Title 11 of the United States Code or any other
-10-
<PAGE> 39
applicable federal or State law, or the consent by the Company to the filing of
any such petition or to the appointment of a receiver, liquidator, assignee,
trustee sequestrator (or other similar official) of the Company or of any
substantial part of its property, or the making by the Company of an assignment
for the benefit of creditors, or the admission by the Company in writing of its
inability to pay its debts generally as they become due, or the taking of
corporate action by the Company in furtherance of any such action.
4.2 Acceleration of Maturity; Rescission and Annulment. If an Event of
Default occurs and is continuing, then and in every such case the Holder may
declare the principal of this Debenture to be immediately due and payable, by a
notice in writing to the Company and upon any such declaration such principal
shall become come immediately due and payable.
4.3 Application of Money Collected. Any money collected by the Holder
pursuant to this Article IV shall be applied in the following order:
FIRST: To the payment of all costs and expenses (including reasonable
attorneys' fees and costs) incurred by the Holder in connection with such
collection;
SECOND: In case the principal of this Debenture shall not have become
due and be unpaid, to the payment of interest in default on this Debenture, in
the order of the maturity of the installments of such interest;
THIRD: In case the principal of this Debenture shall have become due,
by declaration as authorized by this Article IV or otherwise, to the payment of
the whole amount then owing and unpaid upon this Debenture for principal and
interest, with interest on the overdue principal at the rate per annum expressed
in this Debenture; and
FOURTH: To the payment of the remainder, if any, to the Company, its
successors or assigns, or to whosoever may be lawfully entitled to receive the
same, or as a court of competent jurisdiction may direct.
-11-
<PAGE> 40
4.4 Rights and Remedies Cumulative. No right or remedy herein conferred
upon or reserved to the Holder is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, (or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or remedy.
4.5 Delay or Omission Not Waiver. No delay or omission of the Holder to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Holder may be exercised from time to time, and as often as may be deemed
expedient, by the Holder.
ARTICLE V
IMMUNITY OF INCORPORATORS, STOCKHOLDERS;
OFFICERS AND DIRECTORS
5.1 Exemption from Individual Liability. No recourse under or upon any
obligation, covenant or agreement of this Debenture, or for any claim based
hereon or otherwise in respect hereof, shall be had against any incorporator,
stockholder, officer or director, as such, past, present or future, of the
Company or of any successor corporation, either directly or through the Company,
whether by virtue of any constitution, statute or rule of law, or by the
enforcement of any assessment or penalty or otherwise; it being expressly
understood that this Debenture and the obligations issued hereunder are solely
corporate obligations of the Company and that no personal liability whatever
shall attach to, or is or shall be incurred by, the incorporators, stockholder,
officers or directors, as such, of the Company or of any successor corporation,
or any of them, because of the creation of the indebtedness hereby authorized,
or under or by reason of the obligations, covenants or agreements contained in
this Debenture or implied therefrom; and that any and all such personal
liability, either at common law or in equity or by constitution or statute, of,
and any and all such rights and claims against, every such incorporator,
stockholder, officer or
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<PAGE> 41
director, as such, because of the creation of the indebtedness hereby
authorized, or under or by reason of the obligations, covenants or agreements
contained in this Debenture or implied therefrom, are hereby expressly waived
and released as a condition of, and as a consideration for, the execution of
this Debenture.
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed on the date first above written.
SWISSRAY INTERNATIONAL, INC.
By: /Ulrich Ernst/
--------------------------------
Title:
Attest:
/Ruedi G. Laupper/
- ---------------------------
Title:
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<PAGE> 42
REGISTRATION RIGHTS AGREEMENT
AGREEMENT, dated as of March 13, 1997, between SWISSRAY INTERNATIONAL,
INC., a New York corporation (the "Buyer"), having an address c/o Walter M.
Epstein, Esq., 30 Rockefeller Plaza, 29th Floor, New York, New York, and DOUG
MAXWELL, an individual (the "Seller"), having an address c/o Robert A. Melillo,
Esq., 108 Forest Avenue, P.O. Box 447, Locust Valley, New York 11560.
WHEREAS, the Buyer and the Seller have entered into an Exchange
Agreement dated as of November 22, 1996 (the "Exchange Agreement;" all
capitalized terms used herein without definition shall have the meanings
assigned to such terms in the Exchange Agreement); and
WHEREAS, as a condition to the closing under the Exchange Agreement the
Buyer has agreed to register the Shares, and, if issued, the Additional Shares
and shares of Buyer Shares issuable upon the exercise of the Options (the
"Option Shares"), (the Shares, the Additional Shares and the Option Shares are
referred to herein as the "Seller Shares") pursuant to the terms of this
Agreement.
NOW, THEREFORE, for good and valuable consideration, the parties hereto
mutually agree as follows:
1. Registration of the Shares.
(a) If, at any time commencing after the date of this
Agreement and expiring three (3) years thereafter, the Buyer proposes to file a
registration statement or statements under the Securities Act of 1933 (the
"Act") for the public sale of Buyer Shares for cash (other than in connection
with a merger or pursuant to Form S-4, Form S-8 or comparable registration
statement) it will give written notice, at least twenty (20) days prior to the
filing of each such registration statement, to the Seller of its intention to do
so. If the Seller notifies the Buyer in writing within five (5) business days
after receipt of any such notice of his desire to include the Seller Shares in
such proposed registration statement, the Buyer shall afford the Seller the
opportunity to have the Seller Shares registered under such registration
statement; provided, however, that in the case of an underwritten offering, if
the Buyer notifies the Seller in writing that the managing underwriter has
notified the Buyer that the inclusion in the registration statement of any
portion of the Seller Shares would have an adverse effect on such underwritten
offering, then the managing underwriter may limit the number of Seller Shares to
be included in such registration statement only to the extent necessary to avoid
such adverse effect; and provided, further, however, that in the event
securities of the Buyer held by any person or entity other than the Buyer or the
Seller ("Third Party Securities") are to be included in such underwritten
offering, and the managing underwriter shall have determined to limit the number
of Seller Shares or Third Party Securities to be so included, then such
limitation shall be applied to the Seller Shares and the Third Party Securities,
pro rata based on the number of Seller Shares and Third Party Securities
requested to be included in such underwritten offering. Notwithstanding the
provisions of this Section 1(a), the Buyer shall have the right at any time
after it shall have given written notice pursuant to this Section 1(a)
(irrespective of
<PAGE> 43
whether a written request for inclusion of any such securities shall have been
made) to elect not to file any such proposed registration statements or to
withdraw the same after the filing but prior to the effective date thereof.
(b) Following the effective date of any registration statement
including any Seller Shares, the Buyer shall, upon the request of the Seller,
forthwith supply such reasonable number of copies of the registration statement,
prospectus and other documents necessary or incidental to the registration as
shall be reasonably requested by the Seller to permit the Seller to make a
public distribution of the Seller Shares. The Buyer will use its reasonable
efforts to qualify the Seller Shares for sale in such states as the Seller shall
reasonably request, provided that no such qualification will be required in any
jurisdiction where, solely as a result thereof, the Buyer would be subject to
general service of process or to taxation or qualification as a foreign
corporation doing business in such jurisdiction. The obligations of the Buyer
hereunder with respect to the Seller Shares are expressly conditioned on the
Seller furnishing to the Buyer such appropriate information concerning the
Seller and the Seller Shares as the Company may reasonably request.
(c) The Company shall bear the entire cost and expense of the
registration of the Seller Shares; provided, however, that the Seller shall be
solely responsible for the fees of any counsel retained by the Seller in
connection with such registration and any transfer taxes or underwriting
discounts, commissions or fees applicable to the Seller Shares sold by the
Seller pursuant thereto.
(d) Neither the filing of such registration statement by the
Buyer pursuant to this Agreement nor the making of any request for prospectuses
by the Seller shall impose upon the Seller any obligation to sell the Seller
Shares.
(e) The Seller, upon receipt of notice from the Buyer that an
event has occurred which requires a post-effective amendment to any registration
statement including any Seller Shares or a supplement to the prospectus included
therein, shall promptly discontinue the sale of the Seller Shares until the
Seller receives a copy of a supplemented or amended prospectus from the Buyer,
which the Buyer shall provide as soon as practicable after such notice.
(f) Notwithstanding anything else to the contrary contained in
this Agreement, if the Seller requests to have any of the Seller Shares
registered under the Act pursuant to this Agreement, and if such Seller Shares
are so registered then this Agreement shall be of no further force or effect.
2. Indemnification.
(a) The Buyer shall indemnify and hold harmless the Seller
from and against any and all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, liabilities, obligations, taxes, liens, losses, expenses, and
2
<PAGE> 44
fees, including court costs and reasonable attorneys' fees and expenses
(collectively "Damages") caused by any untrue statement of a material fact
contained in any registration statement including the Seller Shares filed by the
Buyer under the Act, any post-effective amendment to such registration
statement, or any prospectus included therein required to be filed or furnished
by reason of this Agreement or caused by any omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except, insofar as such Damages are caused by any such
untrue statement or omission based upon information furnished or required to be
furnished in writing to the Buyer by the Seller expressly for use therein;
provided, however, that the indemnification in this paragraph 2(a) with respect
to any prospectus shall not inure to the benefit of the Seller on account of any
such Damage arising from the sale of the Shares by the Seller, if a copy of a
subsequent prospectus correcting the untrue statement or omission in such
earlier prospectus was provided to the Seller by the Buyer prior to the subject
sale and the subsequent prospectus was not delivered or sent by the Seller to
the purchaser prior to such sale; and provided further, that the Buyer shall not
be obligated to so indemnify the Seller unless the Seller shall at the same time
indemnify the Buyer, its directors, each officer signing such registration
statement and each person, if any, who controls the Buyer within the meaning of
the Act, from and against any and all Damages caused by any untrue statement of
a material fact contained in such registration statement, any post-effective
amendment to such registration statement or any prospectus required to be filed
or furnished by reason of this Agreement or caused by any omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, insofar as such Damages are caused by any
untrue statement or omission based upon information furnished in writing to the
Buyer by the Seller expressly for use therein.
(b) If for any reason the indemnification provided for in the
preceding subparagraph is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any Damages referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party thereunder, shall contribute to the amount paid or payable by the
indemnified party as a result of such Damages in such proportion as is appro-
priate to reflect not only the relative benefits received by the indemnified
party and the indemnifying party, but also the relative fault of the indemnified
party and the indemnifying party, as well as any other relevant equitable
considerations.
3. Governing Law.
(a) This Agreement shall be deemed to have been made and
delivered in the State of New York and shall be governed as to validity,
interpretation, construction, effect and in all other respects by the internal
laws of the State of New York.
4. Amendment. This Agreement may only be amended by a written
instrument executed by the Buyer and the Seller.
3
<PAGE> 45
5. Entire Agreement. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof, and
supersedes all prior agreements and understandings of the parties, oral and
written, with respect to the subject matter hereof.
6. Execution in Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same document.
7. Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed duly given when delivered by
hand, facsimile or five days after such notice is mailed by registered or
certified mail, postage prepaid, return receipt requested to the address set
forth on the first page of this Agreement.
8. Headings. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Agreement.
9. Severability. Any provision of this Agreement which is held by a
court of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto as of the date first above written.
SWISSRAY INTERNATIONAL, INC.
By:/Ulrich Ernst/
---------------------------------
Name:
Title:
/Doug Maxwell/
---------------------------------
Doug Maxwell
4
<PAGE> 46
ASSIGNMENT AND ASSUMPTION AGREEMENT
WHEREAS, DOUG MAXWELL (hereinafter referred to as "Assignor"), and
SWISSRAY INTERNATIONAL INC. (hereinafter referred to as "Assignee") has entered
into and EXCHANGE AGREEMENT as of November 22, 1996; and
WHEREAS, pursuant to the terms of said EXCHANGE AGREEMENT DOUG
MAXWELL has agreed to transfer all of his right, title and interest in and to
all of the issued and outstanding shares of the common stock of EMPOWER, INC.;
and
WHEREAS, on April 15, 1996 DOUG MAXWELL purchased twenty-five (25)
shares of EMPOWER, INC. common stock from Nathaniel Armstead pursuant to the
terms of a Stipulation of Settlement dated April 2, 1996; and
WHEREAS, the above mentioned twenty-five (25) shares of EMPOWER, INC.
common stock purchased from Nathaniel Armstead is held "in escrow" pending the
payment-in-full of the purchase price set forth in paragraph "1" of the
Stipulation of Settlement; and
WHEREAS, the said purchase price has not been paid-in-full as of the
date hereof and the said shares remain held "in escrow" in accordance with the
terms of the Stipulation of Settlement,
NOW, THEREFORE, in consideration of the mutual promises contained
herein and in that certain Exchange Agreement dated as of November 22, 1996, it
is hereby understood and agreed by and between the parties hereto as follows:
1. The Assignor assigns to the Assignee all of his right, title and
interest in and to the twenty-five shares of Empower, Inc. common stock which he
purchased from Nathaniel Armstead on April 15, 1996 and which is presently held
"in escrow" pursuant to the terms of a Stipulation
<PAGE> 47
of Settlement dated April 2, 1996. A copy of said Stipulation of Settlement is
annexed hereto for reference.
2. The Assignee assumes the obligations of the Assignor as set forth in
paragraphs "1" (payment) and paragraph "8" (confidentiality) of the Stipulation
of Settlement as of the date hereof and agrees to fully perform the obligations
of the Assignor as set forth in those provisions as of the date hereof as if the
Assignee had been a party to the Stipulation of Settlement for the purpose of
those two provisions.
3. The Assignee agrees to indemnify and hold the Assignor harmless from
and against any legal or equitable claim, proceeding, or action, including all
damages and expenses, including reasonable attorney's and accountant's fees,
arising out of or in connection with Assignor's failure to fully perform the
obligations it assumes pursuant to paragraph 2 hereof.
4. The Assignor warrants and represents that all payments required to
be made pursuant to paragraph "1" of the Stipulation of Settlement have been
made through and including February 15, 1997. Further, the Assignor agrees to
indemnify and hold the Assignee harmless from and against any legal or equitable
claim, proceeding, or action, including all damages and expenses, including
reasonable attorney's and accountant's fees, arising out of or in connection
with Assignee's failure to fully perform his obligations under the Stipulation
of Settlement up to and including the date hereof.
Dated: Locust Valley, NY
March 13, 1997
/Doug Maxwell/
---------------------------------
DOUG MAXWELL, a/k/a J. DOUGLAS
MAXWELL, JR.
SWISSRAY INTERNATIONAL INC.
<PAGE> 48
BY: / /
--------------------------------------------------
, an
authorized officer
<PAGE> 49
OPTION AGREEMENT
The undersigned hereby grants Mr. Doug Maxwell, (pursuant to the Swissray
International, Inc. 1996 Non-Statutory Stock Option Plan dated January 30, 1996
attached hereto) an option to purchase 125,000 shares of Swissray International,
Inc. (the "Corporation").
Option Period. This option shall be for a period of five years from the date of
this Option Agreement ("Option Period").
Option Price. The option price shall be $4.-- per share for an aggregate of
$500,000.00 if the entire 125,000 shares are purchased. The option price of the
shares of Common Stock shall be paid in full at the time of exercise and no
shares of Common Stock shall be issued until full payment is made therefor.
Payment shall be made either (i) in cash, represented by bank or cashier's
check, certified check or money order, (ii) in lieu of payment for bona fide
services rendered, and such services were not in connection with the offer or
sale of securities in a capital- raising transaction, (iii) by delivering shares
of the undersigned's Common Stock which have been beneficially owned by the
optionee, the optionee's spouse, or both of them for a period of least six (6)
month prior to the time of exercise (the "Delivered Stock") in a number equal to
the number of shares of Stock being purchased upon exercise of the option or
(iv) by delivery of shares of corporate stock which are freely tradeable without
restriction and which are part of a class of securities which has been listed
for trading on Nasdaq system or a national securities exchange, with an
aggregate fair market value equal to or greater than the exercise price of the
shares of Stock being purchased under the option, or (v) a combination of cash,
services, delivered stock or other corporate shares.
Shareholder Rights. No holder of an option shall be, or have any or the right
and privileges of, a shareholder of the Corporation in respect of any shares of
Common Stock purchasable upon exercise of any part of an option unless and
until certificates representing such shares shall have been issued by the
Corporation to him or her.
Determination of Exercise Date. This option or a portion of this option shall be
deemed exercised when written notice thereof, accompanied by the appropriate
payment in full, is received by the Corporation.
Date: January 24, 1997
SWISSRAY International Inc.
/Ueli Ernst/
------------
By: Ueli Ernst, Chairman
/Ruedi Laupper/
---------------
By: Ruedi Laupper, President
<PAGE> 1
EXHIBIT 3.6
CERTIFICATE OF CORRECTION
OF
CERTIFICATE OF MERGER OF
DIRECT MARKETING SERVICES, INC.
AND
CGS UNITS INCORPORATED
INTO
CGS UNITS INCORPORATED
UNDER SECTION 105 OF THE BUSINESS CORPORATION LAW
WE THE UNDERSIGNED, Kevin Aronin and Anne Stephens, being respectively
the president and the assistant secretary of DMS Industries, Inc. for the
purpose of correcting the par value of authorized capital stock from $.45 to
$.01 which appears on the face of the Certificate of Merger, pursuant to Sec.
105 of the Business Corporation Law, hereby certify:
1. The name of the corporation is DMS Industries, Inc., which was
incorporated under the name of C G S UNITS INCORPORATED.
2. The Certificate of Merger was filed by the Department of State
on June 15, 1994.
3. Section 3.c of the certificate is corrected to read as
follows:
"c. Article 4 of CGS's Certificate of Incorporation
relating to the capitalization of CGS is hereby
amended to change the authorized capital stock as
follows:
"4. The total number of shares of capital stock
which the Corporation shall have authority
to issue is 15,000,000 all of which shall be
Common Stock par value $.01 per share."
<PAGE> 2
IN WITNESS WHEREOF, we have signed and subscribed this
certificate on the 10th day of August, 1994 and we affirm the statements
contained therein as true under penalties of perjury.
DMS Industries, Inc.
By: /s/ Kevin Aronin
----------------------
Title: President
By: /s/ Anne T. Stephens
----------------------
Title: Assistant Secretary
2
<PAGE> 1
EXHIBIT 3.9
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
SWISSRAY INTERNATIONAL, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
*******
WE THE UNDERSIGNED, Reudi G. Laupper and Josef Laupper, being
respectively the President and Secretary of Swissray International, Inc., a
corporation organized and existing under the laws of the State of New York
hereby certify:
1. The name of the corporation is Swissray International, Inc.
2. The certificate of incorporation of said corporation was filed
by the Department of State on the 2nd day of January 1968, under the name CGS
Units, Incorporated. The name was then changed to DMS Industries, Inc. on June
15, 1994, and finally to its current name Swissray International, Inc. on June
5, 1995.
3. (a) The certificate of incorporation is amended to authorize
the issuance of a new class of stock, namely 4,000 shares of Series A
Convertible Preferred Stock, par value $.01 per share, and to set forth the
respective rights of the holders of such stock.
(b) To effect the forgoing, "Article 4" relating to the
Series A Convertible Preferred Stock is amended to read as follows:
"4.0 The total number of shares of Common Stock which the
corporation shall have authority to issue is 15,000,000 shares all of which
shall be Common Stock, par value $.01 per share without cumulative voting rights
and without any preemptive rights; and
The total number of shares of Series A Preferred Stock which
the corporation shall have authority to issue is 4,000 shares all of which shall
be Series A Preferred Stock, par value $.01 per share.
4.1 The Corporation's Certificate of Incorporation is amended to
authorize the issuance of 4,000 shares of Series A Convertible Preferred Stock,
par value $.01 per share, and expressly vest in the Board of Directors the
authority provided therein to issue any or all of such shares in one or more
series, and by resolution or resolutions the designation, number, full or
limited voting powers, preferences and relative, participating, optional and
other special rights, and the qualifications, limitations, restrictions, and
other distinguishing characteristics of each series to be issued. Currently,
there are no designated shares of Series A Convertible Preferred Stock. The
rights of a holder of the Series A Convertible Preferred Stock shall rank pari
passu with the rights of the holders of all other series of Preferred Stock, now
existing or hereafter issued by the Corporation, with respect to all preferences
upon liquidation.
<PAGE> 2
4.2 Designation of the Series. The Board of Directors of the
Corporation, pursuant to authority expressly vested in it as aforesaid, has
adopted the following, creating a Series A issue of Preferred Stock:
There shall be a series of convertible Preferred Stock designated as
"Series A Preferred Stock". Each share of such series shall be referred to
herein as a "Series A Share". Upon Initial Issuance by the Corporation, the
price per share of the Series A Shares shall be $1,000 (the "Purchase Price").
The par value per share is $.01. The authorized number of such Series A Shares
is 4,000. The Series A Shares shall be equal in rank to all other series of
Preferred Stock, now existing or hereafter issued by the Corporation.
A. Voting Rights. Except as otherwise required by law,
the holders of the Series A Preferred shall not be entitled to vote separately,
as a series or otherwise, on any matter submitted to a vote of the shareholders
of the Corporation. Notwithstanding the foregoing, without the prior written
consent of the holders of the Series A Shares:
(i) the Corporation shall not amend, alter, or repeal
(whether by amendment, merger, or otherwise) any of the provisions related to
the Series A Shares of its Certificate of Incorporation, as amended, any
resolutions of the board of directors or any instrument establishing and
designating the Series A Shares in determining the relative rights and
preferences thereof so as to affect any materially adverse change in the rights,
privileges, powers, or preferences of the holders of Series A Shares;
(ii) the Corporation shall not create or designate
any additional preferred stock senior in right as to dividends, voting rights,
redemptions or liquidation to the Series A Shares.
B. Dividends. The holders of the Series A Shares shall be
entitled to receive an 8% cumulative dividend payable in Common Stock at the
time of each conversion, but in no event later than thirty-six months after the
issuance date of the Series A Shares at which time the Series A Shares shall be
automatically converted into Common Shares. Such dividends shall be payable on
each Conversion Date (as such term is defined in 4.2C(iii) below) (the "Dividend
Payment Date"), in preference to dividends on any Common Stock or stock of any
class ranking, as to dividend rights junior to the Series A Shares. Dividends
shall be fully cumulative and shall accrue (whether or not declared and whether
or not there shall be funds legally available for the payment of dividends),
without interest and shall be payable on the Dividend Payment Date.
C. Conversion Rights.
(i) Conversion. The holders of the outstanding Series
A shares shall have the right, at such holders' option, without the payment of
any additional consideration by the holder thereof and at any time after 45 days
from the issuance date, to convert one-third of such Series A Shares into the
number of shares of Common Stock for which such Series A Shares are then
convertible pursuant to Section C(iii) below (after giving effect to any
adjustments provided for under Section C(iv) hereof). Likewise, one-third of
such Series A Shares shall be convertible 60 days from
2
<PAGE> 3
the issuance date and one-third of such Series A Shares shall be convertible 75
days from the issuance date.
(ii) Conversion Price. Upon conversion of the Series
A Shares pursuant to 4.2C(i) or 4.2C(ii) hereof, each Series A Share shall be
converted into the number of shares of Common Stock equal to $1,000 plus the
amount of accrued dividends payable on the Conversion Date, divided by the
product of eighty-one percent (81%) multiplied by the average of the closing bid
prices of the Common Stock as reported by NASDAQ for the five trading days
immediately preceding the conversion date.
(iii) Mechanics of Conversion. The holder of any
Series A Shares is entitled, at its option, to convert, pursuant to the time
periods stated above in 4.2C(i), the Series A Shares into Common Stock of the
Corporation, at a conversion price as set forth in 4.2C(ii). Such conversion
shall be effectuated by surrendering to the Corporation, or its attorney, the
original Series A Shares to be converted together with a written notice stating
that the holder elects to convert all or portion of the Series A Shares and
stating the name or names (with address) in which the certificate or
certificates for the shares of Common Stock are to be issued and representation
letter signed by the holder in a form to be agreed upon by the holder and the
Corporation at the time the Series A Shares are purchased. No fractional shares
or scrip representing fractions of shares will be issued on conversion, but the
number of shares of Common Stock issuable shall be rounded down or up, as the
case may be, to the nearest whole number of shares. The date on which notice of
conversion is effective ("Conversion Date") shall be deemed to be the date on
which the holder has delivered to the Corporation the original Series A Shares,
a facsimile or original of the signed notice to convert and a facsimile or
original of the signed representation letter. Within four (4) business days
after receipt of the documentation referred to above the Corporation shall
deliver a certificate, without stop transfer instructions, for the number of
shares of Common Stock issuable upon conversion. The Corporation shall be
responsible for taking all necessary actions and to bear all such costs to issue
the Common Stock as provided herein, including the 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. No payment or adjustment shall be made for
accrued and unpaid interest until the Conversion Date. Upon surrender of any
Series A Shares that to be converted in part, the Corporation shall issue to the
holder, if so requested, new Series A Shares equal to the number of unconverted
Series A Shares.
(iv) Certain Adjustments. In the event of any change
in one or more classes of capital stock of the Corporation by reason of any
stock dividend, stock split-up, recapitalization, reclassification, or
combination, subdivision or exchange of shares or the like, or in the event of
the merger or consolidation of the Corporation or the sale or transfer by the
Corporation of all or substantially all of its assets, then all liquidation
preference, conversion and other rights and privileges appurtenant to the Series
A Shares shall be promptly and appropriately adjusted by the Board of Directors
of the Corporation so as to fully protect and preserve the same (such
preservation and protection to be to the same extent and effect as if the
subject event had not occurred, or the applicable right or privilege had been
exercised immediately prior to the occurrence of the subject
3
<PAGE> 4
event, or otherwise as the case may be), it being the intention that, following
any such adjustment, the holders of the Series A Shares shall be in the same
relative position with respect to their rights and privileges as they possessed
immediately prior to the event that precipitated the adjustment.
(v) Costs. The Corporation shall pay all documentary,
stamp, transfer or other transactional taxes attributable to the issuance or
delivery of shares of Common Stock upon conversion of any Series A Shares,
provided that the Corporation shall not be required to pay any taxes which may
be payable in respect of any transfer involved in the issuance or delivery of
any certificate for such shares in a name other than that of the holder of the
Series A Shares in respect of which such shares are being issued.
(vi) Reservation of Shares. The Corporation shall
reserve, free from preemptive rights, out of its authorized but unissued shares
of Common Stock solely for the purpose of effecting the conversion of the Series
A Shares, sufficient shares of Common Stock to provide for the conversion of all
outstanding Series A Shares.
D. Liquidation.
(i) Series A Preference. Upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of Series A Shares shall be entitled, before any distribution or
payment is made upon any shares of Common Stock or any Preferred Stock junior in
rank to the Series A Shares, to be paid an amount per share equal to the
liquidation value described in this Section 4.2D(i) (the "Liquidation Value").
The per share Liquidation Value of the Series A Shares on any date is equal to
the sum of the following:
(A) $1,000, plus
(B) an amount equal to any accrued and
unpaid dividends from the date of issuance of the Series A Shares.
Neither the consolidation nor merger of the Corporation with or into any other
corporation or other entities, nor the sale, transfer or lease of all or
substantially all of the assets of the Corporation shall itself be deemed to be
a liquidation, dissolution or winding-up of the Corporation within the meaning
of this Section 4.2D. Notice of liquidation, dissolution, or winding-up of the
Corporation shall be mailed, by first-class mail, postage prepaid, not less than
20 days prior to the date on which such liquidation, dissolution or winding-up
is expected to take place or become effective, to the holders of record of the
Series A Shares at their respective addresses as the same appear on the books of
the Corporation or supplied by them in writing to the Corporation for the
purpose of such notice, but no defect in such notice or in the mailing thereof
shall affect the validity of the liquidation, dissolution or winding-up.
(ii) General.
(A) All of the preferential amounts to be
paid to the holders of the
4
<PAGE> 5
Series A Shares pursuant to Section 4.2D(i) shall be paid or set apart for
payment before the payment before the payment or setting apart for payment of
any amount for, or the distribution of any assets of the Corporation to, the
holders of the Common Stock or any preferred stock junior in rank to the Series
A Shares in connection with such liquidation, dissolution or winding-up.
(B) After setting apart or paying in full
the preferential amounts aforesaid to the holders of record of the issued and
outstanding Series A Shares as set forth in Section 4.2D(i), the holders of
record of Common Stock and any preferred stock junior in rank to the Series A
Shares shall be entitled to participate in any distribution of any remaining
assets of the Corporation, and the holders of record of the Series A Shares
shall not be entitled to participate in such distribution.
E. Reacquired Shares. Any shares of Series A Shares redeemed,
purchased, converted or otherwise acquired by the Corporation in any manner
whatsoever shall not be reissued as part of such series and shall be retired
promptly after the acquisition thereof. All such shares upon their retirement
and the filing of any certificate required in connection therewith pursuant to
the New York Business Corporation Law become authorized but unissued shares of
Preferred Stock.
F. Copies of Agreements, Instruments, Documents. Copies of any
of the agreements, instruments or other documents referred to in this
Certificate shall be furnished to any Purchaser upon written request to the
Corporation at its principal place of business."
4. The amendment to the certificate of incorporation was authorized
first by a majority of the board of directors followed by the affirmative vote
of stockholders owning a majority of all the outstanding shares entitled to
vote.
5. In the event that any of the foregoing amendment to the Certificate
of Incorporation conflicts in any manner whatsoever with previous and existing
Articles in the Certificate of Incorporation, the Certificate shall be governed
by the last amendment as filed.
6. The balance of the original certificate of incorporation shall
remain in full force and unchanged.
IN WITNESS WHEREOF, we have signed this certificate on the 29th day of August
1996, and we affirm the statement contained therein as true under penalties of
perjury.
SWISSRAY INTERNATIONAL, INC.
By /s/ Ruedi G. Laupper
----------------------
President
By /s/ Josef Laupper
---------------------
Secretary
5
<PAGE> 1
EXHIBIT 3.10
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
SWISSRAY INTERNATIONAL, INC.
Under Section 805 of the
Business Corporation Law
The undersigned, being the President and Secretary of SWISSRAY
International, Inc. hereby certifies that:
(1) The name of the corporation is: SWISSRAY International, Inc.
(2) The certificate of incorporation of the corporation was filed with
the Department of State on January 2, 1968 under the original name CGS Units
Incorporated.
(3) Article "4.0" of the certificate of incorporation is to be amended
to delete the 4,000 Shares of Series A Convertible Preferred Stock, par value
$.01 per share and said Article shall read as follows:
"4.0 The total number of shares of Common Stock which the
corporation shall have authority to issue is 15,000,000 shares
all of which shall be Common Stock, par value $.01 per share
without cumulative voting rights and without any preemptive
rights."
In addition Articles 4.1 and 4.2 which heretofore made
reference to Preferred Stock shall be and hereby is deleted in
its entirety as shall any and all reference to Preferred Stock
as heretofore appeared in Article 4.0.
(4) In the event that any of the foregoing amendment to the Certificate
of Incorporation conflicts in any manner whatsoever with previous and existing
Articles in the Certificate of Incorporation, the Certificate shall be governed
by the last amendment as filed.
(5) The balance of the original certificate of incorporation shall
remain in full force and unchanged.
(6) This amendment to the certificate of incorporation was authorized
first by the board of directors followed by the affirmative vote of stockholders
owning the necessary number of all outstanding shares entitled to vote thereon.
<PAGE> 2
IN WITNESS WHEREOF, this certificate has been subscribed December 13,
1996 by the undersigned who affirms that the statements made herein are true
under the penalties of perjury.
/Ruedi G. Laupper/
---------------------------
Ruedi G. Laupper, President
/Josef Laupper/
---------------------------
Josef Laupper, Secretary
<PAGE> 1
EXHIBIT 3.11
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
SWISSRAY INTERNATIONAL, INC.
Under Section 805 of the
Business Corporation Law
The undersigned, being the President and Secretary of SWISSRAY
International, Inc. hereby certifies that:
(1) The name of the corporation is: SWISSRAY International, Inc.
(2) The certificate of incorporation of the corporation was filed with
the Department of State on January 2, 1968 under the original name CGS Units
Incorporated.
(3) Article "4.0" of the certificate of incorporation is to be amended
to increase the number of authorized shares of common stock, par value $.01 per
share and said Article shall read as follows:
"4.0 The total number of shares of Common Stock which the
corporation shall have authority to issue is 30,000,000 shares
all of which shall be Common Stock, par value $.01 per share
without cumulative voting rights and without any preemptive
rights."
(4) In the event that any of the foregoing amendment to the Certificate
of Incorporation conflicts in any manner whatsoever with previous and existing
Articles in the Certificate of Incorporation, the Certificate shall be governed
by the last amendment as filed.
(5) The balance of the original certificate of incorporation shall
remain in full force and unchanged.
(6) This amendment to the certificate of incorporation was authorized
first by the board of directors followed by the affirmative vote of stockholders
owning the necessary number of all outstanding shares entitled to vote thereon.
<PAGE> 2
IN WITNESS WHEREOF, this certificate has been subscribed March 7, 1997
by the undersigned who affirms that the statements made herein are true under
the penalties of perjury.
/Ruedi G. Laupper/
-------------------
President
/Josef Laupper/
-------------------
Secretary
2
<PAGE> 1
EXHIBIT 10.3
AGREEMENT
between
SWISSRAY INTERNATIONAL INC.
lndustriestra e 6
CH 6285 Hitzkirch
Switzerland
(hereinafter referred to as "SRMI")
and
PHILIPS MEDICAL SYSTEMS
DMC - Development and Manufacturing Centre
Unternehmensbereich der Philips GmbH,
Rontgenstra e 24
22335 Hamburg
Federal Republic of Germany
(hereinafter referred to as "PMS").
Subject
MANUFACTURING AND SUPPLY OF X-RAY EQUIPMENT
dated June 11, 1996
This Agreement updates the agreement between SR-MEDICAL AG, SWISSRAY
and PMS, dated July 29, 1992 and replaces it with the exceptions
- - that there are obligations, businesses or disputes which originated
under that former agreement and which have not been settled
- - that any of the conditions of that former agreement which are intended
to survive will so survive
<PAGE> 2
Table of Contents
Page
----
1. Introduction and Definition.................................... 1
1.1 Introduction.......................................... 1
1.2 Definitions........................................... 1
2. Scope of Agreement............................................. 4
2.1 Delivery and Purchases................................ 4
2.2 Marketing Rights/License.............................. 4
2.2.1 Branding and Trademarks.............. 4
2.2.2 Exclusivity.......................... 4
2.2.3 Licenses............................. 5
2.2.4 Standards and Approvals.............. 5
2.2.5 Marketing of other Products/
Right of First Refusal............... 5
3. Product........................................................ 5
3.1 Product Specification................................. 5
3.2 Testing, Type-Approval, Release for Delivery.......... 6
3.3 Standards and Approvals............................... 6
3.4 Modifications, Engineering Change Control............. 7
4. Planning and Ordering of Products and/or parts thereof......... 8
4.1 Target Quantities, Rolling Forecast................... 8
4.2 Purchase Orders....................................... 9
4.3 Execution of Logistic Procedures...................... 10
4.4 Export Documentation.................................. 10
5. Prices and Conditions.......................................... 10
5.1 Price Schedule........................................ 10
5.2 Price Changes......................................... 10
5.3 Most-favorable Customer............................... 11
5.4 Payment condition/Invoicing........................... 11
5.5 Delivery condition, Transportation.................... 11
5.6 Partial deliveries.................................... 11
6. Production, Packing and Shipping............................... 12
6.1 Production, Subcontracting............................ 12
6.2 Product Identification and Labeling................... 12
6.3 Product Delivery, Packing and Storage................. 12
6.4 Environmental Conditions.............................. 13
<PAGE> 3
7. Quality........................................................ 14
7.1 Design Requirement, Compliance........................ 14
7.2 Change in Requirements, Regulations or Standards...... 14
7.3 Quality Control, Audits............................... 14
7.4 Outgoing Inspection and Systematic Process Control.... 15
7.5 Inspection/Rejection.................................. 15
8. Warranty....................................................... 16
8.1 Hardware warranty/Deviating Warranty Conditions....... 16
8.2 Cost of Transportation................................ 17
8.3 No Warranty........................................... 17
8.4 Epidemic Faults....................................... 17
8.5 Epidemic Faults....................................... 17
9. Performance Measurement, Vendor Rating......................... 18
10. Service, Spare Parts........................................... 18
11. Manufacturing Rights........................................... 18
12. Documentation and Assistance................................... 19
12.1 Technical............................................. 19
12.2 Commercial............................................ 20
13. Claims......................................................... 20
13.1 Liability, Indemnification............................ 20
13.2 Recall................................................ 20
13.3 Damages............................................... 20
13.4 Intellectual Property Rights.......................... 21
14. Confidentiality................................................ 21
15. Term - Termination............................................. 22
15.1 Term.................................................. 22
15.2 Termination for cause................................. 22
15.3 Surviving clauses..................................... 23
15.4 Continuing commitments................................ 23
16. Force Majeure.................................................. 23
17. General Terms and Conditions................................... 23
17.1 Applicable law; courts................................ 23
17.2 Entire Agreement...................................... 24
iii
<PAGE> 4
17.3 Waiver.................................................... 24
17.4 Severability.............................................. 24
17.5 Assignment................................................ 24
17.6 Advertisements............................................ 24
17.7 Project leaders........................................... 25
17.8 Notices; Communications................................... 25
LIST OF EXHIBITS............................................................
I-A, I-B etc. list of Products and their Specifications............
II. Options...................................................
III. Per type of Product the...................................
* Exclusive Territory.....................................
* Non-exclusive Territory.................................
* Non-available Territory.................................
IV. Prices for Products and Options. Yearly Target Quantities
V. Standard Form for Change Request..........................
VI. Standard Form Decision of Change Request..................
VII. Acceptance Procedures.....................................
VIII. Service Arrangements......................................
IX. Warranty Time and Deviating Warranty Conditions...........
X. Quality Statement.........................................
XI. Authorized Philips Associated Companies...................
XII. Time Schedule.............................................
iv
<PAGE> 5
1. INTRODUCTION AND DEFINITION
1.1 INTRODUCTION
WHEREAS SRMI is in the business of developing, manufacturing and
selling medical X-ray imaging equipment and accessories;
WHEREAS SRMI seeks to extend its international distribution network and
wishes to take advantage of PMS'-network for the resale of its equipment on an
exclusive basis in certain geographical areas and on a non exclusive basis in
other areas, all as further set forth herein;
WHEREAS PMS and the PMS' Associated Companies are in the business of,
among others, developing, manufacturing, marketing and selling of diagnostic
systems;
WHEREAS PMS has the intention to market Products made by SRMI under its
own tradename and trademark or such other tradenames and trademarks as may be
designated by PMS;
WHEREAS PMS and SRMI want to establish the terms and conditions under
which during the term of this Agreement SRMI shall supply Products to PMS for
subsequent resale either directly or through the PMS Associated Companies, their
dealers and distributors, as the case may be, all as defined hereinafter.
NOW THEREFORE, IN CONSIDERATION OF THE MUTUAL PROMISES AND PREMISES
HEREINAFTER SET FORTH, THE PARTIES HERETO HAVE AGREED AS FOLLOWS:
1.2 DEFINITIONS
"Agreement" shall mean this present document and all the Exhibits and
other referred to herein or attached hereto and signed or initialed by
the parties hereto.
"Philips Associated Companies" shall mean any and all companies and
persons with respect to which now or hereafter Philips Electronics N.V.
directly or indirectly holds 50% or more of the nominal value of the
issued share capital or has 50% or more of the voting power at general
meetings or has the power to appoint a majority of the directors or
otherwise directs the activities of such company, firm or person but
any such company firm or person shall be deemed a Philips Associated
Company only as long as such ownership or control exists.
"Swissray Associated Companies" shall mean any and all companies and
persons with respect to which now or hereafter "Swissray International
Inc. New York / USA" with its European Center in Hitzkirch/Switzerland
directly or indirectly holds 50% or more of the
<PAGE> 6
nominal value of the issued share capital, but any such company or
person shall be deemed a Swissray Associated Company only as long as
such ownership exists.
"Date of First Clinical Use" shall mean the date of acceptance by the
end user after installation of the Product.
"Product(s)" jointly and severally shall mean SRMI's equipment
according to the Specifications including user and service
documentation and any agreed upon modifications, enhancements and
successor versions thereof and/or any other equipment brought under
this Agreement by mutual agreement all as listed in Exhibit IA, IB etc.
"Specification(s)" shall mean the final functional requirements,
technical specifications, drawings, documentation and other
requirements of the Product(s) attached or to be attached hereto as
Exhibit I-A, I-B and such amendments thereto as the parties hereto may
agree upon from time to time in writing.
"Option(s)" shall mean the additions and attachments as set forth in
Exhibit 11-A, 11-B.
"Software/Firmware" shall mean all computer programs either on disk,
diskettes or hardware carrier consisting of the set of logical
instructions and tables of information which guide the functioning of
processors; such programs include all necessary operating system
software, application software, related documentation useful with
Software/Firmware such as functional descriptions, design
documentation, program description and listings as well as the source
code versions itself on disc, all as specified in EXHIBIT I and EXHIBIT
VIII.
"Compatibility" will mean that a new Release or a new Level can replace
the former Release(s) or Level(s) of the Software without degrading the
functionality and/or affecting the interfacing of the Product or
Software.
"Release(s)" will mean a specified set of functions. A new Release of
the Software will be made as a result of changed functional
specifications and will also contain the solutions to Problems of
previous Levels. A Release may comprise a number of Versions.
"Version(s)" will mean a distinction between various software programs
which fulfil essentially the same class of functions, but which are
different for alternative hardware choices and/or slightly different
Software configurations and/or differences in performance and/or for
commercial reasons.
"Level(s)" will mean improved Software having the same functional
specifications as before, but originating from changed (corrected)
source code.
2
<PAGE> 7
"Spare Part(s)" shall mean the smallest replaceable part jointly
classified by SRMI and PMS as spare part, as listed in Exhibit VIII and
all other items necessary to allow PMS or its customers to keep the
Products in good condition throughout its useful life.
"Exclusive Territory" shall mean the countries where SRMI grants to PMS
exclusive sales rights and as defined per type of Product in Exhibit
III-A, III-B.
"Non-exclusive Territory" shall mean the list of countries where SRMI
grants to PMS non-exclusive sales rights and as defined per type of
Product in Exhibit III.
"Non-available Territories" shall mean the list of countries where PMS
is not allowed to sell certain type of Products and as defined in
Exhibit III.
"Purchase Order(s)" shall mean the purchase order(s) for Products which
the purchase department of PMS may forward to SRMI. If other Philips
Associated Companies request to order Products directly from SRMI this
has to be authorized by PMS in writing and listed in Exhibit XI. This
Exhibit XI may be updated as required.
"Confidential Information" means any and all information whether
obtained or given orally or in writing concerning either party not
generally known to persons not associated with the disclosing party,
including, without limitation, information about product discovery and
development, manufacturing processes and techniques, samples, drawings,
customer marketing and new product data, trade secrets, computer
programming techniques and business strategy, financial data and all
other proprietary or trade secret information of whatever description.
"Form, Fit or Function" means items, components, or processes that are
sufficient to enable physical and functional interchangeability, in
particular as to source, size, configuration, mating, and attachment
characteristics, functional characteristics, and performance
requirements.
"Term" shall mean the time period set forth in Article 15 below and any
extensions thereof.
"Time Schedule" shall mean the time schedule attached hereto as Exhibit
XII.
"Know-How" shall mean all the information relating to the design,
development, production, testing, and servicing of Products as
manufactured by or for SRMI, which is in SRMI's possession or under
SRMI's control and as will be sufficient to enable PMS, a Philips
Associated Company or a third party to manufacture and service
Products. All such Know-How shall be in a legible and reproducible
form.
3
<PAGE> 8
"Documentation" shall mean the technical documentation for Products
including, without limitation, electrical diagrams and parts lists
necessary to service and sustain such Products in the field.
2. SCOPE OF AGREEMENT
2.1 DELIVERY AND PURCHASES
Subject to the terms of this Agreement, SRMI agrees to develop,
produce, sell and deliver Products and Spare Parts to PMS and PMS agrees to
purchase and take delivery of Products in whole or in part for marketing and
resale either by PMS directly and/or through any of the Philips Associated
Companies, its/their distributors and dealers.
PMS may procure certain components for the Product from other sources
other than SRMI, for which components SRMI declines Product responsibility,
unless agreed upon in the pertaining Specification.
PMS shall sell, install, maintain and/or repair the Products, and/or
the individual items thereof.
2.2 MARKETING RIGHTS/LICENSE
2.2.1 BRANDING AND TRADEMARKS
Products will be marketed by PMS under the Philips trademark and shield
emblem, all as specified in Exhibit I, and/or such other trademarks and
tradenames as may be designated by PMS in writing.
SRMI has no license to or right in such trademarks or tradenames and
shall not use them in its marketing or sales literature or in any other way,
except as provided hereunder, without prior written consent of PMS.
2.2.2 EXCLUSIVITY
PMS' marketing rights shall be exclusive or non exclusive as agreed to
by the parties per type of Product and set forth in Exhibit III. The Product
specification may contain certain elements which are proprietary to PMS. Details
are listed in Exhibit III. PMS will maintain ownership of these proprietary
elements on an ongoing exclusive right to use.
SRMI shall not sell, distribute, deliver or otherwise make available
the Product(s), directly or indirectly to any third party in or for use in the
Exclusive Territory.
a) the Products in whole or in part, or
4
<PAGE> 9
b) any similar product or equipment having performance
characteristics substantially identical to those of the
Product
In the Non-exclusive Territory SRMI shall be free to sell products
similar to Products under its own brandname or a third parties private label.
The cooperation shall consist of a distributor type of relation and may
be modified from time to time by written agreement of the parties.
2.2.3 LICENSES
SRMI represents PMS shall have all requisite approvals, including
licenses, if required, to market Products and Software/Firmware, Options and
Spare Parts, including their modifications and upgrades, and to allow PMS'
customers the full use of such Products, Software/Firmware and Options.
2.2.4 STANDARDS AND APPROVALS
PMS is marketing the Product(s) as "Philips Products' in various
countries. SRMI is responsible that the Product complies with the applicable
standards as specified in Exhibit I and will provide the certifications and
approvals if so required.
2.2.5 MARKETING OF OTHER PRODUCTS/ RIGHT OF FIRST REFUSAL
If during the term of this Agreement SRMI wishes to commercially
exploit products other than Products, with any party other than SRMI Associated
Companies and its dealer network or PMS, SRMI shall not do so until it has given
PMS an opportunity to investigate whether such new product may be of interest to
PMS. SRMI shall give PMS timely notice and provide PMS with all relevant
information concerning the product/application to enable PMS to perform its
investigation in a reasonable time period not exceeding forty five (45) days, or
such longer period as the parties may agree upon.
If PMS is interested the parties shall in good faith negotiate the
terms for buying such a product or application. If the parties do not agree to
reasonable terms and conditions, SRMI shall be free to market its product or
application in any manner it deems fit, provided distributorship is not offered
to anyone else on terms better than those offered to PMS.
3. Product
3.1 Product Specification
The Specifications of the Product(s) are laid down in Exhibit I.
5
<PAGE> 10
SRMI agrees to adapt the Specifications of the Product if necessary, as
a result of further tests or requirements of PMS and will provide PMS with the
revised version thereof. Upon consent of PMS, and mutual agreement on price and
delivery, such revised Specifications will be added to this Agreement and
subsequently will replace the earlier version thereof.
3.2 Testing, Type-Approval, Release for Delivery
Before the start of commercial deliveries of each type of Product which
is brought under this Agreement SRMI shall execute such type approval tests as
agreed upon per type of Product in order to ascertain that the Product conforms
to the Specifications and shall provide PMS timely with the evidence thereof.
Upon the finalization of the tests SRMI shall, free of charge, deliver
one (1) test unit of each type of Product for evaluation and test. The delivery
shall include adequate documentation and shall be in accordance with the time
schedule. PMS shall execute such tests as PMS reasonably requires in order to
satisfy itself that the Product conforms to the Specifications. All tests are
basically non destructive, damage to the test unit of the Product, due to no
fault of SRMI, shall be for the account of PMS.
PMS shall keep SRMI informed of the results of these tests and will
give detailed explanation about non-compliance subjects.
If, as a result of these tests, PMS is of the reasonable opinion, to be
confirmed in writing, that certain additions, alterations or modifications in
the said Product are required in order to reach full compliance with the
Specifications, SRMI undertakes to modify the Product accordingly.
Upon finalization of the tests and if PMS is satisfied with the results
of these tests, PMS shall return the test unit of the Product to SRMI and
provide SRMI with a written release for production by means of a Type Acceptance
Certificate.
If PMS requested changes outside of the then existing Specification and
Agreement they are subject to prior negotiation, and mutual acceptance, on price
and delivery.
3.3 Standards and Approvals
The applicable standards will be listed in the Specification for each
Product (Exhibit I)
ISO9000/9001 - EN46001
this quality assurance system will be installed at SRMI and
certified by QMI (Quality Management Institute). Schedule: ISO
9002 until June 1996, ISO 9001 at the beginning of 1997. Proof
will be provided to PMS of the relevant documents.
6
<PAGE> 11
CE-MARKING (INCL. IEC-STANDARDS)
From January lst, 1996 onwards all medical devices marketed in
the European Economic Area (EEA) have to fulfil all essential
requirements in order to allow PMS to obtain the CE-Mark
necessary for European Community distribution
From July 1996 onwards SRMI shall provide PMS with documents
proving standard compliance. These documents will at least
consist of adequate testing documentation (samples to be
supplied by PMS) and a MDD-compliance declaration (MDD =
Medical Device Directory)
UL, CSA
The Product will comply with UL/CSA approvals applicable in
the United States and Canada.
If PMS decides to market the Product in parts of the Territory
where UL/CSA approvals are required SRMI will to obtain and
maintain these approvals.
FDA/DHHS
SRMI will maintain an FDA quality assurance system.
SRMI will design and manufacture the product in accordance
with the FDA's Good Manufacturing Practices, will maintain
such records and obtain and maintain the FDA approval and
support PMS in obtaining the premarket notification, if
required.
JAPANESE PHARMACEUTICAL AFFAIRS LAW (PAL)
All deliveries to Japan must comply with the General Rules for
Medical X-ray Equipment (JIS Z 4701), corresponding to
CE-/IEC-standards.
If PMS decides to market the Product in parts of the Territory
where PAL approvals are required SRMI will provide to PMS
documents necessary to obtain and maintain these approvals.
Test sheets (same as for CE, + specific documents sample to be
supplied by PMS) are required for the initial phase, to be
filled in by SRMI and transferred by PMS to the authorities
together with the report on the complete X-ray system.
3.4 MODIFICATIONS, ENGINEERING CHANGE CONTROL
Once a Product is released for delivery by PMS as per Article 3.2, SRMI
shall not, except as required by law, make any changes or modifications in the
Product and/or Specifications which affect for example
7
<PAGE> 12
form, fit or function
labeling
compliance with applicable standards, approvals, clearances
documentation, manuals
Spare-Parts stock
without prior written approval of PMS, whose consent shall not be unreasonably
withheld. The foregoing provision is designed to assure continuing conformity
with the agreed upon applicable Specifications of the Product.
This requirement, however, does not preclude SRMI from using equivalent
components and parts that do not affect form, fit or function of the Product
and/or interchangeability of Spare Parts and/or compliance with the
Specifications.
If SRMI wishes to make a modification requiring PMS's consent, SRMI
shall in due time notify PMS in writing of the proposed modification, using the
formsheets and following an ISO 9000 acceptable procedure for technical changes.
Sample of formsheets see Exhibit V:
ECR (ENGINEERING CHANGE REQUEST):
standard form sheet, to be used for all engineering and design-data
regarding such proposed modifications. M F 34.040
ECO (ENGINEERING CHANGE ORDER):
formsheet on which decision of the ECC will be documented and released.
MF 34.038
ECC (ENGINEERING CHANGE COMMITTEE):
committee of PMS responsible for discussing and deciding about such
proposals, represented by its Secretary.
4. PLANNING AND ORDERING OF PRODUCTS AND/OR PARTS THEREOF
4.1 TARGET QUANTITIES, ROLLING FORECAST
On a yearly basis parties will decide on target quantities per type of
Product, to be combined with the price discussions as provided for in Article 5
and listed in Exhibit IV.
Based on these target numbers per type of Product, SRMI may procure
unique parts (e.g. screened parts bearing logo's etc.) and long lead items for
such Products, provided, however, that SRMI has quoted all related costs and PMS
has given its written approval to be responsible for such commitment prior to
entering its commencement thereto, SRMI will do its utmost to avoid that parts
will become obsolete.
8
<PAGE> 13
If for reasons solely due to PMS, SRMI may keep stock of said unique
parts and/or long lead items at the end of a calendar year, parties will meet
and discuss the financial consequences hereof and PMS might absorb the
incidental expenditures connected to such stock situation, if no other
reasonable solution is available.
By means of a so-called "rolling forecast" PMS will update the figures
per type of Product for the coming 12 months. The rolling forecast should be
issued on a monthly basis, however, at least 4 times per year. In case an
increase of decrease of figures is requested, the general flexibility will be:
Flexibility in Planning
<TABLE>
=========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Planning Month 1. 2. 3. 4. 5. 6.
- ---------------------------------------------------------------------------------------------------------
Flexibility 0 0 +/-20% +/-40% +/-50% +/-50%
=========================================================================================================
</TABLE>
If there are exceptional deviations requested beyond this general rule,
e.g., in case of tender business, SRMI and PMS will discuss the best possible
solution taking also the supply of components into account.
4.2 PURCHASE ORDERS
Purchase Orders for Products or parts thereof shall be submitted on
separate order forms.
Each Purchase Order shall at least specify the items including the
PMS-1 2-digit-codenumber,
price
quantities
requested delivery day/week,
addresses ship-to and invoice-to
method of transportation
SRMI shall use its best efforts to meet the requested delivery dates.
The delivery time shall never exceed two (2) months after receipt of
the order from PMS.
All Purchase Orders shall be deemed to incorporate and be subject to
the terms and conditions of this Agreement, as well as any supplemental terms
and conditions agreed to in writing by authorized representatives of the
parties. No other terms and conditions contained on any Purchase Order form,
agreement, or any other form, agreement or correspondence originated by either
party, shall apply.
9
<PAGE> 14
SRMI shall confirm PMS' Purchase Orders within one week of receipt by
issuing SRMI's sales note. Purchase orders so confirmed shall be binding on the
parties hereto and may be canceled by PMS only if SRMI materially defaults its
execution.
4.3 EXECUTION OF LOGISTIC PROCEDURES
Purchase Orders may only be placed by an Authorized Philips Associated
Company as listed in Exhibit XI. It might be decided for each shipment, to which
destination the Product must be shipped.
If the destination is other than the premises of the Authorized Philips
Associated Company then SRMI agrees to ship Product(s) with proforma invoices
and invoice to Authorized Philips Associated Company.
4.4 EXPORT DOCUMENTATION
SRMI will provide at its own expense any export or other official
authorization and carry out all formalities necessary for the transportation and
exportation of the Products and Spare Parts to PMS or to any other destination
as may be required PMS. This might include but not limited to the provision of
test results and other data to the extent necessary in connection with obtaining
the required export- or import-authorizations.
5. PRICES AND CONDITIONS
5.1 PRICE SCHEDULE
During the term of this Agreement PMS will purchase and accept from
SRMI Products and Options for the prices set forth in Exhibit IV.
Prices include
the Product as specified
documentation
packing
royalties for the licenses for Software/Firmware and patents
rights, if applicable
5.2 PRICE CHANGES
Prices including discount schedules for Products, Options and Spare
Parts may be renegotiated between the parties not more than once per calendar
year (preferably in the month of September), unless in the event of unforeseen
circumstances the price/performance ratio deteriorates as compared to competing
similar third party products.
10
<PAGE> 15
5.3 MOST-FAVORABLE CUSTOMER
If during the term of this Agreement SRMI delivers Products, or parts
thereof, or products having performance characteristics substantially similar to
those of Products to a third party or parties in quantities substantially
similar or lower to those delivered to PMS, at prices or other terms and
conditions more favorable to said third party or parties than the comparable
terms applicable to PMS, then PMS may at its option have the benefit of such
favorable terms of said other transaction.
5.4 PAYMENT CONDITION/INVOICING
Payment condition is 45 days net after the date of invoice or proof of
shipment, whichever is later.
If tender-orders have to be supplied, defined as additional quantity of
>= 30% of the forecasted 12 month quantity, the payment condition will be "net
upon receipt of invoice and verification of shipment".
All invoices shall be in triplicate and contain at least the following
information:
- Purchase Order Number
- Type-Number of Product (PMS' 12-digit ID-number)
- Name of the Product
- Serial Number(s) thereof
- Identification of "certifiable items" contained in the Product
- Unit price and total price
- Bill of Lading number
- Country of final origin
5.5 DELIVERY CONDITION, TRANSPORTATION
The delivery condition is Free Carrier ("FCA") Hitzkirch, as defined in
the edition of the Incoterms issued by the International Chamber of Commerce,
applicable at the effective date of this Agreement.
PMS will advise how and to which agency to commission the
transportation.
5.6 PARTIAL DELIVERIES
Partial deliveries of Products are not allowed, unless otherwise agreed
to by PMS in writing.
11
<PAGE> 16
6. PRODUCTION, PACKING AND SHIPPING
6.1 PRODUCTION, SUBCONTRACTING
The production of Products will be effected by SRMI according to the
Specifications. SRMI agrees that its quality system will comply with the
regulations pertaining to the International ISO9001 Standards.
In case SRMI subcontracts with third parties certain tasks or services
SRMI will utilize subcontractors or suppliers that satisfy its own high quality
standards and quality assurance system including, but not limited to, the
following quality considerations:
- introduction of the relevant quality assurance systems and
standards
- quality of design and performance
- quality of production and tests to be performed
- supply on time to meet the required deliveries
- confidentiality with respect to proprietary information of the
product and all PMS' business
- information, which might have to be disclosed to such
subcontractor(s)
SRMI remains responsible for the tasks and services to be performed by
such subcontractor or suppliers.
6.2 PRODUCT IDENTIFICATION AND LABELING
SRMI will mark all packages, invoices and shipping documents (if
applicable) with
- Type-Number of Product (PMS' 12-digit ID-number)
- Name of the Product
- Serial Number(s) thereof
- Identification of "certifiable items" contained in the Product
- Number of packages, if shipment contains more than one package
per Product
- PMS' Purchase Order number
SRMI will mark the Products in accordance with PMS's marking
specifications, see Exhibit I.
6.3 PRODUCT DELIVERY, PACKING AND STORAGE
The Products will be delivered in a packing
- appropriate to the Product
- adequate for ocean or air travel.
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<PAGE> 17
- in a neutral box (there may be no SRMI logo inside or outside
the packing)
- paying due regard to the relevant environmental protection
regulations (see article 6.4) all as set forth in the
Specification, unless otherwise specified by the purchase
order.
All packing shall be tested by SRMI according to the agreed test
methods. SRMI shall provide PMS with the supporting evidence that the packing
has passed these tests.
The delivery shall - besides the Product itself - contain:
- operator manual
- to be provided by PMS free of charge
- It will be ordered by SRMI in due time (e.g. 2
months) before delivery from PMS.
- - service manual in the English language
- this service manual will not contain any information about
planned maintenance, the information of which is to be handed
over to the Service Department of PMS separately
- Manufacturer's compliance certificate or any other
certificates as may be required
- Final Test Reports
SRMI shall enclose with each shipment a packing memorandum and, if a
shipment contains more than one package, identify the package containing the
memorandum.
6.4 ENVIRONMENTAL CONDITIONS
In view of the harmful consequences for the ozone layer resulting from
the emission of chlorofluoro (hydro) carbons (CFCs) and certain other
halogenated hydrocarbons a ban of the use of these substances is required.
In the execution of this Agreement SRMI will, on the basis of a
reasonable effort, participate in Philips' environmental programs, such as
- reduction of packing materials
- economic design
- re-usability of Products
- recycling of Products
- elimination of banned substances
- elimination of hazardous or toxic materials/components
As far as production and packing material is concerned SRMI hereby
warrants to PMS that Products, Options and Spare Parts including their packing
and any components thereof
13
<PAGE> 18
- are designed and manufactured in such a way that at the end of
their life cycle they can be scrapped without special
precautions and that no "non-recyclable" residues will remain.
- do not contain any elements which are prohibited by the Swiss
government or formal body, authorized by said government.
If and when PMS will be obliged under Environmental Regulations to take
back Products, Spare Parts and the packing thereof from its customers, SRMI will
have the obligation to take back such Products, Spare Parts and packing.
7. QUALITY
7.1 DESIGN REQUIREMENT, COMPLIANCE
SRMI agrees that the design of the Product and parts thereof shall
comply with the requirements as the parties may agree upon and as further
specified in Exhibit I.
All obligations for verification testing of said requirements will be
the responsibility of SRMI. Should it become evident that the Product or parts
thereof are not in compliance with the applicable agreed requirements then SRMI
shall make the necessary changes at its own expense.
7.2 CHANGE IN REQUIREMENTS, REGULATIONS OR STANDARDS
In the event that any of the requirements, safety regulations and/or
standards as defined in the Specifications (Exhibit I) changes by reason
governmental action or by reason of a change in the ISO 9001 standard which
affects SRMI's manufacturing operation, SRMI shall, at its own expense, make all
the necessary modifications to its operations or to the Product and/or parts
thereof, which have not yet been accepted by the end user. PMS will provide SRMI
with all available information. For any other changes in the applicable
standards or regulations, in the case of exceptional costs, the parties will
review and evaluate the changes and make all reasonable efforts to find an
acceptable solution.
7.3 QUALITY CONTROL, AUDITS
Upon request and at least two (2) weeks advance written notice to SRMI,
PMS' representative may visit, at PMS' expense, the facilities of SRMI and/or
SRMI's subcontractors at reasonable times to
- inspect the storage and quality of parts for Product in SRMI's
facilities, and
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<PAGE> 19
- audit the quality control procedures and methods applied by
SRMI in its facilities in the development and manufacturing
and assembling of Products in accordance with ISO9000
standards, GMP and UL/CSA if applicable.
7.4 OUTGOING INSPECTION AND SYSTEMATIC PROCESS CONTROL
It is understood between the parties that Products will be exported
directly to their final destinations in and outside the Territory so that full
conformity with the Specifications is of utmost importance.
SRMI will inspect all outgoing Products and/or parts thereof to be
supplied to PMS strictly in accordance with Specifications and with the
Acceptance Procedure as specified in Exhibit VII. This Acceptance Procedure will
be set up or adapted - if necessary - in close cooperation between the quality
officers of both companies and agreed upon by both parties.
The specific Test Certificate should be signed by SRMI's responsible
quality officer. It shall accompany each Product as evidence that the Product
complies with the Specifications and applicable standards. PMS is entitled to
have its representatives present at these tests.
SRMI will archive in a safe manner all records of the Products, e.g.
the Device Master Record and Device History Record and especially all
records/test protocols.
- the Device History Record shall be archived for a period of
ten (10) years from date of delivery of a specific Product
- the Device Master Record shall be archived for a period of ten
(10) years from date of last Product shipment under this
Agreement or any subsequent amendments thereof.
These records will be made available if necessary and upon specified
request of PMS.
7.5 INSPECTION/REJECTION
It is explicitly understood that PMS is not obligated to execute any
incoming or other inspection concerning non-compliance with the Specifications.
SRMI shall be fully responsible for and hold harmless PMS from claims for
damages resulting from any such non-compliance.
Notwithstanding the above, PMS is allowed to inspect the delivered
Product at its factory or at the place of destination, following the same
Acceptance Procedures as mentioned above. PMS has the right to reject all or any
of the Products or parts thereof which are proven not to meet the applicable
Specifications, provided that such claims will be submitted to SRMI in writing
with the supporting evidence within sixty (60 ) days after delivery by SRMI to
the FCA point.
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SRMI shall within five (5) working days after receipt of a notification
respond to any question and provide all necessary information to the PMS
Regulatory Department arising out of incidents with Products. Furthermore SRMI
shall inform PMS of all relevant details of incidents that occur with SRMI's
products similar to or part of Products.
In case of such rejection, SRMI and PMS will decide in joint
consultation:
a) which corrections and repairs can be made by PMS against
reimbursement by SRMI for labor and other expenses incurred by
PMS in correction and repairing Products and/or parts thereof.
b) which Product or part thereof will be replaced free of charge
by SRMI and within which period of time such replacement will
be effected, it is understood, that all costs connected with
forwarding of such replacements to PMS for defective part will
be for SRMI's account.
c) which replaced Product or part thereof will be returned to
SRMI at SRMI's risk and expense.
In all cases PMS will advise SRMI of the expected costs and receive
SRMI's approval thereof prior to taking action.
If required, SRMI will issue a MRA-number (Material Return
Authorization).
PMS shall have the right to reject all or any of the Products or parts
thereof which are proved not to meet the Specifications provided that such claim
shall be submitted to SRMI with the supporting evidence within sixty (60) days
after the arrival date at the installation site.
8. WARRANTY
8.1 HARDWARE WARRANTY/DEVIATING WARRANTY CONDITIONS
SRMI warrants that all Products, Options and Spare Parts delivered
hereunder shall conform to the agreed upon Specifications of Exhibit I and shall
be free from defects in material and workmanship.
The hardware warranty period for defects under normal and proper use is
specified in Exhibit IX. However, shorter warranty periods will apply for
a) components purchased by SRMI enjoying shorter warranty periods
and
b) for X-ray tubes pro rate temporis of standard life time shall
apply.
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Such deviating warranty conditions will as well be set forth in Exhibit
IX.
In case of a warranty claim, PMS shall notify SRMI in writing as soon
as possible, but in no case later than sixty (60) days after the expiration of
said warranty period. Defective parts of Products, Options and Spare Part shall
be replaced or repaired at SRMI's costs. Replaced parts of Products, Options
and/or Spare Parts will be covered by same warranty condition as mentioned
above. The costs of building in and building out the defective parts, Options or
Spare Parts will be borne by PMS.
8.2 COST OF TRANSPORTATION
Costs of transportation associated with the shipment of repair or
replacement Products, Options and/or Parts to SRMI will be borne by SRMI.
8.3 NO WARRANTY
The warranty does not extend to any Product, Options or Spare Parts
which have been subjected to misuse, neglect, accident, incorrect wiring or
servicing, improper installation or use in violation with SRMI written
recommendations.
8.4 EPIDEMIC FAULTS
Under this warranty, SRMI warrants that Products, Options and Spare
Parts shall be free of epidemic faults. Epidemic faults are for the purpose of
this Agreement defined as defects which are the same or have the same origin and
occur over a period of twelve (1 2) months with a class failure quantity of at
least three (3) in twenty (20) sequentially delivered Products or Spare Parts,
with a maximum period of three (3) years from the delivery date of the last
sequentially delivered Product, Option or Spare Part. In case of such epidemic
faults, SRMI shall repair or replace such Products, Options or Spare Parts and
SRMI warrants the Products, Options and Spare Parts not yet delivered will be
upgraded, and for Products and Options in the field upgraded components or parts
will be made available from SRMI at no charge and PMS will be responsible for
the building in and building out cost of the said components or parts.
8.5 SOFTWARE/FIRMWARE WARRANTY
While no warranty is made that Software/Firmware will run uninterrupted
or error free, upon Date of First Clinical Use, Software/Firmware delivered by
SRMI will be free from those defects which materially affect performance in
accordance with the Specifications.
In the event of defects as above occurring within the time specified in
Exhibit IX SRMI shall, free of charge, provide for Software/Firmware support and
maintenance as set forth in detail in Exhibit VII hereto. Deviating warranties
from SRMI sub-contractors, if any, are set forth in Exhibit IX.
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<PAGE> 22
9. PERFORMANCE MEASUREMENT, VENDOR RATING
PMS has introduced a system to measure and rate the performance of its
suppliers. The following items will be measured:
- quality of the delivered products
- reliability in delivering in time
- competitiveness in pricing
- flexibility upon changes of demand
- support in technical and other matters
- order confirmation
On a regular basis the results of such rating will be made available to
SRMI in writing and be compared with the target parameters agreed by PMS and
SRMI for the period concerned. In case SRMI's performance is below the target
for one or more parameters, appropriate measures will be taken by SRMI and new
targets will be agreed upon.
When SRMI is nominated by PMS to receive the status of a "preferred
supplier", SRMI will do its utmost to meet the standards set by PMS in order to
qualify on a continuing basis for the status of "preferred supplier".
10. SERVICE, SPARE PARTS
Service arrangements are set forth in Exhibit VIII hereto.
11. MANUFACTURING RIGHTS
In the event but not earlier than the valid term SRMI wishes to stop
production of Products SRMI shall inform PMS thereof as early as possible but at
least twelve (12) months prior to the date of the envisaged production stop, and
PMS shall then have the opportunity to place a final Purchase Order in such
quantities as PMS may require and SRMI shall accept such Purchase Orders at the
then prevailing price(s).
Moreover, for the time thereafter SRMI obliges itself to provide PMS
costfree with all Know How (information, documents, engineering assistance and
technical means of support) in order to continue development and/or production
at PMS's own facilities or with a third party. All this information will be
provided in the English or German language.
Without limiting SRMI's liability to PMS hereunder in any way
whatsoever it has been agreed that in case
a) SRMI intends to enter or actually enters liquidation
procedures (either voluntarily or forced); or
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<PAGE> 23
b) SRMI has entered bankruptcy procedures (either voluntarily or
forced); or
c) SRMI within thirty days (30) days of notification by PMS has
not remedied any material breach of this Agreement,
d) SRMI's shares or the majority of the voting power are
transferred to a company competing or intending to with PMS
the same market segment,
then PMS's continuity concerning the Product(s) is endangered and great costs
will be incurred in order to continue without SRMI.
Therefore, PMS
- shall have the immediate right to use all information, have
immediate access to all manufacturing Know-How and Spare Parts
related to the Product and, as soon as possible thereafter,
- shall have the option to acquire all or part of the inventory
or Spare Parts needed for the production of Products, if and
to the extent required by PMS, against compensation for SRMI's
purchase price therefore.
Accordingly, SRMI hereby grants to PMS upon occurrence of any of the
events referred to under the Article above a perpetual, worldwide, irrevocable
and royalty free license, with the right to sub-license under any and all
patents and other proprietary rights relating to the Products, and Know-How to
make, have made, use, lease, sell or otherwise dispose of Products by making use
of SRMI's industrial and intellectual proprietary rights and know-how as
specified above.
12. DOCUMENTATION AND ASSISTANCE
12.1 TECHNICAL
The prices include the supply by SRMI of one set of operator's manuals
(to be obtained from PMS free of charge) and one set of service documentation
per Product.
Also all manuals obtained by SRMI from vendors will be part of the
shipment to PMS. Such manuals from vendors shall be in a neutral form,
especially they shall not contain any supplier name or logo.
During the term of this Agreement the by SRMI issued manuals will be
updated and revised by SRMI to reflect corrections and the latest changes made
in accordance herewith, and such revisions shall be furnished to PMS without
additional charge. All further details concerning documentation and assistance
are set forth in Exhibit VIII.
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<PAGE> 24
The service diagnostic software on floppy disc, if any, for use by
field service personnel for service diagnostics shall be supplied with each
Product at no charge.
12.2 COMMERCIAL
SRMI shall support PMS, to the extend feasible, in preparing marketing
data of Products, which includes, amongst others, materials like photographs,
drawings, schematics etc.
necessary to prepare commercial documentation, sales training etc.
13. CLAIMS
13.1 LIABILITY, INDEMNIFICATION
SRMI will be liable for damage sustained by PMS and attributable to
SRMI. SRMI will indemnify PMS from any claims for damage by third parties
resulting from faults in its production area or that of SRMI's sub-contractors.
The same applies to any payments for damage (including any other costs that may
be required for appropriate legal action) that PMS may have agreed to pay in an
out-of-court settlement, paying reasonable regard to the interests of SRMI.
PMS will give SRMI prompt written notice of the commencement of such
claim.
13.2 RECALL
Without limiting the generality of the foregoing, SRMI agrees to
indemnify PMS from all loss, cost and expense which PMS may sustain as a result
of a Product recall-, repair- or modification program or other compliance
program or effort, pursuant to any applicable statute or regulation of any
(semi)governmental authority, whether mutually agreed upon by the parties, or
required by such (semi)governmental authority. Each party will provide the other
party with all necessary information available.
13.3 DAMAGES
Furthermore, SRMI agrees to defend, indemnify PMS from and against any
and all loss, costs and expenses, including counsel fees and all expenses of
investigation, litigation, judgement and/or settlement, arising through or out
of personal injury or death to person(s) or damage to property proven to have
arisen out of defects in the Products or their design, manufacture, sale,
operation, handling or use thereof by PMS or its customers, under the condition
that Products have been properly handled.
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13.4 INTELLECTUAL PROPERTY RIGHTS
SRMI agrees, subject to the conditions set forth in this Article, that
it will indemnify PMS, the Philips Affiliated Companies and their customers
against all fines, losses, damage, costs and expenses, whether direct or
indirect arising from a claim brought by a third party claiming that the
Products supplied hereunder constitute(d) infringement of one or more of the
patent rights or other industrial or intellectual property rights of such third
party, together with the actual justifiable costs and expenses incurred by PMS
and/or the Philips Affiliated Companies in connection with such a claim.
This indemnity is conditional upon PMS giving SRMI - and vice versa -
prompt written notice of the commencement or threat of such a claim of
infringement or a suit or proceeding based upon such a claim by such third
party, and PMS giving SRMI full authority, at the option of SRMI, either to
settle or to defend such claim, suit or proceeding and full cooperation and
assistance in case SRMI decides to defend such a claim, suit or proceeding.
In case a Product is held to constitute infringement and the use
thereof is enjoined, SRMI shall, at its option and expense, either procure for
PMS, the Philips Affiliated Company(ies) and their customer(s) the right to
continue using said Product, or replace same, or a part thereof with a
non-infringing modification in a manner such that performance of the Product is
not degraded.
If it appears that none of the above is possible PMS at its sole option
may decide to terminate this Agreement and SRMI shall reimburse PMS its costs
and expenses directly related to such termination and withdrawal.
14. CONFIDENTIALITY
The parties shall not use, employ or disclose confidential information
received from the other whether orally, in writing, by demonstration or
otherwise except as is necessary to implement this Agreement, unless and to the
extent the receiving party can prove by written record that:
a) it already had knowledge of such information prior to
disclosure; or
b) information was already or becomes publicly known through no
fault of the receiving party, or
c) information identical to disclosed information was already in
its possession or is subsequently lawfully obtained without
restrictions to the use from a third party who is free to
disclose the same or is subsequently independently developed
by the receiving party without use of the disclosed
information.
d) information is necessarily disclosed in commercially available
product.
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<PAGE> 26
In protecting information, the receiving party will take all necessary
precautions and information will be treated in the same manner and with the same
degree of care as the receiving party applies with respect to its own
confidential information.
Nothing contained in this Article shall be construed as a grant of
license to the other party, to make, use or sell any devices or products using
information or as a license under any patents or claims covering same.
Any disclosure to the media of data concerning the cooperation
envisaged under this Agreement, including the existence of the Agreement itself,
shall not be effected unless the other party has given its written approval for
such disclosure.
The provisions of this Article shall retroactively be in full force and
effect from the date first contacts were established with respect to the subject
matter of this Agreement and shall remain in full force and effect during the
duration of this Agreement and two (2) years thereafter.
15. TERM - TERMINATION
15.1 TERM
Upon due signature by both parties this Agreement shall enter into
force as from the date first written above, and shall initially continue
until December 31st, 2000
Thereafter, this Agreement shall be extended automatically for
successive periods of twelve (12) months, unless and until canceled for its
convenience by PMS or SRMI giving twelve (12) months prior written notice to the
receiving party.
15.2 TERMINATION FOR CAUSE
This Agreement may be terminated earlier:
a) If a party (the failing party) has not remedied any material
breach of this Agreement notified to it by the other party
within thirty (30) days after having been put on notice, said
other party is entitled to terminate this Agreement and or any
outstanding purchase orders immediately by notice to the
failing party, such without prejudice to any other rights
accruing under this Agreement or in law.
b) by either party by written notice to the other party in the
event the latter party would become insolvent, bankrupt or
makes an assignment for the benefit of its creditors; or
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<PAGE> 27
c) by PMS by written notice to SRMI in the event the control of
SRMI as per Article 1.2.3 would pass to other(s) than those
now exercising control.
d) by either party if no agreement can be reached during the
yearly discussion on prices as provided for in article 5.2.
15.3 SURVIVING CLAUSES
All terms and conditions of this Agreement which are destined (whether
expressed or not) to survive the duration or termination of this Agreement shall
so survive.
15.4 CONTINUING COMMITMENTS
The termination of this Agreement shall not relieve or release either
party from fulfilling any undertaking or commitment including without limitation
effecting payments, work, and deliveries which arise by reason of any event
other than termination, such as for instance arising from orders placed pursuant
to this Agreement prior to termination.
16. FORCE MAJEURE
In the event of Force Majeure the party being delayed or damaged
thereby shall inform the other party as soon as possible but in any event within
seven (7) days after the start of such Force Majeure specifying the nature of
the Force Majeure as well as the estimated duration thereof. In the event the
Force Majeure situation continues for more than sixty (60) days or is expected
to last longer than sixty (60) days then either party is entitled to terminate
this Agreement by simple notice in writing and without either party being
entitled to any claim for damages. Otherwise both parties' rights and
obligations will be suspended and new time schedules and supply dates shall be
agreed upon between the parties hereto.
Force Majeure shall be understood to mean and include damage or delay
caused by acts of God, acts or regulations or decrees of any Government (de
facto or de jure), natural phenomena, such as earthquakes and floods, fires,
riots, wars, shipwrecks, freight embargoes, lockouts or other causes, whether
similar or dissimilar to those enumerated above, unforeseeable and beyond the
reasonable control of the parties and which prevent the total or partial
carrying out of any obligation under this Agreement.
17. GENERAL TERMS AND CONDITIONS
17.1 APPLICABLE LAW; COURTS
This Agreement shall operate as a contract made in Germany and shall in
all respects be subject to and construed in conformity with the Laws of Germany.
The courts of Stuttgart, Germany, shall have sole jurisdiction.
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17.2 ENTIRE AGREEMENT
This Agreement sets forth the entire agreement between the parties
hereto with respect to the subject matter hereof and all oral and written
representations, warranties, agreements, and/or other inducements relating to
this Agreement and it subject matter prior to the effective date have been
included herein, or have been fully performed and discharged, or, omitted,
unless otherwise agreed upon and confirmed in writing by both parties signed on
or after the effective date of this Agreement. This is valid also for the waiver
of this clause.
Neither PMS' general conditions of purchase nor SRMI's general
conditions of sales are applicable to this Agreement or to any order and order
confirmations for Products or parts thereof in whole or in part.
17.3 WAIVER
Either party's failure to insist in any instance upon strict
performance by the other party of any terms and covenants herein shall not be
construed as a permanent waiver of such terms or covenants, or as a waiver of
any other of the terms and covenants contained herein.
17.4 SEVERABILITY
In the event that any provision of this Agreement or the application of
any such provision to either SRMI or PMS shall be held by a court of competent
jurisdiction to be contrary to any applicable law, the remaining provisions
shall remain in full force and effect. The parties hereto however are obliged to
replace an invalid provision as soon as it becomes invalid by a valid one
covering the original intention of the parties.
17.5 ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto, their respective successors and permitted assigns. This
Agreement may not be assigned, transferred or hypothecated in whole or in part
by either party except by prior written consent of the other party. However, no
consent is required to an assignment or transfer in whole or in part by PMS to
any of the PMS Associated Companies. PMS shall notify SRMI of such assignment or
transfer in writing.
17.6 ADVERTISEMENTS
SRMI shall not without PMS' prior written consent use PMS' or any of
the PMS Associated Companies' name or trademark as such and/or use name in
connection with any advertisement or sale literature nor advertise that it is a
supplier of PMS and/or any of the PMS Associated Companies and/or that this
Agreement between SRMI and PMS has been concluded.
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17.7 PROJECT LEADERS
Upon the signature of this Agreement either party shall appoint, by
written notice, a Project Leader who shall represent his party in all
communication, contacts, meetings, negotiations and reports, of technical nature
as necessary for the performance of this Agreement. Any eventual subsequent
change of the Project Leader shall be notified in writing to the other party.
17.8 NOTICES; COMMUNICATIONS
Any notice required to be given under this Agreement shall be hand
delivered or sent by first class mail to the address indicated below or to such
other address as may be requested in writing and shall be effective upon
receipt. Notices with respect to any and all matters related to the Products
shall be addressed as follows:
If to SWISSRAY: If to PMS:
Swissray International Inc. Philips Medical Systems
lndustriestrasse 6 Development and Manufacturing Centre
CH-6285 Hitzkirch/LU Unternehmensbereich der Philips GmbH
Switzerland Rontgenstrasse 24
D 22335 Hamburg, Germany
Attn: Attn.:
Mr. R. G. Laupper Mr. Sieffert, Marketing Radiography
Copy: General Counsel
IN WITNESS WHEREOF authorized representatives of the parties hereto
have signed this document.
Swissray International Inc. Philips Medical Systems
Development and Manufacturing Centre
Unternehmensbereich der Philips GmbH
/R. G. Laupper/ /T. Hack/ /R. Heu/
R.G. Laupper T. Hack R. Heu
President Purchasing Manager Program Manager
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<PAGE> 30
LIST OF EXHIBITS
I-A. I-B etc. list of Products and their Specifications
II. Options
III. Per type of Product the
* Exclusive Territory
* Non-exclusive Territory
* Non-available Territory
IV. Prices for Products and Options. Yearly Target Quantities
V. Standard Form for Change Request
VI. Standard Form Decision of Change Request
VII. Acceptance Procedures
VIII. Service Arrangements
IX. Warranty Time and deviating Warranty Conditions
X. Quality Statement
XI. Authorized Philips Associated Companies
XII. Time Schedule
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<PAGE> 1
EXHIBIT 10.4
LICENSE AGREEMENT
PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED (DESIGNATED BY AN ASTERISK (*) AND
WHITE SPACE) AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT DATED SEPTEMBER 29, 1997.
This agreement is made as of July 18, 1997, by and between
Swissray International Inc., New York, with European Center at Industriestrasse
6, CH-6285 Hitzkirch, Switzerland hereafter referred to as "Swissray"), and
Agfa-Gevaert N.V., Septestraat 27, B-2640 Mortsel, Belgium hereafter referred to
as "Agfa").
WHEREAS, Afga owns a computer program for enhancing the image
quality of digital radiographic images,
WHEREAS, Swissray wishes to license the above-mentioned
computer program for use in combination with its digital radiographic image
acquisition system, known as Digital Add-On Bucky,
WHEREAS, Agfa is willing to grant such license to Swissray on
the terms and conditions set forth herein,
NOW THEREFORE, in consideration of the mutual covenants and
premises set forth hereinafter, the parties agree as follows:
ARTICLE 1
DEFINITIONS
1.1 "AGFA SOFTWARE" shall mean the software program in
executable code as described in Exhibit A hereto.
1.2 "PRODUCT" shall mean the image acquisition system for
acquiring a digital image representation of a radiographic image developed and
marked by Swissray, and designated by the name "Digital Add-On Bucky".
1.3 "INFORMATION" shall mean any information in relation with
the AGFA SOFTWARE transferred by Agfa to Swissray during the term of the
agreement, including information in relation with the AGFA SOFTWARE transferred
during technical support. INFORMATION that Swissray can establish by its written
records was in its possession at the time it was first disclosed by Agfa to
Swissray, was in the public domain at the time it was disclosed by Agfa to
Swissray or is obtained by Swissray from a third party, who has same in good
faith and has the right to pass it on to Swissray, is excluded.
1.4 "EFFECTIVE DATE" shall mean the date of the last of the
parties to sign the agreement.
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<PAGE> 2
ARTICLE 2
LICENSE/DELIVERY
2.1 Agfa hereby grants to Swissray a worldwide, non-exclusive,
non-transferable license, during the term of this agreement to use and
distribute the AGFA SOFTWARE in combination with the PRODUCT.
2.2 Swissray shall not have the right to make any
modifications to the AGFA SOFTWARE except as required for its adaption to the
PRODUCT.
2.3 Swissray shall not have any right to sublicense such
rights to a third party other than an end user of the product.
2.4 No rights or obligations of Swissray out of this Agreement
shall be transferable without prior written consent of Agfa. The same applies in
the case of universal legal succession or acquisition of the share capital of
Swissray by third parties.
2.5 Agfa agrees to deliver the AGFA SOFTWARE within 6 weeks
after the EFFECTIVE DATE.
ARTICLE 3
PROPRIETARY RIGHTS
3.1 Swissray acknowledges that Agfa is and remains the sole
and exclusive owner of all rights, title and interest, including all trademarks,
copyrights, patents, trade names, trade secret and other intellectual property
rights to the AGFA SOFTWARE. Except for the rights expressly granted herein,
Swissray is not granted any rights to patents, copyright, trade secrets, trade
names, trademarks (whether or not registered) or any other right with respect to
the AGFA SOFTWARE. Swissray agrees not to use Agfa trade names with regard to
the PRODUCT or with regard to the AGFA SOFTWARE used in combination with the
PRODUCT.
3.2 Swissray agrees to treat the AGFA SOFTWARE and any
information disclosed in relation with this agreement as confidential and to use
such information only in accordance with the terms of this agreement. Swissray
agrees to disclose the AGFA SOFTWARE only to authorized employees who has the
need to use them as permitted under this agreement and have agreed to be bound
by the obligation of confidentiality and to take all reasonable measures to
prevent disclosure to other parties, including any affiliate companies.
3.3 Swissray agrees that it will not reverse engineer, reverse
assemble, or dissemble or otherwise attempt to create software which is
derivable from the AGFA SOFTWARE.
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<PAGE> 3
3.4 Neither party shall disclose the existence or the
agreement except pursuant to mutual agreement or as otherwise required by law.
ARTICLE 4
WARRANTY
4.1 The above license is granted on an 'AS IS' basis without
explicit or implied warranty.
4.2 If (a) the AGFA SOFTWARE fails to perform substantially in
accordance with the specifications set forth in Exhibit A hereto during the
period beginning upon delivery of the AGFA SOFTWARE and ending ninety (90) days
thereafter (the "Warranty period"); (b) such failure is reproducible; and (c)
such failure is reported to Agfa during the Warranty period, then Agfa shall, at
its expense, provide a workaround for such failure or, at Agfa's option, provide
Swissray with an updated version of the AGFA SOFTWARE which does not cause such
failure.
This warranty shall apply to a failure for which Swissray
proves that it originates from AGFA SOFTWARE. The warranty shall not apply to
any software by Swissray, or to any failure caused by hardware or software not
provided by Agfa.
4.3 Agfa acknowledges that to the best of its knowledge the
AGFA SOFTWARE does not infringe and intellectual property rights of third
parties. At present no litigation issues are pending in this respect nor the
Agfa received any warning letters or the like.
ARTICLE 5
LIMITATION OF LIABILITY
5.1 The foregoing warranties by Agfa are made only to Swissray
and Swissray shall be solely responsible for any warranty to, to claims by its
end user customers concerning the Software.
5.2 The foregoing states Agfa's sole and exclusive obligation
to Swissray for breach of warranty. Except for the express warranties stated in
this Agreement, Agfa makes no additional warranties, express, implied or
statutory, as to any matter whatsoever. In particular, any and all warranties of
merchantability or fitness for a particular purpose are expressly excluded.
ARTICLE 6
SUPPORT
6.1 Agfa agrees to provide Swissray with support pertaining to
the operation of the AGFA SOFTWARE and the implementation of the AGFA SOFTWARE
in the PRODUCT. The following services fall outside the scope of this agreement:
support concerning
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items excluded from the definition of the AGFA SOFTWARE see exhibit A,
non-recurrent engineering.
6.2 Support shall be provided on request and at the expense of
Swissray within a period of three months after delivery of the AGFA SOFTWARE.
6.3 During this support period Agfa shall provide support
services to a maximum of 15 man day, which may be combined. Support will be
provided by written or telephone consultation or on site at Swissray's premises.
6.4 Support shall be charged at per
hour. Swissray agrees to pay actual travel, board and lodging costs and expenses
reasonably incurred by Agfa.
ARTICLE 7
PAYMENT, REPORTS AND RECORDS
7.1 The parties agrees that the following royalty terms shall
apply:
*
*
7.3 The royalties for each further undivisable set of 100
copies of the AGFA SOFTWARE in excess of the first set of 100 copies, shall be
the following:
*
*
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<PAGE> 5
7.4 All payment to Agfa provided herein shall be made in DEM
by transfer to an account of Agfa to be designated in writing.
7.5 Swissray shall, during the continuance of this agreement,
maintain a full and accurate record of the number of PRODUCTs provided with the
AGFA SOFTWARE in such terms to enable Agfa to ascertain what royalties are due
under this agreement.
7.6 So as to permit verification, Swissray shall permit such
records to be examined by an independent certified public accountant selected by
Agfa on reasonable advance notice, during normal business hours at reasonable
intervals no more frequently than once per year.
7.7 All costs and expenses for such an audit shall be borne by
Agfa, except in those cases, in which the examining accountant ascertains a
discrepancy of more than five percent during the audited period to the
disadvantage of Agfa between payments actually made and payments due, in which
case Swissray shall bear all costs and expenses for such audit.
ARTICLE 8
TERM OF THE AGREEMENT
8.1 The term of this agreement is 2 years from the EFFECTIVE
DATE, unless earlier terminated as provided in this Agreement.
ARTICLE 9
TERMINATION
9.1 If any material breach of this agreement by the defaulting
party continues after 30 days written notice of said breach by the aggrieved
party, the aggrieved party may terminate the agreement on written notice to the
defaulting party.
9.2 In addition to any breach of this Agreement, the
application for, or adjudication in bankruptcy by Swissray, or the dissolution
of Swissray shall terminate this agreement.
9.3 Upon termination or expiration of this Agreement, Swissray
shall continue to be responsible for the confidentiality of the INFORMATION and
the proprietary rights of Agfa. End users shall be permitted the continued and
uninterrupted use of the AGFA SOFTWARE.
-5-
<PAGE> 6
ARTICLE 10
MISCELLANEOUS
10.1 This agreement shall be governed by the laws of France.
Any conflicts arising out of this Agreement shall be brought before the courts
of Paris.
10.2 Notices, statements, or other communications required or
permitted by the present agreement shall be in writing and sent by airmail or
telefax to the parties at their respective addresses set forth below:
In case of Swissray to Swissray International Inc.
European Center
Dr. Riedel
Industriestrasse 6
CH - 6285 Hitzkirch
In case of Agfa to
- for commercial and technical matters: Agfa-Gevaert N.V.
Medical Division
Telefax: 00 32 3 444 74 95
- for legal matters: Dienst Intellectuele Eigendom
Telefax: 00 32 3 444 74 98
Agfa-Gevaert N.V.
Septestraat 27
B - 2640 Mortsel
Belgium
10.3 Nothing contained herein shall be construed as creating
an agency, partnership or other form of joint enterprise between the parties.
10.4 The following Exhibits are attached to and made a part of
this Agreement: Exhibit A.
10.5 The present Agreement including all Exhibits attached
hereto constitutes the entire agreement between the parties hereto with respect
to the subject matter hereof and supersedes all previous communications,
representations, understandings and agreements, either oral or written, between
the parties or any official or representative thereof, with respect to said
subject matter.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused the present
instrument to be signed in duplicate, by their duly authorized representatives,
all as of the day and year first above written, each party mentioned at the
beginning of the present Agreement obtaining a signed copy.
Agfa-Gevaert N.A., Mortsel, , 1997
Patrick Theunis C.P. Vermuelen
General Manager General Manager
Information & Intellectual MED-Division
Property Department
SWISSRAY INTERNATIONAL INC., New York
European Center
Industriestr 6, 6285 Hitzkirch/Switzerland
Ruedi G. Laupper
President & Chairman CEO
Dr. Med. Felix Riedel
Vice President
-7-
<PAGE> 1
EXHIBIT 10.5
PORTIONS OF THIS DOCUMENT HAVE BEEN OMITTED (DESIGNATED BY AN ASTERISK (*) AND
WHITE SPACE) AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT DATED SEPTEMBER 29, 1997.
Contract for the development, supply of samples and series delivery of an
optical imaging system for a digital Bucky
between
Teleray AG
Industriestrasse 6
6285 Hitzkirch
Switzerland
- - hereinbelow referred to as "Teleray"
and
OPTISCHE WERKE G. RODENSTOCK
Precision Optics Division
Isartalstr. 43
80459 Munich
- - hereinbelow referred to as "Rodenstock"
1
<PAGE> 2
Preamble
Teleray requires special optics for a digital AddOn Bucky(R) in the medical
X-ray sector. The digital AddOn Bucky(R) is an X-ray picture system, which
enables X-ray pictures to be recorded directly on the examination site. This
dispenses with the need for films or memory foils which require additional
processing steps.
Rodenstock has experience in the development and construction of special optics
for various applications and will develop, supply samples and arrange series
manufacture of these imaging optics for Teleray.
Teleray and Rodenstock hereby agree as follows:
1. Definition
The term CONTRACTUAL DEVICE refers to the imaging optics for a digital AddOn
Bucky(R) specified in Annex 1 to this contract. The specifications may be
amended by joint agreement during the development phase as described in section
5.
2. Description of the device to be developed
Rodenstock shall develop the CONTRACTUAL DEVICE for exclusive use by Teleray in
compliance with the specifications. The development work shall be performed in
line with the milestones specified in section 3 and the performance dates stated
therein.
3. Milestones, performance dates
3.1 Development
Use of the optical concept defined in the feasibility study commissioned on
20.04.1995 (Teleray order No. EW 950014 = Rodenstock order No. 321/00809371) and
subsequently implemented and developed ready for series production.
Work:
- - development of an optical system in compliance with the specifications
- - optical and mechanical design
2
<PAGE> 3
- - definition of a low-cost assembly technology
- - project management
Delivery date:
2 months after receipt of order - see 3.4
Completion:
Clearance for sample production by Teleray.
Within two weeks of notification by Rodenstock of completion of the development
work by drawings and quality presentations, Teleray shall give written
authorization for sample production. Late authorization of sample production by
Teleray shall have the following consequences:
a) Teleray shall accept responsibility for any extra costs incurred which
must be proved by Rodenstock;
b) Teleray shall accept the resulting late performance date.
3.2 Sample manufacture
Manufacture of 12 sample lenses in compliance with the specification.
Work:
- - manufacture of the mechanical and optical components
- - assembly of the optical and mechanical components
- - quality testing in compliance with the specifications
- - environmental testing
- - documentation of the characteristics as determined
- - delivery of twelve specimen pieces as per the specifications.
Delivery lead time:
3 months after authorization and placing of the order for sample production by
Teleray. Rodenstock shall endeavour to respect Teleray's exceptionally tight
delivery requirement and to effect delivery in September 95, but cannot
guarantee compliance with this target see 3.4.
Completion:
Delivery of 12 sample lenses.
3
<PAGE> 4
Within four weeks of delivery by Rodenstock of the samples and after their
imaging quality has been demonstrated to comply with the specification, Teleray
shall give written authorization for series manufacture. The costs resulting
from late authorization of series manufacture, which must be proved by
Rodenstock, shall be borne by Teleray. Teleray shall likewise accept the
resulting late commencement of series manufacture.
3.3 Readiness for series manufacture
Work:
- - Implementation of experience gained with sample production
- - Preparation of a set of series drawings
- - Manufacturing plans for optics, mechanicals and assembly
- - Development of assembly techniques
- - Development and production of special tooling etc. for manufacture and
assembly.
Delivery lead time:
- - 2 months after acceptance of the samples - see 3.4.
Completion:
Handover of the assembly drawing ready for series production. Written
authorization of series manufacture to be given by Teleray.
3.4 Shortening of the dates specified in 3.1 to 3.3
By simultaneous commissioning (Teleray order No. B 9501 of 17.05.1995 Rodenstock
order No. 321/0081001) of the performance packages described in 3.1, 3.2 and
3.3, Rodenstock shall endeavour to economize the period of 2 months (see 3.3 =
readiness for series production) by working in parallel in such a way that items
3.1 to 3.3 can be completed towards the end of September 1995.
3.5 Series deliveries
Delivery lead time:
6 months after written authorization of series manufacture and special tooling.
A maximum number of 60 lenses shall be available in advance on request within
four months of written authorization of series manufacture.
4
<PAGE> 5
4. Prices
*
Any adjustment of the series price for further series deliveries, or in the
event of later commencement of series deliveries, shall be governed by the
following price indexing clause:
Prices calculated in advance and confirmed by recalculation - and possibly
corrected may undergo a maximum increase in subsequent costing periods, starting
from 01.01.97, equivalent to:
a) the effective increases (in wages and salaries) negotiated by the
contracting parties (IGM and Association of the Bavarian Metalworking Industry)
less
b) an average rationalization effect of 1 per cent
plus/minus
c) material price changes
The cost factors are: manufacturing costs: 90%
material costs: 10%
5
<PAGE> 6
4.5 All series deliveries shall be payable at 14 days of the date of the
invoice, net.
5. Modifications
If Teleray wishes modifications or additions to be made to the object of the
development work or specifications, Rodenstock shall ascertain whether these
modifications or additions are feasible and shall determine the extent to which
they will influence development costs and/or the performance calendar. They will
be included in the contract and specifications without amendment to the prices
and delivery lead times, if they are feasible according to the state of the art
and have no influence on development costs and the performance calendar.
If the desired modifications or additions prove impossible to implement, the two
parties may withdraw from the contract. Rodenstock shall still be entitled to
full payment, but must allow the expenditure that has been saved to be offset.
Where modifications or additions which have a significant impact on the
expenditure and/or performance timetable prove to be feasible, Rodenstock shall
submit a supplementary offer. If no agreement on that supplementary offer can be
reached within four weeks, the two parties may withdraw from the contract. In
the event of such withdrawal, Rodenstock shall still be entitled to full payment
but must allow the expenditure that has been saved to be offset.
6. Confidentiality
In respect of confidentiality, it is hereby agreed that the two parties shall
refrain from disclosing the documents, technical experience and know-how made
available to them by the other party for the performance of this contract. Said
confidentiality shall not apply to facts which correspond to the state of the
art, are in the public domain or generally known or become so known, or which
the disclosing party has lawfully received from third parties.
7. Scope of delivery
Rodenstock shall effect deliveries in compliance with the milestone plan set out
in section 3:
- - development
- - 12 samples
- - readiness for series manufacture
6
<PAGE> 7
- - series manufacture
In addition, the following technical documents shall be made available:
- - drawings with connection dimensions
- - test and verification records
Teleray shall be granted a simple right to use the results of the development.
The necessary know-how for development and manufacture and protected industrial
property rights will not be transferred.
8. Person responsible
Teleray and Rodenstock shall each appoint a responsible project manager. For
Teleray, this is Mr Waegli and for Rodenstock Mr Gotsch.
9. Tools and fixtures
Tools and fixtures shall be invoiced proportionately and shall remain the
property of Rodenstock.
10. Patents
10.1 Inventions made by a member of Rodenstock staff in the performance of
this contract shall be used without limitation by Rodenstock and made known to
Teleray. Notifications of protected property rights shall be made solely in the
name of Rodenstock.
10.2 Rodenstock shall inform Teleray of the countries in which it intends
to seek protected rights for the inventions pursuant to section 10.1. If Teleray
wishes in addition to have an invention of the kind referred to in 10.1
protected in other countries, Rodenstock shall make the application in its own
name. The costs of processing, registration and maintaining such additional
patents shall be borne by Teleray.
10.3 In respect of any inventions made jointly by personnel of Teleray and
Rodenstock, the two companies shall determine, in consultation with the
personnel concerned, the allocation and distribution of the inventors shares
between Teleray and Rodenstock. Rodenstock and Teleray shall, from time to time,
reach separate agreement as to whether, by which of them and in which countries
applications for protected rights are to be made in respect of these inventions.
7
<PAGE> 8
10.4 Teleray and Rodenstock shall have a non-exclusive, transferable right to
make use free of charge of protected rights based on inventions referred to in
section 10.3. If the free use of these rights is not justified in a particular
case, Teleray and Rodenstock shall reach agreement on appropriate remuneration.
10.5 The rights granted in section 10.4 shall apply beyond the expiry of this
contract for the duration of the protected rights in each particular case.
11. Respect for the protected rights of third parties
Should it transpire during the development work that the utilization of the
protected rights of third parties is necessary for the successful performance of
the works because the solution to be developed is liable to infringe protected
rights, the contracting parties shall immediately notify each other to that
effect.
The following agreement is hereby reached to avoid jeopardizing the completion
of the project:
a) Teleray shall have sole responsibility for the patent rights and for seeking
any necessary licences for the "Digital AddOn Bucky" system; costs and licence
fees shall be charged to Teleray.
b) Rodenstock shall have sole responsibility for the patent rights and for
seeking any necessary licences for the optical imaging system, regardless or the
particular use or application.
Liability for infringement of the protected rights of third parties is declined.
In particular, claims for compensation on grounds of direct or indirect
prejudice are excluded.
12. Withdrawal
Rodenstock and Teleray shall be entitled to withdraw from the contract as soon
and in so far as it emerges that the contractually agreed services cannot be
provided or can only be provided on conditions which are either unreasonable or
impossible to calculate. In the event of such withdrawal, the payments already
made shall not be refunded but further payments shall lapse.
Claims for compensation shall not be entertained.
8
<PAGE> 9
13. Series manufacture
Teleray undertakes, in the event of series delivery of the CONTRACTUAL DEVICE,
to procure this device solely from Rodenstock. In the event of series
deliveries, Teleray undertakes to procure the contractual device solely from
Rodenstock on appropriate price and delivery date terms; "appropriate price" in
this context means that increases must fall within the limits of the price
indexing clause set out in section 4.4 with effect from 01.01.97.
Rodenstock undertakes to supply Teleray with CONTRACTUAL DEVICES after
authorization of manufacture has been given for as long as Teleray so wishes.
Should Rodenstock no longer be able or willing to do so, Rodenstock undertakes
to assist the transition to future manufacture of the CONTRACTUAL DEVICE without
Rodenstock's participation until such time as samples show such future
manufacture to be possible. Should Rodenstock have brought such a situation
about through its own negligence, Teleray shall be entitled to ask Rodenstock to
provide this service without charge.
14. Processing
Save where otherwise specified in this contract, Rodenstock's terms and
conditions of sale (Annex 2) shall apply additionally; this shall likewise be
the case for order processing purposes.
15. Duration of the contract
15.1 This contract shall enter into force on the date when it is signed and
shall end on the expiry of three years after the commencement of series delivery
of CONTRACTUAL DEVICES. It shall be extended by two further years in each case,
save where notice of termination is given at the latest eighteen months before
its expiry date.
15.2 Each contracting party shall be entitled to terminate this agreement with
immediate effect by registered letter if the other contracting party infringes a
significant contractual obligation and if such infringement is not remedied
within sixty days despite a written warning to do so.
16. Validity
Should individual provisions of this agreement be or become legally invalid,
that shall not affect the validity of the other provisions. A provision which is
invalid shall be
9
<PAGE> 10
interpreted or supplemented in a manner which enables its intended purpose to be
achieved.
17. Amendments or additions
Amendments or additions to this agreement shall be valid only if they are made
in writing with the consent of both parties.
18. Place of performance, jurisdiction, law
The place of performance shall be the place of delivery in each instance.
The courts at the place where the contracting party against whom proceedings are
taken is situated shall have jurisdiction.
The law of the Federal Republic of Germany shall be deemed to apply to the
exclusion of UN commercial law.
Hitzkirch, Munich, 14 July 1995
TELERAY OPTISCHE WERKE G.RODENSTOCK
/Peter Uwaeghil/ /PPA Oehman/
- ---------------- ------------
Ruedi G. Laupper/ Manfred Schuch/
- ----------------- ---------------
The foregoing is a fair and accurate English translation of the original
contract.
September 29, 1997
SWISSRAY INTERNATIONAL, INC.
By: /s/ Josef Laupper
--------------------
Title: Secretary
10
<PAGE> 1
EXHIBIT 21
List of Subsidiaries of Swissray International, Inc.
<TABLE>
<CAPTION>
Name Under Which
Name State of Incorporation Does Business
---- ---------------------- -------------
<S> <C> <C>
SR - Medical AG Switzerland SR - Medical AG
Teleray AG Switzerland Teleray AG
Swissray Deutschland Germany Swissray Deutschland
(Rontgentechnik) GmbH (formerly (Rontgentechnik) GmbH
known as SR-Medical GmbH)
Swissray Medical Systems Inc., Delaware Swissray Medical
(formerly Swissray Corporation) Systems Inc.,
Empower, Inc. New York Swissray Empower Inc.
Swissray Health Care, Inc. Delaware Swissray Health Care,
Inc.
</TABLE>
<PAGE> 1
Exhibit 23
Bederson & Company LLP
405 Northfield Avenue
West Orange New Jersey 07052
CONSENT OF INDEPENDENT AUDITORS
We consent to the inclusion of our report dated September 16, 1997 on
our audits of the financial statements of Swissray International, Inc. for the
years ended June 30, 1997 and 1996 in Swissray International, Inc.'s
Form 10-KSB for the year ended June 30, 1997.
BEDERSON & COMPANY LLP
West Orange, New Jersey
September 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 3,091,307
<SECURITIES> 0
<RECEIVABLES> 5,303,184
<ALLOWANCES> 148,390
<INVENTORY> 3,911,107
<CURRENT-ASSETS> 14,093,346
<PP&E> 4,656,727
<DEPRECIATION> 320,110
<TOTAL-ASSETS> 24,352,915
<CURRENT-LIABILITIES> 11,259,798
<BONDS> 6,524,689
0
0
<COMMON> 196,944
<OTHER-SE> 6,371,484
<TOTAL-LIABILITY-AND-EQUITY> 24,352,915
<SALES> 13,151,701
<TOTAL-REVENUES> 13,151,701
<CGS> 8,445,414
<TOTAL-COSTS> 8,445,414
<OTHER-EXPENSES> 14,295,695
<LOSS-PROVISION> 6,191,60
<INTEREST-EXPENSE> 251,043
<INCOME-PRETAX> (10,391,891)
<INCOME-TAX> 110,223
<INCOME-CONTINUING> (10,502,114)
<DISCONTINUED> 0
<EXTRAORDINARY> (387,514)
<CHANGES> 0
<NET-INCOME> (10,889,628)
<EPS-PRIMARY> (.69)
<EPS-DILUTED> (.69)
</TABLE>
